RCI Pty Ltd v. Federal Commissioner of Taxation

[2009] FCA 910
76 ATR 591

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(Decision by: Stone J)

RCI Pty Ltd
v Federal Commissioner of Taxation

Court:

Judge:
Stone J

Hearing date: 5, 6 August 2009
Judgment date: 19 August 2009

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Decision by:
Stone J

Background

[1] The substantive application in this proceeding concerns an amended assessment issued by the respondent, the Commissioner of Taxation, dated 21 March 2006 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 the Income Tax Assessment Act 1936 (Cth) (1936 Act) that, by operation of Pt IVA, the amount of $478,237,746 should have been included in the assessable income of the applicant, RCI Pty Ltd, for the year of income ended 31 March 1999. The Commissioner also assessed RCI as liable to pay additional tax by way of penalty in the amount of $43,041,397. The applicant's objection to the amended assessment was disallowed on 30 May 2007. At issue in the substantive proceeding is whether Pt IVA of the 1936 Act supports the amended assessment; whether the penalty is properly payable pursuant to the 1936 Act and, if so, whether the Commissioner acted contrary to law in exercising his discretion not to remit the penalty.

[2] At all relevant times prior to 31 March 2003, ABN 60 Pty Ltd, then known as James Hardie Industries Ltd, was the ultimate parent company of the James Hardie Group of companies and of the applicant. From 31 March 2003 the applicant's ultimate parent company has been James Hardie Industries NV, a Netherlands company. ABN 60 is not a member of the James Hardie Industries NV group and is not a party to this proceeding.

[3] The dispute arises from RCI's transfer of its shares in James Hardie (Holdings) Inc to another member of the James Hardie Group. The transfer was part of a proposed reorganisation of the corporate group known as "Project Chelsea" which eventually did not proceed. The Commissioner contends that the sale price of the shares was depressed as a result of a dividend of almost half a billion dollars that RCI received shortly before the sale. The dividend was exempt from Australian income tax. The Commissioner contends that these transactions were part of a "scheme" to which Pt IVA of the 1936 Act applies.

The present application

[4] By notice of motion filed on 27 February 2009 RCI applied for orders setting aside in whole or in part a notice to produce filed by the Commissioner on 14 October 2008. In the alternative the applicant seeks to be relieved from the production of specified documents on the grounds of legal professional privilege. The applicant also resists the production of documents required under a notice to produce filed on 10 July 2009 on the same grounds. At the hearing of the notice of motion RCI indicated that it no longer pressed its application to set aside the notices to produce and confined its submissions to its claims of legal professional privilege.

[5] The documents that are the subject of the notice of motion and for which the applicant claims legal professional privilege are identified in an affidavit sworn on 26 February 2009 by Michael Andrew Clough, a partner of Mallesons Stephen Jaques, solicitors for the applicant in this proceeding. The applicant submits that the copies were created and provided to Mallesons so that Mallesons could provide legal advice to the applicant in respect of the current proceeding, and that this was the dominant purpose for making the copies.

[6] Mr Clough has sworn four affidavits in support of the applicant's notice of motion. At the hearing Mr Hilton SC, senior counsel for the Commissioner, sought the court's leave to cross-examine Mr Clough. This application was opposed by RCI which submitted that the court should only exercise the discretion to permit cross-examination in identified exceptional circumstances which "called out for intervention". After hearing submissions from both parties on the issue, I gave leave to the Commissioner to cross-examine Mr Clough and said I would include my reasons for this ruling in my judgment on the notice of motion.

Application for leave to cross-examine Mr Clough

[7] Normally the deponent of an affidavit made in support of a claim of legal professional privilege is not subjected to cross-examination. The starting position used to be that "an affidavit of discovery should be taken as being accurate unless there is some reason for the court to think that that is not so"; Brambles Holdings Ltd v Trade Practices Commission (No 3) (1981) 58 FLR 452 at 464 per Franki J. That position has been questioned in a number of cases; Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1990) 20 NSWLR 359; National Crime Authority v S (1991) 29 FCR 203. In Fruehauf Giles J said at 366-7:

[T]here seems little reason why the status of a document as attracting legal professional privilege should not be determined upon a proper investigation of the circumstances in which it was brought into existence. That will usually be a discrete issue, not requiring immersion in the substantive dispute in the proceedings. Given the "sole purpose" test for legal professional privilege, it will often be an issue deserving of investigation, since the determination of whether a document was brought into existence for a sole purpose attracting legal professional privilege involves questions of fact and degree ... why in such a case should the court "appeal to the oath" or "trust the oath" of the claimant to privilege?

