Viterra Malt Pty Ltd v Cargill Australia Ltd
[2018] VSCA 118
•11 May 2018
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0041
| VITERRA MALT PTY LTD (ACN 096 519 658) & ORS (according to the attached schedule) | Applicants |
| v | |
| CARGILL AUSTRALIA LTD (ACN 004 684 173) | First Respondent |
| and | |
| CARGILL, INCORPORATED | Second Respondent |
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| JUDGES: | WHELAN, KYROU and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 24 April 2018 |
| DATE OF JUDGMENT: | 11 May 2018 |
| MEDIUM NEUTRAL CITATION: | [2018] VSCA 118 |
| JUDGMENT APPEALED FROM: | [2018] VSC 99 (Macaulay J) |
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EVIDENCE – Client legal privilege – Waiver – Whether privilege in respect of documents subject to pre-trial discovery waived pursuant to Evidence Act 2008, ss 122(2), 131A – Party claiming privilege alleges misleading or deceptive conduct in sale of business – Whether issue waiver by alleging knowledge and reliance in entering into sale contract – Whether maintenance of privilege inconsistent with withholding privileged communications about sale transaction – Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; Mann v Carnell (1999) 201 CLR 1; DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd (2015) 321 ALR 191; Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 considered – Evidence Act 2008, s 122(2) applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr A C Archibald QC with Mr S R Senathirajah QC and Ms K Dovey | King & Wood Mallesons |
| For the Respondents | Mr P H Solomon QC with Mr C Tran | Gilbert + Tobin |
WHELAN JA
KYROU JA
McLEISH JA:
The parties to this application for leave to appeal are in dispute about the sale of a malting business. A trial in relation to the dispute is set down to commence on 28 May 2018 in the Trial Division. The matter before this Court concerns an argument as to whether, by virtue of the way in which the first respondent has pleaded its case, it has impliedly waived client legal privilege under the Evidence Act 2008 in respect of various documents.
The applicants are a collection of companies of which the ultimate holding company is Glencore International AG, a global commodity producer, processor and trading organisation. It is convenient to refer to the applicants other than Glencore International AG as the ‘Viterra parties’.
The respondents are Cargill Australia Ltd (‘Cargill’) and its holding company Cargill, Incorporated (‘Cargill Inc’), which is a major international food, agricultural, financial and industrial products and services business. It is convenient to refer to the respondents as ‘the Cargill parties’.
By an agreement between the Viterra parties and Cargill dated 4 August 2013 and completed on 31 October 2013, Cargill purchased the malting business from Viterra Malt Pty Ltd for the sum of $420 million. The agreement contained warranties by the Viterra parties concerning, among other things, the accuracy and materiality of information provided in an information memorandum and certain ‘data room documentation’ that had been prepared in respect of the proposed transaction.
After entry into the agreement, and before its completion, representatives of Cargill held meetings with employees of the malting business. At one such meeting, on 15 October 2013, those employees told representatives of Cargill of some practices engaged in by the business. There were further communications between 22 and 30 October 2013 between the parties in relation to whether and to what extent the business engaged in the practices discussed at the earlier meeting.
The sale was completed on 31 October 2013 and ownership of the business passed to Cargill.
The proceeding was commenced by Cargill on 1 October 2014. The applicants filed a defence and counterclaim against Cargill. In addition, by third party notice filed on 4 February 2015, the applicants joined a number of third parties to the proceeding: Cargill Inc, Cargill Malt Asia Pacific Pty Ltd (‘Cargill Malt’, the company conducting the malting business)[1] and five persons who were executives of that company at the time of the sale.
[1]Formerly Joe White Maltings Pty Ltd.
Central to the relevant allegations made by Cargill in the proceeding are practices which it alleges were conducted as part of the malting business. The second further amended statement of claim alleges that the ‘Viterra Practices’ were that Cargill Malt:
routinely, and without informing customers:
(1)supplied malt to customers that did not comply with contractual requirements and specifications; and
(2)supplied certificates of analysis to customers that misstated the results of analytical testing on the malt so that the certificate reported that the malt complied with contractual requirements and specifications when it did not.
The pleading further alleges that the Viterra Practices were partly recorded in and endorsed by certain written policies, described as the ‘Viterra Policies’. It is alleged that the financial and operational performance of the business was substantially underpinned by the Viterra Practices and the Viterra Policies and that the Viterra parties did not disclose these matters to Cargill prior to execution of the agreement.
Cargill alleges, among other things, that the failure of the Viterra parties to disclose the above matters to it, while providing other information in the course of the sale process and the due diligence, amounted not only to breaches of the warranties in the agreement but also to misleading or deceptive conduct in contravention of the Australian Consumer Law. Cargill claims loss and damage in excess of $200 million.
The applicants deny or do not admit the allegations made against them. They point to the due diligence carried out by Cargill before the sale, including the alleged knowledge of its representatives who took part in the sale process and various disclaimers, acknowledgements, releases and limitations of liability, as well as making allegations that the Cargill parties failed to take reasonable care.
The applicants further allege, by their defence, that Cargill had sufficient knowledge or suspicions of certain matters so as not to have been misled in respect of the allegedly undisclosed matters. Further, by their amended statement of claim on third party notice, the applicants allege, among other things, that the executives of Cargill Malt represented to the applicants that the undisclosed matters did not exist and that the warranties were true and correct, and allege further that the applicants relied upon those representations in making representations to Cargill and giving the warranties. The applicants relevantly allege that if they are found to have engaged in misleading or deceptive conduct, then Cargill Malt and its executives themselves engaged in misleading or deceptive conduct which caused the applicants’ loss that would result from the proceeding.
