Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd
[2009] WASC 34
•25 FEBRUARY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: WRIGHT PROSPECTING PTY LTD -v- HANCOCK PROSPECTING PTY LTD [2009] WASC 34
CORAM: MURRAY J
HEARD: 9 FEBRUARY 2009
DELIVERED : 25 FEBRUARY 2009
FILE NO/S: CIV 1949 of 2008
BETWEEN: WRIGHT PROSPECTING PTY LTD (ACN 008 677 021)
Plaintiff
AND
HANCOCK PROSPECTING PTY LTD (ACN 008 676 417)
Defendant
Catchwords:
Practice and procedure - Application by plaintiff for discovery by potential party - Application by defendant for plaintiff to produce documents relative to plaintiff's application - Whether order should be made as to accounting records of plaintiff - Whether order should be made as to advice given to plaintiff - Legal professional privilege - Waiver of privilege
Legislation:
Nil
Result:
Production of specified documents ordered
Category: B
Representation:
Counsel:
Plaintiff: MrG K Rich
Defendant: Mr C R C Newlinds SC & Mr I R Pike
Solicitors:
Plaintiff: Lavan Legal
Defendant: Hunt & Humphry
Case(s) referred to in judgment(s):
Beston Parks Management Pty Ltd v Sexton [2008] VSC 392
Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2006) 151 FCR 341
Ledger v Natwest Aust Bank Ltd (Unreported, WASC, Library No 980061, 16 February 1998)
Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1
Mason & Cox Pty Ltd v KPMG Peat Marwick [1999] SASC 214; (1999) 74 SASR 171
MURRAY J: The principal matter before the court is an application by the plaintiff, by way of originating summons, for pre‑action discovery by the defendant, a party whom the plaintiff asserts it wishes to sue if it has a cause of action upon which it may rely.
This application depends upon the Rules of the Supreme Court 1971 (WA), O 26A r 4, which applies where a person, who may have a cause of action against a potential party, wishes to proceed against that party, but, after reasonable enquiries, has not been able to obtain sufficient information to enable it to decide whether it may commence the proceedings. In that event, by r 4(2):
If there are reasonable grounds for believing that the potential party had, has, or is likely to have had or to have, possession of documents which may assist in making the decision, the person may apply for an order under this rule.
Thereupon, the court may order the potential party to give discovery of all documents which are or have been in the potential party's possession, which may assist the applicant in making the decision.
I have to yet to hear that application, but it may be seen that the court may make the order envisaged by the rule -
1.on the application of a party who may have a cause of action against another,
2.who wishes to take proceedings,
3.who has made reasonable inquiries, but is unable to decide whether or not it may proceed upon the supposed cause of action, and
4.there are reasonable grounds to believe that the potential defendant had or has documents which may assist to make the decision whether or not to proceed.
By r 4(3), the plaintiff's application is to be supported by affidavit. That has been done in this case. There is before the court an affidavit by Mr Brandli, sworn and filed on 16 July 2008. Of course, now is not the time to consider the sufficiency of the affidavit to assist the plaintiff in its application under O 26A r 4, but it is convenient to observe that Mr Brandli makes the affidavit as a director of the plaintiff, and as the former principal accountant of the plaintiff and of the partnership known as Hancock & Wright.
He testifies to a search of the plaintiff's records and those of the partnership, and to a search of mineral tenements and other records particularly concerned with the tenements in the Pilbara which may be referred to as Hope Downs, the subject of the Iron Ore (Hope Downs) Agreement Act 1992 (WA) and an unincorporated joint venture in relation to the development of Hope Downs and exploitation of its iron ore assets, between Rio Tinto Ltd and the defendant.
Mr Brandli deposes to his enquiries in respect of the question whether or not royalties would be payable upon the production of iron ore from Hope Downs in which, Mr Brandli deposes, he believes the plaintiff might be entitled to share as a result of its partnership with the defendant. Mr Brandli concludes his affidavit with pars 51 and 52, as follows:
51.The plaintiff is considering commencing proceedings against the defendant for breach of contract and breach of its fiduciary obligations in relation to Hope Downs 1, 2 and 3. However, the plaintiff does not have sufficient information to decide whether such proceedings should be commenced. In particular, although it is my belief that the defendant has entered into an arrangement whereby the Hancock & Wright partnership is not to receive any royalties in respect of iron ore produced and sold from Hope Downs 1, 2 or 3, the plaintiff does not yet know what deal the defendant in fact entered into. It is not yet known, for example, whether the defendant has secured a deal whereby royalties are payable to the defendant (or its subsidiary), or whether the defendant has negotiated some alternative benefit for itself (or its subsidiary) in exchange for foregoing a royalty.
52.The plaintiff has not yet reached a decision as to whether to commence proceedings against the defendant for breach of contract and breach of its fiduciary obligations. I anticipate that the documents sought in the present application will assist the plaintiff to make that decision.
The present application
Broadly speaking, the plaintiff's application by originating summons is for discovery by the defendant of four different categories of documents -
1.'contractual documents, which refer to or affect an obligation to pay or a right to receive royalties',
2.'accounting records, which evidence the receipt or payment of royalties',
3.documents of any kind, 'which refer to an actual or potential obligation to pay or an actual or potential right to receive royalties', and
4.documents of valuation or the like, 'which refer to or include the actual or potential payment or receipt of royalties',
in respect of iron ore produced or sold from Hope Downs.
The defendant has responded by making the application which I must now determine. It is an application made under the Rules of the Supreme Court, O 26 r 10. Order 26 r 10 and r 11 provide:
10. Order for production to the Court
At any stage of the proceedings in any cause or matter the Court may subject to Rule 11 order any party to produce to the Court any document in his possession, custody or power, relating to any matter in question in the cause or matter and the Court may deal with the document when produced in such manner as it thinks fit.
11. Production only if necessary
No order for production of any documents for inspection or to the Court shall be made unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.
The plaintiff does not suggest that the defendant may not bring forward such an application, although, perhaps out of abundant caution, O 26A r 6(2) only specifically applies the rules in O 26 in relation to any discovery which is actually ordered to be given under O 26A. That stage has, of course, not yet been reached in these proceedings. However, O 26 r 10 appears to give the court a blanket power to order the production of documents to the court when they relate to 'any matter in question in the cause or matter', if, as provided in r 11, the court considers the making of such an order necessary, 'either for disposing of the cause or matter or for saving costs'.
By its application, the defendant seeks to have specified documents produced to the court by the plaintiff and it seeks to inspect and copy those documents. Put shortly, the defendant is seeking to know what documents of the kind sought on discovery the plaintiff already has, so that it may advance an argument in opposition to the originating summons that the plaintiff must already know that it has no cause of action of either kind referred to in par 51 of Mr Brandli's affidavit or, in any event, that it already has sufficient information to enable it to make its decision whether or not to embark on the action foreshadowed.
In other words, the defendant proceeds upon the basis that access to documents already in the possession or power of the plaintiff is necessary if the court is to dispose fairly of the application made by the plaintiff by originating summons and, as I understand it, the defendant asserts that to put on a short argument of that kind will enable it to persuade the court to a view that the plaintiff's application for discovery by it should be dismissed, thereby saving costs.
As it was not argued that it was not open to the defendant to make the application of the character now before the court at this stage of the proceedings, I will proceed upon the basis that the defendant's application requires substantive determination. Nor is it put generally that no order should be made on the defendant's application because the conditions required to be met by O 26 r 11 are not satisfied. Rather, that proposition is put only in relation to a specific category of documents which, the plaintiff argues, are for other reasons not subject to production.
This matter has been admitted to the commercial and managed cases list. I am the case manager. Practice Direction 4.1.2 governs that list. Paragraph 11 of that Practice Direction deals with interlocutory disputes which cannot be avoided. The direction requires the exchange of written submissions and provides for a decision on the papers, or following a short hearing at which the time permitted for oral argument is generally to be limited by direction to 20 ‑ 30 minutes for each party. The legal representatives of the parties are actively encouraged to comply with O 59 r 9 by meeting face to face or conferring by telephone.
Having received and read written submissions from the parties there was, in this case, an oral hearing. I was assisted by the arguments presented by counsel which were well‑focused on the points in issue. As will appear, those issues had been limited by the process of conferral by the lawyers representing the parties.
The defendant seeks the production of four categories of documents, as follows -
1.Documents recording or referring to consideration by the plaintiff as to whether to commence legal proceedings for breach of contract and/or breach of fiduciary duties by the defendant in respect of the exploitation of the mineral resources of Hope Downs, or specifically in respect of royalties or other monies paid or payable to the defendant by Rio Tinto Ltd in respect of the exploitation of such mineral resources.
2.Documents recording any consideration as to whether or not the plaintiff had sufficient information to commence proceedings of the kind described in 1 above.
3.Documents recording whether royalties or other payments to the defendant in respect of the exploitation of the mineral resources of Hope Downs, 'are or were recorded as an asset in the accounting records of the plaintiff', and if so, why.
4.Documents recording advice, legal or otherwise, in relation to whether the plaintiff was or is entitled to an interest in any royalties or money paid to the defendant in respect of the exploitation of the mineral resources of Hope Downs.
The consultation process between the parties has led to agreement that the documents specified in par 1 and 2 of the defendant's application, which are not subject to client legal privilege, are to be produced, but there is no such agreement in respect of pars 3 and 4 of the application. Further, an issue remains as to whether the application of client legal privilege to a document would prevent its production and inspection or whether the assertion of that privilege has been waived in the context of the plaintiff's application.
The accounting records
Of course there may be no such records which record, as an asset of the appellant, moneys paid or payable by way of royalties or otherwise to the defendant by Rio Tinto Ltd, its subsidiaries or related entities, which explain why that course was taken, but, if there are such documents, it is advisable to state the question whether the relevant accounting records of the plaintiff should be produced for the defendant's inspection in terms of the applicable rules.
I should not order production unless I consider that order to be necessary, as the defendant asserts, to dispose fairly of the matters raised by the plaintiff's application for pre‑action discovery under O 26A r 4. The defendant argues that the accounting records may illuminate the question what inquiries into the availability of a cause of action for breach of contract or breach of fiduciary duties have in fact been made and that may, in turn, illuminate the court's consideration of the objective question whether reasonable inquiries have been made to determine whether the plaintiff may have a cause of action against the defendant.
Further, it is submitted, if the accounting records reveal that the plaintiff has been showing specific sums paid or payable by way of royalties, or otherwise arising out of the joint venture, or in respect of the exploitation of the mineral resources of Hope Downs, then, the defendant asserts, the plaintiff could hardly do that without having information to enable it to reach a conclusion about the nature of the arrangements between the defendant and its joint venture partner. The defendant argues that that must bear upon the sufficiency of the information available to the plaintiff to enable it to make a decision as to whether it may commence proceedings, in respect of which question, of course, Mr Brandli deposes that the plaintiff does not have such information.
I would not accept that it would be necessary to order production of this category of documents to dispose fairly of the question whether the plaintiff may have a cause of action against the defendant. That is not to the point, it seems to me, in relation to this category of information. Nor is it to the point that a decision about the content of accounting records of the plaintiff may depend upon information that would not be admissible in evidence to establish the elements of a cause of action which might be relied upon. Finally, the question is not, as was suggested at one point in the argument, whether the plaintiff would be disentitled to preliminary discovery because it had sufficient information to decide, as an accounting question, that it could show royalties from Hope Downs as assets of the partnership.
In my view, it may be the case, if such accounting records exist, that their existence may support argument about the nature of the inquiries made and the nature of information in the possession of the plaintiff which may bear upon the question whether the plaintiff has made reasonable inquiries and whether it should be inferred that the plaintiff has indeed obtained sufficient information to enable it to make a decision whether to commence proceedings in respect of an identifiable cause of action. I will order the production of this category of document.
Advices, legal or otherwise
The fourth category of document which the defendant seeks to have produced for inspection consists of documents providing advice as to whether the plaintiff was or is entitled to an interest in royalties or other money paid or payable to the defendant in respect of the exploitation of the mineral resources of Hope Downs.
The defendant argues that such advice may bear upon the question whether or not the plaintiff may have a cause of action against the defendant and whether or not it has sufficient information to enable a decision to be made as to whether to commence proceedings for that cause of action. It is accepted by both parties, and rightly so, that these are questions to be determined objectively in respect of the decision ultimately to be made as to whether or not to order pre‑action discovery. The defendant argues that such advices may be information relevant to the decision of these questions. To the extent that this fourth category of documents does not constitute legal advice, the defendant says that it is intended to refer particularly to accounting advice as to whether royalties in respect of Hope Downs may be brought to account to the credit of the plaintiff in its books of account.
In Beston Parks Management Pty Ltd v Sexton [2008] VSC 392, the proposition advanced to Hollingworth J in respect of the determination of an application for preliminary discovery was that an applicant for such discovery could not succeed unless they produced to the court all relevant legal advice touching upon the issues to which I have referred above. Her Honour declined to take that view. At [64] she observed that she agreed with the applicants that legal advice was not 'information' within the meaning of that term where it appears in the rule.
Of course, a document which records legal or other advice may refer to factual matters which may be established or are assumed to be true by the person who gives the opinion. But in truth, having regard to the way in which the defendant supports its application, it is the advices themselves in which it expresses an interest as bearing upon the issues ultimately to be dealt with on the plaintiff's application for preliminary discovery.
The question here then, as to whether this fourth category of documents should be the subject of an order to produce them for inspection, is whether such an order would be necessary to dispose fairly of the plaintiff's application for discovery because such advice may bear upon the question whether the court may find that the plaintiff may have a cause or causes of action of the nature referred to in Mr Brandli's affidavit and whether there is, in truth, sufficient information available to the plaintiff upon which it should be regarded as being able to decide whether to commence the proceedings it wishes to bring.
In my view, that cannot be said of any document the purpose of which is to provide advice, legal or otherwise, in relation to these matters. Essentially, such advice provides the opinion of the author, and the existence of that opinion and its terms cannot help the court, for the purpose of determining an application for pre‑action discovery to decide whether the plaintiff does indeed satisfy the objective requirements of O 26A r 4. I do not order the production of the documents in category 4.
Legal professional privilege
As I have noted, the plaintiff maintains an objection to produce for inspection documents which are the subject of client legal professional privilege. The defendant responds that by making its application for discovery and by its reliance on the matters raised in Mr Brandli's affidavit, particularly pars [51] and [52], the plaintiff has acted inconsistently with the maintenance of the privilege. It says that by the conduct identified, the plaintiff has put in issue its state of mind, and to the extent that that state of mind may have been formed in reliance upon legal advice, its assertion leads, by implication, to the conclusion that the privilege has been waived. To permit the privilege to be maintained would be unfair, the defendant asserts, because it would deny it the opportunity to test the assertions made in support of the application.
In my respectful opinion, the argument is not strong. As has been seen, every applicant for preliminary discovery must satisfy the court that discovery is necessary because that may assist in making a decision to sue the defendant for a cause of action which the prospective plaintiff may have, when reasonable inquiries have not led to the plaintiff obtaining sufficient information to enable it to decide whether to commence the proceedings in question.
In that way, every applicant for pre‑action discovery puts its state of mind in issue in relation to the question whether it has made, or ought reasonably to have made, having regard to the information available to it, a decision to commence the proceedings which it wants to bring for a cause of action which it may have available to it. Having put its state of mind in issue in that limited way, and having expressed its position in the necessary supporting affidavit, it cannot be the case that, merely by so doing, an applicant for pre‑action discovery must be taken to have waived any reliance upon legal professional privilege. If that was so, it would apply to every such applicant.
The privilege at issue is not that of the lawyers involved. It is the privilege of the client, in this case the plaintiff. At the heart of the privilege are issues of privacy. Is the party to be entitled under the law to seek to be advised about its position without having to disclose that advice and without having to defend the position adopted in reliance upon that advice?
But the privilege, as well as being asserted, may also be waived. That waiver may be express. No such thing is asserted here. What is advanced in this case is implied waiver. The leading authority in respect of that is Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1. The applicable law is that stated by the majority of the High Court at 13 [28] ‑ [29]:
At common law, a person who would otherwise be entitled to the benefit of legal professional privilege may waive the privilege. … 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, 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.
I can see nothing in the nature of the plaintiff's application or in its reliance upon the supporting affidavit sworn by Mr Brandli which should necessarily be regarded as being inconsistent with the maintenance of the privilege. There is nothing in the plaintiff's position, in my opinion, antithetical to the maintenance of the confidentiality inherent in the privilege.
A case similar to the present matter was Mason & Cox Pty Ltd v KPMG Peat Marwick [1999] SASC 214; (1999) 74 SASR 171. The case would more strongly support a conclusion of implied waiver because there the affidavit made in support of the application for pre‑action discovery referred to legal advice received as to the need for such discovery before a decision to sue could be taken. Perry J held that the privilege was not waived. At 174 [19] his Honour said, in remarks which would be apposite to this case:
It will almost invariably be the case that an applicant for pre‑action discovery against the person against whom proceedings are contemplated, will have obtained some legal advice, at least of a preliminary kind, to see whether it is worth pursuing the matter. If in the course of making its application it refers to the fact that it has received such advice, I cannot accept the proposition that a necessary consequence is that it is to be regarded as having waived the privilege otherwise attaching to the advice which has been given.
A decision to similar effect is that of Ledger v Natwest Aust Bank Ltd (Unreported, WASC, Library No 980061, 16 February 1998), a decision of Sanderson M. Generally, see also Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86; (2006) 151 FCR 341, a decision of the Full Court of the Federal Court, particularly at 362 [71] ‑ [72].
Conclusion
I will, of course, order the production for inspection of the documents referred to in pars 1, 2 and 3 of the schedule attached to the defendant's application. I will not make that order in respect of the documents described in par 4. To the extent that I order production, I will exclude those documents which are the subject of client legal privilege. I hold that that privilege has not been waived. I will accept a minute of orders which I would expect would be agreed by the parties. The minute should not only require production within a stated period, but should permit inspection and provide for copies to be taken of any documents required by the defendant, except to the extent that a different regime is required for documents the subject of an asserted legal professional privilege.
The defendant will no doubt drive the process of the production of that minute. It would be convenient if, separately but at the same time, the plaintiff would produce a minute of orders programming the matter to the hearing of its originating summons. In that regard, I refer the parties to Practice Direction 4.1.2, and the usual orders provided in Practice Direction 4.1.2.2, which, would seem to me, could be substantially simplified and truncated in this case.
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