JUDGMENT
R (on the application of Prudential plc and another)
(Appellants) v Special Commissioner of Income Tax
and another (Respondents)
before
Lord Neuberger, President
Lord Hope, Deputy President
Lord Walker
Lord Mance
Lord Clarke
Lord Sumption
Lord Reed
JUDGMENT GIVEN ON
23 January 2013
Heard on 5, 6 and 7 November 2012
Appellants Respondents
Lord Pannick QC James Eadie QC
Conrad McDonnell Patrick Goodall
(Instructed by
PricewaterhouseCoopers
Legal LLP)
(Instructed by Solicitor to
Her Majesty’s Revenue
and Customs )
Intervener (The Law
Society of England and
Wales)
Intervener (The General
Council of the Bar of
England and Wales)
Sir Sydney Kentridge QC Bankim Thanki QC
Tom Adam QC
Tim Johnston
Ben Valentin
Henry King
Rebecca Loveridge
(Instructed by Herbert
Smith Freehills LLP )
(Instructed by Field Fisher
Waterhouse LLP )
Intervener (The Institute
of Chartered Accountants
in England and Wales)
Intervener (AIPPI UK
Group)
Patricia Robertson QC Michael Edenborough QC
QC
James Tumbridge
(Instructed by Simmons &
Simmons LLP )
(Instructed by Gowlings
(UK) LLP )
Intervener (Legal Services
Board)
Philip Havers QC
(Instructed by Legal
Services Board)
LORD NEUBERGER (with whom Lord Walker agrees)
Introductory
1. The specific issue raised by this appeal is whether, following receipt of a
statutory notice from an inspector of taxes to produce documents in connection
with its tax affairs, a company is entitled to refuse to comply on the ground that the
documents are covered by legal advice privilege (LAP), in a case where the legal
advice was given by accountants in relation to a tax avoidance scheme. The more
general question raised by this issue is whether LAP extends, or should be
extended, so as to apply to legal advice given by someone other than a member of
the legal profession, and, if so, how far LAP thereby extends, or should be
extended.
The statutory provisions applicable in this case
2. The statutory provisions in force at the time during which the events giving
rise to the present proceedings took place were in the Taxes Management Act 1970
(“TMA”). All references in this judgment to sections are to sections of that Act,
unless the contrary is stated.
3. Section 20(1)(a) provided that an inspector of taxes
“may by notice in writing require a person … to deliver to him such
documents … as (in the inspector’s reasonable opinion) contain, or
may contain, information relevant to … (i) any tax liability to which
that person is or may be subject, or (ii) the amount of any such
liability”.
Section 20(3) extended this power to require “any other person” to “deliver … or
… make available” such documents to an inspector. By virtue of section 20(7), an
inspector needed the consent of the special or general commissioners before
serving a notice under either subsection.
4. It was established by R (Morgan Grenfell & Co Ltd) v Special
Commissioner of Income Tax [2002] UKHL 21, [2003] 1 AC 563 (“Morgan
Grenfell”) that the provisions of section 20 could not be invoked to force anyone to
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produce documents to which LAP attached. Lord Hoffmann at paras 7 and 9 said
that a statute could only remove such “a fundamental human right” if it “expressly
stated” that it was doing so, or if the intention “appear[ed] by necessary
implication”, and, as Lord Hobhouse emphasised at para 45, “[a] necessary
implication is a matter of express language and logic not interpretation”.
5. Section 20A, inserted by the Finance Act 1976 (“the 1976 Act”),
empowered an inspector to call for documents to be produced by a person who had
“stood in relation to others as a tax accountant” and who had been convicted of an
offence relating to tax or had had a penalty imposed on him under section 99.
Section 20D(2), also inserted by the 1976 Act, explained that “a person stands in
relation to another as tax accountant” when “he assists the other in the preparation
of returns or accounts to be made or delivered by the other for any purpose of tax
…”.
6. Section 20B was also inserted by the 1976 Act (and was amended in 1988,
1989 and 1990). Section 20B(1) required an inspector, before serving a notice
under section 20(1) or (3) on any person, to give that person “a reasonable
opportunity to deliver (or … make available) the documents in question …”.
7. Section 20B also included the following subsections:
“(8) A notice under section 20(3) … or section 20A(1) does not
oblige a barrister, advocate or a solicitor to deliver or make
available, without his client’s consent, any document with respect to
which a claim to professional privilege could be maintained.
(9) Subject to subsection … (11) … below, a notice under section
20(3) … –
(a) does not oblige a person who has been appointed as an
auditor for the purposes of any enactment to deliver or make
available documents which are his property and were created
by him or on his behalf for or in connection with the
performance of his functions under that enactment, and
(b) does not oblige a tax adviser to deliver or make available
documents which are his property and consist of relevant
communications.
(10) In subsection (9) above ‘relevant communications’ means
communications between the tax adviser and –
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(a) a person in relation to whose tax affairs he has been
appointed, or
(b) any other tax adviser of such a person,
the purpose of which is the giving or obtaining of advice about any
of those tax affairs; and in subsection (9) above and this subsection
‘tax adviser’ means a person appointed to give advice about the tax
affairs of another person (whether appointed directly by that other
person or by another tax adviser of his).
(11) … subsection (9) above shall not have effect in relation to any
document which contains information explaining any information,
return, accounts or other document which the person to whom the
notice is given has, as tax accountant, assisted any client of his in
preparing for, or delivering to, the inspector or the Board.”
8. Section 20BA was inserted by the Finance Act 2000 (“the 2000 Act”), and
it extended the power granted by section 20 to make an order for the delivery of
documents by any person who appears to have such documents in his possession
or power. Paragraph 5(1) of Schedule 1AA, also inserted by the 2000 Act,
exempted from the ambit of section 20BA “items subject to legal privilege”, which
were defined in para 5(2) as:
“(a) communications between a professional legal adviser and his
client or any person representing his client made in connection with
the giving of legal advice to the client;
(b) communications between a professional legal adviser and his
client or any person representing his client or between such an
adviser or his client or any such representative and any other person
made in connection with or in contemplation of legal proceedings
and for the purposes of such proceedings; and
(c) items enclosed with or referred to in such communications and
made —
(i) in connection with the giving of legal advice ….”
9. These various provisions of TMA have now been replaced by provisions
contained in section 113 of, and Schedule 36 to, the Finance Act 2008 (“the 2008
Page 4
Act”). While there are differences between the regime in TMA and that in the
2008 Act, they are of no significance for present purposes. Paragraph 23 of
Schedule 36 to the 2008 Act, which effectively replaces section 20B(8), provides
that:
“(1) An information notice does not require a person—
(a) to provide privileged information, or
(b) to produce any part of a document that is privileged.
(2) For the purpose of this Schedule, information or a document is
privileged if it is information or a document in respect of which a
claim to legal professional privilege, or (in Scotland) to
confidentiality of communications as between client and professional
legal adviser, could be maintained in legal proceedings.”
And paragraphs 24 to 26 of Schedule 36 to the 2008 Act contain provisions
relating to communications with “auditors” and with “tax advisers”, which are
similar to those in subsections (9) to (11) of section 20B.
The factual and procedural background to this appeal
10. In 2004, the international firm of chartered accountants,
PricewaterhouseCoopers (“PwC”), devised a marketed tax avoidance scheme (“the
scheme”). In accordance with the requirements of Part 7 of the Finance Act 2004,
PwC disclosed the scheme to the Commissioners for Inland Revenue, or Her
Majesty’s Revenue and Customs (“HMRC”) as they became a year later and as I
will refer to them. At about that time the Prudential group of companies instructed
PwC to advise them in connection with certain overseas holdings, and PwC
identified that the scheme could be adapted for their benefit. Thereafter the
Prudential group implemented the scheme, which involved a series of transactions
(“the Transactions”).
11. The details of the scheme and the Transactions do not matter for present
purposes. It is enough to say that the aim of the scheme was to give rise to a
substantial tax deduction in Prudential (Gibraltar) Ltd, a subsidiary company of
Prudential plc, which could then be set off against the profits of that company,
which profits were ordinarily chargeable to corporation tax in this country.
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12. Mr Pandolfo, the inspector of taxes responsible for this aspect of the
Prudential group’s tax liabilities, considered it necessary to look into the details of
the Transactions (for reasons which are not challenged). To that end, he served
notices under section 20B(1) on Prudential (Gibraltar) Ltd and Prudential plc
(together “Prudential”) giving them the opportunity to make available specified
classes of documents in relation to the Transactions prior to his serving notices
under section 20(1) and (3). Prudential disclosed many of the documents requested
by Mr Pandolfo, but refused to disclose certain documents (“the disputed
documents”) on the ground that Prudential was entitled to claim legal advice
privilege in respect of them.
13. Mr Pandolfo considered that questions were raised by the documents which
were disclosed, and he sought authorisation from the Special Commissioners under
section 20(7) to require Prudential to disclose the disputed documents. Such
authorisation was given, and, on 16 November 2007, Mr Pandolfo served notices
under section 20(1) and (3) on Prudential (Gibraltar) Ltd and Prudential plc
respectively, requiring disclosure of the disputed documents.
14. Prudential then issued the present application for judicial review
challenging the validity of those notices on the ground that they sought disclosure
of documents which related to the seeking (by Prudential) and the giving (by PwC)
of legal advice in connection with the Transactions, which were therefore said to
be excluded from the disclosure requirements of section 20 by virtue of LAP, in
accordance with the decision of the House of Lords in Morgan Grenfell.
15. That application came before Charles J, who rejected it on the ground that,
although the disputed documents would have attracted LAP (and would have been
thereby excluded from the disclosure requirements of section 20) if the advice in
question had been sought from, and provided by, a member of the legal profession,
no such privilege extended to advice, even if identical in nature, provided by a
professional person who was not a qualified lawyer. His decision, [2009] EWHC
2494 (Admin), was upheld, substantially for the same reasons, by the Court of
Appeal (Mummery, Lloyd and Stanley Burnton LJJ), [2010] EWCA Civ 1094.
(Both decisions are now reported at [2011] QB 669.)
16. Prudential now appeal to this court.
Legal advice privilege
17. Where legal professional privilege (“LPP”) attaches to a communication
between a legal adviser and a client, the client is entitled to object to any third
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party seeing the communication for any purpose, unless (i) the client has agreed or
waived its right, (ii) a statute provides that the privilege can be overridden, (iii) the
document concerned was prepared for, or in connection with, a nefarious purpose,
or (iv) one of a few miscellaneous exceptions applies (eg in a probate case where
the validity of a will is contested).
18. As Lord Carswell explained in Three Rivers District Council v Governor
and Company of the Bank of England (No 6) [2005] 1 AC 610 (“Three Rivers”),
para 105, LPP “is a single integral privilege, whose sub-heads are legal advice
privilege and litigation privilege”. This case is concerned with the first of those
subheads, legal advice privilege (“LAP”).
19. In summary terms, as is common ground on this appeal, LAP applies to all
communications passing between a client and its lawyers, acting in their
professional capacity, in connection with the provision of legal advice, i.e. advice
which “relates to the rights, liabilities, obligations or remedies of the client either
under private law or under public law” – Three Rivers (No 6), [2005] 1 AC 610,
para 38, per Lord Scott.
20. The development and rationale of LAP are explained in terms which I could
not begin to improve on by Lord Sumption in paras 115 to 121 below. In modern
times, LPP, and more particularly LAP, have been fully considered and refined in
a number of authoritative decisions, which speak for themselves. Particularly as
they throw no direct light on the issue thrown up by this appeal, it is only
necessary to identify three points which emerge from them before turning to the
issue itself.
21. First, LAP exists to ensure that there is what Justice Rehnquist referred to in
the Supreme Court of the United States as “full and frank communication between
attorneys and their clients”, which “promote[s] broader public interests in the
observance of law and administration of justice” – Upjohn Co v United States
(1981) 449 US 383, 389, quoted by Lord Scott in Three Rivers (No 6) at para 31.
As Lord Scott went on to explain at para 34, the principle “that communications
between clients and lawyers, whereby the clients are hoping for the assistance of
the lawyers’ legal skills …, should be secure against the possibility of any scrutiny
from others, whether the police, the executive, business competitors, inquisitive
busybodies or anyone else” is founded upon “the rule of law”.
22. Secondly, LAP exists solely for the benefit of the client. As Bingham LJ
said in Ventouris v Mountain [1991] 1 WLR 607, 611, the expression “legal
professional privilege” is “unhappy” in so far as it suggests that the privilege is
that of the legal profession, when it is “the client who enjoys the privilege”. Thus,
Page 7
as Lord Hoffmann pointed out in Morgan Grenfell at para 37, “[i]f the client
chooses to divulge the information, there is nothing the lawyer can do about it”.
23. Thirdly, LAP is a common law principle, which was developed by the
judges in cases going back at least to the 16th century – see Berd v Lovelace (1577)
Cary 62, which, together with subsequent cases, is discussed in the opinion of Lord
Taylor of Gosforth CJ in R v Derby Magistrates’ Court, Ex p B [1996] AC 487,
504-505. As Lloyd LJ said in the Court of Appeal at [2011] QB 669, 709, para 30,
LAP and its rationale was probably first coherently characterised in a judgment by
Lord Brougham LC in Greenough v Gaskell (1833) 1 My & K 98, 102-103.
(Litigation privilege seems to have developed rather later – see per Lord Carswell
in Three Rivers (No 6), para 96.)
The issue on this appeal
24. This appeal is concerned with the breadth of LAP, in the sense of the types
of advisers with whom communications can attract LAP. The particular issue on
this appeal is whether LAP should attach to communications passing between
chartered accountants and their client in connection with expert tax advice given
by the accountants to their client, in circumstances where there is no doubt that
LAP would attach to those communications if the same advice was being given to
the same client by a member of the legal profession.
25. The case advanced by Lord Pannick QC for Prudential, supported by Ms
Patricia Robertson QC for the Institute of Chartered Accountants for England and
Wales, was that this court should hold that LAP does attach to such
communications. This case is based on the proposition that LAP is a common law
right created by the judges, which should be applied, and if necessary extended, so
as to accord with the principles which underlie and justify the right.
26. More particularly, it is said that, given that LAP is justified by the rule of
law, and that it exists for the benefit of a client who seeks and receives legal
advice, for instance on its tax affairs, there is no principled basis upon which it can
be restricted to cases where the adviser happens to be a member of the legal
professions, as opposed to a qualified accountant. This point was said to be
reinforced by reference to relatively modern developments, in particular the fact
that the great majority of legal advice on taxation matters is now given by
accountants rather than by lawyers. In addition reliance was placed on (i) section
330 of the Proceeds of Crime Act 2002 (“POCA”), (ii) the Human Rights Act
1998 (“the HRA”), and (iii) the Legal Services Act 2007 (“the 2007 Act”).
Page 8
27. The contrary case was advanced by Mr James Eadie QC for HMRC,
supported by Sir Sydney Kentridge QC for the Law Society, Mr Bankim Thanki
QC for the Bar Council, and Mr Michael Edenborough QC for AIPPI UK. Their
case was that it has been universally assumed that LAP is restricted to advice given
by lawyers, and the court should not extend it to accountants in connection with
tax advice for a number of reasons.
28. Those reasons, in summary form, were that (i) the effect of extending LAP
would involve a potentially nuanced policy decision, with unpredictable and
potentially wide-ranging public and forensic consequences, which is therefore best
left to Parliament, and (ii) Parliament has legislated on the assumption that LAP is
restricted to advice given by lawyers, and has further considered and rejected a
proposal to extend LAP to tax advisers. It was also argued that there is a good
principled reason in the modern world to restrict LAP to advice given by lawyers.
The ambit of LAP as it is generally understood
29. There is room for argument whether, by allowing Prudential’s appeal, we
would be extending the breadth of LAP or would simply be identifying the breadth
of LAP. On the former view we would be changing the common law; on the latter
view, we would be declaring what the common law always has been. I do not think
it necessary to address this issue, as the important point for present purposes is that
it is universally believed that LAP only applies to communications in connection
with advice given by members of the legal profession, which, in modern English
and Welsh terms, includes members of the Bar, the Law Society, and the Chartered
Institute of Legal Executives (CILEX) (and, by extension, foreign lawyers). That is
plain from a number of sources, which speak with a consistent voice.
30. First, there are clear judicial statements of high authority to that effect over
the past century and more. Sir George Jessel MR referred to LAP as being
“confined to communications between a client and his legal adviser, that is,
between solicitor and client or barrister and client” in Slade v Tucker (1880) 14 Ch
D 824, 828, a view he repeated in Wheeler v Le Marchant (1881) 17 Ch D 675,
681-682. In Minter v Priest [1930] AC 558, 581, Lord Atkin said that a
“[professional] communication pass[ing] for the purpose of getting legal advice …
must be deemed confidential”, and added that it should be “understood that the
profession is the legal profession”. More recently, the view that LAP is confined to
advice from lawyers was repeated by Lord Denning MR in Attorney General v
Mulholland [1963] 2 QB 477, 489-490, in a passage approved by Lord EdmundDavies in D v National Society for the Prevention of Cruelty to Children [1978]
AC 171, 243-244.
Page 9
31. Secondly, in three more recent cases, on the basis that LAP is confined to
advice given by lawyers, the courts have refused to extend LAP to legal advice
given by a trade mark agent, a patent agent, or a personnel consultant – see,
respectively, Dormeuil Trade Mark [1983] RPC 131 (Nourse J), Wilden Pump
Engineering Co v Fusfeld [1985] FSR 159 (CA, Waller and Dillon LJJ), and New
Victoria Hospital v Ryan [1993] ICR 201 (EAT, Tucker J).
32. Thirdly, and unsurprisingly, the current editions of textbooks on privilege
and evidence state that LAP is limited to communications in connection with
obtaining legal advice from qualified lawyers – see the summary given by Charles
J at first instance in this case at [2011] QB 669, 683, para 45(5).
33. Fourthly, more than one significant official report has expressed the view,
and proceeded on the basis, that LAP is restricted to legal advice given by a
professional lawyer. Thus, The 16th Report of the Law Reform Committee
(Privilege in Civil Proceedings) (1967) (Cmnd 3472) stated at para 24, in relation
to LAP that “[t]he category of professional legal advisers is confined to barristers
and solicitors”; the committee included Lord Pearson, Diplock LJ, Winn LJ,
Megarry J and Roger Parker QC (later Parker LJ). To the same effect, Chapter 26
of the 1983 Report of the Committee on Enforcement Powers of the Revenue
Departments, Cmnd 8822 (“the Keith Report”), prepared by a committee presided
over by Lord Keith of Kinkel, proceeds on the clear basis that LAP was limited to
communications with a client’s lawyers and did not extend to communications
with their tax accountants, even where these communications involve the seeking
and giving of legal advice.
34. Fifthly, in 2003, the Government (by which I mean the executive as
opposed to Parliament) rejected a proposal, which had been made in 2001, by the
Director General of Fair Trading that legal advice given by accountants should be
subject to the same privilege as that conferred upon advice given by professional
lawyers. This shows that both the Director General and the Government clearly
proceeded in the belief that legal advice was not protected by LAP unless given by
a member of the legal profession.
35. Sixthly, and more importantly, Parliament has legislated in a way which
plainly implies that it assumes that LAP is limited to advice given by lawyers.
Thus, there are the statutory extensions of LAP to patent attorneys, to trade mark
agents and to licensed conveyancers – see respectively section 280 of the
Copyright, Designs and Patents Act 1988, section 87 of the Trade Mark Act 1994
(as amended by the Legal Services Act 2007), and section 33 of the Administration
of Justice Act 1985. Then there are the provisions of section 20B of TMA itself:
the terms in which subsection (8) is expressed, particularly when one looks at
subsections (3) and (9), plainly show that Parliament believed that there was a
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difference in the tax advice given by “a barrister, advocate or a solicitor”, as
opposed to the more generic “tax adviser”.
36. Seventhly, the substantial re-enactment of the relevant provisions of TMA
in paragraphs 23 to 26 of Part 4 of Schedule 36 to the Finance Act 2008 were
considered in the usual way by the House of Commons Public Bill Committee. In
their deliberations on 10 June 2008, the Committee actually discussed extending
LAP to tax advice given by accountants through the medium of an amendment to
what is now paragraph 23 of Schedule 36 to the 2008 Act – see the Hansard report
of this discussion, (HC Debates), cols 606-608. No details were given to us as to
what happened following those discussions, but what is clear is that Parliament
none the less decided in Schedule 36 to the 2008 Act to maintain the difference
between (i) a person with whom communications attracted “legal professional
privilege” (in England and Wales, and a “professional legal adviser” in Scotland)
in paragraph 23, and (ii) a “tax adviser” in paragraph 25. Although it could be said
to beg the question which we have to decide, a combination of the general
understanding as to the breadth of LPP and the absence of any suggestion of a
Parliamentary intention to depart from TMA in this connection, leads to the clear
conclusion, in my view, that paragraph 23 was intended to be limited to
professional lawyers.
The implications of allowing this appeal
37. If we were to allow this appeal, we would therefore be extending LAP
beyond what are currently, and have for a long time been understood to be, its
limits. Indeed, we would be extending it considerably, as the issue cannot simply
be treated as limited to the question whether tax advice given by expert
accountants is covered by LAP. While that is the specific question between the
parties, it is just a subset, no doubt an important subset, of a much larger set. To
concentrate on tax advice given by accountants would be wrong, because it would
ineluctably follow from our accepting Prudential’s argument that legal advice
given by some other professional people would also be covered.
38. In that connection, Sir Sydney pointed out in argument that there have been
some variations in the way in which Prudential has formulated its case as to the
precise breadth of LAP. In my view, the most powerful formulation is that
favoured by Lord Sumption, namely that LAP is confined to cases where legal
advice is given by a professional person “whose profession ordinarily includes the
giving of legal advice”. It is the most powerful formulation because it is the
simplest and the most consistent with the basis on which LAP has been justified by
the courts.
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The case for allowing this appeal
39. There is no doubt that the argument for allowing this appeal is a strong one,
at least in terms of principle, as anyone reading Lord Sumption’s judgment can
appreciate. LAP 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. And LAP is
conferred for the benefit of the client, and may only be waived by the client; it
does not serve to protect the legal profession. In light of this, it is hard to see why,
as a matter of pure logic, that privilege should be restricted to communications
with legal advisers who happen to be qualified lawyers, as opposed to
communications with other professional people with a qualification or experience
which enables them to give expert legal advice in a particular field.
40. This is especially true at the present time when, as Lord Pannick pointed
out, almost all qualified lawyers specialise in limited fields, and when the
provision of legal advice is no longer a service limited to professional lawyers, as
(in terms of practice) is demonstrated by the specific example of tax advice, and as
(in terms of law) is illustrated by the fact that the provision of legal advice is not a
“reserved legal activity” under the 2007 Act.
41. As Charles J said at [2011] QB 669, 691, paras 64-65:
“[there is] a compelling, and indeed unanswerable, case that in
modern conditions accountants have the expertise to advise on tax
law and it is firms of accountants, rather than firms of solicitors, who
do give such advice and represent clients in disputes with the
revenue on many aspects of their tax affairs. Further many firms of
accountants now employ lawyers to advise on tax and what they, and
qualified accountants in the same firm, do in this context is the same.
… So, in my view, [it has been] shown that accountants do what
lawyers are described as doing in the cases that establish [LAP]. This
has been the case for some time and in my view an equivalent
position can be said to exist in respect of other professions.”
The principled arguments for restricting LAP to lawyers’ advice
42. The principled arguments for restricting LAP to communications with
professional lawyers which have been put forward appear to me to be weak, but
not wholly devoid of force. They are based on (i) the close connection between
members of the legal profession and the court, (ii) historical observations and
Page 12
relics (albeit important relics), such as the involvement of the court in disciplinary
procedures of solicitors and barristers, (iii) the duties to the court owed by
members of their profession, and (iv) the view that solicitors and barristers are in a
‘special position’, in that they are held by the courts to higher standards than
members of other professions.
43. At any rate, to modern eyes, it is hard to see why the connection between
lawyers and the courts, and in particular the reliance which judges place upon
lawyers to act properly, is a good reason in principle for limiting LAP to the legal
profession. One can see why the argument might have carried real weight 150
years ago, but for the point to convince today would require something more than
such a general statement. Judicial and other observations from the 19th century are
of little use, as we are now in a world where a great deal of legal advice is tendered
by professional people other than members of the legal profession, as is recognised
by the fact, mentioned above, that giving legal advice is not a reserved legal
activity under the 2007 Act.
44. The appeal functions of the judges in the disciplinary procedures of the
legal profession do not seem to me, at least in general, to be much greater than
their judicial review functions in relation to the disciplinary procedures of other
professions. It is also true that solicitors and barristers owe a formal duty to the
court, but (i) that duty only would be relevant in connection with litigation,
whereas LAP goes much wider, and (ii) every professional person involved in
litigation can fairly be said to have a duty to the court.
45. Such principled justification as there is for the restriction of LAP to lawyers
seems to me to be further undermined by the extension of LAP which the court has
approved to all foreign lawyers, without (it would seem) regard to their particular
national standards, regulations or rules with regard to privilege. That extension
appears to originate from Lawrence v Campbell (1859) 4 Drew 485 (Sir Richard
Kindersley V-C), and was approved and applied in Macfarlan v Rolt (1872) LR 14
Eq 580 (Sir John Wickens V-C), In re Duncan, decd [1968] P 306 (Ormrod J), and
Great Atlantic Insurance Co v Home Insurance Co [1981] 1 WLR 529, 536
(Templeman LJ). (I do not consider, however, that Prudential’s argument is
assisted by the fact that advice from employed lawyers attracts LAP: that seems
entirely consistent with the notion that LAP applies where legal advice is being
sought from or given by members of the legal profession).
46. In the light of these points, particularly as it is entirely a creation of the
common law for the benefit of individuals or companies seeking and obtaining
legal advice, I accept that there is a strong case in terms of logic for allowing this
appeal.
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Conclusion: introductory
47. While I accept that it would accord with its underlying logic to extend LAP
as Prudential contend, “[t]he life of the [common] law has not been logic”, as
Oliver Wendell Holmes, Jr observed on the first page of The Common Law (1881).
As he went on to say, the life of the common law “has been experience”. The
common law has been created and developed by judges over more than eight
centuries, and, as Holmes also observed, “[i]n order to know what it is, we must
know what it has been …”.
48. It is therefore inevitable that the common law will include some rules
which, while entirely valid today, have limitations or other aspects which are only
explicable by reference to historical practices or beliefs. LAP, as it is currently
understood, is such a rule. There is no doubt that the justification for LAP is as
valid in the modern world as it was when it was first developed by the courts.
However, its restriction to advice from members of the legal profession, while it
can fairly be said to be illogical in the modern world, is explicable by reference to
history. In particular, until the last century, (i) it was very rare for any professional
person other than a lawyer to give legal advice, and (ii) the connection between the
legal profession and the courts was thought to be of greater significance than it is
now.
49. Where a common law rule is valid in the modern world, but it has an aspect
or limitation which appears to be outmoded, it is by no means always right for the
courts to modify the aspect or remove the limitation. In any such case, the court
must consider whether the implications of the proposed modification or removal
are such that it would be more appropriate to leave the matter to Parliament. The
court must also consider whether the aspect or limitation in question has led to
problems, and whether it has been assumed, approved or disapproved impliedly or
expressly by Parliament. And if Parliament has unequivocally endorsed the aspect
or limitation then the courts should not, of course, alter it.
50. Subject to that last qualification, the question whether to remove or modify
the aspect of the rule in question must inevitably be considered on a case by case
basis. Where the court decides that it is inappropriate to remove or modify, it is, in
my view, wrong to characterise the result as unprincipled: in a common law
system, no well-understood rule or aspect of a rule can sensibly be so described.
51. Turning to this case, then, despite the powerful arguments advanced to the
contrary, and in agreement with the clear and careful judgments below, I consider
that we should not extend LAP to communications in connection with advice given
Page 14
by professional people other than lawyers, even where that advice is legal advice
which that professional person is qualified to give.
52. I reach this conclusion for three connected reasons, which together persuade
me that what we are being asked to do by Prudential is a matter for Parliament
rather than for the judiciary. First, the consequences of allowing Prudential’s
appeal are hard to assess and would be likely to lead to what is currently a clear
and well understood principle becoming an unclear principle, involving
uncertainty. Secondly, the question whether LAP should be extended to cases
where legal advice is given from professional people who are not qualified lawyers
raises questions of policy which should be left to Parliament. Thirdly, Parliament
has enacted legislation relating to LAP, which, at the very least, suggests that it
would be inappropriate for the court to extend the law on LAP as proposed by
Prudential.
Conclusion: uncertainties and unknown consequences
53. At the moment, although there are inevitably still arguments about whether
a party can rely on LAP on particular facts, these arguments are very much at the
margins (as Lord Scott recognised in Three Rivers (No 6) at para 43). That is
because the presently accepted state of the law on LAP is clear to any professional
advisers who need to understand it, and relatively easy to explain to their clients
who are meant to benefit from it. The implications for society, for the courts, and
for the executive, of LAP only applying where it is members of the legal
profession who are giving the advice, have been generally understood, accepted
and allowed for by the rules and practice of the courts and in legislation.
54. The suggested reformulation proffered by Lord Sumption is, as I have said,
clear and principled in conceptual terms. However, closer examination of the
suggestion that LAP should apply in any case where legal advice is given by a
person who is a member of a “profession [which] ordinarily includes the giving of
legal advice” suggests to me that this is an inappropriate formulation for us to
adopt, as it would carry with it an unacceptable risk of uncertainty and loss of
clarity in a sensitive area of law.
55. For example, it is unclear to me whether occupations such as town planners,
engineers, or pension advisers would be members of a “profession” for this
purpose. They require training and qualifications, and they have associations, with
rules and disciplinary procedures. Further, like, for instance, actuaries, auditors,
architects and surveyors (undoubtedly professionals), they often, as a result of
education and/or experience, have considerable specialist legal expertise, on which
Page 15
clients draw and expect to be able to draw. And that may well become more in
point now that legal advice is not a reserved legal activity under the 2007 Act.
56. As I see it, it could be necessary for a court to delve into the qualifications
or standing, and maybe into the rules and disciplinary procedures, of a particular
group of people to decide whether the group constitutes a profession for the
purpose of LAP. So there would be room for uncertainty, expenditure and
inconsistency, if the court had to decide such an issue.
57. Further, I am not clear quite how a court is to decide whether a profession is
one which “ordinarily includes the giving of legal advice”. Many chartered
surveyors, architects and accountants, for instance, may not ordinarily give legal
advice, but there are many who do. Should the issue be judged by reference to the
profession generally, a particular branch of the profession (which could lead to
definitional issues), or the practice of the particular member of the profession in
the case, and, if this last possibility is correct, would the issue be determined on
that member’s say-so? In addition, I suspect that much of the advice given by most
members of those professions could not infrequently be characterised as “legal” in
nature by some people but not by others.
58. Consider cases such as (i) a town planner instructed to try and obtain
planning permission for a development or to advise whether it was needed or what
had to be done to get it, (ii) a pension consultant asked to advise on whether a
payment could be made, or a contribution should be demanded, by trustees of a
pension scheme, (iii) a valuation surveyor asked to advise on rental value under a
rent review clause or for rating purposes, or (iv) an auditor asked as to the
appropriate treatment of a receipt or debt. In each such case, the issue on which
advice is sought may well involve a point of law on which the professional
concerned is well qualified to advise. In each case, it could very well be open to
argument whether LAP attached to such advice.
59. So long as LAP is limited to advice from members of the legal profession,
the strong, and justified, presumption will be that LAP does apply in connection
with any communications in that context, because lawyers normally only give
legal advice. However, where members of other professions give legal advice, it
will often not represent the totality of the advice, and there may well be difficult
questions to resolve, as to whether, and, if so, in respect of which documents, LAP
could be claimed. For instance, it is unclear whether LAP would apply where the
legal advice is only subsidiary, and, if so, how one determines subsidiarity; and, in
a case where LAP could be claimed, there may be difficulties in deciding how to
deal with documents (which may frequently be the majority of documents
concerned with the giving of advice in the case) which contain legal and non-legal
advice.
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60. The specific issue in Three Rivers (No 6) provides the basis for an example
of my concerns. In that case, it was held that advice to a client as to how to present
its case at an inquiry was privileged if it was given by the client’s lawyers, who
were also giving general legal advice, which was undoubtedly subject to LAP. I
am unclear whether, on Prudential’s case, it would follow that a letter from town
planning experts advising their client how to present its case at a planning inquiry
would attract LAP; the answer might, for instance, depend on whether the advisers
were also giving legal advice, but that would seem inconsistent with the
requirement for consistency across the professions inherent in Prudential’s case.
And if LAP would apply in such a case, there might be obvious difficulties in
disentangling letters seeking or giving both legal and technical advice.
A policy issue best left to Parliament
61. Apart from these concerns, it seems to me that this appeal gives rise to an
issue, possibly a series of issues, of policy, which constitutes an area into which
the courts should generally be reluctant to tread. Rather than extending LAP
beyond its present accepted boundaries, we should leave it to Parliament to decide
what, if anything, it wishes to do about LAP.
62. Much of what is said in the preceding section of this judgment demonstrates
that quite wide questions of public policy may be thrown up by Prudential’s
argument. The general implications of extending the generally understood limits of
LAP as suggested by that argument could clearly have significant implications,
which, at least in my view, would be very difficult to identify, let alone to assess.
To put it at its lowest, they may well have significant consequences which should
be considered through the legislative process, with its wide powers of inquiry and
consultation and its democratic accountability.
63. There are no doubt many pieces of legislation giving the executive the
power to call for documents, in respect of which LAP could be invoked to avoid
delivering up such documents. One of the most vital functions of the courts is to
protect citizens against abuses by the executive, but that role must be exercised
with discrimination. However, it would, I think, require exceptional circumstances
before that function was invoked to create a new right, or to extend an existing
right substantially beyond what is currently understood by everyone, including
Parliament when enacting such legislation, to be its existing limits.
64. In addition, there is the fast changing landscape of the legal terrain
following the passing and implementation of the Legal Services Act 2007. That
Act is also another indication that Parliament is ready to change common law
practices which involve special rules for lawyers when it wishes to do so.
Page 17
65. Another reason why the present issue should be left to Parliament is that the
extension of LAP to professions other than lawyers may only be appropriate on a
conditional or limited basis. That is an aspect which can be properly considered
and implemented by Parliament, and cannot appropriately be assessed, let alone
imposed, by the courts. This point is well illustrated by reference to the very type
of case with which this appeal is concerned. In 1983, when the Keith Committee
recommended that LAP should be extended to communications in connection with
tax advice given by expert accountants, it included two qualifications. The first
was that the privilege should be overridden where it “would … unreasonably
impede the ascertainment of facts necessary to the proper determination of the
taxpayer’s tax liabilities, being facts not otherwise capable of ascertainment” (para
26.6.5). The second was that LAP should not extend to advice given by in-house
professional advisers (para 26.6.13). It would be open to Parliament to impose
such types of restriction or condition: it would not realistically be open to the
courts.
66. Further, as demonstrated by the facts set out in paras 33-34 above, the sort
of extension to the currently understood law of LAP sought by the appellants has
been (i) reported on by two committees, (ii) discussed in a parliamentary
committee, and (iii) proposed to the executive. Despite thinking it appropriate to
extend LAP to certain other professions, as explained in para 35 above, Parliament
has apparently chosen not to extend LAP to accountants giving tax advice.
67. Of course, in another case, points such as these could be overcome if the
court was satisfied that there was a pressing need, in terms of the rule of law,
injustice or even practicality, for the common law to move from its generally
understood position in a particular area. However, although there is evidence of
some concern about the presently understood limits of LAP, there is no evidence
that even gets near establishing a pressing need to change those limits.
Parliament has relevantly legislated and declined to legislate
68. Parliament has on a number of occasions legislated relevantly in this field.
On three occasions it thought it appropriate to extend LAP, and did so on the basis
that LAP was limited to advice given by members of the legal profession. I have in
mind section 280 of the Copyright, Designs and Patents Act 1988, section 87 of
the Trade Mark Act 1994, and section 33 of the Administration of Justice Act
1985, referred to in para 35 above. All these provisions would have been
demonstrably unnecessary if the breadth of LAP was as Prudential submits.
69. Parliament also legislated in the very field with which this appeal is
concerned on the assumption that LAP only applies to advice given by lawyers –
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see section 20B of TMA and paragraphs 23 to 26 of Part 4 of Schedule 36 to the
2008 Act, referred to in paras 6 to 9 above.
70. Lord Pannick sought to meet this point by relying on the approach adopted
by the House of Lords in Morgan Grenfell, where it was held that although the
general words of sections 20 and 20B of the TMA might appear to imply the
removal of LAP in some circumstances, they did not do so because, as already
mentioned, “[a]n intention to override such [a fundamental human right] must be
expressly stated or appear by necessary implication” (emphasis added) – to quote
from Lord Hoffmann at [2003] 1 AC 563, para 8.
71. In my opinion, that principle does not apply here, although I accept that one
must be careful about placing too much weight on the points I have identified in
paras 63 and 64 above. The reason that it does not apply is that, in Morgan
Grenfell, the Revenue was arguing that what undoubtedly was universally
accepted as being LAP in common law had been impliedly cut down by
legislation. Given that there was therefore no doubt that the LAP claimed by the
appellant in that case existed at common law, it was to be expected that, if the
1970 Act had been intended to cut down LAP, “Parliament [would have] squarely
confront[ed] what it [was] doing and accept[ed] the political cost” – per Lord
Hoffmann in R v Secretary of State for the Home Department, Ex p Simms [2000]
2 AC 115, 131, cited by Lord Hobhouse in Morgan Grenfell, para 44.
72. But the position in this case is different from the position in that case, even
though in both cases HMRC seek to rely on implication (rather than necessary
implication) to defeat the taxpayer’s argument based on LAP. The difference arises
from the fact that in this case, as demonstrated from the discussion in paras 30-36
above, the generally accepted view is that the type of LAP invoked by Prudential
does not exist. In other words, HMRC’s contention is not that a statutory provision
impliedly shows that Parliament intended to remove LAP which plainly would
otherwise exist (as in Morgan Grenfell): rather it is that a number of recent
statutory provisions clearly show that Parliament, along with the courts, the
textbook writers, and the writers of relevant reports, considered the type of LAP
contended for by Prudential does not exist.
Various other points
73. I referred in para 45 above to four cases where it was held that LAP applied
where the advice was tendered by foreign lawyers. In none of those cases does it
appear that there was any significant analysis as to why and to what extent LAP
was to be accorded where it was a foreign lawyer who had given the advice. It is
none the less understandable why LAP was so extended: the extension was, I
Page 19
suspect, based on fairness, comity and convenience. While that extension does
rather undermine much of the principled justification for LAP being confined to
cases where the advice is given by professional lawyers, it is consistent with the
argument that the court should restrict LAP to its currently understood bounds for
reasons of practicality and certainty.
74. Nor do I consider that HRA or POCA take the case any further. The
decision and reasoning of the Strasbourg court in Van der Mussele v Belgium
(1983) 6 EHRR 163, AM & S Europe Ltd v Commission of the European
Communities (Case 155/79) [1983] QB 878, and Campbell v United Kingdom
(1992) 15 EHRR 137 effectively undermine any suggestion that it would somehow
be contrary to article 14 of the Convention to hold that LAP applies to
communications with professional lawyers and not with other professional people.
Nor do I accept the argument that so to hold would infringe article 8 read together
with article 14. As for section 330 of POCA, it is in a form which was intended to
give effect to the Second Money Laundering Directive (2001/97/EC), and I do not
see how it can be said to represent any sort of indication by Parliament as to its
understanding of the extent of LAP.
75. I am also unimpressed by Prudential’s reliance on the 2007 Act. At best, it
merely acknowledges two realities which I have accepted anyway, namely that
legal advice is now given by many professional people other than lawyers, and that
lawyers can work in firms with other professionals, and vice versa: the only
change affected by the 2007 Act is that lawyers can now go into partnership with
people in other professions.
Disposition
76. For these reasons, I would dismiss this appeal.
LORD HOPE
77. For the reasons given by Lord Neuberger, Lord Mance and Lord Reed I too
would dismiss this appeal. I should like to add just a few words of my own to
explain why I am of that opinion.
78. A search for a principled answer might well lead one to the conclusion that
there was no good reason at all for holding that the tax advice of chartered
accountants should be treated differently from similar advice given by a barrister
or a solicitor, as Lord Sumption’s powerfully reasoned judgment so ably
Page 20
demonstrates. He starts from the position that English law has always taken a
functional approach to legal advice privilege, and that all one needs to do is to
recognise as a matter of fact that much legal advice falling within the principles
governing legal advice privilege is given today by people who are not lawyers: see
paras 123 and 128, below.
79. If the issue is approached on that basis, I agree that it is quite difficult to see
how in principle according barristers and solicitors a special status on this matter
can be justified. I would find it very hard to distinguish between the legal and
factual basis for any claim of privilege in this respect as between chartered
accountants on the one hand and lawyers on the other. The functions that they
perform when giving tax advice are essentially the same in each case. And I would
certainly not find it possible to draw any relevant distinction between these two
professions as to their standards of training or discipline.
