Did you know... that legal advice by in-house counsel or third parties can be privileged?

By Toby Cogley.

Key Points:
Legal professional privilege can apply to internal documents prepared by in-house counsel containing not only legal advice in the traditional sense but also "advice as to what should be done in the relevant legal context". A company will not to be able to claim privilege over documents provided to it by a non-lawyer third party which incorporates legal advice obtained from other lawyers unless it can demonstrate that privilege has not been waived by that third party.

In the recent case of Rio Tinto Limited v Commissioner of Taxation [2006] FCA 1200 the Federal Court determined whether the applicant could claim privilege over documents containing communications between in-house counsel and the chairman of the applicant's board or over documents containing legal advice that was provided by solicitors to an investment bank and subsequently given to the applicant by that investment bank.

In-house counsel documents

The documents in question were an email and attached draft board papers and an outline of matters to be attended to and resolved at a meeting of the board prepared by in-house counsel. They were described as containing "pro-forma matters to be attended to by the board in order to pass certain resolutions, to give effect to approval by board to enter into particular legal transactions" and a list of "a number of matters that has to be attended by board, for the purposes of giving effect to, or making effective, particular resolutions."

The court accepted that the email and attached draft board papers, while not constituting a formal opinion of the law, did constitute legal advice in the broader sense as they provided "advice as to what should prudently and sensibly be done in the relevant legal context". Although accepting that these documents had a "corporate governance" purpose the court was satisfied that this was not the dominant purpose of the communications contained within the documents; rather the dominant purpose was for the provision of legal advice.

This case serves to illustrate that many types of internal communications prepared by in-house counsel may attract legal professional privilege. It appears likely that communications contained in many documents prepared by in-house counsel will be able to meet the broad threshold of "advice to what should prudently and sensibly be done in the relevant legal context". For example preparation by in-house counsel of drafts of "contractual correspondence" under the terms of a construction contract would appear to attract legal professional privilege.

Documents provided by a third party containing legal advice provided by its own lawyers

In this case documents provided to the applicant by an investment bank, Bankers Trust, incorporated legal advice which had been given to Bankers Trust by its lawyers. No suggestion of common interest privilege was made by the applicant.

The privilege was not the applicant’s, but was Bankers Trust's to maintain. The court considered that a party to whom privileged documents are provided in circumstances that are consistent with the maintenance of privilege may have a general or limited right to assert that privilege on behalf of that person.

In circumstances where a document is privileged and is provided to a third party, the party claiming privilege bears the burden of proving that provision of that document to the third party did not waive privilege. That burden will be discharged by showing that the circumstances of the provision of document to the third party were not inconsistent with maintenance of the confidentiality of that document. In this instance the applicant only asserted that Bankers Trust had made a request to keep the documents privileged some time after the documents had been provided to the applicant, the court therefore considered the burden was not discharged.

Thus, in appropriate circumstances, legal advice may be provided to external parties without privilege in that advice being waived. The privilege will be maintained by requiring that the receiving party maintain the confidentiality of the information, ensuring that it recognises and respects the privileged nature of the information. It is recommend that a party wishing to provide privileged information to a third party require, prior to turning the information over, execution of a formal confidentiality agreement by that third party.

For further information, please contact Toby Cogley.