R (on the application of Prudential plc and another) v Special Commissioner of Income Tax [2013] UKSC 1SummaryIn Prudential, the specific issue was whether Prudential (Gibraltar) Ltd and Prudential
R (on the application of Prudential plc and another) v Special Commissioner of Income Tax [2013] UKSC 1
Summary
In Prudential, the specific issue was whether Prudential (Gibraltar) Ltd and Prudential plc were entitled to withhold from HM Revenue & Customs ("HMRC") advice given to them by their accountants (PricewaterhouseCoopers LLP), on the basis that that advice was protected by reason of legal professional privilege. The more general question raised by that issue was whether legal advice privilege extends, or should be extended so as to apply, to legal advice that is given by someone other than a member of the legal profession. The focus of the Supreme Court, understandably, was on the general question only; its answer (by a 5:2 majority) was "no".
The decision
Lord Neuberger (with whom Lords Hope, Walker, Mance, and Reed agreed) delivered the lead judgment. A summary of his analysis follows below.
It is universally accepted that legal advice privilege applies only to communications in connection with advice given by members of the legal profession. All sources, which include the following, are wholly consistent on this point:
Accordingly, contrary to Prudential's submissions at the Supreme Court, were the Supreme Court to allow the appeal, it would be extending legal advice privilege beyond its current limits, and, indeed, what had been understood universally, for well over 100 years, to be its limits. Moreover, as it would follow ineluctably from the acceptance of Prudential’s argument that legal advice given by at least some other professional people would be covered also, the court would be extending the ambit of the principle considerably.
Legal advice privilege is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person. It is conferred for the benefit of the client, and may be waived only by the client. Accordingly, as a great deal of legal advice now is tendered by professional advisers other than members of the legal profession, in principle, the argument for allowing the appeal is a strong one.
However, legal advice privilege should not be extended, for three reasons:
(1) the consequences of allowing the appeal are hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming unclear and uncertain.
As well as the profession of chartered accountant, occupations such as actuaries, auditors, architects, surveyors, town planners, engineers and pension advisers require training and qualifications. All have associations, with rules and disciplinary procedures; and such professionals often have considerable specialist legal expertise, on which their clients draw and expect to be able to draw. However, when members of such professions give legal advice, often it will not represent the totality of the advice, and, indeed, it may be only a subsidiary part. In contrast, lawyers normally only give legal advice.
With legal advice privilege limited to advice from members of the legal profession, the strong, and justified, presumption has been that legal advice privilege applies to all communications in that context. If the privilege were to be extended, the presumption could not apply. It is likely that there would be difficult questions to resolve, as to whether, and, if so, in respect of which documents, legal advice privilege could be claimed.
(2) the question raises questions of policy which should be left to Parliament.
The implications of extending the generally understood limits of legal advice privilege could clearly be significant and the extension could have consequences that would need to be considered through the legislative process, with its wide powers of enquiry and consultation and its democratic accountability. For example, if legal advice privilege is to be extended, it may not be appropriate to extend it other than on a conditional or limited basis. When , in 1983, the Keith Committee recommended that communications in connection with tax advice given by chartered accountants should be protected, that new privilege was to be subject to various controls and an override in certain circumstances. It is not realistically open to the courts to impose such restrictions or conditions; but, it would be open to Parliament.
(3) Parliament has enacted legislation relating to legal advice privilege, which, at the very least, suggests that it would be inappropriate for the court to extend the law in the way proposed by Prudential.
In particular, Parliament has legislated in the very field with which this appeal is concerned - s.20B, TMA and paragraphs 23 to 26, Schedule 36, Finance Act 2008 - on the basis that legal advice privilege applies only to advice given by lawyers.
Conclusion
The decision of the Supreme Court confirms that legal advice privilege applies only to communications in connection with advice given by members of the legal profession. That is not that surprising. It would have taken a bold court, fired with a reforming zeal, to have changed the law in such a fundamental way as that which was proposed by Prudential. The issue is clearly not one for the courts, not even for the Supreme Court. If it is to be considered, it must be by Parliament. Lord Clarke alone expressed the hope that the issue will be considered by Parliament as soon as reasonably practicable. Whether the Government will take note of that hope is, of course, not yet known.
