Contributed by Stephen Chen, Kenis Chu, and James Case, Minter Ellison
The High Court has affirmed in Glencore that legal professional privilege is not an actionable legal right capable of attracting relief, but rather provides immunity from the exercise of power that would otherwise compel the disclosure of privileged documents.
The High Court has handed down the eagerly awaited Glencore decision, confirming that legal professional privilege is not an actionable legal right capable of attracting relief, but rather it provides immunity from the exercise of power that would otherwise compel the disclosure of privileged documents.
This case has consequences for those who have been victims of data leaks where information has found its way into the public domain, and into the hands of the Commissioner. In those circumstances, the Commissioner is permitted (and perhaps under a statutory duty) to use this information that has come into his possession in the process of making a tax assessment, potentially with significant adverse consequences to the taxpayer.
While the equitable remedy of breach of confidential information may be available, it may be difficult to obtain a remedy in circumstances where the Commissioner was not complicit in the breach and public disclosure of the documents has occurred.
Legal professional privilege and the Glencore case
On 14 August 2019, the High Court (at 2019 ATC ¶20-708,  HCA 26) unanimously dismissed proceedings brought by companies within the multinational Glencore plc group. They had sought an injunction restraining the Commissioner and his delegates from making any use of documents on the basis that these documents were subject to legal professional privilege.
Legal professional privilege is a fundamental common law right, allowing individuals to obtain competent legal advice without the same being used against them. It protects the disclosure of confidential information between a lawyer and his or her client, provided that this information is used for the dominant purpose of preparing for actual or anticipated litigation or seeking or providing legal advice.
Details of the Glencore case and the “Paradise Papers”
The “Paradise Papers” consist of 13.4 million files emanating from Appleby, a giant offshore law firm headquartered in Bermuda. The files were leaked by an unknown source to the International Consortium of Investigative Journalists, now considered to be the world’s single largest document leak. Similar to the well-known “Panama Papers”, the Paradise Papers are another in a series of tax expose. The leaked files expose the complex inner workings of offshore tax havens and further still, the details of hundreds of individuals and companies utilising these tax havens. The papers reveal participants of secretive and complex tax schemes, including some of the world’s largest multinationals and highest net-wealth individuals.
The Commissioner obtained these leaked documents for the purposes of investigating possible tax avoidance schemes being utilised by Australian entities, which led to him investigating the tax affairs of the world’s largest mining company, Glencore. The Swiss-based mining giant had previously approached Appleby, for the purposes of obtaining legal advice with respect to the restructure of Australian entities within the Glencore group.
Once Glencore became aware the Commissioner was in possession of these leaked files, they immediately demanded their return and asked the Commissioner to provide undertakings that they would not refer to, or rely upon, any of the documents obtained. Glencore’s sole basis of this demand stemmed from their assertion that these leaked documents were protected by legal professional privilege. The Commissioner refused to comply with Glencore’s demands and the matter subsequently came before the court.
The High Court proceedings in the Glencore case
Glencore sought to extend the known parameters of legal professional privilege by asserting that this important common law right could convey upon them an actionable legal right, for which they may be able to rely upon to seek injunctive relief preventing the Commissioner from using privileged material in his possession.
Central to its case, Glencore alleged that there were, at the time, no established High Court authority to suggest that legal professional privilege could only operate as an immunity and not an actionable right, even though the same proposition was confirmed in the appellate court by Justices Kenny and Perram in the matter of FC of T v Donoghue 2015 ATC ¶20-551;  FCAFC 183 (Donoghue). The Commissioner demurred on the principal ground that Glencore did not disclose a cause of action in which it would be entitled it to relief against the Commissioner.
The alternative question before the court was whether the Commissioner was entitled and/or obliged to retain and use the privileged material by reason of, and for the purposes of, s 166 of ITAA 1936. The section provides that the Commissioner must make an assessment of a taxpayer’s taxable income from the taxpayer’s returns and any other information in the Commissioner’s possession. The Commissioner relied on s 166 as an alternative contention.
Legal professional privilege is an immunity against production, not a right
The court unanimously disagreed with Glencore’s arguments and ruled that legal professional privilege is not, in and of itself, a cause of action capable of attracting relief. Rather, such privilege provides immunity from the exercise of power that would otherwise compel the disclosure of privileged documents.
“Legal professional privilege is a shield, not a sword”
Put simply, legal professional privilege is considered to be a “shield,” allowing taxpayers to resist the compulsory disclosure of privileged information, but it cannot be used as a “sword”, to enforce the return privileged documents already in the public domain. The court examined the historical application and context of legal professional privilege and ultimately refused to widen the parameters of privilege beyond already established principles.
Once privileged communications have been disclosed to the Commissioner, the court confirmed that the taxpayer would be required to seek relief under the equitable doctrine of breach of confidence for protection against the use of that information. The court held that “equity will restrain third parties if their conscience is relevantly affected” and noted that there may be difficulties for Glencore in satisfying the requirements for equitable relief, given that the Glencore documents are in the public domain and there was no allegation concerning the Commissioner’s conduct or knowledge.
The court also distinguished the facts in Glencore from scenarios where one party has inadvertently provided a privileged document to another party in the course of discovery and the other party refuses to return the document, eg in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd  HCA 46 (Expense Reduction). The court held that it was not necessary for the party that holds the privileged communications to seek an injunction because the court’s case management powers were sufficient to make the necessary orders, rejecting Glencore’s argument that Expense Reduction endorsed the case that privilege can be asserted in order to obtain injunctive relief.
Finally, and on the basis of the above, the court held that it was not necessary to give the arguments relating to s 166 any further consideration.
Where to from here?
Glencore provides a clear authority that taxpayers, with affairs exposed in data leaks, are unable to seek injunctive relief on privilege alone to prevent the Commissioner from using documents in the public domain.
Nevertheless, in scenarios that do not concern a data leak into the public domain, there can be scope for a privilege holder to have their documents returned. The court acknowledged the role of equitable remedies where a breach of confidence has occurred. Further, the court also confirmed the holding in Expense Reduction that the court’s case management powers are sufficient to make the necessary orders for the return of the documents mistakenly provided in the course of discovery.
However, the court stopped short of considering when and how the Commissioner may use leaked privileged documents in his possession, declining to deal with the s 166 argument although the court did make a comment highlighting a difficulty in granting an injunction in that “the defendants would be required to assess Australian entities within the Glencore group to income tax on a basis which may be known to bear no real relationship to the true facts”. Accordingly, the position held in Donoghue on s 166 remains undisturbed.
CCH Note: Join the Wolters Kluwer CCH Learning complimentary online webinar Q&A session: High Court of Australia judgment: Glencore International v FC of T on Monday 2 September 2019, 1–2 pm AEST. The Q&A session will be facilitated by Chris Kinsella, Partner at Minter Ellison and joined by guest speakers, Tamara Phillips, counsel for Glencore and Michael O’Meara, counsel for the Commissioner.
[This article was originally published in CCH Tax Week on 30 August 2019. Tax Week is included in various tax subscription services such as The Australian Federal Tax Reporter and CCH iKnow. CCH Tax Week is available for subscription in its own right. This article is an example of many practitioner articles published in Tax Week.]