Dancing in the street

The ruling in the case of R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another will be welcomed by lawyers who would have faced increased competition from their accountancy counterparts had the ruling gone the other way.

One lawyer who may not be feeling so happy however is David Pannick QC of Blackstone Chambers who was instructed by PwC Legal partner Agnes Quashie for the appellant Prudential in its battle to overturn a 2010 CoA ruling against extending legal privilege.

The case concerns Prudential’s refusal to hand over documents to the tax authorities concerning a marketed tax avoidance scheme. The insurer had informed HMRC of the scheme but said it should not be forced to hand over the documents because, it claimed, such documents were covered by legal professional privilege.

HMRC disputed this and took the point to the Supreme Court, where it was represented by Blackstone Chambers’ James Eadie QC. Such is the importance of legal professional privilege that the Legal Services Board the Law Society and the Bar Council intervened.

Commenting on the outcome of the case Osborne Clarke partner Peter Clough said tax accountants would be “crying into their soup tonight, and tax lawyers will be dancing in the streets”.

He added: “The case presents a clear-cut choice for clients: if you want confidential tax advice, you’re better off going to a law firm.”

The Supreme Court assembled a panel of seven justices to hear the case, a sign of its significance. The ruling went by a majority of five to two with Lord Sumption and Lord Clarke dissenting.

Taylor Wessing partner Andrew Howell said the result was “no surprise” but could see “obvious force in Lord Sumption’s dissenting judgment… If the key to privilege is the nature of the advice which the client seeks, not the status of the adviser, why should privilege be the exclusive preserve of the lawyer?”

While DAC Beachcroft partner Ross Risby said the decision was the only practicable outcome the Court could have reached.

“To grant Prudential’s appeal could have had drastic knock-on consequences at a time when the Jackson reforms are being introduced to reduce the cost of resolving disputes. Had LAP [Legal Advice Privilege] increased in scope, parties to litigation would inevitably have sought to claim LAP over a wider range of documents. This would have led to disruption, disagreement and increased cost to all parties (including funders and insurers) with an increase in interim applications and satellite litigation.”

For more views on this case see here.

Christian Metcalfe,
Editor,
Lawyer 2B magazine

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