Judgment Call 4 February 2013

Tax

R (on the application of Bampton Property Group Ltd) v King (an officer appointed by the Commissioners for Her Majesty’s Revenue & Customs) [2012] EWCA Civ 1744. Arden LJ; Kitchin LJ; Rix LJ 21 December 2012

The Revenue and Customs Commissioners had been under no duty to notify a taxpayer company of any errors discovered in applications for consortium relief under the Income and Corporation Taxes Act 1988 Pt X; to hold otherwise shifted without justification the responsibility for those errors from those who had caused the errors to the commissioners.

Appeal dismissed

For the appellant Bampton Property Group

Landmark Chambers’ Philip Coppel QC leading Atlas Chambers’ Keith Gordon and Ximena Montes Manzano, instructed by Winston & Strawn partner Michael Madden

For the respondent King

Matrix Chambers’ Sam Grodzinski QC leading David Yates of Pump Court Tax Chambers, instructed directly by HMRC Solicitor’s Office

Pensions

Industry-Wide Coal Staff Superannuation Scheme Co-ordinator Ltd v (1) Industry-Wide Coal Staff Superannuation Scheme Trustees Ltd; (2) Terence Fox. [2012] EWHC 3712 (Ch). Morgan J. 20 December 2012

The trust deed and rules of the Industry-Wide Coal Staff Superannuation Scheme were not to be read as including a pro-rating provision for the first increase in the rate of the pension between the date of the commencement of the payment of the pension and the following January 1.

Application refused

For the claimant Industry-Wide Coal Staff Superannuation Scheme Co-ordinator Ltd

11KBW’s Tim Kerr QC, Wilberforce Chambers’ Paul Newman QC, instructed by Squire Sanders (UK) senior associate Stephen Coal

For the first defendant (1) Industry-Wide Coal Staff Superannuation Scheme Trustees Ltd

Wilberforce Chambers’ Jonathan Evans, instructed by Hogan Lovells partner Nicholas Heaton and associate Nathan Sherlock

For the second defendant Terence Fox

11KBW’s Nigel Giffin QC and Outer Temple’s Nicolas Stallworthy QC, instructed by Stephenson Harwood partner Philip Goodchild

IP

(1) Dr Reddy’s Laboratories (UK) Ltd; (2) Dr Reddy’s Laboratories Ltd v Warner-Lambert Co LLC. Roth J. [2012] EWHC 3715 (Pat). 20 December 2012

Regulation 1901/2006 art.45 did not require all studies requested by a proposed paediatric plan (PIP) to be completed before a six-month extension to a supplementary protection certificate could be granted to a patented medicinal product under art.36. Article 45(3) was a transitional provision designed to address the issue of pre-existing research; it was not of general application and did not apply when all studies included in a PIP were initiated after the regulation came into force.

Application refused

For the claimants (1) Dr Reddy’s Laboratories (UK) Ltd and (2) Dr Reddy’s Laboratories Ltd

Brick Court Chambers’ Mark Brealey QC leading Monckton Chambers’ Julianne Kerr Stevenson, instructed by Innovate Legal solicitor Dr Duncan Curley

For the defendant Warner-Lambert Co

Brick Court Chambers’ Kelyn Bacon and Max Schaefer, instructed by Arnold & Porter (UK) partner Dr Christopher Stothers

Featured case

Professions

Parliament

R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents). 2013]

UKSC 1. Lord Neuberger JSC; Lord Hope JSC (deputy president); Lord Walker JSC; Lord Mance JSC; Lord Clarke JSC; Lord Sumption JSC; Lord Reed JSC. 23 January 2013

The Supreme Court has ruled that legal professional privilege (LPP) applies only to qualified lawyers. Giving judgment, the court, in agreement with the Court of Appeal, emphasised that extending LPP communications to other professionals, such as accountants, was a matter for Parliament, not for the courts.

Appeal dismissed

Prudential appealed against a decision that legal advice given by accountants in respect of tax matters was not covered by legal advice privilege. The revenue had issued a notice under the Taxes Management Act 1970 s.20, requiring disclosure of documents relating to a tax avoidance scheme. Prudential refused to disclose documents containing legal advice from their accountants on the ground that they were covered by legal advice privilege.

Appeal dismissed (Lords Sumption JSC and Clarke JSC dissenting)

Allowing the appeal would extend legal privilege considerably beyond what had for a long time been understood to be its limits.

There was a strong argument in principle for allowing the appeal: the privilege was based on the need to ensure a person could seek legal advice with candour, and it was conferred for the client’s benefit, not for the legal profession. It was therefore hard to see why privilege should be restricted to advisers who happened to be lawyers.

The principled arguments for restricting the privilege to professional lawyers were weak, though not wholly devoid of force.

However, legal advice privilege would not be extended to communications in connection with advice given by professionals other than lawyers, even where that was legal advice that person was qualified to give. The consequences of allowing the appeal were hard to assess and likely to lead to a clear principle becoming unclear and uncertain.

The accepted state of the law was clear to advisers and easy to explain to clients. The implications had been understood and allowed for by the rules and practice of the courts and in legislation.

