The doctrine of legal privilege, that is, protecting communications between lawyers and clients when 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.
Legal advice
But what is legal advice? Does it include tax advice and business advice? Does it cover completing and filing tax returns on behalf of clients?
Legal advice that includes dual-purpose communications has been challenged in the United States. In 2021, the supreme court upheld a district court ruling that certain dual-purpose communications were not privileged because the primary purpose of the document was to solicit tax advice, not legal advice.
Companies and law firms, citing legal privilege, have been found in contempt for failing to hand over communications related to criminal investigations. The target of a criminal investigation is the owner of the company and the client of the law firm.
‘Appropriate methods for asset valuation’
Law firms have advised companies on the tax consequences of moving their operations out of the US. Advice on “appropriate methods of asset valuation” and preparation of corporate income tax returns.
In October 2022, the United States Court of Appeals for the Ninth Circuit confirmed that the primary purpose of advice given to clients is not legal advice.
In the US Supreme Court petition, the attorney-client privilege is a cornerstone of the American legal system and attorneys will not be able to provide full and honest advice to clients if the client cannot freely share information. And “the need for strong privileges in the tax context is especially important given the extraordinary complexity of the tax code”.
Also, “legal advice on tax compliance often overlaps with advice on other legal issues”.
The US Supreme Court will hear arguments on the matter on Monday.
If the Supreme Court agrees with the appeals court, it will have important 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 absolute.
The Promotion of Access to Information Act allows for public interest waivers and public bodies must provide access to records if the disclosure would reveal evidence of a violation of the law.
Until recently, the media led the challenge to legal privilege.
AmaBhungani and Tiso Blackstar applied in the Western Cape High Court in 2022 to gain access to the PwC report on Steinhoff. Steinhoff declined to make the full report public because it is subject to legal privilege. Steinhoff argued that the main or dominant purpose for the PwC commission to compile the report was “to help Steinhoff evaluate its legal position”.
In court, Judge Nuku said Steinhoff may have appointed Werksmans to advise on the PwC report, “but this would not be enough to claim the PwC report is privileged”.
Steinhoff is to present the PwC report to amaBhungani and Tiso Blackstar, Nuku ordered.
-Curson is a CA(SA) with postgraduate qualifications in taxation and international taxation. His experience includes working for auditors, large companies and Sars.