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Court of Appeal rules against legal advice privilege for accountants


In Prudential v Pandolfo [2010] EWCA Civ 1094, the Court of Appeal has ruled that advice about tax law taken from specialist tax accountants does not attract legal advice privilege.

The fact that legal professional privilege covers only dealings between clients and their lawyers has long rankled with the top accountancy firms.  They tried to persuade Parliament to create a statutory privilege for advice on tax law given by accountants; but although as long ago as 1983 a committee on the Revenue's investigatory powers (chaired by Lord Keith) recommended by a majority that such a new privilege should be enacted, Parliament was unmoved.  They then tried the competition route, and persuaded the OFT in 2001 that it was anti-competitive for privilege to be restricted to lawyers; but a subsequent DCA investigation concluded that there was no significant distortion of the market.  Prudential v Pandolfo represents their latest return to the fray, and this time is an attempt to change the common law.

The case concerns a tax avoidance scheme conceived and marketed by PricewaterhouseCoopers.  HMRC used its compulsory powers of investigation to require the taxpayer to hand over documents which would reveal the advice behind the scheme, and the taxpayer claimed that the advice was privileged.  Charles J rejected the claim to privilege at first instance, but expressed a certain reluctance in the conclusion.

The appeal attracted the attention of the professions and the Law Society, the Bar Council and the Institute of Chartered Accountants for England and Wales all intervened.  The taxpayer argued that the advice it had received about the law had come from a skilled professional expert in that legal field and that this fell within the rationale of legal advice privilege; the common law ought now to be extended so as to recognise that legal advice privilege was not restricted to advice from lawyers.  It also argued that all previous authority should be reconsidered in the light of the Human Rights Act, on the basis that it was an interference with the taxpayer's human rights for its advice about tax law to be privileged if it came from a lawyer but not if it came from an accountant.

The Court of Appeal rejected all these arguments.  It concluded that the authorities showed that the privilege has historically only applied to communications with lawyers;  this was not only binding but was right in principle, not least because of the uncertainty which extending privilege to communications with other professionals advising on the law would cause.  The Human Rights Act made no difference and no arguable breach of article 8 arose.  The difficulties of extending privilege to communications with non-lawyers were such as to make any extension a matter for Parliament, not the Courts; the Court noted both that Parliament had declined to make such an extension, and also (following a survey of the international position) that no other common law jurisdiction had introduced such a privilege without legislation.

Permission to appeal to the Supreme Court was refused.

The judgment is here.

Sir Sydney Kentridge QC and Tom Adam QC appeared for The Law Society.