Can liquidators disclose legal advice to creditors without waiving privilege? Common interest privilege may assist.

Common interest privilege

Legal professional privilege protects communications between a lawyer and client created for the dominant purpose of seeking or providing legal advice or for current or anticipated litigation.

If advice is disclosed to third parties, there may be a waiver of that privilege.

However, section 122(5) of the Evidence Act 1995 (Cth) provides that waiver may not occur if disclosure is to a person with a common interest relating to a proceeding or anticipated proceeding.

Case law

In Southern Cross Airlines Holdings Ltd (In Liquidation) v Arthur Anderson & Co (A Firm) & Ors [1998] FCA 963 (Southern Cross), a liquidator’s report to creditors disclosed that the liquidator had obtained legal advice and the company had potential claims against a third party.

Drummond J held that because the outcome of the liquidator pursing those claims would ultimately make funds available for distribution to creditors, a summary of legal advice in a report to creditors was disclosure to persons who had a common interest with the liquidator, in the outcome of the litigation, and did not amount to waiver of privilege.

Since Southern Cross,cases have recognised a “common interest” between liquidators and creditors: see Fenwick v Wambo Coal Pty Ltd (No.2) [2011] NSWSC 353, In the matter of Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSW 543 and Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWSC 234.

Reports to creditors

Despite any common interest privilege protection, insolvency practitioners must be live to the practical risks that advice in reports to creditors might be disclosed to third parties or potential defendants.

Attention should be given to the extent of disclosure of legal advice in such reports and consideration given to:

  • providing summaries of advice;
  • removing or redacting privileged, confidential and/or commercially sensitive aspects;
  • entering into non-disclosure agreements;
  • providing recipients advanced warning that advice is privileged and confidential and should not be disclosed without the written consent of the liquidator.