The Financial Reporting Council Ltd v Frasers Group Plc

Litigation privilege protects communications made for the sole or dominant purpose of conducting adversarial litigation. The fact that litigation is contemplated does not make advice privileged merely because it responds to the threat of litigation. Advice on structuring commercial or tax affairs remains directed to achieving the desired commercial or fiscal result, even where the structure may later be challenged and litigation is anticipated. Advice explaining how an adopted structure should operate is similarly non-privileged unless its dominant purpose is to inform the conduct of the litigation or provide evidence for use in it.

The Financial Reporting Council sought documents from Frasers Group Plc, formerly Sports Direct International Plc, during a regulatory investigation into the audit of its 2016 financial statements. The documents comprised three Deloitte presentations concerning changes to the group’s EU distance-selling and VAT structure.

The respondent claimed litigation privilege, arguing that the documents had been prepared in anticipation of challenges by EU tax authorities. The issue was whether the documents had been produced for the sole or dominant purpose of conducting contemplated adversarial litigation.

1. Application dismissed in substance. The three Deloitte reports were not protected by litigation privilege and were not privileged from disclosure.
2. The applicable requirements, drawn from Three Rivers DC v Bank of England (No 6) [2004] UKHL 48, were that litigation must be in progress or in contemplation, the communication must have been made for the sole or dominant purpose of conducting that litigation, and the litigation must be adversarial rather than investigative or inquisitorial.
3. The decisive requirement was dominant purpose. The court assumed that the respondent genuinely expected litigation concerning its distance-selling arrangements. That did not establish that the reports were written for use in that litigation.
4. The first report recommended adopting the 2015 structure. Its purpose was to improve the respondent’s VAT position and reduce the risk of future challenges. It was not advice on the merits or conduct of litigation concerning the earlier structure, nor evidence intended for use in that litigation.
5. The second and third reports explained how VAT should be accounted for under the structure already adopted. Their purpose was to enable the respondent to operate the structure as advised, rather than to assist its position in future litigation.
6. The distinction reflected the principles in Anderson v Bank of British Columbia (1876) 2 Ch D 644, Southwark and Vauxhall Water Co v Quick (1878) 3 QBD 315, Wheeler v Le Marchant (1881) 17 Ch D 675 and WH Holding Ltd v E20 Stadium LLP [2018] EWCA Civ 2652. Advice on arranging affairs to avoid unsuccessful litigation was materially different from advice obtained to assess litigation prospects or prepare evidence for deployment in litigation.
7. It was unnecessary to determine definitively whether litigation was reasonably contemplated when each report was produced.

• High Court (Chancery Division): Arnold J determined earlier issues concerning disclosure and legal advice privilege in The Financial Reporting Council Ltd v Sports Direct International plc [2018] EWHC 2284 (Ch).
• Court of Appeal: the respondent’s appeal on the infringement issue was allowed in The Financial Reporting Council Ltd v Sports Direct International Ltd [2020] EWCA Civ 177, leaving the litigation-privilege issue for determination.
• High Court (Chancery Division): the three documents were held not to attract litigation privilege.