Express law No. 65

23 January 2008

Legal professional privilege: recent judgment affects
in-house lawyers

A recent judgment of Branson J in the Federal Court
shows the importance of in-house lawyers having the right
amount of independence when giving legal advice on internal
disputes–otherwise, legal professional privilege
will not exist in relation to that advice. Also, legal
professional privilege that does exist in legal advice
(whether given by an in-house lawyer or an external lawyer)
may be lost by making a statement disclosing the conclusions
or substance of the advice.

In the judgment in Rich
v Harrington [2007]
FCA 1987
on 13 December 2007, Branson J refined
the principles of legal professional privilege that
apply to in-house lawyers in internal disputes. Her
Honour also dealt with waiver of legal professional
privilege as a result of making reference to legal
advice that has been obtained, and addressed an issue
regarding common interest privilege.

Background

Independence of in-house lawyers

It is established that, subject to conditions, legal professional
privilege can apply to legal services provided by in-house
lawyers, including government in-house lawyers. One condition
is that the in-house lawyer must have the necessary degree
of independence when providing the legal services.

The lawyer lacks that independence if the lawyer's
advice is at risk of being compromised by the nature of
his/her employment relationship. If the personal loyalties,
duties and interests of the in-house lawyer do not influence
the legal advice given, the requirement for independence
will generally be satisfied.

The Office of Legal Services Coordination in the Attorney-General's
Department issued Guidance
Note 1 of 2004: Legal Professional Privilege and In-house
Legal Advice
recommending steps that departments and
agencies might take to achieve the necessary independence
of an in-house lawyer.

Rich v Harrington

Facts

Usually, the question of independence of an in-house lawyer
arises when the lawyer is providing legal services that
relate to the normal functions of the lawyer's employer.
In those circumstances, the lawyer is providing advice
corporately to the organisation on some matter between
the organisation and third parties.

However, in Rich v Harrington the question of an
in-house lawyer's independence arose in the context
of an internal dispute between partners of the firm in
which the legal unit was established. In this case the
plaintiff partner claimed unlawful discrimination, harassment
and victimisation by the firm against her.

All lawyers in the legal unit of the firm held practising
certificates. The lawyer in charge of the unit, in addition
to holding a practising certificate, was a partner of the
firm. There was evidence that the lawyers 'ordinarily' had
the necessary independence to attract legal professional
privilege.

Decision

Branson J did not decide whether the lawyers in fact 'ordinarily' had
the necessary independence. Rather, her Honour considered
the relevant question to be whether the lawyers could give
independent advice to the firm 'concerning the allegations
and claims advanced by one partner … against other
partners in the firm' (at [57]).

Her Honour held that, in considering that question, she
was not required to 'speculate' about the legal
unit's actual approach to giving that advice. The
critical question was whether the relationship between
the legal unit and the partners it was advising 'was
one of professional detachment'. Branson J found
that it was not.

Specifically, her Honour found that the plaintiff partner's
allegations 'cast aspersions of a personal, rather
than a purely professional kind' and were 'likely
to engage the personal loyalties and the duties and interests
of all partners of [the firm]–and probably many employees
of the firm as well' (at [59]).

As a result, communications relating to the in-house lawyers' advice
did not attract legal professional privilege.

Implications of the decision for government in-house
legal units

Branson J's approach has implications for government
in-house lawyers providing advice on disputes within their
department or agency (for example, on discrimination, promotion,
remuneration or discipline matters). Specifically, even
if the in-house lawyer was sufficiently independent to
attract legal professional privilege in advising the department
or agency on matters involving third parties, the lawyer
might not be sufficiently independent to attract legal
professional privilege for advice on the internal dispute.

A risk of this lack of independence could arise where
the head of an in-house legal unit was part of the department's
management team and the legal advice was about the internal
management of the department and/or the conduct of the
management team in an internal matter. In this regard,
Branson J accepted that the independence of legal advice
provided by the in-house legal unit 'could not rise
above' the independence of the head of the unit because
that person 'supervises, and carries responsibility
for, the work' of the unit.

