FEDERAL COURT OF AUSTRALIA

Rio Tinto Ltd v Commissioner of Taxation [2005] FCA 1336

EVIDENCE – legal professional privilege – waiver – implied waiver – where
privilege-holder puts his or her state of mind in issue – whether privilege-holder had put his state of mind in issue – test of waiver of privilege

Income Tax Assessment Act 1936 (Cth) ss 46A, 160ASB and 227

Taxation Administration Act 1953 (Cth) s 14ZZO

Rio Tinto Ltd v Federal Commissioner of Taxation (2004) 55 ATR 321 cited

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 cited

Mann v Carnell (1999) 201 CLR 1 applied

Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475 cited

Goldberg v Ng (1995) 185 CLR 83 cited

Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 cited

Thomason v Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347 discussed

Australian Unity Health Pty Ltd v Private Health Insurance Administration Council [1999] FCA 1770 discussed

Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 followed

Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 followed

Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 followed

BP Australia Pty Ltd v Nyran Pty Ltd [2002] FCA 1302 followed

DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 discussed

Lombe v Pollak [2004] FCA 264 cited

Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 discussed

Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 137 ALR 28 cited

Bennett v Chief Executive Officer, Australian Customs Service (2004) 210 ALR 220 discussed

Arrow Pharmaceuticals Ltd v Merck & Co Inc (2004) 210 ALR 593 distinguished

Southern Cross Airlines Holdings Ltd (in liq) v Arthur Andersen (1998) 84 FCR 472 cited

RJ Desiatnik, Legal Professional Privilege in Australia, 2^nd edn, LexisNexis Butterworths, Sydney, 2005

RIO TINTO LIMITED v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

VID 548‑550 OF 2003

SUNDBERG J

MELBOURNE

22 SEPTEMBER 2005

THE COURT ORDERS THAT:

1.                  On the motion of the applicant filed on 7 July 2005, the respondent produce, in their entirety, the documents listed in Annexure A to the affidavit of Edwina Anne McLachlan sworn on 15 March 2005.

2.                  The motion of the respondent that the Deputy District Registrar’s order that it provide to the applicants the documents described in the applicant’s notice to produce dated 18 February 2005 be set aside be dismissed.

3.                  The respondent pay the applicant’s costs of both motions.

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

REASONS FOR JUDGMENT

INTRODUCTION

1                     On or about 15 June 2005, in proceedings VID 548 to 556 of 2003, a Registrar of the Court ordered the respondent to produce documents in answer to two notices to produce - the first of which was dated 16 December 2004 (the first notice to produce) and the second of which was dated 18 February 2005 (the second notice to produce).

2                     As to the first notice to produce, the respondent objected to the production of seventeen of the documents sought therein on the grounds of legal professional privilege.  (Prior to the Registrar’s orders, fourteen of the seventeen documents were not produced and the remaining three documents were produced with parts thereof masked.)  Though the applicant conceded that those documents were subject to the privilege, it contended that the privilege had been impliedly waived.  The Registrar upheld the respondent’s claim for legal professional privilege in this instance but ordered the respondent to produce five further documents whose production it had resisted on grounds other than legal professional privilege.

3                     As to the second notice to produce, the respondent objected to the production of nine of the documents sought therein on the grounds of legal professional privilege.  (These nine documents form part of the seventeen documents referred to at [2].)  Again, though the applicant conceded that those documents were subject to the privilege, it contended that the privilege had been impliedly waived. The Registrar denied the respondent’s claim for legal professional privilege in this instance and ordered the respondent to produce the nine documents.

4                     The applicant now applies for review of the Registrar’s decision in relation to the first notice to produce: ie to uphold the respondent’s claim for legal professional privilege over the seventeen documents and refrain from ordering their production (the applicant’s motion).  The respondent now applies for review of the Registrar’s decision in relation to the second notice to produce: ie to deny the respondent’s claim for legal professional privilege over the nine documents and order their production (the respondent’s motion).  Due to the circumstance outlined in the parentheses at [3], the respondent’s motion will be moot if the applicant’s motion succeeds.

5                     The applicant’s and the respondent’s motions are made pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth) and are to be dealt with by way of a rehearing de novo.

BACKGROUND

6                     For present purposes, it suffices to say that the instant proceedings raise two issues.  First, whether a dividend paid to the applicant was one to which s 46A of the Income Tax Assessment Act 1936 (Cth) (the ITAA) applies.  Relevantly, s 46A applies to

“a dividend which arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner is satisfied was by way of dividend stripping”.

(The emphasis is mine.)  Secondly, whether the respondent properly exercised the discretion conferred upon him by ss 160ASB and 227 of the ITAA - which allow the respondent to remit additional tax imposed by way of penalty.  In this instance, the respondent declined to thus reduce the applicant’s penalty.

7                     Each of the instant proceedings is an appeal against an appealable objection decision pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) (the TAA).  Order 52B, rule 4 of the Rules of Court provides that such an appeal is to be commenced by application unaccompanied by an affidavit or a statement of claim.  Rule 5(a)(v) then provides that, within 28 days of service upon it of the application, the respondent must file

“a statement outlining succinctly the Commissioner’s contentions and the facts and issues in the appeal as the Commissioner perceives them.”

8                     To that end, the respondent filed a “Statement of Facts, Issues and Contentions” on 15 September 2003.  The applicant made various complaints as to the sufficiency of that document - which I dealt with in Rio Tinto Ltd v Federal Commissioner of Taxation (2004) 55 ATR 321.

