In Prudential Plc & Anor v Special Commissioner of Income Tax & Anor [2010] STC 2802 (the Prudential case), the English Court of Appeal decided that the protection afforded by legal advice privilege did not extend to confidential documents passing between an accountant and a client for the purpose of giving or receiving legal advice on tax matters. The Prudential case is being appealed to the UK Supreme Court. The Supreme Court's judgment will be important and should be of interest to accountants and their tax clients in many jurisdictions, including Hong Kong. The Prudential case assumes even greater importance in the current environment where tax authorities and regulators in various countries increase their scrutiny of some overseas nationals and their financial advisers with respect to allegations of tax evasion. In this article we take a look at some of the issues raised in the Prudential case and their potential relevance in Hong Kong.


Legal advice privilege is a fundamental right. Confidential communications between a qualified lawyer and client for the purpose of giving or receiving legal advice do not have to be shown to a third party. A qualified lawyer is generally taken to be a solicitor or barrister. The privilege is that of the client; not the lawyer. The privilege is all but absolute, although it cannot be used in furtherance of a crime. The underlying rationale for legal advice privilege is that clients should be completely free to discuss problems requiring legal advice with their lawyer in order to receive the best advice possible and without fear that anyone else will know unless the client agrees.

In short, the ingredients of legal advice privilege are: a confidential communication, passing between a qualified lawyer and client, for the purpose of seeking or giving legal advice. In practice this is a workable concept and gives rise to few major disputes. However, sometimes an important case concerning legal advice privilege does arise. Three Rivers District Council v Governor & Company of the Bank of England (No.6) [2004] UKHL 48 is one such case that helped clarify the meaning of "legal advice (albeit issues as to which individuals in a corporate entity constitute the "client" needlessly became rather confused).

The Prudential case is another important case. The judgment of the Supreme Court should clarify whether legal advice privilege is restricted to qualified lawyers or whether confidential legal advice given by accountants with respect to tax matters is also covered by the privilege. If the Supreme Court decides that legal advice privilege applies to accountants in such circumstances this could have far reaching consequences.

The facts

The claimant companies (the claimants) were served with information notices (the notices) by the tax authority in the UK which sought documents in the claimants' possession regarding what apparently was a tax avoidance scheme. In resisting the notices the claimants argued they were not required to produce confidential documents that contained legal advice on tax matters from either their lawyers or their accountants. It was not disputed that confidential documents by which the claimants had sought or received legal advice from their lawyers were privileged.

At first instance the claimants' objection to the notices failed. Based on legal authority (Wilden Pump & Engineering Co v Fusfield [1985] FSR 159) the judge held that legal advice privilege did not extend to confidential documents by which legal advice relating to tax issues was sought or obtained from an accountant. The claimants then appealed to the Court of Appeal. The appeal was of sufficient importance for the Law Society of England and Wales, the Bar Council of England and Wales and the Institute of Chartered Accountants in England and Wales to be allowed to intervene in the appeal.

The claimants' argument – "substance over form"

The claimants' main argument was essentially that, when deciding whether a confidential communication was privileged, the court had to consider the substance of the communication rather than the status of the adviser. Therefore, so the argument went, extending legal advice privilege to legal advice given by accountants with respect to tax matters made sense because such advice concerned the relevant law and accountants (rather than lawyers) were often asked to provide such advice.

The decision

The English Court of Appeal (the Court) unanimously and decisively dismissed the claimants' appeal. In essence, the Court's decision was based on two points.

First, based on the Wilden Pump case, legal advice privilege could not be extended to confidential communications to or from an accountant for the purpose of receiving or giving legal advice with respect to tax matters. Whilst the substance of the communication was important, the status of the adviser was (quoting from the leading judgment) "also central to the test" of legal advice privilege.

Second, even if the claimants could circumvent the first point, it was still not open to the Court to extend legal advice privilege as the claimants argued. If the privilege was to be extended, the Court considered that this was a matter for legislation because privilege should be clear and certain in its application (particularly, given that it allowed a party to withhold relevant evidence from a court and was an all but absolute protection). In the Court's opinion the privilege in confidential communications between clients and their lawyers was sufficiently clear and certain. However, the Court was concerned that this clarity and certainty would be undermined if the privilege was extended to other professions who gave legal advice in a professional capacity.

