Seeking to extend legal professional privilege
THE issue of legal professional privilege arises in many circumstances. For instance, the South African Revenue Service (SARS), when asking for information from a taxpayer, usually requires such information in terms of section 74 and section 74A of the Income Tax Act. In these requests they sometimes ask for, among other things, all tax opinions relating to a particular transaction.
The Tax Administration Bill will, once it comes into effect, replace the provisions of section 74A of the Income Tax Act and will set out the information which must be provided by a taxpayer on request from SARS.
One of the few circumstances where documents do not have to be provided to SARS is where such documents are subject to legal professional privilege.
Section 64 of the Tax Administration Bill also recognises legal professional privilege and sets out circumstances for determining whether such privilege applies to documents requested by SARS.
In the recent UK case of Prudential PLC and Prudential (Gibraltar) Limited v Special Commissioner of Income Tax and Philip Pandolfo (HM Inspector of Taxes) Prudential attempted to extend the existing rule of legal professional privilege to advice on tax law given by accountants. The court of appeal unanimously confirmed that legal professional privilege did not apply to any other professionals except solicitors and barristers. This matter is now on its second appeal and Prudential is again seeking to extend legal professional privilege beyond the legal profession.
This article provides some background to legal professional privilege in SA and its importance in respect of tax disputes with SARS.
The rationale of this privilege is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers. It encourages people to seek and obtain legal advice to ensure that the law is applied and that litigation is properly conducted. Lawyers are regarded as part of the system of administration of justice, and for that system to be able to function properly people must be able to obtain legal advice and representation, secure in the knowledge that what they disclose to their lawyers will remain confidential and be protected against public disclosure.
Legal privilege applies to communications (written or oral) in the following two situations:
Communications between a legal adviser and his client made for the purpose of obtaining or giving legal advice.
Communications between legal adviser and client, or between either of them and a third party, for the purpose of preparing for litigation.
The communication must have been made in confidence. The privilege is a right of the client, and has to be claimed. It can be waived, expressly or by implication. It does not apply when the advice is sought for a criminal or fraudulent purpose.
The advice must have been sought and given in a professional capacity. Originally, legal professional privilege was restricted to barristers and solicitors (advocates and attorneys) as officers of the court, in independent practice, and subject to the ethics and discipline of their professions.
In modem times, when more lawyers are employed by large corporations, institutions and governments to provide ‘in-house” legal advice and services, the question has arisen whether legal professional privilege attaches to communications between them and their employers.
In particular the issue arises whether legal professional privilege also applies to in-house counsel. In the UK case of Alfred Crompton Amusement Machines Ltd v Commissioner of Customs and Excise, Lord Denning in the Court of Appeal expressed the view that legal professional privilege extends also to such in-house salaried legal advisers. In his view they were in the same legal position as lawyers who practised on their own account, the only difference being that they acted for one client rather than for many.
A contrary view was expressed by the European Court of Justice in AM & S Europe Ltd v Commission of the European Communities on the grounds that in-house lawyers lack the independence to justify making their advice privileged, an independent lawyer being one “who is not bound to his client by a relationship of employment”.
In SA the question of the extension of the privilege to salaried in-house legal advisers has yet to be definitively pronounced upon by the Supreme Court of Appeal, but at high court level Lord Denning’s view has been approved. In Mohamed v The President of the Republic of SA, Judge Hoffmann, after considering the matter in some detail, concluded as that “to limit the scope of legal professional privilege to clients and lawyers in private practice is not, in my view, justified in law”.
Academic writers in SA tend to regard the question of the extension of the privilege to salaried legal advisers as being still an open one, but the weight of opinion seems now to be shifting in favour of such an extension.
In the light of developments in the common law world and of the decision of the Cape High Court in Mahomed’s case, it is considered that when it is finally seized of the matter, the Supreme Court of Appeal may well extend the privilege to salaried legal advisors. However, as in the UK Prudential case, it is unlikely that legal privilege will be extended to accounting firms providing tax advice.