ACCORDING TO LEGEND, Sisyphus was the original groundhog; punished by being forced to roll a boulder up a hill but, before he could reach the summit, the boulder would roll back down the hill and Sisyphus would have to commence his task again.
In light of the recent Court of Appeal case between Prudential and the Special Commissioner of Income Tax, accountants’ wish to be covered by legal advice privilege has again been dealt a Sisyphean blow. In his judgment, Lord Justice Lloyd reaffirmed the status quo that legal advice privilege only covers communications between clients and qualified lawyers (solicitors, barristers and suitably qualified foreign lawyers). It does not apply to communications with other professionals, regardless of the level of confidentiality involved or, indeed, whether the advice provided was that of a legal nature. What mattered was who was providing the advice, rather than the content of the advice.
The courts in England and Wales recognise two main forms of legal professional privilege (LPP), namely legal advice privilege and litigation privilege. The latter relates to communications between lawyers, their clients or either of them and third parties (including accountants) where the dominant purpose of the communication is in connection with actual or pending litigation. The former relates, with only very limited exceptions provided by statute, to communications between lawyers and their clients giving or receiving legal advice.
The Prudential case reaffirmed the distinction between lawyers and other professionals, in that lawyers first have a responsibility to court and then the client, which arguably places them in a unique position. Lord Justice Lloyd found that there are significant differences between how lawyers and accountants are regulated and confirmed that any amendment to LPP should come about through primary legislation.
This case is a timely reminder that accountants and their clients are exposed to the risk of being required to disclose documents they may consider to be highly confidential and that advice on tax structures given by accountants will not be privileged.
It may be questioned how much this matters in practice for many tax-payers who will continue to use accountants and, in the interests of transparency and full disclosure, engage fully and openly with HMRC. For those tax-payers who are concerned with privilege, either as a matter of principle or in a specific situation, there are practical steps that accountants and their clients should consider.
Firstly, without detracting from one’s duties to the client and the desire for full disclosure, consider how to transmit any advice. Explain to your clients that the advice may have to be disclosed to HMRC or to a court. Secondly, where lawyers are likely to be involved, instruct them early in the advice process. It may be possible to structure the arrangements between the various professionals so that communications are privileged.
With time, accountants’ luck may change. Parliament may legislate to bring about changes and there remains the possibility that the Supreme Court will allow an appeal in the Prudential case. And, let us not forget that there is no evidence that clients are put off instructing accountants for tax advice due to the lack of privilege. It is perhaps wise to remember Camus’ words in his Myth of Sisyphus: “One must imagine Sisyphus happy [as] the struggle itself towards the heights is enough to fill a man’s heart.”
Charles Evans is partner and Roberto Pagliarulo is associate in the dispute resolution team at law firm Norton Rose
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