Sayers Property Holdings Pty Ltd v AIG Australia Ltd
[2022] VSC 377
•5 July 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
INSURANCE LIST
S ECI 2021 00081
| SAYERS PROPERTY HOLDINGS PTY LTD (ACN 137 303 354) | First Plaintiff |
| ORIANNO SALVALAGGIO | Second Plaintiff |
| v | |
| AIG AUSTRALIA LTD (ACN 004 727 753) | Defendant |
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JUDGE: | GARDE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 3 June 2022 |
DATE OF JUDGMENT: | 5 July 2022 |
CASE MAY BE CITED AS: | Sayers Property Holdings Pty Ltd v AIG Australia Ltd |
MEDIUM NEUTRAL CITATION: | [2022] VSC 377 |
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PRACTICE AND PROCEDURE – Client legal privilege – Waiver of client legal privilege – Whether the plaintiffs’ waiver of client legal privilege over advices from counsel required production of other privileged communications – Whether the non-admission by an insurer that the settlement of a prior proceeding was in a reasonable amount required production of privileged correspondence regarding the settlement or of privileged mediation documents – Adequacy of discovery generally – Evidence Act 2008 (Vic) ss 122(2)–(3); Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 29.08.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D Guidolin with Mr N Dour | Wisewould Mahony |
| For the Defendant | Mr H Redd with Ms E Zauner | HWL Ebsworth |
HIS HONOUR:
Introduction
This is the return of two summonses concerning the loss of client legal privilege under s 122(2) of the Evidence Act 2008 (‘Act’). The defendant’s summons and the plaintiffs’ summons, both filed on 14 April 2022, seek the production of particular documents and the discovery of others on the basis that client legal privilege has been lost by the opposing party.
The proceeding is a claim on an insurance policy for the period 5 September 2016 to 5 September 2017, whereby AIG Australia Ltd (ACN 004 727 753) agreed to indemnify Sayers Property Holdings Pty Ltd (ACN 137 303 354) (‘Sayers’) for loss arising from corporate liability as defined by the policy and Oriano Salvalaggio, a director of Sayers, for management liability as defined by the policy.
Sayers claims an amount of almost $2 million and defence costs, and Mr Salvalaggio claims for defence costs, in relation to claims made against them in proceeding S ECI 2017 00024 (‘2017 proceeding’) by Di Dio Nominees Pty Ltd (ACN 005 304 914) (‘Di Dio’) regarding an option and subsequent contract for the sale and subdivision of land. This proceeding was settled at mediation on 25 November 2019 (‘2019 settlement’).
Defendant’s summons
Paragraph 3 – production of documents
Paragraph 3 of the defendant’s summons seeks the production of various documents listed in Sayers’ Supplementary List of Documents filed 3 November 2021, and in Sayers’ Further Supplementary List of Documents filed 28 March 2022.
In particulars provided to their statement of claim, the plaintiffs state that they received oral legal advice from Mr Jonathon Moore QC on 6 November 2019 (‘Moore advice’), and that Mr Salvalaggio received written advice from Mr Tesarsch of counsel dated 8 November 2017 (‘Tesarsch advice’). Both advices concerned the reasonableness of the 2019 settlement effected by the plaintiffs. The particulars are in these terms:
6.As at the date of Settlement, Sayers had obtained legal advice from Mr Jonathon Moore QC on 6 November 2019 in respect of Sayers claims and Di Dio’s Counterclaim to the effect that Sayers had no more than a 50-50 chance of success in defending Di Dio’s counterclaim if it could not be established that Mr Salvalaggio had disclosed his interest in Sayers or obtained the informed consent of Di Dio. This advice was oral and was provided by Mr Moore QC to four directors of Sayers, John Kerr, Bruce Montgomery, Darren Roach, and Mr Salvalaggio, in conference at his chambers on 6 November 2019.
7.As at the date of settlement, Mr Salvalaggio (a director of Sayers) had obtained the written advice of Mr Tesarsch of counsel (who was acting for Mr Salvalaggio in the Proceeding) dated 8 November 2017 to the effect that there was no evidence that Mr Salvalaggio had obtained the fully informed consent of Di Dio that he was acting on behalf of Sayers or that he had an interest in Sayers and that there was a risk that the Court could find in the Proceeding that Mr Salvalaggio had breached fiduciary duties owed to Di Dio …
Sub-sections 122(2) and (3) of the Act 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.
