United Rural Enterprises v Lopmand

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

4039/99 UNITED RURAL ENTERPRISES PTY LTD v LOPMAND PTY LTD & ORS JUDGMENT 1 HIS HONOUR: This decision arises from a question which was asked in evidence and objected to. 2 This case is one where the plaintiff claims to be entitled to be repaid a sum of money, which it says is a debt. The defendants allege that the transaction, which the plaintiff says resulted in a debt, is much more complicated than that and that the defendants have no present obligation to pay money. 3 The transaction in question is one where, at one time, one or other of the defendants, or perhaps both of them, owed a sum of about $250,000 to a Mr Alexander or a company associated with him. Mr Alexander came to be paid out in 1994, and the plaintiff played a role in paying Mr Alexander out. 4 One group of issues in this litigation concerns precisely what role it was that the plaintiff played. Mr John Allen was, at one time, a solicitor who acted for both the plaintiff and the defendants concerning the disputed transaction. By 1998 the plaintiff and the defendants had fallen out and Mr Allen was no longer acting for either of them. The plaintiff had gone for advice to another solicitor, Mr Somerset. Mr Somerset had commenced proceedings in the District Court on behalf of the plaintiff by way of a statement of liquidated claim seeking payment of the alleged debt. Because of the issues which the defendants raised in a notice of cross-claim, those proceedings have come to be transferred to this court and are the same proceedings which I am presently hearing. 5 The arrangement between Mr Alexander or his company and one or other of the defendants, or perhaps both of them, was one which involved some security for the loan. The defendants say that they have stepped into the shoes of the Alexander interests in all ways, including so far as that security is concerned. The question which was asked and objected to was in substance whether Mr Somerset had ever told Mr Lindsay-Owen (who is the alter ego of the plaintiff) that there was nothing which Mr Somerset had seen which would entitle Mr Lindsay-Owen or his company to enforce the security documents, and that "all the evidence points at this stage to the fact that they ought be returned to Mr and Mrs Lake and Mr Lopmand respectively". 6 The basis for the objection that was taken to that question is that, as both counsel knew at the time, and as the court has since become aware, the question was closely based on the text of a letter which Mr Somerset wrote to Mr Lindsay-Owen on 3 March 1998. The objection which was taken was that the answering of the question would result in the disclosure of privileged information. There was no dispute that the letter had originally been privileged: the argument concerned whether the privilege has now been lost. 7 The basic prohibitions under the Evidence Act 1995 on the adducing of evidence which results in the disclosure of privileged information are those contained in ss 118 and 119. 8 Because this question of privilege is one which has arisen in the course of a hearing, the decision about the admissibility of the question is one which must be decided by reference to the Evidence Act 1995. As the decision of the High Court, in Mann v Carnell (1999) 201 CLR 1, shows there is still room for the operation of the common law of evidence when a question arises, in connection with some activity other than the adducing of evidence, of whether privilege has been lost, but the Evidence Act provides the relevant standards to apply to the adducing of evidence during the conduct of court proceedings. 9 There is a miscellaneous collection of circumstances in which the prohibition on adducing evidence, which is contained in ss 118 and 119, does not apply. These are set out in s 121 through to 126 of the Evidence Act. The only section which was referred to in submissions, is s 122. So I shall confine my attention to that section. 10 The common law had a concept of privilege being waived. Section 122 does not use that concept, although it covers some of the same ground where the common law concerning waiver of privilege applies. What s 122 does is to provide four discrete sets of circumstances in which the prohibition on the adducing of evidence, of privileged material, contained in ss 118 and 119, does not apply. Those four different sets of circumstances are those contained in sub-ss 1, 2, 4 and 6 of s 122. Each of those sub-sections provides an independent basis upon which the prohibition on adducing evidence contained in ss 118 and 119 might not apply. Section 122(1) - Consent 11 The first of these is contained in sub-s 1, which says: "This Division does not prevent the adducing of evidence given with the consent of the client or party concerned." 12 The full Federal Court in Telstra Corporation Limited v BT Australasia Pty Limited (1998) 85 FCR 152 held that an extended construction needs to be given to the notion of "consent" in sub-s 1, and that in some circumstances consent to the giving of privileged evidence could be implied or imputed. In the joint judgment of Branson and Lehane JJ at 167, their Honours said: "...the conduct of a party which leads to the implication of consent for the use of otherwise privileged material, or to imply waiver on such privilege in undue influence cases, legal professional negligence cases, and, in my view, state of mind cases, is that of raising for determination in legal proceedings as an element in the cause of action relied upon, an issue incapable of fair resolution without reference to that material." 13 In Telstra Corporation Limited v BT Australasia Pty Limited, that test came to be applied in the context of an allegation of breach of s 52 of the Trade Practices Act, where one of the elements of the cause of action was whether there had been reliance on what was said to be misleading conduct. 14 The application of that test has been considered by Hodgson CJ in Eq (as his Honour then was) in Wayne Lawrence Pty Limited v Hunt [1999] NSWSC 1044. His Honour there referred to Telstra v BT, and continued: "12. Accepting that the decision of the majority in that case correctly interprets and applies s 122(1), it seems to me still that the question of whether the advancing of a person's state of mind is to be taken as consenting to the giving of evidence of confidential communication or as waiving privilege, is a matter of degree in each case. It does not seem to me that the assertion of a belief must, in all circumstances, be taken as consenting to evidence being led of any legal advice or confidential communication that could be relevant to whether such a belief was held or the reasonableness of such belief. It seems to me that factors relevant to whether that consent is to be considered as having been given, or whether privilege is taken to have been waived, would include the significance of the belief to the case as a whole; the relevance of the reasonableness of the belief to the case as a whole; the probability or otherwise of the legal advice being relevant to the holding of that belief, or being relevant to its reasonableness; and in circumstances where the Court inspects the legal advice in question in order to make a decision, the extent to which the legal advice does in fact bear upon the holding of the belief or its reasonableness, and the extent to which the legal advice relevant to those matters is inextricably bound up with legal advice going to other questions as to which there has been no consent or waiver. It seems to me that, on the basis of all those matters at least, the Court has to make a judgment as to what is reasonable, and what is fair in the particular case." 15 In the present case, there are three different ways in which this extended notion of consent is sought to be applied. One is one which arises from the general purport of answers which Mr Lindsay-Owen has given in response to cross-examination. In answer to cross-examination, he has given an account of the way in which he came into possession of documentation which is, on his case, related to the security for the loan. It is submitted that the account, which Mr Lindsay-Owen gives, is one which puts in issue his belief about having an entitlement to the security, and which suggests that he has had that belief all along. It is submitted that Mr Somerset's letter of 3 March 1998 would undercut that evidence. 16 The second way in which it is submitted the principle can apply here is that Mr Somerset has sworn an affidavit, which has been served, in which he states that the proceedings have been commenced in the District Court, and a defence had been filed. He says: "I advised my client at the time that I did not believe that the defence had any merit and that the plaintiff would succeed in all probability in the District Court proceedings." 17 While Mr Somerset's affidavit makes this allegation in the context of providing historical background to the circumstances in which an alleged settlement agreement was reached in November 2000, it is submitted that by serving this affidavit the plaintiff (through the action of its solicitor) has put into issue the advice which Mr Somerset gave to the client "at the time" - that is, at the time of the filing of the defence in the District Court. The defence in the District Court is one which is dated 13 March 1998, and I would infer was filed shortly after that. Thus, the letter of 3 March 1998 is very close in date to the time of the advice which Mr Somerset deposes to in that affidavit. 18 The third way in which it is submitted that the principle in BT can be applied in the present case arises from some particular answers, which Mr Lindsay-Owen gave in cross-examination, just before the question which is now the subject of contention, was asked. It was put to Mr Lindsay-Owen, in general terms, whether Mr Somerset had ever suggested to him, "You had better give the security documents back because you are not entitled to them", and Mr Lindsay-Owen gave evidence that Mr Somerset had not said any such thing. It is put that this amounts to putting into issue the advice contained in the letter of 3 March 1998. 