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No legal privilege for accountants, says Court of Appeal

Prudential doesn't want to hand over tax advice of PwC, but it's too bad

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The right to keep correspondence and documents relating to legal advice secret does not exist when the person giving the advice is an accountant, the Court of Appeal has ruled.

Legal professional privilege (LPP) is the right of a person or company to communicate with their lawyer in secret. Even in a trial that communication and the advice given by a lawyer can be kept totally secret.

Insurance company Prudential asked the Court of Appeal to overturn a High Court ruling and allow legal advice to be protected by LPP when it was given by accountants rather than lawyers.

The Court said that it could not interpret the law to mean that LPP extended to accountants, though it agreed with the High Court that such protection would be reasonable. It was not what the law said, though, said the Court, and changing the law is the job of Parliament not judges.

In stating the vital importance of LPP to the administration of justice, the Court of Appeal quoted a judge in another case as saying that LPP is "a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice".

In 2007 Prudential was served with notices demanding the disclosure of documents under Section 20 of the Taxes Management Act by Her Majesty's Revenue and Customs (HMRC). A 2002 court ruling established that such notices could not compel the disclosure of documents that were protected by LPP.

Prudential said that it should not have to hand over documents that contained legal advice on tax provided to it by barristers, foreign lawyers and accountancy firm PricewaterhouseCoopers.

Lord Justice Lloyd, giving the Court's ruling, accepted that it was modern practice that non-lawyers give legal advice.

"Nowadays, on many if not most occasions on which a person seeks advice about fiscal liabilities, which often involves a consideration of, and advice about, the relevant law, that person does so by approaching accountants rather than lawyers," he said. "[Prudential contends] that the rationale which lies behind the LPP rule requires that a client's communications with his advisers should be just as much protected from disclosure if the advice, being legal advice, is sought from and given by an accountant as it is if sought from and given by a solicitor or barrister."

Lord Justice Lloyd said that the House of Lords had ruled that the Taxes Management Act could not over-rule the principle of LPP, but that LPP had previously been extended to non-lawyers. "The earliest extension appears to have been as regards patent agents. Since then there have been other such provisions for trade mark agents and licensed conveyancers," he said.

A report on the powers of the Revenue Commissioners in 1982 recommended the extension of LPP to some advice given by accountants, but this was never acted on. The Director General of Fair Trading said in 2001 that the application of the rule only to lawyers distorted competition, but the then-Government said it would not change the law.

Lord Justice Lloyd said that this indicated that the non-extension of LPP was clearly the will of the democratically elected bodies that create law.

"Thus, not only has Parliament not created any statutory extension of LPP to legal advice sought from and given by accountants on tax matters, but this position has been reached after consideration of the position by several responsible bodies, making diverging recommendations on the point, including two committees, some of whose recommendations did lead to legislation. Parliament's failure to change the law in this respect is not an accident," he said.

"Moreover, as already noted, in the statutory context which is directly relevant in these proceedings, TMA section 20 (and since then the Finance Act 2008, Schedule 36), general reference is made to documents which are the subject of LPP, but specific provision is made as regards what a tax accountant or a tax adviser can and cannot be required to produce. Parliament has, therefore, addressed the point expressly in the material provisions," he said.

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