Tax Cases

Client's privilege

In the 1990s, Morgan Grenfell marketed a tax avoidance scheme to create chargeable gains for clients who had available capital losses. There was no dispute that the company had been completely open about the way the scheme operated, but the Inspector asked to see documents relating to the advice which the taxpayer had obtained from leading counsel and solicitors about whether the scheme would work. The taxpayer objected on the ground that the documents were protected by legal professional privilege.

A Special Commissioner consented to the issue of a notice under section 20(1), Taxes Management Act 1970, which allowed an Inspector to require a person to deliver to him such documents as were in his possession or power and, in the Inspector's opinion, might contain information relevant to any tax liability to which the person might be subject.

The taxpayer applied for judicial review to quash the notice on the ground that Taxes Management Act 1970 did not entitle the Inspector to require delivery of documents subject to legal professional privilege.

The Revenue contended that Parliament had provided a number of specific safeguards for the protection of the taxpayer, including an express preservation of legal professional privilege for documents in the possession of a barrister, advocate or legal adviser in section 20B(8), and a further express reference to it in section 20C(3). It therefore followed that no wider qualification of the general words of section 20(1) was intended. Morgan Grenfell's application was dismissed, and its appeal to the Court of Appeal was unsuccessful, so the company appealed to the House of Lords.

Lord Justice Hoffmann said that legal professional privilege was a fundamental human right long established in the common law. An intention to override such a right had to be expressly stated or appear by necessary implication.

Section 20(1) contained no express reference to legal professional privilege, and the provisions upon which the Revenue relied were not sufficient to imply necessarily that legal professional privilege was intended to be excluded. It would have been irrational for Parliament to have preserved legal professional privilege for documents in the hands of the lawyer, but not for documents (which could be copies or originals of the same documents) in the hands of the taxpayer. Legal professional privilege was for the benefit of the client, regardless of whether he or his lawyer held the documents.

The company's appeal would be allowed.

(R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioner, House of Lords, 16 May 2002.)

Issue: 3858 / Categories: