The Court narrowly interprets dominant purpose to exempt general tax advice from legal privilege.

In Financial Reporting Council Ltd v Frasers Group Plc (formerly Sports Direct International Plc) [2020] EWHC 2607 (Ch), the High Court handed down the latest ruling in relation to the Financial Reporting Council’s (FRC) ongoing investigation into Grant Thornton’s audit of Sports Direct International. The Court’s previous ruling on this matter was discussed in a previous blog post.

The High Court held that tax advice provided by accountants to Sports Direct regarding the potential implementation of a new tax structure (the Tax Advice) could not be withheld from FRC on the grounds that it was covered by litigation privilege.

Having reiterated the applicable legal principles as established in Three Rivers DC v Bank of England (No 6) [2004] UKHL 48, Nugee J noted that the key principle for consideration here was whether the Tax Advice was provided for the “sole or dominant purpose” of litigation. Sports Direct argued that the Tax Advice was provided for use in litigation that might have arisen if the company’s new tax structure was to be challenged by the relevant authorities. This argument was plainly rejected. The mere possibility that the Tax Advice may be used in potential litigation was held not to be sufficient in demonstrating that its sole or dominant purpose was for use in litigation. “A taxpayer who takes advice as to how to structure his affairs does not do so for litigation purposes,” notes Nugee J. The primary purpose of the Tax Advice was held to be advice on how to pay less tax, and, as such, it was held that the Tax Advice was not protected by litigation privilege.

This decision suggests that general commercial advice, such as the Tax Advice, would not ordinarily qualify for litigation privilege, even if the advice was provided in respect of avoiding potential litigation. The test remains that the sole or dominant purpose of the advice must be for use in litigation.

This blog post was prepared with the assistance of Vikram Ajith in the London office of Latham & Watkins.