Legal advice privilege should not extend to accountant’s advice, says Supreme Court

24 January 2013 by

tax-erase-remove-lower-270x167Prudential plc and another , R (on the application of) v Special Commissioner for Income Tax and another [2013] UKSC 1 23 January 2013 – read judgment

The Supreme Court has ruled that legal advice privilege should only apply to advice given by a member of the legal profession; that this is what the common law has always meant, and that any wider interpretation would lead to uncertainty. Two strong dissents do not find any principled underpinning for the restriction of the privilege to advice from solicitors or barristers.

The following summary is based on the Supreme Court’s press release (numbers in square brackets denote paragraphs in the judgment).

The issues

This appeal concerned the scope of legal advice privilege, which applies to all commuications passing between a client and its lawyers in connection with the provision of medical advice. Legal advice privilege (“LAP” ) is a sub-head, along with litigation privilege, of legal professional privilege, a single integral privilege covering all communications between a legal adviser and cleint.R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21 established that the a statutory notice to produce documents could not be invoked to force anyone to produce documents to which LAP attached. Lord Hoffmann at paras 7 and 9 said that a statute could only remove such “a fundamental human right” if it “expressly stated” that it was doing so. LAP exists to ensure that there is full and frank communication between lawyers and their clients, which promotes the broader public interest in the observance of law and administration of justice. The privilege attaches to the client, not the lawyer, so it can be waived at any time by the client.

The specific question here was whether, in its tax affairs, a company was entitled to refuse to comply with a notice from the tax inspector to produce documents  on the ground that these documents were covered by legal advice privilege, in a case where the legal advice was given by accountants, not lawyers, in relation to a tax avoidance scheme. The more general question was whether legal advice privilege should be extended so as to apply to legal advice given by someone other than a member of the legal profession.

Factual background

The Prudential group of companies refused to disclose certain documents on the ground that Prudential was entitled to claim legal advice privilege in respect of them because they related to the seeking by Prudential and the giving by PricewaterhouseCoopers of legal advice in connection with the transactions. After the inspector obtained authorisation to require Prudential to produce these disputed documents, Prudential issued an application for judicial review challenging the validity of the notices. The judge below rejected the application on the ground that this privilege did not extend to advice (even if identical in nature) provided by a professional person who was not a qualified nature. His decision was upheld by the Court of Appeal (see my post).

The Supreme Court, by a majority of five to two (Lords Clarke and Sumption dissenting) dismissed the appeal.

Reasons behind the Court’s judgment

Extending legal advice privilege to any case where legal advice is given by a person who is a member of a profession, like accountancy, which ordinarily includes the giving of legal advice, would render a clear and well understood principle uncertain. The lack of clarity would be particularly problematic when determining which occupations would be members of a profession for this purpose. The consequent uncertainty would lead to expenditure and inconsistency if the court had to decide whether a group constituted a profession for the purposes of legal advice privilege.[56] Where members of other professions give legal advice, it would often not represent the totality of the advice, so it may also be difficult to decide how to deal with the documents which contain legal and non-legal advice [59]

Even though the parties before the court were only arguing that LAP should extend to tax advice given by expert accountants, the Court had to consider the question on a wider basis than that. If it were to allow this appeal, it would have extended LAP beyond what are currently, and have for a long time been understood to be, its limits.

While [tax advice] is the specific question between the parties, it is just a subset, no doubt an important subset, of a much larger set. To concentrate on tax advice given by accountants would be wrong, because it would ineluctably follow from our accepting Prudential’s argument that legal advice given by some other professional people would also be covered.[38]

Lord Neuberger did acknowledge that  there was “a compelling, and indeed unanswerable, case” that in modern conditions accountants have the expertise to advise on tax law and it is firms of accountants, rather than firms of solicitors, who do give such advice and represent clients in disputes with the revenue on many aspects of their tax affairs. Further many firms of accountants now employ lawyers to advise on tax and what they, and qualified accountants in the same firm, do in this context is the same. What “principled justification” as there is for the restriction of LAP to lawyers was further undermined by the extension of LAP  to all foreign lawyers, without (it would seem) regard to their particular national standards, regulations or rules with regard to privilege.