9                     The respondent then filed another Statement of Facts, Issues and Contentions on 24 May 2004 (the respondent’s Statement).  The respondent’s Statement states that:

·                    at the relevant time, he was satisfied that the dividend referred to at [6] was one to which s 46A of the ITAA applied; and

·                    in exercising the discretion conferred upon him by ss 160ASB and 227 of the ITAA, he decided that there were no grounds to reduce the applicant’s penalty.

10                  The applicant then filed a Statement of Facts, Issues and Contentions on 29 November 2004 (the applicant’s Statement).  The applicant’s Statement states that:

·                    at the relevant time, the respondent was not satisfied that the dividend referred to at [6] was one to which s 46A of the ITAA applied; and

·                    the respondent did not properly exercise the discretion conferred upon him by ss 160ASB and 227 of the ITAA when he decided that there were no grounds to reduce the applicant’s penalty.

11                  On 21 June 2004, the applicant requested particulars of the respondent’s Statement.  In that request, the applicant sought:

·                    by para 4(c), “the usual particulars of all the matters, things, circumstances or events taken into consideration by [the decision-maker] in reaching the … state of satisfaction” required by s 46A of the ITAA; and

·                    by para 10, particulars of “the facts, circumstances and matters taken into account in exercising the respondent’s discretion under” ss 160ASB and 227 of the ITAA.

12                  On 22 October 2004, the respondent wrote to the applicant as follows:

“In our letter dated 27 July 2004 we expressed the respondent’s opinion that the request for particulars [of 21 June 2004] was onerous and oppressive and an improper request.  In particular, in relation to the particulars requested in paragraph 4(c) of your letter, it is the current view of the respondent that the issue that the applicant may properly bring before the Court will be whether, on the material before the decision-maker, the state of satisfaction reached by the decision-maker will be vitiated by one of the errors identified by Dixon J in Avon Downs Pty Limited v Federal Commissioner of Taxation (1949) 78 CLR 353, at 360.  The respondent will be submitting that the request made in paragraph 4(c), which seeks to inquire into the thought processes of the decision-maker, is not relevant to this issue.  The respondent takes this view without prejudice to his other reasons for supporting the assessment.

Nevertheless, to avoid unnecessary dispute, and in deference to his Honour Sundberg J (in his judgment of 29 March 2004 at [40]), we are instructed to respond to the requests in paragraphs 4 and 10 of your letter.  We do so on the same basis set out in our letter dated 27 July 2004 ….

On that basis, we answer the requests in your letter as follows.

4.                  As to paragraph 83:

…

(c)                For the reasons given in our letter dated 27 July 2004 and above, this is not a proper request for particulars.  The matters, things, circumstances and events taken into consideration by [the decision-maker] are to the best of his recollection those evidenced by the documents listed in:

(i)                         in relation to reaching the state of satisfaction [required by s 46A before 17 June 2002] – Schedule A attached;

(ii)                       in relation to reaching the state of satisfaction [required by s 46A before 23 May 2003] – Schedules A and B attached;

…

10.              For the reasons given in our letter dated 27 July 2004, this is not a proper request for particulars.  Nevertheless, the facts, circumstances and matters taken into account by the decision-maker in exercising the respondent’s discretion are to the best of his recollection those evidenced by the documents listed in:

(a)        in relation to the discretion under s 227 of the … Act - Schedule C attached;

(b)        in relation to the discretion under s 160ASB of the … Act - Schedule D attached.

Subject to any claim that a document, or part of a document, is protected from production (eg on the basis that it is subject to legal professional privilege or under a statutory secrecy provision), copies of the documents referred to in Schedules A, B, C or D may be inspected at our offices by appointment.”

On 28 January 2005, Edwina Anne McLachlan of solicitors for the respondent swore an affidavit in which she said that the Schedules A, B, C and D referred to in the passage above list over five hundred documents (the scheduled documents).

13                  On 15 December 2004, the respondent requested particulars of the applicant’s Statement.  In that request, the respondent sought particulars of:

·                    “the facts, matters and circumstances by reference to which it is contended that the respondent was not satisfied … for the purposes of s 46A of the” ITAA; and

·                    “the grounds on which it is contended that the respondent did not properly exercise his discretion … under s 227 of the” ITAA and “the facts, matters or circumstances by reference to which each ground is said to be established”.

14                  The first notice to produce sought certain of the scheduled documents.  By her affidavit of 28 January 2005, Ms McLachlan said that seventeen of the scheduled documents sought - being the seventeen documents to which I referred at [2] - were subject to legal professional privilege (the privileged scheduled documents).  The privileged scheduled documents consist of:

·                    documents provided to the respondent by counsel and solicitors for the respondent containing legal advice;

·                    documents produced by the respondent recording legal advice provided to him by counsel and solicitors for the respondent; and

·                    documents produced by the respondent for the purposes of obtaining legal advice from counsel and solicitors for the respondent.

The basis of the applicant’s claim that the respondent impliedly waived legal professional privilege over those documents is that commonly referred to as “issue waiver”.  That is, the applicant contends that the respondent has waived the privilege because:

·                    by way of his Statement (see [9]), he has put in issue his states of mind;

·                    by way of his particulars of his Statement (see [12]), he has disclosed that the privileged scheduled documents had a bearing on those states of mind; and

·                    it would be inconsistent with the fair and proper determination of those issues to maintain the privilege over those documents.

15                  However, the respondent did produce in answer to the first notice to produce an “Audit Report” dated 11 June 2002.  This was the second occasion upon which the applicant had received a copy of the Audit Report from the respondent.  The first was in January 2003 pursuant to an application under the Freedom of Information Act 1982 (Cth) (the FOIA).  The Audit Report states as follows:

“The Commissioner will be relying on the following grounds which have been confirmed by Senior Tax Counsel (Mr John Evans) and supported by AGS (Mr Jonathan Todd) and opinions obtained from counsel.

