The appeal against Potter J’s refusal of the appellants’ application for waiver of the first respondent’s privilege in the caveat proceedings is dismissed.
Costs of $4,000 are to be paid to the first respondent by the second, third and fourth appellants, plus reasonable disbursements, to be set by the Registrar if the parties cannot reach agreement.

REASONS

(Given by Glazebrook J)

Table of Contents

Introduction [1]
The legislation [4]
The judgment under appeal [5]
Forest Park group’s submissions [16]
The respondents’ submissions [24]
Issues [31]
What is the “putting in issue” exception? [32]
Is there a “putting in issue” exception in New Zealand? [36]
Should a “putting in issue” exception be introduced? [40]
Does s 146 require privilege to be waived? [50]
Has there been a waiver of privilege in this case? [55]
Conclusion and costs [67]

Introduction

[1] Proceedings relating to the division of Mr and Mrs Shannon’s relationship property are to be heard in May 2005. At the same time, a claim by the Forest Park group of companies against Mrs Shannon and her solicitor Ms Forbes is to be heard. Those companies are claiming compensation, under s 146 of the Land Transfer Act 1952, relating to caveats they say were lodged without reasonable cause by Ms Forbes, on the instructions of Mrs Shannon, against certificates of title of properties registered in the names of companies in the Forest Park group. Mrs Shannon and Ms Forbes deny that the caveats were wrongfully lodged.
[2] For the purposes of the s 146 claim, the Forest Park group seeks to inspect privileged communications between Mrs Shannon and Ms Forbes concerning instructions given to Ms Forbes relating to the lodging of the caveats. By judgment of 16 August 2004, Potter J dismissed the application for disclosure of these privileged communications. She held both that the privileged communications were not discoverable under a “putting in issue” exception to legal privilege and that Mrs Shannon had not waived privilege. Mr Shannon and the Forest Park group appeal against this decision.
[3] Potter J’s judgment also struck out the pleadings in proceedings filed by Mr Shannon alleging that a judgment of Cartwright J (as she then was) dealing with the date of Mr and Mrs Shannon’s separation had been obtained by fraud. Mr Shannon’s appeal on that issue was dismissed in our judgment of 14 April 2004.

The legislation

[4] Section 146 of the Land Transfer Act provides as follows:

146 Person entering caveat without due cause liable for damages

(1) Any person lodging any caveat without reasonable cause is liable to make to any person who may have sustained damage thereby such compensation as may be just.

(2) Such compensation as aforesaid shall be recoverable in an action at law by the person who has sustained damage from the person who lodged the caveat.

The judgment under appeal

[5] The first ground argued before Potter J by the Forest Park group was that discovery of the information and advice that passed between Mrs Shannon and Ms Forbes relating to the registering of the caveats is necessary to determine the reasonableness of the grounds held by them for lodging the caveats, and thus whether liability can be established pursuant to s 146 of the Land Transfer Act.
[6] After examining the authorities, Potter J held that a caveator who has an honest belief based on reasonable grounds that he or she has a caveatable interest, and who has no ulterior motive, is not liable to pay compensation under s 146. She said that the test for reasonable cause is based on subjective (honest belief, no ulterior motive) and objective (reasonable grounds) considerations.

Potter J then went on to examine the nature of legal privilege. She said that, in both civil and criminal cases, confidential communications between a client and the client’s legal adviser, and certain communications between a client or legal adviser and third parties, do not have to be revealed in evidence. She noted that in R v Derby Magistrates’ Court, ex parte B [1996] 1 AC 487, the House of Lords stated that this was much more than an ordinary rule of evidence; it was a fundamental condition on which the administration of justice rested. That statement was cited with approval by the Privy Council recently in B v Auckland District Law Society [2004] 1 NZLR 326 at 344-345.

[7] Potter J discussed the rationale underlying legal professional privilege, being to enable clients to confide unreservedly in their legal advisers and to encourage free and confident communication between clients and their solicitors, which is necessary for clients to provide instructions to, and receive advice from, their solicitors. Potter J also noted that the privilege is absolute, in that communications between the client and the solicitor may not be given in evidence unless the client waives the privilege.
[8] She then recorded the Forest Park group’s submission that privileged communications are discoverable where the material goes to the core of the cause of action. For that submission, the group relied on a statement in the judgment of Paterson J at first instance in B v Auckland District Law Society (2000) 14 PRNZ 423. However, Potter J considered that this reliance was misconceived, as Paterson J made no statement to that effect. Paterson J permitted discovery of the privileged documents due to the implied waiver of privilege by the client, rather than due to their relevance to the issues. Potter J further considered that the proposition advanced by the Forest Park group would impact dramatically on the doctrine of legal professional privilege, the maintenance of which is fundamental to the administration of justice. The proposition was also in her view inconsistent with the clear affirmation of the doctrine of legal professional privilege by the Privy Council in B v Auckland District Law Society.
[9] On the basis of Gordon v Treadwell Stacey Smith [1996] 3 NZLR 281, Potter J held that whether Mrs Shannon and Ms Forbes had reasonable cause to lodge the caveats would be judged by the standards of a reasonable conveyancing practitioner possessed of the factual information available to the solicitor in the same circumstances. The factual material available and the circumstances that pertained would be determined from the evidence put before the Court, including any expert evidence on reasonable conveyancing practice. Potter J held that the particular instructions and advice is not information necessary to the determination the Court is required to make.
[10] Potter J also discussed Capital Realty v Floratos [2003] NZAR 139, in which Ronald Young J, at [31], had formulated the following test to determine whether privilege had been lost:

(a) Is the privileged material relevant to an issue in the trial?

