The secret’s out
13 April 2004
31 October 2013
15 August 2014
3 July 2014
Tantular v AG: Royal Court in Jersey provides clarification as to the impact of saisies judiciaires on discretionary trusts
9 July 2014
24 January 2014
Legal professional privilege (LPP) is a rule of evidence that, together with the principle of client confidentiality, encourages clients to disclose all relevant facts to their lawyer, thus enabling the provision of informed and comprehensive advice. However, case law and legislation appear to have eroded the availability of LPP with the likely effect that clients will be less willing to disclose information to their lawyers and lawyers will be increasingly prepared to report clients when they suspect that their client is involved in criminal conduct.
LPP – a summary
LPP entitles a party to resist disclosure of confidential communications between a client and his lawyer in court. In a tax context, LPP also limits the power of the Inland Revenue to obtain information as part of an inquiry into an individual’s tax liability. LPP takes two forms.
First, legal advice privilege (LAP) attaches to all communications passing between a solicitor and their client within the context of the solicitor/client relationship, and which have been created for the dominant purpose of giving or receiving legal advice.
In the recent case of Three Rivers District Council & ors v Governor and Company of the Bank of England, the Court of Appeal ruled that LAP only attached to documents passing between a solicitor and the internal unit of the bank assigned the function of coordinating the bank’s response to an external inquiry. LAP was not available in respect of correspondence that, although relating to the external inquiry, was between the bank and its lawyers. The court also held that litigation privilege (see below) would only be available when litigation existed or was contemplated. This was not necessarily the case simply because an inquiry was continuing.
The second form of LLP is litigation privilege (LP). LP attaches to communications between a client and their lawyer if the dominant purpose for that communication concerns advice or evidence in respect of litigation that either exists or is contemplated including, for example, communications with witnesses or experts as well as documents generated by them. Significantly, LP is broader than LAP because it also applies to communications made by the client and/or the lawyer with a third party if made for the purposes of the litigation.
Limitations on LPP
Communications may lose LPP in a number of ways, one of which is when the communication is made in connection with a criminal purpose.
At common law the limiting of LPP because of the presence of a criminal purpose is an exceptional remedy and it seems reasonably clear that more than a mere suspicion of a criminal purpose will be required before LPP should be set aside.
Recent legislation has taken a more robust attitude to the limiting of LPP if a criminal purpose is present. Under the Proceeds of Crime Act 2002 (POCA), a lawyer is required to report the activities of his client if the lawyer knows or merely suspects that the client is engaged in criminal conduct.
A defence to the reporting obligation arises if the communication attracts LPP. However, this defence will not be available where the communication was made with the intention of furthering a criminal purpose. The legislation does not make clear whether the relevant ‘intention’ is that of the client or the lawyer. If the former, then the lawyer may be unaware of that intent yet still be unprotected by LPP.
The case of P v P considered the question of ‘intent’ in the context of the ‘tipping off’ offence under POCA Section 333. The offence benefits from the defence of LPP provided the disclosure is not made with the intention of furthering a criminal purpose. In P v P, the lawyers acting for a wife in divorce proceedings made a suspicious activity report in respect of the husband’s suspected tax evasion. The lawyers wished to tell their client and the husband’s lawyers that a report had been made, but the National Criminal Intelligence Service (NCIS) directed that the lawyers would be guilty of ‘tipping off’ if they did so. The lawyers maintained that the decision of the NCIS rendered them unable to fulfil their duties to their client and to the court.
Dame Elizabeth Butler-Sloss decided that the ‘intention’ referred to in POCA Section 333(4) must be that of the lawyer, otherwise the LPP exception “would be rendered meaningless”. The lawyers could therefore notify their client of the NCIS report, providing they themselves had no intention to further a criminal purpose.
P v P concerned proceedings in the family courts, where there is an enhanced duty on lawyers to make full and frank disclosure in order that the court may achieve a genuine settlement. The precedent set by P v P may, therefore, be limited to the tipping off provisions of POCA Section 333 rather than the reporting provisions of the section and may be limited to family proceedings only. If this is the case, then LPP is unlikely to be an attractive defence because of the criminal consequences of incorrectly evaluating a client’s true intention. To make this judgement, a lawyer will need to ascertain what is the intent required to commit the crime in question. Tax evasion, for example, would fall under the common law offence of ‘cheat’ or the statutory offence of ‘fraudulent evasion of income tax’. Central to each offence is the concept of dishonesty.
The accepted guidelines to establish ‘dishonest conduct’ are: that by the standards of reasonable and honest people, the conduct is dishonest; and that the person whose conduct is under consideration must have realised that the conduct was dishonest by those standards. If the adviser knows that their client’s conduct satisfies these objective and subjective tests then they must report. The concern of many lawyers is that although they may be confident that they have no grounds to suspect at the time, they are less certain that a court would take the same view with the benefit of hindsight.
The initial proposals for a third money laundering directive look to define ‘serious crime’ in a move away from the ‘all crimes’ approach of the POCA. The breadth of the current rules may well result in an increasing reluctance of clients to discuss their problems with their lawyers if they believe that their confidential affairs will be reported without their knowledge, if even the most minor infringement is suspected. In the context of tax advice, the consequence of this may be that the relationships between clients and their professional advisers break down to the detriment of both parties and the Inland Revenue. Clients will be less open with their advisers about their past tax defaults and, as a result, less will be disclosed and settled with the Inland Revenue than has been the case until now.
John Rhodes is head of the private client department at Macfarlanes. He was assisted with this article by Jonathan Riley