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  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  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  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  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  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  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)  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  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.