May 13, 2021

Chic Dry Cleaners

Accomplished Law Purveyors

Sports Direct case and Sanctity of Legal Privilege in UK

7 min read

The Supreme Court recently refused to overturn the decision of the Court of Appeal in Financial Reporting Council Ltd v Sports Direct International Plc (now Frasers Group)[1] (the Sports Direct case), upholding that:

  1. Sports Direct was not required to produce its privileged documents in response to a notice from the UK regulator, Financial Reporting Council Ltd (FRC); and

  2. Email attachments are not covered by Legal Professional Privilege simply by being attached to privileged emails, reinforcing the sanctity of privilege and a decision rendered by Supreme Court Justices nearly 30 years prior[2].

In this article, we consider the implications of this decision on privilege and set out practical tips for navigating privilege. 

Legal Professional Privilege (LPP): A brief overview

  • LPP comprises of legal advice privilege and litigation privilege[3] and “is a fundamental condition on which the administration of justice as a whole rests.[4]

  • The public policy underlying LPP enables clients to give full and frank disclosure of confidential information to their lawyers, so that they can receive legal advice secure in the knowledge it will not become disclosable and therefore open to scrutiny at the hands of third parties, including the Court.

  • Subject to certain limited exceptions disapplying LPP, which we touch on below, privilege is regarded by the Courts as an absolute right[5] protected by our Constitution. Any abrogation of LPP, must therefore be proportionate and justified. The primacy of LPP was however undermined following the decision of the High Court in the Sports Direct case[6].

LPP: Exceptions

  • It can be waived by the holder of LPP;

  • LPP will not attach to communications for the purposes of certain types of wrongdoing or criminal activity; and

  • In some limited circumstances, certain statutes or regulations may (by express language) enable a Regulator to obtain documents that would otherwise be covered by LPP. This argument was used by the FRC in the Sports Direct case.

The Sports Direct Case: Background

  • The case arises from the FRC’s ongoing investigation into Grant Thornton and an individual at that firm as the former auditor of Sports Direct, concerning a VAT driven structure adopted by Sports Direct.

  • As part of its investigation, the FRC exercised its statutory powers and served a Notice on Sports Direct to provide certain documents. Sports Direct provided around 2000 documents to the FRC, but refused to disclose 19 emails and 21 attachments sent to or by Sports Direct’s legal advisers on the basis that they were protected by LPP, claiming that “certain of the 21 attachments”, whilst not privileged in and of themselves, still attracted LPP as they “formed part of lawyer-client communications”. Sports Direct indicated that the attachments included documents such as contracts between a subsidiary and a third party.

  • FRC did not accept that the emails and attachments were privileged, and the matter was brought before the High Court.

The High Court made the following key findings:

  • Even if the emails and attachments were privileged, the production of documents to the FRC solely for the purposes of its investigation into Grant Thornton was not an infringement of Sport Direct’s LPP (because Sports Direct was not the target of the investigation)[7]. Further, even if disclosure did technically breach Sport Direct’s LPP, it was authorised by the statute that the FRC were acting pursuant to (the “Infringement Exception”); and

  • Ccertain of the 21 attachments” being pre-existing documents which would not otherwise be privileged, did not attract LPP by virtue of being attached to privileged emails (the “Communications Exception”).

On the above basis, the Court ordered Sports Direct to produce the privileged emails, and the attachments. Sports Direct appealed this decision.

The Court of Appeal held that:

  • Infringement Exception: whilst it is possible for statute to modify or undermine the application of LPP, the courts will not readily infer such an intention into a statute and it must be “expressly stated or appear[s] by necessary implication”[8]. The Court concluded that the wording of the relevant regulation under which FRC served the Notice did not overcome this high hurdle as it did not contain any express provision or denote any intention of parliament to override LPP. Instead there was a section which appeared to limit the FRC’s power to obtain disclosure of the privileged documents. Further, the Court found that there was no authority to support an exception to LPP on the basis of a lack of or merely “technical” infringement to Sport Direct’s LLP. The Court thereby upheld Sport Direct’s appeal. However, the FRC subsequently applied to the Supreme Court to appeal this issue.

  • Communications Exception: LPP does not protect attachments which are pre-existing documents just because they are sent to a legal advisor under cover of a privileged communication, the email and attachment are not to be treated as one legal communication for the purposes of LPP. The Court thereby dismissed this part of the appeal and Sports Direct appealed this issue to the Supreme Court.