[8] In my opinion, the desirability of exploring these issues is likely to be greater now that, following the decision of the High Court in Esso Australia Resources Ltd v Cmr of Taxation (1999) 201 CLR 49, the test is "dominant" rather than "sole" purpose. The test in Esso recognises that a communication involving a document may be privileged even where there were several purposes behind the creation of the document so long as the dominant purpose meets the criteria for legal professional privilege. This is a more nuanced position than the sole purpose test and may well warrant investigation on cross-examination in circumstances in which the less equivocal test might not. I have elsewhere commented on the difficulty that might be encountered in proving the dominant purpose; Pratt Holdings Pty Ltd v Cmr of Taxation [2004] FCAFC 122 at [106]. In Esso, at 107, Callinan J commented that although whether a purpose is the dominant purpose is to be determined objectively, "the subjective purpose will always be relevant and often decisive"; see also Sydney Airports Corporation Ltd v Singapore Airlines Ltd [2005] NSWCA 47 per Spigelman CJ at [6]. It is the subjective purpose that is most susceptible of elucidation by cross-examination.

[9] Ultimately, as the cases have recognised, it is for the party claiming privilege to establish the appropriate basis for the claim; Carter v Dennis Family Corporation [2006] VSC 429. In National Crime Authority v S, Lockhart J made the point forcefully at 211:

Affidavits of documents in the discovery process not infrequently claim legal professional privilege by asserting that the purpose for which a document was brought into being was its sole purpose, followed by a statement as to which particular category of legal professional privilege the document belongs; for example, for use in existing or anticipated litigation. Although an affidavit in this form is usually sufficient and uncontroversial the potential for abuse is obvious. Courts should not be slow to permit cross-examination of the deponent of such an affidavit ...

[10] His Honour referred to the following comments of Stephen, Mason and Murphy JJ in Grant v Downs (1976) 135 CLR 674 at 689:

He may succeed in achieving this objective [successfully claiming legal professional privilege] by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual. The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.

[11] Lockhart J went on to refer to the well-established procedures for dealing with questions of legal professional privilege including by cross-examination. His Honour noted that the extent to which a court allows cross-examination is a matter of discretion, adding, at 211:

[G]enerally it cannot be sufficient for someone merely to assert that the disclosure of the identity of a person or of a document, or of the number of persons who were present at a meeting, or who was present at a meeting, or who on behalf of the client (if the person making the assertion is a solicitor) spoke to him or that he spoke to a particular officer of the client, to enliven a claim of legal professional privilege.

[12] Lockhart J's approach was cited with approval by Gleeson CJ, Gaudron and Gummow JJ in Esso at 70. It was followed by Gummow J in Hartogen Energy Ltd v Australian Gas Light Co (1992) 36 FCR 557 at 561 when his Honour permitted the cross-examination of three deponents.

[13] There is nothing in any of these cases to suggest that cross-examination in these circumstances should now be the usual course. So much was recognised by O'Loughlin J in Auspine Ltd v HS Lawrence and Sons Pty Ltd [1999] FCA 1749 at [102] when his Honour, after referring to National Crime Authority v S and Hartogen, noted that these cases point to a degree of relaxation in the old rule but added, "I do not see it as anything more than a relaxation to some degree". All of this points to cross-examination of such a deponent being a course that should be permitted when, in the discretion of the court, the circumstances of the particular case and the interests of justice (including the importance of pre-trial procedures being kept to a minimum) require it.

[14] In this case Mr Clough deposed to the circumstances in which the disputed documents had been created and obtained by Mallesons. He also deposed to the steps taken by Mallesons to locate documents required under the terms of the notices to produce. In his oral submissions in support of the application to cross-examine Mr Clough, Mr Hilton stated that he wanted to explore with Mr Clough whether the copies produced were the only documents that answer the notice to produce. The implication was that RCI had chosen to produce what Mr Hilton referred to as "Propend copies" so as to avoid its obligation to produce original non-privileged documents. In support of his application Mr Hilton took me to a great many documents that are before the court but as he said himself, ultimately what he wanted to explore was whether there were other documents in the possession or control of RCI that did not have the benefit of Propend privilege and that should have produced.

[15] Mr Thawley for RCI submitted that if the Commissioner's complaint was that there has been an inadequate response to a notice to produce or to discovery then the proper procedure (assuming that informal inquiries had not been able to resolve the issue) is for the Commissioner to put on a motion supported by an affidavit. In such circumstances Mr Thawley submitted the respondent should not be permitted to raise these issues at a hearing directed to determining the privilege status of documents that RCI has produced.

[16] Strictly speaking Mr Thawley is correct, however the question of whether the notices to produce have been complied with is germane to the proceeding and to the Commissioner's case. The hearing of substantive issues in this proceeding is listed for two weeks commencing on 7 September 2009. Given the proximity of the hearing it is important that the issues raised by Mr Hilton be clarified as soon as possible. As Mr Clough had deposed to the steps taken by Mallesons to comply with the notices to produce there was no element of ambush or surprise in permitting him to be cross-examined. Although Mr Thawley submitted that "the days of litigation by ambush are over" he did not refer to any particular difficulty that cross-examination would pose for RCI.

