Legal Professional Privilege and Article 8: Prudential Case Live in UK Supreme Court: 5 November – 7 November 2012

31 10 2012

Ever since its doors opened for business in October 2009, the UK Supreme Court has ruled on numerous cases related to article 8 of the European Convention on Human Rights. But the instant case is unique. In contrast to the family and private life limbs of article 8, R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) UKSC 2010/0215 turns on tax, accountancy, the legal profession and the right to respect for correspondence. Lords Neuberger, Hope, Walker, Mance, Clarke, Sumption and Reed JJSC will hear the matter from 5 November until 7 November 2012 (sittings commence on 11:00 AM Monday and 10:30 AM Tuesday – Thursday, Lunch Recess 1:00 – 2:00 PM,  Greenwich Mean Time). Please watch these proceedings live ONLINE HERE. The issue before the court is whether, at common law, legal professional privilege (“LPP”) applies to communications between a client and an accountant seeking and giving legal advice on tax law.

Crucially, LPP is an (almost) absolute rule. It not only entitles clients to refuse to disclose documents or answer questions, but also requires advisers and others to do the same. Hence LPP, which traces its roots to the sixteenth century, creates a real conflict with general public policy that cases should be decided by reference to all available relevant evidence. From Prudential’s perspective the Human Rights Act 1998, applying the ECHR, protects LPP and requires any limitation on LPP to be justified.

Because of the important nature of the case, the Law Society, the General Council of the Bar and the Institute of Chartered Accountants in England and Wales are intervening in the matter as are the Association Internationale pour la Protection de la Propriété Intellectuelle UK Group and the Legal Services Board.

The Court of Appeal’s Decision: Prudential Plc & Anor, R (on the application of) v Special Commissioner of Income Tax & Ors [2010] EWCA Civ 1094

In proceedings in the Court of Appeal (Mummery, Lloyd and Stanley Burnton LJJ, read judgment) held that LPP was not available for a client in respect of communications for the purposes of getting legal advice from an accountant. LPP was only available if the advice was sought from a lawyer. The court explained that LPP is much more than a rule of evidence and recalled Lord Taylor of Gosforth (as he then was) CJ’s R v Derby Magistrates Court ex parte B [1996] 1 AC 487 view that “it is a fundamental condition on which the administration of justice as a whole rests”: the argument that LPP should or could involve a balancing exercise in relation to the facts of the particular case was rejected by House of Lords in ex parte B. The Court of Appeal also observed that LPP creates a real conflict with the general public policy that cases should be decided by reference to all available relevant evidence.

The facts of the present case are that the appellant/claimant companies (Prudential or “P”) appealed against Mr Justice Charles’ decision in R (Prudential Plc & Anor) v Special Commissioner of Income Tax & Anor [2009] EWHC 2494 (Admin) that LPP did not extend to legal advice given by accountants in respect of tax matters. In the proceedings before Charles J, P had applied for judicial review to quash, or limit the scope of, notices served pursuant to section 20 of the Taxes Management Act 1970 (TMA 70) – now replaced by the Finance Act 2008 – requiring the production of documents. Section 20 (powers in connection with trades, professions and vocations), is set out under the heading Production of accounts, books and other information. The powers in section 20 of the TMA 70 are intrusive and enforceable by penalty. Taxpayers or third parties are required to deliver documents to an Inspector if he or she reasonably believes the said documents may be relevant to the tax liability of a taxpayer. The consent of the Special Commissioner, the independent person entrusted by Parliament with the duty of overseeing the use of these intrusive powers, is required for the power to be exercised.

The notices were served by HMRC with a view to investigating a commercially marketed tax avoidance scheme (disclosed to HMRC pursuant to statutory obligations placed on the promoters of such schemes by the Finance Act 2004). P argued that the notices required production of documents by which they sought or received legal advice on tax matters, in some cases from counsel and foreign lawyers, and in others from accountants. So from P’s perspective, a section 20 TMA 70 notice did not require a person to disclose documents to which LPP applied. P claimed that they were not obliged to disclose documents relating to obtaining advice from their accountants.

P submitted that the determinative factor was not the status of the adviser but the nature of the advice, and therefore the function of the adviser, so that it should not matter whether or not the adviser was a lawyer as such or was another appropriately qualified professional person approached for, or giving, legal advice. P’s grounds of challenge were that the notices seek material (1) covered by LPP and (2) that does not on any reasonable view contain information relevant to any tax liability or to the amount of any such liability within the meaning of section 20 of TMA 70.