There have been two interlocutory applications regarding an alleged waiver of client legal privilege. First, on 14 February 2017, the Cargill parties and Cargill Malt, together with the third party executives, made an application for inspection of documents over which the applicants had claimed privilege, asserting issue waiver relating to the Viterra parties’ knowledge of the Viterra Practices and the Viterra Policies. The application was made on the basis that, among other things, by pleading the claims against the executives, the applicants had waived privilege. In acceding to the application on 30 March 2017, an associate judge held, among other things, that by pleading the claims against the executives, the Viterra parties had waived privilege over certain categories of documents evidencing their knowledge of the Viterra Practices and the Viterra Policies.[2] The Viterra parties subsequently produced for inspection the documents the subject of that judgment.
[2]Cargill Australia Ltd v Viterra Malt Pty Ltd [2017] VSC 126 [138]–[148].
Secondly, on 18 May 2017, the applicants made an application for inspection of documents over which the Cargill parties had claimed privilege, evidencing the knowledge of the Cargill parties of the alleged undisclosed matters. The application was made on the basis that, by their pleadings, the Cargill parties had waived privilege over such documents. The same associate judge heard that application and dismissed it on 17 November 2017.
The applicants appealed against the latter decision and a judge in the Trial Division made orders on 7 March 2018 dismissing that appeal.
The applicants now seek leave to appeal. Before turning to the proposed grounds of appeal, it is necessary to set out in somewhat greater detail the relevant allegations made in the second further amended statement of claim, and to refer to the reasons given by the judge for dismissing the appeal.
Relevant aspects of Cargill’s pleaded claims
In its pleading, Cargill relies on representations said to have been made in the information memorandum and during the due diligence process, as well as alleging failures to disclose material information. In respect of the information memorandum, it is alleged, among other things, that it stated that Cargill Malt ‘utilised technical analysis and strict quality control procedures to ensure that customer specifications were consistently met’ and that its ‘business model was focused on delivering high quality products adhering to specific customer requirements’. It is further said to have been stated in the information memorandum that the business model ‘was focused on ensuring its customers received the highest quality malt to meet their exact specifications and requirements’ and that the success of the business ‘was based upon its strong commitment to consistently meet the product specifications of its customers’.
It is pleaded that, both in the information memorandum and in the data room documentation, the Viterra parties represented that the historical and forecast future operational and financial performance of the business was as set out in a confidential schedule and that the earnings platform of the business was ‘supported by its long-term customer contracts’.
The alleged non-disclosure of material information concerned the following alleged facts (among others):
(a)that Cargill Malt routinely, and without informing customers, supplied malt to customers that did not comply with contractual requirements and specifications and supplied certificates of analysis to customers that misstated the results of analytical testing on the malt so that the certificate reported that the malt complied with contractual requirements and specifications when it did not (the Viterra Practices);
(b)that the Viterra Practices were partly recorded in and endorsed by the Viterra Policies;
(c)that the financial and operational performance of the business was substantially underpinned by its practice of supplying malt to customers pursuant to the Viterra Practices and the Viterra Policies that did not comply with the relevant customer contracts; and
(d)that, but for the Viterra Practices, Cargill Malt could not produce and sell malt in the volumes and to the specifications required by customers and in the volumes and for the returns reflected in the financial and operational information disclosed in the information memorandum and during the due diligence process.
The above matters are collectively defined in paragraph 19 of the pleading as the ‘Undisclosed Matters’.
The pleading makes further allegations in relation to the misrepresentations said to have been made after the agreement was signed but before completion. Those representations include that there had been some ‘instances’ in which barley other than that specified pursuant to a particular contract had been used as a result of seasonal issues, and that malt that included gibberellic acid had ‘occasionally’ been supplied to customers in breach of customer contracts, but that Cargill Malt was able to produce malt to the specifications required to meet customer demands without adding gibberellic acid.
Cargill alleges in its pleading that, by making the relevant statements and failing to disclose the Undisclosed Matters, the Viterra parties conveyed a series of false representations including:
(a) that the production, sales and earnings figures stated in the financial and operational information which had been provided were based upon strict quality control procedures and analysis and upon customer contracts including customer specifications being complied with;
(b) that the production and sales figures stated in the financial and operational information had been properly and lawfully achieved;
(c) that Cargill Malt (under its pre-sale name) had not withheld or concealed material information from its customers;
(d) that the assets of the business were sufficient to sell malt in the volumes and for the returns stated in the financial and operational information;
(e) that the business had low future capital expenditure needs in the short to medium term; and
(f) that the Undisclosed Matters did not exist.
It is pleaded that, in reliance on the above representations, and further or alternatively, the warranty representations, Cargill entered into the agreement. It is alleged that it suffered loss as a result.
Summons and reasons for its dismissal
By their summons dated 18 May 2017, the applicants sought orders relevantly including an order that the Cargill parties and Cargill Malt produce for inspection documents over which they had claimed privilege which recorded or evidenced their knowledge, in the period up to and including the date of completion (31 October 2013), of the Undisclosed Matters, other than documents brought into existence after that date for the dominant purpose of obtaining legal services with respect to the proceeding.
An affidavit in support of the summons affirmed by Monique Lisa Carroll, solicitor for the applicants, deposed to the likely existence, based on the Cargill parties’ discovery, of documents to which the relief sought in the summons would extend. It referred, for example, to confidential communications regarding issues arising as part of the due diligence process for the dominant purpose of providing legal advice and correspondence for the dominant purpose of providing legal advice in relation to ‘malt and barley issues’.
In light of the way in which argument in this Court proceeded, it is not necessary to set out at great length the reasons of the associate judge who first heard the summons, or of the judge who dismissed the ensuing appeal. The following observations will suffice.
First, the associate judge accepted that the parties’ knowledge of the Undisclosed Matters was a central issue in the proceeding.[3] However, she drew a distinction between the present application and that successfully initiated by Cargill. In that case, the Viterra parties had acted inconsistently with the maintenance of client legal privilege by seeking to assign blame to the third parties, while denying them access to privileged documents that could disprove their claims. The ‘fundamentally inconsistent conduct’ was making an allegation that the third parties did not inform the Viterra parties of the Undisclosed Matters, yet seeking to shield from disclosure documents that evidenced what the third parties did in fact tell the Viterra parties.[4]
[3]Cargill Australia Ltd v Viterra Malt Pty Ltd [No 3] [2017] VSC 650 [42].
[4]Ibid [42]–[43].
Secondly, the associate judge held that the Cargill parties had done no more than plead reliance as an element of the cause of action, and that this did not impliedly waive client legal privilege; something more was required in order to establish waiver.[5]
[5]Ibid [37]–[39].
The judge on appeal reached the same result but by a slightly different route. In particular, having reviewed the authorities, the judge adopted an approach involving both the centrality of the documents in question to the particular state of mind, namely the extent of Cargill’s knowledge of the Undisclosed Matters and its reliance thereon, and the necessity of scrutinising those documents. In doing so, he was, in effect, seeking to identify what would suffice as the ‘something more’ to which the associate judge referred. In the relevant passages, the judge said this:[6]
[6]Cargill Australia Ltd v Viterra Malt Pty Ltd [No 7] [2018] VSC 99 [123]–[125] (emphasis in original) (‘Reasons’).
These cases, and others, demonstrate the way in which courts have employed notions of ‘centrality’ and ‘necessity’ as a means of assessing whether an inconsistency arises between the assertion of a claim and the maintenance of the privilege. So as to respect the important right of legal professional privilege, for a waiver of that privilege to be imputed, the courts have insisted upon there being such a close alignment between the issue raised by the privilege holder on one hand, and the contents of the privileged communication on the other, that a contradiction or inconsistency arises in asserting the claim while yet maintaining the privilege.
That close alignment is sometimes expressed in the authorities as centrality — that is, for inconsistency to be found, the content of the confidential legal advice should be seen as central to the particular state of mind which the privilege holder has asserted in or by the claim. Elsewhere, that close alignment has been described by reference to a relation of necessity, as in Allsop J’s formulation, ‘necessarily lays open for scrutiny’. Using that as the hallmark of inconsistency, there should be a relation of necessity, inevitability or indispensability between recourse to the contents of the confidential communication and the resolution of the question that the privilege-holder has put in issue.
This is why mere relevance of the confidential communication to the issue is not enough. The confidential communication has to be sufficiently central to
the issue that the content of the communication is necessarily opened up by the assertion of the issue.
The judge then applied this analysis to the case at hand, as follows:[7]
[7]Ibid [127], [129].
In my view the content of the confidential communications between Cargill and its lawyers during both the due diligence and pre-completion phases of the transaction travel no further than being relevant (or potentially relevant) to the state of mind impliedly raised by Cargill’s pleading. Those communications are not central to any issue directly or indirectly raised by the pleadings either alone or when viewed in the context of the evidence adduced in support of the application. Put another way, Cargill’s state of mind, put in issue either by the pleading of the representations themselves or by the pleading of reliance on those representations, does not, as a matter of necessity, lay open to scrutiny the privileged communications.
…
Ultimately, whether knowledge is opened up by the representation case or by the plea of reliance, the question is whether the confidential legal communications are so central to the knowledge thereby put in issue that the pleading of the representation or reliance necessarily opens the communications to scrutiny, and thereby brings about an inconsistency with the maintenance of the privilege.
Proposed grounds of appeal and parties’ submissions
By their application for leave to appeal, the applicants seek to have the judge’s decision set aside on the following grounds:
Ground 1: The learned Judge erred (error of law) in:
(a) holding that for waiver of legal professional privilege to be imputed from the pleading of a state of mind, the party alleging waiver must establish that the contents of the documents in question are central to the state of mind pleaded …; and
(b) as a result wrongly holding that the respondents’ pleading did not constitute waiver of client legal privilege … .
Ground 2: The learned Judge erred (error of law) in holding … that the decision of Associate Justice Daly in Cargill Australia Ltd v Viterra Malt Pty Ltd [2017] VSC 126 (30 March 2017) was irrelevant to his Honour’s consideration of the appeal below.
Argument focused substantially upon the first proposed ground.
The applicants submitted that it was necessary to examine the conduct of the party said to have waived privilege. Issue waiver, such as was alleged here, involved the propounding of an issue whose elements were such that disclosure could not properly be resisted consistently with the propounding of the issue. The present case was not about the contents of any privileged communication, but about the relationship between such communications and the issue propounded. The judge had erred, it was submitted, in adopting a test of ‘centrality’ and then in applying that test to the contents of the privileged communications. Senior counsel for the applicants submitted that the case law provided no support for the approach taken by the judge.
The applicants submitted that the pleaded case raised the state of mind of Cargill both in respect of reliance and in relation to its knowledge of the allegedly undisclosed matters. The question of knowledge was said to be anterior to any question of reliance. This helped to distinguish the cases where state of mind was raised in respect of reliance alone. It was submitted that, when it came to the question what Cargill knew, it was necessary to look at the whole flow of material arising from the due diligence process, in which its lawyers, both internal and external, were said to be closely involved. It was submitted that it could be inferred from the scope of the discovery and the affidavit of Ms Carroll that information regarding the Undisclosed Matters had passed between the lawyers and Cargill, in both directions, contemporaneously with the due diligence process and up until completion of the agreement. The communications were said to have incrementally enhanced the state of knowledge of Cargill at the relevant time.
Senior counsel for the applicants propounded two alternative tests for resolving the matter. By the first, the fair resolution of the state of mind issue called for total disclosure of documents going to that question. This approach was said to be supported by the decision of this Court in Vic Hotel Pty Ltd v DC Payments Australasia Pty Ltd.[8] Alternatively, on a narrower approach, it was submitted that contemporaneous communications materially affecting or contributing to the state of mind of Cargill were required to be disclosed. Reliance was placed in this context on the decision of Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc.[9] Either test was said to be satisfied by virtue of the integral role played by the lawyers in Cargill reaching its ultimate state of knowledge prior to signing and then completing the agreement.
[8](2015) 321 ALR 191, 205 [34], 208 [43], 290 [47] (‘Vic Hotel’).
[9](2003) 127 FCR 499, 532 [126]–[128] (‘DSE’).
The respondents submitted in their written case that the judge had not found ‘centrality’ of the documents to the formation of the pleaded state of mind to be a necessary condition to establish waiver. There was said to be nothing wrong with using language of ‘centrality’ to capture what was involved in a communication being ‘necessarily laid open to scrutiny’. But in any event, they submitted, there was no waiver in the present case because there was nothing to take it beyond the scope of a mere reliance pleading.
The respondents submitted that the proposed test that required looking at the ‘totality’ of the information available to the party when forming its state of mind amounted to a restatement of the criterion of relevance. The same was said of the test of ‘materially affecting or contributing to’ the formation of the state of mind. In both cases, application of the test would yield documents which were merely relevant to the formation of the state of mind, which would nullify the privilege. It was submitted that, in any event, no test ought to be applied to supplant the statutory text.
Section 122 and case law
The issue in the present application is to be determined by the application of s 122(2) of the Evidence Act 2008, which provides:
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.
Although s 122(2) is directed at the adducing of evidence, it applies also to the giving of information or the production of a document in other circumstances, including pre-trial discovery: s 131A. Sections 118–120 prevent the adducing of evidence of communications protected by client legal privilege. The exception in s 122(5) is not relevant to the present case.
Section 122(2) was adopted in the above form in order to reflect the common law test for implied waiver articulated by the High Court in Mann v Carnell.[10] Gleeson CJ, Gaudron, Gummow and Callinan JJ there stated:[11]
What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
[10](1999) 201 CLR 1.
[11]Ibid 13 [29].
In Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd, French CJ, Kiefel, Bell, Gageler and Keane JJ stated that the court:[12]
will impute an intention [to waive privilege] where the actions of a party are plainly inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.
[12](2013) 250 CLR 303, 315 [30], citing Mann v Carnell (1999) 201 CLR 1, 13 [29].
The Court went on to say that the law looks chiefly to the conduct and position of the person who is said to have waived privilege, in order to see whether that person has ‘approbated’ so as to prevent him or her from ‘reprobating’. The Court stated that its observations applied both to waiver at common law and to s 122(2).[13]
[13]Ibid 315–16 [31]–[32].
The parties took us to a number of cases in which courts have dealt with questions of implied waiver of client legal privilege or common law legal professional privilege. They did so, both in order to propound a test suitable for application to the present case, and to provide illustrations of circumstances for comparison to this matter. Two notes of caution must be sounded in this respect.
The first is that, notwithstanding that the High Court has made it clear that the common law and s 122(2) are closely related, the question to be asked is the statutory test posed by s 122(2), namely whether the respondents, and in particular Cargill, have ‘acted in a way that is inconsistent with … objecting’ to the production of the privileged documents sought.
Secondly, as the cases themselves make clear, there is no settled list of kinds of action which, by their very nature, give rise to implied waiver: each case must depend upon its own facts and circumstances and drawing generalisations from other cases may be dangerous.[14]
[14]See, eg, Archer Capital 4A Pty Ltd v Sage Group plc (2013) 306 ALR 414, 422 [26] (‘Archer Capital’); Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341, 358–9 [60] (‘Rio Tinto’).
With those caveats, it is now useful to refer to some of the authorities upon which reliance was placed.
It is convenient to commence with the decision of Allsop J in DSE. It is not necessary to set out the facts of that case, in which it was held that the mere denial by a party of an allegation as to the party’s state of mind was not enough to waive privilege in respect of any legal advice the party had received in connection with the transactions the subject of the proceedings. It was conceded that the applicant had waived privilege in relevant legal advice contemporaneous with the formation of its state of mind.[15]
[15]DSE (2003) 127 FCR 499, 501 [2].
For present purposes, it is most pertinent to refer to the manner in which Allsop J dealt with previous authority that needed to be evaluated having regard to the intervening decision in Mann v Carnell.
In the leading case of Thomason v Campbelltown Municipal Council,[16] the Full Court of the New South Wales Supreme Court held that a widow who sued for damages following the death of her husband had impliedly waived legal privilege in respect of advice she had received regarding her rights against the defendant council. Importantly, legislation at the time required a plaintiff to elect between a common law action and statutory compensation, and if a plaintiff pursued a statutory claim with knowledge of the existence of the alternative common law right, the election was effective to preclude subsequent pursuit of a common law claim.
[16](1939) 39 SR (NSW) 347 (‘Thomason’).
Jordan CJ, on behalf of the Full Court, held that privilege had been waived because one of the issues in the case was what advice, if any, the plaintiff had received from her lawyers as to her alternative rights. In DSE, Allsop J pointed to the reliance of Jordan CJ on undue influence cases and explained the operation of waiver in those cases in the following way:[17]
The reason why the plaintiff cannot retain the confidentiality in the advice is to be analysed with an eye to substance not form. By bringing the suit the plaintiff lays out for examination, dispute and resolution the extent of the ascendancy or influence of the donee on him or her and on his or her capacity to come to a decision free from such ascendancy or influence. If there has been legal advice given to the donor about the transaction, the suit will almost certainly involve an assessment of the effect of that advice, along with all other relevant matters, upon the existence, degree and operation of the ascendancy or influence on the mind, decision making processes and capacity of the donor. If the plaintiff brings such a suit in circumstances where such advice has been given, it is difficult to see how he or she can avoid the conclusion that he or she is, by the claim in the suit, opening up that legal advice for scrutiny, irrespective of the question as to who bears the procedural responsibility for pleading the advice, or as to who bears or assumes the forensic task of proving the advice.
The advice in Thomason was in an analogous position, as Jordan CJ said. No practitioner who was aware of the form of the Application for Determination … could have been under any doubt that Mrs Thomason’s claim for negligence involved dealing with the question of the extent of her knowledge about the available legal alternatives. It was, in a sense, going to be as much a part of her cause at common law as a solicitor’s advice would be a part of an undue influence suit in equity. Although, it is true, not embedded at the heart of the suit as advice would be in relation to the issues of ascendancy and influence, nevertheless it was, in the precise statutory context and in a practical and substantial way, a central matter to be dealt with in order that Mrs Thomason succeed in her claim.
The proper analysis, it seems to me, is not that the plaintiff ‘accepted an issue tendered by the (defendant’s) second plea’ as argued by the respondent to the appeal, but that by commencing the cause in negligence, in circumstances where that could only be done if the plaintiff’s state of knowledge about her legal rights when she commenced her claim for statutory compensation was of a particular character, the plaintiff was acting inconsistently with the maintenance of the confidentiality of advice which was in all likelihood to be the only source of her knowledge about those matters. As a matter of substance she was bringing the cause in the plain and well understood circumstances that a central issue in the proceedings was, and would be, her state of knowledge about her rights as explained to her by [her solicitor] Mr Brady.
[17]DSE (2003) 127 FCR 499, 516–17 [46]–[48].
Viewed in this way, Thomason stands as an illustration of the inconsistency principle. Mrs Thomason could not maintain confidentiality in legal advice she was given about her rights in circumstances where her ability to bring the common law action depended on her not having been aware of her right to do so when she made her statutory claim. In a passage frequently cited since, Allsop J concluded:[18]
It is sufficient to understand, I think, that in most undue influence cases (and in Thomason when its circumstances are appreciated) 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.
[18]Ibid 519 [58] (emphasis in the original).
Subsequently in his reasons, Allsop J examined the reasons of the Full Court of the Federal Court in Telstra Corporation Ltd v BT Australasia Pty Ltd.[19] The applicant in that case had pleaded that it entered into an agreement in reliance on misleading or deceptive conduct. It had had the assistance of lawyers before entering into the agreement. The respondent against whom the claim was made asserted that the applicant had made its state of mind in connection with entry into the agreement an issue in the proceeding so as to waive privilege.
[19](1998) 85 FCR 152 (‘Telstra’).
In the Full Court of the Federal Court, Branson and Lehane JJ held that there had been a waiver; Beaumont J dissented. The majority held that the applicant had, by pleading reliance, ‘open[ed] up as an element of [its] cause of action, the issue of [its] state of mind at the time [it] undertook’ the action of entering into the agreement.[20] That was because it would not be fair to assess the applicant’s state of mind without reference to relevant legal advice. (Telstra was decided before Mann v Carnell adopted the test of inconsistency.) They stated:[21]
It is unnecessary and inappropriate … to attempt to define exhaustively the scope of the principle. Where, however, a party relies on a cause of action, an element of which is the party’s state of mind (including the quality of the party’s assent to a transaction) the party is taken to have waived privilege in respect of legal advice which the party had, before or at the time of the relevant events, material to the formation of that state of mind.
[20]Ibid 166.
[21]Ibid 167–8.
In his dissenting judgment, Beaumont J pointed to the fact that the advice in question was ‘not, obviously, central … in the same way as the advice given by the solicitor on the election was, obviously, central to the plea in Thomason’.[22] In DSE Allsop J pointed out that the question of ‘centrality’ of the relevant communication to the issues in the case was also addressed in other cases.[23] Without expressing an opinion as to such an approach, he went on to state that a finding that legal advice was materially relevant to a pleaded state of mind was not an ‘adequate surrogate’ for the High Court’s expression of principle in Mann v Carnell.[24] In other words, a more nuanced analysis was required in order to identify whether inconsistency sufficient to establish waiver had been made out.
[22]Ibid 158.
[23]DSE (2003) 127 FCR 499, 525–6 [92]–[93], citing Standard Chartered Bank of Australia Ltd v Antico (1993) 36 NSWLR 87, 94, and Bayliss v Cassidy [No 2] [2000] 1 Qd R 464.
[24]DSE (2003) 127 FCR 499, 526 [95].
Allsop J felt unable to adopt his preferred analysis of the law as a result of previous Full Court authority. In particular, he felt constrained to apply the decision of the majority in Telstra. He interpreted the majority’s approach as identifying waiver of privilege, not in relation to all communications concerning the subject matter of the party’s state of mind, but only those communications ‘materially affecting or contributing to that state of mind’.[25]
[25]Ibid 532 [125]–[126].
The criterion articulated here by Allsop J was the foundation for the narrower of the two tests propounded by the present applicants. Explained in terms of Mann v Carnell, there was no inconsistency between raising the issue of state of mind while maintaining confidence in later communications; but inconsistency lay in putting in issue a state of mind and maintaining confidence in communications relevant to its formation.[26] As mentioned, the applicant in DSE had conceded waiver in the latter circumstance. That is the circumstance with which the present application is exclusively concerned.
[26]Ibid 532 [127].
Despite deciding DSE in favour of the applicant on that basis, Allsop J indicated that he would prefer to explain the result by reference to the inconsistency in laying open to scrutiny the communication and maintaining confidence in it.[27] On that approach, the pleading of the applicant’s state of mind might ‘throw open to scrutiny the earlier communications relevant to formation of the state of mind’, but not ‘later communications about preparing the case’.[28]
[27]Ibid.
[28]Ibid 532 [128].
The preferred approach of Allsop J was adopted by a subsequent Full Court, in Rio Tinto. In that case the Commissioner of Taxation sought to maintain privilege in respect of documents which he stated that he had taken into account and relied upon in making an objection decision which was the subject of appeal. Kenny, Stone and Edmonds JJ reviewed the authorities and rejected the Commissioner’s contention that privilege had not been waived.
In doing so, the Full Court stated that the majority judgment in Telstra was not to be read as saying that privilege would be waived in relation to advice that may only have played a part in the formation of a state of mind relevant to an issue in the proceeding.[29] The real question, upon which the members of the Court had divided, was whether the applicant had put in issue the legal advice it received.[30] In that regard, the Court in Rio Tinto referred to what had been said by an earlier Full Court in Adelaide Steamship Co Ltd v Spalvins,[31] including to the effect that it is ‘questionable whether advice can properly be said to be in issue in a proceeding merely because it may be relevant to an issue in it’.
[29]Rio Tinto (2006) 151 FCR 341, 358 [56].
[30]Ibid 358 [58].
[31](1998) 81 FCR 360, 371–2, quoted in Rio Tinto (2006) 151 FCR 341, 356–7 [53].
Reconciling the authorities in this way, the Court in Rio Tinto endorsed the approach taken by Allsop J in DSE, in the following terms:[32]
Both before and after Mann [v Carnell], 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 [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.
[32]Rio Tinto (2006) 151 FCR 341, 359 [61].
In Rio Tinto, the Commissioner had waived privilege by virtue of having pleaded the privileged documents in answer to a request for particulars of the material upon which he had based the decision under challenge. The contents of the documents had thereby been put in issue in the proceeding.
The next case is Vic Hotel. The respondent ‘DC Payments’ contracted with the first applicant ‘Vic Hotel’ to supply it with an automatic teller machine at its premises. Another applicant ‘Next Payments’ was a competitor of DC Payments. The dispute between Vic Hotel and DC Payments concerned the termination of the contract between those parties. DC Payments also alleged that Next Payments had induced Vic Hotel to breach that contract.
Several employees of Next Payments, including its managing director, had formerly been employed by DC Payments. In their former roles, they had become aware of legal advice given to DC Payments to the effect that a renewal clause in the contract was not enforceable. DC Payments relevantly alleged that Next Payments knew that Vic Hotel would be in breach of its obligations under the contract if Vic Hotel were to terminate the contract before the end of its term. By way of particulars, DC Payments referred to the previous employment of the relevant Next Payments employees with DC Payments and their knowledge of the contract in that context.
DC Payments sought to prevent Next Payments from adducing evidence of the legal advice provided to DC Payments. A preliminary question was stated as to whether the statement of claim disclosed the content of privileged communications. The judge at first instance decided that there had been no such disclosure. It appears that, on appeal, the argument for waiver was more widely advanced.[33] Dixon AJA, with whom Beach and Mandie JJA agreed, stated the test as being:[34]
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’s conduct in pleading a state of mind of Next Payments inconsistent with the maintenance of confidentiality in communications relevant to that state of mind.
[33](2015) 321 ALR 191, 192 [4].
[34]Ibid 205 [34].
Dixon AJA went on to say that the case concerned waiver as a consequence of pleading an issue, rather than as a result of disclosure of confidential communications. Applying the inconsistency test, he held that waiver had been established. By pleading that Next Payments had induced a breach of the contract, DC Payments alleged that Next Payments intended to induce a breach, thereby putting its state of mind in issue. The allegation was that, in the knowledge that Vic Hotel would be in breach of the contract, Next Payments engaged in the relevant conduct. Implicit in the state of mind allegation was the notion that the contract was capable of being breached because it was enforceable. Yet DC Payments sought to rely on the knowledge of its former employees about the legal position under the contract while maintaining confidentiality in legal advice on that very subject.
The conclusion that there was waiver in the circumstances was expressed in the following way:[35]
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.
[35]Ibid 209 [47].
The applicants in the present matter relied on the reference to ‘all relevant communications’ to formulate their proposed wider test.
Finally, it is convenient to refer briefly to authorities to which the respondents directed attention. As they submitted, there are many cases in which it is stated that privilege is not waived in respect of communications relevant to a particular state of mind merely by putting that state of mind in issue. So much was acknowledged, for example, in Vic Hotel itself.[36] The respondents pointed to cases where the same point was made in the context of state of mind being put in issue by an allegation of reliance.[37] It is necessary to refer only to one such case.
[36]Ibid 208 [46].
[37]Examples include Slea Pty Ltd v Connective Services Pty Ltd [2017] VSC 361 [52]–[59]; Austral Dutch Kaolin Pty Ltd v Hanjin P&C Co Ltd [2011] FCA 638 [22]; Armit v Jeminex Ltd [2011] FCA 990 [61]; and Archer Capital (2013) 306 ALR 414, 422 [25], 428 [47].
In Macquarie Bank Ltd v Arup Pty Ltd,[38] the applicant parties sued the respondent for conduct in the performance of a contract. The respondent alleged by cross-claim that the cross-respondents had represented that they would take all necessary steps to ensure that the applicant parties would be bound by a contractual limitation of liability and had known that the applicants had formed the view that they were not so bound, but did not inform the respondent of that fact. This was said to constitute misleading or deceptive conduct, in reliance upon which the respondent had performed various services and suffered loss and damage. The cross-respondents sought documents including legal advice obtained by the respondent in relation to the contract, including as to the limitation of liability.
[38][2016] FCAFC 117 (‘Macquarie Bank v Arup’).
The Full Court canvassed the authorities, including Rio Tinto and Vic Hotel. The Court accepted that the cross-claim could only succeed if the respondent could prove that it was of the view that the applicants were bound by the contract, including the limitation of liability. It had thereby put its understanding as to the effect of the contract in issue.[39] But, applying the language employed by Allsop J in DSE, the Court continued:[40]
However, it cannot be said that the question of reliance must have been informed by or addressed in the legal advice that Arup received. Arup’s descriptions of the basis for its claims for legal professional privilege do not indicate such, which descriptions merely generically refer to ‘legal advice in relation to the reliance statement in the [Engagement Agreement]’, ‘legal advice in relation to third party use of data’, and ‘legal advice in relation to the draft [NSBT Contract]’. There is no other evidence to indicate the extent of the legal advice; and certainly no evidence that the legal advice was likely or necessarily related to any question of reliance as pleaded in the Cross-Claim. It cannot be said that Arup necessarily ‘la[id]... open to scrutiny’ the advice that it received in relation to that matter, in the manner contemplated by Allsop J in DSE.
[39]Ibid [34]–[35].
[40]Ibid [35].
The Court distinguished Vic Hotel as ‘fundamentally different’.[41] In contrast to the inconsistent conduct in that case, the proceeding in Macquarie Bank v Arup involved a pleading of reliance and the discovery of privileged documents. The Court said:[42]
Whilst such documents are relevant to the proceeding (and hence discoverable), this is not sufficient to constitute waiver. If it were, then as the primary judge observed, this would ‘come perilously close to, if not amount to, a proposition that a mere pleading of reliance would itself be sufficient to constitute a waiver of privilege’.
[41]Ibid [38].
[42]Ibid [41], citing the decision below: BrisConnections Finance Pty Limited (Receivers and Managers appointed) v Arup Pty Limited [2016] FCA 438 [39].
Analysis
There are several issues that can now be addressed. The first is whether the judge erred in applying a test of ‘centrality’, as the applicants’ first proposed ground of appeal contends. The second and third issues are whether the applicants’ proposed alternative tests are to be applied. The final, dispositive issue is whether the applicants have established the alleged waiver. For reasons that will appear, it is convenient to deal with these issues together.
The above review of the cases makes it plain that there is a single test to be applied, being that in s 122(2) of the Evidence Act 2008. Assistance in understanding and applying that test may be derived from Mann v Carnell and other authorities applying either the common law or the statutory provision. However, each case will depend upon its own facts and circumstances and the drawing of general principles beyond the statement of the inconsistency test may risk departing from the terms of the statute.
Notwithstanding the need for caution on that account, it can be said that a pleading of reliance, without more, will not usually manifest inconsistency with the maintenance of client legal privilege in communications relevant to that state of mind. It can also be seen that the observation of Allsop J in DSE as to the circumstances in which privilege will be waived, while still a gloss on the statutory language, has commanded wide acceptance as a statement of the general operation of the principle.
Beyond that, however, the three alternative tests to which reference has been made may do little other than to explain the results reached in the particular cases in which they were applied. So, the language of ‘centrality’ was employed by Beaumont J in Telstra to explain why he considered that maintaining confidentiality in the relevant documents was not inconsistent with the pleading. The language of ‘all relevant communications’ was used in Vic Hotel to explain why permitting recourse to only some of the documents bearing on the pleaded issue was inconsistent with that pleading. The reference to documents ‘materially affecting or contributing to’ the party’s state of mind in DSE was a way of describing the documents which were held to be subject to inspection in Telstra.
In none of these instances was the language as originally used employed to propound a test for identifying when privilege was waived. It instead described the outcome of the application of the test to the case at hand. To the extent that the judge in the present matter might be interpreted as propounding an alternative test, such an approach should not be adopted. But the better reading of the reasons for judgment suggests that the judge was simply seeking to explain why mere relevance of the privileged communication to the pleaded issue is insufficient for a waiver.[43]
[43]Reasons [125].
The preferable course is therefore not to apply any alternative test but the language of the statute. In the present case, the question resolves to whether, by pleading that Cargill did not know of the Undisclosed Matters and that it relied on what it was allegedly told, or not told, about the malting business, Cargill acted in a way inconsistent with it objecting to producing privileged communications evidencing or recording its knowledge of the Undisclosed Matters.
The applicants point to the fact that Cargill’s lawyers were integrally involved in the due diligence process and in communications leading to the signing of the agreement. It was said to be able to be inferred from the description of discovered documents that communications had flowed to and from Cargill and its lawyers as part of these events, contemporaneously with the formation of the state of mind which Cargill had put in issue. All of this may be accepted.
The applicants have sought documents which record or evidence the knowledge of the Cargill parties of the Undisclosed Matters. That would extend to documents in which Cargill sought legal advice from its lawyers about matters arising in the due diligence and bearing on the Undisclosed Matters. But there would be nothing inconsistent in maintaining privilege in relation to such documents, while asserting ignorance of the Undisclosed Matters and reliance as pleaded. This is not a case where the nature of the pleading makes it inconsistent to withhold privileged communications about the transaction, notwithstanding that those communications might reveal something of Cargill’s state of mind. It is entirely to be expected that a party pleading a misleading or deceptive conduct case arising from a commercial transaction will have received legal advice regarding the transaction before its consummation. The applicants’ argument would suggest that privilege is waived by pleading such a case. The authorities show that something more is required.
The applicants sought to establish the required ‘something more’, as already mentioned, by asserting that the lawyers were integrally involved in the pre-sale processes and that it could be inferred from that fact and from the Cargill parties’ discovery that the lawyers had provided advice material to the formation of Cargill’s state of mind as to the Undisclosed Matters over the relevant period. But the material now before the Court does not enable that inference to be drawn. Unlike in Rio Tinto, it is not pleaded that such legal advice was provided. Nor is it, as in Thomason, to be inferred from the pleading. The Cargill parties’ discovery does not provide a basis for the inference either. At the very highest, it may allow for the inference that Cargill’s lawyers sent communications to Cargill about one or more of the Undisclosed Matters. Similarly, the judge below was prepared to conclude that ‘some, perhaps many, of the confidential communications listed are probably relevant to the issue of what and to which extent Cargill knew about an Undisclosed Matter, namely the practice of supplying out of specification malt’.[44] But such communications have not been shown to extend to legal advice material to the formation of Cargill’s state of mind in respect of the Undisclosed Matters. In that respect, the case resembles Macquarie Bank v Arup.
[44]Reasons [81] (emphasis in original).
Even if it is assumed that the lawyers did convey to Cargill factual information obtained by them during the due diligence process, in circumstances attracting client legal privilege, the maintenance of such privilege still involves no inconsistency of the requisite kind. The giving of legal advice might well reveal the state of mind of the client by referring to instructions received, or communications from third parties made to the client in the presence of its lawyers. It might also, let it be assumed, reveal matters discovered by the lawyers by examining documents in the data room and proffering advice on such matters. But the contents of the data room were, it is pleaded, disclosed to Cargill in any event. There is nothing inconsistent in Cargill maintaining privilege in advice received in respect of those disclosures. Of course, there is a dispute as to what was disclosed in conversations beyond the data room. But the parties can have that dispute consistently with Cargill keeping confidential its legal advice as to the matters of which it was aware. Unlike Thomason, Rio Tinto, Vic Hotel and even Macquarie Bank v Arup, nothing in Cargill’s pleading has put its legal advice in issue or laid it open to scrutiny.
The position is no different if the applicants’ wider ‘totality’ principle is invoked. As already observed, the suggested principle in truth simply describes the outcome of applying the inconsistency principle. The result in Vic Hotel by which the totality of the information made available to the executives when working for DC Payments was liable to be disclosed arose from the unusual circumstance that DC Payments was relying on part of the information that was made known to Next Payments, through the executives, but seeking to restrain Next Payments from disclosing other communications involving the same executives, where the relevant subject matter put in issue was their knowledge of the legal status of a contractual arrangement. In those circumstances, disclosure of legal advice on that subject, given to DC Payments and of which the relevant executives were aware, was necessary to avoid inconsistency of the requisite kind. The inconsistency lay in DC Payments alleging that Next Payments knew about the terms of the contract, based on information received by identified persons, while seeking to prevent it from alleging that it also knew, through those same persons, that those terms were not legally enforceable. It was this inconsistency, and not any test of disclosure of the totality of the material, which determined the outcome.
For these reasons, the applicants have not made out their claim for waiver of privilege. Strictly speaking, that renders proposed ground 2 of the appeal unnecessary to resolve. The argument faces the difficulty that each case depends on its own facts and the two decisions involved different pleadings because the waiver in the earlier case was founded upon the third party pleadings. But in any event, the ground was advanced only as bearing on the issue in an incremental way, by adding an element of unfairness to the equation, in favour of the applicants. Even accepting that this might be a legitimate mode of reasoning, which might be doubted, the foregoing finding means that inconsistency of the nature required would, in any event, not have been established.
Conclusion
While leave to appeal should be granted, the appeal must be dismissed.
It should be noted in conclusion that the question determined here is whether Cargill, by its pleading, waived privilege in the documents in question and not whether, by its conduct of the trial, privilege in such documents or any particular communication may subsequently be affected.
- - -
SCHEDULE OF PARTIES
| VITERRA MALT PTY LTD (ACN 096 519 658) | First Applicant |
| VITERRA OPERATIONS PTY LTD (ACN 007 556 256) (formerly VITERRA OPERATIONS LTD (ACN 007 556 256)) | Second Applicant |
| VITERRA PTY LTD (ACN 084 962 130) (formerly VITERRA LTD (ACN 084 962 130)) | Third Applicant |
| GLENCORE INTERNATIONAL AG | Fourth Applicant |
| - and - | |
| CARGILL AUSTRALIA LTD (ACN 004 684 173) | First Respondent |
| CARGILL, INCORPORATED | Second Respondent |
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