Bar Malaysia

[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 1

BAR MALAYSIA
v.
KETUA PENGARAH HASIL DALAM NEGERI

High Court Malaya, Kuala Lumpur

Kamaludin Md Said J
[Originating Summon No: WA-24-12-03/2017]
2 April 2018

Case(s) referred to:

AG Varadarajulu and another v. State of Tamil Nadu and others [1998] 4 SCC
231 (refd)
Arthur v. Bokesham 11 Mod 150 (refd)
Blunden v. Commonwealth of Australia [2003] HCA 73 (refd)
British Railways Board v. Pickin [1974] AC 765 (refd)
Choong Yik Son v. Majlis Peguam Malaysia [2007] 3 MLRH 196; [2008] 7 MLJ
215; [2008] 10 CLJ 101 (refd)
Commissioner of Inland Revenue v. West-Walker [1954] NZLR 191 (refd)
Dato' Anthony See Teow Guan v. See Teow Chuan & Anor [2009] 1 MLRA 248;
[2009] 3 MLJ 14; [2009] 3 CLJ 405 (refd)
Danaharta Urus Sdn Bhd v. Kekatong Sdn Bhd (Bar Council Malaysia,
Intervener) [2004] 1 MLRA 20; [2004] 2 MLJ 257; [2004] 1 CLJ 701; [2004] 6
AMR 429 (refd)
Director of Customs, Federal Territory v. Ler Cheng Chye (Liquidator of Castwell
Sdn Bhd, in liquidation) [1995] 1 MLRA 390; [1995] 2 MLJ 600; [1995] 3 CLJ
316; [1995] 2 AMR 2007 (refd)
Foo Loke Ying & Anor v. Television Broadcasts Ltd & Ors [1985] 1 MLRA 114;
[1985] 2 MLJ 359; [1985] CLJ 206 (refd)
Gideon Tan v. Tey Por Yee and another appeal [2017] 1 MLRA 1; [2017] 1 MLJ
352; [2017] 1 CLJ 543 (refd)
Ho Tack Sien & Ors v. Rotta Research Laboratorium SpA & Anor [2015] 3
MLRA 611; [2015] 4 MLJ 166; [2015] 4 CLJ 20; [2015] 3 AMR 316 (refd)
Ketua Pengarah Hasil Dalam Negeri v. Malaysian Bar [2004] 3 MLRH 796;
[2006] 5 CLJ 217; [2006] 1 AMR 510 (refd)
Kesultanan Pahang v. Sathask Realty Sdn Bhd [1998] 1 MLRA 119; [1998] 2 MLJ
513; [1998] 2 CLJ 559; [1997] 3 AMR 2331 (refd)
Koh Siew Keng (P) & Anor v. Koh Heng Jin [2008] 1 MLRA 151; [2008] 3 MLJ
822; [2008] 3 CLJ 450 (refd)
Lee Lee Cheng v. Seow Peng Kwang [1959] 1 MLRA 246; [1960] 1 MLRA 1;
[1960] 1 MLJ 1 (refd)
Malaysian Newsprint Industries Sdn Bhd v. Bechtel International Inc & Anor
[2014] 1 MLRH 115; [2014] 3 CLJ 367 (refd)
Manilal & Sons (M) Sdn Bhd v. M Majumder [1987] 1 MLRA 701; [1988] 2 MLJ
305 (refd)
Manokaram Subramaniam v. Ranjid Kaur Nata Singh [2008] 2 MLRA 135;
[2009] 1 MLJ 21; [2008] 6 CLJ 209 (refd)
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pg 2 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

Positive Vision Labuan Limited v. Ketua Pengarah Hasil Dalam Negeri and other
appeals [2014] MLRAU 262; [2014] 5 MLJ 333; [2014] 8 CLJ 285 (refd)
Smt Geeta v. State of UP & AMP LNIND 2010 SC 1218 (refd)
SR Batliboi & Co v. Department of Income Tax (Investigation) LNIND [2009]
DEL 689 (refd)
Walsh v. Alexander [1913] 16 CLR 293 (refd)
Yeo Hock Cheng v. Rex [1938] 1 MLRH 62; [1938] 1 MLJ 104; [1938] 1 MLJ 104
(refd)

Legislation referred to:

Evidence Act 1950, ss 126, 129
Income Tax Act 1967, s 142(b)(5)
Legal Profession Act 1976, s 78

Counsel:
For the plaintiff: Anand Raj Atan (Foong Pui Chi with him); M/s Shearn
Delamore & Co
For the defandent: Ahmad Ishak Mohd Hassan (Ruzaidah Yaacob with him);

[Appeal allowed with costs.]

JUDGMENT

Kamaludin Md Said J:

Introduction

[1] The Plaintiff filed an Originating Summon ("OS") dated 7 March 2017
against the Defendant seeking the following relief:

(i) a Declaration that s 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 (hereinafter collectively referred to as "Client
Communications"), and which privilege is referred to variously under
Malaysian law as "legal privilege (hereinafter referred to as "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 ;

(ii) a Declaration that Part V of the ITA generally, and s 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
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[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 3

waived by the client;

(iii) a Declaration that Privilege under Malaysian law generally, and as

referred to in ss 126, 127, 128 and 129 of the Evidence Act 1950 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.

[2] Both parties have duly filed the following cause papers -

(i) Originating Summons dated 7 March 2017;

(ii) Affidavit in Support affirmed by Karen Cheah Yee Lyn on 7

March 2017;

(iii) Affidavit in Reply affirmedby Hazlina binti Hussain on 28 April

2017;

(iv) Affidavitin Reply affirmed by Karen Cheah Yee Lyn on 26 May

2017; and

(v) Affidavit in reply affirmed by Chan Weng Keng on 29 May 2017.

[3] Both parties have filed their respective written submissions. The Plaintiffs
OS was heard on 16 January 2018 and the decision was adjourned to 29
March 2018 and subsequently on 2 April 2018.

Brief Facts

[4] The Plaintiff had written in to the Defendant on 3 November 2016 to state
that:-

(i) the Plaintiff had received complaints from members of Malaysian

Bar that officers of the Defendant have been carrying out raids on the
Plaintiff's member's law firms to conduct audit of their client's account
and insisting to have sight of the relevant accounting books and
records;

(ii) Plaintiff's has taken a stance that such audit breaches the principle
of solicitor-client privilege;

(iii) Section 142(5) of Income Tax Act 1967 should not and does not
prevail over the solicitor-client privilege.

[5] The Plaintiff has also on 29 November 2016 wrote in to the Defendant as a
follow up reminder to his letter dated 3 November 2016.

[6] The Defendant had replied to the Plaintiff's letter vide letter dated 7
December 2016 and states that:-
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pg 4 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

(i) the Defendant believes that in providing service to the public, the
Plaintiff has always ensured that their duty was observed in
accordance with the law, but in ensuring tax compliance amongst the
Taxpayers, the Defendant is under a duty to conduct audit to ensure
that the tax assessment made is in accordance with the provision of
the Income Tax Act 1967;

(ii) the Defendant took the stand that sub-section 142(5) of Income
Tax Act 1967 overrides the provisions of Chapter IX of Part 111,
Evidence Act 1950 and the Legal Profession Act 1976. In other words,
the audit conducted by the Defendant did not breached the principle
of solicitor-client's privilege;

(iii) The Defendant's stand is based on the followings:-

(a) Basic legal provision regarding the solicitor-client's

privilege had been provided under s 126Chapter IX Part III
Evidence Act;

(b) However, the provision of subsection 142(5) and (b) of ITA

in specific overrides provisions of Evidence Act and the Legal
Profession Act.

(c) In addition, it is pertinent to stress that the Defendant's

officers are statutorily empowered under subsection 80(1) to
have full and free access to all lands, buildings and places to
all books, documents etc.

(d) Therefore, the failure of the lawyers or their clients in

giving access of the documents to the audit officers are in
breach of the ITA 1967 and can be prosecuted under para
116(a) of ITA 1967.

The Issues

[7] The Plaintiff in this case had relied on s 126 of the Evidence Act 1950 ("EA
1950") which generally provides for the evidentiary provision of the legal
privilege principle whilst the Defendant argues that s 142(5) of the Income Tax
Act 1967 ("ITA 1967") which specifically provides for LAW FIRM'S client's
account was not protected by Privilege by its overriding effect over s 126 of the
EA 1950. Amidst all this, the question of law for the determination of this
Court is whether s 142(5) of ITA 1967 prevails over s 126 of Evidence Act
1950 as there is conflict between both provisions.

[8] If the answer is in the affirmative, then the Defendant is entitled to be given
access to, or disclosure to the Plaintiff's member's (hereinafter referred to as the
law firm) client's account for the purpose of tax audit/ investigation.

[9] After hearing the oral submissions from the Plaintiff's counsel and the
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[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 5

Senior Revenue Counsel (SRC) for the Defendant and also referred to their
written submissions and the authorities cited therein, the answer to the above
issue which is the opinion of this Court is stated in the following paragraphs of
this Judgment.

Whether s 142(5) Of The Income Tax Act Overrides s 126 of Evidence Act
1950

[10] I have considered the Defendant's position especially the submission that
subsection 142(5)(b) of the ITA has made it clear that its overriding effect
extended to the operation of s 126 of EA 1950. The term "save as provided in
para (b)" in subsection 142(5)(a) of ITA 1967 connotes that the operation of s
126 of EA 1950 which was part of Chapter IX of Part III of EA 1950 is
subjected to and has been ousted by the operation of subsection 142(5) (b) of
ITA 1967. When s 142(5) of ITA containing the said clause refers to any
particular provision which ii intends to override, inter alia, s 126 of EA 1950, ii
is permissible to hold that it excludes the whole application of the s 126 of EA
1950.

[11] I do not agree that s 142(5) (b) of the ITA 1967 goes beyond the provision
of s 126 of EA 1950. The argument is misconceived.

[12]Section 126 of the Evidence Act 1950 ("EA") lies within Chapter IX Part
Ill of EA which provides that-

"(1) 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 condition 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:

Provided that nothing in this section shall protect from

disclosure-

(a) Any such communication made in furtherance of

any illegal purpose;

(b) Any fact observed by any advocate in the course of

his employment as such showing that any crime of
fraud has been committed since the commencement of
his employment

(2) It is immaterial whether the attention of the advocate was or was

not directed to the fact by or on behalf of his client."

"Save as provided" in s 142(5')(b') of ITA 1967

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pg 6 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

[13] Firstly, s 142(5)(b) of ITA 1967 says-

Save as provided in paragraph (b) nothing in this Act shall-

(i) affect the operation of Chapter IX of Part Ill of the Evidence Act
1950 (Act 56); or

(ii) be construed as requiring or permitting any person to produce or

give to a court, the Special Commissioners, the Special
Commissioners, the Director General or any other person any
document, thing or information on which by that Chapter or those
provisions he would not be required or permitted to produce or give to
a court.

(b) Notwithstanding the provisions of any other written law, where

any document, thing, matter, information, communications 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 of firm of practitioners or any other person.

[14] My reading of the above provision is that only Paragraph (b) of s 142(5) of
the ITA 1967 excludes or overrides privilege conferred in other written law.
The Act does not affect the operation of Chapter IX of Part III of the Evidence
Act 1950 (Act 56); or be construed as requiring or permitting any person to
produce or give to a court, the Special Commissioners, the Director General or
any other person any document, thing or information on which by that
Chapter or those provisions he would not be required or permitted to produce
or give to a court.

[15] Paragraph (b) of s 142 (5) which was inserted vide the amendment made
in Income Tax (Amendment) Act 1974 commence with the words
"Notwithstanding the provisions of any other written law". Therefore, my
view is as far as other written law which prohibits 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. In other words, s 126 of the Evidence Act
1950 ("EA") which lies within Chapter IX Part 111 of EA is saved and not
caught under s 142(5) of the ITA 1967. Section 126 of the EA shall prevail
over s 142(5) of the ITA 1967 but of course the proviso in s 126 does not
protect privilege to disclose or produce any document, thing or information to
communication made in furtherance of any illegal purpose and for showing
that any crime of fraud has been committed by the Advocate.
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[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 7

[16] The wordings of s 142(5) of ITA 1967 is clear and unambiguous and it
should not be misinterpreted or assigned with another meaning. This has been
decided by Federal Court in Positive Vision Labuan Limited v. Ketua Pengarah
Hasil Dalam Negeri and other appeals [2014] MLRAU 262;

"The wordings of s 38 of the ITA and ss 3A and 2(3) of LABATA as

well as the Exemption Order are clear and unambiguous. It is trite that
when the provisions of law are clear and does not admit of any
ambiguity, then the provisions must be strictly interpreted. This court
in the case of Krishnadas Achutam Nair & Ors v. Maniyam Samykano
[1996] 2 MLRA 194; [1997] 1 MLJ 94; [1997] 1 CLJ 636; [1997] 1
AMR 997 had held:

"the function of a Court when construing an Act of Parliament

is to interpret the statute in order to ascertain legislative intent
primarily by reference to the words appearing in the particular
enactment. Prima facie, every word appearing in an Act must
bear some meaning. For Parliament does not legislate in vain
by the use of meaningless words and phrases. A judicial
interpreter is therefore not entitled to disregard words used in
a stature or subsidiary legislation or to treat them as
superfluous or insignificant. It must be borne in mind that:

"As a general rule a Court will adopt that construction

of a statute which will give some effect to all of the
words which it contains Per Gibbs J in Beckwith v. R
[1976] 12 ALR 333, at p 337. "

[17] I inclined to agree with the Plaintiff's submission that the Defendant has
clearly failed to appreciate that the ancient rules of Privilege were framed to
protect clients' confidentiality and thus it should not be treated in such a
cavalier fashion as the Defendant had submitted before this Court. The
Defendant has clearly confused themselves as they have failed to understand
Privilege and also failed to address it.

