TC02983: Edward C Behague
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 October 2013 |
| Neutral Citation | [2013] UKFTT 596 (TC) |
| Date | 21 October 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 596 (TC)
Judge Barbara Mosedale.
Legal professional privilege ("LPP") - whether engagement letter and report to client subject to LPP - engagement letter largely not subject to privilege - report privileged
The First-tier Tribunal allowed a taxpayer's appeal that a report and accompanying schedules prepared by his solicitors are subject to legal professional privilege (LPP), but ruled that the engagement letter between the taxpayer and his solicitors is not subject to LPP, apart from three parts which set out what the legal advice will cover.
HMRC opened an enquiry into the taxpayer's affairs in November 2007. In April 2012 HMRC issued the taxpayer with an information notice, which the taxpayer appealed against on the grounds that the documents requested were subject to LPP and not reasonably required for the purposes of HMRC's enquiry. The documents in question are an engagement letter between the taxpayer and his solicitors and a report in relation to trust arrangements prepared by the solicitors. This case just concerns the LPP status of the documents with the appeal against the information notice itself being heard on 6 November.
It was accepted by HMRC that all communications between the taxpayer and his solicitor for the purposes of giving or obtaining legal advice are subject to LPP. However, HMRC contended that engagement letters between a solicitor and his client are not privileged if they purely set out the terms on which the solicitor will act. The First-tier Tribunal agreed that in so far as the client engagement letter sets out the terms of the contract it is not subject to LPP, so in general, engagement letters are not subject to LPP. However, the First-tier Tribunal went on to look at what the actual engagement letter said and decided that three parts of the letter are subject to LPP because they set out what advice the solicitor would cover.
HMRC suggested that the report prepared by the solicitors in relation to trust arrangements amounted to financial or wealth management advice and not the giving of legal advice. The First-tier Tribunal rejected this assertion and found that the report did mainly consist of legal advice and is therefore subject to LPP. Finally the First-tier Tribunal looked at the schedules included with the report and even though the schedules themselves would not necessarily be subject to LPP, because their disclosure could identify the subject matter on which the solicitor gave the legal advice in the report all the schedules are subject to LPP.
This case provides a useful reminder of the issue of LPP in very simple circumstances.
As the Supreme Court ruled in January this year in R (on the application of Prudential plc v Special Commissioner of Income TaxTAX[2013] BTC 45 documents containing legal advice from accountants do not qualify for legal professional privilege. It is vital that accountants understand the rules of LPP and take action to ensure relevant documents retain their privilege. This is likely to be especially pertinent in multi-disciplinary practices.
As an aside it's disappointing that an administrative error could be damaging to the taxpayer. As required the taxpayer provided the tribunal with the two documents in question; the tribunal then erroneously copied the documents to HMRC. Although the copied documents were destroyed by HMRC it does beg the question of whether this lapse in procedures will be detrimental to the taxpayer.
For commentary on LPP, see the CCH Tax Reporter at 186-700.
[1]HMRC opened an enquiry on 20 November 2007 into Mr Behague's self assessment for the year ended 5 April 2005. On 23 April 2012 HMRC issued Mr Behague with a Notice to provide information and documents under Finance Act 2008 schedule 36 subsec-or-para 1paragraph 1 of Sch 36 of the Finance Act 2008. On 21 May 2012 Mr Behague lodged an appeal with this Tribunal against the notice.
[2]The grounds of appeal were that (a) the documents were subject to legal professional privilege ("LPP") and (b) not reasonably required for the purpose of HMRC's enquiry. HMRC drew Mr Behague's attention to the Information Notice: Resolution of Disputes as to Privileged Communications Regulations 2009/1916 ("the LPP regulations").
[3]Mr Bahague then made an application to the Tribunal on 22 June 2012 under paragraph 5(5) of the LPP regulations. In the event, this application claimed privilege over only two documents:
(a) Engagement letter dated 10 May 2005 between Baxendale Walker Solicitors and Mr Bahague;
(b) Report in relation to the trust arrangements prepared by Baxendale Walker Solicitors dated 1 July 2005.
[4]The two documents were, as required by the LPP regulations, delivered to the Tribunal. (In breach of the LPP regulations the Tribunal then copied the documents to HMRC. HMRC destroyed the copies it was given. An application was made by the appellant that its appeal be allowed because of claimed irremediable prejudice caused by the Tribunal's mistake. This application was dismissed on 2 August 2013 on the grounds that (a) there was no prejudice and (b) no power to allow an appeal on such grounds.)
[5]The Tribunal directed that the matter of LPP be determined on the papers after submissions by both parties. This Tribunal must therefore now decide whether the two documents, which I have in front of me, but which HMRC do not possess, are subject to LPP. Once I have made my...
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DAC Beachcroft LLP
...letters sent by KSB to their clients. In that regard, I respectfully agree with the analysis of Judge Mosedale in Behague [2013] TC 02983 at [26]: In particular, it is likely that an engagement letter will specify the particular matter or matters on which the solicitor is contracted to prov......
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Behague
...for the purposes of HMRC's enquiry. The LPP status of two particular documents was considered by the First-tier Tribunal in BehagueTAX[2013] TC 02983. The Tribunal allowed the taxpayer's appeal that a report and accompanying schedules prepared by his solicitors was subject to LPP, but ruled......
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TC03765: Majid Alimadadian
...It is also submitted that confusion had arisen from the treatment of the LPP issue in the First-tier Tribunal's decision in BehagueTAX[2013] TC 02983 because Baxendale Walker Limited's view was that the First-tier Tribunal's finding that LPP applied to a document in that case might be appli......
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Weekly Tax Update - Monday 11 November 2013
...to the extent that an engagement letter sets out what the advice will cover it must be subject to LPP." www.bailii.org/uk/cases/UKFTT/TC/2013/TC02983.html 1.2 UK/Cayman Agreement to improve international tax On 5 November 2013 the UK and the Cayman Islands signed the first intergovernmental......