UK and International Tax news
Supreme Court Decision On Legal Advice Privilege
Wednesday 30th January 2013
The Supreme Court [SC] has recently published its decision in R (on application of Prudential plc and another v SCIT and another [2013 – UKSC1] following an appeal by Prudential against a Court of Appeal decision in 2010.
The specific issue raised by the appeal is whether, following receipt of a statutory notice from an inspector of taxes to produce documents in connection with its tax affairs, a company is entitled to refuse to comply on the ground that the documents are covered by legal advice privilege (LAP), in a case where the legal advice was given by accountants in relation to a tax avoidance scheme. The more general question is whether LAP extends, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession, and, if so, how far LAP thereby extends, or should be extended.
The SC held by a 5-2 majority [Lords Neuberger, Hope, Mance, Reed and Walker] that LAP should not be extended to communications in connection with advice given by professional people other than lawyers, even where that advice is legal advice which that professional person is qualified to give.
Lord Neuberger in particular stated that there were three connected reasons which persuaded him that what Prudential was asking the Court to do was a matter for Parliament rather than for the judiciary. First, the consequences of allowing Prudential’s appeal were hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty. Secondly, the question whether LAP should be extended to cases where legal advice is given from professional people who are not qualified lawyers raises questions of policy which should be left to Parliament. Thirdly, Parliament has enacted legislation relating to LAP, which, at the very least, suggests that it would be inappropriate for the court to extend the law on LAP as proposed by Prudential.
Lord Hope concurred with the above opinion and added that “the reason why the issue is before us at all in this case is quite simple. It is to be found in what people generally understand the position to be. 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. Can we be certain that that will be so if the privilege were to be extended to tax advice by chartered accountants, on the ground that they too are advisers whose profession has as an ordinary part of its function the giving of skilled legal advice? If the privilege were to be extended that far, what about tax advice given by other members of the accountancy profession?”
He went on to state that ” the change we are asked to make would need a very good reason – evidence that something was not working properly. I agree with Lord Neuberger that no such pressing need has been demonstrated, and that to adopt the functional test would give rise to a significant risk of uncertainty”.
Lord Sumption [dissenting] opined that “the law is that legal professional privilege attaches to any communication between a client and his legal adviser which is made (i) for the purpose of enabling the adviser to give or the client to receive legal advice, (ii) in the course of a professional relationship, and (iii) in the exercise by the adviser of a profession which has as an ordinary part of its function the giving of skilled legal advice on the subject in question. The privilege is 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.
Lord Sumption went on the state that he would allow the appeal and remit the case to the High Court to decide whether the material requisitioned by the respondent would have been privileged if a solicitor or barrister had performed the functions that the accountants performed, and a direction to quash the notices if it would have been. Lord Clarke agreed with Lord Sumption’s opinion and also gave a dissenting opinion.
The effect of this decision is that LAP will continue to be restricted to the clients of lawyers and other legally qualified advisers including people supervised by them. It will not be extended to clients seeking advice from chartered accountants, unless supervised by a lawyer.
Where litigation is involved the position is different. Where the main purpose is providing advice in relation to litigation, or prospective litigation, a chartered accountant’s legal advice to his client will be privileged. However, even in this case, there must be a lawyer involved to generate the privilege.
It is understood that the ICAEW is considering the decision in detail and discussing with its advisers what should be its next steps.
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