Summary
The Australian Law Reform Commission (ALRC) has today issued a detailed Discussion Paper on the operation of legal professional privilege in investigations by federal agencies. This has been an area of significant uncertainty for some time. The full paper can be found on the AustLII website.
The ALRC’s proposals seek to strike a balance between the preservation of an important common law right to obtain legal advice confidentially and the public interest of federal agencies investigating conduct in their area of oversight. Importantly, the proposals suggest that the uncertainty in this area, especially concerning Australian Securities and Investments Commission (ASIC) investigations, be resolved. Given recent focus by the courts on in-house counsel and privilege, it is not surprising that the ALRC has also made some observations in this regard. Some interesting safeguards are also proposed.
In summary, the ALRC proposes:
- an overarching law to clarify the application of privilege to the coercive information-gathering powers of federal agencies
- the default position be that privilege can be claimed by companies and individuals
- in special circumstances, such as royal commissions, the Australian Parliament may legislate to abrogate privilege ‘wholesale’
- there should be a uniform process for making and determining privilege claims in federal investigations.
The ALRC seeks submissions in response to the Discussion Paper by 1 November 2007. The ALRC is required to report to the Attorney-General by 3 December 2007.
Some of the key observations and recommendations in the Discussion Paper are summarised here.
The nature of, and rationale for, the privilege
The ALRC’s view is that the doctrine of client legal privilege is a fundamental principle of the common law providing an essential protection to clients, enabling them to communicate fully and frankly with their lawyers. The protection of the confidentiality of such communications facilitates compliance with the law (para 2.99).
The rationale for client legal privilege applies equally to corporations as to natural persons (para 3.99).
ASIC and privilege
The Discussion Paper refers to the uncertainty surrounding whether ASIC can require the production of privileged documents pursuant to its information-gathering powers (see paras 5.50-5.59). The Discussion Paper also notes that, given that uncertainty, there may be an issue about whether it is appropriate for ASIC to state unequivocally in its covering letter to notices requiring the production of documents that client legal privilege is not available (para 8.34).
Need for clarity in relation to privilege and federal bodies
The ALRC is of the view that there is a need for legislative clarification of the application of privilege to the coercive information-gathering powers of federal bodies, particularly ASIC (para 5.71). The ALRC notes that:
‘Whether or not persons produce privileged information in response to the exercise of a particular coercive power should not be dependent on whether those persons receive legal advice; from whom the advice is sought; or which federal officer within a federal body is exercising a power. It is unsatisfactory that the uncertainty surrounding ASIC’s position on privilege has led to inconsistent legal advice being given to clients about their obligations to produce privileged information to ASIC.’ (para 5.74)
The ALRC’s preliminary view is that a statute should be enacted, of general application, to clarify the application of privilege to the coercive information-gathering powers of federal bodies, as well as other aspects of the law and procedure governing client legal privilege claims in federal investigations (para 5.83). The ALRC recommends that such a statute should provide a default provision that, in the absence of a clear, express statement to the contrary, client legal privilege applies to the coercive information-gathering powers of federal bodies (para 5.87). Further, the ALRC recommends that if a federal statute seeks to abrogate or modify client legal privilege, it will have to do so by express reference to particular sections or divisions within it (para 5.92).
Should privilege be abrogated in relation to federal bodies?
The ALRC’s view is that, in the course of ordinary enforcement and investigatory activities, the importance of the privilege in encouraging compliance overrides the benefits of abrogation to the regulator. As such, any wholesale abrogation of the privilege in relation to federal investigations is not supported by the ALRC (para 6.122).
The ALRC’s preliminary view is that privilege should only be abrogated in circumstances in which there is a ‘higher competing public interest’, which must be something considerably greater than the ordinary investigatory interests of a federal agency. Three examples where abrogation may be warranted are royal commissions, other major investigations (dealing with issues of major public importance with a significant impact on the community, eg investigations into organised crime or official corruption), and oversight of public sector agencies (paras 6.131-6.132).
Safeguards where privilege is abrogated
The ALRC recommends that any abrogation or modification of privilege should be limited to advice on the subject matter of an investigation, as opposed to advice on, or representation in, the investigation itself (para 7.19).
The ALRC also recommends that, where privilege is abrogated in relation to a federal coercive information-gathering power, a federal body that seeks to rely on the privileged information as evidence in any court proceedings must apply to the court for permission to do so, and the court will have a general discretion whether to allow use of the information as evidence (paras 7.128, 7.134).
The ALRC further recommends that, where privilege is abrogated in relation to a federal investigation, the default provision should be that such abrogation does not affect the holder of the privilege from maintaining the privilege against a third party (para 7.172).
Tax advice documents
The ALRC recommends that persons required to disclose information under a coercive information-gathering power of a federal body should not be required to disclose ‘tax advice documents’ (defined as confidential documents created by an independent professional accounting adviser for the dominant purpose of providing a person with advice about the operation and effect of tax laws) (para 6.232). An ‘independent professional accounting adviser’ must be a registered ‘tax agent’ for the purposes of the Income Tax Assessment Act 1936 (Cth).
Practice and procedure
The ALRC recommends that there should be a mechanism for the making of privilege claims in federal investigations. The ALRC suggests that, when requested by a federal body, claimants should be obliged to specify the grounds on which privilege is claimed, and should also: describe the documents so that they can be identified; identify any communications prepared by or involving an in-house counsel; provide sufficient details of the independence of the in-house counsel; identify ‘tax advice documents’ (paras 8.97-8.98).
The ALRC also recommends that a federal body should be able to require the person making a claim of privilege to verify his or her claim on oath or affirmation, and where there is a lawyer involved in the investigation, request the lawyer to certify that in his or her view there are reasonable grounds for making the claim (paras 8.101-8.102).
Where a person fails to provide adequate particulars, or the lawyer fails to certify a claim on request, the ALRC recommends that the relevant federal body should be able to apply to a court for a declaration that the privilege is not maintainable unless such particulars, or certification, is provided forthwith or within a designated time (paras 8.117, 8.123).
Having regard to concerns expressed (particularly by regulators) as to the delays occasioned by attempting to resolve privilege claims, the ALRC says that the Federal Court and Supreme Courts should have appropriate arrangements in place to cater for hearing applications on short notice concerning disputes about client legal privilege claims in federal investigations (para 8.202). The ALRC also recommends that there should be a system in place for resolving disputes about privilege with the following attributes:
- a claimant should have an opportunity to agree to an independent review mechanism
- where the claimant does not agree to have the claim independently assessed, the onus should be on the claimant to commence (within 14 days) proceedings to establish the claim
- if the claimant fails to commence proceedings within the required time, the federal body will be entitled to regard the claims as having been waived (para 8.208).
The ALRC also proposes some amendments to the guidelines applicable to the execution of search warrants, particularly as regards electronic material (see paras 8.232-8.280).
More information
For information regarding possible implications for your business, contact a member of the Litigation & Dispute Resolution team.