Allatech v Construction Management Group

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1053/02 ALLATECH PTY LTD V CONSTRUCTION MANAGEMENT GROUP PTY LTD & ANOR JUDGMENT 1 HIS HONOUR: This is a hotly contested proceeding in which the proprietor under a building contract, Allatech (the plaintiff), seeks to set aside a deed of company arrangement entered into by the builder, CMG (the first defendant). Mr Hillig, who was the voluntary administrator of CMG and is now the administrator under the deed, is the second defendant. 2 This judgment, one of a substantial number of judgments on interlocutory issues, deals with an application by Allatech for access to a memorandum of advice dated 14 October 1999, prepared by senior and junior counsel for CMG ("the Advice"). The Advice relates to a proceeding brought in this Court by Franks Centre Lofts Pty Ltd against CMG with respect to another building project. Franks Centre Lofts is one of a number of companies, including Allatech, controlled by Mr Curtis Mann. In the absence of orders confining access to Allatech's legal advisers, an order granting Allatech access to the Advice would effectively be an order granting access to Franks Centre Lofts as well. 3 I have read the Advice, for the purpose of dealing with Allatech's application for access to it. It contains a detailed analysis of the facts and law relating to that proceeding, an assessment of CMG's prospects of success, recommendations (including strategic and tactical recommendations) as to the preparation of the case for hearing and the conduct of the litigation, and advice in relation to threatened interlocutory motions. It is a document of 34 pages. It contains a frank and open assessment by counsel of the strengths and weaknesses of their client's case. In my opinion disclosure of the Advice to an entity connected with Franks Centre Lofts would be likely to cause substantial prejudice to CMG in the conduct of the proceeding brought by that company. It is just the kind of document that one would expect to be protected by legal professional privilege - the sort of document that counsel would never have prepared if there were any significant risk that it would fall into the hands of the other party to litigation. 4 The Advice was produced to the Court on 21 June 2002, in response to a Notice to Produce issued by Allatech to Mr Hillig. CMG objected to Allatech having access to the Advice on the ground that it was protected by legal professional privilege, and the issue of access was deferred for the time being. Then on 26 July 2002, during the course of Allatech's cross-examination of one of the directors of CMG, Mr Henry, Allatech called for an advice of senior counsel referred to in paragraph 9.1 of Mr Henry's affidavit dated 9 July 2002. Paragraph 9.1 is in the following terms: "To the best of my knowledge, belief and recollection I gave a copy of senior counsel's advice of 14 October 1999 to Mr Stephen Kugel of Smith Hancock [an employee of the firm in which Mr Hillig is a partner] when he came to CMG's premises. On that occasion either I or Alfred Attard said words to the effect of: 'Here is some advice received from counsel on the FCL litigation. It is highly confidential and must remain confidential.'" 5 It is clear that Mr Henry's reference to senior counsel's advice of 14 October 1999 is a reference to the Advice. Counsel for both CMG and Mr Hillig objected to Allatech having access to the Advice on the ground of legal professional privilege. It is beyond doubt that the Advice is protected by legal professional privilege under s 118 of the Evidence Act 1995 (NSW), unless privilege has been waived under s 122. Counsel for Allatech claimed that any privilege which otherwise may have attached to the Advice had been waived under s 122. 6 The relevant parts of s 122 are as follows: "(1) This Division does not prevent the disclosure of evidence given with the consent of the client or party concerned. (2) … [T]his Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made: (a) in the course of making a confidential communication or preparing a confidential document; or … (c) under compulsion of law … . (3) Subsection (2) does not apply to a disclosure by a person who was, at the time, an employee or agent of a client or party or a lawyer unless the employee or agent was authorised to make the disclosure. (4) … [T]his Division does not prevent the adducing of evidence if the substance of the evidence has been disclosed with the express or implied consent of the client or party to another person … ." 7 I directed the parties to prepare written submissions on Allatech's application for access to the Advice, on the basis that I would deliver judgment in chambers after considering those written submissions. I now do so. 8 Allatech contends that the privilege which otherwise attached to the Advice has been waived on two bases. One basis relates to the tender of a letter of advice by Whittens, solicitors, and the other relates to a statement made by Mr Hillig in his report to creditors of CMG. The letter of advice by Whittens 9 Allatech refers to a letter of advice from Whittens to Mr Hillig dated 28 June 2000. The letter contains legal advice by Whittens, then the solicitors for CMG, concerning CMG's prospects of success in three proceedings in which CMG was involved, the other parties being, respectively, Allatech, Franks Centre Lofts and Supreme Linings. The letter is less than three and a half pages long, and is a brief report to the voluntary administrator, in which opinions on the prospects of success are expressed at a general level. For example, the following is the opinion expressed with respect to the Franks Centre Lofts proceeding (a summary opinion that stands in stark contrast with the detailed analysis in the Advice): "We are of the view that our client's defences to the Plaintiff's main claim as contained in the Amended Summons, will be affected by some problems, such as the problem that arises being the Building Works Contract itself, which appears to have been settled without regard to whether the Home Building Act applies. However, on this basis or on a quantum meruit basis, we believe the Defendants, on our present instructions will be partially successful." 10 The Whittens letter was tendered by Allatech at the hearing, and both CMG and Mr Hillig consented to the tender. Moreover, a copy of the letter was annexed to the affidavit of Mr Henry dated 11 June 2002, which was read at the hearing. Mr Henry's evidence is that either he or Mr Attard gave a copy of it to Mr Kugel of Smith Hancock prior to the meeting of creditors held on 12 July 2000. Allatech contends that the voluntary disclosure of the Whittens letter, amounting to disclosure of the substance of legal advice in respect of the prospects of success in the three proceedings, results in waiver of the privilege otherwise attaching to all other relevant legal advices received on that subject matter. 11 I disagree with Allatech's contention. I accept that in some circumstances, a party to a proceeding who puts legal advice into evidence or consents to its tender will thereby be taken to have waived privilege with respect to all other legal advice given to that party on the same subject matter. But there is no ipso facto waiver of privilege with respect to all legal advices on a subject, merely by virtue of the tender of one such advice. It is necessary to examine the circumstances of the tender. 12 Eames J dealt with the common law position in McCabe v British American Tobacco Australia Services Ltd [2002] VSC 112. In that case the plaintiff made an application to strike out the defence. In answer to that application, the defendant relied on an affidavit by its in-house solicitor, which annexed a letter of advice by the defendant's present solicitors and a letter of advice by other solicitors engaged by it, concerning the defendant's legal obligations with respect to the retention and destruction of documents. The in-house lawyer also gave oral evidence. Eames J found (at paragraph 11) that this evidence was directed towards establishing or advancing three propositions, which can be summarised as follows: · that the defendant had a long-standing document retention policy, · that it acted upon legal advice as to the propriety of destroying documents, and · that the destruction of documents had been carried out as a routine application of its policy and processes rather than with the primary intention of destroying documents that might prove damaging to the defendant in later litigation. By producing evidence to establish those three propositions, the defendant had put each of those propositions in issue. 13 The plaintiff issued a notice to produce directed to the defendant, and subpoenas directed to the solicitors, seeking production of several categories of documents, including documents concerning the defendant's obligation in relation to discovery in litigation about ill health caused by smoking cigarettes, and documents concerning the destruction of material which may be the subject of discovery in such litigation. The defendant claimed legal professional privilege in respect of some of those documents, which included many other instances of the defendant seeking and receiving legal advice as to its document retention policy. 14 Eames J held that there had been a waiver of privilege with respect to the three issues set out above, under the common law principles applicable in Victoria, and found that as a matter of fairness the plaintiff should have access to all other documents concerning those issues created within an appropriate time frame (at paragraphs 20-22, 28-30). In his Honour's view, it would be unfair to permit the defendant to rely on "selectively produced" advices to prove the three propositions that it had put in issue (at paragraph 29). 