29 June, 2018
Facts
The Malaysian Bar (“Bar”) is a body corporate established under the Legal Profession Act 1976 (“LPA”) to regulate the legal profession. Members of the Bar (“Bar members”) had complained that officers of the Director General of Inland Revenue (“DGIR”) had been carrying out raids on the Bar members’ law firms to conduct audit of their clients’ accounts (“Clients’ Accounts”) and demanded access to the relevant accounting books and records (“Audit”).
Following those complaints, the Bar wrote to the DGIR on 3 November 2016 to inform the DGIR that, amongst others, the Bar had taken a stance that such Audit breaches the principle of solicitor-client privilege (“Privilege”) and that section 142(5) of the Income Tax Act 1967 (“ITA”) should not and does not prevail over Privilege.
Section 142(5)(b) of the ITA reads:
“Notwithstanding any other written law, where any document, thing, matter, information, communication or advice consists wholly or partly of, or relates wholly or partly to, the receipts, payments, income, expenditure, or financial transactions or dealings of any person (whether an advocate and solicitor, his client, or any other person), it shall not be privileged from disclosure to a court, the Special Commissioners, the Director General or any authorized officer if it is contained in, or comprises the whole or part of, any book, account, statement, or other record prepared or kept by any practitioner or firm of practitioners in connection with any client or clients of the practitioner or firm of practitioners or any other person.”
By way of a letter dated 7 December 2016, the DGIR replied to the Bar and, amongst others, took the stance that section 142(5) of the ITA overrides the provisions of Chapter IX of Part III of the Evidence Act 1950 (“EA”) and the LPA thereby allowing the DGIR to conduct such Audit (“DGIR’s position”).
Dissatisfied, the Bar filed an Originating Summons dated 7 March 2017 in the High Court for the following declarations:
- that section 142(5) of the ITA does not entitle or empower the defendant to disregard the Privilege under Malaysian Law that protects all communications, books, objects, articles, materials, documents, things, matters or information passing between an Advocate and Solicitor and his/her client or advice given by an Advocate and Solicitor to his/her client, whether contained in any book, statement, account or other record of any description whatsoever, and which Privilege is referred to variously under Malaysian law as “legal privilege” by requesting or demanding access to, or disclosure of, such client communications from any Advocate and Solicitor, unless Privilege is waived by the client ;
- that Part V of the ITA generally, and section 80 of the ITA in particular, do nor entitle or empower the defendant to disregard the Privilege that protects all client communications by requesting or demanding access to, or disclosure of, any such client communications from any Advocate and Solicitor, unless Privilege is waived by the client;
- that Privilege under Malaysian law generally, and as referred to in sections 126, 127, 128 and 129 of the EA in particular, require an Advocate and Solicitor to reject any request or demand of the Defendant for access to, or disclosure of, any, client communications, unless Privilege is waived by the client.
The central issue was whether section 142(5) of the ITA prevailed over section 126 of the EA.
Decision of the High Court
The High Court held in favour of the Bar for the following reasons:
Section 142(5) of the ITA does not override section 126 of the EA.
As the ITA does not affect the operation of Chapter IX of Part III of the EA, section 142(5) of the ITA merely excludes Privilege conferred in other written law which prohibits the disclosing of any document or information to a court, the Special Commissioners and the DGIR and does not override section 126 of the EA.
Privilege is absolute unless it is waived by the Privilege holder or falls within the proviso to section 126 of the EA.
Applying the Latin maxim of Generalia Specialibus Non Derogant[2], section 126 of the EA is the specific provision on Privilege whilst section 142(5) of the ITA is merely a general provision and, hence, section 126 of the EA prevails over section 142(5) of the ITA to the extent of any inconsistency with respect to matters relating to Privilege.
Further, section 142(5) of the ITA does not oust Privilege which is grounded and inherent in common law.
The DGIR cannot be allowed to use the ITA as an instrument of fraud to fish for information in the possession of law firms or clients of the law firms
The DGIR is not allowed to use the ITA as an engine of fraud to gain access or fish for any information in the possession of law firms or clients of law firms.
The DGIR cannot gain access to the Clients’ Accounts with a view to ascertain whether law firms have understated their income without having any reasonable suspicion of any misconduct or criminal conduct on the part of the law firms.
Conclusion
The High Court’s decision emphasised that the absolute nature of Privilege should be protected and indicated its reluctance to water down Privilege with exceptions.
* The DGIR is appealing against the High Court’s decision
For further information, please contact:
Jess Ngo Hui Zhong, Shearn Delamore & Co
jess.ngo@shearndelamore.com
[1] [2018] 4 CLJ 635/[2018] 1 LNS 325
[2] Latin maxim of interpretation: the provisions of a general statute must yield to those of a special one.
