R (Prudential Plc) v Special Commissioner of Income Tax

JurisdictionEngland & Wales
CourtQueen's Bench Division (Administrative Court)
Judgment Date14 October 2009
Neutral Citation[2009] EWHC 2494 (Admin)
Docket NumberCase No: CO/11501/07
Date14 October 2009

[2009] EWHC 2494 (Admin)

IN THE HIGH COURT OF JUSTICE

Royal Courts of Justice

Strand, London, WC2A 2LL

Before: M R Justice Charles

Case No: CO/11501/07

Between
The Queen on the Application of
(1) Prudential Plc
(2) Prudential (Gibraltar) Limited)
Claimants
and
(1) Special Commissioner of Income Tax
(2) Philip Pandolfo (HM Inspector of Taxes)
Defendants

Peter Whiteman QC and Conrad McDonnell (instructed by PWC Legal LLP) for the Claimants

Timothy Brennan QC and Diya Sen Gupta (instructed by the Solicitor for HMRC) for the Second Defendant

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Hearing dates: 28 to 30 July 2009

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Charles J:

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Introduction

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1. This is a claim for judicial review in which the Claimants challenge two notices dated 16 November 2007. The notices were served under ss 20(1) and 20(3) respectively of the Taxes Management Act 1970 (the TMA). One was to the taxpayer (the Second Claimant) under s. 20(1) and the other to a third party (the First Claimant) under s. 20(3). Nothing turns on distinctions between the notices and I shall refer to the Claimants as Prudential. The First Defendant has, as one would expect, taken no part in the proceedings. I shall refer to the Second Defendant as the Revenue.

5

2. Sections 20 to 20D of the TMA confer powers of investigation. The notices were served with a view to investigating a commercially marketed tax avoidance scheme. The existence of this scheme was disclosed to HMRC pursuant to statutory obligations placed on the promoters of such schemes by the Finance Act 2004 (s. 306 and following).

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3. The most relevant provisions of the TMA have now been replaced by provisions of the Finance Act 2008 s. 113 and Schedule 36 Parts 1 to 8 (in particular Part 1 and Part 4). I am however concerned with the sections at the time the notices were served.

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4. The powers are intrusive and enforceable by penalty. They require taxpayers (or third parties) to deliver to an Inspector documents which the Inspector reasonably believes are or may be relevant to the tax liability of a taxpayer. Exercise of these powers requires the consent of a General or (as in the present case) a Special Commissioner, who is the independent person entrusted by Parliament with the duty of supervising the exercise of these intrusive powers by the Revenue.

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5. The statutory safeguards in a s 20( 1) or (3) case are, so far as relevant to the present case, the standards set by the following statutory thresholds:

(1) the Inspector's reasonable opinion: s 20(1), (3),

(2) the Inspector must be one of those inspectors authorised by the Board of HMRC for this purpose: s 20(7),

(3) the consent of a Commissioner must be obtained: s 20(7)(a),

(4) such consent must be given only if the Commissioner is satisfied that in all the circumstances the Inspector is justified in proceeding under s 20: s 20(7)(b), and

(5) the taxpayer concerned is entitled to a written summary of the Inspector's reasons for applying for the notice and to a copy of the notice itself: s 20(8E)(b), 20B(1A). (There are exceptions to this, concerning the maintenance of confidentiality of informers (and other providers of confidential information), and risk of prejudice to the collection of tax: s 20(8G), 20(8H).)

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6. The grounds of challenge are that:

(1) the notices seek material covered by legal professional privilege (LPP), and

(2) the notices seek material that does not on any reasonable view contain information relevant to any tax liability or to the amount of any such liability within the meaning of ss. 20(1) and (3) TMA.

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I shall refer to these challenges as the LPP Challenge and the Relevance Challenge.

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7. The LPP challenge is based on the proposition that LPP applies:

“when a person obtains skilled legal advice about tax law from an accountant, as opposed to a lawyer”.

12

This formulation was stressed by Leading Counsel for Prudential, as was the point that he was not seeking to introduce an extension to the right to claim LPP by asserting that it applied to such advice given by an accountant rather than a lawyer.

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8. At the heart of his submission was his point that he was asking the court to do no more than find that, in the modern context where skilled professional advice on tax law is obtained from accountants, the long-established common law rules regarding LPP apply to the communications between client and accountant, as the professional adviser, for the purposes of obtaining such legal advice on tax and conducting litigation concerning tax liabilities.

