Privilege during class action investigations - no client required

In brief

Our recently released Class Action Risk 2016 report highlights the effect of lawyer and funder entrepreneurialism on the class action landscape. Last week's decision in the ongoing confidentiality dispute between IOOF Holdings Limited and Maurice Blackburn has provided a rare insight into the way class actions are prepared, promoted and funded. The court has also determined that class action lawyers are able to claim privilege over advice given to potential funders or to themselves in connection with the preparation of a class action, before any prospective client has given them instructions. Partner Jenny Campbell and Associate Jerome Entwisle report.

Background

The Victorian Supreme Court's decision in IOOF Holdings Ltd v Maurice Blackburn Pty Ltd [2016] VSC 311 is part of an ongoing dispute between IOOF Holdings Ltd and Maurice Blackburn relating to the firm's investigation of a potential shareholder class action against IOOF.

The dispute primarily relates to the way in which Maurice Blackburn obtained information about IOOF and whether this involved potential contraventions of obligations of confidentiality by former IOOF employees to the company. IOOF instituted the proceedings in December 2015 seeking to restrain Maurice Blackburn from using the information to initiate a class action. To date, Maurice Blackburn has not filed a class action against IOOF.

In connection with this proceeding, IOOF obtained orders for discovery from Maurice Blackburn and its litigation funder Harbour Litigation Funding Ltd of documents relating to Maurice Blackburn's investigation into IOOF and investigation of the potential class action. Maurice Blackburn resisted discovery of the majority of these documents on the grounds that they were subject to legal professional privilege and this claim was largely upheld. This was despite the fact that a number of the documents were created before Maurice Blackburn had received instructions from a client.

The investigation

To determine whether Maurice Blackburn and Harbour had a valid claim for legal professional privilege over their investigation documents, the court considered in some detail the manner in which Maurice Blackburn investigated and assessed the viability of a potential class action against IOOF.

The judgment reveals that a significant amount of work was undertaken by Maurice Blackburn, in consultation with Harbour, before they were engaged by a potential plaintiff (referred to in the judgment as the First Period). This work included the following steps:

• In June 2015, immediately after IOOF's share price fell following damaging media articles about potential insider trading, Maurice Blackburn commenced an investigation into a potential class action by IOOF's shareholders against the company.
• At the same time, Maurice Blackburn contacted Harbour about potentially funding any action. Maurice Blackburn and Harbour quickly entered into a 'common interest and confidentiality deed' that listed Maurice Blackburn as the applicant for funding until a potential plaintiff was identified.
• Harbour then asked Maurice Blackburn for legal analysis of the prospects of success of any action, which would include advice from counsel and from Maurice Blackburn itself. Soon afterwards, in early July 2015, Maurice Blackburn provided Harbour with a confidential advice on the potential class action and counsel was also briefed to provide an opinion.
• Maurice Blackburn continued to progress the investigation throughout July, including meeting with a former employee of IOOF. The information received from the former employee gave rise to concerns about potential legal issues relating to confidentiality. An employee lawyer of Maurice Blackburn was asked to undertake legal research and report on those issues.

It was only in mid-July 2015 that Maurice Blackburn was engaged by a shareholder of IOOF and instructed to undertake an investigation into the potential class action. More work was undertaken from this date through to October 2015 (the Second Period) to determine the viability of any proceeding.

In October 2015, Maurice Blackburn publicly announced that it was investigating a potential class action against IOOF and invited interested shareholders to join the class action. Around that time, lawyers for IOOF wrote to Maurice Blackburn about their confidentiality concerns. This ultimately resulted in the present proceedings being commenced by IOOF in December 2015.

Privilege claims over Maurice Blackburn's documents

To determine whether Maurice Blackburn or, in the case of the Second Period, its client had a valid claim for legal professional privilege, the court applied the accepted principles relating to whether the 'dominant purpose' of the relevant communications was for legal advice or the client being provided with professional legal services relating to current or anticipated litigation.¹

With regard to the First Period documents, the court:

• accepted that Maurice Blackburn did not have a client during this period; but
• held that this did not preclude Maurice Blackburn from being the client itself and seeking its own advice on whether or not to take steps to advance the potential class action.

This was found to be the case not only in relation to documents created for the dominant purpose of Maurice Blackburn obtaining advice from counsel (which was found to include notes of conversations with the former employee) but also documents created in connection with the advice given to Maurice Blackburn by its employee lawyer. In the latter case, the employee lawyer was effectively treated as an 'in house' adviser who was sufficiently independent of her employer in relation to professional matters.²

In coming to its decision, the court accepted that Maurice Blackburn was engaged in assessing the potential class action against IOOF 'for its own possible commercial gain', as not only could it charge fees for running any eventual class action but it had the right under its costs agreements to recover its costs incurred during the investigation stage. The court rejected, however, IOOF's submission that this meant that the dominant purpose of the communications was a 'commercial purpose' and not to obtain legal advice.

During the Second Period, the court accepted Maurice Blackburn's evidence that it was acting under instructions from its client, despite the 'paucity of communication' between Maurice Blackburn and their client throughout this period. A valid claim of legal professional privilege was therefore available to Maurice Blackburn's client in relation to advice or communications in relation to legal services with respect to anticipated proceedings undertaken pursuant to its instructions – although the court did express some concern that Maurice Blackburn appeared to making this privilege claim on its client's behalf, without any evidence of instructions.

Privilege claims over Harbour's documents

Harbour separately claimed privilege over certain documents relating to communications with Maurice Blackburn.

Despite the fact that there was no 'traditional client/lawyer relationship' between Harbour and Maurice Blackburn, the court accepted that Harbour sought legal advice from Maurice Blackburn (despite not formally retaining them) and could claim privilege over that advice. Where documents that could be subject to a claim for litigation privilege by Maurice Blackburn's client where confidentially shared with Harbour, the court accepted that this may not amount to a waiver – although there was some doubt that a claim for privilege was in fact being made by Maurice Blackburn's client over those documents.

Harbour was, however, required to produce certain communications with Maurice Blackburn that related to proposed funding agreements for the class action as these were found to be 'commercial negotiations between…2 arm's length parties' and not for the dominant purpose of legal advice. This included Harbour's investment committee papers and returns analysis. This finding is noteworthy because it distinguished previous authority that had held that litigation privilege could apply to a funding agreement and related documents³ on the basis that, in this case, there was no evidence that any client had sought to claim privilege over the documents in question and Harbour could not claim litigation privilege in its own right (as it was not a potential party to the class action).

What does the decision mean for future class actions?

The decision is of interest to Australian companies not only because it provides a window into the usually opaque world of promoting and funding class actions, but also because of the court's findings as to the extent of legal professional privilege.

There are a number of ways in which documents created by class action lawyers in investigating a potential class action can later become relevant to the class action ultimately commenced, particularly where disputes arise as to the funding of the proceeding or the methods by which evidence was obtained. This decision suggests that most of these documents would be subject to a valid claim for privilege by the class action lawyers themselves. However, the case also suggests that careful consideration must be given to the nature of the documents in question as documents created solely for commercial purposes (such as negotiating a funding agreement with a potential funder) may not be covered by privilege.

The court's decision also raises an interesting conflict of interest issue that has not yet been adequately considered by the courts as it suggests that, at least during the early stages of a potential class action, class action lawyers may be acting as legal adviser to potential plaintiffs and to the funder (whose interests, particularly on funding terms, are not necessarily aligned), as well as receiving advice in relation to their own interest in the proceeding.