80. My starting point, however, is the same as that indicated by Lord
Neuberger: see para 29. The reason why the issue is before us at all in this case is
quite simple. It is to be found in what people generally understand the position to
be. Legal advice privilege, as generally understood, applies only to advice that is
given by lawyers. If we were to declare that the matter is to be determined not by
the profession to which the adviser belongs but by the function that he is
performing, we would be changing the ambit of the privilege. And it would be a
significant change because the position as generally understood has clearly defined
limits and, in consequence, the inestimable advantages of clarity and certainty.
Can we be certain that that will be so if the privilege were to be extended to tax
advice by chartered accountants, on the ground that they too are advisers whose
profession has as an ordinary part of its function the giving of skilled legal advice?
If the privilege were to be extended that far, what about tax advice given by other
members of the accountancy profession? 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.
81. I also think that the courts are not best placed to assess how profound such a
change would be, whether there are good reasons of policy for making it and what
protections, if any, are needed to ensure that the ambit of the privilege is kept
within limits that are acceptable. Principle is an uncertain guide in such matters, if
all one has to go on is the function that is being performed by the adviser. We do
not need to go down that road, and it seems to me that the wiser course is not to do
so. If there are reasons of public policy for making the change, the matter should
be left to Parliament.
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LORD MANCE
82. I have had the great advantage of reading the judgments prepared by Lord
Neuberger, with whom Lord Hope agrees, and Lord Sumption, with whom Lord
Clarke agrees. I come down on the same side as Lord Neuberger, basically for all
the reasons which he gives. I add only a few words, principally to address the
suggested logic of recognising that clients of tax accountants enjoy legal advice
privilege (“LAP”) in respect of tax advice given them professionally by such
accountants paralleling the LAP normally enjoyed by the clients of lawyers.
83. LAP has developed and been accepted on a general basis in respect of
lawyers because they are lawyers and their business is normally dealing with legal
matters. There has been no particular occasion to examine specific areas of legal
advice or lawyers’ activity, in order to consider whether it merits special treatment
and, if so, how such areas of their activity would be defined.
84. Such questions do however arise in respect of Prudential’s current claim
that the courts should recognise the underlying logic of LAP and accept that it
applies in respect of legal advice given professionally in any particular area where
the professional who gives it is a member of a profession which has as an ordinary
part of its function the giving of skilled legal advice in that particular area.
85. The relevant profession here is accountancy and the relevant area the giving
of tax advice. But there are, as Lord Neuberger notes in paras 54 to 60, other
professions which might be said to give legal advice in particular areas in the
course of their ordinary professional activity.
86. In relation to tax or any other particular areas where legal advice is given
professionally, specific considerations may exist which could on examination point
away from a recognition of LAP, or away at least from its recognition on an
unqualified basis. That was certainly the conclusion of the Keith Committee, when
it recommended that LAP be recognised in respect of tax advice by accountants,
but only on a significantly qualified basis: see Lord Neuberger’s judgment, para
65.
87. Similarly, when the New Zealand Parliament legislated by the Taxation
(Base Maintenance and Miscellaneous Provisions) Act 2005 in June 2005 to create
a statutory privilege in relation to any confidential “tax advice document”, it did so
by inserting into the Tax Administration Act 1994 a complex of statutory
provisions (sections 20B to 20G) requiring the relevant “tax advisor” to be a
member of an “approved advisor group” approved by the Commissioner on Inland
Page 22
Revenue and providing that disclosure must nonetheless be made, from any tax
advice document, of “tax contextual information”. This was defined to include,
inter alia, (a) a fact or assumption relating to a transaction that has occurred or is
postulated by the person creating the tax advice document; (b) a description of a
step involved in the performance of a transaction that has occurred or is postulated
by the person creating the tax advice document; (c) advice that does not concern
the operation and effect on the person of tax laws; (d) advice that concerns the
operation and effect on the person of tax laws relating to the collection by the
Commissioner of debts payable to the Commissioner; (e) a fact or assumption
relating to advice that is referred to in paragraph (c) or (d); and (f) a fact or
assumption from, or relating to the preparation of (i) financial statements of the
person, or (ii) a document containing information that the person is required to
provide to the Commissioner under an Inland Revenue Act.
88. In Australia the Law Reform Commission, in A Review of Legal
Professional Privilege and Federal Investigatory Bodies (report ALRC 107 dated
December 2007) supported “the New Zealand model of creating a separate ‘tax
advice privilege’, rather than simply extending client legal privilege to accountants
giving tax advice”; and it did this specifically because it would allow Parliament
greater control over the operation and scope of tax advice privilege (para 6.278).
As to the nature of the control, it said (para 6.281):
“The ALRC is also supportive of the provision in the New Zealand
legislation which does not apply the privilege to contextual
information provided for the purpose of providing tax advice. It
should be very clear in the operation of this privilege that only the
advice itself will be protected, and not any other information that
may form part of the accountant’s file or briefing. The legislation
should state that no privilege should apply to ‘tax contextual
information’ given for the purpose of providing tax advice. ‘Tax
contextual information’ should be defined as information about:
• a fact or assumption that has occurred or is postulated by the
person creating the tax advice document; a description of a
step involved in the performance of a transaction that has
occurred or is postulated by the person creating the tax advice
document; or
• advice that does not concern the operation and effect of tax
laws.”
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89. The justification of LAP advanced in respect of lawyers includes candour –
that is, that it enables clients to provide their lawyers with all the facts and matters
that they might need to advise on the law: see eg the quotation from Lord Scott in
Three Rivers District Council v Governor and Company of the Bank of England
(No 6) [2005] 1 AC 610, quoted by Lord Sumption at para 118. But it is evident
from paras 86 to 88 above that, when the present issue has been considered by law
reform committees or legislators in the United Kingdom, New Zealand and
Australia, this justification has not been felt to have the same force. Rather, a
specific need has been felt to ensure, by appropriate legislative qualification of the
scope of LAP, that the Revenue is put in possession of a full understanding of the
facts and the nature of the relevant transactions, so as to be able then to advise
itself as to the correct legal conclusions to be derived therefrom as a matter of tax
law.
90. Another, not unrelated, feature of this case, to which I attach considerable
importance, is that the United Kingdom Parliament has on a number of occasions
not only treated lawyers as the only persons whose advice gives rise to LAP on the
part of their clients (see Lord Neuberger’s judgment, para 35 et seq), but has also
specifically decided to maintain a distinction between lawyers and tax advisers
when it was suggested that the latter’s advice ought to give rise to a general LAP
paralleling that existing in respect of lawyers’ advice (Lord Neuberger, para 36).
91. If LAP extended to professions other than lawyers, it is accepted that it
would not be on a general basis, but that a careful distinction, in practice normally
irrelevant in the case of lawyers, would have to be drawn between privileged and
non-privileged activities. Although such a distinction can sometimes be relevant
with lawyers (eg where a lawyer acts as a “man of business” or purely
administratively, rather than as a lawyer), it is not normally so. But in the case of
other professions, the distinction would become highly relevant and would not
necessarily be easy to draw.
92. For all these and the other reasons given by Lord Neuberger, any
recognition in respect of tax accountants of a privilege which has traditionally been
and is still regarded as relevant only to legal advice given by lawyers in the course
of their profession, or of any parallel privilege, should in my opinion take place, if
at all, in Parliament, not in the courts.
LORD REED
93. I agree that this appeal should be dismissed, for the reasons given by Lord
Neuberger, Lord Hope and Lord Mance.
Page 24
94. The argument that existing legal principle already recognises the privilege
claimed by the appellants, although powerfully put by Lord Clarke and Lord
Sumption, is not one that I find persuasive.
95. The process of reasoning by which a legal principle is derived from a body
of authority was explained by Lord Diplock in Dorset Yacht Co Ltd v Home Office
[1970] AC 1004, 1058-1059. Speaking of the law of negligence, his Lordship
explained that the process involved two stages, the first of which was inductive,
and involved an analysis of the characteristics of the conduct and relationship
involved in each of the decided cases:
“This analysis leads to a proposition which can be stated in the form:
‘In all the decisions that have been analysed a duty of
care has been held to exist wherever the conduct and
the relationship possessed each of the characteristics A,
B, C, D, etc, and has not so far been found to exist
when any of these characteristics were absent.’
For the second stage, which is deductive and analytical, that
proposition is converted to: ‘In all cases where the conduct and
relationship possess each of the characteristics A, B, C, D, etc, a duty
of care arises.’ The conduct and relationship involved in the case for
decision is then analysed to ascertain whether they possess each of
these characteristics. If they do the conclusion follows that a duty of
care does arise in the case for decision” (p 1059).
96. Applying that approach in the context of legal advice privilege, in each of
the decided cases in which the privilege was held to exist, the relationship of the
persons between whom the communication passed was that of client (or
prospective client) and professional lawyer acting as such; and the privilege has
not so far been held to exist when any of the characteristics of that relationship
were absent. One can therefore deduce from the authorities a principle which
applies when that relationship exists. That relationship does not however exist in
the present case.
97. As Lord Diplock explained (ibid), again in the context of the law of
negligence, where the conduct or relationship which is involved in the case at hand
lacks at least one of the characteristics which have been identified, the court has a
choice whether or not to extend the kinds of conduct or relationships which give
rise to a duty of care:
Page 25
“And the choice is exercised by making a policy decision as to
whether or not a duty of care ought to exist if the characteristic
which is lacking were absent or redefined in terms broad enough to
include the case under consideration. … The choice to extend is
given effect to by redefining the characteristics in more general
terms so as to exclude the necessity to conform to limitations
imposed by the former definition which are considered to be
inessential.”
98. Applying that approach in the present context, since the case at hand lacks
one of the characteristics which has been present in all previous cases in which
legal advice privilege has been held to exist, the court has a choice whether or not
to extend legal advice privilege to situations where legal advice was sought from a
professional person other than a lawyer. That choice is exercised by making a
policy decision of the kind which Lord Diplock explained. It is open to the court to
redefine the characteristics of legal advice privilege in more general terms, for
example by holding that legal advice, given in the exercise of a professional
activity which involves the giving of such advice, is subject to legal advice
privilege. It is also open to the court to adhere to the narrower principle which can
be derived from the existing body of case law. A judgment has to be made as to the
most appropriate course of action.
99. That judgment, in this case, requires a number of considerations to be taken
into account, as Lord Neuberger has explained. There are considerations which
weigh in favour of an extension of the principle. In particular, it can be argued that
the underlying rationale of the privilege favours its application whenever legal
advice is sought from a person who is suitably qualified to give such advice,
whether that person is a member of the legal profession or of some other
profession whose activities include the giving of legal advice.
100. There are on the other hand countervailing considerations. One which
seems to me to be particularly significant is that the privilege must be capable of
being relied upon if it is to serve its purpose of enabling clients and their legal
advisers to communicate with each other with complete candour. It is therefore
highly desirable that the privilege should, as far as possible, be based upon a
principle which is clear, certain and readily understood. The existing common law
principle meets those requirements. The variety of possible formulations of an
extended common law principle, and the consequent scope for debate as to
whether particular professional persons, in particular situations, would or would
not fall within its scope, would detract from the certainty and clarity which
presently exist.
Page 26
101. More fundamentally, it is necessary to give consideration to the respective
roles, in relation to the development of this area of the law, of the courts, the
executive and the legislature. In doing so, it is necessary to have regard to the
measures taken (or not taken) in this area by the executive and the legislature, after
consultation and consideration of a wider character than can be carried out by
courts determining disputes between particular parties. In my judgment, having
regard particularly to the latter consideration, the court should decide the case as
Lord Neuberger proposes.
102. No question arises in this appeal as to the scope of the privilege in Scots
law. It may nevertheless be helpful to add some observations about the case from a
Scottish perspective, given the likely interest in the case in Scotland as well as in
England and Wales. My observations are not however intended to pre-empt a full
discussion of the matter should the issue arise in Scottish proceedings.
103. The law in this area developed separately in Scotland from in England. The
two systems have however developed in the same direction. There are a number of
differences in the case law in relation to particular aspects of the law, but the
general principle, its fundamental importance, and the considerations of public
policy which underlie it, are common to both systems.
104. By the late seventeenth century it was established in Scotland that an
advocate was not bound to disclose “any private advice or secret of his calling or
employment”: Creditors of Wamphray v Lady Wamphray (1675) Mor 347; Earl of
Northesk v Cheyn (1680) Mor 353; Stair, Institutions of the Law of Scotland,
IV.xliii.8. The rationale was explained by Sir George Mackenzie as being the
public interest in persons being able to obtain legal advice based upon complete
knowledge of the relevant circumstances:
“An Advocate is by the Nature of his Imployment tied to the same
Faithfulness that any Depositor is: For his Client has depositate in
his Breast his greatest Secrets; and it is the Interest of the Commonwealth, to have that Freedom allowed and secured without which
Men cannot manage their Affairs and private Business: And who
would use that Freedom if they might be ensnared by it? This were
to beget a Diffidence betwixt such who should, of all others, have the
greatest mutual Confidence with one another; and this will make
Men so jealous of their Advocates that they will lose their private
Business, or succumb in their just Defence, rather than Hazard the
opening of their Secrets to those who can give them no Advice when
the case is Half concealed, or may be forced to discover them when
revealed.”
Page 27
(Observations upon the 18th Act of the 23rd Parliament of King James the Sixth
against Dispositions made in Defraud of Creditors etc (1675), in Sir George
Mackenzie’s Works, vol 2 (1755), p 1).
