High Court to Decide Groundbreaking Privilege Case

The case of Glencore International AG & Ors v Commissioner of Taxation of the Commonwealth of Australia & Ors (S256/2018) (Proceedings) seeks to resolve a long-standing controversy over whether the law of legal professional privilege operates merely defensively as a means of  resisting compulsory production, or if it also provides a positive right entitling the holder of the privilege to a remedy, such as an injunction restraining the use of privileged material.

Background

Section 166 of the Income Tax Assessment Act 1936 (Cth) (ITA Act) provides:

From the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources, the Commissioner must make an assessment of:

1. the amount of the taxable income (or that there is no taxable income) of any taxpayer;

…

An issue that will need to be resolved in the Proceedings is whether or not this section entitles the Commissioner of Taxation to resist general law action to both restrain the use of and recover legally privileged information.

Notably, the plaintiffs in the Proceedings made no claim to recover the documents based on equitable principles concerning breach of confidence.  The plaintiffs likely recognised that due to the wording of section 166, such an action would likely fail.  This becomes important when consideration is given to the authorities.

Facts

The plaintiffs are four companies in the international “Glencore Group” of entities. In around October 2014, their Australian lawyers engaged an overseas law firm based in Bermuda to provide legal advice on a corporate restructure. By November 2017, the Commissioner had obtained documents known as the “Paradise Papers” from journalists including documents created for the sole or dominant purpose of Bermudan lawyers providing legal advice to the plaintiffs (Privileged Documents).  There is no dispute between the parties that the Paradise Papers included Privileged Documents.

When the plaintiffs became aware that the Privileged Documents were in the possession of the Commissioner, they immediately requested that the Privileged Documents be returned. The Commissioner refused the request. In these circumstances, the question of waiver did not arise in the Proceedings.

Significance

There are competing authorities which govern the law in relation to legal professional privilege and third parties.  Calcraft recognised that privileged documents passed into the possession of a third party (including by trickery or theft) could be tendered as evidence, while Ashburton recognised an entitlement of a privilege holder to prevent its privileged material being used by third parties.

In light of this apparent conflict, Ashburton has generally been understood as providing only a partial protection for privileged material, being one that restrains the use of privileged documents, but only where a breach of confidence owed to the privilege holder has occurred.

The plaintiffs in the Proceedings argue that the law needs to recognise the entitlement to a complete protection of privileged communications.  That is, common law principles of legal professional privilege ought to enable a privilege holder to rely on privilege not only as a shield but “if not as a sword, at least a device to disarm one’s opponent by preventing him from using evidence in his possession”.

The Commissioner submits that legal professional privilege is not, and has never been, a foundation for a cause of action entitling the privilege holder to injunctive relief restraining the use, and requiring the delivery up, of documents in the possession of another.  This state of the law was recognised in England over 100 years ago and has been applied in Australia consistently and by courts in other major common law jurisdictions.

Success for the plaintiffs has the potential to have a significant impact on legal professional privilege in Australia both for privilege holders and for regulators.

For more information, please contact the below authors.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.