Tynan Motors Pty Ltd v Mazda Australia Pty Ltd

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Thursday 29 May 2003 Matter No IRC 6976 of 2001 TYNAN MOTORS PTY LTD v MAZDA AUSTRALIA PTY LTD Application under s 106 of the Industrial Relations Act 1996

INTERLOCUTORY JUDGMENT CONCERNING LEGAL PROFESSIONAL PRIVILEGE

1 By amended summons the applicant Tynan Motors Pty Ltd seeks relief against Mazda Australia Pty Ltd under s 106 of the Industrial Relations Act 1996. The proceedings arise out of and concern a long-standing relationship by which the applicant had become a Mazda dealer. The applicant alleges that a dealership agreement made in 1998 became an unfair contract and that a dealership agreement entered into on 25 May 2000 was entered into "under undue pressure from Mazda" and that the conduct of the respondent in offering a dealership agreement on the terms contained within the May 2000 dealership agreement was unfair

2 In an affidavit filed in support of the applicant's case in the proceedings Michael Thomas Tynan OAM deposed inter alia that he was a director of the applicant and that: "By letter dated 30 May 2000, Mr Malcolm Gough wrote to me enclosing a Mazda dealer agreement and a guarantee and indemnity for signing and requesting these documents be signed and returned by 23 June 2000.…. Ultimately I concluded that I had no other choice other than to sign the agreement. I felt that the Applicant was under duress and stress. I concluded that if I didn't assign (sic) the agreement, I would receive a 60 days notice or less of termination of the existing dealer agreement with its serious consequences for all Tynan staff."

3 By affidavit sworn 7 April 2003 for the purpose of these interlocutory proceedings Mr Tynan deposed that he received a folder of documents from the respondent on 16 May 2000 and that a few days later he telephoned the applicant's solicitor and had a conversation during which he received legal advice on behalf of the applicant. The solicitor informed Mr Tynan that he had made notes during that conversation. Two days later Mr Tynan had a further discussion with the solicitor by telephone, the solicitor again informing Tynan that he had made notes during that conversation.

4 The next day Mr Tynan sent the signed documentation to the respondent. On the following day he received a letter from the solicitor which contained legal advice.

5 During the case preparation process the applicant was required to give discovery concerning the receipt of independent advice received by Mr Tynan at the time that he signed the documents in May 2000. The applicant declined to discover these documents for inspection by the respondent on the basis that the documents were the subject of legal professional privilege. By notice of motion the respondent sought a declaration that any legal professional privilege pertaining to any of the documents discovered by the applicant which relate to or record the advice given to the applicant or its representatives in respect of entry into the dealer agreement reflected in the documentation forwarded in May 2000 had been waived.

6 Before considering the principles which apply it is necessary to refer to two aspects of the evidence led for the purpose of these interlocutory proceedings which has been summarised above. The first is that there is no reference in the affidavit of Mr Tynan to the fact that he relied upon legal advice given to him in determining to enter into the dealership agreement. Indeed, the evidence indicates that he was motivated to do so by commercial considerations. The second point that needs to be noted is that Mr Tynan did have a conversation with his solicitor on both 22 May 2000 and 24 May 2000 before the documents were signed. There is no indication as to the nature of the advice and Mr Tynan was not required for cross-examination on his affidavit sworn 7 April 2003.

7 It is now necessary to discuss the principles which apply to the circumstances in which privilege is deemed to have been waived, as relevant to these particular proceedings. A convenient starting point is the discussion of Gibbs CJ in the High Court of Australia in Attorney General (NT) v Maurice (1986) 161 CLR 475. At 481 his Honour said: "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., par 2327. '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 ( Roberts v Oppenheim (1884) 26 Ch.D 724; Buttes Oil Co v Hammer [No 3] [1981] QB 223 at pp 252,268) or in an affidavit ( Lyell v Kennedy (1884) 27 Ch.D 1 at p 24; Infields, Ltd v P Rosen & Son [1938] 3 All ER 591 at 597; Tate & Lyle "International Co Ltd v Government Trading Corporation", The Times, 24 October 1984), although the position will be different if the document is reproduced in full in the pleading or affidavit: Buttes Oil Co v Hammer [No 3] [1981] QB at p 252. These cases may be explained by saying that it is not unfair or misleading to refer to a document in a pleading or affidavit which is not put into evidence but that if the document is set out in full the privilege is waived. 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."

8 A more recent formulation by the High Court is to be found in Mann v Carnell (1999) 201 CLR 1. In a joint judgment Gleeson CJ, Gaudron, Gummow and Callinan JJ when dealing with waiver of privilege at common law said: "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. ( Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 at 70; Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) 215 at 226; The Commonwealth v Verwayen (1990) 170 CLR 394 at 406, 422, 467, 472). 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. ( Cross on Evidence (5th Aust ed (1996) par 25005; Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 497-498). 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 ( Benecke v National Australia Bank (1993) 35 NSWLR 110), 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. ( Lillicrap v Nalder & Son (a firm) [1993] 1 WLR 94; [1993] 1 All ER 724). 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. When an affirmative answer is given to such a question, it is sometimes said that waiver is "imputed by operation of law" (eg , Goldberg v Ng (1995) 185 CLR 83 at 95). This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank , the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. 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 Their Honours in the material extracted above distinguish between an inconsistency between "conduct" and the maintenance of the confidentiality informed by "considerations of fairness" and "some overriding principle of fairness operating at large." It is obvious that the "conduct" referred to must be conduct having a relevant nexus with proceedings before the court. Some of the authorities in this area assist in focusing attention on the necessary nexus. The extent to which the privileged material must relate to an issue in proceedings, or be identified as such was a matter of contention between the parties.

10 The "conduct" which is asserted to trigger the waiver of privilege implied at common law may vary from physical conduct, an omission to pursue a particular course or, more relevantly for these proceedings may be associated with allegations contained within pleadings or other court process documents which create issues which require determination by a court.

11 In support of the application for discovery Mr Moses of counsel who appeared for the respondent relied on the joint judgment of Branson and Lehane JJ in the Federal Court of Australia in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152, 156 ALR 634. Those proceedings arose out of an interlocutory application brought before a single judge of the Court for discovery. The judge at first instance (Sackville J) upheld an assertion that privilege had neither been waived or otherwise lost with respect to certain documents. The legal advice which was contained within the documents was given in the course of assisting one of the parties to undertake negotiations leading up to the making of a number of agreements, whose provisions were in issue in the overall proceedings. Sackville J whose judgment is reported as BT Australasia Pty Ltd v State of New South Wales (1998) 153 ALR 722, held that the pleadings in the proceedings did not indicate that the party involved had relied on legal advice or that any legal advice had been received. Accordingly his Honour held that there was no question of any implied consent being given to the disclosure of any legal advice received in the course of negotiations even though any such advice might be said to impact upon or affect the state of mind of those involved in the negotiations. His Honour was not prepared to impute any waiver of privilege in the circumstances. Upon appeal, the decision of Sackville J was reversed (Beaumont J dissenting). Much of the discussion before Sackville J and before the Full Federal Court revolved around the interaction between s 121 of the Evidence Act 1995 and the common law which applies in this area, and it may be assumed that that controversy has now been resolved by the decision of the majority in Telstra. For present purposes the controversy is confined to whether and under what circumstances there should be an imputed waiver of privilege.

12 In their joint judgment Branson and Lehane JJ considered a number of High Court authorities and concluded that: "…. 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." (at ALR 647). Their Honours continued: "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. " (at p 647).

