Legal professional privilege
Legal professional privilege is a topic that gives rise to debate, as it is not always clear what will be covered by the protection afforded and who can claim such protection. This has led to matters being brought before a number of international courts, specifically in the realm of tax advice.
One of the most notable recent decisions was the English case of Prudential PLC and Prudential (Gibraltar) Ltd v Special Commissioner of Income Tax where the court ruled that legal professional privilege does not extend to accountants offering legal advice on a tax matter. The court stated that "on many if not most occasions on which a person seeks advice about fiscal liabilities, which often involves a consideration, and advice about the relevant law, that person does so by approaching accountants rather than lawyers".
The court acknowledged that legal professional privilege is in the public interest and that a person should be able to make full and free disclosure to his legal representative, even where such disclosure would be adverse to his interests were it made to a third party. The court confirmed the common law position that legal professional privilege only extends to communications with members of the legal profession.
What will constitute legally privileged advice in South Africa? In summary, legally privileged advice can take the form of:
- written or oral communications between a legal advisor and a client made for the purpose of obtaining or giving legal advice;
- written or oral communications between legal advisor and a client, or between either of them and a third party, in contemplation of litigation.
Communications are more likely to be regarded as covered by legal professional privilege when received from external advisors. When dealing with internal legal advisors:
- it is necessary that the legal advisor must have been acting in his or her professional capacity;
- it is important that the communication is made in confidence; and
- the appropriate legal professional privilege is claimed by the client. Legal professional privilege can be waived, expressly or by implication, and does not apply when the advice is sought for a criminal or fraudulent purpose.
In the South African context, the Western Cape High Court considered in March 2014 in A Company and Two Others v The Commissioner for the South African Revenue Service a claim to legal professional privilege relating to a tax invoice rendered by a firm of attorneys to their client in a dispute with the South African Revenue Service (SARS). Privilege was claimed on the basis that the nature of the advice sought by the taxpayer was discernible from the detailed narrations of the attorneys' attendances on the invoices.
The court quoted the Constitutional Court decision of Thint (Pty) Ltd v National Director of Public Prosecutions and Others, Zuma and Another v National Director of Public Prosecutions and Others stating that:
"[t]he right to legal professional privilege is a general rule of our common law which states that communications between a legal advisor and his or her client are protected from disclosure, provided that certain requirements are met. The requirements are (i) the legal advisor must have been acting in a professional capacity at the time; (ii) the advisor must have been consulted in confidence; (iii) the communication must have been made for the purpose of obtaining legal advice; (iv) the advice must not facilitate the commission of a crime or fraud; and (v) the privilege must be claimed."
Ultimately, based on the facts of the case, the court held that certain of the invoices did contain privileged information that could be claimed as such by the taxpayer.
The case highlights that the claim for legal professional privilege can be limited. A further limitation of legal professional privilege in tax matters may soon become a reality. The most recent draft tax legislation published for public comment on 22 July 2015 proposes that the Tax Administration Act be amended by the insertion of a new section 42A, which prescribes the procedures and requirements that must be followed by the taxpayer in order to claim legal professional privilege in the context of SARS' information requests, interviews and field audits.
In terms of the draft bill, a taxpayer claiming legal professional privilege in respect of material required by SARS will have to provide a description of each document in respect of which privilege is claimed, its author, the legal practitioner’s name, the capacity in which the practitioner was acting, the purpose of the advice and other details. The information must be submitted to SARS at the place, in the format and in the time specified by SARS.
If SARS disputes the validity of the claim, a third party appointed under the Tax Administration Act will be given the material and make a determination on whether privilege applies or not. If no determination is made or a party is not satisfied with the determination made, the matter can be taken to the High Court.
The resolution of disputes between taxpayers and the relevant revenue authority where legal privilege is claimed is not unique to South Africa. For example, in the United Kingdom, there are procedures in place to resolve such disputes. Effectively, a tribunal will resolve disputes relating to information or documents requested to be produced by the taxpayer and in respect of which the taxpayer claims legal privilege, which Her Majesty's Revenue and Customs office does not accept.
The procedure in the United Kingdom is similar to that proposed to be inserted in the Tax Administration Act. However, the new legislation envisages that a further application can be made to the High Court once the third party has adjudicated on the claim for legal professional privilege. It is possible, in our view, that SARS will be more willing to challenge a claim for legal professional privilege by the taxpayer given that the initial procedure (that is the determination by the third party) does not require a costly High Court application and there are set time lines for completion of the process. This will circumvent the backlogs experienced with the courts in South Africa.
Although a number of additional hurdles have now been introduced for taxpayers wishing to rely on legal professional privilege, it remains to be seen how the new legislative provisions will assist SARS in challenging the legal professional privilege relied on by a taxpayer. Taxpayers can expect that SARS becomes more pro-active in challenging claims for legal professional privilege.