NRMA Ltd & Ors v Morgan & Ors

COUNSEL : Second Defendant - G K Burton Third Defendant - A J Meagher SC SOLICITORS : Second Defendant - Ebsworth & Ebsworth Third Defendant - Corrs Chambers Westgarth CATCHWORDS : CLIENT LEGAL PRIVILEGE - loss by disclosure of substance of communication - Evidence Act s 122(2) - not lost by saying instructed counsel to advise - lost by saying what counsel advised. Ampolex v Perpetual Trustee Company (Canberra) Ltd (1996) 40 NSWLR 12; Ampolex v Perpetual Trustee Company (Canberra) Ltd (1966) 137 ALR 28; CASES CITED : Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1998) 153 ALR 393; Adelaide Steamship Company Ltd v Spalvins (1998) 152 ALR 418; Southern Cross Airlines Holdings Ltd (in liquidation) v Arthur Andersen & Co (1988) 28 ACSR 455. DECISION : Access to documents referred to in para 1 given; access given to documents referred to in para 2 to the extent indicated, excluding masked portions.

THE SUPREME COURT OF NEW SOUTH WALES COMMERCIAL DIVISION

NRMA LTD & ORS v JOHN KERIN MORGAN (t/as ALLEN ALLEN & HEMSLEY) & ORS

1 GILES JA: I published reasons in these proceedings on 13 May 1999. For present purposes little knowledge of the proceedings is necessary, but in what follows I assume familiarity with those reasons. I also use the acronyms and abbreviations used in the reasons. 2 The proceedings included cross-claims by each of AAH, AT and Mr Heydon against the others of them for indemnity or contribution. The cross-claims were pursuant to s 5 of the LR Act or, as they said, "in equity". By notice of motion filed on 20 May 1999 AT sought leave to file a further cross-claim against Mr Heydon. In the proposed further cross-claim it alleged, first, that Mr Heydon owed to it a duty of care similar to that owed to the NRMA, that he was in breach of that duty of care, and that its damages for the breach of duty of care were the amount for which it was liable to the NRMA; and secondly, that Mr Heydon had been involved in contravention of s 42 of the FT Act and had breached s 996 of he Law and that AT had thereby suffered loss, being its costs and the amount for which it was liable to the NRMA. The hearing of the notice of motion, together with other notices of motion and questions outstanding in the proceedings, is to take place on 23 July 1999. 3 Accompanying the notice of motion was an affidavit of Mr Peter Kennedy sworn 20 May 1999. The affidavit adverted to the decision of the High Court in Astley v Austrust Ltd (1999) 8 HCA 6 given on 4 March 1999, after I had reserved my decision in these proceedings, and to the opportunity given to the parties to lodge supplementary written submissions on the decision of the High Court. In para 6 of the affidavit Mr Kennedy then said - "Until such submissions were called for, it was not considered necessary to examine directly the liability of the Third Defendant, to the Second Defendants independently of the claim for indemnity or contribution made in the Third Cross-Claim. Once the immediate consequences of the decision in Astley v Austrust Ltd became apparent, I instructed Counsel to advise on this liability. Counsel have advised that the Third Cross-Claim may not, in certain circumstances, permit the Second Defendants to claim contribution from the Third Defendant and for more abundant caution the Second Defendants should seek the leave of the Court to file a further Cross-Claim."

4 Mr Heydon served on AT a notice to produce, and on AT's solicitors a subpoena, requiring the production of documents. The response to the subpoena and the notice to produce was such that only the documents in pars 1 and 2 of each, the corresponding paragraphs being in the same terms, need to be addressed. AT claimed that the documents sought by Mr Heydon were subject to client legal privilege. Mr Heydon responded that the privilege had been lost by the operation of s 122(2) of the Evidence Act 1995 and possibly s 126 of that Act, because their substance had been disclosed through para 6 of Mr Kennedy's affidavit. 5 I was told of this contretemps when giving directions with a view to the hearing of the notices of motion and other questions. It was agreed that the documents called for were initially subject to client legal privilege, and that the loss of the privilege turned on para 6 of the Mr Kennedy's affidavit. In those circumstances, and again by agreement, argument was heard today on the status of the documents in pars 1 and 2 without the necessity for a formal motion and on a notional production of the documents and application by Mr Heydon for access to the documents. 6 The two paragraphs read - "1 All file notes, briefs, correspondence or other documents recording or referring to the instructions to counsel to advise, referred to in para 6 of the affidavit of Peter Ewen Kennedy sworn 20 May 1999.

2 All file notes, memoranda, correspondence [sic] recording or referring to the advice referred to in para 6 of the affidavit of Peter Ewen Kennedy sworn 20 May 1999."

