Legal professional privilege: Can privilege be waived over whole or part of a report?

It is common practice for parties to a proceeding to claim that a document is not required to be disclosed to the other party as it represents confidential communications between a lawyer and a client and is therefore exempt under the concept of legal professional privilege.

In the recent Federal Court decision of TerraCom Ltd v Australian Securities and Investments Commission [2022] FCA 208, the Court considered whether a waiver of legal professional privilege over part of a privileged investigation report would result in privilege being waived over the entirety of the report.

Can an internal report be covered by privilege?

When establishing whether a report is covered by legal professional privilege, the court will apply a common law test known as the ‘dominant purpose test’: a document or communication will attract legal professional privilege if it was brought into existence for the dominant purpose of giving or obtaining legal advice or the provision of legal services.

In 2019, a commercial general manager for TerraCom made serious allegations against the company. The manager alleged that the company and its officers had falsified certificates of analysis of coal exported by TerraCom. The manager was subsequently dismissed.

TerraCom engaged lawyers to provide legal advice about the allegations raised. The lawyers subsequently engaged PwC to produce an internal forensic investigation report. The aim of the internal report was to assist the lawyers in providing advice to Terracom. PwC provided the internal report to the lawyers on 16 December 2019.

Justice Stewart held that privilege clearly attached to the internal report as the purpose of preparing the internal report was for it to be given to the lawyers as a basis for their legal advice.

Public disclosure of report

In February 2020, in response to a number of media report surrounding the investigation, TerraCom published a formal ASX announcement and an open letter to shareholders. The announcement and letter contained a number of public disclosures, including references to the internal report and conclusions reached by PwC. TerraCom publicly stated that the investigation report found no evidence of wrongdoing and they further rejected any suggestion of false testing.

Following a letter from TerraCom’s auditors, EY, ASIC commenced an investigation based on suspected contraventions of the Corporations Act 2001 (Cth). As part of ASIC’s investigation, investigators issued TerraCom with a warrant notice to produce documents and books, including the internal report. TerraCom claimed that the report was exempt under a claim of legal professional privilege.

Was there a waiver of privilege by posting the ASX announcement?

The test for waiver is whether there has been an inconsistency between what a client has done and retention of the privilege. If a client deploys the substance or effect of legal advice for forensic or commercial purposes, a court will regard these actions as inconsistent with the maintenance of confidentiality that attracts legal professional privilege.

In their open letter to shareholders and ASX announcement, TerraCom made references to the conclusions of the internal report clearing its CEO and CFO of wrongdoing. The Court determined that these references waived legal professional privilege over the internal report, at least to the extent of the subject-matter regarding the CEO and CFO being involved in a false testing scheme.

The Court determined that maintaining TerraCom’s full privilege would result in tangible unfairness, as it would allow them to hide behind their statements as to the conclusion of the report, while at the same time maintaining privilege over the report. This would prevent ASIC from assessing whether TerraCom’s statements were false and misleading.

TerraCom’s statements referring to the broader allegations made against the company and its employees (except those referring to the CEO and CFO) were not held to waive privilege over the broader subject-matter of the report . Justice Stewart determined that they amounted to a belief or assertion instead of being a disclosure of the findings or outcome of the independent investigation.

Was privilege waived over the remainder of the internal report?

The Court was guided by the principle that, to ensure fairness and that an opposing party is not misled by an inaccurate perception, waiver as to one part of a communication will likely result in waiver to the rest of the communication ‘on that subject-matter’.

In this case, the Court found that the partial disclosure of the contents of the internal report resulted inevitably in a waiver of privilege of the entire report. The relevant subject-matter was integrated in the report in such a manner that it was not possible to detach parts of the report dealing with the rather slight disclosures by TerraCom. Attempting to separate parts of the report where privilege was waived would result in the disclosed parts being misleading or incomplete, and preventing ASIC from accessing those sections would ‘prejudice a proper understanding of the treatment of [the concern in question]’.

Key takeaways for employers

Employers and entities should consider the importance of exercising care when discussing privileged reports and confidential communication in public or in the public domain. Doing so can result in the waiving of legal professional privilege and have a detrimental effect on future proceedings.