Newsflash – High Court grants special leave to appeal in Willmott Forests – disclaimer of leases

Yesterday the High Court granted special leave to appeal the Victorian Court of Appeal’s decision in Willmott Forests Ltd (Receivers and Managers appointed)(in liquidation) v Willmott Growers Group Inc and Willmott Action Group Inc [2012] VSCA 202.

The transcript of the special leave application is not yet up on Austlii. However my friend and colleague Sam Hopper has posted a very useful update on his blog here. Also the parties’ summaries of argument are available online here (scroll down to the table for proceeding M99 of 2012).

I wrote on the Victorian Court of Appeal’s decision last year here. In short, the Court of Appeal held that a tenant’s leasehold interest could be extinguished by disclaimer of the lease agreement by the liquidator of the lessor, pursuant to s 568(1) of the Corporations Act 2001 (Cth).

In their summary of argument for special leave, Willmott Growers Group Inc noted that disclaimer of a lease by a liquidator of a corporate tenant is common (at [42]). However, they argued that disclaimer of a lease by a liquidator of a corporate lessor is a novel use of the liquidator’s disclaimer power, and that the implications of the Court of Appeal’s decision are far reaching. Tenants, particularly retail shop tenants, typically invest substantial sums into the goodwill and fit-out of their leased premises. Much of this expenditure is lost of the tenant is forced to relocate. Also, as the Court of Appeal’s decision erodes the security of tenure under a lease, it may impact upon the willingness of banks and financiers to grant finance on the security of a lease. They noted that the consequences for lessees, in particular retail tenants, are significant. The Court of Appeal had indicated at [51] that the implications of its decision extended to “shopping centre leases”. (See [36]-[41] of the applicant’s summary of argument.)

We await the High Court’s decision with interest. It is expected the appeal hearing will take place later this year, potentially August 2013, with the judgment to follow sometime thereafter.

Provisional liquidators – principles as to appointment – ASIC v ActiveSuper

Last month in ASIC v ActiveSuper Pty Ltd (No 2) [2013] FCA 234, Gordon J considered an application by ASIC brought pursuant to s 472(2) of the Corporations Act 2001 (Cth) (the Act) to have Michael McCann and Graham Killer of Grant Thornton in Brisbane appointed joint and several provisional liquidators to a company called MOGS Pty Ltd (MOGS). ASIC sought the appointment to secure and preserve MOGS’ assets pending the final hearing of ASIC’s winding up application against MOGS, and to empower an independent expert to investigate MOGS’ affairs and report back. The application was successful. The judgment provides a useful opportunity to review the principles governing when a provisional liquidator will be appointed.

MOGS was a company that rode the wave of Australian investor interest of recent years in the distressed real estate market in the United States. ASIC alleged that MOGS had received funds from investors (principally the trustees of self-managed superannuation funds) by two routes – funds raised pursuant to a so-called “US Realty Memorandum” for investment into distressed real estate in the USA but loaned, at least, by the 5th-8th defendants to MOGS; and funds raised pursuant to so-called “product placement memoranda” for investment with the 9th-10th defendants but loaned, at least in part, by entities associated with those defendants to MOGS.

ASIC submitted that there was substantial evidence that MOGS had committed, or been knowingly concerned in, a number of contraventions of the Act including breaches of s 1041H(1) (misleading and deceptive conduct in respect of a financial product or service), s 911A(1) (provision of financial services without a relevant licence) and s 727(1) (offering securities without a current disclosure document lodged with ASIC.

During the course of argument it became apparent – for the first time – that MOGS was, at least to some extent, acting as trustee of the MOGS Unit Trust. Up to that point, despite extensive affidavit evidence, there was no evidence of that fact. It was unclear whether the criticised transactions were undertaken by MOGS in its own right, or as trustee of the MOGS unit trust.

Gordon J expressed surprise that MOGS had failed to inform the Court that it was a trustee of the MOGS Unit Trust, provide the Court with a copy of the Trust or identify the unitholders, although her Honour noted that ASIC had been aware of MOGS’ status, but had apparently not turned its mind to these questions either until the issue was raised by the Court. Gordon J also raised the possibility of replacing the trustee under s 80 of the Trusts Act 1973 (Qld). Subsequently, ASIC sought leave to amend its interlocutory application to seek additional orders, including that the provision liquidators also be appointed as replacement trustees of the MOGS Unit Trust pursuant to s 80 of the Trusts Act 1973 (Qld).

One of the affidavits filed for the defendants was sworn by one of the MOGS directors, the 14th defendant Mr Stonehouse. Her Honour made the telling remark that this affidavit was important both for what it did, and what it did not, say.

The Appointment of Provisional Liquidators 

As usual, her Honour provides an excellent distillation of the key principles – see the passages at [11]-[18] and the authorities there cited for each of the premises and principles below.

Section 472(2) gives the Court power to appoint a provisional liquidator at any time after the filing of a winding up application, before the making of the order. The Court has a wide and complete discretion as to whether or not to make the appointment; the grounds on which a provisional liquidator may be appointed are infinite.

On the other hand, such an appointment is a drastic intrusion into the affairs of the company. It will not be done if other measures would suffice to preserve the status quo. Therefore there must be good reason for this early intervention.

Her Honour sets out the six principles distilled by Tamberlin J in ASIC v Solomon (1996) 19 ACSR 73 at 80, often cited in this context (see [16] of this judgment to see the authorities Tamberlin J cites for these principles) -

1.  The court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made;

2.  The fact that the assets of the corporation  may be at risk is a relevant consideration;

3.  The provisional liquidator’s primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after a further examination, whether the company should be wound up;

4.  The court should consider the degree of urgency, the need established by the applicant creditor and the balance of convenience. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact;

5.  It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors;

6.  Where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company’s affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator.

