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 in-house 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 in-house 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

If you would like to dis­cuss any spe­cif­ic issues relat­ing to the con­fi­den­tial­i­ty of your doc­u­ments, please contact: