To disclose or not to disclose? Some legal guidelines regarding disclosure of litigation to the market

Key Points:

Companies should carefully consider the implications of disclosure of litigation, and directors and officers should review their insurance and indemnity arrangements generally to ensure that they are adequately protected.

In the September 2013 issue of Company Director, Kristen Le Mesurier of Ownership Matters highlighted some practical issues facing listed company boards when deciding whether or not to disclose litigation to the market. Among other things, that article looked at ASX-listed companies' continuous disclosure obligations.

The purpose of this article is to highlight some further risks for boards to consider when deciding how or what to disclose to the market in relation to litigation, and how those risks can be managed before problems arise (which, in our experience, does not always occur).

First, we address the risk of inadvertent waiver of legal professional privilege when disclosing litigation, and how to manage that issue. Secondly, we provide some guidance to directors and officers to assess whether their insurance and indemnity arrangements will give the real protection that will be needed if a claim arising from a failure to disclose litigation at all, accurately or soon enough is made.

How and what to disclose

If the board decides to disclose litigation to the market, there may be a commercial inclination to include in the disclosure an assurance that the company's case is strong. However, companies must be mindful to ensure that any such statement does not inadvertently waive legal professional privilege that subsists in legal advice which the company has obtained.

An example of what can go wrong

The risk of inadvertent waiver of legal professional privilege is amply demonstrated by the Supreme Court of Victoria's decision in Switchcorp Pty Ltd v Multiemedia Limited [2005] VSC 425.

In Switchcorp, Multiemedia had announced to the ASX that, in relation to litigation brought against it by Switchcorp, "[t]he Board's lawyers have been instructed to vigorously defend the claim and have advised that the plaintiff's claim will not succeed."

Notwithstanding the lack of specificity about the advice, the Supreme Court found that legal professional privilege in the advice referred to in the announcement had been waived because there was a "clear and deliberate disclosure of the gist or the conclusion of" the advice. As a consequence, Multiemedia was ordered to produce all documents constituting the advice to the...