Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd

Supreme Court of NSW|2020-05-04|Before: Ward CJ

Background

It is convenient here to recount, as relevant, the history of the present applications, as well as the terms of the GR Capital Notice to Produce and the Xinfeng Subpoena.

History to the present applications

By amended statement of claim filed on 6 October 2018 (in proceedings that had been commenced only on 9 August 2018), Xinfeng sought to recover the sum of $10 million plus interest allegedly due under a loan agreement entered into with One Capital as borrower. That advance was guaranteed and secured by GR Capital and Mr Wensheng Liu. Each of the defendants (again, here referred to as the Judgment Debtors) denied liability and they filed a cross claim in the proceedings.
On 13 October 2018, shortly prior to the date on which the hearing of the matter was due to commence (that being 18 October 2018, as already noted), the Judgment Debtors served a notice to produce to Court which the Judgment Creditors here note sought production of, inter alia, the same documents as those the subject of the GR Capital Notice to Produce. The Judgment Creditors here note that, at the relevant time, the defendants' then solicitors maintained (in an email of 15 October 2018) that: … The documents requested have all been identified with specificity, and are for the legitimate forensic purpose of adducing materials which go to the core matter of monies being transferred between the parties (and their related entities and agents). This is a matter that is raised throughout your clients' evidence.

GR Capital Notice to Produce

By the GR Capital Notice to Produce issued 28 February 2020, GR Capital seeks (at [1]) any application and supporting document lodged with the Chinese Government relating to a Certificate (to which, see below); and (at [2]) any document recording any approval or authority from the Chinese Government relating to the Alleged Loans or the transfer of funds from China to Australia in respect of the Alleged Loans, other than the Certificate.
More precisely, the GR Capital Notice to Produce is in the following terms: 1. Any application and supporting Document lodged with the Chinese government relating to the Certificate [defined as the document at page 125 of Exhibit YL-1 to the Affidavit of Yuqing Liu affirmed 14 October 2018]. 2. Any Document recording any approval or authority from the Chinese government relating to: (a) the Alleged Loans [defined as the alleged loans advanced pursuant to the documents identified at Annexure D of the Affidavit of Yuqing Liu of 6 August 2018]; or (b) the transfer of funds from China to Australia in respect of the Alleged Loans, other than the Certificate.
It is noted by the Judgment Creditors that the Certificate referred to (in [1]), being a Certificate for Enterprise Foreign Investment, was obviously to be the subject of evidence from both sides at the compromised hearing, noting that: Mr Yuqing Liu's evidence was that he saw the Certificate in about September 2016 and gave an instruction to let Mr Wensheng Liu know about it; Mr Wensheng Liu's evidence was that he was told about it and received a copy in September 2016 (which he exhibited to his affidavit); Ms Chaoli Du, the Accountant Manager for Xinfeng China, said it was shown to her; and Ms Yuanyuan Meng, the Office Manager for Xinfeng China, annexed the Certificate and the application for it to her affidavit.
As to [2] of the GR Capital Notice to Produce, the Judgment Creditors say that this was also a "live issue" in the compromised proceedings. They note that, in their cross claim, the Judgment Debtors contended that the $10m was a part performance of a larger obligation to transfer $80m for an alleged joint venture in relation to the "Landmark Square Property"; and contended both that Xinfeng failed to apply to the Ministry of Commerce of China for transfer permission and, alternatively, that Xinfeng applied and obtained permission from the Department of Commerce Hebei Province. It is said that there was to be a factual controversy about the nature and extent of any permission given (Mr Wensheng Liu's contention being that permission was needed and had been obtained from the Bank of China; Xinfeng's position being that only the first stage of a two stage process had been completed and that the second stage would not be possible).

Xinfeng Subpoena

By the Xinfeng Subpoena issued on 10 March 2020, the Judgment Creditors seek production from the Judgment Debtors' former solicitors (Colin, Biggers & Paisley) of certain legal advice given to the Judgment Debtors in the proceedings prior to their compromise. In particular, the Judgment Creditors seek the production of the following: … any documents which contain or record the substance of any legal advice given to any of the Defendants/Cross-Claimants about these proceedings (being NSW) Supreme Court proceedings 2018/244781) including but not limited to legal advice as to: (a) their prospects of success in defending the proceedings or prosecuting any cross-claim therein (including, for the avoidance of doubt, their prospects of success in relation to any potential ground for defence or cross-claim which was not, or may not have been, part of their pleaded case); and/or (b) any settlement of the proceedings or underlying controversies, in whole or in part.

Relevant legal principles on applications to set aside notices to produce and subpoenas

There is no relevant difference as to the principles applicable on the present application concerning the two forms of compulsory process here in issue (as to the applicability of the principles in relation to the setting aside of subpoenas in the context of notices to produce, see the decisions of Brereton J, as his Honour then was, in Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 at [10]; and Tony Azzi Automobiles Pty Ltd v Volvo Car Australia Pty Ltd [2006] NSWSC 283 at [4]).
Nor were the parties in the present case in dispute as to the relevant principles (which have been summarised in a number of authorities, including various of my recent decisions to which reference was made in the parties' submissions). Though, of course, there was dispute as to the application of those principles to the facts at hand. The principles may be restated briefly as follows.
As I explained in Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410 (Broadway Plaza) (at [49]-[59]), there must be a legitimate forensic purpose for a subpoena or notice to produce in that the documents sought must be relevant and must have a sufficient apparent connection to the issues in the case to justify their production (or, put differently, it must be able to be concluded that they could possibly throw light on the issues in the case) (see Lindsay-Owen v HWL Ebsworth Lawyers [2017] NSWSC 1692 at [24] per Rothman J). It is not, however, sufficient merely to show that the documents sought are, or may be, relevant to an issue for decision; rather, it must be shown that it is likely that the documents will materially assist on an identified issue or that there is a reasonable basis, beyond speculation, that it is likely that they will materially assist (see Cohen v Morgans [2019] NSWSC 608 at [63]). This must be determined by reference to the issues in the proceeding (see Broadway Plaza at [52]; see also Rinehart v Rinehart [2018] NSWSC 1102 at [47]).
The documents sought must be identified with "reasonable particularity" (cf the process involved in disclosure of documents more generally (see One.Tel Ltd (in liq) - Sing Tel Optus Pty Ltd v Weston [2010] NSWSC 1491 (One.Tel) at [39]-[41]; and Broadway Plaza at [51]).
Relevantly for present purposes, having regard to the complaints here raised, a subpoena or notice to produce will be objectionable if it is being used as part of a "fishing expedition" (see One.Tel at [32]). As I have noted in the past, a useful explanation of what constitutes a "fishing expedition" is that given by Owen J in Associated Dominions Assurance Society Pty Ltd v John Fairfax & Sons Pty Ltd (1952) 72 WN (NSW) 250 (at 254), namely, that it is where a party has no evidence that "fish of a particular kind are in a pool [but] desires to be at liberty to drag it for the purpose of finding out whether there are any there or not". Both parties have invoked this metaphor in their submissions on the present application.
Objection may also be taken to a subpoena (or notice to produce) on the basis that it is oppressive in scope or content (see Jordan CJ, with whom Davidson and Owen JJ agreed, in Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 573-4; 55 WN (NSW) 215 (Commissioner for Railways v Small); Australian Competition and Consumer Commission v Shell Co of Australia Ltd [1999] FCA 212; (1999) 161 ALR 686 at [53] per Cooper J). Further, as the Judgment Debtors have noted in their submissions, a subpoena that, on its face, solely seeks privileged material may be said to be improper (the Judgment Debtors there citing Registrar, Court of Appeal v Craven (No 1) (1994) 126 ALR 668 at 699 per Meagher JA; Shire of Katanning v Bride [2016] WASC 118 at [31]-[34] per Tottle J).
As a procedural matter, it is relevant to note that a party to whom a subpoena is not addressed (here, the Judgment Debtors) can object to the subpoena on the basis that it requires a third party to produce documents that are subject to client legal privilege (see Hancock v Rinehart [2016] NSWSC 12 at [26] per Brereton J, as his Honour then was).
Finally, I note authority for the proposition that where a subpoena is deficiently drafted, it is not for the court to redraft the subpoena (see Sydney Refractive Surgery Centre Pty Ltd v Beaumont [2003] NSWSC 688 at [32] per Simpson J; Lowery v Insurance Australia Ltd (2015) 90 NSWLR 320; [2015] NSWCA 303 at [25] per Basten JA; Rinehart v Rinehart [2019] NSWSC 759 at [38]).
With these principles in mind, I now deal with each of the GR Capital Notice to Produce and the Xinfeng Subpoena in turn.

GR Capital Notice to Produce

It is convenient first to outline the parties' submissions in relation to the GR Capital Notice to Produce.

Judgment Creditors' submissions

The Judgment Creditors point out that the documents sought by the GR Capital Notice to Produce are described by reference to annexures and exhibits to affidavits of Mr Yuqing Liu which were served in 2018 (and were to be read by the Judgment Creditors at the October 2018 trial had the proceedings not been compromised); submitting from this that what the GR Capital Notice to Produce seeks to "investigate" are matters which were the subject of evidence served for the abandoned trial (and which it was open for the Judgment Debtors to investigate at that time) but which were compromised by the Consent Orders.
The Judgment Creditors say that the GR Capital Notice to Produce should be set aside for the following four reasons.
First, that the GR Capital Notice to Produce cannot be relevant to any issue for determination in the substantive proceedings because those issues have been finalised by the Consent Orders. It is submitted that they cannot be re-litigated unless and until the Consent Orders are set aside.
Second, that the GR Capital Notice to Produce cannot be relevant to any issue for determination on the Set Aside Motion itself. It is said that documents thought to be in the possession of the Judgment Creditors, and which the Judgment Debtors did not obtain prior to agreeing to the Consent Orders, could not possibly be relevant to their decision to consent to judgment.
Third, that there is no legitimate forensic purpose and it is an impermissible fishing expedition. It is said that, on a motion to set aside consent orders, the compulsory processes of the Court may not be used to "fish" for the existence of an unpleaded illegality defence because such a defence may not be filed until after the final orders are set aside. The Judgment Creditors say that no legitimate forensic purpose for the GR Capital Notice to Produce can be identified unless and until the Consent Orders are set aside and such a defence is filed; and that, in effect, the GR Capital Notice to Produce amounts to a preliminary discovery application in respect of a proposed amended defence (which they say is a concept wholly unknown to the law).
Fourth, that, irrespective of any legitimate forensic purpose, the GR Capital Notice to Produce is still clearly a fishing exercise. It is submitted that it is for the Judgment Debtors to show a basis to set aside the Consent Orders; and that they have put forward no evidence as to any "impugnable" conduct by Xinfeng in relation to the transfer of funds but nonetheless seek to be at liberty to "drag the pool" for the purpose of finding out whether there might be any such conduct in that pool or not. It is submitted that the GR Capital Notice to Produce is entirely speculative and its use is the antithesis of finality in litigation.

Judgment Debtors' submissions

Insofar as the Judgment Creditors maintain that the GR Capital Notice to Produce serves no legitimate forensic purpose, the Judgment Debtors say that this must be rejected in light of the contention of illegality raised by them.
As to the first of the two classes of documents sought, it is noted that the Certificate has already been annexed to an affidavit of Mr Yuqing Liu and has been the subject of examination by the Judgment Debtors' expert on the laws of China (Associate Professor Huang) as to whether it permitted any moneys to be transferred out of China. It is contended that the document per se was insufficient to permit the transfer of any moneys overseas and, further, did not identify any of the Judgment Debtors as the intended recipients. It is submitted that, in order to ensure that that expert opinion cannot be undermined, the supporting application and documentation for the Certificate are also sought. It is submitted that those documents are clearly relevant to the above and also to the question of the knowledge of Mr Yuqing Liu at the time in relation to the Chinese foreign exchange regime and the need for approval in order to advance moneys from China to Australia.
As to the second of the two classes of documents, the Judgment Debtors say that these are sought to prove what the Judgment Debtors already understand to be the case, namely that (apart from the Certificate) no further approval was obtained to permit the transfer of funds from China to Australia. It is said that no documents are expected to be produced in response to this category, its entire purpose being to prove a negative. Again, it is submitted that, in light of the alleged illegality of the loan the subject of the Consent Orders, the relevance of this category of document is manifest.
In reply submissions, the Judgment Debtors raise the following matters in response to the Judgment Creditors' submissions.
The Judgment Debtors cavil with the proposition that the GR Capital Notice to Produce seeks to "investigate" matters which were the subject of evidence served for the abandoned trial and cannot be relevant to any issue for determination in the substantive proceedings because those issues have been finalised by the Consent Orders. In this regard, the Judgment Debtors accept that the documents sought by the GR Capital Notice to Produce were either: the subject of evidence given prior to the Consent Orders (namely, the Certificate attached to Mr Yuqing Liu's affidavit of 14 October 2018); or relevant to a pleaded allegation prior to the Consent Orders (going to prove the contention that the $10m the subject of the judgment debt embodied in the Consent Orders was not a loan but, rather, the first tranche of an $80m funding commitment that Xinfeng made in respect of developing the "Landmark Square Property", which funding obligation Xinfeng breached).
However, the Judgment Debtors say that it is evident that they are not seeking to agitate that contention on the Set Aside Motion. They say that the mere fact that the documents sought may have been relevant to matters that arose in the proceedings prior to the Consent Orders does not negate or preclude their relevance to the issues arising on the Set Aside Motion; and that the fact that the documents sought by the GR Capital Notice to Produce were sought (amongst many others) pursuant to notices to produce issued prior to the Consent Orders, which are now spent, does not preclude the Judgment Debtors seeking their production now if the relevance to the Set Aside Motion (cf the substantive underlying proceedings) can be demonstrated.
As to the Judgment Creditors' contention that the GR Capital Notice to Produce cannot be relevant to any issue for determination on the Set Aside Motion itself, the Judgment Debtors say that the Consent Orders are sought to be impugned on grounds of illegality, which allegation does not depend upon what the defendants knew prior to the entry of the Consent Orders. It is submitted that what the Judgment Debtors knew (or not) is beside the point; that, if the Consent Orders are in furtherance of an illegality, they cannot stand, simpliciter. (Pausing here, this submission does not, in my view, take into account the second basis on which the Set Aside Motion is expressly said to be based - that being expressly premised on the existence of a mistake. Moreover, it does not adequately take account of the discretionary factors that might be raised in the determination of the Set Aside Motion.)
As to the Judgment Creditors' complaint that this amounts to "fishing" for the existence of an "unpleaded illegality defence" or that this is tantamount to a preliminary discovery application, it is said by the Judgment Debtors that the documents sought are relevant to the Set Aside Motion per se, not solely to a defence sought to be raised if the Consent Orders are ultimately set aside.
As to the Judgment Creditors' further contention that the GR Capital Notice to Produce is a fishing exercise and entirely speculative, the Judgment Debtors say that the GR Capital Notice to Produce is narrowly framed and that it seeks specific documents the relevance of which is manifest in light of the basis on which the Judgment Debtors contend that the Consent Orders should be set aside.
As to the Judgment Creditors' submission that there is no evidence of any "impugnable" conduct by Xinfeng in relation to the transfer of the funds, the Judgment Debtors emphasise that: the $10m judgment debt is predicated upon transfers of Chinese Yuan made by Mr Yuqing Liu to Mr Wensheng Liu in China; Mr Wensheng Liu's evidence as to conversations he had with Mr Yuqing Liu regarding the transfer of money in China, which money was for the purposes of investing in property deals in Australia (as well as the proposition that the money be transferred to Australia via KVB Kunlun, which is what, ultimately, occurred) (and Mr Yuqing Liu has himself, in his affidavit of 14 October 2018, deposed to a conversation with Mr Wensheng Liu in mid-March 2016); documents executed by both Mr Wensheng Liu and Mr Yuqing Liu that reveal an agreement for the money transferred by Mr Yuqing Liu to Mr Wensheng Liu to be transferred to Australia via KVB Kunlun; and documentary evidence revealing that the money transferred by Mr Yuqing Liu to Mr Wensheng Liu in China was, in fact, and as pre-agreed, transferred to Australia through KVB Kunlun.
Finally, insofar as the Judgment Creditors call in aid the fact that, in their written submissions dated 21 October 2019, the Judgment Debtors stated that "the entirety of the evidence in chief relied upon by [them] on the Set Aside Motion had been filed and served", the Judgment Debtors say that this does not preclude them from issuing the GR Capital Notice to Produce to call for discrete documents in the Judgment Creditors' possession. It is noted that the Judgment Creditors do not allege that the GR Capital Notice to Produce is oppressive or that calling for the documents sought causes them any prejudice; and it is noted that the Judgment Debtors have provided security for the Judgment Creditors' costs in respect of the Set Aside Motion (in the sum of $120,000) (see Xinfeng Security for Costs Judgment).

Determination

I have concluded that the submissions for the Judgment Debtors should be accepted on the motion to set aside the GR Capital Notice to Produce.
Specifically, I consider that there is a legitimate forensic purpose in the Judgment Debtors seeking the documents there specified (for the reasons that they have given) and that it has not been established that it is oppressive for them to be produced or that this amounts to a fishing expedition. There is evidence that the approval process was commenced at some point. It is likely that there will be material relevant to what transpired as a result of that approval process and if there is not then that will of itself shed light on the issues raised as to the alleged illegality of the transaction and/or of the agreement to compromise the proceedings.
As to the Judgment Creditors' specific submissions, I make the following observations.
As regards the submission that documents sought cannot be relevant to any issue for determination in the substantive proceedings because those issues have been finalised by the Consent Orders, I consider that this submission proceeds on an erroneous point of reference. The relevance here is to those issues to be determined in the Set Aside Motion, not in the underlying substantive proceedings.
Following on from this, as regards the submission that documents sought cannot be relevant to any issue on the Set Aside Motion itself (because documents thought to be in the Judgment Creditors' possession, and which the Judgment Debtors did not obtain before agreeing to the Consent Orders, could not possibly be relevant to their decision to consent to judgment), I have some difficulty. While, in one sense, it is true that a document which one does not have in their possession at the time of making a decision cannot itself have borne on that decision, again, I think this takes the erroneous point of reference. To my mind, the dispositive point is that the Judgment Debtors now raise issues (that is, illegality), which they contend mean that the Consent Orders should now be set aside, that they say they were unaware of at the time of consenting to judgment. The documents relevantly sought to be produced go to those issues. In this way, those documents are now relevant. Put differently, the very reason the Judgment Debtors now seek to have the Consent Orders set aside is one of ignorance as to the alleged illegality (and, thereby, of course that issue would not have operated in their decision to consent to judgment). In this regard, I do see a certain inconsistency with this submission of the Judgment Creditors and the Judgment Creditors' arguments as to waiver of privilege (to which I will turn in due course).
As regards the submission that no legitimate forensic purpose can be identified unless and until the Consent Orders are set aside and the defence filed, again, I see that this submissions takes an erroneous point of reference. The dispositive point is that the alleged illegality is the very reason for which the Judgment Debtors now seek to have the Consent Orders set aside. I see circularity in the contention, made in furtherance of the objection to production as part of a motion to have the Consent Orders set aside, that no forensic purpose will exist until those very orders are set aside.
As regards the submission that it is for the Judgment Debtors to show a basis to set aside the Consent Orders and that they have put forward no evidence of any "impugnable" conduct by Xinfeng in relation to the transfer of funds, while I readily accept that it is for the Judgment Debtors to show a basis to set aside the Consent Orders, that is a burden to be discharged on the hearing of the Set Aside Motion itself, not at this time. Further, the Judgment Debtors have indicated reliance on the extant evidence filed and served in the proceedings and the documents now sought on the GR Notice to Produce will, or might, be relied upon on the extant Set Aside Motion.
In light of the preceding, I will order the production of those documents the subject of the GR Capital Notice to Produce.

Xinfeng Subpoena

I now turn to consider the Xinfeng Subpoena. Again, it is convenient to outline the parties' respective submissions.

Judgment Debtors' submissions

The Judgment Debtors say that the Xinfeng Subpoena is objectionable on a number of grounds: first, that the scope of the subpoena is manifestly oppressive (seeking the production of advices not related solely to a particular or narrow subject, or advices limited by timeframe; but, instead, the production of any document containing the substance of any legal advice given to the defendants concerning anything about these proceedings); second, that the documents serve no legitimate forensic purpose; third, that the subpoena is a "fishing expedition"; and fourth, that the subpoena seeks the production of clearly privileged materials.
As to the first ground, it is noted that Colin, Biggers & Paisley (by letters dated 11 and 16 March 2020) have informed the Judgment Creditors that, in relation to these proceedings, they hold "approximately 700 lever arch folders of printed material organised into 400 electronic subfolders" (a matter emphasised again in supplementary submissions). It is said that, in order to answer the Xinfeng Subpoena, it will be necessary to scrutinise the entirety of that material so as to ensure production of all documents which contain or record the substance of any legal advice given to the defendants in relation to the proceedings (noting that the subpoena does not just call for advice in relation to prospects of success or the settlement of the proceedings); and it is said that it will not be possible to narrow the scope of such searches via temporal parameters or through the use of targeted searches.
In supplementary submissions, the Judgment Debtors emphasise that Colin, Biggers & Paisley has complained about the subpoena (referring, inter alia, to correspondence in which it was said that the production in answer to the subpoena would result in "significant costs" and objecting to production on the grounds of privilege). The Judgment Debtors note that it is not "fatal" to an application to set aside a subpoena on the grounds of oppression that the recipient has not, itself, sought to do so (the Judgment Debtors here point to the fact that, as parties to these proceedings, they having standing to do so, referring to r 33.4(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)). The Judgment Debtors argue that, due to the breadth of the subpoena, it is unrealistic to deny the burden imposed on Colin, Biggers & Paisley in locating and producing documents in answer to the subpoena (asserting that Colin, Biggers & Paisley will have to search through every document sent to, or recording exchanges or communications with, the Judgment Debtors along with all file notes and other handwritten documents, including draft affidavits, which could contain legal advice).
Again, it is submitted that it is not possible to narrow the scope of electronic searches by use of keywords or the like and, in any event, it is said that Colin, Biggers & Paisley would still have to undertake the exercise of manually searching for and reviewing documents which are only contained in hard copy form or which are handwritten, such as file notes, that cannot be text-searched electronically. Insofar as the Judgment Creditors have pointed to the fact that Colin, Biggers & Paisley is a large law firm, it is said that the oppressiveness of the subpoena still remains (and that this says nothing of the oppression to the Judgment Debtors). It is said that oppressiveness is not reduced by simply allowing more time for compliance and that cases such as R v Saleam (1989) 16 NSWLR 14 (to which the Judgment Creditors refer), that pre-date the advent of the Civil Procedure Act 2005 (NSW), and the emphasis on efficient and inexpensive disposal of proceedings embodied in that statutory instrument, are of no assistance.
In summary, on the question of oppression, the Judgment Debtors say that the Xinfeng Subpoena calls for a significant forensic examination of an "enormous volume" of documents which could not have any bearing on the issues in dispute.
As to the second ground, it is said that the documents serve no legitimate forensic purpose (and hence that the scope of the Xinfeng Subpoena is unwarranted). The Judgment Debtors say that, on the Set Aside Motion, their contention is that the Consent Orders should be set aside because of illegality arising from the manner in which the funds the subject of the judgment debt were transferred from China to Australia. It is said that the success of that illegality argument does not depend upon what advice the Judgment Debtors had received from Colin, Biggers & Paisley (or its barristers) during these proceedings. In particular, it is said that, if the Consent Orders are illegal (or, perhaps more specifically, give effect to, or embody the fruits of, illegality), it matters not what the Judgment Debtors had been advised. Even if that submission not be accepted, it is said that the only legal advice that could be relevant is that pertaining to any defence of illegality premised upon the manner in which funds the subject of the judgment debt were transferred from China to Australia; and that this is not the scope of the Xinfeng Subpoena (nor can it be read that way without redrafting entirely the subpoena).
In supplementary submissions, the Judgment Debtors emphasise that no explanation has been proffered by the Judgment Creditors as to why all legal advices from Colin, Biggers & Paisley in relation to all aspects of the proceedings are relevant to the Set Aside Motion. Again, they maintain that the only discrete, potential issue raised by the Set Aside Motion about which there could be any argument of waiver is Mr Liu's ignorance of any purported defence to the proceedings by reason of the manner in which the money the subject of the judgment debt was transferred from China to Australia. They argue that the Xinfeng Subpoena seeks the production of "volumes of privileged material" which do not go to the issues raised. Thus, it is said that the inevitable conclusion is that the Xinfeng Subpoena is "more about fishing than it is about seeking discrete relevant documents"; and it is noted that a subpoena cannot be used as a substitute for discovery (citing Commissioner for Railways v Small at 574, to which I have referred above).
As to the third ground, it is said that the Xinfeng Subpoena is an impermissible attempt to "drag the net" containing all legal advice received by the Judgment Debtors from Colin, Biggers & Paisley in the hope that it reveals something that assists the Judgment Creditors on the Set Aside Motion.
As to the fourth ground, it is noted that the Xinfeng Subpoena seeks the production of clearly privileged materials (legal advices from the Judgment Debtors' former solicitors in relation to the conduct of legal proceedings) and it is contended that there has been no general waiver of legal privilege by the Judgment Debtors. In supplementary written submissions, the Judgment Debtors raise the following matters in response to the Judgment Creditors' contention that there has been a waiver of client legal privilege.
First, it is said that the Set Aside Motion merely seeks to set aside the Consent Orders and that the scope of the issues on that motion concern a discrete point: an allegation of illegality arising from the circumstances in which the money the subject of the judgment debt was transferred from China to Australia.
Second, it is said that the Judgment Creditors have misconstrued Mr Wensheng Liu's affidavit of 1 October 2019, affirmed in support of the Set Aside Motion, in which he has deposed (at [16]) that: During the course of these proceedings, including when I agreed to the orders made 18 October 2018, I did not know that transferring the Funds to Australia via KVB Kunlun may have been illegal under Chinese Law and constitute a defence, amongst others, to the plaintiffs' claim.
It is noted that this does not disclose the content of any legal advice or document nor does it refer to any legal advice. The Judgment Debtors say that no waiver arising from that passage could arise until the affidavit is read (citing Waugh Asset Management Pty Ltd v Lynch [2010] NSWSC 197 (Waugh) at [22]-[23] per McDougall J; Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 2) [2015] NSWSC 994 (AIF) at [43] per Sackar J).
It is said that Mr Wensheng Liu's reference, in the above quoted passage from his affidavit, to "amongst others" is clearly a reference to the defences already pleaded by the defendants in their pleadings - not an assertion of other unpleaded defences; and, in any event, it is said that the Judgment Debtors have not sought to raise or run any such other defences and, therefore, have not put into issue this state of mind.
The Judgment Debtors say that merely seeking to adduce Mr Wensheng Liu's state of ignorance on a subject is not sufficient to constitute a waiver. It is submitted that putting into issue a state of mind has been said to be merely the starting point of an examination of waiver (citing Liquorland (Australia) Pty Ltd v Anghie (2007) 7 VR 27; [2003] VSC 73 (Liquorland) at [41] per Byrne J); and that there must be an examination of the precise nature of the pleaded state of mind and the impact of the particular privileged communication upon it. It is said that this is not a case where Mr Wensheng Liu is advancing a positive belief, the formation of which is likely to have been influenced by legal advice (cf Ampolex v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 (Ampolex) at 411 per Giles CJ Comm D, as his Honour then was).
Further, to the extent that Mr Wensheng Liu's state of mind has been put in issue by the above quoted passage, it is again said that this is only in respect of the discrete matter of illegality arising from the manner in which the money the subject of the judgment debt was transferred from China to Australia. The Judgment Debtors reiterate their submission that the only advices that could be sought from Colin, Biggers & Paisley (and in respect of which privilege could have been potentially waived) are in respect of this limited matter. It is argued that the evidence of Mr Wensheng Liu could not constitute a general waiver of all legal privilege (and it is not conceded that it constitutes a waiver even in respect of this limited issue).
Third, it is said that no evidence has yet been tendered by the Judgment Debtors and it will be a matter at the Set Aside Motion as to how they choose to run the motion. The Judgment Debtors say that tendering (or proposing to tender) already served pleadings and evidence (which themselves do not contain the content or substance of any legal advice) does not implicitly disclose the content of any legal advice regarding the proceedings. While it is accepted that it may be inferred by reason of lawyers' ethical obligations that, by pursuing a defence, the client has been advised that the defence is reasonably arguable and bona fide, it is said that this does not permit the other side to call for all advices concerning the prospects of the defences raised. It is submitted that there has been no implied representation, by bringing the Set Aside Motion, that Colin, Biggers & Paisley's legal advice was to the effect that the defences were bona fide and that the cross-claim had reasonable prospects of success so as to constitute a waiver of privilege over those advices.
As to the Judgment Creditors' submission that consenting to the Consent Orders amounted to an implicit recognition as to the weakness of the claims, it is said that this is pure speculation. Further, it is said that there is a myriad of reasons as to why a party to litigation might consent to orders and it is impermissible for the Judgment Creditors to fish for these a fortiori when the Judgment Debtors do not seek to deploy this in support of the Set Aside Motion.
The Judgment Debtors emphasise that the Set Aside Motion is an interlocutory application seeking to set aside the Consent Orders. They say that what flows (if they are successful on that application) is an entirely different matter which does not and cannot support the Xinfeng Subpoena. It is said that the Judgment Debtors are not here seeking to re-run the entire case now or to make amendments as contended by the Judgment Creditors.
It is accepted by the Judgment Debtors that it will be a matter for the Court as to the terms, if any, upon which the Judgment Debtors are "allowed back into the case" and it is noted that it might be that they are only permitted to run the new defence of illegality, as opposed to any of the defences raised before the Consent Orders (referring to my observations in the Xinfeng Security for Costs Judgment at [101]). However, it is said that this does not permit the Judgment Creditors to access all legal advice the Judgment Debtors ever received from their former solicitors regarding these proceedings.
The Judgment Debtors thus maintain that they have not, by seeking to set aside the Consent Orders and (in effect) have the proceedings proceed to a contested hearing, disclosed the content of any legal advice, nor have they maintained (or seek to maintain) an inconsistent position in relation to any legal advice received from Colin, Biggers & Paisley as to their prospects of success in the proceedings. It is noted that, apart from Mr Wensheng Liu's statement as to ignorance in respect of the defence of illegality, no explanation or evidence has been proffered as to why the Consent Orders were entered. Thus it is said that it is not the case that the Judgment Debtors, by the Set Aside Motion, are asserting client legal privilege whilst seeking to vitiate the Consent Orders on grounds of positive (and erroneous) advice received from Colin, Biggers & Paisley that led to the entry of the Consent Orders. It is accepted that the absence of such evidence (i.e., as to the circumstances in which the Consent Orders were entered) may be material to the Court's assessment on the Set Aside Motion but it is said that its absence demonstrates that there is no relevant "inconsistency" and, therefore, no waiver.
Fourth, and related to the above, it is said that "the fact that the plaintiffs would like to cross-examine Wensheng Liu expansively about his state of mind at the time the Consent Orders were entered" does not ground a waiver of privilege.
Finally, by way of reply, the Judgment Debtors seem to run an argument that because the Judgment Creditors' submissions dated 14 April 2020 did not address the motion to set aside the Xinfeng Subpoena, in conjunction with the 31 March 2020 orders which required submissions by that date, "the Court should accede to the Subpoena Motion, since the plaintiffs do not now seek to support the Subpoena by submissions required by 14 April 2020". I interpolate to note that I do not understand this submission ultimately to have been pressed. If it is, I reject it. It is perfectly clear from the submissions filed (albeit those in relation to the subpoena being after 14 April 2020), and from the oral argument on the applications, that the Judgment Creditors do maintain their position that the Xinfeng Subpoena should be complied with and should not be set aside.

