FEDERAL COURT OF AUSTRALIA

Australian Agricultural Company Limited v AMP Life Limited [2006] FCA 371

PRACTICE AND PROCEDURE – discovery – legal professional privilege – waiver of privilege – communication of legal advice to third party – whether legal advice a factor influencing state of mind

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

BP Australia Pty Ltd v Nyran Pty Ltd [2002] FCA 1302 referred to

DSE Holdings Pty Limited v Intertan Inc & Anor [2003] FCA 384 referred to

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

Mann v Carnell (1999) 201 CLR 1 referred to

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

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

Telstra Corporation Ltd & Anor v BT Australasia Pty Ltd & Anor (1998) 85 FCR 152 referred to

Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR(NSW) 347 referred to

AUSTRALIAN AGRICULTURAL COMPANY LIMITED v

AMP LIFE LIMITED & ANOR

NSD 1444 OF 2003

COWDROY J

6 APRIL 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  The notice of motion dated 28 September 2005 be dismissed.

2.                  The applicant pay the respondents’ costs of the motion.

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

REASONS FOR JUDGMENT

1                     By notice of motion dated 27 September 2005 the applicant (‘AACo’) seeks orders inter alia that the respondents (‘AMP’) produce for inspection documents held by Rabo Corporate Finance and Securities Pty Limited (‘Rabo’) in respect of which AMP has claimed legal professional privilege.  AACo claims that AMP has waived legal professional privilege in respect of the documents by its conduct of the proceedings to date.

Background

2                     These proceedings relate to the sale by tender of shares in Stanbroke Pastoral Company Limited, which was conducted by AMP. AACo made a tender for the shares which was rejected by AMP in favour of a rival tender, namely that of Nebo.

3                     During the tender process AMP retained Rabo to advise it in respect of financial issues relating to the sale. The advices provided by Rabo to AMP contained a detailed review of the offers and of various considerations which Rabo considered pertinent to AMP’s deliberations. In the course of advising AMP, Rabo was privy to legal advice provided to AMP by its solicitor, Clayton Utz.

4                     On 5 September 2003, AMP accepted the offer of Nebo which was lower than that of AACo. In choosing to accept the Nebo offer, AMP relied, inter alia, upon a letter of advice from Rabo dated the same day. That letter states that it should be read and construed in light of legal advice received during the preceding week.

5                     By its second further amended statement of claim (“the statement of claim” ) filed on 3 March 2004 AACo claims that AMP engaged in misleading and deceptive conduct and in breach of contract in relation to the sale. AACo alleges that AMP had represented to AACo that the tender process would be an open and fair process and that the offer would be assessed on the basis of criteria disclosed by AMP. AACo claims that AMP disclosed criteria to Nebo which were not disclosed to AACo; that AMP departed from the preferred terms that it had disclosed to all tenderers without advising AACo; and that AMP gave Nebo opportunities to improve its offer which were not provided to AACo.

6                     AMP denies the allegations made against it and provides the reasons for the acceptance of the competing tenderer which was preferred over the tender of AACo (pars 112-114 of AMP’s defence to the second further amended statement of claim (“the defence”)).

7                     On 8 March 2005 AACo caused a subpoena to be issued to Rabo. On 1 June 2005 Rabo produced documents in answer to the subpoena, but AMP claimed legal professional privilege in respect of several of the documents. The Court granted AMP first access to the documents for a period of 7 days to identify documents subject to claims of privilege and confidentiality. Having viewed the documents, AMP maintains its claim for privilege in respect of various documents produced to the Court by Rabo.

AACO’s submissions

8                     AACo claims that AMP has waived its legal professional privilege on two bases. Firstly, AACo says that AMP waived privilege by specifically pleading its corporate state of mind in the defence. Secondly, AACo says the AMP wavied privilege by providing its legal advice to Rabo.

9                     In respect of the first ground, AACo submits that AMP has not simply denied the allegations of misleading and deceptive conduct, but has made positive assertions as to its corporate state of mind at the time of making the decision. It refers to pars 112, 113 and 114 of the defence (set out hereunder). It also refers to the affidavits Mark Derwin of AMP and Steve Cvetko of Rabo, both sworn on 23 September 2003, which attest to those deponents’ beliefs that the Nebo offer was superior to the AACo offer, because the difference in price was negligible and Nebo’s offer represented a lesser risk for AMP.

