Gillies v Downer EDI Limited [2010] NSWSC 1323

New South Wales Supreme Court

CITATION : Gillies v Downer EDI Limited [2010] NSWSC 1323

HEARING DATE(S) : On the papers

JUDGMENT DATE : 3 December 2010

JUDGMENT OF : Garling J

DECISION : 1. Downer is to produce an unredacted copy of the letter dated 15 May 2008 from Deloitte Touche Tohmatsu to the Australian Taxation Office. 2. Downer's notice of motion dated 22 October 2010 is dismissed.

CATCHWORDS : EVIDENCE – Client legal privilege – Waiver of privilege – Where the defendant made a voluntary disclosure to the Australian Tax Office – Where an expert witness was briefed with a copy of that voluntary disclosure letter – Where the expert's report refers to the contents of the voluntary disclosure letter – Where the defendant has served the expert report on the plaintiff – Where the defendant now claims client legal privilege over part of the voluntary disclosure letter – Whether the unredacted parts of the letter could properly be understood in the absence of the redacted parts. - EVIDENCE – Client legal privilege – Waiver of privilege – Where the plaintiff in his affidavit refers to receipt of legal advice from his solicitor in conference – Where the solicitor kept a file note of the conference – Whether the plaintiff has waived privilege over all advice received, and the entire file note of the solicitor.

Evidence Amendment Act 2007 LEGISLATION CITED : Evidence Act 1995 Income Tax Assessment Act 1936 (Cth) Taxation Administration Act 1953 (Cth)

CATEGORY : Procedural and other rulings

Akins v Abigroup Ltd (1998) 43 NSWLR 539 Bailey v Director-General, Department of Land and Water Conservation (2009) 74 NSWLR 333 Bailey v Director-General, Department of Land and Water Conservation (2009) 74 NSWLR 333 CASES CITED : Dubbo City Council v Barrett [2003] NSWCA 267 Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 Mann v Carnell (1999) 201 CLR 1 New Cap Reinsurance Corporation Ltd (in Liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258 Sevic v Roarty (1998) 44 NSWLR 287

PARTIES : Stephen John Gillies (Plaintiff) Downer EDI Limited (Defendant)

FILE NUMBER(S) : SC 2007/265271

COUNSEL : On the papers

SOLICITORS : Dibbs Barker Lawyers (Plaintiff) Corrs Chambers Westgarth (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

GARLING J

FRIDAY, 3 DECEMBER 2010

2007/265271 STEPHEN JOHN GILLIES v DOWNER EDI LIMITED

JUDGMENT

1 HIS HONOUR: Mr Gillies was the chief executive officer of Downer EDI Limited from 1 June 1997 until August or September 2007. The current proceedings relate to the circumstances of his removal from that position, and to outstanding remuneration which he says is owed to him by Downer.

Procedural History

2 Mr Gillies commenced proceedings in this Court against Downer by a statement of claimed filed on 1 November 2007. 3 The matter has been listed before me for case management. In the course of that case management, it became apparent that the parties were in dispute about two matters involving client legal privilege. 4 The first of those matters involved the question of whether Downer were entitled to continue to maintain privilege with respect to a letter dated 15 May 2008 from Deloitte Touche Tohmatsu to the Australian Taxation Office ("the voluntary disclosure letter issue"). They were required to produce the document by a notice to produce. 5 The second matter in issue related to whether Mr Gillies, by swearing his affidavit of 13 October 2010, has waived privilege in any file note of his solicitor, Leonard Lozina, recording a meeting with Mr Gillies on 3 August 2007 ("the file note issue"). This issue arose in the context of the adequacy of the verified list of documents. 6 Rather than requiring the parties to go to the cost and expense of a full hearing on these issues, I decided to deal with the issues on the basis of written submissions, and an inspection by the Court of the documents for which privilege was claimed in accordance with its usual practice: see Bailey v Director-General, Department of Land and Water Conservation (2009) 74 NSWLR 333 at [40] & [59]-[65] per Tobias JA, and s 133 of the Evidence Act 1995. 7 This judgment deals with my decision on these two issues. Principles Relevant to Privilege

8 The principles which relate to client legal privilege are to be found in the Evidence Act. These provisions prevail over the common law. 9 Section 131A of the Evidence Act, which is located within Part 3.10 of that Act, provides: "131A Application of Division to preliminary proceedings of courts

(1) If: (a) a person is required by a disclosure requirement to give information, or to produce a document, which would result in the disclosure of a communication, a document or its contents or other information of a kind referred to in Division 1, 1A or 3, and

(b) the person objects to giving that information or providing that document, the court must determine the objection by applying the provisions of this Part (other than sections 123 and 128) with any necessary modifications as if the objection to giving information or producing the document were an objection to the giving or adducing of evidence.

(2) In this section, disclosure requirement means a process or order of a court that requires the disclosure of information or a document and includes the following: (a) a summons or subpoena to produce documents or give evidence, (b) pre-trial discovery, (c) non-party discovery, (d) interrogatories, (e) a notice to produce, (f) a request to produce a document under Division 1 of Part 4.6." 10 Accordingly, the provisions of Part 3.10 of the Evidence Act are applicable to the issues dealt with in this judgment. Relevantly, ss 118, 119, 122 and 126 of the Evidence Act provide: "118 Legal Advice

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:

(a) a confidential communication made between the client and a lawyer; or

(b) … ; or

(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person;

for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.

119 Litigation

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:

(a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made; or

(b) the contents of a confidential document (whether delivered or not) that was prepared;

for the dominant purpose of the client being provided with professional legal services relating to an Australian … proceeding (including the proceeding before the court), or an anticipated or pending Australian … proceeding, in which the client is or may be, … , a party.

…

122 Loss of client legal privilege: consent and related matters

(1) This Division does not prevent the adducing of evidence given with the consent of the client or party concerned.

(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.

(3) Without limiting subsection (2), a client or party is taken to have so acted if: (a) the client or party knowingly and voluntarily disclosed the substance of the evidence to another person; or

(b) the substance of the evidence has been disclosed with the express or implied consent of the client or party.

(4) The reference in paragraph (3)(a) to a knowing and voluntary disclosure does not include a reference to a disclosure by a person who was, at the time of the disclosure, an employee or agent of the client or party, or of a lawyer of the client or party, unless the employee or agent was authorised by the client, party or lawyer to make the disclosure.

(5) A client or party is not taken to have acted in a manner inconsistent with the client or party objecting to the adducing of the evidence merely because: (a) the substance of the evidence has been disclosed: (i) in the course of making a confidential communication or preparing a confidential document; or (ii) as a result of duress or deception; or (iii) under compulsion of law; or (iv) …;

…

126 Loss of client legal privilege: related communications and documents

If, because of the application of section …, 122, …, this Division does not prevent the adducing of evidence of a communication or the contents of a document, those sections do not prevent the adducing of evidence of another communication or document if it is reasonably necessary to enable a proper understanding of the communication or document."

The Voluntary Disclosure Letter Issue

11 Sometime in 2007, Downer conducted an internal investigation into Mr Gillies' remuneration arrangements. The investigation was led by Ms Vivian Tam (Downer Group Financial Controller) and Mr Bruce Crane, an external consultant.

12 At around that time, Downer engaged Corrs Chambers Westgarth to advise it on "issues of employment law". It is unclear if that engagement was or became part of Corrs' engagement to act for Downer in the present litigation.

13 Corrs then engaged Deloitte Touche Tohmatsu to conduct a forensic investigation into payments that Downer made to Mr Gillies between 1 July 1997 and 31 August 2007. Corrs later engaged Deloitte to conduct further forensic investigation into payments made to 10 other head office employees.

14 On 15 May 2008, Deloitte sent a letter to the Deputy Commissioner of Taxation by way of a voluntary disclosure, on behalf of Downer, of certain information that had arisen as a result of their investigations. From the last paragraph of page 2 to the last paragraph of page 7 (inclusive), the ATO Letter contains information arising from the Deloitte's investigations.

15 At a directions hearing on 22 June 2010 in the present litigation, the Court ordered Downer to serve any expert evidence upon which it intends to rely by 30 July 2010.

16 On 16 July 2010, Corrs engaged Ms Jenny Wheatley, a principal of WHK Horwath, to prepare an expert report on certain tax and accounting issues. As part of this engagement, a copy of the ATO Letter was provided to Ms Wheatley, although it is not clear precisely when. 17 The letter of engagement dated 16 July 2010 does not list the ATO Letter in "Annexure B – List of briefing materials". However, Ms Wheatley's expert report, which is dated 29 July 2010, refers at paragraphs 111 and 114 to the ATO Letter, and lists it as one of the "sources of information" at item 73 of Appendix 1.

18 I presume that Ms Wheatley's report was served on the plaintiff on or about 30 July 2010 in accordance with the Court's order. On 19 August 2010, a copy of the ATO Letter was also provided to Mr Gillies, but with the section from the last paragraph of page 2 to the last paragraph of page 7 (inclusive) redacted. Mr Gillies then issued a notice to produce dated 30 August 2010 seeking production of the unredacted ATO Letter.

19 Downer claims client legal privilege over these redacted sections of the ATO Letter. Downer also says that this privilege was not waived either by the provision of the ATO Letter to the ATO on 15 May 2008, or by the provision of the ATO Letter to Ms Wheatley for the purposes of the preparation of her expert report. Downer's Submissions

20 The basis for Downer's claim of client legal privilege over the ATO Letter is a little unclear. It is not specifically dealt with in Downer's submissions.

21 It does not appear to me that Downer is claiming that the ATO Letter was itself prepared for the dominant purpose of Corrs providing Downer either with legal advice, or with professional legal services relating to litigation. On its face, the dominant purpose of preparing the ATO Letter was to provide voluntary disclosure to the ATO of certain taxation matters. That was the only purpose of the letter.

22 Rather, the real basis of Downer's claim for privilege seems to be that the underlying forensic investigations conducted by Deloitte, including the forensic report which was prepared, are privileged. If this is the case, Downer's claim must be based on either s 118(c) or s 119(b) of the Evidence Act, and proceed as follows: (a) the forensic report is a "confidential document"; and

(b) the forensic report was prepared by Deloitte for the dominant purpose of Corrs providing legal advice to Downer; or

(c) the forensic report was prepared for the dominant purpose of Downer being provided with professional legal services relating to an Australian proceeding; and

(d) producing the ATO Letter in its entirety would result in disclosure of the contents of that forensic report.

Was the Forensic Report of Deloitte a "confidential document"? 23 Section 117 of the Act defines "confidential document" to mean: "a document prepared in such circumstances that, when it was prepared:

(a) the person who prepared it; or

(b) the person for whom it was prepared;

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law."

24 The forensic report was prepared by Deloitte on Corrs' instructions. The letter of instruction has not been provided to me as part of the materials, but I am prepared to infer that it would probably have contained an express obligation for Deloitte not to disclose the contents of its findings. In any event, the person for whom it was prepared, Corrs, were under professional obligations as solicitors not to disclose its contents, at least in the absence of their client's consent. 25 The forensic report was, I am satisfied, a confidential document.

What was the dominant purpose of preparing the Forensic Report?

26 For the following reasons, I am satisfied that the forensic report was prepared for the dominant purpose either of Corrs providing legal advice to Downer, or of Corrs providing legal services in respect of the present Gillies litigation.

27 In the ATO Letter, Deloitte says, by way of background, that the forensic investigation was conducted after an internal Downer investigation indicated that there might be evidence to support the existence of anomalous conduct in respect of payments made to Mr Gillies.

28 Deloitte were engaged directly by Corrs, after Corrs had itself been engaged by Downer to "advise on issues of employment law".

29 The issues to which the forensic investigation was directed, namely the remuneration and bonus payments made by Downer to Mr Gillies, are issues central to the current litigation.

30 Although the results of the forensic investigation were ultimately used to form part of a voluntary disclosure to the ATO, there is no suggestion that they were circulated widely to Downer personnel for use in other ways beyond legal advice or litigation (eg, to improve its remuneration management systems etc). Nor is there any suggestion of any other circulation or use which would be inconsistent with the purpose described. 31 Accordingly, as I have indicated, I am satisfied that the relevant dominant purpose of the preparation of the forensic report was one which accorded with either or both of s 118 and s 119 of the Evidence Act. Would disclosure of the entire ATO Letter result in the disclosure of the contents of the forensic report?

32 The redacted section of the ATO Letter sets out in some detail a summary of the findings made by Deloitte in its forensic investigation, as well as the processes that Deloitte undertook in its investigation. As Deloitte prepared both the forensic report and the ATO Letter, I am satisfied, for the purposes of this application, that it is probable that the ATO Letter contains excerpts and tables taken directly from the forensic report.

33 I would conclude that disclosure of the redacted material would result in the disclosure of at least some of the contents of the forensic report.

Lost of Privilege – The Legal Test

34 The question which then needs to be considered is whether Downer has lost the privilege which otherwise exists for the document. It is appropriate to commence by identifying the legal tests applicable to the issue of whether Downer has lost that privilege. 35 Section 122(2) provides a single test for determining whether client legal privilege is lost or waived, namely, whether the client has acted in a way that is inconsistent with the claim for privilege.

36 Sections 122(3) and 122(5) then provide the Court with some guidance on the application of that test. The following points are particularly relevant to the current determination:

(a) the client is taken to have acted inconsistently with the maintenance of privilege if the client knowingly and voluntarily disclosed the substance of the evidence to another person: s 122(3)(a);

(b) the client is not taken to have acted inconsistently with the maintenance of privilege merely because the substance of the evidence has been disclosed in the course of making a confidential communication or preparing a confidential document: s 122(5)(a)(i); or under compulsion of law: s 122(5)(a)(iii).

37 In applying this test, the Court is necessarily informed by considerations of fairness, although in the High Court of Australia Gleeson CJ, Gaudron, Gummow and Callinan JJ, said in Mann v Carnell (1999) 201 CLR 1 at [29]: "What brings about the waiver is the inconsistency, which the courts, where necessary informed by the consideration of fairness, perceive, between the conduct of the client and maintenance of confidentiality; not some overriding principle of fairness operating at large." 38 Although the High Court of Australia was concerned in that case with the test for waiver of legal professional privilege at common law, the same principle has been applied in considering whether client legal privilege has been lost under s 122(2) of the Evidence Act: Bailey v Director-General, Department of Land and Water Conservation (2009) 74 NSWLR 333 at [81] and [135]ff.

Was Privilege Lost by Disclosure to the ATO?

39 The thrust of Downer's submissions seems to be that the ATO Letter was a "confidential communication" for the purposes of s 117 of the Evidence Act, and as such its dispatch falls within the conduct contemplated by s 122(5)(a)(i) of the Evidence Act.

40 In addition, Downer submits that its intention, in including details of the forensic report in the ATO Letter, was solely to provide background information to the ATO, and that the substance of the ATO Letter is in fact in the unredacted sections.

41 I have earlier referred to the contents of s 117 of the Evidence Act which defines the meaning of confidential communication. It includes a communication to a person, who when it was received, was under an obligation not to disclose its contents, whether or not such an obligation arose under law. 42 As Downer's submissions note, under s 16 of the Income Tax Assessment Act 1936 (Cth) and s 3C of the Taxation Administration Act 1953 (Cth), ATO officers operate under statutory obligations to maintain secrecy over information provided to them. These statutory obligations would clearly bring the ATO Letter within the definition of "confidential communication" in the Evidence Act, and the sending of that letter the making of a confidential communication.

43 On that basis, under s 122(5)(a)(i) the provision of the ATO Letter to the ATO, without more, is not sufficient to render Downer's conduct inconsistent with its privilege claim.

Was Privilege Lost by Disclosure to Ms Wheatley?

44 The unredacted ATO Letter was provided to Ms Wheatley, apparently by Corrs (although it does not form part of the original list of briefing materials), and was relied upon by Ms Wheatley in preparing her expert report. That report was then served on Mr Gillies pursuant to an order of this Court.

45 It may be arguable that Ms Wheatley's expert report is itself open to a claim by Downer for client legal privilege on the basis of s 122(5)(a)(iii), and so incapable of being the means by which Downer loses privilege over the ATO Letter. There is support for such a proposition in Akins v Abigroup Ltd (1998) 43 NSWLR 539 at 552, per Mason P; and Sevic v Roarty (1998) 44 NSWLR 287, particularly at 293 per Sheller JA. 46 That line of authority should be treated with some caution for the following reasons: (a) It has recently been subject to criticism from the Full Court of the Federal Court of Australia in Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 at [24]-[27] per Branson, Sundberg & Allsop JJ; and by the Court of Appeal in Dubbo City Council v Barrett [2003] NSWCA 267 at [20] per Young CJ in EQ.

