Industrial Relations Commission of New South Wales in Court Session CITATION : Gough & Gilmour Holdings Pty Ltd and ors v Caterpillar of Australia Limited [2001] NSWIRComm 73 FIRST APPLICANT Gough & Gilmour Holdings Pty Ltd SECOND APPLICANT Harcourt David Gough PARTIES : THIRD APPLICANT Anthony Lansley Gilmour RESPONDENT Caterpillar of Australia Limited FILE NUMBER: IRC 5227 of 2000 CORAM: Boland J CATCHWORDS : Discovery and inspection of documents - Legal professional privilege - Imputed waiver - Proceedings under s 106 of the Industrial Relations Act 1996 - Respondent sought discovery of documents evidencing legal advice - Applicants claimed legal professional privilege - Whether applicants had made allegations raising issue of their state of mind to which legal advice may have contributed - Commission in Court Session's powers in relation to legal professional privilege - Whether Evidence Act 1995 (NSW) or common law applicable - Importance of legal professional privilege - Imputed waiver of legal professional privilege - Issue waiver - Whether fair to respondent and conducive of ascertaining the truth to allow applicants to maintain legal professional privilege over legal advice that may have contributed to their state of mind in relying on certain representations by respondent - Imputed that by operation of law applicants had waived legal professional privilege. Evidence Act 1995 (Cth) Evidence Act 1995 (NSW) LEGISLATION CITED : Industrial Relations Act 1996 Industrial Relations Commission Rules 1996 Supreme Court Rules 1970 Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 137 ALR 28 Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1998) 37 NSWLR 405 Attorney-General (NT) v Maurice (1986) 161 CLR 475 Benecke v National Australia Bank (1993) 35 NSWLR 110 Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] FCA 681 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664 CASES CITED : Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123 Goldberg v Ng (1995) 185 CLR 83 Mann v Carnell (1999) 168 ALR 86 Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 Pickering v Edmunds (1994) 63 SASR 357 Randell v Rockliffe [1999] TASSC 136 Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 Wardrope v Dunne [1996] 1 Qd R 224 HEARING DATES: 04/03/2001 DATE OF JUDGMENT: 04/09/2001 APPLICANT The Hon. J W Shaw QC with Mr I Taylor of counsel Solicitor: Mr J Robinson Harmers Workplace Lawyers LEGAL REPRESENTATIVES: RESPONDENT Mr P M Hall QC with Mr D T Kell of counsel Solicitor: Mr T Gooch Mallesons Stephen Jaques JUDGMENT: - 14 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: BOLAND J 9 April, 2001 Matter No IRC 5227 of 2000 Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited Application under s 106 of the Industrial Relations Act 1996 Interlocutory Judgment No. 3 - Legal Professional Privilege 1 On 27 October 2000 Gough & Gilmour Holdings Pty Limited ("first applicant"), Harcourt David Gough ("second applicant") and Anthony Lansley Gilmour ("third applicant") filed a summons for relief under ss 106 and 107 of the Industrial Relations Act 1996. The respondent named in the summons was Caterpillar of Australia Limited ("the respondent"). The summons was amended on 3 November 2000 and further amended on 28 November 2000. By notice of motion filed on 16 March 2001 the applicants sought to further amend the summons by adding an additional respondent, namely, Caterpillar Inc, a US corporation, which is the ultimate beneficial owner of the respondent. The hearing of that notice of motion is continuing. 2 The relief sought by the applicants was in relation to three agreements between the first applicant and the respondent. The Further Amended Summons filed on 28 November 2000 set out the claims as follows: 1. An order declaring that the Sales and Service Agreement between the first applicant and the respondent dated 1 July 1991, the Distribution Agreement for Engines, Parts and Service between the first applicant and the respondent dated 1 July 1991 and the Product Support Agreement for Engines, Parts and Service dated 12 November 1997 between the first applicant and the respondent and/or any condition or arrangement collateral thereto (together called the "Agreements") are unfair as harsh, unjust, unconscionable and against the public interest. 2. An order that the Agreements be varied from their commencement, or such other date as the Court considers just, in accordance with the provisions in Schedule A hereto. 3. Further, an order that the respondent pay to the applicants such sum of money as the Court considers just in the circumstances of the case, together with interest thereon. 4. An order pursuant to section 107 that the respondent be prohibited from entering into any dealership agreements to operate in whole or in part of New South Wales in the form of the Agreements unless varied in accordance with the provisions of Schedule A hereto. 5. An order that the respondent pays the costs of the applicants for these proceedings. 6. Such further and other orders as the nature of the case may require. 3 Schedule A sought to amend the Agreements in a number of ways, primarily on the basis that the Agreements should continue to apply with enhanced provisions, eg, dispute resolution provisions, assistance by the respondent in rendering appropriate service to customers, etc, but in the event the Agreements were to be terminated it would be done in an orderly manner, with what the applicants considered to be an appropriate period of notice and protection of their interests. 4 The claims by the applicants arose out of a decision by the respondent (or, as it was alleged in the notice of motion filed on 16 March 2001, the decision by Caterpillar Inc), to terminate the Agreements and, therefore, the Caterpillar dealership operated by the applicants in New South Wales and the Australian Capital Territory. Originally, the applicants had been given 90 days formal notice of termination of the Agreements on 26 October 2000. On 10 November 2000 I was advised that the parties had reached an agreed position relating to the dealership which included an undertaking by the respondent that the effective termination date to terminate the Agreements would be extended to 25 October 2001 (see unreported Interlocutory Judgment of mine in this matter dated 23 November 2000). 5 It is important to note that money orders seeking compensation for termination of the Agreements on the grounds of unfairness were not the primary relief sought by the applicants. The applicants wished the Agreements, and, therefore, their Caterpillar dealership to continue to operate, albeit incorporating the variations referred to above. 