Practice and procedure - Inspection of documents - Letters of instruction to expert witness - Expert's reports disclosed - Whether letters of instruction protected by legal professional privilege - Turns on own facts

Australian Securities & Investments Commission v Southcorp Ltd [2003] FCA 804; (2003) 46 ACSR 438

Collins Debden Pty Ltd v Cumberland Stationery Co Pty Ltd [2005] FCA 1194

Dingwall v Commonwealth of Australia [1992] FCA 627; (1992) 39 FCR 521

Instant Colour Pty Ltd v Canon Australia Pty Ltd, unreported; Fed C of A; 30 October 1995

Attorney­General for the Northern Territory v Maurice [1986] HCA 80; (1986) 69 ALR 31

Buttes Gas & Oil Co v Hammer (No 3) [1981] QB 223

Tirango Nominees Pty Ltd v Dairy Vale Foods Limited (No 2) (1998) 83 FCR 397

Trade Practices Commission v Arnotts Ltd (No 5) (1990) 21 FCR 324

1 MASTER NEWNES: This is an application by the defendants for an order for inspection of two letters written by the plaintiffs' solicitors to an expert witness. The plaintiffs say that the letters are protected by legal professional privilege.

2 In the action, the plaintiffs are the trustees of the Kingstream Steel Creditors' Trust, for the benefit of pre-voluntary administration creditors of Kingstream Steel Ltd ("Kingstream").

3 The plaintiffs plead that, on 1 October 1996, the second defendant lodged applications for certain mining leases (the "Applications"). By a deed dated 26 March 1997, made between Kingstream and the first defendant (the "Option Deed"), the first defendant granted to Kingstream an option to purchase certain mining tenements and interests which are described in the deed. The Option Deed was varied by supplemental deed dated 20 January 1998.

4 The plaintiffs allege that at all material times it was the common continuing intention of Kingstream and the first defendant that if Kingstream exercised the option, then the subject-matter of the contract thereby constituted would include the Applications. The plaintiffs say that the Option Deed, as amended, does not provide that if Kingstream exercised the option then the subject-matter of the contract would include the Applications and it seeks rectification of the Option Deed to give effect to the intention of Kingstream and the first defendant.

5 The plaintiffs also plead that in breach of the Option Deed, among other things, on or about 19 September 2001, to the knowledge of the first defendant, the second defendant withdrew the Applications. The plaintiffs also claim that the defendants were each negligent in failing to ensure that the Applications were maintained and that they were not withdrawn. The plaintiffs seek damages.

6 The plaintiffs have retained an expert, Snowden Mining Industry Consultants Pty Ltd ("Snowden"), to provide valuations of the Applications at certain periods of time. Snowden have prepared a valuation report dated 18 February 2003 ("the First Report") and a supplementary report dated 22 November 2005 ("the Supplementary Report"). Those reports have been provided to the defendants and the plaintiffs have indicated that they intend to rely upon those reports for the purposes of the litigation.

7 It is apparent from its contents, and from a covering letter from Snowden, that the First Report was prepared following receipt by Snowden of a letter from the plaintiffs' solicitors dated 2 October 2002. It is similarly apparent that the Supplementary Report was prepared following receipt of a letter from the plaintiffs' solicitors dated 24 October 2005. The letters have been discovered by the plaintiffs who have, however, objected to producing them for inspection on the grounds they are the subject of legal professional privilege.

8 It was submitted on behalf of the defendants that ordinarily disclosure of an expert's report for the purposes of reliance on it in litigation will result in an implied waiver of the privilege in respect of the brief or instructions, at least if the appropriate inference to be drawn is that they were used in a way that could be said to influence the content of the report, because in those circumstances it would be unfair to rely on the report without disclosure of the instructions. If the letter of instruction confined the expert to prepare the report in a certain way and the letter of instruction was something from which the report had been compiled, there was an implied waiver of the privilege. Counsel referred to Australian Securities & Investments Commission v Southcorp Ltd [2003] FCA 804; (2003) 46 ACSR 438 at 441 - 442 and Instant Colour Pty Ltd v Canon Australia Pty Ltd, unreported; Fed C of A; 30 October 1995 at 56.

9 Counsel for the defendants referred to a number of passages in the reports which he submitted indicated that Snowden had compiled the reports in reliance upon, and in accordance with, information and instructions contained in the letters, and that the letters had confined Snowden to prepare the reports in a particular way.