(b) Sevic v Roarty applied an earlier version of s 122, the terms of which are different from the current section. The relevant sub-paragraph at that time provided: "(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if a client or party has knowingly and voluntarily disclosed to another person the substance of the evidence and the disclosure was not made: … (c) under compulsion of law, …"

(c) Section 131A, which was introduced by the Evidence Amendment Act 2007 and came into force on 1 January 2009, and thus did not exist at the time of the decisions of Akins and Sevic, effectively requires the Court to determine a pre-trial claim for privilege as though the claim was made in the course of adducing evidence at trial. It seems at least arguable that, for the purposes of determining whether privilege is lost, there should no longer be a distinction between an expert report served pursuant to case management orders prior to the commencement of a trial and the calling of witnesses, and an expert report relied upon during the trial once a witness has been called; (d) The consequences of the decision in Sevic were most impractical from the perspective of the efficient running of the litigation, including the proper and efficient preparation for trial and the taking of evidence at the trial. Those consequences do not fit comfortably with modern case–management practices, and in particular the "… just, quick and cheap …" principle to which litigation is subject in this Court. 47 It is unnecessary to finally determine this question because, importantly, Downer does not claim privilege over Ms Wheatley's expert report, and does not rely on s 122(5)(a)(iii) as a basis to deny loss of privilege over the ATO Letter.

48 Downer's submission, in essence, is that the mere reference to the ATO Letter in Ms Wheatley's report is not enough for Downer to lose privilege over the redacted part of that document.

49 The authorities that deal specifically with loss of privilege over documents that are relied upon in expert reports, within the statutory regime created by s 122, are few. The most direct authority is a decision of White J in New Cap Reinsurance Corporation Ltd (in Liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258 at [38]-[54], where his Honour summarises the previous common law authorities on this issue and poses the relevant test at [53]: "The question is not merely whether it could be said that the privileged materials were used in such a way that they could be said to influence the content of the report, but whether it could be said that they influenced the content of the report in such a way that the use or service of the report would be inconsistent with maintaining privilege in those materials, such as, where it would be unfair for the party to rely on the report without disclosure of those materials … … privileged communications between an expert and the party's lawyers whereby material information is provided to the expert in the form of assumptions or documents may well influence the content of the report. However, an expert's report is required to state what material and assumptions are relied on. Use of a final report, which refers to such materials and assumptions, is not inconsistent with maintaining confidentiality in the communications which produced the final product." 50 Downer's submissions cite only a reduced version of this test. New Cap has been cited in subsequent judgments of this Court and the Federal Court of Australia, but not specifically dealing with this test or in determining whether documents referred to in an expert report are still privileged.

51 It should further be noted that New Cap was decided under the old s 122, which was substantially amended by the Evidence Amendment Act, which became effective from 1 January 2009. 52 It seems to me that the following observations are relevant to the application of this test in this case.

53 Ms Wheatley's report does not disclose any communications from Corrs or Downer, other than an "engagement" on 23 June 2010 and a letter of instruction of 16 July 2010. As I have earlier said, it is unclear precisely when, and under what circumstances, the ATO Letter was provided to Ms Wheatley.

54 Corrs' letter of instruction of 16 July 2010 contains a series of nine questions for Ms Wheatley. The ATO Letter is directly relevant to questions 5 and 9.2. (a) Question 5 is: " What, if any, were the accounting and tax consequences of Mr Gillies causing his bonuses, from time to time, to not be paid to him but to be held by Downer as a pool of Retained Bonuses? "

(b) Question 9.2 is: " Was any form of tax payable on or in relation to the Car Loan by… Downer? "

55 Annexure A to the letter of instruction contains background information for each of these two issues. It does not refer specifically to the ATO Letter.

56 The ATO Letter is one of 84 documents listed as "Sources of Information" by Ms Wheatley in Appendix 1 to the expert report.

