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Conducting Corporate Investigations – Recent Developments

AUTHOR(S): Karen Reynolds, Claire McLoughlin
PRACTICE AREA GROUP: Regulatory and Investigations
DATE: 17.09.2018

Overview

Corporate investigations are an increasingly common feature of corporate activity, as illustrated by recent media headlines here and across the water.

Three recent decisions provide important guidance in this area, as follows.

  • Firstly, on Tuesday 4 September 2018, the Irish High Court agreed to appoint inspectors to one of Ireland’s largest media groups, providing detailed analysis of its powers of appointment under section 748 of the Companies Act 2014[1].
  • On the following day, the UK Court of Appeal delivered a seminal judgment on the scope of legal privilege which, while not binding, may in time have implications for disclosure in internal investigations in Ireland[2].
  • Finally, on 6 September 2018, the UK High Court held that foreign companies with a sufficient connection to the UK, which is likely to capture many Irish incorporated entities, can be ordered to produce documents held outside the jurisdiction[3].

Given that all three matters arose from allegations of corruption and/ or fraud, these decisions are even more significant when viewed in the context of the recently enacted Criminal Justice (Corruption Offences) Act 2018 (the “CJCA”).

Power to Appoint Inspectors

Mr Justice Kelly in Independent News and Media PLC v Companies Acts [2018] IEHC 488 granted an application by the Director of Corporate Enforcement to have inspectors appointed, pursuant to section 748 of the Companies Act 2014, to Independent News and Media plc, one of Ireland’s largest media organisations.

The decision, which is only the sixth occasion in almost thirty years that the High Court has appointed inspectors to a company on foot of such an application, acts as a timely reminder to companies, in view of the enactment of the CJCA, that the Court retains a powerful discretion to appoint inspectors where there are circumstances suggesting that the affairs of the company have been conducted in an “unlawful manner”, which would include allegations of activity falling under the CJCA.

Privilege in internal investigations into allegations of corruption

Across the water, in a landmark decision, SFO v ENRC [2018] EWCA Civ 2006, delivered on Wednesday 5 September 2018, the UK Court of Appeal has provided important clarification regarding the scope of legal privilege under English law, which was cast into doubt by the UK High Court decision of Mrs Justice Andrews in the same case earlier this year.

In a welcome development, the UK Court of Appeal not only reversed the majority of the High Court ruling, but also indicated an appetite to realign the UK position on legal privilege with other common law jurisdictions. While the judgment engages in a very detailed analysis of the principles which apply under English law, the following findings are of particular interest in terms of the CJCA:

  • Application of litigation privilege to regulatory investigations - The UK Court of Appeal clarified that uncertainty as to whether or not proceedings or a prosecution are likely does not prevent litigation being reasonably in contemplation by a company while conducting an internal investigation.

    Unfortunately, the UK Court of Appeal did not depart from the requirement under English law that proceedings must be “adversarial” for litigation privilege to apply. Therefore, unlike the position in Ireland where there is a line of authority[4] demonstrating that litigation privilege applies to investigative and inquisitorial proceedings, under English law an investigation must be sufficiently adversarial in order for the protection to apply. In ENRC, the UK Court of Appeal was satisfied that as there was a clear ground for contending that criminal prosecution was in the reasonable contemplation of the company, this threshold had been reached.
     
  • Who is the client? – The UK Court of Appeal indicated that it would have departed from the restrictive definition of the “client” under Three Rivers (No. 5) had it been able to so, noting that the English law is out of sync with international common law on this matter and expressing the view that it is “undoubtedly desirable” for the common law to remain aligned.

    A similarly narrow interpretation to this question was taken by the Irish High Court in 2014[5] raising the question whether Irish law on the application of legal advice privilege also needs to be realigned with international standards in recognition of the disadvantage the current position places on multi-national corporations.
     
  • Dominant Purpose Test – The UK Court of Appeal found allegations of corruption carry a clear threat of a criminal investigation, therefore, the investigation of whistle-blower allegations “must be brought into the zone where the dominant purpose may be to prevent or deal with litigation.” Importantly, it also found that even if litigation was not the dominant purpose of the investigation at the outset, it may become the dominant purpose.

    This finding, while not binding on the Irish Courts, provides some comfort by way of persuasive authority, that internal investigations into allegations of corruption under the CJCA will be protected by litigation privilege.

UK authorities may compel documents of foreign companies held overseas

On 6 September 2018, the UK High Court in R (KBR Inc.) v SFO ruled that an SFO request for documents, using their powers of compulsion under section 2 of the UK Criminal Justice Act 1987 can include documents held outside the jurisdiction by a foreign company where that company has a “sufficient connection” to the UK.

Companies should also be aware that even if this judgment is successfully appealed, there is also a Crime (Overseas Production Orders) Bill currently before the UK Parliament which, if passed, will enable UK authorities to obtain a court order compelling any person holding data in overseas, in states where reciprocal arrangements are in place, to produce or grant access to data for the purposes of investigating or prosecuting serious crimes.

Companies with a sufficient connection to the UK should be aware that documents generated in an internal investigation in Ireland into allegations of bribery or corruption may be compelled in a UK investigation.

Practical Steps

Companies should give careful consideration to putting in place a protocol regarding the establishment of internal investigations and the treatment of documents generated in relation to the process.

  • The reason for the establishment of an internal investigation should be documented in writing. If civil or criminal proceedings are in reasonable contemplation, this should be recorded in writing, together with the basis for this belief.
  • Whether litigation privilege will apply depends on the facts of each case. Companies should consider instructing external counsel at the outset for advice regarding the preservation of privilege. This is particularly important where an internal investigation may have a dual purpose, for example, where it is a matter of company policy that all complaints are investigated for service improvement purposes, regardless of litigation risk.
  • If proceedings are not in contemplation at the time the investigation is established, but it subsequently become contemplated, this should also be documented in writing. Again, the basis for this contention should also be recorded.
  • Legal advice on the terms of reference for the establishment of the investigation and/or any independent review should be obtained.
  • A clear record should be kept of which employees are authorised to obtain or receive legal advice.

For more information, please feel free to contact Karen Reynolds or Claire McLoughlin, Co-heads of the Regulatory and Investigations team.

 

[1] Independent News and Media PLC v Companies Acts [2018] IEHC 488

[2] SFO v ENRC [2018] EWCA Civ 2006

[3] KBR Inc, R (On the Application Of) v The Director of the Serious Fraud Office [2018] EWHC 2368

[4] Ahern v. Mahon [2008] 4 I.R. 704; Quinn & ors -v- Irish Bank Resolution Corporation Ltd & Anor [2015] IEHC 315; Director of Corporate Enforcement -v- Buckley [2018] IEHC 51

[5]  Finlay Geoghegan J in UCC v ESB [2014] IEHC 135

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