The Supreme Court refused to interfere with the Court of Appeal’s ruling on both Exceptions with the following key implications:

  • Infringement Exception: the judgment should provide comfort to regulated entities and their clients as regards the robustness of LPP as against third parties, including regulators and the Court.  It restores and reinforces the fundamental importance of LPP showing that the circumstances in which LPP will be excluded remain exceptionally narrow and the English courts have little appetite to expand them.

  • Communication Exception: although not a surprising outcome, it serves a poignant reminder that attachments are not covered by LPP simply by being attached to privileged emails; and clients should not assume that any and all documents that they create and/ or have previously created, and send to their lawyers will be protected by virtue of LPP.

Tips for navigating LPP Pitfalls

Like with many questions regarding LPP, determining which documents and/or communications can be withheld on grounds of LPP[9] under English Law, can be a minefield.

The decision tree below can be used as a quick reference to help determine this question[10] as well as the practical tips below.

  1. For legal advice privilege to apply to communications where there is no litigation privilege it is important to establish and/or note:

  • Who the client is? The current law[11] is that the client will only include those individuals who are authorised, expressly or impliedly, to seek and obtain legal advice in relation to the particular matter either from in-house or external lawyers. The definition of the client does not necessarily extend to everyone within the organisation or even to the whole department or division seeking legal advice. Note that communications between a lawyer and employees outside the designated client team or between the client team and employees outside the team will generally not be privileged, and sending privileged documents outside this team can result in privilege being lost.

  • Who the lawyer is? A solicitor or barrister or qualified foreign lawyer. In-house lawyers are also included, so long as they are acting in a legal rather than an executive capacity, and the communications are for the dominant purpose of giving or obtaining legal advice rather than commercial input. Privilege also extends to trainees or paralegals acting under the supervision of a lawyer.  

  • Avoid third parties such as accountants, wealth managers and experts communicating with the lawyer – these communications will not be privileged (unless the third party is communicating as the client’s agent).

  • Copying in a lawyer to a communication between two non-lawyers will not create privilege.

  • Often preparatory materials such as structure charts, family trees, factual summaries and draft letters are not created for the purpose of obtaining legal advice and likely to be pre-existing, freestanding documents. Try, where possible, to include these in the body of the communication to the lawyer whose advice is sought.

  • Legal advice privilege will not apply to advice of a purely strategic or commercial nature. Equally, it will not apply to the fruits of the legal advice, for example any agreement or conveyance drawn up. Lawyers’ working papers are privileged if, and only if, they contain legal advice (or the tenor of it).

  1. For litigation privilege to apply:

  • Adversarial litigation has to be actual or ‘reasonably in prospect’, meaning it is more than a mere possibility.

  • The documents must be created for the dominant purpose of obtaining information or advice in connection with existing or reasonably contemplated litigation. Documents which fall outside this, for example internal board discussions of a purely strategic nature which do not contain such information or advice or reveal the tenor of it, will not be covered by litigation privilege.

  • Again, often preparatory materials such as structure charts, family trees, factual summaries and draft letters are often created before litigation is in prospect, and likely to be pre-existing, freestanding documents (and therefore disclosable even if attached to communications to lawyers and litigation is in prospect).

  1. General

 


[1] Sports Direct International Plc v The Financial Reporting Council [2020] EWCA Civ 177

[2] Ventouris [1991] 1 WLR 607 (NB. this case was about litigation privilege, but applies equally to LPP).

[3] See the decision tree for definitions of these below.

[4] R v Derby Magistrates’ Court, Ex p B [1996] AC 487 (“Derby Magistrates”), LJ Taylor at p.507C.

[5] See for example R v Derby Magistrates’ Court and Fyffes plc v DCC plc [2005] 1 IR 59

[6] Sports Direct International Plc v The Financial Reporting Council [2020] EWCA Civ 177

[7] R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax and another [2002] UKHL 21.

[8] Lady Justice Rose at p.12, quoting Lord Hoffman at p.8 of R (Morgan Grenfell & Co Ltd) v Special Comr of Income Tax [2003] 1 AC 563

[9] This addresses only legal professional privilege (ie, legal advice privilege and litigation privilege). Other forms of protection may be available, eg, “without prejudice” privilege, privilege against self-incrimination, or public interest immunity

[10] This decision tree is for reference purposes only and does not constitute legal advice and should not be relied upon as such.

[11] Three Rivers District Council v Bank of England [2003] EWCA Civ 474 (Three Rivers No 5), as interpreted in subsequent case law and confirmed by the Court of Appeal in SFO v ENRC [2018] EWCA Civ 2006

Copyright © All rights reserved. | Newsphere by AF themes.