Commissioner of Taxation v Devereaux Holdings Pty Limited

ON APPEAL FROM THE TAXATION APPEALS DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY DEPUTY PRESIDENT J M BLOCK

REASONS FOR JUDGMENT 1 This case concerns the manner in which the Administrative Appeals Tribunal (the AAT) dealt with claims for legal professional privilege made pursuant to s 42 of the Freedom of Information Act 1982 (Cth) (the FOI Act). The issues relate to waiver of legal professional privilege and the defeat of legal professional privilege by the so called crime or fraud exception. 2 The first respondent/cross-appellant, Devereaux Holdings Pty Limited (Devereaux), with associated companies, conducted a variety of businesses in Australia and is controlled by an individual who was formerly a resident of Australia but had ceased to be a resident of Australia. The affairs of Devereaux and associated companies were subject to what was described as an audit by the Australian Taxation Office between 1995 and 2004. On 29 June 2004 the applicant/cross-respondent, Commissioner of Taxation (Commissioner), issued assessments and amended assessments in respect of Devereaux and other associated companies pursuant to the Income Tax Assessment Act 1936 (Cth). There were some 47 assessments of tax and two of administrative penalty involving a total of $173 million in primary tax, penalties and interest. 3 The original application under the FOI Act was made by Devereaux on 8 July 2004 after receipt of the assessments. The request was in the following form: '(a) The documents contained in files of documents held by the Commissioner of Taxation in relation to the Tax Strategy Review and subsequent, Audit of the Griffin Group that are not exempt under the Act 1982' Without limiting the scope of that request, certain more detailed documents were then described. 4 The Commissioner's primary decision on access was made by letter of 23 September 2004 with a further decision after internal review on 30 November 2004. The Commissioner produced eight volumes of documents, comprising in aggregate approximately 3,500 pages, some of the documents having parts deleted. A number of documents or parts of documents were withheld on various bases, including claims for legal professional privilege pursuant to s 42. The decision of 30 November 2004 was the subject of the application for review to the AAT pursuant to s 29(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) by Devereaux. 5 The AAT ordered access to be given to nine further documents or parts thereof but declined to order access in relation to other documents in relation to which legal professional privilege was claimed pursuant to s 42 of the FOI Act. Seven of the documents to which access was granted were legal advices by counsel, the other two being precis of two of the advices. Rulings were given in relation to documents on other bases which are not relevant to this proceeding. (The Mining Holding Company and Commissioner of Taxation [2006] AATA 491.) 6 The Commissioner has challenged the decision to release the further documents or parts thereof, pursuant both to s 44 of the AAT Act and s 8 of the Administrative Decisions (Judicial Review) Act 1977 (Cth), on the basis that the decision involved errors on questions of law. There is no need to consider the appropriateness of concurrent proceedings in this case. Devereaux has filed a notice of contention supporting the release of the documents on grounds other than those found by the AAT and has cross-appealed in relation to the refusal to release the other documents sought.

