On October 13 2010 the Court of Appeal gave judgment in Prudential,(1) a case in which it considered whether legal advice privilege should apply to legal advice given by accountants. The appeal case saw interventions from the Law Society, the Bar Council and the Institute of Charted Accountants in England and Wales (ICAEW).

Legal advice privilege applies to confi dential communications which pass between a client and its lawyer and which have come into existence for the purpose of giving or receiving legal advice about what should prudently and sensibly be done in a relevant legal context.

Documents protected by legal professional privilege (which includes litigation privilege) are exempt from the requirement that parties disclose relevant documents in disputes. This provides vital protection for clients, enabling them to obtain legal advice without fear that communications with their lawyers could be disclosable to third parties or the court.  

The question for the court in Prudential was whether the justifi cations for such an exception meant that it should also apply to legal advice given by accountants.  


Prudential sought to challenge two notices from Her Majesty’s Revenue and Customs (HMRC), which were issued under Sections 20(1) and 20(3) of the Taxes Management Act 1970 (since reenacted in the Finance Act 2008). Such notices require the delivery of documents which a HMRC inspector reasonably believes are (or may be) relevant to the tax liability of a taxpayer. A notice can be challenged on the grounds that it seeks material which:  

  • is covered by legal professional privilege; or  
  • does not (on any reasonable view) contain information relevant to tax liability or the amount of such a liability.  

Prudential initially challenged the notices on both grounds, but later accepted that the latter challenge was “not the correct course”.

Therefore, this point was not examined in-depth.

High Court decision

The first instance judge found for HMRC and identifi ed the following points:

  • Accountants’ clients, holding the “generally accepted view that they do not have the right to refuse to disclose legal advice” and knowing that they would have such a right if they obtained the same advice from a solicitor, have not been dissuaded from seeking advice from their accountant.  
  • A general right to refuse disclosure of communications between client and professional adviser has not been given”, nor have there been “assertions by [any] non-lawyers” - including Prudential - “[or] their clients that full and frank discussion between them is inhibited”.  
  • In many cases confidentiality can be preserved on the basis that the disclosure is not relevant.  

However, the judge found “real strength in the argument that the extent of the right to refuse disclosure should not relate to the nature of the legal qualifi cation of the person giving the advice”.  

Court of Appeal decision

Case law

The court considered the judgment in Three Rivers,(2) in which it was found that in order for legal advice privilege to exist, there must be a relevant legal context. This means that the advice should relate to “the rights, liabilities, obligations or remedies of the client, either under private law or under public law”, and that “the communication [should] fall within the policy underlying the justifi cation for legal advice privilege”.

Lord Justice Lloyd held that, like the judge at first instance, he was bound by the decision in Wilden Pump,(3) in which Lord Justice Dillon stated that:

Where legal advice is sought in confidence from a qualified legal adviser in his professional capacity, privilege may be claimed for the communications made for that purpose... [A] qualified legal adviser is one who is officially recognised by the competent authorities in this country, or a foreign state, as being a member of a profession of persons fit to advise on the branch of law in respect of which the said advice is sought.”

Prudential had argued that the court should derogate from Wilden Pump on human rights grounds. Lloyd stated that legal advice privilege was necessary to satisfy the European Convention on Human Rights, but he could not accept that there was “even an arguable breach of Article 8” in allowing the application of legal advice privilege to advice from lawyers, but not applying such privilege to advice from accountants. Furthermore, he held that it was a requirement that “the relevant legal position be appropriately certain”. Given the court’s difficulty in defining the term ‘accountant’ precisely, an extension to the scope would result in the rule becoming “lamentably uncertain”.

Effect of legislation

Regardless of Wilden Pump, Prudential submitted that because legal advice privilege is a judge-made rule, it should be open to the judiciary to change or extend it. Lloyd considered the point, but found that Parliament has taken time to consider the scope of privilege. Although privilege had been extended in specific circumstances, Parliament had not extended it to legal advice from accountants. Furthermore, the situation:

[had] been reached after consideration of the position by several responsible bodies, making diverging recommendations on the point, including two committees, some of whose recommendations did lead to legislation.”

In addition to this general consideration, it was held that Parliament had dealt with the point expressly, as Section 20 of the act makes “specifi c provision... [on] what a tax accountant or a tax adviser can and cannot be required to produce”.

Given Parliament’s extensive consideration of the privilege issue, Lloyd held that “even if Wilden Pump were not (as I think it is) binding on us, I would have held that the arguments advanced on behalf of Prudential could not be accepted”.


Linda Lee, chair of the Law Society, has praised the decision, saying that:

The first duty of a solicitor, like other lawyers, is to the court and the second is to the client. In this respect lawyers are unique among the professions… If [legal professional privilege] is to be extended beyond the advice of the legal professions, it must be done via statute that clearly defi nes the limits and conditions of any extension, both as to the areas of law or the professional adviser to ensure certainty [and] as to the scope of its application.”

However, the decision will disappoint the accountancy profession. Speaking after the judgment, Head of the ICAEW Tax Faculty Frank Haskew said: “We believe that the current situation is unsustainable and contrary to the public interest.” However, the court made clear that, in its view, “Parliament’s failure to change the law in this respect is not an accident”. Thus, a change to the position on privilege will require Parliamentary intervention.  

At present, if clients are concerned that legal advice in tax matters may later fall to be disclosed, they cannot benefi t from legal advice privilege unless they source such advice through a lawyer.