In this long running case, the Supreme Court was asked to consider the scope of legal advice privilege (LAP). The specific issue raised was whether, following receipt of a statutory notice from an Inspector of taxes to produce documents in connection with its tax affairs, a company was entitled to refuse to comply on the ground that the documents were covered by LAP, where the legal advice was given by accountants in relation to a tax avoidance scheme.

The case also raised a more general question vis a vis whether LAP extends, or should be extended to apply to legal advice given by someone other than a member of the legal profession.

Background

This long running matter involved an appeal to the Supreme Court against the 2010 Court of Appeal's decision upholding a 2009 judicial review that a company is not entitled to refuse to comply with a request by HMRC to produce documents on the grounds that the documents are covered by LAP, in a case where the legal advice was given by accountants in relation to a tax avoidance scheme.

The Court was also asked to consider the more general question on the extent of LAP.

In 2004, PricewaterhouseCoopers devised a marketed tax avoidance scheme which it then adapted for the benefit of the Prudential group of companies, who implemented the scheme through a series of transactions. HMRC considered it necessary to look into the details of the transactions and an Inspector of Taxes then served notices under section 20B(1) of the Taxes Management Act 1970 on Prudential (Gibraltar) Ltd and Prudential plc (“Prudential”) giving them the opportunity to make available specified classes of documents.

Prudential refused to disclose certain documents on the grounds that it was entitled to claim LAP in respect of them, because they related to the seeking and the giving of legal advice in connection with the transactions.

The Inspector involved obtained authorisation from the Special Commissioners to require Prudential to disclose the disputed documents. Prudential then issued an application for judicial review challenging the validity of those notices. This was rejected on the grounds that, although the disputed documents would have attracted LAP if the advice in question had been sought from, and provided by, a member of the legal profession, no such privilege extended to advice, even if identical in nature, provided by a professional person who was not a qualified lawyer. This decision was upheld, substantially for the same reasons, by the Court of Appeal. Prudential then appealed to the Supreme Court.

Judgment

The Supreme Court, by a majority of five to two (Lord Clarke and Lord Sumption dissenting), dismissed the appeal with Lord Neuberger giving the lead judgment for the majority.

The majority held that LAP should not be extended to communications in connection with advice given by professional people other than lawyers, even where that advice is legal advice which that professional person is qualified to give. To do so would extend LAP beyond what are currently, and have for a long time been, understood to be its limits. It is universally believed that LAP only applies to communications in connection with advice given by members of the legal profession and there are clear judicial statements of high authority to that effect.

Extending LAP to any case where legal advice is given by a person who is a member of a profession which ordinarily includes the giving of legal advice would likely lead to a clear and well understood principle becoming uncertain, because it is unclear which occupations would be members of a profession for this purpose. There would be room for uncertainty, expenditure, and inconsistency, if the court had to decide whether a group constitutes a profession for the purposes of LAP. It is also unclear how a court would decide whether a profession is one which ordinarily includes the giving of legal advice. Where members of other professions give legal advice, it will often not represent the totality of the advice, so it may also be difficult to decide how to deal with documents which contain legal and non-legal advice.

Further, the extension of LAP 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. The consequences of extending LAP should be considered through the legislative process, with its wide powers of inquiry and consultation and its democratic accountability. The extension of LAP to professions other than lawyers may only be appropriate on a conditional or limited basis, which cannot appropriately be assessed, let alone imposed, by the courts. Parliament has on a number of occasions legislated in this field on the assumption that LAP only applies to advice given by lawyers. Therefore it would be inappropriate for the Supreme Court to extend the law.

The minority considered that LAP extends to advice given by members of a profession which has as an ordinary part of its function the giving of skilled legal advice, and that recognising the privilege attaching to the legal advice of accountants would not be extending the scope of LAP. It was their view that English law has always taken a functional approach to LAP. Therefore on this view, the availability of LAP depends on the character of advice which the client is seeking and the circumstances in which it is given, and not on the adviser's status, provided that the advice is given in a professional context.

The full text of the case is available at http://www.supremecourt.gov.uk/decided-cases/docs/UKSC_2010_0215_Judgment.pdf

Chartered Accountants Ireland Commentary

After a protracted journey through the courts, the decision of the Supreme Court not to extend legal professional privilege beyond the traditional legal professions was disappointing. The Institute of Chartered Accountants in England and Wales had intervened as an interested party in the Prudential case and are to be commended for so doing.

All would not appear lost just yet, however. While concluding that the appeal should not be allowed, Lord Neuberger did note it is a policy issue best left to Parliament rather than the courts.

Delivering the leading judgment, he acknowledged ‘There is no doubt that the argument for allowing this appeal is a strong one, at least in terms of principle ... And 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 ’

Legal professional privilege (LPP) or LAP remains a bone of contention in several jurisdictions, as it can place law firms at a competitive advantage to accountancy firms. It impacts, for example, on both the Irish and the UK mandatory disclosure regimes.

A few years back, the Australian ‘Government issued a discussion paper entitled Privilege in relation to Tax Advice’ to consider whether legal professional privilege ought to be extended to accountants and other tax advisers.

Whilst no decision has yet been taken in the Australian context, interestingly the Supreme Court decision in Prudential references the Australian Law Reform Commission's 2007 recommendation supporting the New Zealand model of creating a separate ‘tax advice privilege’. Australia also operates a common law system, comparable to Ireland and the United Kingdom.

The current position both in Ireland and the UK is anti-competitive. Every individual or business should be in a position to seek the very best professional advice on the same terms, irrespective of the source of that advice. There should be a level playing field between Chartered Accountants and Lawyers when it comes to giving tax advice.

With the recent Legal Services Act the way in which legal services are provided is also changing. The Legal Services Act has created a markedly different landscape leading to the creation of multi-disciplinary practices. It is our view that Parliament needs to find a way to resolve how issues such as LAP are addressed within these new structures.