57 In expressing her answers to questions 5 and 9.2, Ms Wheatley makes several references to the ATO Letter. These references are set out in summary form in the table below: Paragraph 111, footnote 32 Q5 To support the statement that no payment of PAYG withholding tax was remitted by Downer to the ATO, calculated by reference to the Retained Bonuses in respect of the 2001, 2002 and 2003 taxation years. Paragraph 114 & footnote 34 Q5 As one of two alternative views in respect of the appropriate tax treatment by Mr Gillies, for the bonuses paid to him, a view which Ms Wheatley ultimately opines to be the correct view. Paragraph 121 Q5 As one of two alternative views in respect of the appropriate tax treatment by Downer, for the bonuses paid to Mr Gillies, a view which Ms Wheatley ultimately opines to be the correct view. Paragraph 123 Q5 Ms Wheatley sets out her opinion as to whether Downer would be liable to pay Fringe Benefits Tax for the interest during the period when the retained bonuses account of Mr Gillies was overdrawn. She then notes that her opinion is consistent with the view expressed by the ATO Letter. Paragraph 177 Q9.2 To note that an amount of $22,082 was paid to the ATO as part of the ATO Letter, before stating her opinion that Downer would incur an additional Fringe Benefits Liability of $49,141. Paragraph 186 Q9.2 To note that an amount to $22,082 was made to the ATO as part of the ATO Letter.

58 Downer's submissions contend that "all of the references to the [ATO Letter] made in the Expert Report are references to information contained in the unredacted part of the [ATO Letter]". This may not be entirely accurate. Ms Wheatley does not give precise references in her citations of the ATO Letter. 59 The reference at paragraph 111, footnote 32 of the expert report is to non-payment of PAYG for bonuses in respect of 2001, 2002 and 2003. This is indeed referred to in the unredacted part of the ATO Letter (at page 8), but the ATO letter then adds the following proviso: "As noted above, Downer awarded bonuses to Mr Gillies as an employee of Downer and properly accrued them however at the behest of Mr Gillies, these payments were not made. It is apparent that when certain payments were made available to Mr Gillies they were not appropriately processed through the pay-roll but rather the accounts payable system such that there are shortfalls of PAYG withheld by Downer.

It is important to note that the company received no benefit from failing to withhold PAYG in respect of Mr Gillies' bonuses as the gross amount was paid to him." 60 Page 8 of the ATO Letter is substantially reliant on material referred to and set out in the redacted parts of the ATO Letter. I do not think that it can be properly understood in the absence of those redacted parts.

61 As for the references at paragraphs 114, 121 and 123, they are references to opinions expressed by the authors of the ATO Letter, opinions which Ms Wheatley says accords with her own opinions. It is unclear on the face of her report why it was necessary for Ms Wheatley to opine specifically as to the correctness of the opinions in the ATO Letter. However, it is clear from her report that she does embrace those opinions and seeks to use them to bolster those opinions which she expresses.

62 The opinions in the ATO Letter arise from a section subtitled "Voluntary disclosure – Fringe Benefits Tax", and specifically in a subsection headed "(iii) Advances". Notably, at paragraph 2 of that subsection the authors of the ATO Letter "submit" that Downer did not provide any benefits to Mr Gillies, on the basis that the benefits were not authorised or approved by Downer. The balance of the subsection does not clearly articulate the matters upon which Deloitte makes this submission. It seems clear that what Deloitte is doing is to base that submission on the matters set out elsewhere in the ATO Letter in parts which have been redacted.

63 Other possible examples of such internal references within the ATO Letter to the redacted sections can be found in pages 16 and 17, where Deloitte makes a request for remission of penalties and interest charges. The section sets out a series of grounds for this request, all of which seem dependant, at least in part, on the information set out in the redacted part of the ATO Letter. In particular are the following assertions:

(a) " The error was a genuine oversight. "

(b) " We submit that Downer has experienced special circumstances… ";

(c) " As mentioned above, the circumstances that led to the underpayments have now been rectified with Mr Gillies' termination of employment from the company and Downer is confident that the underpayments only occurred during the years/periods disclosed above ."

(d) " We note that Downer has acted promptly to correct the problems and errors that have surfaced recently. They are using their best endeavours to ensure that the correct tax positions are adopted and to lodge the relevant returns on that basis. Their actions indicate a desire to comply with the tax compliance obligations and ratify problems and errors promptly ." 64 In circumstances where the ATO Letter is clearly not readily capable of being regarded as "severable" or else consisting of discrete parts, it is very difficult to quantify or qualify precisely what part of the ATO Letter Ms Wheatley used, and if she used only the non-redacted part, to what extent she relied upon that part. I have concluded that: (a) the redacted section is reasonably necessary to enable a proper understanding of the balance of the ATO Letter, and Ms Wheatley's report: s 126 of the Evidence Act ; and

(b) Ms Wheatley's use of the entire ATO Letter is such that it would be unfair for Downer to rely on the report without disclosure of those materials to Mr Gillies.

65 In those circumstances, I have concluded that it is not open to Downer to maintain client legal privilege for any part of the ATO Letter. It must be produced in an unredacted form in answer to the notice to produce dated and made available to Mr Gillies and his lawyers. The document however remains a confidential one and is subject to the usual restrictions upon the production of documents in the course of litigation.

The File Note Issue 66 On 13 October 2010, Mr Gillies swore an affidavit in reply to a number of affidavits filed by Downer. 67 When responding to the material contained in the affidavit of Mr Barry O'Callaghan sworn 11 August 2010 and in particular to the terms of a conversation of 1 August 2007, which is a central event in the litigation, Mr Gillies in para 20 of his affidavit said: "Annexed to this affidavit and marked with the letter 'E" is a true copy of a document that I prepared on or about 3 August 2007, which records the terms of the conversation I had with Mr O'Callaghan and Peter Jollie on 1 August 2007. I prepared this document on the advice of my solicitor, Leonard Lozina, after I met with him on 3 August 2007, to aid my recollection of what occurred on 1 August 2007 for the purposes of any subsequent case that may occur." 68 The document which is Annexure E consists of two typewritten pages. It records, obviously by way of notes, a version of the background to, and contents of some of the conversations at, the meeting of 1 August 2007 which had been referred to in earlier affidavits in the proceedings. 69 I accept that the description given to it by Mr Gillies in his affidavit is accurate. 70 From the affidavit it is clear, and I would readily conclude, that after the meeting of 1 August 2007 between Mr O'Callaghan the Chairman of Downer, Mr Jollie and Mr Gillies, having regard to the subject matter discussed, Mr Gillies sought legal advice from Mr Lozina about, at least, the matters discussed at the meeting. 71 That Mr Lozina would make a file note of his meeting is entirely unsurprising. Any such file note made by Mr Lozina of that meeting is clearly subject to client legal privilege, on either of the bases set out in s 118 and s 119 of the Evidence Act. Downer does not submit otherwise. 72 Downer submits, however, that the contents of para 20 of the affidavit to which I have referred above, mean that Mr Gillies has either waived his privilege in the file note, or else lost it because of his voluntary disclosure in the affidavit: s 122(3)(a). I would understand that submission to mean, in terms a little different from those put, but which more accurately reflect the provisions of the Evidence Act, that Downer submits that Mr Gillies privilege in the advice which he was given has been lost in one of the two ways described. 73 Once privilege in the advice has been lost or waived, it follows that any document which contains such advice, or else refers to the terms of it, would not be privileged from production. Hence, as I understand the thrust of Downer's submissions, Mr Gillies is obliged to produce for their inspection Mr Lozina's file note which contains the advice. 74 As it is possible for waiver, or voluntary disclosure to operate on part of, and not the whole of, a document, it was necessary for me to inspect the file note in question. I have done so. 75 I am of the opinion that the contents of para 20 of the affidavit constitute a waiver of, or else that client legal privilege has been lost, with respect to any advice which Mr Gillies received about making a record of the conversation of 1 August 2007. The affidavit of Mr Gillies makes reference only to the receipt of advice about making the notes which are attached to his affidavit as Annexure E. He cannot maintain any privilege with respect to that advice. 76 However, he remains entitled to maintain his privilege over all other advice which he received from Mr Lozina in the course of his meeting of 3 August 2007. There is nothing about the contents of the affidavit which lead to any reason either under any of the provisions of the Evidence Act or else as a matter of fairness to hold that Mr Gillies cannot maintain his claim to privilege in any other advice which he received at the meeting with Mr Lozina. 77 The file note of the meeting of 3 August 2007 between Mr Gillies and Mr Lozina, upon my inspection, does not appear to contain any reference to advice about making the notes which became Annexure E to the affidavit. 78 In those circumstances, I am not prepared to order that the file note be produced for inspection by Downer.

Orders

(1) Downer EDI Limited, on or before 4 pm Monday 6 December 2010, produce, in an unredacted form, a copy of the letter dated 15 May 2008 from Deloitte Touche Tohmatsu to the Australian Taxation Office.

(2) Dismiss the motion of Downer EDI Limited dated 22 October 2010 seeking orders for discovery.

(3) Costs in the cause.

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