A question of privilege

Consider the following scenario: the Solicitors Regulation Authority (SRA) has reason to believe there has been professional misconduct by a solicitor and pursuant to its powers under section 44B of the Solicitors Act 1974 serves a notice on a firm, requiring them to produce specified documents. The documents include communications or other documents protected by legal professional privilege (LPP), a privilege which belongs to the firm’s client, not the firm. Is the firm obliged to produce those privileged documents to the SRA or can it (indeed, is it obliged) to refuse to do so? 

Do regulatory powers override privilege?

According to the SRA, the answer is clear. Its published guidance (How we gather evidence in our regulatory and disciplinary investigations), asserts that the SRA has “strong powers” which means that it “can see information even if it is confidential or subject to a client’s legal professional privilege”, while acknowledging that it “can only use [such information] for our regulatory purposes”. 

Solicitors and barristers

However, the combined effect of two recent decisions would appear to call into question whether the SRA’s stance is legally sound. To understand the effect of those decisions, it’s useful to consider the 50-year old decision of the Court of Appeal in Parry-Jones v The Law Society [1967] 1 Ch 1. In that case, the Court of Appeal found that Mr Parry-Jones, a solicitor, was not entitled to withhold documents requested by the Law Society pursuant to a notice under the Solicitors’ Account Rules 1945, on the grounds that they were protected by (the client’s) LPP. Although the result was clear, precisely why the court reached that conclusion was less so. Denning LJ appeared to consider that the Solicitors’ Account Rules “overrode” any “privilege or confidence”, whilst Diplock LJ thought that LPP had no application at all outside judicial or quasi-judicial proceedings; Salmon LJ agreed with both the other judgments. 

Nearly 40 years later, Parry-Jones was famously re-interpreted in an important obiter dictum of Lord Hoffmann in R (Morgan Grenfell) v Special Commissioners of Income Tax [2003] 1 AC 563. Lord Hoffmann explained that while he considered the result in Parry-Jones correct, the “true justification” for the decision was that: “…the clients’ LPP was not being infringed. The Law Society were not entitled to use information disclosed by the solicitor for any purpose other than the investigation…In my opinion this limited disclosure did not breach the clients’ LPP or, to the extent that it technically did, was authorised by the Law Society’s statutory powers. It does not seem to me to fall within the same principle as a case in which disclosure is sought for a use which involves the information being made public or used against the person entitled to the privilege.”

That re-interpretation of Parry-Jones was referred to with approval in a number of subsequent cases including Simms v The Law Society [2005] EWHC 408 (Admin), R (Lumsdon) v Legal Services Board [2014] EWHC 28 (Admin) (addressing the position of the Bar Standard Board) and by the Court of Appeal in the same case ([2014] EWCA Civ 1276). However, in each of those cases the consideration of the issue was obiter and brief. 

Accountants – the Sports Direct case

Then, in 2020, the issue arose for determination by the Court of Appeal, in a case which did not involve lawyers at all, but accountants: Financial Reporting Council v Sports Direct International [2021] Ch 457. The FRC is the regulator of accountants and auditors, and was investigating Grant Thornton (GT), the statutory auditor of Sports Direct International (SDI). Pursuant to that investigation, the FRC issued notices to SDI under the Statutory Auditors and Third Country Auditors Regulations 2016 (SATCAR) demanding the production of certain documents. SDI refused to provide a number of documents on the grounds they were protected by LPP. The FRC challenged SDI’s entitlement to do so and succeeded at first instance before Arnold J. SDI appealed.

What was referred to as an “infringement issue” lay at the heart of the appeal. The FRC argued, following Lord Hoffmann’s dictum in Morgan Grenfell, that because the FRC wanted the documents to investigate GT, the documents were not going to be used against SDI and that therefore SDI’s privilege was not being infringed. Alternatively, if SDI’s privilege was being infringed, it was only a “technical infringement”, such that (the FRC argued) the court should have been more willing to find a statutory authorisation to override privilege. In other words, the argument was that a ‘little’ infringement of LPP required only a ‘little’ authorisation.

In contrast, SDI argued that Lord Hoffmann’s dictum was inconsistent with core tenets of LPP, including LPP’s status as an absolute fundamental right which (absent waiver by the client) could only be “overridden” by statute. Moreover, as established by the decision of the House of Lords in Morgan Grenfell itself, a statutory override of LPP could only be established by express words or by “necessary implication”, a very demanding test.

