In the May 2010 edition of the Commercial Litigation Review View>> we discussed the ruling of the High Court in Prudential v Special Commissioner of Income Tax [2009] EWHC 2494 (Admin), in which it was held that communications between a tax advisor and his client were not protected by legal professional privilege, despite the fact that the content of those communications related to legal advice. On appeal, the matter came before the Court of Appeal: in this article we provide a summary of their Lordships' judgment in Prudential v Special Commissioner of Income Tax [2010] EWCA Civ 1094 and its implications.

Legal Professional Privilege

Legal professional privilege ensures that a person may seek legal advice on the basis that all communication entered into will remain confidential and cannot be ordered to be disclosed unless consent is given. It is a single integral privilege, but consists of two separate sub-heads:

  • Legal advice privilege, which applies to communications between lawyer and client for the purpose of giving or receiving legal advice, whether or not in a litigious context; and
  • Litigation privilege, which applies to communications between a lawyer or his client and/or third parties for the purposes of litigation, where litigation is in progress or in contemplation.  

The rationale for the rule is based on the public interest which lies in ensuring that persons have access to appropriate legal advice: the courts have recognised that a pre-requisite for the availability of such advice is that absolute candour exists between a lawyer and his client.

However, this conflicts with the opposing public interest in favour of full disclosure of all relevant documents before a court in order that it may be as fully informed as possible. As we stated in our article of May 2010, these competing interests have resulted in the frequent reassessment of the scope of legal professional privilege by the courts and the legislature.

The Facts

Section 20 of the Taxes Management Act 1970 (now repealed) provided HM Revenue & Customs (HMRC) with the power to serve notices requiring taxpayers or third parties to deliver documents containing information relevant to tax liability. In R (Morgan Grenfell) v Special Commissioners of Income Tax [2002] UKHL 21 it was held that a section 20 notice did not require disclosure of documents subject to legal professional privilege.

Section 20 notices were served on Prudential in November 2007. HMRC rejected Prudential's claim that legal professional privilege applied to the documents which HMRC sought. Prudential brought proceedings for judicial review on the basis that the documents in question – communications with its accountants relating to advice on tax law – were subject to legal professional privilege. It argued that under common law the privilege applicable to communications between a client and his lawyer was equally applicable to communications between a client and his accountant where those communications constituted skilled professional advice on tax law. At first instance, Mr Justice Charles rejected the application; Prudential appealed to the Court of Appeal.

Prudential argued that the determining factor as to whether legal professional privilege applied was the nature of the advice rather than the profession of the adviser and that accordingly legal professional privilege could apply to an appropriately qualified non-lawyer who was asked for and provided legal advice.

The Ruling

Lord Justice Lloyd, delivering the leading judgment of the Court of Appeal, found that the court was bound to hold that legal professional privilege did not apply, at common law, in relation to any professional other than a qualified lawyer: a solicitor, barrister or an appropriately qualified foreign lawyer. This, he held, was the effect of Wilden Pump Engineering Co v Fusfeld [1985] FSR 159.

In Wilden Pump, the Court of Appeal held that legal professional privilege was limited to lawyers as a class of advisor and so did not extend to patent agents. This judgment had been decisive for Charles J at first instance in his concluding that it was not open to him to accept the arguments advanced by Prudential.

In the Court of Appeal, Prudential submitted that Wilden Pump was not decisive of the issue at hand. It attempted to distinguish this decision as only authoritative specifically regarding patent agents, and to circumvent its application by reference to the European Convention on Human Rights (ECHR).

The Court of Appeal dismissed Prudential's arguments in this regard and found Charles J to have been correct in holding that Wilden Pump was binding authority for the rule that legal professional privilege applied only to members of the legal professions. The Court of Appeal did not accept that the decision could be distinguished on the basis that it related to patent agents rather than tax advisors.

As regards the ECHR, the Court of Appeal concurred that the right to privileged and confidential communications with a lawyer is protected by Article 8 but did not find that the same Article 8 protection extended to advice from non-lawyers. The court considered that, in the context of competing public policy considerations, there was "not even an arguable breach" of Article 8, which only conferred a "qualified right". It also found that to extend the operation of Article 8 to non-lawyers would be contrary to the principle of Human Rights law that the laws of Member States can be altered only to the extent that they remain sufficiently certain.


In our previous article we commented that drawing a distinction between lawyers and other professional advisors even where the purpose and content of their advice was identical created an unequal playing field. The decision will certainly disappoint accountants, whose clients will be considerably less protected from disclosure than if they had sought the same advice from a qualified lawyer, or from an accountant at a law firm whose advice was communicated via a qualified lawyer. Charles J at first instance had found these arguments to be "compelling and indeed unanswerable" and had suggested that "absolute confidentiality in respect of legal advice may need revisiting". The Court of Appeal, however, expressly rejected his arguments in this respect.

The tenor of the judgments, both at first instance and in the Court of Appeal, belies an unwillingness to extend judicially the scope of legal professional privilege in light of Parliament's apparent refusal to do so. As Lloyd LJ stated, "not only has Parliament not created any statutory extension of legal professional privilege to legal advice sought from and given by accountants on tax matters but this position has been reached after consideration of the position by several…bodies…some of whose recommendations did lead to legislation." Specifically and perhaps most tellingly, it was noted by the court that Parliament had failed to extend legal professional privilege to tax advisers or accountants, despite a strong body of opinion imploring it to do so, when it enacted the privilege exception to the obligation to disclose in paragraph 23 of Schedule 36 to the Finance Act 2008.

It is unarguable that a rule of public policy designed to encourage openness must, as the court pointed out, be clear and certain in scope. Nevertheless, it is disappointing that the law has not found a way to reconcile this clarity with a more egalitarian approach. Understandably, the court adjudged an extension of the rule to be beyond its constitutional remit but it is a shame the Charles J's suggestion that the rule be restricted in a non-litigious context was not considered in more depth. Rather, his thoughts on this point were summarily dismissed. Prudential has been granted leave to appeal this decision to the Supreme Court and so it may yet be the case that more guidance will be forthcoming.

It is worth noting that litigation privilege will continue to protect confidential communications between a client and a third party where the advice sought is for the dominant purpose of litigation including, for example, advice given by an accountant on tax matters in contemplation of tax proceedings.