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INSIGHT

The Federal Court on information to third parties, legal professional privilege and waiver

21 May 2014
Banking & Finance Disputes & Investigations Risk & Compliance

In brief

A recent Federal Court decision highlights the importance of managing the provision of information and documentation to third parties with caution in order to preserve legal professional privilege. Partner Richard Harris and Senior Associate Elnaz Nikibin report on the case.

Jump To

  1. Background
  2. The decision
  3. Summary/commentary

How does it affect you?

  • The Federal Court's decision in Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited [2014] FCA 481 reinforces the substantial risks associated with providing otherwise privileged materials to third parties, and in particular, the risks in providing documentation to insurers in circumstances where interests are not necessarily aligned and such information or documentation is susceptible to being passed into the public domain.
  • Where information or documentation is being provided to a third party, such as an insurer, it remains important to take active steps to preserve legal professional privilege. This will include:
    • taking steps to preserve confidentiality;
    • limiting the purpose and use of such information or documentation; and
    • an assessment of the factual circumstances surrounding the disclosure (including consideration of any conflicting interests between the parties).
  • Real caution should be exercised in all circumstances before any privileged information is provided to a third party. Where the adequacy of the steps taken is unclear, advice should be sought.

Background

The substantive proceedings concern a claim by Asahi Holdings (Australia) Pty Ltd (Asahi) and Independent Liquor (NZ) Limited (ILNZ) (collectively, the Applicants) that the shareholders of a business (the Sellers) misrepresented the financial position of a business operated by Flavoured Beverages Group Holdings Limited (FBGHL). Shares of FBGHL were purchased by ILNZ as the nominated purchaser for Asahi. In accordance with the relevant share sale agreement, Asahi took out policies of warranty and indemnity insurance with American House Company and a number of excess layer insurers (the Insurers) to insure Asahi or its nominee against breaches of the insured warranties provided by the Sellers.

The Applicants' solicitors prepared a report which particularised the items of adjustment allegedly necessary to reflect the true financial position of FBGHL at the relevant time (the Report). The Applicants sent a notice of claim to the Insurers and provided a complete copy of the Report. A masked copy of the Report was provided to the Sellers (also the Respondents) in the course of disclosure in the proceedings. The Report was masked on the basis that those sections were protected from disclosure due to legal professional privilege.

The decision

The case proceeded on an assumption that the Report was otherwise privileged. The question was, in essence, whether any privilege was lost because an unmasked copy of the Report was provided to the Insurers.

Justice Bromberg found that privilege in the Report had been waived. In reaching his decision, his Honour noted the following central guiding principles which govern waiver at common law:

  • the client is entitled to the benefit of legal professional privilege but may relinquish that entitlement;
  • the client acting inconsistently with the maintenance of the confidentiality in the communication can amount to a waiver of privilege where it gives rise to an unfairness;
  • the test to determine when the client has acted inconsistently is an objective one so that implied waiver may be found notwithstanding that it may not reflect the actual subjective intention of the privilege holder; and
  • voluntary disclosure to a third party does not necessarily waive privilege provided it occurs with sufficient protections.

Justice Bromberg pointed to the following key factors in support of his decision:

  • there was an absence of any commonality between the interests of the Applicants and the Insurers and, conversely, a real potential for disparate and competing interests by reason of the claim under the relevant insurance policy;
  • the unmasked copy of the Report was not compelled but voluntarily disclosed by the Applicants to the Insurers, potential adversaries;
  • there was no express or implied confidentiality agreement between the parties as to the information contained in the Report. While the Report had been marked 'Private and Confidential', Justice Bromberg took the view that it could not be objectively understood that the Insurer's copy of the Report contained material of a privileged nature. Such markings were determined to simply reflect the intention that the information not be used for a purpose extraneous to the purposes for which it was provided; and
  • the objective purpose for providing the Report to the Insurers must have included the use of the Report by the Insurers to assess the claim, including by disclosing the Report to third parties and the use of the Report in open court should any proceedings be brought against it by ILNZ. Consequently, Justice Bromberg took the view that the waiver was complete and not merely limited to the Insurers.

Summary/commentary

This case confirms the court's focus on perceived inconsistencies between an act of disclosure and the maintenance of privilege when determining whether legal professional privilege has been waived.

While the issue of waiver will be determined based on the particular facts and circumstances of the case, privilege holders should be aware that steps can be taken to help preserve privilege while also meeting any commercial demands associated with the need to provide information or documentation to third parties. Parties need to take particular care in circumstances where an insurer seeks (or demands) access to privileged material. In many instances, its disclosure will be in neither parties' long-term interests.