In this case, the High Court was asked to consider whether tax planning advice from an accountant to a client is protected by legal professional privilege (LPP).

Prudential (the claimant) challenged two notices served under s20 (Power to call for documents of taxpayer and others) of the Taxes Management Act 1970. The notices were served by Revenue with a view to investigating a commercially marketed tax avoidance scheme.

Prudential claimed that the material sought by Revenue was covered by legal professional privilege (LPP); and the material sought was not relevant to any tax liability within the meaning of ss20 TMA. Prudential submitted that the main issue for the Court was to find that in the modern context, where skilled professional advice on tax law is obtained from accountants, the long established common law rules regarding LPP apply to communications between client and accountant, as the professional adviser, for the purpose of obtaining such legal advice on tax and conducting litigation concerning tax liabilities. Revenue disagreed and contended that Prudential was asking the court to extend LPP and thereby create a new or an extended right.

The LPP Challenge

The Court considered the powers of investigation conferred under section 20 and referred to the results of decided case law on this area. The Court cited the decision in the Morgan Grenfell [2003] case which demonstrated that the right to claim LPP is exercisable in response to a request or demand for information pursuant to investigatory powers and therefore that it is not confined to a right not to disclose information in, and for the purpose of, litigation.

Revenue accepted that as a result of the Morgan Grenfell case, Prudential were not required to disclose material that is subject to LPP under the relevant statutory scheme. However, Revenue asserted that Prudential were seeking an extension of LPP, or a new right, and that therefore they were seeking to refuse disclosure of material that is not covered by LPP and the statutory code precludes then from doing this is response to a section 20 notice. Revenue's main assertion was that the substantial issue to be determined by the Court was whether LPP covers advice about law which is given by those who are not qualified lawyers.

The Court declared that the general expressions of principle upon which LPP is based are capable of being read as

• Applying only to purpose and content of the communications, provided that the person giving the advice or assistance has the relevant expertise, or role or
• that the advice and assistance is given by a member of the legal profession.

Considering the arguments and authority put before the Court, the judge, Charles J dismissed the application. In his view, the present law as developed, applied and understood provided that for LPP to apply to legal advice and assistance it has to be given by a member of the legal profession with exceptions or extensions when the right or privilege arises in litigation or when litigation is contemplated.

In reaching the decision, the Court considered numerous cases dealing with LPP and applied the principal judgments of such cases, while having regard to modern conditions, policy and public interest. The Court acknowledged that Prudential put forward a compelling and unanswerable case that in modern conditions accountants have the expertise to advise on tax law and it is firm of accountants, rather than solicitors, who give such advice and represent clients in dealings with Revenue. This has been the case for some time and an equivalent position was held to exist in respect of other professions.

However, the Court held that previous case law does not provide existing authority that clients of accountants and other professions (apart from lawyers) have a right to claim LPP on the basis of legal advice privilege.

The Relevance Challenge

On the second challenge, the Court held that there was nothing in Prudential's claim that the material sought by Revenue was not relevant to any tax liability. The statutory test was whether the documents, as set out in the relevant notices, contained information relevant to the tax liability or its amount. Revenue was provided with a bundle of finalised transactional documents and copies of some internal correspondence in relation to the implementation of the avoidance scheme. Revenue was of the view that this did not include all the documents in the power or possession of Prudential. Considering the content of the documents, the Special Commissioners had agreed with Revenue's view. The Court also agreed with Revenue and the Special Commissioners and held that what was being sought was not “pure legal advice” on the meaning and effect of relevant taxing provisions but information concerning the nature of the transactions.

The Court refused the application for judicial review of the two notices served and directed Prudential to provide the documents requested by HMRC.

The judgment is available at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Admin/2009/2494.html&query=Prudential&method=boolean