TEC Hedland Pty Ltd v The Pilbara Infrastructure Pty Ltd [No 2] - [2019] WASC 181

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   TEC HEDLAND PTY LTD -v- THE PILBARA INFRASTRUCTURE PTY LTD [No 2] [2019] WASC 181
CORAM:   LE MIERE J
HEARD:   30 JANUARY 2019
DELIVERED          :   24 MAY 2019
FILE NO/S:   CIV 3060 of 2017
BETWEEN:   TEC HEDLAND PTY LTD
Plaintiff
AND
THE PILBARA INFRASTRUCTURE PTY LTD
Defendant

Catchwords:

Practice and procedure - Discovery - Legal professional privilege - Whether the plaintiff waived privilege - Defendant's application dismissed - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr D Jackson SC & Ms K R Lendich
Defendant	:	Mr B Dharmananda SC & Ms R Young

Solicitors:

Plaintiff	:	Norton Rose Fulbright Australia
Defendant	:	Corrs Chambers Westgarth

Case(s) referred to in decision(s):

Bennett v Chief Executive Officer of the Australian Customs Service (2004) 140 FCR 101
Mann v Carnell (1999) 201 CLR 1

LE MIERE J:

Summary

The defendant (TPI) terminated a contract known as the Power Purchase Agreement ‑ South Hedland Power Station (PPA), to take electricity from the plaintiff (TECH) to be supplied from a new gas fired power plant in the Pilbara, on the ground that TECH was in breach of the contract. TECH says there are no grounds for the termination.
The dispute is centred on TPI's claims that TECH was unable to meet contractually specified tests (Acceptance Tests) to demonstrate that the plant could run to the specifications outlined in the PPA. TPI says that TECH failed to achieve 'Commercial Operation' and to meet contractual requirements and, as a consequence, TPI was entitled to terminate the PPA.
TECH maintains that it has met the terms of the contract, that all conditions required to establish 'Commercial Operation', including all performance tests, have been achieved under the terms of the PPA.
In this action TECH claims a declaration that the PPA has not been validly terminated by TPI and is binding and enforceable. TECH claims from TPI amounts it says are due under the PPA. TPI says that the PPA was validly terminated and counterclaims a declaration that the PPA was validly terminated by TPI, and an order for the payment of a sum allegedly due pursuant to the PPA.
By summons of 22 November 2018, TPI seeks orders that TECH provide further and better discovery of several documents. The parties are still conferring in relation to some of those documents. These reasons concern discovery of the two emails from TECH's former lawyers, Squire Patton Boggs (SPB), to TECH. These emails are referred to in documents TRA001.001.1754 and TRA001.001.1822 as the 'two other emails from our lawyers' and any attachments to those emails.
TECH claims that the emails are privileged. TPI accepts that they are privileged however claims that TECH has waived privilege in the documents.
For the reasons which follow there has been no waiver of privilege, at least so far, in the emails. The defendant's application will be dismissed.

