GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd

Court of Appeal (NSW)|2020-08-27|Before: Macfarlan JA, McCallum JA

Solicitors: Hugh & Associates Lawyers (Applicants) Lin Tang & Co Lawyers (Respondent) File Number(s): 2020/165758 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Date of Decision: 22 May 2020 Before: Ward CJ in Eq File Number(s): 2018/00244781

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The respondent ("Xinfeng") and a Mr Yuqing Liu commenced proceedings in 2018 against the present applicants ("the Judgment Debtors") for recovery of a $10 million loan with interest. The Judgment Debtors cross-claimed, alleging that the loan was part of a larger incomplete transaction. On the day of the final hearing the Judgment Debtors consented to judgment in favour of Xinfeng for $10 million, dismissal of their cross-claim and orders for them to pay indemnity costs ("the Consent Orders"). In 2019, the Judgment Debtors filed a Notice of Motion seeking to set aside the Consent Orders. The basis relevant to this appeal was that at the time of agreeing to the Consent Orders, the Judgment Debtors were unaware that the transaction was illegal (because it allegedly involved a transfer of money from China to Australia in contravention of Chinese foreign exchange regulations) and therefore made a unilateral mistake. Xinfeng then issued a subpoena to the former solicitors of the Judgment Debtors seeking the production of any documents containing legal advice given about the proceedings. The Judgment Debtors applied to have the subpoena set aside on the basis that the documents were subject to legal professional privilege. The issue before the primary judge was whether the Judgment Debtors had waived privilege over the relevant documents by their conduct in making the assertions they made in support of their Notice of Motion. The primary judge determined that privilege had to some extent been waived but found that the subpoena as drafted was too broad. Her Honour therefore made an order requiring production to the limited extent she thought appropriate and granted the parties "general access" to the documents to be produced. On appeal, the Judgment Debtors contended that they had waived privilege only to a more limited extent, being only over documents containing legal advice as to the legality or illegality of the underlying transaction or agreement. The principal issues on the application for leave to appeal were: (1) Whether the Judgment Debtors had waived privilege in respect of legal advice from their former solicitors as to the merits of their defences generally. (2) Whether the primary judge impermissibly redrafted the subpoena. (3) Whether the primary judge erred in granting the parties general access to the documents to be produced. The Court granted leave and allowed the appeal: (Per Macfarlan JA, McCallum JA and Simpson AJA agreeing): In relation to Issue 1: At common law, the test to determine whether there has been waiver of legal professional privilege by the privilege holder's conduct is one of inconsistency between that conduct and the retention of the privilege, not one of general fairness or of relevance to an issue in the proceedings: [52]-[53], [57]. Although there was inconsistency to the extent conceded by the Judgment Debtors (legal advice as to illegality), it did not extend to legal advice concerning the merits of other defences: [59]-[60]. Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66; Osland v Secretary, Department of Justice (2008) 234 CLR 275; [2008] HCA 37, applied. In relation to Issues 2 and 3: These issues did not arise as the Judgment Debtors were successful on Issue 1. However the Court observed in relation to Issue 2 that it had been open to the parties to approach the primary judge to seek reconsideration of the form of the order: [64]. It is appropriate to take such a course, wherever possible, rather than bringing issues first to the Court of Appeal on an application for leave to appeal: [64]. Similar comments were made about Issue 3, as the primary judge was well placed to address any arguments about access: [65]. Consolidated Lawyers Ltd v Abu-Mahmoud [2016] NSWCA 4; Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500; [2017] NSWCA 106, referred to.

