Supreme Court of WA|2002-06-27

Ideas Plus Investments Ltd v National Australia Bank Ltd [2002] WASC 167 (27 June 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : IDEAS PLUS INVESTMENTS LTD -v- NATIONAL AUSTRALIA BANK LTD [2002] WASC 167

Practice and procedure - Application for leave to amend statement of claim - Application for inspection of document subject to claim for legal professional privilege - Turns on own facts

Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd (1995) 37 NSWLR 405

Benecke v National Australia Bank (1993) 35 NSWLR 110

Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187

Carter v Managing Partner, Northmore Hale Davy and Leake (1995) 183 CLR 121

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Commissioner of Australian Police v Propend Finance Pty Ltd (1997) 188 CLR 501

Dalgety Australia Ltd v Rubin (1984), unreported; FCt SCt of WA; Library No 5485; 24 August 1984

Data Access Corporation v Powerflex Services Pty Ltd (1994) AIPC 91-112

Equuscorp Pty Ltd v Perpetual Trustees WA Ltd [1999] FCA 925

Esso Australia Resources Ltd v Commissioner of Taxation [1999] HCA 67; (1999) 201 CLR 49

Hongkong Bank of Australia Ltd v Murphy [1993] VicRp 83; [1993] 2 VR 419

John Tanner Holdings Pty Ltd v Mortgage Management Ltd [2001] FCA 194

Lillicrap v Nalder & Son (A Firm) [1993] 1 WLR 94

Mathieson v Booth [2000] VSC 89

Paragon Finance plc v Freshfields (A Firm) [1999] EWCA Civ 955; [1999] 1 WLR 1183

Pickering v Edmunds (1994) 63 SASR 357

Pilpel v Rinat [2000] WASC 129

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5

Southern Equities Corporation Ltd (In Liq) v Arthur Andersen & Co [1997] SASC 6712; (1997) 70 SASR 166

Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347

Tony Sadler Pty Ltd v McLeod Nominees Pty Ltd (1994) 13 WAR 323

Wardrope v Dunne [1996] 1 Qd R 224

Western Australia v Southern Equities Corporation Ltd (In Liq) (1996) 69 FCR 245

Woodside Petroleum Development Pty Ltd v H & R - E & W Pty Ltd, unreported; SCt of WA; Library No 970541; 3 October 1997

1 MASTER SANDERSON: This is the return of two chamber summonses issued by the plaintiff. The first in time is an application to inspect certain of the defendant's documents over which privilege has been claimed. The second seeks leave to amend the statement of claim in terms of a minute filed 26 March 2002. Both applications were opposed. At the conclusion of the hearing, I indicated to the parties I would grant leave to amend the statement of claim in terms of the minute and I reserved my decision with respect to the application for inspection. These reasons cover both applications.

2 It is convenient to deal first with the application to amend. That, in turn, requires some, albeit brief, consideration of the facts. The plaintiff was, at all material times, an investor in a business run by Whittakers Ltd ("Whittakers"). The defendant is a major banking institution. In or about September of 1997, discussions took place between representatives of the plaintiff, Whittakers and the defendant with a view to the defendant taking over as Whittakers' banker. As part of this transaction, a credit facility was to be provided by the defendant to Whittakers. This credit facility was to be secured by an irrevocable letter of credit to a limit of $5,000,000, procured by the plaintiff from its banker and a charge over the assets of Whittakers. Pursuant to this agreement, the letter of credit was issued. Whittakers' business failed to prosper and on 11 May 1999 the defendant appointed receivers and managers to the company. On 28 May 1999, the defendant claimed under the letter of credit. The plaintiff says that the defendant was not entitled to enforce the letter of credit and it bases that claim on a number of different grounds. First, it says that, in calling upon the letter of credit as it did, the defendant was in breach of its contract with the plaintiff. Second, the plaintiff raises claims under s 52 and s 51AA of the Trade Practices Act 1974.

3 The amendments sought by this application relate first to the terms of the contract between the plaintiff and the defendant. Two amendments are sought. The first is to par 3(5). In its present manifestation, that paragraph pleads an implied term in the contract between the plaintiff and the defendant that demand would not be made on the letter of credit unless conditions required by the letter of credit had been met. Presently, it is pleaded that the term is to be implied "to give business efficacy" to the agreement. What is sought to be added is that the term should be implied "in law by reason of the relationship of the parties".

