In the recent case of A v B and the Financial Reporting Council 1 ("FRC") the Court considered the difficulty facing a regulated body when dealing with a statutory request to produce documents which a third party asserts (or may assert) are privileged.
As part of a regulatory investigation, the FRC issued a statutory notice requiring an auditor, which was the subject of the investigation, to produce papers, including those regarding its client's business. The legislation makes it clear that the obligation to provide documents in response to a statutory notice does not arise where the person served with the notice would be entitled to refuse to produce those documents in the High Court on the grounds of legal professional privilege. Broadly, this type of privilege applies to documents created for the purpose of giving confidential legal advice and to documents created for the purpose of actual or anticipated litigation. There is a similar exception to the Pensions Regulator's powers to require the production of documents.
Following the issuance of the statutory notice, the auditor wished to disclose the documents in question to the FRC, but the auditor's client attempted to prevent the disclosure by asserting privilege. The auditor's client claimed that the auditor had the right, and was obliged, to rely on legal professional privilege in respect of certain of the client's documents potentially within the scope of the FRC's request. However, the auditor did not think that a claim for privilege could properly be made in respect of six of these documents. In light of this, the auditor had to decide whether to: (i) withhold the documents from the FRC on the basis that its client had asserted that they were privileged; or (ii) disclose the documents to the FRC on the basis that it did not consider them to be privileged (which carried the risk that if the documents were in fact privileged it would have breached confidentiality duties owed to its client and potentially exposed itself to a claim).
The Court was asked to consider whether the documents were indeed protected by privilege, which involved considering how the tension between the auditor's statutory obligations and its client's assertion of privilege should be resolved.
Decision – General Guidance
The Court held that:
- the party who is served with a statutory notice to disclose documents must comply with that statutory notice unless the document(s) requested are privileged;
- the entitlement to withhold a document derives from the privileged nature of the document, not from the mere assertion that it is privileged;
- it is for the party which is subject to the statutory notice to disclose documents (i.e. the auditor in this case) to determine if a document should be disclosed or not.The disclosing party cannot rely on a mere assertion of privilege from a third party (i.e. the auditor's client in this case).Ultimately, if the disclosing party makes the wrong decision and fails to maintain privilege, it risks being liable to the third party (and this could detrimentally impact the disclosing party's reputation);
- the relationship between the party subject to the statutory notice and the third party will be relevant, including regarding the nature and extent of any obligation on the party subject to the notice to inform the third party that it has been asked to disclose the documents in question; and
- the third party's right to claim privilege (if proper grounds to do so exist) can be protected by an application to the Court, including if necessary by seeking an interim injunction to prevent the disclosure of the document until the claim to privilege has been determined.
This means that if there is a disagreement between the party subject to the statutory notice and a third party which claims that a document is protected by privilege, it can be resolved by asking the Court, with the benefit of submissions (and possibly evidence) from these parties on whether or not privilege applies. However, it is worth noting that there are also a number of other steps that the parties can take, prior to involving the Court. This could involve:
- a limited disclosure of the document, with redactions to protect privileged material; or
- a tripartite negotiation involving the regulatory body which issued the statutory notice, in order to reach a compromise that is mutually agreeable to all the parties.
In this case, the Court agreed that, whilst the FRC was a party to the original claim, the status of particular documents was a matter to be resolved between the party under the duty to disclose and the party asserting privilege – where the status of the documents could be explored fully. There was no particular reason for the FRC to consider that it should not be bound by the Court's ruling (unless there is a concern of collusion between the auditor and the client to mislead the Court into determining that the documents are privileged).
The Pensions Perspective
The Pensions Regulator, like the FRC, has the power to seek disclosure of documents. It may be that trustees and/or their advisers are asked to disclose material which includes documents that they received in confidence from the sponsoring employer, and over which the sponsoring employer wishes to maintain privilege. This can be particularly controversial if the trustees wish to disclose the documents to explain their actions to the Pensions Regulator but the sponsoring employer does not want them to disclose the documents.
The question of whether any document is privileged can cause difficulty as the trustees may not have full or sufficient information to form a judgment as to whether a document is privileged, and the application and boundaries of legal professional privilege are not always straightforward so there may be cases of genuine doubt or risk. If the trustees do not agree that a particular document is protected by privilege, or do not have sufficient information to make such a decision accurately, and this cannot be resolved by a constructive dialogue to find a way forward with the sponsoring employer and/or the Pensions Regulator (which may decide that sight of a particular document is not necessary for its purpose), then the trustees may need to make an application to the Court. The Court could be asked to make a determination as to whether a document is privileged or direct the trustees how to proceed. The circumstances where an application to the Court becomes necessary will generally be quite limited, but this case illustrates how trustees may seek to resolve the tension between their regulatory obligations and the sponsoring employer's interests where the employer considers that some of the documents it has shared with the trustees are protected by privilege and therefore ought not to be disclosed to the Pensions Regulator.
There are concerns that this ruling, in addition to other recent case law in this area, could make parties cautious about sharing certain documents, whether it be sponsoring employers with trustees or clients with their advisers. It remains to be seen whether this decision will be appealed. Therefore, for now, at least, it informs those dealing with requests to disclose documents to regulators, when faced with a conflict between a statutory duty to comply with the request and a third party's assertion that requested documents are privileged and should not be disclosed. This case further highlights that privilege can be difficult to navigate. In the event of any uncertainty, the appropriate professional advice should always be sought.