Author: Nicola Sharp
29 February 2020
3 min read
Nicola Sharp of Rahman Ravelli outlines the ruling in the case of Sports Direct and the Financial Reporting Council and its significance for privilege.
The Financial Reporting Council’s (FRC’s) attempts to force Sports Direct to provide documents as part of its investigation into Grant Thornton’s auditing of the retailer’s 2016 accounts has prompted a notable ruling on privilege.
Sports Direct had refused to provide 40 documents and emails relating to information provided to Grant Thornton, the company’s auditors. The retailer argued that the documents were covered by legal advice privilege and should not be disclosed. It took the case to the Court of Appeal.
The Court of Appeal, in Sports Direct International plc and the Financial Reporting Council,  EWCA Civ 177], ruled that Sports Direct had to hand over attachments to emails demanded by the UK Financial Reporting Council (FRC) but allowed the company to keep the emails themselves confidential.
The Court stated that the recipient of a notice from the FRC requesting information under the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCAR) does not have to produce legally privileged documents. It is a decision that applies whether the person entitled to the privilege is the auditor under investigation or the subject of the audit. And it reverses a previous decision of the High Court case.
The Court of Appeal heard that Sports Direct gave approximately 2,000 documents to the FRC but withheld 40, arguing they were covered by legal professional privilege (LPP). The 40 were emails and attachments to emails sent to or by Sports Direct's legal advisers. Sports Direct would not say exactly what the attachments to the withheld emails were.
The Court of Appeal said there were two elements to consider:
The FRC argued that the emails contained material that would usually be considered to be protected by LPP but that they fell within a narrow exception recognised in the case law. This, the FRC argued, meant that in the particular circumstances of this request there would be no infringement of Sports Direct's privilege if the emails were handed over. The FRC also argued that any infringement would only be a technical infringement and would be authorised by the SATCAR regime.
But the Court of Appeal disagreed with the FRC’s view – which had been previously supported in the High Court – that, while it cannot require the disclosure of documents in which Grant Thornton can claim privilege, it can compel the disclosure of documents in which Sports Direct claims privilege, as Sports Direct is not the target of the investigation under SATCAR.
The Court of Appeal said there was no justification for the existence of a no-infringement exception to the protection conferred by LPP or for the application of a lower threshold for implying a statutory override on the grounds that any infringement of Sports Direct's LPP would be technical.
This related to 19 emails which had a total of 21 attachments. The Court of Appeal said that the emails meet the four criteria as to relevance, date, custodian and search terms in order to be covered by LPP. But some of the attachments to the emails were pre-existing documents that would not be protected by LPP if looked at by themselves separately from the emails. Taken by themselves, they did not meet the four criteria set out in the FRC’s notice - and only would do if treated as part and parcel of the email to which they are attached.
The Court of Appeal concluded that an email being privileged does not automatically mean that an attachment to it, which is a pre-existing document, is also privileged: privilege does not protect either the document itself or the fact that it was sent to a legal adviser under cover of a privileged communication.
The Court allowed Sports Direct’s appeal regarding the emails that are covered by LPP, meaning the retailer does not have to hand them to the FRC. But the Court dismissed the appeal in relation to the attachments to those emails, as those attachments are not themselves privileged.
This article was also featured on Lexology.com.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.