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The Federal Court (Stone J) has upheld the taxpayer's claim for legal professional privilege in respect of 8 documents arising out of the James Hardie restructure. The Commissioner sought production of the documents in proceedings challenging an amended assessment issued by the Commissioner in respect of the income tax year ending 31 March 1999. The amended assessment was based on the Commissioner’s determination under s 177F(1) of ITAA 1936 that, by operation of Pt IVA, the amount of $478,237,746 should have been included in the assessable income of the taxpayer for the year of income ended 31 March 1999. The Commissioner also assessed the taxpayer as liable to pay additional tax by way of penalty in the amount of $43,041,397.

The 8 documents were all copies of documents which were sourced either from the files of the solicitors, Allens Arthur Robinson (Allens) or PricewaterhouseCoopers Legal (PwC Legal) and which came into the possession of Mallesons, the taxpayer’s solicitor. The taxpayer argued that the copies were created and provided to Mallesons so that Mallesons could provide legal advice to the taxpayer in respect of the current proceeding, and that this was the dominant purpose for making the copies. To the extent to which the documents were privileged, the Commissioner argued that the privilege had been waived and that the taxpayer had deliberately provided copies in response to the Commissioner's notice to produce rather than originals so as to take an improper advantage of the principles articulated in Commissioner of Australian Federal Police v Propend Finance Pty Limited [1997] HCA 3; (1997) 188 CLR 501.

In Propend, the High Court held, by a majority (Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ) that legal professional privilege attaches to copy documents if the copies were made solely for the purpose of obtaining or giving legal advice or solely for use in legal proceedings, irrespective of the status of the original documents. Following the decision of the High Court in Esso Australia Resources Limited v FCT [1999] HCA 67; (1999) 201 CLR 49, it is now accepted that the purpose need only be the dominant rather than the sole purpose.

Stone J held that there had been no waiver of privilege in respect of any of the 8 documents. In relation to the claim that copies, rather than originals had been produced, her Honour said, at para 67:

"Submissions were made on behalf of the Commissioner to the effect that [the taxpayer] had deliberately provided copies in response to the notice to produce rather than originals so as to take an improper advantage of Propend privilege. It was submitted that the Court should not permit this to occur. In my view this is really an argument about whether there has been proper compliance with the notice to produce. The issue was not raised in the notice of motion presently before the Court. Moreover the Commissioner has not sought any orders in respect of issue. It is therefore not necessary for me to consider it further."

RCI Pty Ltd v FCT [2009] FCA 910 (Federal Court, Stone J, 19 August 2009).

For a copy of the decision, go here


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