Liquorland (Australia) Pty Ltd v Anghie [2003] VSC 73

5. It is also alleged in the Statement of Claim that the target's statement contained inaccuracies and omissions and was in breach of s. 638(1) and its giving was a contravention of s. 670A(1). Accordingly, Liquorland seeks pursuant to s. 670B(1) to recover the loss and damage it suffered as a result of these matters from the firstnamed, the secondnamed, the thirdnamed, the fourthnamed and the fifthnamed defendants who were the directors of ALG at the time.

8. By summons dated 18 December 2001, two of these directors, Michael Lee Anghie (firstnamed defendant) and Malcolm Robert Higgs (thirdnamed defendant) applied to the Master for an order for the production for inspection of certain documents discovered by Liquorland for which legal professional privilege was claimed. On 5 December 2002, the Master made an order for discovery and production by Liquorland of the following class of documents:

documents... "in relation to communications between it and its legal advisers during the period 14 May 2001 to 19 June 2001 (inclusive) which related to the formation or evidenced its state of mind in deciding to declare the takeover offer in relation to [ALG] unconditional."

By notice of appeal dated 11 December 2002, Liquorland appeals against this order.

13. Associated with this is an application for non-party discovery brought by Mr Anghie and Mr Higgs against Coles Myer Ltd which raises a like issue as to privilege. Liquorland was and is a wholly owned subsidiary of Coles Myer and it was suggested that the communications in question may have been made to the parent rather than to Liquorland itself. Argument before me was, however, directed to the appeal from the Master's order.

16. It was common ground that the documents in question would, in the ordinary course, be protected from production by legal professional privilege. What was contended on behalf of the directors was that this privilege had been lost by waiver. In particular, it was contended that this waiver arose by Liquorland's putting in issue in its Statement of Claim its state of mind with respect to the financial position of ALG at the time of the takeover. I have been provided with a list of documents for which privilege is claimed. Their dates, insofar as they are dated, range from 1 April 2001 to 12 June 2001. No clue as to their content can be found from their description. I have not been asked to inspect them and I have not done so.

19. As I have mentioned, Liquorland alleges that the target's statement contained misleading and deceptive statements and omissions in contravention of s. 670A. In order to make out its entitlement under s. 670B(1), it is necessary for Liquorland to show that it is "a person who suffers loss or damage that results from" the contravention. In its Statement of Claim Liquorland pleads this causal nexus in paragraphs 22A and 23. Paragraph 22A, insofar as it is here relevant, is as follows:

"22A If the contravention of section 670A(1) of the Law had not occurred ALG would have disclosed each of the matters referred to in sub-paragraphs 19(a), (b) and (c) in the Target's Statement. In that event:"

Then followed a series of steps which, it is said, Liquorland would have taken, culminating in its avoiding making the formal offer to acquire all of ALG's shares on 14 May 2001, or in its declining to make the offer unconditional with the consequence that the conditional offer would have become void pursuant to s. 650G.

"By reason of the contravention of section 670A(1) of the Law, Liquorland has suffered loss and damage."

28. A similar causal nexus is pleaded in paragraphs 31A, 31B, 31C and 32 with respect to contraventions of s. 1001A(2) (failure to notify the ASX of certain matters) and in paragraphs 35, 35A and 36 in respect of contraventions of s. 995(2) and s. 9 of the Fair Trading Act (misleading and deceptive conduct).

31. What is put on behalf of the applicant directors is that these allegations by Liquorland put in issue its state of mind because they contain the implied allegation that it believed that the information provided by ALG was complete and accurate and, further, that it was this belief that caused it to complete the takeover. Put another way, it is said that, implicit in the pleading is an allegation that at a time when Liquorland might have withdrawn its offer on the ground that there had occurred a material adverse change in the financial or trading position of ALG, Liquorland had not formed the view that there had been in fact any such material adverse change. Such an allegation, it is said, contains within it an assertion that Liquorland was unaware of what it now says was the true financial position of ALG, or that it was unaware that such knowledge as it had of its true position amounted in law to a material adverse change entitling it to withdraw its offer or that it was unaware of its legal right to withdraw as a result of its knowledge of the true position. This, it is said, is more than mere speculation because, if this be relevant for present purposes, the position of the directors is that Liquorland at the relevant time knew the true financial position of ALG and, nevertheless, determined to proceed with the takeover for its own commercial reasons. It is put then that, since the takeover was probably carried out in close consultation with its lawyers, it is likely that these matters were discussed in the communications between Liquorland and its lawyers at the relevant time. Accordingly, the defendants should have access to these communications in order to test these implied assertions. There is no mention in the pleading of the fact that legal advice on these matters was sought or given nor of the substance of any privileged communication. Accordingly, this application does not raise for consideration the question of disclosure waiver; that is, whether the privilege attaching to a communication has been waived by a partial disclosure of the content of the communication in a pleading or otherwise[1].

34. The proceeding, then, raises a short but surprisingly difficult point: whether, by asserting that it acted in reliance upon a matter, a party to litigation is putting in issue its state of mind in so acting, so as to waive legal professional privilege with respect to legal communications which might have had a bearing on its arriving at that state of mind.

