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In-House Counsel, the Requirement of Independence and Legal Professional Privilege in Australia

In Short

The Situation: A line of authority, typically associated with Rich v Harrington [2007] FCA 1987, (2007) 245 ALR 106 ("Rich"), has held that for legal professional privilege to be claimed in relation to advice from an in-house lawyer, that lawyer must be independent so that personal loyalties, duties or interests do not influence the advice. The requirement of independence was separate and in addition to the requirement that the communication be for the dominant purpose of legal advice. This line of authority created concerns around the extent to which privilege attached to the work product of in-house lawyers who also hold nonlegal or commercial roles (for example, as company secretary) and the need to prove the "independence" of such lawyers in the event of a challenge to privilege claims. 

The Decision: In Martin v Norton Rose Fulbright Australia (No 2) [2019] FCA 96 ("Martin"), the Federal Court of Australia (Charlesworth J) rejected the approach in Rich that there is a separate requirement to prove independence in the case of privilege claims involving in-house lawyers. Rather, independence is a criterion in the Court's consideration of whether a person is acting in his or her capacity as a lawyer or in some other capacity which, in turn, may impact the determination of the dominant purpose of the communication. (Leave was granted for the decision in Martin to be appealed, but the notice of appeal was not filed on time. The Full Federal Court recently declined to grant an extension of time, such that the decision at first instance stands).

Looking Ahead: The operation of independence in relation to privilege is uncertain due to different approaches by courts at first instance. Independence is still a requirement for an in-house lawyer, but its role in relation to privilege is direct and essential, according to Rich, while in Martin it operates indirectly and as one factor in the analysis of what capacity the lawyer is acting, which in turn impacts the purpose for which the communication is made. While in-house lawyers can take some comfort from the decision in Martin, it remains prudent for in-house lawyers to take steps which, in the event of a challenge to privilege claims, would demonstrate or allow a court to infer that they are sufficiently independent (such as maintaining a practising certificate and keeping the work product created in a commercial capacity separate from legal work product).

Background

Legal professional privilege protects from disclosure communications between a client and his or her lawyer, made for the dominant purpose of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings. 

In Martin, Charlesworth J dismissed an interlocutory application for the production of documents against the law firm Norton Rose Fulbright Australia ("NRFA") filed by a former partner, Mr Martin. One of the arguments raised by Mr Martin was that the NRFA partner, Mr Cross, who was acting for NRFA in the litigation, lacked the necessary independence for his advice to the other partners of NRFA to be subject to legal professional privilege. 

Mr Martin argued that Mr Cross was not capable of exercising the requisite level of professional detachment from the firm and from the factual subject matter of the claims so as to be independent. The matters said to have affected the independence of Mr Cross included:

  • He was personally involved in events within NRFA which culminated in Mr Martin's dismissal and so was a potential witness in the FWC proceeding. 
  • He was a partner of NRFA and a party to the proceeding.
  • Mr Cross was the person against whom Mr Martin made serious allegations of misconduct in the proceeding.
  • Mr Cross was acting "as an agent, simpliciter, representing the Respondents as 'solicitor-litigants-in-person' and as NRFA's lawyer in connection with the proceedings".

Decision

Justice Charlesworth referred to the approach taken by Branson J in Rich including that her Honour discerned agreement in the judgments of the members of the High Court of Australia in Waterford v Commonwealth (1987) 163 CLR 54 "as to the need in every case for the legal adviser to be 'independent'". The rationale for the requirement was stated in the following passage of the judgment of Brennan J:

The purpose of legal professional privilege is to facilitate the seeking and giving of legal advice and thereby to ensure that the law be applied and litigation be properly conducted … If the purpose of the privilege is to be fulfilled, the legal adviser must be competent and independent. Competent, in order that the legal advice be sound and the conduct of litigation be efficient; independent, in order that the personal loyalties, duties or interests of the adviser should not influence the legal advice which he gives or the fairness of his conduct of litigation on behalf of his client. If a legal adviser is incompetent to advise or to conduct litigation or if he is unable to be professionally detached in giving advice or in conducting litigation, there is an unacceptable risk that the purpose for which privilege is granted will be subverted.

Further Branson J perceived majority support for the principles stated by Brennan J. 

Justice Charlesworth opined that Branson J was incorrect to say that there was majority support for the view expressed by Brennan J in Waterford. Rather, there was majority support for the proposition that matters affecting a lawyer's professional detachment (which inherently include his or her loyalties to the client arising out of, for example, an employment relationship) will necessarily bear on the question of whether the lawyer is, with respect to the communication in issue, acting in his or her capacity as a lawyer as opposed to some other capacity. An objective factual inquiry as to the capacity in which the adviser is acting necessarily informs the dominant purpose of the communication in respect of which privilege is claimed. 

Justice Charlesworth accepted that in circumstances of a case such as the present, a heightened potential for abuse or misuse of the privilege arose because of the discrete legal relationships vis-à-vis Mr Cross and his fellow partners at NRFA. Her Honour stated:

[Cross] may have communications with the other partners in his capacity as a partner per se concerning the management and commercial affairs of the firm, which may include its commercial interests in the outcome of litigation. Communications made in that capacity do not attract privilege. 

However, Mr Cross had also been instructed to "act on behalf of the firm" in relation to legal proceedings in his professional capacity as a lawyer. Communications in performing this role could attract privilege.

In the current case, Charlesworth J inspected the documents in contention and found them all to be privileged. The privileged nature of several of the documents turned upon an analysis of the independence of Mr Cross and the rejection of the approach taken by Branson J in Rich. Her Honour stated that "if the reasoning in Rich were to be applied, I would conclude that the nature of the relationship between Mr Cross and NRFA lacked the requisite independence such as to sustain NRFA's privilege claims". Her Honour was fortified in her conclusions by the safeguards that the in-house counsel be admitted to practice and therefore subject to regulatory oversight and the ability of the Court to inspect documents for itself in determining contested privilege claims.

Four Key Takeaways

  1. In Rich, independence of the lawyer was a separate and essential requirement for privilege to exist. In Martin, independence is a criterion for considering whether a person is acting in his or her capacity as a lawyer, or in some other capacity, which in turn may impact the determination of the dominant purpose of the communication. Independence is still a requirement for an in-house lawyer, but its role in relation to privilege is indirect as one factor in the analysis of the capacity in which the lawyer is acting which, in turn, impacts the purpose for which the communication is made. 
  2. The Martin approach may therefore be more advantageous to in-house counsel and the clients they serve than the stricter Rich approach, although there may only be limited circumstances in which the difference may be significant. 
  3. The operation of independence in relation to privilege is uncertain due to different approaches by courts at first instance. 
  4. While in-house lawyers can take some comfort from the decision in Martin, it remains prudent for in-house lawyers to take steps which, in the event of a challenge to privilege claims, would demonstrate or allow a court to infer that they are sufficiently independent (such as maintaining a practising certificate and keeping work product created in a commercial capacity separate from legal work product).

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