In a powerful reaffirmation of fundamental principles of LPP, the Court of Appeal (Sir Terence Etherton MR, Lewison and Rose LJJ) allowed the appeal. Rose LJ, who delivered the only judgment, rejected both the existence of any “no infringement” principle applicable to regulators and the concept of gradations of infringement of LPP. The ultimate question was therefore whether the FRC could point to a statutory authorisation – either expressly or by necessary implication – to override LPP. It was plain it could not; SATCAR contained no such authorisation and, to the contrary, expressly preserved LPP. 

What was the implication for Parry-Jones itself? Rose LJ rejected the need to “retrofit a new ratio decidendi into Parry-Jones” and concluded that the case continued to stand for the proposition that “rule 11 of the Solicitors’ Account Rules 1945 conferred on the Law

Society a power to compel the production of documents in the hands of the solicitor even though the clients of the solicitor could assert privilege in those documents”. 

Regulatory powers

The Bar

Returning then to the question posed at the start of this article, where does that leave matters for the SRA? It is instructive to consider first the position of another legal regulator, the Bar Standards Board (BSB), which (unlike the SRA) does not have powers conferred by primary legislation and had therefore relied expressly in the past upon the (alleged) “no infringement principle”. As at the date of publication, the BSB’s published guidance to the Bar Code of Conduct still asserts that (by reference to Lord Hoffmann in Morgan Grenfell and Lumsdon) the BSB is entitled to require the production by a barrister of documents subject to the client’s LPP.  That position is simply not sustainable in light of the decision of the Court of Appeal in FRC v SDI, but apparently the BSB is aware of the issue and say that updated guidance will be issued in the near future. 

The SRA

As to the position of the SRA, the current guidance cited at the start of this article (and in particular the references to the SRA only using the privileged material for the SRA’s regulatory purpose) would also appear to involve an invocation of the alleged “no infringement” principle. However, after FRC v SDI, that principle is no more available to the SRA than to the BSB. The real question is therefore whether the SRA’s position is different given Rose LJ’s observation that Parry-Jones remains good law for the proposition identified above, namely that “rule 11 of the Solicitors’ Account Rules 1945 conferred on the Law Society a power to compel production” of privileged materials. However, that observation may be rather narrower – and less comforting to the SRA – than first appears. If the decision in Parry-Jones is confined to the specific (1945) account rules at issue in that case, it would appear not to provide an answer to the question posed at the start of this article concerning section 44B of the Solicitors Act 1974.

Approaching the matter from first principles and without the benefit of Parry-Jones, the question is a narrow one: applying the onerous standard set down in Morgan Grenfell, does the Solicitors Act 1974 (which does not contain an express override of LPP) incorporate such an override as a matter of necessary implication?

Scotland

It is on this question that the other recent case – the decision of the Inner House of the Court of Session in Scottish Legal Complaints Commission v Murray [2022] CSIH 46 – is instructive. The case arose in Scotland, where the regulatory landscape as regards solicitors differs materially from England. It concerned whether the powers of the Scottish Legal Complaints Commission (the SLCC, an independent body which deals with complaints against lawyers, but which does not perform the professional conduct functions of the SRA) to require production of documents extended to documents protected by LPP. The SLCC contended that they did so, while the respondent solicitors (supported by the Law Society of Scotland and Faculty of Advocates, both of whom intervened) maintained that they did not. 

Although the SLCC appears (somewhat tentatively) to have argued for a “no infringement” exception based on Lord Hoffmann’s dictum in Morgan Grenfell, that argument was, unsurprisingly, given short shrift in light of FRC v SDI. Instead, in line with the analysis suggested in this article, the Court of Session considered the real question was whether the SLCC could satisfy the “necessary implication” standard to establish an implied statutory override. The court emphasised the demanding nature of that test and following a careful analysis of the relevant statutory language and structure, concluded it could not be satisfied. Although a detailed analysis of the reasoning is beyond the scope of this article, it is notable that the court was plainly sceptical of arguments that the SLCC’s statutory function would be “thwarted” without the power to override LLP, pointing out that there were numerous ways in which relevant information might be obtained from non-privileged sources.

Where does this leave the SRA?

The combined effect of FRC v SDI and SLCC v Murray must be to cast real doubt upon whether the SRA’s position is truly consistent with the current law on LPP. Given the rejection of the “no infringement principle”, and the absence of any express statutory override in the Solicitors Act 1974, the only foundation for such a power on the part of the SRA would be a statutory override by way of “necessary implication”. However, as SLCC v Murray illustrates, that is an extremely difficult test to satisfy. 

Not least given that lawyers are under a positive duty (absent waiver) to assert their client’s privilege (see Addlesee v Dentons Europe LLP [2019] EWCA Civ 1600 at [59]-[60]), it seems likely that this issue will come before the courts for resolution in the not-too-distant future.