Converging Momentum Pty Ltd v Birse

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SUPREME COURT OF QUEENSLAND

CITATION:

Converging Momentum Pty Ltd and Ors v Birse and Ors [2024] QSC 287

PARTIES:

CONVERGING MOMENTUM PTY LTD
ACN 617 126 968

(first plaintiff)
AND
STARDUST WITHIN PTY LTD
ACN 619 316 899
(second plaintiff)
AND
RENE GEORGES PENTECOST

(third plaintiff)
v
RUSSELL KEITH BIRSE

(first defendant)
AND
LAKE MULLALLOO PTY LTD
ACN 064 082 757
(second defendant)
AND
KYLE ANDREW WILLIAMS
(third defendant)
AND
RUNAWAY COVE (AUST) PTY LTD
ACN 079 797 087
(fourth defendant)
AND
MICHAEL ANTHONY OAR
(fifth defendant)
AND
123 BANG PTY LTD
ACN 100 176 458
(sixth defendant)

FILE NO/S:

BS 5982/20

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland at Brisbane

DELIVERED ON:

6 December 2024

DELIVERED AT:

Brisbane

HEARING DATE:

1 November 2024

JUDGE:

Treston J

ORDER:

1.   The application is dismissed.

2.   The defendants are ordered to pay the plaintiffs’ costs of the application on the standard basis

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – DISCOVERY AND INTERROGATORIES – PRODUCTION AND INSPECTION OF DOCUMENTS – GROUNDS FOR RESISTING PRODUCTION – PRIVILEGE – CLIENT LEGAL PRIVILEGE – WAIVER OF PRIVILEGE – where the defendants apply for orders that the plaintiffs disclose two legal advices, which were provided by the plaintiffs’ solicitors in relation to the sale of shares in a company – where the defendants made certain representations to a representative of the first and second plaintiffs about the sale of a company – where the plaintiffs entered into an agreement to purchase 10 per cent of the company and submits that it relied solely on the defendants’ representations in so doing – where the plaintiffs obtained legal advice about the purchase of the company – where the plaintiffs assert privilege over those advices – where the defendants plead that the plaintiffs relied on the advices in making the decision to purchase the shares – whether the plaintiffs expressly or impliedly waived privilege over the  advices – whether the advices ought to be disclosed

BT Australasian Pty Ltd v New South Wales [1998] HCATrans 270, cited

Chen & Ors v City Convenience Leasing Pty Ltd &Anor [2005] NSWCA 297, followed
Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341, cited
Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236, cited
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, cited
Mann v Carnell (1999) 201 CLR 1, followed
Osland v Secretary, Department of Justice (2008) 234 CLR 275, cited
The Queensland Local Government Superannuation Board v Allen [2016] QCA 325, followed

COUNSEL:

DM Logan KC with C Stackpoole for the plaintiffs/respondents
BW Wacker for the defendants/applicants

SOLICITORS:

Irish Bentley Lawyers for the plaintiffs/respondents
Cowen Schwartz Marschke for the defendants/applicants

Introduction

  1. The defendants make application for orders that the plaintiffs make disclosure of documents pertaining to certain advice the plaintiffs received regarding the purchase of shares in a company, Rapid Securities Ltd. The application is centred around…

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Details
Case
[2024] QSC 287
Decision Date

CaseChat Overview and Summary

In the case of Converging Momentum Pty Ltd v Birse, the plaintiffs sought to challenge the defendants' assertion that they had waived privilege over certain communications, which the plaintiffs claimed were crucial to their case against the defendants. The dispute centred on whether the plaintiffs' conduct had effectively put the contents of the privileged advice in issue, thereby waiving the privilege. The plaintiffs alleged that the defendants had made misleading representations about the value of Rapid Securities, which the plaintiffs had relied upon when entering into a Share Sale Agreement. The defendants, in turn, argued that the plaintiffs had waived privilege over certain advices by their conduct and pleadings, particularly by asserting that they had not relied on the privileged advice when making their investment decision.

The legal issues the court had to address were whether the plaintiffs' assertion that they relied solely on the defendants' representations and not on the privileged advice they received constituted an implied waiver of privilege. The court had to consider whether the plaintiffs had, through their conduct and pleadings, put the contents of the privileged communications in issue, thereby waiving the privilege. The court also had to examine whether the plaintiffs' assertion that they relied solely on the defendants' representations was inconsistent with the maintenance of privilege in the privileged communications.

The court found that the plaintiffs had not impliedly waived privilege over the otherwise privileged advices. The court noted that the plaintiffs had asserted that they relied solely on the representations made by the defendants and had not relied on the privileged advice. However, the court held that this assertion did not necessarily put the contents of the privileged advice in issue. The court emphasised that the key inquiry was whether the plaintiffs' conduct and pleadings had directly or indirectly put the contents of the privileged communications in issue. The court concluded that the plaintiffs' assertion about their reliance did not inherently put the contents of the privileged advice in issue, and therefore, the plaintiffs had not waived privilege.

The court's reasoning was based on the principle that for a privilege to be waived, the privilege holder must have acted in a way that is inconsistent with the maintenance of privilege. In this case, the court found that the plaintiffs' assertion about their reliance on the defendants' representations did not inherently contradict or put in issue the contents of the privileged advice. The court also noted that the plaintiffs' conduct and pleadings did not directly or indirectly put the contents of the privileged advice in issue.

In conclusion, the court held that the plaintiffs had not impliedly waived privilege over the otherwise privileged advices. The court dismissed the defendants' application for an order that the plaintiffs had waived privilege over the advices. The plaintiffs' assertion about their reliance on the defendants' representations did not inherently put the contents of the privileged advice in issue, and therefore, the privilege had not been waived.

