Legal advice privilege

The decision by Kenny J in the case of The Commissioner of Taxation v Pratt Holdings Pty Ltd and PricewaterhouseCoopers [2005] FCA 1247 (‘the Pratt Holdings decision’), is a useful reminder of the care that should be taken when making claims for legal professional privilege and particularly so when third parties are involved.

Principles of legal advice privilege

Legal professional privilege is a rule which may be invoked to resist the giving of information, or the production of documents, which would reveal communications between a client and his or her lawyer, made for the dominant purpose of giving or obtaining legal advice or for anticipated or actual litigation. A document itself is not privileged but the communication recorded in the document may be privileged. For our purposes, communications which may attract privilege will usually be recorded in documents.

The "legal professional privilege” is comprised of two limbs - "legal advice privilege” and "litigation privilege.”1 The main features of advice privilege are reasonably well settled, and may be summarised as follows:

1. The privilege is that of the client and not the legal adviser;

2. The client carries the onus of establishing its claim for privilege;

3. Privilege will be attracted where a document is created for the "sole or dominant purpose” of obtaining legal advice;

4. If a paper prepared by a third party is prepared at the direction of the client with the dominant purpose in mind of it being, or being in part, of the client’s communication to their legal advisers to obtain legal advice, then the paper would be privileged,

5. If the Court finds that parts but not all of the document were created for the requisite purpose, then those parts attract the privilege; and

6. Unless it can be said that the client has chosen to waive privilege, a privileged communication (recorded in a document) between a client and a lawyer will not lose that privilege simply because it is disclosed to a third party, such as an accountant.

In determining the purpose for which a communication/document is made, the following considerations are relevant:

1. The dominant purpose must be viewed objectively having regard to the evidence;

2. The evidence of the subjective intention of the document’s maker, or, of the person who authorised or procured it, is not conclusive of purpose;

3. The fact that a document is provided to solicitors for advice, is not determinative of the purpose for which it was created;

4. The dominant purpose for the creation of a document is to be determined at the time of its production; and

5. Where two purposes are of equal weight, neither is dominant in the relevant sense.

Pratt Holdings decision

The Pratt Holdings decision is an example of the application of these principles in practice. In this case, the Court found that documents at issue could, in theory, have been privileged but most were not. Generally, the claims for privilege failed because Pratt Holdings had not established that the dominant purpose for the creation of the relevant Price Waterhouse documents was to obtain legal advice, nor could the nature of any legal advice sought or given by another person be inferred from those documents.

Background

In 2001, the Commissioner of Taxation sought access to documents held by PricewaterhouseCoopers (‘PwC’) in relation to Pratt Holdings. The documents had been created in the early 1990s in the course of Price Waterhouse (‘PW,’ which later became PwC) performing certain tasks for Pratt Holdings. The Commissioner had sought these documents using his statutory access powers under s 263 of the Income Tax Assessment Act 1936. Pratt Holdings claimed these documents were protected from disclosure to the Commissioner by legal professional privilege because they had been created for the dominant purpose of obtaining legal advice. The Commissioner commenced proceedings in the Federal Court to obtain a declaration from the Court that legal professional privilege did not attach to the documents.

The Commissioner had been successful at first instance before Kenny J, who found the most of the documents were not privileged. However, on appeal, the Full Federal Court held that legal professional privilege may attach to documents brought into existence between a solicitor or their client and a third party, even though that third party was not acting as an agent of the client or solicitor. Thus so long as the dominant purpose of creating the documents was to obtain or provide legal advice, the document may be privileged.

The Full Court found that Kenny J had not made any findings of fact in relation to the dominant purpose of creating any of the documents, and so referred the matter back to her Honour to make the required findings on the dominant purpose for creating the documents in dispute.

Kenny J - take two

Kenny J’s decision concerned two main groups of documents:

• Documents connected with accounting matters (identified in the decision as categories 1, 2, 3, 5, 6); and
• Documents that revealed legal advice (category 4).

In respect of the PW Papers, and consequently the remaining category 2 documents, Kenny J found that the documents had been prepared for three different purposes, each of equal importance:

1. to enable Pratt Holdings to instruct their solicitors so that that the solicitors could provide the legal advice;

2. to assist in the preparation of a valuation for Pratt Holdings; and

3. to explain certain matters concerning the tax implications of certain losses, and to record relevant information.

Consequently, there had been no dominant purpose behind the creation of the documents that related to obtaining legal advice. Accordingly, the claim for privilege in respect of the first group of documents (ie, those in categories 1, 2, 3, 5, 6) was rejected.

In reaching this conclusion, Kenny J made particular reference to the fact that all versions of PW Papers contained a statement of purpose - to provide a tax accountant’s analysis to Pratt Holdings. Notably, the statement of purpose did not refer to Pratt Holdings’ purpose of obtaining legal advice.

Legal advice documents - category 4

Category four documents contained legal advice from Arnold Bloch Liebler disclosed by Pratt Holdings to PW. Each of these documents were analysed individually by the Court and privilege was upheld in circumstances where the nature of the advice sought from the solicitors could be inferred.

Conclusion

The Pratt Holdings decision reminds us to be cautious in considering claims for privilege. When considering the issue of privilege, it is necessary to look not only at the documents at issue themselves, but also consider the purposes and circumstances in which documents were prepared.

When creating documents in the course of obtaining legal advice, clients should be mindful of the fact that they may be later required to prove, on an objective basis, that the document was created for the requisite dominant purpose. Clients should also take care not to ignore the restrictions on privilege in connection with documents prepared by or for third parties.

For more information please contact:

	Michael Bersten Tel: + 61 2 8266 6858 Send email Daniel McInerney, Phone: + 61 3 8603 5625 Send email