Expense Reduction Analysts Group Pty Ltd & Ors v Armstrong Strategic Management and Marketing Pty Limited

[2013] HCATrans 137

[2013] HCATrans 137

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S12 of 2013

B e t w e e n -

EXPENSE REDUCTION ANALYSTS GROUP PTY LTD ACN 008852926

First Applicant

ERA INSURANCE SERVICES PTY LTD ACN 109873010

Second Applicant

EXPENSE REDUCTION ANALYSTS AUSTRALASIA PTY LTD ACN 095591665

Third Applicant

STUART ROY MICHAEL

Fourth Applicant

STUART CLUCAS

Fifth Applicant

CHARLES FREDERICK MARFLEET

Sixth Applicant

ERAGICS LIMITED

Seventh Applicant

EXPENSE REDUCTION ANALYSTS INTERNATIONAL LIMITED

Eighth Applicant

KEITH JOHN CHAPMAN

Ninth Applicant

ANTHONY FREDERICK DORMER

Tenth Applicant

and

ARMSTRONG STRATEGIC MANAGEMENT AND MARKETING PTY LIMITED & ORS

First Respondent

ARMSTRONG CONSULTING PTY LTD

Second Respondent

KENNETH ALAN ARMSTRONG

Third Respondent

Application for special leave to appeal

FRENCH CJ
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 JUNE 2013, AT 9.30 AM

Copyright in the High Court of Australia

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR E.A.J. HYDE, for the applicant.  (instructed by Norton Rose Australia)

MR I.R. PIKE, SC:   If it please the Court, I appear with my learned friend, MR C.N. BOVA, for the respondents.  (instructed by Marque Lawyers)

FRENCH CJ:   Yes, Mr Hutley.

MR HUTLEY:   As your Honours are aware, this application concerns the principles to be applied in respect of the accidental production of documents which were privileged in the hands of the party producing them in the course of discovery in proceedings.  As your Honours are aware, it involved 13 documents, nine of which were successfully protected by orders of her Honour the Chief Judge in Equity at first instance, four of which were not.  That turned on her Honour’s finding as to whether there had been, in effect, an accident or an error in production.

Both parties sought leave to appeal from relevant findings of her Honour.  The respondents were successful in having the orders set aside.  The basis upon which they were set aside was in the reasons of Justice Campbell, with whom the other members of the court agreed, that the principles which inform this area lie in one of confidential information, and the principles to be applied depended upon either being aware of a breach of confidence on receipt, or being a person in a position where they should have been aware.  We say that that is an important question.

As Justice Campbell observed, this Court has never considered the principles.  The cases are, we submit, with respect, somewhat all over the place as to the juridical basis of the analysis.  Secondly, if the area does lie in the area of confidential information the decision, in our submission, miscarried because it paid no regard to, although referring to, the observations of Justice Gaudron in Johns v Australian Securities Commission, which his Honour referred to at page 101 of the application book, which is authority for the proposition that if a document which is confidential is received innocently but a person later becomes aware that it contains confidential information, equity can intervene to prevent its use.

FRENCH CJ:   You go a lot wider than confidentiality, though, in your submissions, do you not?

MR HUTLEY:   I am coming to it.

FRENCH CJ:   Yes.

MR HUTLEY:   We say that the problem with these principles is that they are becoming clustered with a whole lot of rules and regulations which are both unnecessary, and that the more fundamental basis for the court’s intervention is the principle that the court has plenary powers to control the incidents and accidents of occurrences during the working out of its own procedures.

FRENCH CJ:   At paragraph 20 of your submissions, you say:

The power to grant orders exists irrespective of whether Mr Armstrong had inspected the Disputed Documents or privilege in those documents is found to have been waived.

How does that power arise where privilege has been waived?

MR HUTLEY:   Your Honour, the power arises this way, we say.  If there has been an accident – for example, because of the production of documents there has been a waiver of the privilege – but for example, as here, if the only use the other side wishes to put to these documents is not to pursue the case as currently pleaded but to amend the case based upon those documents, we submit the court has ample power to restrain the use of that information for that purpose, that purpose only, as it were, arising because of the accident and the miscarriage of the procedures of the court in the particular case.

FRENCH CJ:   Is that somehow linked to the limitations upon the use to which discovered documents may be put?

MR HUTLEY:   Because they have, ex hypothesi, intended to be put in a list, even though in a privileged list, one has to consider the question of relevance.  I accept that, your Honour.  It is not directly linked to it, but we say it lies in the accident and the injustice brought about by the accident, and that is why we say the power of the court to deal with the consequences of accidents in the course of working it out of its procedures, there is no injustice in denying to a party an opportunity which, ex hypothesi, they have only acquired because of the accident.

KIEFEL J:   The respondent suggests that there is a factual issue about inadvertence here.

MR HUTLEY:   Your Honour, as I said at the beginning, Justice Campbell did not give leave to deal with the factual issues, neither to our learned friends, nor to us, that is, her Honour found with respect to nine documents there was a mistake, and with respect to four documents, there was not.  Leave was sought by both parties to investigate that factual finding.  His Honour Justice Campbell and the rest of the court refused leave because he found, because of the principles about confidential information and since there was no breach of any obligations to confidence on receipt, he did not have to investigate those questions, so he refused leave.

We say that this Court will not be concerned with that factual dispute.  The outcome of a successful appeal, because the judgment of the court has miscarried, would be setting aside the refusal of leave of the Court of Appeal, and a return to the Court of Appeal to determine those factual questions in accordance with the principles passed upon by this Court.  We say it is a perfect vehicle for your Honours’ consideration of these principles which are important.

KIEFEL J:   Would not the equity founding a remedy provided by the court be based upon inadvertence?

MR HUTLEY:   Quite, but there has been a finding with respect to nine inadvertence, four not.  That finding has not been interfered with.  That finding was not examined because leave to deal with that factual issue was not granted.  It is not a notice of contention point.  Leave to appeal would be required to our learned friends to challenge the refusal of leave in the Court of Appeal, and as would be usual, the Court may well grant it because of the principal basis upon which they determine the case, but the factual issue would be not one which would necessarily – unless the Court were willing to entertain it – one necessary for this Court to entertain to deal with these important questions.

KIEFEL J:   Could you direct me to where the Court of Appeal dealt with this question?

MR HUTLEY:   It is at paragraph 183, I think, your Honours.  The leave to appeal commences at 185, your Honour, and at 187, it says:

Another of the grounds of appeal that the Armstrong Parties seek to raise is that her Honour was mistaken in finding that the Disclosed Documents were protected . . . I would not grant –

and then 188 –

A second topic concerning which leave to appeal is sought is whether the primary judge erred in holding that a decision was made to claim privilege over the Disclosed Documents.

Then he goes on and sets out various reasons, and at the end at 138 at about line 35, it says –

For these reasons, when any mistake was not an obvious one, whether there had been an intention to claim privilege leads nowhere concerning whether there has been a waiver of privilege.  Thus, I would not grant leave to appeal concerning this second topic.

In other words, the Court of Appeal did not grant leave to challenge the finding of fact.  Similarly, with respect to our application for leave with respect to the four documents, because his Honour had determined the question at an antecedent point, namely it was all dependent on the question of confidential information at the moment of receipt, it was unnecessary to grant leave and we had lost before we got there.  In other words, we say this is a perfect vehicle for your Honours to expound upon the principles to apply in this area without the necessity to descend into these factual issues – we are quite content if your Honours wish to – but it is not inherent in the exercise which is put before your Honours.

Your Honours, to turn to the way the question was determined by his Honour, it appears that his Honour’s ultimate determination was informed by the British decisions, starting with the Guinness Peat decision which his Honour first refers to at application book 115 to 118, where his Honour considers them.  This culminates in his Honour’s consideration of a decision of the Court of Appeal in Pizzey v Ford Motor Company, which your Honours will see at paragraph 167, page 127.  That summarises the principles that appear to apply in England.

We submit that that statement of principle should not be followed in this Court for a number of reasons.  Firstly, it leads to an arbitrary rule which can create more difficulties and more injustice than it cures.  For example, it appears to be once the documents are inspected by anyone, absent fraud or obviousness of mistake, that is the end of the game.  That was irrespective of who happens to come to examine them and his or her involvement in the conduct of the litigation, and the significance of that person’s appreciation of the issue to the justice of the case.

We say it is an arbitrary rule which of its nature will throw up difficulties, and is not able to be based, as his Honour based it, in confidential information, for his Honour did not pay regard to what Justice Gaudron said in Johns, which would require an examination at a later point in time and an investigation then.  That statement of principle of Justice Gaudron has recently been affirmed in the UK Supreme Court, in the case of Vestergaard Frandsen v Bestnet, which in our cases is at page 110.  The relevant paragraph is at paragraph 25, your Honours, on page 117. 

If, despite our principal submission that it lies in the inherent jurisdiction of the court or the powers of the court to control its procedures, it is right that it lies in confidential information, then the court has not dealt with that important principle, namely becoming aware of the fact of its character at a later point in time which equity could found an injunctive and other relief.

FRENCH CJ:   Just going back for a moment to your “inherent powers” argument that does not depend upon inadvertence which might negative waiver, in other words, it is just perhaps a mistake about the law – somebody makes a misjudgement about relevance, for example.

MR HUTLEY:   Precisely, your Honour.  It could be, for example, not even a privileged document ‑ ‑ ‑

FRENCH CJ:   I am sorry, not so much relevance - it would be whether the criteria for claiming privilege existed or not.

MR HUTLEY:   It might even be one, your Honour, with respect to relevance.  If somebody by mistake incorporated a highly sensitive document not relevant to the suit and product, and highly confidential, we would say that the benefit of what we would urge upon the Court is it is not constrained to deal with particular categories of documents and with particular rules.  It deals with the plenary power of the court to deal with its process.

FRENCH CJ:   Now, this is reflected, I think, in ground 5 in the application for special leave at 149, but I am just wondering how it is picked up in the grounds in the draft notice of appeal – your wide proposition, if I can put it that way.

MR HUTLEY:   If your Honour would bear with me a moment ‑ ‑ ‑

FRENCH CJ:   You see at ground 5 of your special leave application, you are talking about ‑ ‑ ‑

MR HUTLEY:   It is really in 2, we thought, your Honour.  Perhaps 2 could be more - erred in finding that the only principal basis for confidential information.  It may be, for example, that the court takes – we say that it is based on the plenary power, but there is another view that the English authority, which may find attraction to this Court, is not based in confidential information at all, but in the broad equitable power to relieve against mistake, and in fact in Pizzey the Court of Appeal referred to it was based in either fraud or mistake.

FRENCH CJ:   Did you run the broad “inherent powers” proposition below?

MR HUTLEY:   I am told yes.  I was not there, my learned junior – before Justice Bergin.

FRENCH CJ:   Can you tell us where it was dealt with in the Court of Appeal?

MR HUTLEY:   It is not, your Honour.  I can tell your Honour that.

FRENCH CJ:   That is why I wondered whether it was run below.

MR HUTLEY:   I understand that, your Honour.  It was run before Justice Bergin, I am told.  But even if that was not granted, your Honour, the equitable issue is sufficiently brought.  The principles which are developing ‑ ‑ ‑

FRENCH CJ:   But your “inherent powers” argument goes beyond equitable constraints.

MR HUTLEY:   Completely, yes.  Your Honour, we say it is extraordinary if the court cannot deal with it.  It is actually the logical place to start in this inquiry, once one is dealing with principle, rather than, with respect, trawling through and in effect trying to push together cases and principles which simply have not been exposed.  On a final appeal, we would say that this has something to do with the history of the development of the concept of confidence because all of this traces back to Calcraft v Guest and Pape v Lord Ashburton, and in effect, statements which were particular to the circumstances confronting those courts in the jurisprudential framework of those courts have in a sense been shoehorned and continually shoehorned going forward.

FRENCH CJ:   We might hear from Mr Pike now.

MR PIKE:   May it please the Court, in my respectful submission this is not a matter the Court should grant special leave in respect of because the decision of the Court of Appeal was undoubtedly correct.  We say that it was a well‑reasoned decision representing the proper application of a well‑established principle found in decisions of the United Kingdom courts and also found in the decisions of intermediate appellate courts in Australia, namely whether equity will intervene to restrain a breach of confidence. 

