When exercising compulsory information-gathering powers, regulators need to correctly handle the issue of legal professional privilege (LPP). This includes:
- being aware of whether or not the relevant compulsory information-gathering power is subject to claims for LPP (in most cases the power will be subject to LPP)
- having in place an appropriate and reasonable procedure for dealing with claims for LPP which arise while executing search and seizure type powers – typically this will provide for affected documents to be listed and for the documents and list to be delivered to a neutral third party, to preserve the status quo while claims for LPP are dealt with
- having the procedure documented so it can be communicated to those present at the premises when the search is conducted
- ensuring that the procedure is followed during the search and that the search and seizure process is carried out reasonably
- allowing the subject of the search a reasonable opportunity to make a claim for LPP.
LPP and problems for regulators
It is settled law that LPP may be relied upon to resist being required to produce documents in response to a search warrant or other compulsory information-gathering power, in the absence of a statutory provision to the contrary. Statutory provisions will not be construed as abrogating LPP unless there are clear words or a necessary implication to that effect.1
There is an exception to LPP which is known as the 'fraud exception'. Communications between a lawyer and client which facilitate a crime, fraud, sham or trick, or an illegal or improper purpose are not protected from disclosure by LPP.
Many regulators have search and seizure powers, or other compulsory information-gathering powers, such as powers to issue compulsory production notices, or to access premises, inspect and copy documents. At a Commonwealth level, in 2008 the Australian Law Reform Commission (ALRC) identified some 41 federal bodies with compulsory information-gathering powers.2 These powers are scattered across many pieces of legislation. In most cases, LPP is not abrogated either expressly or by necessary implication, and consequently the powers are subject to LPP.
When regulators seek to exercise their compulsory information-gathering powers in the context of an investigation, they frequently encounter problems in relation to the application of LPP. For example:
- the regulator may be concerned that evidence will be destroyed if documents are not seized or copied during the initial attendance at a premises
- there may be a large volume of documents at a premises and it may be difficult to identify and isolate documents which are subject to LPP from other documents
- LPP belongs to the client, not the legal advisor, and during the initial visit the client may not be present to assert the privilege. In some cases, the claim for LPP may not be made until after the search and seizure or copying has been carried out
- electronically stored information will frequently contain a large volume of documents, which may include documents which are subject to LPP, and it may be difficult to identify and isolate the documents which are subject to LPP from the other documents.
In their 2008 report, the ALRC was of the view that, to the extent that there is a problem in relation to LPP in the context of federal investigatory bodies, it mainly lies in the domain of practice and procedure. The Commission recommended the enactment of federal LPP legislation to clarify the application of LPP to federal compulsory information-gathering powers and to inject greater consistency with respect to procedures for LPP claims.3
As yet, this recommendation has not been taken up. There continues to be practical and procedural difficulties in relation to the application of LPP when exercising compulsory information-gathering powers. Further, LPP claims often delay or frustrate investigations and Royal Commissions, because in these situations, regulators are not able to consider the affected documents until the completion of Court proceedings to establish whether or not the claim for LPP is validly based. Where 'blanket claims' have been made by clients, then the regulator may be unable to consider a large number of documents during this time.
Procedures for managing LPP when gathering information
Many regulators have developed their own procedures and guidelines for dealing with LPP issues when exercising their compulsory information-gathering powers. For example:
- the Australian Federal Police and the Law Council of Australia have agreed on guidelines for the execution of search warrants on lawyers' premises, law societies and like institutions in circumstances where a claim of LPP is made
- the Commissioner of Taxation and the Law Council of Australia have agreed on similar guidelines in relation to the exercise of access powers at lawyers' premises where a claim of LPP is made
- the Australian Taxation Office (ATO) and Australian Securities & Investments Commission (ASIC) both have detailed policy and guidelines information on their website for where a claim for LPP is made in the context of compulsory information-gathering powers.
Typically, the guidelines/ procedures provide that, where LPP is asserted, the affected documents are sealed in a container, a list of the contents are mutually agreed, the container and list are delivered to a neutral third party, and the relevant clients are then given sufficient time to establish their claim for LPP. This preserves the status quo, avoids the risk of evidence being destroyed, and preserves the client's right to claim LPP while the issue is resolved.
Tips on 'what to do and what not to do' from case law
Some guidance on what to do and what not to do can be gained from Federal Court case law, in situations in which clients have applied to Court for relief against the use by regulators of their compulsory information-gathering powers.
Kennedy v Baker
In Kennedy v Baker4, while executing a search warrant under the Crimes Act 1914 (Cth), ASIC made a 'forensic image' of the entire hard drive of a personal computer at the relevant premises. The image was saved to the hard drive of another computer and removed from the premises. The search warrant had attached a document dealing with claims for LPP, and providing for a procedure similar to that discussed above, whereby affected documents would be sealed and delivered to an agreed third party.
Mr Kennedy had arranged for his solicitor to attend during the search process. During the search, a claim for LPP was made in relation to one physical document, and that document was sealed and delivered to a Court. During the search a claim was not made for LPP in relation to the imaged hard drive.
Mr Kennedy subsequently sought orders preventing ASIC from examining the imaged hard drive, and requiring that it be delivered up to him. Amongst other things, the application was made on the basis that ASIC had failed to give any or adequate opportunity to claim LPP, and further that the imaging and removal of the imaged hard drive was unlawful because it included communications to which LPP attached.
Branson J noted that it is settled law that those executing a warrant in respect of a premises must ensure that the occupier of the premises has an adequate opportunity to make a claim of LPP.
