Legal Professional Privilege: regulator not entitled to view privileged documents

Published 15 April 2020

In the recent English Court of Appeal decision in Sports Direct International Plc (“Sports Direct”) v The Financial Reporting Council (“FRC”) the Court overturned the High Court's decision that Sports Direct was required to hand over its privileged documents in response to a statutory notice from the FRC (pursuant to the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR”).

The Court of Appeal decision confirms that an audit client may refuse to disclose documents to its auditor’s regulator (here the FRC) on the ground of legal professional privilege.

Background

The FRC (the UK's regulatory body for accountants, auditors and actuaries) was conducting an investigation into Sport Direct’s former auditor (Grant Thornton) in relation to its audit of the financial statements of Sports Direct. The FRC issued several statutory notices to Sports Direct seeking material relating to the audit that Sports Direct argued was protected by legal privilege.

Sports Direct withheld disclosure of 40 documents (comprising of emails and attachments sent to or from Sports Direct’s legal advisers) on the grounds that they were covered by legal professional privilege.

Legal professional privilege

Legal professional privilege comprises of litigation privilege and legal advice privilege. It is regarded by the courts as a “fundamental condition on which the administration of justice as a whole rests” because unless clients can speak in confidence with their lawyer they might “hold back half the truth” (R v Derby Magistrates’ Court [1996] AC 487).

Legal professional privilege means that information and advice passed between clients and their lawyers are confidential and generally do not have to be disclosed in the course of a legal or regulatory proceeding. There are two established exceptions:

1. privilege does not protect a criminal act between a client and its lawyer; and
2. privilege can be modified or revoked by statute.

First Instance

At first instance, the Court held that disclosure of the requested communications to the FRC did not infringe Sports Direct's privilege, as it was only being relied on by the FRC in its investigation into Grant Thornton, and was not being made publicly available or used against Sports Direct. In the alternative, even if disclosure to the FRC did infringe this privilege, it was only a "technical" infringement, which was impliedly authorised by the FRC's statutory powers to seek documents.

Sports Direct appealed this ruling.

Court of Appeal

The Court of Appeal disagreed with the “non-infringement principle” (i.e. if the information was not being used against the person claiming the privilege then there was no infringement) and held that there are no further exceptions to the rules regarding legal professional privilege other than those already established and the test was a matter of statutory interpretation. SATCAR was clear in providing protection to privileged documents and it did not include any express provision overriding privilege. The Court said that there was nothing in the legislation or in previous case law to suggest that the wording of the statute meant something different from its plain meaning. The High Court had therefore erred in ordering the disclosure. The Court of Appeal found that neither Sports Direct nor its auditor could be compelled to disclose the privileged documents.

Conclusion

This decision should provide welcome relief to regulated entities, including auditors and their clients. It reinforces the protection of privilege generally and in the regulatory sphere. Although this is an English decision, the Irish courts have also generally tended to adopt a protective approach to privilege and it is likely that they would take a similar approach to the Court of Appeal’s decision in this case in similar circumstances.