Documents between clients and their lawyers are generally covered by legal professional privilege. This means that these documents are private and that they do not have to be provided to the opposing party during litigation.
However, consider this: what if a document is utilised not only by the client and their lawyer but also by a third party advisor such as an accountant, financial advisor, merchant banker, or due diligence specialist? Is the document still privileged?
This was the issue which had to be determined by the Federal Court of Australia in the recent Asahi Holdings case. The parties asked the court to determine whether 8 chains of email communications and documents were privileged. Ultimately, the court determined that only 3 of the 8 chains were entirely privileged. This suggests that courts are reluctant to extend privilege beyond standard client-lawyer communications.
This can be problematic in commercial transactions where financial or commercial advisors are acting for a client in addition to lawyers. In these circumstances clients need to be careful, as the documents created by the third party advisors may not necessarily attract legal privilege, even when the lawyer is copied into correspondence or where the document created is of a legal nature.
Asahi Holdings Case
The Asahi Holdings case related to Asahi’s purchase of shares in Flavoured Beverage Group Holdings Ltd. Asahi commenced proceedings against several sellers of the shares, claiming that during the due diligence process those sellers overstated the financial position of Flavoured Beverage Group.
Subpoenas were issued to Nomura Australia Ltd, Deloitte Tohmatsu FAS Co Ltd, and Rothschild Australia Limited, as these were the third party advisors to Asahi during the due diligence process.
The 8 email chains which were possibly privileged were sent between the third party advisors, Asahi (the client), and Freehills (Asahi’s lawyers).
The court noted that in relation to third party advisors, there are generally 5 contexts in which the communications are likely to be created and thus be either non-privileged or privileged:
- Where a communication is made by a third party advisor to a client’s lawyer for the dominant purpose of the client obtaining legal advice, the communication is likely to be privileged.
- Where a communication is made by a third party advisor to a client for the dominant purpose of the client then obtaining legal advice, the communication is likely to be privileged.
- Where a third party, such as an accountant, performs work in a non-litigation setting, generally the advice will not be capable of attracting legal privilege.
- If non-legal advices are provided to the client, and then the client forwards these on to their lawyer, the forwarding process does not mean the document becomes privileged.
- Where a third party provides an advice to a client, and at the time of requesting the advice the client is mindful that the advice could be used in litigation, it is still unlikely that this advice will be privileged. This is because the advice is likely created for a number of reasons and not for the “dominant purpose” of being used in litigation.
Based on these categories, the court examined each of the email chains and determined only 3 were privileged. The other 5 had elements which were privileged, but also elements which determined the emails had to be provided to the opposing party on the basis that they weren’t privileged.
The decision in Asahi Holdings is a timely reminder that when acting in commercial transactions only the advice provided by your lawyer, and not by third party advisors, is likely to attract legal privilege. Even where documents created by third party advisors are then forwarded on to lawyers, this may not be enough to attract privilege, especially if the documents and their privileged status are ever scrutinised by the courts. These documents may then, potentially, have to be provided to the opposing party in litigations.
Clients should be careful of disseminating information amongst third party advisors, and where possible should ensure that lawyers are directly corresponding with those advisors so that, where possible, legal professional privilege can be gained.