Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd
[2015] VSCA 101
•14 May 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2014 0146 | |
| VIC HOTEL PTY LTD and ORS | Applicants |
| v | |
| DC PAYMENTS AUSTRALASIA PTY LTD | Respondent |
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JUDGES: | MANDIE and BEACH JJA and DIXON AJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 8 May 2015 | |
DATE OF JUDGMENT: | 14 May 2015 | |
MEDIUM NEUTRAL CITATION: | [2015] VSCA 101 | |
JUDGMENT APPEALED FROM: | [2014] VSC 535 (Vickery J) | |
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PRACTICE AND PROCEDURE – Application for leave to appeal – Proposed ground that judge erred in refusing to find waiver of legal professional privilege by allegations in a pleading – Trial of Preliminary Question pursuant to O 47 of the Supreme Court (General Civil Procedure) Rules 2005 – Real prospects of success established – s 14C Supreme Court Act1986.
EVIDENCE – Legal professional privilege – Waiver of privilege – Whether privilege waived by a pleading – Communications in respect of legal advice – Privilege holder alleging tort of inducing breach of contract – State of mind of person to whom communications made put in issue – Test for waiver by a pleading considered – Waiver established – s 122 Evidence Act2010 – Mann v Carnell (1999) 201 CLR 1; Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303 followed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr P W Collinson QC with Mr P G Liondas | King & Wood Mallesons |
| For the Respondent | Mr S R Horgan QC with Ms A M Folie | Ashurst Australia |
MANDIE JA:
I agree that leave to appeal should be granted and the appeal allowed for the reasons stated by Dixon AJA and I would also endorse what is said by Beach JA.
BEACH JA:
I have had the advantage of reading in draft form the reasons for judgment of Dixon AJA. I agree for the reasons given by his Honour that there should be a grant of leave to appeal and that the appeal be allowed. I wish to add a few short observations of my own.
As Dixon AJA’s analysis shows, this was a case of issue waiver rather than disclosure waiver, or as some courts have said, an example of disclosure waiver of the Maurice[1] variety.[2]
[1]Attorney-General (NT) v Maurice (1986) 161 CLR 475.
[2]See, for example, Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418, 429 (Olney, Kiefel and Finn JJ). See further, Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634; Sevic v Roarty (1998) 44 NSWLR 287; Liquorland (Australia) Pty Ltd v Anghie (2003) 7 VR 27; and Bailey v Director-General, Department of Land and Water Conservation (2009) 74 NSWLR 333.
The judge at first instance appears to have concentrated his analysis upon cases involving disclosure waiver of a kind where it was contended by one side or the other that a particular step or action taken had disclosed the actual content of the advice over which privilege was claimed. In this, it may be that the parties’ submissions to the judge were not as well targeted as they might have been.
In any event, when one concentrates on the issue raised by the respondent’s pleading of the tort of inducing a breach of contract, one sees that there is an inconsistency of the kind referred to in s 122(2) of the Evidence Act 2008 preventing the respondent from relying upon legal professional privilege to prevent the relevant employees of Next Payments from giving evidence concerning their beliefs about the content of the legal advice received by the respondent so far as it concerns their
knowledge of the existence of binding contracts between DC Payments and the other applicants (Vic Hotel and the Randhawas).
DIXON AJA:
Introduction
A judge in the Trial Division determined, in favour of the respondent (DC Payments), a preliminary point under r 47.04 about waiver of legal professional privilege to which DC Payments is entitled in respect of certain communications of legal advice. The applicants seek leave to appeal from orders that, by the answer to the preliminary question, maintain for the benefit of DC Payments legal professional privilege in those communications. The respondent has filed a notice of contention.
The first applicant for leave to appeal (‘Vic Hotel’) contracted with DC Payments on 17 September 2008 to host an ATM machine at its premises in Warrnambool for an agreed term. The second and third applicants (‘the Randhawas’) similarly contracted on 3 March 2009 with DC Payments to host an ATM machine at their premises. The fourth applicant (Next Payments) is a commercial competitor of DC Payments and has carried on business as a supplier of ATM machines and related services since October 2012. The issue in dispute concerns the claim pleaded against Next Payments. There is no relevant distinction between the position of Vic Hotel and that of the Randhawas and it will be convenient simply to refer in these reasons to the issues as they relate to Vic Hotel.[3]
[3]Similar terms and conditions were used in agreements with other ATM ‘hosts’ and the agreements are generically referred to as the ‘merchant agreements.’
On 21 November 2013, Vic Hotel stopped operating DC Payments’ ATM machine at its premises and on 5 March 2014, DC Payments terminated the agreement on the basis of Vic Hotel’s purported repudiation of it. DC Payments alleges that Next Payments induced Vic Hotel to breach its contract.
Clause 2.2 of the Vic Hotel agreement provided that the agreement between DC Payments and Vic Hotel would, at the end of a five year ‘Initial Period’, automatically renew for a five year ‘extended period’ unless notice was given in accordance with that clause for a specific period for renewal and the other party agreed in writing to the extension for that specific period. In August 2011, DC Payments sought and received legal advice about the validity or enforceability of its terms and conditions, including the renewal clause. The advice was to the effect that the renewal clause was not enforceable.
I noted that DC Payments and Next Payments were commercial competitors, but their relationship was intertwined in this way. The managing director of Next Payments, Mr T Wildash, was formerly the managing director of DC Payments. Mr M Beddoe, who was formerly the Head of Products and General Manager of Pre-Paid cards for DC payments is currently employed by Next Payments and other former sales employees or agents of DC payments, including Mr T Lester, have also been engaged by Next Payments. I will refer to Messrs Wildash, Beddoe and Lester collectively as ‘the senior managers’.
In their former roles with DC Payments, the senior managers exercised oversight or managerial responsibility for procurement and renewal of contracts between DC Payments and merchants and accordingly were aware of the general nature and terms and conditions of contracts between DC Payments and merchants. The sales staff also had knowledge of the common and standard terms and conditions of contracts between DC Payments and merchants. While employed by DC Payments, the senior managers, in around late 2011 and early 2012, became aware of the legal advice.
As the preliminary question was determined solely by reference to the pleadings, I will set out from the pleadings the relevant allegations against Next Payments in respect of the Vic Hotel agreement.
Pleadings
By its amended statement of claim dated 14 July 2014, DC Payments alleged that Vic Hotel repudiated its agreement with it by seeking to terminate the agreement before the expiry of the term. DC Payments alleged that Next Payments induced Vic Hotel to breach their agreements with DC Payments by terminating those agreements before the expiry of the term and that Next Payments had engaged in, and continued to engage in, conduct with the intention of persuading, inducing or procuring other merchants to breach their ATM agreements with DC Payments. The key allegations are made in paragraphs 15–18.
The issues raised by paragraph 15 were, relevantly:[4]
[Claim]15. Next Payments knew of the agreement between Vic Hotel and the plaintiff.
[4]The pleadings set out are limited to the issues between DC Payments and Next Payments.
Particulars
In an email dated 19 November 2013 from Damien McGrath of Next Payments to Brian Gleeson of Vic Hotel, Damien McGrath made express reference to the agreement between Vic Hotel and the plaintiff, including reference to the ‘rollover clause’ in the agreement.
Damien McGrath was formerly retained by the plaintiff as a sales agent, and in that role in 2005 he was involved in negotiating an agreement between the plaintiff and Vic Hotel for the supply of an ATM to Vic Hotel.
[Defence]As to paragraph 15:
(a) Next Payments:
(i)admits that it knew that Vic Hotel and the plaintiff had an agreement in relation to the Vic Hotel ATM;
(ii)admits that it knew that the Vic Hotel Terms and Conditions Document contained a clause that purported to provide that the contract was for a term of 10 years, subject to the operation of clause 2.2(a) and (b);
(iii)otherwise does not admit the matters alleged therein;
...
Paragraph 16 made the allegations critical to the preliminary question.
[Claim]16. Next Payments knew that Vic Hotel would be in breach of its obligations to the plaintiff under the Vic Hotel agreement if Vic Hotel were to:
(a)terminate the Vic Hotel agreement before the end of the Term otherwise than as provided for by the agreement;
(b)allow the placement of any ATM not supplied by the plaintiff (or like equipment capable of dispensing physical cash) on its premises; or
(c) fail to keep the plaintiff’s ATM in proper operation.
Particulars
The following employees or agents of Next Payments were previously retained or employed by the plaintiff as sales agents or in roles involving supervision of sales agents: Tyson Lester, Luke Hawes, John Bakker, Mike Ardon, Damien McGrath, Patricia Bentley, Ashley Hicks, Chris Egan-Lee, David Quinert, Justin Carter, Michael Blackburn and Glen Bollinger. Accordingly, each of these former employees and agents has knowledge of the common and standard terms and conditions of contracts between the plaintiff and merchants.
Timothy Wildash, the current Managing Director of Next Payments, was formerly the Managing Director and Chief Executive Officer of the plaintiff, and Mark Beddoe, currently employed by Next Payments, was formerly the Head of Products and General Manager of Pre-Paid Cards at the plaintiff. In those roles with the plaintiff, Timothy Wildash and Mark Beddoe exercised oversight and/or managerial responsibility for the procurement and renewal of contracts between the plaintiff and merchants and accordingly are aware of the general nature of the terms and conditions of contracts between the plaintiff and merchants.
The plaintiff refers to and repeats the particulars to paragraph 15 above.
[Defence] As to paragraph 16:
(a) Next Payments denies paragraph 16 and says that:
(i)the plaintiff and its employees or agents (including individuals who subsequently became employees or agents of Next Payments), at all material times considered that its contracts with merchants were for terms of 5 years (or such other period as was noted under the section headed ‘Agreement Term’ or ‘Key Dates’ on the Application Form for that merchant);
(ii)in or about 2011 the plaintiff sought legal advice about the enforceability of its pro forma terms and conditions and in particular the provisions purporting to extend its agreements with merchants beyond the ‘Initial Period’ of 5 years for a further period of 5 years (Renewal Clause), and the plaintiff was advised that the Renewal Clause was likely to be unenforceable;
Particulars
In or about 2011, the plaintiff sought legal advice from Scott Munro at Soho Lawyers as to the enforceability of the Renewal Clause. Mr Munro in turn sought an opinion from a barrister. Mr Munro informed Adam Olding, a lawyer employed by the plaintiff, that counsel’s advice was that the Renewal Clause was unenforceable. Mr Olding and/or Sarah Wilson, both lawyers employed by the plaintiff, advised the plaintiff that their view and/or the view of counsel was that the Renewal Clause was unenforceable. Further particulars may be provided after discovery.
(iii)the advice referred to in sub-paragraph (ii) was made known to employees and agents of the plaintiff who subsequently became employees or agents of Next Payments;
Particulars
Timothy Wildash, then CEO of the plaintiff and now the Managing Director and CEO of Next Payments, became aware of the advice in or about 2011 following conversations with Adam Olding and/or Sarah Wilson of the plaintiff. In particular, Mr Olding said to Mr Wildash that:
(A)in his view the Renewal Clause was not enforceable and had no substance as a matter of Australian law;
(B)advice had been received to the effect that the Renewal Clause was not enforceable.
Tyson Lester, then an employee of the plaintiff and now an employee and senior executive of Next Payments, was present at a meeting in or about March 2012 in connection with the potential acquisition by DirectCash Payments Inc, through its wholly owned Australian subsidiary DCP Holdings Australia Pty Ltd, of Customers Limited (which was the parent company of the plaintiff). During the course of this meeting, Jeff Smith (of DirectCash) asked Adam Olding why the Renewal Clause had changed from 5 years to 1 year (which had occurred at some time in or around late 2010 or early 2011). Mr Olding said that counsel’s advice had been sought, and that the advice was that the 5 year automatic Renewal Clause was unenforceable.
Mark Beddoe, then an employee of the plaintiff and now an employee and senior executive of Next Payments, in or about 2011 had discussions with Mr Olding about the Renewal Clause in which Mr Olding stated that:
(A)in his view the Renewal Clause was not enforceable;
(B)he had had discussions with external lawyers who also thought that the Renewal Clause was unenforceable, and that they were going to seek counsel’s advice on the issue;
(C)he had received counsel’s advice, and that advice was that the Renewal Clause was not valid and could not be enforced.
Further particulars may be provided after discovery.
(iv)by reason of the matters in sub-paragraphs (i) to (iii) above, the plaintiff and Next Payments at all material times considered that any terms in the plaintiff’s pro forma terms and conditions purporting to extend the term for a further period of 5 years, or to provide for an automatic renewal or rollover, were not binding or enforceable;
Particulars
Next Payments refers to and repeats the particulars to paragraph 16 of the amended statement of claim, where the plaintiff alleges that Next Payments’ corporate knowledge is constituted by the knowledge of various of its employees and agents who were former employees of the plaintiff, including Messrs Wildash, Lester and Beddoe, such knowledge being acquired when those employees were previously employed by the plaintiff and including the knowledge referred to in the particulars to paragraph 16(a)(iii) above.
