Investigations & Legal Professional Privilege

Author:Mr Andrew Lidbetter
Profession:Herbert Smith

The House of Lords has reversed the controversial Court of Appeal

decision in R (on the application of Morgan Grenfell & Co Ltd) v

Special Commissioner [2002] UKHL 21 in relation to legal professional

privilege, ìa fundamental human rightî, and affirmed its importance as a

corollary to the right to legal advice.

Morgan Grenfell operated a tax-related scheme in which it obtained a

long leasehold interest in a property owned by a client and leased it back

to the client under a sub-lease with a substantial tax saving. However,

the Inland Revenue believed that the purchase fell outside the scope of

its trading activities and as such was a capital asset. Morgan Grenfell

refused to hand over to the inspector documents relating to advice

obtained from counsel and solicitors, arguing that they were subject to

legal privilege, and the inspector successfully applied for permission to

issue a notice under s.20(1) of Taxes Management Act 1970 requiring

disclosure of the documents.

Section 20(1) states that ìan inspector may by notice in writing

require a person (a) to deliver to him such documents as are in the

person's possession or power and as (in the inspector's reasonable

opinion) contain, or may contain, information relevant toÖ (i) any tax

liability to which the person is or may be subject, or (ii) the amount of

any such liability.î In addition, s.20(3) makes provision for a power to

require the production of documents from a third party. However s.20B(8)

provides that the Inland Revenue cannot obtain privileged material which

is in the hands of a lawyer without his or her clients consent.

Morgan Grenfell then issued judicial review proceedings to quash the

notice on the grounds of ultra vires. Both the Divisional Court and the

Court of Appeal rejected the argument that the 1970 Act did not entitle

the inspector to require the delivery of documents subject to legal

professional privilege and held that the general terms of section 20

ìcould not be qualified to exclude documents subject to


professional privilegeî.

The Court of Appeal

The Court of Appeal agreed with the Revenue's argument that if

Parliament intended to preserve legal professional privilege in general,

why did it specifically provide for its preservation in respect of

documents in the possession or power of a lawyer? It found that there was

an ìinescapable implicationî that legal professional privilege was

excluded except where it was expressly preserved, and that this one


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