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The High Court considers purpose of advice in the context of litigation privilege

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management


The Financial Reporting Council Ltd v Frasers Group Plc [2020] EWHC 2607 (Ch) (05 October 2020)


  • In 2009/2010 Sports Direct (‘‘SD’’), now Frasers Group plc, structured its distance selling arrangements to customers in the EU so that VAT was to be paid to UK authorities, as opposed to the Member States where the goods were shipped. To achieve this, SD’s goods were delivered by a company which was part of the same corporate group but not part of the same VAT group (the ‘‘2010 Structure’’).
  • In 2014, the French authorities contacted SD inquiring into the 2010 Structure. In response, SD sought advice from Deloitte and RPC, a firm of solicitors.
  • As part of its advice, Deloitte gave 3 PowerPoint presentations (the “Deloitte Reports”) on a proposed new structure to strengthen SD’s position for the payment of VAT solely in the UK (the ‘‘2015 Structure’’).

The Financial Reporting Council’s challenge to privilege

  • As part of the Financial Reporting Council’s (‘‘FRC’’) investigation into the audit of SD’s 2016 financial statements, the FRC requested copies of the Deloitte Reports.
  • Pursuant to Regulation 10 and Schedule 2, paragraph 2 of the Statutory Auditors and Third Country Auditors Regulations 2016, SI 2016/649 (“SATCAR”) and paragraph 10(b) of the FRC’s Audit Enforcement Procedure, the FRC has a right to require disclosure of certain documents. Excepted from this requirement is privileged material.
  • SD resisted disclosure of the Deloitte Reports on the basis that these were protected from disclosure by litigation privilege (with litigation from the French authorities and other EU member states being contemplated).
  • The FRC made an application to the High Court seeking disclosure of the Deloitte Reports.


  • The Judge referred to the leading decision in Three Rivers DC v Bank of England (No 6) [2004] UKHL 48, which states that in order for litigation privilege to apply the following requirements must be satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.
  • The Judge assumed for the purposes of the application that SD could establish that it contemplated litigation over its distance selling arrangements in EU Member States under the 2010 Structure at the time the Deloitte Reports were produced. The Judge considered the key question was whether the Deloitte Reports had been produced for the sole or dominant purpose of conducting that litigation.
  • The Judge held that the Deloitte Reports were not intended to give advice as to the merits of litigation regarding the 2010 Structure, or advice as to how best to conduct or settle that litigation, nor provide evidence in the defence of such claims.
  • Rather, the purpose of the first of the Deloitte Reports was to recommend the 2015 Structure. The second and third of the Deloitte Reports were to explain how VAT was to be accounted for once the 2015 Structure had been adopted and to ensure it was being operated as Deloitte had advised.
  • Whilst the Deloitte Reports were a reaction to the threat of litigation relating to the 2010 Structure, they were not made with the purpose of assisting with that litigation and therefore litigation privilege did not apply.


  • Devising and implementing a structure which is intended to limit future challenges is not prepared for the purpose of conducting litigation. Rather, such advice is obtained for the purposes of trying to achieve a particular result (in this case a tax result).
  • Where a party wishes to ensure that tax structuring advice is protected from disclosure in litigation, then that advice will need to be provided by lawyers (rather than other advisors such as tax consultants) in order to benefit from legal advice privilege[1] (which is separate and distinct from litigation privilege). Legal advice privilege was not considered, and could not have applied, in this case as the advice in the Deloitte Reports were not prepared by lawyers.
  • Although the case did not hinge on whether litigation was in contemplation at the dates the Deloitte Reports were created, the Judge noted that (despite the apparently bland nature of the French enquiries into the 2010 Structure) he was not persuaded that he could properly go behind the witness evidence on behalf of SD that they did anticipate that a challenge from the French tax authorities was likely and that it would be followed by litigation.
  • This case demonstrates the FRC’s (and other regulators) continued willingness to challenge claims for privilege and the importance of ensuring that the evidence justifies such a claim.


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