105. It became clear during the eighteenth century, if not earlier, that this
approach also applied to other types of lawyer engaged in legal proceedings
(McLeod v McLeod (1744) Mor 16754), and that the concept of a “secret”
extended to anything of which a lawyer had been informed by his client (Leslie v
Grant (1760) 5 Brown’s Supp 874). A crucial step in the further development of
the principle was taken in Executors of Lady Bath v Sir John Johnston, 12
November 1811, FC, which has been interpreted (notably in McCowan v Wright
(1852) 15 D 229) as having decided that the privilege was not confined to
communications made in connection with legal proceedings which were then
pending or in contemplation. It was also understood by the early nineteenth
century, if not earlier, that the privilege was that of the client, not the lawyer: see
eg Bell, Principles of the Law of Scotland, 4th ed (1839), para 2254. The general
principle, as it was understood by the mid-nineteenth century, was summarised by
Lord Wood in McCowan v Wright at p 237:
“The rule by which the communications between clients and their
legal advisers are protected from discovery, is one of great value and
importance, and, within its legitimate limits, ought to be strictly
observed. According to the law of Scotland, such communications
are privileged although they may not relate to any suit depending or
contemplated, or apprehended.”
106. Comparing the Scottish authorities down to that date with the review of the
English case law by Lord Brougham in Greenough v Gaskell (1833) 1 My & K 98,
it could be said that the general principles governing the privilege of
communications between lawyer and client in the two jurisdictions were in
alignment; and that is reflected in the citation of numerous authorities from
England as well as Scotland in Bell’s account of the subject. More recent
development of these general principles, notably in R (Morgan Grenfell & Co Ltd)
v Special Commissioner of Income Tax [2003] 1 AC 563, where the privilege was
characterised as a fundamental human right, has not depended on matters peculiar
to either jurisdiction.
107. In Scotland, as in England and Wales, all the cases in which the privilege
has been upheld appear to have concerned lawyers acting in a professional
capacity, clerks or assistants acting on their behalf, or other intermediaries to
whom a communication had been made for transmission to or from such a person.
It has been held that the privilege did not attach to communications made to an
accountant (Wright v Arthur (1831) 10 S 139); but the case was not one in which it
Page 28
was suggested that the accountant had given legal advice, and it long pre-dated the
era in which the giving of tax advice, in particular, became one of the principal
areas of practice of many accountants. It is not apparent that the courts have
hitherto been required to make a judgment as to whether the privilege ought to be
confined to legal advice given by lawyers acting as such, as opposed to legal
advice given by members of other professions.
108. As far as I have ascertained, therefore, the authorities do not foreclose the
possible application of the privilege to advice given by accountants. Nevertheless,
as in England and Wales, the general understanding is that the privilege applies
only to members of the legal professions. In Narden Services Ltd v Inverness
Retail and Business Park Ltd 2008 SC 335, 338 for example, the court described
the notion of legal professional privilege (an expression which was adopted in that
case, and has been used in subsequent cases, in preference to the older term
“confidentiality”, which could lead to confusion between the privilege and the
different sense in which “confidentiality” is employed in other contexts), as
enshrined in the common law of Scotland, as “(in broad terms) a right of absolute
privilege in respect of communications emanating between a solicitor and a client
relating to advice and also in respect of any documents, including those coming
from accountants, which were prepared in the contemplation of litigation”. The
apparent implication is that documents prepared by accountants may come within
the scope of litigation privilege (in the older terminology, post litem motam
confidentiality) if they were prepared in contemplation of litigation, but that legal
advice privilege is confined, in broad terms, to communications between a solicitor
and his client. The court was not however addressing the question whether the
scope of the privilege might be extended where legal advice was given by
accountants.
109. Textbooks proceed on a similar basis, assuming that the privilege applies
only where advice is given by lawyers, but not specifically addressing the question
whether it might also apply where legal advice was given by members of other
professions. The title on Evidence in the Stair Memorial Encyclopaedia of the
Laws of Scotland, (Reissue), for example, states that “the privilege is restricted to
communications made to professionally qualified and instructed lawyers” (para
205), and that any attempt to plead privilege by “bankers, accountants and other
professional business and personal advisers” will fail (para 209). Ross and
Chalmers, Walker and Walker, The Law of Evidence in Scotland, 3rd ed (2009),
similarly proceed on the basis that the privilege is confined to professional lawyers
(para 10.2.7).
110. As in England and Wales, bodies concerned with law reform have also
proceeded on the basis of such an understanding. The Keith Report, discussed by
Lord Neuberger, concerned the United Kingdom as a whole, and was prepared by
a committee presided over by a Scottish member of the Appellate Committee of
Page 29
the House of Lords. It discussed the relevant rules of Scots law, which it described
as not differing materially from the English rules, although some differences in
matters of detail were noted (para 26.1.5). This area of the law was also considered
by the Scottish Law Commission in its Memorandum No 46, Law of Evidence
(1980), where it expressed the view that “solicitor/client privilege is reasonably
well-defined and works satisfactorily in practice”: para S 21. The Commission did
not suggest that the privilege applied, or ought to apply, in situations where legal
advice was sought from members of other professions; nor was that issue touched
upon in the reports which followed upon the consultative memorandum.
111. As in relation to England and Wales, Parliament has legislated in relation to
Scotland in ways which assumed that legal advice privilege was confined to advice
given by lawyers. Section 20B of the Taxes Management Act 1970 and the
replacement provisions in Schedule 36 to the Finance Act 2008, discussed by Lord
Neuberger, apply to Scotland. So also do section 280 of the Copyright, Designs
and Patents Act 1988 and section 87 of the Trade Marks Act 1994, which extend
the privilege under Scots law to patent attorneys and trade mark agents
respectively. Section 22 of the Law Reform (Miscellaneous Provisions) (Scotland)
Act 1990 made provision for communications made to or by a licensed
conveyancer or registered executry practitioner to be protected from disclosure “in
like manner as if the practitioner had at all material times been a solicitor acting
for the client”.
112. Finally, just as Parliament legislated in the Legal Services Act 2007 to
create a framework for the future of the provision of legal services, and for the
regulation of such provision, in England and Wales, a comparable framework was
created by the Scottish Parliament in the Legal Services (Scotland) Act 2010. The
provision of legal advice is a legal service falling within the scope of the
legislation: section 3. The professions whose members can own or control a
licensed provider of legal services under the Act include chartered accountants and
chartered certified accountants: Licensed Legal Services (Specification of
Regulated Professions) (Scotland) Regulations, SSI 2012/213. The Act makes
express provision in section 75, headed “professional privilege”, that
communications made to or by a licensed provider (or a designated person within
the licensed provider) in the course of its acting as such in its provision of legal
services, are “in any legal proceedings, privileged from disclosure as if the
licensed provider or (as the case may be) the person had at all material times been
a solicitor acting for the client”. Since that provision applies only to licensed
providers and designated persons within such providers, it therefore applies only
where a licence has been granted; and such grants are dependent upon the
existence of appropriate regulatory schemes and licensing rules.
113. Against that background, if the question were to arise in Scotland whether
the common law privilege should be extended to legal advice given by
Page 30
accountants, the courts would have to make a policy decision, as I have explained.
That decision would have to be made in the context which I have discussed,
including the enactment of legislation, following 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.
LORD SUMPTION (dissenting)
114. In my opinion the law is that legal professional privilege attaches to any
communication between a client and his legal adviser which is made (i) for the
purpose of enabling the adviser to give or the client to receive legal advice, (ii) in
the course of a professional relationship, and (iii) in the exercise by the adviser of a
profession which has as an ordinary part of its function the giving of skilled legal
advice on the subject in question. The privilege is a substantive right of the client,
whose availability depends on the character of the advice which he is seeking and
the circumstances in which it is given. It does not depend on the adviser’s status,
provided that the advice is given in a professional context. It follows, on the
uncontested evidence before us, that advice on tax law from a chartered accountant
will attract the privilege in circumstances where it would have done so had it been
given by a barrister or a solicitor. They are performing the same function, to which
the same legal incidents attach.
115. The starting point for any analysis of these matters is the rationale of the
privilege attaching to the process of obtaining legal advice. It has been described
by the Supreme Court of the United States as “the oldest of the privileges for
confidential communications known to the common law”: Upjohn Company v
United States 449 US 383, 389 (1981). In some respects its development has been
peculiar to the English common law and those legal systems which have adopted
it. In most civil law countries, the protection of professional confidences is
founded on the status of the adviser. In French law, which can stand as the
paradigm case, information given to an adviser in the course of a confidential
professional relationship is subject to the rules governing the “secret
professionnel”. The source of the confidence is the professional obligations of the
adviser, and the provisions of the Penal Code which reinforce them with criminal
sanctions. Consistently with this approach, French law like most European civil
law systems accords the same protection to other confidential professional
relationships, for example with doctors or priests, and indeed has in recent times
extended it to some non-professional ones: see Code Pénal, article 226-13. English
law originally protected professional confidences on a similar basis. The origins of
the privilege have been traced in the speech of Lord Taylor of Gosforth CJ in R v
Derby Magistrates’ Court, Ex p B [1996] AC 487, 504-507 and in Holdsworth,
History of English Law, 3rd ed, ix (1944), 201-202. It originated in the practice of
the Court of Chancery in the years after the statute of 1562 which first made
Page 31
witnesses compellable: see Berd v Lovelace (1577) Cary 62; Dennis v Codrington
(1579) ib, 100. By the early eighteenth century most writers were agreed that it
was based on the protection of the honour of the adviser, who would be discredited
by being required to disclose his client’s confidences. It followed that the adviser
was permitted but not compellable to give evidence of them. This theory was
disposed of by Lord Mansfield in the Duchess of Kingston’s Case (1776) 20 St Tr
355, 574. The famous surgeon Sir Caesar Hawkins declined to give evidence
against the Duchess on her trial for bigamy, saying: “I do not know how far any
thing that has come before me in a confidential trust in my profession should be
disclosed consistent with my professional honour.” Lord Mansfield ruled that he
must testify, because if the sole ground of refusal was the protection of his honour,
it was a sufficient answer to those who might subsequently impugn it that he was
compellable. In the half-century following this decision, the juridical basis of the
privilege was redefined by the courts. It became a right of the client, which was
justified as serving a specific public interest in his freedom of action in dealings
with his legal advisers. In Wilson v Rastall (1792) 4 TR 753, it was established (i)
that the privilege was a right of the client, not of the lawyer, (ii) that the lawyer
was therefore precluded from giving evidence of privileged matters even if he was
willing to, and (iii) that the privilege was not confined to the litigation in which
disclosure was sought nor to litigation in which the client was a party, but
extended to any litigation in which it was sought to compel the production of
documents or the appearance of a witness.
116. In Greenough v Gaskell (1833) 1 My & K 98, Lord Brougham LC
reviewed the case law going back to the late eighteenth century. In a judgment
which is generally regarded as the foundation of the modern law, he held that the
privilege was unaffected by the question whether proceedings were pending or
contemplated, “for a person oftentimes requires the aid of professional advice upon
the subject of his rights and his liabilities, with no reference to any particular
litigation, and without any other reference to litigation generally than all human
affairs have, in so far as every transaction may, by possibility, become the subject
of judicial inquiry” (p 102). In a celebrated passage, Lord Brougham said (p 103):
“The foundation of this rule is not difficult to discover. It is not (as
has sometimes been said) on account of any particular importance
which the law attributes to the business of legal professors, or any
particular disposition to afford them protection, though certainly it
may not be very easy to discover why a like privilege has been
refused to others, and especially to medical advisers. But it is out of
regard to the interests of justice, which cannot be upholden, and to
the administration of justice, which cannot go on, without the aid of
men skilled in jurisprudence, in the practice of the Courts, and in
those matters affecting rights and obligations which form the subject
of all judicial proceedings. If the privilege did not exist at all, every
Page 32
one would be thrown upon his own legal resources; deprived of all
professional assistance, a man would not venture to consult any
skilful person, or would only dare to tell his counsellor half his case.
If the privilege were confined to communications connected with
suits begun, or intended, or expected, or apprehended, no one could
safely adopt such precautions as might eventually render any
proceedings successful, or all proceedings superfluous.”
The only exception to the principle thus stated which Lord Brougham was
prepared to recognise was the case where the communication for which privilege
was claimed was made to a professional legal adviser but not in the course of a
professional relationship with him: see pp 104-115. This was not an indirect way
of recognising the special status of professional lawyers. It is clear from the
context that the point which Lord Brougham was making was that the privilege
attaches only to legal advice taken in a professional context, i.e. not in a social one.
117. Not every one has applauded the principle as it was developed in the late
eighteenth and early nineteenth centuries. But it is fair to say that many of its
critics have been animated by broader misgivings about the whole process of
forensic inquiry and the role of the legal profession in it. Jeremy Bentham, who
regarded lawyers as obstacles to the administration of justice, famously
characterised legal professional privilege as a doctrine which turned the lawyer
into the accomplice of his client. His views were the subject of a ferocious
refutation in the pages of the Edinburgh Review by Thomas Denman, a barrister,
member of Parliament, and lifelong friend of Lord Brougham, later to become
Lord Chief Justice, who restated the classic view of the privilege as fundamental to
the rights of the citizen. History has gone Denman’s way and not Bentham’s. Lord
Brougham’s judgment in Greenough v Gaskell remains to this day the classic
statement of the rationale for legal advice privilege. In AM & S Europe Ltd v
Commission of the European Communities (Case 155/79) [1983] QB 878, 913, Sir
Gordon Slynn, Advocate General, after reviewing the law relating to the protection
of confidences imparted to lawyers across the member states of the European
Community observed
“Whether it is described as the right of the client or the duty of the
lawyer, this principle has nothing to do with the protection or
privilege of the lawyer. It springs essentially from the basic need of a
man in a civilised society to be able to turn to his lawyer for advice
and help, and if proceedings begin, for representation; it springs no
less from the advantages to a society which evolves complex law
reaching into all the business affairs of persons, real and legal, that
they should be able to know what they can do under the law, what is
forbidden, where they must tread circumspectly, where they run
risks.”