Branson J accepted that the obligation is to allow an adequate opportunity for a claim of LPP to be made, and not just to respond reasonably to a claim when made. So, for example, when the circumstances are such that the person executing the warrant should reasonably anticipate that a claim for LPP might be made (for example, in relation to a search of a lawyer's office when the lawyer is absent, or where documents on their face suggest that they might well be subject to LPP), then it would not be sufficient for the person executing the warrant to merely say that no claim for privilege was made.
However, His Honour was satisfied that the circumstances in this case were different, in that a solicitor for Mr Kennedy was present, she was alerted to the making of the imaged hard drive, and she did not assert a claim for LPP in respect of the imaged hard drive. His Honour concluded that, in the circumstances it was reasonable for ASIC to proceed on the basis that Mr Kennedy had been given an adequate opportunity to claim LPP in respect of the imaged hard drive.
Kennedy v Baker (No 2)
In Kennedy v Baker (No 2)5, Branson J considered Mr Kennedy's claim that the creation and removal of the imaged hard drive was unlawful because its contents included communications to which LPP attached.
Branson J rejected the claim and found that Mr Kennedy could not be in a better position because he had advanced no claim for LPP during the execution of the warrant than if he had advanced such a claim. If he had advanced such a claim, then pursuant to the procedure attached to the warrant, the imaged hard drive would have been sealed and delivered to a Court pending resolution of the LPP claim.
His Honour also found that the creation and removal of the imaged hard drive did not result in disclosure of the communications to which LPP attached. ASIC did not seek to access the data found on the imaged hard drive without giving Mr Kennedy further time within which to make a claim for LPP. His Honour also accepted a submission for ASIC that the operation of the search warrant power would be substantially frustrated if the mere identification within copied data of a file from which a privileged communication could be brought into existence could retrospectively invalidate the decision to copy the data. If this were so, then any data could be protected from copying by placing a file subject to LPP within it.
JMA Accounting Pty Ltd v Carmody
In JMA Accounting Pty Ltd v Carmody6, the Full Federal Court considered the lawfulness of a search and seizure carried out by the ATO pursuant to section 263 of the Income Tax Assessment Act 1936 (Cth). During the search and seizure the ATO had copied much of the contents of the hard drives of JMA's computers and computer servers.
The Court made the following comments about the relevant legal principles:
- Section 236 did not permit the taskforce to take control of JMA's offices and deny its staff access to the computer records. In this respect the ATO was acting beyond its powers under section 236.
- The mere seizure of a document without it being read will not infringe LPP.
- There will be circumstances in which it will be proper for the officer exercising the s263 power to look at a potentially privileged document, for the purpose of determining whether it might be covered by the privilege. The document should not be looked at closely; merely enough to enable the officer to decide whether the document may be copied. The circumstances where this might be appropriate will include cases where no one is present to claim the privilege and when there is a blanket claim for privilege and it is reasonably apparent that the claim is not sustainable.
- The cases establish three broad propositions for the conduct of a search and seizure:
- First – that a person is only entitled to seize those documents which he is authorised to seize by the relevant power
- Second – both the search and seizure must be reasonably carried out
- Third – the officer must do no more than is reasonably necessary to satisfy himself/herself that he/she has the documents which he/she is entitled to seize.
The Full Federal Court then turned to apply these principles to the facts. Ultimately, the Court approved the ATO's handling of the LPP issue. The ATO had used a procedure whereby all material was scanned or copied onto disks and duplicated, with one copy being given to JMA and the other to be retained by the Australian Government Solicitor (AGS). An undertaking was to be offered that the AGS would not access such information for a period of 14 days in order to allow any claim of LPP to be made.
At first instance, Dowsett J had found that, although the approach for dealing with LPP which the ATO had devised was reasonable, they were not entitled to impose that approach on the applicants and, in the absence of their agreement, it was beyond the power of the ATO officers to copy documents which were subject to a claim of LPP. The Full Court disagreed with this view. The Full Court found that the ATO officers were not obliged to reach an accommodation with JMA and that, provided their proposal for protecting any claim of LPP was a reasonable one, all that the officers were required to do was to ensure that the proposal was implemented. Further, simply copying a document without reading it was not on any view a breach of the LPP. Nevertheless, ultimately, the Full Court found that the ATO officers had acted beyond their power in relation to some of the electronic documents they had seized for another reason, which was that they had not made sufficient effort to distinguish between relevant and irrelevant documents.
Key points from the cases for regulators
Some key points from the above cases for regulators are:
- Regulators must ensure that the occupier of the premises has an adequate opportunity to make a claim of LPP – depending on the circumstances, this may require more than just responding reasonably to any claim of LPP which is made.
- The search and seizure or copying of any items must be reasonably carried out. In our view, it will be easier for a regulator to establish that the search process was reasonable if the regulator has an appropriate procedure for dealing with claims of LPP which is documented and provided to the subject of the search at the commencement of the search (for example, in the form of an attachment to the relevant warrant). In the above cases, the ATO and ASIC had appropriate procedures in place, and this is likely to have contributed to the Court effectively approving their handling of the LPP issue.
- When carrying out the search process, it is not necessary to gain the subject's consent to the procedure for dealing with claims for LPP, as long as the procedure is reasonable and is followed during the search process.
- The mere seizure or copying of a document or hard drive without it being read will not infringe LPP.
- The fact that a data source includes one or more documents which are subject to LPP does not prevent the regulator from seizing or copying the data source. However, any such data sources should be dealt with in accordance with an appropriate procedure for dealing with claims of LPP. The procedure would provide for such data sources to be seized or copied, sealed and delivered to an independent third party pending resolution of claims of LPP.
- Looking at a document, not closely, but just enough to determine whether it may be the subject of LPP, will be appropriate in some but not all cases – for example, where there is no one present to make the claim of LPP or where there is a blanket claim for privilege which is clearly not sustainable.