ALRC reinforces privilege in Final Report

The Final Report is, in many respects, consistent with the ALRC’s Discussion Paper issued last September. One of the interesting changes is that the ALRC no longer suggests that in-house counsel need to provide details of their independence when claiming privilege over their communications.

The ALRC also identified that ASIC has very recently changed its approach, and conceded that it no longer requires the production of privileged communications in the course of its investigations.

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 where there is a ‘higher competing public interest’, the Australian Parliament may legislate to abrogate privilege ‘wholesale’
• ‘tax advice’ should not be required to be produced
• there should be a uniform process for making and determining privilege claims in federal investigations.

The Attorney-General has acknowledged the importance of these issues and is considering the government’s response. Interestingly, the Attorney-General has indicated he will receive further submissions on these issues.

Some of the key observations and recommendations in the Final Report are summarised.

The nature of, and rationale for, the privilege

The ALRC has confirmed its view 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 2.118).

The rationale for client legal privilege applies equally to corporations and to natural persons (para 3.106).

Client legal privilege legislation

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 5.76). 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 5.79)

The key recommendation of the Final Report is that a single federal statute be enacted to cover various aspects of the law and procedure governing client legal privilege claims in federal investigations (recommendation 5-1).

The Final Report recommends that federal legislation should provide that, in the absence of any clear and express statutory statement to the contrary, client legal privilege applies to the coercive information-gathering powers of federal bodies (para 5.110; recommendation 5-2). It was suggested that this legislation might be a general statute on federal regulation or federal investigations (para 5.107).

It was emphasised that any abrogation be express rather than occur by way of implication (para 5.112). Any legislative scheme that seeks to abrogate or modify client legal privilege should do so by express reference to those parts of that scheme that confer coercive information-gathering powers which abrogate or modify the privilege (para. 5.121; recommendation 5-3).

ASIC and privilege

The Final Report repeats the comments contained in the Discussion Paper (DP 73) issued as part of the ALRC’s inquiry regarding the uncertainty surrounding whether ASIC can require the production of privileged documents pursuant to its information-gathering powers (see paras 5.50-5.61). The Final Report also notes that, given that uncertainty, there may be a current issue about whether it is appropriate for ASIC to state unequivocally (as it has done) in its covering letter to notices requiring the production of documents that client legal privilege is not available (para 8.45). The Final Report, however, specifically notes that just before the completion of the report, the ALRC learned that, from 3 December 2007, ASIC’s policy:

‘is that people who are subject to its compulsory powers will be explicitly notified that they are not required to provide documents or information that are subject to a valid claim for client legal privilege. People who make such a claim are requested to provide specific details of the material of which the claim is made and the basis of the claim.’ (para 1.45; see also paras 7.179, 8.10, 8.21 and 8.45)

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 6.133).

The ALRC’s 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: major investigations; Royal Commissions; and oversight of public sector agencies (paras 6.143).

Abrogation should only occur in ‘exceptional circumstances’ (para 6.151) and, in the case of investigations, the ALRC has recommended that the following factors must be taken into account: whether the matter is of major public importance; whether the information can be obtained by alternative means; and the degree to which the investigation will be hampered if access to privileged information is not available (recommendation 6-1).

This reflects a change from the ALRC’s Discussion Paper and a narrowing of the suggested circumstances in which privilege might be abrogated (para 6.151).

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 7.26).

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 (para 7.150), and, importantly, (in the absence of a statutory statement about use) there should be a presumption against use of the information as evidence (paras 7.152). This presumption is subject to displacement by the court having regard to: limiting the effects of taking away important common law rights; whether the coercive power was a covert power; and the evidential value of the evidence having regard to whether it reveals serious misconduct (para 7.152).

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 7.201).

Tax advice documents

The ALRC recommends that persons required to disclose information under a coercive information-gathering power of the Commissioner of Taxation 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 that 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) (recommendation 6-6).

A distinction has been drawn between source and advice documents. Source documents are not to be protected in any circumstances (para 6.280). Further, the benefit of the privilege should only extend to advice itself and not to any other information that may form part of an accountant’s file or briefing documents (para 6.281).

Practice and procedure

The ALRC has recommended that when federal bodies exercise coercive information-gathering powers that notification be given about whether client legal privilege is available (para 8.41).

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 the facts relied upon as giving rise to the claim (recommendation 8-3). The particulars should: provide the date and nature of the documents so that they can be identified; and state the name and describe the position of the author (eg X, in-house counsel) (paras 8.146).

In its Final Report the ALRC does not suggest a requirement (as it did in DP 73) that in the case of in-house counsel, details of their independence must be provided (para 8.149).

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, or who has provided advice in relation to making a privilege claim, request the lawyer to certify that in his or her view there are reasonable grounds for making the claim (paras 8.153). Only lawyers can give such certification, including in the case of tax advice (para 8.160).

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 (recommendation 8-6). The ALRC also recommends that sanctions be deployed against lawyers who provide false certificates (para 9.120).

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 (recommendation 8-10). 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 (recommendation 8-11).

The ALRC also proposes some amendments to the guidelines applicable to the execution of search warrants, particularly as regards electronic material (recommendation 8-16).

Freehills partner Bob Baxt was a member of the ALRC’s Advisory Committee.

For clients with questions concerning the ALRC Final Report or these issues please contact

Name : Bob Baxt
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1628
Fax : +61 3 9288 1567
Email : bob.baxt@freehills.com

Name : Andrew Eastwood
Title : Partner
Office : Sydney
Phone : +61 2 9225 5442
Fax : +61 2 9322 4000
Email : andrew.eastwood@freehills.com

Name : Luke Hastings
Title : Partner
Office : Sydney
Phone : +61 2 9225 5903
Fax : +61 2 9322 4000
Email : luke.hastings@freehills.com

Name : Geoff Healy
Title : Partner
Office : Sydney
Phone : +61 2 9225 5728
Fax : +61 2 9322 4000
Email : geoff.healy@freehills.com

Name : Graeme Johnson
Title : Partner
Office : Sydney
Phone : +61 2 9225 5405
Fax : +61 2 9322 4000
Email : graeme.johnson@freehills.com