[17] The particular circumstances of this case therefore provided two reasons to permit the cross-examination of Mr Clough: firstly, such cross-examination might assist in determining the subjective dominant purpose for which the documents were created; and secondly, cross-examination of Mr Clough may help to elucidate when and how the documents produced came to be in Mallesons' possession, thus clarifying the issues surrounding the adequacy of RCI's response to the notice to produce. The absence of any identifiable prejudice to the applicants further suggested that this course was appropriate.

[18] For these reasons I determined that the court would be assisted by the cross-examination and in my discretion gave the Commissioner leave to cross-examine Mr Clough.

The documents

[19] As noted above, the documents for which the applicant claims legal professional privilege are listed in a table in para 27 of Mr Clough's affidavit sworn on 26 February 2009. The documents are all copies of documents which are sourced either from the files of the solicitors, Allens Arthur Robinson (Allens) or PricewaterhouseCoopers Legal (PwC Legal) and which are now in the possession of Mallesons, the applicant's solicitor. The applicant alleges that the copies were created and provided to Mallesons so that Mallesons could provide legal advice to the applicant in respect of the current proceeding, and that this was the dominant purpose for making the copies.

[20] The Commissioner submits that the documents are not privileged or, if privileged, that privilege has been waived by direct or indirect disclosure in the documents filed by RCI in the present proceeding.

[21] As Mr Thawley emphasised, the notice of motion concerns the documents that are listed in para 27 of Mr Clough's affidavit rather than the original documents from which the copies produced were made. In particular, the notice of motion does not address whether the original documents were privileged or whether there has been a waiver in respect of those original documents. Mr Thawley submitted that, for this reason, the Commissioner's submissions were largely irrelevant because they were directed to the status of the original documents from which the copies were made.

Applicable principles

[22] The parties agree, and they are undoubtedly correct, that ss 118 and 119 of the Evidence Act 1995 (Cth) do not apply to pre-trial processes such as the production of documents prior to the adducing of evidence; Esso Australia Resources Ltd v Cmr of Taxation at 59, 64 and 81-6; Mann v Carnell (1999) 201 CLR 1 at 12 and 17 and 45. Consequently the present issues will be determined by the application of common law principles.

[23] RCI's position is simple. It is that each document is a copy created for the purpose of these proceedings. RCI therefore claims that on the principles articulated in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 the documents are privileged and do not have to be disclosed to the Commissioner. 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. Following the decision of the High Court in Esso, it is now accepted that the purpose need only be the dominant rather than the sole purpose.

[24] The focus on the purpose for which the document is created and the fact that legal professional privilege protects communications not documents, led the High Court in Propend to accept the seemingly "illogical -- even absurd -- proposition that the copy of a document can be privileged from disclosure when the original document is not privileged"; McHugh J at 550. Legal professional privilege maintains the confidentiality of communications between legal adviser and client made for the purpose of advice or for use in existing or pending litigation, "thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure"; Grant v Downs (1976) 135 CLR 674 at 685. The same policy applies to communications made by the provision of copy documents even where the document that has been copied was not privileged. The purpose leading to the creation of the original and the purpose of the copy may be quite different; Propend per Brennan CJ at 507. McHugh J elaborated as follows at 553-554:

The privilege attaches whenever the communication or material is made or recorded for the purpose of confidential use in litigation or the obtaining of confidential legal advice. The protected communication or material may be a telephone conversation between a solicitor and client, a research memo of the legal adviser on an issue pertinent to the client's affairs or ... the collection and collation of material and documents for the purpose of litigation or obtaining legal advice. As long as the communication was made or the material recorded for the sole purpose of legal advice or pending litigation and was intended to be confidential, the actual form of the communication or recording is irrelevant.

...

Where a claim for privilege is made in respect of the copy of the document given to a lawyer for the purpose of obtaining legal advice or assistance, it is likely that the copy was prepared solely for that purpose. Because this is so, the copy will usually have a stronger claim to privilege than the original document. It will usually have a stronger claim because the relevant communication is not the original document; it is the client's conduct in giving the copy to the lawyer. Handing the copy to the lawyer is as much a part of the communication between lawyer and client as an oral summary of the original document would be part of a communication between lawyer and client ...

It follows that, if a solicitor makes a copy of a document that was not privileged, the copy will be privileged if it was created for the sole purpose of obtaining or giving confidential legal advice or for the confidential use of legal advisers in pending litigation. Similarly, if the client makes a copy of the document solely for that purpose or use, the copy will be privileged. If this were not so, inspection of the copied material could expressly or inferentially reveal information that would destroy the confidentiality of the communication between the legal representative and client. Either in their assembly or their selection, disclosure of the documents could reveal a line of reasoning as to the relevant issues in the case or their relative merit. Moreover, once the privilege attaches, it remains until the client waives it.