Judgment Creditors' submissions

The Judgment Creditors maintain (as adverted to in my outline of the submissions made by the Judgment Debtors responding thereto) that the Xinfeng Subpoena has a legitimate forensic purpose; that it is not oppressive; and that that it does not constitute a fishing expedition. The Judgment Creditors further maintain that any privilege in the documents has been waived by the manner in which the Set Aside Motion has been instituted and prosecuted.
Reliance is placed by the Judgment Creditors on the passage from Mr Wensheng Liu's affidavit that has been set out above. The Judgment Creditors emphasise that, even if the Judgment Debtors could satisfy the narrow grounds on which final judgments may be set aside, there remains a discretion to grant or refuse such relief as an "integral aspect" of the Court's jurisdiction (citing Owners Strata Plan No 57164 v Yau (2017) 96 NSWLR 587; [2017] NSWCA 341) and that the Judgment Debtors bear the onus of persuading the Court that the discretion ought to be exercised in their favour.
It is submitted that, by deposing (at [16]) that he "did not know" about the asserted illegality and that it might constitute a defence, Mr Wensheng Liu puts his own state of mind about both matters in issue. It is noted that Mr Wensheng Liu does not limit his evidence of his knowledge to his putative illegality defence; rather, his affidavit evidence is that this putative new defence may constitute a defence "amongst others". It is submitted that Mr Wesheng Liu's asserted belief that there were other bona fide defences is thus a further assertion of state of mind. Further, insofar as Mr Wensheng Liu attributes his state of mind to the "course of these proceedings, including when I agreed to the orders made 18 October 2018", the Judgment Creditors say that his asserted lack of knowledge in respect of the putative illegality defence (and "other" defences) covers the entire course of the proceedings and is not limited to the time the Consent Orders were made.
The Judgment Creditors further say that the fact that Mr Wensheng Liu asserted that he transferred the money paid by the Judgment Creditors from his own China account to pay expenses (including in Australia) for his development projects is confirmed in his 10 September 2018 affidavit that was drawn and served by his former solicitors in the compromised proceedings; and they emphasise that the fact of a transfer from China to Australia by Mr Wensheng Liu (not the Judgment Creditors) is not new.
The Judgment Creditors also point to the fact that Mr Wensheng Liu's asserted ignorance is both that his actions in transferring the money "may have been illegal under Chinese Law" and that they may "constitute a defence, amongst others, to the plaintiffs' claim". It is submitted that these are assertions of legal conclusions in the context of these proceedings, as are his assertions that other defences were available.
The Judgment Creditors maintain that, in asserting his knowledge (or lack of knowledge) of the Judgment Debtors' purported defences when the Judgment Debtors were represented by their former solicitors, Mr Wensheng Liu has strategically deployed evidence of his state of mind. It is said that this is presumably in an attempt to convince the Court that the discretion to set aside the consent orders should be exercised in the Judgment Debtors' favour. It is noted that Mr Wensheng Liu is not a lawyer and that his assertions relate to issues in the proceedings in which the Judgment Debtors were represented at all times by the solicitors who have been subpoenaed to produce the documents in question. The Judgment Creditors say that, in those circumstances, it is highly likely that Mr Wensheng Liu's state of mind on these matters (whatever its true nature) was affected by the communications sought.
Thus it is submitted that, in deposing to his state of mind, Mr Wensheng Liu has acted inconsistently with the maintenance of privilege and has effected a waiver of it (citing Council of the New South Wales Bar Association v Archer (2008) 72 NSWLR 236; [2006] NSWCA 164 (Archer) in which Hodgson JA said (at [48]) that for the Court to find the necessary inconsistency and relevant unfairness required to effect a waiver of privilege in these circumstances "it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind").
The Judgment Creditors say that they are entitled to test Mr Wensheng Liu's evidence of his alleged knowledge by cross-examination on the Set Aside Motion and that this is a legitimate forensic purpose for the issue of the Xinfeng Subpoena. It is said, in addition, that a finding as to the truth or otherwise of Mr Wensheng Liu's statement will impact his credit, which is squarely in issue on the Set Aside Motion. It is noted that it is legitimate to issue a subpoena to a third party to obtain documents which are to be used solely to impeach the credit of a witness.
Further, it is submitted that, by claiming that he did not know that transferring the funds to Australia may have been illegal under Chinese Law, Mr Wensheng Liu impliedly asserts that the Judgment Debtors' former lawyers did not advise the Judgment Debtors on this matter even though the fact of transfer was known to them. The Judgment Creditors say that this amounts to an assertion as to the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence and, hence, is a waiver of privilege.
Finally, it is submitted that the circumstances in which the Consent Orders were entered make it well "on the cards" that there were forensic or commercial reasons for the abandonment of the proceedings, taken on legal advice. It is said that this is sufficient to dispose of the allegation of fishing. The Judgment Creditors maintain that there is "ample evidence that fish of the particular kind are in the pool".
In this regard, the Judgment Creditors point to the following matters in relation to the entry of the Consent Orders.
First, that in the week or so before the trial in October 2018, Colin, Biggers & Paisley served a lengthy application to amend further the pleadings, caused five subpoenas to produce and two subpoenas to give evidence to be issued (without prior notification to the Judgment Creditors or the Court) and served three notices to produce (which they in part seek to re-agitate now).
Second, that the Judgment Debtors' case involved asserting the authenticity of documents that Mr Wensheng Liu claimed were signed by Mr Yuqing Liu and others (which Mr Yuqing Liu had sworn were forgeries) and the Judgment Debtors had been given notice to produce the original of one of those documents on the morning of the trial.
Third, that, by abandoning the case on the first day of the trial, the Judgment Debtors avoided any scrutiny in respect of their (allegedly forged) documents, while putting the Judgment Creditors to the task of dealing with their own notices to produce.
Fourth, that the Judgment Debtors capitulated to indemnity costs orders which it is submitted, at least on the cross claim, must be seen not only as a recognition of the weakness of the case but also as an acceptance that its prosecution involved some form of wilful conduct which justified the conclusion that it should never have been instituted let alone pursued.
Fifth, that the Judgment Debtors put forward then (and now) no explanation as to the circumstances in which the Consent Orders were made. It is submitted that on the Set Aside Motion the Judgment Debtors seek to invoke the jurisdiction of the Court in circumstances where a full and satisfactory explanation is, at the least, an important consideration if not a pre-requisite for relief. It is submitted that the spectre of a litigant (with the benefit of experienced Senior Counsel and solicitors) abandoning proceedings at the eleventh hour and then seeking a year later to revive those proceedings (and raise all of the defences previously abandoned, without explanation) gives force to a complaint as to an abuse of process; and the Judgment Creditors say that this is reinforced when it was revealed that a key witness for the Judgment Debtors (Mr Uy) was in Hong Kong at the time of the abandoned proceedings, even though he had been required for cross-examination.
It is submitted that the appropriate inference to be drawn from the last minute abandonment of the multitude of defences in 2018 is that the defences were hopeless. It is submitted that, by seeking now to re-run the entire case again (including, by seeking to make amendments to the pleadings belatedly foreshadowed by Colin, Biggers & Paisley, maintaining an entitlement to re-litigate their cross-claim and by tendering the whole of the evidence and pleadings served by Colin, Biggers & Paisley as, in themselves, evidence of bona fide defences), the Judgment Debtors impliedly assert that Colin, Biggers & Paisley's legal advice was to the effect that the defences were bona fide and the cross-claim had reasonable prospects of success.
Insofar as the Judgment Debtors submit that the Xinfeng Subpoena should be set aside on the grounds of oppression, complaint is made that there is no affidavit, or other admissible evidence, of oppression (noting that Colin, Biggers & Paisley has made no such claim itself and has submitted to the orders of the Court on the motion) and that there is no evidence on the motion of the steps required to locate the documents caught by the subpoena (instead, simply a submission that production requires scrutiny of every document in the entirety of Colin, Biggers & Paisley's files).
It is submitted that, unless it is to be inferred that those files are in a state of total disarray and were maintained entirely randomly, the suggestion that the entirety of the files would need to be scrutinised should be rejected. It is noted that the obligation of the recipient of a subpoena is to take all steps which are reasonably within their power to find documents which meet the requirements of the subpoena (not to engage in searches which are bound to be futile and/or of files which could not possibly contain relevant documents). It is further noted that the Judgment Creditors have offered to assist efficient production, whether by targeted searches or otherwise.
As to the complaint that the Xinfeng Subpoena is not limited by time, it is said that this cannot be grounds for oppression when the case ran, from filing to judgment, for only ten weeks.
Finally, it is submitted that the letter tendered by the Judgment Debtors from Colin, Biggers & Paisley (in which it has stated that it "[would] endeavor to comply with the subpoena by the return date of 18 March 2020", that being a date less than six working days after the subpoena was served) suggests that the subpoena is not oppressive and can be complied with promptly and in accordance with its terms.

Determination

In my opinion, for the reasons set out below, the critical issue on the application to set aside the Colin, Biggers & Paisley is whether privilege over the Colin, Biggers & Paisley legal advices has been impliedly waived (though I will address in due course the remaining complaints).

Implied waiver of privilege: whether implied waiver and extent of waiver

The overarching principles in relation to implied waiver are well established. The test is one of inconsistency. In Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66, Gleeson, Gaudron, Gummow and Callinan JJ said (at [29]): 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". 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. [Emphasis added and footnotes omitted]
In this regard, I also bear in mind that mere materiality to a fact in issue is no ground to remove the privilege. Indeed, as Heerey J said in Equuscorp Pty Ltd v Kamisha Corporation Ltd [1999] FCA 681; (1999) ATPR ¶41-697 (at 42,894), "[i]f legal professional privilege applies, privilege trumps relevance".
A seminal decision in relation to implied waiver through the putting in issue of the content of a confidential communication is, of course, Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 (Thomason).
Thomason concerned a claim by the widow of an employee for compensation for loss due to the death of her husband allegedly caused by the negligence of an employer. The employer alleged that the plaintiff had elected to take workers' compensation and, thus, that her claim was barred. The form of election executed by the plaintiff recited that she had received legal advice from her solicitor as to her rights before signing. At trial, counsel for the employer was permitted to cross-examine the plaintiff as to that advice and to call the solicitor to give evidence. Jordan CJ, for the Full Court, had little difficulty concluding that the evidence was properly admitted and identified two bases to admissibility: first, the plaintiff had disclosed the relevant part of her communication with her solicitor in the written application to the Workers' Compensation Commission thereby waiving privilege, and second, the fact and nature of the advice was put in issue when the plaintiff joined issue on the employer's plea of election.
In Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38, McHugh J (see at [39]-[40]) held that revelation of legal advice to support the reasonableness of a compromise or settlement impliedly waives privilege.
As the Judgment Creditors here note, in Archer, Hodgson JA (with whom Campbell JA and Handley AJA relevantly agreed) said (at [48]) that, for the Court to find the necessary inconsistency and relevant unfairness required to affect a waiver of privilege "it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind…".
Handley JA, agreeing in the result, said (at [72]): … The current test established by Mann v Carnell (1999) 201 CLR 1 at 13 [29] is that of inconsistency. Where the client raises an issue such as undue influence, election, or seeks an extension of the limitation period, the client may be making assertions about his or her state of mind based on legal advice. In such a situation as that described by Hodgson JA in par [48], I am inclined to think, in agreement with Hodgson JA, that the raising of the issue will waive the privilege without more…
As has recently been observed by Leeming JA sitting at first instance in this Court (in In the matter of Jimmy's Recipe Pty Ltd [2020] NSWSC 516 (Jimmy's), a judgment which I will consider further in due course), this is an area where some nuances in the authorities are observable, particularly in the Federal Court (consider Seven Network Ltd v News Ltd (No 7) [2005] FCA 1092 at [19]-[24] per Sackville J and, more recently, Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 at [36]). It is unnecessary here to address those decisions or to attempt to reconcile those nuances.
It is, however, appropriate here to consider in some greater detail the decision of Byrne J in Liquorland, that being an authority on which the Judgment Debtors rely.
Liquorland relevantly concerned an interlocutory dispute as to production of documents over which privilege was claimed. In short, Liquorland had acquired all of the shares in Australian Liquor Group Ltd (ALG). Liquorland then later sued the former directors of ALG for alleged incomplete and inaccurate disclosure of information about the financial position of ALG. Relevantly for present purposes, two of the defendant directors had applied for an order for inspection of documents discovered by Liquorland over which legal professional privilege was claimed. A master had ordered production in relation to communications between Liquorland and its legal advisers which related to the formation of, or evidenced, its state of mind in deciding to declare the takeover offer as unconditional. Liquorland appealed that order.
It was common ground before Byrne J that the documents in question would, in the ordinary course, have been protected by legal professional privilege. However, the directors contended that privilege had been waived by reason of Liquorland putting in issue (in the statement of claim) its state of mind as regards the financial position of ALG at the time of the takeover (see at [5]). The directors argued (see at [9]) that, given Liquorland likely conducted the takeover in close consultation with its lawyers, it was likely that matters as to the extent of knowledge of ALG's financial position, and related issues, were discussed in communications between Liquorland and its lawyers; and accordingly, that the defendants should have access to those communications in order to test the pleaded assertions.
I interpolate to note that there was no specific pleading that legal advice on these matters had been sought (or given) or of the substance of any privileged communication (see at [9]). In this respect, as Byrne J noted (at [9]), the "… application does not raise for consideration the question of disclosure waiver; that is, whether the privilege attaching to a communication has been waived by a partial disclosure of the content of the communication in a pleading or otherwise" (footnotes omitted). Byrne J (at [10]) described the issue arising as follows: The proceeding, then, raises a short but surprisingly difficult point: whether, by asserting that it acted in reliance upon a matter, a party to litigation is putting in issue its state of mind in so acting, so as to waive legal professional privilege with respect to legal communications which might have had a bearing on its arriving at that state of mind.
Following an extensive review of the authorities, Byrne J (at [41]) said: In this debate as to the application of the doctrine of issue waiver where reliance or its equivalent is pleaded by the client, I prefer the narrower approach which has been adopted in South Australia, New South Wales and Tasmania to that favoured by the Federal Court, in so far as there is a difference. Like Heerey J in the Kamisha case, I recoil from a principle which would have the consequence that a client litigant's plea of reliance in a negligent misstatement case, a misleading or deceptive conduct case or an estoppel case, ipso facto strips the privilege from legal communications which occurred about the time of the reliance. Furthermore, I am resistant to an argument that would have privilege waived in respect of any privileged document which might be relevant to the state of mind which has been pleaded into issue. To my mind, the putting in issue by the client of its relevant state of mind, whether it be one of reliance or otherwise, is merely the starting point for an examination of the waiver question. The chronological coincidence of the legal communication and the establishment of that state of mind does not of itself determine the question. The application of the test of unfairness, as expounded by the High Court, involves an examination of the precise nature of this pleaded state of mind and of the impact of the particular communication upon it. It is only where this examination shows that there will arise an unfair inconsistency between the position of the client setting up this state of mind and its maintenance of the privilege that waiver will arise and, then, only to the extent necessary to avoid the unfairness. [Emphasis added]
The admissibility of solicitor-client communications in the context of a dispute arising out of a settlement (specifically, the proper construction of a settlement deed, claims on common law and equitable estoppels, rectification in equity, and unilateral mistake) was (in the judgment which I have already referred to) very recently considered by Leeming JA, sitting at first instance, in Jimmy's.
In short (see at [3]-[5]), the parties in Jimmy's, prior to executing the settlement deed, had participated in an informal settlement conference at which notes were taken by various persons. The dispute arising for determination was, relevantly, as to the admissibility of parts of those notes.
Relevantly, Leeming JA (at [7]) noted that: By his positive claims that the deed be rectified in equity and that the plaintiff is unconscionably exploiting his mistaken understanding of the deed, the fifth defendant is propounding his state of mind at relevant times. The deed settled longstanding litigation in which the fifth defendant was represented by solicitors and counsel. There is every reason to think that his lawyers were involved in settling the terms of the deed, in accordance with his instructions, and that his understanding of what the deed involved was informed by legal advice from them.
His Honour there also referred to the decision of Gzell J in Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 (with whom Bryson JA and Windeyer J agreed), where Gzell J said (at [41]): … In a case like the present one in which reliance upon representations is alleged, questions such as the following need to be explored: Were representations made to the party by or on behalf of the opponent? Does the party say that he or she relied upon the representations and altered his or her course of conduct? Is reliance upon the representations a central, or merely peripheral, aspect of the party's case? Is it likely that the party received legal advice that had a bearing on the allegation of reliance? Was it likely that the legal advice might raise doubts as to the allegations of reliance or any loses or damage alleged to have been suffered?
His Honour, referring to Jordan CJ's judgment in Thomason and Giles CJ Comm D's judgment in Ampolex (to each of which I have previously referred), then observed (at [10]): … it is "likely" that what was said at the informal settlement conference contributed to the fifth defendant's state of mind at the time he gave instructions in relation to the settlement deed and executed it … [and that] it would be inconsistent and potentially productive of unfairness for the fifth defendant positively to advance a state of mind while simultaneously maintaining a claim of privilege in the notes of the informal settlement conference. I am conscious that there were subsequent conversations and correspondence prior to the execution of the deed. Nonetheless, the connection is sufficiently proximate to enable the factual inference of likely contribution to be drawn. I have in mind in particular the fact that the conference occupied the whole day (which is a significant time for the seeking, provision and assimilation of an understanding of the position), and also the statements in the fifth defendant's case that the essence of the settlement proposal in so far as it related to monetary payment did not change from 19 December until execution of the Settlement Deed ("there was no change in negotiating position as to the quantum of that contribution": affidavit of Mr Krass, 18 April 2020, para 23). This amounts to an implied waiver.
