ASIC has released new guidance outlining its approach to claims of legal professional privilege. By outlining a process for clients to voluntarily disclose privileged information to ASIC, ASIC hopes the publication will encourage recipients of ASIC notices to make this disclosure. There is, however, a real risk that providing a privileged document to ASIC will result in a claim of waiver by a third party. For this reason, King & Wood Mallesons considers there is unlikely to be a significant take-up of this option amongst its clients.
Although ASIC has broad information gathering powers, it does not have the power to compel you to hand over documents protected by a valid claim for legal professional privilege (LPP).
As the holder of privileged documents, you have the following three options when responding to an ASIC notice – you may:
- (most commonly) assert LPP and withhold the information from ASIC;
- waive privilege and provide the information to ASIC; or
- seek to enter into a “Voluntary confidential LPP disclosure agreement” with ASIC and provide the documents on a confidential basis intending to preserve privilege. ASIC highlights this option in its media release.
What are the risks of voluntarily handing over privileged documents to ASIC, even under a confidentiality agreement?
To facilitate the confidential disclosure of privileged documents to ASIC, ASIC has released a standard form agreement with its Information Sheet – the “Voluntary confidential LPP disclosure agreement”. This agreement is new and untested by the courts.
ASIC hopes to encourage use of this agreement, however, it recognises that it will only be used in “some circumstances”. In our view, because of the associated risks, these circumstances are likely to be extremely limited.
Under this agreement, ASIC agrees that the disclosure of the privileged information to ASIC is not a waiver of any privilege existing at the time of the disclosure. The parties also agree that:
- ASIC is entitled to use the privileged information for investigative purposes, but will not seek to use the information in legal proceedings; and
- ASIC will notify the discloser if ASIC is compelled by law to release the information (for example, the documents are subject to a subpoena or FOI request).
Although ASIC states that early disclosure of information covered by LPP can sometimes help to produce a more-timely conclusion to an investigation, there are a number of serious risks associated with handing over privileged documents to ASIC. The key risk arises from the inherent inconsistency of providing a privileged document to a regulator and the claim for the maintenance of the privilege. Inconsistency is the touch stone for waiver of LPP. As a result, a discloser may need to defend a confidential disclosure against a claim of waiver by a third party.
Even with the protection of the confidentiality agreement, the discloser takes the risk that:
- after reviewing the confidential information, ASIC challenges the validity of the claim for privilege. This presents a significant risk, in particular, for documents prepared by in-house counsel;
- a third party claims the documents are not privileged or that privilege has been waived. This may occur if ASIC is subpoenaed or subject to an FOI request. The fact that ASIC agrees not to assert a waiver of privilege does not protect you against assertions of waiver by third parties. If that happens, it remains your responsibility, as the privilege holder, to take steps to claim privilege, including through court action if necessary;
- ASIC discloses the information to a Commonwealth Minister, a parliamentary committee, or an adviser to either a minister or a committee, in response to question asked by one of those parties. If this occurs, ASIC can request, but not require, the recipient to maintain the confidentiality of the disclosure agreement; and
- ASIC’s use of the information for investigative purposes leads it to investigate or pursue other claims.
Use of the confidentiality agreement is likely to be rare. A client may consider this form of arrangement, for example, if it was seeking to use privileged documents to demonstrate to ASIC that appropriate steps were taken internally in response to a breach of its licence obligations. However, in light of the significant risks, it is crucial that clients consider all other available alternatives before divulging privileged information to ASIC, or any other regulator.
How do I claim and protect LPP over documents not produced to ASIC in response to an ASIC Notice?
ASIC’s new guidance also emphasises the importance of properly supporting all claims for legal professional privilege. This is not new. ASIC states that it will not accept a “blanket LPP claim”. It requires each document over which with privilege is claimed to be individually identified and relevant supporting information, such as:
- all authors and recipients of the document;
- the basis on which the privilege is claimed, including whether advice or litigation privilege is claimed; and
- whether privilege is claimed over the whole or part of a document. If it is only part of a document over which privilege is claimed, ASIC says that the discloser must provide an appropriately masked version of the document.
In response to your claim of LPP, ASIC may either reject the claim or request additional information. If ASIC does not accept your claim you can either:
- withdraw your claim for privilege;
- make a request to enter into a “Voluntary confidential LPP disclosure agreement”; or
- make an application to the court seeking a declaration that the information is privileged.