But Charles J – whose judgment the Court of Appeal found “admirable” (Lloyd LJ, para 3) – disagreed. Whilst Charles J thought (para 70) there was real strength in the argument that the extent of the right to refuse disclosure should not relate to the nature of the legal qualification of the person giving the advice, the judge nonetheless decided against P because of the present state of the law.

Article 8 did not feature in the judicial review challenge before Charles J and it was common ground that (a) P’s case was not supported by an English precedent which dealt specifically with tax law and accountants’ professional advice and (b) no relevant assistance is provided by authorities from other jurisdictions or the ECHR: please see para 29 of the [2009] EWHC 2494 (Admin) decision; Charles J (para 31) also enumerated 11 points on what the case-law on LPP meant to his mind.

The Court of Appeal unanimously dismissed P’s appeal. Overall, Lloyd LJ’s reasoning was set out in the following terms:

  • Para 5: Subject to very limited and presently irrelevant exceptions, legal professional privilege was an absolute rule entitling the client to refuse to disclose documents or answer questions, and to require the adviser and others so to refuse as well. One corollary of the nature of the rule is that it needs to be certain in its nature and content.
  • Para 51: Parliament had not created any statutory extension of LPP to legal advice sought from and given by accountants on tax matters, but this position has been reached after consideration of the position by several responsible bodies, making diverging recommendations on the point, including two committees, some of whose recommendations did lead to legislation. Parliament’s failure to change the law in this respect is not an accident.
  • Para 52: The statutory context which is directly relevant in these proceedings, TMA section 20 (and since then the Finance Act 2008, Schedule 36), general reference is made to documents which are the subject of LPP, but specific provision is made as regards what a tax accountant or a tax adviser can and cannot be required to produce. Parliament has, therefore, addressed the point expressly in the material provisions.
  • Para 63: Leaving aside for a moment the human rights aspect, which does not seem to have been argued below, it seems to me that Charles J was right to hold that Wilden Pump Engineering Co v Fusfeld [1985] FSR 159  is a decision binding on the Court of Appeal to the effect that, at common law, LPP only applies in relation to advice by lawyers, that is to say members of the legal professions of England and Wales, and by extension foreign legal professions. [So LPP could not be extended to someone who was not a lawyer, even if the advice they were giving was legal advice which they were competent to give]
  • Para 69: While article 8 guarantees protection for correspondence with a lawyer, it cannot be taken to require the extension of that privilege to communications with any other person who may be asked to give legal advice. Given that LPP represents a significant restriction on the powerful public interest in all relevant evidence being capable of being made available for the determination of legal proceedings, it is manifestly a matter of public policy what the bounds of LPP should be. Article 8 confers a qualified right. It seems to me plain that a rule which limits LPP to communications with a member of a relevant legal profession (a) is in accordance with law and (b) can properly be regarded as necessary in a democratic society in one or more relevant interests, in particular for the protection of the rights and freedoms of others.
  • Para 71: Moreover, a requirement of human rights law is that the relevant legal position should be appropriately certain. The significance of the rule, and its potentially controversial nature, as a virtually absolute exception to the general rule as to the availability and disclosability of relevant evidence, which does not give rise to any ad hoc balancing of competing interests (as some issues of privilege do) are exemplified by the amount of litigation over the past decades in which issues arising from it have been debated before the courts, up to the highest level. In that context, it seems to me that it is particularly important that the rule should be certain, so that its application can be readily understood. As presently understood, it seems to me that the rule does stand up to that test in practical terms. If it were to be regarded as extending, without statutory help or definition, to the seeking and giving of advice from and by professionals other than lawyers, subject to some criterion as to the status and qualification of the adviser … then it seems to me that the scope of the rule would be lamentably uncertain, and that this in itself might fail to satisfy the human rights test of being “in accordance with law”.
  • Para 72: That neither this nor any other point affords a basis for declining to follow the Court of Appeal’s previous decision in Wilden Pump, which is binding on us. While Lord Pannick is correct in contending that function enters into the test, because the lawyer must be consulted in his professional capacity and must give (or be asked to give) advice as such, nevertheless status is also central to the test. Wilden Pump requires us to hold that LPP only applies (apart from statute and an exceptional case such as Calley v Richards) to communications with a member of a relevant legal profession.
  • Para 77: Lord Pannick invited the court to hold that LPP is available in respect of communications by which legal advice on tax matters is sought from or given by a person within that statutory definition. Eloquently as he put it, it seems to me that this contention shows that, if LPP is to be extended so as to apply when tax advice involving legal issues is sought from or given by accountants, the appropriate scope of that extension is a matter for Parliament, not for the courts. The majority of the Keith Committee recommended a fairly simple formula, which might have been refined in the course of parliamentary drafting … If their recommendation had been acted on, it is possible that something along the lines of section 330 of POCA might have emerged. I do not see how that could be an exercise that it would be proper for the courts to undertake, by way of declaring the scope of LPP as a matter of the common law.

