Wiseman v HMRC – a reminder of the limitations of Legal Advice Privilege in regulatory proceedings

Accountancy companies experiencing regulatory investigation require to be very distinct about what communications and conferences are covered by privilege.  This most up-to-date circumstance illustrates wherever the strains lie.

In May well, the United kingdom To start with-tier Tribunal (Tax) (“FTT”) dominated on the software of Authorized Qualified Privilege (“LPP”) next a disclosure ask for by HMRC. The decision in Wiseman v HMRC [2022] UKFT 00075 (TC) provides some insight into how disclosure requests by the FRC need to deal with claims to privilege by the accountancy firms under investigation.

The facts

In November 2019, HMRC served an information and facts observe requesting numerous documents “for the objective of checking the taxpayer’s tax position” in tax year 2002/03.

Mr Wiseman appealed the recognize and utilized to the FTT for a declaration that the paperwork – which have been communications amongst Mr Wiseman and his solicitors, Turcan Connell – ended up privileged and really should not be disclosed.

The legal qualifications

Mr Wiseman relied on Paragraph 23 of Agenda 36 of the Finance Act 2008, which states that an info see from HMRC “does not call for a man or woman to give privileged information and facts, or to generate any section of a document that is privileged”.  There is a instantly analogous provision below SATCAR[1], entitling auditors less than investigation by the FRC to withhold privileged files.  

While regulators must regard privilege as a doctrine, whether or not or not paperwork in fact draw in privilege is an place of consistent discussion involving regulators and these less than investigation or review.

LPP includes two distinctive strains: Litigation Privilege and Authorized Information Privilege (“LAP”).  The previous was not applicable to these proceedings (as the paperwork had been not established at a time when “litigation” – or other adversarial proceedings – existed or was in affordable contemplation).

LAP has been summarised in Three Rivers[2] as making use of to:

1. Confidential communications
2. Passing involving a customer and a client’s attorney
3. Which have appear into existence for the purpose (see under) of offering or getting authorized suggestions.

“Legal advice” incorporates not just info as to what the law is, but also “advice about what ought to prudently and sensibly be completed in the pertinent lawful context”.[3]

The modern Courtroom of Attractiveness judgment in CAA v R (oao Jet2.com Restricted)[4] established that to catch the attention of privilege, a conversation need to have the dominant intent of giving or obtaining authorized assistance.

The FTT’s conclusion

The FTT viewed as each and every doc independently.

It concluded that 7 letters and two telephone attendance notes amongst Turcan Connell and Mr Wiseman had been made for the dominant function of supplying lawful advice, and had been privileged from disclosure.

Notes of two even more meetings among the legal professionals and Mr Wiseman essential extra nuanced thing to consider.  The FTT did not agree with Mr Wiseman that “dominance” experienced been founded in both circumstances.  It held that the most important target of a person conference was for Tenon (a third get together advisor) to advise Mr Wiseman of non-legal matters.  Accordingly, the FTT held the notes of this meeting were not privileged, and awarded their disclosure to HMRC.

Remark

The ability to seek authorized tips under the defense of LPP is a recognised human appropriate and should really be highly regarded by regulators.  At occasions a regulator might push for fuller disclosure –  as HMRC did in this circumstance – having said that, preserving a reputable lawful appropriate really should not be the subject of regulatory criticism.

LAP is narrower than Litigation Privilege.  There are lessons to be acquired from the FTT’s interpretation of the “dominant purpose” take a look at so considerably as it connected to notes of meetings at which lawyers have been present.  This conclusion is a practical reminder that the mere attendance of a law firm in a conference or connect with will not assure the application of LAP.  Lawyers really should meticulously think about regardless of whether their involvement can be thoroughly characterised as for the purpose of their giving authorized suggestions – notably in meetings alongside gurus, witnesses and other third functions where by lawyers’ attendance may not be evidently for the goal of obtaining their guidance.  Presented the FTT’s conclusion that these notes were not privileged, we believe it possible that though solicitors were current at the 31 July 2002 assembly, their involvement was limited (and it is doable they may well in point have attended mainly or solely to make sure the notice captivated privilege).

In distinction, Litigation Privilege handles all documents created in contemplation of disciplinary proceedings, which shall for illustration incorporate data of interviews of staff delivering proof related to this sort of proceedings. Beneath the Audit Enforcement Technique (“AEP”), we contemplate it is moderately apparent that litigation is in contemplation, and Litigation Privilege could implement as shortly as the FRC provides a Notice of Investigation under Rule 11 (this kind of See is only given when a Scenario Examiner has concluded that there is information and facts about a Statutory Auditor or Statutory Audit Firm which raises a issue as to regardless of whether they have breached a Pertinent Requirement.)

We sound a be aware of caution for these firms subject matter to preliminary enquiries by the FRC just before a selection to examine them has been taken.  For those corporations caught up in an investigation wherever it is not apparent that they will be the subject of disciplinary proceedings, careful consideration may well will need be presented to no matter whether or when Litigation Privilege can be claimed.