Doric Contractors Pty Ltd v Garside [No 2]

[2018] WASC 365

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   DORIC CONTRACTORS PTY LTD -v- GARSIDE [No 2] [2018] WASC 365

CORAM:   LE MIERE J

HEARD:   22 OCTOBER 2018

DELIVERED          :   27 NOVEMBER 2018

FILE NO/S:   CIV 1448 of 2014

BETWEEN:   DORIC GROUP HOLDINGS PTY LTD

First Plaintiff

DORIC CONTRACTORS PTY LTD

Second Plaintiff

AND

GARY DESMOND GARSIDE

First Defendant

TERRY JAMES PILBEAM

Second Defendant

ANDREW JAMES FATIN

Third Defendant

GREGORY LINTON ALLEN

Fourth Defendant

ROBERT LINDSAY SHIRLEY

Fifth Defendant

Catchwords:

Procedure - Production and inspection - Legal professional privilege - Whether communications are of a confidential character - Whether privilege has been impliedly waived - Issue waiver - Defendants' application dismissed - Turns on own facts

Legislation:

Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth), s 553E
Fair Trading Act 1987 (WA)
Rules of the Supreme Court 1971 (WA), O 26 r 9(2)
Sale of Land Act 1970 (WA), s 13
Strata Titles Act 1985 (WA), s 70
Trade Practices Act 1974 (Cth)

Result:

Defendants' application for inspection of documents dismissed

Category:    B

Representation:

Counsel:

First Plaintiff	:	Mr P Mendelow
Second Plaintiff	:	Mr P Mendelow
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	Mr M C Hotchkin
Fourth Defendant	:	Mr M C Hotchkin
Fifth Defendant	:	Mr M C Hotchkin

Solicitors:

First Plaintiff	:	Jackson McDonald
Second Plaintiff	:	Jackson McDonald
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	Hotchkin Hanly Lawyers
Fourth Defendant	:	Hotchkin Hanly Lawyers
Fifth Defendant	:	Hotchkin Hanly Lawyers

Case(s) referred to in decision(s):

Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297

DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499

Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117

Mann v Carnell (1999) 201 CLR 1

Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd (2015) 321 ALR 191

Viterra Malt Pty Ltd v Cargill Australia Ltd [2018] VSCA 118

LE MIERE J:

Summary

1. The third, fourth and fifth defendants have applied for an order, pursuant to O 26 r 9(2) of the Rules of the Supreme Court 1971 (WA), that the plaintiffs produce to those defendants for inspection the documents listed in the schedule annexed to the affidavit of Andrew James Fatin sworn 18 May 2018.

2. For the reasons which follow the application should be dismissed.

The action

1. This action concerns the development of units in North Fremantle.  In January 2006 Northbank Bridges Pty Ltd (NBB) was incorporated to undertake the development.  The development was marketed as the Rivershores Apartment Complex.  The development was to sell the apartments 'off the plan', that is to sell apartments that were yet to be built.  For this purpose NBB entered into contracts with purchasers which provided for the payment of a deposit, payments at various stages and a lump sum payment on completion (the pre‑sales contracts).

2. NBB lacked the financing necessary to complete the project. In February 2009 the first defendant (Mr Garside), a director of NBB, sent to Mr Xydas, a director of each of the plaintiff companies, an email which invited Mr Xydas or entities associated with him to consider either constructing the Rivershores Apartment Complex or investing in the project. The email stated that there were pre‑sales of $43 million. The plaintiffs say that this representation was repeated on a number of occasions. The plaintiffs say the representations induced them to enter into a joint venture with NBB to build the Rivershores Apartment Complex. The Doric Group interest in the unincorporated joint venture was held in Rivershores Pty Ltd, a company in which Mr Xydas was a director. The plaintiffs plead that a number of the pre‑sales contracts were unenforceable because the deposit provisions in the contracts did not comply with s 70 of the Strata Titles Act 1985 (WA). A number of purchasers under the pre-sales contracts avoided the contracts.

3. The writ of summons claims damages pursuant to the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (WA) or the Competition and Consumer Act 2010 (Cth). The plaintiffs filed a statement of claim in April 2015 (SOC). The SOC claims damages and other relief pursuant to the Fair Trading Act or the Australian Consumer Law (Cth). The SOC alleges that pursuant to the email the first defendant impliedly represented to Mr Xydas, the controlling mind of the plaintiffs, that the pre-sales contracts were binding and enforceable and could realise the sum of $43 million or thereabouts. The SOC alleged that the second to fifth defendants repeated the representation in substance in various forms and it was not withdrawn.

4. In SOC [12] the plaintiffs pleaded that Mr Poeta, a partner of Freehills or Herbert Smith Freehills, was engaged to provide legal advice to the plaintiffs in relation to the Rivershores Project.  The plaintiffs amended their statement of claim in a substituted statement of claim filed on 2 July 2015 (SSOC).  The plea that Mr Poeta was engaged to provide legal advice to the plaintiffs was deleted.  The SSOC pleads that Mr Poeta is a solicitor employed by Herbert Smith Freehills.  At various places in the SSOC it is pleaded that Mr Poeta was present at meetings when representations were made or repealed.

5. By [132] of their defence, the defendants refer to the retention by the plaintiffs of Mr Poeta to provide legal advice to the plaintiffs in respect of the Rivershores Project.

Due diligence in relation to the pre-sales contracts

1. The third, fourth and fifth defendants, who I will refer to for convenience as the defendants, say that the plaintiffs scheduled a time frame within which due diligence was to be performed on the pre-sales contracts to verify their legal enforceability. The plaintiffs arranged for the law firm Minter Ellison to prepare a due diligence report on the pre‑sales contracts. The report was to be provided to the Commonwealth Bank for the purposes of obtaining finance. The defendants say that Mr Poeta provided ongoing advice as to legal issues associated with the pre‑sales contracts. There is evidence that Mr Poeta gave advice concerning compliance with s 13 of the Sale of Land Act 1970 (WA) and the consequences of noncompliance with that statutory provision.

2. The defendants say that the plaintiffs relied solely on their own legal advice and legal advisors and did not place any reliance on the alleged representations of the defendants.  By letter from the plaintiffs' solicitors of 25 January 2018 the plaintiffs assert that Mr Poeta was instructed not to proceed with prior instructions; and later it is alleged this instruction occurred by email sent by Mr Smith of the plaintiffs to Mr Poeta on 21 September 2009.  The defendants say this email closely coincides with Minter Ellison being appointed to prepare a due diligence report on the pre-sales contracts for the Commonwealth Bank.  The Minter Ellison due diligence report on the pre-sales contracts was sent by email to Mr Poeta on 16 October 2009.  Time records show that Mr Poeta reviewed this report.

3. The defendants submit that the evidence shows that the plaintiffs' conduct in relation to this matter has been one of conducting a thorough investigation, with extensive use of their retained solicitors, Herbert Smith Freehills, and in particular Mr Poeta, and having commissioned and paid for a due diligence report on the pre-sales contracts, which was conducted by Minter Ellison.

PDM

1. NBB and Rivershores JV Pty Ltd entered into an agreement titled Development Management Agreement ‑ Rivershores Development, North Fremantle with Property Development Management Pty Ltd (PDM).  Under the agreement PDM agreed to act as development manager for the project and to provide development management services in relation to the project.  Clause 3(b) of the agreement provides that the developer, that is NBB and Rivershores JV Pty Ltd, must reimburse PDM all reasonable costs and expenses incurred by it in performing the development management services if those costs and expenses have been previously approved in writing by the developer, or if they are in accordance with the approved budget for the Project.

2. Mr Xydas and Ms Xydas are directors and the ultimate owners of PDM.  Bowen Buchbinder Vilensky (BBV) provided legal services to PDM.  Receivers and managers were appointed to the Rivershores JV Pty Ltd and Northbank Bridges Pty Ltd joint venture and administrators were subsequently appointed and a deed of company arrangement entered into.  PDM lodged a proof of debt with the deed administrators of the joint venture, claiming reimbursement of legal costs incurred with BBV on behalf of the joint venture under the development management agreement.

BBV documents

1. BBV produced documents in answer to a subpoena caused to be issued by the defendants.  The plaintiffs claim legal professional privilege in relation to the documents listed in the BBV list of privileged documents dated 13 October 2017.  The list is divided into two parts.  The first part lists the documents for which the plaintiffs claim legal professional privilege on the grounds that they consist of professional communications of a confidential character between the plaintiffs and their solicitors, including counsel, or came into existence for the dominant purpose of obtaining or giving legal advice and assistance and/or on the basis that the documents came into existence for the purposes of litigation or when litigation was contemplated and/or on the basis of common interest privilege.  The second part of the list identifies documents that are said to be without prejudice or relate to without prejudice communications.

BBV documents are privileged

1. The parties agreed that I should inspect the BBV documents.  Indeed, this application was referred to me by the case manager for the express purpose that I might inspect the documents.  I have done so.  The documents disclose communications between BBV and PDM and Rivershores JV Pty Ltd on their own behalf and not on behalf of the joint venture.  The communications are confidential communications for the purpose of seeking or giving legal advice.

Defendants say privilege in BBV documents waived

1. The defendants say that creditors of the joint venture obtained a priority of payment from the assets of the joint venture itself, over the ordinary unsecured creditors of each company, by reason of the operation of s 553E of the Corporations Act 2001 (Cth), incorporating provisions of the Bankruptcy Act 1966 (WA).  The defendants say that the claim for a priority to recover a payment based upon the expenses incurred in retaining BBV is inconsistent with maintaining privilege over communications with BBV, because NBB, as a party to the joint venture, is then equally entitled to the benefit of such communications.  The defendants say that NBB cannot now be excluded from having regard to the communications for which a claim has been made as expenses incurred on its behalf and payment being received by PDM for this expense.  The defendants say that having elected to have a closely related company with common ultimate ownership, and Mr Xydas as a director of each, advance a claim that BBV was retained by the joint venture, including NBB, the plaintiffs cannot now assert that BBV's documents are subject to privilege that can be maintained against NBB.  NBB, as a party to the joint venture to whom advice was given, is entitled to inspect the advice.  It is property of the joint venture.  The defendants say that as the sole director of NBB, the third defendant, Mr Fatin, is entitled to view the BBV documents.

Plaintiffs say privilege in BBV documents not waived

1. The plaintiffs answer to that assertion is as follows.  BBV advised PDM in the course of its own dealings, including those with NBB related entities on the other side.  These costs were claimed by PDM against the Rivershores Joint Venture because they are recoverable by PDM under cl 3(b) of the Development Management Agreement.  In any event the solicitor/client relationship is not determined by whether reimbursement of the fees is claimed from another party.  The issue is whether the solicitor acted for that party.  BBV was acting on instructions from the plaintiffs.  BBV did not act for the Rivershores Joint Venture or NBB related parties.  The mere claiming of payment of BBV accounts from NBB does not amount to a loss of privilege over those advices.  The same principle applies to other attendances by BBV which were not in connection with advice or attendances for NBB.

Implied waiver - legal principles

1. The principle of waiver was explained by a plurality of the High Court in Mann v Carnell (1999) 201 CLR 1. Their Honours explained that what brings about a waiver of legal professional privilege is inconsistency between the conduct of the person entitled to the benefit of confidentiality of communication between lawyer and client and maintenance of the confidentiality:

   It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege …

   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 … 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 [28] ‑ [29].

Privilege in BBV documents not waived

1. Merely lodging a proof of debt with the receivers and managers appointed over the Rivershores Joint Venture claiming that the joint venture was indebted to PDM for legal costs incurred by PDM, did not waive legal professional privilege in the legal advice in respect of which the costs were incurred.  PDM did not seek to rely on the contents of any confidential communication to vindicate its claim in debt.  PDM does not now assert, and did not in its proof of debt assert, that the legal advice was provided to PDM on behalf of the joint venturers.  PDM claims that it is entitled to reimbursement of those legal costs because they are recoverable by PDM under cl 3(b) of the Development Management Agreement.  Privilege in the communications was not waived or lost by claiming payment from the joint venture.  The defendants are not entitled to inspect the BBV documents.

BBV draft discussion/strategy paper

1. Documents 14 and 15 on the BBV list of privileged documents is document 2 on Mr Fatin's schedule of documents for which inspection is claimed.  They are two versions of the same document titled 'draft discussion/strategy paper internal document legally privileged and confidential 11 April 2011'.

2. The plaintiffs say that the document contains advice to Rivershores Pty Ltd, a Doric related company, on its legal options against NBB.  The plaintiffs say it deals with potential litigation and contains comments and advice protected by privilege.

