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State of mind and implied waiver of client legal privilege May 22, 2020

Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2020] NSWSC 620

Ward CJ in Eq

Implied waiver of privilege: whether implied waiver and extent of waiver

  1. The overarching principles in relation to implied waiver are well established. The test is one of inconsistency. In Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66, Gleeson, Gaudron, Gummow and Callinan JJ said (at [29]):

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. Thus, in Benecke v National Australia Bank, the client was held to have waived privilege by giving evidence, in legal proceedings, concerning her instructions to a barrister in related proceedings, even though she apparently believed she could prevent the barrister from giving the barrister’s version of those instructions. She did not subjectively intend to abandon the privilege. She may not even have turned her mind to the question. However, her intentional act was inconsistent with the maintenance of the confidentiality of the communication. 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.

[Emphasis added and footnotes omitted]

  1. In this regard, I also bear in mind that mere materiality to a fact in issue is no ground to remove the privilege. Indeed, as Heerey J said in Equuscorp Pty Ltd v Kamisha Corporation Ltd [1999] FCA 681; (1999) ATPR ¶41-697 (at 42,894), “[i]f legal professional privilege applies, privilege trumps relevance”.
  2. A seminal decision in relation to implied waiver through the putting in issue of the content of a confidential communication is, of course, Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347 (Thomason).
  3. Thomason concerned a claim by the widow of an employee for compensation for loss due to the death of her husband allegedly caused by the negligence of an employer. The employer alleged that the plaintiff had elected to take workers’ compensation and, thus, that her claim was barred. The form of election executed by the plaintiff recited that she had received legal advice from her solicitor as to her rights before signing. At trial, counsel for the employer was permitted to cross-examine the plaintiff as to that advice and to call the solicitor to give evidence. Jordan CJ, for the Full Court, had little difficulty concluding that the evidence was properly admitted and identified two bases to admissibility: first, the plaintiff had disclosed the relevant part of her communication with her solicitor in the written application to the Workers’ Compensation Commission thereby waiving privilege, and second, the fact and nature of the advice was put in issue when the plaintiff joined issue on the employer’s plea of election.
  4. In Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38, McHugh J (see at [39]-[40]) held that revelation of legal advice to support the reasonableness of a compromise or settlement impliedly waives privilege.
  5. As the Judgment Creditors here note, in Archer, Hodgson JA (with whom Campbell JA and Handley AJA relevantly agreed) said (at [48]) that, for the Court to find the necessary inconsistency and relevant unfairness required to affect a waiver of privilege “it may be sufficient that the client is making assertions about the client’s state of mind, in circumstances where there were confidential communications likely to have affected that state of mind…”.
  6. Handley JA, agreeing in the result, said (at [72]):

… The current test established by Mann v Carnell (1999) 201 CLR 1 at 13 [29] is that of inconsistency. Where the client raises an issue such as undue influence, election, or seeks an extension of the limitation period, the client may be making assertions about his or her state of mind based on legal advice. In such a situation as that described by Hodgson JA in par [48], I am inclined to think, in agreement with Hodgson JA, that the raising of the issue will waive the privilege without more…

  1. As has recently been observed by Leeming JA sitting at first instance in this Court (in In the matter of Jimmy’s Recipe Pty Ltd [2020] NSWSC 516 (Jimmy’s), a judgment which I will consider further in due course), this is an area where some nuances in the authorities are observable, particularly in the Federal Court (consider Seven Network Ltd v News Ltd (No 7) [2005] FCA 1092 at [19]-[24] per Sackville J and, more recently, Macquarie Bank Ltd v Arup Pty Ltd [2016] FCAFC 117 at [36]). It is unnecessary here to address those decisions or to attempt to reconcile those nuances.
  2. It is, however, appropriate here to consider in some greater detail the decision of Byrne J in Liquorland, that being an authority on which the Judgment Debtors rely.
  3. Liquorland relevantly concerned an interlocutory dispute as to production of documents over which privilege was claimed. In short, Liquorland had acquired all of the shares in Australian Liquor Group Ltd (ALG). Liquorland then later sued the former directors of ALG for alleged incomplete and inaccurate disclosure of information about the financial position of ALG. Relevantly for present purposes, two of the defendant directors had applied for an order for inspection of documents discovered by Liquorland over which legal professional privilege was claimed. A master had ordered production in relation to communications between Liquorland and its legal advisers which related to the formation of, or evidenced, its state of mind in deciding to declare the takeover offer as unconditional. Liquorland appealed that order.
  4. It was common ground before Byrne J that the documents in question would, in the ordinary course, have been protected by legal professional privilege. However, the directors contended that privilege had been waived by reason of Liquorland putting in issue (in the statement of claim) its state of mind as regards the financial position of ALG at the time of the takeover (see at [5]). The directors argued (see at [9]) that, given Liquorland likely conducted the takeover in close consultation with its lawyers, it was likely that matters as to the extent of knowledge of ALG’s financial position, and related issues, were discussed in communications between Liquorland and its lawyers; and accordingly, that the defendants should have access to those communications in order to test the pleaded assertions.
  5. I interpolate to note that there was no specific pleading that legal advice on these matters had been sought (or given) or of the substance of any privileged communication (see at [9]). In this respect, as Byrne J noted (at [9]), the “… application does not raise for consideration the question of disclosure waiver; that is, whether the privilege attaching to a communication has been waived by a partial disclosure of the content of the communication in a pleading or otherwise” (footnotes omitted). Byrne J (at [10]) described the issue arising as follows:

The proceeding, then, raises a short but surprisingly difficult point: whether, by asserting that it acted in reliance upon a matter, a party to litigation is putting in issue its state of mind in so acting, so as to waive legal professional privilege with respect to legal communications which might have had a bearing on its arriving at that state of mind.

  1. Following an extensive review of the authorities, Byrne J (at [41]) said:

In this debate as to the application of the doctrine of issue waiver where reliance or its equivalent is pleaded by the client, I prefer the narrower approach which has been adopted in South Australia, New South Wales and Tasmania to that favoured by the Federal Court, in so far as there is a difference. Like Heerey J in the Kamisha case, I recoil from a principle which would have the consequence that a client litigant’s plea of reliance in a negligent misstatement case, a misleading or deceptive conduct case or an estoppel case, ipso facto strips the privilege from legal communications which occurred about the time of the reliance. Furthermore, I am resistant to an argument that would have privilege waived in respect of any privileged document which might be relevant to the state of mind which has been pleaded into issue. To my mind, the putting in issue by the client of its relevant state of mind, whether it be one of reliance or otherwise, is merely the starting point for an examination of the waiver question. The chronological coincidence of the legal communication and the establishment of that state of mind does not of itself determine the question. The application of the test of unfairness, as expounded by the High Court, involves an examination of the precise nature of this pleaded state of mind and of the impact of the particular communication upon it. It is only where this examination shows that there will arise an unfair inconsistency between the position of the client setting up this state of mind and its maintenance of the privilege that waiver will arise and, then, only to the extent necessary to avoid the unfairness.

[Emphasis added]

  1. The admissibility of solicitor-client communications in the context of a dispute arising out of a settlement (specifically, the proper construction of a settlement deed, claims on common law and equitable estoppels, rectification in equity, and unilateral mistake) was (in the judgment which I have already referred to) very recently considered by Leeming JA, sitting at first instance, in Jimmy’s.
  2. In short (see at [3]-[5]), the parties in Jimmy’s, prior to executing the settlement deed, had participated in an informal settlement conference at which notes were taken by various persons. The dispute arising for determination was, relevantly, as to the admissibility of parts of those notes.
  3. Relevantly, Leeming JA (at [7]) noted that:

By his positive claims that the deed be rectified in equity and that the plaintiff is unconscionably exploiting his mistaken understanding of the deed, the fifth defendant is propounding his state of mind at relevant times. The deed settled longstanding litigation in which the fifth defendant was represented by solicitors and counsel. There is every reason to think that his lawyers were involved in settling the terms of the deed, in accordance with his instructions, and that his understanding of what the deed involved was informed by legal advice from them.

