The Commissioner of Taxation of the Commonwealth of Australia v Pratt Holdings Pty Ltd

Federal Court of Australia|2005-09-05|Before: Kenny J

REASONS FOR JUDGMENT 1 These proceedings commenced in the original jurisdiction of this Court by way of an application by the Commissioner of Taxation ("the Commissioner") for declarations that legal professional privilege did not attach to communications constituted by certain documents held by PricewaterhouseCoopers ("PW") on files relating to its former client, Pratt Holdings Pty Ltd ("Pratt Holdings"). The Commissioner sought access to the documents in dispute pursuant to s 263 of the Income Tax Assessment Act 1936 (Cth) ("the ITAA"). As the primary judge, I delivered reasons for judgment on 10 January 2003 and made declarations and orders in the proceeding on 15 January 2003 and subsequent dates. PW appealed from subparagraphs 1(b), 1(c) and 1(f) and paragraphs 2 and 3 of these declarations, which were relevantly as follows:

Legal professional privilege attaches to the communications constituted by or contained in the following documents, or parts of documents: … (b) Part of document 44 (and identical document 76), being that part recording confidential communications between Arnold Bloch Leibler, solicitors, and Pratt Holdings Pty Ltd; (c) Part of document 69, being that part recording confidential communications between Arnold Bloch Leibler, solicitors, and Pratt Holdings Pty Ltd; … (f) Part of document 32 (and identical documents 49 and 70), being that part which is the first page and the first two lines of the second page of each document in the list which is exhibit "CMR1" to the affidavit of Mr Christopher Mark Reardon sworn on 7 November 2001 in the proceeding ("CMR1"). (2) Save for the documents, or parts of the documents, listed in par 1 above, legal professional privilege does not attach to the communications constituted by or contained in the documents, or parts thereof, specified in the list which is exhibit "CRM1". (3) Pursuant to s 263 of the Income Tax Assessment Act 1936 (Cth), the applicant or any officer authorised by him, is entitled, for the purposes of that Act, to have access to the documents in dispute, or parts thereof, which are specified in the list which is exhibit "CRM1" and which, in accordance with these reasons for judgment, and not the subject of legal professional privilege. 2 On 12 May 2004, a Full Court, constituted by Finn, Merkel and Stone JJ, allowed the appeal; set aside subparagraphs 1(b), 1(c) and 1(f) and paragraphs 2 and 3 of these declarations; and remitted the matter to me. On 11 August 2004, 13 October 2004 and 10 December 2004, there were consent orders for, amongst other things, written submissions to be filed and served by the parties. I return to the contents of these submissions at [11] below. 3 On an earlier occasion, I found that the documents in dispute fell into seven categories. These categories were (see Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 ("Pratt Holdings") at 372 [56] per Stone J): (1) documents created by PW personnel including internal working notes (e.g., emails between PW personnel, notes on calculations and records of research), memoranda and other notes of discussions between PW personnel (e.g., Messrs Reardon and Le Huray) and Pratt Holdings personnel (e.g., Mr O'Halloran); (2) documents created by PW personnel that were provided to Pratt Holdings including memoranda and other notes of discussions between PW personnel and Pratt Holdings personnel; final and draft versions of the PW paper; a loan known as the Yoni loan valuation; the discussion paper concerning a matter raised by the accounting firm of Arthur Andersen; other letters, fax cover sheets and emails (if any) constituting communications by PW to Pratt Holdings; (3) documents created by Pratt Holdings personnel (e.g., Mr O'Halloran) that were provided to PW including letters, memoranda, fax cover sheets and emails (if any) constituting communications by Pratt Holdings to PW; (4) documents containing legal advice that were created by Arnold Bloch Leibler ("ABL") and disclosed by Pratt Holdings to PW including letters and memoranda of advice prepared by ABL for Pratt Holdings and a letter of advice dated 18 December 1992 prepared by ABL and addressed to Mr Deane Howell of Frank Jones & Associates, forwarded by him to Pratt Holdings (Mr O'Halloran) and by Pratt Holdings to PW; (5) documents created by other firms of accountants that were disclosed by Pratt Holdings to PW including a letter dated 27 May 1994 from the accounting firm of Ernst & Young, with a draft letter to the State Revenue Office; (6) documents created by PW that were disclosed to other firms of accountants by PW including correspondence with Arthur Andersen; and (7) documents that fell within the description in (1)-(6) above but have been disclosed to the Commissioner including the Yoni loan valuation, drafts of the valuation and associated papers as well as "source documents". Documents in categories (1) to (6) were the subject of the appeal. the earlier decisions 4 The issue for determination at first instance and on appeal was whether legal professional privilege attached to the communications between Pratt Holdings and PW. Following Wheeler v Le Marchant (1881) 17 Ch D 675, I held that, in the absence of contemplated or actual litigation, advice privilege did not subsist in a communication between a solicitor or client and a third party, unless the third party was an agent of the client or solicitor for the purpose of the communication: see Commissioner of Taxation v Pratt Holdings Pty Ltd (2003) 195 ALR 717 ("the first decision") at [39]-[40], [54]. On this analysis, it followed that privilege did not attach to the communications between PW and Pratt, because PW was not Pratt's agent for the purpose of communicating with Pratt's solicitor (see also the first decision at [70]). 5 As already indicated, the Full Court took a different view. In Pratt Holdings at 366-368 [34]-[41], Finn J said: In the absence of binding authority, or for that matter Australian appellate authority which we should follow as a matter of comity, the present question falls to be decided by reference to principle, legal policy and to such authority of other jurisdictions as is persuasive when considered in our domestic setting. Where the issue, as here, is with whether a document attracts legal advice privilege at the time it is brought into existence … the obvious starting point is with what was the intended use (or uses) of that document which accounted for it being brought into existence … . In answering that question - which is a question of fact … - attention necessarily must focus on the purpose (or purposes) of the person who created the document, or who, if not its author, had the authority to, and did, procure its creation … . In the present matter that person was, seemingly, Mr O'Halloran of Pratt Holdings. As I have already indicated her Honour did not find it necessary to make findings as to what Mr O'Halloran's (hence Pratt Holdings') purpose or purposes were in procuring the preparation of the Pricewaterhouse report. … Pricewaterhouse was not relevantly Pratt Holdings' agent in this matter. … 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. 6 In Pratt Holdings Stone J also said, at 386 [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 Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543] that legal professional privilege protects communications and therefore prevents the disclosure of information or documents that would reveal communications protected by the doctrine. Merkel J agreed with both Finn and Stone JJ. the issues for determination 7 On the view I took as the primary judge, it was unnecessary to make any finding concerning the dominant purpose in creating the documents in dispute; and I did not do so. The Full Court's holding is that legal professional privilege may attach to communications brought into existence between a solicitor or client and a third party, notwithstanding that the third party is not an agent of the client or solicitor for the purpose of the communication and no litigation is pending or contemplated, provided that the dominant purpose for the creation of the communication was to obtain legal advice. This being so, it becomes necessary to determine whether this was in fact the dominant purpose for the communications in the documents in dispute. This question arises in respect of the documents in categories (1), (2), (3), (5) and (6), referred to at [3] above. A further question arises in respect of the documents in category (4): that is, whether any of the documents in this category found not to be privileged in whole or part might nonetheless have attracted privilege on the ground that the nature of the advice sought by Pratt Holdings from ABL might be inferred from them: see Pratt Holdings at 369 [50] per Finn J and 387 [107] per Stone J. The Full Court remitted the matter to me in order that these findings might be made and the privileged character of the documents resolved accordingly: see Pratt Holdings at 360 [5], 369 [48]-[50] per Finn J and 375 [62], 387 [107] per Stone J. 8 Where a matter is remitted pursuant to s 28(1)(c) of the Federal Court of Australia Act 1976 (Cth), the further hearing is conducted on the basis that it is a continuation of the first trial: see Community and Public Sector Union v Telstra Corporation Ltd (No 2) (2001) 112 FCR 324 at 329 [17] per Finkelstein J. Thus, the remaining issues fall to be determined on the evidence that has already been adduced and on the basis of the parties' further written submissions, which are discussed below. The respondents submitted, and I accept, that the Court must weigh the affidavit evidence, as tested in cross-examination, and the content of the documents themselves, if the Court considers it necessary, and determine whether on the balance of probabilities the respondents have satisfied the Court about dominant purpose. 9 The first decision, at 719 [4]-[26], outlined the circumstances in which the documents were created in the following way:

The documents in dispute were mostly created between January 1993 and August 1994 by officers of PW and Pratt Holdings. …

Pratt Holdings is the ultimate holding company of the companies in the Pratt Group. Between 1990 and 1995, the Pratt Group underwent a major balance sheet reconstruction and refinancing program (the reconstruction program). Mr O'Halloran, who was at that time the group's taxation and insurance manager, advised management in the administration and implementation of the reconstruction program. From time to time, he sought legal advice on taxation and other issues raised by the reconstruction program from the group's legal advisers, the firm of Arnold Bloch Leibler (ABL).

In the course of the reconstruction program, an issue arose concerning the taxation consequences of significant losses incurred by an entity in the Pratt Group. In this connection, in early 1992, Mr O'Halloran sought ABL's advice on the application of the ITAA, and ABL commenced to give this taxation advice.

As part of this advising, Mr Leibler, a partner in ABL, suggested that Pratt Holdings obtain a valuation of assets from an independent accounting firm to assist in determining the exact quantum of the losses. In cross‑examination, Messrs O'Halloran and Reardon gave evidence that the major or sole valuation (the Yoni loan valuation) suggested by Mr Leibler concerned a loan receivable by Pratt Finance Pty Ltd from Yoni Pty Ltd (Yoni). (Pratt Holdings provided the Commissioner with a copy of this valuation (and its earlier drafts) at some time prior to the hearing of this matter.) Mr O'Halloran deposed that he formed the view that, if Pratt Holdings were to receive specific advice from ABL, then Pratt Holdings needed to give ABL "a detailed summary about the background and historical perspective in relation to the specific transactions giving rise to the losses and how they had been treated from an accounting [perspective]". In cross‑examination, he said that this included "any transaction which may have taken place over a period of time, which may have had any impact on [Mr Leibler's] final advice", as well as accounting records and income tax returns. Mr O'Halloran also formed the view that the proposed work should not be prepared in‑house,

… because the matters were complex, time consuming, involved areas where accounting expertise was required and because Mr Leibler had told [him] the valuations should be independent.

In early 1993, Mr O'Halloran telephoned Mr Reardon, then a partner of Price Waterhouse (subsequently PricewaterhouseCoopers) to foreshadow the assistance that Pratt Holdings was likely to seek. Mr O'Halloran and another representative of Pratt Holdings met with Messrs Reardon and Le Huray in February 1993. Mr Reardon deposed:

I informed [Mr O'Halloran] that it was my view that there were additional issues to be considered as to the tax consequences of the transactions in addition to those which Mr Leibler had identified, as communicated to me by Mr O'Halloran during our first discussion.

I requested Mr Chris Reardon prepare a briefing paper ("the PW paper") to enable me to provide instructions to Arnold Bloch Leibler to obtain their legal advice. We discussed what additional work to the valuations PW would be required to provide in order to complete a comprehensive review.

At or shortly after this meeting, Mr O'Halloran informed Mr Reardon that he intended to use the paper that Price Waterhouse … was to prepare (the PW paper) for the purpose of obtaining legal advice from ABL, and that it might be necessary for Mr Reardon to attend conferences "or otherwise assist [ABL] on behalf of the Pratt Group". Mr Reardon was to be assisted in this work by Mr Peter Le Huray, who was then a senior consultant at PW. Mr O'Halloran also informed Mr Le Huray that he intended to submit the PW paper to ABL for review and advice. As things turned out, neither Mr Reardon, Mr Le Huray nor any other person from PW attended any conference with ABL, or had any other direct dealings with the firm. In cross‑examination, Mr Reardon said:

We weren't required at those meetings and we directed all correspondence to Mr O'Halloran and he came back to us with any queries or further information that Arnold Bloch Leibler required.

Mr O'Halloran subsequently provided Mr Reardon with a memorandum of instructions dated 5 February 1993. Mr Reardon understood that the PW paper was to be "used as a medium to explain the tax implications concerning the losses incurred and as a record of the facts and documents surrounding those losses from an income tax perspective".

In cross‑examination, Messrs O'Halloran and Reardon gave evidence that the PW paper was also taken into account in preparing the Yoni loan valuation. This was consistent with the terms of the valuation, which stated (at p 3) that:

In completing this valuation we have relied upon or taken into account, amongst other things: · Income tax position paper prepared for Pratt Industries (this term is used in reference to Pratt Holdings Pty Ltd and its subsidiaries), in relation to the deductibility to Pratt Finance of losses incurred on the assignment of the loan receivable from Yoni. … .

Their evidence was that, in this passage, the authors of the valuation were referring to the fact that they had had regard to the PW paper in making the valuation of the Yoni loan. Indeed, Mr Reardon's evidence in cross‑examination was that a reason for the preparation of the PW paperwas "to [in]form that analysis to assist in the valuation process".

Although Mr Reardon was aware that Mr O'Halloran intended to provide the Yoni loan valuation and the PW paper to ABL, Mr O'Halloran did not provide Mr Reardon with the details of his instructions to ABL. On the contrary, O'Halloran said that:

Although I informed Mr Reardon that the PW paper he was preparing was to enable me to brief Arnold Bloch Leibler, I did not provide him with details of my specific instructions to Arnold Bloch Leibler, nor did I specifically inform him about the matters that I had conferred with Arnold Bloch Leibler about, other than to the extent I considered it to be necessary. I did this because I considered it to be sufficient to instruct Mr Reardon on a "need to know" basis. I also considered my discussions with Arnold Bloch Leibler on behalf of the Pratt Group to be confidential. However, from time to time my instructions to Mr Reardon were expanded if either he or Arnold Bloch Leibler raised additional issues for consideration. I did not instruct Mr Reardon to hold back on the work he was doing. If he considered matters to be material, or raised further matters, then I asked that he include them. I also considered any opinions he expressed as the matter progressed. [emphasis added]

Between February 1993 and August 1994, there were numerous meetings and telephone conversations between Mr O'Halloran and others from the Pratt Group, and Messrs Reardon, Le Huray and others from PW. Mr Le Huray and his staff prepared a series of drafts of the PW paper, while others prepared drafts of the valuation. Mr Le Huray discussed the drafts with Messrs Reardon and O'Halloran. Mr Reardon or one of his team sent the relevant draft to Mr O'Halloran, who sent it to ABL. Mr O'Halloran deposed:

Mr Reardon completed a series of drafts of the PW paper and both Arnold Bloch Leibler and myself reviewed copies of the drafts. I sent the drafts to Arnold Bloch Leibler after receiving them from Mr Reardon. I did not instruct Mr Reardon to send the documents directly to Arnold Bloch Leibler, as I wanted to control the process. [emphasis added]

In cross‑examination, Mr O'Halloran said that he wanted to control the flow of information to PW and to ABL. His evidence was that he wanted to determine what and when information prepared by PW was provided to ABL, and what and when the opinions of ABL's lawyers were provided as such to PW. He conceded that, from time to time, he chose to disclose to PW the advice, as legal advice, that Pratt Holdings received from ABL, even though it may not have been necessary for him to do so.

From time to time, Mr O'Halloran conferred with ABL's lawyers about the issues raised in the draft PW papers and, as already noted, when he considered it appropriate, he informed Mr Reardon of the opinions expressed by the lawyers.

PW sent Pratt Holdings what it referred to as a "final copy" of the PW paper on 15 October 1993, although the PW paper was in fact subject to subsequent amendments. The Yoni loan valuation, which was addressed to the directors of Pratt Finance Pty Ltd, also bore the date 15 October 1993. Under cross‑examination Mr O'Halloran could not say whether he received the valuation and the PW paper simultaneously. PW sent Pratt Holdings a further version of the PW paper under cover of a letter dated 31 August 1994. Mr O'Halloran gave a copy of the August 1994 version to ABL and asked for ABL's advice on the issues raised by it.

