It’s a Privilege – When is professional advice protected by privilege?

Wednesday 30 January 2013

Amidst the recent controversy over the tax avoidance schemes of large profitable corporations, and the resulting scrutiny by tax inspectors, questions were raised as to whether advice given by an accountant could be protected by privilege in the same way that such privilege attaches to advice given by a solicitor.

Communications between a client and their solicitor are protected by privilege, meaning that such communications may be withheld from production to a third party or the Court.

It is important to note, however, that privilege can only be relied upon where the communication in question is confidential. Therefore a client (and their solicitor) must take care not to inadvertently disclose a privileged document.

Privilege comes in a number of forms, each covering a different scenario. Legal Professional Privilege is the most commonly relied on privilege and entails both Legal Advice Privilege and Litigation Privilege. Litigation Privilege applies to communications between a client and/or solicitor and a third party, but it will only protect such communications where litigation is pending or contemplated.  Legal Advice Privilege only protects communications between a client and their solicitor, however it applies even where there is no litigation pending or foreseen.

The purpose of Legal Advice Privilege is to enable the client to place unrestricted confidence in his solicitor.

The logic put forward by accountants for privilege protection of their advice is that a client should feel able to seek advice from whichever qualified professional is best able to provide that advice.

It was argued in the Supreme Court in the case of Prudential PLC and Prudential (Gibraltar) Ltd v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes that privilege rules prevented accountancy advice documents (relating to a tax avoidance scheme) from having to be provided to tax inspectors. The Supreme Court disagreed, and held that it could not extend the ambit of Legal Advice Privilege to advice given by non-lawyers.

This is a cautionary result for both accountants and their clients who may be considering embarking upon any controversial schemes. As a result they must now wait and see if Parliament is willing to step in to change the current rules on privilege to afford protection to advice given by accountants.