Regina v Special Commissioner and another, Ex p Morgan Grenfell & Co Ltd

Legal professional privilege is a fundamental and absolute common law right. General or ambiguous statutory words do not override it. Abrogation requires express language or a necessary implication from the statutory language and context.

Section 20(1) of the Taxes Management Act 1970 did not authorise the compulsory production of privileged documents held by a taxpayer. The express protection given to documents held by lawyers did not necessarily imply that identical documents lost protection in the client’s hands. Neither administrative safeguards nor the public interest in collecting tax supplied the required implication.

Morgan Grenfell marketed a tax avoidance scheme whose efficacy depended on whether a lease premium was a trading expense. Although the relevant transactions were fully disclosed, the Inland Revenue sought documents containing legal advice about the scheme. An inspector served a notice under section 20(1) of the Taxes Management Act 1970.

Morgan Grenfell sought judicial review, contending that the notice was beyond the inspector’s powers because it required production of documents protected by legal professional privilege. The Divisional Court dismissed the application. The Court of Appeal dismissed the subsequent appeal after Morgan Grenfell abandoned its separate challenge based on relevance. The sole issue before the House was whether section 20(1), properly construed, authorised compulsory production of privileged documents held by the taxpayer.

1. Disposition. Lord Hoffmann delivered the leading speech. Lord Nicholls, Lord Hope, Lord Hobhouse and Lord Scott agreed that the appeal should be allowed. The House unanimously quashed the section 20(1) notice.

2. Fundamental right and principle of legality. Per Lord Hoffmann, legal professional privilege is a fundamental common law right and a necessary condition of effective access to legal advice. It is absolute and does not depend on a case-by-case balance between private and public interests. Under the principle stated in R v Secretary of State for the Home Department, Ex p Simms [2000] 2 AC 115, general or ambiguous statutory language does not override such a right. Parliament must use express language or create a necessary implication.

3. Construction of the statutory scheme. Section 20(1) of the Taxes Management Act 1970 contained no express abrogation. The administrative and judicial controls governing document notices, the separate protection for pending tax appeals and the protection of tax accountants’ working papers addressed matters distinct from legal professional privilege. They did not support a necessary implication that the privilege had been removed.

4. Documents held by lawyers. Per Lord Hoffmann, sections 20B(8) and 20C(3), which expressly protected privileged documents held by legal advisers, did not define the outer limit of the privilege. Legal professional privilege belongs to the client and ordinarily protects the communication regardless of whether the lawyer or client holds the document. It would be irrational for identical copies to receive different protection merely because of their location. The specific provisions were explicable in the light of earlier uncertainty about whether disclosure outside judicial proceedings was governed only by contractual confidence.

5. Earlier authorities. Lord Hoffmann held that the reasoning of Bingham LJ in R v Inland Revenue Commissioners, Ex p Taylor (No 2) (1990) 62 T.C. 578 was too broad, although its actual result could stand because disclosure had been confined to determining the accountant’s own tax liability. He explained Parry-Jones v Law Society [1969] 1 Ch 1 on the basis that limited, confidential disclosure for regulatory investigation did not infringe the clients’ privilege. He disapproved Price Waterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583 insofar as it treated an express protection for lawyer-held documents as implying that client-held documents could be compelled.

6. Revenue collection and human rights. The relevance of a taxpayer’s purpose and the public interest in collecting revenue did not justify overriding privilege. Subject to the recognised exception for advice sought to facilitate crime, purpose must be inferred from other evidence. It was unnecessary to decide the alternative claim under article 8 or the Human Rights Act 1998. Lord Hoffmann nevertheless doubted that the general interest in collecting revenue would justify an intrusion into privilege.

• House of Lords: Unanimously allowed Morgan Grenfell’s appeal, reversed the conclusion reached below and quashed the statutory notice.
• Court of Appeal: Dismissed Morgan Grenfell’s appeal on the construction of section 20(1). The separate relevance challenge was not pursued.
• Divisional Court: Dismissed the application for judicial review. It held both that the inspector could reasonably regard the documents as relevant and that section 20(1) was not qualified by legal professional privilege.