TYCO AUSTRALIA PTY LTD v OPTUS NETWORKS PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, SHELLER and GILES JJA 16 December 1998, 18 December 1998 [1998] NSWCA 240 Practice — party having experiment conducted — not yet know if will rely on report of experimenter — direction that information concerning experiment be provided to other parties — claimed to infringe client legal privilege — if did so, could not stand — whether would do so unclear — judge giving direction had no evidence or submissions to assist — direction set aside so could reconsider appropriate direction. Akins v Abigroup Ltd (1998) 43 NSWLR 539, distinguished. Mason P, Sheller and Giles JJA The Optus companies had computer equipment in premises at Rosebery in New South Wales. The premises had a gas fire suppression system, in the design and installation of which Leightons, Disney & Young, and Tyco were variously involved. It was alleged that, when activated, instead of releasing an inert gas the system sprayed contaminated water and a rusty sludge mixture throughout the premises and onto the computer equipment. The Optus companies claimed the costs associated with cleaning the computer equipment, said to be an amount in excess of $43,000,000. Leightons, Disney & 'Young, and Tyco cross-claimed between each other and against others involved in the manufacture, installation, and approval of the system. The proceedings were brought in the Construction List by a summons filed on 17 November 1997. Defences, no less than ten cross-claims, and defences to cross-claims were filed, and directions were given for discovery. On 28 August 1998 the Optus companies were ordered to file and serve witness statements and experts' reports, in relation to all issues by 29 October 1998, a date subsequently extended to 19 November 1998. A number of witness statements and experts' reports were served on or shortly after that date, although it seems more are to come. On 20 November 1998 Hunter J addressed directions in relation to the filing of witness statements and experts' reports by the defendants and cross-defendants. The Optus companies asked that the defendants be directed to file and serve those statements or reports on or before 15 January 1999. Tyco informed the court that one of its potential witnesses was undertaking experimentation in the United States into the behaviour of rust, which was not due to be completed for two months, so that the suggested date could not be met in relation to the report of that witness. His Honour directed that the defendants file and serve their witness statements and experts' reports other than as to quantum on or before 12 February 1999. But his Honour also stood the proceedings over for further directions on 4 December 1998, saying that he did so with a view to submissions as to the most cost-efficient case management - "... b) By the retaining and instructing of experts as to liability, particularly with the objective of exploring the limiting of such experts' number by some sharing arrangement, c) By recourse to measures such as joint reporting, d) By 2 UNREPORTED JUDGMENTS proposals of conferencing of experts with the plaintiffs' experts, e) By the appointment of a court appointed referee, all aimed at streamlining and assisting the parties in overcoming the cumbersome procedural matters that tend to be associated with multiplicity of proceedings such as this case exhibits..." Noting what he had been told about experimentation by Tyco's expert, his Honour further said - "Having regard to what sounds like extensive and probably complex aspects of that experimentation, I think the following course should be taken. I direct the third defendant to notify the parties of the name and of the nature the experimentation being undertaken by the named expert so as to sufficiently inform the other parties of the nature and purpose of that experimentation, without disclosing results. That statement should also identify what has been undertaken to date and what is proposed for the future. With that information available, I think consideration should then be given to the desirability or need for experts retained by the other parties to have access to this experimentation process. That is a matter that I would also envisage being addressed when the matter is next before the Court on 4 December 1998." Tyco provided some information to its co-defendants and the cross-defendants in purported compliance with this direction, but did not provide any information to the Optus companies. His Honour was told of this when the proceedings were before him on the morning of 4 December 1998. He stood the proceedings in the list for the parties to consider the position, and Tyco provided to the Optus companies a note reading - "We refer to the directions of Hunter J on 20 November 1998 that our client notify the parties to the above proceedings of the experimentation being undertaken on our client's behalf. An experiment is being undertaken by Failure Analysis Associates to assess the potential of the contaminant to compromise the operation of computer equipment. The experiment was commenced on 30 October 1998 following its set-up and is to continue for a period of 3 months from that date." The proceedings came before his Honour again on the afternoon of 4 December 1998. The Optus companies complained that the note was insufficient compliance with the earlier direction. Tyco submitted that there was no power to give or enforce the direction which had been given on 20 November 1998 because it infringed Tyco's entitlement to legal professional privilege. His Honour indicated that he considered that there was power to give the direction. The Optus companies said nothing about the claim to legal professional privilege, now client legal privilege, save by drawing to his Honour's attention that the direction did not require disclosure of the results of the experimentation. No evidence or submissions were proffered or received going to the existence or extent of the client legal privilege, and his Honour then gave reasons for confirming the direction earlier given. In the reasons his Honour indicated concern that, with what he described as the cryptic description of the experimentation, the time it had taken, and the further time it would take, if the Optus companies were not better informed there would be a process of months of exchange of reports if Tyco did serve a report based upon the experimentation. He said that this could completely disrupt an already technically complex piece of litigation, and that he considered the fairest way of dealing with the matter was to give directions that would have the effect that UR@&O AUSTRALIA PTY LTD v OPTUS NETWORKS PTY LTD (Mason P, Sheller and GileS JJA) unless the information that, in his view, was required to be provided by Tyco was then provided, it would not be permitted to rely on any report based on that material. His Honour said - "Accordingly, I confirm the directions that Tyco is required to inform the plaintiff by 4.00pm 8 December 1998 of the name and nature of the subject experimentation, the steps that have been taken to date in relation to that experimentation and what further steps are proposed to be taken. In the absence of that material being provided, subject to any extension of time granted therefor, I state now that Tyco, nor any other defendant to whom that information has been provided