Analysis: Can advisers win legal privilege?

Judges were given the onerous task of spending the summer working through arguments for and against extending legal professional privilege (LLP) beyond just solicitors and barristers to tax advisers. They said no.

The judges cited previous case law, plus several earlier examples of government reluctance to extend the right in the direction of tax specialists, as the reasons for their decision to keep things as they are. Tax advisers were fighting what appeared to be an uphill battle.

So where does the profession go from here? What avenues are open to continue the argument – is there any wriggle room?

The first option would simply be to return to the judiciary, taking the argument up to the Supreme Court. That is not a straightforward option.

The Court of Appeal refused permission for an appeal. However, that does not necessarily stop the appellants from requesting the Supreme Court hear the case.
But what kind of appetite does Prudential, who brought the original case, have to take it on to the next level?

Prudential has battled to have tax advice it received from PwC protected from the clutches of HM Revenue & Customs, using LPP as a shield. The argument proved so fundamental that both the ICAEW and the Law Society have squared up to each other in court, making representations on behalf of the two parties originally duking it out.

With the Pru yet to make its mind up, the insurer’s appetite is unlikely to last as long as the two professions’ representatives. It has just a month to go to the Supreme Court.

ICAEW tax faculty technical manager Ian Young has previously indicated the institute’s desire to see it out to the bitter end, through either the courts or lobbying to government.

Lobbying is the probable option having lost out in two appearances at the Royal Courts of Justice already, but such a move will require a longer term plan and resourcing.

As such, both Young and chief executive Michael Izza are talking about the need to “take stock”.

Early indications are that the ICAEW will continue forth. Interest from its members has been strong: the topic has proved a popular draw on Izza’s blog, for example. And Young has indicated that a key plank of the judges’ decision against extending LPP is surmountable, if not by the courts, then in new legislation.
The complexity created through allowing tax advisers and their clients to use LPP was cited in the decision.

Lord Justice Lloyd said: “It seems to me that it is particularly important that the rule should be certain, so that its application can be readily understood. As presently understood, it seems to me that the rule does stand up to that test in practical terms.

“If it were to be regarded as extending, without statutory help or definition, to the seeking and giving of advice from and by professionals other than lawyers, subject to some criterion as to the status and qualification of the adviser, then it seems to me that the scope of the rule would be lamentably uncertain, and that this in itself might fail to satisfy the human rights test of being ‘in accordance with law’.”

But Young argued that extending LPP would only apply to advice from professionally-qualified tax accountants – and LPP would only be relevant when HMRC is digging around. On that basis alone the application of LPP would be narrow. “Let’s be grown up about when it does or doesn’t apply,” said Young.

Failing to change the situation could have other consequences for accountants.
The legal and tax adviser communities have flagged up other situations that could arise under the current state of play, such as its influence on practice structures.

New rules from October 2011 will allow lawyers and accountants to work in a single firm’s partnership. Accounting practices could therefore be encouraged to hire tax lawyers to provide LPP to clients, according to Beachcroft insurance litigation partner Dan Preddy.

The next few weeks will provide the answers as to the strength of the I CAEW’s convictions, and its strategy for turning the tide in its members’ favour.

Further reading:

LPP decision was, regrettably, obvious

ICAEW: Legal privilege rules “unsustainable”

Updated: Tax advisers lose bid to extend legal privilege

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