Islam v Duncan as liquidator of Gagudju Charitable Association Inc [2000] NTCA 3

Mann v Carnell [1999] HCA 66; (1999) 168 ALR 86, applied.

Whether Conduct of auditor's legal advisers amount to an unauthorised use of confidential material

Lord Ashburton v Pape [1913] 2 Ch 469 (CA), applied.

Cross on Evidence, Butterworths Australian Edition Vol 1 1996 par 25025 by Byrne, D and Heydon, JD.

History and purpose of the court's practice in an application for an examination order relevant.

In re British and Commonwealth Holdings PLC [1992] Ch 342, considered.

Re Excel Finance Corporation (Receiver and Manager Appointed): Worthley v England [1994] FCA 1251; (1994) 52 FCR 69 at 93, applied

Islam v Duncan [2000] NTCA 3

STEPHEN DUNCAN as Liquidator of GAGUDJU CHARITABLE ASSOCIATION INCORPORATED

[1] The respondent ("the liquidator") seeks orders against the legal representatives of the appellant ("the auditor") to the effect that there be returned to the liquidator a copy of a document delivered by the liquidator to the auditor by mistake, and that the legal representatives be restrained from disclosing the contents of that document, or making use of it.

[2] The original document is the liquidator's affidavit in support of his successful application to Thomas J for an order for examination of the auditor under s 596B Corporations Law. It is provided in s 596C(2) that that affidavit is not to be available for inspection expect in so far as the court orders. These applications arose at the commencement of the auditor's application for leave to appeal against her Honour's refusing to set aside the order for examination, and an order that the affidavit not be available for inspection by the auditor.

[3] A history of the practice of the courts, the purpose of that practice and later legislation in England to do with the confidentiality of the material advanced by a liquidator in support of an application for an examination order, is set out in the judgment of Nourse LJ in In re British and Commonwealth Holdings PLC [1992] Ch 342. See also the reasons of the Full Court of the Federal Court of Australia in Re Excel Finance Corporation (Receiver and Manager Appointed): Worthley v England [1994] FCA 1251; (1994) 52 FCR 69. The restriction on inspection in s 596(2), introduced in 1991, appears to be a statutory formulation of the long standing practice of the courts to advance a well recognised purpose.

[4] The statutory injunction is by its express terms limited to the original affidavit in the custody of the court. It does not extend to disclosure of copies, nor prohibit any other means of communicating the contents of the original. A liquidator might decide to disclose the basis of his application for the examination order to a prospective examinee by providing a copy of the affidavit, or by some other means, and may also be prepared to consent to an order that the affidavit in court be made available for inspection. But that was not this case.

[5] The evidence is that counsel for the liquidator advised the solicitor for the liquidator to provide copies of the affidavit to the members of the court for their convenience upon the hearing of the application for leave to appeal. He also advised the solicitors for the liquidator to inform the solicitors for the auditor that that was being done. The solicitor, who undertook the task, not only advised the solicitors for the auditor of what he had been advised to do, but also informed them that he was sending a copy of the affidavit to them. That was done over the telephone and the confirmatory letter enclosed the copy.

[6] The solicitor for the liquidator, who says he misunderstood counsel's advice and provided a copy of the document, said it was a mistake. There is nothing to suggest otherwise, but even so, it was a breach of the obligations to his client to maintain confidentiality in respect of the client's business entrusted to him, especially in a case like this.

[7] The solicitor for the auditor who had received the advance telephone call immediately indicated a degree of surprise when informed that the copy would be provided. She had been informed through a copy of the liquidator's written submissions to the court on the substantive matter, that the liquidator resisted the application for leave to appeal against her Honour's refusal to make an order that the original be available for inspection. The copy was read by the auditor's solicitor and counsel, but they say they have not disclosed the contents to the auditor.

[8] The mistake came to the notice of those representing the liquidator, who unsuccessfully sought the voluntary return of the document and appropriate undertakings as to disclosure. This application was made as soon as the matter came before the court, the day after the document was delivered.

