The Court of Appeal upheld privileged against the IRB

Summary of Disclosure and Privilege in English law – Elaina Bailes

Recently in a landmark ruling, the Court of Appeal in the case of Ketua Pengarah Hasil Dalam Negeri v Bar Malaysia upheld the doctrine of privilege and held that the Inland Revenue Board (“IRB“) was estopped from requesting disclosure of documents relating to client’s account by raising Section 142(5) Income Tax Act 1967 (“ITA“). The Court of Appeal upheld the High Court’s decision and dismissed the IRB’s appeal.

This case serves as a timely reminder that although the IRB is armed with wide powers under the ITA to, amongst others, request for documents for inspection, the doctrine of legal privilege cannot be abridged.


The Malaysian Bar (“MB“) received complaints from its members that the IRB’s officers raided the several law firms with a view to auditing their clients’ accounts and issuing notices insisting on being given access to, amongst other, all books and records pertaining to such clients’ accounts. In particular, the IRB was invoking Section 142(5)(b) ITA in stating that the IRB has powers is foists with the power to conduct such raids.

The MB wrote a letter informing DGIR that such actions by the IRB are in breach of legal privilege and that Section 142(5) does not override privilege.

In reply, the IRB stated that the principle of privilege on the ground that Section 142(5) of the ITA overrides the provisions in the Evidence Act 1950 and Legal Profession Act 1976 with regards to privilege.

Aggrieved, the MB filed a judicial review to appeal against the DGIR’s position.

Legal Analysis

The relevant provision of Section 142(5) ITA is reproduced herein for it’s full effect:

The doctrine of privilege is provided under Section 126(1) Evidence Act 1950 which provides as follow:

The thrust of the MB’s argument was that are as follows:

  1. The IRB cannot utilise the ITA to go on unlawful expeditions

According the IRB’s affidavit, the intention behind invoking Section 142(5) ITA in auditing the clients’ account was to ensure that law firms were reporting their income tax accurately. The IRB was more concern of law firms hiding funds in the client’s account and not the client’s hiding funds from the IRB. In other words, it was utilising Section 142 (5) against the law firms as oppose to the clients.

Privilege is for the protection of the client’s and not lawyers. Only lawyers have the right to waive privilege and not lawyers. In applying the doctrine “equity will not permit statute to be used as an engine of fraud”, the fundamental principle of privilege must prevail as it would cause untold violence to administration of justice.

2. Doctrine of Privilege remains undisturbed under statute and common law

In the seminal case of Bullock v Correy [1878] 3 QBD 356, it was held that privilege is absolute unless waived hence the infamous quote “once privileged, always privileged“.

Further reference was made to the case of R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] UKHL 21, the House of Lords described legal privilege as a “fundamental human right long established in the common law“.

Under Section 126 EA and case laws, there are only limited circumstances in which privileged is waived, such as express consent by client, for the furtherance of any illegal purpose or if the lawyer has observed any fact in the course of employment which shows a crime or fraud has been committed since the commence of his or her employment.

3. A “practitioner” under Section 142(5) ITA does not refer to advocate and solicitor.

The last part of Section 142(5) reads “prepared or kept by any practitioner or the firm or practitioners in connection with any client or clients of the practitioner or firm of practitioners or any other person.

In applying the strict interpretation, the words “practitioner” should not apply to “advocate ” as different words were employed in the ITA where reference was made. The words “advocate” was said to appear only 6 times within the ITA whereas the word “practitioner” only appears at Section 142(5). Although the Legal Professions Act used the word “legal practitioner”, the deliberate use of different terms of “advocate” and “practitioner” clearly indicates 2 different meanings.

The use of the word “practitioner” without the word “legal” does not refer to a lawyer but could include a person engaged in the practice of professions such as account, tax agent or tax consultant.


The High Court answered the question of whether Section 142(5) ITA overrides Section 126 EA to the negative and accordingly held that Section 142(5) does not exclude the application of legal privilege.

The High Court adopted an interesting interpretation in that finding that: “my view is as far as other written law which prohibit the disclosing or producing any document, thing or information to a court, the Special Commissioners, the Special Commissioners, the Director General, such protection or privilege does not apply. Para (b) overrides that Chapter or those provisions in that written law. Paragraph (b) saves Chapter IX of Part Ill of the Evidence Act 1950 from operation of ITA 1967.”

The High Court found that the operation of the non-obstante clause cannot be beyond the ITA. In the spirit of the ITA, the High Court found that “practitioners” to refer to tax accounts and tax agents and not advocates and solicitors. The use of the different words was Parliament’s recognition that “practitioner” and “advocate and solicitor” are two different persons.

Secondly, the High Court found that the words “notwithstanding the provisions of any other written law” does not exclude the application of common law. The Supreme Court in Manilal & Sons (M) Sdn Bhd v M Majumder [1988] 2 MLJ 305 defined this position by holding that “unless the statute expressly or by necessary implication excludes the common law remedy, the latter still remains“.

Therefore, the Court held the Parliament did not intend Section 142(5)(b) to affect common law on privilege. At most, it may apply to possible secondary cases.

Thirdly, the High Court held that Section 126 was a specific provision which governs privilege hence applying the principle Generalia Specialibus Non Derogant, it takes precedence over the general provision of Section 142(5). Section 126 of the EA embodies every privileged communication, including the Client Communications. However, Section 142(5)(b) of the ITA merely makes reference to the term “in connection with any client”. The terminology of “in connection with” is far from specific and is extremely general as to its meaning as well as its applicability.

Finally, the Court was convinced that the audits carried out were in the guise of a fishing expedition to unlawfully fish for information on the clients of the law firms. The conduct of the IRB in seeking to use Section 142(5) ITA as an engine of fraud is abusive, unlawful and illegal.


One can be reminded of the case of Syarikat Ibraco-Peremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (2014) MSTC 30-084 where a tax advice from a tax consultant was not offered privilege. The same ruling was made in the case of R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) [2013] UKSC 1 where the House of Lords also found that legal privilege is not accorded to tax advice on given by a person in the accountancy profession.

In the converse, legal privilege is one of the most sacred principle and remain sacrosanct and cannot be sacrificed on the altar of the purported exercise of the statutory powers conferred by the ITA. Invoking the ITA cannot be used as subterfuge to conduct a “fishing expedition” and exculpate itself of the requirement of obtaining advance consent from the client.