Recent UK decision exposes critical risks in sharing confidential data with non-attorneys
Recently,
the Supreme Court of UK (in Prudential Plc1) re-affirmed the
time-tested norm that the benefit of legal professional privilege is
only available in relation to communication with lawyers and not to
other advisors such as accountants. Unlike other professionals, lawyers
are not required to disclose any communication received from clients as
part of the professional engagement. The benefit of privilege is
extremely important for clients seeking legal advice or anticipating
litigation.
Having its roots in the 16th century2, the doctrine
of client confidentiality privilege has become an integral part of UK
common law and is accepted around the world. It is generally recognized
that privilege would not cover non-attorneys such as accountants,
business consultants and other advisors. For instance, in Australia ,
privilege is available with respect to confidential communication with
lawyers made for the `dominant' purpose of obtaining legal advice.3
Likewise, in Singapore , privilege does not apply to advice from
non-lawyers. The US only recognizes client-attorney privilege, and as
noted by the US Supreme Court in a 1984 case: "no confidential
accountant-client privilege exists under federal law."4 Civil law
countries like France and Japan also recognize privilege with respect to
communication with lawyers. The EU Court of Human Rights read
client-attorney privilege as a part of the right to privacy under
Article 8 of the European Charter of Fundamental Rights5. In India , the
benefit of privilege is codified within the Indian Evidence Act, 1872
which restricts its application to communication with lawyers or
attorneys.
Whether a client seeks complex tax planning advice or
wishes to litigate a contractual claim, she has a right to freely
discuss the matter with her attorney without running the risk of breach
of confidentiality. There are several policy reasons why the benefit of
legal privilege does not extend beyond the client-attorney relationship.
For instance, certain professionals such as accountants have a legal
obligation to make disclosures either in the interest of shareholders or
the system as a whole. Recently in India , pursuant to the Shome
Committee Report6, the Indian Finance Minister has accepted a proposal
to make chartered accountants responsible for disclosing (as part of the
tax audit) any arrangement of a client which is likely to be treated as
a tax avoidance device.
The availability of legal privilege has
to be kept in mind when a client seeks legal advice and decides to
divulge confidential information.
Why is legal privilege so important?
Legal
privilege is essentially a right that exists for the sole benefit of
the client. It ensures full and frank communication between clients and
lawyers without any fear of disclosure or incrimination. The right to
privilege is critical to the proper administration of law and justice.
The
importance of this rule was eloquently explained by the Canadian
Supreme Court in a 2001 case (McClure7): "This privilege is fundamental
to the justice system… The law is a complex web of interests,
relationships and rules. The integrity of the administration of justice
depends upon the unique role of the solicitor who provides legal advice
to clients within this complex system. At the heart of this privilege
lies the concept that people must be able to speak candidly with their
lawyers and so enable their interests to be fully represented."
UK Supreme Court: Client-accountant communication not privileged
The
case before the UK Supreme Court revolved around disclosure of certain
documents in relation to a tax avoidance scheme that was marketed by a
prominent accounting firm. The documents were exchanged as part of the
advice rendered by the accounting firm to the taxpayer.
The
primary issue before the UK Supreme Court was whether legal privilege
extends or should be extended to legal advice given by persons other
than legal professionals, specifically chartered accountants rendering
expert tax advice.
By a majority of five to two, the UK Supreme
Court unequivocally held that the benefit of legal privilege is not
available with respect to communication with accountants. The Supreme
Court noted that "it is universally believed that legal advice privilege
only applies to communications in connection with advice given by
members of the legal profession."
While the Court concluded that
any extension of privilege will require specific legislative amendment,
it also noted that the UK Parliament did not accept a 2001 proposal to
extend privilege to advice provided by accountants.
The UK
Supreme Court felt that extending legal privilege to advice given by
non-lawyers would create uncertainty with respect to its application and
may potentially dilute the scope of benefit available to clients. The
Court noted that it would be difficult to identify the various
categories of advisors whose services involve rendering legal advice.
Further, it will be difficult to separate legal and non-legal advice and
selectively apply the principle to specific documents. Therefore, in
the interest of certainty, the UK Supreme Court did not consider it
necessary to deviate from the well-established principle that legal
privilege is only applicable to advice rendered by lawyers.
India follows the conventional rule of client-attorney privilege
The
Indian law on privileged professional communication, codified under the
Indian Evidence Act of 1872, has developed on the same lines as UK
common law.
The benefit of privileged communication under
sections 126 and 129 of the Evidence Act is available only in relation
to communications and correspondences between client and attorney or
advocate. The attorney is not permitted, at any point of time, to
disclose details of any communication or document pertaining to the
client without the client's express consent. The client can also not be
compelled to disclose to the Court any confidential communication with
his attorney unless he offers himself as a witness.
Apart from
the policy justifications discussed above, the restriction of privilege
to advice by lawyers in India is understandable considering that the
Advocates Act of 1961 (section 29) states very clearly that advocates
are the "only recognized class of persons entitled to practice law" in
India. The Madras8 and Bombay9 High Courts have recently clarified that
the practice of law includes advice on both litigious and non-litigious
matters.
Non-advocates are not generally authorized to practice
law in India . While advocates are governed by a comprehensive code of
ethics laid down by the Bar Council of India, there are no governance
standards for legal advice provided by other advisors and professionals.
Lawyers are also bound by strict norms of conflict so as to ensure that
client interests are fully protected, while the lawyer retains her
professional independence. The legal profession differs from other
professions on account of the formal legal training on procedural and
substantive laws, legal interpretational skills, fiduciary nature of an
advocate's role, accountability towards clients, and wider professional
responsibility as officer of the Court.
It is true that the
decision to extend the benefit of privilege to non-lawyers is a policy
one. For more than four centuries, governments and courts around the
world have considered it appropriate to limit its application to
client-attorney communication. Any extension of this doctrine will have
to be carefully examined after considering the overall ramifications. At
the same time, deliberations on these issues should not come at the
cost of certainty for clients.
In a country like India where
litigation is the order of the day (especially in matters of taxation
and property), the issue of client-attorney confidentiality privilege
has assumed unprecedented importance. Clients have a right to receive
sound legal advice and the privilege of sharing confidential information
with attorneys without fear of disclosure.
______________________
1 [2013] UKSC 1
2 The principle is said to have been first applied in 1577 by a UK Court in Berd v Lovelace, [1577] Cary 62.
3 Pratt Holdings Pty Ltd v Commissioner of Taxation, [2004] FCAFC 122.
4 United States v. Arthur Young & Co. - 465 U.S. 805 (1984). Quoting Couch v. United States, 409 U. S. 322 (1973)
5 Campbell v United Kingdom, [1992] 15 EHRR 137.
6 Please refer to our earlier hotline
http://www.nishithdesai.com/New_Hotline/Tax/Tax%20Hotline_Jan1513.htm7 [2001] 1 S.C.R. 445
8 A.K.Balaji vs. Government of India and Ors., (2012) 35 KLR 290 (Mad.)
9 Lawyers' Collective v. Bar Council of India & Ors, 2010 (112) Bombay Law Reporter 32.