Oztech Pty Ltd v The Public Trustee of Queensland

Introduction 1 These reasons deal with an interlocutory dispute about legal professional privilege in representative proceedings between the applicant, Oztech Pty Ltd, and the Public Trustee of Queensland. Those proceedings concern the collapse of the MFS Group of companies, and in particular, a trust in that group known as the MFS Note Trust. There are four issues for resolution: (a) The Waiver Issue: whether the privilege in certain communications between the Public Trustee and his lawyers has been waived by the Public Trustee. Here the issue turns upon the extent to which the Public Trustee has made his state of mind an issue in the proceedings; (b) The Common Interest Privilege Issue: whether some of the communications passing between the Public Trustee and his lawyers were subject to a common interest privilege with the State of Queensland. Here the issue is whether common interest privilege arises and, if it does, whether any waiver of that privilege by the Public Trustee should bind the State; (c) The Joint Privilege Issue: whether one of the communications is subject to a joint privilege with the State and, if it is, whether any waiver by the Public Trustee binds the State; and (d) The In-House Lawyer Issue: whether the Public Trustee is entitled to resist production of certain confidential communications on the basis of legal professional privilege where the communications took place between his staff and his chief in-house lawyer. Here the issue is whether that lawyer, who is known as the Official Solicitor, was sufficiently independent from the managerial or executive functions of the Public Trustee. 2 In the applicant's written submissions, an argument was made that the evidence before the Court was not sufficient to establish privilege, but that argument was not pursued at the hearing. In addition, there was a debate between the parties as to the entitlement of the Public Trustee to redact sections of various documents on the basis that the sections contained irrelevant material. It was agreed that that issue did not need presently to be resolved. 3 Each of the four issues should be resolved in favour of the Public Trustee. Procedurally, the four issues arise from two interlocutory applications filed by Oztech. One was dated 22 October 2015 and the other 3 March 2016. Although the Public Trustee submitted that I should dismiss both applications, it is not entirely clear that the conclusions I have reached necessarily mean that those applications should be so dismissed. The parties are in a better position than I am to judge that matter. The appropriate order is that the parties bring in a minute of an order giving effect to these reasons within 7 days. If they cannot agree on such an order they are to file competing orders supported by no more than 2 pages of written submissions within the same time frame and I will resolve the debate on the papers.

The Waiver Issue 4 The representative proceeding arises out of the collapse of the MFS Group of companies in January 2008. After the collapse there were changes in the names of the entities, mostly involving the replacement of the letters 'MFS' in each entity's name with the word 'Octaviar'. In these reasons, I will use only the nomenclature of 'MFS' unless the context unavoidably otherwise requires. 5 The MFS Group was principally based in Queensland and was involved in property investment. The group was large and contained many elements. The case is concerned with one of those elements, the MFS Note Trust. The Public Trustee was the trustee of that trust. Notes were issued by an entity then known as MFS Investment Notes Limited, each with a face value of $100. Oztech was the holder of 477 of these notes which had, therefore, a face value of $47,700. It is not clear to me what rights attached to the notes but this is immaterial for present purposes. What does matter is that the right to enforce the issuer's obligations under the notes was vested in the Public Trustee under the terms of the Note Trust. Also relevant is that the obligations of the issuer were themselves guaranteed by its parent, MFS Limited. The right to enforce that guarantee was, in turn, also vested in the Public Trustee under the terms of the Note Trust. There were other guarantors, too, but they are not presently material. 6 Securities in the parent, MFS Limited, were listed on the Australian Securities Exchange ('the ASX'). On 18 January 2008, MFS Limited made an announcement to the ASX of certain structural alterations to the group and, at the same time, a proposed recapitalisation of the group by way of a $550 million renounceable entitlement offer. This announcement was not well received in the marketplace, and the price of shares in MFS Limited dropped on the same day from $3.18 to $0.99, that is to say, by 70% over the previous day's close. In 2008, 18 January was a Friday. The next day of trading was Monday 21 January. On that day, a trading halt was put in place. That trading halt was never lifted. 7 Matters deteriorated rapidly from this point forward. The details of the descent into insolvency are mostly unimportant, save that it is useful to know that the Public Trustee issued notices of default under the terms of the notes on 23 May 2008 to the issuer, on the basis that both it and its parent were insolvent, and demanded repayment of the notes in an amount of $348,621,200.00 together with interest of $2,836,725.93. The Public Trustee then sought to wind up the issuer on 4 June 2008. He demanded payment of the notes under the guarantee from MFS Limited on 12 June 2008. 8 Oztech alleges, in essence, that the Public Trustee should have realised that there had been events of default much earlier than he did, and that he should have called in the notes and wound up the issuer and MFS Limited by no later than 28 February 2008. It is alleged that if this had occurred, Oztech would not have suffered the loss and damage it seeks to recover. Oztech's proceeding against the Public Trustee is a representative one under Part IVA of the Federal Court of Australia Act 1976 (Cth). Its statement of claim defines the group which it represents as consisting of noteholders who held notes on 25 February 2008 and who have suffered loss and damage by reason of the alleged defaults of the trustee. 9 The issue of waiver of legal professional privilege arises because the defence of the Public Trustee, in part, involves allegations by him that he relied upon legal advice. It is not disputed by the Public Trustee that the effect of his defence is to waive privilege in some of the advice he received, but he does dispute that its effect is to waive privilege in all of it. The present contest is, therefore, not about whether there was a waiver but, instead, about the consequences of the waiver which has occurred. 10 The only act of waiver relied upon by Oztech was the Public Trustee's amended defence in the proceedings. That defence draws a distinction between two sets of allegations made by Oztech, and this is a reflection not only of Oztech's own pleadings but of the historical reality of the events surrounding the collapse of the MFS Group. It is a dichotomy between what happened on and after Friday 18 January 2008, when the parlous condition of the group became clear for all to see, and what happened before. Oztech's allegations that the winding up should have happened much earlier and, in any event, by 25 February 2008 are correspondingly built on two sets of quite distinct sets of allegations. In the first class, which is the chronologically earlier class, is a series of allegations about financial facts obtaining within the group before 18 January 2008, of which it is said that the Public Trustee either was, or ought to have been, aware or upon which it is said he should have acted. Representative of this class of allegations are those such as the claim that between 6 July 2007 and 18 January 2008, the Public Trustee should have acted on the advice of PricewaterhouseCoopers ('PwC') or sought financial information from the issuer or MFS Limited about their financial position and solvency. If this had been done, so it is said, the Public Trustee would have demanded payment of the notes, in which case the issuer and MFS Limited would have either satisfied the demand or been wound up by 29 February 2008. In response to this first set of allegations, the Public Trustee simply alleges in his amended defence that he knew of no such problems nor were the circumstances such that he should have known of them. In this part of his defence, the Public Trustee does not allege that his actions were guided by any legal advice. 11 In the second class, which relates to the period after 18 January 2008, Oztech alleges that the Public Trustee acted too slowly and that he ought to have taken various specified steps which, had they been taken, would have resulted in the winding up of the issuer and MFS Limited by 29 February 2008. 12 In response to this second class about what he should have done after 18 January 2008, the Public Trustee alleges that he promptly acted on accounting and legal advice in deciding what to do. The Public Trustee does not dispute that privilege has been waived in all of this advice. The discovery which has been provided thus far by him indicates, however, that he received much more legal advice than just advice of this kind and it is into this broader field that Oztech now seeks to delve. 13 The basic question is whether it would be inconsistent for the Public Trustee now to maintain privilege in the communications where he has positively asserted a defence that after 18 January 2008 he acted on legal advice. Plainly enough, it would be inconsistent for him to assert that he relied upon legal advice after 18 January 2008 in acting as he did whilst maintaining the confidentiality of that advice and, no doubt, that is why the Public Trustee does not dispute the entitlement of Oztech to examine that material. 14 The more difficult questions concern whether it is true, as Oztech contends, that it would be inconsistent for the Public Trustee now to maintain privilege in communications other than those he received or made in the course of deciding what steps to take after 18 January 2008. 