This week’s TGIF considers the recent decision of Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305 in which the Court held that privilege attached to an expert report prepared for the purpose of obtaining litigation funding.

WHAT HAPPENED?

The liquidators of the Hastie Group commenced proceedings against the Group’s former auditors (the Respondents) and were served with several notices to produce that required them, amongst other things, to produce documents which related to the attempts to secure litigation funding.

McDougall J was asked, on an urgent basis, to consider whether such material was privileged and found that, with very limited exceptions, the documents were not privileged.

The liquidators sought leave to appeal. The document that formed the basis of the appeal was an unsigned and undated expert report prepared and provided to a prospective litigation funder by the liquidator’s solicitors (Report).

The Report had not been singled out for mention before the primary judge and had been referred to in a broad category of documents.

There were three matters for the Court of Appeal to determine:

  1. Was the Report privileged?

  2. If so, had privilege been waived?

  3. Whether leave should be granted.

Was the Report privileged?

The liquidators contended that the Report was privileged and prepared for them on a confidential basis for use in formulating their case and in connection with the merits and/or funding of the anticipated proceedings.

However, much of the argument on appeal went to the sufficiency of the evidence led by the liquidators to establish that it was privileged. The Respondents argued that more needed to be done by the liquidators to discharge their evidentiary onus than simply relying on the formulaic statement “confidential communication…in connection with…”.

The Respondents also suggested that, notwithstanding the asserted lack of evidence to maintain a claim for privilege, the dominant purpose of the Report was ostensibly to assist the funder in its decision as to whether to provide litigation funding, which went no further than the potential creation of a relationship.

The majority of the Court (Beazley P and Macfarlan J) rejected the Respondent’s submission as to the level of evidence required to establish a claim for privilege on the basis that such arguments effectively raised the bar beyond the standard set by the High Court in Grant v Downs. It was stated by the plurality in that case, that a party may succeed in claiming privilege by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence.

With respect to whether the Report itself was privileged, the critical question for the Court was the reason for the preparation of the Report and whether it was prepared for the dominant purpose of the substantive proceedings.

An expert report of this nature may be privileged, depending on the particular terms of the document and, if that agreement contains material that expressly or impliedly conveys legal advice or strategy, it may be privileged.

The majority noted that, on the evidence before it, the Court was entitled to draw inferences from other proved facts. At first instance, the engagement letter to the expert was agreed by the parties to be privileged in that it was a confidential letter prepared for the dominant purpose of the Hastie Group being provided with professional legal services.

As such, in circumstances where the Report was prepared in response to the engagement letter, it could be inferred that the Report was also privileged.

Had privilege been waived?

The Respondents submitted, in the alternative, that privilege had been waived as the Hastie Group, through its liquidators, had acted in a way that was inconsistent with the maintenance of privilege in the Report.

This inconsistency was said to arise by the liquidators’ actions, in the course of seeking extensions of time for service of its statement of claim, relying upon, in explanation of its delay, the fact it had been seeking litigation funding. It was argued that such reliance had waived privilege in any documents relating to such dealings.

The majority held that waiver only operates where the contents of the privileged documents are relied upon. Merely referring to the privileged document is not enough to constitute waiver and the relevant inconsistency had not been established.

The Respondents also argued that privilege had been waived in the Report by its knowing and voluntary disclosure to prospective funders.

The majority referred to the statutory provisions which note that disclosure does not constitute waiver if it is made as a confidential communication.

Was leave granted?

The majority granted leave to appeal, however, Leeming JA dissented and reasoned that the Court’s indulgence should not be granted as:

  • the liquidators had not advanced the particular claim of privilege over the Report at first instance, in either the written or oral submissions, thus there was no “appellable error”; and

  • even if the Report was privileged, that was not the end of the inquiry as to whether leave should be given.

In order to obtain a grant of leave, in cases where there was no question of principle or general public importance, it was necessary for the liquidators to establish and show a clear injustice.

Leeming JA was not satisfied that disclosure of the Report, even if privileged, would lead to any appreciable injustice and considered that the threshold test to establish prejudice had not been met.

Comment

This decision confirms the threshold for evidence to establish a claim for privilege and serves as a reminder of the importance of demonstrating a connection to the Court of the circumstances and context in which a document was brought into existence and the provision of legal services.