16 August 2019
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.
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.
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.
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.
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.
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.
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.
Given the current regulatory and political climate post the Financial Services Royal Commission, and the encouragement of regulators to take action, you would be unwise holding your breath for such reform.
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