FKP Constructions v Smith [2005] NSWSC 126 | Case summary

1720/04 FKP CONSTRUCTIONS PTY LTD v MICHAEL JOHN MORRIS SMITH JUDGMENT 1 By its interlocutory process, FKP Constructions Pty Ltd seeks a declaration that legal professional privilege has not been waived in respect of two groups of documents, an injunction restraining Michael John Morris Smith as liquidator of C&G Technologies Pty Ltd from using or divulging any information in them and for orders that the documents be returned. 2 For the purpose of the examination of the examinable affairs of C&G Technologies under the Corporations Act 2001 (Cth), s 596B(1), Gino Mollo and FKP Constructions were ordered to attend at this court and to produce documents on 29 March 2004. The orders for production were served on 9 March 2004. The categories of documents to be produced were extensive. They extended to related entities. 3 Mr Mollo was the former contracts administration manager of FKP Constructions. In that role he had dealings with C&G Technologies and he accepted the task of producing the documents. Mr Mollo did not have direct access to all categories of documents and he immediately set about ascertaining the location of relevant documents and the relevant corporate entities identified in the orders. These tasks were carried out in Brisbane. Detailed searches of the files and archives of FKP Constructions were required to be carried out for this purpose. 4 In light of the breadth and scope of the documents sought, Mr Mollo regarded the time for production to be very "tight". He delegated the task of locating boxes of documents to other staff at FKP Constructions, instructing them to locate all documents ostensibly relevant to dealings with C&G Technologies. He then "scanned" the documents to ensure that, for instance, documents relating to irrelevant projects were not disclosed. 5 Mr Mollo instructed his solicitors to object to the width of the orders as not relating to the examinable affairs of C&G Technologies. In consequence, the solicitors for the liquidator agreed to reduce the categories in the orders on Friday 26 March 2004. But the breadth and bulk of the documents required to be produced was still significant. 6 Having undertaken his scanning exercise on Friday 26 March 2004, Mr Mollo caused two boxes of documents to be delivered to the solicitors, Dibbs Barker Gosling, in Brisbane. Mr Guthrie, a member of that firm, received two boxes on Friday 26 March 2004, but due to the requirement to deliver the documents to the court in Sydney on Monday 29 March 2004, he was unable to, nor was he requested to, inspect the two boxes of documents to consider whether or not any of them were subject to client legal privilege. He arranged for an overnight courier to deliver the documents in Sydney. 7 During the course of the examination of Mr Mollo in Sydney on 29 March 2004, it became evident that a claim for client legal privilege ought to have been made and was made during the examination by solicitors on behalf of FKP Constructions. The documents in question were marked MFI 2 and MFI 4. They were not put in evidence before me. 8 Mr Mollo and Mr Guthrie swore affidavits read on the application before me. Neither was cross examined. It was submitted that the period from 9 March to 24 March 2004 was unexplained and I should not accept that Mr Mollo was pressed for time. I reject that submission. Mr Mollo swore to the extent of the categories of documents to be disclosed and the necessity to ascertain the identity of related entities and the location of documents. Mr Mollo sought help from other members of staff of FKP Constructions but was still of the view that the time to carry out the task was "tight". 9 Mr Johnson, who appeared for the liquidator, conceded that the documents marked for identification did not concern unlawful behaviour that might expose them to discovery. He informed me that the documents in question constituted letters from Dibbs Barker Gosling to their client and advice. 10 The Evidence Act 1995, s 118 excludes evidence being adduced of a confidential communication made between client and lawyer for the dominant purpose of providing legal advice to the client. That provision applies to an order for discovery because of the definition of the term "privileged document" in the Supreme Court Rules 1970, Pt 23 r 1(c). However, the Evidence Act 1995, s 122(2) provides that the Act 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 in circumstances irrelevant for present purposes. 11 In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12 at 22, Rolfe J explained the word "voluntarily" in the provision as being used in the sense that the disclosure was not made by way of mistake, it being possible that a disclosure may be made knowingly yet by way of mistake. FKP Constructions submitted that the inclusion of MFI 2 and MFI 4 in the two boxes of documents was inadvertent, occasioned by the "tight" time constraints, was not a voluntary disclosure and the Evidence Act 1995, s 122(2) was not enlivened. 12 In Meltend Pty Ltd v Restoration Clinics of Australia Pty Ltd (1997) 75 FCR 511 at 522-523, Goldberg J took the view that a deliberate decision not to claim privilege in respect of a document because of a misunderstanding as to its nature, constituted express waiver as it involved an intentional act with knowledge. Translating that approach to the Evidence Act 1995, s 122(2), the mistake or inadvertence did not alter the circumstance that the disclosure was knowing and voluntary. In the instant circumstances, however, there was no consideration of the documents and a misguided decision made that the documents were not privileged. All that was available in the time allowed was a scanning of the documents that failed to alert Mr Mollo to the fact that some of the contents of the boxes may have been subject to client legal privilege. 