LK Law Pty Ltd v Karas (Legal Professional Privilege)
[2024] FCA 315
•6 March 2024
FEDERAL COURT OF AUSTRALIA
LK Law Pty Ltd v Karas (Legal Professional Privilege) [2024] FCA 315
File number(s): SAD 222 of 2021 Judgment of: O'SULLIVAN J Date of judgment: 6 March 2024 Date of publication of judgment: 28 March 2024 Catchwords: PRACTICE AND PROCEDURE — application for leave to issue a subpoena by the first to third respondents — documents sought concern instructions given by the second applicant to his former solicitors — legal professional privilege — waiver — whether privilege over documents has been waived — no waiver — leave granted to issue a subpoena on a limited basis — leave to issue a subpoena for the production of invoices from the second applicant’s former solicitors, such invoices to be redacted for any information that is the subject of legal professional privilege Legislation: Evidence Act 1995 (Cth), ss 122(2) and (3) Cases cited: Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475
Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1013
AWB Limited v Cole [2006] FCA 571; (2006) 152 FCR 382
Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247; (2005) 225 ALR 266
Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2006) 151 FCR 341
Council of the New South Wales Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236
ESSO Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; (1999) 201 CLR 49
Grant v Downs [1976] HCA 63; (1976) 135 CLR 674
Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1
New South Wales v Betfair Pty Ltd [2009] FCAFC 160; (2009) 180 FCR 543
Osland v Secretary to the Department of Justice [2008] HCA 37; (2008) 234 CLR 275
QANTAS Airways Ltd v Australian and International Pilots Association [2023] FCA 853
TerraCom Ltd v Australian Securities and Investments Commission (ASIC) [2022] FCA 208; (2022) 401 ALR 143
The Daniels Corporation Inter-National Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543
Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 46 Date of hearing: 6 March 2024 Counsel for the First, Second and Third Applicants: Mr B Roberts KC with Mr T Besanko and Ms H Doyle Solicitor for the First, Second and Third Applicants: Kerrs Counsel for the First, Second and Third Respondents: Mr A Sullivan KC with Dr G O’Mahoney and Mr A Flick Solicitor for the First, Second and Third Respondents: Piper Alderman Counsel for the Fourth Respondent: Mr I Robertson SC with Ms A Wells Solicitor for the Fourth Respondent: Piper Alderman ORDERS
SAD 222 of 2021 BETWEEN: LK LAW PTY LTD
First Applicant
SCIPIO JOHN LIPMAN
Second Applicant
LIPMAN FAMILY PTY LTD (ACN 627 125 580)
Third Applicant
AND: JASON DEMETRIOS KARAS
First Respondent
J&A KARAS PTY LTD
Second Respondent
KARAS LLP (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
O'SULLIVAN J
DATE OF ORDER:
6 MARCH 2024
THE COURT ORDERS THAT:
1.A subpoena be issued to the proper officer, Iles Selley Proprietary Limited Level 4, 333 King William Street, Adelaide SA 5000 requiring the production of invoices rendered by the addressee in connection with the preparation of a draft statement of claim.
2.The applicants have leave to uplift any invoices produced for the purposes of redacting from such invoices any material properly the subject of legal professional privilege prior to the first to third respondents uplifting and inspecting any invoices produced.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
O’SULLIVAN J:
Late on 1 March 2024, the Friday prior to the commencement of the trial in these proceedings, the first to third respondents (Karas respondents) sought leave to serve a subpoena to produce documents to Iles Selley Pty Ltd, a legal firm in South Australia, that had previously represented the applicants.
The schedule of documents at page 4 identified the documents as:
Schedule of documents
The documents and things you must produce are as follows:
1.A copy of this subpoena.
2.In relation to the letter to Mr Jason Karas dated 1 April 2021 enclosing a draft statement of claim [LKL.003.001.1137] (draft Statement of Claim) and sent by the addressee law firm on 1 April 2021 via email from [email protected] to Mr Jason Karas at [email protected]:
a.Documents which record or evidence instructions given for the preparation of the draft Statement of Claim including but not limited to:
i.Copies of text messages, file notes, correspondence and emails containing instructions regarding the preparation of the draft Statement of Claim;
ii.Any brief to counsel regarding the preparation or settling of the draft Statement of Claim; and
iii.Invoices rendered by the addressee in connection with the preparation of the draft Statement of Claim.
As is evident, the subpoena sought by the Karas respondents was directed to the production of documents by Iles Selley evidencing instructions given for the preparation of a draft statement of claim sent by email to the first respondent (Mr Karas) by Iles Selley on 1 April 2021 (subpoena documents).
On 1 March 2024, I considered the Karas respondents’ application for leave to file the subpoena on the papers and refused the application for two reasons. First, in circumstances where the subpoena appeared to require the production of documents that are prima facie privileged, the Court needed to hear submissions from the relevant parties before granting leave to issue the subpoena. Second, due to the request for leave being sought in close proximity to the commencement of the trial, I determined that the Karas respondents could make a further application for leave, if so advised, which could be dealt with during the trial.
When the matter was called on for trial, the Karas respondents applied orally for leave to issue the subpoena.
The applicants submitted leave to issue the subpoena should be refused as the subpoena documents were the subject of legal professional privilege and there had been no waiver of that privilege.
On the third day of the trial in these proceedings, the Court heard submissions from the parties as an application for leave to issue the subpoena, following which I ordered that a subpoena issue to the proper officer of Iles Selley in relation to the invoices rendered by Iles Selley in connection with the preparation of the draft statement of claim (item 2(a)(iii) in the Schedule to the subpoena). I ordered further that the production of those documents be subject to the applicants redacting from them any information that is the subject of legal professional privilege.
The Karas respondents’ application for leave to issue the subpoena for production of the balance of the subpoena documents was dismissed. The Karas respondents sought reasons for that decision. These are those reasons.
Karas respondents’ submissions
The Karas respondents did not seek to challenge the view that prima facie the documents are privileged but submitted that there had been a waiver of that privilege pursuant to ss 122(2) and (3) of the Evidence Act 1995 (Cth).
Senior counsel for the Karas respondents submitted that the applicants had acted inconsistently with maintaining the privilege by knowingly and voluntarily disclosing the substance of the instructions. The Karas respondents submitted that any legal professional privilege which existed over the instructions given to Iles Selley by their then client, the first applicant (Mr Lipman), had thereby been waived. In support of that submission, the Karas respondents relied on the affidavit of Mr Lipman sworn 31 July 2023 (Mr Lipman’s trial affidavit) as well as a draft statement of claim and covering letter sent by Iles Selley to Mr Karas on 1 April 2021.
In particular, the Karas respondents relied on [506] of Mr Lipman’s trial affidavit in which he deposed:
Paragraph 4 of the draft Statement of Claim pleaded that Mr Karas is “legally and beneficially entitled to and operates a legal practice in Hong Kong as a sole trader under the business name ‘Lipman Karas’ (LK Hong Kong)”. This plea was inserted in the draft Statement of Claim on my instructions for the same reasons as set out in paragraph 479 above.
An alternative basis was that the applicants had put directly in issue Mr Lipman’s state of mind consequent upon communication with his solicitors.
Mr Lipman was the first witness called in this trial. Prior to the commencement of the trial, the Karas respondents had objected to [506] of Mr Lipman’s trial affidavit. I upheld that objection and it was not received into evidence. The fact that the passage was not received into evidence does not detract from the question as to whether the applicants have waived privilege over the instructions in question.
Senior counsel for the Karas respondents submitted that in his cross-examination of Mr Lipman he would be entitled to test the instructions that Mr Lipman asserts he gave in [506] of his affidavit.