13 Later their Honours restated these observations in the following terms: Before returning to the construction of s 122 ( 1) of the Act, some comments should be made, obvious as some of them may be, about the scope and effect of the principle just stated. It does not constitute a broad inroad into legal professional privilege as a "substantive and fundamental common law principle" (Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121 at 122 per Deane J). Nor does it involve any balancing of competing public interests, one in facilitating the application of the rule of law by promoting frank communication between clients and their legal advisers, the other in ensuring that all relevant evidence is placed before a court adjudicating as to the legal rights of parties before it: the recognition of the privilege is itself the outcome of such a balancing process: Waterford v The Commonwealth (1987) 163 CLR 54 at 64-65; Carter at 128. Nor is it a consequence of the principle that whenever a person's state of mind is relevant to an issue in proceedings, privilege is taken to be waived in relation to legal advice that may have played part in the formation of that state of mind (so that the principle does not, for example, deny the authority of Kennedy v Lyell (1883) 23 ChD 387; Lyell v Kennedy (No. 2) (1883) 9 AppCas 81). It is unnecessary and inappropriate, having said those things, to attempt to define exhaustively the scope of the principle. 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. (at p 648).

14 Their Honours concluded that one of the elements of the cause of action for determination in the issue namely whether or not BT Australasia had relied upon alleged misleading and deceptive representations made by another party was an issue which was not capable of "fair resolution" without the legal advice received by that company when negotiating the agreement being made available. Accordingly privilege was taken to have been waived.

15 With respect, I find such a conclusion at odds with the earlier observations of their Honours previously extracted that it was not a consequence of the application of the principle "that whenever a person's state of mind is relevant to an issue in proceedings, privilege is taken to be waived in relation to legal advice that may have played part in the formation of that state of mind ….". Perhaps this tension is resolved by emphasising the degree of materiality of the legal advice to the formation of the state of mind.

16 I should observe for completeness that Beaumont J would have upheld the decision of Sackville J. His Honour was not prepared to imply or impute a waiver in the circumstances of the proceedings, or at least not at that stage of the proceedings, conceding that those circumstances may change.

17 The decision in Telstra should be contrasted with a decision of the Full Court of the Supreme Court of South Australia in Southern Equities Corporation Ltd (in liquidation) v Arthur Andersen & Co (unreported, 23 September 1997 (1997) SASC 6373).

18 In those proceedings the plaintiff company which was in liquidation sued its former auditors, Arthur Andersen & Co alleging negligence in the carrying out of an audit of it and other companies. During the discovery process the plaintiff SECL claimed privilege with respect to a number of documents and objected to producing them accordingly. The claim for privilege was disputed by the defendant Arthur Andersen on two bases, one of which only is relevant for the purpose of these reasons for judgment. SECL claimed that it would not have entered into certain transactions if the accounts dealing with those transactions had been properly audited by the defendant because those accounts did not give a true and fair view of the state of affairs of the SECL group. It was submitted by the defendant that these allegations put in issue the corporate state of mind of SECL about those accounts and the transactions dealt with in those accounts and that on this basis it was unfair for SECL to withhold legal advice that it had received about those transactions and that accordingly, any privilege should have been waived.

19 Matheson J agreed in the judgment of Bleby J that the court should not imply a waiver of privilege. Doyle CJ came to a contrary view.

