Legal professional privilege is a company’s valuable asset and care should always be taken to safeguard it, writes Professor Pamela Hanrahan.
Boards whose companies are involved in regulatory investigations or litigation inevitably end up confronting questions about legal professional privilege (LPP). The ongoing dispute between listed company TerraCom and the Australian Securities and Investments Commission (ASIC) is an important reminder why a company’s LPP matters, and how to protect it.
LPP is a privilege that belongs to the client, not the lawyer.
Where it exists, it protects a client from having to reveal confidential communications with their lawyer or relevant third-party experts. In 2015, the Australian Law Reform Commission (ALRC) described LPP as a “common law immunity [that] allows a person to resist demands to disclose information or produce documents which would reveal communications between a client and their lawyer, where those communications were made for the dominant purpose of giving or obtaining legal advice or services”. Quoting the High Court, the ALRC noted it “exists to serve the public interest in the administration of justice by encouraging full and frank disclosure by clients to their lawyers”.
Its raison d’être “is the furtherance of the administration of justice through the fostering of trust and candour in the relationship between lawyer and client”.
LPP comes in two forms — legal advice privilege and litigation privilege. The former covers communications between a lawyer in their professional capacity and the client if the communications are confidential and for the dominant purpose of seeking or giving legal advice. The latter covers confidential communications made after litigation is commenced or contemplated, between a lawyer and their client or third parties for the dominant purpose of the litigation, including the seeking/giving of advice in relation to it and obtaining information for the litigation purposes.
LPP survives the end of litigation, the end of the solicitor-client relationship and even the death or dissolution of the privilege holder. However, LPP is a fragile thing. It is waived — that is, lost — if the holder acts in a way inconsistent with the privileged communication or document remaining confidential.
This is where the dispute between ASIC and TerraCom arises.
Keeping it confidential
The facts of the dispute are set out in TerraCom Ltd v ASIC [2022] FCA 208, now on appeal. It concerns an ongoing ASIC investigation into suspected contraventions of the Corporations Act 2001 (Cth) by TerraCom and others relating to the testing, certification and sale of coal by the company over several years. The investigation was prompted by a report to ASIC made by the company’s auditors in March 2020. During its investigation, ASIC executed a search warrant at TerraCom’s Blair Athol mine site offices in Queensland, and thereby came into possession of a document known as the “Project Rex Report”. The dispute is over whether LPP attaches to the Project Rex Report, meaning that ASIC cannot read or use it.
The Project Rex Report was created for TerraCom by PwC Consulting in December 2019. It was commissioned by the company’s lawyers (Ashurst) in connection with a case between TerraCom and a former employee, who had been dismissed and had then alleged that the company and its officers had been involved in the falsification of the coal certificates.
Justice Angus Stewart concluded that LPP attached to the Project Rex Report when it was created. The dominant, if not the sole, purpose of the preparation of the Project Rex Report was for it to be used by the company’s solicitors to give legal advice to the company. But the real question was whether the company had since lost the LPP in the Project Rex Report by having voluntarily disclosed “‘the gist or conclusion of legal advice” it had received. The question arose out of disclosures made by TerraCom to the market in April 2020.
By early 2020, details of the former employee’s allegations against TerraCom had reached the newspapers. The allegations were linked in the media with reports that ALS — a global testing, inspection and certification business — was investigating the processes applied to the certification of coal samples by its staff.
In response, TerraCom issued a series of ASX announcements, media releases and shareholder communications. In April 2020, the company issued an announcement that gave an update on the employment proceedings and referred to events at ALS. The announcement said, “TerraCom took the allegations by [the former employee] that its CEO and CFO had been involved in a scheme relating to the fake analysis of coal samples seriously and an independent forensic investigation was conducted. That investigation found that the allegations against them were unfounded and neither had done anything wrong.”
Waiving privilege
ASIC argued that, by disclosing the purported conclusions of the Project Rex Report in this way, TerraCom had waived its LPP in that document. Justice Stewart agreed, concluding that “reliance by TerraCom on the finding in the PwC report of no wrongdoing by its CEO and CFO is inconsistent with the maintenance of the privilege that otherwise attaches to the report. TerraCom was taking advantage of that finding to deflect criticism of its officers, and itself, the effectiveness of the deflection being heightened by characterising the investigation that led to the report as an independent forensic investigation. That was to employ the findings of PwC for a forensic or commercial advantage — forensic in the sense of seeking to deflect the attention of any regulator in an investigation and commercial in the sense of maintaining the company’s commercial good standing and its share price. It cannot at the same time claim that the report is privileged. That is to seek to approbate and to reprobate”.
Justice Stewart went on to say that it “would operate a tangible unfairness if TerraCom could, in effect, hide behind its statements as to the conclusion of the report whilst at the same time maintaining privilege over the report and thereby keep it beyond being tested by ASIC”.
The legal rule is that a client who discloses the gist or conclusion of legal advice waives LPP in respect of the whole of the advice, including the reasons for the conclusion. Some fine distinctions are involved. While a company may waive its LPP if it says, “I have legal advice — its substance is this”, it may be able to say what it believes (for example, that it will be successful in litigation) where legal advice is relevant to the belief. But great care is required.
The appeal in the TerraCom LPP dispute is due to be heard later this month. Whatever the outcome, events at TerraCom are a timely reminder that any disclosures about legal advice must be tightly managed to protect the company’s precious LPP.
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