Nevertheless, the abandonment of the common law rule that LAP should only be applied to advice given by lawyers would raise questions of policy which should be left to Parliament [52]. Parliament has on a number of occasions legislated in this field on the assumption that legal advice privilege only applies to advice given by lawyers. The Legal Services Act 2007 is one of many indications  that Parliament is ready to change common law practices which involve special rules for lawyers when it wishes to do so.  Therefore it would be inappropriate for the Supreme Court to extend the law.

Lord Hope, agreeing with the majority, added this observation at para 81:

Legal advice privilege, as generally understood, applies only to advice that is given by lawyers. If we were to declare that the matter is to be determined not by the profession to which the adviser belongs but by the function that he is performing, we would be changing the ambit of the privilege. And it would be a significant change because the position as generally understood has clearly defined limits and, in consequence, the inestimable advantages of clarity and certainty.

Lord Reed added some observations from a Scottish perspective: the general principle of LAP, its fundamental importance, and the considerations of public policy which underlie it, are common to both Scots and English law. If the question were to arise in Scotland whether the common law privilege should be extended to legal advice given by accountants, the courts would only be able to make a policy decision in the context of enactment of legislation, following consultation and consideration in the Scottish Parliament. [114]

The dissent

The minority did not see why the granting of legal advice privilege to non-legal professionals who normally give skilled legal advice, such as accountants, should amount to an extension of the scope of the privilege.[128] English law has always taken a “functional” approach to legal advice privilege, and , on this view, the availability of the privilege depends on the character of advice which the client is seeking and the circumstances in which it is given, not on the adviser’s status.[114,142]. Lord Clarke points up the inconsistencies of the majority’s by giving this simple example:

Suppose that two individuals, A and B, have the same problem, the solution to which depends upon an application of the legal principles of taxation law to the same, or substantially the same, facts. Suppose that A seeks advice from, say, Freshfields, and that B seeks advice from, say, PricewaterhouseCoopers. Each asks the same question and gives an account of what are substantially the same facts to the person from whom the advice is sought. Each is receiving legal advice. The question for decision in this appeal is whether the information given and the advice received are privileged as legal advice. Are both A and B entitled to claim the privilege and refuse to disclose to HMRC the information and the advice?

In his opinion, the only principled answer to that question would be “yes”.

Lord Sumption’s thoroughgoing historical and analytic account of the development and modern role of LAP, in support of his dissenting position,  is particularly hard to resist. He points out that at least since the late eighteenth century, the privilege has been a substantive right of the client, whose availability depends on the character of the advice which he is seeking and the circumstances in which it is given. It does not depend on the adviser’s status, provided that the advice is given in a professional context:

It follows, on the uncontested evidence before us, that advice on tax law from a chartered accountant will attract the privilege in circumstances where it would have done so had it been given by a barrister or a solicitor. They are performing the same function, to which the same legal incidents attach.

As Lord Sumption explains, the modern case law has developed LAP in three principal respects which were relevant to the issues on this appeal.

  1. The courts have always held that the privilege is absolute
  2. The privilege does not just exist in aid of forensic litigation. It attaches to confidences given in circumstances where no proceedings were contemplated or where the proceedings contemplated were not litigation but, for example, a domestic or public inquiry: Three Rivers District Council v Bank of England (No 6) [2005] 1 AC 610
  3. The privilege is not a mere procedural incident of the forensic process, but a “fundamental human right long established in the common law” (Lord Hoffmann in Morgan Grenfell (referred to above)

