FEDERAL COURT OF AUSTRALIA JOHN TANNER HOLDINGS & ORS v MORTGAGE MANAGEMENT & ANOR [2001] FCA 194 PRACTICE AND PROCEDURE – legal professional privilege of borrower – causes of action by borrower against lender for unconscionable conduct and economic duress and misleading and deceptive conduct – whether imputed or implied waiver by borrower by reason of inherent nature of such causes of action pleaded and s 122(1) of Evidence Act 1995 (Cth) – distinction between relevance of state of mind in proceedings per se and requirement to establish state of mind as an ingredient of cause of action. Evidence Act 1995 (Cth) s 122 Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 not followed Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 cited Australian Rugby Union Ltd v Hospitality Group Pty Ltd (1999) 165 ALR 253 applied Benecke v National Australia Bank (1993) 35 NSWLR 110 cited BT Australasia Pty Limited v State of New South Wales (1998) 153 ALR 722 referred to Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] ATPR 41-697 applied Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664 applied Goldberg v Ng (1995) 185 CLR 83 referred to Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 not followed Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 referred to United States Surgical Corp v Hospital Products (unreported, NSW Supreme Court, McLelland J, 13 October 1981) referred to JOHN TANNER HOLDINGS PTY LIMITED & ORS v MORTGAGE MANAGEMENT LIMITED & ANOR NG 505 OF 1996 CONTI J SYDNEY 6 MARCH 2001 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG505 OF 1996 BETWEEN: JOHN TANNER HOLDINGS PTY LIMITED ACN 001 316 696 FIRST APPLICANT JOHN ARTHUR TANNER SECOND APPLICANT LIOT PTY LIMITED ACN 001 624 815 THIRD APPLICANT TANRAN HOLDINGS PTY LIMITED ACN 001 674 139 FOURTH APPLICANT COLLETTE INVESTMENTS PTY LIMITED ACN 000 486 699 FIFTH APPLICANT MAY HARLOW PTY LIMITED ACN 001 317 942 SIXTH APPLICANT WOODSINTA PTY LIMITED ACN 002 497 136 SEVENTH APPLICANT SLIPCOPIN PTY LIMITED ACN 002 488 682 EIGHTH APPLICANT SUBHONA PTY LIMITED ACN 002 275 345 NINTH APPLICANT AND: MORTGAGE MANAGEMENT LIMITED ACN 001 680 851 FIRST RESPONDENT WESTPAC BANKING CORPORATION SECOND RESPONDENT JUDGE: CONTI DATE OF ORDER: 6 MARCH 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application of the Respondents to inspect the documents the subject of the Applicants' claim of legal professional privilege be dismissed. 2. The Respondents pay the Applicants' costs of the application. 3. The Applicants and Respondents respectively prepare and lodge with my associate by 5:00pm on 9 March 2001 the following documentation in chronological sequence in the form of bundles contained wholly within lever-arch folders: (i) All documents in chronological sequence which are to be relied upon, including those presently attached or exhibited to Affidavits, the copies should disclose the annexure or exhibit notes; also should be attached at the conclusion the discovery lists of the respective parties; (ii) All affidavits in chronological sequence, without annexures or exhibits; (iii) Lists of objections to affidavits placed before each affidavit to which the objections relate. 4. The Applicants lodge with my Associate within the same time limit a copy of all pleadings of the parties in chronological sequences, together with their respective lists of authorities. 5. The Applicants and Respondents to lodge with my Associate within the same time limit their respective Statements of Facts, Issues and Contentions. 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 NG505 OF 1996 BETWEEN: JOHN TANNER HOLDINGS PTY LIMITED ACN 001 316 696 FIRST APPLICANT JOHN ARTHUR TANNER SECOND APPLICANT LIOT PTY LIMITED ACN 001 624 815 THIRD APPLICANT TANRAN HOLDINGS PTY LIMITED ACN 001 674 139 FOURTH APPLICANT COLLETTE INVESTMENTS PTY LIMITED ACN 000 486 699 FIFTH APPLICANT MAY HARLOW PTY LIMITED ACN 001 317 942 SIXTH APPLICANT WOODSINTA PTY LIMITED ACN 002 497 136 SEVENTH APPLICANT SLIPCOPIN PTY LIMITED ACN 002 488 682 EIGHTH APPLICANT SUBHONA PTY LIMITED ACN 002 275 345 NINTH APPLICANT AND: MORTGAGE MANAGEMENT LIMITED ACN 001 680 851 FIRST RESPONDENT WESTPAC BANKING CORPORATION SECOND RESPONDENT JUDGE: CONTI DATE: 6 MARCH 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The First Applicant ("JJH") is the borrower and the remaining Applicants are the guarantors under certain Loan and Guarantee Agreements entered into in the years 1986 to 1988 in favour of the First Respondent ("MML") as lender. Subsequent to entering into such Agreements, MML became a wholly owned subsidiary of the Second Respondent Westpac. 2 On 23 July 1990, the Applicants entered into a Deed of Loan and Guarantee with MML. They seek declarations in relation to such 1990 Deed inter alia that the same was procured by the unconscionable conduct and economic duress of MML. 3 On 1 September 1993, the Applicants entered into a Deed of Release and Fixed and Floating Charge in favour of MML and Westpac. They seek declarations in relation to such 1993 Deed of Release and Charge inter alia that the same were obtained by the misleading and deceptive conduct, unconscionable conduct and economic duress of MML and Westpac. 4 In relation to the 1990 Deed, the Statement of Claim (S/C) by para 15 thereof pleads the following facts as constituting inter alia unconscionable conduct and economic duress complained of: "The Applicants were forced to enter into the Deed of Loan and Guarantee by reason of the following facts: (a) JTH had entered into contracts for the purchase of the properties; (b) JTH had paid $85,500 for the deposits upon exchange of contracts on the properties; (c) JTH was reliant on moneys from MML; (i) to complete the purchase; (ii) to develop the properties. (d) the agreement of representations referred to in paragraphs 8 and 9 above had been made prior to the exchange of contracts and the payment of the deposits; (e) but for the said agreement or representations JTH would not have exchanged contracts and paid the deposits on the properties; (f) JTH faced the loss of the deposits of $85,500 if it failed to complete; (g) there was a material inequality of bargaining power between the applicants and MML; (h) it was not reasonably practicable for the Applicants to negotiate for the alteration of or to reject the provisions of the Deed of Loan and Guarantee; (i) the above facts were known or ought to have been known to MML; (j) by reason of the above matters the Applicants were in a special position of disadvantage in their dealings with MML; (k) MML took unconscionable advantage of the Applicants by refusing to advance funds on the basis which it had previously agreed or represented and only to provide funds on the basis set out in their letter dated 5 June 1990 and in the Deed of Loan and Guarantee dated 23 July 1990; (l) MML applied illegitimate and unfair pressure to obtain from the applicants an executed Loan Agreement and Guarantee more favourable to it than the agreement referred to in paragraph 8." 5 In relation to the 1993 Deed, the S/C pleads the following facts as constituting inter alia the misleading and deceptive conduct, unconscionable conduct and the economic duress complained of: "26. By letter dated 5 April 1993 Mr Peter Boyle for and on behalf of MML and Westpac and in trade and commerce represented: (a) The administration of the MML loan portfolio had been integrated into Westpac; (b) He had taken over the management responsibility for the account from 29 March 1993; (c) MML would not itself advance further moneys or extend the facilities of JTH when they expired on 8 June 1993; (d) Westpac would be prepared to favourably consider a refinance proposal incorporating the existing MML facility plus additional funding required to complete the development of Church Street, Parramatta. 27. Later in April 1993 Mr Peter Boyle for and on behalf of MML and Westpac and in trade and commerce orally represented: (a) MML would procure Westpac's agreement to and Westpac would refinance the MML borrowings and provide funds to complete the development of Church Street, Parramatta; (b) the only issue would be the interest rate; (c) the basis of the loan would be the same as the MML loan; (d) he would be the account manager; (e) he would need to transpose JTH into a Westpac customer; (f) the loan would be for a five year period; (g) the only differences in substance between the terms of the new Westpac loan compared to the old MML loan may be the interest rate; 28. In or about April 1993, MML and Westpac in trade and commerce represented that the facility referred to in paragraph 27 would not be granted unless: (a) the Applicants signed a Deed of Release dated 1 September 1993 ("the Deed of Release"); (b) the Applicants signed a Fixed and Floating Charge dated 1 September 1993 ("the charge"); (c) the Applicants sold a property known as 637 Pacific Highway, Chatswood ("the Chatswood Property"). 6 The Applicants were apparently represented by the firm of Solicitors Coleman & Greig in relation to the 1990 and 1993 Deeds. A claim for legal professional privilege has been made in relation to certain communications and records of communications passing between Coleman and Greig and a representative or representatives of the Applicants between 9 December 1991 and 12 July 1993. The Respondents have disputed that claim upon the footing that the Applicants' pursuit of such causes of action necessarily raises issues concerning the state of mind of the decision-maker or decision-makers of the Applicant before and at the time of execution of the 1990 and 1993 Deeds. The Respondents rely upon the following passages of a majority of the Full Federal Court (Branson and Lehane JJ) in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 167-8: "Within that framework [of previous authority], 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 [our] 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. … 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 [Evidence] 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." Section 122(1) of the Evidence Act 1995 (Cth) reads as follows: "(1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned." 7 A convenient starting point for reference to the line of authority preceding Telstra is the reasoning of Jordan CJ (with whom Halse Rogers and Bavin JJ agreed) in Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 at 358-359 as follows: "… 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 of 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 the 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." 8 In his minority judgment in Telstra, Beaumont J placed emphasis on the first two sentences of the above cited passage extracted from Thomason, and next cited the following dicta of Deane, Dawson and Gaudron JJ relating to imputed waiver and the doctrinal basis therefore in Goldberg v Ng (1995) 185 CLR 83 at 95-96: "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 person 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, that an imputed waiver must completely destroy the privilege. Like an express waiver, it can be limited so that it apples only in relation to particular persons, materials or purposes." 9 Beaumont J characterised Thomason as a case of implied or imputed waiver, as well as subsequent well known authorities which have applied the above dictum such as Benecke v National Australia Bank (1993) 35 NSWLR 110 (where the plaintiff in her originating process, and in evidence, alleged that prior litigation had been compromised by lawyers contrary to instructions), and Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 (where the plaintiff claimed in its originating process rectification of a deed for mistake). In contrast, the state of mind of BT Australasia, the defendant in the Telstra litigation, was not in his Honour's view central to its claim in the relevant sense, the central question there being whether the conduct of BT Australasia (and another party to the litigation) had been misleading. His Honour (as did the majority) also drew attention to the following observations of McLelland J made in relation to Thomason in United States Surgical Corp v Hospital Products (unreported, NSW Supreme Court, McLelland J, 13 October 1981), as noted in Ritchie's Supreme Court Procedure (NSW) at 8545-8547: "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 Atkin 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." Thereafter Beaumont J observed at 159 that there was no such element or criterion existing in the case before him, as matters then stood, having regard to the abstract way in which the question had arisen at that early stage of the proceedings, but further that if BT Australasia was 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 well be imputed, and further (at 160) that Order 15 Rule 13(1) was available, if appropriate, at any stage of the proceedings. Beaumont J in dissent thus supported the decision below of Sackville J (BT Australasia Pty Ltd v State of New South Wales (1998) 153 ALR 722). 10 I have cited at some length the minority of judgment of Beaumont J in Telstra, for reasons which will shortly appear. The High Court granted special leave to appeal in Telstra, and the appeal was argued. Before however judgment was handed down, the Telstra litigation was settled. Subsequently in Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] ATPR 41-697, Heerey J has declined to follow the majority view in Telstra, and instead has adopted the minority view in Telstra of Beaumont J, upon the basis that the majority decision had been based upon the decision of an earlier Full Federal Court in Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418, which latter decision had been subsequently overruled by a five member Full Federal Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664, where it was held (on this point unanimously) that s 122(1) of the Evidence Act 1995 (Cth) concerning (implied) consent had not modified the common law as to privilege; see in that regard Black CJ and Sundberg J at 675-6, Merkel J (with whom Beaumont J agreed) at 696 and Finkelstein J at 721. Thus Heerey J determined that he was required to apply the common law test, unaffected by s 122(1) of the Evidence Act 1995 (Cth), which test had been summarised by Black CJ and Sundberg J in Esso at 670 as follows: "The common law position is that where there is no intentional waiver of privilege, the question whether waiver should be imputed depends upon whether it would be unfair or misleading to allow a party to refer to or use material and yet assert the material, or material associated with it, is privileged from production." Heerey J determined the interlocutory situation then before him in the following terms at 42,890: "13. In claims under s 52 where the misleading and deceptive conduct alleged takes the form of misrepresentations to the plaintiff, it will usually be essential to plead reliance. This will be an essential link in the chain of reasoning establishing that the plaintiff suffered loss and damage "by the conduct of" the defendant so as to be entitled to damages under s 82. If the view of the majority in Telstra is correct, it would seem to follow inexorably that the mere pleading of reliance would remove privilege in respect of all legal advice which the plaintiff received concerning the conduct complained of. I do not think that can be right. The bare fact of asserting reliance does not expressly or impliedly assert that the plaintiff relied, or did not rely, on some privileged communication. As Beaumont J points out, it is not possible to predict the course a trial may take. A privileged communication may be subsequently referred to in a way that makes its continued protection unfair. But, at the moment, I have to consider the issue at an interlocutory stage. It is true that legal advice could be relevant in determining whether a plaintiff in fact relied on the misrepresentations complained of. But the whole point of legal professional privilege is that, for public policy reasons, material is excluded which might be relevant, indeed highly relevant. No balancing exercise is involved. If legal professional privilege applies, privilege trumps relevance." 11 Subsequently in Australian Rugby Union Ltd v Hospitality Group Pty Ltd (1999) 165 ALR 253, Sackville J has followed the above approach of Heerey J, in Equuscorp observing at 261: "However I agree with Heerey J that the decision in Telstra v BT, having regard to the overruling of Adelaide Steamship, cannot now be understood as standing for the proposition that s 122 of the Evidence Act modifies the common law of waiver of privilege at the pre-trial stages of discovery or production of documents on subpoena. I also agree with Heerey J that the reasoning in Esso v FCT lends to the conclusion that the common law principles governing waiver of privilege apply at the pre-trial stage." It follows that there is nothing inherent in the causes of action pleaded by the Applicants, earlier extracted in [4-5] above, which has constituted, without more, waiver of legal professional privilege on the part of the Applicants at common law or by virtue of s 122(1) of the Act. 12 There is nothing contained in the Affidavit of the Applicants' former Solicitor Mr Strong (sworn 24 October 1997), nor in the Affidavit of Mr Tanner, the Second Applicant (sworn 23 October 1997), nor in Mr Strong's Certificate of Witness dated 22 July 1990 (Exhibit A4), being the material thus far referred to me by the Respondents in support of their present application, which would constitute a waiver on the part of any of the Applicants of their legal professional privilege. The conclusions of Heerey J in Equuscorp squarely apply to the situation of the present litigation as presently pleaded. As indicated nevertheless by Beaumont J in Telstra, the circumstances at the trial shortly to commence may so develop or evolve as to justify an entitlement on the part of the Respondents to inspection of the documents the subject of the present professional privilege claim. 13 I accordingly dismiss with costs the Respondents' present application to inspect the Applicants' documents the subject of the Applicants' claim for legal professional privilege. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti . Associate: Dated: 6 March 2001 Counsel for the Applicant: Mr M.J. Cohen Solicitor for the Applicant: Adrian Holmes Solicitor Counsel for the Respondent: Mr P.J. Dowdy Solicitor for the Respondent: Henry Davis York Date of Hearing: 26 February 2001 Date of Judgment: 6 March 2001