Maher v Millennium Markets Pty Ltd [2004] VSC 82

Supreme Court of Victoria|2004-03-24|Before: OSBORN J

COSTS OF THE APPEAL - Appeal against dismissal of application for discovery - Legal professional privilege - Waiver of privilege.

This is the determination of an appeal against the order of Master Wheeler made on 5 March 2004 dismissing an application for discovery of certain documents in respect of which the plaintiffs claim legal professional privilege. The Master ordered that the appeal be heard together with the trial of the action. The subject matter of the appeal was addressed on the second day of the hearing and following further discussions between the parties I have been advised that the documents in issue have now been provided to the appellant fourth defendant.

In these circumstances Mr O'Callaghan QC sought costs of the appeal and of the hearing before the Master. Mr Riordan SC opposed an order for such costs on the basis that the claim of privilege was justified but had been abandoned for forensic reasons. There is something to be said for the view that costs should simply follow the event, but in the circumstances I will indicate my view of the underlying dispute as to privilege.

In the proceeding itself the plaintiffs seek damages and an order that the transfer of an apartment in Bourke Street from the fourthnamed plaintiff to the firstnamed defendant be set aside.

The claim arises out of dealings which occurred when the plaintiffs were faced with the necessity to repay $5.8 million to a bank on 10 May 1999.

It is alleged that in these circumstances the fourthnamed defendant who had been retained by the plaintiffs to act as their solicitor for the purpose of resolving the difficulties which confronted them, breached the terms of his retainer and failed to exercise reasonable care both in advising the plaintiffs and in acting for the plaintiffs with respect to agreements effected for the purposes of realising assets and raising sufficient funds to satisfy the plaintiffs' obligations to the bank.

It is further alleged the fourthnamed defendant acted in breach of his fiduciary duty to the plaintiffs by placing himself in a position where his own interests conflicted with his duty to the plaintiffs.

As against the first, second and third defendants it is alleged that they participated in the fourthnamed defendant's breach of fiduciary duty and further that the making of a contract of sale with respect to the Bourke Street apartment and the settlement of such contract, were induced by economic duress, unconscionable dealing and acts in contravention of s.51AA and s.53A(2) of the Trades Practices Act 1974.

It is also alleged that the secondnamed defendant wrongfully repudiated a prior agreement with respect to the purchase of properties owned by the plaintiffs.

At the time the thirdnamed plaintiff entered into the contract for sale of the Bourke Street apartment on 16 March 1999, the purchaser entered into a deed of settlement which purported to grant to the thirdnamed plaintiff an option to repurchase the apartment. The option could be exercised during the period of two years from the date upon which the purchaser became entitled to possession of the apartment.

The deed further provided that in certain specified circumstances the option would be lost if a caveat were lodged by or on behalf of the thirdnamed plaintiff with respect to its interest under the option.

It is part of the plaintiffs' claim that the fourthnamed defendant breached the terms of his retainer and acted negligently as follows:

"J Brott failed to advise, after the settlement of the Bourke Street apartment, it would be necessary to exercise the option to repurchase the Bourke Street apartment. ... L Brott failed to give advice about the exercise of the option to purchase. M Brott lodged a caveat over the Bourke Street apartment thereby disentitling Simply Irresistible from exercising the option to purchase the Bourke Street apartment. N. Brott failed to advise about the consequences of lodging a caveat over the Bourke Street apartment."

It is necessarily implicit in the plaintiffs' claim that the thirdnamed plaintiff relied upon the fourthnamed defendant with respect to the matters particularised above and in particular the failure of the fourthnamed defendant to advise it properly with respect to the option and the terms of the option. It is only by virtue of such reliance the plaintiffs could have suffered loss and damage as alleged.

The plaintiffs' position is further elaborated at paragraph 98 of the witness statement of Justice John Maher.

"On Wednesday 10/3/00 I had a meeting with Brott about what action we could take to get the return of the Bourke Street apartment. I told him that I was concerned that time was running on the option clause and asked him whether we should consider exercising the option to make sure the apartment was not lost. He told me that, if we exercise the option clause, we would have to pay money and we had done everything correctly so we did not owe them any money. as (sic) a result he told me that we should do nothing about the option clause and he would take action to get back the Bourke Street apartment. In reliance on his advice we did not exercise the option clause. He did not give us any advice about the fact that the right to exercise the option clause had been lost by the lodging of the caveat in late 1999. If he had advised us to exercise the option and claim the $210,000 later we would have done so."

By his defence the fourthnamed defendant denies that he acted in breach of his retainer, negligently or in breach of fiduciary duty. He alleges by paragraph 20A of his defence that:

"(q) Brott discussed the option after 9 July 1999 but the Mahers at all times were insistent that the proposed uses had been achieved and that they were not going to pay consideration for the return of the apartment; ... (x) Brott had proceedings drawn to compel the return of the apartment but the Mahers never instructed him to finalise and issue them even though he sought those instructions; (y) The plaintiffs instructed their present solicitors in May 2001 prior to the expiry of the option period on 8 July 2001; (z) The plaintiffs did not give Brott any further instructions to act in the matter after January 2001 even though Brott was seeking instructions and in this period to 9 July 2001 the Mahers had retained their present solicitors to act for them in the matter; ... (bb) The plaintiffs had retained their present solicitors in the period from May 2001 to 9 July 2001 and at any time in that period the option could have been exercised."

The fourthnamed defendant further denies the plaintiffs have suffered loss and damage as a consequence of his actions and alleges by paragraph 27 of his defence:

"(e) Alternatively, the plaintiffs breached their duty to mitigate their loss by not exercising the option and by not issuing the proceedings and to this date the plaintiffs have not issued proceedings for specific performance."

In these circumstances the fourthnamed defendant seeks discovery of six file notes made in and between 22 April 2001 and 26 June 2001 by the solicitors for the plaintiffs after his own retainer had been terminated.

The fourth defendant contends that the plaintiffs waived the privilege that would otherwise attach to the notes made by their solicitor with respect to attendances upon them by putting in issue the question of whether they relied upon Brott's alleged advice during the period in which they were advised by other solicitors and in which the option remained current. The notion of waiver of privilege was explained by the High Court in Mann v Carnell[1]:

"At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that 'waiver' is a vague term, used in many senses, and that it often requires further definition according to the context (Ross T. Smyth & Co Ltd v T.D. Bailey, Son & Co [1940] 3 All ER 60 at 70; Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) 215 at 226; The Commonwealth v Verwayen (1990) 170 CLR 394 at 406, 422, 467, 472). Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege (Cross on Evidence, 5th Aust ed (1996), par 25005; Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 497-498). Examples include disclosure by a client of the client's version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication (Benecke v National Australia Bank (1993) 35 NSWLR 110), or the institution of proceedings for professional negligence against a lawyer, in which the lawyer's evidence as to advice given to the client will be received (Lillicrap v Nalder & Son (a firm) [1993] 1 WLR 94; [1993] 1 All ER 724). Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is 'imputed by operation of law' (eg. Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83 at 95). This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank (1993) 35 NSWLR 110), the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large."

The fourth defendant relies upon the authorities comprehensively analysed by Byrne J in Liquorland (Aust) Pty Ltd v Anghie[2]. At [10] and [11] of his judgment in that matter his Honour observed:

"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. I start from the proposition that legal professional privilege is an important common law immunity which is not lightly to be abrogated. 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, the application of the rule does not; to adopt the striking image of Heerey J in Equuscorp Pty Ltd v Kamisha Corporation Ltd, '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. The privilege, however, is an immunity which belongs to the client 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', 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." (Citations omitted)

His Honour then referred to the decision of the New South Wales Court of Appeal in Thomason v Council of the Municipality of Campbelltown[3]. In that case a defendant sought to defend a widow's claim for compensation arising out of her husband's death. The defendant pleaded that the widow had elected to pursue her rights under workers compensation legislation and that as a result her common law rights were abrogated. The defendant sought and obtained leave to cross-examine her as to advice she had received from a solicitor and further obtained leave to call the plaintiffs' solicitor to give evidence as to the advice he had given his client. The Court identified two bases on which the privilege attaching to legal advice might be lost. First, a disclosure in evidence of the advice received and second, the fact that the widow put in issue the defence contention that she had made an election with knowledge of her legal rights. Jordan CJ stated on behalf of the Court:

"... 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 the 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."[4]

The subsequent authorities in which Thomason's case has been considered include the decision of Hodgson J in Standard Chartered Bank of Australia Ltd v Antico[5]. In the course of that case Hodgson J stated:

"I think it would be consistent with Attorney-General for the Northern Territory v Maurice 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."[6] (Citation omitted)

In the Liquorland case Byrne J surveyed both interstate and federal court authority and concluded at [41]:

"In this debate as to the application of the doctrine (of) 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, 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." (Citation omitted)

In my view this passage correctly states the law.

