Accountants First Limited v Commissioner of Inland Revenue

[2014] NZHC 1723

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2014-485-2547 [2014] NZHC 1723

BETWEEN

ACCOUNTANTS FIRST LIMITED

Plaintiff

AND

THE COMMISSIONER OF INLAND REVENUE

Defendant

Hearing:	21 July 2014
Counsel:	D P Weaver for Plaintiff J K Gorman and K E Saint for Defendant
Judgment:	23 July 2014

JUDGMENT OF SIMON FRANCE J

Introduction

[1]      The plaintiff is a tax agent.  Along with its principal, Mr Imran Kamal, the plaintiff pleaded guilty to Tax Administration Act 1994 charges. Consequently a decision has been taken by the Commissioner under s 34B of that Act to remove the plaintiff’s tax agent status. The plaintiff is seeking judicial review of that decision.

[2]      An issue has arisen as to a claim of legal professional privilege made by the defendant in the course of discovery.  The claim is made in relation to what is said to be legal advice provided by an in-house lawyer employed by the Commissioner.

Two issues arise:

ACCOUNTANTS FIRST LTD v INLAND REVENUE [2014] NZHC 1723 [23 July 2014]

(a)       whether at the time the advice was given, the lawyer is still properly to be seen as acting as an independent legal adviser;1

(b)      whether the decision maker has waived privilege.

Legal advice?

[3]      In  Martinovich  v Commissioner  of  Inland  Revenue,2   Fogarty J  posed  the question in these terms, asking whether the in-house provider of advice was:

A lawyer on the Commissioner’s staff who is a decision maker, exercising a delegated power to decide and thus performing an executive function, on the one hand, [or] a lawyer giving legal advice to a decision maker.

[4]      In the present case the plaintiff submits the lawyer in question, a Mr Instone, was so involved in the decision making process that led to the removal of the plaintiff’s tax agent status that his advice documents do not attract legal privilege.

[5]      It is accepted that Mr Instone is a lawyer employed by the Department whose general functions are to provide legal and technical assistance to various units within the Department.  He has been employed there by the Commissioner for nine years during which time he has continually held a practising certificate.

[6]      The background to the present case is that Mr Kamal became involved in a fictitious invoice writing scheme.  Mr Kamal and his company pleaded guilty to Tax Administration Act charges, and Mr Kamal testified for the Crown at the trial of the two architects of the scheme.  Mr Instone was involved for the Department in that prosecution, although the Crown Solicitor conducted the prosecution.

[7]      Subsequent to the criminal processes, attention within the Department turned to Mr Kamal, or more accurately, to the plaintiff’s on-going status as an authorised tax agent.   The various necessary internal inquiries were made and approvals obtained.     Mr Kamal  was  then  advised  that  the  Department  was  considering

removing the plaintiff’s tax agent status.

1      That this was an issue was not obvious from the application, but the defendant was content to proceed on the basis of the evidence already filed.

2      Martinovich v Commissioner of Inland Revenue [2014] NZHC 1357.

[8]      The  process  is  then  that  the  tax  agent  has  30 days  in  which  to  make submissions, following which there is a meeting between the tax agent and the Department officials.  Following that meeting the officials prepare an internal report, called a submission, for the decision maker. That is what happened here.

[9]      Within this process it is known Mr Instone did three things:

(a)      at a date unknown, Mr Instone prepared a one page background paper headed “Issues Kamal is likely to raise”.  On its face it looks like a document prepared for the meeting between Mr Kamal and officials, but there is no direct evidence.  Legal privilege was initially claimed, but the Department accepts it is not applicable (it is not legal advice) and the document was disclosed in early June;

(b)Mr Instone was one of the three Department officials who attended the meeting with Mr Kamal, as did Mr Kamal’s legal adviser;

(c)      Mr Instone authored the group’s “submission”.  The submission takes the position that the seriousness of the convictions and the underlying conduct are incompatible with tax agent status.

Privilege is not claimed in relation to any of these events regardless of the capacity in which Mr Instone was acting.

[10]     Against this background one turns to the two documents concerning which privilege is claimed.   On 8 August 2013 Mr Instone received a request for legal advice about the plaintiff ’s matter from the manager of the Community Compliance Unit of the Customer Services Group.  The Manager requesting the advice was one of the three people, along with Mr Instone, who attended the official’s meeting with Mr Kamal.   Mr Instone gave the advice by email, and privilege is claimed in the email.

[11]     The second document was created eight days later.  Another official involved in the process asked Mr Instone for a copy of the legal advice and for further legal advice on the matter.   This was also provided by email by Mr Instone, and again privilege is claimed.

[12]     I  am  satisfied  that  the  circumstances  support  the  claim  of  privilege. Mr Instone is a lawyer employed to give internal legal advice.   He describes the request as being for legal advice and I see no reason to go behind that.   This is reinforced by the request eight days later for elaboration on the advice.

[13]     Mr Instone’s attendance at the official’s meeting with Mr Kamal on the same day as the initial request for advice is not inconsistent with him acting as a legal adviser; as noted, Mr Kamal also had a legal adviser there and it was an obvious occasion for lawyers to be present.  The fact that Mr Instone a month later authored a document within the process that does not attract privilege does not undermine the character of the advice given a month earlier.

[14]     It is also to be noted that Mr Instone is not in any sense the decision maker. His advice may be an important part in the process, but as noted in Miller v IRD,3 that does not rob it of its privileged status.

Waiver

[15]     There is nothing in this.  The decision maker has prepared an affidavit for the purposes of the judicial review proceedings.   In that affidavit Ms Young identifies the documents that she had, and which she considered in reaching her decision.  The relevant part of her affirmation reads:

10.I read carefully and considered the following documents in reaching my decision

…

10.5     Legal  advice  contained  in  emails  from  Mr Instone  dated  8  and

16 August 2013   over   which   the   Commissioner   has   claimed privilege.

3      Miller v IRD (1997) 18 NZTC 13,001 at 13,020.

[16]     That is the only reference to the legal advice.  Ms Young was obligated to list the existence of the advice as one of the documents available to her.  In terms of the tests articulated by the authorities concerning waiver, Ms Young has not claimed specifically to have relied on the advice or to have found it influential, nor has she sought to write the contents of the advice into her affidavit.  It is well established that

mere reference to a document does not threaten privilege, and that is the case here.4

Indeed, generally a bare assertion of reliance on legal advice will be insufficient to amount to a waiver of privilege, and Ms Young has not even gone that far.

[17]     Mr Weaver sought to support the plaintiff ’s challenge by pointing to the limits inherent in judicial review; for example, no cross-examination.  He suggested these limits meant the obligation of candour was strong.  Whilst that may be so, it does not mean legal professional privilege does not apply or that there is something wrong in claiming it.  The processes for Crown waiver of legal privilege are set out in the Cabinet Manual and there is no reason to consider they are not properly exercised.

Conclusion

[18]     Mr Instone’s  role  in  the  process  leading  to  the  decision  to  cancel  the plaintiff’s standing as a tax agent has not compromised his status within the process as an independent legal adviser.   The legal advice in issue was given  in direct response to a request for legal advice and the circumstances do not undermine the subsequent claim of privilege. There is no strength to the allegation of waiver.

[19]     This is a standalone application and the respondent is entitled to an award of costs.

Solicitors:

Lyon O’Neale Arnold, Tauranga

Crown Law, Wellington

Simon France J

4      The  situation  is  now  governed  by  s 65  Evidence Act 2006.    The  section  was  applied  by Panckhurst J in Astrazeneca v Commerce Commission (2008) 12 TCLR 176. I accept, with respect, the statements of principle contained therein at [39].