Legal professional privilege and deregistered companies: who holds the right to claim?

By Ian Bloemendal

25 Jan 2017

Although single judge decisions have found legal professional privilege in company material can survive a company's deregistration, it is possible (although perhaps unlikely) that a future appeal court might not.

Claims for legal professional privilege commonly arise while an entity is active, but what happens when the entity becomes deregistered? This article considers a number of relevant issues.

Does a company maintain legal professional privilege following deregistration?

A series of cases dating back over a century provide clear authority for the principle that claims for legal professional privilege (LPP) will generally endure for the benefit of a deceased individual’s successors in title, who are usually the individual’s personal representatives. As Lord Lindley observed in the case of Bullivant v A-G (Vic):

"The mere fact that a testator is dead does not destroy the privilege. The privilege is founded upon the views which are taken in this country of public policy … and unless the people concerned … waive it, the privilege is not gone — it remains.[1]

In the situation where a corporation ceases to exist[2] however, there was little direct authority as to what happens to a company’s right to claim privilege until the 1994 Federal Court decision of Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd t/as Uncle Ben’s of Australia[3] . In that case, Tamberlin J opined that the deregistration did not affect an existing valid claim for privilege and that “privilege subsists until it is waived by a person or entity competent and able to waive”.[4]

As noted by Harrison AsJ in Kellert v Foate:

"The reason Tamberlin J upheld the claim for the company’s legal professional privilege after it had been deregistered in Lake Cumbeline is that, “like other traditional common law rights [legal professional privilege] is not to be abolished or cut down otherwise than by clear statutory provision. Nor should it be narrowly constructed or artificially confined” (at [65] citing Deane J in Maurice at 41) [5]

The principle has been followed in subsequent single judge decisions,[6] providing useful precedent to support the principle that, provided there has been no loss of confidentiality and no prior waiver, LPP in a company’s material will survive its deregistration.[7] This is relevant also to claims for joint privilege and common interest privilege.

Does the right to claim LPP pass to Australian Securities and Investments Commission (ASIC) following deregistration?

In Lake Cumbeline, Tamberlin J accepted the proposition that the claim for privilege in the relevant documents fell within section 576(1) of the then Corporations Law which referred to “all claims, rights and remedies” that the company or its liquidator had in respect of the company's property[8]He found that “under the provisions of the Corporations Law this privilege passed to the Commission [sic, ASIC’s predecessor]”[9] which was the successor of the company in the matter. (In that case, the privilege was advanced as a “claim”.)

However, unlike section 576(1) of the Corporations Law, the current provision in the Corporations Act 2001 (Cth) no longer refers to a vesting of all claims, rights and remedies with respect to a deregistered company’s property. The effect of section 601AD of the Corporations Act is that once a company is deregistered:

  • all property held on trust immediately before deregistration vests in the Commonwealth;
  • all the company’s property (other than property held by the company on trust) vests with ASIC;
  • the Commonwealth and ASIC take only the same property rights that the company itself had;
  • the Commonwealth has all the powers of an owner over property vested in it under subs 1A; and
  • ASIC has all the powers of an owner over property vested in it under subs 2.

In the writer’s view, a privilege claim does not itself amount to “property” nor a chose in action that can be assigned.[10] Notwithstanding the question over what is now entailed by ASIC’s “powers as owner”, once it is established that a company’s documents are privileged,[11]then the privilege claim ought not be lost until there is a waiver, express or implied, by a person or entity competent and able to do so.[12] The practical issue may, however, be this: who will be available to prove the claim?

In the 2015 case of Kellert v Foate, evidence was given to the effect in ASIC’s policy, as of May 2015, that ASIC generally does not take possession of a deregistered company’s books nor does it grant access to a deregistered company’s books in another party’s possession. This is because:

  • while ASIC may be vested with a company’s books due to deregistration, it has no specific knowledge of their existence and the circumstances surrounding their creation
  • the documents may be the subject of [LPP] and it is not appropriate for ASIC to determine whether or not the nature of those documents is such as to attract the privilege
  • it is ASIC’s policy to neither assert nor waive privilege on behalf of deregistered companies
  • other remedies are available and more appropriate (eg. service of a subpoena on the party in actual possession of the documents and/or reinstatement of a deregistered company).[13]

Since ASIC adopts a neutral position and will not agree to waive any existing claim for privilege (to the extent, if any, that it has power to do so,[14] it remains for an interested party to relevant proceedings to seek a court order to the effect that the documents sought do not attract LPP, or an order that the party in possession produce the documents to the applicant. However, where there is no loss of confidentiality or waiver of the company’s claim for LPP, it will not be extinguished by the company’s deregistration and an application for production is likely to be unsuccessful.