There was no dispute that the plaintiffs were required to prove as a material fact that the settlement sum was reasonable.[1] There was also no dispute that by providing particulars of the substance of the Moore advice and the Tesarsch advice the plaintiffs had made a knowing and voluntary disclosure of the advices for the purposes of ss 122(2) and 122(3) of the Act, and had thereby waived client legal privilege over the two advices.
[1]Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603, 607–9 (Brennan CJ), 612–3 (McHugh J), 650–1, 653 (Hayne J) (‘Unity Insurance’); BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72, [14], [17], [243]–[248]; Wheelehan v City of Casey [2012] VSC 10, [21]–[24] (Kaye J); Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338, [743]–[753] (‘Protec’); PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (in liq) (2020) 379 ALR 732; Joseph v Parnell Corporate Services Pty Ltd (2021) 284 FCR 546, 579–81.
The defendant submitted that having waived privilege over the Moore advice and the Tesarsch advice, the plaintiffs could not cherry pick which legal advices they disclosed. They were required to disclose all of the other advices and documents over which they had claimed client legal privilege (‘disputed documents’).
The First Plaintiff’s Supplementary List of Documents filed 3 November 2021 made claims for client legal privilege over certain documents in these terms:
The documents [listed below] are documents in the First Plaintiff’s possession, custody, or power, which are privileged, and the First Plaintiff objects to producing them. The documents are privileged on the grounds of legal professional privilege being documents that came into existence as a result of communications between the First Plaintiff’s legal advisers (being the First Plaintiff’s solicitor and /or the First Plaintiff’s counsel) and the First Plaintiff, for the dominant purpose of the First Plaintiff’s legal advisors providing legal advice to the First Plaintiff in connection with [the 2017 proceeding].
No. Date Description 1. 31/10/2017 Sayers’ Advice by Counsel on Prospects 2. 15/03/2019 Email from O Salvalaggio to N Lavender and C Stakis regarding Di Dio’s conduct in litigation 3. 22/03/2019 Email from C Stakis to J Kerr regarding valuation report 4. [not sought] 5. 30/4/2019
01/05/2019Email chain between J Kerr to C Stakis regarding rectification claim 6. 16/05/2019 Email from C Stakis to Counsel to consider evidence as to Di Dio’s knowledge of Ori Salvalaggio’s interest in Sayers 7. [not sought] 8. 11/09/2019 Email from J Kerr to C Stakis regarding preparation for mediation 9. 12/09/2019 Email from C Stakis to J Kerr regarding objectives of mediation 10. 30/10/2019 Email from C Stakis to J Moore regarding conference with client to discuss mediation 11. 20/11/2019 Email from C Stakis to Counsel with Mediation Outline
A similar claim for client legal privilege was made in relation to the following documents in the First Plaintiff’s Further Supplementary List of Documents filed 28 March 2022:
No. Date Description 1. 19 Feb 2019 File notes of Chris Stakis and Hadyen Bateman of Wisewould Mahony in respect of conference between solicitors and Counsel. 2. 22 Feb 2019 File notes of Chris Stakis and Hayden Bateman of Wisewould Mahony of conference between solicitors, Counsel and members of the board of Sayers. 3. 25 Nov 2019 File notes of Chris Stakis of Wisewould Mahony of the mediation.
[During the hearing before me, the plaintiffs agreed to produce these notes]
In a letter dated 14 December 2021, the plaintiffs’ solicitors said:
Part 2 of Schedule 1 of our client’s list of documents identifies documents over which a claim of client-legal privilege is asserted by our client. We have undertaken a further investigation of the file in light of paragraph 1.3(e) of your letter. Conferences with Jonathan Moore of Senior Counsel and Dean Guidolin of Counsel were held on 19 February 2019 and 27 May 2019 with solicitors of our firm. On 22 February 2019 a conference was held with Mr Moore QC and Mr Guidolin with solicitors of our firm and members of the Board of Sayers in attendance. The notes that record or evidence the conferences are all subject to client-legal privilege. In the same way as we have not provided particulars of the advice contained in any of the documents referred to in Part 2 of Schedule 1 of our client’s list of documents, we will not provide particulars of the matters discussed in these conferences, including the particulars of any advice. As these documents have been set out in this letter, an amended supplementary list is unnecessary. We can clarify that the matters discussed and/or advice obtained concerned Sayers’ claims and Di Dio’s counterclaim, but did not concern settlement of the Di Dio action.
