Adelaide Steamship v Spalvins [1998] FCA 144; (1998) 152 ALR 418

Equuscorp Pty Ltd v Kamishacorp Ltd [1999] FCA 681

Esso Australia Resources Ltd v The Commissioner of Taxation [1999] HCA 67

Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83

Orr v Ford [1989] HCA 4; (1989) 167 CLR 316

Pulitano v Ginbey [1999] WASC 5

State Energy Commission of Western Australia v The Griffin Coal Mining Company Ltd, unreported; SCt of WA (Master Seaman QC); Library No 5882; 9 May 1985

1 MASTER SANDERSON: This is the plaintiff's application seeking inspection of two specific documents discovered by the defendant. The defendant filed what is described as Further Affidavit of Robert William Morrison ("Morrison"), sworn 10 August 1999, providing further discovery in this action. The First Schedule Pt II to the affidavit contains a description of documents in the following form (No 358):

"(5) Letters, facsimiles, written communications, notes, memoranda and other documents brought into existence between 30 December 1997 and 24 August 1998 and contained in the Plaintiff's files relating to The Lakes Service Station.

(6) Letters, facsimiles, written communications, notes, memoranda and other documents brought into existence between 11 July 1995 and 1 May 1998 and contained in the original file of Jackson McDonald."

2 Pursuant to par 2 of the affidavit the plaintiff sought to claim privilege over these documents. Given that the documents relate to legal advice obtained by the plaintiffs from their solicitors, prima facie the documents would attract privilege and would not be available for inspection. The defendant argues that, given the nature of the case and in particular the claim raised by the plaintiff, privilege does not attach to these documents and they should be available for inspection. Consequently, it is necessary to examine the plaintiff's claim and the answer put by the defendant.

3 The plaintiff is a major oil company. The defendant is the registered proprietor of the property known as The Lakes Service Station and Roadhouse ("The Lakes"). On or about 4 February 1994 the defendant agreed to lease The Lakes to the plaintiff for a period of 15 years, commencing 1 March 1994. Certain terms of the agreement to lease are pleaded and it is pleaded that, pursuant to the agreement to lease the plaintiff occupied The Lakes on 1 March 1994. All of these matters are to be found in par 1 through to par 5 of the statement of claim. The defendant takes issue with the plaintiff as to certain aspects of these paragraphs of the statement of claim but the nature of this dispute is not presently of concern.

4 Paragraph 6 pleads, pursuant to the agreement to lease, the parties entered into a lease ("the Lease") dated 25 January 1995. Paragraph 7 pleads that the parties executed the Lease with the common intent that certain provisions of the agreements were included. Paragraph 8 pleads that in relation to certain aspects of the rent review the Lease does not in fact embody the agreement between the parties. Paragraph 9 is to a like effect. Paragraph 10 pleads that the plaintiff asked the defendant to agree to rectify the Lease and par 11 pleads that this request was refused. Paragraph 12 pleads a claim for rectification. Paragraphs 13, 14 and 15 in effect claim repayment of monies paid pursuant to the unrectified lease. The plaintiff claims a refund of sums it says were paid over and above the defendant's entitlement under the rectified document.

5 The defendant admits the parties entered into a written lease but denies there is any entitlement to rectification and further claims that the plaintiff is not entitled to relief by way of rectification either because of laches, waiver or acquiescence. There is a counterclaim made by the defendant against the plaintiff for breach of the terms of the Lease but the counterclaim is not presently of interest.

6 In essence, then, the plaintiff seeks equitable relief against the defendant by way of rectification of the Lease. In answer to that claim the defendant says, first, the present Lease embodies the common intention of the parties and no claim for rectification lies. Alternatively, if the plaintiff is entitled to the relief of rectification, the plaintiff has waived its rights, acquiesced so that the Lease now embodies the agreement between the parties or is guilty of undue delay so that the equitable claim of rectification is met by the equitable defence of laches. Broadly speaking, these are the matters at issue between the parties. It is also relevant to note that the reply does not deal specifically with the defendant's claim of waiver, acquiescence and laches. The plaintiff simply joins issue with the defendant in relation to all of these matters.

7 The defendant's position can be summarised succinctly in the following way. It is submitted that the plaintiff, by its denial of delay and acquiescence, has put in issue the date it became aware of the true meaning and effect of the rent review provisions of the Lease. In other words, it is of central importance to the defendant's case that it establish when the plaintiff first decided that the Lease did not embody the agreement between the parties. Broadly speaking, the defendant argued that the greater the lapse of time between the plaintiff deciding the Lease did not embody the common intention of the parties and its taking action, the more likely it was for the defence of acquiescence or laches or perhaps even waiver to succeed. Consequently, the advice given to the plaintiff by its solicitors referred to in document 358(5) and (6) should be available for inspection.

