No litigation privilege for consultants’ advice on tax structure despite expectation of regulatory action

England and Wales

The High Court has held that three reports prepared by a company’s tax consultants to enable it to structure its online sales in a manner that would be less vulnerable to enforcement action by the tax authorities were not covered by litigation privilege.


In Financial Reporting Council v Frasers Group plc [2020] EWHC 2607 (Ch), Sports Direct (SD, later renamed Frasers Group) received enquiries from the French tax authorities as to its online sales in France. SD interpreted this as an indication that the French authorities were likely to challenge its VAT treatment in relation to those sales. It instructed the consultants who had devised its existing VAT structure to report on how it could defend such a challenge and how to restructure its VAT affairs so as to reduce the risk of similar challenges from EU tax authorities in future. The consultants produced a series of written reports in response. The judgment is concerned with three such reports - one recommending alterations to SD’s online sales structure and two explaining how sales under that structure should be accounted for.

The Financial Reporting Council later began an investigation into the consultants and obtained an order for third party disclosure against SD. An issue arose as to whether SD could claim litigation privilege in relation to the three reports.

The issue

Litigation privilege applies to documents generated for the dominant purpose of obtaining advice or evidence for use in conducting actual or anticipated litigation. In this instance, the judge accepted that by the time the reports were produced, SD expected litigation in relation to its VAT structure. The question was whether they were produced for the dominant purpose of providing advice or information for the purposes of that litigation.

The decision

Lord Justice Nugee held that litigation was not the dominant purpose of the reports. He drew a distinction between advice for use in litigation and advice on how to achieve a particular tax outcome and placed all three of the reports in the latter category. They were a reaction to the threat of a challenge by the French tax authorities, but they did not provide advice on the merits of the challenge or how best to conduct or settle it, nor did they provide any evidence for the defence of the claim. Indeed, the judge doubted whether the reports would even have been admissible, since they related to the new structure rather than to the one the French authorities had enquired about. He noted that if they had been admitted, they would arguably have been damaging to SD, since they could be read as implying that its previous structure was open to challenge. In his words, “it is not primarily advice as to the conduct of the future possible litigation. It is primarily advice as to how to pay less tax.”


This is one of a number of recent decisions on privilege that draw a strict distinction between commercial and litigation-related purposes. It illustrates the difficulties that businesses are likely to encounter in trying to ensure that a document will be privileged if it has mixed purposes. It is not enough to show that litigation was anticipated; the courts now look closely at how the documents are expected to benefit the party in that litigation.

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