DISCLOSURE WAIVER 7 Both parties accepted that all of the documents and parts of documents that were ordered to be released, and those sought by way of cross-appeal, were entitled to the benefit of legal professional privilege, being either legal advices themselves or documents extracting or summarising legal advice. The basis of the AAT's decision, seeking to apply the principle discussed by the High Court in Mann v Carnell (1999) 201 CLR 1, was that certain other documents, which were produced pursuant to the Freedom of Information request, disclosed the substance of the advices reflected in the nine documents not produced thereby waiving legal professional privilege in the underlying advices. The issue has been argued before the AAT and in this proceeding on the basis of the application of the common law rather than the Evidence Act 1995 (Cth). That approach is consistent with the decision in Mann 201 CLR 1 and with the approach of the Full Court in Bennett v Chief Executive Officer, Australian Customs Service (2004) 140 FCR 101. The AAT identified parts of five particular documents which it held disclosed the substance of the advices in question. One of those documents - notes taken as to what occurred at a without prejudice meeting between Australian Taxation Office representatives and taxpayers' representatives including the counsel in question - was taken into account on the basis that disclosure of the document waived the without prejudice privilege and so was held to be available to be utilised in relation to waiver by disclosure. 8 The Commissioner contends that the AAT was wrong in finding that the documents upon which it relied disclosed the gist of the advices in the necessary sense. The mere reference to legal advice does not disclose the gist or substance of it. However, the manner of reference to it may do so. The difference may be illustrated by the decision of Rolfe J in Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1996) 40 NSWLR 12,albeit in the context of the Evidence Act; (see also Kirby J in Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1996) 137 ALR 28 at 34; 70 ALJR 603 at 607). Devereaux submits that the question as to whether or not there has been a disclosure of the substance of advice is a matter of fact and degree rather than a question of law and that any error involved would not be an error of law. In my opinion, that is generally correct although, if the wrong test is applied, there can be an error on a question of law (cf Bennett 140 FCR 101 at [68]). It is unnecessary to pursue detailed examination of this issue as, in my opinion, there are more fundamental questions to be addressed. 9 One question is whether there was voluntary disclosure of the documents ordered to be produced. Devereaux has not seen and does not have a copy of them. Furthermore, the documents said to waive legal professional privilege in the underlying documents were not produced voluntarily but, rather, pursuant to a compulsory process under the FOI Act. Devereaux submits that the Commissioner could have masked the relevant portion of the documents pursuant to s 42 and the failure to do so amounts to waiver of any privilege attaching, referring to Lombe v Pollak [2004] FCA 264. However, the question here is not waiver of privilege in relation to the documents which were produced. The Commissioner is not seeking to assert privilege in relation to any part of those documents. They can be utilised by Devereaux in any way it sees fit. 10 The production of documents by the Commissioner pursuant to the FOI request was under the control of a Mr Robinson. His evidence, accepted by the AAT, was that the documents were put together and furnished under pressure and that he had intended to claim legal professional privilege where appropriate, but that the press of events was such that he was unable to satisfactorily do so. The failure to claim privilege in relation to the relevant parts of the documents that were produced was inadvertent. There are situations in which a privileged document is inadvertently disclosed, but privilege might be maintained (cf Hooker Corporation Ltd v Darling Harbour Authority (1987) 9 NSWLR 538; Boensch v Pascoe [2007] FCA 432 at [38]-[39]). 11 In Lombe [2004] FCA 264 the other party had a copy of the legal advice. At an examination, the party was shown the advice and taken through it paragraph by paragraph and questioned about its contents without objection. There was no claim that the failure to object was inadvertent. Jacobson J applied dicta of Cole J in Spedley Securities Ltd (In Liq) v Bank of New Zealand (1991) 26 NSWLR 711 at 730 and, not surprisingly, found privilege waived. Spedley 26 NSWLR 711was a similar case, in that a former officer of the bank was examined without objection on a draft witness statement which had been prepared by the bank's solicitor and provided to the liquidator in answer to a summons under s 541 of the Companies (New South Wales) Code. 12 Subject to consideration of the decision of Sundberg J in Rio Tinto Ltd v Commissioner of Taxation (2005) 224 ALR 299; (2005) 60 ATR 339, to be discussed later, in my opinion, there has been no voluntary production of the relevant parts of the documents said to waive privilege. 13 Even if there were, there was no use of the material that was disclosed that was inconsistent with maintaining confidentiality in the underlying advices within the principles enunciated in Mann 201 CLR 1. Gleeson CJ, Gaudron, Gummow and Callinan JJ said (201 CLR 1 at [28]-[29]): 'Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. … Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. … What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.' 14 Those well known general statements are illuminated by the decision in Benecke v National Australia Bank (1993) 35 NSWLR 110 that was used as an example in the joint judgment in Mann 201 CLR 1. In that case the client, on whose behalf a case was settled by counsel, brought proceedings to set aside the settlement claiming that instructions to settle had not been given. She gave evidence to that effect. It was held that, in those circumstances, the client had waived her legal professional privilege and there could be no objection on the ground of privilege to the evidence of counsel or the other legal representatives being given. 15 Another typical application of the principle is exemplified in Bennett 140 FCR 101 and the authorities considered in that decision - where a party quotes the substance of legal advice in support of a position that it is taking, either in relation to another party or the public generally. As was said in that case (140 FCR 101 at [68]): '… it is well established that for a client to deploy the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege.' 16 Similarly, the majority in Mann (201 CLR 1 at [34]) said: 'Disclosure by a client of confidential legal advice received by the client, which may be for the purpose of explaining or justifying the client's actions, or for some other purpose, will waive privilege if such disclosure is inconsistent with the confidentiality which the privilege serves to protect.' 17 In my opinion, the Commissioner is correct in submitting that the AAT fell into error on a question of law in not considering whether such disclosure as took place was conduct inconsistent with maintenance of the confidentiality of the underlying advices. Whilst many of the relevant authorities, including Mann 201 CLR 1 and Bennett 140 FCR 101, were referred to by the AAT, the correct question is not to be found in the dispositive parts of its decision. If the question had been asked, in my opinion, it could only properly have been answered in the negative. I cannot see any basis upon which it could be said that the production of the documents relied upon for waiver pursuant to a request under the FOI Act could be said to amount to conduct by the Commissioner inconsistent with maintenance of the confidentiality of the underlying advices. That is reinforced by the evidence, accepted by the AAT, that the failure to mask, even if relevant, was inadvertent. 18 Consideration needs to be given to the decision of Sundberg J in Rio Tinto Ltd 224 ALR 299; (2005) 60 ATR 339. It was held that legal professional privilege had been waived in relation to certain documents by reason of what was described as 'issue waiver' (224 ALR 299 at [21]-[47]). Sundberg J went on to discuss (obiter) whether disclosure waiver had occurred by reason of reference to advice in a document that was produced and said that he would have so held. His Honour sought to apply the principles laid down in Mann 201 CLR 1. One of the issues discussed was whether or not the respondent voluntarily produced the documents said to waive privilege in the underlying advices. The document had been produced to the other side twice - the first pursuant to an application under the FOI Act where no privilege was claimed; the second was in answer to a notice to produce within the course of the litigation before the Court without a claim of privilege. Sundberg J took the view that the document was produced voluntarily and held that it was not relevant that the respondent did not seek to deploy it for any commercial or forensic purpose. With all respect, that reasoning might be applicable if the underlying advice had been produced but, in my opinion, is not applicable to circumstances such as the present. I am, thus, not inclined to follow Sundberg J's dicta. It was, in any event, a particular factual application of the principle and does not purport to lay down any new law. Furthermore, the inadvertent nature of the present disclosure would distinguish this case from the facts before Sundberg J. 19 These reasons are also sufficient to dispose of the cross-appeal so far as it relates to disclosure waiver.

