High Court re-confirms accountants reports are not protected by litigation privilege

In Financial Reporting Council v Frasers Group plc [2020] EWHC 2607 (Ch) Lord Justice Nugee re-confirmed the principle that accountants reports are not subject to litigation privilege and could be subject to third party disclosure orders from tax authorities such as HMRC. In this case, it was found that the reports prepared by the accountants were not for the sole or dominant purpose of litigation and as such are not protected from disclosure by litigation privilege.

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What is legal advice privilege?

Legal advice privilege covers confidential communications (written or oral) between a lawyer and their client for the purpose of giving or receiving legal advice. It applies to all advice in relation to a client’s legal rights and obligations. It does not apply to strategic or commercial advice.

As originally formulated by the courts, the privilege covered only confidential communications made between a lawyer and his client, or a lawyer or client and a third party, which came into existence for the purposes of litigation (“litigation privilege”). The rationale of the privilege was said to be that:

“it is an absolute necessity that a man, in order to prosecute his rights or defend himself from an improper claim, should have resource to the assistance of professional lawyers” and that “he should be able to make a clean breast of it to the gentlemen whom he consults” in the sure knowledge that his communications to and from the lawyer will be “kept secret” unless disclosed with his consent”

Anderson v Bank of British Columbia (1876) 2 Ch D 644 at page 649 per Sir George Jessel MR

Although legal professional privilege is regarded of such importance that it has been described as “absolute”; but, like most rights, it is not absolute in the true sense of that word, as the case at hand demonstrates.

Does legal advice privilege apply to accountants?

No. For privilege to apply, there must be a lawyer (i.e. a solicitor or barrister) in the communication for legal advice privilege to apply. Legal advice privilege does NOT extend to other professionals such as accountants. Therefore, in disputes with HMRC for example, (potentially incriminating) communications with an accountant can be disclosed and are not privileged. Therefore, in order to ensure confidentiality, a lawyer must be involved in the communications.

Does litigation privilege apply to my solicitor?

Yes. Communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.

What was the application about?

The application raised the question whether 3 documents in the hands of the Respondent were privileged from production to the Applicant on the grounds of litigation privilege. The Applicant is the Financial Reporting Council Ltd (“the FRC”). The Respondent is now called Frasers Group plc, but until December last year it was called Sports Direct International plc.

What is the Financial Reporting Council (FRC)?

The FRC is a regulatory body with certain responsibilities for, among other things, the regulation of statutory auditors and audit work. Its functions include carrying out investigations into statutory auditors and audit work and imposing and enforcing sanctions.

The Facts

Frasers Group received enquiries from the French tax authorities regarding its online sales in France. Frasers Group assumed that the French authorities were likely to challenge its VAT treatment in relation to those sales. It therefore instructed tax consultants/accountants who had devised its existing VAT structure to report on how it could defend such a challenge. The consultants/accountants reverted with written reports in response. The judgment is concerned with three of these reports.

The FRC later obtained an order for third party disclosure against Fraser Group. The issue was whether Fraser Group could claim litigation privilege in relation to the three reports.

The Judgment

The 3 reports were not for the sole or dominant purpose of litigation. LJ Nugee asked the question whether the reports were written for the sole or dominant purpose of litigation and stated at paragraph 36:


To my mind the answer is obviously “No”. A taxpayer who takes advice as to how to structure his affairs does not do so for litigation purposes. He does so because he wants to achieve a particular result for tax purposes – in this case the result that the transport by Barlin would not be “by or on behalf of” SDR (or other Sports Direct company) for the purpose of Art 33, and hence that VAT would be payable on the sale of goods in the UK and not in France, Ireland, Finland or other Member States. Even if it is contemplated that the particular structure will be likely to be attacked by the relevant tax authorities and that there will be litigation, the advice as to how to implement the new structure – or, if this is preferred, how to revise or enhance an existing structure – is not primarily advice as to the conduct of the future possible litigation. It is primarily advice as to how to pay less tax – or, as the case may be, how to avoid the administrative inconvenience of having to register in every Member State.

Financial Reporting Council v Frasers Group plc [2020] EWHC 2607 (Ch), Lord Justice Nugee

Download the judgment

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