Hastie Group Ltd (in liq) v Moore - [2016] NSWCA 305

No judgment structure available for this case.

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305
Hearing dates: 26 October 2016
Decision date: 07 November 2016
Before: Beazley P at [1];
Macfarlan JA at [1];
Leeming JA at [70]
Decision:
In proceedings CA 2016/292976:

(1)   Leave to appeal granted;

(2)   Appeal allowed;

(3)   The orders of McDougall J made 14 September 2016 be set aside insofar as they require the production of the Westworth Kemp report;

(4)   Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal.

In proceedings CA 2016/297987:

(1)   Leave to appeal granted;

(2)   Appeal allowed in part;

(3)   Order (5) made by Stevenson J on 26 September 2016 be set aside;
(4)   Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal.
Catchwords:
PRACTICE AND PROCEDURE – privilege – client legal privilege – expert report prepared in process of attempting to obtain litigation funding – expert report provided to litigation funder – client legal privilege claimed pursuant to the Evidence Act 1995 (NSW), s 119 – whether report prepared for the dominant purpose of obtaining legal advice

PRACTICE AND PROCEDURE – privilege – waiver of privilege – implied waiver – what is required for implied waiver – where document referred to in affidavit – whether contents of document put in issue
PRACTICE AND PROCEDURE – privilege – waiver of privilege – disclosure to third parties – document provided to litigation funder – whether document retained confidential character
Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56-58
Evidence Act 1995 (NSW), ss 117, 119, 122
Uniform Civil Procedure Rules 2005 (NSW), r 12.11
Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Archer Capital 4A Pty Ltd v Sage Group Pty Ltd (No 2) (2013) 306 ALR 384; [2013] FCA 1098
AWB Ltd v Cole (No 5) (2006) 155 FCR 30; [2006] FCA 1234
Bailey v Director General Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100
Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69
Commissioner of Taxation v Rio Tinto Ltd, (2006) 151 FCR 341; [2006] FCAFC 86
Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; [2008] NSWCA 164
CSR Ltd V Eddy (2008) 70 NSWLR 725; [2008] NSWCA 83
DSE (Holdings) v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384
Gibson v Drumm [2016] NSWCA 206
Grant v Downs (1976) 135 CLR 674; [1976] HCA 63
Hancock v Rinehart (Privilege) [2016] NSWSC 12
Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1315
Hastie Group Ltd (in liq) v Moore t/as Deloitte Touche Tohmatsu [2016] NSWSC 1355
Jaycar Pty Ltd v Lombardo [2011] NSWCA 284
Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66
Marshall v Prescott (No 4) [2012] NSWSC 992
Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77
Priceline Pty Ltd v JHY Nominees Pty Ltd (2010) 27 VR 513
Re Global Medical Imaging Management Limited (in liq) [2001] NSWSC 476
Rickard Constructions Pty Ltd v Richard Hails Moretti Pty Ltd [2006] NSWSC 234
Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87
State of New South Wales v Jackson [2007] NSWCA 279
Category: Principal judgment
Parties: Hastie Group Limited (in liquidation) (Applicants)
Bruce Ivan Moore & Ors trading as Deloitte Touche Tohmatsu (Respondents)
Representation:
Counsel:
N M Bender; Z M Hillman (Applicants)
A Shearer; V O'Halloran (Respondents)
Solicitors:
Hall & Wilcox Lawyers (Applicants)
Clifford Chance (Respondents)

File Number(s): 2016/292976; 2016/292987
Decision under appeal

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

Hastie Group Ltd (In liq) v Moore & Ors [2016] NSWSC 1315;
Hastie Group Ltd (in liq) v Moore t/as Deloitte Touche Tohmatsu [2016] NSWSC 1355

Date of Decision:

14 September 2016;
23 September 2016

Before:

McDougall J;Stevenson J

File Number(s):

2014/247471;
2015/245237

HEADNOTE

[This headnote is not to be read as part of the judgment]

The applicants (a group of companies in liquidation referred to as “the Hastie Group”) commenced proceedings in 2014 and 2015 against the current and former partners of Deloitte Touch Tomatsu in relation to audits of the Hastie Group conducted in 2008, 2009 and 2010. The applicants had received extensions of time for service of the statements of claim pursuant to r 1.12 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). The respondents sought to have those orders set aside.

In this context, the respondents served notices to produce on the applicants. These were dealt with on an urgent basis by McDougall J on 14 September 2016. McDougall J found that, with very limited exceptions, the documents the subject of the notices to produce were not privileged.

The applicants sought leave to appeal from the orders of McDougall J of 14 September and related orders of Stevenson J of 23 September 2016. The document that formed the foundation of the appellate proceedings was an expert report prepared and provided to a prospective litigation funder (the Report).

The matters that arose for determination were:

(i) Whether the Report was privileged on the basis of client legal privilege;

(ii) Whether, if the Report was privileged, privilege had been waived;

(iii) Whether leave to appeal should be granted.

The Court held:

In relation to (i)

(Beazley P and Macfarlan JA, Leeming JA not deciding)

(1) The party seeking to claim client legal privilege bears the onus of providing sufficient proof that the document was prepared for the dominant purpose of the provision of professional legal services in relation to proceedings or anticipated proceedings. [12]

Grant v Downs (1976) 135 CLR 674; [1976] HCA 63; Archer Capital 4A Pty Ltd v Sage Group Pty Ltd (No 2) (2013) 306 ALR 384; [2013] FCA 1098; AWB Ltd v Cole (No 5) (2006) 155 FCR 30; [2006] FCA 1234; Hancock v Rinehart (Privilege) [2016] NSWSC 12.

(2) In determining whether the party claiming privilege has satisfied this onus, the Court is not confined to express statements made in support of the claim but is also entitled to draw inferences from proved facts. [34]

(3) The Report was prepared in circumstances that attracted client legal privilege, having regard to the engagement letter to which it was attached and the circumstances in which it was prepared. [38]

(4) The relevant privilege was the privilege of Hastie Group and not the liquidators as the liquidators were acting as agents for the Hastie Group in the preparation and provision of the report. [39]

In relation to (ii)

(Beazley P and Macfarlan JA, Leeming JA not deciding)

(1) Waiver of privilege ordinarily occurs in circumstances where the contents of privileged documents are relied upon. [53]

Mann v Carnell (1999) 201 CLR 1; [1999] HCA 6; Bailey v Director General Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100; Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; [2006] FCAFC 86; Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; DSE (Holdings) v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384; [2008] NSWCA 164; Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87.

(2) In circumstances of implied waiver it is not sufficient that the party claiming privilege has referred to a particular document or class of documents. In the ordinary case there will need to be reliance on the content of such a document. [57]

(3) The disclosure of the Report to a litigation funder was not sufficient to waive privilege in circumstances where it was clear that the Report was being provided on a confidential basis. [59]-[60]

Evidence Act 1995 (NSW), ss 117 and 122; State of New South Wales v Jackson [2007] NSWCA0 279.

In relation to (iii)

(Beazley P and Macfarlan JA)

(1) Having regard to the finding made in relation to privilege and waiver, and the question of principle raised by the applicants, a substantial injustice would be occasioned were leave refused. [64]

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27; Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69.

(Leeming JA, dissenting)

(2) As the Report was not raised squarely before the primary judge, no appellable error arose in primary judge not dealing with the argument sought to be advanced by the applicants on appeal. [98]

(3) Even on the assumption that the Report was privileged, and privilege was not waived, a refusal to grant leave would not cause real prejudice to the applicants in circumstances where they had two opportunities at first instance to establish the privilege they claimed, and where they had not demonstrated that the disclosure of the report would lead to an appreciable injustice. [119]

Civil Procedure Act 2005 (NSW), ss 56-58; Gibson v Drumm [2016] NSWCA 206; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284; Priceline Pty Ltd v JHY Nominees Pty Ltd (2010) 27 VR 513.

Judgment

BEAZLEY P AND MACFARLAN JA: We have had the advantage of reading in draft the reasons of Leeming JA. As his Honour conveniently sets out in detail the procedural history of the matter, we are able to proceed immediately to the two issues which underpin the question of whether leave to appeal should be granted: that is, whether the document was privileged and, if so, whether privilege was waived. Even if the applicant, Hastie Group Limited (in liq) (Hastie Group), is successful on both those issues, there is the separate question of whether it should be granted leave to appeal.

Privilege

Legislative framework

The Evidence Act 1995 (NSW), s 119 provides that:

“119   Litigation
Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:
(a)   a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made, or
(b)   the contents of a confidential document (whether delivered or not) that was prepared,
for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party.”

The privilege claimed here was in respect of the contents of a confidential document, defined in s 117 to mean:

“… a document prepared in such circumstances that, when it was prepared:
(a) the person who prepared it, or
(b) the person for whom it was prepared,
was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law.”

The obligation referred to in s 117 “can extend to an unspoken obligation, and to an ethical, moral or social obligation”: State of New South Wales v Jackson [2007] NSWCA 279 at [41] per Giles JA, Mason P and Beazley JA concurring.
Underlying the issue between the parties as to whether the Westworth Kemp report (the Report) was privileged was the reason for its preparation and, in particular, whether it was prepared for the purposes of being provided to prospective litigation funders or whether it was prepared for the dominant purpose of the substantive proceedings.

Authorities on litigation funding

In Re Global Medical Imaging Management Limited (in liq) [2001] NSWSC 476, Santow J, in holding that a funding agreement was privileged, stated, at [7]:

“To deny legal privilege to a funding agreement of this sort would fail to give proper weight to its inextricable connection with the very subject matter of the legal advice that might be given and the nature of the professional legal services to be rendered. It has the potential to reveal the litigant’s likely legal strategy. The funding agreement in a literal and substantive sense, fulfils the purpose of providing legal services in terms not only of the overall capacity to have them at all, but also their availability at critical junctures in the case. While it may not reveal the content of legal advice, it reveals the confidential circumstances of its availability and throws oblique light on the confidential circumstances to which the advice is directed.”

This passage was considered by Bergin J (as her Honour then was) in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWSC 234 at [36], where her Honour observed that the decision was not authority for the proposition that the relationship between a funder and a funded party was a confidential relationship. Rather, her Honour considered that it may be authority for a more limited proposition, namely, that a funding agreement may satisfy the requirements of s 119, depending on the particular terms of that agreement.
In CSR Ltd V Eddy (2008) 70 NSWLR 725; [2008] NSWCA 83 observations were made by Hodgson JA and Basten JA in relation to whether funding agreements are privileged.
Hodgson JA, at [7], agreed with Basten JA that where a costs agreement did no more than specify rates for work to be done or which gave a global figure or an estimate for carrying out a specified task, the agreement would not be subject of client legal privilege at general law. His Honour added that if an agreement contained material that expressly or impliedly conveyed legal advice or views about tactics or strategy, that material may be privileged.
Basten JA, at [66], accepted that a funding agreement may be characterised as a confidential document and might be prepared for the dominant purpose of obtaining legal services. His Honour added, however, that the nature of the connection must be assessed according to the purpose of the statutory provision, which, he added, was the same as the general law. Privilege did not extend, on his Honour’s view, to a document the purpose of which was to create the relationship. His Honour added, without resolving the question, that “different issues may arise in relation to documents prepared for or provided to a litigation funder”.
In Marshall v Prescott (No 4) [2012] NSWSC 992, Bellew J observed, at [84], that “the nature of the connection between the preparation of the document, and the dominant purpose of obtaining legal services” had to be assessed. His Honour added that where a document does nothing more than create a relationship, it is likely that no privilege will attach to it.

Authorities on sufficiency of proof

There are many statements in the authorities that a party who claims privilege for a communication or document bears the onus of proving that it was prepared for the dominant purpose of the provision of professional legal services relating to Australian or overseas proceedings or anticipated proceedings in which the client is or may be a party. Thus, in AWB Ltd v Cole(No 5) (2006) 155 FCR 30; [2006] FCA 1234 Young J, at [44], stated:

“(1) The party claiming privilege carries the onus of proving that the communication was undertaken, or the document was brought into existence, for the dominant purpose of giving or obtaining legal advice. The onus might be discharged by evidence as to the circumstances and context in which the communications occurred or the documents were brought into existence, or by evidence as to the purposes of the person who made the communication, or authored the document, or procured its creation. It might also be discharged by reference to the nature of the documents, supported by argument or submissions …” (emphasis added)

Young J, in support of the proposition emphasised in the above passage, cited the statement of the plurality in Grant v Downs (1976) 135 CLR 674; [1976] HCA 63 at 689. The plurality stated there:

“It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual.”

Their Honours added the cautionary note that “… it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual”.

Young J repeated what had been said by the plurality in Grant v Downs about resort to formula or ritual and continued, at [44]:

“(3) … Nor is a claim of privilege established by mere assertion that privilege applies to particular communications or that communications are undertaken for the purpose of obtaining or giving ‘legal advice’ … If assertions of that kind are received in evidence in support of the privilege claim, their conclusionary nature can leave unclear what advice was really being sought. There will be cases in which a claim of privilege will not be sustainable in the absence of evidence identifying the circumstances in which the relevant communication took place and the topics to which the instructions or advice were directed …
…
(6) An appropriate starting point when applying the dominant purpose test is to ask what was the intended use or uses of the document which accounted for it being brought into existence …: Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 at [35] per Finn J.”

Statements to like effect have been made, not only in the cases cited by his Honour, but more recently in Archer Capital 4A Pty Ltd v Sage Group Pty Ltd (No 2) (2013) 306 ALR 384; [2013] FCA 1098 at [13]-[14] and in Hancock v Rinehart (Privilege) [2016] NSWSC 12 at [7]. As the respondents placed reliance upon those paragraphs in each of these judgments and as we wish to make certain observations as to them below, it is appropriate to set them out in full.
In Archer Capital 4A v Sage Group Wigney J stated:

“[13] The party claiming privilege bears the onus of proving that the communication was made, or the document created, for the dominant purpose of giving or obtaining legal advice or aiding in the conduct of litigation or prospective litigation. It is not sufficient for a party to merely assert a claim for privilege; the party claiming privilege must establish the facts that provide the basis for the claim: National Crime Authority v S (1991) 29 FCR 203 at 211; 100 ALR 151 at 159; Kennedy v Wallace (2004) 142 FCR 185; 213 ALR 108; [2004] FCAFC 337 at [13]–[17] (Kennedy). The existence of privilege is not established by mere verbal formula, even if unchallenged: Grant v Downs (1976) 135 CLR 674 at 689; 11 ALR 577 at 589 (Grant).
[14] It may be necessary for there to be evidence identifying the circumstances in which the relevant communication took place and the topics to which the instructions or advice were directed: Kennedy at [12]-[17]. The court has the power to examine documents in respect of which a claim is made, and should not hesitate to exercise that power where the claim is challenged: Grant at CLR 689; ALR 589.”

In Hancock v Rinehart (Privilege) Brereton J stated:

“[7] To sustain a claim of privilege, the claimant must not merely assert it; but must prove the facts that establish that it is properly made. Thus a mere sworn assertion that the documents are privileged does not suffice, because it is an inadmissible assertion of law; the claimant must set out the facts from which the court can see that the assertion is rightly made, or in other words ‘expose … facts from which the [court] would have been able to make an informed decision as to whether the claim was supportable’. The evidence must reveal the relevant characteristics of each document in respect of which privilege is claimed, and must do so by admissible direct evidence, not hearsay.” (citations omitted)

The claims for privilege

Hastie Group contended that the report was privileged. The respondents contended that the Report was not privileged and that, in any event, the evidence before the primary judge was insufficient to establish that it was privileged. Much of the argument on the concurrent hearing was directed to the latter contention. It is necessary, therefore, to consider the evidence in respect of which Hastie Group contended that it had discharged the onus of proving the document was privileged.

Mr Craig Crosbie, chartered accountant and liquidator of the Hastie Group, has the day to day carriage of the liquidation. In his affidavit sworn 25 August 2016, Mr Crosbie stated, at (10), that the liquidators had retained Hall & Wilcox, solicitors, to act on their behalf from about 24 July 2014 in direct connection with the provision of legal services for the purpose of obtaining legal advice in the liquidation including, relevantly, in relation to these proceedings, and anticipated or pending litigation, including these proceedings.
In (26) of his affidavit, Mr Crosbie set out a table of documents that responded to a notice to produce served by the respondents on 4 August 2016 pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 21.10 and a statement as to the circumstances of claims/objections.
Document 10 was identified as:

“The engagement letter with the audit expert referred to at paragraph 11(h) of the affidavit of Craig David Crosbie sworn 16 December 2015 and filed in these proceedings (Second Crosbie Affidavit)” (emphasis in original)

The basis of the claim for privilege was stated as follows:

“[Hastie Group] assert[s] a claim for privilege pursuant to section 119 of the Evidence Act 1995 (NSW).
The document comprises a confidential communication being a letter from [Hall & Wilcox] to Westworth Kemp dated 24 April 2015 concerning instructions requesting an expert opinion in connection with the Proceedings.”

In (30) of his affidavit, Mr Crosbie set out a similar table in respect of documents that responded to a further notice to produce served on the same date, pursuant to UCPR, r 34.1. The documents were first identified by reference to a category of documents and then by reference to the individual document and the basis of the claim for privilege made, as follows:

5

Documents recording communications between the Liquidators (and/or their representatives) and Claims Funding Australia (CFA) (and/or their representatives) in relation to the funding (or potential funding) of any proceedings against Deloitte in relation to the Affairs.

[Hastie Group] assert a claim for privilege pursuant to sections 118 and 119 of the Evidence Act 1995 (NSW).

The documents comprise confidential communications regarding the funding of the Proceedings as follows:

…

12. Chain of emails between [Hall & Wilcox] and PPB dated 10 May 2016 and attachment;

13. Attachment referred to in [12] above is a report of Westworth Kemp undated and unsigned – this document was prepared for the purpose of obtaining legal advice in connection with the public examination and Proceedings …

…

The documents were created solely in connection with anticipated or pending legal services and litigation. The litigation anticipated at the time the documents were created was the Proceedings.

Mr Crosbie swore a further affidavit on 9 September 2016 in which he set out additional bases in respect of the documents over which privilege was claimed. In respect of the engagement letter, he stated that the claim for privilege was based on the Evidence Act, s 119, in that:

“… the letter is a confidential communication between the Liquidators [sic] solicitors and Mr Westworth who is providing advisory services in connection with the audited accounts and accounting practices of the Hastie Group companies and such advisory services are connected to the anticipated public examinations and anticipated proceedings arising out of those examinations, being these Proceedings.”

It was accepted by the parties that the engagement letter is privileged.
In dealing with the claim for privilege for the Report, Mr Crosbie stated:

“A claim for privilege is based on section 119 of the Evidence Act. That is, the email and attachment is a confidential communication between the Liquidators’ solicitors and the solicitor acting for CFA in connection with the merits of and/or the funding of the anticipated proceedings, being these Proceedings.”

The email referred to was from Mr Scott, Hastie Group’s solicitor, to Mr Varghese, the solicitor for the litigation funder Claims Funding Australia (CFA).

Submissions

It is convenient in the first instance to consider the submissions of the respondents, because, if they are made out, the appeal must fail. In essence, the respondents submitted that Hastie Group had failed to adduce sufficient evidence to establish that the Report was privileged. They focussed on the alleged formulaic expressions used in the affidavit evidence in support of the claim for privilege as being inadequate to satisfy the onus Hastie Group clearly bore.
The respondents contended that in order to satisfy that onus, it was insufficient to rely on hearsay evidence. Rather, Hastie Group were required to adduce evidence of primary facts and had not done so. The respondents submitted, by way of example, that if privilege was claimed over a report to be provided to counsel, a statement to the effect, “[my] only reason for obtaining this report was because I wished to obtain it to provide to counsel, so that counsel could give me an advice”, would be sufficient.
They further submitted that, on the evidence, it was apparent that the Report was prepared for the purpose of provision to CFA to assist in its decision as to whether to provide litigation funding. In other words, it was a report that went to the potential creation of the relationship.

Determination

In our opinion, Hastie Group has done enough to satisfy the onus they bore to establish that the Report is privileged. There are two principal reasons that have led us to that determination.
First, we consider that the respondents’ contention as to the evidence required to satisfy the onus a claimant of client legal privilege bears raises the bar to a level that is not in accordance with the statement of the plurality in Grant v Downs in the passage set out above at [13].
We acknowledge that there are statements in the first instance authorities, and in particular, in Hancock v Rinehart (Privilege), which might be thought to support that submission. However, as is accepted, every case depends on its own facts and, as is stated by the plurality in Grant v Downs, there may be circumstances from which privilege may be established without the need for evidence of the detail that the respondents contend is required.
We are also of the opinion that the Court is not confined to the express statements made in support of the claim for privilege. The Court is entitled to draw inferences from other proved facts. That is of particular relevance in the present case.
As indicated, the respondents accept that the engagement letter is confidential and privileged pursuant to the Evidence Act, ss 117 and 119 respectively. It follows that it is a found fact in this application that the engagement letter is a confidential letter that was prepared for the dominant purpose of Hastie Group being provided with professional legal services relating to these proceedings. The evidence in support of the claim for privilege for the engagement letter has been set out above at [20]-[21].
Mr Crosbie’s evidence in his affidavit of 9 September 2016 in support of the claim of privilege over the Report was, as was appropriately pointed out, somewhat conclusory and ambiguous, particularly in its reference to the Report being prepared “in connection with the merits of and/or the funding of the anticipated proceedings”. It may be accepted that this is not particularly helpful, even assuming the statement is admissible. However, the evidence points to the nature of the document, namely, a report, prepared by “a firm who provides independent reporting, compliance advice and independent accounting and auditing services”.
The circumstances in which the Report was brought into existence are also explained by Mr Crosbie in his affidavit of 9 September 2016. First, in (7(h)), Mr Crosbie deposed that he had instructed the liquidators’ solicitor, Mr Scott, to send a letter in the terms set out in the engagement letter. He stated that he had reviewed the letter and recalled the substance of it and his instructions in respect of it. Secondly, it is known that the Report was provided in response to the engagement letter, this being deposed to by Mr Crosbie in (8(j)) of his affidavit of 9 September 2016.
In circumstances where the engagement letter has been found to be privileged, we are of the opinion that, having regard to the fact that the evidence establishes the nature of the Report and the circumstances in which it was prepared, the proper inference is that the Report is also privileged. Indeed, to come to any other conclusion would be likely to result in an inconsistency in circumstances where the engagement letter has been held to be privileged. Subject to the question of waiver, and to the question of whether, as Leeming JA has determined, leave should not be granted because of the manner in which the case was conducted below, the law ought not lightly tolerate such inconsistencies.
In conclusion on the question of privilege, we reject the respondents’ submission that, if privilege existed, it was the privilege of the liquidators and not of Hastie Group which claimed it. Whilst in undertaking some tasks liquidators undoubtedly act on their own behalf (for example when they are preparing proceedings which can only be brought in their own names), in connection with the present proceedings in which the Hastie Group companies were the plaintiffs, they were acting as agents for the companies, with the result that the privilege that was generated was that of the companies. Accordingly, we reject ground 1 of the respondents’ notice of contention.

Waiver

The respondents submitted alternatively to the question of whether the document was privileged or had been proved to be privileged, that Hastie Group had waived privilege. The argument was first advanced on the basis of implied waiver under the general law and pursuant to the Evidence Act, s 122.
Section 122 provides, relevantly:

“122   Loss of client legal privilege: consent and related matters
…
(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.
(3)   Without limiting subsection (2), a client or party is taken to have so acted if:
(a)   the client or party knowingly and voluntarily disclosed the substance of the evidence to another person, or
(b)   the substance of the evidence has been disclosed with the express or implied consent of the client or party.