A relevant difference between a firm and a department
is that employees of a firm are employed by all partners
and thus owe duties to all partners (and in Rich v Harrington the
dispute was between partners). However, there is only one
executive head of a department. As a general rule, the
necessary independence of an in-house government lawyer
advising on a dispute within the lawyer's department
could be achieved by ensuring that the lawyer is advising
(and receiving instructions from) a person who is senior
to, or otherwise organisationally independent of, all parties
to the internal dispute. In some cases that person might
need to be the head of the department. These principles
would also apply to an agency with a structure relevantly
similar to a department.

Ultimately, each case will need to be considered in the
light of its circumstances?especially the nature of, and
parties to, the dispute. A relevant factor will be whether
one or more of the parties involved is in a position of
authority or influence over the in-house legal team or,
at least, the in-house lawyer giving the advice. In cases
of doubt, the prudent course might be to obtain the desired
advice from an external lawyer.

Waiver of legal professional privilege

Branson J's judgment provides another warning about
the risk of losing legal professional privilege by making
a statement referring to having received legal advice.

Branson J considered a letter from the firm's external
lawyers to the plaintiff's lawyers stating that 'our
client has acted at all times with the benefit of external
legal advice and does not believe there has been any victimisation
or other conduct for which compensation could properly
be sought'. Her Honour held that legal professional
privilege in the relevant legal advices given to the firm
was waived as a result of that statement.

Branson J held that 'implicit in the calling-in-aid
of the external legal advice … was the claim that
the external legal advice supported the conduct of' the
firm (at [32]), and that the letter disclosed the substance
or conclusion of that advice.

Also, Branson J held that, even if legal professional
privilege had applied to advice given by the firm's
in-house legal unit, legal professional privilege in some
of that advice would have been waived by a letter from
a partner of the firm to the plaintiff partner stating
that 'Based on the work done by [the in-house legal
unit] my preliminary view is that the allegations … appear
to me to be without foundation'.

On the other hand, Branson J held that legal professional
privilege in related legal advice was not lost merely by
a statement by the firm in the legal proceedings that the
firm's conduct 'was in good faith … and
was reasonable and in the best interests of the firm',
because that statement did not refer to reliance on legal
advice.

There have been conflicting court decisions on the circumstances
in which voluntary disclosure of the gist of legal advice
can waive legal professional privilege in the whole of
the advice. The High Court has recently granted special
leave to appeal to it on this issue (see Osland v Secretary
to the Department of Justice [2007] HCA Trans 811 (14
December 2007).

Common interest privilege

Branson J noted the general principle that, if parties
with a common interest exchange information and advice
relating to that interest, a document or copy document
containing that information or advice will be privileged
from production in the hands of each party. Her Honour
accepted that, after the plaintiff partner of the firm
had commenced legal proceedings against all other partners,
those other partners had a common interest in defending
the legal proceedings. Accordingly, copies of related legal
advice obtained separately by one respondent partner and
passed to other respondent partners would attract common
interest privilege, thus precluding the plaintiff from
having access to the advice.

However, Branson J held that legal advice obtained by
one respondent partner, and disclosed to the other respondent
partners, before legal proceedings were instituted did
not attract common interest privilege because that partner
disclosed the advice to the other partners for the purpose
of promoting that partner's own 'selfish' interest
in protecting his position within the firm. Nevertheless,
because the disclosure to the other partners was made subject
to an implied obligation of confidentiality, that partner
had not waived his own legal professional privilege in
the advice. Thus, the end result was that the plaintiff
was not entitled to have access to the advice.

Implications for clients

The Federal Court's judgment indicates the need
for departments and agencies to exercise care to avoid
unintentional loss of legal professional privilege in legal
advice, especially legal advice provided by in-house lawyers
on internal disputes. Some basic steps to maintain legal
professional privilege include:

  • ensuring that an in-house lawyer is sufficiently independent
    in relation to each matter on which the lawyer is advising
  • being careful about (and where desirable seeking guidance
    on) disclosing to a third party the conclusions or substance
    of legal advice received
  • ensuring that legal advice circulated within the government
    is circulated on a clear understanding that the advice
    is confidential.

For further information please contact:

Tom Howe
Chief Counsel Litigation
T 02 6253 7415 F 02 6253 7384
tom.howe@ags.gov.au

Simon Daley
Special Counsel Litigation
T 02 9581 7490 F 02 9581 7732
simon.daley@ags.gov.au

Barry Leader
Special Counsel Litigation
T 08 8205 4229 F 08 8205 4499
barry.leader@ags.gov.au

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