Federal Court of Australia

Vitruvian Investments Pty Ltd v Sharif [2023] FCA 471

ORDERS

THE COURT ORDERS THAT:

1.    The defendant's interlocutory application dated 26 April 2023 is dismissed.

2.    Costs reserved.

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

REASONS FOR JUDGMENT

JACKSON J:

1    These reasons concern an interlocutory application by the defendant, Mr Sharif, for production of certain documents which the plaintiff, Vitruvian Investments Pty Ltd, has discovered. Vitruvian claims legal professional privilege over the documents. Mr Sharif accepts that the documents were subject to legal professional privilege when they came into existence, but says that the privilege has since been waived. Vitruvian accepts that it has waived privilege over one relevant document, but it does not accept that the waiver extends to these particular documents.

2    In accordance with common practice, Colvin J, before whom the matter is listed for trial, has referred the interlocutory application to a different judge to inspect the disputed documents so as to determine whether the waiver does extend to each of them. The application was thus referred to me and by the consent of all concerned, I have determined it on the papers, including with the benefit of the transcript of a hearing before Colvin J on 4 May 2023.

3    I adopt and do not repeat the background Colvin J gave in Sharif v Vitruvian Investments Pty Ltd [2023] FCA 426 at [1]-[3]. That judgment was given in a different proceeding, WAD 127 of 2022, where Mr Sharif sought relief under the Corporations Act 2001 (Cth) in relation to alleged oppressive conduct by Vitruvian. This proceeding is related to that one, being the one which his Honour describes (at [2]) where Vitruvian seeks declarations that a cancellation of Mr Sharif's shares in Vitruvian and subsequent transactions were not invalid.

4    The waiver of privilege has occurred as a result of a plea in Vitruvian's statement of claim. The present version of that pleading is a draft dated 15 July 2022; his Honour has given leave to amend in terms of the draft. Paragraph 52 of the statement of claim pleads that in cancelling Mr Sharif's shares in Vitruvian, Vitruvian acted honestly at all times. In his defence, Mr Sharif denies this. Vitruvian has thus put its state of mind in issue, a step which is capable of giving rise to a waiver of legal professional privilege over documents that are relevant to that issue.

Principles

5    This is a question of discovery, so the common law applies rather than the Evidence Act 1995 (Cth): Esso Australia Resources Limited v Commissioner of Taxation (Cth) [1999] HCA 67; (1999) 201 CLR 49 at [16]. The basic principle, laid down in Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at [29], is that an implied waiver of legal professional privilege arises if there is inconsistency between the conduct of the client whose privilege it is and maintenance of the confidentiality of the communications over which privilege is claimed. In assessing whether such inconsistency exists the Court will, where necessary, be informed by considerations of fairness, but the waiver does not come about by way of some overriding principle of fairness operating at large.

6    'Issue waiver', as the present kind of waiver is called, is a form of implied waiver: Commissioner of Taxation v Rio Tinto Limited [2006] FCAFC 86; (2006) 151 FCR 341 at [43]. Relevantly here, the waiver comes about because Vitruvian's conduct in pleading that it acted honestly in cancelling the shares is inconsistent with the continued confidentiality of certain legal advice, because Vitruvian's plea has necessarily put in issue the character or contents of that advice: see Rio Tinto at [54]. Or, as it was put in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 168, where a party relies on a cause of action, an element of which is the party's state of mind, the party is taken to have waived privilege in respect of legal advice which the party had before or at the time of the relevant events that is material to the formation of that state of mind. Another way of describing what happens when there is an implied waiver may be found in the judgment of Allsop J (as he then was) in DSE (Holdings) Pty Limited v Intertan Inc [2003] FCA 384; (2003) 127 FCR 499 at [58]:

… the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication. …

(original emphasis)

7    However it is described, inconsistency is at the heart of the enquiry: Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 6) [2019] FCA 337 at [24] (Stewart J); see also Poland v Hedley [2023] WASCA 69 at [76] (Quinlan CJ, Murphy and Beech JJA). Whether privilege has been waived does not involve any balancing of competing public interests: Telstra at 167. It is not an exercise of discretion. It is a conclusion of law when the necessary facts are established: Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326, quoted in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 at [31].

