Australia: In-house Counsel and Legal Professional Privilege - Are Your Internal Communications Protected?

In a recent survey of in-house counsel, well over half of respondents identified legal privilege as the biggest problem area they faced in their role.

What is legal professional privilege?

Legal professional privilege, also known as client legal privilege, is defined as a legal right that protects from disclosure confidential communication between a lawyer and a client.

Key elements of legal privilege are that:

  • It is a legal right
  • It protects all types of confidential communication from disclosure, both oral and written
  • The information communicated must be confidential in nature
  • Confidentiality is created by the confidential nature of the lawyer-client relationship
  • The communication must involve an independent professional lawyer
  • The communication must be made for the dominant purpose of seeking or providing legal advice or for use in existing or anticipated legal proceedings

Different from duty of confidentiality

Legal privilege protects communications from compelled disclosure, whereas the duty of confidentiality protects communications from voluntary disclosure by a professional. Legal privilege belongs to the client, who has the right to claim or waive privilege, but a duty of confidentiality relies on the professional to uphold an ethical value.

Important considerations for in-house counsel

It has been well established that an in-house corporate or government lawyer is entitled to claim privilege on behalf of his or her employer as client. However, in the role of an in-house lawyer, commercial and legal activities will often be intertwined. Privilege will not be denied simply on the basis of some commercial involvement in a matter, but being employed as a lawyer by a corporate entity does not of itself prove independence. Even where in-house counsel acts honestly, privilege may be lost due to questions about the lawyer's independence and the blurred lines between legal and commercial activities.

There are a several judicial decisions which are particularly relevant for in-house counsel.

Dominant purpose test

One of the key elements of privilege is that the communication is created for the dominant purpose of providing legal advice or for use in legal proceedings.

The case of Sydney Airports Corp Ltd v Singapore Airlines Limited (1995) involved a Singapore Airlines jet which damaged a jetway while parking at Sydney Airport. A report was prepared by the inhouse counsel of Sydney Airports in the course of his preparation for litigation. Singapore Airlines made a claim for that document to be disclosed.

The court acknowledged that the in-house lawyer's subjective intention was to prepare the document for the dominant purpose of litigation, but found this was only one of four purposes. The other three were to identify the causes of the accident, to establish the circumstances and to make recommendations, all of which were unrelated to the litigation.

The court held that Sydney Airports had failed to establish objectively that the document had been prepared for the dominant purpose of anticipated litigation and determined that there was no right of privilege over the report.

In comparison to external solicitors, in-house solicitors are more likely to act for purposes unrelated to legal proceedings and may have other functions. The status of a legal practitioner as an inhouse lawyer is important in determining whether a document has come into existence for a privileged purpose and deciding whether that purpose was the dominant purpose.

Independence test

In determining whether privilege applies, the courts consider the independence of the practitioner involved. The legal adviser must be independent so that personal loyalties, duties or interests of the advisor should not influence the legal advice which he or she gives, or the fairness of his or her conduct of the litigation on behalf of the client. If the lawyer is unable to be professionally detached in giving advice or conducting litigation, the legal advice of that practitioner may not attract privilege.

In the case of Seven Network Ltd v News Ltd (2006), the active engagement of the Chief General Counsel of News Ltd in commercial decisions was to such an extent that significant weight was given to this participation. It cannot therefore be assured that documents produced by in-house counsel will have privilege attached if counsel is actively engaged in providing both commercial and legal advice.

The courts will look to the independence of the role of the counsel as a legal adviser. The inclusion of both commercial and legal matters in documents produced by in-house counsel makes it difficult to claim that privilege attaches to the document as a whole.

Waiver of privilege

Corporate and government lawyers need to be particularly careful not to waive privilege without specific instructions to do so. They also need to be diligent in ensuring the client does not waive privilege unintentionally.

The basic principle is that waiver of privilege is implied where a party's conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. The court will examine the purpose of the communications and also the purpose for the disclosure of the communications.

In the case of Rich v Harrington (2007), Rich was partner at PricewaterhouseCoopers (PwC) and brought sex discrimination claims against other partners at PwC. Harrington (the senior partner) wrote a letter referring to legal advice from the internal general counsel office. External advice was also obtained from law firm Mallesons who wrote to Rich's lawyers.

The office of general counsel at PwC was a separate functional unit which operated on a professional and objective basis. It maintained separate files and was separately located on different floor to the business units. Although the general counsel was a partner in the firm, no general counsel held any management or executive position.

Justice Branson held that the office of general counsel was not sufficiently independent in the circumstances to give professionally detached independent legal advice and therefore privilege did not apply to the advice given by the general counsel.

It was also found that the Mallesons letter sent to Rich's lawyer was calculated to convey the message that the conduct of PwC was carried out on the basis of the advice and was for the purpose of fortifying the claim that PwC had not engaged in any conduct for which it could be liable. The court held that because this letter disclosed the gist of the advice, privilege had been waived.

Involvement of regulators

The James Hardie (Investigations and Proceedings) Act 2004 (Cth) came into force on 15 December 2004. This act denies the right to claim privilege with respect to investigations and proceedings commenced by ASIC in relation to the James Hardie group of companies. ASIC currently maintains that privilege is not a reasonable excuse for failing to produce documents in response to a demand from ASIC. However, in 2002 the High Court held that the ACCC was not entitled to require the production of privileged documents.

Although this issue will no doubt be raised before the courts at some stage, the James Hardie Act is also significant for two other reasons. First, it indicates that parliament is willing to take dramatic steps (denying a fundamental common law right by passing legislation), where there may have been serious corporate malpractice. Secondly, it suggests that parliament might be prepared to deny privilege with respect to regulatory investigations.

Practical tips for in-house counsel

There are some simple actions you can take as an in-house lawyer to reduce the risk of losing privilege over your communications.

  • Keep separate commercial and legal files
  • Draft separate advice on commercial and legal matters - do not combine these within one document
  • State in the advice the capacity in which you are writing
  • Mark your correspondence 'subject to legal privilege' - not conclusive evidence but it is persuasive
  • Use different signatures on commercial and legal documents
  • Maintain control over the distribution of documents - be careful of the use of cc and bcc in emails
  • Draft and implement written protocols for staff and educate staff on their roles and on the implications of waiving privilege
  • Ensure lawyers report to legal (not commercial) managers for their legal roles
  • Remunerate legal staff separately from commercial staff - ensure legal staff are remunerated on salary basis for their legal work and avoid remuneration linked to commercial or performance targets
  • Be careful what you say or publish - do not declare that you have legal advice and what that advice may be
  • Maintain a practising certificate to demonstrate independence
  • Use external lawyers - their independence is usually not in doubt and they are limited to advising on legal issues, so should pass the dominant purpose test

Swaab Attorneys was the highest ranking law firm and the 13th best place to work in Australia in the 2010 Business Review Weekly Best Places to Work Awards. The firm was a finalist in the 2010 BRW Client Choice Awards for client service and was named the winner in the 2009 Australasian Legal Business Employer of Choice Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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