Temwell Pty Ltd v DKGR Holdings Pty Ltd

RULING ON CLAIM OF LEGAL PROFESSIONAL PRIVILEGE IN RELATION TO FILE NOTES OF COMMUNICATIONS WITH EXPERT WITNESSES AND DRAFT REPORTS OF EXPERT WITNESSES 1 It has been revealed in the course of cross-examination of Mr Pringle, a solicitor for the applicant ("Temwell"), that he has made file notes of some 22 communications with Ms June Wilson and a further 45 communications with Mr Peter Rayner. Each of Ms Wilson and Mr Rayner is an accountant with expertise in the valuation of shares in, and assets, including intangible assets, of companies engaged in the development of computer technology. The admissibility of their evidence has been the subject of an earlier ruling in this matter; see [2003] FCA 806. 2 An issue has now arisen as to whether Temwell is entitled to rely on legal professional privilege to preclude the legal advisers to the mCom respondents from having access to those file notes. A similar issue has been raised in relation to draft versions of he reports of Ms Wilson and Mr Rayner and a letter dated 16 June 2003 to Ms Wilson enclosing a draft report by Mr Rayner also dated 16 June 2003. 3 In supporting the claim of privilege, Mr Golvan SC who appears with Dr Ricketson of Counsel for Temwell referred first to Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 192 ALR 561. In that case it was observed in the joint judgment of Gleeson CJ, Gaudron, Gummow and Hain JJ at 564; '[9] It is now settled that legal professional privilege is a rule of substantive law [Attorney-General (NT) v Maurice (1986) 161 CLR 475; at 490; 69 ALR 31; at 41 per Deane J] which may be availed of by a person to resist the giving of information or the production of documents which would reveal communications between a client and his or her lawyer made for the dominant purpose of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings. It may here be noted that the "dominant purpose" test for legal professional privilege was recently adopted by this court in Esso Australia Resources Ltd v FCT [(1999) 201 CLR 49; at 73 [61]; 168 ALR 123; at 140 per Gleeson CJ, Gaudron and Gummow JJ], in place of the "sole purpose" test which had been applied following the decision in Grant v Downs [(1976) 135 CLR 674; 11 ALR 577]. [10] Being a rule of substantive law and not merely a rule of evidence, legal professional privilege is not confined to the processes of discovery and inspection [See, with respect to discovery and inspection, Mann v Carnell (1999) 201 CLR 1; 168 ALR 86] and the giving of evidence in judicial proceedings. [See Baker v Campbell (1983) 153 CLR 52; at 115-16; 49 ALR 385; at 433 per Deane J; Esso Australia Resources Ltd v FCT (1999) 201 CLR 49; at 55 [4]; 168 ALR 123; at 125 per Gleeson CJ, Gaudron and Gummow JJ; Mann v Carnell (1999) 201 CLR 1; at 10-11 [19]; 168 ALR 86; at 92 per Gleeson CJ, Gaudron, Gummow and Callinan JJ] Rather and in the absence of provision to the contrary, legal professional privilege may be availed of to resist the giving of information or the production of documents in accordance with investigatory procedures of the kind for which s 155 of the Act provides. Thus, for example, it was held in Baker v Campbell, that documents to which legal professional privilege attaches could not be seized pursuant to a search warrant issued under s 10 of the Crimes Act 1914 (Cth) [(1983) 153 CLR 52; 49 ALR 385. See also Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501; 141 ALR 545]. [11] Legal professional privilege is not merely a rule of substantive law. It is an important common law right or, perhaps, more accurately, an important common law immunity. It is now well settled that statutory provisions are not to be construed as abrogating important common law rights, privileges and immunities in the absence of clear words or a necessary implication to that effect. That rule, the expression of which in this court can be traced to Potter v Minahan, [(1908) 7 CLR 277; at 304 per O'Connor J] was the foundation for the decision in Baker v Campbell [(1983) 153 CLR 52; 49 ALR 385]. It is a rule which, subject to one possible exception, has been strictly applied by this court since the decision in Re Bolton; Ex parte Beane [(1987) 162 CLR 514; 70 ALR 225]. Cases in which it has since been applied include Bropho v Western Australia [(1990) 171 CLR 1; 93 ALR 207], Coco v R [(1994) 179 CLR 427; 120 ALR 415] and Commissioner of Australian Federal Police v Propend Finance Pty Ltd [(1997) 188 CLR 501; 141 ALR 545]. The possible exception to the strict application of that rule was the decision in Yuill [(1991) 172 CLR 319; 100 ALR 609].' Their Honours went on to hold that, on the proper construction of the Trade Practices Act 1974, s 155 of that Act did not abrogate legal professional privilege. 4 In Australian Competition and & Consumer Commission v Lux Pty Ltd [2003] FCA 89, R D Nicholson J examined the application of the Guidelines issued by this Court in relation to expert witnesses ("the Guidelines") to which I have already referred in an earlier ruling in this case given on 2 September 2003; see [2003] FCA 930 at [6]. 