The Privilege Judgment

8 02 2013

R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1

The Supreme Court has spoken on the thorny issue of legal advice privilege (or “LAP”). In sum, the relationship between lawyer and client is sacrosanct and, at least on the initiative of the Court, the ambit of LAP is not extendable to another species of legal advisor. In the provision of legal advice, LAP protects the communications between client and lawyer (acting in a professional capacity). Lord Neuberger of Abbotsbury PSC, Lord Hope of Craighead DPSC, Lord Walker of Gestingthorpe, Lord Mance and Lord Reed JJSC so held by delivering concurring judgments. But the affair was not without disagreement and Lord Clarke and Lord Sumption JJSC have produced their own dissenting judgments.

In the controversial ruling the Court said that even in circumstances where legal advice was imparted by a person who was a qualified person, LAP’s scope would not be extended to communications in connection with advice given by professional people – such as chartered accountants – other than members of the legal profession. It was a really great hearing to watch live online; despite Lord Pannick QC’s valiant efforts, he could not sway the Supreme Court to reverse Mummery, Lloyd and Stanley Burnton LJJ’s judgment [2010] EWCA Civ 1094 in the Court of Appeal when it heard the matter on appeal from Charles J [2009] EWHC 2494 (Admin) who had, of course, dismissed the claim for judicial review before him.

I. Background  

The full facts on this case are available in the case preview. Just to sketch the facts in outline, the issue at the heart of Prudential’s appeal was in respect of two written notices served under section 20B1 of the Taxes Management Act 1970 by Philip Pandolfo (the second defendant and the “inspector” of taxes) with the Special Commissioner of Income Tax’s (the first defendant) approval. Under the notices, Prudential Plc and Prudential (Gibraltar) Ltd – Prudential Plc’s subsidiary – were required to deliver up to the inspector documents relevant to Prudential (Gibraltar) Ltd’s tax liability. At first instance, although somewhat sympathetic to Prudential (the claimant), Charles J dismissed the judicial review claim on the basis that LAP could not be afforded to documents containing communications between tax accountants PricewaterhouseCoopers (“PwC”) – who offered legal advice on tax matters relating to tax affairs – and Prudential. The judge held that LAP only applied to the advice given by a qualified lawyer and, of course, the Court of Appeal upheld his decision.

The inspector’s notices were connected to PwC’s formulation of a tax avoidance scheme marketed in 2004 that was modified to benefit Prudential which implemented the scheme through a series of transactions. Understandably, the inspector wanted to know the details of the transactions. So he served the notices mentioned above and of course, relying on LAP, Prudential tried to conceal the transactional details.

II. Issues

Specifically, the issue at the heart of the appeal was whether, in light of being served a statutory notice from the inspector to deliver up documents in respect of its tax dealings, a company could defy complying with the inspector’s demand by saying that the documentation in question was protected by LAP when in fact accountants had provided legal advice in respect of a tax avoidance scheme. More generally, the appeal raised the question whether LAP’s scope ought to be broadened to include members of the professions outside the lawyers’ realm; if that were the case, then how far should things be taken?

III. The Supreme Court

Majority: Lord Neuberger (President), Lord Hope (Deputy President), Lord Walker, Lord Mance, Lord Reed

As noted above, the Court explained that LAP is universally considered to apply only to legal advice given to clients by their lawyers. It should not be extended to communications in relation to advice given by other professionals other than lawyers notwithstanding the fact that legal advice was imparted by the said professional; a qualified person. Lord Neuberger PSC’s reasoning remained embedded in his belief that the extension of LAP was a matter for Parliament rather than for the judiciary and at para 50 his Lordship held that “if Parliament has unequivocally endorsed the aspect or limitation then the courts should not, of course, alter it.” Setting out the intended ambit of LAP at paras 29 – 37 of his judgment, Lord Neuberger emphasised that the relevant provisions of the Taxes Management Act 1970 were substantially re-enacted by the Finance Act 2008 and it was “clear” to the Court that “Parliament … decided to maintain the difference between a person with whom communications attracted ‘legal professional privilege’ … and a ‘tax adviser’”.

