Case Update: Accountants not entitled to assert legal advice privilege

In a previous post, we discussed the case of Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 649 (TCC) in which the English High Court held that advice by a claims consultant is not protected by legal professional / advice privilege. The High Court reaffirmed the proposition that legal professional privilege does not apply, at common law, in relation to any professional other than a qualified lawyer, that is, a solicitor or barrister, or an appropriately qualified foreign lawyer. Accordingly, even though a claims consultant firm may be staffed by legally trained employees, any advice rendered by the firm, including advice that is legal in nature will not be protected by legal advice privilege.

The High Court had relied on the English Court of Appeal decision in Prudential Plc & Anor, R (on the application of) v Special Commissioner of Income Tax & Ors [2010] EWCA Civ 1094 which held that an accountant’s advice similarly did not attract the privilege protection as an accountant was not a qualified lawyer. This was even though such advice would have attracted legal advice privilege if rendered by a qualified lawyer

The Supreme Court has since delivered its judgment in Prudential plc & Anor, R (on the application of) v Special Commissioner of Income Tax & Anor [2013] UKSC 1. It upheld the Court of Appeal decision by a 5-2 margin (Lord Clarke and Lord Sumption dissenting).

The facts of the case were that in 2004, PwC had devised a marketed tax avoidance scheme (the “Scheme“). In accordance with the requirements of Part 7 of the UK Finance Act 2004, PwC disclosed the Scheme to the relevant tax authorities (HMRC). In or about the same time, the Prudential group of companies instructed PwC to advise them in connection with certain overseas holdings, and PwC identified the Scheme as being adaptable for Prudential’s case. Thereafter the Prudential group implemented the Scheme, which involved a series of transactions (the “Transactions“). Essentially, the aim of the scheme was to achieve a substantial tax deduction in Prudential (Gibraltar) Ltd, a subsidiary company of Prudential plc, which could then be set off against the profits of that company – those profits were ordinarily chargeable to corporation tax in the UK (see paragraph [10] and [11]).

However, Mr Pandolfo, the inspector of taxes who was responsible for this aspect of the Prudential group’s tax liabilities, had considered it necessary to look into the details of the Transactions. Accordingly, he had served certain statutory notices on Prudential (Gibraltar) Ltd and Prudential plc (collectively “Prudential“) which gave Prudential the opportunity to disclose documents. Prudential had disclosed many of the documents requested, but refused to disclose certain other documents on the basis that Prudential was entitled to claim legal advice privilege over them (see paragraph [15]).

Mr Pandolfo subsequently sought production of the documents under section 20 of the Tax Management Act 1970. It had been earlier held by the House of Lords in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21[2003] 1 AC 563 that the provision could not be invoked to compel disclosure where the documents sought attracted legal advice privilege.

The appellants (supported by the Institute of Chartered Accountants for England and Wales) argued that as legal advice privilege was a common law right (i.e. developed by judges through cases), it should be applied and extended if necessary so as to accord with the underlying and justificatory principles of legal advice privilege (see paragraph [24] and [25])).

In contrast, the HRMC (supported by the Law Society, Bar Council and AIPPI UK) all argued that privilege ought not to be extended to tax advisers in matters relating to tax advice. They argued that (see paragraph [27] and [28]),

(i)                   the effect of extending legal advice privilege would involve a potentially nuanced policy decision, with unpredictable and potentially wide-ranging public and forensic consequences, which is therefore best left to Parliament;

(ii)                 Parliament has legislated on the assumption that legal advice privilege is restricted to advice given by lawyers, and has further considered and rejected a proposal to extend legal advice privilege to tax advisers; and

(iii)                that there is a good principled reason in the modern world to restrict legal advice privilege to advice given by lawyers.

