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Federal Court of Australia |
Last Updated: 1 October 1998
EVIDENCE - client legal privilege - whether privilege lost by threatening or instituting proceedings said to be an abuse of the process of the Court - whether prima facie case of abuse of process made out.
Evidence Act 1995 (Cth), ss 119, 125
Federal Court Rules, O 15, r 11.
Grant v Downs [1976] HCA 63; (1976) 135 CLR 674, cited.
Varawa v Howard Smith & Co Ltd [1910] HCA 11; (1910) 10 CLR 382, cited.
Attorney-General for the Northern Territory v Kearney [1985] HCA 60; (1985) 158 CLR 500, applied.
Carter v Northmore Hale Davey & Leake [1995] HCA 33; (1995) 183 CLR 121, cited.
Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; (1997) 188 CLR 501, applied.
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, applied.
Emanuele v Hedley [1998] 709 FCA (19 June 1998, FC), discussed.
Re Moage Ltd (in liq); Sheahan v Pitterino [1998] 183 FCA (9 March 1998, Mansfield J), cited.
White Industries (Qld) Pty Ltd v Flower & Hart [1998] 806 FCA (14 July 1998, Goldberg J), cited.
Goldsmith v Sperrings Ltd [1977] 1 WLR 478, followed.
BT AUSTRALASIA PTY LTD V STATE OF NSW AND TELSTRA CORPORATION LIMITED
NG 572 OF 1995
JUDGMENT NO 13
SACKVILLE J
SYDNEY
29 SEPTEMBER 1998 IN THE FEDERAL COURT OF AUSTRALIA BETWEEN: APPLICANT AND: FIRST RESPONDENT
TELSTRA CORPORATION LIMITED
SECOND RESPONDENT BETWEEN: CROSS CLAIMANT TO FIRST CROSS CLAIM AND: BT AUSTRALASIA PTY LIMITED
FIRST CROSS RESPONDENT TO FIRST CROSS CLAIM
BRITISH TELECOMMUNICATIONS PLC
SECOND CROSS RESPONDENT TO FIRST CROSS CLAIM BETWEEN: CROSS CLAIMANT TO SECOND CROSS CLAIM AND: CROSS RESPONDENT TO SECOND CROSS CLAIM BETWEEN: CROSS CLAIMANT TO THIRD CROSS CLAIM AND: CROSS RESPONDENT TO THIRD CROSS CLAIM BETWEEN: CROSS CLAIMANT TO FOURTH CROSS CLAIM AND: CROSS RESPONDENT TO FOURTH CROSS CLAIM BETWEEN: CROSS CLAIMANT TO FIFTH CROSS CLAIM AND: CROSS RESPONDENT TO FIFTH CROSS CLAIM BETWEEN: CROSS CLAIMANT TO SIXTH CROSS CLAIM AND: CROSS RESPONDENT TO SIXTH CROSS CLAIM BETWEEN: CROSS CLAIMANT TO SEVENTH CROSS CLAIM AND: CROSS RESPONDENT TO SEVENTH CROSS CLAIM BETWEEN: CROSS CLAIMANT TO EIGHTH CROSS CLAIM AND: CROSS RESPONDENT TO EIGHTH CROSS CLAIM JUDGE:
NEW SOUTH WALES DISTRICT REGISTRY NG 572 OF 1995
BT AUSTRALASIA PTY LIMITED
STATE OF NEW SOUTH WALES
STATE OF NEW SOUTH WALES
BT AUSTRALASIA PTY LIMITED
TELSTRA CORPORATION LIMITED
BRITISH TELECOMMUNICATIONS PLC
TELSTRA CORPORATION LIMITED
BRITISH TELECOMMUNICATIONS PLC
STATE OF NEW SOUTH WALES
STATE OF NEW SOUTH WALES
TELSTRA CORPORATION LIMITED
TELSTRA CORPORATION LIMITED
BT AUSTRALASIA PTY LIMITED
TELSTRA CORPORATION LIMITED
BRITISH TELECOMMUNICATIONS PLC
TELSTRA CORPORATION LIMITED
STATE OF NEW SOUTH WALES
SACKVILLE J DATE OF ORDER: 29 SEPTEMBER, 1998 WHERE MADE: SYDNEY
THE COURT ORDERS THAT:
1. Paragraph 1(d) of the State's motion originally filed on 24 October 1997 and amended on 13 March 1998 be dismissed.
2. The notice to produce issued by the State to BTA and BT plc on 24 October 1997 be set aside.
3. The State pay BTA's and BT plc's costs of par 1(d) of the State's motion originally filed on 24 October 1997 and amended on 13 March 1998 and of the motion filed by BTA and BT plc on 21 November 1997.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| NEW SOUTH WALES DISTRICT REGISTRY | NG 572 OF 1995 |
|
BETWEEN: | BT AUSTRALASIA PTY LIMITED
APPLICANT |
|
AND: | STATE OF NEW SOUTH WALES
FIRST RESPONDENT
TELSTRA CORPORATION LIMITED SECOND RESPONDENT |
|
BETWEEN: | STATE OF NEW SOUTH WALES
CROSS CLAIMANT TO FIRST CROSS CLAIM |
|
AND: |
BT AUSTRALASIA PTY LIMITED FIRST CROSS RESPONDENT TO FIRST CROSS CLAIM
BRITISH TELECOMMUNICATIONS PLC SECOND CROSS RESPONDENT TO FIRST CROSS CLAIM |
|
BETWEEN: | BT AUSTRALASIA PTY LIMITED
CROSS CLAIMANT TO SECOND CROSS CLAIM |
|
AND: | TELSTRA CORPORATION LIMITED
CROSS RESPONDENT TO SECOND CROSS CLAIM |
|
BETWEEN: | BRITISH TELECOMMUNICATIONS PLC
CROSS CLAIMANT TO THIRD CROSS CLAIM |
|
AND: | TELSTRA CORPORATION LIMITED
CROSS RESPONDENT TO THIRD CROSS CLAIM |
|
BETWEEN: | BRITISH TELECOMMUNICATIONS PLC
CROSS CLAIMANT TO FOURTH CROSS CLAIM |
|
AND: | STATE OF NEW SOUTH WALES
CROSS RESPONDENT TO FOURTH CROSS CLAIM |
|
BETWEEN: | STATE OF NEW SOUTH WALES
CROSS CLAIMANT TO FIFTH CROSS CLAIM |
|
AND: | TELSTRA CORPORATION LIMITED
CROSS RESPONDENT TO FIFTH CROSS CLAIM |
|
BETWEEN: | TELSTRA CORPORATION LIMITED
CROSS CLAIMANT TO SIXTH CROSS CLAIM |
|
AND: | BT AUSTRALASIA PTY LIMITED
CROSS RESPONDENT TO SIXTH CROSS CLAIM |
|
BETWEEN: | TELSTRA CORPORATION LIMITED
CROSS CLAIMANT TO SEVENTH CROSS CLAIM |
|
AND: | BRITISH TELECOMMUNICATIONS PLC
CROSS RESPONDENT TO SEVENTH CROSS CLAIM |
|
BETWEEN: | TELSTRA CORPORATION LIMITED
CROSS CLAIMANT TO EIGHTH CROSS CLAIM |
|
AND: | STATE OF NEW SOUTH WALES
CROSS RESPONDENT TO EIGHTH CROSS CLAIM |
|
JUDGE: | SACKVILLE J |
| DATE OF ORDER: | 29 SEPTEMBER, 1998 |
| WHERE MADE: | SYDNEY |
Two motions have been heard together. The first is an amended motion by the State of New South Wales ("the State"), originally filed on 24 October 1997. In that motion, the State seeks an order, pursuant to Federal Court Rules ("FCR") Order 15, r 11, that BT Australasia Pty Ltd ("BTA") and British Telecommunications plc ("BT plc") produce for inspection certain documents. The documents are described as follows:
"(d) all documents over which either of [BTA] or [BT plc] has made a claim to Legal Professional Privilege (LPP) and which were produced after 1 November 1994 and relate to:
(i) the obligations under the TDN Agreement concerning Agencies;
(ii) the provisions of the TDN Agreement concerning BCP;
(iii) the provisions of the TDN Agreement concerning VPN;
(iv) CNH (as defined in the Second Amended Statement of Claim);
(v) CVPN (as defined in the Second Amended Statement of Claim);
(vi) the commencement of proceedings by either of them against [the State];
(vii) any matter pleaded by either of them in these proceedings (including superseded pleadings); and
(viii) repudiation."
In order to understand the terms used in the State's notice of motion, and to provide some background it is convenient to reproduce several paragraphs from my interlocutory judgment of 24 December 1997 in these proceedings (Judgment No 5):
"The proceedings relate, inter alia, to a dispute between the State and BTA. The dispute arose out of the management and development of an integrated telecommunications network for the New South Wales Public Sector. In September 1991, the State published a document entitled "Request for Tender for the Design Implementation and Operation of a Telecommunications Network for the New South Wales Public Sector" ("RFT"). In response to the RFT, BTA, which is the Australian subsidiary of BT plc, submitted a tender to the State in January 1992 for the "Supply and Management of the State Telecommunications Network". Subsequently, BTA and the State entered into a Telephone Data and Network Agreement ("TDN Agreement") which became binding and took effect from 20 November 1992....
As Mr Lindsay SC, who appeared with Mr Margo and Mr Einstein for BT, explained the case, the Telephone Data Network system ("TDN") was intended to have price and efficiency advantages for the State and its Agencies. The TDN itself was to comprise two components. The first was a private network ("PN"), which is similar to a tieline. The second was a virtual private network system ("VPN"), which was to be set up incorporating use of facilities provided by Telstra. The Telstra product was known as CustomNet Horizon ("CNH") and, in order for the TDN to be established, lines had to be connected to Telstra's CNH. There were difficulties with CNH, and Telstra developed another service, known as Corporate Virtual Private Network ("CVPN"). Telstra ultimately introduced CVPN and apparently discontinued CNH. One of the issues in the case is that BT claims that, under the TDN Agreement, it was entitled to have the benefit of the State's access to CVPN, and to do so as the agent of the State. BT characterises CVPN as an improved equivalent of CNH. The position of the State and Telstra, on the other hand, is that the State was entitled to deal directly with Telstra in relation to CVPN. A substantial part of BT's claim is that, had it been given access to CVPN, its technical difficulties would have been overcome and it would have been able to earn substantial profits.
BTA commenced the present proceedings by an application filed on 2 August 1995. Its case is presently pleaded in the second amended statement of claim filed on 2 May 1997.... BTA seeks declarations that the State breached and repudiated the TDN Agreement and that BTA validly terminated the TDN Agreement on and from 1 August 1995. BTA claims that it is entitled to damages against the State for breach of contract. BTA also claims damages against the State in respect of what is said to be the State's misleading and deceptive conduct, in contravention of s 42 of the Fair Trading Act 1987 (NSW) ("FT Act")."
The term "Agencies" has received a number of different interpretations in these proceedings. For the purposes of the State's motion it refers to any "Government Agency" as defined in the TDN Agreement. Similarly, "BCP" (that is, Best Carrier Price), as used in par (d)(ii) of the State's motion, refers to that expression as defined in the TDN Agreement, as follows:
"'BCP' means with respect to a Service supplied to any Agency the lowest published price of the Predominant Carrier for the same or similar quantity of the Equivalent Service and, if relevant, for the equivalent distance, duration and time of call, or if there is no such price, the price shall be as agreed between the Contractor [that is, BTA] and the Government [that is, the State] as representing the market price for the same, and in the absence of agreement as determined by an Expert pursuant to Clause 55.5."
The second motion was filed by BTA and BT plc (to which I refer collectively as "BT") on 21 November 1997. BT seek to set aside a notice to produce, issued by the State, dated 24 October 1997. In that notice to produce, the State seeks the production of a number of categories of documents. These categories overlap to a significant extent with those identified in the first motion.
In the course of argument, Mr Douglas QC, who appeared with Mr Muddle and Mr Stack for the State, reformulated the categories of documents sought by the State. The reformulated categories are as follows:
"All documents over which either of BTA or BT plc has made a claim to Legal Professional Privilege (LPP), which came into existence on or after 1 November 1994 and before 3 August 1995, or if brought into existence after that date, which relate to the period before 3 August 1995 and which are:-
(a) documents constituting instructions to solicitors or Counsel in connection with the commence of these proceedings;
(b) documents constituting instructions to solicitors or Counsel in connection with the proposed termination of the TDN agreement;
(c) documents constituting instructions to solicitors or Counsel in connection with the alleged repudiation by the NSWG of the TDN agreement;
(d) documents which relate to or evidence the decision of BT and/or BT plc to terminate the TDN Agreement and/or commence these proceedings;
(e) advice or other communications from solicitors or Counsel in connection with (a), (b) or (c) above;
(f) documents which relate to or evidence reporting of or consideration of any of the documents in (a) to (e) above by officers of BT and/or BT plc.
It will be seen that the "cut-off" date in the State's reformulated claim is 3 August 1995, the day after BTA filed the original application and statement of claim in these proceedings. Although the period referred to in the State's reformulated claim is 1 November 1994 to 3 August 1995, Mr Douglas acknowledged that the State primarily seeks documents coming into existence in and after May 1995.
The State's Pleaded Defence
The present motions stem from issues raised by a paragraph in the State's Defence to BTA's Second Amended Statement of Claim. Paragraph 49(k), which is repeated in par 82A(k) in the State's First Cross-Claim, alleges that BTA instituted the present proceedings for an improper purpose. It is convenient to reproduce the whole of par 49 of the State's Defence:
"49. Further in answer to the whole of BTA's claim, the Government says:
(a) Pursuant to the TDN Agreement, BTA was the agent of the Government as alleged in paragraph 40 of the Second Amended First Cross Claim.
(b) BTA owed the Government fiduciary duties as alleged in paragraphs 90 and 91 of the Second Amended First Cross Claim.
(c) BTA owed the Government a duty to act honestly and in good faith, as alleged in paragraph 42(e) of the Second Amended First Cross Claim.
(d) In or about December 1994, without the knowledge or consent of the Government, BTA approached Telstra for the stated purpose of devising means by which BTA could improve the financial result it derived in relation to the TDN Agreement.
(e) During at least March and April 1995, without the knowledge or consent of the Government, BTA sought to reach an agreement with Telstra under which BTA would receive a commission from Telstra on the supply of CVPN to the Government.
(f) On or about 27 April 1995 BTA and Telstra signed an agreement entitled `Memorandum of Understanding' (`MOU') under which:
(i) BTA agreed with Telstra to `wind back implementation of the private network' which BTA had agreed to implement pursuant to the TDN Agreement.
(ii) BTA agreed to use reasonable endeavours to procure approval of CVPN by Austel;
(iii) BTA was to be appointed Telstra's agent to sell CVPN to the Government and was, without the knowledge or consent of the Government, to receive a commission and other fees in relation to the same.
(g) On 12 May 1995, having received legal advice that it could not receive such a commission without the Government's consent, BTA sought Telstra's agreement to terminate the MOU `for technical reasons' and `on the basis that it never did operate'.
(h) At no stage did BTA inform the Government of the MOU or the commission it was intended to receive under the arrangement contemplated thereby.
(i) On or about 12 May 1995, Telstra handed to Mr Robert Kaye on behalf of BTA a letter bearing that date to the effect that CVPN was neither an equivalent to nor a replacement for CNH.
(j) Mr Kaye on behalf of BTA responded that BTA did not want the letter as it supported the Government's view of CVPN.
(k) Thereafter in or about May 1995, BTA determined (in particular because of its obligations under the TDN Agreement concerning the Best Carrier Price) that its commercial interests would be best served if, under cover of negotiations with the Government, it sought to bring about circumstances and/or make allegations which it could to use as basis for terminating the TDN Agreement, whether or not it was bona fide entitled so to do, for the purpose of then bringing suit against the Government, not for the primary purpose of obtaining the orders claimed, but for the purpose of bringing pressure to bear on the Government and negotiating a settlement of that suit on terms which would be less costly to BTA than performing the TDN Agreement.
(l) In and after May 1995 BTA so conducted itself in its dealings with the Government.
(m) BTA did not disclose the events referred to in paragraphs (i) and (j) to the Government and the Government remained ignorant of them until advised of the same by Telstra on 31 July 1995.
(n) By reason of the foregoing BTA is disentitled and estopped from making any of its claims."
It will be seen that par 49 presents some difficulties as a pleading. It pleads a number of matters said to produce the consequence that BTA is "disentitled and estopped from making any of its claims". The precise respects and manner in which the pleaded matters constitute an estoppel or disentitle BTA from maintaining the proceedings are not made clear. However, par 49(k) is apparently intended to plead that BTA instituted or threatened to institute the present proceedings for an improper purpose and that its actions constituted an abuse of the process of the Court.
The State's Case on the Motions
In substance, the State's case on the present motions consists of four propositions:
(i) It is an abuse of process to commence or threaten proceedings for some purpose other than the attainment of the claim in the action, or to obtain some collateral advantage beyond that which the law offers.
(ii) A party which has acted improperly by abusing the process of the court is not entitled to legal professional privilege or client legal privilege in respect of communications made in furtherance of the improper conduct.
(iii) Before a court will order otherwise privileged communications to be produced for inspection, the applicant must establish that there are reasonable grounds for alleging that the party claiming privilege has engaged in the improper conduct or that there is a prima facie case that the party has so acted.
(iv) On the evidence in this case, the State has discharged the burden and thus is entitled to production of the documents sought in its motion (as reformulated by Mr Douglas).
Evidence
Mr Douglas relied on a bundle of documents (Exhibit C) to support the State's claim that it had established a prima facie case of abuse of process. The bundle included the TDN Agreement and memoranda, correspondence and other documents coming into existence between September 1993 and 20 September 1995. Certain other correspondence and documents were also admitted into evidence.
Mr Douglas read an affidavit to which were exhibited a series of statements filed in the proceedings. These statements gave accounts, inter alia, of a meeting that took place on 31 July 1995 (the day before BTA purported to accept the State's repudiation of the TDN Agreement) between representatives of the State and of BT. The statements also include accounts of a telephone conversation during the early evening of 31 July 1995, between Mr Tout, then the Acting Director, Information Technology and Telecommunications for the New South Wales Department of Public Works, and Mr Robert Kaye, Managing Director of BTA. These statements were admitted into evidence for the purposes of the motions, notwithstanding that the makers of the statements did not themselves swear affidavits: see Evidence Act 1995 (Cth), s 75; FCR Order 33, r 2.
BT read three affidavits sworn by Mr Spenceley. One went to the magnitude of the task should BT be required to comply with the State's notice to produce. The second affidavit explained the nature of BT's legal representation during the period commencing before the date the TDN Agreement became operative (20 November 1992) until 2 August 1995. This affidavit also set out the basis on which client legal privilege had been claimed for certain documents or classes of documents. The third affidavit supplemented the others.
None of the deponents was cross-examined.
In order to facilitate the hearing of the motions, orders were made with the consent of Telstra and BT that the admission of evidence in support of the State's claim be without prejudice to BT's entitlement to contend on another occasion that all or some of the evidence is the subject of privilege on which they are entitled to rely.
The TDN Agreement
The parties to the TDN Agreement were the State (referred to in the Agreement as "the Government") and BTA (referred to in the Agreement as the "Contractor"). The TDN Agreement included the following recitals:
"E. It is a requirement of the Government that the TDN shall provide modern high quality telecommunications services to Agencies in an efficient manner and at a cost to Agencies less than that which would be charged by Carriers for equivalent telecommunications services to those Agencies.
...
G. In achieving the objectives set out in Recital E, the Contractor shall design, construct and implement a telephone and data network in accordance with the parameters specified in this Agreement and to make, subject to regulatory requirements, efficient use of State Owned Infrastructure...
H. The parties acknowledge that the TDN will only be successful and profitable for the Contractor if it is able effectively to market and promote the TDN and the Services to Agencies and if each of the Agencies utilises the Required Services exclusively from the Contractor. The parties also acknowledge that a prime objective is to understand each Agency's telecommunications requirements and the prompt provision of Services required by each Agency."
The TDN Agreement was to be for an indefinite term, not less than ten years in duration (cl 5). The "Effective Date" of the TDN Agreement was defined (cl 1.1) to be the date the State notified BTA that it was the successful tenderer under the RFT. The State could not give a notice to BTA until it had received Telstra's agreement pursuant to cl 12.2 (cl 2.5). The Effective Date was in fact 20 November 1992.
I have already referred to the definitions of "BCP" and "Effective Date" in the TDN Agreement. The following definitions are also of significance for present purposes:
"'Agency' or `Government Agency' has the meaning ascribed to the term Government Agency in the Government Telecommunications Act as it exists at the date hereof and shall include such other public authority as may be notified in writing by the Government to the Contractor from time to time.
`Carrier' has the meaning given to that term in the Telecommunications Act.
`CustomNet Horizon' or `CNH' means the CustomNet Horizon service provided by AOTC [Telstra] as at the Effective Date...or any other services equivalent to the CustomNet Horizon service provided by a Carrier or Eligible Service Provider which is nominated by the Government from time to time.
`Eligible Service Provider' means the provider of an eligible service (as that term is defined in the Telecommunications Act).
`End User Charge' means with respect to each Service those charges set out in Schedule 1A or Schedule 1B as determined under Clause 27.1 as may be amended from time to time in accordance with Clause 27....
`Equivalent Service' of a Service means a telecommunications service provided by a Carrier which has a function which has predominantly the same or similar functionality as the Service, as agreed between the Contractor and the Government, or failing agreement as determined in accordance with Clause 55.5.
`Service' means a service set out in Schedule 1A or Schedule 1B as determined under Clause 27.1....
`TDN' means a telecommunications network being a telephone and data network for the supply of Services to the Government, including CustomNet Horizon...."
The objectives of the State were set out in cl 3.1. These included the following:
"(a) to achieve an integrated TDN serving the Government (the NSW Public Sector) and providing significant savings in the cost of telecommunications services to Agencies;
(b) to provide a means of enabling the aggregation of Government telephone and data communications carried by Carriers and Eligible Service Providers to achieve significant discounts in the costs for such communication costs currently charged by the Carriers;
(c) to procure modern high quality telecommunications services to the New South Wales public sector;
...
(i) to achieve a modern and `state-of-the-art' TDN which will be upgraded from time to time to accommodate future Agency requirements and new and improved telecommunications technologies and services; and
(j) to establish a centralised billing facility for all Agencies to enable the Government quickly to determine the cost of telecommunications services used by the Government and Agencies and to compare these costs with the prices for Equivalent Services from Carriers."
BTA acknowledged the general objectives of the State as set out in cl 3.1 and in the Recitals and that it would endeavour to achieve those objectives (cl 3.3(a)). BTA gave further acknowledgments as follows:
"3.3(b) The Contractor acknowledges that it has not relied upon any representations, warranties or statements by the Government or any of its officers, whether oral or in any Document, except to the extent that such representations, warranties or statements are expressly set out in this Agreement.
...
20.4 (a) The Contractor acknowledges that the Government shall not be responsible for marketing or promoting the use by any Agency of the TDN or any Service.
(b) The contractor acknowledges that the Government has not given any warranty, made any representation or undertaken any commitment as to the minimum or any level of telecommunications traffic, level of utilisation of the TDN or any Service by any Agency or all Agencies.
(c) The Contractor acknowledges that it shall have no claim against the Government in respect of any of the matters set out in paragraphs (a) or (b)."
BTA's "principal obligations" were specified in cl 6:
"The Contractor shall:
(a) provide to each Agency those Services requested by the Agency;
(b) operate, maintain, improve, upgrade and manage the TDN; and
(c) design, develop, deliver, construct, install and implement the TDN,
in accordance with this Agreement."
The "TDN" referred to in cl 6 included CNH (see definition of "TDN"). Clause 12.1 provided that BTA was to construct, implement and install the TDN in accordance with the TDN design accepted by the State in accordance with the TDN Agreement.
Clause 12.2 required the State to procure, on or before the Effective Date, that Telstra would agree to provide the Agencies with CNH at the published book price and would promptly connect to CNH all Agencies which entered into a CNH Agency Service Agreement with BTA. The agreement between the State and Telstra (referred to as the "Carrier Agreement") was to acknowledge that BTA should be the State's agent for the purpose of connecting the Agencies to CNH and in relation to the matters referred to in cl 25.2 (cl 12.2(b)). The Carrier Agreement was also to provide that BTA was not obliged to pay
"an amount which is greater than the volume discounted price for basic carriage services in accordance with the published prices of the Carrier for the volume of Services delivered to all Agencies which are connected to the CNH" (cl 12.2(c)).
In fact, on 16 November 1992, the State and Telstra entered an agreement for the provision of CNH by Telstra to the State and its Agencies. The State informed Telstra that BTA was its agent and Network Manager in relation to the TDN Agreement. BTA was said to have authority, inter alia, to represent the State and Agencies in connection with any matters arising in respect of Telstra's provision of Telstra's CNH and any other nominated telecommunications services to Agencies. As already noted, this agreement between the State and Telstra was a prerequisite to the TDN Agreement becoming effective.
The State was obliged to procure the Agencies to enter into CNH Agency Service Agreements ("ASA's") with BTA for connection to the CNH service and for receipt of Account Services (cl 12.3(a)). If, within five months of the Effective Date, sufficient Agencies had not entered into ASA's requiring a minimum number of CNH Access Lines, the date for reduction of the End User Charges for CNH from the level of BCP to the figure required by cl 27.1 was to be deferred (cl 12.3(b)). However, BTA was not entitled to any other payment from the State for failure to procure the signing of Agencies to ASA's (cl 12.3(b)).
Clause 25 of the TDN Agreement dealt with Carriers. The State was entitled at any time to direct BTA to use facilities and services provided by a Carrier nominated by the State, such facilities and services to be provided pursuant to a Carrier Agreement (cl 25.1(a)). Prior to nominating a Carrier, the State was obliged to consult with BTA (cl 25.1(b)). In fact the only Carrier nominated by the State was Telstra. BTA was appointed by the State as its agent to manage and operate the Carrier Agreement and its utilisation of facilities and telecommunications services provided thereunder (cl 25.2). BTA was to pay all invoices and services provided by a Carrier under a Carrier Agreement (cl 25.3). If directed by the State, BTA was to enter into connection agreements with a nominated Carrier. In the event of disagreement between BTA and the State, the form of the agreement was to be determined by the State (cl 25.4).
Clause 25.9 addressed the question of Carrier Pricing:
"The parties agree to negotiate in good faith as to appropriate structures in the event that the Contractor is unable to obtain access to the CNH or to services provided by a Carrier at other than the whole of Government discount, being the volume discounted price, for basic carriage services in accordance with the published prices of the Predominant Carrier for the volume of services (including digital data services) delivered to all Agencies which are connected to the TDN."