Insofar as your letter seeks clarification on what was relied upon by our client as at the date of settlement in November 2019, the metes and bounds of our clients’ pleadings and particulars makes that clear. If that changes, we will let you know in the usual way.
The particulars provided on 22 September 2021 are comprehensive and adequately detail the reasonableness of settlement and of quantum. Those particulars also state what the effect was of Mr Moore QC’s oral advice given on 6 November 2019, which advice is to be understood together with the Tesarsch advice, of what your client already has a copy.
Defendant’s submissions
The defendant submitted that:
(a) the pleading and particularisation by the plaintiffs of the two legal advices concerning the 2017 proceeding was inconsistent with the maintenance of privilege in the disputed documents;
(b) the disputed documents existed at the time of the 2019 settlement, and were relevant to the settlement or to the conduct of the 2017 proceeding;
(c) the contents of the disputed documents were indispensable to the determination of the issue of reasonableness; and
(d) the plaintiffs were preventing a proper examination of the issues by refusing production of the disputed documents.
Plaintiffs’ submissions
The plaintiffs submitted that:
(a) they did not seek to prove the reasonableness of the 2019 settlement by reference to the disputed documents;
(b) they had not waived privilege in relation to the disputed documents under ss 122(2) and 122(3) of the Act; and
(c) their reliance on the two particularised advices to assist in proving the reasonableness of the 2019 settlement did not constitute a waiver of privilege over other privileged communications upon which they did not rely to prove their claim.
Authority
In Protec, the Court of Appeal stated the test as to whether a settlement was legally reasonable in these terms:
While many factors are relevant to the question of whether a settlement amount is legally reasonable, one factor is fundamental and must always be present. That factor is that the settlement amount is informed by an assessment of the relevant party’s potential legal liability to the other party on the pleadings that were current and the evidence that was known at the time of the settlement … [A] settlement between A and B for an amount which is commercially attractive but is not based on the legal merits of their cases cannot constitute a reasonable settlement amount for the purpose of determining issues of causation, remoteness and quantum in a proceeding brought by B against C which seeks to impose on C liability for the settlement amount.[2]
[2]Protec (n 1), [818].
As the Court of Appeal made clear, the reasonableness of a settlement amount is assessed on the basis of the parties’ legal liability on the pleadings current at the time and on the evidence known at the time.
In Yokogawa Australia Pty Ltd v Alstom Power Ltd, Duggan J discussed the High Court’s decision in Unity Insurance in these terms:
As previously observed, the leading of the contents of its legal advice by the plaintiff in Unity Insurance was a clear case of waiver. The plaintiff could not put forward evidence of the content of the advice and, at the same time, prevent the defendant from exploring the issue further …[3]
[3](2009) 262 ALR 738, 751 (Sulan and Kourakis JJ agreeing), referring to Unity Insurance (n 1).
His Honour later held that if a party which had obtained legal advice did not intend to rely on the advice to prove reasonableness, there was no waiver of privilege:
[H]aving regard to the fact that Alstom does not intend to rely on legal advice to assist its claim of reasonableness it is difficult to conclude that there is an inconsistency in the conduct of Alstom which would require the conclusion, as a matter of fairness, that legal professional privilege had been waived.[4]
[4](2009) 262 ALR 738, 751.
After referring at some length to the judgments in Unity Insurance, Duggan J said:
Again, it is important to bear in mind that these remarks were made in a case where the plaintiff had led evidence of legal advice recommending the settlement and where it was used to support the assertion of reasonableness. And as Hayne J pointed out, if a plaintiff decides not to call evidence of legal advice, the issue will have to be determined without resort to that material. His Honour added:
… If that is a problem it affects the party contending that the settlement is reasonable; it is not a problem that causes any injustice to the party against whom the evidence of the settlement is to be led.
As observed, the issue of reasonableness is to be determined objectively. If Alstom is able to prove that the settlement was reasonable, irrespective of the legal advice it received, it is highly unlikely that evidence of legal advice against such a settlement will support a finding that the settlement was unreasonable. If the plaintiff failed to prove that the settlement was reasonable on the evidence called by it, then the issue would be decided in the defendant’s favour and there would be no unfairness by reason of the fact that it was not made privy to the advice received by the plaintiff.[5]
[5]Ibid 752 (citations omitted).
In DSE (Holdings) Pty Ltd v Intertan Inc,[6] Allsop J (as he then was) considered a dispute about a share acquisition agreement. The applicant alleged that it was the common intention that certain accounts fell within the scope of the agreement. The respondents pleaded a simple denial.
[6](2003) 127 FCR 499 (‘DSE (Holdings)’).
His Honour set out the competing arguments advanced by the parties as to whether the waiver of privilege by the applicant over some communications had the consequence of waiving privilege over other privileged communications:
As I have said, the applicant has accepted the waiver of privilege on communications concerning its state of mind by reason of the pleadings. The contentions of the respondents about the asserted further consequences of this waiver were as follows …
“The Applicant has accepted that it has waived privilege over at least some of the documents listed in Sch 1 Pt 2 of its list of documents … However, the Applicant appears to assert that imputed waiver of privilege is limited to the production of documents which evidence, record or contain legal advice (including a request for such advice) provided to the Applicant prior to the Agreement being entered into.
The Respondents submit that in doing so, the Applicant has taken too narrow a view of the scope of the imputed waiver. The imputed waiver is as to the Applicant’s state of mind prior to and at the time of entry in to the relevant transactions. That would include, but is not limited to, legal advice after the dispute had arisen the Applicant might have communicated to its legal advisers information bearing upon its state of mind at the time of the transactions. Such communications would be relevant to the Applicant’s state of mind at the relevant time even though brought into existence subsequently and ought to be covered by the injured waiver.”
The applicant’s essential contention in answer to this was as follows …
“The Applicant contends that the principle of imputed waiver is limited to legal advice which the party had, before or at the time of the relevant events, material to the formation of its state of mind …[7]
[7]Ibid 531–2.
His Honour then held:
I think the applicant is correct. The reasons for judgment in Telstra do not dictate that privilege is forever lost on all communications concerning the subject matter of reliance or state of mind. That, it seems to me, is to misunderstand the notion of unfairness discussed by the majority in Telstra and the notion of inconsistency in Mann v Carnell.
A pleading of state of mind is raised. It is accepted that there are opened for scrutiny by that pleading confidential and privileged communications materially affecting or contributing to that state of mind. The inconsistent act is the propounding of the issue which, it is accepted, opens up, or makes relevant, in the sense discussed by the majority in Telstra, an examination of the confidential communication.
Later, in the propounding of a suit to vindicate its rights, being the context in which the above waiver takes place, the applicant consults with its lawyers about the case. I assume that these later confidential and privileged communications will address or have addressed the pleadings and the earlier privileged (though now waived) communications. There is plainly a relationship between the two groups of communications. However, there is no inconsistency between raising the issue of state of mind and maintaining the confidence of the later communications in and about the advising on, and running of, the case. Nor is there any unfairness. The inconsistency or unfairness arises from the putting in issue of a state of mind and maintaining confidence in communications which were relevant to the formation of that state of mind. (Or, putting the matter as I would prefer to put it – the inconsistency or unfairness arises from the laying open to scrutiny the communication and maintaining confidence in the communication). The later communications were, and are, irrelevant to, and had, and could have had, no part to play in the formation of the earlier state of mind.[8]
[8]Ibid 532 (references omitted).
Analysis
These passages clearly point in favour of the plaintiffs’ submissions. The waiver of client legal privilege over the two particularised advices does not mean that client legal privilege is thereby waived over all privileged documents. The defendant did not rely on any other conduct of the plaintiffs as constituting waiver of client legal privilege. Nor did the defendant suggest that the advices which had been discovered referred to, or were linked to, or had any other connection to, the disputed documents.
The Tesarsch advice is clearly discrete and independent of the disputed documents. It was given in November 2017, well before most of the disputed documents came into existence. Likewise, the Moore advice is discrete and separate from the disputed documents. It was given over two weeks before the mediation.
The plaintiffs have made it clear that they do not intend to rely on any of the disputed documents at trial. As discussed in the passages set out above, there is no unfairness if they are not produced.
I am of the view that, in the circumstances, the plaintiffs have not waived client legal privilege over the disputed documents. In the terms of s 122(2) of the Act, they have not acted inconsistently by seeking to uphold client legal privilege in relation to the disputed documents.
Paragraphs 4 and 5(b) – discovery of particular documents
By paragraph 4 of its summons, the defendant seeks discovery of particular documents. The categories of documents for which particular discovery is sought (‘claimed categories’) are:
(a) all documents created by John Kerr, Bruce Montgomery, Darren Roach, and Mr Salvalaggio recording or relating to the Moore advice;
(b) all documents created by attendees of the board of Sayers before, during, or after the advice provided by Mr Moore QC, Mr Guidolin, and Wisewoulds at the conferences on 22 February 2019 which concern or evidence the substance of that advice;
(c) all documents in the possession of Sayers evidencing or relating to the advice obtained in conferences with Mr Moore QC, Mr Guidolin of Counsel, and Wisewoulds, on 19 February 2019, 22 February 2019, and 27 May 2019;
(d) all documents evidencing or relating to the advices provided to Sayers in around October 2017 by Mr Anastassiou QC (as his Honour then was) and Mr Hosking of Counsel;
(e) paragraph 4(e) of the summons was not pressed;
(f) all documents (including notes, email correspondences, and advices) relevant to or recording:
(i) the legal merits of the 2017 proceeding generally;
(ii) the strengths and weaknesses of Sayers’ claims in the 2017 proceeding;
(iii) the strengths and weaknesses of Sayers’ defence prospects of the counterclaim in the 2017 proceeding;
(iv) the quantum of Sayers’ claim and/or the counterclaim in the 2017 proceeding;
(v) evidentiary issues in the 2017 proceeding; and
(vi) the reasonableness of any settlement of the 2017 proceeding including in regarding to settlement range and the basis for settlement,
in existence at the time of the settlement; and
(g) documents (including any email correspondence, text messages, Board reports or updates, and minutes of Sayers’ Board or other meetings) sent or created by or on behalf of Sayers (including Sayers’ directors and employees) before, during, or after the settlement concerning or recording:
(i)the reason that Sayers agreed to attend the settlement;
(ii)the course of the negotiations and the reasoning that led to the settlement (including the matters taken into account when deciding to settle); and
(iii)the amount of the settlement, including whether the settlement was legally and/or commercially justified.
By paragraph 5(b) of its summons, the defendant also sought an affidavit stating, in relation to the claimed categories, whether documents in those classes exist and:
(a) if so, what document or documents of that class is or has been in Sayers’ possession;
(b) if they do not exist, why they do not exist;
(c) what searches were conducted by Sayers and on behalf of Sayers to locate documents in those respective classes;
(d) if a document or documents in that class has been but are no longer in that party’s possession, when Sayers parted with it and Sayers’ belief as to what has become of it; and
(e) if documents exist and are in Sayers’ possession, the reason why those documents have not been discovered in either of Sayers’ List of Documents, Supplementary List of Documents, or Further Supplementary List of Documents.
The defendant relied on the affidavit of David Chew, a partner of HWL Ebsworth, its solicitors, filed 9 May 2022. Mr Chew referred to correspondence and exhibited copies of some discovered documents. Correspondence from the plaintiffs’ solicitors dated 14 December 2021 showed that on 19 February 2019 and 27 May 2019 the plaintiffs’ solicitors attended conferences with Mr Moore QC and Mr Guidolin of counsel. On 22 February 2019, the plaintiffs’ solicitors and Sayers’ board attended on the same counsel. No documents had been discovered concerning the conference on 22 February 2019.
The defendant also referred to an email from Mr Salvalaggio to Sayers’ directors sent on 10 September 2019 which refers to a resolution at a meeting on 3 September 2019 that Sayers would not take up the option to purchase the property if compensation of $3 million and various other conditions were offered by Di Dio. No emails in reply to Mr Salvalaggio’s email from other directors had been discovered, nor any board reports, minutes or other documents regarding the settlement.
In an affidavit filed 30 May 2022, Chris Stakis, the plaintiffs’ solicitor, deposed as to the inquiries that he had made as to the existence of documents within the claimed categories. He said in substance that:
(a) only Mr Salvalaggio made notes in respect of the conference with Mr Moore QC on 6 November 2019. The notes have been discovered;
(b) only Mr Montgomery made brief notes in respect of the conference on 22 February 2019;
(c) the only documents created in or about October 2017 following the advice of Mr Paul Anastassiou QC (as his Honour then was) and Mr Mark Hosking of counsel were:
(i) a covering email from Mr Hosking to a partner of the plaintiffs’ solicitors dated 31 October 2017 enclosing the advice;
(ii) a covering email from the partner to a Sayers’ director enclosing the advice;
(iii) the partner’s notes of a conference held on 31 October 2017 with counsel to discuss their advice; and
(iv) a director’s brief notes of the conference held on 31 October 2017.
I was informed by counsel for the plaintiffs during the hearing that the documents listed in paragraph 30(c) above would be discovered, subject to a claim for client legal privilege.
Mr Stakis also deposed that, except for an already discovered document, there were no lay or expert witness statements, drafts, or file notes of witness conferences available to Sayers at the time of the 2019 settlement. The 2017 proceeding had not reached the stage where preparation for lay evidence had commenced, and further expert evidence was not considered necessary. He also deposed that he was instructed and believed that no further documents were in the possession of Sayers’ directors for discovery within the claimed categories.
The defendant submitted that Mr Stakis’ affidavit was not satisfactory as it did not state exactly what inquiries had been made, which directors had conducted searches, or what they had told Mr Stakis. There appeared to be a board resolution which had not been discovered.
In response, the plaintiffs submitted that the defendant’s summons raised categories of documents not previously requested. As to category 4(a), only Mr Salvalaggio made notes of Mr Moore QC’s conference of 6 November 2019, and these had been discovered. As to category 4(b), one director had made notes of the conference of 22 February 2019 which would be discovered. There were no documents which fell into category 4(c). The four documents that fell into category 4(d) would all be discovered. There were no further documents that responded to categories 4(f) and 4(g). As to paragraph 5(b), the plaintiffs would prepare a further affidavit of documents disclosing the further documents that had been found as listed in Mr Stakis’ affidavit without the need for any further order.
Decision
The claimed categories sought to be discovered do not appear to have been the subject of much (if any) correspondence between the parties’ solicitors before the defendant’s summons was issued. With one exception, I am satisfied that the plaintiffs have undertaken appropriate searches to ensure that documents within the claimed categories have been located and discovered.
There is one category which requires further searches by the plaintiffs. It is surprising that there are no further documents to be discovered in relation to the settlement proposal considered by Sayers’ directors at their meeting on 3 September 2019. This is referred to in Mr Salvalaggio’s email to Sayers’ directors sent on 10 September 2019. No documents have been discovered in relation to the board resolution. It is likely that the resolution will be found in Sayers’ minute book of directors’ resolutions or records. There may well be other records or documents which refer to the board resolution or proposal for settlement.
Conclusion
I will order under r 29.08(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) that the plaintiffs make particular discovery of any documents evidencing or relating to the settlement proposal referred to in Mr Salvalaggio’s email of 10 September 2019 or to the settlement proposal considered at the directors’ meeting on 3 September 2019. The defendant’s summons will be otherwise dismissed.
A further supplementary affidavit of documents is needed in relation to the further documents located by Mr Stakis and described in his affidavit or conceded at the hearing.
Plaintiffs’ summons
The plaintiffs sought production by the defendant of various documents listed in the defendant’s supplementary list of documents filed 15 October 2021. The documents sought to be produced are correspondence between the defendant’s solicitors, the defendant’s counsel and the defendant over the period from 29 August 2018 to 22 November 2019 (‘additional documents’). The plaintiffs also sought further and better discovery of any file notes or records in relation to the mediation held on 25 November 2019 (‘mediation documents’).
The application was supported by the affidavit and exhibits of Chris Stakis filed 14 April 2022.
Plaintiffs’ submissions
The plaintiffs submitted that:
(a) while the additional documents and the mediation documents were subject to client legal privilege, the defendant had acted in a manner inconsistent with the maintenance of the privilege for the purposes of s 122(2) of the Act;
(b) the inconsistency arose from the fact that in its defence the defendant did not admit that the amount paid under the 2019 settlement was a reasonable amount;
(c) the plaintiffs had not pleaded that the 2019 settlement was a reasonable settlement;
(d) it was inconsistent for the defendant to put in issue the reasonableness of settlement and maintain privilege over the additional documents and the mediation documents;
(e) the subject matter of the additional documents included correspondence going to the prospects of success and defence costs in the 2017 proceeding; and
(f) the defendant had granted a partial indemnity for costs to Mr Salvalaggio in respect of the 2017 proceeding.
Defendant’s submissions
The defendant submitted that:
(a) it was not a party to the 2019 settlement or the 2017 proceeding;
(b) it had not pleaded that the settlement price was not reasonable – rather it had not admitted that the settlement was reasonable;
(c) Sayers was required to prove that the settlement amount was reasonable, even if it had failed to plead the allegation;
(d) the defendant did not deny indemnity in July 2017, and had never formally denied indemnity to Sayers;
(e) no waiver had occurred because there was no inconsistency in the defendant putting Sayers to proof on a fundamental aspect of its claim and the defendant maintaining privilege over the additional documents and the mediation documents;
(f) the non-admission does not put in issue the contents of the additional documents;
(g) the mediation documents were privileged; and
(h) there had been no waiver of privilege over the mediation documents.
Authority
Consideration has been given in a number of cases as to whether a denial or non-admission of an allegation in pleading is sufficient to constitute a waiver of client legal privilege. I will refer to two cases where the factual circumstances are more akin to those in the present case.
In DSE (Holdings), Allsop J reviewed relevant authority and held:
The act of mere denial by the respondents of an assertion by the applicants is not an act by the respondents which expressly or impliedly makes an assertion about the contents of any privileged communication or which necessarily lays any such communication open to scrutiny. There is no act of the respondents inconsistent with the maintenance of the confidentiality. There is a joinder of issue on a question of fact to which the privileged communication can be seen as relevant. That is insufficient in my view for it to be concluded that there exists the necessary inconsistency enunciated by Mann v Carnell.[9]
[9]DSE (Holdings) (n 6), 529.
Likewise, in Viterra Malt Pty Ltd v Cargill Australia Ltd, the Court of Appeal held:
The applicants point to the fact that Cargill’s lawyers were integrally involved in the due diligence process and in communications leading to the signing of the agreement. It was said to be able to be inferred from the description of the discovered documents that communications had flowed to and from Cargill and its lawyers as part of these events, contemporaneously with the formation of the state of mind which Cargill had put in issue. All of this may be accepted.
…
Even if it is assumed that the lawyers did convey to Cargill factual information obtained by them during the due diligence process, in circumstances attracting client legal privilege, the maintenance of such privilege still involves no inconsistency of the requisite kind. The giving of legal advice might well reveal the state of mind of the client by referring to instructions received, or communications from third parties made to the client in the presence of its lawyers. It might also, let it be assumed, reveal matters discovered by the lawyers by examining documents in the data room and proffering advice on such matters. But the contents of the data room were, it is pleaded, disclosed to Cargill in any event. There is nothing inconsistent in Cargill maintaining privilege in advice received in respect of those disclosures. Of course, there is a dispute as to what was disclosed in conversations beyond the data room. But the parties can have that dispute consistently with Cargill keeping confidential its legal advice as to the matters of which it was aware. Unlike Thomason, Rio Tinto, Vic Hotel and even Macquarie Bank v Arup, nothing in Cargill’s pleading has put its legal advice in issue or laid it open to scrutiny.[10]
[10](2018) 58 VR 333, 352–3.
Analysis
The only act or conduct of the defendant to which the plaintiffs can point as constituting a waiver of client legal privilege is the defendant’s non-admission in its defence that the 2019 settlement was for a reasonable amount. This puts the plaintiffs to their proof that the settlement amount was reasonable. Proof that the settlement amount was reasonable has always been a necessary element of the plaintiffs’ case. The non-admission does not call into question the additional documents or the mediation documents. There has been no act by the defendant which is inconsistent with the maintenance of confidentiality, or inconsistent with the defendant’s objection to the adducing of evidence of the additional documents or the mediation documents.
As for the mediation documents, the defendant observed the mediation held on 25 November 2019 but was not a party to the settlement of the 2017 proceeding and is not bound by it. While the defendant’s mediation documents may be relevant, relevance is not enough. There must be conduct by or on behalf of the defendant which would be inconsistent with its objection to the adducing of evidence of the privileged documents. In fact, there is no conduct by or on behalf of the defendant of that type. There has been no waiver of client legal privilege over the mediation documents.
Conclusion
There has been no waiver of client legal privilege by the defendant over the additional documents or the mediation documents. The plaintiffs’ applications fail, and the plaintiffs’ summons must be dismissed.
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