Austral Dutch Kaolin Pty Ltd v Hanjin P&C Co Ltd

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 108 of 2009

JUDGE: GREENWOOD J DATE: 7 JUNE 2011 PLACE: BRISBANE

REASONS FOR JUDGMENT 1 The present proceedings concern two interlocutory matters relating to discovery of documents in the principal application, both of which were addressed in the course of a directions hearing on 13 May 2011. The first concerns a request by the applicant for orders for disclosure of seven categories of documents on the part of the respondent. 2 The seven categories are these: 1. Records of communication between the respondent and the relevant Korean Government entities relating to foreign exchange procedures during the relevant period; 2. Records of communication between the respondent and its bankers relating to foreign exchange procedures during the relevant period; 3. Records of communications including correspondence and file notes between the respondent and Attwood Marshall during the relevant period; 4. Communications including correspondence and file notes between the respondent and Mr Rhee and Mr Chung in the relevant period; 5. Copies of documents pleaded at paragraph 9(a) of the Amended Defence; 6. Copies of documents and records of communications relating to or regarding foreign exchange procedures arising internally within the respondent such as minutes of meeting during the relevant period; 7. Documents and records of communications arising internally within the respondent regarding its decision not to proceed with the purchase of the tenements. 3 The parties were required by earlier orders to exchange proposed categories of documents by 24 December 2010; agree the proposed categories by 14 January 2011; file and serve verified lists of documents by 25 February 2011; and, provide copies of documents by 4 March 2011. Because the parties had not been able to reach agreement about the categories of documents, the principal application was listed for further directions on 13 May 2011. 4 As things transpired, the parties advised the Court at the outset of the directions hearing that agreement had been reached about all outstanding issues relating to the categories of the respondent's documents sought by the applicant but for one matter. That matter concerned the applicant's request for disclosure of documents copied (that is, electronically downloaded - approximately two gigabytes of memory representing "a couple of hundred documents", T 5, lns 1920) on 5 July 2008 (the date of an Option Agreement between the applicant and the respondent, central to the principal application) from the computer of Mr Sydney William Hayes, a director of the applicant, onto a USB memory stick by an employee of the respondent, Mr Lee Kye Chun. 5 The applicant contends that the documents were copied unlawfully; the respondent's assurance that any relevant documents will be disclosed is unsatisfactory; and the documents may adversely affect the respondent's case and ought to be disclosed as a category on that basis. 6 The respondent says that the contention of unlawful copying has not been made previously and the documents, it seems, were copied in the course of a due diligence leading to the Option Agreement. The applicant says that since the documents were downloaded on the day of signing the Option Agreement, it seems unlikely that the copying formed part of a due diligence process but in any event the downloaded material includes a "directory" or index of the applicant's documents. The directory or index, it is said, ought to be provided. 7 I will direct that the respondent provide the applicant with a copy of the directory or index of the documents within seven days. Since the documents are those of the applicant, it seems likely that the applicant will have, electronically or otherwise, each of the documents listed in the directory or index. The respondent will be ordered to file a verified list of documents falling within the now agreed seven categories within seven days. 8 The second matter in issue concerns a request by the respondent that the applicant discover categories of documents described as category 6, 8, 10 and 11 by reference to exchanges between the solicitors, comprising: 1. The entire email chain exhibited at ADK8 to the affidavit of Sydney William Hayes sworn 16 July 2009 (without redaction) (category 6); 2. Correspondence from the applicant to the applicant's solicitor during the period 5 July 2008 to 5 August 2008 regarding the return of $3.5 million by the applicant to the respondent (category 8); 3. All documents between the applicant and potential investors and agents for the sale of the Mining Tenements (as defined in the Option Agreement) during the period 1 September 2008 to date (category 10); and 4. All documents relevant to the value of the mining tenements from 1 May 2008 to date (category 11). 9 Categories 6 and 8 contemplate the disclosure and inspection of documents containing communications between the applicant and its solicitor which the applicant contends are confidential communications protected by legal professional privilege. The respondent contends that the applicant has waived the legal professional privilege attaching to communications contained within the two categories of documents on two grounds. First, Mr Hayes elected, it is said, to disclose advice given to him by his solicitor, Mr O'Brien (recited in Mr Hayes's email dated 28 July 2008 addressed to a codirector, Mr Stahr and Mr O'Brien) by exhibiting a copy of the email as Exhibit ADK8 to Mr Hayes's affidavit sworn 16 July 2009 and filed on 17 July 2009. Secondly, since the applicant pleads a claim under s 82 of the Trade Practices Act 1974 (Cth) for recovery of a reliance loss of $3.5m it says it suffered by conduct of the respondent in contravention of s 52 of that Act, the state of the guiding mind of the applicant when engaging in the reliance conduct is relevant and in controversy. It follows, it is said, that legal advice which may have informed reliance is relevant and the privilege the applicant enjoys from disclosure of communications between it as client and its solicitor, has been impliedly waived. 10 By its Amended Statement of Claim the applicant pleads these matters. 11 On 5 July 2008, the applicant and the respondent entered into a written Option Agreement by which the applicant granted the respondent an option for 30 months to purchase the right, title and interest of the applicant in certain mining tenements (as defined). An option fee of $3.5m was to be paid on execution of the agreement. It was to be paid into the trust account of the applicant's solicitors where it was to remain until a date of release to the applicant, as determined by clause 3.3 of the agreement. The applicant pleads that the release date was a date not later than 60 days from 5 July 2008, namely, 3 September 2008. A further $3.5m was to be paid to the applicant on 19 July 2008 in respect of particular expenditures. 12 On 8 July 2008, the respondent paid $3.5m to the trust account of the applicant's solicitors. 13 The applicant pleads that on 24 July 2008 Mr Chong Sang Lee, the Chairman and Chief Executive Officer of the respondent, sent a letter to Attwood Marshall Lawyers setting out particular matters. The applicant pleads that Attwood Marshall were then the lawyers for the respondent. The applicant pleads that on 24 July 2008 the respondent by its employee, Mr Kyechun Lee, transmitted Mr Chong Sang Lee's letter of 24 July 2008 (addressed to Attwood Marshall), directly to the solicitor for the applicant. The applicant pleads that by transmitting that letter to the applicant's solicitor, the respondent represented the following matters as set out in the letter: a. "The (Korean) Ministry of Knowledge and Economic Department has found that our company has sent AUD$3.5 million in advance before our company receive the permission for money transferred to Australia and they have advised our company this money transaction is illegal and against the law in Korea;" b. "To avoid this illegal matter, we wish to advise you that we have to have government permission first and send all amount at once for AUD$7 million. At this present, Department of overseas investment is holding our requesting documents to be finalised according to legal procedure;" c. "Please advise ADK's lawyer to resend AUD$3.5 million to our company account ASAP to following bank account of Hanjin P&C and we will sent full amount as soon as we have legal permission from Korean government. Actually, we are ready to send all amount of money. But, there are certain procedures to be done for overseas investment from Government Department …;" d. "Our company must show that AUD$3.5 million returned to our company's account then they will process our request as soon as possible for us to be able to send full amount to Australia." 14 The applicant pleads that on 31 July 2008 Mr Lee Kye Chun on behalf of the respondent made these representations to the applicant on behalf of the respondent: a. "We are willing to speed up our project, but because of the government regulation we have to … get permit for money transaction for overseas mining development to send money out of Korea"; b. "Unfortunately, we didn't check the law and regulation fully when we send the $3.5 million to you … as a consequence of our mistakes, now we (hanjin) and bank people (are) in (a) difficult situation"; c. "… the $3.5 million back for us to follow government law and we will resend 7 million as soon as we get permit from government". 15 The applicant pleads that the representations in the letter dated 24 July 2008 and the email of 31 July 2008 were made by the respondent in order to: (a) induce the applicant to repay the option fee; (b) induce the applicant not to enforce the payment of the further sum of $3.5m in respect of the particular expenditures; (c) made fraudulently and either wellknowing that the representations were false or made recklessly not caring whether they were true or false. 16 The applicant then pleads the falsity of each of the representations; pleads that the representations were made in the course of trade or commerce within the meaning of s 52 of the Trade Practices Act or made in trade or commerce within Australia. The applicant pleads that in reliance upon the representations as pleaded, the applicant repaid the option fee to the respondent and did not enforce the payment of the further $3.5m in respect of the relevant costs. The applicant pleads that by reason of the respondent's conduct in contravention of s 52 of the Trade Practices Act, the applicant has suffered a reliance loss of $3.5 million representing the nonrefundable option fee repaid to the respondent on the footing previously indicated. 