All their Lordships recognised that it is difficult (if not impossible) to justify the fact that if A and B have the same problem, the solution to which depends upon an application of the legal principles of taxation law to the same facts, A seeks and obtains the advice from a firm of solicitors and B obtains the same advice from a firm of chartered accountants, A's communications are protected absolutely from disclosure, including to HMRC, but B's communications, which could be identical terms to A's, are not. Lord Neuberger, for example, noted that the restriction to legal advisers in this regard was explicable properly by reference to history only. However, only Lords Sumption and Clarke considered that this inequality of treatment should have the consequence that the Supreme Court change the law so as to remedy it.
It is considered that if the Government reviews the principle of legal professional privilege, and seeks to re-visit the balancing act that was performed many centuries ago by introducing a revised principle that reflects the various ways in which legal advice is provided, particularly post the Legal Services Act 2007, the result is unlikely to be that which was sought by Prudential, especially as regards advice pertaining to tax avoidance structures. In the current environment, it would be astonishing if the Government did not conclude that the public interest in ensuring that HMRC is not restricted in its statutory duty of administering the tax system, and its aim of everyone paying the right amount of tax, outweighs the public interest in encouraging candour between a client planning to reduce his tax burden and his chartered accountant assisting him to do so. If there is to be any extension in this regard, it is most likely to be by the introduction of a separate restricted "tax advice privilege" (as (i) was proposed by the Keith Committee; (ii) has been introduced in New Zealand; and (iii) was recommended by the Australian Law Reform Commission) combined, potentially, with the concomitant abolition of legal advice privilege in respect of the obtaining and giving of tax advice.
Summary
In Prudential, the specific issue was whether Prudential (Gibraltar) Ltd and Prudential plc were entitled to withhold from HM Revenue & Customs ("HMRC") advice given to them by their accountants (PricewaterhouseCoopers LLP), on the basis that that advice was protected by reason of legal professional privilege. The more general question raised by that issue was whether legal advice privilege extends, or should be extended so as to apply, to legal advice that is given by someone other than a member of the legal profession. The focus of the Supreme Court, understandably, was on the general question only; its answer (by a 5:2 majority) was "no".
The decision
Lord Neuberger (with whom Lords Hope, Walker, Mance, and Reed agreed) delivered the lead judgment. A summary of his analysis follows below.
It is universally accepted that legal advice privilege applies only to communications in connection with advice given by members of the legal profession. All sources, which include the following, are wholly consistent on this point:
- over 130 years' jurisprudence, commencing with the decision of Sir George Jessel MR in Slade v Tucker (1880) 14 Ch D 824.
- the courts' refusal, for example, to extend legal advice privilege to legal advice given by a trade mark agent, a patent agent, or a personnel consultant (see, respectively, Dormeuil Trade Mark [1983] RPC 131, Wilden Pump Engineering Co v Fusfeld [1985] FSR 159, and New Victoria Hospital v Ryan [1993] ICR 201).
- the official reports, such as, for example, the 16th Report of the Law Reform Committee (Privilege in Civil Proceedings) (1967) (Cmnd 3472) and the 1983 Report of the Committee on Enforcement Powers of the Revenue Departments (Cmnd 8822) ("the Keith Report").
- the Government's rejection (in 2003) of a proposal, which had been made by the Director General of Fair Trading that legal advice given by accountants should be subject to the same privilege as that given by members of the legal profession.
- the discussion by the House of Commons Public Bill Committee as to whether legal advice privilege should be extended to tax advice given by accountants (in the context of the replacement of the information and document gathering provisions of the Taxes Management Act 1970 ("TMA") by what became Schedule 36, Finance Act 2008 (Hansard (HC Debates) 10 June 2008, cols 606-608)).
Accordingly, contrary to Prudential's submissions at the Supreme Court, were the Supreme Court to allow the appeal, it would be extending legal advice privilege beyond its current limits, and, indeed, what had been understood universally, for well over 100 years, to be its limits. Moreover, as it would follow ineluctably from the acceptance of Prudential’s argument that legal advice given by at least some other professional people would be covered also, the court would be extending the ambit of the principle considerably.
