Australia: Legal professional privilege and without prejudice privilege – some unusual exceptions

Last Updated: 13 February 2015
Article by Bede Haines

Privilege and confidentiality

It is common to think of legal advice prepared by your lawyer, or documents marked 'without prejudice' and created in an effort to settle a dispute, as having a confidential (or a privileged) status – they will be held inadmissible in legal proceedings. This allows you to be frank with your lawyer and unconstrained in endeavours to settle a matter. The privileged status of these communications means that they cannot be used against you.

The actual prohibitions on the use of privileged documents can be found in the Evidence Act 1995.While the Act may create the privileged status of documents, it also has numerous exceptions which permit the admission into evidence of what would otherwise be privileged. Some exceptions are well known - think of waiver- but others are less so. What follows is a review of recent decisions dealing with more unusual situations in which privilege may be lost.

Legal privilege and the commission of a fraud

Starting with legal professional privilege, a recent Victorian decision1 considered whether some legal advice, which would otherwise have been privileged from disclosure, was admissible because it was prepared in the 'furtherance' of the commission of a fraud, which is an exception to the privilege rule. In respect of this exception:

  • It is capable of applying not only where a court has found that a fraud has occurred, but where there are reasonable grounds for reaching a finding that a fraud has occurred;
  • Its operation is not limited to criminal or extreme cases, but it has the potential to apply in commercial matters. Candidates would potentially be dishonest collusion between two parties to avoid an obligation to a third party (such as the payment of a secret commission), or where a party is accused of improperly entering into transactions placing their assets beyond the reach of creditors (as sometimes occurs in advance of a bankruptcy or insolvency);
  • It does not require the lawyer to be aware that they are involved in any 'furtherance'. Instead, he or she can be duped by the client; and
  • Importantly, there is a distinction between advice used to further the commission of a fraud (where any privilege will be lost),and advice being given by a lawyer to properly assist a client in defending an action concerning a fraud that already occurred (where any privilege will not be lost). In other words, an alleged fraudster is entitled to obtain legal advice concerning the allegations of fraud made against him.

Obviously, the consequence of the loss of privilege in this instance can be devastating, particularly where the lawyer's advice sets out the client's plan.

Without prejudice privilege and legal costs

Like legal privilege, without prejudice correspondence is made inadmissible by the Evidence Act, again subject to various exceptions. One exception concerns admitting without prejudice material on the question of legal costs.The idea is that if a party refuses a reasonable settlement, the court may been titled to make an adverse costs order against that party (ie indemnity costs). To gauge whether a party has acted unreasonably in rejecting an offer, the relevant without prejudice documents can be admitted for this specific purpose.

The usual convention between lawyers is that if a party intends to use a settlement offer in a costs application, it will be marked without prejudice 'save as to costs'. However, this notation is strictly unnecessary given the provision of the Evidence Act referred to above. The words 'save as to costs' are legally superfluous, and there are judgments supportive of this approach2.

However, a recent Fair Work Commission decision 3 illustrates that in some situations, care needs to be taken in excluding the words 'save as to costs'. The Commission, which is not bound by the rules of evidence, did not admit evidence of a settlement offer on the question of costs, where the offer was made by a legally represented party to an unrepresented party but excluded the words 'save as to costs'. The rationale seems to have been that the other party may not have appreciated the potential of the unaccepted offer to be used against her on a costs argument.

The Fair Work decision has little precedent value, but teaches a practical lesson.

Without prejudice privilege and abuses of power

Other without prejudice exceptions deal with situations where the purpose of the communication is not an attempt to negotiate a dispute, but is for some other purpose only masquerading as a without prejudice letter.

One such exception, recently considered by the Federal Court4 ,is where the communication is issued in the furtherance of an abuse of a'power'. A director was suing a company liquidator to have his remuneration (as an administrator) reviewed and also to have the liquidator replaced. The liquidator regarded the proceeding as an abuse of process. He considered that it was being undertaken solely for the ulterior purpose of having him (the liquidator) end a separate proceeding which he had commenced against the director for insolvent trading.

Relevantly, prior to proceeding being commenced against the liquidator, the director's solicitor sent the liquidator a letter marked'without prejudice' which was to the general effect that if the liquidator wanted to avoid the director's proposed proceeding, the liquidator should sensibly end his claim against the director for insolvent trading.

The court admitted this letter into evidence on the basis that it was relevant to the allegation that the proceeding commenced by the director was being done solely for an ulterior purpose (ultimately, the court held the director's proceeding was properly commenced). It fell into the exception for this purpose.

One lesson here is that some prudence must be exercised in without prejudice correspondence – you can be too bullish thinking that what is said cannot be presented to a court.

When a without prejudice communication affects your rights

A final exception concerns the interesting question of what happens if a without prejudice communication results in a person's rights being affected? What if they could not admit the communication to protect themselves and risked suffering an adverse consequence?

To illustrate, in some cases a without prejudice offer may be on the basis that a limitation of actions date is extend to allow time to consider an offer. In such a case, if the offer is not accepted, can a party defeat a claim made against it by pleading that the limitation period has run out, or is the document admissible on this question? Another instance is where a party exercises an option in what is otherwise a without prejudice communication. Can this be admitted to resist an argument that the option was not exercised in time?

Understandably, the general answer to the above conundrum is'yes'. The Evidence Act provides an exception to its prohibition where the communication affects the right of a party.

This exception was recently considered in some detail by the ACT Supreme Court5,which dealt with a limitation of actions issue, and the without prejudice correspondence was admissible.

One pointer here is that it is wise to be cognisant of the fact that statements made in without prejudice communications that enlarge or protect another person's rights are often going to be admissible, so in strategising little reliance should be placed on being able to keep these communications away from the court.


1Talacko v Talacko [2014] VSC 328

2See, recently, Statue Pty Ltd v Hayson [2014] NSWSC 1558

3 Resul v Fantastic Lights [2015] FWC 624

4 In the matter of Petrolink Pty Ltd [2014] FCA 1024

5Greenwayv Teoh [2014] ACTSC 224

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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