Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Limited

Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Limited - [2001] NSWIRComm 73 - NSWIRComm 2001 case summary — Zoe

RESPONDENT Caterpillar of Australia Limited FILE NUMBER: IRC 5227 of 2000 CORAM: Boland J CATCHWORDS : Discovery and inspection of documents - Legal professional privilege - Imputed waiver - Proceedings under s 106 of the Industrial Relations Act 1996 - Respondent sought discovery of documents evidencing legal advice - Applicants claimed legal professional privilege - Whether applicants had made allegations raising issue of their state of mind to which legal advice may have contributed - Commission in Court Session's powers in relation to legal professional privilege - Whether Evidence Act 1995 (NSW) or common law applicable - Importance of legal professional privilege - Imputed waiver of legal professional privilege - Issue waiver - Whether fair to respondent and conducive of ascertaining the truth to allow applicants to maintain legal professional privilege over legal advice that may have contributed to their state of mind in relying on certain representations by respondent - Imputed that by operation of law applicants had waived legal professional privilege. Evidence Act 1995 (Cth) Evidence Act 1995 (NSW) LEGISLATION CITED : Industrial Relations Act 1996 Industrial Relations Commission Rules 1996 Supreme Court Rules 1970 Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 137 ALR 28 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1998) 37 NSWLR 405 Attorney-General (NT) v Maurice (1986) 161 CLR 475 Benecke v National Australia Bank (1993) 35 NSWLR 110 Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] FCA 681 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664 CASES CITED : Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123 Goldberg v Ng (1995) 185 CLR 83 Mann v Carnell (1999) 168 ALR 86 Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 Pickering v Edmunds (1994) 63 SASR 357 Randell v Rockliffe [1999] TASSC 136 Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 Wardrope v Dunne [1996] 1 Qd R 224 HEARING DATES: 04/03/2001 DATE OF JUDGMENT: 04/09/2001

[9]

2 The relief sought by the applicants was in relation to three agreements between the first applicant and the respondent. The Further Amended Summons filed on 28 November 2000 set out the claims as follows: 1. An order declaring that the Sales and Service Agreement between the first applicant and the respondent dated 1 July 1991, the Distribution Agreement for Engines, Parts and Service between the first applicant and the respondent dated 1 July 1991 and the Product Support Agreement for Engines, Parts and Service dated 12 November 1997 between the first applicant and the respondent and/or any condition or arrangement collateral thereto (together called the "Agreements") are unfair as harsh, unjust, unconscionable and against the public interest. 2. An order that the Agreements be varied from their commencement, or such other date as the Court considers just, in accordance with the provisions in Schedule A hereto. 3. Further, an order that the respondent pay to the applicants such sum of money as the Court considers just in the circumstances of the case, together with interest thereon. 4. An order pursuant to section 107 that the respondent be prohibited from entering into any dealership agreements to operate in whole or in part of New South Wales in the form of the Agreements unless varied in accordance with the provisions of Schedule A hereto. 5. An order that the respondent pays the costs of the applicants for these proceedings. 6. Such further and other orders as the nature of the case may require. 3 Schedule A sought to amend the Agreements in a number of ways, primarily on the basis that the Agreements should continue to apply with enhanced provisions, eg, dispute resolution provisions, assistance by the respondent in rendering appropriate service to customers, etc, but in the event the Agreements were to be terminated it would be done in an orderly manner, with what the applicants considered to be an appropriate period of notice and protection of their interests.

[11]

7 In the course of the discovery process, a significant issue arose in relation to legal professional privilege and it is this issue that I am required to address in this judgment. The issue may be described thus: The respondent sought discovery of documents evidencing legal advice provided to or sought by the applicants in relation to transactions and other matters going back, over a number of years, to the original acquisition of the Caterpillar dealership by the second and third applicants in 1989. The applicants claimed legal professional privilege over the documents. The respondent submitted that a waiver of privilege may be imputed on the part of the applicants. The imputed waiver, it was submitted, arose in the following way: The applicants alleged unfairness because it was their belief and understanding, based on representations by the respondent, that the respondent's right to terminate the dealership under the "with or without cause" 90 day termination provision of the dealership agreements as only operating in "with cause" situations, namely, serious and wilful misconduct or sustained and significant poor performance. The applicants contended that the dealership was entered into upon assurances as to the secure and long term nature of the dealerships and that the applicants would not have purchased the dealership if they had any idea or belief that the respondent intended that the 90 day notice of termination provision would operate in accordance with its strict terms. On the basis of these understandings and beliefs the applicants outlaid extraordinary capital investment and reinvested dividends in respect of the dealership. Further, the applicants contended that they held a business interest in the nature of goodwill as ordinarily understood and that they were entitled to have that interest valued on an open market basis. The respondent submitted that because the applicants have made allegations or contentions raising issues of their state of mind, to which legal advice is likely to have contributed, they cannot claim legal professional privilege for that advice.

[31]

(2) The Court shall not compel, and rule 16 shall not require, production of a document or an answer to a question, unless and until the Court directs that the production or answer shall not be prevented by this subrule: (a) over the objection of a person if evidence of the document, or of an answer to the question, could not be adduced in the proceedings over the objection of the person, by virtue of the operation of Part 3.10 Division 1 of the Evidence Act; (b) if the contents or production of the document, or an answer to the question, would disclose: (i) a protected confidence or the contents of a document recording a protected confidence or protected identity information, within the meaning of section 126B of the Evidence Act, where: (A) consent by the protected confider within the meaning of section 126C of the Evidence Act has not been given to disclosure of the confidence, contents or information; and (B) section 126D of the Evidence Act would not operate to stop Part 3.10 Division 1A of the Evidence Act from preventing the adducing of evidence in respect of the confidence, contents or information; (b1) if evidence of a document, or of an answer to the question, could not be adduced in the proceedings by virtue of the operation of section 126H of the Evidence Act; (c) if the person required to produce, or answer, is a natural person and an answer to the question, or the contents or production of the document, would tend to prove that the person: (i) has committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) is liable to a civil penalty, within the meaning of section 128 of the Evidence Act; (d) if admission or use, in a proceeding, of the document, or of evidence in answer to the question, would be contrary to section 129 of the Evidence Act; (e) if the document relates to, or an answer to the question would contain information that relates to, matters of state within the meaning of section 130 of the Evidence Act; (f) if the contents or production of the document, or an answer to the question, would disclose a communication or a document to which section 131 of the Evidence Act applies; (g) in the case of the production of a document---if: (i) the disclosure of its contents; (ii) its production; or (iii) its admission or use, in the proceedings would be contrary to any Act or Commonwealth Act other than the Evidence Act or the Evidence Act 1995 of the Commonwealth; (h) in the case of the answer to a question - if an answer would disclose or result in disclosure of information the disclosure, admission or use of which in the proceeding would be contrary to any Act or Commonwealth Act other than the Evidence Act or the Evidence Act 1995 of the Commonwealth. (3) Where a party to any proceedings claims privilege from production of any document, the Court may, if it thinks fit: (a) permit evidence in relation to the claim to be given by any other party by affidavit or otherwise; and (b) permit cross-examination on any affidavit used in support of the claim.

[32]

15 Rule 13 commenced to operate on 1 October 1999 and apparently was designed to make it clear, inter alia, that Pt 3.10 of the Evidence Act applied to the adducing of evidence of confidential communications and to producing a document in a discovery context, which according to the Full Court of the Federal Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664, were not the same thing. The introduction of r 13 was designed to overcome the effect of the decision of the High Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123 which held, in overruling Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418, that the Evidence Act 1995 (Cth) did not apply to discovery and inspection of documents and that the common law of privilege was not modified by the Evidence Act 1995 (Cth). It should be noted that throughout the course of this judgment I may refer to the Evidence Act 1995 (NSW) and the Evidence Act 1995 (Cth) interchangeably, because the provisions relevant to these proceedings are the same. 16 I am not certain that Mr Shaw 's submission regarding the application of Pt 36 r 13 of the Supreme Court Rules is correct. Rule 186 of the Commission's Rules would seem to provide an express rule about the application of privilege to documents produced by summons or otherwise. It may be that Mr Shaw was relying on the fact that under Pt 22 - Discovery and Inspection of Documents, there is no express rule relating to legal professional privilege and that, as s 186 is in Pt 24 - Evidence and does not expressly say that legal professional privilege applies to the ancillary process of discovery and inspection, r 89(5) of the Commission's Rules would apply. I must say, I remain unconvinced about this proposition. 17 The significance of Mr Shaw's submission, if it be right, is that if the applicable rule is r 13 in Pt 36 of the Supreme Court Rules , then the provisions of the Evidence Act 1995 (NSW), namely s 118 and s 122, apply to privilege at the discovery stage. If the Supreme Court Rules do not apply, then the common law applies to privilege at the discovery stage: see Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123.

