FEDERAL COURT OF AUSTRALIA

Crisp, in the matter of ACN 069 895 585 Pty Ltd (in liq) v ACN 069 859 585 Pty Ltd (in liq) [2012] FCA 148

In the matter of ACN 069 859 585 Pty Ltd (In Liquidation)

THE COURT ORDERS THAT:

1.    The following aspects of the second defendant’s amended interlocutory application dated 18 November 2011 be stood over, with the parties having liberty to apply on 7 days’ notice:

(a)    so much of para 1 thereof as relates to Sched 3 of the plaintiff’s List of Documents dated 13 September 2011; and

(b)    para 2A thereof.

2.    Save as aforesaid, the said application be dismissed.

3.    The second defendant pay the plaintiff’s costs.

4.    The parties have leave to apply, within 7 days, for the revocation or variation of the previous order.

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

In the matter of ACN 069 859 585 Pty Ltd (In Liquidation)

REASONS FOR JUDGMENT

1    The plaintiff, Glenn Anthony Crisp, was the liquidator of ACN 069 895 585 Pty Ltd (In Liq), formerly known as Waterman Collections Pty Ltd (In Liq) (“Waterman”) between 11 July 2006 and his resignation as such on 7 October 2009. In the present proceeding, which was commenced by originating process and affidavit on 30 July 2010, the plaintiff seeks an order for his remuneration pursuant to s 473(3)(b)(ii) of the Corporations Act 2001 (Cth). By order made on 21 September 2010, Waterman and Insurance Australia Limited (“IAL”) (a creditor in the liquidation) were added as defendants in the proceeding. On 12 October 2010, IAL filed a statement of its grounds of objection to the application made in the proceeding. By an order made on 8 December 2010, the court ruled that the plaintiff had standing to apply under ss 504 and 511(1) of the Corporations Act.

2    On 17 May 2011, the court ordered that the plaintiff and IAL make discovery in accordance with O 15 of the Federal Court Rules as they then existed. That order, which was limited only to the extent of absolving each party from the obligation to make discovery of any document that had already been provided to the other party, required the plaintiff to make discovery of documents upon which he relied, of documents that adversely affected his own case, of documents that adversely affected another party’s case and of documents that supported another party’s case: O 15 r 2(3). On 24 June 2011, the plaintiff gave discovery in accordance with that order. In so doing, the plaintiff claimed privilege for documents which constituted confidential communications between himself and his advisers, and were solely for the preparation of his case in this proceeding.

3    By interlocutory application filed on 8 August 2011, IAL sought orders which would require the plaintiff to produce for inspection all documents containing communications relating to his claim in this proceeding for remuneration for legal costs over which there was a claim for privilege. That application came before the court on 16 August 2011, but the proceedings on that day were inconclusive. The court ordered that the rules in force immediately before 1 August 2011 continue to apply to the plaintiff’s obligation to give discovery pursuant to the order made on 17 May 2011, and that the date by which the plaintiff was to comply with that order be extended to 30 August 2011, later (on 7 September 2011) further extended to 13 September 2011. The further hearing of IAL’s interlocutory application was adjourned.

4    As it happens, it was on 14 September 2011 that the plaintiff filed a further, consolidated, list of documents pursuant to his discovery obligations under the order of 17 May 2011. In that list, the documents set out in Sched 1 were those which the plaintiff then had in his possession, custody or power. There were 1083 such documents. Of those, 567 documents or identified groups of documents, set out in Part 2 of the schedule, were the subject of a claim of privilege from production. They were said to be privileged on the ground that they were confidential communications between the plaintiff and his advisers in their professional capacity, and were solely for the preparation of the plaintiff’s case in:

    this proceeding (10 items);

    proceeding No VID 169 of 2008 in this court (128 items);

    proceeding No NSD 638 of 2009 in this court (362 items);

    an unidentified proceeding in the Supreme Court of NSW (5 items);

    a contemplated proceeding against Waterman’s fidelity insurer (4 items); and

    a contemplated proceeding against the solicitors Mills Oakley and others (42 items).

