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 in 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 in the Prudential case 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 privileged 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. Legal professional privilege can thus be claimed in respect of confidential communications between an institution and its salaried legal advisors when such communications amount to the equivalent of an independent legal advisor's confidential advice to a client. It is important that the communication is made in confidence and that 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, a judgment was delivered by the Western Cape High Court in March 2014 in the case of A Company and Two Others v The Commissioner for the South African Revenue Service. The court ruled regarding the 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."
The court further reviewed international authority regarding the treatment of fee notes and concluded that "fee notes are not created for the purpose of the giving of advice and are not ordinarily of a character that would justify it being said of them that they were directly related to the performance of the attorney’s professional duties as legal adviser to the client. They are rather communications by a lawyer to his or her client for the purpose of obtaining payment for professional services rendered; they relate to recoupment for the performance of professional mandates already completed, rather than to the execution of the mandates themselves".
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.
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.