20 After discussing relevant principles Bleby J said: "In my opinion the cases show that it is not sufficient merely to demonstrate that a party's state of mind or knowledge is in issue in order to succeed on an application that documents privileged from production on the ground of professional privilege be produced. If that were the case, privilege would almost always be waived in cases of misrepresentation, negligence and misleading and deceptive conduct where questions of a plaintiff's reliance or state of mind was in issue, and a list of documents showed that at or about the relevant time the plaintiff had some sort of legal advice which might have had some bearing on the plaintiff's state of mind. There must be something more from which it can be shown that the legal advice in question was relevant in the formation of that state of mind or belief or that the advice itself in some way becomes an issue in the action. This may be apparent from the pleadings or from some other document which has been produced in the course of discovery; it may be revealed by answers to interrogatories, or it may be self-evident from the description of the document in question contained in the list of documents. In some cases it may not become apparent until a witness is giving evidence at the trial. In this case, it is clear from the Chief Justice's analysis of the Statement of Claim that the state of mind of SECL concerning the adequacy of the accounts is a relevant issue. However, mere exposure to scrutiny of the corporate state of mind as to a belief in the existence or otherwise of a profit, and whether the accounts truly and fairly stated the position, does not necessarily assume the existence of legal advice as to the nature of the various transactions or that such advice could have had any bearing on the relevant state of the corporate mind. There is nothing in the pleadings or in any other information placed before this Court to suggest that relevant legal advice existed which could have had a bearing on that state of mind. The only information before the Court comprises the several lists of documents themselves which, whilst identifying particular documents and their date, give no indication as to which of the many transactions they might relate, or whether they contain the sort of information which could be at all relevant in informing the corporate mind. In my opinion, something more than that is needed before a court can impute waiver of the substantive right to privilege that SECL has. That is not to say, of course, that some of the documents listed may not have been relevant and may not yet be the subject of an imputed waiver of legal professional privilege. However, in my opinion there is insufficient information before the Court to justify the order for production that is sought, and I would therefore dismiss the appeal. It may well be, however, that some of the documents in question were relevant to the formation of the corporate state of mind. Where a party has in fact had access to privileged legal advice in forming its state of mind or belief, it will not always be apparent from the pleadings or other material that it has done so. Sometimes it may not be revealed until cross-examination of a witness at the trial. It could, of course, make a crucial difference to the outcome, and it is better that such matters be revealed at an early stage rather than at trial. Revelation at trial will cause surprise, and possibly substantial disruption to the trial in a variety of possible ways. In order to prevent that occurring it behoves a party claiming privilege to disclose or describe documents properly according to the exigencies of the issues raised on the pleadings or through other documents."

21 In his dissenting judgment Doyle CJ posed the question as to whether or not the pleadings put in issue the corporate state of mind of a party to the transactions in question and whether legal advice received by that party was likely to have contributed to that state of mind. If so, was the contribution made in such a way that made it unfair to maintain the claim of privilege?

22 It seems clear from the extracts of the judgments of Bleby J set out above that the approach of their Honours is at variance with that of the majority of the Full Federal Court in Telstra. Indeed, the qualifications imposed by Doyle CJ in Southern Equities would also seem to be narrower than the broad statement of principle of the majority in Telstra. It is unfortunate that the decision in Southern Equities does not appear to have been cited to the Full Federal Court in Telstra nor, indeed, to Sackville J at first instance. More importantly, however, is the fact that the statement of principle contained within the majority judgment of the Full Federal Court in Telstra seems, with respect, to be inconsistent with the principles contained within the joint judgment of Gleeson CJ, Gaudron, Gummow and Callinan JJ in Mann, which I have previously extracted.

23 I would ordinarily be reluctant to venture a suggestion of this kind without embarking upon a more detailed analysis of what was said by the High Court in Mann and by the majority of Telstra and without having analysed in some detail other relevant authorities. However, this task has recently been undertaken by Allsop J in the Federal Court of Australia in DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384 a judgment published on 30 April 2003. His Honour in discussing the general principles applying in this area of the law has traversed relevant authorities including a line of English cases as well as many Australian cases. I respectfully adopt and agree with his Honour's conclusion as to the inconsistency between the majority judgment in Telstra and the judgment of the High Court in Mann. In having preferred and adopted the approach of Bleby J in Southern Equities I am conscious that that expression of principle is, in general terms, consistent with that propounded by Allsop J.

24 I agree with Allsop J that the matter ought properly be addressed by having regard firstly to the basic principle upholding legal professional privilege as fundamentally enshrined within our jurisprudence and as codified for the purpose of the Evidence Act. Accordingly, unless and until the paramount significance of legal professional privilege as applied by the High Court of Australia and as adopted by the legislature in the Evidence Act is diminished in some way, any exception ought to be crafted carefully and cautiously. As is often the case with any legal principle, its statement is relatively easier than its application. After carefully evaluating the competing statements of principle to be found in Telstra and in Southern Equities, I for my part prefer the statement of principle as contained within the majority judgment in Southern Equities, although I detect the difference between the majority and the Chief Justice is one of emphasis and timing only.

