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A recent Federal Court judgment in the long running Lehman Bros cdo battle royale, Wingecarribee Shire Council & Ors v Lehman Bros Aus Limited (in liq) 1, looked at, in part, the risks that arise in applying privilege to intra-corporate group communications. Legal counsel need to properly identify the client within a corporate group who seeks the legal advice and the reasons or purpose for the advice. If care is not taken on these threshold issues, privilege may not exist and confidential or sensitive commercial communications might be exposed to outside scrutiny.
During the current class action trial in NSW brought by the local councils against Lehman Bros Australia Ltd (in liq) (Lehman) for damages arising out of investments in Lehman cdo financial products, the applicants sought production of certain Lehman "group" documents over which privilege claims were made. The application was heard by a Judge other than the Trial Judge.
The Court ordered production of all but one of the documents, ruling that Lehman's privilege claims could not be sustained. The Court made a number of findings concerning the threshold test for privilege claims and the protections granted to intra-corporate communications.
The following facts are relevant to the Court's ruling on the privilege issues.
The Court reinforced the principle that the dominant purpose test focuses on the creation of the particular communication and in whose name the communication is created2.
The Court found that the various purposes which motivated the lawyer's conduct were all equal with no one purpose being "the ruling, prevailing or most influential purpose"3. The privilege claimed was that only of Lehman and where there were mixed purposes, and one was foreign to Lehman (for the "other entities"), that purpose was not the dominant purpose4.
For these reasons, Lehman failed to establish with "focused and specific evidence"5 that a dominant purpose existed for Mr Ansell creating 5 of the 6 relevant communications constituting legal advice given to Lehman.
The question of privilege and the flow of communications within corporate groups were raised by Lehman as an additional argument.
The Court rejected Lehman's arguments, holding that the issue of privilege applying within corporate groups was on the authorities6, properly a consideration of: (1) whether privilege in fact existed, and (2) whether privilege had been waived.
The critical test in determining whether a client has waived privilege is set out in the judgment of the High Court of Australia in Mann v Carnell 7, which involves a consideration of whether particular conduct (in disclosing the advice) is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. As no privilege existed, the question of waiver did not arise
The following lessons can be taken from this judgment:
If these steps are not properly considered at the time that potentially privileged communications are created, clients run the real risk that no privilege exists in such documents and they might have to be produced to a commercial opponent, an aggrieved investor or a curious regulator!
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