Parties involved in large-scale commercial transactions with non-lawyer third-party advisers need to be aware that communications with these advisers will rarely be protected by legal professional privilege, following a recent Federal Court decision that confirmed the limits on the extent to which legal professional privilege will apply. Partner Richard Harris and Law Graduate Sibella Matthews report.
How does it affect you?
- The Federal Court's decision in Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited (No 4)  FCA 796 highlights the limitations on claiming legal professional privilege over communications involving non-lawyer third-party advisers, even where those communications refer to draft transactional documents that were circulated by, and require approval of legal advisers.
- Even where non-legal advisers, such as accountants, financial advisers and merchant bankers, advise on precisely the same subject matter as lawyers, their advice will only be capable of attracting legal professional privilege in certain narrowly defined circumstances.
- The mere involvement of a lawyer in communications with non-legal advisers is also unlikely, unless they are providing genuine legal input, to have a bearing on whether the communication attracts legal professional privilege. In this case, the court emphasised the importance of analysing each email in a chain as a discrete communication when determining claims for legal professional privilege.
The substantive Federal Court proceedings concern the purchase of Flavoured Beverages Group Holdings Limited (FBGHL) by Asahi Holdings (Australia) Pty Ltd (Asahi) for NZ$1.525 billion in 2011. Asahi alleges that, despite the terms of the Share Sale Agreement by which it purchased FBGHL, it should be entitled to recover damages from the sellers on the basis of alleged misleading or deceptive conduct in the course of the transaction.
Asahi retained several leading commercial and financial advisory services, including Nomura and Rothschild, to assist during the due diligence for the purchase. In the course of the substantive proceedings, subpoenas were issued to a number of these advisers. Asahi was given the first right of access to the documents produced by its advisers on the transaction and claimed legal professional privilege over a number of those documents. A sample of eight allegedly privileged emails and their attachments were challenged in an application heard by his Honour Justice Beach. Many of these communications did not involve Asahi's lawyers, but involved communications between Asahi and third-party advisers, or communications among the third-party advisers in the absence of Asahi.
Since the Full Court's decision in Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357, courts have countenanced the proposition that some communications between a client and a third party may be privileged provided the dominant purpose was for the client to be provided legal advice. Accordingly, the test applied to determine whether the emails in question were appropriately the subject of a claim for legal professional privilege was whether the dominant purpose of the relevant confidential communications, determined at the time they were made, was to give or receive legal advice.
Justice Beach found that of the eight documents in question only three were privileged in their entirety and five documents were only partly privileged.
Justice Beach considered the common practice in commercial transactions of emailing important transactional documents back and forth among multiple non-legal advisers who each provide their own commercial advice to the client. In these scenarios, the legal advisers will more often than not be the ultimate gate-keeper in providing sign-off on the final version of the document. His Honour commented that, in the context of a substantial acquisition or merger, both legal and non-legal advice could be given on matters such as the structure, bid vehicle, terms and conditions of any offer or agreement.
His Honour held that even if the non-legal advice relates to a document sent by lawyers, and even if that non-legal advice is ultimately communicated back to the lawyers, directly or through the client, it would not automatically mean the communication met the dominant purpose test.
His Honour also noted that a draft transactional document circulated by a legal adviser does not necessarily 'record' legal advice. As the draft is a composite product of the inputs of the client, non-legal advisers and lawyers, it is not reasonable to say that the draft and subsequent drafts remain privileged simply because there was, at some point, legal input. Justice Beach stated that '[u]nless for a specific draft, something can be pointed to such as "lawyer only" mark ups, in my view you cannot simply say that the whole draft is privileged. More precise detail is required': at .
His Honour emphasised the importance of looking at each specific communication with considerable care when determining the dominant purpose.
This case confirms the position that advice from financial or commercial advisers on a transaction will rarely be capable of attracting privilege. Where the advice of non-legal advisers and lawyers are interwoven, providing a collective basis for an informed decision by the client, the dominant purpose of each particular advice received in an email chain or through comments on a draft transaction document must be analysed as a discrete communication.
Parties involved in large-scale commercial transactions with several advisers performing a variety of functions should be careful to ensure that appropriate protocols are established from the outset to ensure that communications which are intended to be privileged are dealt with in a way which maximises the ability to establish that claim.