37. I start from the proposition that legal professional privilege is an important common law immunity which is not lightly to be abrogated[2]. Where it applies, the privilege has the consequence that information material to litigation is denied to the opposing party and to the Court. The privilege, therefore, competes with the policy which demands that all relevant evidence be available to the Court. While the formulation of the privilege rule might itself represent an attempt to balance these competing interests[3], the application of the rule does not[4]; to adopt the striking image of Heerey J in Equuscorp Pty Ltd v Kamisha Corporation Ltd[5], "If legal professional privilege applies, privilege trumps relevance". It follows from this that mere materiality to an issue in litigation can provide no ground to remove the privilege. There must be more. Otherwise, the privilege would have no work to do, for materiality is a fundamental precondition to the admissibility of any piece of evidence.[6] The privilege, however, is an immunity which belongs to the client[7] and may be waived by the client. Waiver may be express or implied or imputed in a variety of situations and this may occur prior to the commencement of a proceeding, during its interlocutory stages or at trial. I am here concerned with the case where the suggested waiver arises because Liquorland, the client, has in its pleading put in issue the privileged communication. It has therefore been characterised as "issue waiver"[8], as opposed to disclosure waiver. I am, moreover, concerned only with the pleading of Liquorland, not with those of the defendants except in the sense that the process of discovery depends upon the existence of an issue raised by the responding plea of the defendants.

40. It is worth remarking at this point that what is here in question is not merely the advice, if any, given to Liquorland or its directors by the lawyer. If the waiver contention of the directors be made out, protection for the privilege drops away from all communications to or from the lawyers and others which related to the formation or evidenced the state of mind of Liquorland in deciding to declare the takeover unconditional.

43. The conventional starting point for a discussion of this topic is the 1939 decision of the New South Wales Court of Appeal in Thomason v Council of the Municipality of Campbelltown[9]. There the Court was confronted with an appeal against a successful defence of a widow's claim for compensation for her husband's death. The defendant pleaded that she had elected to pursue her rights under the applicable workers compensation legislation so that her common law rights were lost. In evidence was the widow's application for compensation, including a statement signed by her that she had been advised by her solicitor of her rights and that she elected not to bring common law proceedings. The trial judge, over her claim for privilege, permitted her to be cross-examined as to the content of that advice and permitted the defendant to call her solicitor to give evidence as to the advice he had given his client. The Court of Appeal concluded that the privilege attending the advice had been lost and that the evidence was properly received. This conclusion was reached on two bases. First, the widow had in her compensation claim disclosed the advice received and the defendant had acted upon that disclosure to its detriment by making a payment to the Workers Compensation Commission. In these circumstances the disclosure involved a waiver of her privilege. Second, since the defendant was obliged to establish that the widow's election was made with knowledge of her legal rights, a fact which it must be assumed she had put in issue, it was open to it to lead evidence of the legal advice she received as to those rights. It is this alternative basis which has been the subject of subsequent judicial approval including that of the High Court in Attorney-General (Northern Territory) v Maurice[10]. In a much quoted passage, Jordan CJ, speaking for the Court of Appeal, put the position thus:

"... it was necessary under the second plea for the defendant to prove, if it could, what knowledge the plaintiff had as to her legal rights; and this was knowledge which she was not likely to possess unless she derived it from a legal adviser. Hence, in effect, one of the issues in the case was what advice if any the plaintiff had received from her legal advisers as to her alternative legal rights. In these circumstances, since the fact and nature of the advice is an issue in the case, I am of opinion that privilege cannot be raised to prevent the proof of the advice. The position is analogous to that which arises in a suit in Equity to set aside a transaction on the ground of undue influence. In such a suit, it has always been the practice for the defendant to cross-examine the plaintiff with a view to proving that the plaintiff had competent legal advice when he entered into the transaction, and to call and examine the legal adviser if he is available; and I have never known it to be suggested that such evidence is inadmissible on the ground of the plaintiff's privilege.[11]

47. In United States Surgical Corporation v Hospital Products International[12], McLelland J considered and explained the decision in Thomason's case in two respects which are important for my purposes. First, his Honour observed that, on a proper reading of the Chief Justice's judgment, it ought not be taken to mean that the privilege was lost in every case where the making or the content of a privileged communication became an issue in the proceeding. Second, to quote the words of McLelland J[13]:

"... it may be that the criterion that the otherwise privileged party must have himself raised the fact and nature of the advice as an issue in the case is too rigidly stated. Nevertheless, before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust."

In this context, I would observe that, in Thomason's case, the consideration of waiver first arose at trial. The circumstances of the trial therefore may well have affected the consideration of the trial judge of the question whether the issues in that case required the removal of the privilege.

52. The case presently before the Court is an issue waiver case. I therefore pass over the disclosure waiver cases[14]. I was referred to two appellate decisions[15] on the application of issue waiver to a case such as the present and one decision of this Court[16].

55. The first in point of time is the 1992 decision of Smith J in this Court in Hongkong Bank of Australia Ltd v Murphy[17]. In this case the bank alleged against the defendant, Burns Philp, certain warranties and representations upon which it relied. Moreover, in its reply and defence to counterclaim the bank also set up the defences that it was a bona fide purchaser for value, that it was not aware of breaches of trust by Burns Philp and that it relied upon the representations and warranties made by Burns Philp. It was contended, on behalf of Burns Philp, that by raising these issues the bank waived the privilege attaching to the communications which bore upon the issue of its reliance and its bona fides. Smith J upheld this submission, relying upon his perception that, on the pleadings, "the communications between Hongkong Bank and its lawyers are and will be an issue in the case"[18]. His Honour then observed that this issue was such that the bank would, at trial, have to establish the allegations to which the documents related. In this way, it appeared that the substance of the privileged communications was itself in issue so that it would be unfair to require the matter to proceed to trial without making discovery of documents which are relevant to that issue[19].

58. The cases which have been decided in the succeeding decade have then had to wrestle with the question, in what circumstances might the raising of such an issue make it unfair for the client to maintain the privilege. The issue which is often pointed to for these purposes, as in the present case, is an issue as to the state of mind of the client litigant. This problem is particularly acute in the common case where the client simply alleges in the pleading that it relied upon some wrongful advice or other conduct of the opponent to its detriment. In such a case, it is said that the pleaded reliance involves an assertion by the client that its mind was affected by the advice or conduct when it decided to embark on a course of detrimental conduct. A similar argument is available where the client pleads a state of belief or mistake or some other state of mind.

61. In 1993 in Standard Chartered Bank of Australia Ltd v Antico[20] Hodgson J was faced with a case, which was primarily one of disclosure waiver, where a director of a company who was also the company solicitor disclosed to the board part of the advice he had given to the company. The issue before the Court was as to the privilege which was said to attach to that part of the board minutes. In support of waiver, an argument was advanced that the directors were seeking to make out defences under the Companies (NSW) Code that they ought to be excused for their breach of duty[21] and that they had reasonable cause to believe that the company could pay its debts[22]. Counsel argued that the four defendants ought not be permitted to raise an issue which involved looking at all the circumstances and yet select only the favourable circumstances and exclude the unfavourable. His Honour rejected the claim for legal professional privilege on grounds which are not presently relevant, but he made some pertinent observations. First, he accepted that the knowledge or belief of the directors was relevant to an issue, but he thought that the disclosure of the knowledge or belief did not in substance involve the disclosure of the confidential communication. His Honour went on:

"At present, I am not aware of any unfairness in the sense that there is some qualification to the knowledge or belief which might be to the Pioneer defendants' advantage, and which to obtain that advantage would require reference to the confidential communication."[23]

He then offered the Pioneer defendants a chance to consider that matter.

66. His Honour was pressed with the observation of Jordon CJ in Thomason's case which I have quoted at [13] above to the effect that waiver will operate where one of the issues is what advice the client received from its lawyer, citing an undue influence case as an example. Of this, his Honour wrote:

"I am inclined to think that statement is a little too broad. If a party claims to set aside a transaction, on which the party has had legal advice, for undue influence, but makes no assertion whatsoever that there was any inadequacy in the legal advice about the transaction or in the party's relevant legal understanding of the transaction, it seems to me that the mere fact that some other element of undue influence is alleged would not necessarily mean that legal professional privilege is waived. Indeed, the case of Wentworth v Lloyd[24] itself was a case in which WC Wentworth sought to set aside the sale of property on the ground of unfairness, and the successful claim of privilege related to communications between Mr Wentworth and his solicitor concerning this transaction. I think it would be consistent with Attorney-General for the Northern Territory v Maurice[25] to formulate the principle in Thomason in this way. If a party, by pleadings or evidence, expressly or impliedly makes an assertion about the content of confidential communications between that party and a legal adviser, then fairness to the other party may mean that this assertion has to be taken as a waiver of any privilege attaching to the communication."[26]

70. His Honour returned to the question six years later in Wayne Lawrence Pty Ltd v Hunt[27]. The question of privilege arose on the application of the defendant to inspect certain documents produced under a subpoena directed to the solicitor previously acting for the plaintiff. The question of waiver fell for determination on the basis that, under the Evidence Act 1995 (NSW), the Court might permit inspection of otherwise privileged material only where the plaintiff consented or should be taken to have consented to its production[28]

. His Honour, on the authority of the decision of the Full Court of the Federal Court in Telstra Corporation Ltd v BT Australasia Pty Ltd[29], approached the question on the basis that there was in fact little difference between the position under s. 122(1) and that at common law[30]: the question of waiver depends upon unfairness in the sense that this expression is used in Maurice's case. In the course of the application to set aside a judgment entered for non-provision of security for costs, the plaintiff contended that, at the relevant time, it believed that non-payment of security meant only that the proceeding would be stayed until the security was provided. Hodgson CJ Eq D accepted that the existence of the suggested belief of the plaintiff was an issue but he declined to order production. In the course of his judgment, his Honour said this:

"It does not seem to me that the assertion of a belief must, in all circumstances, be taken as consenting to evidence being led of any legal advice or confidential communication that could be relevant to whether such a belief was held or the reasonableness of such belief. It seems to me that factors relevant to whether that consent is to be considered as having been given, or whether privilege is taken to have been waived, would include the significance of the belief to the case as a whole; the relevance of the reasonableness of the belief to the case as a whole; the probability or otherwise of the legal advice being relevant to the holding of that belief, or being relevant to its reasonableness; and in circumstances where the Court inspects the legal advice in question in order to make a decision, the extent to which the legal advice does in fact bear upon the holding of the belief or its reasonableness, and the extent to which the legal advice relevant to those matters is inextricably bound up with legal advice going to other questions as to which there has been no consent or waiver. It seems to me that, on the basis of all those matters at least, the Court has to make a judgment as to what is reasonable, and what is fair in the particular case.[31]

I interpolate that I do not understand his Honour's use of the word "reasonable" in this sentence as importing any element of discretion.

