FEDERAL COURT OF AUSTRALIA Dick Smith Electronics Pty Limited v Westpac Banking Corporation [2002] FCA 1040 PRACTICE AND PROCEDURE – discovery – legal professional privilege – whether legal professional privilege existed in relation to internal memorandum prepared for mixed purposes of human resources activities and potential litigation. Esso Australia Resources Limited v Federal Commissioner of Taxation (1999) 201 CLR 49 applied Grant v Downs (1976) 135 CLR 674 cited Hartogen Energy Ltd v The Australian Gas Light Company (1992) 36 FCR 557 cited Trade Practices Commission v Sterling (1979) 36 FLR 244 applied Waugh v British Railways Board [1980] AC 521 cited Wheeler v Le Marchant (1881) 17 Ch D 675 cited DICK SMITH ELECTRONICS PTY LIMITED V WESTPAC BANKING CORPORATION N 0026 OF 2002 BEAUMONT J 23 AUGUST 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 0026 OF 2002 BETWEEN: DICK SMITH ELECTRONICS PTY LIMITED APPLICANT AND: WESTPAC BANKING CORPORATION RESPONDENT JUDGE: BEAUMONT J DATE OF ORDER: 23 AUGUST 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The claim of privilege in respect of Portion 1 is disallowed. 2. The claim of privilege in respect of Portion 2 is allowed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 0026 OF 2002 BETWEEN: DICK SMITH ELECTRONICS PTY LIMITED APPLICANT AND: WESTPAC BANKING CORPORATION RESPONDENT JUDGE: BEAUMONT J DATE: 23 AUGUST 2002 PLACE: SYDNEY REASONS FOR RULING (ON PRIVILEGE CLAIM) BEAUMONT J: INTRODUCTION 1 By its list of documents filed on 8 July 2002, pursuant to an order for discovery, Westpac Banking Corporation ("Westpac"), the respondent in the principal proceedings, made a claim of legal professional privilege in respect of certain portions only of a confidential internal memorandum, dated 2 March 2001 ("the Memorandum"). 2 By its notice of motion filed on 17 July 2002, Dick Smith Electronics Pty Limited ("Dick Smith"), the applicant in the principal proceedings, now seeks an order, pursuant to O 15 r 11, for the production of the whole of the Memorandum, contending that the claim for privilege cannot be maintained in the present context. 3 For its part, Westpac accepts, in accordance with the settled course of authority, that it bears the onus of showing that the claim for privilege ought to be allowed. THE MEMORANDUM 4 Privilege is claimed in respect of two distinct portions of the Memorandum, now described as "Portion 1" and "Portion 2" respectively. In order to understand their context, it will be necessary to explain the Memorandum's form, structure and contents other than these Portions. 5 The Memorandum, dated 2 March 2002, is headed: "Westpac Confidential"; and is entitled: "Internal Memo [from] Group Investigations …". It is from Raff Del Vecchio, Manager Investigations, Group Fraud Control, and is addressed to Stephen Hull, an Area Network Manager, and Ross Miller, NSW Head of Human Resources. The subject of the Memorandum is stated as: "Investigation into Macquarie Centre CSR [a named Westpac employee ("the Employee")]". 6 The Memorandum commences with two "Recommendations": (1) that the services of the Employee "be terminated forthwith by way of dismissal without notice based on the grounds outlined in this report"; and (2) that all of the Employee's Bank accounts "be reverted to public status". 7 Then follow statements by way of "Preamble" and "Background", explaining the role of the Employee in the preparation and forwarding of a letter of credit to Dick Smith, which transaction is central to Dick Smith's claim in the principal proceedings. 8 None of the above is the subject of the privilege claim. 9 There follows next a section of the Memorandum headed: "Electronic Interview with [the Employee]", opening with this: "On 01 March 2001 [the Employee] participated in an electronic interview with us …. During the course of the interview she indicated that …." 10 What then follows in the balance of this section is "Portion 1". 11 Without mentioning any detail, Portion 1 may, in my view (having, again in accordance with the settled course of authority, inspected it), be described, first (as the opening words of this section state) as the Employee's version of the events surrounding the letter of credit transaction; and secondly, as the Employee's response to a number of questions put to her by the investigators. 