A.         The payment received by the taxpayers from the payers pursuant to the dividend assignment transaction:

(i)         is income according to ordinary concepts and is assessable in accordance with s 25(1) and

(ii)        is not a dividend to which s 44 applies.

As such, they are not entitled to a rebate in respect of the payment pursuant to s 46, and no franking credit arises under s 160APP.

B.         The payment made by the taxpayers, described as a dividend assignment fee, is not deductible under s 51(1), not being an outgoing incurred in gaining or producing assessable income, or being an outgoing of capital or of a capital nature.

C.        If the payment received by the taxpayers under the dividend assignment transaction was a dividend, the dividend arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner is satisfied was by way of dividend stripping.  Therefore, s 46A applies to the rebate on dividends paid as part of the dividend stripping operation.

D.        If the payment received by the taxpayers was a dividend, it was paid as part of a dividend stripping operation in accordance with s 160APHA, and therefore that no franking credit arises in relation to the dividend, by operation of s 160APP(6).

E.         The steps in the dividend assignment transaction constitute or contain one of more of the schemes to which Part IVA applies.  As a result of the dividend assignment transaction, each taxpayer has obtained, or would but for s 177F obtain, a tax benefit in connection with the scheme, being the deduction claimed for the dividend assignment fee.  The person, or one of the persons, who entered into or carried out the scheme or any part of it did so for the purpose or the dominant purpose of enabling each taxpayer to obtain a tax benefit in connection with the scheme.”

(The emphasis is mine.)

16                  The second notice to produce sought the legal advice of the Australian Government Solicitor and the opinions of counsel referred to in the Audit Report (the privileged Audit Report documents).  The privileged Audit Report documents are the nine documents referred to at [3].  The basis of the applicant’s claim that the respondent impliedly waived legal professional privilege over those documents is that commonly referred to as “disclosure waiver”.  That is, the applicant contends that the respondent has waived the privilege because, by providing the Audit Report, he has disclosed, in the words of the Registrar, the “gist” or “substance” of those documents.

17                  Both the applicant’s and the respondent’s motions are to be determined by reference to the common law rather than s 122 of the Evidence Act 1995 (Cth): Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49.

MANN v CARNELL

18                  Fundamentally, the applicant and the respondent disagree as to the nature of the change to the law on implied waiver of legal professional privilege effected by the decision of the High Court in Mann v Carnell (1999) 201 CLR 1.  Put shortly, the applicant sees it as evolutionary while the respondent sees it as revolutionary.  However, I do not think that much turns upon the resolution of the disagreement.

19                  In their joint judgment, the majority in Mann (comprising Gleeson CJ, Gaudron, Gummow and Callinan JJ) at [29] said:

“Waiver may be express or implied.  Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.  When an affirmative answer is given to such a question, it is sometimes said that the waiver is ‘imputed by operation of law’.  This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege ….  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.”

(The emphasis is mine.)  The “principle of fairness operating at large” seems to be that which was described by the High Court in Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475 at 481, 488, 493, 497-498, and applied by it in Goldberg v Ng (1995) 185 CLR 83. 

20                  It has been said that

“fairness as a test per se for implied waiver of privilege has given way to the primary test of inconsistency.  This is not just a change in emphasis – it is a sea-change”: RJ Desiatnik, Legal Professional Privilege in Australia, 2^nd edn, LexisNexis Butterworths, Sydney, 2005 at 163.

However, it has also been said that

“Fairness need only be resorted to where the inconsistency test is inconclusive, or to reinforce a finding over waiver based on the inconsistency test, for the two tests may certainly give the same result”: Desiatnik at 162 (emphasis added).

In my opinion, the latter passage is an effectual reconciliation of the inconsistency principle in Mann with the role which the majority in that case sought to preserve for fairness.  However, in applying the inconsistency principle to the circumstances presented by both motions, I have not found it necessary to resort to fairness.  That is, I do not think that applying the inconsistency principle produces an inconclusive result.  (I do not comment on whether inconsistency and fairness “give the same result”.)

THE APPLICANT’S MOTION

21                  As noted at [7], the instant proceedings are a peculiar beast.  Section 14ZZO of the TAA provides that:

“In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision:

(a)               the appellant is, unless the Court otherwise orders, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)               the appellant has the burden of proving that:

(i)                 if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or

(ii)               if the taxation decision concerned is a franking assessment – the assessment is incorrect; or

(iii)             in any other case – the taxation decision should not have been made or should have been made differently.”

Both the applicant and the respondent accepted that the effect of s 14ZZO is that the applicant bears the onus of establishing that the respondent’s assessments were excessive and, conversely, that the respondent bears no onus of establishing that his assessments were correct.  However, though the respondent’s assessments are, in the words of Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360, “not unexaminable”, the applicant can only establish that they were excessive by showing that the respondent did

“not address himself to the question which the [relevant section] formulates, [that] his conclusion [was] affected by some mistake of law, [that he took] some extraneous reason into consideration or exclude[d] from consideration some factor which should [have] affect[ed] his determination”.

22                  The applicant, by its submissions,

“relies upon the principle that where an issue in proceedings involves the state of mind of one of the parties it is inconsistent with the fair and proper determination of such issue to maintain the confidentiality of otherwise privileged communications if such communications had a bearing on or influenced that party’s state of mind.”

The principle is said to derive from the decision of Jordan CJ in Thomason v Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347 at 358-359 (and to have been applied in the decision of Goldberg J in Australian Unity Health Pty Ltd v Private Health Insurance Administration Council [1999] FCA 1770).

