Feb 25, 2020

Legal Professional Privilege: Clarifying the Exceptions

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Following closely behind the Jet2 decision (see our note, Court of Appeal Gives Important New Guidance on Legal Advice Privilege), the Court of Appeal has again turned its attention to privilege, this time in relation to the exceptions to it.

Legal professional privilege protects from disclosure confidential communications between a client and a lawyer for the dominant purpose of giving or obtaining legal advice (“legal advice privilege”) and confidential communications between a client and a lawyer, or a lawyer or client and a third party, which come into existence for the dominant purpose of litigation that is reasonably contemplated or has commenced (“litigation privilege”).

In Sports Direct International v The Financial Reporting Council[1] the Court confirmed that there are only two exceptions to legal professional privilege: the ‘iniquity’ exception and statutory abrogation by express statement or necessary implication. A request by a regulator under a statutory power for documents from a person other than the target of a regulatory investigation is not a special circumstance that gives rise to any further exception.

The case should be of interest to anyone who might be caught up in a regulatory investigation, including those who are not its target.

The Facts

The Financial Reporting Council (the body which regulates statutory auditors and audit work) requested documents from Sports Direct under the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCARs) in connection with an investigation by the FRC into Sports Direct’s former auditors. The document request sought emails and attachments falling within certain criteria. Sports Direct provided the FRC with about 2000 documents, but withheld 40 emails and attachments on the basis of privilege.

The FRC accepted that, in the ordinary course, the withheld emails would be protected by privilege, but in the circumstances of this case claimed it was entitled to their disclosure. It claimed that the attachments were not privileged at all and should also be disclosed.

A Further Exception?

The Court of Appeal reaffirmed the importance of legal professional privilege as a fundamental human right. Aside from cases of ‘iniquity’ (i.e. where lawyer/client communications are sent with a criminal purpose), privilege can only be modified or abrogated by statute by an express statement or necessary implication; general or ambiguous words are not sufficient. This is because general words in statutes are not presumed to override fundamental human rights, even if that might appear to be their literal effect.

The SATCARs have no express provision overriding privilege and, in fact, expressly preserve it. Accordingly, on the basis of a much-criticised observation from a House of Lords authority,[2] the FRC argued that there was, in fact, a further exception to privilege which arises where:

  • a regulator has a statutory power to request documents;
  • is bound by a duty of confidentiality in respect of the information in the documents; and
  • the holder of the privilege is someone other than a person against whom adverse findings might be made as a result of the regulator’s use of the information.

The FRC claimed that the exception is that there is no infringement of privilege at all or that there is an infringement of a technical nature only which is regarded as authorised by the relevant statutory provision on the basis of a less stringent test than that required for statutory abrogation (i.e. express statement or necessary implication). The Court of Appeal rejected both of these arguments.

There was no support in the House of Lords’ observation itself (or other cases since) for an exception on either basis. The Court’s task is simply to apply the test for statutory abrogation to determine whether Parliament intended that privilege be overridden by a statutory provision. In this case, the clear and unambiguous provisions of the SATCARs made abundantly clear that it did not. A request for documents under the SATCARs could therefore be resisted, whether by an auditor or its clients, on the basis of privilege. The withheld emails were not disclosable.

Attachments to Emails

The FRC’s request only sought “emails and attachments” (not also freestanding documents). The attachments which Sports Direct withheld were, by themselves, not privileged but also not responsive to the request. Sports Direct therefore argued that those attachments fell between two stools: either the attachments were to be treated separately from their parent emails and therefore were not responsive to the request, or (given the wording of the request) the attachments could only be responsive if they each formed part of the same communication as their parent email, but in that case they were privileged.

Relying on Jet2 (and earlier authority), the Court also rejected this argument. Attachments are to be treated separately from their parent emails for the purpose of privilege, which means if an attachment is not of itself privileged, it does not become so when sent as part of an otherwise privileged communication. Taking a broad approach, the Court also held that on the proper construction of the FRC’s document request, an attachment met the request’s criteria if it was attached to an email that met the criteria (whether or not, by itself, it met the criteria).

Comment

While it may not be the last word on the subject (both parties have sought permission to appeal to the Supreme Court), this is a reassuring decision for anyone who might be involved in a regulatory investigation, whether as its target or as a third party who holds potentially relevant documents and information. It is plain that, iniquity aside, privilege will only be abrogated where Parliament clearly intends that it should be. In particular, there is no ‘watering down’ of privilege merely because the person whose documents are sought is not himself at risk of adverse findings or other consequences for disclosing his documents to a regulator.

Footnotes

[1]   [2020] EWCA Civ 177.

[2]  R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2003] 1 AC 563, [32].

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