[18] I agree with the Plaintiff that the Defendant has wholly misconstrued the
applicability of non-obstante clause in the instant case. The correct operation
of a non-obstante clause has been explained by the recent Federal Court in the
case of Ho Tack Sien & Ors v. Rotta Research Laboratorium SpA & Anor [2015]
3 MLRA 611; [2015] 4 MLJ 166; [2015] 4 CLJ 20; [2015] 3 AMR 316 where
Zulkefli CJ held:

"[39] Although s 40(1) of the Act begins with the words

'notwithstanding....' it is a general principle that a non-obstante clause
cannot go outside the limits of the Act itself. We are in agreement with
the contention of the plaintiff that non-obstante clause is subject to the
limitations contained in the section and cannot be read as excluding
the whole Act and standing by itself. ...
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pg 8 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

[19] Further, in Smt. Geeta v. State of UP & AMP LNIND 2010 SC 1218, the
Indian Supreme Court cited a few earlier Supreme Court cases, including AG
Varadarajulu and another v. State of Tamil Nadu and others [1998] 4 SCC 231
(which has been cited with approval by Ho Tack Sien (supra)), to emphasize
the importance of ascertaining the legislature's intention in interpreting non-
obstante clauses (at pp 288 of PBA4):

"38. This Court also held in the case of ICICI Bank Ltd. v. SIDCO
Leathers Ltd. & Ors , reported in [2006] 10 sec 452, that the wide
amplitude of a non-obstante clause must be kept confined to the
legislative policy and it can be given effect to, to the extent the
Parliament intended and not beyond the same and that in construing
the provisions of a non-obstante clause, it was necessary to determine
the purpose and object for which it was enacted (See pp 465- 6).

39. In Central Bank of India v. State of Kerala & Ors, reported in [2009]
4 SCC 94, this Court reiterated that while interpreting a non- obstante
clause the court is required to find out the extent to which the
legislature intended to give it an overriding effect. "

[20] Accordingly, care has to be exercised in construing the non-obstante

nature of s 142(5) of the ITA to give effect to the intention of the Parliament
and not beyond the purpose and object for which s 142(5) of the ITA is
enacted.

[21] Whilst s 142(5)(b) of the ITA was enacted by the Parliament to "enable
disclosure of information contained in records to be required and to be made
and prevents privilege from being claimed in respect of such information,
notwithstanding any other written law to the contrary" according to the
Explanatory Statement, my view is that s 142(5)(b) of the ITA, at most, only
has the effect of removing privilege in respect of any book, account, statement
or other record prepared or kept by "practitioners" such as tax accountants and
tax agents with a view to taxing the their clients and it does not extend to
"advocates and solicitors". I agree with the Plaintiff that this is because it is
clear from s 142(5)(b) of the ITA itself that Parliament had used two different
terms, namely "practitioner" and "advocate and solicitor".

[22] It is axiomatic that when different words are used in a statute they refer to
different things and this is particularly so where the different words are, as
here, used repeatedly. This leads to the view that in the Ordinance there is a
distinction between the jurisdiction of a Court and its powers (See the
judgment of Thomson CJ in Lee Lee Cheng v. Seow Peng Kwang [1959] 1
MLRA 246; [1960] 1 MLRA 1; [1960] 1 MLJ 1. It is a principle of statutory
interpretation that when the Legislature uses different language in the same
connection. in different parts of the statute, it is presumed that a different
meaning and effect is intended, and if different language is used in contiguous
provisions, it must be presumed to have done so designedly (see NS Bindrai's
Interpretation of Statutes (8th edn) at p 275) (See His Lordship Arifin Zakaria
FCJ in the recent Federal Court case of Manokaram Subramaniam v. Ranjid
Kaur Nata Singh [2008] 2 MLRA 135; [2009] 1 MLJ 21; [2008] 6 CLJ 209)
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[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 9

[23] Accordingly, in s 142(5)(b) of the ITA, Parliament had clearly used

different words as it recognized that "practitioner" and "advocate and solicitor"
are different persons and it is trite that Parliament does not act in vain and
significance must be given to every word of an enactment, and it is presumed
that if a word or phrase appears in a statute, it was put there for a purpose and
must not be disregarded - Foo Loke Ying & Anor v. Television Broadcasts Ltd &
Ors [1985] 1 MLRA 114; [1985] 2 MLJ 359; [1985] CLJ 206.

