KBR Inc, R (On the Application Of) v The Director of the Serious Fraud Office, Court of Appeal - Administrative Court, September 06, 2018, [2018] EWHC 2368 (Admin)

Resolution Date:September 06, 2018
Issuing Organization:Administrative Court
Actores:KBR Inc, R (On the Application Of) v The Director of the Serious Fraud Office
 
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Neutral Citation Number: [2018] EWHC 2368 (Admin)

Case No: CO/4915/2017

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 06/09/2018

Before :

LORD JUSTICE GROSS

and

MR JUSTICE OUSELEY

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Between :

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Richard Kovalevsky QC and Jamas Hodivala (instructed by Barry Vitou, Greenberg Traurig LLP) for the Claimant

Jonathan Hall QC and Simon Pritchard (instructed by Raveen Patel) for the Government Legal Department

Hearing date: 17 April 2018

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LORD JUSTICE GROSS:

INTRODUCTION

  1. On this rolled up hearing the Claimant (``KBR Inc'') seeks permission to apply for judicial review and, if permission is granted, the quashing of the Defendant's (``the SFO's'') Notice, issued on behalf of the Director of the SFO (``the Director'') on 25th July, 2017 (``the July Notice''), pursuant to s.2(3) of the Criminal Justice Act 1987 (``the CJA 1987''), requiring KBR Inc to produce documents held by it outside the United Kingdom (``the UK''), or declaratory relief to like effect. We grant permission.

  2. The KBR Inc challenge to the July Notice is advanced on three Grounds:

    i) The July Notice was ultra vires as it requested material held outside the (UK) jurisdiction from a company (KBR Inc) incorporated in the United States of America (``the US''); (``Ground I: Jurisdiction'');

    ii) It was an error of law on the part of the Director to exercise his s.2 CJA 1987 powers despite his power to seek Mutual Legal Assistance (``MLA'') from the US authorities; (``Ground II: Discretion'');

    iii) The July Notice was not effectively ``served'' by the SFO handing it to a ``senior officer'' of KBR Inc who was temporarily present within the jurisdiction; (``Ground III: `Service''').

  3. KBR: KBR Inc is incorporated in the US but forms part of a multinational group of companies (``the KBR Group''), of which it is the ultimate parent, using a subsidiary structure. KBR Inc describes itself on its website as ``a global provider of differentiated professional services and technologies...within the Government Services and Hydrocarbons sectors''. According to the website, the KBR Group employs approximately 34,000 people worldwide (including joint ventures); it has customers in more than 80 countries and operations in 40 countries.

  4. KBR Inc does not have a fixed place of business in the UK and it was not contended before us that it (i.e., KBR Inc itself) carried on business in the UK.

  5. However, KBR Inc does have UK subsidiaries, including Kellogg Brown & Root Ltd (``KBR Ltd''). On 17th February, 2017, the SFO commenced a criminal investigation (``the KBR investigation'') into, amongst others, KBR Ltd, concerning suspected offences of bribery and corruption. The KBR investigation continues; it arose initially out of the SFO's ongoing investigation into the suspected corrupt activities of the Unaoil Group (``Unaoil'') with headquarters in Monaco, begun on 22nd March, 2016. (See, separately, R (Unaenergy Group Holding) v Serious Fraud Office [2017] EWHC 600 (Admin); [2017] 1 WLR 3302). According to the Witness Statement dated 12th March, 2018 of Mr Martin, a Case Controller and Solicitor at the SFO, Unaoil was engaged at various times by KBR's UK subsidiaries (including KBR Ltd) from 1996 onwards ``...ostensibly to provide consultancy services in the oil and gas sectors in the Caspian region, primarily Kazakhstan and Azerbaijan''.

  6. Separately from the SFO's KBR investigation, KBR Inc is under investigation by the US Department of Justice (``DoJ'') and the US Securities and Exchange Commission (``SEC''). As summarised by Mr Martin, the DoJ and SEC investigation is confined to KBR's UK subsidiaries' relationship with Unaoil; by contrast, the (SFO's) KBR investigation extends to the activities of other commercial agents suspected to have been used by KBR's UK subsidiaries for corrupt purposes, focused on but not limited to, activities in the Caspian region.

  7. It is said by the SFO (on the basis of Mr Martin's evidence) that the KBR investigation has identified a large number of suspected corrupt payments made by KBR's UK subsidiaries to Unaoil, totalling in excess of US$23 million. Furthermore, from at least 2005 onwards, these payments appear to have required the express approval of KBR Inc and to have been processed by KBR Inc's treasury function based in the US. From around March 2010, the SFO contends that the approval of KBR's compliance function was also required before a payment could be released.