Mr O'Halloran received a memorandum of advice from Mr Borensztajn of ABL in conference on 23 February 1995. Mr O'Halloran understood the memorandum to have been prepared by Ms Grodski and settled by Mr Leibler. Mr Borensztajn informed him that he too had reviewed the PW paper and the ABL advice. 10 The first decision, at 723 [23]-[25], continued this summary of the facts, stating:

Mr Reardon gave evidence that there may have been memoranda or notes of discussions between representatives of Pratt Holdings and PW that PW created and forwarded to Pratt Holdingsfor some reason, although PW did not forward such documents as a matter of course. Mr O'Halloran's evidence was that there may have been some such memoranda or notes prepared by PW that he provided to ABL. He did not, however, instance any such case. His evidence was that:

The major correspondence I passed on to Arnold Bloch was the briefing paper itself. To the extent there were other notes of meetings that had been conveyed to me by Price Waterhouse in a form of a memo or a minute of the meeting, I can't confirm whether I actually then passed that on to Arnold Bloch Leibler.

Mr Reardon said in cross‑examination that there was no identified author in respect of a number of PW's internal working documents, and that he could not say what was in the mind of the author of these documents when he (Mr Reardon) was not the author. Mr Reardon also said that he made notes or memoranda of discussions with Mr O'Halloran and others not only as an aide memoire but also "to convey information to the team who were assisting" him.

In his second affidavit, Mr Reardon deposed that, as far as he was concerned,

… every communication of information by [a] client to PW was confidential and PW was not able to distribute that information to others without the client's consent. I considered PW was not at liberty to disclose to other persons information provided by Pratt Group to PW during PW's retainer, and to the best of my knowledge, PW did not do so.

In each of their second affidavits, Messrs Le Huray and O'Halloran corroborated Mr Reardon's evidence in this regard. The files in which PW maintained documents relating to Pratt Group's retainer were all marked "Confidential".

the parties' submissions 11 For the most part, the parties agreed upon the principles that should be applied by the Court in deciding the remaining issues. I return to these principles below. 12 In an outline of submissions, the Commissioner submitted that: (1) the PW paper was not created for the dominant purpose of obtaining legal advice, but PW brought it into existence to enable PW to prepare the Yoni valuation, which was not a privileged document; (2) Pratt Holdings' purpose in having each of the documents in categories (1)-(6) (see [3] above) created was not for the dominant purpose of obtaining legal advice; and (3) none of the documents in the fourth category attracted privilege since they did not disclose the advice Pratt Holdings sought from ABL, and their contents would not enable the advice sought and obtained from ABL to be inferred. 13 The Commissioner submitted that "[a] number of critical facts [were] not in dispute". On the Commissioner's analysis, these undisputed facts were: (1) Mr O'Halloran approached Mr Reardon to prepare a valuation of certain assets in order to determine the exact quantum of the loss of an entity in the Pratt Group. Undertaking such a valuation required a careful analysis and collation of the facts and circumstances surrounding the relevant transactions. (2) PW prepared the PW paper. This was the collation of further information and analysis. Pratt Holdings alleged that the other documents in dispute were brought into existence in the course of and for the purposes of the PW paper. (3) The Yoni valuation is not privileged. Pratt Holdings provided this document to the Commissioner, along with drafts of the document. (4) The PW paper was prepared to enable PW to prepare the Yoni valuation because: (a) the Yoni valuation stated that PW relied on or took account of the PW paper in its preparation; (b) Mr Reardon gave evidence that he suggested that the PW paper be prepared because the Yoni valuation required a careful analysis and collation of the facts surrounding the transactions and he believed that the collation of the information and the analysis could best take the form of a position paper; and (c) Mr Reardon gave evidence that one of the reasons for the PW paper was to assist in the valuation process. (5) In relation to the reconstruction of the Pratt Group, Mr O'Halloran stated that he obtained a valuation where it was required. The Commissioner also referred to the fact that Mr O'Halloran controlled the flow of information between PW and ABL. 14 I interpolate here that the respondents did not accept that these facts were undisputed. In their submissions, the respondents contended that the evidence established that "both the Yoni valuation and the PW [paper] were created for the requisite purpose and, contrary to the Commissioner's submission, the Court found this to be the case". The respondents maintained that they had simply waived privilege in respect of the Yoni valuation. I return to this contention below. 15 The Commissioner contended that the PW paper was brought into existence for the purpose of enabling PW to prepare the Yoni valuation; and that PW's preparation of the Yoni valuation was done in the ordinary course of its ongoing professional relationship with Pratt Holdings, in which it provided accounting services, including valuation services. The Commissioner submitted that: It cannot be said that the ruling, prevailing, or most influential purpose in the creation of the PW [paper] was the obtaining of legal advice. 16 The Commissioner maintained that "[e]ach of the matters of concern raised in the reasons of Finn J as requiring particular care in ascertaining purpose is present here", noting: (1) the relationship between them - accountant - client - will not attract legal professional privilege to any exchanges between them; (2) the transaction (the Pratt Group Restructure and the Yoni loan in particular) was one in which the Pratt Group considered it necessary and appropriate to seek advice from a variety of professional and business sources in that the valuation advice had a distinctive function and purpose in Pratt Holdings' decision making; (3) Pratt Holdings' conduct indicated that the intended use of the PW [paper] was not its communication to ABL as Pratt Holdings' communication but, rather: (a) it was to advise and inform Pratt Holdings (and others) about its subject matter - it was used in the preparation of the Yoni valuation, a non-privileged document; (b) Mr O'Halloran of Pratt Holdings determined in what manner, if at all, the whole or part of the PW [paper] would be used by it in making its own communication to ABL. He was not simply the conduit. He filtered, adapted and exercised independent judgment as [to] what of the PW [paper] was to be provided to ABL. 17 As to severance, the Commissioner relied on Cross on Evidence at par [25240], Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 ("Nickmar"), and Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419("Hongkong Bank") in support of the submission that: Where a document is brought into existence for a dominant privileged purpose but contains information extraneous to that purpose, the portions of the document containing privileged communications should be severed or blanked out from the remainder of the document which is available for inspection. Of course, where severance is not possible, it may be necessary to categorise the document as a whole. 18 The respondents disputed this statement of the principles regarding severance. In their submissions, they contended that the test was twofold. The Court should ask: Was the document created for the requisite purpose? If so, that is the end of the enquiry - the entire document attracts privilege no matter what its content; If the entirety of the document was not created for the requisite purpose, were parts of it? If so, those parts attract privilege. Referring to Grofam Pty Ltd v Australia New Zealand Banking Group Ltd (1993) 43 FCR 408 ("Grofam"); and GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2000] FCA 593 ("GEC Marconi"), the respondents contended that the Commissioner's submission on severance (and Cross on Evidence, which was relied on by the Commissioner) overlooked the fact that Hongkong Bank has not been followed by this Court. For the reasons stated below, issues of severance arose only in relation to the category (4) documents: see [58] and following. As will appear, in the context in which these issues arose, there was no occasion to consider the differences between the parties on the matter of severance generally. 