Linter Group Ltd v Price Waterhouse

Supreme Court of Victoria|1999-06-25|Before: HARPER, J.

This proceeding has been commenced by the liquidator of two companies, Linter Group Ltd and Linter Textiles Corporation Ltd ("the plaintiffs").

Each company claims, among other things, that the first defendant negligently conducted an audit of that company. But the formulation of the claims in their entirety has proved to be difficult. Inevitably the advice of persons with audit expertise has been sought. Inevitably that advice has excited the interest of opposite parties. This has given rise to the application for inspection with which I am now concerned.

In March 1997 the plaintiffs obtained the written opinion of an "audit expert", Mr Kenneth Hugh Spencer. According to an affidavit sworn by Stephen Peter Sawer on 16 June 1999, the document is a draft only and was prepared for the sole purpose of use in these proceedings. The latter circumstance, Mr Sawer submits, gives the document that protection from disclosure which is accorded by the doctrine of legal professional privilege.

The first defendant accepts that Mr Spencer's draft opinion was prepared for the sole purpose of use in the proceedings. It submits however that the privilege which, on this basis, the opinion once enjoyed has since been waived.

The waiver is said to be express. But the express waiver of a privilege occurs only when the party entitled to the privilege states expressly that the privilege is relinquished. In this context the word, "express" bears its normal meaning: definitely stated in contrast to being merely implied.

There is nothing in the evidence before me which in my opinion gets close to such a statement. The best the first defendant can do is point to the plaintiffs' voluntary disclosure of the report's existence. That disclosure was first made when the plaintiffs' solicitors filed, in support of an application to amend their statement of claim, an affidavit sworn by Julie Estelle Armstrong on 13 March 1998. In that affidavit Ms Armstrong said: "Further the plaintiffs seek leave to amend the existing statement of claim in a manner which accords with the evidence which will be given by the plaintiffs audit expert at the trial of this proceeding. The opinion of the plaintiffs' audit expert was finalised in March this year. The proposed fifth further amended statement of claim is pleaded in a manner which is consistent with the evidence which will be given by the plaintiffs' audit expert at the trial of this proceeding."

It is clear that the reference to an opinion which "was finalised in March this year" is in fact a reference to the opinion of March 1997 to which I have already referred.

Since March 1998 the plaintiffs' legal advisers have made a number of references both orally and in writing to that opinion. No such reference amounts to an express waiver of privilege.

The first defendants argument does not, however, end at that point. If there was no express waiver, it submits, then there was waiver by implication. This is so because the plaintiffs have brought about circumstances in which it would be unfair to allow the continued existence of the privilege.

There is no doubt that in this context fairness (or lack of it) is the touchstone. In Attorney-General v. Maurice [1986] HCA 80; (1986) 161 C.L.R. 475 Sir Harry Gibbs CJ said at 481:

"The decisions in which this question has been considered seem to me to be particular applications of the rule that in a case where there is no intentional waiver the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production."

Mason and Brennan JJ were clearly of the same view. They referred at 488 to the "implied waiver inquiry" as being "at bottom focused on the fairness of imputing such a waiver." A little earlier at 487-488 their Honours said:

"An implied waiver occurs when by reason of some conduct on the privilege holder's part it becomes unfair to maintain the privilege. The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication."

A passage from the judgment of Deane J is often quoted in disputes of the kind presently before me. At 492-493 his Honour said:

"Waiver of legal professional privilege by imputation or implication of law is based on notions of fairness. It occurs in circumstances where a person has used privileged material in such a way that it would be unfair for him to assert that legal professional privilege rendered him immune from procedures pursuant to which he would otherwise be compellable to produce or allow access to the material which he has elected to use to his own advantage. Thus, ordinary notions of fairness require that an assertion of the effect of privileged material or disclosure of part of its contents in the course of proceedings before a court or quasi-judicial tribunal be treated as a waiver of any right to resist scrutiny of the propriety of the use he has made of the material by reliance upon legal professional privilege. There are, however, no considerations of fairness which require that compliance by a party with a procedural requirement that he prepare and make available a document setting forth the case which he proposed to make before a court or quasi-judicial tribunal should be treated as a waiver of his right to claim legal professional privilege in respect of all the material upon which he has relied in the preparation of that document. If, in such a document, a party sets forth part of the contents of a particular identified document or communication or asserts the effect of or his reliance upon a particular document or communication, it may be that considerations of fairness might require that he be treated as having waived any legal professional privilege in relation to the whole document or communication. Where, however, he does no more than make use of privileged material (e.g. legal advice, expert opinion or statements of potential witnesses) for the purpose of formulating the statement in such a document of the details of the case which he proposes to make, it would be an affront to ordinary notions of fairness to hold that the effect of his compliance with that procedural requirement was that he has waived his legal professional privilege in relation to such material."

The fifth justice by which the court was constituted in Maurice's case was Dawson J. He too referred to the issue of fairness. He said at 497:

"This is a difficult area of the law, but it is clear enough that an implied waiver may be required by fairness notwithstanding that it was not intended. It would not be fair to allow privilege to be waived with respect to a portion of a document or a conversation without requiring disclosure of the rest of it, at least if the document or conversation dealt with the one subject matter."

The first defendant has submitted that the process by which the plaintiffs made known the true position in relation to Mr Spencer's expert opinions was itself tainted in a way which perhaps bordered on unfairness. It was not until 20 June 1998 that Mr Spencer's expert witness statement was served upon the first defendant. No privilege had to that time been claimed for the March 1997 opinion. No suggestion had to that time been made that the latter document was merely a draft. Indeed, it was not until Mr Sawer's affidavit of 16 June this year that either proposition was first articulated. Moreover, when by letter dated 28 May 1999 Blake Dawson Waldron, the solicitors for the first defendant, wrote to Phillips Fox, the solicitors for the plaintiffs, seeking among other things discovery of the expert opinion to which Ms Armstrong referred in her affidavit of 13 March 1988, Phillips Fox's response was that "the report of Ken Spencer has been filed and served."

This was not a responsive reply. Of course, Mr Spencer's witness statement had been filed and served. The fact that his opinion of March 1997 has not and that the plaintiffs resist doing those very things is the reason for the present interlocutory dispute.

It is not surprising in these circumstances that the first defendant has resorted to the court in order to resolve the matter. On the other hand, any lack of frankness on the other side is not such as to amount to unfairness of the relevant kind: that is, unfairness which amounts to an implied waiver of the legal professional privilege which, unless it is or has been waived, attaches to Mr Spencer's opinion of March 1997. The unfairness I have here in mind is that which is described, in my opinion accurately, in the headnote to Maurice's case at 475:

"In a case where there is no intentional waiver of privilege the question whether waiver should be imputed depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that the material or material associated with it is privileged from production."

Deane J in the passage in his judgment from which I have already quoted gave examples of the unfairness in question. Where a party to litigation asserts the effect of privileged material or in the course of the litigation discloses part of its contents, it would be unfair to allow that party to rely on legal professional privilege as a means by which to resist scrutiny of the propriety of its use of the material. Again, if in a pleading or other document prepared in obedience to some procedural requirement a party discloses part of the contents of another document or communication, or asserts the effect of or his reliance upon it, "it may be" (to use His Honour's expression):

"that considerations of fairness might require that he be treated as having waived any legal professional privilege in relation to the whole document or communication."

The first defendant submits that the plaintiffs in this case have asserted their reliance upon the opinion of Mr Spencer as set out in the March 1997 document. That is precisely the effect of what Ms Armstrong said in her affidavit of 13 March 1998 and of what she and others have subsequently repeated. Mr Spencer has furnished the plaintiffs with an opinion on the basis of which their claim as currently formulated has been pleaded. To that extent the first defendant is on solid ground.

As I understand it, however the fifth further amended statement of claim simply draws upon Mr Spencer's expertise. He is not quoted directly, and probably not indirectly either. His opinion, albeit that it is in writing, is one thing. The statement of claim, albeit that its inspiration is his opinion, is quite another. As Deane J said, where a party does no more than make use of privileged material for the formulation of, for example, a pleading, it would be an affront to ordinary notions of fairness to hold that that party has waived its legal professional privilege in relation to such material. This position should not be reversed simply because the party in question has explicitly broadcast its reliance on the relevant document.