6 In orders made by me on 29 November 2000 I set a timetable to be followed by the parties in relation to pre-trial preparation, with the trial to commence on 21 May 2001. 7 In the course of the discovery process, a significant issue arose in relation to legal professional privilege and it is this issue that I am required to address in this judgment. The issue may be described thus: The respondent sought discovery of documents evidencing legal advice provided to or sought by the applicants in relation to transactions and other matters going back, over a number of years, to the original acquisition of the Caterpillar dealership by the second and third applicants in 1989. The applicants claimed legal professional privilege over the documents. The respondent submitted that a waiver of privilege may be imputed on the part of the applicants. The imputed waiver, it was submitted, arose in the following way: The applicants alleged unfairness because it was their belief and understanding, based on representations by the respondent, that the respondent's right to terminate the dealership under the "with or without cause" 90 day termination provision of the dealership agreements as only operating in "with cause" situations, namely, serious and wilful misconduct or sustained and significant poor performance. The applicants contended that the dealership was entered into upon assurances as to the secure and long term nature of the dealerships and that the applicants would not have purchased the dealership if they had any idea or belief that the respondent intended that the 90 day notice of termination provision would operate in accordance with its strict terms. On the basis of these understandings and beliefs the applicants outlaid extraordinary capital investment and reinvested dividends in respect of the dealership. Further, the applicants contended that they held a business interest in the nature of goodwill as ordinarily understood and that they were entitled to have that interest valued on an open market basis. The respondent submitted that because the applicants have made allegations or contentions raising issues of their state of mind, to which legal advice is likely to have contributed, they cannot claim legal professional privilege for that advice. 8 To illustrate the issue, between January 1992 and March 1993 the first applicant received advice from Freehill, Hollingdale and Page, in respect of which it claims privilege, relating to certain business development proposals including: share repurchase; head office relocation; dealership issues and structure simplification. Thereafter, the applicants invested heavily in expanding the business. The respondent submitted that in alleging they acted on the understanding and belief that the dealership was of a long term nature and secure, the applicants opened up for investigation and testing the source of and basis for their belief and that it would be unfair against the respondent if it were precluded from testing the basis of the applicants' belief because access to certain relevant legal advice was denied. Similarly, as the second applicant had contended that he would not have purchased the dealership if he had any idea or belief that the respondent intended that the 90 day notice period would strictly apply, the respondent submitted that it was entitled to test the basis for this belief, including any legal advice that the second applicant may have received and which may have contributed to that belief. 9 In his submissions for the respondent, Mr P M Hall QC with Mr D T Kell of counsel put it this way: To some extent the nature of the contentions made in the summons gives a guide as to the way the case is being conducted on behalf of the applicants. In short one can see that it's been said that the applicant's claim that it was a dealership which would be long-term, that they had that understanding, they would in effect have the right in the events of termination to seek fair market value in respect their dealership assets. They have acted upon that basis over the years and that that has given rise, so it seems to be said, to certain rights or interests which would override any contractual rights to terminate the relevant provision in the dealership agreements being clause 29, which does permit termination for reasons other than cause in other words on notice, either a nine (sic) day provision or such other provision as the parties agree. That is the provision ought to be invoked here. It is relevant to know, in our submissions if legal advice has been obtained, what was that advice directed to. For example one could see legal advice might be given to the effect that well these are the written terms of the dealership agreements, they do provide for rights on termination, you should be aware of that, that can impact upon the duration and hence the value of whatever interest you have in the dealership assets. It could impact upon the value ascribed to any contractual rights that you might have, if in the event of termination the dealership were to terminate so that although it lasted ten years, it may not last further than that. That can impact upon, firstly, the nature of the rights we are dealing with in respect of this dealership, and secondly, issues of value that flow out of the nature of those rights. Commission in Court Session's Powers relating to Legal Professional Privilege 10 Part 22 of the Industrial Relations Commission Rules 1996 deals with Discovery and Inspection of Documents. Rule 160(c) provides that: ( c ) "privileged document" means in relation to proceedings: (i) a document of which evidence could not be adduced in the proceedings over the objection of any person, by virtue of the operation of Part 3.10 of the Evidence Act 1995; (ii) a document that relates to matters of state within the meaning of section 130 of the Evidence Act 1995, unless and until the Commission directs that it cease to be a privileged document; (iii) where a claim is made against a party for the recovery of a statutory penalty or for the enforcement of a forfeiture, a document which is or has been in the possession, custody or power of that party which is: (A) relevant to a fact in issue on that claim; and (B) not relevant to a fact in issue on any claim made in the proceedings other than for the recovery of a statutory penalty or for the enforcement of a forfeiture; (d) a document or matter is to be taken to be relevant to a fact in issue of it could, or contains material which could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or matter would be admissible in evidence. 11 Rule 186 of the Commission's Rules provides that: 186. Privilege (1) Where the Commission, by summons or otherwise, orders any person to produce any document or thing, and any person makes and substantiates sufficient lawful objection to production on grounds of privilege, the Commission must not compel production of that document or thing except production to the Commission for the purpose of ruling on the objection. (2) Where a question is put to a person in the course of examination, and any person makes and substantiates sufficient lawful objection on grounds of privilege to the question being answered, the Commission must not compel an answer to the question. (3) Subrule (1) applies where an order is made for production to, and subrule (2) applies where a question is put to a person in the course of examination before the Commission or any officer of the Commission, or any examiner, referee, or other person authorised to receive evidence, whether on a hearing or on any other occasion. (4) Where a party to any proceedings claims privilege from production of any document, the Commission may, if it thinks fit: (a) permit evidence in relation to the claim to be given by any other party by affidavit or otherwise; and (b) permit cross-examination on any affidavit used in support of the claim. (5) This Rule does not affect any rule of law which authorises or requires the withholding of any document or thing or the refusal to answer any question on the ground that the disclosure of the document or thing or the answering of the question would be injurious to the public interest. (6) Subrules (1), (2) and (3) do not apply to an objection to produce any document or thing or to answer any question on the ground mentioned in subrule (5). (7) The Commission may, on special grounds, allow a claim on grounds of privilege for documents prepared for or by, or communications with, an industrial advocate or an officer or employee of an industrial organisation, if privilege would be accorded those same documents or communications had the advocate, officer or employee been a legal practitioner. 12 The Hon J W Shaw QC with Mr I Taylor of counsel appeared for the applicants. Mr Shaw submitted that the Commission's Rules: do not contain any express rules about legal professional privilege in relation to documents produced on a summons so the Supreme Court Rule Part 36 rule 13 of the Supreme Court Rules and rule 89 sub-rule 5 of this Commission's rules supports the Supreme Court Rule [applying]. 13 Rule 89(5) of the Commission's Rules provides that: 5) Where: (a) there are no relevant provisions; and (b) there is no established practice, procedure or usage; and (c) there is no Rule, order, direction or Practice Direction in force, the practice, procedure or usage for the time being of the Supreme Court or, in the case of appeals, the practice, procedure or usage for the time being of the Court of Appeal or the Court of Criminal Appeal, as may be appropriate, is, as far as practicable, to regulate the practice, procedure or usage of the tribunal. 14 Part 36 rule 13 of the Supreme Court Rules 1970 deals with privilege as it applies to the discovery process: 13. Privilege (1) This rule applies where: (a) the Court, by subpoena or otherwise, orders any person to produce any document to; (b) a party is required by a notice served under rule 16 (1) to produce any document to; or (c) a question is put to a person in the course of examination before, the Court or a Judge or any officer of the Court, or any examiner, referee, arbitrator or other person authorised to receive evidence and neither Part 3.10 of the Evidence Act nor Part 3.10 of the Evidence Act 1995 of the Commonwealth is applicable. (2) The Court shall not compel, and rule 16 shall not require, production of a document or an answer to a question, unless and until the Court directs that the production or answer shall not be prevented by this subrule: (a) over the objection of a person if evidence of the document, or of an answer to the question, could not be adduced in the proceedings over the objection of the person, by virtue of the operation of Part 3.10 Division 1 of the Evidence Act; (b) if the contents or production of the document, or an answer to the question, would disclose: (i) a protected confidence or the contents of a document recording a protected confidence or protected identity information, within the meaning of section 126B of the Evidence Act, where: (A) consent by the protected confider within the meaning of section 126C of the Evidence Act has not been given to disclosure of the confidence, contents or information; and (B) section 126D of the Evidence Act would not operate to stop Part 3.10 Division 1A of the Evidence Act from preventing the adducing of evidence in respect of the confidence, contents or information; (b1) if evidence of a document, or of an answer to the question, could not be adduced in the proceedings by virtue of the operation of section 126H of the Evidence Act; (c) if the person required to produce, or answer, is a natural person and an answer to the question, or the contents or production of the document, would tend to prove that the person: (i) has committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) is liable to a civil penalty, within the meaning of section 128 of the Evidence Act; (d) if admission or use, in a proceeding, of the document, or of evidence in answer to the question, would be contrary to section 129 of the Evidence Act; (e) if the document relates to, or an answer to the question would contain information that relates to, matters of state within the meaning of section 130 of the Evidence Act; (f) if the contents or production of the document, or an answer to the question, would disclose a communication or a document to which section 131 of the Evidence Act applies; (g) in the case of the production of a document---if: (i) the disclosure of its contents; (ii) its production; or (iii) its admission or use, in the proceedings would be contrary to any Act or Commonwealth Act other than the Evidence Act or the Evidence Act 1995 of the Commonwealth; (h) in the case of the answer to a question - if an answer would disclose or result in disclosure of information the disclosure, admission or use of which in the proceeding would be contrary to any Act or Commonwealth Act other than the Evidence Act or the Evidence Act 1995 of the Commonwealth. (3) Where a party to any proceedings claims privilege from production of any document, the Court may, if it thinks fit: (a) permit evidence in relation to the claim to be given by any other party by affidavit or otherwise; and (b) permit cross-examination on any affidavit used in support of the claim. 15 Rule 13 commenced to operate on 1 October 1999 and apparently was designed to make it clear, inter alia, that Pt 3.10 of the Evidence Act applied to the adducing of evidence of confidential communications and to producing a document in a discovery context, which according to the Full Court of the Federal Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 159 ALR 664, were not the same thing. The introduction of r 13 was designed to overcome the effect of the decision of the High Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123 which held, in overruling Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418, that the Evidence Act 1995 (Cth) did not apply to discovery and inspection of documents and that the common law of privilege was not modified by the Evidence Act 1995 (Cth). It should be noted that throughout the course of this judgment I may refer to the Evidence Act 1995 (NSW) and the Evidence Act 1995 (Cth) interchangeably, because the provisions relevant to these proceedings are the same. 16 I am not certain that Mr Shaw 's submission regarding the application of Pt 36 r 13 of the Supreme Court Rules is correct. Rule 186 of the Commission's Rules would seem to provide an express rule about the application of privilege to documents produced by summons or otherwise. It may be that Mr Shaw was relying on the fact that under Pt 22 - Discovery and Inspection of Documents, there is no express rule relating to legal professional privilege and that, as s 186 is in Pt 24 - Evidence and does not expressly say that legal professional privilege applies to the ancillary process of discovery and inspection, r 89(5) of the Commission's Rules would apply. I must say, I remain unconvinced about this proposition. 17 The significance of Mr Shaw's submission, if it be right, is that if the applicable rule is r 13 in Pt 36 of the Supreme Court Rules , then the provisions of the Evidence Act 1995 (NSW), namely s 118 and s 122, apply to privilege at the discovery stage. If the Supreme Court Rules do not apply, then the common law applies to privilege at the discovery stage: see Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 168 ALR 123. 18 Section 118 of the Evidence Act provides: Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of: (a) a confidential communication made between the client and a lawyer, or (b) a confidential communication made between 2 or more lawyers acting for the client, or (c) the contents of a confidential document (whether delivered or not) prepared by the client or a lawyer, for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client. 19 Section 122(1) of the Evidence Act provides: This Division does not prevent the adducing of evidence given with the consent of the client or party concerned. 20 Section 122(4) and (5) of the Evidence Act provide: (4) Subject to subsection (5), this Division does not prevent the adducing of evidence if the substance of the evidence has been disclosed with the express or implied consent of the client or party to another person other than: (a) a lawyer acting for the client or party, or (b) if the client or party is a body established by, or a person holding an office under, an Australian law-the Minister, or the Minister of the Commonwealth, the State or Territory, administering the law, or the part of the law, under which the body is established or the office is held. (5) Subsections (2) and (4) do not apply to: (a) a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person, or (b) a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to a proceeding or an anticipated or pending proceeding in an Australian court or a foreign court. 21 Mr Shaw submitted that, while in one sense he did not take issue with Mr Hall's focus on the common law as being the relevant law applicable to legal professional privilege in the discovery process, he submitted that the focus should be on the relevant statute (i.e, the Evidence Act , which applies by virtue of Pt 36 r 13 of the Supreme Court Rules ). Mr Shaw submitted that the question should be whether, by putting in issue representations upon which it was alleged the applicants relied upon to their detriment, there was "implied consent" on their part, within the meaning of s 122(4) of the Evidence Act, to waive privilege in respect of legal advice that may have contributed to the applicants' state of mind in relying on the representations. Mr Shaw submitted that there was no implied consent to waive privilege. 22 On the view I take, it makes no difference whether I apply the common law or the provisions of the Evidence Act to this issue and I will seek to explain why this is the case in the course of this judgment. Importance of Legal Professional Privilege 23 In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 137 ALR 28 at 33, Kirby J said of legal professional privilege: The law of legal professional privilege is an important branch of the law protecting the basic rights of persons in a society such as ours. Those rights include the right to approach lawyers without concern that matters disclosed, and advice received, in confidence will ordinarily enjoy the protection of the law. Increasingly, in recent years, this Court and other courts of high authority, have described such rights in the language of basic civic rights . They have also been explained as rights pertinent to the just operation of the adversarial system rather than, as they have sometimes been explained in older or other authorities, as rules of evidence or procedure. Within this Court, there have been divisions of opinion on this point. However, generally speaking, I consider that the trend of recent authority supports the submission that legal professional privilege constitutes an important civic right to be defended, as such, by the law. There is no doubt that legal professional privilege may be extinguished by clear statutory provision. It may also be waived by decision of the client. Imputed Waiver of Legal Professional Privilege 24 Waiver of legal professional privilege may also be imputed. In Goldberg v Ng (1995) 185 CLR 83 the High Court (Deane, Dawson and Gaudron JJ) said at 95-96: 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 persons 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"(9). 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 applies only in relation to particular persons, materials or purposes. 