19 At the first part of the trial in this matter and again on remittal, the respondents' primary contention was that if PW were retained to produce specific documents for the dominant purpose of enabling Pratt Holdings to obtain legal advice, then privilege subsisted in all related documents. The basis for this contention was that documents created (whether by typing, writing, or photocopying) to enable a retainer to be performed (whether recording instructions to PW, thoughts of PW or PW's ultimate product) were necessarily impressed with the requisite purpose. 20 The respondents supported their contentions that the Yoni valuation had been the subject of privilege until Pratt Holdings disclosed it to the Commissioner by an analysis of the evidence before the Court. In their submissions, they maintained that: Mr O'Halloran swore that Mr Leibler told him to obtain an independent accounting valuation so that more than legal advice "in a general sense" could be provided [emphasis original]. This was accepted [by the primary judge]. Mr O'Halloran instructed PW to prepare the Yoni valuation and the PW [paper] to enable him "to provide instructions to Arnold Bloch Leibler to obtain their legal advice" [emphasis original]. The [the primary judge] accepted this evidence … . Mr O'Halloran was cross-examined about the Yoni Valuation. Nowhere was it put to Mr O'Halloran during cross-examination that the Yoni Valuation was not prepared for the purpose to which he deposed in his affidavit (e.g. he was never asked if the Yoni Valuation would have come into existence in any event). The closest one gets are the generic questions about the possibility that hypothetical transactions forming part of the reconstruction of the Pratt Group required a valuation. Mr O'Halloran said that the Pratt Group would not always get a valuation, but would do so if one was prudently required. Mr O'Halloran was never asked if the Yoni Valuation was required as part of the reconstruction. [Emphasis original] The respondents also submitted that Mr O'Halloran's control of the flow of the passage of information between PW and ABL was irrelevant; and the Commissioner was mistaken in relying on evidence concerning this matter. 21 Concerning Mr Reardon's evidence, the respondents said: Mr Reardon gave evidence in chief entirely consistent with Mr O'Haloran's evidence concerning purpose - namely, the giving of instructions and assistance to ABL. … Mr Reardon was also cross-examined about the Yoni Valuation. It was never put to Mr Reardon that the Yoni Valuation was prepared for a purpose other than for the giving of instructions and assistance to ABL. The respondents also submitted that the Commissioner's analysis of Mr Reardon's evidence contained "incomplete and … erroneous references". 22 The respondents submitted that, for the purposes of the present inquiry, Mr O'Halloran's purpose was that of Pratt Holdings; and his unchallenged evidence was that "the Yoni Valuation was prepared at Mr Leibler's suggestion for the purpose of instructing and assisting ABL to advise Pratt Holdings". If Mr Reardon' evidence were thought to contradict Mr O'Halloran's evidence, then Mr Reardon's evidence was irrelevant. Further, the evidence of O'Halloran and Reardon was that the only (and hence dominant) purpose for the creation of the PW paper was for seeking legal advice. On the respondents' approach, if this were the purpose of the PW paper, then it was also the purpose for "the creation of the documents now found in PW's files". According to the respondents: Were it not for Mr Leibler's request, PW would not have been retained and the documents recording instructions, file notes, drafts of the valuation and the PW [paper] and final versions of the valuation and the PW [paper] would not exist. 23 The respondents' alternative submission was that, even if the Court rejected their submissions as to the purpose of the creation of the Yoni valuation, the Court would have to assess the purpose of the creation of the PW paper. According to the respondents, the evidence in this regard was that "drafts and the final version of the PW [paper] were prepared for submission to ABL, were submitted and resulted in ABL's memorandum". The respondents referred to the affidavit evidence of O'Halloran, Reardon and Le Huray and submitted that the Commissioner misstated the evidence concerning the PW paper. 24 The respondent also contended that it was incumbent on the Court to revisit its discussion concerning documents discussed at [73] to [84] of the first decision. As the respondent noted, this discussion followed upon the rejection of the respondents' primary contention that all documents created in the course of PW's retainer, whether instructions to PW, notes of conversations, or PW's internal memoranda, were necessarily created for the requisite purpose. In relation to these documents, the respondents submitted: First, an original document may not attract LPP, but a photocopy of it will if made for the requisite purpose. Secondly, and as a corollary of the first point, the original document need not contain or refer to legal advice or be created by or addressed to the person seeking legal advice (e.g. a photocopy of a newspaper article concerning which defamation advice is sought). The example concerns those documents in respect of which severance was ordered in [the first decision] (i.e. documents 32, 49 and 70; 44 and 76; 69). If the Court is satisfied that these documents were created for the requisite purpose, that is the end of the enquiry. The entire document attracts LPP whether or not parts of it actually record advice or would disclose the advice sought or given. If the Court concludes that the entire document was not created for the relevant purpose, then the next enquiry is whether parts of it were. 25 The respondents noted that the waiver of privilege in respect of the Yoni valuation did not give rise to any issue of waiver in respect of other documents. 26 In reply, the Commissioner submitted that the respondents had not discharged the onus of establishing that the PW paper was covered by legal professional privilege, because the respondents had not established that the dominant purpose for the creation of the PW paper was the obtaining of legal advice. The Commissioner contended that the PW paper was created for a number of purposes, namely: (a) in preparation for the Yoni Valuation; (b) to advise and inform Pratt Holdings (and others) about its subject matter. … (c) for the purpose of obtaining legal advice. On any view, the PW [paper] is not subject to a claim for legal professional privilege. It was prepared for another purpose (or purposes) each of which was sufficient to give rise to the creation of the PW [paper]. 27 On the issue of severance, the Commissioner responded with the comment that both Grofam and GEC Marconi supported its contentions. Without having seen the PW paper, the Commissioner commented that: Having regard to the contents of each version of the PW [paper], the Court may well form the view that: (1) the contents of each document raise questions about whether the document was created for the dominant purpose of obtaining legal advice; and (2) that it may be appropriate for those parts of the document which do not bear the necessary relation to legal advice to be disclosed. 28 In the reply, the Commissioner also said that the Yoni valuation was never privileged, having regard to: (1) a reading of the Yoni valuation; (2) Mr O'Halloran's acknowledgement that the Yoni valuation was part of a "comprehensive review" and was not limited to the obtaining of legal advice; (3) the Yoni valuation (and its earlier) drafts were provided to the Commissioner at some to prior to the hearing of the matter, perhaps prior to the commencement of the action, and does not bear any marking to indicate that privilege had been waived in contrast to another document; (4) the statements in the Yoni valuation as to its purpose; (5) the obtaining of the Yoni valuation was part of the reconstruction; and (6) the evidence of Mr Reardon.

