Australia: A shield not a sword: High Court sides with ATO in Paradise Papers privilege squabble

On 7 August 2019, the High Court unanimously held that legal professional privilege (LPP) could only be used to resist requests for production, rather than as a springboard upon which to obtain an injunction preventing the use of privileged documents.

The leaked dossier colloquially known as the 'Paradise Papers', widely regarded as the largest data spill in history, shed light on the controversial offshore tax arrangements of many high-profile companies and individuals.

Glencore International AG (Glencore), a large Australian commodity producer, brought proceedings in the High Court to restrain, by way of injunctive relief, the Australian Taxation Office's (ATO) use of, or reliance on, documents relating to its offshore tax arrangements (the documents).

The documents were said to be stolen from Appleby Bermuda Limited (Appleby), a Bermudan law firm which provided legal services to Glencore.

The High Court's decision

The arguments: privilege as distinct from a cause of action

Glencore argued that as the documents were the subject of LPP, it was entitled to an injunction requiring the ATO to return the documents and to undertake not to rely upon them.

Glencore said that that injunctive relief was necessary to prevent the use of those documents which it said had improperly fallen into the hands of the ATO.

The ATO argued, in effect, that section 166 of the Income Tax Assessment Act 1936 (Cth) (ITAA) entitled it to retain the documents, and that this entitlement was not defeated by LPP.

The finding: Legal professional privilege not a sword, but a shield

Given that the documents were already in the possession of the ATO, a fundamental issue was whether there was a juridical basis upon which the Court could prevent their use.

The High Court unanimously rejected Glencore's submissions, and held that Glencore's argument was based on the erroneous premise that LPP was a positive legal right capable of spearheading a cause of action.

The High Court found that leading cases in the area do not suggest that LPP is anything more than an 'immunity' for the purpose of ensuring that privileged documents need not be produced to another person. In this sense, the cases indicated that LPP was not a sword, but a shield. The High Court decided that the policy underpinning LPP (the furtherance of the administration of justice through the fostering of trust and candour in the relationship between lawyer and client) did not require the creation of this new cause of action.

Further, the High Court found that it would be problematic if an injunction were granted, as that would require the ATO to perform its tax assessment functions on a basis which may bear no real relationship to the true facts (i.e. the facts disclosed in the documents).

It necessarily followed that the ATO was free to use the documents.

Section 166 of the ITAA

The High Court deemed it unnecessary to consider the ATO's attempt to rely on section 166 of the ITAA, which empowers the Commissioner to make an assessment, inter alia, of any tax payable on the basis of any information in his or her possession.

Given that Glencore had not sought an injunction on the grounds that the ATO was subject to an obligation of confidentiality, and that the documents were already in the public domain, the court did not have to consider this argument.

Further considerations

Admissibility at a hearing?

While earlier case law allowed a privileged document to be tendered if it had been improperly obtained by a third party, more recent decisions of the High Court and legislative changes under the Evidence Act 1995 (Cth) make that position less certain.

The Evidence Act prevents a document being tendered in evidence where a valid claim of LPP is made. Where there is no LPP, section 138 of the Evidence Act provides that evidence which was improperly obtained is not to be admitted, unless the desirability of admission outweighs the desirability of exclusion. The common law also provides a discretion to reject the document.

The High Court's decision in the Glencore case has left unanswered the next practical issue – whether the ATO in any later court proceedings will be able to have the documents admitted into evidence, given their provenance. As this case only touched on whether LPP would provide a basis to restrain the ATO's use of the documents, the question of admissibility did not arise.

The practical implication here is that while a regulator may not be able to have an improperly obtained document admitted into evidence at any trial, that does not prevent the regulator from using the information at the trial in other ways, or deploying it to the regulator's benefit before the trial.

An injunction based on confidentiality

Glencore argued that an earlier decision of the High Court – dealing with circumstances where a party refused to return privileged documents inadvertently disclosed to it by the other party – supported its position. However, in that case, no injunction was ordered, and the Court instead relied on its 'case management powers' to direct the return of the privileged and confidential materials.

There was another potential route open for Glencore which it didn't take. It is clear that equity will restrain an apprehended breach of confidential information and will do so with respect to documents which are the subject of LPP, where the party who has received those documents is aware of the circumstances in which they were obtained, which leads to 'an obligation of conscience'. However, Glencore did not make its argument on that basis and the Court noted that there could be difficulties in Glencore making that argument, as the documents were in the public domain, not just in the possession of the ATO.

However, the Court mentioned (without disapproval) two cases where the use of information was restrained even though it was to some extent publicly available. In a UK court, in one instance, and a Singaporean court in another, it was found that the confidential nature of the relevant documents had not been lost, and thus the recipient was obliged to return them. In the first case, the documents had been provided to the media. In the second case, documents were obtained through a hacking attack and available on the internet. In each case, examining the extent of disclosure, the courts held that the documents remained sufficiently confidential to support an injunction.

Key takeaways for business and regulators

This decision does not mean that hacked privileged documents can never be retrieved, nor their use restrained. But any such action must be brought on the grounds of an obligation of confidentiality, and each will be judged on its own facts.

The message from this decision is that where otherwise privileged documents are sufficiently public and it would be hard to assert an obligation of confidence on a regulator who received them, the regulator will be able to use those documents for its investigation purposes. Admissibility will be considered separately further down the track at any hearing, and may be problematic. But as is often the case, one document may tell you the story, and point you to other unproblematic sources of information or inquiry which allow the story to be pieced together at trial without relying on the problematic document.

This underscores, yet again, the importance of ensuring robust cyber security arrangements are in place.

The Law Council of Australia has stressed that data leaks such as these 'may become an increasing problem amid threats to cyber security and potential impacts on information held by lawyers'. Be that as it may, the ATO's view is that the decision serves to legitimise its 'use [of] the 'Paradise Papers' and other similar data leaks'. It is likely that other Government bodies and regulators feel similarly.

The High Court indicated an awareness that at a policy level this outcome may be undesirable, but said 'if there is a gap in the law, legal professional privilege is not the area which might be developed in order to provide the remedy sought'. That is: any concerns raised by this decision need to be addressed in legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions