Privilege and in-house counsel (part 1) - Tips to ensure privilege applies
December 2011
In this two-part article, Karen Ingram, Partner, and Danielle Briers, Senior Associate, Clayton Utz provide tips to directors and aspiring directors on legal priviledge.
As a board director, you will often be briefed on legal issues confronting your organisation - whether it be a report on a legislative change that affects the business, an update on current or impending litigation, or legal advice on employee-related issues. You may even hold the dual role of board director and in-house counsel, sometimes wearing your "lawyer's hat" to provide legal advice to the organisation. Irrespective, it is important to be aware of how legal privilege works, to maximise the likelihood it will apply to your organisation's legal advice, and minimise the chance it could be lost.
This is the first in a two-part article on legal privilege, with a focus on tips for in-house counsel and board directors. In this first part, we outline the principles governing legal privilege, and some practical tips for establishing privilege in communications between an organisation's board of directors, its in-house legal team and the external lawyers it may retain.
Legal professional privilege
Broadly speaking, legal professional privilege applies to confidential communications created for the dominant purpose of a client obtaining legal advice, or for use in actual or anticipated litigation.
Particular issues arise in relation to documents prepared by in-house counsel. In-house counsel often have legal and non-legal responsibilities (particularly if they are also a board director, or have a dual role such as general counsel / company secretary). Privilege will only apply to work performed by the in house counsel in their legal capacity.
Even where in-house counsel are clearly acting in their legal capacity, privilege will only apply if they are sufficiently independent from the organisation to be truly acting as an independent legal adviser. For example, in Rich v Harrington (2007), the Federal Court held that there was no privilege in advice given by the general counsel of PricewaterhouseCoopers, where she was also a partner of the firm and therefore a likely respondent to the claim on which she was advising.
Tips for establishing privilege in legal communications involving the board of directors
There are some easy steps that can (and should) be taken to maximise the likelihood that communications from in-house counsel or external lawyers to the board (and others in the organisation) will be privileged.
1. Ensure in-house counsel keep a current practising certificate
It is prudent for a director to insist that the organisation's in-house counsel keep a current practising certificate, as this will help to demonstrate that in-house counsel are acting in a professional legal capacity and have the necessary independence from the organisation they are advising (which is also likely to be their employer). Whilst not fatal to a claim for privilege, not having a practising certificate can make it easier for a court to infer that in-house counsel perform non-legal work and were performing such work when making the communication in question.
2. Urge your in-house counsel not to wear two hats at once
In-house counsel should keep their legal and non-legal roles as separate as possible, or a court may view their legal advice as commercial advice to which privilege does not apply. Communications with in-house counsel should only be marked "privileged" when they are genuinely performing their legal function - overuse of the "privilege" label can diminish its effect when used in communications to which privilege genuinely applies.
3. Keep legal and non-legal communication separate
Keeping legal and non-legal communications separate helps minimise any risk that the legal purpose will not be the dominant one in any document which deals with legal matters. It also makes it clearer to readers that the document dealing with legal matters is privileged and thereby reduces the risk of inadvertent disclosure of the document (which could lead to a waiver of privilege).
4. Document the dominant purpose of the advice
When commissioning a document from a third party for the dominant purpose of actual or anticipated litigation, privilege will not apply unless the organisation (not just the in-house counsel) had that as its dominant purpose. Any request for such a document should be set out in writing from the board or a senior executive of the company to the in-house counsel (or recorded in writing, for example in board minutes), and should state that the document is being sought for the relevant (legal) dominant purpose. Subsequent use of the document should also be consistent with that purpose.
Once privilege applies to a document, it is crucial not to do anything inconsistent with the confidentiality of the document, as this could waive privilege. In part two of this article, we will discuss the principles relating to waiver of privilege, and give some practical tips to help board directors avoid such a waiver.
For more infomation: Clayton Utz
