Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited1
Care should always be taken by an insured when disclosing privileged material to an insurer lest they inadvertently waive privilege over the document. The recent Federal Court decision of Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited found that the insured had waived privilege as between themselves and a defendant whom they were making a claim against when a confidential report produced by their solicitors was disclosed to their insurer.
This case is important as it highlights the risks associated with policy holders providing legally privileged information to insurers without first ensuring that adequate steps are taken to preserve legal professional privilege.
The key facts
Independent Liquor (NZ) Limited (ILNZ), as nominee for Asahi Holdings (Australia) Pty Ltd (insureds), purchased shares of a business operated by Flavoured Beverages Group Holdings Limited (FGB). The insureds took out policies of Warranty and Indemnity Insurance (Policy) against any loss associated with breaches of warranties provided by the sellers in accordance with the share sale agreement.
The insureds subsequently initiated legal proceedings against the sellers on the basis they had misrepresented the financial position of FGB. Anticipating litigation, the insureds’ solicitors produced a report (the Report) which particularised the items of adjustment said to be necessary to reflect the true financial position of FGB at the relevant time.
In addition, the insureds had made a claim for loss occasioned by the breach on the Warranties and Indemnity insurer (insurer) and provided a complete version of the Report marked “Privileged and Confidential” to the insurer. A redacted copy of the Report was provided to the respondent sellers in the course of discovery during the legal proceedings.
The respondent sellers sought a full unredacted copy of the Report on the basis that privilege had been waived by the insureds upon disclosing the complete copy to the insurer.
The central issue was whether the disclosure of the Report to the insurer was inconsistent with the confidentiality purpose which would thereby amount to a waiver of litigation privilege. The confidentiality purpose which litigation privilege serves to protect is to keep hidden from one’s opponents or adversaries material that may prejudice the privilege holder.
The insured argued that there had not been a waiver of privilege and relied upon three primary matters:
- The Report was marked ‘privileged and confidential’.
- Disclosure occurred pursuant to the Policy and that from the insurer’s duty of utmost good faith, an obligation of confidence should be implied.
- Commonality of interest that existed between the insurer and insured.
The Court rejected these submissions and found that privilege in the Report had been waived.
The Court also held that there was no common interest privilege extant between insured and insurer – it found that the insurer and insured’s interests were potentially adverse to each other due to the claim being advanced by the insured against the insurer under the relevant insurance policy. There was no evidence that the insurer was likely to provide indemnity and indeed the interests of insured and insurer were disparate for a number of reasons. The Court found that this was a case where, on the facts, privileged information was voluntarily disclosed to a potential opponent.
The judgment provides a valuable summary of key principles which a court will take into account in determining a waiver of privilege and include:
- A client acting inconsistently with the maintenance of the confidentiality in the communication can amount to a waiver of privilege.
- That the test to determine when the client has acted inconsistently is an objective one, so that implied waiver may be found notwithstanding that it may not reflect the actual subjective intention of the privilege holder.
Applying these principles to the facts, Justice Bromberg concluded that objectively:
- Upon assessment of the claim, the insurer may want to evaluate it by disclosing the information to others including persons who would not be under any restriction to its further disclosure.
- The insurer could use the information in open court should any legal proceeding be brought against it by the insured, if for example the insurer rejected the insureds claim.
- In pursuit of the purpose for which the information was disclosed, its contents may pass into the public domain.
In reinforcing His Honour’s position that the waiver of privilege was complete and not merely limited to the insurer, he referred to Gordon J’s reasoning in Cadbury Schweppes Pty Ltd v Amcor Limited (2008) whereby Her Honour stated:
“Once privilege holder provides the privileged information to another person and cannot control its further dissemination by that person, the privilege is destroyed.”
The insureds were thereby ordered to produce an un-redacted copy of the Report to the respondents.
Irrespective of the insureds having an obligation to disclose information to the insurer under the policy, it was not contended that the duty extended to providing information which was protected by privilege.
Despite privilege being waived in this instance, policy holders should understand that where a privileged document is provided to an insurer in circumstances where that insurer might become an adversary, it is advisable for the insured and insurer to enter into a confidentiality agreement. By doing so, the chances of defeating a waiver argument are improved.
An express agreement which sets out the basis upon which the disclosure is made and the limitations upon its further use is accordingly recommended when providing insurers with legally privileged information, particularly in instances where common interest privilege might not arise immediately.