As shipping lawyers, we often end up dealing with casualties or circumstances where something has gone wrong. That inevitably leads to the need for an investigation. It is vital to ensure that any such investigation and/or investigations are carefully managed to protect the clients’ interests. In one recent case, we represented clients faced with a potential breach of MARPOL. That led to multiple investigations by Coastguard, Class, Flag, Charterers and Managers. Our clients were concerned that we manage those investigations as best as we could but also that their own internal investigation would not end up being disclosed in subsequent proceedings. It was important therefore that they receive early advice on legal privilege and how best to take advantage of it.
Essentially there are two categories of legal privilege. The first is commonly referred to as legal advice privilege. The second is referred to as litigation privilege. Over the years there have been arguments about the scope of both categories.
Litigation privilege is the narrower of the two categories. It covers all exchanges between parties/their solicitors and third parties for the purpose of obtaining information or advice connected to existing or contemplated litigation. Disputes have arisen about what “contemplated litigation” means. Generally speaking, it means that when the exchanges are made litigation must be in place or reasonably in contemplation. Also the exchanges must be made exclusively or dominantly for the purpose of the litigation or contemplated litigation. The term “litigation” means an adversarial process, so it would include arbitration. However, it does not extend to investigations not conducted with litigation in mind. It would not therefore cover a Flag State investigation into a MARPOL infringement nor a Class investigation.
The case law on this area has centred around internal investigations. What happens for example where a client is notified of a potential MARPOL infringement and launches an internal investigation to ascertain if the allegations are true or false? Are the exchanges generated during the internal investigation i.e. the reports, crew statements, analysis of oil records etc. protected or might they end up being disclosed in subsequent proceedings?
The above scenario closely mirrors the events in a case called SFO v ENRC and The Law Society [2018] EWCA Civ 2006, a copy of which can be found here. In the High Court the judge held that the internal investigation by ENRC into alleged corrupt practices in one of its foreign subsidiaries was not privileged because litigation was not contemplated at the time that the investigation was initiated and, alternatively, the documents generated during the investigation were not created for the dominant purpose of contemplated litigation. This decision caused widespread consternation in the legal profession leading to an appeal where the Law Society intervened. The Court of Appeal reversed the High Court’s decision holding that interview notes and other documents created by forensic accountants were prepared for the dominant purpose of reasonably contemplated adversarial litigation. In this context, it would seem that our clients’ internal investigation into alleged MARPOL infringements would fall into the same category. The purpose of that investigation (in which we participated) was a concern that our clients might be exposed to liability and/or a fine in the future.
When it comes to wider legal privilege the position remains as per the decision in a case called Three Rivers No 5 (The Three Rivers District Council and Others V Governor and Company of the Bank of England [2004] UKHL 48). In short, whilst the underlying principle is that exchanges between legal advisers and their clients should remain confidential regardless of potential future litigation, there is still a grey area as to who falls into the category of a “client”. The Court of Appeal voiced their concerns about the impact of Three Rivers on large corporations where there may be communications at board level which might not be caught by legal privilege. The general feeling was that the current definition of “client” was too narrow but the Court of Appeal felt constrained by authority and they decided to leave this issue over for consideration by the Supreme Court at a later date. Pending that, clients, especially large organisations, are advised to ensure that communications between their legal team and external advisers are strictly monitored and controlled.
In summary, the decision in SFO v ENRC is a welcome step in the right direction for clients carrying out internal investigations. However, that does not mean that they can be complacent. The best practice is to obtain legal advice as soon as possible so as to maximise the chances of being protected by legal advice and/or litigation privilege when it comes to the communications that are likely to be generated as a result of the casualty or incident. It is also wise to ensure that experts are always retained through lawyers and that their reports are suitably marked to attract legal professional privilege in English and also in foreign proceedings.