(4)   The reference in subsection (3) (a) to a knowing and voluntary disclosure does not include a reference to a disclosure by a person who was, at the time of the disclosure, an employee or agent of the client or party, or of a lawyer of the client or party, unless the employee or agent was authorised by the client, party or lawyer to make the disclosure.
(5   A client or party is not taken to have acted in a manner inconsistent with the client or party objecting to the adducing of the evidence merely because:
(a)   the substance of the evidence has been disclosed:
(i)   in the course of making a confidential communication or preparing a confidential document, or
(ii)   as a result of duress or deception, or
(iii)   under compulsion of law, or
(iv)   if the client or party is a body established by, or a person holding an office under, an Australian law—to the Minister, or the Minister of the Commonwealth, the State or Territory, administering the law, or part of the law, under which the body is established or the office is held, or

(b) of a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person, or
(c) of a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to the proceeding or an anticipated or pending proceeding in an Australian court or a foreign court.”

McDougall J stated, at [26], that s 122 effectively codifies the pre-existing common law test of waiver, the test being that of inconsistency, albeit the “analysis of inconsistency may be informed by considerations of forensic fairness … Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 at [29]”. His Honour observed that many of the cases on s 122 focus on subs (3) but that that subsection provided for particular applications of waiver, and did not confine the scope of subs (2). His Honour referred to the observation of Allsop J (as his Honour then was) in DSE (Holdings) v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384 at [58], that there may be implied waiver arising when the party claiming privilege acts in such a way that it necessarily lays open to scrutiny the confidential communication.
His Honour was of the view Hastie Group, in deploying Mr Crosbie’s affidavits in making its ex parte applications for an extension of time, did so knowing that those issues might be revisited in a contested application under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 12.11. His Honour, at [28], was of the view that Hastie Group could not maintain the following propositions with any consistency:

“(1) the evidence of Mr Crosbie in the r 1.12 applications shows that [Hastie Group] had done all that they reasonably could do and had done so with reasonable expedition and diligence]; but
(2) [the respondents] should not have access to the underlying material to test that proposition.”

His Honour, at [29], expressed the view that the inconsistency was made even clearer by the summary way in which the documents were described in Mr Crosbie’s affidavits.
Indeed, his Honour’s judgment recognised that there may be privileged portions of documents in the category of documents into which the Report fell. In that regard, his Honour stated, at [33], that:

“… If it should be the case that any of those documents reveals legal advice or views in relation to prospects, strategy or tactics (as I have said, a matter on which the evidence is unsatisfactory) the relevant parts may be redacted.”

His Honour had earlier, at [24], in finding that privilege had not been established, nonetheless recognised “the possibility that there may be skerricks of privileged material within the documents”.
It is apparent from these observations that his Honour did not take the view that Hastie Group’s attempts to explain its delays in service necessarily meant that privilege in its legal advice had been waived even though the contents of that advice might be relevant to these attempted explanations.

The legal principles

Both parties accepted that the overarching principle was that stated in Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 as follows:

“[28] … Legal professional privilege exists to protect the confidentiality of communications between lawyer and client … It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege. Examples include disclosure by a client of the client's version of a communication with a lawyer, which entitles the lawyer to give his or her account of the communication …
[29] Waiver may be express or implied …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.” (citations omitted)

In DSE (Holdings) v Intertan Inc Allsop J extensively reviewed and analysed the authorities on implied waiver in both the UK and Australia. In doing so, his Honour expressed the view, at [61], that privilege would be waived where a confidential communication had been laid open to:

“… necessary scrutiny, and by so doing (that is by expressly or impliedly making an assertion about the contents of the communication or laying the communication open to scrutiny) the inconsistency enunciated by Mann v Carnell is brought about. But it is the existence of that inconsistency that is important.”

In stating this view, Allsop J observed, at [62], that he did not consider he was expressing any fundamentally different view from that expressed by Hodgson J in Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87 at 94-95, where his Honour had stated:

“If a party, by pleadings or evidence, expressly or impliedly makes an assertion about the content of confidential communications between that party and a legal adviser, then fairness to the other party may mean that this assertion has to be taken as a waiver of any privilege attaching to the communication.”

In Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; [2006] FCAFC 86, the Court observed, at [47], that the cases that have considered “issue waiver” are of limited utility, each turning on its own particular facts. The Court had pointed out, at [45], that in order to determine whether there had been an implied waiver of client legal privilege the Court was bound to analyse the acts or omissions of the privilege holder that were said to be inconsistent with the maintenance of the privilege.
After referring to Allsop J’s decision in DSE (Holdings) v Intertan and reviewing certain of the earlier authorities that had been relied upon by the parties, the Court in Commissioner of Taxation v Rio Tinto Ltd stated, at [52]:

“These authorities show that, where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication.”

These, and other, authorities indicate that waiver ordinarily only occurs where the contents of privileged documents are relied upon (see in particular Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; [2008] NSWCA 164 at [47] and [48] per Hodgson JA, with Campbell JA and Handley AJA concurring; Bailey v Director General Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100 at [4] per Allsop P (as his Honour then was) with the concurrence of Hodgson JA). Mere reference to the existence of a document will not suffice. Nor, as Hodgson JA made clear in Archer at [48], is it sufficient that “the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party”. His Honour added a caveat about cases in which the client’s state of mind is in issue but the present is not such a case.
The respondents, however, submitted that when determining whether issue or implied waiver had been made out, the party claiming privilege could implicitly waive privilege by putting in issue documents of a particular kind, in the absence of a specific reference to the contents of a particular document. The respondents frankly conceded that there were no express assertions in Hastie Group’s affidavit evidence about the Report other than reference being made to the Report having been sought in the context of saying that substantial progress in securing funding has been made. The respondents submitted that at issue in the applications for extensions of time for service of the statement of claim were the dealings with prospective funders. They contended that the Report was a document “of that kind”.
The respondents’ submission, in summary, was that it was sufficient, for it to have waived privilege, that Hastie Group, in the course of seeking extensions of time for service of its statement of claim, had relied, in explanation of its delay, upon the fact that it had been seeking litigation funding, including from CFA, and that privilege in any document which related to dealings with prospective funders was thereby waived.

The underlying thesis of this submission was that the test for express waiver, which requires there to be a disclosure of the contents of a privileged communication, was different from implied waiver, in that, for the purposes of implied waiver, there did not need to have been any disclosure of the contents of the privileged document.
In our opinion, this submission is not consonant with the authorities to which we have referred above which make it plain that neither relevance to the other party’s claim nor reference by that party to a privileged document, without more, gives rise to waiver. Ordinarily there will need to be reliance on the contents of such a document. That has not occurred in the present case.
Whilst the authorities to which we have referred give guidance as to the application of the inconsistency test, ultimately it is a matter for the Court to decide on the facts of the case whether relevant inconsistency has been established. For the reasons we have given, we do not consider that it has been.

Waiver by disclosure: s 122(3)(a)

An alternative argument of the respondents was that privilege in the Report had been waived by the liquidators having “knowingly and voluntarily disclosed the subject of the report” to the prospective litigation funders (see s 122(3)(a) of the Evidence Act, quoted at [41] above). However, s 122(5)(a)(i) effectively provides that such disclosure does not constitute waiver if it is made “in the course of making a confidential communication or preparing a confidential document”.
The definition of a “confidential communication” in the Evidence Act, s 117 is referred to above. A corresponding definition appears in relation to a “confidential document” and the decision in State of New South Wales v Jackson referred to at [4] above has equal application to that definition. Thus it is sufficient if the person to whom the communication was made was under an express or implied obligation not to disclose its contents, the concept of obligation in this context being capable of extending to “an unspoken obligation, and to an ethical, moral or social obligation”. By reason of the parties’ knowledge of the proposed litigation and the Report’s function of providing expert assistance in relation to it, the proper funder would, in our view, have clearly been under an obligation of confidentiality. As a result, the provision of the report to it for a purpose connected with the litigation did not give rise to a waiver of privilege. Ground 2 of the notice of contention is rejected.

