.png)
.png)
KEY POINTS
- Legal professional privilege is a fundamental human right (Morgan Grenfell).
- It has never been extended to accountants in respect of legal advice.
- In principle it privileges advice on legal issues, and not lawyers.
- The weight of precedent is against extending it further than lawyers.
The advert says ‘You don’t have to be posh to be privileged’. You do, however, have to be a lawyer.
That, at least, is the decision in the case of R (on the application of Prudential plc and anor) v Special Commissioner of Income Tax and anor [2009] EWHC 2494.
This is a High Court decision, which may well be appealed since the issue at stake is a substantial one of policy, is the concept of legal professional privilege (LPP), which (among other things) is a defence against an application by HMRC for the disclosure of documents relating to a person’s tax affairs, only available when the advice concerned was given to a client by a lawyer?
Mr Justice Charles gave his judgment last month that the answer was ‘yes’.
The facts
The facts of the case are stated briefly by the judge. The insurance company Prudential had disclosed to HMRC (under the disclosure of tax avoidance scheme rules) that it was commercially marketing a tax avoidance scheme.
Not surprisingly, HMRC decided that they wanted to investigate the way that the scheme worked, and they therefore issued notices under TMA 1970, s 20 for the delivery of certain documents which the Inspector thought were (or might be) relevant to the tax liability of a taxpayer.
The details in the judgment about these are sketchy, but the heart of the challenge is expressed by the judge as being the claim that ‘LPP applies when a person obtains skilled advice about tax law from an accountant as opposed to a lawyer’.
Legal professional privilege
LPP is a common law concept, developed by the courts over a considerable period. The judge noted both parties agreed that:
‘there is no decided case in English law in which the point advanced by Prudential has been specifically addressed and answered after a detailed examination of the cases, by reference to tax law and the professional adviser being an accountant.’
The doctrine has developed two different strands, and one of the issues in this case was whether they are integral parts of the same single privilege or right. The first is litigation privilege, which protects from disclosure confidential documents that were created for the purpose of actual or impending litigation.
The other is legal advice privilege, which protects confidential communications for the purpose of obtaining legal advice. The latter has been defined in a way that excludes advice on merely strategic or commercial issues, and is also narrowly focussed on the client/adviser relationship.
Prudential’s case was based on legal advice privilege; does the adviser in a case of legal advice privilege have to be a lawyer?
Morgan Grenfell
One of the leading cases on the subject is Ex parte Morgan Grenfell [2002] STC 786. This was also a case where the marketing of a tax avoidance scheme gave rise to a dispute about the production of documents, but in this case the advisers were leading counsel and solicitors. In giving the leading judgment, Lord Hoffmann said that:
‘LPP is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice.’
He returned to this theme at the end of his judgment when considering the potential effect of the Human Rights Act. Since he had already found for the defendants, it was unnecessary to consider the point but he noted that:
‘It is however the case, as I have mentioned, that the European Court of Human Rights has said that LPP is a fundamental human right which can be invaded only in exceptional circumstances … Mr Brennan [counsel for the Inland Revenue] said that the public interest in the collection of the revenue could provide the necessary justification but I very much doubt whether this is right.’
It was noted at the time of the Morgan Grenfell case that the logic of this argument did not depend on the specific qualifications of the person giving the advice, merely on their ability to give skilled advice and the purpose for which it was being sought.
Nevertheless, in that case and in all other tax cases on legal advice privilege in the UK, LPP had only been recognised when the adviser was a lawyer.
Basic principles
Mr Justice Charles found the following principles in the cases about LPP:
- It is a fundamental right at common law, required for the proper administration of justice.
- It has the two headings mentioned above of legal advice privilege and litigation privilege.
- Advice privilege can be claimed outside litigation provided that it has not been excluded by statute, as it can be, either expressly or impliedly.
- The right covers both the advice given and the information which the client provided.
- There is no need to balance it against other competing rights, as it differs from the law relating to other rights of confidentiality such as that between doctors and patients.
- The right belongs to the client, and can therefore be waived by him or her.
- The advice covered by LPP is not just advice on what the law says, but also covers what the client should prudently and sensibly do in that legal context.
The judge noted that the public interest in non-disclosure for the proper administration of justice was partly balanced by the duties of lawyers to the courts and to their client in this area.
