Schulman v Abbott Tout Lawyers

Federal Court of Australia|2010-03-31|Before: Mr J, Rares J, Flick J

REASONS FOR JUDGMENT 1 In the present proceeding the Applicants have apparently filed an Amended Application and a Further Amended Statement of Claim. There was some uncertainty as to whether leave had or had not been granted to file these amended pleadings - but, for present purposes, it was accepted that leave had or would be given. In any event, damages are claimed pursuant to the Trade Practices Act 1974 (Cth) or the Fair Trading Act 1987 (NSW). In issue is advice said to have been given by the Respondent firm of solicitors and relied upon by the Applicants. 2 The substantive proceeding is listed for hearing before His Honour Justice Rares. 3 At the same time as the Respondent firm of solicitors was providing advice to the Applicants, separate legal advice was also being received by the Applicants from Levitt Robinson, Solicitors ("Levitt Robinson"), being the Applicants' current solicitors on the record. 4 Discovery has been ordered and a subpoena has been served at the instance of the Respondent upon Levitt Robinson. Notwithstanding the absence of any Notice of Motion expressly seeking an order that privileged documents be produced to the Respondent for inspection, it was common ground that the issue now to be resolved is a claim for legal professional privilege. 5 Privilege is claimed in respect to documents recording that separate legal advice. 6 The Respondent accepts that those documents do in fact attract legal professional privilege. But it maintains that privilege has been waived by reason of the Applicants having acted inconsistently with maintaining the confidentiality of the advice received. That inconsistency is said to arise by reason of: · the pleading set forth in the Further Amended Statement of Claim; and/or · the limited facts now before the Court.

Waiver of Privilege - Inconsistency: The Starting Point 7 It was common ground between the parties that legal professional privilege may be lost if a party claiming the privilege acts inconsistently with maintaining the confidentiality of the advice received. 8 The starting point for any debate, at least in Australia, is now the decision in Mann v Carnell [1999] HCA 66,201 CLR 1. Gleeson CJ, Gaudron, Gummow and Callinan JJ expressed the relevant principle as follows: Waiver of privilege at common law [28] 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. 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. 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, 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. Their Honours continued: [29] 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. … 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. 9 The fundamental importance of identifying some inconsistency on the part of a client in continuing to maintain the confidentiality of legal advice, as opposed to some more broadly based notion of fairness, is even more apparent when it is recalled that legal professional privilege is a matter of substantive law: DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384, 127 FCR 499. Allsop J (as His Honour then was) there stated: [24] It should be noted … that legal professional privilege in Australia is not a mere matter of evidence; it is a rule of substantive law and an important, indeed fundamental, common law right or immunity: … This is important to recognise in appreciating the operation of inconsistency, as opposed to some more broad ranging notion of fairness informed, perhaps, by the balancing of competing interests in the administration of justice. The confidentiality is in the nature of an entitlement or a right to keep the communications immune from disclosure; it is acting inconsistently with it that destroys that fundamental entitlement: … 10 In the more confined context of proceedings brought by a client against a former solicitor, the same test of "inconsistency" applies. And the mere fact that legal advice may be relevant to an issue in proceedings does not necessarily give rise to any "inconsistency": cf. Seven Network Ltd v News Ltd (No 10) [2005] FCA 1721, 227 ALR 704. Albeit addressing s 122 of the Evidence Act 1995 (Cth), His Honour Justice Sackville there referred to Telstra Corporation Ltd and Another v BT Australasia Ltd and Another (1998) 85 FCR 152 and continued to summarise the law as follows: [44] The current position concerning s 122 of the Evidence Act, as I see it, is as follows: (i) Telstra v BT holds that s 122 of the Evidence Act is to be read as incorporating common law principles of waiver. I am bound by that holding. (ii) The majority in Telstra v BT interpreted the scope of common law waiver by reference to the guiding principle of fairness. That interpretation has now been overtaken by the authoritative statement of principle in Mann v Carnell at [29]. That is, what brings about waiver of privilege of common law is the inconsistency which courts, where necessary informed by considerations of fairness, perceive between the conduct of the client and the maintenance of confidentiality, not some overriding principle of fairness. (iii) It follows that, despite what was said in Telstra v BT (at 166-167), the fact that the client pleads reliance on a representation does not necessarily result in the waiver of privilege in any legal advice that may be relevant to ascertaining the party's state of mind. To put the matter another way, the mere fact that legal advice may be material to an issue in the proceedings, even one raised by the client, does not establish that the conduct of the client is inconsistent with maintaining confidentiality in the privileged communications. His Honour continued: [48] It follows that, on this approach, the waiver of legal professional privilege on the grounds of implied consent will involve questions of degree. As Optus said in their submissions in reply, the court will have to take a number of factors into account. These include: ▪ the centrality (or otherwise) to the proceedings of the issue to which the privileged communications are said to relate; ▪ if the issue involves a state of mind or belief, the likelihood that legal advice played a significant part in the foundation of that state of mind or belief; and ▪ whether there is any apparent inconsistency between the position taken by the party claiming privilege (whether at the trial or earlier) and the likely contents of the privileged communications. 11 Reference may also be made to the following like observation of Hodgson JA in Council of the New South Wales Bar Association v Archer [2008] NSWCA 164, 72 NSWLR 236: [48] … 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.

