Privilege problems keep ABS unattractive

THOSE OF US with long memories will recall hearing that the anticipated benefits of the creation of Alternative Business Structures (ABS) included both the opportunity for non-lawyers to own and manage law firms, and the exciting prospect of professionals from different disciplines having the opportunity of working together in one business.

It was said, among other things, that the legal profession would be opened up to the non-lawyer entrepreneurial world and that the ‘one-stop shop’ would give consumers greater service at more affordable prices.

In some ways the creation of the ABS has opened up the law as a business sector. It has allowed business people other than lawyers to manage the way legal services are delivered and we have seen non-lawyers receive approval from the Solicitors Regulation Authority to invest in, and own, law firms.

However, there appears to have been rather less progress made in the creation of the ‘full service ABS’, which brings a range of professionals together under one roof. Why, for example, do we not find more single businesses which provide both the accountancy and legal expertise which is undoubtedly sought by a large number of consumers?

The risk of law

The reasons are many and varied but, is it possible that other aspects of the law are in fact creating potential risks which make the ABS less attractive than it might otherwise be? For example, does the curious application of legal advice privilege as between solicitors and accountants create a business risk which makes the idea of an ABS involving accountants and lawyers unappealing?

Legal advice privilege has long been understood to protect from production the communications between a client and his lawyer. The privilege attaches to any communication between a client and his legal adviser which is made either for the purpose of enabling the adviser to give, or the client to receive, legal advice; in the course of a professional relationship; and/or in the exercise by the adviser of a profession which has as an ordinary part of its function the giving of skilled legal advice on the subject in question.

But doesn’t the advice of skilled accountants advising on legal aspects of complex tax matters fall within the description? In short – no.

Early in 2013, the Supreme Court was required to decide whether a client was entitled to refuse to produce documents to HM Revenue & Customs, based on a claim for legal advice privilege when the documents included legal advice provided by accountants who had been retained to provide that legal advice. Despite some apparent unease, the Supreme Court was not prepared to extend the ambit of legal advice privilege to non-lawyer professionals.

Although the court was not inclined to allow the advice of non-lawyers to be protected by legal advice of privilege, it recognised the potentially unsatisfactory nature of the decision and suggested that the issue should be reviewed by Parliament. Lord Neuberger said that “…this appeal gives rise to an issue, possibly a series of issues, of policy, which constitutes an area into which the courts should generally be reluctant to tread. Rather than extending [legal advice privilege] beyond its present accepted boundaries, we should leave it to parliament to decide what, if anything, it wishes to do about [legal advice privilege].”

This being the state of the law, it looks reasonably clear that within a single ABS entity the absence of the protection of legal advice privilege for some individuals (the non-lawyers) will have risk implications for the business and the manner in which it provides legal advice.

Legal privilege – a client’s right

If a client of an ABS seeks advice from a solicitor in the business, the communications will have the benefit of legal advice privilege but, if that same client seeks the same advice from an accountant in that ABS those communications would not benefit from legal advice privilege. Non-lawyer professionals would have some justification in saying that such a situation would be absurd and they may find that view supported by Lord Sumption. In his dissenting judgment, Lord Sumption said: “…privilege is a substantive right of the client, whose availability depends on the character of the advice which he is seeking and the circumstances in which it is given. It does not depend on the adviser’s status, provided that the advice is given in a professional context”.

If the advice of non-lawyers within a business is not protected by legal advice privilege, is it not reasonable that lawyers should be reluctant to risk inadvertent loss of the privilege by creating an ABS with any non-lawyer who will assist in the provision of legal advice? If it is, isn’t it time for the professions to encourage Parliament to look at what may be impediments to the realisation of the possible benefits of the ABS?

Clive Greenwood is a partner at Lewis Silkin

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