[40]

24 Waiver of legal professional privilege may also be imputed. In Goldberg v Ng (1995) 185 CLR 83 the High Court (Deane, Dawson and Gaudron JJ) said at 95-96: The circumstances in which a waiver of legal professional privilege will be imputed by operation of law cannot be precisely defined in advance. The most that can be done is to identify a number of general propositions. Necessarily, the basis of such an imputed waiver will be some act or omission of the persons entitled to the benefit of the privilege. Ordinarily, that act or omission will involve or relate to a limited actual or purported disclosure of the contents of the privileged material. When some such act or omission of the person entitled to the benefit of the privilege gives rise to a question of imputed waiver, the governing consideration is whether "fairness requires that his privilege shall cease whether he intended that result or not"(9). That does not mean, however, that an imputed waiver must completely destroy the privilege. Like an express waiver, it can be limited so that it applies only in relation to particular persons, materials or purposes. 25 In Attorney-General (NT) v Maurice (1986) 161 CLR 475 Mason and Brennan JJ explained at 487-488 the doctrine of implied or imputed waiver as follows: The limiting effect of legal professional privilege on the availability of evidence otherwise relevant is confined, inter alia, by the doctrine of waiver. A litigant can of course waive his privilege directly through intentionally disclosing protected material. An implied waiver occurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege. The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains: '(W)hen his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder.' (Wigmore, Evidence in Trials at Common Law (1961), vol 8, par 2327, p 636.) In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in waiver as to the rest of the communication on that subject-matter: see Great Atlantic Insurance Co v Home Insurance Co .

[43]

27 In Mann v Carnell (1999) 168 ALR 86 at 94, the High Court ( Gleeson CJ, Gaudron, Gummow and Callinan JJ) said that " What brings about the waiver [of privilege] 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. " The Court said: At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that "waiver" is a vague term, used in many senses, and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client's version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication, or the institution of proceedings for professional negligence against a lawyer, in which the lawyer's evidence as to advice given to the client will be received. 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 , 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.

[44]

28 There appears to be two categories of waiver in the context of legal professional privilege, namely, "disclosure waiver" and "issue waiver". Disclosure waiver is exemplified by Mann v Carnell and Benecke v National Australia Bank (1993) 35 NSWLR 110 . Issue waiver is that where a litigant opens up the source and basis for its belief on a particular question, inspection cannot be denied by a general law claim of legal professional privilege: Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 155. In that case the respondent sued the State of New South Wales and Telstra, inter alia, for damages for misleading or deceptive conduct, alleging reliance upon the conduct. The State of New South Wales and Telstra sought discovery of documents subject to legal professional privilege that went to the state of mind of the appellant. Putting aside, for the moment, the other issue in the present case relating to the impact of the provisions of s 122 of the Evidence Act 1995 (Cth), it was held by Branson and Lehane JJ, Beaumont J dissenting that 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 the 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. The majority said at 166-167: The quality of any particular legal advice, and the extent, if any, to which it was causative of loss and damage, can only properly be assessed once it is placed in the context of the totality of legal advice received by the client. The client, by bringing the proceeding, is taken to have consented to the use of the privileged material, or to have waived reliance on the privilege which would otherwise attach to such material. Reliance on the privileged nature of the material would, in the circumstances, be unjust and would inhibit the proper functioning of the legal process.

[50]

31 In Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] FCA 681 Heerey J agreed with Beaumont J in Telstra and declined to follow the majority in that case. His Honour said: In claims under s 52 where the misleading and deceptive conduct alleged takes the form of misrepresentations to the plaintiff, it will usually be essential to plead reliance. This will be an essential link in the chain of reasoning establishing that the plaintiff suffered loss and damage " by the conduct of " the defendant so as to be entitled to damages under s 82. If the view of the majority in Telstra is correct, it would seem to follow inexorably that the mere pleading of reliance would remove privilege in respect of all legal advice which the plaintiff received concerning the conduct complained of. I do not think that can be right. The bare fact of asserting reliance does not expressly or impliedly assert that the plaintiff relied, or did not rely, on some privileged communication. As Beaumont J points out, it is not possible to predict the course a trial may take. A privileged communication may be subsequently referred to in a way that makes its continued protection unfair. But, at the moment, I have to consider the issue at an interlocutory stage. It is true that legal advice could be relevant in determining whether a plaintiff in fact relied on the misrepresentations complained of. But the whole point of legal professional privilege is that, for public policy reasons, material is excluded which might be relevant, indeed highly relevant. No balancing exercise is involved. If legal professional privilege applies, privilege trumps relevance. 32 In an appeal against the decision of Heerey J in Equuscorp, in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, a Full Bench of the Federal Court ( Ryan, Carr and Marshall JJ) overturned his Honour's decision and, in doing so, agreed with the analysis and reasoning of the majority in Telstra. The Full Bench said: 17 In our view, the facts of the present matter reflect the requisite degree of unfairness. Equus complains that it relied on the specified representations when it executed the security document. It says that the words "letter of credit" appearing in that document do not faithfully record the common intention of the parties and that the words were used under a mutual mistake of fact. There is evidence, that at the relevant time or times, i.e. shortly before executing the security document, Equus sought and obtained legal advice. In our opinion, in those circumstances, it would be relevantly unfair for Equus to be allowed to maintain legal professional privilege. 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.

