Accountants and other professional firms may have to warn clients that any legal advice they give is not covered by Legal Advice Privilege (LAP) after The Supreme Court refused to extend LAP to the profession.

If firms do not explain that any legal advice they give differs to that of lawyers, they may leave themselves open to claims of breach of duty if their advice on issues such as taxation or company law is subsequently demanded by statutory organisations.

The decision goes back to a dispute in 2007 when HMRC demanded that The Prudential hand over documents relating to a commercially-marketed tax avoidance scheme.  The Prudential refused, arguing that HMRC was requesting materials covered by LAP as it comprised communications between client and accountant for the purposes of obtaining skilled professional advice on tax law.  HMRC disagreed on the grounds that The Prudential was trying to extend LAP to create a new right to protect material from disclosure.

A Judicial Review in the High Court in 2007 reluctantly backed HMRC’s position.  The judge accepted that accountants, rather than solicitors, now advise their clients on many issues of tax and company law.  He noted, however, that unlike other professions lawyers have obligations to Courts, which provides safeguards.  At appeal the Court backed the original decision, arguing that it was the role of Parliament, not the Courts to extend LAP to new professions.  A final appeal to The Supreme Court also failed in early 2013, with Lord Neuberger expressing concern that an extension of LAP to other professions could create significant uncertainties.

The Supreme Court’s judgement appears here and a short video outlining the judgement appears on the Supreme Court’s You Tube channel.  A case summary has been published by lawyers Beale & Co.

This decision affects all professionals giving advice on the law to their clients,” said James Burgoyne, Director, Brunel professional Risks. “Unlike lawyers, who can refuse to hand over materials to the authorities on the grounds of legal privilege, all other professionals would have to comply with legitimate requests.  All professions giving some level of legal advice should make this distinction absolutely clear to their clients, and inevitably this may have commercial implications for the use of non-solicitor firms in such situations.  Regulators will expect such disclosure to be explicit as it forms part of the firm’s fiduciary duty. Professional indemnity insurers will therefore also expect such disclosure as a matter of course, and take a dim view of any alternative position resulting in a claim for negligence or breach of duty.”