  8. ``By way of example'' Mr Martin details a Unaoil invoice dated 22nd December, 2010 requesting payment from KBR Ltd of a sum amounting to a little over US$1.1 million. The payment was said to be due under a consultancy agreement between KBR Ltd (in its former name) and Unaoil, dated 23rd October, 2002 (as amended) and in accordance with a Project Revenue Report covering the period 1st December, 2009 to 30th November, 2010. In response to the invoice, a ``Payment Request'' was prepared internally by KBR, requiring the approval of Ms Eileen Akerson (KBR Inc's Executive Vice President, General Counsel and Corporate Secretary) and Ms Symon (KBR Inc's Chief Compliance Officer), of whom more presently. Although the invoice was addressed to KBR Ltd, it appears to have been sent directly by Unaoil to the KBR Financial Controls Group in Houston and the approvals process was thereafter managed and verified by KBR Inc's Account Payment Managers, based in the US.

  9. The SFO: One of the recommendations of the Fraud Trials Committee appointed by the Lord Chancellor and Home Secretary in 1983, under the Chairmanship of Lord Roskill (``the Roskill Committee'') was the need ``for a new unified organisation responsible for all the functions of detection, investigation and prosecution of serious fraud cases...''. That recommendation gave rise to the creation of the SFO in 1987. As its immediate past Director observed in 2014:

    ``...the SFO is not a regulator, an educator, an advisor, a confessor, or an apologist...the SFO is a law enforcement agency dealing with top end, well-heeled, well-lawyered crime. We enforce the law in our specialist field.''

  10. S.1(1) of the CJA 1987 provided for the constitution of the SFO. The Director is appointed pursuant to s.1(2) and is given the power, by s.1(3), to ``investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud''.

  11. For present purposes, as provided by s.2(1), the powers of the Director under s.2 ``...shall be exercisable, but only for the purposes of an investigation under section 1 above...in any case in which it appears to him that there is good reason to do so for the purpose of investigating the affairs, or any aspect of the affairs, of any person''. S.2(3) is central to the present dispute and is in these terms:

    ``The Director may by notice in writing require the person under investigation or any other person to produce....any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified description which appear to him so to relate....''

    Any person who ``without reasonable excuse'' fails to comply with a requirement imposed on him by s.2, is exposed to criminal penalties and liable on summary conviction to imprisonment for a term not exceeding 6 months, or a fine, or both: s.2(13).

  12. The April Notice: On 4th April, 2017, a Notice under s.2(3) CJA 1987 was issued to KBR Ltd for the production of 21 separate categories of material (``the April Notice''). On any view there was, at least initially, a degree of cooperation from the KBR Group. Thus, on 2nd May, 2017, a letter from Mr Vitou of Pinsent Masons LLP, the solicitors acting for KBR Ltd and KBR Inc (in these proceedings), said this:

    ``As discussed the KBR Group, namely KBR Inc, including but not limited to, KBR Inc's UK subsidiaries (`KBR' or the `Company') will fully cooperate with the SFO investigation.

    Consequently, KBR's provision of information to the SFO is not limited to documents held by KBR UK - it extends to responsive documents from other KBR Group entities.''

  13. Thereafter, in summary, it appears that the SFO was provided with information in three different ways:

    i) By KBR Ltd in response to the April Notice in respect of responsive documents already under the custody or control of KBR Ltd, located in the UK prior to the issuing of the April Notice;

    ii) By KBR Ltd in response to the April Notice in respect of responsive documents located outside the UK and sent to KBR Ltd at KBR Inc's direction to forward to the SFO;

    iii) By KBR Inc on a ``voluntary basis'' in respect of documents located outside the UK which KBR Inc had disclosed to the DoJ and SEC as a result of their inquiries into Unaoil.

  14. The July Notice: Subsequently, especially from 21st June, 2017 onwards, the SFO became concerned that the KBR Group was seeking to draw a distinction between documents held by or under the control of KBR Ltd and documents outside of the jurisdiction and beyond KBR Ltd's control. In parallel, Mr Vitou for KBR was seeking a meeting with the SFO to discuss, inter alia, the progression of the KBR investigation. Mr Martin, on behalf of the SFO, was in favour of such a meeting, at least in part because he wished to voice his concerns as to the KBR Group's purported cooperation with the KBR investigation to date. Ultimately, a meeting was arranged for the 25th July and, at the insistence of the SFO, representatives of KBR Inc agreed to attend; in short, the SFO required ``the clients'' to be present, not simply the lawyers. In the event, those representatives were Ms Akerson and Ms Symon, both already mentioned.

  15. According to Mr Martin, on the morning of 25th July, 2017 and in...

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