  1. His Honour there also referred to the decision of Gzell J in Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 (with whom Bryson JA and Windeyer J agreed), where Gzell J said (at [41]):

… In a case like the present one in which reliance upon representations is alleged, questions such as the following need to be explored: Were representations made to the party by or on behalf of the opponent? Does the party say that he or she relied upon the representations and altered his or her course of conduct? Is reliance upon the representations a central, or merely peripheral, aspect of the party’s case? Is it likely that the party received legal advice that had a bearing on the allegation of reliance? Was it likely that the legal advice might raise doubts as to the allegations of reliance or any loses or damage alleged to have been suffered?

  1. His Honour, referring to Jordan CJ’s judgment in Thomason and Giles CJ Comm D’s judgment in Ampolex (to each of which I have previously referred), then observed (at [10]):

… it is “likely” that what was said at the informal settlement conference contributed to the fifth defendant’s state of mind at the time he gave instructions in relation to the settlement deed and executed it … [and that] it would be inconsistent and potentially productive of unfairness for the fifth defendant positively to advance a state of mind while simultaneously maintaining a claim of privilege in the notes of the informal settlement conference. I am conscious that there were subsequent conversations and correspondence prior to the execution of the deed. Nonetheless, the connection is sufficiently proximate to enable the factual inference of likely contribution to be drawn. I have in mind in particular the fact that the conference occupied the whole day (which is a significant time for the seeking, provision and assimilation of an understanding of the position), and also the statements in the fifth defendant’s case that the essence of the settlement proposal in so far as it related to monetary payment did not change from 19 December until execution of the Settlement Deed (“there was no change in negotiating position as to the quantum of that contribution”: affidavit of Mr Krass, 18 April 2020, para 23). This amounts to an implied waiver.

  1. At this point, it is relevant to consider the applicable principles in relation to the setting aside of consent judgment (which will be for the Court to consider when the Set Aside Motion is ultimately to be determined).
  2. In Harvey v Phillips (1956) 95 CLR 235; [1956] HCA 27, Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ (at 243-244) said:

The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like.

  1. Other authorities for this proposition include the judgment of Handley JA (with whom Mahoney JA and Clarke JA separately agreed) in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 (see at 696–697) and his Honour’s learned text, Spencer Bower and Handley, Res Judicata (4th ed, 2009, LexisNexis Butterworths) (see at 244).
  2. Earlier, Lindley LJ in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 said (at 280) that a consent order can be impeached, not only on grounds of fraud (as there alleged), “but upon any grounds which invalidate the agreement it expresses in a more formal way than usual”. Lindley LJ considered that “the only question is whether the agreement upon which the consent order was based can be invalidated or not. Of course, if that agreement cannot be invalidated the consent order is good. If it can be, the consent order is bad”.
  3. In Fitzsimons v Commonwealth Bank of Australia [2012] NSWSC 660, Stevenson J said (at [50]) that a matter of discretion arises, and the court would not set aside a consent judgment “unless satisfied that there was a ‘real possibility’ that the [unpleaded allegations], if allowed, would have led to a different result …”. His Honour there cited Commonwealth Bank of Australia v Quade (1991) 178 CLR 134; [1991] HCA 61 at 142–143 per Mason CJ and Deane, Dawson, Toohey and Gaudron JJ, an appeal relevantly concerning an application for a new trial following a failure to give full and proper discovery.
  4. Meanwhile, in Singh v Ginelle Pty Ltd [2010] NSWCA 310 (Singh), Campbell JA (with whom Beazley P, as Her Excellency then was, and Handley AJA agreed) disavowed (at [36]) the proposition “that the court has a free ranging discretion to set aside a judgment entered by consent if it is in the interests of justice so to do”.
  5. I do not read the judgment of Stevenson J as inconsistent with what was said by Campbell JA in Singh. While the discretion is not “free ranging”, it seems to me that it may be relevant, in deciding whether to set aside consent orders and permit the proceeding to go on, to consider whether the unpleaded allegations would lead to a different result. In any event, it is not necessary at this stage – that is, in determining applications to set aside the GR Notice to Produce and the Xinfeng Subpoena (contra determination of the Set Aside Motion) – to say anything further in relation to this.
  6. In addition to the preceding, which concerns the court’s inherent power to set aside consent orders, r 36.15 of the UCPR provides:

36.15   General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3)

(1)    A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.

(2)   A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent.

  1. Returning to the present dispute before me, it will be recalled that the Judgment Debtors seek to have the Consent Orders set aside on the basis of illegality and, more specifically, that the second basis on which that relief is sought is that Mr Wengsheng Liu was unaware of the (alleged) illegality of the transaction at the time and, by reason of this unilateral mistake (amongst other considerations), the Consent Orders should be set aside.
  2. In relation to the argument as to mistake, as Wheeler J said in Commonwealth of Australia v Temwood Holdings Pty Ltd [2002] WASC 107 (at [10]):

…On the other hand, a party may necessarily put its state of mind in issue in the proceedings by, for example, pleading reliance upon some representation or other or by seeking rectification of the contract for mistake; or a state of mind may be put in issue by some evidentiary assertion which is clearly relevant to the issues between the parties. In these latter types of case, fairness clearly requires the waiver of the privilege in relation to legal advice which may have contributed to that state of mind. It is to be noted, however, that it is the conduct of the party who possesses the privilege which is capable of waiving it. It is not apparently 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.

[Emphasis added]

  1. The above passage was quoted with approval (at [121]) by Allsop J (as his Honour then was) in DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384 (DSE (Holdings)).
  2. True it is that a mistake as to the illegality of the underlying transaction or of the agreement later reached to settle the proceedings on the basis of the Consent Orders does not squarely bring into issue the question of what legal advice was received, as to the merits of the proceedings, at the time or during the course of the proceedings. However, it cannot be dismissed as an irrelevant consideration on the determination of the Set Aside Motion (in other words, if there was, for example, a conscious decision to settle the proceedings because of advice received as to the merits of the underlying dispute then that could be of some relevance – and, more directly to the submissions on the present applications, it might also cast doubt on the existence of the alleged mistake in the first place).
  3. Turning then to the material that is sought by the Xinfeng Subpoena, it clearly seeks the production of material the subject of legal professional privilege, namely production from the Judgment Debtors’ former solicitors of legal advice given in the proceedings prior to their compromise.
  4. I readily accept that Mr Wensheng Liu, by stating that he “did not know” about the asserted illegality and that this might constitute a defence, has put in issue his own state of mind about those matters. That said, I have some difficulty acceding to the submission that the words “amongst others” constitutes assertions as to Mr Wensheng Liu’s belief concerning other defences (that is, other than those already pleaded), rather than those which had already been pleaded in the now compromised proceeding.
  5. Nevertheless, I have no difficulty accepting the likelihood that Mr Wensheng Liu’s state of mind, being his purported ignorance as to the illegality defence, would have been informed by advice from Colin, Biggers & Paisley (or Counsel briefed on behalf of the Judgment Debtors) and that such advice would have contributed to that knowledge (or lack thereof).
  6. I note also that, as the Judgment Creditors submit, Mr Wensheng Liu’s (asserted) ignorance is both that his actions in transferring the money “may have been illegal under Chinese Law” and also that those actions may “constitute a defence, amongst others, to the plaintiffs’ claim”. Again, each of these respective states of mind is likely to have been informed by legal advice from Colin, Biggers & Paisley such that (subject to the issue I raise below as to the situation where the affidavit has not yet been read) the claim of privilege could not here now be maintained.
  7. In these circumstances, I consider that it would be inconsistent for Mr Wensheng Liu positively to advance that asserted state of mind while simultaneously maintaining the claim of privilege in the Colin, Biggers & Paisley advices. I am fortified in this conclusion when one turns to the fact that Mr Wensheng Liu refers to his state of mind “[d]uring the course of these proceedings, including when I agreed to the orders made 18 October 2018” (my emphasis), this being a period over which Mr Wensheng Liu would have undoubtedly obtained, and acted upon, advice from Colin, Biggers & Paisley.
  8. I consider that it would potentially be productive of unfairness if the Judgment Creditors were precluded from testing, with reference to the legal advices, Mr Wensheng Liu’s evidence and I accept that, in order to do so, it is necessary for them to review the (relevant) legal advices.


Implied waiver of privilege: when does the implied waiver arise?

