Quality Publications Australia Pty Ltd v Commissioner of Taxation

4 Towards the conclusion of the hearing of the motion, the applicants, through their counsel, abandoned their claims for privilege in respect of the communications constituted by documents numbered 1 to 9 of Table 1. This belated concession should have extended, at the very least, to the communications constituted by SD documents 10 to 19 inclusive of Table 1 as well as those in respect of which the concession was made. In cross-examination, Mr Evangelos Patakas, the first solicitor engaged by the applicants in relation to the transaction the subject of the substantive dispute between the parties ('the transaction'), conceded that prior to 14 November 2002 he was not involved in the transaction, even though he was aware of it, and there was no evidence of any other solicitors for the applicants being involved until C&G were appointed on behalf of the applicants on 5 March 2003. In response to the following question: [S]o prior to 14 November, you don't have any real recollection of involvement; is that your evidence? Mr Patakas said: Well, no, I - what had happened prior to 14 November was, I was involved in some other matters for Quality, which were really large matters, and they were very important, and because of that I didn't have the time to deal with anything in relation to this matter. I knew of it, but I didn't have the time to actually turn my mind to it and do any documentation and so on, so --- 5 Mr Patakas' evidence in chief did not indicate the extent of his involvement after 14 November 2002 until he was unknowingly replaced by C&G on 5 March 2003, after which he conceded in cross-examination that he had no involvement.

General Principles in relation to Privilege 6 The applicants bear the onus of proving that each relevant communication was undertaken, or each relevant document was brought into existence, for the dominant purpose of giving or obtaining legal advice (Grant v Downs (1976) 135 CLR 674 at 689). That obligation is not discharged merely by an assertion of privilege in an affidavit verifying a list of documents (National Crime Authority v S (1991) 29 FCR 203 at 211), nor is it established by the use of a verbal formula or by simple assertion that the communications were undertaken for the dominant purpose of obtaining or giving 'legal advice' (Grant v Downs at 689). 7 The determination of the dominant purpose is a question of fact that must be determined objectively. It is not the same as the 'primary' or the 'substantial' purpose (Grant v Downsat 678). The dominant purpose may be best described as the ruling, prevailing, paramount or most influential purpose (Mitsubishi Electric Australia Pty Ltd v Victoria WorkCover Authority (2002) 4 VR 332 at 336 - 337). Where the claim is in respect of communications in documents, the court may examine the documents to ascertain the purpose for their creation (Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 at 70). An appropriate starting point is to ask what was the intended use or uses of the document which accounted for it being brought into existence (Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 ('Pratt') at [35] per Finn J, confirmed in AWB v Cole (No. 5) (2006) 155 FCR 30 at [44]). If a court finds on the balance of probabilities that the entirety of the document was created for the requisite purpose, then the entire document attracts the privilege. If a court finds that parts, but not all of the document, were created for this purpose, then those parts will attract the privilege (see GEC Marconi Systems Pty Ltd v BHP Information Technology [2000] FCA 593 at [11]; Grofam Pty Ltd v Australia and New Zealand Banking Group Ltd (1993) 43 FCR 408 at 414 - 417). 8 The dominant purpose for which a document is brought into existence must be determined at the time of its production(Federal Commissioner of Taxation v Pratt Holdings Pty Ltd 60 ATR 466 at 478) having regard to the evidence, the nature of the documents and the parties' submissions(supra, at 477). The purpose will ordinarily be that of the maker, although this will not always be the case(Mitsubishi Electric Australia Pty Ltd at 338; Grant v Downs at 677), and evidence of intention of the document's maker, or the person who authorised or procured it, is not conclusive of purpose(ACCC v Australian Safeway Stores Pty Ltd (1998) 81 FCR 526 at 545). 9 The subsequent provision of that document to solicitors for advice is not determinative of the purpose for which it was created. This purpose is to be differentiated from the purpose for which the information is obtained (see National Employers' Mutual General Insurance Association v Waind (1979) 141 CLR 648 at 654). As Brennan CJ said in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 508: The test is anchored to the purpose for which the document was brought into existence; the use to which a document is put after it is brought into existence is immaterial. (Emphasis added) 10 While the nomenclature in case law often refers to documents it is to be remembered that 'privilege protects confidential communications, and not documents as such. As Dawson J said in Propend at 515 "… to say that a document is privileged is merely a shorthand way of saying that the communication constituted by the document is privileged"' (AWB Ltd v Cole (2006) 152 FCR 382 per Young J at [102]). Justice Young went on to observe at [103]: The decision in Propend turned fundamentally on the proposition that legal professional privilege protects communications rather than documents. This explains why, as the High Court held in Propend, legal professional privilege can attach to copies of non-privileged documents; the purpose of bringing the copy into existence may be different from the purpose of bringing the original into existence, and may attract legal professional privilege: see Brennan CJ at 507, Gaudron J at 544, McHugh J at 553-554, Gummow J at 571 and Kirby J at 587.

