Was privilege lost when the Insurer's EA Report was provided to the Insurer?
62 The central issue is whether disclosure to the Insurer was inconsistent with the confidentiality purpose protected by the privilege attached to the Insurer's EA Report. It seems to me that the appropriate starting point is to identify the nature of the confidentiality which was attached to the Insurer's EA Report. The nature and general content of that document is significant. As I have earlier indicated, the EA Report set out detailed particulars of conduct alleged to have caused various items of the FBGHL's EBITDA to be inflated or overstated. There is no issue that the Redactions are particulars of the same subject matter. The nature of the EA Report is that of a document providing particulars of the kind that may be provided to support a pleading. This is reinforced by the applicants' service of the FABP Memos as further and better particulars of the adjustments that the applicants' Statement of Claim alleges should have been made to the FBGHL's EBITDA. As identified earlier, the content of the FABP Memos is not identical but most of its content is the same as the content of the EA Report.
63 It is apparent then that the Insurer's EA Report is not a document which records communications between the client and its lawyer. It does not provide the lawyer's opinion on the law, the client's prospects of success or the strategy which ought to be adopted in the litigation. The confidentiality in question here is the kind of confidentiality which litigation privilege rather than advice privilege serves to protect.
64 The Full Court in Cadbury Schweppes identified the rationale for litigation privilege to be different from that of advice privilege (at [38]). At [42], the Full Court observed that the rationale of litigation privilege is to secure a fair trial within the adversarial process and to facilitate the common law mode of trial. As the Full Court observed by reference to a range of authorities:
All formulations emphasise, in one way or another, that the communications made or materials to be protected are those which are made confidentially between the client and the legal representative or otherwise come into existence for the dominant purpose of the litigation, and which are to be kept away from the opposing party.
[Emphasis added]
65 That point was earlier emphasised by the Full Bench at [37] when it said:
Whatever is the extent of confidentiality arising from litigation privilege, one element of confidentiality is essential, namely non-disclosure to one's opponent.
66 Put another way, the confidentiality purpose which litigation privilege serves to protect is to keep hidden from one's opponent or adversary (whether actual or potential) material that may prejudice the privilege holder or advantage his or her opponent.
67 Inconsistency will usually only be established by reference to a voluntary act of disclosure by the privilege holder. An involuntary disclosure is not the act of the privilege holder and cannot of itself give rise to inconsistency. The motivation for disclosure may however have some bearing upon whether the act of disclosure was or was not inconsistent with the maintenance of the confidentiality purpose.
68 It was not suggested here that the disclosure made by the applicants was not voluntary. Whilst the applicants had a duty of disclosure under the Policy, it was not contended that the duty extended to providing information which was protected by legal professional privilege.
69 Unlike many situations where an insurer and its insured may have a commonality of interest, the respondents contended that the particular and somewhat unique terms of both the Policy and the SSA, have, in the context of the claims made by the applicants both against the Insurer and the respondents, created an alignment of interest as between the Insurer and the respondents and a corresponding divergence of interests as between the applicants and the Insurer and the applicants and the respondents. The respondents relied upon the terms of the Policy and of the SSA which I have earlier described at [15]-[16] and [24]-[25].
70 Shortly stated, the respondents contended that it is in the interests of the applicants, in relation to both the claim made to the Insurer and the claim made in the proceeding, to establish that the Sellers engaged in misleading or deceptive conduct in relation to FBGHL's EBITDA. In relation to that same subject matter, and so as to avoid liability, it is in the interests of the Insurer and in the interests of the respondents to establish that the Sellers did not engage in misleading or deceptive conduct.
71 The applicants had no answer to that analysis and at least for the purposes of this application it should be accepted as correct.
