FEDERAL COURT OF AUSTRALIA Aveling v UBS Capital Markets Australia Holdings Ltd (No 2) [2005] FCA 1232 LEGAL PROFESSIONAL PRIVILEGE – waiver – waiver based on privilege-holder's having put his or her state of mind in issue – whether privilege-holder had put in issue the particular state of mind suggested – test of waiver of privilege. PRACTICE AND PROCEDURE – legal professional privilege – waiver – waiver based on privilege-holder's having put his or her state of mind in issue – whether privilege-holder had put in issue the particular state of mind suggested – test of waiver of privilege. EVIDENCE – legal professional privilege – waiver – waiver based on privilege-holder's having put his or her state of mind in issue – whether privilege-holder had put in issue the particular state of mind suggested – test of waiver of privilege. Industrial Relations Act 1996 (NSW) ss 106, 108A DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 referred to Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 referred to Mann v Carnell (1999) 201 CLR 1 referred to Collins Debden Pty Ltd v Cumberland Stationery Pty Ltd [2005] FCA 1194 referred to Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27 cited Anderson v Holding Redlich & Ors [2003] VSC 303 cited ANTHONY AVELING v UBS CAPITAL MARKETS AUSTRALIA HOLDINGS LIMITED NSD 858 of 2003 LINDGREN J 5 SEPTEMBER 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 858 OF 2003 BETWEEN: ANTHONY AVELING APPLICANT AND: UBS CAPITAL MARKETS AUSTRALIA HOLDINGS LIMITED RESPONDENT JUDGE: LINDGREN J DATE OF ORDER: 5 SEPTEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: The respondent pay the applicant's costs of the respondent's motion brought by notice of motion filed on 12 August 2005 in so far as it seeks the orders referred to in paras 1 and 2 of the notice of motion. 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 NSD 858 OF 2003 BETWEEN: ANTHONY AVELING APPLICANT AND: UBS CAPITAL MARKETS AUSTRALIA HOLDINGS LIMITED RESPONDENT JUDGE: LINDGREN J DATE: 5 SEPTEMBER 2005 PLACE: SYDNEY REASONS FOR JUDGMENT (No 2) (Waiver of legal professional privilege) INTRODUCTION 1 I delivered reasons for judgment in relation to a discovery dispute in this proceeding on 14 April 2005 (Aveling v UBS Capital Markets Aust Holdings Ltd [2005] FCA 415), in which I outlined in some detail the content of the applicant's amended statement of claim ('the Pleading'). I need not repeat that outline, but will refer to some of the facts pleaded. 2 The applicant has discovered to the respondent an invoice dated 26 June 2002 from his solicitors, Toomey Pegg Drevikovsky bearing the heading 'Re: UBS Warburg' ('the Tax Invoice'). On the basis that the applicant has waived legal professional privilege, the respondent moves for an order that he produce to the Court: '(a) each document evidencing, recording or relating to communications between the applicant and any lawyer(s) in the period from 1 March 2002 to 24 July 2002 regarding his employment with the respondent; and (b) the terms of engagement between the applicant and his solicitors, Toomey Pegg Drevikovsky, referred to in the invoice from Toomey Pegg Drevikovsky dated 26 June 2002.' The respondent also seeks an order permitting it to inspect and copy the documents produced under the order. BACKGROUND FACTS 3 The applicant was employed by the respondent in a senior executive position. The respondent terminated that employment on 24 July 2002 with effect from 23 August 2002. The applicant complains that he was not paid any amount by way of 'incentive award' in respect of that part of the calendar year 2002 during which he was employed. 4 The applicant's employment had commenced on 19 July 1999. By far the greater part of his remuneration was in fact by way of incentive award. His salary was initially $250,000 per annum, and it later rose to $300,000 per annum. The incentive awards paid to him in respect of calendar years (payment being made early in the following year) were: Period Amount 20 September 1999 to $422,138 31 December 1999 Calendar 2000 $1,000,000 Calendar 2001 $2,500,000 1 January 2002 to Nil 23 August 2002 5 The applicant pleads many causes of action, including breach of express and implied terms of his contract of employment and contravention of various provisions of the Trade Practices Act 1974 (Cth) ('the TP Act'). 6 The applicant alleges that, by positive statements and non-disclosure of its true intention to terminate his employment, the respondent misled him until 24 July 2002 into believing that his position was secure. The seventh cause of action pleaded (paras 45–56 of the Pleading) is one of contravention of s 52 of the TP Act, consisting of a failure of the respondent to notify the applicant of certain matters. Those matters may be summarily described as concerns which the respondent entertained from January 2002 relating to the applicant and the formation or holding of the view that he should be retrenched. Paragraph 50 of the Pleading is as follows: 'The Respondent communicated with the Applicant over the period January to July 2002 in relation to the Applicant's employment, but did not promptly disclose to the Applicant any of the matters referred to in paragraph 47, [matters of the kind just described] or disclose any such matter before 24 July 2002.' 