The Basis of the Applicants' Claims 11 In both their written and oral submissions, the applicants relied heavily, indeed exclusively, on the decision of a Full Court of this Court in Pratt: see too, [18] below. 12 Prior to the decision in Pratt,communications between a client and another person, or between a lawyer acting for the client and another person, even if made for the dominant purpose to enable the lawyer to provide legal advice to the client, were not privileged under the general law: Wheeler v Le Marchant (1881) 17 Ch D 675 at 681 per Jessell MR; at 683 per Brett LJ; at 684 - 685 per Cotton LJ. 13 The exception to this general proposition was where confidential communications passed between a legal advisor or his or her client and a third party (who was not an agent for the client), provided it was made for the dominant purpose of use in or in relation to litigation then existing, anticipated or in contemplation: Wheeler v Le Marchant, supra. As was pointed out by Batt JA in Mitsubishi Electric Australia Pty Ltd at [8], this aspect of legal professional privilege was called litigation privilege as distinct from legal advice privilege. 14 In Pratt,the Full Court held that where a principal directs or authorises a third party who is not an employee or agent to prepare a documentary communication for the dominant purpose of it being communicated to a legal adviser for the purpose of obtaining legal advice for the principal, that documentary communication from the third party to the principal is privileged irrespective of whether it is the principal/client or the third party who delivers the communication to the lawyer. 15 The process of reasoning of the Court, notably that of Finn J and Stone J (with both of whom Merkel J agreed), is instructive. 16 At [41] - [47] Finn J observed: [41] To deny that a third party is an agent in such circumstances does not, though, provide a sufficient or principled reason for denying privilege to the documentary communication (or contents) it has authored. The important consideration in my view is not the nature of the third party's legal relationship with the party that engaged it but, rather, the nature of the function it performed for that party. If that function was to enable the principal to make the communication necessary to obtain legal advice it required, I can see no reason for withholding the privilege from the documentary communication authored by the third party. That party has been so implicated in the communication made by the client to its legal adviser as to bring its work product within the rationale of legal advice privilege. [42] There are, in my view, clear reasons of policy that support extending the privilege to such third party authored documentary communications. Whether a natural person or a corporation, a party seeking to obtain legal advice may not have the aptitude, knowledge, skill and expertise, or resources to make adequately, appropriately or at all such communication to its legal adviser as is necessary to obtain the advice required. Such is commonplace today where advice is sought on complex and technical matters. To deny that person the ability to utilise the services of a third party to remedy his or her own inability or inadequacy unless he or she is prepared to forego privilege in the documents prepared by the third party, is to disadvantage that person relative to another who is able adequately to make the desired communication to a legal adviser by relying upon his or her own knowledge, resources, etc. [43] For the law to provide such an incentive not to utilise the services of third parties in such circumstances is to undercut the privilege itself. It would not facilitate access to effective legal advice nor would it facilitate effective communication with legal advisers for the purpose of obtaining legal advice. [44] I earlier indicated that, for the purposes of the above, I had assumed that PricewaterhouseCooper's report had been prepared at Mr O'Halloran's direction with the dominant purpose in mind of it being, or being part of, Pratt Holdings' communication to ABL to obtain legal advice. That assumption is a large one. [45] While the question of Pratt Holdings' purpose(s) in this matter is simply one of fact, particular care needs to be taken in evaluating evidence of purpose in a setting in which the third party performs a professional function for a principal in a non-litigation setting but in a matter in which legal advice is to be or is being sought by that principal. There is a number of reasons why this is so. First, the third-party principal relationship (be it accountant-client, assessor-client or otherwise) will not as such attract privilege to any exchanges made in it: Baker v Campbell at 66, 75, 94 and 128. For this reason alone caution needs to be taken in determining whether the parties' relationship has a character other than the above for privilege purposes. [46] Second, the matter or transaction in respect