LAKATOI v WALKER

COUNSEL : Mr V.R.W. Gray - Plaintiffs SOLICITOR: Mr A. Bouris - Mallesons Stephen Jaques SOLICITORS : Gye Associates Lawyers - Plaintiffs/ Applicants Mallesons Stephen Jaques - Respondents CATCHWORDS : Client Legal Privilege; "Confidential Communication" and "Confidential Document".; Waiver.; Whether Evidence Act or common law principles applicable. DECISION : Claim for client legal privilege in relation to communications by solicitors not only to the clients, but also to third parties who were members of the Due Diligence Committee in respect of the public flotation of the client company in respect of which flotation the communications were made.; (a) Held that client legal privilege applied to copies of documents furnished for the sole purpose of obtaining legal advice, notwithstanding that the originals were not privileged: Commissioner of Australian Federal Police & Anor v Propend Finance Pty Limited (1997) 188 CLR 501 applied.; (b) Consideration of draft documents: Dalleagles Pty Limited v Australian Securities Commission (1991) 6 ACSR 498 applied where the drafts were amended or corrected or bore notations following Mostyn v West Mostyn Coal and Iron Co Ltd (1876) 34 LT 531. ; Held that recommunicated drafts subject to privilege.; (c) Held the applicable law at an interlocutory stage is the Evidence Act. Akins & Ors v Abigroup Limited (1998) 43 NSWLR 539 and Sevic v Roarty (1998) 44 NSWLR 287 followed.; Carnell v Mann (1998) 159 ALR 647 not followed.; (d) Held no waiver because in the circumstances the communications and documents were "confidential" and, accordingly, s.122(2)(a) did not lead to a waiver. Question of confidentiality dependent on the particular circumstances.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50035/1998 - LAKATOI UNIVERSAL PTY LIMITED & ORS v WALKER & ORS

1 By a Notice of Motion filed on 22 February 1999 the plaintiffs, for which and whom Mr V.R.W. Gray of Counsel appeared, sought the following orders:- "1. That all parties be granted access to the documents produced by Mallesons Stephen Jaques on 22 October 1998 and 30 October 1998 in compliance with a Subpoena for Production dated 8 October 1998 and to which the said Mallesons Stephen Jaques have made a claim for privilege.

2. That the Plaintiff be granted first access to the documents referred to in Order 1 for a period of 7 days from the date of this Order."

Mallesons Stephen Jaques, ("MSJ"), for whom Mr A. Bouris, Solicitor, appeared, opposed the inspection of the documents on the ground that they attracted client legal privilege in favour of the fifth defendant, Walker Corporation Limited. No point was taken that the claim for privilege should have been made by the fifth defendant, it apparently being accepted that MSJ was making the claim on its behalf. 2 The Notice of Motion was supported by the affidavit of Ms Tania Schiff, a Solicitor in the employ of the plaintiffs' solicitors, to which she annexed the subpoena addressed to MSJ, which sought the production of a number of documents relating to a prospectus issued by the fifth defendant and dated 22 February 1994, including but not limited to due diligence reports, due diligence questionnaires, minutes of all Due Diligence meetings, verification indexes or schedules, and the verified copy of the Prospectus. MSJ acted as the solicitors for the fifth defendant on the public flotation. MSJ raised no objection to the width of the subpoena, but made a claim for client legal privilege in respect of certain of the documents, which they produced. The submissions proceeded on the basis of principle, and I was not invited to inspect any of the documents for which privilege was claimed. 3 Ms Schiff deposed that MSJ were the solicitors responsible for the Due Diligence in respect of the Prospectus, that a claim for privilege had been made for a number of the documents, and that portion of the documents produced had parts masked to retain the confidentiality of the information therein. 4 The affidavit of Ms Helen Cook sworn on 1 March 1999 was relied upon in opposition to the application. She is the legally qualified employee of MSJ to whom, essentially, the task fell of considering the documentation and whether a claim for client legal privilege should be made. 5 In paragraph 5 she deposed that the majority of documents produced related to the public flotation of the fifth defendant for the legal requirements of which MSJ were responsible. 6 In paragraph 11 she deposed:- "11. Mr David Friedlander, then an employed solicitor of MSJ, now a partner of the firm, worked on the retainer. I am informed by Mr Friedlander, and verily believe:

(a) That Grant Samuel & Associates were responsible for the tendering process having as its aim the appointment of a legal firm to appoint the legal firm to work upon the public flotation, and that this tender was won by MSJ, which then acted as legal adviser to the fifth defendant upon the public flotation;

(b) That Grant Samuel & Associates acted as an investment bank adviser to the fifth defendant and as co-ordinators of the due diligence system, putting together the professional advisers who were to be involved;

(c) That the purpose of the Due Diligence Committee was to take all reasonable precautions and conduct all relevant investigations to ensure that the prospectus did not contain a statement that was false or misleading in any material particular and did not omit anything which could lead to the prospectus being false or misleading;

(d) That the deliberations of the Due Diligence Committee were extremely confidential and sensitive. Those deliberations involved a consideration of all matters which might reveal any or any potential breaches of the law and the sensitivity of which would be obvious in the context of for example, compliance with taxation responsibilities, Corporations Law responsibilities, obligations due to outside contractors, to employees and other persons. The deliberations of the committee were designed to ensure that in respect of financial, corporate and legal affairs of the company, the prospectus to be issued to members of the public was accurate;

(e) MSJ was retained to act on behalf of both the fifth defendant and its parent company McRoss Developments No 2 Pty Limited."

7 None of this evidence was challenged. 8 In paragraph 12 Ms Cook deposed that as McRoss Developments No 2 Pty Limited was, prior to the public flotation, the parent corporation of the fifth defendant and therefore liable for various obligations it was a member of the Due Diligence Committee. KPMG Peat Marwick were the accountants to the public flotation, dealing with all matters of potential concern applicable to the financial affairs of the fifth defendant relevant to the preparation of the Prospectus. CS First Boston were the underwriters to the public flotation "and therefore had a significant interest in ensuring" its success, and Allen Allen & Hemsley were the solicitors for CS First Boston. The Due Diligence Committee comprised representatives of all these entities. MSJ were only the solicitors for the fifth defendant and McRoss Developments No 2 Pty Limited. 9 In paragraph 13 Ms Cook stated that she utilised the "sole purpose" test for legal privilege "when I came to consider every document that MSJ had falling within the terms of the subpoena". In paragraph 15 she continued:- "The documents in respect of which client legal privilege has been claimed fall into the following categories:

(a) Letters sent to or from the fifth defendant and MSJ or to and from MSJ and the fifth defendant, some, but not all of which were copied to other members of the Due Diligence Committee, where the contents of the letters revealed a confidential communication for the purpose of giving or seeking legal advice.

(b) Internal memoranda between solicitors of MSJ with regard to the preparation of the prospectus.

(c) Drafts of Reports, drafts of Verification Reports, drafts of prospectus.

(d) Copies of documents provided to MSJ where the originals were not privileged, but the copies were provided to MSJ for the purpose of MSJ providing legal advice or direction."

