Elders Forestry Ltd v BOSI Security Services Ltd (No 2)

[2010] SASC 226

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

ELDERS FORESTRY LTD v BOSI SECURITY SERVICES LTD & ORS (NO 2)

[2010] SASC 226

Reasons for Decision of The Honourable Justice Kourakis

21 July 2010

PROCEDURE - DISCOVERY AND INTERROGATORIES - DISCOVERY AND INSPECTION OF DOCUMENTS - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - LEGAL PROFESSIONAL PRIVILEGE - WAIVER OF PRIVILEGE

Application by plaintiff for disclosure of documents over which legal professional privilege claimed – whether first to third defendants’ pleading implicates legal advice it received to extent necessary to waive privilege – whether first to third defendants and fourth defendant had sufficient identity of interest for purpose of principle of common interest privilege.

Held: Defendants have not by their pleading waived legal professional privilege – relationship of first to third defendants and fourth defendant was that of creditor and debtor – there is not a sufficient identity of interest between them for the purpose of the principle of common interest privilege – first to third defendants’ claim for privilege dismissed – application upheld.

Elders Forestry Ltd v BOSI Security Services Ltd & Ors [2010] SASC 223; Mann v Carnell (1999) 201 CLR 1; Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; United States Surgical Corp v Hospital Products (Unreported, Supreme Court of New South Wales, McLelland J, 13 October 1981); Goldberg v Ng (1995) 185 CLR 83; Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152; DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; Adelaide Steamship Co Ltd v Spalvins (1988) 81 FCR 360; Network Ten Ltd v Capital Television Holdings Ltd (1995) 36 NSWLR 275; Buttes Gas and Oil Co v Hammer (No 3) [1981] 1 QB 223; Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd ("The Good Luck") [1992] 2 Lloyd’s Rep 540; State of South Australia v Peat Marwick Mitchell and others (1995) 65 SASR 72, considered.

ELDERS FORESTRY LTD v BOSI SECURITY SERVICES LTD & ORS (NO 2)
[2010] SASC 226

Civil: Application

1. KOURAKIS J:      The substantive controversy between the parties concerns the rights over ownership of certain shares in a joint venture company (PPT).  I adopt the terminology which I have used in my judgment in the substantive proceedings.[1]  My brief summary of the facts appearing below should be read together with the description of the facts in that judgment.  For the purposes of this interlocutory application, at all material times the shareholders of PPT were ITC and Timbercorp.

   [1]    See Elders Forestry Ltd v BOSI Security Services Ltd & Ors [2010] SASC 223.

2. Timbercorp is now in liquidation.  Over a period of time preceding Timbercorp’s liquidation, financiers for whom BOSI was the security trustee advanced substantial finance to Timbercorp on various securities including a floating charge over Timbercorp’s assets and later a mortgage over the shares Timbercorp held in PPT (the shares).  BOSI claims rights, including the power of sale, over the shares pursuant to its securities.  ITC claims an equitable right to take the transfer of the shares pursuant to a Default Option granted by the terms of a Shareholders’ Deed into which it entered with Timbercorp.  The priority of the competing equitable interests claimed by the parties may be affected by their respective knowledge of the interest of the other.

3. The knowledge that ITC and BOSI respectively had of the claimed interest of the other is in dispute in these proceedings.  The documents over which privilege has been claimed record legal advice to BOSI about the terms of the Shareholders’ Deed and therefore have, in a general sense, relevance to that issue.  It is trite that relevance to an issue does not in itself abrogate legal professional privilege; the privilege would be valueless if that were the law.  However, it is necessary to closely consider the precise relevance of the documents to determine whether the way in which BOSI pleads its claim is inconsistent with maintenance of that privilege.  ITC also claims, in the alternative, that BOSI waived its privilege in the documents by disclosing them to Timbercorp in the course of negotiating the terms of the last of the advances made to it.

   The Shareholders’ Deed

4. ITC and Timbercorp agreed to enter into an incorporated joint venture arrangement through PPT for the purpose of establishing and operating a woodchip export facility at Albany in Western Australia.  They each subscribed to 50,000 shares in ITC for that purpose.  ITC and Timbercorp entered into a Shareholders’ Deed dated 25 August 2004 (the Shareholders’ Deed 2004) to regulate their respective rights and obligations in the joint venture.  The Shareholders’ Deed 2004 was amended by a Supplemental Deed dated 18 September 2001.  I shall refer to the Shareholders’ Deed 2004 as varied by the Supplemental Deed as the Shareholders’ Deed as amended.