"In the present case, it seems to me that the belief alleged does not loom as a centrally important part of the plaintiff's case, particularly where there is no allegation that the belief was reasonable, or that it had any particular basis. As things stand, it is simply an allegation of a belief, unsupported by any positive suggestion that it was held reasonably, or any indication of the basis on which it was held."[32]

The position, his Honour added, might be otherwise if the plaintiff were to have voluntarily suggested that the belief was reasonably held or held on the basis of legal advice or lack of legal advice or upon some other ground which carried some implication about the advice or lack of advice[33].

82. Benecke v National Australia Bank[34] concerned an application to set aside a compromise of court proceedings entered into between counsel for Mrs Benecke and the bank. The alleged basis for this application was that counsel for Mrs Benecke had acted without authority and the client gave evidence to this effect. This issue having been opened up, the New South Wales Court of Appeal had little difficulty in concluding that she had waived the privilege which would otherwise have attached to the communications between her counsel and herself. Accordingly, the evidence of counsel that the settlement was in fact authorised was admissible.

85. Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd[35] was a case where the purchasers of certain unsecured convertible notes issued by Ampolex alleged that, at the time of purchase and when they gave notices of conversion, they believed, contrary to the terms of the trust deed as amended, that the notes were convertible on a certain basis. Ampolex sought inspection of certain legal advices received by one or other of the purchasers. The claim for privilege put forward was one of common interest privilege and it was rejected by Giles CJ Comm D. His Honour then went on to consider the alternative contention of Ampolex that, if there were privilege, it had been waived. One of the bases of the waiver was the plea of the purchasers that they had purchased the notes on a mistaken belief induced by Ampolex, so that estoppel arose as to the legal effect of the amended trust deed. His Honour noted that the principle in Thomason's case upon which Ampolex relied had been recently affirmed in the Benecke case and concluded in terms with which I was pressed by counsel for the directors:

"... having exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed, [the purchasers] can not withhold the advice from their opponent."[36]

89. His Honour observed that the parties before him did not dispute this principle; counsel for the purchasers merely submitted that the determination of this waiver question should be deferred until the course of the trial was known. This submission was rejected on the basis that production at the interlocutory stage was necessary for the proper preparation of the trial[37]. It is clear that, in this case, the mistaken belief which was asserted, was a belief as to the legal rights attaching to the notes. In these circumstances, it is hardly surprising that all parties accepted that the legal advice received at the relevant time was likely to have had some impact upon the existence or nature of that belief.

92. The Standard Chartered Bank case[38]

has been recently followed in New South Wales in Garratt's Ltd v Thanga Thangathurai[39] a case where the defendant client resisted a contract claim on the basis of misleading and deceptive conduct in reliance upon which it entered into the contract and those of economic duress and mistake. Bergin J, acceding to an issue waiver submission, observed[40] that in the passage from the judgment of Hodgson J in the Standard Chartered Bank case quoted at [18] above, his Honour had included as a possible basis of waiver that there was an issue as to the client's "relevant legal understanding of the transaction". On the facts before him his Honour was satisfied that the defences raised contained an assertion by the defendant that it had a particular legal understanding of the transaction and that it was probable that the legal advice given had a bearing upon and was relevant to that state of mind.

97. The first of the appellate decisions to which I was referred was the South Australian case of Southern Equities Corporation Ltd (In liq) v Arthur Andersen & Co[41]. In this case the question arose in a claim by a plaintiff against its former auditor alleging negligent conduct of the audit. Before the Full Court was an appeal by the defendant against a refusal of an order for the production for inspection of otherwise privileged communications passing between the plaintiff and its lawyers. One of the grounds for challenging the privilege was that the plaintiff, by its plea as to the consequences to it of the negligent audit, had waived the privilege. Although all members of the Court were in substantial agreement as to the applicable principles and that there was no basis for waiver, the appeal was dismissed by a majority only. The dissentient, Doyle CJ, would have remitted the application to the Master.

100. The judges were all of opinion that it is a relevant fact that the client has raised in its pleading an issue as to its state of mind, but that this is not enough. It must appear that the communication in question has some bearing upon the relevant state of mind. Doyle CJ analysed the statement of claim to mean that the plaintiff took certain steps in the mistaken belief that the audited accounts fairly stated its position. In this sense, the pleading rendered material the corporate state of mind of the plaintiff. His Honour then put the further questions which must be addressed for the purpose of determining issue waiver:

"But it is necessary to go further. In what sense has it done so? Has it done so in a sense to which legal advice is likely to have contributed? Has it done so in a way that makes it unfair to maintain the claim of privilege?[42]

Later, his Honour considered the other side of this requirement that the legal communication must have contributed to the state of mind of the pleading party. It is not sufficient that the legal advice has been given about the conduct of the plaintiff which is said to have been undertaken in reliance upon the negligent audit. The advice must have contributed to the belief of the plaintiff as to its financial position:

"That is a belief to which legal advice may have contributed. If it did, it would be unfair if that legal advice were not disclosed. In my opinion the unfairness would be particularly acute if the liquidator, through [the plaintiff], were to conduct the case on the basis of a mistaken belief on the part of [the plaintiff], while not disclosing advice to [the plaintiff's] directors to the effect that the profit should not be brought to account. For those reasons, legal advice as to the ability of [the plaintiff] to bring to account the profit on the Rome land transaction is advice as to which privilege is impliedly waived, because in view of the allegations in the pleadings it would be unfair to maintain the privilege."[43]

