Principle Or Politics? The Price Of Privileged Communications And Who Is A 'Legal Advisor' For The Purpose Of Legal Advice Privilege?

In R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another,1 the Supreme Court decided to preserve the status quo by holding that common law legal advice privilege (LAP) does not extend to anyone beyond the members of the legal profession. That is to say, LAP is afforded only to an English and Welsh qualified lawyer (i.e. legal executive, solicitor or barrister) whether in private practice or working in-house, or an appropriately qualified foreign lawyer (including, presumably, those qualified in Scotland and Northern Ireland).

In 2004, PricewaterhouseCoopers (PWC) devised and marketed a tax avoidance scheme, which was adapted for the benefit of certain overseas companies in the Prudential group of companies (Prudential). The implementation of the scheme involved a series of transactions, which the inspector of taxes thought it necessary to look into. In doing so, he served notices under the relevant sections of the Taxes Management Act 1970 (now replaced by the Finance Act 2008) for the disclosure of specified classes of documents relating to those transactions. Prudential refused to disclose communications relating to the seeking by Prudential and the giving by PWC of legal advice in connection with the transactions, on the ground that they were protected by LAP. Litigation privilege did not arise for consideration in this case.

The question for the court was whether LAP would attach to communications between a chartered accountant (PWC) and its client (Prudential) in relation to the provision of tax law advice. Prudential sought to argue that LAP did attach and the contrary was argued by the Commissioner. A number of industry bodies also intervened to express their opinions in the litigation, including the Law Society, the General Council of the Bar of England and Wales, the Legal Services Board, the AIPPI UK Group and the Institute of Chartered Accountants in England and Wales. It will come as no surprise as to which side of the argument each of these bodies fell, the Institute forming a minority of one.

It was clearly recognised by the court that this case had a much wider significance than the specific interests of accountants expert in tax law; the broader question being that if LAP extended to communications containing the tax advice of chartered accountants, what other types of legal advisers could claim LAP protection?

By a majority of five to two, the Supreme Court decided that LAP...

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