5 Lux concerned an expression of expert opinion by a clinical psychologist, Ms Murphy, about the ability of two purchasers to read and understand a contract for the purchase of a vacuum cleaner and their understanding of the consequences of entering into such a contract. The respondent sought to exclude the Murphy report from reception into evidence, relying on s 135 of the Evidence Act 1995 (Cth). His Honour examined the effect of the Guidelines and concluded that they did not constitute a barrier to reception of the Murphy report even in the face of a refusal by the applicant to waive legal professional privilege, presumably in relation to communications between the applicant's solicitors and Ms Murphy. As to legal professional privilege, his Honour noted the effect of Daniels to which I have just referred and then referred with approval to the judgment of Kenny J in Commissioner of Taxation v Pratt Holdings Pty Ltd [2003] FCA 6 where Daniels and other authorities are collected. R D Nicholson J then continued at [42]-[46] of Lux; 'The onus of establishing the claims falls on to the party asserting or claiming the privilege and is met by establishing the facts giving rise to it: Grant v Downs (1976) 135 CLR 674 per Stephen, Mason and Murphy JJ at 689. Mere assertion of the claims is not enough: what is required is exposure of facts from which an informed decision can be made as to whether the claim for privilege is supportable: National Crime Authority at 159-160. The respondents challenge the claims and in doing so contend on the evidence that they are unfounded or mistaken: cf Brambles Holdings Ltd v WMC Engineering Services Pty Ltd (1995) 14 WAR 239 at 247 per Owen J. It is not in dispute that the Court has power to examine the documents held by it in response to the subpoena and subject to the claim. However, that is a power to be exercised on a discretionary basis with regard to the necessity to do so and the risks of disqualification: Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246-8; Grant v Downs at 689. The application of the law relating to privilege in relation to the bases upon which an expert's report has been grounded has been considered in a number of cases. They have been usefully collected and considered by Paul Mendelow, "Expert Evidence: Legal Professional Privilege and Experts' Reports"(2001) Australian Law Journal 258. The scope of the privilege was considered in Interchase Corporation Ltd v Grosvenor Hill (Qld) Pty Ltd [No 1] [1999] 1 Qd R 141. The Queensland Court of Appeal held (at 148) that documents used by an expert to form an opinion are not the subject of legal professional privilege, whether or not they emanate from the party claiming the privilege. Thomas J (at 162) acknowledged that privilege could be claimed in relation to communications between the expert and the solicitor when within the requisite confidential purpose. See also Southern Equities Corporation Ltd v West Australian Government Holdings Ltd (1993) 10 WAR 1 in relation to briefs to lawyers. This accords with the common law position recognized R v King [1983] 1 All ER 929 and Harmony Shipping Co SA v Saudi Europe Line Ltd [1979] 3 All ER 177 at 181, each referred to and relied upon in Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd(No 2) (1998) 156 ALR 364 at 365 by Mansfield J. There it was accepted that the effect of those decisions was that, at common law, the privilege does not attach to the chattels or documents on which the expert based the opinion or to the independent opinion itself of the expert. In Commissioner of Australian Federal Police v Propend Finance Pty Limited (1997) 188 CLR 501 at 552 McHugh J stated that "legal professional privilege turns on purpose" so that, if the purpose is established, the privilege attaches without any balancing of considerations of public interest. It follows from the decided cases and the nature of the privilege as enunciated above that the claims for litigation privilege in this matter require the Court to consider the following matters in relation to each of the claims: (1) was the communication between the requisite parties? (2) was it made in circumstances showing it to be confidential? (3) was it made for the dominant purpose of use in or in relation to litigation pending or contemplated? (4) has any privilege, if established, been waived? [For that purpose it may be necessary to consider whether the communication was one on which the expert based the opinion] Waiver may be express or implied. It will be express when there is intentional disclosure of protected materials. It will be implied when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege: Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 487-488 per Mason and Brennan JJ. Such conduct may include some disclosure or use of the privileged material where that is inconsistent with the maintenance of the confidentiality: at 482-483; 488 and 493; relied upon in Daniel v Western Australia (1999) 94 FCR 537 at 546. The same approach governs the application of sections 118 and 122 of the Evidence Act: Mann v Carnell (1999) 201 CLR 1. In Instant Colour Pty Ltd v Canon Australia Pty Ltd (RD Nicholson J, 30 October 1995, unreported) I ruled, after consideration of matters of fairness in the circumstances of the case, that implied waiver of privilege had occurred in relation to a letter of instruction from instructing solicitors to an accounting expert in circumstances where the expert had said the letter of instruction was a source of his knowledge. The respondents' contentions place weight on this ruling as supporting their contentions in the circumstances of the present case. In Dingwall v Commonwealth (1992) 39 FCR 521 Foster J said that for the principles of waiver to apply there is certainly required that there be an indication that the documents were used in the preparation of the evidentiary document in a way that could be said to influence the content of the document. The absence of this in the circumstances in Tirango was the basis upon which Mansfield J found the privilege had not been impliedly waived.' 