The High Court of Australia has confirmed in Glencore International AG v Commissioner of Taxation that legal professional privilege may only be used as a shield rather than a sword. In other words, legal professional privilege is an immunity, not an actionable legal right.

On 14 August 2019, the High Court handed down the decision of Glencore International AG v Commissioner of Taxation [2019] HCA 26. The main issue before the Court was whether the Commissioner of Taxation could use privileged documents that were previously released to the public by a third party, in order to make tax assessments against the plaintiffs.

What happened in this case?

The plaintiffs were a group of four companies within the Glencore Mining Group (Glencore) who engaged the Bermudan law practice, Appleby (Bermuda) Limited (Appleby) to provide legal advice on the corporate restructure of Australian entities within Glencore.

The legal documents Appleby produced from this engagement were stolen from Appleby’s electronic file management system and subsequently provided to the International Consortium of Investigative Journalists.

Glencore subsequently sought an injunction restraining the defendants (the Commissioner, the Second Commissioner and the Deputy Commissioner of Taxation) and any other officer of the Australian Taxation Office from making use of the documents produced as a result of Appleby’s legal advice. Glencore sought the injunction on the basis that the documents were subject to legal professional privilege which was stated to be sufficient to justify an injunction being granted.

In response, the defendants argued that the Glencore documents were among documents described as the ‘Paradise Papers’ which were stolen from Appleby’s file management system and on such grounds no cause of action was disclosed which entitled the plaintiffs to be granted an injunction.

As a secondary argument, the defendants asserted that they were entitled to retain and use the documents in question due to section 166 of the Income Tax Assessment Act 1936 (Cth). That section provides that the Commissioner must make an assessment of a taxpayer’s taxable income from the taxpayer’s returns ‘and from any other information in the Commissioner’s possession’.

What was the outcome?

The High Court unanimously rejected Glencore’s application and costs were ordered to be borne by Glencore. The Court refused to grant the injunction sought by Glencore. In reaching this decision, the High Court considered the history of the doctrine of legal professional privilege. While the High Court accepted that the Glencore documents were clearly subject to legal professional privilege, it noted that this alone was not a sufficient basis for the Court to grant the injunction sought.

Importantly, the High Court held that legal professional privilege is an immunity, not an actionable legal right. Consequently, the High Court’s decision confirms that legal professional privilege may only be used as a shield rather than a sword. The documents in question had already been released and were already accessible to the defendants. On this basis the Court noted that to accept the plaintiff’s case would:

“transform the nature of the privilege from an immunity into an ill-defined cause of action which may be brought against anyone with respect to documents which may be in the public domain”,[1]

The Court held that legal professional privilege is not a proper basis on which to grant injunctive relief once privileged communications have been disclosed, and that “resort must be had to equity for protection respecting the use of that material.”[2]

What does this mean for you?

Firstly, organisations should ensure they are aware of which important documents are subject to legal professional privilege and which documents are subject to potential exposure to third parties. Caution should be taken and reliable security mechanisms implemented to protect the confidentiality of privileged legal documents.

The key point is that legal professional privilege can only be used as a shield. This means that the doctrine cannot be used as a basis for seeking injunctive relief, but could be used to claim immunity from prosecution on equitable grounds under the action for payment of the additional tax itself.

Secondly, the decision highlights modern issues regarding network security and the very real risks that may arise if data is leaked. It’s a reminder that regulators may use privileged material against parties where the documents have been made public by a third party through theft or wrongdoing.

Despite criticisms surrounding whether information subject to wrongdoing should surpass the boundaries of legal professional privilege, the decision indicates a major win for regulators, with Second Commissioner Jeremy Hirschhorn recently commenting:

“Today’s decision is not just a win for the ATO; it’s a win for the Australian community who rightly expect the ATO to use all information available to ensure large corporations and those who seek to hide money overseas are paying the right amount of tax.” [3]

[1] Glencore International AG v Commissioner of Taxation [2019] HCA 26 [13].

[2] Ibid [34].

[3] https://www.ato.gov.au/Media-centre/Media-releases/High-Court-confirms-ATO-can-use-information-from-data-leaks/.