Regulators and legal professional privilege



The power of regulators to compel the production of documents is an important issue in many areas of environmental and planning law. In Sports Direct International Plc v The Financial Reporting Council [2020] EWCA Civ 177 the Court of Appeal considered the extent to which legal professional privilege (“LPP”) protects such documents from disclosure.

The appeal arose after Sports Direct was ordered by Arnold J to disclose certain documents to the Financial Reporting Council (“FRC”). The FRC’s responsibilities include regulating statutory auditors and audit work, and its powers are set out in the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR”). They include the power to require certain persons to provide information and documents.

The FRC was conducting an investigation into Sports Direct’s former auditors, Grant Thornton, and into an individual who worked at that firm. It issued a notice to Sports Direct, requiring it to provide all emails and attachments to emails in its possession which met certain criteria. While Sports Direct was not the subject of the investigation, it accepted that it was one of the persons to whom a request for documents and information could be made. The company withheld 40 documents in its response, comprising emails and attachments sent to or by its legal advisers, on the grounds that they were covered by LPP. It provided a broad description of the issues on which advice had been sought and gave examples of some of the attachments, but declined to say exactly what they were. Arnold J ordered the company to disclose both the emails and their attachments.

Two main issues arose on appeal. The first was whether the FRC was correct to argue that, although the emails contained material that would ordinarily be regarded as protected by LPP, they fell within a narrow exception in the case law which meant that there would be no infringement of Sports Direct’s privilege if they were handed over. Alternatively, the FRC argued that any infringement would be technical only and would be authorised by the SATCAR regime. The second main issue was whether the FRC was right to argue that, even if the emails themselves were protected by LPP, some of the attachments were pre-existing documents and were not protected by LPP simply by being attached to privileged emails.

In order to deal with the first issue, the Court of Appeal undertook a detailed analysis of the case law on LPP and statutory information gathering powers (paras 9-17). Having noted the recent decisions in Addlesee v Dentons Europe LLP [2019] EWCA Civ 1600, [2019] 3 WLR 1255 and The Civil Aviation Authority v (R (oao Jet2.com Ltd) [2020] EWCA Civ 35, it reviewed the development of the law from Lord Taylor’s speech in R v Derby Magistrates’ Court [1996] AC 487 (“Derby Magistrates”) onwards.

In Derby Magistrates, Lord Taylor set out two exceptions to the rule that a document protected by privilege continues to be protected so long as the privilege is not waived by the client. One of these is that LPP can be modified, or even abrogated, by statute. The exception was considered again in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21, [2003] 1 AC 563 (“Morgan Grenfell”). There, the House of Lords held that the courts will only find that a statute overrides fundamental human rights – which include LPP – where the intention to do so is stated expressly or appears by necessary implication. The Privy Council reached a similar conclusion in B and others v Auckland District Law Society and another [2003] UKPC 38, [2003] 2 AC 736 (“B v Auckland”).

These principles presented the FRC with a difficulty. The relevant provisions in SATCAR did not contain any express provision overriding LPP. In fact, there was an express provision dealing with LPP which appeared to confirm its protection and limit the FRC’s power. The regulator’s solution was to rely on paragraph 32 of Lord Hoffman’s speech in Morgan Grenfell, in which he expressed doubts as to the reasoning of the Court of Appeal’s decision in Parry-Jones v The Law Society [1969] 1 Ch 1:

“32. This is not to say that on its facts the Parry-Jones case was wrongly decided. But I think that the true justification for the decision was not that Mr Parry-Jones’s clients had no LPP, or that their LPP had been overridden by the Law Society’s rules, but that the clients’ LPP was not being infringed. The Law Society were not entitled to use information disclosed by the solicitor for any purpose other than the investigation. Otherwise the confidentiality of the clients had to be maintained. In my opinion, this limited disclosure did not breach the clients’ LPP or, to the extent that it technically did, was authorised by the Law Society’s statutory powers. It does not seem to me to fall within the same principle as a case in which disclosure is sought for a use which involves the information being made public or used against the person entitled to the privilege.”

The FRC argued that this passage represented a further exception to LPP. That is, where a regulator has a statutory power to request documents, then either: i) there is no infringement of LPP when those documents are handed over in response to a request made under that power; or ii) any infringement of LPP is technical only and can be regarded as authorised by the relevant statutory provisions on the basis of a less stringent test than that applied in Morgan Grenfell or B v Auckland. The FRC accepted that it could not request the disclosure of document in which Grant Thornton was entitled to claim privilege, but argued that it could compel the disclosure of documents in which Sports Direct claimed privilege, because Sports Direct was not the target of the investigation under SATCAR.

The Court of Appeal held that Arnold J had been wrong to accept these arguments. Lord Hoffman’s observations in paragraph 32 of Morgan Grenfell were not authority for the existence of a no infringement exception to LPP, or for the application of some lower threshold for implying a statutory override on the basis that the infringement would be technical. The court’s task was to apply the test set out in Morgan Grenfell and B v Auckland: looking at the legislation in question to see whether Parliament must have intended to override the privilege. The relevant SATCAR provisions made it clear that that was not the case.

The Court of Appeal went on to undertake a detailed analysis of Lord Hoffmann’s comments in Morgan Grenfell, as well their interpretation in subsequent cases, to explain why they could only usefully be understood in the context of that case.

As for the second main issue, Sports Direct accepted – having regard to Ventouris v Mountain [1991] 1 WLR 607 and Imerman v Tchenguiz [2009] EWHC 2902 (QB) – that pre-existing documents are not covered by privilege simply because they are sent to a legal adviser. It attempted to get round this by arguing that the fact of the documents being communicated to a legal adviser, by attaching them to an email, was privileged.

In short, the Court of Appeal found that this argument did not survive the judgment in Ventouris and subsequent case law, while noting that there were some factual differences with previous authorities. Cases such as Ventouris had been decided in the context of the ordinary civil procedure process, which requires the disclosure of all free-standing documents relevant to the issues in dispute, regardless of whether they have been attached to emails at any point. By contrast, the FRC’s statutory notice asked only for emails and their attachments, rather than for free-standing documents.

The court resolved the issue by interpreting the wording of the notice. It found that, on a proper construction, an attachment was to be regarded as meeting the criteria in the notice if it was attached to an email which met the criteria. If the email itself was privileged, that did not confer privilege on the pre-existing document (see Ventouris). Accordingly, Arnold J had been correct to conclude that non-privileged attachments should be disclosed.

As reflected by the number of recent appellate decisions, the scope and application of the rules governing privilege has been fertile ground for disputes. Sports Direct v The FRC helpfully clarifies the ways in which regulators can, and cannot, override the protection afforded to clients’ LPP.

 

Reference to text: para. 3.69.

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