Ryder v Frohlich

[2005] NSWSC 1342

CITATION:	Ryder v Frohlich [2005] NSWSC 1342
HEARING DATE(S):	15/11/05
JUDGMENT DATE :	21 December 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Refer to paragraphs 18 and 19

CATCHWORDS:	PROCEDURE - documents produced on subpoena and notice to produce - claim for legal professional privilege - whether drafts of expert's report privileged - whether privilege waived in respect of other documents - responsibility of party bearing onus of establishing privilege
LEGISLATION CITED:	Evidence Act 1995, Part 3.10, Division 1 Uniform Civil Procedure Rules 2005, rule 1.9
CASES CITED:	Australian Securities and Investments Commission v Southcorp Ltd (2003) 46 ACSR 438 Gate Gourmet Australia Pty Ltd v Gate Gourmet Holding AG [2004] NSWSC 768 Interchase Corporation Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 Qd R 141 Mann v Carnell (1999) 201 CLR 1 Temwell Pty Ltd v DKGR Holdings Pty Ltd [2003] FCA 948
PARTIES:	Nicholas John Ryder - First Plaintiff Protected Equity Investments Pty Limited - Second Plaintiff Peter Frohlich - First Defendant Coastal Capital Limited - Second Defendant
FILE NUMBER(S):	SC 2314/03
COUNSEL:	Mr G.T. Jackson, Solicitor - Plaintiffs Mr R.G. McHugh - Defendants
SOLICITORS:	Grahame Jackson & Associates - Plaintiffs Speed & Stracey Lawyers Pty Limited - Defendants

LOWER COURT JURISDICTION:

- 9 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

WEDNESDAY, 21 DECEMBER 2005

2314/03 NICHOLAS JOHN RYDER & ORS v PETER FROHLICH & ORS

JUDGMENT

1 On 15 November 2005, I heard a notice of motion filed by the defendants seeking an order granting them access to certain documents produced to the court by the first plaintiff and by KPMG in respect of which a claim to legal professional privilege has been asserted. As an alternative, the defendants seek two orders: first, an order that the plaintiffs (or, in the case of the second plaintiff, its director, the first plaintiff) make, file and serve an affidavit containing certain particulars in respect of each of those documents (including the basis of the claim for privilege and any other matters necessary to establish that claim); and, second, an order for access to such of the documents as are not covered by such an affidavit.

2 The proceedings involve a partnership dispute. The question of liability has been determined. Matters of valuation remain to be determined by an Associate Judge. The proceedings have been specially fixed for hearing over three days from 6 March 2006.

3 Because of rule 1.9 of the Uniform Civil Procedure Rules 2005, read in the light of the definitions of “privileged document” and “privileged information” in those rules, the tests of privilege applicable to the present application are those laid down in Division 1 of Part 3.10 of the Evidence Act 1995.

4 The defendants rely on the affidavit of their solicitor, Mr Troy, sworn on 6 October 2005. He begins by detailing notices to produce, subpoenas and correspondence relevant to the documents in question. He goes on to refer to directions for the filing of expert evidence and to the awareness of the defendants that Mr Banks of KPMG had been retained by the plaintiffs and had prepared draft reports, but no report of Mr Banks was served. Mr Troy further deposes that an expert report of Mr Pittorino of Deloittes was later served by the plaintiffs. In July 2005, a notice to produce was served on the plaintiffs and subpoenas were served on Deloittes and KPMG. All sought, in essence, all documents and communications concerning Mr Banks, KPMG, Mr Pittorino and Deloittes. Documents were in due course produced to the court, subject, however, to a claim for privilege in respect of certain of the documents produced by Mr Ryder (the first plaintiff), KPMG and Deloittes.

5 By letters dated 14 July 2005, 1 August 2005, 16 August 2005 and 31 August 2005 addressed to the plaintiffs’ solicitors, the solicitors for the defendants sought to elicit an explanation of the basis for the privilege claim. The defendants took the view that no satisfactory response had been provided and, on 25 July 2005, the Prothonotary ordered, on their application, that an affidavit outlining the basis on which privilege was claimed in respect of the documents produced be served within 14 days.

6 Two affidavits of the plaintiff’s solicitor, Mr Jackson, were later filed, one sworn on 20 July 2005 and the other on 17 August 2005. The information given in these affidavits was unhelpful. In the first place, no evidentiary basis was provided for the privilege claims. Second, a reasonably specific description of each document was not provided, so that it was not possible to see even its basic attributes. Third, the deponent said that he had not inspected (and, by implication, was not able to provide any further information about) the documents produced by the accountants because they were held in the registry marked “privilege”.

7 On 4 November 2005, the plaintiffs’ solicitors wrote to the defendants’ solicitors to say that the claim for privilege in respect of the Deloittes documents was waived. The letter also said that the claim was maintained in relation to the documents produced by KPMG (reliance being placed on the previously filed affidavits) and that Mr Jackson was still unaware of the content of the packages produced by Deloittes and KPMG “privilege having been originally claimed by those firms (whether or not it is through the plaintiff”).

8 It may be noted, at this point, that the plaintiffs’ solicitor exhibits a misconception in professing powerlessness in respect of the documents produced by KPMG. Any legal professional privilege subsisting in them is the privilege of his clients, not the privilege of KPMG. If he had set his mind to it, he could have obtained access to them so that his client could respond properly to the request for particulars of the documents’ privileged status.

9 Quite separately, the defendants say that, even on the basis of the limited information that has been forthcoming from the plaintiffs’ solicitor, there are certain documents in respect of which a claim for privilege cannot be maintained in any event. That submission relates to the category of documents referred in paragraph 4(g) of Mr Jackson’s affidavit of 17 August 2005:

“Series of incomplete draft reports prepared by KPMG and provided to Grahame Jackson & Associates and the plaintiff.”

10 That category is said to be within item (3) of the following statement of relevant principles contained in the judgment of Lindgren J in Australian Securities and Investments Commission v Southcorp Ltd (2003) 46 ACSR 438 at pp.441-2 quoted with approval by Ryan J in Temwell Pty Ltd v DKGR Holdings Pty Ltd [2003] FCA 948 and by Einstein J in Gate Gourmet Australia Pty Ltd v Gate Gourmet Holding AG [2004] NSWSC 768:

“[21] I will apply the following principles which I did not understand to be in dispute:
(1) Ordinarily the confidential briefing or instructing by a prospective litigant’s lawyers of an expert to provide a report of his or her opinion to be used in the anticipated litigation attracts client legal privilege: cf Wheeler v Le Marchant (1881) 17 Ch D 675; Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246; Interchase Corp Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 1) [1999] 1 Qd R 141 (Interchase) at 151 per Pincus JA, at 160 per Thomas J.
(2) Copies of documents, whether the originals are privileged or not, where the copies were made for the purpose of forming part of confidential communications between the client’s lawyers and the expert witness, ordinarily attract the privilege: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501; 141 ALR 545; 91 A Crim R 451 (Propend); Interchase, per Pincus JA; Spassked Pty Ltd v Cmr of Taxation (No 4) (2002) 50 ATR 70 at [17].
(3) Documents generated unilaterally by the expert witness, such as working notes, field notes, and the witness’s own drafts of his or her report, do not attract privilege because they are not in the nature of, and would not expose, communications: cf Interchase at 161 – 2 per Thomas J.

(4) Ordinarily disclosure of the expert’s report for the purpose of reliance on it in the litigation will result in an implied waiver of the privilege in respect of the brief or instructions or documents referred to in (1) and (2) above, at least if the appropriate inference to be drawn is that they were used in a way that could be said to influence the content of the report, because, in these circumstances, it would be unfair for the client to rely on the report without disclosure of the brief, instructions or documents; cf Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481; 69 ALR 31 at 34 per Gibbs CJ, CLR 487-8; ALR 38-9 per Mason and Brennan JJ, CLR 492-3; ALR 42-3 per Deane J, CLR 497-8; ALR 46-7 per Dawson J; Goldberg v Ng (1995) 185 CLR 83 at 98; 132 ALR 57 at 66 per Deane, Dawson and Gaudron JJ, CLR 109; ALR 75 per Toohey J; Instant Colour Pty Ltd v Canon Australia Pty Ltd [1995] FCA 870; BC9506842; Australian Competition and Consumer Commission v Lux Pty Ltd [2003] FCA 89; BC 200300344 (ACCC v Lux) at [46].