10                  AACo also refers to interrogatories answered by AMP in these proceedings, in which AMP acknowledged that it had relied on certain legal advices in forming its opinion that the Nebo offer was superior to the AACo offer.

11                  Paragraphs 112, 113 and 114 of the defence are as follows:

‘112.    The First Respondent, by its agent the Second Respondent, decided to sell the Stanbroke Shares to Nebo, rather than AACo because:

(a)        the difference in the amounts of their respective bids was negligible;

(b)        the Applicant’s bid presented a greater risk that the sale would not proceed to completion because the Applicant’s offer required an amendment to the Material Adverse Change definition in the contract proposed by the First Respondent on 15 August 2003, which amendment allowed the purchaser greater opportunity not to complete the contract, whereas Nebo required no such change to the clause proposed by the First Respondent;

(c)        the changes made by Nebo to the Final Share Sale Agreement were to AMP’s advantage because they removed the requirement for completion accounting and the associated uncertainty as to the final purchase price which would be paid to the First Respondent; and

(d)        before the First Respondent by its agent the Second Respondent, accepted the Nebo bid, Derwin spoke with Mr Holmes à Court of the Applicant on 5 September 2003 and asked him twice whether the applicant was able to increase its offer, to which Mr Holmes à Court respondent on both occasions that the Applicant was not able to do so.

113.     By 8 September 2003, when the Applicant forwarded to the First Respondent an offer including a cash price of $460m (plus pay out of $81m debt), the First Respondent had accepted the Nebo bid and was contractually bound to proceed with the Nebo bid.

114.     The decision of the First Respondent to sell the Stanbroke shares to Nebo rather than AACo was not made as a result of a consideration of their respective intentions as to the future conduct of the Stanbroke business, nor was it made on the basis that the Stanbroke business was to be sold as a going concern, nor was it made on the basis of any desire by AMP to sell to a purchaser whom it viewed favourably or to deliver a “good news story” for AMP Limited and the Second Respondent in the Australian media.’

12                  AACo submits that where a party propounds a positive case that it possessed a certain state of mind, it opens up for examination and testing by the Court any evidence as to its actual state of mind. AACo submits that a defence which specifically invokes a positive state of mind is inconsistent with the maintenance of privilege over documents which contributed to that state of mind. As a consequence, AACo submits AMP has necessarily waived privilege in relation to its legal advice. AACo relies upon Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 411; Telstra Corporation Ltd & Anor v BT Australasia Pty Ltd & Anor (1998) 85 FCR 152 at 166-7; Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 at [11]; BP Australia Pty Ltd v Nyran Pty Ltd [2002] FCA 1302 at [17]; Rio Tinto Ltd v Commissioner of Taxation [2005] FCA 1336 at [40]–[42]. 

13                  AACo submits that the majority judgment in Telstra Corporation remains good law and relies upon Perpetual Trustees (WA) Ltd v Equuscorp Pty Limited [1999] FCA 925 at [16] and DSE Holdings Pty Limited v Intertan Inc & Anor [2003] FCA 384.

14                  In respect of the second ground for waiver of legal professional privilege, AACo submits that by disclosing otherwise privileged documents to Rabo in the course of the tender process, AMP waived its privilege in respect of that advice, since its disclosure to Rabo was not made for the purpose of obtaining legal advice on a confidential basis. .

AMP’s submissions

15                  AMP submits that by par 38I of its statement of claim, AACo raised the bona fides of AMP’s decision, alleging that AMP deliberately took into account matters which were not proper commercial considerations because of its desire to accept the offer by Nebo, and that it disclosed relevant matters to Nebo which it failed to disclose to AACo. AMP submits that by these pleadings AACo has specifically invoked AMP’s corporate state of mind as an issue in the proceedings, and that AMP’s defence merely responds to AACo’s allegations by denying its claims and setting out the actual basis upon which AMP’s decision was made.