Judgment

MACFARLAN JA: This is an application for leave to appeal from part of a judgment of Ward CJ in Eq dated 22 May 2020 given on an application by the present applicants ("the Judgment Debtors") to set aside a subpoena issued on the application of the respondent ("Xinfeng").
The substantive, underlying proceedings were commenced by Xinfeng and Mr Yuqing Liu (referred to by the primary judge collectively as "the Judgment Creditors") against the Judgment Debtors in 2018. In those proceedings Xinfeng sought recovery of a $10 million loan with interest. Mr Yuqing Liu was a plaintiff but what he sought in the proceedings is not clear as this Court was not provided with a copy of the statement of claim. This is not however of present significance as Mr Yuqing Liu was not a party to the application for leave to appeal.
By cross-claim in the substantive proceedings, the Judgment Debtors sought relief in relation to what they alleged was a larger transaction between the parties of which the payment of $10 million to them was part. The proceedings were fixed for an expedited final hearing to commence on 18 October 2018 but on that day the Judgment Debtors, in what the primary judge later described as "a complete capitulation", consented to judgment against them, in favour of Xinfeng, for the full $10 million claim (with liberty to apply in relation to interest reserved), to the dismissal of their cross-claim and to orders for them to pay indemnity costs.
On 2 September 2019 the Judgment Debtors filed a Notice of Motion seeking to have the consent orders of 18 October 2018 set aside. Their amended Motion was pursued on the following bases, as described by the primary judge: "[14] First, they contend that the liability embodied in the Consent Orders was premised upon an illegal transaction, namely a transfer of money ($10m) from China to Australia in contravention of Chinese foreign exchange regulations, including Chinese criminal laws. It is contended that this illegality infects the Consent Orders as they are in furtherance of this illegal transaction. [15] Second, and significantly in the context of the present application [to set aside a subpoena], the Judgment Debtors assert that they were unaware of this illegality at the time the Consent Orders were made and they say that, by reason of this unilateral mistake as well as in light of considerations of international comity, the Consent Orders should be set aside."
The second contention involved (and continues on appeal to involve) an allegation that Mr Wensheng Liu, the directing mind of the Judgment Debtors, was unaware when giving instructions for the Judgment Debtors to consent to the 18 October 2018 orders of the illegality of the transaction and therefore unaware that the Judgment Debtors might have had a defence of illegality available to them. The primary judge proceeded, in my view correctly, on the basis that if any such mistake were to constitute a defence, it would have to have been "operative" in the sense that knowledge of the illegality of the transaction would have caused Mr Wensheng Liu to have the Judgment Debtors defend the proceedings (and pursue their cross-claim) rather than consent to judgment against them. Before this Court counsel for the Judgment Debtors accepted that proposition.
The motion to set aside the consent orders was supported by an affidavit of Mr Wensheng Liu who described the process by which amounts totalling about $AU10 million were transferred from China to Australia. He said that until recently he did not believe that the transfers were unlawful under Chinese law and that he had believed that a company through whom the transfers were effected (KVB Kunlun) had or would obtain the necessary licences and approvals. He continued: "During the course of these proceedings, including when I agreed to the orders made 18 October 2018, I did not know that transferring the Funds to Australia via KVB Kunlun may have been illegal under Chinese Law and constitute a defence, amongst others, to the plaintiffs' claim."
Although Xinfeng submitted to this Court that the Judgment Debtors' application to set aside the consent orders on the basis of their second contention was hopeless, the arguability or otherwise of that application was not fully canvassed before this Court. In particular, no detailed consideration was given in argument as to whether equitable relief for unilateral mistake might be available in the absence of circumstances such as described in Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 where the non-mistaken party had knowledge of the other party's mistake. As the present application for leave to appeal succeeds on other grounds, it is unnecessary to address this question further other than to note that this judgment should not be taken to suggest that the Judgment Debtors have an arguable case for setting aside the consent orders on the basis of unilateral mistake.
To assist in countering the Judgment Debtors' application to set aside the consent orders, Xinfeng on 10 March 2020 issued a subpoena to the former solicitors of the Judgment Debtors, Colin Biggers & Paisley. That firm was acting for the Judgment Debtors at the time of the consent orders and had instructed counsel to appear at the expedited hearing fixed for 18 October 2018. Relevantly the subpoena sought the production of: "… any documents which contain or record the substance of any legal advice given to any of the Defendants/Cross-Claimants about these proceedings (being NSW Supreme Court proceedings 2018/244781) including but not limited to legal advice as to: (a) their prospects of success in defending the proceedings or prosecuting any cross-claim therein (including, for the avoidance of doubt, their prospects of success in relation to any potential ground for defence or cross-claim which was not, or may not have been, part of their pleaded case); and (b) any settlement of the proceedings or underlying controversies, in whole or part."
The Judgment Debtors then filed a Notice of Motion seeking to have the subpoena set aside on the basis that the documents of which it sought production were the subject of legal professional privilege. At the hearing of the motion before Ward CJ in Eq, the sole issue was whether the Judgment Debtors had waived privilege by their conduct, it being accepted that the documents were prima facie privileged.

The judgment at first instance

In addressing the issue of whether the Judgment Debtors had impliedly waived their legal professional privilege, her Honour noted in her judgment of 22 May 2020, by reference to Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29], that the test to be applied is one of inconsistency between the conduct of the person entitled to the privilege and that person's maintenance of the privilege. The parties accepted before her Honour, and in this Court, that waiver in the present case is to be determined by reference to the common law principles stated in Mann v Carnell, rather than s 122 of the Evidence Act 1995 (NSW) which nevertheless states that where that section is applicable the test is also one of such inconsistency.
After reviewing relevant authorities, her Honour's principal reasoning was as follows: "[143] True it is that a mistake as to the illegality of the underlying transaction or of the agreement later reached to settle the proceedings on the basis of the Consent Orders does not squarely bring into issue the question of what legal advice was received, as to the merits of the proceedings, at the time or during the course of the proceedings. However, it cannot be dismissed as an irrelevant consideration on the determination of the Set Aside Motion (in other words, if there was, for example, a conscious decision to settle the proceedings because of advice received as to the merits of the underlying dispute then that could be of some relevance - and, more directly to the submissions on the present applications, it might also cast doubt on the existence of the alleged mistake in the first place). … [145] I readily accept that Mr Wensheng Liu, by stating that he "did not know" about the asserted illegality and that this might constitute a defence, has put in issue his own state of mind about those matters. That said, I have some difficulty acceding to the submission that the words "amongst others" constitutes assertions as to Mr Wensheng Liu's belief concerning other defences (that is, other than those already pleaded), rather than those which had already been pleaded in the now compromised proceeding. [146] Nevertheless, I have no difficulty accepting the likelihood that Mr Wensheng Liu's state of mind, being his purported ignorance as to the illegality defence, would have been informed by advice from Colin, Biggers & Paisley (or Counsel briefed on behalf of the Judgment Debtors) and that such advice would have contributed to that knowledge (or lack thereof). … [148] In these circumstances, I consider that it would be inconsistent for Mr Wensheng Liu positively to advance that asserted state of mind while simultaneously maintaining the claim of privilege in the Colin, Biggers & Paisley advices. I am fortified in this conclusion when one turns to the fact that Mr Wensheng Liu refers to his state of mind "[d]uring the course of these proceedings, including when I agreed to the orders made 18 October 2018" (my emphasis), this being a period over which Mr Wensheng Liu would have undoubtedly obtained, and acted upon, advice from Colin, Biggers & Paisley. [149] I consider that it would potentially be productive of unfairness if the Judgment Creditors were precluded from testing, with reference to the legal advices, Mr Wensheng Liu's evidence and I accept that, in order to do so, it is necessary for them to review the (relevant) legal advices." … [154] … I consider that, insofar as the Set Aside Motion proceeds on the basis (albeit only one of two asserted bases) that Mr Wensheng Liu was (during the course of the proceedings and at the time the Consent Orders were made) under a mistake as to the alleged illegality, this is inconsistent with the maintenance of privilege in legal advice that goes to the merits of the claim(s) made in the proceedings (which was likely to have had an influence on his state of mind when agreeing to the compromise of the proceedings) and hence gives rise to an implied waiver of privilege in such advice."
Her Honour took the view that whilst legal professional privilege had been waived in the manner that she described, the subpoena was nevertheless too broad and that to give effect to the overriding statutory objective for the just, quick and cheap resolution of the real issues in dispute (see s 56 of the Civil Procedure Act 2005 (NSW)), she should make an order requiring production of documents to the limited extent she thought appropriate and otherwise directing that the persons to whom the subpoena was directed not be required to comply with it. As a consequence, her Honour then directed production as follows: "Direct that the proper officer of Colin, Biggers & Paisley produce to the Court within 28 days all documents falling with the terms of the Xinfeng Subpoena in which there is communicated or recorded legal advice as to the merits or prospects of the proceedings (or claim(s) made in the proceedings) that were the subject of the Consent Orders and/or as to the legality or illegality of the underlying transaction or agreement to compromise the proceedings; and otherwise direct that the proper officer not be required to comply with the said subpoena."
Her Honour also granted the parties "general access" to documents to be produced in compliance with the order.
In this Court the Judgment Debtors conceded that they had, to a limited extent, waived privilege. As a result, they accepted that the following form of order (which shows deletions from that made by her Honour) was justifiable: "Direct that the proper officer of Colin, Biggers & Paisley produce to the Court within 28 days all documents falling with the terms of the Xinfeng Subpoena in which there is communicated or recorded legal advice as to the merits or prospects of the proceedings (or claim(s) made in the proceedings) that were the subject of the Consent Orders and/or as to the legality or illegality of the underlying transaction or agreement to compromise the proceedings; and otherwise direct that the proper officer not be required to comply with the said subpoena."

Grounds of appeal

The Judgment Debtors sought leave to appeal to this Court on the following three grounds. Their application and the appeal that would follow if leave were granted were heard concurrently.
First, the Judgment Debtors contended (subject to the limited concession referred to in [14] above) that her Honour erred in finding that they had waived privilege in respect of legal advice given by their former solicitors as to the merits of the claims made by Xinfeng in the proceedings.
Secondly, they contended that the primary judge erred in ordering the production of a more limited category of documents than was sought by the subpoena. They submitted that that amounted to an impermissible redrafting by the Court of the schedule to the subpoena.
Thirdly, they contended that the primary judge erred in making an order for general access to the documents to be produced without inviting submissions from the parties as to the making of the order.

Consideration of the first appeal ground

As the application for leave and the appeal were heard concurrently, it is convenient to address the merits of the appeal first and, in particular, the proposed first ground of appeal, which was the focus of most of the argument in this Court.
As to that ground, whilst the parties accepted that the test for waiver was, as adopted by the primary judge, one of inconsistency, they had competing contentions as to how the authorities indicated that that test should be applied. It is appropriate therefore to undertake a broad chronological survey of the authorities. I note that the present case, unlike many of the authorities, is not concerned with an implied waiver of legal professional privilege arising out of a partial disclosure of advice which is a species of conduct that may be relevant in this context. Rather, it is concerned with implied waiver resulting from inconsistency between other conduct (essentially that involved in raising and advancing issues) and the maintenance of privilege. Nevertheless the authorities to which I refer are relevant to both types of conduct.

