FEDERAL COURT OF AUSTRALIA

Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925

EVIDENCE – legal professional privilege – claim in respect of misleading or deceptive conduct – alternative claim for rectification of document - production of documents by applicant’s former solicitors on subpoena – applicant claimed privilege in respect of advice sought and obtained from former solicitors - whether privilege lost by pleading of reliance and the usual elements of a claim for rectification.

Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634 followed

Goldberg v Ng (1995) 185 CLR 83 cited

Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 referred to

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664 referred to

Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 applied

Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419 referred to

PERPETUAL TRUSTEES (WA) LTD v EQUUSCORP PTY LTD

VG 610 of 1996

RYAN, CARR and MARSHALL JJ

7 SEPTEMBER 1999

MELBOURNE

On appeal from a Judge of the Federal Court of Australia

THE COURT ORDERS THAT:

1.         The applicant have leave to appeal from the orders made on 21 May 1999.

2.         The appeal be allowed and those orders be set aside.

3.         The documents referred to in paragraphs 7, 8 and 9 of the affidavit of Mark Leaker sworn 27 April 1999, produced pursuant to the subpoena dated 20 January 1999, be made available for inspection and copying by the appellant.

4.         The respondent pay the appellant’s costs of the appeal and of the hearings on 6 May 1999 and 21 May 1999, including submissions in relation to the waiver of privilege.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On appeal from a Judge of the Federal Court of Australia

REASONS FOR JUDGMENT

THE COURT:

Introduction

1                     This is an application for leave to appeal from orders made by a Judge of this Court upholding a claim of legal professional privilege in respect of various documents produced on subpoena by a firm of solicitors which formerly acted for the applicant in the principal proceedings.  The application for leave was heard as if it was also the appeal.  The hearing of the principal proceedings is scheduled to start on 13 September 1999.

Factual and Procedural Background

2                     In the principal application the applicant, Equuscorp Pty Ltd (“Equus”), sues the first respondent, Kamisha Corporation Ltd (“Kamisha” – a film production company), the second respondent, Mr John Bardin Davis (a manager and a director of Kamisha), and the third respondent, Perpetual Trustees (WA) Ltd (“Perpetual”).  Perpetual was the trustee of a unit trust in respect of which the public subscribed for units as part of a scheme for the production of a film released under the title “Double Impact”.  In summary, Equus claims that between August 1989 and June 1990 the respondents made various misleading or deceptive representations to it in respect of the scheme, that in reliance upon those representations it executed a document (described in the further amended statement of claim as “the security document”), advanced funds totalling $8.375 million by way of a finance facility and suffered loss and damage by reason of the respondents’ misleading or deceptive conduct.  Equus also claims rectification of the security document on the basis that the references therein to “a letter of credit” do not faithfully record the common intention of the parties and were made under a mutual mistake of fact.  Equus maintains that the common intention of the parties, namely that it was to provide a performance guarantee rather than a letter of credit, was not embodied in the security document.  Perpetual has filed a cross-claim against Equus. 

3                     On 20 January 1999 Perpetual obtained the issue of a subpoena directed to Messrs Deacon Graham & James who were formerly Equus’s solicitors (“Deacons”).  The subpoena required Deacons to produce a file containing various documents created during the period 1 July 1989 to June 1991 when it was acting for Equus in relation to, amongst other things, the provision of the abovementioned finance facility.  Deacons produced the file to the Court on 3 February 1999.  Equus claimed that certain documents on that file were privileged from production on the ground of legal professional privilege.  Eventually that claim was confined to only 24 of the many documents on the file.  These were handwritten documents comprising records taken by solicitors, employed by Deacon’s predecessor firm, of confidential instructions given by Equus during May and June 1990 in relation to the provision of security by Equus for production of the film, and confidential communications between that firm and Equus, consisting of legal advice (or drafts of such legal advice) provided by them in the context of their professional relationship in that matter.  All of these documents were said to be confidential communications between a client and its solicitor (and vice-versa) created for the sole purpose of the solicitor furnishing legal advice.  The parties accepted that the 24 documents were subject to legal professional privilege. 