Leave to appeal

That leaves for consideration whether leave should be granted. We fully acknowledge the force of the matters raised by Leeming JA in his reasons. We also accept that Hastie Group is legally represented and that this is a case in which the parties will no doubt engage in such legitimate forensic tactics as may suit their purposes.
However, we do not see that the manner in which this case was conducted in the court below bore forensic hallmarks of a kind that should disentitle Hastie Group to relief in circumstances where we have found that it was established that the Report was privileged and there was no waiver, either at general law or pursuant to s 122.
Some emphasis was placed in oral argument upon the fact that the Report was not singled out for specific mention in submissions to McDougall J and that Hastie Group had been content in the manner in which it conducted the case to allow it to be caught up in the broad category of documents to which we have referred. However, it must be remembered that the matter proceeded before his Honour in some haste, and in any event, it is not unusual for issues to become increasingly refined in the course of the appellate process.
In circumstances where the questions subject of the summons for leave to appeal arose at a very early stage in the proceedings, we do not consider that the principles discussed in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 or the provisions of the Civil Procedure Act 2005 (NSW), s 56 preclude the grant of leave. As we consider the case raises an important question of principle and that there would be an injustice if leave was not granted: see Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69, we consider that there should be a grant of leave.
We would allow the appeal for the reasons we have expressed in relation to the issues of privilege and waiver.
We add in conclusion the following comments on the procedure adopted in the present case. Clearly McDougall J was presented with an onerous task to be performed in relation to a large number of documents and was not given, at least in relation to the Report the subject of these appeal proceedings, the assistance that he should have been given. Nevertheless, his Honour found that the email requesting provision of the subject Report was privileged and recognised that at least parts of the communications with the prospective funder might be privileged (for example, because they disclosed the terms of legal advice) notwithstanding that communications with it were not privileged per se.
If the maintenance of privilege in respect of the Report was as important to the liquidators as their pursuit of these appeal proceedings suggests it was, they should have filed a notice of motion returnable before his Honour seeking to have him address the question of the Report specifically, particularly as there was every reason to believe that if his attention had been specifically directed to the Report earlier, his Honour would have found that it attracted privilege and that that privilege had not been waived. As Leeming JA points out, there was an indication at the hearing before Stevenson J that an approach had been made to McDougall J but it was not suggested that that was made by way of a notice of motion, as it should have been.
These circumstances are, in our view, sufficient to justify the applicants being deprived of their costs of the appeal proceedings, with the result that there should be no order as to those costs.
As we are satisfied that leave should be granted, and as Hastie Group have made out their case with respect to privilege and have not waived privilege, we make the following orders:

In proceedings CA 2016/292976:

(1) Leave to appeal granted;

(2) Appeal allowed;

(3) The orders of McDougall J made 14 September 2016 be set aside insofar as they require the production of the Westworth Kemp report;

(4) Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal.

In proceedings CA 2016/297987:

(1) Leave to appeal granted;

(2) Appeal allowed in part;

(3) Order (5) made by Stevenson J on 26 September 2016 be set aside;

(4) Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal.

LEEMING JA: These two expedited applications for leave to appeal from orders made by McDougall J on 14 September 2016 and Stevenson J on 26 September 2016 were set down for concurrent hearing before this Court on 26 October 2016. The urgency in this Court was less extreme than at first instance, because the rulings on privilege were required to be given almost immediately, lest a two day hearing, set down for 19 and 20 September 2016, be vacated. Even so, there is a deal of urgency, because that hearing is now set down for 10 and 11 November 2016.
The subject matter in this Court is much more confined than it was at first instance. There is only one document which the liquidators wish to withhold from production. The document is an unsigned and undated report of Mr Westworth, being a document required for production by paragraph 5 of a notice to produce dated 4 August 2016.
Counsel for the liquidators, Mr Bender, who appeared with Ms Hillman, neither of whom had appeared at first instance, commendably narrowed the issues for determination in this Court. He disavowed reliance upon two notices of motion seeking to adduce fresh evidence filed on 24 October 2016, which should be dismissed. He also disavowed reliance upon any challenge to the decision of Stevenson J. Thirdly, he candidly acknowledged that a deal of the submissions made in this Court had not been made before McDougall J, and that that circumstance told against a grant of leave.
I would refuse leave. My reasons for doing so are very much dependent upon the procedural history and the way in which the issue has come to this Court.

History of the litigation

The liquidators were appointed in around January 2013 to the applicant and a number of related companies (in what follows, I shall refer simply to the “Hastie Group”). At least since then, the evidence is that they have been investigating a claim to be made against the Hastie Group’s auditors (in what follows, I shall pass over the details of the firm and refer simply to “Deloitte”). There is evidence that they formed the view in around January 2013 that the Hastie Group has arguable causes of action against Deloitte in relation to the audit reports for the 2008-2011 financial years. They were also of the view that, for the earliest of those audits, the limitation period might expire on 26 August 2014, and to that end the liquidators’ former solicitors were instructed to issue proceedings against Deloitte in relation to that claim. A statement of claim was filed on 22 August 2014. However, it was not served within the six month period prescribed by the rules. A second statement of claim, relating to the following financial year, was filed on 21 August 2015.
There were three ex parte applications before Registrars to extend the time for service of the statements of claim, on 17 February 2015, 17 December 2015 and 9 February 2016. In each case, the evidence relied upon squarely addressed efforts which had been made by the liquidators to obtain funding for the litigation against the auditors. During the second half of 2015, the liquidators conducted some 18 days of examinations. Ultimately, the originating process was served upon the partners of Deloitte, who have moved in accordance with Uniform Civil Procedure Rules 2005 (NSW), r 12.11(1)(e) to discharge the orders extending time for service. It is that application which is set down for hearing on 10 and 11 November, and which had been set down for hearing on 19 and 20 September. Nothing in these reasons should be taken as expressly or impliedly conveying a view on any issue relevant to that hearing.
Around six weeks in advance of the September hearing, the liquidators were required to produce some 17 categories of documents which, very broadly speaking, related to what had been taking place while time for service was being extended, including in relation to funding. There were follow up notices to produce which need not be addressed here. A dispute arose about the liquidators’ claims for privilege over documents called for by the notices. That dispute was heard on 9 September 2016. McDougall J recorded that there had been “a flurry of late evidence from the plaintiffs, which necessitated a short adjournment (until 10am on 12 September 2016) for further written submissions”. His Honour regarded the way in which the hearing had been conducted to be unsatisfactory.
The liquidators relied upon two affidavits of Mr Craig David Crosbie, sworn 25 August 2016 and 9 September 2016. Mr Crosbie is one of the liquidators. Pages 16-21 of the earlier affidavit identified 38 documents answering the description of paragraph 5 of the notice to produce. Relevantly for present purposes, item 13 was as follows:

“13. Attachment referred to in 4 [sic] above is a report of Westworth Kemp undated and unsigned – this document was prepared for the purpose of obtaining legal advice in connection with the public examinations and Proceedings.”

The reference to item 4 was incorrect. It appears that it should have been a reference to item 12 which was “Chain of emails between HW and PPB dated 10 May 2016 and attachment”. “PPB” refers to the liquidators and “HW” to their solicitors. It will be seen that even so, the first affidavit did not name the person who sent the email, or the people who received the email.
All 38 of the documents were stated by Mr Crosbie to “comprise confidential communications regarding the funding of the Proceedings”. After the 38 documents had been listed, Mr Crosbie said, plainly intending to refer to all of them:

“The documents were created solely in connection with anticipated or pending legal services and litigation. The litigation anticipated at the time the documents were created was the Proceedings.”

Mr Crosbie’s second affidavit – which was sworn on the day of the hearing before McDougall J – dealt in more detail with Mr Westworth’s report. The relevant paragraph of that affidavit stated:

“Item 5, documents 12 and 13 is an email and attachment – the sender of the email is Mr Scott to Mr Varghese. The email is copied to Mr Kelcey and Ms Bryce. The attachment is a report prepared by Westworth Kemp pursuant to our request contained in the email referred to in paragraph 7(h) above. I reviewed the email and attachment and recalled the substance of them and my instructions before swearing my privilege affidavit. A claim for privilege is based on section 119 of the Evidence Act. That is, the email and attachment is a confidential communication between the Liquidators’ solicitors and the solicitors acting for CFA in connection with the merits of and/or the funding of the anticipated proceedings being these Proceedings.”

