New South Wales Supreme Court CITATION : Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors [2008] NSWSC 390 HEARING DATE(S) : 23/4/08 JUDGMENT DATE : 1 May 2008 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Application for disclosure of unredacted version of funding agreement to be dismissed. CATCHWORDS : Privilege - Redacted Funding Agreement - Waiver of Privilege LEGISLATION CITED : Evidence Act 1995 CATEGORY : Procedural and other rulings Chartspike Pty Ltd (in liq) v Chahoud [2001] NSWSC 585 Esso Australia Resources Ltd v Commissioner of Taxation of the Cth of Australia (1999) 74 ALJR 339 Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors [unreported, White J, Supreme Court of New South Wales, 16 May 2007] CASES CITED : Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors [2004] NSWSC 644 Global Medical Imaging Management Limited (in liq), Re [2001] NSWSC 476. National Crime Authority v S (1991) 100 ALR 151 Ricard Constructions Pty Limited v Rickard Hails Moretti Pty Limited [2006] NSWSC 234 TEXTS CITED : "Legal Professional Privilege in Australia" by Dr R J Desiatnik (Prospect, 1999) Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) (Plaintiff) PARTIES : CGU Insurance Limited (First Defendant) Litigation Lending Management Pty Limited [not yet joined] FILE NUMBER(S) : SC 50177/04 Mr D Davies SC, Mr MS White (Plaintiff) COUNSEL : Mr R Macfarlan QC, Mr S Goodman (First Defendant) Mr M Ashhurst SC (Litigation Lending Management Pty Ltd ) Henry Davis York (Plaintiff) SOLICITORS : Kennedys (First Defendant) Kemp Strang (Litigation Lending Management Pty Ltd] IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Thursday 1 May 2008 50177/04 Martin John Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited & Ors JUDGMENT The notice of motion and procedural position 1 The first defendant ["the defendant"] seeks an order for security for costs against Martin Green in his capacity as liquidator of the plaintiff [Arimco Mining Pty Limited], there being a litigation funding agreement in place. The funder is 'Litigation Lending Management Pty Ltd", referred to consistently with the manner in which the submissions came forward as 'LLS'. The proceedings are fixed for hearing in July and August 2008. The motion for security for costs was fixed for hearing on 11 April 2008. 2 An in limine issue has arisen in terms of a subpoena which the defendant had sought to call against LLS. A mistake had been made in the description of the addressee of the subpoena. Apparently the respective solicitors for LLS and the defendant had been in communication. The procedural position as at the commencement of the court dealing with the matter, was that it had become necessary for a further subpoena to be issued. For reasons explained in the transcript taken of the hearing on 11 April 2008, it was not practicable for the security for costs application to go forward until: i. a corrected subpoena had been answered; ii. a particular question which the defendant sought to agitate had been answered. 3 The matter sought to be agitated by the defendant concerned the circumstance that a redacted version of the funding agreement had already been provided to the defendant by the plaintiff on a "without prejudice" basis. The correspondence clearly indicates that the redacted version of the document was being provided on the basis that such production was: "……without prejudice to the liquidator's position that the LLS Funding Agreement is privileged under section 119 of the Evidence Act, being a document created for the purpose of the liquidator's conduct of the current proceedings………" 4 The agreed position of the parties that the production of the redacted version of the agreement would be "without prejudice" to the plaintiff's right to maintain the claim for legal professional privilege over the Funding Agreement must mean that s 131 of the Evidence Act would apply and that the redacted version of the document was inadmissible on any application by the defendant for access to the non-redacted version. 5 The defendant had requested that LLS provide a copy of the funding agreement in its entirety, which request threw up questions of privilege. 6 The privilege, if any, which would exist, would be the privilege of the plaintiff. If and when the subpoena which the defendant had sought to serve upon the litigation funder had been corrected to reflect the proper detail of the funder, the funder proposed move to set aside the subpoena. 7 In an attempt to accommodate that which could be treated with between the parties on 11 April, the parties agreed that one issue only was appropriate to be litigated, with the balance of the motion for security for costs and attack upon any later subpoena which would be issued to the litigation funder, to be treated with on another occasion. 8 In those circumstances the Court took submissions from counsel for LLS [Mr Ashhurst SC], from counsel for the defendant [Mr Macfarlan QC] and from counsel for the plaintiff [Mr Davies SC]. The oral call 9 The matter commenced with an oral call by the defendant upon the litigation funder for the production of any agreement between the litigation funder and the plaintiff for the provision of litigation funding to the plaintiff in connection with the proceedings. In answer to that call Mr Ashhurst produced to the court only, an unredacted version of the relevant agreement, claiming privilege over that portion of the document which had been blocked out in the redacted version. That version became MFI D 1 on the application. The redacted version became MFI D 2 on the application. 