Smits v Della Marta

[2011] NSWSC 1299

Supreme Court

New South Wales

Medium Neutral Citation:	Smits v Della Marta & Ors [2011] NSWSC 1299
Hearing dates:	22/09/2011 & 25/10/2011
Decision date:	25 October 2011
Jurisdiction:	Equity Division
Before:	Brereton J
Decision:	Plaintiff and defendants to serve supplementary lists of documents in relation to categories of discovery.
Catchwords:	PRACTICE AND PROCEDURE - Client-legal privilege - plaintiff asserts privilege in relation to email correspondence with solicitors relating to property transaction - such correspondence confidential communications or documents for dominant purpose of providing legal advice - defendants contend privilege cannot subsist because relevant to fact in issue in proceedings - relevance not a basis for holding privilege to be waived - further communication between solicitor and third party - privilege resides in third party - third party asserts privilege - third party not joined to motion and court cannot override his claim for privilege. PRACTICE AND PROCEDURE - Discovery - obligations of parties under (NSW) Uniform Civil Procedure Rules, 2005, r 21.3 to identify documents claimed to be privileged - defendants' identify four boxes as privileged - defendants' contend that by giving discovery they may jeopardise a particular client's privilege where client has not consented - startling contention that third party's privilege would be waived merely by solicitors inspecting documents with a view to ascertaining privileged status - defendants' seek declaration that inspection will not result in waiver of privilege - no basis for making such a declaration. PRACTICE AND PROCEDURE - Discovery - defendants' seek order for further discovery - defendants' contend plaintiff's discovery inadequate - plaintiff solicitor adopts cavalier approach to discovery obligations - defendants required to sufficiently identify documents or class of documents in respect of which further discovery sought - defendants' required to establish reasonable grounds for believing documents in plaintiff's possession - order refused.
Legislation Cited:	(NSW) Evidence Act, 1995, s 117, s 118, s 122, s 125 (NSW) Legal Profession Act, 2004, s 243 (NSW) Uniform Civil Procedure Rules, 2005, r 21.3
Cases Cited:	Australian Rugby Union Ltd v Hospitality Group Pty Ltd 165 ALR 253 Beecham Group Limited v Bristol-Myers [1979] VR 273 Goldberg and Another v Ng and Others (1995) 185 CLR 83 Hall v Brunton & Others (1894) 10 WN 196 Mann v Carnell (1999) 201 CLR 1 Smith and Another v Goldring and Another (1887) 4 WN 13
Category:	Procedural and other rulings
Parties:	Leonardus Geradus Smits (plaintiff) Simon Eugene Della Marta (first defendant) Christopher Mark Dawson (second defendant) Armando John Gardiman (third defendant) Terrence Louis Goldberg (fourth defendant) Thady Arnold Andrew Blundell (fifth defendant) Peter Richard Tyson (sixth defendant)
Representation:	Counsel: Ms T Gordon (plaintiff) Mr A.T.S. Dawson (defendants) Solicitors: Malcolm Johns & Company, Lawyers (plaintiff) Yeldham Price O'Brien Lusk (defendants)
File Number(s):	2009/323470

Judgment (ex tempore)

1. HIS HONOUR: The plaintiff Mr Leonardus Geradus Smits, a former solicitor with some considerable experience as such, sues the defendants, a firm of solicitors, in respect of an alleged breach of trust said to have been occasioned by their paying certain moneys out of their trust account prematurely and before conditions upon which the trust was allegedly established had been satisfied. He alleges that the trust was established upon his paying moneys to the defendants' trust account to be advanced pursuant to the terms of a loan agreement between him and the defendants' client, one Mr Hanna. The defendants deny that the moneys received into their trust account were held on trust for the plaintiff on the conditions alleged, or at all, and in any event assert that they were authorised to disburse the funds. In addition, they plead that the plaintiff has failed to mitigate his loss.

1. On 12 May 2010, the defendants served on the plaintiff a request for discovery which identified 11 categories of documents. Although it has not featured in argument in the present proceedings, the terms of the categories specified have not facilitated the discovery process because, while they identify classes of documents, they do not do so, at least for the most part, by reference to issues in the proceedings, so that the classes on their face are capable of catching documents which are not relevant to issues in the proceedings. On 26 May 2010, the plaintiff served on the defendants a request for documents in respect of specified categories, in respect of which the same complaint can be made.

1. On 13 September 2010, the plaintiff served a verified list of documents. It included a claim for privilege over documents enumerated as documents 156 to 167 inclusive. On 13 December 2010, the defendants served a verified list of documents, in which they claimed client legal privilege on behalf of Mr Hanna over documents said to be contained in four boxes described as "Turner Freeman's file concerning the loan transaction", which in the application has been called the Turner Freeman file.

