Pegasus Gold Inc v Bateman Project Engineering Pty Ltd [1999] FCA 1764

FEDERAL COURT OF AUSTRALIA Pegasus Gold Inc v Bateman Project Engineering [1999] FCA 1764 PEGASUS GOLD INC & ORS v BATEMAN PROJECT ENGINEERING PTY LIMITED & ORS NG 471 OF 1998 JUDGE: MATHEWS J

DATE: 6 DECEMBER 1999 PLACE: SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 471 OF 1998

BETWEEN: PEGASUS GOLD INC

FIRST APPLICANT

PEGASUS GOLD CORPORATION

SECOND APPLICANT

PEGASUS GOLD AUSTRALIA PTY LIMITED

THIRD APPLICANT

AND: BATEMAN PROJECT ENGINEERING PTY LIMITED

FIRST RESPONDENT

KINHILL PACIFIC PTY LIMITED

SECOND RESPONDENT

KILBORN ENGINEERING PACIFIC PTY LIMITED

THIRD RESPONDENT

SVEDALA AUSTRALIA LIMITED

CROSS-RESPONDENT

JUDGE: MATHEWS J

DATE OF ORDER: 6 DECEMBER 1999

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The notice to produce dated 24 November 1999 issued by the respondents, insofar as it requires production of documents by the third applicant, be set aside. 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 471 OF 1998

BETWEEN: PEGASUS GOLD INC

FIRST APPLICANT

PEGASUS GOLD CORPORATION

SECOND APPLICANT

PEGASUS GOLD AUSTRALIA PTY LIMITED

THIRD APPLICANT

AND: BATEMAN PROJECT ENGINEERING PTY LIMITED

FIRST RESPONDENT

KINHILL PACIFIC PTY LIMITED

SECOND RESPONDENT

KILBORN ENGINEERING PACIFIC PTY LIMITED

THIRD RESPONDENT

SVEDALA AUSTRALIA LIMITED

CROSS-RESPONDENT

JUDGE: MATHEWS J

DATE: 6 DECEMBER 1999

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 A number of preliminary issues have been raised in this case will be the subject of submissions in the next day or so. One of these relates to an order made by Beaumont J on 22 April 1999 that the proceedings brought by Pegasus Gold Inc (PGI) and Pegasus Gold Corporation (PGC) on the one hand, and the proceedings brought by Pegasus Gold Australia Pty Limited (PGA) on the other, ("the two applicant groups") be consolidated. 2 PGI and PGC seek that the proceedings now be de-consolidated, or alternatively that the two applicant groups be separately represented by legal representatives and counsel. PGA supports this application. It is opposed by the respondents, jointly known as BKK. 3 The immediate issue relates to a notice to produce dated 24 November 1999 from BKK to the applicants, seeking the production of numerous documents relating to, or evidencing, attempts made between the applicant groups to reach an agreement described as a "joint litigation agreement". Without setting out the notice to produce in full, it is wide in its ambit and generally relates to communications passing between the applicants, and the considerations of each of them relating to such a proposed agreement. 4 PGA has applied to have the notice to produce set aside insofar as it requires production of documents by it. PGI and PGC do not join in this application. It is opposed, of course, by BKK, which issued the notice to produce in the first place. 5 The substantial ground upon which PGA objects to producing the documents sought in the notice to produce is privilege. Mr Gee QC, who appears for PGA, says that the documents in question are manifestly the subject of common interest privilege. Mr Castle, who argued this issue on behalf of BKK, does not dispute that the documents concerned are prima facie privileged, but says that any privilege in them has been waived. The means whereby waiver is said to have occurred is through an affidavit of Harrison J. Goldin, sworn in New York on 16 November 1999. Mr Goldin is the trustee in bankruptcy of both PGI and PGC. In relation to the application by those parties to deconsolidate the proceedings, Mr Goldin's affidavit contains the following statements. "14. In May 1998 discussions commenced between the representatives of PGI and PGC on the one hand and of PGA on the other ("the Applicants") in an attempt to reach a joint litigation agreement whereby the Applicants would have joint legal representation. 15. The Applicants considered such joint representation and concurred that there would be considerable benefit to the parties if they could agree upon a Joint Litigation Agreement as the Applicants could then share the costs of the proceedings. However, to date, the Applicants have been unable to resolve a number of issues that stand in the way of a Joint Litigation Agreement being concluded. 16. One significant issue that the parties have been unable to resolve is the basis upon which they would apportion the costs of prosecuting the litigation and share in the proceeds of ultimate recovery in the event the proceedings are successful. 17. The Administrator of PGA claims that any proceeds recovered would have to be paid to PGA's principal creditor, the banking syndicate, to extinguish PGA's liability. I do not entirely agree with this view. 18. To enter into a joint litigation agreement, the Applicants would be required to agree upon the Applicant or Applicants that is or are to have control of the litigation. To date the parties have been unable to resolve this issue. 19. Despite the applicants using their best endeavors [sic] to resolve these issues, they remain in dispute. 21. I am also concerned that, given the longstanding relationship between Allen Allen and Hemsley as the solicitors for PGA and as the solicitors for the Administrators in relation to the litigation, and in advising how to determine the claims of PGI and PGC against PGA, that the interests of PGI and PGC may be compromised if PGI and PGC are forced to engage that firm as their solicitors in the proceedings." 6 Mr Castle urges that Mr Goldin's references to the parties' attempts to reach a joint litigation agreement, opens up the whole issue of the negotiations between them and constitutes a waiver of any privilege which would otherwise exist in these communications. Mr Goldin, in his affidavit, referred not only to the applicants' failure to reach such an agreement, but went on to describe various matters which he said were stumbling blocks in their negotiations. Mr Castle submits that these matters having been opened up in the affidavit, BKK is entitled to test the accuracy of Mr Goldin's assertions. For this purpose it requires production of the documents sought in the notice to produce. 7 It is clear, and I think Mr Castle concedes it, that this issue is to be resolved according to common law considerations of waiver rather than by application of the relevant provisions of the Evidence Act 1995 (Cth). In Esso Australia Resources Ltd v Commissioner of Taxation (1998) 83 FCR 511, a Full Court determined that the relevant provisions of the Evidence Act do not apply in ancillary proceedings such as these. Accordingly, common law principles apply. These are generally, as the parties agree, based on considerations of fairness. 8 In this regard, several authorities were referred to by the parties. It suffices for present purposes to mention only the Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475. At pages 487 and 488 Mason and Brennan JJ made the following observations: "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 of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains: '[W]hen his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder.' (Wigmore, Evidence in Trials at Common Law (1961), vol. 8, par. 2327, p. 636.) In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in waiver as to the rest of the communication on that subject-matter: see Great Atlantic Insurance Co v Home Insurance Co ([1981] 1 WLR 529; [1981] 2 All ER 485)." 9 In the same case, at pages 492 and 493, Deane J observed as follows: "Waiver of legal professional privilege by imputation or implication of law is based on notions of fairness. It occurs in circumstances where a person has used privileged material in such a way that it would be unfair for him to assert that legal professional privilege rendered him immune from procedures pursuant to which he would otherwise be compellable to produce or allow access to the material which he has elected to use to his own advantage. Thus, ordinary notions of fairness require that an assertion of the effect of privileged material or disclosure of part of its contents in the course of proceedings before a court or quasi-judicial tribunal be treated as a waiver of any right to resist scrutiny of the propriety of the use he has made of the material by reliance upon legal professional privilege." 10 There is an additional complication in the present case, which arises from the fact that the document which is said to have given rise to the waiver emanated from one only of the parties or groups of parties which has a common interest in the privilege. This situation was adverted to by French J in Newcrest Mining (WA) Limited v Commonwealth (1993) 40 FCR 507 at 509 where his Honour observed: "The threshold question is whether the principle of implied waiver can extend to materials associated with those disclosed by one party but in respect of which the privilege vests in another who had a common interest in proceedings brought by the disclosing party. Given that the underlying rationale of implied waiver is one of fairness which can overcome the established rationale of legal professional privilege I think the answer to that threshold question is yes, in principle. The extension of the principle is one, however, to be sparingly applied." 11 Applying these principles to this case, I do not think that the limited disclosure in Mr Goldin's affidavit as to the course of the failed negotiations between the applicants is sufficient to waive the privilege which would otherwise exist in documents containing or evidencing the communications between them. This is a far cry from the situation which existed in Benecke v National Australia Bank (1993) 35 NSWLR 110 ("Benecke"). In that case a plaintiff claimed that a previous action had been settled against her will and upon the insistence of her counsel. It was sought to call the counsel concerned to refute her version of these events. The plaintiff objected to this evidence on the basis of legal professional privilege. Not surprisingly, the Court found that the privilege which would otherwise have existed in the communications between counsel and client had been waived by the plaintiff's statements in the case. 12 Not only do the circumstances here not approach those in Benecke, but the hurdle is even higher here. For the documents are sought from a common interest party which did not itself participate in the disclosure which is said to constitute waiver. 13 I therefore propose to make the second order sought in PGA's notice of motion, dated 1 December 1999, namely that the notice to produce dated 24 November 1999 issued by the respondents, insofar as it requires production of documents by the third applicant, be set aside. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mathews.