Supreme Court blow for SFO on extraterritorial effect of section 2 notices

5th Feb 2021

Earlier today the Supreme Court handed down its judgment in R (on the application of KBR, Inc) v Director of the Serious Fraud Office.  The question for the court was whether a compulsory notice issued by the SFO under section 2 of the Criminal Justice Act 1987 could require a foreign person or company to produce material to the SFO that was held overseas.  The court held unanimously that it could not, reversing a 2018 ruling by the High Court.

The appeal arose out of the SFO bribery and corruption investigation into Kellogg Brown & Root Ltd (“KBR Ltd”), the UK subsidiary of KBR Inc which was incorporated in the US.  On 25 July 2017 the SFO issued a section 2 notice to KBR Inc requiring the production of documents held in the US by personally serving it on two senior officers of the company who had flown to the UK specifically at the SFO’s invitation to attend a meeting.  KBR Inc challenged the notice by way of judicial review on the ground that the notice was ultra vires since section 2(3) did not operate extraterritorially. In dismissing KBR Inc’s claim, the Divisional Court held that section 2 could have extraterritorial effect despite the normal presumption to the contrary in domestic law and despite the absence of any statutory language to that effect.  The question was about the extent of that effect, not its existence.  On that question, the Divisional Court interpreted the section in accordance with its legislative purpose and the mischief it was intended to address and held that section 2(3) would apply extraterritorially if there was a “sufficient connection” between the company and the UK.

The Supreme Court has now rejected the Divisional Court’s reasoning comprehensively.  The starting point was the presumption against extraterritorial effect which “reflects… international law” and is “rooted in the concept of comity”.  There were no precisely defined rules on the correct application of these principles so “(a)s a result, the presumption in domestic law is more extensive and reflects the usages of States acting out of mutual respect and, no doubt, the expectation of reciprocal advantage. Accordingly, it is not necessary, in invoking the presumption, to demonstrate that the extraterritorial application of the legislation in issue would infringe the sovereignty of another State in violation of international law.” The question, therefore, was whether Parliament intended section 2(3) to displace the presumption to give the SFO the power to compel a foreign company to produce documents it holds outside the UK.  The Supreme Court noted that it was common ground that section 2(3) could be used to compel a UK-based entity to produce documents held abroad, but that this was irrelevant to the question of whether it applied similarly to a foreign entity.

The SFO argued that the section must be interpreted purposively, therefore the absence of express statutory language giving extraterritorial effect was secondary to ensuring that it had sufficient powers to properly tackle serious fraud, which often had an international dimension and much more so than when the section was originally drafted.  However, the Supreme Court pointed to the existence of “international systems of mutual legal assistance” with built-in safeguards and protections not provided for by section 2 and concluded that it was “inherently improbable that Parliament should have refined this machinery as it did, while intending to leave in place a parallel system for obtaining evidence from abroad which could operate on the unilateral demand of the SFO, 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 rejected any analogy between section 2 and other legislation which did have extraterritorial effect.  Finally, it concluded that there was no basis for the Divisional Court’s “sufficient connection” test, which was “inherently uncertain” and “would exceed the appropriate bounds of interpretation and usurp the function of Parliament.”

This judgment may have significant implications for the speed and efficiency with which the SFO can obtain material from other jurisdictions as it will be required to fall back on mutual legal assistance provisions at precisely the time that, at least in the European Union, they have become slower and more difficult.  It will also be interesting to see whether the judgment will influence the SFO’s approach to its use of section 2 powers more widely, which has been increasingly aggressive over recent years.

Jasvinder Nakhwal
Tel: +44 (0) 20 7822 7753

Nick Vamos
Tel: +44 (0) 20 7822 7776