5. The Supplemental Deed effected substantial changes.  First, it recorded that the operations of PPT had been funded by loan capital provided by the Shareholders.  The Supplemental Deed also recorded the amount and terms of repayment of those loans.  In summary, the loans were repaid by setting off charges levied by PPT against the Shareholders for use of its export facility.  The Supplemental Deed also conferred a right on ITC and Timbercorp to a transfer of the shares of the other in the event that the other requested a repayment of the balance of the capital of its loan.  The right has been referred to as a “stapling” of the loans to the shares.  The purchase price for the shares on the exercise of that right was fixed at the lesser of $1 or a value fixed independently by a process prescribed in Sch 5 of the Shareholders’ Deed as amended.  The Supplemental Deed also amended the purchase price payable on the transfer of a share in exercise of the Default Option to the same amount.  Finally, the Supplemental Deed amended Sch 6 of the Shareholders’ Deed 2004 so that any charging of the shares was proscribed unless the other shareholder consented and the chargee undertook to exercise its power of sale consistently with the pre-emption provision in that schedule.  Those conditions had been expressed in the alternative in Sch 6 of the Shareholders’ Deed 2004.

6. Clause 7.2 of the Shareholders’ Deed as amended prescribed the circumstances in which a shareholder may exercise an option to purchase the shares of another shareholder (the Default Option).  Those circumstances were the occurrence of a default event or a breach of material obligation as defined by the Shareholders’ Deed as amended.

7. ITC alleges that a default event occurred in December 2006 when Timbercorp gave a fixed and floating charge over its assets to BOSI to secure loans obtained through the syndicate for which BOSI was trustee.

8. On or about 28 September 2007, Timbercorp and BOSI entered into a Mortgage Deed pursuant to which Timbercorp granted an equitable mortgage over its 50,000 shares in PPT in favour of BOSI as security for a further advance.

9. Schedule 2 to the Mortgage Deed was a Notice of Assignment which was to be provided to ITC (the Notice).  The Notice made provision for ITC to subscribe to it and thereby indicate its consent to the mortgage and assignment and agree not to exercise any rights to terminate the Shareholders’ Deed as amended without first having given BOSI not less than 30 days notice of its intention to do so.

10. On 22 October 2007, ITC and BOSI entered into a Deed of Acknowledgment pursuant to which BOSI acknowledged that it had been supplied with the Shareholders’ Deed as amended and covenanted to observe, perform and be bound by Sch 6 of that Deed (the Deed of Acknowledgement).  By the Deed of Acknowledgement, ITC consented to the Mortgage Deed.

11. ITC pleads that, when BOSI entered into the Deed of Acknowledgement, it knew or intended that ITC’s rights and the Default Option in particular were and would remain unaffected by the Mortgage.  However, by [26] of its defence, BOSI pleads:

    26.     Further or in the alternative, ITC is estopped from seeking the relief it seeks in that:

    26.1   BOSI assumed from prior to the time of the creation of the Charge that it would be acquiring a full beneficial interest in the PPT shares unencumbered by any rights relating to the shares by ITC;

    26.2   BOSI assumed from the time of the entry into the Mortgage that its security interest in the Charge and the Mortgage were not subject to any prior interest of ITC so long as it complied with Schedule 6 in the exercise of its security and that BOSI held a full beneficial interest in the PPT shares unencumbered by any rights relating to the shares held by ITC, subject only to the operation of, and BOSI’s compliance with, Schedule 6;

    26.3   the above assumptions were induced by the conduct of ITC pleaded in paragraphs 25.7 and 25.8 above;

    26.4   BOSI advanced funds to Timbercorp on the assumption that its security interests would not be affected by any interest of ITC;

    26.5   in the premises, BOSI would suffer a significant detriment if ITC were now permitted to assert an equitable interest created in July 2005 or December 2006 which takes priority over interests created in favour of BOSI in December 2006 and September 2007, namely to be left with the limited recourse pleaded in ITC’s Claim; and

    26.6   it would be unconscionable for ITC to be permitted to resile from the Deed of Acknowledgement and/or to assert such interest now.

