The article below is a reminder that unlike accountants, auditors and other consultants and service providers, lawyers are bound by client confidentiality rules and can not freely avail client information even in regard to a client’s tax affairs.
Regina (Prudential plc and another) v Special Commissioner of Income Tax and another.
Legal advice privilege applied only to advice given by a member of the legal profession.
The Court of Appeal so stated, dismissing the Appeal of the claimants, prudential plc and prudential (Gibraltar) Ltd, from the decision of Charles J given on 14 October 2009 dismissing their claim for judicial review of the issue of two written notices dated 16 November 2007, which had been served the second defendant inspector of taxes, Phillip Pandolfo, with the consent of the first defendant, the Special Commissioner of Income Tax, on the second claimant taxpayer, under section 20(1) of the Taxes Management Act 1970, requiring the claimants to deliver to the inspector documents containing information relevant to the second claimant’s tax liability, which included communications passing between the second claimant and its accountants during the giving of advice on the tax law aspects of a proposed transaction.
Lloyd IJ said that it was of interest in this context to note that the question of whether legal professional privilege (LPP) should be extended to accountants by statute had been addressed on a number of occasions over the last 40 years or so. Thus, not only had Parliament not created any statutory extension of LPP to legal advice sought from and given accountants on tax matters, but this position had been reached after consideration of the position of several responsible bodies, making diverging recommendations on the point, including two committees, some of whose recommendations did lead to legislation. Parliament’s failure to change the law in this respect was not an accident.
More generally, it seemed that while Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms, scheduled to the Human Rights Act 1998, guaranteed protection of correspondence with a lawyer, it could not be taken to require the extension of that privilege to communications with any other person who might be asked to give legal advice. Given that LPP represented a significant restriction on the powerful public interest in all relevant evidence being capable of being made available for the determination of legal proceedings, it was manifestly a matter of public policy to decide what the bounds of LPP to communications with a member of a relevant legal profession (a) was in accordance with law and (b) could properly be regarded as necessary in a democratic society in one or more relevant interests, in particular for the protection of the rights and freedom of others. The scope of LPP varied as between member states of the European Union, so that, in particular, some allowed it as regards employed lawyers and others did not. There was not even any arguable breach of Article 8, with or without reference to Article 14, in a limitation of LPP to advice by members of legal professions, to the exclusion of accountants.
The Court of Appeal was bound to hold that LPP did 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. That was the effect of Wilden Pump Engineering Co v Fusfeld, and it was binding on the Court of Appeal despite the claimant’s arguments, whether based on human rights or on an attempt to distinguish the case.
It was not open to the Court to hold that LPP applied outside the legal profession, except as a result of relevant statutory provisions. It was of the essence of the rule that it should be clear and certain in its application, since it was not the subject of any ad hoc balance exercise but was, to all intents and purposes, absolute. As applied to members of the legal professions who have given advice on points of law in the course of their professional activity serious questions would arise as to its scope and application.
These applications were 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. Only Parliament could provide the answers to such questions as these. It was not a proper task for the Courts to undertake. In other countries where LPP applied in relation to accountants it was as the result of statutory intervention. In our jurisdiction, Parliament had conferred limited protection in respect of accountants by S.2 of the Taxes Management Act 1970, and its successor, the Finance Act 2008. (As published in the Legal digest, on page 45 of the December 2010 Chartered Secretary magazine)
- Court battle rages over legal privilege for tax advisers (accountancyage.com)
- B.C. judge upholds solicitor-client privilege in money laundering challenge (theprovince.com)