While frustrating for accountants, last year’s ruling that legal professional privilege (LPP) only applies to lawyers emphasises the need for both groups to work closely on behalf of their clients.
The ruling in the 2013 case of Prudential PLC and Prudential (Gibraltar) Ltd V Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) that LPP is only applicable to qualified lawyers should be taken as an opportunity to bring legal and financial experts closer together rather than keep them apart.
LPP can be a vital tool in representing a client; giving as it does complete confidentiality to all communications between a lawyer and their client. These communications cannot be disclosed to any third party – not even a court or other authority – without the client’s permission. It makes the client-lawyer relationship sacrosanct. And it was just this special relationship that Prudential was seeking when it asked the Supreme Court to declare that LPP extended to advice given to it by its accountants regarding a tax avoidance scheme.
Unfortunately for Prudential and accountants everywhere, the Supreme Court agreed with the Court of Appeal and stated that only an Act of Parliament could extend LPP to communications between a client and other professionals. A simple explanation of the Court’s ruling is that it thought extending LPP would cause uncertainty over when it could be used. The Court also thought that it was a matter for Parliament alone to rule on.
While accountants have, rightly or wrongly, been excluded from LPP, the case can act as a powerful reminder of the value of LPP to anyone: companies, individuals and organisations that become the subject of an investigation, their lawyers and other interested parties. This is because LPP can protect a person’s or organisation’s interests far beyond any conversations they conduct with their legal representative.
The issue of privilege – albeit a different type of privilege to LPP – can be relevant to all parties in matters such as dawn raids, seizure of documents and other types of evidence and the admissibility in court of such items. As accountants are often closely involved with the compiling, recording and analysing of much of a company’s data they are often in the best possible position to liaise closely with their clients’ legal representatives.
Written reports, computer records, bank account details, email transcripts, contracts, memos or anything else that gives the investigators information about how that person or company was functioning are all items where an accountant’s expertise and inside knowledge can assist in the creation of a legal defence. When companies come under investigation or are the subject of a raid by the authorities, the right legal advice can help a company prevent the raiders taking away what they are not entitled to. Similarly, if the accountants are in a position to advise the legal representatives at the point when a raid or investigation appears likely then their client has the best opportunity of mounting a strong legal defence.
The issue of LPP may be a thorny one at present for accountants. But privilege can be used to stop the raiders riding roughshod over a person’s rights. For lawyers and accountants, its use – even in what accountants would argue is a disappointingly limited form – is still a vital bulwark in protecting their clients.
But LPP can only work best if a client’s solicitor and accountant work in harness to ensure they provide the strongest possible legal representation.
As a firm that both works closely with and represents accountants in a range of cases, there is an argument for saying that the whole question of whether LPP should be extended is worthy of a fresh look by the powers that be.
As lawyers, we would argue that privilege should only exist for its primary purpose – to protect the client. Accountants now function in the clear knowledge that the advice they give to clients can be obtained by third parties – a problem not faced by lawyers. Some, with understandable frustration, argue that this will drive would-be clients seeking confidential advice from the offices of accountancy firms and into legal practices. This is something that will have to be monitored but we believe in working to aid accountants rather than replace them.
As the powers of the investigating authorities increase and legislation extends the scope and size of potential punishments for business crime, there is a genuine need for accountants and solicitors to work closely together for clients. After all, what is the point of solicitor-client privilege in a financial case if any such discussions are not conducted with both parties having had a full briefing from the accountants?
A report on the powers of the Revenue Commissioners 31 years ago recommended that LPP be extended to tax advice given by accountants and tax experts who were members of a number of professional bodies. This, however, was not acted on. In 2001, the government ruled out such a change in the law despite claims from the Director General of Fair Trading that the existing situation distorted competition in favour of the legal profession.
Such episodes indicate that, over the years, the issue of LPP and professionals other than solicitors has not always been straightforward. If anything, it has been a thorn in the side of some professions. Legislation such as the 2002 Proceeds of Crime Act and the Money Laundering Regulations of 2003 place many responsibilities on accountants. And these responsibilities are not always straightforward; which can prompt confusion and difficulty for those not fully-versed in such law. Accountants feeling aggrieved at being denied LPP may view such legislation is a further attack on them by the legal sector. We would argue that this should serve to strengthen accountants’ wish to work closely with the legal profession rather than be put off by it.