Canada: UK Supreme Court Declines To Recognize Legal Advice Privilege For Accountants

In a watershed ruling that is sure to have implications throughout Canada, the UK Supreme Court has held that legal advice (or "solicitor-client") privilege does not attach to communications between accountants or other non-legal professionals and their clients. The decision in Prudential holds this to be the case even where the communications involve legal advice which the professional person is qualified to give, and that advice is given in circumstances where it would be privileged were it provided by a lawyer.


Prudential arose from a judicial review application in which the appellants challenged the validity of statutory disclosure notices issued to them by an inspector of taxes. The notices required the appellants to disclose certain documents in connection with a series of tax avoidance transactions that had been designed and implemented for them by the accounting firm PricewaterhouseCoopers ("PwC"). The appellants argued that the documents were exempt from disclosure, on the ground they related to the seeking and giving of legal advice by PwC in connection with the transactions.

The judicial review application was dismissed by Charles J. at first instance. He found that even though the disputed documents would have attracted legal advice privilege ("LAP") and thus been excluded from disclosure if the advice had been provided by a member of the legal profession, no such privilege attached even to identical advice provided by a professional who was not a qualified lawyer. Charles J.'s ruling was affirmed by the Court of Appeal.

The Decision

The UK Supreme Court dismissed the appellants' appeal. Six sets of reasons were given by the seven-member panel, with Lord Neuberger delivering the leading judgment for the majority (concurred in by Lords Hope, Walker, Mance and Reed), and Lord Sumption writing a powerful dissent (concurred in by Lord Clarke).

Lord Neuberger began by briefly reviewing the key features of LAP, and observed that "it is universally believed that LAP applies only to communications in connection with advice given by members of the legal profession". (para. 29)  He defined "members of the legal profession" for this purpose to include "members of the Bar, the Law Society, and the Chartered Institute of Legal Executives (CILEX) (and, by extension, foreign lawyers)".  According to Lord Neuberger, allowing the appeal would involve a considerable extension of LAP beyond its currently understood limits, since it would mean that legal advice by accountants and other non-legal professionals would be covered.

At the same time, Lord Neuberger acknowledged that the argument for allowing the appeal was a "strong one", and that the principled arguments for restricting LAP to communications with lawyers were "weak".  In particular, he found that the "close connection" between courts and lawyers was exaggerated: the appeal functions of judges in the disciplinary procedures of lawyers were no greater than in relation to that of other professions, and every professional person involved in litigation (not simply lawyers) owed a duty to the court. As well, the principled restriction of LAP to lawyers was undermined by the extension of LAP to foreign lawyers "without (it would seem) regard to their particular national standards, regulations or rules with regard to privilege". (para. 45)

In the end, however, Lord Neuberger concluded that while extending LAP to non-legal professionals would accord with logic, " 'the life of the [common] law has not been logic', as Oliver Wendell Holmes, Jr. observed on the first page of The Common Law (1881)... the life of the common law 'has been experience' ". (para. 47)  And experience showed that the restriction of LAP to legal professionals was explained by the fact that "until the last century, (i) it was very rare for any professional person other than a lawyer to give legal advice, and (ii) the connection between the legal profession and the courts was thought to be of greater significance than it is now". (para. 48)  While this did not preclude the Court from modifying the common law rule, three reasons persuaded Lord Neuberger that such reform should be left to Parliament:

... First, the consequences of allowing Prudential's appeal are hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty. Secondly, the question whether LAP should be extended to cases where legal advice is given from professional people who are not qualified lawyers raises questions of policy which should be left to Parliament. Thirdly, Parliament has enacted legislation relating to LAP, which, at the very least, suggests that it would be inappropriate for the court to extend the law on LAP as proposed by Prudential. (para. 52)

Writing in dissent, Lord Sumption would have proposed a new rule whereby LAP would extend to any legal advice given by a person whose profession ordinarily includes the giving of legal advice:

In my opinion the law is that legal professional privilege attaches to any communication between a client and his legal adviser which is made (i) for the purpose of enabling the adviser to give or the client to receive legal advice, (ii) in the course of a professional relationship, and (iii) in the exercise by the adviser of a profession which has as an ordinary part of its function the giving of skilled legal advice on the subject in question. ... (para. 114)

