LEEMING JA: The final hearing of the plaintiff's and fifth defendant's interlocutory processes, dated 2 and 13 April 2020 respectively, is set down before me next Tuesday and Wednesday 12 and 13 May 2020. That hearing concerns a settlement deed dated 24 February 2020, partially compromising long-running litigation. Speaking generally, the immediate dispute is whether the fifth defendant was merely liable under that deed to pay $50,000 (which, it seems to be common ground, he did on around 24 March 2020), or whether he, together with the third defendant, was jointly and severally liable to pay $565,000. The third defendant appears to have become bankrupt on a debtor's petition in early April 2020.
The issues arising in the proceedings listed for hearing next week are not confined to the proper construction of the settlement deed, but extend to the fifth defendant's claims based on estoppel (both at common law and in equity), rectification in equity, and relief on the basis of a unilateral mistake which the plaintiff has unconscionably sought to exploit.
Prior to executing the settlement deed, the parties participated in an informal settlement meeting which occupied the whole of 19 December 2019. Notes were taken throughout that day by one or more solicitors acting for the fifth defendant. They occupy some 38 pages, and are in a number of hands, including Ms Maggie Farahbakht's.
On 27 April 2020, the plaintiff and the fifth defendant agreed to my determining a disputed claim for privilege over those notes, and consented to a regime for the exchange of submissions and evidence with a view to resolving the dispute on the papers, including by reviewing the disputed documents: see order 2 made on 27 April 2020. That regime was substantially adhered to by the fifth defendant, although not the plaintiff. The fifth defendant complied with the three page limit to which the parties had agreed; the plaintiff's submissions were eight pages. I am conscious that were one party disregards such limits, there is the possibility of both the appearance and the actuality of unfairness. For that reason, it is appropriate that I state that the plaintiff's late and unduly lengthy submissions did not alter the preliminary view I had previously formed as to outcome of this dispute.
The evidence before me is that the notes record three classes of events taking place from around 10:25 am until around 6:48 pm on that day. In part they record statements made in open session. In part they record matters discussed in the presence of the fifth defendant, solicitors acting for him and counsel retained by them, and no one else. And there are at least two passages which refer to meetings between the defendants, to the exclusion of the plaintiff. Contrary to the plaintiff's objections, I do not see why the fifth defendant's solicitor cannot give secondary evidence of his opinion of what the notes appear to contain, in circumstances where he personally, together with other solicitors at his firm, participated in the events which are the subject of the notes; cf Hancock v Rinehart (Privilege) [2016] NSWSC 12 at [10] and [35], on which the plaintiff relies. In any event, my own examination of the notes is confirmatory of this, although it is perhaps worth saying that there are portions of the handwritten notes where, at least to my eyes, it is not precisely clear who was present.
Plainly enough there can be no privilege in what was recorded of matters said in open session, and I understand that an unredacted version of those parts of the file notes has already been made available to the plaintiff. Equally plainly, what was said by and to the fifth defendant in the presence of his lawyers is apt to be (but need not be) privileged, and what was said in meetings attended by the defendants to the exclusion of the plaintiff may be the subject of a common interest privilege.
By his positive claims that the deed be rectified in equity and that the plaintiff is unconscionably exploiting his mistaken understanding of the deed, the fifth defendant is propounding his state of mind at relevant times. The deed settled longstanding litigation in which the fifth defendant was represented by solicitors and counsel. There is every reason to think that his lawyers were involved in settling the terms of the deed, in accordance with his instructions, and that his understanding of what the deed involved was informed by legal advice from them.
It is clear law that privilege may be waived impliedly by a party's conduct when it is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect: Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29]. In such a case, the absence of any subjective intention to waive privilege is not to the point.
It is also true that this is an area where there are some nuances in the authorities, especially in the Federal Court (see the references in Seven Network Ltd v News Ltd (No 7) [2005] FCA 1092 at [19]-[24] and, more recently, in Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 at [36]). There is no need for present purposes to address those decisions.
