The High Court has delivered a significant ruling on one of the most important boundaries between legal professional privilege (LPP) and regulatory oversight.
In Carter-Ruck Solicitors and another v Solicitors Regulation Authority, Mr Justice Butcher held that the SRA cannot use section 44B of the Solicitors Act 1974 to compel solicitors to hand over material protected by a client’s legal professional privilege (LPP) where that privilege has not been waived.
The decision is important because it exposes an issue that is as yet unresolved: how far should a regulator be able to look inside the solicitor-client relationship when investigating alleged misconduct?
And this is unlikely to be the final word. The SRA has said it is seeking permission to appeal.
What did the High Court actually decide?
The dispute centred on section 44B, a statutory power that allows the SRA to require regulated firms and individuals to produce documents and information for regulatory investigations.
The SRA argued that the provision gave it a statutory override of LPP. The regulator insists that without access to privileged material, there would be cases of serious misconduct that it can’t properly investigate.
But the court rejected that interpretation. Mr Justice Butcher found that section 44B does not expressly override LPP, and that it was not possible to imply such an override from the legislation. At most, he said, the wording was equivocal and that was not enough to override a fundamental right.
Legal professional privilege is not just another confidentiality obligation. As the judgment reaffirmed, it is a fundamental right that Parliament must use sufficiently clear language if it intends to override it.
As Iain Miller of Kingsley Napley notes, the case involves two competing public interests. The fundamental right to LPP is on one side, and the regulator’s need to investigate and enforce effectively is on the other.
His conclusion is that the judgment comes down on the side of the first. But, he adds, “this is not the end of the matter.”
Why is this an issue now?
The truth is, as Miller points out, this tension has existed for years but the legal landscape around privilege has changed. The courts have increasingly emphasised the fundamental status of LPP and the need for clear parliamentary language before it can be overridden.
At the same time, the SRA’s regulatory work has changed. Historically, a large proportion of regulatory investigations arose from complaints made by clients themselves. Where the client complains about their solicitor, privilege will often be waived, expressly or implicitly, making access to the relevant material less problematic.
Today, the regulator is increasingly investigating allegations raised by third parties. SLAPPs or strategic lawsuits against public participation, are a good example. The SRA may receive allegations from an opposing party and then need to reconstruct what happened inside the solicitor-client relationship.
The client may have no reason to waive privilege. In fact, the client’s interests may be directly opposed to the regulator’s investigation. As Miller adds, this means the issue has become increasingly significant as the SRA has moved into investigations involving complex facts and this third-party information.
The SRA pushes back
The SRA’s argument is that privileged material can sometimes be necessary to establish what actually happened and that this can work in favour of solicitors as well as against them.
Jonathan Peddie, the SRA’s Executive Director for Investigations, Enforcement and Litigation, said it is vital that the regulator has access to all relevant evidence when investigating potential wrongdoing. He also pointed out that privileged material can provide evidence that a solicitor or firm has not committed misconduct. A client may not want to waive privilege even where the material could help clear their lawyer.
The regulator says that, without access to privileged material, its ability to “get to the truth” in some cases could be compromised. It has therefore said it respectfully disagrees with the judgment and will seek permission to appeal. The SRA has also said it is taking immediate steps to manage the operational implications of the ruling, including guidance for staff dealing with ongoing investigations.
What does this mean for law firms?
For firms, the immediate point is that a section 44B notice does not currently entitle the SRA to demand documents protected by a client’s unwaived LPP. That means firms need to be careful about how they respond to regulatory production requests.
In the past, some firms may have provided privileged material while reserving their position on whether the SRA legally had the power to require it. That approach is now harder to justify. As Miller explains, firms now need to exclude LPP material from disclosure to the SRA. That could create additional work, particularly where a large regulatory disclosure exercise involves mixed collections of privileged and non-privileged documents.
And section 44B is not only relevant to LPP. It also provides a statutory mechanism for obtaining information and documents where a firm would otherwise have concerns about breaching its duties of client confidentiality. As Miller notes, it provides a “statutory gateway” that can override those confidentiality concerns. The judgment therefore does not mean that section 44B has disappeared.
The SRA retains its wider information-gathering powers, but firms now need to distinguish between confidential material and material protected by LPP.
Is this a victory for law firms?
The decision does strengthen the protection of the solicitor-client relationship. But it’s more of a clarification of a legal boundary than as a blanket win.
