CATCHWORDS: COMPANY LAW - s556 (1) Companies (NSW) Code; s592 (1) Corporations Law; liability of directors for debt of company - legal professional privilege - distinction between joint and common interest privilege - waiver.

On 16 March 1990, the appellant entered into a loan agreement with the CH Webb Bros Pty Limited. At the time the respondents were its sole directors. Advances were made pursuant to the loan between 27 March 1990 and 18 June 1991. The company failed to repay the greater part of the debt, and on 24 June 1991 CH Webb was wound up. The appellant began proceedings against the respondents to recover the amount of the debt, claiming that before each advance was made there were reasonable grounds to expect either that the company would not be able to pay all its debts as and when they became due or, alternatively, that if the company incurred the debt, it would not be able to pay all its debts as and when they became due; s556 (1) of the Companies (NSW) Code and s592 (1) of the Corporations Law.

Documents, which were created as a result of instructions received and acted upon by a firm of solicitors which acted for CH Webb, as well as for each of the respondents on a personal level, came into custody of the liquidator. After inspecting the subject matter of the documents, the appellant's solicitor forwarded them to a chartered accountant. His report concluded that by May 1990 there were reasonable grounds to expect that CH Webb would not have been able to pay all its debts as and when they fell due, and that the respondents were aware of this.

The respondents made an application for an order restraining the appellant from using the information contained in the documents on the grounds that it attracted legal professional privilege, and that the respondents could avail themselves of this.

Young J, while finding that CH Webb was entitled to claim privilege with respect to the documents, rejected the submission that the respondents had retained the solicitors and, ipso facto, could avail themselves of the privilege because there was no evidence that the respondents had reasonable grounds to believe that the firm giving the advice were their solicitors. However, his Honour went on to find that there was a joint privilege because the information was sought from the solicitors on behalf of both CH Webb and the respondents themselves. Since a joint privilege could only be waived by all who were protected by it, the respondents were entitled to invoke it. The appellant appealed from this decision.

1. There was sufficient commonality of interest between CH Webb and other associated companies and the respondents to afford to the respondents the protection of legal privilege. Young J erred in finding that there was no evidence that the respondents had reasonable grounds to believe that the solicitors acted for them in a personal capacity, because the firm had been each of the respondent's personal solicitors for a number of years. The evidence supported the conclusion that information was sought on behalf of both the companies and the respondents, and for that reason the privilege could be categorised as joint.

(per Meagher JA dissenting) There was no joint interest between the company and the respondents. The respondents may have been `interested' in the information in a lay sense, but not in a legal sense. The result would have been different had the respondents and the company jointly sought the advice.

2. It is important to distinguish between joint privilege and common interest privilege. Where there is a joint privilege, all to whom it belongs must concur in waiving it.

Lee v South West Thomas Regional Health Authority [1985] 1 WLR 845.

3. Where a common interest question arises, the issue of waiver is less rigidly defined. In the case of common privilege, as distinct from joint privilege, it would not always be the case that all interested parties must concur in waiving the privilege.

(per Meagher JA dissenting) `Common interest' cases establish only that if a company discloses privileged documents to its directors, but does nothing else, then this does not constitute a waiver of the privilege. That was not relevant to this case.

4. The privilege attached to legal advice obtained by a company is not lost when it is disclosed to its directors, because they receive and act upon the information as the directing will of the company. There is no waiver in this situation.

Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52 at 61; Tesco Ltd v Nattrass [1971] UKHL 1; [1972] AC 153 at 171.

5. Once parties with a common interest have provided to one another the contents of privileged communications concerning the subject of their common interest, the question of whether the privilege is lost with its waiver by one must be determined by asking whether the waiver has made it unfair for the other parties to maintain the privilege. Even if the privilege were not joint, waiver by the liquidator could not as a matter of fairness be treated as waiver by the respondents in these circumstances.

Attorney-General for the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 488.

MEAGHER JA: I have read carefully the judgment of Sheller JA but find that I cannot persuade myself to agree with it. I do not disagree with his Honour's statement of the facts. It is his conclusion which for me does not carry conviction.

Whatever interest the directors had in the documents (and in the information contained in them), it was not a joint interest. It was obtained by C.H. Webb, was paid for by C.H. Webb, and provided by a solicitor retained by C.H. Webb. The privileged documents certainly dealt with the legal position of C.H. Webb's directors, and it was doubtless in the company's interest that it should know how its directors stood. The directors were obviously "interested" in the privileged material in a lay sense, but in a legal sense they had no interest in it. Things would be otherwise if, as could have happened, the directors and the company jointly sought the advice.

Once it is perceived, as I think it should be, that there is no joint interest, it must follow that waiver by the person in whom the privilege is vested (viz. C.H. Webb) makes it impossible for other persons to claim privilege in respect of it: see Donaldson M.R. Lee v South West Thomas Regional Health Authority [1985] 1 WLR 845. Here, it is conceded C.H. Webb has waived its privilege.

In my view, the so-called "common interest" cases have nothing to do with the matter. They establish that if, for example, C.H. Webb disclosed the privileged documents to the directors but did nothing else, that disclosure does not constitute a waiver of privilege, and further that no person may obtain such documents from the directors. That is not the case here.

By statement of claim Farrow Mortgage Services Pty Limited (In Liquidation) (Farrow), the appellant, began proceedings against the respondents, Graeme Douglas Webb, Terry James Manderson and Peter Douglas Spargo, who at all material times, until it was wound up, were the sole directors of CH Webb Bros Pty Limited (CH Webb). Amongst other things Farrow alleged that on or about 16 March 1990 while the respondents were directors, it entered into a loan agreement with CH Webb pursuant to which it made advances between 27 March 1990 and 18 June 1991. The advances with interest due at the end of that period came to a sum of over $14 million. Apart from a relatively modest amount, CH Webb failed to repay the money lent or interest. On 24 June 1991 CH Webb was wound up and James Millar appointed its official liquidator. Part of Farrow's claim against the respondents was based on an allegation that before each advance was made there were reasonable grounds to expect either that CH Webb would not be able to pay all its debts as and when they became due or, alternatively, that, if CH Webb incurred the debt, it would not be able to pay all its debts as and when they became due; s556 (1) of the Companies (NSW) Code and s592 (1) of the Corporations Law. Accordingly the respondents were jointly and severally liable for the whole of the debt.