I appreciate that these numbers are short by about 16 of the total number of documents set out in part 2 of Sched 1 in the plaintiff’s list, but the above represents the way the claim for privilege was formulated in that list.

5    The claim for privilege advanced with respect to the first group of documents identified above is uncontroversial. It relates to professional communications connected with the present proceeding, and was not ultimately the subject of any challenge by IAL. However, documents in the other groups relate to proceedings, or contemplated proceedings, to which the plaintiff was, or would have been, a party in the course of the liquidation. IAL challenges the claims for privilege made in respect of those documents, and categories of documents. That challenge is based upon the proposition that, by issuing this proceeding, the plaintiff has waived the privilege which would otherwise attach to the documents in question. He has, it is said, placed directly on the table as an issue in the proceeding the reasonableness of the costs which he incurred in seeking and obtaining the professional services to which the documents relate, and it would be inconsistent with that conduct to continue to assert privilege, as against IAL, with respect to those documents: Mann v Carnell (1999) 201 CLR 1, 13 [28]. According to the case of IAL, no inquiry with respect to the purpose, content or context of any particular document is either necessary or appropriate: the nature of the case being advanced by the plaintiff necessarily involves such inconsistency.

6    The principles by reference to which a party will be held to have implicitly waived what would otherwise be a legitimate claim for privilege were extensively considered by the Full Court in Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341. Their Honours said (151 FCR at 356 [52]):

These authorities show that, where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication.

In the facts of that case, the appellant Commissioner had filed a statement of facts and issues, which the then respondent considered to be inadequate. It requested particulars, including a request that the Commissioner state the facts, circumstances and matters that had been taken into account in exercising certain discretions. After some further correspondence and subject to objections, the Commissioner referred to schedules of more than 500 documents which evidenced the matters which had been taken into account. These documents included some – ultimately eight in number – over which a claim of privilege was proper to be made, and was made. The Full Court held that the maintenance of that claim was necessarily inconsistent with the Commissioner’s reliance upon the contents of the documents referred to in his response to the respondent’s request for particulars. In stating the question to be addressed, the Full Court said (151 FCR at 361 [68]):

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.

7    In deciding Rio Tinto, the Full Court made a distinction which, in my view, is of some importance. The first situation to which their Honours adverted – which was necessarily, in the circumstances, hypothetical – is indicated by the following passage in their reasons (151 FCR at 362 [71]):

If the particulars merely disclosed that the Commissioner took into account legal advice in reaching his state of satisfaction and exercising his discretions, then that disclosure would not be inconsistent with the maintenance of privilege.

The second situation was the one which aligned more closely with the facts of the case, and was referred to by the Full Court as follows (151 FCR at 362 [72]):

The Commissioner has not, however, simply said that the eight privileged scheduled communications were relevant to reaching his state of satisfaction or exercising his discretions. Nor has he said that he took them into account in so doing. We interpolate that a document may be relevant to a decision without evidencing any matter taken into consideration in the making of it (as, eg, an instrument conferring authority to make the decision). The Commissioner could have identified his bases for satisfaction and exercises of discretion by listing the matters he took into account in each case, but he did not do so. Instead, he identified his bases for satisfaction and exercises of discretion as the matters evidenced in the scheduled documents. In so doing, the Commissioner did more than make an assertion about the relevance of these communications. In his particulars, the Commissioner has said that he took into account the matters evidenced by numerous documents, including the eight privileged scheduled documents. In so doing, the Commissioner has made an assertion that puts the contents of these eight documents in issue, or necessarily lays them open to scrutiny, with the consequence that there is an inconsistency between the making of the assertion and the maintenance of the privilege.

That is to say, there was a distinction between a statement by the Commissioner that he had taken into account legal advice in exercising his discretion, on the one hand, and a statement by him that he took into account the matters evidenced by the documents in question. In the latter situation, but not in the former, the party otherwise entitled to claim privilege should be seen as having made an assertion not merely about the relevance of the documents, but about their contents, in a way which necessarily laid those contents open to scrutiny.

