In this matter the plaintiff company sues its former solicitors in negligence over their carriage of a large conveyancing transaction on its behalf. The property is a complex of 15 apartments at Parramatta which the plaintiff was purchasing. Without delving too much into all the circumstances which are not really pertinent for the purpose of this judgment, the apartment block at the time of exchange of contracts in April 2021 was about two years old. It had a commercial advantage which appealed to the shareholders and directors of the plaintiff, who are all related, in that it had a single corporate tenant, related to a Singaporean company, who held a lease over the whole building. Each of the 15 separate apartments were let mainly on a short-term residential basis as serviced apartments. After exchange and before settlement, that tenant went into liquidation and the liquidator disclaimed the lease. There were apparently strict provisions in the contract which covered that eventuality the plaintiff says were, I make no decision one way or the other, to the plaintiff's commercial disadvantage.
The plaintiff completed the transaction with vacant possession. It was then actively seeking to re-let the individual apartments as residential tenancies. I understand that evidence will be led at the hearing that there were no new tenancies in place on completion of the contract for sale.
The plaintiff has sued claiming several heads of damage. Principally, there is a claimed loss of value of the property in as much as it is said to be worth considerably less in the present situation of the apartments being individually let on a residential tenancy basis, rather than having more secure income from a head tenant who sublet the individual apartments at arm's length from the plaintiff on whatever basis was commodious to the head tenant.
It is also said that the absence of any tenants at settlement gave rise to a very substantial GST liability of which the plaintiff says it had not been advised and would not have accrued had the condition of the property, in terms of the leasing, remained the same on completion as it had been on exchange.
There are other heads of damage asserted, including, I think, the possibility of an over-payment of stamp duty.
Heads of discovery were agreed between the parties and there has been very substantial compliance by the plaintiff, including the apparent waiver of certain documents which might otherwise have been the subject of either legal advice privilege under s 118 of the Evidence Act 1995 (NSW) or litigation privilege under s 119. There are nine documents or categories of document in dispute over which the plaintiff claims either advice privilege or litigation privilege.
Earlier today, I ruled that I would look at the bundle of documents which had been marked "MFI 1" for the purpose of ruling on the claims for privilege. That was in the context of the defendant's argument that the material propounded by the plaintiff to make good the privilege claims was insufficient and that I should simply rule that the privilege claimed had not been made good by the evidence. I ruled against the defendant in relation to that argument for reasons separately given.
I have since undertaken the inspection of MFI 1. I have also an affidavit of the plaintiff's solicitor, Alison Michael Eid, sworn on 26 April 2024 which annexes a schedule of the documents in dispute. That was filed in court today and I endorsed it as such. Mr Rogers of counsel, who appears for the plaintiff, has helpfully given me particulars of which documents apply to which head of claim and I have endorsed that information on the original affidavit, which I will cause to be marked "MFI 2".
Without any disrespect to the very careful argument of both Mr Rogers and Mr May of counsel for the defendant, I propose to deal with my rulings in relation to privilege in a fairly summary fashion. I have had the benefit of looking at the documents in chambers over the luncheon adjournment, but, necessarily, my views are somewhat impressionistic.
I have not lost sight of the fact that even if privilege were to attach to these documents because the conditions set out in the Evidence Act have been satisfied, the defendant argues in each case there are categories of waiver which apply to the documents and that they should be required to be produced by way of discovery. I will deal with those issues as I go.
Earlier today Mr May handed up a helpful summary of his argument and also took me through relevant authorities in this context. In particular, so far as waiver is concerned, Mr May referred to me Artistic Builders Pty Ltd v Nash [2009] NSWSC 102 (Hoeben J, as his Honour then was) and ACCC v Prysmian Cavi E Sistemi Energia SRL (No 10) (2015) 235 FCR 593; [2015] FCA 763 (Besanko J). Meaning no disrespect to the argument of either counsel, I do not propose to go through those decisions in detail. So far as the Artistic Builders case is concerned, Mr May relied in particular to [56] to [63]; in the Prysmian case he relied in particular upon Besanko J's analysis from [13] to [15]. I have read and had regard to those cases.
He also referred me to what might be referred to as a more general principle applying when a client sues its former solicitors for professional negligence involving an implied waiver, and in this regard Mr May relied upon Artistic Builders, but also upon the English case referred to by Hoeben J of Lillicrap v Nalder & Son [1993] 1 All ER 724. I have had regard to those principles, and I will not refer to them other than in general terms.
