Privilege: Legal Advice From Accountants

Summary In R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another an English court has held that legal advice privilege does not extend to cover advice about law (e.g. tax law) given by accountants.

Facts Briefly, Prudential plc and Prudential (Gibraltar) Limited (together Prudential) were served with notices under section 20 of the Taxes Management Act 1970 in exercise of HMRC's investigatory powers. The notices were served with a view to investigate a commercially marketed tax avoidance scheme and required Prudential to disclose documents/information in relation to its tax liability.

Prudential argued that the documents required to be disclosed under the notices were covered by legal advice privilege as they related to advice about tax law, albeit from accountants. Therefore, they were not obliged to disclose the documents.

Prudential also challenged the notices on the basis that they did not seek material that was relevant to its tax liability. This challenge also failed.

Decision Following the House of Lords (as it then was) decision in R (Morgan Grenfell) v Special Commissioners of Income Tax [2002] UKHL 21 it is an established principle that legal advice privilege is exercisable in response to a request or demand for information pursuant to investigatory powers. However this decision related to advice from, and communications with, lawyers.

In the present case the judge held that legal advice privilege does not extend to advice from, and communications with, accountants even if it relates to advice about the law.

Commentary The approach taken by the judge is that legal advice privilege does not attach solely because of the purpose and nature of the advice but also because the advice emanates from a member of the legal profession. The justification put forward for this is that the link between legal advice privilege and members of the legal profession is a natural one given the relationship of a lawyer's professional duties, including a lawyer's duties to the court, and the administration of justice.

The judge did proceed on the basis that if an accountant acts for a client in the preparation and presentation of tax litigation then, litigation privilege would attach to any documents...