ACCOUNTANTS FIRST LTD v INLAND REVENUE [2014] NZHC 1723

ACCOUNTANTS FIRST LTD v INLAND REVENUE [2014] NZHC 1723 [23 July 2014]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2014-485-2547[2014] NZHC 1723BETWEEN ACCOUNTANTS FIRST LIMITEDPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 21 July 2014Counsel: D P Weaver for PlaintiffJ K Gorman and K E Saint for DefendantJudgment: 23 July 2014JUDGMENT OF SIMON FRANCE JIntroduction[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 theplaintiff'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:(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 theplaintiff'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 consideringremoving 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 paperheaded "Issues Kamal is likely to raise". On its face it looks like adocument 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 legaladvice about the plaintiff's matter from the manager of the Community ComplianceUnit 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,3that 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 decision10.5 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.4Indeed, 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 thelimits 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 processas 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.______________________________Simon France JSolicitors:Lyon O'Neale Arnold, TaurangaCrown Law, Wellington4 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].