Robilliard & Robilliard were CH Webb's solicitors and also, according to the evidence, for a period from before 1988, the personal solicitors of each of the respondents. When CH Webb went into liquidation eight documents, the subject of this appeal, came into the custody of the liquidator. The documents are described in paragraphs (a) to (h) of a Schedule to the respondents' notice of motion of 3 April 1995 and were created as the result of instructions received and acted upon by Robilliard & Robilliard.

Broadly the eight documents fall into three categories. The first comprises documents described in paragraphs (a) "Memorandum to JMN Rolfe QC from MS Willmott dated 8 March 1989" and (b) "Advice re: Bonfell Pty Limited and Boston Australia Limited" which concerned a $15 million loan made by Boston Australia Limited (Boston) to Bonfell Pty Limited (Bonfell), of which, at the relevant time, Mr Webb was "the controlling shareholder". CH Webb had guaranteed repayment of the loan to Boston. The memorandum from Junior to Senior Counsel described in para (a) disclosed that CH Webb was at the time negotiating two large building and construction contracts. The respondents wished to know whether, if as directors of CH Webb they declined to enter into these contracts, they might form a separate company and, as directors of that separate company, negotiate for the construction work. About this the writer expressed an opinion. The advice of Mr Willmott described in para (b) referred to Bonfell as "your client" and was primarily concerned with Boston's rights against Bonfell. However it also dealt with CH Webb's "Deeds of Indemnity and Guarantee" and a resolution of the directors of another company, Graeme Webb Investments Pty Limited, for that company to allot redeemable preference shares to CH Webb.

The second category of documents concerned arrangements existing or proposed between CH Webb, Ortex Australia Pty Limited (Ortex Australia) and Ortex Systems International Limited (OSI), a Hong Kong company. Mr Webb owned 50 per cent of the shares in Ortex Australia. As its heading suggests, the document described in para (c) "File note entitled `Ortex Australia Pty Limited Non-Recourse Loan Scenario' dated 3 May 1990", concerned a proposal for "non-recourse loans" from CH Webb to OSI and from OSI to Ortex Australia. At the foot of the document is written "Concern: If liquidator appointed to CH Webb Bros Pty Limited could he overturn these loan agreements and force repayment of loans". In the document described in para (d) as "Instructions to Michael S Willmott from Robilliard & Robilliard, Solicitors, dated 4 May 1990", Robilliard & Robilliard stated that they acted on behalf of Ortex Australia and disclosed a proposal that Ortex Australia sell its "records management business" to OSI. The solicitors said that, in the event of CH Webb being put into liquidation (or having receivers appointed), their client would not wish such liquidator or receiver to be able to demand repayment of the loan to OSI. However not only was advice sought as to the proposed "non-recourse loans" but counsel was "also requested to advise as to whether he considers that the proposals outlined above may lead to any personal liability on the part of the directors of any of the companies referred to". The document described in para (e) is a letter from Robilliard & Robilliard to Michael S Willmott dated 24 May 1990 seeking advice about a draft loan agreement and also, having regard to a letter received by CH Webb demanding payment pursuant to the Bonfell guarantee, advice about whether "the directors of CH Webb Bros Pty Limited, in making the loan proposed, are acting in the best interests (of) the company and its creditors". The document described in para (f) is "Advice re: Ortex Australia Limited and associated companies dated 6 June 1990". In the course of that advice Mr Willmott stated: "I also point out the provisions of s453 of the Companies Act which empower the liquidator in certain circumstances to recover from, inter alia, a director in respect of certain transactions entered into by the company".

The third category of documents concerned the consequences of the appointment of an administrator and subsequently a provisional liquidator to Farrow. The document described in para (g) "Pages 2 to 5 of a brief to advise Mr RG Kaye dated 22 February 1991" referred to the guarantee of Bonfell's debt and to loans from Farrow secured by mortgage. The full brief to advise was in evidence. At the beginning Robilliard & Robilliard stated "We act on behalf of the Webb group of companies". The brief to advise said: "The directors of CH Webb Bros Pty Limited have requested us to advise the company and them in relation to the above guarantees". Again questions were raised as to whether CH Webb should continue to enter into new building arrangements or whether a new entity should be established with the same directors and probably the same shareholders. If so, could the establishment of such a new entity be a breach of duty "which the directors of CH Webb Bros might have to the lenders under the terms of the above mortgage facilities, ie is there any duty by CH Webb Bros Pty Limited or its directors to such lenders (under the circumstances) not to reduce assets or to continue trading"? Finally the document described in para (h) "Memorandum of Advice by RG Kaye dated 12 March 1991" stated that instructing solicitors acted on behalf of CH Webb which was part of the Webb group of companies and went on: "In view of a perceived potential liability pursuant to both various guarantees and in the company's capacity as borrower respectively, the directors are concerned to ensure that they are not breaching any duty which may be owed to the company and, in particular, to the company's creditors". The advice counselled the directors as to the nature of their duties to creditors and indeed was in large measure concerned with that question.

Young J said that three subject matters were being addressed in the communications between CH Webb and its advisers:

(b) the duties of the directors of the company; and

(c) the potential liability of the directors to third parties.

His Honour regarded advice given under (a) as primarily given to the company, though the directors were doubtless interested as directors of the company, (b) as given to both and (c) as a matter which really only concerned the directors in their personal capacity.

The liquidator made the eight documents available to Farrow. Farrow's solicitor inspected them and obtained a report from Maxwell William Prentice, chartered accountant, dated 1 December 1994. Mr Prentice used the documents to make his report and concluded on the basis of statements contained in them together with other facts that by May 1990 there were reasonable grounds to expect that CH Webb would not be able to pay all its debts as and when they became due, which the respondents knew. On 17 January 1995 the respondents were served with the Prentice report. On 1 March 1995 Farrow gave further discovery including the documents to which I have referred.

