New South Wales Supreme Court CITATION : Global Medical Imaging Management Limited (in liquidation) v Australian Mezzanine Investments Pty Limited & Anor [2003] NSWSC 430 HEARING DATE(S) : 14/05/03 JUDGMENT DATE : 14 May 2003 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Leave to inspect relevant materials; Claim to privilege disallowed CATCHWORDS : Evidence - Procedure - Legal professional privilege - Evidence Act 1995 section 122(2), 122(3) - Waiver of client legal privilege by employee or agent - managing director makes disclosure under cross examination - Counsel for party fails to apply to have non responsive answer stating substance of the advice struck out - Party held to have knowingly and voluntarily disclosed substance of the evidence LEGISLATION CITED : Evidence Act 1995 Adelaide Steamship v Spalvins (1988) 81 FC 360 CASES CITED : Ampolex v Perpetual Trustee Company 40 NSWLR 12 Eden Productions v Southern Star Group (2002) NSWSC 1166 Global Medical Imaging Management Limited (in liquidation) (formerly called Minotaur Funds Limited) (Plaintiff) PARTIES : Australian Mezzanine Investments Pty Limited (First Defendant) Perpetual Trustee Company Limited (Second Defendant) FILE NUMBER(S) : SC 50157/01 Mr SD Rares SC, Mr Lee (Plaintiff) COUNSEL : Mr NC Hutley SC, Mr Jones (First Defendant) Mr PM Wood (Second Defendant) Morgan Lewis Alter (Plaintiff) SOLICITORS : Baker & McKenzie (First Defendant) Blake Dawson Waldron (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 14 May 2003 ex tempore Revised 21 May 2003 50157/01 Global Medical Imaging Management Limited (in liquidation) v Australian Mezzanine Investments Pty Limited & Anor JUDGMENT - On call made at page 468.5 of transcript by plaintiff on first defendant. [See page 500] 1 A question has arisen in relation to the call made by the plaintiff on the first defendant in Court transcribed at page 468.5 "for records of communications with Corrs Chambers Westgarth and AMIL concerning the matter the witness has identified in May 1997". 2 In response to that call, the first defendant has produced a number of documents or materials which are now in a Baker and McKenzie envelope marked "privilege". The plaintiff challenges the claim to privilege and all counsel have addressed in that regard. 3 The plaintiff submits that the first defendant has waived legal professional privilege in relation to this material. The plaintiff relies upon section 122 of the Evidence Act 1995 in that regard. Section 122 provides: "Loss of client legal privilege: consent and related matters (1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned. (2) Subject to subsection (5), this Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made: (a) in the course of making a confidential communication or preparing a confidential document, or (b) as a result of duress or deception, or (c) under compulsion of law, or (d) if the client or party is a body established by, or a person holding an office under, an Australian law—to 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. (3) Subsection (2) does not apply to a disclosure by a person who was, at the time, an employee or agent of a client or party or of a lawyer unless the employee or agent was authorised to make the disclosure. " 4 The adjectival information necessary to support the plaintiff's claim that legal privilege has been waived, concerns questions which were asked on 13 May 2003 by the plaintiff of Mr Skrzynski who is currently being cross-examined. Mr Skrzynski is the managing director of the first defendant, having held that position since 1987. He has sworn that he is authorised by the first defendant to swear his affidavits, in respect of which there are two. 5 Mr Skrzynski founded AMIL in 1987 with Mr William Ferris and was appointed, on 10 March 1988, a director of AMIL. 6 During the course of Mr Skrzynski's cross-examination on 13 May, he was asked some questions in relation to whether or not solicitors had been involved on behalf of the first defendant in relation to the VIG transaction or the Minotaur transactions before 3 June. He was then asked and answered as follows: "Q. When did they first become involved? A. I think on the Monday, the 26th, if that is the right date, when I instructed Mr Riley to terminate and he told me that he discussed it with the solicitors. Q. I don't want you to tell us what the legal advice was. Were you told whether any communication had taken place between your solicitors and VIG's solicitors in early June to deal with a complaint made by Minotaur that AMIL shouldn't go on dealing with VIG? A. Do you mean at what time precisely? Before this letter or after this letter? Q. Before or after this letter, any time early June? A. I have no recollection before this letter. After this letter, I have a vague recollection that it was reported back to me that our solicitors were satisfied with our position . Q. Did you discuss the circumstances of the termination of Minotaur's term sheet or the response to the facsimile of 3 June with your solicitors? Don't tell us what was said, just say whether you discussed it? A. I personally did not." [emphasis added] 7 Later, at transcript 466, he was asked under cross-examination: "Q. I think you said earlier that you had formed an opinion that in terminating the term sheet, AMIL had acted within its rights, or words to that effect, is that correct? A. That's correct. Q. What steps did you take to form that opinion? A. I instructed Mr Riley to liaise with our solicitors before sending the termination letter and to get their advice on the wording and any issues that we should be aware of in taking that step." 8 Mr Hutley, Senior Counsel, for the first defendant, has submitted that client legal privilege has not been lost within the meaning of section 122 of the Act for a number of reasons: · The first proposition was that this is not a circumstance in which it can be properly said that in particular, the answer at transcript 460.37-41, constitutes a 'knowing and voluntary disclosure', for the reason that the answer, insofar as Mr Skrzynski gave evidence that it was reported back to him "that our solicitors were satisfied with our position", was a non-responsive answer. In that regard, the submission is that not knowing in advance that the witness would go outside the ambit of the question, the first defendant did not have an opportunity to object to that evidence coming forward and, therefore, the first defendant by its counsel, was not in a position to object in a timely fashion. · The second proposition for which Mr Hutley contended was that the subsection is confined to the disclosure of the relevant evidence "by a party". · The submission here is that it is AMIL which is the relevant party; that Mr Skrzynski is not AMIL, and that this cannot be regarded as an action, in a knowing and voluntary way, by a party. Again, the assertion of the non-responsiveness of the relevant section of the answer is pressed. · The third proposition is that, in any event, the evidence given by Mr Skrzynski as set out above, cannot be said to have been a disclosure of the substance of the evidence. 