We recently commented upon a heavily redacted version of Moshinsky J’s judgment in Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278 (PwC case).
Since then, the Federal Court has removed the redactions on a significant amount of text in the judgment. We discuss below some of His Honour’s key findings, and the practical implications arising from the decision.
To recap, the Commissioner asked the Court to determine whether:
1. Ground A - the form of the engagements between PwC Australia and JBS established a relationship of lawyer and client sufficient to ground a claim for Legal Professional Privilege (LPP);
2. Ground B - the services provided by PwC Australia to JBS pursuant to the engagements were provided under a relationship of lawyer and client sufficient to ground a claim for LPP; and
3. Ground C – the documents in dispute are, or recorded communications made for the dominant purpose of, giving or obtaining legal advice from one or more lawyers of PwC Australia.
Justice Moshinsky held in favour of PwC Australia and JBS in relation to Grounds A and B. Had the Commissioner been successful in either of these grounds, all 15,500 documents in dispute between the parties would have been fully disclosed to the Commissioner. In relation to Ground C, the Court undertook a document-by-document analysis to determine whether a sample of 116 documents were made for the dominant purpose of giving or obtaining legal advice.
The Court also appointed three barristers, known as Amici Curiae, to provide assistance to the Court by making submissions in relation to each of the sample documents.
The PwC case will be of particular interest to those who are considering, or may need to consider in the future, making LPP claims in response to requests from the Australian Taxation Office (ATO) to provide information and documents. The decision explores the existing principles relating to LPP in the context of the factual matrix presented by the PwC case. This included that PwC was providing taxation and other services to JBS as a multidisciplinary practice (MDP), meaning that both PwC lawyers and non-lawyers provided advice to the client. The ATO has expressed concerns about excessive, blanket claims being made for LPP without proper consideration being given to the relevant principles on a document-by-document basis. There will be a need to carefully reflect upon how best to manage ATO interactions regarding claims for LPP, so as to provide assurance to the ATO about the basis and validity of such claims. If the ATO has concerns regarding claims for LPP, then taxpayers can expect the claims to be challenged, which may also have cost and offence implications.
1. In order for communications recorded in a document to be privileged under the advice limb of the LPP doctrine, the dominant purpose of the communications must be the giving or obtaining of legal advice.
The Court in the PwC case noted that the dominant purpose of each communication is dependent on the particular facts. Moshinsky J stated: “[w]hether or not the Documents in Dispute are privileged is to be determined by reference to whether, as to each particular document, it constitutes or records a communication made for the dominant purpose of giving or obtaining legal advice”.
2. The onus of proof rests with the party claiming the privilege (i.e. in this case, PwC (which made privilege claims on behalf of JBS) or JBS, as the case may be).
3. Parts of the Statement of Work (which identified the work to be carried out and the services to be provided, akin to an engagement letter) were held to be privileged when disclosure of those parts would reveal the contents or substance of a privileged communication, namely a request for legal advice.
4. The Court rejected the Amici Curiae’s suggestion that advice should be characterised as commercial advice as distinct from legal advice and therefore not be subject to LPP. Rather, the preferred approach is to ask whether the relevant communication is characterised as legal or non-legal.
5. Non Legal Practitioners (NLPs) can assist an Australian Legal Practitioner (ALP) in providing legal advice. However, there is a critical distinction between an ALP merely adopting or understanding what is conveyed to them about a subject matter by a NLP and the ALP actually providing the legal advice. In cases where the ALP has simply adopted the inputs from the NLP with little or no substantive consideration of the matter, it does not then follow that the dominant purpose of the communication by the NLP to the ALP was to enable the ALP to provide advice to their client. In many instances, the Court found that there were multiple purposes for communications and that a purpose other than the giving or receiving of legal advice (for instance, the giving or receiving of income tax or stamp duty advice by a NLP) was of at least equal weight to a purpose of giving or receiving legal advice, such that the dominant purpose test was not satisfied.
The Court examined each sample communication to determine whether the dominant purpose of the communication was the giving or obtaining of legal advice. The Court found that the following types of communications were not legal advice:
In these circumstances, the Court found the above purposes were of at least equal weight to a purpose of giving or receiving legal advice. Accordingly, His Honour concluded that the dominant purpose was not to provide legal advice.
In a number of cases, a NLP would seek information from JBS. PwC Australia/JBS argued that these cases formed part of a “continuum of communications” between PwC Australia employees and PwC employees in other jurisdictions, and that the NLP was acting as an agent for the ALP. In many of these cases, the Court held that an exchange of emails between NLPs was not privileged.
In other cases, even though an ALP was copied on the emails or authored a brief email the Court did not find the communications were privileged. His Honour concluded in those cases that the substance of the advice was non-legal advice concerning tax issues.
The types of communications that His Honour found to be privileged were:
Central to Moshinsky J’s findings was that the ALP was a lawyer who practised in Australian taxation law. This consideration was borne in mind when examining the context and substance of the matters portrayed in the document. There is an evaluation exercise to take into account the role the lawyer has in providing the advice in order to determine whether it is truly legal advice.
The case highlights some of the practical, day-to-day considerations that need to be borne in mind in an engagement for legal services where both ALP and NLP are involved. Irrespective of protocols or procedures, the question of whether a document is subject to LPP will depend on its substance; that is, whether or not the dominant purpose of the communications contained in the document are, as a matter of fact, the provision or obtaining of legal advice by or from a lawyer.
Overall, the Court ruled that 61 documents were not subject to LPP, 49 were fully subject to LPP and 6 were partly subject to LPP.
The parties in the PwC case need to attempt to agree on a suitable approach to reviewing the remaining 15,384 documents that the Commissioner disputes are privileged in order to give effect to the Court’s reasons for judgment. If the parties cannot agree on a suitable approach, then the Court will make an appropriate order in that regard taking into account the parties’ competing views.
It also remains to be seen whether either party will appeal the decision.
The PwC case highlights the enormity of the practical challenges facing taxpayer organisations which are subject to taxation audits or other ATO enquiries in relation to their large scale mergers and acquisitions activities for which it has been necessary to obtain substantial consulting support.
Organisations faced with these types of ATO enquiries may need to make claims for LPP within a relatively short period of time (e.g. the ATO’s starting point when issuing information and document requests is generally to ask for a response within 28 days) in relation to a significantly large number of documents. Given the time intensive process required to undertake an LPP review of a large volume of documents, ideally it would be worthwhile considering, at some earlier point in time prior to the ATO enquiry commencing, the critical context to those categories of documents whose LPP status is uncertain and making sure that the necessary evidence has been gathered to support an understanding of that context.
Further, there will likely be more categories of documents whose LPP status is unclear in circumstances where both ALPs and NLPs are providing advice to a client. In that event, it may again be beneficial to devote some time at an early stage to thinking through whether or not the ALPs have sufficient skills and expertise to provide advice in relation to the particular subject matter that would result in the dominant purpose test being satisfied.