In local and cross border corporate regulatory investigations, regulator push back is increasing in the face of claims of legal professional privilege. As a result, this must be a factor that companies consider when commencing internal investigations, or where companies or individuals are the subject of external regulatory investigations.
Regulators, including the Australian Securities and Investments Commission and the Australian Taxation Office, are challenging more privilege claims over documents that they require parties to compulsorily produce, and they are succeeding in those claims.
The ATO’s commitment to challenging such privilege claims was highlighted in a case handed down by the Federal Court of Australia this year, Commissioner of Taxation (ATO) v PricewaterhouseCooper1 (ATO v PwC).
In ATO v PwC, global accounting firm PwC was retained by Brazilian meat multinational JBS to provide restructuring advice. PwC told JBS that their advice would potentially deliver savings of $70 million per annum of Australian tax on future Australian profits, and further global tax savings.
PwC recommended to JBS that their engagement for the provision of this advice be set up as a legal engagement, and said to JBS that one of the benefits of setting the engagement up in this way was that “…legal advice was privileged and therefore the Australian Tax Office should not be able to obtain copies of it in the event of any ATO review activity”.
In February 2019, the ATO commenced an audit of JBS. During the audit, the ATO issued notices to produce documents to a partner of PwC. In response to the notices, PwC claimed legal professional privilege over approximately 44,000 documents.
The ATO then launched a Federal Court action disputing PwC’s claim of legal professional privilege over approximately 15,500 documents and sought declaratory relief that those documents were not subject to legal professional privilege.
ATO challenges to PwC’s privilege claims
The ATO relied on three grounds to challenge PwC’s privilege claims.
ATO’s first ground of challenge was that the form of engagements reflected in the ‘Statements of Work’ by which PwC purported to provide legal services to JBS, did not establish a relationship of lawyer and client sufficient to ground a claim for legal professional privilege. This was a general ground which, if made out, would apply to all documents.
ATO’s second ground of challenge was that, as a matter of substance, the services PwC provided to JBS pursuant to the engagements, were not provided pursuant to a relationship of lawyer and client sufficient to ground a claim for legal professional privilege. Again, this was a general ground which, if made out, would apply to all documents.
ATO’s third ground of challenge was that the documents were not, or did not record, communications made for the dominant purpose of giving or obtaining legal advice from one or more lawyers. This ground required a document-by-document analysis to determine whether each document was subject to a valid claim of legal professional privilege.
The Court’s findings
The ATO‘s first ground of challenge was unsuccessful, as the Court found that the form of the Statements of Work established a relationship of lawyer and client sufficient to ground a claim for legal professional privilege.
The ATO’s second ground of challenge was unsuccessful, as the Court found that it was not possible, by reference to the expertise, experience, seniority, and quantitative contribution of people involved in the provision of services under the Statements of Work, to conclude as a global matter that the services performed pursuant to them were not fairly referable to a lawyer and client relationship, so as not to be protected by legal professional privilege.
Ultimately, the Court found that an assessment of each particular document was required to determine whether it constituted, or recorded, a communication made for the dominant purpose of giving or obtaining legal advice and was subject to a valid privilege claim.
Relevant doctrines and legal principles
The common law doctrine and principles of legal professional privilege applied in this case. The matter was concerned with the advice limb of the common law doctrine of legal professional privilege. In essence, that limb protects from disclosure confidential communications between a lawyer and client made for the dominant purpose of giving or obtaining legal advice or the provision of legal services.
Legal professional privilege, being a rule of substantive law, is not confined to the processes of discovery and inspection, and the giving of evidence in proceedings. In the absence of a provision to the contrary, it may be availed of to resist the giving of information or the production of documents in accordance with certain investigatory procedures.
For privilege to arise, it is not sufficient that giving or obtaining legal advice or providing legal services was, in part, the purpose for which the document came into existence; it must be the dominant purpose of the relevant communication.
The dominant purpose is not the same as the “primary” or the “substantial” purpose. The “dominant” purpose may be described as the ruling, prevailing, paramount or most influential purpose. The “dominant purpose” brings within the scope of the privilege a document brought into existence for the purpose of a client being provided with professional legal services notwithstanding that some ancillary or subsidiary use of the document was contemplated at the time.
Where two purposes are of equal weight, neither is dominant in the relevant sense. In such a case, a document is not privileged from production where one purpose for its creation is to obtain legal advice, but there is another equally important purpose. Further, if the decision to bring the document into existence would have been made irrespective of any intention to obtain legal advice, the purpose of obtaining legal advice cannot be the dominant purpose for the making of the document.
The Court’s review of PwC’s privilege claims
The Court’s consideration of the ATO’s third ground of challenge required an assessment of each document to determine whether the communications were made for the dominant purpose of giving or receiving legal advice.
Of the 15,000 documents subject to ATO challenge, a sample of 116 were reviewed in order to decide whether the ATO’s application should proceed for further procurement and analysis of the balance of the documents.
Of the 116 documents reviewed, the Court concluded that 49 were privileged, 6 were partially privileged and 61 were not privileged. For many of the documents, the Court concluded that the communication did not satisfy the dominant purpose test, that is, the document was not, and did not record, a communication made for the dominant purpose of giving or receiving legal advice.
In Australia, and globally, there has been an increase in the number of cases where regulators are challenging claims of legal professional privilege. Companies and individuals must keep this in mind when retaining their advisers, conducting internal investigations, or when they are the subject of an external regulatory investigation.
Simply structuring or describing the provision of services as ‘legal services’ or ‘legal engagements’ is not sufficient to withstand a challenge to a claim of legal professional privilege.
Where a regulator mounts a court challenge to any claims of privilege, the courts will consider each document on a case-by case basis to determine whether it constitutes, or records, a communication made for the dominant purpose of giving or obtaining legal advice.
Further, when a company or individual is the subject of a regulatory investigation, they should consider whether any benefit can be gained from cooperating with the regulator, as opposed to resisting the production of documents for inspection by making privilege claims.
When considering whether to waive legal professional privilege, companies and individuals must consider the impact of the waiver, how to minimise the negative ramifications of the waiver, and the benefits that may be achieved from their cooperation with the regulator.
If you have any questions arising from this update, please contact Cinzia Donald, Partner at Lavan. Cinzia heads Lavan’s Corporate Disputes Team and Corporate Crime and Investigations Team.
[1] [2022] FCA 278