Gordon J then set out 6 of the further 8 considerations listed by Tamberlin J as applicable in Solomon’s case that would also weigh in this case in favour of the appointment of a provisional liquidator (see [17]) -

…

(b)  There was on any view at present, a substantial deficiency of assets against liabilities which had not been contested. Not a case of marginal insolvency;

(c)  There was a demonstrated lack of control over the assets of several corporations arising from the intermingling of moneys between the corporate respondents. For practical purposes they have been administrateed as if comprising a single undertaking operated to suit the whims or purposes of Mr Solomon without due regard to their individual best interests;

(d)  No proper records had been kept of the moneys lent to or distributed between the corporate respondents which were received from investments made with Mr Solomon. For example, it appeared that investment moneys procured to be invested in taxis and share markets had been diverted to publishing ventures of Mr Solomon and his personal enterprises;

(e) Mr Solomon was the controlling mind and will of the corporate respondents and faced a conflict of interest. He was a debtor to the investors and liable to them in respect of moneys advanced and at the same time he was a creditor of the corporate respondents as a result of the on lending to them. They had no doubt received the funds with notice that they were placed by the investors with Mr Solomon for investment in nominated ventures. Mr Solomon proposed to engage in further commercial activities through the corporate respondents and to obtain further credit;

(f)  It was essential, in these circumstances, that an independent person be appointed who could ensure that any remaining funds ware not further diverted by Mr Solomon for other ventures or intermingled with additional moneys. An independent person would be in a position to realise the assets, determine the claims and administer the remaining funds evenly as between the investors free from any personal or pecuniary interest in the outcome;

(g)  There was cogent evidence that moneys may have been obtained illegally by offering prescribed interests in contravention of the Corporations Law. The corporate respondents were no doubt on notice of such illegality.

At [18] her Honour noted that there was, arguably, one qualification to these principles:  that where an application to appoint a provisional liquidator is made, and the relevant company appears, the onus is not as heavy on the applicant.

Prospects of Winding Up Application on Just and Equitable Ground

In order to make the assessment referred to in 1 above – whether there is a reasonable prospect of a winding up order being made – Gordon J considered the prospects of ASIC’s application to wind up MOGS on the just and equitable ground under s 461(1)(k) of the Act (see [19]-[24] and the authorities referred to). Her Honour noted it has long been established that a company may be wound up where there is ” a justifiable lack of confidence in the conduct and management of the company’s affairs” and thus a risk to the public interest that warrants protection. In ASIC v ABC Fund Managers Ltd (No 2) [2001] VSC 383; (2001) 39 ACSR 443 at [119] Warren J (as her Honour then was) set out three general fundamental principles -

(1)  There needs to be a (justifiable) lack of confidence in the conduct and management of the affairs of the company. This may arise where after examining the entire conduct of the affairs of the company the Court cannot have confidence in the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company;

(2)  In these types of circumstances it needs to be demonstrated that there is a risk to the public that warrants protection. This may point to a winding up order being necessary to ensure investor protection; where a company has not carried on its business candidly and in a straightforward manner with the public; or where a winding up order may be justified in order to prevent and condemn repeated breaches of the law; and

(3)  There is a reluctance on the part of the courts to wind up a solvent company. A stronger case may be required where the company is prosperous, or at least solvent. Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, where there have been serious and ongoing breaches of the Act.

In regards to both (1) and (2), her Honour observed that there is significant overlap between matters relevant to this assessment and the just and equitable ground, and matters which weigh in favour of the exercise of the Court’s discretion to appoint a provisional liquidator.

Application to the Facts Here

In this case, briefly, ASIC pointed to the following grounds as justifying the appointment of a provisional liquidator to MOGS -

1.  In excess of $4 million raised from Australian investors and received by MOGS appeared to have been dissipated by MOGS. Both the receipt and dissipation of those funds required investigation;

2.  MOGS had engaged in transactions with no apparent commercial purposes, failed to comply with its obligations, and there were accounting inconsistencies and inaccuracies for which there was no or no satisfactory explanation;

3.  MOGS had contravened the law including by maintaining inadequate accounts and records;

4.  The information provided by one of the two directors, Marina Gore, lacked veracity; and

5.  MOGS appeared to be insolvent.

The evidence showed that it was likely that MOGS was no longer the trustee of the MOGS Unit Trust, as a result of ASIC having filed the wind up application, under the terms of the Unit Trust Deed providing for automatic removal. According to the other director Mr Stonehouse, acting as trustee of the Unit Trust was MOGS’ sole activity. MOGS’ own asset position was limited. As Gordon J neatly summarised MOGS’ position at [43] – its substratum was gone.

However there was another problem:  In spite of its position just outlined, the evidence showed that MOGS  continued to operate. Its accountant filed an affidavit reporting MOGS’ operating profit for the first fix months of the 2013 financial year at around $5 million and rising.The accountant in his affidavit asserted that as long as MOGS’ funding facility remained in place MOGS remained solvent, but that the directors had said that funding arrangement would be immediately terminated if a provisional liquidator was appointed, leaving it unable to fund and complete property developments that were underway. This funding facility was provided by third parties. However in the evidence the defendants put forward, those funding parties were not identified, the terms of the arrangements were not disclosed, nor the extent to which the facilities were drawn down, and the accountant’s assertion of the effect of the appointment of a provisional liquidator – which was mere hearsay evidence – was not addressed or explained by the directors in evidence.

It is apparent from the judgment that her Honour was alive to and dissatisfied with the gaps in the evidence for the defendants and the uncertainty as to the capacity in which MOGS was trading with “wholly innocent third parties”, including self-managed superannuation funds. Gordon J held that in the circumstances, it was appropriate and in the public interest that a provisional liquidator be appointed to MOGS (see [49]).

MOGS sought to argue that Corporations Acts remedies were not appropriate for trust companies, citing an oppression case in support. Her Honour gave this argument short shrift (see [52]-[53]).

Gordon J found that there was a reasonable prospect that a justifiable lack of confidence in the conduct and management of MOGS, and a case for winding up of MOGS on the just and equitable ground, would be made out at trial. It was therefore appropriate that a provisional liquidator be appointed to MOGS with specified powers, and for there to be a report back to the Court and ASIC.

Victorian Supreme Court costs – the party/party is over

Reblogged from Paul Duggan:

No April Fool’s Day jokes please.

Effective 1 April 2013 the Victorian Supreme Court has a new costs regime.