7 Although the question of the status of the documents does not arise on the adduction of evidence, it was common ground that whether the privilege has been lost is to be determined on the derivative application of the principles of the Evidence Act considered in Akins v Abigroup Ltd (1998) 43 NSWLR 539. A different view was taken by a bench of five Judges of the Federal Court in Esso Australia Resources Ltd v. Federal Commissioner of Taxation (1999) 159 ALR 664 but, quite apart from the common ground, I am bound by the decision of the Court of Appeal. 8 In the circumstances of this case, the effect of s 122(2) of the Evidence Act is that the privilege has been lost if AT knowingly and voluntarily disclosed the substance of the documents described in the two paragraphs. Mr Kennedy's affidavit was relevantly knowing and voluntary disclosure. Was the disclosure of the substance of the documents? 9 Mr Heydon submitted that there was disclosure of the substance of the documents in para 1 because of Mr Kennedy's words, "I instructed counsel to advise on this liability", meaning the liability of Mr Heydon to AT. I do not think that is so. Mr Kennedy's words said no more than what it would have been necessary to say in order to claim client legal privilege and that cannot work a loss of the privilege. In any event, his words did no more than indicate that there existed a confidential communication between himself and counsel on the subject of advising on the liability and did not, in my opinion, disclose the substance of the communication. 10 It is appropriate at this point to refer to some authorities. 11 In Ampolex v Perpetual Trustee Company (Canberra) Ltd (1996) 40 NSWLR 12 a sentence in a Part B statement that "Ampolex maintains that the correct ratio is 1:1 and has legal advice supporting this position" was held by Rolfe J to be a disclosure of the substance of the legal advice. His Honour rejected a suggested distinction between the substance of the advice and the effect of the advice, and said (at 19) that the substance could be disclosed even if the ultimate conclusion without the reasoning process was revealed. It was sufficient that there was disclosure of what the advice was. Leave to appeal to the Court of Appeal was refused on 20 May 1996, although without relevant comment on the merit. In refusing a stay order pending an application for special leave to appeal to the High Court, Kirby J said that it was strongly arguable that the reference to the supporting legal advice "waived the privilege as to the precise content of the legal advice on that point": his Honour observed that mere reference to the existence of legal advice would not amount to a waiver of its contents (see Ampolex v Perpetual Trustee Company (Canberra) Ltd (1996) 137 ALR 28 at 34.) 12 In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1998) 153 ALR 393 Goldberg J held that a reference to a brief without its contents, or any summary of or extrapolation of those contents, was insufficient for disclosure of the substance. 13 In BT Australasia Pty Ltd v. State of New South Wales (No 7) (1998) 153 ALR 722 Sackville J referred to distinctions between a mere reference to legal advice and disclosure of its substance, and between an expression of view as to the likely outcome of litigation and the statement of the substance or effect of legal advice. His Honour observed, with reference to the earlier Federal Court decision of Adelaide Steamship Company Ltd v Spalvins (1998) 152 ALR 418, that the test of loss of privilege by disclosure of special circumstances was a quantitative test which asked whether there had been sufficient disclosure to warrant loss of privilege. 14 Finally in Southern Cross Airlines Holdings Ltd (in liquidation) v Arthur Andersen & Co (1998) 28 ACSR 455 Drummond J held that a brief general summary of certain advice was insufficient to amount to a disclosure of the substance of the advice, also referring to Adelaide Steamship Company Ltd v Spalvins. His Honour did not agree with the equation of substance and effect, saying that disclosure of the effect of a document may occur where only the conclusion reached has been disclosed and that disclosure of the substance could not occur without disclosure of "both the conclusion and the critical (but not all the) steps by which that conclusion was reached" (at 462). However his Honour said that the decision of Rolfe J in Ampolex Ltd v Perpetual Trustee Company (Canberra) Ltd was undoubtedly correct, and so his Honour cannot have intended that much be disclosed by way of critical steps. 15 This brief review of authorities, in my opinion, provides a sound basis for the view I have already expressed, that the reference to instructing counsel to advise on liability was insufficient to amount to disclosure of the substance of the otherwise privileged communication between Mr Kennedy and counsel. 16 It also means, in my opinion, that when Mr Kennedy went on to say, albeit in summary form, what counsel had advised, there was a disclosure of the substance of that otherwise privileged communication between counsel and Mr Kennedy or whoever was the recipient of the advice. The present case is considerably stronger on the facts in favour of disclosure of the substance of the advice than was Ampolex v Perpetual Trustee Company (Canberra) Ltd. It must not be forgotten that what is subject to privilege is the communication. In this case, I was informed that the communication was both by a written advice, and by advice in conference as to which a file note or some other record or reference was brought into existence. Paragraph 2 set out above, strangely, would seem not to call for the written advice, but I do not think any point is taken as to that. So far as there is a written advice as referred to in the last sentence of para 6 of Mr Kennedy's affidavit, or a file note or other record of or reference to the oral advice so referred to, in my opinion, the privilege otherwise attracted has been lost. 17 AT distinguished between advice as referred to in the last sentence of para 6 of Mr Kennedy's affidavit, on the one hand, and what was described as material on the content, prospects and implications of the proposed further cross-claim, on the other hand. I think, the distinction is well drawn. All that was the subject of disclosure was the advice on the state of the existing cross-claim and the desirability of filing a further cross-claim. Nothing was disclosed as to advice on content, the material prospects and implications of the further cross-claim, save to the extent that the reasons for filing a further cross-claim may have involved advice on what it would say and would provide to AT over and above the existing cross-claim. 18 There is potential for uncertainty as to the dividing line, it being a little like the proverbial elephant. AT has masked what it says falls on the wrong side of the line. It would be inappropriate for me to look at the documents in order to rule, if that be necessary, given that I am yet to hear the notice of motion. I consider that the appropriate course is for AT to reconsider its masking in the light of what I have said in these reasons, and make any changes which it may think are called for. Mr Heydon may either accept the result of that exercise or he may not. If he does not, he will have to make application to another Judge for the Judge to look at the documents and rule, and he will need to do so quickly. 19 I referred earlier to the possible operation of s 126 of the Evidence Act. Mr Heydon submitted that he would be entitled to a wider inspection of the documents produced because it was reasonably necessary, in order to have a proper understanding of the advice as described in para 6 of Mr Kennedy's affidavit, to have regard to what counsel said about the content, prospects and implications of the further cross-claim. I do not see that there would be any room for that on the assumption that a masking exercise in accordance with what I have said has been appropriately carried out. 20 It follows that I do not think that access to the documents referred to in para 1 should be given, but that access should be given to the documents referred to in para 2 to the extent I have indicated and in principle excluding the masked portions.

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