[24] I further agree with the Plaintiff that the terms "practitioner" and
"advocate and solicitor" in s 142(5)(b) of the ITA are meant to refer to different
persons, especially in light of the numerous times the term "advocate" has been
used throughout the statute. The meaning of "practitioner" and "advocate and
solicitor" must be consistent throughout the ITA as a statute must be read as a
whole - Kesultanan Pahang v. Sathask Realty Sdn Bhd [1998] 1 MLRA 119;
[1998] 2 MLJ 513; [1998] 2 CLJ 559; [1997] 3 AMR 2331.

[25] The intention of the Parliament and the object and purpose of s 142(5)(b)
of the ITA has been thoroughly explained in the Plaintiff's written submission
as follows:

(i) the deliberate and conspicuous dropping of the word "legal"

preceding "practitioner";

(ii) in reading the ITA as a whole, the word "practitioner" only

appears in s 142(5)(b) of the ITA whereas the word "advocate" appears
6 times and is clearly intended to refer to an advocate and solicitor - s
3 of the Interpretation Acts 1948 and 1967;

(iii) the LPA uses "legal practitioner" throughout the Act;

(iv) Section 142(5)(b) of the ITA contains a reference to "advocate and

solicitor" and a reference to a "practitioner". As Parliament does
nothing in vain, 2 different phrases must convey 2 different meanings -
Foo Loke Ying & Anor v. Television Broadcasts Ltd. & Ors [1985] 1
MLRA 114; [1985] 2 MLJ 359; [1985] CLJ 206, Funk David Paul v.
Asia General Asset Bhd [2014] 4 MLRA 342; [2014] 1 MLJ 681,
Gurbachan Singh v. Public Prosecutor [1967] 1 MLRA 366; [1966] 2
MLJ 125; [1967] 2 MLJ 220, Sri Bangunan Sdn Bhd v. Majlis
Perbandaran Pulau Pinang & Anor [2007] 2 MLRA 187; [2007] 6 MLJ
581; [2007] 5 CLJ 673;

(v) "advocate and solicitor" is a technical phrase and it is not to be

supposed that Parliament uses the phrase in any other sense -
Mohindar Singh and another v. Rex [1950] 1 MLRA 600;
MLJ_1950_1_97; [1950] 16 MLJ 97, DP Vijandran v. Majlis Peguam
[1995] 2 MLRA 128; [1995] 3 MLJ 576; [1996] 1 CLJ 23; [1996] 1
AMR 129, All Malayan Estates Staff Union v. Rajasegaran & 2 Ors
[2006] 1 MELR 44; [2006] 2 MLRA 61; [2006] 6 MLJ 97; [2006] 4
CLJ 195; [2006] 5 AMR 585, Tenaga Nasional Bhd v. Tekali
 Bar Malaysia
pg 10 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

Prospecting Sdn Bhd [2002] 1 MLRA 351; [2002] 2 MLJ 707; [2002] 3
CLJ 624.

(vi) the terms "contained in records" of the Explanatory Statement

demonstrate that s 142(5) of the ITA does not enable the disclosure of
Privileged communications per se, ie any documents pertaining to
Client Communications found in the possession of solicitors to the
Defendant; and

(vii) the phrase "notwithstanding the provisions of any other written

law" in s 142(5)(b) of the ITA does not eliminate the operation of
common law.

[26] Therefore, s 142(5)(b) of the ITA cannot be used by the Defendant as an

excuse to be given access to the clients' account with a view to taxing the
advocates and solicitors.

The Common Law On Privilege

[27] I am also of the view that the words "notwithstanding the provisions of any
other written law" in s 142(5) (b) of the ITA does not exclude the operation of
common law.

[28] In Danaharta Urus Sdn Bhd v. Kekatong Sdn Bhd (Bar Council Malaysia,
Intervener) [2004] 1 MLRA 20; [2004] 2 MLJ 257; [2004] 1 CLJ 701; [2004] 6
AMR 429, the Federal Court discussed art 160(2) of the Federal Constitution
which recognizes that common law is different from that of written law (at pp
307 of PBA4):

"The Court of Appeal correctly referred to the definition of 'law' in art

160(2). It reads as follows:

Law includes written law the common law in so far as it is in

operation in the Federation or any part thereof, and any
custom or usage having the force of law in the Federation or
any part thereof."

