A recent decision in the Supreme Court of NSW serve as warning to Owners Corporations as to the care required in litigation.
Eastmark Holding Pty Limited v. Kabraji (No.3) [2012] NSWSC 1463
In Eastmark Holding Pty Limited v. Kabraji (No.3) [2012] NSWSC 1463 (Eastmark), the Court was required to determine whether certain legal advice provided to an Owners Corporation was the subject of legal advice privilege. The substantive proceedings concerned a claim by Eastmark Holding Pty Ltd that the chairman and a member of the Executive Committee had breached the fiduciary obligations they owed to the Owners Corporation in respect of the entering into of a particular consultancy agreement.
In Eastmark, the Plaintiff, a lot owner in the subject strata plan, sought access to the legal advice which had been provided to the Owners Corporation in respect of a consultancy agreement, prior to the legal proceedings being commenced. The Owners Corporation sought to prevent access by the Plaintiff to this legal advice.
The Plaintiff submitted in the proceedings that:
- The documents to which access was sought were not “confidential” and did not attract privilege, firstly, due to the nature of the relationship between the Plaintiff, as lot owner, and the Owners Corporation and secondly, because the Plaintiff, as lot owner, had an unqualified right to inspect the books and records under section 108 of the Strata Schemes Management Act 1996 (SSMA);
- The privilege was subject to an exception (known as the “common interest exception”) which would prevent the Owners Corporation from relying on the privilege against the lot owner; and
- Lastly, the Plaintiff contended that the Owners Corporation had waived any entitlement to rely on the privilege.
The decision of the Court
The Court decided that the legal advice was not subject to legal advice privilege. The Court held (at [103]) that where the owners corporation, by its executive committee, obtained legal advice regarding the consultancy agreement, and where that consultancy agreement affected the interest of all lot owners, that advice could not be “confidential” as between the lot owner (i.e. the Plaintiff) and the Owners Corporation.
The Court also held that the Owners Corporation had waived legal advice privilege by reason of the voluntary disclosure of a particular document, during an inspection of the books and records of the Owners Corporation by the Plaintiff’s solicitor. The Court took particular note of the failure of the Owners Corporation to assert confidentiality at the time of inspection over the document which contained the substance of the legal advice.
Conclusions and recommendations
On the basis of the reasoning in Eastmark, a lot owner is entitled to have access to legal advice obtained by the Owners Corporation. This general statement is perhaps unremarkable.
However, the Court was not required to consider in this case whether a lot owner is entitled to have access to the legal advice provided to the Owners Corporation in respect of legal proceedings commenced against a lot owner, or by a lot owner against the Owners Corporation (or advice given in contemplation of such legal proceedings). This question is important, for example, in relation to legal proceedings against developers and builders who are lot owners in the strata plan. The disclosure of legal advice in such cases can have severe and adverse consequences for Owners Corporations, whether it is a plaintiff or a defendant in proceedings.
In our view, it is arguable that an Owners Corporation can assert legal advice privilege in respect of legal proceedings against or by a lot owner. It appeared to be accepted by the Court that statutory provisions should not be construed as abrogating privileges in the absence of clear words or a necessary implication to that effect (at [92-93]). It was not suggested that section 108 of the SSMA could be read in such a way as to result in the loss of privileges.
What is highlighted by the decision in Eastmark is the critical importance, in every case, of maintaining and asserting confidentiality in respect of legal advice, particularly legal advice in respect of or in contemplation of legal proceedings, or which may become the subject of legal proceedings. Particular care and attention must be taken by Owners Corporations and Strata Managers in respect to the circulation of legal advice to all lot owners (query whether this should ever be done); the retention of legal advice on the books and records of a strata plan and the qualifications to access the books and records.
If you are in doubt as to whether access to legal advice provided to an Owners Corporation should be granted, it is important to obtain guidance from the strata plan’s legal advisors.
