Legal professional privilege (LPP) has become the final frontier in the battle for complete transparency of tax related information. LPP can be an inconvenient barrier for the ATO, and there has been an increase in opposing claims. This battle is currently playing out in tax audits and in the Courts. On 14 August 2019 the High Court released its much anticipated judgment in Glencore International AG v Commissioner of Taxation  HCA 26.
Glencore asserted privilege over corporate and tax restructuring documents prepared by Appleby (Bermuda) Limited, a Bermudan law practice, which the ATO obtained as a result of the “Paradise Papers” document leaks. The ATO intended to use the documents in its audit of Glencore’s international activities.
The fact that the Glencore documents were in the public domain (and therefore, were not confidential) and that there were no allegations concerning the ATO’s conduct or knowledge meant that Glencore could not seek an injunction on the ground of confidentiality. The related issue of whether section 166 of the 1936 Act operates as a bar to relief in this respect was therefore not tested (and Donoghue remains good law for the time being). It also, unfortunately for Glencore, meant that it had to argue that LPP is a sword, itself sufficient for the grant of the injunction sought.
The High Court, in a unanimous decision, dissected (and rejected) each one of Glencore’s arguments and concluded that:
The plaintiff’s argument cannot be accepted. Fundamentally it rests upon an incorrect premise, namely that legal professional privilege is a legal right which is capable of being enforced, which is to say that it may found a cause of action. The privilege is only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications, as Daniels Corporation holds.
It is not sufficient to warrant a new remedy to say that the public interest which supports the privilege is furthered because communications between client and lawyer will be perceived to be even more secure. The development of the law can only proceed from settled principles and be conformable with them. The plaintiffs’ case seeks to do more than that. It seeks 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.
In other words, LPP is not a sword. It is a shield or immunity from a requirement to produce documents or information. The High Court has affirmed the deep foundations on which LPP rests, but this will be cold comfort for anyone (large multinationals in particular) storing sensitive privileged communications in an electronic file management system. The decision is a significant victory for the ATO in the practical application of its access and information gathering powers. We expect to see an emboldened ATO continue to flex its muscles in tax audits and disputes and to seek, and rely on, documents and information obtained through non-conventional channels. Indeed, within hours of the decision, the ATO website was updated to state that the High Court has confirmed that the ATO may use information obtained from data leaks, even if leaked from a law firm.
Other forms of non-conventional information gathering also include documents provided to the Commissioner by tax ‘whistleblowers’, who are potentially protected under recently enacted legislation. The decision in Glencore is now authority that where a tax whistleblower discloses communications subject to LPP to the Commissioner, a taxpayer cannot rely on LPP to seek the return of those documents. We also query whether an action for breach of confidence would succeed in circumstances where the grant of a remedy would otherwise interfere with the operation of the statutory whistleblower regime.
We recommend that clients review their information security and communication protocols, and document access procedures, in particular in respect of legal advice relating to complex transactions or restructures. We also recommend that clients engage an external independent law firm to assist them in responding to requests for information in tax reviews and audits and in assessing (and asserting) claims for LPP.
HWL Ebsworth Lawyers has specialist teams of tax, privacy and IT lawyers who can assist in all aspects of tax investigations, privilege claims, security breaches and whistle-blower claims. Contact one of our partners below to find out more.
This article was written by Shaun Cartoon, Partner, Jason O’Connell, Partner and Vincent Licciardi, Senior Associate.
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