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Focus: Commercial Litigation – October 2007

Key reforms to privilege proposed

In brief: The Australian Law Reform Commission (ALRC) has released its discussion paper outlining a range of proposals to overhaul the law around client legal privilege in the context of federal investigations. Partner Paul Nicols (view CV) and Senior Associate Richard Harris outline some of the key proposals for reform and, in particular, the increased possibility that governments may legislate to abrogate privilege in certain circumstances.

How does it affect you?

  • The ALRC's proposals for reform are likely to be taken very seriously by both the Federal Government and many state and territory governments. In short, the proposals aim to simplify the rules governing claims for privilege in response to regulatory investigations, and the process of resolving disputes as to those claims.
  • More fundamentally, the ALRC's proposals arguably act to streamline the government's ability to abrogate privilege in matters of 'major public importance' and, as such, increase the likelihood that otherwise privileged communications may lose that protection.

Client legal privilege

Client legal privilege is a fundamental common law right protecting, in certain circumstances, communications between a client and a lawyer made for the dominant purpose of seeking or providing legal advice or for the purpose of actual or anticipated legal proceedings from forced disclosure to regulators or in litigation.

The privilege exists to serve the public interest by encouraging full and frank disclosure between clients and their lawyers to ensure clients receive sound legal advice based on all of the available facts, which, in turn, encourages compliance with the law and discourages unmeritorious litigation.

The 'full and frank' nature of communications between clients and their lawyers frequently makes those communications highly relevant to matters that may be the subject of an investigation by a regulator or that may become the subject of a dispute. There are also a number of subjective judgments involved in determining whether a particular communication is privileged (such as determining the communication's dominant purpose, whether the communication is confidential and whether any privilege in the communication has been waived) with the effect that, in many instances, there is room for debate as to whether a particular communication is privileged. The effect of those two factors is that disputes as to whether a particular communication is properly the subject of a claim for privilege are common.

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Reference to the ALRC

In November 2006, the Federal Attorney-General referred a number of questions in relation to privilege as it relates to Commonwealth investigatory bodies to the ALRC in response to perceptions that claims for privilege have sometimes been used to delay or frustrate federal investigations, and that resolving disputes in relation to claims for privilege are overly costly and time consuming.

The ALRC was asked to consider whether modification or abrogation of client legal privilege was desirable in some areas; whether it would be desirable to clarify or harmonise existing Commonwealth legislation in relation to privilege; and whether it would be desirable to introduce other statutory safeguards in circumstances where the legislature did elect to modify or abrogate claims for privilege against regulators.

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ALRC discussion paper

The ALRC has now released its discussion paper containing 42 reform proposals that the ALRC plans to put to the Federal Government. The ALRC has called for submissions in relation to its proposals by 1 November 2007.

Without going through every proposal, some of the key areas the ALRC has identified for reform are set out below.

Clarification of regulator powers

Currently, legislation is not to be construed as abrogating privilege in relation to federal regulators with coercive information gathering powers unless there are clear words or a necessary implication in the relevant legislation to that effect. The ALRC proposes that new federal privilege legislation be enacted which, among other things, subtly but significantly expands that protection by requiring that privilege not be abrogated except by a clear, express statutory statement to that effect. That is to say, the ALRC proposes to abandon the 'or by necessary implication' limb of the test. If adopted, the ALRC's proposal would clear up existing uncertainty as to whether particular pieces of legislation (notably the Australian Securities and Investments Commission Act 2001 (Cth)) may abrogate privilege by 'necessary implication'.

Abrogation of privilege

The ALRC also proposes that the new federal privilege legislation expressly provide that, in special circumstances, the Parliament may legislate to modify or abrogate privilege in relation to a particular Royal Commission of inquiry or investigation by a federal regulator. Importantly, the ALRC does not believe that a case has been made out for a need to abrogate privilege on a wholesale agency-wide basis (this is despite several regulators arguing that abrogation of the privilege was necessary in order for them to perform their duties). Rather, it proposes a narrower 'issues-based' abrogation regime. The ALRC proposes a number of factors that should be considered before enacting abrogating legislation, including:

  • whether the subject matter of the investigation is of 'major public importance' that has a significant impact on the community;
  • whether the necessary information could be obtained by alternate means that do not require the abrogation; and
  • whether the privileged information is likely to benefit the particular Royal Commission or investigation.

