Disclosure Of Documents To A Regulator Held Not To Infringe Privilege

The High Court has recently held that an entitlement to legal professional privilege on the part of an auditor's client is not infringed by the production of documents to the Financial Reporting Council ("FRC") when the purpose of the disclosure was for a confidential investigation carried out by the FRC into the auditor's conduct. In this briefing, we discuss this recent decision; the case of The Financial Reporting Council Ltd v Sports Direct International plc [2018] EWHC 2284 (Ch).

Background

The FRC is conducting an investigation under its Audit Enforcement Procedure ("AEP") into the conduct of the auditors in relation to the audit of some of Sports Direct International Plc's ("Sports Direct") financial statements. The FRC exercised its power pursuant to paragraph 1(3) of Schedule 2 of the Statutory Auditors and Third Country Auditors Regulations 2016, SI 2016/649 ("SATCAR") and rule 10(b) of the AEP to issue notices ("Rule 10 Notices") to Sports Direct requiring the provision of certain documents that were likely to assist the FRC's investigation.

Sports Direct produced most of the documents but claimed legal advice privilege in respect of some emails between Sports Direct, or its subsidiaries, and its external lawyers, and attachments to those emails. The FRC submitted that Sports Direct failed to comply with the Rule 10 Notices and therefore applied to the court for an order compelling Sports Direct's compliance with the notices. It is believed that this is the first application of its type to have been heard by the Courts.

The issues before Arnold J were as follows:

Did legal advice privilege apply to documents which were not privileged themselves but were attached to privileged emails between lawyer and client? Did Sports Direct's waiver of privilege over documents, which occurred by sending copies of them to their auditors for the purposes of the audit, constitute an extension of the waiver to the FRC? Would a disclosure of the documents to the FRC infringe Sports Direct's privilege? The High Court decision

1. Pre-existing, non-privileged documents

   On the first issue, Arnold J followed the case of Ventouris v Mountain (The Italia Express) (No 1) [1991] 1 WLR 607, and held, unsurprisingly, that privilege did not extend to a pre-existing, non-privileged document merely because it has been attached to a piece of privileged communication.

2. Implied waiver of privilege

   In respect of the second issue, the FRC argued that disclosure of...