The Karas respondents submitted that the contents of [506] in Mr Lipman’s affidavit amount to a calculated and deliberate disclosure of the substance of the evidence, namely, the instructions which were given in respect of the filing of the statement of claim.
Applicants’ submissions
In support of their claim for legal professional privilege over the subpoena documents, the applicants advanced a number of submissions.
First, the applicants submitted that on their face, the subpoena documents are privileged and there has been no waiver of that privilege.
Second, they submitted that, in the absence of a waiver of privilege over the subpoena documents, a subpoena seeking wholly or predominantly privileged materials would stand as an abuse of process.
Third, the applicants submitted that the Karas respondents had an opportunity to challenge the claims to privilege over the subpoena documents and by this late application now seek to avoid a prompt and timely challenge of privilege.
As to this third point, the applicants pointed to an application by the Karas respondents to go behind the privilege over the subpoena documents in mid-2023, which was later abandoned. Senior counsel for the applicants took the Court to relevant documents within a schedule of documents that were the subject of claims for privilege by the applicants, as well as to correspondence between the parties’ solicitors evidencing what the applicants said was a wholesale attack on the applicants’ claim for legal professional privilege in September 2023, followed by a deliberate decision not to pursue certain materials.
It is on that basis that the applicants submitted that some six months later the Karas respondents, without explanation, take a different tactical stance and make an application for leave to issue a subpoena requiring production of the privileged subpoena documents. The applicants submitted that the Karas respondents should be held to their decision to abandon their original application for production.
The applicants submitted that requiring the production of those documents from external solicitors ‘mid-stream’ would be manifestly disruptive and unfair.
Next, the applicants submitted that the question of waiver is considered on a “communication by communication specific” basis. That is, in circumstances where there has been a waiver of privilege, the party seeking production of documents is not entitled to gain access to the whole legal file unless the nature of the communication over which it is asserted legal professional privilege has been waived, calls into question the whole of the legal file.
The applicants characterised the waiver in terms framed by the Karas respondents as being, in effect, a blanket waiver point and is not made out on the facts.
On the question of waiver, the applicants submitted that in order for Mr Lipman to have waived privilege over the subpoena documents, it was necessary for there to be a disclosure of the content or the gist of the communication in circumstances which were inconsistent with maintaining the confidentiality of that communication.
The applicants submitted that, in [506] of his trial affidavit, Mr Lipman deposes to his thought process when authorising his solicitors to dispatch the draft statement of claim, without divulging the privileged communications in any relevant way.
In support of their submission that what Mr Lipman said at [506] does not amount to a waiver, the applicants relied on Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd (No 2) [2020] FCA 1013 (ASIC v ANZ), at [36] (Allsop CJ) and QANTAS Airways Ltd v Australian and International Pilots Association [2023] FCA 853. The applicants submitted further that it is not enough that Mr Lipman deposes to having had a state of mind and there being legal advice around that state of mind.
LEGAL PRINCIPLES
Legal professional privilege is a rule of substantive law: Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475 at 490 (Deane J). It protects a party from being compelled against the giving of information or the production of documents which would reveal communications between a solicitor and their client (or their agent) made for the “dominant purpose” of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings: The Daniels Corporation Inter-National Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543 at [9] (Gleeson CJ, Gaudron, Gummow and Hayne JJ); ESSO Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; (1999) 201 CLR 49 at [61] (Gleeson CJ, Gaudron and Gummow JJ).
Dominant Purpose
In ESSO, the High Court preferred the “dominant purpose” test to the “sole purpose” test, referring to Barwick CJ’s description in Grant v Downs [1976] HCA 63; (1976) 135 CLR 674 at 677:
… a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection.
