South Australian Government Financing Authority v Bank of New Zealand(No 2) No. Scciv-99-1428
[2002] SASC 10
•18 January 2002
SOUTH AUSTRALIAN GOVERNMENT FINANCING AUTHORITY v
BANK OF NEW ZEALAND (No 2)
[2002] SASC 10Civil
DEBELLE J. This application for discovery and production of statements of witnesses is made in rather unusual circumstances. Production of the statements is sought from persons who were, at one time but no longer are, parties to this action. The application is made by the defendant, the Bank of New Zealand (“BNZ”). The plaintiff is the South Australian Government Financing Authority (“SAFA”).
The persons from whom the documents are sought are BT Financial Group Ltd (“BT”) and BT Australia (HK) Ltd (“BTAHK”). It is common ground that the BT companies have the benefit of legal professional privilege in the statements which had been obtained for the purposes of its defence in this action. The question is whether the BT companies have, by their conduct, waived that privilege or a waiver should in all the circumstances be imputed.
An Action Concerning Bonds
This action concerns a so-called “side letter” written by SAFA modifying the terms and conditions of certain bonds issued by SAFA in 1985. SAFA had engaged BT and BTAHK to advise it concerning the issue and marketing of the bonds. BTAHK had engaged Messrs Linklaters & Paines, solicitors, to act for it on some aspects of the bond issue. The bonds were first issued to BTAHK which immediately sold them to BNZ. BNZ was party to the negotiations as to the terms of the bonds. The bonds were redeemed at SAFA’s option in April 2000. The present dispute concerns the redemption price of the bonds. Broadly speaking, SAFA seeks to recover about $15 million.
One of the main issues in the action is a claim by SAFA for rectification of the side letter. SAFA alleges that the side letter does not correctly reflect what had been agreed on 24 July 1985 in the course of a telephone conversation between Mr Ian Bell, an employee of BT, Mr Coakley, an employee of BNZ, and Mr Ruse, an employee of SAFA.
Initially, the only parties to this action were SAFA and BNZ. Later, SAFA joined both BT companies as defendants. However, SAFA and the BT companies have now compromised their differences. The compromise is contained in a confidential deed dated 23 July 2001 (“the Settlement Deed”). It was a term of the Settlement Deed that SAFA should discontinue the proceedings against the BT companies. On 25 July 2001 SAFA discontinued the proceedings against the BT companies.
An Agreement to Provide Statements
Clause 2.8 of the Settlement Deed provided that the BT companies should make available to SAFA, for inspection and copying, copies of certain privileged documents held by the BT companies. They were
(1)copies of all privileged documents still in the possession or control of the BT companies created in 1985 in relation to the bond issue; and
(2)the statements (if any) of seven named witnesses (“the statements”).
Clause 2.8 opens with the following words:
“For the purpose of conducting the Proceedings against BNZ, the BT Companies shall make available to SAFA for inspection and copying by its solicitors (subject to common interest privilege vesting in SAFA and the BT Companies).”
The clause then identifies the privileged documents just mentioned.
Before proceeding further, it is convenient to note the names of the firms of solicitors for the parties and in the case of BNZ and the BT companies the partner or employee in each firm who have the management of the action.
SAFA
State Crown Solicitor
BNZ
Finlaysons - Mr Shortt-Smith and Mr Jackson
BT companies
Fisher Jeffries - Mr Bampton
An Inadvertent Disclosure
On behalf of BNZ, Finlaysons had on 26 July 2001 applied for an order for further and better discovery against the BT companies. BNZ was seeking discovery and production of relevant documents contained in the files of Linklaters & Paines. With the consent of SAFA, the BT companies permitted Finlaysons, on behalf of BNZ, to inspect and make copies of those documents. Finlaysons inspected them on 1 August 2001. The Linklaters & Paines’ documents are not the subject of the present application. The production of those documents is simply noted as a matter of history because it is the production of those documents which gave rise to an inadvertent disclosure of the witness statements.
