LEGAL PROFESSIONAL privilege hangs in the balance as the Federal Government last week introduced laws into parliament that would enable the nation’s corporate watchdog to access James Hardie Industries’ documents.
The James Hardie (Investigations and Proceedings) Bill 2004 would facilitate a thorough and effective investigation by the Australian Securities and Investments Commission (ASIC) in relation to matters arising out of James Hardie Special Inquiry in New South Wales, Treasurer Peter Costello said last week.
Now, “to avoid any doubt”, Costello said, “in exercising its power under the ASIC Act, claims of legal professional privilege will not be able to defeat ASIC in obtaining information or material to investigate whether or not there has been a contravention of the Corporations Law by the James Hardie Group of companies”.
Acknowledging that it is “unusual legislation”, Costello said that this company-specific law is acceptable under the current circumstances. It will enable ASIC to investigate James Hardie as well as directors and executives of the company to determine whether there has been a contravention of the law.
The Government argues that ASIC must conduct a comprehensive investigation into the conduct of the James Hardie Group, its directors, officers and advisers. Those documents that were the subject of extensive legal advice may offer critical evidence as to the purpose and nature of certain transactions, Costello said.
The Bill will expressly abrogate legal professional privilege in relation to certain materials and will confirm a longstanding interpretation of ASIC’s investigative and enforcement powers.
These powers were cast into doubt, according to Costello, by the decision of the High Court in 2002 in the Daniels case, which created uncertainty as to whether the 1991 decision of the High Court in theYuill case would be followed if a request by ASIC to produce material subject to legal professional privilege was to be challenged, he said.
In the Daniels case, Costello said, the High Court found that professional privilege between lawyers and their clients is not just a rule of substantive law but an important common law right that cannot be abrogated by statute without express words or an unmistakeable implication.
Costello argued that “nevertheless , there are situations in which [legal professional privilege’s] abrogation is justified in order to serve higher public interests”. He said one such situation is the effective enforcement of corporate regulation.
Despite requests from ASIC earlier this year to make legislative changes in this way, the NSW Government declined. Costello said the matter was then passed on to the Federal Government.
The Treasurer warned James Hardie that it should act swiftly and ensure victims of asbestos -related illnesses were duly compensated.
“If James Hardie deals with that matter itself then the likely legislative responses are going to be less intrusive than if it fails to do so,” Costello said.
In an interview with 2UE journalist Steve Price, the Treasurer advised James Hardie to not concern itself with the legal issues, despite all the legal manoeuvring.
“I would say to the company, forget the legal issues, forget the restructuring issues, just get on and fix it and make sure that there is enough money for the victims because otherwise the company’s position will be very, very much worse.”
NSW Premier Bob Carr this week said he was pleased the Federal Government had acted on NSW Government calls to fix Commonwealth legislation so ASIC could properly investigate James Hardie. He referred to the reform of state laws in October that made it legal for James Hardie documents to be passed on to ASIC.
“The laws also overrode any possible objections under NSW laws to the use of the documents on the grounds of legal professional privilege,” Carr said.
NSW Attorney-General Bob Debus also wrote to Costello calling for a change in Commonwealth legislation that would enable ASIC to access the documents. In a letter to the Treasurer, Debus said in October that he urged him “to consider the need to clarify ASIC’s powers in this area as a matter of priority”.
“The NSW Government would support any Commonwealth legislation to strengthen ASIC’s powers that would advance ASIC’s investigation of the conduct of James Hardie considered by the NSW Special Commission of Inquiry,” Debus wrote.
With the Opposition’s concurrence, Costello said, the legislation should be passed “very swiftly” through Commonwealth Parliament.