FEDERAL COURT OF AUSTRALIA

SA E.Med Pty Ltd v Calvary Health Care Adelaide Ltd (No 2) [2011] FCA 835

THE COURT ORDERS THAT:

1.    The applicant produce to the respondent copies of:

a.    documents 1-3 in Part 2, Schedule 1 of the List of Documents filed by the applicant on 21 June 2011;

b.    documents 1-40 listed in Part 2, Schedule 1 of the List of Documents filed by the applicant on 29 June 2011.

2.    The applicant pay the respondent’s costs of and incidental to paragraph 3 of the Notice of Motion dated 1 July 2011.

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

1    This proceeding is listed for trial commencing on 29 August 2011. The applicant has filed and served two Lists of Documents in the proceeding and in those Lists it has claimed legal professional privilege over a number of documents. The respondent issued a notice of motion in which it sought an order for production of copies of some of the documents in respect of which the applicant claimed privilege.

2    On 20 July 2011 I made an order that the applicant provide copies of documents identified in the order to the respondent. At that time I said that I would deliver reasons for making the order and these are my reasons.

3    The respondent contended that there had been an implied waiver and, more particularly, an issue waiver with respect to the documents it identified in its notice of motion.

4    On the hearing of the application I had access not only to the Statement of Claim and two Lists of Documents but also to a lengthy affidavit of one of the two directors of the applicant, Dr Nicolas Wolianskyj. That affidavit was prepared and put forward on an application by the applicant for an interlocutory injunction. A number of relevant documents were annexures to the affidavit.

5    At the forefront of the factual dispute between the parties is a written contract entitled ‘Agreement for the Operation of the Wakefield Emergency Centre’. The applicant’s case is that it executed the contract on 3 October 2006 and that the respondent executed it on 29 September 2006. The term of the written contract was dealt with in clause 2.2 under the heading, ‘Term and Rolling Renewal’ and was as follows:

2.2    Term and Rolling Renewal

(1)    This Agreement and the term of engagement of the Consultant shall be deemed to have commenced on 1 July 2006 and shall continue, unless terminated as hereinafter provided, or unless renewed in accordance with the following clauses, or otherwise by agreement in writing of both parties, until 30 June 2011.

(2)    Unless the term of the engagement of the Consultant is terminated by notice by a party in accordance with clause 2.2(3) below, or otherwise by agreement in writing of the parties, the term of the engagement of the Consultant in accordance with this Agreement will be renewed, and will continue, for a further period of five (5) years at the expiration of each period of the term, without any notice or action by either party.

(3)    Either the Principal or the Consultant may terminate the term of the engagement of the Consultant by not less than six (6) months notice in writing to the other party prior to the expiration of the then current period of the engagement.

(4)    The parties acknowledge the current volatility in the healthcare industry and hereby agree to use reasonable endeavours to renegotiate the appropriate clauses in the event of major changes introduced by the Government or Health funds which by their nature cause serious immediate detriment to either party such as Medicare schedules, Health Fund legislation.

6    On or about 6 December 2010 the respondent wrote to the applicant advising it that it wished to terminate the contract and that the contract would terminate at midnight on 30 June 2011. On the face of the written contract the respondent had the legal right to give the notice to terminate. However, the applicant contends that certain statements made by the respondent in September 2006 and then in March 2008 mean that it was not entitled to terminate the contract. It is essentially the respondent’s right to terminate which is the subject of this proceeding.

7    The applicant’s case is that it commenced operating the Wakefield Emergency Centre on 1 April 2002. The respondent commenced operating the hospital in which the Emergency Centre is situated in May 2006. The applicant’s case is that from about May 2006 to the execution of the written contract it engaged in negotiations with the respondent for the replacement of the existing contract and the entry into a new contract. The negotiations involved a number of matters which it is not necessary to detail. It is important to note that a significant aspect of the applicant’s case is that throughout the negotiations it was seeking a new contract for a term of ten years. For example, in paragraph 13 of its Statement of Claim the applicant alleges that the ‘main proposal’ made by the applicant was that the term of the contract for the operation of the Emergency Centre ‘must be not less than 10 years’.

8    The applicant alleges that the negotiations between May 2006 and September 2006 were oral and in writing. The written negotiations included a number of documents which passed between the applicant and the respondent between early June and late September 2006. The documents are identified in the Statement of Claim and include a letter from the applicant’s solicitors, Donaldson Walsh, to a representative of the respondent dated 22 September 2006 ‘with the Agreement Document’. Furthermore, a number of the other documents pleaded by the applicant are exhibited to Dr Wolianskyj’s affidavit. It is plain from those documents and from the descriptions of some of the documents over which privilege is claimed that Donaldson Walsh were advising the applicant throughout the negotiations and that their advice included advice as to the term of a proposed new contract. Three or four examples will suffice to illustrate the reason I have reached this conclusion.

9    On 4 July 2006 Dr Kay (the other director of the applicant) and Dr Wolianskyj wrote to Mr Thorley with a copy to Mr Cooper (both representatives of the respondent) and said, among other things:

If you do not wish to sign this; and as we said in our letter we cannot guarantee that we can stay open 24/7 at the end of this rostered period, ie August. We will explore our other options as the current agreement has no stability and hence no long term attractiveness to us. Our lawyers advice was that clause 7.4 makes the whole concept of having any form of agreement involving rolling terms quite ridiculous, as it is just technically a six-month contract.

10     On 2 August 2006 Dr Kay wrote to Mr Thorley and Mr Cooper attaching a draft contract. In his email he said the following:

Ian,

Attached contract of changes that we agreed and worked through with Ashley Cooper which have been done by our lawyer. This is now ready to go. …

11    On 17 September 2006 Drs Kay and Wolianskyj wrote to Mr Thorley and Mr Cooper and said among other things:

Contract term 5 year on rolling renewal subject to mutual agreement (six month notice of termination ….). Our lawyer says that this concept is not a rolling five year deal. If ‘mutual’ agreement is required to continue, then it is just a simple five year contract.

12    On 22 September 2006 Donaldson Walsh on behalf of the applicant wrote to Mr Cooper enclosing two copies of the ‘final form of the agreement’ and stating the following:

The agreement is in the form discussed by you with our client, with the following alterations and additions:

•    …

•    the initial term of the engagement in clause 2.2(1) has been changed from ten years to five years (expiring 30 June 2011).

13    The events which took place the day before (that is, 21 September 2006) are a critical part of the applicant’s case. As I understand the applicant’s case it is that by 21 September 2006 the parties had reached a common position except for the term of the contract. The applicant’s position was that it wanted ‘a minimum initial period of not less than 10 years’. On that day Drs Wolianskyj and Kay and representatives of the respondent (Messrs Thorley and Cooper) met and agreed the term of the contract in terms of clause 2.2 subject to an express condition that:

… the Respondent would not give notice to terminate the term of the engagement of the applicant in accordance with the contract unless the Respondent intended to close, and not to operate, or permit the operation of, the Emergency Centre, or another emergency centre, in the Hospital.

The applicant referred to this condition in its Statement of Claim as the termination condition.

14    As I read the Statement of Claim the applicant’s case is that the contract between it and the respondent including the termination condition was made on 21 September 2006. The written contract executed thereafter embodied the contract except that it did not include the termination condition. The failure to include the termination condition was said to be an error.

15    The contract made between the parties in 2006 contained provisions for the applicant to carry out improvements to the Emergency Centre. In 2008 there were discussions between the parties about the applicant carrying out the improvements. It is not necessary for me to set out the details. The important allegation made by the applicant is that during the discussions the respondent agreed that it would not terminate or give notice to terminate the term of engagement of the applicant in accordance with the contract made in 2006 unless it intended to close, and not to operate, or to permit the operation of, the Emergency Centre, or another emergency centre, in the Hospital, and that the term of the contract made in 2006 would roll over for a further term of five years commencing on 1 July 2011.

16    It is common ground that the respondent does not intend to close the Emergency Centre.

17    The applicant pleads a number of causes of action based on the statements made by representatives of the respondent in September 2006 and in March 2008. Significantly, it claims rectification of the written contract. In addition, it pleads collateral contract, estoppel, misleading or deceptive conduct and unconscionable conduct. It also pleads reliance in relation to the various representations and undertakings it identifies in its Statement of Claim.

18    As far as the applicant’s plea of rectification is concerned it is not clear whether it is alleging a common mistake or merely a unilateral mistake on its part. For present purposes it does not matter because the important point is that the applicant is alleging that at the time of the execution of the written contract it was labouring under a mistake as to the provisions it contained. In considering whether there is a mistake the Court examines the actual intention of the relevant party (and the other party if the case is one of common mistake) (Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 667-668). Nor is it clear from the applicant’s pleading whether its case is that it was mistaken about the contents of the written contract or misapprehended its effects (In Re Butlin’s Settlement Trusts [1976] Ch 251 at 260-261 per Brightman J). The applicant’s pleading is as follows:

20.    In error, the Agreement document does not contain the Termination Condition, and does not record the 2006 Contract to the extent that it does not contain Termination Condition.

