The special commissioner, granting an application by Revenue and Customs to issue a notice under TMA 1970, s. 20 directed to a parent company and its subsidiary to deliver up documents in connection with the latter's tax liability, decided that documents containing their accountants’ advice did not impliedly qualify for professional privilege.

Facts

The Revenue applied for a notice in writing under TMA 1970, s. 20 directed to a parent company and its subsidiary requiring them to deliver up such documents as were in their possession or power containing information relevant to the tax liability to which the latter might be liable. The companies claimed professional privilege in respect of documents setting out accountants’ advice.

The parent company contended that the only documents not disclosed were those documents forming part of a chain of correspondence the dominant purpose of which was the obtaining of legal advice. It argued that the decision of the House of Lords in R v Special Commissioner, ex parte Morgan Grenfell & Co Ltd [2002] BTC 223; 74 TC 511 supported its claim. At para. 38 of his judgment Lord Hoffmann disagreed with the Revenue's argument that it was important for them to have access to legal advice in cases where liability turned on the purpose for which a transaction was entered into, saying that the court must infer the purpose from the facts. The issues here were said to be precisely parallel to the issues considered in Morgan Grenfell and a purposive approach to that case required that privilege should be given to accountants’ advice since there was no justifiable distinction between such documents in the hands of the lawyer and in the hands of the client.

The Revenue contended that Morgan Grenfell was solely about legal professional privilege (LPP) and did not consider an extension to it. The contrast between LPP and other confidential communications was made by Lord Scott of Foscote, with whom three of their Lordships expressly agreed, in Three Rivers District Council v Bank of England (No. 6) [2005] AC 610.

The conclusion in Morgan Grenfell depended on the character of LPP as a fundamental human right. It was not based on a general right of privacy, but on the right of access to justice. No such fundamental right attached to accountancy advice. The parent company's purposive approach assumed what it was trying to prove. There was an express qualification in s. 20B(9) and an implied qualification for LPP, but there were no other qualifications. Moreover, the parent company's argument was illogical in accepting that the advice did not fall within LPP, but contending that there was a regime protecting from disclosure advice from accountants that was identical to LPP.

Generally, the request was to enable the Revenue to understand the relevant transactions, to see why they were entered into and to see whether the relevant statutory provisions, construed purposively, applied to the transactions as they actually were, viewed realistically.

Issue

Whether privilege was to be implied for the advice of accountants.

Decision

The special commissioner (Dr John F Avery Jones) (allowing the Revenue's application) said that the parent company was essentially asking the tribunal to read s. 20 as containing an implied privilege for accountants’ advice in circumstances in which it was accepted that LPP did not apply. Section 20 was confusing on what was privileged and the understanding of it was changed by the decision of the unanimous House of Lords in Morgan Grenfell reversing the equally unanimous Court of Appeal and Divisional Court and the presiding special commissioner, which demonstrated that the decision was unexpected. The House of Lords decided that there was an implied saving for LPP, which applied to documents in the hands of the client.

Originally s. 20(8) provided that the section did not oblige a barrister or solicitor to deliver without the client's consent any documents on which a claim to LPP could be maintained. That was generally thought to imply that LPP was not protected in the hands of the client, whose privilege it was. Section 20B(9) and (10) extended legal professional privilege to professionally qualified agents as well as solicitors. At that stage it seemed that legally qualified advisers and ‘tax advisers’ (as defined) were in the same position. The decision of the House of Lords in Morgan Grenfell was that it could not be implied from the express saving for lawyers that an implied LPP for documents in the hands of the client was excluded. However, the House of Lords had not considered the saving in s. 20B(9) and (10) for documents that were the tax adviser's property and consisted of relevant communications between the tax adviser and the client (and any other tax adviser) the purpose of which was the giving or obtaining of advice about the client's tax affairs.

In 2000, after the House of Lords’ decision, Parliament amended those sections by adding s. 20BA and Sch. 1AA which contained an express exception for items subject to LPP defined to include certain communications between a professional legal adviser and his client. Although that addition was likely to be relevant to the legal adviser rather than the client as the section concerned offences involving serious fraud, Parliament made a further express limitation of that new privilege to legal advisers.

Accordingly, while there existed essentially similar safeguards for documents in the hands of lawyers and tax advisers, the saving for LPP in the hands of the client that the House of Lords found not to have been impliedly overridden by the section in Morgan Grenfell was strictly for LPP, as a human right that could be invaded only in exceptional circumstances. The courts had recognised the distinction between lawyers and others and there was no possibility of the special commissioners deciding that something similar to LPP existed in relation to advice from accountants. There was no support for the existence of a previously unrecognised fundamental human right attaching to all advice that had nothing to do with the law.

The only exception for accountants’ advice was if it was irrelevant. The test was what was the Revenue officer's reasonable opinion. In the light of correspondence produced in evidence, the Revenue officer was entirely reasonable in his opinion that the documents sought contained or might contain information that showed the whole facts which were relevant to the tax liability of the subsidiary.

(2007) Sp C 647.
Decision released 16 November 2007.