UK: Court of Appeal Refuses to Extend LPP to Accountants

Last Updated: 12 November 2010
Article by Jonathan Pickworth, Simon Airey and Robert Hartley

Legal advice privilege applies only to the legal profession 

In 2009 the High Court heard a judicial review1 application by Prudential plc and rejected its claim that legal advice given by an accountant in a tax investigation was protected by legal professional privilege ("LPP") and, in particular, legal advice privilege.   Prudential appealed this decision.

On 13 October 2009 the Court of Appeal handed down its judgment2  and dismissed the appeal.  Prudential argued that taxpayers often approach accountants rather than lawyers for advice on tax liabilities, which then results in advice being given about the relevant law. It argued that a client's communications should be protected by legal advice privilege if the advice is given by an accountant in the same way as it would be if given by a lawyer. The Court of Appeal rejected this proposition.

Although this judgment deals with LPP in the context of tax advice, the Court of Appeal has recognised that the protections afforded by legal advice privilege should not be extended to other advisers outside the legal profession.  The possible extension of LPP has been the cause of much debate within the legal and accountancy professions.  Accountants, other professionals and non qualified tax advisers have long coveted an extension to LPP, so that their clients have the same protection as those advised by lawyers.  But it is important to remember that, unless Parliament or the Supreme Court sees fit to extend LPP beyond the legal profession, the position will not be changed - legal advice from accountants is not covered by LPP, even if instructed via a law firm.  Furthermore, accountants and others in the regulated sector have more stringent obligations to disclose information about their clients under anti-money laundering rules than lawyers. If clients are at all concerned about protecting confidential information, they should seek their legal advice from the legal profession. 

Background to the decision

The claim arose out of a dispute between Prudential and the Special Commissioners/HM Revenue and Customs ("HMRC") in respect of a compulsory notice to provide relevant documents.

The Taxes Management Act 1970 affords various powers of investigation to HMRC, including the ability to serve notices on taxpayers and other third parties requiring the disclosure of documents and information which it reasonably believes are, or may be, relevant to the tax liability of that taxpayer (these powers have now been superseded by the arguably even more invasive powers of investigation under Schedule 36 Finance Act 2008).  It can serve notices on the taxpayer or others who might hold relevant information such as accountants and banks.  HMRC can also seize information during raids on homes or business premises.  Other investigatory and regulatory agencies have similar powers to demand information and conduct raids.  In such circumstances the only ground for withholding information, or challenging seizure,  is that the information is  covered by LPP.    

In the Prudential case the Special Commissioners had given consent for the relevant notice to be issued with a view to investigating a commercially marketed tax avoidance scheme.  Notwithstanding the compulsory nature of the notice to disclose relevant documents, Prudential maintained that they could be withheld on the basis that legal advice given by its accountants in relation to the scheme was covered by LPP.

After hearing the judicial review application the High Court found that LPP can only apply to advice given by lawyers.  The High Court considered the origins and application of the common law right to LPP in detail and, in doing so, restated the two aspects of the doctrine: "legal advice privilege" and "litigation privilege".  Prudential's argument that they were not seeking to extend the scope of LPP but rather were seeking to establish that legal advice privilege could be applied to legal advice given by other professional advisers. Its argument placed considerable importance on the fact that litigation privilege has been found to apply, to a limited extent, to accountants dealing with certain tax litigation matters on behalf of clients.   

Charles J, found that the doctrine of precedent excluded him from finding that the law on LPP covers communications with accountants and tax advisers.  The founding principle that underpins the existence of LPP is a point of public policy, attributable partly to lawyers' integral part in the administration of justice and their specific duties to the court.  It is fundamental to the interests of justice that clients are able to provide all relevant information to their lawyer in order to ensure full and confidential access to legal advice.

However, Charles J did concede that in the modern age, when there are professional advisers giving advice on tax law, it is not always easy to see why this should continue to apply only to the legal profession.  Nevertheless, he found that on public policy grounds this principle should not be extended to other advisers unless Parliament or a higher court sees fit to intervene.  

The Court of Appeal decision

The Court of Appeal also analysed the history and the limited extensions to the scope of legal professional privilege in some detail.  Lord Justice Lloyd handed down the unanimous decision and made the following concluding remarks:

"I consider that this court is bound to hold that LPP does not apply, at common law, in relation to any professional other than a qualified lawyer: a solicitor or barrister, or an appropriately qualified foreign lawyer... it is not open to the court to hold that LPP applies outside the legal profession, except as a result of relevant statutory provisions... I consider that the judge [Charles J] was right to reject the argument that LPP applies in relation to accountants, and to dismiss the judicial review application.  I would dismiss this appeal."

What does this mean in practice?

There was some consideration of other types of adviser giving legal advice e.g. pensions specialists.  The Court of Appeal held that in this context, LPP was also restricted to advice sought from the legal profession.

Accountants and other non-lawyer advisers will be disappointed with the outcome as they had been hoping to achieve parity with lawyers when giving similar legal advice.   The decision means that clients who seek legal advice from accountants and other advisers have less protection, in relation to the information they provide to these advisers, than those who go to lawyers.  And that the advice they receive is more vulnerable to disclosure to the authorities. 

The seeking and provision of legal advice in privileged circumstances is becoming more important as many regulatory bodies have intrusive investigatory powers which allow them to demand non-privileged information from individuals or businesses and impose penalties for non-cooperation.  Those in receipt of notices or other demands for information need specialist legal advice as to what can be withheld from disclosure on the grounds of LPP.   In the context of investigations and compliance reviews if obtaining confidential advice, protecting sensitive material and retaining control over disclosure are important, then seeking advice from lawyers rather than other professional advisers is still the best way to preserve the right to claim LPP. 

How can DLA Piper help?

Specialist professional advice is essential when making any sort of disclosure, whether voluntarily or in response to a demand - not only to identify what should be disclosed, but also to proactively manage ongoing communications with the regulator.

Our dedicated Corporate Crime and Tax Investigations Team is a unique mix of commercial, tax and criminal defence lawyers, former HMRC investigators, former senior SFO prosecutors, and tax professionals recruited from the Big 4 accountancy firms.  This wealth of experience means that we are well equipped to offer our clients valuable insight into how the regulators approach and conduct their investigations, and how to cooperate with them to achieve the best possible outcome. 

The team provides a one-stop shop for tax investigations, privileged legal advice, defence and resulting litigation. We act on behalf of both large corporates and individuals and specialise in compliance, internal investigations and managing relations with the regulators. On international matters, we work closely with tax and regulatory specialists in other jurisdictions across our network of offices in Europe, the US and Asia.


1 R (on the application of Prudential Plc v Special Commissioners of Income Tax [2009] EWHC 2494 (Admin)

2 Prudential PLC and Prudential (Gibraltar) Limited v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) [2010] EWCA Civ 1094

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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