8    In the present proceeding, the plaintiff’s case is based upon the broad proposition that incurring certain legal expenses, and seeking and obtaining certain legal services, were necessary elements of his conduct of the liquidation of Waterman. IAL asserts that the plaintiff’s case necessarily involves express or implied assertions that the legal costs were in fact incurred by the plaintiff; that those costs were incurred by him as liquidator; that the costs concerned advice and other legal work relating to matters properly the subject of the liquidation; that none of the costs were referable to work or advice concerning any matter that could not reasonably be charged to the liquidation; that the costs were reasonably incurred, both in nature and in amount; that the fees paid in relation to the legal work, and the legal work itself, were required, and necessary to progress the liquidation; and that the plaintiff acted reasonably upon receipt of legal advice. IAL says that it is entitled, and desires, to test each of those assertions, thereby making them controversial in the proceeding. It says that, by making the assertions, the plaintiff necessarily placed the contents of every document over which a claim for privilege might otherwise lie in issue, and opened them up for scrutiny.

9    Uninstructed by authority, I would not accept IAL’s case in these respects. The proceeding as such is not concerned with the contents of the documents over which privilege would lie as such. For example, the question whether it was reasonable for the plaintiff to obtain, and to pay for, legal advice at a particular point does not necessarily put in issue the nature of the advice received. It may be that IAL would want to test the question of the necessity of obtaining advice by reference to observations, for example, which appear in the advice as given, but the content of the advice would not be regarded as an integer of the plaintiff’s case. It would not be that case, as such, which involved a laying open to scrutiny of those contents.

10    That is not to say that there may not be instances – perhaps many instances – in the various documents over which a privilege claim has been made by the plaintiff where it could be demonstrated, by reference to what is known about the document and the circumstances surrounding its creation, that the claim had been waived. However, IAL’s case on the present occasion specifically eschewed any suggestion that the court should approach its present interlocutory application on a document by document basis. It was submitted that the very nature of the plaintiff’s claim for remuneration and expenses involved a waiver of all legal professional privilege that might otherwise lie. To take such an approach would, in my view, be inconsistent with Rio Tinto. The relevance of documents to an assertion made or a proposition advanced in a particular proceeding is not, of itself, sufficient to give rise to a waiver of the kind presently under discussion. The assertion or proposition must be such as puts in issue the contents of the documents as such. Quite clearly, the plaintiff has not yet taken that step in the present case.

11    The relevant terrain is not, however, free of authority which I should regard as binding. IAL relied on BHP Billiton Petroleum (Bass Strait) Pty Ltd v Esso Australia Resources Pty Ltd [2007] VSCA 224.

12    In that interlocutory application for leave to appeal, the question was whether one of two joint venturers waived its claim for privilege by making a claim for reimbursement by the other in relation to legal costs incurred in the aftermath of a major industrial accident. They were bound by an operating agreement, under which the party claiming the privilege was the operator of the facilities involved. The agreement provided that, with certain exceptions, expenditures made for the joint undertaking were to be borne equally by the parties. Such expenditures included the “costs of litigation or arbitration, reasonable outside counsel fees and payments made in settlement or satisfaction of any such claim” ([2007] VSCA 224 at [3]). The Court of Appeal agreed with the primary Judge that, by making the claim for reimbursement, the operator had put in issue “whether its expenditure on legal costs fell within the operating agreement … [which], in turn, [depended] on the nature and purpose of the legal work which occasioned the payments.” Their Honours took the view that, by making that claim, the operator “made an assertion about the contents of the documents … thereby [laying] the documents open to scrutiny” ([2007] VSCA 224 at [18]).

