In R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another,23 the Supreme Court decided to preserve the status quo by holding that common law legal advice privilege (LAP) does not extend to anyone beyond the members of the legal profession. That is to say, LAP is afforded only to an English and Welsh qualified lawyer (i.e. legal executive, solicitor or barrister) whether in private practice or working in-house, or an appropriately qualified foreign lawyer (including, presumably, those qualified in Scotland and Northern Ireland).
In 2004, PricewaterhouseCoopers (PWC) devised and marketed a tax avoidance scheme, which was adapted for the benefit of certain overseas companies in the Prudential group of companies (Prudential). The implementation of the scheme involved a series of transactions, which the inspector of taxes thought it necessary to look into. In doing so, he served notices under the relevant sections of the Taxes Management Act 1970 (now replaced by the Finance Act 2008) for the disclosure of specified classes of documents relating to those transactions. Prudential refused to disclose communications relating to the seeking by Prudential and the giving by PWC of legal advice in connection with the transactions, on the ground that they were protected by LAP. Litigation privilege did not arise for consideration in this case.
The question for the court was whether LAP would attach to communications between a chartered accountant (PWC) and its client (Prudential) in relation to the provision of tax law advice. Prudential sought to argue that LAP did attach and the contrary was argued by the Commissioner. A number of industry bodies also intervened to express their opinions in the litigation, including the Law Society, the General Council of the Bar of England and Wales, the Legal Services Board, the AIPPI UK Group and the Institute of Chartered Accountants in England and Wales. It will come as no surprise as to which side of the argument each of these bodies fell, the Institute forming a minority of one.
It was clearly recognised by the court that this case had a much wider significance than the specific interests of accountants expert in tax law; the broader question being that if LAP extended to communications containing the tax advice of chartered accountants, what other types of legal advisers could claim LAP protection?
By a majority of five to two, the Supreme Court decided that LAP was properly afforded only to the legal profession. As one of the dissenting judges (Lord Clarke) commented, there appeared to be no disagreement between the judges as to what the common law position in respect of LAP is or should be if the question was dealt with solely as a matter of principle. LAP is a fundamental right of the client, created by the courts for the purpose of ensuring that individuals can obtain legal advice with complete candour and without fear that their communications will ever be used against them. Whilst it has traditionally, although not exclusively, been a protection afforded to communications with lawyers, all judges recognised the difficulty of maintaining this limitation in light of modern day developments where the provision of legal advice was no longer the exclusive remit of the legal profession. Indeed, such was the common ground between the judges that Lord Neuberger (who gave the leading judgment) and Lord Sumption (who led the dissent) could agree on a formulation, namely that LAP should be confined to cases where legal advice is given by a professional person whose profession ordinarily includes the giving of legal advice. The difference between them was that Lord Neuberger (and the majority) saw that as an extension of the common law and not a statement of the law as it stands.
Although the majority accepted that Prudential had principle on its side they could not find in its favour. They recognised that confining LAP to the legal profession brought certainty and clarity and that to extend it to others who give legal advice in a professional capacity raised difficult questions of how far, to whom and subject to what conditions. Those issues involved policy considerations which were best left to Parliament to determine, or so the majority thought. Now that the matter has finally been dealt with by the Supreme Court, it is to be expected that accountants and other professions will seek to lobby Parliament for a change in the law.
It is notable in this case that had Prudential communicated with a qualified lawyer instead of an accountant, those communications would have attracted LAP. Pending parliamentary intervention, therefore, it is highly recommended that, particularly with sensitive matters, individuals and companies consult their lawyers for legal advice to ensure that they receive the proper protection.
Properly qualified in-house lawyers, however, can rest assured that for now the status quo is preserved and that they continue to enjoy the protection of LAP, as was recognised in the case of Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners (No.2)24 (subject, of course, to the limitation in respect of advice on EU law). All judges considered that this was an appropriate extension of LAP. In-house lawyers are, however, reminded that given the nature of their role, they must be careful to ensure that they clearly keep separate advice and/or documents that relate to their legal and their executive roles. LAP will only attach to communications produced by in-house lawyers in their legal capacity as opposed to their executive or administrative capacity.