On 4 February 2021, the Supreme Court handed down their eagerly awaited judgment in the case of R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent)  UKSC 2. The issue was whether the SFO’s statutory powers, enabling them to compel documents under threat of criminal prosecution, could extend to requiring a non-UK individual or company to produce information held outside England and Wales. The Supreme Court concluded that they could not (full details can be found here).
Judgment of the Divisional Court
As discussed in our previous article, the Divisional Court’s judgment seemed to “drive a coach and horses through the MLA regime,” whilst the Supreme Court’s decision sees the reinstatement, and reinforcement, of the international law principles which underpin it.
The Supreme Court’s judgment brought this litigation to a close some three-and-a-half years after the SFO served the notice, pursuant to section 2 of the Criminal Justice Act 1987 (“the Section 2 Notice”), which gave rise to KBR’s original judicial review, on 25 July 2017.
The two questions of general public importance certified by the Divisional Court hearing the judicial review application were as follows:
- Does Section 2 permit the Director of the SFO to require a person to produce information held outside England and Wales?
- If so, does the Director of the SFO have power to do so by reference to the “sufficient connection test”?
The Divisional Court concluded in 2019 that the SFO’s Section 2 powers not only had extraterritorial effect in relation to UK companies, but also to foreign companies where there was a “sufficient connection” between that company and England and Wales. In so finding, the Court found assistance from the application of similar compulsory powers in insolvency cases.
Importantly, however, whilst finding in favour of the SFO, the Divisional Court made it clear there would be many instances in which the necessary connection could not be established. For example, the mere fact that a company had decided to cooperate voluntarily with the SFO would not be sufficient, and nor would the presence of senior company officers in England and Wales.
Analysis of the Supreme Court Decision
In considering how the SFO’s Section 2 powers should be interpreted, in light of the presumption against extraterritorial effect of domestic legislation, the Supreme Court noted the care with which Parliament had enacted successive legislation, and entered into various agreements with other states – including the US – relating to mutual legal assistance. The Court found that this had been designed to facilitate UK authorities obtaining evidence located outside of the UK, in order to give effectiveness to the conduct of investigations and prosecutions.
The Court also stressed the safeguards that had been inserted into the relevant legislation on the use to which evidence obtained through these channels could be put, noting that such safeguards “…are fundamental to the mutual respect and comity on which the system is founded.”
By contrast, the Court noted the SFO was arguing in favour of an interpretation of Section 2 which suggested Parliament had intended to allow the SFO to obtain such evidence in response to a “…unilateral demand…without any recourse to the courts or authorities of the State where the evidence was located and without the protection of any of the safeguards put in place under the scheme of mutual legal assistance.”
The Court also found assistance from the case of Serious Organised Crime Agency v Perry  1 A.C. 182, in which the extraterritorial effect of disclosure order regime in the Proceeds of Crime Act 2002 (“POCA”), which the Court observed bore close, indeed “striking”, similarities to the Section 2 regime; in short, the Court had concluded that disclosure orders under POCA could only be exercised in respect of persons within the jurisdiction.
The Court found the Divisional Court had been wrong to distinguish Perry as a result, and found it significant that amendments had been made to POCA, not to introduce extraterritoriality to the powers, but rather to make provision for a mutual legal assistance procedure “…which respects international comity through international agreement, reciprocity and mutually agreed conditions”. In contrast, the authorities which the SFO sought to rely upon, where statutory powers had been found to have extraterritorial effect, were properly distinguishable.
In finding the Divisional Court had erred in seeking assistance from broadly equivalent powers in the insolvency regime, the Court observed that the authorities relied upon were concerned with an “entirely different” statutory scheme, and that the differences between the schemes could not be “glossed over,” by reference to public policy interests.
The Court noted the safeguards that were built into the insolvency regime, including the fact that any order which had extraterritorial reach would be made by a court, the judge having discretion to make no order if justice so required.
In disapproving the Divisional Court’s finding that extraterritoriality was subject only to a “sufficient connection” test, the Court gave the following reasons:
- there is no basis for the broad reading of Section 2 contended for by the SFO;
- given that Section 2 powers are exercised by prosecutors and not judges, “…there is no scope here for limiting operation of a broad interpretation or safeguarding against exorbitant claims of jurisdiction by the exercise of judicial discretion”; and
- to interpret the power in such a way would involve “illegitimately re-writing the statute” and create inherent uncertainty in application.
The judgment of the Supreme Court restores the law to where those practicing in this area thought it to be and, indeed, within the limits that the SFO had itself respected until 2017. It should, however, be noted in considering the limits of the judgment itself and importantly that:
- it was accepted by the parties, in this case, that if the SFO serve a Section 2 notice on a UK company which itself holds documents abroad, then the notice will be lawful and enforceable;
- the Court left open the question as to the position if the SFO were to serve a similar notice on a non-UK company which has a registered office or fixed place of business in the UK, but expressed doubt as to whether such a notice would be lawful and enforceable; but
- what would not be lawful or enforceable is a notice served upon a non-UK company – whether or not physically served in the UK – for documents sitting outside of the UK.
It remains the case that the SFO can seek mutual legal assistance from foreign governments in order to pursue their investigations. This has been the case for decades, and whilst those practising in the area will be familiar with the delays that can be associated with such requests, the mechanism exists for the SFO to achieve the same outcome.
It is surprising that the SFO chose to take such an aggressive and legally ambitious approach in the circumstances and, notwithstanding the clarity which the Roskill Report and subsequent enactments relating to formal international cooperation in the arena of criminal investigations provide, as to what was in the mind of Parliament when creating the Section 2 powers. It is particularly surprising in light of the close relationship between the US and UK enforcement authorities, and the specific nature of the mutual legal assistance agreements between the two countries.
The manner in which the SFO decided to serve the Section 2 Notice on KBR did not escape the attention of the Supreme Court nor of lawyers and the corporate community. Not only did the SFO insist on a representative of KBR being present at the meeting, they gave no prior indication to the General Counsel and Company Secretary as to its intentions when she travelled to England, in good faith, in order to attend the meeting. The Court no doubt used the word “induced” when describing their conduct, advisedly.
It cannot be ignored that, along with the judgment of the Court of Appeal in the ENRC legal professional privilege litigation SFO v ENRC  EWCA Civ 2006, the judgment by the Divisional Court in the Sarclad litigation (R v (on the application of AL) v SFO  EWHC 856 (Admin)), the defeat in Barclays (SFO v Barclays Plc & Anr  EWHC 3055 (QB)), a series of corporate acquittals in Alstom, and the individuals in Sarclad, Tesco, and Barclays, this is yet another difficult day towards the end of a very difficult decade for the SFO.
  WLR 267
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