What is Legal Professional Privilege?
Legal Professional Privilege (LPP) is an important common law immunity from compulsion to produce documents that evidence confidential communications about legal matters between lawyers and clients.
The key elements of LPP in respect of documents and communications are:
- it must be confidential;
- it must be between a lawyer and a client – or for the ultimate provision to the lawyer or client; and
- it must be for the dominant purpose of obtaining legal advice.
Why is Legal Professional Privilege important?
Ordinarily, the Australian Taxation Office’s (ATO) broad information gathering powers can compel a taxpayer to provide information and documentation without restriction for claims of confidentiality or privilege against self-incrimination. In a tax context, LPP operates to grant a taxpayer immunity from any obligations to disclose information or documentation arising from the ATO exercising its power to request or access information or documents.
Two high-profile and relatively recent court cases have confirmed the importance and fragility of maintaining LPP.
Glencore International AG v Commissioner of Taxation [2019] HCA 26 (Glencore)
In Glencore, the High Court confirmed that LPP is not an enforceable right against information or documentation that has been released in the public domain. That case confirmed the ATO was able to rely on documents that would ordinarily be covered by LPP which were obtained after the release of the Paradise Papers. Importantly, it is reminder that it is not always necessary for a taxpayer to formally waive their right to LPP for the ATO to obtain the information or documents in question.
Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278 (PwC)
In this case, the risk of engaging multidisciplinary or multijurisdictional firms was highlighted where:
- both lawyers and non-lawyers are providing advice, but the taxpayer generally deals with the non-lawyers;
- there is no indication that lawyers are substantially reviewing the work done by non-lawyers on their behalf; and
- lawyers are providing advice on non-law matters and not advice about tax or corporate law.
The cases are a reminder that simply labelling a document as ‘privileged’ or ensuring a lawyer is copied on correspondence is not sufficient to maintain privilege over the document and puts the information at risk of discovery by the ATO.
The ATO's view & compliance guidelines
As demonstrated in the recent court cases, the ATO has been keen to examine the engagement of legal advisers where it has received LPP claims over a large number of documents in response to formal notices that themselves can be drafted very broadly.
The ATO’s concern is that LPP is being claimed on a blanket basis and without appropriate review of the materials in question. Some of the ATO’s specific concerns relate to the following:
- Contrived arrangements or relationships purporting to attract LPP where there is a purpose of concealing communications.
- Routing advice through a lawyer merely for the purpose of obtaining privilege.
- Legal engagements entered into after the substance of the advice has been given by non‑legal persons.
- Concepts and ideas proactively promoted or marketed, or presented by a person or firm, whether lawyer or law firm or otherwise, prior to a legal engagement and unsolicited by the taxpayer.
- Communications exclusively between non-legal persons in circumstances where the non‑legal persons do not perform functions in furtherance of a solicitor-client relationship.
- Unclear (and potentially overlapping or inconsistent) capacities and relationships designated to different members of the firm.
Broadly, the ATO is of the view that every communication or document (including emails in a chain, attached documents, forwarded emails and attachments) must be adequately reviewed for privilege prior to making a claim in respect of a response to the ATO’s formal information gathering powers.
Following the Federal Court’s judgment in PwC, the ATO finalised its LPP compliance guidelines and released its Legal Professional Privilege Protocols (the Protocols) setting out its expectations for large business taxpayers when complying with requests for information made under the ATO’s formal information gathering powers. While the ATO does not have the power to dictate the methodology in which a taxpayer (or its advisers on its behalf) claims privilege, and the ATO is not the arbiter of whether a document is privileged, the Protocols set out a 3-step approach:
- Assess the engagement and each communication.
- Explain the basis upon which LPP is claimed – including particularising each document claimed under LPP.
- Advise the ATO how the LPP claim was approached.
According to the ATO, the Protocol is the best way for them to decide whether to accept, review or challenge an LPP claim. It is not intended to be a substitute for legal advice, only a tool setting out the approach and information that the ATO think would allow them to quickly decide how to treat a LPP claim.
The ATO has said that if a taxpayer follows the Protocol, it will usually have a sufficient level of information to be able to decide what to do next. In many cases, it will accept the LLP claim without any further enquiries.
Access visits & waivers
In addition to general powers to issue formal requests for information, the ATO also has the power to conduct physical access visits. Generally, access visits will only be used by the ATO where they have been unable to obtain documents under a cooperative approach. The ATO must allow a taxpayer time to consult with their lawyers and will generally provide a taxpayer with notice of an impending visit. Notice will not be forthcoming where the ATO believes there is a risk that documents, or communications will be destroyed prior to the visit being executed.
Similar to complying with traditional requests for information, information obtained through access visits is subject to the doctrine of LPP — meaning the ATO may only obtain information not validly claimed under LPP. Additionally, the ATO is not entitled to seize any documents without consent and may only make copies of the documents. A taxpayer however is obliged to provide reasonable assistance and adequate facilities to the ATO officers during the course of a visit.
Importantly, it is necessary to understand that LPP can be waived (whether intentionally or unintentionally) in one of two ways:
- via consent; or
- by acting in a way that is inconsistent with the maintenance of the privilege.
When complying with a formal notice or access visit from the ATO, it is important to understand that once LPP has been waived in respect of certain information, it cannot be reclaimed.
Below are some tips for maximising privilege protections during investigations:
- Involve external lawyers as soon as possible including to brief third party experts.
- Create a written investigation plan as evidence of the dominant purpose.
- Set up communications protocols and structures — relevant if there is an apprehension of conflict between officers or employees of a company and the company itself.
- When creating written reports of the investigation or witness interviews, consider the distinction between facts (which may not be privileged) and legal advice or analysis.
- Take steps to avoid inadvertent waiver by treating all documents as confidential and ensuring they are not disclosed outside the investigation team.
Contact our team
If you or your company has any questions or concerns relating to LPP in respect of impending or ongoing engagements with the ATO, please reach out to a member of our market leading team.
Additional resources
Arnold Bloch Leibler partners Paul Sokolowski, Susanna Ford and Clint Harding recently presented a webinar exploring the current attitude of the ATO and other regulators to issues of LPP. You can access a recording of the webinar using the following link.