Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 2)

1. [1]

   The background to these proceedings and the relationships between the various parties are described in my judgment in Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited [2015] NSWSC 635 at [1]-[11]. Terms used in these reasons bear the same definitions as when used in those reasons. In brief, these proceedings concern three matters being heard together. The three matters are referred to as the “Licence Fee Proceedings”, the “Sage Proceedings” and the “Oppression Proceedings” respectively. This application concerns materials referred to in an affidavit of a Mr Kym Weir sworn on 31 March 2015, which are said to be privileged.

2. [2]

   By notice of motion filed on 17 June 2015, the Victorian Parties seek access to what they allege is the legal advice disclosed and referred to in [45]-[49] of Mr Weir’s affidavit and invoices issued by Watson Mangioni (WM) referred to in [42] and [44]-[49] of Mr Weir’s affidavit, in addition to the solicitors’ files to which those invoices relate. The Victorian Parties also initially sought access to unredacted copies of other documents in the proceedings, but that application was not pressed.

3. [3]

   The relevant paragraphs read as follows:

4. [4]

   One of the allegations made in the Oppression Proceedings is that the Institute is conducting the Sage Proceedings not for its own benefit, but for the benefit of the majority shareholders. It is also alleged that the subject matter of the Licence Fee Proceedings constitutes a breach of an obligation on the Institute to act with good faith and loyalty towards AIVT.

5. [5]

   On the first day of the trial, reference was made by counsel for the Victorian Parties to a number of WM invoice cover pages. These cover pages disclosed that WM had been billing AIF regarding legal services concerning “member disputes”, which the Victorian Parties say is not something the Institute should be paying for, or obtaining funds from its shareholders to fund.

6. [6]

   Following a dispute regarding whether these allegations were put squarely in the pleadings, a Further Amended Statement of Claim was filed. This included [135A], a paragraph which alleges that shareholder loans were raised to fund legal expenses incurred not for the benefit of the Institute but for the benefit of the majority shareholders or other persons, in relation to the dispute with Mr Hornsey.

7. [7]

   No amended defence has been filed by any party.

8. [8]

   On 31 March 2015 WM emailed the solicitors for the Victorian Parties and served on them the relevant affidavit of Mr Weir.

9. [9]

   Mr Weir’s affidavit was [affirmed/sworn] in his role as Chairman of the Institute. He responded directly to the Amended Statement of Claim. He deposes at [41]-[49] that he received the invoices from WM, reviewed them, and authorised their payment. In [45]-[49] Mr Weir addresses each of the categories of WM invoices referred to in [135A] of the Further Amended Statement of Claim.

10. [10]

    The Victorian Parties submit that, in addressing the invoices, Mr Weir has:

11. [11]

    For those reasons, the Victorian Parties submit that privilege has been waived insofar as it attached to the documents referred to in Mr Weir’ affidavit.

12. [12]

    The Institute says that it is disingenuous to submit that there was no obligation on the Institute, express or implied, to put forward evidence in which it stated its defence to [135A] of the Further Amended Statement of Claim. As a consequence, they submit that the relevant evidence was served under compulsion of law.

13. [13]

    The Institute says that the allegation in [135A] has nothing to do with anyone’s state of mind. It is, they say, an allegation that the legal expenses are not the Institute’s legal expenses and relate to particular kinds of disputes. The Institute says that the fact they resist the allegation says nothing about the substance of any privileged communication and does not put the content of any privileged communication in issue. They say the fact that the Institute received legal services about each of the issues identified in Mr Weir’s affidavit is obvious and not capable, on its own, of waiving privilege regarding communications created in the course of the provision of those legal services.

14. [14]

    The Institute says that privilege is not lost by an opposing party raising an issue. For example, a party claiming costs who seeks taxation of them does not thereby waive privilege in respect of the source documents, although maintenance of that privilege might limit the evidence available to a taxing officer in the event of a dispute (see Giannarelli v Wraith (No 2) (1991) 171 CLR 592 at 602-5 per McHugh J). In this case, the Institute says it is in an even stronger position because it simply denies an assertion by the Victorian Parties that the costs were improperly incurred.

15. [15]

    The Institute says Mr Weir’s affidavit explains the subject matter of the legal services. It says that if there is a dispute about whether those matters are properly matters in relation to which the Institute should be incurring legal expenses, then the parties can have that dispute. This, it says, is perfectly consistent with maintaining privilege in the relevant communications. Similarly, the Institute says there would be no waiver if the Institute made submissions about what should properly be inferred from non-privileged material about the propriety of legal services.

16. [16]

    The Institute submits that the position is not changed by the fact Mr Weir gives evidence about his state of mind by saying he considered the invoices were properly incurred for the benefit of the Institute. The Institute says this evidence merely makes explicit a belief implicit in Mr Weir’s conduct in approving the expenses. The Institute says that the material in Mr Weir’s affidavit is purely defensive and does not maintain a positive case inconsistent with the maintenance of privilege.

17. [17]

    The Institute accepts that the position may be different in circumstances where a party mounts a positive case on the basis of legal advice, because that will involve an express or implied assertion about the content of the legal advice. However, the Institute observes that the content of the advice must be put in issue. In this case, the Institute says it has not gone so far as to say that particular advice, or any particular privileged communication, affected his state of mind.

18. [18]

    The Institute also says that if the position of the Victorian Parties is correct, a mere assertion that legal fees had been properly incurred in response to an allegation of impropriety would be enough to lose the benefit of privilege in respect of the provision of legal services to defend that very claim.

19. [19]

    Furthermore, the Institute submits that there can be no waiver before the relevant parts of Mr Weir’s affidavit are read. First, the Institute submits that it is only when Mr Weir’ evidence is deployed in the proceedings that any relevant inconsistency could arise. Before that time, the Institute says, it has not sought to gain any forensic advantage.

20. [20]

    Second, the Institute says that the affidavit was served under legal compulsion and thus there can be no waiver. In that regard, the Institute says that even if Mr Weir’ affidavit had gone so far as to disclose the substance of the legal advice, there would be no waiver.

21. [21]

    Finally, the Institute submits that no matter what view the Court takes, the Court should refuse to order the production of the WM files. The Institute says those files are not reasonably necessary in order to understand the WM invoices. Second, the Institute says that the cost of production would be enormous.

22. [22]

    Both parties were granted leave to file brief supplementary submissions following the hearing.

23. [23]

    In its supplementary submissions, the Institute drew a distinction between the present case and cases involving documents produced on discovery, and issues concerning waiver that arise in the context of discovery. The Institute accepted that once an affidavit or statement is served by one party on another, the receiving part is free to deploy the affidavit in the proceedings. The Institute argues, however, that that does not waive privilege in any other documents.

24. [24]

    The Institute contends that discovery is inherently a different process to that concerned in the present case. In the case of discovery, the Institute says, there are formal mechanisms to ensure that a claim of privilege can be made. The Court rules require the parties to make an election as to whether a party will assert privilege, but do not compel the production of documents. The Institute says the same cannot be said of affidavits served pursuant to an order made by the Court.

25. [25]

    The Victorian Parties say that the effect of s 122(5)(a)(iii) of the Evidence Act 1995 (NSW) is that, if the affidavit itself were privileged, there would be no loss of that privilege if it were filed and served following directions of the Court. However, in this case the Victorian Parties say there has been no disclosure of a privileged communication under compulsion of law. In the alternative, the Victorian Parties submit that there was nothing to compel the Institute to serve an affidavit that made disclosures in the terms in [45]-[49].

Legal principles

1. [26]

   There is no dispute between the parties as to the relevant legal principles. It is agreed that the fundamental question is whether it is inconsistent with the maintenance of the privilege for the Institute to advance, by way of evidence, the statements in Mr Weir’s affidavit of 31 March 2015.

2. [27]

   In Mann v Carnell (1999) 201 CLR 1 at [29] it was said that (footnotes omitted):

3. [28]

   At [24] of DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499 (Intertan), Allsop J (as his Honour then was) considered at [24] that:

4. [29]

   His Honour went on to say:

5. [30]

   It is clear that privilege is not lost simply because a party raises an issue: Intertan at [96]. Similarly, a party cannot be forced to waive privilege on account of the opposing party making assertions about or seeking to put in issue the opposing party’s state of mind. In Commonwealth v Temwood Holdings Pty Ltd [2002] WASC 107 at [10], Wheeler J observed:

6. [31]

   See also Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377 at [67].

7. [32]

   The parties accept the position will be different where a positive case is mounted on the basis of legal advice. In Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341 at [52]-[53] the Full Court of the Federal Court considered that:

8. [33]

   In Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68 at [65]-[66], Yates J considered that:

9. [34]

   In Esso Australia Resources Ltd v Commissioner of Taxation (1998) 83 FCR 511 Finkelstein J considered the history of legal professional privilege at 557-8:

10. [35]

    In NRMA Ltd v Morgan (No 2) [1999] NSWSC 694 Giles J said:

11. [36]

    The parties accepted that Akins v Abigroup Ltd (1998) 43 NSWLR 539 (Akins) (Mason P with whom Priestley JA and Rolfe A-JA agreed) supported the proposition that where disclosure of privileged documents is compelled by law, privilege will not have been waived. There was controversy between the parties as to whether, on the basis of Akins, service of an affidavit, as opposed to reading an affidavit at trial, will be sufficient to waive privilege.

12. [37]

    In Gillies v Downer EDI Ltd [2010] NSWSC 1323 at [44]-[46], Garling J made the following observations concerning Akins:

13. [38]

    In Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3 at [24]-[25] the Court observed that:

14. [39]

    In Waugh Asset Management v Merrill Lynch [2010] NSWSC 197 (Waugh Asset Management) McDougall J made the following remarks:

Consideration

1. [40]

   Putting aside for the moment the question of whether disclosure was compelled by force of law, I do not consider that Mr Weir’ affidavit puts in issue the legal advice he received. He does not mention the advice. He does not outline how he formed the view the invoices were properly incurred, nor does he mention any regard he had to or reliance he placed upon any legal advice he received. To say that such reliance is implicit in his conduct would be speculative. On the other hand, the weight of his opinion if the affidavit is read is problematic to say the least. But that is not a matter for consideration at the moment.

2. [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.

3. [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.

4. [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.

5. [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.

6. [45]

   I do not find the distinction between an affidavit and a document discovered (raised in the Institute’s submissions) easy to rationalise. However, whatever concerns I might have about Akins v Abigroup are not to the point, and it would be inappropriate for me to comment further.

7. [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.

8. [47]

   In this case the motion should be dismissed. If necessary I will hear the parties on costs. Otherwise I would ask parties to prepare short minutes reflecting these reasons.