Does litigation privilege always apply to internal investigations?

By Alexander Gay May 19, 201719 May 2017

Does litigation privilege always apply to internal investigations?

Lawyers are often asked whether a given communication is subject to litigation privilege. In answering this question, lawyers have to assess the facts and objectively determine whether the dominant purpose of a communication is in respect of litigation that is contemplated, anticipated or ongoing.

The issue is far more tenuous, however, in criminal matters.   The question is whether all internal investigations in respect of a contemplated, anticipated or ongoing criminal investigation are privileged.  Determining when litigation is being contemplated calls for different considerations that have yet to be fully considered by the courts in Canada.  But a recent decision from England’s High Court recent may come as a surprise to in-house counsel who assume that litigation privilege is more encompassing than it may really be.  

The basic rule is that litigation privilege applies to communications between a lawyer and third parties or a client and third parties, or to communications generated by the lawyer or client for the dominant purpose of litigation when litigation is contemplated, anticipated or ongoing.  

In a civil proceeding, a corporation can decide to pursue litigation without having to gather the necessary facts to support the claim – if it suspects breach of copyright for example.  The calculus is different when it comes to criminal matters.  A prosecutor must first be satisfied that there is enough evidential basis for prosecution and the public interest test is met.  The challenge for the prosecution in deciding whether a given document is subject to litigation privilege is in establishing the date on which it can be said that they had sufficient evidence to commence a criminal proceeding.       

It is the same for a corporate defendant, though there are very few decided cases in Canada on this issue.  For the moment, most corporations operate under the assumption that an internal investigation into wrongdoing is covered by litigation privilege.  This very point was made in TransAlta Corporation v Market Surveillance Administrator, where the Alberta Court of Appeal held that while a criminal investigation will not directly result in convictions or prison, the consequences of being found guilty of an “offence” could result in millions of dollars of fines and other substantial penalties. As such, the Court of Appeal held that there is an obvious need for a zone of privacy contemplated by litigation privilege when a party or parties are facing an investigation that could result in the prosecution of offences with such potential consequences.  

However, there is recent English case law is now challenging this line of thought.

The English courts have held that a criminal investigation that is within contemplation, anticipated or ongoing is not sufficient to gain the benefit of litigation privilege. If the prosecution cannot commence a proceeding until it has amassed sufficient facts in support of the alleged criminal infraction, then, by extension, a corporation may not gain the benefit of litigation privilege until the corporation can anticipate actual criminal prosecution.

The end result is that internal investigation conducted by a corporation in the face of a criminal investigation may not benefit from litigation privilege given that it may not necessarily give rise to a prosecution.  The case of SFO v. Eurasian Natural Resources Corporation Ltd makes this very point.  The High Court of Queen’s Bench held that the corporation had indeed anticipated a raid and a final criminal investigation. But these measures were not in contemplation of litigation and did not trigger litigation privilege. To benefit from litigation, privilege the corporation needed to anticipate actual criminal prosecution which required that various unproven allegations could be substantiated before litigation privilege could apply to documents prepared by or at the request of lawyers.   In other words, the documents had to be prepared as part of assembling an actual defence case.   Documents, such as records of an interview conducted by the corporation, which simply record accounts obtained to establish if allegations made have any substance, do not attract litigation privilege.  

The reasoning found in the SFO case, if adopted by Canadian courts, could have serious consequences on corporate behaviour.   In the absence of an actual criminal prosecution, the fact-gathering exercise of a corporation may not be covered by litigation privilege.  Any documents so generated could potentially be seized by regulatory and investigatory bodies and expose the corporation to legal risk.  Thus, a number of corporations may decide to wait until there is an actual criminal prosecution before conducting an internal investigation in order to receive the benefit of litigation privilege.

Alexander Gay is General Counsel at the Department of Justice. He maintains a broad civil litigation practice, with an emphasis on commercial and trade disputes. He is also a part-time professor at the University of Ottawa (Faculty of Law) and the author of the Annotated Arbitration Act of Ontario, 1991. The author's views are his own.

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