12 The next section of the Memorandum consists of "Comment", consisting of two opening paragraphs, neither of which is the subject of the privilege claim, as follows: "Comment We have received information that Dick Smith released the mobile phones and shipped them to Melbourne as a result of the representation made by [the Employee] to them on behalf of the Bank. The goods were to be picked up by a representative from Comtex (which we understand appears to be a fictitious company) from a Dick Smith Store in Melbourne but were released at the Airport by the Freight Company to unknown persons. We understand that Police in Melbourne have carriage of that investigation and this office is assisting the authorities with their inquires [sic]. We have learnt that Dick Smith will make a claim to the Bank and we have briefed Alastair Mackay, Head of Dispute Resolution Group in anticipation of such action. Whilst there is little doubt that [the Employee] has been negligent in the manner in which she has conducted her duties, the issue to be determined is whether [the Employee] has been grossly negligent to the extent that the Bank would consider the termination of her duties. 13 There follows in this section, a paragraph which is "Portion 2". Initially, the privilege claim extended to the whole of this paragraph, but, as will be seen, during the course of the argument by Westpac, part of the claim was, without prejudice to what remains, withdrawn. 14 I have (again, in accordance with settled practice, and without disclosing any details) inspected this material, and can explain that Portion 2 consists of two sentences. In the first, an opinion is expressed about the basis upon which Dick Smith acted in certain respects. The second sentence opens with the words (which are no longer claimed to be privileged): "On that basis we have received preliminary advice that …". There follows the writer's understanding of the tenor of certain legal advice, for which the claim of privilege is maintained. 15 This section next proceeds to express the view that "sufficient basis exists" for termination of the Employee's employment, which is then recommended. 16 The Memorandum then goes on to recommend, in this connection, a censure process. 17 The Memorandum was copied to Alistair Mackay, as Head of Dispute Resolution Group (Mr Mackay is a practising solicitor). It was also copied to another Area Network Manager. THE CIRCUMSTANCES SURROUNDING THE PREPARATION OF THE MEMORANDUM - westpac's solicitor's evidence 18 In support of its privilege claim, Westpac relies upon the evidence in the affidavit of Julia Elizabeth Bracun, sworn on 31 July 2002, relevantly as follows: "1. I am a solicitor in the employ of Corrs Chambers Westgarth, the solicitors for the Respondent ("the Bank") and I have the carriage of this matter under the supervision of Stuart Westgarth. 2. The matters I have deposed to in this affidavit are based on information and belief, such information received from Raff del Vecchio, Manager Investigations, Group Fraud at the Bank ("Mr Del Vecchio"). 3. Annexed hereto and marked with the letter "A" is a copy of a Westpac Confidential Internal Memorandum dated 2 March 2001 from Raff Del Vecchio to Stephen Hull, Area Network Manager, Homebush Bay Region and Ross Miller, Head of Human Resources and copied to Alastair Mackay, Legal Counsel and Head Of Dispute Resolution Group at the Bank and Chris Pappas, Area Network Manager. 4. On pages 2 and 3 of annexure "A" is a blanked out portion which I have marked portion 1 ("Portion 1"). On Page 3 of annexure "A" is a blanked out portion, which I have marked portion 2 ("Portion 2"). 5. I am informed by Mr Del Vecchio and verily believe that: (a) Shortly prior to 1 March 2001, he received a telephone call from the Finance & Administration Manager of the Applicant ("Dick Smith") who informed him that Dick Smith would likely make a claim on the Bank as a consequence of a police inquiry into the activities of an employee of the Bank [the Employee - then named] and a facsimile dated 23 February 2001 sent by [the Employee] to Dick Smith. (b) Following notification of the possible claim, a decision was made by him in his capacity as Manager Investigations, Group Fraud to investigate the circumstances of the claim and an investigation and interview was carried out by him with [the Employee] on 1 March 2001. (c) Annexure "A", excluding Portion 1 and Portion 2, was created by him for the purposes of consideration of any disciplinary proceedings against [the Employee]. (d) Annexure "A", excluding Portion 1 and Portion 2, was also created by him for the purpose of providing a briefing to Alastair Mackay, Legal Counsel and Head of the Bank's Dispute Resolution Group in anticipation of defending the possible claim. This is why the memorandum has been copied to Alastair Mackay. If the memorandum had been created solely for disciplinary proceedings, Group Fraud would not copy in the Bank's in-house counsel. (e) Portion 1 was created by him and recorded in the memorandum for the dominant purpose of briefing Alastair Mackay for advice in relation to any liability the Bank may have and for use in any anticipated legal proceedings involving [the Employee] and Dick Smith, or either of them. Portion 1 is accurate in its recording of its content. (f) Portion 2 refers to legal advice he received from Alastair Mackay in relation to the possible claim by Dick Smith, consequent upon him informing Mr Mackay of the outcome of the interview and after his discussions with Mr Mackay concerning the possible claim and the contents of Portion 1. conclusions on the claim of privilege 19 It should be said at once that, although Ms Bracun was not cross-examined on the contents of her affidavit, the evidence in paragraph 5(c) and (e) is not only hearsay, but also consists of a conclusion based on mixed elements of fact and law. Whilst this may be unchallenged evidence of the beliefs of the deponent and Mr Del Vecchio, as a mixed question of fact and law, it cannot be conclusive on the central issue of characterising the dominant purpose of bringing the Memorandum into existence. That is a question for the Court to decide by applying the relevant legal principles in all of the circumstances, including not only Ms Bracun's evidence, but also such inferences as should be drawn from the nature of the contents of the Memorandum itself, taken on the face of that document. 20 In the recent High Court decision in Esso Australia Resources Limited v Federal Commissioner of Taxation (1999) 201 CLR 49, Gleeson CJ, Gaudron and Gummow JJ (at 64), in a discovery context, explained that legal professional privilege (or "client legal privilege") "protects the confidentiality of certain communications made in connection with giving or obtaining legal advice or the provision of legal services, including representation in proceedings in a court." Their Honours noted (at 70) that: "A claim for privilege is not conclusively established by the use of a verbal formula. A court has power to examine documents in cases where there is a disputed claim, and it should not be hesitant to exercise such a power. In appropriate cases, there is also power to allow cross-examination of a deponent of an affidavit claiming privilege." [references omitted] 21 In rejecting the "sole purpose" test propounded in Grant v Downs (1976) 135 CLR 674, their Honours concluded (at 73) that: "The dominant purpose test should be preferred. It strikes a just balance, it suffices to rule out claims of the kind considered in Grant v Downs and Waugh, and it brings the common law of Australia into conformity with other common law jurisdictions." (The reference to Waugh is to Waugh v British Railways Board [1980] AC 521.) 22 Gleeson CJ, Gaudron and Gummow JJ had earlier (at 65) observed: "Like the present case, and the leading English case of Waugh v British Railways Board, Grant v Downs was about discovery and inspection of documents in pending litigation. Although privilege, where it applies, attaches to communications, not to pieces of paper, discovery is concerned with documents, and privileged communications are frequently in writing. If a written communication is made for the sole purpose of seeking or giving legal advice, or obtaining or providing legal services, the problem of present concern does not arise. It arises where the documentary communication comes into existence for some purpose or purposes in addition to the legal purpose." [references omitted] 23 Their Honours recalled (at 65) the facts in Grant v Downs: "In accordance with standard departmental practice, reports had been made about the occurrence. Upon discovery it was claimed that the reports were privileged. They were said to have been prepared for a number of purposes: to assist in determining whether there had been a breach of staff discipline; to detect whether there were any faults in the hospital's systems and procedures; and to enable the department to obtain legal advice as to its possible liability and to obtain legal representation in the case of any coronial or civil proceedings. Such a multiplicity of purposes is commonplace, especially in large corporations or bureaucracies, which will often have their own internal legal staff, who are amongst those to whom such reports will be directed." 