Supreme Court rules against extending privilege to accountants

The Supreme Court has ruled against extending legal professional privilege (LPP) to accountants, in a closely watched case relating to tax advice.

By a majority of five to two, the court confirmed this morning (23 Jan) that LPP can only apply to advice provided by solicitors, barristers and foreign lawyers, including in-house lawyers. Lord Clarke and Lord Sumption dissented.

The high-profile case, which stemmed from a tax dispute between insurance company Prudential and HM Revenue & Customs (HMRC), reached the Supreme Court in November, after the Court of Appeal in 2010 rejected Prudential’s claim that the advice of accountants in relation to tax law could be covered by LPP, which would protect it from being disclosed to third parties.

James Eadie QC of Blackstone Chambers acted as counsel for HMRC alongside the body’s in-house team, while Lord Pannick QC, also of Blackstone, acted for Prudential, instructed by PwC Legal.

Herbert Smith Freehills advised the Law Society led by dispute resolution partner Julian Copeman and head of tax planning and disputes Heather Gething, alongside Brick Court Chambers’ Sir Sydney Kentridge QC.

Simmons & Simmons acted for the Institute of Chartered Accountants for England and Wales, with senior partner Colin Passmore leading the team and Fountain Court’s Patricia Robertson QC as counsel, while Field Fisher Waterhouse head of disputes Hartley Foster instructed Bankim Thanki QC from Fountain Court for the Bar Council.

Other interveners included the Legal Services Board and intellectual property body Association Internationale pour la Protection de la Propriete Intellectuelle.

Click here for the Supreme Court press summary of the ruling, and click here for more coverage from Legal Week sister title Accoutancy Age.

maura-mcgowanReaction to the ruling

“LPP is a fundamental right and principle of clients which underpins the provision of legal services. We believe that extending it to non-lawyers would represent an unjustified departure from its long established limits. The Supreme Court’s ruling makes absolutely clear that the status quo, which works extremely well in practice, should remain.

“I am also grateful to the admirable representation provided by Field Fisher Waterhouse, Bankim Thanki QC, Ben Valentine and Henry King, all of whom acted on a pro bono basis.”
Maura McGowan QC, Chairman of the Bar

“Clients and practitioners undertaking privilege reviews for the purposes of disclosure can now breathe a sigh of relief that the Supreme Court has confirmed the status quo. Where a lawyer is acting as a lawyer, communications with his client for the purpose of giving or receiving legal advice will be subject to legal advice privilege (LAP).

“Had the Supreme Court extended LAP so that communications between an accountant (or other professional) and his client for the purpose of giving or receiving legal advice could be subject to LAP, that would have made the process of reviewing documents for privilege much more intricate as parties would be required to adopt a view, in each case, as to whether or not the professional was a member of a profession that is recognised as competent to give legal advice (perhaps on a particular area of law) and regulated when doing so. That would in turn increase the time spent and costs incurred in the process of disclosure, with an increased risk of satellite litigation.”
Heather Gething and Julian Copeman, Herbert Smith Freehills

“Legal professional privilege is a rule of evidence designed to protect individuals against disclosure to the Court. It is therefore about the rights of litigants – not, as some have sought to portray it, about professionals lining their pockets. Legal professional privilege should not be used as a marketing tool by any profession.”

“The restriction of Legal professional privilege to advice given by a practising solicitor or barrister ensures that the advice in question is given by a person who is both professionally qualified and rigorously regulated. That is not to say that other professionals giving advice on the law are not, but in any extension of Legal Professional Privilege that underlying principle needs to be maintained. This is best done by Parliament, following an extensive consultation. Even a die-hard lawyer like me accepts that the whole question of Legal professional privilege should be looked afresh in the light of modern professional practice. However, the purpose underlying the rule must not be lost sight of. It is there to protect the client, not as a ‘privilege’ for professionals in the ordinary sense of the word.”
James Bullock, head of litigation and compliance, Pinsent Masons

“Solicitors and barristers will welcome the judgment because it maintains their special status. The key benefit of this judgment is clarity as to when legal advice privilege exists and when it doesn’t. Accountants and other professionals who give legal advice should continue to advise their clients that their advice is generally disclosable to third parties. They will be disappointed, but for now the law is clear. The court has left it Parliament to legislate. As Parliament is well-stocked with lawyers it has to be doubtful whether it will bother.”
Rupert Choat, head of construction disputes, CMS Cameron McKenna

“The Supreme Court has effectively said ‘Lawyers 5 – Accountants 2′. The case presents a clear cut choice for clients: if you want confidential tax advice, you’re better off going to a law firm. Tax accountants will be crying into their soup tonight, and tax lawyers will be dancing in the streets. Accountants will no doubt think it is unfair, as it will drive clients concerned about maintaining confidentiality in advice provided to them into the welcoming arms of law firms.”
Peter Clough, head of disputes, Osborne Clarke

“To grant Prudential’s appeal could have had drastic knock-on consequences at a time when the Jackson reforms are being introduced to reduce the cost of resolving disputes. Had LAP increased in scope, parties to litigation would inevitably have sought to claim LAP over a wider range of documents. This would have led to disruption, disagreement and increased cost to all parties (including funders and insurers) with an increase in interim applications and satellite litigation.
Ross Risby, partner, DAC Beachcroft