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[2005] NSWCA 321
Court of Appeal (NSW)
2005-08-30
Beazley JA, Tobias JA, Bergin J
Original judgment source is linked above.
CITATION: Westpac Banking Corporation v 789TEN Pty Ltd [2005] NSWCA 321
JUDGMENT OF: Beazley JA at 1; Tobias JA at 2; Campbell AJA at 67
DECISION: (a) Leave to appeal granted; (b) Direct the claimant to file its notice of appeal within seven days of the date of these orders; (c) Appeal dismissed; (d) The claimant to pay the opponent's costs of the ordinary summons for leave to appeal and of the appeal
CATCHWORDS: PROCEDURE - Legal Professional Privilege - Whether letter from client to solicitors and letter from solicitors to client's auditors protected as privileged - Legal advice privilege - Whether letters prepared for dominant purpose of providing legal advice to client - Whether auditors were agents of client for purpose of receiving legal advice - Litigation privilege - Whether letters prepared for dominant purpose of client being provided with professional legal services - Evidence Act 1995 ss 118, 119
Civil Procedure Act 2005 Corporations Act 2001 Evidence Act 1995 LEGISLATION CITED: Legal Profession Act 2004 Supreme Court Rules 1970 Uniform Civil Procedure Rules 2005
Anderson v Bank of British Columbia (1876) LR 2 Ch D 644 Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 Commissioner of Taxation v Pratt Holdings Pty Ltd (2003) 195 ALR 717 DSE (Holdings) Pty Ltd v Interan Inc (2003) 135 FCR 151 Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332 CASES CITED: Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 Sparnon v Apand Pty Ltd (1996) 68 FCR 322 Trade Practices Commission v Sterling (1979) 36 FLR 244 Wheeler v Le Marchant (1881) 17 Ch D 675
Westpac Banking Corporation PARTIES: 789TEN Pty Limited
A: F M Douglas QC / R Scruby COUNSEL: R: M D Broun QC
A: Henry Davis York, Sydney SOLICITORS: R: Laurence & Laurence, Sydney
LOWER COURT JURISDICTION: Supreme Court - Equity Division
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40234/05
BEAZLEY JA TOBIAS JA CAMPBELL AJA
Monday 19 September 2005 WESTPAC BANKING CORPORATION v 789TEN PTY LTD
The claimant (the Bank) sought an order preventing the opponent having access to two letters (the letters) on the basis that they were subject to legal professional privilege.
The first letter was from the Bank to its solicitors Henry Davis York (HDY) requesting that the latter provide certain information to the Bank's auditors PriceWaterhouse Coopers (PWC) (the Bank's letter). The second letter was from HDY to PWC providing that information (HDY's letter).
The parts of the letters at the heart of the Bank's claim for privilege referred to the Bank's directors' estimate of any financial settlement that might be incurred in the primary proceedings between the Bank and the opponent, and HDY's opinion as to the reasonableness of that estimate.
The Bank claimed that the letters were protected as privileged under s 118 of the Evidence Act 1995 ("legal advice privilege") and/or s 119 ("litigation privilege"). The first provision relevantly protected documents prepared for the dominant purpose of a lawyer providing legal advice to a client. The second provision relevantly protected documents prepared for the dominant purpose of a client being provided with professional legal services relating to proceedings in which the client was a party.
The primary judge, Bergin J, held that the letters were not privileged and it was against that decision that the Bank sought leave to appeal to the Court of Appeal.
HELD per Tobias JA (Beazley JA and Campbell AJA agreeing) dismissing the appeal:
(1) The primary judge was correct in finding that s 118 did not protect the letters. They were not prepared for the dominant purpose of providing legal advice to the Bank ([30]).
(2) PWC did not receive the relevant information as an agent on behalf of the Bank; rather, it received that information on its own behalf for its own purposes, namely, the carrying out of the audit process in relation to the Bank ([29]-[30]).
(3) The primary judge was correct in finding that s 119 did not protect the letters. The letters would have been prepared irrespective of any intention on the part of the Bank to be provided with the legal opinion of HDY as to the reasonableness or otherwise of the directors' estimates. This was because PWC required those services from HDY for the purpose of carrying out the audit process ([58], [59]).
(4) Accordingly, the letters were prepared for the dominant purpose of PWC, rather than the Bank, being provided with the relevant professional legal service ([32]-[33], [60]). Anderson v Bank of British Columbia (1876) LR 2 Ch D 644; Trade Practices Commission v Sterling (1979) 36 FLR 244; Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44; Sparnon v Apand Pty Ltd (1996) 68 FCR 322; Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332; Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 referred to.
(5) An issue raised by the case was that subpoenas directed to a company's auditor for the production of correspondence such as the letters might become standard practice in litigation against companies that were subject to audit requirements, a practice that might not be conducive to a fair hearing of matters in issue in such litigation. This was a problem that might require legislative intervention, but such intervention should only be made in a manner which would not unduly extend the rationale that underpinned the privilege in question ([61]-[65]).