The Dissent

Lord Sumption (in dissent) would have allowed the appeal and his proposed reformulation of the law of legal advice privilege was that such privilege would apply “to the taking of legal advice in the course of a professional relationship with a person whose profession ordinarily includes the giving of legal advice” (see paragraph [138]). As the learned law lord reasoned (see paragraph [123]),

“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. …”

In this respect, such professions should be distinguished from professions who in the course of their advisory work would be informed about the law but which would not ordinarily give legal advice (see paragraph [138]).

“…There are other advisory professions whose practitioners although not lawyers require some knowledge of law. A chartered surveyor advising on the structural integrity of a building may require a knowledge of the building regulations. An investment banker advising on a takeover may require a knowledge of the Takeover Code and associated regulatory codes. An auditor will require a basic knowledge of company and insolvency law. The activities of these professionals will no doubt be informed by their understanding of the relevant law. But it does not follow that their profession has as an ordinary part of its functions the giving of legal advice. The legal element involved in their advisory work is likely to be purely incidental to the exercise of a broader advisory function. The distinctive feature of accountants’ advice on tax law is that advice on tax law is itself the service which clients routinely seek from them. I very much doubt whether many other professions will find themselves in the same position…”

On this Lord Clarke added that such members of a profession (whose advice would attract legal advice privilege)  must be members of a properly regulated professional body in order to obtain the benefit of Lord Sumption’s proposed reformulation of the law (see paragraph [148]).

The Majority

The majority decision of the UK Supreme Court is perhaps best summarised by the decision of Lord Neuberger (with whom Lord Walker agreed) at paragraph [53] in dismissing the appeal and can be summed up as follows:

(i)                   Clarity and certainty if privilege were kept to advice rendered solely by lawyers. (“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“.)

(ii)                 Any extension of the ambit of the privilege should be managed by Parliament. (“Second, the question whether [legal advice privilege] 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“).

(iii)                Parliament has already enacted legislation relating to LAP (“Parliament has enacted legislation relating to [legal advice privilege], which, at the very least, suggests that it would be inappropriate for the court to extend the law on [legal advice privilege] as proposed by Prudential“).

(A) Clarity and Certainty

Lord Reed summed up the position and held at paragraph [101] that,

“…privilege must be capable of being relied upon if it is to serve its purpose of enabling clients and their legal advisers to communicate with each other with complete candour. It is therefore highly desirable that the privilege should, as far as possible, be based upon a principle which is clear, certain and readily understood. The existing common law principle meets those requirements. The variety of possible formulations of an extended common law principle, and the consequent scope for debate as to whether particular professional persons, in particular situations, would or would not fall within its scope, would detract from the certainty and clarity which presently exist”.

Lord Hope remarked that there is a popular understanding of what legal advice privilege constitutes i.e. advice given by lawyers. In this respect, the change advocated by the appellants would be changing the ambit of the privilege and would erase the “clearly defined limits [and its] inestimable advantages of clarity and certainty“. Furthermore, “the change [the Supreme Court] was asked to make would need a very good reason – evidence that something was not working properly [and] no such pressing need has been demonstrated, and that to adopt the functional test would give rise to a significant risk of uncertainty” (see paragraph [81]).

In this respect, Lord Neuberger (with whom Lord Walker agreed) considered that Lord Sumption’s proposed reformulation “carr[ied] with it an unacceptable risk of uncertainty and loss of clarity in a sensitive area of law” (see paragraph [55]). For one, the learned law lord could not clearly demarcate the ambit of those professions which ordinarily includes the giving of legal advice as part of their service (see paragraph [56] and [58]).

“56. For example, it is unclear to me whether occupations such as town planners, engineers, or pension advisers would be members of a “profession” for this purpose. They require training and qualifications, and they have associations, with rules and disciplinary procedures. Further, like, for instance, actuaries, auditors, architects and surveyors (undoubtedly professionals), they often, as a result of education and/or experience, have considerable specialist legal expertise, on which clients draw and expect to be able to draw. …

58. Further, I am not clear quite how a court is to decide whether a profession is one which “ordinarily includes the giving of legal advice”. Many chartered surveyors, architects and accountants, for instance, may not ordinarily give legal advice, but there are many who do. Should the issue be judged by reference to the profession generally, a particular branch of the profession (which could lead to definitional issues), or the practice of the particular member of the profession in the case, and, if this last possibility is correct, would the issue be determined on that member’s say-so? In addition, I suspect that much of the advice given by most members of those professions could not infrequently be characterised as “legal” in nature by some people but not by others.

