There is often a fine line between legal advice and accounting advice, particularly when it comes to tax advice.
In practice, accountants may give both legal and accounting advice or lawyers and accountants may give joint advice to a client. One difficulty that arises in these scenarios is the question of privilege. What communications and documents are covered by privilege?
In 2011 the ACT introduced a new professional confidential relationship privilege into the Evidence Act 2011 (ACT). The new privilege is aimed at any professional relationship where communications are made in confidence. Most relevantly, it will include the accountant and client relationship. The new privilege is not, however, a complete answer to question.
The Evidence Act 2011 (ACT) provides for two types of client legal privilege. The Act prevents evidence being adduced if doing so would result in disclosure of:
- Confidential communication between the client and lawyer or between two or more lawyers acting for the client or the contents of a confidential documents prepared by the client, lawyer or someone else for the dominant purpose of the lawyer(s) providing legal advice to the client (the advice privilege); or
- Confidential communication between the client and someone else or between a lawyer acting for the client and someone else or the contents of a confidential documents that was prepared for the dominant purpose of the client being provided with legal services relating to a proceedings or anticipated proceedings in which the client is or may be or was or might have been a party (the litigation privilege).
The litigation privilege attaches to a wider range of communications, including between client and accountants and between lawyers and accountants but there must be the relevant nexus with legal proceedings for it to apply. The advice privilege is narrower in scope, although it will still cover documents produced by the accountant where they were prepared for the dominant purpose of the lawyer providing legal advice.
This statutory privilege only relates to the admissibility of evidence in proceedings. There is, however, a similar common law privilege which allows clients to resist production of documents to an authority which has been given statutory information gathering powers such as the ATO, the Gaming Commission or the ACCC.
The new professional confidential relationship privilege attaches to communications and to the contents of a document recording communications made by a person in confidence to someone else (the confidant) in the course of a relationship in which the confidant was acting in a professional capacity and where the confidant was under an express or implied obligation not to disclose its contents. It will also attach to information about, or which would enable a person to ascertain, the identity of the person who made the communication.
Important things to note about the new professional confidential relationship privilege:
- Unlike client legal privilege it is not automatically available; it only applies where the court directs that evidence not be presented in a proceeding if it would disclose communications subject to the privilege.
- The court’s power to so direct is for the most part discretionary.
- It only applies to communications made by the client and not by the confidant.
- It only applies to judicial proceedings and not in the face of an authority exercising a statutory information gathering power.
How does this affect you?
Communications and documents produced by non-legal professional advisors will sometimes be caught by client legal privilege or common law legal professional privilege but only where they were made for the dominant purpose of the client being provided with legal advice by a lawyer or legal services in respect of litigation.
The new professional confidential relationship privilege is very limited in (a) the type of communications and documents to which it applies; and (b) when it applies.
Some examples of communications that will be privileged from being used in evidence:
- Observations to counsel prepared by an accountant for the purpose of obtaining legal advice for a client or in respect of litigation;
- Counsel’s legal advice to the client where the advice is given directly to the client, but not necessarily a communication of that advice from counsel to the accountant or from the client to the accountant unless there is litigation on foot or anticipated;
- Counsel’s legal advice to an accountant, where the accountant is counsel’s client but not communication of that advice to the accountant’s client, unless there is litigation on foot or anticipated.
Some examples of communications that may be privileged from being used in evidence but which first require an order from the court:
- A communication from a client to an accountant requesting advice on the tax treatment of certain transactions and disclosing information relevant to that request;
- A communication from a client to an accountant disclosing legal advice received by the client.
Some examples of communications that are not privileged:
- Advice from an accountant to a client on the tax treatment of certain transactions;
- Advice from an accountant about the most tax effective structure for a new business venture.
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