Hancock & Anor v Rinehart & Ors

Judgment 1The plaintiffs, John Langley Hancock (JLH) and Bianca Hope Rinehart (BHR) served a subpoena on PricewaterhouseCoopers (PWC) dated 6 August 2013. PWC produced documents to the Court on 16 August 2013. First access was granted to the first defendant, Gina Hope Rinehart (GHR), who has since objected to access being granted to the plaintiffs to redacted portions of the documents produced by PWC. The plaintiffs seek access to the documents. 2The application was heard on 18 September 2013 when Mr CH Withers, of counsel, leading Ms N Zerial, of counsel, appeared for the plaintiffs and Mr BR McClintock SC appeared for GHR. GHR relied upon the affidavit of her solicitor, Paul Richard McCann, sworn on 26 August 2013. The plaintiffs relied upon the affidavit of their solicitor, Timothy Randolph Price, sworn on 6 September 2013. Onus 3The plaintiffs' first contention is that GHR has failed to discharge the onus of proving that the redacted portions of the documents are in fact privileged. 4Mr McCann's affidavit evidence is that he has been "informed by" GHR that "she wishes to make a claim for privilege pursuant to sections 118 and/or 119 of the Evidence Act 1995 (NSW) over such of the PwC documents as is available to her" (pars 6 and 7). The affidavit lists 40 documents in packet "S5" and 16 documents in packet "S6". It is claimed that the documents "disclose the conclusion of legal advice obtained by Mrs Rinehart in her capacity as Trustee of the Trust". 5Mr McCann also gave evidence of GHR's desire to make a claim for "confidential information" over 7 documents in packet "S5" and 1 document in packet "S6" (pars 8 and 9). 6Although complaint was made that Mr McCann's affidavit failed to disclose the author of the legal advice; the date the legal advice was disclosed; the form of the legal advice; the title and broad subject matter of the legal advice; and the purpose for which it was said to be disclosed, GHR has requested (without objection from the plaintiffs) that I review the content of the documents over which privilege and confidentiality is claimed. It seems to me that the adoption of this process satisfies the requirements referred to in the authorities relied upon by the plaintiffs in this regard: Barnes v Commissioner of Taxation (2007) 242 ALR 601 at 605 [18]; [2007] FCAFC 88. Waiver - Imputed Consent 7The plaintiffs' second contention is that GHR has waived privilege in the documents by her "positive assertion about a state of mind to which legal advice was likely to have contributed". 8In Wayne Lawrence Pty Limited v Hunt [1999] NSWSC 1044 at [12] Hodgson CJ in Eq (as his Honour then was) identified factors to be taken into account in determining whether consent is to be considered as having been given or whether privilege is taken to have been waived where a party has put his or her state of mind in issue. Those factors include: (1) the significance of the state of mind (or belief) to the case as a whole; (2) the relevance of the reasonableness of the belief to the case as a whole; (3) the probability or otherwise of the legal advice being relevant to the holding of the belief or the reasonableness of the belief; (4) where the court inspects the relevant documents, the extent to which the legal advice bears upon the holding of the belief, or its reasonableness; and (5) the extent to which the legal advice is inextricably bound up with other matters. Hodgson CJ in Eq concluded that the Court must have regard to these matters to make a judgment as to what is reasonable and fair in the particular case. 9In Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 the Full Court of the Federal Court (Kenny, Stone and Edmonds JJ) said at 359 [61] (emphasis added): 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. 10The plaintiffs contend that GHR's Defence to the Third Further Amended Statement of Claim (3SC) "necessarily lays open" the redacted parts of the documents to scrutiny and that an inconsistency has arisen between that act and the maintenance of the privilege claim: DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 at 519-520 [58]. 11The issue of waiver on this application is the waiver of privilege at common law, rather than by reference to s 122 of the Evidence Act 1995 which refers to the "adducing of evidence". However, there is little difference between the common law and the statute in respect of whether there has been implied consent to the disclosure of the substance of the material over which privilege is claimed and whether a party's conduct amounts to an imputed waiver: Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 at [10] applying Garratt's Ltd v Thangathurai [2002] NSWSC 39 at [51]. 12In the 3SC the plaintiffs allege that GHR was "aware" that PWC had been instructed to make certain assumptions for the purpose of preparing their advice [18A] and [18B]. It is also alleged that as at 3 September 2011, GHR was aware of PWC's advice of 2 September 2011 that the beneficiaries of the Trust would only be liable for capital gains tax in the event of a distribution of net income on the vesting of the Trust: [18C]. It is further alleged that GHR was aware that the mere vesting of the Trust on 6 September 2011 would not have certain consequences: [18D]-[18F]. 