I propose now to go through the categories of document contained in "MFI 1". "MFI 1" consists of 32 pages. Category 1 documents relate to emails passing between a director of the plaintiff, who as it happens is a solicitor, and a director of the incorporated legal practice which is the defendant, Mr Darian Iacono.
The plaintiff relies upon s 118 of the Evidence Act. The elements of that privilege are not particularly complex. A document or other evidence is privileged if adducing the evidence would result in disclosure of a confidential communication between the client and the lawyer, inter alia, for the dominant purpose of the lawyer providing legal advice to the client.
My own consideration of pp 1-2, which is category 1, is that, the substance of it is the provision to the lawyer of an email passing between two of the directors, Mr Kremnizer and Mr Shuvalov, setting out the views of one of them as to what action should be taken in relation to the uncompleted contract of sale, having regard to the difficulties to which I have referred in general terms and to the consideration that the time for completion had passed and the vendor had not observed its obligations under the contract.
While communications passing between the directors of a company may in some circumstances be covered by legal professional privilege, it seems to me that, in the present circumstance, one director was setting out his thinking about what commercial action they should take for the consideration of his co-director and to seek his view. The only communication with the lawyer was sending the email to which I have referred, "FYI", which everyone would understand as being "for your information". There is nothing about that communication which, while it may be confidential, in any way suggests it was made for the dominant purpose of the lawyer providing advice about the proposed course of action, the director's thinking or otherwise. I rule in respect of category 1 that legal professional privilege does not attach.
There are a number of emails passing between one or other directors of the company and another solicitor, a Mr Mark Webeck of HWL Ebsworth. Indeed, categories 2, 3, 4, 5 and 9 are in this category.
From the material contained within "MFI 1", it is apparent that as early as 3 June 2021, Mr Webeck had been consulted by the directors, not in relation to obtaining a second opinion about what to do in relation to the completion of the contract for sale, but for separate legal advice about whether the company may have had a cause of action in professional negligence against the defendants. Mr Rogers told me from the bar table in response to a question of mine, that Mr Webeck had initially acted for the plaintiff before instructions were handed over to Mrs Eid.
It seems to me that category 9 at pp 29-32 is the logical, or at least chronological, starting point. Although it is an email thread, it is clear that the starting point is in fact an email from Mr Webeck of 3 June 2021 in which he acknowledges what is sometimes euphemistically referred to as "proper instructions", that is to say the funds were en route. He arranged a time to meet the directors to take further instructions. It is clear from the context that there had been previous oral communications between Mr Kremnizer and Mr Webeck; and although there is nothing much about that particular email itself that might be privileged, an email from Mr Kremnizer on 4 June 2021 sets out his understanding of the position which Mr Webeck acknowledges in an anodyne fashion.
It does seem to me that document 9 is covered by either s 118 or perhaps s 119, in as much as I infer from the content and context of the emails that proceedings against the defendant were anticipated at least as a real possibility at that time. So far as that particular communication is concerned, it does not seem to me that it has been waived on any of the bases that have been contended for by the defendant. I may say that there is a natural question in the mind of the intelligent lawyer whether a second opinion about what should be done about the contract for sale was being sought, but there is nothing in my reading of the documents to suggest that that was any part of the purpose of engaging Mr Webeck, and I am not satisfied that privilege has been waived in respect of document 9.
I will then return to document 2. Document 2 consists of pp 3-4 of "MFI 1". The content is Mr Kremnizer on 25 August 2021 simply passing a document on to Mr Webeck that he had received from Mr Iacono on 24 May 2021, being a letter from the vendor's solicitors. I apprehend from other evidence that that letter of 24 May 2021 is the letter from the vendor's solicitor advising that the head tenant had gone into liquidation. That letter has, no doubt, been disclosed elsewhere. There is no copy of it in "MFI 1" and Mr Kremnizer seems to have been passing it on to Mr Webeck for some purpose, but it seems to me that there is no request, express or implied, in document 2 for legal advice, although it may be the provision of evidence from a third party in relation to anticipated litigation. I am not satisfied that either s 118 or s 119 have been satisfied because I am not satisfied that the statutory purpose was the dominant purpose of that communication.
Category 3, or document 3, is an email between Mr Kremnizer and Mr Webeck of 14 November 2022. It is a confidential communication providing instructions in relation to a development in the commercial position of the plaintiff which occurred around that time. Other topics pertinent to the then pending litigation and its disposition are referred to and I am satisfied that it is privileged under s 119 of the Evidence Act.
