R (Prudential Plc) v Special Commissioner of Income Tax

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Neuberger,Lord Walker,Lord Hope,Lord Mance,Lord Reed,Lord Sumption,Lord Clarke
Judgment Date23 January 2013
Neutral Citation[2013] UKSC 1
Date23 January 2013

[2013] UKSC 1


Hilary Term

On appeal from: [2010] EWCA Civ 1094


Lord Neuberger, President

Lord Hope, Deputy President

Lord Walker

Lord Mance

Lord Clarke

Lord Sumption

Lord Reed

R (on the Application of Prudential Plc and another)
Special Commissioner of Income Tax and another


Lord Pannick QC

Conrad McDonnell

(Instructed by PricewaterhouseCoopers Legal LLP)


James Eadie QC

Patrick Goodall

(Instructed by Solicitor to Her Majesty'ss Revenue and Customs )

Intervener (The Law Society of England and Wales)

Sir Sydney Kentridge QC

Tom Adam QC

Tim Johnston

(Instructed by Herbert Smith Freehills LLP)

Intervener (The General Council of the Bar of England and Wales)

Bankim Thanki QC

Ben Valentin

Henry King

Rebecca Loveridge

(Instructed by Field Fisher Waterhouse LLP)

Intervener (The Institute of Chartered Accountants in England and Wales)

Patricia Robertson QC

Instructed by Simmons & Simmons LLP )

Intervener (AIPPI UK Group)

Michael Edenborough QC QC

James Tumbridge

Instructed by Gowlings (UK) LLP )

Intervener (Legal Services Board)

Philip Havers QC

(Instructed by Legal Services Board)

Heard on 5, 6 and 7 November 2012

Lord Neuberger (with whom Lord Walker agrees)


The specific issue raised by this appeal is whether, following receipt of a statutory notice from an inspector of taxes to produce documents in connection with its tax affairs, a company is entitled to refuse to comply on the ground that the documents are covered by legal advice privilege (LAP), in a case where the legal advice was given by accountants in relation to a tax avoidance scheme. The more general question raised by this issue is whether LAP extends, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession, and, if so, how far LAP thereby extends, or should be extended.

The statutory provisions applicable in this case

The statutory provisions in force at the time during which the events giving rise to the present proceedings took place were in the Taxes Management Act 1970 (" TMA"). All references in this judgment to sections are to sections of that Act, unless the contrary is stated.


Section 20(1)(a) provided that an inspector of taxes

"may by notice in writing require a person…to deliver to him such documents…as (in the inspector's reasonable opinion) contain, or may contain, information relevant to…(i) any tax liability to which that person is or may be subject, or (ii) the amount of any such liability".

Section 20(3) extended this power to require "any other person" to "deliver…or…make available" such documents to an inspector. By virtue of section 20(7), an inspector needed the consent of the special or general commissioners before serving a notice under either subsection.


It was established by R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] UKHL 21, [2003] 1 AC 563 (" Morgan Grenfell") that the provisions of section 20 could not be invoked to force anyone to produce documents to which LAP attached. Lord Hoffmann at paras 7 and 9 said that a statute could only remove such "a fundamental human right" if it "expressly stated" that it was doing so, or if the intention "appear[ed] by necessary implication", and, as Lord Hobhouse emphasised at para 45, "[a] necessary implication is a matter of express language and logic not interpretation".


Section 20A, inserted by the Finance Act 1976 ("the 1976 Act"), empowered an inspector to call for documents to be produced by a person who had "stood in relation to others as a tax accountant" and who had been convicted of an offence relating to tax or had had a penalty imposed on him under section 99. Section 20D(2), also inserted by the 1976 Act, explained that "a person stands in relation to another as tax accountant" when "he assists the other in the preparation of returns or accounts to be made or delivered by the other for any purpose of tax…".


Section 20B was also inserted by the 1976 Act (and was amended in 1988, 1989 and 1990). Section 20B(1) required an inspector, before serving a notice under section 20( 1) or (3) on any person, to give that person "a reasonable opportunity to deliver (or…make available) the documents in question…".