Inconsistency - The Pleadings? 12 The primary way in which it was claimed that the Applicants had acted inconsistently with maintaining the privilege otherwise attaching to the documents in issue was the manner in which they had pleaded their claims to relief. 13 In particular, reliance was placed upon paragraphs [33A], [33I] and [40] of the Further Amended Statement of Claim. 14 Those paragraphs provide as follows: 33A Prior to the due diligence response being sent Mr Varejes on behalf of the Respondents made an express representation to Mr Silber that paragraph 11(c) of the due diligence response was concerned only with material matters and that the threatened litigation was not material (Paragraph 11(c) Representation). Particulars The Paragraph 11(c) Representation was oral and was made to Mr Silber by Mr Varejes on the telephone in June 2004. … 33I In the premises, by the making of the Paragraph 11(c) Representation and/or, the Express Representations or either of them and/or the Implied Representation, the Respondents engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 52 and/or s 42 of the FTA (Contravening Conduct); … 40 By reason of the Contravening Conduct and to preserve the sale of the share in STO to Sydney Aquarium, the Applicants, advised by the Respondent, including by telephone, facsimile and email, involving communications principally with Zalman Silber and Aaron Silber and also with the First Applicant, settled the claims of the Minority Shareholders in Sydney Skytour on terms which were grossly detrimental to the Applicants (Minority Shareholders' Settlement). Particulars a. Of the sale price of the share of $9 million (subject to an $850,000.00 retention), the Applicants agreed to pay to the Minority Shareholders, $3,604,622.98 (or 44% of the net available sale proceeds); b. The Applicants agreed to pay to the Minority Shareholders 12% of other payments which might become payable to the Applicants under the Share Sale Deed but did not acquire adequate recourse or redress against the Minority Shareholders in the event of a deduction or set-off from the purchase price or claim for capital contribution, becoming payable by the First Applicant to Sydney Aquarium, under the Share Sale Deed. Messrs Zalman and Aaron Silber were stated to be the Applicants' "alternate agents" for the purposes of dealing with the Respondent firm. Mr Varejes was a partner of that firm. 15 The primary submission advanced on behalf of Senior Counsel for the Respondent in support of a contention that the Applicants in the proceeding had acted inconsistently with maintaining privilege by reason of their pleading was that these three paragraphs of the pleading had placed in issue their "state of mind". 16 Particular reliance was placed upon the decision of the Full Court in Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86, 151 FCR 341. Kenny, Stone and Edmonds JJ there referred to the earlier decision of the Full Court in Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 and continued as follows: [54] Although the Full Court was necessarily guided by the authorities prior to Mann, there is little, if anything, in the passage quoted above that would require modification to take account of Mann. It is plain enough that the majority in Mann also saw the "issue waiver" cases as a species of waiver, to which the same basic principle applied. Their Honours' analysis in Spalvins emphasises, as does the majority in Mann, that waiver comes about because the privilege holder's conduct is inconsistent with the continued confidentiality of the communication because he or she has put in issue the character or contents of the communication in pursuing a right or claim, or has created a situation where another party must reasonably do so by way of a defence. Their Honours further observed: [61] Both before and after Mann, the governing principle required a fact-based inquiry as to whether, in effect, the privilege holder had directly or indirectly put the contents of an otherwise privileged communication in issue in litigation, either in making a claim or by way of defence. In DSE at [58], Allsop J put the matter somewhat more descriptively, saying waiver arises when: the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication. (Emphasis in original.) 17 It was contended by Senior Counsel for the Respondent that the pleading was such that the Applicants had "put in issue the character or contents" of the advice they had received and that by doing so they had thereby laid "open the confidential communication to scrutiny". "Forensic unfairness" would follow, it was said, if privilege was maintained. 18 The "forensic" course sought to be plotted by the Respondent firm of solicitors was obvious enough. If an issue was raised at trial as to the reliance said to have been placed by the Applicants upon the legal advice provided by the Respondent, cross-examination would likely be pursued as to the extent to which separate advice had been received on the same issue and the extent to which that separate advice may have influenced the Applicants' decision-making. This would be by no means the only relevance or potential relevance served by making the advice provided by other solicitors available for "scrutiny". The "forensic unfairness" in depriving the Respondent firm of solicitors of the very documents relevant to that forensic course may (for present purposes) be accepted. 19 But the difficulty confronting the submission of inconsistency sought to be advanced by the Respondent is that the Applicants in their Further Amended Statement of Claim have not expressly referred to or made any statement inconsistent with maintaining the privilege otherwise attaching to their separate advice. Indeed, it would perhaps be surprising had they done so. There is no statement in the Further Amended Statement of Claim which expressly or impliedly refers to the obtaining of legal advice - other than that provided by the Respondent firm of solicitors. 20 Nor, is it respectfully considered, have they impliedly acted in a manner inconsistent with maintaining that privilege. 21 The allegation in paragraph [40] that "[b]y reason of the Contravening Conduct" and the allegation that "the Applicants, advised by the Respondent …" is not a sufficient basis for any conclusion that the Applicants have acted inconsistently with maintaining their privilege in respect to the separate legal advice they received. Even if it is assumed that that separate legal advice was in respect to the same issue, it is not considered that any confidentiality in the advice has been waived. 22 The decision of the Court of Appeal in Paragon Finance Plc. v Freshfields [1999] 1 WLR 1183 ("Paragon Finance") was contended on behalf of Senior Counsel for the Respondent as an English decision and thereby having little relevance when determining the law in Australia as to waiver post Mann v Carnell, supra. This contention would seem to have much in common with the submission advanced - but rejected - before Hoeben J in Artistic Builders Pty Ltd v Nash [2009] NSWSC 102 at [61]. It is considered that Paragon Finance isa decision which provides some assistance. 23 The plaintiff in Paragon Finance sued its former solicitors (Freshfields), and those solicitors sought access to the legal advice provided by the plaintiff's current solicitors (Slaughter & May). It was "common ground" that the documents recording the advice were "relevant to issues in these proceedings": [1999] 1 WLR at 1187. The trial judge had ordered disclosure of the Slaughter & May advice. The appeal was allowed. In bringing the proceeding against Freshfields, the plaintiff had thereby exposed to scrutiny the advice given by that firm. In delivering the judgment of the Court, Lord Bingham thus observed at 1188: When a client sues a solicitor who has formerly acted for him, complaining that the solicitor has acted negligently, he invites the court to adjudicate on questions directly arising from the confidential relationship which formerly subsisted between them. Since court proceedings are public, the client brings that formerly confidential relationship into the public domain. He thereby waives any right to claim the protection of legal professional privilege in relation to any communication between them so far as necessary for the just determination of his claim; or, putting the same proposition in different terms, he releases the solicitor to that extent from the obligation of confidence by which he was formerly bound. This is an implication of law, the rationale of which is plain. A party cannot deliberately subject a relationship to public scrutiny and at the same time seek to preserve its confidentiality. He cannot pick and choose, disclosing such incidents of the relationship as strengthen his claim for damages and concealing from forensic scrutiny such incidents as weaken it. He cannot attack his former solicitor and deny the solicitor the use of materials relevant to his defence. But, since the implied waiver applies to communications between client and solicitor, it will cover no communication to which the solicitor was not privy and so will disclose to the solicitor nothing of which he is not already aware. But by bringing that proceeding the plaintiff had not thereby exposed to scrutiny the advice provided by Slaughter & May. Lord Bingham explained the different result at 1188 to 1189 as follows: Thus, on the present facts, by bringing these proceedings the plaintiffs impliedly waived any claim to legal professional privilege in relation to confidential communications between them and Freshfields concerning the transactions briefly described above, up to the moment when Freshfields ceased to act. That is not in issue. The question is whether the plaintiffs have also impliedly waived any claim to legal professional privilege in relation to confidential communications between them and Slaughter & May relating to the pursuit and settlement of claims arising from those transactions. Approaching this question as one of pure principle, we conclude that they have not. The plaintiffs have not sued Slaughter & May. They have not invited the court to adjudicate on any question arising from their confidential relationship with Slaughter and May, and so have not brought that confidential relationship into the public domain. They have done nothing to release Slaughter & May from the obligation of confidence by which they are bound. They have chosen to subject their relationship with Freshfields to public scrutiny, but not their relationship with Slaughter & May. They are not seeking to pick and choose among the confidential communications passing between themselves and Slaughter & May: none of them is (so far) in the forensic arena. It is open to Freshfields, by way of defence, to rely on any communication passing between themselves and the plaintiffs; to hold that the plaintiffs have impliedly waived privilege in relation to confidential communications between themselves and Slaughter & May would be, not to enable Freshfields to rely on communications of which they are already aware, but to disclose to them communications of which they now have no knowledge. We consider that the plaintiffs are correct in submitting that the judge's conclusion is inconsistent with the principles which govern implied waiver of legal professional privilege. It was in this context of illustrating conduct that may amount to a former client acting inconsistently with maintaining the confidentiality of the advice provided by a former solicitor that Allsop J in DSE (Holdings) cited Paragon Finance with approval. His Honour, with respect, was clearly correct in doing so. The decision in Paragon Finance, it is also respectfully considered, is also clearly correct. 24 In bringing the present proceedings against the Respondent firm of solicitors, the Applicants have exposed to scrutiny the advice provided by that firm; but by commencing the present proceeding and in pleading it the way they have, the Applicants have not exposed to scrutiny the advice provided by their current legal advisers.

Inconsistency - The Facts? 25 An alternative submission advanced on behalf of Senior Counsel for the Respondentwas that the maintenance of a claim for privilege had been waived by reason of even the limited factual material now before the Court. 26 That factual material was said to be found in: · the terms of the Further Amended Statement of Claim; · the terms of the subpoena that had been served; · the description of the documents provided by the Applicants in respect to the documents over which privilege is claimed; and · the "contemporaneous" dates of those documents and the time span over which the representations relied upon by the Applicants are said to have been made. 27 The subpoena as served on Levitt Robinson required the production of documents, relevantly including documents "being or recording …": (e) the sale by Sydney Tower Observatory Pty Limited (STO) of its shares or assets to Sydney Aquarium Limited, in about July 2004; (f) demands and/or actions commenced by shareholders of Sydney Skytour including those demands or actions referred to in a letter from Arnold Bloch Leibler dated 7 May 2004 to the directors of Sydney Skytour on behalf of Cibalis Pty Limited or in respect of minority shareholder litigation commenced in the Supreme Court of New South Wales being Cibalis v Sydney Skytour or Sydney Skytour v STO, including advice in respect of the settlement of the such demands or actions which occurred on about 8 July 2004; … 28 The List of Documents provided by the Applicants in respect to the discovery that had been ordered by Rares J described the documents over which privilege was claimed as follows: 1. Briefs to and correspondence with Counsel, memoranda to and from Counsel, draft pleadings and other documents drafted by Counsel, notes of verbal communications with Counsel and Counsel's notes. 2. Professional communications of a confidential nature made between the Respondents and their solicitors and Counsel for the purposes of obtaining or giving legal advice or assistance. 3. Statements of the officers of the Respondents and other prospective witnesses, photographs, diagrams and other documents created for the sole or dominant purpose of seeking legal advice. A further and more detailed identification of those documents was subsequently provided in paragraph [7] of an Affidavit of a solicitor seeking to maintain the privilege, Mr Brett Imlay, sworn on 25 March 2010. The documents were there described as follows: A. File note dated 30 March 2004 of conference between Stewart Levitt of Levitt Robinson solicitors and Zalman Silber. B. Letter dated 2 April 2004 from Levitt Robinson to Mr Paul Sexton, Sydney Skytour Limited. C. Complete copy of the Brief to Advise to Mr Tom Bathurst QC dated 20 April 2004 together with file copy of the observations. D. File note dated 7 May 2004 of telephone conversation between Stewart Levitt and Zalman and Aaron Silber. E. Signed copy of a letter of 10 May 2004 from Levitt Robinson to Zalman and Aaron Silber (plus a file copy of that letter) together with e-mail of 11 May 2004 from Stewart Levitt to Zalman Silber sending that letter. F. Facsimile sent 10 May 2004 to Stewart Levitt from Zalman Silber attaching copy of letter of 7 May 2004 from Arnold Bloch Leibler to Zalman Silber & Ors. (a copy of the letter of 7 May has already been discovered by the applicants and made available for inspection). G. File note dated 11 May 2004 of conference between Stewart Levitt and Zalman Silber. H. Signed copy of the 11 May 2004 letter from Levitt Robinson to Mr Bathurst Q.C (plus a file copy of that letter). I. Signed copy of the 12 May letter from Levitt Robinson to Zalman and Aaron Silber (plus a file copy of that letter) together with tax invoices dated 30 April 2004 and 12 May 2004 from Levitt Robinson to Zalman Silber, Sydney Skytour Pty Ltd and an email of 12 May 2004 to Zalman Silber from Stewart Levitt sending that letter and enclosures. J. Letter dated 10 June 2004 from Levitt Robinson to Zalman Silber enclosing tax invoice. K. File note dated 8 July 2004 of telephone conference between Stewart Levitt and Fred Schulman. L File note dated 8 July 2004 of telephone conference between Stewart Levitt and Zalman Silber. M. Tax invoice dated 19 July 2004 from Levitt Robinson to Zalman Silber, Sydney Skytour Ltd. N. Signed copy of letter dated 20 July 2004 from Levitt Robinson to Mr Schulman and Mr Neil Belloff (plus a file copy of that letter). No submission was advanced that any different consideration applied to any one or other of these documents. 29 But there is considered to be nothing in this description of documents or the conduct of the Applicants inconsistent with the maintenance of their claim for privilege. 30 The description of the documents provided in Mr Imlay's Affidavit to identify the documents over which privilege was claimed does nothing other than identify the documents otherwise falling within paragraphs (e) and (f) of the subpoena. No distinction, it should be noted, was sought to be made between the identification of those documents in response to the order for discovery as opposed to those the subject of the subpoena. 31 It is concluded that the description of the documents now in issuedoes not amount to any conduct inconsistent with maintaining privilege. In order to properly identify the documents over which privilege is claimed, those documents needed to be described and the grounds of privilege claimed sufficiently stated. In doing so, the Applicants have not done anything other than to comply with the obligations imposed by O 15 r 6 of the Federal Court Rules.