The Commissioner contended that it was "absurd" to "suggest … that it was necessary for the question to be put directly to Mr O'Halloran" because the evidence was already before the Court. The Commissioner added that the respondents' reference to par [68] of the first decision was misleading and disputed the respondents' analysis of the evidence concerning the Yoni valuation. 29 Also in reply, the Commissioner disputed the respondents' contention that the evidence concerning the PW paper was all one way and in the respondents' favour, reiterating that the case was remitted in order that a finding might be made on the issue. the relevant principles 30 I accept the principles stated below control the matter to be decided. (1) Pratt Holdings carries the onus of establishing its claim for privilege, whether by evidence as to the circumstances in which the documents were brought into existence, reference to the nature of the documents, or by argument: see Grant v Downs (1976) 135 CLR 674 at 689 per Stephen, Mason and Murphy JJ ("Grant v Downs"); and Mitsubishi Electric Australia Pty Ltd v Victoria WorkCover Authority (2002) 4 VR 332 ("Mitsubishi Electric") at 337 [11] per Batt JA, with whom Charles and Callaway JJA relevantly agreed. (2) For present purposes, where a document is created for the "dominant purpose" of obtaining legal advice, privilege will be attracted: Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 ("Esso") at 73 [61] per Gleeson CJ, Gaudron and Gummow JJ. In Esso, the majority of the High Court preferred the view of Barwick CJ over that of the other members of the Court in Grant v Downs, in which case the Chief Justice said, at 677: [A] document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection. (3) The purpose for which a document is brought into existence is a question of fact. Where there are a number of purposes for the creation of a document, it can be difficult to identify the dominant purpose. The dominant purpose must be determined objectively, having regard to the evidence, the nature of the documents and the parties' submissions. The purpose will ordinarily be that of the maker of the document, but this will not always be the case: Mitsubishi Electric at 338 [14]; Grant v Downs at 677 per Barwick CJ; and Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557 ("Hartogen") at 568-569 per Gummow J. (4) The evidence of the intention of the document's maker, or of the person who authorised or procured it, is not conclusive of purpose: see GSA Industries (Aust.) Pty Ltd v Constable [2002] 2 QdR 146 ("GSA") at 153 [28] per Holmes J; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1998) 153 ALR 393 ("Safeway Stores") at 411-412 per Goldberg J, citing Guinness Peat Limited v Fitzroy Robinson Partnership [1987] 1 WLR 1027 at 1036 per Slade LJ, Hartogen at 568-569 and Sparnon v Apand Pty Ltd (1996) 68 FCR 322 at 328 ("Sparnon v Apand") per Branson J. Further, the existence of the privilege is not "necessarily or conclusively established by resort to any verbal formula or ritual": see Grant v Downs at 689 per Stephen, Mason and Murphy JJ. As their Honours said in that case, at 689, "in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence". (5) The dominant purpose for the creation of a document is to be determined at the time of its production: compare GSA at 153-154 [32]-[35] per Holmes J and Safeway Stores at 422-423 per Goldberg J. Referring to passages in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 ("Propend") emphasising that the privilege attached to the relevant communications rather than the documents, Goldberg J said, in Safeway Stores at 423: I do not consider that the emphasis of four of the judges in Propend and the Full Court in Carmody v Mackellar [(1997) 148 ALR 210] detracts from the proposition that the primary relevant inquiry in determining whether a claim for privilege from production on the ground of legal professional privilege should be upheld, is to inquire as to the purpose for which the documents came into existence. However as these cases make clear, that purpose must be for the purpose of communicating information for the giving of legal advice, communicating the legal advice itself or communicating information to be used in existing or apprehended litigation. If the purpose for the making of a document by a third party is to enable another party to make the communication necessary to obtain the legal advice, then the document is protected by the privilege: see Pratt Holdings at 367-368 [41] per Finn J. (6) Thus, the fact that a document is provided to solicitors for advice is not determinative of the purpose for which it was created. As Brennan CJ said in Propend 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. A document can become privileged from production even if it is a copy of a non-privileged document: Propend at 509 per Brennan CJ, 543-544 per Gaudron J, and 554 per McHugh J. Further, the relevant purpose is that for which the document is brought into existence and not that for which the information is obtained: see National Employers' Mutual General Insurance Association v Waind (1979) 141 CLR 648 at 654 per Mason J. (7) The dominant purpose is not the same as the "primary" or the "substantial" purpose: see Grant v Downs at 678 per Barwick CJ. The "dominant" purpose may be described as the ruling, prevailing, paramount or most influential purpose: see Mitsubishi Electric at 336-337 [10], citing Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 416 per Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ. 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: Esso at 72 [58] per Gleeson CJ, Gaudron and Gummow JJ; Sparnon v Apand at 328 per Branson J; and see GSA at 152-3 [26]-[28] per Holmes J. (8) Where two purposes are of equal weight, neither is dominant in the relevant sense. Hence: (a) 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; and (b) 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. (9) Where the claim is in respect of communications in documents, the Court may examine the documents to ascertain the purpose for their creation: see Esso at 70 [52] per Gleeson CJ, Gaudron and Gummow JJ; and Grant v Downs at 677 per Barwick CJ and 689 per Stephen, Mason and Murphy JJ. (10) A document that records the substance of a privileged communication between client and legal adviser is itself protected, by the privilege, from disclosure unless the privilege has been waived. The relevant inquiry is whether the disclosure of a document would involve disclosure of a privileged communication: see Mann v Carnell (1999) 201 CLR 1 at 9; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2000] FCA 593 ("GEC Marconi") at [8] per Lehane J. As Lehane J noted in GEC Marconi at [8], this inquiry may involve a question whether privilege, which may have subsisted, has been waived. (11) If the Court is satisfied 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, however, the Court finds that parts but not all of the document were created for this purpose, then those parts attract the privilege: see GEC Marconi Systems at [11]; Grofam Pty Ltd v Australia and New Zealand Banking Group Ltd (1993) 43 FCR 408 at 414-417 per Heerey J. (12) If the Court were satisfied that the PW paper 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, then the PW paper would be privileged. In relation to this issue, however, Finn J (with whom Merkel J agreed) said, in Pratt Holdings at 368-369 [44]-[48]: 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. 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 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 [(1983) 153 CLR 52] 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. 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 [(2004) 208 ALR 424] 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. 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. I have dealt at a little length on the care that needs to be taken in determining the principal's dominant purpose in a case such as the present for this reason. The primary judge's narrative of the circumstance in which the documents in question were created suggests that the present is a case calling for that care. [Emphasis original] Also in Pratt Holdings, Stone J said, at 387 [106]: 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 dominantpurpose. Determining the dominant purpose underlying a communication may be difficult but no more 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 … . Ultimately the question is one of fact and the onus is on the person seeking privilege protection to establish the case. were the pw papers made for the dominant purpose of pratt holdings obtaining legal advice? 31 I have referred to the PW papers in the plural because, as the evidence shows, PW produced successive drafts of what became the paper that raised the issues considered in ABL's ultimate memorandum of advice. The privileged status of all these drafts is in issue. It was common ground that, in this case, Mr O'Halloran's purpose(s) for requesting PW to prepare the PW paper were the purpose(s) of Pratt Holdings. As previously stated, in early 1992, Mr O'Halloran sought ABL's advice about the taxation consequences of losses incurred by an entity in the Pratt Group; and Mr Leibler of ABL suggested to him that, in order to determine the quantum of the losses, Pratt Holdings should obtain a valuation of assets from an independent accounting firm. The parties referred to this valuation as the "Yoni valuation". As already noted, Mr O'Halloran deposed that he formed the view that, if Pratt Holdings were to receive specific advice from ABL, then Pratt Holdings needed to give ABL "a detailed summary about the background and historical perspective in relation to the specific transactions giving rise to the losses and how they had been treated from an accounting perspective". He also formed the view that the proposed work should not be prepared in-house, because the matters involved were complex, time-consuming, required accounting expertise, and Mr Leibler had told him that the valuation should be independent. In cross-examination, Mr O'Halloran said: Mr Leibler in particular was very affirmative that he wanted me to give him a full briefing of all the facts that were relevant to the particular issue. 