will be permitted to rely upon any expert report or any statement of evidence so far as it is based on information derived from that experimentation without the consent of the plaintiff. I order the costs of todays application to be paid by Tyco on an indemnity basis." On 10 December 1998 Tyco applied for leave to appeal in relation to the directions given on 20 November 1998 and 4 December 1998 and the order for costs made on the second of these dates. An extension of time for complying with the direction given on 4 December 1998 until 4pm today was agreed. The application for leave to appeal was argued as the appeal in the event that leave were granted. If compliance with the direction would infringe Tyco's client legal privilege, as at present advised we do not think that the direction could stand. While initially all but conceding this, the Optus companies came to argue that the power to give directions in s76A of the Supreme Court Act and Pt26 of the Rules could be exercised to over-ride client legal privilege. They argued that compliance with a direction for the exchange of witness statements was regarded as action under compulsion of law (see Akins v Abigroup Ltd (1998) 43 NSWLR 539), so that client legal privilege was not lost, and that compliance with the direction given by Hunter J would therefore not infringe Tyco's client legal privilege. The argument was flawed for at least two reasons. First, a direction in relation to witness statements of the kind considered in Akins v Abigroup Ltd is founded on the party's intention to rely on the evidence of the witness, so that the direction advances in time something which the party chooses to do; the direction given by Hunter J left no choice to Tyco. Secondly, the loss of client legal privilege with which Akins v Abigroup Ltd was concerned was loss for purposes outside the proceedings in which the witness statements were served; Tyco's complaint was that its right to client legal privilege as against another party to its proceedings would be over-ridden. We can envisage a situation in which a party might be permitted to serve a witness statement on terms that there be disclosure of information in relation to which it was entitled to client legal privilege, but only where circumstances making appropriate the imposition of such terms existed. That was not what Hunter J did, nor does it appear that appropriate circumstances then existed. So the question was whether the direction did over-ride Tyco's client legal privilege. The Optus companies submitted that it did not, saying that the privilege was in communications, and that the direction did not require Tyco to inform them of communications with Failure Analysis Associates but only of what Failure Analysis Associates was doing and would be doing. Tyco responded that Failure Analysis Associates did and would do what it was instructed to do by Tyco's solicitors, who retained it in relation to the experimentation, or what it advised Tyco's solicitors should be done, and that compliance with the direction would "result in disclosure" of the communications between the solicitors and 4 UNREPORTED JUDGMENTS Failure Analysis Associates (the words are taken from s119 of the Evidence Act 1995) because the link between the two would be irresistible. The difficulty then was that it was not clear what Hunter J had in mind in the direction. As appears from what we have said, his Honour did not have evidence or submissions in relation to the asserted legal professional privilege, and his reasons did not explain how he came to frame the direction in the way he did. Indeed, it seems that the original direction of 20 November 1998, which was substantially taken up on 4 December 1998, was framed before any reference to client legal privilege. It did not seem to be in dispute that Tyco was entitled to client legal privilege in the communications between its solicitors and Failure Analysis Associates, but whether and to what extent the information called for by the direction would result in disclosure of those communications can only properly be judged with some knowledge of the communications and, with that knowledge, submissions as to the consequences of compliance with the direction. It may well be that his Honour intended that the direction not require any infringement of Tyco's client legal privilege, but his Honour did not have evidence of the communications or relevant submissions, and did not deal with the matter in his reasons. Further, the Optus companies indicated at one point a desire to argue that any client legal privilege had been waived by the note provided on 4 December 1998, perhaps a difficult argument when Tyco was subject to the direction of 20 November 1998 but an argument which, in the course which events took on 4 December 1998, was not put to his Honour. We do not think it would be satisfactory to rule that his Honour's direction should be construed so as not to over-ride any client legal privilege to which Tyco may be entitled. It was made plain by Tyco that, on its view, if the direction were treated as having such a condition virtually no information would be forthcoming, and that would only leave the matter for later dispute. Rather, in our view it is better that the uncertainty in the framing and effect of the direction be dealt with by the matter going back to Hunter J, for his Honour to receive to the extent necessary appropriate evidence and submissions of the kind mentioned above, and to reframe the direction in a way which would best achieve the laudable objective of avoiding delay without infringement of Tyco's client legal privilege. That may include determination of whether there is still relevant client legal privilege. For these reasons, and for the purpose we have indicated rather than because error has been shown in what his Honour did, on 16 December 1998 orders were made that leave to appeal be granted, that the appeal be allowed, that the directions and orders made on 20 November 1998 and 4 December 1998, including the order for costs made on 4 December 1998, be set aside, and that the matter be remitted to the Construction List for reconsideration of the appropriate direction. These orders extended to the order for indemnity costs. We express no view upon whether the order should have been made - Tyco had not complied with the direction of 20 November 1998, its non-compliance meant that 4 December 1998 could not be devoted to the matters which his Honour envisaged for that day, and no doubt those considerations were in his Honour's mind. However, where the appropriate direction is to be readdressed, so also should the exercise of the discretion as to costs. As to the costs of the appeal, we considered that the unsatisfactory situation which came about was contributed to by both Tyco and the Optus companies. Neither was forthright in exposing for Hunter J the arguments which we have UR@&O AUSTRALIA PTY LTD v OPTUS NETWORKS PTY LTD (Mason P, Sheller and GileS JJA) received, and the result has been a regrettable diversion in the management of the proceedings towards a hearing. Accordingly, we made no order as to the costs of the appeal. 5 Leave to appeal granted; Appeal allowed. Counsel for the claimant: R J Ellicott QC & R J Weber Solicitors for the claimant: Blake Dawson Waldron 10 Counsel for the opponent: B R McClintock SC & S W Climpson Solicitors for the opponent: Minter Ellison