13    The law which the Court of Appeal applied in BHP Billiton was the same law as governs the present application: indeed, their Honours relied upon Rio Tinto, amongst other cases. Beyond that, BHP Billiton was a decision on the facts. A critical fact was that the parties were joint venturers, that is, co-operators in a single industrial operation. Their obligations to each other were governed by contract. The entitlement of the operator to reimbursement depended not only on the fact of there having been an outlay on legal costs (for example), but upon those costs having been incurred in the joint undertaking. Additionally, because of one of the exceptions for which the operating agreement provided, it was accepted in the case that the operator would have to prove that its legal costs were not incurred as a result of its own gross negligence. The case did, therefore, have a number of particular features which inevitably added to the dynamic of the legal issues involved, and provide cause for caution before applying the same outcome to the more commonplace situation of a liquidator applying for his or her remuneration.

14    Simply because BHP Billiton was decided the way it was is no reason, in my view, for qualifying, or declining to give effect to, the factual conclusions which I have reached above. I am bound by Rio Tinto, and the view I take is that the distinction which the Full Court so clearly made there between relevance as such and placing in issue, as part of a party’s case, the contents of a document is one which, when applied to those conclusions, favours the case being advanced by the plaintiff.

15    I would add that, to the extent that there is an element of discretion involved in the determination of AIL’s interlocutory application, the court ought require a clear case before holding that a liquidator, merely by claiming remuneration, had waived privilege in respect of every professional communication to which the claim related. A liquidator will commonly encounter a need to communicate frankly with legal advisers on various issues that arise in the liquidation. It would, in my view, be regrettable if that process, or the expression of any required advice in writing, were to be discouraged by the prospect that the liquidator’s own later claim for remuneration might be the occasion for the claim of confidence to be lost. Put another way, it would generally not be productive of the progress of the liquidation in an effective and well-informed way if apprehensions about the course of the liquidator’s own later claim for remuneration compromised his or her judgments about obtaining and paying for the legal services that appear to be necessary from time to time. There is nothing hard and fast about considerations of this kind, of course, and I do not suggest that they constitute any reason for declining to apply the law as laid down in Rio Tinto, but they do, in my view, add a dimension to the application of that law where the issue arises in a case of the present nature.

16    The plaintiff’s consolidated list filed on 14 September 2011 also contained Sched 3, which set out documents which were not in his possession, but were described as documents “belonging” to a firm of solicitors whom he consulted. The list did not contain a claim for privilege in relation to these documents in terms, but such a claim was clearly intended. On the hearing of IAL’s interlocutory application, counsel for the plaintiff indicated that they would desire to have the opportunity to discuss Sched 3 – and the proposition that, apart from a claim for privilege, a document is not to be regarded as within a party’s possession or control on the ground that it “belonged” to his or her solicitor – with their client. Pending such discussions, they proposed that this aspect of IAL’s application be stood over, with liberty to apply. Counsel for IAL ventured no opposition to such a course, and I shall adopt it.

17    IAL’s interlocutory application also sought an order that the plaintiff be required to number the copy documents provided to IAL on inspection conformably with the numbering on his discovery list. The need for this expedient arose because, it was said, the form in which copy documents were provided for inspection did not readily enable IAL’s advisers to align those documents with the plaintiff’s list. In the course of the hearing of the application, counsel for the plaintiff indicated that his client would arrange for such numbering to be carried out. Counsel for IAL seemed to be content with that assurance. In the circumstances, I propose to stand over this aspect of IAL’s application also, with liberty to apply.

18    For the above reasons, and subject only to what I have said in the two preceding paragraphs, I shall dismiss IAL’s interlocutory application. In the event that I should dismiss the application, the plaintiff sought his costs. Conventionally, that would be his entitlement, but there might be some circumstance, of which I am unaware, that takes this case out of the ordinary. Also, IAL might wish to be heard on the extent, if any, to which the plaintiff’s presumptive entitlement to costs should be qualified by reference to the matters dealt with in paras 16 and 17 above. I would not wish to be taken as encouraging the view that any such qualification would be justified, but I should not presume that IAL could have nothing of value to put to the court in that respect. In the circumstances, what I propose to do is to give the plaintiff his costs, but to reserve leave for the parties to apply for a revocation or variation of the relevant order, any such application to be made within seven days.

Associate:

Dated:    5 March 2012