Privilege and Professional Advisers: Drawing the Line
In its recent ruling in Prudential v Special Commissioner of Income Tax [2009] EWHC 2494 (Admin), the High Court went some way to clarifying the extent of privilege which can be afforded to communications between clients and professional (non-lawyer) advisers. The judgment marks an important shift in the approach of the courts to such exchanges, and one which could have a fundamental impact on client choices regarding the selection of their advisory teams.
Legal Professional Privilege
Legal professional privilege is accepted as a fundamental right at common law, and ensures that a person may seek skilled legal advice on the basis that all communication entered into will remain confidential unless consent is given otherwise.
Legal professional privilege can be sub-divided into two component concepts:
- .
Notwithstanding privilege providing an essential tool in the due administration of justice, there exists a competing public interest which seeks full disclosure before a given court or tribunal. This policy motivation is all the more keenly felt in the field of tax enforcement, where active investigation powers are used to obtain full disclosure.
That competing public interests are at work results in the scope of such privilege being carefully monitored. This exercise, which inevitably leads to some restriction of the extent of privilege afforded, shows policy makers (legislative and judicial) drawing the line on which items of communication can be said to be privileged.
The Facts
The Prudential ruling came about in light of notices served by Her Majesty's Revenue and Customs (HMRC) during investigations surrounding a commercially marketed tax avoidance scheme. The notices, served under the Taxes Management Act 1970, carry with them substantial authority and are enforceable by penalty. They were used in this matter so as to elicit further documentary evidence relating to the scheme in question.
In judicial review proceedings, Prudential argued that the material sought by HMRC was protected by legal professional privilege. This required an interpretation of common law rules which supported a position that the privilege applicable to communications between client and lawyer are equally applicable to communication between client and accountant.
The Ruling
It was accepted by Mr Justice Charles that the argument advanced by Prudential had never before been addressed in English law, setting the stage for a ruling which would go some way to defining the legal landscape in this area.
Charles J did not support the interpretation proposed by Prudential, confirming that for communication to be protected by privilege it had to be given by a member of the legal profession, except in situations arising out of litigation or where litigation is contemplated.
Despite accepting that privilege was a common law principle, open to development by the courts in light of changing circumstances, Charles J concluded that the relevant distinction to be drawn related to the character of the adviser, rather than the content of the advice. As a result, communication from an accountant, giving advice on tax law, was not within the scope of legal professional privilege, and therefore subject to requests for disclosure. Should the same advice be conveyed by a lawyer, it was likely to be a privileged communication.
In his reasoning, Charles J made clear reference to a "general understanding" manifested in prior case law which indicated that privilege is linked to the legal profession, rather than to the nature of advice provided. Attention was paid to the analogous failure of patent agents to establish that their communications would come within the scope of privileged information (see the judgment in Wilden Pump Engineering Co v Fusfeld [1985] FSR 159). Charles J also referred to the consideration of the issue which had been undertaken by Parliament in drafting the Finance Act 2008, which had referred to legal professional privilege in "general terms".
The ruling confirmed that the two distinct species of privilege, which compose legal professional privilege, are subject to and governed by differing limitations. While communication between a client and accountant will be privileged where litigation is underway or contemplated, the same will not be true when more general advice is sought.
What Next?
Although the uncertainties of the common law must be taken into account, it seems likely that further developments will affect the law in this area. Some have suggested that a full appreciation of the impact of this ruling will only be possible following any potential appeal from the High Court.
Much authority for the judgment of Charles J is based on the interpretation of existing common law precedent and the failure of Parliament to legislate for an application of legal advice privilege to all professional advisers. Without action by Parliament, Charles J noted that the "doctrine of precedent excludes [him] from … developing the law". Should Parliament undertake this reform, it seems likely that the position of the courts would need to be reviewed. Such an eventuality seems unlikely, as noted by Charles J, when one considers that Parliament were given such an opportunity in the drafting process which preceded the passing of the Finance Act 2008.
Comment by Laurence Harris
Partner, Commercial Litigation Group (London)
The distinction which the ruling has applied to advice supplied by lawyers
and other professional advisers has created an 'unequal playing field'.
Although the purpose and content of the advice provided by accountants
and lawyers are identical, the treatment of communications involving these
advisers differs greatly.
In light of modern commercial practice, this
distinction seems unsustainable in the long-term. Commercial tax strategies
tend towards non-lawyers giving expert, high-level advice on the law,
an argument which Charles J found to be "compelling, and indeed unanswerable".
However, rather than raise the shield of privilege so as to encompass
the roles of such advisers, a 'level playing field' may be established
through a reduction in the scope of privilege claimed in communications
between lawyers and clients. Charles J was sufficiently comfortable with
this possibility to state that "absolute confidentiality in respect of
legal advice may need revisiting". As HMRC pursues a rigorous strategic
policy approach to tax investigations, this ruling could mark a fundamental
shift in the nature of the relationship between client and adviser, both
lawyer and non-lawyer alike. Such a move could go some way to curtailing
legal professional privilege as a fundamental right.
Contacts
The information in this article is for general guidance only and is not intended to be a substitute for specific legal advice. If you would like any further information please contact:
Laurence Harris
Partner, Commercial Litigation Group (London)
t: +44 (0) 20 7556 4445
e: LHarris@eapdlaw.com
Constantinos Smith
Trainee Solicitor (London)
t: +44 (0) 20 7583 4055
e: CSmith@eapdlaw.com
