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Politics

Nov 30, 2006

Legal professional privilege: a loophole that needs closing?

Legal professional privilege (LPP) is under attack as a result of the problems raised in the Cole AWB enquiry. Attorney-General Ruddock has referred the issue to the Australian Law Reform Commission with a view to changing the law.

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Legal professional privilege (LPP) is under attack as a result of the problems raised in the Cole AWB enquiry. Attorney-General Ruddock has referred the issue to the Australian Law Reform Commission with a view to changing the law.

LPP protects confidential communications between client and lawyer for the purpose of the client obtaining legal advice. The justification for the privilege is that the legal system will not work if people cannot get protected confidential advice.

In commercial matters, there is no doubt that this privilege is grossly abused. It is common for accountants to use in-house counsel (or even out-house counsel) for “advice” as a device to sanitise a file.

It is routine that an ATO or AFP raid upon an accountant’s office will result in a blanket claim for privilege covering all seized documents. This leads to complex litigation in the Federal Court and to long delays which have the effect of completely disrupting the investigation. It is often alleged that these delays are part of a defence strategy.

While LPP is a common law rule, Parliament can modify or even remove it. The Federal Government is looking to lay the AWB blame elsewhere. Here it can argue that abuses of LPP have reached unacceptable limits as exemplified by the conduct of the AWB.

The Government has a point. Tax avoidance in Australia is a highly developed, sophisticated industry. This (generally speaking) has the result that the rich pay no (or less) tax and that ordinary Aussies pay correspondingly more. In my opinion, it would be in the public interest for the ATO to have the right to override LPP in a tax investigation. I am opposed to any other modification of the privilege.

Or even better, simply reform the tax system by having a flat tax of 10% and no deductions. Or adopt the Scandinavian approach where all tax returns are made public. But I digress…

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