United Kingdom Court of Appeal Rules on Legal Professional Privilege and Accountants

In South Africa, taxpayers may lawfully refuse to supply information to the Commissioner: South African Revenue Service ("SARS"), which is subject to legal professional privilege. The concept of legal professional privilege originated in the English law of evidence and has been in existence for hundreds of years, having first having been adjudicated in the case of Stradling v Morgan (1560)1 Plowd 199, 75 ER 305. Legal professional privilege has played an important part in the law of evidence but has become more than merely a rule of evidence and has more recently been regarded as a basic right to ensure the proper administration of justice.

Left: The judge has ruled on professional privilege.

In principle, legal professional privilege applies where a person seeks legal advice from an attorney or advocate on a professional basis, the so-called "advice privilege" or where advice is sought in anticipation of litigation from an attorney or advocate acting in a professional capacity, the so-called "litigation privilege".

In Heiman, Maasdorp and Barker v Secretary for Inland Revenue and Another [1968] 30 SATC 145, the taxpayer contended that privilege prevented the disclosure of the information required by the Commissioner. That case, which was decided in 1968, held that the Commissioner's powers to seek information did not trump the taxpayer's right to claim privilege. More recently in Jeeva v Receiver of Revenue, Port Elizabeth 1995 (2) SA 433 (SE), SARS sought an order from the High Court forcing the taxpayer to disclose information which would otherwise have been protected by legal professional privilege. In Jeeva the court refused to accede to the SARS request and thus upheld the taxpayer's right to claim privilege on the information requested by SARS.

In S v Safatsa 1988 (1) SA 868 (A), the Supreme Court of Appeal ruled that legal professional privilege is a fundamental right which is necessary for the proper functioning of the legal system in South Africa. Based on the cases and the common law in South Africa, legal professional privilege can be claimed by a taxpayer only where the taxpayer has sought legal advice from an attorney or advocate on a professional basis. Legal professional privilege does not extend to advice supplied by an accountant, even though the accountant may be rendering advice on the tax laws of South Africa. This distinction is questionable when reference is made to the provisions of the Constitution of the Republic of South Africa, Act 108 of 1996, as amended ("the Constitution") and the comments made in S v Safatsa.

The question of whether legal professional privilege should be extended to accountants was considered by Charles J in Prudential Plc and Others v Special Commissioner of Income Tax and Others [2009] EWHC 2494 (ADMIN) where it was decided that it was not possible to extend legal professional privilege to accountants advising clients on tax matters in the United Kingdom.

Prudential being dissatisfied with the decision of Charles J, noted an appeal against his decision and, as a result, the case proceeded to the Court of Appeal. Judgment was delivered in that case on 13 October 2010.

In the lower court, Charles J decided that he was unable to go against the precedent set by the higher courts whereby legal professional privilege applied only to legal advice supplied by barristers and solicitors in a professional capacity. Thus, the case proceeded on appeal and the court allowed for The Institute of Chartered Accountants in England and Wales, the General Council of the Bar and the Law Society to intervene in the matter because of the importance of the issues raised in the dispute between Prudential and Her Majesty's Revenue and Customs ("HMRC").

Lord Justice Lloyd, at paragraph 2, summarised the issues facing the court in Prudential Plc and Another v Special Commissioner of Income Tax and Another [Institute of Chartered Accountants in England and Wales and others intervening] [2010] EWCA Civ 1094 as follows:

"In the present case, the Claimants and Appellants (whom I will call Prudential) seek to establish that the principle extends further than has yet been recognised. They assert (and it is not really in dispute) that, nowadays, on many if not most occasions on which a person seeks advice about fiscal liabilities, which often involves a consideration of, and advice about, the relevant law, that person does so by approaching accountants rather than lawyers. They contend that the rationale which lies behind the LPP rule requires that a client's communications with his advisers should be just as much protected from disclosure if the advice, being legal advice is sought from and given by an accountant as if the advice given is sought from and given by a solicitor or barrister."

In the case of R (Morgan Grenfell and Co.) v Special Commissioner of Income Tax [2002] UKHL 21, Lord Hoffmann stated as follows:

"LPP (legal professional privilege) is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice."

In view of the importance of whether legal professional privilege applies where legal advice is sought from and given by accountants to clients, the court granted permission to the Institute of Chartered Accountants in England and Wales, the Bar Council and the Law Society to intervene in the appeal. The court therefore canvassed the question of legal professional privilege thoroughly and, particularly, whether it should be extended to legal advice, particularly in the tax arena, supplied by accountants to clients.

The dispute between Prudential and HMRC arose from the fact that HMRC requested that Prudential produce certain documents. The United Kingdom fiscal legislation precludes the production of documents protected by legal professional privilege. Certain of the documents in question had been prepared by accountants for Prudential and Prudential sought to extend the application of the legal professional privilege to the documents prepared by its accountants.

