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[2007] FCA 933
Federal Court of Australia
1981-10-13
McClelland J, Gleeson CJ, Gummow JJ, Tamberlin J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 This interlocutory dispute arises out of a claim by the respondent, Allphones Retail Pty Ltd ("Allphones"), that documents produced by it to the Court on 20 December 2006 pursuant to a Notice to Produce filed by the applicant, Hoy Mobile Pty Ltd ("Hoy") on 28 November 2006, are subject to legal professional privilege. The original list of documents over which privilege is claimed is attached to the affidavit of Mr Lloyd of 5 April 2007. As originally framed, the claim covered 37 documents, but the claims in respect of documents 1, 35, 36 and 37 are no longer pressed. In his second affidavit of 25 May 2007, Mr Lloyd attached a schedule which described in a general way the documents in relation to which the privilege is claimed. The documents relate to the period from 14 June 2006 to 22 December 2006. 2 The claims for privilege in this case are to be determined by common law principles, and not pursuant to the provisions of the Evidence Act 1995 (Cth), because the Notice to Produce has not been issued for the purpose of adducing the documents into evidence: see Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 at 59-63 (per Gleeson CJ, Gaudron and Gummow JJ). 3 The evidentiary basis for the claim of privilege in respect of each particular document has been set out in detailed evidence in the form of three affidavits sworn by the solicitor for Allphones, Mr Lloyd. There has been no cross-examination on those affidavits.
BACKGROUND 4 In his affidavit of 5 April 2007, Mr Lloyd records that the principal proceeding relates to a dispute between Allphones as franchisor and Hoy as franchisee. Beginning in early 2006, Hoy raised a number of issues and complaints with Allphones concerning questions as to exclusive territory; the loss of the original franchise agreement by Allphones; the execution of a new tax invoice agreement; the payment of money as a contribution to the original fit-out of the premises; and calculations as to payment to Hoy of a commission on sales and connections of mobile telephones and other goods. During the period of March to August 2006, efforts were made to resolve these issues and complaints. The present litigation was commenced on 1 September 2006. 5 In May 2006, Allphones became aware of facts which it says indicated that Hoy may have been engaging in fraudulent conduct, namely manually unbundling mobile telephones to a particular mobile telephone network provider, selling the unbundled phones at a higher price and failing to disclose this conduct and the difference in price to the purchasers of the telephones, the network providers or Allphones. Allphones sought legal advice in relation to the dispute in mid-June 2006 and, after consultation with its legal advisers, obtained statements from various persons in relation to the suspected fraudulent conduct. 6 On 28 August 2006, Allphones served Hoy with a notice of its intention to terminate the franchise agreement. As a result, on 1 September 2006, Hoy began the present proceedings, seeking orders restraining Allphones from terminating the franchise agreement. 7 On 28 November 2006, Hoy served Allphones with a Notice to Produce, category 6 of which reads: 'With respect to the respondent's allegation against the applicant for fraud contained in the respondent's notice of intention to terminate franchise agreement … all files, memoranda, file notes, minutes of meetings and any other documents relating to the respondent's investigations, enquiries and consideration up to and including 28 August 2006'. 8 After making reasonable inquiries and reviewing the documents relating to the dispute, Mr Lloyd identified 37 documents which fell within the scope of category 6 of the Notice to Produce. He then made a preliminary assessment and determined that each document was subject to legal professional privilege. As mentioned above, the claim of privilege is no longer maintained in respect of four documents, namely 1, 35, 36 and 37. On 30 January 2007, three more documents were produced to the Court in answer to category 6 of the Notice to Produce, each of which were said to be privileged. In his affidavit of 5 April 2007, Mr Lloyd refers to each document in dispute and gives a concise description as to its nature, date of creation and the basis on which privilege is claimed. 