25 In Attorney-General (NT) v Maurice (1986) 161 CLR 475 Mason and Brennan JJ explained at 487-488 the doctrine of implied or imputed waiver as follows: The limiting effect of legal professional privilege on the availability of evidence otherwise relevant is confined, inter alia, by the doctrine of waiver. A litigant can of course waive his privilege directly through intentionally disclosing protected material. 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 . Hence, the implied waiver inquiry is at bottom focused on the fairness of imputing such a waiver. 26 Deane J, in the same case, said at 492-493: 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. 27 In Mann v Carnell (1999) 168 ALR 86 at 94, the High Court ( Gleeson CJ, Gaudron, Gummow and Callinan JJ) said that " What brings about the waiver [of privilege] is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large. " The Court said: At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that "waiver" is a vague term, used in many senses, and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client's version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication, or the institution of proceedings for professional negligence against a lawyer, in which the lawyer's evidence as to advice given to the client will be received. Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is "imputed by operation of law". This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank , the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister's version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large. Application of the Issue Waiver Rule 28 There appears to be two categories of waiver in the context of legal professional privilege, namely, "disclosure waiver" and "issue waiver". Disclosure waiver is exemplified by Mann v Carnell and Benecke v National Australia Bank (1993) 35 NSWLR 110 . Issue waiver is that where a litigant opens up the source and basis for its belief on a particular question, inspection cannot be denied by a general law claim of legal professional privilege: Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 155. In that case the respondent sued the State of New South Wales and Telstra, inter alia, for damages for misleading or deceptive conduct, alleging reliance upon the conduct. The State of New South Wales and Telstra sought discovery of documents subject to legal professional privilege that went to the state of mind of the appellant. Putting aside, for the moment, the other issue in the present case relating to the impact of the provisions of s 122 of the Evidence Act 1995 (Cth), it was held by Branson and Lehane JJ, Beaumont J dissenting that where 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 the 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. The majority said at 166-167: The quality of any particular legal advice, and the extent, if any, to which it was causative of loss and damage, can only properly be assessed once it is placed in the context of the totality of legal advice received by the client. The client, by bringing the proceeding, is taken to have consented to the use of the privileged material, or to have waived reliance on the privilege which would otherwise attach to such material. Reliance on the privileged nature of the material would, in the circumstances, be unjust and would inhibit the proper functioning of the legal process. 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. 29 Beaumont J took a different view to that of the majority. His Honour said that because the respondent had not pleaded the legal advice as an ingredient of its claim and did not assert that it relied or did not rely on the advice, it was too early to say whether there had been any unfairness in the respondent's insistence upon its right to claim privilege. Beaumont J said at 157-158: In the absence of any suggestion of express or actual waiver, the question remains whether, in the present circumstances, the law should imply or impute a waiver. In my opinion, it should not, at least not at this stage of the proceedings. Whether, at a later stage, particularly at the trial itself, the circumstances are then such that the law should imply or impute a waiver, is another question, for resolution at that time and in the light of those circumstances. At this stage, BT has made no use of the legal advice in the proceedings. The advice is not pleaded by BT as an ingredient of its claim. BT does not assert that it relied, or did not rely, on the advice. It is difficult to see how, or why, BT could have pleaded the advice. It could not bear upon the question whether the conduct of the State or Telstra was misleading. It may, depending upon the actual situation, bear upon the question of BT's reliance. Questions of degree may be involved, but the advice is not, obviously, central to that issue in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason , at least as the issues in Thomason had evolved in the course of the trial. 30 At 158 Beaumont J said: In my opinion, nothing has emerged at this stage to demonstrate any unfairness in BT's insistence upon its right to claim privilege. Whether this will change in the light of subsequent events, including the conduct of the trial, will be a matter for decision at that time and in the light of those circumstances. At the present pre-trial stage, the only relevant act or omission of BT is its pleading, which does not mention any legal advice. It should be noted that the Court was not, itself, invited to inspect any of the privileged documents. In this area, questions of degree, and thus of judgment, are necessarily involved because, as the High Court has emphasised, whether the privilege has been abused, with the consequence that the law imputes a waiver regardless of actual intention, depends upon the particular circumstances. For this reason, it is difficult to generalise and impractical to attempt to articulate any universal rule. It seems unlikely that there could be any absolute rule that, whenever it appears, pre-trial, that a party's state of mind may be relevant to an issue, privilege is lost, even if it also appears that the party may have sought legal advice in that connection at the material time. 31 In Equuscorp Pty Ltd v Kamisha Corp Ltd [1999] FCA 681 Heerey J agreed with Beaumont J in Telstra and declined to follow the majority in that case. His Honour said: 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. 