8 For its part, the plaintiff argued that the documents in question were privileged and that there had been no waiver of that privilege either express or implied. It further made the point that it had not raised a plea which rendered these documents of importance. That plea had been raised by the defendant. In the circumstances then, it was submitted that there was no justification for departing from the general rule and the documents should not be available for inspection.

9 During the course of argument on the first return date it became apparent that the description of the documents contained in Morrison's further affidavit was inadequate. I therefore ordered that a further affidavit of Morrison be filed better describing the documents in question. That affidavit was sworn 22 February 2000. Twenty one documents are mentioned, the first dated 26 March 1997, the last 10 October in a year not specified, but likely to be 1998. The dates on these documents do not explain why document 358(6) is expressed to cover the period 11 July 1995 to 1 May 1998. At the defendant's request, I ordered the plaintiff to file a further affidavit explaining this discrepancy. The plaintiff filed a further affidavit of Morrison sworn 14 March 2000. The position is explained and the defendant has taken no issue with Morrison's affidavit. This issue is not now relevant to resolution of this application.

10 Essentially, what is argued by the defendant is that there has been a waiver by the plaintiff of privilege by pleading. It is not suggested there has been an express waiver of privilege, but rather that there has been an implied waiver. The question of an implied waiver of privilege was considered by the High Court in Attorney-General for the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475. This was not a case which dealt with implied waiver by pleading. But it did deal with the question of in what circumstances waiver will be implied. Gibbs CJ put the position as follows (at 481):

"The decisions in which this question (of implied waiver) has been considered seem to me to be particular applications of the rule that in a case where there is no intentional waiver the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production. Thus it has been held that the privilege in respect of a document is not waived by the mere reference to that document in pleadings ... or in an affidavit ... although the position will be different if the document is reproduced in full in the pleading or affidavit ... . These cases may be explained by saying that it is not unfair or misleading to refer to a document in a pleading or affidavit which is not put into evidence but that if the document is set out in full the privilege is waived. A fortiori, of course, privilege in respect of materials used in drawing a pleading or an affidavit and not referred to therein, would not lose their privilege because they had been used in that way."

11 The question was further considered by the High Court in Mann v Carnell [1999] HCA 66. The majority, Gleeson CJ, Gaudron, Gummow and Callanan JJ, said (at par 29):

"Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is 'imputed by operation of law'. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank (1993) 35 NSWLR 110, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large."

12 Turning to waiver of privilege by pleading, it is possible to identify at least five situations where pleading can give rise to an implied waiver of privilege. These are:

1. Where a document otherwise privileged is reproduced in the pleading.

2. The pleading puts the privileged communication in issue where for instance an allegation is denied based upon a privileged communication.

3. The party claiming privilege raises an issue which cannot be fairly determined without reference to the privileged material. This is perhaps a limited instance of the wider principle that privilege cannot operate to compromise the court's fact finding task.

4. A party's state of mind or knowledge is an issue and legal advice is relevant in the formation of that state of mind.

13 I think these principles emerge from the following cases: Data Access Corp v Powerflex Services Pty Ltd (1994) AIPC 91-112; Wardrope v Dunne [1996] 1 Qd R 224; Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634; Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925; Ampolex v Perpetual Trustee Co (1995) 37 NSWLR 405; Southern Equities Corporation Ltd v Arthur Andersen [1997] SASC 6712; (1997) 70 SASR 166.

14 In the present case, it was the fourth of these principles upon which the defendant relied. It was submitted that what was relevant was the state of mind of the plaintiff - that is to say, when it became aware that an action for recision might lie. The legal advice it received impacted directly on that question.

15 The approach adopted by courts to applications of this kind can be illustrated by an examination of two decisions - Telstra Corporation v BT Australasia and Perpetual Trustees v Equuscorp. Both these decisions are decisions of the Full Federal Court. Both concern not only common law principles but the operation of s 112 of the Commonwealth Evidence Act. That Act is not relevant in this case. Nonetheless, the common law principles were discussed in some detail in both cases. Dealing first with the Telstra case, the respondent pleaded in the statement of claim that it had acted "in reliance on" a particular representation made by the applicant. The respondent had taken legal advice prior to so acting. It was the applicant's contention that this being the case the legal advice obtained by the respondent was put in issue. Branson and Lehane JJ, who formed the majority, agreed. Their Honours said (at 648):

"Where ... 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."

16 In reaching this conclusion, their Honours quoted what was said by Gleeson CJ in Benecke v National Australia Bank (1993) 35 NSWLR 110, where his Honour said (at 111 - 112):

"The law permits the search for the truth in legal proceedings to yield, in certain circumstances, to the public interest in preserving the secrecy of communications between lawyer and client. In the present case, however, the appellant herself lifted the veil of secrecy by giving her version of the communications. Thereafter, there was no reason in principle why the pursuit of the truth should not take its course, or why the court should be inhibited in seeking to ascertain the true facts concerning those communications."