9 In his affidavit of 25 May 2007, Mr Lloyd gives specific evidence concerning the relationship between Allphones and Bartier Perry as its legal advisers. This evidence specifically addresses how each of the documents in question came into existence. The affidavit also states that, prior to June 2006, Allphones was an existing client of Bartier Perry and that on 14 June 2006 Mr Rook, a partner of that firm, had a telephone conversation with that National Franchise Manager of Allphones in which he was informed of its dispute with Hoy. Shortly after this conversation, the firm was retained by Allphones to provide legal advice on an ongoing basis in relation to the dispute, and in an email dated 14 June 2006 there is an express reference to 'potential franchisee litigation'. In addition to this, Mr Lloyd later refers to information given to him by other partners of the firm, namely Mr Berner and Mr Creais, giving further particulars as to the creation of the documents in question. 10 It is clear from the foregoing that Mr Lloyd made detailed inquiries of Messrs Rook, Berner and Creais, together with officers of Allphones, including its Chief Executive Officer, National Franchise Manager, New South Wales State Manager, Chief Financial Officer and employees, prior to making the claim for legal professional privilege. He was satisfied, on the evidence from those inquiries, that the reason each of the documents was brought into existence was for the dominant purpose of seeking legal advice or assistance or for use in reasonably anticipated litigation. 11 A further aspect of the background to these proceedings is the aborted attempt to mediate the dispute and the correspondence between the parties which ensued. Mr Birch, the solicitor for Hoy, swore an affidavit on 5 October 2006, in which he deposes that he was instructed in early March 2006 to act for Hoy in its disputes with Allphones. After attempting to contact Allphones directly, Mr Birch on 20 April 2006 requested the Office of the Mediation Advisor to appoint a mediator, which was duly done on 27 April 2006. Allphones resisted the mediation. It sent an email to the mediator on 4 May 2006 in effect denying there was a dispute, and later confirmed that it would not attend a mediation conference. On 22 May 2006, Mr Birch wrote to Allphones raising matters for consideration, and this was followed by further correspondence in which the possibility of terminating the existing franchise agreement and executing a new agreement was raised. On 6 July 2006, Allphones requested a meeting. On 22 August 2006 a meeting took place at which Mrs Hoy, Mr Birch, Mr Harkin, the National Franchise Manager of Allphones, and Mr Llevski, NSW State Manager for Allphones, attended. In the course of that meeting, Mr Harkin referred to the allegation that Hoy had been engaging in fraudulent conduct, and stated that Allphones had obtained statements and affidavits from various people to support the allegations. Mr Harkin also stated that, under clause 9 of the franchise agreement, Allphones was entitled terminate that agreement without issuing notice. Despite this assertion by Mr Harkin, Allphones served Hoy on 28 August 2006 with a notice of its intention to terminate the franchise agreement. On 1 September 2006, Hoy commenced these proceedings.
CHALLENGE TO DOMINANT PURPOSE 12 Allphones submits that the documents are privileged because they were prepared for the dominant purpose of seeking legal advice or assistance or for use in reasonably anticipated litigation. The claim is that, while the documents may have been prepared also for other subsidiary commercial purposes, those other purposes were subservient to the purpose of obtaining legal advice, assistance or use in litigation. That latter purpose is claimed to have been 'dominant' in the sense that it was the most influential or paramount purpose. 13 Hoy submits that Allphones, as the party asserting the claim of privilege, bears the onus of proof of the elements of the privilege. To this end, it relies on the comments of Spigelman CJ in Sydney Airports Corp Ltd v Singapore Airlines [2005] NSWCA 47 at [3]. Hoy also argues that it is not sufficient to discharge this onus for the party claiming privilege simply to depose an affidavit making conclusory assertions as to the purpose for which the documents were brought into existence together with a statement about the category of legal professional privilege which applies. To this end, it relies on the decision of the Full Court in Kennedy v Wallace (2004) 142 FCR 185 at [12]-[16] (per Black CJ and Emmett J) and [144]-[145] (per Allsop J). Hoy submits that Allphones has not discharged its onus because Mr Lloyd's affidavits are insufficient and because, after having regard to non-privileged correspondence between the parties, it is clear that the dominant purpose for the creation of the documents was a commercial one. It argues that the documents were created in the course of an ongoing business relationship between the parties, rather than for the dominant purpose of legal assistance or obtaining material for use in legal proceedings. 