4                     The issue before his Honour was whether that privilege had been lost by waiver or consent.  In relation to that issue, his Honour reviewed the authorities including Telstra Corporation Limited v BT Australasia Pty Ltd (1998) 156 ALR 634 (a majority decision of a Full Court of this Court).  His Honour noted that the High Court had granted special leave to appeal in Telstra, that the appeal had been argued on 3 December 1998, but that before a decision could be given the whole case was settled.  The majority of the Full Court in Telstra held that where a party pleads that he or she undertook certain action in reliance on a representation, the party thereby opens up, as an element of the cause of action, the issue of his or her state of mind at the time when such action was undertaken.  The party thereby puts in issue a matter which could not fairly be assessed without examination of relevant legal advice.  In such cases, by putting in contest the issue of reliance, the party was to be taken to have consented to the use of relevant privileged material or to have waived reliance on the privilege which such material would otherwise attract (see p 647).  His Honour observed that the majority held that this amounted to consent within s 122(1) of the Evidence Act 1995 (Cth).  We discuss below, in some detail the context of that holding.  Beaumont J dissented on the following bases (see 640-641):-

·          that assuming s 122 applied indirectly to the discovery process, there was no evidence of actual or express consent to production of the documents, nor should any such consent be implied;

·          consent was not to be implied for reasons similar to those upon which his Honour decided that there was no waiver to be imputed at common law;

·          BT had not put in issue the legal advice which it had received; any legal advice given to it was not a central feature of its claim;

·          it was too early to judge whether, and if so how, the receipt of any such advice might bear on the issue of reliance at the trial; and

·          allowing production and inspection was an exercise of judicial discretion by the managing judge with which his Honour was reluctant to interfere in such complex litigation.

5                     The learned primary judge noted that the majority in Telstra had followed the decision of an earlier Full Court in Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418.  In Adelaide Steamship, the Court held that, although the Evidence Act did not apply to questions of legal professional privilege in interlocutory proceedings, nevertheless the common law must be taken to have been modified by analogy to the same extent as provided by that Act in respect of proceedings at a final hearing.  His Honour then turned to a decision of a five member Full Court of this Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664 where it was held that Adelaide Steamship was wrongly decided.  His Honour said that he was therefore obliged to apply the common law unaffected by s 122(1) of the Evidence Act as reflected in the words of Black CJ and Sundberg J in Esso at 670:

“The common law position is that where there is no intentional waiver of privilege, the question whether waiver should be imputed depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert the material, or material associated with it, is privileged from production.”

6                     In applying that principle, his Honour declined to adopt the view of the majority in Telstra.  His Honour disagreed with the proposition that the mere pleading of reliance removes privilege in respect of all legal advice which an applicant has received concerning the conduct complained of.  His Honour concluded (at paragraph 13) in these terms:

“The bare fact of asserting reliance does not expressly or impliedly assert that the plaintiff relied, or did not rely, on some privileged communication.  As Beaumont J points out, it is not possible to predict the course a trial may take.  A privileged communication may be subsequently referred to in a way that makes its continued protection unfair.  But, at the moment, I have to consider the issue at an interlocutory stage.  It is true that legal advice could be relevant in determining whether a plaintiff in fact relied on the misrepresentations complained of.  But the whole point of legal professional privilege is that, for public policy reasons, material is excluded which might be relevant, indeed highly relevant.  No balancing exercise is involved.  If legal professional privilege applies, privilege trumps relevance.”