106. Bleby J, with whom Matheson J concurred, put the position this way:

"In my opinion the cases show that it is not sufficient merely to demonstrate that a party's state of mind or knowledge is in issue in order to succeed on an application that documents privileged from production on the ground of professional privilege be produced. If that were the case, privilege would almost always be waived in cases of misrepresentation, negligence and misleading and deceptive conduct where questions of a plaintiff's reliance or state of mind was in issue, and a list of documents showed that at or about the relevant time the plaintiff had some sort of legal advice which might have had some bearing on the plaintiff's state of mind. There must be something more from which it can be shown that the legal advice in question was relevant in the formation of that state of mind or belief or that the advice itself in some way becomes an issue in the action. This may be apparent from the pleadings or from some other document which has been produced in the course of discovery; it may be revealed by answers to interrogatories, or it may be self-evident from the description of the document in question contained in the list of documents. In some cases it may not become apparent until a witness is giving evidence at the trial. ... However, mere exposure to scrutiny of the corporate state of mind as to a belief in the existence or otherwise of a profit, and whether the accounts truly and fairly stated the position, does not necessarily assume the existence of legal advice as to the nature of the various transactions or that such advice could have had any bearing on the relevant state of the corporate mind. There is nothing in the pleadings or in any other information placed before this Court to suggest that relevant legal advice existed which could have had a bearing on that state of mind. The only information before the court comprises the several lists of documents themselves which, whilst identifying particular documents and their date, give no indication as to which of the many transactions they might relate, or whether they contain the sort of information which could be at all relevant in informing the corporate mind. In my opinion, something more than that is needed before a court can impute waiver of the substantive right to privilege that [the plaintiff] has. That is not to say, of course, that some of the documents listed may not have been relevant and may not yet be the subject of an imputed waiver of legal professional privilege. However, in my opinion there is insufficient information before the court to justify the order for production that is sought, and I would therefore dismiss the appeal. It may well be, however, that some of the documents in question were relevant to the formation of the corporate state of mind. Where a party has in fact had access to privileged legal advice in forming its state of mind or belief, it will not always be apparent from the pleadings or other material that it has done so. Sometimes it may not be revealed until cross-examination of a witness at the trial. It could, of course, make a crucial difference to the outcome, and it is better that such matters be revealed at an early stage rather than at trial. Revelation at trial will cause surprise, and possibly substantial disruption to the trial in a variety of possible ways. In order to prevent that occurring it behoves a party claiming privilege to disclose or describe documents properly according to the exigencies of the issues raised on the pleadings or through other documents."

110. In the earlier South Australian case of Pickering v Edmunds[44] Duggan J concluded that there had been a waiver of privilege attaching to legal advice received where the client plaintiffs by their plea alleged that they entered into an agreement in 1982 under duress and in a mistaken view of the legal effect of an earlier agreement. The legal advice in question had been received before they entered into the 1982 agreement. His Honour observed that the issue of the plaintiff's appreciation in 1982 of the legality or otherwise of the early agreement was crucial to their plea, so that an effective trial of this issue could not take place in the absence of evidence as to what legal advice they had received on the matter[45].

113. Later decisions of single judges in South Australia have followed the Southern Equities Corporation decision. In BT Financial Group Ltd v Bank of New Zealand (No. 2)[46] Debelle J was faced with an application to produce for inspection, not legal advices, but witness statements in the custody of BT. This company was no longer a party to the litigation but it was common ground that the statements were privileged. The litigation concerned the side agreement contained in a letter written by the plaintiff, South Australian Financing Authority ("SAFA") modifying certain terms of bonds it had issued in 1985. There was a claim by SAFA for rectification of this side agreement and one of the issues was whether the letter accurately reflected what had been agreed in a telephone conversation on 24 July 1985 between three men including one Ian Bell, an employee of BT. The application was complicated by reason of the fact that one of the statements in question was Mr Bell's third statement in which he gave a more detailed account of the conversation than he had in previous statements. The earlier statements had been disclosed with an express waiver of privilege. A further complication was that the statements in question had been inadvertently released, but this was held by his Honour not to amount to a voluntary waiver. Debelle J held that Mr Bell's final statement must be produced since it would be unfair for SAFA to maintain privilege for one statement and not for earlier versions. This is, then, an application of disclosure waiver.

116. The interest of this case for my present purposes lies in the alternative claim for production of the statements on the basis of issue waiver. The argument, shortly put, was that the statements related directly or indirectly to an issue raised by SAFA in the litigation. Having referred to Thomason's case and other cases, Debelle J focused attention upon the comment of Hodgson J in the Standard Chartered Bank case which I have set out above at [19]. His Honour then said this[47]:

"The central issue in this action is whether SAFA is entitled to rectification of the terms of the side letter. An important element of that issue is the telephone conversation on 24 July 1985 to which Mr Bell was a party. Although his statement concerns, among other things, what was said in the course of that conversation and what occurred in consequence of that conversation, his belief as to the effect of the conversation is not the issue in the proceedings. It is simply one of presumably three statements giving accounts of the conversation by each of the participants in that conversation. The position is to be contrasted with the cases above where a person had received advice and put in issue the content of that advice. BNZ is not, therefore, entitled to the statement of Mr Bell on this ground."

