The High Court rules in favour of the ATO, unlocking the gates to Paradise despite legal professional privilege claimed over corporate documents

In a recent big win for the Australian Taxation Office (ATO), the High Court decision in Glencore International AG v Commissioner of Taxation [2019] HCA 26 was handed down on 14 August 2019, upholding that legal professional privilege is not in itself an actionable right which can restrain a party, in this case the ATO, from using privileged documents already in their possession.

 

Background

The plaintiffs were companies within the global Glencore plc group who sought an injunction restraining the defendants, being the Commissioner, the Second Commissioner and the Deputy Commissioner of Taxation, and any other officer of the ATO, from making any use of documents described as the "Glencore documents" or any information contained or could be derived from those documents.

The plaintiffs claimed that the Glencore documents were created for the sole or dominant purpose of the provision by a law firm, Appleby (Bermuda) Limited (Appleby), for legal advice to the plaintiffs in respect to the corporate restructure of Australian entities within the Glencore group. Appleby has claimed that the Glencore documents were amongst documents described as the "Paradise Papers" which were stolen from Appleby's electronic file management systems and provided to a global media organisation.

The plaintiffs claimed that the defendants obtained copies of the Paradise Papers, and that the Glencore documents were subject to legal professional privilege.

The defendants argued that no cause of action was disclosed by which the plaintiffs would be entitled to an injunction. As an alternative argument, the defendants considered that they were entitled and obliged to retain and use the documents in question by reason and for the purposes of section 166 of the Income Tax Assessment Act 1936 (Cth) (the ITAA). This section provides that the Commissioner must make an assessment of a taxpayer's taxable income from the taxpayer's returns "and from any other information in the Commissioner's possession".

There was no issue that the Glencore documents were the subject of legal professional privilege. However, given that the Glencore documents were in the possession of the defendants, the Court held that they were able to be used in connection with the exercise of their statutory powers unless the plaintiffs were able to identify a basis on which the Court could restrain that use. The plaintiffs contended that legal professional privilege was in itself sufficient for the Court to grant the injunction.

Legal professional privilege has its limits

By way of background, the rationale for legal professional privilege is to further the administration of justice through the fostering of "trust and candour" in the relationship between lawyer and client. The current law dictates that once privileged communications have been disclosed, a claim in equity can be made with the basis for the relief being confidentiality. An injunction, as was sought in this case, can be granted to protect the confidentiality of the privileged document.

In a unanimous decision rejecting the plaintiffs' application, the High Court made the following remarks:


  • It is well known that equity will restrain an apprehended breach of confidential information and will do so with respect to documents which are the subject of legal professional privilege and which are confidential, if their "conscience is relevantly affected". There may be difficulties for the plaintiffs in meeting the requirements for such relief, given that the Glencore documents are in the public domain and there being no allegation concerning the defendants' conduct or knowledge.
  • Legal professional privilege is not a legal right which is capable of being enforced. It is only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications. However, as the Glencore documents were already in possession of the defendants, this immunity is not applicable.
  • The justification for legal professional privilege is that it promotes public interest by protecting confidential conversations between lawyer and client. However, that public interest must be balanced against the other public interest to promote fair conduct of litigation by making all documentary evidence be available. Accordingly, as set out in Grant v Downes (1976) 135 CLR 674 at 685, to balance these competing interests, legal professional privilege "should be confined within strict limits".
Ultimately, the Court dismissed the proceeding with costs, noting that the plaintiffs' case sought to "transform the nature of the privilege from an immunity into an ill-defined cause of action which may be brought against anyone with respect to documents which may be in the public domain", which the Court considered was beyond the rationale for the privilege.

Further, that the plaintiffs' case for creating a new, actionable right was not in accordance with how the common law develops, the Court commenting that legal professional privilege "is not the area which might be developed in order to provide the remedy sought".

Key takeaways

Whilst legal professional privilege is in the public interest to protect confidential relations between lawyer and client, it is not an actionable legal right. The High Court has re-emphasised that the immunity does not provide any further relief beyond that which ensures that privileged documents need not be produced, meaning that legal professional privilege cannot be claimed over documents already in the public domain (having lost their confidential character).

This decision particularly highlights the interplay between cybersecurity, data protection and the protection of confidential documents. As indicated in this case, if data is leaked and confidentiality is waived for documents of this kind and fall into the ATO's possession, there is a strong risk that the ATO will be allowed to use this information in accordance with their statutory powers to ensure taxpayers, particularly large corporations, are paying the right amount of tax.

Now that the gates are open, the broader ramifications of the decision are yet to be seen, however the Court's stance against awarding an injunction for privileged documents that have lost their confidentiality and the ATO's crackdown on tax avoidance schemes that use blanket claims of legal privilege, are likely indicative of things to come. Steps should be taken to ensure you are aware of what corporate documents, if any, are subject to legal professional privilege and which documents may be exposed to potential access by third parties.

McCabe Curwood is experienced in advising its clients on privacy, privilege and confidentiality issues. Please contact us if you require advice on any matters covered by this article.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice that is specific to your particular circumstances.

Contributors

Jennifer Bradley Lawyer
Liliana Freeman Law Graduate