It is important to remember that R (Morgan Grenfell & Co) v Special Commissioner of Income Tax [2002] UKHL 21 established that a notice under section 20 does not require a person to disclose documents to which LPP applies. As Lord Hoffmann (as he then was) put it in para 7 of that case, “LPP is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice.”

The House of Lords’ case of Three Rivers District Council v Governor and Company of the Bank of England (No. 6) [2004] UKHL 48 – where the House allowed the bank’s appeal – is an authoritative decision on LPP. The Court of Appeal had held that LPP applied only in respect of communications for the purpose of obtaining advice as to the legal rights and obligations of the Bank, and did not apply to communications relating to the presentation of its evidence to the inquiry set up in relation to the Bank’s supervision of BCCI. Placing “the administration of justice reasons … in the balance” which he thought would “usually prevail”, at para 28 Lord Scott of Foscote (as he then was) held that communications between doctor and patient, accountant and client, husband and wife, parent and child, priest and penitent enjoyed less protection that communications between lawyers and their clients. The House was in agreement with his Lordship and Lord Rodger of Earlsferry (as he then was, para 58) explained, “In relation to legal advice privilege what matters today remains the same as what mattered in the past: whether the lawyers are being asked qua lawyers to provide legal advice.” Lady Hale (para 61) thought that there “is a clear policy justification for singling out communications between lawyers and their clients from other professional communications.”

Under the Three Rivers (No. 6) ruling, LPP is not limited to litigation. It was recognised that LPP did not apply simply because the communication was between a lawyer and his client. But that decision applies only to communications with lawyers and it did not decide the issue on at the heart of the instant appeal.

Wilden Pump Engineering Co v Fusfeld [1985] FSR 159

This judgment by Dillon and Waller LJJ was central to the decisions made by Charles J at first instance and subsequently by Lloyd LJ: both of them rejected P’s arguments. Citing Chitty J’s judgment in Moseley v The Victoria Rubber Co (1886) 3 RPC 351 – where the court ruled that no general professional privilege covering communications existed between a person and his patent agent – Dillon LJ held that LPP was only available in respect of communications for the purpose of getting or giving legal advice from or by members of the legal profession.

Wilden Pump concerned discovery (now disclosure), legal advice, patent agents and privilege. The court held that in an action for infringement of copyright in design drawings of the plaintiff’s air-operated pumps it became apparent that the defendant had taken advice from patent agents. The defendant relied upon the defence of innocent copying. The plaintiff (or claimant) applied for discovery of the advice of the patent agents.

Affirming Falconer J’s first instance to order discovery, the Court of Appeal held that (1) legal professional privilege did not apply to the communications between client and patent agent and (2) discovery should not be ordered of communications between client and legal advisor.

In the present (Prudential’s) case Lord Pannick QC canvassed the following arguments in the Court of Appeal:

  • Wilden Pump was not decisive of the present appeal.
  • That the ordinary advice of a patent agent, especially (as in that case) in an area outside his recognised special field, might well not be legal advice in any event. (Whilst Lloyd LJ was impressed by Lord Pannick’s submissions, his Lordship said that might be so, but it was not the basis on which the case was decided.)
  • If decisive on the present point, Wilden Pump was wrongly decided and that the decision is not binding on the Court of Appeal now because of the impact of the Human Rights Act 1998 which was not at issue in 1984.

Moreover, the Court of Appeal also noted that in Campbell v UK (1993) 15 EHRR 137, Strasbourg has held that interference with the privacy of a person’s communications with his lawyer is a breach of article 8. Lloyd LJ observed further that in Foxley v UK (2001) 31 EHRR 25 Strasbourg endorsed its own approach without developing it any further in a way which was meaningful to the present case. Hence, it did not follow that just because the exercise of the right of privileged and confidential communication with a lawyer is protected by article 8, communications for obtaining legal advice from someone who was not a member of the legal profession would also be afforded the same protection under the ECHR.

Ultimately Charles J was right. But was he really? Some of the greatest names in the law are involved in these proceedings which will, no doubt, be influential in all common law jurisdictions and beyond.

Again, the proceedings will be viewable at the times indicated above, online here.


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36 responses

5 11 2012
mkp

Lord Hope @ 11:28, 5 Nov, LPP not LAP in Lord Taylor of Gosforth’s approach

5 11 2012
mkp

Morgan Grenfell & Co) v Special Commissioner of Income Tax [2002] UKHL 21

5 11 2012
mkp

Lord Pannick QC on Three Rivers District Council & Ors v. Bank of England [2004] UKHL 48 Lord Foscote para 35: “Legal advice privilege should, in my opinion, be given a scope that reflects the policy reasons that justify its presence in our law.”

Cf Lord Hope picking up Lord Rodger (who agrees with Lord Scott at 49) para 58: “that in the past the business of solicitors was more restricted than it is today and that there is therefore now more of a need to keep legal advice privilege within justifiable bounds.”

5 11 2012
mkp

Lord Pannick QC (confidentiality inspires candour): Accountants are trained legal professional like lawyers: “the legal reality”: 2 fallacies in revenue’s response:

1. The court is asked to revisit a balancing exercise centuries ago

2. JI = point delayed: Not that easy to establish what client may and may have done: especially prior to 2000 and Morgan Grenfell, HMRC recognised LPP for accountants …

Lord Hope DPSC, Litigation can’t go on without LPP: unless only litigants in person appear in courts!

5 11 2012
mkp

In 2, the point had developed over the years and CA’s advice remained protected …

5 11 2012
mkp

Second fallacy: notable that p has not identified any public interest argument

5 11 2012
mkp

Common Law: PI in legal advice confidence

5 11 2012
mkp

No question of balance, absolute principle (LPP): in the interests of justice, Morgan Grenfell & Co, Lord Hoffman did not see LPP being overridden by the PI

5 11 2012
mkp

whoops Lord Pannick just called “legislation” … “litigation”

What is the principle at the heart of common law LAP/LPP: This is at the heart of the instant appeal !

5 11 2012
mkp

Had PwC acted as entrepreneurs in the matter then LPP wouldn’t apply: Lord Pannick submits …..

5 11 2012
mkp

Morgan Grenfell & Co, LPP a fundamental human rights per Lord Hoffman

5 11 2012
mkp

Ratio of the case, Lord Hope DPSC concurs

5 11 2012
mkp

ECtHR = LPP not absolute

No ruling to extend to accountants

5 11 2012
mkp

Article 8 and 14 must be read TOGETHER, contrary to CA ruling in [68]

5 11 2012
mkp

Anyway, Parliament recognises in section 330 of POCA that clients are entitled to sound advice and article 8 ought to be respected.

5 11 2012
mkp

Lord Pannick: privilege belongs to the client not to the lawyer (authorities are clear on this; don’t even need to visit them ….!) Lord Sumption accepts submission

5 11 2012
mkp

No statute excludes LPP from accountants

5 11 2012
mkp

Great listening to Lord Pannick QC: he’s on to Wilden Pump now !!!

5 11 2012
mkp

Dillon LJ: The second, which is disputed: “A qualified legal adviser is one who is officially recognised by the competent authorities in this country, or a foreign State, as being a member of a profession of persons fit to advise on the branch of the law in respect of which the said advice is sought.”

5 11 2012
mkp

Leaving aside, however, whether Mr Prescott fails by his own test, it seems to me that the position is that it is impossible to uphold an utterly wide test of privilege extending to any communication by the litigant with any person from whom he has sought, or happens to have received, advice on any point of law relevant to the litigation in question. It is far too wide, and the Courts have never adopted such a wide approach. The narrow approach of the common law is to recognise certain types of person as being legal advisers, communications with whom on matters of law are privileged. Besides barristers and solicitors, this, it seems from the old authorities, originally also included scriveners and doctors of the civil law practising in Doctors’ Commons and Proctors in the Ecclesiastical Courts -whether or not they were solicitors. But those were regarded as varieties of lawyer. I do not regard the patent agent as a variety of lawyer, and I take the view that the patent agent is not within the common law privilege.