19 It is to be observed that the principle in Telstra Corporation Limited v BT Australasia Pty Limited is one which says that implied consent to the disclosure of privileged material is given by the raising for determination in legal proceedings "as an allegation in the cause of action relied upon" of an issue incapable of fair resolution without reference to that material. None of the three ways in which it is sought to apply that principle in the present case is one which depends upon an element in the cause of action which the plaintiff relies upon. Here, the plaintiff sues for debt. It does not seek to enforce any securities. It seems to me that if this contention of the defendants were to succeed, the BT principle would require to be extended. The principles which Hodgson CJ in Eq articulated in Wayne Lawrence v Hunt might arguably go wider than the ratio in BT, in that they might be directed to putting in issue a state of mind by means not necessarily confined to an allegation in the cause of action relied on. In principle, it is hard to see why an inferring or imputing of consent to the tendering of privileged material ought be confined to situations where an issue has been raised for determination in legal proceedings as an element of the cause of action relied on. However, it is not possible to tell from the facts recounted in the decision, whether that actually was the situation in which his Honour made the decision. As well, Hodgson CJ in Eq decided that the privilege in question had not ceased to apply, so the case does not provide as clear an authority, for what is the test by reference to which privilege is lost, as would have been the case if the decision had been that the privilege was lost. 20 I would not be prepared, on the strength of the brief argument that I have heard today, to venture upon any such extension of principle beyond that in BT. As well, another ground of decision is available, so I do not need to base this decision on s 122(1). Section 122(2) 21 Another potentially relevant provision of s 122 is that contained in s 122(2). That provides: "Subject to sub-s(5), this Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made: (a) in the course of making a confidential communication or preparing a confidential document; or (b) as a result of duress or deception; or (c) under compulsion of law; or (d) if the client or party is a body established by, or a person holding office under, an Australian law-to the Minister, or the Minister of the State or Territory, administering the law, or the part of the law, under which the body is established or the office is held." 22 It is not submitted that s 122(5) applies in the present case. 23 Here, the letter of Mr Somerset of 3 March 1998 is one which the defendants obtained on subpoena from the files of Messrs Allen Allen & Hemsley. Thus, the entirety of the advice has been disclosed to someone at Allen Allen & Hemsley. The letter contains, after Mr Somerset sets out his then state of understanding of the case, the statement: "We are told that Mr Allen of Allen Allen & Hemsley has some knowledge of this matter and would be able to fill in the missing gaps. Needless to say, we would be more than happy if he could do so and we note that you will see him shortly with the documentation in order to see whether he can assist." 24 In evidence on the voir dire, Mr Lindsay-Owen has said that he did not see Mr Allen but rather authorised Mr Somerset to phone Mr Allen concerning this topic. 25 I would infer that the circumstances of the communication of the letter of 3 March 1998 to Allen Allen & Hemsley were connected, in some way, with Mr Somerset's attempts to "fill in the missing gaps" from Mr Allen. When there is that sort of inquiry made by a solicitor, who is running litigation, from someone who might be able to cast light on the topic, I would infer that the communication was a confidential one. I would, therefore, conclude that because of s 122(2)(a), s 122(2) does not result in the prohibition on adducing the privileged material being removed. Section 122(4) - Disclosure with Consent 26 The next potential means of relaxing the prohibition in ss 118 and 119 is that contained in s 122(4). It provides: "Subject to sub-s (5), this Division does not prevent the adducing of evidence if the substance of the evidence has been disclosed with the express or implied consent of the client or party to another person other than: (a) a lawyer acting for the client or party; or (b) if the client or party is a body established by, or a person holding an office under, an Australian law-the Minister, or the Minister of the State or Territory, administering the law, or the part of the law under which the body is established or the office is held." 27 Section 122(1) relates to consent given to the adducing of evidence in court; s 122(4) is concerned with consent given to the disclosure, out of court, of the substance of the evidence. 28 There was explicit evidence from Mr Lindsay-Owen that Mr Somerset did not have authority to show Mr Allen whatever Mr Somerset thought fit. There is explicit evidence from Mr Lindsay-Owen that he never provided a copy of the document to anyone and never told anyone that they had his permission to provide a copy. 29 However, issues of consent are not foreclosed by evidence of that kind. It seems to me that, when there was permission granted to Mr Somerset to discuss the matter with Mr Allen, that would bring with it permission to do whatever might be thought fit for the purpose of carrying through that permission. 30 Though Mr Allen had at one time acted as a lawyer for Mr Lindsay-Owen and his company, he was not, in March 1998, acting in that capacity. In my view, s 122(4)(a) must be construed so as to require the lawyer to be acting for the client or party in question at the time of the disclosure. In my view, it is adequately established that the letter was disclosed, with the express or implied consent of the client, to another person other than a lawyer acting for the client or party. It follows that privilege in the letter has become unavailable, under s 122(4). 31 For this reason, I allow the question. **********

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