17 The applicant also pleads that it repaid the option fee to the respondent's bank account on 1 August 2008; the payment was made at the request of the respondent; the respondent provided no valuable consideration for the payment; and in the premises, the respondent holds the amount of $3.5m on trust for the applicant pursuant to a resulting trust. The applicant also pleads that the retention of the monies by the respondent would be unconscionable and would unjustly enrich the respondent. Apart from the claim for damages pursuant to s 82 of the Trade Practices Act, the applicant seeks a declaration that the sum of $3.5m is held upon a constructive trust and an order that the money be paid to the applicant. 18 For present purposes, it is not necessary to recite the elements of the Amended Defence. The respondent admits aspects of the Amended Statement of Claim but denies one of the pleaded representations of 31 July 2008; denies that the pleaded representations were made either in order to induce the applicant as alleged or made fraudulently or recklessly; denies that the representations as pleaded were false; denies the applicant's contended reliance upon the pleaded representations; and, denies that the applicant was induced to repay the option fee in reliance upon the pleaded representations. 19 The respondent by its Amended Defence pleads the relevant provisions of the Option Agreement upon which it relies including clause 2.1(b) which recites that in consideration of the respondent's payment of $3.5m to the applicant, the applicant grants the relevant option and "will assign 10% of its interest in the Mining Tenements to the [respondent] as stated in clause 3 of this agreement". Clause 3 provides for the assignment of that interest. 20 It follows that in the principal proceeding the applicant has pleaded a cause of action which asserts as one of its essential elements a reliance loss by reason of conduct of the respondent in contravention of s 52. The respondent says that once the applicant puts in issue the state of the guiding mind of the corporation as to reliance, legal advice informing that state of mind is relevant and reliance upon legal professional privilege in respect of particular communications otherwise protected by that privilege is impliedly waived. That result is said to arise by reason of the continuing application of principles derived from a decision of the Full Court of this Court in Telstra Corporation Ltd & Anor v B T Australasia Pty Ltd & Anor (1998) 85 FCR 152. In Telstra, Branson and Lehane JJ observed at 166 and 167 that where reliance is pleaded as an element of a cause of action thus opening up the state of mind of the relevant participant, a fair assessment of the question in issue requires an examination of any relevant legal advice and thus the party must be taken to have consented to the forensic use of the privileged material as part of a proper and fair analytical process. The party is thus taken to have waived reliance upon the privilege attaching to relevant communications, otherwise the opposing party would be "unfairly handicap[ped]". 21 The fundament of the Telstra principle is said to be "one of fairness". 22 The principle to be applied is to ask whether the conduct of the party enjoying the benefit of the privilege is inconsistent with the maintenance of the confidentiality attaching to the communications between that party as client and the lawyer thus effecting a waiver of the privilege (as a matter of objective assessment of the conduct rather than the subjective intention of the client): Mann v Carnell (1999) 201 CLR 1 per Gleeson CJ, Gaudron, Gummow and Callinan JJ at [28] - [31]. Such a judgment is, of course, to be made in the context of the circumstances of the case informed by any considerations of fairness: Osland v Secretary, Department of Justice (2008) 234 CLR 275 at [45] per Gleeson CJ, Gummow, Heydon and Kiefel JJ. Since the governing principle is one of inconsistency of conduct relevantly informed by considerations of fairness, then the question on the facts becomes whether the conduct of simply pleading a cause of action in which reliance is in issue, is conduct inconsistent with the maintenance of the confidentiality. As legal professional privilege is an important common law right or common law immunity (Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [11], [44] McHugh J, [85] Kirby J; Baker v Campbell (1983) 153 CLR 52 at 74) and common law principles apply to these interlocutory questions (Mann v Carnell at [27], [41], [143] and [144]), a party ought not to be denied that right as a result of an implied construct simply by pleading a claim to a remedial right based upon a cause of action in which a state of mind is put in issue unless the party expressly pleads reliance upon a privileged communication as a material fact (or particularises a material fact by reference to an otherwise privileged communication) or the very nature of the claim itself demonstrates clear inconsistency of treatment such as where a client sues his or her lawyer for negligence asserting a sequence of instructions and at the same time seeks to deny, on the ground of legal professional privilege, the disclosure by his or her lawyer of those communications in the forensic analytical process. 