The Full Federal Court's decision in Pratt Holdings Pty Ltd v The Commissioner of Taxation on 12 May 2004 provides a useful clarification of what is required to bring a communication into existence so that it attracts legal professional privilege.
The case involved a complex taxation issue on which Pratt Holdings took advice separately from its lawyers and accountants. It commissioned the accountant's report directly. That report was subsequently handed to its legal advisers for legal advice.
At trial, considering the Commissioner of Taxation's application for access to the report, Justice Kenny took a narrow view about the circumstances in which privilege can attach to such a report. She decided, with some hesitation, that it could not be said that the accountants were acting as the agent of the principal in the communication of the report to the principal's legal advisers. If Pratt Holdings had commissioned the report expressing its purpose for the obtaining of legal advice from its lawyers, or had asked its lawyers to commission the report from the accountants on behalf of Pratt Holdings, there is little doubt that the privilege would have been created, subject to it meeting the 'dominant purpose' test.
In other words, a matter of form over substance. One of the appeal judges referred to the distinction between the two circumstances as 'apparently arbitrary'. The Full Federal Court unanimously reversed the trial judge's decision taking a broader view in which the purpose for which the report was commissioned was the relevant consideration.
Following the decision, whether a principal commissions a report from a third party and then seeks legal advice from its legal advisers or the legal advisers commission the report on behalf of the client from a third party and provide advice on it, the result will be the same. Where the dominant purpose of commissioning the report is to obtain legal advice on it, the privilege will be created.
Although it was not necessary for the Court in Pratt Holdings to consider whether the same position now applies in relation to communications commissioned in anticipation of litigation, it would be safe to assume, subject to any appeal to the High Court, that it does.
Another recent decision, Singapore Airlines v Sydney Airports Corporation, illustrates the pitfalls which may arise where incident reports are commissioned from third party consultants by in-house lawyers.
In this case, a Singapore Airlines' aeroplane was damaged at Sydney Terminal. A senior in-house lawyer for Sydney Airports Corporation commissioned a report about the incident from a third party consultant the following day. When Singapore Airlines attempted to gain access to the report, Sydney Airports Corporation claimed legal professional privilege.
The judge decided, on the evidence before him, that there were at least four reasons why the report was commissioned, one of them for the purpose of obtaining legal advice. None of the reasons could be described as dominant. There was also doubt about the capacity in which the in-house lawyer commissioned the report. Any privilege it attracted was the privilege of her employer, Sydney Airports Corporation. Regardless of her intention, noted in the commissioning letter by using the words 'the report is commissioned in contemplation of litigation and anticipated legal liability …', it was in part commissioned for other internal operational and management purposes including a report to an Inter-Airline Operations Committee.
This and other recent cases also illustrate a trend towards a stricter approach to the interpretation of important criteria for the application of the privilege test, such as 'dominant purpose' and 'legal advice'.
It will continue to be prudent for lawyers when commissioning a report, whether for the purpose of giving advice or in anticipation of litigation, to document the commissioning of a report noting the need for confidentiality and expressing the purpose of the commission in terms such as 'in order to advise our client on the legal implications' or 'in order to advise our client on matters of liability and quantum'.
If you would like to discuss the decision and its implications or other issues in relation to the appropriate creation of legal professional privilege, please contact the author.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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