Australia: ALRC Report On Client Legal Privilege In Federal Investigations

Key Points

• The ALRC has affirmed the importance of client legal privilege as a fundamental principle of the common law that may only be abrogated in exceptional circumstances.

• However, in order to enjoy the benefit of this right, claimants must be prepared to demonstrate their entitlement to exercise that right.

Earlier this year, the Australian Law Reform Commission (ALRC) delivered a report, "Privilege in Perspective: Client Legal Privilege in Federal Investigations", which considered the operation of legal professional privilege (or client legal privilege as it is referred to in the report) in the context of federal investigatory bodies, including the ACCC, ASIC, ATO, APRA and the AFP, and Royal Commissions of inquiry.

The inquiry was part of the previous Government's response to concerns expressed by Commissioner Cole about the impact of extensive claims for privilege which significantly delayed the AWB Royal Commission.

In its report, the ALRC identified over 41 federal bodies with coercive investigatory powers, in addition to Royal Commissions. Each of these bodies is governed by different legislation. The ALRC found that, in most cases, the relevant legislation is silent on the application of client legal privilege and, where it is addressed, there is no consistent approach - creating confusion and cost for clients, lawyers and investigators.

The ALRC made a number of recommendations aimed at clarifying areas of existing uncertainty and developing procedures for making and resolving client legal privilege claims.

Overview

Most importantly, the ALRC accepted that client legal privilege was a doctrine of fundamental importance in the common law and should only be abrogated or modified in exceptional circumstances. This is significant because the ACCC, ASIC and APRA argued that abrogation of the privilege was necessary in order for them to perform some of their functions.

The ALRC found that to the extent that there was a problem with client legal privilege in the context of federal investigatory bodies, it mainly lay in the domain of practice and procedure.

Three of the most important recommendations made by the ALRC in its report are:

• that legislation be enacted to clarify the law and procedure governing client legal privilege claims in federal investigations;

• that procedures be established for the making and resolution of client privilege claims; and

• that privilege be extended, in defined circumstances, to include tax advice provided by accountants.

A single piece of legislation

The ALRC recommended the enactment of a single piece of legislation to clarify the existing scattered federal provisions on the application of privilege to federal coercive information-gathering powers and to provide for consistency with respect to procedures for privilege claims.

The proposed legislation would provide that, in the absence of any clear and express statutory provision to the contrary, client legal privilege applies to the coercive information-gathering powers of federal bodies.

This would alter the existing common law position that client legal privilege can be abrogated by a particular statute by necessary implication, as well as expressly. Given that most federal statutes setting out coercive information-gathering powers are silent on the availability of client legal privilege, this proposal, if it is adopted, will eliminate the need to consider whether a particular statutory power abrogates privilege by necessary implication. It also reinforces the fundamental importance of client legal privilege.

Procedures for making and resolving privilege claims

The ALRC found that there is a need to address significant issues and problems associated with current practices and procedures for making and resolving client legal privilege claims in federal investigations.

Currently, those who make privilege claims in federal investigations are generally not subject to legislative requirements to provide details of their claims to federal bodies. In many cases, the federal bodies are not even made aware that allegedly privileged material has been withheld from production.

The ALRC found that this lack of transparency was unsatisfactory. It has recommended that the federal client legal privilege legislation referred to above include a requirement that a person who claims privilege in response to a federal body's demand for the production of information must, if the federal body requests:

• specify the grounds on which the privilege is claimed and the facts relied upon as giving rise to the claim; and

• in the case of documents, provide a description of the documents sufficient to enable them to be identified, verify the claim on oath or affirmation and provide a certification by the person's lawyer that there are reasonable grounds for the making of the claim.

This recommendation, if implemented, will have significant practical ramifications. For example, a person served with a notice to produce documents under section 155 of the Trade Practices Act 1974 (Cth) does not presently have a statutory obligation to notify the ACCC that documents have been withheld from production on the grounds of client legal privilege. Under the ALRC's proposed regime, assuming the ACCC so requests, not only will the fact that relevant documents have been withheld need to be disclosed, but full particulars of all documents over which privilege is claimed will need to provided.

