Perth Airport Pty Ltd v Qantas Airways Ltd [No 2]

[2021] WASC 342

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   PERTH AIRPORT PTY LTD -v- QANTAS AIRWAYS LTD [No 2] [2021] WASC 342

CORAM:   LE MIERE J

HEARD:   30 SEPTEMBER 2021

DELIVERED          :   6 OCTOBER 2021

FILE NO/S:   CIV 3147 of 2018

BETWEEN:   PERTH AIRPORT PTY LTD

Plaintiff

AND

QANTAS AIRWAYS LTD

First Defendant

JETSTAR AIRWAYS PTY LTD

Second Defendant

AIRLINK PTY LTD

Third Defendant

NETWORK AVIATION PTY LTD

Fourth Defendant

EXPRESS FREIGHTERS AUSTRALIA PTY LTD

Fifth Defendant

Catchwords:

Evidence – Privilege – Legal professional privilege – Waiver of – Whether privilege waived by disclosure during negotiations

Legislation:

Rules of the Supreme Court 1971 (WA)

Result:

Order for production of documents granted

Category:    B

Representation:

Counsel:

Plaintiff	:	Mr M Cuerden SC & Mr P Walker
First Defendant	:	Mr B Kremer
Second Defendant	:	Mr B Kremer
Third Defendant	:	Mr B Kremer
Fourth Defendant	:	Mr B Kremer
Fifth Defendant	:	Mr B Kremer

Solicitors:

Plaintiff	:	DLA Piper Australia - Melbourne
First Defendant	:	MinterEllison
Second Defendant	:	MinterEllison
Third Defendant	:	MinterEllison
Fourth Defendant	:	MinterEllison
Fifth Defendant	:	MinterEllison

Cases referred to in decision:

Alcoa of Australia Ltd v Apache Energy Ltd [2014] WASCA 148

AWB Ltd v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30

Bennett v Chief Executive Officer, Australian Customs Service [2004] FCAFC 237; (2004) 140 FCR 101

Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1

Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 122; (2004) 136 FCR 357

Switchcorp Pty Ltd v Multimedia Ltd [2005] VSC 425

Zantran Pty Ltd v Crown Resorts Ltd (No 2) [2020] FCA 1024; (2020) 146 ACSR 235

LE MIERE J:

Summary

1. The defendants (Qantas) applied for an order that the plaintiff, Perth Airport Pty Ltd (PAPL), produce for inspection documents in respect of which PAPL has claimed legal professional privilege on the ground that PAPL has waived the said privilege. PAPL opposed the application on the grounds that Qantas have not established that PAPL has waived the privilege, production of the unredacted documents for inspection is not necessary for fairly disposing of the matter or for saving costs, and the court should exercise its discretion not to order inspection because Qantas have unduly delayed in applying for inspection of the documents.

2. I ordered PAPL to provide to Qantas copies of documents listed in PAPL's list of privileged documents which record any analysis as to asset beta that is referred to in exhibit F0405 undertaken by Houston Kemp, including Mr Gregory Houston.

3. These are my reasons for making the order for production.

Waiver

Qantas claims PAPL has waived privilege

1. During negotiations with airlines, including Qantas, about the price to be paid for aeronautical services after 1 July 2018, PAPL gave airlines, including Qantas, access to a paper entitled 'Perth Airport, Weighted Average Cost of Capital, Updated January 2018', which is exhibit F0405 (the Paper). The Paper states that it sets out how PAPL is approaching the estimation and application of its weighted average cost of capital (WACC) for the setting of aeronautical prices beyond 30 June 2018. The Paper further states that, on the basis of recent movements in market-related variables and the application of the approach set out in the Paper, PAPL is proposing a pre-tax nominal WACC of 9.7%.

2. The Paper includes the statement:

   Perth Airport's advisers have undertaken an analysis of the asset betas of listed airport companies globally and conclude a range for the sample of 0.64 to 0.7 depending on the sampling period. This is broadly consistent with the findings of the New Zealand Commerce Commission, which in its most recent decision adopted an airport asset beta of 0.6 (5).

