Leading law firm involved in offshore investigation with HMRC

An international leading legal firm, DAC Beachcroft has been caught in a tussle with HM Revenue & Customs (HMRC) who have ordered them to hand over a conveyancing file involving an investigation into offshore clients.

DAC Beachcroft previously went through a series of mergers and acquisitions and this case shows how responsibilities are passed on due to attaining and merging with other businesses.

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

KSB acted for offshore companies but HMRC alleged that another offshore company which lent them the money resided in the UK.

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

DAC claimed legal professional privilege for all communication passing between KSB and the clients.

HMRC disputed that the solicitors who had previously worked on the case were conveyancers who did not state that international or company law were part of their practices – which meant they must not have given detailed legal advice on the ‘offshore’ part 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.

After studying the case, 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”

However, it was found that there were certain documents which did not meet this test, which were 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’.

Judge Poole ruled 10 other pieces of correspondence or categories not to be privileged, which included 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 succession of email communications 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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