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Privilege Denied – “Dominant Purpose” in Practice

14 October 2020

In the long-running case of Financial Reporting Council v Fraser’s Group (formerly Sports Direct International Plc) numerous issues of privilege have arisen.

In the latest instalment of the case, the High Court recently handed down a judgment on whether Fraser’s Group (formerly Sports Direct International Plc) (SDI) could rely on litigation privilege to refuse to produce documents to the FRC.


Set out below is a very brief introduction to litigation privilege and a review of the latest judgment. Further information on legal professional privilege can be found in our practical guide to privilege here.


Relevant principles

Litigation privilege is based on the idea that parties should be free in adversarial proceedings to prepare their case as fully as possible without the risk that their opponent will be able to recover the material generated by their preparations.


Litigation privilege applies to confidential communications between parties, their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation when, at the time of the communication in question, the following conditions are satisfied:


  1. Litigation is in progress or reasonably in contemplation;
  2. The communications are made with the sole or dominant purpose of conducting that anticipated litigation; and
  3. The litigation must be adversarial, not investigative or inquisitorial.

If these conditions are met, then litigation privilege is established. Requests for documents which meet these conditions can be refused.

Factual background

The Financial Reporting Council (FRC) regulates statutory auditors and audit work. Its functions include carrying out investigations into statutory auditors and audit work and imposing and enforcing sanctions. Its powers in this regard are derived from Statutory Auditors and Third Country Auditors Regulations 2016, SI 2016/649 (SATCAR), and the FRC’s Audit Enforcement Procedure (AEP).


The FRC has been investigating Grant Thornton’s (GT’s)  audit of SDI’s 2016 accounts for some time. As part of its investigation the FRC has exercised its power under SATCAR and the AEP to issue notices to SDI requiring the provision of certain documents because they are likely to shed light on the state of GT’s knowledge during the course of the relevant audit.


Among other things, the FRC has requested documents which SDI disclosed to Grant Thornton in 2015 which records separate advice Deloitte provided to SDI in or around 2015 regarding a certain tax structure (the Deloitte Material). SDI refused to comply with the FRC’s request and asserted a claim to litigation privilege over the Deloitte Material.


SDI asserted a claim to litigation privilege, in summary, on the following basis:


  • Deloitte devised a structure for a subsidiary of SDI in 2010 (the 2010 Structure).It was hoped that the structure would enable VAT on relevant European sales to be payable in the UK rather than in an EU customer’s Member State.
  • The relevant subsidiary, Retail Ltd (SDR), implemented the 2010 Structure in April 2010.
  • On 30 June 2014 the French tax authorities raised queries about the 2010 Structure. In or around 2014 other tax authorities were also scrutinising and challenging similar tax structures and it seemed likely that the 2010 Structure would also be challenged. SDR therefore assumed that the 2010 Structure would be formally challenged and that it would be involved in tax litigation in the near future.
  • One of SDR’s reactions to the perceived threat from the French and other EU tax authorities was to put in place a change to the 2010 Structure. Deloitte was engaged shortly after receipt of the French tax enquiry and, among other things, they advised on the implementation of a new tax structure (the 2015 Structure).The new structure was put in place in February 2015.
  • Deloitte’s relevant advice took the form of PowerPoint slides, which came to be known as the Deloitte Material. The purpose of Deloitte Materia was to put in place a new arrangement which would, it was hoped, have a better chance of avoiding adverse tax consequences.

Given the Deloitte Material was prepared during a period when litigation was in contemplation and was generated directly as a result of the likely challenge to the 2010 Structure, SDI claimed that the material was covered by litigation privilege. SDI refused to provide copies of the Deloitte Material to the FRC.


For the purposes of his judgment Nugee LJ was prepared to assume the Deloitte Material was produced at a time when there was a bona fide expectation that there would be  adversarial litigation over the 2010 Structure. The question in the case was therefore whether the Deloitte Material satisfied the remaining test for the assertion of litigation privilege, ie whether the Deloitte Material  was prepared with the sole or dominant purpose of conducting that anticipated litigation. 

Judgment – Dominant purpose test

The High Court found that the Deloitte Material did not benefit from litigation privilege.

The key reasoning was as follows:


  • The anticipated litigation in this case concerned a challenge to the 2010 Structure.
  • The purpose of the Deloitte Material was not to assist with litigation about the 2010 Structure.
  • The purpose of the Deloitte Material was to implement a new tax structure (the 2015 Structure).
  • The Deloitte Material was primarily advice as to how to pay less tax from 2015 onwards. The material was concerned with a future tax structure and was not advice about how to the conduct litigation about the previous 2010 Structure.
  • While the Deloitte Material was part of the response to the contemplated litigation about the 2010 Structure, that material did not involve advice as to the merits of litigation about the 2010 Structure, or advice as to how best to conduct or settle that litigation claim; nor was it for the purpose of providing evidence for the defence of the anticipated claim.

On the basis of the above reasoning Nugee LJ concluded that the dominant purpose of the Deloitte Material was not to conduct the anticipated litigation concerning the earlier 2010 Structure.


Nugee LJ found that the real purpose of the Deloitte Material was to obtain advice on the efficacy of a new tax structure.  As such, the Deloitte Material was primarily advice about how to pay less tax. That was not a litigation purpose and so litigation privilege could not be claimed.


Interestingly, SDI sought to argue that litigation privilege could be claimed in respect of the Deloitte Material on the alternative ground that (a) it was contemplated that the 2015 Structure might also be challenged in future and (b) the purpose of the Deloitte Material was to take advice  in connection with that future potential litigation. In other words, it was argued that the dominant purpose of the Deloitte Material was in connection with future potential challenges to the 2015 Structure. Nugee LJ did not accept this argument. He found that the Deloitte Material was not obtained to assist in future litigation – the Deloitte Material was generated because SDI wanted a new tax structure and wanted to be free of certain tax obligations. In other words, Nugee LJ held that a taxpayer who takes advice about how to structure his affairs does not do so for litigation purposes even in circumstances where litigation in connection with the structure might be forthcoming. For this reason, the Deloitte Material was not produced for the sole or dominant purpose of litigation either in connection with the 2010 structure or the 2015 Structure and the test for litigation privilege was not satisfied. Accordingly, SDI was not entitled to rely on litigation privilege to refuse to produce documents to the FRC



The application of privilege to internal and regulatory investigations can raise complex legal issues. This case is a useful reminder about the importance of clearly identifying the purpose for which documents have been created.


The decision emphasises that, for litigation privilege to apply, a communication or document must have been prepared for the dominant purpose of obtaining advice or evidence in relation to litigation that is in progress or reasonably in contemplation. In this case the Deloitte material was undoubtedly created as a reaction to apprehended litigation, but the dominant purpose of the documents was not to deal with or defend the apprehended litigation. On that basis the claim for litigation privilege failed.


As a final point, it is worth noting that if SDI’s advice concerning the establishment of the 2015 Structure had been legal advice given by lawyers, legal advice privilege (rather than litigation privilege) could well have applied and allowed SDI to resist disclosure. However, legal advice privilege does not extend to non-lawyer professionals (such as accountants) who advise on legal matters (R (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1) and, as such, this option was not available in connection with the Deloitte Material.


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