The UK Supreme Court handed down judgment yesterday in the long awaited case of Prudential plc and another v Special Commissioner of Income Tax and another. The issue before the Supreme Court was whether, at common law, legal advice privilege extends to, or should be extended to, communications between a client and an accountant seeking and giving legal advice on tax law (or other professionals whose profession ordinarily includes the giving of legal advice), and if so, how far it should be extended.
In 2004, the Appellants (“Prudential”) had entered into a marketed tax avoidance scheme which had been devised by PricewaterhouseCoopers (“PwC”) and tailored by PwC for the Prudential group of companies. The scheme was notified to Her Majesty’s Revenue & Customs ("HMRC"). The inspector of taxes served Prudential with notices under section 20 of the Taxes Management Act 1970 requiring them to disclose documents in connection with that scheme. A person cannot be forced by a section 20 notice to produce documents to which legal professional privilege (“LPP”) attaches (see House of Lords decision in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax  1 AC 563). Prudential therefore refused to disclose any documents relating to legal advice they had obtained on tax matters, irrespective of whether such advice was obtained from lawyers or accountants, stating that the documents were subject to legal advice privilege (“LAP”). The inspector of taxes disagreed, and stated that advice from accountants was not covered by LAP. He sought, and received, authorisation from the Special Commissioner to require Prudential to disclose the documents. Prudential challenged that decision, issuing an application for judicial review which is the subject of the appeal.
At first instance, the High Court rejected Prudential’s application on grounds that, although the documents would have been subject to LAP had the advice been sought from a qualified lawyer, no such privilege extended to advice (even if identical in its nature) by a professional who was not a qualified lawyer. That decision was upheld by the Court of Appeal for largely the same reasons. Prudential then appealed to the Supreme Court. Prudential noted in its appeal that the Human Rights Act 1998, applying the European Convention on Human Rights, protects LPP and requires any limitation on LPP to be justified. Prudential’s appeal has attracted significant interest, and there were a number of interveners to the appeal including the Law Society of England and Wales, the Bar Council of England and Wales and The Institute of Chartered Accountants in England and Wales.
By a majority of 5:2 (with Lord Clarke and Lord Sumption dissenting), the Supreme Court dismissed the appeal. The Court found that it is universally understood that LAP applies only to advice given by members of the legal profession – i.e. members of the Bar, the Law Society, and the Chartered Institute of Legal Executives (CILEX) (and, by extension, foreign lawyers). Although the Court acknowledged that the argument for extending the ambit of LAP to advice given by other professionals was a strong one (at least in principle), it held that LAP should not be extended, regardless of whether the advice in question is legal advice which that professional is qualified to give. It reasoned that to do so would extend LAP beyond its current, clear and well-understood, limits and there were good grounds for the Court not extending the principle.
The Court noted that although LAP is a common law principle, Parliament has enacted some legislation relating to LAP. That legislation assumes that LAP is restricted to advice given by lawyers. Parliament has also considered and rejected proposals to enact legislation extending LAP to tax advisers. That suggests that it would be inappropriate for the Court to do so. An extension of the principle also raises questions of policy which should be left to Parliament. The Court was also concerned that extending LAP would likely result in a clear principle becoming unclear and uncertain. It stated that it is unclear which occupations would be members of a profession for this purpose nor which professions would be those that ordinarily give legal advice. Further, when professionals other than lawyers give legal advice it will often not represent the totality of the advice but will be blended with non-legal advice. (Curiously however, the Court did not acknowledge that Courts are already required to deal with this particular issue, for example, where communications by in-house lawyers contain both legal and non-legal advice.)
In contrast, the dissenting minority considered that in a professional context whether LAP attaches to a communication depends on the character of the advice and the circumstances in which it is given, and not on the adviser’s status. Their view, citing the extension of LAP to advice given by foreign lawyers and in-house legal advisors, was that English law had always taken a functional approach to LAP. Recognising LAP as attaching to legal advice given by accountants would therefore not be extending the principle as “advice on tax law from a chartered accountant will attract [LAP] in circumstances where it would have done so had it been given by a barrister or a solicitor. They are performing the same function, to which the same legal incidents attach.”.Their (unsuccessful) judgment was that LAP did extend to legal advice given by members of a profession which has as an ordinary part of its function the giving of skilled legal advice.
A copy of the Supreme Court judgment can be found here.