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In this post, Omar Qureshi, Eoin O’Shea, Amy Wilkinson and Karishma Gadhia, who all work at CMS and have a special interest in corporate crime matters, comment on the decision handed down by the UK Supreme Court earlier this month in the matter R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2, which concerned whether the Director of the Serious Fraud Office can issue a notice pursuant to section 2(3) of the Criminal Justice 1987 requiring a foreigner to produce material held overseas.

The UK’s Serious Fraud Office (the “SFO”) has unique statutory powers of investigation, including the right to force disclosure of documents and witness testimony, but, says the Supreme Court, those powers are not global. Outside the UK, the SFO is subject to the same jurisdictional procedures for obtaining documents and testimony from foreign parties as everyone else.

This is the effect of R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2, a judgment handed down on 5 February 2021. The result is not a huge surprise to many practitioners. The greater surprise is that it required a Supreme Court ruling to confirm something which most criminal lawyers would, until recently, have assumed.

The specific provision in question was Section 2(3) of the Criminal Justice Act 1987 (the “1987 Act”) which empowers the SFO Director to issue notices to parties requiring the production of documents relevant to SFO investigations, under threat of criminal sanction for non-compliance. This is a very significant power which provides the SFO with an important advantage in investigating fraud and bribery cases. The question was, could that power be exercised over a foreign company that had no fixed place of business in the UK and did not carry on business there, to compel production of material held by it outside the UK? The Supreme Court said “no”. The Supreme Court held that to interpret the 1987 Act in this way would extend the jurisdictional reach of the SFO far beyond the original intentions of Parliament and contravene well-established principles of international law and comity.

Background

The appellant – KBR, Inc – was a company incorporated in the United States.

It had no fixed place of business in the UK and did not carry on business in the UK. One of its UK-registered subsidiaries, Kellogg Brown & Root ltd (“KBR UK”), was under investigation by the SFO in connection with their projects involving another company, Unaoil. KBR, Inc was separately being investigated by US authorities for alleged FPCA violations.

In April 2017, the SFO issued a notice to KBR UK under Section 2(3) of the 1987 Act (a “Section 2 Notice”) compelling it to produce material held by KBR UK that was relevant to the SFO’s investigation. KBR UK produced various documents, but indicated that other material, if it existed, would be held by KBR, Inc in the United States.

In July 2017 at the SFO’s request, officers of KBR, Inc attended a meeting in London with the SFO, during which the SFO issued and handed to one of the officers a Section 2 Notice requiring KBR, Inc to produce documents (the “July Notice”).

Decision of the Administrative Court at first instance

KBR, Inc sought to challenge the validity of the July Notice on various grounds. Among these was that the July Notice was ultra vires (i.e. beyond the SFO’s powers), because it sought material held outside the jurisdiction from a company incorporated in the USA.

At first instance, the Administrative Court (Gross LJ and Ouseley J) rejected KBR, Inc’s challenge. It introduced the concept that Section 2(3) of the 1987 Act extended to foreign companies as long as those companies had a “sufficient connection” to the UK. The Administrative Court found that the power must have some extra-territorial application, as otherwise a UK company could resist a Section 2 Notice on the ground that the required documents were held on a server out of the jurisdiction. (However, KBR, Inc’s challenge was not being brought by a UK company; it was being brought by a company with no UK presence.) Having reached its view on the provision having an extra-territorial effect to some degree, the Administrative Court considered the extent of that extra-territorial reach and decided that it would apply “when there is a sufficient connection between the company and the jurisdiction”.

KBR, Inc obtained permission to appeal to the Supreme Court.

Decision of the Supreme Court

Presumption against extra-territorial effect

The Supreme Court confirmed that the starting presumption, as a well-established principle of statutory construction, is that unless the contrary intention appears, domestic legislation is generally not intended to have extra-territorial effect nor intended to be inconsistent with established rules of international law and comity. That presumption can be displaced by clear words and intent.