While offering a number of important and sensible safeguards (see below), a key plank of the ALRC's proposals is the establishment of a clear framework within which parliament may legislate to abrogate privilege in certain circumstances. While it has always been open for governments to legislate to abrogate privilege, they have only done so in a relatively small number of instances. The ALRC proposals, however, in providing both a clearer rationale and more convenient mechanism for governments to abrogate privilege, may impact on the likelihood that governments will adopt that course.

Safeguards in the case of abrogation

The ALRC does identify a number of proposed safeguards in cases where special legislation is enacted to abrogate privilege, including:

  • that the abrogation not extend to legal advice in relation to the investigation itself;
  • that a court must approve any use by a regulator of privileged information as evidence; and
  • measures to ensure that otherwise privileged information is kept confidential by the regulator and that the abrogation does not extend to any parties other than the relevant regulator or Royal Commission.
Simplified process for resolving disputes

The ALRC identifies the need for a simplified and less costly process for resolving disputes between clients and federal regulators over privilege. The ALRC's proposals aimed at achieving that objective include:

  • enacting uniform laws around client legal privilege as it relates to federal investigations to replace the current wide array of different regimes that apply to different federal regulators;
  • encouraging the states and territories to also adopt the uniform legislation;
  • a presumption toward resolving privilege disputes between regulators and privilege claimants by reference to an independent specialist reviewer who can provide non-binding assessments; and
  • that superior courts have appropriate arrangements in place to cater for hearings on short notice of disputes in relation to privilege.
Preventing abuse

In response to the perception that claims for privilege have been abused for cynical or tactical reasons, the ALRC proposes a range of measures, including:

  • where requested by a regulator, that details are given in relation to each communication the subject of a claim for privilege, including the basis upon which privilege is claimed;
  • where requested by a regulator, that claims for privilege be verified on oath or affirmation by the person making the claim and, if the person is represented by a lawyer, that the lawyer verify that there are reasonable grounds for the claim; and
  • amendments to state and territory legal professional associations' rules to ensure that inappropriate verification by a lawyer of a claim for privilege would be a breach of those rules.
Extending privilege to tax advice

The ALRC also proposes extending client legal privilege to 'tax advice documents' prepared by an independent professional tax adviser for the dominant purpose of providing the person with advice about the operation and effect of tax laws. Interestingly, the current proposals do not appear to extend to documents associated with requesting that advice. In addition, it is proposed that the federal regulator can require that any claim that a document is a tax advice document must be certified by a lawyer in accordance with the procedure referred to above.

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Conclusion

The ALRC proposals, if adopted, will represent a significant change to the way in which claims for privilege as against regulators are dealt with. Greater clarity in relation to individual regulator's powers to obtain privileged communications should be welcomed, as should a streamlined and less costly mechanism to determine disputes as to privilege. Having said that, while the ALRC's proposed approach to resolving privilege disputes is likely to be less cumbersome than current mechanisms, it remains to be seen whether that will make disputes over privilege less likely (given that it will now be easier and less costly to instigate such a dispute). Notably, the ALRC's proposals do not exclude appeal rights from determinations by courts of first instance as to whether privilege should be afforded to a communication.

At a more fundamental level, it is possible that, bolstered by the regime proposed by the ALRC, governments will find it difficult to resist the temptation to legislate to abrogate privilege in particular circumstances where there is a public interest that is perceived at the time to outweigh the public interest in client legal privilege. Whether that fear turns out to be well founded, any perceived increase in the prospects of governments taking steps to abrogate privilege in high-profile cases could be argued to undermine the underlying rationale for client legal privilege by possibly discouraging full and frank communications by clients with their lawyers, lest privilege in those communications later be abrogated.

For more information, or if you would like to consider making a submission to the ALRC in relation to its proposed reforms, please contact one of the people listed below.

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For further information, please contact:

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