FEDERAL COURT OF AUSTRALIA

Hanks v Admiralty Resources NL (No 2) [2011] FCA 1464

THE COURT ORDERS THAT:

1.    The Interlocutory Application dated 30 November 2011 is dismissed.

2.    The Plaintiff pay the Defendant’s costs of the Application, such costs to be taxed in default of agreement.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INTRODUCTION

1    By Orders made on 8 August 2011 (the Orders), the plaintiff, Mr Hanks, and his solicitors were authorised under s 247A of the Corporations Act 2001 (Cth) (Corporations Act) to inspect identified books of the defendant, Admiralty.

2    Relevantly, Category 5 of the Orders permitted the inspection of documents relied on by Admiralty’s directors to make statements to the Australian Stock Exchange (ASX), and at the Extraordinary General Meeting of Admiralty held on 29 October 2010 (EGM), that the offer by Hebei Wefeng Iron & Steel Co Ltd (HWF) was “not a superior offer” to that made by Icarus Derivatives Ltd (Icarus), for the sale of Admiralty’s controlled entity, Vallenar Iron Company.

3    In relation to Category 5 of the Orders, on 24 August 2011 Admiralty’s solicitors informed Mr Hanks’ solicitors that apart from a redacted minute of a directors’ meeting dated 27 October 2010 (which had been produced in the course of defending the application for inspection under s 247A of the Corporations Act and was disclosed under Category 1 of the Orders), and a memorandum of advice to Admiralty from its solicitors dated 27 October 2010 (in respect of which legal professional privilege was claimed) (the Advice), Admiralty had no books falling within Category 5 of the Orders.

4    On 30 September 2011, Mr Hanks’ solicitors wrote to Admiralty’s solicitors seeking production of the Advice on the grounds that:

1.    Admiralty had, by its reliance on the Advice at the EGM and in its subsequent presentation to shareholders at the Annual General Meeting of Admiralty held on 30 November 2010 (AGM), waived privilege in the Advice; and

2.    even if privilege had not been waived:

2.1    it was not a requirement that an order under s 247A of the Corporations Act be framed to exempt from its ambit anything in respect of which legal professional privilege either subsisted or was claimed;

2.2    the Orders did not exclude documents subject to a claim for legal professional privilege;

2.3    the existence of the Advice and the relevance of it to the matters the subject of the investigation for which access to Admiralty’s books was granted, was squarely within contemplation in the application for inspection;

2.4    no objection was taken at the application for inspection to producing privileged documents;

2.5    the privilege protected communications between Admiralty and its solicitors, not between its solicitors and Admiralty’s directors. Mr Hanks had been granted access to Admiralty’s books solely for the purpose of assessing whether or not to pursue an action against Admiralty’s directors under Pt 2F.1A of the Corporations Act. Such an action would be brought on behalf of Admiralty itself and Mr Hanks accessing the advice would not abrogate legal professional privilege; and

2.6    the Orders provided that Mr Hanks not communicate or disclose information obtained as a result of the inspection to any persons except to his legal advisers and such other persons necessary to enable him to determine whether to apply for leave pursuant to s 237 of the Corporations Act. Accordingly, the terms on which access had been granted were consistent with the maintenance of privilege.

5    On 17 October 2011, Admiralty’s solicitors informed Mr Hanks’ solicitors that Admiralty would not produce the Advice and that privilege had not been waived.

6    By interlocutory process dated 30 November 2011, Mr Hanks seeks an order permitting him to inspect the Advice. It is common ground that the Advice is privileged.

7    The questions that arise for determination on this application are:

1.    whether Admiralty has waived privilege in the Advice;

2.    alternatively, whether an Order made under s 247A of the Corporations Act must exclude from its ambit any document in respect of which a claim to legal professional privilege is validly made;

3.    if the answer to (2) above is no, whether as a matter of discretion Mr Hanks should be permitted to inspect the Advice.

For the reasons that follow, the answer to each question is “No”.

ANALYSIS

Has Admiralty waived privilege?

8    Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client, in this case Admiralty, who is entitled to the benefit of such confidentiality and who may relinquish (or “waive”) that entitlement. Whether privilege has been waived depends on whether, viewed objectively and informed by considerations of fairness, there is an inconsistency between the conduct of the client and the maintenance of the confidentiality which the privilege is intended to protect. If that question is answered affirmatively, then waiver is “imputed by operation of law”: Mann v Carnell (1999) 201 CLR 1 at [28]-[29].

9    Disclosure of a privileged communication will not necessarily of itself breach privilege. Voluntary disclosure to a third party may, but need not, result in a waiver: Mann v Carnell at [30]-[32]. Where the privilege holder retains full control as to the further dissemination of a document, there is limited waiver only: Cadbury Schweppes v Amcor Ltd (2008) 246 ALR 137 at [17]-[18].

