Sports Direct International Plc v The Financial Reporting Council

Legal professional privilege is a fundamental right which may be overridden by statute only through express words or necessary implication. A regulator’s confidential use of privileged material, and the fact that the privilege-holder is not the subject of the investigation, do not create either a no-infringement exception or a lower threshold for a statutory override.

Paragraph 1(8) of Schedule 2 to the Statutory Auditors and Third Country Auditors Regulations 2016 preserves privilege in terms which prevent any such implication. A pre-existing document does not become privileged merely because it is attached to a privileged lawyer-client email. Where a notice requests qualifying emails and their attachments, an attachment falls within the request if the email satisfies the stated criteria.

The Financial Reporting Council was investigating Sports Direct’s former auditor and issued Sports Direct with a notice under Schedule 2 to the Statutory Auditors and Third Country Auditors Regulations 2016. Sports Direct supplied most responsive material but withheld 40 lawyer-client emails and attachments on grounds of legal professional privilege.

Arnold J ordered disclosure, holding that confidential regulatory disclosure did not infringe Sports Direct’s privilege and that some pre-existing attachments were not privileged: [2018] EWHC 2284 (Ch). Sports Direct appealed. The issues were whether the statutory notice could require privileged emails and whether unprivileged attachments fell within the notice or acquired privilege through their attachment to privileged emails.

1. The appeal was allowed in part. The order requiring disclosure of emails protected by legal professional privilege was set aside. The appeal was dismissed as to pre-existing attachments which were not themselves privileged.
2. Legal professional privilege is fundamental to the administration of justice. The court rejected the suggested no-infringement and technical-infringement exceptions derived from observations in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21. Disclosure to a regulator remains an infringement of privilege unless a recognised exception applies or privilege is validly overridden by statute.
3. The statutory question was governed by Morgan Grenfell and B v Auckland [2003] UKPC 38. General regulatory powers do not override privilege. Parliament must expressly provide for that result, or it must follow by necessary implication. A necessary implication is not merely a reasonable or desirable implication.
4. Paragraphs 1(8) and 1(9) of Schedule 2 to the Statutory Auditors and Third Country Auditors Regulations 2016 expressly preserved the recipient’s right to withhold material protected by legal professional privilege. They left no basis for implying an override, whether Sports Direct’s privilege was its own or that of an auditor’s client. Any inconvenience to the investigation could not alter the balance Parliament had struck.
5. On the attachment issue, a pre-existing document does not gain privilege merely because it is sent to a lawyer or attached to a privileged communication. The notice was properly construed as requiring every attachment to an email meeting its four stated criteria. It was not limited to attachments which independently met those criteria. Therefore, unprivileged pre-existing attachments had to be disclosed, notwithstanding that their covering emails were privileged.

• Court of Appeal (Civil Division): Allowed the appeal as to privileged emails and dismissed it as to unprivileged pre-existing attachments: [2020] EWCA Civ 177.
• High Court (Chancery Division): Arnold J ordered disclosure of the disputed emails and attachments: [2018] EWHC 2284 (Ch).