Compulsory Document Production Notices – Normal Service Resumed

In a decision that has major implications for the extraterritorial reach of UK investigations, the UK Supreme Court has handed down its judgment in R (on the application of KBR, Inc) (Appellant) v Director of the Serious Fraud Office (Respondent) [2021] UKSC 2.

The judgment, delivered by Lord Lloyd-Jones, brings an end to a dispute which has been rumbling between an American engineering giant and the UK's Serious Fraud Office (SFO) for some three-and-a-half years.

In a blow to the SFO, the Court held that its Director does not have the power to require a foreign company to produce material held overseas by issuing a notice under section 2(3) of the Criminal Justice Act 1987 (CJA 1987).

Facts

The engineering firm in question, KBR Inc, is a large US company which trades on the S&P 400 and is parent of the KBR Group. Although KBR Inc has no presence of its own in the UK, it does have UK-based subsidiaries, including Kellogg Brown & Root Ltd (KBR Ltd).

On 17 February 2017, the SFO began a criminal investigation into KBR Ltd (and others), suspecting the commission of bribery and corruption offences. On 25 July 2017, the SFO issued a notice (the July Notice) pursuant to section 2(3) of the CJA 1987, requiring KBR Inc to produce documents that it held outside the UK. KBR Inc refused to do so and made an application for judicial review, arguing that the SFO Director did not have the authority to make such a demand to produce documents held outside the UK.

Procedural history and legal issues

KBR Inc's judicial review challenge was heard by Lord Justice Gross and Mr Justice Ouseley at the High Court on 17 April 2018. The company argued three grounds:

1. Jurisdiction: the July Notice was ultra vires because it requested material held outside the UK from a company incorporated in the US.
2. Discretion: it was an error of law by the SFO Director (at the time this was David Green) to exercise his powers under section 2 of the CJA 1987 to seek mutual legal assistance (MLA) from the US authorities.
3. Service: the July Notice was not effectively served by the SFO, who had handed it to a senior officer of KBR Inc who had been temporarily on British soil.

The High Court dismissed the judicial review challenge on all three grounds. The "Service" ground was rejected "almost summarily" to quote the dismissive words of Lord Justice Gross, who pointed out that KBR Inc was relying on the Civil Procedure Rules' service provisions, when s. 2(3) of the CJA 1987 does not require a notice to be "served" at all ([2018] EWHC 2368 (Admin), at paras 97-99).

The "Jurisdiction" and " Discretion" grounds, however, required much closer consideration. Under UK law there is a widely held presumption against legislation having extra-territorial effect unless this is expressly rebutted by the statutory language or some other compelling consideration. In spite of the fact that the CJA 1987 did not expressly enable section 2(3) notices to be served on non-UK companies for documents held outside of the UK, the High Court ruled that that presumption was rebutted and that the legislation was intended to have some extra-territorial effect, in particular if there was a "sufficient connection" between the company, the documents, and the UK. Ultimately, Lord Justice Gross found that there was "sufficient connection" between the US-incorporated KBR Inc and the UK. Citing the case of R v Redmond [2006] EWCA Crim 1744; [2009] 1 Cr App R 335, he also favoured the SFO's argument that the MLA procedure is an additional (i.e. separate) power to that contained in section 2(3) of the CJA 1987. The "sufficient connection" test was interesting, to say the least, given that such wording is not actually used in the CJA 1987.

Given the outcome and the fact that the High Court's ruling was the first by an English court on the question of the extraterritorial powers of UK prosecutors to demand document production, it came as little surprise that KBR Inc appealed to the Supreme Court.

The Supreme Court heard the evidence over the course of a single day on 13 October 2020. Counsel for KBR Inc and the SFO were, respectively, Lord Pannick QC and James Eadie QC, the familiar adversaries of Gina Miller's Brexit challenge of 2016 ([2017] UKSC 5). As in that case, parliamentary intention was under the microscope here.

On behalf of KBR Inc, Lord Pannick argued that Parliament's "clear and settled intention" was for the SFO to obtain material held overseas by MLA, not by a s. 2(3) notice. Furthermore, he pointed to other legislative mainstays used by the SFO, such as the Proceeds of Crime Act 2002 (POCA) and the Bribery Act 2010 (UKBA), and the provisions in such legislation which expressly enabled extraterritoriality. If Parliament's intention was for the SFO to have extraterritorial powers under s. 2(3) of the CJA 1987, they would have expressly inserted such wording.

For the SFO, James Eadie QC argued the importance of the "international public interest" in the SFO being given sufficient powers to fulfil its function, namely to investigate serious and complex fraud, bribery and corruption cases, which rarely confine themselves solely to the UK's territory.

The Supreme Court Judgment

The Supreme Court unanimously allowed KBR Inc's appeal, finding that the July Notice was invalid.

In handing down the judgment, Lord Lloyd-Jones highlighted that "judicial decisions concerning the extra-territorial effect of other statutory provisions should be approached with caution because they concern entirely different statutory schemes, often enacted for different purposes and operating in different contexts". The Supreme Court discussed the judgment in the case of the Serious Organised Crime Agency v Perry [2012] UKSC 35 and noted that although the provisions in POCA and the CJA 1987 were not analogous, "the reasoning of Perry is strongly supportive of the view that section 2(3) of the 1987 Act was not intended to confer a power to require disclosure by a foreign person abroad" .

The Supreme Court also considered the legislative history of the CJA 1987 and noted that, rather than giving express powers to compel production of evidence held overseas, successive pieces of legislation had instead developed structures to enable the UK to enter into international MLA systems in relation to criminal proceedings and investigation to obtain such overseas evidence.

Lord Lloyd-Jones held that where Parliament intends for legislation to have extra-territorial effect, it does so by way of "express wording" in statute and noted that it was "inherently improbable" that Parliament would leave a parallel system in place to obtain evidence from abroad, so as to allow the SFO to make unilateral demands, thereby circumventing the protections and safeguards that exist under the MLA.

Even more stridently, the Supreme Court held that introducing a "sufficient connection" test into s. 2(3), as had been done by the High Court, was inconsistent with Parliament's intention and "to do so would involve illegitimately re-writing the statute" .

Implications – what does the judgment mean?

The ruling is perhaps a greater blow to the SFO than it is a boon to KBR Inc, as the SFO had already discontinued the linked investigation into Unaoil and other investigations into companies linked to Unaoil. For the SFO, the ruling will have an immediate and profound impact on its operations. It imposes limits on the SFO's powers to gather evidence held abroad by non-UK companies and will increase its reliance, when seeking to obtain documents, on the cooperation of companies as part of the DPA process and/or MLA requests. These processes can be more stringent than document production notices, and in the case of MLA, can be significantly more time consuming.

Although few commentators considered the original ruling to be correct, the Supreme Court decision is a setback nevertheless, and comes on the back of the High Court ruling on corporate criminal liability in SFO v Barclays, which had already made it harder for the SFO to pursue corporates. The effect of both rulings means that the SFO will not be able to cut corners in obtaining evidence located overseas nor make it any easier to prosecute companies. That said, companies should not take too much comfort from the Supreme Court's decision. The SFO's powers to require the production of documents may have been curtailed, but alternative avenues to obtain documents remain open to it.