That was the way the matter was run before Justice Bergin along with the way we were putting it, which was questions of waiver.  That is the way that the Court of Appeal, Justice Campbell, decided the matter, and whilst it is true, as Justice Campbell noted at 101 of the judgment, that the High Court has not laid down any clear principles, it would only be an appropriate matter for the grant of special leave if your Honours were satisfied that the decision of the Court of Appeal was attended by any doubt, and we say, with respect, it is not.

Can I take your Honours to the heart of the reasoning of Justice Campbell which is at paragraphs 164 to 171 of the judgment, application book 126 to 129, and it begins with respect at 165 where his Honour poses what we say is the relevant question:

whether the injunctions should have been granted depended upon whether the circumstances in which the Disputed Documents were communicated to or obtained by the Armstrong Parties were such as to impose an obligation of conscience on the Armstrong Parties.

Then his Honour goes on –

One way in which such an obligation might arise is if the documents had been obtained by fraud, but there is no question of that having happened.  Alternatively, if either Ms Marshall –

who was the relevant solicitor at Marque Lawyers –

or Mr Armstrong –

being the client –

realised that the documents were confidential and had been disclosed by mistake –

Now, Mr Hutley, as we understand it, says that in the circumstances of the present case, the principle is arbitrary because it depends upon who in fact looked or read at the documents.  That, with respect, is not the case.  When one looks at 166 of the judgment, what his Honour applied in the present case and what the decisions in the United Kingdom make clear is that – look at whether the people who in fact looked at the documents appreciated there was a mistake.  That is one inquiry, but that is not the end of the matter because, as the English decisions make clear, if the party or the solicitor due to their own misunderstanding, et cetera, did not appreciate there had been a mistake, one needs to impose a further check, which is the hypothetical reasonable solicitor, to see whether the hypothetical reasonable solicitor would have realised that the documents had been disclosed by mistake, and if that be right, the conscience of the recipient is bound.

That is the way that his Honour then went on.  Paragraph 167 refers to Pizzey, which sets out the fullest explanation of the hypothetical solicitor test.  His Honour then goes on at 171, which is the heart of the judgment:

In my view, that test –

which is the hypothetical reasonable solicitor test –

has not been satisfied –

and his Honour then goes on to set out the relevant matters in the present case which led his Honour to conclude that the hypothetical reasonable solicitor would not have realised that the documents had been disclosed by obvious mistake.

Your Honours have to bear in mind that this is a case about formal discovery, where documents were first of all handed over informally but on the basis that they were to be discovered.  They were then to be included, or they then were in fact included, in the non‑privilege section of a list of documents which came with the usual solicitor’s certificate and the usual client’s affidavit in relation to the accuracy of that discovery. 

In the circumstances of the present case – and this is apparent at (f) on 130 of the application book – the other defendants in fact relied upon the discovery that had been given by the relevant defendant, namely Mr Michael, and said that they had said on oath that they had conducted an independent check.  There is an important principle here that where one has discovery, and in particular verified discovery, it is important that solicitors are entitled to rely upon the accuracy of that verified discovery ‑ ‑ ‑

FRENCH CJ:   I suppose there is a practical problem thrown up by this, which is an incident of the nature of modern commercial litigation, and particularly the huge volume of electronic communications that have to be, as it were, trawled through and searched.

MR PIKE:   Correct.

FRENCH CJ:   It seems to me you have layers of paralegals, legals, senior associates and people signing off on it.  The possibilities for error are manifold.

MR PIKE:   Yes, but importantly, a party is required to give verified discovery.  That forms an important part in the legal process and the person who receives it, and particularly in circumstances like the present case, is entitled to rely upon the accuracy of it.  Otherwise, on Mr Hutley’s broad test, at some stage during the course of the litigation, after discovery has been given well down the track, perhaps even in a year or two’s time when documents are being sought to be tendered, someone puts their hand up and says “I have made a mistake.  I want to undo everything.”  That, with respect, cannot be the test.  It would be wholly and utterly unworkable.

