FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (waiver of privilege)

1. [1]

   HER HONOUR: An issue has arisen in relation to the waiver of privilege, on the third day of a three-week trial. Imprecision in the precise details of the parties, facts and issues should be politely overlooked in this ex tempore judgment.

Nature of the proceedings

1. [2]

   Put shortly, Fiona Lock worked for a group of companies, which I will refer to as “CHAMP”. These companies had a number of investments, including a majority stake in a foreign exchange (FX) trading platform called “Pepperstone”. Ms Lock was interested in buying the Pepperstone investment from CHAMP. She negotiated a deal. This included vendor finance of some $150 million. In addition, Ms Lock agreed to share the profits of the Pepperstone business with the vendors for some years after completion of the sale.

2. [3]

   Ms Lock incorporated the plaintiff, FX Group Holdings Pty Ltd, to acquire CHAMP’s shares in Pepperstone from various of the defendants (the vendors). On 2 September 2018, Heads of Agreement were signed. The vendors then retained King & Wood Mallesons to prepare a Share Sale Agreement. Ms Lock retained Clifford Chance to act for the plaintiff.

3. [4]

   On 11 September 2018, a Share Sale Agreement was executed. Some years later, when the profit-sharing arrangement ‘kicked in’, the parties fell into furious disagreement as to the proper construction of the profit-sharing arrangement as recorded in the Share Sale Agreement, specifically, the definition of “Equity Proceeds” and the operation of clause 10, entitled “Uplift Payments”. As I understand it, the difference between their points of view has implications in the order of $100 million.

4. [5]

   In 2022, the plaintiff commenced these proceedings and the vendors filed a cross-claim. So configured:

5. [6]

   Noteworthy, in the rectification suit for common mistake, the vendors assert that the plaintiff understood and intended, at the time of executing the Share Sale Agreement, that it provided for a particular profit-sharing arrangement: para 9, Further Amended Commercial List Cross-Claim Statement (XXCLS). This allegation is denied: para 9, Commercial List Cross-Claim Response to Further Amended Commercial List Cross-Claim (XXCLR).

6. [7]

   In respect of the vendors’ rectification suit for unilateral mistake, the vendors assert that the plaintiff knew or strongly suspected that the vendors were mistaken in their understanding as to how the profit-sharing agreement in the Share Sale Agreement would operate; this is also denied: para 16 of XXCLS; para 16 of XXCLR.

7. [8]

   That is, the plaintiff and Ms Lock’s response to these allegations is confined and makes no assertion as to their state of mind.

The waiver

1. [9]

   The first witness in the trial was Ms Lock, who was cross-examined at length. The following picture emerged:

2. [10]

   It was put to Ms Lock repeatedly in cross-examination that:

3. [11]

   Ms Lock repeatedly denied both propositions. In respect of the second proposition, Ms Lock was taken to a number of contemporaneous emails, spreadsheets and documents which were prepared by, or provided to, Ms Lock over the years following execution of the Share Sale Agreement. It was put to Ms Lock repeatedly that, in fact, she then shared the vendors’ view as to what the Share Sale Agreement meant. In short, it was put to Ms Lock that both she and the vendors intended that the Share Sale Agreement would accord with the Heads of Agreement, and both understood that it did.

4. [12]

   During cross-examination, Ms Lock claimed privilege in respect of questions which may have elicited what she had discussed with Clifford Chance. Further, Ms Lock did not suggest that her state of mind was referable to advice given by Clifford Chance.

5. [13]

   At the conclusion of her cross-examination, Ms Lock waived privilege in respect of an email from herself to Clifford Chance on 7 September 2018, which forwarded a PDF scan of the contentious spreadsheet. The cover email stated:

6. [14]

   Presumably this was done to support Ms Lock's evidence that the spreadsheet which she said that she had created on 5 September 2018 was not a fabrication, but was indeed brought into existence on that date. That she did so is corroborated by the fact that she apparently emailed the spreadsheet to Clifford Chance on 7 September 2018.

7. [15]

   At the request of the vendors’ senior counsel, the trial was adjourned for a little time to enable the vendors to consider the way forward in light of this development. The matter was then re-listed later that day, at which time the vendors sought orders for short service of a subpoena on Clifford Chance and a notice to produce to Ms Lock for the production of additional material. After some discussion, I made orders for production of an initial ‘tranche’ of material, as follows:

8. [16]

   I deferred, until this morning, consideration of whether documents post-dating 12 September 2018 should also be produced. Overnight, the vendors’ solicitors circulated some more ‘targeted’ timeframes for the production of further material, being:

9. [17]

   The issue is whether privilege has been waived over communication between Ms Lock and Clifford Chance after 12 September 2018, in which Ms Lock sought or received advice in respect of the profit-sharing arrangement under the Share Sale Agreement.

