Supreme Court New South Wales Medium Neutral Citation: Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No. 2) [2016] NSWSC 829 Hearing dates: 17 June 2016 Decision date: 23 June 2016 Jurisdiction: Common Law Before: Ball J Decision: 1. The first defendant's notice to produce dated 15 June 2016 be set aside. 2. The first defendant pay the plaintiff's costs of the motion filed 15 June 2016. Catchwords: PROCEDURE - setting aside notice to produce EVIDENCE - client legal privilege - implied waiver - Evidence Act 1995 (NSW) s 122 Legislation Cited: Evidence Act 1995 (NSW) Property, Stock and Business Agents Act 2002 (NSW) Cases Cited: Bailey v Director-General, Department of Land and Water Conservation [2009] NSWCA 100; (2009) 74 NSWLR 333 Chen & Ors v City Convenience Leasing Pty Ltd & Anor [2005] NSWCA 297 Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2005) 151 FCR 341 Council of the New South Wales Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 Category: Procedural and other rulings Parties: Ryde Developments Pty Ltd (ACN 151 612 921) (Plaintiff | First Cross Defendant) The Property Investors Alliance Pty Ltd (ACN 117 017 302) (First Defendant | Cross Claimant) Yue Wang (Second Defendant) Diaa Malak Gabra (Second Cross Defendant) Representation: Counsel: AJ McInerney SC with D Robertson (Plaintiff | First Cross Defendant) J Knackstredt (Defendants | Cross Claimant) Solicitors: McLachlan Thorpe Partners (Plaintiff | First Cross Defendant) Rutland's Law Firm (Defendants | Cross Claimant) File Number(s): 2015/89532 Publication restriction: None Judgment 1. By a notice of motion filed on 15 June 2016 the plaintiff, Ryde Developments Pty Ltd, seeks to set aside a notice to produce dated 15 June 2016 served by the first defendant, The Property Investors Alliance Pty Ltd (PIA). The notice to produce seeks the production of documents that record or evidence the provision or content of legal advice given to Ryde Developments in relation to agreements entered into between the parties that are the subject of this dispute and in relation to the operation of the Property, Stock and Business Agents Act 2002 (NSW) (the Act). 2. It is common ground that the documents sought by PIA are the subject of a claim for client legal privilege. The issue is whether Ryde Developments has impliedly waived that privilege by the way in which it puts its case. For the reasons which follow, I have concluded that it has not. Background 1. Ryde Developments was the developer of a mixed commercial and residential development in Ryde (the Development). It entered into two agreements each described as "Deed of Exclusive Agency Agreement" with PIA by which it granted PIA "an exclusive agency agreement" in relation to the sale of one and two bedroom units in the Development. The first agreement in respect of one bedroom units was entered into on 15 May 2012. The second in respect of two bedroom units was entered into on 22 November 2013. On the same dates as the two agreements, Ryde Developments, PIA and the second defendant, Mr Wang, as guarantor, entered into Deeds of Option Agreement by which PIA granted an option to Ryde Developments to sell each of the units to PIA for a price specified in the agreement. 2. Most of the units the subject of the agreements have been sold and PIA claims amounts said to be due to it under the two agreements totalling in excess of $5,000,000. 3. In these proceedings, Ryde Developments seeks declarations to the effect that PIA is not entitled to any commission under the two agreements because the agreements fail to comply with regulations made under the Act, as required by s 55 of the Act. It also puts its case in a number of alternative ways. The alternative claims are complicated and extensive. For present purposes, it is not necessary to explain them in any detail. It is sufficient to give two examples of what is alleged and to explain by reference to those examples how it is said that Ryde Developments has waived privilege. It is not suggested that different considerations apply or that a different result would follow in relation to other aspects of the claim. 4. The first example arises from Ryde Developments' claim that PIA owed it fiduciary duties in connection with the sale of the units. Ryde Developments alleges that PIA breached those fiduciary duties by, among other things, failing to disclose matters relevant to the value of the units that are the subject of the second agreement, and by failing to disclose that PIA was required to disclose to Ryde Developments certain matters under the Act. Ryde Developments contends that induced by and in reliance on PIA's breach of fiduciary duties it entered into the second agency agreement and as a result suffered loss. That loss is said to be the difference between the minimum unit price that Ryde Developments was entitled to be paid under the second agency agreement (or would receive as a result of its exercise of the put option) and the market value of the units either at the time the second agency agreement was entered into or as at 1 April 2015, when it is said the units would have been sold for their true value through another real estate agent. 5. The second example arises from Ryde Developments' claim that PIA engaged in misleading and deceptive conduct (a similar claim is put in terms of negligent misrepresentation). The allegedly misleading and deceptive conduct includes making representations concerning the value of the units and the amount of commission payable to the second defendant, Mr Wang. The representations are said to have been made expressly but, in addition, in the case of two of them they are said to have been made as a result of a failure to correct a statement made in an email from Ryde Developments' solicitor to PIA's solicitor. Ryde Developments also alleges that PIA engaged in misleading and deceptive conduct by failing to disclose various matters including the effect of the Act. Ryde Developments is alleged to have suffered loss and damage by reason of that conduct. One way in which that loss and damage is quantified is by comparing the position Ryde Developments is in now with the position it would have been in if it had not entered into the second agency agreement and the second option agreement. 6. In each case, PIA submits that Ryde Developments' claim puts in issue its state of mind and, in particular, whether it was induced to do particular things by PIA's conduct. Ryde Developments had solicitors acting for it in relation to the negotiation of the agreements. It is submitted that it is likely to have received advice in relation to the agreements and the operation of the Act from those solicitors which would be relevant to Ryde Developments' state of mind in relation to the matters in respect of which it is said PIA breached its fiduciary duties or Ryde Developments was misled. By putting in issue its state of mind, PIA contends that Ryde Developments impliedly waived privilege over the advice which is sought. 7. The question of implied waiver is now governed by s 122(2) of the Evidence Act 1995 (NSW). That section provides: Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120. Subsection (5) is not relevant. Sections 118, 119 and 120 set out the circumstances in which a claim for client legal privilege may be made. 1. Section 122(2) was introduced in its current form into the Evidence Act to adopt the test of implied waiver at common law formulated by the High Court in Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1. In that case, Gleeson CJ, Gaudron, Gummow and Callinan JJ explained the test of waiver in these terms (at [29]): 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. See also Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 at [30] per French CJ, Kiefel, Bell, Gageler and Keane JJ. 1. In submitting that there had been waiver in this case, PIA relied heavily on the judgment of the Court of Appeal in Chen & Ors v City Convenience Leasing Pty Ltd & Anor [2005] NSWCA 297. In that case, the defendant lessee alleged that it had been induced to enter into a lease on which the plaintiff sued by false representations concerning the air conditioning in the premises. The lease contained the following special condition: The Vendor has bought the property at its present condition and does not warrant that the air-conditioner was installed with the body corporate's approval or council's approval and the Lessee must rely on its own enquiries to use the air-conditioner and the Lessee cannot raise any claim or compensation in connection with the use of the air-conditioner. (at [13]) 1. The question on appeal was whether the trial judge had erroneously excluded evidence of any advice given by the defendant's solicitor about the terms of the lease prior to its execution on the basis that, by putting in issue their reliance on representations said to have been made by the plaintiff, the defendants had waived privilege in that advice. The Court of Appeal held that she had. The leading judgment was delivered by Gzell J, with whom Bryson JA and Windeyer J agreed. Gzell J stated the principle of waiver in these terms: 37 In [Telstra Corporation v Australis Media Holdings (1997) 41 NSWLR 277], the majority held, at 168, that where a party relies on a cause of action an element of which is the party's state of mind, the party is taken to have waived privilege in respect of legal advice that the party had before or at the time of the relevant events material to the formation of that state of mind. Their Honours based this conclusion on fairness. At 166 they said: "A party who initiates an undue influence case puts in issue in the proceeding the quality of his or her consent or assent (Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 per Deane J at 474). The quality of such consent or assent will ordinarily be affected by relevant legal advice received by the party. The principle that requires that in such circumstances the party not be entitled to maintain the confidentiality of such advice is one of fairness which goes to the integrity of the legal process. To allow a party to put in issue the quality of his or her consent or assent whilst, at the same time, withholding evidence relevant to that issue, would be to allow him or her unfairly to handicap the opposing party to the proceeding, and to comprise the ability of the court realistically to determine the issue." 38 Hodgson CJ in Eq in [Wayne Lawrence Pty Ltd v Hunt [1999] NSWSC 1044] was of the view that it was not every assertion of belief that gave rise to implied waiver and the significance of the belief to the case, the relevance of the reasonableness of the belief to the case, and the probability of legal advice being relevant to the holding of the belief, or to its reasonableness, must be taken into account. … 1. Later, Gzell J stated his conclusion in these terms (at [46]): In my opinion, the circumstances of this case established that the conduct of Mr Gebara in maintaining his assertion of reliance upon the representations of Mr Lui, was inconsistent with the maintenance of confidentiality with respect to the legal advice he received. In the interests of fairness, client legal privilege for the advice ought not to be maintained and waiver of that privilege is to be imputed by operation of law. For the purposes of the Evidence Act 1995, s 122(1) that imputed waiver constitutes consent by Mr Gebara and City Convenience to the adducing of evidence of the legal advice given by Ms Conti. 1. In my opinion, the decision in Chen must be treated with some caution. Although Gzell J referred to the decision of the High Court in Mann v Carnell and stated his conclusion in terms of inconsistency, the decision itself was based on an earlier version of s 122(2) of the Evidence Act, which provided: 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 State or Territory, administering the law, or the part of the law, under which the body is established or the office is held. 1. Since the amendments to s 122(2), courts have distinguished earlier cases dealing with implied waiver or confined them to their specific facts and have focussed on the question required to be answered by s 122 – that is, whether the person claiming the privilege has acted in a way that is inconsistent with it. That is a question of fact that depends on the particular circumstances of the case: see Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2005) at [55]ff; Council of the New South Wales Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236 at [48] per Hodgson JA (with whom Campbell JA agreed; Handley JA dissenting on the point). In the latter case, Hodgson JA said at [48]: It is not enough to bring about a waiver of client legal privilege that the client is bringing proceedings in which the content of the privileged communications could, as a reasonable possibility be relevant and of assistance to the other party. For the client to do this is not inconsistent with the maintenance of the privilege, and does not give rise to unfairness of the type in question. What would involve inconsistency and relevant unfairness is the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege. In this respect, it may be sufficient that the client is making assertions about the client's state of mind, in circumstances where there were confidential communications likely to have affected that state of mind. See also Bailey v Director-General, Department of Land and Water Conservation [2009] NSWCA 100; (2009) 74 NSWLR 333 at [4] per Allsop P. 1. In the present case, Ryde Developments does not make any express or implied assertions about the content of the communications it had with its solicitors on the subject of the agreements it entered into with PIA or the operation of the Act. Ryde Developments, at least impliedly, asserts that it held or formed certain opinions on the value of the units and that it did not realise that the Act imposed certain obligations on PIA and that those matters caused it to act in particular ways. It contends that the opinions it formed were brought about at least in part by what it was and was not told by PIA. There is no reason to suppose that there were confidential communications between Ryde Developments and its solicitors that were likely to have affected its state of mind on the question of the value of the units. The operation of the Act is something that may be more likely to be the subject of legal advice than the value of the units. But again, there is no reason to suppose that Ryde Developments' solicitors gave advice on that matter. What the Act required PIA to do was principally an issue for PIA; and it is difficult to see why Ryde Developments' solicitors would have given it advice on that question specifically. 2. The documents covered by the notice to produce are substantially wider than legal advice which simply goes to Ryde Developments' state of mind. The notice to produce catches any advice concerned with the operation of the agreements that were signed and the effect of the Act on PIA's right to claim commission. It is not clear why PIA should be entitled to the production of documents of those types. Whether the legal advice that may exist includes legal advice relevant to Ryde Developments' state of mind is simply a matter of speculation. 3. Having regard to those matters, I do not think it is inconsistent for Ryde Developments both to assert its claim for client legal privilege over the documents the subject of the notice to produce and to maintain the claims that it has brought. 4. It follows that the notice to produce should be set aside. The first defendant should pay the plaintiff's costs of the motion. ********** Amendments 23 June 2016 - Typographical error in paragraph 1 "2015" changed to "2016" 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. Decision last updated: 23 June 2016