Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Supreme Court decides that logic should yield to tradition!

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I have only commented on one case below, which I am aware has already been doing the rounds. Sorry guys – other matters (including some new work – woo hoo!) have led to my getting behind lately.

The question for the Supreme Court was: should legal advice privilege extend to legal advice given by accountants and perhaps even other professionals?

The Press Summary can be found at: http://www.bailii.org/uk/cases/UKSC/2013/1.(image1).pdf and the full judgment at: http://www.bailii.org/uk/cases/UKSC/2013/1.html.

R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1

Summary: PwC advised Prudential on a tax avoidance scheme. Following notices from the inspector of taxes for disclosure of documents between PwC and Prudential, Prudential applied for judicial review challenging the validity of the disclosure notices on the ground that the documents were excluded from disclosure by virtue of legal advice privilege (“LAP”). The court rejected the application on the ground that, “although the disputed documents would have attracted LAP… if the advice in question had been sought from, and provided by, a member of the legal profession, no such privilege extended to advice, even if identical in nature, provided by a professional person who was not a qualified lawyer” (paragraph 15). The Supreme Court, by a majority of five to two, dismissed Prudential’s appeal against this decision.

The Detail: At the outset, I should declare that I find my personal views more aligned with the opinions of the two dissenting Lords. What is the principle here? If applying the principle results in woolly boundaries, does that mean the principle should be pushed aside in favour of being able to tick a simple box? I have already seen one solicitor use this decision to warn of the dangers of seeking advice from anyone but a solicitor – forget who has the expertise to advise on the particular issue! In my view, this decision supports an unsavoury sloped playing field that favours one group of advisers simply because of their badge. Isn’t it time we grew up?

Lord Neuberger, who agreed with the previous court decisions, stated: “There is no doubt that the argument for allowing this appeal is a strong one, at least in terms of principle… LAP is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person. And LAP is conferred for the benefit of the client, and may only be waived by the client; it does not serve to protect the legal profession. In light of this, it is hard to see why, as a matter of pure logic, that privilege should be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field” (paragraph 40). He then went on to admit that the principled arguments put forward to him for restricting LAP to professional lawyers appeared weak, so why did they win out?

“While I accept that it would accord with its underlying logic to extend LAP as Prudential contend, ‘[t]he life of the [common] law has not been logic’” (paragraph 48), Lord Neuberger stated, but the life of the common law has been experience. He acknowledged that the common law in this case seems outmoded; he accepts that “we are now in a world where a great deal of legal advice is tendered by professional people other than members of the legal profession” (paragraph 44). However, he believes that any question of extending LAP to non-lawyers is down to Parliament, particularly as Parliament has had several opportunities in the past to so extend LAP but has declined to do so. He also stated that “the suggestion that LAP should apply in any case where legal advice is given by a person who is a member of a ‘profession [which] ordinarily includes the giving of legal advice’ suggests to me that this is an inappropriate formulation for us to adopt, as it would carry with it an unacceptable risk of uncertainty and loss of clarity in a sensitive area of law” (paragraph 55).

As I’ve said, personally I found the dissenting Lords’ opinions more persuasive. It seems nonsensical to me that a client may rely on LAP attaching to advice given by a solicitor, but if that same advice were given by another professional – be it a tax adviser or… insolvency practitioner? – no such legal advice privilege would be afforded.

Aside from arguments such as the fact that LAP has already been extended in common law to advice given by foreign lawyers, which is not provided for by statute such as the Taxes Management Act, in my view some of Lord Sumption’s most powerful comments are:

“A mere increase in the number of people who can take advantage of an existing rule of law cannot be a good reason for failing to apply general principles coherently. Nor can it justify an arbitrary distinction between different professions performing exactly the same function” (paragraph 129).

“Legal professional privilege is a creation of the common law, whose ordinary incidents are wholly defined by the common law. In principle, therefore, it is for the courts of common law to define the extent of the privilege. The characterisation of privilege as a fundamental human right at common law makes it particularly important that the courts should be able to perform this function. Fundamental rights should not be left to depend on capricious distinctions unrelated to the legal policy which makes them fundamental” (paragraph 132).

On the question of whether the matter should be left to Parliament: “The problem at the moment is that Parliament is legislating against the background of assumptions about the common law which are contrary to principle, discriminatory and out of date. Only the courts can be expected to rectify that state of affairs” (paragraph 133) and: “In a case like this, where the suggested development conflicts with some of the assumptions of Parliament but not with its intentions, the courts should be extremely wary before acceding to invitations to leave those assumptions uncorrected when their practical application has become anomalous or incoherent in the light of modern developments” (paragraph 135).

However, we are where we are… until Parliament decides to look at it again.

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