DECISION
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 paragraph 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 decision, the appeal against
the Information Notice will progress to hearing on 6 November as already
notified to the parties.
The law
6.
Paragraph 3 of the LPP regulations provides as follows:
“These regulations apply where there is a dispute
between HMRC and a person to whom an information notice has been given either –
(a) during the course of correspondence, or
(b) [not relevant]
as to whether a document is privileged.”
7.
Paragraph 5 of the LPP regulations provides as follows:
(1) The following procedure applies where there is a
dispute falling within regulation 3(a)
(2) On receipt of the information notice, the
taxpayer, third party, or person acting on their behalf shall –
(a) by the date given in the notice for providing
information or producing documents, specify in a list each document, required
under the information notice, which is in dispute, with a description of the
nature and contents of that document;
(b) to serve that list on HMRC.
(3) But no description of a document or type of
document is required where such description would itself give rise to a dispute
over privilege.
(4) Within 20 working days of receiving the list
referred to in sub-paragraph (2), HMRC must notify the person who served the
list of any documents on the list that it requires to be produced and which it
considers are not privileged.
(5) On receipt of notification under paragraph (4),
the taxpayer, third party or person acting on their behalf must make an
application to the First-tier Tribunal to consider and resolve the dispute and
must include copies of the documents which remain in dispute with that
application.
(6) The taxpayer, third party or person acting on
their behalf shall provide HMRC with proof of service under paragraph 2(b).
(7) Service for the purposes of paragraph 2(b) must
take place within a reasonable time to be agreed between the taxpayer, third
party or person acting on their behalf and HMRC but in any event no later than
20 working days after the date given in the notice for providing information or
producing documents.
(8) An application under paragraph (5) must be made
within a reasonable time to be agreed between the taxpayer, third party or
person acting on their behalf and HMRC but in any event no later than twenty
working days of the date of the notification required under paragraph (4).
8.
Regulation 8 provides:
“When an application is made under regulation 5(5)
or 6(5), the First tier Tribunal shall –
(a) resolve the dispute by confirming whether and to
what extent the document is or is not privileged;
(b) direct which part or parts of a document (if
any) shall be disclosed.”
The matter of timing
9.
The LPP Regulations lay down strict time limits. No doubt the reason
for this is to ensure a claim for LPP does not slow down any more than
absolutely necessary compliance with a well-founded Information Notice.
10.
Combining the rather odd provisions of Regulation 5(2)(a) and (b), 5(6)
and (7) it appears that the taxpayer is required to submit to HMRC his list of
documents on which he claims LPP no later than twenty working days after
the date that the information is required to be produced by the Information
Notice.
11.
HMRC then have only 20 working days from date of receipt to accept or
reject that claim: Regulation 5(4).
12.
The taxpayer then has only 20 working days to notify the dispute to the
Tribunal: regulation 5(5) combined with 5(8).
13.
In this case the due date for submission of the information under the
Information Notice was 28 May 2012. The appellant provided to HMRC its list of
documents on which it claimed privilege on 20 June 2012, which I find was
within 20 working days of 28 May. This was therefore done in time. Its
submission to the Tribunal, on 22 June, was early rather than late.
14.
I note in passing that the LPP Regulations give this Tribunal no power
to extend time for service of the list of documents to HMRC. While Rule
5(3)(a) of this Tribunal’s rules may give this Tribunal power to extend time
limits in other regulations, that can only be in relation to the conduct of
proceedings before the Tribunal. So while it might give the Tribunal power to
extend time for compliance with Regulation 5(5) and 5(8) which deal with the
time for notification of the dispute to the Tribunal, although I express no
view on this, it does not give power to extend time in relation to something
which happened before notification. The Regulations give HMRC no power to
extend time either.
The dispute on LPP
15.
I have the benefit of written submissions from both parties.
16.
The appellant’s submissions were dated 11 September 213. The
submission was that “it is trite law that a client care letter is part of the
continuum of legal advice and is equally protected by LPP”. An earlier letter
had referred to R v Special Commissioner ex parte Morgan Grenfell & Co
Ltd [2001] EWCA Civ 329. I can’t see the relevance of this decision which
was that, although the precursor provisions to schedule 36 did not expressly
provide an exemption from disclosure for material subject to LPP, such an
exemption should be in effect be read in. Morgan Grenfell has no
relevance here as Sch 36 expressly includes an exemption for LPP material:
Finance Act 2008 Schedule 36
Paragraph 23
(1) An information notice does not require a person
-
(a) to provide privileged information, or
(b) to produce any part of a document that is
privileged.
17.
