Federal Court: Legal Advice on Pleadings May Waive Privilege

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[APPELLANT] v [APPELLANT[COMPANY] [2002] FCA 501

PRACTICE AND PROCEDURE – discovery – production and inspection of documents – privilege – legal professional privilege – alleged waiver – where legal advice at issue – allegations concerning state of mind – state of mind influenced by advice – waiver of privilege [COMPANY] v [NAME] [NAME] [2002] NSWSC 93 applied Mann v Carnell (1999) 201 CLR 1 applied [COMPANY] v Perpetual Trustee Co (Canberra) [COMPANY] (1995) 37 NSWLR 405 applied [COMPANY] v [COMPANY] (1998) 85 FCR 152 considered [COMPANY] v [COMPANY] [1999] FCA 925 referred to Evidence Act 1995 (Cth) s 122 [APPELLANT] v [APPELLANT[COMPANY] & ORS N 1306 OF 2001 HELY J 24 APRIL 2002 [APPELLANT]

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 1306 OF 2001

[APPELLANT]: [APPELLANT]

APPLICANT

[APPELLANT] 49 [[APPELLANT]]

[APPELLANT] OF ORDER: 24 APRIL 2002

[APPELLANT]

THE COURT DIRECTS THAT:

1. The solicitor for [APPELLANT[NAME] should file and serve an affidavit: (a) that he or she has inspected the documents in bold in the attached chronology; (b) attaching a copy of those documents in which any material in relation to which there has been a waiver of privilege in terms of this ruling is exposed, but material which remains the subject of legal professional privilege is masked; (c) stating that the masked material does not relate to or bear upon the matters referred to in par 60(a)-(d) of the defence. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 1306 OF 2001

[APPELLANT]

APPLICANT

AND: [APPELLANT[COMPANY] [[APPELLANT]]

[APPELLANT] 49 [[APPELLANT]]

[APPELLANT] [[APPELLANT]]

[APPELLANT]

JUDGE: HELY J

DATE: 24 APRIL 2002

PLACE: [APPELLANT] FOR

JUDGMENT 1 [APPELLANT] ("[APPELLANT]") was the owner of premises at [NAME] which were used as a laboratory for the manufacture of animal viral vaccines. On 8 June 2001 [APPELLANT] agreed to sell the property to [APPELLANT[COMPANY] ("[APPELLANT[NAME]"). The contract was completed by transfer on 29 June 2001. Special Condition 43 of the contract provides as follows: "In consideration of the agreement to sell by the Vendor, the Purchaser for itself and its [NAME] hereby covenants with the Vendor and its assigns that for a period of 10 years from the date of completion it will not use nor will it permit any of its [NAME] to use the Property for the purpose of the manufacture of animal viral vaccines." 2 On 11 September 2001 [APPELLANT[NAME] entered into a lease with [APPELLANT] ("[APPELLANT]") of part of the property. [APPELLANT] claims that [APPELLANT[NAME] and [APPELLANT] intend that [APPELLANT] will use the property for the purpose of manufacturing animal viral vaccines. 3 [APPELLANT] commenced proceedings against (inter alia) [APPELLANT[NAME] and [APPELLANT]. In these proceedings [APPELLANT] contends that [APPELLANT[NAME] breached Special Condition 43 by entering into the lease with [APPELLANT], thereby permitting the property to be used for the purpose of the manufacture of animal viral vaccines, contrary to the terms of the restrictive covenant. In the alternative, [APPELLANT] claims that the contract for sale should be rectified so as to embody the true contractual intention of the parties by the insertion of the words "or permit the property to be used" after the words "will not use" in Special Condition 43. 4 [APPELLANT] also alleges that [APPELLANT[NAME] engaged in misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth), by representing to [APPELLANT] over a period preceding entry into the contract of sale that if [APPELLANT[NAME] were to purchase the [NAME] property it would not permit the property to be used for the purpose of the manufacture of animal viral vaccines, nor would it lease the property to [APPELLANT], whereas in truth, [APPELLANT[NAME] intended to lease the property to [APPELLANT] from at least September 2000. 5 In its defence, [APPELLANT[NAME] pleads an estoppel by way of convention (pars 57-59), and an estoppel by representation (pars 60-64). In each case it is alleged that [APPELLANT] is estopped from: (a) contending that Special Condition 43 has (or if rectified would have) the operation for which [APPELLANT] contends in the proceedings; (b) alleging that but for [APPELLANT[NAME]'s conduct [APPELLANT] would not have entered into the contract and completed the sale of the property to [APPELLANT[NAME]; and (c) claiming any of the relief sought in the proceedings. 6 The estoppel by convention defence is based upon an assertion that from 26 April until 14 August 2001 [APPELLANT[NAME] and [APPELLANT] conducted the relationship [APPELLANT] them upon the basis of an agreed or assumed state of facts. The estoppel by representation is based upon an assertion that on or about 26 April 2001 [APPELLANT] represented those same facts to [APPELLANT[NAME], and in reliance upon that representation, [APPELLANT[NAME] entered into the contract, gave Special Condition 43 and entered into the lease in favour of [APPELLANT]. [APPELLANT] allegedly represented to [APPELLANT[NAME] that: (a) [APPELLANT[NAME] for a period of ten years from the date of completion of the contract would be obliged not to use, nor to permit any of its [NAME] to use, the property for the purpose of the manufacture of animal viral vaccines; (b) entry by [APPELLANT] and [APPELLANT[NAME] into the contract, and performance of their obligations under the contract, would not be, and/or would not require either of them to act, in contravention of the Trade Practices Act 1974; (c) [APPELLANT[NAME]'s covenant in Special Condition 43 would not bind third parties (other than [NAME]); and (d) performance by [APPELLANT[NAME] of its obligations under the contract, would not prevent it from permitting successors in title or assignees of the property (other than [NAME]) from using it for the purpose of the manufacture of animal viral vaccines. 7 [APPELLANT[NAME] thus propounds a positive case that it entered into the contract with [APPELLANT] on the faith of representations by [APPELLANT] as pleaded in (a) – (d) above. In so doing, [APPELLANT[NAME] raises as an issue in the proceedings its state of mind with respect to those matters at the time of entry into the contract, and at the time of entering into the lease to [APPELLANT]. 8 [APPELLANT[NAME] has discovered certain documents and its solicitors, [RESPONDENT] & [RESPONDENT], have produced certain other documents on subpoena over which claims of legal professional privilege are made by [APPELLANT[NAME]. Certain of the discovered documents over which legal professional privilege is claimed were also produced by [NAME] on subpoena, but it is no longer alleged that the provision of those documents by [APPELLANT[NAME] to [NAME] operated as a waiver of any privilege. It is now accepted that legal professional privilege attached to the documents for which privilege is now claimed at the time of their creation, and the issue for determination is whether by pleading the defences to which I have referred, [APPELLANT[NAME] has impliedly waived that privilege. 9 During the course of the argument, it became common ground that the question for my determination is whether [APPELLANT[NAME] has waived privilege in relation to any contemporaneous legal advice with respect to any of the four matters ((a) – (d) above) which form the basis of the alleged estoppels. It also became common ground that if privilege has been waived, then the onus is on [APPELLANT[NAME] to produce masked copies of the documents which would expose the material with respect to which privilege had been waived, whilst maintaining the confidentiality of the balance of the documents. It has therefore not been necessary for me to examine any of the documents with respect to which privilege has been claimed, and it was not submitted by either party that I should do so. 10 The issue is one of waiver of privilege at common law, rather than by reference to s 122 of the Evidence Act 1995 (Cth) ("the Act"). However, there is little difference [APPELLANT] the issue as to whether a party has given its implied "consent" to the disclosure of the substance of the evidence over which privilege is claimed (as that term is used in s 122 of the Act and whether a party's conduct amounts to an imputed waiver at common law: [COMPANY] v [NAME] [NAME] [2002] NSWSC 93 per Bergin J at [51]. What brings about the waiver is the inconsistency which the courts, where necessary informed by considerations of fairness, perceive [APPELLANT] the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large: Mann v Carnell (1999) 201 CLR 1 at 13. 11 By its pleading, [APPELLANT[NAME] has introduced as an issue in the proceedings its state of mind at relevant times in relation to the matters referred to in par 60(a)-(d) of the defence. [APPELLANT[NAME] thus opened up for examination and testing the source of, and basis for, that state of mind. Where a party makes allegations raising the issue of its state of mind, to which legal advice is likely to have contributed, the party cannot continue to claim legal professional privilege for that advice: [COMPANY] v Perpetual Trustee Co ([COMPANY] (1995) 37 NSWLR 405. 12 [COMPANY] v [COMPANY] (1998) 85 FCR 152Branson and Lehane JJ said at 166-167: "Where, as in this case, a party pleads that he or she undertook certain action 'in reliance on' a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract." See also [COMPANY] v [COMPANY] [1999] FCA 925. 13 Counsel for [APPELLANT] helpfully prepared a chronology, a copy of which is attached, which synthesises the documents for which privilege is claimed (in bold type) with the documents particularised as the basis for the estoppels in question. It is clear from that chronology that contemporaneous legal advice was given to [APPELLANT[NAME] by its solicitors with respect to Special Condition 43 in its draft form and in its final form. 14 The introduction by [APPELLANT[NAME] of the issue as to its state of mind with respect to the matters referred to in par 60(a)-(d) of the defence into the proceedings is inconsistent with the continued maintenance of confidentiality of contemporaneous legal advice as to those matters. It is beside the point that [APPELLANT[NAME] may have introduced this issue into the proceedings in response to claims by [APPELLANT] that Special Condition 43 of the contract does not mean what it appears to say, or that it should be rectified so as to produce that result. 15 Accordingly, I conclude that [APPELLANT[NAME] has waived privilege in relation to contemporaneous legal advice with respect to the matters raised in par 60(a)-(d) of the defence or which bears upon those matters. 16 The conduct on the part of [APPELLANT[NAME] which is inconsistent with the maintenance of the privilege is the raising of the matters to which I have referred by [APPELLANT] [NAME]. In those circumstances, it is not appropriate to defer [APPELLANT]'s entitlement to inspect the documents as to which privilege has been waived until some later stage in the proceedings. There is no suggestion on the part of [APPELLANT[NAME] that it proposes to resile from the defences which it has raised, and which result in the waiver of the privilege. 17 A practical way of giving effect to this conclusion is for me to direct that the solicitor for [APPELLANT[NAME] should file and serve an affidavit: (a) that he or she has inspected the documents in bold in the attached chronology; (b) attaching a copy of those documents in which any material in relation to which there has been a waiver of privilege in terms of this ruling is exposed, but material which remains the subject of legal professional privilege is masked; (c) stating that the masked material does not relate to or bear upon the matters referred to in par 60(a)-(d) of the defence. 18 If the solicitor is in any doubt as to the side of the line on which any part of the documents falls, then the matter should be referred to me for determination. If there is any practical difficulty associated with the direction which I propose, I will hear argument on that question. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate: Dated: 24 April 2002

[NAME]: [APPELLANT]

[NAME]: [APPELLANT]

Counsel for the [APPELLANT]: [[APPELLANT]]

Solicitor for the [APPELLANT]: [[APPELLANT]]

Date of Hearing: 4 April 2002

Date of Judgment: 24 April 2002

[APPELLANT] –v- [APPELLANT[COMPANY] & ORS No. 1306/01 APPLICANT'S CHRONOLOGY Note: Documents in bold are said to be privileged Documents and items marked* appear as particulars in paras. 57 & 60 of [APPELLANT] [NAME]. DATE DOCUMENT SUBJECT REFERENCE *10 April 2001 Letter from [APPELLANT] to [RESPONDENT] & [RESPONDENT] original version of Special Condition 43 [pp. 14-23 of Exhibit "DNV 1"] 17 April 2001 Letter from [RESPONDENT] to [APPELLANT[NAME] respect to the restrictive covenant or contractual obligation sought by [APPELLANT] as a condition for the sale of the property to [APPELLANT[NAME]. 44 in Part 2, Schedule 1 of [APPELLANT[NAME]'s List Undated Undated file note of [NAME] ([RESPONDENT] & [RESPONDENT]) regarding discussions with [RESPONDENT] and [RESPONDENT]. 46 in Part 2, Schedule 1 of [APPELLANT[NAME]'s List. *20 April 2001 Letter from [RESPONDENT] to [APPELLANT] to the proposed wording of Special Condition 43 [pp. 24-26] 24 April 2001 Letter from [APPELLANT[NAME] to [NAME] to "one restrictive element in relation to biologicals which obviously causes some concern". [pp. 27-28] *26 April 2001 Letter from [APPELLANT] to [RESPONDENT] & [RESPONDENT] "Prepared to accept a personal covenant". [pp. 29-30] 26 April 2001 Email from [NAME] to [NAME] [RESPONDENT] & [RESPONDENT] subpoenaed documents 27 April 2001 Diary entry of [NAME] of telephone conversation with [NAME] re clause excluding the use of the property for the manufacture of viral vaccines." [pp. 31]

DATE DOCUMENT SUBJECT REFERENCE 4 May 2001 Letter from [APPELLANT] to [NAME] "Please advise if these are now acceptable and arrange an exchange of contracts." [p. 32] 8 May 2001 Fax from [NAME] to [NAME] respect to the restrictive covenant or contractual obligation sought by [NAME] as a condition for the sale of the property to [APPELLANT[NAME]. 44 in Part 2, Schedule 1 of [APPELLANT[NAME]'s List 9 May 2001 [APPELLANT] and [APPELLANT[NAME] agree upon the terms of the proposed lease of part of the Property to [APPELLANT] 15(f) of the Defence filed by [APPELLANT]. 4 June 2001 Memo for file by [APPELLANT] [RESPONDENT] & [RESPONDENT] subpoenaed documents. Undated File note of [NAME]. [RESPONDENT] & [RESPONDENT] subpoenaed documents (pre 8 June 2001) *8 June 2001 Letter from [NAME] to [APPELLANT] exchanged. [p. 33] *12 June 2001 Letter from [NAME] to [APPELLANT] on title [p. 49] Letter from [RESPONDENT] & [RESPONDENT] to [APPELLANT[NAME]. [[RESPONDENT] & [RESPONDENT] subpoenaed documents] 26 June 2001 Handwritten Notes of [NAME]. [[RESPONDENT] & [RESPONDENT] subpoenaed documents] 27 June 2001 Memo from [NAME] to [NAME]. [[RESPONDENT] & [RESPONDENT] subpoenaed documents] 29 June 2001 Contract of Sale completed