Interesting UK decision on legal professional privilege and its application to advice by accountants

On 23 January 2013 the UK Supreme Court handed down a very interesting decision on the question of whether the UK legal advice privilege (LAP) extended, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession and, if so, how far the privilege extends, or should be extended. The case is Prudential plc, R v Special Commissioner of Income Tax [2013] UKSC 1 (link).

A company had obtained legal advice from its accountants PwC in relation to a tax avoidance scheme, and argued that it was entitled to refuse to comply with a notice to produce from the tax office, on the ground that the documents were covered by LAP. Its position was supported by the intervenor, the Institute of Chartered Accountants for England and Wales. They argued, inter alia, that given that the privilege is justified by the rule of law, and that it exists for the benefit of a client who seeks and receives legal advice, for instance on its tax affairs, there is no principled basis upon which it can be restricted to cases where the advisor happens to be a member of the legal professions, as opposed to a qualified accountant (see [26]).

The contrary case was advanced for Her Majesty’s Revenue & Customs office, supported by the Law Society, the Bar Council and the AIPPI UK (an intellectual property body). They argued that it has been universally assumed that LAP is restricted to advice given by lawyers, and that the Court should not extend it to accountants in connection for tax advice for reasons which boiled down to the argument that it was a matter for Parliament to extend the privilege to legal advice given by accountants if it saw fit (see [27-28]).

Whilst the majority of the Lords (5:2) held that LAP did not extend to the advice provided by PwC, a certain amount of reluctance is clearly detectable. The minority, Lords Sumption and Clarke, gave powerful dissenting judgments, which are also worth a read.

Lord Neuberger, with whom Lord Walker agreed, in giving one of the majority judgments raised the finely balanced question of whether if the Court allowed the appeal it would be extending the breadth of the privilege, or simply identifying the breadth of the privilege. The former would involve changing the law; the latter, declaring what the common law has always been. However his Lordship noted that it is universally believed that LAP only applies to communications in connection with advice given by members of the legal profession (see [29] and the authorities, texts and reports cited at [30-33]), legislation had been framed upon that basis, and the UK Parliament had rejected a proposal in 2003 that the privilege be extended to legal advice given by lawyers.

Lord Neuberger concluded that allowing the appeal would involve extending the privilege, and would not be treated as limited to tax advice given by expert accountants, as it would ineluctably follow that legal advice given by some other professional people would also be covered.

However interestingly, his Lordship evaluated the principled arguments for restricting LAP to lawyers’ advice as “weak, but not wholly devoid of force” (at [43]), in contrast with his description of the argument for allowing the appeal as “a strong one in terms of principle” (at [40]). He summarised the case for allowing the appeal as –

  • Legal advice privilege is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person,
  • LAP is conferred for the benefit of the client, and may only be waived by the client; it does not serve to protect the legal profession;
  • In light of this, it is hard to see why, as a matter of pure logic, that privilege should be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field.

His Lordship rightly noted that once the privilege is extended, it would be difficult to determine where the line ought be drawn. Where it is confined to lawyers, it is not such a difficult matter. However once it is extended one gets into various shades of grey. It becomes something of a minefield. He concluded that the appeal gives rise to issues of policy, which should best be left to Parliament. His Honour also noted that if LAP is to be extended to professions other than lawyers, its extension may only be appropriate on a conditional or limited basis.

Lord Sumption’s dissenting judgment is quite compelling. I will not go through it in any detail, but I commend it to you if you have an interest in this issue.

At [123], he makes the point that:

“Once it is appreciated (i) that legal advice privilege is the client’s privilege, (ii) that it depends on the public interest in promoting his access to legal advice on the basis of absolute confidence, and (iii) that it is not dependent on the status of the advisor, it must follow that there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accounts on the other. The test is functional. The privilege is conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body. …[T]oday there are at least three professions whose practitioners have as part of their ordinary professional functions the giving of skilled legal advice on tax. Accountants are among them. Any distinction for this purpose between some skilled professional advisers and others is not only irrational, but inconsistent with the legal basis of the privilege.”

He addresses the counter-arguments that other professionals (non-laweyrs) did not have the same stringent legal obligations of non-disclosure as lawyers, and that barristers and solicitors have a unique relationship with the courts (at [125]). His Lordship disposes of these at [126-127].

Lord Sumption took the view that allowing the appeal would not involve extending the privilege, but rather would mean only recognising that as a matter of fact much legal advice falling within the principles is nowadays given by legal advisers who are not barristers and solicitors but are accountants (at [129]). His view as to the question of identifying where the line is drawn, if legal advice privilege is extended beyond advice given by lawyers, is set out at [138]. His Lordship does recognise some of the complexities, but sees a difference between the giving of legal advice on the one hand, and the position on the other hand where a knowledge of the law on an issue can be purely incidental to the exercise of a broader advisory function, such as by an investment banker or an auditor.

My own view is mixed. I do not quite accept Lord Sumption’s suggestion as to the simplicity in identifying the boundaries of the entitlement to the privilege were it extended, and would see there as being a sizeable leap in the numbers of claims of privilege, with many being difficult to adjudicate upon.

