Adelaide Steamship Co Ltd v Spalvins

Circumstances giving rise to motion The motion arises in the following circumstances. The applicants have filed affidavits of Mr Hammer and Mr Lloyd, each of whom gives an account of the conversations said to have occurred at the meeting on 23 February 1994. To Mr Lloyd's affidavit there is annexed a series of letters, mostly from Mr Lloyd to Mr Sunman. In two of those shortly preceding the meeting of 23 February, dated 15 and 21 February respectively, Mr Lloyd refers to discussions with counsel. In the former he says: "We have discussed this matter with Counsel and consequently, have been instructed by our clients not to consent to any partial discharges of mortgages, unless and until, outstanding interest has been paid, pursuant to the terms of the mortgage." In the latter he refers to further discussions with counsel and to a draft letter, said to have been enclosed with Mr Lloyd's letter, suggested by counsel. Then on 22 February Mr Lloyd wrote to Mr Sunman confirming, among other things, discussions to the effect that: "… it is imperative that a meeting be organised between the mortgagees to discuss all matters concerning the default of the registered proprietor/mortgagor of our clients' mortgage and to discuss our clients' instructions and intentions in relation to the continued default by the registered proprietor/mortgagor which may cause our clients to suffer damages." The next (and crucial) letter is one dated 24 February 1994 written by Mr Lloyd to the applicants' counsel. In it, Mr Lloyd informed counsel that his draft letter had been sent to various parties and proceeded to give an account of subsequent events, particularly the meeting on 23 February. Mr Lloyd then informed counsel that the applicants: "… have instructed this morning that they have had a re-think in relation to the whole conduct of the matter and they wish to immediately arrange the mortgagee sale of the remaining lots in the building …." for a number of reasons which Mr Lloyd set out. He sought an urgent conference with counsel for the purpose of considering three questions, the first two of which may be relevant for present purposes: "1. Should there be continued partial discharges of mortgage given by the second mortgagees in relation to exchanged contracts. 2. As there appears to be 7 to 9 partial discharges imminent would it not be logical to accept those moneys but in the meantime give notice to the First Mortgagee that, as there has been default by the Mortgagor, our clients request the First Mortgagee to take possession and to exercise Power of Sale on the 1st March 1994." I was referred, finally, to a later letter in the series, dated 9 March 1994, from Mr Lloyd to Mr Sunman. In it Mr Lloyd discussed various matters, particularly some proposed deeds of priority of which, he said, he had forwarded copies to counsel "for his comments and consideration".