8    That does not mean, however, that the waiver operates on every piece of legal advice which may have played a part in the formation of the state of mind: see Telstra at 167. It is true that it is not necessary for the client to specifically plead the advice or its contents; 'it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind': Council of the New South Wales Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236 at [48] quoted with approval and emphasis in Macquarie Bank Limited v Arup Pty Limited [2016] FCAFC 117 at [32] (Middleton, Robertson and Gleeson JJ). It can be enough that the state of mind that is put in issue concerns an understanding of legal rights: see Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd [2015] VSCA 101 at [46]. But as the discussion of that case in Arup demonstrates (at [38]-[40]), and as the Full Court in Rio Tinto emphasised (at [58]-[59]), it always depends on the particular facts: see also Osland v Secretary to the Department of Justice [2008] HCA 37; (2008) 234 CLR 275 at [45]. Questions of waiver are matters of fact and degree: Osland at [49].

9    Where a party seeks to withhold only part of a document, for example by redacting it, the assessment of inconsistency is likely to include a consideration of whether or not the disclosed or undisclosed parts cover different subject matter. That is because, if they cover the same subject matter, disclosure of only part of the document may lead to the meaning or import of the disclosed part being distorted or inaccurately perceived: Spirits International at [25]. For reasons given by Stewart J in Spirits International (at [26]-[29]), the test is not so rigid as to require that the subject matter of the redacted part of a document must be entirely different to the subject matter of the unredacted part, if the redaction is to stand. But the extent of the difference will inform the assessment of inconsistency, as will any forensic unfairness in allowing a party to assert a particular case without disclosure of the communication in question.

10    Mr Sharif submits (written reply submissions paragraph 2):

Where material is deployed that would otherwise be privileged, the Court and the opposite party must have the opportunity to be satisfied that what the party has released from privilege represents the whole of the material relevant to the issues and not merely a fragment.

The submission is footnoted to Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia S.R.L. (No 10) [2015] FCA 763; (2015) 235 FCR 593 at [14]-[16] (Besanko J), which in turn (nested within quotes from other cases) quotes from and emphasises the importance of the following passage from Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corporation (No 2) [1981] Com LR 138 where Mustill J said:

… where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.

11    But it would be unwise to, in turn, pluck that passage out of context, and elevate it to a principle giving the opposing party a right to scrutinise other potentially relevant material, or requiring production unless that party or the Court is satisfied that all relevant material has been produced. As is made clear above, mere relevance to an issue in the proceeding is not enough; certainly not the level of relevance that requires a document to be discovered: see Arup at [41]. Mustill J's observations were made in the context of a ruling on the effect of a party seeking to deploy part of a document in cross examination. Properly understood, the passage from Nea Karteria merely refers to the inconsistency that can arise when a party deploying (and so producing) privileged material does so selectively, and in a manner which does not permit the true import of the material deployed to be understood.

12    At the hearing before Colvin J, counsel for Mr Sharif accepted that in these circumstances, the Court and not the opposing party would inspect the documents. I have not inspected them by reference to some asserted principle that the test is whether the material produced 'represents the whole of the material relevant to the issue in question'. I have inspected them by reference to the principles I have summarised above.

The plea that gave rise to waiver

13    In the present case, Vitruvian's plea as to its state of mind does not refer to any specific legal advice. Paragraph 52 of the statement of claim does, however, squarely enlist in support of the plea of honesty Vitruvian's understanding of the legal position with respect to the cancellation of Mr Sharif's shares. The matters it pleads are:

52.1    Vitruvian did not know the specific procedures contemplated by ss 256B or 256C of the Corporations Act;

52.2    Vitruvian did not know the method it had employed to cancel the shares by a director's resolution was not a cancellation within the terms of ss 256B or 256C;

52.3    Vitruvian believed the cancellation of the shares was effected as part of the rescission of the Agreement but was aware there was a risk that Mr Sharif could challenge these actions; and

52.4    Vitruvian reasonably believed, on the basis of the email referred to in paragraph 48 above, that any challenge by Mr Sharif in regards to the rescission of the Agreement would be without merit and would be unsuccessful.

14    The 'Agreement' is an agreement in which, Vitruvian alleges, it agreed to issue Mr Sharif's shares, and in turn engaged Mr Sharif to perform certain services. Vitruvian pleads at paragraph 50 that it rescinded the Agreement on the basis (broadly) that it was misled. Paragraph 48 of the statement of claim pleads an email by which, Vitruvian claims, it became aware that Mr Sharif had engaged in relevant misleading or deceptive conduct.

