Business of investigation
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8 July 2013
Company investigations are invariably conducted by specialist government agencies, such as the Department of Trade & Industry (DTI), the Financial Services Authority, the Inland Revenue, the Environment Agency and the Health and Safety Executive (HSE). Each is given powers by statute to obtain documents and answers by compulsion. The Serious Fraud Office (SFO) has similar powers.
The introduction of the Human Rights Act 1998 will not have an immediate and huge impact in relation to these investigations. Although the introduction does raise a considerable number of important questions, following recent domestic decisions, these will probably have to be resolved in Strasbourg. But there is no substitute for a detailed knowledge of the powers themselves and of relevant case law.
The rather unique nature of these investigations means that they call for unusual skills on the part of the lawyers instructed to act in them. They are not criminal investigations, but fact-finding inquiries that may lead to no action, or only regulatory action, being taken. Nevertheless, they are rather more serious than purely administrative enquiries and are often the first step on the road to a prosecution.
To advise the company how best to avoid a prosecution, the lawyer needs to understand the investigation in context, which means learning all of the compulsory powers and being able to compare them across agencies. They also need to appreciate the criminal context, in particular the use that the investigators might make of answers or documents provided during the investigation in any subsequent prosecution.
Lord Denning summarised the nature of these investigations in the Pergamon Press case : "The inspectors are not a court of law. Their proceedings are not judicial proceedings... they are not even quasi-judicial, for they decide nothing; they determine nothing. They only investigate and report."
Investigations having this status is a relaxation in the standards of fairness required. In R v Secretary of State ex parte Perestrello , it was held that the only obligation on the investigators is to act fairly by applying the rules of natural justice. It was only a short step to subsequent decisions that an individual can not refuse to answer a question or produce a document on the grounds that it might incriminate them.
The European Court seems to have the same view of the status of company investigations as our own courts. In Fayed v UK the applicant sought to argue that the publication of such a report by DTI inspectors was at least a determination of his civil rights that Article 6 of the European Convention on Human Rights (ECHR) apply to the inspector's proceedings and investigations. The argument was rejected by the court, which held that the investigation was purely an administrative act.
The status of the investigation does not change just because criminal proceedings follow. It is well known that in the case of Saunders v UK, and the recent case of IJL,GMR & AKP v UK, the ECHR held that the use of transcripts obtained during a DTI company investigation in a criminal trial was a violation of Article 6 and that it was only concerned with such use. In the Saunders case the court also upheld the view that Article 6 has no application in relation to the DTI investigation itself. In short, Article 6 cannot be invoked as a reason for refusing to answer questions or producing documents.
At home, this view was reinforced by Lord Hoffman in R v Hertfordshire County Council ex parte Green, who held that a request made of a company by a local authority for factual information regarding clinical waste "does not form even a preliminary part of any criminal proceedings". Article 6 was irrelevant to the request, even though the company was subsequently prosecuted for environmental offences.
To advise a company properly, a lawyer should consider all of the powers available to the relevant authority so that they understand why one power rather than another is being used, and whether this is an indication of a particular outcome. Ideally, solicitors should also consider the powers of other agencies, because relevant case law may be transferable.
The powers available to the DTI inspectors and investigators provide a useful starting place and template for such consideration.
There are two types of investigation: those in which the Secretary of State appoints independent inspectors to investigate a company's affairs, ownership or share dealings under Sections 431, 432, 442 or 446 of the Companies Act 1985, and more common confidential investigations by employed investigators of the DTI, conducted under Section 447 of the act.
The independent inspectors can request that a person should produce documents for them, or attend before them and provide all possible assistance. Failure to comply may be reported to the High Court, where the offender can be punished as if they had been found in contempt. The inspector's only obligation is to act reasonably, which makes judicial review of their decisions very difficult. However, the case of Mirror Group Newspapers in 1999 showed that not all requests for assistance will be considered reasonable.
DTI investigations are far more important in practice. The investigators appointed only have the power to require documents and not to require those under investigation to attend for general interview. However, there is a power to require the person providing the documents (or any other past or present company officer) to provide an explanation of such documents. The adviser should understand the limits to the extent of such questions - they must genuinely relate to the documents provided. Non-compliance with a request is a criminal offence, but only punishable by a fine.
The lawyer advising the company also needs to understand all of the ancillary rules and powers. Section 448 provides the inspectors and investigators with the ability to obtain a warrant. The practitioner must understand what triggers this power, in particular the non-compliance with an investigator's request. The lawyer must also understand the gateways - namely the list of other authorities that can be provided with the fruits of the DTI investigation. Concealment or destruction of documents is a serious offence, as is providing false or misleading information in answer to a request. In these cases the sentence is likely to be imprisonment.
The practitioner can then start to look at other agencies' powers, such as the SFO's powers under Section 2 of the Criminal Justice Act 1987, which have also been held to be only administrative. SFO powers are backed by the threat of imprisonment, not contempt proceedings. The criteria for obtaining search warrants are also different and do not include a requirement that the suspected offence is punishable by two years imprisonment. With the SFO it is an offence to conceal documents when one merely believes that an investigation is likely.
Understanding the similarities and the general themes (duties to attend, produce, explain) and the different types of compulsion (imprisonment, fine, contempt), enables the adviser to use helpful cases and distinguish difficult ones.
R v Hertfordshire County Council, for example, concerned a request for information in writing that could be answered at leisure and after legal advice - perhaps distinguishable from a request to explain documents forthwith made when executing a warrant.
Such an understanding is also conducive to developing stronger arguments under the Human Rights Act, such as whether explanations of documents or documents themselves can be used in subsequent criminal proceedings. Also, there is the very important question of whether a prosecution for failure to comply is itself, by its nature, a breach of the right against self-incrimination. Until company investigation issues are returned to Strasbourg there is a need for lawyers to concentrate on this specialist area as it currently stands under UK law.
Adam Cowell is a partner at Irwin Mitchell.