7 The issue which has arisen relating to legal professional privilege concerns a particular form of loss or damage which the applicant claims this alleged misleading and deceptive conduct is said to have caused him. It is found in para 54 of the Pleading, which is as follows: 'Further and in the alternative, by reason of amendments to the Industrial Relations Act 1996 (NSW) which came into effect on 24 June 2002, (in particular, the introduction of section 108A), the Applicant was prevented as from that date from making a claim under s 106 of that Act. But for the breach of s 52, the Applicant would, prior to 24 June 2002, have sought legal advice and made a claim for relief under s 106. Had he done so, he would have obtained a declaration that the Contract was unfair and he was entitled to an order that the Contract be varied so as to entitle him to: (a) an incentive award in the event of the Respondent terminating his employment or retrenching him at any time during the 2002 year and, had his employment been terminated or had he been retrenched on 24 July 2002, he would have been entitled to an amount (particulars of which will be provided after completion of discovery and/or interrogatories and/or expert reports, but approximately $1.610 million; and (b) up to 12 months notice of termination or 12 months salary in lieu of notice.' 8 Section 106 of the Industrial Relations Act 1996 (NSW) ('the IR Act') empowered the Industrial Relations Commission of New South Wales ('the Commission') to grant relief in respect of any unfair contract by which a person performed work in an industry. However, as from 24 June 2002, a new s 108A introduced into the IR Act imposed a 'remuneration cap' of $200,000, the effect of which was that an application for an order under s 106 could no longer be made if the person's 'remuneration package' exceeded the remuneration cap. The applicant's remuneration package did so. If, however, the applicant had made an application for an order under s 106 prior to 24 June 2002, the remuneration cap would not have applied. 9 In substance, the applicant alleges that if the respondent had not misled and deceived him by the non-disclosure pleaded, he would have understood the respondent's true intention prior to 24 June 2002, taken legal advice, and applied to the Commission prior to that date for an order under s 106; that the Commission would have varied his contract of employment; and that by reason of the variation he would have been entitled to an incentive award of approximately $1.610 million and up to twelve months' notice of termination or twelve months' salary in lieu of notice. 10 The respondent submits that para 54 and similar later paragraphs of the Pleading constitute a waiver of privilege in respect of documents conveying advice to the applicant from his solicitors which gave rise to their Tax Invoice. Those later paragraphs are paras 86, 91 and 104. Paragraph 86 occurs within paras 80–86 which plead breach of a duty of care consisting of negligent concealment. Paragraph 91 occurs within paras 87–91 which pleads unconscionable conduct in contravention of s 51AC of the TP Act. Paragraph 104 asserts that, by reason of representations by the respondent to the applicant, and the respondent's failure prior to 24 June 2002 to correct its statements by informing him that it was contemplating terminating his employment or had decided to terminate it, and/or its deciding not so to inform him, when in fact it had decided or was contemplating terminating his employment, constituted, relevantly, negligent misstatement and breach of a duty of care, misleading or deceptive conduct in contravention of s 52 of the TP Act, and unconscionable conduct in contravention of s 51AC of the TP Act. These causes of action also invoke, relevantly, the causation of loss pleaded in para 54. 11 The respondent also relies on paras 59, 62 and 66 of an affidavit sworn by the applicant on 20 May 2005 in the substantive proceeding which recounts his state of mind. In para 59, he states that from around March 2002, he had 'a growing concern regarding what appeared to be contradictory signals from the respondent regarding its wish to continue my employment'. Paragraphs 62 and 66 are as follows: '62. If UBS was considering terminating my employment or was otherwise equivocal about my continued employment, I wanted to know that fact, so that I could seek legal advice on my position. Had I then been advised that I had potential remedies open to me to obtain payment of the bonus or part of the bonus or equivalent compensation, I would have sought to achieve a commercial resolution and failing such a resolution, would have pursued those remedies. On the other hand, had I been advised that there was no basis for obtaining payment of the bonus or compensation in place thereof, I would not have wanted to continue to work for UBS at effectively 10% of my remuneration entitlement in circumstances where I was not valued or where UBS was in any way equivocal about my continued employment. I thus wanted to clearly establish that UBS (and the key senior people within UBS) really did wish that my employment would continue, or if that were not the case, then I wanted to be aware of that fact so that I could take steps to protect my own position as soon as possible. ............ 