Authorities concerning implied waiver

In Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347, the appellant signed an election to claim benefits under the Workers' Compensation Act 1926, stating that she had been advised by her solicitor of her legal rights which were independent of the Workers' Compensation Act. She was found to have waived privilege in respect of her communications with the solicitor. It being necessary for the respondent to prove what knowledge the appellant had as to her legal rights, "one of the issues in the case was what advice if any [the appellant] had received from her legal advisers as to her alternative legal rights" (at 358-9). Jordan CJ concluded at 359 that: "In these circumstances, since the fact and nature of the advice is an issue in the case, I am of the opinion that privilege cannot be raised to prevent the proof of the advice."
As noted in Goldberg v Ng (1996) 185 CLR 83; [1995] HCA 39 at 96, the decision in Attorney-General (NT) v Maurice (1986) 161 CLR 475; [1986] HCA 80 was authority for the proposition that whether a partial disclosure gives rise to an implied waiver "ultimately falls to be resolved by reference to the requirements of fairness in all the circumstances of the particular case".
In Goldberg v Ng itself (a case involving, as did Maurice, disclosure to a third party), the plurality emphasised (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' (28). 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."
In Standard Chartered Bank v Antico (1995) 36 NSWLR 87 Hodgson J said that Thomason appeared to suggest that it was enough to constitute waiver that the legal advice was relevant to an issue in the proceedings. His Honour was inclined to the view that that proposition was "a little too broad" and concluded that the following was the correct principle: "If a party, by pleadings or evidence, expressly or impliedly makes an assertion about the content of confidential communications between that party and a legal adviser, then fairness to the other party may mean that this assertion has to be taken as a waiver of any privilege attaching to the communication" (at 94-95).
In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 411, Giles CJ Comm D at 411 applied the above quoted conclusion stated by Jordan CJ in Thomason. His Honour's decision that the privilege holders had waived privilege in their legal advice was based on the fact that they had "exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed".
In Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152, a misleading and deceptive conduct case raising an issue as to reliance by the applicant on the conduct, the majority (Branson and Lehane JJ) said at 166-7: "Where, as in this case, a party pleads that he or she undertook certain action 'in reliance on' a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract."
Their Honours added that it was not the case that "whenever a person's state of mind is relevant to an issue in proceedings, privilege is taken to be waived in relation to legal advice that may have played [a] part in the formation of that state of mind" and that it was "unnecessary and inappropriate … to attempt to define exhaustively the scope of the principle" concerning waiver. Their Honours continued at 168: "Where, however, 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."
In Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, the Full Federal Court followed the approach of the majority in Telstra Corporation v BT and found that by pleading reliance on misleading and deceptive representations, the applicant had waived privilege in relation to its legal advice. The Court emphasised at [12] that it was not concerned with the situation in which there was a "mere pleading" of reliance. Rather, there was "the added ingredient of evidence that legal advice was sought and obtained at a relevantly material time".
In Wayne Lawrence Pty Ltd v Hunt [1999] NSWSC 1044 at [11]-[12], Hodgson CJ in Eq said that the majority in Telstra Corporation v BT had concluded that privilege was waived when the applicant "opened up as an element of the cause of action, an issue which could not fairly be assessed without examination of relevant legal advice". His Honour said that determination of whether privilege had been waived in such a case was "a matter of degree in each case" and added: "[12] … It does not seem to me that the assertion of a belief must, in all circumstances, be taken as consenting to evidence being led of any legal advice or confidential communication that could be relevant to whether such a belief was held or the reasonableness of such belief. It seems to me that factors relevant to whether that consent is to be considered as having been given, or whether privilege is taken to have been waived, would include the significance of the belief to the case as a whole; the relevance of the reasonableness of the belief to the case as a whole; the probability or otherwise of the legal advice being relevant to the holding of that belief, or being relevant to its reasonableness; and in circumstances where the Court inspects the legal advice in question in order to make a decision, the extent to which the legal advice does in fact bear upon the holding of the belief or its reasonableness, and the extent to which the legal advice relevant to those matters is inextricably bound up with legal advice going to other questions as to which there has been no consent or waiver. It seems to me that, on the basis of all those matters at least, the Court has to make a judgment as to what is reasonable, and what is fair in the particular case."
Mann v Carnell was then decided later in 1999. The Court's oft-quoted statement of principle at [29] in that case was as follows: "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."
In Garratts Ltd v Thanga Thangathurai [2002] NSWSC 39 at [65], Bergin J referred to the facts of the case before her and concluded at [69]: "In applying the guidance in Wayne Lawrence I am satisfied that the defendant's state of mind is very significant to the whole case - it is central to the defendant's defences to the plaintiff's claims and to the cross claim. I am also satisfied on the evidence before me, which excludes any reference to the defendant's statement, that it is probable that the legal advice given by P.K.Wong and Pasricha bears upon and is relevant to the defendant's state of mind."
In Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27; [2003] VSC 73, directors of a company that had been taken over were sued for damages. Byrne J had to consider whether the offeror had waived privilege in legal advice it received by alleging in its statement of claim that it relied on information disclosed by the takeover target. His Honour stated that "the putting in issue by the client of its relevant state of mind … is merely the starting point … [i]t is only where this examination shows that there will arise an unfair consistency between the position of the client setting up this state of mind and its maintenance of the privilege that waiver will arise and, then, only to the extent necessary to avoid the unfairness" (at [41]).
In DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384, Allsop J (as his Honour then was) undertook an extensive review of the authorities. His Honour treated the decision in Telstra as authority for the proposition that "a pleading of a state of mind to which legal advice is or might be materially relevant" satisfied the requirement of inconsistency later identified in Mann v Carnell (at [95]). His Honour considered that proposition to be too broad but felt bound by subsequent authority, in particular the Full Court decision in Perpetual Trustees v Equuscorp, to follow Telstra, notwithstanding that Telstra was decided before Mann v Carnell (at [112]). Earlier in his judgment (at [58]), in the course of his consideration of pre-Mann v Carnell decisions, including Standard Chartered Bank v Antico, Allsop J had made the observations quoted later in Rio Tinto (see [36] below).
