Legal Advice Privilege And Communications With Third Parties

Article by Mr Damien McAloon and Mr Paul James

1. Introduction

1.1 Confidential communications between a solicitor and client are, if made for the dominant purpose of giving legal advice or for use in existing or anticipated litigation, generally subject to legal professional privilege. The position becomes less clear however when such communications are between the solicitor and a third party (such as an expert) or the client and a third party. Do these communications still attract legal professional privilege?

2. The Fundamentals of Legal Professional Privilege

2.1 Legal professional privilege is regarded as a rule of substantive law in Australia. It exists to serve the public interest in the administration of justice by encouraging full and frank disclosure by clients to their lawyers.

2.2 Clearly, where legal professional privilege applies, it can have very material consequences. In the words of Justice Heerey in Equuscorp Pty Ltd v Kamisha Corporation Ltd.1, "if legal professional privilege applies, privilege trumps relevance". Where legal professional privilege does apply, key evidence in a case may be protected from disclosure to the Court and the opposing party.

2.3 In relation to this issue, the common law in Australia is that legal professional privilege attaches to:

(a) confidential communications passing between a client and the client's solicitor, for the dominant purpose of obtaining or giving legal advice ("legal advice privilege"); and

(b) confidential communications passing between a client, the client's solicitor and third parties, for the dominant purpose of use in or in relation to litigation, which is either pending or in contemplation ("litigation privilege").

Different principles govern the availability of legal advice privilege and litigation privilege, particularly where the relevant communications involve third parties.

3. When will a third party communication attract litigation privilege?

3.1 "Litigation privilege" will apply to communications prepared when litigation is anticipated or commenced. To attract litigation privilege, the communications need not be between the client and its solicitor. Communications with a third party by solicitor or client can be protected by litigation privilege provided litigation:

(a) is reasonably anticipated or in contemplation; and

(b) the communication is for the dominant purpose of use in relation to the litigation.2

4. When will a third party communication attract legal advice privilege?

4.1 Where litigation has not commenced and is not reasonably anticipated, what is the position in relation to legal professional privilege and third party communications? Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd, 3 a decision of Justice Kenny of the Federal Court in January this year, demonstrates that legal professional privilege will not apply so readily where third party expert reports are prepared in order to assist with advice in non-litigious matters, such as mergers and acquisitions and other non-litigious transactions.

Background

4.2 The facts in this case were as follows:

(a) Under the authority of a notice issued in accordance with section 263 of the Income Tax Assessment Act 1936 (Cth), the Commissioner claimed access to the documents the subject of this dispute.

(b) The two Respondents to the matter, Pratt Holdings Pty Ltd, and their accountants, PricewaterhouseCoopers ("PwC"), asserted that legal professional privilege applied to the relevant documents and therefore they were protected from disclosure.

(c)The question for the Court to resolve was whether legal professional privilege did, in fact, apply to these documents. The circumstances in which the relevant documents came into existence were as follows:

(i) In the course of a balance sheet reconstruction undertaken by the Pratt Group, an issue arose concerning the taxation consequences of significant losses incurred by an...