A “dominant purpose” is one that is the prevailing or paramount purpose: AWB Limited v Cole [2006] FCA 571; (2006) 152 FCR 382 at [105], citing Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247; (2005) 225 ALR 266 at 279[30]. In Pratt, in the course of setting out the principles which apply in determining whether legal professional privilege applies, Kenny J said, at [30], of the dominant purpose:
The dominant purpose is not the same as the “primary” or the “substantial” purpose: see Grant v Downs at CLR 678; ALR 580-1 per Barwick CJ. The “dominant” purpose may be described as the ruling, prevailing, paramount or most influential purpose: see Mitsubishi Electric [(2002) 4 VR 332] at [10] citing Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 416; 141 ALR 92 at 97-8 per Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ. The “dominant purpose” brings within the scope of the privilege a document brought into existence for the purpose of a client being provided with professional legal services notwithstanding that some ancillary or subsidiary use of the document was contemplated at the time: Esso at [58] per Gleeson CJ, Gaudron and Gummow JJ; Sparnon v Apand at FCR 328; ALR 740-1 per Branson J …
The purpose for which a document is brought into existence is a question of fact: Grant at 692 (Jacobs J). Ordinarily, the purpose will be that of the maker but that may not always be the case: Grant at 682-683 (Stephen, Mason and Murphy JJ).
The dominant purpose must be determined objectively. The party claiming the privilege has the onus of establishing its claim for privilege. That onus may be discharged by way of evidence, or the circumstances in which the documents were brought into existence, their nature and the parties’ submissions: AWB at [109]-[110]. The privilege is not necessarily or conclusively established by resort to a verbal formula or ritual: Grant at 689 (Stephen, Mason and Murphy JJ).
Waiver of legal professional privilege
The Karas respondents relied on ss 122(2) and (3) of the Evidence Act in support of their submission that there has been a waiver of legal professional privilege over the subpoena documents. Those sections provide:
(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.
The party seeking access to the otherwise privileged communication bears the onus in establishing a waiver of legal professional privilege: New South Wales v Betfair Pty Ltd [2009] FCAFC 160; (2009) 180 FCR 543 at [54]; TerraCom Ltd v Australian Securities and Investments Commission (ASIC) [2022] FCA 208; (2022) 401 ALR 143 at [45].
The common law principles relevant to the waiver of legal professional privilege, which are reflected in ss 122(2) and (3) of the Evidence Act were set out by the High Court in Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1. In their joint judgment (at [28]-[29]), Gleeson CJ, Gaudron, Gummow and Callinan JJ said:
At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. It has been observed that “waiver” is a vague term, used in many senses, and that it often requires further definition according to the context. Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. 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, or the institution of proceedings for professional negligence against a lawyer, in which the lawyer’s evidence as to advice given to the client will be received.
Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is “imputed by operation of law”. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege. Thus, in Benecke v National Australia Bank, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister’s version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. 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 Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2006) 151 FCR 341, the Full Court of this Court set out what is involved in determining whether privilege has been waived, providing (at [61]) as follows:
Both before and after Mann, the governing principle required a fact-based inquiry as to whether, in effect, the privilege holder had directly or indirectly put the contents of an otherwise privileged communication in issue in litigation, either in making a claim or by way of defence.
In Council of the New South Wales Bar Association v Archer [2008] NSWCA 164; (2008) 72 NSWLR 236, Hodgson JA stated (at [48]) that, “the making of express or implied assertions about the content of the privileged communications, while at the same time seeking to maintain the privilege” would involve the requisite inconsistency and unfairness for a waiver of legal professional privilege. His Honour further provided (at [48]) that:
In this respect, it may be sufficient that the client is making assertions about the client’s state of mind, in circumstances where there were confidential communications likely to have affected that state of mind.
Determining whether there is an inconsistency between a disclosure of the existence and effect of legal advice and the maintenance of confidentiality in the terms of that advice depends on the circumstances of the case at hand, “questions of waiver are matters of fact and degree”; Osland v Secretary to the Department of Justice [2008] HCA 37; (2008) 234 CLR 275 at [49] (Gleeson CJ, Gummow, Heydon and Kiefel JJ).
CONSIDERATION
The subpoena documents are prima facie privileged.
I have set out [506] of Mr Lipman’s trial affidavit at [11] above. In that paragraph, Mr Lipman is referring to an email he sent to Mr Karas and others on 26 February 2021, part of which is extracted at [477] of Mr Lipman’s trial affidavit and also referred to in [479].
These paragraphs provide to the extent they were not the subject of an objection which I have upheld:
477.On 26 February 2021 I sent an email to Mr Karas, Mr Cross, Ms Hall-Carney, Ms Zander, Mr Gomersall, Mr Foreman, Ms Rahaley and Ms Copley [LKL.003.001.1081]. I stated in that email:
477.1.“I have noted that you have just started suggesting that I have a 50% equitable interest in LKHK. I don’t think that is the case but whether it is true or not it does not lead to any of the consequences you have suggested. You assert this to suggest, somehow, that you do not owe approximately $19 million to LKPL. Your lawyers will probably advise you that if you are carrying on the business of LKHK 50% equitably for me then you are carrying on business as trustee for me. They will probably also explain to you that trustees are not permitted to divert trust assets, such as cash, to themselves. Your lawyers will probably also explain to you that the trust is irrelevant to the trustee’s dealings with third parties. A trustee is personally liable to that third party. The limit on the trustee's protection is a possible indemnity out of trust assets not the imposition of any liability on beneficiaries such as me. So this suggested equitable interest to which you refer, if it exists at all, does not extinguish your indebtedness to LKPL of approximately $19 million and does not lead to my having any liability to LKPL”; and
477.2[not received]
478.…
479.With respect to my statement to the effect that I did not think that I had a “50% equitable interest in LKHK”, I recall that:
479.1.by this point in time, I considered that Mr Karas and I were engaged in discussions regarding the terms upon which Mr Karas might separate from LKPL and LKHK;
479.2.I wanted to achieve the most favourable terms for LKPL in those discussions with Mr Karas and was, consequently, focused upon adopting positions within our communications and negotiations that would be most favourable to LKPL, consistent with what I understood to be my duties as a director of LKPL;
479.3[not received]
479.4.I understood Mr Karas, by what he said in his letter dated 24 February 2021, to be attempting to cast doubt on the loan account between the Hong Kong office and LKPL to his advantage and to the detriment of LKPL; [balance not received]
479.5.I said what I said about not thinking that I had a “50% equitable interest in LKHK” in this email in order to outflank the argument that I thought Mr Karas was or would advance in our negotiations that he and I would be jointly liable for LKHK's loan to LKPL. [balance not received]
Paragraphs 477 and 479 of Mr Lipman’s trial affidavit give context to what Mr Lipman deposes to in [506] of his trial affidavit, prior to that paragraph being removed from his trial affidavit following objection. That context, and in particular a consideration of what Mr Lipman deposed to earlier in his trial affidavit at [479] with respect to a particular position at law, is such that I do not consider there has been conduct inconsistent with Mr Lipman maintaining the confidentiality of any communication of his instructions to Iles Selley, his then solicitors.
Accordingly, I do not consider there has been a waiver of legal professional privilege over the subpoena documents.
I do not need to deal with the applicants’ submission with respect to a subpoena over the prima facie privileged subpoena documents amounting to an abuse of process.
Invoices for the provision of legal advice may be the subject of legal professional privilege by reason of the disclosure of legal advice within the description of items contained in the invoice. That material is easily redacted. Senior counsel for the applicants accepted that the invoices referred to at 2(a)(iii) of the schedule of documents, if appropriately redacted, would not be privileged documents.
It was for these reasons that I granted leave to the Karas respondents to issue a subpoena limited to invoices rendered by Iles Selley in connection with the preparation of the draft statement of claim and that the production of those documents be subject to the applicants redacting from them any information that is the subject of legal professional privilege.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan. Associate:
Dated: 28 March 2024
SCHEDULE OF PARTIES
SAD 222 of 2021 Respondents
Fourth Respondent:
MISCHON DE REYA LLP
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