So far as waiver is concerned, while it possibly falls into categories 3 to 6 of the agreed categories of discovery relating to the head of damage referable to the GST payment, the gravamen of the email is the provision of instructions in relation to the possible settlement of the litigation, and I am not satisfied that there is any waiver in respect of that communication and I uphold the claim for privilege in respect of category 3.
Document 4, which consists of pp 7-10 of "MFI 1". It is an email from Mr Webeck to the directors of 2 December 2022 and an email from the director, Mr Kremnizer, forwarding an email received from the tax lawyer who was advising in relation to the GST liability. The email from Mr Webeck, again, is entirely anodyne, simply updating on developments in the litigation, but not disclosing any confidential communication. The email from the director, again, deals with a potentially new head of damage and settlement issues.
I am of the view that that email is covered by s 119 in that it is a confidential communication passing between a client and a lawyer for the dominant purpose of the client being provided with legal advice or professional legal services in relation to pending proceedings. However, for reasons which I will come to in a moment, I am not satisfied that the copy of the email of advice from Mr Greg Vale, the tax lawyer, is covered by the same privilege.
As I will make clear in a moment, obviously Mr Vale was giving legal advice and, at very least, s 118 would have been engaged, however, given the claims made in relation to the GST, I am, as I discussed with Mr Rogers of counsel, of the view that, first, the principles discussed by Besanko J in the Prysmian case apply, in as much as there has been some disclosure by way of discovery of Mr Vale's opinions, and I accept Mr May's argument about that.
Secondly, I am of the view, as Mr Rogers accepted must be correct, that to make good the head of damage in respect of the GST, it is inevitable that the plaintiff will have to tender Mr Vale's advices to demonstrate the reasonableness of its conduct in relation to that matter as between it and the defendant for the purpose of the assessment of damages in accordance with the principles discussed in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] 193 CLR 603; [1998] HCA38.
For those reasons I am of the view that subject to redaction of the email from Mr Kremnizer to Mr Webeck, a copy of Mr Vale's email and also Mr Webeck's email on page 9 of "MFI 1" ought to be disclosed.
We come now to category 5, which is an email from Mr Shuvalov to Mr Webeck of 31 January 2023. That consists of pp 11-12 of "MFI 1". The gravamen of the email provides Mr Webeck with a copy of the submissions made by the plaintiff to the Australian Taxation Office for an application to waive penalty interest on late payment of the GST. The general interest charge is also the subject of a head of claim, and that the plaintiff sought to have it waived is obviously relevant to its claim in damages, if only to show attempts at mitigation of loss.
It seems to me that while the communication would otherwise be privileged under s 119 of the Evidence Act, it is covered by the form of waiver discussed by Besanko J in Prysmian. And, having regard to the inevitability that the document itself will be tendered under the Unity Insurance Brokers principle, I am satisfied that privilege has been waived in respect of document 5.
Document 6, pp 13-18 of "MFI 1", document 7 pp 19-22 of "MFI 1", and document 8 pp 23-28 of "MFI 1" all concern correspondence passing between the plaintiff's accountant, Mr Francesco Girotto and Mr Vale on the one hand, and Mr Girotto to the plaintiff on the other, conveying Mr Vale's opinions. I repeat that some documents of this character have already been disclosed.
I am satisfied that each of those documents would otherwise be covered by s 118 of the Evidence Act. There is no issue, as Mr May confirmed with me, that Mr Girotto is an agent of the plaintiff and is therefore a party as defined in s 117 of the Evidence Act for the purposes of ss 118 and 119 and, in that circumstance, privilege would, as I have said, otherwise attach. However, for the reasons I have already rehearsed in relation to Mr Vale's earlier material, I am satisfied that there has been waiver in the Prysmian sense and also, again, Unity Insurance Brokers applies to make it inevitable that that material will need to be tendered by the plaintiff in its case on damages. I am of the view that the privilege which would otherwise attach has been waived for those reasons.
For clarity, the rulings I have just made cover each of categories 6, 7 and 8 of the schedule to "MFI 2".
For these reasons, I direct the plaintiff to produce pages 1-2, 3-4, 9 (subject to redaction of the email from Mr Kremnizer to Mr Webeck), 11-12, 13-18, 19-22 and 23-28 of "MFI 1".
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 03 May 2024