Further or alternatively, the knowledge of Messrs Wildash, Lester and/or Beddoe is, relevantly, the knowledge of Next Payments as:
(A)at all material times Mr Wildash has been, or been part of, the directing mind and will of Next Payments. In particular:
(i)at all material times Mr Wildash was the Chief Executive Officer and Managing Director of Next Payments;
(ii)since November 2013, Mr Wildash has been the only executive director of Next Payments;
(iii)at all material times Mr Wildash has had ultimate managerial responsibility for all parts of Next Payments’ business, including the entry by Next Payments into contracts with merchants;
(B) further or alternatively, Mr Lester:
(i)at all material times has been, or been part of, the directing mind and will of Next Payments;
(ii)alternatively, at all material times has been, or been part of, the directing mind and will of Next Payments in relation to its entry into contracts with merchants;
(iii)in particular:
(a)at all material times has been a member of Next Payments’ senior management, reporting directly to Mr Wildash;
(b)since about August 2013 has managed Next Payments’ sales force (which is currently approximately 18 people), being those employees and agents with responsibility for selling contracts to merchants, and has had direct managerial responsibility for the entry by Next Payments into contracts with merchants;
(C) further or alternatively, Mr Beddoe:
(i)at all material times has been, or been part of, the directing mind and will of Next Payments;
(ii)alternatively, at all material times has been, or been part of, the directing mind and will in relation to Next Payments’ entry into contracts with merchants;
(iii)in particular:
(a)at all material times has been a member of Next Payments’ senior management, reporting directly to Mr Wildash;
(b)at all material times has acted as the Chief Executive Officer when Mr Wildash is absent or unavailable;
(c)prior to about August 2013 had direct managerial responsibility for Next Payments’ sales force, being those employees and agents with responsibility for selling contracts to merchants.
(iv)In May 2013, Next Payments sought legal advice as to the validity of the Renewal Clause. The advice received by Next Payments was that:
(A)the pro forma terms and conditions in fact provide for a 10 year agreement, and clause 2.2 simply provides for an adjustment to the 10 year term provided the parties agree;
(B)the fact that the agreement is a 10 year agreement does not appear to have been explained to merchants, and this likely constitutes misleading or deceptive conduct and unconscionable conduct;
(C)where an agreement with a merchant (ATM Agreement) is sold as a 5 year agreement, and the 10 year nature of the agreement is not explained, the merchant would be able to avoid liability for the second 5 year period under the ATM Agreement on the basis of unconscionability and misleading or deceptive conduct;
(D)clause 2.2 of the pro forma terms and conditions, which purports to bind a merchant for a period of up to 10 years, is not likely to be upheld as binding or enforceable by a court.
Particulars
Joint Memorandum of Advice of Michael Heaton QC and John C Simpson dated 17 May 2013.
(b)Next Payments says that by reason of the matters in sub-paragraph (a) above, it had an honest and bona fide belief at all material times that:
(i)Vic Hotel, and any other merchant, would not be in breach of its agreement with the plaintiff if the merchant sought to end that agreement after 5 years (or any other period of time set out in the Application Form for that merchant).
(ii)further or alternatively, any Renewal Clause in the agreement between the plaintiff and Vic Hotel, and any other merchant, was void, voidable and/or unenforceable, and the agreement was therefore for a term of 5 years only (or any other period of time set out in the Application Form for that merchant);
(c)...
[Reply] As to paragraph 16:
(a)the plaintiff objects to paragraphs 16(a)(ii)-(iv) and says those paragraphs ought to be struck out, on the basis that the paragraphs disclose the content of a document and communications over which the plaintiff claims legal professional privilege and such privilege has not been waived.
(b)as to paragraph 16(a)(iii), the plaintiff says that any disclosure of advice received by the plaintiff to its employees or agents is not knowing and voluntary disclosure of advice and does not waive the plaintiff’s legal professional privilege over the advice either at common law or pursuant to section 122(2) of the Evidence Act 2008 (Vic);
(c)as to paragraph 16(a)(iv), the plaintiff:
(i)says that each of Timothy Wildash, Tyson Lester and Mark Beddoe had ongoing obligations of confidence to the plaintiff following the termination of their employment with the plaintiff, including in respect of the content of any legal advice received by the plaintiff about which each of them became aware while employed by the plaintiff;
(ii)says that the content of documents and communications over which the plaintiff claims legal professional privilege where such privilege has not been waived, did not form part of the knowledge of Next Payments and cannot be imputed to the corporate mind of Next Payments;
(iii)otherwise denies paragraphs 16(a)(iv).
(d)save that the plaintiff admits that in May 2013, Next Payments obtained a memorandum of advice from Michael Heaton QC and John C Simpson, the plaintiff otherwise denies paragraph 16(a)(v).
Particulars
As to sub-paragraph (c)(i) above:
In respect of Wildash, the plaintiff refers to:
(A)the terms of the Executive Services Agreement between Wildash and Customers Limited (now DC Payments Pty Ltd) dated 11 August 2011, including clauses 11 and 12;
(B)duties implied by law as a necessary incidence of the employment relationship between Wildash and Customers Limited, including Wildash’s duties to preserve and maintain the confidentiality of DC Payments’ and DC Payments Australasia’s confidential information, and duties to not use or disclose knowledge of any confidential information obtained in the course of his employment;
(C)the terms of the Deed of Release between Wildash and Customers Limited dated 5 March 2012, including clause 2.4.
In respect of Lester, the plaintiff refers to:
(A)the terms of the employment agreement between Lester and Customers Limited 1 July 2009, including clause 10;
(B)duties implied by law as a necessary incidence of the employment relationship between Lester and Customers Limited, including Lester’s duties to preserve and maintain the confidentiality of DC Payments’ and DC Payments Australasia’s confidential information, and duties to not use or disclose knowledge of any confidential information obtained in the course of his employment.
In respect of Beddoe, the plaintiff refers to:
(A)the terms of the employment agreement between Beddoe and Customers Limited dated 25 November 2009, including clause 10;
(B)duties implied by law as a necessary incidence of the employment relationship between Beddoe and Customers Limited, including Beddoe’s duties to preserve and maintain the confidentiality of DC Payments’ and DC Payments Australasia’s confidential information, and duties to not use or disclose knowledge of any confidential information obtained in the course of his employment;
(C)the terms of the Deed of Release between Beddoe and Customers Limited dated 3 August 2012, including clause 7.
