Lawyer v accountant

“If you want confidential tax advice, you’re better off going to a law firm.” So some commentators concluded after the Prudential case (R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1), which was heard by the Supreme Court in November with judgment delivered at the end of January.

The case spawned the question of whether legal advice privilege could be extended beyond communications between client and lawyer to those between client (in this case, Prudential) and accountant (PwC). The Supreme Court, by a majority of five to two, concluded that privilege should not be extended in this way.

The Supreme Court judgments make interesting reading. All seven judges seemed to agree that as a matter of logic, privilege should be extended beyond the legal profession to include accountancy (and perhaps other) professions. However, the five judges who dismissed the appeal did so for what seemed to be, in my view, somewhat odd reasons.

Legal advice privilege is the common-law right for communication between a client and their legal adviser to remain confidential. In the context of Prudential, establishing legal advice privilege would have enabled tax advice given by PwC to its client, Prudential, to remain confidential from HMRC. The Supreme Court’s refusal to extend the concept of legal advice privilege meant that HMRC could demand the disclosure of such advice.

The long-established concept enables clients to be open and honest with their legal advisers. It has been extended beyond its original form, and now applies to others, such as patent agents and foreign lawyers as well as solicitors and barristers in England and Wales.

Lord Neuberger, giving the leading Supreme Court judgment, declined to extend the concept further. He accepted the logic that accountants give detailed and technical tax advice, often advising on the “law” as much as a “lawyer”. However, he thought that to extend legal advice privilege would make the concept unclear, and preferred to leave the question of any extension to parliament.

Right and proper

These reasons were not accepted by Lord Sumption when delivering the main dissenting judgment. He concluded that it was only right and proper for the courts to extend a common-law principle that had, after all, been developed by the courts. He also recognised that, in an increasingly complex modern society, there will often be examples of non-lawyers giving legal advice.

This led me to consider how the judgment sits with concepts introduced by the Legal Services Act, and, in particular, multi-disciplinary partnerships. To what extent will advice about the law that is given by an accountant practising in partnership with a solicitor be afforded legal advice privilege? Far from maintaining clarity, as Lord Neuberger would have desired, the position seems unclear to me.

Lord Sumption noted that 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” (paragraph 114). He suggested that it might be considered as being confined to “the taking of legal advice in the course of a professional relationship with a person whose profession ordinarily includes the giving of legal advice” (para 137).

This alternative would grant legal advice privilege to a client whether the advice was given by a solicitor, barrister, another legally qualified person, or a member of an unrelated profession who ordinarily gave advice on the law. It would certainly include the client of a multi-disciplinary partnership.

However, until parliament decides to change the law, it is certainly true that clients are entitled to a greater degree of confidentiality and privilege if they instruct a lawyer rather than an accountant.

Chris Belcher is partner and head of private tax at Mills & Reeve LLP

Contact chris.belcher@mills-reeve.com