The doctrine of legal privilege, that is, protecting the communications between attorney and client if made for the purpose of obtaining legal advice or in the context of litigation, has been sacrosanct for hundreds of years in many jurisdictions, including South Africa.
But what is legal advice? Does it cover tax advice and business advice? Does it cover completing and filing tax returns on behalf of a client?
Legal advice which includes dual-purpose communications has been challenged in the United States. In 2021, a grand jury upheld a district court’s ruling certain dual-purpose communications were not privileged because the primary purpose of the documents was to obtain tax advice, not legal advice.
The company and a law firm, which had cited legal privilege, was found to be in contempt for failing to hand over communications relating to a criminal investigation. The target of the criminal investigation is the owner of the company and a client of the law firm.
‘Appropriate methods for asset valuation’
The law firm had advised the company about the tax consequences of moving its operations out of the US. The advice concerned “appropriate methods for asset valuation” and preparing the company’s income tax returns.
In October 2022, the United States Court of Appeal for the Ninth Circuit confirmed the primary purpose of the advice given to the client did not fall under legal advice.
In petitioning the US Supreme Court, it was submitted the attorney-client privilege is a cornerstone of the American legal system and lawyers would not be able to give their clients full and frank advice if their clients could not freely share information with them. And “the need for a robust privilege in the tax context is particularly important given the extraordinary complexity of the tax code”.
Also, “legal advice about tax compliance often overlaps with advice on other legal issues”.
The US Supreme Court will hear arguments relating to this matter on Monday.
If the Supreme Court agrees with the court of appeal, this will have profound consequences for lawyers in the US who advise clients on complex issues with legal, tax and business implications.
In South Africa, the shield of legal privilege is not an absolute.
The Promotion of Access to Information Act allows for a public interest override and public bodies must grant access to a record if the disclosure would reveal evidence of a major contravention of the law.
So far, the media is spearheading the challenge to legal privilege.
AmaBhungani and Tiso Blackstar applied to the Western Cape High Court in 2022 to gain access to the PwC report on Steinhoff. Steinhoff had refused to make the full report public because it was subject to legal privilege. Steinhoff argued the primary or dominant purpose for commissioning PwC to compile the report was “to assist Steinhoff in assessing its legal position”.
In his judgment, Judge Nuku said Steinhoff may have appointed Werksmans to advise them about the PwC report, “but this would not be sufficient to claim the PwC report is privileged”.
Steinhoff was to furnish the PwC report to amaBhungani and Tiso Blackstar, Nuku ruled.
-Curson is a CA(SA) with postgraduate qualifications in tax and international tax. Her experience includes working for auditors, large corporates and Sars.