of which legal advice is sought may well be one in which the principal considers it necessary or appropriate to obtain advice as well from other professional and business sources. In determining the preferred structure of a business transaction, for example, a person might consult not only a lawyer, but also one or more of an accountant, a financial planner and a merchant banker for advice: cf Kennedy v Wallace at [60]. The advices given by such other advisers will rarely be capable of attracting privilege for the reason that they will almost invariably have the character of discrete advices to the principal as such, with each advice, along with the lawyer's advice, having a distinctive function and purpose in the principal's decision-making - albeit all of the advices may be interrelated in the sense of providing collectively a basis for informed decision by the principal. Those other advices will not later acquire the character of privileged documents in the respective adviser's hands: cf Propend; merely because the principal subsequently makes the advices available to his or her lawyer when obtaining legal advice. Importantly, as Deane J observed in Baker v Campbell at 112, privilege does not "extend to protect things lodged with a legal adviser for the purpose of obtaining immunity from production". Neither does it extend to third party advices to the principal simply because they are then "routed" to the legal adviser. [47] Third, notwithstanding the principal's stated purpose in having a documentary communication brought into existence, the principal may have so conducted himself or herself in the matter as to indicate that the intended use of the document authored by the third party was not its communication to the legal adviser as the principal's communication, but rather it was to advise and inform the principal concerning its subject matter, with the principal then determining (a) in what manner, if at all, the whole or part of the document would be used by the principal in making its own communication or (b) the purpose(s) for which the document could or should be used. The less the principal performs the function of a conduit of the documentary information to the legal adviser, the more he or she filters, adapts or exercises independent judgment in relation to what of the third party's document is to be communicated to the legal adviser, the less likely it is that that document will be found to be privileged in the third party's hands. This will be because the intended use of the document is more likely to be found to be to advise and inform the principal in making the principal's communication to the lawyer (whether or not that communication embodied wholly or substantially the content of the document) and not to record the communication to be made. (Emphasis added) 17 At [102] - [106] Stone J observed: [102] I am satisfied from this survey of the Australian decisions that have considered the Wheeler principle that this Court is not bound either by authority of considerations of comity to dismiss the present appeals because PW was not the agent of Pratt when it created the documents in question. In my view the present issue must be decided by the application of principle, eschewing formalistic approaches and concentrating on substance. [103] The history of legal professional privilege shows that the courts have been willing and able to adapt the doctrine to ensure that the policy supporting the doctrine is not sabotaged by rigid adherence to form that does not reflect the practical realities surrounding the application of privilege. The complexity of present day commerce means that it is increasingly necessary for a client to have the assistance of experts, including financial experts such as accountants, in formulating a request for legal advice and in providing legal advisers with sufficient understanding of the facts to enable that advice to be given. This much was recognised by Taylor LJ in Balabel. [104] The complexity of commercial arrangements is matched by increasing volume, complexity and technicality in the law: taxation legislation now runs to many volumes, encompassing nearly 2,000 provisions; corporations and securities legislation is similarly mammoth. A company that wishes to obtain legal advice as to its obligations under such legislation may well need to rely on experts to assist it in instructing its legal advisers. This is not only true of commercial arrangements but may also extend to scientific and technological complexities. To take a purely hypothetical example, suppose the manufacturer of lip salve requests its lawyer to advise as to the health and manufacturing standards with which it must comply. The lawyer is aware that among the legal requirements that may be relevant are regulations applicable to skin care products. In such a case scientific advice may be required as to whether lips are skin. These are issues that did not arise in simpler times. [105] The coherent