Review your engagements with multidisciplinary partnerships involving non-lawyer tax advisers to ensure privilege will not be lost

By Amber Agustin, Tim Jones, Phil Bisset and Luke Furness
31 Mar 2022
In a long-awaited judgment, the Federal Court has delivered the ATO a partial win in its challenge to privilege claims over tax advice of large multidisciplinary partnerships that involve non-lawyers in giving tax advice.


While the Court is yet to release its detailed reasons in Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278, the Commissioner was overwhelmingly successful in challenging privilege for those documents he selected for the Court’s consideration. The Commissioner’s strongly-held views as to inappropriate privilege claims may be fortified by this decision.

What happened?

The ATO issues statutory notices to produce documents to the "JBS Parties" and their advisors PwC as part of an audit. The JBS Parties claimed privilege over more than 44,000 documents. The ATO challenged over 15,000 of those claims arguing:

There was no lawyer-client relationship between PwC and the JBS Parties – therefore, all privilege claims failed.

Alternatively, the documents were not for the dominant purpose of giving or obtaining legal advice – which involved considering each document.

The Court could not practically review 15,000 documents, so the parties agreed to select 100 "sample documents" which became 116 with attachments. The Court also appointed three, independent barristers to assist because it would be inappropriate for the ATO to see the documents while the Court was deciding privilege claims over them.

The Court found:

  1. There was a lawyer-client relationship in at least some cases. It was not possible to say, as a general proposition, that all the privilege claims should be rejected for lack of any lawyer-client relationship at all. On this point, the Commissioner was unsuccessful.
  2. Of the 116 sample documents:
    1. 49 were privileged;
    2. 6 were partly privileged; and
    3. 61 were not privileged.

Why did the Court accept some privilege claims and reject others?

The short answer is that we know little at this stage, as the bulk of the reasons is yet to be released.

The Court released judgment with most of the reasons redacted to allow PwC/JBS Parties 7 days to propose redactions to protect privileged information. Hopefully the final judgment will have enough unredacted details to give the tax community clear guidance on which types of documents were found to be privileged and which were not.

That said, we know the following played a key part in the Court's decision:

  • PwC's multidisciplinary partner structure of using both lawyers and non-lawyers (working "under the direction" of the lawyers) was highly relevant. It appears from reporting during the case that submissions were made as to the proportion of time spent on the matter by non-lawyers, as compared with lawyers.
  • It was "notable" that at least one of the non-lawyers had a higher charge-out rate than the main PwC lawyer.
  • It was important context that PwC Australia engaged overseas firms (PwC US and PwC Brazil) who made it clear that they were not providing legal advice.
  • The JBS Parties abandoned privilege claims over some (or some parts) of the 116 documents. However, it appears that the Court has made privilege calls on those documents anyway (the Annexure to the 116 documents refers to the Court's conclusions as to privilege) which would be useful in applying the decision to other cases.

How does the ATO approach privilege?

The ATO accepts in general that its information-collecting powers are subject to legal professional privilege. There have been differing views in the tax community around the edges of privilege and how to properly particularise a claim, particularly in the case of the large multidisciplinary partnerships who were formerly the large accounting firms. The ATO has previously expressed concerns about the way privilege claims are asserted for some time and that some legal practitioners and taxpayers are making inappropriate privilege claims. In that sense, it is a welcome development that the differing views on privilege are being tested in Court which is the proper forum to do so, and it is hoped that the reasons, when published, will be of sufficient detail to be of educative value.

The case is also part of a trend in the ATO testing and affirming how it can access and use documents. We have highlighted previously how that includes hacked documents, documents obtained in litigation generally, and documents obtained under a subpoena to a third party.


What you should do now

  • Review your engagements with multidisciplinary partnerships involving non-lawyer tax advisers to ensure privilege will not be lost.
  • Review your internal processes for how tax advice is obtained where non-lawyers are involved.
  • Review the final judgment for guidance on the distinctions between privileged and non-privileged communications. While the law on privilege is well established, we expect that the final judgment will provide in-house lawyers and tax advisers practical guidance on how to maintain your claims.

We will provide a further update on the final judgment.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.