[9] The liquidator wishes to maintain the confidentiality attached to the original affidavit, otherwise he will unfairly lose the advantage which the statute protects. Counsel for the auditor says that it would be unfair to make orders which would deprive him of the advantage he now has, and in particular, that to grant the relief sought would place the legal representatives in an embarrassing position. They know what is in the document, but could not use that knowledge.

[10] Counsel for the auditor sought to use the contents of the copy affidavit on this application to demonstrate why it would be unfair to deprive him of the use of it on the application for leave to appeal. Part of the argument there goes to whether the liquidator made full disclosure of all relevant facts on the ex parte application for the examination order. The court permitted him to do that without ruling as to the correctness of that course, and an order that publication of the proceedings be prohibited was made. That course was adopted in the exigencies prevailing at the time.

[11] As indicated, the parties approached the application with submissions based upon relief in equity based on notions of fairness, both drawing upon cases to do with legal professional privilege, such as Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475; Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83 and Mann v Carnell [1999] HCA 66; (1999) 168 ALR 86. If fairness is a relevant test, then the balance lies with the liquidator. The law is clear. The affidavit is protected against inspection so as to protect its contents for reasons accepted for over 100 years and recently reinforced by statute. An arguable case must be made out by the prospective examinee before inspection will be allowed in whole or in part (Worthley v England at p93). It is not unfair of the auditor to require that no advantage be taken of the mistake.

[12] The circumstances seem to me to be akin to those in Lord Ashburton v Pape [1913] 2 Ch 469 (CA). That case was described in the judgment as being "curious", and so here. As in this matter, restraining orders were sought in regard to the use of documents which were confidential (subject to legal professional privilege), and came into the hands of a person who had no right to them, and knew he had no right to them, before they were used by him. The facts appear from the reasons of Swinford Eddy LJ at pp 474-475.

[13] Accepting that the legal advisers to the auditor came by the documents innocently, they were nevertheless appraised of the circumstances before any use could be made of the contents of it. They correctly undertook not to disclose the contents to their client until the liquidator's application was finalised, making it implicitly clear that notwithstanding that they were aware of the mistake and what it entailed as between the liquidator and his solicitor, they intended to retain it and make use of it. In my opinion that would amount to an unauthorised use of confidential material which the authors of Cross on Evidence, Butterworths Australian Edition Vol 1, 1996, at par 25025 assert, on the authority of Ashburton and Pape, equity will act to prevent.

[14] I have not taken into account the material and arguments advanced by counsel for the auditor by reference to the contents of the copy of the affidavit.

[15] The terms of the relief sought being necessarily prepared in some haste, I would hear the parties as to the precise form of the orders to be made should the document not be returned forthwith, and appropriate undertakings given by the legal representatives as to the use and disclosure of the knowledge obtained from the reading of it.

[16] The respondent is the liquidator of Gagudju Charitable Association Incorporated (in liquidation) of which the appellant was the former auditor. On 27 October 1999 Thomas J, inter alia, by order refused an application by the appellant to set aside an order made on 13 September 1999 pursuant to s596B Corporations Law for his examination and an application by the appellant for leave to inspect an affidavit of the respondent liquidator sworn on 2 September 1999 pursuant to s 596C Corporations Law. That section provides:

(1) A person who applies under section 596B must file an affidavit that

supports the application and complies with the rules.

(2) The affidavit is not available for inspection except so far as the Court

When the appeal was called on for hearing counsel for the respondent made an oral application against the appellant's legal representatives for an order that the legal representatives of the appellant return to the liquidator a copy of the liquidator's affidavit sworn 2 September 1999 which had been delivered by the solicitors for the respondent liquidator to the solicitors for the appellant the day before, and, further, that the legal representatives of the appellant be restrained from disclosing the contents of that affidavit or making use of it. It was said that the affidavit was forwarded by the respondent's solicitors to the appellant's solicitors by mistake.

[17] The material facts are not in dispute. On 13 April 2000 at about 11.40 am a solicitor for the respondent, acting within the scope of his apparent authority, phoned the solicitor acting for the appellant saying that he had been advised by the respondent's counsel to distribute copies of the liquidator's original affidavit in support of examination. To this the appellant's solicitor responded with the exclamation "Really!". The respondent's solicitor said "yes" and then said that his counsel had wanted him to send the copy direct to the appellant's counsel (who was travelling to the Northern Territory from interstate) but he thought counsel may well be in transit. The appellant's solicitor confirmed that the appellant's counsel was due to arrive in Darwin sometime that morning and that it would be more appropriate to send the affidavit to the appellant's solicitors. The respondent's solicitor said that he would arrange for that to happen. At about 1.30pm the same day a copy of the liquidator's affidavit was delivered to the appellant's solicitors with a covering letter in the following terms addressed to counsel for the appellant:

Gagudju Charitable Association Inc (In Liquidation)

We refer to previous correspondence in this matter.

For the purposes of the hearing of the Appeal tomorrow, we are arranging this morning for a copy of the liquidator's affidavit (copy attached) supporting the examinations to be provided to each of the Appeal Judges by their Associates.

If you have any queries please do not hesitate to contact this office.

The solicitor and counsel for the appellant read the liquidator's affidavit.

[18] Some time after 5.15pm the same day the respondent's solicitor informed the appellant's solicitor that the liquidator's affidavit had been provided by mistake. This was repeated to counsel for the appellant and a request made that the copy of the affidavit be returned. Counsel for the appellant was informed by the respondent's solicitor that in the event that the copy affidavit was not returned the matter would be brought to the attention of the Court at the commencement of the hearing of the appeal the following day. Counsel for the appellant informed the respondent's solicitor that he did not have instructions from the appellant to return the copy affidavit and that he had informed his client of the fact of the receipt by counsel and the solicitor of the affidavit but had not informed the appellant as to the contents of the affidavit. The appellant's counsel undertook not to inform the appellant of the contents of the affidavit and to obtain specific instructions from the appellant as to whether the copy affidavit would be returned. Counsel for the appellant later informed the respondent's solicitors that if the respondent wished the copy affidavit to be returned there would be the need for a court order.

[19] It is not in dispute that the solicitor who forwarded the affidavit did so having misunderstood counsel for the respondent's instructions and by mistake and without the actual authority of the respondent.

[20] The affidavit was sent to the appellant's solicitor and counsel deliberately. It was not sent inadvertently. It was not, for example, unintendedly included with other documents delivered to the opposing party for inspection. In such a case any privilege relating to the document is retained: Key International Co Ltd v TNT Bulk Ships Operations Pty Ltd [1989] WAR 280 at 284. On the other hand where a document for which privilege was not claimed was delivered to the opposing party because it was not appreciated that it was privileged, privilege was held to have been lost: Meltend Pty Ltd v Restoration Clinics Aust Pty Ltd (1997) 75 FCR 511 at 522-23. These cases were referred to by Hunt CJ at CL in DPP (Cwth) v Kane (1997) 140 FLR 468 at 482. As the judgment of Hunt CJ at CL shows there is an important distinction between confidential information and legal professional privilege as the basis for the intervention of equity and the case law is far from clear. In Mann v Carnell [1999] HCA 66; (1999) 168 ALR 86, despite a very strong dissent from McHugh J, the majority (at 95) accepted Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83 as deciding that any voluntary disclosure to a third party does not necessarily waive privilege. The majority also said (at 96) that considerations of fairness may be relevant to a determination of whether there is inconsistency between the disclosure and any confidentiality which legal professional privilege serves to protect.

[21] An influential statement in this area of discourse has been that of Scott J in Webster v James Chapman & Co [1989] 3 All ER 939 at 945, viz.

"Suppose a case where the privileged document has come into possession of the other side because of carelessness on the part of the party entitled to keep the document confidential and has been read by the other party, or by one of his legal advisers, without realizing that a mistake has been made. In such a case the future conduct of the litigation by the other party would often be inhibited or made difficult were he to be required to undertake to shut out from his mind the contents of the document. It seems to me that it would be thoroughly unfair that the carelessness of one party should be allowed to put the other party at a disadvantage.".