The highlights:

• The ‘party and party basis’ (by which most Supreme Court cost bills have historically been taxed) is axed.
• Henceforth, costs orders will generally be taxed on the more generous ‘solicitor and client basis’ (that is “all costs reasonably incurred and of reasonable amount”) although that yardstick is to be renamed the ‘standard basis.’

Read more… 217 more words

Many practitioners will already be aware of the new costs regime coming into force in the Victorian Supreme Court next week - 1 April 2013. It is worth noting. For those who would like a handy "cheat sheet" summary, I refer you to this excellent one prepared by my friend and colleague, Paul Duggan.

Update – ATO’s statement on unfair preference case and reallocation of payments

Last year I reviewed the Federal Court’s decision and the Full Federal Court’s decision on appeal in a third party preference case against the Commissioner of Taxation, which had an interesting twist. My review of the first instance decision of Nicholas J of March 2012 in Kassem and Secatore v Commissioner of Taxation [2012] FCA 152 is here. My review of the appeal decision of September 2012, Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124, is here.

The interesting issue in this case was the ATO’s practice of unilaterally reallocating payments made by taxpayers of tax liabilities from one account (in this case, the integrated client account) to another (in this case, to the superannuation guarantee or “SGER” account), and whether that enables the Commissioner thereby to avoid the reach of the unfair preference provisions.

An argument the Commissioner advanced unsuccessfully both at first instance and on appeal, was that the fact that the payments were (re)allocated to the SGER account in respect of the company’s superannuation guarantee charge liability, meant that there was no unfair preference. A payment of an SGC liability is a priority payment under s 556 of the Corporations Act, so the argument went, and therefore there was no unfair preference to the Commissioner, as he would have received the same priority over other creditors in any event.

In this case, the Full Federal Court went further on this issue than Nicholas J had done. The Full Federal Court noted that the evidence showed that on 31 July 2007, an ATO employee had telephoned the NSW Supreme Court to ascertain the date of the hearing of the application to wind up the relevant company, and was told it was set for 23 August 2007. The next day, 1 August, the relevant payments were “reallocated” by the ATO.

The Full Federal Court made a specific finding (at [90]) that it was plain the Commissioner took the step of reversing and (re)allocating the payments from the integrated client account to the SGER account -

“with a view to obtaining a priority over other unsecured creditors in the event that [the petitioning creditor] obtained a winding up order when the matter was due to come before the Supreme Court.”

Their Honours observed at [91] that -

“It is a fundamental principle of the law of unfair preferences that the present statutory regime, and its predecessors are…intended to render void any transaction which, if allowed to stand, would dislocate the statutory order of priorities among creditors.”

Yet, so their Honours specifically held -

“…that is precisely what the Commissioner intended to achieve.”

Extraordinary. The Full Court observed that it was implicit in the Liquidator’s submissions that on the proper construction of s 8AAZD of the Taxation Administration Act 1953 (Cth), the power of allocation does not extend to a power of reallocation to another ATO account. Thus the Commissioner had no power to so reallocate (at [70]). The Full Court took the view that it did not need to determine this question (at [88]). I discuss this issue in greater depth in my review of the decision (here).

The Commissioner’s response? It escaped my notice at the time, but on 23 November 2012, the Commissioner published a Decision Impact Statement on the case (link). In it the Commissioner notes that he did not apply to the High Court for special leave to appeal the decision.

On this issue here discussed, the Commissioner points to the fact that it was not necessary for the Full Federal Court to make a decision about the Commissioner’s powers to allocate or reallocate payments. The Commissioner then states -

“This decision does not affect the Commissioner’s powers to allocate payments received by taxpayers in accordance with the two methods set out in Division 3 of Part IIB of the Taxation Administration Act 1953.“

It would appear that despite the findings of the Full Federal Court as to the ATO’s conduct, the Commissioner has no intention of taking steps to change the internal practices of the ATO as to reallocations made between the accounts of failing companies. Troubling. Particularly so, one might think, now that directors can be made personally liable for the unpaid and unreported superannuation guarantee charge liabilities of their companies (since 30 June 2012). What is to stop the ATO from unilaterally reallocating payments in the reverse direction, depending upon which way it considers it may best maximise the revenue to be recovered?

Newflash: The Banks win special leave to appeal Bell Group to the High Court

It is being reported that this morning, Westpac and the other 19 banks in the Bell Group litigation have won special leave to appeal their loss last year in the West Australian courts to the High Court of Australia.

At first instance in 2008 the Banks were ordered by his Honour Justice Owen to pay about $1.58 billion to the liquidators of Bell Group (link). Their appeal of that decision to the Court of Appeal of the West Australian Supreme Court failed – see that judgment here. This morning, the full bench of the High Court granted the Banks special leave to appeal.

The brief media report may be read here. And thus Australia’s reportedly most expensive and longest-running court case continues…

Refusal to adjourn winding up application, despite tax appeal

Earlier this week, the Federal Court gave judgment in Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd (no 2) [2013] FCA 208 (link). The case is a handy illustration of the fact that where the Commissioner applies to wind up a company, it may proceed to obtain the order even though a company has lodged an appeal as to the tax liability upon which the statutory demand was founded.

The Commissioner had served a statutory demand in April 2011. The company filed a s 459G application for an order setting it aside. It argued it had a genuine dispute as to the amount or existence of the debt, pursuant to s 459H(1). It had lodged an objection to the Commissioner’s assessment, the objection had been disallowed, and the company had taken steps to challenge the objection decision in the Administrative Appeals Tribunal. On that occasion, Barrett J in a pithy and emphatic 8 paragraphs, dismissed that proceeding in September 2011 – see In the matter of Bayconnection Property Developments Pty Ltd [2011] NSWSC 1048.

Then in November 2011 the Commissioner filed an application under s 459P to winding up the company on the ground of insolvency. This was first heard in April 2012. It was common ground that the Court was required to presume that the company was insolvent, pursuant to s 459C(2)(a), as it had not complied with the Commissioner’s statutory demand.