The judgment does not stop the SRA from investigating misconduct. Mr Justice Butcher specifically rejected the argument that without privileged material the SRA would be unable to fulfil its regulatory purpose.
He noted that many investigations can proceed without privileged material, including many client complaints, workplace bullying and harassment cases, and matters involving communications that are not privileged. The iniquity exception can also apply, where appropriate.
His conclusion was that losing access to privileged material may make some investigations more difficult or, in a limited category of cases, prevent them from being conducted as thoroughly as the SRA would like. But that was an impediment, he held, rather than the “stultification” of the SRA’s statutory purpose.
And now it moves towards Parliament
The SRA is likely to appeal, so the legal position may change again. But even if the SRA ultimately loses on appeal, the dispute could move to a different arena.
As Miller points out, one obvious solution would be for the Ministry of Justice to legislate expressly to provide that section 44B or equivalent regulatory powers, can override client LPP.
This possibility was already being discussed before the judgment. In August, Spotlight on Corruption argued that the government should give both the SRA and the Financial Conduct Authority explicit statutory powers to access privileged material when investigating lawyers, regardless of the outcome of the Carter-Ruck litigation.
The High Court has effectively left the question open. Mr Justice Butcher expressly said he had not considered whether it would be desirable for the SRA to have such a power. That, he said, was ultimately a matter for Parliament.
If the courts say the existing legislation does not clearly override privilege, Parliament could be asked to make that intention explicit.
And the issue could extend beyond the SRA. If future reforms give other regulators, including potentially the FCA in relevant circumstances, similarly explicit powers, the question would become not whether a statutory override exists by implication, but what safeguards Parliament puts around the use of privileged material.
Miller has identified this as a particularly important issue: if Parliament does legislate, there would need to be clear safeguards around the access, use and storage of LPP material.
What should law firms do now?
For now, firms should be thinking about process rather than panic. The judgment does not remove the SRA’s information-gathering powers, but it does mean firms need to look more carefully at what they are being asked to disclose under section 44B.
When a production notice arrives, firms should not automatically treat it as authority to hand over everything requested. They should identify any material that may be protected by the client’s LPP and consider what can properly be disclosed. That may make regulatory disclosure exercises more time-consuming, particularly where privileged and non-privileged material are mixed together.
It is also important not to confuse confidentiality with privilege. Not every piece of confidential client information is privileged, so firms will still need to establish the legal basis for withholding any particular material.
The position of the client is important. LPP belongs to the client, and where privilege applies, a firm cannot assume that a regulatory request provides permission to disclose privileged communications. The judgment reinforces the need to protect privileged material unless the client has waived the privilege or another recognised exception applies.
Finally, firms with ongoing SRA investigations should watch closely for what happens next. The SRA has said it is reviewing the judgment and taking steps to manage its operational implications, including guidance for its staff. That means the approach to existing production requests may evolve as the regulator works through the consequences of the ruling.
What should lawyers be watching next?
The immediate focus will be on the appeal. The SRA has already said it is seeking permission to appeal, so the next question is whether that permission is granted and, if it is, whether the case proceeds to the Court of Appeal or potentially goes directly to the Supreme Court by way of a leapfrog appeal.
In the meantime, there will be close attention on how the SRA manages its current investigations. The regulator will need to determine how it can proceed without access to privileged material and what happens to existing section 44B requests that may cover documents protected by LPP. Firms involved in ongoing investigations should expect the practical position to develop as the SRA works through the judgment.
Beyond the courts, the issue could increasingly become one for Parliament. If the courts ultimately uphold the position that section 44B does not override LPP, pressure for the government to legislate explicitly is likely to grow. As noted, that could potentially extend beyond the SRA. The question of whether regulators such as the FCA should have express statutory powers to access privileged material is already part of the wider debate.
And if Parliament does intervene, any legislation giving a regulator an express ability to override LPP would raise questions about who can access privileged material, how it is reviewed and stored, who can use it, and what happens to it afterwards.
The Carter-Ruck judgment exposes a regulatory fault line that has been developing for years: how do you give regulators enough power to investigate serious misconduct without undermining one of the foundations of the solicitor-client relationship?
For now, the High Court has drawn the line in favour of privilege. But with an appeal likely and the possibility of explicit legislation further down the road, law firms should recognise that this is not the end.