4 In fact, what the plaintiff is seeking to do is add further particulars to par 3(5). The material fact is the term as alleged. The particulars are the basis upon which it is said the term ought to be implied. Leaving this technical issue to one side, I see no difficulty with the amended pleading. It alerts the defendant to the case it has to meet, as it further clarifies the plaintiff's position. In my view, the amendment is unobjectionable and should be permitted.

5 The plaintiff seeks to include an entirely new par 3(6). The proposed paragraph is in the following terms:

"It was a further implied term of the support contract, implied in law generally or by reason of the relationship of the parties, that the defendant would not exercise its right to demand payment from the Hong Kong Shanghai Bank under the letter of credit except in good faith and reasonably having regard to the interests of the parties."

6 The defendant raises a number of objections to this paragraph. First, it is said that, as a matter of law, an obligation to act in good faith and reasonably cannot be implied into a letter of credit. Counsel for the defendant described such a proposition as "dangerous". However, a close reading of the pleading discloses that the plaintiff is not attempting to imply such a term in the letter of credit itself. In par 3(3), the plaintiff defines what is referred to as "the support contract". As pleaded, it is alleged that the issue of the letter of credit was part of a wider agreement defined as the support contract. It is into this agreement that the plaintiff seeks to imply the term. While the argument is not without its difficulties, the plea is arguable and the amendment should be permitted.

7 Counsel for the defendant also complained that the proposed paragraph did not adequately state the basis upon which the term was to be implied in the contract. As I mentioned when dealing with par 3(5), the basis upon which the term is to be implied is really a matter of particulars. It is difficult to see that further particulars are required of a plea that the term is implied by law. It may be that further particulars are required of the plea that the term is to be implied "by reason of the relationship of the parties". It is not immediately apparent from par 3, as it will stand in its amended form, just what aspect of the relationship between the parties would give rise to the need to imply this term. However, insofar as that is a defect in the pleading, it can be cured by particulars. It would not provide a basis for refusing leave to amend. I am satisfied the plaintiff should have leave to amend in terms of par 3(6).

8 The plaintiff seeks leave to amend by adding a new par 11(2). The proposed paragraph will read as follows:

"Further or alternatively, the defendant in claiming and receiving funds under the letter of credit as amended, breached the implied term pleaded in paragraph 3(6) in that the defendant so proceeded without prior notice to the plaintiff and notwithstanding that it knew, including from advice from its in-house counsel, that it was doubtful whether under the terms of the letter of credit as amended the mere appointment of receivers and managers was of itself sufficient to give it the right to claim payment from the Hong Kong Shanghai Bank."

9 This paragraph is, in fact, a pleading of material fact and particulars. The material fact pleaded is that the plaintiff says, in claiming under the letter of credit, the defendant breached the implied term pleaded in par 3(6). What follows thereafter are particulars. Paragraph 3(6) seeks to imply a term that the letter of credit would not be called upon "except in good faith and reasonably having regard to the interests of the parties". What the plaintiff says by par 11(2) is that the implied term was breached. The particulars of that plea are that the requirement of good faith and the relationship between the parties required that the defendant give notice to the plaintiff before it called upon the letter of credit in circumstances where, on the plaintiff's case, it was doubtful whether the defendant had the right to call upon the letter of credit merely because receivers and managers were appointed. Again, leaving to one side the fact that the paragraph is a mixture of material fact and particulars, the plea itself is not objectionable. In my view, it can stand.

10 The further amendments sought relate to par 12 and the claims made under the Trade Practices Act. The plaintiff seeks to make a small amendment to par 12(b) and to add a new par 12(b)(ia). The amendment to par 12(b) is of no real moment. It simply clarifies the position. The new par 12(b)(ia), is a mirror of what is pleaded in par 11(2). Essentially, what is said by the plaintiff is that in acting on the letter of credit when it knew there was doubt as to whether it was entitled to do so, is either misleading and deceptive or unconscionable conduct. In my view, the amendment is proper and should be permitted.

11 In the circumstances, then, I am prepared to allow the plaintiff to amend its statement of claim in terms of the minute of 26 March 2002. I will hear the parties as to what consequential orders should be made.

