Thinking | 28 July 2020
Waived on through: Federal Court highlights the fine distinctions that govern waiver of privilege
By Jacob Uljans
A recent Federal Court of Australia decision Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (No 2)  FCA 1013 has highlighted the potential risks of waiver of client legal privilege, with the Court observing that the distinctions can be 'fine'.
While on this occasion ANZ was able to avoid having to disclose its legal advice to the corporate regulator, the decision is a reminder of the potential pitfalls of referring to legal advice in correspondence, and that pleading a state of mind (that could have been influenced by legal advice) in litigation carries risks from a privilege perspective.
ASIC commenced proceedings against ANZ in July 2019, seeking declarations and pecuniary penalties relating to allegations of false or misleading representations and unconscionable conduct concerning certain fees charged to ANZ's banking customers. ASIC's action was brought in the wake of civil class action proceedings involving ANZ some years earlier, relating to the lawfulness of 'exception fees' it had charged, which yielded two high-profile High Court decisions concerning whether those fees were unenforceable penalties.
ASIC's present claim concerns periodic payment fees charged by ANZ, which fees ASIC is alleging ANZ knew it had no lawful basis to charge under its contracts with its customers.
ASIC sought production of legal advice that had been provided to ANZ in 2011 in the context of one of the class action proceedings. ASIC contended that the advice was no longer protected by client legal privilege because privilege had been waived, on different two grounds:
- First, ASIC claimed that the advice was no longer privileged due to ANZ disclosing the substance of the legal advice in correspondence to ASIC ('disclosure waiver').
- Secondly, ASIC claimed that, by denying that it knew it potentially had no basis for charging these fees, ANZ had put in issue in the proceeding its state of mind. ASIC claimed that doing so was inconsistent with ANZ claiming privilege over advice it had obtained that could have affected that knowledge ('issue waiver').
Waiver of client legal privilege
Client legal privilege is an important statutory and common law protection against the forced disclosure of confidential legal communications.
A confidential communication or document made for the dominant purpose of a client being provided with legal advice, or use in connection with actual or anticipated litigation, will ordinarily be protected by client legal privilege.
However, privilege may be waived by an act which is inconsistent with the privileged communication remaining confidential. Conduct giving rise to a waiver of privilege may be a deliberate and conscious disclosure of the advice, or (more typically) may be unintended.
Disclosure waiver does not require disclosure of the actual privileged communication – it is sufficient to constitute a waiver that the substance of the communication (eg the gist or conclusion of legal advice) is disclosed.
A mere reference to the existence of legal advice will, by itself, ordinarily not waive privilege. However, where a communication goes further than simply referring to the existence of advice and goes to what was advised, a risk of disclosure waiver can emerge.
The claim of disclosure waiver was brought in circumstances where ANZ had previously told ASIC that an issue concerning the lawfulness of the relevant fees was first identified and reported to ASIC in February 2014. However, ANZ then subsequently wrote to ASIC clarifying that it had, in fact, received relevant advice from its external lawyers in July 2011, in the context of the exception fees class action, which 'touched on' the issue surrounding the charging of bank fees. ASIC contended this constituted a disclosure of the substance of that advice and a waiver of privilege.
In deciding this issue, Allsop CJ referred to two illustrative, and contrasting, decisions of Rolfe J in proceedings concerning Ampolex convertible notes. The first concerned a statement by Ampolex to the effect that it considered that, having regard to – among other things – advice received from its lawyers, it was likely to be successful in pursuing certain claims. This statement was held to not waive privilege over the legal advice referred to. This was because Rolfe J considered that the statement was of Ampolex's views of its prospects in the litigation, not the substance or effect of the legal advice per se. Although Ampolex’s view was no doubt informed by the legal advice, the statement was not a disclosure of the advice itself. In contrast, Rolfe J separately held that a different statement that 'Ampolex maintains that the correct ratio is 1:1 and has legal advice supporting this position' did amount to waiver.
Noting the 'fineness of the distinctions' involved, Allsop CJ concluded that ANZ's letter merely identified the subject matter the advice 'touched upon', but did not reveal the substance of the advice. Therefore, there was no disclosure waiver by ANZ.
An issue waiver may occur where the privilege holder expressly or impliedly puts the contents of a privileged communication in issue in litigation. It is said to be inconsistent with maintaining confidentiality (and therefore privilege) over a privileged communication for a party to litigation to make an assertion, or bring a case, which is about the contents of that communication or which necessarily lays open that communication to scrutiny.
Determining whether a party has, in effect, put its state of mind in issue in a way that can be taken to waive privilege over legal advice received by the party that might have affected that state of mind can be a difficult exercise and often invites a close reading of the wording of the pleadings in question.
ASIC had alleged in the proceeding that ANZ knew it had no basis for charging the fees when it did, referring specifically to the advice ANZ had obtained from its external lawyers in July 2011 which 'touched upon' that issue. In response, ANZ denied this allegation. ASIC contended that this denial amounted to a positive case by ANZ that it had a reasonable basis for believing it could charge the fees at the time. This, it was said, put ANZ's state of mind in issue, on the basis that that advice is known to exist and is relevant to whether ANZ could have reasonably believed it had a basis for charging the fees following receipt of that advice.
The Court held that ANZ's denial did not constitute an assertion as to its state of mind, or that it believed or knew anything that may have been contained in the advice. ANZ merely asserted that it was 'contractually entitled to charge the fees or that it had a reasonable basis for doing so'. Issue waiver was therefore not made out.
Given the possibility of serious adverse consequences for a party if it has to disclose its legal advice to a regulator or to other parties in litigation, it is critical that the possibility of waiver be borne in mind when referring to legal advice in correspondence or other non-confidential communications. While it is possible with careful drafting to refer to legal advice – and even to express a view that is likely to be consistent with that advice – without waiving privilege, the cases indicate this involves 'fine distinctions' and potentially significant risk.
In addition, caution must be exercised in litigation when pleading certain assertions, such as a state of mind, where to do so may lead to a claim that privilege has been waived over advice that could have informed that state of mind.
This article was written with the assistance of Hannah White, Seasonal Clerk.
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