Legal professional privilege – not extended to accountants

Year Published: 2013

As predicted in my previous article in June 2012 (click here to view), Prudential has failed in its appeal against the Court of Appeal ruling that Legal Professional privilege should not be extended to Chartered Accountants.

The specific issue raised by this appeal is whether a client can claim legal advice privilege (LAP) over advice given by Chartered Accountants in relation to a tax avoidance scheme.

However, Lord Neuberger made it clear from the first paragraph of his judgment that the case raised the more general question whether LAP should then be extended to other professionals. He later identified professions such as town planners, engineers, actuaries, architects, surveyors, whose clients draw on their specialist legal expertise and to whom privilege might be extended.

The judgment restates the position rather than clarifies it. Lord Neuberger gave three reasons why the appeal should be dismissed. Firstly, the consequences of allowing the appeal would be to make a clear, well-understood principle unclear; secondly that the question whether or not LAP should be extended to professionals other than qualified lawyers raises question of policy which should be left to Parliament; and, thirdly, Parliament has previously enacted legislation relating to LAP which, at the very least, suggested it would be inappropriate for the court to extend it.

All seven of the Court appeared to accept that logic was on the side of allowing the appeal but nevertheless the majority decided against it, saying it was for Parliament to legislate. That in turn raised questions about what safeguards would have to be put in place if LAP was to be extended beyond solicitors and barristers. In their dissenting judgments, Lord Sumption and Lord Clarke suggested LAP should be extended to advice given by members of a properly regulated professional body which has, as an ordinary part of its function, the giving of skilled legal advice.

To my mind, that raises two issues – first of all, what exactly is ‘skilled’ legal advice? Architects and Project Managers frequently give advice on a construction contracts but is that really skilled legal advice?

The other issue is what is properly regulated professional body? Accountants and Tax Advisers are regulated by various regulatory bodies. To name only a few, there are the Institute of Chartered Accountants in England and Wales; the Association of Chartered Certified Accountants; the Chartered Institute of Management Accountants and the Association of Taxation Technicians. To extend privilege to the members of any particular professional body, the Court would surely have had to consider each in turn both to ensure that the body is properly regulated and to conclude that part members of the body have as part of their ordinary function, the giving of legal advice. Such consideration is a matter for Parliament.

However, any developments depend on a willingness by Parliament to devote time to this. I can’t imagine in the present economic circumstances either the Treasury or HMRC being particularly happy at the prospect of privilege being extended to accountants.

If the accountants had won the appeal, the extent of legal advice privilege would have become unclear and would have become a far more extensive issue for litigation lawyers. For instance, correspondence between an architect and his client might become relevant in subsequent proceedings arising out of professional negligence or a problem with the contract. At the moment, it can’t possibly attract privilege but if LAP had been extended it would have led to far more arguments in court over what is and isn’t privileged.

Lord Clarke gave the example of two individuals, A and B, who have the same problem with the solution dependent on applying legal principles of tax law to substantially the same facts. If A seeks advice from a law firm and B seeks advice from an accountant both are receiving legal advice but only the first are entitle to claim privilege and refuse to disclose the information and advice to HMRC.

He saw that as an anomaly but that is the current position and it will only change if Parliament decides to reverse the decision by legislation.

The Accountancy lobby will press for change and it is seems that something should be done to address the anomaly and also to deal with the position of clients of a multi- disciplinary firm of Accountants and Lawyers which provides legal tax advice but which is not regulated under the Legal Services Act because it does not engage in reserved legal activities.

For further information on the above verdict or similar matter, please contact Peter Moore, head of our Professional Practices sector group, on 0844 391 5848.

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