By Sue Thackeray, partner and Fiona Hinds senior associate, Finers Stephens Innocent
This week the Supreme Court confirmed by a majority of five to two that legal advice privilege should not be extended to communication in connection with advice given by professional people other than lawyers. So what happens now?
The immediate answer is there need be no substantial changes as a result of this decision. Legal advice privilege still attaches to communications between solicitor and client. Litigation privilege remains untouched. The judgment reinforces the need for advice from lawyers in all circumstances where protection from disclosure to a regulatory body or authority is desirable. The decision also highlights the need for collaboration between accountants and lawyers to offer clients comprehensive advice and to maximise protection.
The Prudential decision (R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents))relates to a tax avoidance scheme developed and marketing by chartered accountants PricewaterhouseCoopers (PwC). Prudential plc implemented the scheme, on PwC’s advice, in order to avail itself of a substantial tax deduction. When the inspector of taxes looked into the execution of the scheme, Prudential refused to disclose certain documents and claimed legal advice privilege in respect of them. It was common ground that the disputed communications would have been subject to legal professional privilege if the same advice had been given by a member of the legal profession.
The Supreme Court held that privilege should not attach to advice given by anyone but lawyers. Reliance was placed on what people generally understand the position to be and the “inestimable advantages of clarity and certainty”, in the words of Lord Hope. The court also highlighted that the decision was about much more than whether tax advice given by accountants can be privileged. Any extension of privilege might also have to apply to town planners giving advice on planning applications or auditors advising on the treatment of a receipt or debt. The court was not prepared to countenance such a judicial extension, in circumstances where the giving of legal advice is not a reserved activity under the Legal Services Act 2007. It would be more appropriate, given the implications, to leave the public policy issues to Parliament.
Lord Sumption disagreed; for him, ensuring that changes in legal, commercial and social practice are reflected in the application of the law falls squarely within the ambit of the Supreme Court. The minority dissenters argued there is no principled reason for a distinction between the professions when the test is based on the function performed.
For now this closes off any argument that legal advice given by non-lawyer professionals can carry privilege. While the finding emanated from tax advice, it is also an essential consideration in a regulatory context. If a board of directors suspects that there has been an internal fraud or financial irregularity within their company, they will still need to call in their accountants. However, unless they are prepared for the accountant’s advice and recommendations to be disclosable to the company’s regulator, they should be sure call in the lawyers too.