The litigation environment for Australian businesses has never
been more fraught.
Media reports appear almost daily of "potential" class
actions - like those recently commenced against Nufarm and ABC
Learningfor allegedly breaching their continuous disclosure
obligations or making misleading or deceptive statements.
In this environment, the prospect of having to defend a class
action is an ever-present, and increasingly realistic, threat
hanging over the head of corporate Australia.
So why would you hand ammunition to your opponents?
That is exactly what businesses risk when they refer to their
legal advice in negotiations, continuous disclosure to the ASX, a
media statement, board papers or other company documents
– at any time.
Broadly speaking, legal professional privilege attaches to
confidential communications created for the dominant purpose of
either seeking or giving legal advice, or for use in actual or
Legal professional privilege is not a new concept. When and how
it applies, however, is often misunderstood. And losing it can have
potentially disastrous consequences.
Because legal professional privilege exists to encourage clients
to talk candidly to their lawyers, and for their lawyers to give
full and frank advice, it can often set out all the facts, warts
and all, in relation to a dispute or issue. Some of this
information may not yet even be known to the other side. It might
identify weaknesses and strengths in each side's position,
areas of concern about witnesses' character, demeanour or
credibility, or map out legal strategy or tactics.
But legal advice is only privileged whilst it remains
confidential. Once that confidentiality is lost, privilege is also
lost. And losing privilege can be surprisingly easy.
For listed companies, the risk is even greater given continuous
disclosure obligations. This was a lesson that one company,
Multimedia Limited, learned the hard way. The Victorian Supreme
Court found that the statement "the Board's lawyers have
been instructed to vigorously defend the claim and have advised
that the plaintiff's claim will not succeed" in a release
to the Australian Stock Exchange meant Multimedia had waived
privilege over that advice.
This puts a lot of businesses in a difficult situation. The
natural urge to defend yourself against accusations by arguing you
acted in a legally proper way can backfire catastrophically. And
the larger or more diffuse an organisation, the harder it is to
properly manage such risks.
The best action companies can take is to ensure they have proper
protocols in place to guard against inadvertent waivers of
privilege. This includes clear protocols to ensure that statements
made in any forum about the company's legal position or the
merits of a claim are vetted by someone who understands how legal
professional privilege operates. As a priority, the corporate
affairs team, directors, and others with frequent interaction with
the media should be educated about the risks. The short term
"high" of a public utterance about the strength of your
legal position can have painful and unintended long term
This was originally published in the Australian Financial
Review on Friday 25 March 2011
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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