23                  The applicant then contends that:

(a)                the issues raised by the instant proceedings (see [6]) plainly involve the respondent’s states of mind;

(b)               the respondent’s Statement (see [9]) shows that he is relying upon (a) his satisfaction that the dividend referred to at [6] was one to which s 46A of the ITAA applied and (b) his determination, in exercising the discretion conferred upon him by ss 160ASB and 227 of the ITAA, that there were no grounds to reduce the applicant’s penalty;

(c)                the respondent’s particulars of his Statement (see [12]) show that he took into account matters “evidenced by” the privileged scheduled documents in coming to the states of mind set out at sub-para (b);

(d)               denying the applicant inspection of those documents would prevent it from properly challenging  the relevant decisions of the respondent upon the grounds to which such a challenge is confined (see the passage from Avon Downs at [21]); and

(e)                the respondent’s reliance, as disclosed by his particulars of his Statement, upon matters “evidenced by” those documents in coming to the states of mind set out at sub-para (b) is inconsistent with the maintenance of the privilege in respect of those documents.

24                  As noted at [22], the applicant relies upon the issue waiver principle in Thomason.  Thomason involved an action for negligence wherein the defendant pleaded that the plaintiff had, with knowledge of the choice, earlier elected to proceed with a claim under workers’ compensation legislation to the exclusion of a claim in negligence.  At the trial, the defendant adduced into evidence a statement signed by the plaintiff to the effect that her solicitor had advised her of the choice before she made her election.  Overruling the objection of the plaintiff, the trial judge allowed the defendant to cross-examine the plaintiff as to what had passed between her and her solicitor and examine the solicitor as to the same.  Holding that the objections were not well founded because the privilege had been waived, Jordan CJ at 358-359 said

“… it was necessary under the second plea for the defendant to prove, if it could, what knowledge the plaintiff had as to her legal rights; and this was knowledge which she was not likely to possess unless she derived it from a legal adviser.  Hence, in effect, one of the issues in the case was what advice if any the plaintiff had received from her legal advisers as to her alternative legal rights.  In these circumstances, since the fact and nature of the advice is an issue in the case, I am of opinion that privilege cannot be raised to prevent the proof of the advice.  The position is analogous to that which arises in a suit in Equity to set aside a transaction on the ground of undue influence.  In such a suit, it has always been the practice for the defendant to cross-examine the plaintiff with a view to proving that the plaintiff had competent legal advice when he entered into the transaction, and to call and examine the legal adviser if he is available; and I have never known it to be suggested that such evidence is inadmissible on the ground of the plaintiff’s privilege ….”

25                  Thomason was applied in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 where Giles CJ Comm D at 411 said:

“Confining attention to the allegation made by GPG Nominees and Allied … having exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed, GPG Nominees and Allied cannot withhold the advice from the opponent.”

His Honour also noted that Thomason “is ultimately founded on the fairness considered in” Maurice.

26                  Thomason was then applied by the Full Court of this Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152.  The respondent in that case sought damages for misleading and deceptive conduct.  The appellant sought inspection of documents in respect of which the privilege had been claimed: namely, advice to the respondent as to its entitlement (notwithstanding any contractual limitations thereupon) to rely upon certain alleged representations by the applicant.  Branson and Lehane JJ at 167-168 said

“… the conduct of a party which leads to the implication of consent to the use of otherwise privileged material, or to an implied waiver of such privilege, in undue influence cases, legal professional negligence cases and, in [our] view, the ‘state of mind’ cases is that of raising for determination in legal proceedings, as an element in the cause of action relied upon, an issue incapable of resolution without reference to that material.

…

Where … a party relies on a cause of action, an element of which is the party’s state of mind (including the quality of the party’s assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind.”

Dissenting, Beaumont J at 157-158 said:

“At this stage, [the respondent] has made no use of the legal advice in the proceedings.  The advice is not pleaded by [the respondent] as an ingredient of its claim.  [The respondent] does not assert that it relied, or did not rely, on the advice.  It is difficult to see how, or why, [the respondent] could have pleaded the advice.  It could not bear upon the question whether the conduct of the State or [the appellant] was misleading.  It may, depending on the actual situation, bear upon the question of [the respondent’s] reliance.  Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason, at least as the issues in Thomason had evolved in the course of the trial.

…

Another example of the state of mind of the client being central to an issue, where Thomason was applied, is [Ampolex].  There, the plaintiff claimed rectification of a deed for mistake.  Yet in the present case, [the respondent’s] state of mind is not central to its claims in that sense.  Relevantly, the central question in the principal proceeding will be whether the conduct of the State or [the appellant] was misleading.”

27                  Thomason was also discussed in Australian Unity Health.  That case involved an application for judicial review of an administrative decision.  In reasons for the impugned decision provided to the applicant pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth), certain legal advice was listed under the heading of “Evidence and Other Material on which Findings were Based”.  Further, an affidavit sworn by the respondent’s Chief Executive Officer and filed in the proceeding exhibited a document stating that “legal advice supporting [the respondent’s] view of [the] rule [the subject of the impugned decision] has been received”. The applicant sought inspection of that legal advice - which another affidavit filed by the respondent in the proceeding disclosed was the same as that referred to in the reasons.

28                  Goldberg J held that the exhibited document - though not the reasons - effected a waiver of privilege on the basis that it disclosed the contents of the legal advice.  (An issue that I will deal with in relation to the respondent’s motion.)  His Honour then canvassed the “alternative” based on Thomason and Ampolex and at [21] said:

“… it seems to me that the grounds which have been raised as the grounds for review to which I have already referred, which include taking into account irrelevant considerations, failing to take relevant considerations into account and that the making of the decision was an exercise of a discretionary power in accordance with a rule of policy without regard to the merits, make an issue in the case what was the legal advice received.  It seems to me that when it is established that part of the evidence or other material on which the finding was based was the letter of advice and that the letter of advice supports the respondent’s view of the rule, it can be said with some force that it is an issue in the case as to what activated or motivated the decision-maker, in circumstances where part of the material relied on was legal advice.  For those reasons legal professional privilege cannot be claimed.”