10    Whether waiver has occurred is a question of fact and degree: Osland v Secretary to the Department of Justice (2008) 234 CLR 275 at [93]; Bennett v Chief Executive Officer of the Australian Customs Service (2004) 140 FCR 101 at [12]; Nine Films and Television Pty Ltd v Ninox Television Ltd (2005) 65 IPR 442 at [26]. The critical question is whether the “substance” or “effect” of the legal advice has been disclosed. Whether that has occurred by the disclosure of a conclusion expressed in legal advice, without disclosing the reasons, depends upon a consideration of the whole of the context in which that occurs: Osland at [34] and [49]-[50].

11    In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12, Rolfe  J stated (at 19) that:

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. Some advices may be very short and answer the question with a minimum of reasoning or, in some circumstances, without any.

(Emphasis added.)

12    In Bennett at [6], Tamberlin J described the issue in the following terms:

The above extracts express the substance of the advice that was given by the Australian Government Solicitor in each of the paragraphs. In my view, it would be inconsistent and unfair, having disclosed and used [emphasis in original] the substance of the advice in this way, to now seek to maintain privilege in respect of the relevant parts of that advice which pertain to the expressed conclusion. It may perhaps have been different if it had been simply asserted that the client has taken legal advice and that the position which was adopted having considered the advice, is that certain action will be taken or not taken. In those circumstances, the substance of the advice is not disclosed but merely the fact that there was some advice and that it was considered. However, once the conclusion in the advice is stated, together with the effect of it, then in my view, there is imputed waiver of the privilege. The whole point of an advice is the final conclusion. This is the situation in this case.

(Emphasis added.)

13    Later, at [13], Tamberlin J stated:

Various expressions are used in the formulation of principles relating to waiver of legal professional privilege, such as references to “the substance”, “effect”, or “content” of the advice. 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 …

(Emphasis added.)

14    What then is the position here? Mr Hanks submitted that waiver of legal professional privilege by Admiralty is to be imputed because Admiralty voluntarily disclosed the substance of the advice to the ASX and to shareholders, and in so doing acted in a manner that is inconsistent with the maintenance of the confidentiality of the Advice. Mr Hanks submitted that there were two acts which resulted in the waiver of privilege:

1.    Two statements made by Admiralty’s executive director, Mr Prior, at its EGM held on 29 October 2010. The minutes of the EGM record that Mr Hanks asked whether, since the announcement of the proposed sale to Icarus, Admiralty had received any other offers. In response, Mr Prior said that Admiralty had received another offer, “which the Board does not believe was a superior offer. As per the agreement with Icarus, [Admiralty] is only to consider any offers that are superior to the Icarus offer”. The minutes then record that Mr Hanks asked further whether the offer was superior and Mr Prior said “the Board has considered the offer and does not believe it is a superior offer. In reaching this conclusion the Board considered legal advice received”.

2.    The statement by Admiralty in its presentation to shareholders at its AGM held on 30 November 2010 (and submitted to the ASX), concerning the letter from HWF containing its offer. The presentation contained the following sentence:

18/10/10 – letter received from [HWF] dated 18/10/20.

27/10/10 – board considered letter and legal advice dated 27/10/10 and concluded that offer was not “a superior offer”.

15    Mr Hanks submitted that each of the statements constituted a waiver for the same reason – each disclosed the gist or conclusion of the advice. That is, each did so because each necessarily implied that the board’s opinion that the offer was not a superior offer was consistent with the legal advice received, because otherwise the reference to the legal advice would serve no purpose.

16    Admiralty, however, submitted that its conduct did not make it inconsistent or unfair for Admiralty to rely upon its right of legal professional privilege to refuse to disclose the Advice. It submitted that the limited disclosure of the existence of the Advice to which Mr Hanks points failed to evidence any disclosure of the effect of that Advice. Admiralty submitted that its purpose in disclosing the fact of the Advice was simply to advise its shareholders that legal advice had been obtained and acted upon.

17    Adapting the analysis of Tamberlin J in Bennett at [6] (see [12] above), it is apparent that Admiralty had “simply asserted that [it had] taken legal advice and that the position which was adopted having considered the advice, [was] that certain action [would] be taken”. The substance of the Advice was not disclosed. The conclusion of the Advice and the course of action recommended by the Advice were also not disclosed. All that was stated was the fact that advice had been obtained and that it was considered. That does not constitute or amount to a waiver of legal professional privilege.

18    There is no inconsistency between disclosing the fact of the Advice and that it was considered for the purpose of reaching the conclusion that the HWF offer was “not a superior offer” and maintaining the confidentiality and privilege in the actual content of the Advice.

Is privilege abrogated by s 247A of the Corporations Act?

19    The principles governing the abrogation of legal professional privilege were extensively discussed in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543. Specifically, the Court explained that:

1.    Legal professional privilege is a substantive right conferred by the common law. It is an important civil right to be safeguarded by the law: Daniels at [9]-[11] and [85]-[87].

