The James Hardie (Investigations and Proceedings) Act 2004 (Cth) (James Hardie Act) came into force on 15 December 2004. The effect of the James Hardie Act is, in general terms, to abrogate legal professional privilege with respect to investigations and proceedings commenced by the Australian Securities and Investments Commission (ASIC) in relation to the James Hardie group of companies.
The implications of the James Hardie Act for other companies are important.
For some time there has been uncertainty about ASIC's ability to gain access to documents protected by legal professional privilege. For example, the High Court in Daniels case in 2002 held that the ACCC was not entitled to require the production of privileged documents. It also expressly doubted the correctness of its earlier 1991 decision in Yuill's case, in which it had held that legal professional privilege was not a 'reasonable excuse' for failing to comply with a notice to produce documents issued by the Corporate Affairs Commission of New South Wales, one of the predecessors of ASIC. The James Hardie Act emphasises this uncertainty. Accordingly, a recipient of an ASIC notice seeking privileged documents should give serious consideration as to whether to accept ASIC's view that it can require production of that material.
The James Hardie Act indicates the willingness of the legislature to take dramatic steps, such as abrogating a fundamental common law right, where it considers there may have been serious corporate malpractice. It may also indicate a willingness to abrogate legal professional privilege with respect to regulatory investigations entirely.
ASIC has the power, for certain purposes, to issue notices requiring persons to produce specified documents (see, for example, section 30 of the ASIC Act 2001 (Cth)). An intentional or reckless failure to comply with such a notice is an offence, unless the person has a 'reasonable excuse' (section 63 of the ASIC Act).
Since the High Court's decision in Corporate Affairs Commission of NSW v Yuill (1991) 172 CLR 319 (Yuill), ASIC has taken the view that legal professional privilege is not a 'reasonable excuse' for the purposes of section 63 of the ASIC Act. In Yuill, the High Court held, by a 3–2 majority, that legal professional privilege did not constitute a reasonable excuse to refuse to produce documents in response to a notice to produce issued by an inspector under section 295(1) of the now repealed Companies Code.
Yuill has been followed in subsequent cases dealing with provisions of the ASIC Act (see Australian Securities Commission v Dalleagles Pty Ltd (1992) 36 FCR 350; Corporations and Securities Panel v Bristile Investments Pty Ltd  WASC 183; 32 ACSR 677).
However, recent decisions of the House of Lords and the High Court have cast considerable doubt over whether Yuill is still good law. That doubt is confirmed by the terms of the James Hardie Act.
Doubts cast over the reasoning in Yuill
The reasoning of the majority in Yuill, in reaching the conclusion that legal professional privilege did not constitute a reasonable excuse, had regard principally to two matters:
- the fact that at the time the Companies Code was enacted legal professional privilege was seen as being confined in its scope to judicial or quasi-judicial proceedings, and
- the existence and terms of section 308 of the Companies Code (which was identical in terms to the current section 69 of the ASIC Act, which, in general terms, provides that if ASIC issues a notice to a lawyer requiring the lawyer to disclose privileged communications, the lawyer is entitled to refuse to comply with the requirement unless the relevant client consents).
As to the first point above, given that the ASIC Act was enacted after the High Court made it clear that legal professional privilege is not a mere rule of evidence and is not limited in its application to judicial or quasi-judicial proceedings (Attorney General (NT) v Maurice (1986) 161 CLR 475 at 490; Baker v Campbell (1983) 153 CLR 52), this argument is no longer applicable.
As to the second point above, at least two of the judges in the majority in Yuill considered that the existence of such a provision manifested an intention not to extend the full protection of legal professional privilege beyond a legal practitioner. However, as the House of Lords explained in R (Morgan Grenfell & Co Ltd) v Special Commission of Income Tax  1 AC 563, in construing a similar provision in the Taxes Management Act 1970 (UK), the section is explicable as preserving the duty of confidence owed by a lawyer to his or her client, by providing that disclosure of information or production of a book by a lawyer cannot be required without the client's consent. In this way, the section is properly to be interpreted as being consistent with, or at least not inconsistent with, the preservation of legal professional privilege.