Page 33
More recently, in Three Rivers District Council v Governor and Company of the
Bank of England (No 6) [2005] 1 AC 610, Baroness Hale took up the same theme
at para 61:
“It may thus impede the proper administration of justice in the
individual case. This makes the communications covered different
from most other types of confidential communication, where the
need to encourage candour may be just as great. But the privilege is
too well established in the common law for its existence to be
doubted now. And there is a clear policy justification for singling out
communications between lawyers and their clients from other
professional communications. The privilege belongs to the client, but
it attaches both to what the client tells his lawyer and to what the
lawyer advises his client to do. It is in the interests of the whole
community that lawyers give their clients sound advice, accurate as
to the law and sensible as to their conduct.”
I do not propose to multiply citations, but it is right to point out that precisely the
same underlying rationale has been given for the privilege in modern times by the
Supreme Court of the United States: Upjohn Company v United States 449 US
383, 389 (1981); Swidler & Berlin v United States 524 US 399, 403 (1998). By the
High Court of Australia: Esso Australia Resources Ltd v Commissioner of
Taxation of the Commonwealth of Australia (1999) 201 CLR 49, at para 35;
Daniels Corporation International Pty Ltd v Australian Competition and
Consumer Commission (2002) 213 CLR 543 at para 44 (McHugh J). And by the
Supreme Court of Canada: R v McClure [2001] SCC 14, [2001] 1 SCR 445, at
paras 36-39.
118. Doubts have sometimes been expressed about how important the assurance
of absolute confidentiality really is to clients who consult legal advisers,
particularly when they do so in civil or non-contentious matters. How often these
doubts are justified is impossible to say. We can assume that they sometimes,
perhaps often are. As Lord Scott pointed out in Three Rivers (No 6) at para 34, it is
“obviously true that in very many cases clients would have no inhibitions in
providing their lawyers with all the facts and information the lawyers might need
whether or not there were the absolute assurance of non-disclosure that the present
law of privilege provides.” It does not matter for two reasons. The first is that the
law is that the confidence must be protected if proper legal advice is to be
obtained. It has been established in this sense for many years and no one is asking
us to depart from it. The second, which is perhaps more satisfying, is that it would
be wrong to depart from it in any event. The underlying principle is that those
clients who do wish to consult a lawyer on the basis of absolute confidence should
be entitled to do so, notwithstanding that absolute confidence may be less
important to others.
Page 34
119. Consistently with the underlying principle, the modern case law has
developed the law of privilege in three principal respects which are relevant to the
issues on this appeal. First, the courts have held that the privilege is absolute,
subject only to a narrowly defined exception for cases where the client is seeking
legal advice in order to enable himself the better to commit a fraud or crime. In R v
Derby Magistrates’ Court, Ex p B [1996] AC 487 the House of Lords, after
reviewing the case law on the juridical basis of the privilege from its origins in the
sixteenth century, held that it did not depend on balancing the public interest in
sustaining the confidence against any competing public interest. In the
circumstances of that case, it could not be overridden even if the information
withheld was likely to be material evidence to exonerate a man charged with
murder. Second, although litigation (civil or criminal) will generally be the
occasion for seeking disclosure of information said to be privileged, the modern
case law has reaffirmed the principle first stated by Lord Brougham that the
privilege does not just exist in aid of forensic litigation. It attaches to confidences
given in circumstances where no proceedings were contemplated or where the
proceedings contemplated were not litigation but, for example, a domestic or
public inquiry: Three Rivers District Council v Bank of England (No 6) [2005] 1
AC 610. Third, in R (Morgan Grenfell & Co Ltd) v Special Commissioner of
Income Tax [2003] 1 AC 563, Lord Hoffmann, with whom the rest of the House of
Lords agreed, recognised at para 7 what was implicit in these propositions, namely
that the privilege was not a mere procedural incident of the forensic process, but a
“fundamental human right long established in the common law”, which was “a
necessary corollary of the right of any person to obtain skilled advice about the
law.”
120. Legal advice privilege is sometimes described as essential to the effective
administration of justice, and Lord Brougham himself put it that way. By this, they
did not mean the effective conduct of legal proceedings. On the contrary, as
Baroness Hale pointed out in her speech in Three Rivers (quoted above), privilege
may obstruct the forensic process by making relevant evidence unavailable. Lord
Scott pointed out in the same case, para 34, that the relevant public interest was in
reality the rule of law, which depends upon the citizen being able without
inhibition to find out what his legal position is. The complexity of the modern law
and its progressive invasion of the interstices of daily life, have made this a public
interest of greater importance than ever before. It is perhaps particularly significant
in the area of tax law, where the citizen is brought up against the power of the state
and the law is often technically complex.
121. From the origins of the privilege in the late eighteenth century to the present
day, the case law refers to it as attaching to the advice of lawyers, i.e. barristers,
solicitors and attorneys and, in the very early days of the doctrine, the scriveners
who drew up wills, charters and other legal instruments. In most of the early cases
lawyers were identified in contradistinction not to other sources of professional
Page 35
legal advice, but to professionals whose advice was not legal at all, such as priests
or doctors. Once this distinction became too well understood to require repetition,
the references in the cases to the advice of lawyers persisted but simply reflected
the assumption that lawyers were the only source of skilled professional legal
advice. Until modern times, this assumption was correct. The routine resort to
accountants for legal advice on tax does not seem to have become common until
the 1960s. The only English case before this one to address directly the difference
between legal advice received from barristers and solicitors on the one hand and
other legal advisers on the other was Wilden Pump Engineering Co v Fusfeld
[1985] FSR 159, in which it was held that patent agents were not lawyers and that
privilege did not attach to their advice. I shall say something more about this case
below.
122. Once it is appreciated (i) that legal advice privilege is the client’s privilege,
(ii) that it depends on the public interest in promoting his access to legal advice on
the basis of absolute confidence, and (iii) that it is not dependent on the status of
the adviser, it must follow that there can be no principled reason for distinguishing
between the advice of solicitors and barristers on the one hand and accountants on
the other. The test is functional. The privilege is conferred in support of the client’s
right to consult a skilled professional legal adviser, and not in support of his right
to consult the members of any particular professional body. The findings of
Charles J, which are borne out by the evidence, show that today there are at least
three professions whose practitioners have as part of their ordinary professional
functions the giving of skilled legal advice on tax. Accountants are among them.
Any distinction for this purpose between some skilled professional advisers and
others is not only irrational, but inconsistent with the legal basis of the privilege. It
would make it dependent not just on the nature of the advice or the circumstances
in which it was given, which have always been relevant considerations, but to a
substantial degree on the status of the adviser, which has not been a relevant
consideration for 250 years.
123. It is consistent with the view that I have expressed that the courts have in
recent times expanded the categories of lawyer whose advice may attract privilege,
in particular to cover salaried legal advisers and foreign lawyers. This development
has been the natural consequence of the functional character of the test combined
with the law’s pragmatic willingness to recognise the changing patterns of
professional life. The privilege attaching to the advice of salaried legal advisers
was first recognised judicially by the Court of Appeal in Alfred Crompton
Amusement Machines Ltd v Customs and Excise Commissioners (No 2) [1972] 2
QB 102. Lord Denning MR, at p 129, justified the result primarily on the ground
that, although the communications of a corporation with an in-house legal adviser
were internal to the corporation, nevertheless the adviser was performing the same
function as the lawyer in independent practice. Relevant communications with
foreign lawyers have for many years attracted the same privilege for the same
Page 36
reason. In Lawrence v Campbell (1859) 4 Drew 485 privilege was claimed in
English litigation for communications between a Scottish client and a Scottish
solicitor practising in London. Sir Richard Kindersley V-C held (at p 491) that “the
same principle that would justify an Englishman consulting his English solicitor
would justify a Scotchman consulting a Scotch solicitor.” Subsequently,
communications with foreign lawyers were treated as being entitled as a matter of
course to the same privilege as communications with English lawyers in like
circumstances: see Macfarlan v Rolt (1872) LR 14 Eq 580; In re Duncan, decd
[1968] P 306; Great Atlantic Insurance Co v Home Insurance Co [1981] 1 WLR
529, 535-536. Sir Sydney Kentridge QC, appearing for the Law Society, described
these cases as “anomalous”. But he did not suggest that they were wrong. I think
that they were clearly right, and I do not regard them as anomalous. They reflect
the functional approach which English law has always taken to legal advice
privilege.
124. The only sustained arguments addressed to us for treating barristers and
solicitors as having a special status justifying their unique treatment by the law of
privilege were (i) that other professionals did not have the same stringent legal
obligations of non-disclosure as lawyers; and (ii) that barristers and solicitors have
a unique relationship with the courts.
125. The first of these points can be shortly dealt with. If privilege attaches to the
tax advice of accountants in the same circumstances as it would attach to similar
advice from a barrister or solicitor, then its legal incidents are exactly the same in
either case. It does not matter that the professional rules of at least some
accountants permit them to disclose confidential client information in some
circumstances in which it could not lawfully be disclosed by a solicitor. These
rules do not prevent accountants from assuming more stringent and less qualified
obligations, and they would be treated as doing so by giving advice in privileged
circumstances. This is because the juridical source of the accountant’s duty in
relation to privileged material is the right of the client under the law of privilege,
not the accountant’s professional rules.
126. The second reason for attributing a unique status to the advice of barristers
and solicitors was that the existence of the privilege has always depended on the
close relationship of the courts with the legal professions. The authority of the
judges, it is said, has always been the ultimate source of standards of admission
and of the disciplinary powers exercisable over legal practitioners. But they have
never been concerned with the professional standards or organisation of the
accountancy profession. Sir Sydney Kentridge, who was mainly responsible for
developing this argument, did not of course suggest that accountants were
unworthy of being treated on a par with solicitors and barristers, nor was any such
suggestion advanced by any one else on this appeal. His point was that judicial
recognition and supervision of the legal profession was historically part of the
Page 37
basis on which privilege attached to their advice. This, he submitted, was not
something that could be ignored simply because others have come to perform the
same functions. This approach was to some extent invited by the concession of the
appellants that the privilege would attach only to communications with members
of “recognised” professions. But in my view the argument, like the concession
which provoked it, is mistaken. In the first place, the main judicial safeguard
against abuse lies, as Lord Denning pointed out in the Alfred Crompton case (p
129), in the right of the court to examine the legal and factual basis for any claim
of privilege at the time when it is made. The court is in as good a position to do
this when accountants are involved as it is when the advice was sought from
lawyers. Secondly, none of the statements of principle in the case law have
identified the relationship of lawyers with the court or the arrangements for the
admission or discipline of lawyers as a relevant factor. If it had been, then the
English courts would not have recognised a privilege for legal advice which was
wholly independent of any forensic proceedings, actual or prospective. Nor would
they have recognised the privilege attaching to the advice of foreign lawyers.
There is no suggestion in any of the cases about foreign legal advice of any interest
on the part of the English court in the standards of their training or discipline, and
they are certainly not amenable to the supervision of English judges. Nor could Sir
John Romilly have recognised the privilege attaching to the advice of a person
whom the client believed to be a solicitor and professionally consulted on that
basis, but who in fact was not: see Calley v Richards (1854) 19 Beav 401. Third,
the legal basis of the privilege was worked out by the courts at a time when most
claims for legal advice privilege concerned communications with solicitors and
attorneys, whose professional standards were then notoriously low. Many of them
were not enrolled and the court’s supervision of their professional practices was
nominal or non-existent. This was particularly true of attorneys, who practised in
the common law courts and whom Sir Vicary Gibbs, Chief Justice of Common
Pleas from 1813, once memorably described as “the growling jackals and
predatory pilot fish of the law”: see The Oxford History of the Laws of England, xi
(2010), 1110 (the whole of this chapter repays reading). The high modern standing
of solicitors (as all of them were called after 1873) was due very largely to the
work of the Law Society, which was founded after 1825 to address this perception,
and which together with its provincial affiliates gradually transformed the
profession in the course of the nineteenth century.
127. Neither Charles J nor the Court of Appeal took issue with these points in
principle. On the contrary, Charles J considered, at paras 64-65, that the appellants
had put forward
“a compelling, indeed unanswerable, case that in modern conditions
accountants have the expertise to advise on tax law and it is firms of
accountants, rather than firms of solicitors, who do give such advice
and represent clients in disputes with the revenue on many aspects of
Page 38
their tax affairs… So in my view, Prudential have shown that
accountants do what lawyers are described as doing in the cases that
establish LPP.”
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.
128. The main difficulty about the first point is its premise. This is that by
recognising the privilege attaching to the legal advice of accountants we would be
extending the scope of the privilege at common law. In my view this premise is
wrong. Acceptance of the appellants’ basic submission would not involve any
change to the principles governing the availability of legal advice privilege. It
would only involve recognising that as a matter of fact much legal advice falling
within those principles is nowadays given by legal advisers who are not barristers
and solicitors but accountants. It is the function of the courts, and in particular of
this court, to ensure that changes in legal, commercial or social practice are
properly reflected in the way that the law is applied. I do not doubt that as a result
the number of claims to privilege will be increased. But that is because the
growing complexity of tax law and the increasing number of people and
organisations affected by it, have led to an exponential increase in the number of
people seeking legal advice. A mere increase in the number of people who can
take advantage of an existing rule of law cannot be a good reason for failing to
apply general principles coherently. Nor can it justify an arbitrary distinction
between different professions performing exactly the same function.
