FEDERAL COURT OF AUSTRALIA

Macquarie Bank Limited v Arup Pty Limited [2016] FCAFC 117

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    This was an application by Macquarie Bank Limited (‘Macquarie’) for leave to appeal from the decision of the primary judge in BrisConnections Finance Pty Limited (Receivers and Managers appointed) v Arup Pty Limited [2016] FCA 438. The issue before the primary judge concerned implied waiver of legal professional privilege said to arise from a party’s pleading.

2    On 16 August 2016, the Full Court ordered that the application for leave be dismissed with costs. These are the reasons for the decision of the Full Court.

3    The principles relating to the circumstances where the Court will grant leave to appeal need no rehearsing: see, eg, Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397. For the reasons set out below, we consider that the decision of the primary judge was correct, and was accordingly not attended by sufficient doubt to warrant a grant of leave to appeal.

4    In the application for leave to appeal, Macquarie contended that the primary judge erred in not finding a waiver of privilege. Macquarie contended that this error arose because the primary judge did not apply the legal principles and authorities that have considered circumstances where a party has put in issue its understanding as to the legal effect of a contract or document, and incorrectly applied considerations of fairness in determining whether an implied waiver of privilege had arisen. We do not consider that the primary judge made either of these errors.

BACKGROUND

The claims in this proceeding

5    The background to this proceeding is set out at [1]-[13] in the reasons of the primary judge (the ‘Reasons’). In summary, the principal claim is brought by BrisConnections Finance Pty Limited (Receivers and Managers appointed) and other related entities (‘BrisConnections’) as applicants, against Arup Pty Limited (‘Arup’) as respondent. BrisConnections allege that Arup engaged in misleading or deceptive conduct, or was negligent, in preparing traffic forecasts on which BrisConnections relied in taking various steps in relation to the Airport Link toll road.

6    Arup then brought a claim against Thiess Pty Ltd, John Holland Pty Ltd and Macquarie (together, the ‘Sponsor Group’), as set out in Arup’s Notice of Cross-Claim. In that Cross-Claim, Arup seeks to pass on to the Sponsor Group any liability it may have to BrisConnections which exceeds $10 million, an amount to which liability was said to be limited.

7    The Cross-Claim is concerned with the Patronage and Forecasting Contract for the Airport Link Project that Arup entered into with the Sponsor Group (‘Engagement Agreement’). BrisConnections were not parties to the Engagement Agreement. Arup alleges that the terms of the Engagement Agreement were based on the provisions of an earlier similar agreement between Arup and the Sponsor Group, called the Patronage Forecasting Contract for the North South Bypass Tunnel (‘NSBT Contract’).

8    The Engagement Agreement required Arup to prepare the traffic forecasts that are at issue in this proceeding. Arup alleges that it also contained two other important features:

(1)    a reliance statement that set out the terms on which persons, including BrisConnections, could rely on the traffic forecasts prepared by Arup (‘Reliance Statement’); and

(2)    a contractual term (at clause 17.9) that limited Arup’s liability for the provision of services to $10 million (‘Limitation of Liability’).

9    Relevantly to this application for leave to appeal, Arup alleges in the Cross-Claim that the Sponsor Group engaged in misleading or deceptive conduct. Arup’s claim alleges the following elements:

(1)    the Sponsor Group represented to Arup that it would take ‘all necessary steps’ to ensure that BrisConnections would be bound by the Limitation of Liability, but did not take such steps (‘Arup’s Representation Case’) ([61] and [63] of the Cross-Claim);

(2)    the Sponsor Group knew that BrisConnections formed the view that they were not bound by the Limitation of Liability, but did not inform Arup that BrisConnections had formed that view (‘Arup’s Silence Case’) ([65]-[66] of the Cross-Claim);

(3)    the Sponsor Group’s representation or silence was misleading or deceptive, or likely to mislead or deceive ([68] of the Cross-Claim);

(4)    in reliance on the Sponsor Group’s representation or silence, Arup performed various services under the Engagement Agreement ([69] of the Cross-Claim); and

(5)    Arup suffered loss by reason of the Sponsor Group’s representation or silence ([70] of the Cross-Claim).

10    It was contended by Macquarie that Arup’s understanding of the legal effect of the Engagement Agreement and the extent to which third parties could rely on Arup’s work lie at the heart of the Cross-Claim.

Arup’s claim for privilege

11    Pursuant to discovery orders, Arup provided discovery of categories including:

(1)    documents recording, evidencing, or referring to consideration by Arup of certain provisions of the Engagement Agreement and NSBT Contract, including the Limitation of Liability; and

(2)    documents recording, evidencing or referring to advice sought or obtained by Arup in relation to certain provisions of the Engagement Agreement and NSBT Contract, including the Limitation of Liability.

12    Upon providing discovery, Arup supplied to the parties a list of documents over which it made a claim for legal professional privilege, and the basis for each claim. A number of the descriptions indicated that the relevant documents concerned advice that Arup had received as to the Engagement Agreement or the NSBT Contract, but there is no evidence that that advice related to the Limitation of Liability, or the legal effect or operation of clause 17.9 of either the Engagement Agreement or the NSBT Contract.

Conduct of the proceeding at first instance

13    Before the primary judge, Macquarie initially sought production of specified documents over which Arup had claimed privilege. At the hearing of that application, it was agreed between the parties that the primary judge would first determine whether there had been any waiver of privilege, and any orders as to production would be made subsequently.

14    The matter for determination in this application for leave was whether Arup has waived privilege in documents containing legal advice relating to the legally binding effect on BrisConnections of:

(1)    clause 17.9 of the Engagement Agreement and the reliance statement forming part of that agreement; and

(2)    clause 17.9 of the NSBT Contract and the reliance statement forming part of that agreement.

REASONS OF THE PRIMARY JUDGE

15    It is useful to summarise the approach of the primary judge, in which, as we have said, we do not find error. The primary judge was aware of the importance of the relevant parts of the Cross-Claim set forth in paragraphs [60] to [70]. The primary judge at [13] of the Reasons set those paragraphs out in their entirety as follows:

Misleading or Deceptive Conduct

60.    Arup repeats paragraphs 10 to 46 above.

61.    At all material times, the Sponsor Group represented to Arup that it would take all necessary steps to ensure that the Applicants would be bound by the Limitation of Liability (the Sponsor Group Representation).

Particulars

The Sponsor Group Representation was express and implied by reason of the conduct set out in paragraphs 10 to 33 above.

62.    The Sponsor Group Representation pleaded in paragraph 61 above included a representation with respect to a future matter and Arup relies on Section 51A of the Trade Practices Act 1974 (Cth).

63.    If any liability of Arup to the Applicants (if any) in these proceedings is not limited to the available amount of the Limitation of Liability, the Sponsor Group did not take all necessary steps to ensure that the Applicants were bound by the Limitation of Liability.

64.    In the circumstances set out in paragraphs 60 to 61 above, Arup had the reasonable expectation that if the Applicant or any one of the Applicants formed a view that they were not bound by the Limitation of Liability, and that view was known to the Sponsor Group, then the Sponsor Group would disclose that view to Arup.

65.    The Sponsor Group knew that the Applicants formed a view that they were not bound by the Limitation of Liability.

Particulars

(i)    Arup repeats the particulars to paragraph 46 above.

(ii)    Further particulars may be provided prior to trial.

66.    At no time did the Sponsor Group inform Arup that the Applicants, or any one of the Applicants, had formed a view that they were not bound by the Limitation of Liability (Sponsor Group Silence).

67.    The conduct of the Sponsor Group pleaded in paragraphs 60 to 66 above, was conduct in trade or commerce.

68.    The conduct of the Sponsor Group pleaded in paragraphs 60 to 66 above, was misleading or deceptive or likely to mislead or deceive.

69.    In reliance on the conduct of the Sponsor Group, including the Sponsor Group Representation and Silence, Arup performed the Services.

70.    Arup has suffered loss by reason of the misleading or deceptive conduct of the Sponsor Group.

16    In determining whether there was waiver of privilege, the primary judge correctly focused on the terms of the Cross-Claim. As the primary judge observed at [23] of the Reasons:

The conduct on the part of Arup which is thus relied upon by Macquarie Bank as exposing the waiver is exclusively to be found within the Notice of Cross-Claim. No other conduct is relied upon.

17    At [18] of the Reasons, the primary judge specifically accepted that for waiver to arise, it is not necessary for there to be ‘specific reference’ in a pleading to legal advice.

18    At [18] the primary judge continued by saying:

What is necessary to found a waiver of privilege is conduct that directly or indirectly puts the content of the privileged communication in issue: Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86, (2006) 151 FCR 341. In rejecting a submission that privilege had been waived by replying to a request for particulars and in dismissing the appeal, Kenny, Stone and Edmonds JJ relevantly concluded:

[65]    In any event, even if his Honour was correct in holding that, by the SFIC, the Commissioner raised an issue in the substantive proceeding as to his states of mind, this alone would not provide a proper basis for ‘issue waiver’. As the previous examination of the authorities shows, the question is not whether the Commissioner has put his state of mind in issue but whether he has directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation, either in making a claim or by way of defence. Put another way, to adapt Allsop J’s language in DSE, has the Commissioner (being the privilege holder) made an assertion as part of his or her case in the litigation that lays open the privileged documents to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege?

The making of express or implied assertions about the content of a privileged communication may, for example, be inconsistent with maintaining the privilege: Council of the New South Wales Bar Association v Archer [2008] NSWCA 164 at [48], (2008) 72 NSWLR 236 at 252 per Hodgson JA. Expressed differently, in Bennett v Chief Executive Officer, Australian Customs Service [2004] FCAFC 237, (2004) 140 FCR 101 at 120 Gyles J referred to the decision in Mann v Carnell and concluded:

[68]    … The test looks to inconsistency between the disclosure that has been made by the client on the one hand and the purpose of confidentiality that underpins legal professional privilege on the other. It is not a matter simply of applying general notions of fairness as assessed by the individual judge. The authorities to which I have referred show that it is well established that for a client to deploy the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege.

Tamberlin J agreed with Gyles J.

19    Then, after examining the Cross-Claim, the primary judge correctly observed that there was nothing which founded either an express or an implied waiver of privilege.

20    At [29] the primary judge said:

… Macquarie Bank maintains that the Cross-Claim only sounds in “loss” if it be assumed that Arup was of the view that the Applicants were bound by the Engagement Agreement and, in particular, the Limitation of Liability. Arup in both its oral and written submissions accepts this assumption. As stated in its written submissions, “Arup’s case is that it believed that the Applicants were, at all relevant times, bound by the Limitation of Liability”. Arup accepts that it can only make out its claim to have suffered “loss” which was causally connected to its reliance on the Sponsor Group Representation or the Sponsor Group Silence if it be assumed that Arup was of the view that the Engagement Agreement was binding on the Applicants. If Arup was not of that view, it would not have suffered any “loss” in “reliance on the conduct of the Sponsor Group…”.

21    At [34] the primary judge said:

Paragraphs [69] and [70] of the Cross-Claim do no more than plead reliance upon the Sponsor Group Representation and the Sponsor Group Silence and the fact that such reliance occasioned loss. Those paragraphs do not contain any express reference to any legal advice that may have been received; nor do those paragraphs contain any implicit assertion as to whether or not legal advice had been received. Nor do those paragraphs contain any express or implied assertion about the content of any legal advice that Arup may have received. Any legal advice that Arup may have received as to whether the Engagement Agreement was or was not binding on the Applicants may well be relevant to resolving its pleading of reliance. But mere relevance is not of itself sufficient to found a waiver. Each case, as was observed in Rio Tinto, “turns on its own particular facts”: [2006] FCAFC 86 at [47], (2006) 151 FCR at 354. On the facts of the present case, Arup, by pleading reliance, has not engaged in any conduct inconsistent with maintaining the legal professional privilege of any advice it may have received which is relevant to the question of reliance.

22    Then at [36] the primary judge said:

There is considered to be no “unfairness”, to the extent that such a consideration may aid in reaching a conclusion on waiver, in a party preserving the confidentiality of a privileged communication where there has been no express or implied disclosure of any advice received or part of any such advice. As noted by Gyles J in Bennett, it “is not a matter simply of applying general notions of fairness as assessed by the individual judge”: [2004] FCAFC 237 at [68], (2004) 140 FCR at 120. Albeit deprived of such a forensic advantage as access to privileged communications may well have afforded, the members of the Sponsor Group otherwise remain free to test the allegation of reliance by such other means as may be available.

Applicable PRINCIPLES

23    The approach of the primary judge was in accordance with established principles and correct on the basis of the evidence before him.

24    It was common ground that the common law applied to the present interlocutory application. As the primary judge acknowledged, the guiding principle to be applied in determining whether waiver of legal professional privilege occurs at common law is that stated in Mann v Carnell (1999) 201 CLR 1 (‘Mann v Carnell’), wherein the majority held at [29]:

Waiver may be express or implied ....What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.

25    The governing principle that underpins implied waiver has undergone a process of judicial evolution. In Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481, 487, 492, 497, the High Court held that implied waiver occurs when, by reason of some conduct on the privilege holder’s part, it becomes unfair to maintain the privilege. However, ‘fairness’ was subsequently abandoned as the touchstone of implied waiver by the High Court in Mann v Carnell.

26    The Full Court of the Federal Court applied Mann v Carnell in Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341. In that case, the Court held at [52]:

...where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentially that would otherwise pertain to the communication.

27    As referred to by the primary judge, the Court further observed at [65]:

As the previous examination of the authorities shows, the question is not whether the Commissioner has put his state of mind in issue but whether he has directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation, either in making a claim or by way of defence. Put another way, to adapt Allsop J’s language in DSE, has the Commissioner (being the privilege holder) made an assertion as part of his or her case in the litigation that lays open the privileged documents to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege?

28    The correct approach was succinctly described by Yates J in Ferella & Anor v Official Trustee in Bankruptcy (2010) 188 FCR 68 at [65] in the following terms:

...However the question is not simply whether the holder of the privilege has put that person’s state of mind in issue but whether that person has directly or indirectly put the contents of the otherwise privileged communication in issue: see [Rio Tinto] at [65]. Indeed, even the fact that the holder of the privilege makes clear that the advice was relevant or contributed to a particular course of conduct would not be sufficient to waive the privilege unless, possibly, the contents of the legal advice (and not merely the fact of the advice) are specifically put in issue by relying on the contents of the advice to vindicate a claimed state of mind: [Rio Tinto] at [67].

29    In determining whether there has been an implied waiver of privilege, the Court’s focus will be on whether there has been conduct that is inconsistent with the maintenance of confidentiality in the communication over which privilege is asserted. An assessment of whether there has been an implied waiver will be informed by considerations of forensic unfairness.

30    Whilst not to be treated as a statutory formulation, in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 (‘DSE’), Allsop J (as his Honour then was) described (at [58]) an implied waiver as arising when:

… the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication.

31    As the primary judge recognised, a pleading of legal advice may be sufficient to give rise to a waiver of privilege, however a pleading is not necessary for waiver to occur. To this effect, in Hancock v Rinehart [2013] NSWSC 1978, Brereton J noted (at [22]) that the pleading in that case did not deploy or even refer to legal advice or its effect. His Honour noted that it was nonetheless open to conclude that privilege had been waived if other factors of the case warranted such a finding.

32    As stated in Council of the New South Wales Bar Association v Archer (2008) 72 NSWLR 236 at [48], by Hodgson JA, with whom Campbell JA agreed:

It is not enough to bring about a waiver of client legal privilege that the client is bringing proceedings in which the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party. For the client to do this is not inconsistent with the maintenance of the privilege, and does not give rise to unfairness of the type in question. What would involve inconsistency and relevant unfairness is the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege. In this respect, it may be sufficient that the client is making assertions about the client’s state of mind, in circumstances where there were confidential communications likely to have affected that state of mind.

(Emphasis added.)

33    It was contended by Macquarie that these principles have particular application where a party pleads its understanding of the legal effect of a contract or agreement. In this regard Macquarie relied upon Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd (2015) 321 ALR 191 (‘Vic Hotel’), where the Victorian Court of Appeal found an implied waiver of privilege in a context where the pleaded allegation put in issue another party’s state of mind as to the existence of legal rights. Dixon AJA (with whom Mandie and Beach JJA agreed) noted (at [46]):

I accept that merely putting a state of mind in issue will not, of itself, give rise to waiver of privilege in respect of legal advice that is relevant to the existence of the state of mind. But that is not this case. The state of mind that is put in issue concerns an understanding of legal rights, not simply knowledge of terms recorded in a contract.

34    It was contended by Macquarie that Arup’s misleading or deceptive conduct claim put in issue Arup’s understanding as to the effect of the relevant agreements, and the extent to which third parties could rely on Arup’s traffic forecasts. In other words, the Cross-Claim could only succeed if Arup proves that it was of the view that BrisConnections were bound by the Engagement Agreement, and in particular, the Limitation of Liability.

35    This we accept, as did the primary judge (at [29] of the Reasons). However, it cannot be said that the question of reliance must have been informed by or addressed in the legal advice that Arup received. Arup’s descriptions of the basis for its claims for legal professional privilege do not indicate such, which descriptions merely generically refer to ‘legal advice in relation to the reliance statement in the [Engagement Agreement]’, ‘legal advice in relation to third party use of data’, and ‘legal advice in relation to the draft [NSBT Contract]’. There is no other evidence to indicate the extent of the legal advice; and certainly no evidence that the legal advice was likely or necessarily related to any question of reliance as pleaded in the Cross-Claim. It cannot be said that Arup necessarily ‘la[id]… open to scrutiny’ the advice that it received in relation to that matter, in the manner contemplated by Allsop J in DSE.