At this point, it is relevant to consider the applicable principles in relation to the setting aside of consent judgment (which will be for the Court to consider when the Set Aside Motion is ultimately to be determined).
In Harvey v Phillips (1956) 95 CLR 235; [1956] HCA 27, Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ (at 243-244) said: The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like.
Other authorities for this proposition include the judgment of Handley JA (with whom Mahoney JA and Clarke JA separately agreed) in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 (see at 696-697) and his Honour's learned text, Spencer Bower and Handley, Res Judicata (4th ed, 2009, LexisNexis Butterworths) (see at 244).
Earlier, Lindley LJ in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 said (at 280) that a consent order can be impeached, not only on grounds of fraud (as there alleged), "but upon any grounds which invalidate the agreement it expresses in a more formal way than usual". Lindley LJ considered that "the only question is whether the agreement upon which the consent order was based can be invalidated or not. Of course, if that agreement cannot be invalidated the consent order is good. If it can be, the consent order is bad".
In Fitzsimons v Commonwealth Bank of Australia [2012] NSWSC 660, Stevenson J said (at [50]) that a matter of discretion arises, and the court would not set aside a consent judgment "unless satisfied that there was a 'real possibility' that the [unpleaded allegations], if allowed, would have led to a different result …". His Honour there cited Commonwealth Bank of Australia v Quade (1991) 178 CLR 134; [1991] HCA 61 at 142-143 per Mason CJ and Deane, Dawson, Toohey and Gaudron JJ, an appeal relevantly concerning an application for a new trial following a failure to give full and proper discovery.
Meanwhile, in Singh v Ginelle Pty Ltd [2010] NSWCA 310 (Singh), Campbell JA (with whom Beazley P, as Her Excellency then was, and Handley AJA agreed) disavowed (at [36]) the proposition "that the court has a free ranging discretion to set aside a judgment entered by consent if it is in the interests of justice so to do".
I do not read the judgment of Stevenson J as inconsistent with what was said by Campbell JA in Singh. While the discretion is not "free ranging", it seems to me that it may be relevant, in deciding whether to set aside consent orders and permit the proceeding to go on, to consider whether the unpleaded allegations would lead to a different result. In any event, it is not necessary at this stage - that is, in determining applications to set aside the GR Notice to Produce and the Xinfeng Subpoena (contra determination of the Set Aside Motion) - to say anything further in relation to this.
In addition to the preceding, which concerns the court's inherent power to set aside consent orders, r 36.15 of the UCPR provides: 36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3) (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent.
Returning to the present dispute before me, it will be recalled that the Judgment Debtors seek to have the Consent Orders set aside on the basis of illegality and, more specifically, that the second basis on which that relief is sought is that Mr Wengsheng Liu was unaware of the (alleged) illegality of the transaction at the time and, by reason of this unilateral mistake (amongst other considerations), the Consent Orders should be set aside.
In relation to the argument as to mistake, as Wheeler J said in Commonwealth of Australia v Temwood Holdings Pty Ltd [2002] WASC 107 (at [10]): ...On the other hand, a party may necessarily put its state of mind in issue in the proceedings by, for example, pleading reliance upon some representation or other or by seeking rectification of the contract for mistake; or a state of mind may be put in issue by some evidentiary assertion which is clearly relevant to the issues between the parties. In these latter types of case, fairness clearly requires the waiver of the privilege in relation to legal advice which may have contributed to that state of mind. It is to be noted, however, that it is the conduct of the party who possesses the privilege which is capable of waiving it. It is not apparently open to another party to litigation to force waiver of a party's legal professional privilege by making assertions about, or seeking to put in issue, that party's state of mind. [Emphasis added]
The above passage was quoted with approval (at [121]) by Allsop J (as his Honour then was) in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384 (DSE (Holdings)).
True it is that a mistake as to the illegality of the underlying transaction or of the agreement later reached to settle the proceedings on the basis of the Consent Orders does not squarely bring into issue the question of what legal advice was received, as to the merits of the proceedings, at the time or during the course of the proceedings. However, it cannot be dismissed as an irrelevant consideration on the determination of the Set Aside Motion (in other words, if there was, for example, a conscious decision to settle the proceedings because of advice received as to the merits of the underlying dispute then that could be of some relevance - and, more directly to the submissions on the present applications, it might also cast doubt on the existence of the alleged mistake in the first place).
Turning then to the material that is sought by the Xinfeng Subpoena, it clearly seeks the production of material the subject of legal professional privilege, namely production from the Judgment Debtors' former solicitors of legal advice given in the proceedings prior to their compromise.
I readily accept that Mr Wensheng Liu, by stating that he "did not know" about the asserted illegality and that this might constitute a defence, has put in issue his own state of mind about those matters. That said, I have some difficulty acceding to the submission that the words "amongst others" constitutes assertions as to Mr Wensheng Liu's belief concerning other defences (that is, other than those already pleaded), rather than those which had already been pleaded in the now compromised proceeding.
Nevertheless, I have no difficulty accepting the likelihood that Mr Wensheng Liu's state of mind, being his purported ignorance as to the illegality defence, would have been informed by advice from Colin, Biggers & Paisley (or Counsel briefed on behalf of the Judgment Debtors) and that such advice would have contributed to that knowledge (or lack thereof).
I note also that, as the Judgment Creditors submit, Mr Wensheng Liu's (asserted) ignorance is both that his actions in transferring the money "may have been illegal under Chinese Law" and also that those actions may "constitute a defence, amongst others, to the plaintiffs' claim". Again, each of these respective states of mind is likely to have been informed by legal advice from Colin, Biggers & Paisley such that (subject to the issue I raise below as to the situation where the affidavit has not yet been read) the claim of privilege could not here now be maintained.
In these circumstances, I consider that it would be inconsistent for Mr Wensheng Liu positively to advance that asserted state of mind while simultaneously maintaining the claim of privilege in the Colin, Biggers & Paisley advices. I am fortified in this conclusion when one turns to the fact that Mr Wensheng Liu refers to his state of mind "[d]uring the course of these proceedings, including when I agreed to the orders made 18 October 2018" (my emphasis), this being a period over which Mr Wensheng Liu would have undoubtedly obtained, and acted upon, advice from Colin, Biggers & Paisley.
I consider that it would potentially be productive of unfairness if the Judgment Creditors were precluded from testing, with reference to the legal advices, Mr Wensheng Liu's evidence and I accept that, in order to do so, it is necessary for them to review the (relevant) legal advices.
As to the submission that merely seeking to adduce Mr Wensheng Liu's state of ignorance is not sufficient to constitute a waiver and that putting into issue that state of mind is merely the starting point of analysis after which must follow examination of the precise nature of the asserted state of mind and the impact of the particular privileged communication upon it, for the reasons which I have just indicated, I am here satisfied that the threshold has been met.
While I can accept that this is not a case where Mr Wensheng Liu is advancing a positive belief, I do not see that this relevantly changes things. The fact is that a principal issue is the extent of Mr Wensheng Liu's knowledge in relation to the compromise of the proceedings (including, the availability or otherwise of the illegality defence) and, again, it is likely in the circumstances that the extent of that knowledge has been informed by the Colin, Biggers & Paisley legal advices.
As to the width of the implied waiver, as was recognised in Attorney-General (NT) v Maurice (1986) 161 CLR 475; [1986] HCA 80, the overarching principle is that of fairness.
There is some force in the submission that, insofar as the Judgment Debtors are apparently relying (for the purposes of the Set Aside Motion) on the whole of the evidence and pleadings in the compromised proceeding, there is an implicit assertion to the effect that Colin, Biggers & Paisley's legal advice was to the effect that the defences were bona fide and the cross-claim had reasonable prospects of success. However, it is not clear that the relief sought on the Set Aside Motion is, or ultimately will be, to the effect that the Judgment Debtors be permitted to re-open the entire case and re-agitate all of their then pleadings. Furthermore, any implied waiver deriving from such a course would depend on the way in which the Set Aside Motion is ultimately run. Therefore, I do not conclude that the foreshadowed tendering on the Set Aside Motion of the whole of the evidence and pleadings served by Colin, Biggers & Paisley of itself gives rise to an implied waiver of privilege in the advices sought by the Xinfeng Subpoena.
However, for the reasons which I have outlined, I consider that, insofar as the Set Aside Motion proceeds on the basis (albeit only one of two asserted bases) that Mr Wensheng Liu was (during the course of the proceedings and at the time the Consent Orders were made) under a mistake as to the alleged illegality, this is inconsistent with the maintenance of privilege in legal advice that goes to the merits of the claim(s) made in the proceedings (which was likely to have had an influence on his state of mind when agreeing to the compromise of the proceedings) and hence gives rise to an implied waiver of privilege in such advice.
I accept that it would not give rise to an implied waiver of privilege in legal advice during the course of the proceedings that does not go to the merits of the claim(s) made in the proceedings (or the illegality or otherwise of the underlying transaction or the subsequent agreement to compromise the dispute). To that extent, I accept that the Xinfeng Subpoena goes beyond the scope of the implied waiver. So, for example, I accept that the implied waiver would not extend to advice as to matters such as whether security for costs should be sought (except insofar as that advice concerned the merits of the claims) or costs estimates or advice as to the personalities involved in the proceedings (all matters the subject of criticism by the Judgment Debtors as to the scope of the Xinfeng Subpoena). I consider the import of this conclusion in due course.

Implied waiver of privilege: when does the implied waiver arise?

I now turn to consider when the implied waiver arises. That is, whether privilege is waived at the time of service (or filing) of the Set Aside Motion and/or of Mr Wengsheng's affidavit putting his state of mind or ignorance in issue; or instead, only later if and when a decision was made for the affidavit to be read.
In General Accident Fire and Life Assurance Corp Ltd v Tanter (The "Zephyr") [1984] 1 All ER 35; [1984] 1 WLR 100 (General Accident), Hobhouse J (as his Lordship then was) distinguished between waiver in a pre-trial process and waiver by use of the evidence at trial.
As the learned author of Cross on Evidence (see J D Heydon, Cross on Evidence (11th ed, 2017, LexisNexis Butterworths)) observes (see at [25015]), waiver before tender in the trial affects only the document itself. Meanwhile, waiver by tender at trial entitles the other party to disclosure of all material bearing upon the communication. This is because, it is said, the opposing party must have the opportunity of satisfying themselves that the disclosure has not been selective (the learned author citing, amongst other authorities, Bailey v Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100 at [3] per Allsop P, as his Honour then was, and [120]-[138] per Tobias JA).
In General Accident, cross-examining counsel had put to the witness a memorandum of a conversation to which the witness was a party. That conversation was not privileged. However, the memorandum had come into existence in circumstances which attracted legal professional privilege. The witness did not agree with the recorded account of the conversation such that the memorandum could not go into evidence unless and until it was tendered as part of the defendant's case. The plaintiff then sought an order that the defendant make discovery of all documents relating to the conversation, including proofs of evidence and instructions to counsel. Hobhouse J rejected that application, first, because his Honour considered that it was premature since the document was not yet in evidence (rather, all that had been waived was the privilege attaching to the memorandum as a document itself); and second, because, if the evidence was later led, then the waiver attached only to the communications with the solicitor recorded in the memorandum (not to the subject matter of the memorandum). The learned author of Cross on Evidence suggests that this is an unduly technical method for approaching the problem and, instead, "[t]he practical difficulties raised by such an application whether at trial or beforehand are best dealt with by a careful and rigorous examination of precisely what is waived rather than by the application of technical rules relating to tender."
It is appropriate briefly to consider, as relevant, those authorities on which the Judgment Debtors here rely.
Waugh relevantly concerned an interlocutory dispute as to lay evidence in a proceeding concerning an alleged breach of financial agreements related to the acquisition of various hotels. The defendant had filed a written statement of a Mr Stutchbury (who was, at the relevant time, an employee of the defendant and apparently involved in the relevant transaction). In that statement, Mr Stutchbury had referred to issues, or concerns, as to title to the assets that were being sold. It appeared that Merrill Lynch had obtained independent legal advice in relation to due diligence thereof. Mr Stutchbury said in the statement that, as at the start of November 2003, those issues as to good title had still not been resolved to his satisfaction. Crucially, it was suggested, and McDougall J indicated a preparedness to infer from what Mr Stutchbury said in his evidence and from certain of the documents referred to by him (see at [2]) that, by the beginning of November 2003, the defendant had received independent legal advice in order to, as described by Mr Stutchbury, "…assist with its due diligence on title relating to the relevant gaming permits". The plaintiffs caused a subpoena to be issued and served on the solicitor seeking production of the firm's relevant files. Those documents were produced but a claim of privilege made. By notice of motion, the plaintiffs sought access. The defendants opposed access (see at [3]).
In relation to purported waiver of privilege, McDougall J considered the position both at common law and under the Evidence Act 1995 (NSW) (Evidence Act).
In relation to the former, McDougall J observed (at [13]) that, "the relevant framework for analysis is … that Mr Stutchbury's statement was produced pursuant to a requirement of the Court, or produced under compulsion [being extant orders regarding filing of lay evidence]. 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" (emphasis added).
McDougall J then turned to consider the judgment of Powell JA in Sevic v Roarty (1998) 44 NSWLR 287. That case concerned a privilege dispute concerning an expert report filed with the Court by the Defendant pursuant to the direction given by the Court. One of those reports started with an acknowledgment by the expert author of receipt of a letter of instructions "and the documents concerning this claim in a well indexed folder". The plaintiff sought production of the letter of instructions and supporting documents. The majority (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 reached that conclusion by application of what his Honour considered to be the relevant common law principles. As to the issue of implied waiver, Powell J said (at 308): ... 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. [Emphasis added]
Powell J, following a review of the authorities, considered it clear that the report had not at the time been, and might never be, tendered nor had it been used in any other way that could be said to give rise to unfairness. Therefore, his Honour concluded that privilege attached and had not (at that time) been waived.
Returning to Waugh, McDougall J concluded (at [17]) that: … 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 [the defendant] may have received from [the solicitors] 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.
McDougall J indicated that the same result is, or would be, reached under s 122 of the Evidence Act (referring to Akins v Abigroup Ltd (1998) 43 NSWLR 539 (Akins) and Ingot Capital v Macquarie Equity [2008] NSWSC 25 at [32] per Campbell JA sitting at first instance).
In disposing of an argument for the plaintiff that there was no relevant question of waiver because privilege did not exist once Mr Stutchbury's statement had been served, McDougall J distinguished (see at [22]) between the statement itself (over which any privilege was lost once it was served on Waugh Asset Management) from the antecedent documents recording the legal advice (it will be recalled, said, in effect to inform or to be relevant to an aspect of what Mr Stutchbury said in his statement but which were not specifically identified or referred to in it). His Honour concluded (see at [22]-[23]): 22. … 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 [the defendant] 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.
Sackar J in AIF, a decision also here relied on by the Judgment Debtors and to which I have previously referred, reached a similar conclusion. There, parties had sought access to what was alleged to be the legal advice and invoices (and, additionally, to solicitors' files to which those invoices relate) disclosed and referred to in an affidavit of a Mr Weir (see at [1]-[3]). At the relevant time, the affidavit had not been read (see at [19]).
Sackar J (at [36]) noted, and the parties before his Honour accepted, that the judgment of Mason P (with whom Priestley JA and Rolfe AJA agreed) in Akins supports the proposition that, where disclosure of privileged documents is compelled by law, privilege will not have been waived. However, before his Honour, there was controversy as to whether, on the basis of Akins, service of an affidavit (contra reading the affidavit at trial) is sufficient to waive privilege.
Sackar J considered (at [38]), amongst other authorities, Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3, where the Full Court of the Federal Court observed (at [24]-[25]): 24. Whilst on the approach that we have taken it is unnecessary to analyse Smoothdale, Akin and Sevic in detail, it appears to us that there is a real issue as to the correctness of those decisions, at least insofar as they deal with the question of waiver at common law by service of statements (or affidavits) of witnesses in advance of the trial. 25. The difficulty with the approach in Smoothdale is highlighted by the approach of Barrett J in Austress v Marlin [2002] NSWSC 958 in which his Honour distinguished cases such as Smoothdale on the basis that they were concerned with use in one proceedings of a statement or an affidavit filed and served in another. Barrett J, on the other hand, was dealing with the question whether a party could tender, as an admission, parts of an affidavit sworn by the opposing party in the same proceeding. Barrett J said, buttressed by ample authority, that this could be done, because it was within the range of permitted use - the purpose of the proceedings. Barrett J was undoubtedly correct. Thus, it is necessary to posit a limited waiver, within a broad framework of the conduct of proceedings, which may bring about the result (as in Austress) that it is in the other side's power to destroy the privilege entirely by putting the statement or affidavit into evidence or examining or cross examining on its contents.
Sackar J considered (at [39]) the judgment of McDougall J in Waugh (which I have considered above). His Honour then said (at [41]-[44]): 41. Upon reflection, I do not consider that a reasonable reading (for what it is worth) of Mr Weir's affidavit disclosed the substance of the advice, and hence gives rise to the necessary inconsistency. Mr Weir, who is not a lawyer, expresses a view that he thought the fees were properly incurred. On that basis alone, the Victorian Parties submit that privilege has been waived. I do not agree. 42. If the affidavit is read without objection, it may be that in cross examination a question of waiver will arise. That will be judged if and when it occurs and at the time it occurs. 43. The second issue, in the light of my reasons, strictly does not need to be decided. However, I accept I am bound by Akins v Abigroup. There has been no application made for any preliminary ruling under s 192A of the Evidence Act, so on the basis of that authority the question of waiver will not arise until the affidavit is sought to be read or deployed in the proceedings. This is not a case where there is a discovered document which is said to be the source of a waiver. The argument that a waiver has arisen is mounted solely on the basis of evidence yet to be read. 44. This authority raises the question (to which there appears to be no satisfactory answer) of whether a party would have to wait until trial and the reading of the evidence before progressing an argument on the basis of waiver. If may well be that a party could seek an indication of whether or not an affidavit filed and served will be read at trial and then seek a preliminary ruling. [Emphasis added]
I interpolate to note, and as I have sought to indicate by the emphasis added to the above quotations from his Honour's reasons, that Sackar J was also of the view that the statements in the affidavit there in question did not disclose the substance of the advice such as to give rise to a waiver of privilege. While I accept that the impugned statements in Mr Wensheng Liu's affidavit do not disclose the substance of the advice in question, for the reasons explained above, I have found that here implied waiver has arisen.
In that respect, I do also note that Sackar J then said (at [46]): 46. Issues like these will have to be dealt with in a practical way. Due regard must always be given to such a fundamental privilege as the one under consideration. But essential case management will sometimes require a proactive approach in ensuring fairness to both sides. Service of an affidavit does at least inform the opposing party of both the substance and form of the proposed evidence. It would be a nonsense and unthinkable for a trial, given the costs usually involved, to be unduly interrupted with the belated production of documents. If a waiver has occurred or occurs, say, during cross examination, a trial judge will have to assess the circumstances of any particular case to consider whether a special costs order may or may not be necessary in the circumstances. [Emphasis added]
Further, I bear in mind what was said by Giles CJ in Comm D in Ampolex where it was argued that it was premature to conclude that fairness required access to documents at the interlocutory stage because the case there put (as to a relevant state of mind) was only an allegation in a pleading and, therefore, the time for inspection was when evidence was led to support the belief or possibly when the party committed themselves to the case in an opening (see at 411). Relevantly, Giles CJ in Comm D rejected that argument saying (at 411-412): … I am unable to agree. By the pleading [the parties] raised an issue in the proceedings. They thereby became obliged to give discovery of documents relevant to the issue, and documents with apparent relevance to the issue could be subpoenaed. The hearing of the proceedings is to commence on 18 September 1995, and proper preparation of the proceedings calls for timely inspection of relevant documents. While no doubt in some circumstances it may be appropriate to defer inspection of documents produced under subpoena, possibly even discovered documents, until the hearing has commenced … where [the parties] maintain their contention earlier described that which proper preparation requires now should not be deferred. [The parties] waived any privilege by raising the issue, subject to a discretionary power to defer inspection, and insufficient reason has been shown to exercise the discretion in their favour. [Footnotes omitted]
I have considered whether the appropriate course might be to require the production of the documents but restrict access until such time as a decision was made for Mr Wengsheng Lui's affidavit to be read. However, an immediate difficulty with that is, of course, that it is difficult to see how the affidavit could not be read if an application for relief based on the asserted mistake by Mr Wengsheng Liu is to be maintained.
In this respect, one must take into account that the Judgment Debtors have very clearly here confirmed (in submissions on the present application) that one of the bases on which the relief in the Set Aside Motion is pressed is the ignorance of Mr Wengsheng Lui of the alleged illegality.
In these circumstances, to my mind fairness requires that the documents be produced at this stage. Put simply, it is not the case that the implied waiver is dependent on what is said in an affidavit yet to be read - rather, it is inherent in one of the two bases on which the very application for relief is sought.
As I have already adverted to and here wish to emphasise, the Judgment Creditors must, as a matter of fairness, be able to test the evidence in the context in which it may well be relevant, as a matter of discretion or otherwise, for the judge determining the Set Aside Motion to know the basis on which the decision to compromise the proceedings was made.
I pause to note that I fully accept that legal professional privilege is a fundamental legal right (as was impressed upon me more than once in the course of argument by Senior Counsel for the Judgment Debtors). Indeed, as was said (at [24]) by Allsop J in DSE (Holdings): 24. It should be noted, by way of interpolation at this point, that legal professional privilege in Australia is not a mere matter of evidence; it is a rule of substantive law and an important, indeed fundamental, common law right or immunity: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 77 ALJR 40 at 42-43 [9], 43 [11], 49 [44], 56 [85], 56 [86] and 65-66 [132]; 192 ALR 561 at 564 [9], 565 [11], 573-574 [44], 583 [85], 583-584 [86] and 596 [132] and the other High Court cases there cited. This is important to recognise in appreciating the operation of inconsistency, as opposed to some more broad ranging notion of fairness informed, perhaps, by the balancing of competing interests in the administration of justice. The confidentiality is in the nature of an entitlement or a right to keep the communications immune from disclosure; it is acting inconsistently with it that destroys that fundamental entitlement: Mann v Carnell at 13 [29] and Daniels.
However, as the cases (and his Honour in that decision) also recognise, there will be an implied waiver, as a matter of fairness to the other party, of that fundamental legal right where a party conducts itself in a manner that is inconsistent with the maintenance of that privilege.
Again, I consider that, by adopting the position of seeking relief on a basis that relies upon (or, in one sense, exploits) the mistake or ignorance of Mr Wengsheng Liu as to the alleged illegality of the transaction (and at least implicitly disavowing a decision to compromise the proceedings based on a view as to the merits of the proceedings), the Judgment Debtors have already acted so as to waive privilege in legal advice received by them as to the merits of the proceedings. It is, to adopt the words of Leeming JA in Jimmy's, inconsistent and potentially productive of unfairness for the Judgment Debtors positively to advance a claim for the relief sought on the Set Aside Motion while simultaneously maintaining a claim of privilege in the communications of advice as to the prospects or merits of the proceedings.
Accordingly, I have concluded that legal professional privilege in advices going to the merits of the proceedings (not simply any advice as to the illegality or otherwise of the transaction or of the agreement to compromise the proceedings) has been waived at this point in time.

