Legal professional privilege for in-house counsel

Articles Written by Robert Wyld (Consultant)

Dye v Commonwealth Securities and the future of Rich v Harrington

On 1 September 2010, the Federal Court of Australia (Katzmann J) handed down a decision in Dye v Commonwealth Securities Limited (No 5) [2010] FCA 950 (Dye). The Court in Dye reviewed the decision of Rich v Harrington1 (Rich) which appeared to have elevated the requirement of "independence" as a stand alone category for in-house counsel to satisfy before his or her communications would be privileged.

Summary of judgment

The Court distinguished but did not (and cannot) overrule Rich. The Court relied upon an analysis of the High Court's findings in Waterford v Commonwealth2 to the effect that what was necessary, in the context of in-house counsel, was to ensure that there was in existence 'a professional relationship which secures to the advice an independent character notwithstanding the employment'. The Court considered that Rich had overstated the requirement that privilege will arise only where the advice had an 'independent character'.3 What concerned the High Court in Waterford was the fact that the legal adviser was qualified to practice law and was subject to the duty to observe professional standards and the liability to professional discipline.4 It was these characteristics that gave independence to in-house counsel's legal advice rather than creating an "independent" characteristic that in-house counsel had to satisfy in order for privilege to apply. That said, the Court in Dye applied the test set out in Rich, and found it to be satisfied.

The decision in Rich should in the future, be limited to its facts, to partnership-style disputes where the very position of an in-house counsel as a partner in the context of the discrimination litigation between Ms Rich and her former partnership, gives rise to those "insidious influences" that were said to cause the advice from such counsel to lack the required character of independence. However, the final resting place of Rich may not become known until an appellate court considers its judicial standing. Until that time, Rich has the potential to be applied in the future, at least in similar or analogous circumstances to those arising in Rich.

Facts

Ms Dye had brought a claim of sexual harassment and discrimination against her employer. The Court was faced with an interlocutory dispute about the production of documents and the basis of privilege claimed in respect of various communications, primarily emails that had been sent or copied to Mr Fredericks, an in-house counsel employed by the respondent.

Mr Fredericks had supplied a table which contained a brief description of the disputed documents, in which:

  • some documents were described as having been sent 'in the context of providing legal advice';
  • other documents were described as having been provided 'for the purposes of providing legal advice and representation'; and
  • otherwise, other documents made no reference to legal advice.

Mr Fredericks was an in-house lawyer with the respondent. In terms of his employment:

  • he was a solicitor with an unrestricted practising certificate;
  • he held a designated position as Solicitor Head of Workplace Advisory Group or Executive Legal Counsel Workplace Advisory Group with the respondent;
  • the practice of the respondent's Legal Services Division was to maintain separate electronic files and send letters out on the letterhead of General Counsel to whom Mr Fredericks reported directly;
  • there was limited accessibility to Mr Fredericks' hard copy and electronic records; and
  • Mr Fredericks had never come into contact with the respondent's employees (relevant to Ms Dye's case) other than for the purposes of the proceeding.

Principles on privilege

The Court made it clear that whether or not a communication was subject to legal professional privilege was whether that communication or document was created or prepared for the dominant purpose of obtaining or providing legal advice (the advice privilege) or to conduct or aid in the conduct of actual or reasonably anticipated litigation (the litigation privilege). As the dispute concerned the pre-trial production of documents, the common law applied, not the Evidence Act 1995 (NSW).5

The question of whether a purpose is a dominant purpose is to be determined objectively, but the subjective purpose of the person creating the communication will be relevant.6

Importantly, the Court made it clear that it was not sufficient for a party merely to assert a claim for privilege. The party making the claim must establish the facts giving rise to the privilege. A verbal formula, even if unchallenged in evidence, will notbe enough to justify a claim for privilege.7

Although Mr Fredericks was cross examined as to the performance of both legal and non-legal work, it was unchallenged that his work in relation to the respondent and the proceeding was entirely legal in character.

Was the in-house lawyer "independent"?

In considering the application of Rich, although the Court held that Mr Fredericks had multiple responsibilities, some of which could have affected his independence, they did not do so because of the differences between the case of Ms Rich and her employer and the present case.

Those differences included, in the present case:

  • the in-house lawyers were not partners of the respondent;
  • the in-house lawyers were not actual or potential parties to the litigation;
  • the allegations were made by an employee against the employer and did not concern the conduct of the in-house counsel in any personal capacity; and
  • as a result, Mr Fredericks' "personal loyalties" were not engaged in any inappropriate manner to affect this independence (that is, to invoke the "insidious influences" that concerned the Court in Rich).

The Court doubted that the decision of the High Court in Waterford required anything more than that the in-house counsel be professionally qualified and act in a professional capacity. At the end, Katzmann J noted 'mercifully', that it was not necessary for her to decide if Rich was correct.8

The remaining question the Court had to consider was whether the particular documents satisfied the dominant purpose test. The Court considered each of the classes of documents. The Court noted that Mr Fredericks was not the author, sender or recipient of all of the documents and it was not clear to the Court how he was able to speak to the purpose for which they were sent or created. In addition, the Court noted that the description of the documents or their purposes was not particularly informative, often failing to identify the purpose or the circumstances giving rise to the creation of document.

As a result, the Court considered each document and ruled that some documents were the subject of proper claims for privilege and others were not. The non-privileged documents had to be disclosed.

Analysis of judgment

The importance of this case lies in the following principles:

  • the circumstances of in-house counsel require a careful consideration of the employment relationship between the in-house counsel and the employer in the context of the dispute;
  • the 'independence' of in-house counsel is not of itself a determinative test of whether a particular communication is or is not privileged;
  • the nature of independence, to the extent that it is relevant, concerns the circumstances of the employment relationship and the extent to which an in-house lawyer is or is not professionally qualified and acting in a professional capacity;
  • whether the 'personal loyalties' of an in-house lawyer may or may not become engaged are likely to depend upon the nature of the underlying factual dispute (thus bringing into focus the "insidious influences" that concerned the Court in Rich in the partnership dispute which concerned Ms Rich and her firm); and
  • in making claims for privilege, it is critical that a proper and reasoned explanation be given for each document, without reliance on a simplistic verbal formula.

For corporate counsel, 'independence' is, or is more likely than not, to be generally satisfied where counsel is appropriately qualified and is subject to professional standards.

However, there would be situations where, notwithstanding Dye, parties seek to rely on the principles in Rich. In commercial disputes, for example, class action claims for contraventions of the continuous disclosure regime, it might be common for the aggrieved applicants to sue the company and certain officers. The officers might include the corporate secretary who may also (as is the case in many corporations) be General Counsel. In such a case, General Counsel is likely to find him or herself in a position similar to that facing the General Counsel in Rich, as a party to the proceedings. In such circumstances, it may be unwise for General Counsel to be involved in providing legal advice (internally to the corporation) on the subject matter of the claim. That said, we would hope that future courts, including at the appellate level, will follow Dye and distinguish or (better still) expressly overrule or not apply Rich.

It remains probable that in privilege disputes concerning legal advice created by in-house counsel, the courts are likely to continue to carefully examine the employment and personal/professional relationship between in-house counsel and the corporation where there is a risk (because of the issues in dispute) that insidious influences will rear their ugly head and compromise the independence of counsel. It is to this end that Rich may continue to play a role in the law of privilege for in-house counsel unless one can be confident that Rich will be judicially distinguished or overruled by an appellate court.



1 [2007] FCA 1987
2 (1987) 163 CLR 54
3 Dye at [15].
4 Waterfordv Commonwealth (1987) 163 CLR 54 at 62 per Mason & Wilson JJ and 95-96 per Dawson J.
5 Dye at [5] - [6].
6 Esso Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; 201 CLR 49 at [172] per Callinan J and Sydney Airports Corporation Ltd v Singapore Airlines Ltd [2005] NSWCA 47 at [6] perv Spigelman J.
7 Dye at [9]; see Grant v Downs (1976) 135 CLR 674 at 689 per Stephen, Mason & Murphy JJ; Esso at [52] per Gleeson, Gaudron & Gummow JJ; and Kennedy v Wallace [2004] FCAFC 337 at [13] per Black CJ & Emmett J.
8 Dye at [20].
Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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