1.1 Confidential communications between a solicitor and client are, if made for the dominant purpose of giving legal advice or for use in existing or anticipated litigation, generally subject to legal professional privilege. The position becomes less clear however when such communications are between the solicitor and a third party (such as an expert) or the client and a third party. Do these communications still attract legal professional privilege?
2. The Fundamentals of Legal Professional Privilege
2.1 Legal professional privilege is regarded as a rule of substantive law in Australia. It exists to serve the public interest in the administration of justice by encouraging full and frank disclosure by clients to their lawyers.
2.2 Clearly, where legal professional privilege applies, it can have very material consequences. In the words of Justice Heerey in Equuscorp Pty Ltd v Kamisha Corporation Ltd.1, "if legal professional privilege applies, privilege trumps relevance". Where legal professional privilege does apply, key evidence in a case may be protected from disclosure to the Court and the opposing party.
2.3 In relation to this issue, the common law in Australia is that legal professional privilege attaches to:
(b) confidential communications passing between a client, the client's solicitor and third parties, for the dominant purpose of use in or in relation to litigation, which is either pending or in contemplation ("litigation privilege").
Different principles govern the availability of legal advice privilege and litigation privilege, particularly where the relevant communications involve third parties.
3. When will a third party communication attract litigation privilege?
3.1 "Litigation privilege" will apply to communications prepared when litigation is anticipated or commenced. To attract litigation privilege, the communications need not be between the client and its solicitor. Communications with a third party by solicitor or client can be protected by litigation privilege provided litigation:
(b) the communication is for the dominant purpose of use in relation to the litigation.2
4. When will a third party communication attract legal advice privilege?
4.1 Where litigation has not commenced and is not reasonably anticipated, what is the position in relation to legal professional privilege and third party communications? Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd, 3 a decision of Justice Kenny of the Federal Court in January this year, demonstrates that legal professional privilege will not apply so readily where third party expert reports are prepared in order to assist with advice in non-litigious matters, such as mergers and acquisitions and other non-litigious transactions.
4.2 The facts in this case were as follows:
(b) The two Respondents to the matter, Pratt Holdings Pty Ltd, and their accountants, PricewaterhouseCoopers ("PwC"), asserted that legal professional privilege applied to the relevant documents and therefore they were protected from disclosure.
(c)The question for the Court to resolve was whether legal professional privilege did, in fact, apply to these documents. The circumstances in which the relevant documents came into existence were as follows:
(i) In the course of a balance sheet reconstruction undertaken by the Pratt Group, an issue arose concerning the taxation consequences of significant losses incurred by an entity in the Pratt Group. In relation to this issue, the Pratt Group sought taxation advice from lawyers, Arnold Bloch Leibler ("ABL").
(ii) As part of his advice, Mr Leibler of ABL suggested that Pratt Holdings obtain a valuation of assets from an independent accounting firm to assist in determining the exact quantum of the losses.
(iii) In accordance with this advice, the Pratt Group retained PwC to prepare a briefing paper and a particular asset valuation.
(iv) Although the relevant partner of PwC was informed by the Pratt Group that it was intended that the briefing paper he was preparing was for the purpose of enabling the Pratt Group to brief ABL, the specific details of the Pratt Group's instructions to ABL were not given to PwC, nor was PwC specifically informed about the matters in respect of which the Pratt Group had conferred with ABL.
(v) The drafts of the working paper and the final product prepared by PwC were given directly by PwC to the Pratt Group. According to the Affidavit of the Pratt Group's taxation and insurance manager, a Mr O'Halloran, PwC was instructed not to send the documents directly to ABL as "I wanted to control the process". PwC and ABL never conferred directly.
The principles governing "legal advice" privilege
4.3 Justice Kenny confirmed that different principles governed the availability of legal advice privilege and litigation privilege. Litigation was not pending nor reasonably anticipated in this case, so litigation privilege was not applicable. Where did this leave the documents prepared by PwC, given that PwC was a third party and the communications were not solicitor-client communications? Justice Kenny stated:
4.4 Justice Kenny appears to rule out legal advice privilege where a third party is involved, with the sole exception of where the third party is acting as agent of the solicitor or the client. This poses the question: when will a third party be an "agent" such that a communication by a solicitor or client with that third party will be privileged?
4.5 Justice Kenny held that PwC was Pratt Holding's "representative" only in the sense that PwC was employed by Pratt Holdings to do certain work. PwC was not the agent of Pratt Holdings for the purpose of making or receiving communications to or from ABL. As such, the communications did not attract legal advice privilege:
4.6 Justice Kenny tells us that:
4.7 Justice Kenny did not explore when a third party, such as PwC, would be an agent for this limited purpose and, accordingly, a communication between the solicitor (or the client) and that third party could attract legal advice privilege.
The English position: the third party agent can be no more than a "channel"
4.8 It appears that a third party will be an agent of a client for the purpose of making or receiving legal advice if that third party was a mere conduit of solicitor-client communications made for the purpose of that advice. This is the concept referred to in the leading English decisions on legal advice privilege, where Courts have referred to a third party simply acting as a "channel" or "medium" of communication between the client and the legal adviser. This authority suggests that if the third party does anything more than act as a "medium of communication", then communications between the solicitor and that third party will not attract legal advice privilege.4 English Courts have said that where a third party prepares or brings into existence a report for a client, that third party has gone beyond the agency necessary to maintain privilege and even if the report prepared by the third party was sought for the dominant purpose of obtaining legal advice, legal advice privilege cannot apply. In simple terms, if the third party adds value, privilege is lost.