Once it is appreciated (i) that legal advice privilege is the client’s privilege, (ii) that it depends on the public interest in promoting his access to legal advice on the basis of absolute confidence, and (iii) that it is not dependent on the status of the adviser, it must follow that there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accountants on the other. The test is functional. The privilege is conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body. … Any distinction for this purpose between some skilled professional advisers and others is not only irrational, but inconsistent with the legal basis of the privilege. It would make it dependent not just on the nature of the advice or the circumstances in which it was given, which have always been relevant considerations, but to a substantial degree on the status of the adviser, which has not been a relevant consideration for 250 years. [123]

Furthermore, none of the statements of principle in the case law have identified the relationship of lawyers with the court or the arrangements for the admission or discipline of lawyers as a relevant factor in restricting LAP to communication with members of the legal profession; if it had been, then the English courts should not have recognised the privilege attaching to the advice of foreign lawyers. Again, with the benefit of his historical erudition, Lord Sumption points out that there was nothing special about the legal profession in the early days of LAP’s development –

 the legal basis of the privilege was worked out by the courts at a time when most claims for legal advice privilege concerned communications with solicitors and attorneys, whose professional standards were then notoriously low. Many of them were not enrolled and the court’s supervision of their professional practices was nominal or non-existent. This was particularly true of attorneys, who practised in the common law courts and whom Sir Vicary Gibbs, Chief Justice of Common Pleas from 1813, once memorably described as “the growling jackals and predatory pilot fish of the law”: see The Oxford History of the Laws of England, xi (2010), 1110

That aside, the “floodgates” argument against accepting LAP in the context of non-legal professionals simply doesn’t stand up. The increase in the number of people who can take advantage of an existing rule of law could not be “a good reason for failing to apply general principles coherently. Nor can it justify an arbitrary distinction between different professions performing exactly the same function.”[129] As to the argument that the adaptation of this common law principle had such wide implications it could only be dealt with by Parliament, Sumption is wholly unimpressed; again, his views here are of wider application and worth quoting in full:

The first point to be made is that we are not here concerned with social or economic issues or other issues of macro-policy which are classically the domain of Parliament. Nor are we concerned with legal principles derived from statute. Legal professional privilege is a creation of the common law, whose ordinary incidents are wholly defined by the common law. In principle, therefore, it is for the courts of common law to define the extent of the privilege. The characterisation of privilege as a fundamental human right at common law makes it particularly important that the courts should be able to perform this function. Fundamental rights should not be left to depend on capricious distinctions unrelated to the legal policy which makes them fundamental.

In the tax context – and many other situations – Parliament is legislating against the background of assumptions about the common law which are contrary to principle, discriminatory and out of date. Only the courts can be expected to rectify that state of affairs. On the contrary, “the courts should be extremely wary before acceding to invitations to leave those assumptions uncorrected when their practical application has become anomalous or incoherent in the light of modern developments.” [136]

Of course the legislative history of many of the relevant statutes or proposals shows that  the Government is reluctant to increase the number of claims to privilege in tax investigations. But surely it is not for the courts to back the executive in this, or any other regard.

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6 comments


  1. John D says:

    The essential difference between legal and tax advisers is that legal advisers defend their clients’ liberty, while tax advisers defend only their clients’ money. This is an important difference. If I was charged – say – with murder, I know which I would prefer to represent me and I know which I would prefer to operate with legal advice privilege relating to me.

    1. James Wilson says:

      Criminal lawyers defend the liberty of their clients, tax lawyers, property lawyers etc do not do so, any more than tax accountants. In fact, you could take the view that failure to pay tax attracts penalties from the state and therefore tax accountants and lawyers do defend liberty at one remove – in which case tax accountants are more concerned with liberty than, say, contract lawyers.

  2. Chris says:

    If the above means that privilege does extend to any advice given then the solicitor/tax advisor has an advantage over an accountant, does it not?

  3. Chris says:

    How does this apply if the person is both a solicitor & a qualified tax advisor?

  4. Geoffrey says:

    With great respect, a bench of lawyers isn’t going to extend lawyers privileges to others, is it? I submit that t’s a no-brainer.

    1. The bench was split. On the face of it, 2 out 5 of them proposed to do just that.

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