The vexed question of when the advice of an in-house lawyer is privileged and when it is open to disclosure was a topic of discussion at the AILA annual conference on Hamilton Island last month.

Brisbane barrister Christopher Johnstone told delegates that, in Queensland at least, the question of whether materials produced for or by in-house counsel were privileged depended largely on a document’s “dominant purpose”.  

document produced specifically for litigation purposes would clearly be privileged but in-house advice would not be covered if the dominant purpose was to support financial or business activities. That determination stood even if the document became evidence in legal proceedings.

It was important for an in-house lawyer to demonstrate some independence from a company’s management or decision makers to maintain professional privilege in the eyes of the court.

Mr Johnstone offered the following advice to lawyers working as in-house counsel in Qld.

• Establish an outward appearing and factually independent legal services department, regardless of how many lawyers were employed or the various business hats they wore.
• Establish and adhere to protocols and regimes to clearly identify communications to be protected as privileged and separate them from materials that are purely functions of the business.

He said company communications, regardless of their original or subjective intention, would have a greater chance of surviving an order for disclosure if a coherent system of managing legal advice could be demonstrated to the court.

 

Risky business

IAG Group counsel and company secretary Chris Bertuch told the conference the inherently risky and uncertain nature of insurers’ business, particularly during natural catastrophes, made it difficult to comply easily with continuous disclosure requirements.

“We have onerous reporting requirements; huge expectations from stakeholders; and serious damage to reputation if we get it wrong.”

IAG had to comply with the Corporations Act, the ASX listing rules and APRA’s reinsurance and risk management requirements. Other stakeholders were investors and analysts, policyholders, media and government.

Mr Bertuch said the general rule on disclosure was: Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information. 

Contraventions could attract a raft of penalties under various laws and damage reputation, which was priceless.

To preserve privilege, in-house counsels needed to separate legal advice from other advice, and mark it “Privileged”; limit the dissemination of legal advice; manage the engagement of external advisors through the legal team; and ensure confidentiality obligations were in place.

The purpose of advice was critical and an insurer’s internal systems and processes “must be clear”.

Mr Bertuch said disclosure was “part of our business, but it’s not always easy”.

“Insurance is an uncertain business. New claims and issues emerge [and] expectations change.”

Insurance was viewed as a social rather than just a legal contract. In the context of the Qld floods, Mr Bertuch said: “Governments, the media and policyholders want the insurer to stand behind the insured, sometimes irrespective of what the policy might say.”

Sometimes the ASX asked for updates, which could be problematic. For example, during the 1999 Sydney hailstorms, IAG was asked to disclosure the potential impact for IAG, despite the insurer not knowing that information because “we had no idea of claim numbers”.

• Back to top