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Focus: Privilege – May 2008

Rules of legal professional privilege tightened

In brief: A recent Federal Court pre-trial decision in a high-profile discrimination claim by a former partner of a large accounting firm has potentially significant ramifications for all lawyers, and particularly in-house lawyers. These ramifications include the circumstances in which publicly referring to legal advice or its substance might result in the loss of privilege in that advice, and the particular difficulties faced by in-house lawyers in establishing that they have the necessary degree of 'independence' for privilege to apply. Partner Leighton O'Brien (view CV), Partner-elect Richard Harris and Senior Associate Lucas Shipway report.

How does it affect you?

  • There is significant risk associated with publicly disclosing the substance or effect of any legal advice, including limited disclosure to a specific third party. Even suggesting that the company has acted in accordance with legal advice (ie without saying what that advice is) could be characterised as disclosing the substance of the advice and, as such, waive any claim for privilege in it. Such a waiver could lead to any advice being compelled to be produced, for instance, to a regulator or in the course of court proceedings.
  • The nature of some disputes may place lawyers, particularly in-house lawyers, in a position where they are considered not to be sufficiently 'independent' to give impartial advice, so that communications to and from those persons may not be privileged. Among the factors that Justice Branson identified as potentially adversely affecting the independence of a lawyer were:
    • the lawyer's business interests being closely intertwined with the outcome of the subject of advice (here, the lawyer was a partner in a firm of partners accused of misconduct); and
    • the lawyer's relationship with the client being such that it may affect the lawyer's ability to give detached advice where allegations are of a type that might significantly affect the client's interests.

Facts of the case

The decision in Rich v Harrington [2007] SCA 1987 arose from proceedings brought by Ms Rich, a former partner of PricewaterhouseCoopers Australia (PwC), against the partners of PwC for alleged breaches of anti-discrimination legislation. Ms Rich sought access to PwC's legal advice from both its internal and external lawyers regarding her claim.

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Waiver by disclosure

It is possible unintentionally to 'waive' or destroy privilege over a piece of legal advice by disclosing the 'substance' or gist of that advice to an opposing party or to the public at large. Ms Rich argued that this had occurred when PwC's lawyers wrote to her, stating:

Our client has acted at all times with the benefit of external advice and does not believe there has been any victimisation or other conduct for which compensation could properly be sought.

Previous cases have suggested that reference could be made to the fact that legal advice had been obtained without waiving privilege, provided the reference was framed as a statement merely of the client's opinion. In Ampolex v Perpetual Trustee (Canberra) Limited (1996) 40 NSWLR 12, the judge found that the following announcement did not waive privilege:

The views set out below have regard to the pleadings, the evidence available to Ampolex and the advice of barristers and the solicitors engaged by Ampolex... Ampolex considers that... it is likely that Ampolex will be successful...

The recent decision of Secretary, Department of Justice v Osland [2007] VSCA 96 went further, suggesting that even disclosing the substance of an advice will not result in waiver. In that case, the Victorian Attorney-General was held not to have waived privilege when he disclosed in a media release the effect of legal advice regarding whether he should grant a petition for mercy.

Given these cases, it seems likely that PwC's lawyers did not expect to waive privilege by writing to Ms Rich in the terms that they did. Like the Ampolex announcement, their statement was expressed to be a statement of their client's opinion (based on legal advice) and not of the substance of the legal advice.

However, Justice Branson found that the letter had waived privilege. Justice Branson held that the statement disclosed the substance of the advice referred to because it implied that the advice endorsed PwC's actions in responding to Ms Rich's claim. Her Honour found that PwC had thus deployed the advice for a 'forensic purpose', which was inconsistent with maintaining confidentiality over the advice.

The Osland decision is being appealed to the High Court (special leave having recently been granted) and a judgment from that court may help clear up some of the apparent inconsistencies between the decided cases in this area. In the meantime, Justice Branson's decision suggests it would be imprudent to refer to the fact that advice has been obtained (seeking, for instance, to give a point greater force).

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In-house counsel not sufficiently independent

Advice from in-house lawyers will only be privileged where those lawyers are sufficiently 'independent' from the organisations they advise. Ms Rich argued that, given the nature of her allegations, PwC's advice from its in-house lawyers was not privileged because they were not sufficiently independent.

Justice Branson agreed. In reaching this view, her Honour focused on the facts that:

  • the allegations were made by one partner against other partners and the chief in-house lawyer was a partner;
  • the allegations were capable of tarnishing the reputation of the firm of which the in-house lawyers were a part;
  • the allegations cast aspersions of a personal, rather than a purely professional, kind on partners, including the leadership of the firm;
  • the chief and deputy in-house lawyer were themselves likely respondents in the threatened litigation; and
  • any litigation could reasonably be expected to attract a high level of relatively sensational media interest.

Partnerships may be particularly susceptible to these factors. However, Justice Branson's decision suggests that in sensitive disputes or matters the outcome of which may affect a lawyer's financial interests or the interests of an individual or individuals with whom the lawyer has a personal relationship, there is a substantial risk that lawyers will be found to lack the requisite degree of independence. In-house lawyers could also find themselves particularly susceptible to those factors, given that they frequently develop close relationships with the management of the company and, increasingly, their remuneration is closely tied to the financial performance of the company.

Given that the consequences of losing privilege in some advice or requests for advice can be dire, it would be prudent in matters of high financial significance for the company (which could in turn affect the lawyer's interests), or reputational sensitivity affecting the company or its senior management, for in-house counsel to seek external advice as to their ability to preserve privilege in their communications.

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