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Legal advice privilege for tax advice given by non-lawyers


One of the striking changes in professional advice over the last two or more decades is the gradual erosion of the monopoly which members of the legal profession once had in giving legal advice. This, with the increasing importance of specialisation, has seen businessmen turn to members of other professions who are experts in particular fields that call for legal advice: for example, a chartered accountant advising a company about tax planning. In Indian law, section 126 of the Evidence Act recognises that legal advice given by a “barrister, attorney, pleader or vakil” is protected and it has been generally assumed (more below) that this privilege is not available to the same advice given by other professionals. Section 126, like many other Indian statutory provisions, is based on the common law in England.

In 2004, PricewaterhouseCoopers [“PwC”] developed a tax avoidance scheme in England and disclosed this to the Revenue (as it was required to do under the Finance Act, 2004). It advised one of its clients, Prudential plc, that it would benefit from using this scheme. HMRC ordered Prudential and PwC to disclose certain documents in connection with the scheme and the question was whether this could be resisted on the ground that the documents were protected by legal advice privilege [“LAP”]. On 23 January, 2013, the UK Supreme Court has declined an invitation (Lords Sumption and Clarke dissenting) to hold that the rationale for LAP makes it impossible to confine it to members of the legal profession. The lead judgment, given by Lord Neuberger (with whom Lords Hope, Mance and Reed agreed) recognises that there is a powerful case to be made in favour of extending LAP to members of other professions and indeed, that not doing so is difficult to defend in principle, but ultimately holds that this is a matter of policy that requires legislative intervention. The judgments of Lords Neuberger and Sumption repay careful study and this post does no more than summarise their reasoning, before describing the position of law in India. The issue is of considerable importance to companies, since it is not by any means uncommon, especially in areas like tax advice, to turn to eminent experts who are not members of the legal profession.

It is convenient to begin with the dissenting view. Lord Sumption makes a characteristically powerful case for jettisoning the widely held view that LAP is confined to members of the legal profession. In summary, he gives three reasons: (1) the rationale for LAP is not the status of the adviser, but his function. The classic judgments on the subject (notably that of Lord Brougham LC in Greenough v Gaskell) demonstrate that the privilege is recognised because a person should be able to obtain legal advice with absolute confidence that his disclosures to his adviser remain private. That the privilege has traditionally only protected advice given by a lawyer is a result of history, not concept: legal advice was rarely given by professionals who were not members of the legal profession; (2) the supposed justification for the contrary view—that lawyers are subject to stricter professional obligations and are more closely regulated by the courts—is unpersuasive, because the source of LAP is neither professional rules nor court supervision but candour in communication and (3)LAP has already been extended to salaried lawyers and foreign lawyers, which can be justified only on a functional approach to LAP. The obvious question is: does this mean that legal advice received from any person whatsoever is privileged? The answer is that it does not. Lord Sumption demonstrates that LAP is confined to advice received from a professional “whose profession ordinarily includes the giving of legal advice”: in other words, was the legal advice incidental to something else (for example, planning advice given by a builder) or was the legal advice itself the subject of the professional relationship? Thus, tax advice from a chartered accountant is privileged but legal advice received from a surveyor about planning rules may not be.

The majority of the Court differed less for reasons of principle than for the fundamental change Lord Sumption’s proposal would introduce into the law of privilege. Lord Neuberger held that the change involves a policy decision that is best left to Parliament, particularly because Parliament has already enacted legislation on the assumption that LAP is confined to lawyers. To Lord Sumption, Parliament’s assumptions about the common law are irrelevant unless the legislation is unworkable in the absence of the assumptions: which arguably it was not. Lord Neuberger also pointed out that the proposed qualification “profession which ordinarily includes the giving of legal advice” replaces a hitherto clear (if not entirely logical) rule with considerable uncertainty, because a court would have to establish what constitutes a profession, and whether to ascertain its ordinary activities at the level of the profession or the particular member of the profession. It is possible that these criticisms are somewhat overstated, especially if one accepts Lord Sumption’s answer that the difference lies in the purpose for which legal advice is given.

The position in India is not different. The courts have generally held that section 126 of the Evidence Act, 1872 and the provisions that follow are limited to members of the legal profession. In Vijay Metal Works AIR 1982 Bom 6, the Bombay High Court held that salaried employees are also covered, although they cannot be described as solicitors, barristers, vakils etc. In UK Mahapatra (2008) 2 OLR 970, the Orissa High Court held that client documents deposited with a chartered accountant are not privileged for the slightly odd reason that there is no “communication” by the adviser. However, the Law Commission recognised the problem in the 69th Report and recommended the insertion of a clause extending the provision to “legal practitioners” which could potentially include other advisers. Unfortunately, the Law Commission proposed to define this expression as those who are entitled to appear before the courts (thus, with respect, confusing the “candour” rationale for legal advice privilege with the forensic process of litigation) and the proposal was in any event never implemented. Even if the Indian courts are inclined to accept Lord Sumption’s analysis of the rationale for LAP, it is likely that any change would require legislation, especially since the Indian rule, unlike the English rule, is codified.