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Disclosure of Privileged Documents to a Regulator | Once Privileged, Always Privileged

  • Ireland
  • General

25-02-2020

The UK Court of Appeal recently gave an important decision in Sports Direct International Plc v The Financial Reporting Council1 (“the Sports Direct case”) concerning the disclosure of privileged documents to a UK regulator, the Financial Reporting Council (FRC). In this note we look behind the decision and its likely implications in Ireland.

Quick overview of Legal Professional Privilege

“Legal professional privilege is a fundamental condition on which the administration of justice as a whole rests”2.

Legal professional privilege (LPP) comprises litigation privilege and legal advice privilege.  It is regarded by the courts as a fundamental human right, protected by our Constitution and by the European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR).  It follows therefore that any incursion into this area of privilege, must be principled and clear. The Irish and UK courts are consistent in their view that there is no room for balancing competing rights of the parties where LPP exists. In order words, LPP is an absolute right3. This consistency in approach however was destabilised following a decision by the High Court in the Sports Direct case, discussed below, and later overturned on appeal.

It is important to note that LPP can be overridden in certain circumstances. For example, LPP

- will be lost where it is being used as a cloak to cover fraud or crime 
- can be waived by the holder of the privilege, and
- can be overridden by express statutory provision4

It was this latter exception that was the focus of the Sports Direct case.

Facts

The case arises out of the ongoing FRC investigation into the conduct of Sports Direct former auditors, Grant Thornton (GT) and an individual at that firm. The investigation concerns the audit of financial statements of Sports Direct and its subsidiaries, and in particular the non- disclosure in the accounts of a relationship between the owners of a delivery service provider and a Sports Direct subsidiary company. As part of the investigation, the FRC served a notice to produce documents (the “Notice”) on Sports Direct under UK Regulations. Sports Direct withheld production of 40 documents on the grounds that they were covered by LPP. The 40 documents comprised emails and attachments sent to or by Sports Direct legal advisers (the “privileged documents”).

The High Court

In 2018 the High Court held that producing the privileged documents to the regulator would not infringe the LPP belonging to Sports Direct. The High Court upheld the FRC’s arguments that although it could not require the disclosure of documents over which GT is entitled to claim privilege, it could compel disclosure of the Sports Direct privileged documents, because Sports Direct is not the target of the FRC investigation. Sports Direct was ordered to disclose the privileged documents to the FRC. It appealed that decision.

The Court of Appeal

The CoA’s starting point was that although statutory intrusion onto LPP may be permissible, the courts will not readily infer such an intention into a statute and it must be “expressly stated or appear[s] by necessary implication”5.

The CoA reviewed the Regulations under which the FRC served the Notice on Sports Direct. It found that the wording did not contain any express provision overriding LPP, instead there was a section which appeared to limit the FRC’s power to obtain disclosure of the privileged documents. The relevant section provided:

“A Notice under [the Regulations] does not require a person to provide any information…which the person would be entitled to refuse to provide or produce -

(a) in any proceedings in the High Court on the grounds of LPP…”

FRC’s successful arguments before the High Court were based on observations made by Lord Hoffman in an earlier case (Morgan Grenfell)6  that it was not the case that the clients of the firm under investigation had no LPP, rather that, their LPP was not being infringed on the basis that the investigators were not entitled to use the information disclosed to it for any other purpose other than the investigation (the “no infringement exception”).  Even if this limited disclosure did technically breach the client’s LPP, it was authorised by statute (the “technical infringement exception”).

This was overturned by the CoA, holding that there is no authority for the existence of a “no infringement exception” to the protection conferred by LPP, or for the application of some lower threshold for implying a statutory override on the grounds that any infringement of Sports Direct LPP would be “technical” (and so there was no infringement of their rights). The CoA also rejected arguments that a hindrance of the FRC’s investigatory powers as a result of LPP can imply an override of LPP. The job of the court is to review the statute at issue to see whether parliament intended to override LPP.  In this case, there was no such intention.

The CoA therefore allowed the Sports Direct appeal in relation to the documents covered by LPP.

Attachments to emails

Some of the privileged documents were emails with attachments.  Whilst the emails themselves were covered by LPP, some of the attachments were not as they were pre-existing documents. Sports Direct argued that the attachments on their own fell outside the scope of the Notice so they did not need to be disclosed.  In the alternative, it argued that they are one and the same as the emails and so should be regarded as privileged.

The CoA held that an attachment was caught by the Notice if it was attached to an email which fell within its scope. It also held that privilege does not protect pre-existing documents just because they are sent to a legal advisor under cover of a privileged communication. The CoA dismissed this part of the appeal, as the attachments are not themselves privileged.

Ireland – some observations

Generally in Ireland, privileged materials are protected from disclosure. Like England however, there are exceptions to LPP as set out above. Whether a particular statute modifies or abrogates LPP has yet to be considered before the Irish courts.

In determining whether a statute provides for an override of LPP in Ireland, a close examination of the relevant statute authorising disclosure will be necessary. The Central Bank Acts7, the Financial Services and Pensions Ombudsman Act 20178 and the Companies Act 20149 all provide the relevant regulators with investigatory powers and powers to compel production of documents. As was the situation in the Sports Direct case, these Acts also provide protection for privileged information10.

In our experience, Irish regulators and investigatory bodies respect the concept of privilege. It remains to be seen, however, whether such bodies will follow the UK regulators approach and seek to challenge a LPP claim on the basis of statutory override. Although UK cases are not binding here, it is likely that the Irish courts would adopt a similar approach to the CoA’s decision in the Sports Direct case were a regulator to challenge a claim to privilege, whether it is the regulated entities  own privilege or where the privilege belongs to their client. The judgment should provide comfort to regulated entities and their clients as regards the robustness of LPP.  It reinforces the fundamental importance of LPP and the underlying principle of legal advice privilege that once privileged, always privileged.


1[2020] EWCA Civ 177

2Lord Taylor CJ, R v Derby Magistrates’ Court [1996] AC 487

3See for example R v Derby Magistrates’ Court and Fyffes plc v DCC plc [2005] 1 IR 59.

4per Fennelly J in Fyffes plc v DCC plc [2005] 1 IR 59

5Lord Hoffman in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax and another [2002] UKHL 21; [2003] 1 AC 563.

6R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax and another [2002] UKHL 21.

7Section 27 Central Bank (Supervision and Enforcement) Act 2013

8Section 47

9Section 794, under which the Director of Public Prosecutions, the Director of Corporate Enforcement or a Garda Superintendent may seek an order from the District Court authorising the inspection of books or papers of a company and requiring their production.


10Eg Section 795 Companies Act 2014. Section 47 FSPO Act 2017. Section 33 Central Bank (Supervision and Enforcement) Act 2013, although the bank can challenge this assertion before the court in certain circumstances.

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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