External Messaging and Risk of Waiver of Privilege – Litigation, Mediation & Arbitration

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When a report is commissioned by a company’s internal or external lawyers – to enable the entity to receive legal advice – frameworks should be established to clarify that the primary purpose of commissioning the report is one that supports a request for legal professional secrecy.

This means that its primary objective, and the objective of any entity dealing with such a report, must be to ensure that the report is clearly ordered to assist the client in receiving confidential legal advice from their outside or inside attorneys.

A recent case that illustrates this point well is TerraCom versus ASIC [2022] FCA 208. PwC was commissioned by TerraCom’s outside counsel to prepare a report (The report) to allow outside attorneys to provide legal advice to TerraCom.

ASIC requested access to the report, arguing that it was not a privileged document. TerraCom requested a statement that the report attracted legal privilege, thereby preventing the ASIC from being inspected.

Establishing the existence of solicitor-client privilege

The High Court of Esso Australia Resources Ltd v Commissioner for Taxation (1999) 201 CLR 49 determined that a communication or document will only be subject to legal privilege if it was created for the “primary purpose” of conferring or receiving legal advice or services.

Applying this test, Stewart J in TerraCom versus ASICconsidered whether PwC created the report for the “primary purpose” of allowing outside attorneys to provide legal advice. His Honor’s conclusion was that privilege attached to the report, as there was no evidence in the report, the engagement letters or elsewhere to suggest otherwise, and in fact the engagement letter and the text of the report supported that conclusion. .

Declarations and waiver of privilege – a fine line

Often there may be a desire to “say something” about a company’s conduct or state of affairs to assuage what may be a market concern or public relations issue facing the entity. Often the desire may be to indicate that the entity is on a solid legal footing for the position it has taken.

This can happen in ASX market announcements, investor presentations, and in statements made by corporate relations teams and advisors. This is a practice fraught with danger – as it can lead to a loss of legal privilege, and care should be taken when drafting such statements and scripts.

Since the case of Ampolex Ltd v Perpetual Trustee Co (Canberra) (1996) 40 NSWLR 12 (Ampolex), courts have drawn a distinction between references that disclose the “substance, gist, or conclusion” of the privileged content and those that do not. These distinctions can be very fine.

In TerraCom versus ASIC, TerraCom had said — in an open letter to shareholders and an ASX announcement — that an independent forensic investigation had found no evidence of wrongdoing by its CEO and CFO. This was seen as a clear disclosure of the purported conclusion of a confidential investigative report.

Using the substance or effect of a legal opinion for medico-legal or commercial purposes is inconsistent with maintaining the confidentiality that attracts solicitor-client privilege, e.g. see Bennett v CEO of Australian Customer Service (2004) 140 FCR 101.

A waiver of solicitor-client privilege may be present where there is an inconsistency between maintaining confidentiality with respect to a document and other conduct.

In concluding that the privilege had been waived, Stewart J determined that there was an inconsistency because TerraCom sought both to maintain the confidential nature of the report and to benefit its own business by making the information it contained public.

His Honor found that TerraCom’s statements were consciously and deliberately made in an effort to deflect criticism and put shareholders at ease. TerraCom therefore could not take steps to gain forensic and commercial advantage by releasing the contents of the report into the public sphere while simultaneously claiming privilege and preventing ASIC from testing its contents. This was unfair to ASIC, as it could not take action to investigate or establish whether TerraCom’s statements were false or misleading.

Mere sentences referring to the existence of legal advice will not suffice to lift the privilege – but at the same time, entities must ensure that they do not disclose the substance or gist of the advice.

In ASIC c. Australian and New Zealand Banking Group (#2) [2020] FCA 1013, Chief Justice Allsop mentioned Ampolex and said there will be a waiver if a party says “I have legal advice. Its substance is…” but there will be no waiver if a party says what they think and the legal advice may be considered relevant. Chief Justice Allsop noted that “the substance or gist or conclusion of the opinion must be stated for the privilege to be lost”.

If an entity decides to provide material to a regulator for a limited purpose, such as document inspection, it should always seek express consent prior to any disclosure, guided by a primary objective of confidentiality of any information. For example, the Federal Court of Cantor v Audi Australia Pty Ltd
[2016] FCA 1391 determined that the disclosure of privileged information to a foreign regulator, in the circumstances of this case, did not constitute a waiver of privilege, as it was not inconsistent with the preservation of solicitor-client privilege.1

Example of these principles in practice

In Ampolextwo statements were considered:

  • “There is a dispute over the conversion ratio. Ampolex maintains that the correct ratio is 1:1 and has a legal opinion supporting this position”; and

  • “Ampolex’s View of the Likely Outcome of the Convertible Note Litigation.”

    The views set out below take into account the pleadings, the evidence available to Ampolex and the advice of lawyers and notaries engaged by Ampolex for the purposes of the litigation, as of May 1, 1996. Ampolex considers that:

    1. it is likely that Ampolex will succeed in…”

The first statement was a waiver, while the second was not. The second statement simply expressed the opinion of the Commission and the matters to which the Commission referred in forming that opinion. Rolfe J explained:

“…the words are a statement of Ampolex’s view of the likely outcome of the litigation and they are not a statement of the substance or effect of the advice…I do not consider the statement of Ampolex’s view as constituting a disclosure of the legal opinion. Ampolex may have misinterpreted or misunderstood the opinion in forming its opinion. In any event, the statement does not exceed the opinion of Ampolex and it does not purport to state the advice or its substance or effect and, therefore, it does not amount to disclosure of the advice.”

In Switchcorp vs. Multimedia [2005] VSC 425, the Court held that there is a waiver where a statement involves a “clear and deliberate disclosure of the gist or conclusion of a legal opinion”, as this results in an inconsistency between the relevant statement and the preservation of the confidentiality attached to this legal advice.

An ancillary issue to this is that when the privilege is lifted on a notice, there is a significant risk that the privilege will be lifted on all things relating to the notice as well – for example the memorandum to counsel and all that that he understood – which may be necessary to understand the advice.

Key points to remember

Companies and other entities will often want to refer to confidential documents when asserting the strength of their position in negotiations or public discussions, but this may be subject to a waiver of privilege. The distinction between references to the substance or conclusion of a privileged document and opinions or assertions is very fine, so drafting a statement that allows a client to convey a message to other parties but does not waive the solicitor-client privilege will be an ongoing challenge.

TerraCom versus ASIC serves as a reminder to lawyers and their clients to be careful when drafting pleadings, press releases and market announcements to ensure that legal privilege is not lost.

This also highlights the importance of properly documenting the engagement for any report or investigation commissioned to help the client receive legal advice.

Maintaining legal privilege is an area that can be a minefield, resulting in the loss of privilege if communications are mishandled.

Footnote

1ASIC also has a regime that will allow a party to provide it with documents – on a confidential, limited-use basis – that are declared privileged. ASIC covenants that it does not represent that any privilege has been waived by the disclosure of these materials, beyond disclosure to ASIC. How ASIC handles LPP claims can be found here and the standard agreement offered by ASIC is here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.





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