[51]

33 At this stage, I come back to the question of the application of s 122 of the Evidence Act to the issue before me. On Mr Shaw 's submission, s 122 applies by virtue of Pt 36 r 13 of the Supreme Court Rules . Mr Hall , on the other hand, put his submissions on the basis of the common law applying. In Telstra, the majority held that conduct which would have amounted to imputed waiver at common law came within the meaning of s 122(1) of the Evidence Act 1995 (Cth). Their Honours did not identify any difference between imputed waiver at common law and implied consent within the meaning of the sub-section. The majority said: In our view, s 122(1) of the Act is to be construed as reaching to cases in which the client or party concerned is deemed to have consented to the disclosure of the otherwise privileged material in the sense discussed above. To constrain the operation of the subsection to instances of voluntary assent to the adducing of evidence which would otherwise attract client legal privilege is, in our view, to give insufficient weight to the context in which the subsection is found, and to the common law background against which the Act as a whole is to be understood. The primary judge expressed the view that, while "consent" in s 122(1) might include implied as well as express consent, it would be straining language excessively to hold that it extended to a "consent" imputed to a party on the basis of fairness. Presumably an implied consent, as envisaged by his Honour, is one that is found to be, on the evidence, real and voluntary though not express. In fact, however, the cases, not surprisingly, use the terms "implied" and "imputed" interchangeably (see, for example, Maurice at 488 per Mason and Brennan JJ, Goldberg at 95-96 per Deane, Dawson and Gaudron JJ and at 109 per Toohey J). Once it is accepted that consent for the purposes of the section extends beyond express consent, we think it should be taken to extend to imputed consent. In particular, if that were not so, a defendant ordinarily would no longer be able, where the plaintiff alleges that a transaction was procured by the defendant's undue influence, to lead evidence to the effect that the plaintiff had comprehensive legal advice, immediately before entering into the transaction as to its effect. We cannot believe that that was intended. It follows that, in such cases, the position has changed little, if at all, following the introduction of the Act. 34 The majority in Telstra was, of course, addressing s 122(1) of the Evidence Act 1995 (Cth). Mr Shaw submitted that the focus should be on s 122(4) of the Evidence Act 1995 (NSW). I have already noted that there is no relevant difference between the two statutes. Section 122(4) of the NSW Act differs from s 122(1) of that Act in that s 122(4) inquires whether there has been a consensual disclosure of "the substance of the evidence", save to the client's lawyer. However, in the light of the majority's observations quoted above in Telstra , it does not seem to me to make any difference whether Mr Shaw relies on s 122(4) or s 122(1) of the Evidence Act. In Telstra the majority relied on the underlying principle of fairness, which I consider would apply equally to s 122(1) and s 122(4). It could not be said as a matter of logic that the test of fairness applies to s 122(1) but not s 122(4). In any event, it would seem to me that s 122(4) applies more readily to the "disclosure waiver" category of cases rather than the "issue waiver" category of which the present case is one. In other words, where there has been consensual (either expressly or impliedly) disclosure of part of a confidential communication, the question may arise under s 122(4) as to whether there has been sufficient disclosure to warrant loss of privilege in respect of the whole of the communication. Issue waiver, on the other hand, is where a litigant opens up the source and basis for its belief on a particular question and inspection of any legal advice bearing on the belief cannot be denied on the basis of privilege.

[74]

52 Mr Hall submitted that any privilege claimed in respect of legal advice that may have influenced the applicants' understanding or belief that they held a business interest in the nature of "goodwill" as ordinarily understood and that they were entitled to have that interest valued on an open market, should also be regarded as having been waived. As Mr Hall properly conceded, the issue of understanding or belief relating to goodwill is in a somewhat different category to the other issues. In particular, it did not involve a situation where the applicants relied on any representations by the respondent and the issue does not seem to me to arise directly from the pleadings. The amended summons does refer to the market value of goodwill but only in the context of compensation in the event that the Agreements the subject of the claim are not varied in the manner sought by the applicants. But it was not pleaded that the Agreements were unfair because the applicants in some way relied on representations that their interests in the dealership included an element of goodwill. Nevertheless, Mr Hall submitted that as the applicants had asserted a business interest in the nature of goodwill and may have received legal advice as to whether indeed they did have such an interest, by making the assertion they have opened up the issue to be tested and privilege has been waived. Admittedly, the circumstances in which imputed waiver of privilege may arise are not closed but as matters presently stand and in the absence of more specific information, I am not disposed to accept that it may be imputed that the applicants have waived privilege in respect of their position on goodwill. In this respect I have had regard to the rationale underpinning legal professional privilege. Moreover, I think that if I were to accede to the respondent's submission on this issue of goodwill I would be opening up to litigants under s 106 of the Industrial Relations Act the prospect of engaging in speculative claims that privilege had been waived in relation to issues not even pleaded in the proceedings on the basis that a party may have received some legal advice on the issue.

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