32 In February 1993, Mr O'Halloran and another representative of Pratt Holdings met with Mr Reardon and Mr Le Huray, who at that time were, respectively, a partner and a senior consultant of PW. Mr O'Halloran deposed that at this meeting he "requested Mr Chris Reardon prepare a briefing paper … to enable [him] to provide instructions to [ABL] to obtain their legal advice". He added, "[w]e discussed what additional work to the valuations PW would be required to provide in order to complete a comprehensive review." 33 Mr O'Halloran deposed that, at or shortly after this meeting, he informed Mr Reardon that he intended to use the paper that PW was to prepare for the purpose of obtaining legal advice from ABL and that it might be necessary for Mr Reardon to attend conferences with ABL "or otherwise assist [ABL] on behalf of the Pratt Group". Mr O'Halloran stated that he instructed Mr Reardon that the paper "should incorporate an evaluation of all material issues he considered to be relevant so that the legal advice subsequently provided could comprehensively deal with all relevant matters". 34 As stated earlier, Mr O'Halloran's affidavit evidence was that, although he informed Mr Reardon that he intended to use the PW paper to enable him to brief ABL, he did not provide Mr Reardon "with details of [his] specific instructions to [ABL], nor did [he] specifically inform [Mr Reardon] about the matters that [he] had conferred with [ABL] about, other than to the extent [he] considered it to be necessary". Mr O'Halloran added that he "did this because [he] considered it to be sufficient to instruct Mr Reardon on a 'need to know' basis" and that he considered his discussions with ABL to be confidential. 35 Mr O'Halloran deposed that, from time to time, he expanded upon his instructions to Mr Reardon "if either he or [ABL] raised additional issues for consideration". He explained: I did not instruct Mr Reardon to hold back on the work he was doing. If he considered matters to be material, or raised further matters, then I asked that he include them. I also considered any opinions he expressed as the matter progressed. 36 Mr O'Halloran deposed that documents 92, 94, 103, 107 and 109 were the various versions of the PW paper, including the final version, brought into existence for the purpose of enabling him to better instruct ABL, with the intention of obtaining their legal advice. (In fact, thedocuments numbered 92, 96, 97, 103, 105, 107 and 109 were all versions of the PW paper; and document 94 was not.) His evidence was that Mr Reardon prepared a series of drafts of the PW paper, which he provided to Mr O'Halloran. Mr O'Halloran said that both he and ABL reviewed copies of the drafts. Mr O'Halloran deposed: I did not instruct Mr Reardon to send the documents directly to [ABL], as I wanted to control the process. I conferred with lawyers from [ABL] from time to time about issues raised in the drafts and when I considered it to be appropriate, I informed Mr Reardon of the opinions expressed by lawyers from [ABL]. In cross-examination, he reiterated that he was "keen" to control the flow of information between ABL, Pratt Holdings and PW. 37 Mr O'Halloran was cross-examined about the Yoni valuation. He was asked some questions about the need for transactions forming part of the reconstruction to be the subject of valuations. He said that Pratt Holdings (or the Pratt Group) would not always get a valuation, but would do so if one were prudently required. Mr O'Halloran was not specifically asked whether the Yoni valuation was required as part of the reconstruction in any event. For the reasons stated below, I do not consider that anything turns on this in the present case. Mr O'Halloran also gave evidence that the individuals responsible for preparing the Yoni valuation were provided with the PW paper and had regard to it. He could not, however, recall whether he received versions of the valuation per se. 38 Mr Reardon's evidence was that Mr O'Halloran first discussed with him the preparation of what was to be the Yoni valuation; and that, after some initial research, he informed Mr O'Halloran that, in his view, there were additional issues to be considered in this connection. Mr Reardon deposed that he suggested to Mr O'Halloran that the "collation of further information and analysis could best take the form of a position paper". Mr Reardon also said that he understood that Pratt Holdings would submit this paper to ABL for advice and comment. He added: I also understood that the PW paper would be used as a medium to explain the tax implications concerning the losses incurred and as a record of the facts and documents surrounding those losses from an income tax perspective. 39 In cross-examination, Mr Reardon said: [A]t the very outset of his correspondence with us, Mr O'Halloran said that we would be preparing some assistance to the Pratt Group which would be used by [ABL] in their ongoing advice. I fully expected actually to be included in meetings with [ABL] … As that transpired, we weren't required at those meetings and we directed all correspondence to Mr O'Halloran and he came back to us with any queries or further information that [ABL] required. Also in cross-examination, Mr Reardon stated that the PW paper was taken into account in arriving at the Yoni valuation. He specifically said that one of the reasons for the preparation of the PW paper was to assist in the valuation process; and, accordingly, it was provided to those who were preparing the valuation. 40 Mr Le Huray's affidavit evidence was corroborative of the evidence of Mr O'Halloran and Mr Reardon. Mr Le Huray stated that he assisted Mr Reardon in preparing the position paper for Pratt Holdings, although he was not the primary contact point for Mr O'Halloran for the purposes of the preparation of the paper. He deposed that Mr O'Halloran informed him that the paper was to be submitted to ABL and, in particular, Mr Leibler for his review and advice; and that, between 1992 and 1994, he prepared a series of drafts of the paper, which he discussed with Mr O'Halloran and Mr Reardon. Mr Le Huray was not cross-examined. 41 As earlier stated, PW sent Pratt Holdings what was termed a "final copy" of the PW paper on 15 October 1993, although this paper was in fact subject to later amendments. The Yoni valuation, which was addressed to the directors of Pratt Finance Pty Ltd, was also dated 15 October 1993. PW sent Pratt Holdings a further version of the PW paper under cover of a letter dated 31 August 1994. Mr O'Halloran gave a copy of this version of the paper to ABL and asked for ABL's advice on the issues raised by it. Mr O'Halloran received a memorandum of advice from Mr Borensztajn of ABL in conference on 23 February 1995. 42 Three members of ABL made affidavits, although none was cross-examined. Mr Leibler deposed that he had no recollection of his discussions with Mr O'Halloran, although he had "no reason to doubt" that he suggested to Mr O'Halloran that Mr O'Halloran obtain an independent valuation or that ABL would have required detailed instructions. Mr Borensztajn said that he had acted for the Pratt Group since 1994; and that he had received a draft memorandum of advice to the Pratt Group prepared by Mrs Grodski about issues raised in the PW paper between 10 February and 23 February 1995. Mrs Grodski deposed that she did not have a specific recollection of this memorandum of advice although, to the best of her belief, Mr Leibler settled it. 43 Having regard to the evidence of Mr O'Halloran and Mr Reardon, I find that, on the advice of Mr Leibler of ABL, in early 1993, Mr O'Halloran, on behalf of Pratt Holdings, requested PW to make a valuation of assets, in order to determine the quantum of certain losses. This became the Yoni valuation. After considering matters raised by Mr O'Halloran, Mr Reardon of PW formed the opinion, which he conveyed to Mr O'Halloran, that PW should prepare a position paper, containing further information and analysis. This led to the various drafts of what has been termed the PW paper (or PW Report), including the drafts of 15 October 1993 and 31 August 1994. Mr O'Halloran agreed that PW should prepare the paper, because, amongst other reasons, the paper required accounting expertise. I accept that Mr Leibler and Mr O'Halloran discussed the matter of the paper and that Mr Leibler said that he wanted to be fully briefed about all relevant facts and circumstances. 44 Accordingly, the evidence establishes that the PW paper was created for a number of purposes. One of the purposes for the preparation of the PW paper(s) was to assist in the Yoni valuation. This was Mr Reardon's direct evidence, which I accept. The Yoni valuation itself notes that, among the things that PW relied on or took into account in preparing the valuation, was the PW report. As already noted, the first thing listed is the "Income tax position paper prepared for [Pratt Holdings], in relation to the deductibility to Pratt Finance of losses incurred on the assignment of the loan receivable from Yoni", namely, the PW paper. Moreover, as noted above, Mr Reardon's evidence was that he first suggested that the PW paper be prepared because the making of the Yoni valuation required a careful analysis and collation of the attendant facts and circumstances, which could best take the form of a position paper. 45 Secondly, the PW paper was created to explain certain matters concerning the tax implications of the losses and to record relevant information, for the benefit of Mr O'Halloran and others acting in the Pratt Group's interests. Mr Reardon's evidence at [38] above supports this conclusion, as do the documents themselves. Further, the conclusion is in keeping with the central role of Mr O'Halloran in the process of preparing the drafts of the paper. This is discussed below. 46 The third purpose of the PW paper was to enable Mr O'Halloran to instruct ABL, in order that ABL could provide the legal advice Pratt Holdings sought. This was in substance how Mr O'Halloran described this purpose, the importance of which he emphasised. His evidence as to this purpose was corroborated to some extent by the evidence of Mr Reardon and Mr Le Huray. Consistently with this purpose, a solicitor or solicitors at ABL considered draft versions of the PW paper and ultimately gave advice to Pratt Holdings on the issues raised by the PW paper created in August 1994, sent under cover of a letter of 31 August 1994. 