Tonesports Pty Ltd v Compuline Solutions Pty Ltd - [2001] WASC 313

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: TONESPORTS PTY LTD -v- COMPULINE SOLUTIONS PTY LTD & ORS [2001] WASC 313

CORAM: SCOTT J

HEARD: 25 OCTOBER 2001

DELIVERED : 19 NOVEMBER 2001

FILE NO/S: CIV 1980 of 2001

BETWEEN: TONESPORTS PTY LTD (ACN 076 450 229)
Plaintiff
AND
COMPULINE SOLUTIONS PTY LTD (ACN 060 573 042)
First Defendant
PAUL SYDNEY BARKER
Second Defendant
PAUL JOHN NESCI
Third Defendant
TIMOTHY ALAN MACKAY
Fourth Defendant

Catchwords:

Procedure - Lawyers - Claim of legal professional privilege - Confidential documents (including draft proof of evidence) wrongly misappropriated and given to other party - Allegations of inconsistency between draft proof of evidence and statement of claim - Plaintiff has not waived legal professional privilege

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr C B Edmonds
First Defendant             :     Mr M D Howard
Second Defendant         :     Mr M D Howard
Third Defendant           :     Mr M D Howard
Fourth Defendant          :     Mr M D Howard

Solicitors:

Plaintiff:     Minter Ellison
First Defendant             :     Ilberys
Second Defendant         :     Ilberys
Third Defendant           :     Ilberys
Fourth Defendant          :     Ilberys

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

Attorney‑General for Northern Territory v Maurice & Ors (1986) 161 CLR 475
Baker v Campbell (1983) 153 CLR 52
Commissioner of Australian Federal Police & Anor v Propend Finance Pty Ltd & Ors (1996-97) 188 CLR 501
Grant v Downs (1976) 135 CLR 674
Varawa v Howard Smith & Co Ltd [1910] 10 CLR 382

Case(s) also cited:

Attorney General (NT) v Kearney (1985) 158 CLR 500
BT Australasia Pty Ltd v State of NSW (No 13) [1998] 1229 FCA
Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121
Citicorp Australia Ltd v Cirillo [2000] SASC 219
Esso Australian Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49
Ex parte Bread Manufacturers; Re Truth & Sportsman Ltd (1937) 37 SR(NSW) 242
Farrow Mortgage Services Pty Ltd v Mendall Properties Pty Ltd (1995) 1 VR 1
Grimwade v Meagher [1995] 1 VR 446
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222
Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70
Mallesons Stephen Jacques v KPMG (1990) 4 WAR 357
R v Bell; Ex parte Lees (1980) 146 CLR 141
R v Cox (1884) 14 QBD 153
Rouse v IOOF Australia Trustees [1999] SASC 127
Southern Equities Corporation Ltd v Arthur Andersen & Co (1997) 70 SASR 166
Western Australia v Ward on behalf of Miriuwung Gajerrong Peoples (1997) 76 FCR 492
Williams v Spautz (1992) 174 CLR 509

SCOTT J: The plaintiff in this application is also the plaintiff in several proceedings including CIV 1574 of 2000 in which it as plaintiff sues Compuline Solutions Pty Ltd as first defendant and Paul Sydney Barker as Second Defendant ("the main action"). In the main action, Tonesports Pty Ltd ("Tonesports") has taken action against Compuline Solutions Pty Ltd ("Compuline") and Paul Sydney Barker ("Barker") claiming damages arising out of a contract between Tonesports and Compuline in relation to the acquisition by Tonesports of a computer software direct debit process for use in Tonesports business. It is not necessary to descend into particulars of that action except to say that the plaintiff's claim in the main action is that the first defendant's representations as to the capability of its software package were inaccurate in that it is alleged that the first defendant's software was unable to carry out the functions for which it was acquired. The statement of claim pleads that the plaintiff was to pay the first defendant a minimum fee of $30,000 for each month for a 10 year period.
In the main action the plaintiff claims a declaration that the agreement is void or alternatively damages, interest and orders relating to the termination of the contract. In broad outline and without descending into detail that is the substance of the main action in CIV 1574 of 2000.
In relation to this matter on 13 July 2001, White AUJ made interlocutory orders in the following terms:
"1.Until further order, the first defendant, whether by itself, its directors, officers, servants, agents or otherwise, and the second, third and fourth defendants be restrained and an injunction is granted restraining them from accessing, reading, using, reproducing, distributing, altering, erasing, destroying, communicating the contents of or otherwise dealing with, or permitting or authorising such access, reading, use, reproduction, distribution, alteration, erasure, destruction, communication of, any documents of the plaintiff received by the first defendant, its servants or agents or by the other defendants, in the period 1 May 2001 to 20 June 2001, whether in paper or electronic form, including without limitation the following documents and all copies thereof ('the Documents'):
(a)any communications between the plaintiff and its solicitors and any attachments thereto;
(b)any communications between the plaintiff and the Australian Taxation Office;
(c)any spreadsheets, accounting records and other documents containing financial information concerning the plaintiff,
(d)any communications between the plaintiff and its creditors;
other than those documents passing between the plaintiff's solicitors and the first defendant's solicitors in the course of conducting litigation in proceedings number CIV 1574 of 2000 in this Honourable Court or those produced by the plaintiff in the course of giving discovery in that action.
2.Each defendant make and serve an affidavit, within 10 days from the date of this order, subject to the right to each defendant to claim privilege against self incrimination, deposing to the best of its and his knowledge, information and belief:
(a)in what circumstances, when, from whom and in what form it or he obtained or received any of the Documents, describing each of them by reference to date, author, addressee and contents;
(b)whether, and if so when, and how it or he has published or disclosed the Documents to any person or persons and if so, to whom;
(c)what notes or other writing has been made on or in relation to the Documents and by whom, and when and where such may be inspected.
3.Any of the Documents tendered in evidence on this application be placed in a sealed envelope to be kept with the Court file, such envelope not to be opened except by order of the Court.
4.There be liberty to apply.
5.Costs be in the cause."
The present application is brought before the Court pursuant to the liberty to apply in order for the orders of White AUJ of 13 July 2001.
In order to understand how this matter arises it is necessary to trace some of the history of this matter.
As can be seen from the outline of the main action, the litigation between the plaintiff and the defendants involve substantial sums of money. The action arises out of the acquisition by Tonesports of a business known as "BC The Body Club" which it acquired from Baysilk Holdings Pty Ltd ("Baysilk") on or about 31 December 1996. At the time of the purchase of the business Baysilk was then utilising the first defendant's computer software system which provided for the direct debiting of members' bank accounts in relation to amounts owing to the plaintiff. The contract giving rise to the main action arises out of the contract between Tonesports and Compuline concerning the acquisition of that system.
In the main action, the writ was issued on 18 May 2000 and the statement of claim was filed on 18 August 2000.
The present litigation arises out of the fact that on or about 28 May 2001 Paul Sydney Barker ("Barker") the second defendant in this matter arrived home at his residence and found on his front step an unmarked envelope containing a series of documents apparently relating to the plaintiff's financial position. Those documents were collected by a fellow director of Compuline, Paul Nesci ("Nesci") the third defendant in these proceedings. Nesci examined the documents and in an affidavit of 23 July 2001 testified that to the best of his recollection, the documents consisted of correspondence between Tonesports and the Australian Taxation Office, including management accounts, and a witness statement for James Cowling ("Cowling"), a director of the plaintiff. Nesci in his affidavit of 23 July 2001 said that from the financial documents he "formed the impression that they indicated Tonesports was in a dire financial position".
Nesci further deposes to the fact that on 28 May 2001 he received a series of facsimiles relevant to the main action then further correspondence between Tonesports and the Australian Taxation Office. In his affidavit Nesci said he had no idea who faxed the documents to him. It is apparent from the affidavit material in this action that Tonesports had no idea that its confidential documents had been acquired by somebody in an unauthorised manner and provided without its authority to the party against whom it was litigating.
Nesci, in par 18 and 19 of his affidavit of 23 July 2001 said:
"18.After reviewing the financial and faxed documents, I then carefully read through Cowling's Witness Statement which appeared to me from its format to be likely to be a document prepared by Mr Cowling's solicitors, Minter Ellison, in relation to the Main Action.
19.As I read Cowling's Witness Statement, I formed the view that its contents were in a whole series of respects, utterly inconsistent with allegations made by Tonesports in its Statement of Claim in the Main Action. I therefore got out a copy of the Statement of Claim, placed it on my desk next to Cowling's Witness Statement and went through carefully comparing such documents' contents. As I did this, I made a number of handwritten markings and notes upon Cowling's Witness Statement, marking my observations upon review."
It is not necessary to further outline the steps that Nesci then took in relation to seeking legal advice about the documents that had come to him. It is sufficient to say that Nesci formed the view that the statement of claim in the main action was inconsistent with Cowling's witness statement. Nesci sought legal advice as to what he should do in relation to the documents and decided to try and negotiate a settlement with Tonesports to try and resolve the main action. A meeting was arranged on 7 June which continued on to 11 June in which it became apparent to Cowling that the defendants had obtained confidential documents of the plaintiff. Nesci says that he took the documents that had come to him to these meetings with the plaintiff with the intention of using them in the discussions with the plaintiff. As it transpired Nesci says that neither Cowling nor his co‑director wished to see the documents that he was holding.
Eventually Nesci says that the documents he had obtained were placed in an envelope and given to his solicitors and then by agreement the documents were provided to the Law Society to be retained as a stakeholder until matters in issue between the parties were resolved.
That was the situation when the matter came on for hearing before White AUJ when his Honour made the orders I have earlier outlined.
The defendants now bring the present application pursuant to the liberty to apply granted by White AUJ in order to have access to the draft proof of evidence of Cowling.
In order to understand the way in which counsel for the first defendant framed the application it is necessary to consider the affidavit material directly bearing upon the significance of Cowling's draft witness statement.
In an affidavit sworn 27 September 2001, Cowling says:
"4.Lisa Tuang of Minter Ellison, the plaintiff's solicitors, has since shown me a copy of an unsigned and undated draft statement which document she informs me and I believe to have been included in the documents provided to Minter Ellison by the Law Society on 21 June 2001. If the document described by the first defendant as 'Cowling's Witness Statement' was delivered to the Law Society as stated by Mr Nesci then I believe from an inspection of the plaintiff's computer and correspondence files that this is a copy (but with formatting changes) of a document ('the draft document') described below prepared by Minter Ellison (for which I claim privilege) and received from them by the plaintiff on or about 2 June 2000.
5.The draft document was prepared by Minter Ellison following confidential communications between me and those solicitors for the sole purpose of use in the Supreme Court action numbered CIV 1574 of 2000 ('Main Action'). The draft document was prepared for me to consider and review and as a basis to provide further instructions and comments to Minter Ellison as to the events which led to the institution of the Main Action and to obtain advice from Minter Ellison in relation to the Main Action."
Cowling then in his affidavit described the steps that he took following the preparation of the draft witness statement.
Cowling says that after the preparation of the draft statement and prior to the preparation of the statement of claim he provided Minter Ellison from time to time with instructions. Importantly, Cowling says in par 7 of his affidavit of 27 September 2001:
"Immediately prior to the filing of the statement of claim I was requested by Minter Ellison to affirm the correctness of the matters of fact in the statement of claim. I did so."
It is significant that nowhere in his affidavit does Cowling say that the draft proof of evidence was true and accurate nor does Cowling refer to any inconsistencies between the draft witness statement and the statement of claim. As I have said, however, Cowling does say on oath that he affirmed the correctness of the matters of fact in the statement of claim. It follows in my opinion that if there are any inconsistencies between the draft witness statement and the statement of claim, Cowling's affidavit supports the contention that it is the statement of claim which is correct. That is important when the legal principles surrounding this application fall for consideration as will be discussed later in these reasons.
It should also be mentioned that Cowling in the same affidavit of 27 September 2001 says that he does not know how the defendants came to be in possession of a copy of the draft statement and that he never authorised the release of that statement to any person other than the plaintiff's legal advisers.
Importantly Cowling also says in par 11 of his affidavit of 27 September 2001 that he rejects the defendants' assertion that in instituting the main action or in filing the statement of claim the plaintiff acted for a collateral purpose or abused the process of the Court.
With that background it is then necessary to turn to the legal principles concerning legal professional privilege. There are two aspects of that issue that fall for consideration on this application namely:
1.Whether in all the circumstances legal professional privilege does attach to the draft witness statement and all the circumstances of the case.
2.Whether if legal professional privilege does attach that privilege has been waived.
In dealing with those issues it is first important to note that the witness statement of Cowling was a draft document unsigned by Cowling. Cowling has not affirmed the truth of the contents of the document. The defendants' contention is that the draft witness statement is inconsistent with the statement of claim, so that the statement of claim constitutes an abuse of process. It is contended by the defendant that legal professional privilege will not protect a document which reveals an abuse of process of the Court.
In dealing with the legal issues it is first necessary to see how the claim for legal professional privilege arises. In Grant v Downs (1976) 135 CLR 674 the High Court considered a case concerning a patient in a psychiatric centre who died of broncho‑pneumonia in the hospital grounds. His widow sued for compensation and sought the disclosure of certain reports made to the Department of Health concerning her late husband's death. The application was resisted for a number of reasons including a claim for legal professional privilege. The Court held that legal professional privilege was confined to documents brought into existence for the sole purpose of being submitted to legal advisers for advice or for use in legal proceedings. The Court held that a document which would in any event have been brought into existence for another purpose was not privilege from production after discovery on that ground. In particular, Stephen, Mason and Murphy JJ said at 688-689:
"It is well accepted that the court in allowing production and inspection of documents exercises a judicial discretion. In so doing it needs to scrutinise with care claims of privilege made on the ground now under consideration. It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual. The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence.
In this case it is our opinion that neither the evidence nor the documents themselves sufficiently establish that the purpose of submitting the documents to the respondent's legal advisers was the sole purpose of their being brought into existence."
In my opinion, there is no doubt that in this case the draft witness statement of Cowling was a document brought into existence solely for the purpose of submission to the plaintiff's legal advisers. It is important however to remember that the document was an unsigned draft and not in final form.
In Baker v Campbell (1983) 153 CLR 52 Murphy J considered the history of legal professional privilege and said at 86:
"The privilege does not attach to documents which constitute or evidence transactions (such as contracts, conveyances, declarations of trust, offers or receipts) even if they are delivered to a solicitor or counsel for advice or for use in litigation. It is not available if a client seeks legal advice in order to facilitate the commission of crime or fraud or civil offence (whether the adviser knows or does not know of the unlawful purpose) (see Reg v Cox and Railton [1884] 14 QBD 153; Bullivant v Attorney-General (Vict ) [1901] AC 196; R v Smith (1915) 11 Cr App Rep 229 at 238; but is of course available where legal advice or assistance is sought in respect of past crime, fraud or civil offence. Hence the subject matter of the privilege is closely confined: in brief it extends only to oral or other material brought into existence for the sole and innocent purpose of obtaining legal advice or assistance."
Counsel for the defendants also sought to rely upon the decision of the High Court in Attorney‑General for Northern Territory v Maurice & Ors (1986) 161 CLR 475 which involved the lodging and distributing of a book containing documents in relation to a land claim. The book contained limited reference to otherwise privileged material. The High Court held that by making such a reference to the material the claimants had not waived their legal professional privilege in relation to source materials.

It is important in this case to note that there can be no suggestion that the plaintiff was in any sense waiving its rights in relation to the draft witness statement. It is common ground that however the statement was acquired by the defendants it was without the authority of the plaintiff and contrary to its authorisation. On the materials before me the probability is that the draft witness statement was down loaded from a computer system by somebody who was not authorised to do so and the copy so obtained, together with other confidential documents of the plaintiff provided to the defendant without the plaintiff's authorisation. There was no sense therefore in which it can be said that the plaintiff voluntarily took any steps which could be said to constitute a waiver of its privilege. Unlike the factual situation in Attorney‑General for the Northern Territory v Maurice (supra) where there was voluntary publication of material referring to the privileged documents there was no such voluntary publication in this case.
An important and recent case upon which the defendants relied was Commissioner of Australian Federal Police & Anor v Propend Finance Pty Ltd & Ors (1996-97) 188 CLR 501. That case involved the execution of a search warrant authorised under the Crimes Act (Cth) pursuant to which Australian Federal Police seized documents from the office of a solicitor. The Court in that case had to consider whether the privilege attached to documents which were brought into existence for or in the furtherance of illegal purposes. The majority Brennan CJ, Gaudron, McHugh, Gummow and Kirby JJ held that legal professional privilege attached to a copy document which was provided to a lawyer if the copy was made solely for the purpose of obtaining legal advice or solely for use in legal proceedings even where the original document was not privileged. In that case Brennan CJ considered the basis of a claim for privilege and said at 508:
"The reason why privilege is accorded to a document produced for use in litigation or for the obtaining or giving of legal advice is because 'it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers' Grant v Downs (1976) 135 CLR 674 at 685 per Stephen, Mason and Murphy JJ. Privilege protects the confidentiality of documents produced for the purpose of communication between a potential litigant and the legal adviser and confidentiality facilitates the administration of justice. In Grant v Downs, Stephen, Mason and Murphy JJ said:
'This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure … to the solicitor'."
Brennan CJ at 514 referred to the issue of an ulterior purpose in communication with a legal adviser which is the basis upon which the defendants base their present application and said:
"In determining whether a claim of legal professional privilege can be upheld, it is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege is claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest. Attorney‑General (NT) v Kearney (supra). I state the criterion as 'reasonable grounds for believing' because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something 'to give colour to the charge', O'Rourke v Darbishire [1920] AC 581 at 604, 633; Attorney‑General (NT) v Kearney (supra) a 'prima facie case' that the communication is made for an ulterior purpose The purposes that deny the protection of privilege for a communication (whether documentary or oral) between a client and the client's solicitor or counsel include the furthering of the commission of an offence."
In the same case Deane J said at 522:
"In requiring less than proof of an allegation of crime or fraud to displace legal professional privilege, the law has made a compromise in the public interest between the competing principles which require, on the one hand, the availability of all relevant evidence and, on the other, the protection of professional confidence. It has done so in favour of the availability of all relevant evidence by placing the threshold for the displacement of the privilege a considerable distance short of proof of the allegation of crime or fraud. No doubt that is so because it is in the public interest that the law should not countenance even the possibility of legal professional privilege being raised as a cloak to hide criminal or fraudulent activities. Proof – that is to say, admissible evidence of the existence of the crime or fraud – is not required. It is enough that circumstances are made to appear which sufficiently point to the bona fides and credibility of the allegation. It is apparent that for this purpose hearsay evidence cannot be excluded."
In the same case Gaudron J at 546-547 referred to the need for strong evidence to displace a claim for privilege. The need for strong evidence to displace a claim for privilege is also supported by Kirby J at 592-593.
The defendants also seek to rely upon the passage of O'Conner J in Varawa v Howard Smith & Co Ltd [1910] 10 CLR 382 at 386:
"The result of these authorities I take to be this, that the privilege will not be lost unless in the course of the proceeding in which the evidence is tendered it is definitely charged that the communication was in itself a step in the commission of a crime or preparatory to or in aid of the commission of a crime. The same rule applies where the communication is a step in, or preparatory to, or in aid of what has been called 'civil fraud,' that is the carrying out of a fraud not amounting to a crime, but in respect of which the Civil Courts will give relief. A communication made under any of those circumstances loses the privilege, and it is immaterial whether the solicitor was or was not aware of the criminal or fraudulent purpose of the communication at the time when the communications were going on."
Those general principles need to be applied in this case. It is important to note that the document concerned was, as I have said, a draft, unsigned proof of evidence. The evidence establishes that it was a document prepared solely for the purpose of litigation and that it was prepared prior to the statement of claim. The evidence also establishes that the statement of claim was verified by Cowling as being correct before it was filed and served. In those circumstances, in my opinion, irrespective of any inconsistencies between the draft witness statement and the statement of claim it cannot be said that the draft witness statement was prepared for some purpose which was contrary to the administration of justice.
In all the circumstances therefore, I am unable to conclude that the orders of White AUJ should be varied or that in some way the legal professional privilege which would otherwise attach to the document should not attach in the present circumstances.
The application will be dismissed.

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