Members of the Malaysian Bar complained that Inland Revenue Board officers had carried out raids on them in order to audit their clients' accounts and gain access to those records.
The Malaysian Bar then wrote to the director general of inland revenue (DGIR), stating that such audits breached the principle of solicitor-client privilege.
The DGIR replied, stating that Section 142(5) of the Income Tax Act 1967 overrode the provisions in Section 126 of the Evidence Act 1950 that conferred solicitor-client privilege.
The Malaysian Bar filed an action in the high court, seeking a declaration of the following:
- Section 142(5) of the Income Tax Act does not entitle the DGIR to disregard privilege that protects all communication, materials and documents passing between an advocate or solicitor and his or her client under Malaysian law.
- Part V and Section 80 of the Income Tax Act do not entitle the DGIR to disregard privilege, unless privilege is waived by the client.
- Privilege under Malaysian law and Sections 126, 127, 128 and 129 of the Evidence Act requires advocates or solicitors to reject any demand for access to any client communication, unless privilege is waived by the client.
The Malaysian Bar relied on Section 126 of the Evidence Act in support of its contention:
"No advocate shall at any time be permitted, unless with his client's express consent, to disclose any communication made to him in the course and for the purpose of his employment as such advocate by or on behalf of his client, or to state the contents or conditions of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment."
The DGIR argued that Section 12 of the Evidence Act, which is part of Chapter IX, Part III of the act, is subjected to and has been ousted by Section 142(5)(b) of the Income Tax Act.
According to Section 142(5)(a)(i), "Save as provided in paragraph (b) nothing in this Act shall (i) affect the operation of Chapter IX of Part III of the Evidence Act 1950".
Section 142(5)(b) provides as follows:
"Notwithstanding the provisions of 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."
The Malaysian Bar argued that care must be exercised in construing the 'non obstante' nature of Section 142(5) of the Income Tax Act – that is, provisions that begin with the word 'notwithstanding' – to give effect to Parliament's intention and not go beyond the purpose and object for which Section 142(5) of the Income Tax Act was enacted.
The Malaysian Bar further argued that since Parliament had used different words – namely, 'practitioner' and 'advocate and solicitor' in the statute – they must refer to different persons.
In addition, the Malaysian Bar submitted that the words "notwithstanding the provisions of any other written law" in Section 142(5)(b) of the Income Tax Act did not exclude the operation of common law.
The Malaysian Bar further argued that the DGIR had misunderstood and misapplied the Latin maxim of 'generalia specialibus non derogant'. Specifically, the Malaysian Bar argued that since the Evidence Act is the specific statute governing matters pertaining to privilege, Section 126 of the Evidence Act – although enacted before Section 142(5) of the Income Tax Act – excludes the operation of the general provision of Section 142(5) of the Income Tax Act to the extent of any inconsistency.
In summary, the high court accepted the Malaysian Bar's arguments and held as follows:
- Privilege is absolute unless it is waived by the privilege holder or falls within the proviso to Section 126 of the Evidence Act 1950; therefore, it affords protection to clients, not lawyers.
- The DGIR had no right to access clients' accounts with a view to checking whether the law firms had understated their income when there was no reasonable suspicion of misconduct or criminal conduct on the part of the law firms.
- The DGIR could not use the Income Tax Act as an instrument of fraud, purportedly to fish for information on law firms' clients.
- The non obstante nature of Section 142(5)(b) of the Income Tax Act must be read in accordance with Parliament's actual words.
- Section 142(5)(b) of the Income Tax Act – at most – only has the effect of removing privilege in respect of any book, account, statement or other record prepared or kept by practitioners (eg, tax accountants and tax agents) with a view to taxing their clients, not advocates and solicitors.
- Parliament expressly used different words in Section 142(5)(b) of the Income Tax Act, as it recognised that 'practitioners' and 'advocates and solicitors' are different persons.
- Section 142(5)(b) of the Income Tax Act does not oust the common law on privilege.
- Based on the clear and express language in Section 126 of the Evidence Act, it cannot be disputed that Section 126 is the specific provision which governs matters pertaining to privilege. The DGIR misunderstood and misapplied the Latin maxim 'generalia specialibus non derogant'.
For further information on this topic please contact Goh Ka Im or Foong Pui Chi at Shearn Delamore & Co by telephone (+60 320 272 727) or email ([email protected] or [email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
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