FEDERAL COURT OF AUSTRALIA EVIDENCE – Evidence Act 1995 (Cth) - client legal privilege – derivative modification of common law – circumstances in which a party is to be taken to have consented to disclosure of the contents of confidential legal advice – relevance of a plea of reliance on representations – confidential legal advice as a factor influencing state of mind – issue incapable of fair resolution without reference to confidential legal advice. Evidence Act 1995 (Cth), ss 118, 122 Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418, followed Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485, cited Akins v Abigroup Ltd (New South Wales Court of Appeal, 1 June 1998, unreported), followed Attorney General for the Northern Territory v Maurice (1986) 161 CLR 475, cited Goldberg v Ng (1995) 185 CLR 83, cited Noriah v Shaik Allie Bin Omar [1929] AC 127, cited Powell v Powell [1900] 1 Ch 243, cited Watkins v Combes (1922) 30 CLR 180, cited Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30, cited Lillicrap v Nalder & Son [1993] 1 WLR 94, cited Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419, cited Pickering v Edmunds (1994) 63 SASR 357, cited Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405, cited Benecke v National Australia Bank (1993) 35 NSWLR 110, cited Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447, cited United States Surgical Corp. v Hospital Products International Pty Ltd (McLelland J, 13 October 1981, reported in Ritchie's Supreme Court Procedure (NSW), at 8545), followed Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121, cited Waterford v The Commonwealth (1987) 163 CLR 54, cited Kennedy v Lyell (1883) 23 Ch D 387, cited Lyell v Kennedy (No. 2) (1883) 9 App Cas 81, cited Thomason v Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347, cited TELSTRA CORPORATION LIMITED & ANOR v BT AUSTRALASIA PTY LIMITED & ANOR NG 280 of 1998 NG 299 of 1998 BEAUMONT, BRANSON AND LEHANE JJ SYDNEY 24 JULY 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 280 of 1998 NG 299 of 1998 BETWEEN: telstra corporation limited appellant in appeal no. ng 280 of 1998 state of new south wales appellant in appeal no. ng 299 oF 1998 AND: BT australasia pty limited first Respondent british telecommunications plc second respondent JUDGES: beaumont, branson and lehane jj DATE: 24 july 1998 PLACE: SYDNEY THE COURT ORDERS THAT: 1. The orders dated 1 April 1998 of the judge at first instance on the further amended notice of motion of the State originally filed on 24 October 1997 be set aside. 2. BT Australasia Pty Limited and British Telecommunications plc each produce for inspection by the State of New South Wales any written legal advice received by them or either of them: (a) as to whether contractual provisions could exclude them from the benefit of representations made during the negotiations leading to the Telephone and Data Network Agreement between BT Australasia Pty Ltd and the State of New South Wales. (b) specifically concerning the legal effect of clauses 3.3 and 20.4 of the Telephone and Data Network Agreement between BT Australasia Pty Ltd and the State of New South Wales. 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 NG 280 of 1998 ng 299 of 1998 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: TELSTRA CORPORATION LIMITED AppELLant IN APPEAL NO. NG 280 OF 1998 STATE OF NEW SOUTH WALES AppELLant IN APPEAL NO. NG 299 OF 1998 AND: BT AUSTRALASIA PTY LIMITED First Respondent BRITISH TELECOMMUNICATIONS PLC Second Respondent JUDGES: BEAUMONT, BRANSON AND LEHANE JJ. DATE: 24 JULY 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: INTRODUCTION These are interlocutory appeals brought pursuant to leave granted by the managing Judge (Sackville J) from orders refusing a motion for production, by discovery, of documents which are the subject of claims of legal professional privilege. The question agitated is whether the privilege has been waived or otherwise lost. The dispute to be litigated in the principal proceedings is complex. It arises out of the management and development of an integrated telecommunications network for the NSW Public Sector. In 1991 the State of NSW ("the State"), one of the appellants, published in this connection a "Request for Tender for Design Implementation and Operation…" ("RFT"). In response to the RFT, in January 1992, BT Australasia Pty Limited ("BTA"), the first respondent, a subsidiary of British Telecommunications plc ("BT"), the second respondent, submitted a tender to the State. Subsequently, BTA and the State entered into a Telephone Data and Network Agreement ("the TDN Agreement"). The TDN Agreement itself was to have two components: (1) a private network system ("PN"); and (2) a virtual private network system ("VPN"), which was to use facilities provided by Telstra Corporation Limited ("Telstra"), the other appellant. In the principal proceedings, BTA claims against the State, inter alia: (1) damages for breach of contract; and (2) damages for the State's misleading and deceptive conduct, contrary to s 42 of the Fair Trading Act 1987 (NSW) ("the FTA"). Against Telstra, BTA claims, inter alia, damages for misleading and deceptive conduct contrary to s 42 of the FTA and s 52 of the Trade Practices Act 1974 ("the TPA"). The motion dealt with by Sackville J arose out of general discovery orders previously made. The State sought, with Telstra's support, orders for production for its inspection of documents in respect of which BT and BTA had claimed client legal privilege. The State contended that the privilege was lost because it had been waived at common law; or, alternatively, that there had been implied consent to the disclosure of their contents for the purposes of s 122 of the Evidence Act 1995. This motion was brought pursuant to O 15 r 11, but reference should be made to other rules in O 15. Order 15 deals with Discovery and Inspection of Documents. Division 1 (rr 1-9) deals with Discovery. Division 2 (rr 10-14) deals with Inspection. Division 3 (rr 15-18) deals with General matters. Relevantly, O 15 provides as follows: Any party may, unless the Court otherwise orders, require any other party to give discovery of documents (r 1). Where a party making a list of documents claims that any document in its possession etc. is privileged from production, it shall, in the list, sufficiently state the grounds of the privilege (r 6(4)). Where, inter alia, it appears from a party's list of documents that any document is in its possession etc., the Court may, subject to any question of privilege, order the party to produce the document for inspection by any other party (r 11). The Court may, at any stage of any proceeding, order any party to produce to the Court any document in its possession etc. relating to any matter in question in the proceeding (r 13(1)). Upon production, the Court may deal with the document in such manner as the Court thinks fit (r 13(2)). Where, on an application under r 11 or under r 13, a claim of privilege is made, the Court may inspect the document for the purpose of deciding the validity of the claim (r 14). The Court shall not make an order for production of any document unless satisfied that it is necessary (r 15) (emphasis added). The State's motion sought production of several categories of documents. In the first category were documents brought into existence concerning the retainer of solicitors to advise BT in connection with its bid for the TDN Agreement, including advices, notes in relation to the drafting of the TDN Agreement, and "communications concerning a number of contractual issues arising under the proposed TDN Agreement". The other category comprised documents the subject of the claim for privilege "which relate to any advice… related to the entitlement of BTA to rely upon (certain alleged) representations… notwithstanding any provisions of the TDN Agreement, or generally any contractual limitation which the Government might seek to place on the entitlement to do so…". It appears that the provisions and limitations mentioned in the privilege claim were contained in clauses in the TDN Agreement whereby, in effect, BTA purported to accept that it had not been misled by the State in any material respect. Before his Honour, the State contended that the Court should apply the "issue waiver" principle, that is, the State submitted, that where a litigant opens up the source and basis for its belief on a particular question, inspection cannot be denied by a general law claim of legal professional privilege. The State relied upon the decision and reasoning of Jordan CJ in Thomason v Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347. There, in an action for negligence, the defendant pleaded that the plaintiff had, with knowledge of the choice, elected to proceed under workers' compensation legislation and was therefore debarred from suing at common law for negligence. At the trial, the defendant admitted into evidence a statement signed by the plaintiff to the effect that she had been advised by her solicitor, Mr Brady, as to her right to proceed independently of the workers' compensation legislation, but that she had elected to claim benefit under that legislation. It appeared that the plaintiff had consulted two solicitors, Mr Adams and Mr Brady, in this connection. Notwithstanding the plaintiff's objection, the trial Judge permitted the defendant to cross-examine the plaintiff as to what had passed between her and each of the solicitors in this regard. Mr Brady was called as a witness for the defence and was allowed to be examined as to the advice he had given. It was held that the objections were not well founded since, in the circumstances, the privilege had been waived. In a familiar passage, Jordan CJ (Halse Rogers and Bavin JJ concurring) said (at 358-9): "… it was necessary under the second plea for the defendant to prove, if it could, what knowledge the plaintiff had as to her legal rights; and this was knowledge which she was not likely to possess unless she derived it from a legal adviser. Hence, in effect, one of the issues in the case was what advice if any the plaintiff had received from her legal advisers as to her alternative legal rights. In these circumstances, since the fact and nature of the advice is an issue in the cases, I am of opinion that privilege cannot be raised to prevent the proof of the advice. The position is analogous to that which arises in a suit in Equity to set aside a transaction on the ground of undue influence. In such a suit, it has always been the practice for the defendant to cross-examine the plaintiff with a view to proving that the plaintiff had competent legal advice when he entered into the transaction, and to call and examine the legal adviser if he is available; and I have never known it to be suggested that such evidence is inadmissible on the ground of the plaintiff's privilege." (Emphasis added). The State further contended that, if it be accepted that the provisions of the Evidence Act were to be applied indirectly to pre-trial areas such as discovery (see Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418) any client legal privilege within the meaning of the Evidence Act had been lost because of BT's consent (s 122(1) and (4)) or because of its knowing and voluntary disclosure (s 122(2)). THE REASONING AT FIRST INSTANCE With respect to the test to be applied in this area, Sackville J held, following and applying Adelaide Steamship, that cases of "issue waiver" are now to be determined by the "derivative" application of the principles of consent and disclosure stated in s 122 of the Evidence Act. The test to be applied is whether there has been disclosure of the substance of the privileged communication or consent (express or implied) to its disclosure, something different from the test of "fairness" applied in the context of waiver of the privilege at common law in cases such as Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475 and Goldberg v Ng (1995) 185 CLR 83. It followed, his Honour held, that privilege will relevantly be lost where, by raising a particular issue, the litigant (a) expressly or impliedly consents to disclosure (s 122(1) and (4)); or (b) knowingly and voluntarily discovers the substance of the privileged communication (s 122(2)). In applying this test, his Honour held that, since BT had not pleaded that it relied on legal advice, or that they had received any such advice, their pleadings did not give implied consent to the disclosure of legal advice received in the course of negotiations, notwithstanding that this advice "is likely to be material to whether [its]… officers had the state of mind outlined in their [witness] statements". Nor, the primary Judge concluded, should such consent be "imputed". THE GROUNDS OF APPEAL In their notices of appeal, the State and Telstra challenge (1) his Honour's decision to follow Adelaide Steamship in the present context; (2) the test stated by the learned primary Judge; and (3) his Honour's application of the law, including the provisions of the Evidence Act, in the instant circumstances. In their submissions, the State and Telstra contended that we should not follow Adelaide Steamship. CONCLUSIONS ON THE APPEALS I propose to approach the matter by considering first the position under the general law, then addressing the question of the impact, if any, of the relevant provisions of the Evidence Act. In other words, for present purpose I will assume in favour of the appellants that it is open to them to seek to demonstrate loss of privilege both (a) at common law and (b) by reference to the provisions of the Evidence Act. (a) The relevant general law principles The principles at common law were authoritatively explained by the High Court in Maurice and further elaborated in Ng, relevantly to the following effect: In Maurice, Gibbs CJ (at 481) adopted Wigmore's statement of principle that, where there is no express waiver of privilege and no actual intention to waive it, regard must be had to the objective elements of (a) implied intention and (b) fairness and consistency. It is not unfair or misleading to refer to a document in a pleading or affidavit which is not put into evidence, but if the document is set out in full, the privilege is waived. Privilege in respect of materials used in drawing a pleading or an affidavit and not referred to therein, would not be lost because those materials had been used in that way. Mason and Brennan JJ (at 487-9) also adopted Wigmore's statement of principle. An implied waiver occurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege. The holder should not be able to abuse it by using it to create an inaccurate perception of the protected communication. A litigant does not waive the privilege to research materials, directly or by implication, merely by submitting a pleading. Deane J said (at 491-3) that, in the absence of actual waiver as a matter of subjective intent, the right to assert the privilege could only be waived by imputation of law in the circumstances of the case. If a party sets forth part of the contents of a particular identified document or communication or asserts the effect of or reliance upon the document or communication, it may be that considerations of fairness might require that the party be treated as having waived privilege in relation to the whole. But there would be no unfairness where the party does no more than make use of privileged material (e.g., legal advice, expert opinion or statements of potential witnesses) for the purpose of formulating the statement in such a document of the details of the case the party seeks to make. Dawson J was of a similar view, noting (at 498) that what is fair by way of disclosure must ultimately depend upon the relevant circumstances. In Ng, Deane, Dawson and Gaudron JJ said (at 95-6): "Imputed waiver The circumstances in which a waiver of legal professional privilege will be imputed by operation of law cannot be precisely defined in advance. The most that can be done is to identify a number of general propositions. Necessarily, the basis of such an imputed waiver will be some act or omission of the persons entitled to the benefit of the privilege. Ordinarily, that act or omission will involve or relate to a limited actual or purported disclosure of the contents of the privileged material. When some such act or omission of the person entitled to the benefit of the privilege gives rise to a question of imputed waiver, the governing consideration is whether 'fairness requires that his privilege shall cease whether he intended that result or not'. That does not mean, however, than an imputed waiver must completely destroy the privilege. Like an express waiver, it can be limited so that it applies only in relation to particular persons, materials or purposes." (Emphasis added). In the light of these explanations of the doctrinal basis of waiver of this privilege, Thomason should be seen as a case of implied or imputed waiver (see Adelaide Steamship at 426). Thomason is an illustration of the objective attribution by the law of waiver in the particular circumstances viz. (a) it was necessary for the defendant to prove, if it could, what knowledge the plaintiff had as to her legal rights; and (b) this was knowledge which she was not likely to possess unless she derived it from a legal adviser. The situation is analogous to cross-examining a plaintiff in an undue influence suit as to his or her legal advice. (b) The application of common law principles In the absence of any suggestion of express or actual waiver, the question remains whether, in the present circumstances, the law should imply or impute a waiver. In my opinion, it should not, at least not at this stage of the proceedings. Whether, at a later stage, particularly at the trial itself, the circumstances are then such that the law should imply or impute a waiver, is another question, for resolution at that time and in the light of those circumstances. At this stage, BT has made no use of the legal advice in the proceedings. The advice is not pleaded by BT as an ingredient of its claim. BT does not assert that it relied, or did not rely, on the advice. It is difficult to see how, or why, BT could have pleaded the advice. It could not bear upon the question whether the conduct of the State or Telstra was misleading. It may, depending upon the actual situation, bear upon the question of BT's reliance. Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason, at least as the issues in Thomason had evolved in the course of the trial. Cases that have followed Thomason may also be distinguished for our purposes on this ground. For instance, in Benecke v National Australia Bank (1993) 35 NSWLR 110, the plaintiff, in her originating process and in evidence, alleged that prior litigation had been compromised by lawyers contrary to instructions. It was held that the plaintiff had opened up the question of the authority of the lawyers to act as they did and on grounds of "basic fairness" (at 116), had thereby waived privilege. Again, as in Thomason, the question in Benecke arose at the trial itself. Another example of the state of mind of the client being central to an issue, where Thomason was applied, is Ampolex v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405. There, the plaintiff claimed rectification of a deed for mistake. Yet in the present case, BT's state of mind is not central to its claims in that sense. Relevantly, the central question in the principal proceeding will be whether the conduct of the State or Telstra was misleading. In my opinion, nothing has emerged at this stage to demonstrate any unfairness in BT's insistence upon its right to claim privilege. Whether this will change in the light of subsequent events, including the conduct of the trial, will be a matter for decision at that time and in the light of those circumstances. At the present pre-trial stage, the only relevant act or omission of BT is its pleading, which does not mention any legal advice. It should be noted that the Court was not, itself, invited to inspect any of the privileged documents. In this area, questions of degree, and thus of judgment, are necessarily involved because, as the High Court has emphasised, whether the privilege has been abused, with the consequence that the law imputes a waiver regardless of actual intention, depends upon the particular circumstances. For this reason, it is difficult to generalise and impractical to attempt to articulate any universal rule. It seems unlikely that there could be any absolute rule that, whenever it appears, pre-trial, that a party's state of mind may be relevant to an issue, privilege is lost, even if it also appears that the party may have sought legal advice in that connection at the material time. I respectfully agree with the following observations of McLelland J in United States Surgical Corp. v Hospital Products (13 October 1981) (as reported in Ritchie's Supreme Court Procedure (NSW) at 8546-7): "Jordan CJ [in Thomason] cannot have intended to lay down as a proposition of general application that whenever the making or contents of a privileged communication becomes an issue in proceedings, privilege cannot be successfully claimed for the purpose of those proceedings, as this would be inconsistent with his Honour's discussion (at 353) of the same judgment) of what was said by Lord Arkin in Minter v Priest [1930] AC 558 even if the proposition were limited to proceedings to which the person entitled to privilege was a party. … In the Thomason case, the plaintiff was asserting a right to claim damages in a statutory context which rendered it implicit in such an assertion that the plaintiff had not effectively exercised her option to take the alternative course, notwithstanding that on the pleadings the onus of proving the effective exercise by the plaintiff of that option, and in an evidentiary sense the onus of proving the plaintiff's knowledge of her legal rights, in each case rested on the defendant. So that it may be that the criterion that the otherwise privileged party must have himself raised the fact and nature of the advice as an issue in the case is too rigidly stated. Nevertheless, before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust." In my view, there is no such element or feature in the present case, as things stand at the moment, having regard particularly to the abstract way in which the question has arisen at this stage. If, on the other hand, BT were to call one of its officers as a witness at the trial to give evidence as to what occurred in the course of communications between the officer and BT's solicitors concerning the subject matter of the dispute, waiver of privilege might be imputed (see Hospital Products, above, at 8547, citing Barilla v James (1964) 81 WN (Pt. 1) (NSW) 457 per Asprey JA at 475). Further support for this approach may be found in observations made by the Full Court in Adelaide Steamship in its discussion of the position at common law. Olney, Kiefel and Finn JJ observed of the "issue waiver" cases such as Thomason (at 426-7): "[They are] cases… in which, in the substantive proceeding brought, the privilege holder has put in issue the very advice received. We observe in passing that it is questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it: see Rhone-Poulenc Rorer Inc v Home Indemnity Co 32 F 3d 851 (3rd Cir 1994) at 863; save, perhaps, where the proceeding is between client and legal adviser and the advice is relevant to the adviser's defence of that proceeding: see Lillicrap v Nalder & Son [1993] 1 WLR 94. For the most part, we would have thought that the conclusions reached in the types of case to which we have referred, could be accounted for on the basis of fairness in the sense in which that term is used in Maurice's case, at least where it could not be said that the case is in fact one of implied consensual waiver." Their Honours went on to say (at 429): "…we are not convinced that the so-called issue waiver cases amount to more than examples of disclosure waiver of the Maurice variety and, perhaps more usually, of implied consent waiver." But in the present case, BT did not "put in issue the very advice received". Rather, BT claims, relevantly, that the State and Telstra misled it in the negotiation of a commercial transaction. Any legal advice given to BT is not a central feature of BT's claim, notwithstanding that it is conceivable that it might arise as an aspect of the conduct of BT's case at the trial in proving reliance. Whether, and if so, how, the receipt of any such advice might bear upon the issue of reliance on the alleged misleading conduct of the State and Telstra is, I think, too early to judge. It should be borne in mind, in this connection, that the privilege itself evolved as an exception to testimonial compulsion at trial and was then applied derivatively to ancillary processes as they emerged and developed (see Adelaide Steamship at 428; see also Akins v Abigroup Limited, NSW Court of Appeal, 1 June 1998, unreported,per Mason P at 12-14). It is well accepted, as O 15 r 15 indicates, that, in allowing production and inspection, the Court exercises a judicial discretion (Grant v Downs (1976) 135 CLR 674 per Stephen, Mason and Murphy JJ at 684). I would be reluctant to interfere with the exercise of this discretion of the managing judge, especially (as here) in complex litigation. (c) The impact, if any, of the provisions of the Evidence Act For present purposes, I will assume that Adelaide Steamship should be followed, as the NSW Court of Appeal has recently done (see Abigroup, above). I will therefore assume that the Act applies indirectly to the discovery process. The principal relevant provision is s 122. In my view, none of the provisions of s 122 are applicable here, at least at this stage. Section 122(1) raises the issue of the client's consent. There is no evidence of actual or express consent; on the contrary. Nor, for reasons similar to those for holding that no waiver should be imputed, should any consent be implied in my opinion. Section 122(2) addresses knowing and voluntary disclosure of the substance of the evidence (communication). There has been no disclosure here at all, save of a confidential kind, thus falling within the exception in s 122(2)(a). Section 122(4) deals with disclosure of the substance of evidence (communication) with the client's express or implied consent, save to the client's lawyer (s 122(4)(a)), as here. It follows, in my view, that s 122 has no application in the present case, whether directly or derivatively. For completeness, mention should be made of Telstra's reliance upon s 121(3). In a "difficultly worded" provision (Adelaide Steamship at 429), it is there provided that Division 1 of Part 3.10 "does not prevent the adducing of evidence of a communication or document that affects a right of a person". Such provision can have no application in the present context that can assist the appellants if, as was suggested in Adelaide Steamship (at 429), its operation would result in a loss of privilege in circumstances where the common law would have procured a like outcome. I respectfully agree with this suggestion, and I have already expressed the view that there was no common law waiver. If s 121(3) has any different operation, it is difficult to identify any relevant "rights" of the appellants that are affected. (d) Other issues Finally, it should again be stressed that whether any of BT's future conduct should involve waiver of privilege or the imputation of its consent to disclosure, and the consequent loss of privilege, is a question for another occasion. As has been seen, O 15 r 13(1) is available, if appropriate, at any stage of the proceedings, subject always to the proviso of O 15 r 15 that the Court should not make any order for production unless satisfied that it is necessary (see Commonwealth of Australia v Northern Land Council (1991) 30 FCR 1 at 24-25; Holmes v Deputy Commissioner of Taxation (NSW) (1987) 19 ATR 1278; Richardson Pacific Ltd v Fielding, Burchett J, 24 July 1990, unreported; see also TPC v CC (NSW) Pty Ltd (1993) 58 FCR 426 per Lindgren J at 436-7). In these circumstances, I need not consider whether Adelaide Steamship should, or should not, be followed, but it is obvious from the earlier divergence of opinion in attempting to interpret and apply the provisions of the Evidence Act, further law reform in this area is urgently required. ORDERS PROPOSED Accordingly, I propose that both appeals be dismissed, with costs. I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 24 July 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 280 of 1998 NG 299 of 1998 BETWEEN: telstra corporation limited appellant in appeal no. ng 280 of 1998 state of new south wales appellant in appeal no. ng 299 oF 1998 AND: BT australasia pty limited first Respondent british telecommunications plc second respondent JUDGES: beaumont, branson and lehane jj DATE: 24 july 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BRANSON AND LEHANE JJ INTRODUCTION We have had the benefit of reading in draft the reasons for judgment of Beaumont J. We gratefully adopt his Honour's outline of the dispute to be litigated in the principal proceeding, and his Honour's other preliminary observations. We shall adopt the abbreviations used by Beaumont J. The judge at first instance set out the factual background to the dispute concerning discovery and production in the following paragraphs of his reasons for judgment: "The TDN Agreement, as executed, contained a number of acknowledgments by BTA (referred to therein as "the Contractor"). These included the following: '3.3 Acknowledgments by Contractor (a) … (b) The Contractor acknowledges that it has not relied upon any representations, warranties or statements by the Government or any of its officers, whether oral or in any Document, except to the extent that such representations, warranties or statements are expressly set out in this Agreement. … 20.4 Government not responsible for marketing or utilisation (a) The Contractor acknowledges that the Government shall not be responsible for marketing or promoting the use by any Agency of the TDN or any service. (b) The Contractor acknowledges that the Government has not given any warranty, made any representation or undertaken any commitment as to the minimum or any level of telecommunications traffic, level of utilisation of the TDN or any Services by any Agency or all Agencies. (c) The Contractor acknowledges that it shall have no claim against the Government in respect of any of the matters set out in paragraphs (a) or (b).' The TDN Agreement also contained other acknowledgments by BTA. For example, cl 16.8 provided as follows: 'The Contractor acknowledges that certain Agencies have entered into supply agreements for telecommunications services with a Carrier and the Agency Service Agreement with any such Agency shall specifically exclude such telecommunications services until the expiry of the relevant supply agreement. The Government shall procure that no Agency shall renew or extend the term of any such agreement, other than on a month to month basis, up to the date the relevant Agency Site is scheduled to be Cutover as set out in the Agency Cutover Plan.' Clause 17.7 stated that, subject (inter alia) to cl 16.8, BTA was to be the exclusive supplier of all "Required Services" to all Agencies other than an "Exempt Agency" (that is, an Agency exempted by the Minister pursuant to a power conferred by cl 16.6), a "Privatised Agency" and an Agency which had terminated its Agency Service Agreement in accordance with the terms of that agreement. By the second amended statement of claim and the amended fourth cross claim, BT allege that the State made many representations to BTA and, through it, to BT plc. It is alleged, inter alia, that the State represented that the integrated telecommunications network would be used by all the State's Agencies, that the network would service a minimum number of sites and exceed a specified level of traffic, that the successful tenderer would have the exclusive right to supply all Agencies; that the tenderer could achieve satisfactory returns over specified periods; and that the network would retain both the PN (private network) and VPN (virtual private network). The representations are said to have constituted misleading and deceptive conduct by the State and to have induced BTA (inter alia) to submit a tender and to execute the TDN Agreement." Subsequently his Honour said: "As I have noted, Mr Gleeson did not rely merely on BT's pleaded case, but tendered extracts from statements of evidence filed on behalf of BT in the principal proceedings. These extracts show that BT received legal advice in the course of negotiations with the State. Indeed, solicitors from MSJ formed part of BT's negotiating team. In their statements of evidence, officers of BT claim to have believed representations to the effect of those pleaded by BT. That claim is made, notwithstanding that at least some of the officers received legal advice during the critical negotiations with the State. There is therefore little doubt that the content of any legal advice relating, for example, to the effect of the acknowledgments in the TDN Agreement or the relationship between representations and the terms of the TDN Agreement, could be material to any assessment of the reliability of evidence by BT's officers as to their state of mind. The point can be illustrated by the statement of Mr Aleppo, a member of the Group Commercial Contracts Department of BT plc, extracts from which were admitted into evidence. Mr Aleppo says that he believed the traffic volumes and dispersion figures stated in the RFT were accurate and that, if he had been told they were not, "alarm bells" would have rung. He also says that was involved in reviewing and commenting on various drafts of the TDN Agreement and that he participated, with MSJ solicitors, in intensive negotiations over the wording of particular clauses in the TDN Agreement. Exhibit 2, a list of documents in respect of which BT has claimed privilege, shows that privilege has been asserted by BT over a number of communications between Mr Aleppo and MSJ, and between Mr Aleppo and Mr Lornish (who was then BTA's Senior Commercial Manager). These communications took place at the time the negotiations concerning the TDN Agreement took place." CONSIDERATION The principal submission of the State and Telstra was that this Court should decline to follow the decision of a differently constituted Full Court of this Court in Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 ("the Adelaide Steamship case"). In the Adelaide Steamship case the Full Court held that, because the Evidence Act 1995 (Cth) (the "Act") is, in terms, operative only in respect of the adducing of evidence, legal professional privilege, for the purposes of ancillary processes such as the production of discovered documents and access to documents produced on subpoena, continues to arise, and is waived, in accordance with common law principles. Those principles, however – and this is for present purposes the ratio decidendi of the Adelaide Steamship case – so far as they are inconsistent with the Act, have been modified (as they are applied in courts in which the Act is in operation) so as to avoid such inconsistency. That is so because of the entirely new setting, resulting from the advent of the Act, in which the common law must now operate. The judge at first instance rightly regarded himself as bound by that ratio decidendi. His Honour further considered it appropriate for him to follow the carefully expressed obiter views of the Full Court in the Adelaide Steamship case on related matters. The Act with only limited exception (see s 4(5)) applies to proceedings in all federal courts and the courts of the Australian Capital Territory. The Evidence Act 1995 (NSW), which is in most respects in identical terms, applies, generally speaking, to all proceedings in courts in New South Wales and before other persons or bodies in that State required to apply the laws of evidence. In Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492 the High Court spoke of the desirability of uniformity of decisions in the interpretation of uniform national legislation such as the Corporations Law. Whilst the Adelaide Steamship case is not, strictly speaking, a decision on the interpretation of the Act, and (except as to proceedings in federal courts) the provisions of the Act do not operate in every State of the nation, the desirability of uniformity of decisions of which the High Court spoke in the Marlborough Gold Mines case is equally applicable in respect of the provisions of the Act and their broader effect. The Court of Appeal of the Supreme Court of New South Wales has in Akins v Abigroup Ltd (unreported 1 June 1998), with one presently immaterial qualification, adopted the reasoning of the Court in the Adelaide Steamship case. In our view, we should not depart from the approach of this Court in the Adelaide Steamship case, and the Court of Appeal in Akins v Abigroup Ltd. The alternative argument advanced by the State and Telstra was, in the language of the State's written submissions, that: "…if the provisions of the Act … have application to the law in respect of legal professional privilege in ancillary proceedings by some modification of the common law, the fairness principles enunciated in Attorney-General v Maurice (1986) 161 CLR 475 may still aid the question of whether the court should impute consent for the purpose of section 122(1) [of the Act]". Section 122(1) is found in Part 3.10 of the Act which is concerned with privileges in the context of the adducing of evidence. The provisions of the Act dealing with client legal privilege, traditionally referred to as legal professional privilege, are found in Division 1 of Part 3.10 of the Act. Central to the present issue are the terms of s 118 of the Act which provide as follows: "118. Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication made between the client and a lawyer; or (b) a confidential communication made between 2 or more lawyers acting for the client; or (c) the contents of a confidential document (whether delivered or not) prepared by the client or a lawyer; for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client". Section 122 of the Act is concerned with loss of client legal privilege. Section 122(1) is in the following terms: "122(1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned". Nothing in s 122 of the Act, or elsewhere in Division 1 of Part 3.10 of the Act, expressly contemplates the imputation of a waiver of client legal privilege by reason of conduct on the privilege holder's part in circumstances in which it would be unfair for the privilege to be maintained (see for example, Attorney General for the Northern Territory v Maurice (1986) 161 CLR 475; Goldberg v Ng (1995) 185 CLR 83). As to this, the Full Court in the Adelaide Steamship case said at 425: "We have not had the benefit of submissions on the extent of operation of s 122(1), although we consider it of some relevance to the topic of 'issue waiver' raised by the respondents. There seems to us no reason for construing the term 'consent' in s 122(1) as referring only to express consent, even if the formula 'with the express or implied comment', which appears in s 122(4), is not used. It is unnecessary for us on this appeal to comment further on the extent to which common law doctrines, such as estoppel, might operate to preclude the client or party concerned from denying that the relevant consent was given.". If s 122(1) was intended (among other things) to permit evidence, otherwise protected by client legal privilege to be adduced on the basis that a waiver or consent might be imputed by reason of considerations of fairness arising from conduct of the holder of the privilege, "evidence given with the consent of the client or party concerned" was an odd choice of words. But, unless "consent" has a meaning more extensive than actual, voluntary consent, it is difficult to see what s 122(1) adds to the opening words of s 118. And it may be observed that if s 122(1) of the Act is construed as being concerned only with intended or voluntary consent, Division 1 of Part 3.10 of the Act will have effected a dramatic change to the pre-existing common law with respect to legal professional privilege. For example, at common law it is not open to challenge in an undue influence case that evidence can be called as to the legal advice provided to the weaker party to rebut the presumption of fraud or undue influence (Inche Noriah v Shaik Allie Bin Omar [1929] AC 127: Powell v Powell [1900] 1 Ch 243; Watkins v Combes (1992) 30 CLR 180; Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30). It is also not open to challenge at common law that in a case where professional negligence is alleged against a legal practitioner, it is open for evidence to be led as to the full legal advice given by that legal practitioner (Lillicrap v Nalder & Son [1993] 1 WLR 94). If s 122(1) of the Act is narrowly construed, it would seem that under the Act evidence of confidential legal advice provided to the weaker party in an undue influence case could not be led at trial over that party's objection. Nor is it clear that s 122(2) will be adequate in all cases to allow a defendant in an action of legal professional negligence to adduce evidence of the totality of the legal advice received by the plaintiff. At common law it has also been held, in cases in which the state of mind of a party was in issue in the proceedings, that evidence could be called to establish the terms of legal advice, relevant to that party's state of mind, provided to that party. Thus, in Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347, where it was necessary for the defendant to prove what knowledge the plaintiff had as to her legal rights, Jordan CJ held that privilege could not be invoked to prevent proof of relevant legal advice provided to her. In Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419 Smith J held that, in raising and persisting with issues which concerned legal advice it received, Hongkong Bank was to be treated as having waived the privilege in respect of such advice. His Honour at 439 said: "In this case, if the plaintiff is permitted to rely on a claim for privilege for the documents in question, the fact-finding task of the court will be seriously compromised. There is a real possibility of the court being misled." In Pickering v Edmunds (1994) 63 SASR 357 Duggan J held that where, by their pleadings, the plaintiffs put in issue their state of mind and knowledge of the legal effect of a deed, evidence could be led as to relevant legal advice received by them. His Honour at 362 said: "In the present case the conduct of the respondents is such as to make the issue of their appreciation of the legality or otherwise of the trust deed of crucial importance in the case. An effective trial on that issue could not take place in the absence of evidence as to what legal advice they received on the matter. Furthermore the appellants would be unfairly deprived of the opportunity to put material before the court on this key issue. It is true that the respondents did not raise directly the legal advice they received. However they did put in issue their understanding of the legal effect of the earlier deed based on information they had received." In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 Giles CJ Comm D at 411 relied upon Attorney-General for the Northern Territory v Maurice in concluding that – "GPG Nominees and Allied … having exposed to scrutiny their corporate states of mind, being states of mind to which their legal advice is likely to have contributed, GPG Nominees and Allied can not withhold the advice from their opponent. I emphasise that the legal advice is likely to have contributed to the states of mind of GPG Nominees and Allied as was plain from the dates of and descriptions of the documents: were that not so, the principle may not have applied." The decisions of the High Court in Attorney-General for the Northern Territory v Maurice and Goldberg v Ng are cases concerning imputed waiver of privilege. In each case the party whose privilege was in issue had made some relevant use of the privileged material: the issue was whether such use constituted an implied waiver of the privilege. The High Court held in each case that such issue was to be determined by reference to considerations of fairness, and not by reference to the actual intention of the party who had made use of the material. A similar approach was taken by the Court of Appeal in Benecke v National Australia Bank (1993) 35 NSWLR 110. In that case Gleeson CJ at 111-112 stated: "The law permits the search for truth in legal proceedings to yield, in certain circumstances, to the public interest in publicising the secrecy of communication between lawyer and client. In the present case, however, the appellant herself lifted the veil of secrecy by giving the version of the communications. Thereafter there was no reason in principle why the pursuit of the truth should not take its course, or why the Court should be inhibited in seeking to ascertain the true facts concerning those communications." The other cases referred to above are not cases in which there had been partial disclosure of a privileged communication or other use of such a communication. They are rather cases in which, unless waiver of such privilege was imputed to a party, the fact finding task of the court with respect to issues raised by that party would have been compromised. It was contended by senior counsel for the BT parties that the decisions in those cases are not supported by High Court authority. We accept that such cases are not directly supported by Attorney-General for the Northern Territory v Maurice and Goldberg v Ng. However, they are, in our view, supported by the principles behind the undue influence and legal professional negligence cases. A party who initiates an undue influence case puts in issue in the proceeding the quality of his or her consent or assent (Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 per Deane J at 474). The quality of such consent or assent will ordinarily be affected by relevant legal advice received by the party. The principle that requires that in such circumstances the party not be entitled to maintain the confidentiality of such advice is one of fairness which goes to the integrity of the legal process. To allow a party to put in issue the quality of his or her consent or assent whilst, at the same time, withholding evidence relevant to that issue, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to compromise the ability of the court realistically to determine the issue. There is, in our view, little, if any, difference in principle between the undue influence cases, the partial disclosure cases such as Benecke v National Australia Bank, and the "other use" cases such as Attorney-General for The Northern Territory v Maurice and Goldberg v Ng. In the three classes of cases the law implies a consent to the use of the privileged material, or, what is in reality the same thing, a waiver of the privilege, if by reason of some conduct of the party otherwise entitled to the privilege, it would be unfair to the other party, in a way which goes to the integrity of the legal process, for the privilege to be maintained. The legal professional privilege cases are, in our view, to be analysed in the same way. The quality of any particular legal advice, and the extent, if any, to which it was causative of loss and damage, can only properly be assessed once it is placed in the context of the totality of legal advice received by the client. The client, by bringing the proceeding, is taken to have consented to the use of the privileged material, or to have waived reliance on the privilege which would otherwise attach to such material. Reliance on the privileged nature of the material would, in the circumstances, be unjust and would inhibit the proper functioning of the legal process. 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. The above analysis seems to us to be consistent with the approach of McLelland J in United States Surgical Corp. v Hospital Products International Pty Ltd (13 October 1981 – as reported in Ritchie's Supreme Court Prodedure NSW) at 8546-7: "In the Thomason Case, the plaintiff was asserting a right to claim damages in a statutory context which rendered it implicit in such an assertion that the plaintiff had not effectively exercised her option to take the alternative course, notwithstanding that on the pleadings the onus of proving the effective exercise by the plaintiff of that option, and in an evidentiary sense the onus of proving the plaintiff's knowledge of her legal rights, in each case rested on the defendant. So that it may be that the criterion that the otherwise privileged party must have himself raised the fact and nature of the advice as an issue in the case is too rigidly stated. Nevertheless, before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the principle unjust." In Attorney-General for the Northern Territory v Maurice Mason and Brennan JJ at 487 said: "A litigant can of course waive his privilege directly through intentionally disclosing protected material. He can also lose that protection through a waiver by implication. An implied waiver occurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege". Within that framework, the conduct of a party which leads to the implication of consent to the use of otherwise privileged material, or to an implied waiver of such privilege, in undue influence cases, legal professional negligence cases and, in my view, the "state of mind" cases, is that of raising for determination in legal proceedings, as an element in the cause of action relied upon, an issue incapable of fair resolution without reference to that material. Before returning to the construction of s 122(1) of the Act, some comments should be made, obvious as some of them may be, about the scope and effect of the principle just stated. It does not constitute a broad inroad into legal professional privilege as a "substantive and fundamental common law principle" (Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121 at 122 per Deane J). Nor does it involve any balancing of competing public interests, one in facilitating the application of the rule of law by promoting frank communication between clients and their legal advisers, the other in ensuring that all relevant evidence is placed before a court adjudicating as to the legal rights of parties before it: the recognition of the privilege is itself the outcome of such a balancing process: Waterford v The Commonwealth (1987) 163 CLR 54 at 64-65; Carter at 128. Nor it is a consequence of the principle that whenever a person's state of mind is relevant to an issue in proceedings, privilege is taken to be waived in relation to legal advice that may have played part in the formation of that state of mind (so that the principle does not, for example, deny the authority of Kennedy v Lyell (1883) 23 ChD 387; Lyell v Kennedy (No. 2) (1883) 9 AppCas 81). It is unnecessary and inappropriate, having said those things, to attempt to define exhaustively the scope of the principle. Where, however, a party relies on a cause of action, an element of which is the party's state of mind (including the quality of the party's assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind. In our view, s 122(1) of the Act is to be construed as reaching to cases in which the client or party concerned is deemed to have consented to the disclosure of the otherwise privileged material in the sense discussed above. To constrain the operation of the subsection to instances of voluntary assent to the adducing of evidence which would otherwise attract client legal privilege is, in our view, to give insufficient weight to the context in which the subsection is found, and to the common law background against which the Act as a whole is to be understood. The primary judge expressed the view that, while "consent" in s 122(1) might include implied as well as express consent, it would be straining language excessively to hold that it extended to a "consent" imputed to a party on the basis of fairness. Presumably an implied consent, as envisaged by his Honour, is one that is found to be, on the evidence, real and voluntary though not express. In fact, however, the cases, not surprisingly, use the terms "implied" and "imputed" interchangeably (see, for example, Maurice at 488 per Mason and Brennan JJ, Goldberg at 95-96 per Deane, Dawson and Gaudron JJ and at 109 per Toohey J). Once it is accepted that consent for the purposes of the section extends beyond express consent, we think it should be taken to extend to imputed consent. In particular, if that were not so, a defendant ordinarily would no longer be able, where the plaintiff alleges that a transaction was procured by the defendant's undue influence, to lead evidence to the effect that the plaintiff had comprehensive legal advice, immediately before entering into the transaction as to its effect. We cannot believe that that was intended. It follows that, in such cases, the position has changed little, if at all, following the introduction of the Act. Of course, as the Adelaide Steamship case demonstrates, the position may be different where the conduct relied upon is some disclosure of legal advice, but that need not be further considered here. Have BT in this case put in contest, by reason of the elements of their pleaded cause of action, an issue incapable of fair resolution without reference to relevant legal advice, if any, received by them? In our view, they have. They have propounded a claim based on ss 52 and 82 of the Trade Practices Act 1974 (Cth) ("the TPA"). They have pleaded relianceupon allegedly misleading and deceptive representations made on behalf of the State to establish the necessary causal connection between the conduct of the State and the damage allegedly suffered by them. As the judge at first instance observed, in the course of a longer passage set out in full above: "There is … little doubt that the content of any legal advice relating, for example, to the effect of the acknowledgments in the TDN Agreement or the relationship between representations and the terms of the TDN Agreement, could be material to any assessment of the reliability of evidence by BT's officers as to their state of mind." In our view, BT are to be taken, within the meaning of s 122(1) of the Act, to have consented to the disclosure of any legal advice received by them – (a) as to whether contractual provisions could exclude them from the benefit of representations made during the negotiations leading to the TDN Agreement; and (b) specifically concerning the legal effect of the acknowledgment provision of the TDN Agreement. Thus, in accordance with the reasoning of the Full Court in the Adelaide Steamship case, at common law, as derivatively altered by the Act, BT has lost its privilege in such legal advice. We would set aside the orders dated 1 April 1998 of the judge at first instance on the further amended notice of motion of the State originally filed on 24 October 1997 and in lieu thereof order that: BT Australasia Pty Limited and British Telecommunications plc each produce for inspection by the State of New South Wales any written legal advice received by them or either of them: (a) as to whether contractual provisions could exclude them from the benefit of representations made during the negotiations leading to the Telephone and Data Network Agreement between BT Australasia Pty Ltd and the State of New South Wales. (b) specifically concerning the legal effect of clauses 3.3 and 20.4 of the Telephone and Data Network Agreement between BT Australasia Pty Ltd and the State of New South Wales. We would hear counsel on the question of costs before the judge at first instance and before this Court. I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Branson and Lehane. Associate: Dated: 24 July 1998 Counsel for the Appellant in appeal No. NG 280 of 1998: J.T. Gleeson J.R.J. Lockhart Solicitor for the Appellant in appeal No. NG 280 of 1998: Blake Dawson Waldron Counsel for the Appellant in appeal No. NG 299 of 1998: J.M. Stowe QC D.R. Stack Solicitor for the Appellant in appeal No. NG 299 of 1998: I.V. Knight, Crown Solicitor Counsel for the Respondents in appeal No. NG 280 of 1998 and appeal No. NG 299 of 1998: G.C. Lindsay SC L.S. Einstein Solicitor for the Respondents in appeal No. NG 280 of 1998 and appeal No. NG 299 of 1998: Middletons Moore & Bevins Date of Hearing: 18 June 1998 Date of Judgment: 24 July 1998