12 Turning, then, to the plaintiff's application for inspection of documents, the document that the plaintiff seeks to inspect is described in the defendant's supplementary discovery as "Memo from in-house counsel to David Watts - Head of Asset Structuring - Asia Pacific dated 4 June 1999". Based upon this description of the document, the plaintiff says that three things may be inferred. First, that the memo was written following some instructions, oral or in writing, to provide such memo. Second, given the timing of the memo, it directly concerned the rights of the defendant to claim and maintain its claim on the letter of credit. Third, that the memo would have been provided for purposes other than the dominant purpose of providing advice. For example, the plaintiff says that the memo may have been prepared to inform the management of the defendant about the position of Whittakers generally.

13 In my view, the first two of these propositions can be accepted. In support of its application, the plaintiff filed an affidavit of Michael Sie Ging Wong sworn 4 December 2001. Mr Wong says that he had a discussion on 3 June 1999 with one Guido Bernini with respect to the letter of credit. Mr Wong says that he was told by Mr Bernini that the defendant had sought legal advice in relation to the letter of credit and the matter was therefore "out of my (Bernini's) hands": see par 5. Mr Wong goes on to say that he was told by Mr Bernini that "the terms of the ILC are ambiguous". The defendant has filed an affidavit of Mr Bernini sworn 8 January 2002 in which he acknowledges a conversation with Mr Wong and accepts that it may have taken place on 3 June 1999. He accepts that he told Mr Wong that the defendant had sought legal advice in relation to the letter of credit. However, he denies telling Mr Wong what advice the bank had received. He says he was not aware of the substance of the advice.

14 Based upon the affidavit evidence, it is possible to infer that the advice the bank obtained was based upon instructions to the in-house counsel. In my view, that is an irresistible inference from the evidence of Mr Bernini. It also seems to me that his evidence supports the inference that the memo was directly concerned with the rights of the defendant under the letter of credit. However, I can see no basis for inferring that the memo was not prepared for the dominant purpose of providing advice to the defendant. Quite the reverse. There is nothing in the evidence of Mr Wong or Mr Bernini that gives any indication the defendant was doing anything other than seeking advice from its legal advisers as to its rights under the letter of credit. In other words, insofar as the plaintiff seeks to challenge the claim for privilege on the basis of the document not satisfying the so-called "dominant purpose" test, the application must fail.

15 That still leaves the question of whether, in the circumstances of this case, the defendant is entitled to maintain its claim for legal professional privilege. What is said by the plaintiff is that, given the way the pleadings are framed, there is an implied waiver by the defendant of its right to privilege. It is to be noted that, by par 3(6), par 11(2) and par 12(b)(ia), it is the plaintiff not the defendant who raises the issue of the legal advice received by the defendant. Can it be said, in these circumstances, that there has been an implied waiver by the defendant of its prima facie right to claim privilege over its legal advice?

16 I considered precisely this question in BP Australia Ltd v Stallwood [2000] WASC 75. I concluded that it was possible to identify at least five situations where pleading can give rise to an implied waiver of privilege. I set them out as follows:

"1. Where a document otherwise privileged is reproduced in the pleading.

2. The pleading puts the privileged communication in issue where for instance an allegation is denied based upon a privileged communication.

3. The party claiming privilege raises an issue which cannot be fairly determined without reference to the privileged material. This is perhaps a limited instance of the wider principle that privilege cannot operate to compromise the court's fact finding task.

4. A party's state of mind or knowledge is an issue and legal advice is relevant in the formation of that state of mind.

5. Legal advice becomes an issue in the action."

17 In this case, it is the fifth of these principles which is relevant. There can be no doubt in this case that the question of the legal advice received by the defendant is an issue between the parties. In my view, it is of no moment that it has become an issue as a consequence of the way in which the plaintiff has chosen to plead its case. What is at the heart of any implied waiver of legal professional privilege is the question of fairness. The decision in Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475 makes that plain. It was reinforced in the judgment of Branson and Lehane JJ in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634 at 648. Where an issue is incapable of fair resolution without reference to the material over which privilege is claimed, then there is an implied waiver of privilege. It would run counter to the proper administration of justice were it otherwise.

18 Accordingly, I am prepared to make orders in terms sought by the plaintiff. However, I will give the parties the opportunity to address on the precise form of orders. The defendant may also wish to seek a stay of the orders pending consideration of an appeal.

Ideas Plus Investments Ltd v National Australia Bank Ltd [2002] WASC 167

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Ideas Plus Investments Ltd v National Australia Bank Ltd [2002] WASC 167 (27 June 2002)

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