In Seven Network Ltd v News Ltd (No 7) [2005] FCA 1092, Sackville J expressed the view at [24], by reference to Allsop J's decision in DSE v Intertan, that "there is much force in the view that the reasoning in Mann v Carnell requires Telstra v BT to be reconsidered". His Honour appeared to regard the reasoning of the majority in Telstra as not importing, sufficiently or perhaps at all, the requirement stated in Mann v Carnell that relevant inconsistency be found.
In Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297, Gzell J (with whom Bryson JA and Windeyer J agreed) said, after referring to Telstra, Wayne Lawrence, Mann v Carnell and DSE v Intertan: "[41] I doubt that a different result will follow from the sort of question referred to in Wayne Lawrence and the sort of question that needs to be answered in order to determine whether there is inconsistency between the conduct of a party and maintenance of client legal privilege as discussed in Mann. In a case like the present one in which reliance upon representations is alleged, questions such as the following need to be explored: Were representations made to the party by or on behalf of the opponent? Does the party say that he or she relied upon the representations and altered his or her course of conduct? Is reliance upon the representations a central, or merely peripheral, aspect of the party's case? Is it likely that the party received legal advice that had a bearing on the allegation of reliance? Was it likely that the legal advice might raise doubts as to the allegations of reliance or any [losses] or damage alleged to have been suffered? … [45] Because of the presence of the special condition, apparently inconsistent with a continued assertion of reliance upon Mr Lui's representations as to the air-conditioning, and Mr Gebara's inspection of a plan clearly depicting the loading bay as common property, it was likely that the legal advice given to Mr Gebara prior to the execution of the lease might raise doubts as to the continued assertion of reliance upon the representations and the entitlement to relief under the Fair Trading Act 1987."
In Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; [2006] FCAFC 86, the Full Federal Court, after reviewing authorities, said: "[61] Both before and after Mann, the governing principle required a fact-based inquiry as to whether, in effect, the privilege holder had directly or indirectly put the contents of an otherwise privileged communication in issue in litigation, either in making a claim or by way of defence. In DSE at [58], Allsop J put the matter somewhat more descriptively, saying waiver arises when: 'the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication.' … [65] In any event, even if [the primary judge] was correct in holding that, by the [statement of facts and issues], the Commissioner raised an issue in the substantive proceeding as to his states of mind, this alone would not provide a proper basis for "issue waiver". As the previous examination of the authorities shows, the question is not whether the Commissioner has put his state of mind in issue but whether he has directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation, either in making a claim or by way of defence. Put another way, to adapt Allsop J's language in DSE, has the Commissioner (being the privilege holder) made an assertion as part of his or her case in the litigation that lays open the privileged documents to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege?"
In Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; [2008] NSWCA 164, Hodgson JA (with whom Campbell JA agreed) said: "[48] … It is not enough to bring about a waiver of client legal privilege that the client is bringing proceedings in which the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party. For the client to do this is not inconsistent with the maintenance of the privilege, and does not give rise to unfairness of the type in question. What would involve inconsistency and relevant unfairness is the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege. In this respect, it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind."
In that case at [72], Handley AJA added: "Where the client raises an issue such as undue influence, election, or seeks an extension of the limitation period, the client may be making assertions about his or her state of mind based on legal advice. In such a situation as that described by Hodgson JA in par [48], I am inclined to think, in agreement with Hodgson JA, that the raising of the issue will waive the privilege without more."
In Osland v Secretary, Department of Justice (2008) 234 CLR 275; [2008] HCA 37, the plurality said at [45]: "Waiver of the kind presently in question is sometimes described as implied waiver, and sometimes as waiver 'imputed by operation of law'. It reflects a judgment that the conduct of the party entitled to the privilege is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. Such a judgment is to be made in the context and circumstances of the case, and in the light of any considerations of fairness arising from that context or those circumstances. …" (Footnotes omitted.)
Their Honours referred to Benecke v National Australia Bank (1993) 35 NSWLR 110 as an example of such an inconsistency. In that case, Mrs Benecke asserted that her lawyer had compromised a claim without her consent and attempted to rely on legal professional privilege to prevent the lawyer giving her own account of the instructions. The plurality in Osland at [45] said about that case that "an appreciation of the unfairness if Mrs Benecke could give her version of her communications with her lawyer and at the same time prevent the lawyer from giving her own version was one aspect of the inconsistency between her conduct in making certain kinds of allegation against her lawyer and holding her lawyer to obligations of confidentiality". Referring to cases of partial disclosure (but equally applicable to the consequences of other forms of conduct), the plurality at [49] emphasised that "questions of waiver are matters of fact and degree".
In Bailey v Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100, Tobias JA (with whom Allsop P and Hodgson JA relevantly agreed) said the inconsistency to which Mann v Carnell refers is often "evidenced by the nature of the proceedings which are brought by the party seeking to maintain the privilege" (at [136]). His Honour referred in this regard to Bar Association v Archer at [48]. In the same decision, Allsop P relevantly commented on what Tobias JA said as follows: "[4] The third comment also concerns the notion of inconsistency in the waiver of privilege and is by way of elaboration. Though fairness may have a part to play in assessing inconsistency, it is not a freestanding or overriding principle of fairness 'operating at large: Mann v Carnell (at 13 [29]). I agree with Hodgson JA in Council of the New South Wales Bar Association v Archer (2008) 72 NSWLR 236 at 252 [48] cited by Tobias JA. I would also refer to what I said in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 at 504 [11]-[113] (though in context of the common law). I agreed (at 519 [57]-[58]) with Hodgson J (as he then was) in Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87 as to the need to make an express or implied assertion of the content of the confidential communication. His Honour repeated these comments in Council of the New South Wales Bar Association v Archer (at 250 [47]-[48]). The importance of this repetition, after Mann v Carnell, is to reinforce the fact that the relevant issue is inconsistency, not general fairness. As the discussion in DSE (Holdings) reveals (especially at 521 [70]-[113]) there is, after Mann v Carnell, a latent difficulty in some of the jurisprudence arising from the application of general notions of fairness verging on a discretion. Mann v Carnell brought an important clarification and sharpness to the analysis which cannot be easily reconciled with Attorney-General (NT) v Maurice (1986) 161 CLR 475 in its application to specific circumstances, or generally. With the greatest respect to those who consider that Mann v Carnell worked no real change (the Full Court of the Federal Court in Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 354 [44]) a review of many of the decisions based on a general overriding principle of fairness and a reconsideration of them based on assessing the inconsistency with the confidentiality underlying the privilege (even informed in part by fairness) leads one to appreciate the practical reality of the change. The approaches in many of the cases discussed in DSE (Holdings) (at 521 [70]-[113]) would be difficult to sustain under Mann v Carnell."
In Archer Capital 4A Pty Ltd v Sage Group plc (No 3) [2013] FCA 1160; (2013) 306 ALR 414, Wigney J said: "[22] In my opinion, there may be no difficulty with the evaluative approach in Wayne Lawrence and Chen if the questions that are posed are seen as no more than questions that might assist in determining the ultimate question, namely, whether 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. In my view, however, the questions have a tendency to distract or deflect attention from that test. The questions posed as part of the so-called evaluative approach should not be used as a surrogate for the expression of principle in DSE and Rio Tinto. [23] I note in this context that in Seven Network, Sackville J, whilst his Honour ultimately did not need to decide the point, expressed some doubt that the evaluative approach 'precisely reflects the content of the inconsistency principle' (at [46]). [24] Whatever may be the position in relation to the evaluative approach in Wayne Lawrence and Chen, it is, in my opinion, tolerably clear that the mere fact that a party pleads a cause of action that includes their state of mind as a material fact, or otherwise puts their state of mind in issue in the proceedings, does not necessarily give rise to an implied waiver in respect of legal advice that may have been received by the party, even if that legal advice may be relevant to the party's state of mind. …"
In R v Seller (2015) 89 NSWLR 155; [2015] NSWCCA 76, Bathurst CJ (with whom Bellew J agreed) said at [164]: "An imputed waiver of the nature raised in the present case will arise when conduct is inconsistent with the maintenance of the confidentiality the privilege is intended to protect. What brings about the waiver is the inconsistency which the Courts, 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: Mann v Carnell [1999] HCA 66; 201 CLR 1 at [29]; Osland v Secretary, Department of Justice [2008] HCA 37; 234 CLR 275 at [45]. As the plurality observed in the latter case (at [49]), this is a question of fact and degree."
In Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117, the Full Federal Court, dealing with a claim by Arup arising out of alleged misleading or deceptive conduct by Macquarie, found that it could not be said "that the question of reliance [by Arup] must have been informed by or addressed in the legal advice that Arup received" (at [35]). It continued: "There is no other evidence to indicate the extent of the legal advice; and certainly no evidence that the legal advice was likely or necessarily related to any question of reliance as pleaded in the Cross-Claim. It cannot be said that Arup necessarily 'la[id]… open to scrutiny' the advice that it received in relation to that matter, in the manner contemplated by Allsop J in DSE."
Their Honours applied the statement of Wigney J in Archer Capital at [22] referred to in [42] above and continued: "[37] It may be accepted that the Cross-Claim puts in issue Arup's state of mind at the time it relied on the conduct of the Sponsor Group. Whilst the privileged documents might be relevant to that state of mind, it is settled that that fact alone will not result in a waiver of privilege …"
In Viterra Malt Pty Ltd v Cargill Australia Ltd (2018) 58 VR 333; [2018] VSCA 118 the Victorian Court of Appeal reviewed authorities and observed: "[72] The above review of the cases makes it plain that there is a single test to be applied, being that in s 122(2) of the Evidence Act. Assistance in understanding and applying that test may be derived from Mann v Carnell and other authorities applying either the common law or the statutory provision. However, each case will depend upon its own facts and circumstances and the drawing of general principles beyond the statement of the inconsistency test may risk departing from the terms of the statute. [73] Notwithstanding the need for caution on that account, it can be said that a pleading of reliance, without more, will not usually manifest inconsistency with the maintenance of client legal privilege in communications relevant to that state of mind. It can also be seen that the observation of Allsop J in DSE as to the circumstances in which privilege will be waived, while still a gloss on the statutory language, has commanded wide acceptance as a statement of the general operation of the principle."
Their Honours continued: "[78] … It is entirely to be expected that a party pleading a misleading or deceptive conduct case arising from a commercial transaction will have received legal advice regarding the transaction before its consummation. The applicants' argument would suggest that privilege is waived by pleading such a case. The authorities show that something more is required."
In Re Jimmy's Recipe Pty Ltd [2020] NSWSC 516 there were issues concerning a settlement deed which settled longstanding litigation that included issues of rectification in equity and relief on the basis of a unilateral mistake which the plaintiff had unconscionably sought to exploit. The fifth defendant, who was represented by solicitors and counsel, asserted that he had a particular state of mind at relevant times. Leeming JA, who was sitting at first instance, said that "[t]here is every reason to think that his lawyers were involved in settling the terms of the deed, in accordance with his instructions, and that his understanding of what the deed involved was informed by legal advice from them" (at [7]).
His Honour referred to "some nuances" in the case authorities, especially in the Federal Court, referring in particular to Seven Network Ltd and Macquarie Bank v Arup. His Honour continued: "[10] … I am bound by Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297, and I think it is 'likely' that what was said at the informal settlement conference contributed to the fifth defendant's state of mind at the time he gave instructions in relation to the settlement deed and executed it: cf Chen at [41] and [45]. The notion of legal advice 'likely' contributing to a person's state of mind, in the context of this species of waiver, may be found in the reasons of Giles CJ Comm D in Ampolex v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 411 and, earlier, to Jordan CJ's judgment in Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 at 358. I also think it would be inconsistent and potentially productive of unfairness for the fifth defendant positively to advance a state of mind while simultaneously maintaining a claim of privilege in the notes of the informal settlement conference. …"
In Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1013, Allsop CJ, sitting at first instance in the Federal Court, referred to ASIC asserting that there had been a waiver of legal professional privilege by ANZ "advancing a positive case about its state of mind about the fees" that were in issue. His Honour continued: "[35] To succeed in this assertion ASIC must prove something more than a joinder of issue on an assertion that ANZ knew that it had no basis to charge or knew that it was a risk that there was no basis to charge; rather, to state the matter shortly: the content of the communication must have been put in issue by the holder of the privilege: [his Honour cited Rio Tinto; Bar Association v Archer; Macquarie Bank v Arup; Viterra Malt v Cargill and Mann v Carnell]. [36] The question is one of understanding ANZ's case: Has it effectively put its state of mind in issue such that it could be said to be inconsistent to seek to maintain the confidentiality of the privilege? …"
His Honour said that the relevant principle was expressed by the Full Federal Court in Rio Tinto at [61], in the passage referred to at [36] above.

