Comptroller of Income Tax v ARW and another

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 31 January 2017
• Neutral Citation: [2017] SGHC 16
• Court: High Court (Singapore)
• Docket Number: Suit No 350 of 2014 (Summons No 1465 of 2015)
• Published date: 07 February 2017
• Year: 2017
• Hearing Date: 01 December 2016,30 November 2016
• Plaintiff Counsel: Alvin Yeo SC, Lim Wei Lee and Oh Sheng Loong (WongPartnership LLP)
• Defendant Counsel: Jaikanth Shankar, David Fong and Shirleen Low (Drew & Napier LLC)
• Citation: [2017] SGHC 16

Aedit Abdullah JC: Introduction

The question in this case is whether documents, communications and other papers generated in the course of an investigatory audit by a public authority are protected by legal professional privilege, either through litigation privilege or legal advice privilege. This question arose out of an application by the 1st Defendant, a company, for various documents relating to three matters: the grant of certain tax refunds (“the Tax Refunds”) by the Plaintiff (the Comptroller of Income Tax), an audit of the 1st Defendant when issues arose about the tax refunds, and the Plaintiff’s decision to take action against the 1st Defendant.

Facts

The 1st Defendant sought specific discovery of three broad classes of documents (“the Requested Documents”). The Plaintiff resisted discovery on grounds of irrelevance, lack of necessity and both litigation privilege and legal advice privilege. Having considered the arguments, I allow discovery of the three classes of documents, as these are relevant and necessary for the fair and efficient disposal of the matter, with neither litigation nor legal advice privilege applying.

Background

In 2003, the 1st Defendant’s group of companies underwent a “Corporate Restructuring and Financing Arrangement”, whereby the group of companies was restructured and entered into a financing arrangement through which a $225m loan was obtained from a Bank. The whole of this sum was returned to the Bank on the same day through a complex series of transactions. The point of the transaction was allegedly to obtain tax refunds from the Plaintiff. From 2004 to 2006, returns were filed by the 1st Defendant indicating that it had incurred interest expenses for the $225m loan, and claiming tax refunds in connection with these interest expenses. Based on these claims, the Plaintiff awarded the 1st Defendant substantial tax refunds amounting to approximately $9.6m.

Around July 2007, the Plaintiff reviewed cases in which significant amounts of tax refunds were paid out. As part of this review, an audit was conducted of the 1st Defendant, to determine the basis of its tax refund claim and whether these claims were made under a tax avoidance arrangement. Following the completion of the audit in April 2008, the Plaintiff came to the conclusion that the 1st Defendant had indeed used a tax avoidance arrangement, and wrongly claimed the Tax Refunds. The Plaintiff then invoked s 33 of the Income Tax Act (Cap 134, 2008 Rev Ed) (“the Act”) and purported to issue notices of additional assessment (“Additional Assessments”) under s 74(1) of the Act. This was challenged by the 1st Defendant before the Income Tax Board of Review. Eventually, following an appeal, the Court of Appeal found that although the 1st Defendant had claimed the Tax Refunds under a tax avoidance arrangement, the Plaintiff was not entitled to recover the refunds by way of the Additional Assessments (see Comptroller of Income Tax v AQQ [2014] 2 SLR 847). However, the Court of Appeal left open the possibility of a common law action for mistaken payment.

Procedural history

The present proceedings (Suit No 350 of 2014) were then commenced by the Plaintiff in 2014. In the Statement of Claim, the Plaintiff claims the following: Reversal of unjust enrichment on the bases of mistaken payment of the Tax Refunds, failure of basis, as well as an ultra vires act; Deceit or fraudulent misrepresentation; Conspiracy by unlawful means; and Liability as a constructive trustee or fiduciary.

The 1st Defendant denies the claims made, maintaining that the restructuring was legitimate. It specifically raises the time bar under s 6(1) of the Limitation Act (Cap 163, 1996 Rev Ed).

In March 2015, the 1st Defendant filed the present application, but this was not determined pending the resolution of Summons 4769 of 2014. That summons, among other things, sought production of an advice from the Plaintiff’s Law Division, given on 3 April 2008, concerning the 1st Defendant’s Corporate Restructuring and Financing Arrangement. The matter eventually came up on appeal to the Court of Appeal, which found that the communications in question were privileged, and that this privilege had not been waived (see ARX v Comptroller of Income Tax [2016] 5 SLR 590 (“ARX”)).

