A case now before the English Court of Appeal may cause a ripple effect — or a tsunami — for the accounting profession in Canada. At issue is legal privilege.
“The very nature of privilege is that certain information cannot be put before a court,” explained Vern Krishna, tax counsel, mediator and arbitrator in the Ottawa law office of Borden Ladner Gervais LLP.
At present, only lawyers have privilege in Canada. However, John Chapman, a partner with Miller Thomson LLP in Toronto, stated in an advance copy of a draft article he is preparing for a continuing legal education program, “Of late there has been considerable reflection on the principles behind our laws of privilege. Increasingly, these principles are being applied in non-traditional settings.”
If legal privilege were extended, accountants are a likely group for consideration. “Accountants receive a significant amount of confidential information from clients to facilitate internal, external and compliance reporting. It is reasonable that such information should be protected,” said Brenda Burgess, managing partner with Burgess & Associates Professional Corporation, an accounting firm in Edmonton.
It is that perceived reasonableness that the UK appeal court is exploring in Prudential plc v. Special Commissioner of Income Tax.
“The question before the English Court of Appeal is whether privilege should be based on the nature of the advice or whether it should be based on the qualifications of the person providing it,” said Chapman.
“In Prudential,” he noted, “the accountants claimed that what they were doing was functionally equivalent to what lawyers do.”
Indeed, said Burgess, “in many instances, the volume and magnitude of information received by the accountant from the client exceeds that which a lawyer would be provided with.
“It could be viewed as somewhat of a deterrent for the client to provide complete and comprehensive information if it is not protected with rights similar to privilege,” she added.
In fact, client openness is one of the reasons accountants would like to see privilege extended to the profession.
“(It) would ensure protection to the clients’ comprehensive information in their possession and confidentiality with regard to client matters,” said Burgess.
“Extending privilege to the accounting professional,” she noted, “would provide added force and effect to the professional’s ability to execute the code of ethics and rules of professional conduct as they related to confidentiality and protection of the public interest.”
It could also be a boon to business.
“Within the legal profession, some will advertise that they have privilege in dealing with taxation matters; accountants cannot offer the client the same privilege protection as the legal community. This puts the accountant in an unfair position in certain tax related situations,” said Burgess.
Many law enforcement officials and legal professionals are less enamoured of the idea. Privilege, noted Krishna, a certified general accountant, “can act to conceal the truth.
“I don’t feel accounting privilege would benefit the judicial system,” he added. “It detracts from the ability to get at the truth.”
Extending privilege to accountants, said Craig Hannaford, former head of the RCMP stock market fraud section, in Toronto, “would definitely impede law enforcement. Everyone would claim privilege.”
It’s an argument Burgess isn’t buying. “Lawyers often know they are dealing with violators and are protecting client information obtained as privileged that may be known to include illegal content and acts,” she said.
“Professional accountants,” Burgess added, “can assess the potential for client-related risk prior to accepting an engagement, therefore ensuring that accounting professionals conduct themselves in a manner which will maintain the good reputation of the profession, and its ability to serve the public interest.”
Canadian courts will take some persuading.
“(They) have not been sympathetic to accountants’ claims of equal treatment,” said Chapman.
In Tower v. M.N.R., the Federal Court of Appeal dismissed arguments from accountants at BDO Dunwoody LLP who were being compelled by Revenue Canada to provide client documents and provide information about the clients’ reasons for making certain transactions.
In that case, the court of appeal make it clear accountants did not enjoy the same privilege as lawyers.
“While confidentiality may be preferred, the tax accountant-client relationship is in no way as fundamental to society and the administration of justice as the solicitor-client relationship,” Justice Brian Malone stated in the decision.
“No overriding policy consideration exists so as to elevate the advice given by tax accountants to the level of solicitor-client privilege,” he added.
The case before the English Court of Appeal is perched on similar ground.
In an earlier decision, the British High Court found that privilege belongs only to clients of lawyers and not to clients of accountants, even where the subject matter or guidance given was the same: provision of tax advice. Many experts believe privilege for lawyers stands apart.
“It’s a different concept when you’re dealing with a lawyer. You have to talk frankly to get the best representation. I’m not sure it’s the same for other professionals,” said Hannaford, president of Hannaford Partners Incorporated, a fraud consulting and investigation firm in the Toronto area.
“The purpose of accounting information is disclosure. The more disclosure the better. That’s quite different from legal advice,” noted Krishna.
It is uncertain what will happen in Canada in the wake of the anticipated English appeal court decision.
“If the UK decides ‘yes,’ we would look at it, but we would not feel compelled to follow it,” noted Krishna.
Still, said Chapman, “it is possible that in the future Canadian courts may be more receptive to case-by-case privilege claims in instances where a client comes to an accountant with a pre-existing problem and seeks advice from the accountant.”