Ultimately, Lord Neuberger’s threefold rationale, para 53, was that:

  • The consequences of extending LAP were hard to assess and a clear and workable principle would become uncertain.
  • The debate surrounding LAP’s extension raised issues of policy that Parliament ought to deliberate on. Moreover, owing to Parliament’s wide-ranging powers of inquiry and consultation and its democratic accountability, the consequences of LAP’s extension were best considered through the legislative process. Moreover, the need to vary the limits of LAP as a matter of urgency was not evidenced.
  • Minimally, existing legislation relating to LAP indicated that it would be wrong – “inappropriate” – for the Court to extend the law on LAP to other professionals.

Since it is widely acknowledged that LAP applies exclusively to communications in connection with advice given by lawyers, widening its scope would take things beyond the principle’s understood limits: paras 29, 37. (Lord Hope DPSC concurring at para 80.)

Lord Neuberger flagged up numerous authorities and referred to Sir George Jessel MR’s treatment of the issue in Slade v Tucker (1880) 14 Ch D 824, 828 where the Court said that LAP remained “confined to communications between a client and his legal adviser, that is, between solicitor and client or barrister and client.” (Wheeler v Le Marchant (1881) 17 Ch D 675, 681-682 upheld this as the correct approach.) In Minter v Priest [1930] AC 558, 581, Lord Atkin approved and explained that “that the profession is the legal profession.” More recently, the courts refused to take things further than that: Dormeuil Trade Mark [1983] RPC 131 (Nourse J on trade mark agents), Wilden Pump Engineering Co v Fusfeld [1985] FSR 159 (Waller and Dillon LJJ on patent agents) and New Victoria Hospital v Ryan [1993] ICR 201 (Tucker J on personnel consultants).

Textbooks on the law of evidence and privilege took a similar view: para 32.

Equally, The 16th Report of the Law Reform Committee (Privilege in Civil Proceedings) (1967) (Cmnd 3472) at para 24, said of LAP that “[t]he category of professional legal advisers is confined to barristers and solicitors”: para 33.

So it was pretty obvious that ramifications of extending LAP needed to be debated in the legislature which enjoyed wide powers of inquiry and consultation and its democratic accountability: para 62. Moreover, LAP’s extension to persons outside of the legal profession may only be appropriate on a conditional or limited basis, which cannot appropriately be assessed, let alone imposed, by the courts: para 65.

Lord Neuberger PSC also the rejected the “the argument [based on the European Convention on Human Rights] that so to hold would infringe article 8 [respect for correspondence] read together with article 14”: at para 75.

Agreeing with Lord Neuberger PSC, Lord Hope DPSC added, para 81, that:

As Sir Sydney Kentridge QC put it, the change we are asked to make would need a very good reason – evidence that something was not working properly. I agree with Lord Neuberger that no such pressing need has been demonstrated, and that to adopt the functional test would give rise to a significant risk of uncertainty.

Likewise, Lord Mance agreed with Lord Neuberger PSC: para 93.


Lord Reed’s conclusion, para 114, was that if the question whether the common law privilege should be extended to legal advice given by accountants were to arise in Scotland, the courts would have to make a policy decision involving “consultation and consideration in the Scottish Parliament, providing the privilege where other professions are involved in the provision of legal services, on a conditional and limited basis.”

Dissent: Lord Sumption and Lord Clarke

Lord Sumption’s dissenting opinion – about which Lord Neuberger said that he “could not begin to improve on” – culminated in the following paragraph:

139. I would allow the appeal and remit the case to the High Court to decide whether the material requisitioned by the respondent would have been privileged if a solicitor or barrister had performed the functions that the accountants performed, and a direction to quash the notices if it would have been.

Lord Sumption’s point of departure was Upjohn Company v United States 449 US 383, 389 (1981) where the U.S. Supreme Court described LAP as “the oldest of the privileges for confidential communications known to the common law.” His Lordship also mentioned the principle protecting personal confidences – “secret professionnel” – in French law. After trawling through the national and international authorities, Lord Sumption returned to the Court of Appeal and the High Court’s judgments. His Lordship noted that Charles J had in fact considered Prudential’s case to be “compelling, indeed unanswerable” because it showed that “accountants do what lawyers are described as doing”.