One then goes, while we are on 130, to subparagraph (h).  Mr Hutley made a point that these documents were only to be used by us for the purposes of running a new case, as is apparent from subparagraph (h) at about line 48:

The Disputed Documents might arguably be relevant to whether the Individual Defendants had acted bona fide –

et cetera.  His Honour is praying that in aid of a proposition that a decision could well have been taken.  Looking at it from the hypothetical reasonable solicitor’s position as a recipient, a decision may well have been taken to disclose these documents so as to support the case, even though they may have otherwise been privileged.  But the important point in response to what Mr Hutley said is that these were documents that were otherwise thought to be relevant on the matters as they stood at the time of giving discovery.  They were relevant to the causes of action that were actually pleaded by us.  We do not simply wish to use them in some way to found a new cause of action.  His Honour determined the case on the basis that the relevant area of discourse was equity’s jurisdiction to restrain a breach of confidence.

KIEFEL J:   What does his Honour mean in the last paragraph on subparagraph (i) on page 131:

However, in the present case, little weight can be placed on Ms Marshall’s failure to realise there had been any mistaken discovery –

et cetera?

MR PIKE:   I would be simply saying it is an irrelevance because Ms Marshall did not read the documents, so therefore it is an irrelevance to inquire into her actual state of mind, and that is why his Honour directed his attention to the hypothetical reasonable solicitor.  But we know, in this case, that Mr Armstrong, the client, in fact read the documents.

KIEFEL J:   Well, there is an issue about that, is there not?

MR PIKE:   There is, and we have set out the reasons – my friend said there is an issue about that.  We say ‑ ‑ ‑

KIEFEL J:   That is one of the two factual areas that you contend makes this an inappropriate vehicle.

MR PIKE:   Yes, it is.

KIEFEL J:   What do you say to Mr Hutley’s point that you would need to seek leave to appeal from the decision of the Court of Appeal in relation to the other factual issue?

MR PIKE:   We have said in our summary of argument that it is a notice of contention.  It is not.  We would need to seek leave to cross‑appeal, which would arise if your Honours granted leave on Mr Hutley’s application.  We would file an application for leave to cross‑appeal.  We would say it is probably a matter that could be determined by the High Court, and for the reasons that we have set out at paragraphs 9 to 19 of our summary of argument, which is the evidence, this Court or whoever determined the issue would determine that there was no mistake.

KIEFEL J:   How does the issue about whether Mr Armstrong read the documents feed into the general principle that the applicants are seeking to ‑ ‑ ‑

MR PIKE:   I do not think it does, your Honour.

KIEFEL J:   Well, what is your point about it?

MR PIKE:   They raised it as a factual issue that arises, and we are responding to it.

KIEFEL J:   Because it is raised in ground 3, I think it is.

MR PIKE:   It is, but we say when one looks, for example, at paragraph 171 of Justice Campbell’s judgment, it is not a matter that is referred to there.  The only place that it does seem to be referred to is when his Honour later in the judgment considers the question of waiver if he be wrong about the principled source of the court’s power.  His Honour refers, I think it is, at application book 134 at paragraph 179, line 20:

As it happens, in that time, Mr Armstrong had read the Disputed Documents.  However, I do not think that that fact can enter into consideration of whether there has been a waiver –

So as we see it, the fact that Mr Armstrong had read the documents, we do not see it as necessarily being a relevant issue that this Court would need to determine.  The relevant issue that this Court would need to determine, which is a clear factual issue, is the question of inadvertence or a mistake.  When one looks at the matters that we have set out in our summary of argument at paragraphs 9 to 19, which summarises the evidence below in relation to mistake, we would say that when the court comes to look at it, it would form the view that there was no mistake and as such, this is an inappropriate vehicle because they are not going to win on the facts.

FRENCH CJ:   What do you say about this broad “inherent powers” argument?

MR PIKE:   What we say is – I have already said, as I apprehend it, it was not put that way in either of the courts below, but be that as it may, the simple proposition is there is no warrant for using such a broad power in circumstances where there is a very clear well‑trodden path in relation to equity restraining breaches of confidence.  This does not simply stem from Guinness Peat, which I think is what Mr Hutley said.  It stems from Lord Ashburton v Pape, and as his Honour Justice Campbell recited in the judgment, that is a judgment that has been endorsed by the High Court on many occasions, including by Justice Mason in John Fairfax, I think it is, and it is endorsed for the proposition of equity’s jurisdiction to restrain a breach of confidence.  Otherwise, one is into, with respect, a very broad, undisciplined at all, source of power.  It is completely and utterly unnecessary, we would say ‑ ‑ ‑

KIEFEL J:   But there is involved in dealing with it as a question of confidential information potentially a distortion of a privilege into another distinct area, is there not?

MR PIKE:   No, we would say, with respect, because one is looking at – this is how Justice Campbell analysed it and it is how the English cases have analysed it – the case that was brought was an injunction that was being sought by my learned friend against my instructing solicitors, a mandatory injunction to give the documents back.  Questions of waiver and legal professional privilege cannot inform the court’s power to grant such an injunction.  It is a question of where is the source of the power.

The English cases and the intermediate appellate court cases in Australia have said that that source of the power is to restrain a breach of confidence, which necessarily means looking at the circumstances in which the documents were handed over, it being a case where the owner of the privilege, or the owner of the confidence – the person entitled to maintain the confidence being the client acting through the agent – hands the documents over to the other side. 

As his Honour Justice Campbell identified, it is relevant to look at those circumstances to see whether anything in those circumstances binds the conscience of the recipient so as not to use them and, with respect, his second point, which is the Fraser v Evans point, there is no issue as to whether Fraser v Evans is good law in Australia.  It was referred to by Justice Gaudron in Johns’ Case.  It was also referred to by Justice McHugh in Johns’ Case as being relevant in circumstances where a third party receives confidential information which, it turns out, was handed over in

breach of confidence, the classic case being the Newspaper Case, for example, where there are some confidential documents which somehow, through whatever means, end up in the newspaper proprietor’s hands and they propose to publish it.

That is, with respect – and there is no dispute that what is said by Lord Denning in Fraser v Evans in fact is the law in Australia with respect to that type of case, and Vestergaard, which is the Supreme Court decision in the United Kingdom that Mr Hutley referred your Honours to, is really no different.  But our response is that it has no application to the facts in the present case, or the situation where it is the act of the owner of the confidential information handing over the documents.

The test in relation to that situation, which is made plain in Moorgate Tobacco, Justice Gummow in Corrs Pavey Whiting & Byrne and other cases, is to look at the circumstances in which the documents were handed over to see whether the conscience of the recipient is bound.  There is no dispute that that is the relevant test.  That is the test that his Honour applied in the present case and the answer, we would say, for the reasons set out at 171 of his Honour’s…..was undoubtedly correct.  So one just simply does not need, to come back to your Honour the Chief Justice’s comment, to bring in a broad unprincipled power in circumstances where the principles are otherwise clear, and whilst it is true that the High Court has not said they are the principles, that can be said here and now by simply ‑ ‑ ‑

FRENCH CJ:   When you said “one does not need”, you mean the law does not need?

MR PIKE:   No, and they can simply ‑ ‑ ‑

FRENCH CJ:   Mr Hutley needs it, perhaps.

MR PIKE:   Mr Hutley needs it, but the law does not need it, and the simple way that it can be done is by your Honours refusing special leave to appeal.

FRENCH CJ:   Thank you, Mr Pike.

MR PIKE:   May it please the Court.

FRENCH CJ:   Yes, we will not need to hear from you, Mr Hutley.  There will be a grant of special leave in the matter.  Mr Hutley, I suggest that some attention might be given to ground 2 to make explicit the point you want to raise in relation to the wider powers.

MR HUTLEY:   Yes, your Honour.

FRENCH CJ:   What is the time estimate?

MR HUTLEY:   Your Honour, if the Court were in the position where they were not minded, as it were, to deal with the factual issue in the event that we were successful they would return the question as to whether there was an error or not to the Court of Appeal, I think it could clearly be dealt with in a day because it will be pure questions of law.  That is the course that we would advocate, but if your Honours wish to deal with those, in the sense of wish, if your Honours are prepared to deal with the factual issue, it may take a little longer, but we still think it could be dealt with in a day.

FRENCH CJ:   Mr Pike?

MR PIKE:   I would have thought if everything was open, including the facts, it is a day, no more.

FRENCH CJ:   Thank you very much.

AT 10.04 AM THE MATTER WAS CONCLUDED