10 At the commencement of the argument Mr Macfarlan QC made clear that his client was not concerned to inspect paragraph 4 of the funding agreement [headed 'Appeal of the Proceedings'] and was content that that portion of the document remain redacted. The way forward 11 The appropriate way forward is to deal with the redacted version and to deal only with those sections of the redacted version which were sought by the defendant to be produced in unredacted form. The relevant paragraphs of the funding agreement 12 Paragraph 2 of the redacted version was entitled "Funding". The part of paragraph 2.1 which had been made available to the defendant in unredacted form read as follows: 2.1 LLS hereby agrees to provide Funding to the Insolvency Practitioner to pay the following sums in respect of the Proceedings: 2.1.1 The Insolvency Practitioner's costs to a capped amount of $…….. 2.1.2 The Legal Costs to a capped amount of $…… (inclusive of Counsel, Experts and Disbursements) 2.1.3 The Enforcement Costs 2.1.4 Any other cost incurred with the prior written consent of LLS. 13 It will be observed that the funder was not disclosing the maximum amount that it would provide to the liquidator for the liquidator's own professional costs in conducting the proceedings. 14 Further the funder was not disclosing the maximum amount of the proposed legal costs to be incurred by the liquidator in running the proceedings 15 Likewise clause 2.6 simply also withheld as redacted, the same capping information that was redacted in clause 2.1. 16 Save for its heading, the whole of clause 3 was redacted. The heading was "Repayment and Additional Sum". As was announced by Mr Ashhurst, this item would include the terms under which the funder had agreed to fund the proceedings. 17 Clause 9 in the redacted form headed 'Confidentiality' read as follows: 9.1 The parties to this Agreement agree to keep confidential the existence and terms of this Agreement and in the absence of the express written consent of the other party will not disclose the existence and terms of this Agreement to any person other than to their legal and financial advisers or as required by law or, in the case of the Insolvency Practitioner, where required to obtain the approval of creditors of the Company to enter into this Agreement. 9.2 The parties to this Agreement agree to waive the terms of clause 9.1 either generally or in specific circumstances if it is deemed by all parties to the Agreement to be in the best interests of the conclusion of the Proceedings. Dealing with the respective submissions 18 The Court was taken by counsel to three decisions, some of which cited a decision of Santow J in Re Global Medical Imaging Management Limited (in liq) [2001] NSWSC 476. The three decisions were: i. Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors [unreported, White J, Supreme Court of New South Wales, 16 May 2007]; ii. Ricard Constructions Pty Limited v Rickard Hails Moretti Pty Limited [2006] NSWSC 234, a decision of Justice Bergin iii. Fiduciary Ltd & Ors v Morningstar Research Pty Ltd & Ors [2004] NSWSC 644, a decision of Justice Austin. 19 In the decision of White J, his Honour dealt with the two disparate questions which arose in the application: i. the first being whether the documents in question were confidential documents within the meaning of s 117 of the Evidence Act 1995 ; ii. the second being whether, if so, they were prepared for the dominant purpose of the plaintiffs being provided with professional legal services. 20 White J noted that in Ricard constructions, Bergin J had said that the relationship between a funder of litigation and the funded party was not per se a 'confidential relationship' and that it would depend upon the particular terms of the funding agreement, whether such a document satisfied the requirements of s 119 of the Act. 21 Later in his judgment White J drew attention to the judgment of Santow J in Re Global Medical. Santow J had held that it was at least relevant to a decision as to whether a funding agreement was prepared for the dominant purpose of the client being provided with professional legal services, to consider the extent to which the document had the potential to reveal the client's likely legal strategy. Santow J had not accepted the argument that the dominant purpose of the funding agreement was to provide funding which is anterior to the purpose of the client being provided with professional legal services. 22 To the extent that it was relevant, White J was satisfied that the documents over which privilege had been claimed in the proceedings would provide to the defendant's, information which could reveal the plaintiffs likely legal strategies and would reveal the confidential circumstances of the availability of funding. His Honour was satisfied that the documents were prepared for the dominant purpose of the plaintiffs being provided with professional legal services. 