Conclusions from authorities

The authoritative decisions of the High Court in Mann v Carnell ([30] above) and Osland ([39]-[40] above) categorically state that at common law the test to determine whether there has been waiver of legal professional privilege by the privilege holder's conduct is one of inconsistency between that conduct and retention of the privilege. In these circumstances, there does not appear to be any difference between the applicable test under the common law and that under s 122 of the Evidence Act which refers in terms to the same type of inconsistency.
The relevant test is not, as the older High Court authorities of Attorney-General v Maurice and Goldberg v Ng ([22]-[23] above) arguably suggest, simply one of fairness. As stated in Mann v Carnell, although considerations of fairness may "inform" the issue of inconsistency, the test is not one of "some overriding principle of fairness operating at large" ([30] above).
Accordingly, decisions that predate Mann v Carnell must be approached with caution. In particular, the proposition that relevance to a fact put in issue by the privilege holder is sufficient to give rise to a waiver (supported by decisions such as Thomason and Telstra: see [21], [26]-[27] above) is not correct.
Post Mann v Carnell Federal Court authorities, such as DSE ([33] above) and Macquarie Bank ([44]-[45] above), direct particular attention to whether an express or implied assertion has been made "either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny". This approach appears ultimately to derive from that of Hodgson J in Standard Chartered Bank v Antico ([24] above).
In New South Wales, the post-Mann v Carnell decision of this Court in Chen ([35] above) referred to the test as being inconsistency and identified such matters as the centrality of the relevant issue to the case and the likelihood of the party in question having received legal advice regarding that issue as relevant to application of that test. In this Court's later decision in Archer ([37]-[38] above), both Hodgson JA and Handley AJA referred to the need for the privilege holder to have made express or implied assertions about the content of its privileged communications but gave some tentative support for the notion that there might be relevant inconsistency where there was simply a likelihood that legal advice affected the relevant party's state of mind. In Bailey ([41] above), Allsop P sitting as a member of this Court, emphasised, as he had done in the Federal Court, that for relevant inconsistency to arise there needed to be an express or implied assertion about the contents of the confidential communication. Later, in ASIC v ANZ ([50]-[51] above), Allsop CJ, then sitting as a member of the Full Federal Court, again emphasised the need for the content of the confidential communication to have been put in issue by the holder of the privilege.
I draw from these authorities the following propositions of present relevance: 1. The test is one of inconsistency between the privilege holder's conduct and its maintenance of the privilege, not one of general fairness or of relevance to an issue in the proceedings. 2. Enquiring whether the privilege holder has made express or implied assertions about the contents of the confidential communications, and whether its conduct has therefore "laid open the communications to scrutiny", assists in ensuring that the court's focus is on inconsistency rather than simply relevance. If the privilege holder is understood to be asserting something about the contents of the communications, it is but a short step to conclude that it would be inconsistent for it to prevent those contents being scrutinised. 3. On the other hand mere relevance of the content of the privileged communications to an issue raised in the proceedings by the privilege holder does not equate to inconsistency - something more is needed. It is of the essence of legal professional privilege that, if maintainable, it entitles a party to withhold potentially relevant documents from inspection by the other party. 4. The determination of whether there has been an express or implied assertion about the contents of privileged communications giving rise to a relevant inconsistency is an evaluative decision to be made after consideration of the whole of the circumstances of the case. No hard and fast rules can be formulated. Those circumstances will include the degree of relevance of any advice to the issues in the proceedings, the centrality of the relevant issues in the proceedings and the likelihood of advice having been given, informed, as the High Court said in Mann v Carnell, by considerations of fairness. 5. Having considered all those circumstances, the court must decide whether it would be inconsistent with the privilege holder's conduct for it to maintain privilege. The line between relevance to an issue and inconsistency in this context may be very fine and therefore one on which views might well differ.
In the present case, I have concluded on balance that the primary judge did not apply the correct test. I appreciate that her Honour referred to the test of inconsistency but her reasoning seems to me to have assumed that relevance and the likelihood of advice having been given would alone determine whether there had been a waiver, rather than those matters being part of the circumstances from which a conclusion of inconsistency might or might not be drawn. Her Honour's conclusion that privilege was waived in relation to records of advice concerning not only an illegality defence but also other defences in my view suggests this. As well, I make the following comments on the relevant paragraphs of her Honour's judgment quoted in [11] above: [143]: This paragraph concludes that legal advice as to the merits of the proceedings received by the Judgment Debtors could be relevant to the application to set aside the consent orders. [145]: This paragraph identifies the Judgment Debtors' state of mind as an issue in the proceedings. [146]: This paragraph concerns the likelihood of the Judgment Debtors having received relevant legal advice that would impact on their state of mind. [148]: Whilst inconsistency is referred to in this paragraph, the second part of it seems to indicate that that inconsistency turns simply on the relevance of the advice and the likelihood of its receipt. [149]: This paragraph suggests that it would be unfair to Xinfeng not to allow it to test Mr Wensheng Liu's evidence as to his state of mind by reference to legal advice that he received. [154]: The conclusion of inconsistency in this paragraph appears to turn on the relevance of the legal advice to an issue raised by the Judgment Debtors, namely Mr Wensheng Liu's state of mind.
Re-deciding the issue of waiver, I conclude that there would be inconsistency to the extent conceded by the Judgment Debtors on appeal (see [14] above), but not otherwise. That is, there would be an inconsistency between the Judgment Debtors asserting on the one hand that they were ignorant of the possibility of an illegality defence when they consented to the orders made on 18 October 2018 and on the other hand maintaining privilege in respect of legal advice concerning the existence of such a defence. The circumstances in which that consent was given are important in this respect. The consent was proffered by the Judgment Debtors on the first day of an expedited final hearing of the proceedings in which the Judgment Debtors' pleadings were, it can be presumed, drawn and settled by the Judgment Debtors' lawyers. A reasonable bystander would in my view regard it as inconsistent for the Judgment Debtors to assert that on that day and at that time they were ignorant of the possibility of an illegality defence and at the same time claim to be entitled to keep to themselves what, if anything, their lawyers who were then acting for them and conveying their consent to the Court had told them about the possibility of such a defence. Implicitly, they were "laying that advice out for scrutiny".
As I see it, the position is different in respect of legal advice concerning the merits of other defences. Certainly, it can be inferred that, first, the Judgment Debtors were likely to have received advice on that topic and, secondly, that that advice would arguably be relevant to the issue of how the Judgment Debtors would have acted if they had not been ignorant of the illegality defence. Knowledge of such advice could well be used by Xinfeng to test the Judgment Debtors' assertion that if they had realised that an illegality defence might be available, they would not have consented to judgment. The confidential documents might for example indicate that the Judgment Debtors were advised that their pleaded defences had some prospects of success. Armed with that knowledge Xinfeng could then seek to have an inference drawn that the Judgment Debtors decided not to pursue the defences due, for example, to considerations of legal costs or to matters of corporate policy such as an unwillingness to be involved in litigation unless virtually assured of success. They might then argue that the same considerations would have led to the Judgment Debtors not pursuing an illegality defence even if they had known that it was a possibility.
These are matters that do not in my view however rise beyond relevance to an issue, to inconsistency in the Judgment Debtors' positions. It cannot be said that in this respect the Judgment Debtors have implicitly laid open the advice they received for scrutiny.
As the Judgment Debtors have established error and the issue of waiver is one of importance both to the parties and as a matter of general principle, I consider that leave to appeal should be granted and the appeal allowed.