24 Gleeson CJ, Gaudron and Gummow JJ observed (at 66) that in Waugh also: "There was an internal inquiry into the accident, resulting in a report. The report was prepared for two purposes: to assist the board to decide whether there was a need to revise safety and operational procedures; and to obtain legal advice in anticipation of litigation." 25 Explaining that, in both cases, the claims for privilege were disallowed, their Honours said (at 66): "In neither case was the obtaining of legal advice or assistance the dominant, let alone the sole, purpose of bringing the documents into existence." 26 Esso was concerned with the nature of the relevant purposive test in the area of obtaining legal advice in anticipation of litigation and, as Lockhart J observed in Trade Practices Commission v Sterling (1979) 36 FLR 244 (at 248): "It is clear that the High Court in Grant's case was considering the relevant principles of law governing privilege attaching to communications and materials submitted by a client to his solicitor for the purpose of advice or for the purpose of use in existing or anticipated litigation and not otherwise. Grant's case has nothing to say as to the other well-established categories of legal professional privilege." 27 Lockhart J had earlier (at 245-6), in a passage frequently cited (see for example Commonwealth v Dutton (2000) 102 FCR 168 at 178-9 (Full Federal Court)), said: "Legal professional privilege extends to various classes of documents including the following: (a) Any communication between a party and his professional legal adviser if it is confidential and made to or by the professional adviser in his professional capacity and with a view to obtaining or giving legal advice or assistance; notwithstanding that the communication is made through agents of the party and the solicitor or the agent of either of them. See Wheeler v Le Marchant (1881) 17 Ch D 675; Smith v Daniell (1874) LR 18 Eq 649; Bullivant v Attorney-General for Victoria [1901] AC 196; Jones v Great Central Railway Co [1910] AC 4, and O'Rourke v Darbishire [1920] AC 581. … (d) Notes, memoranda, minutes or other documents made by the client or officers of the client or the legal adviser of the client of communications which are themselves privileged, or containing a record of those communications, or relate to information sought by the client's legal adviser to enable him to advise the client or to conduct litigation on his behalf. See Woolley v North London Railway Co (1869) LR 4 CP 602 at 604; Greenough v Gaskell (1833) 1 My & K 98 at 102; 39 ER 618 at 620; Corporation of Bristol v Cox (1884) 26 Ch D 678 at 681-682; Woolley v Pole (1863) 14 CBNS 538; 143 ER 556; Seabrook v British Transport Commission [1959] 1 WLR 509; Grant v Downs (1976) 135 CLR 674, and Bray, Principles and Practice of Discovery (1885), pp 388-389. … (f) Communications passing between the party and a third person (who is not the agent of the solicitor to receive the communication from the party) if they are made with reference to litigation either anticipated or commenced, and at the request or suggestion of the party's solicitor; or, even without any such request or suggestion, they are made for the purpose of being put before the solicitor with the object of obtaining his advice or enabling him to prosecute or defend an action. See Wheeler v Le Marchant; Cork v Union Steamship Co (1904) 23 NZULR 933, and In Re Holloway (1887) 12 PD 167." 28 In Wheeler v Le Marchant (1881) 17 Ch D 675, Jessel MR said (at 681): "[D]ocuments contain[ing] information required or asked for by [a party's] solicitors … are protected where they have come into existence after litigation commenced or in contemplation, and when they have been made with a view to such litigation, either for the purpose of obtaining advice as to such litigation, or of obtaining evidence to be used in such litigation, or of obtaining information which might lead to the obtaining of such evidence…" 29 It will be convenient to consider the two Portions separately, approaching the matter as one of substance and not mere form, or, as was said in Esso, by considering the character of the communications in question (ie their substance), rather than their form (ie however the particular pieces of paper might be physically constituted). Portion 1 30 As has been noted, this consists, in the first place, of a summary of the exchanges that took place in the interview of the Employee. The material is informational. Although the exchanges were not limited to primary facts, no mention is made of any legal advice. 