72 The applicants contended, however, that there were interests which the applicants and the Insurer did have in common. It was said that they shared a common interest in assessing the liability of the Sellers. In my view, that interest is of little significance (Network Ten v Capital Television (1995) 36 NSWLR 278 at 283B) and provides no basis for countering the disparity of interests upon which the respondents rely. Secondly, the applicants contended that a commonality of interests arises from the Insurer's rights of subrogation under the Policy. The contention was not developed and is unpersuasive. There was no evidence that at the time the claim was made, the Insurers were likely to provide indemnity (cf. Bulk Materials v Coal & Allied Operations (1998) NSWLR 689 at 695). More significantly, as I have already noted, the Insurer's right of subrogation under clause 9 of the Policy is highly qualified and limited to an event of fraud by the Sellers. No allegation of fraud was raised by the Notice of Claim and the evidence before me did not suggest that any such allegation was then in contemplation or has since been raised.
73 The absence of any significant commonality of interests as between the applicants and the Insurer and the potential for disparate and competing interests by reason of the claim under the Policy provides a backdrop which, in my view, is significant. I take into account ILNZ's duty of disclosure under the policy but as earlier stated it was not contended that disclosure of privileged material was required so that ILNZ was effectively compelled to provide the Insurer with the information masked by the Redactions. This is a case where, on the facts (including those which arise from the concession made by the respondents) privileged information was voluntarily disclosed to a potential opponent.
74 However, even where a privileged document is provided to an opponent, the confidentiality in the disclosed communication may be preserved. If the basis upon which privileged material is made available is restricted so as to secure the confidentiality, the act of disclosure may not be inconsistent with the maintenance of the confidentiality which the privilege serves to protect.
75 Restrictions of that kind are obviously better effectuated by an express agreement which spells out the basis upon which the disclosure is made and the limitations upon its further use. However, agreement as to confidentiality may be implied from the circumstances in which the disclosure was made: Gotha City v Sotheby's [1998] 1 WLR 114 at 222 (Staughton LJ, with whom Aldous LJ and Hutchison LJ agreed) and see Australian Rugby Union Ltd v Hospitality Group Pty Ltd (1999) 165 ALR 253 at [44] (Sackville J); Bulk Materials at 695E; Rickard Constructions Pty Ltd v Rickards Hails Morett, Pty Ltd [2006] NSWSC 234 at [33] (Bergin J); and State of New South Wales v Jackson [2007] NSWCA 279 at [46]-[47] (Giles JA, with whom Mason P and Beazley JA agreed). In Berezovsky v Hine [2011] EWCA Civ 1089, the Master of the Rolls, speaking for the English Court of Appeal, said at [29]:
…where privilege is waived, the question whether the waiver was limited, and, if so, the parameters of the limitation, must be determined by reference to all the circumstances of the alleged waiver, and, in particular, what was expressly or impliedly communicated between the person sending, and the person receiving the documents in question, and what they must or reasonably have understood.
76 The applicants relied heavily on the judgment of Chernov J (with whom Warren CJ agreed) in Spotless Group Limited v Premier Building and Consulting Group Pty Ltd [2006] 16 VR 1. They contended that as in that case, here, the disclosure of the privileged communication to a third party was for a limited and a specific purpose and under conditions of confidentiality and accordingly the disclosure did not result in a waiver. The submission made by the applicants tended to suggest that a voluntary disclosure to a third party for a limited and specific purpose and under conditions of confidentiality created some exception to the governing rule that inconsistency between disclosure and the maintenance of confidentiality will destroy the privilege. However, it is absolutely clear from the judgment of Chernov JA that Spotless was no more than the faithful application of that rule (see at [26]-[29]).
77 The applicants contended that upon the disclosure of the privileged material to the Insurer, the Insurer was brought into 'the charmed circle' and was precluded from using the privileged material without the consent of the privilege holder. That contention was not made in reliance upon the principle of common interest privilege. It was said to arise from the context of confidentiality in which the disclosure was made. In that respect, the applicants relied upon three primary matters. First, the fact that the Insurer's EA Report was variously marked "Privileged and Confidential" or "Confidential and Privileged". Secondly, the fact that disclosure occurred pursuant to the Policy and that from the Insurer's duty of utmost good faith, an obligation of confidence should be implied, and thirdly the commonality of interests said to have existed between the Insurer and the applicants to which I have already referred.
