Procedure - Discovery - Production of documents for inspection - Waiver - When imputed by conduct.

Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475; Pickering v Edmonds (1994) 63 SASR 357, considered.

Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634; Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, not followed.

Defendants (Appellants): Dobson Mitchell & Allport

Judgment Number: [1999] TASSC 136

SHEILA MARGARET RANDELL v PETER GEORGE ROCKLIFFE

1 This is an appeal from orders made by the Master on 27 October 1999 in the following terms:

"1 the secondnamed defendant produce for inspection to the plaintiff's solicitors documents numbered 18, 19 and 20 described in part II of the first schedule of the defendant's list of documents, dated 12 February 1999;

2 the secondnamed defendant pay the plaintiff's costs of and incidental to the application filed 16 September 1999."

The second named defendant had claimed solicitor/client privilege in respect of the documents referred to in the order.

2 The Master summarised the relevant facts as follows:

"In this action it is alleged that the defendants and some others agreed to purchase from the plaintiff and another one half of the entire shareholding of the company Severup Fisheries Pty Ltd. The shareholding of that company was eight hundred and seventy five thousand, one hundred and seventy three shares, and so half of the shareholding amounted to four hundred and thirty seven thousand, five hundred and eighty six and a half shares. In fact, what was transferred to the defendants and the other purchasers was four hundred and thirty seven thousand, five hundred and eighty seven shares - that is, half a share more than what the original agreement indicated was to be transferred and so giving the purchasers a one share majority holding in the company.

In para 6 of the statement of claim it is alleged by the plaintiff that the solicitors acting for the purchasers wrote to the solicitors acting for the vendors and enclosed share transfer forms for the shares ultimately transferred to the purchasers. It is alleged that in the letter which went with the transfer it was suggested that a further share be issued in the company to the plaintiff and that the purchase price for the shares be apportioned between the vendors on the basis that the plaintiff would be issued with an extra share.

The plaintiff in the action effectively seeks to have the shareholding evened up between the vendors and the purchasers. The defendants in response to the claim in para 18 of the defence say that they relied on the plaintiff's conduct in transferring the extra share to them, and the plaintiff's conduct in remaining silent until shortly before the proceedings were commenced in March 1987 to their detriment, by believing that they were beneficially entitled to all the shares which had been transferred to them, and a majority interest in the company. They say that in consequence of their reliance they made further investments in the company and provided security for the benefit of the company. They say that their reliance persisted from the time of the transfer in November 1991 until shortly before the commencement of the action in March 1997, during which time they made the further investments and provided the security. Whether the defendants actually believed that they and the other purchasers were to have and continue to have a majority interest in the company is central to the issue raised in para 18 of the defence."

The Master inspected the relevant documents. I, too, have inspected them.

3 Relying upon the principles expounded by the majority of the Full Federal Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634 at 647, lines 33 - 44, the Master concluded that:

"... the defendants, having asserted in their pleading in effect that their state of mind was that they were entitled to form with the other purchasers a majority shareholding in the company, that issue can now only be fairly determined by production of the documents in dispute. That being so, there is an imputed waiver of the privilege ...".

4 Assuming, without deciding, that the Master was correct in his view that the documents in question were relevant to the defendants' state of mind as to the effect of the transfer agreement in respect of the control of the company, I need to consider whether his Honour was correct in concluding that the documents were discoverable. The second defendant's counsel, Mr O'Farrell, submitted that there was no imputed waiver of privilege.

"18 The defendants say further the plaintiff is estopped from denying that the defendants are entitled to any interest in the additional share or any part of it.

(a) the additional share transferred by the plaintiff to the defendants;

(i) has not at any time until immediately prior to the commencement of this proceeding claimed any interest in the additional share nor denied the defendants' entitlement to the additional share;

(ii) together with Perves, as the owners at the relevant time of the issued capital of the company, failed, refused or neglected prior to the transfer of the shares to the defendants to issue an extra share to herself;

(iii) failed, refused or neglected to request the defendants or the company to issue an extra share to her after the shares were transferred to the defendants;

The defendants have altered their position and suffered detriment by:-

(i) the funds they have invested in the company since on or about 7 November 1991; and

(ii) the security they and their personal companies have granted to the company's financiers."

6 Mr O'Farrell submits that as this pleading does not put in issue the second defendant's state of mind at the time of the share purchase transaction, but pleads reliance based only upon the fact that the plaintiff transferred an additional share to the defendants and thereafter conducted herself in the three ways specified, the dealings between the second defendant and her solicitor and any advice he may have given her before the sale, privilege has not been impliedly waived and the documents are thus not exposed to scrutiny.

7 Reference was made to the observations of Duggan J in Pickering v Edmonds (1994) 63 SASR 357 at 362, where he said:

"A waiver of legal professional privilege cannot be implied simply because the pleadings made such advice relevant. The possibility that the court might be restricted in it capacity to determine the truth is part of the price which must be paid for the advantages of legal professional privilege. It is only when the conduct of the party entitled to the privilege and considerations of fairness outweigh the competing considerations concerned with the exercise of the privilege that a waiver will be implied."

8 The words of Gibbs CJ in Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 480 were also referred to:

"The rule which recognizes legal professional privilege goes back at least to the time of Elizabeth I (see Wigmore on Evidence, McNaughton rev, volVIII, par2290) but that does not mean that it is archaic, technical or outmoded. Without the privilege, no one could safely consult a legal practitioner and the administration of justice in accordance with the adversary system which prevails at common law would be greatly impeded or even rendered impossible.

There was of course no express waiver in the present case and there is nothing to suggest that the claimants had any actual intention to waive privilege in the source documents. The principle applicable in these circumstances seems to me to be well stated in Wigmore, op cit, par2327:

'In deciding it, regard must be had to the double elements that are predicated in every waiver, ie, not only the element of implied intention, but also the element of fairness and consistency. A privileged person would seldom be found to waive, if his intention not to abandon could alone control the situation. There is always also the objective consideration that when his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder. He may elect to withhold or to disclose, but after a certain point his election must remain final.'

The decisions in which this question has been considered seem to me to be particular applications of the rule that in a case where there is no intentional waiver the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production. Thus it has been held that the privilege in respect of a document is not waived by the mere reference to that document in pleadings.

A fortiori, of course, privilege in respect of materials used in drawing a pleading or an affidavit and not referred to therein, would not lose their privilege because they had been used in that way."

9 In the present case, the second defendant is not seeking rectification of a document and has not referred to a privileged document or privileged advice as a basis for the reliance pleaded in par18 of the defence. Merely to plead reliance upon a particular state of affairs does not expose to scrutiny privileged communications which the relevant party may have had with his or her solicitor concerning the particular transaction or antecedent dealings.

10 The views expressed by Beaumont J in the Full Federal Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (supra) at 635 et seq, support this proposition. There, as here, inspection had been sought of documents in respect of which client legal privilege had been claimed during the interlocutory stage of proceedings. Beaumont J took the view that the application for inspection was premature. He said (at 639):

"In my opinion, [the law] should not, [imply or impute a waiver of privilege] at least not at this stage of the proceedings. Whether, at a later stage, particularly at the trial itself, the circumstances are then such that the law should imply or impute a waiver, is another question, for resolution at that time and in the light of those circumstances.

At this stage, BT has made no use of the legal advice in the proceedings. The advice is not pleaded by BT as an ingredient of its claim. BT does not assert that it relied, or did not rely, on the advice. It is difficult to see how, or why, BT could have pleaded the advice. It could not bear upon the question whether the conduct of the State or Telstra was misleading. It may, depending upon the actual situation, bear upon the question of BT's reliance. Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason, at least as the issues in _Thomaso_n had evolved in the course of the trial.

Cases that have followed Thomason may also be distinguished for our purposes on this ground. For instance, in Benecke v National Australia Bank (1993) 35 NSWLR 110, the plaintiff, in her originating process and in evidence, alleged that prior litigation had been compromised by lawyers contrary to instructions. It was held that the plaintiff had opened up the question of the authority of the lawyers to act as they did and on grounds of 'basic fairness' (at 116), had thereby waived privilege. Again, as in Thomason, the question in _Beneck_e arose at the trial itself.

Another example of the state of mind of the client being central to an issue, where Thomason was applied, is Ampolex v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405. There, the plaintiff claimed rectification of a deed for mistake. Yet in the present case, BT's state of mind is not central to its claims in that sense. Relevantly, the central question in the principal proceeding will be whether the conduct of the State or Telstra was misleading.

In my opinion, nothing has emerged at this stage to demonstrate any unfairness in BT's insistence upon its right to claim privilege. Whether this will change in the light of subsequent events, including the conduct of the trial, will be a matter for decision at that time and in the light of those circumstances. At the present pre-trial stage, the only relevant act or omission of BT is its pleading, which does not mention any legal advice. It should be noted that the Court was not, itself, invited to inspect any of the privileged documents.

In this area, questions of degree, and thus of judgment, are necessarily involved because, as the High Court has emphasised, whether the privilege has been abused, with the consequence that the law imputes a waiver regardless of actual intention, depends upon the particular circumstances. For this reason, it is difficult to generalise and impractical to attempt to articulate any universal rule. It seems unlikely that there could be any absolute rule that, whenever it appears, pre-trial, that a party's state of mind may be relevant to an issue, privilege is lost, even if it also appears that the party may have sought legal advice in that connection at the material time."

"... in the present case, BT did not 'put in issue the very advice received'. Rather, BT claims, relevantly, that the State and Telstra misled it in the negotiation of a commercial transaction. Any legal advice given to BT is not a central feature of BT's claim, notwithstanding that it is conceivable that it might arise as an aspect of the conduct of BT's case at the trial in proving reliance. Whether, and if so, how, the receipt of any such advice might bear upon the issue of reliance on the alleged misleading conduct of the State and Telstra is, I think, too early to judge."

11 His Honour referred to many decisions, including Adelaide Steamship Co Ltd v Spalvins [1998] FCA 144; (1998) 152 ALR 418 in reaching these conclusions. In that case, a differently constituted Full Federal Court observed at 426:

"... it is questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it."

12 In Telstra, Beaumont J dissented from the majority opinion which was delivered by Branson and Lehane JJ. At 647, their Honours said:

"A party who initiates an undue influence case puts in issue in the proceeding the quality of his or her consent or assent (Commercial Bank of Australia Limited v Amadio [1983] HCA 14; (1983) 151 CLR 447 per Deane J at 474). The quality of such consent or assent will ordinarily be affected by relevant legal advice received by the party. The principle that requires that in such circumstances the party not be entitled to maintain the confidentiality of such advice is one of fairness which goes to the integrity of the legal process. To allow a party to put in issue the quality of his or her consent or assent whilst, at the same time, withholding evidence relevant to that issue, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to compromise the ability of the court realistically to determine the issue. There is, in our view, little, if any, difference in principle between the undue influence cases, the partial disclosure cases such as Benecke v National Australia Bank, and the 'other use' cases such as Attorney-General for The Northern Territory v Maurice and Goldberg v Ng. In the three classes of cases the law implies a consent to the use of the privileged material, or, what is in reality the same thing, a waiver of the privilege, if by reason of some conduct of the party otherwise entitled to the privilege, 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.

The legal professional privilege cases are, in our view, to be analysed in the same way. The quality of any particular legal advice, and the extent, if any, to which it was causative of loss and damage, can only properly be assessed once it is placed in the context of the totality of legal advice received by the client. The client, by bringing the proceeding, is taken to have consented to the use of the privileged material, or to have waived reliance on the privilege which would otherwise attach to such material. Reliance on the privileged nature of the material would, in the circumstances, be unjust and would inhibit the proper functioning of the legal process.

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."

"Where, however, a party relies on a cause of action, an element of which is the party's state of mind (including the quality of the party's assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind."

13 Notwithstanding that this majority opinion was unanimously followed by Ryan, Carr and Marshall JJ in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, I am not persuaded that the principles embraced are correct. In Equuscorp, the judge at first instance (who was not identified in the version of the report available to me) declined to adopt the opinion of the majority in Telstra, preferring instead the approach of Beaumont J. He said:

"The bare fact of asserting reliance does not expressly or impliedly assert that the plaintiff relied, or did not rely, on some privileged communication. As Beaumont J points out, it is not possible to predict the course a trial may take. A privileged communication may be subsequently referred to in a way that makes its continued protection unfair. But, at the moment, I have to consider the issue at an interlocutory stage. It is true that legal advice could be relevant in determining whether a plaintiff in fact relied on the misrepresentations complained of. But the whole point of legal professional privilege is that, for public policy reasons, material is excluded which might be relevant, indeed highly relevant. No balancing exercise is involved. If legal professional privilege applies, privilege trumps relevance."

14 The Full Court, in upholding the appeal, did not resort to principles of stare decisis but chose to follow Branson and Lehane JJ on the basis that their views were correct. However, they also pointed out that in the case before them there had been more than "a mere pleading of reliance". They said:

"There is the added ingredient of evidence that legal advice was sought and obtained at a relevantly material time. There is also the plea of rectification."

15 With all respect to the considerable weight of opinion to the contrary in the Federal Court judgments referred to, I remain unpersuaded that Beaumont J's approach was wrong. Indeed, I think it was correct and should be followed. In reaching this conclusion, I have been mindful of the issues of comity and constraint to which I referred in Carrick v J [1989] Tas R 24 at 35 - 36. As a consequence therefore, I am of opinion that the order for inspection made by the Master should not have been made at this stage of the proceedings and that the appeal against the orders which he made should be allowed.

16 Therefore, the Master's order of 17 October 1999 will be set aside and the plaintiff's interlocutory application of 15 September 1999 will be dismissed. The plaintiff will pay the second defendant's costs of the application and of this appeal in any event. I certify for counsel.