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SUZANNE B MCNICOL [*]
The High Court has granted Esso Australia Resources Ltd special leave to appeal against the decision of the Full Federal Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation.[1] The appeal raises an important and ‘large question’ as to the ‘interrelationship of statute and common law’[2] and in particular the question whether a statute (in this case the Evidence Act 1995 (Cth)) can modify the common law by analogy. It also presents the High Court with the opportunity of reviewing and possibly departing from, its own decision regarding the ‘sole purpose’ test for privilege laid down in Grant v Downs.[3] McHugh, Kirby and Callinan JJ heard oral argument in the case on 14 May 1999 and were very quick to grant special leave. McHugh J, when referring to the issue of revisiting Grant v Downs[4] and the question whether the common law should now be changed because of the changes made by statute to the limited area to which it applies, stated:... the point has excited so much controversy throughout the nation, or at least in the places affected by it, that this Court should really deal with the problem and put an end to the debate one way or the other.[5]
It is proposed in this paper, first, to set out briefly the decision of the Full Federal Court in the Esso case. Here it is argued by the present writer that Esso’s appeal to the High Court should endorse the majority decision of the Full Federal Court in the Esso case. Second, the facts of the Esso case are explained. Third, judgments of the majority of the Federal Court are analysed in detail. In Part 4, the two dissenting judgments of the Federal Court are discussed. Finally, Part 5 examines the important issues arising out of the appeal in this case and concludes with a strong plea to the High Court to embrace its previous decision in Grant v Downs and thereby to continue to adopt a ‘sole purpose’ test for legal professional privilege in Australia.
In the Esso case, the Full Federal Court, by a 3:2 majority (Black CJ, Sundberg and Finkelstein JJ with Beaumont and Merkel JJ dissenting) held that sections 118 and 119 of the Evidence Act 1995 (Cth) only apply to evidence adduced in court and hence those sections do not apply to the production or disclosure of documents at the stage of discovery. In so doing, the majority judges overruled the decision of the Full Court of the Federal Court in Adelaide Steamship Co Ltd v Spalvins[6] which had held that sections 118 and 119 of the Evidence Act 1995 (Cth) had the effect of modifying the common law by analogy. The effect of the majority decision in Esso is that the plain language of sections 118 and 119 dictates that the ‘dominant purpose’ test for client legal privilege should be applied in a courtroom (in proceedings to which the Act applies) whilst the common law ‘sole purpose’ test of legal professional privilege from Grant v Downs[7] should be applied to all processes ancillary to proceedings in which the evidence is sought to be adduced (including pre-trial processes of discovery or the production of documents on subpoena or summons).
It is submitted that the majority decision was surely correct in that a literal and plain interpretation of the Evidence Act 1995 (Cth) dictates that the Act was only ever intended to apply to the adducing of evidence in a courtroom. This view is indeed supported by the available extrinsic evidence, as was pointed out by Black CJ and Sundberg J in their joint judgment.[8] This view is also supported by the recent High Court decision in Northern Territory v GPAO[9] which held, inter alia, that the Evidence Act 1995 (Cth) is concerned with the adducing of and admissibility of evidence, proof and certain ancillary matters. Further, the High Court held that the Evidence Act does not deal with the obligations of a party to whom a subpoena is addressed to produce documents nor with the grant of leave to inspect documents produced in response to a subpoena.[10]
Furthermore, it is submitted that the majority view in the Esso case that the Evidence Act 1995 (Cth) has not modified the common law is also correct. As Black CJ and Sundberg J pointed out, there is but one common law in Australia and it seems impossible therefore to have a common law dominant purpose test applicable in New South Wales and other Evidence Act jurisdictions and a common law sole purpose test at all other times and in all other places.[11] As has been argued in the special leave application in the Esso case to the High Court, the idea of developing the common law by reference to statute only applies where there has been a development in one jurisdiction or in one area of the law and parliament has not thought about its application in another, and the court reasoning, by analogy, decides that it is appropriate at common law to extend the statutory principles into the common law.[12] This view is surely correct in the present writer’s view.
