High Court considers extraterritorial application of compulsory powers

In the case of R (On The Application Of KBR Inc) v The Director of the Serious Fraud Office [2018] EWHC 2368 (Admin) (“KBR“), the High Court dismissed a judicial review brought by the applicant, finding that the SFO was able to compel the production of documents located outside the jurisdiction held by a foreign company. This is the first time that an English court has reasoned that compulsory disclosure powers exercisable by a UK criminal enforcement agency have extraterritorial application.

Key points

  • The case confirms that the SFO may use its power to compel a foreign company to produce documents, pursuant to s2(3) of the Criminal Justice Act 1987 (“the CJA 1987“), extraterritorially where there is “a sufficient connection between the company and the jurisdiction.”
  • The judgment is notable for its finding of the extraterritorial operation of a statute where no explicit wording in favour of extraterritoriality applied, unlike other criminal statutes such as the Proceeds of Crime Act 2002 and the Bribery Act 2010.

Background

The facts of KBR arose from the SFO’s investigation into UK-based members of the KBR Group, including KBR Ltd, in respect of alleged corrupt payments abroad. The SFO alleged that a number of the payments in question had “required the express approval of KBR Inc“, KBR Ltd’s US parent company, and were “processed by KBR Inc’s compliance function based in the US“. KBR Inc did not itself have a fixed place of business in the UK.

A meeting was organised between the SFO and KBR Inc on 25 July 2017, in which KBR Inc was represented by attendees including one of its US-based and resident officers (the “Officer“). During this meeting the SFO handed a s2(3) CJA 1987 notice to the Officer (the “Notice“), demanding production of a category of documents which were “held by KBR Inc” in the US. KBR Inc sought permission for judicial review to quash the Notice insofar as it sought to compel the production of overseas documents.

Grounds for judicial review

The grounds for judicial review were as follows:

  1. Jurisdiction: the Notice was ultra vires, since it requested material held outside the UK from a US-incorporated entity, and the CJA 1987 could not operate extraterritorially;
  2. Discretion: the Director of the SFO erred in law by exercising his s2 CJA 1987 powers to request the documents; he was instead obliged to do so via a request for Mutual Legal Assistance (“MLA“) from the US authorities; and
  3. Service: the Notice was not effectively “served” by the SFO handing it to a “senior officer” of KBR Inc, who was only temporarily present in the UK.

Decision 

The judicial review was dismissed by the Court on all grounds, with the majority of the discussion focussed on the jurisdiction question.

Jurisdiction

KBR Inc submitted that s2(3) did not operate extraterritorially, on the basis of statutory construction taken together with principles of international law. Conversely, the SFO maintained that s2(3) had no territorial limit, also in light of its statutory construction and particularly, the SFO’s statutory power to investigate and prosecute cross-border fraud.

The Court noted that the words of s2(3) were silent as to extraterritoriality; they neither mandated nor precluded the statute’s overseas application. Gross LJ’s starting point was the principle that, unless the contrary intention appears, statutes have territorial but not extraterritorial application, albeit that the principle could be displaced and was effectively no more than a rebuttable presumption. Ultimately the Court approached the question of whether a statute may have extraterritorial operation as dependent on its construction, the statute’s purpose and the relevant context. The Court found that s2(3) must possess an element of extraterritorial reach as it would be contrary to the policy, and frustrate the purpose, of the CJA 1987 if, for example, a UK company could resist a notice because it held documents on an overseas server.

In determining the extent of this reach, the Court took into account both the legislative history of s2(3) and the fact that there were no express words of limitation within the section, but neither factor was conclusive. On an extensive review of case law, the Court relied primarily on insolvency authorities dealing with extraterritoriality to reach the conclusion that s2(3) extends to foreign companies in respect of documents held outside the jurisdiction when there is a “sufficient connection between the company and the jurisdiction“. This test was found to strike a principled and careful balance between facilitating investigation of international issues and imposing excessive requirements on foreign companies with regard to documents abroad, as well as being practical and necessarily fact specific, thereby permitting justice in individual cases.

On KBR’s facts, there was a “sufficient connection” since, for example, the payments crucial to the SFO’s investigation of KBR Ltd appeared to have been approved and administered by KBR Inc, and senior KBR Inc executives worked in the UK. However, the Court stated that the fact that KBR Inc was KBR Ltd’s parent, and that the Officer was temporarily present in the UK, did not assist in making out the “sufficient connection” test.

Discretion

KBR Inc further contended that, if the Court held that the Notice could apply extraterritorially, the Director of the SFO nevertheless erred in law by exercising his power to issue the Notice under the CJA 1987 regime. The Claimant alleged that he was obliged to take into account the MLA regime before deciding to “cut across” the safeguards in the MLA framework by using his s2(3) power.

The Court dispensed with this argument quite briefly. Gross LJ highlighted that the MLA regime grants an additional discretionary power, and not an obligation which curtails existing discretion. Further, there were “good practical reasons for the Director preferring to proceed by way of s2(3) notices“. Some potential difficulties of proceeding by MLA were noted as delay, the risk of the request being ignored, and the burden of action being on the recipient state of the MLA request.

Service

The SFO did not contend that it could serve a s2(3) notice outside of the jurisdiction of the UK. KBR Inc submitted that a separate legal question arose as to whether it was present in the UK by virtue of the Officer’s presence. It was argued that, on the application of “service” provisions under the CPR, KBR Inc could not be found to have been present in the jurisdiction.

This submission was also rejected summarily. The Court highlighted that the CJA 1987 made no reference to “service“; any import of the CPR was therefore inappropriate. KBR Inc was said to be plainly present in the UK by virtue of the Officer’s presence at the time of the Notice’s giving. She attended the meeting with the SFO on the request of KBR Inc’s presence, and did so in that capacity. Further, it was confirmed that s2(3) requires “no additional formality” further than the giving of notice.

Comment 

From a public law perspective, KBR is of interest for its pragmatic and purposive approach to the question of a statute’s extraterritoriality, stating that there is no longer any “universal principle” of needing to find express or implied wording mandating overseas application. This is despite Gross LJ’s recognition of the seriousness of compelling an entity or citizen of another state to take action in their home state, under threat of criminal penalty in the UK if they do not adhere. The Court’s focus on the SFO’s need to effectively investigate international crime may provide other regulators with arguments as to the extraterritorial scope of their compulsory disclosure powers, particularly given the ease with which documents may be electronically transferred overseas around different entities of a corporate group. Further, the Court’s finding on the breadth of the SFO Director’s discretion highlights the reluctance of the courts to intervene in a specialised area where a decision maker has been entrusted with expert functions.

From the position of a foreign company subject to a s2(3) CJA 1987 notice, KBRr aises interesting points of doctrine and practice; particularly with regard to a company that subsequently does not comply with the notice and withdraws its UK presence. Since a company cannot be extradited, it may be that it would only endure sanction for “non-compliance” if it surrendered to the UK’s jurisdiction, as domestic law applicable to the foreign company is unlikely to deem it to have been “compelled”. However, the possibility of the SFO’s prosecution in absentia should not be ruled out, though unlikely.

Given the acceptance in KBR that a valid s2(3) notice must be delivered within the UK, questions also arise as to whether concerned corporates in the future will be deterred from putting themselves or their personnel into the jurisdiction. Such considerations must be weighed against the rationale for the increasing trend of companies to cooperate with investigators such as the SFO, to improve the prospects of a less punitive resolution.

 

Susannah Cogman
Susannah Cogman
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Daniel Hudson
Daniel Hudson
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Brian Spiro
Brian Spiro
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