The action

On 28 July 2014 TECH, TPI and certain other parties entered into the PPA. Under that agreement TECH was to supply electricity to TPI. Also on 28 July 2014, TECH entered into a Development Deed with Horizon Power (Horizon) to construct and commission a power plant and associated plant on a site in the Pilbara.
It is a term of the PPA that its term commences on the day following the later of the Commercial Operation Date (COD) and Guaranteed COD. The COD is the date on which Commercial Operation has been achieved. 'Commercial Operation' will be achieved when the matters in cl 6.3(c) (cl 6.3 Matters) have been satisfied. The cl 6.3 Matters are:
(i)Horizon has issued a 'Commercial Operation Certificate' to TECH;
(ii)all of the Acceptance Tests (set out in Item 1 of Schedule 14) have been completed and the Threshold Values for Substantial Completion or the Test Acceptance Values have been met for each Generator;
(iii)the Facility can safely and reliably deliver sufficient electricity to meet TPI's Requirements in accordance with applicable Laws; and
(iv)TECH has received all Authorisations required to operate and maintain the Facility.
It is a term of the PPA that TPI may terminate the PPA if 'Commercial Operation' is not achieved by the date that is 180 days after the Guaranteed COD. The Guaranteed COD is 28 April 2017. The Facility did not reach 'Commercial Operation' before the Guaranteed COD. TECH says that on 28 July 2017, or alternatively 13 September 2017, Horizon issued to TECH a 'Commercial Operation Certificate', under and in accordance with the Development Deed. TECH says that by 28 July 2017, or alternatively 13 September 2017, all of the Acceptance Tests had been successfully completed, the Facility could safely and reliably deliver sufficient electricity to meet TPI's Requirements in accordance with applicable Laws, and TECH had received all Authorisations required to operate and maintain the Facility. Therefore, TECH says the cl 6.3 Matters were satisfied on 28 July 2017, or alternatively 13 September 2017, and 'Commercial Operation' was achieved on that date.
By letter of 13 November 2017 to TECH, TPI exercised, or purported to exercise, its contractual right under the 180 Day Termination Clause to terminate the PPA. The Termination Notice claimed that:
(a)by reason of the terms of item 1.9(c) of Schedule 14 of the PPA, the Acceptance Tests were required to be conducted at the full load of the Generators;
(b)the Acceptance Tests had not been conducted at full load; and
(c)by reason that the Acceptance Tests had not been conducted at full load the Acceptance Tests had not been completed and Commercial Operation had not been achieved.
Item 1.9 of Schedule 14 of the PPA is to the effect that certain tests shall be conducted concurrently and demonstrate the Facility's ability to meet certain defined levels of electrical output and heat rate.
TPI says that the Termination Notice stated, in effect, and it was the case that:
(i)under the PPA, the Acceptance Tests for the CCGT for net power output were to be conducted by operating the CCGT under sufficient load to ascertain whether the net measured power output it was actually able to achieve, adjusted only for differences between actual test conditions and Reference Conditions, met the applicable criteria;
(ii)such testing had not occurred and Commercial Operation had not been achieved;
The Termination Notice also referred to such testing as testing under full load.
TECH says that it had become aware that full load from the grid might not be available for the Acceptance Tests and that it had discussions with Horizon, TPI and others about maximising grid load for the Acceptance Tests. TECH pleads in its reply that in or about April and May 2017, in light of the lack of full load, TECH and its contractor developed and agreed test procedures for the Acceptance Testing of the Combined Cycle Gas Turbine (CCGT), with the assistance of Black & Veatch (B&V), an engineering firm, which is described as the BV Test Process. TPI did not support the BV Test Process.
Between 14 to 16 June 2017, TECH conducted the Acceptance Testing in accordance with the BV Test Process in circumstances where full load from the grid was not available. TECH says it was necessary to determine the steam turbine generator performance by computation, which computation was undertaken in accordance with the BV Test Process.
TPI says that TECH provided SPB's advice concerning the contractual provisions relating to the Acceptance Tests to B&V to address TPI's issues that Acceptance Testing could not be conducted without full load. TPI says that TECH's purpose in disclosing the SPB advice was to advance its position against TPI. That, TPI says, is inconsistent with the maintenance of privilege in the advice.