13 The instant circumstances are closer to those in Hooker Corporation Ltd v Darling Harbour Authority (1987) 9 NSWLR 538 in which Rogers J concluded that privilege was not waived where a litigant was bound to comply with an accelerated compulsory discovery process and inadvertently or unintentionally included a protected document in a list of documents. And Smith J, in Hong Kong Bank of Australia Ltd v Murphy (1993) 2 VR 419, concluded that privilege had not been waived with respect to a document that had been inadvertently produced for inspection. 14 In ASIC v Rich [2004] NSWSC 934, Austin J rejected a claim to privilege by ASIC of documents discovered to the defendant. There had been a decision that client legal privilege would not claimed with respect to material that had been used for the preparation of a report. Some 55 boxes of documents were discovered, of which the contents of 25 were tagged by the defendant for copying. On two occasions, a solicitor reviewed the 55 boxes. On the first occasion he concentrated on the 25 boxes that had been tagged from which he set aside nine or ten folders for which legal client privilege might be claimed. On the second occasion he concentrated on the remainder of the boxes. The documents for which privilege was subsequently claimed were within the 25 tagged boxes but not set aside by the solicitor. There was no suggestion that the solicitor had inadequate time to carry out his inspection on either occasion. His Honour concluded that ASIC had failed to overcome its evidentiary onus of explaining why the disclosure was not knowing and voluntary. 15 That situation is far different from the instant circumstances in which the strictures of time required the assembly of the two boxes of documents such that Mr Mollo could merely scan them before their delivery to the solicitors who had no opportunity to consider client legal privilege. 16 In those circumstances, I am of the view that the inclusion of MFI 2 and MFI 4 in the two boxes was not a knowing and voluntary disclosure and the Evidence Act 1995, s 122(2) was not enlivened. 17 In Meltend, Goldberg J also concluded that waiver of privilege should also be imputed by operation of law. 18 The Evidence Act 1995, s 122(1) provides that the Act does not prevent the adducing of evidence given with the consent of the client. At common law, a client who would otherwise be entitled to the benefit of legal professional privilege, may waive that privilege and that waiver may be express or implied (Mann v Carnell (1999) 201 CLR 1 at 13). 19 There is some division in the authorities at to whether the consent to which reference is made in the Evidence Act 1995, s 122(1) includes the common law concept of implied waiver of privilege. That conflict was discussed by McDougall J, recently, in Singapore Airlines v Sydney Airports Corporation [2004] NSWSC 380 at [52], [56]. His Honour concluded that the better view was that the common law test as enunciated in Mann could be applied to the statutory concept of consent in s 122(1). I endorse that view. 20 In Mann at 13, the court stated the common law principle in terms of conduct inconsistent with the maintenance of confidentiality: "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" (eg Goldberg v Ng (1995) 185 CLR 83 at 95). 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… 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 the maintenance of the confidentiality; not some overriding principle of fairness operating at large." 21 Under this head of waiver, the court must weigh interests of fairness and matters of public policy against the retention of the privilege. On the one hand, as Goldberg J pointed out in Meltend at 526, parties seeking inspection should be entitled to assume that the discovering party has carried out the process of discovery properly and in accordance with relevant principles. Furthermore, the purpose of an examination under the Corporations Act 2001 (Cth), s 596A is for the liquidator to gather information which is subject to the Harman principle that the information not be used for any purpose other than in relation to the litigation in which it is disclosed (Bell Group Ltd (in liq) v Westpac Banking Corp (1998) 28 ACSR 343 at 348). On the other hand, the difficulties due to the exigencies of time that gave rise to the inclusion of the privileged documents in the boxes produced to the court, suggest that privilege should be maintained. In the present circumstances, I do not see such a conflict between the inadvertent inclusion of the documents in the accelerated production ordered by the court and the maintenance of the privilege that implied waiver of privilege should be found. 22 In those circumstances, I am of the view that FKP Constructions is entitled to the protection of the Evidence Act 1995, s 118. 23 I will hear the parties on the appropriate terms of orders. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these orders.

FKP Constructions v Smith

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Judgment (11 paragraphs)

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Cases Cited (8)