The ATO commenced action in the Federal Court against professional services firm: PwC, to challenge its claim that information, related to its client: JBS, is subject to ‘legal professional privilege’ (LPP), which, PwC contends, puts that information, beyond the reach of the ATO’s statutory right, to access particular types of information. The action commenced Monday 6.9.2021 and it has been in the news most days since then. It is the culmination of much ‘huffing and puffing’ by the ATO about how LPP is being used and abused – particularly by the ‘big 4’ professional service firms (what we used to call accounting firms), who have lawyers and are licensed to ‘carry on legal practice’. There is an issue that is emerging, strongly, about whether ‘multi-disciplinary’ practices are different, in either the breadth of material they think is privileged, the things they do, in trying to establish the privilege, and whether the ATO is unfairly treating them, as less meritorious claimants of privilege. This latter feature has even lead to the intervention of an ‘amicus curiae’ (friend of the Court) to address the foundational privilege issues, in the context of multi-disciplinary practice. Here is some of that news. See my ‘briefing note’ on some issues in this case (in related TT article).

See below for further details.

[Tax Month – September 2021]

 


 

Is PwC really ‘privileged’ – the ATO has its day in Court

Horse has bolted’ on PwC rescinding legal privilege: JBS – Article in AFR – posted on Wednesday 8.9.2021 by Reporter: Hannah Wooton

Meat processing giant JBS shared commercial “secrets” with big four accountancy PwC because it believed its interactions were subject to legal professional privilege, and its lawyers say the “horse has already bolted” for the court to now remove that privilege.

Appearing for JBS in a landmark court case over the big four’s use of privilege, Mark Robertson, QC, said the matter was “a very, very simple case of JBS contemplating that they would be engaging legal practitioners, exposing all their secrets to the legal practitioners”, in the belief they would be privileged.

The tax office is suing PwC in an attempt to gain access to swaths of documents related to the firm’s work for JBS over which the firm has claimed privilege – incorrectly, according to the watchdog.

The case is part of a push by the ATO to force more transparency from the big four around their work for multinational companies, after a slew of cases in which the firms used increasingly novel interpretations of legal privilege to withhold tax and auditing information from regulators and shareholders.

The ATO has previously said dozens of audits of major multinationals had been interrupted by privilege claims in recent years, warning that penalties and legal proceedings may await advisers who made “reckless or baseless LPP claims in an attempt to withhold facts and evidence from the commissioner”.

But Mr Robertson dismissed the ATO’s accusations, made in court on Monday, that PwC included a “relatively inexperienced lawyer” on high-end tax advice in order to “apply a cloak of privilege” when in reality that work was completed by tax advisers.

He said the fact that a lawyer worked alongside other professionals was “utterly irrelevant” to whether privilege was extended over that work.

“Once the absolute protection of legal professional privilege is attached to the communication, it is utterly irrelevant how the solicitor goes about providing the legal advice that the client is seeking,” Mr Robertson said.

“[Even if] the solicitor decides to use a law clerk, or a lay person, [past] cases establish that there has nothing to do with the client’s privilege of the communications between it and the law firm.”

It builds on arguments made by PwC on Monday that the ATO was unfairly targeting the fact the firm offers multidisciplinary services, saying it was “unimaginable” that a pure law firm would face claims that its communications with clients were not privileged.

Mr Robertson also hit back at the ATO’s characterisation of the work completed by PwC for JBS as “commercial advice” rather than legal advice, which is extended privilege.

He said companies do not “engage barristers, solicitors and legal practitioners” to help them decide what commercial transactions to undertake, but instead make those decisions themselves then seek assistance from lawyers on doing those deals.

“Their purpose in going to solicitors is to obtain legal advice in a commercial context, it is not to obtain commercial advice,” he said.

“All they have done is ask PwC legal practitioners how that transaction can be safely and lawfully done.”

Finally, Mr Robertson also shut down the ATO’s suggestions that privilege did not exist in regard to a portion of the documents it is seeking access to because they were created before JBS and PwC signed a retainer.

He said the true “starting point” of a solicitor-client relationship was when the two parties first discussed a matter, as confidential information often needed to be shared in those initial conversations to allow lawyers to put together a fee estimate for the work.

“The horse has already bolted, legal professional privilege applies absolutely … irrespective of whether the retainer is accepted, or it’s rejected and JBS decides to go to another firm,” he said.

 


 

The ‘multi-disciplinary practice’ factor in claims for LPP

Big four should not claim the same legal privilege as law firms, court hears – Article in AFR – posted on Monday 13.9.2021 by Reporter: Hannah Wooton

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, the Federal Court heard on Monday.

Such a finding would shake up the business practices of the big four consultancies, which often package legal advice with their accounting and consulting work for – according to the tax office – the purpose of attracting privilege and protecting that work from regulators’ scrutiny.

It also comes as the big four’s fledging legal divisions suffer an exodus of staff returning to traditional legal outfits.

Appearing as an amicus curiae in a landmark action between PwC and the tax office, David Batt, QC, said 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.

Amici curiae – or “friends of the court” – appear in matters when a significant question of law is in dispute to assist the court on points of law. They are generally viewed as more objective than either party in a case.

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, the Federal Court heard on Monday.

Mr Batt said only 25 per cent should remain protected.

When the “nature of the advice and services being provided” in the privileged documents was “properly characterised”, the silk said 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.

This suggestion followed the ATO claiming 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”.

“The real significance of this proceeding … is how to properly apply those orthodox principles in the multidisciplinary partnership context,” Mr Batt said, suggesting that PwC “downplayed this significance” in its analysis of the documents.

“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.

His claims counter PwC’s argument that the ATO was unfairly targeting the fact the firm offers multidisciplinary services, saying it was “unimaginable” that a pure law firm would face claims that its communications with clients were not privileged.

“That’s not what the facts are and that different context has, in our submission, an important part to play in the proper evaluation of the orthodox [privilege] tests,” Mr Batt said.

He said he “was not suggesting for a moment” that traditional law firms did not use non-lawyers such as paralegals to do work – a key plank of PwC’s case – but said that a multidisciplinary partnership was “a very different beast”.


 

Hannah Wootton reports on professional services and legal affairs for the Financial Review.

[15.9.21]

 

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