Home Knowledge Regulator’s Attempt to Claim Special Exception to Privilege Rejected

Regulator's Attempt to Claim Special Exception to Privilege Rejected


In Sports Direct International Plc v The Financial Reporting Council EWCA Civ 177 the English Court of Appeal held that Sports Direct was not required to disclose privileged documents to the Financial Reporting Council (FRC) that was investigating Grant Thornton.

However, the decision also confirmed the trial court’s decision that a pre-existing attachment did not gain privileged status by attachment to a privileged email.

What were the facts?

The FRC was investigating the conduct of Grant Thornton – the former auditors of Sports Direct. The investigation concerned the audit of the financial statements of Sports Direct for 2015/2016. 

The FRC requested various documents in a Notice under specific legislation – the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCAR) – from Sports Direct.  Sports Direct gave 2000 documents but claimed legal privilege over 40.

The documents over which Sports Direct claimed privilege were emails and attachments to emails sent to or by Sports Direct’s legal advisers. SATCAR expressly provides that such a Notice does not require a person to provide any information or create any documents which the person would be entitled to refuse to provide or produce in proceedings in the High Court on the grounds of legal professional privilege. 

It seemed clear that there is an express provision dealing with privilege in SATCAR so how did the FRC argue otherwise?

FRC had three arguments which were successful at first instance but were overturned in part on appeal.

    “Infringement issue”

  1. That although the emails did contain material that would ordinarily be regarded as protected by privilege, they fell within a narrow exception recognised in case law which means, in the circumstances, there would be no infringement or;
  2. That any infringement would be a technical infringement only and was authorised by the SATCAR regime.

    “Communication Issue”

  3. Even if the emails are protected by privilege some of the attachments were pre-existing documents and not protected by privilege simply by being attached to privileged emails.

Back to Basics

Lady Justice Rose for the Court of Appeal went back to the key principles and case law regarding legal professional privilege in order to consider the arguments by the FRC.

R v Derby Magistrates’ Court AC 487 established that that privilege belongs to a client and only he can waive it and that there are two exceptions in English law:

  1. iniquity exception – privilege does not arise from a communication between a client and a lawyer for a criminal purpose
  2. privilege can be modified or even revoked by statute

The Court of Appeal then considered cases where the second exception (the statutory exception) had been examined. The most important of these cases being R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax and another UKHL 21.  In this case the House of Lords held that as legal professional privilege is a fundamental human right any intention to override such rights must be expressly stated or appear by necessary implication. Rose LJ. then went on to consider case law on “necessary implication” and examined the decision in B and others v Auckland District Law Society and another UKPC 38.

Infringement Issue

The FRC argued that in Grenfell that there was a further exception to privilege recognised that boiled down to this: if the information was not being used against the person claiming the privilege there was no infringement. 

The Court of Appeal disagreed with the arguments of the FRC and held that there is no further exception to the two already established in Derby and the test is a matter of statutory interpretation. Here the statute was clear in providing protection to privileged documents.

As to the technical infringement argument the Court of Appeal held that legal advice privilege should be given a scope that reflects the policy reasons that justify its presence in our law – the importance of a client to speak freely with their lawyer – and that this erodes any justification for some different rule to apply depending on whose privilege is waived.

Communication Issue

This issue related to 19 emails with 21 attachments with all the emails protected by legal advice privilege. Some of the attachments were pre-existing and, looked at separately, would not be privileged. The case law is clear that documents do not gain privilege by virtue of being sent in a privileged email and the FRC had been successful on this at first instance.  

Sports Direct argued on appeal that there was a subtle distinction between whether a particular document was privileged (the attachment) and whether a particular communication was privileged (the fact the attachment had been sent to a legal adviser). Sports Direct argued that the fact of communication of the document was privileged.

The Court of Appeal rejected this argument and confirmed the position that privilege in the email does not confer privilege on the attachment. 

Regulatory Privilege in Ireland?

Many Irish statutes provide for regulators to request documentation and, as we have previously discussed, the Irish courts have confirmed that legal professional privilege does apply in a regulatory context (see here and here).  

Similar exceptions to privilege apply in the Irish context and the Irish Supreme Court has repeatedly confirmed the basis for privilege being rooted in the public interest in the proper conduct of the administration of justice; a client should not be inhibited by fear of disclosure when they are obtaining legal advice. 

Whether there is some special exception that applies to regulators, where the information handed over will not be used against a client or another technical basis, has yet to be argued in front of the Irish courts. This case is a forceful rejection of those arguments and could guide the way if such an issue arose here.

Contributed by Catherine Thuillier




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