Receivers and legal professional privilege

In the recent decision of Carey v Korda & Winterbottom [No 2] [2011] WASC 220 the Supreme Court of Western Australia considered whether receivers were entitled to assert legal professional privilege over documents as against a director of the companies to which they were appointed.

Facts

The first defendants (Receivers) were receivers and managers of eight companies who are, or were, part of the Westpoint Group (companies).  The second defendant (Lender) held a fixed and floating charge over the assets of the companies (Charge) and appointed the Receivers as receivers and managers of the companies after each company committed an act of default.   The plaintiffs were  Mr Carey who, was a director of a the companies, and the companies.

Following a request by the plaintiff pursuant to s 421 of the Corporations Act 2001 (Cth), the Receivers refused to provide copies of the schedule of costs incurred by the Receivers and bills for the legal costs incurred by the Receivers (bills and schedules), claiming that these documents were subject to legal professional privilege.

The plaintiffs opposed the claim by the Receivers for legal professional privilege.  Their principal arguments were: :

•  it was the companies who were the true clients of the solicitors and hence entitled to claim privilege, not the Receivers
•   the bills and schedules were not privileged.

Decision

Justice Edelman determined these issues as follows:

• Whilst the terms of the Charge stated that the Receivers were an “agent” for the companies, in this circumstance “agent” is merely a verbal device designed to shift liability for the default of the Receivers to the companies.  The reference to “agent” in the Charge does not mean that legal advice sought by the Receivers was sought on behalf of the companies.  It was the Receivers in their capacity as receivers not as general agents for the companies, who were the clients of the solicitors and accordingly were entitled to claim privilege over the bills and schedules. This characterisation was also supported by the fact that  legal advice had been sought in circumstances where the Receivers had been threatened with litigation concerning their management of the companies, by the companies.

• While solicitors’ bills do not generally attract legal professional privilege, the situation is different where the bill describes the nature of the legal advice provided, as was the case in this situation.  Edelman J held that both the bills and schedules contained descriptions or summaries which would reveal privileged communications.

Comment

This decision is an example of a protection afforded to receivers in circumstances where they seek legal advice on their own behalf.  The decision is also important in confirming that legal professional privilege will apply to the information in bills where the bills describe the nature of the legal advice and reveal, directly or indirectly, the content of privileged communications.