It is instructive at this point to return to the short passage already quoted from the joint judgment of Mason and Brennan JJ in Maurice's case. It will be remembered that the particular unfairness to which their Honours were there concerned was that which arises where to maintain the privilege would be to create an inaccurate perception of the protected communication. That is not the problem - certainly it is not a problem of practical importance - here. The plaintiffs maintain that the present statement of claim accurately reflects Mr Spencer's March 1997 opinion. They maintain that there is no discordance between the one and the other so that an inaccurate perception of the opinion is conveyed by the pleading. But even if it were, the resultant misconception would not be one of the kind that their Honours had in mind. The facts in Maurice's case are in this context instructive. In 1978 an application was made under the Aboriginal Land Rights (Northern Territory) Act 1976 by the Northern Land Council on behalf of Aboriginals claiming to be traditional owners of land near Tenant Creek. Following a practice direction made by the Aboriginal Land Commissioner, the applicants lodged with him a claim book; and copies were distributed to the lawyers representing other parties, including the Attorney-General for the Northern Territory. When the hearing commenced before Kearney J, counsel for the claimants tendered the claim book; but the tender was never formally accepted or rejected. He also referred to the book in the course of his opening address. The hearing was interrupted by other proceedings and it was resumed de novo some time later before Maurice J who had succeeded Kearney J as the Aboriginal Land Commissioner. The claimants did not then rely on the 1982 claim book but instead used another document described as a "guide." Nevertheless, there were some references to the 1982 claim book by counsel for the claimants in the course of his examination of two witnesses. The Attorney-General sought disclosure of certain documents that provided source material for the claim book. Maurice J upheld an objection that the documents were protected by legal professional privilege and held that the privilege had not been waived by the lodging, distribution or use of the claim book.

In my opinion the facts as recounted from Maurice's case are sufficiently analogous with those which obtain here to make my task somewhat easier than it otherwise might be. Here, as in Maurice's case, the document production of which is sought was used merely as a source of the pleading document. In those circumstances it seems to me that, even given the explicit acknowledgment of the use of the source material in this way, that material does not become material in respect of which a pre-existing privilege is waived.

The first defendant relies upon a further head of fairness. In his submission to me, Mr Jopling of Queen's Counsel, who appeared on behalf of the first defendant said:

"In this case your Honour it is in our submission surely only fair that the March 1997 report be produced. The inter-relationship between the report and the report of 14 June [I interpolate to say Mr Spencer's witness statement] does with respect seem clear given the general importance of audit evidence in this case. Your Honour has ordered that the audit reports be filed in advance of the trial and that the plaintiffs' expert audit report be filed many months in advance of any answering material by Price Waterhouse. It would be our submission, your Honour, that is relevant not only for the purpose of the preparation of any report that we might prepare in response but also relevant for the purposes of cross-examination that we have an understanding of the full weight to be accorded to the opinions held by Mr Spencer, particularly, your Honour, in the circumstances where the pleading was amended to accord with the view of Mr Spencer. So, your Honour, critically the understanding and the views of Mr Spencer are going to be the subject of much debate and cross-examination, one would expect, in the fullness of time when this trial commences."

It seems to me that this submission goes to relevance rather than waiver of privilege. But in any event I question the accuracy of the first defendants' postulation of the relevance of the March 1997 opinion. I accept for these purposes the sworn statement by Mr Sawer that that opinion is a mere draft. As such it would only be of relevance to the first defendant if it could be shown that it differed from Mr Spencer's witness statement, not because Mr Spencer had had a genuine change of opinion but because he was motivated by a desire simply to improve the plaintiffs' case. Such would of course be entirely improper; but an expert is surely permitted, indeed to be encouraged, to change his or her mind, if a change of mind is warranted. Just as a judge ought never to allow publication of a draft of a judgment, in part because it is necessary to preserve the freedom to change his or her mind on further reflection about the case, so experts should not be inhibited by fear of exposure of a draft from changing their minds when such change is warranted by the material then before the expert. For these reasons the application for an order that the plaintiff produce the opinion of Mr Spencer of March 1997 is refused.

Land Rights (Northern Territory) Act 1976

At a glance

Court

Decision date

Before

Source

Judgment (30 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)