31 In support of its claim of privilege in respect of this Portion, Westpac, invoking par (f) in Sterling, submits that this is a communication passing between the party (Westpac) and a third person (the Employee), made with reference to anticipated litigation and for the purpose of being put before the solicitor (Mr Mackay) with the object of obtaining his advice or enabling him to prosecute an action by Dick Smith or, possibly, the Employee. 32 I cannot accept the submission. Although I am prepared to infer from the fact that the Memorandum was copied to Mr Mackay, that a par (f) purpose was one of the purposes of the communication made by the Memorandum and, accordingly, of Portion 1, I cannot accept, in the whole of the circumstances, that this was the dominant purpose. 33 As Gummow J observed in Hartogen Energy Ltd v The Australian Gas Light Company (1992) 36 FCR 557 (at 568): "The purpose for which the document is brought into existence is a question of fact: Grant v Downs at 692 (Jacobs J); Waterford v Commonwealth (supra) at 66 (Mason, Wilson JJ), 78 (Brennan J). In Grant v Downs (at 692) Jacobs J said: '[T]he question the court should pose to itself is this – does the purpose of supplying the material to the legal adviser account for the existence of the material? I use the purpose here in the sense of intention – the intended use.'" 34 In considering the meaning of "dominant" in the present context, Batt JA (Charles and Callaway JJA concurring) in Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (BC200202330, Charles, Callaway and Batt JJA, 2002, unreported) said, at par [10]: "In its ordinary meaning 'dominant' indicates that purpose which was the ruling, prevailing, or most influential purpose. Barwick CJ, whose view in Grant v Downs propounding the test of dominant purpose has now been adopted by the majority decision in Esso Australia Resources, distinguished 'dominant' from 'primary' and 'substantial'. Lord Edmund-Davies in Waugh, in adopting the test propounded by Barwick CJ, was of the view that the element of clear paramountcy should be the touchstone. That, as it seems to me, shows the meaning of 'dominant'." 35 In my opinion, the requisite element of "clear paramountcy" is missing here. As the context of the Memorandum clearly indicates, if there was a dominant use inferred here, it was a use in connection with Westpac's Human Resources activities, not its litigious activities. 36 This claim will be disallowed. Portion 2 37 However, in my view, the whole of this Portion which remains the subject of the claim of privilege falls squarely within par (d) in Sterling, that is to say, a note made by an officer of the client of a communication which itself is privileged (as falling within par (a) in Sterling) – that is, a communication they made solely for the purpose of giving or obtaining legal advice. 38 In this connection, having inspected Portion 2, it is not, in my opinion, capable of severance. 39 This claim will be allowed. Mr Mackay's Position 40 For completeness, it should be recalled that, in accordance with authority (see for example Galway v Constable (BC200103070, Holmes J, 2001, unreported) at par [14], and the cases there cited), Dick Smith accepted that legal professional privilege may attach to a lawyer, such as Mr Mackay, who, although a practising solicitor, was a salaried employee. costs 41 Each party, having a measure of success, there will be no order for costs. orders 42 I make these orders: 1. The claim of privilege in respect of Portion 1 is disallowed. 2. The claim of privilege in respect of Portion 2 is allowed. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. Associate: Dated: 23 August 2002 Solicitor for the Applicant: Phillips Fox Counsel for the Respondent: Mr D Pritchard Solicitor for the Respondent: Corrs Chambers Westgarth Date of Hearing: 1 August 2002 Date of Judgment: 23 August 2002