R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another

This appeal concerned whether legal advice privilege (LAP) extends to legal advice given by professional accountants (here, PricewaterhouseCoopers) in relation to a marketed tax avoidance scheme, and whether a company could refuse to produce documents to a tax inspector under section 20 of the Taxes Management Act 1970 on the ground that those documents were subject to LAP. The court considered the statutory regime (notably s 20 and s 20B TMA and the later re-enactment in Schedule 36 to the Finance Act 2008) and the common-law principles governing legal professional privilege as explained in authorities such as Morgan Grenfell and Three Rivers.

The majority held that LAP remains confined to communications with members of the legal profession (and certain statutorily recognised classes) and should not be extended by the courts to encompass legal advice given by accountants. The majority gave three main reasons: (i) extending LAP would introduce uncertainty and difficult definitional questions about which professions or circumstances would qualify; (ii) the policy issues and potential qualifications to any broader privilege are better resolved by Parliament; and (iii) Parliament has repeatedly legislated on the basis that LAP applies to lawyers and has considered but not enacted proposals to extend privilege to tax advisers. The appellant's challenge to the notices under s 20 TMA was therefore dismissed.

This is an appeal by Prudential plc and a related company against decisions below which refused to strike down notices served by an inspector of taxes under section 20 of the Taxes Management Act 1970 requiring production of documents relevant to a tax investigation. The documents in issue were communications between Prudential and PricewaterhouseCoopers in relation to a marketed tax avoidance scheme which Prudential said were protected by legal advice privilege (LAP).

Procedural history:

• The application for judicial review was heard by Charles J (reported as [2009] EWHC 2494 (Admin)), who held that LAP does not extend to advice given by non-lawyers such as accountants.
• The decision was upheld by the Court of Appeal ([2010] EWCA Civ 1094).
• The matter came to the Supreme Court on this appeal ([2013] UKSC 1).

Nature of the claim / relief sought: Prudential sought judicial review of the inspector’s notices under s 20 TMA on the ground that the disputed documents were protected by LAP and therefore not producible.

Issues framed:

• Whether LAP extends to legal advice given by professional accountants (here, in relation to tax) where identical advice given by a member of the legal profession would attract LAP.
• Whether the courts should extend the common-law protection of LAP to such advisers or whether that is a matter for Parliament.
• How statutory provisions (notably s 20/20B TMA and Schedule 36 to the Finance Act 2008) affect the question.

Court’s reasoning and conclusions:

• The majority (Lords Neuberger, Hope, Mance and Reed) concluded that LAP is, as generally understood and long applied, confined to communications with members of the legal profession and to those other categories which Parliament has chosen to recognise. Although there is logical force in extending LAP to non-lawyer professionals who give legal advice, practical and policy considerations weigh against judicial extension.
• The majority emphasised uncertainty that would follow from a functional or profession-based test, the risk of difficult definitional and subsidiarity problems (for example identifying which professions or branches qualify and how to segregate legal from non-legal advice), and the appropriateness of leaving such complex policy choices and any conditional qualifications to Parliament.
• Parliamentary and statutory context reinforced the majority’s view: statutes and official reports have proceeded on the assumption that LAP applies to lawyers and have expressly extended privilege only to particular non-lawyer classes in limited circumstances; Parliament considered but declined to enact a general extension to tax advisers.
• A strong dissent (Lords Sumption and Clarke) would have held that LAP depends on the nature of the advice and the professional context rather than the adviser’s formal status, and would therefore have allowed the appeal and remitted for determination whether the disputed documents would have been privileged had the adviser been a lawyer.

Disposition: Appeal dismissed by the majority; the statutory notices remained valid.

Appeal dismissed. The majority held that legal advice privilege remains confined to communications with members of the legal profession (and those non-lawyer classes Parliament has expressly recognised); extending LAP to legal advice given by accountants would raise uncertainty, complex policy issues and practical difficulties which are for Parliament to address, and the statutory and historical context supported leaving the law unchanged.

Judicial review refused by Charles J: [2009] EWHC 2494 (Admin). Decision upheld by the Court of Appeal: [2010] EWCA Civ 1094. Appeal to the Supreme Court: [2013] UKSC 1 (this judgment).