In Brief

A recent Federal Court of Australia decision highlights the need to carefully consider providing confidential legally privileged information to third parties, especially insurers, unless there are specific measures in place to preserve the confidentiality of such information.

In Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited (No 2) [2014] FCA 481, the frequently arising issue of potential waiver of privilege when policyholders provide such documents to their insurers was discussed. This decision provides important guidance on how policyholders should respond to requests from insurers for confidential documents.

Background

Independent Liquor (NZ) Limited (ILNZ) was the nominated purchaser for Asahi Holdings (Australia) Pty Ltd (Asahi) of shares in Flavoured Beverages Group Holdings Limited (FBG). In accordance with the share sale agreement, Asahi took out policies of Warranty and Indemnity Insurance, which covered ILNZ and Asahi for any loss arising from breaches of the warranties given to them by the sellers under the agreement.

Asahi and ILNZ (together, the applicants) subsequently issued proceedings alleging that that the respondent sellers engaged in misleading and deceptive conduct and breached certain warranties in relation to statements made about the financial position of a business operated by FBG.

In anticipation of the litigation, the applicants’ solicitors prepared a report in order to analyse the true financial position of FBG at the relevant time (Report). The applicants later provided a redacted version of the Report to the respondents in the course of the litigation, but asserted a claim for legal professional privilege over the redacted parts on the basis that it contained confidential legal advice provided to them by their solicitors.

Separately, the applicants had made a claim on the Warranty and Indemnity insurer (Insurer) and provided an unredacted version of the Report to the Insurer in support of their notice of claim under the policy.

The respondents sought a full, unredacted copy of the Report, on the basis that privilege in the Report had been waived by the applicants when they provided it to their Insurer.

The Decision

It was conceded by both parties that legal professional privilege attached to the original Report so the respondents were not entitled to see an unredacted copy of it unless the privilege had been waived. 

The key issue was whether privilege in the Report had been waived when a copy of the entire, unredacted Report was provided to the Insurer. If it had, the respondents were entitled to receive an unredacted copy of it.

It is well established that:

• whether privilege has been waived will depend on whether the client with the benefit of that privilege acts inconsistently with the maintenance of the confidentiality of the document in question,
• the test for determining inconsistency is an objective one which will take into account the relevant circumstances surrounding the alleged waiver, and
• this means that there may be an implied waiver of privilege even though this may not reflect the subjective intention of the privilege holder.

In this case, the Court found that privilege in the Report had been waived by providing it to the Insurer.

The judgment provides a valuable summary of the principles which a Court will take into account in determining a waiver of privilege issue in an insurance context:

1. The Report provided to the Insurer was the subject of ‘litigation privilege’ rather than ‘advice privilege’. This meant that the purpose for which confidentiality was sought to be maintained was to keep the Report hidden from the applicants’ actual or potential adversary in litigation.
2. The disclosure of the Report to the Insurer was voluntary – which is a fundamental indicator of acting inconsistently with the privilege. While the applicants had a duty of disclosure¹ under the policy, that duty did not extend to providing information that was protected by legal professional privilege. Accordingly, the applicants were not compelled to provide an unredacted version of the Report to the Insurer.
3. The applicants and the Insurer did not have a common interest. This was supported by the fact that at the time the Report was provided, there was no basis to say that the Insurer was likely to cover the insurance claim. To the contrary, in the context of the substantive claim, there was an alignment of interest between the Insurer and the respondents to establish that there had been no misleading and deceptive conduct (and that the warranty had not been breached). In effect, privileged information was voluntarily disclosed to a potential opponent, being the Insurer.
4. The terms of the policy did not expressly require the Insurer to keep material provided to it confidential and no assurances as to confidentiality were sought or obtained from the Insurer.
5. The fact that the Insurer was subject to a duty of utmost good faith did not create any confidentiality obligation or restriction on the use of the Report for the purposes for which it would have been understood to have been provided.
6. An agreement as to the confidentiality of the Report could not be implied from the circumstances. At the time of providing the document, coverage under the policy had not been confirmed by the Insurer. Accordingly, the objective purpose of providing the Report must have included the use of it by the Insurer to assess the claim under the policy. It followed that it must have been objectively understood that its contents may lose their confidentiality (for example if the Insurer needed to provide it to another third party for the purpose of helping it assess coverage for the insurance claim, or if proceedings were commenced in relation to the insurance claim).
7. Further, the Report was not obviously sensitive or obviously privileged so that the reader of the material would understand that the confidentiality of the material was intended to be maintained. The fact that ‘Private and confidential’² appeared on the document did not carry much weight. It only reflected the intention that the information not be used for extraneous purposes.
8. Finally, confidentiality in the Report was not apparently expressly reserved when it was disclosed. That is, there was no express agreement or even a stipulation spelling out the basis upon which the Report was disclosed nor were any limitations of the further use of the Report stated when it was provided to the Insurer.
9. In this context, the Judge also noted that:

1. The covering letter with which the Report was provided to the Insurer was not tendered as evidence of any attempt to reserve rights of confidentiality in the Report; and
2. The policy specifically provided for a regime for the protection of privilege in documents in a different context which could have been adopted in relation to the Report, but was not.

What Are The Implications?

The decision emphasises the need to carefully consider and manage the disclosure of confidential legally privileged material to insurers, as well as other third parties. To preserve privilege, it is important to act consistently with the maintenance of confidentiality. Before providing privileged information to an insurer, a policyholder should consider issues such as:

1. Is it compulsory to provide the information? While voluntary disclosure does not of itself necessarily waive privilege, caution should be taken in providing privileged material to insurers when there is no legal necessity to do so.
2. Is there a common interest with the insurer? This will likely require that coverage has been or clearly will be granted such that the interests of both the policyholder and the insurer in the content of the document are aligned.

Is there a clear agreement on the confidentiality of the material and its intended use? Do not rely on simply marking documents ‘Confidential and Privileged’ or the existence of a duty of utmost good faith to preserve confidentiality and privilege. Steps should be taken to seek agreement from the Insurer that documents provided will be kept confidential or at least the policyholder should expressly reserve rights to the confidentiality of the information provided, identify the permitted uses of the information and stipulate that further dissemination is prohibited or restricted for certain purposes.

End Notes:

1. Although unclear on the face of the judgment, it appears that the ‘duty of disclosure’ referred to is the obligation to provide information in co-operating with an insurance claim, rather than a pre-contractual duty of disclosure.
2. The judgment refers to the Report being marked both ‘Private and Confidential’ and ‘Privileged and Confidential’. It is unclear which term was used, but it seems unlikely that this would impact the outcome.
3. A copy of the full judgment is available here: Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited (No 2) [2014] FCA 481.

For further information, please contact:

Mark Darwin, Partner, Herbert Smith Freehills

[email protected]

Peter Holloway, Partner, Herbert Smith Freehills

[email protected]

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