120. "Unfairness" in the sense that this word is used in this area of law, is typically characterised as an inconsistency between the position of the client seeking a finding as to an issue upon which the privilege communication had a bearing and, at the same time, withholding the content of the communication from the opponent and the court.[48] This will usually involve the consideration of what is the precise issue and how it is said that the communication impacts upon that issue.

123. The Federal Court has also had occasion to consider the question of issue waiver, although this has been complicated by the application of ss. 118 and 122 of the Evidence Act 1995 (Cth). Section 118 sets up the legal professional privilege and s. 122(1) provides for the removal of the statutory privilege where the evidence is given with the consent of the client or party concerned. In Telstra Corporation Ltd v BT Australasia Pty Ltd[49], the second appellate decision to which I was referred, the majority of the Full Court[50] analysed the question on the basis that it might, in certain circumstances, impute to a pleading client consent to the adducing in evidence of the legal communication. Their Honours treated the circumstance which might give rise to this imputation as being in reality the same as that giving rise to common law waiver, that is, it would be unfair to the other party, in a way which goes to the integrity of the legal process, for the privilege to be maintained[51]. They then applied this analysis in the following terms:

"Where, as in this case, a party pleads that he or she undertook certain action `in reliance on' a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract."[52]

127. Beaumont J dissented. His Honour was of opinion that s. 122(1) provided no acceptable solution to the issue waiver problem. He took the view that the common law rules of waiver expounded in Thomason's case and the United States Surgical Corporation case continued to apply notwithstanding the legislative regime established under the Evidence Act. Moreover, he found, on the material as it stood before him, no element of injustice that would warrant the removal of the privilege at common law: BT Australasia had not put in issue the advice received. If it should appear that this advice might at a later stage become an issue on the question of its reliance, the matter might then be dealt with[53].

130. The subsequent history of the Telstra case in the Federal Court is rather complicated. Special leave to appeal was granted by the High Court against the judgment of the Full Court and the appeal was argued. But, before judgment was given, the case was settled. Meantime, the view of the majority that the question of waiver should be analysed as one of consent, in terms of s. 122(1), was reversed by a majority of the Full Bench of the Federal Court in Esso Australia Resources Ltd v FCT[54] which preferred the approach of Beaumont J on that point_._ The Esso decision was itself reversed on appeal by the High Court[55] but this did not involve an adverse consideration of the view of the majority of the Full Bench that questions of waiver should be considered by the application of common law principles rather than as an imputed consent under s. 122(1).

133. This led Heerey J in Equuscorp Pty Ltd v Kamisha Corporation Ltd[56] to see himself as not bound by the views of the majority in the Telstra case. He preferred the view of the dissentient, Beaumont J, in that case, deciding that the plea by Equuscorp that it entered into the loss-making transaction in reliance upon the misleading and deceptive representations of the respondents did not produce a waiver of the privilege attaching to communications between it and its solicitors. The circumstances which may have pointed to the opposite conclusion were the fact that the date of the documents in question coincided with the transactions and, further, that Equuscorp sought rectification of the transaction agreement. This decision, however, was reversed on appeal sub nom Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd[57], a decision which treated the reasoning of the majority in the Telstra case as being applicable to the determination of a waiver claim on common law principles. Accordingly, his Honour ought to have seen himself bound to apply these principles and to adopt the approach of the Full Court in the Telstra case. The court in the Perpetual Trustees case, however, observed that this was no case of mere reliance. There was before it evidence that legal advice was sought and obtained at the relevantly material times. Furthermore, there was the plea of rectification. Their Honours concluded as follows:

"In our view, the facts of the present matter reflect the requisite degree of unfairness. Equus complains that it relied on the specified representations when it executed the security document. It says that the words 'letter of credit' appearing in that document do not faithfully record the common intention of the parties and that the words were used under a mutual mistake of fact. There is evidence, that at the relevant time or times, ie shortly before executing the security document, Equus sought and obtained legal advice. In our opinion, in those circumstances, it would be relevantly unfair for Equus to be allowed to maintain legal professional privilege. Equus' state of mind is central, at the very least, to its claim for rectification - see Ampolex - a case cited with apparent approval by Beaumont J in his dissenting reasons in Telstra."[58]

137. This, it would seem, settles the matter in the Federal Court[59]. In BT Australia Pty Ltd v Nyran Pty Ltd[60], a case where the applicant client alleged an agreement had been made under unilateral mistake, common mistake and in reliance upon misleading and deceptive conduct, Nicholson J applied the reasoning of the Full Court in the Telstra case and the Perpetual Trustees case to conclude that, by these pleas, the applicant client had put in issue its state of mind. Accordingly, where it appeared that legal advice was given at the relevant time, the privilege was lost where it was shown that there is a likelihood that the legal advice contributed to that state of mind[61]. This approach has also been followed in Western Australia[62].

140. In Tasmania, in Randell v Rockliff[63] Wright J declined to follow this Federal Court authority, preferring the views of Beaumont J in the Telstra and Heerey J in the Kamisha case. In that case, the defendants set up an estoppel asserting that they relied upon certain conduct of the plaintiff to their detriment. This plea of reliance was not sufficient to found issue waiver by them with respect to privileged documents.

