An Unsatisfactory Stalemate: R (on the Application of Prudential plc) v Special Commissioner of Income Tax
| Date | 01 January 2014 |
| DOI | 10.1350/ijep.2014.18.1.443 |
| Published date | 01 January 2014 |
| Subject Matter | Case Note |
AN UNSATISFACTORY STALEMATE
CASE NOTE
An unsatisfactory stalemate: R (on
the application of Prudential plc) v
Special Commissioner of Income Tax
By Joan Loughrey*
Professor of Law, Centre for Business Law and Practice, School of
Law, University of Leeds
Keywords Legal advice privilege; Legal professional privilege; Corporate client;
Accountancy profession; Tax
egal professional privilege protects documentation from compulsory
disclosure and comprises two separate privileges: legal advice privilege
L (LAP)andlitigationprivilege.LAPhasalwaysbeenunderstoodtoprotect
communications made between a lawyer, acting in his or her professional
capacity, and the lawyer’s client (or the client’s representative) made in
connection with the provision of legal advice. However, in R (on the application of
Prudential plc) v Special Commissioner of Income Tax,1 an application for judicial review
brought by Prudential plc (Prudential), Prudential argued that LAP also applied to
legal advice provided by accountants.
The case specifically concerned what information could be withheld from the
State about tax avoidance schemes. Pricewaterhouse Coopers LLP (PWC) had
developed and marketed a tax avoidance scheme to its client Prudential. HMRC
issued notices to Prudential under the Taxes Management Act 1970 for the
delivery up of documents containing information about transactions that
*
Qualified as a solicitor of England and Wales and Hong Kong; email: j.m.loughrey@leeds.ac.uk.
1
[2013] UKSC 1, [2013] 2 WLR 325.
doi:10.1350/ijep.2014.18.1.443
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CASE NOTE
Prudential had entered into in pursuance of the scheme.2 Prudential challenged
the validity of the notices on the basis that they covered documents which related
to the seeking by Prudential and the giving by PWC of legal advice and were thus
protected by LAP. Prudential argued that it was merely seeking to apply existing
law to a changed set of social circumstances, namely that in contrast to when LAP
was developed, legal advice was now provided by professionals other than lawyers.
Alternatively, it argued that given the rationale for LAP it would be principled to
extend it to apply to legal advice provided by other professionals.3
Prudential failed at every stage. In the Supreme Court, by a majority of five to two
(Lords Sumption and Clarke dissenting) it was held that LAP only applies to advice
provided by a legal professional. The minority in contrast considered that LAP
would apply where the purpose of the communication was to obtain legal advice.
While Lord Sumption referred to this as a functional test for privilege,4 it also
incorporated a status test. For Lord Sumption, it was necessary that the advice be
provided in the course of a professional relationship by a member of a profession
whose profession ordinarily includes the giving of legal advice.5 For Lord Clarke
the advice should be provided by members of a ‘properly regulated professional
body’.6
The Supreme Court decision
A much commented upon aspect of the case was that both the majority and the
minority agreed that there were strong arguments of principle and logic deriving
from the rationale for LAP that supported the application of LAP to legal advice
provided by professionals other than lawyers. The rationale for LAP is well
rehearsed: by providing an absolute assurance of confidentiality, LAP is intended
to encourage those seeking legal advice to be candid so that their advisers can
provide fully informed advice and clients can arrange their affairs in accordance
with the law. This in turn serves the public interest.7 As the minority argued, given
that LAP is conferred on the client in support of the client’s right to obtain legal
advice in confidence, it should not matter whether the adviser is a lawyer or not:
2
Taxes Management Act 1970, s. 20(1) and (3), now replaced by the Finance Act 2008, s. 113 and
Sched. 36.
3
R (on the application of Prudential plc) v Special Commissioner of Income Tax [2011] QB 669, [2009] EWHC
2494 (Admin) at [8] and [2010] EWCA Civ 1094 at [2].
4
[2013] UKSC 1, [2013] 2 WLR 325 at [122].
5
Ibid. at [137].
6
Ibid. at [148].
7
Three Rivers v Governor and Company of the Bank of England (No. 6) [2004] UKHL 48, [2005] 1 AC 610 at
649–50, per Lord Scott.
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AN UNSATISFACTORY STALEMATE
LAP is not, after all, provided to support a client’s right to consult the members of a
particular profession.8
Moreover, the arguments of principle advanced for restricting LAP to advice
provided by lawyers, namely that lawyers owed a duty to the court, the close
connection between lawyers and the courts, and the courts’ role in lawyers’ disci-
plinary proceedings, were rightly given little weight.9 As Lord Sumption pointed
out, it is unclear what relevance lawyers’ relationship with the court has in the
context of LAP, which arises independently of litigation and extends to the work of
transactional lawyers who never enter a court. The argument that lawyers adhere
to stricter professional standards of confidentiality than other professionals was
irrelevant, since if LAP attached to a document, then, as a matter of law and not
professional standards, only the client could permit disclosure, irrespective of
which professional had advised. In addition, the argument that, unlike other
professionals, the courts could supervise lawyers was weak since, according to
Lord Sumption, LAP had developed when lawyers had very low standards and were
subject to scarcely any supervision by the courts. In any event foreign lawyers
adhered to different professional standards and were not subject to the courts’
jurisdiction, yet their advice was protected by LAP.10
Lord Neuberger, with whom the majority agreed, also considered that these
arguments were weak although he did not wholly dismiss them.11 The majority
were, however, concerned that extending LAP would create great uncertainty.
This was not solely a concern about floodgates, that is, a concern that recognising
LAP in this case would result in a flood of privilege claims attaching to advice
provided by a much larger group of professionals.12 It was also that, given the
rationale for privilege, the boundaries of LAP had to be clear and understandable
as clients needed to be confident about when their communications would
remain private in order to feel free to be frank with their lawyers.13 This would be
undermined by Prudential’s proposed test for determining when LAP would
apply, namely to advice given by a professional person whose profession
ordinarily included the giving of legal advice, as it raised difficult definitional
questions which could only be settled after the event by the courts.14
8
[2013] UKSC 1, [2013] 2 WLR 325 at [122], per Lord Sumption.
9
Ibid. at [42].
10 Ibid. at [125]–[126]. See also Lord Neuberger at [45].
11 Ibid. at [42].
12 Ibid. at [136], per Lord Sumption.
13 See, e.g., ibid. at [100], per Lord Reed.
14 Ibid. at [38].
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Certainly the question of what constitutes a profession is unsettled, and the
category is fluid. Lord Neuberger gave examples where there was room for
disagreement such as town planners, engineers and pension advisers.15 Again,
although it seems unlikely that the courts would accept such a...
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