Australia: The thin edge of the wedge? Legal professional privilege developments in the Australian tax sector

Last Updated: 9 October 2019
Article by Rhys Jewell, Colin Tan and Mark Wilks

Legal professional privilege (or client legal privilege, as it is also known) is considered a sacrosanct feature of the relationship between a lawyer and their client. It is also a fundamental tenet of the Australian legal system and its effective administration, which can only be abrogated by legislation drafted in the clearest of terms.1

Recent developments in the Australian tax sector relating to legal professional privilege should be monitored for their potential to impact the broader narrative regarding the privilege in Australia. The pertinent question is – are these developments the thin edge of the wedge?

In March 2019, Australia's Commissioner of Taxation announced that the Australian Taxation Office (ATO) would take a tougher stance on challenging claims of legal professional privilege. This was in the context of the Commissioner suggesting that some legal practitioners may be misusing the privilege by making blanket claims over large volumes of documents requested by the ATO in order to conceal contrived tax arrangements.

Naturally, Australian tax lawyers were concerned by the position articulated by the Commissioner, and questioned whether it should be interpreted as a signal that the ATO would seek to curtail the privilege. In today's business environment, where communication between lawyers and their clients is often quick and informal (e.g. via email, instant messaging and other social media platforms) and therefore voluminous, this concern is heightened.

The Commissioner's comments coincided with the hearing of proceedings in Glencore International AG & Ors v Commissioner of Taxation [2019] HCA 26 (14 August 2019) (Glencore) by the High Court of Australia. In that case, the Glencore plc group sought an injunction restraining the ATO from making any use of certain documents amongst the so-called 'Paradise Papers', which were said to have been stolen from Bermudan law firm Appleby in a cyber-attack and leaked to the global press.

The Court noted that whilst there was no doubt the documents in question were subject to legal professional privilege, they were already in the public domain and in the possession of the ATO. The Court unanimously held that the privilege is only an immunity from the exercise of statutory powers which would otherwise compel the disclosure of privileged communications. In other words, the privilege can only be used as a defensive 'shield' rather than as a 'sword' that could be pleaded as a cause of action.

After the Commissioner's statements and the High Court decision in Glencore, the ATO has stated that it fully supports the appropriate use of the privilege, but has also suggested that this needs to be balanced by the ATO being able to review transactions without having critical evidence withheld.

Interestingly, and in contrast to any suggestion that legal professional privilege should be curtailed, it was not so long ago that the Australian Government considered a proposed statutory privilege to shield certain tax advice from the information-gathering powers of the Commissioner. This proposal, which may have been extended to include communications between taxpayers and non-lawyer tax advisers such as accountants, has now been shelved.2

It is against this backdrop that the Law Council of Australia is currently working with the ATO to develop a new protocol to help avoid unnecessary and protracted disputes over claims of legal professional privilege. The proposed protocol will provide a set of 'best practice' guidelines and procedures for managing claims of privilege in response to information requests from the ATO, particularly where those requests potentially capture large volumes of documents and other communications. The challenge will be finding the right balance between providing the ATO with information to which it is legally entitled and preserving the confidentiality of communications between taxpayers and their lawyers.

The ATO is only one of the regulators in Australia with wide-ranging statutory information-gathering powers. The Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) are also currently conducting a large number of very significant investigations. ASIC has made it clear in some of those investigations that it requires claims of privilege to be established to a very high degree of particularity. In the post-Glencore environment, it seems that at least the ATO (and likely other regulators) are ready to vigorously test claims of privilege, particularly if the provenance or confidentiality of the underlying communication is in doubt.

Moving forward, it is likely that the ATO and other regulators will not be satisfied with simple blanket claims of privilege that rely on general descriptions of how the documents meet the relevant test for establishing privilege. As lawyers charged with asserting, and then establishing, claims for privilege on behalf of our clients, we have a responsibility to ensure that our clients are able to meet the relevant evidentiary burden when the privilege is claimed – rather than if and when those claims are challenged.


1 Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543.

2 See Department of Treasury, Privilege in relation to tax advice (Discussion Paper, April 2011).

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.

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