Sports Direct International Plc v The Financial Reporting Council

The Court of Appeal allowed the appeal in part. It held that Schedule 2 paragraph 1(8) of the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCAR) protects legal professional privilege (LPP) for documents called for by the Financial Reporting Council (FRC) and that there is no general "no infringement" or lower-threshold "technical infringement" exception to privilege derived from para. 32 of Lord Hoffmann's speech in Morgan Grenfell. The court applied the test in Morgan Grenfell and B v Auckland and concluded that Parliament had clearly preserved LPP in Schedule 2(1)(8) and (9).

However, the court rejected Sports Direct’s argument that pre-existing, non‑privileged documents become privileged merely because they were attached to privileged legal communications. On established authority (including Ventouris and Imerman) such attachments do not acquire privilege by being sent to lawyers as part of a privileged email. Accordingly the judge’s order for disclosure of the 40 privileged emails was set aside, but the order requiring disclosure of non‑privileged attachments to those emails was upheld.

Background and parties: The FRC was investigating the audit by Grant Thornton UK LLP (and an individual at that firm) of Sports Direct’s group accounts for the year ending 24 April 2016, in particular arrangements involving Barlin Delivery Ltd. The FRC issued notices under para. 1 Schedule 2 SATCAR and the FRC's Audit Enforcement Procedure on 20 April 2017 requiring production of emails and attachments responsive to date, custodian and search-term criteria. Sports Direct produced about 2,000 documents but withheld 40 emails and attachments on grounds of legal professional privilege.

Nature of the application/appeal: Sports Direct appealed against Mr Justice Arnold’s order (EWHC 2284 (Ch)) that it disclose those documents to the FRC. The appeal raised two principal issues: (i) the "Infringement Issue" — whether disclosure to the FRC would infringe LPP or whether a regulator‑based exception (drawn from para. 32 of Lord Hoffmann’s speech in Morgan Grenfell) or a lesser "technical infringement" test applied; and (ii) the "Communication Issue" — whether pre-existing, non‑privileged attachments to privileged emails acquired privilege by being attached.

Issues framed by the court:

• Whether Schedule 2(1)(8) of SATCAR must be read as permitting the FRC to require production of documents subject to LPP (the court applied the Morgan Grenfell / B v Auckland necessary-implication test).
• Whether the observations in para. 32 of Morgan Grenfell support a no-infringement or technical-infringement exception permitting compelled production of privileged material to a regulator.
• Whether pre-existing documents attached to privileged communications become privileged by virtue of the attachment.

Reasoning and outcome: The court concluded that Lord Hoffmann’s para. 32 remarks do not establish a general no-infringement or reduced-threshold exception to LPP and that the proper exercise is the Morgan Grenfell/B v Auckland test of necessary implication. Schedule 2(1)(8) and (9) expressly protect communications that would be protected in High Court proceedings, and that plain wording precludes implying any general regulatory exception. Accordingly the judge erred in ordering disclosure of the privileged emails. With respect to attachments, established authority (Ventouris, Imerman and related authorities) shows that pre-existing documents do not gain privilege simply by being sent to lawyers as attachments; on proper construction of the Notice an attachment falls within scope if attached to an email that meets the Notice criteria, but if the attachment is not itself privileged it is not protected by LPP. The Court therefore allowed the appeal in relation to the privileged emails but dismissed it in relation to non-privileged attachments.

Procedural posture: Appeal from Arnold J (Chancery Division): [2018] EWHC 2284 (Ch) to the Court of Appeal: [2020] EWCA Civ 177.

Appeal allowed in part. The Court of Appeal held that paragraph 1(8) of Schedule 2 to SATCAR protects legal professional privilege and there is no general "no infringement" or "technical infringement" exception derivable from para. 32 of Lord Hoffmann’s speech in Morgan Grenfell. Accordingly the order requiring disclosure of the privileged emails was wrong. However, pre-existing, non-privileged attachments to privileged emails do not acquire privilege by virtue of attachment and must be disclosed where responsive to the Notice.

Appeal from the High Court (Chancery Division, Arnold J) [2018] EWHC 2284 (Ch) to the Court of Appeal [2020] EWCA Civ 177. The Court of Appeal allowed the appeal in part as to privileged emails and dismissed it as to non-privileged attachments.