In a judgment1 which comes as a disappointment, if not a surprise, to the accountancy profession, the Court of Appeal has ruled that legal professional privilege does not extend to accountants giving tax advice.
The Court of Appeal acknowledged that in many, if not most, occasions when a person seeks advice on fiscal liabilities, he/she obtains that advice from accountants, not lawyers. Like Mr Justice Charles, who gave the first instance judgment, it considered itself bound by a previous Court of Appeal ruling that legal professional privilege (LPP) is only available in respect of communications for the purpose of getting or giving legal advice from or by members of the legal profession2.
The Court of Appeal made it clear, however, that even if it had not been bound by that earlier authority, it would have come to the same decision - that it is not open to the court to hold that LPP applies outside the legal profession, except as a result of relevant statutory provision. Only Parliament can extend LPP beyond the legal profession.
The basis and nature of the rule
The basis of the LPP rule is the fundamental human right of any person to obtain skilled advice about the law. The rule recognises that such advice cannot be obtained unless clients can be certain that their communications with their lawyers will not be disclosed without the client's consent.
The rule does not just apply to legal advice on the law. It extends to "advice as to what should prudently and sensibly be done in the relevant legal context"3.
The LPP rule is an absolute rule which conflicts with general public policy that cases should be decided by reference to all available relevant evidence. For that reason the rule needs to be certain in its nature and content. The Court of Appeal considered that the rule is sufficiently clear and certain as currently applied to members of the legal profession, giving advice in that capacity. If, however, the rule were to apply to members of other professions, who give advice on the law in the course of their professional activity, "serious questions would arise as to its scope and application".
Who is an accountant?
The Court of Appeal thought that there would be serious difficulties, if the rule were to be extended, in establishing to which advisers LPP would apply. In relation to accountants, although there are several professional bodies in the UK to which accountants may belong, the term "accountant" does not of itself denote membership of any particular professional body, or an obligation to comply with any particular professional obligations. There is no restriction on a person setting themselves up as an accountant and providing advice on any relevant matter, including tax.
There would be other difficult questions if LPP were to be extended beyond the legal profession: to which other professional advisers would LPP apply; and to what areas of the law would it apply, in relation to any adviser who is not a lawyer?
Only Parliament has the answer
There are several statutes which expressly apply LPP to particular professionals (other than lawyers) in specified circumstances, including patent agents, trade mark agents and licensed conveyancers. The Taxes Management Act 1970, which was the subject of this litigation, itself creates a particular limited protection for accountants, as does its successor statute, the Finance Act 2008.
The Court of Appeal also noted that the question of whether LPP should be extended to accountants by statute has been addressed on several occasions over the past 40 years by a number of bodies, including the Law Reform Committee, the Director-General of Fair Trading and the Department of Constitutional Affairs.
Lord Justice Lloyd commented that: "Thus, not only has Parliament not created any statutory extension of LPP to legal advice sought from and given by accountants on tax matters, but this position has been reached after consideration of the position by several responsible bodies… Parliament's failure to change the law in this respect is not an accident ". He concluded that "In my judgment only Parliament can provide the answers to such questions as these [ie to which advisers and to what areas of law an extended LPP should apply]. It is not a proper task for the courts to undertake".
Frank Haskew, Head of the ICAEW Tax Faculty, has expressed disappointment with the decision and confirmed that the ICAEW will be reviewing the options available to press the case for reforming the LPP rules so that there is a level playing field for tax payers seeking tax advice: "Whether they consult lawyers or chartered accountants, in our view clients who seek professional tax advice should be treated in the same way, irrespective of the qualification of the person”. This judgment indicates that the current position will only be changed, however, by Parliamentary intervention.