25 The difficulty which is created in the resolution of these particular proceedings is that the applicant does not purport to rely on any legal advice given to it when it entered into the new agreement. That determination was expressed to be motivated solely by commercial reasons. Without more, I would have concluded that there was no waiver of the privilege attached to the legal advice given.

26 However, I am mindful of the observations of Bleby J in Southern Equities of the need to inject some certainty if possible into the discovery process so as to ensure that the ultimate trial is conducted in as efficient and productive fashion as possible. As his Honour said: "….It is better that such matters be revealed at an early stage rather than at trial. Revelation at trial will cause surprise, and possibly substantial disruption to the trial in a variety of possible ways. In order to prevent that occurring it behoves a party claiming privilege to disclose or describe documents properly according to the exigencies of the issues raised on the pleadings or through other documents."

27 Without necessarily being critical of Mr Tynan concerning the contents of his affidavit sworn 7 April 2003 his reference to the fact that he had a telephone conversation with a solicitor within six days of receiving the proposed agreement and other documents "during which I received legal advice on behalf of the applicant" is singularly unhelpful in this regard. The same comment applies to the reference to a further telephone conversation with his solicitor on 24 May 2000 during which he received legal advice. On both those occasions notes were taken by the solicitor over which privilege is claimed.

28 Consistent with the conclusion which I have reached concerning the principle to be applied, it follows that at this stage of the proceedings I reject the respondent's assertion that there should necessarily be imputed a waiver of legal professional privilege with respect to any advice given to Mr Tynan at or about the time that he entered into the agreement in May 2000. Allsop J noted in DSE (Holdings) "the act of mere denial by the respondents of an assertion by the applicants is not an act by the respondents which expressly or impliedly makes an assertion about the contents of any privileged communication or which necessarily lays any such communication open to scrutiny. There is no act of the respondents inconsistent with the maintenance of the confidentiality. There is a joinder of issue on a question of fact to which the privileged communication can be seen as relevant. That is insufficient in my view for it to be concluded that there exists the necessary inconsistency enunciated by Mann v Carnell." (at par 115). That is, in the context of these proceedings the assertion by the applicant that it entered into the agreement under duress without more is not an act of the applicant inconsistent with the maintenance of the confidentiality of the legal advice obtained by it.

29 However, this is not to say that such imputation might not arise at some later stage in the proceedings for example whilst Mr Tynan is under cross-examination. It is obviously a matter for the applicant and its legal practitioners as to whether the applicant wishes at this stage to voluntarily disclose any further information describing the contents of the notes taken by the solicitor during each of the conversations which would assist a determination as to whether or not the applicant did rely upon any advice given in determining whether or not to enter into the agreement and whether those circumstances in turn impact upon the allegation made by the applicant that the agreement was entered into under undue pressure from Mazda or is otherwise relevant to an issue which will be determined in the proceedings. These are matters which the respondent may also raise at an appropriate time. I make these observations not by way of compulsion but to assist in the case management process so as to ensure, to the extent practicable and reasonable, that as many contentious issues are determined in the case preparation stage rather than at the hearing. Of course, if circumstances change the respondent will be entitled to renew its application with respect to imputed waiver of legal professional privilege. Liberty to apply generally has already been granted in connection with the case management process.

30 I have not heard argument as to costs. Arguably it may be better to determine the costs of these interlocutory proceedings at the conclusion of the substantive proceedings when any issue as to imputation will have been dealt with. In any event, I will reserve costs.

31 I make the following orders: 1. The notice of motion is dismissed. 2. Costs are reserved. 3. Liberty to apply with respect to costs. __________________________________ - 1 -

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