13It is alleged that GHR was aware that certain steps could not and would not be taken in respect of the distribution of the Trust: [18G]-[18H]. It is also alleged that GHR was aware of certain aspects of the consequences of the distribution of the Trust as it related to bankruptcy and capital gains tax exposure: [18I]-[18L]. It is alleged that GHR was aware of restrictions on the variation of the Trust Deed and that the extension of the vesting date of the Trust was not for the benefit of the plaintiffs: [18M]-[18N]. 14The plaintiffs also allege that GHR's conduct in causing the 3 September 2011 letter to be sent to the beneficiaries was misleading for failure to disclose the various matters as pleaded in paragraphs 18A to 18N: [18O]-[18AB]. It is alleged that GHR's conduct in causing the letter to be sent was misleading because it conveyed that the plaintiffs would be liable for substantial capital gains tax that would render them bankrupt, when that was not the case: [18AC]-[18AD]. It is also alleged that GHR's conduct in causing the letter to be sent to the plaintiffs was misleading because it stated that the Hope Downs Deed restricted the plaintiffs and other beneficiaries from making any claims against GHR in her personal capacity as trustee, when the restrictions of the Deed only applied to claims that were in existence or discontinued at the time the Deed was executed: [18AE]. 15There are further allegations in the 3SC that GHR was aware that the plaintiffs would not have an adequate opportunity to obtain their own advice in respect of the matters relevant to the content of the letter of 3 September 2011 and its consequences: [19C]-[19I]. The plaintiffs allege that GHR had a particular purpose in sending the letter of 3 September 2011 and that she was concerned about what would occur if the plaintiffs had the opportunity to obtain advice in relation to the letter: [19J]. It is alleged that if GHR believed that the vesting of the Trust would result in the plaintiffs' bankruptcy and she was aware that not extending the vesting date was contrary to the interests of the plaintiffs, it was improper for her to have imposed conditions on the plaintiffs, including for the provision of releases, in exchange for the extension of the vesting date: [64B]. 16GHR has denied the majority of these allegations. However GHR has responded to paragraph [18N] of the 3SC as follows: The first defendant denies paragraph 18N and says further that as at 3 September 2011 she believed that the vesting of the Trust on 6 September 2011 would result in the bankruptcy of the plaintiffs and the second and third defendants and various other matters as detailed in the 3 September 2011 letter and that the extension of the vesting date of the Trust was therefore in the interests of the beneficiaries. 17GHR also responded to the 3SC in terms that include the following ([64B]): In answer to paragraph 64B the first defendant: (i) admits that she believed that the vesting of the Trust on 6 September 2011 would result in the bankruptcy of the plaintiffs and the second and third defendants; and (ii) otherwise denies the paragraph. 18The plaintiffs claim that GHR's state of mind concerning whether the vesting of the Trust would result in the bankruptcy of the plaintiffs turns on two key issues. The first is taxation matters and the second is the operation of the Trust Deed as a matter of law. The plaintiffs rely upon the content of the letter of 3 September 2011 which includes the following: I have hence sought the advice of the Trust's tax advisors PWC, on the tax implications of a vesting of the Trust. ... The Trustee has received legal advice that it is legally possible for the Trustee to extend the vesting date of the Trust, should she so choose to do. Based on the above it is in the financial interests of the beneficiaries for the vesting date of the Trust to be extended to the maximum period allowed under the law of perpetuity. 19The claim in paragraph [18N] of the Defence goes beyond a mere denial. In particular GHR claims that she held a belief in "various other matters as detailed in the 3 September 2011 letter". The generality of these claims combined with the expression "based on the above", makes clear that GHR relied on both the accountants' advice and the legal advice in forming her beliefs. Notwithstanding that GHR's contention in paragraph [18N] is in response to a contention made by the plaintiffs, GHR has seen fit to positively propound particular beliefs at the time of the 3 September 2011 letter: Council of NSW Bar Association v Archer (2008) 72 NSWLR 236 at 252 [48]; [2008] NSWCA 164 per Hodgson JA (with whom Campbell JA and Handley AJA agreed). 20It is appropriate to consider the factors identified by Hodgson CJ in Eq in Wayne Lawrence Pty Limited v Hunt. GHR's belief in respect of the matters in her letter of 3 September 2011 is very significant to the case as a whole. It is alleged that GHR misled the plaintiffs by stating matters that were not correct (to use a neutral term). GHR not only denies the alleged conduct but also propounds the positive case of a certain belief. It is clear that the belief was based in part on the legal advice. 