32 In an appeal against the decision of Heerey J in Equuscorp, in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, a Full Bench of the Federal Court ( Ryan, Carr and Marshall JJ) overturned his Honour's decision and, in doing so, agreed with the analysis and reasoning of the majority in Telstra. The Full Bench said: 17 In our view, the facts of the present matter reflect the requisite degree of unfairness. Equus complains that it relied on the specified representations when it executed the security document. It says that the words "letter of credit" appearing in that document do not faithfully record the common intention of the parties and that the words were used under a mutual mistake of fact. There is evidence, that at the relevant time or times, i.e. shortly before executing the security document, Equus sought and obtained legal advice. In our opinion, in those circumstances, it would be relevantly unfair for Equus to be allowed to maintain legal professional privilege. Equus' state of mind is central, at the very least, to its claim for rectification - see Ampolex - a case cited with apparent approval by Beaumont J in his dissenting reasons in Telstra. 33 At this stage, I come back to the question of the application of s 122 of the Evidence Act to the issue before me. On Mr Shaw 's submission, s 122 applies by virtue of Pt 36 r 13 of the Supreme Court Rules . Mr Hall , on the other hand, put his submissions on the basis of the common law applying. In Telstra, the majority held that conduct which would have amounted to imputed waiver at common law came within the meaning of s 122(1) of the Evidence Act 1995 (Cth). Their Honours did not identify any difference between imputed waiver at common law and implied consent within the meaning of the sub-section. The majority said: In our view, s 122(1) of the 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. To constrain the operation of the subsection to instances of voluntary assent to the adducing of evidence which would otherwise attract client legal privilege is, in our view, to give insufficient weight to the context in which the subsection is found, and to the common law background against which the Act as a whole is to be understood. The primary judge expressed the view that, while "consent" in s 122(1) might include implied as well as express consent, it would be straining language excessively to hold that it extended to a "consent" imputed to a party on the basis of fairness. Presumably an implied consent, as envisaged by his Honour, is one that is found to be, on the evidence, real and voluntary though not express. In fact, however, the cases, not surprisingly, use the terms "implied" and "imputed" interchangeably (see, for example, Maurice at 488 per Mason and Brennan JJ, Goldberg at 95-96 per Deane, Dawson and Gaudron JJ and at 109 per Toohey J). Once it is accepted that consent for the purposes of the section extends beyond express consent, we think it should be taken to extend to imputed consent. In particular, if that were not so, a defendant ordinarily would no longer be able, where the plaintiff alleges that a transaction was procured by the defendant's undue influence, to lead evidence to the effect that the plaintiff had comprehensive legal advice, immediately before entering into the transaction as to its effect. We cannot believe that that was intended. It follows that, in such cases, the position has changed little, if at all, following the introduction of the Act. 34 The majority in Telstra was, of course, addressing s 122(1) of the Evidence Act 1995 (Cth). Mr Shaw submitted that the focus should be on s 122(4) of the Evidence Act 1995 (NSW). I have already noted that there is no relevant difference between the two statutes. Section 122(4) of the NSW Act differs from s 122(1) of that Act in that s 122(4) inquires whether there has been a consensual disclosure of "the substance of the evidence", save to the client's lawyer. However, in the light of the majority's observations quoted above in Telstra , it does not seem to me to make any difference whether Mr Shaw relies on s 122(4) or s 122(1) of the Evidence Act. In Telstra the majority relied on the underlying principle of fairness, which I consider would apply equally to s 122(1) and s 122(4). It could not be said as a matter of logic that the test of fairness applies to s 122(1) but not s 122(4). In any event, it would seem to me that s 122(4) applies more readily to the "disclosure waiver" category of cases rather than the "issue waiver" category of which the present case is one. In other words, where there has been consensual (either expressly or impliedly) disclosure of part of a confidential communication, the question may arise under s 122(4) as to whether there has been sufficient disclosure to warrant loss of privilege in respect of the whole of the communication. Issue waiver, on the other hand, is where a litigant opens up the source and basis for its belief on a particular question and inspection of any legal advice bearing on the belief cannot be denied on the basis of privilege. 35 In Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 the Full Court of the Federal Court ( Olney, Keifel and Finn JJ) held that the test under s 122(4) was a quantitative one, which asked whether there has been sufficient disclosure to warrant loss of privilege and that if what was disclosed fell short of the test posed by the section, there was no waiver. The Full Court held that the common law test of fairness did not apply. Adelaide Steamship was overruled by the High Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation, which held that the Evidence Act did not apply to the discovery and inspection of documents (and further held that the common law test for claiming legal professional privilege was the dominant purpose test). 36 It would seem therefore, that as the law stands at the present the "quantitative test" has not displaced the common law "fairness test" insofar as s 122 of the Evidence Act 1995 (NSW) is concerned. I, therefore, rely on the majority decision in Telstra , which was followed by the Full Bench of the Federal Court in Perpetual Trustees . 37 I turn to consider a number of other cases referred to by senior counsel in their submissions. In Randell v Rockliffe [1999] TASSC 136 Wright J declined to follow the majority in Telstra and agreed with Beaumont J: Notwithstanding that this majority opinion was unanimously followed by Ryan, Carr and Marshall JJ in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925, I am not persuaded that the principles embraced are correct. ……………….. With all respect to the considerable weight of opinion to the contrary in the Federal Court judgments referred to, I remain unpersuaded that Beaumont J's approach was wrong. Indeed, I think it was correct and should be followed. In reaching this conclusion, I have been mindful of the issues of comity and constraint to which I referred in Carrick v J [1989] Tas R 24 at 35 - 36. As a consequence therefore, I am of opinion that the order for inspection made by the Master should not have been made at this stage of the proceedings and that the appeal against the orders which he made should be allowed. 