Section 20B also included the following subsections:

"(8) A notice under section 20(3)…or section 20A(1) does not oblige a barrister, advocate or a solicitor to deliver or make available, without his client's consent, any document with respect to which a claim to professional privilege could be maintained.

(9) Subject to subsection…(11)…below, a notice under section 20(3)…—

(a) does not oblige a person who has been appointed as an auditor for the purposes of any enactment to deliver or make available documents which are his property and were created by him or on his behalf for or in connection with the performance of his functions under that enactment, and

(b) does not oblige a tax adviser to deliver or make available documents which are his property and consist of relevant communications.

(10) In subsection (9) above 'relevant communications' means communications between the tax adviser and—

(a) a person in relation to whose tax affairs he has been appointed, or

(b) any other tax adviser of such a person,

the purpose of which is the giving or obtaining of advice about any of those tax affairs; and in subsection (9) above and this subsection 'tax adviser' means a person appointed to give advice about the tax affairs of another person (whether appointed directly by that other person or by another tax adviser of his).

(11)…subsection (9) above shall not have effect in relation to any document which contains information explaining any information, return, accounts or other document which the person to whom the notice is given has, as tax accountant, assisted any client of his in preparing for, or delivering to, the inspector or the Board."


Section 20BA was inserted by the Finance Act 2000 ("the 2000 Act"), and it extended the power granted by section 20 to make an order for the delivery of documents by any person who appears to have such documents in his possession or power. Paragraph 5(1) of Schedule 1AA, also inserted by the 2000 Act, exempted from the ambit of section 20BA "items subject to legal privilege", which were defined in para 5(2) as:

"(a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;

(b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and

(c) items enclosed with or referred to in such communications and made—

(i) in connection with the giving of legal advice…."


These various provisions of TMA have now been replaced by provisions contained in section 113 of, and Schedule 36 to, the Finance Act 2008 ("the 2008 Act"). While there are differences between the regime in TMA and that in the 2008 Act, they are of no significance for present purposes. Paragraph 23 of Schedule 36 to the 2008 Act, which effectively replaces section 20B(8), provides that:

"(1) An information notice does not require a person—

  • (a) to provide privileged information, or

  • (b) to produce any part of a document that is privileged.

(2) For the purpose of this Schedule, information or a document is privileged if it is information or a document in respect of which a claim to legal professional privilege, or (in Scotland) to confidentiality of communications as between client and professional legal adviser, could be maintained in legal proceedings."

And paragraphs 24 to 26 of Schedule 36 to the 2008 Act contain provisions relating to communications with "auditors" and with "tax advisers", which are similar to those in subsections (9) to (11) of section 20B.

The factual and procedural background to this appeal

In 2004, the international firm of chartered accountants, PricewaterhouseCoopers ("PwC"), devised a marketed tax avoidance scheme ("the scheme"). In accordance with the requirements of Part 7 of the Finance Act 2004, PwC disclosed the scheme to the Commissioners for Inland Revenue, or Her Majesty's Revenue and Customs ("HMRC") as they became a year later and as I will refer to them. At about that time the Prudential group of companies instructed PwC to advise them in connection with certain overseas holdings, and PwC identified that the scheme could be adapted for their benefit. Thereafter the Prudential group implemented the scheme, which involved a series of transactions ("the Transactions").


The details of the scheme and the Transactions do not matter for present purposes. It is enough to say that the aim of the scheme was to give rise to a substantial tax deduction in Prudential (Gibraltar) Ltd, a subsidiary company of Prudential plc, which could then be set off against the profits of that company, which profits were ordinarily chargeable to corporation tax in this country.


Mr Pandolfo, the inspector of taxes responsible for this aspect of the Prudential group's tax liabilities, considered it necessary to look into the details of the Transactions (for reasons which are not challenged). To that end, he served notices under section 20B(1) on Prudential (Gibraltar) Ltd and Prudential plc (together "Prudential") giving them the opportunity to make available specified classes of documents in relation to the Transactions prior to his serving notices under section 20(1) and (3). Prudential disclosed many of the documents requested by Mr Pandolfo, but refused to disclose...

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