47 I accept Mr O'Halloran's statement that he requested PW to prepare the PW paper to enable him to instruct ABL, in two senses: first, he wanted PW to explain to him the matters with which the paper dealt, in order that he could determine the matters that were to be communicated to ABL and, second, to obtain their advice on the basis of these communicated matters. I reach this conclusion, having regard to the following matters. I accept Mr O'Halloran's evidence that he was keen to, and did, control the flow of information between PW, Pratt Holdings and ABL. Mr Reardon and Mr Le Huray also attested to this fact. This control was partly a consequence of the fact that Mr O'Halloran gave Mr Reardon limited information about his discussions with ABL. It was also a consequence of a process in which, over the time of the preparation of the PW paper(s), Mr Reardon raised additional matters, which Mr O'Halloran then considered. Further, during the same process, ABL raised issues with Mr O'Halloran, which he conveyed to Mr Reardon as he thought appropriate. 48 Perusal of the documents numbered 92, 96, 97, 103, 105, 107 and 109, which are versions of the PW paper, and the surrounding documents, including documents 7, 41 (cf: [65] below), 44, 59, 73, 77, 78, 82, 95, and 108, confirm that Mr O'Halloran played a critical role in the preparation of the various versions of the PW paper. For example, differences between the various versions of the PW paper reflect the incorporation of information sought by Mr Reardon or Mr Le Huray and provided by Mr O'Halloran; responses to Mr O'Halloran's instructions for further review and commentary, parts of which derived from the comments of an ABL solicitor; and further instructions from Mr O'Halloran to amend the draft report. 49 Bearing all of this in mind, I conclude that at least one important purpose of the preparation of the PW paper was to explain and record matters for Mr O'Halloran's (and therefore Pratt Holdings') benefit, in order that Mr O'Halloran might be apprised of the matters with which the versions of the PW paper dealt and thereby make his own decision about the communications to be made to ABL. To adopt the language of Finn J, Mr O'Halloran filtered, adapted and exercised independent judgment as to what was to be provided to ABL. 50 The fact that Mr O'Halloran provided various versions of the PW paper to ABL (in addition to the PW paper of August 1994) does not of itself account for the existence of these documents. Having regard to Mr Reardon's evidence, the original reason for the preparation of the PW paper was to assist in the making of the Yoni valuation. I find, however, that, by the time the first draft position paper was prepared, each of the three purposes referred to above was of equal importance for Pratt Holdings in relation to all versions of the paper except the version created in August 1994. I return to this version below. 51 An examination of the various versions of the PW paper (being documents 92, 96, 97, 103, 105, 107 and 109) confirms that a purpose of the paper was to provide a tax accountant's analysis to Pratt Holdings. All versions of the PW paper contain an identical, or substantially identical, statement of the paper's purposes. This statement is consistent with the conclusion that an important purpose of all versions of the PW paper was to explain and record matters, from an accounting perspective, for the benefit of Pratt Holdings. The statement does not refer to Pratt Holdings' purpose in obtaining legal advice, although, as already stated, I accept that this was in fact a purpose. 52 I find that, save for the August 1994 version, each of the purposes referred to above was sufficient to give rise to the various versions of the PW paper included in the documents in dispute. As already stated, the Yoni valuation and what was termed a "final" version of the PW paper were both dated 15 October 1993, although there was another version of the PW paper created in August 1994. ABL gave its ultimate advice upon the basis of August 1994 version. I infer that the August 1994 version was not, therefore, created for the purpose of making the Yoni valuation, which was already in existence. Perusal of the August 1994 version of the PW paper shows that it was virtually identical with the paper dated 15 October 1993 and that the differences between the two papers largely consisted of differences in figures and dates. In particular, the August 1994 PW paper contained the same statement of purposes as the earlier versions. Having regard to this statement and the evidence already mentioned, including the evidence of Mr O'Halloran's role, I find that the August 1994 version of the PW paper was created, first, to explain and record matters, from an accounting perspective, for the benefit of Pratt Holdings, including Mr O'Halloran and others, and, secondly, in order that Mr O'Halloran could determine the matters that were to be communicated to ABL and obtain their advice on the basis of these communicated matters. Accordingly, Pratt Holdings has not established that the dominant, in the sense of the prevailing or paramount, purpose for the obtaining of any PW paper was the obtaining of legal advice. 53 To the extent that there is any conflict between the evidence of Mr O'Halloran and of Mr Reardon, I have preferred the evidence of Mr Reardon, whose recollection of events is borne out by the documents created by him. 54 Furthermore, the evidence does not make out Pratt Holdings' claim that the Yoni valuation was the subject of privilege at the time of its creation. Let it be assumed that Mr Leibler suggested to Mr O'Halloran that he obtain the valuation. The evidence does not support the conclusion that the valuation was obtained for the dominant purpose of obtaining legal advice. The evidence of Mr O'Halloran was that the valuation was sought in order to determine the quantum of the relevant losses. The fact that Mr Leibler suggested this course to Mr O'Halloran is neither here nor there. Having regard also to the Yoni valuation, I conclude that, in requesting PW to make the valuation, Pratt Holdings sought the accounting advice of PW in its own right; and, in requesting PW to make the valuation, Pratt Holdings intended to consider the valuation as such, along with any other professional advice it obtained, including the advice of its lawyers, ABL. The evidence of Mr Reardon, to which reference has already been made, supports this conclusion. 55 Moreover, the Yoni valuation itself records that: [T]his opinion is required in order to assess the independent arm's length value of the debt owing by Yoni to Pratt Finance as at the date of assignment, so as to determine the quantum of any deduction to be claimed for taxation purposes as a consequence of the assignment of the debt. This report is provided solely for the use of the Board of Directors of Pratt Finance for the purposes specified above. This report is not intended to be utilised or relied upon by any other persons or to be used for any other purpose. … 2. Opinion In our opinion, the independent arm's length value at 15 June 1992 of the loan receivable by Pratt Finance from Yoni was from within the range of $A28,371,000 to $A31,897,000, and any value within this range would, in our opinion, be reasonable. 56 Having regard to these matters, I find that the PW made the Yoni valuation as part of the provision by it of independent accounting services to the Pratt Group; and not for the dominant purpose of Pratt Holdings obtaining legal advice. As Finn J noted, documents do not acquire the protection of the privilege "merely because the principal subsequently makes the advices available to his or her lawyer when obtaining legal advice": Pratt Holdings at 369 [46]. 57 Pratt Holdings' claim for privilege in respect of the documents in categories (1), (2), (3), (5) and (6), referred to at [3], depended on whether or not its claim for privilege in respect of the preparation of the PW paper(s) in category (2) was upheld. Since I have rejected this claim, I would also reject the claims made in respect of the other documents in category (2), as well as in respect of the documents in categories (1), (3), (5) and (6). the category (4) documents 58 As already noted, in Pratt Holdings at 369 [50], Finn J held that the Full Court should set aside my declaration in relation to the documents in category (4): see [3] and [7] above. In this latter regard, his Honour said, at 369 [50]: Additionally, because of the view of privilege taken by her Honour, the primary judge did not consider whether any of the category (4) documents found not to be privileged in whole or in part might nonetheless have attracted privilege on the distinct ground that the nature of the advice sought by Pratt Holdings from ABL might be inferred from them. For this reason her Honour's declaration in relation to the category (4) documents should be set aside to that extent. Stone J agreed with Finn J that that the documents in category (4) should be reconsidered and the relevant declarations set aside: 387 [107]. Merkel J, as noted above, agreed with their Honours' disposition and reasons. 59 It may be recalled that, in Propend, at 569, Gummow J held that "the privilege extends to any document prepared by a lawyer or a client, from which there might be inferred the nature of advice sought or given". In this connection, his Honour referred to communications between the various legal advisers of the client, draft pleadings and correspondence with the client or another party, and bills of costs. It is clear from the reasons for judgment of Finn J, with whom Merkel J agreed, that Finn J considered that: (1) the privilege might attach to documents prepared by a third party, though not relevantly an agent, for the dominant purpose of giving or obtaining legal advice (being the proposition applied above in respect of the PW paper(s)); and (2) privilege might attach to documents prepared by a third party (not being an agent) other than for the dominant purpose of giving or obtaining legal advice if the nature of the legal advice sought or given by another person might be inferred from them. 60 In the latter circumstance, a question of waiver might also arise, but, in the present case, it may be accepted that, if the privilege attaches to any document in category (4), the privilege was not waived by Pratt Holdings in disclosing the communications to PW: see the first decision at 738 [78]. 