Legal Privilege not Extended to UK Tax Advisers

R (On the Application of Prudential Insurance) v HMRC  

In a decision which supports the wisdom of the policy adopted in New Zealand, the English Court of Appeal has declined the appeal of Prudential Insurance to extend legal professional privilege to tax advisers. “The Pru” sought to prevent Her Majesty’s Revenue and Customs from accessing information about tax planning which had been given to it by PriceWaterhouseCoopers, arguing that the information was subject to legal professional privilege.

The case was decided against Prudential at first instance and went on appeal to the Court of Appeal where it was vigorously argued by some of the luminaries of the English Bar. Lord Pannick, QC argued strongly for the privilege to be extended on the grounds, broadly, that tax advice is legal advice and that clients of skilled advisers such as tax accountants ought to be able to seek and receive such advice on the same basis as they would if they were dealing with lawyers.

Sir Sydney Kentridge, QC argued on behalf of the Law Society of England and Wales that legal privilege is a right that emerges from the peculiar and special relationship between lawyer and client. It has its origin in the administration of justice and is enforced on lawyers as officers of the Court, something which is not the case with other professions.

The Court of Appeal delivered its judgment on 14 October 2010, saying that legal privilege is not available to clients of tax advisers who are not themselves legally qualified. Lawyers practicing as tax advisers within accounting firms might in some cases be able to assert a privilege on behalf of their clients but this was not generally the case.

The Court of Appeal held that it was bound by the decision in Wilden Pump Engineering Ltd v Fusfeld [1985] FSR 189, but even if that had not been the case it would have come to the same decision. The Court held that if privilege was extended to the clients of other professions the scope of the privilege would be made uncertain and could breach human rights law. If change was to be made, this had to be at the hands of the legislature rather than by a development of the common law.

New Zealand has adopted a legislative response of sorts to the demand for taxpayers to be able to seek and receive tax advice confidentially. A statutory non disclosure right (as distinct from privilege) has since June 2005 applied to tax advice documents issued by members of designated professions (chiefly accountants). Legal professional privilege sits alongside that non disclosure right. Importantly the non disclosure right does not protect from disclosure what is called “tax contextual” information, ie the facts on which advice is given. Only the tax advice itself is protected from disclosure.

It remains to be seen if the situation in England catches up.