143. I was referred also to the 1995 Queensland decision of Derrington J in Wardrope v Dunne[64], a case where the defendant insurer alleged that it had lawfully terminated a settlement agreement by reason of the plaintiff's fraudulent misrepresentation. The plaintiff successfully sought production from the insurer of all recommendations and advice received from its lawyers relied upon by its officer who authorized the making of the compromise agreement. His Honour concluded that, where the state of mind of the officer which may or may not have been affected by the content of the privileged material, is put in issue, it becomes necessary to investigate all matters in his mind to determine whether he was induced by the plaintiff's representations.

146. In most, if not all, of the cases to which I have referred, deference is paid to the statement of principle of Jordan CJ in Thomason's case[65] and to the requirement of the High Court that there be relevant unfairness shown before the privilege is lost by waiver. Nevertheless, there does appear to be a greater readiness in the decisions of the Federal Court since the Telstra case and the Perpetual Trustees case to give effect to the doctrine of waiver where there is a state of mind asserted by the pleading client which is contemporaneous with the legal communication. Whether this in truth represents a substantial divergence of view of the principle or merely a difference of judicial perception of the nexus between the state of mind and the privileged communication may be a matter of uncertainty, for in the Federal Court cases the judges are careful to point to aspects other than this contemporaneity.

149. In this debate as to the application of the doctrine issue waiver where reliance or its equivalent is pleaded by the client, I prefer the narrower approach which has been adopted in South Australia, New South Wales and Tasmania to that favoured by the Federal Court, insofar as there is a difference. Like Heerey J in the Kamisha case[66], I recoil from a principle which would have the consequence that a client litigant's plea of reliance in a negligent misstatement case, a misleading or deceptive conduct case or an estoppel case, ipso facto strips the privilege from legal communications which occurred about the time of the reliance. Furthermore, I am resistant to an argument that would have privilege waived in respect of any privileged document which might be relevant to the state of mind which has been pleaded into issue. To my mind, the putting in issue by the client of its relevant state of mind, whether it be one of reliance or otherwise, is merely the starting point for an examination of the waiver question. The chronological coincidence of the legal communication and the establishment of that state of mind does not of itself determine the question. The application of the test of unfairness, as expounded by the High Court, involves an examination of the precise nature of this pleaded state of mind and of the impact of the particular communication upon it. It is only where this examination shows that there will arise an unfair inconsistency between the position of the client setting up this state of mind and its maintenance of the privilege that waiver will arise and, then, only to the extent necessary to avoid the unfairness.

152. One further practical matter requires attention. The solicitor acting for the client, in a case such as the present, in the course of the discovery process must address the prospect that privilege has been waived in the manner here under consideration. Naturally enough, this will be done with a predisposition in favour of maintaining the privilege. In the course of this process, having identified the relevant pleaded state of mind of the client, the solicitor might then consider it appropriate to form a view whether the privileged communication did in fact have an impact on that state of mind. The cases suggest that this is not correct. In the Southern Equities Corporation case[67] the majority of the South Australian Full Court formulated the test as whether the "legal advice... could have had a bearing on that state of mind". Giles CJ Comm C in Ampolex v Perpetual Trustee Co (Canberra) Ltd[68] expressed himself to the same effect:

the pleading parties... "having exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed, [they] can not withhold the advice from their opponent. I emphasise that the legal advice is likely to have contributed to the states of mind of [the pleading clients], as was plain from the dates of and descriptions of the documents: were that not so, the principle may not have applied."[69]

156. The obligations of a client and its lawyer in making discovery are onerous. Where claims to privilege are concerned the task is not easy. They may encounter criticism and adverse comment if an unjustified claim is made. I fear that, in this area of issue waiver, a further burden is being imposed upon them, for what is required is that the lawyer responsible for discovery identify a state of mind of the client which may have been put in issue expressly or impliedly in the pleading and then to form a view whether a given privileged communication could have had an impact on that state of mind in the sense here discussed. The expression "could have had" in the formulation of the South Australian Full Court must be one not indicating mere possibility but rather probability or likelihood. In this way the confidence attaching to the legal communication is preserved except to the extent that it must yield to the requirement of the Court that it make a determination of the issue as to the client's state of mind on a basis which is fair to all parties.

159. The present application is one for an order pursuant to Rule 29.11(c) for the inspection of documents for which objection is made on the ground of privilege. I have summarised the contentions of the directors above at [9]. I find that assertions which are implied in those paragraphs of the Liquorland statement of claim to which I have referred above at [6] to [9], include those which relate to the state of mind of Liquorland as to the legal question whether the facts known to it amounted to a material adverse change entitling it to withdraw its takeover offer and as to its legal right to withdraw the offer. In my opinion, it would be relevantly unfair for Liquorland to make these implied assertions and, at the same time, to assert privilege with respect to any legal communication which is likely to have had a bearing upon those very matters. In short, Liquorland cannot come to the court seeking a determination that it had a certain view of its legal rights and at the same time withhold from the court and its opponents privileged communications which are likely to have informed its corporate mind as to those matters. Discovery must be made by Liquorland of documents containing such communications.

162. The appeal will therefore, to that extent, be upheld. I will hear counsel as to the terms of the order which should be made to give effect to these conclusions and as to the associated claim for inspection from the non-party, Coles Myer, and as to costs.

[1] See, for example, Attorney-General for the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 481-2, per Gibbs CJ.