HMRC’s submissions were dated 26 September 2013 and included five
enclosures:
(a)
The House of Lords decision in Three Rivers;
(b)
The Court of Appeal’s decision in Balabel and another v Air India
(c)
The High Court decision in Dickinson v Rushmer
(d)
the decision of the High Court in Baxendale-Walker v Middleton and
others [2011] EWHC 998 (QB);
(e)
the findings of the Solicitors Diciplinary Tribunal dated January 2007
in the matter of P M Baxendale-Walker and another.
18.
The appellant did not submit a reply to HMRC’s submissions although the
directions permitted it to do so.
The case law on LPP other than litigation privilege
19.
HMRC accept that all communications made between a client and his legal
adviser for the purpose of giving or obtaining legal advice are subject to
LPP. Mr Massey cited Balabel and others v Air India [1988] 1 Ch 317 at
330G where Taylor LJ said:
“…Moreover, legal advice is not confined to telling
the client the law; it must include advice as to what should prudently and
sensibly to bone in the relevant legal context.”
20.
These comments were approved and expanded on by the House of Lords in Three
Rivers DC and others v Governor and Company of the Bank of England (no 6) [2005] 1 AC 610:
[38] …That there must be a ‘relevant legal context’
in order for the advice to attract legal professional privilege should not be
in doubt….[approves Balabel]…If a solicitor becomes the client’s ‘man of
business’ and some solicitors do, responsible for advising the client on all
matters of business, including investment policy, finance policy and other
business matters, the advice may lack a relevant legal context….In cases of
doubt the judge called upon to make the decision should ask whether the advice
relates to the rights, liabilities, obligations or remedies of the client either
under private law or under public law. If it does not, then, in my opinion,
legal advice privilege would not apply. If it does so relate then, in my
opinion, he judge should ask himself whether the communication falls within the
policy underlying the justification for legal advice privilege in our law. Is
the occasion on which the communication takes place and is the purpose for
which it takes place such as to make it reasonable to expect the privilege to
apply? The criterion must, in my opinion, be an objective one.”
21.
It seems to me the same concept was expressed more shortly by Lord
Rodger in the same case as follows:
“[58] In relation to the legal advice privilege what
matters …[is] whether the lawyers are being asked qua lawyers to provide legal
advice.”
22.
HMRC submit that engagement letters between a solicitor and his client
are not privileged at least if they merely set out the terms on which the
solicitor will act. This is consistent with authority. Rimer J in Dickenson
(t/a Dickinson Equipment Finance) v Rushmer (t/a F J Associates) [2002] 1
Costs LR 128 said:
“not all such documents [ie client engagement
letters] will necessarily and automatically be privileged. It is possible
that, in any particular case, the client care letter will reflect or contain
advice or other material which would serve to clothe it with privilege. It is
not, however, suggested that the letter produced to the judge was privileged on
that basis. In principle, I cannot see why a letter merely setting out the
terms of which the solicitor is to act for the client should be privileged.”
23.
It is also consistent with logic. A client engagement letter normally
sets out the terms on which a solicitor will act. It is a contract between the
client and solicitor. The solicitor cannot (and does not) give legal advice
about the contract between himself and his client. In so far as the client
engagement letter, therefore, sets out the terms of the contract, it cannot
attract LPP as the lawyer is not giving advice qua lawyer. He is not giving
legal advice at all.
24.
I therefore reject the appellant’s submission that engagement letters
are by their nature subject to LPP.
25.
However, all this depends on what the actual engagement letter says. If
it goes beyond setting out the terms on which the solicitor will act it may
attract LPP at least in part.
26.
In particular, it is likely that an engagement letter will specify the
particular matter or matters on which the solicitor is contracted to provide
legal advice. Does this make the whole or part of the letter subject to LPP?
It seems to me that it must. The justification for LPP is that:
“a client should be able to obtain legal advice in
confidence…otherwise he might hold back half the truth. The client must be
sure that what he tells his lawyer in confidence will never be revealed without
his consent…once any exception to the general rule is allowed, the client’s
confidence is necessarily lost.” R v Derby Magistrates Court Ex p B [1996] AC 487 per Lord Taylor.
LPP must extend not only to the content of the legal
advice but the fact that a person sought legal advice on any particular matter.
Therefore, to the extent that an engagement letter sets out what the advice
will cover it must be subject to LPP.
Decision on the client engagement letter
27.
In this case I therefore find that the client engagement letter dated 10
May 2005 is not in general subject to LPP. Nevertheless those parts of the
letter which set out the legal advice for which Baxendale-Walker was retained
are subject to LPP. The parts of the letter which are subject to LPP are:
(a)
The first heading;
(b)
The first sentence under the first heading;
(c)
The first paragraph (including its numbered sub-paragraphs 1-6) under
the heading “Work to be performed”;
28.
