FEDERAL COURT OF AUSTRALIA

Wingecarribee Shire Council v Lehman Brothers Australia Limited (in liq) (No 5) [2011] FCA 245

THE COURT ORDERS THAT:

1.    Inspection by the applicants of the documents identified as documents 1 to 5 in the table in paragraph 10 of the reasons for judgment published today, be permitted.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

1    This proceeding is currently being heard by another Judge of the Court.

2    By notice to produce dated 22 February 2011, the applicants sought production by the respondent of the following documents:

3.    Notes, minutes or meeting papers prepared for or reporting the content of any meeting discussing disciplinary action (including without limitation employment termination) of any of:

3.1    Michael Clout;

3.2    David Rosenbaum;

3.3    Stuart Calderwood;

3.4    Jill May;

3.5    Cameron Rae;

or any other employee arising from the employee’s involvement in dealings in CDOs with or on behalf of NSW LGAs or WA LGAs.

3    There are documents falling within paragraph 3 of the notice to produce in respect of which the respondent asserts a claim of legal professional privilege. Accordingly, the respondent objects to the applicants inspecting those documents. The applicants dispute that the documents are privileged and seek an order that they be made available for inspection by them.

4    In the expectation that it may have been necessary to inspect the documents for the purpose of resolving this question, it was considered appropriate that another Judge of the Court hear this particular application, thereby avoiding any possible embarrassment to the trial judge or potential prejudice to the respondent which might be occasioned if the trial judge himself were called upon to undertake such an inspection. I heard the application yesterday afternoon.

5    The matter is attended by relative urgency in that the applicants reasonably perceive a need to inspect the documents prior to the cross-examination of witnesses to be called by the respondent. As events have transpired, those witnesses are due to give their evidence imminently. Necessity, therefore, requires this application to be determined so that the trial is not unduly interrupted. As a consequence, these reasons are briefer than I would have desired. I believe, however, that they will adequately explain the decision to which I have come.

6    The application falls to be determined by reference to the common law respecting legal professional privilege, as declared in Esso Australia Resources Limited v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49. In that case the High Court, by majority, held that the dominant purpose test, and not the sole purpose test, applies in determining whether the privilege attaches to a particular communication. These principles have been discussed recently in Dye v Commonwealth Securities Ltd (No 5) [2010] FCA 950 at [5] to [9]; see also the principles summarised in AWB Ltd v Cole (No 5) (2006) 155 FCR 30 at [41]-[44].

7    A formulation of the dominant purpose test was stated by Barwick CJ in Grant v Downs (1976) 135 CLR 674 at 677 as follows:

Having considered the decisions, the writings and the various aspects of the public interest which claim attention, I have come to the conclusion that the court should state the relevant principle as follows: a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection.

8    The reference to “document” in that context is to be understood as the manifestation of a communication: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 515, 525, 543, 552 and 569.

9    The plurality reasons in Esso make clear that if the most that can be said of a communication is that the purposes for which it comes into existence include a purpose of obtaining legal advice or assistance, the privilege will not apply: see at [50]. The examination of that question lies at the heart of the present dispute.

10    The documents the subject of the present claim can be identified by reference to the following table:

11    For convenience I will refer to those documents by the number appearing in the first column of that table.

12    The respondent relied on the affidavit of Shaun Ansell sworn 16 March 2011 as establishing the factual basis for its claims of privilege. The applicants did not cross-examine Mr Ansell and, therefore, made no challenge to the statements he had made in his affidavit. Although criticising the vagueness of the some parts of the affidavit, the applicants contended that it positively established that no claim for legal professional privilege could be sustained in respect of the documents.

THE EVIDENCE

13    Mr Ansell was admitted as a legal practitioner of the Supreme Court of Queensland and of the High Court of Australia in 1991. He was admitted as a legal practitioner of the Supreme Court of New South Wales in 1995. He maintained a New South Wales solicitor practising certificate during 2007 and 2008.

14    From March 2007 until October 2008 he was employed by the respondent as Vice President, Legal and Compliance Division. During that time he worked in the respondent’s Sydney office. At the commencement of his employment the respondent was called Grange Securities Limited. Later in 2007 it changed it corporate name to Lehman Brothers Australia Limited following the acquisition of certain shares in its issued capital by (what Mr Ansell termed) “Lehman Brothers entities”. This expression was used throughout Mr Ansell’s affidavit. He did not seek to identify what these entities were. The share sale agreement was tendered by the applicants through an affidavit by Amanda Kim Banton sworn 17 March 2011. The share sale agreement shows the buyer of the shares to be Lehman Brothers Australia Granica Pty Limited (Lehman Granica). Lehman Brothers Holdings Inc. (Lehman Holdings) was also a party to the agreement.

