R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1

What has happened?

On 23 January 2013, the UK Supreme Court handed down a judgment which dismissed (by a majority of 5 to 2) the latest attempt to extend the application of legal advice privilege to “legal advice given by someone other than a member of the legal profession”.

The accepted position is that legal advice privilege1 applies to all communications passing between a client and its lawyers, acting in a professional capacity, in connection with the provision of legal advice.

The Facts of the Case

In 2004, on the advice of their accountants, Prudential plc implemented a tax strategy on behalf of Prudential group companies. Subsequently, the inspector of taxes considered it necessary to examine those arrangements and therefore served notices on Prudential plc and its relevant group companies seeking copies of documents relevant to those arrangements.

Prudential refused to disclose certain documents on the grounds that they were entitled to claim legal advice privilege over those documents, as they related to the seeking and giving of legal advice (by their accountants) in connection with the tax strategy. The tax authorities pressed their request for the documents and Prudential challenged that by way of judicial review.

At first instance, the application for judicial review was rejected on the ground that legal advice privilege did not extend to advice, even if identical to that provided by a lawyer, provided by a professional person who was not a qualified lawyer. Having been upheld in the Court of Appeal, the decision was appealed to the Supreme Court.

The Supreme Court Decision

The Majority2

The leading judgment of the majority in the Supreme Court was given by Lord Neuberger. He emphasised three points emerging from the history of the development of legal advice privilege:

  • It exists to ensure that there is what Justice Rehnquist referred to in the Supreme Court of the United States as “full and frank communication between attorneys and their clients”, which “promote[s] broader public interests in the observance of law and administration of justice” – Upjohn Co v United States (1981) 449 US 383, 389
  • It exists solely for the benefit of the client;
  • It is a common law principle, which was developed by the judges in cases going back at least to the 16th century.

The main impediment to extending the principle of legal advice privilege was the uncertainty that such a step could create. Legal advice privilege was a clear and well understood principle of law, universally understood to apply only to communications in connection with advice given by members of the legal profession. So much was clear from a number of sources, notably judicial statements of high authority; leading textbooks; official reports; Government pronouncements and certain legislation (including the Act under consideration, namely the Taxes Management Act 1970).

That said, it was accepted that there was a certain logic to the appellant’s case – why should the privilege "be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field", particularly given the specialist nature of tax advice?

Certainly, the suggestion that lawyers enjoyed some form of ‘special position’ vis-à-vis the court was rejected. Instead, the majority decision was grounded on the following three bases:

  • Certainty: "the presently accepted state of the law on [legal advice privilege] is clear to any professional advisers who need to understand it, and relatively easy to explain to their clients who are meant to benefit from it." To extend the privilege beyond the legal profession "would carry with it an unacceptable risk of uncertainty and loss of clarity in a sensitive area of law." It was noted that "the consequent scope for debate as to whether particular professional persons, in particular situations, would or would not fall within its scope, would detract from the certainty and clarity which presently exist." This would create an undesirable position for those seeking legal advice, and consequently, for those seeking to claim legal advice privilege.
  • Policy: The central question of the appeal gave rise "to an issue, possibly a series of issues, of policy, which constitutes an area into which the courts should generally be reluctant to tread. Rather than extending [legal advice privilege] beyond its present accepted boundaries, we should leave it to Parliament to decide what, if anything, it wishes to do about [legal advice privilege]."
  • Previous Legislation: On the occasions when Parliament had legislated, it had done so on the basis that legal advice privilege was confined to advice provided by members of the legal profession. Accordingly, Parliament having legislated on this matter previously, the majority of the Supreme Court considered that resolution of this issue should be left to Parliament, with its wider powers of inquiry, consultation and democratic accountability.

The Minority3

The minority focussed more on the principle of whether advice given by members of any profession which has "as an ordinary part of its function the giving of skilled legal advice" should be capable of falling within the scope of legal advice privilege. The test, Lord Sumption noted, "does not depend on the adviser’s status, provided that the advice is given in a professional context".

As to the uncertainty (or "floodgates") argument, they considered such arguments insufficient to "justify an arbitrary distinction between different professions performing exactly the same function." Further, whilst they acknowledged that Parliament had expressed a view on privilege in specific cases, ultimately privilege was a creature of common law and as such the courts were competent to give a "principled answer to the question posed on this appeal".

The Practical Implications

In short, the existing position remains: Legal advice provided by lawyers will remain privileged - such advice provided by non-lawyers (including accountants) will not be privileged.

However, given the strong dissenting judgment of Lord Sumption, and the response of the Institute of Chartered Accountants of England and Wales, this is unlikely to be the end of this particular issue.