7                     For those reasons, the learned primary judge upheld the claim of privilege. 

Whether leave to appeal should be granted

8                     Having due regard to the principles explained and the caveats issued by a Full Court of this Court in Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 399-400, we consider that leave to appeal should be granted.  In short, and with the greatest respect to the learned primary judge, we think that the decision at first instance was attended with sufficient doubt to warrant its reconsideration.  Furthermore, substantial injustice would result if leave were refused, supposing the decision at first instance to have been wrong.  The sufficient doubt arises, in our view, from the manner in which the majority decision in Telstra was dealt with.  His Honour said of that case (at paragraph 11) –

“Ordinarily, of course, a single judge would be bound by the decision in Telstra.  However, the majority in that case followed the decision of an earlier Full Court in Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 which held that although the Evidence Act did not apply to questions of legal professional privilege in interlocutory proceedings, nevertheless the common law must be taken to have been modified by analogy.  The Court in Telstra was invited not to follow Spalvins but the majority rejected that submission: 156 ALR 643-644.  As a consequence, the ratio decidendi of the case is limited to the application of the common law as though it were identical to s 122(1): 156 ALR at 649.”

9                     Again with due respect to the primary judge, we feel that this is a somewhat restrictive view of the guidance to be obtained from the reasons of the majority in Telstra.  The majority held that conduct which would amount to imputed waiver at common law came within the meaning of “consent” in s 122(1) of the Evidence Act (see 648-649).  Their Honours did not identify any difference between imputed waiver at common law and implied consent within the meaning of the sub-section.  They thus applied the familiar common law principles of unfairness to what they identified as issue waiver, leaving aside (see 649) the question, decided in Adelaide Steamship (at 426-429), whether the common law relating to disclosure waiver had been changed by s 122(2) and (4) which were not concerned with any principles of fairness.  Beaumont J’s reasoning in Telstra (at 641) on whether conduct which amounted to imputed waiver at common law would also amount to consent within s 122(1) is consistent with the view of the majority.  Their Honours relevantly differed on whether the circumstances permitted a waiver of privilege to be imputed at that stage of the proceedings.  The majority discussed (from the last paragraph on p 645 through to p 648) the common law position and reviewed many of the leading authorities at common law concerning imputed waiver of privilege.  They then said this (at 648-649):

“In our view, s 122(1) of the Act is to be construed as reaching to cases in which the client or party concerned is deemed to have consented to the disclosure of the otherwise privileged material in the sense discussed above. 

. . .

Once it is accepted that consent for the purposes of the section extends beyond express consent, we think it should be taken to extend to imputed consent.  In particular, if that were not so, a defendant ordinarily would no longer be able, where the plaintiff alleges that a transaction was procured by the defendant’s undue influence, to lead evidence to the effect that the plaintiff had comprehensive legal advice, immediately before entering into the transaction as to its effect.  We cannot believe that that was intended.  It follows that, in such cases, the position has changed little, if at all, following the introduction of the Act.  Of course, as the Adelaide Steamship case demonstrates, the position may be different where the conduct relied upon is some disclosure of legal advice, but that need not be further considered here.”

10                  The derivative change to the common law, temporarily worked by Adelaide Steamship and disapproved of in Esso, was that the common law relating to legal professional privilege at the discovery stage of proceedings had been changed so as to make that privilege available where the dominant, rather than the sole, purpose of a communication was the obtaining of legal advice.  Furthermore, in so far as previously established principles of common law were inconsistent with the Evidence Act and its purposes, they were to be taken as modified correspondingly so as to avoid such inconsistency (see 429).  The inconsistency which the Full Court identified in Adelaide Steamship related to the common law principles of unfairness in their application to disclosure waiver.  As we have mentioned, the majority in Telstra construed s 122(1) of the Evidence Act on the basis that the word “consent” in that subsection extended to conduct which would amount to an imputed waiver at common law.  In that regard their Honours said (at 647) in a passage quoted by the learned primary judge in this matter at par 6 of his reasons:

“Where, as in this case, a party pleads that he or she undertook certain action “in reliance on” a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action.  The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way.  That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party.  In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract.”

11                  The substantial injustice which we would identify as resulting if leave to appeal were refused lies in the difficult situation in which Perpetual would be placed in preparing for trial without access to the legal advice obtained by Equus before and at the time when it executed the security document – a matter referred to by Smith J as “trial by ambush” in Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419 at 438.  Accordingly we grant the application for leave to appeal.

