The Court of Appeal in London rejected the appeal by Prudential, a financial services company, against the High Court's view that legal professional privilege does not extend to advice given by accountants.
Lord Justice Lloyd wrote the unanimous judgment, saying it was clear from previous cases that legal professional privilege (LPP) did not apply to advisers who were not lawyers and, in any event, questions about whether and how it should was not a matter for the courts but for Parliament.
The court refused Prudential leave to appeal to the Supreme Court.
Legal professional privilege refers to the protection given when clients seek and obtain advice from lawyers in the knowledge that it will not be passed on to third parties, such as regulators, without their permission.
HM Revenue & Customs issued notices to Prudential in November 2007 requiring the disclosure of documents under section 20 of the Taxes Management Act in connection with a tax avoidance scheme the tax authorities were interested in. The company looked for a judicial review to challenge the notices on the basis that it was not required to produce documents about the legal advice it looked for and got from advisers that included barristers, foreign lawyers and PricewaterhouseCoopers, the accountants, and to clarify the issue of legal professional privilege.
The Court of Appeal said that the Morgan Grenfell case, which was heard by the House of Lords in 2002, had established that a section 20 notice does not require the disclosure of documents.
Lord Justice Lloyd pointed out that Parliament had not extended the meaning of LPP to legal advice from accountants on tax matters.
"Parliament's failure to change the law in this respect is not an accident." he said. He added that the Taxes Management Act provided for what a tax accountant or adviser can and cannot be required to produce.
The judge said the fact that some professionals, such as patent and trade mark agents, and conveyancers, have benefited from extensions to LPP, he did not think, was of "particular significance" to Prudential's case. He did not believe you could conclude that the Taxes Management Act had provided for an extension of LPP and added that the House of Lords had decided that the legislation was not enough "to displace the general principle of LPP". He disagreed with the judge in the High Court who had said the court could decide under what circumstances an accountant's advice could qualify for LPP.
On judicial precedent, Lord Justice Lloyd cited the case of Wilden Pump Engineering Co v Fusfeld, a copyright case, in which the judge said LPP was only available when seeking and obtaining advice from lawyers.
"HMRC welcomes the Court of Appeal ruling, which confirmed our view that legal professional privilege (LPP) does not apply to communications from an accountant to a taxpayer, but only to legal advice from lawyers," a statement from the tax authorities said. "It is important to get the balance right between LPP and protecting the tax base.
"The Court pointed out that extending LPP was a matter not for the Court but for Parliament which had already given certain accountant's communications limited protection from disclosure (for example in Sch [Schedule] 36 Finance Act 2008," the statement added.
The Institute of Chartered Accountants in England and Wales (ICAEW) said it was disappointed by the Court of Appeal's judgment.
"Whether they consult lawyers or chartered accountants, in our view clients who seek professional tax advice should be treated in the same way, irrespective of the qualification of the person," said Frank Haskew, Head of the ICAEW Tax Faculty. "As a professional body, we will be reviewing the options available to press the case for reforming the LPP rules so that there is a level playing field for taxpayers seeking tax advice."
While the claim for judicial review in the High Court only had representation from Prudential Plc and Prudential (Gibraltar) Limited as claimants and the Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) as defendants, the ICAEW, the Bar Council and the Law Society joined the case in the Court of Appeal as interveners, a term that refers to third parties without a material interest in a case.
PricewaterhouseCoopers Legal instructed barristers Lord Pannick QC of Blackstone Chambers and Conrad McDonnell of Gray's Inn Tax Chambers on behalf of Prudential Plc and Prudential (Gibraltar) Limited; the ICAEW used the law firm of Simmons & Simmons and Charles Flint, QC, also of Blackstone Chambers; the Bar Council instructed Bankim Thanki QC of Fountain Court Chambers and Ben Valentin of 3-4 South Square chambers, and Herbert Smith, a law firm, Sir Sydney Kentridge QC and Tom Adam QC, both of Brick Court Chambers, represented the Law Society.
Timothy Brennan QC, of Devereux Chambers, Diya Sen Gupta, of Blackstone Chambers, and Laura McNair-Wilson, also of Devereux Chambers, instructed by the Solicitor to HMRC, represented Philip Pandolfo (HM Inspector of Taxes).
More to follow...