Further doubt was cast over the reasoning and precedent value of Yuill by the statements made by the High Court in Daniels Corporation International Pty Limited v Australian Competition and Consumer Commission (2002) 213 CLR 543 (Daniels).
In Daniels, the High Court held unanimously that section 155 of the Trade Practices Act 1974 (Cth) did not authorise the ACCC to require production to it of information and documents to which legal professional privilege attaches. In so finding, the High Court variously:
- reiterated that legal professional privilege is a fundamental common law immunity and, as such, a statute will only abrogate a claim to legal professional privilege to the extent made necessary by express word or necessary intendment
- confined Yuill to its facts, namely a case dealing with section 295(1) of the Companies Code, and
- doubted the correctness of Yuill.
The James Hardie Act
The James Hardie Act came into force on 15 December 2004.
The effect of the James Hardie Act is to abrogate legal professional privilege in relation to 'James Hardie material' for the purposes of, or in connection with, an investigation by ASIC into the James Hardie group of companies, and any associated proceeding commenced by ASIC or the Director of Public Prosecutions.
The James Hardie Act expressly states that section 69 of the ASIC Act (see above) does not apply in relation to 'James Hardie material'. That is, even if the client does not consent, lawyers can be required to produce legally privileged material, for the purposes of an ASIC investigation or associated proceeding.
The fact that the Commonwealth Government has considered it necessary to introduce a new piece of legislation to expressly abrogate legal professional privilege with respect to the James Hardie group, supports the doubts referred to above as to the continuing authority of Yuill. This is confirmed by the text of the Explanatory Memorandum to the James Hardie Bill, which states:
'The Bill will confirm a longstanding interpretation of ASIC's investigative and enforcement powers which was cast into doubt by the decision of the High Court in 2002 in the Daniels case. That case created some uncertainty as to whether the 1991 decision of the High Court in the Yuill case would be followed today if a request by ASIC to produce material subject to legal professional privilege was to be challenged.'
In letters accompanying notices issued under section 30 of the ASIC Act, ASIC still maintains that legal professional privilege is not a reasonable excuse for failing to produce documents in response to such a notice.
However, given the developments referred to above, a person who receives a notice from ASIC should give serious consideration as to whether to simply accept ASIC's position that privileged documents are required to be produced. In particular, given the Daniels case and the James Hardie Act, a challenge in the courts to ASIC's entitlement to such documents would appear to have real prospects of success.
The James Hardie Act is also significant for at least two other reasons.
First, it indicates that the legislature is willing to take dramatic steps, such as the abrogation of a fundamental common law right, in instances where it considers there may have been serious corporate malpractice.
Second, it suggests that, in the future, the legislature might be prepared to abrogate legal professional privilege, with respect to regulatory investigations, entirely. In that regard, it is relevant to note that the Explanatory Memorandum to the James Hardie Bill states:
'As recognised by the High Court in the Daniels case, legal professional privilege is not merely a rule of substantive law but an important common law right. Nevertheless, there are situations in which its abrogation is justified in order to serve higher public policy interests. One such situation is the effective enforcement of corporate regulation.' (emphasis added)
As such, the James Hardie Act is a worrying development for corporations and their legal advisers. If regulators, such as ASIC, are entitled to require legally privileged materials to be produced, the inevitable result will be the encouragement of:
- legal advisers giving verbal legal advice, which is impracticable in complex factual matters and which will result in the client not being fully appraised of its true legal position
- a reluctance on the part of the client to be open and honest in giving instructions, for fear that the legal advice it receives may be used against them, or
- no legal advice being sought.
In our view, the encouragement of these outcomes is inimical to the effective administration of justice.
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