His Honour also cited Giles CJ Comm D’s comments in Ampolex that Thomason “is ultimately founded on the fairness considered in” Maurice.

29                  Thomason, Ampolex, Telstra and Australian Unity Health all preceded Mann.  The respondent contended that those authorities must be re-assessed in the light of Mann.  Indeed, the respondent contended that Australian Unity Health “is not authority upon which it is safe to proceed”.  (I deal with this contention at [46].)

30                  Further, the decision of the majority in Telstra has been criticised as incompatible with Mann (see, for example, Desiatnik at 171).  However, it has been applied in three instances since Mann by single judges of this Court: Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 per Hely J, BP Australia Pty Ltd v Nyran Pty Ltd [2002] FCA 1302 per Nicholson J and (despite obvious reluctance) DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 per Allsop J.

31                  The respondent in Fort Dodge pleaded estoppel by convention and representation in defence to claims for breach of contract (alternatively rectification) and in respect of misleading and deceptive conduct.  The former plea rested upon an allegation that the relationship between the parties had been conducted upon the basis of agreed or assumed facts.  The latter plea rested upon an allegation that the applicant represented those facts to the respondent and that the respondent, in reliance upon the alleged representations, entered into the contract and engaged in the conduct that was the subject of the proceeding.  As Hely J noted, this amounted to “a positive case” based upon the alleged representations.  The respondent discovered contemporaneous legal advice in respect of the matters encompassed by the alleged representations.  The applicant sought inspection of that advice.

32                  Hely J at [10]-[11] said:

“The issue is one of waiver of privilege at common law ….  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: Mann ….

By its pleading, [the respondent] has introduced as an issue in the proceedings its state of mind at relevant times in relation to the matters [encompassed by the alleged representations as pleaded in its defence].  [The respondent] thus opened up for examination and testing the source of, and basis for, that state of mind.  Where a party makes an allegation raising the issue of its state of mind, to which legal advice is likely to have contributed, the party cannot continue to claim legal professional privilege for that advice: Ampolex ….”

His Honour then cited Telstra before saying at [14] and [16]:

“The introduction by [the respondent] of the issue as to its state of mind with respect to the matters [encompassed by the alleged representations as pleaded in its defence] is inconsistent with the continued maintenance of the confidentiality of contemporaneous legal advice as to those matters.  It is beside the point that [the respondent] may have introduced this issue into the proceedings in response to claims by [the applicant] that Special Condition 43 of the contract does not mean what it appears to say, or that it should be rectified so as to produce that result.

…

The conduct on the part of [the respondent] which is inconsistent with the maintenance of the privilege is the raising of the matters to which I have referred by [the respondent’s] defence.  In those circumstances, it is not appropriate to defer [the applicant’s] entitlement to inspect the documents as to which the privilege has been waived until some later stage in the proceedings.  There is no suggestion on the part of [the respondent] that it proposes to resile from the defences which it has raised, and which result in the waiver of the privilege.”

33                  In BP, Nicholson J at [17] said:

“I consider that the present law is as enunciated by the majority in Telstra and applied … by Hely J in Fort Dodge.  That is, the pleading which puts in issue a state of mind which is an issue which cannot be fairly assessed without examination of relevant legal advice leads to imputation of waiver of privilege which such material would otherwise attract.”

In that case, the applicant had, by its statement of claim, alleged common and unilateral mistake in entering into a contract with the respondent.

34                  Allsop J in DSE embarked upon a comprehensive review of the authorities in this area - canvassing all those that I have hitherto discussed (with the exception of Australian Unity Health) and many more besides.  At the conclusion of that review, his Honour accepted at [112] that, notwithstanding his view that Mann and “the earlier seminal decisions [including Thomason] point to a more restricted principle [that] is not sufficiently expressed by … the majority in Telstra [or] Giles CJ Comm D in Ampolex”, “the law on implied waiver may be seen as expressed by the majority … in Telstra”.  (See also DSE at [5].)  Therefore, his Honour went on to “approach the matter [for determination] on the same basis as Hely J approached it” in Fort Dodge.

35                  In dealing with one of the motions before him, Allsop J at [114]-[116] said:

“The proposition here is that by denying an allegation as to their state of mind the respondents have put in issue their state of mind and to the extent that the respondents received legal advice which may be seen to have materially contributed to the state of mind asserted against them by the applicant, privilege is waived.

I reject that submission.  The act of mere denial by the respondents of an assertion by the applicants is not an act by the respondent which expressly or impliedly makes an assertion about the contents of any privileged communication or which necessarily lays any such communication open to scrutiny.  There is no act of the respondents inconsistent with the maintenance of the confidentiality.  There is a joinder of issue on a question of fact to which the privileged communication can be seen as relevant.  That is insufficient in my view for it to be concluded that there exists the necessary inconsistency enunciated by Mann ….

None of Ampolex, Telstra and Fort Dodge dealt with circumstances other than a positive case being raised by the holder of the privilege ….  Thomason is not authority for the proposition that mere joinder of issue on an assertion by the other side raising state of mind waives privilege.”

His Honour at [122] went on to say:

“The substance of the matter here is that the applicant is raising an issue about its, and the respondents’, state and states of mind.  In joining issue with that assertion the respondents are not undertaking (yet) any act inconsistent with the maintenance of the privilege and there is no unfairness (yet) in any sense in that maintenance.”