Second, there would also be the difficulty of demarcating when legal advice privilege would attach to which (and which parts of the) communications (see paragraph [60]).

“So long as [legal advice privilege] is limited to advice from members of the legal profession, the strong, and justified, presumption will be that [legal advice privilege] does apply in connection with any communications in that context, because lawyers normally only give legal advice. However, where members of other professions give legal advice, it will often not represent the totality of the advice, and there may well be difficult questions to resolve, as to whether, and, if so, in respect of which documents, [legal advice privilege] could be claimed. For instance, it is unclear whether [legal advice privilege] would apply where the legal advice is only subsidiary, and, if so, how one determines subsidiarity; and, in a case where [legal advice privilege] could be claimed, there may be difficulties in deciding how to deal with documents (which may frequently be the majority of documents concerned with the giving of advice in the case) which contain legal and non-legal advice”.

(B) A (Policy) Matter Properly for Parliament

The decision of Lord Neuberger is worth reading in full, not least because it readily acknowledges the force of the principled arguments in favour of expanding privilege (see paragraphs [40] to 70). Nonetheless, the learned law lords were content with seemingly anomalous common law rules “which, while entirely valid today, have limitations or other aspects which are only explicable by reference to historical practices of beliefs. … [Legal advice privilege’s] restriction to advice from members of the legal profession, while it can fairly be said to be illogical in the modern world, is explicable by reference to history” (see paragraph [49]).

In this respect, the learned law lords considered that in such situations, the appropriate response by the court was to defer to Parliament and let Parliament determine if such outdated limitation should be modified. This is notwithstanding the fact that the common law is pronounced/determined by the courts and can be amended by the courts (see paragraph [50]). In the main, any expansion of the ambit of legal advice privilege “may well have significant consequences which should be considered through the legislative process, with its wide powers of inquiry and consultation and its democratic accountability” (see paragraph [63]).

Lord Hope considered that insofar as public policy mandated change to the scope of legal advice privilege, Parliament was in a better position than the courts to assess and make that change that than the courts were (see paragraph [82]).

Lord Mance also considered that any piece meal modification was best left to Parliament. The learned law lord reviewed the statutory approach in New Zealand, which provided privilege in respect of a “tax advice document” i.e. privilege attached to a particular type of document as opposed to the person preparing it. Australia’s Law Reform Commission considered the New Zealand model and supported it as this approach gave Parliament “greater control over the operation and scope of tax advice privilege” (see paragraph [89]).

(C) Parliament had legislated relevantly on this issue

Lord Neuberger noted that Parliament had previously mooted the proposed extension of the ambit of privilege, but ultimately did not accept it (see paragraph [66]).

“…the sort of extension to the currently understood law of [legal advice privilege] sought by the appellants has been (i) reported on by two committees, (ii) discussed in a parliamentary committee, and (iii) proposed to the executive. Despite thinking it appropriate to extend [legal advice privilege] to certain other professions, as explained in para 35 above, Parliament has apparently chosen not to extend LAP to accountants giving tax advice”

Furthermore, on the occasions that Parliament had “legislated relevantly in this field“, it did so by extending the ambit of the privilege but on the assumption that it would otherwise be limited to advice given by lawyers (see paragraph [69] and [70]).

Lord Mance agreed. The learned law lord considered it important that Parliament had on previous occasions declined to extend the ambit of the legal advice privilege to tax advisers (see paragraph [91]).