[2] Daniels Corporation International Pty Ltd v ACCC [2002] HCA 49 at [11] per Gleeson CJ, Gaudron, Gummow, Hayne JJ, and at [85], per Kirby J.

[3] Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 583, per Kirby J; Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at 40, per McHugh J.

[4] Compare Bradley Phillips Pty Ltd v Burn Brite Lights (Vic) Pty Ltd [2002] SASC 360 at [20], per Burley M.

[5] [1999] FCA 681; (1999) ATPR 41-697 at 42,894.

[6] I put to one side evidence as to credit which does not here arise.

[7] For convenience, I shall refer to the party entitled to the benefit of the legal professional privilege simply as "the client".

[8] BT Australasia Pty Ltd v State of New South Wales (No.7) [1998] FCA 294; (1998) 153 ALR 722, per Sackville J.

[9] (1939) 39 SR (NSW) 347.

[10] [1986] HCA 80; (1986) 161 CLR 475.

[11] (1939) 39 SR (NSW) 347 at 358-9 (Footnotes omitted).

[12] Unreported 13 October 1981, SC (NSW), noted in Ritchie - Supreme Court Procedure NSW, p. 8546.

[14] For example, Torcasio Developments Pty Ltd v County Park Developments Pty Ltd (unreported, SC (Vic), Byrne J, 9 September 1991; British American Tobacco Australia Services Ltd v Cowell [2002] VSCA 197; Re Doran Constructions Pty Ltd (in liquidation) [2002] NSWSC 215; (2002) 194 ALR 101, (SC (NSW), Campbell J).

[15] Southern Equities Corporation Ltd (In liq) v Arthur Andersen & Co [1997] SASC 6712; (1997) 70 SASR 166; Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634.

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

[17] [1993] VicRp 83; [1993] 2 VR 419.

[18] [1993] VicRp 83; [1993] 2 VR 419 at 438.

[19] See also Mathieson v Booth [2000] VSC 89 (Mandie J).

[20] (1993) 36 NSWLR 87.

[23] 36 NSWLR 87 at 93.

[24] [1864] EngR 492; (1864) 10 HL Cas 589; 11 ER 1154.

[25] [1986] HCA 80; (1986) 161 CLR 475.

[26] 36 NSWLR 87 at 94-5.

[27] [1999] NSWSC 1044.

[28] Section 122(1), referred to below in [[] ff.

29] (1998) 156 ALR 634.

[30] [1999] NSWSC 1044 at [17].

[31] [1999] NSWSC 1044 at [12].

[32] [1999] NSWSC 1044 at [13].

[33] [1999] NSWSC 1044 at [14].

[34] (1993) 35 NSWLR 110.

[35] (1995) 37 NSWLR 405.

[36] 37 NSWLR 405 at 411.

[37] A conclusion which echoed the earlier decision in Hongkong Bank of Australia Ltd v Murphy [1993] VicRp 83; [1993] 2 VR 419.

[38] (1993) 36 NSWLR 87, referred to at [[] above.

39] [2002] NSWSC 39.

[40] [2002] NSWSC 39 at [65].

[41] [1997] SASC 6712; (1997) 70 SASR 166.

[42] [1997] SASC 6712; 70 SASR 166 at 181.

[43] [1997] SASC 6712; 70 SASR 166 at 182.

[44] (1994) 63 SASR 357.

[45] 63 SASR 357 at 362.

[46] [2002] SASC 10.

[47] [2002] SASC 10 at [39].

[48] Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at 13.

[49] (1998) 156 ALR 634.

[51] 156 ALR 634 at 647.

[52] 156 ALR 634 at 647.

[53] 156 ALR 634 at 640-41.

[54] [1998] FCA 1655; (1998) 83 FCR 511.

[55] [1999] HCA 67; (1999) 201 CLR 49.

[56] [1999] FCA 681; (1999) ATPR 41-697.

[57] [1999] FCA 925.

[58] [1999] FCA 925 at [17].

[59] Pace John Tanner Holdings Pty Ltd v Mortgage Management Ltd [2001] FCA 194; (2001) 182 ALR 201.

[60] [2002] FCA 1302.

[61] [2002] FCA 1302 at [18] and [20].

[62] BP Australia Ltd v Stallwood [2000] WASC 75 (Sanderson M).

[63] [1999] TASSC 136; (1999) 9 Tas R 85.

[64] [1996] 1 Qd R 224.

[66] Equuscorp Pty Ltd v Kamisha Corporation Ltd [1999] FCA 681; (1999) ATPR 41-697 at 42,894 [13].

[67] [1997] SASC 6712; (1997) 70 SASR 166 at 193.

[68] (1995) 37 NSWLR 405 at 411.

[69] See also Wardrope v Dunne [1996] 1 Qd R 224 at 228, per Derrington J ("The material... that may have gone to his decision is examinable"; WA v Southern Equities Corporation Ltd (in liq) (1996) 142 ALR 597 at 602, per French J ("the documents... may have some relevance to that question"); Garratt's Ltd v Thanga Thangathurai [2002] NSWSC 39 at [69], per Bergin J ("It was probable that the legal advice given... bears upon and is relevant to the defendant's state of mind"); BP Australia Pty Ltd v Nyran Pty Ltd [2002] FCA 1302 at [18] per Nicholson J ("a likelihood of legal advice having contributed to the issue of the state of mind").