In-house lawyers’ communication – timely guidance on privilege

The recent New Zealand High Court decision in NZ Iron Sands Holding Ltd v Toward Industries Ltd [2019] NZHC 1416 provides timely and useful guidance to in-house lawyers wishing to ensure that their confidential communications are protected by privilege.  A copy of the decision is here.

The case concerned large-scale discovery and involved consideration of the difficult issues that can arise when in-house lawyers provide both legal and commercial advice.

Background

NZ Iron Sands Holdings Ltd (NZIS) entered into an agreement to purchase the shares in New Zealand Steel Mining from Toward Industries Ltd (Toward).  NZIS sued alleging non-performance of the agreement and its wrongful termination.

Following discovery, NZIS challenged Toward’s categorisation of certain documents as privileged.

Many of the communications over which Toward claimed privilege were between Toward’s management and its in-house lawyers.  The Court therefore confirmed the principles that apply to legal professional privilege in this context.

In-house lawyers and privilege

The Court started from the premise that:

Salaried legal advisers (in-house lawyers) communicating internally with other employees of their common employer come within the scope of the privilege, provided they have a current practising certificate and the communications relate to the provision of professional legal services.

However, issues might arise where in-house lawyers have multiple duties.  Whether a party can claim privilege in a communication with, or document produced by, an in-house lawyer will therefore depend on “the subject matter of the advice, and the circumstances in which the advice was sought and rendered”.

The Court confirmed the following principles:

  • Legal advice generally relates to the client’s rights, liabilities, obligations or remedies at law.
  • It is often “practically impossible” to separate the commercial activities of in-house lawyers from their purely legal functions. Therefore, to determine whether a document is privileged is a question of fact and involves weighing the relative importance of its identified purposes.
  • A document that is not prepared for the purpose of seeking legal advice does not attract privilege merely because it is sent to a lawyer as an adjunct to a communication in which advice is sought or given.
  • Documents exchanged between in-house lawyers and the business during commercial negotiations may still attract privilege even in the absence of a clear request for legal advice. This is so where information is passed between the solicitor and the business in order to keep both informed so that legal advice may be sought and given as required.
  • Where a document contains both privileged and non-privileged material, the approach in discovery should be to redact the portion of the document that contains legal advice and disclose the balance. This is the case unless the privileged and non-privileged material are so interwoven that redaction is impossible.  In those circumstances, the balance is struck in favour of withholding the entire document from disclosure.

The outcome in this case

The Court did not doubt the endeavours that had been made to identify privileged and non-privileged documents.  However, the Court recognised the “intrinsic difficulties with legal advice privilege”, the “margin calls” that would have been made and the need for the substantive issues to be properly heard by reference to all properly admissible material.  The Court ordered Toward to provide a sample, nominated by NZIS, of approximately 10 per cent of the documents over which it had claimed privilege during the critical time period.

These documents were to be made available to the Court for an Associate Judge to determine whether the sample documents were privileged.  This review would enable the trial judge to determine whether there was a “systemic error” resulting in “an overly liberal approach being taken to the issue of legal professional privilege”.

Tips for in-house lawyers

In-house lawyers may find the following tips useful when seeking to maintain privilege:

  • Keep a current practising certificate.
  • Be conscious of what “hat” you are wearing when creating a document or sending a communication. Are you a lawyer giving legal advice or are you providing commercial advice?
  • Seek to avoid creating documents which contain both legal and commercial advice – keep them separate if possible. At a minimum, leave signposts within the document to make subsequent redaction easier and less risky.
  • One way of distinguishing between different communications is to have different email signatures which clearly identify the nature of the communication.
  • In deciding which “hat” you are wearing, consider whether your advice relates to your business’ legal rights, liabilities, obligations or remedies.
  • Advise the business that your legal advice is confidential and should not be sent more widely than strictly necessary.

Who can help

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