The case was called R (on the application of Prudential Plc and another) v Special Commissioner of Income Tax and another  UKSC 1.
Don’t worry about the names, the point is that the Supreme Court confirmed that legal advice provided by accountants in relation to a tax avoidance scheme was not covered by legal advice privilege (i.e. privileged information remains confidential).
Why does this matter?
Well, the Supreme Court was also asked to consider whether legal advice privilege should be extended to advice given by professional people other than lawyers, such as accountants.
In a blow to the accountancy profession, the answer was ‘no’.
This is important for potential fraud or financial mismanagement because the following scenario could crop up, and we often see it:
Because the following scenario could crop up (and we often see it):
1. A financial irregularity comes to light;
2. The FD or general counsel picks up the phone to their accountants/auditors, who start to look into the finances;
3. The first few days of the investigation are critical but the situation is very fluid as the accountants, their forensic IT colleagues and the business try to figure out what happened;
4. Correspondence passes back and forth between the business and the accountants, sometimes revealing embarrassing problems with internal systems, or, failures by senior management to spot what was going on;
5. Lawyers are eventually called in, proceedings are issued against the alleged fraudster and ultimately the matter ends up in court.
In this scenario, all the initial correspondence between the accountants and the business will most likely have to be disclosed in any court proceedings. This can be deeply embarrassing and end up giving ammunition to the alleged fraudsters or other opponents, such as claims about who knew what and when within the organisation.
Lawyers however offer the protection of legal privilege, which applies to all communications passing between a client and its lawyers. If the first phone call is to the lawyer, who then instructs accountants/IT professionals, then all communications between those parties and the business are likely to be covered by privilege and there should be no embarrassing disclosures before the courts.
Smart FDs, general counsel and accountants know this. They get the chain of instructions right and work as a team to protect the ultimate client. In reality, lawyers often rely heavily on the accountants and their forensic IT colleagues in the early stages of a suspected fraud and will be happy for them to take the lead with the client if their relationship is stronger.
It is simply a case of working sensibly together as a team, putting egos to one side and ensuring that legal privilege applies. The recent decision of the Supreme Court emphasises that this continues to be the right approach for all businesses who suspect fraud.
In fact, this is the best approach whenever there is an issue which might ultimately require legal advice or end up in court.
Stephen Ross is head of the civil fraud group at international law firm Withers LLP.