RegulationAccounting StandardsPrivileged status: no change on legal advice privilege

Privileged status: no change on legal advice privilege

Taylor Wessing's Andrew Howell looks at what the Supreme Court's ruling means for accountants

THE MUCH-ANTICIPATED Prudential judgment has produced no real surprises on legal advice privilege. It cannot, the Supreme Court said, cover legal advice given by non-lawyers.

The issue in the case was whether the inspector of taxes could obtain copies of legal advice which Prudential received from its accountants in relation to a tax avoidance scheme.

Prudential argued it did not need to disclose the documents since they were covered by legal advice privilege. That argument failed at first instance, and before the Court of Appeal, on the basis that legal advice privilege could only be claimed by a lawyer, not an accountant.

The Supreme Court has now agreed. The majority decided that to extend legal advice privilege beyond the legal profession would be to take privilege beyond its long-understood limits.

The present confines of legal advice privilege were at least, so Lord Neuberger said, well understood. To extend the concept to other professions would raise difficult issues. How would one treat, for instance, a town planner’s advice on planning permission, or an auditor’s treatment of a receipt or debt: both may well involve advice on points of law.

As the majority recognised, the argument that lawyers should not have a special status was a powerful one. An important and difficult point of policy, though, should be left to Parliament. Legal advice privilege has long since been taken to apply only to lawyers, and Parliament has legislated on that basis. If that is to change, Parliament should decide.

Much as one can see the pragmatism behind the decision, there was obvious force in Lord Sumption’s dissenting view. If the key to privilege is the nature of the advice, not the status of the advisor, why should privilege be the exclusive preserve of the lawyer? His view was that legal advice attracted privilege if given by an “advisor of a profession which has as an ordinary part of its function the giving of skilled legal advice on the subject in question”. Floodgate arguments, he considered, were over-stated.

So, we still have the anomaly. A client can take the same advice from a lawyer or an accountant; but only communications with the lawyer will be privileged from future disclosure.

It has long been argued that the privilege rules give the legal profession an unfair competitive advantage in providing tax advice. That debate will no doubt continue. It will now, though, have to be a matter for Parliament.

Andrew Howell is a partner in the commercial disputes team at law firm Taylor Wessing

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