12. The conduct of ITC pleaded in [25.7] included ITC’s failure to amend the constitution of PPT to reflect the Shareholders’ Deed as amended, ensure that the PPT share certificates held by Timbercorp incorporated any reference to the restrictions imposed pursuant to the Shareholders’ Deed as amended and not informing BOSI that it held an option to acquire the PPT shares from Timbercorp on account of a default event occurring in December 2006, being the grant of a fixed and floating charge.  The conduct referred to in [25.8] repeats the conduct and circumstances pleaded in [25.7].  The plea also adds the circumstance that ITC received the Notice of Assignment executed by BOSI, but did not inform Timbercorp or BOSI of any objection to the assignment and mortgage described therein, nor did it assert against BOSI its option to acquire the PPT shares from Timbercorp until January 2010.

    Waiver by inconsistent legal claims

13. In Mann v Carnell,[2] the High Court held by majority that legal professional privilege is waived by the conduct of a person entitled to the benefit of that privilege which is inconsistent with the maintenance of the confidentiality the privilege entails.[3]  The privilege is a common law privilege and for that reason inconsistency is the touchstone for waiver; considerations of fairness may inform the question as to whether the conduct is inconsistent but is not, as might be the case in equity, a central consideration.  The test of inconsistency emphasises the purpose for which the privilege exists.  In my respectful opinion, even though McHugh J was in dissent in Mann, the general principle that the operation of the privilege should generally be confined to that which is necessary for its rationales to be achieved should also inform the question of whether there has been conduct inconsistent with maintenance of the privilege.[4]

    [2] (1999) 201 CLR 1.

    [3]    Mann v Carnell (1999) 201 CLR 1 at 13 [29] per Gleeson CJ, Gaudron, Gummow and Callinan JJ.

    [4]    Mann v Carnell (1999) 201 CLR 1 at 37 [116] per McHugh J.

14. In Thomason v Campbelltown Municipal Council,[5] which was a professional negligence claim brought against a legal advisor, Jordan CJ held that privilege was necessarily waived in communications between the plaintiff and his solicitor.  Jordan CJ went on to say:

    The position is analogous to that which arises in a suit in Equity to set aside a transaction on the ground of undue influence.  In such a suit, it has always been the practice for the defendant to cross examine the plaintiff with a view to proving that the plaintiff had competent legal advice when he entered into the transaction, and to call and examine the legal advisor if he is available; and I have never known it to be suggested that such evidence is inadmissible on the ground of the plaintiff’s privilege.[6]

    [5] (1939) 39 SR (NSW) 347.

    [6]    Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 at 358-9.

15. In United States Surgical Corp v Hospital Products,[7] McLelland J elucidated some limits on the operation of the principle stated in Thomason when he said:

    Jordan CJ [in Thomason] cannot have intended to lay down as a proposition of general application that whenever the making or contents of a privileged communication becomes an issue in proceedings, privilege cannot be successfully claimed for the purpose of those proceedings, as this would be inconsistent with his Honour's discussion (at 353 of the same judgment) of what was said by Lord Arkin in Minter v Priest [1930] AC 558 even if the proposition were limited to proceedings to which the person entitled to privilege was a party.

    ...

    In the Thomason case, the plaintiff was asserting a right to claim damages in a statutory context which rendered it implicit in such an assertion that the plaintiff had not effectively exercised her option to take the alternative course, notwithstanding that on the pleadings the onus of proving the effective exercise by the plaintiff of that option, and in an evidentiary sense the onus of proving the plaintiff's knowledge of her legal rights, in each case rested on the defendant.  So that it may be that the criterion that the otherwise privileged party must have himself raised the fact and nature of the advice as an issue in the case is too rigidly stated.  Nevertheless, before the privilege can be said to have been lost on this principle, one must at least be able to identify some element or feature of the claim made, or the evidence adduced, by the party otherwise entitled to the privilege, which would render reliance on the privilege unjust.[8]

    [7]    Unreported, Supreme Court of New South Wales, McLelland J, 13 October 1981.

    [8]    United States Surgical Corp v Hospital Products (Unreported, Supreme Court of New South Wales, McLelland J, 13 October 1981) (as noted in Ritchie’s Supreme Court Procedure (NSW) at 8545-8547).

16. In Telstra Corporation Ltd v BT Australasia Pty Ltd,[9] BT Australasia (BTA) sued the State of New South Wales and Telstra for misleading and deceptive conduct arising out of the management and development of an integrated telecommunications network for the New South Wales public sector.  BTA claimed to have been misled by information in a request for tender.  New South Wales sought the production of legal advice provided to BTA’s parent, BT, on whether it could rely on representations alleged to have been made in the request for tender.  BT won the tender and BTA entered into contractual arrangements with the State of New South Wales and Telstra.  It suffered losses which it claimed were caused by the representations on which it had relied.