[29] It is trite that in enacting a statute, the Parliament may elect to exclude
common law. The High Court of Australia held in the case of Blunden v.
Commonwealth of Australia [2003] HCA 73 that:

"For the purposes of s 80 of the Judiciary Act the words 'laws of the
Commonwealth' related only to statute law and did not include
common law. "

[30]Section 142(5) of the ITA makes no reference to common law and the
Plaintiff therefore, such an exception should not be read into the statute. This
has been confirmed in Yeo Hock Cheng v. Rex [1938] 1 MLRH 62; [1938] 1
MLJ 104 where the Court confirmed the pronouncement in the case of Arthur
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[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 11

v. Bokesham 11 Mod 150 that-

"The general rule in exposition of all Acts of Parliament is this, that in

all doubtful matters, and where the expression is in general terms, they
are to receive such a construction as may be agreeable to the rules of
common law in cases of that nature: for statutes are not presumed to
make any alteration in the common law, further or otherwise than the
Act does expressly declare."

[31] The Supreme Court in Manilal & Sons (M) Sdn Bhd v. M Majumder [1987]
1 MLRA 701; [1988] 2 MLJ 305 cited Walsh v. Alexander [1913] 16 CLR 293
with approval:

"... that where rights and liabilities are not created by a statute, but
arise by common law, then, even though they are affirmed by a statute
which gives a special and peculiar form of remedy different from the
remedy which existed by common law, yet, unless the statute
expressly or by necessary implication excludes the common law
remedy, the latter still remains."

[32] This is fortified by the judgment of New Zealand Court of Appeal in

Commissioner of Inland Revenue v. West-Walker [1954] NZLR 191:

"And where an affirmative statute is open to two constructions, that

construction ought to be preferred which is consonant with the
common law".

[33] Applying the above authorities, I agree with the Plaintiff that Parliament
does not intend to apply s 142(5)(b) of the ITA to the exclusion of the common
law on Privilege and that s 142(5)(b) of the ITA cannot be given effect to the
extent beyond the Parliament's intention! At most, Section 142(5) (b) of the
ITA may only apply to the possible secondary cases.

Section 126 of the EA is the specific provision

[34] I also agree with the Plaintiff that the Defendant has also misunderstood
and misapplied the Latin maxim of Generalia Specialibus Non Derogant in this
case. Based on the clear and express language in s 126 of the EA, it cannot be
disputed that the EA is the specific statute which governs matters pertaining to
Privilege. Although s 126 of the EA was enacted before s 142(5) of the ITA, it
is a specific provision on Privilege, and as such excludes the operation of the
general provision of s 142(5) of the ITA to the extent of any inconsistency (See
Director of Customs, Federal Territory v. Ler Cheng Chye (Liquidator of
Castwell Sdn Bhd, in liquidation) [1995] 1 MLRA 390; [1995] 2 MLJ 600;
[1995] 3 CLJ 316; [1995] 2 AMR 2007 and Bennion on Statutory Interpretation
, Sixth Edition).

[35] The Plaintiff has submitted numerous authorities on the subject matter of
privilege. The Defendant cannot ignore the superior and apex courts'
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pg 12 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

judgments that Privilege is absolute and it remains so until waived by the

privilege holder.

[36] In the very recent case of Gideon Tan v. Tey Por Yee and another appeal
[2017] 1 MLRA 1; [2017] 1 MLJ 352; [2017] 1 CLJ 543 decided by the Court
of Appeal and Federal Court, a lawyer sought to rely on privileged
information to defend himself in a committal proceeding. In rejecting the
same, the Court of Appeal and Federal Court once again affirmed that
Privilege affords protection to clients only and not to lawyers.

[37] Further, the Federal Court in Dato' Anthony See Teow Guan v. See Teow
Chuan & Anor [2009] 1 MLRA 248; [2009] 3 MLJ 14; [2009] 3 CLJ 405 held
that ss 126 to 129 of the EA embody the common law position and expressly
held that "Legal professional privilege under s 126 of the Act is absolute and it
remains so until waived by the privilege holder, ie, the client". This goes to
show that Privilege is grounded and inherent in common law and s 142 of the
ITA simply cannot take away such fundamental principles.

[38] In Malaysian Newsprint Industries Sdn Bhd v. Bechtel International Inc &
Anor [2014] 1 MLRH 115; [2014] 3 CLJ 367 the Court has held that that:

"The solicitor-client privilege is absolute and permits of only one

exception which is waiver: (a) upon the express consent of the client
given and directed to the advocate; and (b) such consent must be
intentional and deliberate.?