4.9 Part of the appeal of this approach is its simplicity. As the third party is a mere conduit or "medium of communication", the communication is regarded as effectively a communication between the solicitor and the client and, accordingly, legal professional privilege is preserved. However, most communications with third parties for the purpose of legal advice occur so that the third party can provide some additional information or analysis that assists with the provision of the advice. Based on the approach currently favoured by English Courts, privilege will not apply to such communications.
The position in Australia is far from clear
4.10 Appellate Courts in Australia have not provided any real guidance on this issue. Although the High Court has considered the doctrine of legal professional privilege specifically in nine cases since 1976, none of those cases required the Court to concentrate directly on third party communications in the absence of actual or contemplated litigation.5 An appeal from the decision of Justice Kenny in Pratt Holdings has been heard by the Full Federal Court but judgment has not yet been delivered.
4.11 In decisions by single Australian judges prior to the Pratt Holdings case, the "agency" requirement has been used more broadly in non-litigious settings to enable a wider category of third party communications to attract privilege.6 Third party communications that go beyond the "mere channel" test favoured in the UK, such as a report commissioned by the client and provided directly by a third party to the solicitor, were found to be privileged on the basis that the agency role of the third party could extend to preparing a report without losing the protection of privilege. On at least one other occasion the "agency" requirement was apparently dispensed with altogether, regard being had only to the purpose of the communication to determine whether or not it was privileged.7
4.12 In the period since Justice Kenny's decision in Pratt Holdings, the issue was considered recently by Justice Allsop of the Federal Court of Australia in DSE (Holdings) Pty Ltd v Intertan Inc  FCA 1191. This proceeding arose out of a share acquisition agreement pursuant to which DSE (Holdings) Pty Ltd acquired all the shares in a company from Intertan Inc. Intertan sought to maintain claims for legal professional privilege over communications relating to the transaction passing between Intertan, its solicitors and its financial advisers.
4.13 Justice Allsop identified the question arising from the judgment of Justice Kenny in Pratt Holdings and the consequences of the narrow view of "agency" adopted in this context by English Courts:
4.14 Justice Allsop was not satisfied that, where a third party has this broader role, communications with the third party should not be protected by privilege:
His Honour indicated that he was not inclined to adopt the English approach, suggesting that for privilege to apply to third party communications, all that was required was "that the third party be the client's deputed agent to communicate with the lawyer in connection with the provision of legal advice." However, Justice Allsop has not finally determined this issue. He has invited further argument on whether he ought to follow Justice Kenny in Pratt Holdings.
5. Conclusion and a possible practical response
5.1 Where litigation has not commenced and is not reasonably anticipated, legal professional privilege may apply to communications with third parties but only in the limited circumstances where the third party is acting as the agent of the client or the solicitor for the purpose of making the communication.
5.2 The present difficulty is knowing with any confidence how much a third party can do, in a non-litigious setting, before the legal professional privilege that communications via agents attract is lost. The Full Court of the Federal Court may resolve the present uncertainty when it determines the appeal from Justice Kenny's decision in Pratt Holdings. However, until the question is resolved by an appellate Court, it appears prudent to assume that if a third party "adds value" (thereby going outside the role of a "mere channel" of communication), communications with the third party will not be privileged.
5.3 Can anything be done to enhance the prospects of having privilege attach to an expert report prepared in a non-litigious context? In the UK, the answer would appear to be that nothing can be done: unless the agent is a mere "medium of communication", privilege will not apply. The different, albeit inconsistent, approach taken to date in Australia may however leave some scope to try and preserve privilege for non-litigious third party communications such as expert reports. Based on the various Australian cases, it appears that the best, but still somewhat speculative, approach would be to proceed as follows:
(b) All communications should be between the client, either by itself or by the expert as its agent, and the solicitor. This suggests that the solicitor must be a party to all communications and should be present at all meetings and conversations between the client and the expert (thereby avoiding the situation in Pratt Holdings where the solicitor and the third party had no direct contact).
(c) All written and oral reports (in draft and final form) should be communicated by the expert directly to the solicitor.
(d) The expert's retainer should make it express that the sole purpose of the expert's role is to enable the solicitors to give legal advice to the client (to address the dominant purpose test).
1(1999) ATPR 41-697
2Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332
3(2003) 195 ALR 717
4Price Waterhouse v BCCI Holdings (Luxembourg) SA  BCLC 583; Re Highgrade Traders Ltd  BCLC 151.
5Brind Zichy-Woinarski QC, "Legal Professional Privilege and Third Party Communications".
6See for instance Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44
Leader Westernport Printing Pty Ltd v IPD Instant & Duplicating Pty Ltd (1985) 5 ANZ Ins Cas 60-856;
Australian Rugby Union Ltd v Hospitality Group Pty Ltd & Ors (1999) 165 ALR 253;
Wilmer v King Island Diary (unreported, Supreme Court of Tasmania, Master Holt, 5 May 2000)
7Morlea Professional Services Pty Ltd v South Brisbane Insurance Co Ltd (unreported, Supreme Court of New South Wales, Foster J, 27 September 1984)
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.