A Company and Others v Commissioner, South African Revenue Service

• Jurisdiction: South Africa
• Judge: Binns-Ward J
• Judgment Date: 17 March 2014
• Docket Number: 16360/2013
• Hearing Date: 13 February 2014
• Counsel: MJ Fitzgerald SC (with AM Smalberger) for the applicants. AR Sholto-Douglas SC (with M Blumberg) for the respondent.
• Court: Western Cape Division, Cape Town

Binns-Ward J:

[1] This case concerns a claim by the applicants to legal professional privilege; legal advice privilege in particular. Legal advice privilege covers F communications between lawyers and their clients whereby legal advice is sought or given. [1] As confirmed by the Constitutional Court in Thint (Pty) Ltd v National Director of Public Prosecutions and Others; Zuma v National Director of Public Prosecutions and Others [2] —

'(t)he right to legal professional privilege is a general rule of our G 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'. [3]

The requirements are that (i) the legal advisor must have been acting in a professional capacity at the time; (ii) the advisor must have been H 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

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be claimed. [4] The character of the rule is accepted to be substantive A rather than procedural; see S v Safatsa and Others [5] , adopting a passage in the judgment of Dawson J in Baker v Campbell [6] in the High Court of Australia to the effect that —

'[legal professional] privilege extends beyond communications made for B the purpose of litigation to all communications made for the purpose of giving or receiving advice and this extension of the principle makes it inappropriate to regard the doctrine as a mere rule of evidence. It is a doctrine which is based upon the view that confidentiality is necessary for proper functioning of the legal system and not merely the proper conduct of particular litigation.'

The judgments in Baker v Campbell provide a compendious and most C useful international survey of the pertinent jurisprudence on the history and development of the rule. [7]

[2] The rationale for the privilege has been expressed in various ways and has evolved over the centuries. Thus at one stage the privilege was D even considered to be that of the lawyer rather than of the client, and until well into the nineteenth century it applied only in respect of communications in relation to pending or contemplated litigation. In my respectful view the description by Sir Gordon Slynn (as he then was) in AM & S Europe Ltd v Commission of the European Communities [8] would be difficult to better as a modern expression of the ethos underpinning the E existence of the rule and the premium that societal values attach to it:

'Whether it is described as the right of the client or the duty of the lawyer, this principle has nothing to do with the protection or privilege of the lawyer. It springs essentially from the basic need of a man in a civilised society to be able to turn to his lawyer for advice and help, and, F if proceedings begin, for representation; it springs no less from the advantages to a society which evolves complex law reaching into all the business affairs of persons, real and legal, that they should be able to know what they can do under the law, what is forbidden, where they must tread circumspectly, where they run risks.'

[3] The applicants, which are three companies in a well-known group of G companies, have applied for a declaratory order that certain content of two fee notes rendered by their attorneys to the first applicant is properly subject to the claim of legal advice privilege that they have sought to assert as the basis of their refusal to disclose portions of the invoices, when complying with a request by the Commissioner of the South H

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A African Revenue Service (SARS) in terms of s 46 of the Tax Administration Act 28 of 2011. [9] Copies of the invoices in question have been supplied to SARS, but the applicants have redacted the content thereof that is subject to the claim of privilege. The application by the companies for declaratory relief has been brought in the context of the Commissioner's B insistence on being provided with unexpurgated copies of the documents concerned. [10] It has not been suggested by the Commissioner that the provisions of the Tax Administration Act or any other applicable

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statutory instrument override a taxpayer's right to claim legal A professional privilege. The issue to be determined is thus simply whether the privilege that has been claimed actually subsists.

[4] A brief description of the factual ground is necessary to explain how the issue arose. In the course of an audit of the applicants' tax affairs the B Commissioner indicated his requirement that the applicants provide SARS with copies of certain documentation. The requirement included a request for a breakdown of an identified trial balance account in respect of professional fees in the books of one of the applicant companies pertaining to the 2009 year of assessment. In the response given to the C Commissioner, the senior tax manager of the second applicant, who was dealing with the Commissioner's requirements on behalf of the other two applicants, gave a breakdown of the fees involved, together with certain 'supporting invoices'. She stated in the relevant portion of the covering letter under which the information was provided:

'We have to date been unable to obtain a copy of the DLA Cliffe Dekker D Hofmeyr invoice of Rxxx. We will send this through as soon as we have traced a copy.'

DLA Cliffe Dekker Hofmeyr is a firm of attorneys. [11] Two tax invoices were in fact involved.

[5] When the fee notes were subsequently traced, the applicants noted E (i) that they had been addressed to the first applicant; (ii) that the fees concerned had been raised in respect of legal professional services rendered by the attorneys to the first and third applicants; and (iii) that (so it was averred) 'the invoices set out the nature of the advice sought by the first and third applicants'. Privilege was claimed on the basis that 'the nature of the advice sought F by the first and third applicants is discernible from the invoices'. The applicants therefore refused, notwithstanding their previous undertaking to provide copies of the documents when they became available, to hand over copies of the fee notes. Their decision was explained in an email to SARS as follows: G

'In the response dated 30 August 2013 we note that we will send through the copy of the DLA Cliffe Dekker Hofmeyr invoice as soon as we have traced a copy. We have taken advice on this aspect and note that all communications between attorneys and their clients are legally privileged, including legal invoices. You will have noted that we did not H

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A claim a deduction in respect of these invoices. As such, we will not be providing copies of these legal invoices to you.'

[6] The respondent responded to the applicants' claim of privilege by stating its inability to accept that the invoices in question (or indeed any lawyer's fee note, for that matter) were legally privileged. SARS called on B the applicants, should they persist in their stance, to provide it with particulars of their argument in support of their position. It also contended that, even had the invoices been privileged, the privilege would have been waived if the invoices had been made available to the applicants' auditors for the purposes of a financial statement audit. SARS C asked the applicants to indicate whether the invoices had been disclosed to the companies' auditors or any other third parties.

[7] The applicants were unable to say with certainty whether the documents had been made available to their auditors, but contended that, even if they had been, the disclosure would have been in confidence D for the specific purpose of auditing, and a waiver of privilege would not have been entailed. [12] The applicants reiterated that the basis of their claim of privilege was that the invoices contained 'details of advice sought in confidence from our attorneys'. It was at this stage that the redacted copies of the fee notes were provided to SARS 'in a spirit of co-operation' and purportedly 'without prejudice' to the applicants' E right to assert privilege in respect of the whole documents.

[8] SARS refused to accept the redacted fee notes as adequately complying with its demand for information. In an email, dated 12 September 2013, it noted that the applicants had failed to provide any motivation or F argument in support of their position. Having considered the disclosed content of the fee notes, SARS asserted that it seemed clear —

'that at best such invoices provide a description of the task performed by the advisor and in some cases what documents were reviewed. The detail provided does not in any way constitute advice given by an attorney to a client.'

G SARS contended that the applicants' position was therefore 'self-evidently unsupportable'. It required the unexpurgated invoices to be furnished to it within 24 hours.

[9] In a letter to SARS, dated 16 September 2013, the applicants reiterated H their position in the following terms:

'We confirm that our view is that the legal professional privilege extends to communications between attorneys and clients which are made in confidence for the purpose of obtaining legal advice. The privilege does I not only attach to the advice itself. Where the communication is so

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closely linked to the advice sought that by disclosing the communication A the privilege would be undermined, the communication itself does not have to be disclosed.

As we have previously advised, the invoices in question contain certain narratives which refer specifically to the advice sought, and if disclosed, would undermine the privilege of our communications with our legal B advisors. As such, these invoices are...