The Supreme Court decides not to extend Legal Advice Privilege to the clients of chartered accountants
The Supreme Court has decided not to extend Legal Advice Privilege to the clients of chartered accountants.
The law after the decision
The effect of this decision is that for the time being Legal Advice Privilege (LAP) will continue to be restricted to the clients of lawyers and other legally qualified advisers (including people supervised by them). It will not be extended to clients seeking advice from chartered accountants (unless supervised by a lawyer).
Where litigation is involved the position is quite different and provided the dominant purpose is providing advice in relation to litigation, or prospective litigation, then a chartered accountant’s legal advice to his client will be privileged. However, even in this case, there must be a lawyer involved to generate the privilege.
The Supreme Court decision
On 23 January 2013 the Supreme Court handed down its decision in the case of R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another  UKSC 1 that legal advice privilege (LAP) should not be extended in respect of legal advice given by chartered accountants on tax matters. The decision went 5 to 2 in favour of preserving the current position with Lords Sumption and Clarke giving their opinions in favour of an extension of LAP.
The argument for clients of chartered accountants to have LAP was put most forcibly by Lord Sumption who argued that:
“the law is that legal professional privilege attaches to any communication between a client and his legal adviser which is made (i) for the purpose of enabling the adviser to give or the client to receive legal advice, (ii) in the course of a professional relationship, and (iii) 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.”
Lord Neuberger, President of the Supreme Court, who gave the leading judgment said:
“There is no doubt that the argument for allowing the appeal is a strong one, not least in terms of principle.”
And he also said that:
“…I accept that it would accord with its underlying logic to extend LAP …”
But he and four of the other judges rejected the appeal and declined to change the law because they believed such a change should be a matter for Parliament and because they were uncertain what the consequences of such a change would be.
The three reasons laid down by Lord Neuberger were:
“First, the consequences of allowing Prudential’s appeal are hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty. Secondly, the question whether LAP should be extended to cases where legal advice is given from professional people who are not qualified lawyers raises questions of policy which should be left to Parliament. Thirdly, Parliament has enacted legislation relating to LAP, which, at the very least, suggest that it would be inappropriate for the court to extend the law on LAP as proposed by Prudential.”
But Lord Sumption having explained what he believes to be the current law, as per the quote above, set out what he considers the practical consequences of this to be, which are:
“Once it is appreciated (i) that legal advice privilege is the client’s privilege, (ii) that it depends on the public interest in promoting his access to legal advice on the basis of absolute confidence, and (iii) that it is not dependent on the status of the adviser, it must follow that there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accountants on the other. The test is functional. The privilege is conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body.”
ICAEW will now be considering the decision in detail and discussing with its advisers what should be its next steps.
It is helpful that Lord Clarke said at the beginning of his own judgment that:
“…the true position at common law does seem to me to be a matter of some importance and I hope that the whole issue will be considered by Parliament as soon as reasonably practicable.”
But ICAEW will also have to bear in mind the comments of Lord Neuberger which were supported by Lord Hope and Lord Walker:
“However, although there is evidence of some concern about the presently understood limits of LAP, there is no evidence that even gets near establishing a pressing need to change those limits.”
In our view this conclusion may be the result of Lord Neuberger’s dismissal of the implications of the Legal Services Act 2007 (LSA). He said that he believes the only change caused by that Act is “that lawyers can now go into partnership with people in other professions”.
The LSA does indeed introduce multi-disciplinary practices where accountants and lawyers will be able to work side by side. But it is far from clear how LAP will operate within such practices. If advice is given by a chartered accountant acting “at the direction and under the supervision of” a lawyer then there is LAP (s190 LSA). It is unclear what direction or supervision means in this context. So you could have a chartered accountant who is the leading expert in a particular tax field but his client will not get LAP unless that chartered accountant is “supervised” by a lawyer who may have qualified only two years previously and have next to no experience of the tax law area in respect of which advice is being given.
The Solicitors Regulation Authority guidance on supervision by a solicitor is vague, concerned more with general principles, ethical requirements and the fact that a solicitor must have a minimum post qualification period before being “qualified to supervise”. For example, some law firms employ a very high proportion of unqualified members of staff with very few legally qualified members to supervise them, but their clients are still entitled to privilege. Under the LSA every Alternative Business Structure firm is required to have a Head of Legal Practice (HOLP) who must ensure compliance of the firm with its regulatory requirements, which implies supervision of everyone within the firm – but we do not know whether (if the HOLP were a solicitor) this would be sufficient supervision to enable the accountants in the firm to effectively generate privilege.
We believe the current position is a muddle! The Legal Services Board (LSB) that is responsible for oversight of regulation under the LSA did intervene in the Supreme Court case and sought clarification on some of these issues but the Supreme Court did not cover any of the points that were raised by the LSB. In the meantime, the LSB’s own position on the issues is unclear. For example there is some suggestion that ICAEW would need special provision in its “regulatory arrangements” in order for solicitors in ICAEW-licensed firms to be able to generate LAP for clients. But we are not clear that that is correct because s190 LSA does not restrict privilege, it effectively preserves the rights and restrictions in force when the Act was brought into force which would include the ability of solicitors to generate privilege.
We will now be considering how best to ensure that the principles and logic which the Supreme Court have identified as underpinning LAP can be reflected in the evolving market place for legal services.