On 13 April 2011 the claimants were granted permission to appeal to the UK Supreme Court. We understand that the appeal is likely to be heard in October 2011.


At first blush the claimants' arguments appear quite clever, concentrating on the substance of the advice as opposed to the status of the professional adviser. In matters of legal argument "substance" often trumps "form". The claimants' arguments might even appear rather bold.

However, as the Court noted, if legal advice privilege is extended this would undermine the very parameters of such privilege, leading to less certainty. For example, should legal advice given by accountants on pensions or company law come within the scope of legal advice privilege and where is the line to be drawn?

The Court also noted another major difficulty with the claimants' arguments. In the UK there is no recognised profession of accountant as such; rather, accountants can belong to several professional bodies. However, there is no restriction on a person calling him or herself an "accountant". In Hong Kong the Professional Accountants Ordinance (Cap.50) governs "certified public accountants", but does not stop someone using the title "accountant"; for example, an accountant qualified in another jurisdiction but based in Hong Kong. The Court was not attracted to the argument put forward on behalf of the claimants that legal advice privilege with respect to tax matters could be restricted to accountant members of a recognised professional body.

Another major problem with the claimants' arguments is that there does not appear to be any example in which the privilege has been extended to a professional adviser other than a qualified lawyer except by statute. For example, pursuant to English legislation, legal advice privilege has been extended in certain circumstances to patent agents, trade mark agents and licensed conveyancers. The Court noted:

"Thus, not only has Parliament not created any statutory extension of legal professional privilege to legal advice sought from and given by accountants on tax matters ... Parliament's failure to change the law in this respect is not an accident."

Referring to the position in Canada, Australia, New Zealand and the United States, the Court observed:

"We were not shown any example of legal professional privilege applying in relation to accountants except as a result of legislation ... it is noteworthy that no example of the application of legal professional privilege in relation to any professional adviser other than lawyers has been found except as a result of statutory intervention."

It is difficult to argue with these observations. The Court was clearly uncomfortable with the idea that legal advice privilege should be extended to accountants as a matter of judge made law, not knowing exactly what the parameters of such an extension might be. In our view, this is a compelling argument when viewed against the need for legal advice privilege to be more (not less) certain in its application. Indeed, bearing this fundamental point in mind, it might be considered something of a surprise that the claimants obtained permission to appeal to the Supreme Court. Be that as it may, in our opinion the appeal is not without difficulty.

Furthermore, the Court's decision that any extension of legal advice privilege to other professional advisers should be a matter for the legislature (not judges) has much force. In Hong Kong the traditional view has been that legal advice privilege is restricted to confidential communications between qualified lawyers (barristers and solicitors) and their clients for the purpose of giving or receiving legal advice and does not extend to other professional advisers. Interestingly, section 51 of the Inland Revenue Ordinance (Cap.112) provides for what information can be required by a tax inspector. That section refers to the protection of "privileged information or communication" but only in the context of a "counsel or solicitor".

Conclusion – to boldly go forth (or not)

We consider that the claimants' appeal is unlikely to succeed. It is true that sometimes it takes the highest appellate court to be bold. For example, in its decision in Jones v Kaney [2011] UKSC 13 the Supreme Court saw fit to abolish an expert witness's limited immunity with respect to claims for negligence (see our e-bulletin of 11 April 2011); an immunity that apparently had survived for many years. However, in a forceful dissent, one of the judges suggested that the removal of an expert witness's immunity from suit was more properly a matter for legislation. In our view, similar reasoning may prove decisive to the outcome of the Prudential case before the Supreme Court.

If we are right the same reasoning and policy considerations should apply if the issue comes before the Hong Kong courts for determination; particularly given that to date the Hong Kong courts have taken a very traditional approach to the application of legal advice privilege in Hong Kong. Should the Supreme Court allow the appeal in the Prudential case (and "boldly go where no court has gone before") the issue will come before the Hong Kong courts sooner or later.

A successful appeal in the Prudential case might be welcomed by tax accountants and their clients; it might also cause an element of head-scratching within the legal fraternity of Hong Kong (not to mention among some regulators).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.