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40234/05
BEAZLEY JA TOBIAS JA CAMPBELL AJA
Monday 19 September 2005 WESTPAC BANKING CORPORATION v 789TEN PTY LTD Judgment 1 BEAZLEY JA: I agree with Tobias JA. 2 TOBIAS JA: The issue in this application for leave to appeal is easily stated but not so easily resolved. The primary question was whether s 119 of the Evidence Act 1995 (the Act) protected as privileged two confidential communications between Westpac Banking Corporation (the Bank) and its solicitors Henry Davis York (HDY) on the one hand, and HDY and the Bank's auditors, PriceWaterhouseCoopers (PWC) on the other. The relevant part of each communication related to proceedings instituted by the opponent against the Bank. 3 The primary judge, Bergin J, held that the communications were not privileged and it is against that decision that the Bank seeks this Court's leave to appeal. The application for leave has been heard concurrently with the substantive appeal.
The relevant facts 4 Between 1998 and 2001, 789TEN Pty Limited (the opponent) conducted an account with the Bank upon which certain persons, including a Mr Colin Alexander, were authorised to operate on certain conditions. Over the period referred to, a series of payments were made by the Bank out of the account totalling some $11.639 million. In the principal proceedings (the proceedings) the opponent alleged that those payments were procured by Mr Alexander and paid from the account by the Bank in breach of the terms of the authority or mandate upon which such payments could be made. Some of those payments were recovered with the consequence that the opponent sought to recover from the Bank a sum slightly less than $10 million. The Bank denied any allegation of breach of mandate or authority principally on the ground that the payments were in fact authorised. 5 The proceedings were duly instituted at a time when the Bank retained Allen Arthur Robinsons as its solicitors in respect of the opponent's claim. From late June 2003 the Bank retained HDY as its solicitors for that purpose. At some point the opponent's solicitors issued a subpoena to KPMG Australia Pty Limited (KPMG) seeking the production of, and access to, certain documents which included firstly a letter dated 24 September 2004 from the Bank to HDY requesting it to communicate directly with the Bank's auditors, PWC, in relation to certain matters (the Bank's letter) and, secondly, a letter dated 8 October 2004 from HDY to PWC responding to that request (HDY's letter - together, the letters). 6 By notice of motion the Bank sought an order preventing the opponent from having access to, inter alia, the letters on the basis that they were subject to legal professional privilege. Primary reliance was placed upon the provisions of s 119 of the Act and subsidiary reliance upon s 118. Those provisions governed the issue as to whether the Court should or should not have compelled the production of the letters by virtue of the provisions of Pt 36 r 13(2) of the Supreme Court Rules 1970 (the Rules). 7 Although it was submitted that that rule has no equivalent in the Uniform Civil Procedure Rules 2005 (the Uniform Rules), the parties were content for the appeal to be argued upon the basis that ss 118 and 119 of the Act governed its determination. However, I note in passing that the effect of Pt 36 r 13(2) of the Rules is in fact reproduced in the Uniform Rules by Pt 1 r 1.9 taken in conjunction with the definition of "privileged document" and paragraph (a) of the definition of "privileged information" in the Dictionary to those rules; see also the Civil Procedure Act 2005, Schedule 6, cl 10. 8 The Bank's letter was relevantly in the following terms: "In connection with the audit of Westpac Banking Corporation and its controlled entities listed in Appendix A for the year ended 30 September 2004, we request that you provide our auditors, PricewaterhouseCoopers, with the following information.
10 The relevant provisions of the Act were ss 118 and 119. It is necessary and appropriate to set them out in full.
11 Section 118 is headed "Legal advice" and is in the following terms: "Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication made between the client and a lawyer; or (b) a confidential communication made between 2 or more lawyers acting for the client; or (c) the contents of a confidential document (whether delivered or not) prepared by the client or a lawyer; for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client." 12 Section 119 is headed "Litigation" and provides as follows: "Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made; or (b) the contents of a confidential document (whether delivered or not) that was prepared; for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party." 13 Section 119 has been referred to, as its heading indicates, as relating to "litigation privilege" whereas s 118, as its heading indicates, has been referred to as relating to "legal advice privilege". Common to both provisions is that the relevant "communication" or "document" must be "confidential", terms defined in s 117(1) of the Act. It is convenient to observe at this point that the primary judge found (at [41]) that the confidentiality of the letters was "not seriously an issue" and this was clearly so. The opponent accepted that her Honour had found that each of the letters was relevantly confidential and although on the appeal an attempt was made by the opponent to challenge that finding, when it was pointed out that no Notice of Contention had been filed, the attempt was abandoned.
The decision of the primary judge with respect to the application of s 118 to the letters 14 It was accepted that the Bank's letter was a confidential document prepared by the Bank as the client of HDY and that HDY'S letter was a confidential document prepared by the Bank's lawyers, HDY. Two issues therefore arose as to the application of s 118. The first was whether both letters were prepared for the dominant purpose of HDY providing legal advice to the Bank and the second was whether PWC was the agent of the Bank to receive the legal advice so provided. In this respect, it was accepted that the Bank's letter was a request to its lawyer, HDY, to provide legal advice to PWC and that HDY'S letter was the provision of that advice to PWC. Even assuming that the letters were prepared for the dominant purpose of providing such legal advice, the real issue debated before her Honour was whether, given that s 118 required that the legal advice be provided "to the client" and that the definition of "client" in s 117(1) included an agent of the client, PWC was relevantly the agent of the Bank for the purpose of receiving the legal advice provided by HDY. 15 The necessity to prove agency was highlighted by the primary judge (in [51]) where she recorded the following passage from the judgment of Batt JA in Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332 at 336 [8]: "The other aspect of legal professional privilege has been called advice privilege, but it is not available when one of the parties to the communication is a third party who is not the agent of the client for the purpose of the communication." 16 The Bank having submitted that agency should be implied from the contents of the letters and the surrounding circumstances, the primary judge dealt in detail with that issue in [52] to [73] of her judgment. In so doing she referred to a number of authorities relating to the issue of agency. In particular, her Honour made extensive reference to the provisions of the Corporations Act 2001 which, so she concluded (at [62]), required an auditor to be independent of the audited company, a fact which weighed against the implication that an auditor stands in the shoes of the audited company as its agent for the purpose of receiving information from third parties about the company for the purpose of the audit process. 17 Her Honour considered that the present case was a claim of implied agency in circumstances where the auditor, the alleged agent, had statutory responsibilities of independence from the audited company. She was thus of the opinion (at [67]) that there was nothing in the Corporations Act that would authorise PWC, as the Bank's auditor, to act as its agent. In fact, her view was that the provisions of that Act were to the contrary and militated against the concept of an auditor ever acting as agent for the company it was auditing. Her Honour was not prepared to infer from the letters that were was an agency relationship and that the Bank understood that that was so in that the sensitivity of at least some of the material was recognised by the express authorisation by the Bank to HDY to discuss that information with the Bank's auditors, PWC, if so requested. Accordingly, she found (at [73]) that PWC received HDY's letter as an independent auditor and not as agent for the Bank as a consequence whereof s 118 did not apply to that communication. 18 Furthermore, the primary judge found that the dominant purpose of the preparation of the letters was not to provide legal advice to the Bank but to enable PWC as the Bank's auditor to use the information in the audit of the Bank's financial statements. This finding was consistent with her Honour's conclusion, when dealing with the application of s 119 of the Act to the letters, that they were not prepared for the dominant purpose of the Bank being provided with a professional legal service relating to the proceedings. Rather, as will appear, the dominant purpose of the letters was to provide information to PWC as the Bank's auditor for the purpose of assisting it with the audit process with respect to the Bank and its controlled entities.
The decision of the primary judge with respect to the application of s 119 to the letters 19 As the primary judge noted (at [41]), the real issue with respect to the application of s 119 to the letters was whether they were prepared for the "dominant purpose" of the Bank being provided with "professional legal services relating to an Australian proceeding". Noting that the term "professional legal services" was not defined in the Act but that "legal services" was defined in the Legal Profession Act 2004, her Honour accepted (at [44]) that the provision of a legal opinion as to whether the Bank's directors' estimate of a possible settlement figure was reasonable in all the circumstances, was the provision of "professional legal services" within the meaning of that term in s 119 of the Act. Her Honour also assumed that the opinion or professional legal service sought by the Bank and provided by HDY to PWC was one "relating to" the proceedings. There is no challenge by the opponent by way of Notice of Contention to either of these findings or assumptions in favour of the Bank. 20 In this respect her Honour had noted (at [43]) that those parts of the letters at the heart of the Bank's claim for privilege referred to the Bank's directors' "estimate" of "any financial settlement (including costs and disbursements)" that "might be incurred" and HDY's opinion as to whether that estimate was reasonable. The Bank submitted that the estimation by HDY of the Bank's potential liability, having regard to the estimation made by its directors, was fundamentally connected to the proceedings. Accordingly, as the process of confirming whether the directors' estimate was reasonable was the provision of a professional legal service and as that service related to the proceedings, it followed that the letters were prepared for the dominant purpose of the Bank being provided with that service. 21 On the other hand, the opponent submitted to the primary judge that the letters demonstrated on their face that HDY's response to PWC was "sought solely for information in connection with the audit of the financial report" of the Bank and thus made it abundantly clear that the dominant purpose of the documents was not to provide professional legal services to the Bank but to provide information to PWC in its capacity as the Bank's auditor. 22 Her Honour considered that it was necessary to look at the whole of the letters to ascertain the dominant purpose for which they were prepared. Having done so, she came to the following conclusion (at [48]): "HDY was requested to provide its opinion as to the reasonableness of the directors' estimate. That seems to me to have been a professional legal service and I would assume it was in relation to the proceedings. However, that was not the dominant purpose of the HDY letter. The dominant purpose was to let the auditors know whether the figures could be utilised reasonably in the audit. That is also the case in respect of the other information provided by HDY in respect of the detail of the matters and the amount of the liability of the Bank to HDY as at 30 September 2004 [and in respect of which no claim of privilege was made]. The assurances and protections provided to HDY in the Bank's letter also seems to me to strongly suggest that the dominant purpose of HDY's response was to provide information to the auditor for the purpose of assisting the auditor, the Bank and its controlled entities, with the audit process." 23 Thus, her Honour was not satisfied that the letters were prepared for the dominant purpose of the Bank being provided with a professional legal service relating to the proceedings. She accordingly dismissed those parts of the Bank's Notice of Motion filed on 24 December 2004 which sought to deny the opponent access to the letters.
The submissions on the appeal with respect to the s 118 issue 24 The Bank accepted that the "obvious difficulty" on the face of s 118 was the words "to the client" at the end of the section and the necessity to establish that PWC was the agent of the Bank for the purpose of receiving HDY's letter. It was submitted that her Honour had accepted, consistently with the judgment of Allsop J in DSE (Holdings) Pty Ltd v Interan Inc (2003) 135 FCR 151, the propositions advanced by his Honour (at 179 [94]) in the following passages of his judgment: "94. Ultimately, it is a question of fact whether the third party can be said to have been appointed by the client as an agent to communicate with the lawyer. … I do not see the basis in principle, or in the authorities, for the conclusion that the agents so appointed to communicate with the lawyer is limited to one who does no more than pass on knowledge or information received from the client. It seems to me that the question is whether the communication between the third party and the solicitor is taken to be the same as a communication between the client and the solicitor. It will be, if the client appoints the third party to communicate with the lawyer on its (the client's) behalf - whether in place of, or in addition to, it. I do not see how this is satisfactorily answered by limiting the role to being a messenger of information provided by the client to a lawyer. If the appointment of agency is, or is to include, the duty to give information and instructions to the lawyer in discussion with the lawyer and receive the lawyer's views, it is difficult to understand why the agency is not characterised as one to communicate with the lawyer for the purpose of giving and receiving legal advice. … 96. What is necessary is that the third party be the client's deputed agent to communicate with the lawyer in connection with the provision of legal advice." 25 The Bank therefore submitted that the present case was one where, at its direction, PWC received a document from HDY containing legal advice in relation to the Bank's legal position relating to the proceedings. One category of documents in DSE (Holdings) in respect of which Allsop J upheld a claim for privilege comprised communications between the client's solicitor and the client's banker in which the solicitor had provided legal advice to the banker concerning the client's proposed corporate structure. 26 The Bank further submitted that there was nothing in the Corporations Act which prevented an auditor from acting as its client's agent for the limited purpose of receiving or sending a document. Agency in this sense would not prevent the auditor from acting, or seeming to act, in an independent way. 27 The opponent submitted that PWC was not the agent of the Bank for any purpose, having been appointed as its auditor at an annual general meeting of shareholders and not by the directors. In particular, far from being the agent of the Bank for any purpose, as auditor PWC was an independent watchdog or overseer of the Bank's financial affairs. It was therefore submitted that in the present case neither the request contained in the Bank's letter nor the response contained in HDY's letter was for the dominant purpose of the Bank being provided with legal advice. 28 On the contrary, the opponent submitted that the Bank was not seeking legal advice for itself but was seeking, purely for the purpose of the audit process, that HDY confirm to PWC as the Bank's auditors whether the directors' estimate or provision with respect to its contingent liability in the proceedings was reasonable so that, when auditing the Bank's contingent liabilities generally, so far as that particular liability was concerned the auditors could be satisfied that the company's financial statements presented a "true and fair view" for the purposes of ss 297 and 305 of the Corporations Act. The confirmation of the directors' estimate of the contingent liabilities of the Bank in pending litigation was required by the auditors of the Bank's solicitors solely to enable the audit process in accordance with the Corporations Act to be properly performed.
Did the primary judge err in finding that PWC was not the agent of the Bank for the purpose of the application of s 118? 29 In my opinion this question should be answered in the negative. The reasons given by the primary judge to which I have referred are clearly cogent. As her Honour pointed out there was no evidence elicited before her by the Bank of any agency agreement between the Bank and its auditors. In particular, there was no evidence that PWC was appointed by the Bank to obtain the relevant information from HDY. Even if one assumes that PWC sought the confirmation in question, the Bank was doing no more than authorising HDY as its solicitors to provide that information to its auditors. Nor was PWC some form of agent of the Bank to receive the confidential communication contained in HDY's letter. It certainly received the information but did so solely for the purposes of performing its obligations under the Corporations Act with respect to the audit process. It is impossible, in my opinion, to regard PWC as receiving the relevant confidential information as an agent on behalf of the Bank: rather, it was receiving it on its own behalf for its own purposes. 30 Accordingly, in my opinion, the primary judge was correct in finding that s 118 of the Act did not protect the letters.
The submissions on the appeal with respect to the s 119 issue 31 The Bank submitted, as it had before the primary judge, that HDY's letter was created for the dominant purpose of providing at the Bank's request advice to a third party (PWC) relating to the Bank's liability in the proceedings. It submitted that once one accepted that the provision by HDY of its opinion as to the reasonableness of the directors' estimate of the Bank's contingent liability was the provision of a "professional legal service" and that that service was provided "in relation to" the proceedings, it was difficult to resist the conclusion that the "dominant purpose", if not the sole purpose, of HDY in sending its letter to PWC was the provision of a "professional legal service relating to the proceedings". 32 I interpolate at this point that the proposition so advanced, in the manner in which it is expressed, is correct. The difficulty is that it does not accord with the statutory provision. Section 119 does not merely require that the relevant confidential communication be made or that the confidential document be prepared for the dominant purpose of providing "professional legal services relating to" the proceedings. As will appear later in these reasons, that may have been the original intention of the Australian Law Reform Commission (the Commission) in its reports on "Evidence" to which I shall later refer. The difficulty with the Bank's submission is that the relevant documents must have been prepared for the dominant purpose "of the client" being provided with professional legal services relating to the relevant proceedings. The critical issue in the present case, therefore, is whether the letters were prepared for the dominant purpose of the Bank, as distinct from its auditors, being provided with the relevant confidential information. 33 Nevertheless, it was submitted by the Bank that her Honour's reasoning in [48] of her judgment which I have recorded in [22] above suggested that she was drawing a distinction between (i) the provision of HDY's opinion as to the reasonableness of the directors' estimate and (ii) informing the auditors whether the figures given to them by the directors could reasonably be utilised in the audit. It was submitted firstly that that was a distinction without a difference. In providing its views as to whether the directors' figures could be reasonably utilised in the audit, HDY was providing its opinion as to the reasonableness of that estimate and vice versa. However, for the reasons to which I have referred above, this submission misses the point, namely, whether the confidential communication was made or the confidential document was prepared for the dominant purpose of the Bank being provided with HDY's opinion as to the reasonableness of the directors' estimate. 34 Secondly, the Bank submitted that her Honour erred in distinguishing between HDY's purpose in sending its letter to PWC and the Bank's purpose in requesting that it be sent. It was contended that there was no relevant difference between the purposes of the Bank and HDY which was to procure from HDY and for HDY to provide to PWC what her Honour accepted to be a "professional legal service". In my opinion, this argument perpetuates the error to which I have referred. 35 Thirdly, it was submitted that the last sentence of [48] of her Honour's judgment suggested that she was relying to some extent upon the terms on which the Bank characterised the purpose of its request to HDY to send a representation letter to PWC. In this respect the Bank's letter had stated that HDY's letter to PWC was "sought solely for information in connection with the audit …". It was submitted that such reliance was misplaced for two reasons. The first was that there was no inconsistency between providing information "solely in connection with the audit" and providing information "for the dominant purpose of providing professional legal services relating to" the proceedings. The existence of the proceedings, and the Bank's possible or contingent liability with respect thereto were both necessary and sufficient conditions for the provision by HDY of its letter to the auditors. The provision of that letter at the request of the Bank was at one and the same time the provision of information in connection with the audit and of information relating to the proceedings so that the provision of that information was the provision of a professional legal service. The same error is, with respect, also perpetuated in these submissions. 36 Fourthly, it was submitted, as her Honour appeared to have recognised (at [46]), that the Bank's characterisation of the purpose of its letter could not be determinative, the dominant purpose of the creation of the letters being a question of objective fact, and that, having accepted that the sending of the letter by HDY to PWC was the "provision of legal services in relation to proceedings", her Honour ought to have concluded that the letters were privileged. 37 The opponent submitted that the approach adopted by the primary judge was clearly correct and that it was inevitable that she would find, given the terms in which the correspondence was expressed, that as a matter of objective fact the letters were prepared for the dominant purpose of PWC, in its capacity as the Bank's auditor, being provided with a professional legal service relating to the proceedings. However, such a finding could not satisfy the section which required the relevant communication or document to be made or prepared, respectively, for the dominant purpose of the Bank being provided with such a service.
Did the primary judge err in finding that s 119 had no application to the letters? 38 Prior to the enactment of s 119 of the Act, communications between the client and another person, or between a lawyer acting for the client and another person, even if made for the dominant purpose of the lawyer providing legal advice to the client, were not privileged under the general law: Wheeler v Le Marchant (1881) 17 Ch D 675 at 681 per Jessell MR; at 683 per Brett LJ; at 684-685 per Cotton LJ. 39 The exception to this general proposition was where confidential communications passed between a legal advisor or his or her client and a third party (who was not an agent for the client) provided it was made for the dominant, if not sole, purpose of use in or in relation to litigation then existing, anticipated or in contemplation: Wheeler v Le Marchant, supra. As was pointed out by Batt JA in Mitsubishi Electric at 335-336 [8], this aspect of legal professional privilege was called litigation privilege as distinct from legal advice privilege. It was described by Lockhart J in Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246 with respect to the communication by a client's solicitor to a third party as being confined to "[c]ommunications and documents passing between the party's solicitor and a third party if they are made or prepared when litigation is anticipated or commenced, for the purposes of litigation, with a view to obtaining advice as to it or evidence to be used in it or information which may result in the obtaining of such evidence." 40 As was pointed out by Batt JA in Mitsubishi Electric at 336 [8], the element essential to this aspect of privilege, being a privilege for communications to and from third parties, is that there be litigation either pending or in contemplation and that the communication had come into existence for use in or in relation to the litigation, that being its sole or dominant purpose. 