As to sub-paragraph (c)(ii) above:
(A)at all material times, Wildash, Lester and Beddoe were not the directing mind and will of Next Payments such that confidential and privileged information they might have received whilst employees of the plaintiff might have become Next Payments’ corporate knowledge;
(B)from 29 October 2012 until 10 July 2013, Peter Campigli was the sole director of Next Payments;
(C)from 11 July 2013 until 1 September 2013, there was a three member board of Next Payments comprising Peter Campigli, Daniel Phillips and David Standen;
(D)it was not until 2 September 2013 that Wildash was appointed to the Board of Next Payments. As at 20 August 2014, there is a four member board of Next Payments comprising Peter Campigli, Daniel Phillips, David Standen and Timothy Wildash;
(E)at the time each of Wildash, Lester and Beddoe allegedly became aware of the content of the plaintiff’s legal advice, being between 2011 and March 2012, none of them could have owed to the fourth defendant a duty to impart that information to the fourth defendant because the fourth defendant did not then exist. Nor at the time of allegedly becoming aware of the content of the plaintiff’s legal advice did Wildash, Lester or Beddoe constitute the directing mind and will of the fourth defendant because the fourth defendant did not then exist.
The remaining allegations that complete the cause of action being alleged were:
[Claim]17. With the knowledge pleaded in paragraphs 15 and 16 above, Next Payments:
(a)offered to enter into an agreement with Vic Hotel for the supply of an ATM;
(b)advised Vic Hotel that the Vic Hotel agreement was not enforceable;
(c)prepared the text of a letter for Vic Hotel to send to the plaintiff to terminate the Vic Hotel agreement; and
(d)gave Vic Hotel an undertaking that Next Payments would pay all costs associated with any proceedings issued by the plaintiff for Vic Hotel ending the Vic Hotel agreement.
Particulars
Meeting on 19 November 2013 between Damien McGrath of Next Payments and Brian Gleeson of Vic Hotel.
Email dated 19 November 2013 from Damien McGrath of Next Payments to Brian Gleeson of Vic Hotel.
[Defence] As to paragraph 17:
(a)as to the allegation of knowledge, Next Payments refers to and repeats 15 and 16 above;
(b) subject to sub-paragraph (a) above, Next Payments:
(i)admits that Damien McGrath of Next Payments prepared the email of 19 November 2013 referred to in the particulars under paragraph 17 of the amended statement of claim;
(ii)admits that Damien McGrath met with Brian Gleeson on or about 19 November 2013;
(iii)otherwise does not admit that matters alleged in subparagraphs (a) to (d) of paragraph 17;
…
[Claim]18. By the above conduct, Next Payments intended to persuade, procure or induce Vic Hotel to breach the Vic Hotel agreement with the plaintiff and to enter into an agreement with Next Payments to supply an ATM.
[Defence]As to paragraph 18:
(a)Next Payments denies paragraph 18 and refers to and repeats paragraphs 15 to 17 above.
(b)...
[Claim]19. Next Payments’ conduct referred to in paragraph 17 above resulted in Vic Hotel wrongfully repudiating the Vic Hotel agreement.
[Defence]Next Payments denies paragraph 19.
DC Payments then alleges that Next Payments has engaged in, and continues to engage in, conduct with the intention of persuading, inducing or procuring merchants to breach their ATM agreements with DC Payments.
On 17 April 2014, DC Payments applied for an interlocutory injunction to restrain Next Payments from engaging in that conduct, but that application was withdrawn on 13 June 2014. In its evidence in response to the application, Next Payments filed and served an affidavit sworn by Mr Beddoe that referred to the legal advice communicated to Messrs Wildash, Beddoe and Lester when employed by DC Payments. The circumstances of communication of the legal advice to the senior managers identified in the affidavit were incorporated into amended pleadings as particulars.
On 23 July 2014, DC Payments applied for orders that the defendant not adduce evidence of legal advice provided to DC Payments into evidence in the proceeding and that certain paragraphs of the defence and of Mr Beddoe’s affidavit be struck out. When that application came on, the primary judge directed that the application should be resolved by a r 47.04 preliminary question. Counsel for the defendants (applicants) advised the court that the pleading of the statement of claim was the only basis on which they contended there had been waiver of privilege. The parties were content to have the preliminary question determined solely by reference to the pleadings. The applicants did not challenge that legal professional privilege existed in the communications in respect of the legal advice. Neither party relied on evidence at the hearing of the preliminary question.
The preliminary question was framed, and answered, as follows:
Whether, in relation to the defendants’ [amended] defence dated [20] August 2014:
a)paragraphs 16(a)(ii)-(iv);
b)paragraph 20V(d);
c)paragraph 39Q(d); and
d)paragraph C (the fourth bullet point) of the particulars to paragraph 40(b)(iii);
or any and which of them, disclose the content of a document and communications which are the subject of legal professional privilege which has not been waived at common law or which has not been lost by operation of s 122 of the Evidence Act 2008.
The answer is: Yes.
The primary judge’s reasoning
The primary judge identified the issue before the court to be whether DC Payments, by filing and serving its amended statement of claim dated 14 July 2014, had waived privilege over the communications identified in paragraph 16(a) of the defendant’s defence dated 20 August 2014. After setting out the relevant parts of the pleading and the parties’ submissions, the judge identified the applicable legal principles to be found in s 122 of the Evidence Act 2008, which intended to import into the Evidence Act the common law test for waiver stated in Mann v Carnell.[5] The judge identified a close alignment between the statutory law test for waiver and the common law test, stated in Mann v Carnell, that in order to establish implied waiver, there must be an inconsistency between the privilege holder’s conduct and the maintenance of the confidentiality which the privilege is intended to protect and, depending on the circumstances of the case, considerations of fairness may be relevant to a determination of whether there is such inconsistency.
[5](1999) 201 CLR 1.
The judge referred to the discussion of the relevant principles in two intermediate appellate decisions, Telstra Corporation Ltd v BT Australasia Pty Ltd[6] and Chen v City Convenience Leasing Ltd[7] and in a number of single judge cases, in particular, referring to the review of earlier authorities undertaken by Ward J (as she then was) in The Matter of Idoport Pty Ltd (in liq) (recs apptd); NAB v Sheahan.[8] The judge cited, with apparent approval, her Honour’s list of the considerations that emerged from her review of the authorities. The judge did not appear to have been referred to this court’s decision in Esso Australia Resources Pty Ltd and Anor v BHP Billiton Petroleum (Bass Strait) Pty Ltd.[9]
[6](1998) 85 FCR 152.
[7][2005] NSWCA 297.
[8][2012] NSWSC 58, [67].
[9][2007] VSCA 224.
Finally, noting that he was bound by the recent High Court decision in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd,[10] the judge then stated the test he would apply:
Following recent authority, the question then boils down to whether the pleadings advanced by a party make express or implied assertions about the content of privileged communications while at the same time the pleading party seeks to maintain the privilege. If so, an inconsistency with maintenance of legal professional privilege arises, such that it would be unfair to maintain the privilege, and it will be lost by waiver.
In this case in relation to inconsistency, more particularly, the first question becomes, do the pleadings of DC expressly refer to a privileged communication as a material fact or particularise a material fact by reference to an otherwise privileged communication?
If so, the second question becomes, in these circumstances, is such conduct inconsistent with the maintenance of the privilege, such that it would be unfair to maintain the privilege?
[10](2013) 250 CLR 303.
Noting that the tort of inducing a breach of contract is an intentional tort and that the requisite knowledge is an aspect of the intention that must be proved,[11] the judge accepted that DC Payments’ plea of inducing breach of contract put in issue the state of mind of Next Payments at the relevant time. The judge accepted that the legal advice might well be relevant to this issue. He concluded that the plaintiff’s statement of claim did not make express or implied assertions about the content of privileged communications either as a material fact or as a particular to a material fact pleaded. Simply putting in issue the state of mind of Next Payments was insufficient to justify a finding that by its conduct in pleading its case, DC Payments had acted in a manner that was inconsistent with the maintenance of legal professional privilege over the legal advice. There was, accordingly, no inconsistency between the case pleaded by DC Payments in its statement of claim and the maintenance of its privilege.
[11]Referring to Short v The City Bank of Sydney (1912) 15 CLR 148, 160 (Isaacs J), Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26, 43 and OBG Ltd v Allan;Douglas v Hello! Ltd; Mainstream Properties v Young [2008] 1 AC 1, [39].
Issues on the application
The subject judgment is plainly interlocutory. In order to be granted leave to appeal, the applicants must demonstrate, pursuant to s 14C of the Supreme Court Act 1986, that they have a ‘real prospect of success’ on the proposed appeal.[12]
[12]Kennedy v Shire of Campaspe [2015] VSCA 47.
Should leave be granted, the issues in the appeal would be:
(a)whether the primary judge erred in failing to hold, and ought to have held, that by its pleading:
(i) DC Payments had acted in a way that was inconsistent with the maintenance of the confidentiality which the privilege was intended to protect; and
(ii) DC Payments had waived privilege in the Legal Advice;
(b)whether the primary judge erred in failing to hold, and ought to have held, that DC Payments acted inconsistently with the maintenance of privilege by:
(i) expressly alleging that Next Payments knew that merchants including Vic Hotel and the Randhawas would be in breach of their contracts by reason of knowledge acquired by former employees and agents of DC Payments while they were employed by DC Payments; and
(ii) at the same time seeking to enforce confidentiality over knowledge acquired by those former employees and agents while they were employed by DC Payments that the Renewal Clause was unenforceable;
(c)whether the primary judge erred in holding, at [71] and [80], that whether there had been a waiver of legal professional privilege turned on whether DC Payments’ Amended Statement of Claim expressly referred to a privileged communication as a material fact or particularised a material fact by reference to an otherwise privileged communication;
(d)whether the primary judge erred in holding, at [70], that to establish a waiver of legal professional privilege DC Payments’ Amended Statement of Claim had to make express or implied assertions about the content of privileged communications;
(e)whether the primary judge erred in holding, at [81], that DC Payments’ Amended Statement of Claim did not make implied assertions about the content of privileged communications; and
(f)(in respect of the notice of contention) whether the judgment of the primary judge should be affirmed on the basis that a party who is entitled to privilege over legal advice will not waive privilege over that advice merely by pleading another party’s state of mind.
The grounds of appeal reduce to two primary issues. First, whether DC Payments has, by its pleading, acted inconsistently with the maintenance of legal privilege in the communications[13] and secondly, whether the judge applied the correct test.[14] The respondent filed a notice of contention asserting that the judgment can be affirmed on the basis that a party who is entitled to privilege over legal advice will not waive that privilege merely by pleading another party’s state of mind without referring to any privileged communications.
[13]This issue encapsulates the issues raised by grounds 1, 2 and 5 of the applicants’ proposed notice of appeal. See paragraph [26] (a), (b), and (e).
[14]Grounds 3 and 4 of the applicants’ proposed notice of appeal. See paragraph [26] (c) and (d).
For the following reasons, I consider that the proposed appeal has real prospects of success.
The applicable test
I accept the applicants’ submission that the judge applied a wrong test, as he focused on a narrower question of whether the pleadings made any express or implied assertions about the content of the privileged communications, either as a material fact or as a particular to any material fact pleaded. All that was called for was an orthodox application of the principles in s 122 of the Evidence Act2008 and in Mann v Carnell.
There is no doubt that a party may waive legal professional privilege by the mere institution of proceedings.[15]
[15]Esso Australia Resources Pty Ltd and Anor v BHP Billiton Petroleum (Bass Strait) Pty Ltd [2007] VSCA 224, [14].
In Mann v Carnell,[16] the plurality stated the common law principles applicable to waiver of legal professional privilege to be:
Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege …
Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is ‘imputed by operation of law’. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege … What brings about the waiver is the inconsistency, which the courts, when 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. (Citations omitted)
[16](1999) 201 CLR 1, 13 [28]–[29] (Gleeson CJ, Gaudron, Gummow and Callinan JJ).
As the primary judge correctly observed, s 122 of the Evidence Act was introduced as part of the 2008 amendments to uniform evidence legislation in Australia, and is intended to import into the Act the common law test for waiver. As the law has developed, there is now a close alignment between the common law and the Act in relation to waiver of legal profession privilege. The section reads:
Loss of client legal privilege—consent and related matters
(1)This Division does not prevent the adducing of evidence given with the consent of the client or party concerned.
(2)Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.
(3)Without limiting subsection (2), a client or party is taken to have so acted if—
(a)the client or party knowingly and voluntarily disclosed the substance of the evidence to another person; or
(b)the substance of the evidence has been disclosed with the express or implied consent of the client or party.
(4) The reference in subsection (3)(a) to a knowing and voluntary disclosure does not include a reference to a disclosure by a person who was, at the time of the disclosure, an employee or agent of the client or party or of a lawyer of the client or party unless the employee or agent was authorised by the client, party or lawyer to make the disclosure.
(5)A client or party is not taken to have acted in a manner inconsistent with the client or party objecting to the adducing of the evidence merely because—
(a)the substance of the evidence has been disclosed—
(i)in the course of making a confidential communication or preparing a confidential document; or
(ii) as a result of duress or deception; or
(iii) under compulsion of law; or
(iv)if the client or party is a body established by, or a person holding an office under, an Australian law—to the Minister, or the Minister of the Commonwealth, the State or Territory, administering the law, or part of the law, under which the body is established or the office is held; or
(b)of a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person; or
(c)of a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to the proceeding or an anticipated or pending proceeding in an Australian court or a foreign court.
In Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd,[17] the High Court stated:
According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right (or privilege) by acting in a manner inconsistent with that right (or privilege). It may be express or implied. In most cases concerning waiver, the area of dispute is whether it is to be implied. In some cases waiver will be imputed by the law with the consequence that a privilege is lost, even though that consequence was not intended by the party losing the privilege. The courts will impute an intention where the actions of a party are plainly inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.
In Craine v Colonial Mutual Fire Insurance Co Ltd, it was explained that ‘”[w]aiver” is a doctrine of some arbitrariness introduced by the law to prevent a man in certain circumstances from taking up two inconsistent positions ... It is a conclusion of law when the necessary facts are established. It looks, however, chiefly to the conduct and position of the person who is said to have waived, in order to see whether he has “approbated” so as to prevent him from “reprobating”’. In Mann v Carnell, it was said that it is considerations of fairness which inform the court's view about an inconsistency which may be seen between the conduct of a party and the maintenance of confidentiality, though ‘not some overriding principle of fairness operating at large.’
Those considerations, articulated in relation to waiver at common law, apply with equal force in relation to the statutory question posed by s 122(2) of the Evidence Act, and made applicable by s 131A of that Act to the determination of a question of waiver of client legal privilege arising in the context of pre-trial discovery. That question is whether the client or party concerned ‘has acted in a way that is inconsistent with the client or party objecting to’ the production of a document. (Citations omitted)
[17](2013) 250 CLR 303.
The test for waiver is not whether the pleadings made any express or implied assertions about the content of the privileged communications, pleaded either as a material fact or as a particular to any material fact, which might be inconsistent with maintenance of the privilege. Rather, it is whether the privilege holder, DC Payments, by its conduct in its pleading of the state of mind of Next Payments, acted in a way that was inconsistent with its objection to Next Payments adducing evidence that would result in disclosure of its knowledge of the privileged legal advice. Put another way, was DC Payments’ conduct in pleading a state of mind of Next Payments inconsistent with the maintenance of confidentiality in communications relevant to that state of mind.
It is the privilege holder’s conduct that effects waiver. Here, waiver is not the consequence of the privilege holder’s disclosure of confidential communications to the senior managers; it is the consequence of the issue that was pleaded. Where the privilege holder puts into issue the state of mind of another who is aware of the confidential communications, the waiver of the privilege is in relation to the issue. I doubt that it is open to another party to litigation to force waiver of a party’s legal professional privilege by making assertions about, or seeking to put in issue, that party’s state of mind,[18] but that is not this case.
[18]Cf. The Commonwealth of Australia v Temwood Holdings Pty Ltd & Ors [2002] WASC 107, [10].
I would add that, prior to the Evidence Act, this court, in Esso Australia Resources Pty Ltd and Anor v BHP Billiton Petroleum (Bass Strait) Pty Ltd,[19] considered the principles of implied waiver of legal professional privilege where the issues raised by a pleading were inconsistent with the maintenance of confidentiality in privileged communications. The applicable principles were not there in contest; rather it was asserted that the primary judge misapplied those principles.[20] An aspect of the error alleged to have been made by the primary judge, which contention was rejected by the Court of Appeal, was that the implied waiver was limited to the counterclaim the pleading of which was the inconsistent conduct. As I will presently explain, that submission resembles an aspect of DC Payments’ contentions in this proceeding. The court said:[21]
Nor could the effect of Esso’s waiver have been limited to the counterclaim, given the interrelationship of the principal issues in BHP’s claim on the one hand and Esso’s set-off and counterclaim on the other. As noted earlier, the contractual provision on which Esso founds its claim for reimbursement contains an exclusion for expenses occasioned by Esso’s gross negligence. By pleading reliance on that provision, Esso put in issue all of the contractual criteria — qualifying and disqualifying alike — which governed its entitlement to reimbursement. It matters not for this purpose that it was for BHP to plead by way of defence — as it has done — that the legal expenses were occasioned by Esso’s gross negligence and are hence not recoverable.
It is common ground that the factual matters relevant to the ‘gross negligence’ aspect of BHP’s defence to Esso’s counterclaim are the very matters which found BHP’s claim against Esso for damages. Documents which the counterclaim makes discoverable — and free of privilege – are available for use in the conduct of the principal claim. This is routine civil procedure. Were it otherwise, the absurd situation would be created in the present case where BHP’s ‘gross negligence’ defence to Esso’s counterclaim was litigated by reference to the privileged documents, but BHP’s negligence claim against Esso (arising out of the same facts) was litigated without them.
…
As is made plain in Goldberg v Ng, the circumstances in which implied waiver occurs may be such that it can be taken to operate in relation to all aspects of the relevant proceeding. The ambit or extent of the waiver must depend on the circumstances of the particular case. (Citation omitted)
[19][2007] VSCA 224.
[20]The primary judge had drawn on Mann v Carnell, (1999) 201 CLR 1, Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 and Secretary to the Department of Justice v Osland [2007] VSCA 96.
[21][2007] VSCA 224, [20]–[21], [23].
Counsel contended that the test identified by the trial judge was that identified by the Full Court of the Federal Court in Commissioner of Taxation v Rio Tinto Ltd,[22] in particular, the following passage:
These authorities show that, where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication.[23]
[22](2006) 151 FCR 341.
[23]Ibid 356 [52].
However, the judgment of the court in Rio Tinto did not confine conduct constituting inconsistency for the doctrine of waiver to assertion about the contents of otherwise privileged communications. The court also stated:
It is plain enough that the majority in Mann also saw the ‘issue waiver’ cases as a species of waiver, to which the same basic principle applied. Their Honours’ analysis in Spalvins emphasises, as does the majority in Mann, that waiver comes about because the privilege holder’s conduct is inconsistent with the continued confidentiality of the communication because he or she has put in issue the character or contents of the communication in pursuing a
right or claim, or has created a situation where another party must reasonably do so by way of a defence.[24]
[24]Ibid 357 [24].
The situation where the privilege holder’s conduct lays open the confidential communication to scrutiny is also well recognised.[25] Later in its judgment, the court stated:
Both before and after Mann, the governing principle required a fact-based inquiry as to whether, in effect, the privilege holder had directly or indirectly put the contents of an otherwise privileged communication in issue in litigation, either in making a claim or by way of defence. In DSE at 519 [58], Allsop J put the matter somewhat more descriptively, saying waiver arises when ‘the party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny and, by such conduct, an inconsistency arises between the act and the maintenance of the confidence, informed partly by the forensic unfairness of allowing the claim to proceed without disclosure of the communication' (emphasis original).[26]
…
As the previous examination of the authorities shows, the question is not whether the Commissioner has put his state of mind in issue but whether he has directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation, either in making a claim or by way of defence. Put another way, to adapt Allsop J’s language in DSE, has the Commissioner (being the privilege holder) made an assertion as part of his or her case in the litigation that lays open the privileged documents to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege?[27]
…
The question is whether, by his particulars, the Commissioner made an assertion as part of his case that puts the contents of the privileged scheduled documents in issue, or necessarily lays them open to scrutiny, with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege. To answer this, the relevant assertions must be considered in their proper context.[28]
[25]See for example Esso Australia Resources Pty Ltd and Anor v BHP Billiton Petroleum (Bass Strait) Pty Ltd [2007] VSCA 224, [17] and DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499, 519 [58].
[26]Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341, 359 [61].
[27]Ibid 360 [65].
[28]Ibid 361 [68].
Inconsistency and waiver
DC Payments pleads that Next Payments knew the terms of the agreements and, critically, that Vic Hotel would be in breach of the agreement if it did one or more of three things; terminated the agreement before the end of the term otherwise than in accordance with the agreement, allowed another ATM to be placed on its premises, or failed to keep DC Payments’ ATM in proper operation. This knowledge arose from the familiarity of Next Payments’ employees generally with the terms and conditions of merchant agreements that they gained when employed by DC Payments.
DC Payments alleges that Next Payments intended to persuade, procure or induce Vic Hotel to breach the agreement with DC Payments and to enter into an agreement with Next Payments to supply an ATM. DC Payments’ claim that Next Payments intended to induce Vic Hotels’ breach of contract puts in issue the state of mind of Next Payments. The allegation is that in the knowledge that Vic Hotel would be acting in breach of its agreement, Next Payments engaged in the following conduct. It offered to agree to supply an ATM to Vic Hotel. It advised Vic Hotel that its agreement with DC Payments was not enforceable. It prepared the text of a letter for Vic Hotel to send to DC Payments to terminate the agreement, and it gave Vic Hotel an undertaking that Next Payments would pay all costs associated with any proceedings issued by DC Payments in respect of Vic Hotel ending the agreement.
Implicit in this allegation about state of mind is the notion that the relevant terms of merchant agreements were capable of being breached by merchants (and were breached by Vic Hotel) because they were enforceable by DC Payments against merchants and, in particular, Vic Hotel. The issue raised between the parties by this implication is the crux of the waiver conduct alleged by Next Payments.
It is self-evident that a person might, on reading a term of a contract, honestly and reasonably believe that particular conduct by a party to the contract would be in breach of the term. It is equally self-evident that the same person might change his or her mind — and be of a different state of mind — if informed that legal advice was that although the conduct would be in apparent breach of the contractual term, the term was unenforceable. In the latter case, the state of mind might be that the person understood that by engaging in the relevant conduct Vic Hotel would not be in breach of a valid legal obligation. The relevant state of mind will be that held by the actor when engaging in the conduct attacked by the pleading, and it cannot be reasonably, or fairly, identified by reference to only part of the information that was available to the actor prior to the relevant time. All of the relevant information available to the actor at the relevant time is put in issue.
When DC Payments alleges that Next Payments knew of the contract and understood sufficiently the terms of the contract to know that when it so conducted itself it knew that it was inducing or procuring Vic Hotel to breach the DC Payments’ contract, what is presently significant is that DC Payments alleges that the information available to the senior managers was the source of this knowledge. Such knowledge is expressly alleged from the fact that Next Payments’ senior management learned of, or knew about, the terms of merchant agreements when DC Payments employed them.
Counsel for DC Payments submitted that the judge was correct to characterise the pleading as not making an assertion about the content of the privileged communications. Relevance of a privileged communication to an issue does not trump privilege and that all that DC Payments has done was put Next Payments’ state of mind in issue, which was not sufficient to waive privilege over communications which may have contributed to the formation of a particular state of mind. What DC Payments has not done, they submitted, was open up for scrutiny any privileged communication concerning the legal advice.
DC Payments mischaracterises the issue. The relevance of the legal advice to the state of Next Payments’ mind is not in dispute. I accept that merely putting a state of mind in issue will not, of itself, give rise to waver of privilege in respect of legal advice that is relevant to the existence of that state of mind. But that is not this case. The state of mind that is put in issue concerns an understanding of legal rights, not simply knowledge of terms recorded in a contract. The particular knowledge or understanding that is alleged to constitute Next Payments’ state of mind is that particular conduct by Vic Hotel would breach its agreement with DC Payments. The implicit premise in DC Payments’ allegation by paragraph 16 is that the breach of the relevant contractual term was breach of an enforceable legal obligation. It is that premise that is put in issue between the parties by DC Payments in respect of the knowledge of Next Payments, as paragraph 17 makes clear. On that issue, Next Payments had particular knowledge that determined its state of mind at the relevant time.
When a former employer puts in issue the state of mind of a new employer derived from the state of mind of common employees, what may be inferred cannot be constrained from the information acquired by former employees to only a part of the information that the former employer imparted to former employees. Raising the issue opens all relevant communications between the former employer and former employees that may prove, or disprove, the alleged state of mind.
By paragraph 16 of the defence, Next Payments expressly seeks to disprove the alleged state of mind. What was said by Mr Olding to Mr Wildash, to take one example, about the content of the privileged communications — and it matters not whether it was accurately communicated or properly understood — was information that was central to identifying what Mr Wildash knew about the enforceable legal obligations of Vic Hotel to DC Payments and whether particular conduct by Vic Hotel would breach those obligations. I agree with the applicant’s submission that any aspect of the information conveyed by DC Payments to its employees that is relevant to whether those former employees had the alleged state of mind is put in issue by this pleading. It seems to me, with respect, to be clear that DC Payments, by its conduct in its pleading of the state of mind of Next Payments, acted in a way that was inconsistent with its objection to Next Payments adducing evidence that would result in disclosure of the privileged legal advice. DC Payments’ conduct in pleading Next Payments’ state of mind in this way was inconsistent with its objective of maintaining confidentiality in communications relevant to that state of mind.
On its own pleading, it clearly emerges that DC Payments knew that senior management at Next Payments not only knew of the terms of the merchant contracts[29] but has been informed of the legal advice. I accept the applicant’s submission that DC Payments’ allegations about Next Payments’ state of mind created a situation where Next Payments, acting reasonably, could be expected to assert that it did not understand the contractual terms to be legally enforceable against Vic Hotel because of the communications to its senior management of the legal advice and that therefore it did not have the state of mind alleged against it.
[29]Counsel informed us during argument that it was common ground that DC Payments considered the merchant agreements to be confidential to the parties to those agreements.
When DC Payments contends that the legal advice is confidential and protected by legal professional privilege from disclosure to the court by Next Payments, it is contending that Next Payments must be confined in its defence of DC Payments’ allegation to only part of the knowledge acquired by senior management at Next Payments when earlier employed by DC Payments. However, on the issue, both its allegation that Next Payments had the requisite knowledge and Next Payments’ defence that it had a different state of mind each arise out of the same circumstances; confidential communications between employer and employee about the merchant agreements.
In Paragon Finance Plc v Freshfields,[30] where the issue of implied waiver arose in a solicitor’s negligence case, Lord Bingham of Cornhill CJ[31] identified the essential place of the notion of inconsistency of conduct in respect of the privilege. His Lordship said at 1188:
When a client sues a solicitor who has formerly acted for him, complaining that the solicitor has acted negligently, he invites the court to adjudicate on questions directly arising from the confidential relationship which formerly subsisted between them. Since court proceedings are public, the client brings that formerly confidential relationship into the public domain. He thereby waives any right to claim the protection of legal professional privilege in relation to any communication between them so far as necessary for the just determination of his claim; or, putting the same proposition in different terms, he releases the solicitor to that extent from the obligation of confidence by which he was formerly bound. This is an implication of law, the rationale of which is plain. A party cannot deliberately subject a relationship to public scrutiny and at the same time seek to preserve its confidentiality. He cannot pick and choose, disclosing such incidents of the relationship as strengthen his claim for damages and concealing from forensic scrutiny such incidents as weaken it. He cannot attack his former solicitor and deny the solicitor the use of materials relevant to his defence. But, since the implied waiver applies to communications between client and solicitor, it will cover no communication to which the solicitor was not privy and so will disclose to the solicitor nothing of which he is not already aware.
[30][1999] 1 WLR 1183.
[31]on behalf of the Court (Brooke LJ and Chadwick LJ).
I am satisfied that, by its pleading, DC Payments has acted in a way that is inconsistent with its objection to Next Payments adducing evidence that would result in disclosure of a confidential communication made for the dominant purpose of a lawyer providing legal advice to DC Payments and has waived privilege in the communications.
Further, to the extent that inconsistency in the conduct of the privilege holder may be informed partly by forensic unfairness in allowing a claim to proceed without the disclosure of the privileged communication, I am persuaded that the inconsistency in DC Payments’ conduct can more readily be seen through that prism. It is unfair for DC Payments to allege that Next Payments was informed of the legal rights of the parties as set out in the merchant agreements through disclosure of the terms of the agreements to senior managers as former employees while, at the same time, denying to Next Payments the opportunity to allege that they knew that the relevant terms created no legally enforceable obligation. Senior managers through disclosure by DC Payments to them learnt that it had legal advice to that effect. The latter information is relevant to the issue and necessarily contributes to determining the state of mind that must be established by DC Payments to succeed in its claim.
Notice of Contention
On its notice of contention, DC Payments seeks to go beyond the pleaded allegations that are the agreed basis for the preliminary determination. DC Payments disputes that, at trial, Next Payments can establish that knowledge of its legal advice can be imputed to Next Payments or that it forms part of Next Payments’ state of mind. Resolution of that contention will require determination of a number of factual and legal issues about the knowledge of the relevant individuals and the imputation of that knowledge to Next Payments.
In substance, DC Payments submits that the personal knowledge of the senior managers was acquired in confidence and as the obligation of confidence was continuing, the content of the legal advice cannot be imputed to Next Payments or form part of its corporate state of mind. It submitted that to the extent that the senior managers’ knowledge became the corporate knowledge of Next Payments, it did so due to breach of the ex-employees’ equitable or contracted obligation of confidence. The breach of confidence that follows from disclosure or imputation to Next Payments of knowledge of the privileged communications, rather than the earlier legitimate, and protected, disclosure by DC Payments to its employees, is wrongful conduct and does not enable use of the privileged communications in the proceeding. Thus, as there is a real dispute whether Next Payments’ state of mind properly includes knowledge of the legal advice, it cannot be that merely pleading a cause of action that puts Next Payments’ state of mind in issue is sufficient to waive privilege over the legal advice.
DC Payments submits that as these contentions can only be resolved on evidence at trial, merely pleading a claim that puts in issue the state of mind of a party other than the privilege holder cannot of itself and in the absence of evidence result in waiver of legal privilege over relevant communications.
This submission is misconceived. First, it is too widely stated and is unsupported by authority. Secondly, it finds no support in the language of s 122 of the Act. Thirdly, no sufficient reason of policy was identified for such a rule. Fourthly, the primary judge could not have been asked to make findings of fact on the application before him. The parties consented to the preliminary question being determined on the pleadings and each regarded taking evidence and permitting cross-examination to be inappropriate.[32] Had either party submitted otherwise, the judge would have considered the procedure of a preliminary determination to be inappropriate.
[32]In argument, counsel for DC Payments referred to the transcript of a directions hearing before the judge on 15 August 2014 (p. 129) that, he asserted, revealed his objection to the question being resolved without evidence by preliminary determination, but, on reviewing the transcript, I am not persuaded that counsel took objection to the suitability of the procedure being adopted because the issue necessarily involved disputed facts.
But the more fundamental objection to DC Payments’ contention is issue waiver. As I have explained, DC Payments’ case puts in issue that the knowledge of the senior managers of the terms of the merchant agreements and that Vic Hotel would be in breach of the agreement if it terminated it as alleged is the knowledge of Next Payments. DC Payments relies on evidence of Next Payments’ state of knowledge acquired by the senior managers through communications between them and DC Payments to prove its case while denying, by the assertion of legal privilege, the opportunity for Next Payments to prove its lack of the alleged state of mind acquired by the same senior managers in the same way. Once the issue is understood, the question of waiver becomes, as I said, an orthodox application of principle. For the reasons I have stated when discussing inconsistency, the notice of contention is misconceived.
Conclusion
To allow the identified error to go uncorrected would impose substantial injustice on the applicants. This is a plain case. The effect of the order will be to prevent Next Payments from adducing evidence relevant to its state of mind. The injustice in permitting DC Payments to refer to those parts of its communications with the senior managers that advance its case on state of mind while precluding Next Payments from referring to other parts of those communications on the issue is manifest. It is beside the point that there may be alternative allegations put in the defence.
I would grant the applicant leave to appeal and would allow the appeal. Subject to any further submission from counsel, I would vary paragraphs 1 and set aside paragraph 2 of the primary judge’s order of 10 December 2014. Simply answering ‘No’ to the preliminary question may be too broad a response. In the particulars to paragraph 16(a)(ii) of the defence, Next Payments alleges that DC Payments sought legal advice as to the enforceability of the Renewal Clause from Scott Munro at Soho Lawyers. Mr Munro in turn sought an opinion from a barrister (not identified). Mr Munro informed Mr Olding of counsel’s advice. Before us, counsel for Next Payments confirmed that Next Payments only relies on DC Payments’ communications with the senior managers and I would preserve DC Payments’ position in respect of the communications alleged in the particulars to paragraph 16(a)(ii)[33] of the defence.
[33]And corresponding parts of the pleadings in respect of other merchants.
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