rationale for legal professional privilege developed by the High Court does not lend itself to artificial distinction between situations where that expert assistance is provided by an agent or alter ego of the client and where it is provided by a third party. Nor, in my view, should the availability of privilege depend on whether the expert opinion is delivered to the lawyer directly by the expert or by the client. Provided that the dominant purpose requirement is met I see no reason why privilege should not extend to the communication by the expert to the client. This approach is consistent with the High Court's ruling in Daniels (see [84]) that legal professional privilege protects communications and therefore prevents the disclosure of information or documents that would reveal communications protected by the doctrine. [106] I do not accept that this approach would lead to uncontrollable extension of the privilege. The difficulties in proving the relevant purpose should not be underestimated. Advice as to commercially advantageous ways to structure a transaction are extremely unlikely to attract privilege because the purpose in putting the advice together will, in most cases, be quite independent of the need for legal advice. Even if the parties have in mind that the advice will be submitted to a lawyer for comment, the purpose is unlikely to be the dominant purpose. Determining the dominant purpose underlying a communication may be difficult but no more so than many questions that come before courts. Courts would need to take into account exactly what function was served by the expert advice and whether it was really required in order to instruct the legal advisers fully. Obviously if the third party is an agent of the client and the client has the requisite purpose the determination is comparatively simple. Similarly if the material sought by the lawyer is required for litigation it is not difficult to determine the chain of authority and to find the requisite purpose; see, however, [90]. Ultimately the question is one of fact and the onus is on the person seeking privilege protection to establish the case. (Emphasis added) 18 By letter dated 17 September 2009 from the applicants' solicitors to the respondent's solicitors (Annexure A to Ex. B), the applicants' solicitors wrote: RE: QUALITY PUBLICATIONS AUSTRALIA PTY LTD -V- COMMISSIONER OF TAXATION FEDERAL COURT PROCEEDINGS NO. NSD 275 OF 2009 RE: QUALITY GROUP AUSTRALIA PTY LT D -V- COMMISSIONER OF TAXATION FEDERAL COURT PROCEEDINGS NO. NSD 347 OF 2009 We refer to our letter dated 14 September 2009 serving the affidavit of Dinesh Ratnam sworn 14 September 2009 claiming privilege over certain of the documents produced under subpoena by the accountants and solicitors of the applicants. The purpose of this letter is to particularise the claims for privilege made in that affidavit over documents produced under subpoena by the applicants' accountants and lawyers in respect of communications they have had with the applicants and each other further than has been particularised in the Tables to the affidavit. We do so to assist the respondent to make an assessment as to the merits of the claims for privilege as the respondent is necessarily limited to the particulars of the documents over which privilege is claimed by the applicants because the respondent has no right to inspect documents for the purposes of either challenging or making a decision to challenge the applicants' claims for legal professional privilege over the documents produced. In relation to the claim for privilege made over the various file notes made by the applicants' accountants, namely, those of Scott Nichols of Sullivan Dewing (Table 1 items 1-5, 8-14, 16-19, 21, 29, 30-32, 43-47, 49-58, 63-66), and letters he has written which have been posted or sent by email (Table 1 items 6, 7, 15, 20, 22-28, 36, 37, 41; Table 2 items 1, 2, 7), and also those of Terry Dewing (Table 1 items 59)), together with letters sent by email by Paul Canty & Michael Canty on behalf of the applicants to those two accountants (Table 1 items 39, 40, 48), not being claims for privilege made over document which have been generated by Coleman [&] Greig, the applicants' lawyers, for the transaction the subject of the appeal in matter no. 347 of 2009, the applicants advise that the advice privilege claimed is based on the Full Federal Court decision in [Pratt] at [41]-[47], [52], [103]-[106]. That is to say, the documents generated by Sullivan Dewing, Chartered Accountants, which have been either produced by that firm under subpoena were created for the dominant purpose of facilitating the provision of legal advice by the applicants' solicitors, Coleman & Greig and (prior to their involvement) Evangelos Patakas & Associates in respect of the implementation of the subject transaction and, as such, legal professional privilege attaches to them: see Esso Australia Resources Limited v FCT (1999) 201 CLR 49 at [35]-[61].