41 The foregoing purpose of the general law privilege was confirmed by Wood J (as he then was) in Nickmar Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44 at 54 where, after citing the various passages in the judgments of their Lordships in Wheeler v Le Marchant to which I have referred, his Honour observed that communications from a third party (not being an agent of the client) to the client's solicitor were only privileged where the communication was in contemplation of litigation or for the purpose of giving advice or obtaining evidence with reference to it. Similar sentiments were expressed by Finn J, with whom Merkell J agreed, in Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 at 364 [25] where his Honour observed that in Wheeler v Le Marchant it was recognised that a distinct rule applied in relation to litigation privilege such that it would attach to third party communications from the legal advisor (and, one assumes, vice versa) if made in contemplation of litigation for the purpose of giving advice or for obtaining evidence. 42 In the judgment of Stone J in the same case, her Honour referred (at 374 [58]) to the statement of the primary judge, Kenny J at (2003) 195 ALR 717 at 726 [39]-[40], that the common law in Australia was that litigation privilege attached to, inter alia, "confidential communications passing between a client, the client's legal advisor and third parties, for the dominant purpose of use in or in relation to litigation, which is either pending or in contemplation." 43 After an analysis of the authorities explaining the rationale of legal professional privilege, Stone J (at 382 [89]) noted that the practical approach referred to by Gummow J in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 569 to preserving the efficacy of legal professional privilege was also manifested in the recognition that in the context of litigation the privilege extended not only to communications between the client and his lawyers but also to material gathered for the purpose of compiling the brief in the litigation. So much was justified by the passage from the judgment of Cotton LJ in Wheeler at 684-685 to which I have referred. 44 Her Honour then considered that even that broad application required that the purpose criterion be met. She referred to the decision of the Court of Appeal in Anderson v Bank of British Columbia (1876) LR 2 Ch D 644 where the Court held that a letter from a branch manager of the Bank of British Columbia to the head office setting out the full particulars of a transaction that was likely to be the subject of litigation was not privileged. The account of the transaction was requested by the head office but there was nothing to indicate that the document was required for the purpose of or in contemplation of litigation rather than merely for the purpose of enabling the head office to understand the transaction. Her Honour noted (at 383 [90]) that, presumably, if the report had been requested by a solicitor, the court would have been able to infer that the requisite purpose was present although it was not necessary that the request be made by the solicitor so long as the purpose test was met. 45 Pratt Holdings was concerned more with legal advice privilege than with litigation privilege. Nevertheless, Stone J summarised her analysis of the relevant authorities in the following terms (at 386-387 [106]): "The difficulties in proving the relevant [dominant] purpose should not be underestimated. Advice as to commercially advantageous ways to structure a transaction are extremely unlikely to attract privilege because the purpose in putting the advice together will, in most cases, be quite independent of the need for legal advice. Even if the parties have in mind that the advice will be submitted to a lawyer for comment, the purpose is unlikely to be the dominant purpose. Determining the dominant purpose underlying a communication may be difficult but no more so than many questions that come before courts. Courts would need to take into account exactly what function was served by the expert advice and whether it was really required in order to instruct the legal advisors fully. Obviously if the third party is an agent of the client and the client has the requisite purpose the determination is comparatively simple. Similarly if the material sought by the lawyer is required for litigation it is not difficult to determine the chain of authority and to find the requisite purpose …" (emphasis added). 46 It is to be observed that there was no suggestion in the present case by the Bank that the letters were prepared for use in or in relation to the litigation in the narrow sense under the general law referred to by Lockhart J in Sterling or by Batt JA in Mitsubishi Electric or in the other authorities to which I have referred above. 47 I turn therefore to the provenance of s 119 in the Commission's Interim Report No. 26 on "Evidence", Volume 1, 495 [877] under the subheading "Third Party Communications". The Commission noted that the reasons advanced for legal professional privilege with respect to conversations between lawyer and client did not justify the privilege that protected communications between third parties and the lawyer or the client in connection with litigation. However, that aspect of privilege could be justified as integral to the adversary mode of trial. The Commission considered (at 498 [881]) that the major question to be considered was whether and to what extent communications with third persons other than for the purpose of seeking legal assistance only should be protected. It was in this context that the dominant, as distinct from the sole purpose test, was advocated. However, the justifications that could be advanced for a privilege for such third party communications did not, according to the Commission (at 500 [882]) justify the extension of the privilege to a pure advice situation and thus it should be limited to the situation where litigation is pending or being contemplated. Accordingly, it was proposed "that communications between: · a lawyer and a person other than the client, his servants and agents; · the client and other persons, including servants and agents should not be disclosed without the client's permission if it occurs at a time where litigation is anticipated or commenced and the dominant purpose of the communication was to assist in obtaining legal advice and assistance about the litigation." 48 Accordingly, the draft Bill set out in Volume 2 of the Interim Report proposed that the privilege be expressed in the following terms in cl 105(2): "Where, on objection by a client of a legal practitioner the Court finds that the giving of evidence will result in the disclosure of - (a) a confidential communication between - (i) two or more of the persons mentioned in subsection (1); (ii) a person referred to in subsection (1) and some other persons; or (iii) … or (b) the contents of a document (whether delivered or not), that was made or prepared for the dominant purpose of providing or receiving professional legal services in relation to anticipated or pending administrative or legal proceedings in which the client is or may be a party, the court shall direct that the evidence not be given."
The persons mentioned in subsection (1) were the client and the legal practitioner. 49 It will be immediately noted that cl 105(2) did not, as does s 119, require that the communication be made or the document be prepared for the dominant purpose of the client being provided with professional legal services in relation to the identified proceedings. 50 The Final Report of the Commission was No. 38. It noted (at 112-113 [195]) that the Interim Report had proposed that, on objection by or on behalf of the client concerned, the court should prevent the giving of evidence of the contents of, inter alia, confidential "[c]ommunications between lawyer or client and a third party … made for the dominant purpose of providing or receiving legal services in connection with pending or anticipated litigation." 51 Reference was then made to the representations which had been received with respect to such confidential communications but none apparently touched the issue with which this appeal is concerned. It was recommended that subject to certain changes not presently relevant, the interim proposal should be implemented. The draft Bill to the report provided for the subject privilege in cl 106(2) which was in identical terms to cl 105(2) in the Interim Report with immaterial exceptions. There is nothing in the texts nor the authorities which explain why the clause in the draft Bill was altered by limiting the making of the confidential communication or the preparation of the confidential document for the dominant purpose of the client being provided with professional legal services. It may well be that it was not considered that those words added anything to the provisions of the draft Bill proposed by the Commission upon the basis that the dominant purpose of providing or receiving professional legal services relating to pending or anticipated legal proceedings could only rationally be for the provision or receipt of those services to or by the client. Whether this is so or not, s 119 focuses on the dominant purpose being the provision of professional legal services to the client. 52 In the present case, the primary judge (at [22]) had described the relevant "dominant" purpose as being "the prevailing or most influential purpose having the element of clear paramountcy."
This was a description that was not subject to challenge and it is appropriate to adopt it for present purposes. 53 Based on that description, it was perhaps not surprising that in the circumstances her Honour accepted the opponent's submission that the dominant purpose of the letters was not to provide professional legal services to the Bank but to provide information to the auditors to enable it to perform its auditing obligations under the Corporations Act. As her Honour concluded (at [48]) and I repeat: "The dominant purpose was to let the auditor's know whether the figures [of the directors] could be utilised reasonably in the audit." 54 In these circumstances, it is understandable that the primary judge found that the legal service provided by HDY's letter to PWC was its legal opinion as to whether the directors' estimate was reasonable: see [44]. However, HDY's letter was prepared, so her Honour found, for the dominant purpose of PWC being provided, albeit at the request of the Bank, with the professional legal service constituted by the solicitor's opinion as to the reasonableness of the directors' estimate relating to it is the Bank's contingent liability in the proceedings. 55 The contrary proposition was that the Bank's letter was prepared for the dominant purpose of the Bank being provided by HDY with the legal professional service of advising PWC as the Bank's auditors as to the reasonableness of the directors' estimate of it is the Bank's contingent liability relating to the proceedings. HDY's letter was prepared for the dominant purpose of providing the auditors with that legal opinion. Accordingly, that letter was prepared for the dominant purpose of the Bank being provided with that service to enable its auditors to proceed with the audit. 56 In other words, although the relevant legal service constituted by HDY's opinion as to the reasonableness of the directors' estimate was to be provided to PWC as the Bank's auditors, the dominant purpose of the Bank in sending the Bank's letter and requiring HDY to provide the relevant service to PWC was to enable the Bank to be provided by HDY with that service. It is true that the service as constituted by the legal opinion was to be provided to and received by PWC for its purposes but the dominant purpose was for the Bank to be provided with the relevant legal opinion to be passed on at the Bank's direction to its auditors. In that sense, the letters were prepared for the dominant purpose of the Bank being provided with a professional legal service relating to the proceedings and were therefore privileged. 57 In my view there is something artificial, if not convoluted, about the foregoing propositions. Although it has been suggested that s 119 of the Act has indirectly widened the right of a party to litigation to claim that a document is privileged from production, and that has been assumed in a number of cases, there does not appear to be any decision directly in point: cf Sparnon v Apand Pty Ltd (1996) 68 FCR 322 at 324-325. In that case Branson J, when discussing what was required by the test of "dominant purpose" adopted by s 119, observed (at 328) as follows (omitting citations): "It will be a question of objective fact whether in any case any one purpose 'dominated' the decision to bring the document into existence. Such objective fact is not necessarily to be ascertained by reference solely to the intention of the author of the document, or solely to the intention of the individual upon whose instructions the document was brought into existence … Plainly if two purposes were of equal weight, one would not dominate the other. If the decision to bring the document into existence would have been made irrespective of any intention to obtain professional legal services, I am inclined to doubt that the purpose of obtaining professional legal services could be regarded as the dominant purpose for the making of the document . It seems to me that … the choice of the expression 'dominant purpose' rather than 'sole purpose' in s 119 of the Act is intended to bring within the scope of client legal privilege, a document brought into existence for the purpose of a client being provided with professional legal services notwithstanding that some ancillary use of the document was contemplated at that time." (emphasis added) 58 In the present case, there was no evidence as to the intention of the authors of the letters apart from their contents. In particular, there was no evidence to suggest that the Bank was seeking the relevant legal opinion of HDY in order to inform itself or its directors as to whether the directors' estimate of the Bank's contingent liability with respect to the proceedings was right, wrong or indifferent. That may have been a purpose but not its "dominant purpose". To adopt and adapt the language of Branson J in Sparnon which I have emphasised, the preparation of the letters would have occurred irrespective of any intention on the part of the Bank to be provided with the legal opinion of HDY as to the reasonableness or otherwise of the directors' estimate. This is so because even if that was a purpose of the Bank, the letters would have been prepared irrespective of that intention since PWC, as the Bank's auditors, required those services from HDY, which could only be provided with the Bank's authorisation, for the purpose of carrying out its audit obligations under the Corporations Act.