23 Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 is an example of inconsistency of treatment as the Commissioner sought to assert legal professional privilege in circumstances where the Commissioner had relied upon documents otherwise protected by privilege in a schedule supporting the reasons for the Commissioner's decision in question. The Full Court, Kenny, Stone and Edmonds JJ at [72] observed that the Commissioner had put the contents of eight identified privileged documents in the schedule in issue. In Rio Tinto, the Court concluded at [67] and [72] that the Commissioner had gone beyond making a mere reference to privileged communications and had put in issue the contents of legal advice in the eight documents. That distinction is central to the principle identified at [52] in these terms: [The] 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. 24 In Rio Tinto, the Court also noted that whilst the majority in Telstra Corporation v B T Australasia highlighted the conduct of the privilege holder, its references to fairness as the governing principle was misplaced having regard to the observations in Mann v Carnell. In DSE (Holdings) Pty Ltd v Intertan Inc and Anor (2003) 127 FCR 499, Allsop J observed that the isolation of the principle of inconsistency of conduct in Mann v Carnell rather than an "overriding principle of fairness operating at large" (Mann v Carnell at [29]) represented a rejection of the statement of principle in Telstra Corporation v B T Australia and represented "an important change to the existing law": DSE (Holdings) v Intertan Inc at [14]. See also Australian Agricultural Company Limited v AMP Life Limited [2006] FCA 371. 25 It follows that the mere pleading of reliance as an element of the cause of action does not impliedly waive the privilege attaching to communications between the applicant and its lawyer and thus the documents comprehended by category 8 identified by the respondent are not susceptible of discovery. 26 The category 6 documents concern what is described as the entire email chain exhibited at ADK8 to the affidavit of Sydney William Hayes sworn 16 July 2009. On 16 July 2009, Mr Hayes swore an affidavit in which he says at para 19 that on 28 July 2008 he received telephone calls from three persons he describes as the agents of the respondent, JongWan Rhee, Dr Chung (which may be a reference to Soo Hyun Chung mentioned in the preceding para 18) and Mr Lee. Mr Hayes says that all of these calls were to the effect that the $3.5m had to be repaid urgently. Mr Hayes says: "I enclose a contemporaneous email sent to my fellow CoDirector by me, setting out the content of these calls. I exhibit a copy of that contemporaneous email marked ADK8". The email at ADK8 was sent to the applicant's solicitor, Mr Michael O'Brien and Mr Hayes's codirector, Mr Stahr, under the reference "Urgent letter from Hanjin in South Korea", in these terms: Michael & Bert I have been rung by Jong Rhee. Again!! He was chasing me over the weekend but I was out of phone range at Nukinenda. He says that the company information for the ARBN has been sent to Barry via Heerden [Mr Barry Van Heerden, Attwood Marshall Solicitors]. But they won't release it till the money is returned. He said that the Korean Gov has approved a permit for funding oil shale in Australia but has not granted it and that is why Hanjin needs the money back. He says they did not have approval to send the funds abroad but when the money is sent back they can get the approval and then send the whole $7M as quickly as possible. Dr Chung is ringing him regularly to get him to chase us to send the money back as soon as possible. He says that Hanjin wants to complete all this and send the whole $7m back quickly. We have had emails from Dr Chung directly supporting this requirement. I agree with Michael that we may ruin the good will and the broader picture. Dr Chung has a high profile in Korea and also stands to make a lot out of this. So if he deems it necessary to complete this process and insists that we do it as soon as possible I think we may have to agree. 27 The respondent contends that the words "I agree with Michael that we may ruin the good will and the broader picture" record the substance of legal advice given by the applicant's solicitor, Mr Michael O'Brien, to the applicant concerning the return of the option fee and therefore the reasoning and content of the actual advice given by Mr O'Brien has been waived. The construction that those words record the substance of Mr O'Brien's legal advice is said to be an expression of the application of the principle identified by Tamberlin J in Bennett v Australian Customs Service (2004) 140 FCR 101 at [13], adopted by Maxwell P in Secretary, Department of Justice v Osland (2007) 95 ALD 380 at [46] and approved by the High Court in Osland v Secretary to the Department of Justice (2008) 234 CLR 275 at [50], that the disclosure of the conclusion reached or course of action recommended in an advice, can amount to waiver of legal professional privilege concerning the premises upon which the opinion is based, notwithstanding that the reasoning has not been disclosed. Tamberlin J in Bennett gives an illustration in these terms at [13]: "[I]f there is a disclosure that a client has been advised that interpretation 'A' is preferable to interpretation 'B' of a legislative provision, then even if there is no disclosure of the reasoning leading to that conclusion, the reasoning and content of the advice may be waived including the factual premises and circumstances leading to that conclusion". 28 Questions of waiver are always matters of fact and degree balanced according to settled principle: Osland v Secretary, Department of Justice per Gleeson CJ, Gummow, Heydon and Kiefel JJ at [49]. 