Future: Advisor-Client Privilege Extends to Tax Advice?

From the late eighteenth century to the present day, solicitor-client privilege has been a topic fraught with varying levels of uncertainty, justification, and support.

Recently, a majority of the Supreme Court of the United Kingdom (UKSC) decided that similar privilege should not be extended to tax law advice given by a specialized tax accountant.

The Court felt that extending the common law to legal advice given by certain non-lawyer professionals, potentially encompassing tax accountants, engineers, and valuation surveyors, among others, would lead to considerable uncertainty as to when and how this privilege could be properly used, and when privileged communication would have to be divulged.

This topic frequently arises in Canada and other Commonwealth jurisdictions and the decision of the UKSC will undoubtedly influence our jurisprudence on the issue moving forward. The purpose of this article is to alert Canadians in the income tax sector that the highest court in the United Kingdom has partially endorsed the idea of expanding solicitor-client privilege to a contextual professional privilege. Although only two judges were of this opinion, their dicta is sure to be of high persuasive value in our courts, and those two judges also called on their Parliament to effect the changes necessary. If this were done, professional privileges could instantly be extended and circumscribed to fit other professional advice.

The judges trawled through the history books and common law jurisprudence to justify the legal profession’s sacred privilege. A recent pronouncement from Baroness Hale when she was sitting in the UK Court of Appeal was cited with approval. Hale stated in Three Rivers District Council v Governor and Company of the Bank of England (No 6) 1 [2005] 1 AC 610 that:

“there is a clear policy justification for singling out communications between lawyers and their clients from other professional communications. The privilege belongs to the client, but it attaches both to what the client tells his lawyer and to what the lawyer advises his client to do. It is in the interests of the whole community that lawyers give their clients sound advice, accurate as to the law and sensible as to their conduct."

The Supreme Court of Canada endorsed the same notion (it is the client’s privilege that is protected by the rule) in R v McClure [2001] SCC 14. Many observers are therefore skeptical that absolute privilege should apply to simple civil matters between a solicitor and his or her client. Courts throughout the Commonwealth have consistently held that clients who do wish to consult a lawyer on the basis of absolute confidence should be entitled to do so, notwithstanding that absolute confidence may be less important to others; legal privilege is often described as essential to the effective administration of justice. Although many judges concede that the privilege may be perceived as obstructing the forensic process by making relevant evidence unavailable in some circumstances, the public interest is in the rule of law, with the citizen being able to discern his or her legal position without inhibition as the paramount goal.

Interestingly, Lord Sumption dissented in Prudential. At paragraph 115 he was of the view that, since the privilege belongs to the client, it is a substantive right that depends on the character of the advice being given, and the circumstances in which it is provided. In fact, this view was based on the genesis of the privileged information exception. He therefore concluded that privilege should not depend on the adviser’s status, provided that the advice is given in a professional context. Lord Sumption was therefore prepared to extend privilege to advice from a chartered tax accountant because “they are performing the same function, to which the same legal incidents attach.”

He reasoned that, considering:

            (i) legal advice privilege is the client's privilege;

            (ii) it depends on the public interest in promoting access to legal advice on the basis of absolute confidence; and

            (iii) it is not dependent on the status of the adviser;

it follows that “there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accountants on the other.” He was not alone either, Lord Clarke also dissented and agreed with Lord Sumption’s reasoning.

The dissenting judgments of this decision are very interesting and have the potential to change this area of the law substantially in the future. With Supreme Court judges now endorsing a broader scope of professional privilege, the UK Parliament must be considering the issue as well. In fact, Lord Clarke expressly stated that he hoped Parliament would consider the issue “as soon as reasonably practicable.” Such a fundamental legal feature would likely change throughout the Commonwealth if started in the UK.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.