Conclusion 59 In a somewhat artificial way, it might be argued that the dominant purpose of preparing the letters was for the Bank to be provided with the relevant legal opinion of HDY to be used by PWC in the audit process: see [55] and [56] above. But no reason was advanced and it cannot be inferred from the terms of the letters that it was even a purpose of the Bank that HDY was to provide the relevant opinion as to the directors' estimate so that the Bank became aware of something of which it was otherwise ignorant, or that the opinion was needed for any other purpose associated with the litigation including any possible or contemplated compromise thereof. In my opinion, the evidence established that the only need of the relevant service to be provided by HDY was that of PWC as the Bank's auditor. Accordingly, the letters would have been prepared irrespective of any intention, of which in my opinion there was no evidence, objective or otherwise, of the Bank to ascertain for its purposes the legal opinion of HDY as to the reasonableness or otherwise of the directors' estimates provided to PWC for the purpose of its audit of the Bank's annual accounts. 60 It follows in my view that the letters were prepared for the dominant purpose of PWC, rather than the Bank, being provided with the relevant professional legal service. In my opinion, the primary judge was correct so to find. 61 There is one further observation that needs to be made. It was pressed upon the Court by the Bank that a denial of privilege for the letters would have a deleterious practical consequence in that the statutory obligations of auditors and directors of public companies under the Corporations Act were such that the provision of a solicitor's representation letter was a necessary incident of the audit process where the public company was in litigation with a third party. Accordingly, given that an auditor was required to express the opinion that a company's accounts presented a "true and fair view" of its financial affairs, it was more likely than not that a prudent auditor would require confirmation of the directors' estimate of contingent liabilities by the company's solicitors and that this confirmation would be provided directly to the auditor as it was in the present case. Any other course would appear to be out of step with common practice in Australia: see Arens et al, Auditing in Australia, 5th ed (2002) at 717-718. 62 In these circumstances, if the primary judge's decision in the present case was upheld, then a subpoena directed to a company's auditor for the production of correspondence such as the letters would become standard practice in litigation against companies that were subject to audit requirements. It was submitted that this would not be conducive to a fair hearing of matters in issue in such litigation, as such companies would be forced to divulge information that, by virtue of their statutory obligations, they were, as a matter of practical reality, obliged to disclose. 63 The primary judge was also conscious of this submission for in [72] of her judgment she said this: "When a letter is sought for the purpose, inter alia, of assessing the contingent liabilities in the financial accounts of a company, a company is at risk if it allows its solicitors, carte blanche, to deal directly with the auditors. The better course, for the protection of any privileged communications, is for the solicitors to advise the client and for the client to prepare the letter excluding privileged material and ensuring its protection. The reality of the problem is exposed in Auditing in Australia (Arens, A.A. et al Auditing in Australia 5th ed Prentice Hall, Sydney, 2002) at page 718." 64 It is clear from the passage from Arens relied upon by the primary judge as well as by the Bank in its submissions referred to above, that the managers of a company required to be audited are being encouraged to instruct its lawyers to provide contingency liability information to its auditors notwithstanding that that information would not be privileged. The alternative, if the information is to remain confidential, is that the audit report would be qualified. In these circumstances, I have some difficulty in understanding her Honour's suggestion that the problem can be avoided and the privileged communication protected if the solicitors advise the client and the client writes to the auditors excluding the privileged material so as to ensure its continued protection. As I understand the position, it is the privileged material that the auditors require and it makes no difference in my opinion whether it is provided directly by the client to the auditors or by the solicitors direct to the auditors at the client's direction. 65 There is obviously a problem which may require legislative intervention. However, any such intervention (for instance, by amendment to the Evidence Act or the Corporations Act) should only be made in a manner which would not unduly extend the rationale which underpins the privilege in question and which, essentially, is no different to that which applies under the general law with respect to litigation privilege where the relevant confidential information is directly related to assisting the prosecution, defence or compromise of pending or contemplated proceedings. It may well be the case that the information in respect of which privilege was sought in the present case by the Bank would not fall into those categories in any event. 66 I would therefore propose the following orders:
(a) Leave to appeal granted; (b) Direct the claimant to file its notice of appeal within seven days of the date of these orders; (c) Appeal dismissed; (d) The claimant to pay the opponent's costs of the ordinary summons for leave to appeal and of the appeal. 67 CAMPBELL AJA: I agree with Tobias JA. **********
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Westpac Banking Corporation
789TEN Pty Ltd
(1997) 188 CLR 501
(2003) 195 ALR 717
(2003) 135 FCR 151
(2002) 4 VR 332
(1985) 3 NSWLR 44
(2004) 136 FCR 357
(1996) 68 FCR 322
(1979) 36 FLR 244