The Evidence 19 I have already dealt with Mr Patakas' evidence in cross-examination at [4] and [5] above, which overwhelmingly points to him having very little to do with the transaction; neither its negotiation nor its execution; he was just too busy on other 'Quality matters'. More importantly, his re-examination studiously avoided raising his role in providing legal advice to the applicants, in particular legal advice predicated on the need to obtain anterior advice from the accountants, specifically Mr Nicholls. A number of the provisions of his affidavit sworn 3 November 2009 (Ex. C) were fairly objected to on the ground of their conclusionary nature, unsupported as they were by any factual premise other than Mr Patakas' opinion. While I did not reject them in the context of an interlocutory hearing, I cannot give them, in particular para 5(d), any weight at all in the absence of supporting evidence; either from Mr Nicholls or the relevant partner in the firm of C&G who replaced Mr Patakas. 20 As just noted, neither Mr Nicholls nor the relevant partner in the firm of C&G who replaced Mr Patakas were called to give evidence going to the necessity to obtain advice from Mr Nicholls on particular subject matters to enable the applicants to obtain the legal advice they required in relation to the transaction and so bestow privilege on the documentary communications authored by Mr Nicholls within the principle that comes out of Pratt. 21 Mr Dinesh Ratnam swore two affidavits, one on 14 September 2009 (Ex. A), and the second on 3 November 2009 (Ex. B). I have already reproduced at [3] the only part of Ex. A which has any bearing on the issue at hand. Mr Ratnam was not a party to the transaction nor was he an adviser to the applicants at the time of the transaction. Mr Ratnam is not qualified, in the sense of being in a position, to say anything concerning the author's purpose in bringing the relevant SD documents into existence; nor is he in a position to say anything as to the necessity for the applicants to have the communications constituted by the relevant SD documents in order to obtain legal advice in respect of the transaction. In this latter respect I ignore his definitions of 'Advice privilege', 'Accountant's advice', 'Client communication', 'File note' and 'Solicitor's advice' as being totally 'formulaic' and 'generic', to use the words of the respondent's submission; they do not, when read in conjunction with Table 1, establish that any of the documents referred to therein constitute communications which are privileged under the general principle, referred to above or under the extended principle, itself based on general principle, that comes out of Pratt. 22 Exhibit B does not take the matter any further. At para 10(b)(vi) Mr Ratnam deposes: From my review of those of the produced documents over which privilege is claimed by the Applicants, the documents produced by SD comprise, emails, letters, file notes and memoranda recording client instructions or advice given by SD as to the structure of the Transaction including the tax aspects of it which in turn formed the basis of the legal advice relating to the Transaction given by EP&A and CG. There is no factual basis for this statement, in particular, the concluding words '… which in turn formed the basis of the legal advice relating to the Transaction given by EP&A and CG', other than Mr Ratnam's review of the documents. 23 Which brings me to the SD documents which are under challenge.

The Relevant SD Documents 24 There is no evidence that suggests that the SD documents which are under challenge contain on their face indicia which point to their being privileged communications. If there were such indicia, surely it would have been brought to the surface in the evidence that has been called; I can only infer there are no such indicia. 25 I have not inspected the documents in question because I have not found it necessary to do so. In the face of my earlier findings, based as they are on a lack of evidence of Mr Patakas' role in providing legal advice the obtaining of which necessitated anterior advice from Mr Nicholls, and the absence of any evidence from Mr Nicholls and the relevant partner at C&G, I am satisfied that the applicant's claims for privilege in respect of the SD documents under challenge cannot be maintained and that the respondent should be given full access to inspect those documents. 26 The applicants must pay the respondent's costs of the motion. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Counsel for the Applicant: Mr C Bevan with Ms A Tsekouras

Solicitor for the Applicant: Evangelos Patakas & Associates