15 In the present case there is an issue as to whether Mr Hillig's report to creditors was deficient in failing to disclose a cause of action asserted by CMG against Blessington Judd, solicitors, and Mr Coleman of counsel, for professional negligence. In its defence CMG contended that it had received oral advice from counsel to institute those proceedings, in about April 2001, well after the report to creditors had been issued and considered. By ex tempore reasons for judgment delivered on 28 June 2002, I held that CMG had placed in issue the question when it had received advice to sue Blessington Judd and Mr Coleman. It had therefore waived privilege with respect to the oral evidence proposed to be given by Mr Andreone concerning advice given on that subject at an earlier time. 16 I reached this conclusion by the application of s 122 of the Evidence Act rather than the common law with respect to waiver of privilege. I noted (at paragraph 9 of my reasons for judgment) that the common law fairness test may be broader than the statutory law of consent or waiver now contained in s 122, and on that point I referred to BT Australasia Pty Ltd v State of New South Wales (No 7) (1998) 153 ALR 722 (Sackville J); see also Garratts Ltd v Thanga Thurai [2002] NSWSC 39, at paragraph 51 (Bergin J); Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501, at paragraph 10 (Hely J). However, I held that the approach to the common law test taken by Eames J in McCabe's case would be applicable in substance under s 122. I shall proceed on the same basis now. 17 While I accept the validity of the approach taken in McCabe's case and its applicability under s 122, for the reasons given in my earlier judgment, I have decided that the application of that approach does not lead to the conclusion that privilege has been waived by virtue of the consent by CMG and Mr Hillig to the tender of the Whittens letter. 18 When they consented to the tender of the Whittens letter, CMG and Mr Hillig acquiesced in the tender of evidence going to a matter already in issue. In my view, their consent to the tender related to the question whether the statements made by Mr Hillig in his report to creditors with respect to the prospects of success in the three proceedings were misleading, having regard to the legal advice in the possession of Mr Hillig at the time of preparation of the report. That conclusion receives support from the transcript at the time of tender. Counsel for the plaintiff then said that "this is a letter of advice which appears to be, from other evidence we will take you to in due course, the advice upon which Mr Hillig prepared the report." 19 Mr Henry's evidence was that Mr Hillig's employee received the Whittens letter prior to the meeting of creditors. As I understand their cases, both CMG and Mr Hillig contend that Mr Hillig's report to creditors relied on the Whittens letter. They will submit that the statements in the report about the prospects of the three proceedings adequately reflected the advice contained in the Whittens letter. Their consent to the tender of the Whittens letter goes to these matters. In my opinion, by consenting to the tender of the Whittens letter they did not raise the issue whether Mr Hillig had a duty to obtain from the directors of CMG, and consider and report on, other legal advice concerning prospects for success in the three proceedings, not in the possession of Mr Hillig at the time of preparation of his report. 20 Consistently with the reasoning in McCabe's case, by consenting to the tender of legal advice in the category of advice in the possession of Mr Hillig at the time of preparation of his report, CMG and Mr Hillig consented for the purposes of s 122 to the tender in evidence of any other legal advices in the possession of Mr Hillig at the time of preparation of his report. By doing so, neither of them consented for the purposes of s 122 to the tender in evidence of legal advice in the possession of the directors of CMG but not in the possession of Mr Hillig at the time of preparation of the report. 21 Mr Hillig made an affidavit on 5 August 2002, and the parties consented to that affidavit being filed and read for the purposes, in effect, of a voir dire with respect to the question of access to the Advice. Mr Hillig said in that affidavit that he was not shown a copy of the Advice prior to 11 June 2002. He inspected the files maintained under his control in relation to the administration of CMG by him up to the issue of his report on 4 July 2000, and found no record that a copy of the Advice was held during that period, and no record that the employee responsible for as assisting him during that period had been provided with a copy of the Advice. His evidence is that in preparing his report issued on 4 July 2000, and also at the subsequent meeting of creditors, he did not rely upon or have regard to the Advice. 22 Mr Hillig disagreed with paragraph 9.1 of Mr Henry's affidavit made on 9 July 2002. I find, on the balance of probabilities and for the purposes only of Allatech's application for access to the Advice, that neither Mr Hillig nor anyone else at Smith Hancock was given or had access to a copy of the Advice prior to the issue of the report to creditors. Mr Henry's evidence to the contrary is mistaken. I reach this conclusion having regard to the clear and specific evidence in Mr Hillig's affidavit. It is probable, in my view, that Mr Henry has confused the Advice with the Whittens letter. 23 Given my conclusion on this question of fact, the Advice is not within the category of documents in respect of which, by consenting to the tender of the Whittens letter, CMG and Mr Hillig waived privilege under s 122. Mr Hillig's report to creditors 24 Secondly, Allatech contends that there was a waiver of any privilege otherwise attaching to the Advice by virtue of a statement made in Mr Hillig's report dated 4 July 2000. That report was Mr Hillig's report to creditors as voluntary administrator, issued under s 439A of the Corporations Law as in force at the time, prior to and for the purposes of the second meeting of creditors. In the course of his review of the business and affairs of CMG, Mr Hillig referred in the report to the three proceedings. At paragraph 7.2 he said: "The directors (and their legal advisers) believe that the matters subject to litigation all have 'good prospects'." 25 Allatech contends that this statement in the report amounts to waiver of the privilege that would otherwise attach to advice by the legal advisers there referred to. It relies on Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 for the proposition that disclosure in this way of the substance of legal advice is a waiver of privilege with respect to the whole of the relevant advice. Then, relying on McCabe's case, it contends that the waiver of privilege extends to all legal advices in the same category, namely advices on the prospects of success in the three proceedings. It submits that, since Mr Hillig made this statement as agent for CMG by virtue of s 437B of the Corporations Law in force at that time, the waiver of privilege binds CMG as well as Mr Hillig. 26 In my opinion this submission fails because Mr Hillig's statement discloses only the substance of the evidence to which it refers, namely the advice given by the legal advisers to the directors of which Mr Hillig was aware at the time of preparation of his report. There is room for doubt as to whether the Whittens letter falls within this category, because it is directed to Mr Hillig rather than the directors. However, the letter seems intended to reflect the opinion expressed by Whittens to CMG and so probably falls within the category identified in Mr Hillig's statement. But in light of my findings based on Mr Hillig's affidavit made on 5 August 2002, the Advice is neither the opinion of the legal advisers identified in Mr Hillig's statement, nor evidence falling within the same category for the purposes of McCabe's case, because it was not available to Mr Hillig when he prepared his report. 27 It is irrelevant (if it be true) that the directors of CMG may have had a duty to provide the Advice to Mr Hillig, and it is also irrelevant that Mr Hillig was the agent of CMG. There cannot be a waiver of privilege under s 122, by consent or knowing and voluntary disclosure of the substance of the document, when the person making the statement alleged to constitute consent or disclosure is in fact unaware of the document. Conclusions 28 These reasons are sufficient to deny Allatech's application for access to the Advice. It is unnecessary, therefore, to consider Allatech's proposal that a limited grant of access be made, confined to its external lawyers and in-house counsel. 29 I received other submissions raising issues of general principle. One issue is whether the statutory obligation of the directors of a company in voluntary administration, to give the administrator "such information about the company's business, property, affairs and financial circumstances" as the administrator reasonably requires, obliges them to make available confidential legal advice of the company in circumstances where there is a risk that the company's legal professional privilege may subsequently be lost. Another issue is whether a voluntary administrator who has access to legal advice obtained by the company which is material to the matters to be decided by creditors, has an obligation, implied by ss 439A and 445D, to disclose the substance of that advice, regardless of whether it was provided in confidence and notwithstanding that by doing so, the administrator will destroy the company's privilege. Yet another is whether, if such an obligation exists, it can be said that the administrator's disclosure of the substance of the advice is made under compulsion of law, with the result that the privilege is preserved by virtue of s 122 (2) (c). 30 It is not necessary for me to answer these questions, in view of my findings of fact. They are important and difficult questions, the answers to which should be given only after more research has been undertaken than in a case such as the present, where the question for decision has arisen incidentally during the final hearing. Although the submissions touched upon these questions, I have decided it is best leave them for another day. 31 I shall make an order denying Allatech access to the Advice, and I shall order that the costs of the application be reserved. **********

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