29 Osland v Secretary, Department of Justice concerned the disclosure in a press release issued by the AttorneyGeneral for the State of Victoria that Mrs Osland's petition for mercy, setting out six grounds on which the petition should be granted, was to be denied. The release said: "Following consultation with the State Opposition, I appointed a panel of three senior counsel, Susan Crennan QC, Jack Rush QC and Paul Holdenson QC, to consider Mrs Osland's petition. This week I received a memorandum of joint advice from the panel in relation to the petition. The joint advice recommends on every ground that the petition should be denied". The Court of Appeal, having considered Mann v Carnell and Bennett v Chief Executive Officer, Australian Customs Service and other important authorities governing the principles relating to legal professional privilege concluded that the disclosure of the recommendation was not inconsistent with the maintenance of the privilege. Moreover at [63], the Court of Appeal observed that the purpose for which the holder of the privilege made the disclosure is "highly relevant" and the question was whether the use made by the AttorneyGeneral of the disclosed portion of the privileged communication was "inconsistent with the maintenance of confidentiality in … the content of the advice". The evident purpose of the disclosure was to inform the public that the denial of the petition was based upon independent legal advice and the recommendation to the Governor was based upon that advice. There was thus no inconsistency between "disclosing the fact of, and the conclusions of, the independent advice for that purpose, and wishing to maintain the confidentiality of the advice itself". 30 The reasoning of the Court of Appeal set out by Maxwell P was found to be correct by the High Court in Osland v Secretary, Department of Justice at [50]. 31 There are two difficulties with the respondent's proposition in relation to category 6. The first is that the email does not express the substance of the legal advice. The email simply observes that the applicant's solicitor has previously said that the failure to return the option fee of $3.5m may ruin the goodwill between the applicant and the respondent. The elliptical reference to "and the broader picture" may contain within it some reference to advice about the bundle of issues associated with the return of the option fee but it hardly constitutes a disclosure of the fact of or the conclusions arising out of independent advice. 32 The second difficulty is that the email is no more than a communication from one director to another (and the applicant's solicitor) observing the agitations from Jong Rhee and Dr Chung and the comment upon those agitations by Mr O'Brien that a failure to return the option fee might ruin the goodwill between the two corporations and the broader picture. The purpose of the disclosure is simply to communicate the perceived realities of the practical situation that seemed to prevail having regard to the matters set out in the second paragraph of the email. 33 Accordingly, the matters relied upon in the email do not amount to a disclosure of the substance of legal advice and in any event no inference is open that Mr Hayes in attaching the email to the affidavit engaged in conduct inconsistent with the maintenance of the applicant's legal professional privilege attaching to communications between it and its lawyer. 34 The final two matters relate to documents within categories 10 and 11. These categories of documents are said to be relevant because clause 2.1(b) concerns the assignment by the applicant of 10% of its interest in the mining tenements having regard to clause 3 of the Option Agreement. In determining the reliance loss suffered by the applicant, the respondent contends that the assessment of the damages must take account of the value of 10% of the mining tenements which ought to have been transferred to the respondent. The documents are said to be relevant to the determination of value. The description of the categories is broad. Category 10 comprehends all documents between the applicant and potential investors and agents for the sale of the mining tenements during the period 1 September 2008 to date. It is broad both in relation to the field of parties and the timeframe. Category 11 comprehends all documents relevant to the value of the mining tenements from 1 May 2008 to date. 35 The applicant claims a reliance loss of $3.5m represented by the return of the option fee in reliance upon the pleaded representations. The applicant transferred $3.5m to the respondent's bank account on 1 August 2008. That is the date upon which the applicant suffered the loss as contemplated by s 82 of the Trade Practices Act: I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; and HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. The damages assessed at trial will represent the loss suffered at the date of the reliance loss. The applicant is to discover any valuation or other document relevant to the value of the mining tenements as at 1 August 2008. 36 Accordingly, an order will be made for the filing by the applicant of a verified list of documents which includes any valuation or other document relevant to the value of the mining tenements as at 1 August 2008. 37 The parties will be directed to confer with a view to submitting to the Court a proposed order for further steps in the principal proceeding. I certify that the preceding thirtyseven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.