The ALRC also recommended that there be a model scheme for resolving privilege disputes which is to include a number of specified features, including allowing a federal body the discretion to offer a claimant an opportunity to agree to an independent review process.

Significantly, the ALRC recommended that if a federal body (other than a Royal Commission) disputes a privilege claim, and the federal body decides not to offer the claimant an opportunity to agree to an independent review mechanism or the claimant does not agreed to such a mechanism when offered, the claimant must commence proceedings within 14 days (or such other time agreed to by the parties) seeking declaratory or other relief. If the claimant fails to do so, the federal body will be entitled, in the absence of special circumstances, to regard the privilege claim as having been waived.

As a result, there will likely be much greater scrutiny by regulators of claims for client legal privilege. The onus of establishing those claims will fall squarely on claimants.

A new tax advice privilege

The ALRC recommended the creation of a "tax advice privilege" to protect the confidentiality of tax advice given by independent professional accounting advisers from the information-gathering powers of the Commissioner of Taxation.

This would effectively formalise the ATO's "accountant's concession" and would only apply in relation to information sought by the Commissioner of Taxation. The extension would bring Australia into line with the position in the US, UK and New Zealand.

The privilege would protect a "tax advice document", defined as a confidential document created by an independent professional accounting adviser for the dominant purpose of providing a person with advice about the operation and effect of tax laws. It would not include source documents. The adviser would need to be a registered tax agent or a nominee or employee of a registered tax agent, who is a qualified tax accountant.

The ALRC regarded the fact that the same advice can be given by accountants and lawyers on taxation law as the crucial factor in the extension of privilege to tax advice. However, the ATO may still require that a claim that a document is a tax advice document be certified by a lawyer.

Abrogation of the privilege in certain circumstances

The ALRC accepted that in certain "exceptional circumstances" a higher public interest may warrant abrogation of client legal privilege. Two examples were:

• major investigations which fit specified criteria; and

• some Royal Commissions.

In the case of a particular investigation to be undertaken by a federal investigatory body, the ALRC recommended that any abrogation be effected by Parliament passing specific legislation.

In the case of Royal Commissions, the ALRC recommended that the Royal Commissions Act 1902 (Cth) be amended to allow the Governor-General, in exceptional circumstances, to declare that client professional privilege is not a reasonable excuse for refusing to produce documents to the Royal Commission in the Letters Patent establishing the Royal Commission.

In both cases, the ALRC identified certain key factors which should be taken into account before deciding whether privilege might be abrogated. Nevertheless, in the case of Royal Commissions, if this proposal is adopted, in our view there is a real risk that significant public pressure and the need for political expediency will incline future governments towards abrogating privilege when establishing a Royal Commission.

Safeguards where privilege is abrogated or modified

The ALRC recommended certain limitations on the use of privileged documents obtained by federal bodies where privilege is abrogated or modified. Those recommendations include:

• a requirement that a federal body which seeks to rely on otherwise privileged information in any court proceeding apply to the Court for permission to do so, and that there should be a presumption against the use of the information, in the absence of any express statement concerning the use to which otherwise privileged information could be put; and

• in the absence of any express statutory statement to the contrary, abrogation or modification of privilege will not prevent the holder of the privilege from maintaining privilege against a third party.

Lawyers' professional obligations

The ALRC also made various recommendations seeking to ensure professional integrity in relation to claims made by lawyers on behalf of their clients for client legal privilege, focusing, in particular, on the role of professional disciplinary proceedings and legal ethics education.

Conclusion

In summary, the ALRC has affirmed the importance of client legal privilege as a fundamental principle of the common law that may only be abrogated in exceptional circumstances. However, in order to enjoy the benefit of this right, claimants must be prepared to demonstrate their entitlement to exercise that right. This approach underlies the ALRC's proposed framework for making and resolving claims of client legal privilege in federal investigations in a much more open, transparent and expeditious manner. The Government is presently considering the ALRC's recommendations.

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