What are the risks of deregistration to common interest LPP?

An issue may arise where a company, prior to its deregistration, has provided another person with access to privileged material on the basis that it be protected by common interest privilege. This might arise, for example, between related companies.[15]

For common interest privilege to exist, the requisite degree of common interest must be established.[16] The test is whether there was a sufficiently common interest at the time the document was disclosed.[17] There is no need to have the same solicitor, although the existence of a confidentiality regime or agreement is an important factor. If the parties have a conflict of interest, common interest privilege cannot exist from the time the conflict arises.[18] Further, it cannot operate retrospectively once the privilege has been waived if that waiver occurs before the common interest arises.

Circumstances in which the claim for common interest privilege might not be upheld therefore include those where:

  • the finder of fact determines that a particular challenged document was not prepared for a dominant privileged purpose[19]or does not otherwise satisfy the test for a valid claim for legal professional privilege;
  • the person to whom the particular privileged document was provided does not establish a common interest with the company and the circumstances do not amount to a limited waiver;[20] or
  • the document never had or has lost the necessary element of confidentiality and a waiver of privilege had occurred.

The likelihood of a challenge to a privilege claim is likely to vary depending on the subject matter of the material. For example, where the subject matter of the material involves a dispute that has been resolved or settled, or advice in relation to a contract that with the passage of time and circumstances is no longer relevant, the practical likelihood of a challenge may be low. Alternatively, the risk of a challenge may by high if the subject matter of the material relates to an ongoing matter. Regardless, where privileged material is proposed to be shared, a company ought to, prior to disclosure and deregistration, act prudently and take careful steps designed to protect the confidentiality of the communication and minimise the risk of a successful challenge to a common interest privilege claim.

Joint privilege

Joint privilege[21] is similar to common interest privilege and arises where two or more parties (who have no conflict with each other):

  • communicate with the same legal adviser for the dominant purpose of retaining their services or obtaining their advice; or
  • when one of a group of persons in a formal legal relationship communicates with the legal adviser about a matter in which the members of the group share an interest.

Waiver of joint privilege requires the consent of all parties to whom the privilege belongs. While they cannot claim privilege against each, they can maintain privilege against the rest of the world.

Accordingly, the deregistration of one cannot give rise to a waiver of privilege as it requires the concurrence of the other.

Considering the issues

Whenever a company is to be deregistered, it is relevant to consider whether:

  • there are documents that may need to be retained — as opposed to vesting with ASIC;
  • appropriate measures have been put in place to protect the confidentiality associated with documents over which a privilege claim may be made; and
  • any person with the interest in retaining a copy of them has a sufficient common legal interest with the company.

If documents need to be retained, it is self-evident that they would not be retained by the company but be transferred to another person (presumably via a deed that transfers all claims, rights and remedies attaching to that material, in combination with the implementation of a policy to preserve the confidentiality that has attached to the transferred company material).

While property in the documents would be transferred, it is not entirely certain as to whether the company’s claims for privilege would also be effectively assigned to the other person, such that it would be able to stand in the shoes of the company as the client and become the person competent to make or waive a privilege claim. This doubt arises from the nature of the privilege claim itself — as an immunity by the relevant client against the exercise of a power of compulsory production. Although the Lake Cumbeline case saw the court willing to find that vested “claims” included claims for LPP, it is worth noting that the case did not involve an assignment or transfer by deed or agreement, but rather arose by way of statute.

