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Accountants Not Entitled to Assert Legal Advice Privilege

Singapore International Arbitration

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.

View the remainder of the article here.


Shaun Lee

Shaun Lee is an associate in Singapore and part of the Arbitration & Dispute Resolution practice at Olswang Asia LLP. Prior to joining Olswang, he has had experience working under one of Asia's foremost arbitrators and has worked as an associate in the local office of an international law firm… MORE >

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