16                  AMP says that it is entitled to plead its defence in this manner without waiving legal professional privilege. It says that it is incorrect that any response to AACo’s pleadings beyond a mere denial is conduct inconsistent with the maintenance of legal professional privilege. AMP submits that a waiver only arises where the holder of a privilege makes an assertion concerning the content of the privileged communication and that its defence makes no reference to any such communications.

17                  AMP submits that the decision in Telstra v BT and other cases propounding a ‘state of mind’ test should not be relied upon in view of the subsequent decision of the High Court in Mann v Carnell (1999) 201 CLR 1 which established the inconsistency test. Additionally, AMP says the ‘state of mind’ test only arises in circumstances where the issue of state of mind was raised by the party claiming privilege, which is not the position in the present case.

18                  AMP also submits that the facts in these proceedings are distinguishable from those in Fort Dodge v Nature Vet where the respondent’s state of mind became an issue when the respondent introduced it (see at [11] and [14]).

19                  AMP further submits that if AACo’s submissions are accepted, the consequence would be that in any case in which an applicant placed the respondent’s state of mind in issue, the respondent would risk waiving privilege if it did any more than file a mere denial to the claim made against it.  AMP submits that such result would be absurd.

20                  AMP submits in the alternative that if the Court should find that there has been a waiver of privilege, such waiver cannot extend to advice received throughout the whole of the tender process, since only a limited period is referable to the defence.

21                  As to the second issue raised by AACo, namely whether privilege has been waived in respect of the legal advice communicated by AMP to Rabo, AMP submits that since such communications were made confidentially to Rabo in its capacity as AMP’s financial adviser, those communications were not inconsistent with the maintenance of privilege.

22                  AMP says that the observations in the dissenting judgment of McHugh J in Mann v Carnell at [122], which are relied upon by AACo are inconsistent with the reasons of the majority at [30] and [35] of that decision.

THE TEST FOR WAIVER OF LEGAL PROFESSIONAL PRIVILEGE

23                  Since these proceedings are interlocutory, common law principles with respect to legal professional privilege apply: see Mann v Carnell at 12 [27], 16-17 [41], 45 [143] and 45 [144] and DSE (Holdings) Pty Limited at 504 [11].

24                  The test for waiver of legal professional privilege at common law was enunciated by the High Court in Mann v Carnell. In that case, a majority of the Court at [28]:

‘It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege.’

25                  The Court added at [29]:

‘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.’

26                  Prior to the decision in Mann v Carnell, the leading authority of this Court relating to waiver of legal professional privilege was Telstra Corporation v BT Australasia. In that case, Branson and Lehane JJ observed (at 166):

‘A party who initiates an undue influence case puts in issue in the proceeding the quality of his or her consent or assent … The quality of such consent or assent will ordinarily be affected by relevant legal advice received by the party. The principle that requires that in such circumstances the party not be entitled to maintain the confidentiality of such advice is one of fairness which goes to the integrity of the legal process. To allow a party to put in issue the quality of his or her consent or assent whilst, at the same time, withholding evidence relevant to that issue, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to compromise the ability of the court realistically to determine the issue.’

27                  Their Honours later noted (at 166-7):

‘Where, as in this case, a party pleads that he or she undertook certain action “in reliance on” a particular representation 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 the 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 the relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract.’

28                  The effect of Mann v Carnell upon the ratio in Telstra was considered by Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc, where his Honour said (at 501-502 [4]-[5]):

‘I have come to the view that the authorities in this Court may require me to be guided by what the majority of the Full Court said in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152, as necessarily modified by Mann v Carnell (1999) 201 CLR 1 at 12 [27] and 13 [29] …

My own view is that Mann v Carnell evinces more than a modification of the approach of the majority in Telstra and amounts to a rejection of that approach and that the notion of inconsistency of conduct by the holder of the privilege and the maintenance of the confidence in question (though informed where relevant by notions of fairness) works a narrower and more confined operation for implied waiver than as expressed by the majority in Telstra.’

29                  I respectfully agree with his Honour with respect to the effect of Mann v Carnell. To the extent that Telstra suggests that fairness is the overriding consideration, it should not be followed. It is clear that following Mann v Carnell, inconsistency of conduct should be the guiding principle in determining whether legal professional privilege has been waived, although fairness remains an element for consideration in determining whether conduct is inconsistent.