21The second factor referred to by Hodgson CJ in Eq is the relevance of the reasonableness of GHR's belief to the case as a whole. The relevance of GHR's belief is of significant relevance because her conduct is said to be conduct that warrants her removal as Trustee. The reasonableness of the belief is to be tested in particular, for instance, by reason of the fact that GHR had obtained legal advice to which she referred in her letter of 3 September 2011. 22The next factor to be taken into account, the probability or otherwise of the legal advice being relevant to the holding of the belief or the reasonableness of the belief, is satisfied. It was a matter that GHR raised in the letter and is clearly relevant to the reasonableness of the holding of the belief. The next factor identified by Hodgson CJ in Eq is apt in this application because the redacted parts of the documents over which privilege is claimed has been viewed by the Court. I am satisfied that such advice was relevant to and was taken into account in reaching the belief in question. It is also clear that the legal advice is inextricably bound up with the PWC advice and the conclusions and beliefs held by GHR at the time that she wrote the letter of 3 September 2011 to the plaintiffs and the other beneficiaries. 23I am satisfied that the reliance upon the belief that GHR held at the time of the letter of 3 September 2011 combined with the content of the letter and the reference to the taking of legal advice, is inconsistent with the maintenance and holding back of the content of that advice as it appears in the redacted parts of the documents that have been produced by PWC. I am satisfied that GHR has waived her privilege in the redacted parts of the documents in packets "S5" and "S6" as identified. Trust Documents 24The next contention raised by the plaintiffs is that GHR is not entitled to claim privilege over the documents vis-a-vis the beneficiaries. It is contended that GHR, as trustee, and the plaintiffs, as beneficiaries, have a joint interest in any advice obtained by the trustee. This contention raises issues identified in Gray v BNY Trust Company of Australia Ltd (2009) 76 NSWLR 586; [2009] NSWSC 789. In that case the differing views in the Equity Division of this Court regarding the approach to be adopted in relation to applications by beneficiaries to access trust documents was identified at 596 [33]. In Silkman v Shakespeare Haney Securities Limited (2011) 8 ASTLR 117; [2011] NSWSC 148 Hammerschlag J preferred the approach in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709 over that in Re Londonderry's Settlement; Peat v Walsh [1965] Ch 918 (at 129 [27]). However, having regard to the decision I have made that GHR has waived any privilege in the redacted parts of the documents it is not necessary to decide this issue. Waiver by disclosure 25The final contention the plaintiffs make in seeking access to the redacted parts of the documents is that GHR has waived privilege by her conduct in disclosing the legal advice to PWC and by relying upon it in the letter of 3 September 2011. The first contention that the privilege was lost in the disclosure to PWC relies on the decisions in 789Ten Pty Ltd v Westpac Banking Corporation Ltd (2005) 53 ACSR 242 and Westpac Banking Corporation v 789Ten Pty Ltd (2005) 55 ACSR 519. In the latter judgment Tobias JA (with whom Beazley JA (as the President then was) and Campbell AJA agreed) observed at 527 [29] that PWC, the auditors in that case, received the legal advice for the purposes of performing its obligations under the Corporations Act 2001 (Cth) with respect to the audit process. His Honour said that it was impossible to regard PWC as having received the relevant confidential information as an agent on behalf of the Bank but rather that it received it on its own behalf for its own purposes. 26Mr McClintock SC submitted that the present circumstances are quite different to those in 789Ten Pty Ltd v Westpac Banking Corporation Ltd. In the present case the legal advice was provided to PWC for the purposes of receiving advice from PWC "in relation to the Australian income tax consequences" of the beneficiaries of the Trust in the event of the vesting of the Trust during the income year ending 30 June 2012. It was submitted that the distinguishing feature is one that would protect the privilege because it was not for PWC's own purposes. That distinction may have force. However, GHR has not only relied upon the advice in the letter of 3 September 2011, but also, as I have found above, has propounded a positive contention in relation to her belief that was based on legal advice and has waived the privilege. It is therefore unnecessary to deal with the disclosure to PWC point. Confidential documents 27GHR also claims confidentiality in relation to portions of the documents referred to above. Having regard to the conclusion I have reached in relation to the privilege claim, I am of the view that the documents should be produced subject to an appropriate undertaking as to confidentiality and consensual confidentiality orders to be made if necessary. That regime should be agreed between the parties. Conclusion 28Access is granted to the plaintiffs to the redacted parts of the documents produced by PWC under subpoena. GHR is to pay the plaintiffs' costs of this application.