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9. The Revenue do not accept that this is what Prudential are asking the court to do and assert that they are asking the court to extend LPP and thereby create a new or an extended right.

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10. As appears below I reject both the LPP and the Relevance Challenges.

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Consideration of the Section 20 powers by the House of Lords

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11. These powers have been considered by the House of Lords in R v Commissioners of Inland Revenue ex parte T C Coombs & Company [1991] 2 AC 283 and R (Morgan Grenfell) v Special Commissioners of Income Tax [2003] 1 AC 563. Naturally they were so considered by reference to the provisions in force at the relevant dates.

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12. The Coombs case was concerned with the decision to use s. 20 powers and the authorisation of the service of a notice under the section.

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13. The Morgan Grenfell case concerned advice from, and communications with, lawyers as to which it was accepted the client had the right to claim LPP. The House of Lords was concerned with the issue whether by necessary implication the statutory provisions of the TMA had overridden the accepted right of the taxpayer to claim LPP. The House of Lords, allowing the appeal, decided that they did not.

20

14. As appears from paragraphs 5 and 6 of the speech of Lord Hoffmann a relevance challenge was also made in the Morgan Grenfell case and the Divisional Court found against the taxpayer on that point (it and the Court of Appeal also found against the taxpayer on the LPP point) and the taxpayer did not pursue the relevance point in the Court of Appeal.

21

15. The result of the Morgan Grenfell case demonstrates that the right to claim LPP is exercisable in response to a request or demand for information pursuant to investigatory powers and therefore that it is not confined to a right not to disclose information in, and for the purposes of, litigation.

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The nature of the Challenges

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16. The underlying background to the challenges is that as, by their terms, the notices do not cover material that has already been provided all that remains under the generic descriptions of the documents set out in the notices is covered by LPP, and further or alternatively is irrelevant.

24

17. As LPP can be waived, it seems to me that a generic description of documents in the notices which could cover LPP material is not of itself unlawful if the right to claim LPP is recognised. This was done here in the letters that enclosed both the notices and the written decision of the Special Commissioner.

25

18. In this case the way in which the Relevance Issue was put means that no point arises by reference to the description of the material in the notices.

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19. The challenges are therefore all or nothing challenges. But, if either of them was to succeed, issues could arise in the future as to whether for example documents or communications recording certain matters (e.g. whether a step was pre-ordained) are covered by LPP and/or are properly described as legal advice and/or are relevant.

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20. Also if, as I find that they do, the challenges fail I record (a) that Prudential reserved the right to assert that some of the material is privileged as being privileged from disclosure on the basis that it is part of the process of obtaining legal advice from counsel or solicitors, and (b) that the Revenue accepted that LPP could be claimed in respect of that material.

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The LPP Challenge

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Introduction

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21. The Revenue assert and accept that the result of the Morgan Grenfell case is that Prudential are not required to disclose material that is subject to LPP, properly so described (my emphasis), under the relevant statutory scheme.

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22. But, as I have mentioned, the Revenue assert that contrary to their assertion Prudential are seeking an extension of LPP, or a new right, and that therefore (a) they are seeking to refuse disclosure of material that is not covered by LPP properly so described, and (b) the statutory code precludes them from doing this in response to a s. 20 notice.

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23. The Revenue submitted and I acknowledge (a) that the task of the court is to determine whether or not the documents sought by the notices must be disclosed to the Revenue under the statutory code, and (b) that the statutory code could expressly, or by necessary implication, require disclosure of material that is covered by an extension of LPP, or an equivalent new right.

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24. But it is to be remembered that:

(1) Prudential assert that they are not seeking to rely on an extension of an existing right (LPP) or a new right, and therefore using the Revenue's description they assert that the relevant material is LPP material properly so described, and

(2) the Revenue accept that Prudential do not have to provide LPP material properly so described.

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25. Further, in my view correctly when introducing this point of construction and application of the statutory scheme the Revenue asserted in their skeleton argument that: “the substantial issue now to be determined by the Court is whether LPP covers advice about law which is given by those who are not qualified lawyers”.

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26. So in my judgment Prudential's arguments that they can...

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4 cases
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