Leading firm ordered to hand over part of client file to HMRC

HMRC: Offshore investigation

National law firm DAC Beachcroft has had mixed success in fighting off a bid by HM Revenue & Customs (HMRC) to access a conveyancing file involving offshore clients.

It is a case that shows too how responsibilities are passed on through mergers and acquisitions.

In DAC Beachcroft LLP v Revenue & Customs [2018] UKFTT 502 (TC), HMRC was seeking documents that formed part of a conveyancing transaction undertaken by KSB Law, a firm acquired in 2008 by Davies Arnold Cooper, which in turned merged in 2011 to form DAC Beachcroft.

KSB acted for offshore companies but HMRC suspected that another offshore company which lent them the money was actually based in the UK.

Tribunal Judge Kevin Poole agreed to issue a third-party information notice on behalf of HMRC, but told the firm that it did not have to produce any document if legal professional privilege could successfully be claimed

DAC claimed privilege for all correspondence passing between KSB and the clients.

HMRC countered that the lawyers who worked on the case were conveyancers who did not state on their profiles that international or company law were part of their practices, meaning they could not have given specific legal advice on the offshore aspect of the transactions.

HMRC suggested that DAC’s claim that all the correspondence was privileged suggested that the firm had misapplied the test of privilege as to cover all communications whether they contained legal advice or not.

DAC Beachcroft challenged HMRC’s notice under regulation 5 of the Information Notice: Resolution of Disputes as to Privileged Communications Regulations 2009.

Having reviewed the authorities, Judge Poole ruled that all the documents were subject to legal advice privilege (LAP), to the extent they either sought or gave legal advice or were part of the “continuum aimed at keeping both [solicitor and client] informed so that advice may be sought and given as required”

But there were certain documents contained in DAC’s bundle which did not meet this test, such as the client care/engagement letters – including the identity of the addressee, which the judge considered a finely balanced decision – except the sections headed ‘Scope of your instructions’, ‘Initial steps’ and ‘Action by you’.

There were 10 other documents or categories of documents the judge ruled not to be privileged, including a letter from KSB to MQ Services Limited in Bermuda.

“This company provides administration services and appears to be closely associated with (though not itself) a firm of Bermudan barristers and attorneys,” the judge said.

“The letter enquires about the establishment of offshore companies. If the client had approached that company direct with such an enquiry, there would be no question of privilege attaching to the correspondence. By simply routing the enquiry through KSB I do not consider the cloak of privilege can be acquired.”

Similarly, there were a series of emails from one of the clients to a firm of surveyors which were copied to KSB.

“The simple fact of copying it to a solicitor cannot clothe it with privilege which it would otherwise lack,” the judge said.

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