Regulators get tough on claims of Legal Professional Privilege

Articles Written by Sar Katdare (Partner), Robert Wyld (Consultant), Morgan Blaschke-Broad (Senior Associate)
Wooden gavel on a wooden table with a black background

Following a number of recent cases in which parties have incorrectly claimed legal professional privilege (LPP) over documents to be produced for regulatory proceedings or investigations, and government inquiries, regulators such as the ATO and the ACCC are drastically changing the way such claims will be viewed by them going forward.

These changes will substantially increase the cost and time required to respond to regulatory investigations and will require in-house counsel to properly understand and closely scrutinise whether their communications will, in fact and in law, be the subject of a proper claim for LPP.

All in-house counsel should immediately take a refresher on the circumstances in which their communications and other corporate documents will attract LPP. Broad or blanket claims will not work and could publicly be held or suggested to be deliberately or recklessly deceptive and improperly brought, impacting the credibility of the witness and their employer.

When will LPP apply to documents?

Documents (or any communications) that are created for the dominant purpose of providing or seeking legal advice or for use in current or anticipated litigation will attract LPP. The onus is on the party seeking to claim LPP to properly establish it. Designating documents as “subject to legal professional privilege” will not be determinative. A court will assess the substance of the circumstances surrounding the creation of the document or communication.

When will LPP be lost?

LPP is usually lost when it is waived inadvertently, that is, the involuntary or selective disclosure of LPP communications by a party to those communications. Examples include a mistaken disclosure during extensive production of numerous corporate records pursuant to a statutory notice or a mistaken disclosure during a court discovery process.

The critical question in determining if LPP is waived is has the party holding the LPP acted inconsistently with the fundamental confidence inherent in LPP communications? If yes, LPP is waived. If no, LPP has not been waived.

What is the current procedure for producing documents attracting LPP?

Where a document attracts LPP, it generally does not need to be provided to regulators in investigations, government inquiries or the other party in legal proceedings 

For example, the current practice when responding to a compulsory notice from the ACCC is to identify which documents or part of documents attract or are likely to attract LPP and then withhold those documents (or redact parts of documents) from production to the ACCC.  The only explanation required is that documents that attract LPP have not been produced (or that material has been redacted because it is protected by LPP).

In a broad sense, the approach to responding to a compulsory notice from the ATO is similar to that described above.

The process is efficient, cost effective and generally ensures the appropriate material is provided to the regulator (on the basis that an appropriate LPP analysis has been undertaken).

Recent cases

Recent cases have shown that parties have made very broad claims of LPP and are not accordingly producing material to regulators and inquiries that is, as a matter of law, required to be produced. 

In some cases, this conduct has been argued to be a deliberate strategy by clients and/or in-house counsel as claims of LPP have been made simply because communications are sent or received by a legal practitioner (without actually ensuring the test for LPP is satisfied).

PWC case

Earlier this year, the Commissioner of Taxation (Commissioner) issued a notice to PricewaterhouseCoopers (PWC), requiring it to provide the Commissioner with documents concerning particular audits.

In responding to this notice, PWC claimed LPP over approximately 15,500 documents which in turn were withheld from production to the Commissioner. The Commissioner sought a declaration that these documents were not covered by LPP, as they were not the type of documents created for the dominant purpose of giving legal advice. While the Court disagreed with the Commissioner’s broad claim, it undertook a LPP analysis of a random sample of the 15,500 documents. Of 116 sample documents, it found that only 49 (42%) were properly classified as attracting LPP, 6 documents were part privileged and 61 documents (52%) were subject to incorrect claims of LPP. 

NSW Independent Liquor and Gaming Authority

In June 2022, the inquiry into The Star Pty Ltd (The Star) by the NSW Independent Liquor and Gaming Authority heard that The Star refused an AUSTRAC request to provide a copy of an adverse report, based on LPP.  

Although legal counsel considered the report attracted LPP at the time it was prepared, it was determined that this was not the case.  In addition, it was intimated that many emails that were headed “privileged” or over which claims of privilege were made, were not as a matter of law properly privileged, and that counsel had deliberately sought to cloak these documents in LPP so as to ensure they could not be produced in any future inquiry or proceeding.

The new order

In light of the above changes, regulators are changing their approach to how claims of LPP will be managed.

For example, the ACCC will now require recipients of compulsory notices to provide comprehensive information about the documents they propose to withhold on the basis of LPP including:

  • the type of document;
  • the creators and recipients of the document;
  • the date and time of the document;
  • the category of privilege claimed; and
  • whether the whole document or only part of the document is privileged.

Similarly, the ATO also expects comprehensive information to be provided in relation to a claim for LPP in response to a compulsory notice. In the ATO’s view, providing the information requested will assist the ATO in assessing whether it should accept, review or challenge a claim for LPP. While providing the information to accompany a claim for LPP is voluntary, the ATO does expect an explanation as to why the requested details have not been provided.

If the ACCC or ATO believes that incorrect claims of LPP have been made, it can prosecute the relevant recipient for non-compliance with the notice. In such circumstances, the party claiming LPP will bear the burden of proving that privilege was rightfully claimed. Failure to comply with notices is a criminal offence punishable by fine or imprisonment.

The new way of dealing with LPP claims is more akin to how LPP is treated in relation to warrants issued by the Australian Federal Police (or their State or Territory counterparts). In those cases, LPP communications that are caught by the terms of the warrant, need to be marked securely, sealed separately from non-LPP communications and held by the investigator (without accessing them) until the LPP claims are resolved, by agreement or court application and order.

What should you do now?

All in-house counsel should immediately take a refresher on the circumstances in which their communications and other corporate documents will attract LPP. Broad or blanket claims will not work and could publicly be held or suggested to be deliberately or recklessly deceptive or otherwise and an abuse of process. If lawyers are actively involved in such claims, there is a risk their conduct may be regarded as unprofessional and if serious enough, constitute misconduct.

Ensuring you are well versed in when LPP applies will mean that documents that are marked privileged will be upheld in the face of any challenge by a regulator. It will also ensure the production of documents to any regulator or inquiry is more efficient and accurate, and will minimise the risk of adverse findings being made about the conduct of in-house counsel. 

In-house counsel may wish to consider reviewing their practice of marking emails “Privileged” to ensure that only those communications that clearly attract LPP as marked as such. In-house counsel with dual roles (i.e. legal and commercial) will especially need to be cognisant of the dominant purpose of their communication and consequent LPP claims.

How will the changes impact you in practice?

The proposed changes to how regulators will view LPP claims are likely to result in additional time and cost in complying with regulatory investigations and inquiries.  Extensions of time may need to be sought to closely scrutinise all communications involving legal to determine (and potentially obtain legal advice on) whether LPP applies to those documents.  External counsel should have strong expertise in LPP to advise you on these matters.

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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