Some Areas Of Dispute 10 It was essentially around these categories of documents that the submissions ranged. Mr Gray conceded that client legal privilege was properly claimed in respect of the letters in sub-paragraph (a), other than those "copied to other members of the Due Diligence Committee". He submitted that client legal privilege had been waived in respect of them by their being so copied. On that basis he sought access to them. He also conceded that client legal privilege was properly claimed in respect of the internal memoranda referred to in sub-paragraph (b). Accordingly he did not press the application to inspect the letters which had not been copied to other members of the Due Diligence Committee, or any of the internal memoranda. 11 Confronted with the decision of the High Court in Commissioner of Australian Federal Police & Anor v Propend Finance Pty Limited (1997) 188 CLR 501, Mr Gray accepted that client legal privilege attached to a copy document provided to a lawyer, so long as the copy was made solely for the purpose of obtaining legal advice or solely for use in legal proceedings, even where the original document was not privileged. Ms Cook's statement in paragraph 13 makes clear that she applied the sole purpose test. It was not suggested in cross-examination that she had not applied that test in considering the copies for which privilege was sought. Therefore, the claim for client legal privilege has been made out. The originals, which it is not suggested attract client legal privilege, can be demanded from the fifth defendant. 12 In paragraph 17 she repeated that she based her judgment as to which documents were privileged on the sole purpose of providing legal advice:- ".. as the due diligence exercise was not carried out in contemplation of legal proceedings but represented the exercise of legal skill and knowledge of flotation of a private company as a public company in respect of which legal advice had been sought by the fifth defendant." She continued, in paragraph 18:- "Based upon this limb of client legal privilege, I consider the documents and communications referred to in paragraph 15 above to amount to confidential communications: (a) Between the fifth defendant and MSJ; (b) Within MSJ between solicitors; (c) Within the confidential circle of the Due Diligence Committee since I have obtained no knowledge that any of the deliberations of the committee have been made public. I considered that these matters justified the claiming of client legal privilege even where the legal advice was communicated in the presence not only of our client but the other members of the Due Diligence Committee. Therefore if I perused the document created by MSJ or sent to MSJ which was copied not only to the client or MSJ (as the case might be) but to all the other members of the committee then as long as I was satisfied that the nature of the communication had the substance of a confidential communication which appeared to give legal direction or advice concerning the course to be followed for the purposes of the public flotation or which sought such legal direction or advice, then I made a claim for client legal privilege." 13 There was also some argument about the documents specified in sub-paragraph (c). Mr Bouris submitted that drafts referred to in that paragraph, attract client legal privilege. He relied on the decision of Dalleagles Pty Limited v Australian Securities Commission (1991) 6 ACSR 498, in which at p.505, Anderson J said:- "As I have said, I do not consider that in any of those cases, the High Court was purporting to exhaustively state the categories of legal professional privilege. I respectfully agree with the observations of MacPherson J in Packer v DCT (Qld) (1985) 55 ALR 242 at 250 when, in reference to the remarks made by the members of the High Court in Baker v Campbell, his Honour said: 'In applying (their remarks) it is no doubt necessary to bear in mind that a communication may be privileged even though it is not intended for use in litigation and not strictly speaking made for the purpose of legal advice but for the purposes of providing legal assistance, e.g., draft conveyances and the like: Mostyn v West Mostyn Coal and Iron Co Ltd (1876) 34 LT 531, although they are not perhaps legal advice in a literal sense'. Mostyn v West Mostyn Coal and Iron Co Ltd … is longstanding authority for the rule that summaries of agreements and draft agreements prepared by legal advisers with handwritten observations and cancellations on them are prima facie privileged, as well as instructions given to drawn an agreement." (My emphasis.) 14 Mr Bouris further submitted that drafts of the type referred to in sub-paragraph (c) should be equated with draft pleadings and draft correspondence. 15 In my opinion Dalleagles confirms the proposition, which is well established, that drafts "with handwritten observations and cancellations on them are prima facie privileged". It is not, as I understand it, authority for the proposition that drafts without such notations attract that privilege. However, a further question is whether a draft, without notations, amendments and corrections, which has not been furnished to another party for comment or otherwise in a non-privileged circumstance, nonetheless attracts client legal privilege on the basis that it reflects, one is entitled to infer, the instructions, or the essential nature of them, furnished to the solicitors by the client. Thus a situation may arise where a draft is prepared, on the existing instructions, which, after consideration by the client and before the draft has been furnished to any other party, is the subject of substantial amendment because of a change in instructions. It seems to me that in principle the production of such a draft, even without notations, amendments and corrections, would properly be held to constitute a disclosure of instructions and, in my opinion, for this reason the draft would attract client legal privilege. The situation, however, becomes very different once the draft goes into the public domain, e.g. by its being sent to the solicitors for the other party for comment in the usual course of drafting and ultimately concluding commercial documentation. Accordingly the statement in sub-paragraph (c) does not necessarily mean that the drafts do or do not attract client legal privilege. 16 In the present case they would do so because of notations, amendments or corrections, or because they are nothing more than drafts which have not been disclosed in circumstances waiving the privilege. Ms Cook's evidence satisfies me that this was considered and the conclusion reached that client legal privilege applied. However, if they were disclosed only to other members of the Due Diligence Committee, the substantive issue which arises in this case will apply to them, viz whether that disclosure was of a confidential communication or a confidential document. On those hypotheses, and no others were argued, the drafts will only be susceptible of inspection if the main issue is answered favourably to the plaintiffs. The Applicable Law 17 The present application arises at an interlocutory stage. It does not arise when evidence is being adduced. This led to a submission by Mr Gray that the Evidence Act 1995, ("the Act"), does not, in terms, apply to it because this is not an adduction of evidence in a proceeding in a Court. He submitted that the common law rules apply. Mr Bouris submitted that the provisions of the Act applied, but, even if they did not, the application by Ms Cook of the "sole purpose" test made any distinction irrelevant. There may be other distinctions depending on the applicable law. 18 In my opinion, I am bound by the decisions of the Court of Appeal in Akins & Ors v Abigroup Limited (1998) 43 NSWLR 539 and Sevic v Roarty (1998) 44 NSWLR 287, which hold that the provisions of the Act apply to interlocutory proceedings. I consider that the doctrine of precedent demands that I follow decisions of the New South Wales Court of Appeal. It would be necessary for those decisions to be over-ruled by that Court or the High Court before a Judge sitting at first instance in this Court was justified in not doing so. Further, in so far as it is relevant, as a member of the Court in Akins, my agreement with Mason P demonstrates that I consider that the Act's provisions apply to interlocutory proceedings. 19 In determining the issues raised in this application I propose to apply the provisions of the Act.