Reasoning on the appeal

12                  It was common ground that the issue of imputed waiver in these proceedings was to be decided by the application of the common law principles.  We can see no basis for distinguishing the present matter from the situation which arose in Telstra.  In fact, for reasons which we give below, we consider that this case is an even clearer case of imputed waiver.  So far as the claim under s 52 of the Trade Practices Act is concerned, the applicant in the present matter has pleaded reliance on the representations set out in paragraph 16 of the statement of claim.  The 24 documents whose production Equus resists are listed in the schedule to an affidavit sworn by Mr Mark Leaker on 17 March 1999.  Many of those documents are described as being undated.  However, those that are dated fall squarely within the period referred to in paragraph 16 of the statement of claim.  Those that are not dated are listed in a sequence which is consistent with them having been prepared during the same period.  In paragraphs 8 and 9 of a later affidavit, sworn on 27 April 1999, Mr Leaker confirms that 19 of the 24 documents in issue were created “within the context” of the professional relationship existing in May and June 1990 in which Equuscorp engaged the solicitors in relation to the provision by Equus of security for the production of the film.  It can be seen that this is not a situation in which there has been a mere pleading of reliance.  There is the added ingredient of evidence that legal advice was sought and obtained at a relevantly material time.

13                  There is also the plea of rectification.  This was a matter to which his Honour referred briefly in describing the litigation.  However, there is no further reference to the plea of rectification in his reasons.  Senior counsel for Equus suggested that this was because rectification was not mentioned to his Honour and had been raised for the first time before us.  In reply, senior counsel for Perpetual read to us portions of the argument put by counsel for Perpetual to his Honour.  From that portion of the transcript it can be seen that counsel for Perpetual at first instance relied upon what he described as “another cause of action, being the rectification claim”, as having been pleaded and thus raising the issue of Equus’ state of mind when it executed the security document.

14                  As Deane, Dawson and Gaudron JJ said in Goldberg v Ng (1995) 185 CLR 83 at 95-96:

“The circumstances in which a waiver of legal professional privilege will be imputed by operation of law cannot be precisely defined in advance.  The most that can be done is to identify a number of general propositions.”

15                  The authorities show that the underlying principle for imputed waiver is that there has been some conduct on the privilege holder’s part whereby it becomes unfair to maintain the privilege.

16                  The passage from the reasons of Black CJ and Sundberg J in Esso (at 670), which his Honour set out in his reasons, and which we have reproduced at paragraph 5 above, refers to only one category of waiver, namely “disclosure waiver”.  As their Honours in that case were simply comparing the provisions of s 122(2) and (4) of the Evidence Act (which are concerned with disclosure) with the position at common law, there was no need for them to consider what has been termed “issue waiver”.  The distinction was recognised by the majority in Telstra, though (see p 647) the same underlying principle of unfairness was held to govern whether there was imputed waiver.  We agree, respectfully, with that analysis and reasoning.  Their Honours’ reasoning is supported by a formidable line of authority (discussed by them and which we do not propose to revisit here), which in our view applies to the present matter.  The cases include Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347, Hongkong Bank, Pickering v Edmunds (1994) 63 SASR 357 and Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405.

17                  In our view, the facts of the present matter reflect the requisite degree of unfairness.  Equus complains that it relied on the specified representations when it executed the security document.  It says that the words “letter of credit” appearing in that document do not faithfully record the common intention of the parties and that the words were used under a mutual mistake of fact.  There is evidence, that at the relevant time or times, i.e. shortly before executing the security document, Equus sought and obtained legal advice.  In our opinion, in those circumstances, it would be relevantly unfair for Equus to be allowed to maintain legal professional privilege.  Equus’ state of mind is central, at the very least, to its claim for rectification – see Ampolex – a case cited with apparent approval by Beaumont J in his dissenting reasons in Telstra. 

18                  For the foregoing reasons we allow the appeal, set aside the orders made on 21 May 1999 and order that the documents referred to in paragraphs 7, 8 and 9 of the affidavit of Mr Mark Leaker sworn on 27 April 1999 be produced for inspection and copying by Perpetual.  Equus should pay the costs of the appeal and the costs of the proceedings at first instance.

Associate:

Dated:              7 September 1999