(5) Similarly, privilege cannot be maintained in respect of documents used by an expert to form an opinion or write a report, regardless of how the expert came by the documents; Interchase at 148-50 per Pincus JA, at 161 per Thomas J.

(6) It may be difficult to establish at an early stage whether documents which were before an expert witness influenced the content of his or her report, in the absence of any reference to them in the report: cf Dingwall v Commonwealth of Australia (1992) 39 FCR 521; Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd (No 2) (1998) 83 FCR 397 at 400; 156 ALR 364 at 366; ACCC v Lux at [46].”

11 Lindgren J’s item (3) refers to the judgment of Thomas J in Interchase Corporation Ltd v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 Qd R 141. It is pertinent to quote from his Honour’s judgment (at p.162):

“We are concerned in this case with discovery and production of documents. A necessary basis for privilege to attach to anything - document or otherwise - is that it records a communication. The material in categories B, C, D and E has remained in Richard Ellis's possession, and has not been the subject of any communication with the solicitors, or for that matter anyone else. The basis upon which privilege was claimed for these documents is confined to the claim that they were ‘brought into existence by Richard Ellis solely for use in this litigation since its commencement and have been kept confidential.’ (my italics). The italicised words draw attention to what is missing, and expose a deficiency in the claim. The documents consist mainly of working papers and valuations of other properties, and lack the quality of confidentiality. There is no reason to think that the documents were made for any confidential purpose. The other deficiency is that they were not communicated or intended to be communicated to anyone. In Commissioner of Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 552, McHugh J underlined the fundamental point that the subject matter of privilege is communications .
‘This point, however trite it may seem, is fundamental to the determination of the present appeal. Much of the confusion present in the case law arises from a failure to apply it. Legal professional privilege is concerned with communications, either oral, written or recorded, and not with documents per se.’
In the present matter, shortly put, the documents in no way make or record communications, let alone confidential communications.
I would hold that in general, when an expert is engaged by a solicitor for the purpose of giving evidence in a case, documents generated by the expert and information recorded in one form or another by the expert in the course of forming an opinion are not a proper subject for a claim of legal professional privilege. Privilege may however be claimed in relation to communications between the expert and the solicitor (both ways) when such communication is made for the purpose of confidential use in the litigation. Beyond this there is no sufficient reason why any material relevant to the formation of the expert's opinion should be subject to a claim of legal professional privilege. It is as well to add that an expert or solicitor may not artificially manufacture privilege by, for example, the expert sending in his or her file to the solicitor. Documents of this kind simply are not confidential.”

12 The point made here is that privilege can only attach to documents which embody communication between the expert and the litigant by whom the expert is retained (or the litigant’s lawyer). A draft report prepared by the expert is not, of its nature, such a communication. It may be that the draft report is, in fact, given or sent by the expert to the litigant or the litigant’s lawyer, but that does not change its character as something prepared by the expert which is not intended to be a means of communication with the litigant or lawyer.

13 I accept the defendants’ submissions in respect of the documents referred to in paragraph 4(g) of Mr Jackson’s affidavit of 17 August 2005. They are not, of their nature or in the circumstances referred to in that paragraph, documents in which legal professional privilege subsists.

14 The defendants also make a broader submission, namely, that privilege in all the documents produced by KPMG has been waived. That submission has as its factual basis the circumstance that, after KPMG had prepared a draft report or draft reports, Deloittes were instructed in place of KPMG and that, in the letter of instruction to Deloittes dated 18 April 2005, the plaintiffs’ solicitor said:

“We note that the valuation documents are now immediately available for collection from KPMG’s office … Please arrange a convenient time to collect the documents as early as possible.”

15 The defendants say that, in these circumstances, it is inevitable that formulation of the plaintiffs’ instructions to Deloittes would have been influenced by the prior dealings between the plaintiffs’ solicitor and KPMG which traversed the same ground. The defendants point, in that regard, to item (4) in the extract from the judgment of Lindgren J in Australian Securities and Investments Commission v Southcorp Ltd set out above, contending that the principle stated thus in the majority judgment in Mann v Carnell (1999) 201 CLR 1 at 13 is thereby triggered:

“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.”

16 On the material available at this point, I am not satisfied that the plaintiffs have acted, in relation to documents given to or otherwise possessed by KPMG, in a way that is inconsistent with maintenance of privilege. But because privilege has now been waived in respect of documents produced by Deloittes, the principle to which Lindgren J referred at item (4) operates to place outside the protection of privilege such of the documents produced by Deloittes as are documents with which Deloittes were briefed, including any that they collected from KPMG in response to the invitation in the plaintiffs’ solicitors’ letter of 18 April 2005.

17 In summary, therefore, I am of the opinion that the documents referred to in paragraph 4(g) of Mr Jackson’s affidavit of 17 August 2005 are not covered by client legal privilege, so that access to them should be granted; and that, at this stage, the defendants have not shown that the privilege claimed in any of the other relevant documents has been waived. In putting the matter in those terms, I do not intend to suggest that the onus is on the defendants. On the contrary, the burden of establishing the privilege claim rests squarely with the plaintiffs. They have not, to this point, discharged the onus. One possibility is therefore that the claim should be regarded as not made out, with an order for access being made in favour of the defendants. A more palatable option, in my opinion, is the alternative outcome for which the defendants contend, namely, that the plaintiffs be given one last opportunity to show the basis of their claim in an informative and constructive way – but on a footing that causes access to be granted automatically in relation to any document in respect of which the last opportunity is not duly taken up.

18 I make the following orders:

1. Direct that the plaintiffs have such leave as is necessary to enable them to access all documents produced to the court under notice to produce or subpoena by KPMG, Lachlan Wolfers and Nicholas John Ryder and held in packets numbered 4, 7, 8, 10 and 11 (marked privileged) for the purpose of
(a) identifying by some appropriate flag or mark every document referred to in paragraph 4(g) of the affidavit of Grahame Jackson sworn on 17 August 2005; and
(b) recording such particulars as are required by them for the purpose of complying with Order 4.
2. Order that the plaintiffs, not later than 27 January 2006, identify documents as contemplated by Order 1(a) and record particulars as contemplated by Order 1(b).
3. Order that the defendants have general access to all documents identified as contemplated by Order 1(a).
4. Order that, not later than 6 February 2006, the plaintiffs (in the case of the first plaintiff personally and in the case of the second plaintiff by its director) make, file and serve on the defendants an affidavit containing separately, in respect of each and every document in the said packets numbered 4, 7, 8, 10 and 11 (not being a document identified as contemplated by Order 1(a)), the following particulars:
(a) the party who produced the document to the court;
(b) the date of the document;
(c) the author of the document;
(d) to whom the document was sent, if applicable;
(e) the title and general nature of the document;
(f) whether the plaintiffs make a claim for legal professional privilege over the document;
(g) the basis of the claim for privilege and any other matters necessary to establish that claim; and
(h) where there is an attachment to the document, the matters stated in paragraphs (a) to (g) above in relation to each attachment.
5. Order that, after the earlier of 6 February 2006 and the day on which an affidavit is served in compliance with Order 4, the defendants have general access to each and every document contained in the said packets 4, 7, 8, 10 and 11 which is not identified in any such affidavit as a document in respect of which the plaintiffs make a claim for legal professional privilege.

19 Because the defendants have been successful in their application, I also order that the plaintiffs pay the defendants’ costs of the notice of motion, including all costs occasioned by the plaintiffs’ claim for privilege over the documents in the said packets 4, 7, 8, 10 and 11.

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