“CFA” is a reference to Claims Funding Australia Pty Ltd, which is now funding this litigation. Mr Varghese is a solicitor at Maurice Blackburn Lawyers, the firm which acted for CFA. Thus the second affidavit corrected the incorrect reference to item 4, and identified that the communication was between the solicitors acting for the liquidator and the solicitors acting for the prospective funder.

Submissions before McDougall J

Before McDougall J, the liquidators’ claim for privilege was advanced on a global basis. A large document of 15 A3 pages, referred to in submissions at first instance and in this Court as a “Scott schedule”, was prepared identifying the parties’ respective positions in relation to the various disputed documents. The document defined, relevantly for present purposes, something called “section 119 Litigation Funding Privilege”. The submission made by the liquidators was that, relying upon parts of the reasoning in Rickard Constructions Pty Ltd v Richard Hails Moretti Pty Ltd [2006] NSWSC 234 at [43] and [58]ff, confidential communications relating to a funding agreement were “inextricably linked” with professional legal services being provided to the client, and therefore were privileged pursuant to s 119 of the Evidence Act 1995 (NSW).
At no stage in the oral hearing before McDougall J was Mr Westworth’s draft report mentioned specifically. To the contrary, all of the documents in category 5 (save for one where the objection was not pressed) continued to be subject to a global objection. However, it is true that the Scott schedule gave a cross-reference to the 15 subparagraphs in Mr Crosbie’s second affidavit which were said to sustain the objection to production, one of which was directed specifically to Mr Westworth’s report. The Scott schedule also recorded that “The Plaintiffs otherwise repeat the section 119 Litigation Funding Privilege”. Those same words were repeated in support of the Liquidators’ position in the others rows in the Scott Schedule for that notice to produce for categories 2, 6, 7, 11, 15 and 16, as well as for categories 3, 5, 7, 8, 9, 10 and 11 in the same schedule for the other notice to produce.
The Scott schedule also recorded Deloitte’s response, which included the following:

“Otherwise, [Mr Crosbie’s second affidavit] [8(d)-(q)] does not advance matters. It variously describes documents as being ‘in connection with the terms of funding ...’ / ‘in connection with funding ...’ etc. Many of those communications are to / from the third party funder (CFA or its solicitors). That description does not establish that the communication was made for a requisite dominant purpose. To the contrary, it indicates that it was not for such a purpose.
Furthermore, the role of Hall & Wilcox at this time appears to be in the nature of a broker ‘to explore funding opportunities and negotiate a funding agreement’ as part of a market testing exercise: see Crosbie 1 [60].”

In oral submissions, senior counsel then appearing for the liquidators submitted that “we are maintaining the privilege in relation to the communications between my instructing solicitors and Maurice Blackburn on behalf of CFA”. Counsel went on to say that those communications were with respect to:

“funding agreements or a funding arrangement, and the securing or the furthering of those negotiations in the funding agreement is what permits the professional legal services. In other words, absent the funding – I’m not saying this would necessarily apply, but in the circumstances of this case, absent the funding on the material that was made available on the extension applications to allow legal services to be provided. So it’s a legal chain, in effect.”

Reasons of McDougall J

The primary judge delivered an oral judgment on 14 September 2016. The primary judge addressed the privilege submission in the global terms in which it had been advanced. His Honour said that there was a “fallacy” in there being some general principle that funding agreements are privileged: Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1315 at [16]. His Honour said that, in accordance with other authorities, unchallenged for the purposes of this application for leave, the existence of privilege depended upon the facts of the particular case. His Honour then stated that there was a “very strong argument” that communications between liquidators and funders fell outside of the scope of s 119 privilege “because their purpose is (at best) to create (or, perhaps, lead to the creation of) a relationship under which legal professional services may later be provided”: at [21]. His Honour concluded at [23]-[24]:

“Although the latest affidavits make attempts to assert privilege on that basis, they do not sit well or consistently with the original descriptions given. Nor do they sit well or consistently with other evidence on the application. I accept Mr Shearer's submissions (he appeared with Ms O'Halloran of Counsel for the defendants) in that regard. Even in the most recent affidavits, the evidence is of such a broad-brush nature as, in context, to be singularly unpersuasive.
In my view, privilege has not been established, although the possibility that there may be skerricks of privileged material within the documents cannot be entirely discarded.”

His Honour stated that those “skerricks” of privileged material may exist to the extent that “the documents reveal, expressly or by implication, legal advice or views as to prospects, strategy, tactics and the like”.
His Honour then addressed issue waiver, and said at [28]-[30] that:

“the plaintiffs deployed Mr Crosbie's affidavits to show that they had done all that they reasonably could do, and had done so with reasonable expedition and diligence. They did so knowing that those issues might be revisited in a contested application under r 12.11. In those circumstances, it seems to me, the plaintiffs cannot maintain the two following propositions with any consistency:
(1) the evidence of Mr Crosbie in the r 1.12 applications shows that the plaintiffs acted in the manner I have described; but
(2) the defendants should not have access to the underlying material to test that proposition.

In my view, that inconsistency is made even clearer by the summary way in which the documents are described. In a contested application, it may very well be that the relevant material would have been objected to and rejected, thereby putting the plaintiffs to the choice of either revealing the material or, in all likelihood, not succeeding in obtaining an extension of time. That however is at best a subsidiary consideration.

In my view, considerations of fairness in the conduct of litigation make it plain that the two propositions to which I have referred cannot stand consistently together.”

His Honour added that his views were reinforced by the ex parte nature of the applications, and concluded that any existing privilege had been waived.

The application before Stevenson J

By letter dated 15 September 2016, the liquidators’ solicitors advised Deloitte’s solicitors that they had withheld production of the Westworth Kemp report. They did so because McDougall J had held that one particular document, a letter retaining an expert dated 24 April 2015, was privileged. The letter continued:

“It follows that privileged [sic] also attaches to the report that was prepared in response to that letter.
For the avoidance of doubt, we confirm that the document referred to as the ‘Report of Westworth Kemp undated and unsigned’ is that responsive report.”

Mr Crosbie had already said, amongst other things, that the Westworth Kemp report was a report prepared pursuant to the retainer letter which McDougall J had held to be privileged. However, the fact that the letter of 15 September confirmed that this was so “for the avoidance of doubt” tends to strengthen the inference that this had not hitherto been clearly articulated.
That letter was sent the Thursday before the hearing set down for the following Monday. McDougall J had granted liberty to apply, and it appears that an attempt was made to exercise that liberty on the afternoon of Friday, 16 September 2016. The transcript of that afternoon was not in the materials available to this Court.
On 19 September 2016, and by consent, the hearing of the application under UCPR r 12.11(1)(e) was vacated. On the following day, the matter came before Stevenson J. There appear to have been significant disputes about aspects of the production which had been ordered. Once again, production of the Westworth Kemp report was not the central (let alone the sole) item in issue, as it has been in this Court. On page 36 of the transcript, senior counsel then appearing for the liquidators came to the Westworth Kemp report, and submitted that it had “fallen between the cracks”:

“Now with the greatest of respect what I think has occurred in the enormous amount of material that was before McDougall J and in effect a Scott schedule which my learned friend referred to before, I think what unfortunately may have occurred is the Westworth report which falls within category 5, has fallen between the cracks because there is no way his Honour would have, with respect, specifically have upheld the privilege in respect of the retainer letter referred to in para 34 but otherwise say the report coming out of that is not privileged …”

Counsel’s second submission was that because the content of the Westworth Kemp report had not been deployed, there could be no waiver.
In the course of exchanges, Stevenson J said, “Why don’t you ask him”, being a reference to McDougall J. The response was, “My learned friend and I tried last Friday afternoon, was unsuccessful in the sense of agitating the debate before his Honour but with leave we should approach his Honour in that regard”. Stevenson J is then recorded in the transcript as having said, “Take another course about that”. Debate in this Court proceeded on the basis that, in substance, Stevenson J was inviting counsel for the liquidators to try again, the hearing having now been vacated, to agitate any question about whether the report had “fallen between the cracks” before McDougall J.
Stevenson J rejected the application, for reasons which may be passed over, since no application for leave to appeal from it is pressed: Hastie Group Ltd (in liq) v Moore t/as Deloitte Touche Tohmatsu [2016] NSWSC 1355. The order requiring production of the report has been stayed, pending the determination of the liquidators’ application for leave to appeal.

Decision

I would refuse leave.
First, insofar as the basis for the claim for privilege now advanced in relation to the Westworth Kemp report was not a matter squarely raised before McDougall J, there is no appellable error in his Honour, in dealing urgently with a large contested claim for privilege, not addressing the particular argument which is now sought to be advanced. It is true that the essence of the argument was to be found in the volume of material before his Honour. But it was not addressed orally in terms, and it was not to be found in terms in the Scott schedule. In the facts of this case, where an urgent determination was required, the liquidators needed to do more to put their opponents and the Court on notice that there was a particular document as to which additional submissions were to be made (the position resembles that stated in Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77 at [64]). Instead, the liquidators ran the case on the global basis of what they styled as “section 119 Litigation Funding Privilege”, seeking to withhold production of a much larger class of documents. That submission was rejected by the primary judge, and there is no challenge to that on appeal.
That said, if there were a case of real prejudice flowing from the production of the Westworth Kemp report, then the failure to have made the submissions now sought to be advanced might not be fatal to the grant of leave (subject, perhaps, to a special order as to costs). Hence, let it be assumed that the affidavits of Mr Crosbie established at least arguably a prima facie case that Mr Westworth’s draft report was privileged. I regard that as a favourable assumption, for the following reasons.

First, the onus lay upon the liquidators to adduce evidence to support the conclusion that the Westworth Kemp report was provided to the liquidators for the dominant purpose of their being provided with professional legal services relating to the Proceedings.

Secondly, the unchallenged aspects of the decision of the primary judge hold that communications whose purpose is to attempt to obtain litigation funding do not attract privilege in this case.

Thirdly, the most specific articulation of purpose, in Mr Crosbie’s second affidavit, to which I have referred above, identifies the document as being “in connection with the merits of and/or the funding of the anticipated proceedings”. I think it must be said that the probative value of evidence of the purpose of a document where it is said that the document was “in connection with the merits and/or the funding” cannot be very high. “And/or” to my mind indicates that the deponent has not thought very hard about whether the document was connected with either or both of the alternatives. In particular, it remains unclear to me whether Mr Crosbie was saying that the report was or was not “in connection with the funding of the anticipated proceedings”, and whether the report was or was not “in connection with the merits of the anticipated proceedings”. In the present case, much turns on this distinction. None of the foregoing sits well with the submission which is now pressed, namely, that the report was a response to a letter “requesting an expert opinion in connection with the Proceedings” (which was how the retainer letter was described by Mr Crosbie).

Fourthly, the inference I would draw, having regard to the various ways in which the report has been described, and, especially, its timing, was that a purpose for the report was to solicit funding of the contemplated proceedings against the auditors. In those circumstances, it was necessary for the liquidators to establish how the test of dominant purpose was satisfied.

Fifthly, it is well established that the existence of privilege is not made out by mere verbal formula: Grant v Downs (1976) 135 CLR 674 at 689. I respectfully agree with what Brereton J said in Hancock v Rinehart [2016] NSWSC 12 at [35(2)]: “A claim for privilege must be made on sworn direct evidence – not inadmissible hearsay or opinion – proving the facts on which the claim is founded.”

Nevertheless, let it be assumed contrary to the foregoing that what was done was sufficient to make out a prima facie basis for concluding that the draft undated report attracted privilege. That is not, in my respectful view, an end of the inquiry as to whether there should be a grant of leave.
It was open to the liquidators to renew their application before McDougall J. Indeed, an application was made to another judge on the basis that there had been a “slip”. It would seem the parties as well as Stevenson J were alive to the possibility of returning to McDougall J. Although I can readily appreciate the difficulties of the application, it seems clear to me that such a course is more appropriate than seeking leave to appeal on a point that was not squarely taken in an urgent hearing before the primary judge. Mistakes happen. When they do, the best response will normally be to return to the judicial officer, before the time specified by UCPR 36.16 has expired, explain the mistake and apply for the order to be varied. There is no explanation as to why that course was not taken, in the materially different circumstances which obtained on or after 20 September 2016, after the hearing had been vacated.
I have regard to the fact that this is plainly large-scale litigation conducted on both sides by very experienced solicitors, with ample resources to deploy. The litigation took place in the Commercial List, where considerable resources are devoted to ensuring that interlocutory disputes are resolved very promptly. That is what occurred. There is force in the submission of Mr Shearer (who appeared with Ms O’Halloran for Deloitte in this Court and below) that there is a limit to the indulgence which can be accorded to a party seeking to advance a claim of privilege, who chooses to do so in a particular fashion.
The liquidators were alive to the need to demonstrate the importance of the prejudice they would suffer if the Westworth Kemp report were disclosed. But in a case where there has already been criticism by the primary judge of the way in which the liquidators’ solicitors have articulated the essential factual bases for their claims, the entirety of the evidence explaining the prejudice of disclosure of the draft report was from an employed solicitor who said:

“5. Mr Westworth is an audit expert who is providing the liquidators with advisory services in connection with the audited accounts and accounting practices of the plaintiff.
…
7. I have read the Westworth report. It sets out Mr Westworth’s opinions in connection with the conduct of the respondents in the proceedings below. The document was provided to the liquidators on a confidential basis for use by them and their legal team in formulating their case.
8. The liquidators intend to use the work of Mr Westworth in formulating their case against the respondents and in relation to strategy. I am concerned that if it is produced the plaintiffs [sic] will have notice of these matters in circumstances in which it was never the intention of the liquidators to disclose the Westworth Kemp report or its contents to the respondents.”

Deloitte’s submissions referred to the reasoning in Priceline Pty Ltd v JHY Nominees Pty Ltd (2010) 27 VR 513 at [34], where it was held that it was not sufficient to say that a decision “may” be productive of substantial injustice. There a first instance decision upholding a claim of privilege which the Court of Appeal concluded was “probably wrong” was nevertheless not the subject of a grant of leave because it had not been shown that production of the document was “vital” to the applicant’s case. Deloitte invited this Court to adopt the same approach.
Deloitte submitted that the solicitor’s affidavit “does not establish that substantial injustice would follow”. They said that:

“whether or not a clear substantial injustice would arise would depend on the contents of the Report and whether its disclosure would reveal material that would substantively harm the applicants in the presentation of their case. But that is not what the applicants submit and nor is there any evidence to support such a contention.”

Those submissions (as originally filed) were dated 17 October 2016. Yet no attempt was made by the liquidators to supplement the evidence supporting prejudice.
The liquidators served submissions in reply of nine pages. In relation to substantial injustice, their submission was as follows:

“The Respondents’ assertion that disclosure of the Applicants’ draft expert report would not result in substantial injustice should be rejected. The privilege conferred by s 119 exists for the very reason that documents such as the Westworth Kemp report can be obtained by litigants without fear that they will be disclosed to the opposite party. Ms Pickthall has deposed to the prejudice that would be suffered were the document to be disclosed in this case in circumstances where detailed disclosure of the contents of the report would run the risk of waiver of privilege. It is not legitimately open to the respondents to say that her evidence is not sufficiently detailed.”

I do not agree. I think the criticisms by Deloitte of the limitations are well-founded. There was significantly more that could have been said if indeed there would be substantial injustice if the draft be disclosed. The courts have many mechanisms by which sensitive material may be protected, even in contested litigation (and, in extreme cases, even with limited or no disclosure to the other side).
The nature of any substantial injustice is left to speculation. All that has been said is that one solicitor is concerned that Deloitte will have notice of aspects of the liquidators’ case and strategy. The basis of that concern is not stated. Nor is the level of the concern. And the concern is that of an employed solicitor (whose position is styled Special Counsel), rather than a partner or indeed one of the liquidators.
There is no suggestion that the injustice in disclosing the Westworth Kemp report is based upon a concern about the applications set down for hearing next week. Let it be assumed that Deloitte’s applications to set aside service fail, and the litigation proceeds (if that is not so, then no prejudice or injustice to the liquidators will have been established at all).
To the extent that the solicitor’s concern is based on the present intention to use the report to formulate the liquidators’ case, sooner or later the liquidators’ case will need to be formulated and supplied to Deloitte. So far as I can see, the solicitor’s concern is a concern that Deloitte will receive early notice of something to which they are in any event entitled.
To the extent that the solicitor’s concern is based upon a disclosure of strategy, the evidence is expressed at such a high level of generality that I find it impossible to translate that into any level of demonstrable prejudice. The notion of an externally funded liquidator suing the company’s former auditors is scarcely novel.
More generally, I find it difficult to see how, if this litigation proceeds to a final hearing, the early disclosure of this draft report would have any significant bearing upon the outcome. That ultimately will be determined on the evidence. If, for example, it turns out that Mr Westworth at a very early stage has expressed some critical views about some aspects of the liquidators’ case, or (for example) made concessions favourable to the auditors about how aspects of their work had been conducted, even so, those matters will be determined in light of the evidence adduced at trial.
Mr Bender invited this Court to infer that the report contained statements dealing with both the strengths and the weaknesses of the litigation. I would readily draw that inference. But what does not emerge from this evidence is any measure of how prejudicial it might be for the defendants to learn, relatively early (although this litigation is now some years old) what one expert’s views about the strengths or otherwise of the liquidators’ case might be.
I would not regard that as an end to the analysis. If it could be said that the early disclosure of this draft report might jeopardise the prospect of resolving all or part of the litigation consensually, and at an early stage, then a case for substantial injustice could, at least in principle, be made out. The difficulty is that (a) despite this being a case where the primary judge was critical about the failure of the liquidators’ evidence to establish the primary facts, and (b) despite it being perceived that there was a need to adduce evidence establishing substantial injustice, and (c) despite the limitations in the solicitor’s affidavit being made transparently clear in advance of the hearing, no step was taken by the liquidators to supplement that material. I do not accept that it was not open to the liquidators to do so.
The inference which should be drawn in those circumstances is that what the solicitor said was as much as could fairly be said to support a submission of substantial injustice.
It is not necessary for me to go further to consider the parties’ submissions concerning waiver. There is no question of principle or of general public importance in the decision to order production of the Westworth Kemp report. Accordingly, in order to obtain a grant of leave, it was necessary for the liquidators to establish an injustice which is reasonably clear in the sense of going beyond what is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46], a test which has been very regularly applied (see for example the authorities collected in Gibson v Drumm [2016] NSWCA 206 at [19]).
The test applied by the Victorian Court of Appeal is expressed to be more demanding. In Priceline, Mandie JA, with whom Hansen AJA agreed, emphasised that it was not sufficient to point to a risk of substantial injustice, and that it remained necessary to show substantial injustice. It may be that the difference is merely verbal. It is not necessary to express a view on this issue.
In my view, no reasonably clear injustice has been established, even if the report attracted privilege which has not been waived. To be clear about it, I do not consider that privilege in a draft report is a trump that outweighs all other considerations, including those requiring early attention to the real issues in the proceedings in ss 56-58 of the Civil Procedure Act 2005 (NSW). The liquidators have had not one but two hearings at first instance to establish the privilege they claimed. They also had an opportunity to return to a judge in the Equity Division with better evidence and an explanation as to why the significance of this document had been overlooked by them on the first occasion. And they have failed to establish that disclosure of the report, even if privileged, will lead to any appreciable injustice.

Conclusion and orders

In the present case, the liquidators chose to conduct proceedings before the primary judge on a global basis. They now seek leave to appeal on a different basis, indeed, a basis which is inconsistent with the way in which the more ambitious claim of privilege was advanced but rejected at first instance. In my view, leave should not be granted to run a new claim of privilege unless a clear case of injustice has been established. That has not been established.
Accordingly, I propose that both summonses filed on 30 September 2016 be dismissed, with costs.

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Decision last updated: 07 November 2016

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Citations

Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305

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Medium Neutral Citation:	Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305
Hearing dates:	26 October 2016
Decision date:	07 November 2016
Before:	Beazley P at [1]; Macfarlan JA at [1]; Leeming JA at [70]
Decision:	In proceedings CA 2016/292976: (1) Leave to appeal granted; (2) Appeal allowed; (3) The orders of McDougall J made 14 September 2016 be set aside insofar as they require the production of the Westworth Kemp report; (4) Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal. In proceedings CA 2016/297987: (1) Leave to appeal granted; (2) Appeal allowed in part; (3) Order (5) made by Stevenson J on 26 September 2016 be set aside; (4) Note that the Court does not make any order as to the costs of the appeal proceedings, including the summons for leave to appeal.
Catchwords:	PRACTICE AND PROCEDURE – privilege – client legal privilege – expert report prepared in process of attempting to obtain litigation funding – expert report provided to litigation funder – client legal privilege claimed pursuant to the Evidence Act 1995 (NSW), s 119 – whether report prepared for the dominant purpose of obtaining legal advice PRACTICE AND PROCEDURE – privilege – waiver of privilege – implied waiver – what is required for implied waiver – where document referred to in affidavit – whether contents of document put in issue PRACTICE AND PROCEDURE – privilege – waiver of privilege – disclosure to third parties – document provided to litigation funder – whether document retained confidential character
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56-58 Evidence Act 1995 (NSW), ss 117, 119, 122 Uniform Civil Procedure Rules 2005 (NSW), r 12.11
Cases Cited:	Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Archer Capital 4A Pty Ltd v Sage Group Pty Ltd (No 2) (2013) 306 ALR 384; [2013] FCA 1098 AWB Ltd v Cole (No 5) (2006) 155 FCR 30; [2006] FCA 1234 Bailey v Director General Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100 Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69 Commissioner of Taxation v Rio Tinto Ltd, (2006) 151 FCR 341; [2006] FCAFC 86 Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; [2008] NSWCA 164 CSR Ltd V Eddy (2008) 70 NSWLR 725; [2008] NSWCA 83 DSE (Holdings) v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384 Gibson v Drumm [2016] NSWCA 206 Grant v Downs (1976) 135 CLR 674; [1976] HCA 63 Hancock v Rinehart (Privilege) [2016] NSWSC 12 Hastie Group Ltd (in liq) v Moore [2016] NSWSC 1315 Hastie Group Ltd (in liq) v Moore t/as Deloitte Touche Tohmatsu [2016] NSWSC 1355 Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 Marshall v Prescott (No 4) [2012] NSWSC 992 Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77 Priceline Pty Ltd v JHY Nominees Pty Ltd (2010) 27 VR 513 Re Global Medical Imaging Management Limited (in liq) [2001] NSWSC 476 Rickard Constructions Pty Ltd v Richard Hails Moretti Pty Ltd [2006] NSWSC 234 Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87 State of New South Wales v Jackson [2007] NSWCA 279
Category:	Principal judgment
Parties:	Hastie Group Limited (in liquidation) (Applicants) Bruce Ivan Moore & Ors trading as Deloitte Touche Tohmatsu (Respondents)
Representation:	Counsel: N M Bender; Z M Hillman (Applicants) A Shearer; V O'Halloran (Respondents) Solicitors: Hall & Wilcox Lawyers (Applicants) Clifford Chance (Respondents)
File Number(s):	2016/292976; 2016/292987
Decision under appeal	Court or tribunal: Supreme Court Jurisdiction: Equity Division Citation: Hastie Group Ltd (In liq) v Moore & Ors [2016] NSWSC 1315; Hastie Group Ltd (in liq) v Moore t/as Deloitte Touche Tohmatsu [2016] NSWSC 1355 Date of Decision: 14 September 2016; 23 September 2016 Before: McDougall J;Stevenson J File Number(s): 2014/247471; 2015/245237