Legal advice privilege is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person. It is conferred for the benefit of the client, and may be waived only by the client. Accordingly, as a great deal of legal advice now is tendered by professional advisers other than members of the legal profession, in principle, the argument for allowing the appeal is a strong one.
However, legal advice privilege should not be extended, for three reasons:
(1) the consequences of allowing the appeal are hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming unclear and uncertain.
As well as the profession of chartered accountant, occupations such as actuaries, auditors, architects, surveyors, town planners, engineers and pension advisers require training and qualifications. All have associations, with rules and disciplinary procedures; and such professionals often have considerable specialist legal expertise, on which their clients draw and expect to be able to draw. However, when members of such professions give legal advice, often it will not represent the totality of the advice, and, indeed, it may be only a subsidiary part. In contrast, lawyers normally only give legal advice.
With legal advice privilege limited to advice from members of the legal profession, the strong, and justified, presumption has been that legal advice privilege applies to all communications in that context. If the privilege were to be extended, the presumption could not apply. It is likely that there would be difficult questions to resolve, as to whether, and, if so, in respect of which documents, legal advice privilege could be claimed.
(2) the question raises questions of policy which should be left to Parliament.
The implications of extending the generally understood limits of legal advice privilege could clearly be significant and the extension could have consequences that would need to be considered through the legislative process, with its wide powers of enquiry and consultation and its democratic accountability. For example, if legal advice privilege is to be extended, it may not be appropriate to extend it other than on a conditional or limited basis. When , in 1983, the Keith Committee recommended that communications in connection with tax advice given by chartered accountants should be protected, that new privilege was to be subject to various controls and an override in certain circumstances. It is not realistically open to the courts to impose such restrictions or conditions; but, it would be open to Parliament.
(3) Parliament has enacted legislation relating to legal advice privilege, which, at the very least, suggests that it would be inappropriate for the court to extend the law in the way proposed by Prudential.
In particular, Parliament has legislated in the very field with which this appeal is concerned - s.20B, TMA and paragraphs 23 to 26, Schedule 36, Finance Act 2008 - on the basis that legal advice privilege applies only to advice given by lawyers.
Conclusion
The decision of the Supreme Court confirms that legal advice privilege applies only to communications in connection with advice given by members of the legal profession. That is not that surprising. It would have taken a bold court, fired with a reforming zeal, to have changed the law in such a fundamental way as that which was proposed by Prudential. The issue is clearly not one for the courts, not even for the Supreme Court. If it is to be considered, it must be by Parliament. Lord Clarke alone expressed the hope that the issue will be considered by Parliament as soon as reasonably practicable. Whether the Government will take note of that hope is, of course, not yet known.
All their Lordships recognised that it is difficult (if not impossible) to justify the fact that if A and B have the same problem, the solution to which depends upon an application of the legal principles of taxation law to the same facts, A seeks and obtains the advice from a firm of solicitors and B obtains the same advice from a firm of chartered accountants, A's communications are protected absolutely from disclosure, including to HMRC, but B's communications, which could be identical terms to A's, are not. Lord Neuberger, for example, noted that the restriction to legal advisers in this regard was explicable properly by reference to history only. However, only Lords Sumption and Clarke considered that this inequality of treatment should have the consequence that the Supreme Court change the law so as to remedy it.
It is considered that if the Government reviews the principle of legal professional privilege, and seeks to re-visit the balancing act that was performed many centuries ago by introducing a revised principle that reflects the various ways in which legal advice is provided, particularly post the Legal Services Act 2007, the result is unlikely to be that which was sought by Prudential, especially as regards advice pertaining to tax avoidance structures. In the current environment, it would be astonishing if the Government did not conclude that the public interest in ensuring that HMRC is not restricted in its statutory duty of administering the tax system, and its aim of everyone paying the right amount of tax, outweighs the public interest in encouraging candour between a client planning to reduce his tax burden and his chartered accountant assisting him to do so. If there is to be any extension in this regard, it is most likely to be by the introduction of a separate restricted "tax advice privilege" (as (i) was proposed by the Keith Committee; (ii) has been introduced in New Zealand; and (iii) was recommended by the Australian Law Reform Commission) combined, potentially, with the concomitant abolition of legal advice privilege in respect of the obtaining and giving of tax advice.