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Legal professional privilege and accountants: no change to the status quo
Practical Law UK Articles 3-503-7068 (Approx. 4 pages)
Legal professional privilege and accountants: no change to the status quo
by Ashley Greenbank and Stephanie Tidball, Macfarlanes LLP
| Published on 09 Nov 2010 • United Kingdom |
The Court of Appeal has recently rejected the argument that legal professional privilege applies to tax advice given by accountants. The court considered itself to be bound by case law to hold that legal professional privilege (outside the context of litigation) is available only in relation to advice from lawyers. It would have reached that decision even if not bound to do so because it could not prescribe an extended rule sufficiently precisely; only Parliament can do this.
The Court of Appeal has recently rejected the argument that legal professional privilege (LPP) applies to tax advice given by accountants (R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2010] EWCA Civ 1094) (see box “What is legal professional privilege?”).
The court heard submissions from the Law Society, the Bar Council and the Institute of Chartered Accountants in England & Wales as well as from Prudential and HM Revenue & Customs (HMRC). The court considered itself to be bound by case law to hold that LPP (outside the context of litigation) is available only in relation to advice from lawyers. It would have reached that decision even if not bound to do so, because it could not prescribe an extended rule sufficiently precisely; only Parliament can do this.
The facts
HMRC Commissioners served two notices on Prudential under section 20 of the Taxes Management Act 1970 (TMA) requiring Prudential to disclose documents which included tax advice from the accountants, PwC. Prudential claimed that LPP attached to the advice.
Charles J in the High Court had sympathy with Prudential’s claim: he accepted that there was “real strength” in the argument that the right to refuse disclosure should not relate to the legal qualification of the person giving the advice. However, case law required him to find against Prudential (see News brief “Accountants and privilege: still out of the loop”).
The decision
The Court of Appeal acknowledged that as LPP represents an exception to the general public policy that cases must be decided by reference to all available relevant evidence, it must be certain in nature and content. The right to refuse to disclose is absolute: there is no balancing exercise on the facts of the case.
The court refused to accept that LPP attaches to tax advice from accountants, on the following bases:
Status or function. The fact that LPP does not attach to all communications between a lawyer and his client (as confirmed in Three Rivers District Council and Others v The Governor and Company of the Bank of England [2004] UKHL 48 and earlier cases) does not mean that the limits of privilege are defined by reference to the function that the adviser is performing (giving legal advice) rather than the status of the adviser. LPP is limited to communications between a qualified lawyer and client (for more information, see News brief “Legal advice privilege: here to stay”).
The function that the lawyer is performing is relevant, but this is just to ensure that LPP applies only when he is acting as a lawyer.
Statutory extensions. Privilege is conferred by statute on communications between some non-lawyers and their clients (for example, patent agents), but in each case only in relation to specified areas of law. The court here distinguished the way statute has extended LPP from the much more general extension the court was being asked to make.
The court was swayed by the fact that Parliament had, in the past, considered whether to extend LPP to accountants and decided not to (even though the 1983 Keith Committee Report had recommended that it should be extended). Further, if Parliament had intended accountants' advice to be privileged, it would not have needed to specify in section 20 of the TMA which types of document a tax accountant can and cannot be required to produce.
Previous authority. The Court of Appeal decision in Wilden Pump Engineering Co v Fusfeld that, at common law, LPP only applies to advice given by lawyers, was binding on the Court of Appeal ([1985] FSR 159). The court in this case did not accept that following this precedent would be a breach of Prudential’s right to privacy under Article 8 of the European Convention on Human Rights. (The right to consult a lawyer in confidence has been recognised as a fundamental human right protected by Article 8.)
Parliament better placed to extend LPP. The court identified some issues which would need to be resolved if LPP were to be extended; for example, how would the accountancy profession be defined, and would LPP be extended to cover legal advice from other non-lawyers (for example, pension consultants)? Only Parliament could answer these questions. Because the court could not have given clear answers to the questions which extending LPP would have involved, it would have found against Prudential even if not bound by Wilden Pump.
A foregone conclusion
Given the strength of previous case law, this was the expected outcome from the Court of Appeal. It was clear (at least in the High Court) that there was some judicial sympathy with the claim that LPP should extend to tax advice given by accountants. However, the Court of Appeal concluded that, even if case law had not precluded this, any extension to LPP by the courts would inevitably not provide enough definition and detail to produce a sufficiently clear rule.
Lloyd LJ accepted an approach adopted by Sir Sydney Kentridge for the Law Society: LPP is so special an exception to the general disclosure obligation that it must be clear and certain in its operation.
The court refused to give Prudential permission to appeal to the Supreme Court. It is, of course, open to Prudential to ask the Supreme Court to hear an appeal. However, given the Court of Appeal’s emphatic conclusions, the odds of a successful appeal are probably low.
If there is no appeal, the accountancy bodies are likely to take the issue up with Ministers. While they may seek an extension to LPP, there is a risk that HMRC will argue to remove LPP from tax advice given by lawyers.
Interestingly, Charles J commented that extending LPP to accountants' tax advice was not the necessary conclusion of Prudential's argument that LPP should not depend on the legal qualification of the person giving the advice. He thought that an alternative conclusion was that parity could be achieved by removing LPP from lawyers' advice. In contrast, Lloyd LJ described Charles J’s judgment as "admirable" but disagreed with the suggestion that removing LPP from lawyers' advice would be a solution.
Although the Court of Appeal has confirmed the status quo, it seems likely that theirs will not be the final word on the subject.
Ashley Greenbank is a partner and Stephanie Tidball is a professional support lawyer in the Corporate Tax Group at Macfarlanes LLP.
What is legal professional privilege?
Legal professional privilege, which has been described by the House of Lords as a "fundamental human right" (R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21), consists of two limbs:
Legal advice privilege. This protects from production confidential communications between client and lawyer, made for the dominant purpose of seeking or giving legal advice.
Litigation privilege. This attaches to communications which come into existence with the dominant purpose of being used in aid of pending or contemplated litigation. In contrast to legal advice privilege, it can apply to communications between the client or his lawyer and a third party.
(For more information, see News brief “Tax investigations: protecting your client” and feature article “Privilege: what can you protect?”.)