Jurisdiction - Australia
News
Australia – A Privileged Existence? When Receivers Claim Legal Professional Privilege, Is It For Themselves Or The Company In Receivership?

29 November, 2012

 

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

In brief

 

  • The decision in Carey v Korda [2012] WASCA 228 clarifies the manner in which legal professional privilege operates in connection with company receivers and managers and their legal advisers.
  • In this case, the appellant, Mr Carey, was a director of a company in receivership. He claimed a right to inspect documents related to the legal services provided to the receivers and managers of that company, arguing that the lawyers’ true clients were the companies in receivership and not the receivers and managers themselves. The receivers, Kordamentha, contended that they had engaged the lawyers in their own right; that the documents were privileged to them and that the director only had a right of access once the privileged parts were redacted.
  • The first instance judge, Edelman J, found that the receivers and managers were the true clients, and not the companies themselves. As a result they were entitled to maintain claims of privilege against the director. Edelman J also found that all the claims of privilege were made out over the relevant documents. On appeal, the Court of Appeal agreed that the receivers had engaged the lawyers in their own right. However, the Court considered that the receivers’ evidence was not sufficient to establish the privilege claims over all documents.

 

What happened?

 

In January 2006, Kordamentha were appointed as receivers and managers (“Receivers“) of the Westpoint group of companies.

 

Soon after their appointment, the Receivers engaged lawyers to act for them in connection with the receivership. The formal engagement letters named the clients of the lawyers, in relation to each company in receivership, as “[Westpoint entity] (Receivers and Managers appointed)”; but the letters were addressed to and signed by the Receivers themselves. The work performed by the lawyers was considerable. It included reviewing facility documents and considering priority issues; identifying assets and devising and implementing realisation strategies and; perhaps most notably, performing a large amount of work associated with managing an “unusually high litigation risk” posed by ongoing threats by a former director of the companies in receivership, Mr Carey, against the Receivers and the companies.

 

The lawyers’ work was charged to relevant companies in the Westpoint group and described, often with detailed narratives, in invoices rendered to those companies. The Receivers’ own fees and expenses were accounted for in a similar manner and described in “recharge schedules”, and also charged to relevant companies in the Westpoint group. Neither the lawyers’ or Receivers’ invoices distinguished between work concerning the Receivers’ obligations at law and under statute; and work undertaken by the Receivers as agents of the Westpoint companies in conducting their business or disposing of assets.

 

In August 2010, Mr Carey commenced proceedings seeking orders, among others, that the Receivers grant him inspection of documents recording payments made by the Westpoint companies to the Receivers and their lawyers, including the lawyers’ and Receivers’ invoices and work narratives. After being unsuccessful before Edelman J at first instance, Mr Carey appealed to the Court of Appeal.

 

What did the Court of Appeal decide?

 

The Court of Appeal (Murphy JA, with whom Martin CJ and Newnes JA agreed) noted that a privately appointed receiver is an agent of the company in receivership, but only in a very unusual sense. The agency exists not for the benefit of the company in receivership, but for the benefit of the receiver’s appointor and to assist in realising secured property. Receivers and managers will not act as agents in all respects; instead, whether they are acting as agents in a given situation will depend on the powers they are exercising and the functions they are discharging. The Court observed that this characteristic of receivership was important to an appreciation of how a retainer between receivers and their lawyers needs to be understood.

 

The Court then addressed the evidence about the lawyers’ retainer and the work they performed. The Court found that the correct conclusion from all the evidence was that the Receivers retained the lawyers to advise them in relation to their realisation of the assets of the Westpoint companies, and in the exercise of their powers and the performance of their duties, as receivers and managers and not as agents for the companies. The part of the evidence which referred to the Westpoint companies as the “clients” was better understood as a reference to the entity that would pay the fees. These conclusions were supported by the legal character of private receivership referred to above.

 

The Court of Appeal then turned to the question of Mr Carey’s right, as a director, to inspect financial records of the receivership under s 421 of the Corporations Act 2001 (Cth) in un-redacted form. The Court accepted that, unless the Receivers could successfully claim legal professional privilege over redacted portions of the recharge schedules and their lawyers’ invoices, Mr Carey would have a right to inspect those documents. The Court observed that the documents could be privileged if they revealed, or might tend to reveal, confidential communications made for the dominant purpose of giving or obtaining legal advice or receiving or providing legal services. Lawyers’ and accountants’ bills and narratives would not necessarily be of that type. It would depend on the circumstances in which the claim for privilege arose and the nature and details of the entries made in the bill.

 

The Court noted that, in this case, the evidence was that disclosure of particular redacted narratives from the lawyers’ bills and Receivers’ recharge schedules may reveal the “subject matter” of legal advice or litigation matters. The Court considered that this evidence was inadequate. It was necessary for the evidence to address directly how disclosure of the bills would reveal the content or nature of a confidential communication with respect to legal advice or litigation. The evidence in this case did not descend to this detail; and so the evidence was insufficient to sustain the claims of privilege over the lawyers’ bills and the Receivers’ recharge schedules.

 

Mr Carey also contended that the Receivers had waived any privilege that existed over the lawyers’ bills and Receivers’ recharge schedules by forwarding them to “third parties” (the relevant Westpoint companies) for payment. Further, Mr Carey said that since the Westpoint companies had paid the lawyers’ bills, they had a statutory right under the Legal Profession Act 2008 (WA) to tax the lawyers’ costs and that right extinguished legal professional privilege over the bills.

 

The Court of Appeal found that there was no waiver of privilege by the Receivers simply forwarding bills for payment to the companies of which they were receivers and managers. That was not disclosure to a “third party” given the unusual nature of private receivership; and the disclosure was not inconsistent with the Receivers maintaining confidentiality over any privileged communications contained in the bills. Finally, the Legal Profession Act 2008 (WA) did not extinguish legal professional privilege because its provisions were not explicit enough to bring about the destruction of such a fundamental common law right.

 

What is the significance of the decision?

 

The decision in Carey v Korda should be welcomed by insolvency practitioners. It provides important clarification of the unique character of the relationship between privately appointed receivers and managers, and the companies in relation to which they are appointed, and the consequences this relationship has for legal representation obtained and paid for in connection with the receivership.

 

The case confirms that:

 

  • Private receivers and managers are not true agents of the company in receivership and will only act as agents of the company in particular situations, such as in connection with the realisation of secured property. Such receivers are entitled to their own, independent legal representation in relation to the receivership and are not taken to have obtained that representation as agents of the company.
  • The ability to claim privilege over confidential communications pertaining to legal advice or litigation applies for the benefit of the receivers and managers themselves, and not the companies in receivership.
  • The fact that receivers and managers charge the costs and expenses of the receivership (including the costs of securing legal representation) to the companies in receivership does not make the companies in receivership the clients of the lawyers retained by the receivers, or result in a waiver of privilege.

 

This decision should provide comfort to insolvency practitioners that legal advice and representation they obtain in connection with the conduct of private receiverships is appropriately recognised and protected.

  

 











For further information, please contact:

 

Adrian Chai, Partner, Ashurst

adrian.chai@ashurst.com

 

Paul Walker, Ashurst

paul.walker@ashurst.com

 

 

Homegrown Dispute Resolution Law Firms – Australia

 

 

Leave a Reply

You must be logged in to post a comment.