The ATO is running a high profile case in the Federal Court, against PwC, challenging its claims that large amounts of information, relevant to its client: JBS, is subject to legal professional privilege (LPP) – pressing its right to get access, to that which is not privileged. This case is making news (see related TT article). There are a lot of issues swirling around, in this case, and I thought a quick ‘Cookes Tour’ of some of these might be of interest.

See below for further details.

[Tax Month – September 2021]



What is Legal Professional Privilege?

Privilege extends to two types of material.

  1. Communications between a lawyer and his/her/its clients to get and receive legal advice.
  2. Material brought into existence, in the contemplation of litigation.

The ‘privilege’ was a right to resist disclosure of that material, in a Court case, but case law advanced, to treat this as a substantive and general right – extending to a right to resist production of such material under a warrant, or other statutory equivalents, such as the Commissioner of Taxation’s right to require production of documents or attendance to give evidence and his  right to ‘access’ information in (broadly) all places (under s353-10 & s353-15 of the TAA53). The rationale, for the privilege, is that such immunity, from disclosure, is justified because it promotes ‘rule by law’ and the proper running of the legal system. Citizens need to be able to communicate with their lawyers, frankly, in discovering what their rights are, and need to be able to engage in the legal process, confidentially, to establish what their rights are. Lawyers are ‘officers’ of the Court, and the Court retains retain control of their officers, and could ultimately, strike them off, if need be. Accountants, of course, do not serve the same function and are not subject to the same accountability.

Despite its importance and potency, ‘legal professional privilege’ is a ‘fragile flower’.

  • It attaches to material that is ‘confidential’ – that can be lost.
  • The privilege can be lost, if the relevant material is disclosed (and is, for instance, in the public domain).
  • The privilege cannot be used to cloak wrongdoing (the ‘crime fraud exemption’).
  • The privilege can be waived, but it is only the client who can do it (not the lawyer). The privilege is for the client’s benefit and it is sometimes called ‘Client Professional Privilege’ – to make that point.
  • Indeed, it is the lawyer’s duty to assert the privilege, to prevent it being lost, whilst getting instructions, and assessing what is, and what is not, privileged.
  • So, it is not the lawyer who is ‘privileged’ (however much accountants wish their tax advice enjoyed the same privilege against disclosure).

A lawyer who failed to protect a client’s privilege, would not only be exposed to action by the client, but could face disciplinary proceedings, potentially lose their practising certificate, and ultimately face being removed, by the Court, from its register of practitioners.

State law also protects the privilege, by protecting legal practices from ‘undue influence’. Section 39 of the NSW & Vic Legal Profession Uniform Law, provides that a “A person must not cause or induce or attempt to cause or induce a law practice or a legal practitioner associate of a law practice to contravene this Law, the Uniform Rules or other professional obligations.” Defending a client’s claim to privilege, would be amongst the practitioner’s ‘professional obligations’ and the ATO could be committing an offence (punishable by a fine of up to 100 Penalty Units) if it’s conduct amounted to ‘causing, inducing or attempting to cause or induce’ a lawyer to not press his/her client’s privilege claim. The state law appears competent to apply  to, and bind, the Commonwealth.

I’m not sure that the Commissioner has really considered, whether the conduct, of his office, so far, amounts to him having committed this offence – perhaps many times over. The legal profession will, however, be bringing this to his attention – trusting that this Statutory Officer, is not in the business of committing offences against state laws.

How to test what is privileged and what is not

One way these matters can come before a Court, is if the Commissioner prosecutes the adviser, for failure to produce material (or give access) under s8C or s8D of the TAA53. To defend the prosecution, the adviser then has to establish that the material it refused to divulge was privileged – not an enviable way to be discharging your professional duties (whilst waiting for the substantive privilege issue to be resolved). This is one of the reasons why the tax profession has been getting ‘tetchy’ over the growing ‘abuse of LPP’ rhetoric coming from the ATO. 

Indeed, the legal profession has been ‘pushing back’ against this, and asserting the importance of the ‘privilege’, together with the importance of the Commissioner using the proper course, to establish privileged status – which is in a court, where it can address this substantive matter, head on, and in as much detail as it warrants. We have submitted, to the ATO, that the Commissioner has been conspicuous, by his absence, in commencing and pursuing such actions.

If this Federal Court action, is the forum, for a substantive inquiry into what is privileged – then hooray. From this distance, though, it doesn’t all add up. If it’s a substantive privilege action, then why is the action against PwC and not the client. If it is a prosecution, then why is it not in a State Court. If I find out more, I’ll update this post, or post again.

What is this ‘multi-disciplinary practice’ issue?

The ‘Big 4’ accounting firms used to form their own (separate) legal firms, but now it seems, they just use the facility, provided by the relevant state laws, to be registered as entitled to engage in legal practice, by virtue of having suitably qualified lawyers, who supervise their activities, that constitute ‘engaging in legal practice’. For instance, it is quite common, now, to see a Big 4 Professional Services (accounting) firm’s name, on a Court decision, as the solicitor on the record.

The Legal Profession Uniform Law, regulates the practice of law in NSW and Victoria. It permits ‘Australian Legal Practitioners’ and ‘law practices’ to engage in legal practice (s10). The latter includes ‘incorporated law practices’ and ‘unincorporated law practices’ – both of which must have an ‘authorised principal’ (under s105) and have given notice, to the local regulatory authority, that it/they intend to carry legal practice (under s104). Responsibility for complying with the regulatory regime, falls on the Authorised Principal(s).

PwC says that the ATO would not be tackling a normal law firm, in this way, and it’s being victimised. However, Mr David Batt QC, intervened in this action, as ‘amicus curiae (friend of the Court). His comments were at odds with the PwC position. He was reported as saying (see related TT article):

  • applying “orthodox” privilege rules to multidisciplinary firms’ work was “at best, awkward” and offered “a very different context” to that which applied to pure legal work.
  • Legal professional privilege should not apply to the client work of multidisciplinary professional services outfits such as PwC the same way it does for traditional law firms because the “inherent nature” of their work and staff is not the same.
  • When the “nature of the advice and services being provided” in the privileged documents was “properly characterised”,  most fell short of the “orthodox” legal requirements to qualify for privilege.
  • Some were not offering legal advice, for example, while others were not provided by lawyers or, if lawyers were involved, legal practitioners acting in that capacity.
  • The real significance of this proceeding … is how to properly apply those orthodox principles in the multidisciplinary partnership context.
  • It is critical to recognise and retain in mind at all times this context … [which] by its very nature, involves teams of advisers, only some of whom are lawyers, doing work of a blended nature, on engagements which are fundamentally different from what, in our submission, one would find a traditional law firm doing.
  • While privilege would still exist, in some circumstances, Mr Batt said, they were limited and needed to consider this context.

The ATO had claimed that PwC included a “relatively inexperienced lawyer” on its high-end tax advice for JBS to “apply a cloak of privilege” when in reality that work was completed by tax advisers, in a practice it alleged was common across professional services firms and for which clients paid “a premium”.

Mr Batt’s comments counter PwC’s argument, that the ATO was unfairly targeting the fact the firm offers multidisciplinary services. “That’s not what the facts are, Mr Batt said, and that different context has … an important part to play in the proper evaluation of the orthodox [privilege] tests.



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