This case raises the difficult issue of whether a client of a regulated person (in this case, an auditor) can rely on privilege to withhold documents in circumstances where those documents are requested by a regulator exercising statutory powers in connection with an investigation into that regulated person's conduct. We reported on the High Court judgment in October 2018 (see our earlier briefing).
In summary, the High Court held that, in those circumstances, disclosure to the regulator would not infringe the client's privilege, and the client's privileged documents therefore had to be turned over to the regulator.
The Court of Appeal, however, disagreed. The regulator's statutory powers did not override the privileged status of the documents and the auditor was not required to hand over privileged documents merely because they had been requested by a regulator.
The case
The Financial Reporting Council (the regulator in this case) was conducting an investigation into an accountancy firm in connection with its audit of the financial statements of Sports Direct International Plc (SDI). As part of the investigation, the FRC exercised its statutory powers to issue notices to SDI requiring the provision of certain documents. The statutory provisions expressly provide that such notices do not require a person to provide any documents that are protected by legal professional privilege (LPP).
SDI refused to disclose some documents on LPP grounds and the FRC applied for an order from the court compelling compliance, which the High Court granted. SDI appealed.
The appeal
The FRC argued that, although the requested documents did contain material that would ordinarily be regarded as protected by LPP, they fell within a narrow exception recognised in case law which means that, in the particular circumstances of this request, there would be no infringement of SDI's privilege if they were handed over. Alternatively, the FRC argued that any infringement would be a technical infringement only and was authorised by the statutory regime.
The FRC was, in effect, arguing for a further addition to the two long-established exceptions to LPP - the "iniquity" and "modified or abrogated by statute" exceptions.
The Court of Appeal robustly concluded that no such further exception exists. The case law does not establish a principle that, in some circumstances, the production of documents by a regulated person, in response to a regulator's request, is not an infringement of their client's right to LPP, nor was there scope to apply some lower threshold for implying a statutory override on the grounds that any infringement of the client's privilege would be technical. The two exceptions mentioned above remain the only two recognised exceptions to LPP.
Accordingly, the recipient of a notice given by the FRC under the statutory provisions in this case is not required to hand over privileged documents, whether the person entitled to the privilege is the auditor under investigation or the auditor's clients.
The Court of Appeal did, however, agree with the High Court on a separate issue relating to attachments to emails. It confirmed that the fact that an email was itself privileged did not confer privilege on an otherwise non-privileged attachment to that email, and therefore, such attachments were disclosable.
Comment
The Court of Appeal's judgment is a welcome reassertion of the fundamental right to claim privilege which is increasingly under scrutiny and challenge by regulators. In the regulatory context, it should assist those seeking to resist a request from the regulator under their statutory powers for disclosure of privileged documents (so long as the relevant statute does not override privilege either expressly or by necessary implication).
Case reference: Sports Direct International Plc v The Financial Reporting Council [2020] EWCA Civ 177.
