Pushing the limits of legal advice privilege

An ancient creature of the common law, legal advice privilege entitles a party to refuse to divulge legal advice to third parties such as the police, FSA, HMRC and other regulatory bodies as well as in court proceedings. Importantly, the privilege has traditionally only been available where the 'legal adviser' is a lawyer '“ a solicitor, barrister or suitably qualified foreign lawyer. While historically the narrow range of professionals whose advice attracted privilege was no major cause for dissent, in recent times some '“ accountants in particular '“ have agitated for revision of the law. Focus for change has gravitated around tax advisers who have increasingly found their clients asking for 'legal advice' on taxation matters, not just 'accountancy' advice. Why should that legal advice not attract LAP?

Universal limits

In Prudential v Special Commissioner of Income Tax [2013] UKSC 1, Prudential's claim that legal advice it received from its tax advisers, PricewaterhouseCoopers, was subject to privilege, was dismissed by the Supreme Court.

By a 5-2 majority the Supreme Court ?accepted that applying a principled or ?'functional' approach would result in the extension of privilege to legal advice provided by non-lawyers such as accountants. However, the majority emphasised that allowing Prudential's appeal would extend privilege beyond what are universally understood to be its limits. Moreover, the proposed extension would create uncertainty as to which non-lawyer advisers' legal advice qualified for protection of privilege in circumstances where the long-term implications were unclear. Accordingly it was for parliament to legislate for a wider application of privilege should it consider public policy required it.

Qualified, regulated professionals

Although the outcome of Prudential's appeal may never have been in any real doubt it could never be said that Prudential's case lacked substance. In circumstances where a lawyer and an accountant are asked to provide legal advice on the same tax issue, why should the advice of the lawyer attract privilege when that given by the accountant does not? Both are well-qualified, closely-regulated professionals equally equipped and used to providing the skilled advice required by their client. Since privilege is 'owned' by the client and not the giver of advice, why should it matter whether the adviser is a lawyer, accountant or indeed any other professional? Surely, it should be the nature of the advice provided which is important, not the specific qualification held by the provider. The response of the majority was not the demolition of this 'functional' argument, which was recognised as carrying great weight. It was to apply a more conservative, but pragmatic approach.

Legal professionals generally prefer decisions based on principle rather than difficulties raised by particular facts. However, what lawyers and, most import-antly, clients tend to value most highly is certainty. The difficulty Prudential's case created was that serious questions would arise as to the scope and application of privilege. In particular, courts would be in the unenviable position of having to determine which professional bodies provide sufficient training and adequate regulation so as to attract privilege to legal advice provided by their members, and which do not. This would result in a lack of clarity as to whether legal advice was protected by privilege from the scrutiny of, for example, HMRC, the FSA and other third parties.

Uncertain requirements

Accountants, the ICAEW and other non-lawyer professionals will be justly disappointed. In their view, the decision maintains an anti-competitive environment where clients are discouraged from seeking tax advice from accountants and, instead, are pushed towards the additional protection that legal advice from a lawyer can provide. However, despite the substantial weight of the principled, dissenting approach taken by Lord Sumption and Lord Clarke, the maintenance of the certainty provided by the status quo was the most practicable outcome the Supreme Court could have reached.

To grant Prudential's appeal could have had drastic knock-on effects at a time when the Jackson reforms are being introduced to reduce the cost of resolving disputes. Had privilege increased in scope, parties to litigation would inevitably have sought to claim privilege over a wider range of documents. This would have led to disruption, disputes and increased cost to all parties (including litigation funders and insurers) with an increase in interim applic-ations and satellite litigation. Further, if fewer documents were disclosed as a consequence this would arguably be to the detriment of the administration of justice.

There is also a value to certainty which, for a period at least, would have been lost had the appeal succeeded: non-legal professional bodies and their members would themselves likely have had to resort to court proceedings to ascertain whether they met the uncertain requirements for attracting privilege to legal advice provided to their clients.
Plainly, it is not in the interests of clients to be uncertain whether the advice they receive is protected by privilege.

The public policy of restricting privilege to a certain and well-defined category of advice has been preferred to the accountancy profession's principled, anti-competitiveness argument. Only parliament will now be able to come to the aid of the non-lawyer professions on this issue.