I find that nothing else in the letter is subject to LPP. Whether it is
relevant to the tax investigation is a different matter and I am not called on
to decide that in this determination, and make no comment on it.
Report on trust arrangements
29.
HMRC suggest that it might be the case that in a report Baxendale Walker
were not giving advice qua lawyer but as financial or wealth management
advisers.
30.
I am satisfied that the report (excluding its schedules) largely
comprises legal advice. It is subject to LPP and does not fall to be
disclosed.
31.
The document provided to the Tribunal included schedules. No mention of
these schedules was made in the index of the documents in respect of which
privilege was claimed and I am assuming that that is because the appellant
regards them as part and parcel of the report. I therefore go on to consider
whether the claim to LPP in respect of any of them is made out.
Schedule 4
32.
This appears to be a copy of a memorandum produced by Baxendale Walker
for the benefit of their clients in around 2002.
33.
The last three pages of the document comprises legislation or draft
legislation which could not ordinarily be the subject of LPP. Other than this,
I find the document contains a statement of Baxendale-Walker’s opinion of an
aspect of the law and/or proposed law. It proposed changes to some legal
structures put in place by some clients. I find on what limited information
that I have that it was, as it purports to be, issued to all or a selected
number of Baxendale-Walker’s clients at that time, which did not include the appellant.
34.
I consider that as a schedule to a report giving legal advice to the
appellant in 2005 it must necessarily be seen as a part of that advice given to
him by his solicitors. Baxendale-Walker in 2005, by including this Schedule,
were giving to the appellant individually the generic advice which they had
given to the general body of their clients in 2002. It is therefore subject to
LPP. Even the last three pages are subject to LPP simply because knowing the
particular provisions of the legislation would enable a person to identify the
subject matter on which the advice was given. The whole of Schedule 4, as
Schedule 4 to this report, is therefore subject to LPP.
Schedule 1
35.
This is a note of a meeting between representatives of Baxendale-Walker,
a barrister and representatives of an external body. Perusal of the notes of
the meeting satisfies me that the meeting was not about the affairs of any
particular client of any person present and it was certainly not about the
affairs of the appellant (who I find from the date of the engagement letter
being 2005 was not even a client at the time). The note does not record the
giving of legal advice; it merely records a discussion of the legal position.
By itself, it is not subject to LPP.
36.
However, my concern is that if LPP was not extended to it as an annex to
the report in this case, its disclosure would identify the subject matter (and
to some extent the content) of the legal advice given by Baxendale-Walker to
the appellant in the report. For that reason I consider that although the note
itself is not subject to LPP, as it was part of the report to the appellant
which is subject to LPP, it is similarly covered by LPP in this context.
37.
I make no comment on whether it would be disclosable in any event on the
grounds of relevance.
Schedules 2-3
38.
These are copies of information published by other bodies (one being
HMRC). Neither by themselves are subject to LPP. Nevertheless, as with
Schedule 1, the concern is that to order their disclosure, as they are schedules
to the privileged report, would identify the subject matter on which
Baxendale-Walker gave legal advice to their client. For this reason the LPP to
which the report is subject extends to its schedules and in this context they
are not disclosable.
Summary of decision:
(1)
The client engagement letter is not subject to LPP save to the extent
identified in §27;
(2)
The report dated 1 July 2005 including its schedules is subject to LPP.
Footnote 1
39.
The last two decisions referred to by Mr Massey (see §17) relate to the
firm of Baxendale-Walker Solicitors. LPP can only be claimed by solicitors or
barristers lawfully acting as such. However, while Mr P Baxendale-Walker and
his partner were struck off the roll of solicitors in 2007, this was after the
date of the engagement letter and report which are the subject of this
hearing. I am satisfied that at the date of the two documents at issue in this
determination, Baxendale-Walker was a firm of solicitors regulated by the Law
Society and LPP could be claimed over legal advice given by the firm
Footnote 2
40.
Baxendale-Walker’s letter of 11 September 2013 appears to indicate that
the appellant is claiming LPP over more than just the two documents submitted
to the Tribunal under the LPP regulations.
41.
I find that the LPP regulations are clear. In this determination under
the LPP Regulations, I only have jurisdiction to determine whether the claim to
LPP is valid in respect of documents actually submitted to the Tribunal (see
LPP regulations paragraph 5(5)). I have therefore considered and only made a
determination in respect of the two documents the subject of the application
under the LPP Regulations.
42.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
BARBARA
MOSEDALE
TRIBUNAL JUDGE
RELEASE DATE: 21 October 2013