15    It does not, however, follow that Vitruvian has only waived privilege in communications that are relevant to the specific matters pleaded at paragraphs 52.1 to 52.4 of the statement of claim. It has put its honesty in acting to cancel the shares in issue, and Mr Sharif is not confined to contesting that honesty by reference only to the matters on which Vitruvian relies. After all, implied waiver on the part of a plaintiff can arise even when the plaintiff's state of mind is raised as an issue by a defendant, necessarily in response to a claim made by the plaintiff: see the discussion of Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 in Rio Tinto at [48]-[49].

The parties' positions in the interlocutory application

16    Mr Sharif's interlocutory application sought production of three categories of documents, but the third is no longer pressed, so it is only necessary to consider the first two. The first is a set of about 20 documents, all but one of which are emails. Mr Sharif submits these are relevant to Vitruvian's state of mind when it cancelled the shares. The one document in this category which is not an email is a draft proof of evidence of an officer of Vitruvian, Jonathan Gregory, dated 25 June 2020. Mr Sharif says that the document descriptions given by Vitruvian when it discovered the documents in this category reveal them to be legal advice about Mr Sharif's shares, which is likely to have affected Vitruvian's state of mind as to the legal position concerning cancellation of the shares.

17    The second category contains one document sought: an unredacted version of a letter of advice dated 29 June 2020 from Bennett + Co (as the firm was called then) to Vitruvian. Vitruvian accepts that there has been a waiver, because in Mr Gregory's filed witness statement he says that in cancelling the shares, Vitruvian relied on that written advice. So the letter has been produced to Mr Sharif, but in redacted form. Mr Sharif challenges the redactions. He refers to the headings of the redacted parts (themselves unredacted) as 'Additional Share Issue - Debt to Equity Conversion' and other evidence, to the effect that Bennett + Co advised Vitruvian as to what it should or could do after cancelling the shares. Mr Sharif submits (written submissions para 23) that if there was 'a plan under which Mr Sharif's shares would be cancelled and then his former shareholding diluted, this may lead to a finding that Vitruvian did not act honestly. As a result of the redactions, only part of the plan has been disclosed'.

18    Further, Mr Sharif submits that by relying on the advice, Vitruvian has laid open to scrutiny the instructions it gave to Bennett + Co, because legal advice is only as good as the assumptions on which it is based. Those instructions, Mr Sharif submits, include Mr Gregory's draft proof of 25 June 2020.

19    Vitruvian's main submission is that the disputed documents, including the redacted parts of the advice of 29 June 2020, are not relevant to the issues arising out of its plea as to its state of mind. It accepts that it has waived privilege over advice received by Mr Gregory and Vitruvian in relation to the matters pleaded at paragraph 52 of its statement of claim, which are set out above. So, it says, it has produced advice that Mr Gregory and Vitruvian received regarding the cancellation of Mr Sharif's shares. But mere 'chronological coincidence' of advice and establishment of the relevant state of mind is not enough: see Liquorland (Australia) Pty Ltd v Anghie [2003] VSC 73; (2003) 7 VR 27 at [41].

20    Mr Sharif, in turn, relies on the subject lines of emails that are among the disputed documents, in order to submit that there is more than chronological coincidence between them and the formation of Vitruvian's state of mind.

Consideration of the disputed documents

21    The course that has led to this judgment - a different judge inspecting the documents - permits the application to be determined on a firmer footing than the making of inferences from headings or subject lines in emails, so it is not necessary to descend into the detail of the parties' submissions about those matters. But in the circumstances it is necessary to express reasons as to the specific documents in dispute only in the most general of ways, so as not to disclose their contents and so erase the privilege that is claimed.

22    As such, and having inspected the disputed documents with the above principles in mind, I now express my reasons in relation to the documents that are the subject of the first part of the interlocutory application in summary form, using the numbers given to them in the schedule to the application (which starts at number 5):

(1)    Document 5 does not touch on cancellation of shares. It concerns a different proposal to resolve the situation (whether perceived or actual) between Mr Sharif and Vitruvian.

(2)    Documents 6 to 8 concern two further proposals to resolve that situation. The relationship between those proposals and Vitruvian's state of mind when it cancelled the shares is at most indirect.

