A case of two hats: client legal professional

23 May 2008 Topics: Professional liability, Compliance and corporate governance

Client legal professional privilege lies at the heart of Australia’s legal system. Essentially, it is the principle that confidential communications between a client and a legal advisor should be protected to facilitate honest and open communication between them.

Broadly speaking, communications between lawyer and client will be protected (from compelled disclosure) where the dominant purpose of the communication is the giving or receiving of legal advice.

Without client legal professional privilege, the lawyer-client relationship would be turned upside down. Clients would be reluctant to reveal important information and lawyers would be inhibited by a lack of clear access.

While the application of client legal professional privilege is relatively uncontroversial in private practice, the status quo is less certain in the case of in-house counsel. This is largely because the ‘separation of interests’ which defines the private practice lawyer-client relationship is absent where the client is also the lawyer’s employer.

Aligning commercial and non-commercial objectives

In order to qualify for client legal professional privilege, in-house counsel, salaried or corporate counsel must demonstrate that they are independent of their employer. However, as Justice Tamberlin recognised in Seven Network Ltd v News Ltd [2005] FCA 142 (“C7”), it is a “commercial reality” that “employed legal advisers not practising on their own account may be involved to some extent in giving advice of a commercial nature”.

It is this alignment of commercial and non-commercial objectives that muddies the water. While of itself, commercial advice does not automatically disqualify the document from being privileged, as Justice Graham held in C7, “an in-house lawyer will lack the requisite measure of independence if his advice is at risk of being compromised by virtue of the nature of his employment with his employer.”

Some judicious thoughts

CGW recently hosted a breakfast brief for in-house counsel and company secretaries. The key note speaker at the breakfast was his Honour Justice Chesterman of the Queensland Supreme Court. In his address, Chesterman J spoke of client legal professional privilege for in-house counsel.

In summation, his honour said that there is “no bright line” separating the role of in-house counsel as lawyers from participation in commercial decisions; the outcome is really a “question of fact and degree”. This position echoes the prevailing case law.

Whether client legal professional privilege can be implied into the role of in-house counsel will generally turn on the facts. However, what is clear is that practical measures can be taken to reduce the risk of an adverse finding on client legal professional privilege.

Practical measures

Principally, corporations should structure their organisations to enable counsel to be independent. As a corollary of this, employers of in-house counsel should make sure that:

  • All employed lawyers hold a current practising certificate;
  • Lawyers are managed by other lawyers;
  • Lawyers are clearly identified as such by their job title; and
  • Documents containing legal and commercial advice are separated;

By taking these steps, the burden of proving independence will be greatly reduced in the event of a dispute arising.

Commercial realities

Regardless of the practice type, whether private, in-house or otherwise, commercial and legal decision-making should always be viewed on the same level. Without a strong commercial focus, legal decision-making will inevitably fall short of the mark. However, in-house counsel should recognise that the giving of legal advice in a commercial context is distinctive from the making of actual commercial decisions.

In this sense, legal and commercial communications should always be separated. An independent legal structure is a commercial imperative for any prudent business.

In-house counsel should not interpret this as a restriction on their ability to provide commercial advice. Legal and commercial advice goes hand in hand: it just pays to wear a lawyer hat when giving this advice.

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