  1. I now turn to consider when the implied waiver arises. That is, whether privilege is waived at the time of service (or filing) of the Set Aside Motion and/or of Mr Wengsheng’s affidavit putting his state of mind or ignorance in issue; or instead, only later if and when a decision was made for the affidavit to be read.
  2. In General Accident Fire and Life Assurance Corp Ltd v Tanter (The “Zephyr”) [1984] 1 All ER 35; [1984] 1 WLR 100 (General Accident), Hobhouse J (as his Lordship then was) distinguished between waiver in a pre-trial process and waiver by use of the evidence at trial.
  3. As the learned author of Cross on Evidence (see J D Heydon, Cross on Evidence (11th ed, 2017, LexisNexis Butterworths)) observes (see at [25015]), waiver before tender in the trial affects only the document itself. Meanwhile, waiver by tender at trial entitles the other party to disclosure of all material bearing upon the communication. This is because, it is said, the opposing party must have the opportunity of satisfying themselves that the disclosure has not been selective (the learned author citing, amongst other authorities, Bailey v Department of Land and Water Conservation (2009) 74 NSWLR 333; [2009] NSWCA 100 at [3] per Allsop P, as his Honour then was, and [120]–[138] per Tobias JA).
  4. In General Accident, cross-examining counsel had put to the witness a memorandum of a conversation to which the witness was a party. That conversation was not privileged. However, the memorandum had come into existence in circumstances which attracted legal professional privilege. The witness did not agree with the recorded account of the conversation such that the memorandum could not go into evidence unless and until it was tendered as part of the defendant’s case. The plaintiff then sought an order that the defendant make discovery of all documents relating to the conversation, including proofs of evidence and instructions to counsel. Hobhouse J rejected that application, first, because his Honour considered that it was premature since the document was not yet in evidence (rather, all that had been waived was the privilege attaching to the memorandum as a document itself); and second, because, if the evidence was later led, then the waiver attached only to the communications with the solicitor recorded in the memorandum (not to the subject matter of the memorandum). The learned author of Cross on Evidence suggests that this is an unduly technical method for approaching the problem and, instead, “[t]he practical difficulties raised by such an application whether at trial or beforehand are best dealt with by a careful and rigorous examination of precisely what is waived rather than by the application of technical rules relating to tender.”
  5. It is appropriate briefly to consider, as relevant, those authorities on which the Judgment Debtors here rely.
  6. Waugh relevantly concerned an interlocutory dispute as to lay evidence in a proceeding concerning an alleged breach of financial agreements related to the acquisition of various hotels. The defendant had filed a written statement of a Mr Stutchbury (who was, at the relevant time, an employee of the defendant and apparently involved in the relevant transaction). In that statement, Mr Stutchbury had referred to issues, or concerns, as to title to the assets that were being sold. It appeared that Merrill Lynch had obtained independent legal advice in relation to due diligence thereof. Mr Stutchbury said in the statement that, as at the start of November 2003, those issues as to good title had still not been resolved to his satisfaction. Crucially, it was suggested, and McDougall J indicated a preparedness to infer from what Mr Stutchbury said in his evidence and from certain of the documents referred to by him (see at [2]) that, by the beginning of November 2003, the defendant had received independent legal advice in order to, as described by Mr Stutchbury, “…assist with its due diligence on title relating to the relevant gaming permits”. The plaintiffs caused a subpoena to be issued and served on the solicitor seeking production of the firm’s relevant files. Those documents were produced but a claim of privilege made. By notice of motion, the plaintiffs sought access. The defendants opposed access (see at [3]).
  7. In relation to purported waiver of privilege, McDougall J considered the position both at common law and under the Evidence Act 1995 (NSW) (Evidence Act).
  8. In relation to the former, McDougall J observed (at [13]) that, “the relevant framework for analysis is … that Mr Stutchbury’s statement was produced pursuant to a requirement of the Court, or produced under compulsion [being extant orders regarding filing of lay evidence]. It is also necessary to bear in mind that the documents to which access are sought are not the pages of the statement itself, or documents explicitly referred to in it, but underlying documents that are said to inform a state of mind that is said to appear from the relevant paragraphs of the statement” (emphasis added).
  9. McDougall J then turned to consider the judgment of Powell JA in Sevic v Roarty (1998) 44 NSWLR 287. That case concerned a privilege dispute concerning an expert report filed with the Court by the Defendant pursuant to the direction given by the Court. One of those reports started with an acknowledgment by the expert author of receipt of a letter of instructions “and the documents concerning this claim in a well indexed folder”. The plaintiff sought production of the letter of instructions and supporting documents. The majority (Sheller JA, with whom Fitzgerald AJA agreed) concluded that the matter should be dealt with under the Evidence Act and that the relevant material was privileged. Powell JA agreed that the material was privileged but reached that conclusion by application of what his Honour considered to be the relevant common law principles. As to the issue of implied waiver, Powell J said (at 308):

… waiver is not to be implied or imputed where the document the delivery of which is relied upon to found the implication, or to support the imputation, of waiver was delivered whether to the other party to the litigation or to a third party – pursuant to an order of a court or otherwise under compulsion of law unless the documents be later tendered in evidence on the hearing of the proceedings…or otherwise used in such a way on the hearing of those proceedings as would make it unfair to the other party not to treat the privilege as having been waived.

[Emphasis added]

  1. Powell J, following a review of the authorities, considered it clear that the report had not at the time been, and might never be, tendered nor had it been used in any other way that could be said to give rise to unfairness. Therefore, his Honour concluded that privilege attached and had not (at that time) been waived.
  2. Returning to Waugh, McDougall J concluded (at [17]) that:

… if the question is one of waiver and is to be dealt with at common law, the answer must be that there can be no implied or imputed waiver of privilege in such legal advice as [the defendant] may have received from [the solicitors] simply because Mr Stutchbury gave evidence of a state of mind which might have been informed by a perusal of that advice. That is so because Mr Stutchbury’s statement was produced – i.e. filed and served – under compulsion of law – this Court’s directions. There is no other suggested basis of relevant unfairness or (for the purposes of s 122) inconsistency.

  1. McDougall J indicated that the same result is, or would be, reached under s 122 of the Evidence Act (referring to Akins v Abigroup Ltd (1998) 43 NSWLR 539 (Akins) and Ingot Capital v Macquarie Equity [2008] NSWSC 25 at [32] per Campbell JA sitting at first instance).
  2. In disposing of an argument for the plaintiff that there was no relevant question of waiver because privilege did not exist once Mr Stutchbury’s statement had been served, McDougall J distinguished (see at [22]) between the statement itself (over which any privilege was lost once it was served on Waugh Asset Management) from the antecedent documents recording the legal advice (it will be recalled, said, in effect to inform or to be relevant to an aspect of what Mr Stutchbury said in his statement but which were not specifically identified or referred to in it). His Honour concluded (see at [22]-[23]):

22.   … The issue that was raised originally seems to me to be the correct one: namely, that the question is whether the evidence that Mr Stutchbury gave (or, more accurately, if called will give) is relevantly inconsistent with (for the purposes of s 122) or constitutes a waiver of (for the purposes of the common law) privilege in those antecedent documents. It does not seem to me to be in any way relevant to a resolution of that question that the document said to effect the inconsistency, or the waiver, (at least, through its service) is not itself privileged.

23.   Accordingly, in my view, the objection taken by [the defendant] at the preliminary level is well founded. Of course, if Mr Stutchbury’s statement is given into evidence, then a different analysis would be required. It would then be necessary to go to the merits of the application and to see whether, in the light of the issues in that case and the use in a forensic sense, sought to be made of the relevant part of Mr Stutchbury’s evidence, there is either inconsistency or waiver. But we are not yet at that stage, and may never get there.

  1. Sackar J in AIF, a decision also here relied on by the Judgment Debtors and to which I have previously referred, reached a similar conclusion. There, parties had sought access to what was alleged to be the legal advice and invoices (and, additionally, to solicitors’ files to which those invoices relate) disclosed and referred to in an affidavit of a Mr Weir (see at [1]-[3]). At the relevant time, the affidavit had not been read (see at [19]).
  2. Sackar J (at [36]) noted, and the parties before his Honour accepted, that the judgment of Mason P (with whom Priestley JA and Rolfe AJA agreed) in Akins supports the proposition that, where disclosure of privileged documents is compelled by law, privilege will not have been waived. However, before his Honour, there was controversy as to whether, on the basis of Akins, service of an affidavit (contra reading the affidavit at trial) is sufficient to waive privilege.
  3. Sackar J considered (at [38]), amongst other authorities, Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3, where the Full Court of the Federal Court observed (at [24]-[25]):

24.   Whilst on the approach that we have taken it is unnecessary to analyse SmoothdaleAkin and Sevic in detail, it appears to us that there is a real issue as to the correctness of those decisions, at least insofar as they deal with the question of waiver at common law by service of statements (or affidavits) of witnesses in advance of the trial.

25.   The difficulty with the approach in Smoothdale is highlighted by the approach of Barrett J in Austress v Marlin [2002] NSWSC 958 in which his Honour distinguished cases such as Smoothdale on the basis that they were concerned with use in one proceedings of a statement or an affidavit filed and served in another. Barrett J, on the other hand, was dealing with the question whether a party could tender, as an admission, parts of an affidavit sworn by the opposing party in the same proceeding. Barrett J said, buttressed by ample authority, that this could be done, because it was within the range of permitted use – the purpose of the proceedings. Barrett J was undoubtedly correct. Thus, it is necessary to posit a limited waiver, within a broad framework of the conduct of proceedings, which may bring about the result (as in Austress) that it is in the other side’s power to destroy the privilege entirely by putting the statement or affidavit into evidence or examining or cross examining on its contents.

  1. Sackar J considered (at [39]) the judgment of McDougall J in Waugh (which I have considered above). His Honour then said (at [41]-[44]):

41.   Upon reflection, I do not consider that a reasonable reading (for what it is worth) of Mr Weir’s affidavit disclosed the substance of the advice, and hence gives rise to the necessary inconsistency. Mr Weir, who is not a lawyer, expresses a view that he thought the fees were properly incurred. On that basis alone, the Victorian Parties submit that privilege has been waived. I do not agree.

42.   If the affidavit is read without objection, it may be that in cross examination a question of waiver will arise. That will be judged if and when it occurs and at the time it occurs.

43.   The second issue, in the light of my reasons, strictly does not need to be decided. However, I accept I am bound by Akins v Abigroup. There has been no application made for any preliminary ruling under s 192A of the Evidence Act, so on the basis of that authority the question of waiver will not arise until the affidavit is sought to be read or deployed in the proceedings. This is not a case where there is a discovered document which is said to be the source of a waiver. The argument that a waiver has arisen is mounted solely on the basis of evidence yet to be read.

44.   This authority raises the question (to which there appears to be no satisfactory answer) of whether a party would have to wait until trial and the reading of the evidence before progressing an argument on the basis of waiver. If may well be that a party could seek an indication of whether or not an affidavit filed and served will be read at trial and then seek a preliminary ruling.

[Emphasis added]

  1. I interpolate to note, and as I have sought to indicate by the emphasis added to the above quotations from his Honour’s reasons, that Sackar J was also of the view that the statements in the affidavit there in question did not disclose the substance of the advice such as to give rise to a waiver of privilege. While I accept that the impugned statements in Mr Wensheng Liu’s affidavit do not disclose the substance of the advice in question, for the reasons explained above, I have found that here implied waiver has arisen.
  2. In that respect, I do also note that Sackar J then said (at [46]):

46.   Issues like these will have to be dealt with in a practical way. Due regard must always be given to such a fundamental privilege as the one under consideration. But essential case management will sometimes require a proactive approach in ensuring fairness to both sides. Service of an affidavit does at least inform the opposing party of both the substance and form of the proposed evidence. It would be a nonsense and unthinkable for a trial, given the costs usually involved, to be unduly interrupted with the belated production of documents. If a waiver has occurred or occurs, say, during cross examination, a trial judge will have to assess the circumstances of any particular case to consider whether a special costs order may or may not be necessary in the circumstances.

[Emphasis added]

  1. Further, I bear in mind what was said by Giles CJ in Comm D in Ampolex where it was argued that it was premature to conclude that fairness required access to documents at the interlocutory stage because the case there put (as to a relevant state of mind) was only an allegation in a pleading and, therefore, the time for inspection was when evidence was led to support the belief or possibly when the party committed themselves to the case in an opening (see at 411). Relevantly, Giles CJ in Comm D rejected that argument saying (at 411-412):

… I am unable to agree. By the pleading [the parties] raised an issue in the proceedings. They thereby became obliged to give discovery of documents relevant to the issue, and documents with apparent relevance to the issue could be subpoenaed. The hearing of the proceedings is to commence on 18 September 1995, and proper preparation of the proceedings calls for timely inspection of relevant documents. While no doubt in some circumstances it may be appropriate to defer inspection of documents produced under subpoena, possibly even discovered documents, until the hearing has commenced … where [the parties] maintain their contention earlier described that which proper preparation requires now should not be deferred. [The parties] waived any privilege by raising the issue, subject to a discretionary power to defer inspection, and insufficient reason has been shown to exercise the discretion in their favour.

[Footnotes omitted]

  1. I have considered whether the appropriate course might be to require the production of the documents but restrict access until such time as a decision was made for Mr Wengsheng Lui’s affidavit to be read. However, an immediate difficulty with that is, of course, that it is difficult to see how the affidavit could not be read if an application for relief based on the asserted mistake by Mr Wengsheng Liu is to be maintained.
  2. In this respect, one must take into account that the Judgment Debtors have very clearly here confirmed (in submissions on the present application) that one of the bases on which the relief in the Set Aside Motion is pressed is the ignorance of Mr Wengsheng Lui of the alleged illegality.
  3. In these circumstances, to my mind fairness requires that the documents be produced at this stage. Put simply, it is not the case that the implied waiver is dependent on what is said in an affidavit yet to be read – rather, it is inherent in one of the two bases on which the very application for relief is sought.
  4. As I have already adverted to and here wish to emphasise, the Judgment Creditors must, as a matter of fairness, be able to test the evidence in the context in which it may well be relevant, as a matter of discretion or otherwise, for the judge determining the Set Aside Motion to know the basis on which the decision to compromise the proceedings was made.
  5. I pause to note that I fully accept that legal professional privilege is a fundamental legal right (as was impressed upon me more than once in the course of argument by Senior Counsel for the Judgment Debtors). Indeed, as was said (at [24]) by Allsop J in DSE (Holdings):

24.   It should be noted, by way of interpolation at this point, that legal professional privilege in Australia is not a mere matter of evidence; it is a rule of substantive law and an important, indeed fundamental, common law right or immunity: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 77 ALJR 40 at 42-43 [9], 43 [11], 49 [44], 56 [85], 56 [86] and 65-66 [132]; 192 ALR 561 at 564 [9], 565 [11], 573-574 [44], 583 [85], 583-584 [86] and 596 [132] and the other High Court cases there cited. This is important to recognise in appreciating the operation of inconsistency, as opposed to some more broad ranging notion of fairness informed, perhaps, by the balancing of competing interests in the administration of justice. The confidentiality is in the nature of an entitlement or a right to keep the communications immune from disclosure; it is acting inconsistently with it that destroys that fundamental entitlement: Mann v Carnell at 13 [29] and Daniels.

  1. However, as the cases (and his Honour in that decision) also recognise, there will be an implied waiver, as a matter of fairness to the other party, of that fundamental legal right where a party conducts itself in a manner that is inconsistent with the maintenance of that privilege.
  2. Again, I consider that, by adopting the position of seeking relief on a basis that relies upon (or, in one sense, exploits) the mistake or ignorance of Mr Wengsheng Liu as to the alleged illegality of the transaction (and at least implicitly disavowing a decision to compromise the proceedings based on a view as to the merits of the proceedings), the Judgment Debtors have already acted so as to waive privilege in legal advice received by them as to the merits of the proceedings. It is, to adopt the words of Leeming JA in Jimmy’s, inconsistent and potentially productive of unfairness for the Judgment Debtors positively to advance a claim for the relief sought on the Set Aside Motion while simultaneously maintaining a claim of privilege in the communications of advice as to the prospects or merits of the proceedings.
  3. Accordingly, I have concluded that legal professional privilege in advices going to the merits of the proceedings (not simply any advice as to the illegality or otherwise of the transaction or of the agreement to compromise the proceedings) has been waived at this point in time.

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