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Prudential loses legal privilege appeal

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13th Oct 2010
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The Court of Appeal quashed accountants' hopes of being granted legal privilege for their tax advice in a decision in the Prudential v HMRC case handed down on Wednesday.

Rejecting the arguments put forward by lawyers representing Prudential and PricewaterhouseCoopers as well as the ICAEW, Lord Justice Lloyd decided that the scope of legal professional privilege was something for Parliament to decide rather than the courts. The fact the law has not been altered by Parliament was not an accident, the judges concluded.

ICAEW chief executive Michael Izza said in his blog he was disappointed with the decision.

"For centuries lawyers have been able to provide tax advice to clients using LPP," he argued. "Taxpayers should be able to seek advice from those they believe are best suited to provide that advice, whether that be from a lawyer or a professionally qualified chartered accountant."
 
The institute will now take stock on what to do next in its campaign to extend LPP to tax advisers. "Ultimately though, it is looking more and more likely that this is a question that will have to be considered by Parliament," Izza wrote.

The Prudential case ended up being more of a confrontation between the Law Society and the ICAEW that the parties named in the original case, which was prompted when Prudential sought a Judicial Review for HMRC information notices issued under section 20 of the Taxes Management Act 1970 (TMA 1970 - now superseded by s36 of Finance Act 2008). Prudential argued that it should not have to disclose the documents in question, which it said were subject to LPP.

Herbert Smith, which advised the Law Society, has published an analysis setting out the main arguments and the judges' conclusions.

The right to claim LPP is subject to strict conditions, because it deprives HMRC, tax tribunals and the courts of relevant evidence.

The Appeal court backed the lower court's decision and said it was bound by judicial precedent to limit LPP to any professional other than a solicitor, a barrister or an appropriately qualified foreign lawyer. As a principle of common law, privilege could not apply to documents by which legal advice relating to tax matters was sought or received from an accountant, except as a result of specific legislative provision, the judges decided.

TMA 1970 includes references to documents which are the subject of LPP along with specific alternative provision documents held by a tax accountant. "Parliament has, therefore, legislated so as to deliberately distinguish the protection from disclosure of documents by which legal advice is sought or received from, on the one hand, tax accountants and, on the other hand, solicitors or barristers," Herbert Smith noted.

The lawyers added that the Appeal Court decision was "significantly influenced" by uncertainty surrounding the professional regulation of accountants. "In the United Kingdom, at least, there is no restriction on any person setting up business as an accountant and providing advice on any relevant matter, including tax. That person would not owe any duties to a regulator. In contrast, a person seeking to call himself a solicitor or a barrister must fulfil certain requirements and is answerable for all aspects of his professional conduct to both a professional regulator and the court," Herbert Smith noted.

In his decision, Lord Justice Lloyd commented: "If it were to apply to members of other professions who give advice on points of law in the course of their professional activity, serious questions would arise as to its scope and application. To which accountants should it apply, given that 'accountant' does not by itself denote membership of any particular professional body, or the obligation to comply with any, or any particular, professional obligations? To which other professional advisers would it apply? To what areas of the law would it apply as regards the advice of any adviser who is not a lawyer as such?"

The Appeal Court went further to knock back the High Court view in the case that there was an unfair playing field between accountants and lawyers that could be levelled either by extending LPP to accountants or restricting LPP for lawyers.

The Court of Appeal only looked at the relevant provisions of TMA 1970, but Herbert Smith wrote that the decision will also apply to information notices issued under s36 of FA 2008.

Full judgment text available on Bailii.org

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Replies (9)

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
15th Oct 2010 10:32

We could see that one coming

I'm sure my friends would insist that I'm not one for "I told you so" remarks, but... I do remember suggesting to Michael Izza a few weeks ago that the appeal's chances were slim.

After all, who's deciding this case? That's right - a bunch of lawyers. In spite of the costs and likely futility of the challenge, David Winch predicted that it'll go all the way to the Supreme Court. And who sits on that? Yup, more lawyers.