14 Hoy further submits that it is a fair inference that an important purpose for most of the communications was the formulation of a commercial strategy or the taking of steps in the future management of the franchise relationship. If this inference were correct, the documents would go far beyond the scope of communication which was merely for the dominant purpose of legal advice. Although legal advice may have been contemplated or involved, Hoy contends that Allphones has not shown, nor should it be inferred, that the communications were made for the dominant purpose of obtaining legal advice or assistance in litigation. Hoy submits the evidence indicates that the communication was for the purpose of dealing with the dispute by progressing through dispute resolution procedures required by the franchise agreement, which requires the parties to resolve disputes commercially in order to enhance their future business relationship. In short, it is highly improbable, having regard to the context, history and evidence in the matter, that the communications were made for the dominant purpose of contemplated legal proceedings because such proceedings could not properly be contemplated before commercial decisions, strategies and dispute resolution procedures had been conducted, agreed upon or dismissed. The documents for which privilege is claimed are said to be within the latter category. 15 The evidence of Mr Lloyd has also been attacked in submissions by Hoy on the ground that it simply expresses the views of the lawyers involved and does not discharge the onus of proof as to the purpose of the creation of the documents. For example, Hoy says there is no witness from Allphones to give evidence of primary thought processes as to why the communications came into existence. Consequently, there is no clear paramountcy of purpose, it is said, which establishes that the documents were created in the course of giving or seeking legal advice or assistance. Contrary to the position of Mr Lloyd, Hoy argues that the communications were created for non-privileged purposes, namely preparing material for procedural meetings between the parties, investigating and preparing material for comment or response from Hoy, or investigating facts to formulate a business or commercial strategy. 16 The time at which the question of legal professional privilege falls to be determined is when the document is brought into existence. The question as to whether privilege will attach to a document is usually determined by considering the purpose which the creator of the record had in mind when it was brought into existence. The best evidence would normally be evidence given directly by the person creating the document as to the purpose of its creation, provided his or her evidence is specific, not inconsistent with the contents of the document and not weakened by cross-examination. However, matters such as the factual context and the contents of the document are also relevant in determining the question of privilege. Evidence based on information and belief can be given as to purpose of a document's creation by someone who did not create it, provided that he or she specifies the source of that information and belief. In many cases it may well be impractical to expect that the author or originator of every document should swear an affidavit. 17 In circumstances where parties to a dispute are taking steps to resolve the dispute through discussions, meetings and/or procedures required by an agreement, it will not necessarily be the case that the 'dominant purpose' of records created during that period of consultation is other than the purpose of obtaining legal advice or assistance. Where there is a legal retainer in existence during a period when the disputed documents came into existence, it is prima facie reasonable to conclude that a party is seeking legal advice and guidance. The mere fact that parties are communicating with respect to such dispute resolution procedures does not mean that litigation is not reasonably anticipated during that period. A party may well, quite reasonably, contemplate such litigation, and thus continue taking steps to obtain material for use in the event that negotiations break down. Often legal guidance may be necessary as to how the proceedings are to be carried out. Such a situation is not, of itself, inconsistent with the creation of documents for the dominant purpose of legal advice or assistance. In many cases parties will, for the sake of attempting to maintain a valuable business relationship, seek to negotiate a resolution to a dispute and work towards a modus vivendi, while at the same time contemplating and preparing for litigation. 