Submissions

1. [18]

   The vendors submitted that waiver of privilege in the email of 7 September 2018 led to the waiver of privilege in associated documents. In addition, Ms Lock had put into evidence her state of mind on a matter on which she took legal advice. This led to ‘issue waiver’, as the legal advice was relevant to her state of mind in relation to the profit-sharing arrangement. The legal advice bore on her state of mind and ought now be produced in order that her evidence can be tested; Ms Lock could not now maintain privilege over legal advice relevant to her understanding of the profit-sharing arrangement. Nor should the timeframe for production of such documents end on 12 September 2018. Clifford Chance had given Ms Lock legal advice later in September 2018 when reviewing 'tag' notices, in November 2022 when the Share Sale Agreement was amended, and in 2022 before these proceedings were commenced. Advice given by Clifford Chance after 12 September 2018 may still bear on Ms Lock's state of mind before the execution of Share Sale Agreement.

2. [19]

   Ms Lock’s senior counsel submitted that the rectification suit and related claims of misleading and deceptive conduct all turned on Ms Lock's state of mind and conduct up to 12 September 2018, relying on in DSE (Holdings) Pty Limited v InterTAN Inc [2003] FCA 1191; (2003) 135 FCR 151 at [58], [115] and [123] (Allsop J). Whilst Ms Lock maintained, in the witness box, that she continued to hold that state of mind, she did so when disagreeing with the cross-examiner’s assertions that that had never been her state of mind and did not remain her state of mind.

3. [20]

   In reply, the vendors' senior counsel submitted that, while the ultimate fact in issue was what Ms Lock's state of mind was at the time she signed the Share Sale Agreement, one determined that issue by addressing intermediate facts. While Ms Lock said that she continued to hold that state of mind, the vendors would invite the Court to conclude that those assertions were untrue. That would be a stepping stone to the conclusion that, at the time of the Share Sale Agreement, Ms Lock did not have that state of mind either. Because of what had transpired during cross examination, there was now an issue as to Ms Lock’s state of mind at a series of subsequent points in time, when she may well have received advice from Clifford Chance on the proper operation of the profit-sharing arrangements in the Share Sale Agreement. The circumstances were said to differ from DSE (Holdings).

Consideration

1. [21]

   The vendors contended that privilege had been waived on two bases: first, that waiver of privilege in the email of 7 September 2018 led to the waiver of privilege in associated documents; and, second, on the basis of ‘issue waiver’. It is helpful to consider whether privilege has been waived on each basis separately, albeit the test to be applied in these differing contexts is the same.

2. [22]

   That test is inconsistency between the conduct of the privilege holder and maintaining the confidentiality of communications with their lawyer: s 122(2), Evidence Act 1995 (NSW). And explained in Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at [29]:

3. [23]

   That the contents of the privileged material are relevant to a fact in issue is itself irrelevant. As Macfarlan JA (with whom McCallum JA and Simpson AJA agreed) observed in GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2020] NSWCA 266, “mere relevance of the content of the privileged communications to an issue raised in the proceedings by the privilege holder does not equate to inconsistency — something more is needed. It is of the essence of legal professional privilege that, if maintainable, it entitles a party to withhold potentially relevant documents from inspection by the other party”: at [57].

4. [24]

   In order to determine whether there has been waiver of client legal privilege, the Court is bound to analyse the acts or omissions of the privilege holder that are said to be inconsistent with the maintenance of the privilege: Commissioner of Taxation v Rio Tinto Limited (2006) 151 FCR 341; [2006] FCAFC 86 at [45]. Mere reference to the existence of a privileged communication will not suffice; waiver ordinarily only occurs where the contents of privileged communications are relied upon: Hastie Group Limited (in liq) v Moore (t/as Deloitte Touche Tohmatsu) [2016] NSWCA 305; (2016) 339 ALR 635 at [53] per Leeming JA. As Allsop J summarised the position in DSE (Holdings) at [61]:

5. [25]

   As Bromwich J put it in Cantor v Audi Australia Pty Ltd [2016] FCA 1391, “quite specific inconsistency is necessary to establish waiver. Even reference to legal advice, without more, will not suffice. The inconsistency must be reasonably manifest”: at [99].

6. [26]

   Finally, waiving privilege in one piece of legal advice does not necessarily mean that privilege is waived in subsequent legal advices, including those which opine on the earlier advice. A similar argument was advanced in Stewart v State of Victoria (No 2) [2015] VSC 373, where Lansdowne AsJ observed that neither party had located an authority that discussed the proposition that waiver may extend to subsequently created documents: at [148]. Further, at [149]:

7. [27]

   I agree.

8. [28]

   In her email of 7 September 2018, Ms Lock alludes to an earlier communication with Clifford Chance, presumably as to how the Net Equity Proceeds calculation in the proposed Share Sale Agreement worked. Her email and the attached spreadsheet appear to follow from such a communication. More importantly, Ms Lock asked Clifford Chance whether they agreed with her understanding, laid out in the spreadsheet, as to how the Net Equity Proceeds calculation would work.

9. [29]

   There is an inconsistency between waiving privilege over the email of 7 September 2018 but maintaining privilege in the preceding and subsequent communications with Clifford Chance on that subject. Ms Lock effectively conceded as much, when acceding to orders for production made yesterday: see [16]. Where the Share Sale Agreement was executed on 11 September 2018, the timeframe for the production of documents over which privilege has been waived seems appropriate to capture those communications.

10. [30]

    As I understood it, production for communications after 12 September 2018 was based on “issue waiver”, to which this judgment now turns, albeit noting that the principles already outlined continue to inform that subject.

11. [31]

    ‘Issue waiver’ is just one situation in which the relevant inconsistency may arise. As described in Rio Tinto, “waiver comes about because the privilege holder’s conduct is inconsistent with the continued confidentiality of the communication because he or she has put in issue the character or contents of the communication in pursuing a right or claim, or has created a situation where another party must reasonably do so by way of a defence”: at [54] (emphasis added).

12. [32]

    The simplest example is where a client sues their lawyer for professional negligence for failing to act in accordance with the client’s instructions. Such an allegation is inconsistent with maintaining privilege in the instructions given to the lawyer and the lawyer’s response.

13. [33]

    Another example is Rio Tinto, where the Commissioner of Taxation was required by statute to be satisfied of certain matters in reaching its taxation decision. Rio Tinto pressed the Commissioner for extensive particulars as to how the Commissioner was so satisfied, and the Commissioner ultimately provided a schedule which included eight privileged documents. Rio Tinto then successfully argued that there was an ‘issue waiver’ in respect of legal advice underpinning the Commissioner’s state of mind. The Court described the approach to the task at [65] and [67]:

14. [34]

    Another example is a rectification suit, where the plaintiff “by its plea of rectification alone has necessarily laid open to scrutiny the communications between it and its solicitors” in negotiating the contract: SA EMed Pty Ltd v Calvary Health Care Adelaide Ltd (No 2) [2011] FCA 835 at [27]. In that case, Besanko J held that the issue waiver did not extend to documents which came into existence three months after the contract was signed, “That was well after the relevant events and I was not satisfied that the applicant had by its conduct necessarily laid such documents open to scrutiny”: at [28].

15. [35]

    Another example might be an action raising allegations of undue influence, although there is no categorical list of types of actions that by their very nature may give rise to issue waiver and each case will turn on its own facts and circumstances: Archer Capital 4A Pty Ltd v Sage Group plc (No 3) [2013] FCA 1160 at [26] (Wigney J).

16. [36]

    However, given the importance of privilege as a common law right, issue waiver does not follow “simply by pleading a claim … in which a state of mind is put in issue unless the party expressly pleads reliance upon a privileged communication as a material fact (or particularises a material fact by reference to an otherwise privileged communication) or the very nature of the claim itself demonstrates clear inconsistency”: Austral Dutch Kaolin Pty Ltd v Hanjin P&C Co Ltd [2011] FCA 638 at [22] (Greenwood J). The test, again, is inconsistency as expressed in Rio Tinto at [52]:

17. [37]

    Similarly, in DSE (Holdings), Allsop J observed, “it is too broad a statement to say that a pleading of a state of mind to which legal advice is or might be materially relevant is an adequate surrogate for the expression of principle in Mann v Carnell”: at [95]. Nor does a defendant, in denying by its pleading the existence of a certain state of mind, waive privilege. As Allsop J explained in DSE (Holdings) at [115]:

18. [38]

    In light of these authorities, caution has been urged when drawing up pleadings to avoid ‘issue waiver’, which “often arises through the very nature of the parties’ claim or is elemental to the proof of such claim”: Dr Ronald Desiatnik, Legal Professional Privilege in Australia (4th ed, 2025, LexisNexis) at 297-8. (emphasis in original). The learned author there summarised the state of the authorities: there must be something more than putting a party’s state of mind in issue; it must also be shown that the legal advice was relevant in the formation of that state of mind and reliance on that advice must be pleaded or an essential element of the claim: at 298-9.

19. [39]

    Returning to the case at hand, the plaintiff and Ms Lock have simply denied the vendors’ assertions as to their state of mind at the relevant time. They have not gone further and made a positive assertion as to what, in fact, their state of mind then was. The pleadings have not changed. While a rectification suit is brought, it is brought by the vendors and not Ms Lock.

20. [40]

    Nor do I consider that Ms Lock’s repeated denial of the propositions put to her during cross-examination – as to what her state of mind, in fact, was – amount to waiver of privilege in any legal advice she might have received at the time. Importantly, Ms Lock did not say that her state of mind was based on what she had been advised by Clifford Chance, nor even that she maintained her view on what the Share Sale Agreement meant in the face of advice from Clifford Chance to the contrary. Ms Lock did not refer to Clifford Chance at all. That is, her answers did not refer to any advice given by Clifford Chance and, more importantly, made no assertion about the contents of any such advice such that privilege in that advice was waived.

21. [41]

    For these reasons, I am not satisfied that there has been ‘issue waiver’ in respect of Ms Lock’s state of mind, and any advice given by Clifford Chance which may have contributed to that state of mind, in the ‘targeted’ timeframes proffered by the vendors post-execution of the Share Sale Agreement. I decline to grant leave to issue a further notice to produce or subpoena seeking such documents.