61 Accordingly, as stated earlier, the decision of the Full Court requires me to consider whether any of the documents in category (4) that I previously found not to be privileged in whole or part might nonetheless have attracted privilege on the ground that the nature of the advice sought by Pratt Holdings from ABL might be inferred from them. 62 It is important to note, as pointed out by Heerey J in Grofam at 414, that "there is no rule of law that objection cannot be taken to production of part of a document on the ground of legal professional privilege". Accordingly, as his Honour noted at 415, referring to the decision of Waterford v Commonwealth (1987) 163 CLR 54, severance (or the withholding of part of a document) is permitted by the doctrine of legal professional privilege. In order to determine whether the nature of the advice sought by, or given to, Pratt Holdings from, or by, ABL might be inferred, it is necessary to consider each document in turn. 63 The parties have agreed that the category (4) documents in dispute are documents numbered 35, 41, 43, 45, 48, 53, 54, 57, 65, 75, 83, 84, 85, and 88. In fact, in the first decision, I upheld Pratt Holdings' claim for privilege in respect of the whole of documents 35, 73, 74, 77 and 98 and in respect of parts of documents 32, 44, 49, 69, 70 and 76: see the first decision at 738-739 [78], [83]-[82]. Therefore, strictly speaking, the decision of the Full Court may not require me to reconsider document 35. Since, however, the parties have included it in the class of documents in dispute, I refer to it below. 64 Document 35 is a letter from ABL to Mr O'Halloran dated 23 March 1992. The first decision upheld Pratt Holdings' claim for privilege in respect of this document. It is a confidential communication passing between the client and the client's legal adviser for the dominant purpose of giving legal advice and is accordingly privileged. 65 Document 41 is a file note prepared by Mr Reardon regarding a meeting held at Pratt Industries with Mr O'Halloran and another person from Pratt Holdings on 21 April 1993. It includes a passage that refers to advice that had been sought from Mr Scala, who was a solicitor with ABL. The nature of the advice sought by Pratt Holdings from Mr Scala can be inferred from this passage and this part of the document is therefore protected by the privilege. 66 Document 43 is a facsimile header sheet from Mr O'Halloran to Mr Le Huray. It is undated, but marked received by PW on 11 October 1993. It is not privileged. 67 Document 45 is a memorandum from Mr O'Halloran to Mr Le Huray dated 11 October 1993. The nature of the advice sought from ABL cannot be inferred. The document is not privileged. 68 Document 48 is an email sent on behalf of Mr Reardon to Mr Le Huray on 12 March 1993. The nature of the advice sought from ABL cannot be inferred. The document is not privileged. 69 Document 53 is a file note dated 18 March 1993 prepared by Mr Reardon regarding a meeting attended by him and Mr Le Huray with representatives of Arthur Andersen on 18 March 1993. The nature of the advice sought from ABL cannot be inferred. The document is not privileged. 70 Document 54 is a 2-page file note dated 18 March 1993 prepared by Mr Reardon regarding a telephone conversation with Mr O'Halloran and another representative of the Pratt Group on 18 March 1993. Its second page contains a passage referring to advice received from Mr Scala of ABL. The nature of the advice sought by Pratt Holdings from Mr Scala may be inferred from this passage (being the whole of the third dot point on page 2) and this part of the document is therefore protected by the privilege. 71 Save for some immaterial handwriting, document 57 is the same as document 41. What I have said about document 41 applies equally to document 57. 72 Document 65 is a file note prepared by Mr Reardon regarding a telephone conversation with Mr O'Halloran on 5 May 1993. It contains a passage (par 3) in which Mr O'Halloran refers to advice sought from Mr Scala of ABL. The nature of the advice sought by Pratt Holdings from Mr Scala can be inferred from this passage and this part of the document is therefore protected by the privilege. 73 Document 75 is a facsimile cover sheet, substantially consisting of a facsimile header, from Mr Le Huray to Mr O'Halloran sent on 7 October 1993. It is not privileged. 74 Document 83 is a letter consisting of four substantive paragraphs from Mr Reardon to Mr O'Halloran dated 23 March 1993. It contains a passage (the third substantive paragraph) that refers to future discussions with ABL. The nature of these discussions and therefore the advice to be sought by Pratt Holdings from ABL can be inferred from this passage. There is also a handwritten note at the top right of the document, apparently under Mr Reardon's hand, to Warren Bennett. The nature of the advice to be sought by Pratt Holdings from ABL can also be inferred from this note. These parts of the document are subject to privilege. If these passages were severed from the document, however, the nature of any legal advice sought or obtained by Pratt Holdings might still be inferred from the document itself. Accordingly, severance is not practicable, and the whole of the document is protected by the privilege. 75 Documents 84 (and 86 and 90) are copies of document 83 although these documents do not bear the handwritten note referred to above. Document 90 has some other slight and immaterial handwriting on it. For the reason stated above, the whole of these documents are protected by the privilege. 76 Documents 85 (and 87 and 91) are copies of a draft discussion paper, consisting of 6 pages. Passages on p 5 (second and fifth paragraphs) refer to Pratt Holdings obtaining legal advice on particular subjects. The nature of the advice sought by Pratt Holdings from ABL can be readily inferred from these passages and these parts of the document are thus protected by the privilege. If, however, these passages alone were severed from the document, the nature of the legal advice sought or obtained by Pratt Holdings might still be inferred from the surrounding context. I have, therefore, also considered whether the privileged communications could be protected by severing pp 5 and 6 (the contents of which build on p 5) from the whole, together, perhaps, with item "3." on p 1 (the contents of which are indicative of the privileged communications). On balance, however, having regard to the specific topic dealt with in these papers and their contents as a whole, I consider that severance, even of this latter kind, will not protect the privileged communications; and no other form of severance is practicable. Thus, the whole of these documents are therefore protected by the privilege. 77 Document 88 is the same as document 48. Document 88 is not privileged: see [68] above. 78 I have also reviewed documents 32, 44, 49, 69, 70 and 76, which, according to the first decision were privileged in part, in order to ascertain whether they contain material, other than that to which I previously had regard, from which the nature of the legal advice sought and obtained by Pratt Holdings might be inferred. In the first decision, I held that the first page and the first two lines on page 2 of documents 32, 49 and 70 (which are identical) were privileged. On this review, I would also regard the first sentence of the second paragraph on p 2 and the second sentence in the third dot point under the heading, "TECHNICAL ANALYSIS" on p 5 as covered by the privilege. In connection with document 44 (and identical document 76), any privileged communication would be protected if the first sentence of the document, commencing "Apologies … " were severed from the balance of the document. On reviewing document 69, however, I have concluded that it contains passages from which the nature of the advice that Pratt Holdings sought and obtained from ABL can be inferred and that it is not reasonably practicable to sever any part of the document. Accordingly, the whole of document 69 is protected by the privilege. 79 As stated above, the Full Court set aside each of the declarations made in consequence of the first decision that were contrary to the interest of Pratt Holdings. The status of the documents the subject of these declarations remains unresolved. The inquiry mandated by the Full Court with respect to the category (4) documents can be made of these other documents. Accordingly, I have re-examined all the documents that the first decision found not to be privileged, applying the criterion stated by Finn J: see [59] above. Upon this re-examination, I further find as follows. · Document 18 contains a reference (paragraph 7) to Pratt Holdings obtaining legal advice from ABL. The nature of the advice sought by Pratt Holdings from ABL can be inferred from paragraphs 6 and 7 of this document, which paragraphs are therefore the subjects of the privilege. · Document 25 contains a reference at the first dot point to legal advice, from which the nature of the advice sought by Pratt Holdings from ABL can be inferred. This first dot point is therefore covered by the privilege. ·Documents 92, 96, 97, 105, 107, and 109 (which are versions of the PW paper), in the "LIST OF APENDICES", describe Appendix XII in terms from which the nature of the legal advice sought by Pratt Holdings from ABL might be inferred. The description of this appendix is therefore protected by the privilege. ·Document 108, p 2, first two lines, contains a passage from which the nature of the legal advice sought by Pratt Holdings can be inferred. This passage is, therefore, covered by the privilege. The above-mentioned passages, which I have found to be protected by the privilege, should be severed from the balance of the documents in which they appear.

disposition 80 I would give the parties an opportunity to submit a minute of proposed orders to give effect to these reasons for judgment, by agreement if possible. In default of agreement, I invite the parties to submit a minute of the orders each proposes and a brief statement in support of the relevant minute. The parties should also address the question of costs. I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Counsel for the Applicant: Mr B Woinarski QC with Ms M Gordon

Solicitor for the Applicant: Australian Government Solicitor

Solicitor for the First Respondent: Arnold Bloch Leibler

Solicitor for the Second Respondent PricewaterhouseCoopers Legal

Written submissions filed: 18 November 2004, 4 February 2005, 25 February 2005

Date of Judgment: 5 September 2005

At a glance

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Judgment (38 paragraphs)

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Legislation Cited (2)

Cases Cited (22)

Cited By (24)