The law is very clear that this privilege is absolute and permits of only
one exception which is upon the express consent of the client given
and directed to the advocate and which consent must be intentional
and deliberate. The common law maxim "once privileged, always
privileged" as embodied in ss 126 to 129 of the Evidence Act 1950
must be recognized. "

[See also Protasco Bhd v. PT Anglo Savic Utama & Ors [2015] MLRHU
818; [2016] 7 MLJ 523; [2015] 6 AMR 687]

[39] As submitted by the Plaintiff, s 126 of the EA embodies every Privileged

communication, including the Client Communications. The terminology of
"in the course and for the purpose of (an advocate's) employment" is repeated
numerous times throughout s 126 of the EA. However, s 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.

[40] As such, the EA is undeniably more precise, unambiguous and specific.

With those circumstances in mind, it is my considered opinion that s 126 of
the EA must take precedence over s 142(5) (b) of the ITA to the extent of any
inconsistency in respect of matters relating to Privilege.

[41] It is to be noted that the Defendant in fact has admitted that the ITA is a
 Bar Malaysia
[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 13

general legislation by citing the following passage from the case of Ketua
Pengarah Hasil Dalam Negeri v. Malaysian Bar [2004] 3 MLRH 796; [2006] 5
CLJ 217; [2006] 1 AMR 510:

"[3] Section 80(13) of the LPA stipulates that the Malaysian Bar be
exempted from tax on the compensation fund. The said provision is
constituted under art 96 of the Federal Constitution which provides
"No? tax or rate shall be levied by or for the purposes of the Federation
except by or under the authority of federal law. " The LPA is a specific
legislation whilst the ITA is a general legislation. Where there is a
conflict between the LPA and ITA provisions, the LPA prevails...."

[42] I would agree with the Plaintiff that the fact that the Parliament would
have had in mind the earlier (although not general) Act (the EA) when it
enacted the later Act (the ITA) and intentionally chose a different terminology,
ie "practitioner" as opposed to "advocate", is evident of the Parliament's
intention that s 142(5)(b) of the ITA is not to be applied to advocates and
solicitors. Otherwise, the Parliament would have used the same terminology in
the ITA having in mind the EA.

Basis For Looking Into The Client's Accounts

[43] The Defendant has stressed that the Defendant is clear with its objective
in requesting for a view to the law firm's client's account which is to ensure
that the law firm itself do not understate its income and therefore, an audit on
the full documents held by the Applicant is necessary which also includes the
"client's account". The Plaintiff has a duty to regulate LPA which includes
providing for the keeping by advocates and solicitors at banks for client's
money pursuant to s 78 of the LPA. In furtherance to that, r 2 of the Solicitors'
Account Rules 1990 ("SAR") provides that a "client account" means "a current
or deposit account at a bank in the name of the solicitor in the title of which
the word "client " appears.

[44] Based on the same provision it can be concluded and it is also never
disputed that the Plaintiffs members (law firms) had full access to maintain the
client's account. Therefore, the client's account is never fully protected from
misuse by the law firms and this is supported by myriads of cases where law
firms had misuse client's account which also includes circumstances whereby
the client's account was use to hold transfers which was done fraudulently by
law firms.

[45] Defendant submitted that this illegal conduct is not foreign in other
developing countries. In fact, few attempts had been done by local authorities
in other developing country to curb the matter. Relying on the same basis, the
Defendant finds it important to ensure that the Plaintiff did not use the client's
account as a means to park the law firm's own incomes which will then result
to an understatement of income by the respective law firm. The decision to
look into the respective law firm's client's account was not done arbitrarily but
in fact in accordance with the law. Had the law did not provide for the same,
the Defendant would not have decided to look into the Plaintiff's member's
 Bar Malaysia
pg 14 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

client's accounts.

[46] In essence, what the Defendant is trying to say is that although as

contended by the Plaintiff, "client's account" does not hold monies of lawyers
but it is rather a subjective matter open to challenge. This is because, few cases
cited had proven that "client's account" had been misused by law firms as the
account was actually made in the name of the solicitor itself. This shows
multiple possibilities of misuse of "client's account" for law firm's income.

[47] The Plaintiff in reply submitted that the equitable doctrine that an Act of
Parliament (in this case, the ITA) shall not be used as an instrument of fraud
has long been recognized and applied in numerous English and Malaysian
cases (see British Railways Board v. Pickin [1974] AC 765, House of Lords and
Koh Siew Keng (P) & Anor v. Koh Heng Jin [2008] 1 MLRA 151; [2008] 3 MLJ
822; [2008] 3 CLJ 450, Court of Appeal). In the instant case, it was the
Plaintiffs contention that the Defendant have sought to use the ITA as an
instrument of fraud purportedly to fish for information on the clients of the law
firms.

[48] Further, the audits carried out by the Defendant on the law firms and the
documents related to Client Communications are in the guise of a fishing
expedition to unlawfully fish for information on the clients of the law firms.
Such unmeritorious conduct of the Defendant in seeking to use s 142(5) of the
ITA as an engine of fraud is abusive, unlawful and illegal.