15    As Vice President, Legal and Compliance Division, Mr Ansell provided legal and compliance advice to the respondent in respect of all aspects of its operations. His day-to-day responsibilities included managing the corporate and transactional legal as well as compliance aspects of the respondent’s business. He said that he did not participate in the day-to-day commercial aspects of the respondent’s business. He reported to Christopher Moore (General Counsel of Lehman Brothers Asia Holdings Limited (Lehman Asia)) and Mr Moore’s deputy, Sarah Bower (Senior Legal Counsel of Lehman Asia), in relation to legal matters.

16    In around September 2007, following various claims by the respondent’s customers relating to the sale of collateralised debt obligations (CDOs) and other financial products, the respondent conducted a review of the sale of financial products by the respondent’s Fixed Income Division. Part of this review involved an investigation of the sales practices and conduct of a number of employees within that division, including conduct that predated the acquisition of the respondent by “Lehman entities”. Mr Ansell says that, at around that time, he was asked by Ms Bower to conduct an investigation of the division “so as to enable [the respondent] and other Lehman entities to seek legal advice in connection with the (r)eview”. Mr Ansell said that the legal issues in relation to which the respondent and “other Lehman entities” required advice related to:

(a)    assessing [the respondent’s] legal position in respect of claims made by [the respondent’s] clients in connection with transactions in CDOs and other financial products sold by [the respondent] and also possible claims against [the respondent’s] professional indemnity insurer;

(b)    assessing whether [the respondent] had legal grounds to discontinue the employment of various [of its] employees for cause, or otherwise take disciplinary action against those employees, including in relation to conduct by those employees that predated the acquisition of [the respondent] in March 2007, and

(c)     assessing whether there were grounds for any legal claims by Lehman entities as purchaser of [the respondent] in relation to sales of financial products that predated the acquisition of [the respondent] in March 2007.

17    By referring to “claims by Lehman entities as purchaser of” the respondent, it is not clear whether Mr Ansell was referring to claims by Lehman Granica (as buyer of the shares under the share sales agreement), or Lehman Granica and Lehman Holdings (as parties to the share sale agreement), or some other “entity” or “entities” that could, in some way, be regarded as a “purchaser” of the respondent. It is clear, however, that he could not have been referring to the respondent itself.

18    I would add that, on the face of Mr Ansell’s affidavit, these purposes were all equal purposes. He did not seek to suggest that any one of these purposes was a dominant purpose in the sense of “the ruling, prevailing or most influential purpose”: Commissioner of Taxation of the Commonwealth of Australia v Spotless Services Limited (1996) 186 CLR 404 at 416.

19    Mr Ansell said that one aspect of his work in connection with the review related to preparing interview questions and propositions to be put to various employees within the respondent’s Fixed Income Division. He also said that he conducted interviews with those employees to assist in the determination of “the legal position” of the respondent and “Lehman entities” in respect of the three matters I have quoted above.

20    Mr Ansell then identified each document in general terms (such as draft questions and propositions to be put to the respondent’s employees to be interviewed or interview notes with one or more of the respondent’s employees) and addressed the reason why each document was created.

21    In relation to each of documents 1 to 5 the stated reasons included that the document was created in connection with the request for legal advice (to which I have already referred) in order to assess the respondent’s legal position with respect to certain stated matters. However, in each case, the reason also included that the document was created in connection for the request for legal advice to assess “any legal claims available to Lehman entities as purchasers of [the respondent] for conduct that predated March 2007”, or to assess whether there were any such claims. Plainly enough, these were not claims said to be available to the respondent itself.

22    Document 6 is in a different position. It was described by Mr Ansell as an email dated 22 October 2007 that was sent by him to Ms Bower in relation to the discontinuation of the employment of one of the respondent’s employees. Mr Ansell’s evidence was that this document was created for the purpose of obtaining legal advice on the question whether the respondent had legal grounds to discontinue that employment for cause.