(See also DSE at [6].)

36                  Further, Allsop J at [96] expressed the view that implied waiver can only result from pleadings where the relevant issue is raised by the party otherwise entitled to the privilege.  See also Lombe v Pollak [2004] FCA 264 at [36] per Jacobson J.

37                  As noted at [21], s 14ZZO of the TAA means that the applicant bears the onus of showing that the respondent’s assessments were excessive and, conversely, that the respondent bears no onus of showing that his assessments were correct.  Therefore, the respondent contends that the applicant should be regarded as having put in issue his states of mind (as set out at [23(b)]) because it was for the applicant to determine the grounds upon which it would seek to impugn the appealable objection decision.  This is notwithstanding the fact that the respondent’s Statement preceded the applicant’s Statement: see [9]-[10].

38                  The applicant contends that the onus is irrelevant to the determination of its motion.  It cited in support of that contention the following observations of Allsop J in DSE at [46]:

“The analogy upon which Jordan CJ drew [in Thomason] was the undue influence suit, in which suits any evidence of legal advice of the plaintiff was said to be admissible ….  This analogy is important.  It demonstrates Jordan CJ drawing on a body of cases in which, at the very least, the plaintiff puts his or her own state of mind in issue as a relevant matter to be passed upon in the case.  The claim of undue influence has at its heart the influence of the donee.  Highly relevant, indeed likely central, to the assessment of the operation of that influence will be whether the donor may have been freed of that influence by independent advice.  That may well be something that the defendant has to prove (and perhaps plead), in particular if the donor and donee fall within one of the presumptive relationships.  It would matter not which party in the suit was required to plead, or did plead, the existence and nature of the advice, or which party chose to lead the evidence.  The reason why the plaintiff cannot retain the confidentiality in the advice is to be analysed with an eye to substance not form.  By bringing the suit the plaintiff lays out for examination, dispute and resolution the extent of the ascendancy or influence of the donee on him or her and on his or her capacity to come to a decision free from such ascendancy or influence.  If there has been legal advice given to the donor about the transaction, the suit will almost certainly involve an assessment of the effect of that advice, along with all other relevant matters, upon the existence, degree and operation of the ascendancy or influence on the mind, decision making processes and capacity of the donor.  If the plaintiff brings such a suit in circumstances where such advice has been given, it is difficult to see how he or she can avoid the conclusion that he or she is, by the claim in the suit, opening up that legal advice for scrutiny, irrespective of the question as to who bears the procedural responsibility for pleading the advice, or as to who bears or assumes the forensic task of proving the advice.”

(The emphasis is mine.)  The applicant also points to the fact that the respondent in Australian Unity Health was in a similar position to the respondent in the instant proceedings.

39                  I cannot accept the respondent’s contentions as set out at [37].  However, in that regard, I have not needed to rely upon the observations of Allsop J quoted at [38] or on Australian Unity Health.

40                  I think it plain that the question of who raises a point is distinct from the question of who must (ultimately) prove that point.  This is especially the case in the instant proceedings where the initial “pleading” was necessarily an application unaccompanied by anything explaining the grounds upon which it was made.

41                  More importantly, I expressed the view in Rio Tinto at [30] that s 14ZZO of the TAA “is concerned with the ultimate disposition of the appeal”.  I hold to that view.  The onus cast by that section should not be allowed to distort the disposition of interlocutory matters.  Moreover, the respondent’s contention as set out at [37] would seem inevitably to lead to the anomalous result that the respondent could never, at least by way of issue waiver, waive legal professional privilege by his “pleadings” in proceedings such as the instant proceedings.

42                  When one puts the onus cast by s 14ZZO of the TAA to one side, all one sees is a situation where the respondent has, by his Statement, indeed raised as an issue in the instant proceedings his states of mind.  He makes, in the words of Hely J in Fort Dodge, “a positive case” that he had attained the requisite states of mind.  This would be so even if the applicant’s Statement preceded the respondent’s Statement – if the applicant first contended that the respondent had not attained the requisite states of mind and the respondent then contended that he had – because the respondent’s contention would retain the character of “a positive case” and could not be described as a mere denial or joinder of issue.  (See also Fort Dodge at [14].)

43                  Nonetheless, the question whether the respondent has acted in a manner inconsistent with the maintenance of the privilege remains.  In my opinion, however one approaches the question (as to which see [44] and [45]), he has so acted.  The inconsistency arises from the combination of the following three facts:

·                    the respondent has, by his Statement, raised as an issue in the instant proceedings his states of mind;

·                    the respondent has, by his response to the applicant’s request for particulars of his Statement, disclosed that the privileged scheduled documents had a bearing on those states of mind; and

·                    the respondent has refused to produce those documents in answer to the first notice to produce.

44                  On the one hand, there is the approach contained in Ampolex, the decision of the majority in Telstra, Fort Dodge, Nyran and DSE (ie Allsop J’s application of the decision of the majority in Telstra rather than his criticism thereof).  The respondent, as part of “a positive case”, has raised as an issue in the instant proceedings his states of mind.  Those states of mind are, as the respondent admitted, ones to which legal advice contributed.  As a result of the admission, those states of mind raise “for determination in legal proceedings, as an element in the cause of action relied upon, an issue incapable of resolution without reference to [privileged] material”: the majority in Telstra as quoted at [26].  They are not raised by way of a “mere denial” or “a joinder of issue on a question of fact to which the privileged communication can be seen as relevant” or a “mere joinder of issue on an assertion by the other side raising state of mind”: DSE as quoted at [35].