[25] The eight documents were produced in response to items 1, 3, 6 and 9 of the notice to produce. Those items state:

1.

Documents recording or evidencing the tax review conducted by Larry Magid in or about March 1998 in relation to a proposed restructure of the James Hardie Group known as "Project X", "Project Scully" or "Project Chelsea", being the tax review referred to on the second bullet point of the document entitled "Meeting Notes" dated 18 March 1998 of SBC Warburg Dillon Read, a copy of which appears as Exhibit PGM-32 to the affidavit of Philip Graham Morley sworn 11 June 2008 and filed by you in this proceeding.

3.

The following documents referred to in the facsimile from Keith Sheppard to Mr Michael Rigby dated 19 June 1998 on the subject "Project Chelsea", a copy of which is attached as "Annexure B" to this Notice to Produce.

3.1

the "revised copy of our advice on the Australian taxation consequences" referred to in the first paragraph of the facsimile;

3.2

the Allen Allen & Hemsley "opinion" said to have been prepared on 1 June 1998 and any subsequent amendments to that opinion; and

3.3

documents recording or evidencing any opinion provided by Allen Allen & Hemsley after the facsimile of 19 June 1998 and described in the second paragraph of the facsimile as being in preparation and as "an opinion similar to the one which Allens prepared on 1 June 1998.

6.

The following documents referred to in the letter of 29 June 1998 of Coopers & Lybrand to the Directors of James Hardie Industries Limited a copy of which appears as exhibit AEC-18 to the affidavit of Anthony Edward Clemens sworn 12 June 2008 and filed by you in this proceeding:

6.1

the "second opinion" of Allen Allen & Hemsley referred to in paragraph 3 of the letter of 29 June 1998 of Coopers & Lybrand; and

6.2

the supporting "opinion from AAH" referred to in paragraph 8(b) of the letter of 29 June 1998 of Coopers & Lybrand.

9.

Documents recording or evidencing the advice given or comments made by Mr LM Magid to the Board of James Hardie Industries Limited on 30 June 1998, and "his opinion to the Company dated 30 June 1998" which are referred to on page 2 of the Minutes of the Meeting of Directors of James Hardie Industries Ltd held on 30 June 1998 a copy of which appears as Exhibit PGM-43 to the affidavit of Philip Graham Morley sworn on 11 June 2008 and filed by you in this proceeding.

[26] As already noted, para 27 of Mr Clough's affidavit of 26 February 2009 contains a table in which each of the documents in respect of which RCI claims legal professional privilege is described. The table also contains a brief comment about the nature and purpose of each communication. The description of each document is reproduced below. The comments about the nature and purpose of each document are summarised separately.

[27] Mr Clough deposes that the briefing paper referred to in the description of document 1 and the memoranda referred to in relation to documents 2 and 3 were prepared by external professional advisers on matters associated with taxation. The letters referred to in the descriptions of documents 4, 5, 6, 7 and 8 were said to record a communication between a solicitor and the solicitor's client.

[28] The table in the affidavit indicates that all the documents other than document 7 were obtained from Allens and that Allens provided the copies to the applicant's solicitors for the limited purposes discussed in paras 17-24 of Mr Clough's affidavit. In those paragraphs Mr Clough records that he wrote to Mr Magid, a partner at Allens, on 7 September 2007 requesting that Allens "review its files to determine whether it had any documents relating to the Applicant's dispute with the Respondent". It appears from correspondence exhibited to Mr Clough's affidavit that Allens identified certain files and that these files were inspected by RCI's legal advisers. Copies of some documents, including documents 1, 2, 3 and 5 in the above table, were then provided by Allens under cover of a letter dated 7 November 2007 which stated:

We confirm that the accompanying documents are provided to you subject to common interest privilege and on a confidential basis for the limited purpose of assisting James Hardie and its subsidiaries in the conduct of litigation in the above matter.

[29] Mr Clough states that document 7 was obtained from PwC legal and was provided "to the Applicant's solicitors on the Applicant's authority for the purposes of the Applicant obtaining legal advice relating to the current proceedings."

[30] On cross-examination Mr Clough was questioned extensively about the steps taken to respond to the notices to produce. He said that RCI had no documents answering the description of documents sought by the notice to produce. RCI informed Mallesons that it had provided all documentation or copies of documentation to PwC Legal. He said that when Mallesons took over carriage of the dispute from PwC Legal, as part of the handover PwC Legal had provided copies of the documents in its files to Mallesons.