[22] It is clear that the appellant's solicitor and counsel did not realize the affidavit had been forwarded to them by mistake. Nor in my opinion would the hypothetical reasonable solicitor have realized that it had been sent by mistake, given the terms of the telephone conversation between the solicitors and the covering letter. The appellant's solicitor was entitled to assume that the affidavit was deliberately sent upon the basis as described in the covering letter. The appellant's solicitors were thus unaware of the respondent solicitor's carelessness, and innocently acquired knowledge of the contents of the affidavit. I agree with Scott J (supra) that it would be thoroughly unfair that the carelessness of one party should be allowed to put the other party at a disadvantage. Here the appellant, in the event the orders sought are made, would clearly be at a disadvantage, his future conduct of this litigation being inhibited or made more difficult if his legal advisers are required to exclude from their minds the contents of the affidavit. Counsel for the appellant informed the Court that the liquidator's affidavit in its terms, supported one of the grounds of appeal, namely that in obtaining the order for examination of the appellant, the respondent had failed to comply with his clear duty of disclosure, see Re Southern Equities Corporation Ltd (in liquidation) Bond v England (1997) 25 ACSR 394 at 428-429.

[23] In so far as the respondent asserts the copy affidavit is confidential I am of the opinion that the deliberate release of the affidavit in circumstances where the recipient did nothing to bring about the respondent's solicitors' mistake and had no grounds for realizing the mistake that the confidence is lost and there is no proper basis for the intervention of equity. In so far as the respondent seeks to rely upon legal professional privilege I am of the opinion that the copy affidavit was not a privileged document and that even if it was that in the circumstances of its release and the difficulties occasioned to the legal representatives of the appellant as a consequence of the carelessness of the respondent's solicitors and the disadvantage occasioned to the appellant and his legal advisers if orders were made indicate that the Court should not intervene in this matter.

[24] The copy affidavit is not, to my mind, a privileged document. In Trade Practices Commission v Sterling [1979] FCA 33; (1979) 36 FLR 244 at 245 Lockhart J set out various classes of documents to which legal professional privilege extended. The respondent's affidavit does not fall within any category referred to by Lockhart J. Of course Lockhart J's list is not exhaustive. However the very terms of s596C(2) Corporations Law indicate the document is not privileged. If this conclusion be wrong it seems to me that the appellant's solicitors and counsel having acted upon the respondent's solicitors mistake that the appellant's position has changed and that it would be contrary to equity to intervene when full restitutio can not be had and where the appellant's legal advisers have acted throughout in good faith. Neither the appellant nor his legal advisers have acted unconscionably or taken an unconscionable stance. Equity acts on conscience: Riverlate Properties Ltd v Paul [1975] Ch 133 at141. Here the appellant's legal representatives' conscience is clear and in such circumstances equity will not interfere.

[26] I have had the advantage of reading in draft the judgments of the Chief Justice and of Angel J.

[27] The essential difference between the two is the conclusion reached as to whether or not it would be unfair to allow the liquidator to insist upon the contents of the affidavit remaining confidential. Counsel for the appellant submitted that having read the affidavit he would be placed at a disadvantage. Angel J accepts that the position of the appellant has changed because of this. With respect, I do not accept this. It is part of a counsel's training and a normal incident of his profession as an advocate to have to deal with information which is not admissible in legal proceedings. The position of the appellant has not changed as the information has not been acted upon to the appellant's detriment. Nor do I accept that the appellant's advisers had no grounds for realising that a mistake had been made. The evidence is that the solicitor for the appellant expressed surprise that a copy of the affidavit was going to be provided. The circumstances were such that the appellant's advisers ought to have realised that there was a possibility that a mistake had been made given the past history of the matter.

[28] I agree with the Chief Justice and with the orders he proposes.