Northern Inland Credit Union Limited v Temenos Australia Operations Pty Ltd

Background

1. The proceedings concern a contract by which Temenos agreed to provide what is described as a core banking system (CBS) to NICU, which is an electronic system that processes daily banking transactions and posts updates to accounts and other financial records.
2. NICU alleges that Temenos made several precontractual representations described in its list statement as the "Readiness Representations", the "Capacity Representations" and the "Deployment Representation" concerning Temenos's ability to install the CBS within a period of approximately 9 months. NICU claims that it relied on those representations in entering into the contract, that the representations were misleading and deceptive in contravention of s 18 of the Australian Consumer Law (ACL) and that as a consequence it is entitled to recover damages under s 236 of the ACL.
3. In entering into the contract, NICU was required to comply with the Australian Prudential Regulation Authority Prudential Standards CPS 231 Outsourcing (CPS 231). Among other things, that standard sets out (in para 29) the matters that must be addressed by any outsourcing agreement, such as the CBS.
4. In connection with the transaction, NICU obtained legal advice on final versions of the documents comprising the contract. It also engaged KPMG to provide advice on whether it had complied with the requirements of CPS 231. In connection with that engagement, it provided KPMG with a copy of that legal advice.
5. The legal advice and a draft of KPMG's report formed part of the due diligence material considered by the board of NICU in deciding to enter into the contract.
6. On the question of reliance, Mr Derek McIntyre, the Chief Executive Officer of NICU, has affirmed an affidavit dated 23 April 2024 in which he gives the following evidence: 93. In resolving to enter into contracts with Temenos at the 5 March 2019 Board meeting, the Board considered and relied on the documents listed in the due diligence material. Those documents had been prepared based on the representations made in the Temenos Presentation (which I note the Board had viewed on 10 July 2018) and other documents provided by Temenos. One of those key representations was that the Temenos product was "out of the box". Based on the board meetings I attended and the discussions I had with board members, I understand that the Board considered Temenos a viable option because it was represented to be 'ready to go', that is, it was a core banking solution that could be adopted by NICU with minimal modification. 94. Had Temenos not made the representations in the pre-contract documents, including that Temenos was: (a) a ready to go, out of the box system; (b) had been successfully installed in other Australian banks and financial institutions; (c) compatible with the Australian regulatory environment; (d) had functioning reports and advanced analytical systems; (e) required minimal customisation; and (f) had functioning and integrated components such as BPAY and Cuscal, then as project sponsor, I would not have supported it as a viable core banking system for NICU and I would not have recommended it to the NICU Board.
7. NICU has claimed privilege over the legal advice and those parts of KPMG's report which disclose the substance of that advice. Temenos seeks unredacted versions of those two documents. It does so on two bases. First, it submits that, by serving Mr McIntyre's affidavit, which states that the board relied on the due diligence material (which included the two documents), NICU waived privilege in the legal advice. Second, it submits that NICU waived privilege in the legal advice by disclosing an email dated 1 March 2019 from Mr David Cook, who was an employee of NICU, to Mr Quang Dang of KPMG in which Mr Cook said: We have had the suite of contract documents extensively reviewed during the course of contract negotiation. We have received legal advice on the documents. For all significant matters we reasonably believe that such issues are addressed within the contracts. We are mindful we cannot place legal reliance on representations outside of the contract documents.
8. NICU accepts that there has been a waiver of privilege to the extent that the legal advice deals with the issues in the case. However, it submits that there has not been a waiver of privilege in the whole advice. It submits in an open offer that it made before the hearing of the notice of motion that it would be appropriate for the Court to make orders in the following terms: 1. Order that the plaintiff produce to the defendant a copy of the document titled "General Terms and Conditions for Temenos Cloud Services Agreement (21 January 2019)" that is unredacted to the extent (if at all) that it contains advice upon or otherwise addresses the issue of whether the plaintiff was able to rely upon any pre-contractual representations made to it by the defendant in deciding to execute the Cloud Services Agreement, Order Form, the Services Agreement and a Statement of Work. 2. Order that the plaintiff produce to the defendant a copy of the "KPMG Report" (appearing at pages 66 to 71 of Exhibit JO-2) that is unredacted to the extent (if at all) that it contains advice upon or otherwise addresses the issue of whether the plaintiff was able to rely upon any pre‑contractual representations made to it by the defendant in deciding to execute the Cloud Services Agreement, Order Form, the Services Agreement and a Statement of Work.

