Nicola Sharp of financial crime specialists Rahman Ravelli considers the case.

Sports Direct lost its long-running battle with the Financial Reporting Council (FRC) over the issue of documents being protected by attorney-client privilege.

A court has ruled that the sports retailer cannot assert legal privilege over tax advice prepared by Deloitte. The issue of privilege had arisen due to the FRC's investigation into the conduct of the retailer's former auditors Grant Thornton, who signed off a business arrangement between Sports Direct and the older brother of its owner Mike Ashley.

The High Court decided that reports drawn up by Deloitte for Sports Direct in relation to a proposed tax structure were not prepared for the sole or dominant purpose of litigation - and so were not protected from disclosure by litigation privilege.

The judgment is one of a series arising out of the FRC investigation. Sports Direct had previously handed over about 2,000 documents to the FRC. But it withheld 40, arguing that legal professional privilege applied.

The FRC challenged this and was successful in the High Court, although parts of the decision were overturned at the Court of Appeal. The matter then returned to the High Court, which had to decide if three reports prepared by Deloitte could be protected by privilege. Lord Justice Nugee found that the reports were prepared to recommend a new tax arrangement - and not for litigation - and so were not covered by privilege. Permission to appeal this judgment was refused.

It is a decision that reiterates what is necessary for a claim of litigation privilege to succeed. The guidance the case offers will be very useful should any similar issues arise in FRC audit investigations. It shows quite clearly that not all advice given in situations where litigation could arise will be covered by litigation privilege.

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