Privilege No Defence To Notice Requiring Production Of Client's Privileged Documents To Regulator

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor's conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client's privilege. Accordingly, the fact that documents are subject to a client's privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

Background

The Financial Reporting Council (“FRC”) issued notices under their statutory powers requiring the respondent (“SDI”) to provide certain documents to assist with its investigation into the conduct of an accountancy firm and individual in relation to their audit of the financial statements of SDI. The FRC contended that SDI had failed to comply in certain respects with the notices and therefore sought a court order compelling compliance.

SDI argued that it was entitled to withhold certain documents from production on grounds of legal advice privilege.

It was common ground that, if the documents in question were subject to privilege which would be infringed by being produced to the FRC, then SDI was not required to produce them. This was because of a carve-out in the applicable regulations for information or documents which a person "would be entitled to refuse to provide or produce in proceedings in the High Court on the grounds of legal professional privilege".

The FRC did not accept the claim to privilege. The parties agreed that there were three issues of principle that should be resolved by the court regarding the claim to privilege:

whether legal advice privilege applied to documents purely by virtue of them having been attached to emails passing between SDI and its lawyers (the Communication Issue); whether SDI's waiver of privilege by...