(3)    Documents 9 to 13 and 15 concern the logistics of and the proposed subject matter of a meeting with a lawyer (and others). But they say nothing specific about the subject matter of the meeting, or what may have occurred at such a meeting. Document 16 is in the same vein and also contains a comment from Mr Gregory concerning a course of action he was contemplating that had nothing to do with the cancellation of Mr Sharif's shares.

(4)    Document 14 does record proposals that appear to have been discussed at the meeting which may have been intended, in part, to resolve the situation between Mr Sharif and Vitruvian. However, once again the relationship between those proposals and Vitruvian's state of mind when it cancelled the shares is at most indirect.

(5)    Documents 17 to 22 also concern proposals which may have resolved the situation, but also appear intended to address other matters. Once again, the relationship between these and Vitruvian's state of mind when it cancelled the shares is at most indirect.

(6)    Document 25 is Mr Gregory's draft proof of evidence. (There are no documents 23 or 24.). The contents of the draft proof do not bear directly on the cancellation of the shares and do not touch on Vitruvian's reasons for the cancellation or its state of mind at the time. Chronologically, it stops before the email pleaded in paragraph 48 of the statement of claim which is alleged to have led to the rescission of the Agreement and the cancellation of the shares. The proof therefore does not address the events which Vitruvian alleges led to the cancellation or informed its state of mind at that later time. Nor can I see any likelihood that the draft proof informed the unredacted advice dated 29 June 2020 from Bennett + Co to Vitruvian.

(7)    Document 26 is an email with the subject line 'Re: It's starting!'. On the face of the email, what was 'starting' had nothing to do with the cancellation of the shares. And, as Vitruvian's solicitors advised Mr Sharif's solicitors, the email chain also concerns intellectual property advice from a registered patent attorney. That advice had nothing to do with the cancellation of the shares.

23    On the basis of these necessarily limited descriptions of the documents, and of my reading of the documents themselves, I see no inconsistency between maintaining the confidentiality of the documents and asserting that Vitruvian acted honestly when it cancelled Mr Sharif's shares. That is so even though, as I have indicated, I have approached the question on the basis that the issue of Vitruvian's honesty is potentially wider than the matters pleaded at paragraphs 52.1 to 52.4. Even within that wider frame of potential relevance, I do not consider that the contents of the documents are so relevant to Vitruvian's state of mind when it cancelled the shares so as to necessarily lay the documents open to scrutiny. I say that having taken into account any potential forensic unfairness to Mr Sharif if he is forced to dispute Vitruvian's allegation of honesty without being able to inspect the documents. I do not consider that such unfairness arises.

24    Turning to the redactions of the letter of advice dated 29 June 2020, I have read the letter as a whole including the passages that have been redacted in the version of it that has been produced for inspection. It cannot be said that the subject matters of the unredacted parts - namely a proposal to cancel Mr Sharif's shares - is entirely different to the subject matter of the redacted passages. They all concern aspects of the dispute between Mr Sharif and Vitruvian, or Vitruvian's share capital. But as stated above, it is not necessary for the subject matter of a redacted part to be entirely different to that of the unredacted part in order for the redaction to stand. The test is, once again, inconsistency, informed by asking whether it would distort or otherwise lead to an inaccurate understanding of the unredacted parts if the redacted parts continue to be withheld from Mr Sharif (and from the trial judge).

25    I do not consider that it would. The redacted parts are sufficiently separable from the unredacted parts to mean that it is possible to arrive at a complete and accurate understanding of the unredacted part without reference to the redacted parts. While it is possible to describe all parts of the letter at a level of generality that reveals some commonality of subject matter, there is no inconsistency in Vitruvian asserting that it acted honestly when it cancelled the shares and at the same time withholding the redacted parts of the letter from Mr Sharif and the Court. To the extent that the redacted parts concern steps that Vitruvian may take after the proposed cancellation, I do not consider that they bear upon any possible 'plan under which Mr Sharif's shares would be cancelled and then his former shareholding diluted', to repeat the words of Mr Sharif's written submissions. The redactions will be permitted to stand.

26    The result is that the interlocutory application will be dismissed. Colvin J reserved the costs of the hearing of the interlocutory application and to the extent that the parties have incurred any further costs in the application after that hearing, they too will be reserved to his Honour.

Associate:

Dated:    15 May 2023