3. After referring to considerations relevant to fixing an appropriate asset beta, the Paper states:

   These considerations all suggest that the asset beta for Perth Airport's aeronautical business is likely to be higher than that reported in these studies. On this basis, and in the absence of any conclusive market evidence to the contrary, nor any 'derisking' of its business since price controls were removed, Perth Airport is proposing to use an asset beta of 0.7 for the purposes of pricing its aeronautical services as it did for the current agreement and the Prices and Services Accord that preceded it (6).

4. In giving evidence at trial, PAPL's Chief Financial Officer, Mr Pereira, said that Houston Kemp were the advisers referred to in the Paper as having undertaken an analysis of the asset betas of listed airport companies. Mr Pereira had earlier stated that Mr Houston was one of the two or three members of the firm of Houston Kemp responsible for giving advice to PAPL.

5. Mr Houston is a founding partner of the economic consulting firm Houston Kemp. Mr Houston has provided an expert report and supplementary reports to PAPL. He participated in an expert conclave with Mr Siolis in which they conferred in relation to the market value and/or the appropriate price for the aeronautical services provided by PAPL to Qantas from 1 July 2018 to 17 December 2018. PAPL will call Mr Houston to give evidence on those matters. In the course of his expert reports, Mr Houston assesses the appropriate WACC that should be used to calculate the efficient price to be charged by PAPL to Qantas for aeronautical services. In accordance with his instructions, Mr Houston assumes the asset beta to be applied in calculating WACC to be the asset beta assessed by Dr Hird. Mr Houston comments, in effect, that he considers Dr Hird's asset beta assessment to be reasonable.

6. It is common ground that a document or documents listed in PAPL's list of privileged documents contain the analysis of asset betas by its advisers referred to in the Paper, that is Houston Kemp. PAPL has claimed legal professional privilege in respect of that document or documents on the ground that they are communications between the advisers and PAPL or PAPL's solicitor that were prepared for the dominant purpose of giving or obtaining legal advice.

7. Qantas submits that by disclosing to Qantas, in the course of negotiations about the price to be paid for aeronautical services after 1 July 2018, that PAPL's advisers had undertaken an analysis of asset betas and concluded a range of 0.64 to 0.7 and that on the basis of that and other considerations, PAPL was proposing to use an asset beta of 0.7 for the purposes of pricing its aeronautical services, PAPL had disclosed the advice of the advisers in respect of the range of asset betas and thereby waived privilege in that advice.

Legal principles

1. The test for the implied or imputed waiver of legal professional privilege is set out by the High Court in Mann v Carnell.[1] The plurality stated:

   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 [29].

   [1] Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1.

2. An implication of waiver may be made, in accordance with the test in Mann v Carnell, where it is inconsistent to allow a party to disclose and use part of a communication and then seek to claim privilege over the remainder of the communication. Each case must be decided on its own facts applying the general principle in Mann v Carnell.

3. In Bennett v Chief Executive Officer, Australian Customs Service,[2] the Full Court of the Federal Court held that legal representatives of the Australian Customs Service had waived privilege in legal advice by stating openly that they had given advice to Customs that a particular regulation did not prohibit public comment by an officer on matters of public administration. Justice Gyles stated that the voluntary disclosure of the gist or conclusion of the legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion.[3] Justice Gyles said:

   The test looks to inconsistency between the disclosure that has been made by the client on the one hand and the purpose of confidentiality that underpins legal professional privilege on the other. It is not a matter simply of applying general notions of fairness as assessed by the individual judge. The authorities to which I have referred show that it is well established that for a client to deploy the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege [68].

   [2] Bennett v Chief Executive Officer, Australian Customs Service [2004] FCAFC 237; (2004) 140 FCR 101.

   [3] Bennett v Chief Executive Officer, Australian Customs Service [2004] FCAFC 237; (2004) 140 FCR 101.

4. In Switchcorp Pty Ltd v Multimedia Ltd,[4] Whelan J reviewed the authorities concerning whether there had been an implied waiver of privilege by partial disclosure of legal advice. His Honour concluded that the authorities support the following general propositions:

   1.A statement which reveals the contents of legal advice, even if it does so in a summary way or by reference only to a conclusion, will, or probably will, result in a waiver…

   2.A statement which refers to legal advice, even if it associates that advice with conduct undertaken or with the belief held by the client, will not, or probably will not, result in a waiver… [12].

   [4] Switchcorp Pty Ltd v Multimedia Ltd [2005] VSC 425.

5. The principle in relation to the partial disclosure of legal advice applies equally to the partial disclosure of communications between a third party and the client or its solicitor, prepared for the purpose of giving or obtaining legal advice. The rationale for the privilege is the same.[5]

   [5] Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 122; (2004) 136 FCR 357 [52], [105].

6. In the Paper disclosed to Qantas, and indeed other airlines, PAPL made a statement which reveals the contents of Houston Kemp's advice concerning the applicable range of asset betas in a summary way by reference to their conclusion.

7. PAPL says, in effect, that PAPL did not deploy Houston Kemp's advice for some forensic or commercial advantage. Mr Teng, PAPL's General Manager, Corporate Finance Treasury & EPMO,[6] gave evidence that the Paper was posted to the website during PAPL's aeronautical pricing negotiations with the airlines in 2017 ‑ 2018. There were two phases to the negotiations. The first phase, the consultation phase, involved giving the airlines access to documents relevant to PAPL's aeronautical pricing proposals in Information Packages. The Paper formed part of the Information Packages. One of the objectives of this process was to provide information to airlines in advance of the expiration of the then current PSAs to ensure sufficient time for review of the materials, discussion and to reach final agreements on new ASAs to replace the PSAs. In the second phase, Agreement Finalisation (including Bilateral Negotiations), PAPL provided airlines with PAPL's aeronautical pricing proposal including access to pricing models and conducted bilateral negotiations with the airlines.

   [6] Enterprise Project Management Office.

8. Senior counsel for PAPL, Mr Cuerden SC, submitted that the Commonwealth's pricing principles in relation to negotiations between airlines and airports on aeronautical pricing, which were built into PAPL's approach to negotiations with airlines, included transparency and sharing of information about capital plans and pricing models. The Paper was provided during the Consultation Phase when information was being provided to the airlines, not during the Agreement Finalisation phase when bilateral negotiations with the airlines were conducted. In effect, Mr Cuerden submitted that PAPL did not deploy the Paper for its commercial advantage and negotiations with Qantas, but rather provided the information in the Paper to Qantas as part of its transparent approach to sharing information.

9. PAPL provided the Houston Kemp asset beta analysis conclusion as part of the information it provided to Qantas to negotiate an aeronautical pricing agreement. PAPL provided the information during the consultation phase. Nevertheless, PAPL used the information to support its proposed WACC, which was a critical element in its proposed aeronautical pricing. PAPL employed the statement that its advisers had concluded a range of 0.64 to 0.74 asset beta as a factor in support of its contention that an asset beta of 0.7 be adopted for the purposes of pricing its aeronautical services. It is inconsistent for PAPL to employ its advisers' conclusion as to asset beta in support of its pricing proposal and to maintain confidentiality in the basis of and reasons for its advisers concluding that beta range. I find that PAPL has waived legal professional privilege in respect of its advisers advice or opinion that an analysis of the asset betas of listed airport companies leads to the conclusion of a range for the sample of 0.64 to 0.7 depending on the sampling period.

Order for production is necessary

Relevant rules

1. Order 26 r 9 of the Rules of the Supreme Court of Western Australia 1971 (RSC) provides that where, as in this case, a party objects to produce a document for inspection, the court may make an order for production of the documents for inspection. The court has a discretion to order production of discovered documents even on the application of a party entitled to inspection. That is consistent with RSC O 26 r 11 which provides that no order for production of any documents for inspection shall be made unless the court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. In this context, the word 'necessary' means calculated to produce that end; it does not mean that without production of the document for inspection the fair disposal of the action would be entirely unattainable.

2. A party has a prima facie entitlement to inspect discovered documents except where the party giving discovery has a positive substantive right to withhold a document from production.[7] PAPL has discovered the relevant document(s). In any event, I am satisfied that any document containing Houston Kemp's analysis of the asset betas of listed airport companies and concluding a range for the sample of 0.64 to 0.7 relate to a matter in question in this action. Qantas submits the fair and reasonable price for aeronautical services is the efficient price calculated in accordance with PAPL's aeronautical pricing model. PAPL says that whilst the fair and reasonable price is a price to be determined from comparable transactions, PAPL's minimum acceptable price is relevant and that price is to be determined in accordance with the aeronautical pricing principles. The inputs of the aeronautical pricing principles include the appropriate asset beta.

   [7] Alcoa of Australia Ltd v Apache Energy Ltd [2014] WASCA 148 [57] (McClure P).

3. PAPL does not rely upon Mr Houston's assessment of the applicable asset beta. It relies upon Dr Hird's assessment. However, Mr Houston applies Dr Hird's calculated asset beta in calculating WACC and the efficient price in accordance with the assumed aeronautical pricing principles. Furthermore, Mr Houston opines that Dr Hird's assessed asset beta is reasonable.

4. PAPL submits that Qantas has unduly delayed in applying for production of the documents. Qantas has known of the content of exhibit F0405 and its reference to PAPL's advisers having undertaken an analysis of the asset betas of listed airport companies and concluded a range of 0.64 to 0.7 since the document was posted to the website in January 2018.

5. Qantas say that they learned of the identity of the advisers only when Mr Pereira gave evidence on 22 September 2021. The identity of the advisers does not affect whether the privilege has been waived. Qantas was not prevented from applying for production of the documents recording the analysis by not knowing the identity of the advisers. However, the forensic significance of the advisers' analysis was not apparent until Mr Pereira disclosed that Mr Houston was the, or one of, the advisers. Prior to that, Qantas did not know that the case being advanced by PAPL at trial relies, at least in part, on the opinions of the advisers referred to, including the adoption of an asset beta higher than that referred to in the Paper and the opinion that the higher asset beta is reasonable.

6. The application for production was foreshadowed by Qantas' senior counsel on 22 September, that was the eighth day of the trial. The application was filed on 28 September, the 13th day of the trial. At the time of hearing this application, the concurrent evidence session concerned with asset beta was almost concluded. It has now concluded. However, Qantas submits that they will not use the Houston Kemp asset beta analysis to challenge Dr Hird's evidence. Counsel for Qantas, Dr Kremer, submitted that Qantas proposes to use the Houston Kemp asset beta analysis to challenge the credibility and reliability of the evidence of Mr Houston in opining that Dr Hird's asset beta analysis is reasonable and not for the purpose of submitting the appropriate asset beta that should be found by the Court.

7. Senior counsel for PAPL, Mr Cuerden SC, submitted in effect that it would be oppressive and unfair to PAPL to require it to search for the relevant documents and scrutinise them to determine whether any of them, or parts of them, may be redacted pursuant to RSC O 26 r 1B which permits a party to edit discovered documents by masking irrelevant parts. The production of the documents is not unduly burdensome on PAPL and is not likely to delay or significantly add to the costs of the proceedings having regard to the scope of the order which I made.

8. I find that production of documents communicating to PAPL Houston Kemp's analysis of the asset betas of listed airport companies and concluding a range for the sample of 0.64 to 0.7 is necessary for disposing fairly of the proceeding.

Scope of order for production

Scope of production sought by Qantas

1. Qantas seeks production for inspection not only of the documents in PAPL's list of privileged documents which record any analysis as to asset beta by Houston Kemp that is referred to in the Paper but also any material necessary to understand that analysis, or which underpinned or influenced it. Qantas also seeks production of any documents in PAPL's list of privileged documents which record any analysis as to asset beta that is referred to in the Paper by Dr Mundy.

2. Qantas submits that waiver is not limited to the specific material deployed by the person entitled to the privilege but the waiver extends to 'associated material' as referred to by Young J in AWB Ltd v Cole (No 5)[8] at [200] ‑ [202] including material that underpinned or influenced the legal advice.

Scope of waiver – legal principles

[8] AWB Ltd v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30.

1. The scope of an imputed waiver of discovery was considered recently by O'Callaghan J in Zantran Pty Ltd v Crown Resorts Ltd (No 2).[9] Zantran submitted that passages from the judgement of Young J in AWB Ltd v Cole (No 5) under the rubric 'Associated material' stand for the proposition that 'a voluntary disclosure of privileged documents can result in a waiver of privilege over those documents and associated material', and that 'the test applied to determine the scope of any waiver of associated material is whether the material that the party has chosen to release from privilege represents the whole of the material relevant to the same issue or subject matter.' Zantran argued that the voluntary provision of one privileged communication gives rise to a waiver of legal professional privilege over all other privileged communications relevant to the same issue or subject matter as the communication voluntarily provided.

   [9] Zantran Pty Ltd v Crown Resorts Ltd (No 2) [2020] FCA 1024; (2020) 146 ACSR 235.

1. Justice O'Callaghan rejected Zantran's contentions. His Honour held that there is no species of waiver called 'associated material'. His Honour said that he did not read anything that Young J said in AWB Ltd v Cole (No 5) to suggest that there is some species of waiver involving so‑called 'associated material' that involves an expansion of the principles in Mann v Carnell. His Honour said:

   It is clear from his Honour's reasoning…. that his Honour held that the AWB had waived privilege in that case because:

   (1)by disclosing the results of its legal reviews and legal advice it had obtained to the Australian Government and others, the AWB had deployed the gist or substance of that advice;

   (2)it had made a conscious and voluntary decision so to deploy the advice because it considered that it was in its commercial interests to do so;

   (3)those actions were inconsistent with the maintenance of confidentiality in the advice; and

   (4)having regard to the nature, purpose, terms and extent of its disclosures, the AWB had acted inconsistently with the maintenance of confidentiality over the associated material which underpinned the advice.

2. The extent of any waiver is to be determined in accordance with the principles expounded in Mann v Carnell. The critical question is to identify the relevant subject matter that the party has released from privilege.

Scope of waiver by PAPL

1. The waiver by PAPL arises from its statement to Qantas that PAPL's advisers had undertaken an analysis of the asset betas of listed airport companies and concluded a range for the sample of 0.64 to 0.7 depending on the sampling period. It is inconsistent to make that statement and maintain confidentiality in relation to the advice to PAPL by its advisers that an analysis of the asset betas of listed airport companies led them to conclude an asset beta range of 0.64 to 0.7. PAPL has released from privilege any documents which constitute or communicated that advice to PAPL.

2. PAPL must produce to Qantas for inspection any documents which record the analysis of the asset betas of listed airport companies globally which concludes a range for the sample of 0.64 to 0.7. That might require PAPL to produce documents which are necessary to understand that analysis. For example, if the sample of airport companies was contained in a separate document from the analysis, the document containing the sample would be necessary to understand the analysis.

3. However, Qantas' submission that the waiver extends to any material which underpinned or influenced the analysis undertaken by Houston Kemp goes beyond the principles in Mann v Carnell. Mr Houston is an economist who, according to his report, over a period of 30 years has accumulated substantial experience in the economic analysis of markets and has developed expertise in the course of advising corporations, regulators and governments on a wide range of competition, regulatory and financial economics assignments, including experience in the aviation industry. He has advised airports and airlines, including PAPL and Qantas Group, on a range of economic matters relating to the aviation industry including the setting of aeronautical prices, the development and application of asset valuation principles and the rate of return and pricing models. I infer that the knowledge and experience gained by Mr Houston over those 30 years underpins and influences the analysis of the asset betas of listed airport companies that he gave to PAPL. To the extent that PAPL has in its possession, custody or power documents evidencing that knowledge and experience, it is not inconsistent for PAPL to maintain confidentiality in such documents whilst employing in its negotiations with Qantas the analysis referred to in the Paper.

4. PAPL has not waived privilege with respect to any documents which record any analysis as to asset beta undertaken by Dr Mundy. Mr Pereira's evidence is that the advisers referred to in the Paper are Houston Kemp. It is not inconsistent for PAPL to state the asset beta analysis provided to them by Houston Kemp and maintain confidentiality in any document recording an analysis of asset betas by Dr Mundy.

5. Qantas further submits that PAPL should produce the documents without redaction. I will not make that order. RSC O 26 r 1B provides that a party may edit any document produced for inspection by hiding information that is not related to a matter in question in the cause or matter. There is no reason why PAPL may not redact the documents produced for inspection so as to hide irrelevant material.

I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.

CR

Associate to the Honourable Justice Le Miere

6 OCTOBER 2021