On that occasion (link), Robertson J adjourned the Commissioner’s winding up application, pending the outcome of the defendant company’s challenge to the Commissioner’s assessment of its tax liability. It had issued proceedings under s 14ZZM of Pt IVC of the Taxation Administration Act 1953 (Cth), in the Administrative Appeals Tribunal. The Commissioner conceded, as he had in Broadbeach at [13], that:

“Notwithstanding the presumption of insolvency that would apply under s 459C(2)(a)…upon the hearing of such winding up applications the court might properly have regard to whether the taxpayer had a “reasonably arguable” case in proceedings under Pt IVC of the Administration Act, if those proceedings then still be on foot…”.

Robertson J accepted that the company had a “reasonably arguable” case in those proceedings. The company submitted, and it was accepted, that it was insolvent only by reason of the alleged tax debt – it had no other third party creditors. It was no longer trading and had not been for some years. On that occasion, Robertson J exercised his discretion in s 459A of the Act (“On an application under s 459P, the Court may order that an insolvent company be wound up in insolvency.” ) and adjourned the winding up application. His Honour also made an order under s 459R(2) extending the period within which the wind up application must be determined (the specified period being within 6 months of the application being made).

The Tribunal then heard the tax matter over five days in August 2012 and reserved its decision. The Tribunal handed down its decision on 29 January 2013. The company (and its related defendant companies) lodged a notice of appeal to the Federal Court within time, and the tax appeal was listed for first directions on 14 March 2013. (Robertson J was hearing this winding up application on 8 March 2013.)

Before Robertson J, the defendant companies again contended that there was and would be no debt to the Commonwealth by virtue of their tax appeals. While the Court was required to presume they were each insolvent, pursuant to s 459C(2)(a) of the Act, each company was insolvent only by reason of the tax debt in question.

Robertson J turned to the fresh exercise of his discretion, on this occasion, under s 459A. His Honour took into account the general principles set out in Southgate Investment Funds Ltd v Deputy Commissioner of Taxation [2013] FCAFC 10 at [77], bearing in mind that that was a case about whether or not execution of a judgment debt should be stayed and a case where there had been no hearing on the merits, the appeal under Pt IVC of the Taxation Administration Act not having been hard.

His Honour identified the following factors which he took into account at [15], in refusing the adjournment application on this occasion -

• It is the taxpayer which bears the onus of persuading the Court that a stay ought be granted in the particular circumstances
• That great weight must be given to the clear legislative policy which gives priority to the recovery of taxation revenue notwithstanding that the taxpayer has a Pt IVC proceeding on foot
• That it is too narrow a view of the discretion to grant a stay merely because Pt IVC proceedings are pending or because on review of those proceedings there appears to be an arguable case
• That in cases where the Court considers that it is in a position to assess the merits of pending Pt IVC proceedings and that it is appropriate to do so, the weight to be attached to those merits will vary according to the relative strength of the merits but the taxpayer needs to have more than merely an arguable case
• That irrespective of the merits of pending Pt IVC proceedings, a stay will not usually be granted where the taxpayer is party to a contrivance to avoid liability to pay the tax
• That more weight would be given to the merits factor if the case is one where the Deputy Commissioner has abused his position.

Robertson J found it significant that the tax appeal from the AAT to the Federal Court was on, and limited to, questions of law. Whereas he had held in April 2012 that each company had an arguable case which extended to the facts, the position now was that each defendant company was limited to questions of law. His Honour considered the grounds, and found that they were not reasonably arguable (at [26]). His Honour found that even if he was wrong on that and the grounds of the tax appeal were reasonably arguable, they were not strong, and the clear legislative policy which gives priority to the recovery of taxation revenue, would outweigh any merits of the appeal to this Court. Perhaps even the highly esteemed tome, Fary on Adjournments, would not have aided the defendant companies in staving off the result, in this case.

His Honour ordered that the companies be wound up.

For those interested, I refer you to my case review last month of HC Legal Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 45, a most interesting case involving the dismissal of an application by a company to set aside a statutory demand issued by the Commissioner (link).

ASIC Information Sheet 165 – Legal Professional Privilege and Responding to Compulsory Production Notices

Late last year (13 December 2012) ASIC released its Information Sheet 165 outlining the approach it takes to claims of legal professional privilege (LPP). ASIC has compulsory information gathering powers to require disclosure of information. This power may be exercised in respect of their regulatory work. As ASIC stated in its press release, documents and information that attract a valid claim of LPP does not have to be provided. However, when the recipient of a notice compelling production of documents makes a claim of LPP, issues can arise as to whether the claim has been properly established, and whether LPP information can be provided to ASIC on a limited and confidential basis.

In Section 6 of the information sheet, ASIC states in summary that if in ASIC’s opinion a claim of LPP is not substantiated by the information provided, or in their view it is otherwise not valid (by reason of waiver or because it is simply not privileged, in their view) then you, the party claiming LPP in a document, have several choices. You may (a) withdraw your claim of LPP and provide the information to ASIC, (b) enter into a voluntary LPP dispute resolution process with ASIC, or (c) make an application to Court to seek a declaration that the information is privileged.There is also a fourth choice: (d) maintain your claim of LPP but provide the documents voluntarily on a strictly confidential basis.

Earlier in ASIC’s Information Sheet, at Section 5, ASIC outlines the procedure they refer to as “Voluntary confidential disclosure of LPP information”. Under this approach, ASIC may accept, on a confidential basis, privileged information voluntary provided by a notice recipient. Broadly, ASIC and the privilege holder agree that the disclosure of the information is on a strictly confidential basis, and ASIC and the privilege holder agree that the disclosure is not a waiver of any privilege existing at the time of the disclosure. ASIC notes that this prevents ASIC from later asserting that the provision of the information to it amounts to waiver, but may not prevent third parties from asserting that privilege has been waived thereby.

In this regard, I note that in the Centro privilege decision I reviewed last year, PwC sought to argue that Centro had waived privilege by their provision of documents to ASIC by virtue of notices issued under s 30 of the ASIC Act 2001 (Cth) requiring their compulsory production. Centro had provided some unredacted documents to ASIC under covering letters expressing their provision to be on a confidential basis, with an express reservation of privilege and an express lack of intention to waive privilege. Bromberg J held that while there might have been a limited waiver by Centro as against ASIC, there was not necessarily waiver as against a third party like PwC. His Honour referred to the High Court’s decision in Mann v Carnell [1999] HCA 66; 201 CLR 1 at [32]. See Kirby v Centro Properties Limited (No 2)[2012] FCA 70 and my post of February 2012 entitled “Centro class action developments – (a) privilege and (b) a bombshell”. (The privilege section of this post was later republished in extended form, and may be viewed here.)