And the institute's hopeful glances towards Westminster are also unlikely to get much of a response, as that body has traditionally been dominated by the legal profession. This year's big intake of accountant MPs may be changing the composition slightly, but among all the deficit crisis policies and budget cutbacks, I don't see LPP gaining much Parliamentary airtime.

I think in philosophical terms there are some very interesting arguments. But on this occasion, I don't the law is too hung up on principles.

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By mydoghasfleas
15th Oct 2010 11:06

Privilege

I remember the 80's and Parliament ending the closed shop and restrictive practices, evidently the Bar and Law Societies are not trades unions or closed shops nor do they have restrictive practices.  Watch out though, the law of unexpected consequences will apply.  A campaign to prevent LPP apllying only to these two bodies could equally result in it being removed altogether.

Finally, I understood accountancy was the second oldest profession and law the oldest.  It was a consequence of having to sort the mess made by the oldest.

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By peterlashmar
15th Oct 2010 11:30

Legal privilege

I must confess to some incomprehension on this issue. Surely the clue is in the term "Legal privilege"?  If Parliament had wanted to include accountants then I would have thought that the Parliamentary draftsman would have called this "Legal and accountancy privilege".

I will add to John's comments and possible bias ( aka self-preservation ) and point out that Parliament generally contains very many more lawyers than accountants.

Peter Lashmar

Lashmars Tax Accountants

 

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By peterlashmar
15th Oct 2010 11:37

Oldest profession

I had always understood that the "oldest profession" was an altogether different and more personal type of service - far predating the Law and Luca Pacioli.

Peter Lashmar

on a Friday

 

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By Johhny
15th Oct 2010 12:26

The clue is indeed in the name...

In the same way that it is not "Legal and accountancy privilege" it is not "Legal profession privilege".

There are broadly two types of privilege. Litigation Privilege which will hardly, if ever, affect accountants giving advice. But there is also "Legal Advice Privilege" - a common sense (as opposed to lawyers judging on matters that help lawyers) interpretation is that it attaches to the legal advice, not who gave it.

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By Stephen Morris
15th Oct 2010 12:56

The decision must be correct

If accountants were to be permitted to claim legal privilege then so would anyone providing legal advice (however bad or inadequate).  Anyway, I wouldn't want a solicitor or barrister doing my books (by their own admission they usually find the accountancy components of their professional exams the hardest) and so I am happy to leave legal advice to them!

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By carnmores
15th Oct 2010 14:01

unusually i thought part of the judges Ratio is unsound

but he does make some fair points additionally

leagal privelige effectively relates to discloure of client documentation information

i wonder if there are as many good tax lawyers who indrstnd that as well as say a qualified accoutant

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By lawmaniz
15th Oct 2010 21:42

Legal advice privilege v litigation privilege.

Advice given, even by non-lawyers, is subject to litigation privilege if it is given for the dominant purpose of litigation, including how to avoid it and how to be best placed should it occur: Scotthorne v Four Seasons Conservatories (UK) Ltd (2010) Employment Appeal Tribunal, 14 May 2010 (Case No.0178/10) per McMullen QC.

At the original employment tribunal hearing, the employment judge ruled (wrongly) that documents belonging to an employer which a claimant wanted to view were 'protected by legal advice privilege.' However, on appeal to the EAT, HHJ McMullen QC agreed with the employment judge that the documents could not be disclosed but for a different reason which was they were protected by litigation privilege.

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By richardterhorst
19th Oct 2010 11:44

A distraction - oldest profession

 As Peter said it's the ladies of the night although some will have it it's seaman needing servicing who are the oldest.

But the legal profession is in the UK still a closed shop. Other jurisdictions are slowly chipping away at the exclusivity with registered accountants able to do much of what was restricted. Legal privilige is however a well defended position which the legal profession will fight for tooth and nail. 

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