Four common legal privilege mistakes that you should avoid
22 March 2016
Posted by: Author: Patricia Williams
Author: Patricia Williams (On Your Side)
Don’t make the mistake of thinking your documents are protected from SARS by legal privilege in these circumstances
Legal professional privilege ordinarily protects a person from having to share the relevant privileged information or documentation with third parties, including during legal proceedings or other disputes. Likewise, SARS is not entitled to legally privileged documents. This can protect you, particularly in the very difficult and ambiguous area of tax. However, in practice there are various common errors that result in items not becoming legally privileged, or in the loss of legal privilege. Some of these most common errors within a tax context are discussed here.
The tax opinion is not issued by a lawyer
Legal privilege attaches to communications between a client and lawyer (in a South African context, an attorney or advocate) for the purpose of obtaining legal advice or when anticipating or preparing for litigation. If you are dealing with a different tax professional who is not a lawyer, your instructions to them and advice received from them will not be legally privileged, and you cannot create legal privilege by providing this tax opinion to a lawyer later.
Nowadays, there tends to be a mix of lawyers and accountants working in tax departments in each of accounting firms and law firms, so if you plan ahead and involve the necessary tax professionals, you should be able to establish legal professional privilege over your tax opinions.
The communication is not of the right type
Simply having your tax lawyer present during a meeting or briefing session, or receiving a document from your lawyer, is insufficient to establish legal privilege. Only communications for the purpose of obtaining legal advice, or when anticipating or preparing for litigation, are legally privileged. Other documents, such as invoices and minutes of meetings, are not ordinarily legally privileged. The classification of a document as confidential, even if it is the subject of a confidentiality or non-disclosure agreement, does not automatically result in legal professional privilege.
It is also important to note that disclosing pre-existing documents to a lawyer in a confidential manner, even for the purposes of obtaining tax advice, does not make those pre-existing documents legally privileged.
A meeting such as a tax risk committee meeting could, therefore, potentially be legally privileged if it takes the form of a briefing session to your lawyer of any concerns or risks, for the purposes of your lawyer providing you with advice on these issues. In a more traditional form, however, a tax risk committee meeting would not be legally privileged, even if there are one or more lawyers present.
Similarly, if confidential information is revealed on invoices or other non-privileged documents, a person would not be able to claim legal privilege over these documents.
The document is not treated as confidential
If one has a legally privileged document, it is possible to waive legal privilege, either explicitly or implicitly. It is quite common for people to accidentally waive legal privilege, implicitly through their behaviour of not treating the document as being confidential. The three most important areas to focus on, in this respect, are: disclosure, storage, and reference.
Disclosure: If the document is disclosed to various third parties, for example bankers and/or other financers of a transaction, the document would ordinarily lose its nature as confidential instructions to, or confidential advice from, a lawyer, and would no longer be legally privileged.
Storage: If the document is stored in a non-confidential setting, where it can be reasonably assumed that employees or other parties may be able to access the document, it would ordinarily lose its nature as confidential instructions to, or confidential advice from, a lawyer, and would no longer be legally privileged.
Reference: If the contents of a legally privileged document are referred to extensively in other communications, it is possible to "cross the line” and effectively waive legal privilege through disclosure of the content of the document (albeit not physical disclosure of the document itself).
In summary, if you have a legally privileged opinion, you need to take care of it in the way you would normally take care of confidential items. This would include storage in, for example, a separate locked filing cabinet or password protected file, only sharing the legally privileged document with employees on a "need to know” basis, not sharing this document with third parties, and not revealing any material contents of the confidential document. It is useful to identify and label all legally privileged documents as such, from the beginning, to maintain proper control over these documents.
Legal privilege must be claimed
Legal privilege is not an absolute, but rather a right that belongs to the client, and that must be claimed either by the client personally or by the client’s agent or legal representative on behalf of the client. If a document is voluntarily given to SARS, even by accident (for example if the matter was not properly considered), a person cannot subsequently argue legal professional privilege in order to have the document rendered inadmissible. Therefore it is essential that the matter is properly considered up-front, and all relevant legal professional privilege formally claimed.
To conclude, even if you take appropriate advice and implement appropriate controls with regards to legal privilege, and you firmly believe that a document is legally privileged, it is still very useful to be cautious and conservative with what is included in your documents. This means that documents should be written with the possibility in mind of disclosure to SARS. Long expositions of potential risk areas that the legal advisor has concluded have a less than 50 per cent probability, may well give SARS extra ammunition or leverage to push for a settlement payment on a tax position adopted on legal advice, and should be carefully considered before inclusion.
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This article first appeared on the March/April 2016 edition on Tax Talk.