45                  On the other hand, there is the approach contained in Thomason (as Allsop J saw it in DSE) and the dissent of Beaumont J in Telstra.  As to Thomason, Allsop J in DSE at [58] said:

“It is sufficient to understand, I think, that in most undue influence cases (and in Thomason when its circumstances are appreciated) 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.”

(The first emphasis is in the original, the second emphasis is mine.)  At the very least, the respondent has, by his response to the applicant’s request for particulars of his Statement, made an assertion – that the privileged scheduled documents had a bearing on the states of mind upon which he seeks to rely – “which necessarily lays open the confidential communication[s] to scrutiny”.  By the same means, the respondent has “made … use of the legal advice [contained in the privileged scheduled documents] in the proceedings [and] assert[ed] that it relied … on the advice” in forming states of mind that are “central” questions in the instant proceedings: Beaumont J in Telstra as quoted at [26].

46                  In the light of the foregoing, I need not decide whether, at least in relation to issue waiver, Australian Unity Health “is … authority upon which it is safe to proceed” (see [28]).  In any case, Goldberg J’s observations as quoted at [28] were obiter.

47                  I will allow the applicant’s motion and order the respondent to produce to the applicant the privileged scheduled documents.

THE RESPONDENT’S MOTION

48                  I noted at [4] that the respondent’s motion will be moot if the applicant’s motion succeeds.  Therefore, I will dismiss the respondent’s motion on the grounds that it lacks utility.  However, if I am wrong as to the applicant’s motion, the following are the reasons why I would, in that event, dismiss the respondent’s motion on the merits.

49                  The conduct of the respondent in twice providing to the applicant an Audit Report that discloses the “gist” or “substance” of the privileged Audit Report documents is inconsistent with the maintenance of legal professional privilege over those documents and thus effects a waiver of the privilege.  Against that conclusion, the respondent put a series of contentions that I will deal with in turn.  However, I first consider the test that is to be applied in determining whether disclosure waiver has occurred.

50                  The majority in Mann at [34] said:

“Disclosure by a client of confidential legal advice received by the client, which may be for the purpose of explaining or justifying the client’s actions, or for some other purpose, will waive privilege if such disclosure is inconsistent with the confidentiality which the privilege serves to protect.  Depending upon the circumstances of the case, considerations of fairness may be relevant to a determination of whether there is such inconsistency.  The reasoning of the majority in Goldberg illustrates this.”

51                  In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 (Ampolex No 2), Rolfe J held that the following statement waived the privilege because it disclosed the substance of legal advice:

“There is a dispute about the conversion ratio.  Ampolex maintains that the correct ratio is 1:1 and has legal advice supporting this position.”

His Honour at 19 said:

“In my opinion the substance of the advice may well be disclosed if the ultimate conclusion, without the supporting reasoning process, is revealed.  At that stage there has been, in my opinion, a disclosure of the substance of the advice, that is, what the advice is.  Further the ultimate conclusion, whilst it may be a ‘result’ or ‘consequence’ of the reasoning is more than that: in its own right it is the essence or vital part of the advice.”

In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 137 ALR 28 (Ampolex No 3), Kirby J, in dismissing an application for a stay pending an application for special leave to appeal Ampolex No 2, at 34 said:

“I agree that mere reference to the existence of legal advice would not amount to waiver of its contents.  Rolfe J appears to acknowledge this distinction by later rulings to which I was taken during the course of argument.  But at least in respect of the substance of the legal advice supporting Ampolex’s assertion about the correct ratio, which is in contest here, it is strongly arguable that the public reference to the supporting legal advice, waived the privilege as to the precise content of the legal advice on that point.”

52                  Ampolex No 2 was applied in Australian Unity Health wherein Goldberg J held that a statement that “legal advice supporting [the respondent’s] view of [the] rule [the subject of the impugned decision] has been received” effected a waiver of privilege on the basis that it disclosed the contents of the legal advice (see [27] and [28]).

53                  Ampolex No 2 was also applied by the Full Court of this Court in Bennett v Chief Executive Officer, Australian Customs Service (2004) 210 ALR 220.  Tamberlin J at [13] said:

“The weight of the authorities, in my view, supports the conclusion that the disclosure of the conclusion reached in or course of action recommended by, an advice can amount to waiver of privilege in respect of the premises relating to the opinion which has been disclosed, notwithstanding that this reasoning is not disclosed.”

Tamberlin J agreed with the reasons of Gyles J.  Gyles J, after expressing his agreement with the reasoning of Goldberg J in Australian Unity Health, at [65] said:

“The voluntary disclosure of the gist or conclusion of the legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion.”

His Honour at [66] went on to say:

“In my opinion the decision in Mann v Carnell does not implicitly overrule the line of authority to which I have referred.  The question in that case was whether a particular kind of limited disclosure waived the privilege.  The reasoning in that case casts no doubt as to the principles applicable to a situation where disclosure is made by one party to a dispute to another party to that dispute and in the absence of any special arrangements as to confidence.”

Though Emmett J dissented, he said nothing to the contrary of the views of Tamberlin J or Gyles J on this point.

54                  The respondent put four contentions.  They can be summarised as follows:

(a)                The respondent did not produce the Audit Report voluntarily.

(b)               The Audit Report does not disclose the “gist” or “substance” of the privileged Audit Report documents.

(c)                The “grounds” that the Audit Report discloses as being “supported” by the privileged Audit Report documents are stated at a very high level of generality.

(d)               The respondent has not sought to deploy the privileged Audit Report documents for any commercial or forensic purpose.

In my opinion, (a) and (d) are simply different ways of putting the same argument: that the circumstances in which the respondent provided the Audit Report to the applicant do not amount to conduct that would mean it would be inconsistent to maintain the privilege in respect of the privileged Audit Report documents.  Similarly, (c) is merely an elaboration of (b).  Nonetheless, I will deal with all four contentions.

