Business Law: Obtaining embarrassing documents from banks, mortgage companies and insurers - the limits of legal professional privilege

The New South Wales Court of Appeal has handed down an important decision in Westpac Banking Corporation v. 789 Ten Pty Ltd which places a limit on legal professional privilege.

Legal professional privilege allows clients and lawyers to communicate freely without those communications (either oral or written) being produced to a third party whether a court opponent, or a regulatory or disciplinary organisation. Legal professional privilege is generally in two parts. The first part relates to protected documents which are prepared for the dominant purpose of a lawyer providing legal advice to a client. The second aspect protects documents prepared for the dominant purpose of a client being provided with professional legal services relating to court proceedings in which the client was a party. 

In New South Wales, legal professional privilege is dealt with under the Evidence Act 1995. In Victoria, it is still part of the common law although all states and territories are moving towards  uniform evidence legislation to be introduced shortly. 

In the New South Wales decision, 789 Ten Pty Ltd was engaged in civil litigation with Westpac Banking Corporation.   789 Ten Pty Ltd claimed to be entitled to a letter written by the bank to its solicitors in Sydney requesting those solicitors to provide information to the bank’s auditors. The other letter sought by 789 Ten Pty Ltd was from the bank’s solicitors to its auditors providing that information. Both letters referred to the bank’s estimate of any financial settlement which the bank would be prepared to enter into in the civil litigation with 789 Ten Pty Ltd. That information would be very useful to 789 Ten Pty Ltd in the court case. It would clearly indicate what Westpac Banking Corporation was prepared to pay to settle the claim. Naturally, Westpac Banking Corporation argued that the letters written from the bank to its solicitors and from its solicitors to its auditors were privileged either under the legal advice privilege or the litigation privilege outlined above.

At first instance, Bergin J., held that the letters were not privileged. On appeal, the New South Wales Court of Appeal (Tobias, JA, Beasley, JA, and Campbell, AJA,) unanimously dismissed the appeal. 

The Court of Appeal accepted that neither letter was prepared for the dominant purpose of providing legal advice to Westpac Banking Corporation. The auditors did not receive the relevant information as an agent on behalf of Westpac. Rather, the auditors received that information on its behalf for its own purposes, namely, the carrying out of the audit process in relation to the bank. It will be recalled that the privilege only applies if the dominant purpose was to provide legal advice to a client or was for the provision of legal services relating to legal proceedings. 

The Court of Appeal also held that the letters would have been prepared irrespective of any intention on the part of the bank to be provided with the legal opinion of its solicitors of the reasonableness or otherwise of the bank’s estimates. This was because the auditors required those services from its solicitors for the purpose of carrying out their audit purpose. 

Accordingly, the Court of Appeal concluded that the letters were prepared for the dominant purpose of the bank’s auditors rather than the bank being provided with the relevant professional legal service.

This is an important limitation on legal professional privilege.

It also opens the door to parties engaged in civil litigation against banks, insurance companies, mortgagees and other finance companies that have commercial or statutory reason for corresponding with auditors or with regulatory authorities in relation to their financial position. Their financial position will be influenced by any litigation in which they are involved. Banks, insurance companies, mortgagees etc. must give this information to auditors and to regulatory authorities such as APRA and possibly even ASIC and stock exchanges if the litigation is large enough in order to comply with accounting standards and solvency, regulatory and stock market disclosure regimes. 

In this way, parties either being sued by banks, insurers, mortgagees etc. or suing such organisations might well be advised to seek non-party discovery or to subpoena the type of correspondence referred to in the 789 Ten Case. Whilst the cost of the non-party discovery or subpoena will have to be paid by the party seeking the documentation, finding out that your opponent is prepared to settle for a particular figure is a significant advantage in commercial litigation.

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