The Court of Appeal has decided the latest round in the long-running dispute on privilege between the FRC and a UK plc.
In a previous blog we reported on the Court of Appeal’s decision (available here) that the FRC’s powers to compel documents under the Statutory Auditors and Third Country Auditors Regulations 2016 do not extend to privileged materials. This reversed an earlier decision of the High Court (available here).
All that remained to be decided was which of the UK plc’s documents were in fact privileged, such that they could be withheld from production to the FRC. The debate centred on a small set of documents containing advice from an accountancy firm on the UK plc’s tax structure and VAT obligations. The advice was required because the “old” structure was the subject of challenge by a number of foreign tax authorities – in some cases resulting in litigation.
The UK plc’s case depended on establishing a successful claim to litigation privilege. The UK plc’s argument failed on the grounds that, although the documents might have been created at a point when litigation was in contemplation, the documents were not prepared for the sole or dominant purpose of conducting the litigation regarding the “old” structure. Rather, the purpose was to recommend a “new” structure and to explain how VAT would be accounted for under that new structure.
The test for litigation privilege applied here is nothing new – and there was no room for the company to claim legal advice privilege in the alternative. (The Court did not have to consider whether the advice in question constituted legal advice because it has previously established that communications between a company and its accountant (as opposed to its lawyer) cannot attract legal advice privilege).
The case prompts reflection on the way in which corporates appoint, and work with, their (non-legal) professional advisers. It is also a reminder to be conscious of how written communications are framed in the context of litigation, given that UK regulators and prosecutors are increasingly willing to challenge privilege claims. An accurate, contemporaneous record of the purpose of a document or communication can be very persuasive.
The judgment is available here.