When can your defence amount to a waiver of legal professional privilege?

By Luke Buchanan and Eirene Garnsey.

Key Points:
The decision indicates what a party may plead without giving rise to a waiver.

The recent decision in Australian Agricultural Company Limited v AMP Life Limited [2006] FCA 371 has confirmed that the test for waiver of legal professional privilege is whether the conduct of the party asserting privilege is inconsistent with the maintenance of the confidentiality which underpins the privilege.

The decision also clarified the circumstances in which pleading a particular belief or state of mind (even as a defendant/respondent) will result in waiver of privilege.

The decision goes against the trend of many recent authorities, in that the allegation of waiver was not sustained. In those circumstances, it is instructive as an indication of what a party may plead without giving rise to a waiver.

Background

The decision was made in proceedings between Australian Agricultural Company Limited ("AACo") and two companies in the AMP group, AMP Life Limited and AMP Capital Investors Limited (together "AMP"), following AMP's sale of the shares in Stanbroke Pastoral Company Pty Limited via a tender process in 2003. At the time, Stanbroke was one of the world's largest pastoral companies.

During the tender process, AMP retained a commercial advisor, Rabo Corporate Finance and Securities Pty Limited. Amongst other things, Rabo Corporate was privy to legal advice provided to AMP by AMP's external solicitors.

AACo tendered for the shares in Stanbroke but was unsuccessful. Subsequently, AACo commenced proceedings against AMP, alleging that AMP had engaged in misleading and deceptive conduct in breach of section 52 of the Trade Practices Act and had breached the terms of an alleged process contract (those proceedings are still on foot). Both causes of action related to representations allegedly made by AMP as to the criteria which it would take into account in assessing the tenders received. In substance, AACo's case was that AMP took into account certain "undisclosed criteria" in making that assessment.

In its defence, AMP had denied taking into account the so-called "undisclosed criteria" and had pleaded the reasons why it decided to sell the shares in Stanbroke to a competing tenderer, rather than to AACo. AMP had not brought a cross-claim in the proceedings and in those circumstances, had not itself pleaded any cause of action.

In the course of the proceedings, AMP has claimed legal professional privilege over certain documents, including:

• documents which were otherwise discoverable by AMP; and
• documents produced by Rabo Corporate in response to a subpoena issued at the request of AACo.

AACo brought an application for access to some of the documents over which AMP had claimed privilege, arguing that AMP had waived privilege over those documents by:

• pleadings its corporate state of mind in the defence; and;
• providing its legal advice to Rabo Corporate.

What test will a court use to determine whether privilege has been waived?

Unlike the situation where evidence is being adduced at trial, during interlocutory proceedings in the Federal Court, the common law (and not the Evidence Act) applies in determining whether legal professional privilege has been waived.

Following the decision of the Full Federal Court in Telstra Corporation Limited & Anor v BT Australasia Pty Ltd & Anor (1998) 85 FCR 152, in Australia the common law test for waiver of privilege was one of fairness. However, in Mann v Carnell (1999) 201 CLR 1, a majority of the High Court held that in determining whether waiver of privilege has occurred, it is necessary to consider the conduct of the party asserting the privilege, in order to determine whether that conduct has been inconsistent with the maintenance of the confidentiality which underpins legal professional privilege.

In the present case, Justice Cowdroy, endorsing comments made by Justice Allsop in DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384, confirmed that Mann v Carnell amounted to a rejection of the approach in Telstra Corporation v BT Australasia. He went on to say:

"It is clear that following Mann v Carnell, inconsistency of conduct should be the guiding principle in determining whether legal professional privilege had been waived, although fairness remains an element for consideration in determining whether the conduct is inconsistent."

Accordingly, the concept of fairness, while no longer the overriding factor, has not become entirely irrelevant, as it now informs a court's consideration of whether the conduct of the party asserting privilege has been inconsistent with the maintenance of confidentiality.

How was that test for waiver of privilege applied?

In relation to state of mind, the authorities have established that the conduct of a party which asserts privilege over communications will be inconsistent with the maintenance of confidentiality in those communications if the nature and extent of legal advice has been raised, whether directly or by necessary implication, by that party as an issue in the proceedings.

In the present case, AACo submitted that:

• when a party propounds a positive case that it possessed a certain state of mind, it opens up for examination and testing by the court any evidence as to its actual state of mind
• a defence which invokes a positive state of mind is inconsistent with the maintenance of privilege over documents which contributed to that state of mind; and
• as a consequence, AMP had necessarily waived privilege in relation to its legal advice.

In response, AMP submitted that:

• it was AACo which had invoked AMP's corporate state of mind as an issue in the proceedings and AMP's defence merely responded to the allegations by denying the claims and setting out the actual basis upon which AMP's decision was made
• it was entitled to plead its defence in that manner without being held to have waived legal professional privilege, as a waiver only arises where the holder of privilege makes an assertion concerning the content of the privileged communication (and AMP's defence made no reference to any such communications); and
• if AACo's submissions were accepted, the consequence would be that in any case in which a plaintiff/applicant placed the defendant/respondent's state of mind in issue, the defendant/respondent would risk waiving privilege if it did any more than file a mere denial to the claim made against it (and such a result would be absurd).

Justice Cowdroy did not accept AACo's submission that any positive defence which raises a defendant/respondent's state of mind necessarily constitutes a waiver of privilege. His Honour stated:

"In my opinion, in order to waive privilege a party must assert a belief which is likely to have been, or which is explicitly said to have been, materially dependent upon legal advice given to that party."

Justice Cowdroy found that AMP's pleading was not inconsistent with the maintenance of its legal professional privilege, particularly that:

• the belief pleaded by AMP was not intimately connected with the legal advice given to it at the time
• AMP's defence did not make assertions as to the content of legal advice given to it or state that its decision to accept a competing tender was based upon legal advice
• AMP did not assert a belief in particular legal requirements or consequences, which could be reasonably expected to have been predicated upon legal advice (in which case, the legal advice might be material evidence in the proceedings); and
• AMP had pleaded its belief with respect to the best commercial option which was open to it, a belief informed primarily by commercial advice from Rabo Corporate.

Justice Cowdroy distinguished a number of authorities because in those cases the dispute related to a party's understanding of its legal position at a given point in time.

Disclosing privileged communications to a commercial adviser

Consistent with the position that the common law test for waiver or privilege is one of inconsistency, Justice Cowdroy considered whether AMP's conduct in providing its legal advice to Rabo Corporate was inconsistent with the maintenance of confidentiality in that advice.

In this respect, he held that the disclosure of legal advice in confidence to a commercial adviser cannot be considered inconsistent with the retention of privilege. Accordingly, AMP had not waived privileged by disclosing its legal advice to Rabo Corporate.

Implications

Because the decision goes against the trend of many recent authorities concerning waiver of legal professional privilege (in that privilege was held not to have been waived), it is instructive as an indication of what a party may plead without giving rise to a waiver.

In particular, the decision is authority for the proposition that it is possible to plead that a party had a particular state of mind at a given time without waiving privilege, if the state of mind is not likely to have been, or is not explicitly said to have been, materially dependent upon legal advice given to that party. However, if privilege is to be preserved, it is important that any such pleading:

• not make assertions as to the content of legal advice obtained by the party, or state that a relevant decision was based upon legal advice; and
• not assert a belief in particular legal requirements or consequences which could be reasonably expected to have been predicated upon legal advice (in which case, such advice might be material evidence in the proceedings).

The consequence is that where a plaintiff/applicant invokes the defendant/respondent's state of mind as an issue in proceedings, the defendant/respondent may be able to plead more than a mere denial of the allegations, without being held to have waived privilege.

For further information, please contact Luke Buchanan.