6 His Honour then proceeded in Lux to rule separately and specifically on about 50 documents including letters to and from Ms Murphy and handwritten notes of communications between her and various persons including solicitors for the applicant. In respect of some documents, his Honour upheld the claim of privilege by ruling eg "claim allowed on basis communication is between third party and client's legal adviser, is confidential, for the requisite dominant purpose and not waived." In respect of other documents the claim of privilege was rejected, either because the document did not record a confidential communication or by reason of an implied waiver of the privilege because to maintain the claim of privilege would give rise to unfairness. 7 In Australian Securities and Investment Commission v Southcorp Ltd [2003] FCA 804, Lindgren J was required to rule on whether legal professional privilege could be claimed, or had been waived, in respect of various documents ("the Documents in Dispute") which had been brought into existence in connection with a report prepared by an expert witness, Mr Villante. His Honour first identified the following applicable principles which he understood not to be in dispute (at [21]); '1. Ordinarily the confidential briefing or instructing by a prospective litigant's lawyers of an expert to provide a report of his or her opinion to be used in the anticipated litigation attracts client legal privilege: cf Wheeler v Le Marchant (1881) 17 ChD 675; Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246; Interchase Corporation Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 Qd R 141 ("Interchase") at 151 per Pincus JA, at 160 per Thomas J. 2. Copies of documents, whether the originals are privileged or not, where the copies were made for the purpose of forming part of confidential communications between the client's lawyers and the expert witness, ordinarily attract the privilege: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 ("Propend"); Interchase, per Pincus JA; Spassked Pty Ltd v Commissioner of Taxation (No 4) (2002) 50 ATR 70 at [17]. 3. Documents generated unilaterally by the expert witness, such as working notes, field notes, and the witness's own drafts of his or her report, do not attract privilege because they are not in the nature of, and would not expose, communications: cf Interchase at 161-162 per Thomas J. 4. Ordinarily disclosure of the expert's report for the purpose of reliance on it in the litigation will result in an implied waiver of the privilege in respect of the brief or instructions or documents referred to in (1) and (2) above, at least if the appropriate inference to be drawn is that they were used in a way that could be said to influence the content of the report, because, in these circumstances, it would be unfair for the client to rely on the report without disclosure of the brief, instructions or documents; cf Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481 per Gibbs CJ, 487-488 per Mason and Brennan JJ, 492-493 per Deane J, 497-498 per Dawson J; Goldberg v Ng (1995) 185 CLR 83 at 98 per Deane, Dawson and Gaudron JJ, 109 per Toohey J; Instant Colour Pty Ltd v Canon Australia Pty Ltd [1995] FCA 870; Australian Competition and Consumer Commission v Lux Pty Ltd [2003] FCA 89 ("ACCC v Lux") at [46]. 5. Similarly, privilege cannot be maintained in respect of documents used by an expert to form an opinion or write a report, regardless of how the expert came by the documents; Interchase at 148-150 per Pincus JA, at 161 per Thomas J. 6. It may be difficult to establish at an early stage whether documents which were before an expert witness influenced the content of his or her report, in the absence of any reference to them in the report; cf Dingwall v Commonwealth of Australia (1992) 39 FCR 521; Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd (No 2) (1998) 83 FCR 397 at 400; ACCC v Lux at [46].' 8 Lindgren J then proceeded to examine each of the Documents in Dispute and ruled as follows in relation to three successive versions of a draft report prepared by Mr Villante; '3. Draft report of Mr Villante dated 16 December 2002 Client legal privilege is not established in relation to the draft report itself. I am not dissuaded from this view by the evidence that the draft was produced as the result of a conference between Mr Villante, Ms Vucic and counsel. It is consistent with the evidence that the draft was, nonetheless, relevantly, the expression of Mr Villante's own thinking. I do not infer from the evidence that the draft constitutes or reveals a communication between Mr Villante and ASIC's lawyers. The privilege is, however, established, and has not been waived, in relation to all the annotations on the draft. I do not regard them simply as a record of instructions to Mr Villante or of unilateral musings of Mr Villante. While it is not possible to be certain in relation to every annotation, I am satisfied that the annotations record Mr Villante's understanding of communications, to and fro, between him on the one hand and Ms Vucic and counsel on the other, and that they include or expose expressions of legal opinion. 