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KEY POINTS
- The background to the curent dispute.
- Court of Appeal refuses legal professional privilege appeal in Prudential.
- Bound by previous decision in Wilden Pump Engineering to limit LPP to lawyers.
- Two ways the courts could choose to define LPP.
- Need for a doctrine which fits multi-disciplinary working.
My degree is in law, and I was half way through my solicitors’ finals before I discovered tax. The rest, as they say, is history, but back when I was working for accountancy firms I was sometimes asked why I became an accountant and ‘gave up law’.
I would look at my Yellow and Orange books and the volumes of tax cases and wonder what they were talking about.
The job of a tax accountant involves giving advice on tax law, just as the job of a tax lawyer does. That is not to say that the two roles are the same – if you want the tax computed ask an accountant, if you want a tax warranty drafted ask a lawyer – but both of them can give professional advice on the law as it relates to tax.
However, they can only give accurate advice if they get accurate information from the client. There may be various reasons why a client might give incorrect information: failure to remember, not understanding the relevance, even a deliberate attempt to cover something up.
What the law is particularly anxious to avoid is a situation where clients give false or incomplete information because of a fear that it will be used against them. It was for this reason that the concept of legal professional privilege (LPP), as it applies to legal advice, was developed.
It gives an absolute privilege, where its provisions apply, to the discussion between adviser and client, and therefore ensures that the client can indeed set out his or her position as openly as possible, in order to get accurate legal advice.
Buttering them up
It is a concept that has attracted some high-sounding legal rhetoric in its exposition and defence. As far back as 1833, in the case of Greenough v Gaskell, Lord Brougham said:
‘If the privilege did not exist at all, everyone would be thrown upon his own legal resources; deprived of all professional assistance, a man would not venture to consult any skilful person, or would only dare to tell his counsellor half his case.’
A similar argument in modern form, from a modern case (Morgan Grenfell [2002] STC 786), was made by Lord Hoffmann:
‘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.’
And, as a fundamental human right, it does not have to be balanced against competing principles, as Lord Taylor made very clear in the case of R v Derby Magistrates Court ex parte B [1996] 1 AC 487.
‘[I]f a balancing exercise was ever required in the case of legal professional privilege, it was performed once and for all in the 16th century, and since then has applied across the board in every case, irrespective of the client’s individual merits.’
Fine words, but as my grandmother used to say, ‘fine words butter no parsnips’. The test is whether the words are acted on in the judgments which the courts come to, and in the case of Prudential plc & anor. I would argue that they have not.
Advice from non-lawyers
I reported on the High Court decision in Privilege, LLB? The facts as given in that report were very sparse; in fact surprisingly there seem to be more details in the Court of Appeal’s judgment which was released last month.
Here we learn that Prudential took legal advice in respect of a packaged tax avoidance scheme from counsel in the UK, from foreign lawyers, and (crucially) from PricewaterhouseCoopers. HMRC issued notices under TMA 1970, s 20 to obtain copies of the correspondence with PwC.
Now there appears to be less and less dispute that people often get legal advice on tax from accountants – giving the judgment of the Court of Appeal, Lloyd LJ says that Prudential ‘assert (and it is not really in dispute) that, nowadays, on many if not most occasions on which a person seeks advice about fiscal liabilities, which often involves a consideration of, and advice about, the relevant law, that person does so by approaching accountants rather than lawyers’ [emphasis added].
So we can stop there, surely? Certainly on many, possibly on most, occasions when people need to get legal advice on tax issues, and therefore need to be able to set out the position honestly before their adviser ‘without fear that they may afterwards be disclosed and used to his prejudice’, the adviser they are consulting is an accountant.
Since the ability to get such advice, and therefore to make such disclosures is ‘a fundamental human right’, it follows automatically that the concept of LPP extends to correspondence about legal advice between clients and accountants just as it does between clients and lawyers, yes?
Well, no; at least not so far. The judgment of the Court of Appeal ([2010] EWCA Civ 1094) is that LPP has to be restricted to communications between clients and lawyers.
Asked and answered
One of the main reasons was that the issue had already been raised and decided in the Court of Appeal case of Wilden Pump Engineering v Fusfeld [1985] FSR 159. The case was about breach of copyright in design drawings, and the defendants had taken advice from patent agents.
A key question in the case was whether the defendants knew they had infringed copyright, and the plaintiff wanted to see the correspondence with the patent agents. The defendants said that the correspondence was covered by LPP, but the Court of Appeal held that it was not. The main reason, given by Dillon LJ, was:
‘[I]t seems to me that the position is that it is impossible to uphold an utterly wide test of privilege extending to any communication by the litigant with any person from whom he has sought, or happens to have received, advice on any point of law relevant to the litigation in question. It is far too wide, and the courts have never adopted such a wide approach. The narrow approach of the common law is to recognise certain types of person as being legal advisers, communications with whom on matters of law are privileged.’
Now, it is one thing to say that this decision of the Court of Appeal binds it on subsequent cases, even though there is a considerable number of comments from recent House of Lords decisions, some of which I have already quoted, which might suggest that a wider picture has to be considered.
It is quite another to conclude, as Lloyd LJ does, that even if it were not so bound ‘it is not open to the court to hold that LPP applies outside the legal profession, except as a result of relevant statutory provisions’.
Creating uncertainty
He does so on the grounds that the application of the principle needs to be ‘clear and certain in its application’. To extend the principle outside the limited scope to which it has previously been confined would, in his view, remove the level of certainty which currently exists:
‘To which accountants should it apply, given that “accountant” does not by itself denote membership of any particular professional body, or the obligation to comply with any, or any particular, professional obligations? To which other professional advisers would it apply? To what areas of the law would it apply as regards the advice of any adviser who is not a lawyer as such? These questions are serious and important, and would require a clear answer in order that the scope and application of the extended LPP should be known and understood.’