1. Each of the parties has filed motions complaining, in one or more respects, about the adequacy of discovery given by the other and/or the claims of privilege advanced. The principal issues for resolution are: first, whether the plaintiff's claims for privilege in respect of documents 156 to 158 are sustained, so as to justify withholding access to them from the defendants; secondly, whether the defendants have complied with their discovery obligations in respect of the Turner Freeman file and what, if any, further orders should be made in that respect; thirdly, whether the defendants have complied with their discovery obligations in respect of trust account records and what, if any, further order should be made in that respect; and fourthly, whether there are deficiencies in the plaintiff's discovery, and if so, what if any further order for further and better discovery on the part of the plaintiff should be made.

Client-legal privilege

1. Plaintiff's discovered documents 156 and 158 are emails between the plaintiff and his solicitors Malcolm Johns and Co, dated respectively 18 and 25 February 2009. They relate to the proposed purchase by Mr Smits of Mr Hanna's property at Manor Rise Bowral known as "Mandalay", in respect of which Mr Johns acted for Mr Smits.

1. The defendants expect that the Mandalay transaction will be propounded by the plaintiff as part of the plaintiff's endeavours to mitigate, in reply to the defence of failure to mitigate. These documents, it is suggested, may also cast light on the state of mind of the plaintiff, which may bear on whether the subject matter of the claim was properly characterised, presumably in the plaintiff's mind, as a trust, or a debt or otherwise, and inform considerations relevant to mitigation of damage. The plaintiff accepts that the documents in question are, for present purposes, relevant in that sense. Indeed, the question of a claim for privilege would not even arise if they were not relevant. The corollary is that their relevance does not override any claim for privilege. The relevance of privileged communications to a matter in issue in the proceedings does not make the maintenance of a claim for privilege inconsistent with the contesting of that issue.

1. The emails are confidential communications or confidential documents within the meaning of (NSW) Evidence Act, 1995, s 117, being communications or documents made in circumstances where the solicitors were under an obligation (either expressly arising from their retainer, or impliedly arising by virtue of the solicitor-client relationship), not to disclose their contents. Given that the communications are between Mr Smits and his solicitors, they are confidential communications between a client and lawyers acting on the client's behalf, within the meaning of Evidence Act, s 118. The emails proffer advice as to the property transaction and therefore are confidential communications or documents for the dominant purpose of providing legal advice to the client, and are covered by the 'legal advice' privilege conferred by s 118. To defeat Mr Smits' assertion of privilege, the defendants must point to an exception recognised under Evidence Act Pt 3.10, for instance that Mr Smits has consented to the adducing of the evidence [s 122(1)], waived privilege [s 122(2)], or has misconducted himself in such a way that prevents him relying on the privilege [s 125].

1. The mere fact that the emails could rationally affect the existence of a fact in issue in the proceedings, viz, the plaintiff's state of mind, does not remove the cloak of privilege from what are otherwise privileged communications. In my view, it is just not possible to see how the fact that these communications may be relevant makes maintaining a claim for privilege in respect of them inconsistent with the way in which the plaintiff proposes to conduct the proceedings. It is to be borne in mind that the question is whether the plaintiff has so conducted itself that it would be inconsistent with the plaintiff's conduct to maintain the claim of privilege. The plaintiff is not here apparently deploying the instructions he may have given to Mr Johns, nor the advice he may have received from Mr Johns, as being relevant in the proceedings. In those circumstances, I cannot see how the privilege otherwise attaching to documents 156 and 158 has been lost. I uphold the claim for privilege in respect of them.

1. So far as document 157 is concerned, it is a communication between Mr Hanna and Mr Johns in respect of Mr Hanna's proposed purchase of a property at Newport from one Ms Purnell. It seems to have contained the substance of advice given by Mr Johns to Mr Hanna, which was copied to Mr Smits to keep him informed of how that transaction was proceeding.

1. It is arguable that that may have waived the privilege otherwise subsisting in the document, although bearing in mind that Mr Smits was not the opposing party in the transaction but a third party with an interest, it is far from clear that there was a waiver. Moreover, in any event, such privilege as subsisted in the document was that of Mr Hanna.

1. Despite some earlier contrary indication, which falls short of a clear-cut consent to the disclosure of the document, Mr Hanna's current position, communicated more recently, is that he does not consent to disclosure of the document, nor waiver of any privilege subsisting in it. Mr Hanna has not been joined as a party to the motion and the court cannot override his claim for privilege in the absence of his being a party to the motion. Accordingly, even if there is an arguable case of waiver in respect of document 157, I could not override Mr Hanna's claim for privilege in these proceedings as presently constituted.

1. I turn then to the Turner Freeman file. (NSW) Uniform Civil Procedure Rules, 2005, r 21.3, provides in respect of a party's discovery obligations, that party B must comply with an order for discovery by serving on party A a list of documents that deals with all of the documents other than excluded documents referred to in the order, which list must be divided into two parts, part 1 relating to documents in the possession of party B and part 2 relating to documents that are not but within the last six months have been in the possession of party B, and must include a brief description of each document or group of documents (and, in the case of a group, the number of documents in that group), and must identify any document that is claimed to be a privileged document and specify the circumstances under which the privilege is claimed to arise.

1. In respect of the Turner Freeman file, which must contain very many individual documents, the defendants' list of documents simply identifies four boxes and claims privilege in respect of all of them, notwithstanding that it is common ground that there must be documents in them not entitled to privilege. The privilege asserted is, again, that of Mr Hanna. The claim is made globally because the defendants are concerned that by giving discovery of the Turner Freeman file, they may jeopardise Mr Hanna's privilege in circumstances where there is no consent on his part to that course, and that they may do so even by allowing their own solicitors to inspect the file to ascertain which documents in it are properly the subject of a claim.

1. As was at one stage said in the course of the defendants' submissions, it would be a startling result if a party to proceedings with possession, custody, or power of documents in which a third party had or may have a claim for privilege, could waive the third party's privilege merely by seeking advice from his, her or its own solicitors as to whether a claim for privilege should be maintained in respect of those documents. Consulting a solicitor for that purpose and obtaining advice as to whether a claim for privilege should or should not be maintained in respect of the individual documents, would itself be a confidential communication. It would not result in the documents becoming known beyond the cloak of confidentiality, and no inconsistency with maintenance of a claim for privilege in respect of them by the third party would arise. The circumstances, although not identical, are reasonably analogous to those in Australian Rugby Union Ltd v Hospitality Group Pty Ltd 165 ALR 253, Goldberg and Another v Ng and Others (1995) 185 CLR 83, and Mann v Carnell (1999) 201 CLR 1. The disclosure to the solicitors would be for the limited purpose of obtaining advice and would not destroy any subsisting privilege.

1. In any event, the obligation imposed on the defendants by the rules of court is clear and they are not entitled, as it seems to me, to suspend, defer or decline to comply with those obligations on account of concerns in their mind as to what might happen to any subsisting privilege in documents that they are obliged to discover. While they are bound to uphold the privilege of their former client, they should do so by examining the documents in question, with the benefit of the advice of their lawyers, and identifying with specificity those in respect of which the claim for privilege is made, and disclosing the others.

1. Although it was said that it would be unfair if the defendants, being solicitors, were placed in an inferior position to other litigants in this respect, it seems to me that in fact they are in a superior position. All litigants have an obligation to comply with UCPR, r 21.3. As solicitors, the defendants are simply better equipped to discharge that obligation than defendants without legal training and qualifications.

1. I do not think it is at all appropriate to make a declaration that such a course would not result in a waiver. Declarations are not made on interlocutory applications as to the consequences of procedural steps in litigation. In any event, such a declaration could not bind any person not a party to these proceedings who might subsequently wish to assert that there was a waiver. But the reasons which I have given will explain why, in my view, the defendants complying with their obligations for discovery would not produce the result that their former client's privilege had been waived.

1. So far as the trust account records are concerned, the defendants agreed to an order that they give further and better discovery in that respect.

Plaintiff's Discovery

1. I turn then to the plaintiff's discovery. At the heart of the debate about the adequacy of the plaintiff's discovery is a hard disk drive upon which it is clear that relevant documents were stored. In evidence, which coming from a former solicitor of considerable experience practically beggars belief, Mr Smits explained that having been requested to provide further documents recorded on the hard disk drive, he retained a computer "expert" - who he was unable to name but had met in a pub in the Northern Rivers region and was remunerated with alcohol - to examine the hard disk drive and extract certain documents - not all the relevant documents - from it, and then, notwithstanding the pendency of these proceedings and the outstanding requests in respect of discovery in them, disposed of the hard disk in a waste disposal facility. It is practically incredible that a former solicitor could do such a thing.

1. The second aspect which indicates some shortcomings in the plaintiff's approach to discovery, is that it is now conceded that some documents in other files of the plaintiff's solicitors potentially contained discoverable classes of documents, and though inspected by the plaintiff's solicitor, those documents were not discovered, apparently as she did not think them to be discoverable.

1. A third reason for entertaining concerns as to the adequacy of the plaintiff's discovery is that an exchange of email traffic between the plaintiff's solicitor and the plaintiff, at a time when the defendants were pursuing complaints about discovery, demonstrates to my mind a somewhat cavalier attitude to the plaintiff's discovery obligations.

1. An order for further discovery is, however, not made merely on the basis of a speculative possibility that a party has not disclosed a relevant document. To justify such an order, the applicant must specify the document or class of documents in respect of which further discovery is sought, and must establish reasonable grounds for believing that documents of that type were or had been in the opponent's possession. In Beecham Group Limited v Bristol-Myers [1979] VR 273, Menhennitt J pointed out (at 278), in the context of discussing the equivalent rule in England:

... to justify the making of an affidavit for further discovery ... a party must in his affidavit name and specify, so that they can be identified, the particular documents of which discovery is sought, and that it is not sufficient to make a general affidavit based on a priori reasoning that certain classes of documents must be in his opponent's possession or power.

1. [See also Smith and Another v Goldring and Another (1887) 4 WN 13 and Hall v Brunton & Others (1894) 10 WN 196 (at 197)].

1. While it is clear that there were almost certainly relevant documents on the hard disk drive, the plaintiff was cross-examined in these proceedings and said that he had done the best he could, though without certainty of success, to extract from it all relevant documents at a time when it was in existence. I do not see how an order made now that the plaintiff make another affidavit specifying the documents that were on the hard disk drive is going to achieve any purpose or utility. Nor do I see that it would be appropriate to require the plaintiff, who was cross-examined at some length about the circumstances of the loss or destruction of the hard disk drive, to make an affidavit explaining yet again those circumstances.

1. Shorn of those matters, there is little dispute as to what further steps should be taken by way of further discovery on the part of the plaintiff, save that the defendants propose that an independent computer expert be retained for that purpose. To my mind the order places the obligation to give discovery on the plaintiff and it is inappropriate to specify how the plaintiff goes about discharging that obligation. It may be appropriate and desirable for the plaintiff, properly advised, to obtain the assistance of a computer expert, but it may be that that is not necessary for the plaintiff to comply within his obligations to give proper discovery. If, when the further discovery is given, there is reason to suppose that it remains deficient, then consideration can be given to some other course, so far as inspection of any relevant computer device may be concerned.

1. Finally, the evidence does not establish that there are discoverable documents on the plaintiff's personal computers or disk drives that have not been discovered sufficient to meet the test for an order for further and better discovery in that respect.

Costs

1. The plaintiff has succeeded in respect of documents 156 to 158, on the argument in respect of the Turner Freeman files, and on the argument in respect of the trust accounts, but has failed on the adequacy of the plaintiff's own discovery. In addition, the plaintiff has abandoned one significant argument that was previously advanced in respect of waiver on the Turner Freeman files. Furthermore, a great deal of time at the hearing was expended on examining the extraordinary facts surrounding the destruction of the hard disk drive.

1. Weighing all of those matters, it seems to me that one could either, recognising the modest ultimate success that each party has had, order that each party have its costs of its own motion, or part of them, but it is preferable to make no order as to costs at all, thus leaving them to lie where they fall. I think practical justice is achieved by the latter course. There will be no order as to the costs of the motions, it being intended that each party bear their own costs.

1. My orders are:

1. Order that by 22 November 2011 the defendants serve a supplementary list of documents complying with UCPR, r 21.3, in respect of documents within the plaintiff's categories of documents for discovery dated 26 May 2010 in respect of:

(a) the individual documents comprising item one in the defendants' list of documents dated 6 July 2011; and

(b) any documents falling within the meaning of the term "trust records" within the meaning of (NSW) Legal Profession Act, 2004, s 243.

2. Order that by 15 November 2011, the plaintiff make and serve a further supplementary list of documents within the defendants' categories of documents for discovery dated 12 May 2010 in respect of:

(a) all documents evidencing the plaintiff's attempts to mitigate his loss; and

(b) any discoverable document in the custody of the plaintiff's solicitor.

(3) Order that both motions be otherwise dismissed.

(4) Direct that the plaintiff not be entitled to rely without the further leave of the court on any lay or expert evidence-in-chief that has not been served by 13 December.

(5) Direct that the defendants not be entitled to rely without the further leave of the court on any lay or expert evidence that has not been served by 28 February 2011.

(6) Adjourn the proceedings to 7 March 2012 at 9am before the Registrar for further directions.

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Decision last updated: 10 January 2012