[31] Mr Clough agreed that no direct enquiry was made of PwC Legal concerning the original of documents required by the notice to produce. He agreed that, with the authority of RCI he could have asked PwC Legal for the originals of certain documents. He denied that copies of documents had been produced in response to the notices to produce in order to rely on Propend privilege. Mr Clough said that the copies had been made "to assist us to advise in the conduct of the dispute and ultimately litigation for RCI" and that the copies had been made in 2005.

[32] With reference to documents 1-4 and 8, Mr Hilton pressed Mr Clough as to whether Mallesons independently had any of the documents, copies of which it obtained from Allens. Mr Clough was confident that Mallesons did not independently have copies of the briefing paper referred to as part of document 1 or documents numbered 2 and 3. In response to questions about Annex B to the first notice to produce, Mr Clough said "certainly the material that's attached to it we would have had copies of [independently of Allens]". Mr Clough was not able to be confident either way in relation to the other documents about which he was cross-examined.

[33] Ultimately, nothing that Mr Clough said on cross-examination undermined the assertions made in his affidavit to the effect that the disputed documents were obtained from Allens and PwC Legal and were given to Mallesons for the purpose of Mallesons providing legal advice to RCI or in contemplation of litigation. Given that the documents were either requested by Mallesons for that purpose or were provided as part of a handover on RCI changing its solicitors from PwC Legal to Mallesons it is reasonable to assume that they were created for that purpose.

[34] I am therefore satisfied that, by the application of the Propend principles, and subject to issues of waiver, the documents are protected from disclosure by legal professional privilege.

Waiver of privilege

[35] The Commissioner submits that even if the documents under consideration were privileged on creation, that privilege has been waived as a result of their disclosure or the disclosure of their contents in documents filed in this proceeding. The Commissioner bears the onus of proving that there has been waiver, express or imputed; Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543; Nine Films and Television Pty Ltd v Ninox Television Ltd (2005) 65 IPR 442.

[36] The doctrine of waiver is not always easy to apply -- a fact which has been the subject of comment on many levels, including in the High Court; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326. Whatever the difficulties of application the concept itself is not difficult. As RJ Desiatnik comments in Legal Professional Privilege in Australia 2nd ed, 2005 at 132, the concept is one of abandonment of confidentiality as indicated by actions that are inconsistent with the maintenance of the confidentiality.

[37] In Attorney-General (NT) v Maurice (1982) 161 CLR 475 the High Court was much concerned with unfairness as a criterion against which to determine whether waiver should be imputed. In their joint judgment Mason and Brennan JJ commented at 487, that "an implied waiver occurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege". Their Honours added at 488, "Hence, the implied waiver inquiry is at bottom focused on the fairness of imputing such a waiver". In Mann v Carnell (1999) 201 CLR 1, the High Court placed less emphasis on unfairness and more on inconsistency. In their majority judgment, Gleeson CJ, Gaudron, Gummow and Callinan JJ made the following observations at 13:

At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that "waiver" is a vague term, used in many senses, and that it often requires a further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which it effects a waiver of the privilege ...

Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver it is "imputed by operation of law". This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege ... What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large ...

[38] The subordination of fairness to inconsistency is apparent from a later comment made by the majority. Their Honours, at 15, expressed the view that, "Depending upon the circumstances of the case, considerations of fairness may be relevant to a determination of whether there is such inconsistency".

[39] Finally it is necessary to be conscious of the fact that, as Tamberlin J observed in Nine Films and Television Pty Ltd v Ninox Television Ltd, at 443-4, legal professional privilege is "an important common law right or immunity" and "is not to be waived unless there is clear conduct or language which evidences an intention to waive the privilege either expressly or by necessary implication".

The documents

[40] As previously mentioned the Commissioner claims that the confidentiality which RCI asserts is inconsistent with the disclosure resulting from the filing of material with the court in anticipation of putting that material into evidence at the hearing. In his written submissions the Commissioner alleges:

[E]very one of the documents relied upon as effecting the requisite disclosure is either an internal business record of [James Hardie Industries Ltd] (as ABN 60 then was) or one of its subsidiaries or a document provided to [James Hardie Industries Ltd] by one of its advisers (either Coopers & Lybrand or SBC Warburg). Each of them has been annexed to affidavits on the part of RCI in these proceedings.

Document No 1

[41] Document 1 is described as "Two copies of a facsimile from Mr Tony Clemens and Mr Keith Sheppard (Coopers & Lybrand) to Mr Larry Magid (Allens) dated 3 March 1998 and accompanying briefing paper". The Commissioner referred to minutes of a meeting of the Project Chelsea -- Board Subcommittee Meeting held on 18 March 1998. Those minutes are exhibited (PGM-32) to the affidavit of Phillip Graham Morley sworn 11 June 2008. Under the heading "Other Matters" there is the following entry:

Larry Magid (Allens) tax review -- the meeting foreshadowed in the minutes for the Subcommittee meeting on 3 March occurred on Friday, 6 March. Conclusion from the tax review meeting was no "show stoppers" identified but Magid also waiting on detailed memo of advice from C & L to further his review.

