Data Access Corporation v Powerflex Services P/L

[1994] FCA 751

DATA ACCESS CORPORATION v. POWERFLEX SERVICES PTY LTD, POWERFLEX CORPORATION
PTY LTD, DAVID MEREDITH BENNETT AND MARGARET ANN BENNETT
No. VG473 of 1993
FED No. 751/94
Number of pages - 5
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
HEEREY J

CATCHWORDS

Practice and Procedure - legal professional privilege - documents passing between solicitor and client - satisfaction of sole purpose test - documents pleaded into relevance - waiver - misrepresentation of contents of documents to third parties.

Copyright Act 1968 (Cth) s.115(4)(b)(i)
Federal Court Rules O.15 r.14, O.15 r.8

Attorney General for Northern Territory v Maurice (1986) 161 CLR 475
Clarke v United States 289 US 1 (1933)
Grant v Downs (1976) 135 CLR 674
Hong Kong Bank of Australia Limited v Murphy (1993) 2 VR 419
Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347

HEARING

MELBOURNE, 11 October 1994
#DATE 11:10:1994

Counsel for the applicant: A K Panna

Solicitor for the applicant: Stephens

Counsel for the respondent: J F Bleechmore

Solicitor for the respondent: Trumble Szanto Braham

ORDER

The Court Orders that:
1. The respondents produce for inspection by the applicant's

solicitors the documents referred to in the respondents' Affidavit of Particular Discovery pursuant to O.15 r.8 of David Meredith Bennett sworn 19 July 1994, schedule 1 numbered 11 being:

11. Legal advice and correspondence obtained by the respondents or on their behalf with respect to the distribution and marketing of Powerflex and PFXplus -

(a) Briefing notes dated 21 April 1989.

(b) A solicitor's letter dated 28 April 1989.

(c) A solicitor's letter dated 11 May 1989.

(d) A solicitor's letter dated 18 May 1989.

(e) A solicitor's letter dated 22 May 1989.

(f) A solicitor's letter dated 5 June 1989.

2. The order referred to in 1 be stayed for seven days.

3. The time for the filing of the respondents' affidavits be extended

to 31 October 1994.

4. The applicant file and serve any affidavits in reply by 30

November 1994.

5. The respondents pay the applicant's costs of the motion.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

JUDGE1

HEEREY J This issue of legal professional privilege arises in a claim for breach of copyright in relation to computer programmes. The allegations contained in the applicant's amended statement of claim dated 17 November 1993 include a pleading in para 7.2 that the acts referred to in para 6.1 to 6.11, which deal with various alleged infringements by reproducing, copying, adapting, etc, "were done flagrantly and with knowledge of the applicant's copyright". That allegation is denied in the defence. The flagrancy of an infringement is relevant for the purposes of assessing damages for infringement: s.115(4)(b)(i) of the Copyright Act 1968 (Cth).

1. The documents in question are described in the respondent's statement as being "privileged from production on the ground that the documents are protected by legal professional privilege as appears by their description, in that they consist of documents passing between the respondents and their solicitors and solely for the purpose of obtaining and giving legal advice in relation to the issues in these proceedings or for the purposes of these proceedings, or in contemplation of such proceedings".

2. In the schedule, item 11 is headed "Legal advice and correspondence obtained by the respondents or on their behalf with respect to the distribution and marketing of Powerflex and PFC Plus". The documents are then listed. They are described as "briefing notes dated 21 April 1989" and then five solicitors letters ranging in date between 28 April and 5 June 1989. I inspected the documents in question under the power conferred by O.15 r.14. The documents clearly enough do answer the description in the respondents' affidavit of documents and would satisfy the "sole purpose" test of Grant v Downs (1976) 135 CLR 674.

3. However, the content of the advice contained in the letters bears on the questions raised in the present application. For present purposes, it is sufficient to say that the documents consist of advice from a solicitor expert in computer copyright law in response to a detailed description of the respondents' product. The respondents enquired whether their product would infringe the applicant's copyright. The response was quite pessimistic as to the respondents' prospects of avoiding committing an infringement of copyright, although the correspondence concludes with some further aspect of the respondents' product being suggested and the giver of the advice expressing the view that that rather improved matters from the point of view of infringement. However, at the very least, the advice raises doubts as to whether an infringement action could be successfully defended.

4. On that basis I think the applicant succeeds in its argument that the raising of the issue of flagrancy, in the pleading which I have mentioned, makes the advice relevant. The principle is covered by the decision of Smith J of the Supreme Court of Victoria in Hong Kong Bank of Australia Limited v Murphy (1993) 2 VR 419 at 435 and following. In particular, his Honour refers to a decision of the Full Court of the Supreme Court of New South Wales in Thomason v The Council of the Municipality of Campbelltown (1939) 39 SR (NSW) 347. An issue raised on the pleadings may have the effect that documents which would otherwise be subject to legal professional privilege lose that privilege because they have been, as the saying goes, pleaded into relevance. Thomason's case shows that such a situation is not confined to the case where the party seeking to assert privilege raises a positive case. In Thomason the plaintiff brought a Lord Campbell's Act claim and the defendant pleaded election, that is to say, the old statutory defence that the taking of worker's compensation benefits with requisite knowledge defeated a common law claim. Evidence was admitted of communications between the plaintiff and her legal advisers because they went to the question of her knowledge.

5. It seems here that the issue of flagrancy has been raised on the pleadings and the question of the respondent's knowledge and belief as to the legal rights of the applicant are directly relevant. That there are no doubt other issues of fact and law in the case does not, as the respondents' counsel argued, make the issue of flagrancy merely a "marginal" one.

6. There is another basis on which I think the privilege has been lost, namely implied waiver. The leading case on waiver is the decision of the High Court in Attorney General for Northern Territory v Maurice (1986) 161 CLR 475. The members of the High Court there stressed the element of fairness. In the judgment of Mason and Brennan JJ at p.487 their Honours said:
   

"The limiting effect of legal professional privilege on the availability of evidence otherwise relevant is confined, inter alia, by the doctrine of waiver. A litigant can of course waive his privilege directly through intentionally disclosing protective material. He can also lose that protection through a waiver by implication. An applied waiver incurs when, by reason of some conduct on the privilege holder's part, it becomes unfair to maintain the privilege. The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication."

1. And, as was said by Cardozo J in Clarke v United States 289 US 1 (1933) at 15:
   

"The privilege takes flight if the relation is abused."

1. Here there was evidence of two circumstances which would bring this principle into play. There was evidence from a Mr Tom Aczel, who for some time worked for the respondents. Mr Aczel deposed that immediately prior to commencing that employment he was employed by another computer company and wanted, amongst other things, some reassurance that there would be no problems created by copyright infringement if he went to work for the respondents. The managing director of the respondent who is the third respondent, wrote to Mr Aczel on 1 May 1990. He commenced the letter by saying:
   

"In response to your recent inquiry I am happy to reassure you concerning the origin and nature of our Powerflex product line."

1. There then follow assertions as to the nature of the respondents' product Powerflex and its design etc and how it is said not to have been derived from the applicant's product Dataflex and that its source is entirely written by the respondents. The letter concludes:
   

"I trust that the above clarifies the situation. I should also add that we have sought and obtained expert legal advice concerning the strength of our product integrity in Australia and that the advice was entirely favourable. Australian Copyright Law provides effective protection for software and Dataflex is well protected by such law. We are confident that Powerflex does not breach any copyright of Data Access Corporation."

1. I do not think the advice contained in the documents the subject of the claim for the professional privilege, could be fairly described as "entirely favourable" to the view that there wwould be no infringement of the applicant's copyright. Mr Aczel also deposed that in his subsequent work with the respondents the question of copyright infringement arose and was impeding sales. Mr Aczel deposed:
   

"Although Powerflex sales had increased markedly, Powerflex was difficult to sell. Developers expressed their concern to me about Powerflex being a clone of Dataflex and Data Access taking legal action for copyright infringement. I discussed the copyright infringement with Bennett regularly as it was of continuing concern to me and was impeding sales. On each occasion that I raised the issue with Bennett he stated that Powerflex was not a copy of Dataflex and referred to the legal advice that he had obtained. The Bennetts never showed me the legal advice that Powerflex Corporation had obtained, although I asked Bennett to show me the advice on a number of occasions. His response to the request was: That it was something that I should not be looking at. Whenever I raised the legality of Powerflex, Bennett always appeared to be very guarded about the legal advice.

Margaret Bennett, the fourth respondent, was less guarded than Bennett when discussing Powerflex Corporation's business and legal strategy. Margaret Bennett was actively involved in the business and in charge of Powerflex marketing and sales. Whenever a prospective customer raised the legality of Powerflex and whether it infringed Data Access's copyright and Dataflex I would refer the matter to her and request a letter to be sent to the prospective customers to allay their concern.

I specifically recall seeing copies of letters which Margaret Bennett had forwarded to prospective customers who had expressed a concern about Powerflex infringing a copyright and Dataflex. The letters referred to the advice that Powerflex Corporation had obtained in relation to copyright infringement and were a shorter version of the letter that is the one to which I have already referred."

1. So it seems to me, on the basis of that evidence, that there is a case for saying that the respondents used a misrepresentation of the advice in question as a marketing tool to increase sales or overcome customer doubts on the specific question of infringement of copyright, and thereby caused damage to the applicant.

2. I make the order sought in the applicant's notice of motion. I will order that the respondents produce for inspection by the applicant's solicitors, documents referred to in the respondents affidavit of particular discovery pursuant to O.15 r.8 of David Meredith Bennett sworn 19 July 1994, schedule 1, numbered 11.

3. I will vary the order of Northrop J, made on 12 May 1994, by extending the time for the filing of the respondents' affidavits to 31 October, and that will mean that the answering affidavits by the applicant will be about a month later.