17 Turning to the Perpetual Trustees case, the court (Ryan, Carr and Marshall JJ) summarised the factual position as follows (par 2):

" ... Perpetual was the trustee of a unit trust in respect of which the public subscribed for units as part of a scheme for the production of a film released under the title "Double Impact". In summary, Equuas claims that between August 1989 and June 1990 the respondents made various misleading or deceptive representations to it in respect of the scheme, that in reliance upon those representations it executed a document (described in the further amended statement of claim as 'the security document'), advanced funds totalling $8.375 million by way of finance facility and suffered loss and damage by reason of the respondent's misleading or deceptive conduct. Equuas also claims rectification of the security document on the basis that the references therein to 'a letter of credit' do not faithfully record the common intention of the parties and were made under a mutual mistake of fact. Equus maintains that the common intention of the parties, namely that it was to provide a performance guarantee rather than a letter of credit, was not embodied in the security document. ...

On 20 January 1999 Perpetual obtained the issue of a subpoena directed to Messrs Deacons Graham & James who were formerly Equus's solicitors ('Deacons'). The subpoena required Deacons to produce a file containing various documents created during the period 1 July 1989 to June 1991 when it was acting for Equus in relation to, amongst other things, the provision of the abovementioned finance facility. Deacons produced the file to the Court on 3 February 1999. Equus claimed that certain documents on the file were privileged from production on the ground of legal professional privilege. These were handwritten documents comprising records taken by solicitors, employed by Deacons' predecessor firm, of confidential instructions given by Equus during May and June 1990 in relation to the provision of security by Equus for production of the film, and confidential communications between that firm and Equus, consisting of legal advice (or drafts of legal advice) provided by them in the context of their professional relationship in that matter. ... "

18 It was conceded by the defendant that in the normal case the documents in question would have been privileged. However it was submitted that there had been an implied waiver of privilege. It was argued that as the state of mind of the respondent was put in issue by the pleading and the issue could not fairly be assessed without examination of relevant legal advice such advice should be available for examination. It was said that an implied waiver was warranted by considerations of fairness.

19 The above summary of the facts shows clearly that, in common with the Telstra decision the action concerned a claim under the Trade Practices Act and necessarily a plea of reliance. Once that plea was made the state of mind of the plaintiff was put in issue. However, in the Perpetual case there was the further claim for rectification. The court determined that because the state of mind of the respondent was put in issue by the pleadings the documents should be available for inspection. The court reached that conclusion primarily based upon questions of fairness as it related to the plea of reliance. However the court said (at 17): "Equus' state of mind is central, at the very least, to its claim for rectification - see Ampolex - a case cited with apparent approval by Beaumont J in his dissenting reasons in Telstra."

20 It is plain that in this case the plaintiff has put squarely in issue its state of mind at the time it entered into the lease. A claim for rectification requires a party to establish that the document which is to be rectified does not represent the common intention of the parties at the time they entered into the written document. It is then necessary for the plaintiff to establish what the common intention of the parties was at the time they entered into the document. The state of mind of both parties is clearly relevant and if that state of mind was conditioned by legal advice taken by the plaintiff then the documents embodying that advice should be available for inspection. But that is not the case here. The legal advice was taken subsequent to the parties entering into the agreement. By making a claim for rectification the plaintiff has not put its state of mind subsequent to the parties signing the written agreement in issue. Rather, the defendant has put the plaintiff's state of mind in issue by its defence. None of the decided cases deal directly with this issue.

21 In resolving this application it is, in my view, appropriate to look at the particular nature of the dispute between the parties and to determine whether fairness, in the context of the dispute, requires disclosure of the legal advice. As I have indicated above, the defendant has pleaded the equitable defences of laches and acquiscence. Both of these defences require the plaintiff have knowledge of its rights: see Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221. The plaintiff, in its reply, has not dealt directly with this question of its knowledge of its right to rectification. It has joined issue with the defendant on this question. It could have admitted that it had knowledge of its right to rectification from the date upon which the written lease was signed. Then there would be no issue between the parties as to when it was, on the plaintiff's case, it became aware that the lease document did not embody the agreement between the parties. But by joining issue with the defendant on its defence, the plaintiff has effectively put in issue its state of mind - its knowledge of its right to rectification. That being the case, the advice of its solicitors should be available for inspection.

22 I would be prepared to make orders in terms of the chamber summons. However, I will hear the parties as to the precise form of orders which might be appropriate in this case and as to costs.