18 In this case the thrust of Hoy's submission is that, on the available evidence, the dominant purpose of the documents is not to seek legal assistance but rather to work out an overall strategy to determine the ongoing commercial relationship of the parties. The reality is that parties to a dispute may have dual purposes, in which the seeking of legal advice remains the dominant purpose. Indeed, the notion that there may well be other purposes, such as managerial or commercial objectives, which account for the existence of a record is inherent in the 'dominant purpose' test itself: see Three Rivers District Council v Bank of England (No 6) [2005] A.C. 610 at 650 (per Lord Scott of Foscote). 19 In considering whether a particular document is privileged, it is helpful to consider the documents as a whole and have regard to the whole stream of communications passing between the parties, rather than to examine each document in isolation. This is because, by standing back and looking at the overall course of communication across a period of time, a picture may emerge which characterises the nature and purpose of each individual communication more clearly. Such an approach enables a decision to be made more confidently as to whether a specific document is privileged. In this case, the overall course of communication, when considered in its factual context together with the contents and form of the documents and the specific evidence provided by Mr Lloyd as to the provenance of the documents, is sufficient to persuade me that the dominant purpose for the creation of each of the documents presently in dispute was to obtain legal advice or assistance or to be used in anticipated litigation. Accordingly, I am of the view that each of the communications is privileged. In particular, I do not accept the submission that the steps taken towards the dispute resolution procedure provided for in the franchise agreement is sufficient to displace the strong, detailed and specific evidence supporting the claim for privilege, especially when considered in light of Allphone's retainer of Bartier Perry on 14 June 2006 and the commencement of litigation on 1 September 2006 by Hoy.
WAIVER BY DISCLOSURE 20 Hoy also claims that by a letter of 7 July 2006 Allphones waived legal professional privilege in any legal advice referred to in that letter by disclosing the substance of that advice. 21 The letter in question is from Mr Donnellan, Chief Executive Officer of Allphones, to Mr Birch. The relevant passage reads: 'There are serious matters which need to be discussed. Your client will be given an opportunity to respond to those matters and failure to do so will result in immediate termination of its franchise agreement, based on the advice of our lawyers.' (Emphasis added.) 22 Drawing upon the reasoning of Gyles J in Bennett v Chief Executive Officer of the Australian Customs Service (2004) 140 FCR 101 at 119, Hoy submits that this passage constitutes a waiver of the gist or conclusion of the legal advice provided to Allphones, and that in these circumstances any privilege which vests in the legal advice to which the above passage refers has been waived by disclosure. 23 In my opinion, the reference to a position which is 'based on' legal advice does not, in the circumstances of this case, amount to a sufficient disclosure of that legal advice as to amount to a waiver of privilege. Neither the conclusion, nor the gist, nor even any of the content of the legal advice is referred to or disclosed. All that is disclosed is that Allphones has obtained advice and has considered it as part of a basis for making a decision as to its future course of action. The passage is consistent with Allphones having made an independent decision after reading the advice. Moreover, I do not consider that the use of a generalised reference to an extant piece of legal advice constitutes a use of that advice in such a way as to make it unfair or unreasonable not to disclose the full contents of that advice. I am of the view that no privilege which vests in any of the communications in dispute has been waived by disclosure.
IMPLIED WAIVER 24 Hoy further submits that, where a party raises an issue which would be unjust to litigate without access to records bearing on its state of mind, it has impliedly waived privilege in respect of the material on which that state of mind is based. Hoy argues that Allphones has impliedly waived privilege as to a number of the documents because, by electing to continue to require the performance of the franchise agreement from Hoy and by electing to pursue contractual and statutory dispute resolution procedures, Allphones has affirmed the agreement and waived its right to terminate. This, it is said, puts in issue Allphones' state of mind, and thus impliedly waives privilege. Hoy also argues that by purporting to reserve its right of termination Allphones acted in bad faith and with the real purpose of negotiating more favourable terms in its franchise agreement with Hoy. Again, it is said, Allphones has put in issue its state of mind and thereby impliedly waived privilege. Hoy also submits that the implied waiver of privilege is also supported by that fact that Allphones has alleged fraudulent conduct against Hoy as a basis for termination of the franchise agreement. 25 To support its contention, Hoy refers to the decision in Goldberg v Ng (1995)185 CLR 83, where Deane, Dawson and Gaudron JJ observed at 96 that in cases of implied waiver of legal professional privilege the question is whether fairness requires that the privilege should cease: see also Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481 and 488 (per Gibbs CJ and Mason and Brennan JJ). The principle of implied waiver was expressed and applied by this Court in Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341, where the Full Court at 354-356 decided that if a party makes an assertion as part of its case that puts the contents of otherwise privileged material in issue, or necessarily opens an inquiry into an issue which gives rise to an inconsistency between maintaining the privilege claim and making the assertion, the privilege is waived by implication: see also Mann v Carnell (1999) 201 CLR 1; Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347. 26 The difficulty in Hoy's submissions is that, in the present case, the issue of election is not raised by Allphones but by Hoy itself in section K of its Statement of Claim. Allphones, in paragraph 44 of its Further Amended Defence, simply denies the allegation. Similarly, the allegation of bad faith is an issue raised by Hoy and denied by Allphones. In any event, it seems to me that the allegation of fraud puts in issue the state of mind of Hoy and not that of Allphones, and consequently it cannot be unfair or inconsistent for Allphones to retain its privilege with respect to records relating to its own state of mind. As McClelland J said in United States Surgical Corp v Hospital Products International Pty Ltd at 7 (unreported, Supreme Court of New South Wales, McClelland J, 13 October 1981): '…before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust.' (Emphasis added.) 27 There is no unfairness, in my view, in maintaining the privilege claim by Allphones in these circumstances. It is not implicit in the denial of an allegation of bad faith that Allphones must in fairness make available otherwise privileged material relating to its state of mind simply because the other party has made the allegation. The position may be altered if Allphones were to positively assert and put in issue its state of mind by, for example, claiming that it had no reason to believe a certain matter existed or raising an issue of undue influence. But that is not this case. Such an allegation is the converse of this case, because Hoy, and not Allphones, has raised the issue. 28 Nor does the reasoning in Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 assist Hoy. In that case, the plaintiff was asserting a right to claim damages under a statute. The statutory context made it implicit in making the claim that the plaintiff had not effectively exercised an alternative right, and thus access to the plaintiff's material was necessary to challenge this implicit assertion. That is not the present case. 29 For the above reasons, I do not consider there has been an implied waiver of legal professional privilege in this case.
QUARMBY AND SHEPHERD STATEMENTS 30 On 3 July 2006, Bartier Perry, three weeks after it had been retained by Allphones, wrote to Mr Quarmby, a customer of Allphones, with a draft statement for his consideration. The statement was in the form of a standard witness a statement, apparently drawn up by the solicitors on instructions. It related to inquiries made in relation to the purchase of an unbundled mobile telephone from an Allphones store. 31 On 15 August 2006, another draft statement was sent by Bartier Perry to a Mr Shepherd for his consideration. The covering letter was marked 'Private & Confidential'. The statement relates to the observations and statements made at Allphones' store concerning 'unlocked phones'. 32 These documents were created and sent to Messrs Quarmby and Shepherd after Allphones retained Bartier Perry to give legal advice and assistance and shortly before the notice of its intention to terminate the franchise agreement was sent on 28 August 2006 and legal proceedings were commenced by Hoy on 1 September 2006. 33 Having examined the statements themselves, and taking into account the times at which they were created, I am satisfied that they were created for the dominant purpose of obtaining legal assistance or for use in litigation which was reasonably anticipated. 34 The challenge to the privilege claim in respect of these two statements and related communications therefore fails.
CONCLUSION 35 All of the documents for which privilege is claimed by the respondent are privileged. The application for production is dismissed and, because the respondent has succeeded in substance, the applicant is to pay the respondent's costs of the application for production. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.
Counsel for the Respondent: D. Pritchard and C. Ireland
Hoy Mobile Pty Ltd
Allphones Retail Pty Ltd
(1986) 161 CLR 475
(2004) 140 FCR 101
(2006) 151 FCR 341
(1999) 201 CLR 49
(2004) 142 FCR 185
(1999) 201 CLR 1