15 That question cannot be answered without knowing what this other advice is about and here, as counsel for Oztech submitted, Oztech finds itself at something of a disadvantage, since it does not know the contents of the advice. However, this disadvantage arises in all privilege debates and is therefore unremarkable. The Public Trustee has put forward evidence from three witnesses explaining what this advice is about. The first of these witnesses is the present acting Public Trustee of Queensland, Mr Crofton, who at the times relevant to this litigation, was the Official Solicitor to the Public Trustee and who, I accept, is able to give useful evidence about the circumstances and context of the privileged communications. The second was the trustee's external solicitor, Mr Sharry. The third was a solicitor with Crown Law. 16 The background to the various legal advices which the Public Trustee received includes the fact that on 6 July 2007, the Public Trustee had sought to resign from office but had been unsuccessful, since no other person could be found who was willing to undertake the burdens of that office. From 2006 he had been receiving advice on a semi-regular basis from PwC about MFS. He received one such report on 31 January 2008. The ambit of PwC's retainer appears to have been, broadly speaking, the conducting of high level financial analysis of the position of the MFS Group. In the report of 31 January 2008, it is apparent that PwC was aware both of the cessation of trading which had just occurred, and also of the fact of the Public Trustee's attempted resignation. In Section 4 of the report its authors included some recommendations under the heading 'Possible future steps for consideration'. These included a number of inquiries of a financial kind. It was also suggested, however, that consideration be given to obtaining legal advice. The precise recommendation was: • Obtain legal advice to understand the rights of the Trustee, obligations of the Trustee on behalf of the noteholders in these circumstances and confirmation of any particular legal options that are available to the Trustee to enforce rights and to seek information and cooperation from MFS. In particular what can the Trustee do now that MFS has failed to find a replacement Trustee • To understand the priority of the Notes, and particular default provisions and ascertain whether any of those have been or are likely to be breached.' 17 Mr Crofton says, and I accept, that on the basis of that recommendation the Public Trustee decided to obtain legal advice of that kind and, to that end, he caused to be retained Messrs Clayton Utz. The initial request for advice was contained in a letter from the Official Solicitor to that firm of 4 February 2008. The specific instruction was as follows: 'Instructions To advise the Public Trustee on the matters raised in section 4 of the report, the continuing obligations of the Public Trustee under the trust deed and the Corporations Act 2001 in the absence of the appointment of a new trustee, the extent of due diligence that the Public Trustee should undertake in the current circumstances and generally what action should be taken to protect the Public Trustee.' 18 It is to be noted that the advice which was sought from Clayton Utz did not relate to anything apart from questions as to what the Public Trustee should do in the future. In that regard, I read the final words of the instruction '…what action should be taken to protect the Public Trustee' as relating to an inquiry about what should be done in relation to limiting any liabilities that might arise in the future. 19 Clayton Utz replied formally on 14 February 2008 with a retainer letter which similarly underscored the prospective nature of the advice which it was being asked to give rather than an inquiry into what liability the Public Trustee might have in relation to matters which had arisen prior to 18 January 2008. The important part of the letter was in these terms: 'You have asked us to advise on: • the legal matters raised in section 4 of the PWC Report dated 31 January 2008, namely "to understand the rights of the Trustee, obligations of the Trustee on behalf of the Noteholders in these circumstances and confirmation of any particular legal options that are available to the Trustee to enforce rights and to seek information and cooperation from MFS. In particular, what can the trustee do now that MFS has failed to find a replacement trustee?"; • your continuing obligations under the Trust Deed and Corporations Act 2001 in the absence of the appointment of a replacement Trustee; • the extent of due diligence you should undertake in the current circumstances and generally, what action should be taken to protect you.' (Italicisation in original) 20 It thus seems tolerably clear that Clayton Utz's retainer was as to the steps which the Public Trustee should take in the future. A large quantity of such advice was received. Subject to one matter, this is, in effect, the advice which the Public Trustee refers to in his amended defence and in respect of which he accepts the effect of his amended defence is to waive any privilege. In his submissions, the Public Trustee referred to this family of advices as the 'Future Conduct Advice', which is as convenient a moniker as any. 21 Mr Crofton and Mr Sharry also gave evidence that the Public Trustee both instigated and received privileged communications which, whilst touching upon his role as trustee, did not relate to the issue of how he was to act in his future conduct of the Note Trust. It is these communications which are the subject of the waiver argument. 