It is useful to consider the judgment by Bromberg J in Kirby v Centro on this issue of the “voluntary” provision of privileged documents to ASIC in response to a notice from ASIC compelling production, in particular the passages at [97]-[108].

In relation to waiver, the judgment provides some comfort, in that it demonstrates that documents provided under compulsion to ASIC for a limited purpose, may retain the protection of privilege as against other third parties (cf AWB Ltd v ASIC [2008] FCA 1877 at [26]). However caution is warranted. Much will depend upon the circumstances of their provision, and the extent to which a company can claim that its provision of the documents was consistent with the maintenance of confidentiality in those documents as against third parties.

ASIC’s letters accompanying the s 30 notices requiring production of documents in Kirby v Centro stated that ASIC understood a valid claim of legal professional privilege was a reasonable excuse for not producing documents pursuant to the s 30 notice and that accordingly, Centro was not obliged to produce documents which were covered by a valid claim to privilege. However, so ASIC’s letters said, if a claim for legal professional privilege was made, detailed information in support of that claim was required by ASIC in order that ASIC could assess whether the claim was justified.

In response Centro provided documents, some unredacted, including those to which it later claimed privilege in these proceedings as against PwC. Centro’s solicitors went to some length in their covering letters accompanying the documents (see paragraph [99]). It is instructive to have regard to some of the statements their letters included, bearing in mind the successful result they obtained here on the question of privilege –

• That Centro did not intend to waive legal professional privilege by providing documents to ASIC to which Centro may be entitled to claim legal professional privilege,
• That in the event that Centro ascertained that a document or part of a document was one over which it was entitled to assert a claim for legal professional privilege, Centro reserved the right to seek to assert legal professional privilege over that document,
• As to confidentiality, that the documents provided to ASIC were confidential and that they were being provided on the basis that ASIC would treat the documents as confidential and not provide them, or disclose the information contained within them to any other person except under legal compulsion or with Centro’s prior written consent.

(I note that on 28 February 2012 PwC sought leave to appeal the judgment of Bromberg J, but leave was refused by North J (link).)

Newsflash: ITSA’s new Online Service for Bankruptcy Notices commences today

ITSA (Insolvency and Trustee Service Australia) has been developing a re-designed website with new online services to be rolled out. Today it has announced the launch of stage 1 of its new online service to enable its personal insolvency clients to log on and transact with ITSA at any time 24/7.

The first stage relates to Bankruptcy Notices and commences today. Applications for the issue of bankruptcy notices can now be submitted and managed online. Trustees in bankruptcy access the online services through the Trustee online access portal. Note that ITSA is currently decommissioning existing html, paper and pdf forms used for Bankruptcy Notices – anyone with queries about this should call ITSA’s service centre on 1300 364 785 or check the website (link).

ITSA has said it will be expanding the functionality of its new online services later in 2013.

Statutory demands from the Tax Office – HC Legal Pty Ltd v DCOT [2013] FCA 45

On Tuesday the Federal Court dismissed an application by a company trading as a law firm to set aside a statutory demand issued by the ATO. It is an interesting case and the judgment provides a useful reminder that even though a company may have challenged a tax assessment and an objection or appeal proceedings are pending, this is no bar to the Commissioner issuing a statutory demand, and does not of itself provide grounds to have one set aside. The judgment of Murphy J is that in HC Legal Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 45.

In applications to set aside a statutory demand, the ATO is in a privileged position compared with anyone else. This is because even where the taxpayer disputes the tax debt, the ATO  has the benefit of several legislative provisions which have the effect of deeming notices of assessment and declarations as conclusive evidence that the amounts and particulars are correct and due. The Hight Court has held that the operation of those provisions cannot be sidestepped by an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 (Broadbeach Properties).

Before turning to the substantive part of the case, I will first briefly address two other aspects.

Applications for review of a Federal Court Registrar’s decision

HC Legal Pty Ltd v DCOT was in fact a rehearing de novo of the set-aside application which had first been made to a Registrar and dismissed. The plaintiff (HCL) had then made application for a review of the Registrar’s decision pursuant to s 35A(5) of the Federal Court Act 1976 (Cth). His Honour said the following in relation to the nature of applications for review of a Federal Court Registrar’s decision, at [4] -

“It is uncontroversial that the application involves a rehearing de novo, at which the parties may adduce further evidence. The Court is to exercise its discretion afresh, unfettered by the decision of the Registrar: Martin v Commonwealth Bank of Australia [2001] FCA 87; (2001) 217 ALR 634 at [6] and [12]; Mazukov v University of Tasmania [2004] FCAFC 159 at [22]-[27]; Callegher v ASIC [2007] FCA 482; (2007) 239 ALR 749 at [46].”

Background – The contractual arrangement

This case involved a rather curious contractual arrangement, which lead directly to the tax liability and statutory demand that followed. The law firm in question Hambros and Cahill Lawyers (HCL) was a small one, with two lawyers as its directors. In December 2011, HCL entered into an agreement with an entity related to the winemaker Andrew Garrett (Holy Grail). Under the agreement, for a fee, Holy Grail granted HCL the exclusive rights to provide legal services to Mr Garrett’s associated entities. Not only might it be thought unusual for a law firm to purchase the rights to represent clients, but the size of the fee HCL agreed to pay for this right was staggering: $45m plus GST – a total of $49.5m. HCL was to pay this fee pursuant to a vendor finance agreement, the vendor being Holy Grail and the borrower being HCL. The effect of this was that HCL did not need to advance any funds at the time.

