Irish tax litigation – the role of privilege

Privilege is the entitlement of a party to refuse to disclose documents to another party in a dispute, including before the Tax Appeals Commission (TAC). For further detail on the TAC process see our insight or further detail on the High Court process see our insight.

Legal professional privilege (LPP) is an umbrella term that encompasses both legal advice privilege (LAP) and litigation privilege (LP). Both LAP and LP protect documents from disclosure obligations that might otherwise arise as between a taxpayer and the Irish Revenue Commissioners (Revenue).

Overview of LAP

LAP protects confidential communications between lawyers and their clients, where the communications are for the dominant purpose of seeking or providing legal advice.

Confidential communications

Confidentiality is at the heart of privilege. Documents that are not treated as confidential at all times from the date of their creation to the date when LAP is claimed may suffer a loss of privilege. This issue can become relevant when one is dealing in a group company context. Distributing privileged advice between members of a group could unwittingly result in a waiver of privilege unless it is clear the advice is shared on a strictly confidential basis for a particular purpose and common interest privilege can be established. Best practice involves labelling documents covered by LAP as 'privileged and confidential' to mitigate the risk of challenge as part of any disclosure / document production process and it may also be worthwhile to document the common interest of the party with whom the privileged documents are being shared on a confidential basis. However, it is important to note that labels will obviously not be determinative of the issue and the inappropriate use of them can undermine credibility if privilege comes under challenge.

The requirement for a communication between the lawyer and the client can be satisfied by oral or written communications (to include notes of meetings). Documents that are prepared by the client as a preparatory step to obtaining legal advice may not be privileged unless the dominant purpose of preparing those documents was the seeking of legal advice which might be evidenced by the sending of those documents to the lawyer. Where the lawyer prepares documents whilst in the process of preparing legal advice, those documents will usually be viewed as part of the lawyer's legal advice and thus will likely be covered by LAP.

Pre-existing documents that were generated by a client some time prior to the requirement for legal advice that are later shared with a lawyer for the purpose of seeking legal advice will not become privileged and will only be covered by LAP if they were privileged at the time of their creation.

Scope of the term 'legal advice'

The communication must relate to legal advice and must not be considered legal assistance (the difference between these two concepts is set out in Smurfit Paribas Bank Ltd v. AAB Export Finance Limited [1990] 1 IR 469). A communication contains legal advice if it refers to the legal validity, effectiveness or consequences of certain courses of action which a client is contemplating or has taken and expresses a professional opinion on rights, remedies, obligations and legal consequences. Contrastingly, communication contains mere legal assistance where it does not contain such references and instead is in the nature of administrative input or commercial (rather than legal) advice.

Scope of the term 'client'

As a general premise it cannot be assumed that all employees of a large organisation are to be considered the 'client' for the purpose of asserting LAP. As a practical matter, when progressing through sensitive projects it is important to determine who within the company is charged with obtaining and receiving legal advice on behalf of the company and implement protocols to ensure LAP is not inadvertently lost or waived.

Scope of the term 'lawyer'

The Irish Courts have held that the term 'lawyer' in the context of LAP means solicitors, barristers, salaried in-house legal advisers and foreign lawyers provided that they hold practicing certificates and are acting in the role of a lawyer and not performing some other function (which is sometimes the case when lawyers take on business roles in-house).

When it comes to in-house counsel, the extent to which LAP will attach to communications involving those legal advisors and in-house clients will depend on the facts of each particular case.

Importantly, LAP does not apply to communications between in-house counsel and their clients in the context of an anti-trust investigation by the EU Commission.

Advice on tax law matters provided by a professional advisor who is not a practicing lawyer (such as an accountant or a tax advisor who is not a lawyer) cannot attract privilege. This is particularly important for clients to understand when seeking advice on an issue at the early stages of a potential tax dispute or more generally as regards sensitive tax matters.

Overview of LP

LP will protect from discovery obligations those communications that are prepared in furtherance of litigation that is reasonably apprehended and the dominant purpose of the communication is that particular apprehended litigation. LP arises as a matter of public policy and is perhaps best articulated by the Irish High Court in Silver Duckling Limited v. Minister for Agriculture [1987] IR 289:

"…once litigation is apprehended or threatened, a party to such litigation is entitled to prepare his case, whether by means of communication passing between him and his legal advisers, or by means of communications passing between him and third parties, and to do so under the cloak of privilege."

A key difference between LAP and LP therefore is that LP can extend to communications between the client and third parties other than its legal advisors.

In practice, a court will assess the dominant purpose of a communication objectively, having regard to the motivation of the party who made the communication. Documents that come into existence after the commencement of litigation and for the purposes of that litigation will therefore also enjoy LP. Frequently of course, a document or communication will be prepared for a variety of purposes one of which may be to assist in the preparation of apprehended litigation. Good practice therefore is to record the purpose of the communication within the document where it pertains to litigation.

Temporal duration

Another important distinction between LAP and LP is the temporal limit which attaches to LP. Whilst LAP is permanent in duration (unless waived or lost by the client), LP will not extend beyond the immediate legal proceedings or very closely related actions.

Common interest privilege

Common interest privilege arises where a document that is covered by legal professional privilege is shared with another party who has a genuine legal interest in the contents of the document. It is good practice to record the common interest if possible.

Conclusion

Whilst legal professional privilege can often-times cause confusion for taxpayers in terms of what is protected and what is not protected it is an important tool in a taxpayer's armoury when seeking to protect communications from disclosure obligations. Where matters may become contentious, the engagement of lawyers as soon as practicable is recommended so as to ensure that the client will be in a position to maximise their prospects of success in any dispute.

For more information on this please contact Bryan Hughes, Senior Associate, Enda Hurley, Partner or any member of A&L Goodbody's Tax Disputes and Enquiries team.

Date published: 20 June 2023