Special Commissioner and Another, Ex P Morgan Grenfell & Co Ltd, R v.

The House of Lords held that section 20(1) of the Taxes Management Act 1970, read in its statutory context, did not authorise an inspector to require production of documents subject to legal professional privilege. The court applied the principle of statutory construction that fundamental common-law rights, including legal professional privilege, are not overridden by general words in a statute unless there is express language or necessary implication to that effect. The Lords examined the surrounding statutory provisions (notably sections 20A, 20B, 20C and 20D and Schedule 6 to the Finance Act 1976) and concluded they did not establish a necessary implication that privilege was abrogated. The appeal was allowed and the notice requiring production of privileged legal advice was quashed.

Background and parties:

• Morgan Grenfell & Co Ltd (appellant) had designed and marketed a tax avoidance scheme which relied on generating chargeable gains. The Inland Revenue (respondents) issued a notice under section 20(1) of the Taxes Management Act 1970 requiring a wide range of documents, including legal advice obtained by the appellant, in relation to a transaction involving Tesco.

Nature of the claim and procedural posture:

• The appellant sought judicial review to quash the notice on two grounds: (i) the documents could not reasonably be thought to contain information relevant to tax liability, and (ii) the statute did not permit the inspector to require documents protected by legal professional privilege (LPP).
• The Divisional Court (Buxton LJ and Penry-Davey J) dismissed the application on both grounds. The Court of Appeal (Schiemann and Sedley LJJ and Blackburne J) affirmed, and the appellant appealed to the House of Lords.

Issues framed by the House of Lords:

• Whether documents in the possession or power of the appellant, but subject to legal professional privilege, could be required to be produced under section 20(1) TMA 1970.
• Whether the statutory scheme as a whole evidenced an intention by Parliament to exclude or preserve LPP.

Court’s reasoning:

• The Lords accepted that LPP is a fundamental common-law right and that general statutory words which would abrogate such a right should not be read to do so unless there is express language or necessary implication. They analysed the statutory context, including specific protections for documents in the hands of legal advisers (sections 20B(8) and 20C(3)) and procedural safeguards such as consent and judicial authorisation provisions.
• The court rejected the Revenue's argument that the preservation of privilege for documents in the hands of lawyers implied that privilege did not apply to documents held by the client. The statutory references to lawyers were not a sufficient basis to infer that LPP had been abrogated as regards documents in the client's hands. The Lords reviewed relevant authority (including Parry-Jones, Taylor (No. 2) and Price Waterhouse) and concluded that the statutory language was equivocal and insufficient to displace the fundamental right.
• The House noted but did not decide the separate human-rights compatability issue under article 8 and the Human Rights Act 1998, finding resolution on ordinary principles of statutory construction sufficient.

Relief sought and dispositive outcome:

• The appellant sought quashing of the notice. The House allowed the appeal and quashed the inspector's notice requiring privileged documents.

Appeal allowed. The House of Lords held that section 20(1) TMA 1970, read in its statutory context, did not permit an inspector to require production of documents subject to legal professional privilege. Fundamental common-law rights such as legal professional privilege are not abrogated by general statutory words in the absence of express language or necessary implication; the statutory scheme did not disclose such an intention. The notice was quashed.

Divisional Court (Buxton LJ and Penry-Davey J) dismissed the appellant's application for judicial review; the Court of Appeal (Schiemann and Sedley LJJ and Blackburne J) affirmed the dismissal. The appellant then appealed to the House of Lords, which allowed the appeal ([2002] UKHL 21).