On 3 April 1995 the respondents filed their notice of motion for an order restraining Farrow from using any information derived from the documents listed in the Schedule on the ground that they attracted legal professional privilege of which the respondents could avail themselves; compare Lord Ashburton v Pape [1913] 2 Ch 469. On 9 August 1995 Young J heard the application and on 16 August 1995 gave judgment in favour of the respondents, effectively making the orders sought. Farrow appeals from this decision.

Young J found that CH Webb retained Robilliard & Robilliard to obtain the advice and accordingly was entitled to claim legal professional privilege in respect of the documents. But the liquidator had waived that privilege; Mercantile Credits Limited v Dallhold Investments Pty Limited (In Liquidation) [1994] FCA 1398; (1994) 15 ACSR 230 at 235 and following. His Honour rejected the respondents' submission that the solicitors were retained jointly by CH Webb and the respondents or by the respondents at all. However his Honour held that the privilege was available not only to the person who retained the solicitor but also to those who had a common interest with that person or believed on reasonable grounds that the person giving the advice was his or her solicitor; Global Funds Management (NSW) Limited v Rooney (1994) 36 NSWLR 122 at 134 per Young J. His Honour said there was no evidence that the respondents ever thought or had reasonable grounds to believe that Robilliard & Robilliard were their solicitors. That left "the aspect of joint privilege". Young J held that, despite the paucity of evidence, the information was sought on behalf of both CH Webb and the respondents and there was a joint privilege which could only be waived by all who were protected by it. Since the respondents had not waived the privilege, they could invoke it.

In their notice of contention the respondents argued that Young J's decision should be affirmed on the ground that the respondents, as well as CH Webb, retained Robilliard & Robilliard. Neither a formal retainer nor the payment of fees was necessary to constitute the retainer of a solicitor. It was enough if the adviser was consulted in a professional capacity: Phipson on Evidence, 14th ed, 20-16. Alternatively the respondents had reasonable grounds for believing that they were the clients with CH Webb of Robilliard & Robilliard for the purpose of the documents in question.

Legal professional privilege protects from disclosure confidential communications between legal adviser and client and rests not simply upon the confidence reposed by the client in the legal adviser but the necessity, in the interests of justice, of carrying it out; Russell v Jackson [1851] EngR 955; (1851) 9 Hare 387 at 391; [1851] EngR 955; 68 ER 558 at 560. Until recent times the strong tendency of judicial opinion was to regard this protection as "fundamental to the due administration of justice", to use the words of Stephen J in Smorgon v Australian and New Zealand Banking Group Limited [1976] HCA 53; (1976) 134 CLR 475 at 488. In Baker v Campbell (1983) 153 CLR 52 at 66 Gibbs CJ said:

"More recently, doubts have been expressed as to the value of the privilege (see Grant v Downs [1976] HCA 63; (1976) 135 CLR 674 at 685-6; and O'Reilly v State Bank of Victoria Commissioners [1983] HCA 47; (1983) 153 CLR 1 at 26) and greater emphasis has been laid on the fact that it conflicts with another important principle of public policy, namely that all relevant evidence should be adduced to the court when it makes its decision: see also Waugh v British Railways Board [1979] UKHL 2; [1980] AC 521 at 531-32, 535-36. Nevertheless, confidentiality does tend to promote candour, and it would be a very great change in long established practice if a party were bound to reveal to the court such things as an advice on evidence given to him by counsel and statements taken from witnesses for the purpose of a pending action, and such a change could not be made without the fullest examination of its possible consequences."

At 74 Mason J said that the later extension of the privilege to cover communications relating to advice unrelated to legal proceedings, actual or prospective, entailed a declaration that the underlying policy was more broadly based - that it involved the promotion of freedom of consultation generally between lawyer and client; see also per other members of the Court at 89, 93, 114 and 130. The need, in the interest of the due administration of justice, to promote candour in communication between client and legal adviser underlies any consideration of the question whether and to what extent legal professional privilege will protect such communications from disclosure.

SHARED OR SIMILAR INTEREST IN SUBJECT OF COMMUNICATION

Two or more persons may join in communicating with a legal adviser for the purpose of retaining his or her services or obtaining his or her advice. The privilege which protects these communications from disclosure belongs to all the persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege. So is it also if one of a group of persons in a formal legal relationship communicates with a legal adviser about a matter in which the members of the group share an interest. Communications by one partner about the affairs of the partnership or a trustee about the affairs of the trust are examples. Implicit in the relationship is the duty or obligation to disclose to other parties thereto the content of the communication. Accordingly no privilege attaches to such communications as against others who, with the client, share an interest in the subject matter of communication. But the parties together are entitled to maintain the privilege "against the rest of the world"; Phipson, paras 20-28 and 20-29. Logically the joint nature of the privilege means that all to whom it belongs must concur in waiving it. Theirs is one inseverable right. In para 20-29 the learned editors of Phipson say that in the case of joint interest, it is sufficient, as against third persons, if only one of the interested parties claims the privilege, though all must concur in waiving it. In Rochefoucauld v Boustead [1896] 65 LJ Ch 794 two parties were engaged in a joint venture. The first invited the second to consult his solicitor but, in proceedings against both parties, waived any privilege in respect of what took place. The second party was held to remain entitled to insist upon the maintenance of the privilege.

Separate from circumstances giving rise to joint privilege are those where parties have a shared or similar interest in the subject of communications between one or more of them and a legal adviser. This raises the question whether the disclosure amongst those parties of the contents of the communications results in the entitlement of the clients to refuse to disclose them on discovery or in response to a court order being treated as waived and the privilege as lost; Thomason v The Council of the Municipality of Campbelltown [1939] NSWStRp 10; (1939) 39 SR (NSW) 347 at 354 and following. The shared or similar interest may be the product of the particular situation in which a group of people find themselves. Neighbours may wish to oppose a proposed development in a residential area. An insured and insurer may have a shared or similar interest in defeating a claim against the insured. In such circumstances one or more of the parties, as an individual or a group, may obtain legal advice about the subject of that interest and then disclose the contents of communications with the legal adviser and any advice the result of them to others with a shared or similar interest in the matter. This disclosure amongst persons with a common interest, as it has been described, need not result in a waiver of privilege by the party making it. The distinction between common interest privilege and joint privilege may be important when considering whether disclosure by one of the parties interested in the matter of the contents of the communications to a third party should be treated as a waiver by all the parties interested.

