Determining whether legal professional privilege applies to the communications of in-house counsel has traditionally involved the preliminary question as to whether the employed lawyer is independent from his or her employer, together with an assessment of the evidence as to the dominant purpose for the creation of each of the relevant communications.
However, there remains some doubt as to whether independence of in-house counsel is truly a separate requirement for privilege to be attracted, or whether it is simply part of the overall factual context which the court will consider in determining whether a communication was created for the dominant purpose of obtaining legal advice or to conduct or aid in the conduct of litigation.
In Archer Capital 4A v Sage Group (No 2), a single judge of the Federal Court of Australia reviewed the authorities, and suggested (without deciding) that independence should not be a distinct test, but was simply an issue to be considered in evaluating the overall evidence as to the dominant purpose of each communication (including the contents of each communication).
As the judge pointed out, however, in practice, not much is likely to turn on the distinction. The case is a therefore a timely reminder as to the need for in-house counsel to take practical steps to reduce the risk that their independence will be questioned in the event of a later challenge to a privilege claim.
The facts in Archer Capital 4A v Sage Group (No 2)
The applicants in this case, shareholders of MYOB Cayman Holdings Limited, claimed damages in relation to a proposed acquisition of their shares by Sage Group Plc (Sage), which ultimately did not proceed. As part of pre-trial disclosure of documents, the applicants sought production of a number of documents which Sage claimed were privileged. This case determined their challenge to Sage’s privilege claims.
One category of these documents was communications involving Sage’s Company Secretary and Group Legal Director, Mr Robinson.
A matter of privilege, not independence
Legal professional privilege, also known as client legal privilege, attaches to confidential communications or documents created or made for the dominant purpose of obtaining or providing legal advice or to conduct or aid in the conduct of actual or contemplated litigation.
The purpose of this privilege is to protect the confidence and candour in communications between a lawyer and a client. However, as in-house counsel is employed by his or her client, the courts examine the independence of in-house counsel from the client’s business to determine whether their relationship is one of lawyer and client or employee and employer.
In this case, the Court observed that any communication with in-house counsel outside his or her capacity as legal advisor would not be privileged because its dominant purpose would not be the provision or obtaining of legal advice. Accordingly, the Court suggested that the preferable view was that Mr Robinson’s independence did not need to be separately assessed as a separate requirement in order for privilege to be attracted. Rather (and contrary to the view expressed by some other authorities), the Court considered that independence was simply one of the matters to which it would have regard in determining whether the dominant purpose test was satisfied.
Nevertheless, the Court dismissed the challenge to Mr Robinson’s independence, noting his lengthy career as a solicitor, his holding of a current practicing certificate in the United Kingdom and the separation of his legal and other duties as evidenced by separate reporting lines (depending on his function) and separate storage of his electronic and physical files in such a way that they were not accessible by the financial and commercial teams at Sage.
The dominant purpose – a case by case analysis
After rejecting the applicant’s challenge to Mr Robinson’s independence and observing that there was evidence that the documents appeared, from their descriptions, to meet the dominant purpose test, the Court nonetheless inspected each document over which privilege was claimed.
The only document in this category which was held not to be privileged was an update on an aspect of the transaction sent “as a matter of courtesy” by a solicitor in Sage’s legal department to Sage executives, and on which Mr Robinson was “copied in”. Despite the email inviting recipients to contact the author or Mr Robinson in the event of any comments or questions, the Court considered this insufficient to characterise the email as being created for the dominant purpose of obtaining or providing legal advice.
Protecting in-house counsel communications
It has long been established that courts may inspect documents over which privilege claims have been made, in order to assess whether the privilege claim should be upheld. However, this case is consistent with what appears to us to be an increasing trend, namely for courts to inspect documents over which privilege is claimed, rather than rely exclusively on broad descriptions by the party claiming privilege of the nature of the documents and the purpose for which they were created.
The Court’s approach to the issue of independence is consistent with this greater emphasis on the specific factual context in which each communication over which privilege is claimed took place.
The case is therefore a timely reminder as to the steps that in-house should be taking to reduce the risk of a successful challenge to any privilege claim that their employers might wish to make in the future. While the Court will always look to the substance behind the creation of a relevant communication for privilege, not its form, some suggested measures for in-house counsel to include in enhancing potential privilege claims include the following:
- maintaining a current Australian practicing certificate, or absent an Australian practicing certificate, a certificate for a jurisdiction outside Australia;
- keeping any legal and non-legal responsibilities distinct, including by:
- separating reporting lines for legal and non-legal aspects of the position to different officers of the company;
- storing records or copies of legal work separately to those relating to non-legal work;
- ensuring records of legal work are not accessible by financial and commercial teams;
- extracting, to the extent realistically possible, any distinct and discrete non-legal or commercial subject matter into a separate document, or a discrete part of a document for ease of identification, to avoid intermixing legal advice with non-legal and commercial advice; and
- stating, in clear terms, the capacity in which in-house counsel is creating any communication – such as by maintaining and using distinct e-mail signatures to reflect responses as general counsel or responses as company secretary;
- marking any substantive legal advice with the label “subject to legal professional privilege” and otherwise avoiding characterising communications as being provided as “a matter of courtesy” or as an “update”;
- controlling circulation of legal advice to appropriate personnel within the company; and
- ensuring the substance of legal advice is not inadvertently disclosed in public announcements or open correspondence, which may result in privilege being lost or waived.