The emails

The emails referring to the SPB advice appears in a chain of emails.
On 30 March 2017, Mr Reinhart of B&V sent an email to another B&V employee, Mr Osmundsen. Mr Reinhart said that TransAlta, TECH's parent company, wanted B&V to immediately begin developing performance correction tables for the South Hedland CCGT. They wanted something that would allow them to correct from current operations to a base condition. Mr Reinhart said that TransAlta wanted to correct for ambient, relative humidity (RH), gas turbine load and EVAP+SPRINT on/off.
In essence, TPI says that the testing could not be done under full load, so TECH asked B&V to develop a test or model that would correct for the load that, in fact, was used for the test so as to correct for the result that would have been achieved under full load.
Senior counsel for TPI, Mr B Dharmananda SC, says that the point of the case is that TPI says that such a process is not in accordance with Performance Test Code (PTC) 46 and the PPA. PTC 46 is an American industry standard that outlines procedures for conducting Acceptance Tests to determine the overall thermal performance and output of power generating units. Mr Dharmananda says that the issues in the case will involve the construction of the provisions of the PPA and also the construction and proper understanding of PTC 46.
On 27 April 2017, Mr Reinhart of B&V sent an email to Mr Gettle of TECH. Mr Reinhart said that he was providing an update on where B&V was with supporting the South Hedland EPC Acceptance Test and the PPA/Heat Rate Optimisation efforts. Mr Reinhart said that B&V had provided guidance and suggestions to TransAlta about what would be required and how the performance test could be conducted considering the grid demand limitations. Further, that if B&V were to continue to support that effort, they would want to develop a full set of performance test procedures, along with possibly supporting execution of the test by sending a B&V field performance test specialist to site on behalf of TransAlta.
On 3 April 2017, Karen Herman of TECH had sent an email to various employees at B&V. Ms Herman referred to a meeting earlier that day and said that the actions from the meeting were that as soon as possible, amongst other things, Roger Keyes of B&V was to identify what it will take to: (a) build the model, (b) chop up plant into functional parts to test as close to full component capability as possible, and (c) meet PTC 46 code. So TECH wanted B&V to prepare a process that met the requirements of PTC 46.
On 1 May 2017, Mark Mackay of TECH sent an email to employees at B&V and others providing background for a meeting that was scheduled for later that day. Mr Mackay said that in his view there were several objectives, including to complete plant tests in accordance with PTC 46 and then with that information, compute Net Plant Output and Heat Rate to compare to Guarantees. He said that their key priority was getting alignment on the methodology to complete performance tests of the South Hedland Power Station and that at a high level they were thinking of matters set out, but looked to B&V to help define the scope of work and correct methodology. Mr Mackay said that they would provide results to B&V who they were thinking will use test data to calibrate the engineering model and then compute Net Plant Output and HR. Mr Dharmananda says that at that stage B&V were being given information and being told what TECH wanted it to do.
On 1 May 2017, Mr Mackay sent an email to employees at TECH. He said that TECH needed B&V 'to get us on the right track with this test protocol' and 'it has to be in accordance with PTC 46'.
On 2 May 2017 Perth time (1 May 2017 Kansas time), Mr Mackay sent an email to B&V employees. Mr Mackay referred to a discussion the previous day and attached a few documents that describe test requirements TECH must complete to satisfy their customer agreements and the arrangement they have with their EPC contractor. He referred to Schedule 14 being a schedule attached to the customer agreement which defined Acceptance Tests. Mr Mackay went on to say that TECH must meet the thresholds for HR and Output ‑ 5% margin in both cases relative to the guarantees in the schedules. He asked that the B&V employees confirm that the test method they had discussed the previous day can achieve a result with that margin. Further, to confirm that the test procedures they had discussed meet the requirements of the schedules. Having referred to test requirements, Mr Mackay asked that the B&V employees review those and said that under the current situation they were striving to determine plant HR and Output with an acceptable level of confidence so that they could compare to the Guarantees. He said that TECH needed a test procedure that will help them achieve the outcome. Mr Mackay said:
Note that I will also send you two other emails from our lawyers ‑ one is quite lengthy but provides more background on the PTC 46 requirements under the terms of our customer agreements and the other is some advice from our lawyers regarding PTC 46. I suggest you review those as well to get more insight into our legal position regarding Acceptance Tests and PTC 46.
Following that email, later on 2 May 2017, Mr Mackay sent an email to the B&V employees with the heading 'Confidential and subject to legal professional privilege'. The email stated:
This is the first of two emails I referred to in my earlier message. This is quite lengthy and refers to many elements of our customer agreements that you do not need to review. However there is a section near the end (that I have bolded) that discusses Acceptance Tests and PTC 46 ‑ that is the part you should review and I think underpins the basis of the test procedure we are asking you to prepare for us.
The second of the emails was sent later that day, 2 May 2017, by Mr Mackay to the B&V employees. It is again headed 'Confidential and subject to legal professional privilege'. Mr Mackay stated:
This is the second email I referred to and includes specific comments from our lawyer pertaining to PTC 46. Although PTC 46 is a guideline, careful application is required to test the plant as we have discussed. Please review in relation to the other emails and schedules, and confirm PTC 46 can be applied as discussed.
Mr Dharmananda submitted that TECH provided its legal advice from SPB to B&V for a commercial or forensic purpose. In essence, Mr Dharmananda says there was a dispute between TECH and TPI. Amongst other things, TPI said that part load testing did not meet the contractual requirements.
On 3 May 2017, after B&V had received the two emails with the SPB legal advice, Mr Keyes of B&V sent an email to Mr Mackay in which he said he now had a better understanding of the test requirements, that there was no test tolerance and uncertainty of 1% and 1.5% (Output and HR) must be met. Mr Dharmananda says that it can and should be inferred that B&V considered the SPB legal advice in preparing the BV Test Process.
TECH assert in this case that the tests conducted in accordance with the BV Test Process satisfies the Acceptance Tests and was in accordance with PTC 46 and the requirements in the PPA schedule.

The defendant's argument

TPI says that TECH deployed the legal advice of SPB in the emails (the Squires Emails) for forensic or commercial purposes inconsistent with the maintenance of legal professional privilege. TPI says that TECH provided these Squires Emails to B&V to assist it in seeking to ensure that the BV Test Process was prepared so as to comply with PTC 46. The purpose of this disclosure, TPI says, was not limited and specific but was to give a forensic or commercial advantage to TECH, in circumstances where TPI had made it plain that performance testing without full load would not meet the performance guarantees specified under the PPA.
TPI says that it may be inferred that B&V used the Squires Emails in preparing the BV Test Process. Further, that B&V used the Squires Emails in August 2017 in assisting TECH to justify to TPI that the BV Test Process was compliant with PTC 46. TPI says the forensic or commercial advantage TECH sought to obtain against them included reliance through B&V on the advice in the Squires Emails.

Plaintiff's answer

TECH says that the Squires Emails were disclosed to B&V for a limited and specific purpose and on the condition that B&V maintain the confidentiality of the advice in the emails, and therefore there was no loss of the privilege attaching to the legal advice. TECH says that the substance of the advice contained in the Squires Emails has not been disclosed to TPI or to any party with an interest adverse to TECH, or to any third party at all in a manner which is inconsistent with the maintenance of confidentiality over the emails. TECH says it has made no attempt to rely on, or partially reveal, the contents of the Squires Emails and nothing has occurred that is inconsistent with the maintenance of privilege over the emails.

The relevant law

The relevant legal principles are not in dispute. It is the application of those principles to the circumstances of this case that is in dispute. The basic principles are as follows.
First, as a matter of public policy, all communications between a legal advisor and their client are privileged so long as they are confidential, written by or to the legal advisor in their professional capacity and for the purpose of giving or getting legal advice. The interest which it protects is to ensure that communications between a solicitor and client may be frank and free, and should not emerge into the public domain if litigation is subsequently pursued.
Secondly, a party may waive that privilege.
Thirdly, it is inconsistency between the conduct of the client and maintenance of the confidentiality that effects a waiver of the privilege. What brings about a waiver of legal professional privilege is inconsistency between the conduct of the person entitled to the benefit of confidentiality of communication between lawyer and client and maintenance of the confidentiality. Disclosure by a client of confidential legal advice received by the client will effect a waiver of privilege if such disclosure is inconsistent with the confidentiality that the privilege serves to protect. It does not matter why the disclosure has occurred; it may be for the purpose of explaining or justifying the client's actions or for some other purpose. However, considerations of fairness will be relevant to a determination of whether there is such inconsistency. See Mann v Carnell (1999) 201 CLR 1 [28] ‑ [29].
Fourthly, privilege may not be waived by disclosure of a privileged communication to a third party for a limited and specific purpose and upon terms that the third party would treat the information disclosed as confidential: Mann v Carnell [30] ‑ [32].

Privilege was not waived

I find that B&V did consider the Squire Emails in preparing the BV Test Process. TECH's purpose in disclosing the Squire Emails was to ensure that B&V understood the requirements of PTC 46. The disclosure to B&V was to assist them in preparing a test procedure for use in carrying out and reporting on the Acceptance Tests. B&V did use the Squires Emails for that purpose.
I am not satisfied that the disclosure by TECH to B&V of the SPB legal advice by the Squire Emails is inconsistent with the maintenance of the confidentiality of the SPB legal advice which the privilege is intended to protect.
In Bennett v Chief Executive Officer of the Australian Customs Service (2004) 140 FCR 101 at [68] Gyles J, after referring to the test of waiver in Mann v Carnell, elaborated:
The test looks to inconsistency between the disclosure that has been made by the client on the one hand and the purpose of confidentiality that underpins legal professional privilege on the other. It is not a matter simply of applying general notions of fairness as assessed by the individual judge. The authorities to which I have referred show that it is well established that for a client to deploy the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege.

Senior counsel for TPI, Mr B Dharmananda SC, submitted that TECH had deployed the SPB legal advice for the purpose of B&V developing the BV Test Process to satisfy the Acceptance Tests, comply with PTC 46 and meet its contractual requirements.
In its military connotation 'deploy' suggests that the information is being used in order to effect some advantage. Moreover, the authorities in which waiver has been found to occur have been cases in which some advantage has been sought or has been achieved as a result of using the information in litigation, or in some representation or communication with a person other than the person to whom the client disclosed the information on a confidential basis.
In this case neither TECH nor B&V has revealed the substance of any of the legal advice. TECH has not used, or deployed in any relevant sense, the legal advice in its dealings with TPI or anyone on behalf of TPI.
There has been no waiver of privilege, at least so far, in the Squire Emails in this case.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MS
Associate to the Honourable Justice Le Miere
24 MAY 2019