19    This plea suggests that the applicant’s case is of the former type but, as I have said, it is not entirely clear.

20    The High Court considered the common law principles of implied waiver in Mann v Carnell (1999) 201 CLR 1. The question of implied waiver is not decided by reference to the subjective intention of the party claiming privilege. It is to be decided by determining whether there is inconsistency between a claim for confidentiality and the conduct of the party claiming that confidentiality. The test is not one of fairness although fairness informs the consideration of whether there is inconsistency. Section 122(2) of the Evidence Act 1995 (Cth) also embodies a test of inconsistency although on its face it does not apply to a pre-trial process (Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49) and hence this application. Whether s 122(2) is relevant on this application by reason of O 33 r 11 of the Federal Court Rules was mentioned but not argued in any detail. I think I can proceed on the basis that the test is one of inconsistency, whether the application is to be decided by reference to the common law principles or s 122(2), and that for present purposes there is no difference between the two.

21    In Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 (‘Telstra’) at 168, Branson and Lehane JJ suggested that if a party’s state of mind (including the quality of the party’s assent to a transaction) was an element of that party’s cause of action, then the party is taken to have waived privilege in respect of legal advice which the party received before or at the time of the relevant events which was material to the formation of that state of mind.

22    Subsequent authorities, however, suggest that something more need be shown before the Court will hold that there has been an issue waiver.

23    In Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 (‘Rio Tinto’) the Full Court of this Court formulated the test for issue waiver as follows (at 360 [65], 361 [68]):

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

…

In this case, everything turns on the particulars given by the Commissioner in response to Rio’s request. The question is whether, by his particulars, the Commissioner made an assertion as part of his case that puts the contents of the privileged scheduled documents in issue, or necessarily lays them open to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege. To answer this, the relevant assertions must be considered in their proper context.

24    In Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 (‘Chen’), Gzell J (with whom Bryson JA and Windeyer J agreed) said at [41]):

In a case like the present one in which reliance upon representations is alleged, questions such as the following need to be explored: Were representations made to the party by or on behalf of the opponent? Does the party say that he or she relied upon the representations and altered his or her course of conduct? Is reliance upon the representations a central, or merely peripheral, aspect of the party’s case? Is it likely that the party received legal advice that had a bearing on the allegation of reliance? Was it likely that the legal advice might raise doubts as to the allegations of reliance or any loses or damage alleged to have been suffered?

25    I would not read what the Full Court said in Rio Tinto as precluding the type of approach taken by Gzell J in Chen. In fact the Full Court followed the approach taken by Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 and his Honour in turn referred without demur to certain observations of Hodgson CJ in Eq (as his Honour then was) in Wayne Lawrence Pty Ltd v Hunt [1999] NSWSC 1044. At [11]-[12] Hodgson CJ in Eq formulated an approach not dissimilar to that identified by Gzell J in Chen.

26    The applicant’s case is that the contract was made on 21 September 2006 and that one of its principal concerns in the negotiations leading up to the contract was to obtain the respondent’s agreement to a 10-year term. It is clear that in the period leading up to 21 September 2006 the applicant had taken advice from its solicitors and it is a reasonable inference that the advice included advice about the term of the agreement. It is clear that communications passed between the applicant and its solicitors on 21 September 2006 and on 22 September 2006. The applicant’s solicitors sent an unexecuted copy of the written contract to the respondent the day after the alleged agreement about the termination condition was reached and they had changed the proposed term from ten years to 5 years. They referred to discussions between their client and the respondent.

27    To my mind this is a clear case of waiver. The applicant by its plea of rectification alone has necessarily laid open to scrutiny the communications between it and its solicitors on 21 September 2006 and 22 September 2006. Alternatively the answers in this case to the questions posed by Gzell J in Chen firmly support a conclusion of waiver. In the particular circumstances of this case there has also been a waiver in relation to the communications between 5 June 2006 and 17 September 2006. Those particular circumstances are that the applicant is advancing those negotiations and its consistent stance throughout the negotiations in support of its case as to what occurred on 21 September 2006.

28    On the other hand, I did not order production of the communications in December 2006. That was well after the relevant events and I was not satisfied that the applicant had by its conduct necessarily laid such documents open to scrutiny.

Associate:

Dated:    27 July 2011