The High Court, Privilege and Paradise: the ATO and accessing corporate confidential information

Introduction

Last week, in Glencore v Commissioner of Taxation [2019] HCA 26 the High Court of Australia unanimously affirmed the status of Legal Professional Privilege (LPP) as merely an immunity from the exercise of compulsory statutory powers. LPP is not an actionable right founding an independent cause of action capable of restraining third parties from using privileged communications in their possession. LPP remains very much a shield against prying eyes, not a sword to independently wield.

Background

In October 2014, the plaintiff, Glencore International AG (Glencore), through its Sydney based solicitors, engaged a law practice in Bermuda (Appleby) to provide legal advice on a group wide restructure called ‘Project Everest’.

In November 2017, papers from Appleby, colloquially called the ‘Paradise Papers,’ were hacked by a third party, given to the International Consortium of Investigative Journalists and published worldwide. The ATO came into possession of the Project Everest papers without Glencore’s consent and intended to use these in their tax assessment of Glencore and the group more generally. Glencore continued to assert LPP over the communications, requesting that the communications not be relied upon by the ATO and that they be returned. The ATO declined to agree to Glencore’s demands.

The issue before the Court was whether LPP extended to a positive right (an independent cause of action) to restrain the ATO from using the documents, as opposed to the conventional use of LPP in blocking the compulsory production of such documents.  In other words, could the privilege be used as a “sword” rather than a “shield”? Interestingly, Glencore did not run any argument that the documents were confidential, notwithstanding their public dissemination, given that Glencore was an innocent victim and did not consent to or participate in their disclosure.

Glencore’s submissions

Glencore made four primary submissions, as follows:

1. That LPP is a fundamental common law right
2. That the High Court in Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543 did not intend to confine the scope of LPP when it referred to it as ‘an important common law immunity’
3. That the English decision  of Lord Ashburton v Pape  [1913] 2 Ch 469, which has been followed in Australia, would leave a significant gap in the law if it was understood to have held  that an injunction will be granted on the basis that documents are confidential rather than privileged
4. As a result of the above, the Court should find that LPP is an independent actionable right that may restrain the use of and aid in the recovery of privileged documents. This would bring the scope of LPP more into line with the policy on which it is based

Court’s reasoning

The Court  strongly and unanimously determined that the argument that LPP constitutes an independent legal right which is capable of being enforced was fundamentally wrong. It found that Daniels Corporation should correctly be interpreted as confining the scope of LPP to that of an immunity.

With respect to Lord Ashburton v Pape, the High Court was clear that on the present state of the law, once privileged communications have been disclosed, resort must be had to equity for protection respecting the use of that material. The juridical basis for relief in equity is confidentiality.

The High Court rejected Glencore’s arguments that the public interest would be advanced by making LPP an actionable right and the common law should therefore reflect that underlying public interest. Rather, the High Court was trenchant in stating that the common law develops by applying settled principles to new circumstances or reasoning from settled principles to new conclusions. The Court noted that “policy considerations cannot justify an abrupt change which abrogates principles in favour of a result seen to be desirable in a particular case”.

The High Court has made it clear from this case that where there is a leak of privileged documents to the general public, LPP may not be invoked to restrain the use of those documents, as it is an immunity and not an actionable right.

 

Conclusion

The significance of this case lies in the continued restriction of LPP to be used as an immunity from compulsory procedures. Equity may assist a plaintiff in restraining breaches of confidentiality by third parties, but often affords no protection in circumstances where documents have lost their confidential nature. LPP cannot be relied upon as a basis to restrain the use of leaked communications.  The case provides a timely reminder of the importance of cyber security and data protection in a digital age, as well as the risks that can arise when confidential communications are hacked and publicised. As the ATO has a statutory right to make assessments based upon documents or information in its possession, accessing such material from the Paradise Papers is a potential rich windfall to the ATO and a probable source of a headache for affected taxpayers.

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