Consideration of argument on the motion The second respondent's contention is that the applicants have lost client legal privilege in respect of advice received from counsel in response to the letter of 24 February 1994, in any advice given by Mr Lloyd or his firm relating to advice given by counsel in response to the letter and any other correspondence or record of communications between the applicants and counsel, Mr Lloyd or his firm in respect of the letter or the meeting of 23 February 1994. The parties accepted, correctly, that the question thus arising is to be answered by applying, derivatively, the Evidence Act 1995 (Cth): Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418. There were two principal points pressed by counsel for the second respondent in support of the motion: one was that the applicants were to be treated, for the purposes of s 122(1) of the Evidence Act, as consenting to the production of records of the advice concerned; the other was that production of the documents is reasonably necessary to enable a proper understanding of the letter to counsel of 24 February 1994: s 126. Counsel for the second respondent appeared to accept that this was not a case of knowing and voluntary disclosure (s 122(2)) of the substance of the advice given. Clearly, in my view, the material before me shows no such disclosure: the questions are revealed but the answers to them, in which the advice no doubt is to be found, are not. Nor does s 126, in my view, assist the second respondent. The letter of 24 February (like the earlier letters) may, in my view, be properly understood without reference to the answers. It may be, of course, that the answers, if revealed, could not be understood properly except by reference to the questions, but that of course is speculation and is immaterial. The substantial question is not whether the questions can be understood without reference to the answers (they can). It is whether by disclosing the questions, and the more general circumstances indicated by the correspondence in which counsel's advice was sought, the applicants must be taken to have consented to the disclosure of the answers. That question, in my view, is to be answered by reference not to s 126 but to s 122(1). Section 122(1) provides as follows: 122(1). This Division does not prevent the adducing of evidence given with the consent of the client or party concerned. The construction and effect of that provision were recently considered by the Full Court of this Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (Beaumont, Branson and Lehane JJ, 24 July 1998, unreported). The High Court has granted special leave to appeal from that decision but for the present it is, of course, binding on me. As a result, I cannot apply without qualification certain observations in Rhone-Poulenc Rorer Inc. v The Home Indemnity Company (1994) 32F 3d 851 at 863, on which counsel for the applicants placed much reliance. Telstra, like this case, had to do with the derivative application of s 122(1) to production following discovery in circumstances where the applicant claimed to have relied on representations alleged to have been misleading or deceptive. The essence of the reasoning of the majority in Telstra may, I think, be found, sufficiently for present purposes, in the following three paragraphs: "A party who initiates an undue influence case puts in issue in the proceeding the quality of his or her consent or assent (Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 per Deane J at 474). The quality of such consent or assent will ordinarily be affected by relevant legal advice received by the party. The principle that requires that in such circumstances the party not be entitled to maintain the confidentiality of such advice is one of fairness which goes to the integrity of the legal process. To allow a party to put in issue the quality of his or her consent or assent whilst, at the same time, withholding evidence relevant to that issue, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to compromise the ability of the court realistically to determine the issue. There is, in our view, little, if any, difference in principle between the undue influence cases, the partial disclosure cases such as Benecke v National Australia Bank, and the "other use" cases such as Attorney-General for The Northern Territory v Maurice and Goldberg v Ng. In the three classes of cases the law implies a consent to the use of the privileged material, or, what is in reality the same thing, a waiver of the privilege, if by reason of some conduct of the party otherwise entitled to the privilege, it would be unfair to the other party, in a way which goes to the integrity of the legal process, for the privilege to be maintained…. …… Where, as in this case, a party pleads that he or she undertook certain action "in reliance on" a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract…. Before returning to the construction of s 122(1) of the Act, some comments should be made, obvious as some of them may be, about the scope and effect of the principle just stated. It does not constitute a broad inroad into legal professional privilege as a "substantive and fundamental common law principle" (Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121 at 122 per Deane J). Nor does it involve any balancing of competing public interests, one in facilitating the application of the rule of law by promoting frank communication between clients and their legal advisers, the other in ensuring that all relevant evidence is placed before a court adjudicating as to the legal rights of parties before it: the recognition of the privilege is itself the outcome of such a balancing process: Waterford v The Commonwealth (1987) 163 CLR 54 at 64-65; Carter at 128. Nor it is a consequence of the principle that whenever a person's state of mind is relevant to an issue in proceedings, privilege is taken to be waived in relation to legal advice that may have played part in the formation of that state of mind (so that the principle does not, for example, deny the authority of Kennedy v Lyell (1883) 23 ChD 387; Lyell v Kennedy (No. 2) (1883) 9 AppCas 81). It is unnecessary and inappropriate, having said those things, to attempt to define exhaustively the scope of the principle. Where, however, a party relies on a cause of action, an element of which is the party's state of mind (including the quality of the party's assent to a transaction) 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, material to the formation of that state of mind. In this case, as in Telstra, the applicants rely on a cause of action, an element of which is the applicants' state of mind. In Telstra, however, material before the court made it clear that the applicant had relied heavily on legal assistance and advice in the negotiation of an agreement which included provisions, advice on which was plainly likely to have been material to the formation (and genuineness) of the applicant's claimed state of mind. Here, by contrast, it is by no means obvious that answers to the questions asked in the letter of 24 February would be material to the applicants' state of mind in relation to the representations said to have been made to them. Certainly it is possible - no doubt it is not certain - that the advice given by counsel suggested matters other than the representations which might be taken into account in deciding upon an appropriate course of action: but if that is so, I do not think the principle for which Telstra stands would impute to the applicants a consent to disclosure of the advice and I do not think I would be justified in accepting an argument that the principle should extend so far. After all, client legal privilege (to use the statutory term) is a fundamental principle of the common law and, where it applies, of necessity it precludes a party from adducing evidence otherwise relevant to an issue. No doubt the applicants, in the light of the Telstra principle, will consider, if they have not already done so, whether they have records of advice which should be produced for inspection. The material before me, however, does not, in my view, justify the making of the orders sought. Circumstances may, of course, change: it may be that particular forensic use made of the letter of 24 February 1994 might, ultimately, justify a call for production of any record of answers given by counsel. That, however, is a matter which is unlikely to arise for consideration before trial. Because, for the reasons I have indicated, the second respondent is not entitled to the orders it seeks, the appropriate course, I think, is simply to dismiss the motion.

I shall, however, hear any submissions which the parties may wish to make on the appropriate order to give effect to these reasons and on the question of costs. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane

Associate: Dated: 2 October 1998 Counsel for the Applicants: V.R.W. Gray

Solicitor for the Applicants: John Lloyd & Co.

Solicitor for the First Respondent: Blake Dawson Waldron

Counsel for the Second Respondent: J.S. Wheelhouse

Solicitor for the Second Respondent: Deacons Graham & James

Date of Hearing: 24 September 1998

Date of Judgment: 2 October 1998