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Perspective

Is Legal Professional Privilege Under Threat in Australia? - The Data Breach That Changed Things

September 18, 2019| Von Edmund Fernandez | P/C General Industry | English

Region: Australia

On 14 August 2019, the High Court of Australia handed down a decision in favour of the Australian Taxation Office (ATO), allowing it to use privileged information obtained from the 2017 “Paradise Papers” data breach. This decision of the highest court in Australia has ignited concern among lawyers and lobby groups, raising questions whether a fundamental legal right is being eroded - the protection of all communication between a professional legal adviser and client from being disclosed without the client’s permission.

The Paradise Papers data breach occurred when 13.4 million confidential documents were leaked to two German reporters. The reporters then shared these documents with the International Consortium of Investigative Journalists. Among the documents that were subsequently made public on November 2017 were privileged “Glencore” documents that were hacked from Appleby Ltd, an incorporated law practice in Bermuda. The High Court noted that the existence and content of the Paradise Papers received global media coverage.

The case of Glencore International AG & Others (Glencore) v Commissioner of Taxation of The Commonwealth of Australia & Others (ATO) [2019] HCA 26 was brought to trial in late 2018 by Glencore, a Swiss-based multinational mining company.1 A writ was lodged in the High Court attempting to injunct the ATO from using documents that were part of the Paradise Papers. Glencore submitted that the documents are subject to legal professional privilege and that was enough to grant it the injunction it was seeking. Glencore did not seek to rely on the equitable doctrine of breach of confidence, or to expand any other area of law.

This is the first high-profile case in which a company has sought to assert privilege as a “sword” rather than a “shield”. As one senior attorney said, “It’s rather like trying to bolt the stable door after the horse has already bolted. It’s the first-time privilege has been used in this ‘sword’ manner and this has been driven by various Wikileaks and similar mass leaking of confidential and arguably privileged documents”.2

The ATO objected to Glencore’s claim. The principal ground for the objection is that no cause of action is disclosed by which Glencore is entitled to the relief sought. Alternatively, the ATO contends that it is entitled and obliged to retain and use the documents in question by reason of and for the purposes of section 166 of the Income Tax Assessment Act 1936 (Cth). That section relevantly provides that the Commissioner must make an assessment of a taxpayer’s taxable income from the taxpayer’s returns “and from any other information in the Commissioner’s possession”.

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In a unanimous decision, the High Court confirmed that the ATO’s objection must be upheld, and Glencore’s argument cannot be accepted. The court said that Glencore’s arguments fundamentally rested upon an incorrect premise, i.e., that legal professional privilege is a legal right that is capable of being enforced. It agreed with the ATO that legal professional privilege was an immunity, but not a legal right that could form the basis for an injunction. A claim based on the equitable doctrine of breach of confidence could operate to support an injunction, but this was not pleaded by Glencore since the Paradise Papers data breach meant that these documents were in the public domain and no evidence suggested that the ATO had engaged in any breach of confidence.

This decision means that the ATO is now free to rely on these documents to make assessments of Glencore’s tax obligations, including any potential breaches. According to the ATO, the decision means that the ATO can continue to use the Paradise Papers and other similar data leaks: “Today’s decision is not just a win for the ATO; it’s a win for the Australian community who rightly expect the ATO to use all information available to ensure large corporations and those who seek to hide money overseas are paying the right amount of tax. … The information in question was already in the public domain. …Once we have information we can’t just ignore it - we are obliged to use all relevant information we have.”3

Others are not so encouraged by the decision. Tanya Khan, Managing Director of the Association of Corporate Counsel told Australian Broadcasting Corporation News (ABS News) that “Allowing the government or any other third party to retain and use privileged documents in this manner undermines client candour and may encourage stolen privileged documents to be leaked in Australia”.4 The Law Council is concerned about the impact increasing cyber security breaches may have on privileged information held by lawyers. As a consequence, ABC News reports that the Law Council of Australia and the Australian Bar Association are working with the ATO to develop new protocols on privilege.

There is also a public interest issue at play. In this case, the decision involved a multinational company, but the ramification of this decision is serious. According to the Australian Bar Association’s Jennifer Batrouney, “If we chip away at legal professional privilege - it will not only hurt the multinationals, it will hurt Mrs. Smith - it will hurt you and I[sic]”.5

What might the Glencore decision mean for insurers and reinsurers? Besides the increasing number and size of cyber claims, we should also be concerned about how potentially privileged information could be accessed or even used in claim litigation. With the ever-increasing risk of cyber security breaches, claims managers may not always be sure that their privileged documents will always remain privileged.

Entnotes
  1. http://eresources.hcourt.gov.au/downloadPdf/2019/HCA/26, http://www.hcourt.gov.au/assets/publications/judgment-summaries/2019/hca-26-2019-08-14.pdf
  2. Stephen Revell, Partner at Freshfields Bruckhaus Deringer, https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=1a5fe839-f557-4d1c-9cf4-db72ddae1455
  3. Jeremy Hirschhorn, ATO’s Second Commissioner, https://www.ato.gov.au/Media-centre/Media-releases/High-Court-confirms-ATO-can-use-information-from-data-leaks/, ABC News
  4. https://www.abc.net.au/news/2019-08-15/lawyers-fear-ramifications-of-high-court-ruling-on-glencore-/11414806
  5. Ibid.

 

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