Accountants – Legal professional privilege – Tax avoidance

R (on the application of (1) Prudential Plc (2) Prudential (Gibraltar) Ltd (appellants) v (1) Special Commissioner of Income Tax (2) Philip Pandolfo (inspector of taxes) (respondents) & (1) Institute of Chartered Accountants in England & Wales (2) General Council of the Bar (3) Law Society (interveners): CA (Civ Div) (Lords Justices Mummery, Lloyd, Stanley Burnton): 13 October 2010

The appellant companies (P) appealed against a decision ([2009] EWHC 2494 (Admin), (2010) 3 WLR 1042) that legal advice given by accountants in respect of tax matters was not ­covered by legal professional privilege. P applied for judicial review to quash, or limit the scope of, notices under section 20 of the Taxes Management Act 1970, requiring the production of documents. The notices were served by the Revenue with a view to investigating a commercially marketed tax avoidance scheme. P asserted 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. A notice under section 20 did not require a person to disclose documents to which legal professional privilege applied. P claimed that they were not obliged to disclose documents relating to obtaining advice from their accountants.

The judge disagreed. P submitted that the determining factor was not the status of the adviser but the nature of the advice, and thus the function of the adviser, so that it should not matter whether the adviser was a lawyer as such or was another appropriately qualified professional person approached for, or giving, legal advice.

Held: (1) 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 was that it needed to be certain in its nature and content (see paragraph 5 of the judgment).

(2) Parliament had not created any statutory extension of legal professional privilege to legal advice sought from and given by accountants on tax matters, and that position had been reached after consideration of the position. Moreover, section 20 made specific provision as regards what a tax accountant or a tax adviser could and could not be required to produce. Parliament had, therefore, addressed the point expressly in the material provisions (paragraphs 51, 52).

(3) The court was bound by authority to hold that legal professional privilege applied, at common law, only as regards advice by members of the legal professions of England and Wales, and by extension foreign legal professions, and 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, Wilden Pump Engineering Co v Fusfeld [1985] FSR 159 CA (Civ Div) followed.

Although function entered 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 was also central to the test. Wilden Pump required the court to hold that legal professional privilege only applied, apart from statute and an exceptional case, to communications with a member of a relevant legal profession (paragraphs 63, 72).

(4) While article 8 of the European Convention on Human Rights 1950 guaranteed protection for correspondence with a lawyer, it could not be taken to require the extension of that privilege to communications with any other person who might be asked to give legal advice. Given that the privilege represented a significant restriction on the powerful public interest in all relevant evidence being made available for the determination of legal ­proceedings, it was manifestly a matter of public policy what the bounds of the privilege should be. Article 8 ­conferred a qualified right. It seemed plain that a rule that limited legal ­professional privilege to communications with a member of a relevant legal profession complied with the requirements of that article. It also had the important benefit of certainty (paragraphs 69, 71).

(5) It was for parliament and not the courts to formulate an appropriate extension of the scope of the privilege to accountants (paragraph.77).

Appeal dismissed.

Lord Pannick QC, Conrad McDonnell (instructed by PricewaterhouseCoopers Legal) for the appellants; no appearance or representation for the first respondent; Timothy Brennan QC, Diya Sen Gupta, Laura McNair-Wilson (instructed by the in-house solicitor) for the second respondent; Charles Flint QC (instructed by Simmons & Simmons) for the first intervener; Bankim Thanki QC, Ben Valentin (instructed by the in-house solicitor) for the second intervener; Sydney Kentridge QC, Tony Adam QC (instructed by Herbert Smith) for the third intervener.