In early 2012, when HCL came to lodge its BAS for that last quarter in 2011, it stated it had made a capital purchase in the sum of $49.5m in the last quarter of 2011, and claimed input tax credits from the Commissioner in the sum of $4.5m for the GST paid on that purchase. After deductions for GST amounts it owed, the input tax credits it claimed came to $4,491,954, which the Commissioner then remitted to HCL. There was no evidence as to what then happened to that money in the hands of HCL, but HCL’s counsel informed the Court that it had been used to pay certain expenses of the firm, pay a deposit to purchase Seabrook Chambers in Melbourne, and the balance of $2m each was distributed to the two directors, posted in the books as a loan, although each director had paid back $350,000 to HCL.

As Murphy J put it: “The Commissioner’s concern regarding the transaction and the claim for input credits of $4.491 was immediately apparent.” Shortly thereafter the Commissioner froze HCL’s bank accounts and moved to audit the firm.

In May 2011, following the audit, the Commissioner assessed HCL as liable to pay $4.5m in GST. However, although the ATO’s Running Balance Account (RBA) statement for the company showed that GST liability as relating to the last quarter of 2011, the notice of assessment referred to the first quarter of 2012. Under a separate notice, with the correct tax period cited, there was also a penalty imposed of $2.5m.

On 19 June 2012 HCL lodged its objection to the assessment and penalty.

On 4 July 2012 the Commissioner served the statutory demand, seeking payment of $6.95m – $4.5m in GST, $2.25 penalty and interest charges.

On 11 September 2012 the Commissioner sent a letter enclosing a new, revised assessment to HCL, asserting the first notice had contained a typographical error and that the correct tax period was the last quarter of 2011. This was followed by an email from the Commissioner’s office referring to the error in the first assessment.

The Statutory Demand – Was there a “genuine dispute” such that it should be set aside?

The Court may set aside a statutory demand on the basis that there is a genuine dispute about the existence or amount of the debt to which the demand relates: s 459H(1)(a) and (3) of the Corporations Act 2001 (Cth) (the Act).

In the hearing before the Registrar, HCL had not contended that there was a genuine dispute under s 459H because, said Murphy J in his judgment, of the statutory protection afforded to debts arising from tax assessments. In the Broadbeach Properties case referred to above, the High Court said this at [57]-[58] -

“Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct ([Taxation] Administration Act, Sch 1, s 105-100 [now s 350-10]; [Income Tax] Assessment Act, s 177(1)). That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner.

“The matter was explained, with respect, correctly by Williams J in Bluehaven Transport Pty Ltd v Deputy Federal Commissioner of Taxation (2000) 157 FLR 26 at 32. The use by the Commissioner of the statutory demand procedure in aid of a winding up application is in the course of recovery of the relevant indebtedness to the Commonwealth by a permissible legal avenue. The phrase “may be recovered” in ss 14ZZM and 14ZZR of the Administration Act applies to the statutory demand procedure. That state of affairs places the existence and amounts of the “tax debts” outside the area for a “genuine dispute” for the purposes of s 459H(1) of the Corporations Act.”

To consider that for a moment: In other words, the effect of the legislative provisions cited in the first of these two paragraphs is that when it comes to debt recovery, the ATO’s claims are in a sense “bulletproof” – the notices of assessment and declarations they issue are treated as conclusive evidence that they are correct as to the amount and particulars of the tax liabilities. The effect of the provisions in the second paragraph is that the Commissioner can continue with recovery actions even if a review on objection or an appeal pending, as if no such review or appeal were pending.

While HCL did not run it before the Registrar, before Murphy J, HCL advanced the argument that there was a genuine dispute under s 459H(1). HCL argued that the Commissioner had conceded the first notice of assessment was flawed, pointing to the issue of the second notice, and the ATO correspondence about the error. HCL argued that this negated the first assessment on which the statutory demand was predicated.

His Honour rejected these arguments, on a number of grounds -

• The Commissioner had not discharged the first assessment made, as evidenced by the RBA statement showing no adjustment;
• The contentions of HCL were misconceived as they equated an “assessment” with a “notice of assessment”, the former being the official act or operation of the Commissioner, the second being the piece of paper informing of it (see [31]-[32] and the authorities and provisions there cited);
• The first notice of assessment with its error as to the relevant tax period did not affect the assessment itself. Indeed under s 105-20(1), Schedule 1 of the Taxation Administration Act 1953 (Cth), the assessment would remain valid even if notice of the assessment was not given at all ([33]-[34]);
• It was clear, including from HCL’s objection and submissions, that HCL was not mislead by the error in the first notice ([35]);
• In any event, the Commissioner corrected the error by way of the second notice of assessment, which was provided prior to the hearing. The existence of a genuine dispute must be determined at the time the Court hears the application (see [36] and the authorities there cited);
• The Commissioner also has the benefit of s 8AAZI of the Taxation Administration Act, which provides that the production of an RBA statement is prima facie evidence that the RBA was duly kept and that the amounts and particulars in the statement are correct. The relevant RBA was in evidence before the Court and showed that the amount reflected in the statutory demand was the amount of HCL’s debt to the Commissioner as at the date of the statutory demand (see [37]-[38] and [40]-[41]);
• Various other legislative provisions have the effect that the amounts set out in the RBA statement were now due and payable by HCL: see subsection 8AAZH(1) of the Taxation Administration Act 1953 (Cth), and s 255-5 and 255-1 of Schedule 1 of that Act (see [39]);
•  The Commissioner also relied upon the above-mentioned s 350-10 of Schedule 1 of the Taxation Administration Act, which provides that the production of a notice of assessment is conclusive evidence that the assessment was properly made, and the amounts and particulars of the assessment are correct. His Honour was not persuaded that in the circumstances of this case that provision operated as the Commissioner contended, with regards to the first notice of assessment. However in light of his conclusions above, it was unnecessary to decide this question (see [41]).

The Court found that HCL’s contentions raised a spurious rather than bona fide or real ground of dispute. His Honour did not accept that the error in the first notice of assessment gave rise to a genuine dispute under s 459H of the Act as to the existence or amount of the debt to which the statutory demand related. The assessment itself was unchanged. (See [42] and the authority there cited.)

Whether the Statutory Demand should be set aside for some other reason

HCL also argued that the statutory demand should be set aside as there was “some other reason” which would justify the Court’s exercise of its discretion to do so pursuant to s 459J(1)(b) of the Act. HCL based this upon the Commissioner’s conduct, upon the fact that HCL had disputed the assessment by lodging an objection, and upon the contention that it had a reasonably arguable case on its objection.

In Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1995) 19 ACSR 125 at 139, the Full Federal Court observed that the discretion might be exercised where it is “shown that the Commissioner’s conduct was unconscionable, was an abuse of process, or had given rise to substantial injustice.”

Later judgments have indicated that the discretion is of broad compass, and Murphy J expressed the view that he did not consider the Court in Hoare Bros was seeking to exhaustively set out the situations it comprehends (although I suggest it provides a useful guide). HCL argued, and his Honour accepted, that it was not necessary to show that substantial injustice would be caused if the discretion were not exercised, although he qualified that, noting that in Broadbeach the High Court had overturned one of the decisions HCL relied upon in this submission. In other words, it indeed might be necessary to demonstrate substantial injustice would follow were the statutory demand allowed to stand.

HCL argued that the existence of proceedings disputing a tax assessment may be relevant to the exercise of the discretion, and pointed to a line of authority in support of that view (see [46]). However, as his Honour noted -

• Section 14ZZM of the Taxation Administration Act provides -“The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.”
• Section 14ZZR provides – “The fact that an appeal is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no appeal were pending.”
• In 2008 in Broadbeach, subsequent to the authorities HCL relied upon, the High Court observed at [60]-[61] that – “[T]he hypothesis in the present appeals must be…that there is no “genuine dispute” within the meaning of s 459H(1). Both the primary judge and the Court of Appeal emphasised the importance of the disruption to taxpayers, their other creditors and contributories that would ensure from a winding up, together with the absence of any suggestion that the revenue would suffer actual prejudice if the Commissioner were left to other remedies to recover the tax debts. But these considerations are ordinary incidents of reliance by the Commissioner upon the statutory demand system….The “material considerations”…which are to be taken into account, on an application to set aside a statutory demand, when determining the existence of the necessary satisfaction for para (b) of s 459J(1) must include the legislative policy, manifested in ss 14ZZM and 14ZZR of the Administration Act, respecting the recovery of tax debts notwithstanding the pendency of Pt IVC proceedings.” 
  
• His Honour considered that the legislative policy in ss 14ZZM and 14ZZR is that tax assessments are to be paid, even though a review or appeal is on foot;
• His Honour also pointed to the judgment of Olney J in Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation 91995) 31 ATR 188 at 193 where Olney J – with a note of regret at the end – said: “…The policy of the law would be defeated if a demand were set aside under s 459J(1)(b) simply because a review of an objection decision is pending. A taxpayer must, in the context of a case of this nature, demonstrate more than the fact that he disputes his liability for the tax as assessed and that he is actively pursuing his remedies. It is both unnecessary and undesirable to endeavour to list the circumstances which would justify the exercise of the discretion under s 459J(1)(b) except to say that in the case in which the Commissioner is not shown to have acted oppressively or to have treated the applicant in a manner different from other taxpayers in a similar position, it is not appropriate that the discretion to set aside the demand should be exercised. Section 459J(1)(b) does not provide an occasion for the Court to express its views on the reasonableness or otherwise of the taxation legislation.” 

In response, HCL pointed to the concession the Commissioner had made in Broadbeach that upon the hearing of a winding up application, the court might properly have regard to whether the taxpayer had a “reasonably arguable” case in pending proceedings in which it was objecting to the tax assessment. HCL argued that there was no reason why the existence of a “reasonably arguable” case cannot be taken into account at the statutory demand stage, rather than at the winding up stage as suggested by their Honours in Broadbeach.

His Honour rejected this also. In Broadbeach at [62] the Hight Court had said -

“…Such consideration [of the time which has elapsed and the progression of the Part IVC proceedings towards determination], if it were supported by evidence of the state of progression of the Pt IVC proceedings, would be relevant in the operation of Pt 5.4 of the Corporations Act, if at all, at the later stage of the hearing of any winding up application.” 

In any event, Murphy J could not be satisfied on the evidence before him that HCL had a reasonably arguable case, and HCL did not seek to develop its submissions beyond a mere assertion that its acquisition of the right to provide legal services was a “creditable acquisition” within the meaning of the GST Act, and that it was therefore entitled to the input tax credit of $4.5m claimed.

In relation to conduct of the Commissioner which it argued justified the Court exercising its discretion under s 459J(1)(b) to set aside the statutory demand for “some other reason”, HCL pointed to -

• the Commissioner’s freezing of HCL’s accounts – which lasted for 1 day,
• an alleged breach of undertaking to defer recovery proceedings – his Honour found that the agreement was only for the Commissioner to defer them until after an extension for HCL to lodge its objection had expired, which the Commissioner did,
• a refusal to agree to defer recovery until after the determination of HCL’s objection and any appeals – the Commissioner refused to do so unless HCL was prepared to provide acceptable security for the debt, which HCL declined to provide,
• the garnishee notice the Commissioner issued and directed to HCL’s bank – which resulted in recovery of a small amount and which was rescinded after a short time, and
• HCL’s suspicion that the assessments were tainted by bad faith. It had made several FOI requests for the Commissioner’s documents relating to the freezing of accounts and the audit, and had received documents in response – his Honour found none of the documents he was taken to evidenced any bad faith on the part of the Commissioner.

His Honour held that in all the circumstances of the case he did not consider the Commissioner’s actions, considered individually or collectively, were unconscionable, oppressive, abusive, or productive of substantial injustice. There was nothing to justify the exercise of his discretion.

His Honour noted, perhaps wryly, that 11 months later, HCL and its directors still had the benefit of the almost $4.5m remitted to it by the Commissioner. He dismissed the application to set aside the statutory demand and awarded costs of the application, and of the hearing before the Registrar, against HCL.

I will endeavour to monitor the Federal Court portal to see if the judgment is appealed, and if so will post an update to that effect.

Interesting UK decision on legal professional privilege and its application to advice by accountants

On 23 January 2013 the UK Supreme Court handed down a very interesting decision on the question of whether the UK legal advice privilege (LAP) extended, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession and, if so, how far the privilege extends, or should be extended. The case is Prudential plc, R v Special Commissioner of Income Tax [2013] UKSC 1 (link).

