Legal Advice For Businesses & Accountants
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After the Legal Services Act (2007) was implemented in the UK, many accountancy firms are having re-think their business models, and think of different structures, especially in business areas where previously any advice sought would have been given by a law firm.
Further guidance as to what legal services can be provided and by whom was given by the ICAEW to all of its members.
All members received guidance relating to two categories that are covered by the Legal Services Act 2007, firstly 'reserved legal activities',which can be undertaken only by authorised individuals, for example lawyers, or 'legal services', which non-lawyers can undertake, for example accountants.
This guidance was issued in January 2016 and it is evident that accountants are enjoying the benefits to the change in legislation with the Legal Services act of 2007.
However, it is recommended that care is still taken.
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Many accountants, in the course of providing advice to their clients, will have come across the issue as to whether that advice or those conversations are covered by legal professional privilege. Legal professional privilege will cover conversations where the clients able to receive, or the adviser can give, any legal advice, as long as it comes from their legal adviser.
In January 2013, with a majority of 5:2, the Supreme Court held that legal professional privilege only pertains to advice that is given by lawyers and not any advice that is provided by accountants. Whilst accountants are consistently asked to provide legal advice, there has still been no furthering of the legal privilege doctrine to other professionals, for example accountants. Legal professional privilege only pertains to lawyers, no other professionals have to attach privilege to communications with their clients in this way. If this were to change, it would be parliament that determines whether it should.
The Law Society is in accordance with the Supreme Courts decision not to extend the age old doctrine of legal professional privilege outside of their profession, arguing that lawyers provide different services for their clients, which accountants will not provide.
However, the ICEAW have described this position as 'anti-competitive', providing an unfair advantage to lawyers over accountants, who with the current market place, may well be providing the same advice and the similar, if not identical services.
In many firms accountants will find that they provide advice across a wide range of different disciplines, many of these accountants believe that there should be an extension of legal privilege to cover accountants too. It is in fact possible for both a solicitor and an accountant to provide the same advice, however legal advice privilege will only cover the advice provided by the solicitor. It was confirmed by the Supreme Court that this lacked any logic, however they determined that it was not an issue for them to decide, that the issue may have to be decided in parliament itself.
When considering the position laid out by the Supreme Court, accountants need to be aware and careful of the fact that their clients may believe that any advice given will be covered by legal professional privilege, when in fact it may not be. Any advice given may well have to be passed on to HMRC, which for the business or client could have consequences.
'Mission creep' is also something that accountants need to be wary of. Where the professional finds them self giving advice that was not covered by the original instruction. It is certain that accountants are much more aware of this than in other professions, however they still need to be mindful of it for any activities conducted under the Legal Services Act 2007. If as an accountant, you find yourself straying from carrying out 'legal activities' into what is known as 'reserved legal activities', it could spell disaster for the accountant and the client as well.
It is imperative that accountants still make certain that the scope of the engagement has clarity, and is plain, and that retainer letters with clearly defined parameters and instructions are issued for each engagement. This is especially important if the accountant is conducting several different tasks for a client. Not only does this provide clarity and protection for the accountant, it can be easily referred to by the client later and so minimise the risk of any disputes occurring between client and accountant.
Furthermore, it is the responsibility of an accountant to make certain that their insurers know of any type of work that the accountant is undertaking. The accountant must ensure that 'mission creep' does not lead to accountants providing advice under the 'reserved legal activities' which they are in fact not authorized to give, as it is highly likely that the accountant does not have the correct insurance arrangements to cover such advice. If the client decides at some point that they wish to make a claim or a complaint, it would be most unfortunate if the accountant hears back from their insurers and finds that they are not covered.
All practitioners should review their insurance to ensure that they are covered for whatever work they are undertaking, and they should be wary to step outside of that cover.
With increasing regulation and oversight from authorities an accountancy form could find itself under investigation from enforcement agencies or regulators. It is most likely to be an investigation conducted by the Financial Reporting Council (FRC), which is known to regularly assess and investigate the audit procedures of accountancy firms. However, it could well be that HMRC are investigating a clients taxes, and an accountancy firm could be dragged into an investigation this way. An accountancy firm may also become under investigation from the Serious Fraud Office (SFO), if they are dealing with the accounts of a client who is under investigation for fraud, corruption, or bribery.
Under the Statutory Auditors and Third Country Auditors Regulations 2016, as well as the Financial Reporting Council (FRC) own Audit Enforcement Procedure accountants may need to provide a client privileged documents for legal investigation. In a recent ruling, FRC -v- Sports Direct International Plc  EWHC 2284 (Ch), it was determined that requiring that an accountancy firm must provide privileged client document to the Financial Reporting Council (FRC) for investigation was perfectly legal as they were not covered by Legal Professional Privilege.
It may well be that external regulatory concerns could lead to, or cross paths with internal investigations. With the chance of criminal conduct, or civil claims,or regulatory concerns an internal investigation may well be launched. If there are concerns over partner misconduct, or whistle blowing has occurred it may well be that the accountancy firm decides to launch an investigation.
Whether or not legal professional privilege applies becomes an important question when a similar or the same issue is being investigation both externally and internally. Regulatory bodies and enforcement agencies that are about to commence and investigation or are already conducting an investigation may suspect or know that any documents that have been generated by an internal investigation could be beneficial in their own investigation. The Serious Fraud Office (SFO), has been known to go all the way to the Court of Appeal to get full disclosure of documents that have been generated internally in corporate investigations.
Accountancy firms should not have to fear reprisals from regulatory bodies such as the Serious Fraud Office (SFO) when conducting internal investigations into allegations of the conducting of criminal activities by a member of their firm. However, in SFO -v- Eurasian Natural Resources Corporation Ltd (“ENRC”) ( EWHC 1017 QB) in 2017, the High Court decision to require the accountancy firm to provide the Serious Fraud Office (SFO) any internally generated documentation from their own investigation into the allegations of a member of their firm being criminally corrupt gave rise to exactly those concerns f reprisals. The internally generated documentation also had lawyers notes from interviews that they had conducted with employees and also had forensic accounting material.
Recently, in (SFO -v- ENRC  EWCA Civ 2006), the Court of Appeal overturned the High Courts decision, which was met happily by lawyers across the UK. It stated that it was rejecting the idea that litigation privilege was only applicable once the defendant had become aware that facing prosecution was a reasonable outcome of the investigation that was being conducted. The Court of Appeal held that litigation privilege should still hold whilst the investigation was being conducted, before they knew whether criminal proceedings could be the result of the investigation.
The decision by the Court of Appeal has realigned the law back with civil claims what it means when litigation is 'reasonably in contemplation' in a criminal context. Naturally each case will still turn on the facts as they come to light, however business should be able to feel a greater confidence whist conducting internal investigations that any documentation generated will not have to be disclosed when regulatory bodies or enforcement agencies are investigating in the context of suspected criminal activity.
How can an accountancy firm increase the chances that legal professional privilege will apply whilst conducting internal investigations?
Whilst conducting an investigation there are few things that an accountancy firm can do to increase the chances that legal professional privilege will be applicable.
Some of these things are as follows:
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