23 White J went on to note that it was true that the documents were also prepared for the purpose of the plaintiffs being provided with funding, but observed that that purpose itself was inextricably linked with the purpose of their being provided with professional legal services. Hence his Honour did not consider that the privilege had been waived. As White J observed, there had been no disclosure of the substance of the communications or documents. Furthermore the documents had not been deployed by the plaintiffs in a way which would imply their consent to the disclosure of their contents. 24 Returning to the decision of Bergin J in Ricard Constructions Pty Limited v Rickard Hails Moretti Pty Limited [2006] NSWSC 234, her Honour observed that in Re Global, Santow J had said: "6. At first blush, one might be inclined to treat a funding agreement as falling outside s 119, being provided not for the dominant purpose of the provision of professional legal services but, rather, for a purpose anterior to their provision, namely, the funding thereof. Such a view would comport with the trend of a hardening judicial attitude to narrow the scope of the legal professional privilege; see the discussion of the cases cited in "Legal Professional Privilege in Australia" by Dr R J Desiatnik (Prospect, 1999) at 53 as reflected for example that it is not enough for a person merely to assert a claim for privilege ( National Crime Authority v S (1991) 100 ALR 151 at 159 per Lockhart J). That trend of the general law as so interpreted is however not consistently reflected in its statutory counterpart. The Evidence Act 1995 to some extent widens its scope, notably by substituting the dominant purpose test for the sole purpose test, though the general law has now caught up; Esso Australia Resources Ltd v Commissioner of Taxation of the Cth of Australia (1999) 74 ALJR 339. 7. But that first blush view is not the view that I would, on consideration adopt. To deny legal privilege to a funding agreement of this sort would fail to give proper weight to its inextricable connection with the very subject matter of the legal advice that might be given and the nature of the professional legal services to be rendered. It has the potential to reveal the litigant's likely legal strategy. The funding agreement in a literal and substantive sense, fulfils the purpose of providing legal services in terms not only of the overall capacity to have them at all, but also their availability at critical junctures in the case. While it may not reveal the content of legal advice, it reveals the confidential circumstances of its availability and throws oblique light on the confidential circumstances to which the advice is directed. 8. One could, for example, infer from a funding agreement the likelihood of tactical advice being given of a particular kind at different stages of the litigation or, for that matter, of the likelihood of an appeal being advised or not advised. I consider this funding agreement could do so. 9. Accordingly I would conclude that the dominant purpose element is made out." Dealing with the issue 25 It is quite plain that the redacted section of sub-clauses 2.1.1, 2.1.2 and 2.6, formed part of the funding agreement which was prepared for the dominant purpose of the client being provided with professional legal services. Hence following the decision of Santow J, it is appropriate for the Court to consider the extent to which so much of the document had as has been redacted, has the potential to reveal the client's likely legal strategy. 26 Having had the opportunity to inspect the whole of the redacted form of the document I am satisfied that the redacted sections of the above- described sub-clauses have the potential to reveal the plaintiff's likely legal strategy. If the unredacted version of these sub clauses were required to be revealed, that could reveal the plaintiff's likely legal strategies and would reveal the confidential circumstances of the availability of funding. I am further satisfied that the funding agreement was prepared for the dominant purpose of the plaintiff being provided with professional legal services. 27 As in the proceedings before White J, so in the present proceedings, the documents were prepared for the purpose of the plaintiff being provided with funding but that purpose itself, was also here, inextricably linked with the purpose of their being provided with professional legal services. For that reason the privilege has not been waived. Nor has there been any disclosure of the substance of the material which has been redacted. The portions of the funding agreement which have been redacted are entirely separate in not disclosing the capping limits. There has not been any waiver of the material which would disclose the maximum amount which LLS is willing to provide to the liquidator to run his own case. Nor have the documents being deployed by the plaintiff in a way which would imply its consent to the disclosure of their contents. 28 It is clear that the claim of legal professional privilege that has been made can be maintained over the redacted part of the funding agreement. To do so in the circumstances which prevailed involves no unfairness to CGU. 29 It is fair to note that Mr Macfarlan only pressed for access to the redacted sections of clause 2 if it was necessary to see those sections in order to understand clause 3. It is plain enough that it is unnecessary to read the redacted sections of clause to in order 2 understand clause 3. 