UK: Privilege No Defence To Notice Requiring Production Of Client's Privileged Documents To Regulator

Last Updated: 19 September 2018
Article by Herbert Smith Freehills

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor’s conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client’s privilege. Accordingly, the fact that documents are subject to a client’s privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

Background

The Financial Reporting Council (“FRC”) issued notices under their statutory powers requiring the respondent (“SDI”) to provide certain documents to assist with its investigation into the conduct of an accountancy firm and individual in relation to their audit of the financial statements of SDI. The FRC contended that SDI had failed to comply in certain respects with the notices and therefore sought a court order compelling compliance.

SDI argued that it was entitled to withhold certain documents from production on grounds of legal advice privilege.

It was common ground that, if the documents in question were subject to privilege which would be infringed by being produced to the FRC, then SDI was not required to produce them. This was because of a carve-out in the applicable regulations for information or documents which a person "would be entitled to refuse to provide or produce in proceedings in the High Court on the grounds of legal professional privilege".

The FRC did not accept the claim to privilege. The parties agreed that there were three issues of principle that should be resolved by the court regarding the claim to privilege:

  1. whether legal advice privilege applied to documents purely by virtue of them having been attached to emails passing between SDI and its lawyers (“the Communication Issue”);
  2. whether SDI's waiver of privilege by sending copies of documents to its auditors for the purposes of the audit extended to the FRC ("the Waiver Issue"); and
  3. whether production of the documents to the FRC would infringe any privilege of SDI ("the Infringement Issue").

Decision

The High Court (Mr Justice Arnold) held that, to the extent the documents were privileged, SDI had not waived that privilege in respect of the FRC by sending copies to its auditors. However, production of the documents to the FRC would not infringe SDI’s privilege, and so SDI was required to produce them.

The Communication Issue

Unsurprisingly, the court held that legal advice privilege did not apply to documents which were not privileged in themselves merely because they were attached to emails sent between SDI and its lawyers.

The judge referred to SDI’s submission that a scanned copy of the front page of The Times would be privileged if attached to a lawyer/client email seeking or providing legal advice, describing this as a “startling proposition”. He did not accept that it was supported by Property Alliance Group Ltd v Royal Bank of Scotland plc [2015] EWHC 3187 (Ch) (considered here), in which Snowden J upheld a claim for privilege over lawyer/client communications which included matters that were in the public domain. As Arnold J said, Snowden J was not concerned with a claim to privilege for pre-existing documents on the basis that they had been sent by a client to a lawyer, or vice versa, in connection with a request for advice or the giving of advice.

The Waiver Issue

SDI accepted that, in sending the emails to the auditors, there was a selective and limited waiver of privilege, but contended that the waiver did not extend beyond the auditors or beyond use for audit purposes; ie it did not extend to the FRC as the auditor’s regulator.

Arnold J referred to three authorities on the question of whether waiver for a particular purpose entailed a broader waiver:

  • In British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113, the claimants had handed privileged documents to the police to assist with a criminal investigation, and those documents were disclosed to the defendants, who were subsequently acquitted. The court held that the claimants could still claim privilege over the documents in subsequent civil proceedings against the defendants; they had made the documents available for a limited purpose only, and that could not be construed as a broader waiver of privilege.
  • In Scottish Lion Insurance Co Ltd v Goodrich Corp [2013] BCC 124, in the context of a scheme of arrangement, where a company’s creditors had submitted privileged material to support the valuation of their claims for the purposes of the weighting of their votes at a creditors’ meeting, the court held that they had waived privilege for the purposes of the subsequent court application to sanction the scheme (though not for other purposes).
  • In Belhaj v Director of Public Prosecutions [2018] EWHC 513 (Admin) (considered here), where a government department had passed privileged material to the police, the Crown Prosecution Service and the DPP for the purposes of an investigation and decision whether to charge, the court rejected an argument that the government had waived privilege for the purposes of any judicial review proceedings challenging that decision. Unlike in Scottish Lion, where the voting and court application were all part of a single process, the court in Belhaj said there was no inevitable link between the decision on prosecution and the subsequent judicial review.

Arnold held that the present case was analogous to British Coal and Belhaj because the regulatory process was entirely distinct from the audit process. By sending privileged documents to the auditors for the purposes of audit, SDI did not waive privilege against the FRC.

The Infringement Issue

Arnold J described this as the most important, most far-reaching and most difficult of the issues raised.

His starting point was that privilege is a fundamental human right, and therefore can be overridden only by primary legislation which so provides either expressly or by necessary implication – see R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21.

Nevertheless, as he noted, there is a line of cases in which it has been held that privilege cannot be relied on as an objection to the production of documents to regulatory bodies. He referred to a number of authorities including Parry-Jones v Law Society [1969] 1 Ch 1 and Morgan Grenfell, referred to above. In Parry-Jones, the Court of Appeal held that a solicitor could not refuse to produce documents for inspection by the Law Society on the grounds that they were subject to his clients’ privilege. In Morgan Grenfell, Lord Hoffmann agreed with the result but not the reasoning in Parry-Jones, saying:

“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.”

Arnold J commented that, although Lord Hoffman’s primary reason for supporting the decision in Parry-Jones was strictly obiter, it was an important step in his reasoning in that case and it has the persuasive force of a unanimous House of Lords. Although subject to academic criticism, it has been followed in subsequent case law and there is no authority to the contrary. It must be therefore be taken to represent the current state of the law.

Accordingly, the judge concluded, where a regulated person produces documents to a regulator solely for the purposes of a confidential investigation into its conduct, that does not infringe any privilege of the regulated person’s clients. The same must be true where documents are produced to the regulator by a client.

If he was wrong, and there was a technical infringement of the client’s privilege in the current case, Arnold J concluded, “with some hesitation”, that this was authorised by the statutory powers. Although there was no wording that expressly or by necessary implication overrode privilege, since any infringement was a technical one, general words were sufficient. To the extent that any infringement was not merely technical, privilege would be preserved by the carve-out in the regulation. The example given by FRC’s counsel, which the judge accepted, was where a client such as SDI was contemplating a claim for negligence against the auditor, and obtained legal advice as to the merits of that claim; in those circumstances (on this alternative basis for the decision) the client could rely on privilege.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions