The legal shield at the centre of KPMG’s latest controversy

More than a dozen current and former KPMG partners – along with lawyers, clients and regulators – will face an extraordinary parliamentary hearing on Friday (19 June) to examine a series of whistleblower claims relating to the internal misuse of confidential client data.

How forthcoming KPMG will be remains unclear.

Ahead of Friday’s hearing, chair of the Parliamentary Joint Committee on Corporations and Financial Services, senator Deborah O’Neill, warned the firm against any attempts to hide behind legal professional privilege.

During the last hearing, ASIC chair Sarah Court said the committee had issued notices to KPMG for the production of information related to the alleged conduct of a “number of registered company auditors”.

KPMG flagged that it intended to claim LPP over much of the investigation material.

In response to this, O’Neill said: “We have considered legal professional privilege abuse, and the overreach of legal professional abuse and its impediments … that it places on ASIC doing their job in the public good.”

“It would be incumbent upon those remaining at KPMG to cooperate fully with ASIC and not seek to abuse legal professional privilege in the way we have seen as a technique in the past,” O’Neill added.

In a statement to media, the Law Council of Australia (LCA) – the nation’s premier legal body – said it would be wrong to assume LPP claims made by regulators are “inherently scandalous and against the public interest”.

As the High Court held, the privilege is invoked by a person, not their lawyer, to resist the giving of information or the production of documents which would reveal communications between a client and their legal representation, made for the dominant purpose of giving or obtaining advice.

“This protection serves all Australians, not merely the powerful: the small business owner in a difficult commercial dispute, the parent navigating a family law matter, the individual facing a regulatory investigation. Every person who seeks legal advice is entitled to do so in confidence.

“Their confidentiality is the foundation on which frank, honest legal advice is built. Without it, clients cannot speak openly to their lawyers and may be dissuaded from seeking advice at all,” LCA said.

The privilege is not without its limits. For instance, it does not protect communications made to further fraud, crime or other improper purposes.

Any attempts to misuse or deceive through improper claims of privilege would also be outside the bounds of professional conduct and subject to the profession’s existing regulatory processes, LCA said.

However, it is important not to assume there is an improper motive.

“The assessment of whether a communication is in fact privileged is a question of law, and one that can sometimes be genuinely difficult. That is precisely why the courts, not public commentary or other external pressure, are the appropriate forum for resolving such questions,” LCA said.

There have been several key examples of LPP in major public-interest cases, such as Medibank v McClure. In it, Medibank engaged Deloitte Risk Advisory to conduct an external review into a serious cyber incident suffered by the financial giant between August and October 2022.

Medibank claimed privilege over three reports, but the Federal Court found it had not established the dominant purpose test, which requires that the ruling, prevailing, or most influential reason for creating a document must be to seek or provide legal advice, or for anticipated use in legal proceedings.

In Commissioner of Taxation v PricewaterhouseCoopers, the Federal Court found that there was a legitimate relationship between the lawyer and the client, but PwC had incorrectly applied privilege to more than half the documents.

LCA said it would not comment on the merits of particular privilege claims or the conduct of any party to “current public controversy” because they were matters for courts and relevant disciplinary bodies.

“What the Law Council does say – clearly and without qualification – is that client legal privilege matters, that it belongs to the client, and that its importance to our legal system and our democracy must not be lost in the noise of any particular dispute,” LCA said.