Ethical Challenges Faced By In-House Legal Representatives In Litigation

Who Is the Client of the Lawyers?

Discuss about the ethical and practical challenges when in-house legal representatives are used by a company in relation to litigation

The in-house legal representative segments account to almost 18% of the professions in the year 2018 and are the fastest growing segments as compared to others. An integral part of the legal eco-system is formed by in-house legal representatives. Further they are leading the path through innovation and excellence by adopting at an early stage emerging as well as established technology for the improvement of operational efficiency in daily practices. The valuable contribution which is brought by the segment in relation to profession is recognized by the law society. However there are several ethical challenges which are faced by the in-house legal representatives and the company while they are used for the purpose of litigation. Few of such ethical issues which come up in form of questions are who are the clients hiring conflict of interests, e-discoveries, outsourcing (preventing the use of unauthorized legal practices) and Attorney Work Product and Attorney Client Privilege. Helpful guidance is provided to in-house legal representatives by the, Bar Rules of Professional Conduct, and Ethics opinions of bar associations and Court opinions[1].

The purpose of this paper is to through light upon ethical and practical challenges when in-house legal representatives are used by a company in relation to litigation. The paper provides advice to a company in relation to relevant factors which includes actual case and legislation which the board needs to be aware of while devising its litigation strategy.

One of the primary issues which arise when in-house lawyers are used are that of who is the client of the lawyers. As In-house lawyers they have an obligation towards the officers or directors, subsidiaries, shareholders and the employees of the company. An attorney-client relationship does not depend upon a written agreement. In relation to this in-house lawyer have the duty of giving Miranda warnings such as “I may have to report whatever you say to the company as I represent the company.  They also have the duty of identifying a situation where spate counsels may be required. The in-house counsels must inform the employees that they have the right to and must use a spate counsel when required. They must also not provide advice in relation to any personal matters. [2]The in-house lawyers must also make a reasonable effort towards notifying the employees about their role as to who they represent. The in-house lawyers have to tell the employees that they represent the organization and the employees should not confide their trust in them which may not be used in the interest of the company.  One of the practical challenges which may be faced in relation to the in-house lawyers is that as they work as employees in the company and are closely associated with the other employees, the relationship which they have with the other employees may create a situation of a conflict of interest. In this situation the in-house lawyers have the dilemma of choosing company interest or the interest of the employees[3].

Conflict of Interest

In the same way another conflict of interest situation is created when the in-house lawyers have to decide who is their client, the parent company or the subsidiary. Generally a conflict of interest situation is not created when both the parent and 100% subsidiary companies have aligned interest and solvent. However the conflict takes place in relation to when one company becomes insolvent, there is in transactions between companies and where there is partial or varied ownership. When there is an ethical conflict there is a violation in relation to the state bar rules and can result in attorney disciplinary actions. The situation may also lead to disqualification of representation and wavier of subject matter in relation to attorney-client privilege[4]

It had been stated by Lord Denning in the case of Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners CA [1972] 2 QB 102 that as the in-house lawyers are agents and servants they are under significant pressure from their clients[5]. Thus in this situation they must act diligently to resist such pressure. The in-house lawyers like any other legal advisor must be independent in relation to doing the right thing. This statement provided by the judge undermines the unavoidable tension which is present for in-house lawyers as a lawyer and an employee. In-house lawyers often have more pressure as compared to private lawyers in relation to turning a blind eye towards their ethical standards. However they have a responsibility like any other private lawyer to maintain the ethical standard. They face a ethical dilemma of whether they are lawyers first and employee second. They are often directed with a phrase that “remembers you are an employee”. In this context it has been stated by Miller that In-house lawyer are always in a situation of creating a balance between what is best for the organization through providing appropriate legal advice independently and meeting the expectations of those who are in power which would secure their future in the organization[6]. In this situation the In-house lawyers have to take care of being solution focused and commercial and while doing so that must no claim it as an excuse for ignoring ethical and professional obligations.

All lawyers are imposed with a duty according to which they must not indulge in any illegal, unprofessional or dishonest conduct which court cause disrepute to the profession or would restrict the administration of justice. They must not intentionally seek to induce or assist breach of law by the clients or any third party.  Although the duty does not state that the In-house lawyers must prevent a company from breaching a legal obligation rather its provided that the In-house lawyers must not turn a blind eye towards an un lawful conduct. This means that they must try their best to prevent the breach from taking place[7].

Pressure on In-House Lawyers to Act Diligently

In the James Hardie case it had been made clear by the court that “a legal hat cannot come off”. This means that the duty as a lawyer would still be placed on the person where the person is indulging into other form of activities with the organization[8].

Further it has been stated by Shepherd that the nature of the role which in-house lawyers have often creates tension between the interest of the company and identification of legal risks[9]. For a risk assessment to be useful professional objectivity is required, however the concept of providing priority to the interest of the client imposes a burden on the objectivity. In addition the obligation of independence is also questioned at times. It has also been stated though a research by ACLA that around 50% of in-house lawyers in the country is provided with compliance powers which provided greater sway to them in the organization. However, in-house lawyers are still subjected to ethical dilemmas[10].

The primary role of an in-house lawyer is to manage legal risk of those who have employed them. However there are significant risks and liabilities which the in-house lowers exposes themselves to. One of the primary cases which discusses such position is the case of Shafron v ASIC [2012] HCA 18[11]. It had been stated by the High court in this case that Mr. Shafron who was the company secretary and general counsel of James Hardie Industries Ltd had failed to discharge his duties and exercise his powers with a due care and diligence which any reasonable person would have done if the reasonable person was the officer of any other company and was imposed with same responsibility as he had. Thus it was found by the court that the secretary cum in house counsel had failed to comply with the duty imposed on him through section 180 of the Corporations Act 2001 (Cth)[12]. He was thus held liable under Section 1317E which provided for civil liability provisions under the Act[13]. An argument had been made by him that the impugned actions including the failure to provide legal advice to board in relation to certain issue was done by him in the role of a general counsel rather than a secretary of the company and thus he was not an officer of the company under the CA. However the argument had been evidently rejected by the court. In this situation it had been stated by the court that the word responsibility under section 180 involves all responsibilities which an officer has in relation to the company. Thus the court did not allow the defendant to wear the hat of a lawyer and the hat of an officer and make an argument that the required standard of care when wearing one Hat will not be applicable when he wears another hat.

Risk and Liabilities Faced by In-House Lawyers

This case does not signify that an in-house lawyer should not occupy the positions of directors in the company. However it is the duty of the in-house lawyer to be aware about the responsibilities imposed on company officer by law as these duties would be applicable on responsibilities to be carried out in form of a lawyer. In the light of the liability is of significant importance for the in-house lawyers to understand their role in relation to the company[14]. They must have the rule identified properly and set them out in company polices and employment agreements. The In-house lawyers must  not assume that duties such as preparing board minutes and papers is only an administrative duty. In case a legal issues arises it would be a duty of an In-house lawyers to bring the matter to the attention of the board and provide a relevant advice.

Only when the communication has been made for a dominant purpose of getting a legal advice or for anticipated or ongoing litigation can it be privileged as provided by the case of Sydney Airports Corporation Ltd v Singapore Airlines Ltd and Qantas Limited [2005] NSWCA 47[15]. Where commercial advice is provided by an in-house lawyer he has to make such communication separately in order to not lose legal professional privileges as the dominant purpose may be found to be commercial rather than legal as per Ritz Hotel Ltd v Charles of the Ritz Ltd (No.4) (1987) 14 NSWLR 100[16].  In order to determine the dominant purpose the “dominate purpose test” is used as used in the case of Seven Network Ltd v News Ltd [2005] FCA 142[17].

It is the duty of the in-house lawyers to take affirmative action in relation to keeping an eye on compliance with litigation holds to ensure all discovery information sources are preserved, identified and searched[18]. The in-house lawyers are also prohibited from reveling information about a client unless informed consent is provided[19]. They have a duty to protect the information of the client which also includes privileged communications[20]. Corporations are not prevented from employing attorneys who has been adverse to the organizations in litigation. This is because the rule of professional conduct is applicable on lawyers and not organizations. A law department of a corporation may also be a law firm which is subjected to the same rules for conflict as a private lawyer. Thus while hiring in house councils the same conflict screening has to be followed by the law department. Employment cannot be accepted to by a new lawyer which may be adverse to the prior client unless he has provided a written consent. In relation to in-house lawyers it is always presumed by the courts that their communication is not as much legal as it is commercial. This increases the scrutiny in relation to privilege claims where outside counsels are not involved.

Legal Professional Privilege

Thus, from the above discussions it can be stated that there are several ethical and practical challenges which the board needs to be aware of when making its litigation strategy. The primary ethical challenge is the conflict of interest position which the in-house lawyers are subjected to. In addition a person who is a officer as well as an in-house lawyers cannot make a claim that they have made a decision with respect to s single role. The board must know that such challenges are not addressed in accordance to the law they will be subjected to legal liabilities

References

Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners CA [1972] 2 QB 102

Australian Securities & Investments Commission v Hellicar & Ors [2012] HCA17

Corporations Act 2001 (Cth)

Dal Pont, Gino Evan. "Lawyers' Professional Responsibility." (2017).

Edwards, Elisabeth. "Engaging with corporate counsel: Tips for private practitioners to build a trusted legal advisor relationship." (Brief 43.7 2016) 8.

FinnJinPasinivVanstone[1999]FCA1271

Harris, Jemima. "Down to business with legal privilege." (Proctor, The 37.2, 2017) 24.

John, Rani, and Jonathan Ellis. "Protecting privilege during internal investigations: Is lawyer work product at risk?." LSJ: (Law Society of NSW Journal 33, 2017) 88.

Legal Profession Uniform Law Australian Solicitors` Conduct Rules 2015

Miller, Katie. "Legal traditions in an age of disruption: How do lawyers decide what to keep and what to relinquish?." (Brief44.6 2017) 16

Ritz Hotel Ltd v Charles of the Ritz Ltd (No.4) (1987) 14 NSWLR 100

Seven Network Ltd v News Ltd [2005] FCA 142

Shafron v ASIC [2012] HCA 18

Shepherd, Stafford. "Ethics: Foreign in-house counsel and legal professional privilege." (Proctor, The 36.11 2016) 29.

Sydney Airports Corporation Ltd v Singapore Airlines Ltd and Qantas Limited [2005] NSWCA 47

UniformCivilProcedureRules2005”

van den Dungen, Peter, Robert Wyld, and Kenneth Chan. "Protecting in-house counsel privilege." Law Society Journal (the official journal of the Law Society of New South Wales52.4 2014) 26.

Dal Pont, Gino Evan. "Lawyers' Professional Responsibility." (2017).

van den Dungen, Peter, Robert Wyld, and Kenneth Chan. "Protecting in-house counsel privilege." Law Society Journal (the official journal of the Law Society of New South Wales52.4 2014) 26.

Harris, Jemima. "Down to business with legal privilege." (Proctor, The 37.2 2017) 24

Edwards, Elisabeth. "Engaging with corporate counsel: Tips for private practitioners to build a trusted legal advisor relationship." (Brief 43.7 2016) 8.

Alfred Crompton Amusement Machines Ltd v Customs and Excise Commissioners CA [1972] 2 QB 102

Miller, Katie. "Legal traditions in an age of disruption: How do lawyers decide what to keep and what to relinquish?." (Brief44.6 2017) 16

Dal Pont, Gino Evan. "Lawyers' Professional Responsibility." (2017).

Australian Securities & Investments Commission v Hellicar & Ors [2012] HCA17

Shepherd, Stafford. "Ethics: Foreign in-house counsel and legal professional privilege." (Proctor, The 36.11 2016) 29.

Harris, Jemima. "Down to business with legal privilege." (Proctor, The 37.2, 2017) 24.

Shafron v ASIC [2012] HCA 18

Corporations Act 2001 (Cth) s 180(1).

Corporations Act 2001 (Cth) s 1317E.

John, Rani, and Jonathan Ellis. "Protecting privilege during internal investigations: Is lawyer work product at risk?." LSJ: (Law Society of NSW Journal 33, 2017) 88.

Sydney Airports Corporation Ltd v Singapore Airlines Ltd and Qantas Limited [2005] NSWCA 47

Ritz Hotel Ltd v Charles of the Ritz Ltd (No.4) (1987) 14 NSWLR 100

Seven Network Ltd v News Ltd [2005] FCA 142

FinnJinPasinivVanstone[1999]FCA1271

5.3UniformCivilProcedureRules2005”

Legal Profession Uniform Law Australian Solicitors` Conduct Rules 2015