Waugh Asset Management v Merrill Lynch [2010] NSWSC 197 | Case summary

1 HIS HONOUR: The plaintiffs in these proceedings, to whom it is convenient to refer collectively as "Waugh", were interested in buying a number of hotels from various vendors. Waugh required finance to achieve that purpose. It approached the defendant (Merrill Lynch) in about February 2003 for assistance. Waugh says that Merrill Lynch proposed something called a "whole business securitisation of the hotel portfolio" as a means of raising the necessary funds. In short, Waugh's claim is that Merrill Lynch breached the agreements made between them and that Waugh suffered significant damage. 2 Pursuant to orders of the Court (as varied from time to time) for the parties to file the whole of their lay evidence, Merrill Lynch filed a written statement by a Mr A J Stutchbury. Mr Stutchbury was, at the relevant time, an employee of Merrill Lynch and apparently involved in the relevant transaction. In paragraphs 26 to 28 of the statement, Mr Stutchbury refers to the question of title to the assets that were being sold: not merely the real estate, but intangible property such as gaming licences. It appears that Merrill Lynch obtained independent legal advice from a firm of lawyers, Back Schwartz Vaughan, in relation to due diligence. In paragraph 28, Mr Stutchbury says that as at the beginning of November 2003, the issue of good title had still not been resolved to his satisfaction. It is suggested, and I am prepared to infer (both from what Mr Stutchbury says in paragraph 28 and from certain documents referred to by him in paragraphs 27 and 28) that, by the beginning of November 2003, Merrill Lynch had received independent legal advice from Back Schwartz Vaughan for what Mr Stutchbury states as the relevant purpose: "to assist with its due diligence on title relating to the relevant gaming permits". 3 In those circumstances, Waugh caused a subpoena to be issued and served on Back Schwartz Vaughan requiring the production of that firm's relevant files. The documents have been produced, but a claim of privilege has been made. By notice of motion filed on 2 March 2010, Waugh seeks access to the documents produced by Back Schwartz Vaughan. Merrill Lynch opposes that access. 4 The submissions for Waugh, at least those put in writing prior to the hearing of the notice of motion, suggested that the question to be resolved was what it is convenient (although not strictly accurate) to call "waiver of privilege": a shorthand reference to s 122 of the Evidence Act 1995 (NSW). Waugh submitted that s 122 was applicable through the mechanism of s 131A and UCPR r 1.9. However, as Mr Scotting of counsel, for Waugh, developed his submissions, it appeared to be put that there was really no question to go to s 122. 5 Ms Gleeson of counsel, for Merrill Lynch, submitted that if the question were to be addressed under s 122, then there was no inconsistency because of s 122(5). That sub-section says, in essence, that someone is not taken to have acted inconsistently with the maintenance of a privilege (the situation contemplated by sub-s (2)) simply because the person has acted under compulsion of law (see s 122(5)(a)(iii)). 6 Further, Ms Gleeson submitted, if the position were governed by the common law, the outcome would be the same. 7 I return to the fact that we are concerned with the question of access to documents produced on subpoena by a third party. Brereton J was confronted with such a situation in Carbotech-Australia Pty Ltd v Yates [2008] NSWSC 1151. As his Honour pointed out at [10], the process of complying with the subpoena involves three steps. The first is production to the Court in answer to the subpoena. The second is interim use - for example, access for inspection or copying. The third (which may never arise) is the tender of the document. That process was identified by the Court of Appeal in National Employers' Mutual General Association Ltd v Waind and Hill [1978] 1 NSWLR 372. There is no doubt that it continues to apply, subject to such modifications as may have been effected by r 1.9, today. 8 Further, Brereton J said, it was only the first of those three steps that was governed by r 1.9. His Honour said at [11] that "neither the [Evidence] Act nor the Rules apply to the second stage, and it follows that the common law continues to apply to the second stage". 9 Section 131A of the Evidence Act applies where a party to litigation is required by a "disclosure requirement" to give information or produce documents. Where the person objects to giving information or providing documents, for example on the grounds of privilege, the objection is to be determined by applying the relevant provisions of Division 1A of Chapter 3 of the Evidence Act "with any necessary modifications as if the objection to giving information or producing the document were an objection to the giving or adducing of evidence". 10 Further, by sub-s (2) a "disclosure requirement" is defined to mean a court process or order that requires the disclosure of information or a document, and includes a subpoena to produce documents. 11 Accordingly, I agree with Brereton J that the focus of r 1.9 (which is the rule that deals with objections to production of documents) and s 131A applies at the stage of production. It does not, as it seems to me, apply at the stage of subsequent use. Of course, it is not at the first stage (production), but at the second (interim use, such as access or photocopying), where questions of privilege are raised. 12 I therefore think that the better view is that the question ought to be dealt with in accordance with the relevant principles of the common law. But that does not seem to me to matter because, as I shall indicate, the same answer is to be given whether the situation is dealt with under the common law, or pursuant to the Evidence Act. 13 If the position is to be dealt with at common law, the relevant framework for analysis is (insofar as the question of waiver is relevant) that Mr Stutchbury's statement was produced pursuant to a requirement of the Court, or produced under compulsion. It is also necessary to bear in mind that the documents to which access are sought are not the pages of the statement itself, or documents explicitly referred to in it, but underlying documents that are said to inform a state of mind that is said to appear from the relevant paragraphs of the statement. 14 The position at common law was examined by Powell JA in Sevic v Roarty (1998) 44 NSWLR 287. In that case, pursuant to the direction given by the Court, the defendant filed its expert reports with the Court. One of those reports was given by a Dr Robert Tinning. His report started by acknowledging receipt of a letter of instructions "and the documents concerning this claim in a well indexed folder". The plaintiff sought an order that the defendant produce the letter of instructions and supporting documents. 15 The majority of the Court (Sheller JA, with whom Fitzgerald AJA agreed) concluded that the matter should be dealt with under the Evidence Act, and that the relevant material was privileged. Powell JA agreed that the material was privileged, but got to that point by application of what his Honour saw as the relevant principles of the common law. His Honour's view is, I think, sufficiently summarised at 301, where he said that, the documents being in the normal course subject to legal professional privilege and there being no question of express waiver, the question was whether waiver should be implied from the reference in Dr Tinning's report to the "well indexed folder". His Honour said that the current position: ...would seem now to be that waiver is not to be implied or imputed where the document the delivery of which is relied upon to found the implication, or to support the imputation, of waiver was delivered whether to the other party to the litigation or to a third party - pursuant to an order of a court or otherwise under compulsion of law unless the documents be later tendered in evidence on the hearing of the proceedings...or otherwise used in such a way on the hearing of those proceedings as would make it unfair to the other party not to treat the privilege as having been waived.

16 Powell JA then reviewed the authorities in some detail, and reaffirmed at 308 the conclusion that I have just set out. His Honour said that it was clear that the report had not yet been, and might never be, tendered, nor used in any other way that could engender unfairness. Thus, he concluded, privilege attached, and had not been waived. 17 Accordingly, if the question is one of waiver and is to be dealt with at common law, the answer must be that there can be no implied or imputed waiver of privilege in such legal advice as Merrill Lynch may have received from Back Schwartz Vaughan simply because Mr Stutchbury gave evidence of a state of mind which might have been informed by a perusal of that advice. That is so because Mr Stutchbury's statement was produced - i.e. filed and served - under compulsion of law - this Court's directions. There is no other suggested basis of relevant unfairness or (for the purposes of s 122) inconsistency. 18 As I have said, it seems to me that the same result must follow if one goes through the process to which s 122 directs attention. That is because, as I have said, to the extent that s 122(2) applies by analogy, it directs attention to inconsistent conduct; but s 122(5) makes it clear that there is no inconsistent conduct simply because the party seeking to maintain privilege acted as it did under compulsion of law. That proposition is supported by the decision of the Court of Appeal in Akins v Abigroup Ltd (1998) 43 NSWLR 539. It is not necessary to go to the facts of that case in any detail. It related to an attempt by a litigant in proceedings in this Court to maintain privilege in witness statements that had been served in compliance with the Court's orders. Mason P (with whom Priestley JA and Rolfe AJA agreed) concluded that the relevant compulsion was made out in that case, because the documents in question were served pursuant to the Court's direction. His Honour's reasoning was applied by Campbell JA (sitting as a judge of first instance) in Ingot Capital v Macquarie Equity [2008] NSWSC 25 at [32]. His Honour there said that the evidence in question was provided in obedience to the Court's directions, and accordingly provided under compulsion of law for the purposes of s 122. He applied, among other cases, the decision of the Court of Appeal in Akins. 19 Thus, if the question is one of waiver, then whether it is approached from the standpoint of the common law or the standpoint of s 122, the answer must be that there has been no waiver (or, returning to the language of s 122, inconsistency) simply by the service of the witness statement in obedience of the Court's directions. 20 However, in oral submissions, Mr Scotting appeared to move to a different argument. He referred to the judgment of White J in Buzzle Operations v Apple Computer Australia [2009] NSWSC 225. In that case, affidavits and witness statements had been prepared for the purpose of a proceeding brought by one of the plaintiffs in the Federal Court of Australia, not against the defendant, but against other parties. Those proceedings were settled before the affidavits were read, or the witness statements tendered. The defendant in the proceedings before White J sought access to those documents. His Honour concluded that the documents were not privileged, because confidentiality had been lost when (in the Federal Court proceedings) they were served on the opposing party. He relied on the decision of the Full Court of the Federal Court of Australia in Australian Competition and Consumer Commission v Cadbury Schweppes Pty Limited (2009) 174 FCR 547. His Honour said that, this being the last word of an intermediate appellate court and there being no authority (at least cited to him) that compelled him to disregard it, he should follow it. In Cadbury Schweppes, the Full Court said at [37] that, confidentiality being of the essence of litigation privilege, it was destroyed once the document in respect of which confidentiality was claimed was disclosed to the opposing party in litigation. Their Honours said that: [i]t is impossible for litigation privilege to attach to the finalised proofs of evidence, when the finalised proofs of evidence were created for the purpose of serving them on the ACCC's opponent and when they were in fact served on that opponent. 21 White J at [12] said that Akins did not compel a different conclusion (although it could be said that there is some degree of inconsistency between the outcome in that case and the outcome in the case before the Full Federal Court). That is because there was no argument in that case as to whether or not the statements in question were privileged. As his Honour said later, although it might have been assumed that the documents were privileged, cases are authority for what they decide, not for what they assume. (See White J at [32], citing Markisic v Commonwealth of Australia (2007) 69 NSWLR 737 at [56].) 22 Mr Scotting submitted that in this case there was no relevant question of waiver (I repeat, a different point to that taken by him in his written outline), because privilege did not exist once Mr Stutchbury's statement had been served. I am prepared to accept that privilege in Mr Stutchbury's statement was lost once it was served on Waugh. But this application does not concern privilege in Mr Stutchbury's statement. It concerns privilege in documents that are said, in effect, to inform, or to be relevant to, an aspect of what Mr Stutchbury says in that statement, but which are not specifically identified or referred to in it. The issue that was raised originally seems to me to be the correct one: namely, that the question is whether the evidence that Mr Stutchbury gave (or, more accurately, if called will give) is relevantly inconsistent with (for the purposes of s 122) or constitutes a waiver of (for the purposes of the common law) privilege in those antecedent documents. It does not seem to me to be in any way relevant to a resolution of that question that the document said to effect the inconsistency, or the waiver, (at least, through its service) is not itself privileged. 23 Accordingly, in my view, the objection taken by Merrill Lynch at the preliminary level is well founded. Of course, if Mr Stutchbury's statement is given into evidence, then a different analysis would be required. It would then be necessary to go to the merits of the application and to see whether, in the light of the issues in that case and the use in a forensic sense, sought to be made of the relevant part of Mr Stutchbury's evidence, there is either inconsistency or waiver. But we are not yet at that stage, and may never get there. 24 In those circumstances, as I said in the course of argument, the appropriate course is to stand over to the trial judge the further hearing of the plaintiff's Notice of Motion filed on 2 March 2010, and I so order. 25 That leaves the question of costs and (if they are needed) further directions.

Waugh Asset Management v Merrill Lynch

At a glance

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Judgment (13 paragraphs)

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Legislation Cited (1)

Cases Cited (7)

Cited By (12)