The eagerly anticipated Supreme Court judgment in Prudential PLC and Prudential (Gibraltar) Ltd v Special Commissioner of Income Tax and Phillip Pandolfo (HM Inspector of Taxes), in relation to the possible extension of the principle of legal professional privilege (LPP), to encompass advice given by accountants on tax law, was handed down on Wednesday 23 January.

Such was the perceived importance of this decision that the Supreme Court sat with a panel of seven, and all the prominent professional bodies were given permission to intervene – the Law Society, Bar Council, Institute of Chartered Accountants in England and Wales, AIPPI UK Group and the Legal Services Board.

The Supreme Court dismissed the appeal, maintaining the status quo, but was split five to two in doing so. The judgment raises interesting questions about changes in the modern legal market, and the approach of the courts to legal advice given by professionals other than qualified lawyers.


In November 2007, the claimants, Prudential plc and Prudential (Gibraltar) Ltd (Prudential), were served with compulsive notices under section 20 of the Taxes Management Act 1970. These notices required Prudential to deliver documents in their possession relating to a tax avoidance scheme of which Prudential was a member, which HMRC wished to investigate as being potentially unlawful.

Prudential brought a judicial review claim, challenging the scope of the notices. They argued, in part, that some of the documents sought were covered by legal professional privilege, meaning that HMRC could not compel their disclosure (following the decision of the House of Lords in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2003] 1 AC 563). These supposedly privileged documents contained tax advice given by counsel and foreign lawyers, but also by PricewaterhouseCoopers (PwC). Prudential argued that, as is now common practice, PwC was providing legal advice to their clients on tax law. This had the consequence that, notwithstanding PwC’s status as accountants, the advice they gave was protected by LPP.

This argument was rejected, both by the High Court and the Court of Appeal. The first instance judge, Mr Justice Charles, had some sympathy for the position of the claimants. He accepted that ‘by reference to the need for confidentiality in respect of the giving of legal advice and the logic, purpose and public interest underlying legal advice privilege, there is real strength in the argument that the extent of the right to refuse disclosure should not relate to the nature of the legal qualification of the person giving the advice.’ However, he considered there was binding authority on him which required him to reject Prudential’s claim. The Court of Appeal agreed, rejecting fresh arguments raised by Prudential, and ruling that an extension of LPP to advice given by non-legal professionals would present difficulties in both scope and application, introducing uncertainty into the law. The matter, held the Court of Appeal, was one for parliament to consider.

Supreme Court

The Supreme Court dismissed the appeal, by a majority of five to two. Lord Neuberger, for the majority, accepted that the argument for allowing the appeal was a ‘strong’ one, and to extend LPP to cover advice on tax law given by accountants would accord with its ‘underlying logic’. There was no principled reason to distinguish between communications between clients and legal advisers who happened to be qualified lawyers and communications with other professional people with a qualification or experience which enabled them to give expert legal advice in a particular field.

However, the development of the common law was not merely a matter of logic, and it was by no means always right for the courts to modify a common law rule which had an aspect or limitation which appeared outmoded in the modern world. Lord Neuberger was concerned that extending the principle would lead to ‘what is currently a clear and well-understood principle becoming an unclear principle, involving uncertainty’. Surveyors, actuaries, town planners and other professionals required training, and were supervised by regulatory bodies. All could be called upon by clients to provide legal advice. Determining which professions and what communications should attract privilege was, essentially, a policy decision and a matter best left for parliament. Furthermore, parliament had in fact enacted legislation relating to privilege which ‘at the very least’ suggested that it would be inappropriate for the court to extend the law in this area.

Lord Sumption, giving a powerful dissenting judgment (with which Lord Clarke agreed), considered that the test of whether LPP applied to particular communications was ultimately a functional one, with privilege ‘conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body’. It was for that reason that LPP had been extended in the past by the courts to cover advice given by salaried legal advisers and foreign lawyers. Furthermore, once it was accepted that there was no principled reason for distinguishing between the legal advice of lawyers and other professionals, it became clear that ruling in favour of the appellants was simply ‘recognising that as a matter of fact much legal advice falling within those principles [governing the availability of legal privilege] is nowadays given by legal advisers who are not barristers and solicitors but accountants’.

LPP is a creature of the common law, and the courts were not only entitled to express a view on its breadth and scope. It was in fact the proper function of the courts to ensure ‘that changes in legal, commercial or social practice are properly reflected in the way that the law is applied’. The characterisation of privilege as a fundamental human right made it particularly important that the courts should be able to perform this function, as ‘fundamental rights should not be left to depend on capricious distinctions unrelated to the legal policy which makes them fundamental’.


The decision maintains the current position in regard to LPP, and while it may be somewhat predictable, it will be disappointing for many (the accountancy profession included). The reality is that clients are receiving legal advice from accountants in a manner indistinguishable from the traditional client-lawyer relationship. There is no principled reason why the privilege should not be extended. This was accepted by all the courts who heard the Prudential case, including those Supreme Court justices who dismissed the appeal.

A concern is that this decision will be seen as anti-competitive, reserving a marketable quality to lawyers without justification. It may also be criticised for failing to reflect the reality that, in today’s legal market, legal services are increasingly going to be provided by those who are not formally qualified lawyers. Following the Legal Services Act 2007, the provision of legal advice is not a reserved activity. It is difficult to understand why the clients of non-lawyers who are now permitted to give legal advice cannot enjoy the benefit of LPP.

The Supreme Court has, in effect, invited parliament to give its attention to the matter, with Lord Clarke stating he hopes ‘the whole issue will be considered by parliament as soon as is reasonably practicable’. While it seems clear that there is a need for modern professional practice in this sphere to be reviewed, the suspicion must be that reinventing the law of privilege is unlikely to be a priority for the legislature. This is all the more so, given that, following a proposal made in 2001 by the director general of fair trading, parliament had the opportunity to revise the law and declined to do so.

Besides, even if such a consultation or review does take place, there is no guarantee of the outcome. Some consideration might perhaps be given to the possibility, as mooted by Mr Justice Charles in the High Court, that an alternative way of achieving parity between the clients of different professionals who are all giving legal advice would be to reduce the scope of LPP as it applies to communications with lawyers, rather than extend it to others.

More immediately, the ruling has significant ramifications for both individuals and companies seeking professional advice on their tax affairs. The mainstream media is likely to report this development by focusing on the fact that it relates to the ‘concealment’ of tax advice which, in light of the growing scrutiny of individuals and companies perceived to be taking advantage of tax planning in a ‘morally’ (if not necessarily legally) dubious way, is increasingly portrayed as inherently suspicious.

The Crown Prosecution Service, which has absorbed the prosecutorial functions of HMRC, has recently announced a drive against tax consultants and the middle-class professionals taking up tax evasion schemes, which are said to cost each household in this country the equivalent of £533 a year. The aim is for the CPS to take on five times as many tax files as it currently handles. It will clearly be crucial for both individuals and corporations to instruct specialist law firms in such cases as early as possible, in order to receive advice on liability which is properly protected by LPP.

Jenny Barker is an associate in the business crime team at Peters & Peters Solicitors. Nicholas Queree, a legal researcher at Peters & Peters, assisted with this article.

  • The Law Society will be running a webinar providing an analysis of the ruling and the rationale used by the Supreme Court in coming to its decision on 30 January. The webinar is being presented by Heather Gething of Herbert Smith Freehills and Tom Adam QC of Brick Court Chambers, both of whom were part of the team representing the Society, which intervened in the appeal. You can book on to the webinar.