3. The parties agreed that I should inspect the documents.  I have inspected the documents.  They contain advice requested by and given to Rivershores Pty Ltd.  Privilege in the documents has not been waived.  The defendants are not entitled to inspect them.

The Herbert Smith Freehills documents

1. Herbert Smith Freehills produced documents in answer to a subpoena caused to be issued by the defendants.  The plaintiffs claim legal professional privilege (or client legal privilege) over a number of documents described in the list of Herbert Smith Freehills privileged documents dated 22 November 2017.  The list says that the plaintiffs claim legal professional privilege over the documents on the grounds that they consist of professional communications of a confidential character between the plaintiffs and their solicitors, or came into existence, for the dominant purpose of obtaining or giving legal advice and assistance, and/or on the basis that the documents came into existence for the purposes of litigation or when litigation was contemplated.

Defendants say privilege waived in Herbert Smith Freehills documents

1. The defendants say that the privilege in the Herbert Smith Freehills documents has been waived.  The defendants say the waiver arises as a consequence of the inconsistency between the case being put forward by the plaintiffs, whose state of mind, which is a key issue in determining reliance, is coincident with that of Mr Xydas as their principal director, and the actual conduct of the plaintiffs both at the relevant time, and also in the conduct of the case through their pleadings and deleting their prior claim of having retained solicitors, which they now deny.

Issue waiver - state of mind - legal principles

1. The parties took the court to a number of cases since Mann v Carnell, in which courts have dealt with questions of implied waiver of legal professional privilege where a party's state of mind is an issue in the proceedings.

2. The plaintiffs referred to the decision of Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499. In DSE Allsop J held that the mere denial by a party of an allegation as to the party's state of mind was not enough to waive privilege, in respect of any legal advice the party had received in connection with the transactions the subject of the proceedings.  Allsop J said that waiver arises when:

   the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication [58].

3. Allsop J held at [6] that a mere denial of an assertion that the holder of the privilege had a certain state of mind will not suffice to lead to a waiver of privilege.  His Honour rejected the proposition that, where a state of mind is asserted against the party claiming privilege, merely joining issue in denying that state of mind amounts to conduct inconsistent with the maintenance of privilege over the documents, which may be relevant to the formation of that state of mind.  His Honour said:

   The act of mere denial by the respondents of an assertion by the applicants is not an act by the respondents which expressly or impliedly makes an assertion about the contents of any privileged communication or which necessarily lays any such communication open to scrutiny.  There is no act of the respondents inconsistent with the maintenance of the confidentiality.  There is a joinder of issue on a question of fact to which the privileged communication can be seen as relevant.  That is insufficient in my view for it to be concluded that there exists the necessary inconsistency enunciated by Mann v Carnell [115].

4. The defendants placed particular reliance upon the decision of the Court of Appeal of Victoria in Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd (2015) 321 ALR 191. The respondent, DC Payments, contracted with the first applicant, Vic Hotel, to supply it with an automatic teller machine. Another applicant, Next Payments, was a competitor of DC Payments. The dispute between Vic Hotel and DC Payments concerned the termination of the contract between those parties. DC Payments also alleged that Next Payments had induced Vic Hotel to breach that contract. Several employees of Next Payments had formerly been employed by DC Payments. In their former roles they had become aware of legal advice given to DC Payments to the effect that a renewal clause in the contract was not enforceable. DC Payments relevantly alleged that Next Payments knew that Vic Hotel would be in breach of its obligations under the contract if Vic Hotel were to terminate the contract before the end of its term. By way of particulars, DC Payments referred to the previous employment of the relevant Next Payments employees with DC Payments and their knowledge of the contract in that context. DC Payments sought to prevent Next Payments from adducing evidence of the legal advice provided to DC Payments. A preliminary question was stated as to whether the statement of claim disclosed the content of privileged communications. The primary judge decided there had been no such disclosure. On appeal the argument concerned whether there had been waiver of the privileged communications.

1. Dixon AJA, with whom Beach and Mandie JJA agreed, stated the test for waiver is:

   whether the privilege holder, DC Payments, by its conduct in its pleading of the state of mind of Next Payments, acted in a way that was inconsistent with its objection to Next Payments adducing evidence that would result in disclosure of its knowledge of the privileged legal advice. Put another way, was DC Payments conduct in pleading a state of mind of Next Payments inconsistent with the maintenance of confidentiality in communications relevant to that state of mind [34].

