Best practice tips for protecting privilege and mitigating discovery risks

The recent Federal Court decision of SMBC Leasing and Finance, Inc v Flexirent Capital Pty Ltd (Discovery) [2025] FCA 459 (‘SMBC Leasing and Finance’) clearly outlines the core principles of client legal privilege or legal professional privilege (‘LPP’) and joint privilege. For in-house counsel, preserving LPP is essential not just for managing legal risk, but also as a safeguard in litigated matters. SMBC Leasing and Finance gives food for thought as to practical strategies for in-house legal teams.

In SMBC Leasing and Finance, SMBC brought an application contesting claims for LPP or joint privilege by Flexirent over a number of documents that were otherwise discoverable. As well as providing clear guidance as to when LPP and joint privilege arises, the decision is also interesting for its conclusion as to the evidence suitable to support the privilege claims, which is discussed in further detail here.

The foundations of legal professional privilege

LPP is a long-standing common law principle which protects confidential communications between a client and their lawyer from disclosure in legal proceedings. In NSW, it is now enshrined in statute in sections 118 and 119 of the Evidence Act 1995 (NSW), which cause privilege to attach to confidential communications made for the dominant purpose of obtaining or giving legal advice or for use in actual or reasonably anticipated litigation.

Dominant purpose

Simply put, the test for assessing the dominant purpose is whether the main reason for creating the document or communication was to obtain or provide legal advice, or for use in actual or anticipated litigation. It must be more than a contributing reason; it must outweigh all others. In practice, this requires a clear intent and context for the communication. SMBC Leasing and Finance has once again confirmed that merely asserting a document is privileged is not sufficient.

Advice provided by in-house counsel to the business or the board, or advice provided by an employed lawyer to the firm or the firm’s board can be the subject of LPP.

Separation of communication

For LPP to apply, the advice given by the lawyer must be ‘independent of their employer’, which essentially means the advice given is akin to advice that would be given by a private lawyer to the board/employer.

One effective way to protect privileged information is by clearly separating it from non-privileged content. Courts have emphasised that privilege does not extend to communications that are factual or commercial in nature, even if provided by a lawyer. As such, the communication containing the privileged information should not be mixed with comments about strategic or operational matters, which may inform a determination the dominant purpose of the communication was not the provision of legal advice. Otherwise, communications or documents stating the ‘company position’ without any demonstration of independent analysis, will likely not meet the private lawyer test.

It is important to clearly identify and label legal advice separately from business-related discussions. Another important measure is maintaining contemporaneous records that demonstrate the dominant purpose behind the creation of the subject documents. In SMBC Leasing and Finance, the Court accepted such evidence from someone other than the document’s creator. This was a departure from the usual consideration that only the author of a document could give evidence of the purpose for which a document created.

Practically speaking, to maintain privilege, in-house counsel should:

• label legal communications clearly, distinguishing them from operational or business content;
• avoid mixing business and legal advice in a single communication;
• document the purpose of legal communications at the time they are created; and
• maintain internal records where appropriate, particularly in anticipation of litigation or discovery.

Joint privilege

SMBC Leasing and Finance also reaffirmed the principles of joint privilege, which arises when two or more parties jointly retain or consult a legal advisor, or share a common legal interest in the subject matter of the advice. The Court emphasised joint privilege is collective in nature: it belongs to all relevant parties, and a waiver by one of the privilege is ineffective without the consent of the others. This remains the case even where only one party formally engaged the lawyer or bore the legal costs.

LPP does not ordinarily extend to communications with third parties unless they are acting as agents of a lawyer. Accordingly, where non-lawyer employees are involved in the communication, or where advice is shared outside the core legal team, privilege may not attach.

For in-house counsel, this means that particular caution should be exercised when:

• communicating with related entities or joint venture partners;
• exchanging legal advice in multi-party litigation; or
• sharing external legal advice with individuals or entities outside the defined client group.

Policies and training

As with most things in private or in-house practice, developing and embedding good practice hygiene around LPP issues will assist in providing the appropriate protection, safeguarding privileged material and reducing discovery risks.

Written policies that are designed to guide stakeholders on how to handle communications involving legal advice can provide added security around future LPP claims. Such a policy would provide guidance on labelling communications appropriately and understanding when to involve legal counsel.

Consider regularly training internal stakeholders on the importance of LPP and the correct procedures for maintaining it. Awareness is a critical component in preventing inadvertent waivers of privilege.

Protocols for documenting the purpose of communications in certain situations should also assist. For example, when legal advice is sought, it should be clearly stated, and the context should support a claim of LPP.

It is also useful to regularly review communications and document management practices, and audit compliance with privilege protocols. This proactive approach can identify potential issues before they escalate into legal challenges.

Elissa Baxter is Chief Legal Officer at Lawcover and Alex Haslam is Principal at Gilchrist Connell.