66. As from 24 April until 24 July, I continued to assume that the statements which Mr Mackay had made to me on 24 April continued to be true. I continued to believe that both Mr Mackay and UBS wanted me to stay and that both Mr Mackay and UBS continued to regard me as a highly valued member of the team.' 12 An affidavit sworn 22 August 2005 of the applicant's solicitor, Edward Haggerty, of Toomey Pegg Drevikovsky, states that on or about 20 May 2002, that is to say, a little over a month prior to the introduction of s 108A into the IR Act on 24 June 2002, the applicant telephoned Mr Pegg, a partner in the firm, and arranged to attend a conference with him for the purpose of obtaining legal advice. The conference took place that day at the firm's office, and in the course of it Mr Pegg gave the applicant legal advice. Mr Pegg made notes of the conference which is referred to in the Tax Invoice as 'conference client'. Mr Pegg forwarded to the applicant a letter dated 22 May 2005 enclosing terms of engagement of his firm by the applicant. Mr Pegg's notes and a copy of the terms of engagement, which would fall within the descriptions set out in para [2] above, were admitted into evidence as confidential exhibits on the hearing of the respondent's motion. I have not read them. SUBMISSIONS 13 The respondent submits that the Pleading and affidavit put in issue the applicant's unawareness of the proposal to amend the IR Act by introducing the remuneration cap. 14 It submits that by putting in issue his or her state of mind, a litigant waives legal professional privilege in relation to communications which would or might demonstrate his or her actual state of mind. The argument is that the applicant asserts ignorance of the proposal to introduce a remuneration cap, and cannot at the same time maintain his privilege in respect of documents evidencing communication of legal advice to him which may give the lie to that assertion. 15 The applicant makes several responses. He submits that the respondent's submission misconceives the nature of his case, in that ignorance of the Government's intention is not pleaded and the Pleading is consistent with knowledge of that intention on his part. Moreover, the waiver principle is not applied 'automatically'; the principle applies only where the legal advice was received before or at the time of the formation of the state of mind (the respondent submits that according to the Pleading, the applicant felt reassured as a result of a conversation on 24 April 2002 and any advice was given on 20 May 2002); and if waiver should be found, it should be found to extend only to communications relating to the remuneration cap issue. CONSIDERATION 16 The parties' submissions cited and discussed many authorities on waiver of privilege. Senior counsel for the applicant referred to the criticisms made by Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 ('DSE') of the view expressed by the majority of the Full Court of this Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 ('Telstra'). His Honour said (at [5]) that his own view was that Mann v Carnell (1999) 201 CLR 1 ('Mann v Carnell') at [27] and [29] did not just modify, but rejected, the approach which had been taken by the majority in Telstra. He considered that the Mann v Carnell test of waiver, namely, inconsistency as between the conduct of the holder of the privilege and the maintenance of the privilege (informed, where relevant, by notions of fairness) worked 'a narrower and more confined operation for implied waiver than as expressed by the majority in Telstra'. Allsop J said, however, that he was able to resolve the privilege issue before him conformably with the view of the majority in Telstra, but also 'strongly informed by the principle in Mann v Carnell' (at [6]). 