38 It seems to me that Randell v Rockliffe was not a case where the defendants relied on representations made but rather relied on the conduct of the plaintiff. 39 In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1998) 37 NSWLR 405, Giles CJ Comm D held that where parties make allegations raising the issue of their state of mind, to which their legal advice is likely to have contributed, they cannot claim legal professional privilege for that advice. In Ampolex the plaintiff claimed rectification of a deed for mistake and clearly state of mind was a central issue. 40 In Pickering v Edmunds (1994) 63 SASR 357 Duggan J at 362 said: The effect of these pleadings and, in particular the statement of claim, is that the respondents have put in issue their state of mind and knowledge as to the legal effect of the 1980 deed of trust as at the time of executing the 1982 deed. According to their pleadings this view of the legal position resulted in their executing the 1982 deed. They agree, however, that they received legal advice from Messrs Stratford and Co before entering into the deed. A waiver of legal professional privilege cannot be implied simply because the pleadings made such advice relevant. The possibility that the court might be restricted in its capacity to determine the truth is part of the price which must be paid for the advantages of legal professional privilege. It is only when the conduct of the party entitled to the privilege and considerations of fairness outweigh the competing considerations concerned with the exercise of the privilege that a waiver will be implied. In the present case the conduct of the respondents is such as to make the issue of their appreciation of the legality or otherwise of the trust deed of crucial importance in the case. An effective trial on that issue could not take place in the absence of evidence as to what legal advice they received on the matter. Furthermore the appellants would be unfairly deprived of the opportunity to put material before the court on this key issue. It is true that the respondents did not raise directly the legal advice they received. However they did put in issue their understanding of the legal effect of the earlier deed based on information they had received. 41 In Wardrope v Dunne [1996] 1 Qd R 224 Derrington J said: Notwithstanding the high status of professional privilege and the careful protection which the law affords it, when the contents of a privileged communication becomes the subject of a legitimate and reasonable issue in the litigation, then the privilege is lost. 42 In Benecke v National Australia Bank it was held by the Court of Appeal that where a plaintiff in originating process and in evidence alleged that prior litigation had been compromised by lawyers contrary to instructions, the plaintiff had opened up the question of authority of the lawyers to act as they did and had thereby waived privilege. Gleeson CJ said at 111-112: The rule that prevents an unauthorised disclosure of confidential communications between a client and a legal adviser, when such communications are for the purpose of obtaining legal advice, or for use in existing or anticipated litigation, constitutes a restriction upon the capacity of the courts to ascertain the truth in certain circumstances. That restriction, however, is regarded as acceptable on the ground that it promotes the public interest, and assists the administration of justice, by facilitating the representation of clients by legal advisers. It does this by encouraging uninhibited communication, Thus, in cases where the rule operates, one aspect of the public interest is preferred against another (discovering truth). ..The law permits the search for truth in legal proceedings to yield in certain circumstances, to the public interest in preserving the secrecy of communications between lawyer and client. In the present case, however, the appellant herself lifted the veil of secrecy by giving her version of the communications. Thereafter, there was no reason in principle why the pursuit of the truth should not take its course, or why the court should be inhibited in seeking to ascertain the true facts concerning those communications. Consideration 43 It was Mr Shaw 's submission that apart from the judgments which he said were directly against the respondent's submissions, the position was that the imputed waiver of privilege rule should be narrowly construed. Mr Shaw said that the rule really only applied where the issue in question was the meaning of a legal document and that there had been legal advice given or obtained about that legal document. In those circumstances, where a party was relying on representations made by another party about the meaning of the document but had received legal advice about the meaning of the document, the privilege relating to that advice was imputedly waived. 44 I do not think the rule is so narrow. As the High Court said in Goldberg v Ng at 95 "The circumstances in which a waiver of legal professional privilege will be imputed by operation of law cannot be precisely defined in advance." Mason and Brennan JJ in Attorney -General (NT) v Maurice said at 487: An implied waiver occurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege. 45 I do not think the imputed waiver of privilege rule is limited to particular circumstances as submitted by Mr Shaw, although I do note that many of the cases to which I was referred involved an element of alleged (mis)representation. 46 I prefer and adopt the broad approach taken by the majority in Telstra, a decision with which the Full Bench of the Federal Court in Perpetual Trustees agreed. That is, where: ..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. 