In argument before me the plaintiffs placed substantial reliance upon the decision of the Court of Appeal in British American Tobacco Australia Services Ltd v Cowell (as representing the Estate of McCabe (deceased))[7] (hereinafter referred to as the "BAT case"). They further relied on the decision of Redlich J in David Anderson v Holding Redlich[8]. Both these cases turned on quite unusual facts. Moreover the BAT case was primarily concerned with "disclosure" estoppel rather than issue estoppel. Nevertheless at [130] of the BAT case the Court of Appeal emphasised that considerations of relevance alone will not determine the question of "issue" waiver:

"In seeking to support the ruling below, the plaintiff submitted that the question of waiver in the present circumstances depended, not at all upon the material exhibited to Mr Maher's affidavit, but simply upon the matters put in issue. The defendant, it was said, had put in issue the legitimacy of its purpose in implementing its document management strategy and the fact that such strategy was based upon legal advice. So much may be accepted, but it does not follow, as the plaintiff then submitted, that 'considerations of fairness require that a party putting in issue in a proceeding a matter which cannot be fairly assessed by the Court without examination of material over which that party claims privilege must be taken to have either consented to the use of the relevant privileged material or to have waived reliance on the privilege'. As already indicated, the mere reference to legal advice may make that legal advice relevant, but it says nothing as to the waiver of privilege. No doubt if a party claiming to have acted upon legal advice then relies upon privilege to protect that advice from scrutiny, the claim will be less than persuasive: but that does not mean that the privilege has been waived, by implication. Hence the error, in our opinion, in his Honour's referring to the insight that the documents in question might provide 'into the content, circumstances and consistency of the advice which was requested and received'. That may have been so, but it did not mean that therefore privilege had been waived."

In my view the present case is one where the plaintiffs' claim necessarily requires proof that the alleged failure of the fourthnamed defendant to advise the plaintiffs properly with respect to the option relating to the Bourke Street apartment continued to have effect for the whole period of the option. It is apparent that other solicitors were engaged by the plaintiffs after the termination of the fourthnamed defendant's retainer and advised the plaintiffs during this period. It is further apparent that they did so when the plaintiffs must have been aware of the term of the option period.

In my view these circumstances are such as to make discoverable the file note of advice to the plaintiffs in the relevant period insofar as such file notes are documents containing reference to the question of the exercise of the plaintiffs remedies under the contract containing the option. I accept the submissions of Mr Jones that the circumstances are distinguishable from those which arose in the BAT and David Anderson cases. In the present case the plaintiffs put the substance of the privileged communications in issue by asserting continuity of a state of mind as to their rights relating to the option from the time Brott acted for and advised them up until the end of the option period. This is a situation in which there would arise an unfair inconsistency between the position of the plaintiffs setting up the state of mind of reliance upon the advice of the fourthnamed defendant and the maintenance of privilege with respect to the advice received thereafter concerning the option during the period of the option. The plaintiffs cannot come to the Court seeking a determination that they had a certain view of their legal rights and at the same time withhold from the Court and their opponents privileged communications which are necessarily likely to have informed their minds as to those matters.

In the circumstances it follows that if the documents in issue had not been provided to the fourth defendant I would have made an order for discovery with respect to those file notes which refer in any way to the exercise of the option.

Accordingly the appeal will be allowed, the order of Master Wheeler will be set aside, and the plaintiffs will be ordered to pay the costs of the appeal and the costs of the application to the Master.

[1] [1999] HCA 66 (21 December 1999) per Gleeson CJ, Gaudron, Gummow and Callinan JJ at [28], [29]

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