Angus Macinnis, Director of Dispute Resolution at Stevens Vuaran Lawyers, discusses a recent comment from ATO Commissioner Chris Jordan about the Tax Office’s divergent view on what advice is protected by legal professional privilege.
“ATO targets legal privilege”, cries the front page of a recent Australian Financial Review, neatly bringing together the second and the third of life’s certainties (the first certainty being one with which we try not to concern ourselves unduly here at Worth Knowing at Stevens Vuaran Lawyers).
The article quotes ATO Commissioner Chris Jordan as having said in March that “[the ATO’s] understanding of what advice is subject to legal professional privilege significantly differs from the position taken by some taxpayers and their advisers”, and, “we expect that these different views as to the scope of legal professional privilege will be tested shortly”. That expectation may shortly become reality, with reports that mining company Glencore has commenced proceedings in the High Court of Australia seeking to prevent the ATO from using documents obtained as part of the “Paradise Papers” leak (on the basis of a claim by Glencore that the documents are subject to legal professional privilege).
A number of issues need to be considered in relation to the creation, and maintenance, of legal professional privilege in relation to taxation advice. The first is that legal privilege relates to communications from lawyers, so that if the advice is not given by a lawyer (even where it concerns legal matters) it is all but impossible for the advice to be privileged.
The difficulties that this creates were identified in 2007 by the Australian Law Reform Commission, in its report, “Privilege in Perspective: Client Legal Privilege in Federal Investigations“. That Report recommended the creation of a special privilege for “tax advice documents”, being “confidential documents created by independent professional accounting advisors for the dominant purpose of providing taxpayers with advice about the operation and effect of tax laws”. However, no legislative response to the Report ever eventuated.
The second issue is that care is needed when the advice is provided by in-house lawyers, because to attract privilege, it will be necessary for an in-house lawyer to show both that they are sufficiently independent of their client/employer, and also to show that in giving the advice, they are acting as a lawyer and not as the client’s “man of business” (to use an expression coined by the House of Lords in 2004). There are a number of factors which are relevant to establishing independence, but they were helpfully summarised by former Federal Court judge Peter Graham as follows:
“If the responsibility of the in-house counsel is to say, without fear or favour, “no” and be respected for it, then the in-house counsel has sufficient independence to render documents to which privilege would attach”.
The third issue is that privilege (if it has been successfully created) will be lost in relation to advice given in furtherance of “the commission of a fraud” or the commission of criminal or civil penalty offences. “Fraud” has been defined widely (some synonyms include, “dishonesty”, “lack of probity”, and “trickery and sham contrivances”) and privilege will be lost if the client has a fraudulent purpose even if the lawyer was unaware of that purpose. The cases make it clear that although legal privilege is a substantive right which is not “lightly to be overthrown”, the law is also assiduous to ensure that privilege is not used as a cloak for fraud.
The importance of the ability to obtain privileged legal advice as a substantive right (and even, at least according to former High Court Justice Michael Kirby, as a human right) has been frequently emphasised. However, the importance of the right does not mean that it is easy to either create or maintain. If ATO Commissioner Chris Jordan is correct in saying that there is a significant divergence of views about the effect of legal professional privilege in relation to tax advice, then it cannot be said that the High Court decision will be able to be predicted with the certainty of death or taxes. However, what is certain is that taxpayers and their advisers can act now to ensure that their understanding of legal professional privilege, and its consequences, is sound.
Angus Macinnis has a broad commercial practice with a focus on dispute resolution, and in particular, on employment and work health and safety law, and intellectual property law. He advises employers and employees on all aspects of employment law, from drafting contracts and employment policies, to dealing with employment related disputes, to dealing with employment and safety regulators.
He has a particular interest in the employment law aspects of social media use and has published in this area in publications including the Law Society Journal, The New Lawyer, and the Internet Law Bulletin, as well as providing regular contributions to AHRI’s HRM Online website. He is a regular speaker at conferences for MCLE providers including the Law Society of New South Wales and the University of New South Wales and also provides training to employer clients in areas including anti-discrimination law.
In the intellectual property area, Angus advises in relation to copyright and trade mark disputes, as well as “trade dress” and passing off disputes. Contact Angus at firstname.lastname@example.org. You can also connect with Angus via Twitter