June 2008

Employment Issues For In House Counsel

In regards to the obligations and issues facing in-house counsel regarding employment matters, there is little distinction between advising on employment matters, and advising on matters of law generally.

If a matter is to come before the Industrial Tribunals, it should be assumed as a matter of fact, although not law, that the rules of evidence will be applied. For that reason, it is useful to re-visit some of the issues as to privilege of documents and other communications, and how best to structure such conduct so as to retain confidentiality.

Where in-house lawyers are either the author or recipient of communications or documents the subject of a claim for privilege it will not be enough for a party to state that the claim is based on legal professional privilege. A party is also like to need to adduce evidence explaining that:

The in-house lawyer involved is a legal practitioner with a current practising certificate; The independence of the in-house lawyer involved in the claim - for example that the duties and interests of the in-house lawyer to their employer do not influence the professional legal advice given; Employers should include in employment contracts a clause acknowledging the independence of the in-house lawyer's role and implement protocols aiming to achieve this independence. Whilst prima facie such clauses and protocols could be relied on to demonstrate the independence of the in-house lawyer's position, ultimately a Court is likely to look at the facts of each circumstance as to whether or not the lawyer was providing independent advice; The nature of the documents or communications describing the circumstances in which they were brought into existence; and The dominant (or prevailing or most influential) purpose for which the communication was made or the document came into existence was a privileged purpose. This will include an enquiry as to the state of mind of the person who created the document or communication and the person who requested the document or communication and the prominence of any other purposes for which the document or communication came into existence.

Legal Professional Privilege

The Evidence Act 1995 (NSW) (the Act) provides the statutory regulation of legal professional privilege in NSW. Paragraph 117(1)(a) (Definitions) provides, that a 'client' includes "an employer (not being a lawyer) of a lawyer." This provides for the growing number of in house lawyers in NSW, that is lawyers working in the wider business community", rather than in legal services firms.

In addition to this, section 118(a) of the Act provides that "evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: a confidential communication made between the client and a lawyer" or (c) "the contents of a confidential document (whether delivered or not) prepared by the client or a lawyer," for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client."

Finally, section 119 provides that evidence "is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in the disclosure of... confidential communication... or... contents of a confidential document... for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding... in which the client is or may be, or was or might have been, a party.

Duality

An increasing trend is noted, of appointing the general counsel of public companies to dual roles. In a number of cases this is the role of company secretary, however it could also extend to a senior management position, reporting directly to the CEO and is thus an executive officer of the company under the Corporations Act 2001 (Cth). It includes general counsel being appointed a director of the company.

Issues of privilege of employment - counsel as provider of privileged advice

Where the above situation arises, with a general counsel performing dual roles, it is questionable as to the independence of that general counsel's advice and whether it will fulfill the requirements for legal professional privilege.

Prior to 2000, confidential communication (oral or written) between an in-house solicitor and the employer would be protected by legal professional privilege, if they fulfilled the following requirements.

They are made for the dominant purpose of giving or receiving legal advice or of conducting actual or anticipated litigation. (as was found in Esso Australia Resources Ltd v Commissioner of Taxation). There is a professional relationship of lawyer and client between the in house solicitor and employer so as to render the advice independent notwithstanding the employment relationship. The solicitor is qualified to practice law and subject to the duty to observe professional standards and liability to professional discipline. (as was found in Waterford v Commonwealth).

Since 2000, communications have not been protected by legal professional privilege simply because they are made by an in-house solicitor. For the privilege to apply, the solicitor must be acting in a professional, or legal, capacity and the advice must be of a legal nature. The in-house solicitor should hold a current practicing certificate or be otherwise entitled to practice in the relevant jurisdiction. This was decided in Waterford v Commonwealth and Australian Hospital Care Pty Ltd v Duggan.

The independence obligations require that the in-house solicitor, must not be influenced in their advice by their loyalties or duties to, or the interest of, their employer. The element of independence is relevant in determining whether a document prepared by a general counsel is privileged or not.

There are two reasons why such a document may be susceptible to challenge. The first being that the document was not prepared by general counsel in the capacity as lawyer, but in a management capacity. The second is even if the document was prepared by general counsel in the capacity as lawyer, general counsel is not "independent" of the employer.

Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners discussed the "capacity" issue, and whether an in house lawyer may work for their employer in a different capacity. However, "their communications in that capacity would not be the subject of legal professional privilege. So the legal adviser must be scrupulous to make the distinction."

Any party who challenges a claim for legal professional privilege, for a document prepared by general counsel, is likely to argue that the document was prepared by general counsel not in their capacity as legal adviser to their company but in their capacity as an officer of the company providing a management report for the information of management.

Purely from the perspective of legal professional privilege, titles such as "general counsel," "principle legal officer" and "chief legal officer" are preferable to a title such as "manager, legal services" because the former emphasise the "legal" role whereas the latter emphasises the "management" role.

There are numerous cases in which claims for legal professional privilege have been rejected by courts where they involve a person with dual roles within an organization. Communications made by a person with dual roles may be found to fall outside the protection of legal professional privilege because they are found to have been made for "mixed purposes (that is, a legal purpose and one or more non-legal purposes) and fail the dominant purpose test or because the person was acting in their "non-legal" capacity when the communication was made. This occurred in Belle Rosa Holdings Pty Ltd v Hancock Prospecting Pty Ltd and Standard Chartered Bank of Australia Ltd v Antico.

When considering the "independence issue" a party challenging the claim for legal professional privilege will most likely inquire about such matters as general counsel's place in the organization hierarch of the company, their remuneration and whether they own shares in the company. There is a risk that the dual roles held by general counsel will be used by opponents in litigation to support an argument that general counsel is not independent of the company because they are part of the senior management team and are therefore responsible for managing the company's business.

Reporting lines are relevant to the independence issue. It has been suggested that in-house counsel should report to and be solely responsible to the board of directors or, if this is not feasible, to the managing director and that direct reporting and responsibility to other non-legal management should be avoided in order to minimize the perception of loss of independence.

The independence issue was discussed at length in Australian Hospital Care Pty Ltd v Duggan. In that case, two defendants challenged a claim for privilege made in the plaintiff's affidavit, in respect of four internal memoranda prepared by the general counsel/company secretary of the plaintiff's parent company on the basis that he was not sufficiently independent of the plaintiff. The Court referred to previous cases which discussed the independence issue and said that although it is likely that the requirement of independence is an aspect of the requirement that the in-house solicitor must be acting in their capacity as a lawyer, it was nevertheless convenient to consider the requirement of independence "as a separate element."

The Court held that there was sufficient doubt about whether the general counsel/company secretary was acting independently at the relevant time. This was because there was evidence indicating that the general counsel/company secretary was directly involved in commercial negotiations relating to the disputed transaction, and the plaintiff's failure to respond to the defendants' requests for information regarding the independence issue. His Honour therefore concluded that it was appropriate to order that the four internal memoranda be produced to a judge so that the judge could inspect them and determine whether they were privileged.

The outcome in Australian Hospital Care is a timely reminder that the issues of capacity and independence are not mere theoretical considerations, but legal requirements which must be satisfied in practice in order that documents which are prepared by general counsel are protected by legal professional privilege.

Commonwealth of Australia & Anor v Russell Vance

In November 2005, whether a practising certificate is required, was explored by Commonwealth of Australia & Anor v Russell Vance. In this case the in-house counsel was engaged as a legal officer with the Australian Defence Force in the position of Departmental Legal Officer (DLO).

The plaintiff sought damages from unlawful termination from the Defence Force and applied for an order requiring the defendants to provide a number of documents for inspection. The application was proposed on the ground that the documents were the subject of a claim of legal professional privilege.

The primary issue in the application was whether communications from DLOs which contained or purported to contain or relate to the provision of legal advice could be the subject of a claim for legal professional privilege. This involved an examination of the position and function of DLOs and in particular, whether they were lawyers.

The application for privilege was considered at common law and not under the provisions of the Evidence Act 1995 (ACT).

His Honour Crispin J, examined Waterford v Commonwealth, which he believed to be most relevant to the proceedings. Waterford stated that the in-house solicitor should hold a current practicing certificate or be otherwise entitled to practice in the relevant jurisdiction. In Waterford, the person who provided the legal advice were 'lawyers,' that is, not only were they qualified to practise law in terms of academic prerequisites, but each held a relevant practising certificate.