[42] I was also referred to another exhibit to Mr Morley's affidavit, PGM-29. This is a memorandum dated 26 February 1998 on letterhead of SBC Warburg Dillon Read. The heading of the memorandum is Project Chelsea. It states that it encloses the agenda for the next subcommittee meeting as well as "a tax structure briefing paper" and that the meeting will be held on Tuesday 3 March 1998.

[43] The Commissioner invites me to infer from the two documents, taking into consideration the dates of the meeting mentioned, that the tax structure briefing paper referred to in the memorandum is the "accompanying briefing paper" mentioned in the description of document 1. Moreover he submits that the mention of "no show stoppers" discloses the conclusion of the tax review meeting referred to in the minutes in PGM-32 and thus discloses the gist of the Magid legal advice.

[44] This seems to me to be an extremely tenuous argument and it is discussed fully in relation to document 2 below. In relation to document 1 however, it is not necessary for me to consider it further. Document 1 has been produced to the court and at Mr Thawley's invitation I inspected it. As a result, I can confirm that it has not been disclosed by the documents to which the Commissioner has referred. Consequently privilege in the briefing paper mentioned in document 1 has not been waived.

Document No 2

[45] Document 2 is described as "Fax from Mr Sheppard to Mr Magid dated 4 March 1998, attaching a memorandum drafted by Mr Sheppard". In support of his submission on waiver the Commissioner relied on the same material as in relation to document 1. He submitted that the material shows that it was put before the tax review meeting that concluded (according to the minutes in PGM-32) that "no show stoppers" were identified. The Commissioner's written submissions state:

[T]his evidence discloses the substance of legal advice given at the meeting, namely that there were no legal obstacles that made the proposals unworkable.

...

The Commissioner further submits that this waiver also serves to waive privilege in any documents relied upon as the basis for expressing legal opinion ...

Consequently, it was submitted that privilege has been waived in respect of all documents relating to Mr Magid's tax review including the memorandum drafted by Mr Sheppard.

[46] In AWB v Cole (No 5) (2006) 55 FCR 30, Young J observed at [164] that the test "to determine the scope of any waiver of associated material is whether the material that the party has chosen to release from privilege represents the whole of the material relevant to the same issue or subject matter". The issue is discussed at length in Attorney-General (NT) v Maurice (1982) 161 CLR 475 at 482-484 per Gibbs CJ, at 488 per Mason and Brennan JJ, at 492-3 per Deane J and at 498-499 per Dawson J.

[47] I do not accept that the conclusion that no show stoppers were identified discloses the content of tax advice given to that meeting. Mr Hilton drew my attention to the decision of the Full Federal Court in Bennett v Chief Executive Officer of the Australian Customs Service (2004) 140 FCR 101 and the decision of Sackville J in Seven Network Ltd v News Ltd (No 12) (2006) 230 ALR 544. In Bennett, Gyles J commented at [65]:

The voluntary disclosure of the gist or conclusion of the legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion.

Tamberlin J agreed with Gyles J but made some further observations.

[48] The issue in Bennett was whether a letter from the Australian Government Solicitor acting for the respondent waived legal professional privilege in respect of advice that was canvassed in that letter. The letter to the solicitors for the applicant was a proposal for settlement of the litigation and included the following comments:

AGS has now advised Customs that Public Service Regulation 7(13) does not prohibit all public comment by an officer on matters of public administration. Rather, the sub-regulation must be construed or "read down" so as not to apply to public comment on matters of administration which are not already on the public record.

...

AGS has advised Customs that your client is not correct in asserting that he is not subject to the Act and Regulations if he makes public statements about Customs-related matters in his capacity as President of the COA.

[49] Tamberlin J commented that the above extracts show that "the substance and effect of advice" had been communicated but added at [6]:

It may perhaps have been different if it had been simply asserted that the client has taken legal advice and that the position which was adopted having considered the advice is that certain action will be taken or not taken. In those circumstances, the substance of the advice is not disclosed but merely, the fact that there was some advice and that it was considered. However, once the conclusion in the advice is stated, together with the effect of it, then in my view, there is imputed waiver of the privilege. The whole point of an advice is the final conclusion.

[50] In Seven Network Ltd Sackville J followed Bennett and held that privilege in respect of certain legal advice had been waived by the inclusion in a paper known as "The Project Alchemy Board Paper" of a section headed "Legal Risks". That section discussed the legal consequences of negotiations between Foxtel and Optus. It stated, inter alia, "Our legal advice is that the risk of damages being awarded against Optus is low".

