ICSA Ireland

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Shareholder disputes: legal advice obtained by company is privileged

04 July 2016

For the first time, the Irish courts have considered the question of whether privilege applies to legal advice which has been obtained by a company in anticipation of a dispute with a shareholder. In Carlo Tassara Assets Management S.A. v Eire Composites Teo [2016], it was held that legal privilege may apply where the shareholder’s interests diverge from those of the company, but this was dependent on whether the parties at the time are ‘sundered by litigation’.

Legal advice was obtained by the company in contemplation of a potential dispute over its conversion of a €2 million loan note held by the plaintiff into a 47% shareholding, which was subsequently sold to a third party pursuant to 'drag-along' provisions. The plaintiff claimed that it had not consented to the loan note conversion or the subsequent sale and, in taking action against the company, sought discovery of documentation regarding (1) the alleged agreement to convert the loan note; and (2) the offer to purchase the company.

The company claimed legal advice privilege and litigation privilege on the basis that the documents sought were communications between lawyer and client, had been produced for the purposes of giving or receiving legal advice, and their dominant purpose was to prepare for the litigation. The plaintiff claimed that it was entitled to discover legal advice received by the company during the time it was a registered shareholder and that some of the advice pre-dated the legal action.

The court considered UK case law and concluded that legal advice obtained by a company regarding a particular course of action (even if that action might give rise to litigation) is advice which, in principle, is of joint interest to a shareholder claiming such actions are unlawful. However, this joint interest depends on the circumstances: legal advice sought after a company has taken the disputed actions, and when legal proceedings are contemplated, is less likely to be of joint interest and more likely to be sought for the benefit of one side to the dispute.

If, in reality, the dominant purpose is the pursuit or defence of litigation, or the legal advice arises in the context of discussions aimed at avoiding such litigation, the legal advice will attract legal professional privilege.

In this case, legal advice obtained by the company in advance of the alleged agreement to convert the loan note (even if in anticipation of litigation arising) would initially have been discoverable. However, from the point that litigation between the company and the shareholder became probable the legal advice attracted legal professional privilege.