    [9] (1998) 85 FCR 152.

17. At the time Telstra was decided, the test for waiver had been expressed in terms of unfairness by the High Court in Goldberg v Ng.[10]  The trial Judge in Telstra held that privilege in the advice had not been waived by BTA.  On appeal, Beaumont J in dissent would have dismissed the appeal because on the pleadings in that case:

    BT’s state of mind was not central to its claim in the same way that it is in cases where a plaintiff claimed that solicitors have acted contrary to advice.  Equally the advice was not central to the claim in the same way as it was where professional negligence is alleged against a solicitor.[11]

    [10] (1995) 185 CLR 83.

    [11]   Goldberg v Ng (1995) 185 CLR 83 at 95-6.

18. Accordingly, Beaumont J concluded that “nothing has emerged at this stage to demonstrate any unfairness in BT’s insistence upon its right to claim privilege”.[12]  On the other hand, Branson and Lehane JJ held:

    Where, as in this case, a party pleads that he or she undertook certain action ‘in reliance on’ a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action.  The court will be required to determine what was the factor, or what were factors, which influenced the mind of the party so as to induce him or her to act in that way.  That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party.  In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract.[13]

    [12]   Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 158.

    [13]   Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 at 166-7.

19. In DSE (Holdings) Pty Ltd v Intertan Inc,[14] Allsop J said:

    [14] (2003) 127 FCR 499.

    [92]The difference between Beaumont J and the majority in Telstra (and probably also between the dictum of the Full Court in Adsteam set out at [72] above and the majority in Telstra) was the centrality of the confidential communication to the litigation. Beaumont J emphasised the need for the advice itself to be put in issue, not merely that a state of mind was in issue in respect of the formation of which state of mind the communication was, or could be likely seen as, a material factor.  This notion of the centrality of the communication is reflected in Hodgson J's expression of view in Standard Chartered, see [57] above, as specifically adopted by the Queensland Court of Appeal in Bayliss v Cassidy (No 2).

    [93]The centrality of the communication to the issues underlay what the Full Court said in Adsteam.  Their Honours there did not think that relevance to an issue (that is, an issue raised by the holder of the privilege) was enough.

    …

    [95]The enunciation of principle by the Full Court of this Court in Esso and by the Full Court in Telstra, might be seen, at the very least, as having been overtaken by Mann v Carnell.  It is the inconsistency between the act by the holder of the privilege and the confidentiality of the communication which destroys the privilege.  I would have thought that it is too broad a statement to say that a pleading of a state of mind to which legal advice is or might be materially relevant is an adequate surrogate for the expression of principle in Mann v Carnell.  That inconsistency will arise in the kind of circumstances thrown up in Thomason, Barilla, and Benecke, in the undue influence cases, and as dealt with by McLelland J in United States Surgical, Hodgson J in Standard Chartered, the Full Court in Adsteam at [72] above, the Court of Appeal in Bayliss v Cassidy (No 2) and Beaumont J in Telstra.

    [96]Conformably with the necessary existence of inconsistency from Mann v Carnell, and with the overwhelming requirement for an act on behalf of the holder of the privilege in the manner already alluded to, the expressions of views by Heerey J and Derrington J in Data Access Corporation v Powerflex Services Pty Ltd at 38,745 and Wardrope v Dunne at 226, respectively, that the privilege may be lost by the raising of an issue by the other party to the case is not correct, in my respectful view.

    [97]More importantly, it would seem to me that the view that relevance to an issue is the proper test is, as a general proposition, difficult to reconcile with Mann v Carnell.  To the extent that this can be extracted from Data Access Corporation, Wardrope v Dunne, Pickering v Edmunds, Ampolex, and the majority in Telstra, I have difficulty seeing that it is consistent with Mann v Carnell at 13 [29].

