A recent decision of the Administrative Appeals Tribunal (AAT) has confirmed that “without prejudice” privilege applies to proceedings before the AAT. Such communications cannot be relied upon by either party in circumstances where privilege has not been waived and the document is not one that must be produced as part of the Tribunal documents (T-documents) pursuant to s 37(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act).  

The case of Bruse and Commissioner of Taxation [2010] AATA 404 involved a dispute about whether the applicant was entitled to certain tax deductions. A preliminary issue arose during the proceeding as to whether the applicant could rely on a “without prejudice” communication made by the respondent. It was conceded by the applicant that the letter was a “without prejudice” communication. The issues to be determined by the AAT were:

  • whether without “prejudice privilege” applies to proceedings in the AAT,
  •  whether privilege was waived, and
  • whether privilege was abrogated by reason of s 37(1) of the AAT Act.

The AAT had no hesitation in finding that “without prejudice” privilege applies to proceedings in the AAT, following the decision of Re Feben and Repatriation Commission (1998) 50 ALD 600.

As to the issue of waiver, the applicant argued that by referring to the “without prejudice” letter in a subsequent letter (which had been included in the material provided to the AAT), the respondent had therefore waived privilege over the “without prejudice” letter. The subsequent letter had stated:

“For the purposes of settling this matter, we had been prepared to allow the applicant deductions for Mrs Jillian Bruse’s wages and car expenses to the extent contained in his letter dated 17 August 2009. However, this proposed without prejudice offer of settlement was not accepted by your client.

At present and on the evidence available, we do not accept that Mrs Jillian Bruse was an employee of the applicant during the relevant income year. Hence, the deductibility of Mrs Jillian Bruse’s wages and car expenses in respect of the Mazda will be issues to be determined by the Tribunal.”

The AAT found that privilege was not waived because firstly, the respondent was not seeking to rely upon the content of the “without prejudice” letter or the negotiations in order to advance any contention in the proceedings. Secondly, the subsequent letter was easily comprehensible without reference to the “without prejudice” letter. The AAT went on to say that even if the subsequent letter was not comprehensible without reference to the “without prejudice” letter, that would not be sufficient to outweigh the public interest in the content of settlement negotiations being protected from production in subsequent litigation.

In relation to s 37(1) of the AAT Act (which compels a decision maker to lodge with the AAT copies of all documents relevant to the decision), the AAT considered whether that section operated to abrogate the privilege which otherwise applied to the letter. Pursuant to s 37(3), the provisions of s 37 are expressed to have effect “notwithstanding any rule of law relating to privilege or the public interest in relation to the production of documents”. The AAT found on the facts of this particular case that the document in question was not one that the respondent was compelled to produce pursuant to s 37(1), so privilege was not abrogated by that section. The AAT did not need to decide whether the privilege would have been lost if the document had been one that the respondent was obliged to include in its T-documents.

For completeness, it is important to remember that an application can be made to the AAT under s 35(2) of the AAT Act for an order that a document which might ordinarily be subject to legal professional privilege be treated as confidential. In this event, such document need not be lodged and served on the other party with the T-documents (and may never need to be if a confidentiality order is granted).