Care needed around communication of privileged information

A recent Australian decision found that a party had waived legal privilege by providing a report to their insurers: Asahi Holdings (Australia) Pty Ltd v Pacific Partners Pty Ltd (No 2) [2014] FCA 481.

The plaintiffs purchased Flavoured Beverages Group Holdings Limited (FBG) from the defendants and in accordance with the terms of the sale agreement the plaintiffs took out insurance to cover any loss that may arise from a breach of the warranties or indemnities.

The plaintiffs allege that they were misled in relation to the financial position of FBG. They had their solicitors produce a report to analyse the financial position of FBG at the relevant time (the report) and subsequently brought proceedings against the defendants. A redacted version of the report was provided to the defendants as part of the litigation process. A redacted version is where certain portions of a document are covered so the other side cannot see this content.

At the same time the plaintiffs made a claim with their insurer under the warranty and indemnity insurance and provided their insurers with an unredacted version of the report to support their claim. The defendants argued that the plaintiffs had waived privilege by providing the report to a third party and as a result were required to also provide the defendants with an unredacted version; the Federal Court agreed.

To waive privilege a party must act inconsistently with the confidence attached to the privileged item. The test is an objective one which will consider all the surrounding circumstances. Some of the factors that led the court to conclude that privilege had been waived included:

  • that disclosure of the report was voluntary (as opposed to compulsory by law or under the insurance agreement); and
  • the insurance policy specifically provided for a regime for the protection of privilege (this was in relation to a different context but could have been adopted for the report).

This decision highlights the importance of ensuring that any communication of privileged information is consistent with that privilege.

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