10 It was submitted on behalf of the plaintiffs that the letter of instruction was protected by legal professional privilege unless waiver had occurred. On a fair reading of the reports, there was no waiver of privilege. There was no basis in either report for any suggestion that Snowden had been directed to prepare the report in any way that might cause an inaccurate perception if the letter of instruction were not disclosed. The reports themselves indicate the material upon which the opinions contained in them were based, and there is nothing in the reports to suggest that the letters of instruction were sources of knowledge relied upon by Snowden or that the letters influenced the content of the reports in any way.

11 I did not understand the relevant principles to be in dispute. They were set out in the judgment of Lindgren J in Australian Securities & Investments Commission v Southcorp Ltd (supra) at [21] as follows:

"(1) Ordinarily the confidential briefing or instructing by a prospective litigant's lawyers of an expert to provide a report of his or her opinion to be used in the anticipated litigation attracts client legal privilege. [authorities omitted]

(2) Copies of documents, whether the originals are privileged or not, where the copies were made for the purpose of forming part of confidential communications between the client's lawyers and the expert witness, ordinarily attract the privilege. [authorities omitted]

(3) Documents generated unilaterally by the expert witness, such as working notes, field notes, and the witness's own drafts of his or her report, do not attract privilege because they are not in the nature of, and would not expose, communications. [authorities omitted]

(4) Ordinarily disclosure of the expert's report for the purpose of reliance on it in the litigation will result in an implied waiver of the privilege in respect of the brief or instructions or documents referred to in (1) and (2) above, at least if the appropriate inference to be drawn is that they were used in a way that could be said to influence the content of the report, because, in these circumstances, it would be unfair for the client to rely on the report without disclosure of the brief, instructions or documents. [authorities omitted]

(5) Similarly, privilege cannot be maintained in respect of documents used by an expert to form an opinion or write a report, regardless of how the expert came by the documents. [authorities omitted]

(6) It may be difficult to establish at an early stage whether documents which were before an expert witness influenced the content of his or her report, in the absence of any reference to them in the report: [authorities omitted]."

12 In Dingwall v Commonwealth of Australia [1992] FCA 627; (1992) 39 FCR 521 at 524, Foster J held that the provision of documents to a potential witness to prepare an expert report did not necessarily constitute a waiver of privilege in the documents; there must be an indication that the documents were used in the preparation of the expert report in a way that could be said to influence the content of that report. That decision was referred to with approval by Nicholson J in Instant Colour Pty Ltd v Canon Australia Pty Ltd (supra).

13 That does not seem to me to be inconsistent in any way with the later decision of Lindgren J in Collins Debden Pty Ltd v Cumberland Stationery Co Pty Ltd [2005] FCA 1194, where his Honour said (at [9]):

"In the usual case, disclosure of an expert's report for the purpose of reliance on it in the litigation will result in waiver of the privilege attached to the letter of instructions to the expert. ... This is so because the letter may be expected to set out the assumptions on which the expert was to proceed in forming his or her opinion. For this reason, the letter will have had some influence on the content of the report, and a reading of the letter may be necessary to a proper understanding of the report."

14 The First Report was accompanied by a letter from Snowden of the same date. In that letter, Snowden says that "Pursuant to [the plaintiffs' solicitors'] letter dated 2 October 2002, [Snowden] has prepared an Independent Valuation Opinion of certain mineral tenements ...". Snowden goes on to say that it has based its valuation of the mining tenements on a review of technical information provided by Kingstream and that a "listing of the documents referenced is provided at the end of this report". It then goes on to say that Snowden has not independently verified the ownership and legal standing of the tenements, their status with respect to native title claims or potential environmental land access restrictions and "has relied upon documents and information provided by Phillips Fox and has based its valuation on the understanding that all the tenements were in good standing at the effective valuation dates as stipulated by Phillips Fox and that there was no cause to doubt the eventual granting of any tenement applications". They say that their valuation opinion of the mining tenements "in accordance with the mandate by Phillips Fox" is summarised in the table which then follows.

15 In the report, at par 1.3, under the heading "The Mandate", Snowden says that it has "been requested by Phillips Fox to provide valuations of the mineral tenements which were the subject of the Option Agreement as at 9 February 1999 (the date the Option was exercised) and at 19 September 2001 (the date that it is alleged that 3 Mining Lease applications at the Jack Hills project were withdrawn)."