“Another, not unrelated, feature of this case, to which I attach considerable importance, is that the United Kingdom Parliament has on a number of occasions not only treated lawyers as the only persons whose advice gives rise to [legal advice privilege] on the part of their clients (see Lord Neuberger’s judgment, para 35 et seq), but has also specifically decided to maintain a distinction between lawyers and tax advisers when it was suggested that the latter’s advice ought to give rise to a general [legal advice privilege] paralleling that existing in respect of lawyers’ advice (Lord Neuberger, para 36)”.

Which approach better promotes candour?

Lord Mance noted that the policy rationale that privilege invited candour from clients was deemed not to be sufficiently important when the matter came up for review in UK, New Zealand and Australia (see paragraph [90]).

Lord Reed went further to argue that because candour was an important consideration, “[i]t [would] therefore [be] highly desirable that the privilege should, as far as possible, be based upon a principle which is clear, certain and readily understood. The existing common law principle meets those requirements” (see paragraph [101]).

Singapore Position

This issue does not appear to have arisen squarely before the Singapore courts. However, the UK Supreme Court’s decision and reasoning should be highly persuasive, particularly since it already appears that legal professional privilege is embodied in the Singapore Evidence Act (Cap. 97) (albeit informed by the common law) and restricted to lawyers/legal counsel.

We should point out that legal professional privilege encompasses both legal advice privilege as well as litigation privilege i.e. privilege asserted over documents and communications prepared for the dominant purpose of litigation. There are slight differences between the two although there would invariably be overlaps. So for example, the Singapore Court of Appeal held at paragraph 43 and 44 in Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and other appeals, [2007] 2 SLR(R) 367; [2007] SGCA 9.

“43…First, legal advice privilege exists at any time a client seeks legal advice from his solicitor whether or not litigation is contemplated, whereas litigation advice applies only where litigation exists or is contemplated. The former applies only to confidential communications made for the purpose of seeking legal advice, and not just any communication made to the lawyer. Hence it does not apply to communications by third parties to the solicitor unless they were made to the solicitor as agent for the client. In this respect, we should note that although s 128 refers to communication made by or on behalf of his client, the words “on behalf of” do not signify that any communication by an agent is protected. The established principle is that only a communication made through the agent as a conduit that is protected…

44     Secondly, in contrast to legal advice, litigation privilege applies to every communication, whether confidential or otherwise so long as it is for the purpose of litigation. It also applies to communications from third parties whether or not they were made as agent of the client. This is the critical difference between legal advice privilege and litigation privilege: see Wheeler v Le Marchant ([43] supra) and the Singapore Court of Appeal decision of Brink’s Inc v Singapore Airlines Ltd [1998] 2 SLR(R) 372 at [20] (“Brink’s”). This difference is explained by the different functions of the two privileges. One is concerned with protecting confidential communications between lawyers and clients, and the other is concerned with protecting information and materials created and collected for the dominant purpose of litigation”.


This UK Supreme Court decisions relates only to legal advice privilege and not to litigation privilege (see paragraph [109] per Lord Reed and [144] per Lord Clarke, where a view was expressed in which the ambit of litigation privilege could extend to non-lawyers).

In light of this decision, commercial parties (and their non-legal advisors) would be well advised to ensure that their advice comes from a lawyer if their wish to ensure that that advice is protected by legal advice privilege. Alternatively, as with the Skandinaviska case, one practical approach might be for the tax advisers to prepare a joint report with qualified lawyers so as to ensure that communications with the client are protected.

About Shaun Lee

Dual-qualified International Dispute Resolution and Arbitration lawyer (Singapore and England & Wales). Chartered Institute of Arbitration Fellow. Member of SIAC Reserve Panel of Arbitrators. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the AIAC.
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2 Responses to Case Update: Accountants not entitled to assert legal advice privilege

  1. Pingback: CIArb Singapore Members’ Evening on 30 May 2013 | Singapore International Arbitration Blog

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