UK: Supreme Court Confirms Privilege Does Not Extend To Accountants

Last Updated: 25 March 2013
Article by Rachel Couter and Hannah Parry

The Supreme Court yesterday confirmed that legal advice given by an accountant will not be protected by legal advice privilege (R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1).

Privilege – a quick recap

Privilege entitles a party to withhold evidence from production to a third party or the court.  If a document is privileged that privilege is absolute and absent consent or waiver production cannot be required.

Privilege is a common law creature and has been developed by the courts to ensure a person can seek legal advice candidly, secure in the knowledge that those communications cannot be used against them.  This, the theory goes, promotes the broader public interests of legal compliance and administration of justice.

Legal advice privilege ("LAP") is one sub-set of privilege and applies to confidential communications passing between a client and lawyer acting in a professional capacity for the purpose of seeking or giving legal advice.

In Prudential, the Court was asked to consider whether LAP covered legal advice provided to it by accountants.  The Prudential said it did, the taxman said it didn't.  

Prudential – the Facts

In very broad summary, following legal and tax advice from its accountants Prudential implemented a scheme aimed at reducing its overall fiscal liabilities.  Prudential was required under tax avoidance legislation to disclose the scheme to the Inland Revenue (now HMRC).  HMRC promptly served notices seeking disclosure of certain categories of documents relating to the scheme pursuant to its powers under the Taxes Management Act 1970 (now superseded by schedule 36 of the Finance Act 2008). 

Prudential refused to disclose a number of documents on grounds that LAP applied to them and subsequently sought judicial review of the validity of notices issued by HMRC compelling disclosure of the disputed documents.   

First instance and Appeal

Both the High Court and Court of Appeal rejected the application:  although it seemed likely that the disputed documents would attract privilege if they had been produced by a lawyer, because they had been produced by accountants the documents fell outside the privilege regime.  The boundaries to LAP had been clearly set in prior case law and both Courts felt bound by those authorities.

Supreme Court

The majority of the Supreme Court (Lord Sumption and Lord Clarke dissenting) agreed.  In the majority's opinion LAP did not cover legal advice given by professionals other than lawyers.  This was the scope of the rule as generally understood and assumed to be and the Court was not convinced that it could or should extend it.  This was because:

(a) the consequences of extending the rule to other professionals were hard to assess and would likely lead to uncertainty. This would be highly undesirable particularly in circumstances where the status quo was clear, well understood and easily applied;

(b)  whether or not to extend LAP raised policy issues which should be decided by Parliament;

(c)  Parliament has already enacted legislation which assumed LAP only applied to lawyers. This made it even less appropriate for the Court to extend the law.

Certainty v uncertainty

Of primary concern to the Court was that if LAP was held to cover advice from a wider category of "professionals" there would be many (identified and unidentified) difficulties in applying the rule.  Prudential had suggested that privilege should attach where a professional advisor gave legal advice in circumstances where such advisor was qualified to give such advice, ordinarily gave such advice and was appropriately regulated in doing so.

Lord Neuberger listed, for example, town planners, pensions providers and engineers.  He considered these may or may not be members of a profession for that purpose and may or may not be suitably qualified to give legal advice on areas within their expertise.  Extending privilege meant that discerning whether or not the individuals had the competence, authority or oversight could require a significant fact finding exercise.    Moreover if, as Prudential submitted, LAP was only to cover non-legal professionals if their profession was one which ordinarily included the giving of legal advice - this would be fraught with difficulties.  If part of the advice was legal and part non-legal – how would that be dealt with? What did it mean to ordinarily give legal advice in the course of business?

In contrast to this, the present position was simple, effective and efficient.  Was the legal advice from a lawyer?  If so, then it's probably privileged subject to a few clear exceptions.   The client knows where it stands, the advisor knows where he or she stands and third parties know where they stand.

It's up to Parliament

The Court further considered that an extension of LAP would potentially have a wide ranging impact which could not be second-guessed by the Court.  On the other hand, Parliament could debate, investigate and enquire as to the appropriateness of any extension of privilege and give it proper consideration through full consultation.  All of which would be subject to democratic accountability. 

Parliament's already decided

Moreover, Lord Neuberger considered that Parliament had already looked at the scope of LAP in the context of HMRC's powers to obtain documents and had nonetheless restricted LAP to communications with lawyers.  This, it said, made it even less appropriate for the Court to step in.   Legislation had also specifically extended LAP to apply to limited categories of non-lawyers, for example, patent agents, trade mark agents and licenced conveyancers - if Parliament had wanted to extend it further it could have done so. 

The minority view

In their dissenting judgments, Lord Sumption and Lord Clarke considered that whilst certain legislation and case law assumed LAP would only attach to lawyers' advice as a matter of policy, LAP would and should cover legal advice given by non-lawyers.  There was no justification, particularly in this day and age, to make any distinction on the basis of the identity of the provider of legal advice.  The test should primarily look at the nature of the advice and not the provider.  To suggest otherwise was illogical.   LAP is a creature of common law and can be redefined by the Courts.  If the scope of LAP was considered to be too broad then Parliament should curtail it.

The day to day

It is relatively rare to see a judgment which has so much sympathy with the losing arguments.  The dissenting judgments suggested a more radical reformulation of the rules on privilege which arguably would be more appropriate in the 21st  century landscape where lawyers are not the only ones properly giving legal advice.  The majority, however, preferred the status quo.

But what does the judgment mean for professionals and entities seeking advice and their advisors? 

In reality, the case probably confirms what most considered to be the case, namely, unless your advice is from a lawyer it will not be protected by privilege and might have to be disclosed to third parties in the future.    

As a practical measure, if there are particularly sensitive questions, or areas which need to be discussed or disclosed when seeking advice, it may be worth doing this through a lawyer or at least considering the implications properly before doing so. 

For their part, non-lawyer advisors will have to be more alive to the fact that the advice may be seen by regulators or others, and by the same token, more aware that clients may be reluctant to provide information with complete candour if there is a risk of future disclosure.  The extent of instructions and any caveats to those will have to be clearly set out in any advice given.

In the meantime, whether or not Parliament has the inclination to look at this in more detail remains to be seen.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions