“We need to have a dialogue with the relevant authorities so they understand the role of privilege in the rule of law and realise companies haven’t just made it up because it suits them
Stephen Revell
Partner, Freshfields Bruckhaus Deringer
Glencore argues the documents, which relate to advice the company received on ‘Project Everest’ – the name given to the 2014 restructuring of its Australian entities – are protected by legal professional privilege. Both Glencore and the ATO have issued their submissions to the Court.
Stephen Revell, a partner at Freshfields Bruckhaus Deringer, says this is the first high-profile case in which a company has sought to assert privilege as a ‘sword’ rather than a ‘shield’. ‘It’s rather like trying to bolt the stable door after the horse has already bolted,’ says Revell. ‘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.’
The case comes amidst an intensifying global crackdown on tax avoidance. In October 2018, Australian mining company BHP Billiton reached a $390m settlement with the ATO over a transfer-pricing dispute relating to marketing operations in Singapore. In the UK, Glencore itself has been hit by a $680m tax demand linked to transfer pricing for 2008-17, which it says it intends to appeal.
Revell, an officer of the IBA, says this latest case in Australia highlights growing concerns that privilege is being misused to conceal unsavoury tax practices. ‘What underpins this focus on privilege is a concern amongst some regulators, including the Australian tax authorities, that privilege is being abused and that the legal community are complicit in that “abuse”’, he says. ‘The legal profession needs to react to these claims and defend, as appropriate, the whole concept of privilege.’
Jane Ellis, director of Ellis Seabrook Limited and former director of the IBA Legal Policy & Research Unit, agrees that greater attention should be paid to how privilege can be abused. ‘Clients can structure contracts very cleverly without revealing the contents of their documents,’ says Ellis. ‘Before the courts see any documents, it’s very difficult to know whether they should be protected by legal professional privilege. And if the documents are protected by privilege then investigators, prosecutors and, in most cases, the courts won’t be allowed to see them – it’s a vicious circle.’
As Ellis point out, the iniquity exception to privilege – where there’s a deliberate intention to conceal crime or fraud – has the power to override any privilege that documents might otherwise enjoy. Australia’s Tax Commissioner, Chris Jordan, told delegates at a recent Tax Institute National Convention that the ATO had seen examples of lawyers claiming privilege on ‘tens of thousands of documents’, prompting his office to question ‘if it's a genuine claim or an effort to conceal a contrived tax arrangement.’
An ATO spokesperson told Global Insight it had ‘become clear that [the ATO’s] understanding of what advice is subject to legal professional privilege significantly differs from the position taken by some taxpayers and their advisers.’ Glencore declined to comment.
Recent judgments have not favoured the authorities. In March 2015, the Federal Court of Australia ruled the ATO had been ‘reckless’ in using privileged information in a multi-million dollar tax assessment against businessman Garry Donoghue. In August 2018, the same Court ruled that a taxpayer was entitled to claim privilege over the majority of documents obtained by the ATO for auditing purposes. In the UK, in September 2018 mining company ENRC won a Court of Appeal case to prevent the Serious Fraud Office from accessing privileged information gathered during an internal fraud and corruption investigation.
Revell has concerns about approaches to privilege by various authorities. ‘I’m concerned that the authorities are not seeing privilege in the round,’ says Revell. ‘Although we have to ensure privilege isn’t being abused, we also have to protect it. We need to have a dialogue with the relevant authorities so they understand the role of privilege in the rule of law and realise companies haven’t just made it up because it suits them.’
The Glencore case also raises compelling questions about privileged information once it enters the public domain. Colin Passmore, senior partner at Simmons & Simmons, points to a 2016 case, Wee Shuo Woon v HT S.R.L.Lexica, in which the Singapore Court of Appeal ruled that leaked information retained its confidential and privileged status after it had been published online. ‘In that case, although materials became publicly available on Wikileaks, the Court felt there was still a legitimate interest in protecting the underlying confidentiality,’ says Passmore. ‘Privilege is still a massively defended right and there’s a public interest there to be protected.'
What Revell believes these cases show is that the legal profession stands to benefit from further training and education on privilege: ‘If we don’t do that education job we risk a very severe attack on privilege.’