BURN BRITE LIGHTS (VICTORIA) PTY LTD v KOYO AUSTRALIA PTY LTD No. SCCIV-99-261 [2002] SASC 360

After the settlement was reached, the defendant amended the third party statement of claim by adding paragraphs 16, 17 and 18 as follows:

"16 The plaintiffs alleged the motors were defective and the defendant settled the plaintiffs' claim without admission of liability on the basis of the motors being defective.

17 In or about March 2001 the defendant and plaintiffs settled the plaintiffs' claim and the defendant's counterclaim on terms that involved the defendant paying the plaintiffs the sum of $600,000 in full and final settlement of the plaintiffs' claim and agreeing to release the plaintiffs from liability arising under the defendant's counterclaim ('the Settlement').

The terms of settlement are set out in a Deed of Release (undated) between the defendant and the plaintiffs and the plaintiffs' director, Craig Saunderson. A copy of the Deed of Release may be inspected by appointment at the offices of the defendant's solicitors.

18 By entering the Settlement the defendant reasonably mitigated its liability for the plaintiffs' claim."

For the reasons published on 10 May 2002 I made the following orders:

"That within 21 days from the date of this order the defendant file and serve a supplementary list of documents:

(a) which identifies individually the documents (if any) referred to in the defendant's original list of documents over which the defendant claims legal professional privilege limited to the documents relevant to the issues raised in paragraphs 16, 17 and 18 of the further amended third party statement of claim by reference to the date, author, addressee (where applicable) and a brief description of the nature of the document without disclosing its contents; and

(b) which identifies and describes in accordance with these reasons the documents referred to in the defendant's third and fourth supplementary list of documents over which the defendant claims legal professional privilege limited to documents relevant to the issues raised in paragraphs 16, 17 and 18 of the further amended third party statement of claim."

The defendant subsequently provided further lists in which the document in respect of which privilege has been claimed and which relate to the matters raised in paragraphs 16, 17 and 18 of the amended third party statement of claim, have been separately disclosed and identified. The third party contends that the further descriptions of the documents in these latest lists do not comply with the order made by me on 10 May 2002. In any event, by paragraph 2 of the current application, the third party seeks production of those documents.

At the hearing of this application, Mr Livesey appeared for the third party and Mr Soulio for the defendant. When Mr Livesey commenced his submissions I expressed to him the tentative view that if he was seeking an order in terms of paragraph 2 of the current application, and if paragraph 2 related to the same documents referred to in paragraph 1 of the application, it was not necessary to get a better description of the documents if in fact they were to be produced pursuant to an order made by reference to paragraph 2 of the application. Mr Livesey agreed with this view and indicated to me that he only intended to pursue paragraph 2 of the application.

It is now well established that where a party raises in pleadings an issue involving the state of mind of the party at a given time in circumstances where legal advice is likely to have contributed to that state of mind, any legal professional privilege that might otherwise apply is lost. A waiver of the privilege is imputed to that party irrespective of the party's intention: Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd and Ors (1995) 37 NSWLR 405, which followed Thomason v Campbelltown Municipal Council [1939] NSWStRp 10; (1939) 39 SR (NSW) 347. The question of whether or not waiver of privilege should be imputed depends on whether it would be unfair or misleading to allow a party to refer to or use material which is otherwise privileged and yet assert that the material is privileged from production: Attorney-General for the Northern Territory v Maurice and Ors [1986] HCA 80; (1986) 161 CLR 475.

In Pickering and Ors v Edmunds and Ors (1994) 63 SASR 357, Duggan J reviewed the cases relating to imputed waiver. He said (at 362):

"A waiver of legal professional privilege cannot be implied simply because the pleadings made such advice relevant. The possibility that the court might be restricted in its capacity to determine the truth is part of the price which must be paid for the advantages of legal professional privilege. It is only when the conduct of the party entitled to the privilege and considerations of fairness outweigh the competing considerations concerned with the exercise of the privilege that a waiver will be implied."

It has also been held that the imputed waiver of privilege may take place at a time prior to the tendering of otherwise privileged material at trial: Hongkong Bank of Australia Limited v Murphy and Ors [1993] VicRp 83; [1993] 2 VR 419 at 438.

It appears from the authorities that on an application such as this three things must be considered by the Court: first, whether there has been pleaded into issue facts and circumstances which are such that the giving of advice by a solicitor to the party to the litigation is relevant; second, whether or not it would be unfair to the opposing party to allow the person claiming privilege to rely upon that privilege; and, third, if there has been imputed waiver, the time at which the waiver is to be imputed.

The third party asserts that the matters pleaded in paragraphs 16, 17 and 18 of the amended third party statement of claim put into issue the question of the reasonableness of the settlement arrived at between the plaintiff and the defendant. That is not disputed. The third party then asserts that the (corporate) state of mind of the defendant becomes relevant. It was submitted that legal advice given to the defendant at the time of settlement was likely to have contributed to the defendant's state of mind. The defendant contests these assertions, stating that all of the matters referred to in paragraphs 16, 17 and 18 may be proved without reference to any communication between solicitor and client which would attract the privilege. The defendant goes further by the statement of its counsel, Mr Soulio, during the course of argument, that the defendant would not seek to make out the matters pleaded in paragraphs 16, 17 and 18, including the question of whether the settlement was reasonable, by adducing evidence of otherwise privileged communications between solicitor and client.