The Main Issue 20 The main issue is whether the disclosure of documents to persons on the Due Diligence Committee, other than representatives of MSJ, the fifth defendant and McRoss Developments No 2 Pty Limited, constituted a waiver of client legal privilege within the meaning of s.122(2)(a). Mr Gray submitted it did because there was no relationship of solicitor and client between Grant Samuel & Associates, KPMG Peat Marwick, CS First Boston and Allen Allen & Hemsley, on the one hand, and MSJ on the other. Although there was some argument about agency, this was not seriously in issue. The submission continued that disclosure to third parties constituted a waiver and, accordingly, that client legal privilege was lost. Mr Bouris submitted, for various reasons, that client legal privilege was maintained notwithstanding disclosure to those members of the Due Diligence Committee. 21 Division 1 of Part 3.10 of the Act is concerned with client legal privilege. In s.117 "client" is defined as including an employee or agent of a client, and "confidential communication" is defined as meaning:- ".. a communication made in such circumstances that, when it was made: (a) the person who made it, or (b) the person to whom it was made, was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law." 22 "Confidential document" is defined as meaning:- ".. a document prepared in such circumstances that, when it was prepared: (a) the person who prepared it, or (b) the person for whom it was prepared, was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law." 23 "Party" is defined as including an employee or agent of a party. 24 Section 118, which is headed "Legal Advice", provides that evidence is not to be adduced if, on objection by a client, the Court finds that doing so would result in the disclosure of a confidential communication between the client and a lawyer or between two or more lawyers acting for the client, or of the contents of a confidential document prepared by the client or a lawyer where the dominant purpose of the lawyer, or one of the lawyers, was the providing of legal advice to the client. As Ms Cook made clear, she applied the "sole purpose" test, which, arguably (although I do not accept that submission), is the correct test at an interlocutory level. However, if it is ultimately held that there should be a more stringent test imposed at an interlocutory level than that of "predominant purpose", Ms Cook has complied with it. 25 Section 119 deals with litigation, and s.120 with the position of unrepresented parties. Section 122(2)(a) provides:- "Subject to sub-section (5), this Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made:- (a) in the course of making a confidential communication or preparing a confidential document, or …"

