New South Wales Supreme Court CITATION : ASIC v Rich [2004] NSWSC 969 HEARING DATE(S) : 15 October 2004 & written submissions up to 22 October 2004 JUDGMENT DATE : 27 October 2004 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Plaintiff may provide further evidence as to the alleged privileged character of Documents 10 and 11 CATCHWORDS : EVIDENCE - client legal privilege - issue waiver - plaintiff puts in issue its state of mind regarding the propriety and legality of use of materials obtained under search warrant - document masked for client legal privilege and provided to defendants - no basis for inference that masked portions are relevant to ASIC's state of mind in to search warrant issue - no waiver of client legal privilege Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360 ASIC v Rich [2004] NSWSC 923 ASIC v Rich [2004] NSWSC 934 Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49 Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27 CASES CITED : Mann v Carnell (1999) 201 CLR 1 Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 Pollard v R (1992) 176 CLR 177 Ridgeway v R (1995) 184 CLR 19 Southern Equities Corporation Ltd v Arthur Andersen & Co (1997) 70 SASR 166 Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 Temwell Pty Ltd v DKGR Holdings Pty Ltd [2003] FCA 948 Australian Securities and Investments Commission (P) PARTIES : John David Rich (D1) Mark Alan Silbermann (D4) FILE NUMBER(S) : SC 5934/01 COUNSEL : R B S Macfarlan QC with J P A Durack SC, N J Beaumont and J E O'Sullivan (P) D L Williams SC with M J Steele and S A Goodman (D1, D4) SOLICITORS : Jan Redfern, Solicitor for Australian Securities and Investments Commission (P) Joanne Kelly, Solicitor (D1, D4) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION AUSTIN J WEDNESDAY 27 OCTOBER 2004 5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT (Claim to waiver of privilege in respect of Documents 10 and 11) 1 HIS HONOUR: This judgment has been prepared on the basis of submissions that I have numbered DS 13, DS 16, AS 21, DS 17, AS 22 and DS 18. It also takes into account brief oral submissions recorded in the transcript at T 1564 line 27 to T 1573 line 13. 2 ASIC has produced substantial quantities of documents under claims to client legal privilege, and has supplied the defendants with lists of those documents. In some cases ASIC has claimed privilege over only parts of documents, and has supplied the defendants with copies of the documents in which parts to which privilege is claimed have been masked. The defendants have challenged some of the privilege claims. This has led to Mr Breckenridge, a solicitor who is part of ASIC's legal team, swearing an affidavit dated 14 October 2004, to which he annexes a schedule giving descriptions of documents over which privilege is claimed. 3 The defendants have contended that Documents 10 and 11 in schedule to Mr Breckenridge's affidavit (which ASIC has produced in masked form) are not privileged communications, but that if they are, the privilege has been waived by ASIC. After I began to hear argument as to whether those documents were privileged, senior counsel for ASIC submitted that, as the judge responsible for the final hearing of the proceeding, I ought not to read the unmasked versions of the documents. I formed the view that it was desirable, and perhaps necessary in this case, for the judge determining the claim to privilege to read the unmasked documents, and in those circumstances ASIC's claim that the masked portions were privileged was taken to Hamilton J as duty judge for determination. Hamilton J has decided that the masked portions of Documents 10 and 11 are privileged communications. 4 The defendants now contend, before me, that ASIC has waived the privilege attaching to those parts of the documents by virtue of what is sometimes called "issue waiver". These reasons for judgment relate to the question of waiver. I have not read the masked parts of the documents. 5 Document 10 is an e-mail from Ms Redfern to various ASIC officers dated 19 October 2001. The recipients are Messrs Howell, Connor, Ryan, Hogan, Rees, Croft, Thomas, Myers and Turton. It is headed "One.Tel Privileged Communication". Ms Redfern begins by saying she has had the opportunity to review various documents, which she identifies, and then she says "My preliminary view is …". The next part of the e-mail, presumably the statement of her preliminary view, is masked. Later in the e-mail, she says "As for the things that need to be done, they are as follows: …", but then the ensuing material is masked. In paragraph 8 of the e-mail she says that counsel will need to advise on some aspects, and she lists what to those matters are. There appears to be no masking in paragraph 8. One of the things she identifies as a subject for counsel's advice is the use of material obtained under warrant. Then the remainder of the e-mail is masked. 6 In the schedule to his affidavit, Mr Breckenridge describes the masked portions of Document 10 as follows: "The masked portions of this e-mail do not refer to the subject matter of search warrants. The masked portions of the e-mail constitute legal advice from Ms Redfern to the recipients on the following topics: (a) Ms Redfern's preliminary views as to the potential for a civil case against some of the directors of One.Tel; (b) Ms Redfern's view on the appropriate nature of that case; (c) Legal advice about matters that need to be attended to." 7 Document 11 is an e-mail from Ms Redfern to Ms Rees and Mr Staples, copied to Mr Howell, Mr Connor, and Mr Hogan. It is dated 25 October 2001. The recipients are all ASIC officers. The e-mail is headed "One.Tel-Privileged". She begins by confirming her opinion that certain advice is needed, in some cases more urgently than in others. Then the e-mail says: "1. Warrant advice. This is very importnat [sic] and I would like Brereton to advice [sic] on this asap." The remainder of the e-mail has been masked. 8 In the schedule to his affidavit, Mr Breckenridge says of Document 11: "The masked sections of this e-mail contain no reference to the subject matter of search warrants. In the masked portion of the e-mail, Ms Redfern provides legal advice as to topics on which advice from Counsel should be obtained." 9 The question for determination is whether ASIC has waived privilege in respective the whole of Documents 10 and 11, with the result that the defendants are entitled to call for the unmasked versions of documents. The general approach to questions of waiver, both under s 122 of the Evidence Act and at common law, was well described by Hely J in Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501 (24 April 2002), at [10], as follows: "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: Mann v Carnell (1999) 201 CLR 1 at 13." 10 Sometimes a distinction is drawn between "disclosure waiver" and "issue waiver", though the "inconsistency" principle in Mann v Carnell appears to underlie both species. The defendants rely on "issue waiver" which (they say) has arisen because ASIC has affirmatively put its state of mind in issue in the proceeding, such that it would be inconsistent for ASIC to maintain the privilege in respect of documents going to that state of mind. 11 I explored the principles with respect to waiver of privilege at common law and under the Evidence Act 1995 (NSW) in reasons the judgment that I published on 7 October 2004 (ASIC v Rich [2004] NSWSC 923), in which I held that ASIC had not waived privilege with respect to legal advice given at an NECC meeting on 21 November 2001 by disclosing other things that were discussed at that meeting. I returned to some of the waiver principles in a judgment that I delivered on 8 October 2004 (ASIC v Rich [2004] NSWSC 934), in which I held that ASIC had waived privilege by producing a large quantity of documents that included a legal advice and observations to counsel without rebutting the inference that the disclosure of the documents had been knowing and voluntary. It is unnecessary to restate my observations on the waiver principles made in those judgments. 12 It is useful, however, to investigate in more detail the reasoning of the Full Federal Court in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 (which was followed and applied by another Full Federal Court (Ryan, Carr and Marshall JJ) in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925). In Telstra the plaintiff sued the defendants for damages, alleging its reliance on the defendants' misleading or deceptive conduct. The defendants sought discovery of documents that would be protected by legal professional privilege in the absence of waiver, including documents concerning the retainer of solicitors to advise the plaintiff, and written advices relating to the plaintiff's entitlement to rely upon certain representations notwithstanding any contractual limitations. It was held, by majority (Branson and Lehane JJ, Beaumont J dissenting), that the plaintiff, by pleading reliance on representations and thereby placing in issue its state of mind, had waived privilege over documents material to the formation of that state of mind. 13 As I mentioned in my judgment of 7 October 2004, the reasoning in the Full Federal Court is affected by the then unresolved dispute as to whether the Evidence Act had "derivatively" altered the common law as to waiver of privilege. The court chose to follow the "derivative modification" theory that had been adopted by another Full Federal Court in Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360, an approach later rejected by the High Court in Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49. 