GMCC, LLC v Agenix Ltd[2007] QSC 309

SUPREME COURT OF QUEENSLAND

1. Douglas J:  This is an application for disclosure of documents said to be protected by legal professional privilege.  Paragraph 1 of the application, an application for disclosure generally, was not pursued at this stage.  The defendant is a company sued by the plaintiff for fees claimed to be owed pursuant to an agreement by which the plaintiff acted for the defendant as a financial adviser in connection with potential merger and acquisition opportunities associated with the sale by the defendant of its animal health business to another company. 

2. In a note to a preliminary final report lodged by the defendant with ASX Limited, the Australian Securities Exchange, on 13 September 2006, the defendant said of this litigation:

“Note 9.  Contingent liability

Legal dispute over consulting fees

A former consultant of the company has commenced legal proceedings in Australia against the company in relation to the Animal Health business transaction announced 7 April 2006. The consultant is seeking fees of $500,000 plus reimbursement of legal fees plus interest.

The company has received legal advice that it has no liability whatsoever. 

If the matter proceeds to trial, the company’s potential exposure is estimated at $820,000.”

3. On 21 September 2006 the plaintiff’s solicitors asserted that the note waived privilege that might otherwise have attached to the advice and sought disclosure of it. On 28 September 2006 the defendant lodged its financial statements for the financial year ended 30 June 2006 with the ASX and repeated in note 24(d) the statement already made in the preliminary final report set out above.

4. On 22 December 2006 the defendant advised the ASX of a correction to its financial statements to amend that note 24(d) to change the second paragraph to read:

“The company has received legal advice.  Based on that advice, the company believes that it has no liability whatsoever.”

5. By a further letter from its solicitors of 2 February 2007 the plaintiff again asserted that privilege had been waived in the advice in spite of the change of the language of the note and sought disclosure not only of the advice but also of the documents “that reveal the process of reasoning and the factual assumptions and instructions lying behind that legal advice”. This application extends beyond a request for an order for disclosure of the advice to seek disclosure of “a copy of all documents which were relied on in the preparation of” the legal advice or “which influenced the content” of the advice, including instructions, witness statements, file notes and other documents provided to or generated by the author of the advice for the purpose of obtaining or preparing it.

6. There was uncontradicted evidence from Mr Anthony Finn, the finance manager and joint company secretary of the defendant, that the note was prepared in its original form to explain why the defendant’s potential exposure to a claim of $820,000 should be classified as a “contingent liability” instead of a “provision” under Accounting Standard, AASB137, the standard for “Provisions, Contingent Liabilities and Contingent Assets” published by the Australian Accounting Standards Board in July 2004.

7. If the exposure were recorded as a “contingent liability” it would take the amount out of the financial statements (the profit and loss and balance sheet). If it were treated as a “provision” or as a liability, however, it would have been recorded in the financial statements. This would have increased the defendant’s net loss for that year from $3.721 million to $4.541 million. The advice was relevant to the classification of that exposure as, under AASB137, a potential exposure may be classified as a contingent liability if, for example, it is a present obligation that arises from past events but is not recognised because “it is not probable that an outflow of economic resources will be required to settle the obligation”.^[1] 

8. Mr Finn says in his affidavit that, on about 22 December 2006, he caused an amendment to be made to the note on contingent liability to reflect the fact that it recorded the company’s belief and not its lawyer’s belief which he regarded as desirable to ensure that the note was completely accurate. His affidavit also includes evidence that was not contradicted that he did not prepare the notes “for the purposes of advancing the Company’s commercial interests, or seeking to persuade the world at large as to the merits” of its defence to this action. This was said to meet an assertion to that effect in the letter from the plaintiff’s solicitors of 2 February 2007.

9. In the circumstances it is appropriate to accept Mr Finn’s evidence that he referred to the legal advice to make it clear that the classification of the claim as a contingent liability was based on the company’s belief, following legal advice, that it had no liability. I also accept that the advice was mentioned in order to explain the reason why the defendant believed that its possible further exposure in these proceedings was properly classified as a contingent liability.

10. The plaintiff’s argument was based on a decision of the Full Court of the Federal Court in Bennett v Chief Executive Officer of the Australian Customs Services (2004) 140 FCR 101 where Gyles J, with whom Tamberlin J agreed although not in such general terms,^[2] said at 119-120 that:

“[65] The voluntary disclosure of the gist or conclusion of the legal advice amounts to waiver in respect of the whole of the advice to which reference is made including the reasons for the conclusion. The primary judge was in error in drawing a distinction between conclusion and reasoning in the context of such a disclosure.

…

[68] A decision as to whether privilege in a particular document is waived will normally be a question of fact. However, an error on a question of law may be bound up with the question of fact. That has occurred here. Each of the Tribunal and the primary Judge correctly identified the decision in Mann v Carnell as providing appropriate guidance as to the law to be applied. However, in my respectful opinion, the test has been misunderstood at least in part. The test looks to inconsistency between the disclosure that has been made by the client on the one hand and the purpose of confidentiality that underpins legal professional privilege on the other. It is not a matter simply of applying general notions of fairness as assessed by the individual judge. The authorities to which I have referred show that it is well established that for a client to deploy the substance or effect of legal advice for forensic or commercial purposes is inconsistent with the maintenance of the confidentiality that attracts legal professional privilege.

11. That decision has been applied in a number of other authorities relied on by the plaintiff.^[3] 

12. In Secretary to the Department of Justice v Osland [2007] VSCA 96 at [29]-[42], however, the Victorian Court of Appeal criticised the application of those statements by his Honour as if they constituted rules of general application.  Maxwell P held that the correct position was that the disclosure of the conclusion of legal advice may, or may not, amount to a waiver of privilege in respect of the advice as a whole depending upon whether, in the circumstances of the particular case the requisite inconsistency with the confidentiality which the privilege is intended to protect existed; see at [49].

13. That approach seems to me to reflect the tests developed by the High Court in decisions such as Mann v Carnell (1999) 201 CLR 1, 13 at [28] where Gleeson CJ, Gaudron, Gummow and Callinan JJ said that it was inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege, referring to Attorney-General (NT) v Maurice (1986) 161 CLR 475, 497-498.  Consistently with the approach taken in Maurice, their Honours in Mann v Carnell went on to say at 13, [29]:

“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.”

14. In circumstances such as these, some of the observations made by the Victorian Court of Appeal in Osland are particularly applicable.  Maxwell P, at [42], rejected any view that, at common law, there was a principle that voluntary disclosure of the gist or conclusion of legal advice amounted to a waiver of privilege in respect of the whole of that advice.  He also distinguished a number of decisions, including that in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12, a case that dealt with the disclosure of advice referred to in a Part B statement required to be issued under the Corporations Law in a contested company takeover.  That decision was distinguished in particular because it was based upon the proper construction of s. 122(2) of the Evidence Act 1995 (NSW). 

15. Other relevant conclusions to be drawn from the decision were summarised usefully by Mr O'Sullivan, for the defendant as follows:

“a. because privilege is a rule of substantive law, not of evidence, and an important common law right or immunity … ‘The task for the court is to determine whether this specific disclosure is so clear and inconsistent with the maintenance of the privilege as to be unfair’^[4] (at [47]);

b.the test of inconsistency is well capable of accommodating the notion that, in appropriate circumstances, the privilege-holder should be able to disclose publicly that he is acting on advice and what the substance of the advice is, without being at risk of having to disclose the confidential content of that advice (at [51]);

cin assessing whether there is an inconsistency leading to waiver, ‘the purpose for which the privilege-holder made the disclosure is highly relevant’ (at [63]);

d.the question is whether the use made by the privilege-holder of the information - particularly the purpose of disclosing the conclusion of the advice - is inconsistent with maintenance of confidentiality in respect of the content of the advice (at [63]).”

16. The purpose of the disclosure in Osland by the Attorney-General was held to be to inform the public that the recommendation the Attorney-General had made to the Governor, that a petition for mercy be denied, was based on independent legal advice which had recommended that each ground advanced in a petition for mercy should be rejected; see at [66].  Maxwell P concluded at [66]-[67] that it was a disclosure for the purpose of explaining or justifying the Attorney-General’s actions similar to the disclosure in Carnell where the Chief Minister wished to satisfy the relevant member of the ACT Parliament that its government had acted responsibly and in accordance with legal advice.  His Honour also concluded that it was not a case of a party to litigation deploying a partial disclosure for forensic advantage while seeking unfairly to deny the other party an opportunity to see the full text of the privileged communication. 

17. In this case, as Mr O'Sullivan submitted, it was important that the defendant be able to disclose why it had adopted a particular accounting treatment of its potential exposure to the plaintiff. It promoted the integrity of the accounts and market transparency by the provision of appropriate information to shareholders, potential shareholders and creditors in circumstances where the disclosure has given it no advantage in the litigation. I do not conclude from those references to the advice the defendant received that it thereby waived the privilege in the advice for the purpose of these proceedings.

18. Mr O'Sullivan also submitted, with a degree of justification, that the advice was not relevant to the matters in issue between the parties and therefore not disclosable on that basis. The defendant did not, merely by referring to the legal advice in the notes to the accounts, thereby make that advice an issue in the proceedings. In that context he relied upon a statement made in passing in Adelaide Steamship Co Ltd v Spalvins (1998) 81 FCR 360, 372 A-B as follows:

“In other words the cases are ones in which, in the substantive proceedings brought, the privilege holder has put in issue the very advice received. We observe in passing that it is questionable whether advice can properly said to be in issue in a proceeding merely because it may be relevant to an issue in it: see Rhone-Poulenc Rorer Inc v The Home Indemnity Company (3^rd Cir 1994) 32 F (3d) 851 at 863; save, perhaps, where the proceeding is between client and legal adviser and the advice is relevant to the adviser’s defence of that proceeding.”

19. That passage was subsequently approved by the Full Court of the Federal Court in Commissioner of Taxation v Rio Tinto Ltd (2006) 229 ALR 304, 319 at [53]. 

20. As I am of the view that the defendant has not waived privilege in the advice referred to in the notes to its accounts, it is unnecessary for me to decide whether disclosure could also be resisted on the ground of relevance but, if it were necessary, I would conclude that the advice was irrelevant to the issues sought to be litigated.

21. It also follows that the other documents sought in para. 2(b) of the application, being those relied on in the preparation of the legal advice or which influenced the content of the legal advice, should continue to be the subject of legal professional privilege.^[5]

22. Accordingly paragraph 2 of the application is dismissed. I order the applicant to pay the respondent’s costs of and incidental to para. 2 of the application.