30 Turning to clause 3, the unredacted clause which I have had an opportunity to inspect has an important relevance to the bringing of the proceedings in the first place and furthermore, a special relevance to the ongoing basis of considerations of settlement as opposed to pursuit of the proceedings to a hearing, depending upon the circumstances at any given time. Hence those paragraphs, if required to be provided in an unredacted form, are squarely caught by the Santow test: they would provide to the defendant information which could reveal the plaintiff's likely legal strategies and would reveal the confidential circumstances of the availability of funding. Nor has there been a disclosure of the substance of the redacted parts of clause 3 of the funding agreement. 31 Mr Macfarlan also drew the Court's attention to the decision of Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd. That was a decision where Austin J was considering relevance and not privilege. It seems clearly distinguishable from the present situation. Naturally a document could be both relevant and privileged but that does not support the proposition that it must be discoverable or should be produced on subpoena. 32 The broader issue goes to the nature of the discretion to order or to refuse to order security for costs. In cases such as the present where there is an insolvent company which is the plaintiff, the Court will generally make some order for security to be provided. Usually the parties deploy evidence from various quarters in this regard, commonly including expert costs assessors and/or solicitors who give evidence as to their estimates of the expected costs of the defendant up to and including the end of the hearing. 33 During the taking of submissions I made the following observation which on reflection seems to be correct: "Just going back to the first principle notion about security for costs, you have a plaintiff and the defendant seeks security for costs. An issue which arises, if the plaintiff is impecunious or relevantly so, is what is the amount of security, what is the fair and reasonable amount of security to be ordered. So the plaintiff, by making clear that it is being funded, is making clear that there are persons standing behind it. There is no issue about the fact that security has to be paid, it is just how much. Hence the court sits back and looks at the respective evidence presumably from each side about how many days and so forth, how many silks, et cetera, daily rates. Then there are arguments, as we all know, of the usual type between different assessors about it and the court often takes a somewhat more conservative view than the defendant claiming the security and fixes upon an order, which seems to be the right order for the defendant to have by way of security. The fact that you might have a litigation funder who would have been prepared to pay 60 times more by its contractual arrangements, does not seem necessarily to me to be germane to the whole world that one is looking at. One is looking at what is sufficient on the materials before the court for this defendant to have by way of security, so that there is no win/win situation on the other side of the Bar table." 34 Austin J had in Fiduciary Ltd and Others v Morningstar Research Pty Ltd and Others made the following observation: It would be unrealistic for the court to decline to order security on the ground that to do so would stultify the litigation, if it took into account only the financial ability of the plaintiff, and disregarded the financial ability of those who would benefit from the plaintiff's success and who would therefore have an economic incentive to bear the burden of a security order. More broadly, it is fair for the courts to proceed on a basis which reflects the proposition that those who seek to benefit from litigation should bear the risks and burdens that the process entails. That notion appealed to Young CJ in Eq in Chartspike Pty Ltd (in liq) v Chahoud [2001] NSWSC 585, BC200103769 at [5], where his Honour observed that where a plaintiff contracts to have the litigation funded by a third party, in return for the third party receiving a share of the verdict, "it is appropriate that the third party bear part of the risk". 35 It seems clear enough that Austin J was there doing no more than dealing with the significance and importance of the Court taking into account the requirement that those who would benefit from the plaintiffs' success should bear part of the relevant risks. 36 In general terms there is no necessity for the Court to do more on a security for costs application concerning a plaintiff which is in liquidation, then to fairly ascertain what is the appropriate amount of security which the evidence reveals as consistent with the principle to require to be ordered. The fact that the funder might, had an order for considerably more security been made, have been able to satisfy such an order, is simply an irrelevance. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.