HMRC asserted that the notices issued under the United Kingdom fiscal legislation sought the production of documents pertaining to legal advice on tax matters received from counsel, from foreign lawyers and also from a leading firm of accountants. Prudential argued that it was not obliged to disclose any documents relating to any advice obtained on the fiscal legislation, whether that advice was supplied by United Kingdom lawyers, foreign lawyers or accountants.

The court pointed out that legal professional privilege is a Judge-made rule and Prudential's lawyers argued that it was open to the court to declare the law by ruling that legal professional privilege is available in respect of communications obtained for purposes of giving legal advice, whether or not the adviser is a lawyer. The court reviewed the legal position in the United Kingdom and the manner in which legal professional privilege was extended to patent agents and foreign lawyers. Furthermore, the court referred to the Committee on Enforcement Powers of the Revenue Departments, the so-called "Keith Committee", which recommended "that legal professional privilege should be extended to duly appointed tax agents, who have been admitted members of an incorporated society of accountants or of the Institute of Taxation, and should apply only to advice given by a tax agent. This recommendation by the Keith Committee was not implemented." (at paragraph 50 ii of the judgment).

Justice Lloyd referred to the decisions of the European Court of Human Rights, which held that the interference with the privacy of a person's communications with their lawyer violates Article 8 of the European Convention on Human Rights (see Campbell v UK (1992) 15 EHRR 137 and Foxley v UK (2001) 31 EHRR 25).

Lord Pannick, arguing for Prudential, submitted that Article 14 of the European Convention on Human Rights stated that if privilege only exists where advice is sought from and given by a member of the legal profession that constitutes discrimination and should, for that reason, be extended to apply to advice given by an accountant. The court rejected the argument that limiting legal professional privilege to advice procured from a lawyer was discriminatory. At paragraph 69, the court referred to the restriction of legal professional privilege to advice supplied by lawyers in the following terms:

"It seems to me plain that a rule which limits LPP to communications with a member of a relevant legal profession (a) is in accordance with law and (b) can properly be regarded as necessary in a democratic society in one or more relevant interests, in particular for the protection of the rights and freedoms of others."


Prudential argued that legal professional privilege should be extended to accountants and the court analysed what is meant by the term "an accountant" and how that should be interpreted. The court pointed out that there is no restriction on persons wishing to set themselves up in business as an accountant, even though they may not be registered with a professional body.

After reviewing the principles applicable to legal professional privilege, and the definitional problems pertaining to accountants, the court pointed out that it is for Parliament in the United Kingdom and not for the courts to extend the scope of legal professional privilege.

The court referred to the position of legal professional privilege in other countries and, in this regard, stated as follows:

"We were shown some material about the position in Canada, Australia, New Zealand and the United States of America, and in some other jurisdictions. In New Zealand and the USA there is legislation on the point. In Australia legislation is being proposed. In Canada the application of LPP in relation to accountants appears to have been rejected. We were not shown any examples of LPP applying in relation to accountants except as a result of legislation.

... However, it is noteworthy that no example of the application of LPP in relation to any professional adviser other than lawyers has been found except as a result of statutory interventions. That seems to me to be consistent with the conclusion to which I have come, namely that, even if there is a strong case for applying LPP in such a way, it is not a matter which can properly be achieved by the courts; it requires legislation." (at paragraph 80).

As a result, the court ruled that legal professional privilege does not apply in relation to any professional, other than a qualified lawyer, a solicitor or barrister, or an appropriately qualified foreign lawyer. The court concluded that the human rights argument did not assist in satisfying the court that legal professional privilege should be extended to accountants in the United Kingdom when such accountants render to advice to clients on tax law.

Thus, the court declined the request to expand legal professional privilege to accountants and, furthermore, refused permission for Prudential to appeal to the Supreme Court, that is, the court that succeeded the erstwhile House of Lords.

It does not appear that any case has come before a South African court where a taxpayer has refused to supply information to SARS on the basis that the advice obtained was secured from an accountant. Under the provisions of the Constitution, our courts can take account of decisions handed down in foreign courts insofar as they are relevant to the application of the law in South Africa. It is possible, therefore, that a South African court, if called on to deal with the issues faced by the court in Prudential, would reach a similar conclusion.

However, it remains to be seen what weight the court will place on the Bill of Rights contained in the Constitution, which is different to the Human Rights Act of the United Kingdom. It is clear that under existing statutory provisions, tax advice supplied by an accountant to a client is not subject to legal professional privilege under current law.

It remains to be seen if the legislature will intervene in this regard as has happened in other countries. Clients seeking legal advice on tax matters should, therefore, be aware that where advice is being procured from an accountant, such advice is not protected by legal professional privilege and if called on by SARS, such information would, on the face of it, be required to be supplied to SARS, thus placing attorneys and advocates in a preferential position in advising clients on tax matters.

This article first appeared in tax ENSight, October 2010
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