In considering the defendant's submission, it is necessary to draw the distinction between the means by which a party might seek to prove particular facts and the question of whether or not documentation relevant to those questions is discoverable. It is not open to a party to confine the ambit of discovery by voluntarily limiting itself as to the means by which that party intends to prove certain facts: Donaldson v Harris and Another (1973) 4 SASR 299. To do so would be to ignore the ordinary scope of discovery which involves the concept of the disclosure of documentation both favourable and unfavourable to the particular party's case. In other words, the opposing party, putting aside privilege for the moment, is entitled to have access to documentation in the custody, possession or power of the party giving discovery which is favourable to that opposing party's case. This is so whether the test for discovery is that applied in relation to SCR 58 or the test that is provided for in SCR 58A.

It is also appropriate to emphasise that the Court, on applications for production of documents where privilege is claimed, is dealing with allegedly privileged documents as opposed to oral communications between solicitor and client.

The third party's present application is centred upon the assertion that the defendant, in seeking to recover from the third party the settlement sum, acted reasonably in entering into the settlement with the plaintiffs. This is reflected in paragraph 18 of the amended third party statement of claim where the defendant pleads that it "reasonably mitigated its liability for the plaintiffs' claim" by entering into the settlement.

Mr Livesey, counsel for the third party, referred to the decision of the Full Court in Saccardo Constructions Pty Ltd v Gammon (1994) 179 LSJS 129. The facts of the case are set out in the judgment of King CJ (at 129) as follows:

"The plaintiff was injured in the course of his employment by the Third Party when a truck driven by the defendant collided with him. He brought an action in the District Court against the defendant claiming damages. The defendant joined the Third Party claiming contribution. The action was listed for trial in the District Court to be heard on 13th September 1990. On 31st August 1990 the defendant filed an offer to consent to judgment, in accordance with the Rules of Court, in the sum of $62,933.87. The Third Party was not a party to the offer. The plaintiff filed an acceptance of the offer on 7th September 1990 and it thereupon became a judgment of the Court."

King CJ, with whom Millhouse J agreed, said (at 131):

"Certain propositions as to the law applicable where a defendant seeks to recover contribution towards its liability on a consent judgment to which the Third Party did not consent, may be deduced from those authorities:

1 The test as to whether the defendant can recover on the basis of the full amount of the consent judgment is the reasonableness of the settlement.

2 There is no presumption of law that the settlement was reasonable and the onus is on the defendant seeking contribution to prove in the proceedings against the Third Party, the reasonableness of the settlement.

3 The fact of the settlement is some evidence of its reasonableness and the defendant is not in all circumstances required to call witnesses to establish that the amount paid was reasonable.

4 The circumstances in which the settlement was arrived at and any proper inferences therefrom may be evidence of the reasonableness of the same.

As the issue in the proceedings against the Third Party is the reasonableness of the settlement, it seems to me to follow that it must be assessed in the light of the facts which were known or ought to have been known by him and his legal representatives at the time of the settlement."

It is clear from that decision that the settlement reached between the plaintiff and the defendant in this matter must be viewed objectively. The use of the word "reasonableness" necessarily connotes that approach. In those circumstances the question must be asked: to what extent (if any) is the state of mind of the defendant material? In my opinion, the answer to that question is that the state of mind of the defendant (in this case by its officers) is relevant to the extent that those officers took into account any written advice given by the defendant's legal advisers at about the time that the settlement was entered into. The reliance upon such advice is not conclusive evidence of the reasonableness of the settlement but it is one of the factors which could be taken into account. This stems from the third element referred to by King CJ set out above, namely that the fact of the settlement is some evidence of its reasonableness. It is not to the point for the defendant to say that it will not call such evidence on the question of whether or not the settlement entered into was reasonable. As I have said before, the defendant cannot legitimately limit the extent of its own discovery by voluntarily deciding not to call evidence of a particular type. For these reasons, I consider that the defendant has pleaded into evidence the issue of the defendant's state of mind at the time that the settlement with the plaintiffs was entered into.

I turn to the question of whether or not it would be unfair to the third party to allow the defendant to maintain its claim for legal professional privilege in respect of any documentation containing advice or relating to advice given by the defendant's legal advisers to the defendant at about the time of settlement. In considering this aspect of the matter I must weigh up the necessity to uphold the concept of legal professional privilege as being a fundamental part of our legal system with the potential unfairness to the defendant if access to any relevant documentation is denied. In my view, the third party would be placed at a considerable disadvantage if it did not have access to such documentation. The third party would be precluded from making its own assessment, in light of the advice given to the defendant at the time of settlement, as to the reasonableness of the settlement. It would be precluded from scrutinizing any written advice tendered to the defendant with a view to determining for itself whether or not such advice was sound. That being the case, I consider that waiver of privilege should be imputed to the defendant because of the potential unfairness to the third party if access to any relevant documentation were denied.

The third element to be considered is whether or not the waiver of privilege should be imputed to the defendant at this interlocutory stage. In my view, it would be quite inappropriate to defer the imputation of waiver. Whilst I accept that the defendant does not intend to adduce evidence of advice given to the defendant at the trial with the result that there will be no actual waiver at any stage of the proceedings by the defendant, when the defendant's witnesses as to the reasonableness of the settlement are cross-examined by counsel for the third party, it is likely that questions would be put in cross-examination relating to the advice given to the defendant which would inevitably raise, in the case of documentary advice, the question of whether or not there has been an imputed waiver of privilege. It would be highly undesirable to leave that aspect of the matter until the trial because, in all likelihood, the trial would have to be adjourned in the event that the trial Judge rules, as I do on this interlocutory application, that waiver of privilege is to be imputed.

For the above reasons, there will be an order that the defendant produce to the third party all documents over which it claims legal professional privilege limited to the documents relevant to the issues raised in paragraphs 16, 17 and 18 of the further amended third party statement of claim. I will hear the parties as to costs.