By Paul McNab, Partner, DLA Piper Sydney
On March 22, the Federal Court of Australia delivered judgment in one of two long-running privilege disputes the Australian Tax Office (ATO) is conducting against Pricewaterhouse Coopers (PwC) and its clients (Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278). The other is CUB Australia Holding Pty Ltd v Commissioner of Taxation [2021] FCA 43, a decision on a preliminary issue where the substance of the dispute is still to be heard.
The case was conducted in late 2021 entirely via Microsoft teams.
The Federal Court appointed three barristers (specialist trial attorneys) as amici curiea to assist it. The Court found that less than 58% of the sample of documents that PwC had claimed were protected by legal professional privilege, were, in fact, protected. The dispute concerned a group of approximately 44,000 documents relating to work done for the global meat processor, the JBS, SA group. The parties each selected 50 representative documents for the Court to consider. The Commissioner of Taxation had very limited information on which to make his selection. Settlement of the sample required a number of attempts as PwC conceded, on several occasions, that the selected documents were not, in fact—or were only partly—privileged.
PwC in Australia is a multi-disciplinary practice (MDP), with a majority of partners who are not lawyers, rather than a traditional law firm.
The Commissioner essentially made three arguments: that an MDP could not give rise to a lawyer/client relationship; that the nature of PwC’s services in this matter were commercial and not legal in nature; and that on a document-by-document review, the documents were not created for the purpose of giving legal advice.
The Court accepted that a lawyer/client relationship could be created by an MDP, and that legal services were, at least on occasion in this matter, being delivered.
The Court found, however, that in the sample the majority of documents were not created for the purpose of giving or receiving legal advice. It said that determining purpose required a consideration of both the contents and the context of the communication. And that the fact that the documents were created in an MDP by a team that included non-lawyers was a relevant part of the context. As was the fact that a number of the overseas offices of PwC were not law firms.
Only a small part of the judgment has been made public at this time, with the court requesting submissions from PwC on how to redact the full judgment so as to protect privilege in those documents where privilege was found to exist. It will be interesting to see how the parties apply the judgment to the remainder of the disputed documents.
The ATO has released draft guidance on how it will approach claims for legal professional privilege by taxpayers and their lawyers (the Legal Professional Privilege Protocol, September 2021). The legal profession in Australia remains uncomfortable with some aspects of its approach and it is clear this will continue to be an area of potential dispute in the country. If privilege is important, clients should work with their lawyers—especially in Australia and overseas—to ensure clear processes are put in place for the conduct of a matter.
The ATO’s powers are extensive and are frequently used for widespread evidence gathering. ATO reviews require active management to minimise the risk of court.
It is clear that in an MDP, the question of whether legal professional privilege applies to documents is factually complex and will be affected by the behaviour and discipline of the client team, and how the firm’s culture and leadership support the lawyers operating within it.
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