Legal Update: Across the Pond - Like Canada, No Privilege for Accountant - Client Communications
March 13, 2013
On January 23, 2013 a majority of the United Kingdom Supreme Court determined the legal advice that chartered accountants provide to clients is not protected by legal advice privilege. The same advice, given to the same client – but by that client’s lawyer – would be privileged. The decision corresponds with Canadian law, under which there is no accountant-client privilege.
Companies and individuals that obtain legal (including tax) advice from accountants – or any other professionals – should be cognizant that privilege only applies to legal advice given by a lawyer.
In 2004, PricewaterhouseCoopers (PwC) began marketing a tax-planning scheme that helped create tax deductions for companies. Prudential Insurance (Prudential) retained PWC to implement the scheme. Under UK law, parties must disclose these types of tax schemes to the Commissioners for Inland Revenue (CIR); PwC had done so prior to its retention by Prudential.
The CIR inspector asked Prudential to provide documentation regarding details of the transactions used in the tax package. Prudential refused, claiming the documents were protected from disclosure by legal advice privilege. The CIR inspector issued notices requiring disclosure. Prudential maintained its refusal and challenged the validity of the CIR notices for documentary disclosure by way of judicial review by the UK Court.
Lower Court Decision
Prudential argued that legal advice and related documents from chartered accountants should be privileged under section 20BA of the UK Taxes Management Act, which states that communications with a “professional legal advisor” are exempt from document delivery. The lower Court rejected Prudential’s argument. The Court held the documents would have been protected by privilege if the advice had come from a lawyer, but there is no legal advisor privilege claim for the documents if the advice came from a chartered accountant – even if the advice was identical to the advice that would be given by a lawyer. Prudential appealed.
UK Supreme Court Decision
On January 23, 2013 a majority of the UK Supreme Court decided that legal advice privilege does not extend to chartered accountants, and thus that the documents are not protected from disclosure by legal advice privilege. The Court looked particularly at legal advice given by non-legal professionals that would be privileged if a lawyer had given it.
The Court reaffirmed the basic principles of legal advice privilege: it ensures frank communication between lawyers and clients, is solely for the benefit of the client, and is a common law principle. The Court ultimately refused to extend legal advice privilege to legal advice given by chartered accountants, even if the same advice would be covered if given by a lawyer, on the following bases:
- The Court will not extend legal advice privilege to any professional body in general because of the lack of clarity within other professions as to their role in giving legal advice. Legal advice privilege covers legal advice from lawyers to their clients entirely because a lawyer’s primary function is to give legal advice, and lawyers normally only give legal advice. It would be difficult to distinguish between the legal and non-legal advice of professionals whose primary function is usually not to only give legal advice.
- The legislature should be the institution to change privilege.
- The legislature has legislated on the assumption that legal advice privilege is solely for lawyers and in the past has rejected the extension of privilege to others.
Click here to read the UK Supreme Court’s decision in R (on the application of Prudential plc and another) v. Special Commissioner of Income Tax and another Press Summary.
Consistent With Current Canadian Law: No Privilege
Privileged communications cannot be given to a third party without the client’s consent – and if they are disclosed, the privilege may be lost – and parties are not required to disclose privileged communications in the context of litigation. Canadian law currently recognizes three general types of legal privilege:
- Solicitor Client Privilege: common-law principle covering all communications, including legal advice, between clients and lawyers, given confidentially in the context of a client seeking legal advice, is privileged.
- Litigation Privilege: refers to communications between clients and their lawyers relating to pending or existing litigation.
- Settlement Privilege: covers all communications related to settling a matter.
The UK’s “Legal Advice Privilege” is encompassed, in Canada, by “Solicitor Client Privilege”. In Canada, the 2003 Federal Court of Appeal’s decision in Tower v. Canada (Minister of National Revenue) established that communications – including documents – between accountants and their clients are not protected by client/solicitor privilege, which covers legal advice, on the basis that it is not essential for communications between accountants and their clients to be privileged.
Canadian courts are not obligated to follow decisions of the UK Supreme Court, although they will sometimes turn to, and may find persuasive, UK court decisions where there is no prior Canadian decision dealing with an issue. However, in this case, the UK Supreme Court’s decision is consistent with the current Canadian position.
In today’s world, the lines between lawyers and other professionals have arguably, in some contexts, become blurred; it is not uncommon that professionals other than lawyers deliver what really is legal advice. However, the UK Supreme Court’s decision reinforces the current state of Canadian law: legal advice privilege is firmly reserved for the lawyer/client relationship; it does not extend to legal advice given by other professionals – like chartered accountants – even when the same advice given by a lawyer would be privileged. In light of this:
- Companies and individuals using professional services must be cognizant that legal privilege applies only when the communication is given in the context of a client/lawyer relationship
- This is the case even though professionals other than lawyers may give “legal advice”.
- If the communications are of a nature that protecting them from disclosure in subsequent litigation or other contexts is a priority, it is important to consider from whom the legal advice is to be sought.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Tax Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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