[51] I accept that these cases are authority for the proposition that disclosure of the gist of legal advice or its conclusion is inconsistent with the confidentiality of that advice. In both cases the material under consideration clearly indicated the substance of the legal advice by stating the conclusion in the terms set out above. The position here is quite different.

[52] I interpret the reference to "no show stoppers" as meaning that the taxation consequences identified do not indicate any reason why the project should not proceed. The comment is an evaluation made, perhaps in the context of other business considerations in addition to the tax advice, as to the taxation consequences of Project Chelsea. It is not even clear from the minutes whether the evaluation formed part of the advice or whether it was a conclusion arrived at by those who attended the meeting.

[53] I simply have no idea from the comment made in the minutes what taxation consequences were identified in the advice. It may be that there were no adverse consequences identified. It is equally possible that, in the context of the project as a whole, adverse taxation consequences were regarded, either by the advisers or the recipients of the advice, as an acceptable downside but not as a reason not to proceed. For that reason I do not regard the principles articulated in Bennett as applicable.

Document No 3

[54] This document is described as "Copy of memorandum and attached documents prepared by Coopers & Lybrand on or about 19 June 1998 (referred to in Annex B to the Notice to Produce)". Annexure B includes a fax from Keith Sheppard of Coopers & Lybrand dated 19 June 1998 to Mr Michael Rigby of Allens. Mr Sheppard says:

Please find attached a revised copy of our advice on the Australian taxation consequences along the lines we discussed yesterday ...

Based on our discussions yesterday, I understand that you are preparing an opinion similar to the one which Allens prepared on 1 June 1998, as amended for subsequent discussions.

[55] Mr Hilton submitted that the principles in Bennett also apply here with the effect that the applicants had waived any legal professional privilege in respect of this document. The submission depends upon a close examination of the dates of this document and other documents that are exhibited (in AEC-16, AEC-17 and AEC-18) to an affidavit of Anthony Edward Clemens sworn on 12 June 2008.

[56] AEC-16 is a memorandum dated 11 June 1998 on SBC Warburg Dillon Read letterhead, referring to the distribution of documents to the board for a 30 June board meeting. It lists the documents to be distributed as including "all final tax advices and sign-offs from C & L, GDC and AAH (including the approvals from relevant authorities)." AEC-17 is a fax from Coopers & Lybrand dated 12 June 1998. It is addressed to, among others, SBC Warburg Dillon Read, James Hardie Industries Ltd, Mr Magid at Allens and the American lawyers, Gibson Dunn & Crutcher LLP. The salutation is "Dear Fellow Chelsea Advisers". The heading is "Tax Opinions". The message states:

On June 22, a package of opinions will be handed to the Chelsea subcommittee for review prior to the meeting on June 24 at which final confirmation of the Press Release will be given.

Each of us has previously confirmed in principle agreement with the tax assumptions of Chelsea applicable to our own jurisdiction. By June 22 it is necessary more formally express our opinions in order for Chelsea to be confident as it proceeds to registration of the SEC documents and makes public statements.

...

In the case of the US and Australia, C & L will prepare detailed advice specific to The Transaction Steps by revising existing lengthy memoranda to largely exclude reference to alternative courses of action not being followed. Legal counsel in the US and Australia are asked to confirm concurrence in all material respects with the C & L memoranda. While legal counsel may seek to distinguish their views from C & L in various ways, lengthy discussions to date and prior confirmatory notes have not highlighted material differences of view.

...

C & L Sydney will issue a further opinion to Chelsea in which it will conclude that based on The Transaction Steps, the advisers of each jurisdiction have issued opinions that appear to be soundly based and that as co-ordinators of the project, we are not aware of any material issue that has been omitted from the opinions.

[57] Exhibit-18 is a letter from Coopers & Lybrand dated 29 June 1998 addressed to, The Directors, James Hardie Industries Limited. It states that its purpose is "to express an "umbrella" opinion on the taxation aspects of the establishment of and ongoing operation of the proposed Chelsea/Newcastle structure." The letter refers to C & L having provided advice in all relevant jurisdictions. In addition it states that "in relation to the significant issues arising in the US and Australia, second opinions have been obtained from Gibson, Dunn and Crutcher (GDC) and Allen Allen & Hemsley (AAH) respectively". The letter also contained the following relevant passages:

In our opinion, based on the work carried out to date in relation to the proposed group structure and the advice received from each jurisdiction, we conclude that all the opinions received appear to be soundly based. In addition, as co-ordinators of the project, and from our discussions with all the advisers, we are not aware of any material issues having been omitted.

...

In co-ordinating our effort to provide tax advice on the complete structure, we have sought to provide tax comfort in the following ways:

(a)

...

(b)

in relation to critical tax issues arising in Australia, a separate opinion on the Australian tax issues provided by ourselves, supported by an opinion from AAH;

...