26 No submissions were made in relation to sub-section (5). 27 The submissions revolved around the question whether, because the communication to other members of the Due Diligence Committee was made in circumstances where there was either an express or implied obligation not to disclose its contents, or a document was provided as a confidential document in the same circumstances, the knowing and voluntary disclosure to the other members of the Due Diligence Committee fell within the exception provided by s.122(2)(a). 28 Mr Gray submitted, as I understood it, that there could not be a confidential communication or confidential document save as between the solicitor and the solicitor's client, and that once the terms of the communication or document were made known to other parties, even though they were under an express or implied obligation not to disclose its contents, it ceased to be a "confidential communication" or "confidential document". He submitted that the only recipients of a "confidential communication" to whom the Act applied were typists and, I think, others, who had to perform administrative tasks on behalf of the solicitors or the recipients of the communications or documents. Mr Bouris submitted that the words of the various sections had to be given their full meaning and that once it was established that the recipient of the confidential communication or confidential document was under a specified obligation not to disclose its contents it remained "a confidential communication" or "a confidential document" and, therefore, the disclosure was not made in the course of making such a communication or providing such a document. 29 I was informed that the researches of Mr Gray and Mr Bouris had not disclosed any cases which dealt with the proper construction of s.122(2)(a). The definitions of "confidential communication" and "confidential document" found upon a communication made by or to or for "the person". I have difficulty with the definitions in so far as they presuppose that when the confidential communication was made or the confidential document was prepared, the person who made or prepared it was under an express or implied obligation not to disclose its contents. The definitions are more easily susceptible of a meaning when they refer to "the person to whom it was made" and "the person for whom it was prepared", and, relevantly for present purposes, those are the parts of the definitions to which attention must be paid. 30 The use of the words "the person" must be distinguished from the identification of "client", "lawyer" and "party". Further, when one comes to s.118, sub-ss.(a) and (b) preclude the adducing of evidence on objection by a client if the Court is satisfied that there was a confidential communication or confidential document. There is the requirement, of course, for the specified dominant purpose. 31 Section 122 is intended to provide for circumstances in which client legal privilege may be lost. Sub-section (2) is concerned with the knowing and voluntary disclosure "to another person", which, in my opinion, means a person other than "a client" or "party", which words have the extended definitions to which I have referred. The very restrictive construction for which Mr Gray contends would, in my opinion, deprive the words of the definitions of much of their meaning. I do not accept that a person "under an express or implied obligation not to disclose the contents", in the context of the Act, is so limited. In my opinion, it extends to any person who, by virtue of his or her position, is under the obligation not to disclose, i.e. receives the information in circumstances where it is communicated, either expressly or impliedly, for the benefit of the party having the privilege, at least in part, and where it is to remain confidential. The unchallenged evidence of Ms Cook makes it clear that the information circulated to the Due Diligence Committee was treated as being confidential to its members. 32 The proper inference, on the material before me, is that the members of the Due Diligence Committee were under that obligation. They were clearly not at liberty to disclose the information and the contrary was not argued. Accordingly, the communication to them of legal advice is a confidential communication and, therefore, attracts the protection of s.122(2)(a). There would only be a waiver, on this view, if the substance of the evidence was knowingly and voluntarily disclosed to a person not under the obligation specified in the definition of "confidential communication" or "confidential document". 33 I do not find anything surprising in this result, because I do not understand the common law to have provided that a voluntary and knowing disclosure of material, which attracted legal professional privilege, necessarily amounted to a waiver of that privilege. Accordingly, a solicitor may submit material based on his client's statement, or his client's proof of evidence, to an expert with a view to the expert providing an opinion founded on that material. I do not consider this could be treated as a waiver because the information would be given in circumstances of confidence: Sevic v Roarty and Tyco Australia Pty Limited v Optus Networks Pty Limited & Ors (Court of Appeal - 18 December 1998 - unreported) provide examples. If, however, this is wrong the position remains that the words of the Act must be given their full effect and, in my opinion, the narrow construction for which Mr Gray contends does not allow this. In giving the words their full meaning one must, of course, have regard to all the circumstances. Conclusions 34 The claim for client legal privilege in respect of the documents referred to in paragraphs (a), in so far as its absence was asserted, and (d) has, therefore, been established. The balance of paragraph (a) and the whole of paragraph (b) were not pressed. The conclusions to which I have come mean that the main issue is determined favourable to MSJ so that the application in relation to the documents in sub-paragraph (c) must fail. 35 I order that the plaintiffs' Notice of Motion filed on 22 February 1999 be dismissed with costs and that the exhibit be returned.

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