The evidence then stated that while all permanent military and civilian DLOs were legally qualified and admitted to practice, the military DLOs were not required to hold practising certificates. The plaintiff argued that the defendants' claim for privilege must fail, because the communications the subject of the claim for privilege were not from persons qualified to practise law and they did not hold relevant practising certificates.

Having considered both Waterford and Attorney General (NT) v Kearney (1985) 158 CLR 500 (both of which maintained the importance of practising certificates) his Honour held that it is 'difficult to see how these requirements could be regarded as having been satisfied by legal advisors who did not hold practising certificates or, perhaps, worked under the supervision of others with practising certificates, unless they enjoyed a statutory right to practice such as that provided by... the Judiciary Act,' (which the DLOs did not).

Consequently, his Honour concluded that legal professional privilege will arise to "protect the confidentiality of communications with a legal advisor only when he or she has an actual right to practice and not merely when he or she has... joined the ADF, even if permitted to carry out ADF legal duties without holding a practicing certificate."

Consequently his Honour was satisfied that any presumption in favour of privilege attaching to the documents in issue had been amply displaced.

The Appeal

The Commonwealth sought leave to appeal on the basis that the trial judge had erred by holding that a claim for legal professional privilege could only be brought where a document was authored by a person holding a current practising certificate.

The court found that from a consideration of those cases it was possible to conclude that his Honour the trial judge should have applied the provisions on client legal privilege of the Evidence Act 1995 (ACT).

The Court then held that where client privilege may be claimed over a document by an in house lawyer, the question is whether the document would meet the statutory test of being a confidential document, which includes being under an express or implied obligation not to disclose its contents, whether or not that obligation arises under law. This may be more easily answered where the lawyer holds a practising certificate. However, holding a practising certificate is not the definitive test, as long as the statutory requirements are met.

The proceedings were accordingly remitted to the trial judge to consider the question of privilege in accordance with the courts reasons.

Therefore in jurisdictions where the Evidence Act applies, then privilege will apply to communications sought to be adduced in evidence if those communications are to or from a lawyer regardless of whether that lawyer holds a current practising certificate so long as the person is acting in their capacity as a lawyer and for a privileged purpose.

Telstra Corporation Limited v Minister for Communications, Information Technology and the Arts

The topic of legal professional privilege and In House counsel, has since been revisited in 2007, by Telstra Corporation Limited v Minister for Communications, Information Technology and the Arts.

In this case, there was litigation brought by Telstra against the Minister. As part of a preliminary discovery process, the Minister sought access to certain Telstra documents the subject of its Notice to Produce. Telstra claimed the documents were privileged on the basis that either the author or recipient of the claimed documents was an internal legal adviser to Telstra and the documents and communications were made for the purpose of providing legal advice.

Findings

Justice Graham held that Telstra had not done enough to satisfy the Court that the documents were privileged and ordered full disclosure of the documents. He noted there was no evidence before the Court going to the independence of the internal legal advisers involved in the communications and it was not enough for Telstra to simply state that the documents were privileged.

His Honour however, did note that it has been accepted that in some circumstances legal advice may be accompanied by advice of another kind which can be separated from it. In such circumstances, only the legal advice will be privileged. However, if the legal advice contains extraneous matter which cannot be separated from it, the legal advice will not lose its privilege for that reason.

Telstra Corp is another example in a string of recent cases in which the Courts have emphasised the importance of adducing sufficient evidence to properly make out claims for legal professional privilege, particularly where in-house counsel are involved, including Sydney Airports Corporation Ltd v Singapore Airlines Ltd & Qantas Airways Ltd and Seven Network Ltd v News Ltd.

Conclusion

The tests are:

Independence of the advice; Separation of the advice from other corporate functions; Capacity of the advice (whether or not made by a lawyer and whilst performing as a lawyer - usually indicated by possession of a practicing certificate); Dominant purpose of the advice - as legal adviser, or corporate manager?

This article is intended to be general information only. It is not presented as legal advice. Since each legal circumstance is different, no action should be taken unless specific prior advice is sought on that action.

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