UK: A Privilege, Not A Right - Supreme Court Refuses To Extend Legal Professional Privilege To Accountants And Non-Lawyers

Last Updated: 20 May 2013
Article by Michael Axe

Michael Axe reports on the eagerly anticipated Supreme Court decision that confirms that confidential communications between clients and their accountants are not protected from disclosure by Legal Professional Privilege, and so highlights the dangers of seeking legal advice from non-lawyers.

Legal Profession Privilege (LPP) is a form of confidentiality covering communications between clients and their lawyers, which provides clients with an absolute right to refuse to disclose such communications in legal proceedings.  LPP can arise where the communications relate specifically to pending or contemplated litigation ("Litigation Privilege"), or more generally where the communications relate to the seeking or giving of legal advice ("Legal Advice Privilege" or LAP).  However, Legal Advice Privilege has historically only applied to legal advice provided by lawyers, and not to legal advice provided by any other parties.

The Prudential case

In November 2007, Prudential was served with statutory notices by HM Revenue & Customs (HMRC) requiring it to disclose the legal advice it had received from its accountants in relation to its tax liabilities.  Prudential argued that its accountants' legal advice was covered by LAP, primarily on the basis that it was the nature of the legal advice that is relevant to the application of LAP, not the status of the person giving the advice.

The case proceeded to the Court of Appeal in October 2010, and the implications of Prudential's application were sufficiently far reaching that the Institute of Chartered Accountants of England and Wales, the Law Society and the Bar Council were all allowed to make submissions.

The Court of Appeal rejected Prudential's application and confirmed that LAP only applied to qualified lawyers (subject to some statutory exceptions) and did not apply to legal advice provided by accountants or other non-lawyers.  However, Prudential were given permission to appeal the decision to the Supreme Court.

The Supreme Court's decision

In 2013 the Supreme Court upheld the Court of Appeal's earlier decision by a majority of 5 to 2, and confirmed that LAP did not extend to legal advice provided by accountants or any other non-lawyers.

The Supreme Court's decision was primarily based on two key issues, namely the need for certainty, and the role of Parliament in law-making.

In relation to the first issue, the Supreme Court considered that to extend LAP to accountants and non-lawyers would add an unnecessary degree of uncertainty into a legal principle that is currently very clearly defined and understood, namely that LAP only applies to qualified members of the legal profession.  The Supreme Court considered that it would be counterproductive to muddy the waters in this way.

However, the two dissenting judges agreed with the logic of Prudential's argument that it should be the nature of the legal advice that determines whether it is covered by LAP, not the status of the person giving the advice.  The Supreme Court did agree that if the law regarding LAP was to be changed on such a fundamental level, it was the role of Parliament to do so, not the Courts.  The law regarding LAP was currently perfectly clear as to who was and was not covered by LAP, and if accountants (or any other non-lawyer group) wished to lobby Parliament to amend the existing law, it was open for them to do so.

The risks of instructing non-lawyers or non-independent lawyers

In light of the Supreme Court's decision in Prudential, any party that obtains legal advice on its tax liabilities from an accountant rather than a lawyer will have significantly less protection from disclosure should its tax status ever be called into question.  This could be of particular concern to companies that implement a "tax minimisation" scheme based on advice from accountants (or other tax consultants), as the companies might be forced to disclose their "confidential" communications with their advisors regarding the scheme if HMRC later decides to commence tax evasion proceedings against them.  This is, of course, despite the fact that if exactly the same advice had been given by a lawyer, LAP would apply.

This threat of disclosure may ultimately lead to more tax advice being sought from lawyers rather than accountants.  Perhaps more worryingly, some parties may seek advice from accountants without disclosing all relevant details to the accountants (for fear that the details might ultimately become discloseable), meaning that any advice provided by the accountants will not be based on a complete picture of all relevant facts.

Alongside the Prudential case is the European Court of Justice's decision that LPP does not apply to advice provided by in-house lawyers in relation to competition law matters (see our earlier article No legal privilege for in-house lawyers in competition law matters).  Both these cases highlight the dangers of seeking legal advice from non-lawyers or non-independent lawyers.

Litigation Privilege

The Supreme Court's decision in the Prudential case was, however, only concerned with the Legal Advice Privilege, not the "Litigation Privilege" form of Legal Profession Privilege which can apply to confidential communications relating to the giving/receiving of advice or the gathering evidence in relation to litigation.

Litigation Privilege will normally cover communications passing between the client and its lawyer, or between the lawyer or client and a third party (such as accountants or other professional advisors), provided of course that the communications relate to existing, pending or reasonably contemplated litigation.

However, the Court of Appeal has previously confirmed (for example, in the 2004 case of USA v Philip Morris Inc & Others) that neither "a distinct possibility that sooner or later someone might make a claim" nor "a general apprehension of future litigation" would be sufficient to qualify as existing, pending or reasonably contemplated litigation.  Instead "litigation must have been reasonably in prospect" at the relevant time (although this did not mean that "there must have been a greater than 50% chance of litigation").

This means that it is very unlikely that Litigation Privilege, as an alternative, would apply to confidential communications passing between a client and its accountant (or other non-lawyer advisors) in relation to issues such as its tax liabilities, until such time as litigation becomes reasonably likely (which will no doubt normally be some time after the initial advice is provided).

Given the unavailability of Litigation Privilege in such circumstances, it therefore remains the case that if the confidentiality of the initial advice is to be protected by Legal Advice Privilege instead, such advice must be provided by a qualified lawyer.

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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