In Carey v Korda receivers had been appointed to companies within the Westpoint Group. The directors of the mortgagor companies were dissatisfied with the receivers' conduct of the receivership and sought (amongst other things) to inspect the invoices from the receivers' legal advisers, Corrs. The receivers objected to producing the invoices on the grounds that they were privileged.
The directors of the mortgagor companies argued that as receivers acted as agents of the mortgagor company, Corrs were sub-agents of the companies and the receivers could not claim privilege over the invoices. Although the Court acknowledged that receivers acted as agents of the mortgagor company during their appointment, they noted that not all of the receivers' actions would be acts of the mortgagor company. Therefore to determine in what capacity the receivers had employed Corrs, the Court had to look to the express terms of Corrs' legal retainer. On a careful examination of the letters of engagement the Court found that the receivers had employed Corrs in their capacity as principals and not as agents of the companies. As a result, the Court rejected the argument of sub-agency and largely upheld the receivers' claim of privilege.
This decision highlights the importance of solicitors and receivers ensuring that their terms of engagement clearly identify in what capacity the solicitors have been engaged. If the terms of engagement fail to specify that they are acting for the receivers as principals, receivers may find themselves required to disclose sensitive communications to the mortgagor company, which they had initially assumed were privileged.
See Court decision here.