47 In the present case the applicants did not put in issue any legal advice they may have received in relation to various transactions or courses of action. As far as I can ascertain, there is no mention of any legal advice in the amended summons. It is not known whether the applicants relied or did not rely on any legal advice. This, however, was also the situation in Telstra. Nevertheless, the majority took the view that it would be unfair in the circumstances for privilege to be maintained; that to allow a party to contend that he or she relied on certain representations by another party, while at the same time withholding evidence relevant to the contention in the form of legal advice, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to compromise the ability of the court realistically to determine the issue. 48 The question in the present proceedings, therefore, is whether it would be fair to the respondent and conducive of ascertaining the truth, to allow the applicants to maintain privilege over any legal advice that may have contributed to their state of mind that, for example, the dealership agreements would not be terminated by 90 days' notice other than on performance grounds of a significant nature or in the event of serious and wilful misconduct on the part of the applicants? What must be balanced against this is the "high status of professional privilege and the careful protection which the law affords it". 49 It seems to me that it would be quite unfair against the respondent for the applicants to contend that, notwithstanding the provision in the dealership agreements going to notice of termination, it was their understanding or belief, based on representations made by the respondent, that their investments in the Caterpillar dealership were secure and that the dealership was of a long term nature, and then rely on the shield of privilege to prevent the respondent from testing the basis for that state of mind, including any relevant legal advice which may have influenced that state of mind. 50 I have come to the conclusion and make a finding that, as a matter of principle, the applicants, or any one of them, should not be entitled to maintain privilege over any relevant confidential communication within the meaning of s 118 or s 119 of the Evidence Act 1995 (NSW) which may have contributed to their state of mind in contending or alleging that an: (a) understanding or belief based on representations made to them that the respondent's right to terminate the dealership under the "with or without cause" 90 day termination provision of the dealership agreements only operated in "with cause" situations, namely, serious and wilful misconduct or sustained and significant poor performance; (b) outlay of extraordinary capital investment and the reinvestment of dividends at various times since 1989 was made on the belief or understanding in (a) above; (c) understanding or belief based on representations made to them that their investments in the Caterpillar dealership were secure and of a long term nature, notwithstanding the termination provisions in the dealership agreements referred to in (a) above. 51 The conclusion I have reached may be taken as encompassing any confidential communication that the applicants may have received in the period either prior to the dealership agreements being entered into or subsequently, which impacted on the understandings or beliefs referred to above. This may include confidential communications provided in relation to finance, undertaking investments or for tax-planning purposes, subject to it being directly relevant to any conduct or decision made by the applicants, or any one of them, in reliance on their understandings or beliefs referred to above. But my conclusion does not encompass any confidential communication sought by the applicants as a consequence of the respondent's decision, first conveyed to the applicants in June 1999, of an intention to terminate the dealership and confirmed by the subsequent termination notice in October 2000, unless it can be shown that the privilege applying to such advice has been lost. If it is contended in respect of any legal advice that privilege has been lost in relation to advice post-June 1999, it may be that I will need to understand the nature of the advice before making any ruling about whether legal professional privilege applies. I so find. 52 Mr Hall submitted that any privilege claimed in respect of legal advice that may have influenced the applicants' understanding or belief that they held a business interest in the nature of "goodwill" as ordinarily understood and that they were entitled to have that interest valued on an open market, should also be regarded as having been waived. As Mr Hall properly conceded, the issue of understanding or belief relating to goodwill is in a somewhat different category to the other issues. In particular, it did not involve a situation where the applicants relied on any representations by the respondent and the issue does not seem to me to arise directly from the pleadings. The amended summons does refer to the market value of goodwill but only in the context of compensation in the event that the Agreements the subject of the claim are not varied in the manner sought by the applicants. But it was not pleaded that the Agreements were unfair because the applicants in some way relied on representations that their interests in the dealership included an element of goodwill. Nevertheless, Mr Hall submitted that as the applicants had asserted a business interest in the nature of goodwill and may have received legal advice as to whether indeed they did have such an interest, by making the assertion they have opened up the issue to be tested and privilege has been waived. Admittedly, the circumstances in which imputed waiver of privilege may arise are not closed but as matters presently stand and in the absence of more specific information, I am not disposed to accept that it may be imputed that the applicants have waived privilege in respect of their position on goodwill. In this respect I have had regard to the rationale underpinning legal professional privilege. Moreover, I think that if I were to accede to the respondent's submission on this issue of goodwill I would be opening up to litigants under s 106 of the Industrial Relations Act the prospect of engaging in speculative claims that privilege had been waived in relation to issues not even pleaded in the proceedings on the basis that a party may have received some legal advice on the issue. 53 In relation to my findings in this matter, I propose to take up Mr Hall's suggestion that having determined the issue in principle, the parties are to prepare short minutes of order applying this decision to the various categories of confidential communications in respect of which discovery is sought. I so order. 54 Costs are reserved. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.