Consideration of the second and third appeal grounds

Neither the second nor third appeal ground arises as the first ground has been successful. It is appropriate however to make the following brief observations on those grounds.
I would not have granted leave to appeal in respect of the second ground, concerned with re-drafting of the subpoena. Whilst judges should not be encouraged to re-draft subpoenas without being urged by the parties to do so, it was open to the parties to approach the primary judge to seek reconsideration of the form of the order by advancing arguments that they had not yet had the opportunity to put. To do so would have been consistent with the observations I made in other contexts in Consolidated Lawyers Ltd v Abu-Mahmoud [2016] NSWCA 4 at [39]-[40] and Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500; [2017] NSWCA 106 at [74] concerning the appropriateness of parties, wherever possible, approaching the primary judge to deal with matters that they assert have been overlooked or not fully argued, rather than bringing them first to this Court.
Likewise I would not have granted leave to appeal in respect of Ground 3 which complained that the primary judge had granted a right of general access in respect of documents to be produced under her order. As indicated above in connection with the second ground of appeal, the parties should have approached her Honour first rather than this Court. Her Honour would have been, and still is, well placed to address any arguments about access which could not be resolved between the parties consistently with Practice Note SC Gen 19 which in paragraph 8 contemplates that a party who is arguably entitled to claim privilege over documents to be produced on subpoena will ordinarily have first right of access to those documents.

Orders

For the reasons given above, I propose the following orders: 1. Leave to appeal granted. 2. Order for production made at first instance on 22 May 2020 set aside. 3. In lieu of that order for production, make the following order: Direct that the proper officer of Colin Biggers & Paisley produce to the Court within 28 days all documents falling with the terms of the Xinfeng Subpoena in which there is communicated or recorded legal advice as to the legality or illegality of the underlying transaction or agreement to compromise the proceedings; and otherwise direct that the proper officer not be required to comply with the subpoena issued to Colin Biggers & Paisley on 10 March 2020. 1. Order the respondent to pay the applicants' costs of the appeal proceedings.
McCALLUM JA: I agree with Macfarlan JA.
SIMPSON AJA: I agree with Macfarlan JA.

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