17 In the recent case of Collins Debden Pty Ltd v Cumberland Stationery Pty Ltd [2005] FCA 1194, I applied the 'inconsistency, where necessary informed by considerations of fairness' test of waiver of privilege referred to in Mann v Carnell. That case, like Mann v Carnell itself, but unlike Telstra, DSE and the present case, was not a 'putting a state of mind in issue' case. 18 The respondent submits that I should not regard myself bound to follow the Full Court in Telstra. With due respect to this submission, like Allsop J in DSE, I can resolve the issue requiring resolution consistently with Telstra. Therefore, I will not embark on a discussion of the various authorities to which I was referred. For example, I do not find it necessary to address the interesting discussion of 'putting a state of mind in issue' kind of waiver by Byrne J in Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27 and by Redlich J in Anderson v Holding Redlich & Ors [2003] VSC 303, to which senior counsel for the respondent referred. 19 In Telstra, Branson and Lehane JJ said (at 166-167): 'Where, as in this case, a party pleads that he or she undertook certain action "in reliance on" a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract.' Later, their Honours said (at 167): '..., 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 [sic – 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.' Finally, they said (at 167–168): '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.' 20 Importantly, in its written and oral submissions, the respondent identifies the relevant state of mind of the applicant as his unawareness of the Government's proposal to amend of the IR Act by introducing the remuneration cap. However, the Pleading does not expressly or implicitly plead that unawareness: it does not put that state of mind in issue. 21 Paragraph 54 of the Pleading asserts an alternative causation of loss arising from the respondent's non-disclosure. According to para 54, if the respondent had not engaged in the misleading and deceptive concealment alleged, it would, as a matter of fact, have disclosed its thinking in relation to the applicant's future with it promptly, and that would have been by 24 June 2002, the date on which the amendments to the IR Act took effect. The applicant's state of mind in relation to the Government's proposal to amend the IR Act is irrelevant to this allegation. Likewise, it is irrelevant to the further allegations in para 54 that the applicant would have obtained legal advice, applied to the Commission and obtained an order of a certain kind in his favour. 22 The irrelevance to the applicant's pleaded case of his unawareness of the proposal to amend the IR Act can also be demonstrated by inquiring what the position would have been if he had known of it. Paragraph 54 of the Pleading would have remained exactly the same. The applicant's case would have remained the respondent's conduct in lulling him into a false sense of security meant that he was not prompted to seek legal advice and apply for and obtain an order under s 106 of the IR Act. 23 The same position obtains if the relevant state of mind of the applicant relied on by the respondent is identified as incorporating unawareness of the remedy available under s 106. Assume, indeed, that on 20 May 2005 his solicitors advised the applicant about both s 106 and the foreshadowed remuneration cap. His case as pleaded in para 54 would remain the same: he relied on the respondent's misleading reassurances and non-disclosure and, as a result, did not take the steps mentioned. 24 The applicant's case is that although he had some concerns, he felt reassured by the respondent's positive statements and non-disclosure. It is neither inconsistent nor unfair that he pursue that case while maintaining his privilege in respect of documents recording the communications referred to. 25 It is conceivable that the course of evidence on the hearing will result in a waiver of the privilege and, of course, always it remains open to the respondent to renew its application for access to the documents in question. 26 For the above reasons, and without reference to the other submissions made by the respondent, I do not accept the respondent's submission of waiver of privilege in relation to the communications between the applicant and his lawyers in the period from 1 March 2002 to 24 July 2002 regarding his employment with the respondent. 27 The respondent submits that the terms of engagement are not privileged at all because usually they do not record the substance of the advice given or of the advice sought. I think, however, that they are likely to reveal at least the general nature of the issue or subject on which advice was sought, and that the applicant is entitled to the benefit of the privilege in relation to them. CONCLUSION 28 The respondent's motion fails in so far as it seeks the orders referred to in [2] above. The respondent should pay the applicant's costs of the respondent's motion in so far as it seeks those orders. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 2 September 2005 Counsel for the Applicant: Mr H K Insall SC Solicitor for the Applicant: Toomey Pegg Drevikovsky Counsel for the Respondent: Mr H Dixon SC Solicitor for the Respondent: Shanahan Tudhope Date of Hearing: 24 August 2005 Date of Judgment: 5 September 2005