Inspection of the Documents in issue - Order 15 Rule 14 32 Although maintaining that no inconsistency arose, either on the pleadings or by reference to the limited factual material now available to the Court, the documents over which privilege was claimed were nevertheless made available to the Court by Counsel on behalf of the Applicant. Inspection was invited for the purpose of (inter alia) putting in issue the assumption that the separate advice that had been obtained was the same as the legal advice said to have been relied upon by the Applicants in the present proceeding. If that assumption was rejected, any potential "unfairness" to those seeking access to the documents would be correspondingly reduced. 33 Order 15 rules 13 and 14 of the Federal Court Rules provide that the Court may call for documents in respect to which privilege is claimed and may itself examine those documents. Those two rules provide as follows: 13 Production to the Court (1) The Court may, at any stage of any proceeding, order any party to produce to the Court any document in his possession, custody or power relating to any matter in question in the proceeding. (2) Upon production of a document to the Court pursuant to an order under subrule (1), the Court may deal with the document in such manner as the Court thinks fit. 14 Inspection to decide objection Where an application is made for an order under rule 11 for the production of any document for inspection by another party or for an order under rule 13 for the production of any document to the Court and a claim is made that the document is privileged from production or an objection to production is made on any other ground, the Court may inspect the document for the purpose of deciding the validity of the claim or objection. 34 Although these Rules confer a discretionary power upon the Court to itself inspect documents, that power has not been invoked in the present application. In some circumstances it may be either necessary or otherwise desirable to inspect documents to resolve a claim for privilege, especially where the Judge resolving the claim is not the Judge entrusted with the resolution of the substantive proceeding. 35 But the present submissions have been capable of resolution without invoking that power. The documents over which privilege has been claimed, it should be noted, had been briefly looked at prior to the hearing of the present submissions - but not in sufficient detail to resolve the contentions now being advanced.

Conclusions 36 The claim for privilege is upheld. There has been no conduct, either by reference to the pleadings or by reference to the limited facts now available to the Court, that is inconsistent with maintaining that privilege. 37 Any further submission that may be made as to the Applicants (for some different reason) acting during the course of the substantive proceeding in a manner inconsistent with their present maintenance of privilege will be resolved in such manner as Rares J considers appropriate. It may then be necessary to inspect each document in issue with greater care than has presently been considered either appropriate or necessary.

ORDERS 38 The Orders of the Court are: 1. The claim for privilege in respect to those documents identified in paragraph [7] to the affidavit of Mr Brett Imlay sworn on 25 March 2010 is upheld. 2. The costs of and incidental to the maintenance of the claim for privilege are to be the Applicants' costs in the proceeding. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.

Trade Practices Act 1974(Cth)

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