THE PARTIES’ CONTENTIONS

23    The respondent’s position in relation to these documents was that Mr Ansell was providing independent legal advice and that the documents were created for the dominant (indeed, sole) purpose of providing legal advice that was sought from him by his employer, namely the respondent.

24    The thrust of the applicants’ submissions was that the privilege could not attach to the documents because the documents were brought into existence for multiple purposes. These purposes included the equal purpose of legal advice being sought and provided to “Lehman entities”, which did not include the respondent, in respect of claims in which the respondent and the “Lehman entities” could not possibly have any common or joint interest. Whatever advice was being sought and given in that regard was for their (the Lehman entities’) benefit, not for the respondent’s benefit. Further, the applicants submitted that the evidence did not show that Mr Ansell stood in any relevant lawyer-client relationship other than with, possibly, the respondent. Certainly, in the applicants’ submission, the evidence did not show that Mr Ansell stood in any such relationship with the respondent and “Lehman entities” jointly.

CONSIDERATION

25    I have inspected the documents and considered them in the light of Mr Ansell’s evidence and the submissions that have been made in respect of them.

26    In my view legal professional privilege does not attach to documents 1 to 5, substantially for the reasons advanced by the applicants.

27    The privilege that has been claimed is that of the respondent and of no other person. The relevant purpose for the creation of the document must be referable to the particular privilege that is claimed. In my respectful view, it is not sufficient that it be demonstrated merely that the purpose is a legal purpose, considered in some abstract way. The respondent did not contend for the proposition that advice in relation to claims that the “Lehman entities”, as purchasers, might have for conduct that pre-dated March 2007, was legal advice or assistance to be given to the respondent, or that the respondent itself was or would be privy to any such advice or assistance. The evidence certainly would not sustain that proposition. I am satisfied on the evidence that the purpose for which each of documents 1 to 5 was brought into existence included a purpose that was foreign to the respondent, namely for the provision of advice or assistance to “Lehman entities”.

28    Normally in relation to claims of privilege involving multiple purposes, a mix of legal and non-legal purposes is involved. In explaining the rationale in Grant for the rejection of the former principle that it was sufficient to attract privilege that one, not insubstantial, purpose was to obtain legal advice or assistance, Gleeson CJ and Gaudron and Gummow JJ in Esso (at [43]) said:

A reading of the joint judgment shows that a reason which influenced the decision was a concern that, in large corporations and public authorities, especially those with internal legal officers, routine reports and other documents prepared by subordinates for the information of their superiors would also, in the ordinary course, be provided to lawyers for the purpose of obtaining legal advice or assistance. It was regarded as unacceptable, and contrary to the interests of justice, that such documents should be privileged merely because one of their intended destinations was the desk of a lawyer.

29     Here Mr Ansell’s evidence makes clear that the multiple purposes involved in the present case were all with respect to seeking and obtaining legal advice. But the purposes were nevertheless, properly characterised, mixed purposes. This necessarily meant that, if there existed an equal purpose for the creation of a document that was foreign to the respondent, it could not be said that the dominant purpose for its creation was to obtain legal advice or assistance for the respondent. Where there are multiple purposes of equal weight, none can be said to be the dominant purpose in the relevant sense: Federal Commissioner of Taxation v Pratt Holdings Pty Ltd (2005) 60 ATR 466 at [30]; AWB Ltd v Cole (2006) 152 FCR 382 at [106].

30    The respondent submitted that to deny the existence of the privilege in the present case would strike at the maintenance of claims for legal professional privilege involving communications within corporate groups. In that connection the respondent referred to the observations made in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2000] FCA 593 and Seven Network Limited v News Limited [2005] FCA 1342 with respect to the maintenance of privilege concerning intra-corporate disclosures.

31    In GEC Lehane J (at [9]-[10]) said:

Before turning to the documents, it is convenient to consider whether, to the extent that communications recorded in them attracted privilege, the privilege has been waived. On the material before me, my view is that it has not. It is evident on the face of the documents that to a large extent they formed part of discussions within GEC's corporate group about the dealings leading to the present litigation and the contemplated litigation itself. To some extent - argument concentrated on this aspect - the purpose of the communications between GEC and its parent company may well have been to assist in deliberations about the treatment, in the group accounts, of matters arising from the disputes between the parties. To the extent that the documents reflect communications between GEC and its legal advisers, however, there is no suggestion that there was any intention to publicise the content of those communications outside the corporate group. The majority judgment in Mann includes, at 94, the following discussion of waiver at common law (once again, I shall omit the footnotes):

"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 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. Thus, in Benecke v National Australia Bank, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. 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."