    [98]In this respect (like Conti J in John Tanner v Mortgage Management at 206 and Byrne J in Liquorland (Australia) Pty Ltd v Anghie [2003] VSC 73 at [41]), if I were free to do so I would act on my agreement with what was said by Heerey J in Equuscorp Pty Ltd v Kamisha Corp Ltd at 42,894 where his Honour (also not following the majority in Telstra) said:

    In claims under s 52 where the misleading and deceptive conduct alleged takes the form of misrepresentations to the plaintiff, it will usually be essential to plead reliance.  This will be an essential link in the chain of reasoning establishing that the plaintiff suffered loss and damage `by the conduct of' the defendant so as to be entitled to damages under s 82.  If the view of the majority in Telstra is correct, it would seem to follow inexorably that the mere pleading of reliance would remove privilege in respect of all legal advice which the plaintiff received concerning the conduct complained of. I do not think that can be right.  The bare fact of asserting reliance does not expressly or impliedly assert that the plaintiff relied, or did not rely, on some privileged communication.  As Beaumont J points out, it is not possible to predict the course a trial may take.  A privileged communication may be subsequently referred to in a way that makes its continued protection unfair.  But, at the moment, I have to consider the issue at an interlocutory stage.  It is true that legal advice could be relevant in determining whether a plaintiff in fact relied on the misrepresentations complained of.  But the whole point of legal professional privilege is that, for public policy reasons, material is excluded which might be relevant, indeed highly relevant.  No balancing exercise is involved. If legal professional privilege applies, privilege trumps relevance.

    [99]If it were open to me I would give effect to these views.  The above is conformable, in my view, with Mann v Carnell, with the expressions of principle in the cases referred to at [94] above and with the expression of principle in England.

    …

    [109]For the reasons which I have expressed, I have some difficulty with the above as the guiding authorities.

    …

    [112]Thus, conformably with what was said by the Full Court in Perpetual Trustees v Equuscorp, and by Hely J and Nicholson JJ in Fort Dodge and BP Australia v Nyran, respectively, the law on implied waiver may be seen as expressed by the majority of the Full Court in Telstra.  So to conclude flows from an obligation to apply the Full Court's decision in Perpetual Trustee (albeit decided before Mann v Carnell) and from comity with Hely and Nicholson JJ.  My own view is that Mann v Carnell and the earlier seminal decisions point to a more restricted principle, which, though not easy to apply in any given circumstance, is not sufficiently expressed by the views of the majority in Telstra, by Giles CJ Comm D in Ampolex, or Duggan J in Pickering.

    [113]Nevertheless, I shall approach the matter on the same basis as Hely J approached it, with the necessary recognition from Mann v Carnell that inconsistency is the key to understanding the application of the principle.[15]

    [15]   DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 at 525-6 [92]-[93], 526-7 [95]-[99], 528 [109], 529 [112]-[113].

1. In Commissioner of Taxation v Rio Tinto Ltd,[16] the legal professional privilege claimed by the Commissioner of Taxation for legal advice given for the purposes of making an assessment was considered.  The substantive matters before the Court were appeals brought by Rio Tinto in the Federal Court against the assessments made by the Commissioner.  The Commissioner’s assessment depended on his satisfaction concerning the nature of certain “dividend assignment transactions”.[17]  The Commissioner’s satisfaction was challenged in the Federal Court on the grounds of mistake of law and irrelevant and relevant consideration grounds.[18]  The Court in Rio Tinto considered the case in the context that the constitutional validity of a tax depends on the availability of a means of challenge to it and that the very institution of the appeal, regardless of any obligations as to discovery, means that there is a controversy as to the satisfaction of the Commissioner about the relevant circumstances.[19]  Nonetheless, the Full Court in Rio Tinto observed that the mere fact that the Commissioner defends a taxation appeal does not ordinarily result in a waiver of privilege.[20]  What was critical in Rio Tinto was that the Commissioner had admitted in the discovery process, not only that the legal advice was relevant, but that the legal advice evidenced matters which he took into account.[21]  Plainly, the Commissioner could not in all fairness claim that his assessment was based on relevant considerations only and, at the same time, claim privilege over the documents which recorded the very matters which he took into account.

   [16] (2006) 151 FCR 341.

   [17]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 359 [63].

   [18]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 359 [63].

   [19]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 359-60 [64], [66].

   [20]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 360 [66].

   [21]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 347-8 [20], 362 [72].

2. The Full Court referred to the decision of Allsop J in DSE (Holdings), to Thomason v Campbelltown Municipal Council and to United States Surgical Court v Hospital Products International Pty Ltd.  The Court also referred with approval to the following passage in the judgment of the Full Court of the Federal Court in Adelaide Steamship Co Ltd v Spalvins,[22] in which the Full Court made general observations regarding the waiver of privilege in litigation:

   On the present appeal reference was also made to, and the respondents sought to rely upon, what was described as ‘issue waiver’.  In our view however it is no more than a particular manifestation of the principles applying either to waiver by disclosure or to implied consent to disclosure.  The usual type of case said to illustrate issue waiver at common law is one in which, in order to establish a particular right, claim, or defence a party who previously has been legally advised, or has provided advice, needs to show that the advice so given did, or did not, have a particular character, for example that it was or was not negligent where the claim is for professional negligence against the adviser: see Kershaw v Whelan [1996] 1 WLR 358; that it was not based on full information or was not meaningful, in an undue influence claim: see Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 130-131; see also Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 and Brusewitz v Brown [1923] NZLR 1106 or that it did not address or properly address a matter which, if addressed or properly addressed, would defeat or call into question the right or claim asserted as in claims where the applicant has to demonstrate he or she acted with or without adequate knowledge of a matter: see Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419; Pickering v Edmunds (1994) 63 SASR 357. In other words the cases are ones in which, in the substantive proceeding brought, the privilege holder has put in issue the very advice received. We observe in passing that it is questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it: see Rhone-Poulenc Rorer Inc v The Home Indemnity Company (3rd Cir 1994) 32 F (3d) 851 at 863; save, perhaps, where the proceeding is between client and legal adviser and the advice is relevant to the adviser's defence of that proceeding: see Lillicrap v Nalder & Son [1993] 1 WLR 94; 1 All ER 724.[23]

   [22] (1988) 81 FCR 360.

   [23]   Adelaide Steamship Co Ltd v Spalvins (1988) 81 FCR 360 at 371-2.

3. Plainly, in this case BOSI does not rely on the advice to establish a claim, nor does it depend on the advice to show that it has a particular character, for example that it was negligent.  However, a real question arises as to whether or not there is an analogy in this case with undue influence cases.  In my view, the observation of Jordan CJ on the waiver of privilege in undue influence cases is, with respect, sound for the following reason.  The mere fact that legal advice was obtained on a document is a fact on which an inference, and probably a conclusion, can be drawn that the transaction was entered into voluntarily and with a full appreciation of its terms.  If a party persists in a plea of undue influence where the pleading or the evidence shows that legal advice was obtained on the transaction prior to the party binding herself or himself to it,  the party must necessarily allege some deficiency in the legal advice.  It is for that reason that maintaining a claim to legal professional privilege over the communications is inconsistent with that party’s case.  The same cannot be said with respect to advice about the meaning of the terms of a transaction on which a party consults a solicitor.  The Court in Rio Tinto emphasised that the decision of the majority in Telstra expressly made reference to the importance of the legal advice given in that case in assessing “the quality of the party’s assent to a transaction”.[24]  In particular, the Full Court went on:

   As their Honours made clear, however, when they spoke of a communication ‘material to the formation of that state of mind’, they did not intend to say that privilege would be waived in relation to advice that may only have played a part in the formation of a state of mind relevant to an issue in the proceedings: see Telstra at 167. Their conclusion that BT waived privilege turned entirely on the particular nature of the case, especially BT’s pleadings.[25]

   [24]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 358 [56].

   [25]   Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at 358 [56].

4. I am not satisfied that the pleadings in this case implicate the legal advice received by BOSI to the extent which is necessary to constitute a waiver.  The advice may well be relevant to the question of whether BOSI did in fact make the assumption pleaded in [26] of its defence.  However, the plea does not expressly or impliedly assert that its assumption was based on that advice.  Nor in all of the circumstances does the pleading of the assumption impugn, or raise as an issue, the content or nature of that advice.

5. I hold that BOSI has not, by its pleading, waived its legal professional privilege.

   Common interest privilege

6. The provision of a document protected by legal professional privilege by the person entitled to claim the privilege to a stranger is inconsistent with maintenance of that privilege and is therefore a waiver.  However, it is accepted that, where the party entitled to the privilege and the stranger share a “common interest”, privilege is not lost.

7. In Network Ten Ltd v Capital Television Holdings Ltd,[26] Giles J explained the “common interest” rule as follows:

   Common interest privilege has been recognised at least since Buttes Gas & Oil Co v Hammer (No 3) [1981] QB 223: see also Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027; [1987] 2 All ER 716, Bulk Materials (Coal Handling) Services Pty Ltd v Coal & Allied Operations Pty Ltd, Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (‘The Good Luck’) [1992] Lloyd's Rep 540 and Rank Film Distributors Ltd v ENT Ltd (Supreme Court of Tasmania, Crawford J, 25 November 1994, unreported).  If two parties with a common interest exchange information and advice relating to that interest, the documents or copy documents containing that information will be privileged from production in the hands of each; thus, if one of the parties obtains a letter of advice attracting legal professional privilege and provides it to the other, the other can also claim legal professional privilege. Some remarks in the earlier English cases suggested that the parties must have a common solicitor, but I do not think that is necessary (apart from my view expressed in Bulk Materials (Coal Handling) Services Pty Ltd v Coal & Allied Operations Pty Ltd; see also Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (‘The Good Luck’) and Rank Film Distributors Ltd v ENT Ltd).  If Capital Television Holdings Ltd and ANZ had the requisite common interest, then (subject only to any significance in ANZ's failure to claim legal professional privilege) the copy of the letter of advice in the hands of ANZ would be privileged and, as already indicated, there would be no waiver of the privilege attached to the letter of advice in the hands of Capital Television Holdings Ltd.[27]

   [26] (1995) 36 NSWLR 275.

   [27]   Network Ten Ltd v Capital Television Holdings Ltd (1995) 36 NSWLR 275 at 279-80.

8. The authorities on this topic do not always clearly define the term “common interest”.  In Buttes Gas and Oil Co v Hammer (No 3),[28] Lord Denning MR had in mind an interest which he described as “the self-same interest” of parties who had the same interest in the result of litigation but who were, for reasons of economy or simplicity, not parties to the proceedings.[29]  Brightman LJ extended the privilege to the non-parties in Buttes by analogy to the co-plaintiff rule.[30]

   [28] [1981] 1 QB 223.

   [29]   Buttes Gas and Oil Co v Hammer (No 3) [1981] 1 QB 223 at 243.

   [30]   Buttes Gas and Oil Co v Hammer (No 3) [1981] 1 QB 223 at 267-8.

9. In Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd ("The Good Luck"),[31] Saville J dismissed a claim for legal professional privilege made by a bank in proceedings against an insurer which was similar to a claim brought against that insurer by a ship owner which was its customer.  The claim to privilege was made over legal advice shared by the bank with its customers.  Saville J described the common interest which would allow a privileged document to be shared as “an identity of interest so close that the parties concerned could (had they chosen to do so) have used the same solicitor or other lawyer”.

   [31] [1992] 2 Lloyd’s Rep 540.

10. In my respectful opinion, that test involves an element of circularity.  In any event, Saville J dismissed the bank’s claim for the following reason:

    It could hardly be suggested (and indeed it was not suggested) that the plaintiffs and the owners could have shared the same solicitor or other lawyer.  The plaintiffs were creditors of the owners; their interest was to recover any fruits owners’ action so as to reduce or at least service that indebtedness.

11. In State of South Australia v Peat Marwick Mitchell,[32] Olsson J upheld a claim of privilege where legal advice was disclosed to a holding corporation by its wholly owned subsidiary.

    [32] (1995) 65 SASR 72.

12. Olsson J rejected the contention that common interest privilege was confined to an identity of interest in actual or anticipated litigation:

    In the course of the present appeal it was suggested that the concept of common interest privilege is a narrow one, confined only to situations in which the ‘common interest’ parties have a relevant interest in litigation which is actual or anticipated at the time at which the privileged material is exchanged.  In my opinion, notwithstanding that the above authorities were the product of such situations, it is not so confined.[33]

    [33]   State of South Australia v Peat Marwick Mitchell and others (1995) 65 SASR 72 at 76.

13. I respectfully agree with that proposition.

    Conclusion

14. In my view, there is not a sufficient identity of interest between Timbercorp and BOSI for the purpose of the principle of common interest privilege.  Their relationship was that of creditor and debtor.  Their interests over the quality of the security offered by means of the charge and equitable mortgage were necessarily in conflict.  The fact that BOSI disclosed its advice for the purposes of advancing its position in the negotiation of the terms on which the security was to be given does not show a commonality of interest; it demonstrates the very opposite.

15. It was for these reasons that I made orders on 1 April 2010 dismissing the first to third defendants’ claim for privilege over documents 94 and 95 in their List of Documents and awarding costs in favour of the plaintiffs on this application.