INCONSISTENCY OF CONDUCT

30                  Many decisions of this and other courts have considered circumstances in which, by its pleadings, a party waives its legal professional privilege. In Fort Dodge, the respondent, in its defence to a claim of misleading and deceptive conduct in relation to a contract, alleged that it had entered into the contract on the basis of representations made by the applicant. As such, it raised a positive case with respect to its state of mind at the time of entering into the contract. Hely J (at [11]) found that by doing so, the respondent:

‘opened up for examination and testing the source of, and the basis for, that state of mind.  Where a party makes allegations 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 Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405’.

Hely J determined that the pleading of the state of mind was inconsistent ‘with the continued maintenance of confidentiality of contemporaneous legal advice as to those matters’ (see at [14]).

31                  In Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR(NSW) 347 the  New South Wales Court of Appeal was required to decide whether privilege was waived in respect of advice concerning the legal remedies available to the plaintiff, where the exclusive election of a particular remedy was only binding if a person had knowledge of their other options at the time the election was made.  In respect of the privilege Jordan CJ said (at 358-9):

‘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.’

32                  In Rio Tinto, Sundberg J stated (at [43]):

‘… 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.’

33                  The above authorities establish that the conduct of a party will be inconsistent with the maintenance of privilege if the nature and extent of legal advice has been raised, whether directly or by necessary implication, by that party as an issue in the proceedings. This will usually occur where a state of mind has been positively pleaded in circumstances where legal advice given would be specifically pertinent to the formation of that state of mind or where a party’s understanding of their legal position is critical to their defence.

34                  However, I cannot accept the submission of AACo that any positive defence mounted by AMP which raises its state of mind necessarily constitutes a waiver of privilege. In my opinion, in order to waive privilege a party must assert a belief which is likely to have been, or is explicitly said to have been, materially dependent upon legal advice given to that party. In that case the proof or otherwise of the belief is dependent upon the legal advice and accordingly privilege is waived. This is the position in cases where the dispute relates to a party’s understanding of its legal position at a given point in time, such as Thomason, Rio Tinto, Ampolex and Fort Dodge.

35                  In the present case, the belief pleaded by AMP is not intimately connected with the legal advice given to it at the time: cf Ampolex per Giles CJ Comm D at 411F. AMP’s defence does not make assertions as to the content of legal advice given to it; nor does AMP’s defence state that its decision to accept the tender of Nebo was based upon legal advice: cf Rio Tinto. AMP does not assert a belief in particular legal requirements or consequences, which could be reasonably expected to have been predicated upon legal advice, in which case legal advice might be material evidence in the proceedings. Rather, AMP has pleaded its belief with respect to the best commercial option which was open to it, a belief informed primarily by commercial advice from Rabo. In these circumstances I do not consider that AMP’s pleadings are inconsistent with the maintenance of its legal professional privilege.

36                  In respect of AACo’s second submission, namely that AMP waived its privilege by communicating its legal advice to Rabo, I consider that the applicant must also fail. In Mann v Carnell, the majority observed that the reasoning of all members of the Court in Goldberg v Ng (1995) 185 CLR 83 ‘was inconsistent with the proposition that any voluntary disclosure to a third party necessarily waives privilege’: see Mann v Carnell at 14[30].  The majority also noted the observations of Jordan CJ in Thomason at 355, where his Honour said:

‘The mere fact that a person on some one occasion chooses to impart to another or others  advice which he has received from his solicitor indicates no intention on his part to waive his right to refuse on other occasions to disclose in evidence what that advice was, and supplies no sufficient reason for depriving him of a form of protection which the law has deemed it specially necessary to throw around communications between solicitor and client.’

37                  In view of these authorities, the disclosure of legal advice in confidence to a commercial adviser cannot, in my opinion, be considered inconsistent with the retention of privilege. In this respect, McHugh J’s observations in Mann v Carnell at [120] are inconsistent with the majority reasoning.

Orders

38                  For the above reasons, the Court orders that:

1.         The applicant’s notice of motion be dismissed.

2.         The applicant pay the respondents’ costs of the motion.

Associate:

Dated:              6 April 2006