Legal Professional Privilege Part II – The Prudential Appeal

Introduction

In Issue 14 of Insight we looked at legal advice privilege in the wake of the decision in Walter Lilly & Company v Mackay and Ors [2012] EWHC 649. Walter Lilly made it clear that quasi-legal advice provided by non-lawyers (for example claims consultants) does not attract legal professional privilege and, as such, will be subject to disclosure in court proceedings. Legal professional privilege is a communication made between a client and a lawyer made in confidence for the purpose of giving or receiving legal advice.

Unsurprisingly the decision in Walter Lilly was criticised by some members of the construction industry for being anti-competitive and providing lawyers with an unfair advantage in respect of providing confidential advice in situations where litigation is not contemplated by the parties.

With the Walter Lilly case finally coming to an end earlier this year when the Court of Appeal refused to give permission to appeal, there was huge interest when it emerged that the concept of legal professional privilege was going to be considered by the Supreme Court following an application by Prudential in the case of R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1.

Facts of the Prudential case

In 2004, accountants Pricewaterhouse Coopers ("PWC") were instructed by Prudential plc ("Prudential") to provide tax advice in relation to certain overseas holdings. PWC advised Prudential to adopt a tax avoidance scheme that they had developed and marketed. The objective of the scheme was to enable a tax deduction from a foreign subsidiary to be set off against the profits of Prudential in the UK and therefore reduce corporation tax liability.

The Inspector of Taxes with the responsibility for this aspect of Prudential's tax liability was Mr Pandolfo. Mr Pandolfo considered it necessary to look into the transactions carried out by Prudential in respect of the advice given by PWC. Notice was served on Prudential under section 20B(1) of the Finance Act 2000 ("the Act") which required Prudential to disclose a number of categories of documents. Prudential duly provided many of the documents requested but refused to disclose certain documents ("the disputed documents") on the grounds that Prudential was entitled to claim legal advice privilege in respect of them. Prudential relied upon para 5(1) of Sch 1 AA to the Act which states that communications between a professional...