Kevin Reed, Accountancy Age, Wednesday 20 October 2010 at 09:47:00

After a second failure in the courts, what options are available for the taxprofession to gain legal professional privilege


Judges were given the onerous task of spending the summer working througharguments for and against extending legal professional privilege (LLP) beyondjust solicitors and barristers to tax advisers. They said no.

The judges cited previous case law, plus several earlier examples ofgovernment reluctance to extend the right in the direction of tax specialists,as the reasons for their decision to keep things as they are. Tax advisers werefighting what appeared to be an uphill battle.

So where does the profession go from here? What avenues are open to continuethe argument ? is there any wriggle room?

The first option would simply be to return to the judiciary, taking theargument up to the Supreme Court. That is not a straightforward option.

The Court of Appeal refused permission for an appeal. However, that does notnecessarily stop the appellants from requesting the Supreme Court hear the case.

But what kind of appetite does Prudential, who brought the original case, haveto take it on to the next level?

Prudential has battled to have tax advice it received from PwC protected fromthe clutches of HM Revenue & Customs, using LPP as a shield. The argumentproved so fundamental that both the ICAEW and the Law Society have squared up toeach other in court, making representations on behalf of the two partiesoriginally duking it out.

With the Pru yet to make its mind up, the insurer?s appetite is unlikely tolast as long as the two professions? representatives. It has just a month to goto the Supreme Court.

ICAEW tax faculty technical manager Ian Young has previously indicated theinstitute?s desire to see it out to the bitter end, through either the courts orlobbying to government.

Lobbying is the probable option having lost out in two appearances at theRoyal Courts of Justice already, but such a move will require a longer term planand resourcing.

As such, both Young and chief executive Michael Izza are talking about theneed to ?take stock?.

Early indications are that the ICAEW will continue forth. Interest from itsmembers has been strong: the topic has proved a popular draw on Izza?s blog, forexample. And Young has indicated that a key plank of the judges? decisionagainst extending LPP is surmountable, if not by the courts, then in newlegislation.

The complexity created through allowing tax advisers and their clients to useLPP was cited in the decision.

Lord Justice Lloyd said: ?It seems to me that it is particularly importantthat the rule should be certain, so that its application can be readilyunderstood. As presently understood, it seems to me that the rule does stand upto that test in practical terms.

?If it were to be regarded as extending, without statutory help ordefinition, to the seeking and giving of advice from and by professionals otherthan lawyers, subject to some criterion as to the status and qualification ofthe adviser, then it seems to me that the scope of the rule would be lamentablyuncertain, and that this in itself might fail to satisfy the human rights testof being ?in accordance with law?.?

But Young argued that extending LPP would only apply to advice fromprofessionally-qualified tax accountants ? and LPP would only be relevant whenHMRC is digging around. On that basis alone the application of LPP would benarrow. ?Let's be grown up about when it does or doesn?t apply,? said Young.

Failing to change the situation could have other consequences foraccountants.

The legal and tax adviser communities have flagged up other situations thatcould arise under the current state of play, such as its influence on practicestructures.

New rules from October 2011 will allow lawyers and accountants to work in asingle firm?s partnership. Accounting practices could therefore be encouraged tohire tax lawyers to provide LPP to clients, according to Beachcroft insurancelitigation partner Dan Preddy.

The next few weeks will provide the answers as to the strength of the ICAEW?s convictions, and its strategy for turning the tide in its members?favour.

Further reading:

LPPdecision was, regrettably, obvious

ICAEW:Legal privilege rules "unsustainable"

Updated:Tax advisers lose bid to extend legal privilege