4. Draft report of Mr Villante dated 19 February 2003 In substance the same observations apply to this draft report as I have made above of that dated 16 December 2002. Counsel for Southcorp invites me to find that Mr Villante's writing records the lawyers' instructions to him, and that counsel's annotations record statements made unilaterally by Mr Villante. But a glance at the many symbols on the document (circles, brackets, ticks, question marks, arrows, deletion lines, linkage lines) shows that the true position is more complex. While I cannot be satisfied as to what every annotation signifies, or even who wrote each one of them, I am satisfied that they point to confidential communications, to and fro, between Ms Vucic, Ms Tot and counsel on the one hand and Mr Villante on the other. I am not satisfied that the unannotated draft itself, however, is other than the product of Mr Villante's mind. Client legal privilege is not established in relation to that unannotated document. 5. Draft report of Mr Villante dated 26 February 2003 There is no evidence as to the significance of the "marking up" or "tracking" within the document. I infer that it was intended to indicate changes made from the last preceding draft. It can be argued that since the two drafts by Mr Villante would not be exempt from Southcorp's right of access, the marking up or tracking should not be either. Although the marking up or tracking was carried out by Ms Tot, she was apparently merely highlighting the changes made by Mr Villante as between drafts. On the other hand the fact remains that the marking up or tracking is a confidential communication from solicitor to counsel. If the making of copies of otherwise unprivileged documents for the purpose of such a confidential communication attracts the privilege (cf Propend), I do not understand why Ms Tot's marking up or tracking changes for the same purpose should not do so. Consistently with principle, I think it is privileged. (I presume that access to the last preceding and new drafts themselves had been or will be given.)' 9 Similarly, his Honour undertook an examination of correspondence and emails passing between the legal advisers to the applicant and Mr Villante and sustained the claim of privilege of some but not others. Specific reasons were not ascribed for each of those rulings. 10 In my earlier ruling of 2 September 2003, [2003] FCA 930, I referred at [10] to Interchase Corporation Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 QR 141. In that case, Thomas J observed, at 162; 'I would hold that in general, when an expert is engaged by a solicitor for the purpose of giving evidence in a case, documents generated by the expert and information recorded in one form or another by the expert in the course of forming an opinion are not a proper subject for a claim of legal professional privilege. Privilege may however be claimed in relation to communications between the expert and the solicitor (both ways) when such communication is made for the purpose of confidential use in the litigation. Beyond this there is no sufficient reason why any material relevant to the formation of the expert's opinion should be subject to a claim of legal professional privilege. It is as well to add that an expert or solicitor may not artificially manufacture privilege by, for example, the expert sending in his or her file to the solicitor. Documents of this kind simply are not confidential.' 11 Mr Golvan, whilst appearing to accept the Court's discretion to examine for itself disputed documents of this kind, suggested that it was inappropriate to undertake such an examination at this stage of the litigation. He referred in this context to principle 6 of those distilled by Lindgren J in the passage from Australian Securities and Investment Commission v Southcorp Ltd quoted at [7] above where his Honour observed that; 'It may be difficult to establish at an early stage whether documents which were before an expert witness influenced the content of his or her report in the absence of any reference to them in the report;' (emphasis added) In Dingwall v Commonwealth of Australia (1992) 39 FCR 521 Foster J accepted, in declining to enforce a subpoena for production by a medical witness of letters of instruction and the like, the doctor's explicit statement that the opinions expressed in his report had not been founded on any information conveyed by the instructions or the other subpoenaed documents. However, his Honour recognised that the issue might be raised again during the doctor's evidence. 12 In the light of those authorities, Mr Golvan suggested that a ruling on the file notes and draft reports should await the cross-examination of Ms Wilson and Mr Rayner respectively. Then, it was submitted, the Court could form a clearer appreciation of whether the communications in the file notes, or the information which can be inferred from successive draft reports contributed to the "moulding" of the opinions expressed in the final reports of those witnesses or had been taken into account in their formulation. I disagree. It is not only information which has been affirmatively taken into account, but information which has been disregarded or discounted by the expert witness which may be useful in evaluating his or her opinion. In my view, the Court is as well-placed now, as it will be later, to infer from the file notes and draft reports whether they embody confidential communications and whether it would be unfair to allow Temwell to rely on the evidence of Ms Wilson or Mr Rayner without disclosing those communications to the respondents. Moreover, to interrupt preparation or conduct of the cross-examination of either witness because the ruling had not been given in advance would be conducive to further delay and expense. 13 I have accordingly undertaken an examination of each of the disputed file notes and have rejected or sustained the claim to privilege in respect of it as indicated in Schedule A to this ruling. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.