Professional Liability Guide

CHAPTER 17 – COMMON INTEREST PRIVILEGE

The onus of establishing the privilege will generally lie with the party asserting it. 647

In Marshall v Prescott , 648 the New South Wales Court of Appeal canvassed the authorities on common interest privilege and made the following observations:

ƒ Having a common solicitor is not a necessary element of common interest privilege; and ƒ Insurers will have a common interest with their insured in litigation brought against the insured because they, as underwriters of the insured’s liability, have an interest in seeing the insured mount the most effective defence.

Insurers have an interest even before they decide to accept indemnity because, on making that decision, they become subject to steps taken earlier in the litigation. 649

An existing common interest will not be destroyed if there is potential for a future divergence of interests. 650 This is significant for the insured and insurer relationship because there are a few sources capable of causing future disputes between the two parties, such as documents coming to light that alter the indemnity position and disputes regarding an insurer’s right to reimbursement where an insured has recovered money relating to an insurance claim. Even where there is a conflict of interests, and the insured and insurer no longer enjoy common interest privilege, both parties are entitled to maintain a claim for common interest privilege in relation to documents exchanged prior to the parties’ interests conflicting that meet the requirements of common interest privilege. In Asahi Holdings Australia Pty Ltd v Pacific Equity Partners Pty Ltd (No. 2) , 651 the insured (via a nominee) agreed to purchase shares in a beverage company. It was a condition of the sale that the insured obtain insurance in respect of certain warranties given by the sellers. The insured took out a warranty insurance policy, which provided cover for the insured and its nominee against breaches of those warranties by the sellers. Under the policy, the insurer was liable to indemnify the insured for any loss it would have been entitled to claim against the sellers for breach of the insured warranties. The insured later made a claim under the policy for loss caused by alleged breaches of some of the insured warranties. It also commenced proceedings against the sellers and some of their directors and employees, claiming they breached certain warranties and misrepresented the financial position of the company in which the shares had been purchased. The insured’s solicitors had prepared a report for the insured in anticipation of the litigation. It contained memos that particularised the conduct alleged to have caused the respondents (the parties sued by the insured) to misrepresent the financial position of the company, such as inflating or overstating the company’s earnings. A complete copy of the report was voluntarily provided by the insured to its insurer to support the claim made under the policy, with many (but not all) of the pages marked ‘ Privileged and Confidential’ . A redacted copy of the report was also disclosed to the respondents during the litigated proceedings. The respondents sought disclosure of the unredacted version; however, the insured resisted the request, arguing that the redactions attracted legal professional privilege. The respondents asserted that the protection conferred by the privilege was lost when a copy of the full report was provided to the insurer, a third party.

647 AWB Ltd v Cole (No 5) (2006) 155 FCR 30, 44. 648 [2013] NSWCA 152.

649 Ibid [60]. 650 Ibid [62]. 651 (2014) 312 ALR 403.

137

© Carter Newell 2023