Background
Decision
Comment
In March 2011, in an interlocutory motion in a class action against Lehman Brothers Australia Ltd in the Federal Court of Australia, Justice Yates delivered a judgment that is likely to have a direct impact on the manner in which in-house legal counsel provide advice to their client (the corporate entity that employs them) and, more specifically, the terms upon which and the manner in which they should provide advice to separate entities within their corporate group.
The applicants in the class action proceedings issued a notice to produce to Lehman Brothers Australia Ltd seeking documents that related to an audit or investigation conducted by Lehman Australia that had come to light in the discovery process. Lehman Australia claimed legal professional privilege over a number of documents in answer to the notice. The affidavit in support of the privilege claim stated that the documents were communications between Mr Ansell, in-house legal counsel, and his client (Lehman Australia) under the common law test established by the High Court in Esso Australia Resources Limited v Commisioner of Taxation of the Commonwealth of Australia.(1) The test in Esso is that the dominant purpose of the communication over which privilege is claimed must be to obtain or to provide legal advice.
The affidavit in support of the claim for privilege also stated that the communications resulting from a review of Lehman Australia staff were not only given or disclosed to Lehman Australia, but also disclosed to other Lehman entities within the Lehman corporate group. Further, in-house counsel for Lehman Australia routinely reported to general counsel for a separate Lehman entity, Lehman Brothers Asia Holdings Limited.
The court found that the privilege claimed was the privilege of Lehman Australia only and not of any other Lehman entity. As a result, it was not enough that one of the purposes of the review and resulting communications included giving advice to Lehman Australia, because that was only one purpose among others, including to give advice to the "other Lehman entities". Accordingly, the court found that the advice was not for the dominant purpose of providing legal advice to Lehman Australia, but rather for multiple or mixed purposes.
Common interest privilege
The court did not explore in any detail the issue of common interest privilege between Lehman Australia and the other Lehman entities, because the primary issue was whether the legal professional privilege claimed existed at all and therefore it was not necessary to consider whether a waiver had occurred. However, a review of the principle of common interest privilege and its application to this case assists in a greater understanding of why common interest privilege would have been unlikely to apply.
Common interest privilege arises when a third party - in this case any of the other Lehman entities - has a relationship with the client and the transaction in question such that the third party is brought within the ambit of confidence which would prevail between the legal adviser and his or her immediate client. Common interest privilege is not limited to litigation or anticipated litigation (eg, in South Australia v Peat Marwick Mitchell).(2)
In this case counsel argued that Lehman Australia and the other Lehman entities could not have had a common interest because one of the purposes of the advice was to assist the other Lehman entities in contemplation of a suit against Lehman Australia for its conduct prior to its purchase by the Lehman group in March 2007. Counsel relied upon Patrick v Capital Finance Corporation (Australasia) Pty Ltd,(3) where it was found that two parties interested in a particular question will not have a common interest if their individual interests in the question are selfish and potentially adverse to each other.
Privilege within corporate groups
Perhaps the most important and relevant outcome of the judgment relates to the manner in which in-house legal counsel's role is defined, how they are retained and how they provide their advice to entities within their corporate group, other than their direct employer.
In this instance the court did not need to address whether a lawyer-client relationship existed. However, it stated that on the evidence available, it was not prepared to find that a lawyer-client relationship existed between Lehman Australia's employed in-house lawyer and the other Lehman entities, as the lawyer's role was only to provide legal and compliance advice to Lehman Australia and not to the other entities. It was also found that simply because duties of confidentiality exist in relation to the documents passing between in-house counsel of one entity within a corporate group and persons employed by separate entities in the group, that is not enough to establish that a lawyer-client relationship exists between lawyers in one corporate entity and other corporate entities within the larger group. In this regard, the court referred to the decision of Apple Computer Australia Pty Ltd v Wily,(4) where Justice Barrett stated that:
"'Client', in its ordinary signification, must therefore be regarded as referring to a person who, in respect of some legal matter within the scope of professional services normally provided by lawyers, has, with the consent of a lawyer, come to stand in a relationship of trust and confidence to the lawyer entailing duties of the lawyer to promote the person's interests, to protect the person's rights and to respect the person's confidences. The privilege exists so that a person may consult his legal adviser in the knowledge that confidentiality will prevail."
In-house counsel and management of companies within corporate groups should now define more explicitly and in a detailed manner in-house legal counsel's job description and to which entities within the corporate group the lawyer will likely be providing advice. Further, if the communications or advice passing between the in-house lawyer and staff of other entities within the group is intended to remain privileged, it is essential that the communication is intended as advice for that specific entity or for a common purpose. If the advice, for example, is for the benefit of only one entity within the group and for a specific purpose relating to ongoing or anticipated litigation, to disclose that advice to any other entity within the group may be inconsistent with the element of confidentiality that is essential for the accrual or maintenance of any claim for legal professional privilege.
As a result of this judgment, in-house legal counsel should also be cognisant of exactly who their client is within the corporate group and whether the communication or advice is intended to be privileged. If so, they should limit disclosure of the communications to the intended client for the purpose for which it was created and ensure that the advice is being shared for a common purpose.
For further information on this topic please contact Amanda Banton or Chris Martin at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email ([email protected] or [email protected]).
Endnotes
(1) [1990] High Court of Australia, December 21 1999.