Federal Court judge: Justice Moshinsky found against PwC in a landmark case regarding the extent to which documents generated, whilst acting for the Brazilian multi-national meat processor: JBS, were actually subject to ‘legal professional privilege’ (LPP) – PwC v CofT [2022] FCA 278. His Honour handed down is decision, on on 25 March 2022, in part with 220 pages of reasons following on 6.4.22. The ATO is to be commended for (finally) tackling this issue head on, in bringing legal proceedings to test whether the claimed material was privileged, and whether its suspicion that multi-disciplinary practices were less likely (than pure law firms) to generate truly privileged material (see TT article giving background on this). Prior to this, the heat was largely generated, by ATO protestations outside of Court. This case generated a flurry on interest, in tax and legal circles, when proceedings commenced in Court (see related TT article). The other LPP development, to generate tension, at this time, has been the Commissioner issuing his own draft ‘protocol’ for taxpayers and their advisers to comply with, when trying to establish that certain material is beyond the Commissioner’s reach to compel, because it is privileged (see related TT article). This has been widely criticised as involving ‘over-reach’ (see TT article on the Law Counsel’s submission on this draft Protocol). The Law Institute of Victoria, even, made a submission noting that the ATO runs the risk of committing an offence, under State law, for using undue influence to induce legal practitioners to breach their LPP and other professional duties, under s39 of the Legal Profession Uniform Law (see related TT article). This ‘counterbalancing offence’ even got coverage in the Press (see related TT article).
A Federal Court judge has taken a hard line on legal professional privilege in the landmark case involving PwC and the tax office, hinting that “mixed use” claims will likely fail when the lawyer is not a lead adviser.
Justice Mark Moshinsky found the consulting giant should not have claimed privilege over the majority of documents it tried to keep from the Tax Office over its work for JBS, the largest meat processing company in the world, and had inappropriately claimed legal privilege to conceal documents from the tax office.
He handed down his verdict on Friday 1.4.22, but only published his reasons on Wednesday (6.4.22), in a 220-page judgment that will be pored over by professional advisers – and most likely appeal courts.
Justice Moshinsky found 58 per cent of the 116 documents were not protected, mainly because the dominant purpose for the claims was not to seek legal advice.
The secondary role of lawyers
The judge noted most of the people involved in seeking advice were not lawyers, and that those so qualified played a secondary role. Sometimes it extended only to copying a lawyer in on communications, rendering the lawyer as simply an “agent” of other PwC advisers.
Justice Moshinksy drew a line between “communication when the dominant purpose was seeking legal advice … and those where there were multiple purposes for the making of the communication”.
‘Dominant purpose’ – a problem (especially for multi-disciplinary practices)
When a non-legal practitioner (Non-lawyer) or overseas PwC firm was involved, he “generally found that this purpose was of at least equal weight to a purpose of giving or receiving legal advice … [and therefore] not made for the dominant purpose of the giving or receiving of legal advice”.
The Tax Office filed a claim against PwC and JBS in June 2020 over about 44,000 documents they refused to hand over because of lawyer-client confidentiality. It argued they could help assess the tax liability of JBS, which is based in Brazil and has operations in Australia, the United States, Argentina and China.
JBS Australia has 10 processing plants and has become the nation’s largest meat packer and exporter on the back of acquisitions such as Australia Meat Holdings in 2007, Tasman Group in 2008, Rockdale beef and Tatiara Meat in 2010, and Primo in 2014.
The ATO notices were served to Glenn Russell, an equity partner at PwC since 2012 who was only admitted to practise law in 2014 – and on the condition that he only practise taxation law. (That was lifted in 2020.)
The result – looking at a sample of 116 documents
Justice Moshinsky went through a sample of 116 documents and gave reasons for either approving or rejecting the privilege claims.
All up, he found:
- 49 were privileged,
- six were partly privileged, and
- 61 were not privileged.
Document seven did not involve any lawyers. For documents 11 and 17, Mr Russell’s only involvement was being copied in on emails. Document 17 involved the acquisition of Primo smallgoods: “Although Mr Russell authored one (brief) email in this chain, and was copied on the other emails, in substance the emails represent the seeking of advice from, and the provision of advice by, PwC USA. “Given that Mr Kulich and Mr Stout, of PwC USA, were not lawyers, I would characterise their advice as non-legal advice,” Justice Moshinsky said.
This was a harder line than the amicus curiae (counsel, independent of either party, appointed as a ‘friend of the court’), leading tax QC David Batt, who found 69 of 102 were not privileged.
Multi-disciplinary practice issues
Justice Moshinsky said a critical factor was that the services were provided by a multidisciplinary partnership and team that comprised lawyers and non-lawyers.
“Another contextual matter is the involvement of overseas PwC firms in many of the same projects (under separate engagements). At least in the case of PwC Brazil and PwC USA, the overseas firms were not able to provide legal advice and made clear that they were not doing so.”
Categories of documents
He split the documents into eight categories, which could provide a template for advisers.
- When a document involved advice given to JBS by a Non-lawyer at PwC Australia on matters of stamp duty he had “generally concluded that the document is not privileged”.
- “Where a document constitutes advice given by a Non-lawyer at PwC Australia to the client (JBS) on matters of valuation (whether in an email or a memorandum), I have generally concluded that the document is not privileged …
- “Where a document constitutes an email exchange between Non-lawyers at PwC Australia in relation to matters of accounting, I have generally concluded that the document is not privileged.”
Related news
The ATO said in 2019 that 24 major audits of multinational companies had been disrupted by claims of legal professional privilege and complained that lawyers were being improperly used to hide documents.
The ATO and the Law Council of Australia are developing a protocol to deal with privilege claims. [My understanding is that the ATO and the LCA were trying to develop a joint protocol, but the ATO went its own way, and produced the draft ‘protocol’, it proposed to set as a hurdle to establish LPP. The LCA made a submission on this draft protocol, as part of the public consultation, as I noted above.]
Michael Pelly – Legal editor, Australian Financial Review, Thursday 7 April 2022
[Tax Month – April 2022 – Previous Month, 18.4.22]