129. The second point (that the supposed extension of the privilege would be
directly inconsistent with statute) was based on the provisions of sections 20 and
20B of the Taxes Management Act 1970, which were the legal basis of the
Revenue’s demand in this case. Section 20(1) confers on an Inspector of Taxes the
power to call for documents in the possession or power of the taxpayer, and
section 20(3) confers on him a corresponding power to call for documents from
third parties such as advisers. By section 20(9), these provisions are subject to the
restrictions in section 20B. Under section 20B(3), only the Commissioners of
Inland Revenue (not an Inspector) may exercise the power under section 20(1) or
(3) against a barrister, advocate or solicitor. And by section 20B(8), a barrister,
Page 39
advocate or solicitor is not obliged to produce any document for which legal
professional privilege could be maintained. Section 20B(9) and (11) make
additional provision for dispensing auditors and “tax advisers” from having to
produce relevant communications which are their property (i.e., in effect, their
working papers) or which are merely explanatory. For this last purpose, a “tax
adviser” means any person appointed to give advice about the tax affairs of
another person. The argument is that these sections make special provision for the
assertion of privilege in respect of communications with barristers and solicitors,
thus implicitly excluding the assertion of privilege for communications with any
one else. The point is said to be reinforced by the fact that Parliament has made
distinct provision in section 20B(9) for documents in the possession of a broader
category of “tax advisers”. In my view this argument cannot be accepted in the
light of the decision of the House of Lords in R (Morgan Grenfell & Co Ltd) v
Special Commissioner of Income Tax [2003] 1 AC 563, which concerned the same
provisions of the Taxes Management Act. The relevant advice in that case had
been given by solicitors and counsel, but the argument was similar. Section 20B(8)
expressly preserved legal professional privilege in respect of documents
requisitioned from third parties under section 20(3) but not in respect of documents
requisitioned from the taxpayer himself under section 20(1). The point made for
the Inland Revenue, as summarised by Lord Hoffmann at para 10, was that
“Parliament has provided a number of specific safeguards and restrictions for the
protection of the taxpayer, including an express preservation of LPP for documents
in the possession of a barrister, advocate or legal adviser. It therefore necessarily
follows that no wider qualification of the general words of section 20(1) was
intended”: see also para 21. The argument failed essentially because the provisions
relating to privilege in this part of the Act could not be regarded as a complete
code governing its availability. Section 20B(8) was held to be directed at a limited
problem arising from dicta in Parry-Jones v Law Society [1969] 1 Ch 1, which
appeared to suggest that documents in the hands of a lawyer were protected only
by the law of confidence, not by privilege. As for section 20B(9), that was held to
be irrelevant because it was not concerned with privilege at all: see paras 14 and
19. More generally, Lord Hoffmann, with whom the rest of the Appellate
Committee agreed, held at para 8 that the fundamental character of the client’s
right to invoke privilege meant that it could be overridden by statute only if an
intention to do so was “expressly stated or appear[s] by necessary implication.” As
Lord Hobhouse pointed out in his concurring judgment, at para 45,
“A necessary implication is one which necessarily follows from the
express provisions of the statute construed in their context. It
distinguishes between what it would have been sensible or
reasonable for Parliament to have included or what Parliament
would, if it had thought about it, probably have included and what it
is clear that the express language of the statute shows that the statute
must have been included. A necessary implication is a matter of
express language and logic not interpretation.”
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The decision in Morgan Grenfell illustrates the difficulty of arguing that statutory
provisions expressly reserving legal professional privilege in some circumstances
impliedly override it in all others. The most that can be said about section 20B(8)
in the present context is that, like some other statutes conferring power to
requisition documents or information, it assumes that privilege is available only in
cases where a barrister, advocate or solicitor is involved. That is understandable at
a time when no court had pronounced on the application of privilege to tax advice
given by any one else. But it is axiomatic that the assumptions of Parliament are
not the same as its enactments. In my view it is impossible to spell out of these
provisions a necessary implication that Parliament intended to confine the
privilege to communications with lawyers even if the common law extended it to
others. On the footing that privilege attaches to communications about tax advice
from accountants on exactly the same basis as corresponding communications with
lawyers, I can discern no rational reason why Parliament should have intended to
distinguish between them. The truth is that Parliament was not intending to deal
with the advice of non-lawyers at all.
130. I come therefore to the third of the arguments for leaving the present issue
to Parliament, which is to my mind the strongest of them. It can fairly be
summarised as follows:
(1) Legal professional privilege has been extended by statute to
patent and trade mark attorneys, licensed conveyancers, and persons
who without being barristers or solicitors are authorised to provide
certain legal services under the Courts and Legal Services Act 1990 or
the Legal Services Act 2007. There has been no equivalent extension to
accountants.
(2) A substantial number of statutes confer on the police or
regulatory and disciplinary bodies the powers to obtain documents or
information, subject to reservations for legal professional privilege
which refer to “professional legal advisers”. Other provisions, such as
section 2 of the Criminal Justice Act 1987 (which confers a
corresponding power on the Serious Fraud Office), preserve legal
professional privilege subject to exceptions which refer in terms to
“lawyers”.
(3) The possibility of extending the privilege to accountants was
considered on a number of occasions between 1967 and 2008, but on
none of them was Parliament prompted to extend the privilege to the
advice of accountants.
(4) More generally, the question which professionals qualify
would be left uncertain if the appellants’ argument succeeded. They are
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seeking the recognition only of the privileged status of tax advice given
by members of the Institute of Chartered Accountants and the Chartered
Institute of Taxation, but the principle which is said to justify such
recognition would be capable of affecting a wider and wholly uncertain
category of legal adviser.
In my view, none of these considerations require this court to refrain from giving a
principled answer to the question posed on this appeal.
131. The first point to be made is that we are not here concerned with social or
economic issues or other issues of macro-policy which are classically the domain
of Parliament. Nor are we concerned with legal principles derived from statute.
Legal professional privilege is a creation of the common law, whose ordinary
incidents are wholly defined by the common law. In principle, therefore, it is for
the courts of common law to define the extent of the privilege. The
characterisation of privilege as a fundamental human right at common law makes
it particularly important that the courts should be able to perform this function.
Fundamental rights should not be left to depend on capricious distinctions
unrelated to the legal policy which makes them fundamental.
132. Statute has intervened frequently in the past half-century, but it is important
to appreciate on what basis it has done so. In the great majority of cases, statute
has intervened for the limited purpose of reserving privilege when creating new
powers to obtain documents or information by compulsion. Sometimes, the
privilege is reserved subject to some qualification, although the commonest
qualification relates to the right to require a lawyer to disclose his client’s name
and address, something that would not necessarily be privileged anyway. Section
20 of the Taxes Management Act 1970 is one of the earliest interventions of this
kind. They have become commoner as statutory regulation has become more
pervasive and powers of compulsion have multiplied. Some of the enactments in
question, like the Taxes Management Act itself, assume that the privilege applies
only to communications involving barristers and solicitors. Some of them,
particularly in more recent times, have assumed that it applies to communications
involving “legal advisers” or “professional legal advisers”, a term which would
naturally include any person who gives legal advice in the course of his profession.
Provisions of these kinds are not concerned to define the extent or incidents of the
privilege at common law. They operate by reference to the common law as it is
declared by the courts. They may proceed on assumptions about the categories of
legal adviser to which the relevant common law applies, which may be expressed
with greater or lesser precision. Either way, assumptions of this kind are entirely
consistent with the courts continuing to perform their historic role of clarifying and
developing the common law. Indeed, the regularity of statutory intervention makes
it the more important for the courts to declare the common law so that Parliament
can proceed on a correct assumption about what it is. The problem at the moment
Page 42
is that Parliament is legislating against the background of assumptions about the
common law which are contrary to principle, discriminatory and out of date. Only
the courts can be expected to rectify that state of affairs. Certainly, the frequency
of references to privilege in statutes providing for the compulsory provision of
documents or information has not prevented the courts from recognising the
privileged status of relevant dealings with foreign lawyers. A French notary or a
German Rechtsanwalt, for example, could not properly be described as a
“barrister” or “solicitor” for the purposes of section 20B(8) of the Taxes
Management Act, but it would be surprising to hear it said that a client who
consulted one of these professionals could not claim privilege for their
communications in response to a requisition under section 20.
133. The other purpose for which statute has intervened in recent years is to
recognise certain professional activities other than those of barristers and solicitors
as attracting the privilege. I find it difficult to attach much significance to this.
None of the enactments in question attempt a comprehensive scheme of
recognition which could make the omission of accountants’ tax advice significant.
There has been piecemeal legislation applying the privilege to certain professional
activities of patent and trade mark attorneys and licensed conveyancers. In the case
of patent and trade mark attorneys, this was necessary in order to reverse the effect
of Wilden Pump Engineering Co v Fusfeld [1985] FSR 159, which had held that
their activities did not attract privilege. A more systematic attempt to address the
issue was made by section 63 of the Courts and Legal Services Act 1990, which
has now been superseded by section 190 of the Legal Services Act 2007. Section
190(2) of the 2007 Act provides that where advocacy, litigation, conveyancing or
probate services are provided by individuals who are not barristers or solicitors,
legal professional privilege is to attach “in like manner as if [the individual] had at
all material times been acting as [his] client’s solicitor.” By section 190(4), it is
also to attach where a body licensed by the Legal Services Board provides services
through a person who is a “relevant lawyer” or acts under the supervision or
direction of a “relevant lawyer”. “Relevant lawyers” include solicitors, barristers,
Scottish advocates, registered foreign lawyers, European lawyers and also an
indeterminate category of persons authorised by the Board to carry on a “reserved
legal activity”. These provisions can contribute very little to the present debate for
two reasons. First, legal advice is not as such covered by the statutory scheme. It is
regulated only so far as it is incidental to one of the services specified for the
purpose of subsection (2) or the “reserved legal activities” relevant to subsection
(4). The latter are defined in section 12. Secondly, section 190(7) provides that the
rest of the section is “without prejudice to any… rule of law by virtue of which a
communication, a document, material or information is privileged from
disclosure.” So far as any policy can be discerned which is relevant to the present
issue, it is to enable legal services to be supplied on a comparable basis as to
privilege and other matters, irrespective of traditional demarcation lines between
barristers, advocates and solicitors on the one hand and other persons providing the
same services on the other.
Page 43
134. There is a well-established difference between a case where Parliament has
merely made assumptions about the common law in framing legislation, and cases
where the legislation in question is workable only if that assumption is correct. It
was pointed out by Lord Reid in Birmingham Corporation v West Midlands
Baptist (Trust) Association Inc [1970] AC 874, 898F-G, and the courts have
implicitly addressed it on many occasions. Woolwich Equitable Building Society v
Inland Revenue Comrs [1993] AC 70 is one of them. The House of Lords extended
the right to restitution of unlawfully demanded tax, notwithstanding that important
policy considerations were engaged and notwithstanding extensive statutory
intervention in the relevant area. Lord Slynn observed at p 200 C-E:
“I do not consider that the fact that Parliament has legislated
extensively in this area means that no principle of recovery at
common law can or should at this stage of the development of the
law be found to exist. If the principle does exist that tax paid on a
demand from the Crown when the tax was the subject of an ultra
vires demand can be recovered as money had and received then, in
my view, it is for the courts to declare it. In so doing they do not
usurp the legislative function. I regard the proper approach as the
converse. If the legislature finds that limitations on the common law
principle are needed for reasons of policy or good administration
then they can be adopted by legislation…”
At the other extreme, in Marcic v Thames Water Utilities Ltd [2004] 2 AC 42 and
Johnson v Unisys [2003] 1 AC 518 the suggested developments of the common
law would have made apparently comprehensive schemes of statutory regulation
unworkable in the manner which Parliament intended. In a case like this, where the
suggested development conflicts with some of the assumptions of Parliament but
not with its intentions, the courts should be extremely wary before acceding to
invitations to leave those assumptions uncorrected when their practical application
has become anomalous or incoherent in the light of modern developments.
135. Over the years, there have been some proposals to protect communications
with accountants relating to tax advice by statute. Their rejection or abandonment
is said by the respondents to suggest that Parliament has taken a position on the
question. In 1967, the Law Reform Committee advised in its Sixteenth Report
(Cmnd 3472) against creating a statutory privilege for confidential professional
relationships generally. The privilege would have been an enhanced rule of
confidentiality along the same lines as the “secret professionnel” in most European
civil law jurisdictions. It would have applied to doctors, priests, bankers and
accountants. It is, however, clear that the Committee was dealing with the
possibility that such a privilege might be desirable by virtue of the confidential
character of the relationship, rather than any public interest in enabling persons to
take legal advice. This has nothing to do with legal professional privilege. The
Page 44
Keith Committee came rather closer to the mark when they reported in 1983 on the
enforcement powers of the revenue departments (Cmnd 8822). The Committee
considered (para 26.6.13) that “there does not appear to be any reason to
distinguish between a legally qualified tax agent and any other, at least in the tax
field.” They recommended by a majority that the privilege should extend to nonlegally qualified tax agents in private practice who were members of an
incorporated society of accountants or the Institute of Taxation. They considered
that the privilege should be subject in all cases (including lawyers) to a right in the
tribunal to override it where its exercise would unreasonably impede the
ascertainment of the facts. For reasons which do not appear to be recorded, nothing
came of this proposal. It would have involved an extension of the categories of
relevant adviser but some significant restrictions of the scope of the privilege. This
may have been why it got no further. In 2003, the Government rejected a
recommendation of the Director General of Fair Trading that accountants’ legal
advice should be privileged on the same basis as that of lawyers, on the ground
that the discrimination between them was anti-competitive. Its stated reason was
that it was undesirable to increase the number of people who could decline on the
ground of privilege to produce information about money-laundering transactions
or tax avoidance schemes. Finally, there was a brief discussion in the committee
stage of the Finance Bill 2008 of a proposed amendment to Schedule 36, which
substantially re-enacted the various powers of the revenue departments to
requisition documents or information. Schedule 36 as enacted does in fact allow
“tax advisers” (generally accountants) to withhold material requisitioned by the
Revenue if they constitute communications for the purpose of giving or obtaining
advice about a client’s tax affairs. The proposed amendment was directed to the
fact that whereas the advice of lawyers was to be privileged in the hands of both
the adviser and the client, the corresponding statutory protection for
communications with “tax advisers” applied only to material in the hands of the
adviser. The same material could be obtained by compulsion from the client
himself. The Financial Secretary to the Treasury said that the Government was
reluctant to extend the protection for privileged material too widely but would
consider the position, and on that basis the amendment was withdrawn. The matter
does not seem to have resurfaced. The differentiation between material in the
hands of the adviser and in the hands of the client was criticised as irrational by
Lord Hoffmann in R (Morgan Grenfell & Co Ltd) v Special Commissioner of
Income Tax [2003] 1 AC 563 at para 22, in the context of section 20B(8) of the
Taxes Management Act, which made a similar distinction in a case where the
advice was sought from a lawyer. The same criticism was made by Sir Gordon
Slynn as Advocate General in AM & S Europe Ltd v Commission of the European
Communities (Case 155/79) [1983] QB 878, 913-914. It is a poor advertisement
for the coherence of English statute law in this area. In my view these proposals
and their reception fall a very long way short of suggesting that Parliament has
implicitly taken a position on the application of legal professional privilege to
communications with accountants. The material shows that the Government is
reluctant to increase the number of claims to privilege in tax investigations, which
will surprise no one. I do not think that it shows any more than that. Only the Keith
Page 45
Report and the Government response to the proposals of the Director General of
Fair Trading directly address the question whether privilege or some statutory
equivalent should attach to communications with accountants. The former appears
to have been rather cursorily discussed in Parliament and the latter not at all. The
proposal in 2008 to deal with the anomalous distinction between materials in the
hands of a tax adviser and his client was discussed in Parliament, but was left
inconclusively in Limbo.