Finally, it will be argued below that the High Court should not overrule or otherwise depart from the majority decision in Grant v Downs.[13] It is conceded that if the sole purpose test of Grant v Downs were abolished by the High Court then a large amount of confusion and inconsistency in the application of (dominant or sole purpose) tests would be eradicated in the trial processes. However, it must be remembered that the sole purpose test imposes some limits on a very broad doctrine of legal professional privilege. And it must also be remembered that it was the legislature, and not the courts, which was responsible for creating the confusion in the first place, by introducing a ‘dominant’ purpose test for client legal privilege which was only applicable in the courtroom. Surely then it is for the legislature, and not the High Court, to rectify the problem.
It is necessary then to consider the facts of the Esso case. The appellant, Esso, commenced proceedings in the Federal Court challenging certain assessments made by the respondent, the Federal Commissioner of Taxation, under the Income Tax Assessment Act 1936 (Cth). Esso resisted production of certain discovered documents on the basis that the documents were protected by client legal privilege because they had been prepared for the ‘dominant’ purpose of giving or receiving legal advice. By notices of motion the respondent Commissioner sought orders under O 19, r 2 of the Federal Court Rules that Esso produce for inspection the listed documents other than those which had been prepared for the ‘sole’ purpose of giving or receiving legal advice. Foster J ruled that the correct test for claiming legal professional privilege in relation to the production of discovered documents was the ‘sole purpose’ test formulated in Grant v Downs[14] and that the court did not have power to make an order pursuant to O 15, r 15 of the Federal Court Rules excluding from production discovered documents on the basis that such documents meet the ‘dominant purpose’ test as set out in sections 118 and 119 of the Evidence Act 1995 (Cth). Pursuant to leave granted by Foster J, the appellant, Esso, appealed to the Full Court of the Federal Court which by majority (Black CJ Sundberg and Finkelstein JJ, with Beaumont and Merkel JJ dissenting) upheld Foster J’s ruling that the correct test for claiming legal professional privilege in relation to the production of discovered documents was the ‘sole’ purpose test of Grant v Downs.[15] The majority (Black CJ, Sundberg and Finkelstein JJ, with Beaumont and Merkel JJ not deciding) also held, differing slightly from Foster J’s ruling on this point, that the court does have the power pursuant to O 15, r 15 of the Federal Court Rules to make an order excluding from production discovered documents on the basis of the ‘dominant’ purpose test, but that to exclude such documents for the reason that they meet the ‘dominant’ purpose test would be an improper exercise of the power. To exercise the power under O 15, r 15 to exclude documents protected by the ‘dominant’ purpose test would be an improper means of (i) extending the operation of sections 118 and 119 of the Evidence Act; and (ii) sidestepping the test laid down in Grant v Downs in favour of the ‘dominant’ purpose test rejected by the High Court in that case but now applied in different circumstances by sections 118 and 119.
Black CJ and Sundberg J in a joint judgment identified three questions raised by the appeal:
The first is whether on their true construction sections 118 and 119 apply only to the adducing of evidence in court or whether they extend to pre-trial discovery. The other questions do not arise unless the sections apply only to the adducing of evidence in court. The second question is whether the sections can be used as the foundation for the modification of the common law stated in Grant v Downs. The third is whether it is a proper exercise of the power in O 15, r 15 of the Federal Court Rules for the court to exclude from production a discovered document for the reason that it meets the dominant purpose test in sections 118 and 119.[16]
On the first issue of construction, Black CJ and Sundberg J held that the plain language of sections 118 and 119 was confirmed by the only directly relevant extrinsic material (ie, Australian Law Reform Commission (ALRC), Evidence Interim Report No 26 (1985) and Evidence Report No 38 (1987)), which showed that Parliament intended that consequence. Their Honours disagreed with McLelland CJ in Eq’s view in Telstra Corp v Australis Media Holdings (No 1)[17] that a position which allows a party to obtain on discovery a document which cannot be adduced in evidence because it is protected by client legal privilege is anomalous, conducive to confusion and disorder, verging on the absurd, or productive of impractical consequences.[18] Black CJ and Sundberg J pointed out:
For one thing, the test of discoverability is not admissibility, but whether it is reasonable to suppose that the document contains information which may either directly or indirectly enable the party requiring the discovery to advance its own case or damage the case of its adversary. A document will answer that description if it may fairly lead to a train of inquiry which might have either of those consequences: see Commonwealth v Northern Land Council (1991) 30 FCR 1 at 23; 103 ALR 267. Many documents which may assist the case of the party seeking discovery will thus come into that party’s hands even though, for one reason or another (including privilege), they cannot be adduced in evidence: see Meltend Pty Ltd v Restoration Clinics of Australia Pty Ltd (1997) 145 ALR 391 at 405 (Meltend) and Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1998) 153 ALR 393 at 418 (Safeway).[19]
Their Honours concluded their consideration of this issue by warning that courts should be very careful that arguments based on anomaly or incongruity are not allowed to obscure the real intention and choice of the Parliament. On the second issue of the analogical use of the sections, Black CJ and Sundberg J held that such an approach is not acceptable in the present case. This was because the extrinsic material discloses a legislative awareness of the limited ambit of corrective legislation proposed by the ALRC and of the Commission’s view that:
it is not “unreasonable to have different tests apply at the two stages of a proceeding. In enacting, without expanding, the sections drafted by the Commission, parliament has evinced an intention that sections 118 and 119 are not to apply to ancillary processes such as discovery. In our opinion that course is inconsistent with judicial freedom to apply the test in those sections to ancillary processes”.[20]
Black CJ and Sundberg J also highlighted two particular difficulties with the statement from the Adelaide Steamship case that the ‘sole purpose test of Grant v Downs ought not to be applied as part of the common law in Evidence Act jurisdictions’. The first is that it ‘contemplates a common law which is applicable only in ‘Evidence Act jurisdictions’, namely, those covered by the Act and the New South Wales Act. However, unlike the position in the United States, there is but one common law in Australia[21] and it seems to us to be impossible to have a common law dominant purpose test applicable to discovery in New South Wales and in other parts of Australia when the issue arises in a federal court (as defined), and a common law sole purpose test at all other times and in all other places’. The second difficulty is that ultimately it is the High Court which declares the common law of Australia, and it is for the High Court to declare that the common law of Australia has been modified and to decide whether one of its previous decisions should no longer be followed. Hence Black CJ and Sundberg J decided that the Full Court in Adelaide Steamship was ‘not free to hold that Grant v Downs ought not to be applied in Evidence Act jurisdictions. Black CJ and Sundberg J concluded:
... we are compelled to the conclusion that Adelaide Steamship was wrongly decided. We are conscious of the need for caution in departing from an earlier decision, but we consider that we should now do so. The issue decided in that case concerns an important area of law of great practical significance and with daily application. It is accordingly more important that the law should be correctly stated than that the status quo constituted by Adelaide Steamship should be preserved in the interests of precedent.[22]
Finally, Black CJ and Sundberg J held on the third issue that it is not so much a question of power as to whether, under O 15, r 15 of the Federal Court Rules, a court could exclude from production a discovered document for the reason that it meets the dominant purpose test. Rather it is a question of whether it is a proper exercise of the power to exclude a document only for the reason that it satisfies the dominant purpose test. Here, their Honours held that it was not.[23]
The third judge in the majority was Finkelstein J. Finkelstein J begins his judgment with an interesting analysis of the question whether pure legal advice, which does not disclose the client’s communications, should be privileged. Finkelstein J refers to Wigmore’s argument that there is no occasion for protecting communications from a lawyer unless the disclosure would hamper freedom of communication by exposing the client’s communications or by leading to inferences as to the terms of those communications.[24] Finkelstein J also refers to other limits on the extent and scope of legal professional privilege by cautioning that statements made in the course of a professional communication but which are ‘unrelated to the obtaining of legal advice’ are not privileged.[25]
Finkelstein J advanced several weighty reasons for refuting the contention that a purposive (and not a literal) approach to sections 118 and 119 should be adopted so that those sections would cover pre-trial procedures including the production of discovered documents. For example, Finkelstein J pointed to the general scheme of Pt 3.10 of the Evidence Act which suggests that it is not concerned with discovery or other methods of gathering information that may assist a party in the prosecution of his or her case.[26] Further, Finkelstein J indicated that there must be a very clear indication that the Parliament intended to impose even greater limits than those created by sections 118 and 119 on the ability of a party to properly and adequately conduct litigation, before a court would be justified in departing from the grammatical meaning of sections 118 and 119.[27] Finkelstein J expressed the view that the fundamental objective of sections 118 and 119 is not to protect from disclosure certain confidential communications. Rather it is to ensure that evidence of certain confidential communications is not to be adduced or given in a proceeding.[28] Finkelstein J strongly rejected the argument that the consequence of applying different principles to discovery and to the adducing of evidence is unjust or absurd. Finkelstein J stated that it is commonplace for a party who is preparing for a case to obtain a large quantity of documents, many of which are not capable of being tendered in evidence for one reason or another. Finkelstein J stated:
In a world where transactions are becoming increasingly complex there are many cases where a party, whether plaintiff or defendant, is not in a position to adequately advance or defend his or her case based on his or her own first-hand knowledge of the facts. Thus, rather than creating confusion and disorder, the ascertainment of facts and information from documents not themselves admissible is often likely to lead to a just determination of a cause.[29]
Finally, Finkelstein J rejected the ‘far-reaching’ submission[30] that the common law must adapt to take account of sections 118 and 119 and arrive at a new set of rules that would see the common law operate in harmony with sections 118 and 119. Finkelstein J expressed the view that the Adelaide Steamship decision (which had promoted this approach) was wrongly decided and should be overruled.[31] Finkelstein J pointed to the ‘insuperable difficulty’ that the suggested adaptation of the common law would require Grant v Downs to be overruled, and that this is a matter that can only be resolved by the High Court.[32] Finkelstein J also questioned how it could be that one piece of legislation could be ‘said to bespeak a new policy that is sufficiently broad so as to inform the common law’.[33] Furthermore, Finkelstein J referred to the fact that the Evidence Act has encroached upon the common law test of Grant v Downs by extending the privilege. But his Honour added:
But it [ie, the Evidence Act] has done so in a limited fashion. It confined the extension to the adducing of evidence in a federal court. The Commonwealth Parliament had the power to, but did not, extend the privilege in other areas within its legislative competence. For example, it did not extend the privilege to the discovery process in a federal court. Nor did it extend the privilege to the production of documents on subpoena. Further, there are provisions in many Commonwealth enactments pursuant to which a citizen may be required to produce documents or provide information. Some are concerned with the investigation of criminal activity, some are concerned with the protection of the revenue and some exist for the purpose of ensuring compliance with the laws of the Commonwealth. The Parliament has chosen not to extend the privilege to any of these areas. This suggests that the Parliament did not necessarily regard the balance between competing policies struck by the High Court to be inappropriate except to the extent that sections 118 and 119 have provided to the contrary.[34]
Dissenting judgments were delivered by Merkel and Beaumont JJ. Merkel J held that the reasoning employed in the Adelaide Steamship case in arriving at the conclusion that the common law had been modified derivatively by reason of the enactment of the Evidence Act was wrong.[35] However, Merkel J went on to hold that the result reached in the Adelaide Steamship case was the correct one despite the erroneous reasoning.[36] The result in the Adelaide Steamship case could also be reached ‘by a process of construction of sections 118 and 119’. Merkel J stated:
... the prohibition in sections 118 and 119 is to be construed as applying explicitly to evidence adduced in proceedings in the federal courts as defined and implicitly to any of the ancillary processes of the federal courts, including discovery, which serve the purpose of determining the evidence to be adduced in a proceeding. That construction gives effect to, rather than frustrates or defeats, a significant object and purpose of the Act, recognises the role of ‘logic and common sense in matters of statutory construction’ (Agfa-Gevaert at CLR 400–1) and ensures that the legal meaning of sections 4(1), 118 and 119 includes what is necessarily or properly implied so as to give effect to the legislative intention gleaned from the language used: see Chorlton v Lings [1868] UKLawRpCP 71; (1868) LR 4 CP 374 at 387 per Willes J and Bennion, Statutory Interpretation, pp 361–8.[37]
Merkel J also relied on the fact that the ALRC Evidence Report No 38 did not assert that it was desirable for a different test to apply at the ancillary process stages (such as discovery) than at the court hearing itself. Beaumont J agreed with the judgment of Merkel J and stated that the legal professional privilege provisions of the Evidence Act should be construed as, in truth, intended to pick up all aspects of the litigious process concerned with the gathering of evidence, including discovery.[38] Beaumont J relied on the House of Lords decision in Taylor v Director of Serious Fraud Office[39] to reach his conclusion that it would be ‘irrational and incoherent (and thus an unlikely parliamentary intention) to introduce a double standard in the present context – one at the stage of tender of evidence at the trial proper, and another at the pre-trial stage of compulsory disclosure of potential evidence’.[40]
In the present writer’s opinion, there are several important issues which arise from the decision in the Esso case. Prior to the enactment of the Evidence Act 1995 (Cth), the position was as follows. Legal professional privilege was governed by a sole purpose test at common law due to the 1976 decision of the High Court in Grant v Downs.[41] Since 1983 in Australia, legal professional privilege has applied not only in curial and quasi-curial contexts but also in non-curial contexts, such as administrative and investigative proceedings, in the extra-judicial processes of search and seizure, and in proceedings before bodies having the statutory power to require the giving of information.[42] This was mainly due to the landmark 4:3 decision of the High Court in Baker v Campbell[43] which proclaimed legal professional privilege as more than just a mere rule of evidence capable of applying in judicial proceedings, but as a fundamental and substantive common law principle capable of applying to all forms of compulsory disclosure, unless some legislative provision expressly or impliedly abrogated it. Then in 1995, the Evidence Act 1995 (Cth) created a privilege, known as client legal privilege, with a dominant purpose test that applies only to the ‘adducing of evidence’ in a curial context (in the federal courts to which the Act applies) and remained silent on other, especially pre-trial contexts. Such a course of action has led to much litigation and confusion, especially on the question whether the Act has an indirect or implied effect on pre-trial contexts. This confusion has undoubtedly also made it difficult for the policy makers in the non-Evidence Act jurisdictions who are charged with the decision of whether or not to adopt the uniform evidence law.
There are, however, anomalies which have been brought about by the Esso decision which will apply even within the Evidence Act jurisdictions; for instance, a ‘sole’ purpose test will apply for legal professional privilege at all pre-trial stages whilst a ‘dominant’ purpose test will apply for client legal privilege at the trial itself. As was pointed out in the Esso case by Black CJ and Sundberg J, it was open to the ALRC to hold the view that it is ‘not unreasonable to have wider access in the investigative stage’ (than at the trial itself).[44] It is conceded that there are those who hold the view that having two different tests pre-trial and at trial is not anomalous. For example, Finkelstein J in the Esso case held that, ‘Rather than creating confusion and disorder, the ascertainment of facts and information from documents not themselves admissible is often likely to lead to a just determination of a cause’.[45] However, there is a strong body of opinion that it is illogical to have one test (ie, a sole purpose test) pre-trial and another test (ie, a dominant purpose test) at the trial.[46] It would be tempting for a final arbiter of appeal such as the High Court to ‘clean up’ the mess by simply overruling its own (majority) decision in Grant v Downs and adopting the minority ‘dominant’ purpose test of Barwick CJ from that decision. This would ensure that a ‘dominant’ purpose test was applied consistently throughout the whole trial process. However, in the present author’s opinion, this would be a mistake. The sole purpose test imposes some limits on a very broad doctrine of legal professional privilege. The sole purpose test is more workable and easier to apply.[47] But even more importantly, as stated in the introduction to this article, it was the legislature which created the problem in the first place (by enacting the anomalous client legal privilege with a dominant purpose test under the Evidence Act 1995) and so it is the legislature (and not the High Court) which should remedy the problem! And, in the present writer’s opinion, this should be done by making two changes to sections 118–120 of the Evidence Act 1995 (Cth). First, Parliament should extend the application of these sections to pre-trial contexts such as discovery and other interlocutory stages of curial proceedings; and second, Parliament should change the ‘dominant’ purpose test to a ‘sole’ purpose test.
In conclusion, it is submitted that it is in the interests of the fair administration of justice that courts have all available evidence before them. It is true that one of the functions of a court of law is to determine and resolve disputes between the parties appearing before it, based on the evidence adduced by those parties. But, more importantly, it is also the function of a court to ascertain the truth. The rationale for the majority decision in Grant v Downs was that legal professional privilege was being used by too many corporate litigants to shield the truth. In an oft-quoted passage, Stephen, Mason and Murphy JJ stated that unless legal professional privilege were confined by a sole purpose test, legal professional privilege would travel beyond the underlying rationale to which it is intended to give expression.[48] The sole purpose test was used as a means of limiting or contracting this unintended growth of the privilege. In a climate today where the privilege is often used by corporate litigants and where the privilege has been extended even further than its original definition,[49] judicial law makers should be cautious in expanding the doctrine again (by substituting a dominant purpose test at common law for a sole purpose test), especially if the sole (or even dominant!) reason for doing so would be to rectify a problem created by Parliament.
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URL: http://www.austlii.edu.au/au/journals/SydLawRw/1999/25.html