14 Nevertheless, parts of the joint judgment of Branson and Lehane JJ in Telstra appear to me to reflect the current law, both under the Evidence Act and at common law. Their Honours referred to undue influence cases (at 164, 166), pointing out that evidence can be called as to the legal advice provided to the weaker party to rebut the presumption of fraud or undue influence, because the weaker party, by initiating the undue influence case, has put in issue the quality of his or her consent, and that issue is ordinarily affected by relevant legal advice received by that party. Similarly, a plaintiff in a legal professional negligence case, by bringing the proceeding, is taken to have waived the privilege that would otherwise attach to legal advices, because (at 166) "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". 15 Their Honours observed (at 166) that a party who pleads that he or she undertook certain action "in reliance on" a particular representation made by another, opens up, as an element of the cause of action, the issue of his or her state of mind at the time when the alleged reliance occurred. That issue cannot fairly be assessed without examination of any relevant legal advice received by that party. They concluded (at 167) that: "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] 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". 16 It has been held in other cases that any material going to the content of the state of mind is admissible once the state of mind is put in issue. Thus, information that a person has disregarded or discounted may be useful in evaluating that person's state of mind (Temwell Pty Ltd v DKGR Holdings Pty Ltd [2003] FCA 948 at [12] per Ryan J), and the waiver extends to material which could have had a bearing on the state of mind, in the sense of indicating a probability or likelihood rather than a mere possibility (Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27 at 42 per Byrne J; following Southern Equities Corporation Ltd v Arthur Andersen & Co (1997) 70 SASR 166, 193). 17 In the present case ASIC intends to tender a large quantity of documents, which were first obtained by the execution of a search warrant at the premises of One.Tel Ltd, and certain residential premises, on 1 June 2001. The defendants will object to the admissibility of these documents, partly on the ground that they were obtained by unlawful copying of electronic material in the course of execution of the search warrant, and that they have been unlawfully used by ASIC for civil purposes. The defendants will invite the court to apply the discretionary common law principle to which I referred, in reasons the judgment that I published on 22 October 2004 (in connection with the defendants' 20th notice to produce) as the Ridgeway principle (referring to Ridgeway v R (1995) 184 CLR 19). In Pollard v R (1992) 176 CLR 177 at 204, Deane J suggested that if the enforcement authority had engaged in unlawful conduct deliberately or recklessly, the court would ordinarily exercise its power to exclude the evidence thereby obtained. The defendants will submit that ASIC has deliberately or recklessly engaged unlawful conduct of unlawfully copying electronic material and using the search warrant material for civil purposes, and so the court should reject ASIC's tender of evidence under the common law principle. They will also invite the court to reject the evidence in the exercise of its statutory discretions under ss 135 and 138 of the Evidence Act. 18 ASIC has responded to the defendants' developing case on the search warrant issues by adducing evidence from Jan Redfern, who is the solicitor on the record in this proceeding and has held senior legal and administrative enforcement positions with ASIC during the period from 2001 to date. In their written submission dated 15 October 2004 (DS 13), the defendants said: "By reading the affidavit of Ms Redfern, ASIC has affirmatively put in issue its state of mind in relation to the propriety and legality of its use of search warrant materials in relation to the proceedings." ASIC has informed the court that it does not dispute this statement so long as it is confined to ASIC's state of mind in the period up to December 2001. 19 According to the defendants' submission, by acting in this way ASIC has waived privilege over all otherwise privileged material which is likely to have influenced that state of mind. However, it does not follow that ASIC has waived privilege with respect to the masked portions of Documents 10 and 11. According to Mr Breckenridge's evidence, neither of the documents contains any reference to the subject matter of search warrants. In my opinion, legal advice by Ms Redfern dealing with aspects of the case other than the search warrant issues does not, by definition, relate to ASIC's state of mind in relation to the propriety and legality of its use of the search warrant materials in relation to the proceedings, and cannot be said to be material which is likely to have influenced that state of mind (as opposed to ASIC's general state of mind concerning the proceeding or some other particular question). 20 However, in their subsequent submission dated 20 October 2004 (DS 16), the defendants have given a broader characterisation of the state of mind that, they say, ASIC has put in issue by relying on Ms Redfern's evidence. They refer to the following components of Ms Redfern's evidence: (a) her statement, in paragraph 7 of her affidavit: " I did not believe that there was any impediment to ASIC reviewing documents obtained under search warrant during the course of what I considered to be an investigation relating to various issues arising out of the collapse of One.Tel for the purpose of determining whether or not that documentary material was of such a kind and rose to such a level of proof as to warrant the commencement by ASIC of criminal proceedings, or whether the material instead warranted the commencement of civil proceedings"; (b) her statement in cross-examination (at T 1482.10): "My view at the time was that we could use search warrant material in order to investigate the conduct to consider whether there were contraventions either at criminal or civil standard in relation to directors' duties and some of the other provisions that were referred to. That was my view, rightly or wrongly"; (c) her evidence that she understood what ASIC to be doing during 2001 was a single undifferentiated investigation with a combined civil and criminal purpose: T 1482.21; T 1486.65. 21 The defendants rely on these components of Ms Redfern's evidence to say that her asserted state of mind in relation to the propriety of ASIC's use of search warrant material during 2001 had two related components: (a) her belief that ASIC was entitled to use the material for an investigation that had a combined criminal/civil purpose; and (b) her belief that the nature of ASIC's investigation at material times was a single investigation with such a combined purpose, and not, for instance, a predominantly civil investigation or two investigations proceeding in tandem. 22 The defendants contend that, having put those matters in issue, ASIC has acted inconsistently with the maintenance of privilege over documents going to Ms Redfern's state of mind in relation to both elements of her asserted belief. 23 The critical question is whether it is correct to say that Ms Redfern's evidence puts in issue every aspect of ASIC's state of mind, going to matters that were the subject of the investigation and its characterisation as a single investigation with combined criminal and civil purposes. The defendants say that ASIC asserts, by Ms Redfern's evidence, that it was acting during 2001 on the basis that it (through Ms Redfern) believed that it was engaged on a single combined investigation of criminal/civil wrongdoing and that this was permitted use of the material obtained by warrant. They contend that, having made that assertion, ASIC cannot in fairness seek to shield from disclosure, statements by Ms Redfern at that very time, which are likely to reflect her state of mind and to have played a role in the formation of that state of mind, as to either the nature of the permitted use of the material or, importantly for the present application, the nature of the use to which the material was in fact being put. 24 On the state of the evidence before me, however, it cannot be inferred that the masked portions of Documents 10 and 11 contain statements that are "likely to" reflect Ms Redfern's state of mind and to have played a role in the formation of that state of mind, as regards permitted use of the search warrant material. I disagree with the defendants' contention that, on the face of Document 10, "it is likely to contain expressions of her views which would have played a direct and substantial role in the formulation of her and ASIC's views as to the nature of the investigation which was being undertaken and, in particular, the extent to which it was a criminal versus civil investigation at that point of time" (DS 16, paragraph 12). I see no basis, in the unmasked portions of the document, for that inference. 25 Not only is there no basis for that inference, but there is one factor that militates against it. This is, as ASIC pointed out in its submission (AS 22), that Documents 10 and 11 are both documents created by Ms Redfern to communicate her views to others, rather than documents (as in the cited cases) communicating advice to the person whose state of mind is in issue. It is true, as the defendants have pointed out (in DS 18), that the issue for determination relates to ASIC's state of mind rather than Ms Redfern's, but the hearing has proceeded on the basis that Ms Redfern's state of mind is a particularly significant component of any conclusion that the court may reach about to the state of mind of her employer. 26 Ms Redfern's evidence has put in issue ASIC's state of mind in relation to the lawfulness and propriety of its use of the search warrant material during 2001. Her evidence has the effect that a component of what has been put in issue is her belief in ASIC's entitlement to use the materials for a single investigation with combined criminal and civil purposes. Any legal advice going to ASIC's entitlement to use search warrant materials for such combined purposes would be admissible and not privileged. But according to Mr Breckenridge's evidence, the masked portions of Documents 10 and 11 do not relate to search warrants and therefore do not relate to that question. 27 If the masked portions of Documents 10 and 11 contain legal advice relating to, say, whether it is correct to characterise ASIC's investigation as a single investigation for combined criminal and civil purposes, or otherwise legal advice bearing on ASIC's state of mind in respect of the search warrant issues though not expressly referring to search warrant matters, then privilege has also been waived in respect of such legal advice. But if it is legal advice on other aspects of the investigation or any proceedings then in contemplation (for example advice as to who the defendants in the contemplated proceeding should be, or advice as to potential causes of action), not bearing on the search warrant issues, then privilege has not been waived by ASIC putting in issue its state of mind regarding the lawfulness and use of the search warrant material during 2001. 28 It seems to me that the proper course is to give ASIC the opportunity to provide further affidavit evidence, presumably by Mr Breckenridge, reviewing again the content of the masked portions of Documents 10 and 11. If Mr Breckenridge were to give further evidence to the effect that the masked portions do not bear on ASIC's state of mind relating to the lawfulness and propriety of its use of the search warrant material, in light of Ms Redfern's evidence as identified in the defendants' submissions and referred to above, and Mr Breckenridge's evidence were to be accepted by me, then I would conclude that the privilege over the masked portions had not been waived. 29 In paragraph 1 of its written submissions AS 21, ASIC conceded that it would not be entitled to maintain a claim for privilege over a document which indicated (contrary to Ms Redfern's evidence) that the criminal side of the investigation had come to an end prior to the date upon which One.Tel's written consent was obtained, namely 7 December 2001. In its subsequent written submissions, AS 22, ASIC made further submissions, which were intended to replace AS 21 as its primary submissions, so that the submissions in AS 21 were to be treated as an alternative position. ASIC said that the concession in AS 21 would be applicable only if the court were to find against the primary submissions in AS 22. 30 I have reached a conclusion generally in favour of what ASIC calls its "primary submission". It seems to me that ASIC's alternative position is based on a misunderstanding of the defendants' submission on waiver of privilege. AS 21 appears to proceed on the basis that the defendants need to show that the masked portions of Documents 10 and 11 show that the criminal side of the investigation had come to an end by the time that those documents were created. I do not understand this to be the defendants' position, and therefore my view is that AS 21 is misdirected. 31 Consequently it does not seem to me that any of the documents referred to in the Schedule to AS 21, presumably by way of proposed tender on the application, would be relevant and of assistance to anything I have to decide. Therefore I reject their tender, subject to liberty to ASIC to apply if it considers that the tender of any of these documents is a necessary or appropriate part of the further evidence that I now contemplate. 32 That leaves the concession in paragraph 1 of AS 21 in an uncertain position. Presumably ASIC would want to say that it has been withdrawn, given my reasoning, but it may be that the defendants would want to contend that the concession remains alive. The further evidence that ASIC may wish to provide to the court, as contemplated above, should address the question whether the masked portions of the documents contain anything indicating that the criminal side of the investigation had come to an end. If there were any such material in the masked portion, it would be open to the defendants to contend that ASIC's concession had survived, with the consequence that privilege had been waived in respect of that material. I shall make a decision on that issue if it arises. ********** Last Modified: 11/03/2004 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.