55                  The respondent’s first contention must fail.  As to the first occasion upon which the respondent produced the Audit Report, he failed to invoke ss 22 and 42 of the FOIA which would have allowed him to avoid producing at least those parts of the Audit Report that referred to the privileged Audit Report documents.  As to the second occasion upon which the respondent produced the Audit Report, he could have provided particulars of his Statement without reference to it – let alone documents generally – or objected to providing those particulars in the form in which they were sought.  (I refer to the letter quoted at [12].)

56                  The respondent, by his submissions, says that the considerations set out at [55] are irrelevant.  He says that the relevant consideration

“is what light do the circumstances in which the Audit Report was disclosed to the applicant shed on the questions of whether the Respondent has acted inconsistently with the maintenance of the privilege in the advice referred to in the Audit Report.”

He cited in support of that submission the decision of Gyles J in Arrow Pharmaceuticals Ltd v Merck & Co Inc (2004) 210 ALR 593.  His Honour said at [11] and [12]:

“The respondent has produced a memorandum of 29 December 1997 which refers to the CMI.  The relevant paragraph is as follows:

…  There are some weaknesses in our patent application, namely the existence of a reference to intermittent dosing in a Lunar News publication circulated in 4/97.  Our internal Confidential Memorandum of Invention (CMI) is dated 6/97 ….

It is submitted for the applicant that production of that document, including that paragraph, waives privilege in relation to the CMI.  In my opinion there has been no waiver when the principles explained in Mann … are applied.  The document was internal to Merck and has only been produced in the ordinary course of production of documents.  That is not inconsistent with the maintenance of the confidentiality: cf Bennett ….”

(The emphasis is mine.)  The respondent says that production of the Audit Report does not effect a waiver of privilege in respect of the privileged Audit Report documents just as Gyles J held that production of the memorandum in Arrow Pharmaceuticals did not effect a waiver of privilege in respect of the CMI.  That is, the Audit Report was “internal to [the respondent] and has only been produced in the ordinary course”.

57                  I cannot see how Arrow Pharmaceuticals can assist the respondent.  Unlike the Audit Report, the memorandum cannot be said to have disclosed the “gist” or “substance” of the material to which it refers.  Further, once it is determined that the respondent voluntarily disclosed the “gist” or “substance” of the privileged Audit Report documents by producing the Audit Report, the “internal” character of the Audit Report is neither here nor there.  (See Bennett at [65] per Gyles J.)

58                  The respondent’s fourth contention must also fail.  Again, once it is determined that the respondent voluntarily disclosed the “gist” or “substance” of the privileged Audit Report documents by producing the Audit Report, the purpose in aid of which he sought to deploy those documents is irrelevant.  (See Bennett at [65] per Gyles J.)

59                  The respondent’s second contention is untenable.  The respondent, by his submissions, sought to support it on the grounds that the Audit Report “nowhere discloses the reasons employed by [solicitors] or counsel” in the privileged Audit Report documents.  What I have already quoted at [51] from Ampolex No 2 and at [53] from Bennett is a complete answer to that submission.  The respondent, by its submissions, also sought to support its second contention on the grounds that “the [Audit Report’s] mere citation of ‘support’ from advice of [solicitors] and counsel does not in fact disclose anything about the substance of that legal advice”.  That submission is inconsistent with the result in Ampolex No 2 (let alone that in Australian Unity Health – of which Gyles J approved in Bennett).

60                  The respondent’s third contention is also untenable.  The respondent, by his submissions, sought to support it on the grounds that

“Paragraphs A to E [ie the grounds said to be “supported” by the privileged Audit Report documents] contain no real analysis of the reasoning by which it is concluded that the relevant sections of the ITAA are engaged or the elements of the [relevant] transactions which engage those sections.”

Again, what I have already quoted at [51] from Ampolex No 2 and at [53] from Bennett is a complete answer to that submission.

61                  The respondent also sought to support his third contention by way of an analogy with the decision of Drummond J in Southern Cross Airlines Holdings Ltd (in liq) v Arthur Andersen (1998) 84 FCR 472.  In that case, the question was whether the following statement in a liquidator’s report to creditors effected a waiver of privilege:

“My solicitors have advised me that the Company has potential claims against Apogee and certain members of its management pursuant to Section 205 of the Corporations Law, and in relation to the sum of US$500,000 which was paid to Apogee and its management.”

His Honour at 479 said:

“I do not accept that such a brief general summary of the advice obtained by the liquidator concerning the potentiality for claims by Southern Cross against Apogee and contained in his report is sufficient to amount to a disclosure of ‘the substance of’ that advice ….

…

In my opinion, that is far too general a statement to bring about … the waiver of any legal professional privilege attaching to the advice.  It goes little farther than a mere reference to the existence of legal advice ….”

62                  By his third contention, the respondent seems to suggest that the statements alleged to have effected a waiver of privilege in Ampolex No 2, of which Drummond J said “[t]here can be no doubt about the correctness of the conclusion”, and Southern Cross Airlines sit at opposite ends of a spectrum running from generality to (relative) specificity.  In that case, the Audit Report’s reference to the privileged Audit Report documents clearly tends towards (relative) specificity.

63                  The respondent submitted that, were I to dismiss his motion, I should only order production of those parts of the privileged Audit Report documents that go to the “grounds” the Audit Report says they support.  Of course, that submission assumes the dismissal of the applicant’s motion.  In the circumstances, I need not deal with it.

CONCLUSION

64                  The applicant’s motion is allowed.  The respondent’s motion is dismissed.  The respondent is to pay the applicant’s costs of both motions.

Associate:

Dated:              22 September 2005