External messaging and the risk of waiving privilege

When a report is commissioned by a corporation’s internal or external lawyers - to allow the entity to receive legal advice - frameworks need to be established to make clear that the dominant purpose in commissioning the report is one which will support a claim for legal professional privilege.

This means that its primary focus, and the focus of any entity handling such a report, must be to ensure that the report is clearly commissioned to assist in the client receiving confidential legal advice from its external or internal lawyers.

A recent case which aptly illustrates this point is TerraCom v ASIC [2022] FCA 208. PwC was commissioned by TerraCom’s external lawyers to prepare a report (the Report) to enable the external lawyers to provide legal advice to TerraCom.  

ASIC sought access to the Report, arguing that it was not a privileged document.  TerraCom sought a declaration that the Report attracted legal professional privilege, thus preventing ASIC’s inspection.

Establishing the existence of legal professional privilege

The High Court in Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 determined that a communication or document will be subject to legal professional privilege only if it was created for the ‘dominant purpose’ of conferring or receiving legal advice or services.  

In applying this test, Stewart J in TerraCom v ASIC considered whether PwC created the Report for the ‘dominant purpose’ of enabling external lawyers to provide legal advice. His Honour’s conclusion was that privilege attached to the Report, as there was no evidence in the report, engagement letters or elsewhere to suggest otherwise, and in fact, the engagement letter and the text of the Report supported that conclusion.

Statements and waiver of privilege – a fine line

Often there may be a desire to ‘say something’ about a corporation’s conduct or state of affairs to allay what may be a market concern or a public relations issue the entity is facing. Often, the desire can be to indicate that the entity is on a strong legal ground for the position it has taken.

This can occur in ASX market announcements, investor presentations and in statements made by corporate relations teams and advisers. This is a practice fraught with danger - as it can lead to a loss of legal professional privilege, and care needs to be taken in the drafting of these statements and scripts.

Since the case of Ampolex Ltd v Perpetual Trustee Co (Canberra) (1996) 40 NSWLR 12 (Ampolex), courts have made a distinction between references which disclose the ‘substance, gist or conclusion’ of the privileged content, and those which do not.  These distinctions can be very fine. 

In TerraCom v ASIC, TerraCom had stated - in an open letter to shareholders and an ASX announcement - that an independent forensic investigation had found no evidence of wrongdoing by its CEO and CFO. This was held to be a clear disclosure of the purported conclusion of a privileged investigation report.

Deploying the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege, for example see Bennett v Chief Executive Officer of the Australian Customers Service (2004) 140 FCR 101.

A waiver of legal professional privilege may be present where there is incongruence between the keeping of confidentiality with respect to a document and other conduct.

In finding that privilege had been waived, Stewart J determined that there was inconsistency because TerraCom sought to maintain both the confidential nature of the Report and benefit its own business by publicising the information contained within it.  

His Honour found that TerraCom’s statements were consciously and deliberately made with the intention of deflecting criticism and putting shareholders at ease. TerraCom could therefore not take steps to gain a forensic and commercial advantage by releasing the Report’s contents in the public sphere while also simultaneously claiming privilege and preventing ASIC from testing its contents. This was unfair to ASIC, as it could not take steps to inquire into or establish whether TerraCom’s statements were false or misleading.

Mere phrases which refer to the existence of legal advice will not be enough to waive privilege -  but at the same time entities should ensure that they do not disclose the substance or gist of the advice.

In ASIC v Australia and New Zealand Banking Group (No. 2) [2020] FCA 1013, Allsop CJ referred to Ampolex and stated that there will be a waiver if a party states “I have legal advice. Its substance is …” but there will not be a waiver if a party says what they believe and legal advice may be seen as relevant to it. Allsop CJ noted that “one must state the substance or gist or conclusion of the advice for privilege to be lost”.

If an entity decides to provide material to a regulator for a limited purpose, such as to inspect documents, it should always seek to obtain express agreement before any disclosure, guided by a primary aim of keeping any information confidential. For example, the Federal Court in Cantor v Audi Australia Pty Ltd [2016] FCA 1391 determined that the disclosure of privileged information to a foreign regulator, within the circumstances of that case, did not amount to a waiver of privilege as doing so was not inconsistent with preserving legal professional privilege.[1]

Example of these principles in practice

In Ampolex, two statements were considered:

• “There is a dispute about the conversion ratio. Ampolex maintains that the correct ratio is 1:1 and has legal advice supporting this position”; and
  
  
• “Ampolex's views as to the likely outcome of the Convertible Note litigation.
  
  The views set out below have regard to the pleadings, the evidence available to Ampolex and the advice of the barristers and the solicitors engaged by Ampolex for the purposes of the litigation, as at 1 May 1996. Ampolex considers that:
  
  
  1. it is likely that Ampolex will be successful in…”

The first statement was a waiver, while the second was not. The second statement merely expressed the Board’s view, and the matters to which the Board had reference to in forming that view. Rolfe J explained:

“… the words are a statement of Ampolex’s view of the likely outcome of the litigation and they are not a statement of either the substance or effect of the advice… I do not regard the statement of Ampolex’s view as constituting a disclosure of the legal advice.  It may be that in forming its opinion Ampolex has misconstrued or misunderstood the advice.  However that may be, the statement does not rise above a statement of Ampolex’s view and it does not purport to state the advice, or its substance or effect and, therefore, it does not amount to a disclosure of the advice.”

In Switchcorp v Multimedia [2005] VSC 425, the Court concluded that there is a waiver where a statement involves a “clear and deliberate disclosure of the gist or the conclusion of legal advice” as this results in an inconsistency between the relevant statement and the preservation of confidentiality which is attached to that legal advice.

An ancillary issue to this is that when privilege is waived over an advice, there is a significant risk that privilege is waived on all things in relation to the advice as well – for example the brief to counsel and all that it included – which may be necessary to understand the advice.

Key takeaways

Companies and other entities will often want to refer to confidential documents when asserting the strength of their position in negotiations or public discussions, but doing so can risk privilege being waived. The distinction between references to the substance or conclusion of a privileged document and opinions or assertions are very fine, so drafting a statement that allows a client to convey a message to other parties but which does not waive legal professional privilege will be an ongoing challenge.

TerraCom v ASIC serves as a reminder to lawyers and their clients to be prudent when drafting pleadings, media releases and market announcements to ensure that legal professional privilege is not lost.

It also underscores the importance of properly documenting the engagement for any report or investigation which is commissioned to assist in the client receiving legal advice.

The maintenance of legal professional privilege is an area which can be a minefield, leading to the loss of privilege if communications are mishandled.