It is true that the arguments put forward on behalf of the ICAEW, as an ‘intervener’ in the case, by Lord Pannick QC, do create rather more problems than they solve.
He was, essentially, trying to redraw the line which defined the ‘in’ crowd for LPP by reference to those who were ‘relevant professional advisers’ under POCA 2002.
It is not surprising that, faced with this alternative based on a recent statute, the Court of Appeal felt that it could not make a decision to go further on this subject itself, only Parliament could take such a decision. But is this the only possible approach?
Principled alternatives
The principle behind LPP is that it should apply when a client is seeking ‘skilled advice about the law’. It is interesting to note that none of the precedents suggest that it depends on the actual level of skill deployed by the adviser in giving the advice.
One very revealing case, quoted in the judgment, is that of Calley v Richards (1854) 19 Beav 401, where the client had contacted a Mr Mullings for legal advice.
Mr Mullings had been a solicitor, and was still held out as being part of the firm and therefore in practice as a solicitor, but he had in fact ceased practising. Because the client still thought that he was a solicitor, LPP was held to apply.
Lloyd LJ took from this judgment the lesson that it was not just the level of skill which mattered, since if Mr Mullings was only recently retired he was probably still perfectly able to give accurate advice.
It seems to me, however, that the true message of this case, and the absence of any need to show that the advice concerned was itself skilfully given, is that the test is all about the person seeking advice, and not about the adviser.
This also fits in with the idea that LPP is a ‘fundamental human right’, since that also has to start by looking at the person seeking advice, rather than at the adviser.
Backing this up, and also throwing doubt on the level of ‘certainty’ currently enjoyed by the doctrine of LPP, is the issue of which advice is covered. In Three Rivers (No 6) [2005] AC 1, Lord Scott of Foscote pointed out that the authorities clearly limit privileged communications to those related to legal advice:
‘If a solicitor becomes the client’s “man of business”, and some solicitors do, responsible for advising the client on all matters of business, including investment policy, finance policy and other business matters, the advice may lack a relevant legal context.
There is, in my opinion, no way of avoiding difficulty in deciding in marginal cases whether the seeking of advice from or the giving of advice by lawyers does or does not take place in a relevant legal context so as to attract legal advice privilege’ (emphasis added).
So the level of certainty is perhaps not as great as Lloyd LJ suggests in the rest of his judgment, and the privilege is founded on the need of the client to get advice based on his or her true circumstances far more than (or even to the exclusion of?) the status of the adviser.
I would therefore suggest two other approaches which the courts could take, based on a development from the authorities, to defining the situations in which LPP should apply; the first significantly less radical than the second.
Two approaches
The first is to base the test of a professional adviser other than a lawyer on a principle dating from the thirteenth century, and therefore predating LPP by several centuries.
Professional bodies can only obtain a Royal Charter if they can demonstrate ‘pre-eminence, stability and permanence in their particular field’, according to the Privy Council website.
Chartered bodies are generally required to have some form of regulation of their members to ensure that they only carry out work which they are capable of performing.
If, therefore, they give advice on an area of the law which relates to their chartered institute’s profession, that would seem to be a fair test of someone who should be treated as a ‘skilled adviser’ in that area of the law.
The second, more radical, approach would require a specific overruling of some of the authorities, but seems to me to be a return to the first principles of LPP.
The essence of the doctrine is that the client should be able to seek advice based on their true situation, without fear that their disclosures will be used against them.
Why, then, does it matter whether the adviser is ‘skilled’ or not – particularly since there is no test that a lawyer is skilled in the particular area of law on which he or she has been consulted?
The whole problem of trying to create a common law definition of advisers other than lawyers who qualify for LPP status is removed if the supremacy of the client’s need, so clearly expressed in the statements of principle, is allowed to actually determine the scope of the doctrine.
The requirement for LPP would then simply be that the doctrine applied whenever the correspondence clearly concerned a request for advice on the law, regardless of the skill of the adviser.
While overturning the dictum in Calley v Richards that it would not apply had the client known that Mr Mullings was not a solicitor, it does make sense of the ratio decidendi, that it was the client’s perspective and not the adviser’s which mattered.
A multi-disciplinary world
Whatever may happen in any appeal, it is plainly wrong to leave the situation as it is (despite all the law firms that promptly issued press releases explaining how right the decision was, and mentioning in passing that contentious tax work was therefore much better handled by them than by accountants).
From Prudential’s point of view, they asked for tax advice from the advisers best suited to give it. It is completely unacceptable that their correspondence with lawyers is protected where their correspondence with PwC is not.
It is also completely unrealistic in a world where multi-disciplinary working is the norm. In fact, although the judge referred to PwC as ‘well-known accountants’, PwC do not use that term to describe themselves: they say they are a ‘professional services firm’ and that ‘PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients’.
As it becomes more and more common for lawyers, accountants and other professional advisers to work alongside each other in the same firm, it becomes less and less realistic for different rules of privilege to apply to the advice they give.
The Court of Appeal seems to believe that any extension of the doctrine would require parliamentary action. But that is surely to miss the point: LPP is, and should remain, a common-law doctrine.
That does not, however, mean that it has to remain pickled in aspic. Surely it is time for the courts to put the high principles which they assert into practice as a workable doctrine, which puts the clients, rather than the advisers, first.