The 1st Defendant’s request for specific discovery in this application covered a total of 15 categories. The 15th category covered documents relating to the abovementioned advice from the Plaintiff’s Law Division. This request was not, in the end, pursued by the 1st Defendant following the Court of Appeal’s decision in ARX. The remaining 14 categories are divided into three broad groups: Group 1: Documents relating to the Plaintiff’s decision to pay the tax refunds; Group 2: Documents relating to the Plaintiff’s discovery of the matters in the Statement of Claim for suit No. 350 of 2014; and Group 3: Documents relating to the Plaintiff’s determination that the 1st Defendant had made use of a tax avoidance arrangement, and the Plaintiff’s decision to invoke s 33 of the Act.

This judgment will refer to the documents by way of these three groups.

The parties’ cases The 1st Defendant’s case

The 1st Defendant argues that the Requested Documents are relevant and necessary, and that no legal professional privilege applies. In terms of relevance and necessity, the Group 1 documents show the internal discussions of the Plaintiff’s representatives who conducted the tax assessments of the 1st Defendant, and would be relevant in showing whether the Plaintiff was mistaken as regards the entitlement of the 1st Defendant to the tax refunds, and whether the Plaintiff relied on the 1st Defendant’s representations. The Group 2 documents relate to the conduct of the field audit, including the commencement of the audit, and the Plaintiff’s decision to request various information and documents within the audit. The Group 3 documents relate to the internal discussions concerning the Plaintiff’s determination that the Corporate Restructuring and Financing Arrangement was a tax avoidance arrangement, the decision to invoke s 33 of the Act, and the decision to issue additional notices of assessment. These documents pertain to the Plaintiff’s state of mind and or knowledge at various junctures, and are therefore relevant and necessary for determining whether the Plaintiff’s claims for recovery of the Tax Refunds are made out, and whether such claims are time barred.

As for legal professional privilege, the 1st Defendant argues that litigation privilege cannot be claimed in respect of the documents in Groups 2 and 3. This is because there was no reasonable prospect of litigation at the time the documents were created or obtained. The documents were created during an investigation into possible wrongdoing. Until suspicions of any possible wrongdoing were confirmed by investigation, there was no reason to anticipate litigation. The 1st Defendant also argues that there was no evidence to show that the documents were created for the dominant purpose of litigation.

The 1st Defendant further contends that no basis is made out for any claim of legal advice privilege since the documents in Groups 2 and 3 were not documents between the Plaintiff and the lawyers. Neither was any evidence adduced to show that these documents were created for the purpose of seeking legal advice, or in a confidential situation.

The Plaintiff’s case

The Plaintiff resists the discovery application, arguing that the Group 1 documents were neither relevant nor necessary, while Groups 2 and 3 were covered by legal privilege. The Plaintiff does not concede the relevance and necessity of Groups 2 and 3 but the arguments in respect of these documents are mainly focused on legal privilege.

In terms of relevance and necessity, the Plaintiff argues that these criteria are not met, and characterises the 1st Defendant’s application for discovery as a fishing expedition. Specifically, the Plaintiff disputes the 1st Defendant’s contention that the Group 1 documents are relevant to the question of whether the Plaintiff relied on the 1st Defendant’s representations in paying the Tax Refunds.

The Plaintiff has also claimed both legal advice and litigation privilege over the documents in Groups 2 and 3. The Plaintiff argues that he has discharged the burden of showing that such privilege is made out by asserting such privilege in an affidavit verifying the list of documents; and that the 1st Defendant has not established facts which rebut the assertion of privilege.

In respect of legal advice privilege, the Plaintiff emphasises that such privilege covers any advice on what should or could be done in a specific legal context. This includes not only communications between the client and lawyer, but also any other document made confidentially for the purpose of giving or receiving legal advice, with such purposes to be construed broadly. The Plaintiff also highlights that the privilege applies even if the document in question was not actually sent or communicated to the legal adviser. On the facts, the Plaintiff argues that legal advice privilege is made out as the Requested Documents were made in a context where advice would have to be taken concerning s 33 of the Act, that is, for the Plaintiff to determine if there had been a tax avoidance arrangement and related matters.

The Plaintiff argues that litigation privilege is also made out. There was, at the material time, a reasonable prospect of litigation as the purpose of the audit was to assess the bases of the claims and to determine if these were made under tax avoidance arrangements. At the end of the audit, if the Plaintiff decided to invoke s 33 of the Act, litigation would be a likely result. This was what was contemplated by the Plaintiff, and would have been apparent to the 1st Defendant.

Issues

The issues to be determined...