78 In Berezovsky, disclosure was made as between friends and long-time commercial allies. The disclosure of what was described as "obviously sensitive" material was made principally for the benefit of the recipient although the contemplated use would have served the interests of both the privilege holder and the recipient. The material was provided under the cover of an email headed "Privileged and Confidential". The Court of Appeal determined that the privileged draft witness statements which were disclosed were provided on the basis that they would be utilised by the recipient for the purpose for which they were provided. That purpose was to assist the recipient in preparing his evidence and to ensure that there was no conflict between the recipient's anticipated evidence and that of the privilege holder. The witness statements were not to be used for any other purpose without the consent of the privilege holder. A waiver was found to have occurred, but only to that limited extent (at [34]).
79 From the point of view of the applicants, Berezovsky is the most supportive judgment that my research has been able to find. Its facts are distinguishable from the present and more favourable to the privilege holder than the facts of this case. Even so, the Court of Appeal held that waiver had occurred at least in relation to the objectively understood use for which the material was provided.
80 Here, the privileged material was provided as particulars given in support of a claim made under the Policy. The objective purpose of the provision of that material must clearly have included the use of it by the Insurer to assess the claim. The possibility must have been objectively contemplated that in assessing the claim, the Insurer may want to evaluate it by disclosing the information to others including persons who would not be under any restriction as to its further disclosure (see Amalgamated Television Services Limited v Marsden [1999] NSWCA 97 at [28] (Giles JA with whom Mason P and Handley JA agreed)). It must also have been objectively appreciated that the Insurer could use the information in open court should any legal proceeding be brought against it by ILNZ, if for example the Insurer rejected ILNZ's claim. It follows that it must have been objectively understood that in pursuit of the purposes for which the information was disclosed, its contents may pass into the public domain. In that context, the Insurer was not under an implied obligation not to disclose the contents of the Insurer's EA Report whilst pursuing the purposes for which it was provided (see further Seven Network Limited v News Limited [2005] FCAFC 125 at [35] (Allsop J) and NSW v Jackson at [44]-[51]).
81 It is necessary to recall Mr Marquet's evidence that the EA Report was prepared including so that the applicants could be advised in relation to any claim under the Policy and in preparing the Notice of Claim. That lawyers were utilised for that task not only points to a recognition by the applicants that their interests were potentially adverse to those of the Insurer, but more significantly, it serves to highlight the confidentiality purpose relating to the Insurer which was protected by the privilege which attached to the EA Report. That confidentiality purpose was, in plain language, to keep from the prying eye of the Insurer (for such time as may be necessary to best protect the interest of the applicants) any information that may prejudice the applicants in relation to the claim made under the Policy.
82 The disclosure of the information contained in the Insurer's EA Report for its use by the Insurer was entirely antithetical to that confidential purpose and thus was "inconsistent with the maintenance of the confidentiality which the privilege is intended to protect" (Mann v Carnell at [29]). In those circumstances, an implied waiver of privilege occurred. In my view, the waiver was complete and not merely limited to the Insurer. That is because as Gordon J reasoned at [16]-[17] of Cadbury Schweppes Pty Ltd v Amcor Limited (2008) 246 ALR 137, by reference to the observations made by Branson, Sundberg and Allsop JJ in Liberty Funding Pty Ltd v Pheonix Capital Limited [2005] 218 ALR 283, once the privilege holder provides the privileged information to another person and cannot control its further dissemination by that person, the privilege is destroyed. The representations made by Corrs to the Insurer (see at [20]) some three months after the disclosure did not alter that result.
