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• Author: Ranjeet Johal

Comment on Prudential v HMRC

On 23 January 2013, the Supreme Court refused to extend legal advice privilege to accountants offering tax advice in R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1.

The reasoning behind legal advice privilege is simple: it promotes full and frank communications between lawyers and their clients. It is an established common law principle, and is solely for the client’s benefit.

The case concerned a tax avoidance scheme, devised by PWC, which Prudential were involved in. The tax man became aware and requested a number of documents from Prudential, of which a few were delivered whilst others were held back. The tax man served further a further notice in relation to the documents, but Prudential issued an application claiming that the requested documents were excluded from their disclosure requirements as they attracted legal advice privilege.

At first instance, the Court rejected Prudential’s argument that the documents were subject to legal advice privilege. The Judge said that if exactly the same advice had come from a lawyer, it would have attracted legal advice privilege. However, as the advice had come from an accountant, and not a member of the legal profession, privilege could not apply here. Prudential appealed to the Court of Appeal, which upheld the decision for the same reasons as the Judge at first instance. Prudential then appealed to the Supreme Court.

The Supreme Court once again rejected Prudential’s appeal by a majority of five to two. Lord Neuberger gave the lead judgment in which he confirmed that legal advice privilege applies to all communications passing between a client and his lawyers, acting in their professional capacity, in connection with the provision of legal advice.

Lord Neuberger considered the nature of the case before the Court, namely whether or not the scope of legal advice privilege should be extended to accountants giving expert tax advice. The arguments for the extension of the breadth of legal advice privilege included the fact that the principle was solely for the benefit of clients and that if a lawyer had given the same advice, it would have been protected. The arguments against the extension of the principle were that it would have unpredictable, and potentially wide-ranging, public and unforeseen consequences best left to Parliament to deal with.

Lord Neuberger ruled that the by allowing the appeal, the defined and clear principle would be extended beyond everyone’s understanding of it. Once it had been opened up to accountants, it would potentially be opened to other professionals giving legal advice incidental to the services they provide. It is difficult to assess the implications of making a clear principle unclear. The limitation on legal advice privilege currently in place has thus far been endorsed by Parliament and it would be inappropriate for the Court to act here. Lord Neuberger also stated that there appeared to be no pressing need to change the limits of legal advice privilege.

Lord Sumption dissenting stated that privilege is the right of the client and should depend on the character of the advice sought, and not on the class of the adviser. He argued that it should attract to any communications between a client and his legal adviser giving legal advice in the course of a professional relationship, where part of the adviser’s job is to give legal advice on the subject area in question.

The decision reinforces the status quo that legal advice privilege attracts only to advice given by legal professionals advising their clients in their professional capacity. Had Prudential been successful in their application, the Courts would have been subject to a whole raft of cases on the extension of a once clearly defined principle.  Should an extension of the principle be necessary, it is best left to Parliament to consider and implement.

It is also clear that a party will not be allowed by the Courts to claim legal advice privilege over communications with anyone who is not a qualified lawyer. Should someone wish to keep information confidential, it would be in their best interests to seek advice from a solicitor.

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