136. Looking at these matters in the round, one point stands out. Most of the
policy considerations urged upon us on this appeal ultimately rest on concerns that
privilege may get out of hand if it may be claimed in respect of legal advice from
non-lawyers. It is said that only Parliament can address this problem so far as it is
one. I do not underestimate these concerns. But I do not think that they impinge on
the issue in this appeal. This is because, although there are perfectly rational
reasons why one might wish to see the scope of legal professional privilege limited
or the occasions for claiming it curtailed, there are no rational reasons for
addressing the issue by discriminating between different categories of legal adviser
performing precisely the same function. If privilege is abused by professional legal
advisers, and there is no evidence that it is, then the answer lies in (i) the scrutiny
to which all claims to privilege are ultimately exposed in court, and (ii) in a
sufficiently extreme case, professional disciplinary sanctions against those
involved. None of this requires an arbitrary distinction to be made between
different kinds of legal adviser which has no basis in principle. If on the other
hand, the scope of privilege at common law is thought to be too broad, then the
remedy is legislation to modify the common law principles as they apply to all
professionals performing the relevant functions and not just some of them. As
applied to tax advice this should be straightforward if there is enough
Parliamentary support for it: there is a Finance Bill once a year. But none of this
has anything to do with the present appeal. We are not here concerned with the
breadth of the scope of privilege at common law, but only with identifying the
categories of adviser to which the existing principles apply.
137. I turn, finally, to the argument that in recognising that privilege attaches to
the advice of members of the Institute of Chartered Accountants or the Chartered
Institute of Taxation, we would be acknowledging a principle which would let in
an uncertain and potentially large category of other professionals. I would accept
that so far as other professionals are found to be giving legal advice on
substantially the same basis as barristers and solicitors do, the privilege will apply
to them in the same way. Coherence and rationality demand nothing less. But fears
of a flood of privilege claims arising from the activities of supernumerary legal
advisers strike me as extravagant. The privilege is confined, as it always has been,
to the taking of legal advice in the course of a professional relationship with a
person whose profession ordinarily includes the giving of legal advice. There are
other advisory professions whose practitioners although not lawyers require some
Page 46
knowledge of law. A chartered surveyor advising on the structural integrity of a
building may require a knowledge of the building regulations. An investment
banker advising on a takeover may require a knowledge of the Takeover Code and
associated regulatory codes. An auditor will require a basic knowledge of company
and insolvency law. The activities of these professionals will no doubt be informed
by their understanding of the relevant law. But it does not follow that their
profession has as an ordinary part of its functions the giving of legal advice. The
legal element involved in their advisory work is likely to be purely incidental to
the exercise of a broader advisory function. The distinctive feature of accountants’
advice on tax law is that advice on tax law is itself the service which clients
routinely seek from them. I very much doubt whether many other professions will
find themselves in the same position. It may be that patent agents did in 1984 when
the Court of Appeal held in Wilden Pump Engineering Co v Fusfeld [1985] FSR
159 that their legal advice did not attract privilege. But so far as this decision is
based on the proposition that communications for the purpose of giving or
receiving legal advice are never capable of being privileged if given by nonlawyers, I think that it was wrong. As far as patent and trade mark attorneys are
concerned, the point no longer matters. Their position has since been regulated by
statute.
138. 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 CLARKE (dissenting)
139. I have read the judgments of Lord Neuberger, Lord Sumption and Lord
Hope with great interest. I agree with Lord Sumption that the appeal should be
allowed, essentially for the reasons he gives. I briefly summarise my reasons for
reaching that conclusion because the true position at common law does seem to me
to be a matter of some importance and I hope that the whole issue will be
considered by Parliament as soon as reasonably practicable.
140. The striking feature of the judgments of Lord Neuberger and Lord
Sumption, and indeed of Lord Hope, is to my mind that they agree what the
common law is or should be if the issue is treated as one of principle. As I see it,
that principle can readily be seen by taking a simple example. Suppose that two
individuals, 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, or substantially
the same, facts. Suppose that A seeks advice from, say, Freshfields, and that B
seeks advice from, say, PricewaterhouseCoopers. Each asks the same question and
Page 47
gives an account of what are substantially the same facts to the person from whom
the advice is sought. Each is receiving legal advice. The question for decision in
this appeal is whether the information given and the advice received are privileged
as legal advice. Are both A and B entitled to claim the privilege and refuse to
disclose to HMRC the information and the advice?
141. In my opinion, the only principled answer to that question is yes. It is
accepted on all sides that the privilege is that of the client, that is A and B, and not
that of either the solicitors or the accountants. It is also accepted that, as recently
confirmed in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income
Tax [2002] UKHL 21, [2003] 1 AC 563, the privilege is a “fundamental human
right long established in the common law”, which was “a necessary corollary of
the right of any person to obtain skilled advice about the law”: per Lord Hoffmann,
with whom the other members of the House of Lords agreed, at para 7. As Lord
Sumption says at para 122, the privilege depends upon the public interest in
promoting A and B’s access to legal advice on the basis of absolute confidence.
142. It seems to me to follow that, if the common law treats the information and
advice as privileged in the case of A, principle requires that it must do the same in
the case of B. The advice is the same legal advice in both cases and the expertise
of the adviser in each case is broadly similar, if not the same. Indeed some
accountants may be able to give more specialised legal advice than some solicitors.
I agree with Lord Sumption, for the reasons he gives (at para 122), that the
privilege is conferred in support of the client’s right to consult a skilled
professional adviser and not in support of a right to consult the members of any
particular professional body. On the respondents’ case, as 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.
143. It is important to note that the issue in this appeal relates only to legal
advice privilege and not litigation privilege. It is thus not directly related to the
administration of the courts by judges. Lord Scott put it clearly in Three Rivers
District Council v Governor and Company of the Bank of England (No 6) [2005] 1
AC 610 at para 34:
“None of these judicial dicta tie the justification for legal advice
privilege to the conduct of litigation. They recognise that in the
complex world in which we live there are a multitude of reasons why
Page 48
individuals, whether humble or powerful, or corporations, whether
large or small, may need to seek the advice or assistance of lawyers
in connection with their affairs; they recognise that the seeking and
giving of this advice so that the clients may achieve an orderly
arrangement of their affairs is strongly in the public interest; they
recognise that in order for the advice to bring about that desirable
result it is essential that the full and complete facts are placed before
the lawyers who are to give it; and they recognise that unless the
clients can be assured that what they tell their lawyers will not be
disclosed by the lawyers without their (the clients’) consent, there
will be cases in which the requisite candour will be absent. It is
obviously true that in very many cases clients would have no
inhibitions in providing their lawyers with all the facts and
information the lawyers might need whether or not there were the
absolute assurance of non-disclosure that the present law of privilege
provides. But the dicta to which I have referred all have in common
the idea that it is necessary in our society, a society in which the
restraining and controlling framework is built upon a belief in the
rule of law, that communications between clients and lawyers,
whereby the clients are hoping for the assistance of the lawyers’
legal skills in the management of their (the clients’) affairs, should
be secure against the possibility of any scrutiny from others, whether
the police, the executive, business competitors, inquisitive
busybodies or anyone else (see also paras 15.8 to 15.10 of
Zuckerman’s Civil Procedure (2003) where the author refers to the
rationale underlying legal advice privilege as “the rule of law
rationale”). I, for my part, subscribe to this idea. It justifies, in my
opinion, the retention of legal advice privilege in our law,
notwithstanding that as a result cases may sometimes have to be
decided in ignorance of relevant probative material.”
144. That same analysis seems to me to lead to the conclusion that where advice
on tax law is sought from and given by an accountant it should be subject to legal
advice privilege in the same way and that there is no difference between the
positions of A and B in my example. It was no doubt considerations of this kind
that led Charles J to say in this case at first instance (at paras 64-65), in my opinion
correctly, that there is a compelling, indeed unanswerable, case that in modern
conditions accountants have the expertise to advise on tax law and that it is firms
of accountants rather than firms of solicitors who give such advice and represent
clients in disputes with the HMRC on many aspects of their tax affairs. He
concluded that the respondents had shown that accountants do what lawyers are
described as doing in the cases that establish legal advice privilege.
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145. Lord Neuberger has demonstrated that the ambit of the privilege as widely
understood is that it is limited to lawyers and does not extend to accountants. He
has not, however, been able to point to any principled analysis of the reason why it
is so limited. The decided cases do not provide such an analysis. For example, in a
case entitled Dormeuil Trade Mark [1983] RPC 131, in which privilege was
claimed in respect of the disclosure of correspondence between the plaintiffs and
their trade mark agents, although Nourse J rejected the claim, he did not give any
principled basis for doing so. He noted at page 136 that historically cases had been
conducted only by solicitors and counsel and added this:
“[Counsel for the defendants] says that in those days it was never
necessary for anybody to consider whether the privilege should
apply in a case where other professional men, far less non-professional
men, were concerned in advising clients, or indeed in conducting
litigation on their behalf. He says that in these days the rule should be
different. Like the learned Master, I see great force in that submission.
It does seem to me to be a little odd and possibly perverse, that if a
trade mark agent is entitled to advise a client in relation to certain legal
matters and to conduct certain legal proceedings on his behalf, the same
privilege should not apply as would certainly apply in a case where the
advice was being given and the proceedings were being conducted by a
solicitor. Nevertheless I do not think it is open to me in this court to fly
in the face of the established rule, as enunciated in Wheeler v Le
Marchant, the statement of Chitty J in Moseley v Victoria Rubber
Company, and the fact that in 1968 the legislature seemed to think it
was necessary expressly to extend the privilege to the case of patent
agents.”
In the circumstances Nourse J made the order with some reluctance. He certainly
did not identify the principle behind the rule. Nor did either of the cases he referred
to. In Wheeler v Le Marchant (1881) 17 Ch D 675 the Court of Appeal made it
clear that the privilege was limited to legal advice obtained from professional
persons, by which was meant, as Nourse J put it at p 135, persons who have a full
legal qualification here or abroad. 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. In any event, I agree with Lord Sumption (at para 137) that, to the extent
that that decision was based on the proposition that communications for the
purpose of giving or receiving legal advice are never capable of being privileged if
given to non-lawyers, it was wrong.
146. Legal advice privilege is a creature of the common law. As such it should
be capable of redefinition to cater for changed conditions. If principle requires that
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it should apply to situations to which it was previously thought not to apply, I can
see no reason why this court should not so state, unless prevented from doing so,
either expressly or necessary implication, by statute. We have been referred to no
such statute. Attention has been drawn to a number of areas in which Parliament
may have assumed that the common law was different. However, in my opinion
the principle identified by Lord Slynn in Woolwich Equitable Building Society v
Inland Revenue Comrs [1993] AC 70, at p 200C-E (and quoted by Lord Sumption
at para 134 above) applies equally to the issue for decision in this appeal. He put
the point thus:
“I do not consider that the fact that Parliament has legislated
extensively in this area means that no principle of recovery at
common law can or should at this stage of the development of the
law be found to exist. If the principle does exist that tax paid on a
demand from the Crown when the tax was the subject of an ultra
vires demand can be recovered as money had and received then, in
my view, it is for the courts to declare it. In so doing they do not
usurp the legislative function. I regard the proper approach as the
converse. If the legislature finds that limitations on the common law
principle are needed for reasons of policy or good administration
then they can be adopted by legislation…”
147. If principle requires the court to hold that legal advice privilege extends to
advice given by accountants on a professional basis, the court should in my
opinion so declare. As Lord Slynn put it, if the legislature finds that limitations on
that principle are required for reasons of policy they can be adopted by legislation.
It is of interest to note that when the Keith committee considered the position, it
could not identify a rationale for the distinction advanced on behalf of the
respondents and it did not recommend the continuation of the status quo. As Lord
Sumption observes at para 135, it recommended that the privilege should extend to
at least some tax advisers but that it should be subject to a limitation in all cases.
As Lord Sumption says, the matter was only cursorily discussed in Parliament. In
all the circumstances, I do not think that any of the pragmatic considerations
identified by Lord Neuberger and Lord Hope are sufficient to confer the privilege
on A in my example and to deny it to B. I agree with Lord Sumption’s striking
conclusion at the end of para 131 that fundamental rights should not be left to
depend on capricious distinctions unrelated to the legal policy which makes them
fundamental.
148. Lord Sumption expresses the view in para 114 that the privilege extends to
advice given by members of a profession which has as an ordinary part of its
function the giving of skilled legal advice. I would expect that criterion to be
satisfied only where, and to the extent, that they are members of a properly
regulated professional body.
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149. For these reasons, which are essentially the same as those of Lord
Sumption, I would allow the appeal and make the order which he proposes.