AND BEFORE THAT:

In the next place accountants may very often be asked by clients to give advice on tax matters or on matters of company law, and there are many people who would regard an accountant as better qualified than a solicitor to give advice on tax matters. There is no statutory Register of accountants; there is no statutory qualification they must have before they can style themselves “accountant”. They may be members of the Institute of Chartered Accountants, but they do not have to be. The have the right of audience, on Tax Appeals before the Commissioners, though not in the High Court. Architects, in the next place, may incidentally advise or be asked to advise on matters of planning or building law, or advise on a proposed building pm ject or development. They have to be registered, and cannot call themselves architects unless they are registered, and if registered they have to pass examinations to show their professional competence — but I do not think anyone would regard
architects as a genus of lawyers.

LORD PANNICK: with great respect, Dillon LJ is missing the point regarding LAP under the common law: HIS TEST IS A “STRAW MAN”

Accountants are thus, A SPECIES OF LEGAL ADVISER

5 11 2012
mkp

In the US and Canada, accountants can’t give legal advice at all. It is prohibited…. The Revenue’s case is founded on a decision of a court of appeal case from Canada

5 11 2012
mkp

Australia and NZ are closer to England and Wales re LAP; but there are no authorities to support the revenue’s case. Someone has to go first and set a precedent. Parliament can set the law out in legislation, another option …

5 11 2012
mkp

Court of Appeal bound by Wilden but UKSC not ….

5 11 2012
mkp

Lord Neuberger adjourned 7 minutes late ….

6 11 2012
mkp

In Germany no general duty of disclosure between parties: Das haben wir nicht in Deutschland. Leider !!!

Lord Pannick: Duty of the court to address the problem. This is his last submission ….

6 11 2012
mkp

ICAEW barrister (Ms Taylor) agrees with Lord Pannick but seeks not to repeat them;

CTA and CA enjoy the same as lawyers: the evidence demands this …

6 11 2012
mkp

If not so, Parliament’s intentions are driven coach and horses through

6 11 2012
mkp

Law Society and Bar Council: opening privilege would be akin to opening the floodgates so that LPP will become meaningless …

6 11 2012
mkp

Duties of CTAs and CAs to play by the rules: their code … it’s ok to minimise (avoidance) tax but can’t avoid it; Parliament keeps shifting the goalposts though

6 11 2012
mkp

A pound of flesh “yes”, a drop of blood “no”

6 11 2012
mkp

Lawyers are integral to the rule of law: so LPP is deserved. The cloak of privilege is for them. But tax is payable by law and tax advisers are advising on the same thing as a lawyer would do re tax so lawyers’ exclusivity to the rule of law is neither here nor there.

6 11 2012
mkp

She said that Clifford Chance told client to use lawyer over accountant … UKSC told her not to market the firm live on UKSC. But she says that it is a part of the evidence …

6 11 2012
Legal Professional Privilege to Extend to Accountants’ Advice? | Of Counsel

[...] I will update this blog on this Prudential decision once I read about it. In the meantime, I came across an interesting blog post on the issues and facts of this Supreme Court case on Global Corporate Law. [...]

16 01 2013
Deb Daniels

Odd to assert it has nothing to do with being a lawyer – of course it is – the qualified solicitor is an officer of the court, and the rules under which he operates are subject to the discipline of the court – that is what makes his work unique
Now that accountants have “usurped the tax advice role” once the domain of solicitors, the natural legal advisors, and now all and sundry can call themselves legal advisors it is even more important that legal professional privilege is limited to a small defined situation, as a matter of public policy
How else can we control the rampant tax avoidance
The fact that the law was altered to allow mixed partnerships between solicitors and accountants just makes the whole thing a severe embarrassment and impossible to control as we all knew it would. How can it be controlled? By the ludicrous chinese wall? That is what comes of making law without adequate thought. It is Civil Service and ministerial incompetance once again, leaving the judiciary to pick up the pieces.A lot of money spent because of a lack of common sense (again)..

25 01 2013
25 01 2013

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