[49] In the case of SR Batliboi & Co v. Department of Income Tax (Investigation)

LNIND [2009] DEL 689, the High Court of India held-

"It appears plain to us, therefore, that for a search or seizure to be legal
it should not be firstly ordered for mala fide, extraneous or for oblique
reasons. Secondly, it must be predicated on information received by
the Authority who would have reason to believe that it is necessary to
conduct such an operation. Thirdly, it should not be in the nature of a
rovins or fishing exercise. These three factors must be observed
rigorously and even punctiliously since the exercise of such powers
invariably result in a serious invasion of the privacy and freedom of
the citizen...

It is also our view that the Income Tax Department cannot make
fishins or rovins inquiry to initiate proceedings against all these
companies which are the clients of the Petitioner."

[50] The Plaintiff contended that the Defendant failed to comprehend that, by
looking into the clients' accounts of the law firms in the process of auditing the
law firms, the Defendant could never be able to ascertain the income of the
law firms, as the clients' accounts do not in any way constitute part of the
income of the law firms - Choong Yik Son v. Majlis Peguam Malaysia [2007] 3
MLRH 196; [2008] 7 MLJ 215; [2008] 10 CLJ 101. It is also held that any
advocate and solicitor caught meddling with the client's account must face the
wrath of the law.
 Bar Malaysia
[2018] MLRHU 393 v. Ketua Pengarah Hasil Dalam Negeri pg 15

[51] Applying the above authorities, The Plaintiff submitted that the
contention by the Defendant is merely an excuse for the Defendant to
unlawfully fish for information from the clients of the law firms. The
Defendant's contention which is based on presumption does not hold water
and is bound to fail.

[52] My observation is that while the Defendant may have its own purpose
and objective, however, any action done must be in accordance with the law.
It is understood that the Defendant relied on s 142(5) of the ITA to view the
"client's account". But while I agree that paragraph (b) of s 142(5) does not
protect privilege communication or documents in other written law, the fact
remains that solicitor -clients privilege under s 126 of the Evidence Act 1950
("EA") which lies within Chapter IX Part Ill of EA is not affected by the
operation of ITA 1967.

[53] Be that as it may, s 126 of the EA does not protect the privilege in the
following circumstances-

i) Any such communication made in furtherance of any illegal

purpose;

ii) Any fact observed by any advocate in the course of his employment
as such showing that any crime of fraud has been committed since the
commencement of his employment.

[54] It is immaterial whether the attention of the advocate was or was not
directed to the fact by or on behalf of his client.

[55] In my considered opinion, before the Defendant is required to view the

"client's account" there must some information of an illegal act/purpose
and/or any crime of fraud or reasonable belief that the Plaintiff has used the
client's account as a means to park the law firm's own incomes which resulted
to an understatement of income by the respective law firm which warrant an
investigation.

Conclusion

[56] In conclusion, the summary of my decision are follows-

1. Privilege is absolute unless it is waived by the privilege holder or

falls within the proviso to s 126 of the EA and it therefore affords
protection to clients and not to lawyers;

2. it is not open for the Defendant to have any access to the clients'
account with a view to checking whether the law firms have
understated their income without having any reasonable suspicion of
any misconduct or criminal conduct on the part of the law firms;

3. the Defendant cannot be allowed to use the ITA as an instrument of

 Bar Malaysia
pg 16 v. Ketua Pengarah Hasil Dalam Negeri [2018] MLRHU 393

fraud purportedly to fish for information on the clients of the law

firms;

4. the non-obstante nature of s 142(5)(b) of the ITA ought to be read in

accordance with the actual words of Parliament;

5. Section 142(5)(b) of the ITA, at most, only has the effect of

removing privilege in respect of any book, account, statement or other
record prepared or kept by "practitioners" such as tax accountants and
tax agents with a view to taxing their clients and it does not extend to
"advocates and solicitors";

6. in s 142(5)(b) of the ITA, Parliament had clearly used different

words as it recognised that "practitioner" and "advocate and solicitor"
are different persons;

7. Section 142(5)(b) of the ITA does not oust the common law on
Privilege; and

8. based on the clear and express language in s 126 of the EA, it

cannot be disputed that s 126 of the EA is the specific provision which
governs matters pertaining to Privilege. The Defendant has
misunderstood and misapplied the Latin maxim of Generalia
Specialibus Non Derogant.

[57] In the result, the answer to the issue is in the negative. I allowed the
Plaintiff's application in the Originating Summon with Cost of RM5,000.00.