22 The first category of such advices was related to advice not directly obtained by the Public Trustee himself, but instead obtained by the Queensland Attorney-General. The Attorney's role arises from the fact that he is responsible for the administration of the Public Trustee Act 1978 (Qld) and has portfolio responsibility for the Public Trustee. It is not in dispute that ultimate financial responsibility for the Public Trustee rests upon the Queensland Treasury: Public Trustee Act, s 23. In January 2008, the Attorney-General sought advice from Crown Law. Ms Freemantle, who has held the post of Deputy Crown Solicitor since 2007, gave evidence that the Attorney-General instructed Crown Law 'to provide legal advice about the Public Trustee's past actions as trustee of the Octaviar Investment Notes Limited (formerly, MFS Investment Notes Limited) note trust … and also to advise on any potential liability arising out of those past actions'. Pursuant to this retainer, the Attorney-General was provided with a number of such advices. In the course of obtaining and providing that advice there were a number of communications with the Public Trustee as would obviously be necessary in order to provide advice to the Attorney-General about the State's potential liability for his past actions. 23 In addition to the retainer which Ms Freemantle explains Crown Law had with the Attorney-General, she also gave evidence that the Public Trustee had himself retained Crown Law in February 2008 to provide further legal advice about his past conduct in relation to the Note Trust as well as other matters. What these other matters were I do not know, but the tenor of Ms Freemantle's evidence was that they were not about the Note Trust. Her evidence was that although this second category of advice had been sought by the Public Trustee himself, it had been provided both to the Public Trustee and to the Attorney-General, and she regarded the retainer of Crown Law in that regard as having been a joint one between the two offices. I see no reason to doubt this. 24 Leaving to one side questions about the role of common interest privilege and joint privilege, the short question is whether the Public Trustee has waived his privilege in these two sets of communications by asserting a positive defence in the proceedings that the actions he took from February 2008 onward in relation to his conduct as trustee were done on, inter alia, legal advice. 25 The principles to be applied in this area are not in doubt. First, what is involved is the application of classical concepts of waiver from the general law which are sometimes also referred to as election: Craine v Colonial Mutual Fire Insurance Co (1920) 28 CLR 305 at 326; Commonwealth v Verwayen (1990) 170 CLR 394 at 423; secondly, the doctrine will apply where there is a choice between inconsistent legal rights which, in the case of a privilege debate, will generally mean the choice between maintaining the privilege by resisting production and disclosing the content of the communications: Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 641-642 and 655-656; thirdly, in the context of a privilege debate, this will require a judgment as to whether the conduct of the party entitled to the privilege is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect; fourthly, that judgment is to be made in the light of the context and circumstances of the case and in the light of any considerations of fairness arising from that context or those considerations. Finally, in this forensic calculus, the issue of fairness is clearly to be understood as only arising as part of the inconsistency analysis. It is not to be thought as warranting some kind of general inquiry into the fairness of the case. As to the third and fourth propositions, see Osland v Secretary, Department of Justice (2008) 234 CLR 275 at [45]. As to the fifth, see Mann v Carnell (1999) 201 CLR 1 at [29]. 26 On its face, so it seems to me, the answer to the question thrown up by this interlocutory dispute is quite obvious. There is no inconsistency between the Public Trustee's assertion that he acted on advice from, and following, February 2008 in the steps he then took as trustee and the maintenance of privilege in the advice he received about his own liability for his previous conduct. From my perspective, the two concepts seem to pass like ships in the night, indeed, with their lights turned off. 27 Oztech submitted that this was not so for three reasons. First, it was said that the two sets of advice were intermingled with each other and could not sensibly be disentangled. Given that they were provided by two different sets of advisers - Crown Law in relation to the Public Trustee's own liability for past conduct and Clayton Utz in relation to what steps the Public Trustee should have taken from February 2008 - this contention is unsustainable. 28 Secondly, its position was said to be supportable by reference to what the New South Wales Court of Appeal said in Council of the New South Wales Bar Association v Archer (2008) 72 NSWLR 236. The passage it relied upon was in the reasons of Hodgson JA at [48]. The right alleged to have been waived in that case was the right not to be required to give evidence in the circumstances referred to in s 171R of the Legal Profession Act 1987 (NSW). The Court of Appeal unanimously considered that the public nature of that right was not such that it could be waived. Each of the judges went on to make some remarks which were obiter dicta about whether, if the right could have been waived, it had been. Hodgson JA said this (at [48]): '48 In my opinion, this exposition is consistent with both Maurice and Mann, subject to the need to look for inconsistency: compare Bayliss v Cassidy (No 2) [2000] 1 Qd R 464; SQMB v Minister for Immigration and Multicultural Affairs (2004) 205 ALR 392 at [30]-[44], A Corkhill and M Selwyn, "Evolution of the Common Law Principle of 'Issue Waiver'" (2008) 82 Australian Law Journal 338. It is not enough to bring about a waiver of client legal privilege that the client is bringing proceedings in which the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party. For the client to do this is not inconsistent with the maintenance of the privilege, and does not give rise to unfairness of the type in question. What would involve inconsistency and relevant unfairness is the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege. In this respect, it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind.' (emphasis added) 29 Oztech argues that the advice the Public Trustee received from Crown Law fits within the rubric of being a communication which was likely to have affected his state of mind when making the decisions he had to make from February 2008. It was said, for example, that he may have received advice about the scope of his duties as trustee when receiving advice from Crown Law about his own past conduct, and that this was likely to have affected the later decisions he had to make when deciding what future steps to take in relation to the Note Trust when considering and acting on the advice received from Clayton Utz. 30 The reasoning of Hodgson JA at [48] is based on a discussion at [46]-[47] of fairness in the context of waiver, which may not be altogether consistent with what the High Court said on that topic in Osland. However, assuming in Oztech's favour that Hodgson JA's obiter dictum (with which Campbell JA agreed) does represent the law, I do not think that Oztech satisfies its requirements. In particular, I do not think that whatever advice was received by the Public Trustee from Crown Law was such that it was 'likely' to affect his state of mind in making the decisions he did after February 2008. Whilst it is possible that there were some topics which overlapped as between the two sets of advice, whether they in fact did so is largely speculative. Further, reflection suggests that the only topics upon which they were likely to overlap were those pitched at a very high level of generality such as, for example, the duty of a trustee to be diligent. I do not think that advice at that level of generality would have been 'likely' to have had any impact on the decision making process after February 2008; indeed, far from it. Further, away from the domain of such generalised expressions of opinion, it seems to me likely that as the advice in relation to the earlier conduct became more granular and detailed, it ceased to have any plausible connexion with that which the Public Trustee was considering from February 2008; put another way, advice as to whether, for example, a particular document should have been issued in June 2007 really says nothing about whether a given step should have been taken in April 2008. Oztech's argument erroneously assimilates the conceptually conceivable with the likely. 31 Thirdly, it was said that the Public Trustee had not proved that he had not relied upon the advice in relation to his past conduct in making the decisions he says he took from February 2008 in administering the Note Trust. It is literally true that no express evidence to that effect was given by any of the witnesses. However, there is also no evidence that the Public Trustee did take any such advice into account. There being an absence of evidence on the topic, the issue may be resolved by reference to the burden of proof. The burden of proving that the material is privileged lies upon the party making that assertion, here the Public Trustee. There is no doubt that he has proved that the advice is otherwise privileged. It is Oztech's responsive contention that the privilege has been waived and, accordingly, it bears the onus of making out its own case in that regard: see New South Wales v Betfair Pty Ltd (2009) 180 FCR 543 at 556. It is not, in other words, for the Public Trustee to prove that the privilege has not been waived; it is for Oztech to prove that it has. Proof that the Public Trustee took into account the advice in relation to his own past conduct in making decisions about his future conduct is, therefore, something which lies on Oztech's side of the ledger to prove. The absence of evidence on this issue therefore means it fails. Alternatively, if I am wrong in relation to the burden of proof, I am prepared to infer from the Public Trustee's evidence that he did not take into account the advice about his liability for past conduct in formulating his decisions from February 2008. I do this because it is obvious. 32 For those reasons, Oztech fails to prove that the effect of the Public Trustee's amended defence is to waive any privilege he holds in the advice he received from Crown Law about his own liability for his earlier actions. 33 There remain three other categories of advice which Mr Crofton and Mr Sharry described the Public Trustee as having received. The first of these, described by Mr Crofton, related to additional advice he sought from Clayton Utz in relation to his past conduct. This was a specific inquiry made of Clayton Utz for advice in relation to some of the advice obtained from a Queen's Counsel by Crown Law in relation to his liability for his earlier conduct. It will follow from what I have already said that privilege in this advice was not waived. For completeness, I do not accept that Oztech's intermingling argument has any traction in this area either. 34 The second category was described by Mr Crofton as general advice given by the Public Trustee's Official Solicitor relating to the Note Trust, but which was neither about his earlier liability nor the steps he should take in the future. This negative description was given by Mr Crofton at paragraph [41] of his affidavit but he supplemented it in more detail at paragraphs [69]-[73]. There were four topics: (i) a confidential memorandum prepared on 6 July 2007 in relation to several trusteeships and custodianships held by the Public Trustee including that of the Note Trust. I infer that advice of this kind can have had nothing to do with the topic of what was to occur from February 2008, and therefore there can have been no waiver of it (for the same reasons I have already given); (ii) a confidential memorandum prepared on 24 January 2008 which recorded several conversations between Mr Crofton in his role as Official Solicitor and Mr Klein, Mr Dickson, Mr Bini and Mr Kelly on 23 and 24 January 2008. Mr Bini was an advisor to the Attorney-General, Mr Dickson was the Deputy Official Solicitor and Mr Kelly worked in the Public Trust Office. Mr Klein was the Public Trustee until his resignation on 30 January 2008. Mr Crofton's evidence does not tell one any more about the content of this communication beyond that it is not about the liability of the Public Trustee for his past conduct or about what steps he should take in the future. The nearness of the date of the file note to the date upon which trading ceased naturally raises in one's mind some connexion with that event. However, in view of Mr Crofton's evidence at paragraph [41], I do not accept that privilege in this material has been waived. Even without paragraph [41], I would not have accepted that Oztech had shown (in the sense of discharging a burden) that privilege had been waived; (iii) on 6 May 2008 Mr Prostamo, an employee of the Public Trust Office, prepared a draft memorandum in relation to the Public Trustee's involvement with Octaviar Limited (formerly MFS Limited) for Mr Crofton's consideration and comments. Mr Crofton printed it off and made hand written annotations on the hard copy. Again, I accept that the effect of paragraph [41] of his affidavit is to demonstrate that there was no waiver and, further, that regardless of paragraph [41], Oztech has not proved that privilege was waived in this material; and (iv) correspondence between the office of the Official Solicitor and the Public Trustee in October 2007 and in January 2008 about the replacement of the trustee. Without more, I do not think that this advice is connected to any liability that the Public Trustee might have had in the past nor to any step which he proposed to take in the future. Even if it were possible to cobble together some sort of argument that connected the attempted retirement of the trustee from office to concern about his own liability, this would merely put this advice into the same category as the past liability advice. Even if that were done, for the reasons I have already given, I do not accept that it would have been demonstrated that privilege in that material had been waived. 35 In those circumstances, I do not accept that there has been any waiver of privilege in what Mr Crofton referred to as the 'General Advice'. 36 The third category was said to be unrelated legal advice. Mr Sharry and Mr Crofton both identified privileged communications of this kind. The evidence was directed to the issue of the masking of privileged documents. I apprehended from the way the case was advanced that these were no longer in issue. To the extent that Oztech advanced a case that privilege in these materials had been waived (and I am not certain that it did), I conclude that there was no such waiver. 37 In those circumstances, I conclude that Oztech has failed to prove that the Public Trustee has waived privilege in respect of any of the documents over which he makes the claim: cf. New South Wales v Betfair Pty Ltd (2009) 180 FCR 543.

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