A company had obtained legal advice from its accountants PwC in relation to a tax avoidance scheme, and argued that it was entitled to refuse to comply with a notice to produce from the tax office, on the ground that the documents were covered by LAP. Its position was supported by the intervenor, the Institute of Chartered Accountants for England and Wales. They argued, inter alia, that given that the privilege is justified by the rule of law, and that it exists for the benefit of a client who seeks and receives legal advice, for instance on its tax affairs, there is no principled basis upon which it can be restricted to cases where the advisor happens to be a member of the legal professions, as opposed to a qualified accountant (see [26]).

The contrary case was advanced for Her Majesty’s Revenue & Customs office, supported by the Law Society, the Bar Council and the AIPPI UK (an intellectual property body). They argued that it has been universally assumed that LAP is restricted to advice given by lawyers, and that the Court should not extend it to accountants in connection for tax advice for reasons which boiled down to the argument that it was a matter for Parliament to extend the privilege to legal advice given by accountants if it saw fit (see [27-28]).

Whilst the majority of the Lords (5:2) held that LAP did not extend to the advice provided by PwC, a certain amount of reluctance is clearly detectable. The minority, Lords Sumption and Clarke, gave powerful dissenting judgments, which are also worth a read.

Lord Neuberger, with whom Lord Walker agreed, in giving one of the majority judgments raised the finely balanced question of whether if the Court allowed the appeal it would be extending the breadth of the privilege, or simply identifying the breadth of the privilege. The former would involve changing the law; the latter, declaring what the common law has always been. However his Lordship noted that it is universally believed that LAP only applies to communications in connection with advice given by members of the legal profession (see [29] and the authorities, texts and reports cited at [30-33]), legislation had been framed upon that basis, and the UK Parliament had rejected a proposal in 2003 that the privilege be extended to legal advice given by lawyers.

Lord Neuberger concluded that allowing the appeal would involve extending the privilege, and would not be treated as limited to tax advice given by expert accountants, as it would ineluctably follow that legal advice given by some other professional people would also be covered.

However interestingly, his Lordship evaluated the principled arguments for restricting LAP to lawyers’ advice as “weak, but not wholly devoid of force” (at [43]), in contrast with his description of the argument for allowing the appeal as “a strong one in terms of principle” (at [40]). He summarised the case for allowing the appeal as -

• Legal advice privilege is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person,
• LAP is conferred for the benefit of the client, and may only be waived by the client; it does not serve to protect the legal profession;
• In light of this, it is hard to see why, as a matter of pure logic, that privilege should be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field.

His Lordship rightly noted that once the privilege is extended, it would be difficult to determine where the line ought be drawn. Where it is confined to lawyers, it is not such a difficult matter. However once it is extended one gets into various shades of grey. It becomes something of a minefield. He concluded that the appeal gives rise to issues of policy, which should best be left to Parliament. His Honour also noted that if LAP is to be extended to professions other than lawyers, its extension may only be appropriate on a conditional or limited basis.

Lord Sumption’s dissenting judgment is quite compelling. I will not go through it in any detail, but I commend it to you if you have an interest in this issue.

At [123], he makes the point that:

“Once it is appreciated (i) that legal advice privilege is the client’s privilege, (ii) that it depends on the public interest in promoting his access to legal advice on the basis of absolute confidence, and (iii) that it is not dependent on the status of the advisor, it must follow that there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accounts on the other. The test is functional. The privilege is conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body. …[T]oday there are at least three professions whose practitioners have as part of their ordinary professional functions the giving of skilled legal advice on tax. Accountants are among them. Any distinction for this purpose between some skilled professional advisers and others is not only irrational, but inconsistent with the legal basis of the privilege.”

He addresses the counter-arguments that other professionals (non-laweyrs) did not have the same stringent legal obligations of non-disclosure as lawyers, and that barristers and solicitors have a unique relationship with the courts (at [125]). His Lordship disposes of these at [126-127].

Lord Sumption took the view that allowing the appeal would not involve extending the privilege, but rather would mean only recognising that as a matter of fact much legal advice falling within the principles is nowadays given by legal advisers who are not barristers and solicitors but are accountants (at [129]). His view as to the question of identifying where the line is drawn, if legal advice privilege is extended beyond advice given by lawyers, is set out at [138]. His Lordship does recognise some of the complexities, but sees a difference between the giving of legal advice on the one hand, and the position on the other hand where a knowledge of the law on an issue can be purely incidental to the exercise of a broader advisory function, such as by an investment banker or an auditor.

My own view is mixed. I do not quite accept Lord Sumption’s suggestion as to the simplicity in identifying the boundaries of the entitlement to the privilege were it extended, and would see there as being a sizeable leap in the numbers of claims of privilege, with many being difficult to adjudicate upon.

On the other hand, there is a compelling logic to the application of the principles underpinning legal advice privilege beyond the legal profession, as discussed in this case. And in a functional sense, to put it at its most simple…when one regards our mountainous body of tax legislation and case law, what is it, if it is not law? And what is advice upon it, if it is not legal?

Next, once the privilege is extended beyond the legal profession to accountants giving tax advice (leaving aside other professionals)…what about other areas of law upon which accountants who specialise in other areas advise? Insolvency and corporations law, for example?

An interesting issue. Perhaps one way to solve the question of where the line ought be drawn, if the privilege is treated as extending beyond advice given by lawyers, is that suggested by Lord Hope, who wrote the other dissenting judgment. His Lordship agreed with Lord Sumption that the legal advice privilege extends to advice given by members of a profession which has as an ordinary part of its function the giving of skilled legal advice. Lord Hope added that he would expect that criterion to be satisfied only where, and to the extent, that they are members of a properly regulated professional body (at [149]).

In Australia, on 15 April 2011, the Assistant Treasurer the Hon Bill Shorten released a discussion paper which explores the issue of the extension of the privilege to tax advice by accountants, and called for submissions from interested parties. Submissions were due by 15 July 2011. As far as I am aware, the matter has progressed no further.

* I must acknowledge and thank my tax barrister colleague in Lonsdale Chambers for drawing this interesting case to my attention.