We believe that these opinions and rulings adequately address all material tax issues and from our discussions and meetings, we are not aware of any other tax issues that need to be addressed.

[58] Attached to this letter and forming part of AEC-17 are a number of tax advices including (a) an advice entitled "Project Chelsea Tax Advice" prepared by C & L; and (b) an advice included in App VII -- Australian Tax Advice -- C & L, entitled "Chelsea Reorganisation Steps -- Australian Taxation Consequences". With reference to the chronology of the documents, Mr Hilton has made a persuasive circumstantial case that these are documents to which the brief description of document 3 refers. However for reasons discussed below at [62]-[66] I am not satisfied that there has been a waiver of legal professional privilege in respect of the documents that are the subject of the present motion.

Documents 4, 6 and 8

[59] Document 4 is described as "Three copies of a letter dated 1 June 1998 from Mr Magid to Mr Morley"; document 6 is "Copy of file copy of letter dated 19 June 1998"; and document 8 is "Copy of a file copy of a letter from Allens to Mr Morley, dated 30 June 1998". The Commissioner submits that documents 4 and 6 are disclosed in Exs AEC-17 and AEC-18 and that document 8 is disclosed in an exhibit to the affidavit of Phillip Graham Morley sworn on 11 June 2008 (Ex PGM-43).

[60] There is a short answer to this submission which is that the affidavits of Mr Clemens and Mr Morley were filed on 12 June 2008. The uncontradicted evidence of Mr Clough is that he requested these documents from Allens on 5 November 2008 and received them under cover of a letter from Allens on 24 November 2008. It is reasonable to assume that they were created between 5 and 24 November approximately 5 months after the affidavit of Mr Clemens was filed. The Propend privilege that attaches to these documents could not have been waived by disclosure of documents before they were created.

Documents 5 and 7

[61] Document 5 is described as "Copy of facsimile from Mr Magid and Mr Rigby to Mr Clemens and Mr Sheppard attaching a copy of a letter from Allens to the JHIL/ABN 60 Board of Directors dated 19 June 1998". Document 7 is described as "Two copies of the letter dated 19 June 1998 (see document 5 in this table), one of which is incomplete". The Commissioner's claim that privilege in these documents has been waived is based on the same material which I have discussed at some length in relation to document 3. As with document 3 there is some circumstantial support for Mr Hilton's contention, however for the same reasons that apply to document 3 and which are set out at [62]-[66] below, I am not satisfied that privilege has been waived.

Conclusion on waiver

[62] Ultimately the reason why the Commissioner cannot succeed in establishing his claim of waiver in respect of any of the documents is that, as Mr Thawley submitted, even at their most persuasive they do not address the locus of the privilege that is claimed by RCI. As I have already found, the documents at issue are copies which, in the absence of waiver, are protected by Propend privilege. The Commissioner's submissions fail to distinguish between those documents and documents from which the copies were made.

[63] In Propend at 552 McHugh J emphasised that legal professional privilege is concerned with communications not with documents per se. The distinction was made clearly by Gaudron J at 544:

It does not seem to me absurd or contrary to common sense for privilege to attach to copy documents provided to a lawyer and made solely for the purpose of obtaining legal advice or solely for use in legal proceedings. If the original is not privileged, it is susceptible to whatever compulsory processes are available to secure its production; and the fact that it may be easier to obtain a copy from a solicitor than it is to obtain the original by compulsory process is no reason to cut down or abrogate legal principle especially one of such fundamental importance to the administration of justice as legal professional privilege.

[64] The communication that is protected here is the communication between RCI and its lawyers and for that reason legal professional privilege prohibits the disclosure of the documents under consideration. The failure to make the distinction is, it seems to me, fatal to the Commissioner's arguments. What is necessary for the Commissioner to discharge the onus of proving waiver of the privilege in the documents that I have found to be otherwise protected by Propend privilege is some action inconsistent with the maintenance of that privilege.

[65] It is not to the point that the documents from which the copies were made, or non-protected copies of those documents, have been disclosed either directly or by disclosure of their contents. Once one focuses on the fact that it is the communication between RCI and its lawyers which is protected it can be seen that the protection will be waived only if that communication is disclosed.

[66] The above conclusion is sufficient to dispose of the present application. However, in deference to the detailed arguments on waiver put by senior counsel for the Commissioner I have considered the issue of waiver in respect of each of the 8 documents described in the table in [26] above.

Compliance with notice to produce

[67] Submissions were made on behalf of the Commissioner to the effect that RCI 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.

[68] It follows from the above reasons that the applicant should be relieved from the production of each of the documents identified in the table in para 27 of the affidavit of Michael Andrew Clough sworn on 26 February 2009 on the ground that the documents are subject to legal professional privilege. The notice of motion should be otherwise dismissed and the applicant should have its costs.