First, I am bound by Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297, and I think it is "likely" that what was said at the informal settlement conference contributed to the fifth defendant's state of mind at the time he gave instructions in relation to the settlement deed and executed it: cf Chen at [41] and [45]. The notion of legal advice "likely" contributing to a person's state of mind, in the context of this species of waiver, may be found in the reasons of Giles CJ Comm D in Ampolex v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 411 and, earlier, to Jordan CJ's judgment in Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 at 358. I also think it would be inconsistent and potentially productive of unfairness for the fifth defendant positively to advance a state of mind while simultaneously maintaining a claim of privilege in the notes of the informal settlement conference. I am conscious that there were subsequent conversations and correspondence prior to the execution of the deed. Nonetheless, the connection is sufficiently proximate to enable the factual inference of likely contribution to be drawn. I have in mind in particular the fact that the conference occupied the whole day (which is a significant time for the seeking, provision and assimilation of an understanding of the position), and also the statements in the fifth defendant's case that the essence of the settlement proposal in so far as it related to monetary payment did not change from 19 December until execution of the Settlement Deed ("there was no change in negotiating position as to the quantum of that contribution": affidavit of Mr Krass, 18 April 2020, para 23). This amounts to an implied waiver.
Secondly and in any event, the fifth defendant has, expressly, waived privilege in respect of his instructions to his lawyers concerning the settlement offers which were made on 19 December 2019. He positively maintains that he made it clear he would only contribute $50,000, that that offer was first made on 19 December 2019 and never subsequently varied: affidavit of Mr Krass, 18 April 2020, paras 22-23).
Thirdly, the fifth defendant makes a qualification to this, because he seeks to maintain the distinction between the instructions concerning the terms of the settlement offer (which he accepts have been waived) and client legal privilege in respect of the background litigation, which remains on foot.
However, no submissions were made by the fifth defendant pointing to any particular part of Ms Farahbakht's notes with a view to explaining how that distinction might apply in practice. Further, I respectfully doubt that the distinction is a sound one. The deed was a settlement deed which involved a compromise of the fifth defendant's role in the litigation in exchange for obligations including the payment of money. It is difficult, to say the least, to accept that instructions and advice relating to what was being undertaken by executing the deed has been waived, while at the same time maintaining a claim of privilege in respect of the "background litigation", which was after all the subject of a release. Finally, the waiver in the present case is not merely the express waiver brought about by the positive testimonial case as to the instructions actually given; it is also the implied waiver consequent upon the claims of estoppel, rectification and mistake. I do not accept that the distinction has any consequences in respect of the portions of the filenotes which must be disclosed.
Fourthly, a separate difficulty arises in relation to the notes of what was said between more than one defendant. As best I can see, the notes of the defendant-only meetings appear to include advice from lawyers. Plainly enough, the defendants had a common interest in opposing, or compromising, the litigation brought by the plaintiff.
The third and fourth defendants' trustee in bankruptcy is aware of the dispute and the claim for common interest privilege, but has advised (last week) that, in accordance with R v Dunwoody [2004] QCA 413 at [25], the claiming or waiving of legal professional privilege is personal to the bankrupt and not property which vests in the official trustee. It is not clear to me whether and if so how the third and fourth defendants have been made aware of this dispute. The evidence establishes that the second defendant has not waived privilege.
Common interest privilege is a joint privilege, and as presently advised, I am not presently persuaded that the fifth defendant's decision to advance claims in equity based on rectification and mistake would disentitle the assertion by other defendants of a privilege otherwise attaching to notes of privileged communications between those defendants. I do not regard the foregoing as a complete analysis of the position, but it may also be that little will ultimately turn on this. If that assessment is incorrect, nothing in this decision should be understood as preventing a further application.
For those reasons, I make the following orders:
Save in respect of notes of conferences between the fifth defendant and other defendants excluding the plaintiff, the fifth defendant is not entitled to maintain a claim for privilege over the 38 pages of notes made by Ms Farahbakht of the settlement conference on 19 December 2019.
Direct the solicitors for the fifth defendant to provide the relevant pages of those notes to the plaintiff.
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Decision last updated: 08 May 2020