83 Further, my conclusion that an agreement as to confidentiality is not to be implied from the circumstances is supported by the following matters:
Unlike Berezovsky, Spotless or Rickard Constructions, here, for the reasons previously explained, the privileged material was being provided to what must have been recognised as a potential adversary;
The terms of the Policy did not expressly require the Insurer to keep material provided by the applicants confidential, and no assurances as to confidentiality were sought or obtained from the Insurer (cf Woollahra Municipal Council v Westpac Banking Corporation (1994) 33 NSWLR 529) despite the fact that the disclosure was made as between sophisticated commercial parties and facilitated by a lawyer;
The Policy included a process by which material which was privileged could be provided to the Insurer on terms that would limit its use and maintain its confidentiality. Whilst that process was directed to Third Party claims, it nevertheless provided an agreed process which could readily be adopted for other claims;
Again unlike Berezovsky or Rickard Constructions, the material provided was not "obviously sensitive" or "obviously privileged" such that a reader of it would readily understand that the confidentiality of the material was intended to be maintained;
At the time the Notice of Claim was lodged and some two weeks prior to the disclosure, the Insurer was informed that legal proceedings would shortly be instituted against various of the respondents. The terms of the letter providing that information and the terms of the claim made on the Insurer would have made it apparent to the Insurer (as must have been known to the applicants) that the same or similar claims of misleading or deceptive conduct which supported ILNZ's claim under the Policy were about to be pursued against the respondents in this Court; and
By reason of the inter-relationship between the SSA and the Policy, including in particular the terms of clause 11.2(b) and 13.7 of the SSA, it must have been appreciated (at least by the applicants) that there was a possibility that the manner and extent to which the applicants had properly pursued any rights to recovery of their alleged loss against the Insurer would become (as it has become) an issue in this proceeding.
The prospect that the claim upon the Insurer could become (as it has become) an issue in this proceeding would have been understood as making it even more unlikely that sensitive material would have been provided to the Insurer or if provided, provided without express undertakings maintaining confidentiality designed to protect the applicants against the very kind of application which they currently face.
84 Those facts and circumstances do not support the proposition that it would have been objectively understood that the Insurer's EA Report contained material of a privileged nature. By reference to those circumstances, it would have been entirely reasonable for the Insurer to have assumed that what had been provided to it by way of particulars of conduct in support of the claim under the Policy would likely be provided to the respondents in support of the applicants' claim in the proceeding. That the applicants were minded to provide particulars of their claim to the Insurer which they intended to keep hidden from the respondents would, in the circumstances, not have been readily apparent. Nor was the Insurer likely to assume, given the confluence of their interests with those of the respondents, that the applicants would provide them with sensitive information of the kind which may advantage the interests of the respondents without requiring express restrictions as to the use of that material. Indeed, the absence of any attempt by the applicants to have the Insurer expressly agree to restrictive terms under which the disclosure would be made was likely have been objectively understood as flowing from the absence of any need for such restrictions because of the absence of any subsisting confidentiality.
85 In that context, the fact that "Private and Confidential" appeared at the head of each Memo would not have carried much weight and would likely have been objectively understood as a hangover from a prior use of the Memo. Such an impression would likely have been reinforced by the fact (which I would infer from the failure of the applicants to tender the covering letter) that the covering letter with which the Insurer's EA Report was provided said nothing about either confidentiality or privilege. At best, the designation "Private and Confidential" would have been objectively understood as intending that the information not be used for a purpose extraneous to the purposes for which it was provided.
86 In the light of all those facts and circumstances, Mr Marquet's subjective opinion that he expected that the Insurer would maintain confidentiality and privilege "consistent with their duty of utmost good faith" is a subjective view of little significance. I should add that beyond making a submission to the same effect, the applicants did not develop that argument at all. In circumstances where the proper law of the Policy is arguably the law of New Zealand, I do not even know whether the applicants' reliance on the duty of good faith is sourced in the Insurance Contracts Act 1984 (Cth), the common law of Australia or a particular law of New Zealand. In any event, it is difficult to envisage that a duty of utmost good faith could extend to preclude an Insurer from pursuing its legitimate purposes under a policy of insurance, including by using information provided by an insured to assess and/or resist a claim upon the policy.
87 The applicants also contended, in the alternative, that there was a common interest privilege between ILNZ and the Insurer and that no waiver occurred when privileged information was shared between them. The applicants relied upon the same alleged common interests as those relied upon for the primary contention, identified at [72].
88 This alternative contention must fail. For the reasons already given, I am not satisfied that ILNZ and the Insurer shared a sufficient commonality of interest let alone the necessary identity of interest required to found the privilege contended for. As, Giles J said in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 (at 6):
[w]hat is important is that, as Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd and Network Ten itself show, two persons interested in a particular question will not have a common interest for the purposes of the common interest privilege if their individual interests in the question are selfish and potentially adverse to each other. In such a case there will not be the necessary identity of interest.