Prudence and good practice dictates that whenever copies of confidential and privileged communications are to be provided to a third party, there be:

  • an agreed record made of the circumstances giving rise to the common interest;
  • an adequate confidentiality regime;
  • an agreement not to do anything that could constitute a waiver of, or be inconsistent with the discloser’s claim for, LPP in the disclosed communications;
  • an agreement not to use the privileged communications for any purposes other than the purpose in which each party has a common interest, including not using it to the current or potential competitive or legal disadvantage of the disclosing party or any related body corporate of the disclosing party; and
  • a statement that by providing the communications, there is no waiver or intention to waive privilege in them.

If an assignment of claims, rights and remedies was held not to include a claim for privilege with respect to the transferred property, then the recipient might face an argument that there has been an express waiver of privilege by the company subject to it establishing a common interest privilege or limited waiver, depending on the relevant facts. One expects that in those circumstances, the stronger the confidentiality regime and the less unfairness suffered by the person seeking production, the greater the prospect of a limited waiver arising which prevents the documents being handed over.

Key lessons for in-house counsel

  • According to single judge decisions at least, LPP in company material can survive its deregistration.
  • Although it is an eminently sensible application of the law of privilege and consistent with authorities involving deceased persons, it is possible (although perhaps unlikely) that a future appeal court or other single superior court judge might either reject or distinguish earlier authorities.
  • ASIC policy indicates that it will not agree to waive any claim for privilege in relation to property vested in it upon deregistration, to the extent it has the power to do so.
  • There nevertheless remains a practical need to lead adequate evidence to establish a privilege claim in circumstances where it is challenged. Consideration should be given as to how and through whom that might occur in the future.
  • Before a company to be deregistered shares any of its privileged material with persons who have a common interest in that material, steps should be taken to confirm the absence of a conflict of interest, the creation of an adequate confidentiality regime (with undertakings limiting its use) and a record of the common interest.
  • There may be occasion where a company wishes to transfer the ownership of records/documents that include privileged materials to a related entity. If so, it is unclear whether a deed that assigns all claims, rights and remedies will be effective to transfer a right to claim LPP in the name of the recipient. If the transferring entity is a government body, it would be preferable to have legislation passed that specifically provides for the statutory transfer of the company material together with a vesting of all claims, rights and remedies attaching to that material, including claims for privilege.

This article was first published in Inhouse Counsel, Vol 20, Nos 9-10, December 2016

[1] Bullivant v A–G (Vic) (1901) AC 196 at 206.Back to article

[2] Corporations Act 2001 (Cth), s 601AD(1); it provides that a company ceases to exist on deregistration.Back to article

[3] Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd t/as Uncle Ben’s of Australia.Back to article

[4] Above n 3, at 65.Back to article

[5]Kellert v Foate [2015] NSWSC 954 at [72].Back to article

[6] Cmr of the NSW Police Service [2005] NSWSC 901; Above n 5.Back to article

[7] Above n 3.Back to article

[8] Property” is defined as “any legal or equitable estate or interest … in real or personal property of any description and includes a thing in action. Back to article

[9] Above n 3, at 65.Back to article

[10] See above n 6, at [13]–[16]. See also Commissioner of Taxation v Donoghue (2015) 237 FCR 316; [2015] FCAFC 183 where:

  • the true nature of common law privilege is described as an immunity (at [53]);
  • it notes that when privileged documents are disclosed to third parties, the right to restrain their use or to compel their return is grounded in equity rather than the common law of privilege (at [57]); and
  • the issue of privilege could only arise in the context of a power of compulsory production (at [76]).Back to article

[11]The person claiming privilege has the onus to show that the documents for which the claim is made are in fact privileged. It is insufficient to merely assert a claim for privilege or deliver an affidavit asserting the purpose for which a document was brought into existence followed by a statement about the category of legal professional privilege to which the document is said to belong: eg. see Barnes v Cmr of Taxation [2007] FCA 3; Re Southland Coal Pty Ltd (recs and mgrs apptd) (in liq) [2006] NSWSC 899; Re Doran Constructions Pty Ltd (in liq) (2002) 194 ALR 101 at 117 (Campbell J).Back to article

[12] Above n 3; Fletcher v Davidson (Fletcher) [2007] NSWSC 68; Above n 5.Back to article