   Dixon AJA applied the inconsistency test and held that waiver had been established.  By pleading that Next Payments had induced a breach of contract, DC Payments alleged that Next Payments intended to induce a breach, thereby putting its state of mind in issue.  The allegation was that, in the knowledge that Vic Hotel would be in breach of the contract, Next Payments engaged in the relevant conduct.  Implicit in the state of mind allegation was the notion that the contract was capable of being breached because it was enforceable.  Yet DC Payments sought to rely on the knowledge of its former employees about the legal position under the contract while maintaining confidentiality and legal advice on that subject.  Dixon AJA expressed the conclusion that there was waiver as follows:

   When a former employer puts in issue the state of mind of a new employer derived from the state of mind of common employees, what may be inferred cannot be constrained from the information acquired by former employees to only a part of the information that the former employer imparted to former employees. Raising the issue opens all relevant communications between the former employer and former employees that may prove, or disprove, the alleged state of mind [47].

2. The plaintiffs referred to the decision of the Full Court of the Federal Court in Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117. The principal claim in those proceedings was brought by Bris Connections as applicants against Arup alleging that Arup engaged in misleading or deceptive conduct, or was negligent, in preparing traffic forecasts on which Bris Connections relied in taking various steps in relation to the airport link toll road. Arup brought a cross‑claim against parties including Macquarie in which Arup sought to pass onto Macquarie and the other cross‑respondents any liability it may have to Bris Connections. The cross‑claim arose from an agreement ‑ the Engagement Agreement. Arup alleged by cross‑claim that the cross‑respondents had represented that they would take all necessary steps to ensure that Bris Connections would be bound by a contractual limitation of liability and had known that Bris Connections had formed the view that they were not so bound, but did not inform Arup of that fact. This was alleged to be misleading or deceptive conduct, in reliance upon which Arup had performed various services and suffered loss and damage. The cross‑respondents sought documents including the legal advice obtained by Arup in relation to the contract, including as to limitation of liability.

3. The Full Court of the Federal Court accepted that the cross‑claim could only succeed if Arup could prove that it was of the view that Bris Connections was bound by the contract, including the limitation of liability.  It had thereby put its understanding as to the effect of the contract in issue.  But the Full Court held Arup had not waived privilege in legal advice obtained by it in relation to the contract, including as to the limitation of liability.  The court said:

   However, it cannot be said that the question of reliance must have been informed by or addressed in the legal advice that Arup received.  Arup's descriptions of the basis for its claims for legal professional privilege do not indicate such, which descriptions merely generically refer to 'legal advice in relation to the reliance statement in the [Engagement Agreement]', 'legal advice in relation to third party use of data', and 'legal advice in relation to the draft [NSBT Contract]'.  There is no other evidence to indicate the extent of the legal advice; and certainly no evidence that the legal advice was likely or necessarily related to any question of reliance as pleaded in the cross-claim.  It cannot be said that Arup necessarily 'laid … open to scrutiny' the advice that it received in relation to that matter, in the manner contemplated by Allsop J in DSE [35].

4. The Full Court said that Vic Hotel was fundamentally different.  In contrast to the inconsistent conduct in that case, the proceeding in Macquarie Bank v Arup involved a pleading of reliance and the discovery of privileged documents.  The Full Court said:

   Whilst such documents are relevant to the proceeding (and hence discoverable), this is not sufficient to constitute a waiver. If it were, then as the primary judge observed, this would 'come perilously close to, if not amount to, a proposition that a mere pleading of reliance would itself be sufficient to constitute a waiver of privilege [41].

5. In Viterra Malt Pty Ltd v Cargill Australia Ltd [2018] VSCA 118 the Court of Appeal of Victoria recently considered issue waiver and reviewed most of the leading authorities decided since Mann v Carnell including DSE, Vic Hotel and Macquarie Bank.

6. Viterra Malt Pty Ltd and its related companies had entered a contract for sale of a malting business to the first respondent, Cargill Australia Ltd.  The dispute arose from Cargill's allegations that Viterra failed to disclose certain matters about Viterra's business practices prior to the sale.  Cargill alleged that, as a result of these omissions, Viterra breached certain warranties relating to the sale and engaged in misleading and deceptive conduct in contravention of the Australian Consumer Law.  In its defence Viterra alleged that Cargill had sufficient knowledge of the matters which Viterra had allegedly failed to disclose to Cargill.  Viterra also claimed that Cargill's executives represented to Viterra that the undisclosed matters did not exist and that the warranties under the sale were true and correct.  The effect of that claim was that if Viterra was found to have engaged in misleading and deceptive conduct then Cargill's executives had engaged in that same conduct.  Both sides alleged waiver of privilege by the other and applied to the Supreme Court of Victoria for access to relevant documents.

7. Cargill alleged that Viterra had, by pleading a case against Cargill's executives, waived privilege over certain categories of documents evidencing the executive's knowledge of Viterra's business practices.  Cargill succeeded in its application and the documents were produced for inspection.

8. Viterra alleged that Cargill, by pleading its knowledge of the undisclosed matters relating to Viterra's business practices (the undisclosed matters), had waived privilege over documents giving rise to such knowledge.  An associate judge dismissed Viterra's application.  An appeal to the primary judge was dismissed.  The primary judge ruled that any confidential communications regarding Viterra's business practices might have been relevant to the issues pleaded but there were not sufficiently connected to the pleaded issues that the communications privilege had been waived.

9. Viterra's appeal to the Court of Appeal was dismissed. Whelan, Kyrou and McLeish JJA delivered a joint judgment. After reviewing relevant authorities, the court said that two notes of caution must be sounded in respect of the authorities referred to by the parties. The first is that, notwithstanding that the High Court has made it clear that the common law and s 122(2) of the Evidence Act 2008 (Vic) are closely related, the question to be asked is the statutory test posed by s 122(2), namely whether the respondents, and in particular Cargill, have 'acted in a way that is inconsistent with … objecting' to the production of the privileged documents sought. The second is that there is no settled list of kinds of action which, by their very nature, give rise to implied waiver: each case must depend upon its own facts and circumstances and drawing generalisations from other cases may be dangerous: [43] ‑ [44]. The Court then went on to review the authorities.

10. The Court held that there was nothing inconsistent in Cargill maintaining privilege over possible documents in which it sought legal advice on any undisclosed matters relating to the business sale and at the same time pleading ignorance of such matters and pleading reliance on Viterra's failure to disclose.  The court said:

    But there would be nothing inconsistent in maintaining privilege in relation to such documents, while asserting ignorance of the undisclosed matters and reliance as pleaded. This is not a case where the nature of the pleading makes it inconsistent to withhold privileged communications about the transaction, notwithstanding that those communications might reveal something of Cargill's state of mind. It is entirely to be expected that a party pleading a misleading or deceptive conduct case arising from a commercial transaction will have received legal advice regarding the transaction before its consummation. The applicant's argument would suggest that privilege is waived by pleading such a case. The authorities show that something more is required [78].

11. Viterra sought to establish the required 'something more' by asserting that the lawyers were integrally involved in the pre‑sale processes and that it could be inferred from that fact and from Cargill's discovery that the lawyers had provided advice material to the formation of Cargill's state of mind as to the undisclosed matters over the relevant period.  However, the court did not draw such an inference, noting that it was not pleaded that such legal advice was provided, such legal advice could not be inferred from the pleading and Cargill's discovery did not provide a basis for the inference.  The court noted that the primary judge was prepared to conclude that some of the confidential communications are probably relevant to the issue of what and to which extent Cargill knew about the undisclosed matters but 'such communications have not been shown to extend to legal advice material to the formation of Cargill's state of mind in respect of the undisclosed matters'.  The court said that in that respect the case resembled Macquarie Bank v Arup.  The Court concluded that there was nothing inconsistent in Cargill maintaining privilege and advice received in respect of disclosures to Cargill.  The court concluded that nothing in Cargill's pleading had put its legal advice in issue or laid it open to scrutiny.

The plaintiffs' conduct and the Hebert Smith Freehills documents

1. I must now address whether the defendants have established the alleged waiver.  The test is whether there is inconsistency between the conduct of the plaintiffs and maintenance of the confidentiality of the legal advice from Herbert Smith Freehills.  I make two observations at the outset of this inquiry.  First, it is the conduct of the plaintiffs which has effected a waiver, if there has been a waiver, not the conduct of the defendants.  Secondly, at this stage the relevant conduct of the plaintiffs is their conduct in pleading their case.  It is possible that the conduct of the plaintiffs at a later stage of the proceedings may be inconsistent with maintaining confidentiality in the relevant documents and thereby waive the privilege in the documents.  For example, it is possible that such an inconsistency may arise from evidence adduced by the plaintiffs in examination‑in‑chief or cross‑examination or, possibly, by the way in which they put their case at trial.  However, at this stage of the proceedings the relevant conduct of the plaintiffs is their pleading of their case.  No waiver can be implied from the plaintiffs joining issue with the defendant's pleaded defence.

2. The drawing of general principles beyond the statement of the inconsistency test may risk departing from the question of whether there is inconsistency between the conduct of the plaintiffs and the maintenance of the confidentiality of the legal advice.  Nevertheless, the authorities establish that a pleading of reliance, without more, will not usually demonstrate inconsistency with the maintenance of client legal privilege in communications relevant to that state of mind.

3. In this case the question is whether by pleading their state of mind, the plaintiffs have acted inconsistently with maintaining the confidentiality of their communications with Herbert Smith Freehills for the purposes of obtaining or receiving legal advice.  The plaintiffs have not waived privilege in confidential communications merely by pleading reliance on the defendants' alleged misrepresentations.

4. Waiver will be implied where the privilege holder has directly or indirectly put the contents of a privileged communication in issue.  It may be difficult to determine whether a party has impliedly made an assertion, particularly a negative one, about the contents of a privileged communication.  That will especially be the case where the alleged misrepresentation concerns misrepresentations as to the effect of agreements or legal rights.  Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 and Vic Hotels are examples of this.

5. In their SSOC the plaintiffs' state of mind is relevant in three ways. First, the plaintiffs plead that it was reasonable for entities associated with Mr Xydas' interests to rely on any information provided by any of the defendants concerning, amongst other things, the legal enforceability of the pre‑sales contracts: SSOC [138]. Secondly, the plaintiffs plead that they caused Rivershore's JV to enter into the joint venture with NBB in reliance on conduct of the defendants which conveyed the impression that the pre‑sales contracts could be relied upon in making a decision as to whether or not any entity associated with Mr Xydas' interests should invest in the Rivershores Project and the total of the purchase price in respect of the pre‑sales contracts could be relied upon in making a decision as to whether or not any entity associated with Mr Xydas' interests should invest in the Rivershores Project: SSOC [143]. Thirdly, the plaintiffs plead that they advanced money to the joint venture in reliance on the same matters: SSOC [144].

6. The defendants have sought documents in which the plaintiffs received legal advice about matters arising in the due diligence process and bearing on the legal enforceability of the pre‑sales contracts.  But there would be nothing inconsistent in maintaining privilege in relation to such documents, while asserting ignorance of the legal unenforceability of the pre‑sales contracts and reliance as pleaded.  It is not inconsistent to withhold privileged communications about the pre‑sales contracts, notwithstanding that those communications might reveal something of the plaintiffs' state of mind in relation to those pre‑sales contracts.

7. Privilege is not waived by pleading a case of reliance.  Something more is required.  The defendants in effect say that the something more is that Herbert Smith Freehills were integrally involved in the due diligence and it can be inferred from that fact and from the description of the documents in respect of which privilege is claimed, that Herbert Smith Freehills had provided advice material to the formation of the plaintiffs' state of mind as to the legal enforceability of the pre‑sales contracts.

Inspection of the Herbert Smith Freehills documents

1. In ruling on a claim to legal professional privilege the court may inspect the relevant documents. The purpose of doing so is the assistance it may provide in arriving at a conclusion as to the status of the documents. Where the court inspects legal advice from or instructions to Herbert Smith Freehills in order to make a decision, the matters to be taken into account are the extent to which the legal advice bears upon the plaintiffs' belief, in reliance upon the alleged misrepresentations, that the pre‑sales contracts were legally enforceable. The matter is not confined to legal advice concerning s 70 of the Strata Titles Act because the plaintiffs' case is that the defendants represented to them that the pre‑sales contracts were binding and enforceable, not that they were not unenforceable by reason of s 70 of the Strata Titles Act.

2. The parties agreed that I should inspect the documents.  I have done so.  That enables me to consider the position in relation to each of the documents in respect of which the plaintiffs claim privilege.  The question to be answered in relation to each document, is whether maintaining confidentiality of the document is inconsistent with the plaintiffs' pleaded case.  I will consider each of the Herbert Smith Freehills documents in turn.

Letter 10 March 2010 - Doric to Herbert Smith Freehills

1. Maintenance of confidentiality of this letter is not inconsistent with the plaintiffs' conduct.  The letter of engagement discloses the scope of the services Herbert Smith Freehills were retained to undertake, but does not disclose the services that were provided or the advice that was given.  Maintaining confidentiality of the scope of services for which Herbert Smith Freehills were retained is not inconsistent with the plaintiffs' pleaded case.

Email from Garrick Smith (Doric) 21 September 2009 to Frank Poeta (Herbert Smith Freehills)

1. This document is described on the list of Herbert Smith Freehills' privileged documents as 'solicitor and client correspondence regarding Letter of Engagement'.  The document does not disclose any instructions in relation to the enforceability of the pre‑sales contracts.  Maintaining confidentiality in the instructions that were given to Herbert Smith Freehills is not inconsistent with the plaintiffs' pleaded case.

Email Ryan Barnett (Doric) 16 October 2009 to Frank Poeta (Herbert Smith Freehills)

1. This document is described in the Herbert Smith Freehills list as 'solicitor client correspondence attaching Minter Ellison pre‑sales report and Young and Cornell lawyers advice regarding application for planning permission'.  There is no contest about the Minter Ellison report.  That has been provided to the defendants.  There is nothing in this email which gives rise to any inconsistency between maintaining its confidentiality and the plaintiffs' conduct.

Email from Frank Poeta (Herbert Smith Freehills) 16 October 2009 to Ryan Barnett (Doric)

1. This document is described in the Herbert Smith Freehills list as 'solicitor client correspondence regarding comments on Fatin comments on documents'.  There is nothing in this email or its attachment which gives rise to any inconsistency between maintaining its confidentiality and the plaintiffs' conduct.

Sale of Land Act advice

1. Documents 34, 35 and 38 ‑ 52 of Herbert Smith Freehills' list of privileged documents are described as solicitor client correspondence regarding Sale of Land Act issue and internal Herbert Smith Freehills correspondence regarding Sale of Land Act issue.  Document 52 on the list is described as draft advice on Sale of Land Act with handwritten notes.

2. Section 13 of the Sale of Land Act relevantly provides that a person must not sell any lots in a proposed subdivision unless, amongst other things, he is the proprietor thereof. Herbert Smith Freehills' list of documents discloses that the plaintiffs sought advice from Herbert Smith Freehills concerning 'the Sale of Land Act issue'. Obviously, the issue concerned whether the pre‑sales contracts and the making of those contracts was in breach of s 13 of the Sale of Land Act and the possible consequences if it was.  Maintaining confidentiality in instructions given to, advice received from, and communications with or internal to the plaintiffs' solicitors concerning that issue is not inconsistent with the conduct of the plaintiffs in pleading their case.

Email Garrick Smith (Doric) 9 September 2009 to Frank Poeta (Herbert Smith Freehills)

1. This document is described on Herbert Smith Freehills list as 'solicitor client correspondence regarding letter of engagement'.  Maintaining confidentiality in this email and its attachment is not inconsistent with the conduct of the plaintiffs in pleading their case.

Email Garrick Smith (Doric) 9 September 2009 to Andrew Cash (Herbert Smith Freehills)

1. This letter is described on the Herbert Smith Freehills list as 'solicitor client correspondence regarding letter of engagement'.  There is nothing in this email which makes maintaining confidentiality in it inconsistent with the plaintiffs' conduct in pleading their case.

Email Frank Poeta (Herbert Smith Freehills) 15 September 2009 to Garrick Smith (Doric)

1. This letter is described in the Herbert Smith Freehills list as 'solicitor client correspondence attaching letter of engagement'.  There is nothing in this email or its attachment which makes maintenance of confidentiality in it inconsistent with the plaintiffs' pleading of their case.

Conclusion

1. The defendants' application will be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

RK
ASSOCIATE TO THE HONOURABLE JUSTICE LE MIERE

27 NOVEMBER 2018