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No extension of privilege for accountants

18 October 2010

The Court of Appeal last week handed down a judgment confirming that Legal Professional Privilege (LPP) should only extend to situations where legal advice is provided by a solicitor or barrister, or where specifically provided for by statute.

The Court of Appeal ruled that LPP should not be extended to legal advice given by other professionals (in this case an accountant) with the Court concluding that this position can only be altered by Parliamentary legislation. The Institute of Chartered Accountants for England and Wales, the General Council of the Bar and the Law Society were all granted permission to intervene and make submissions in this case.

In this case, R v Special Commissioner of Income Tax & Ors (ex parte Prudential Plc & Ors) [2010] EWCA Civ 1094, a notice under section 20 of the Taxes Management Act 1970 (TMA) was authorised by the first respondent requiring the production of various documentation related to Prudentials tax affairs. The TMA gives power to HMRC to require production of documents that relate to an individuals tax liability.

Prudential assert that the notices require production of documents by which they sought or received legal advice on tax matters. This advice was obtained from a mixture of Counsel, foreign lawyers and, significantly (for the purpose of the case), PricewaterhouseCoopers.

Prudential argued that they did not need to provide these documents as they were covered by LPP. Prudential therefore brought the judicial review proceedings to challenge the TMA notices.

The Court of Appeal held that LPP does not apply to any professional other than a solicitor or a barrister, or an appropriately qualified foreign lawyer, even if it is legal advice that the other professional is qualified or competent to give, such as an accountant giving advice on tax law.

LPP has therefore been read narrowly to apply only in circumstances where a solicitor or barrister is giving legal advice to a client.

Lord Justice Lloyd, giving the leading judgment in the Court of Appeal, did refer to previous case law that acknowledged that there was little logic that advice given by a solicitor or barrister should be covered by LPP, but the same advice given by another professional would not be afforded the same treatment.

However, a number of other factors were taken into account by the Court when reaching its conclusion, including the following.

Case law - The primary issue is the case of Wilden Pump Engineering Co v Fusfeld [1985] FSR 159, which the Court believed it was bound by. In that case the Court of Appeal held that LPP only applies in relation to advice by solicitors and barristers, as well as foreign lawyers. In his judgment, Lloyd LJ states that even if Wilden Pump was not binding on the Court then Prudentials arguments still would not have been accepted.

Public interest - The role of LPP for lawyers is essential to upholding the rule of law. It is essential that clients can discuss their affairs in full with their lawyer in the knowledge that the details will never be disclosed. However, to expand this to encompass other professions would leave far too wide a scope for applying LPP. There is no recognised profession of accountant, just several professional bodies to which an accountant can belong, so anyone can set up as an accountant and offer advice.

The rule of LPP needs to be clear in its scope and application, which would not be possible if it was held that LPP could be applied to any professional providing legal advice on a particular matter.

Role of Parliament - The extent of LPP was considered to be a question for Parliament to deal with and legislate on, not for the Court to make law on this issue. The Court noted that legislation had previously been passed to extend some limited privilege to patent agents, trade mark agents and licensed conveyancers when providing advice on their specific area of law, but no such legislation had been passed for accountants.

Moreover, it was noted by the Court that the question of extending LPP to accountants had previously been considered by a number of committees over the past 40 years, with mixed conclusions, and Parliament has still not legislated in favour of extending it to accountants.

It is notable that this case was heard at the same time that the Quinn Direct Insurance Ltd v The Law Society [2010] EWCA Civ 805 (regarding LPP and its interplay with solicitors professional indemnity insurers) judgment was handed down. These cases, combined with the recent European Court of Justices decision in the Akzo Nobel Chemicals Ltd case (regarding LPP and in house lawyers in EU competition investigations), suggest that the Courts are very reluctant to extend the scope of LPP, but if the Courts find that LPP is engaged, it should be rigorously adhered to.

Until Parliament or the Supreme Court decides otherwise, accountants and their clients should remain circumspect as to what legal advice is communicated between them without engaging a lawyer.

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Jonathan Newbold

Jonathan Newbold

Partner and Head of Financial Services & Insurance

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