16 The Supplementary Report is expressed to have been prepared at the request of the plaintiffs' solicitors' by letter dated 24 October 2005. The covering letter from Snowden says that the Supplementary Report should be read in conjunction with the First Report. The letter goes on to say that the plaintiffs' solicitors have "specifically requested Snowden to provide a current market valuation of the mineral tenements (i.e. as at November 2005) which were the subject of the Option Agreement ...".

17 In the Supplementary Report, Snowden say that "For the purpose of this supplementary valuation, Snowden conducted a review of the following information provided by [the plaintiffs' solicitors] detailing the current tenement status and exploration work conducted on the projects subsequent to Snowden's 2003 Valuation". Five documents are then listed.

18 Snowden then say that "Snowden's valuation opinion of the mineral tenements in accordance with the mandate by Phillips Fox is summarised as follows ...". A table containing six valuations is then set out.

19 At par 4.4 of the report, Snowden say that their "valuation opinion of the mineral tenements in accordance with the mandate by Phillips Fox dated 24 October 2005 is summarised as follows ...". At par 4.4.4, Snowden says that "According to advice received from Phillips Fox, the diminution in value of the Jack Hills Range and Weld Range projects based on the status of the Option Agreement tenements and the market as at the Withdrawal Date is defined as 'the value of the interests acquired by Kingstream upon exercising the option on 9 February 1999, less the value of the interests held by Kingstream on 19 September 2001 when the ML applications were withdrawn' ".

20 In par 4.4.5, Snowden says it has been requested to consider the diminution in total value of the Weld Range and Jack Hills Range projects based on the project tenements current market value. "According to the advice received from [the plaintiffs' solicitors], the diminution in value of the Jack Hills Range and Weld Range projects based on the status of the Option Agreement tenements as at the Withdrawal Date is defined as 'the current market value of the interests acquired by Kingstream upon exercising the option on 9 February 1999, less the current market value of the interests held by Kingstream on 19 September 2001 when the ML applications were withdrawn'." The valuation of the diminution on that basis is then set out in a table.

21 In par 4.4.6, Snowden says it was asked by the plaintiffs' solicitors to consider a diminution in the value of the Jack Hills and Weld Range projects based on the current market and the status of the project areas as at the Valuation Date.

Has legal professional privilege in the letters of instruction been waived?

22 In my view, the plaintiffs have waived privilege in each of the letters of instruction from their solicitors.

23 According to Snowden's letter of 18 February 2003, the First Report was prepared "pursuant to" the letter from the plaintiffs' solicitors. In relation to ownership, native title claims, potential environmental land access restrictions and various other matters, Snowden says it has relied on "documents and information" provided by the solicitors and "has based its valuation on the understanding that all the tenements were in good standing at the effective valuation dates as stipulated by [the solicitors] and that there was no cause to doubt the eventual granting of any tenement applications". The specific "information" referred to is not identified. Snowden's "mandate" contained in the solicitor's letter is described in par 1.3 of the report but shortly and in the third person. It is not unreasonable to infer that it is Snowden's statement of the mandate, rather than a reiteration of the express terms of it.

24 In the circumstances, it is, I think, to be inferred that the letter from the plaintiffs' solicitors had some influence on the content of the First Report, so that fairness requires that the defendants be allowed to inspect the letter.

25 The Supplementary Report is to be read with the First Report. It refers to the letter from the solicitors and to the "mandate" contained in it. The mandate is not specifically defined in the report, although the report says at the outset that "[The plaintiffs' solicitor] has specifically requested Snowden to provide a current market valuation of the mineral tenements (i.e. as at November 2005) which were the subject of the Option Agreement, in particular the ML applications at the Jack Hills Range project." But whether that sets out the full metes and bounds of the mandate is not clear.

26 The report also refers in several places to "advice received from [the plaintiffs' solicitors]" as to the definition to be used in connection with the valuation task to be undertaken, and it appears to quote an extract from that advice. It does not, however, set out the full terms of the advice.

27 Once again, in my view, it is to be inferred that the letter from the plaintiffs' solicitors had some influence on the content of the Supplementary Report, so that fairness requires that the defendants be allowed to inspect the letter.

28 I consider that there has been a waiver of privilege in respect of both letters and I would order that the plaintiffs produce the letters for inspection.

29 I will hear the parties on the form of the order and on costs.