Relevant legal principles

1. It is not necessary to set out the principles relating to waiver in any detail. They were stated in these terms by Gleeson CJ, Gaudron, Gummow and Callinan JJ in Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29] where their Honours said: 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. That principle is encapsulated in s 122(2) of the Evidence Act 1995 (NSW) which provides: Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118 [Legal Advice] … . For recent discussion of the principle, see also GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2020] NSWCA 266; Grocon Group Holdings Pty Limited v Infrastructure NSW (No 2) [2023] NSWSC 1144.

Consideration

1. Although the dispute between the parties was framed in their written submissions as a dispute about whether NICU's conduct in serving Mr McIntyre's affidavit, and in what was said to be a disclosure of the substance of the advice by Mr Cook, amounted to a waiver, it is plain from the concession made by NICU that the real issue is the extent of the waiver and, in particular, whether NICU should be required to produce the whole advice even though much of it may be irrelevant to the issues in the proceedings.
2. I accept that in this case it is appropriate to order production of only that part of the legal advice which is relevant to the issues in the case.
3. In many cases, such an order will be inappropriate. It is generally not appropriate to permit a party to go through a document and to redact parts of it that are said to be irrelevant leaving an incomprehensible patchwork of sentences and paragraphs. Generally, the obligation to give discovery of a document applies to the whole document: see Telstra Corp Ltd v Australis Media Holdings (Supreme Court (NSW), McLelland CJ in Eq, 10 February 1997, unrep) cited with approval in Lewis v Lewis (2021) 105 NSWLR 487; [2021] NSWCA 168 at [95] per Leeming JA (Meagher and Payne JJA agreeing). The same is true where the question is one of waiver. However, an exception is sometimes made where a document deals with different subject matters, only one of which is relevant - such as, minutes of a board meeting.
4. In the present case, it may be inferred that the principal subject of the legal advice was whether the agreement complied with the requirements of CPS 231. It is unlikely that the legal advice addressing that issue will be relevant to the issues in this case. It is true that Mr McIntyre says that the due diligence material was "prepared based on representations made in the Temenos Presentation … and other documents provided by Temenos". But it is important to understand that the due diligence material included papers prepared by Mr McIntyre and other employees of NICU. Mr McIntyre should not be interpreted as saying that the legal advice was prepared on the basis of that presentation and other documents.
5. It is also true that normally there will be the required inconsistency between an assertion that a party relied on a document and the maintenance of a claim that the document is confidential so as to attract a claim of privilege. But here, there is no reason to think that there is a connection between the advice and the representations that Temenos is said to have made and its reliance on those representations. It appears that the advice is concerned with whether the contract complied with the requirements of CPS 231 whereas the question of reliance relates to representations concerning Temenos's capacity to perform the contract and within a certain timeframe. It would be unfair in those circumstances to require production of the whole advice if little or none of it has anything to do with reliance on the representations.
6. The same is true of the email. At most, the email purports to disclose legal advice to the effect that NICU was not entitled to rely on pre-contractual representations. It does not disclose the substance of legal advice on other matters.
7. Accordingly, in my opinion, it is appropriate to place limits on the extent to which NICU should be required to disclose the contents of the legal advice. However, the disclosure should not be limited to the question whether NICU was entitled to rely on pre-contractual representations. It should extend to all aspects of the advice that are relevant to the issues in the proceedings.
8. Each party has enjoyed some success in relation to the motion. It is appropriate in those circumstances that the costs of the motion be costs in the cause.

Orders

1. The orders of the Court therefore are: 1. The plaintiff is to produce to the defendant a copy of the document titled "General Terms and Conditions for Temenos Cloud Services Agreement (21 January 2019)" that is unredacted to the extent (if at all) that it contains advice upon, or is otherwise relevant to, the issues in the proceedings. 2. The plaintiff is to produce to the defendant a copy of the "KPMG Report" (appearing at pages 66 to 71 of Exhibit JO-2) that is unredacted to the extent (if at all) that it contains advice upon, or is otherwise relevant to, the issues in the proceedings. 3. The defendant's Notice of Motion filed on 4 July 2024 otherwise be dismissed; 4. The costs of the Notice of Motion be costs in the cause.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 July 2024