9 I deal firstly with the suggestion that there was no knowing and voluntary disclosure because the non-responsive answer meant that the first defendant in any event did not have an opportunity to object to the evidence. To my mind, whilst it may be accepted that a question seeking an answer as to whether a communication had taken place between the two firms of solicitors, was answered by the witness going outside of the ambit of the question, that is not to say that the first defendant could not have protected itself by later asking for the non-responsive section of the answer to be struck out. It could clearly have done so. 10 Nothing in this reasoning goes behind the well known principle that the privilege belongs to the client. The matter turns on the ambit of the inferred authority. 11 Importantly, the plaintiff's counsel in relation to the cross-examination went further and sought to build upon those earlier answers, doing so in the fashion that I have already set out [appearing at transcript pages 466 to 467]. In short, Mr Rares reminded the witness that he had said that he had formed an opinion that in terminating the Term Sheet, AMIL had acted within its rights, or words to that effect, and asked him what steps he took to form that opinion. The answer was that Mr Skrzynski had instructed Mr Riley to liaise with AMIL's solicitors before sending the termination letter and to get their advice on the wording and "any issues that we should be aware of in taking that step". 12 Once the cross-examiner, even in relation to a non-responsive answer, continues into the general area treated with, and there is no objection in terms of that area and no attempt to have what seems to have been non-responsive, struck out from the transcript, it seems to me that the first defendant no longer has any grounds for the proposition that it cannot be taken, by its conduct in the proceedings, to have knowingly and voluntarily disclosed to another person the substance of the evidence or, more particularly, to have acquiesced in the knowing and voluntary disclosure by, in this case, Mr Skrzynski, in that regard. 13 Dealing with the third of Mr Hutley's submissions, namely the submission that upon examination it cannot be accepted that the evidence falls within the words "disclosed the substance of the advice", it seems to me that upon examination, and taking into account such authorities as there are on the point, this did comprise sufficient disclosure of the advice to warrant loss of the privilege. 14 The Federal Court has observed that the test is a quantitative one which asks whether there has been sufficient disclosure to warrant loss of the privilege. Adelaide Steamship v Spalvins (1988) 81 FC 360 at 371. It has also been held that the words "the company maintains that the correct ratio is one to one and has legal advice supporting this position", disclosed the substance of the legal advice, which was that the correct ratio was one to one. Ampolex v Perpetual Trustee Company 40 NSWLR 12. It was observed that the effect of legal advice may also be its substance. In the result, in my view, the third of the bases put forward by Mr Hutley is not of substance. 15 The second of the bases put forward by Mr Hutley has in fact been the subject of some consideration by Gzell J in Eden Productions v Southern Star Group (2002) NSWSC 1166. His Honour dealt with the submission in that case that legal professional privilege had been correctly claimed [245] – [262]. That was a case in which the evidence the subject of the claimed waiver, was given on behalf of the defendants, by an employee of one of the defendants, who was the financial controller of the first defendant, Southern Star Entertainment Pty Limited. 16 Gzell J held that Mr Anderson had authority to take various steps, including indicating on behalf of the defendants that reports previously issued were in error and were replaced. His Honour held that there was no evidence that Mr Anderson was authorised by the defendants to waive their client legal privilege and that the evidence was insufficient for the Court to draw the inference that he had that authority. In those circumstances, leave was refused to inspect the documents for which the legal professional privilege was claimed. 17 His Honour particularly, in that regard, referred to subsection 3 of section 122 which provides: "Subsection 2 does not apply to a disclosure by a person who was at the time an employee or agent of a client or party or of a lawyer unless the employee or agent was authorised to make the disclosure." 18 In my view, Mr Skrzynski may be regarded as in a dimensionally different position to that of Mr Anderson in Eden Productions. Mr Skrzynski's position as managing director of the first defendant has already been referred to. He was indeed the founder of AMIL. Mr Skrzynski is put up by the first defendant relevantly as a witness of fact in terms of being a representative of the first defendant in these proceedings. His particular position within AMIL seems to me, in the circumstances in which the cross-examination is taking place and presently continuing, to mean that, for the purposes of subsection 3 of section 122, the Court should infer on the evidence, that he was authorised to make the disclosure which he made. Here again, the proper approach, as it seems to me, to what has occurred, means that the second of the propositions contended for by Mr Hutley is not of substance. 19 I reject the proposition that it is a necessary precondition to the Court drawing an inference that a person in Mr Skrzynski's position had authority to make a disclosure of the type here in question, that the party claiming the benefit of section 122(2) prove the passing of a board resolution authorising the disclosure. 20 For those reasons, the objection to production on the basis of legal privilege is unsuccessful. The appropriate order is to grant leave to the parties to inspect the documents now in the envelope marked P11. I certify that paragraphs 1 - 20 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 14 May 2003ex tempore and revised on 21 May 2003 ___________________ Susan Piggott Associate 21 May 2003 Last Modified: 05/30/2003 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.