Are communications between receivers and liquidators privileged?

The decision in Re Forge Group Construction Pty Ltd (in liq) (Receivers and Managers appointed); ex parte Jones [No 2] [2016] WASC 87 confirms that while some communications between liquidators, receivers and their respective solicitors can be privileged, it is not necessarily always the case. Critical factors include the purpose of the communication in question and whether there is a sufficient commonality of interest between liquidators and receivers in relation to the communication’s subject matter.

Facts

In March 2014, Forge Group Construction Pty Ltd (Forge Group) went into liquidation. Martin Jones and Benjamin Johnson were appointed as the joint and several liquidators of the Forge Group (collectively, the Liquidators). Scott Langdon and Mark Mentha were appointed as the receivers of the Forge Group (collectively, the Receivers). The Receivers were appointed by ANZ Fiduciary Services Ltd pursuant to the General Security Agreement registered over the assets of the Forge Group as security for loans made by a group of financiers (collectively, the Financiers).

The background of these proceedings concerned, inter alia, recovery by the Receivers of a $110 million bond lodged for the Roy Hill iron ore project. These substantive issues are not yet determined.

On application of the Liquidators, examination orders were made pursuant to s.596B of the Corporations Act 2001 (Cth) to examine officials from Samsung C&T and the Forge Group (collectively, the Applicants). The Applicants then issued subpoenas seeking to obtain documents and correspondence which had passed between the Liquidators and Receivers regarding the application for examination orders.

In response to the subpoenas, the Receivers’ solicitors produced various documents and communications between the Receivers and Liquidators, however the Receivers claimed common interest privilege and legal professional privilege over the documents produced.

Following case management, the number of documents over which privilege was claimed was reduced. The Receivers acknowledged that a court memorandum and its annexures and only one file of the original six files of communications with the Liquidators (and between the relevant lawyers) could properly said to be privileged. The hearing continued regarding the documents over which the privilege claim was maintained (Privileged Documents).

Contested Issues

Legal professional privilege protects from compulsory disclosure the contents of confidential communications made for the dominant purpose of a client being provided with legal advice or actual or anticipated litigation. Common interest privilege extends this protection to the communication of documents or information containing privileged advice between persons who have a mutual (and not adverse) interest in a relevant dealing, including the outcome of litigation. While ordinarily the disclosure of privileged advice to another person will result in waiver of privilege over that advice, this will not be the case where the other person has a sufficient interest in common with the party disclosing the advice.

In this case, the parties agreed upon principles to be applied in determining whether leave to inspect the Privileged Documents should be granted. Under these principles, a claim of privilege was asserted over communications:

• by the Liquidators to the Receivers which disclosed legal advice provided to the Liquidators; and
• by the Receivers to the Liquidators (or the Financiers) containing a request that the Liquidators apply to examine the Applicants or referring to the reasons for making such a request.

The Applicants disputed these claims for privilege on a number of grounds, including that:

• the dominant purpose of the communications was for the Receivers to persuade the Liquidators to apply for the examination orders;
• there was insufficient evidence of privilege; and
• the examination orders were issued for the improper purpose of furthering the Financiers’ interests instead of those of Forge.

Decision

Justice Tottle in the Supreme Court of Western Australia dismissed the Applicants’ arguments and held that they were not permitted to inspect the Privileged Documents.

In assessing privilege, it is necessary to determine the dominant purpose of each relevant communication. The Court held that the Liquidators’ purpose in requesting the advice was the key to successfully claiming privilege.

The Court confirmed that documents prepared by the Receivers’ solicitors for Liquidators’ solicitors for purpose of giving legal advice to the Liquidators was privileged.

Further, a sufficient degree of common interest existed between the Receivers, Liquidators and their respective legal representatives. Accordingly, a common interest privilege claim was available on the basis that each party had an interest in the assets and duties in relation to the Forge Group. As a result, privilege was not waived upon the Liquidators’ solicitors providing the document to the Receivers’ solicitors.

The Court also found that, although the correspondence was created against the background of the Receivers seeking the Liquidators’ assistance in the examinations, this was not necessarily the purpose for which the document was created. The Court held that the documents were created to enable the Liquidators’ solicitors to provide legal advice to the Liquidators on the merits of the examinations.

Practical implications

This decision confirms that communications between liquidators, receivers and their legal representatives can attract legal professional privilege or common interest privilege. This can extend to situations where liquidators and receivers co-operate as to the conduct of the examinations.

However, the question of whether privilege will be able to be claimed successfully will ultimately depend upon consideration of the facts in question, including the content of the document, its dominant purpose and whether there is a commonality of interest.