15 December 2016

Show me the client! Privilege in pre-proceeding communications

This article was written by Karan Raghavan and Domenic Gatto.


Whereas an ordinary civil proceeding typically begins with a client approaching a lawyer for advice concerning a potential claim, the opposite is true for most class actions. Class actions usually emerge as a result of a lawyer identifying a possible claim, and approaching both potential litigation funders and potential class members in order to bring the claim to fruition.

This unique feature of class action practice raises a number of interesting questions regarding legal professional privilege. Does privilege apply to documents created by the lawyer during her or his investigation of the potential claim? What about communications between the lawyer and potential funders regarding the merits of the proposed action? If such communications are privileged, who is the client?

In our annual review of class actions published in August 2016, we touched upon some of these issues in the context of the Federal Court’s decision in Perazolli v BankSA[1] and the (at that stage) pending decision of the Supreme Court of Victoria in IOOF Holdings Ltd v Maurice Blackburn Pty Ltd (IOOF).[2]

Since that time, there have been several important developments which go some of the way toward answering these questions.

Supreme Court hands down its decision in IOOF

On 25 August 2016, Justice Elliott handed down his decision in IOOF. His Honour upheld a claim for privilege in an analysis provided by Maurice Blackburn to a potential litigation funder regarding the legal merits of a proposed class action. His Honour also found that certain internal documents created by Maurice Blackburn during the course of its investigation of the proposed class action were privileged. Significantly, both claims were upheld despite some of the documents having been created before Maurice Blackburn had contacted or received instructions to act on behalf of any potential class members.


The case involved a proceeding brought by IOOF against Maurice Blackburn and its litigation funder, Harbour Litigation Funding (HLF), alleging that they had misused confidential documents obtained from a former IOOF employee in investigating and deciding to fund a proposed class action against the company.

The privilege dispute before Justice Elliott concerned various documents discovered by Maurice Blackburn and Harbour relating to the investigation of, and decision to fund, the proposed class action. Some of those documents were created before Maurice Blackburn had been retained to act on behalf of any potential plaintiffs. They included:

  • a legal analysis on the prospects of the proposed claim provided by Maurice Blackburn to HLF (prospects analysis).  The analysis was requested by HLF for the purpose of it considering whether to fund the proposed class action; and
  • internal documents created by Maurice Blackburn, including drafts of a brief to counsel and file notes of interviews with the former IOOF employee (internal Maurice Blackburn documents).

Findings in relation to the prospects analysis

Justice Elliott accepted Maurice Blackburn and Harbour’s submission that the prospects analysis constituted legal advice provided by Maurice Blackburn in its capacity as the “lawyer” to Harbour in its capacity as the “client”. The fact that Harbour had requested the legal analysis from Maurice Blackburn was, in his Honour’s view, sufficient to establish a lawyer-client relationship. His Honour also accepted that such a relationship could exist, and the dominant purpose of the communication could be characterised as the provision of legal advice, notwithstanding the broader commercial context – namely, that Maurice Blackburn was seeking to secure funding from Harbour and the advice was provided in order to assist Harbour in making its funding decision.

Findings in relation to the internal Maurice Blackburn documents

Justice Elliott held that the internal Maurice Blackburn documents were created for the dominant purpose of Maurice Blackburn (as the “client”) obtaining legal advice from counsel (as the “lawyer”) in relation to the prospects of success of the proposed class action.  His Honour accepted that Maurice Blackburn was “engaged in assessing the Potential Class action for its own commercial gain”. However, he rejected IOOF’s submission that this meant the advice was sought for a commercial purpose such that no privilege could arise.

Although he upheld the privilege claim, Justice Elliott raised several issues with Maurice Blackburn’s evidence.  In particular, his Honour observed that a number of the documents were described as having been created for the purpose of Maurice Blackburn both seeking advice from counsel and forming its own legal assessment of the prospects of success of the proposed class action.  His Honour expressed some doubt as to whether the latter purpose could have provided a proper basis for a privilege claim. In other words, absent a purpose of seeking advice from counsel, Maurice Blackburn could not have claimed privilege on the basis that it was providing legal advice to itself regarding the prospects of the proposed class action.  However, his Honour did not ultimately consider it necessary to decide that issue.  That is because he was prepared to accept that the dominant purpose for Maurice Blackburn creating the documents in question was to obtain advice from external counsel, notwithstanding that Maurice Blackburn was also seeking to form its own assessment as to the merits of the claim.

Privilege in funder communications considered by the NSW Court of Appeal 

Whether privilege attaches to pre-proceeding communications with a funder was also recently considered by the New South Wales Court of Appeal in Hastie Group Ltd (in liq) v Moore.[3]

The liquidators of Hastie Group Ltd (Hastie) had been investigating a claim to be made against the defendants, who were partners in the firm which had conducted Hastie’s audits. As part of the initial investigation, the liquidators had engaged an accounting consultant to prepare a report regarding the potential claim (Report). The Report was subsequently provided by the liquidators’ lawyers to lawyers acting for a potential litigation funder.

A critical issue on the appeal was the purpose for which the Report was prepared. The liquidators argued that the Report was commissioned for the purpose of the liquidators obtaining legal advice in connection with the anticipated proceedings against the defendants, and that the subsequent disclosure of the report to the litigation funder did not amount to a waiver.

The defendants argued that the Report was obtained by the liquidators not for the dominant purpose of obtaining legal advice in respect of the proceeding, but for the purpose of the Report being provided to potential litigation funders in order to secure funding.

Two questions relevantly had to be answered by the Court.  Was the Report privileged? If so, had privilege been waived by the disclosure of the Report to the litigation funder? Separate to the issue of privilege, an additional question arose as to whether, having regard to the way in which the liquidators conducted their case in the court below, leave to appeal should be refused.

The majority of the Court accepted the liquidators’ position regarding the purpose for which the Report was prepared, and allowed the appeal.  This was so notwithstanding certain deficiencies the Court identified in the liquidators’ evidence on that issue.  As for the waiver argument, the Court confirmed that the confidential disclosure of a document which is otherwise privileged to a litigation funder will not amount to a waiver.  Both aspects of the majority’s decision turned upon the orthodox application of privilege principles, and are consistent with earlier authorities.

Of greater interest for present purposes is the minority judgment of Justice Leeming. Justice Leeming considered that, regardless of whether the Report was in fact privileged, the manner in which the liquidators had conducted their case in the court below meant that leave to appeal should be refused.  Although it was therefore unnecessary for his Honour to determine whether the Report was privileged, he nevertheless made a number of interesting observations regarding the privilege claim.

First, his Honour referred to the conclusion of the primary judge that “communications whose purpose is to attempt to obtain litigation funding do not attract privilege”. The primary judge had based that conclusion upon several earlier NSW decisions in which it had been held that documents (such as funding agreements and retainer letters) which are created for the purpose of establishing a relationship pursuant to which legal services or funding is to be provided are generally not privileged unless they expressly or impliedly disclose legal advice.[4] Neither those authorities, nor the primary judge’s finding on this issue, were challenged on appeal.

Secondly, his Honour appeared to accept the submission of the defendants that if the purpose of the Report was to solicit funding for the proposed proceeding then the Report would not be privileged. Based upon the liquidators’ evidence, his Honour found that to be at least one of the purposes of the Report.  However, his Honour did not express a concluded view as to whether the liquidators had established that the dominant purpose of the Report was a privileged one.


The decision in IOOF appears to narrow the scope for defendants to obtain access to documents created by plaintiff law firms during their preliminary investigation of a class action, including communications with potential litigation funders. If the approach adopted by Justice Elliott is followed in other cases, privilege in such documents may be established provided that:

  • the law firm has retained external counsel to provide advice at the outset of the investigation; and
  • information regarding the merits of the proposed claim is only provided to a litigation funder after an express request for legal advice from the funder.

The news is not however all bad for defendants. The outcome in IOOF was heavily based upon the particular evidence and facts as found by Justice Elliott regarding the purpose for which various documents were created. There is also an open question as to whether certain aspects of Justice Elliott’s reasoning in IOOF is likely to be followed by other courts.

In particular, his Honour’s finding that a lawyer-client relationship existed between Maurice Blackburn and HLF appears to sit uncomfortably with the definition of a “client” which had been adopted in earlier cases. Central to that definition is the existence of a relationship of trust and confidence entailing duties on the part of the lawyer to promote the client’s interests and protect the client’s rights.[5] One issue which is not dealt with in the IOOF judgment is how a duty on the part of a plaintiff law firm to promote the interests of a litigation funder could be said to arise where the law firm is both seeking funding from, and providing legal advice to, the funder in respect of the same claim.

A further potential issue is how the decision in IOOF is to be reconciled with the principle referred to by the primary judge and Leeming JA in Hastie Group, namely, that communications whose purpose is to attempt to obtain litigation funding do not attract privilege. It was not in dispute that the prospects analysis was requested by HLF for the purpose of it deciding whether to provide the funding sought by Maurice Blackburn. Moreover, it was not suggested that the prospects analysis disclosed any legal advice which Maurice Blackburn had obtained from counsel (indeed, the prospects analysis was provided to HLF before any such advice had been obtained).[6]

In those circumstances, there is at least a question as to whether Justice Elliott’s decision can be reconciled with the comments made in Hastie Group and the earlier NSW cases upon which those comments were based.

[1] [2015] FCA 373.

[2] [2016] VSC 311.

[3] [2016] NSWCA 305 (Hastie Group).

[4] See authorities discussed in Hastie Group Ltd [2016] NSWCA 305[6] - [11].  See also primary judge’s decision Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1315, [16] – [19].

[5] Brookfield Multiplex v ILFP (No 2) (2009) 180 FCR 1, [19].

[6] See IOOF Holdings Ltd v Maurice Blackburn Pty Ltd [2016] VSC 311, [24] and [27].

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