ISSUE WAIVER 20 Devereaux relies upon issue waiver both to support its notice of contention that the AAT was correct in relation to the release of nine documents and in relation to its notice of cross-appeal against the refusal to release other documents. That concept is dealt with in Commissioner of Taxation v Rio Tinto Limited (2006) 151 FCR 341 and goes back, at least, to Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347. In my opinion, it has no application to compliance with a request pursuant to the FOI Act. It only relates to a true forensic situation. No issue in the relevant sense exists in cases such as this.

CRIME OR FRAUD EXCEPTION 21 In support of both the notice of contention supporting the release of the nine documents and the cross-appeal against the refusal to release others, Devereaux submits that the AAT erred in law in failing to correctly identify and apply the extension of the crime or fraud exception to the maintenance of legal professional privilege covering improper conduct by a public authority and, in particular, failed to identify and apply the correct standard of proof in considering the issue. 22 It was put on behalf of Devereaux to the AAT that there was a reasonable suspicion that the relevant tax official had made a finding of tax avoidance by evasion for the improper purpose of seeking to extend the time limits imposed by s 170(2) of the Income Tax Assessment Act 1936 (Cth) and that the legal advices were procured for the purpose of, or utilised in the course of, effecting that improper purpose, although it was not suggested that counsel were complicit. Devereaux has a formidable task to establish this ground. The AAT referred to the relevant authority - Attorney-General (NT) v Kearney and Northern Land Council (1985) 158 CLR 500 - and then went on to reject the argument, giving detailed reasons for that conclusion. What is more, the AAT considered in detail the evidence given by the tax official said to have been motivated by the improper purpose and accepted his evidence, that being inconsistent with any finding of the alleged improper purpose. 23 The written submissions for Devereaux pointed to a number of features of the facts and circumstances which, it was contended, showed that the AAT was wrong. Counsel for Devereaux went through the facts in great detail during the hearing. Indeed, he unsuccessfully sought to tender further evidence. If accepted, the written and oral submissions for Devereaux might establish that the AAT was wrong in its conclusion that the exception did not apply. That is essentially a question of fact. In my opinion, the arguments advanced on this point would be appropriate if there were a full appeal from the AAT to the Court - but there is not. I could detect no question of law in relation to which the AAT erred on this aspect of the case. The correct principle was identified and sought to be applied. There is no merit in the suggestion that the correct standard of proof was not applied. The appropriate standard was laid down in Kearney158 CLR 500, the authority applied by the AAT. There is no reason why a party charged with improper conduct cannot confront that charge and defeat it, as occurred here.

CONCLUSION 24 The appeal will be upheld and the decision of the AAT that the Commissioner must give Devereaux access to the withheld documents, or (where relevant) parts thereof, in accordance with Part Q of the reasons for decision, is set aside. As I have held that there is only one reasonable conclusion, there is no point in remitting the matter to the AAT. In lieu of the AAT's decision, access to the withheld documents should be refused. The cross-appeal is to be dismissed. Devereaux is to pay the Commissioner's costs of the application and cross-appeal. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate: Dated: 29 May 2007 Counsel for the Applicant/Cross-Respondent: Mr A Robertson SC, Ms M Kennedy SC, Mr RM Niall

Solicitor for the Applicant/Cross-Respondent: Australian Government Solicitor

Counsel for the First Respondent/Cross-Appellant: Mr JW Durack SC, Ms RL Seiden, Mr JH Momsen

Solicitor for the First Respondent/Cross-Appellant: Becwell Legal Services Pty Limited

Dates of Hearing: 11, 12 and 13 December 2006

Date of Judgment: 29 May 2007