Alert

Who does this affect?

Anyone who is providing information to a regulator - especially in the circumstances of a compulsory examination.

What do you need to do?

Consider carefully whether an employee who is to be compulsorily examined by a regulator should be authorised and instructed to assert the company's legal professional privilege.

Author
Michael Tandora  
Senior Associate

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Joanne Cameron  
Partner
T +61 3 9643 4083

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The recent decision of the Victorian Court of Appeal in ASIC v Lindberg [2009] VSCA 234 considered whether someone who holds legal professional privilege (LPP) can assert that privilege in information that is in the hands of a third party who has obtained it from someone other than the holder of the LPP.

The decision means that a company may lose its LPP in information that an employee discloses to a regulator (for example, in the course of a compulsory examination) if that employee does not first assert the company’s LPP.

ASIC had in its possession, information obtained in compulsory examinations of current and former employees and advisers of AWB Ltd. AWB Ltd asserted LPP in that information. In proceedings brought by ASIC against Andrew Lindberg, a former employee of AWB Ltd, ASIC was obliged to discover to Mr Lindberg documents containing that information. The Victorian Court of Appeal held that AWB Ltd could not intervene to assert its LPP in those.

Facts

ASIC was investigating the activities of AWB Ltd and others in connection with wheat sales to Iraq under the United Nations Oil-for-Food Programme. As part of its investigation, and pursuant to section 19 of the ASIC Act 2001 (Cth), ASIC examined a number of current and former employees and advisers of AWB Ltd. (Other current and former employees of AWB Ltd voluntarily provided witness statements to ASIC.)

AWB Ltd’s request that its lawyers attend the compulsory examinations in order to protect its LPP was rejected by ASIC. That decision was upheld by the Federal Court in AWB Ltd v ASIC [2008] FCA 1877 (see Mallesons’ Alert - 23 December 2008).

In its proceedings against Mr Lindberg (to which AWB Ltd was not a party), ASIC was ordered to discover transcripts of the compulsory examinations and witness statements (including drafts) that it had not already provided to him.

In the Supreme Court of Victoria, AWB Ltd obtained orders that ASIC first provide those documents to AWB Ltd in order to allow AWB Ltd to examine them and, if necessary, assert its LPP in them. ASIC appealed that decision.

The Victorian Court of Appeal upheld ASIC’s appeal — even though AWB Ltd had changed its position and agreed that ASIC could, instead, provide the documents to AWB Ltd at the same time as they were discovered to Mr Lindberg.

AWB Ltd has filed an application in the High Court for special leave to appeal the decision.

Decision

The Court held that:

• LPP only entitles the holder to resist providing information in which the holder (or someone on whose behalf the holder is acting) has LPP. It does not restrict another person’s rights to use, or obligations to provide, that information where it was obtained from someone other than the holder.

• For example, once a regulator obtains from an employee information in which his or her employer has LPP and the employee has not asserted that LPP, the regulator is free to disclose that information and is not obliged to provide the employer with an opportunity to assert that LPP.

• The only way the holder can prevent such disclosure is to seek an injunction to prevent a breach of confidence.

Implications

Together with the decision of the Federal Court in AWB Ltd v ASIC [2008] FCA 1877 (see Mallesons’ Alert - 23 December 2008), this decision leaves companies whose employees or former employees are obliged to provide information to a regulator in a difficult position, especially as:

• the company may not be aware that an employee or former employee is to be compulsorily examined; or

• alternatively, the company’s request to attend the compulsory examination (through its lawyers) in order to protect its LPP may be rejected; and

• most importantly, the employee or former employee may fail to assert the company’s LPP when disclosing information in which the company has LPP.

Once information in which the company has LPP is disclosed to the regulator by an employee without a claim for LPP, the company’s LPP does not restrict the regulator’s rights to use, or their obligations to provide, that information.

What should you do?

• Instruct employees to notify your in-house legal team if they are asked to provide information to a regulator, whether through a compulsory examination or otherwise.

• Seek to be represented at any compulsory examination of a current or former employee for the purposes of protecting the company’s LPP. (However, the regulator may reject this.)

• Arrange for the current or former employee to have independent legal representation at the compulsory examination. A lawyer can object to questions which would require the current or former employee to disclose information which is the subject of LPP.

• Consider carefully whether you should instruct current employees who are to be compulsorily examined by a regulator that they are authorised and required to assert the company’s LPP. However, you should bear in mind that an employee who is authorised to assert the company’s LPP but fails to do so may be taken to have waived the company’s LPP.

• Consider carefully whether you should, in their contracts of employment, authorise and require employees who are to be compulsorily examined by a regulator to assert the company’s LPP. However, you should bear in mind that an employee who is authorised to assert the company’s LPP but fails to do so may be taken to have waived the company’s LPP.

• Consider carefully whether you should carve out from an indemnity that you give to directors or employees loss or damage arising from a failure to assert the company’s LPP despite an authorisation, requirement and/or instruction to that effect.