… If the present claims are looked at in that light, I do not think there is anything in the circumstances of the corporate deliberations, in the course of which the documents were prepared and sent, which is inconsistent with the maintenance of confidentiality in any privileged aspect of the communications or with GEC continuing to assert the privilege.

32    In Seven Network Graham J (at [26]) said:

In relation to intra-company disclosures of legal advice, any disclosure of the terms of such advice or the substance thereof from one officer to another will not constitute a “disclosure to another person” and thereby result in a loss by the client of the relevant privilege (see Arrow Pharmaceuticals Limited v Merck & Co Inc (2004) 210 ALR 593 at 597 [11] and [12].) In GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited & Ors [2000] FCA 593 Lehane J, applying Mann v Carnell [1999] 201 CLR 1, held that disclosures of such advice or the substance thereof by officers of one corporation within a group to officers of other corporations within that group or between different officers of another corporation within the group did not result in a waiver of the relevant client legal privilege (see judgment [6] – [9] and [12] (especially in respect of documents 0113 and 0527)). This is consistent with the general principle of common interest privilege (see the judgment of Giles J in Network Ten Limited v Capital Television Holdings Limited (1995) 36 NSWLR 275 at 279-283; see also Evidence Act s 122(5)(b)).

33     It is clear that the observations in those cases on which the respondent relied were directed to the question of the waiver of privilege and not to the antecedent and separate question of whether the privilege existed at all. It is the antecedent question that is in issue in the present matter.

34    Having reached this conclusion it is, strictly speaking, unnecessary for me to explore the related issue of whether a lawyer-client relationship existed, in any event, between Mr Ansell and the “Lehman entities”. However, to the extent that it might matter, I am not prepared to find on the evidence that such a relationship existed. Mr Ansell made clear in his affidavit that his function was to provide legal and compliance advice to the respondent. The respondent sought to place reliance on paragraph 16 of Mr Ansell’s affidavit in which he said:

Following the interview process described in paragraph 11 above, I along with other internal and external lawyers for [the respondent] and other Lehman entities provided advice to [the respondent] and other Lehman entities in relation to the matters outlined in paragraph 10. [The respondent] and other Lehman entities acted on that advice, including requesting the resignation of a number of [the respondent’s] employees and notifying claims to [the respondent’s] professional indemnity insurer.

35    However, the rolled-up fashion in which this statement is expressed makes it quite unclear whether he gave advice to “other Lehman entities” or whether those entities were simply the recipients of advice given by one or other of Mr Ansell or “other internal and external lawyers for [the respondent] and other Lehman entities”. The authorities emphasise the need for focussed and specific evidence in order to ground a claim for legal professional privilege: Kennedy v Wallace (2004) 142 FCR 185; National Crime Authority v S (1991) 29 FCR 203. The fact that generalised evidence is not challenged in cross-examination does not mean that such evidence must be accepted: Barnes v Commissioner of Taxation (Cth) (2007) 242 ALR 601. Importantly, this statement says nothing about whether a lawyer-client relationship existed between Mr Ansell and “other Lehman entities” at the time the relevant documents came into existence. It is certainly not sufficient to establish merely that, at the time the documents came into existence, Mr Ansell owed duties of confidentiality in respect of the communications contained in them. More is required to establish a lawyer-client relationship at a relevant time: Apple Computer Australia Pty Ltd v Wily [2002] NSWSC 855 at [11].

36    I now turn to consider the claim made with respect to document 6. As I have noted, this document is in a different position. I have considered the document in light of Mr Ansell’s evidence as to the purpose for which it was created. It is plain from an inspection of the document that it relates only to the legal position of the respondent. The applicants accepted, as a general proposition, that Mr Ansell’s affidavit established that documents created or sent to him, or used by him, were in connection with his role in providing legal advice to the respondent. On this basis I am satisfied on the evidence that this document came into existence for the dominant purpose of providing legal advice to the respondent.

DISPOSITION

37    I will order that inspection of documents 1 to 5 by the applicants be permitted. I will hear the parties on the appropriate order for costs.

Associate:

Dated:    18 March 2011