Orders

Orders of the court

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Background

Background to the litigation

At the heart of the application is the question of whether the plaintiffs have impliedly waived privilege over those otherwise privileged advices.Background The chronology and the pleadings are important background. In late September 2016 to mid-July 2017, it is alleged that the defendants made certain representations to a representative of the first and second plaintiffs, Mr Pentecost, about the value of Rapid Securities. Those representations about the value of Rapid Securities and its future prospects included a representation that the company “was a 70 million dollar company”.[1][1]Statement of claim [16]-[19]. The plaintiffs plead that the representations were relied upon by the plaintiffs in entering into the Terms Sheet and the Share Sale Agreement.[2] The plaintiffs allege that the misrepresentations were misleading or deceptive, or likely to mislead or deceive, and that the conduct has caused loss. The claimed loss is the whole of the $7 million which the plaintiffs invested, or alternatively, a portion of it.[2]Statement of claim [32A]-[33]. On the plaintiffs’ pleaded case, only the representations made by the defendants induced Mr Pentecost to sign the Share Sale Agreement, and they were the only representations which he relied upon. Prior to proceeding with the purchase, probably in late April 2017 and no later than 10 May 2017, Mr Pentecost had retained his lawyers, Irish Bentley, and a firm of accountants, Marsh, to act on his behalf in conducting due diligence in relation to the purchase of the shares in the company. On 24 May 2017, Marsh wrote to Mr Pentecost (care of Irish Bentley) stating:“Based on the proposed valuation of the entire group being $70 million, we are of the opinion that the business unit is grossly overvalued. The proposed buy in of 10% shareholding at $7 million means you will be paying a huge premium on the real value of the shares…As such we do not recommend you proceed with the shareholding purchase at the current price of $7 million.However, if you still wish to proceed for the purchase, we recommend a full due diligence be conducted prior to signing any purchase contracts and shareholder agreements. We have prepared a fee quote for this service for your review.” (my underlining) There is no claim of privilege over the Marsh advice. There is no evidence that Mr Pentecost accepted Marsh’s recommendation that it conduct due diligence on his behalf. In June 2017, a second accounting report was prepared by another firm, BDO, which report was said to be for the dominant purpose of Irish Bentley providing legal advice to Mr Pentecost. The plaintiffs assert privilege over that BDO report. Irish Bentley then provided legal advices to Mr Pentecost on 16 and 22 June 2017. Again, the plaintiffs assert privilege over those legal advices. On 4 July 2017, Mr Pentecost, on behalf of the first plaintiff, signed a non-binding Terms Sheet to purchase 10 per cent of the issued shares in the company for $7 million. On 17 July 2017 the parties signed the Share Sale Agreement selling that 10 per cent for $7 million. In so contracting to purchase, Mr Pentecost pleads that he relied solely upon the representations made by the defendants about the value of the shares.The pleadings

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In contrast, the defendants contend that it is the second part of the test articulated by Burns J at [71] in Allen’s case where the court ought to focus its attention, and that is whether the plaintiffs have, by their conduct, “lay open” the confidential communication to scrutiny and, by such conduct, there is an inconsistency which arises between the making of the assertion and the maintenance of the privilege. The defendants contend that the assertion that the plaintiffs only relied upon the representations by the defendants, and did not rely upon the legal advices would give rise to the relevant unfairness, being the implied assertion that the content of the privileged communications either did not contain any advice relevant to the value of the asset which the plaintiff was seeking to purchase, or that if it did, that the plaintiffs did not rely upon that advice.Application and conclusion Focusing as I must on the conduct of the privilege holder, the uncontested chronology, read together with the pleaded case, demonstrates that the plaintiffs have put Mr Pentecost’s state of mind and therefore the state of mind of the companies he controlled, in issue as a material fact by the assertion that they relied upon the representations made by the defendants between late September 2016 and mid-July 2017. The plaintiffs effectively seek to silo that state of mind brought about by the representations from privileged legal advice they later received. I accept and proceed on the basis that the question I must consider is not however whether the privilege holder has put their state of mind in issue as such, but whether the contents of the otherwise privileged communication has directly or indirectly been put in issue by the privilege holder. This involves an analysis of the acts of the privilege holder that are said to be inconsistent with the maintenance of privilege in the relevant communication. In late April or early May 2017, Mr Pentecost, on behalf of the plaintiffs, had retained Irish Bentley and Marsh to act on his behalf in conducting due diligence in relation to the purchase of the shares in the company. The retainer was therefore prior to the purchase. Marsh wrote to Mr Pentecost, care of Irish Bentley, on 24 May 2017, expressing the strongly worded opinion that the purchase was “grossly overvalued”, that the plaintiffs would be paying “a huge premium on the real value of the shares” and recommended not proceeding with the purchase. It can be inferred for the purpose of this application, but without deciding the issue, that Mr Pentecost’s state of mind may have been influenced by the Marsh advice, because the plaintiffs then sought out another accounting firm, BDO, to prepare a report “for the dominant purpose of Irish Bentley Lawyers providing legal advice…” to Mr Pentecost. Perhaps Mr Pentecost rejected Marsh’s advice as so inconsistent with the defendant’s representations that he had relied upon that he wished for a second opinion. Perhaps he merely wished to cross check the opinion Marsh had expressed. Whatever he thought at the time of the Marsh advice, his state of mind in terms of reliance is squarely raised by him on the pleadings.

Ratio Decidendi

Legal Principle Established

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