Legal privilege does not apply to advice from non-lawyers, rules Supreme Court

LPP keeps communication between a lawyer and their client confidential and it means that information cannot be disclosed even during the course of most trials, though sometimes an exception is made when fraud is involved.

Insurance company Prudential asked the courts to allow legal advice on tax matters to be protected by LPP even when delivered by accountants.

HM Revenue & Customs (HMRC) had served Prudential with notices demanding the disclosure of documents related to a tax avoidance scheme promoted by PricewaterhouseCoopers (PwC). A 2002 court ruling had already established that such notices could not compel the disclosure of documents that were protected by LPP.

Prudential said that the notices required production of documents by which they sought or received legal advice on tax matters, from barristers, foreign lawyers and the accountants PwC. They argued that all these documents were protected by LPP and brought proceedings for judicial review to challenge the notices.

The Court of Appeal rejected Prudential's argument and decided in October 2010 that, on the basis of the current law, LPP cannot be extended to accountants.  Lord Justice Lloyd said that if privilege is to be extended to apply to legal advice on tax issues given by accountants "the appropriate scope of that extension is a matter for Parliament, not the courts".

The Supreme Court agreed. "What we are being asked to do by Prudential is a matter for Parliament rather than for the judiciary," Lord Neuberger said in the lead judgment. "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."

"Parliament has enacted legislation relating to [LPP], which, at the very least, suggests that it would be inappropriate for the court to extend the law on [LPP] as proposed by Prudential," he said.

James Bullock, a tax litigation expert at Pinsent Masons, the law firm behind Out-law.com said that LPP is a rule of evidence designed to protect individuals against disclosure to a court. "It is therefore about the rights of litigants, not, as some have sought to portray it, about professionals lining their pockets." he said.

"The restriction of LPP to advice given by a practising solicitor or barrister ensures that the advice in question is given by a person who is both professionally qualified and rigorously regulated" said James Bullock.  "That is not to say that other professionals giving advice on the law are not, but in any extension of LPP that underlying principle needs to be maintained, and that is best done by Parliament following an extensive consultation."

Bullock said that any consultation "should look on LPP in its context as a rule of evidence. As such it should be led by the Ministry of Justice - not, for example, by HMRC." He said that a working committee could be appointed in the same way as was seen recently in relation to the general anti abuse rule (GAAR). This could comprise representatives of the various 'interested' professions.  "However, it should be chaired by a Judge of at least High Court rank," he said.

The Supreme Court said that the extension of privilege would lead to unwelcome uncertainty in an area where there is clarity on what the current law means.

"The suggestion that [LPP] should apply in any case where legal advice is given by a person who is a member of a 'profession [which] ordinarily includes the giving of legal advice' suggests to me that this is an inappropriate formulation for us to adopt, as it would carry with it an unacceptable risk  of uncertainty and loss of clarity in a sensitive area of law," said Lord Neuberger.

Bullock said that many professional advisers would be interested in the decision and the outcome of any consultation. "Everyone has focused on tax advisers and accountants, but it is also an issue for other professionals who provide advice on 'the law', for instance surveyors and planning consultants, to name but two." he said.

The ruling will have an impact on claims consultants in the construction industry, who advise on contractual and adjudication issues in construction disputes. The Supreme Court ruling means that their advice will not be protected by LPP, which is in line with a ruling last year in the Technology and Construction Court involving Walter Lilly and Mackay.

"This judgment makes it clear beyond any doubt that legal advice privilege does not attach to documents generated by a claims consultant," said Simon Plunkett, a construction disputes expert at Pinsent Masons, the law firm behind Out-Law.com. "Even if the person in question gave advice identical in nature to that given by lawyers and even if the person had legal qualifications such as training at the Bar that is not enough. To be sure that documents will be protected from disclosure in this way in infrastructure disputes, only using a lawyer will do.

A report on the powers of the Revenue Commissioners in 1983 recommended the extension of LPP to tax advice given by accountants and tax advisers who were members of certain professional bodies, but this was never acted on. The Director General of Fair Trading said in 2001 that the application of the rule only to lawyers distorted competition, but the then-Government said it would not change the law.