In the meantime, pursuant to clause 2.8 of the Settlement Deed, Fisher Jeffries, on behalf of the BT companies, had produced to the State Crown Solicitor for inspection the Linklaters & Paines’ documents and the statements. The State Crown Solicitor asked Fisher Jeffries to provide copies. Finlaysons requested copies of Linklaters & Paines’ documents, the only documents it had inspected.
On 6 August 2001 Fisher Jeffries sent the State Crown Solicitor and Finlaysons copies of the Linklaters & Paines’ documents which, after inspection, each had requested. The letter to the State Crown Solicitor had failed to include the statements which the BT companies had agreed to supply pursuant to clause 2.8 of the Settlement Deed. The State Crown Solicitor’s office asked for copies of the statements. They were sent on 6 August.
On 7 August 2001 a clerk employed by Fisher Jeffries erroneously sent Finlaysons a letter enclosing “copies of the witness statements that were inadvertently omitted in our letter to you of 6 August 2001”. Although by clause 2.8 of the Settlement Deed the BT companies agreed to provide the statements (if any) of seven named witnesses, statements of five witnesses only were delivered to Finlaysons. They included two statements made by a Mr Ian Bell. On receiving the statements, Mr Jackson read them and made photocopies which he provided to Mr Shortt-Smith as well as to an officer of BNZ and a member of the New Zealand Bar who are both involved in the conduct of this action on behalf of BNZ.
A Request to Return the Statements
On 14 August 2001, one week after supplying the documents, a solicitor at Fisher Jeffries noticed that the statements had been wrongly sent to Finlaysons. She rang Finlaysons and left a telephone message for Mr Shortt-Smith stating that the statements had been sent in error to Finlaysons and that they were privileged. Shortly thereafter, Mr Shortt-Smith telephoned Mr Bampton at Messrs Fisher Jeffries. Mr Bampton informed him that the statements had been provided to Finlaysons in error. Fisher Jeffries had intended to send them only to SAFA. To that point, Finlaysons were not aware that the statements had been provided in error. However, as soon as they learned that fact, Mr Shortt-Smith gave an undertaking on behalf of Finlaysons and BNZ not to copy or disclose or allow disclosure of the contents of the documents without giving Fisher Jeffries one week’s notice in writing. The statements have not been provided nor their contents disclosed to any person other than the four initial recipients. Finlaysons has not returned the copies of the statements to Fisher Jeffries.
An Application to Produce the Statements
The inadvertent supply of the statements to Finlaysons is the cause of this application. BNZ now applies for an order that the BT companies produce the statements for inspection. BNZ very properly does not rely on the inadvertent disclosure as constituting waiver of privilege. The inadvertent disclosure is relevant only for the purpose of explaining how BNZ became aware of the statements. It is common ground that the statements of the five witnesses may not be in a final form and that they may not be signed by the witnesses.
It is also common ground that the statements and copies of them are properly the subject of legal professional privilege: Commissioner of Australian Federal Police v Propend (1997) 188 CLR 501. BNZ contends that, by making copies of those documents available to SAFA, the BT companies have waived the privilege.
Standing
The application by BNZ was opposed by both the BT companies and SAFA. The standing of SAFA to be heard on the application may be open to question: compare Waind v Hill and National Employers’ Mutual General Association Ltd [1978] 1 NSWLR 372 with Casley Smith v District Council of Stirling (1989) 50 SASR 454 at 459 ‑ 460. However, no issue as to standing was raised. In any event, counsel for the BT companies adopted the submissions of counsel for SAFA. It is therefore necessary to address the issues advanced on behalf of SAFA and adopted by the BT companies.
The Opposing Contentions
The BT companies and SAFA contend
(1)that, in consequence of the terms of the Settlement Deed, the BT companies and SAFA have a common interest in the outcome of this action so that the communication of copies of the statements by the BT companies to SAFA could not constitute a waiver of privilege; and
(2)that, even if there is no common interest, the communication of the statements was a confidential limited waiver which did not result in a waiver of privilege.
For its part, BNZ contends
(1)there is no common interest privilege;
(2)that, even if there is, the BT companies have intentionally waived that privilege by disclosing the statements to SAFA knowing that SAFA have already waived privilege in respect of the statement of Bell dated December 1998 and the draft affidavit dated 19 December 1998, or alternatively, that in all the circumstances there should be an imputed waiver by operation of law in the interests of fairness; and
(3)that regardless of the issues as to waiver and fairness, the contents of Bell’s statements are central to SAFA’s claim for rectification so that any privilege in them has been lost.
Although both parties argued the question whether the BT companies and SAFA had a common interest in this action, it is neither necessary nor appropriate to determine that issue. It is not necessary because, whether or not a common interest exists, the question whether there has been an express waiver is capable of ready resolution and it is necessary, in any event, to determine whether there should be an implied waiver. It is not appropriate because a complete examination of the question whether a common interest exists requires full reference to the terms of the confidential Settlement Deed between SAFA and the BT companies. The original draft of these reasons included reasons dealing with the common interest question and I had reached a conclusion on that issue. But it is quite impossible to publish useful reasons which will not breach the confidentiality of the terms of the Settlement Deed. This is one instance when it is not appropriate to make any disclosure of the terms of a confidential document even to legal advisers with an obligation to preserve the confidence. However, the terms of the Settlement Deed were disclosed to Ms Harris, who appeared for BNZ, on the hearing of this application It was plainly necessary for her to see the terms of the Settlement Deed for the purpose of arguing the question of common interest.
No Express Waiver
If a common interest exists, it follows there can be no express waiver because the statements had been provided on a confidential basis in order to pursue the common interest.
For the reasons which follow, if there is no common interest, the fact that the BT companies intentionally and deliberately delivered copies of the statements to SAFA did not, I think, constitute an express waiver of privilege. An express waiver requires an intentional act with knowledge of the right to claim privilege: Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326; Commonwealth v Verwayen (1990) 170 CLR 394; Meltend Pty Ltd v Restoration Clinics of Australia Pty Ltd (1997) 75 FCR 511 at 522 ‑ 523. It is quite apparent that the BT companies did not intend to waive privilege. Both the BT companies and SAFA believed that they had a common interest in the outcome of this litigation so that the delivery of their documents to SAFA would not constitute a waiver of privilege. There was, therefore, no express waiver of privilege.
An Implied Waiver?
Without intending to define in advance the circumstances in which waiver of privilege will be implied, it can be said that it occurs when, by reason of some act or omission on the part of the person entitled to the benefit of the privilege, it becomes unfair to maintain the privilege: Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481, 487 ‑ 488, 492 ‑ 493, and 497 ‑ 498. These observations were approved in Goldberg v Ng (1995) 185 CLR 83 at 96 ‑ 97 and in Mann v Carnell (1999) 201 CLR 1 at 14. The privilege will be waived in those circumstances in the interest of fairness, notwithstanding that it was not intended: Wigmore on Evidence (McNaughton rev 1961) Vol 8, para 2327, quoted with approval by Gibbs CJ and by Mason and Brennan JJ in Maurice (supra) at 481, 488 and by Deane, Dawson and Gaudron JJ in Goldberg v Ng (supra) at 96. In that respect, it is a waiver imputed by operation of law: Goldberg v Ng (supra) at 95, Mann v Carnell (supra) at 13. For that reason, implied waiver is sometimes more accurately called “imputed waiver”. Implied waiver is a principle which applies objectively and irrespective of the subjective intention of the party who holds the privilege. It is a principle to be sparingly applied: Newcrest Mining (WA) Ltd v The Commonwealth (1993) 40 FCR 507 at 509.
In this context, fairness means, among other things, that the opposing litigant is not misled: Maurice (supra) per Gibbs CJ at 481 and per Mason and Brennan JJ at 488 who said:
“The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains:
‘[W]hen his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder.’ (Wigmore, Evidence in Trials at Common Law (1961), vol. 8, par. 2327, p. 636.)
In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in waiver as to the rest of the communication on that subject-matter: see Great Atlantic Insurance Co. v. Home Insurance Co. [1981] 1 WLR 529.”
It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of privilege: Mann v Carnell (supra) at 13. “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”: Mann v Carnell (ibid).
It is a necessary corollary of the principle of fairness as it operates in this context that the implied waiver may extend to associated material. As Gibbs CJ observed in Maurice (supra) at 481:
“... the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production.”
See also Dawson J at 497 ‑ 498. If, as Mason and Brennan JJ state in the passage quoted above, the holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of a protected communication, it follows that other associated material may, according to circumstances, have to be disclosed: see the rest of their Honours’ remarks at 485.
What is fair by way of disclosure will ultimately depend on the relevant circumstances: Maurice (supra) per Dawson J at 498 and Goldberg v Ng (supra) at 97. However, it can be said that disclosure to a third party for a limited specific purpose will not necessarily lead to a loss of privilege as against an opposing litigant: Mann v Carnell (supra) at 14 and the cases there cited. It follows that, as these statements were disclosed by the BT companies for the limited purpose of permitting SAFA to use them in this litigation for what both the BT companies and SAFA believed was a common interest in the outcome of the action, the delivery of the statements did not, for that reason, constitute an implied waiver.
The question nevertheless remains whether different considerations affect the privilege attached to the two statements of Mr Bell so that the privilege must be waived in the interests of fairness.
The Statements of Mr Bell
BNZ submits that the interests of fairness require an implied waiver on the part of the BT companies in the case of the two statements of Mr Bell. It grounds that submission on the fact that the BT companies have provided the documents to SAFA knowing that SAFA had already in 1998 expressly waived privilege in respect of both a statement made by Bell in December 1998 and a draft affidavit to be sworn by him. The circumstances in which that waiver occurred in 1998 are these.
In its first version of the statement of claim dated 1 December 1999 and in some of the later versions of it, SAFA had, to the extent necessary, applied for an extension of time pursuant to s 48 of the Limitation of Actions Act 1936. It asserted that the material facts on which it relied were the terms of a statement given by Mr Bell to a solicitor acting for SAFA on 2 and 3 December 1998 which concerned the circumstances of and the terms of the agreement alleged to have been made on 24 July 1985: see para 61 of earlier forms of the statement of claim. In December 1998 the BT companies were not defendants in this action. On 31 January 2000, when the BT companies were defendants in this action, SAFA had discovered in its list of documents
(1)a draft of a statement by Bell dated December 1998;
(2)notes by a solicitor employed by SAFA who had prepared Bell’s first statement; and
(3) a draft affidavit of Bell dated 19 December 1998.
All of these documents have been produced to BNZ and BNZ holds copies. No claim for privilege was made in respect of any one of them.
The principles relating to fairness have been mentioned already. Fairness requires that an opposing party is not misled. Thus, as a general rule, it would not be fair to allow privilege to be waived with respect to a portion of a document or a conversation without requiring disclosure of the rest of it, at least if the document or conversation dealt with one subject matter: Burnell v British Transport Commission (1956) 1 QB 187; Great Atlantic Insurance Co v Home Insurance Co (supra) at 536; and Maurice (supra) per Gibbs CJ at 482, Mason and Brennan JJ at 488, and Dawson J at 497. In Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corporation [No 2] [1981] Com LR 138 at 139, Mustill J took the broader view that:
“... where a party chooses to deploy evidence which would otherwise be privileged the court and the opposition must, in relation to the issue in question, be given the opportunity to satisfy themselves that they have the whole of the material and not merely a fragment.”
That view was approved by the Court of Appeal in Great Atlantic Insurance Co v Home Insurance Co (supra).
The fact that SAFA waived privilege in respect of the statement made by Mr Bell in December 1998 and in the draft affidavit for swearing by him dated 19 December 1998 (I will for convenience refer to both as “the 1998 statements”), means that BNZ has been informed of Mr Bell’s then recollection of the events in 1985. It is possible that BNZ will be misled, and thereby unfairness occur, if it is provided with the first statement of Mr Bell but does not receive the two later statements. The absence of the two later statements might result in quite an inaccurate perception of the tenor of the evidence he might give or of particular facts to which he refers. The possibility of differences between the 1998 statements and the later statements is perhaps greater, given the fact that Mr Bell is being asked to recall events which, in 1998, had occurred 13 years earlier. The later statements may modify the earlier 1998 statements. I acknowledge that, if Mr Bell’s evidence departed from his 1998 statements, he could be cross-examined on his prior inconsistent statement and his actual statement might be tendered pursuant to s 28 of the Evidence Act 1929. However, the question whether privilege in the later statements is waived by operation of law should not, I think, be determined by forensic tactics or strategy but by the principles of fairness which apply in this context. Another possibility is that Mr Bell’s later statements may include facts concerning the telephone conversation on 24 July 1985 and the events flowing from it which are not disclosed in the earlier statement and which might be detrimental to the case of SAFA. Those facts might never be capable of being ascertained by BNZ. That will give rise to even greater unfairness.
When determining whether the later two statements should be produced, I do not regard all of the statements as if they were one document. Plainly, if they were, the later statements would have to be produced. Although they are not one document, to the extent that they represent Bell’s recollection of the relevant evens, they all relate to the same issue. Because privilege has been waived in respect of the 1998 statements, fairness requires that the later statements are also made available to BNZ so that it can ascertain whether Bell’s recollection remains the same or is greater or less or is otherwise qualified. If the statements are not made available, BNZ might have a completely wrong picture of the evidence which Bell might give and thereby be misled. To adapt the already quoted remarks of Mustill J in Nea Karteria, to supply the 1998 statements but not the later statements is to provide a fragment, albeit a substantial fragment, but not the whole of the material.
For these reasons, both of the later statements should be made available to BNZ so that it is not misled and no unfairness results. However, it must be recognised that Mr Bell’s latest statements may contain privileged communications quite unrelated to this litigation. In order to avoid disclosure of such privileged information, the documents should be inspected by a judge or master before an order is made for production of the statement. If the statements are otherwise relevant but contain some privileged material which is quite unrelated to this litigation, that portion of each statement can be masked.
Mr Wells QC, who appeared for SAFA, contended that the decision in Health & Life Care Ltd v Price Waterhouse (1997) 69 SASR 362 mitigated against the conclusion I have reached. But that case is plainly distinguishable on its facts.
For all of these reasons, and primarily in order to avoid the possibility of BNZ being misled, the interests of fairness require disclosure of the latest statement made by Mr Bell subject to inspection of the document by a judicial officer before production to BNZ. As the 1998 statements extend over the whole transaction referring, among other things, to a series of connected events, it would be misleading if what might be a more complete account or an amended account is not made available. The statements are privileged communications while in the possession of the BT companies and their legal advisers. There is an implied waiver because the BT companies, knowing that BNZ have a copy of the 1998 statements of Mr Bell, provided SAFA with copies of his later statements.
In the course of argument, counsel for all three parties stated that I was at liberty to inspect the two statements of Mr Bell if I thought it necessary or appropriate for the purpose of deciding this application. For the reasons just given, it is appropriate to do so. I have, therefore, inspected the later statements made by Mr Bell.
Before summarising the content of the later statements, it is important to note what is contained in the statement made in December 1998 and in the draft affidavit dated 19 December 1998. In those documents, Mr Bell recounts the circumstances in which the BT companies proposed the issue of zero coupon bonds to BNZ and to SAFA, he notes the terms on which the bonds would be issued, and he narrates the circumstances in which the terms of the bonds were agreed by SAFA and BNZ, the telephone conversation on 24 July 1985 as well as the circumstances leading to it and the events which followed it. He also states what he believes was agreed in that conversation on 24 July 1985 and refers to other facts which reinforce his belief.
The second statement was obtained on 16 and 17 March. Broadly speaking, the statement covers the same ground as the earlier statement and affidavit. However, it contains a great deal more detail. In addition, it gives details of his prior experience, the structure of the relevant BT companies, the legal advisers to the BT companies and his own relationship with BT. He also sets out his understanding of the structure of SAFA and BNZ. I do not think that this additional material is privileged. Some of it is simply more detail of what was contained in his December 1998 statement on the structure of the BT companies and of BNZ. If it is privileged, it can be masked. I will hear the parties on that issue. As for the balance, it covers the same subject matter and fairness requires that it be produced for inspection.
The third statement is a more detailed account of the events of 24 to 31 July 1985. It was obtained on 18 April 2000. It includes the telephone conversation of 24 July 1985 and the events which followed it. It is a more detailed account but, as it covers a matter which is critical to the issues in this action which is also dealt with in the first statement, the interests of fairness requires disclosure. That conclusion is reinforced by the fact that the statement made on 16 and 17 March 2000 bears an endorsement
“Bell subsequently requested we amend it and there was a subsequent ph (sic) call on 18 April 2000 incorporated in this statement”.
Plainly, the March 2000 statement would be misleading if the April 2000 statement is not also available.
Fairness does not, however, require disclosure of the statements of the other witnesses. I do not understand BNZ seriously to contend otherwise.
An Issue in the Action?
Finally, Ms Harris, who appeared for BNZ, relied on the principle that, where documents would otherwise be properly the subject of a claim for legal professional privilege, that privilege is lost, if the documents relate, directly or indirectly, to an issue in the action: Thomason v Municipality of Campbelltown (1939) 39 SR(NSW) 347 at 358 ‑ 359; HongKong Bank of Australia Ltd v Murphy [1993] 2 VR 419 at 436; Data Access Corporation v Powerflex Services Pty Ltd [1994] AIPC 91-112; Wardrope v Dunne [1996] 1 Qd R 224 at 226. Given the conclusion that BNZ is entitled to a copy of the statement of Mr Bell, it is unnecessary to deal with this issue. However, it is convenient to dispose of it.
In Standard Chartered Bank of Australia Ltd v Antico (1995) 36 NSWLR 87 at 94 ‑ 95, Hodgson J suggested that the above principle is expressed too broadly. He said that it would be consistent with Maurice to formulate the principle in Thomason v Campbelltown Municipal Council (supra) in this way:
“If a party, by pleadings or evidence, expressly or impliedly makes an assertion about the content of confidential communications between that party and a legal adviser, in fairness to the other party it may mean that this assertion has to be taken as a waiver of any privilege attaching to the communication.”
See also Byrne J in Torcasio Developments Pty Ltd v Country Park Developments Pty Ltd (Unreported, Supreme Court of Victoria, 3 September 1991). The observations of Hodgson J were noted by Davies J in Bayliss v Cassidy (No 2) [2000] 1 Qd R 464 at 468 and expressly approved by Williams J at 475 in that case. The Full Court in this State has also suggested that the principle should not be too broadly stated: Southern Equities Corporation Ltd (in liq) v Arthur Andersen & Co (1997) 70 SASR 166 at 193. For the purposes of dealing with this issue, it matters not which is the correct formulation of the principle.
The argument seeks to elevate the principle, however it is correctly expressed, beyond its true operation. The central issue in this action is whether SAFA is entitled to rectification of the terms of the side letter. An important element of that issue is the telephone conversation on 24 July 1985 to which Mr Bell was a party. Although his statement concerns, among other things, what was said in the course of that conversation and what occurred in consequence of that conversation, his belief as to the effect of the conversation is not the issue in the proceedings. It is simply one of presumably three statements giving accounts of the conversation by each of the participants in that conversation. The position is to be contrasted with the cases above where a person had received advice and put in issue the content of that advice. BNZ is not, therefore, entitled to the statement of Mr Bell on this ground.
Conclusion
For these reasons, I will order that BNZ is entitled to production of the two further statements of Mr Bell but not of the other four statements inadvertently delivered to Finlaysons.
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