There might, for example, be conflicts which would require a lawyer to cease acting for the client. This, the judge said, might be ‘in circumstances which impliedly impart a clear message to the court or tribunal that relevant material has not been disclosed’.
It should be said that this would not, of course, require the disclosure of that material, and the judge perhaps was not directed to similar ethical rules applied by the major accountancy and tax institutes.
It is also rather strange that he sought to find a balancing exercise between competing rights having just found that no such balancing was required for LPP, and shortly before quoting the leading case of R v Derby Magistrates, ex parte B [1996] AC 487 that:
‘subject to recognised exceptions, communications seeking professional legal advice, whether or not in connection with pending court proceedings, are absolutely and permanently privileged from disclosure even though, in consequence, the communications will not be available in court proceedings in which they might be important evidence.’ (Emphasis added).
The position of accountants
Having set out the basic principles, Mr Justice Charles then turned to how they applied to the issue of whether advice on the law from non-lawyers should still be covered by LPP.
He set out the two possible ways in which these expressions of principle can be read:
‘(1) applying only to purpose and content of the communications, provided that the person giving the advice or assistance has the relevant expertise, or role, or
(2) requiring that the advice and assistance is given by a member of the legal profession.’
Pausing there, it is hard to see where point 2 comes out of the basic principles as set out by the judge. Although the list set out earlier in this article paraphrases what the judge said, there is nothing in either summary which refers to the legal profession, merely to the giving of legal advice by skilled practitioners.
The principles emphasise the need for the client to have the freedom to be honest with the adviser when asking for advice about legal issues, and stress the nature of the right as one which belongs to the client and not the adviser.
It is perhaps more appropriate to say that the cases can be read in either of the two ways set out, and that is the way in which the judge actually justifies his refusal to extend LPP to communications between accountants and clients.
Lawyers only
Again, the judge gives a list of reasons why, in his view, the doctrine is limited to advice given by lawyers.
- The statements of principle refer to those with certain skills and expertise, and in context refer to members of the legal profession.
- The link is a natural one given the close relationship of lawyers with the administration of justice, and having such a clear link sets a practical limit to a right which competes with the need for a court or tribunal to have all necessary information before it.
- The cases, while not conclusive, do seem to assume that LPP is linked to the legal profession. This is on the basis that ‘legal adviser’ means a member of the legal profession, and not a person who advises on the law, which is the way that the judge interprets it.
- The textbooks all say that LPP is limited to lawyers, apart from some statutory and litigation privilege exceptions. (Books, written by lawyers for other lawyers to read, say that lawyers have special privileges. How surprising!)
- Parliament has clearly proceeded on the basis that LPP is only available to lawyers, since it makes special provisions for other tax advisers: for example, FA 2008, Sch 36 para 25.
Other advisers
Mr Justice Charles then quoted at length from a Court of Appeal case regarding patent agents, Wilden Pump Engineering Co v Fusfeld [1985] FSR159. Lord Justice Dillon refers several times to the need for the advice to come from ‘a legal adviser’ in cases of LPP, and then asks whether this needs to be:
‘one who is officially recognised by the competent authorities in this country, or a foreign state, as being a member of a profession of persons fit to advise on the branch of law in respect of which the said advice is sought’.
Seemingly concluding that this is an accurate definition, he goes on to consider whether a patent agent should be considered a legal adviser for these purposes and concludes that he should not, as the courts have adopted a narrow definition of what a legal adviser is.
In passing, he comments that accountants are often asked for advice on tax law or company law, ‘and there are many people who would regard an accountant as better qualified than a solicitor to give advice on tax matters’.
While recognising differences between the arguments in Wilden Pump and those before him, Mr Justice Charles considered himself bound by the narrow interpretation put on LPP by the Court of Appeal.
Still to come?
Perhaps surprisingly, in the light of the above, Mr Justice Charles accepted that Prudential had ‘shown that accountants do what lawyers are described as doing in the cases that establish LPP’.
He held that the doctrine of precedent prevented him from finding for Prudential, even though in another case he had himself said that it was hard to see why accountants did not have the benefit of LPP.
He also suggested, radically, that one way to level the playing field between lawyers and accountants was to remove the benefit of LPP from the former rather than to grant it to the latter.
In the end, however, he clearly felt that the weight of cases from higher courts was decisive. If the case is appealed, and that burden therefore becomes lighter, it will be interesting to see what the result is – particularly if it gets to the Supreme Court, with all the power it has to develop the common law.