The Supreme Court noted, “The presumption reflects, in part, the requirements of international law that one State should not by the claim or exercise of jurisdiction infringe the sovereignty of another State in breach of rules of international law… However, the rationale and resulting scope of the presumption are wider than this. They are also rooted in the concept of comity. The term “comity” is used here to describe something less than a rule of international law. …“International comity is a species of accommodation: it involves neighbourliness, mutual respect, and the friendly waiver of technicalities.””

The Supreme Court highlighted that KBR, Inc was not a UK company. It did not have a registered office or fixed place of business in the UK. It was “common ground” that if it had been, and had it held documents abroad, a Section 2 Notice would have been effective to require production of those documents. This significantly undermined one of the justifications for extending the scope of Section 2 notices relied on by the Administrative Court.  The rather theatrical device of calling a meeting in London and then serving the US company’s officer with a Section 2 Notice did not alter those facts. Therefore, the presumption of conformity with international law and comity applied and it was necessary to determine whether Parliament had clearly intended Section 2(3) of the 1987 Act to give the SFO powers which would diverge from that presumption.

Legislative history and interpretation of the 1987 Act

The Supreme Court noted that “when legislation is intended to have extra-territorial effect, Parliament frequently makes express provision to that effect”. There was no such express provision here. However, such an intention could still be implied from the context and history of the legislation.

Following a detailed consideration of the legislative history (including the Roskill Report which had led to the creation of the SFO under the 1987 Act), the wording of the 1987 Act itself, and successive amendments to it (which the Supreme Court pointed out could be of assistance in determining the original intention of Parliament where the earlier legislation was ambiguous), the Supreme Court found that the evidence did not indicate that Parliament had intended Section 2(3) of the 1987 Act to have extra-territorial effect as contended by the SFO.

Rather, the legislative history and context suggested that Parliament had intended that documents held in another jurisdiction should be obtained through established international systems of co-operation between authorities, and agreements providing for mutual legal assistance (“MLA”). These, importantly, also provide the requested party with protections and safeguards over what could be done with the obtained documents. The Supreme Court noted that it was “not easy to reconcile this approach with the SFO’s submission that section 2(3) of the 1987 Act confers a power whereby a UK authority could unilaterally compel, under threat of criminal sanction, the production here of documents held abroad by a foreign company”.

The Supreme Court also considered that the Administrative Court’s decision to imply a “sufficient connection” test in Section 2(3) of the 1987 Act was inconsistent with the intention of Parliament. Interposing a test of this nature would involve “illegitimately re-writing the statute”. And, said the Supreme Court rather pointedly, the example relied on by the Administrative Court as the basis for its reasoning (the UK company refusing to produce documents held overseas) was irrelevant to the issue of a foreign company holding documents overseas.

The upshot is that Section 2(3) of the 1987 Act does not have extra-territorial jurisdiction and the notice in question was illegal as ultra vires.

Comment

This decision will be welcomed by many of those practising in corporate crime, as well as those concerned with the rule of law. It is a return to the generally-understood status quo and something of a shot across the bows as regards the unorthodox approach of the SFO to jurisdiction during the KBR investigation. A few extra points to bear in mind:

  • The judgment does not apply in circumstances where a Section 2 Notice is issued to UK registered companies concerning documents in their possession/control held overseas.
  • It does not apply to foreign companies with business(es) in the UK.
  • The judgment does not insulate foreign companies from SFO investigations. The SFO (or any other authorised UK law enforcement agency) can still obtain documents held overseas by foreign companies, or, indeed, individuals. But it cannot take a “short-cut”, which lacks protection for the requested party. Instead the SFO will have to follow whatever MLA procedures are in place between the UK and the country in question. These are designed to provide appropriate checks and balances to protect the interests of private citizens and businesses in accordance with international law. Of course, the SFO can also seek voluntary cooperation and disclosure.

Whatever criticisms may be made of the ponderous nature of MLA procedures, they reflect the most basic fact of international law: that states are sovereign and the writ of national law enforcement agencies does not run outside their borders unless there are very clear international agreements which permit this.