On the other hand, there is a compelling logic to the application of the principles underpinning legal advice privilege beyond the legal profession, as discussed in this case. And in a functional sense, to put it at its most simple…when one regards our mountainous body of tax legislation and case law, what is it, if it is not law? And what is advice upon it, if it is not legal?

Next, once the privilege is extended beyond the legal profession to accountants giving tax advice (leaving aside other professionals)…what about other areas of law upon which accountants who specialise in other areas advise? Insolvency and corporations law, for example?

An interesting issue. Perhaps one way to solve the question of where the line ought be drawn, if the privilege is treated as extending beyond advice given by lawyers, is that suggested by Lord Hope, who wrote the other dissenting judgment. His Lordship agreed with Lord Sumption that the legal advice privilege extends to advice given by members of a profession which has as an ordinary part of its function the giving of skilled legal advice. Lord Hope added that he would expect that criterion to be satisfied only where, and to the extent, that they are members of a properly regulated professional body (at [149]).

In Australia, on 15 April 2011, the Assistant Treasurer the Hon Bill Shorten released a discussion paper which explores the issue of the extension of the privilege to tax advice by accountants, and called for submissions from interested parties. Submissions were due by 15 July 2011. As far as I am aware, the matter has progressed no further.

* I must acknowledge and thank my tax barrister colleague in Lonsdale Chambers for drawing this interesting case to my attention.

2 thoughts on “Interesting UK decision on legal professional privilege and its application to advice by accountants

  1. Great article but Lord Sumption’s statement that although it is properly classed as ‘legal professional privilege’, it is “the client who enjoys the privilege” is not necessarily always the case here in Australia.

    ASIC, using its powers of compulsory information gathering, can equally approach the lawyer who supplied allegedly privileged information and may determine, in its own opinion, as to whether or not it will accept any claim for LPP. See ASIC Information Sheet 165 .

    Of course, and quoting Lord Sumption again, if “the client chooses to divulge the information, there is nothing the lawyer can do about it.”

    • Thank you for your contribution and input Haydn, and helpfully drawing our attention to ASIC’s Information Sheet 165. Excellent. I will take your points in reverse order.

      Not sure that I entirely agree with your comments as to ASIC’s approach, as disclosed in its Information Sheet 165. Even though ASIC refers to whether it “accepts” an LPP claim or not, they ought properly to have said “agree with”, as such a claim is not really for ASIC to adjudicate upon. If you consider Section 6 of the information sheet, it states in summary that if in ASIC’s opinion a claim of LPP is not substantiated by the information provided or in their view is otherwise not valid (by reason of waiver or because it is simply not privileged, in their view), then you have several choices. You may (a) withdraw your claim of LPP and provide the information to ASIC, (b) enter into a voluntary LPP dispute resolution process with ASIC, or (c) make an application to Court to seek a declaration that the information is privileged.

      Note that earlier in ASIC’s Information Sheet, at Section 5, ASIC outlines a procedure they refer to as “Voluntary confidential disclosure of LPP information”. Under this approach, ASIC may accept, on a confidential basis, privileged information voluntary provided by a notice recipient. Broadly, ASIC and the privilege holder agree that the disclosure of the information is on a strictly confidential basis, and ASIC and the privilege holder agree that the disclosure is not a waiver of any privilege existing at the time of the disclosure. ASIC notes that this prevents ASIC from later asserting that the provision of the information to it amounts to waiver, but may not prevent third parties from asserting that privilege has been waived thereby.

      In this regard, I note that in the Centro privilege decision I reported on last year, PwC sought to argue that Centro had waived privilege by their provision of documents to ASIC by virtue of notices issued under s 30 of the ASIC Act requiring their compulsory production. Centro had provided some unredacted documents to ASIC under covering letters expressing their provision to be on a confidential basis, with an express reservation of privilege and an express lack of intention to waive privilege. Bromberg J held that while there might have been a limited waiver by Centro as against ASIC, there was not necessarily waiver as against a third party like ASIC. His Honour referred to the High Court’s decision in Mann v Carnell [1999] HCA 66; 201 CLR 1 at [32]. See Kirby v Centro Properties Limited (No 2) [2012] FCA 70 and my post of February 2012 entitled “Centro class action developments – (a) privilege and (b) a bombshell”.

      I also would suggest that the authorities are fairly clear and well-settled on the position that the privilege is that of the client, not of the lawyer (see, for example, the High Court in Mann v Carnell at [28]). The lawyer must seek its client’s instructions before responding to a s 30 notice on the client’s behalf. Note also that ASIC states in their Information Sheet under Section 2: “If you are a lawyer and rely on section 69 of the ASIC Act 2001 (ASIC Act) or section 296 of the National Consumer Credit Protection Act 2009 (National Credit Act) to refuse to comply with a compulsory notice, you must give to ASIC a written notice setting out the information required by section 69(3) of the ASIC Act or section 296(3) of the National Credit Act.”

      For those who were not aware of it, ASIC released Information Sheet 165 late last year (13 December 2012); Haydn has helpfully supplied the link in his comment above.

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