2.    It is an elementary rule of statutory construction that courts do not read general words in a statute as taking away rights, privileges and immunities that the common law or the general law classifies as fundamental unless the context or subject matter of the statute points irresistibly to that conclusion. If legal professional privilege is to be abrogated by statute, it must be done clearly; that is, there must be a “clear expression of an unmistakable and unambiguous intention” to abrogate privilege: at [11], [39], [43], [88]-[112], [120]-[122], [132]-[134]; see also Sorby v The Commonwealth of Australia (1983) 152 CLR 281 at 289-90, 309, 311 and 316; Potter v Minahan (1908) 7 CLR 277 at 304; Bropho v Western Australia (1990) 171 CLR 1 at 17-18; Coco v The Queen (1994) 179 CLR 427 at 436-438 and 446; Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 540, 564-565 and 567; Hamilton v Oades (1989) 166 CLR 486 at 495 and Baker v Campbell (1983) 153 CLR 52 at 123 and the authorities there cited.

20    In its terms, s 247A of the Corporations Act fails to express any clear words of abrogation of the privilege, nor is it written in the unmistakable and unambiguous language required to give rise to a necessary implication to that effect. The general words of s 247A of the Corporations Act cannot be read as authorising the production of documents protected by legal professional privilege.

Should the Court exercise its discretion and permit disclosure?

21    Rather than abrogating legal professional privilege, s 247A of the Corporations Act permits the Court, in the exercise of its discretion, to allow a member of a company to inspect the books of a company, on terms the Court may impose under s 247B of the Corporations Act. For example, terms may be imposed which permit inspection of privileged material while still maintaining the privilege: see, by way of example, Finn v Firefast Pty Ltd [2004] QSC 203.

22    Mr Hanks submitted that the Court should, in its discretion, expressly authorise him to inspect the Advice because:

1.    the advice is unarguably relevant and is critical to the transaction the subject of Mr Hanks’ application for inspection. In particular, Mr Hanks referred to the fact that:

1.1    the directors relied on it in communications with the ASX and shareholders in seeking to justify their recommendations concerning the transaction and their non-disclosure of the terms of the HWF offer;

1.2    the minutes of the EGM, at which the HWF offer was considered, also support the conclusion that the Advice was important in the directors’ decision;

2.    depriving Mr Hanks of the Advice would substantially diminish the value and utility of the Court having granted access to inspect Admiralty’s books, notwithstanding that he has made out a clear case for investigation;

3.    the purpose of the grant of access was to enable Mr Hanks to determine whether to apply for leave under s 237 of the Corporations Act and granting access to the Advice would significantly inform that decision one way or the other;

4.    authorising access on the terms sought in the interlocutory process would safeguard the privilege.

23    I accept that the Advice is relevant to the transaction the subject of Mr Hanks’ application for inspection and may be relevant to his decision whether to apply for leave under s 237 of the Corporations Act. I do not accept, however, that access to the Advice is critical to Mr Hanks’ decision whether to apply for leave under s 237 of the Corporations Act. Mr Hanks has access to the offer by HWF and the offer made by Icarus for Admiralty’s controlled entity, the Vallenar Iron Company. The terms of those offers are able to be viewed objectively. There is nothing to suggest that Mr Hanks and his advisers cannot compare the offers and make an assessment of whether the HWF offer was superior or not superior to the offer from Icarus. It is that assessment which is critical to Mr Hanks’ decision whether to apply for leave under s 237 of the Corporations Act and that assessment can be made.

24    A further relevant consideration is the effect of inspection by Mr Hanks. If the inspection was allowed, Admiralty would be deprived of “full control as to the further dissemination of the document” and privilege in the Advice would be lost: see [9] above. I do not accept that conditions of inspection could be imposed which would protect against the privilege being destroyed.

25    Mr Hanks also submitted that where a privileged communication is disclosed to a person with whom the client has a common interest, privilege is not lost. I reject that submission. No common interest exists between Mr Hanks and Admiralty which could preserve the privilege: see Ampolex v Perpetual Trustee Co (1995) 37 NSWLR 405 at 409-410 and Network Ten v Capital Television (1995) 36 NSWLR 275 at 279-283. Admiralty, constituted by its directors, received the Advice for the purpose of reaching the conclusion that the HWF offer was “not a superior offer”: see [18] above. Mr Hanks seeks access to the Advice to assist him in determining whether to apply for leave pursuant to s 237 of the Corporations Act, inter alia, to challenge the conclusion that the HWF offer was “not a superior offer”. Their individual interests in the question are selfish and potentially adverse to each other so that there is not the necessary identity of interest: Ampolex at 410 and the authorities there cited.

26    I therefore decline to exercise the discretion to permit disclosure of the Advice to Mr Hanks.

Associate:

Dated:    16 December 2011