However, the risk of uncertainty created by Lord Sumption's new rule proved too great for the majority to accept. Lord Neuberger noted that there would be difficulties in identifying what amounted to a "profession" for this purpose (e.g., town planners), which would necessitate inquiries into the qualifications, standing, rules and disciplinary procedures of particular groups of people. He also observed that there was no clear test for deciding whether a profession is one which "ordinarily includes the giving of legal advice", nor for whether that question should be asked of the profession generally, a particular branch of it or the particular member at issue. Lord Reed encapsulated the majority's concerns in his concurring judgment:

...[T]he privilege must be capable of being relied upon if it is to serve its purpose of enabling clients and their legal advisers to communicate with each other with complete candour. It is therefore highly desirable that the privilege should, as far as possible, be based upon a principle which is clear, certain and readily understood. The existing common law principle meets those requirements. The variety of possible formulations of an extended common law principle, and the consequent scope for debate as to whether particular professional persons, in particular situations, would or would not fall within its scope, would detract from the certainty and clarity which presently exist. (para. 100)

Potential Significance

The decision in Prudential will be great practical and doctrinal importance for several reasons.

First, as a practical matter, parties should be mindful that their communications with non-lawyer accountants could be disclosed to revenue authorities even where they involve the giving or seeking of legal advice. This applies not only in the United Kingdom by virtue of Prudential, but in Canada as well. In Tower v. Canada (M.N.R.), 2003 FCA 307, the Federal Court of Appeal confirmed that there is no class or case-by-case category of "accountant-client privilege". The U.S. Supreme Court also rejected a federal accountant-client privilege in Couch v. United States, 409 U.S. 322 (1973) and United States v. Young, 465 U.S. 805 (1984). As a result, businesses on both sides of the Atlantic should be wary of engaging in legal communications with accountants that may prejudice them in future tax litigation.

Second, however, the Court in Prudential did not reject the traditional exception to the prohibition upon accountant-client privilege that has been recognized by Canadian courts outside the context of litigation privilege, being where an accountant acts as a channel of communication between lawyer and client in relation to the giving or seeking of legal advice (e.g., as a messenger, translator or amanuensis). Additionally, some Canadian cases suggest the possibility of a further exception where a non-legal professional, though not acting as a channel of communication, nonetheless performs some other function which is essential to the existence or operation of the solicitor-client relationship (e.g., where the client authorizes them to direct a solicitor to act on the client's behalf). In such circumstances, the Ontario Court of Appeal has indicated that communications with the non-legal professional in furtherance of their essential function may still be protected by solicitor-client privilege: General Accident Assurance Co. v. Chrusz (1999), 45 O.R. (3d) 321 (C.A.). While the parameters of this latter exception remain uncertain, it seems unlikely that Prudential will preclude its application in Canada.

Third, the reasons in Prudential are not limited to accountants alone, but extend to all non-lawyer professionals whose function involves the provision of legal advice. As a result, the decision would appear to foreclose the possibility of LAP being extended to communications with any non-lawyer absent a statutory exception (or a miscellaneous common law exception such as the two noted immediately above). The Supreme Court of Canada appears to have endorsed a similar approach in L.L.A. v. A.B., [1995] 4 S.C.R. 536, where L'Heureux-Dubé J. (concurring) said:

... The solicitor-client class privilege, for example, involves definite actors: one is a qualified lawyer and the other is the client. In that regard, John Sopinka (of this Court), Sidney N. Lederman and Alan W. Bryant, in The Law of Evidence in Canada (1992), remark at p. 649: ["]The protection [of the privilege], however, does not extend to communications with persons who are not duly qualified legal advisers even though the advice they might give is legal in nature.["] (para. 70)

Finally, Prudential is noteworthy for the high degree of caution with which the majority approached the question of whether to expand the scope of LAP. Lord Neuberger's reasons suggest that courts should be reluctant to obfuscate this "clear and well understood principle" by adding new common law refinements to it, and emphasize the primacy of Parliament in developing this policy-laden branch of the law. These sentiments echo the U.S. Supreme Court's observation that "[a]n uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all" (Upjohn, at 393), and underscore the Supreme Court of Canada's statement that "solicitor-client privilege must be as close to absolute as possible" (R. v. McClure, [2001] 1 S.C.R. 445 at para. 35). The end result is likely to be a re-entrenchment of traditional privilege principles, coupled with a growing judicial reluctance to entertain modifications of the doctrine in the future. Whether this approach to privilege will indeed be as "prudential" as the majority suggests remains to be seen.

Case Information

R (on the application of Prudential plc) v. Special Commissioner oftarget=_blank Income Tax, [2013] UKSC 1

Date of Decision: January 23, 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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