Today's Court of Appeal decision in Prudential Plc -v- Special Commissioners of Income Tax marks, for the second time in less than a month, an important decision in the scope of legal professional privilege ("LPP") and its application to legal advice given by non-lawyers; in this instance accountants.
The High Court decision
The case concerned legal advice given by an accountancy firm to Prudential Plc and whether, as with legal advice given by lawyers to clients, that advice should be privileged from inspection by HMRC. By a decision of the High Court of Justice on 14 October 2009, Charles J considered there to be 'real strength in the argument that the extent of the right to refuse disclosure should not relate to the nature of the legal qualification of the person giving the advice.' Nonetheless, he stated that he was constrained by the present state of the law and was not able to decide for Prudential. Accordingly, it was held that advice given by an accountant to his client was not covered by LPP. HMRC, therefore, would be entitled to inspect the documents as part of the formal disclosure process and, further, Prudential would not be able to deny a request made by HMRC under the powers conferred by the Finance Act 2008.
The Court of Appeal decision
The Court of Appeal today upheld the decision of the High Court and dismissed Prudential's appeal. Lord Justice Lloyd found that the Court was '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.' Further Lord Justice Lloyd concluded that it was not open to the Court to hold that LPP could exist outside of the legal profession for the reason being that the presence of LPP can create a real conflict with public policy because it allows a client to restrict access to all available relevant evidence.
In noting that the key aim of LPP is to ensure that a client is able to set out his case in full before his lawyer, the Court acknowledged the need to balance this requirement with the competing need to ensure that cases are decided fairly. If disclosure of evidentially important documents is limited, then so too is a court's ability to decide properly the case before it.
Prudential advanced powerful arguments to the effect that it is the content of the advice which should be considered privileged and not the status of the person giving that advice. Despite the logic of such an argument, the Court of Appeal considers that any expansion of LPP is for Parliament to decide and not the court. Indeed, in other countries where LPP does apply in relation to accountants, it is as a result of statutory intervention. For the same reason, the court has also refused Prudential's request to appeal to the Supreme Court and, accordingly, any future developments in this area will come direct from Parliament in the form of statute.
Comment
Until such time as Parliament decides otherwise, it is clear that LPP applies to advice provided by lawyers. Accordingly, advice received from other professionals will be potentially disclosable. This must be borne in mind when taking and considering such advice. There are a number of practical steps which can be taken in this regard:
- It is apparent that only legal advice provided by a lawyer will be subject to LPP. Accordingly, when receiving advice from a non-lawyer, it is sensible to consider whether the advice being given is, in fact, legal advice. For example, in the event that an accountant provides legal advice in the context of tax planning, you may wish to reconsider your choice of adviser. To ensure that any advice remains protected, it may be preferable to consult a tax lawyer whose advice will remain privileged.
In an age in which accountants frequently provide legal advice on specialist areas of tax legislation, this decision has important consequences when deciding whether to take advantage of the cost saving often associated with taking legal and accounting advice from an accountant rather than from independent accountants and lawyers.
- If a decision is made to continue using an accountant for tax advice instead of a lawyer, then all correspondence with the accountant should be marked "confidential". Although this will not prevent the kind of inspection that HMRC sought in the current case, it will provide some limited protection.
Conclusion
In the interests of justice, some may see the Court of Appeal's decision as a sensible one. As mentioned above, if a greater number of documents are revealed during the process of litigation, then (theoretically at least) the greater the chance the court has of reaching the correct decision, as more evidence is available to the Court.
This is particularly true in times of economic uncertainty and increased stresses on the public purse as, with an increase in the disclosure of documents of potential evidential importance, the Revenue will have a greater chance of clawing back taxes that may otherwise have been avoided. The benefit to taxpayers is obvious.
Despite the possible merits of the decision, one wonders whether the Court should have recognised the changing role of the professionals in providing 'commercial business' advice, which often includes a degree of legal advice. The Court therefore might have limited privilege to the type of advice as opposed to the source of advice. Lord Justice Lloyd did say that serious questions would remain unanswered if the Court had taken this route, questions which will ultimately need to be addressed by statute as opposed to case law. For example, to which accountants should any rules on privilege apply as the term 'accountant' does not itself limit association to a professional body? To which other professional bodies could LPP be extended? To which areas of law would LPP apply? Could LPP apply to legal advice provided by a 'non-professional', for example business advisors? Further consideration will need to be given to this topic by Parliament as numerous issues could arise.
Whatever your view on the decision, it is certainly a good time to take stock of the professional advisors you engage and, perhaps, re-evaluate their terms of engagement.
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