In-house counsel: a position of privilege?

An important issue for all in-house legal practitioners is maintaining the privilege in legal advice they provide as legal counsel to their employer company.  The extent to which in-house counsel are protected by the doctrine of legal professional privilege has recently been the subject of a great deal of judicial consideration.

The case of Aquila Coal Pty Ltd v Bowen Central Coal Pty Ltd [2013] QSC 82 raised the requirement of ‘independence’ of in-house counsel in establishing a claim for legal professional privilege.  The case also dealt with the issue of whether legal professional privilege may attach to the advice given by in-house counsel who are not fully accredited Australian legal practitioners.

The decision in Aquila Coal at the time appeared to solidify the position that in-house lawyers must hold a position of independence and not be subject to the direct or indirect authority of a person who is not a legal practitioner.  It also affirmed that legal advice given by in-house lawyers who do not hold local practicing certificates (and, as such, are not Australia legal practitioners) can nevertheless be protected under the doctrine of legal professional privilege.

However, in Archer Capital 4A Limited (as trustee for the Archer Capital Trust 4A) v Sage Group plc (No. 2) [2013] FCA 1098, Wigney J provided new encouragement to in-house counsel, ruling that it was the ‘dominant purpose’ test, rather than the ‘independence’ test, that is most important in establishing claims involving legal professional privilege.  His Honour comprehensively considered the relevant authorities on the ‘independence’ question and made several useful remarks on the issue, finding that:

‘A communication between a lawyer and his or her employer is unlikely to satisfy the dominant purpose test if the lawyer was not employed as a lawyer (that is, the relationship between the lawyer and the employer was not professional) or the lawyer was not consulted in his or her professional capacity as a lawyer (for example, if they were consulted to provide commercial advice, or provide an administrative service, or were consulted as a partner or officer of the firm or company, not as a lawyer). A communication between the lawyer and his or her employer in those circumstances would not be privileged because it would not meet the dominant purpose test, not because the lawyer was not independent. On the other hand, if the relationship between the employer and lawyer was professional (in the sense that he or she was employed as a lawyer) and they were consulted in that professional context to provide legal advice, the resulting communication is likely to satisfy the dominant purpose test.’

Justice Wigney remarked that there was no separate requirement of independence in the case of legal professional privilege claims where the relevant lawyer is an in-house legal practitioner.  His Honour also thought that any requirement of ‘independence’ on the part of an in-house lawyer is an aspect of the relationship between the lawyer and the employer (effectively the client) and the capacity in which the lawyer is consulted and consequently provides legal advice.

The Archer Capital case provides welcome judicial commentary for those employed as in-house legal counsel and reinforces the equality of all members of the legal profession when it comes to legal professional privilege.  The position is not yet settled and it remains to be seen how an appellate court will clarify the position. 

In the meantime, Wigney J identified criteria which he thought indicated a professional (practitioner/client) relationship between in-house counsel and their employers.  In-house counsel seeking to maintain legal professional privilege in the advice they give to the business should, at a minimum:

• hold a current practising certificate and other relevant professional qualifications
• ensure that, in relation to legal matters, there is independent reporting to the board or CEO (rather than to a business unit to whom advice is provided within the organisation), and
• keep legal files confidential by (physically and electronically) separating them from the rest of the business operation.

In-house counsel with both legal and non-legal roles, or those who also advise on non-legal issues while acting in the course of their employment, will not automatically be presumed to lack the requisite ‘independence’ necessary, however it should be noted that any advice given in a non-legal role will not attract legal professional privilege. 

This position identified by Justice Wigney has been reinforced by the case of Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty ltd (No. 4) [2014] FCA 796.  Justice Beach held that where commercial transactions involve both legal and non-legal advice, any communications passing between legal and non-legal advisers on the same matters are unlikely to attract privilege.  It was held that where advice to a client is interwoven with advice from legal and non-legal advisers, for example where collaborative advice is given, this will rarely attract legal professional privilege.  Consequently, parties who regularly engage in large scale transactions upon the advice of several different advisers (both legal and non-legal) should exercise caution to ensure that appropriate protocols mentioned above are in place to maximise the probability of establishing a claim for privilege.

Suzie Emery, Peter Stokes