- There is a presumption in law that legislation is not intended to have extra-territorial effect. This is reinforced by well known principles of International comity. This can causes difficulties in respect of complex regulatory and white collar criminal investigations when a public authority may wish to secure evidence from a person or corporate entity that has few if any links to its jurisdiction.
- This short papers seeks to review the relevant legal principles by way of two short case studies featuring litigation in both Jersey and the United Kingdom.
- Article 32(2) of the Financial Services (Jersey) Law 1998 provides the Jersey Financial Services Commission, the Jersey Regulator, with the power to serve a Notice on a person requiring them to produce relevant documents to further a regulatory investigation. It is a criminal offence to fail to comply with a Notice without reasonable excuse. Notably, Article 40(4) of the 1998 Law also expressly provides that such a Notice may be served on a principal person of a company if that company was incorporated outside of Jersey.
- In GGC (Suisse) SA v Jersey Financial Services Commission  JRC 073, the Royal Court of Jersey considered whether the Commission had the power to serve a Notice on a company registered in Switzerland, requiring the production of it documents to further a regulatory investigation in Jersey. The company’s principal director and shareholder was a Jersey resident. GGC sought to argue that its registration in Switzerland (and offices there) was decisive of the issue.
- The Royal Court disagreed and determined that the Commission’s powers had been exercised lawfully. The relevant parts of the 1998 Law and Article 40(4) in particular, properly construed, expressly indicated that the States of Jersey had indeed intended that the Commission’s powers were to have extra territorial effect. Moreover, the extra territorial effect was necessary for the 1998 Law to provide an effective framework for the regulation and supervision of trust and company business in Jersey.
- In contrast, the Supreme Court of England in the case of KBR Inc  UKSC 2 has recently confirmed that the Serious Fraud Office’s powers of compulsion have no extra-territorial effect. The SFO’s investigatory powers of compulsion are found in Section 2 of the Criminal Justice Act 1987. These powers are mirrored in Jersey by the Attorney General’s Article 2 powers pursuant to the Investigation of Fraud (Jersey) Law 1991. Thus the Supreme Court’s decision is highly relevant to Jersey law.
- KBR Inc is a US company that does not operate in the United Kingdom nor has it any commercial presence there. During 2017, the SFO opened criminal investigations into KBR Inc’s UK based subsidiary companies (‘KBR UK’). The SFO served a Section 2 notice on KBR UK requiring the production of certain documents. KBR UK indicated that some of these records were held by KBR Inc in the USA (‘the US documents’). As a result, the SFO arranged a meeting in London, requiring officials from both KBR Inc and KBR UK to attend. KBR Inc directors flew into the UK specifically for this meeting. The SFO prepared a draft Section 2 Notice to be served at the meeting on KBR Inc in the event that the meeting did not, from their point of view, produce a satisfactory response regarding the production of the US documents. During the meeting, the SFO were told that more time was required by the KBR companies to consider their position. At that point, the SFO officials produced the draft Section 2 Notice, inserted by pen the name of the KBR Inc director who was in attendance, and formally served the Notice mid-meeting.
- Although not the subject of direct criticism by the Supreme Court, there is an apparent difficulty in a public authority requiring a US company, with no presence in the United Kingdom, to attend a meeting voluntarily and then serving that company, by surprise, with a compulsory notice mid-meeting. The only link between KBR Inc and the UK was the temporary presence of its director at the meeting as requested by the SFO. This was materially different from the facts of GGC in Jersey.
- Unsurprisingly, judicial review proceedings followed. KBR Inc’s argument was a simple one. The SFO’s powers of compulsion did not extend to requiring US companies with no presence in the UK to produce documents.
- The Supreme Court agreed. The 1987 Law does not feature any statutory wording that suggests that the Section 2 powers were intended to have extra territorial effect. Moreover, the legislative history of the 1987 Act was clear that, to the extent that the SFO wished to obtain evidence overseas, it was intended by Parliament that the SFO would make use of mutual legal assistance procedures (with its various safeguards) and not issue a Section 2 Notice on an overseas person.
- Interestingly, the Supreme Court declined to follow the first instance court’s ruling of Gross LJ that a ‘sufficient connection’ with the United Kingdom test might be adopted in determining if a person should be required to comply with a Section 2 Notice. The Supreme Court considered that such a test would be too uncertain in its application.
- The Supreme Court did note however that legislation is more likely to be deemed to have extra-territorial effect in cases when a law seeks to regulate the conduct of a UK national overseas. These observations are likely to be of some assistance in the future to the SFO in the event, for example, that a UK company declines to provide its electronic documents that are held on a server overseas. Although not an argument deployed in the Royal Court of Jersey in GGC, this particular line of reasoning also tends to confirms that the Jersey Court was correct to conclude that a Jersey resident director of an overseas company should be required to comply with the Notice served on him on Island.
KBR in the UK and GGC in Jersey: regulatory investigations with extra territorial issues:
Posted on April 03, 2021
Written by Howard Sharp QC