Explaining that English law has always taken a functional approach to LAP, at para 128, Lord Sumption said this:

The courts below decided the question mainly on the ground that the wider implications of recognising a privilege attaching to the advice of accountants made it a matter for Parliament. Most of the argument addressed to us on behalf of the respondents and those interveners who supported them, was directed to this proposition. In reality, it comprises three distinct points. The first is a classic “floodgates” argument, namely that it would involve an extension of scope of the privilege which would considerably increase the number of persons whose advice qualified. The second argument is that recognising the privilege attaching to accountants’ advice would directly conflict with statute. The third is that fixing the boundaries of the privilege for legal advice from non-lawyers and determining the conditions on which it was exercisable were inherently legislative processes.

Both Lord Sumption and Lord Clarke opined that LAP should be extended to advice given by professionals, like chartered accountants, imparting skilled legal advice as an ordinary part of their function. So the recognition that the privilege attaches to the legal advice given by accountants would not be extending the scope of LAP. The functional approach prevalent under English law meant that the availability of LAP turned on the character of advice sought by the client and the circumstances in which the advice is given.

For Lord Clarke, if the advice was professional legal advice the adviser’s status remained immaterial. As his Lordship put it pithily at para 143:

Lord Sumption describes at para 123, the privilege extends to advice given by salaried legal advisers and to foreign lawyers. According to Lord Neuberger at para 29, it also extends to members of CILEX. The privilege also applied historically to scriveners. It is thus clear that it is not limited to advice given by solicitors and barristers. If it extends to foreign lawyers, it is to my mind impossible to see how it can properly be denied in the case of advice given by an accountant qualified to give advice on the law of tax.

Agreeing with Lord Sumption,  making a further point Lord Clarke, para 146, also said that:

In Moseley v Victoria Rubber Company (1886) 55 LT 482 Chitty J had said that it was quite clear that communication between a man and his patent agent were not privileged. He did not identify the rationale for such a rule. Nor to my mind did Wilden Pump Engineering Co v Fusfeld [1985] FSR 159.

Lord Clarke also hoped “that the whole issue will be considered by Parliament as soon as reasonably practicable”: para 140.

Accountants’ Response

Unhappy with the ruling, Michael Izza, the CEO of the Institute of Chartered Accountants in England and Wales (ICAEW) described the judgment as “undeniably disappointing news”. But he added, “the Supreme Court’s decision doesn’t mean our fight is over.”

Describing Lord Sumption and Lord Clarke’s approach as “an undeniable case” in the accountants’ favour he claimed that “[w]e want people to be free to seek advice from whichever adviser is best able to provide that advice, irrespective of their profession” and that “the current position is unprincipled and anti-competitive for individuals and businesses, who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals.” Izza also pointed to the Legal Services Act 2007 and the creation of multi-disciplinary practices as changing “the way in which legal services are provided.”

Ultimately, Izza urged Parliament “to find a way to resolve how issues such as Legal Professional Privilege are addressed within these new structures.” Whatever Izza’s arguments might be, the truth is that the largest of accountants’ firms have misrepresented and cooked the books to enable massive corporate scandals: Enron and Tyco are just a couple of examples of such behaviour. But, of course, this is not to suggest that lawyers do not cheat.

Lawyers’ Victory

The Law Society, the Bar Council, the Legal Services Board and AIPPI UK Group intervened in the case and argued that lawyers are special.

For my part I fail to see what the fuss is all about, if accountants want their advice to be covered by LAP, then they can quite easily qualify as solicitors, barristers, foreign lawyers or members of CILEX. Or as Lord Neuberger explained, they can simply seek Parliament’s endorsement which in fact declined their invitation in 2001.



One response

6 06 2014
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[…] above is also consistent with the message the UK Supreme Court (by a majority of five to two) gave accountants as regards extending legal […]

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