Extending the privilege to advice given by a member of a profession which ordinarily included giving legal advice, as had been proposed, carried an unacceptable risk of uncertainty. It was unclear whether certain occupations would be regarded as professions, and unclear how a court was to decide whether a profession was one that ordinarily included giving legal advice.

The question of whether the privilege should be extended raised questions of policy that should be left to Parliament. Many pieces of legislation gave the executive power to call for documents, which could be resisted by invoking the privilege.

It would require exceptional circumstances before the courts could create or extend such a right. Further, the passing of the Legal Services Act 2007 indicated that Parliament was ready to change common law practices involving rules for lawyers when it wished.

The extension of the privilege might only be appropriate on a conditional or limited basis; that could properly be considered by Parliament, not by the courts. The matter had been discussed in Parliament and proposed to the executive, and Parliament had apparently chosen not to extend the privilege to accountants giving tax advice. Such points could be overcome if there was a pressing need for the common law to move; no evidence got near establishing such a need.

Parliament had enacted legislation relating to the privilege, which suggested it would be inappropriate for the court to extend the law on the privilege.

Obiter, per Lord Hope JSC

There was likely to be interest in the instant case in Scotland as well as England. Although the law had developed separately there, it had developed in the same direction. It was not apparent that the courts had yet been required to decide whether privilege should be confined to lawyers; the authorities therefore did not foreclose the possible application of the privilege to accountants’ advice.

Nevertheless, the general understanding was that the privilege applied only to legal professionals.

Per Lord Sumption JSC

Legal advice privilege depended on the public interest in promoting access to legal advice on the basis of absolute confidence, and was not dependent on the status of the adviser. Accordingly, there could be no principled reason for distinguishing between the advice of lawyers and accountants.

Recognising that would not extend the scope of the privilege at common law, but would only recognise that much legal advice was given by advisers who were not lawyers. It was not necessary to leave the matter to Parliament.

For the appellant Prudential

PricewaterhouseCoopers Legal

David Pannick QC, Blackstone Chambers

Conrad McDonnell, Gray’s Inn Tax Chambers

For the respondent HMRC

James Eadie QC, Blackstone Chambers

Patrick Goodall, Fountain Court

For the intervener Legal Services Board

Philip Havers QC, One Crown Office Row

For the intervener The Institute of Chartered Accountants in England and Wales

Colin Passmore, partner, Simmons & Simmons

Patricia Robertson QC, Fountain Court

For the intervener AIPPI UK Group

Michael Edenborough QC, Serle Court

James Tumbridge, Gowlings in-house counsel

For the intervener The Law Society of England and Wales

Julian Copeman and Heather Gething, partners, Herbert Smith Freehills

Sydney Kentridge QC,

Tom Adam QC, Tim Johnston, Brick Court Chambers

For the intervener The General Council of the Bar of England and Wales

Hartley Foster, partner, Fisher Waterhouse

Bankim Thanki QC, Henry King, Rebecca Loveridge, Fountain Court

Ben Valentin, South Square

Commentary, Conrad McDonnell

By a 5:2 majority, the Supreme Court rejected the argument that legal professional privilege is intended to protect confidentiality whenever a client takes legal advice from a professional, even if the person whom the client chooses to consult is some kind of professional other than a lawyer.

Cue rejoicing by lawyers, but is it really cause for jubilation? How many transactions of substance proceed without the client requiring advice from other specialists alongside lawyers?

Many would say legal professional privilege can now apply only to communications whereby legal advice is, in substance, being sought from or given by lawyers.

This judgment will undoubtedly be the subject of a paragraph or three in future textbooks. It will be seen as confirming what everybody already knew.

Surprise may be expressed that anyone should have thought to bring the case, when nobody had before. However, that would be a somewhat dogmatic view, bearing in mind the strength of the alternative case as espoused in the two dissenting judgments, and, indeed, as recognised by the president and Lord Walker in the majority.

But the real legacy importance of this judgment is not the outcome, but the approach.

Lord Sumption said: “It is the function of the courts, and in particular of this court, to ensure that changes in legal, commercial or social practice are properly reflected in the way that the law is applied” and “in principle, therefore, it is for the courts of common law to define the extent of the privilege.

“The characterisation of privilege as a fundamental human right at common law, makes it particularly important that the courts should be able to perform this function.”

But the majority held that “where a common law rule is valid in the modern world, but it has an aspect or limitation which appears to be outmoded, it is by no means always right for the courts to modify the aspect or remove the limitation. In any such case, the court must consider whether the implications […] are such that it would be more appropriate to leave the matter to Parliament.”

The majority stated that the Supreme Court would only in future develop the common law away from the generally understood position where there was a “pressing need, in terms of the rule of law, injustice, or even practicality”, concluding that there was far from a pressing need in the Prudential case.

There must be few cases that reach the highest court in the land that do not give rise to issues of policy. Despite the courage of the litigants in the past 20 years who have achieved the modernisation of the English common law in key fields through notable judgments such as Woolwich Equitable Building Society v Inland Revenue [1993] and Kleinwort Benson v Lincoln City Council [1999], it appears a cold wind now directs the climate for continuing development of the common law.

Conrad McDonnell, barrister, Gray’s Inn Tax Chambers