36    To the extent that Macquarie relied on the ‘evaluative approach’ (as described in Chen v City Convenience Leasing Pty [2005] NSWCA 297 and Wayne Lawrence Pty Ltd v Hunt [1999] NSWSC 1044), for the reasons given by Wigney J in Archer Capital 4A Pty Limited as trustee for the Archer Capital Trust 4A v Sage Group plc (No 3) (2013) 306 ALR 414 (‘Archer Capital’) at [16]–[23], the main focus should be on the test set out by the High Court in Mann v Carnell. As stated by Wigney J in Archer Capital at [22]:

In my opinion, there may be no difficulty with the evaluative approach in Wayne Lawrence and Chen if the questions that are posed are seen as no more than questions that might assist in determining the ultimate question, namely, whether the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. In my view, however, the questions have a tendency to distract or deflect attention from that test. The questions posed as part of the so-called evaluative approach should not be used as a surrogate for the expression of principle in DSE and Rio Tinto.

37    It may be accepted that the Cross-Claim puts in issue Arup’s state of mind at the time it relied on the conduct of the Sponsor Group. Whilst the privileged documents might be relevant to that state of mind, it is settled that that fact alone will not result in a waiver of privilege: see, eg, Archer Capital at [24] and the authorities referred to at [18] and [31] of the Reasons.

38    Finally, we make further mention of the decision in Vic Hotel. The facts of that case are fundamentally different to those in this application for leave to appeal. In that case, DC Payments alleged that Vic Hotel repudiated its agreement with it by seeking to terminate the agreement before the expiry of the term: Vic Hotel at [13]. DC Payments also alleged that Next Payments induced Vic Hotel to breach their agreements with DC Payments by terminating those agreements before the expiry of the term: Vic Hotel at [13]. It was the allegation against Next Payments upon which the case turned.

39    DC Payments pleaded in paragraph 16 of its claim that ‘Next Payments knew that Vic Hotel would be in breach of its obligations to the plaintiff under the Vic Hotel agreement if Vic Hotel’ undertook particular conduct: Vic Hotel at [15]. Dixon AJA (with whom Mandie and Beach JJA agreed) held that implicit in this allegation about state of mind was the notion that the relevant terms of the agreements were capable of being breached by Vic Hotel because they were enforceable by DC Payment against Vic Hotel: Vic Hotel at [42]. In its defence, Next Payments sought to rely on legal advice received by DC Payments as to its agreement with Vic Hotel, in support of its pleading that DC Payments and Next Payments considered that the relevant terms of the agreement with Vic Hotel were not binding or enforceable: Vic Hotel at [15].

40    In Vic Hotel, DC Payments relied on evidence of Next Payments’ state of mind, acquired by senior managers through communications between them and DC Payments, to prove its case. At the same time, DC Payments denied, by the assertion of legal privilege, the opportunity for Next Payments to prove its lack of the alleged state of mind acquired by the same senior managers in the same way: Vic Hotel at [58]. The allegations made by DC Payments align with the type of inconsistent conduct foreshadowed by the majority in Mann v Carnell. Similar to proceedings for professional negligence against that party's lawyer, DC Payments could not ‘pick and choose, disclosing such incidents of the relationship as strengthen [its] claim for damages and concealing them from forensic scrutiny such incidents as weaken it’: Paragon Finance Plc v Freshfields [1999] 1 WLR 1183, as cited in Vic Hotel at [51].

CONCLUSION

41    This proceeding merely involves the pleading by Arup of reliance and the discovery of privileged documents. Whilst such documents are relevant to the proceeding (and hence discoverable), this is not sufficient to constitute waiver. If it were, then as the primary judge observed, this would ‘come perilously close to, if not amount to, a proposition that a mere pleading of reliance would itself be sufficient to constitute a waiver of privilege’: see [39] of the Reasons.

42    For the foregoing reasons, the primary judge was correct in finding that Arup had not impliedly waived privilege. As a consequence, the application for leave to appeal should be dismissed. The applicant should pay the respondent’s costs of the application.

Associate:

Dated:    2 September 2016