Introduction
This case considers an application made by three applicants to the Western Cape High Court for a declaratory order that certain content contained in the invoices between the first applicant and its attorneys is subject to legal advice privilege. This was asserted as the basis for the applicants’ refusal to disclose portions of the invoices (alternatively referred to as ‘fee notes’), when complying with a request by the Commissioner of the South African Revenue Service (SARS) in terms of section 46 of the Tax Administration Act No. 28 of 2011 (hereafter the “TA Act”). The provision broadly covers relevant material that SARS may require of a taxpayer or any other person in order to administer a tax Act. Copies of the invoices in question had been supplied to SARS, but the applicants had redacted the content thereof that was subject to their claim of privilege. The application by the companies for declaratory relief had been brought in the context of the Commissioner’s insistence on being provided with uncensored copies of the documents concerned.
Facts
The applicants are three companies in a well-known group of companies. In the course of the completion of an audit of the applicants’ tax affairs, a letter of audit findings was sent to the third applicant on the 28th November 2013 per section 42 of the TA Act, where the Commissioner of the South African Revenue Services (CSARS) indicated his requirement that the applicants provide SARS with copies of certain documentation. The audit was conducted following a letter of findings issued by the CSARS on the 15th October 2013 which served as a notice, as required by section 80J(1) of the Income Tax Act, that the Commissioner considered the applicants to involved in ‘impermissible tax avoidance’ as defined in section 80A of the Income Tax Act.
SARS, having spent considerable time investigating the tax affairs of the group of companies, believed the applicants had knowledge of the flow of funds involved in certain structured finance arrangements and were involved in a joint venture with an offshore consortium, which SARS suspected of involving tax base erosion by shifting profits offshore. The Commissioner decided to reassess the third applicant’s liability for payment of income tax and secondary tax on companies in terms of section 80B of the Income Tax Act.
Insight into the invoices was also required because it was foreseen that they might provide relevant factual information pertinent to the wide-ranging investigation by SARS into the group of companies’ tax affairs. More specifically, a breakdown of professional fees of one of the applicant companies pertaining to the 2009 year of assessment was required. In the response given to the Commissioner, the second applicant, which 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. Copies of the invoices from their attorneys would be given to the Commissioner at a later date. The applicants subsequently provided copies of the relevant invoices to SARS with certain content on the invoices being redacted due to the claim that they were subject to legal professional privilege between the applicants and their attorneys.
The issue in contention was thus whether legal professional privilege extended to invoices between attorneys and their clients. The applicants felt there was certain information on the invoices which contained details of advice sought in confidence from their attorneys. They felt furnishing the Commissioner with uncensored invoices would compromise their legal privilege. This led to them providing the Commissioner only with redacted copies.
In the absence of relevant South African case law on this particular matter, the court had to consider various international cases, especially from English jurisprudence. Though the court found that attorneys’ fee notes (i.e. invoices) were not subject to a blanket rule automatically making them subject to legal privilege, it was conceded by Binns-Ward, J at par 31 that:
‘Attorneys’ fee notes might contain references to legal advice sought and given in the course of a narration of the services in respect of which the fees have been raised.’
He further added, in the same paragraph, that:
‘If the feenote refers to the advice only in terms that describe that it was given, without disclosing its substance, I do not consider that the mere reference would be sufficient to invest the relevant content of an otherwise unprivileged document or communication with legal advice privilege. The position would be different, of course, if the feenote set out the substance of the advice, or contained sufficient particularity of its substance to constitute secondary evidence of the substance of the advice.
The court unfavourably regarded the fact that the applicants provided no detailed substantiation with regards to why legal privilege applied to the censored parts of the invoices. However, the applicants did invite the court to take a ‘judicial peek’ at the redacted portions of the invoices.
Held
Following exercising of the ‘judicial peek’, the court held that only one of the invoices contained sufficient detail to warrant legal privilege. The relevant portions of that invoice were protected from disclosure by reason of legal advice privilege. This was not found to be the case with the rest of the invoices. The declaratory relief sought by the applicants could not therefore be granted for the rest of the invoices. Each party was ordered to pay its own costs.