Supreme Court Confirms Privilege Does Not Extend To Accountants

The Supreme Court yesterday confirmed that legal advice given by an accountant will not be protected by legal advice privilege (R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1).

Privilege - a quick recap

Privilege entitles a party to withhold evidence from production to a third party or the court. If a document is privileged that privilege is absolute and absent consent or waiver production cannot be required.

Privilege is a common law creature and has been developed by the courts to ensure a person can seek legal advice candidly, secure in the knowledge that those communications cannot be used against them. This, the theory goes, promotes the broader public interests of legal compliance and administration of justice.

Legal advice privilege ("LAP") is one sub-set of privilege and applies to confidential communications passing between a client and lawyer acting in a professional capacity for the purpose of seeking or giving legal advice.

In Prudential, the Court was asked to consider whether LAP covered legal advice provided to it by accountants. The Prudential said it did, the taxman said it didn't.

Prudential - the Facts

In very broad summary, following legal and tax advice from its accountants Prudential implemented a scheme aimed at reducing its overall fiscal liabilities. Prudential was required under tax avoidance legislation to disclose the scheme to the Inland Revenue (now HMRC). HMRC promptly served notices seeking disclosure of certain categories of documents relating to the scheme pursuant to its powers under the Taxes Management Act 1970 (now superseded by schedule 36 of the Finance Act 2008).

Prudential refused to disclose a number of documents on grounds that LAP applied to them and subsequently sought judicial review of the validity of notices issued by HMRC compelling disclosure of the disputed documents.

First instance and Appeal

Both the High Court and Court of Appeal rejected the application: although it seemed likely that the disputed documents would attract privilege if they had been produced by a lawyer, because they had been produced by accountants the documents fell outside the privilege regime. The boundaries to LAP had been clearly set in prior case law and both Courts felt bound by those authorities.

Supreme Court

The majority of the Supreme Court (Lord Sumption and Lord Clarke dissenting) agreed. In the majority's opinion LAP did not cover...