BTA was to connect Agency Sites (that is, a physical location occupied by an Agency) only in accordance with an Agency Cutover Plan complying with specifications (cl 15.1). The State was entitled, within certain limits, to specify the order in which Agency Sites were to be connected to the TDN (cl 15.5(a)).
Prior to connecting an Agency Site, BTA was to enter an ASA with the Agency (cl 16.1). BTA was to use "all reasonable efforts to ensure that each Agency enter[ed] into an [ASA]" and was to report regularly to the State on its progress in entering into ASA's (cl 16.2). If, at the expiration of six months from the Effective Date, a particular Agency had not executed an ASA, BTA was to notify the State (cl 16.3). The State was therefore obliged to procure the Agency to execute an ASA within a further three months unless BTA had failed to use reasonable efforts or the Agency was exempt (cll 16.4, 16.5). Clause 16.9 provided for the State's "Compensation Obligations" if Agencies did not execute ASA's:
"The Government acknowledges that the Contractor is undertaking significant expenditure in the expectation that the Agencies will enter into Agency Service Agreements for the anticipated Voice and Data Access Lines identified in the Benchmark Network and agrees to pay compensation to the Contractor in the event that Agencies do not sign Agency Service Agreements or such agreements are terminated other than by the Agency in accordance with its terms or with the agreement of the Contractor. The compensation is to be determined by the formula set out in this Clause. The Government acknowledges the extreme difficulty in determining the damage that may flow to the Contractor should the Government fail to meet its obligations to procure the agreement of the Agencies and acknowledges that the payments in this clause are a genuine pre-estimate of the damages that may be suffered."
It is not necessary to set out the compensation formula provided for in cl 16.
Clause 17 obliged BTA to provide to each connected Agency Site the Services (as defined) requested by the relevant Agency to be provided at that Agency Site (cl 17.1). If an Agency ceased to be an Agency by reason of its privatisation, BTA was to continue to provide services for a two year period, unless other arrangements were negotiated (cl 17.6). Subject to certain exceptions, BTA was to be the exclusive supplier of all "Required Services" to all Agencies other than exempt or privatised Agencies or those which had lawfully terminated its ASA (cl 17.7).
Clause 27 dealt with "End User Charges", an issue as to which the parties have been in dispute. Clause 27(a)(i) provided as follows:
"In full consideration for the performance by the Contractor under this Agreement and each Agency Service Agreement, each Connected Agency shall pay the End User Charges for Services used on the terms contained in this Clause and otherwise in accordance with this Agreement."
CNH Services Changes were provided for in cl 27.1(c). If (as was the case) the State elected to have Schedule 1B apply, then what the parties in the present case referred to as an undiscounted Telstra tariff (PSTN 4.3) was to be the starting point for charges during the two year period from the date of "Cutover" to CNH (that is, the date of connection of an Agency Site duly accepted by the Agency). Clause 27(1)(c) provided as follows:
"If the Government elects to have Schedule 1B apply then:
(i) For each Agency Site to be Connected to the PN in the period between Cutover to CustomNet Horizon and Cutover to the PN charges to that Agency Site for CNH shall be actual AOTC tariff [PSTN] 4.3 (July 1992 edition) less 15%.
(ii) If any Agency Site is to be Connected to CustomNet Horizon only and not to be Connected to the PN, whether because it does not agree to Connection or because it is not economical to be Connected (as determined in accordance with the principles set out in Clause 17.3(c)), than for the period between Cutover to CustomNet Horizon and the first Billing Period which commences after the end of Contract Month 24, charges to that Agency Site for CNH shall be actual AOTC tariff [PSTN] 4.3 (July 1992 edition) less 15%. Thereafter the Contractor shall charge End User Charges."
BTA was required to deliver to the State so-called End User Charge Reports at the conclusion of each month (cl 27.2). These were to contain a variety of detailed billing information. BTA was also required to provide BCP Reports containing, inter alia, the following information:
"(i) in respect of the Billing Period for each Connected Agency that ended during that month identifying the Equivalent Service and BCP for each Required Service used, the total cost which would have been charged by the Predominant Carrier for each Equivalent Service (at the applicable BCP) and the total aggregate cost which would have been charged by the relevant Carrier at the applicable BCP for all Equivalent Services;
(ii) in respect of the Billing Period for each Connected Agency that ended during that month, listed by Agency, the total aggregate costs which would have been charged by the relevant Carrier at the applicable BCP for all Equivalent Services; and
(iii) for all Connected Agencies, listed by Agency, containing all the information set out in the BCP Report required pursuant to sub-paragraph (ii) for each completed Billing Period in the Fiscal Year together with a cumulative total aggregate cost which would be charged by all Carriers at the applicable BCP for all Equivalent Services for each Agency and all Agencies for all completed Billing Periods in the Fiscal Year."
Price caps were imposed by cl 27.4 and cl 27.15:
"27.4 Minimum Aggregate End User Charge Rebate
(a) Notwithstanding anything else herein contained, the total aggregate cost for all Required Services (set out in the End User Charge Report delivered pursuant to Clause 27.2(a)(ii)) in respect of all Required Services for each Billing Period shall not exceed the total BCP (as set out in the BCP Report delivered pursuant to Clause 27.3(a)(ii)) less the Discount for that Billing Period.
...
27.15 Charge not to be greater than Predominant Carrier Charge
No individual communication shall be charged at a rate greater than that which would otherwise have been charged by the Predominant Carrier to the Government for the particular Service, duration, location, distance or time of call, whether than communication originates at the TDN or a PTN."
The "Discount" referred to in cl 27.4 was defined to mean twelve percent.
Clause 31 contained an acknowledgment by both parties that, in order to meet the State's objectives set out in cl 3.1, it would be desirable from time to time to modify the design and configuration of TDN (cl 31.1). Clause 31 provided for a program to implement modifications, subject to the State's consent.
Clause 55 established a procedure for the resolution of disputes between the parties. Certain matters were to be referred to an expert for determination (cl 55.5). If the parties agreed, other matters were to be referred to arbitration (cl 55.6).
BTA's Pleaded Case Against the State
In Judgment No 5, I summarised the allegations made by BTA against the State in the second amended statement of claim. I do not repeat that analysis here, although it is convenient to elaborate on some of the pleadings.
BTA alleges that the State engaged in misleading and deceptive conduct and that this conduct induced BTA to submit its tender in response to the RFT (par 4). BTA alleges that in the course of subsequent discussions and negotiations BTA made further representations to the State (par 6). Those representations are said to have included statements that the integral elements of the TDN comprised both a private network ("PN") and virtual private networking to be procured through a licensed carrier ("VPN") and that VPN would continue as an integrated element of the TDN after the PN was fully established (pars 6(a) and (c)). BTA also claims that the State represented that the traffic volume generated by the State and the Agencies was probably higher than that shown in the RFT (par 9.2A). The State's representations are said to have been false.
BTA says that the implied terms of the TDN Agreement included the following (par 16):
"(d) that the Government would not act or conduct itself so as to affect prejudicially or to diminish or to remove the right of BTA and/or the capacity and/or the ability of BTA to supply Required Services under the TDN Agreement by way of a TDN comprising both a PN and VPN and would not procure induce or assist any other person to do so;
...
(g) that the Government would not purchase or procure for itself or for the Agencies any of the Required Services (including any VPN service, not limited to CNH) from any Carrier or other provider of telecommunications services except BTA unless expressly permitted so to do in the TDN Agreement;
...
(j) the Government would take all reasonable steps to procure and ensure that Telstra would perform its agreement with the Government:
(i) to provide the Agencies with VPN services (not limited to CNH) at Telstra's published book price;
(ii) promptly to connect to VPN services (not limited to CNH) all Agencies which entered into an Agency Service Agreement with BTA.
..."
Under the heading "Implementation of the TDN Agreement", TDA pleads the following:
* On 16 November 1992, the State and Telstra entered an agreement for the provision of CNH by Telstra to the State and the its Agencies and the State informed Telstra that BTA was its agent in relation to the provision of CNH to the State and its Agencies (par 17.1).
* On or about 12 December 1992, the State and Telstra entered a Strategic Partnership Agreement ("SPA") in accordance with cll 12 and 25 of the TDN Agreement and the State appointed BTA its agent to manage its telecommunications requirements (par 17.2).
* On 15 May 1993, BTA, as agent for the State, entered into an agreement with Telstra supplementary to the SPA (par 17.3).
* In June 1994, the State and Telstra agreed to terminate the SPA as from 30 June 1994 and entered into a Strategic Relationship Agreement ("SRA") for the supply of certain services under certain pricing plans for the purposes of cll 12 and 25 of the TDN Agreement.
BTA also pleads a case based on the proposition that the expression "CustomNet Horizon" in the TDN Agreement, properly construed, included the basic carriage telecommunications service known as CVPN (par 17A). BTA alleges that, with effect from 5 December 1994, Telstra provided or was entitled to provide a basic carriage telecommunications service known as CVPN in accordance with a tariff submitted to the regulator ("AUSTEL") (par 19.1). A second tariff was approved by AUSTEL so as to take effect from 22 June 1995.
Paragraph 19.3 pleads as follows:
"CVPN as supplied or proposed to be supplied by Telstra in accordance with the original CVPN Tariff is or was a service to link and provide a virtual private network to meet the needs of multi-location customers, such as the Government and Agencies, accessed by public switched telephone network and ISDN (Macrolink and Microlink) and/or CustomNet Spectrum services and is or was:
(a) a service equivalent to CNH within the definition of CNH in the TDN Agreement;
(b) a VPN product and a means of providing Required Services under the TDN Agreement;
(c) further, or in the alternative, in whole or part a technological improvement on and replacement for CNH which would increase cost effectiveness and efficiency of the TDN, its components and the Services within the meaning of clause 31 of the TDN Agreement."
Paragraph 19.4 makes a similar claim in relation to the second tariff.
BTA further alleges that, to the knowledge of the State, Telstra ceased accepting new orders by BTA for CNH prior to 3 July 1995 (par 19.5). As from 1 August 1995, CVPN as supplied by Telstra in accordance with the then current CVPN Tariff was the only VPN available to BTA for the purposes of the TDN Agreement (par 19.6).
In par 20, BTA pleads that the State repudiated the TDN Agreement:
"20.1 On or about 4 May 1995 the Government accepted and nominated CVPN as a service to be acquired by the Government from Telstra for the purposes of the Strategic Relationship Agreement referred to in paragraph 17.4 above.
20.2 By its conduct in the period between 4 May 1995 and 31 July 1995 or thereabouts (inclusive), the Government:
(a) informed BTA that -
(i) it had entered or proposed entering into an agreement with Telstra for the provision by Telstra of CVPN to the Agencies (`the Telstra CVPN Agreement');
(ii) it did not regard CVPN or the Telstra CVPN Agreement as within the scope of the TDN Agreement;
(iii) BTA was not and would not be able to act as the agent of the Government in relation to the supply of CVPN to the Government and Agencies by Telstra under the Telstra CVPN Agreement or otherwise;
(iv) it intended that the Government be supplied with CVPN by Telstra allegedly outside the TDN Agreement and to the exclusion of BTA;
(v) as from 1 August 1995 it would be procuring CVPN from Telstra for itself and the Agencies allegedly outside the TDN Agreement and that it had advised Telstra accordingly.
(b) thereby evinced an intention no longer to be bound by the TDN Agreement or showed that it intended to fulfil the TDN Agreement only in a manner substantially inconsistent with its obligations under the TDN Agreement."
BTA is said to have accepted the repudiation on 1 August 1995 (par 23).
Legal Professional Privilege: General Law Principles
There was no dispute, for the purposes of the present motion, that the documents sought by the State, independently of any question of abuse of process, contained communications which were subject to legal professional privilege under the general law "sole purpose" test stated in Grant v Downs [1976] HCA 63; (1976) 135 CLR 674. The rationale for the privilege is stated by Stephen, Mason and Murphy JJ in Grant v Downs in a well-known passage (at 685):
"The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available."
Legal professional privilege does not apply where communications are made by a client for the purpose of being guided or helped in the commission of a crime or fraud: Varawa v Howard Smith & Co Ltd [1910] HCA 11; (1910) 10 CLR 382, at 385, per Griffith CJ; at 386, per O'Connor J; Attorney-General for the Northern Territory v Kearney [1985] HCA 60; (1985) 158 CLR 500, at 511, per Gibbs CJ. Although this is sometimes put as an exception to legal professional privilege, the principle is that communications to further illegal or fraudulent purposes are never subject to privilege: Carter v Northmore Hale Davey & Leake [1995] HCA 33; (1995) 183 CLR 121, at 163, per McHugh J; Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; (1997) 188 CLR 501, at 546, per Gaudron J; at 556, per McHugh J.
The scope of the principle has been discussed in a number of recent decisions: Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509; Propend Finance; Re Moage Ltd (in liq); Sheahan v Pitterino [1998] 183 FCA (9 March 1998, Mansfield J); Emanuele v Hedley [1998] 709 FCA (19 June 1998, FC); White Industries (Qld) Pty Ltd v Flower & Hart [1998] 806 FCA (14 July 1998, Goldberg J).
In Emanuele v Hedley, the Full Court (Wilcox, Miles and RD Nicholson JJ) adopted the description of the tort of abuse of process given by Prosser and Keeton on the Law of Torts (5th ed 1984), at 894, in a passage referred to in the judgment of Priestley JA in Spautz v Gibbs (1990) 21 NSWLR 230, at 270:
"Abuse of process differs from malicious prosecution in that the gist of the tort is not commencing an action or causing process to issue without justification, but misusing, or misapplying process justified in itself for an end other than that which it was designed to accomplish. The purpose for which the process is used, once it is issued, is the only thing of importance. Consequently in an action for abuse of process it is unnecessary for the plaintiff to prove that the proceeding has terminated in his favour, or that the process was obtained without probable cause or in the course of a proceeding begun without probable cause."
The Court in Emanuele regarded this passage as consistent with the explanation of the tort given in the joint judgment of Mason CJ, Dawson, Toohey and McHugh JJ in Williams v Spautz, at 523-524.
"Central to the tort of abuse of process is the requirement that the party who has instituted proceedings has done so for a purpose or to effect an object beyond that which the legal process offers.
...
[T]his Court has regarded the purpose of the party instituting the proceedings as of crucial importance."
In Williams v Spautz, a lecturer, who had been dismissed from his post, issued informations against officers of a university, alleging a number of offences including conspiracy to defame. The High Court held that the proceedings were an abuse of process and therefore had been properly stayed. This holding was based on a finding that the prosecutor's predominant purpose was improper, in that he sought to use the threat of proceedings and the maintenance of them as a means of securing his reinstatement (at 530).
In addition to identifying the central elements of the tort of abuse of process, the joint judgment in Williams v Spautz clarified several other points:
* Two fundamental policy considerations underlie the jurisdiction to stay proceedings which are an abuse of process (at 520):
"The first is that the public interest in the administration of justice requires that the court protect its ability to function as a court of law by ensuring that its processes are used fairly by State and citizen alike. The second is that, unless the court protects its ability so to function in that way, its failure will lead to an erosion of public confidence by reason of concern that the court's processes may lend themselves to oppression and injustice."
* The court has power to prevent an abuse of process where the proceedings have been instituted for an improper purpose, even if the moving party in the proceedings establishes a prima facie case (at 522).
* Fraud is not an indispensable element in the doctrine of abuse of process, although a purpose which stands outside the scope of the process will often be unlawful, fraudulent or otherwise reprehensible (at 525). The critical question is whether the purpose sought to be effected by the litigation in bringing the proceedings is not within the scope of the proceedings (at 525). If so, the proceedings may be stayed (at 526).
* A person may not use or threaten to use court proceedings for the purpose of obtaining a collateral advantage, and not for the purpose for which such proceedings are properly designed. A person so using or threatening proceedings will be disqualified from invoking the powers of the court by means of those proceedings he or she has abused (at 528). In other words, an improper act is not an essential ingredient to the concept of abuse of process (at 527).
* The fact that a litigant wishes to bring the proceedings to a successful conclusion, so as to achieve a benefit which the law provides in that event, does not mean the proceedings are brought for an improper purpose. For example, if an alderman prosecutes a political opponent for failing to disclose a pecuniary interest when voting, intending to secure the opponent's disqualification from office by reason of the conviction, the immediate purpose of the prosecution is nonetheless within the scope of the criminal process (at 526).
* It is enough to constitute an abuse of process that the improper purpose is a predominant purpose (as distinct from the sole purpose) of the moving party (at 529).
* The onus of satisfying the court that there is an abuse of process lies on the party alleging it. The onus is a heavy one (at 529).
The joint judgment in Williams v Spautz referred at several points (see at 521-522, 526-527, 529), with apparent approval, to the majority decision of the Court of Appeal in Goldsmith v Sperrings Ltd [1977] 1 WLR 478. In that case, Scarman LJ made some observations in the course of disagreeing with the reasoning of Lord Denning MR in the same case (at 499-500):
"First, he observes - truly enough - that the law offers to a defamed plaintiff no more than damages and an injunction to prevent publication of the libel or similar libels. He concludes that a plaintiff who seeks, or by way of settlement is pleased to take, more than these two remedies is abusing the process of the court. The logic is superficially attractive; but the conclusion is suspect. Men go to law to redress a grievance. They may not know or understand the limits of the remedies provided by law.... But, equally, a man, while pursuing the remedies offered by law, may negotiate to secure, by arrangement with the parties sued, terms more favourable than, or different from, what he would get in the absence of agreement. Such a negotiation, undertaken by properly advised parties, each of whom may have a legitimate interest in avoiding litigation and may be prepared to concede more than the law requires of them to achieve that end, does not necessarily mean that the plaintiff by his litigation is reaching out to secure a collateral advantage. In the context of libel, he may reasonably see in settlement a more effective way of protecting his reputation than by action; and, whether he pursues his litigation to judgment, or settles it, he may in either case be seeking no more than the way he thinks best in the circumstances to protect his reputation."
Bridge LJ addressed the meaning of "collateral advantage" (at 503):
"The phrase manifestly cannot embrace every advantage sought or obtained by a litigant which it is beyond the court's power to grant him. Actions are settled quite properly every day on terms which a court could not itself impose upon an unwilling defendant. An apology in libel, an agreement to adhere to a contract of which the court could not order specific performance, an agreement after obstruction of an existing right of way to grant an alternative right of way over the defendant's land - these are a few obvious examples of such proper settlements. In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process. These two cases are plain; but there is, I think, a difficult area in between. What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired byproduct of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it."
The joint judgment in Williams v Spautz (at 522) agreed with Bridge LJ's expression of doubt.
The motions in the present case do not seek to stay the proceedings, but to gain access to otherwise privileged documents, doubtless because the State wishes to use those documents to pursue the defence pleaded in par 49(k). In Attorney-General (NT) v Kearney, the question was whether a claim for privilege in respect of certain discovered documents would be sustained. Gibbs CJ said this (at 516):
"The privilege is of course not displaced by making a mere charge of crime or fraud or, as in the present case, a charge that powers have been exercised for an ulterior purpose. This was made clear in Bullivant v Attorney-General (Vict.) [1901] AC 196 at 201, 203, 205 and in O'Rourke v Darbishire [1920] AC 581, at 604, 613-614, 622-623, 632-633. As Viscount Finlay said in the latter case, `there must be something to give colour to the charge'. His Lordship continued:
`The statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact.... The Court will exercise its discretion, not merely as to the terms in which the allegations is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications.'"
Mason and Brennan JJ agreed with Gibbs CJ. Wilson J adopted a similar approach (at 525).
In Propend Finance, the Australian Federal Police seized documents from a solicitor pursuant to a search warrant. The question was whether the solicitor's clients were entitled to claim privilege in relation to the documents, or whether the privilege had been lost by reason of allegations that the documents had come into existence in furtherance of an illegal or improper purpose. Brennan CJ summarised the position this way (at 514):
"In determining whether a claim of legal professional privilege can be upheld, it is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege is claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest. I state the criterion as `reasonable grounds for believing' because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something `to give colour to the charge', a `prima facie case' that the communication is made for an ulterior purpose. The purposes that deny the protection of privilege for a communication (whether documentary or oral) between a client and the client's solicitor or counsel include the furthering of the commission of an offence."
Dawson, Toohey, Gaudron and McHugh JJ in substance followed the analysis of Gibbs CJ in Attorney-General (NT) v Kearney (at 521-522, 534, 546-547, 556). In determining whether a prima facie case has been made out, the Court takes into account the seriousness of the allegations being made: see Toohey J, at 534; Gaudron J, at 546; Gummow J, at 576; Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, at 362, per Dixon J.
Client Legal Privilege: Evidence Act 1995
General law principles governing legal professional privilege have been affected by Part 3.10 of the Evidence Act 1995 (Cth) ["Evidence Act"]. Section 118 of the Evidence Act 1987 provides, inter alia, that evidence is not to be adduced if, on objection by a client, the court finds that adducing this evidence would result in disclosure of a confidential communication made between the client and a lawyer, for the dominant purpose of the lawyer providing legal advice to the client. Section 119 creates a privilege for communications made and confidential documents prepared for the dominant purpose of a lawyer providing legal services relating to litigation. These provisions substitute the "dominant purpose" test for the "sole purpose" test, but nothing turns on this in connection with the present motions.
Section 125 of the Evidence Act provides for the loss of client legal privilege (to use the Act's terminology) by reason of misconduct:
"125.(1) This Division does not prevent the adducing of evidence of:
(a) a communication made or the contents of a document prepared by a client or lawyer (or both), or a party who is not represented in the proceeding by a lawyer, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; or
(b) a communication or the contents of a document that the client or lawyer (or both), or the party, knew or ought reasonably to have known was made or prepared in furtherance of a deliberate abuse of a power.
(2) For the purposes of this section, if the commission of the fraud, offence or act, or the abuse of power, is a fact in issue and there are reasonable grounds for finding that:
(a) the fraud, offence or act, or the abuse of power, was committed; and
(b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power;
the court may find that the communication was so made or the document so prepared.
(3) In this section:
`power' means a power conferred by or under an Australian law."
Section 125 gives rise to a number of questions of construction. One is whether the section has a "derivative" effect on processes ancillary to a proceeding in which the evidence is sought to be adduced, such as discovery or the production of documents on subpoena. The decision of the Full Court in Adelaide Steamship Pty Ltd v Spalvins (1998) 152 ALR 418, suggests an affirmative answer to this question, but the correctness of that decision is under challenge: see: Esso Australia Resources Ltd v Commissioner of Taxation, FCA/FC, heard on 13 August 1997 (judgment reserved); BT Australasia Pty Ltd v State of New South Wales and Telstra Corporation Limited, High Ct (Special Leave to Appeal granted on 7 August 1998); compare Law Reform Commission, Evidence (Report No 38, 1987), par 199. If s 125 does not have a derivative effect, the general law principles to which I have referred govern the present case.
A second question is whether s 125(a) of the Evidence Act is intended to reflect the common law, as stated in cases such as Attorney-General (NT) v Kearney and Williams v Spautz. Despite the apparently restrictive language in s 125(a), it has been suggested that s 125(a) is intended simply to adopt the common law principles: S Odgers, Uniform Evidence Law (2nd ed 1985), at 215. The contrary view is arguable and perhaps receives some support from the Law Reform Commission's observation that the categories of fraud or offence "represent the traditional interpretation of the common law" (emphasis added) (Evidence, par 197). However, it must be remembered that the Law Reform Commission's report was prepared before the High Court decided Williams v Spautz and Propend Finance, and it may be that s 125(a) should be given a construction consistent with the more expansive view of abuse of process taken in those cases.
A third question is whether the reference in s 125(2) to "reasonable grounds" incorporates the principles discussed in Attorney-General (NT) v Kearney and Propend Finance. The likelihood is that it does, but the issue has not yet been addressed in any decided cases.
I am relieved from the need to consider these questions because the parties were content to accept that the general law principles apply to this case or, if they do not, the effect of s 125 of the Evidence Act is to incorporate and apply the same principles. I shall proceed on that basis.
The State's Submissions
Mr Douglas submitted that the State had discharged the onus of establishing a prima facie case that BTA had instituted the proceedings on 2 August 1995 for an improper purpose. He contended that the evidence revealed that BTA, through its officers, appreciated that it had no genuine grounds for obtaining relief from the State by means of legal proceedings. Internal documents demonstrated that BTA formed the view at a relatively early stage that the TDN Agreement was an extremely disadvantageous arrangement from which it should extricate itself. The course pursued by BTA was to attempt to renegotiate the disadvantageous features of the arrangement, in essence, by putting forward spurious complaints against the State. BTA seized upon the disputes relating to pricing and the provision of CVPN as a means of terminating an unprofitable contract.
BTA's spurious complaints included claims that the State had misrepresented the levels of telecommunications traffic likely to be generated through the TDN Agreement and the extent to which Agencies could be expected to execute ASA's. That these were spurious were shown by internal documents recognising that BTA had satisfied itself of the likely volumes of traffic prior to entry into the TDN Agreement and appreciated that the State had declined to warrant any figures. Moreover, the internal documents showed that, relatively early in the piece, few Agencies had not signed ASA's.
Mr Douglas drew attention to provisions in the TDN Agreement which he said stood in the way of BTA succeeding in its pleaded claim against the State. In particular, he pointed out that cl 3.3(b) contained acknowledgments by BTA that it had not relied on any representations or statements by the State except those specified in the TDN Agreement. Clause 20.4 contained acknowledgments by BTA that the State had made no representation or commitment as to the level of telecommunications traffic, level of utilisation of the TDN or of any service by the Agencies. Clause 16.9 provided a formula for compensation to be paid by the State if insufficient Agencies executed the ASA's. Mr Douglas conceded (Ts 176-177) that, despite these provisions, BTA would be able to satisfy the threshold test laid down in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, based on its allegations of breaches of the Fair Trading Act (NSW). Nonetheless, he argued that, objectively assessed, the case was so weak that it lent colour to the claim that BTA did not genuinely believe that it was entitled to the relief sought in the proceedings.
Mr Douglas invited me to find, on a prima facie basis, that BTA threatened and instituted the present proceedings knowing that they were misconceived. As Mr Douglas put it, BTA chose to rely on a spurious case that the State had repudiated the TDN Agreement, knowing that it was spurious (Ts 253). In short, the State's principal contention was that BTA's predominant purpose was to extricate itself from the onerous terms of the TDN Agreement and it chose to do so by threatening and, later, instituting proceedings it knew to be without foundation.
I inquired of Mr Douglas whether it was essential to the State's case for a finding to be made that BTA knew its case was without foundation. He replied that it was important, but not essential. While that response is in my view correct as a matter of law, Mr Douglas did not develop the argument by reference to the circumstances of the present case. In particular, he did not explain why I should find that there was a prima facie case that BTA had threatened and instituted the proceedings for an improper purpose even if the State had failed to establish, on a prima facie basis that BTA regarded its claims as spurious.
The Course of Events It is convenient to divide the documentary evidence into documents created before May 1995 and those created in and after that month. On 5 May 1995, as Telstra and the State admit in their respective defences, the State nominated the CVPN tariff as a new Pricing Plan for the purposes of the SRA entered into on 28 June 1994 between the State and Telstra. On the same date, as the State admits, the State forwarded to BTA draft letter bearing that nomination.
Documents Before May 1995
The early documentation indicates that BTA was satisfied with the rate of Agency signing of ASA's. A letter of 15 September 1993, from BTA's General Sales Manager to the State recorded that eighteen Agencies were yet to sign their ASA's, of which only four were said to be "significant". The program of Agency execution of ASA's was regarded as "very successful". As Mr Lindsay SC pointed out, however, BTA alleges that actions by the State and by Telstra (for example in marketing Flexi-plans) deterred many Agencies from connecting to CNH, notwithstanding BTA's entitlement under the TDN Agreement to supply Agencies exclusively with certain categories of telecommunications services.
The distinction was identified in an internal e-mail prepared by Mr Cornish, then BTA's Senior Commercial Manager, on 24 October 1994. The e-mail said this:
"Before revenue starts to flow from an Agency there is a two stage sign-up process. Stage 1 consists of the Agency signing an Agency Service Agreement (ASA). Under the ASA the Agency appoints BT as its exclusive supplier of a list of telecommunications services and establishes a call off contract under which site requirements are ordered. Stage 2 involves the Agency to sign orders defining the specific requirements the Agency has for BT's services at each of its sites. The process of getting the Agencies to sign the ASA is all but complete....In terms of signed site orders there is now a backlog of signed orders in the pipeline which would provide enough for Implementation to do for several months into the future even if no further site orders were signed ie. the choke point is now implementation rather than sales."
The e-mail noted that BTA's financial performance had been "extremely poor". The reasons included Telstra's failure, whether by "accident or design", to connect Agencies to CNH at the expected rate and the competitive pressures exerted on the scheme by Telstra's use of discount schemes. These pressures were said to have slowed down the "Agency sign-up process".
The early documentation also clearly demonstrates that senior officers were proposing that the TDN Agreement be renegotiated. For example, in an internal e-mail of 30 May 1994, Mr Cornish identified four key problems:
"- our inability to strike end user charges which reflect cost savings achievable from bulk purchase discounts;
- our inability to provide the full range of services available from the carriers;
- lack of flexibility in the pricing of our services (the contract only allows for price changes in accordance with a formula which applies a blanket percentage to all services under the contract); and
- lack of control over our main cost element ie. carrier services."
He proposed that BTA renegotiate the contract to give it greater flexibility in the prices charged and a new price cap regime.
An internal BTA background paper of 10 October 1994 noted that BTA's bid was based on "sizing information" provided by the State. The paper observed that the model was "old and inaccurate", but that the State had refused to warrant the data. It also recorded that "volumes were specifically excluded in all documents of a contractual nature". While BTA had made itself "reasonably comfortable that the volumes were correct/viable", later evaluations had shown the projection to be "naive and inaccurate".
The same background paper recorded the emergence of a dispute between the State and BTA as to the calculation of the BCP under the TDN Agreement. BTA's position was that BCP was to be calculated by reference to a published retail price, while the State argued that it was entitled to discounts from Telstra's best offering:
"BT guaranteed its Services would always be provided at 12% below dominant carrier `Best Carrier Price' which BT assumed to be TELSTRA's Published Retail Price excluding discounts. The TCU [that is, the State's Telecommunications Unit] view is that BCP represents the latest discounted TELSTRA offering. Two years of trading and legal opinion underwrites BT's view. At the time of the contract, there were no discounts, and the contract contains no mechanism to define discretionary discounts. In addition, the TCU agreed the pro forma invoice."
The paper also noted Telstra's advice that CNH would be dismantled in June 1995 and that a replacement tariff was still to be advised.
Under the heading "NSWG Agreed Actions", the paper proposed a variety of strategies to improve BTA's position. These included lobbying AUSTEL to ensure that CNH persisted beyond June 1995, negotiating with the State to obtain specific concessions and
"Trad[ing] BCP argument against overall viability of the Network to BT and increased usage/access."
The last point was reiterated in Mr Cornish's e-mail of 24 October 1994, to which I have already referred.
"The one real strong point we have in our commercial position which we can use to force a re-negotiation concerns the price cap mechanism in the contract under which the market competitiveness of our prices are tested against `best carrier price'. The way the contract has been interpreted and implemented has been that `best carrier price' has been taken to mean the standard, undiscounted price of Telstra for an equivalent service. Telstra discount schemes have now come on to the market which have the effect of making available prices to the [State] which are more favourable than the BT price even though our price is still capped against the undiscounted price (ie. even though we are more expensive they are still committed to buy from us because we are their exclusive supplier). This position has been confirmed with external lawyers."
The negotiation strategy was carried further in an internal e-mail of 26 October 1994 from Mr Kaye, BTA's Country Manager/Managing Director, relating to a proposed meeting with Mr Yelland of Telstra. Mr Kaye proposed that BTA should "work with not against" Telstra. This would involve negotiating a special tariff with Telstra that would "lock Telstra and BT in an alliance". The e-mail noted that BTA had a 10 year agreement with the State:
"it is inevitable that BT will be here and will invest heavily to stay here. We are committed to build an extensive value-added network to support our presence."
On 9 November 1994, Mr Cornish prepared some briefing notes for another officer of the team. It was common ground that Mr Cornish had some legal training, but was not admitted to practise in Australia. In the memorandum, Mr Cornish addressed the question of whether BTA could terminate the TDN Agreement. In answering this question, he noted that the TDN Agreement did not expressly grant BTA any rights to terminate and, consequently, BTA would have to rely upon the general law. He summarised his conclusion this way:
"This would involve BT in proving that the [State] has breached the Agreement in such a major way that damages would be an insufficient remedy. My view would be that BT would be unable to discharge this burden."
Mr Cornish identified the only areas of possible breach by the State as follows:
* Telstra had not promptly connected the Agencies to CNH, as contemplated by cl 12.2(a) of the TDN Agreement. Mr Cornish considered that Telstra may have deliberately delayed the connection process in order to frustrate performance of the contract.
* Cl 12.3 of the TDN Agreement required the State to procure that Agencies constituting approximately 80 percent of the market would enter into an agreement with BTA to take the CNH service by April 1993. BTA could prove that this target had not been achieved. The remedy was provided for in cl 12.3(b), but this remedy had not been pursued. In any event, the remedy was likely to be worth only approximately 0.5 million dollars, if it were to be applied.
* There had been a suggestion that BTA could claim compensation if, by July 1993, Agencies constituting approximately 80 percent of the market had not signed ASA's . Mr Cornish, according to the best information available to him at the time, did not believe that BTA could prove its case under cll 12.4 or 16.9 of the TDN Agreement.
Mr Cornish concluded that BTA might have an entitlement to claim some damages, but he did not think that there had been a breach of contract so serious that it destroyed the basis upon which the contract had been entered into in the first place. Mr Cornish also pointed out that if BTA repudiated the contract ("walked away") the State would be able to terminate for breach and claim damages. The State's claim would include expenses involved in contracting with a third party to perform the services under the contract. It was extremely difficult to estimate BTA's total losses in the event of termination for breach. As a rough guide, he estimated that total losses could range anywhere from twenty million dollars to sixty million dollars. He offered this final observation:
"I think the upshot of the above is that, if BT was to decide that it wanted to get out of the contract, it should enter into negotiations with the [State] with a view to termination on mutually agreed terms."
In a further e-mail of 17 November 1994, Mr Cornish summarised "the levers" he thought that BTA "could pull" (presumably in negotiations concerning the TDN Agreement). Apart from the matters raised in the briefing notes, he pointed to the following matters:
* Cl 17.7 of the TDN Agreement appointed BTA the exclusive supplier of "Required Services". The State had actively sponsored the proliferation of Flexi-plans (described as "Telecom Discount Plans") in the State sector, thereby placing practical barriers in the path of BTA's implementation of its "exclusive dealership rights". BTA could argue that the State had thereby breached "the spirit" of the exclusive dealership clause.
* The TDN Agreement had operated on the basis of BCP, calculated by reference to Telstra's standard non-discounted price. External legal advice had supported this proposition. If that interpretation were correct, then the State was in the position of having a contract which committed them to use BTA's services, even though they could be purchased more cheaply from Telstra.
The Investment Committee of BT plc, at its meeting of 18 November 1994, considered a report from Mr Kaye on the TDN Agreement. The report reviewed progress to that time and included the following points:
* There had been a substantial revenue shortfall. The "key causes [were] slippages on PN and Telstra VPN connection".
* Telstra had competed aggressively within State Agencies to frustrate the contract and had introduced a "Whole of Government aggregate discount scheme" and other discount schemes. Simultaneously, Telstra had erected technical and process barriers to the implementation of VPN services, causing further delays.
* There had been Agency resistance to BTA's services, flowing from objections to a centrally let contract, predatory Telstra activity and the perceived lack of a BTA network.
Mr Kaye gave reasons for the variance between projections and actual performance. These included the following:
* VPN had not been delivered as planned, largely due to actions by Telstra.
* The bid had been based on information collected in 1989 by the State and the data provided had not been warranted. Validation of volumes during the bid process had not been permitted and these had proved to be overstated.
* The State's attitude had been less supportive than expected. Individual agencies had resisted BTA connection and some were delaying implementation. Agencies had been unwilling to commit to major capital spending because of constraints on their expenditure.
* Telstra had continued to offer carrier discount and was continuing to delay VPN and PN connections.
* Under the TDN Agreement the TCU was responsible for the choice of carrier and managed centrally all discounts received. This contractual right was a major inhibitor to BTA's effective control of the business. Mr Kaye proposed a number of strategies for corrective action. These included approaching Telstra to forge a "mutually supportive alliance" with BTA; approaching the State to renegotiate the TDN Agreement, offering better prices in return for concessions in favour of BTA. The Investment Committee was asked to endorse the proposed strategies.
The Investment Committee noted Mr Kaye's paper. The committee considered that there were a number of lessons to be learned:
"It was clear that there had been management and strategy weaknesses, and a degree of commercial naivete, with focus on project management but not on revenue generation. Furthermore, Telstra's response had been far more successful than had been assumed, and the [State] had been slow to deliver their commitments and their control of carriers had rendered BT largely impotent".
There were good prospects of success in implementing the action plan. However, there were risks:
"[i]n particular, that Telstra and the [State] might reject planned actions, in which case alternative actions would need to be considered. These might include a `crawl out' option: for contractual reasons BT could not simply walk away from this project."
An internal Telstra document of 13 January 1995, recorded "off the record" discussions with representatives of Telstra. The memorandum contained this passage:
"Since BT started their contract the Govts perception is that Services delivered from BT previously delivered by Telecom [have] deteriorated dramatically. Particularly billing.
The level of service provided by Telecom has continued to rise and most Agencies have a clear understanding of the value Telecom provides and voice it regularly to the TCU.
The BT contract has BT `by the balls' I believe was the expression. It can be as narrow or as broad as the Govt want to make. The Govt want us to propose its width. Their preference is to have BT involved in a minimal way (as per my previous model), BT will not walk away from the contract, so `use them as you see fit'."
It appears that BT did not see this document until after the commencement of the present proceedings.
Mr Kaye prepared a further report on 10 March 1995. In that report he recorded that meetings had been held with the TCU. The indications were that the State would co-operate in modifying the contract, but that renegotiation could not take place without going to tender and without major political impact. Accordingly, variations had to be achieved within the framework of the existing contract. Discussions had also taken place with Telstra. The report recorded that revenues on PN sites were a little over half those that had been expected.
Mr Kaye identified four possible strategies:
"1. Status Quo
* We will incur substantial and increasing life-time losses as tariffs become more competitive.
* Renegotiation which does not involve Telstra alliance and maintenance of [State] commercial position is not possible and we have no legal redress.
2. Attack NSWG
* No commercial or legal basis. May have moral basis. They would dig in heels. Effect on Government business in Australia would be disastrous. Success unlikely and process protracted. Alice strategy is in danger.
3. Withdraw
* Losses drop; write-offs substantial; huge image hit; company reduction. Alice strategy in danger.
4. Reduce PN to minimum, move to...VPN and FM [Facilities Management] in alliance with Telstra...
* Keep only 1 switch; all sites to special VPN tariff and connection. Viable sites goes up. BTA gets percentage on all Government Business. Ongoing costs significantly reduced. Upfront write-offs. Market hit likely plus substantial downsizing. Alice strategy contributes to FM-positioning."
It will be seen that, at this point, Mr Kaye considered that there was no commercial or legal basis for an attack on the State, although such an attack might have had a "moral basis".
An internal BT E-mail of 19 March 1995 referred to a discount of 40.7 percent on STD traffic available to BTA from the date of switching to CVPN. This was said to provide BTA with a substantial margin over that which the State could obtain in its own right. If BTA "retariff[ed] the VCPN as we are...doing for CNH" then BTA would receive the entire margin of $6.3 million. If BTA lost the BCP argument, BTA's margin under CVPN would be significantly eroded. The E-mail also recorded negotiations with Telstra designed to yield BTA fees on the traffic generated through the State.
On 22 March 1995, Mr Kaye recorded in an e-mail that Telstra had tabled an offer comprising, inter alia, a "special whole of Government [VPN] tariff". While the offer was good it was not good enough for BTA to abandon its "independent platform".
On or about 29 March 1995, Mr Mockett, the Managing Director of Global Communications, prepared an update on the TDN Agreement. The report included the following observations:
"2.1 All aspects of loading the network have been proceeding slower than planned, and slower than projected to the IC in November 1994. Aggressive discount plans being offered by the carriers have resulted in private networks being no longer cost effective. This problem is exacerbated by BT having to use Telstra for all network access circuits, resulting in a steady decline of addressable market due to economic unviability. Agencies can now obtain similar services from Telstra or Optus at the same or better rates than those charged by BT under the contract. The carrier provided VPN element of the network is still profitable for BT but due to implementation difficulties the revenue and contribution [are] low. Telstra have also announced their intention to replace the existing VPN tariff in June with a tariff which decreases the current VPN margin to BT.
...
2.4 The structure of the contract is such there are few options for renegotiating the contract. There are no legal grounds for challenge, as site traffic volumes were specifically not warranted, and no commercial grounds, as BT pricing is now equal to or above the discount plans available to the agencies from the carrier. Equally, Telstra discount tariff plans are formally filed with the regulator, and BT has no regulatory or legal grounds with which to challenge them. Consequently, BT is in the difficult position of having to negotiate with both [State] and Telstra from a position of weakness.
...
2.9 ...BT have had to face the reality that the PN is unviable and no longer able to offer the flexibility, technical innovation or price performance required by [the State], or able to be offered by the carriers. An important aspect of the strategy of an alliance with Telstra is the halting of the PN (voice) rollout, its phased downsizing, and a reconfiguration of the network to a Whole of Government VPN.
2.10 Telstra have now presented BT with an MOU [Memorandum of Understanding] proposal which sets out these operating principles in a new tariff structure. The next step is for BT and Telstra to jointly approach the [State] in order to gain their acceptance of the strategy."
Mr Mockett set out four options. These were as follows:
"3.1 Proceed with the current network strategy and rollout, and abide by the conditions of the contract. This would maintain the BT `carrier' image and the network.... The disadvantages are continuing and increasing losses, potentially over the life of the contract, ...continuing network loading problems, traffic leakage....
3.2 Seek legal resolution by attacking the [State] for misrepresentation, and Telstra for predatory practices and unfair treatment. All advice received to date indicates that this would be difficult to win. There are strong reservations regarding the legal, regulatory or commercial grounds on which such action would be based. This strategy might embarrass the [State] politically, and could result in a back-lash against BT with potentially a more costly result.
3.3 Withdraw from the contract and pay the penalties in financial and market impact terms.... Our belief is that BTA would not survive that strategy.
3.4 Enter into an alliance with Telstra and negotiate a combined amendment of the [State] contract."
Mr Mockett recommended that BTA enter an alliance with Telstra, both within the State and as a value-added service provider in the commercial and mobile markets. He considered that BT and Telstra should approach the State jointly for an agreement to restructure the agreement under the existing framework to provide improved agency service and the better commercial result for both the [State] and Telstra.
On 30 March 1995, Mr Thomson, General Manager, Marketing, BTA, provided a written commentary on a paper prepared for the Investment Committee. He made a number of critical comments on the paper. He asserted that the downward financial trend had been known prior to November 1994 "but was covered up due to a management intention to facilitate a `breathing space' for the resolution of the questions". He also asserted that the fact that the PN was no longer cost-effective due to carrier discount plans was clearly evident at an early stage in the contract.
By a letter dated 11 April 1995, Telstra confirmed its advice to the State that CNH would cease on 30 June 1995. The letter advised that CVPN was regarded as an alternative product to CNH and that existing CNH services could be connected to CVPN during May 1995 only.
On 27 April 1995, Telstra and BTA executed a Memorandum of Understanding ("MOU"). The MOU was subject to the execution of a formal agreement, intended to be executed by 31 May 1995. The MOU provided, inter alia, for Telstra to pay BTA a fee of one percent of total State billings in return for BTA providing a revenue collection role. In consideration of BTA acting as Telstra's agent in the promotion and sale of CVPN to the State, Telstra was to pay a further commission related to the growth in the basic carriage service revenue for State Agencies over a period of three years. I infer that in consequence of advice given to BTA on 10 May 1995 that the MOU did or might constitute a secret commission, the arrangement was terminated by mutual consent.
From May 1995
I have earlier referred to BTA's allegation that on or about 4 May 1995, the State nominated CVPN as a service to be acquired from Telstra pursuant to the SRA entered into in June 1994. The State does not admit that allegation, but says that on 5 May 1995 it nominated the CVPN pricing plan for the purposes of the SRA. On the same date, the State forwarded to BTA a draft letter concerning the nomination.
An important development occurred on 10 May 1995. On that date, a conference took place. The participants were Mr JJ Garnsey QC, Mr Boesenberg of the firm of Middletons, Moore & Bevins ("MMB"), and Mr Cornish and Mr Rizzo of BTA. MMB had acted for BTA since 1993, although the evidence does not enable the precise date to be identified. Handwritten notes of that conference were in evidence. Relevantly they record the following:
"2. Tentative view is CVPN is replacement for CNH.
* Objective test not up to govt.
* Govt only allowed to nominate which carrier.
3. Referral to Expert to determine whether CVPN is equivalent to CNH.
4. Implied term that govt cannot frustrate.
5. Implied term that govt cannot water down exclusivity.
6. Fair Trading Act (NSW) applies to State govt.
7. Strong areas of attack against govt.
8. Telstra - withdrawal of CNH - product to be available for a reasonable [incomplete]."
I interpose that, following the conference, a series of memoranda were prepared by counsel (including senior counsel). BTA has claimed privilege in respect of these memoranda. However, the evidence shows that at least the following memoranda were prepared between 11 May 1995 and 31 July 1995:
Date Advice
11 May 95 Memorandum of Advice Marked BTA's Position on Interpretation of TDN Agreement from JJ Garnsey QC.
11 May 95 BTA's Position on Interpretation of the TDN Agreement from JJ Garnsey QC to P Boesenberg, MMB.
15 May.95 Memorandum of Advice from JJ Garnsey QC to P Boesenberg, MMB.
17 May 95 Memorandum of Advice from JJ Garnsey QC,
19 May 95 Memorandum of Advice from JJ Garnsey QC, R Margo to MMB.
31 May 95 Memorandum of Advice from JJ Garnsey QC, R Margo to MMB.
26 June 95 Memorandum of Advice from R Margo.
27 June 95 Memorandum from R Margo.
26 July 95 Memorandum of Advice from JJ Garnsey QC to MMB.
31 July 95 Memorandum of Advice-Pandora from JJ Garnsey QC.
31 July 95 Memorandum of Advice from JJ Garnsey QC to MMB.
I infer from this list that memoranda of advice were prepared for BTA on a number of key topics during the period leading up to BTA's purported acceptance of the State's repudiation of the TDN Agreement.
On 11 May 1995, BTA's public relations firm prepared draft questions and answers "for our internal use to guide responses to the media IF we issue the draft release". One of the questions asked on the draft was what the State had done to breach the TDN Agreement. The answer given was that BT and Telstra had proposed a new, highly discounted tariff to the State, but the State had decided to make the tariff available to itself outside the TDN Agreement. This was said to constitute a "clear breach". A further question was why the State felt it was not getting a good deal from BTA. The proposed answer was that the market had changed dramatically since the contract was awarded and that PN's now made little economic sense. The market was able to deliver bigger discounts to large users than those projected in the contract and that gap had caused Agencies to slow their connections.
Shortly after the conference of 10 May 1995, events moved rapidly. On 15 May 1995, Mr Kaye prepared an "action plan" in his own handwriting. It contemplated seeking legal opinions on the BCP issue and BTA's position on "BCP/CVPN". The plan included the following elements:
"4. DEVELOPMENT OF DAMAGES WRIT BY MONDAY AM 22/5
5. CREATION OF SECURE ENVIR. FOR DOCS & SANITIZE THEM 16/5
6. PURSUE NEG'S FOR COMPROMISE
[6A] FINANCIAL ANALYSIS OF BID VERSUS ACTUAL/FORECAST
FOR MMB 16/5
7. DEVELOPMENT OF P.R. RESPONSES 16/5
8. LETTER TO PREMIER AS PRECURSOR TO WRIT EX MMB 18/5"
I infer that advice was sought and obtained on the issues identified by Mr Kaye.
On 16 May 1995, Mr Greenberg, a lawyer employed by BT plc, sent an internal e-mail concerning "Pandora". This name was coined by Mr Boesenberg of MMB to record communications arising out of BTA's disputes with Telstra and the State. Mr Greenberg expressed his view as follows:
"...we will be in a position, albeit `down and out' to instigate litigation against the customer by Monday or Tuesday. We will still have a ways to go I think regarding any courses of action we might have against the other party. (You should note, however, that it probably isn't necessary that we proceed against both parties at the same time but it would be tactically better if we ultimately decide to go after both of them.) In a more perfect world we would have everything ready to go and cleaned up in about 2 more weeks."
At about this time further draft press releases and questions and answers were prepared by BTA's public relations firm.
A further handwritten note by Mr Kaye, apparently prepared on 22 May 1995, recorded estimates of losses likely to be sustained by BT, depending on particular outcomes. The note referred to "`Repudiation'" and "negotiate Least Cost Withdrawal", but these cryptic comments were not further explained.
On the same day, BT plc's Operations Review Committee described the TDN Agreement as one of five "black spots, currently under achieving or failing to produce expected returns". It recorded that major improvements in the relationship with the State and Telstra were needed and that
"the latest news was that all parties would be forced to return to the negotiating table."
The minutes of BT plc's Chairman's Advisory Group meeting of 30 May 1995 recorded that Mr Mockett should try to settle "the NSW case and build a collaborative relationship with Telstra".
According to Telstra's defence in the present proceedings, at about this time it informed BTA that there was a freeze on CNH connections until the end of June 1995, due to the migration of CNH and sites to CVPN. Telstra's defence also asserts that, in or about June 1995, it informed BTA that it had received instructions from the State to migrate all existing CNH services to CVPN, and that it would only process urgent orders for CNH if these orders were kept to a minimum.
On 7 June 1995, Mr Mockett prepared a paper for the Investment Committee updating the position relating to the TDN Agreement. The report noted that approaches had been made to the State to determine its willingness to amend the TDN Agreement. Approaches had also been made to Telstra to request a changed relationship which would produce a better commercial outcome for BTA, improved service levels and operation. The report continued as follows:
"3.3 As a result of the Telstra discussions, a joint working party has constructed a new VPN tariff specifically designed to suit [the State]. The previous VPN tariff, called CNH, is being terminated on June 30. The replacement - CVPN - is under consideration by AUSTEL. In exchange for BT agreeing to wind down the PN, Telstra offered to improve BT's financial position by constructing "fees" with BT undertaking revenue collection, joint service management and migration of [State] onto the new Telstra VPN product.
3.4 After a change of government in NSW and a change of stance, [the State] perceived that it could obtain the new VPN product itself direct from Telstra and thereby significantly improve its financial position. Consequently, [the State] proceeded to place an order with Telstra for the new VPN product by-passing the BT contract by relying on the self-serving interpretation of the contract. It also refused to countenance BT adopting the role of `principal' under an FM arrangement, and has insisted that the PN is retained - albeit in reduced form. Further, it is contesting BT interpretation of contract pricing structures and the eligible size of the TDN.
3.5 Both parties have sought legal opinion and BT legal advice is that [the State] is in breach of the agreement by not nominating BT as its CVPN agent, and that BT's interpretation of pricing is correct. Further, that BT has a case for misrepresentation and non-delivery. The [the State] has stated that it too, has a strong legal position."
Mr Mockett listed the options as follows:
"4.1 Attempt to retain the contract by compromising with [the State] and Telstra. This would involve BT taking a significantly reduced margin under the new VPN tariff on a restricted number of agency sites, and removing the PN and its infrastructure in return for concessions for [the State].... Telstra have indicated that they would be prepared to provide the agreed `fees for service' to off-set a reduced BT margin if BT removes its infrastructure. Compromise discussions are continuing with [the State]....
4.2 Minimize the contract by mutual agreement with [the State] and redeploy Infrastructure. Instead of litigating, BT would agree to a modification of a contract without penalties, and obtain concessions from [the State].... BT would not agree to remove its network and could subsequently deploy the infrastructure to provide Australia-wide coverage and reposition itself in the commercial market....
4.3 Threaten legal action to force FN position and special Telstra interconnect tariff. This would involve arguing BT's legal case to [the State] at Ministerial level and convincing them that BT's arguments would overcome [the State's] legal position. Threats to withdraw NSW investments...could also assist this approach. The objective would be to have [the State] agree to an FN principal position for BT. Simultaneously, BT would seek a favourable inter-connect tariff from Telstra....
4.4 Litigation against [the State] for breach of contract and misrepresentation, and Telstra for unfair trading. Both sides have appointed external and internal legal advisers, including senior counsel. Current advice is that BT's legal position has more substance based on the facts known to us at present, than that of the [the State]. A reciprocal suit for non-performance and breach, and vigorous defence are highly likely. In addition, there may be avenues to sue Telstra for unfair trading. We will have to consider how best to use litigation as a tool to promote an acceptable settlement. At best, this option would still result in a loss to BT...."
An annexure set out the worst case and best case scenarios. The best case produced an outcome consisting of a loss of [sterling]0.7 million for BT. However, this calculation was based upon the assumption that BT had incurred [sterling]33.6 million in costs and that it would recover a similar amount by way of damages from the State and Telstra, from which [sterling]0.7 million in legal costs would have to be deducted. The worst case scenario contemplated that no damages would be recovered by the State and Telstra and that the total losses would be in the order of [sterling]60 million.
Mr Mockett's assessment of options included the following:
"5.2 Litigation should be regarded as a final fall back only after all other options have been exhausted. It would have a high profile, tie down BT managers, and be protracted and costly. A counter-suit and intense political reaction could severely damage BT's market image, and would inevitably involve Telstra. Internal and external confusion could be significant. If BT wins, then it's [sic] recovery of damages could be limited, unless it is able to succeed on the entire `misrepresentation' point There will be a counter-claim to consider. BT could be precluded from further government business in Australia. If BT lost it could experience all of the above and damages.
5.3 The likelihood of the [the State] substantially modifying its position in the face of political pressure is low - in our opinion. Nor will they abandon their legal response if we go legal....
5.4 Minimization by mutual agreement would enable BT to look at repositioning itself by redeploying the [the State] network infrastructure into a national voice network and then migrating its commercial customer base onto that network using the Telstra service provider inter-connect product...."
Mr Mockett's ultimate recommendation was that the investment committee note the attempt to renegotiate the contract by mutual agreement with State and to "coerce" Telstra to improve BT's position.
The Investment Committee, at its meeting of 12 June 1995, noted Mr Mockett's paper. The Committee further noted that there were financial and strategic risks in attempting to reach a compromise solution with the State and an alliance with Telstra, but "other options, including taking legal action, would entail greater risk and cost". It was therefore proposed to continue negotiations on the compromise options. The Committee endorsed the strategy outlined in the paper to negotiate a mutually agreed compromise and to attempt to extract the best deal possible from Telstra. The Committee further noted that the situation "was a demonstration of the dangers associated with naivete in establishing and running overseas ventures".
On 26 June 1995, Mr Rizzo sent an internal e-mail to Mr Kaye. The E-mail stated that Mr Rizzo and Mr Cornish "have just reviewed the key operational issues that need to be addressed immediately if a writ is issued". The E-mail stated that detailed planning for many of these issues should commence immediately.
The minutes of a Chairman's Advisory Group meeting held on 27 June 1995 recorded a deterioration of the situation concerning the State, since
"hard-liners in the government wish to hold BT to its loss-making contract. BT might be forced to sue Telstra; meanwhile the NSW Premier would confirm in the next few days whether his government would be prepared to go to independent non-binding mediation."
On the same day, Mr Cornish sent an e-mail to MMB commenting on a draft "writ" dated 8 June 1995. Mr Cornish asked whether reference should be made to the fact that BTA had brought it to the attention of the State prior to the TDN Agreement that its bid was constructed on the assumption that the RFT traffic information was accurate. Mr Cornish recalled that the State had advised that the information it provided, if anything, underestimated market size. He asked how this should be dealt with in the pleading.
At some time in July 1995 a paper analysing BT's strategic options was prepared for the Investment Committee. This canvassed four options, of which the third was recommended:
* Retain the TDN Agreement with Compromise and refocus the business to facilities management;
* Threaten legal action to force the TDN Agreement to a facilities management position and pressure Telstra to provide a special interconnect tariff;
* Terminate the TDN Agreement by mutual agreement and roll out a national voice network; or
* Litigate with the State and Telstra.
The paper commented on the TDN project as follows:
"BT is just over 2 years into a 10 year contract. The market has moved significantly since commencement of the contract. In particular, dominant carrier discount schemes have placed the contractual pricing under extreme competitive pressure to the point where NSWG could obtain better prices from Telstra under Telstra discount plans if it could exit from the BT contract.
A combination of factors have contributed to an extremely disappointing financial performance for BT. These factors include: the addressable market proving to be much smaller than originally represented; performance of the contract being inhibited by dominant carrier price and non-price practices; traffic `leakage' problems due to lack of BT control over least cost routing in Agency CPE; Agencies being slow to cooperate and take up the service; and serious problems with the economical delivery of point to point data services."
The strengths of the litigation were said to include the possibility of using litigation as a public relations tool to protect BT's market image by allocating blame elsewhere. The weaknesses included the possibility that BT "would be irreparably damaged in the public relations war which would result from litigation".
On 10 July 1995, BT proposed to the State that the parties enter into formal mediation to resolve the matters in issue. The letter asserted that the availability of CVPN was essential to the operational inability of the project for BT, just as CNH was an essential feature of BT's original solution.
In an e-mail of 13 July 1995, Mr Cornish expressed his opinion that BT would have to sue the State. His reasons were these:
"Government has clearly stated that they see no reason for any major restructure. They are only prepared to look at narrow contractual issues eg. `BCP' using perhaps an expert. From their own self serving point of view this is consistent. Even if we don't move on `BCP' CVPN in their hands will blow us away commercially. Conclusion is that they can continue to mark time and are not compelled to help us.
The argument against suing has been the risk of damage to our business reputation with consequent loss of business opportunity. I think when this business opportunity is realistically assessed against the size of the losses on this contract it seems to me that it is more important to use all available means to recover the losses first before we worry about the loss of business opportunity. In any case, it could be argued that suing is actually the best of a number of bad options which now remain to minimise our loss of reputation."
On 18 July 1995, the State sent BTA a letter as follows:
"Reference is made to the circumstances under which CustomNet Horizon is to be withdrawn on 31 July, 1995. Reference is also made to Clause 25.9 and Clause 8 of the TDN Agreement. We require a meeting on or before 24 July 1995 at a mutually convenient time and place in order to `negotiate in good faith as to appropriate price structures' as the Contractor will be unable to obtain access to the CNH following 31 July, 1995."
On 19 July 1995, BTA asserted that the State's conduct in refusing to acknowledge CVPN as equivalent to CNH was fundamentally inconsistent with the TDN Agreement. The relevant portions of the letter are as follows:
"As you are aware, Telstra will withdraw CNH from service at the end of the month and replace it with CVPN. For some time now Telstra has not been accepting new orders from BTA for CNH.
VPN has been from the outset an essential element of the TDN and BTA has repeatedly asked the Government whether it accepts that CVPN is an equivalent to CNH for the purposes of the TDN Agreement. Please see our letters to the Government of 23 and 27 June and 3, 5 and 10 July 1995. [None of these letters, other than that of 10 July 1995, was in evidence.] Yet, with only a few business days now remaining in July for us to arrange transition from CNH to CVPN, BTA still does not have unequivocal responses and directions from the Government on these vital matters.
It is clear that the dispute between BTA and the Government in relation to CNH and CVPN goes to the root of the TDN Agreement and that, if our view is correct, the Government's conduct in refusing to acknowledge CVPN as equivalent to CNH and to enable BTA to act accordingly is fundamentally inconsistent with the TDN Agreement.
...
The purpose of this letter is to ensure that the Government is in no doubt that we must have by 4pm tomorrow, one of the following:
a) The Government's acceptance that CVPN is the equivalent of CNH for purposes of the TDN Agreement and its agreement to give us and Telstra the necessary directions forthwith; or
b) The Government's acceptance that CVPN will be treated from 1 August 1995 as the equivalent of CNH for purposes of the TDN Agreement, pending resolution of the differences between us about the TDN Agreement (on the basis that we will make an appropriate financial adjustment retrospectively if the Government is successful in its contentions as to the correct position), and its agreement to give us and Telstra the necessary directions forthwith.
If neither of those alternatives is secured by the time stated, the future of the TDN Agreement is at stake."
Meetings took place between the State and BT on 19 and 20 July 1995. The parties discussed the terms on which BT should be given access to the CVPN tariff.
The State replied to BT's letter of 19 July 1995 on 20 July 1995, rejecting its contentions:
"The Department of Public Works and Services does not acknowledge that CVPN is a replacement for CNH or that its refusal to acknowledge the equivalence between CVPN and CNH is fundamentally inconsistent with the TDN Agreement. I note that the TDN Agreement makes no reference to the concept of `replacement' and the concept appears to be irrelevant for present purposes.
The Department of Public Works and Services denies that there has been uncertainty in the Government's conduct or that the Department of Public Works and Services has caused agencies to refuse to commit to the TDN.
The Department of Public Works and Services refutes your assertion that the TDN Agreement is at stake. The Agreement provides mechanisms for resolution of disputes or difficulties which arise under it."
The letter recorded that the parties had reached an "in principle" agreement relating to CVPN. An internal BT plc e-mail of 20 July 1995 also recorded that an interim agreement on VPN had been reached and that in consequence the decision to terminate the TDN Agreement had been put on hold. The memorandum noted signs that the State was taking seriously BT's threat to terminate the TDN Agreement and was "likely to approach... discussions anxious to avoid such an action."
On 21 July 1995, Mr Kaye prepared handwritten notes concerning the implementation of the then current strategy. The notes referred, inter alia, to "BTA silk positive" and to a deadline for the draft of a "formal CVPN agreement".
On 21 July 1995, BT agreed that certain points recorded in the State's letter of 20 July 1995 represented the "in principle" discussions which have occurred. The letter committed BT to work in good faith to attempt to resolve the differences, but rejected the motion that a binding agreement had been reached. The letter extended the deadline referred to in the letter of 19 July 1995 from 26 July 1995 to 5.00 pm on 31 July 1995.
On 22 July 1995, Mr Rizzo, General Manager, Special Projects, BTA, recorded his concern in an internal e-mail about the billing treatment accorded to CNH interstate calls. His concern was that the undiscounted Telstra tariff had been applied, thus denying the State discounts to which they were entitled.
On 28 July 1995, the State invoked cl 55 of the TDN Agreement as a means of resolving the ongoing disputes between BT and the State. It required "higher level discussions" to be entered into, pursuant to cl 55.4 of the TDN Agreement.
Further lengthy discussions took place between representatives of BT and the State on 31 July 1995. There is a dispute between the parties as to what transpired at that meeting. In particular, there is disagreement as to whether compromise negotiations were still on foot when the discussions concluded on that day. However, it is clear from the State's notes of the meeting that BT expressed the view that, if it were not given unfettered access to CVPN, and some other acceptable arrangement were not made, it would consider that the State had repudiated the TDN Agreement. The State's response to this assertion was recorded as follows:
"The BT approach was considered to be designed to achieve a substantially greater advantage not contemplated under the TDN contract. BT, at the detriment of the Government, would achieve substantially greater revenue and profit with no additional effort which were not contemplated or guaranteed in the original TDN contract. Profits are potentially in the $5.6M per annum range and these are currently received direct by the Government under tariff plans with the key carriers."
On 1 August 1995, BTA wrote to the State complaining of its "repudiatory" conduct:
"When we left your offices yesterday afternoon, it was because the Government said it wanted some time further to consider BTA's proposal for an interim position and to enable each party to document its proposal for further consideration by the other party and on the basis that the parties would meet again later that day.
I was surprised and disappointed therefore to be informed by you yesterday evening that, without telling us, the Government had instead used the time to take unilateral action with Telstra to implement its proposal and saw no point in further discussion with BTA with a view to reaching an agreed interim position. I subsequently received by facsimile the Government's `proposal' which you say Telstra have been advised to implement from today. This is not conduct I would have expected from a party which during our discussions yesterday was repeatedly professing its good faith.
By its unilateral action, the Government has not only pre-empted and dismissed further consideration of BTA's proposal for an agreed interim position pending authoritative determination of the CVPN dispute, but has also carried out its earlier threatened action, which is contrary to its basic and fundamental obligations under the TDN Agreement and will prevent BTA from performing its obligations under the TDN Agreement as a whole.
...
For reasons previously advised, BTA regards the Government's conduct in relation to CVPN, `whole of government obligations' in the TDN Agreement and its latest unilateral conduct, as repudiatory of the TDN Agreement and as the culmination of a series of serious breaches of the TDN Agreement on the part of the Government. We are urgently considering our position. The continued provision of services by BTA while that occurs is without prejudice to any of our remedies."
BTA purported to terminate the TDN Agreement, by a Notice of Termination dated 1 August 1995. The material portions of the Notice are as follows:
"2. BTA was induced to enter into the TDN Agreement by the Government's representations, inter alia, that the TDN was required as a network for the whole of Government and for use by all the Agencies and that the number of Agency sites using the TDN would be at least 1,282 and might be as many as 5,000.
3. Virtual private networking supplied by a licensed carrier (`VPN') has at all times been a fundamental element of the TDN for the life of the TDN Agreement.
4. Telstra has withdrawn its VPN product CNH with effect from 1 August 1995 and, to the knowledge of the Government, Telstra ceased accepting new orders for CNH from BTA prior to 3 July 1995.
5. Telstra is now supplying another VPN product known as Corporate Virtual Private Network (`CVPN').
6. BTA is entitled to substitution or replacement of CNH by CVPN for the purposes of the TDN Agreement in accordance with its terms and to performance by the Government of its obligations in these respects and otherwise in relation to the whole of government services and generally under the TDN Agreement.
7. If BTA is deprived of substitution or replacement of CNH by CVPN, there is no VPN fully available for purposes of the TDN Agreement, and BTA is prevented from and/or frustrated in carrying out its obligations under the TDN Agreement as a whole.
8. In May 1994, the Government informed BTA:
(a) that it had nominated CVPN for the purposes of its Strategic Relationship Agreement with Telstra and had entered or proposed entering into an agreement with Telstra for the provision of CVPN to Agencies;
(b) that it did not regard CVPN as within the scope of TDN Agreement and that BTA was not and would not be entitled to act as the agent of the Government in relation to the supply of CVPN by Telstra to the Agencies.
9. The Government has further asserted that BTA is not its agent for purposes of its Strategic Relationship Agreement with Telstra.
10. BTA has urgently and repeatedly sought confirmation from the Government that from 1 August 1995 BTA would be entitled to substitution or replacement of CNH by CVPN for purposes of the TDN Agreement, and that the Government would do all things necessary and give all necessary directions to BTA and Telstra for that purpose, but without success.
11. The Government has continued dealing with Telstra with a view to the Government and the Agencies being supplied with CVPN by Telstra and continues to assert that CVPN is not an equivalent of or replacement for CNH for purposes of the TDN Agreement and is otherwise in breach of the TDN Agreement.
12. The Government's conduct in relation to CVPN has been causing BTA great operational difficulties since May 1995. BTA has been unable for some months to place orders for CNH pursuant to the TDN Agreement and has been prevented from making arrangements necessary for a transition from CNH to CVPN. The Government's conduct has prevented and is preventing BTA from a fair carrying out of its bargain and performing its obligations under the TDN Agreement as a whole.
13. The Government yesterday unilaterally terminated discussions, which were in progress with BTA with a view to resolving the critical situation faced by BTA in relation to CVPN, and instead made unilateral arrangements with Telstra which would deny BTA full access to CVPN from 1 August 1995.
14. By its conduct in relation to CVPN and in relation to the whole of government obligations in the TDN Agreement and by its latest unilateral conduct, and by its failure to observe the terms of the TDN Agreement in relation to CNH and CVPN and otherwise, the Government has breached and threatens to breach and will continue to breach fundamental obligations of the TDN Agreement and has repudiated the TDN Agreement and the Government's obligations under it. BTA by its Board of Directors has today accepted the Government's repudiation and terminated the TDN Agreement, which is now at an end."
On the following day, the present proceedings were commenced.
No Prima Facie Case
I have set out the dealings between the parties at some length because I think the chronological account assists in assessing whether the State has established a prima facie case of abuse of process, such that legal professional privilege (or client legal privilege) does not apply to the categories of documents to which it seeks access. It will be recalled that the substance of the State's case is that BTA threatened to institute and ultimately did institute proceedings against the State knowing that such proceedings were misconceived. In my opinion, applying the principles explained in Attorney-General (NT) v Kearney and Propend Finance, the State has not made out a prima facie case to that effect.
One difficulty in the State's path is that its submissions pay too little regard to the developments that took place in and after May 1995. For example, Mr Douglas relied heavily on Mr Cornish's repeatedly expressed misgivings about whether BTA had grounds for terminating the TDN Agreement. He also relied on Mr Kaye's statement in his report of 10 March 1995 that there was no legal or commercial basis on which to attack the State and on similar statements made by Mr Mockett in March 1995. Mr Cornish's misgivings were expressed and Mr Kaye and Mr Mockett made their statements before May 1995. It was not until that month that BTA actively pursued the litigation option. Prior to May, BTA had not threatened legal action against the State or, for that matter, Telstra. The absence of any such thread was consistent with BTA's internal assessment of the position.
Two important events occurred in May 1995. First, it became evident to BTA that there were difficulties concerning the terms on which it could gain access to CVPN, following Telstra's foreshadowed withdrawal of CNH. This issue was closely related to the ongoing dispute with the State concerning the proper calculations of BCP. If BTA's construction of the TDN Agreement were correct, access to CVPN on terms which enabled BTA to charge the State by reference to Telstra's published tariffs (less the discount provided for in the TDN Agreement) was a critical matter. BTA's view in May 1995 and subsequently was that the State proposed to deal directly with Telstra for the provision of CVPN to Agencies and that the State did not regard CVPN as a replacement for CNH. This perception was recorded, for example, in the draft questions and answers prepared on 11 May 1995. I do not think that there are any substantial grounds for contending that this perception was not genuinely held by senior BT officers.
The second important event in May 1995 was that advice was obtained from senior counsel. The conference of 10 May 1995 identified a number of issues, including the equivalence of CVPN and CNH and the application of the Fair Trading Act to the State. BT subsequently received a number of written advices. I infer from Mr Mockett's report to the Investment Committee of 7 June 1995 that the advice was to the effect that BT's position on the disputed issues had substance. Mr Mockett explicitly referred to the pricing issue, the State's failure to nominate BTA as its CVPN agent and the State's alleged misrepresentations and "non-delivery". BTA received at least six memoranda from counsel during May 1995.
Counsel's advice clearly enough changed BT's approach. For example, the change in Mr Cornish's own attitude towards legal proceedings is shown by his e-mail of 13 July 1995, in which he accepted litigation as a necessary step to recover BTA's losses. Mr Mockett's attitude also clearly changed, although he still regarded litigation as "a final fall back". Similarly, it seems that it was not until the conference of 10 May 1995 that consideration was given to the significance of the Fair Trading Act in relation to the allegations that the State had misrepresented the volume of traffic generated by the Agencies. BT's internal memoranda from at least October 1994 complained that BTA's bid was based on inaccurate information provided by the State. The issue was whether the State could be held to account for the inaccuracies, or whether BTA was precluded from obtaining relief by disclaimers or by its own, incomplete inquiries. The appropriate inference from the evidence is that BT was advised in May 1995 and thereafter that it had at least an arguable case based on the State's misleading and deceptive conduct. Whether that advice ultimately proves to be correct is not to the point. It can hardly be suggested that counsel's advice was not provided in good faith.
Mr Douglas relied on documents containing acknowledgments by BTA that Agencies had executed ASA's at a satisfactory rate. It is true that BTA made these acknowledgments. But BT's internal documents indicate that, from its perspective, the principal difficulty was that the State had placed barriers in the path of BTA securing the practical benefits of the exclusivity to which it claimed to be entitled under the TDN Agreement. Mr Cornish, for example, complained of these matters in a memorandum of 17 November 1994. The contemporary documentation consistently complained that BTA's problems had been exacerbated by Telstra's predatory activities. The fact that only a few Agencies had failed to execute ASA's may well create difficulties for some aspects of BTA's pleaded case. But that fact is not inconsistent with senior officers of BT genuinely believing that BTA had at least an arguable case against the State by reason, inter alia, of its failure to ensure that the Agencies respected BTA's entitlements to exclusivity under the TDN Agreement.
Mr Douglas contended that the evidence established, to the required standard, that BT was looking for a means of escaping from a commercially unsatisfactory contract and that it was prepared to seize on spurious claims to achieve this purpose. There is no question that a substantial body of opinion within BT held that the TDN Agreement had been an unsatisfactory commercial arrangement. It had come about, according to BT's own documentation, partly in consequence of managerial weaknesses and (to use the language of the Investment Committee) "commercial naivete". There is also no doubt that, both before and after May 1995, BT's developed a strategy designed to renegotiate arrangements with the State. It also made attempts, ultimately unsuccessful, to bring about an alliance with Telstra.
The unsatisfactory commercial character of the TDN Agreement from BTA's perspective may create difficulties for its claim to certain heads of damage. But there is no necessary inconsistency between BTA acknowledging that the TDN Agreement was a product of naive assumptions and inadequate planning and BTA claiming that it suffered compensable losses by reason of pre- and post- contractual wrongdoing on the part of the State and Telstra. This is illustrated by Mr Mockett's analysis of 7 June 1995. He recognised that, even on the most optimistic assumptions, BTA would not recover the totality of its losses by means of legal proceedings. On the "worst case" scenario, the losses already sustained by BT would increase substantially. Nonetheless, depending on the vicissitudes of the process, he saw litigation as a means of recovering some proportion of BT's losses.
Nor do I think that BT's obvious desire to negotiate better commercial outcomes with the State and Telstra points to the absence of a genuine belief in the merits of its claims. Prior to May 1995, BT recognised that the only major weapon it had was its contention that BCP should be calculated by reference to Telstra's published prices. After May 1995, BT plainly took the view that it had more strings to its litigious bow. I have referred earlier to the principles stated in Goldsmith v Sperrings Ltd, to the effect that there is no abuse of process if a litigant seeks a negotiated outcome reasonably related to the legal redress available in respect of a grievance. In my opinion, there is insufficient material even on a prima facie basis, to take BT's negotiations (including the threats of litigation) outside these principles.
As I have explained, the State relied on objective factors, such as the acknowledgments in the TDN Agreement, as supporting its contention that BTA did not genuinely believe it had an arguable case. This reliance was somewhat undercut by Mr Douglas' concession that BTA's allegations against the State, including those based on the Fair Trading Act, were not liable to be dismissed or struck out. In any event, BTA (as I have found) received advice in and after May 1995 that it had a plausible case. There is no basis for concluding that BTA's officers did not believe the advice as recorded in the internal memoranda and reports. Nor is there any basis for the suggestion that the advice was given only because BT withheld critical information from its legal advisers. The evidence does not support any such suggestion.
Mr Douglas submitted that the statements of participants in the meetings of 31 July 1995 demonstrate, on a prima facie basis, that Mr Kaye implemented a pre-determined plan to accept a repudiation by the State, regardless of the State's willingness to entertain compromise solutions or its adherence to the requirements of the TDN Agreement. It seems likely Mr Kaye's account of the events of 31 July 1995 will conflict with the accounts of others. Depending on the resolution of this conflict, the events of 31 July 1995 may be very important in determining whether the State's conduct can be classified as repudiatory. I am prepared to assume, for the purposes of these motions, that the accounts given by the State's witnesses should be accepted. Nonetheless, their accounts do not seem to me to warrant a finding, on a prima facie basis, that BTA did not genuinely believe it had an arguable case against the State in and after May 1995. According to the State's witnesses, a reasonable compromise proposal was still on the table at the end of discussions on 31 July 1995 and Mr Kaye had agreed that nothing needed to be done until the next day. Yet it is clear that BT had put its position relating to CVPN strongly at the meeting. Moreover, as I have explained, the contemporary documentation supports rather than contradicts the proposition that BT officers believed that BTA had at least an arguable case against the State on grounds including the State's refusal to acknowledge that CVPN was the equivalent of CNH.
Mr Douglas also emphasised BT's preparations after May 1995 for the expected litigation with the State. He suggested that the preparation of draft press releases and the drafting of pleadings (a draft "writ" was in existence by 8 June 1995) indicated a determination on BTA's part to use litigation as a means of extricating itself from the TDN Agreement. But those preparations are entirely consistent with BT's stated approach of attempting to negotiate a satisfactory compromise to the dispute and of resorting to litigation if those attempts did not prove fruitful. Doubtless BT was concerned with the public relations aspects of impending litigation, but the attainment of public relations advantages cannot be characterised, even on a prima facie basis, as BT's primary objective in threatening or instituting proceedings.
I have not overlooked the other matters put by Mr Douglas. In my view, the evidence adduced in these interlocutory motions falls short of making out the prima facie case the State must establish to succeed.
I should add a further comment. I have said that Mr Douglas submitted that it was not necessary to make a finding on a prima facie basis that BTA threatened and instituted proceedings knowing that they were without foundation. I have also said that he did not develop the contention that a prima facie case of abuse of process could be made out in the absence of such a finding.
In my view, given that the evidence does not support the finding Mr Douglas invited me to make, there is no other basis for holding that the State has made out a prima facie case of abuse of process. The negotiations undertaken by BT in and after May 1995, in my opinion, were reasonably related to the redress available for the grievances BTA genuinely held. On the evidence to which I have referred, the State has not made out a prima facie case that BTA threatened or instituted proceedings, to use the language employed by Bridge LJ in Goldsmith v Sperrings Ltd, for an ulterior purpose unrelated to the subject matter of the litigation.
Conclusion
On the evidence at this stage of the proceedings, I am not satisfied that the State has made out its claim to inspect the categories of documents identified by Mr Douglas on its behalf. The appropriate course is to dismiss par 1(d) of the State's motion and make an order on BT's motion setting aside the State's notice to produce dated 24 October 1997. The State must pay BT's costs of each motion.
|
I certify that this and the preceding fifty-four (54) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Sackville. |
Acting Associate:
Dated: 29 September, 1998
|
Counsel for the Applicant: | Mr G A Palmer QC with Mr G C Lindsay SC, Mr R Margo and Mr L S Einstein |
| Solicitor for the Applicant: | Middletons Moore & Bevins. |
| Counsel for the First Respondent | Mr F M Douglas QC with Mr W G Muddle and Mr D R Stack |
| Solicitor for the First Respondent | Crown Solicitors Office |
|
Counsel for the Second Respondent: |
Mr T Bathurst QC with Mr A W Street SC and Mr J R J Lockhart |
| Solicitor for the Second Respondent: | Blake Dawson Waldron. |
|
Date of Hearing: |
29 June 1998 and 31 August 1998 |
| Date of Judgment: | 29 September, 1998 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1998/1229.html