Breadth of Xinfeng Subpoena

The remaining question is as to whether the breadth of the Xinfeng Subpoena means that it should be set aside. I am well cognisant of the authorities that say that it is not for the court to re-draft or re-write a subpoena that is impermissibly broad in its terms. However, there is occasion where it may be appropriate to frame relief such that the subpoena is set aside only in part, say, or not to compel compliance in full with a subpoena that is found to be impermissibly broad (see, for example, the course adopted in Rinehart v Rinehart [2018] NSWSC 1102).
In the present case, where the Set Aside Motion is listed for directions on 30 June 2020, on which occasion I would hope that the motion could again be listed for hearing, and bearing in mind the overriding statutory objective for the just, quick and cheap resolution of the real issues in dispute, I see no merit in setting aside the subpoena only to permit a more narrowly framed subpoena to be issued in its place (which is what I would otherwise do). Therefore, I will make orders that will have the effect of requiring production of documents communicating or recording legal advice as to the merits or prospects of the proceedings or the claims made in the proceedings and will otherwise direct that the recipient of the subpoena not be required to comply with the subpoena.
For completeness, I note that I do not accept the other grounds on which the Judgment Debtors submitted that the Xinfeng Subpoena should be set aside.
As is evident from the preceding reasons, I consider that a legitimate forensic purpose was established for the documents sought under the subpoena (that being to test the assertions of Mr Wengsheng Liu as to his state of mind and knowledge as to the merits of the proceedings up to the time at which the Consent Orders were made and to provide an evidentiary basis for contentions as to the exercise of the discretion in the context of the Set Aside Motion).
Similarly, I consider that the Xinfeng Subpoena is not a fishing expedition (since there is no doubt that the Judgment Debtors were represented by legal practitioners at the time the Consent Orders were made - Senior Counsel and Junior Counsel as well as their instructing solicitors - and it is inconceivable that there would not have been advice given going to the merits or prospects of proceedings before the complete capitulation by defendants to the claims made in the proceedings).
I also reject the proposition that it is oppressive for Colin, Biggers & Paisley (or the Judgment Debtors) to be required to review the volume of material identified in order to extract material covered by the subpoena (at least to the extent of the narrowed scope for which the orders will provide). In this respect, particularly when balanced against the potential prejudice to the Judgment Creditors of that material not being made available to them in advance of the Set Aside Motion, I am not persuaded that the cost or time said to be involved in the exercise of compliance with the subpoena is such as to render the subpoena oppressive.

Conclusion

Accordingly, both sides have had a measure of success on the present applications. The Judgment Creditors will be required to produce the documents sought by the GR Capital Notice to Produce; and the Judgment Debtors have failed in their application to set aside the Xinfeng Subpoena (albeit that I will not require full compliance with the subpoena as presently drafted). My initial view was that it would probably be appropriate to treat this as a "draw", so to speak, and to make no order as to costs.
However, in circumstances where it is not inconceivable that the Judgment Debtors may seek leave to appeal from this decision (particularly having regard to their requirement for written reasons at the time the applications were heard), it seems to me appropriate that I simply proceed on the basis that there be a costs order for each of the applications to follow the event. As to the application to set aside the Xinfeng Subpoena, I am of the view that the Judgment Debtors were, in substance, the losing party on that application and I will make costs orders accordingly.

Orders

For the above reasons, I make the following orders: 1. Dismiss with costs the notice of motion filed 9 March 2020 by the Judgment Creditors seeking to set aside the GR Capital Notice to Produce and direct that documents in answer to that notice to produce be produced to the Court within 28 days. 2. Direct that the proper officer of Colin, Biggers & Paisley produce to the Court within 28 days all documents falling with the terms of the Xinfeng Subpoena in which there is communicated or recorded legal advice as to the merits or prospects of the proceedings (or claim(s) made in the proceedings) that were the subject of the Consent Orders and/or as to the legality or illegality of the underlying transaction or agreement to compromise the proceedings; and otherwise direct that the proper officer not be required to comply with the said subpoena. 3. Otherwise dismiss with costs the notice of motion filed 13 March 2020 by the Judgment Debtors seeking to set aside the Xinfeng Subpoena. 4. Direct that there be general access to the parties in respect of documents produced in compliance with orders 1 and 2.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 May 2020

CLR 235; [1956] HCA 27 Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 In the matter of Jimmy's Recipe Pty Ltd [2020] NSWSC 516 Ingot Capital v Macquarie Equity [2008] NSWSC 25 Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3 Lindsay-Owen v HWL Ebsworth Lawyers [2017] NSWSC 1692 Liquorland (Australia) Pty Ltd v Anghie (2007) 7 VR 27; [2003] VSC 73 Lowery v Insurance Australia Ltd (2015) 90 NSWLR 320; [2015] NSWCA 303 Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 One.Tel Ltd (in liq) - Sing Tel Optus Pty Ltd v Weston [2010] NSWSC 1491 Owners Strata Plan No 57164 v Yau (2017) 96 NSWLR 587; [2017] NSWCA 341 Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115 R v Saleam (1989) 16 NSWLR 14 Registrar, Court of Appeal v Craven (No 1) (1994) 126 ALR 668 Rinehart v Rinehart [2018] NSWSC 1102 Rinehart v Rinehart [2019] NSWSC 759 Seven Network Ltd v News Ltd (No 7) [2005] FCA 1092 Sevic v Roarty (1998) 44 NSWLR 287 Shire of Katanning v Bride [2016] WASC 118 Singh v Ginelle Pty Ltd [2010] NSWCA 310 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 Sydney Refractive Surgery Centre Pty Ltd v Beaumont [2003] NSWSC 688 Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 Tony Azzi Automobiles Pty Ltd v Volvo Car Australia Pty Ltd [2006] NSWSC 283 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 Waugh Asset Management Pty Ltd v Lynch [2010] NSWSC 197 Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1546 Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 884 Texts Cited: Cross on Evidence, J D Heydon, Cross on Evidence (11th ed, 2017, LexisNexis Butterworths) Spencer Bower and Handley, Res Judicata (4th ed, 2009, LexisNexis Butterworths)] Category: Procedural and other rulings Parties: Xinfeng Australia International Investment Pty Ltd (First Plaintiff) Yuqing Liu (Second Plaintiff) GR Capital Group Pty Ltd (First Defendant) The One Capital Group Pty Ltd (Second Defendant) Wensheng Liu (Third Defendant) Representation: Counsel: WG Muddle SC with P McDonald (Plaintiffs) DR Pritchard SC with A Macauley (Defendants)

Judgment

HER HONOUR: This matter has had a not uncomplicated history in this Court. In October 2018, on the first day of what was to have been an expedited ten day hearing before me, I made orders by consent for the entry of judgment in favour of the first plaintiff, Xinfeng Australia International Investment Pty Ltd (Xinfeng), against the defendants, GR Capital Group Pty Ltd (GR Capital), The One Capital Group Pty Ltd (One Capital) and Mr Wensheng Liu, in the sum of $10m as principal and an order dismissing the defendants' cross-claim in those proceedings; and I ordered the defendants (to whom I will refer collectively as the Judgment Debtors) to pay the costs of the plaintiffs, Xinfeng and Mr Yuqing Liu (to whom I will refer collectively as the Judgment Creditors), on an indemnity basis.
A declaration was also made on that occasion (with the consent of the parties) that the judgment, together with interest and costs on an indemnity basis, was secured by a mortgage that had been granted by GR Capital and an agreement referred to as the General Security Deed (entered into by GR Capital and Mr Wensheng Liu in favour of Xinfeng) (elsewhere referred to as the General Security Agreement, though nothing turns on this) and that the defendants were in default thereof. The consent orders provided that there was to be reserved for further consideration the entry of judgment for interest on that principal. Liberty to apply was granted.
The matter subsequently came back before me on various applications (see, for example, Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1546 (Xinfeng Security for Costs Judgment); Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 884). Most relevantly, for present purposes, there is yet to be determined an application by the Judgment Debtors filed on 2 September 2019 to set aside those orders made by consent in 2017 (to which I will hereafter refer to as the Consent Orders).
The present interlocutory application between the parties relates to certain compulsory processes issued by the respective parties for the production of documents in advance of the hearing of the above application: first, a Notice to Produce to Court issued by the Judgment Debtors to the Judgment Creditors which, in essence, requires production of documents relating to certification or approval from the Chinese Government in relation to the alleged loans (to which I will refer to as the Alleged Loans) or the transfer of funds from China to Australia in respect of the Alleged Loans (to which I will refer to as the GR Capital Notice to Produce); and second, a subpoena issued by the Judgment Creditors to the former solicitors for the Judgment Debtors (Colin, Biggers & Paisley) which, in essence, seeks copies of legal advice in relation to the merits of the proceedings that were compromised by consent in 2017 (to which I will refer to as the Xinfeng Subpoena).

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