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Supreme Court clarifies the SFO’s powers to compel production of overseas documents

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management

08-02-2021

The UK Supreme Court has ruled that the Serious Fraud Office (“SFO”) does not have the power to compel a foreign party to produce evidential material held overseas. The decision provides welcome clarity almost two years after the lower court gave judgment to the opposite effect. The Supreme Court ruling means that the SFO cannot bypass the process of mutual legal assistance in order to obtain evidential material which is held in a foreign jurisdiction by non-UK persons.

Background

On 25 July 2017, as part of a criminal investigation into KBR Ltd, the UK subsidiary of US company KBR Inc, the SFO issued a notice pursuant to Section 2(3) of the Criminal Justice Act 1987 (“CJA”) requiring KBR Inc to produce documents held by it outside the UK. KBR Inc applied to the High Court for permission to apply for judicial review and, if permission was granted, the quashing of the notice.

In a decision handed down in April 2018, the High Court granted KBR Inc permission to apply for judicial review, but subsequently found that it preferred the SFO’s arguments on jurisdiction, and its construction of section 2(3) of the CJA, and dismissed KBR Inc’s claim.

In its judgment, the High Court held that KBR Inc’s “own actions make good a sufficient connection between it and the UK” in that certain payments which had featured centrally in the SFO’s investigation of KBR Ltd had been approved by KBR Inc and paid through its treasury function, which was based in the USA. This view was strengthened by the fact that one of KBR Inc’s senior corporate officers was based in, and worked from, the UK at the relevant time. The High Court also stated that that the mutual legal assistance process is an additional power which provides the SFO with further options, rather than curtailing its discretion to use section 2 notices.

Arguments on appeal

KBR Inc appealed to the Supreme Court and the appeal was heard by a panel of five Justices in October 2020 (Lord Lloyd-Jones, Lord Briggs, Lady Arden, Lord Hamblen and Lord Stephens).

The appellant submitted that Parliament did not intend to confer extraterritorial powers on the SFO by way of Section 2 of the CJA and that such matters were for Parliament to deal with, not the UK Courts.

The appellant further submitted that, whilst there is a public interest in the SFO being able to obtain material from overseas in order to investigate serious crime, Parliament had intended that public interest was to be addressed by way of international agreements which accorded with principles of international comity.

In response, the respondent argued that there is a very strong public interest in ensuring effective investigation by the SFO, and that this is both a national and international public interest. It was submitted that the extra-territorial effect of Section 2(3) of the CJA must be implied as its purpose to facilitate the investigation of serious fraud, which often carries an international dimension, could not otherwise be effectively achieved.

The decision

The Supreme Court allowed the appeal, ruling that Section 2(3) of the CJA does not have extra-territorial effect when considering evidential material held outside of the UK jurisdiction by a non-UK company.

Agreeing with the appellant, the Court indicated that the starting point when interpreting Section 2(3) of the CJA is the presumption that UK legislation is not intended to have extra-territorial effect. If there was an intention for legislation to have extra-territorial effect, this would ordinarily have been clear by the inclusion of express wording which does not feature in Section 2(3) of the CJA.

The Court acknowledged that international systems of mutual legal assistance are designed to facilitate criminal proceedings and investigations and that these carry certain protections and safeguards relating to how documentary evidence may be used and the provision for its return. The Court considered it unlikely that Parliament would have intended for such systems to operate alongside a broad power permitting the SFO to compel foreign companies to produce documents held outside of the UK jurisdiction without any protection or safeguards.

Analysis

The decision represents judicial endorsement of the position commonly recognised by practitioners that notices issued under Section 2(3) of the CJA (“s.2 Notice”) could not extend to evidential material held outside of the UK jurisdiction by non-UK persons.

This development will come as a disappointment to some in the SFO as the decision confirms that they are unable to bypass the often time-consuming process of mutual legal assistance, a situation which may likely present further hurdles in already complex cross-border investigations following the UK’s recent departure from the EU.

International companies should take steps to understand their own records, but particularly their IT architecture so that in the event of receiving a s.2 Notice the company would be able to quickly identify which material falls under the jurisdiction of the UK and therefore potentially within the scope of the s.2 Notice.

Case reference:

R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2

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