[13] Above n 5, at [60].Back to article

[14] The accepted legal principle to start with is that the claim for privilege is that of the client and not of the custodian (above n 3; Fletcher, above n 12, at [30].Back to article

[15]  Note, common interest privilege will not apply within group entities merely by reason of that relationship. Further, Australian case authorities do not recognise the relationship between a company and its shareholders, or the relationship between a company and its shareholder groups, as automatically attracting a common interest in the privileged communications of the company. Whether or not a common interest between those parties arises as a matter of fact, requires an assessment of the legal and commercial interests at each corporate layer of the corporate groups through which the privileged communications of the company are intended to flow, in order to be able to form a view as to whether those interests have a sufficient level of commonality with the company, and are not selfish or adverse to the company. It will always be a question of fact whether common interest privilege exists when group entities are related to a direct shareholder. If related entities have a common interest in the particular legal advice or the anticipated or actual legal proceedings that are on foot, then disclosure of privileged material between them on a confidential basis will not amount to a waiver.Back to article

[16] Eg. Network Ten Ltd v Capital Television Holdings Ltd (Network Ten) (1995) 36 NSWLR 275 at 279–80; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 409–10; Marshall v Prescott [2013] NSWCA 152.Back to article

[17]  Rich v Harrington (2007) 245 ALR 106; [(2007) FCA 1987].Back to article

[18]  Patrick v Capital Finance Corp (Australasia) Pty Ltd [2004] FCA 1249: Tamberlin J considered the question as to whether common interest privilege could operate retrospectively over material on which privilege had previously been waived. He concluded that after a conflict of interest has clearly been identified, common interest privilege will not apply and it cannot operate retrospectively where the privilege in material had been waived. See also: Lee v South West Thames Regional Health Authority [1985] 2 All ER 385 ; [1985] 1 WLR 845; Leif Hoegh & Co A/S (No 2) v Petrolsea Inc (The World Era) [1993] 1 Lloyd’s Rep 363. Cf: A presently existing common interest will not be destroyed by the circumstance that there is potential for future divergence of interests — see R Walker J “Nauru Phosphate Royalties Trust v Allen Allen & Hemsley” (1996) 13 Tolley’s Professional Negligence 64 as noted in Marshall, above n 16, at [62].Back to article

[19]  Ie. made or brought into existence for the dominant purpose of seeking or being furnished with legal advice or for the dominant purpose of preparing for existing or contemplated legal judicial or quasi-judicial proceedings.Back to article

[20]  Network Ten, above n 16, at 300 where Giles J observed that Goldberg v Ng (1994) 33 NSWLR 639 underlines that there can be limited disclosure without relevant loss of legal professional privilege (eg. because of the limited and specific purpose and specific context of the disclosure or because there is no unfairness in maintaining the privilege).Back to article

[21]  Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 608 where Sheller JA explained the basis of joint legal professional privilege as follows:

"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, par 20–28 and par 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."

See also Sheahan and Lock (Liquidators) Re Binqld Finances Pty Ltd (in Liq) (2015) 107 ACSR 163; [2015] FCA 718 at [9]; Archer Capital 4A Pty Ltd as Trustee for Archer Capital Trust 4A v Sage Group plc (No 3) (2013) 306 ALR 414; [2013] FCA 1160 at [68]; Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Ltd [2013] FCA 998  at [13]; Mercantile Mutual Insurance (NSW Workers Compensation) Ltd v Murray (2004) 13 ANZ Ins Cas 61–612 ; [2004] NSWCA 151 at [41]; Temwell Pty Ltd v DKGR Holdings Pty Ltd [2003] FCA 967 at [8] and [12]; Re Doran Constructions Pty Ltd (in liq) (2002) 168 FLR 116 at 132–33 [72]–[73]; and JD Heydon Cross on Evidence (10th edn) LexisNexis 2014 pp 905–6 [25265] and the cases referred to.

The Full Court in Alliance Craton Explorer Pty Ltd V Quasar Resources Pty Ltd [2011] SASCFC 64 held that in order to establish the second limb of joint privilege, the relationship between the group members must include a duty or obligation to disclose to the other members the content of the communication. 

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