The privilege attached to legal advice obtained by a company is not lost when the advice is disclosed to its directors but this is not because of their common interest. The company can only manifest its acts and intentions by the actions and declarations of human beings; Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52 at 61, Tesco Limited v Nattrass [1971] UKHL 1; [1972] AC 153 at 171. The directors' knowledge of the decision to obtain advice and the contents of that advice cannot be treated as a disclosure to a party separate from the company itself. The directors receive and act upon this information as the mind and directing will of the company. Accordingly the disclosure involves no waiver of the company's privilege.

Common interest is not in this context a rigidly defined concept. A mere common interest in the outcome of litigation will be sufficient to enable any party with that interest to rely on it; Buttes Gas and Oil Co v Hammer [1981] QB 223. (Although the House of Lords reversed this decision it expressed no opinion about common interest privilege; [1982] AC 888). In that case the Ruler of Sharjah obtained legal advice which, with other documents prepared on his behalf in anticipation of litigation, he communicated or provided to Buttes, an oil company whose interest in a concession in the Arabian Gulf depended on the Ruler's interest. Buttes had by then brought proceedings claiming damages for slander against another oil company, Occidental, and its chairman and retained the same solicitors as the Ruler. Occidental counter-claimed alleging fraudulent conspiracy between the Ruler and Buttes in relation to the granting of the concession. The Ruler delivered the documents to Buttes under a requirement of strict confidence which had not at any time been relaxed. Buttes resisted giving inspection of the documents on the ground that they were the subject of legal professional privilege.

A 243 Lord Denning MR described "common interest" privilege as a privilege in aid of anticipated litigation in which several persons have a common interest.

"It often happens in litigation that a plaintiff or defendant has other persons standing alongside him - who have the self-same interest as he - and who have consulted lawyers on the self-same points as he - but these others have not been made parties to the action. Maybe for economy or for simplicity or what you will. All exchange counsel's opinions. All collect information for the purpose of litigation. All make copies. All await the outcome with the same anxious anticipation - because it affects each as much as it does the others. Instances come readily to mind. Owners of adjoining houses complain of a nuisance which affects them both equally. Both take legal advice. Both exchange relevant documents. But only one is a plaintiff. An author writes a book and gets it published. It is said to contain a libel or to be an infringement of copyright. Both author and publisher take legal advice. Both exchange documents. But only one is made a defendant.

In all such cases I think the courts should - for the purposes of discovery - treat all the persons interested as if they were partners in a single firm or departments in a single company. Each can avail himself of the privilege in aid of litigation. Each can collect information for the use of his or the other's legal adviser. Each can hold originals and each make copies. And so forth. All are the subject of the privilege in aid of anticipated litigation, even though it should transpire that, when the litigation is afterwards commenced, only one of them is made a party to it. No matter that one has the originals and the other has the copies. All are privileged."

"Take the case of a block of flats. The landlord takes proceedings against a particular tenant and the dispute concerns a term of the lease which is common to all the tenancies. The tenant might well circulate all other tenants in confidence with a copy of counsel's opinion which he had obtained. If the landlord were then to join another tenant as an additional defendant, could he obtain production of the copy of the opinion? I think not. But I prefer to reserve this point for further consideration in another case in which the facts are less unusual and the point essential to the decision."

"The Judge then spelt out his proposition of law, with which I agree, that if two parties with a common interest and a common solicitor exchange information for the dominant purpose of informing each other of the facts, or other issues, or advice received, or of obtaining legal advice in respect of contemplated or pending litigation, the documents or copies containing that information are privileged from production in the hands of each. I think that this proposition follows from Jenkyns v Bushby (1886) LR 2 Eq 547 and other cases in the same line and is a legitimate extension of the principle that protects confidential communications between Co-plaintiffs or Co-defendants for the purposes of an action."

Lee v South West Thames Regional Health Authority [1985] 1 WLR 845 was about injury to a small boy, while he was being transported between two hospitals, each the responsibility of different authorities (NET and H), by an ambulance provided by another authority (SWT). H asked SWT for a report from the ambulance crew with a view to obtaining legal advice on its liability to the boy. SWT provided the report and kept a copy which was disclosed on preliminary discovery. SWT claimed privilege. Donaldson MR gave the judgment of a two member court. At 850 he referred to Buttes Gas and Oil Co v Hammer and the proposition that the courts should recognise as privileged information, which is exchanged between a party to litigation and third persons with a common interest and legal advisers in common, relating to pending litigation and said:

"The facts were far removed from this appeal, but all the members of the court thought that there was such a thing as `common interest' privilege. Mr Utley, for Marlon's mother, not unnaturally retorts that if [H] is still a likely defendant, then far from having a common interest with the [SWT], their interests are diametrically opposed and their defences are likely to be of the `cut throat' variety. Buttes' case is thus also distinguishable.

In these circumstances, we consider that the appeal has to be decided by reference to principle rather than authority. The principle is that a defendant or potential defendant shall be free to seek evidence without being obliged to disclose the result of his researches to his opponent. [H] can certainly waive its rights and, were it to do so, the memorandum would clearly be disclosable by [SWT]. However, it has not done so. Furthermore, it would, we think, be impossible to seek in this case to impose a term that disclosure should take place after all proceedings against [H] are terminated or abandoned. If [H] is to be sued as well as [SWT], the actions must be tried together. [SWT] and their employees have no rights as witnesses, but we can see no way of protecting the rights of [H] as potential defendants if disclosure is ordered against [SWT]."

The editors of Phipson at 20-29 say that this is too narrow a view of what constitutes a "common interest" to found a claim to privilege of this kind. "In many if not all of the cases cited in this paragraph, there was the potential for disputes between the parties with the common interest. In Lee's case [H] and [SWT] had a common interest in defeating the plaintiff's claim. The fact that attacks by [H] on [SWT] or vice versa were among the defences that might be advanced at a later stage can hardly affect the overall commonality of [H's] and [SWT's] interests, especially as it was a matter of pure speculation whether or not they would be."

The opinions in Buttes Gas and Oil Co v Hammer were expressed either tentatively or obiter. Nonetheless they have been adopted in Australia. In Bulk Materials (Coal Handling) Services Pty Limited v Coal & Allied Operations Pty Limited (1988) 13 NSWLR 689, which concerned a report obtained for the plaintiff's insurance underwriters, copies of some pages of which were given to the plaintiff's broker, Giles J said at 695:

"While underwriters had not, at the time the copy pages were provided to the plaintiff, decided whether or not to extend indemnity to the plaintiff, there was a likelihood that they would do so, and certainly they had not declined to provide indemnity. They therefore had an interest in seeing the best defence put forward by the plaintiff to the cross claim made against it by the defendant, and an interest in enabling the plaintiff to put forward in a timely manner the best cross claim against consultants involved in the project. They had an interest in the most advantageous conduct by the plaintiff of the proceedings then on foot. They had those interests even prior to a decision to afford indemnity, because upon making such a decision they would become subject to the consequences of the steps earlier taken in the conduct of the litigation. Their interests in these respects were identical with those of the plaintiff.

The result of the common interest is that each of those with the common interest can avail himself of the legal professional privilege enjoyed by the other, and the `the documents or copy documents containing (the) information are privileged from production in the hands of either'. The copy pages, being copies from the LAC report privileged in the hands of underwriters (and LAC, Heath and Minter Ellison), are privileged from production in the hands of the plaintiff. Hence in my view the plaintiff can resist inspection and the claim by HTL to inspection of the copy pages fails."

The question whether a waiver by the underwriters of the privilege could result in the loss of the plaintiff's right to claim privilege did not arise.

In Network Ten Limited v Capital Television Holdings Limited (1995) 36 NSWLR 275 at 279-80 Giles J referred to a number of English cases and an Australian case and said:

"If two parties with a common interest exchange information and advice relating to that interest, the documents or copy documents containing that information will be privileged from production in the hands of each; thus, if one of the parties obtains a letter of advice attracting legal professional privilege and provides it to the other, the other can also claim legal professional privilege. Some remarks in the earlier English cases suggested that the parties must have a common solicitor, but I do not think that is necessary (apart from my view expressed in Bulk Materials (Coal Handling) Services Pty Limited v Coal & Allied Operations Pty Limited; see also Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Limited (`The Good Luck') [1992] 1 AC 233 and Rank Film Distributors Limited v ENT Limited (unreported) Supreme Court of Tasmania, Crawford J, 25 November 1994). If Capital Television Holdings Limited and ANZ had the requisite common interest, then (subject only to any significance in ANZ's failure to claim legal professional privilege) and, as already indicated, there would be no waiver of the privilege attached to the letter of advice in the hands of Capital Television Holdings Limited.

Examples of interest sufficient for common interest privilege can be seen in the cases, but the concept is not rigidly defined and it is a question of fact in each case."

At 282 his Honour did not find satisfactory a test Saville J suggested in "The Good Luck" of an identity of interest so close that the parties concerned could have used the same solicitor or other lawyer.

In Ampolex Limited v Perpetual Trustee Co (Canberra) Limited (1995) 37 NSWLR 405 Giles J referred to his earlier discussion of the cases and said at 409-10: "What is important is that, as `The Good Luck' and Network Ten Limited v Capital Television Holdings Limited itself show, two persons interested in a particular question will not have a common interest for the purposes of 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."

In rejecting the respondents' claim that there was a joint retainer by CH Webb and the directors Young J said:

"The fee for the advice was paid by the company and despite some reference to `clients', the whole of the instructions and advice refer to the client as the company. There does not appear to be any real alternative between finding that the client was the company or the directors: it cannot be both. The directors could only be considered to be the `client' if it could be said that the company was acting as their agent. The fact that the company paid the fee out of its own pocket tells against this. There is no evidence at all of any conversation with a representative of Robilliard & Robilliard or any written instructions to that firm saying that their clients were the directors. Accordingly, the only finding I can make is that the company and the company alone was the person who contractually retained the solicitor."

The evidence was that CH Webb paid for the advice referred to in the first and third category of documents (paras (a), (b), (g) and (h)) but not for the advice referred to in the documents in second category. The memorandum of fees for this was directed to Ortex Australia and according to Mr Webb paid for by that company.

Each of the respondents filed affidavits. Theirs was the only evidence as to the circumstances in which advice was sought and obtained. None of the respondents was cross examined. The only objection and ruling on their evidence was as follows:

"Affidavit of Graeme Douglas Webb sworn 11 April 1995 (DA1) read.

(Mr Cashion indicated that he had no objection if the material in relation to instructions was read to establish belief or understanding of the deponent, for whatever relevance that might have, or if it was read to identify the person or persons who gave instructions or the person or persons to whom advice was physically given, but did object if material of this kind was relied upon to prove the capacity in which people were given instructions or receiving advice.

His Honour indicated that whenever in any of the evidence there was a reference to `our instructions' or `our solicitor' etc. he would read that merely as a matter of contention.

Mr Cashion sought to include `on behalf of' to the above ruling.

Mr Campbell submitted that it ought to be read on the basis on which Mr Cashion had proferred [sic], namely establishing belief or understanding; persons who gave instructions; persons to whom advice was given. Discussion ensued.)

HIS HONOUR: I will read expressions such as `our solicitor', `our instructions' and the like as (a) statements of contention, and (b) statements of the belief of the deponent, but not to establish the fact, if it be the fact, that that particular person did retain the legal advice.

CASHION: It is a little more than just retainer, with respect, it also relates more to capacity which incorporates the concept of retainer. Expressions such as, for example, `we sought advice of', as I have indicated I do not object to that evidence being the evidence of the identity of the persons who sought the advice. The basis upon which I object is if it is designed to prove the capacity in which that person sought the advice or the capacity in which a person received advice and that may or may not be a co-extensive proposition with retainer. I want to make plain that I object to the evidence if it is led as evidence as to the capacity in which they received advice or gave instructions and that is a wider objection than simply questions of retainer.

HIS HONOUR: I think you are right. I will uphold that objection and admit the evidence on the basis that you have outlined.

(Noted that the objection and ruling taken in relation to the above affidavit applied to all affidavits.)

Affidavit of Peter Douglas Spargo sworn 31 March 1995 read (DA2).

Affidavit of Terry James Manderson sworn 17 May 1995 read on the same basis (DA3)."

I have some doubt as to what this means. The following is taken from the three affidavits referred to. In his affidavit of 31 March 1995 Mr Spargo said:

"3. In early 1989 the directors of CHW [CH Webb] decided to seek legal advice concerning, inter alia, their duties and the potential of their personal liability (if any) arising from a guarantee given by CHW over a loan to an associated company, Bonfell Pty Limited (`Bonfell').

4. I cannot recall which director actually instructed Mr Chadwick, the solicitor handling CHW's matters at Robilliard & Robilliard. I do recall attending a conference in February 1989 with Mr Rolfe QC and Mr Chadwick, the First and Second Defendants. At conference, the directors sought advice concerning duties and obligations as directors of CHW with respect to the Bonfell guarantee. We also sought advice as to our possible future personal liability arising out of these matters and the way in which such personal liability in all likelihood would be enforced.

6. In early 1990 the directors of CHW sought legal advice concerning their duties and the possible extent of their personal liability arising out of a loan to Ortex Australia Pty Limited. I was not involved personally in the attaining of this advice. This was done by the First and Second Defendants [Messrs Webb and Manderson]. Mr Chadwick was instructed as the solicitor and advice was obtained from Mr Michael Willmott of Counsel.

7. In this regard, advice was sought by the directors concerning duties and obligations as directors of CHW with respect to these loan arrangements. We also sought advice as to the types of proceedings (if any) that might be instituted against us as directors personally in relation to these loans.

8. In February 1991, the directors of CHW obtained legal advice concerning the directors' duties and the extent (if any) of any possible potential personal liability of the directors arising out of the appointment of a liquidator to part of the Farrow Group, being a group from which CHW had borrowed monies for the purpose of funding certain building projects.

9. We also sought advice as to the types of proceedings that might be instituted against the directors personally in various hypothetical situations that might occur. We sought advices as to the steps we should take in accordance with the duties that we owed to the company as directors in relation to these matters.

10. With respect to the matters referred to in paragraphs 8 and 9 above, I attended a conference with Mr Rick Chadwick, solicitor, where I instructed him to advise and/or to seek advice on these various matters."

(c) By reason of the potential exposure of CHW under its guarantee, in 1989 I instructed Messrs Robilliard & Robilliard on behalf of CHW, myself and my fellow directors of CHW, Messrs Spargo and Manderson. Instructions were given to seek legal advice concerning duties as directors of CHW and the potential of any personal liability arising under the guarantees given by CHW. We were anxious to determine our obligations under the Corporations Law and our potential personal exposure arising out of these matters. We were concerned that legal proceedings would be instituted by Boston. At the time, CHW was adamant that the arrangement with Boston included an oral agreement that had been entered into between myself, as a director of CHW, and Bob Hunter of Boston to the effect that the extended repayment date for the loan would not occur until the Minchinbury Home Town development had been fully leased - the anticipated date for this event being by the end of 1989.

(d) In accordance with our instructions, our solicitors briefed Messrs Rolfe QC and Willmott of Counsel.

The advice provided by Counsel to the Company, my fellow directors and me was paid for by CHW. Between March 1989 and May 1990, the Boston loan was renegotiated and paid out.

(b) By reason of the proposed restructure of the loan facility, in late April 1990 Mr Manderson on behalf of the directors of CHW instructed out solicitors, Messrs Robilliard & Robilliard to brief Counsel for advice concerning our duties as directors of CHW and the possible extent, if any, of the potential for us to be held liable personally with respect to the loan arrangements and/or proposed loan arrangements relating to Ortex and OSI. There was concern that the directors of CHW comply with their obligations under the Corporations Law in relation to these loans and that we would not expose ourselves to any personal liability for these loans. At the time, I was aware Mr Manderson was seeking advice in relation to the proposed restructuring of the loans. I was not aware at the time of the other advice being sought although Mr Manderson was authorised generally by me to seek such advice for and on my behalf with respect to transactions arising out of the operations of CHW, Ortex and/or OSI.

(c) Consequently, an advice was received from Mr Willmott of Counsel dated 6 June 1990 with respect to the proposed Ortex transaction, in response to instructions provided from Messrs Robilliard & Robilliard as outlined above. The advice was addressed to Ortex and associated companies, which included CHW and OSI. I did not see the advice until it was shown to me at the directors' examination by the CHW liquidator.

(d) Furthermore, between the date of these instructions being provided by Messrs Robilliard & Robilliard and the rendering of the above advice, Bill Acceptance Corporation Limited (`BAC'), in whose favour CHW had given a guarantee for certain loan monies, served a Notice of Default dated 11 May 1990. In addition to the matters referred to above, advice was sought by CHW and Mr Manderson (unbeknown to me at the time) for and on behalf of me and the other directors as to the directors' obligations under the Corporations Law arising out of the service of this Notice by BAC, and any personal or potential liability with respect to these matters. Advice was also sought as to the problem, if any, and any potential personal liability arising out of these events by virtue of the common directorship I had in CHW, OSI and Ortex

(f) With respect to the preparations of the advice, there was a communication from my fellow director of CHW, Mr Manderson, by way of typewritten memorandum headed `Ortex Australia Pty Limited - Non-Recourse Loan Scenario', being document (c) in the Schedule to the Defendants Motion filed 3 April 1995. I was unaware of the existence of this document, but had been informed by Mr Manderson, and verily believe, that the document was supplied by him to the solicitors, Messrs Robilliard & Robilliard, and Counsel, Mr Willmott, for the purposes of obtaining the advice referred to above. I had not seen this document prior to the examination of directors arising out of the liquidation of CHW.

5. In early 1991 my fellow directors and I were concerned about our obligations as directors of CHW, in light of the appointment of an administrator and subsequently a provisional liquidator to the Plaintiff, Farrow Mortgage Services Pty Limited (`Farrow'), which company had financed two major projects operated by CHW at the time. We understood that there were or might be problems in obtaining from the liquidator and/or the previous administrator, guaranteed continued funding for the projects.

6. CHW and its directors, including myself, sought advice as to the types of proceedings that might be instituted against us personally in various hypothetical situations that might occur in relation to these matters. We were concerned that we might either have to litigate against Farrow to seek damages on behalf of CHW in respect of its potential or possible breach of the finance contract or, alternatively, the directors themselves might be exposed to damages by allowing CHW to continue to trade. We were concerned that CHW conduct itself in such a way as to enhance, or at the very least not prejudice, its opportunity to bring a suit against Farrow for damages and also to claim a prolongation payment in relation to the two projects under construction as the time.

7. Mr Robert Kaye of Counsel was briefed by our solicitors, Messrs Robilliard & Robilliard."

5. The directors of CHW were concerned about their obligations and duties as directors of CHW and their potential personal liability in the event of the guarantee being called upon successfully. My fellow directors (Webb and Spargo) and I sought legal advice from Messrs Robilliard & Robilliard, solicitors.

We sought advice from our legal advisers concerning our duties as directors of CHW and the potential of any personal liability arising directly or indirectly out of the guarantee given by CHW and/or CHW continuing to trade in the circumstances of the demand having been made upon CHW under the aforesaid guarantee. I understand that there was a dispute between my fellow director Mr Graeme Webb and an officer of Boston (Mr Bob Hunter) with respect to the existence of an agreement which Graeme Webb alleged was made to the effect that the date upon which Bonfell was obliged to repay the loan had been extended.

6. Following upon our instructions as outlined above, our solicitors briefed Messrs Rolfe QC and Willmott of Counsel. I attended a conference with Messrs Rolfe QC, Willmott and Chadwick (solicitor) together with the First and Third Defendant.

8. My fellow directors of CHW and I were concerned about our duties as directors of CHW and in particular the possible extent, if any, for us to be held liable personally with respect to or arising out of the proposed restructuring of the loan arrangements in relation to Ortex and OSI; and in particular in the circumstances of CHW proposing to continue to trade.

I instructed Robilliard & Robilliard on behalf of the directors of CHW and the company to give legal advice concerning these matters. In that regard I prepared as part of my instructions a document entitled `Ortex Australia Pty Limited Non Recourse Loan Scenario' being document (c) in the Schedule to the Defendants' Notice of Motion filed in these proceedings and dated 3 April 1995. I provided this document to our solicitors as part of my instructions.

9. I attended in conference Mr Willmott of Counsel with Mr Chadwick, solicitor.

11. Following the initial appointment of Mr Hodgson as a provisional liquidator of Farrow, there was concern amongst the directors of CHW as to the continuation of Farrow funding two of CHW's then current building projects. The directors were concerned about being liable personally in the event of CHW continuing to trade and the funds from Farrow not being available. In that sense, we were also concerned to ascertain our duties as directors of CHW in these circumstances.

Consequently advice was sought from Robilliard & Robilliard who briefed Mr Robert Kaye of Counsel in relation to these matters. We also sought advice about how CHW should conduct itself in such a way as to enhance, or at least not prejudice, its opportunity to bring a suit against Farrow for damages and also to claim a prolongation payment in relation to the two projects under construction at the time.

12. Subsequently Mr Kaye of Counsel provided an advice that was made available to us by our solicitors."

The respondents submitted that no objection was taken to these affidavits in relation to questions of

- the belief or understanding of the various directors;

- the identity of the people giving the instructions and receiving the advice;

- the concern of the directors at the time each advice was sought;

- the previous and ongoing relationship between each of the directors and the solicitors;

- the subject matter in relation to which advice was sought.

The respondents' unchallenged evidence was that they sought advice in relation to their duties and obligations as directors of CH Webb, their possible future personal liability to Farrow, the types of proceedings that might be instituted against them and the steps that they should take in accordance with the duties they owed to the company as directors in relation to various matters.

Young J said that there was no evidence at all from any of the (respondents) that they ever thought or had reasonable grounds to believe that Robilliard & Robilliard were their solicitors. Bearing in mind that the material in the affidavits was not to be taken as evidence of the capacity in which the solicitors were instructed, his Honour was unable to find "that as a matter of fact the directors had the view that the communications from the barristers were communications to them as clients." In this with the greatest respect I think his Honour erred. There was evidence that Robilliard & Robilliard had been, since before 1988, each of the respondent's personal solicitors, that the directors had concerns about various matters and that Robilliard & Robilliard were instructed to advise them or obtain advice for them. A reading of the respondents' evidence and the contents of the eight documents in the Schedule, in my opinion, supports the conclusion that throughout Robilliard & Robilliard were taking instructions not only from CH Webb or Ortex Australia or the Webb group of companies but also from the respondents in their personal capacity. In the absence of any cross examination the inference seems to me inescapable that the respondents were themselves seeking advice and would naturally believe that they were being given advice as clients of Robilliard & Robilliard.

Young J found "that the information was sought on behalf of both the company and the (respondents) and that there (was) a joint privilege". I am quite unable to separate the interests of the various companies in the Webb group from those of the respondents. They were inextricably tied together. As the various instructions and advices make plain, the particular proposals being examined, that is to say, whether construction contracts that CH Webb had the right to enter into could be entered into by a separate company, whether the business of Ortex Australia could be transferred offshore and OSI protected from the creditors of CH Webb by a non-recourse loan, or whether from 1991 new projects could be entered into by a new entity in place of CH Webb, despite the claims of Farrow, involved consideration of the respondents' concerns about their duties as directors. The appropriateness of each of these proposals turned upon that question.

I think Young J was correct in his conclusion that the contract was in each case between one or other of the companies and Robilliard & Robilliard. This is what Young J understood to be meant by retainer. Robilliard & Robilliard could not and did not look to the respondents for payment of their fees. But Young J was also right to conclude, in my opinion, that advice was being sought from the solicitors not only by the companies but also by the respondents and the occasions of the seeking and giving of that advice were privileged in consequence. This left for consideration the question whether that privilege had been waived.

In Lee v South West Thames Regional Health Authority Donaldson MR said that H could "certainly" waive its rights and, were it to do so, the report which it had asked SWT to obtain would "clearly" have been discloseable by SWT. In Buttes Gas and Oil Co v Hammer the Ruler of Sharjah originally enjoyed the protection of legal professional privilege in respect of the documents prepared on his behalf in anticipation of litigation, against the world, unless it could be said that his interest with Buttes in the subject matter of the documents was a joint interest which required him to disclose them to Buttes, in which case he might not alone have been able to waive the privilege. On the other hand if he were not required to disclose the documents to Buttes, the privilege would seem to have been his alone to waive, at least until he made them available to Buttes. Then the question would have been whether, by disclosing the documents to Buttes, he had waived his own privilege.

In Ampolex Giles J held that inspection of documents should be permitted but, in case he was incorrect in what he had said, went on to consider waiver of privilege. At 412-3 his Honour said:

"Where advice is given to joint clients, it seems that each must waive the privilege: see Bray, The Principles and Practice of Discovery (1885) at 427. In Farrow Mortgage Services Pty Limited v Webb (Young J, 16 August 1995, unreported), Young J stated that where there is joint interest privilege all must join in a waiver, instancing his earlier decision in Global Funds Management (NSW) Limited v Rooney (1994) 36 NSWLR 122. As I read Farrow Mortgages Services Pty Limited v Webb, his Honour had in mind a situation of joint clients rather than common interest privilege of the kind considered earlier in these reasons, since he found that the relevant advice was sought and obtained on behalf of both the company and its directors before asking whether the directors had waived the privilege as well as the company. A statement to the same effect was made in Global Funds Management (NSW) Limited v Rooney (at 134), obiter but in the context of a solicitor acting for both the trustee and the manager of a fund. The cases then cited in support of the statement (Re Turf Enterprises Pty Limited [1975] QdR 266; In the Marriage of Steel (1992) 107 FLR 143; Lukies v Ripley (No 2) (1994) 35 NSWLR 283) were concerned with the privilege attached to without prejudice communications, which may throw up different considerations, and I do not think that Farrow Mortgage Services Pty Limited v Webb or the line of cases which it involves provides clear support for County NatWest's submission."

The passage in Bray concerned a legal adviser who acted for more than one person in a transaction. Giles J referred to Newcrest Mining (WA) Limited v Commonwealth of Australia (1993) 40 FCR 507 at 509 where French J said:

"The threshold question is whether the principle of implied waiver can extend to materials associated with those disclosed by one party, but in respect of which the privilege vests in another who has a common interest in proceedings brought by the disclosing party. Given that the underlying rationale of implied waiver is one of fairness which can overcome the established rationale of legal professional privilege, I think the answer to that threshold question is yes - in principle. The extension of the principle is one, however, to be sparingly applied."

In the case of common interest privilege, as distinct from joint privilege, I do not think it will always be necessary that all interested parties concur for the privilege to be waived. If in principle legal professional privilege vested in a party is not lost by dissemination of the contents of confidential documents to others with a common interest, I think that fairness, in many cases, will require that the privilege not be lost because one of those parties, be it the provider or the recipient, is minded to waive it. Once parties with a common interest have exchanged or provided one to another the contents of communications with legal advisers about the subject of their common interest, the question of whether the privilege is lost with its waiver by one must be determined by asking whether the waiver has made it unfair for the other parties with a common interest to maintain the privilege; Attorney General for the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 488. This requires account to be taken of such matters as the circumstances in which the privileged communication took place and came to be exchanged and provided to others.

Alternatively the appellant submitted that the respondents' privilege had been waived by the terms of their defence to the appellant's allegation that on particular dates there were reasonable grounds to expect that CH Webb would not be able to pay all its debts as and when they became due. In part of the particulars given the respondents alleged that by reason of the appellant's suspending and threatening to further suspend advances to CH Webb and another, CH Webb became concerned as to its future capacity to pay all its debts as they fell due. This it was said plainly related to the concern of the respondents and necessarily involved an investigation of their states of mind at various times.

In United States Surgical Corp v Hospital Products International Pty Limited (13 October 1981), reported as a practice decision in Ritchie's Supreme Court Procedure, Vol 2, para 13,023, McLelland J, as he then was, said that before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust. I do not understand that in any sense the respondents in their defence or otherwise rely upon any aspect of the advice they received as part of their defence; compare Thomason v The Council of the Municipality of Campbelltown at 359. The sections (s556 (1) of the Companies (NSW) Code and s592 (1) of the Corporations Law) the appellant relied on to make its claim against the respondents on this aspect of the matter set an objective test, namely whether there were reasonable grounds to expect. If part of the respondents' defence, based on subs (2) of either of those sections, was that the respondents did not have reasonable cause to expect that the company would not be able to pay all its debts and the respondents asserted that their expectation was based on advice contained in any of the eight documents, then indeed the privilege may well have been waived or waived in respect of some of them. But as the case is presently pleaded that is not the defence and, in my opinion, the appellant has not demonstrated waiver on this ground.

Farrow submitted that common interest privilege was not a joint privilege which required all to waive it. It could be waived for all by the party who had retained the legal advisers with whom it had communicated; Lee v South West Thames Regional Health Authority at 850B.

The respondents, on the other hand, emphasised Young J's finding that the information and advice were sought on behalf of both CH Webb and the respondents. This meant that there was a joint privilege. It seemed to his Honour artificial to dissect the entities and say that the company alone had privilege in communications from lawyers, which the company intended should be obtained for the benefit of both itself and the directors.

In my opinion there was sufficient commonality of interest between CH Webb or other Webb companies on the one hand and the respondents on the other to give the respondents the protection of legal professional privilege in regard to the eight documents in the schedule. The evidence overwhelmingly supported Young J's conclusion that instructions were given and advice obtained on behalf of both the companies and the respondents. They joined in seeking it and for that reason it might be said that the privilege was a joint privilege. Clearly the evidence demonstrates that the interest of the company of CH Webb and the respondents in the various matters the subject of the eight documents was a shared one and common to all. Even if the privilege was not joint, I have no doubt that the circumstances in which the advices were sought and given required that as a matter of fairness waiver by the liquidator not be treated as waiver by the respondents.