R (Morgan Grenfell & Co Ltd) v Special Comr of Income Tax

Legal professional privilege is a fundamental right, but it may be overridden by necessary implication where a detailed statutory code makes that implication compellingly clear. The structure of the Taxes Management Act 1970 showed that privilege generally yielded to disclosure notices, including a notice served on a taxpayer under section 20(1), except where expressly preserved. The court also held that the statutory consent process did not permit an oral inter partes hearing. Written representations were sufficient because revealing the inspector’s case could compromise the investigation. The Commissioner’s role was to monitor the inspector and ensure that favourable and unfavourable material was placed before him.

Morgan Grenfell & Co Ltd sought judicial review of a Special Commissioner’s consent to a notice under section 20(1) of the Taxes Management Act 1970, requiring production of documents concerning a tax-related property transaction. It argued that the notice could not require disclosure of legally privileged material and that it should be allowed to make oral inter partes representations before consent was given. The Divisional Court dismissed the application: [2000] STC 965. The appeal concerned whether privilege was overridden by the statutory scheme and whether the Commissioner had power to hold an oral hearing.

The appeal was dismissed with costs. Permission to appeal to the House of Lords was refused.

1. Legal professional privilege. The court accepted that legal professional privilege is fundamental. Under the principle of legality, general or ambiguous words do not override such a right. Express language or a necessary implication that is compellingly clear is required. This approach was informed by R v Derby Magistrates’ Court, Ex parte B [1996] AC 487, R v Secretary of State for the Home Department, Ex parte Simms [2000] AC 115 and B (A Minor) v DPP [2000] 2 WLR 452.
2. Construction of the tax-disclosure code. Taken as a whole, the detailed code in the Taxes Management Act 1970 carried the compelling implication that privilege was excluded except where expressly preserved. Sections 20B(8) and 20C(4) identified specific protected situations. Their specificity would be redundant if privilege were generally preserved. Section 20(1) therefore authorised a notice requiring a taxpayer to disclose privileged documents. The public interest in collecting revenue was also relevant, and Article 8 permitted qualification of privacy rights for the economic wellbeing of the country. The court reached the same conclusion as in R v Inland Revenue Commissioners, Ex parte Taylor (No 2) [1990] STC 379, without deciding whether that decision was binding.
3. Procedure. Natural justice does not generally require an oral hearing. In this statutory process, an oral inter partes hearing was excluded because disclosure of the inspector’s case could compromise the investigation. Written representations were sufficient. The Commissioner was the monitor of the inspector’s decision, and the inspector was required to place favourable and unfavourable material before the Commissioner. The possibility of judicial review could not be used defensively to deny a power which otherwise existed.
4. The court observed that later amendments to an evolving statutory code could be considered when construing its current scope, although the result here did not depend on legislation enacted after 1976.

• Court of Appeal: The appeal against dismissal of the judicial review application was dismissed with costs. Permission to appeal to the House of Lords was refused. [2001] EWCA Civ 329.
• Divisional Court of the Queen’s Bench Division: The application for judicial review was dismissed. [2000] STC 965.