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Financial Reporting Council granted access to privileged documents of auditor’s client

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The Financial Reporting Council (FRC), the regulatory body for accountants, auditors and actuaries in the UK, was allowed access to privileged material of a client of an auditor under investigation.   Although the decision is subject to an appeal, at present companies may feel rightly concerned about losing control over their privileged documents by being forced to provide them to the regulator of one of their professional advisers: FRC v Sports Direct International Plc [2018] EWHC 2284 (Ch), 11 September 2018

Since 2016 the FRC has been investigating Grant Thornton in relation to its audit of the financial statements of Sports Direct International (Sports Direct).  As part of its investigation, the FRC issued several statutory notices to Sports Direct.  The FRC sought material Sports Direct had already provided to Grant Thornton during the course of its audit, as well as additional material that remained in the hands of Sports Direct but related to Grant Thornton.  Sports Direct claimed privilege over some of this material and refused to produce it.  The FRC applied to the court to compel production.

Client’s privileged material disclosed to audit regulator does not infringe the privilege 

The FRC submitted that disclosure by Sports Direct of its privileged material to the FRC, for the purpose of the FRC investigation of Grant Thornton’s audit of Sports Direct, did not infringe Sports Direct’s privilege.  This was principally because the disclosure to the regulator did not result in that material being made publicly available.  It was also not sought for the purpose of or used in such a way as to be relied upon against Sports Direct.

The FRC went on to suggest that if there was an infringement, it was only a “technical” one – and thus permissible.  It was technical in that while the privilege may have been infringed, such infringement was not prejudicial to the client in any way (as it was only being sought for the purposes of the FRC’s investigation into Grant Thornton).  The FRC argued that the statutory powers pursuant to which it had requested the material impliedly authorised a technical infringement of this nature.

Arnold J agreed with the FRC, finding that the same was true irrespective of whether the documents were held by an auditor or its client.  Despite acknowledging he was not entirely comfortable with the conclusion reached in this case,  Arnold J was nonetheless bound by an earlier House of Lords decision.1  

No limited waiver by client relating to audit investigation

The FRC argued any privileged material Sports Direct had already provided to Grant Thornton in the course of its audit should also be provided to the FRC.  In addition to the “no infringement” argument above, the FRC argued in the alternative that Sports Direct had impliedly granted a selective and limited waiver of privilege over the material it had already provided to Grant Thornton.  The FRC argued that it was entitled to the privileged material on the basis that the waiver necessarily extended to the FRC for the purposes of regulating the auditor’s conduct in respect of the same material, in other words that regulatory oversight is a necessary extension of the audit function. Sports Direct submitted that this waiver did not extend beyond Grant Thornton, or beyond its use by Grant Thornton for the purposes of the audit.

Arnold J held that the FRC was not entitled to the privileged material merely because it had already been shared with Grant Thornton, over which the FRC had regulatory supervision.  It was incorrect to suggest that the regulatory process and the audit process were part of a single continuum.  

Attaching material to a privileged communication does not make it privileged 

Sports Direct asserted privilege over certain material attached to emails between Sports Direct and its lawyers (which had been provided by Sports Direct to Grant Thornton).  An example was a contract between a subsidiary of Sports Direct and a third party.

Arnold J confirmed that privilege does not extend to any material that was not privileged per se but that had been attached to privileged communications. Using the example of press cuttings2 attached to a lawyer’s email, Arnold J observed that a client who asks its lawyer for relevant press cuttings because it is convenient is not asking for legal advice.  The act by the lawyer of attaching them to an email to its client does not convert what are pre-existing, non-privileged press cuttings to privileged ones.


Companies may face increased disclosure requests for privileged material from the FRC as a result of this ruling, although it is being appealed.  Such disclosure requests may cover both material already provided to auditors during the course of an audit as well as additional material not provided to the auditor but relating to it.  Although the disclosure is limited to circumstances where the accountant or auditor itself is under investigation, companies may well share Arnold J’s discomfort at the implications of his ruling and will want to consider carefully the basis on which they accede to such a request.  They may want to seek reassurance about how the documents will be used and who they will be disclosed to so as to mitigate the risks of: (i) any inadvertent disclosure during enforcement proceedings against the regulated entity; and/or (ii) the documents being disclosed to another regulator or investigating authority.


1 R (Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2003] 1 AC 563

2 from Property Alliance Group Ltd v Royal Bank of Scotland [2015] EWHC 3187 (Ch), [2016] 1 WLR 992

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards,