Artistic Builders Pty Ltd and Anor v Nash and Ors [2009] NSWSC 102 (6 March 2009)

Last Updated: 9 March 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Artistic Builders Pty Ltd and Anor v Nash and Ors [2009] NSWSC 102


JURISDICTION:


FILE NUMBER(S):
20353/2007

HEARING DATE(S):
14/11/2008; 26/02/2009

JUDGMENT DATE:
6 March 2009

PARTIES:
Artistic Builders Pty Limited - First Plaintiff
ABC Plumbing Services Pty Limited - Second Plaintiff
Gregory Nash - First Defendant
Michael O'Neill - Second Defendant
John Tomko - Third Defendant
Alexander Koroknay - Fourth Defendant
Paul Thomas Hayson - Eleventh Defendant
Ian Michael Smith - Twelfth Defendant
Stephen Cleve Remington - Thirteenth Defendant
Grant Stahl Hansen - Fourteenth Defendant
James Edward Behringer - Fifteenth Defendant
Jennifer Anne Graves - Sixteenth Defendant
Patrick Joseph O'Brien - Seventeenth Defendant

JUDGMENT OF:
Hoeben J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr CRC Newlinds SC/Ms PA Horvath - Plaintiffs
Mr N Kabilafkas - First to Fourth Defendants
Mr MS White - Eleventh to Seventeenth Defendants

SOLICITORS:
HWL Ebsworth - Plaintiffs
Henry Davis York - First to Fourth Defendants
Yeldham Price O'Brien Lusk - Eleventh to Seventeenth Defendants


CATCHWORDS:
EVIDENCE - action by clients against former solicitors - client legal privilege - s 122 of Evidence Act 1995 - whether client legal privilege lost - importance of pleadings - applicability of tests of relevance and fairness
PRACTICE - discovery of documents - client legal privilege - principles applicable to claims by clients against former solicitors

LEGISLATION CITED:
Evidence Act 1995
Fair Trading Act 1987
Limitation Act (NSW) 1969

CATEGORY:
Procedural and other rulings

CASES CITED:
Bayliss v Cassidy (No 2) [2000] 1 Qd R 464
Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341
Council of the NSW Bar Association v Archer [2008] NSWCA 164
Lillicrap and Anor v Nalder & Son [1993] 1 All ER 724; [1993] 1 WLR 94
Mann v Carnell (1999) 201 CLR 1
Paragon Finance Pty Limited v Freshfields [1999] 1 WLR 1183 at 1188D
Seven Network Limited and Anor v News Limited and Ors [2005] 227 ALR 704
SQMB v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 241; (2004) 205 ALR 392
Telstra Corporation Ltd v BT Australasia Ltd (1998) 85 FCR 152

TEXTS CITED:


DECISION:
I order the plaintiffs to produce for inspection by the 1st to 4th defendants:
(a) Those documents in paragraph 5 of the affidavit of Robert Bruce Henry Schneider, dated 17 September 2008, which are relevant to a matter in issue on the pleadings between the plaintiffs and the 11th to 17th defendants.
(b) Exhibit “RBHS1” to that affidavit.
I make the declaration sought by the Eleventh to Seventeenth Defendants.
Plaintiffs to pay the costs of motions.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

HOEBEN J

Friday 6 March 2009

20353/2002 – ARTISTIC BUILDERS PTY LIMITED and Anor v Gregory NASH and Ors

JUDGMENT

1 HIS HONOUR:

Nature of application

The first to fourth defendants carried on a partnership as a firm of solicitors known as “Nash O’Neill Tomko” (NOT). The eleventh to seventeenth defendants carried on a partnership as a firm of solicitors known as “Harris & Company” (Harris & Co). There are ongoing proceedings brought by the plaintiffs, Artistic Builders Pty Limited (Artistic), and ABC Plumbing Service Pty Limited (ABC) against those defendants.

2 By a motion filed 29 September 2008 NOT seek an order that the plaintiffs produce certain documents. The plaintiffs resist that motion on the basis that the documents are covered by client legal privilege.

3 By motion also filed 29 September 2008 Harris & Co seek a declaration that those same documents are not covered by client legal privilege. The issue before the Court is therefore whether the plaintiffs are entitled to resist production of the documents, the subject of the motions, on the basis that those documents are covered by client legal privilege.

Factual background

4 The following summary is not intended to set out findings of fact but to provide a background and context so that the issues raised by the motions can be better understood. Much of this information comes from the plaintiff’s most recent pleading – a Third Further Amended Statement of Claim (TFASC), filed 26 September 2007.

5 At all material times Albert Chahine was a director and majority shareholder of Artistic and ABC. In about 1993 ABC purchased land known as 228 South Terrace, Bankstown which was subsequently subdivided into two lots. In March 1997 the Bankstown City Council granted development consent for the construction of three 10 storey residential towers on one lot and a 14 storey office tower on the other.

6 On 14 October 1999 ABC entered into a retainer with NOT, the effect of which was that NOT would act on behalf of ABC to implement a transaction which involved the sale of the Bankstown property. It was part of the retainer that NOT would act in accordance with instructions provided by Mr Chahine, not only on behalf of ABC, but also on behalf of such other entities controlled by Mr Chahine which might be ultimately used to effect the transaction.

7 The methodology to be used for the sale transaction was unusual and complicated. The total purchase price was $7.5 million of which $3.5 million was payable on settlement and the balance on subsequent dates. In essence the transaction seems to have involved a form of vendor finance.

8 As part of the transaction mortgages were to be entered into over the Bankstown property and other properties in Queensland and New South Wales as were necessary to secure the delayed payment.

9 For the purposes of the transaction, a company (Nordoc Pty Limited) was acquired. It would be the trustee of a unit trust and ABC would hold units in that trust. ABC would sell the Bankstown property to Nordoc for $3.5 million and at or about the same time would transfer its shares in Nordoc to the purchaser. ABC would receive a further $3.7 million from the purchaser to be paid by transfer of certain units in any development of the Bankstown property when constructed, such property either to be transferred by direct transfer or a distribution of the unit trust.

10 The transaction failed, apparently because the mortgages (which were second and third mortgages) were not effective to secure the purchase monies and because Nordoc defaulted when it was asked to make the first of the payments.

11 As a result of that default, the first mortgagee of the Bankstown property (Elliot and Tuthill (Mortgages) Pty Limited) took possession and sold it. There was nothing left for the subsequent mortgagees. In 2001 Artistic commenced proceedings against the first mortgagee and others (SC 4825/2001) asserting that the Bankstown property had not been sold for market value. Although Artistic was successful in establishing that issue, it was unsuccessful overall because it was held that even if the Bankstown property had been sold for market value, there would still not have been anything left for Artistic.

12 In 2000 ABC and Artistic terminated the retainer of NOT and on 21 July 2000 retained Harris & Co to act on their behalf. Harris & Co were their solicitors in the proceedings against the first mortgagee. The current proceedings were commenced on 11 July 2001 with Artistic as the plaintiff.

13 As ultimately refined in the TFASC, the allegations against NOT raise issues of negligence and breaches of the Fair Trading Act, 1987. An important allegation is that if NOT had advised of all the risks of the transaction Artistic and ABC would not have gone ahead with it, i.e. a no transaction case.

14 In March 2007 application was made to the Court by Artistic to add ABC as a plaintiff. Bell J heard the application. Her Honour allowed the amendment but reserved for the trial the limitation defence, i.e. whether the amendment related back to the commencement of the proceedings. This meant that ABC might be found to be the party which suffered the loss but be confronted with a successful limitation defence. As a result the TFASC was filed with Harris & Co added as defendants to meet that contingency.

15 In the claim against Harris & Co the following paragraphs of the TFASC are relevant:

“42. On or about 21 July 2000, ABC and Artistic Builders entered into a contract of retainer with Harris & Co to act and advise in relation to recovery of damages from NOT as a result of the sale of the Bankstown property.

Particulars

a. The retainer is in writing and comprises the letter dated 21 July 2000 from Harris & Co to ABC and the disclosure statement and agreement document enclosed with that letter, signed by ABC and returned to Harris & Co in or about late July 2000.

b. It was a term of the retainer that Harris & Co would exercise all due care, skill and diligence in performing their duties pursuant to the contract of retainer.

43. A reasonably competent solicitor acting in NSW would have identified and recommended that ABC ought to be a plaintiff in the proceedings because, on a proper analysis, any loss caused as a consequence of NOT’s negligence was caused to ABC and/or Artistic Builders.

44. Harris & Co did not advise ABC as to any potential claim that it may have against NOT arising out of the Transaction.

45. ABC says that, if it is prevented from recovering damages from NOT on the basis that its claim against NOT is not maintainable by reason of the provisions of s 14 of the Limitation Act (NSW) 1969, then Harris & Co breached the terms of the contract of retainer referred to in paragraph 42 above.

Particulars

a. Failing to exercise due care, skill and diligence.

b. Failing to advise ABC on the prospects of a claim against NOT until in or about February 2007.

c. Failing to advise ABC that it ought to be joined as a plaintiff to these proceedings.

d. Failing to protect the interests of ABC.

e. Failing to provide ABC with advice on the statutory limitation period.”

There are also allegations of negligence in the same terms as particularised in paragraph 45.

16 Harris & Co in their Amended Defence, filed 30 June 2008, admit their letter of 21 July 2002 but otherwise do not admit the allegations as to retainer. Paragraph 43 is denied. The allegations in paragraph 44 are met by challenging the assumption in paragraph 43 and by reliance upon the advice of counsel. The allegations in paragraph 45 are denied.

17 In that Amended Defence Harris & Co also deny paragraph 26 of the TFASC. Paragraph 26 reads:

“26. Had NOT advised ABC and Artistic Builders about the matters in paragraph 25 above, then ABC and Artistic Builders would not have executed the documents listed in paragraphs 16-23 above.”

18 Harris & Co acted for the plaintiffs on the claim in these proceedings between 21 July 2000 and 8 June 2007. They were the solicitors on the record for Artistic Builders from 11 July 2001 and for ABC from 23 March 2007. Harris & Co filed a Notice of Ceasing to Act for both Artistic and ABC on 8 June 2007.

19 The documents, the subject of these applications, are documents currently held by Harris & Co. The documents can be divided into two groups. The first group comprises four categories of documents nominated by NOT for discovery by Harris & Co. They are described as follows:

“1. All correspondence, file notes, instructions given and other documents relating to the allegations contained in paragraph 26 of the Third Further Amended Statement of Claim that ABC and Artistic Builders would not have executed the documents listed in paragraphs 16-23 had NOT advised ABC and Artistic Builders about the matters in paragraph 25, including documents relating to actual or potential alternatives which ABC and/or Artistic Builders had or may have contemplated.

2. All documents evidencing or related to the retainer referred to in paragraph 42 of the Third Further Amended Statement of Claim.

3. All documents evidencing or related to instructions given by or on behalf of Artistic Builders and/or ABC to Harris & Co regarding the proper parties to the litigation against Nash O’Neill Tomko and/or potential causes of action available.

4. All documents evidencing or related to any advice given by Harris & Co to Artistic and/or ABC regarding the proper parties to the litigation against Nash O’Neill Tomko and the potential causes of action available.”

20 The plaintiffs have agreed that within those four categories client legal privilege has been waived in respect of the following documents:

1. Documents which evidence the retainer referred to in paragraph 42 of the Third Further Amended Statement of Claim.

2. Documents which evidence any instructions given by either of Artistic or ABC to Harris & Co regarding the proper parties to the litigation against Nash O’Neill Tomko; and

3. Documents which evidence any advice given by Harris & Co to Artistic and/or ABC regarding the proper parties to the claim against Nash O’Neill Tomko.

21 It became apparent during argument that this “agreement” as to client legal privilege having been waived in respect of three of the four categories was more apparent than real. What the plaintiffs envisaged were documents which expressly and directly referred to the specified subject matter. NOT and Harris & Co had in mind documents which were relevant to those categories and from which those subject matters might be inferred but which of themselves might not directly or in terms refer to those specific subject matters.

22 The parties were clearly at issue in relation to category one. As I read the affidavit of Mr Schneider of 17 September 2008 the documents which relate to category one have been collected together and make up exhibit “RBHS 1” to that affidavit. There are 220 documents in the exhibit. Exhibit “RBHS 1” provides a general description of each document and identifies the basis upon which client legal privilege has been claimed.

23 I have not seen any of those documents, nor have the parties sought to place them before me. The matter proceeded on the mutual understanding that my decision would be based on the pleadings and not on the contents of any particular documents. Some assistance was provided by the plaintiffs’ submissions where the documents in exhibit “RBHS 1” were further divided into subcategories as follows:

(i) Instructions given to Harris & Co by the plaintiffs.

(ii) Communications between Harris & Co and the plaintiffs in relation to mediation of proceedings 20353/2002 and the 2007 amendment of the pleadings to join ABC.

(iii) Other advice and confidential communications from Harris & Co to the plaintiffs.

(iv) Confidential communications between Harris & Co and lay or expert witnesses.

(v) Confidential communications between Harris & Co and counsel briefed on behalf of Artistic in relation to mediation of proceedings 20353/2002 and the amendment of the pleadings to join ABC.

(vi) Communications from Harris & Co to counsel briefed on behalf of Artistic in relation to proceedings 20353/2002.

(vii) Other confidential records of discussions between Harris & Co and counsel.

(viii) Documents between Harris & Co and HWL Ebsworths regarding the hand over of the plaintiffs’ file from Harris & Co and the mediation.

(ix) Other records of work carried out by Harris & Co for the plaintiffs.

24 The second group of documents comprises the balance of documents held by Harris & Co which came into existence whilst they were acting for the plaintiffs. Unlike the documents which make up categories 1-4, these documents have not been separately identified by the plaintiffs. The plaintiffs object to their production on the basis that approximately two-thirds of them do not come within categories 1-4 (and therefore are not discoverable) and if it becomes necessary to identify those documents they reserve the right to claim client legal privilege in respect of them. This group of documents has been referred to in submissions as the “unlisted documents”.

25 The position of NOT and Harris & Co is different in relation to the “unlisted documents”. At present Harris & Co do not wish to have access to them and are content to base their argument on the documents comprising categories 1-4. NOT wish access not only to the documents comprising categories 1-4, but also to four boxes of documents from the “unlisted documents” which they have identified as relevant to the proceedings.

26 By way of explanation for that last circumstance, I should note that the parties have approached this matter with a high level of professionalism and co-operation. The plaintiffs have not objected to the Harris & Co documents being made available for informal inspection to the solicitors for NOT. This has enabled the solicitors for NOT to identify specific documents on which they wish to rely rather than have the matter proceed on a purely hypothetical basis. The informal inspection of those documents which the plaintiffs have consented to is, of course, subject to the plaintiffs being allowed to raise a claim for client legal privilege if they are so advised.

Submissions

27 The parties agreed that prima facie s 119 of the Evidence Act 1995 (the Act) applies in respect of all of the Harris & Co documents, i.e. that they were privileged when they came into existence and are protected from disclosure by client legal privilege. They agree that the issue to be decided is whether s 122 of the Act applies so that within the terms of that section it can be said that client legal privilege has been lost.

28 The parties agreed that the Court should apply the form of s 122 which came into force on 1 January 2009. Section 122 relevantly provides:

“122 (1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned.

(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.

(3) Without limiting subsection (2), a client or party is taken to have so acted if:

(a) the client or party knowingly and voluntarily disclosed the substance of the evidence to another person, or

(b) the substance of the evidence has been disclosed with the express or implied consent of the client or party.

(4) The reference in subsection (3) (a) to a knowing and voluntary disclosure does not include a reference to a disclosure by a person who was, at the time of the disclosure, an employee or agent of the client or party, or of a lawyer of the client or party, unless the employee or agent was authorised by the client, party or lawyer to make the disclosure. ...”

29 Harris & Co and NOT accepted that they carried the burden of establishing loss of client legal privilege in accordance with s 122 of the Act.

30 Harris & Co submitted that they wished to preserve their right to fully prosecute their defence of the claims brought against them. They pointed out that they would soon be required to prepare evidence in defence of the claim and that it would be necessary for their witnesses to address the allegations of breach of retainer and negligence made in the TFASC. In order to prepare affidavits which would properly address the factual narrative of the retainer instructions and advice given about the proceedings brought by the plaintiffs against NOT while Harris & Co was acting as the plaintiffs’ solicitors, the witnesses would need to refer to documents in the Harris & Co files.

31 They made two complaints about the position adopted by the plaintiffs in relation to the category 1-4 documents. The first complaint was that the plaintiffs had given too narrow an interpretation to the meaning of categories 2, 3 and 4 and that a wider interpretation was more appropriate. They submitted that those categories, properly interpreted, should include documents that were relevant to an issue but did not directly raise the issue in terms.

32 Harris & Co submitted that category 1 refers to documents dealing with the issue raised on the pleadings that if the plaintiffs had received proper advice from NOT about the original transaction, they would not have entered into it. This, they said, was a classic reliance on advice pleading, as was the consequence which was pleaded, i.e. that the plaintiffs would not have entered the transaction had proper advice be provided.

33 They submitted that if there were documents in their files which related to whether or not Mr Chahine had a particular attitude at the time of, or immediately before, the transaction was entered about the general circumstances of the transaction, what the plaintiffs needed to do in terms of selling the property and whether the plaintiffs had other options, then Harris & Co should be able to rely upon those documents and that evidence at the hearing. It would be fundamentally unfair if they were unable to rely upon such documents.

34 Harris & Co relied upon the decision of the United Kingdom Court of Appeal in Lillicrap and Anor v Nalder & Son [1993] 1 All ER 724; [1993] 1 WLR 94. They submitted that this case was authority for the proposition that when a client brings proceedings against its former solicitors for professional negligence, the client impliedly waives legal professional privilege in relation to all matters that are relevant to an issue in the proceedings. They submitted that the waiver extended to documents and communications between the solicitor and client within the specific retainer forming the subject matter of the proceedings, to all matters which the defendants’ solicitors were entitled to raise in their defence and to all facts and documents material to the cause of action and the defendants’ proper defence of the proceedings.

35 Relying upon that decision Harris & Co submitted that the rationale for the waiver was unfairness. They submitted that relevant unfairness arose if a client opened up for investigation the professional relationship between it and its former solicitors but at the same time sought to enforce against the solicitors a duty of confidence in respect of documents which came into existence during the course of that relationship.

36 Harris & Co submitted that the amended form of s 122 did no more than adopt the common law test of whether a client or party had “acted in a way that is inconsistent with” the maintenance of the privilege as set out by the High Court in Mann v Carnell (1999) 201 CLR 1. They submitted that there was no conflict between what was said in Lillicrap v Nalder and the “inconsistency” approach of the High Court. They relied upon the following statement of principle from Mann v Carnell:

“Waiver of Privilege at Common Law

28 At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that “waiver” is a vague term, used in many senses and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client’s version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication, or the institution of proceedings for professional negligence against the lawyer, in which the lawyer’s evidence as to advice given to the client will be received.

29 Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is “imputed by operation of law”. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Plus, in Benecke v National Australia Bank the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister’s version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. What brings about the waiver is the inconsistency which the Courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.” (Mann v Carnell – Gleeson CJ, Gaudron, Gummow and CallinanJJ)

37 Harris & Co submitted that when those principles are applied to the case which the plaintiffs plead against them, the inconsistency of the position adopted by the plaintiffs became obvious. In that regard Harris & Co submitted that claims against solicitors by their clients are in a special category and should be treated differently to other cases. They submitted that the High Court implicitly accepted this when it gave as an example of inconsistency the institution of proceedings for professional negligence against a lawyer in which the lawyer’s evidence as to advice given to the client would be received. The Court referred with approval to Lillicrap v Nalder & Son (see [36] above) as an example of such inconsistency.

38 Harris & Co submitted that there was good reason for distinguishing claims by clients against their solicitors from other claims where legal advice to one of the parties might be relevant to an issue between them.

39 They submitted that in a usual commercial reliance case there may be an argument about what legal advice was received on a particular issue at a particular time and in such circumstances the waiver may be confined specifically to that piece of advice. In contrast, they submitted, a claim by a client against its solicitors will often involve a much wider examination. The sequence of instructions to the solicitors and their content may be important, particularly if a court is going to be asked in due course to determine whether the solicitors should have been aware of something at a particular point in time.

40 Harris & Co identified the following issues as arising in that part of the TFASC directed against them:

(i) Whether ABC had a claim against NOT that would have succeeded.

(ii) The scope of their retainer.

(iii) Whether a reasonably competent solicitor would have identified ABC as a plaintiff against NOT and so advised ABC.

(iv) The fact of and reasonableness of their reliance on counsel’s advice in relation to the pleading against NOT.

(v) Whether they breached their retainer or duty of care in the manner particularised in paragraph 45 TFASC.

(vi) Whether ABC would have been entitled to an award of damages against NOT on the basis pleaded in paragraph 26 TFASC, i.e. that it would not have entered into the sales transaction in November 1999 if NOT had advised it or warned it of the various matters pleaded in paragraph 25.

41 Harris & Co submitted that the plaintiffs by raising those issues against them had exposed those issues to public scrutiny thereby entitling Harris & Co to rely upon documents in its files relevant to these issues to answer them. The raising of client legal privilege in respect of such documents was inconsistent with pleading those issues and it would be unfair, in the sense referred to by the High Court, for confidentiality in respect of those documents to be maintained against them.

42 Harris & Co submitted that because of the width of the matters raised by the plaintiffs against them in respect of which issue had been joined in the pleadings (see [40] above) the plaintiffs had opened up most, but not all, of their retainer to investigation. They submitted that confidentiality had been lost in respect of the following documents in their files relating to the proceedings against NOT:

(i) All instructions given to Harris & Co by the plaintiffs or their agents.

(ii) All advices given by Harris & Co to the plaintiffs.

(iii) All communications between Harris & Co and counsel.

(iv) All notes and memoranda recording the considerations of Harris & Co of the instructions, the relevant issues as the solicitors saw them and work carried out in fulfilling the retainer.

43 Harris & Co submitted that such documents were relevant to the matters raised by the plaintiffs in the TFASC not only because of what they contained but also because of what they did not contain. They submitted that it would not be possible for a court to properly determine whether a reasonably competent solicitor should have advised that ABC be made a party to the proceedings unless Harris & Co were able to bring before the court documents from their files which demonstrated their state of knowledge at various points in time.

44 NOT adopted those submissions. They submitted (and it was not disputed by the plaintiffs) that once confidentiality was lost in respect of documents in the Harris & Co files, then it was lost for all purposes and that NOT could rely upon those documents and adduce evidence in relation to them.

45 NOT supported the proposition that claims by clients against their solicitors formed a special category of case within this area of the law. They submitted that in such cases most of the retainer of the solicitors is brought under scrutiny and that the confidentiality of documents relating thereto is lost. The question of relevance is important in such cases because it determines which documents have lost the protection of confidentiality. It is only those documents which come within the scope of the particular retainer which is under challenge that lose their confidentiality. The corollary was that unless a document within the overall retainer is relevant to the particular issue raised between the client and the solicitors, confidentiality is not lost.

46 I note that in making that submission NOT had modified the position initially taken in their written submissions where the proposition was put that by joining Harris & Co in the proceedings, the plaintiffs had irrevocably waived privilege over all documents held, or once held, by Harris & Co in the course of its retainer for the plaintiffs against NOT. That proposition, of course, is untenable and was expressly rejected in Lillicrap where relevance to the particular issues raised was stressed.

47 NOT relied upon the following from the United Kingdom Court of Appeal in Paragon Finance Pty Limited v Freshfields [1999] 1 WLR 1183 at 1188D:

“When a client sues a solicitor who has formerly acted for him, complaining that the solicitor has acted negligently, he invites the court to adjudicate on questions directly arising from the confidential relationship which formerly subsisted between them. Since court proceedings are public, the client brings that formerly confidential relationship into the public domain. He thereby waives any right to claim the protection of legal professional privilege in relation to any communication between them so far as necessary for the just determination of his claim; or, putting the same proposition in different terms, he releases the solicitor to that extent from the obligation of confidence by which he was formerly bound. This is an implication of law, the rationale of which is plain. A party cannot deliberately subject a relationship to public scrutiny and at the same time seek to preserve its confidentiality. It cannot pick and choose, disclosing such incidents of the relationship as strengthen his claim for damages and concealing from forensic scrutiny such incidents as weaken it. He cannot attack his former solicitor and deny the solicitor the use of materials relevant to his defence.”

48 NOT submitted that they were entitled to access to the “unlisted documents”, even though at this stage in the proceedings Harris & Co were not seeking access to them. NOT submitted that the documents were discoverable because they were relevant to issues between the parties. If those documents were relevant to an issue between Harris & Co and the plaintiffs, their confidentiality had been lost as between the plaintiffs and Harris & Co, and it mattered not that at this time Harris & Co did not wish to rely upon them. Once confidentiality had been lost, it was lost for all purposes and NOT was entitled to rely upon them. NOT submitted that no other impediment such as oppression had been identified by the plaintiffs to prevent them relying on the documents.

49 The plaintiffs submitted that the United Kingdom cases had only limited application. The test was a purely statutory one and what had to be established by NOT and Harris & Co was inconsistency as specified in s 122(2) of the Act and as explained by the High Court in Mann v Carnell. The plaintiffs submitted that the defendants were relying upon an overall concept of “fairness” to substantiate their position, a proposition which had been specifically rejected in Mann v Carnell.

50 The plaintiffs submitted that there was no authority for the proposition that claims by clients against former solicitors are in a special category so that the entirety of the solicitors’ file is in play and confidentiality in relation thereto has been waived. They submitted that regardless of the nature of the case, it is still necessary to look with precision at the issue raised in that particular case to identify the relevant inconsistency and to then work out the width of that inconsistency. If there is relevant inconstancy then confidentiality has been lost. They argued that the submissions of the defendants lacked that level of precision in their analysis of the issues raised by the pleadings.

51 The plaintiffs submitted that when one looked at the matters said to be in issue between the plaintiffs and Harris & Co on the pleadings, the matters in dispute were largely illusory. They submitted that there was no real issue concerning the retainer and that Harris & Co would be hard pressed to maintain their challenge to the plaintiffs’ “no transaction case” since they were the solicitors on the record and their defence is tantamount to an assertion that they allowed the plaintiffs to pursue a case which had no prospects of success.

52 The plaintiffs submitted that just because the pleadings place in issue the state of mind of solicitors does not mean that confidentiality in relation to documents relevant to that issue has been lost. In that regard the plaintiffs relied upon the judgment of Sackville J in Seven Network Limited and Anor v News Limited and Ors [2005] 227 ALR 704 at [44] and [48] where his Honour said:

“[44] The current position concerning s 122 of the Evidence Act, as I see it, is as follows:

(i) Telstra v BT holds that s 122 of the Evidence Act is to be read as incorporating common law principles of waiver. I am bound by that holding.

(ii) The majority in Telstra v BT interpreted the scope of common law waiver by reference to the guiding principle of fairness. That interpretation has now been overtaken by the authoritative statement of principle in Mann v Carnell at [29]. That is, what brings about waiver of privilege of common law is the inconsistency which courts, where necessary informed by considerations of fairness, perceive between the conduct of the client and the maintenance of confidentiality, not some overriding principle of fairness.

(iii) It follows that, despite what was said in Telstra v BT (at FCR 166–7; ALR 647), the fact that the client pleads reliance on a representation does not necessarily result in the waiver of privilege in any legal advice that may be relevant to ascertaining the party’s state of mind. To put the matter another way, the mere fact that legal advice may be material to an issue in the proceedings, even one raised by the client, does not establish that the conduct of the client is inconsistent with maintaining confidentiality in the privileged communications.

...

[48] It follows that, on this approach, the waiver of legal professional privilege on the grounds of implied consent will involve questions of degree. As Optus said in their submissions in reply, the court will have to take a number of factors into account. These include:

• the centrality (or otherwise) to the proceedings of the issue to which the privileged communications are said to relate;

• if the issue involves a state of mind or belief, the likelihood that legal advice played a significant part in the foundation of that state of mind or belief; and

• whether there is any apparent inconsistency between the position taken by the party claiming privilege (whether at the trial or earlier) and the likely contents of the privileged communications.”

53 The plaintiffs submitted that the defendants had placed too much weight on relevance as a controlling consideration. They submitted that relevance alone did not lead to a waiver of confidentiality. What had to be established was an inconsistency of the type described in Mann v Carnell. The plaintiffs submitted that the defendants must establish more than:

(a) A reasonable possibility that the documents could be relevant and of assistance to another party.

(b) That the documents are simply material to an issue in the proceedings.

(c) That the relevant solicitor has been sued by his or her former client.

They submitted that it was necessary for the defendants to identify with precision some inconsistency between the allegations made by the plaintiffs in the proceedings and maintaining the privilege.

54 In that regard the plaintiffs relied upon the observation of Hodgson JA in Council of the NSW Bar Association v Archer [2008] NSWCA 164 at [48]:

“48 In my opinion, this exposition is consistent with both Maurice and Mann, subject to the need to look for inconsistency: cf Bayliss v Cassidy (No 2) [2000] 1 Qd R 464; SQMB v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 241; (2004) 205 ALR 392 at [30]-[44], Corkhill and Selwyn, “Evolution of the common law principle of ‘issue waiver’” (2008) 82 ALJ 338. It is not enough to bring about a waiver of client legal privilege that the client is bringing proceedings in which the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party. For the client to do this is not inconsistent with the maintenance of the privilege, and does not give rise to unfairness of the type in question. What would involve inconsistency and relevant unfairness is the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege. In this respect, it may be sufficient that the client is making assertions about the client’s state of mind, in circumstances where there were confidential communications likely to have affected that state of mind. “

55 The plaintiffs submitted that although they had agreed that documents which evidenced instructions given by them regarding proper parties to the litigation had been waived, the concession only extended to the date when the limitation period expired. The basis and justification for that qualification was not explained.

Consideration

56 As a start point, I am of the opinion that claims by clients against former solicitors should be treated differently to other actions where one of the parties may have received legal advice and access is sought by another party to that legal advice. Whether it is correct to characterise that difference as placing such cases in a special category is moot. The reason for such a distinction is clearly set out in Paragon Finance (see [47] above).

57 Similar observations were approved by Dillon LJ in Lillicrap at p 99:

“A client who sues his solicitor invites the court to adjudicate the dispute and thereby in my judgment, waives privilege and confidence to the extent that is necessary to enable the court to do so fully and fairly in accordance with the law including the law of evidence. I suspect that at the fringes each case will depend on its facts. Normally the waiver will extend to facts and documents material to the cause of action upon which the plaintiff sues and to the defendant’s proper defence to that cause of action. The bringing of a claim for negligence in relation to a particular retainer will normally be a waiver of privilege and confidence for facts and documents relating to the retainer, but not without more for those relating to other discrete retainers.”

58 The High Court recognised such a distinction in Mann v Carnell at [28] where it specifically identified as a circumstance giving rise to inconsistency “the institution of proceedings for professional negligence against a lawyer in which the lawyer’s evidence as to advice given to the client will be received”. Significantly, the High Court cited Lillicrap as an example of such inconsistency (p 13 footnote (36)).

59 The difficulty I have with the plaintiffs’ submissions is that they deny such a distinction and treat the non-solicitor/client cases as laying down principles applicable to those cases. I do not find any warrant for such an approach in the decided cases and considerable indicia to the contrary. The plaintiffs were not able to identify any solicitor/client case where client legal privilege questions arose, which supported their submissions.

60 I found that the plaintiffs’ attempt to elide the principles applicable to client legal privilege in solicitor/client cases with those applicable to other litigation where access is sought to legal advice received by one of the parties, tended to confuse rather than elucidate the question. I accept the defendants’ submission that solicitor/client legal privilege cases do need to be treated differently to other cases where client legal privilege arises such as Archer and the Seven Network case. As indicated, the reason for that difference emerges clearly from the Lillicrap and Paragon Finance extracts to which I have referred.

61 There is some force in the plaintiffs’ submission that in client legal privilege cases, such as Archer and the Seven Network case, the United Kingdom cases have only limited application. That is certainly so given the analysis in Mann v Carnell and the wording of s 122 of the Act with its focus upon inconsistency. That criticism, however, is not valid in respect of solicitor/client cases involving client legal privilege. The High Court by clear implication has approved not only Lillicrap but other United Kingdom decisions such as Paragon Finance.

62 As was recognised in Lillicrap and Paragon Finance, once it is accepted that litigation by clients against former solicitors of necessity opens up to public scrutiny a wider range of documents which would otherwise be subject to client legal privilege, relevance determines which documents have lost such privilege and which retain it. This was made clear by Dillon LJ in Lillicrap at 99:

“The waiver can only extend to matters which are relevant to an issue in the proceedings and, privilege apart, admissible in evidence. There is no waiver for a roving search into anything else in which the solicitor or any other solicitor may have happened to have acted for the client. But the waiver must go far enough, not merely to entitle the plaintiff to establish his cause of action, but to enable the defendant to establish a defence to the cause of action if he has one. Thus, it would extend to matters under early retainers, as in the hypothetical example I have given, which established that the experience of the client was, to the knowledge of the solicitor, such that the solicitor was not in breach of the duty as alleged.”

63 Similarly the Court of Appeal in Paragon Finance when commenting on Lillicrap said:

“But the language of Russell and Farquharson LJJ cannot be read without some limitation; otherwise, legal professional privilege would disappear altogether, even as between plaintiffs and solicitors advising them in their proceedings against former solicitors, where the interests of justice call for disclosure. The ruling of the court must, in our judgment, be read with reference to a subject matter of the appeal before the court. We have no doubt that the court was right to rule that the plaintiff’s implied waiver extended to earlier transactions handled for them by the same solicitors.” (p 1190G)

64 I do not understand the Seven Network case or Archer to say anything different. Unlike the Seven Network case, the plaintiffs’ action against Harris & Co does not give rise to “the mere fact that legal advice may be material to an issue in the proceedings”. It goes much further than that. It raises fairly and squarely the nature and extent of that legal advice. Moreover, legal advice given or not given by Harris & Co to the plaintiffs is central to the plaintiffs’ claim against them. The analysis of Sackville J also has to be read with the later Full Court decision of Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at [52]-[54], in particular at [54] where their Honours said:

“54 Although the Full Court was necessarily guided by the authorities prior to Mann, there is little, if anything, in the passage quoted above that would require modification to take account of Mann. It is plain enough that the majority in Mann also saw the “issue waiver” cases as a species of waiver, to which the same basic principle applied. Their Honours’ analysis in Spalvins emphasises as does the majority in Mann, that waiver comes about because the privilege holder’s conduct is inconsistent with the continued confidentiality of the communication because he or she has put in issue the character or contents of the communication in pursuing a right or claim, or has created a situation where another party must reasonably do so by way of a defence.”

65 In Archer it is clear from the way in which Hodgson JA expressed himself in [48] that he did not have in contemplation solicitor/client legal privilege cases. Nevertheless, applying the test enunciated by his Honour to the plaintiffs’ claim against Harris & Co, it is clear that what is in issue goes far beyond the proposition that “privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party”. The documents recording communications between the plaintiffs and Harris & Co are central to the ability of Harris & Co to defend the plaintiffs’ allegations made against them. That is clear from the issues between Harris & Co and the plaintiffs in the TFASC.

66 There appears to be no dispute between the plaintiffs and Harris & Co as to identifying the matters which are in issue between them on the pleadings. What is in dispute is their importance in the litigation. The plaintiffs submit that some of the issues (such as the retainer) are not genuinely in issue and to the extent that matters are in issue, they say that the dispute is within a narrow compass (such as whether advice should have been given to join ABC as a plaintiff).

67 I do not agree. I have to decide these issues by reference to the pleadings. I have not had the advantage (like the parties) of examining the documents. On the basis of the pleadings, the issues between the plaintiffs and Harris & Co are substantial and potentially wide-ranging.

68 The solicitor/client relationship between the plaintiffs and Harris & Co lasted almost seven years. Of its nature such a relationship is dynamic. It would not be surprising if during that time the initial retainer, whether confirmed by letter or not, was subject to modification. Over such a period it would be usual for the state of knowledge of the solicitors to change as a result of receiving further instructions from Mr Chahine and as a result of receiving advice from experts and responses to inquiries. The documents relating to those matters would all be important in enabling Harris & Co to provide the Court with a full picture of their relationship with the plaintiffs over the years so as to explain (if they could) why ABC were not joined as a plaintiff before March 2007.

69 On that issue I see no reason why the plaintiffs’ waiver of confidentiality should be restricted to documents which came into existence before the exploration of the limitation period. It would be important for the Court to know why the position changed in February 2007 so that Harris & Co decided that ABC should be joined. If this decision were based on additional instructions or the receipt of new information, it would be important for Harris & Co to be able to adduce evidence on that issue.

70 It follows that Harris & Co should have the orders which they seek in their Notice of Motion.

71 In order to avoid this matter unnecessarily coming back before me, I wish to make it clear that I favour a broad interpretation of the documents referred to in categories 2, 3 and 4. In my opinion confidentiality has been lost, not only in relation to documents which expressly and directly refer to the specified subject matter, but to documents which are relevant to those subject matters even though the documents themselves might not directly or in terms refer to those specific subject matters.

72 That does not end the matter. There remains the question of the “unlisted documents”. NOT seek access to them.

73 I have already adverted to the importance of relevance in cases involving claims by clients against their former solicitors. In the submissions by NOT in respect of the “unlisted documents”, it seemed to me that NOT were submitting that they should have access to those documents because the documents were relevant to issues between NOT and the plaintiffs. If that was the effect of the submission, I do not accept it.

74 The importance of “relevance” in the context of the “unlisted documents” is that for confidentiality to be lost in respect of those documents they must be shown to be relevant to an issue between Harris & Co and the plaintiffs, i.e. an issue which has been specifically raised in the pleadings. If any of the “unlisted documents” are so relevant then the plaintiffs’ right to confidentiality in respect of them has been lost and NOT can have access to them. That, however, is the limit of the access.

75 No basis has been put to me which would enable NOT to have access to any of the “unlisted documents” which might be relevant to matters in issue between the plaintiffs and NOT but not relevant to matters in issue between the plaintiffs and Harris & Co. Accordingly, order 1(a) in the NOT motion is expressed too widely and needs to be narrowed.

76 Harris & Co has succeeded in their motion and NOT has generally succeeded on their motion. I see no reason why costs should not follow that outcome. Subject to any application for a special costs order, that is the order which I propose to make.

Orders

77 In the motion brought by Harris & Co I make the following orders:

(1) A declaration that the documents over which the plaintiffs assert privilege, as set out in the affidavit of Robert Bruce Henry Schneider, dated 17 September 2008, and exhibit “RBHS1” to that affidavit are not privileged and may be discovered and relied upon in these proceedings by the 11th to 17th defendants.

(2) I order that the plaintiffs pay the 11th to 17th defendants’ costs of and incidental to this motion.

78 As to the motion brought by NOT, I make the following orders:

(1) I order the plaintiffs to produce for inspection by the 1st to 4th defendants:

(a) Those documents in paragraph 5 of the affidavit of Robert Bruce Henry Schneider, dated 17 September 2008, which are relevant to a matter in issue on the pleadings between the plaintiffs and the 11th to 17th defendants.

(b) Exhibit “RBHS1” to that affidavit.

(2) I order the plaintiffs to pay the 1st to 4th defendants’ costs of and incidental to this motion.

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LAST UPDATED:
6 March 2009