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Litigation & Dispute Resolution

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Focus: In-house lawyers and claims for privilege

28 September 2007

In brief: The Federal Court has again flagged difficulties associated with claims for privilege over communications between in-house lawyers and their internal clients. Partner Paul Nicols (view CV) and Senior Associate Richard Harris report that the court has reiterated concerns about the ability of in-house lawyers to establish an 'appropriate' degree of independence to enable a claim for privilege to be made.

How does it affect you?

  • In-house counsel and their employers need to be aware that claims for privilege over communications involving in-house lawyers may be subject to special scrutiny by the court. In particular, they will need to be able to prove that the in-house lawyer is sufficiently 'independent' of the employer.

The requirement of independence

In order to establish a claim for privilege, it is necessary that the communication was created with the dominant purpose of seeking or providing legal advice or for the purpose of actual or anticipated legal proceedings. Courts have frequently noted that the 'dominant purpose' requirement assumes special importance in claims of privilege over communications involving in-house lawyers. This is because of the increased possibility that those lawyers will be performing commercial, as well as legal, roles in relation to many issues with which they become involved and, as such, the dominant purpose of the communication may be more difficult to ascertain.

A related requirement is that the lawyer in question be sufficiently 'independent' of the client. That is, that the lawyer's personal loyalties, duties or interests do not influence the advice given (such that the purpose of granting the privilege is subverted).

The question of in-house lawyers' 'independence' was again raised in Telstra Corporation Limited v Minister for Communications, Information Technology and the Arts (No.2) [2007] FCA 1445, a decision of Justice Graham of the Federal Court delivered on 12 September 2007.

The decision

Telstra had applied for preliminary discovery against the Minister in order to obtain documents potentially relevant to a prospective proceeding. The Minister, in turn, sought documents from Telstra relevant to the application. Telstra claimed privilege in respect of a number of the documents sought by the Minister, on the basis that they were communications between 'internal legal advisors' of Telstra and officers of the company. The Minister challenged that claim, on the basis that privilege had not been established by Telstra or, alternatively, that it had been waived.

Ultimately, Justice Graham did not determine the waiver question. Instead, he found that the relevant Telstra documents should be disclosed to the court (and, as such, to the Minister) on the basis that Telstra had failed to provide evidence establishing that the Telstra in-house lawyers were sufficiently 'independent' of the company. Telstra had led no evidence to establish the roles of the various legal practitioners within Telstra. In particular, no evidence was advanced to disclose the measure of independence of the in-house lawyers in question and their ability to provide impartial legal advice, given the roles that they were to perform.

Justice Graham found that this lack of evidence meant that no sufficient claim had been made out and, without this evidence, even the inspection of those documents by the judge would not be sufficient to establish a claim for privilege.

The case highlights an increasing tendency for claims of privilege to be challenged and scrutinised. It also illustrates the importance of ensuring that, if claims for privilege are challenged, sufficient evidence be prepared explaining the basis of the claim in respect of each document, and which includes evidence going to the in-house lawyer's independence.

Justice Graham indicated that, in his view, an in-house lawyer will lack the requisite measure of independence if his or her advice is at risk of being compromised by virtue of the nature of his or her employment relationship with the employer. Justice Graham went on to say that:

On the other hand, if the personal loyalties, duties and interests of the in-house lawyer do not influence the professional legal advice which he gives, the requirement for independence will be satisfied.

 

Unfortunately, Justice Graham did not go on to provide examples of either scenario.

Conclusion – what it means for you

In summary, the decision highlights the need for in-house counsel to ensure that, as much as possible, their communications satisfy the dominant purpose test and that their independence cannot be impugned. As has been previously identified by the Federal Court, there is often no bright line separating the role of an employed legal counsel as a lawyer advising in-house and the lawyer's participation in commercial decisions.

Having said that, it would be prudent for in-house counsel to ensure that such steps as can be taken are taken to ensure that, if necessary, they are able to establish their independence as a legal adviser. Such measures may include:

  • ensuring that their job title and description accurately reflects the job they are performing (and, particularly, if it is a legal position, that that is made clear);
  • where a lawyer performs multiple roles (such as, for instance, general counsel and company secretary) ensuring that the work done in each role is delineated;
  • ensuring that, as far as possible, an in-house lawyer's reporting lines are direct to upper management of the company (preferably to the CEO or Board);
  • establishing protocols as to the basis upon which the company's lawyers are to interact with the rest of the company; and
  • maintaining a practising certificate.

Where claims for privilege by the company are challenged, it is important that sufficient grounds exist to lead evidence to justify the claim and, in particular, the independence of the in-house lawyer.

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