Michael Axe reports on the implications of the English Court of Appeal's decision that confidential communications between clients and their accountants are not protected from disclosure by Legal Professional Privilege.
Legal Profession Privilege (LPP) is a form of confidentiality covering communications between clients and their lawyers, which provides clients with an absolute right to refuse to disclose such communications in legal proceedings. LPP can arise where the communications relate specifically to pending or contemplated litigation (Litigation Privilege), or more generally where the communications relate to the seeking or giving of legal advice (Legal Advice Privilege). However, Legal Advice Privilege has historically only applied to legal advice provided by lawyers, and not to legal advice provided by any other parties.
In October 2010 the Court of Appeal rejected Prudential's argument that its accountants' legal advice was covered by LPP, and confirmed that LPP only applied to qualified lawyers (subject to some statutory exceptions) and did not apply to legal advice provided by accountants or other non-lawyers.
One of the key factors behind the Court of Appeal's decision was the fact that LPP is an 'absolute rule' meaning that the Courts have no real discretion in relation to its application. Because of its absolute nature, the Court of Appeal believed that LPP needed to be 'clear and certain in its application' (which it was in the context of legal advice provided by qualified lawyers).
Following the Court of Appeal's decision in this, any party that obtains legal advice on its tax liabilities from an accountant rather than a lawyer will have significantly less protection from disclosure should its tax status ever be called into question.
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