(b) Is the person asserting privilege attempting to rely explicitly or implicitly on the privileged material in relation to that issue?

(c) Might the absence of the privileged material mislead the Court or opponent on the substantive issue in the litigation?

[11] Potter J considered that Forest Park group failed under both the second and third limbs of Ronald Young J’s test. In this case, the basis for the reasonable belief of Mrs Shannon and Ms Forbes had already been deposed to in their affidavits in the summary judgment proceedings. Their affidavits in opposition to the application for summary judgment asserted that the caveats were filed because Mrs Shannon believed that the companies held the properties on trust for Mr and Mrs Shannon.
[12] Potter J considered that the absence of the privileged material would not mislead the Court or deny the Court essential factual information for the determination of the issues. Potter J also emphasised that Capital Realty v Floratos was decided before the Privy Council’s decision in B v Auckland District Law Society. In light of the Privy Council’s clear affirmation of the doctrine of legal professional privilege, Potter J considered that Capital Realty v Floratos should be confined to its facts. Potter J therefore concluded that the privileged information was not amenable to discovery.
[13] The second ground argued by the Forest Park group before Potter J was that Mrs Shannon had already waived any privilege because she and Ms Forbes had filed affidavits in opposition to the summary judgment application on liability. Potter J held that the question is whether, by reason of some conduct on the privilege-holder’s part, it is unfair to maintain the privilege (Attorney-General for the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475, Equiticorp Industries Group v Hawkins [1990] 2 NZLR 175). The Court must make an objective judgment as to whether the party’s conduct was consistent with maintaining the privilege or constituted an abuse of privilege.
[14] Potter J held that Mrs Shannon and Ms Forbes merely filed affidavit evidence in response to allegations made against them in summary judgment proceedings. This cannot constitute unfairness, abuse of privilege, or conduct by Mrs Shannon that is inconsistent with maintaining privilege. Otherwise, caveators would be in an impossible situation as privilege would be defeated every time a caveat is lodged, simply by the caveatee bringing an action under s 146 of the Land Transfer Act, which the caveator would naturally defend.
[15] In Potter J’s view, Mrs Shannon’s conduct was completely consistent with maintaining the privilege. She had not waived or abused the privilege and there was no unfairness to the Forest Park group in Mrs Shannon claiming privilege. Mrs Shannon and Ms Forbes had already set out their reasons for lodging the caveats. The Court can determine whether the caveats were lodged “without reasonable cause” based on the evidence of Mrs Shannon and Ms Forbes and any further evidence adduced.

Forest Park group’s submissions

[16] Ms Duffy QC, for the Forest Park group, submitted that it follows from Gordon v Treadwell Stacey Smith that the factual information conveyed between Mrs Shannon and Ms Forbes which led to the lodging of the caveats goes to the heart of the group’s ability to prove that Ms Forbes’ standards fell short of the reasonable conveyancing practitioner possessed of the factual information available to her. In her written submission, Ms Duffy also submitted that it also follows that proving liability against Ms Shannon will depend on the nature and quality of the legal advice given to her by Ms Forbes on which Mrs Shannon relied when instructing Ms Forbes to register the caveats. In her oral submissions, however, she limited the material sought to the instructions given to Ms Forbes.
[17] Ms Duffy submitted that New Zealand should recognise an exception to legal professional privilege where material recording legally privileged communications goes to the core of a cause of action, such as in a compensation claim under s 146. The “putting in issue” exception to legal professional privilege is recognised in Australia, the United States, and Canada, although not in England. It was also, in her submission, recognised by Ronald Young J in Capital Realty Ltd v Floratos. Ms Duffy submitted that the Privy Council’s decision in B v Auckland District Law Society does not prevent recognition of the “putting in issue” exception. She pointed out that the Privy Council at [55] stated that it is open to the New Zealand courts to depart from the English approach if that approach is not appropriate to the conditions of New Zealand.
[18] Ms Duffy submitted that it is open to this Court to adopt the principle set out in Wardrope v Dunn [1996] 1 Qd R 224 at 226. That case held that when the contents of a privileged communication became the subject of a legitimate and reasonable issue in litigation, then the privilege is lost. She also referred to Southern Equities Corporation Ltd v Arthur Anderson & Co [1997] SASC 6712; (1997) 70 SASR 166 at 189-193, which sets out the approach based on “fairness”. Similarly, she referred to Hearn v Rhay 68 FRD 574 (1975) (US) which set out the basis for the putting in issue exception in the United States as follows (at 582):

These communications are not incidental to the case; they inhere in the controversy itself, and to deny access to them would preclude the court from a fair and just determination of the issues. To allow assertion of the privilege in this manner would pervert its essential purpose and transform it into a potential tool for concealment of unconstitutional conduct behind a veil of confidentiality. Under these circumstances, the benefit to be gained from disclosure far outweighs the resulting injury to the attorney-client relationship. The privilege should not apply.

[19] Ms Duffy then referred to Paragon Finance Plc v Freshfields [1999] 1 WLR 1183, which rejected the putting in issue exception. She noted that this English approach has been the subject of criticism - see Auburn Generalised Rules of Fairness and Evidence Law (2000) 63 MLR 104. Ms Duffy also remarked that in England where the nature of the legal advice given is directly in issue by legislative requirement, then this entails disclosure of the character of the advice - see Jones v GD Searle & Co Ltd [1978] 3 All ER 654. In her submission, s 146 is just such a provision.
[20] Ms Duffy also submitted that the honesty of Mrs Shannon’s and Ms Forbes’ beliefs that there was reasonable cause to lodge the caveats is directly in issue because Mrs Shannon and Ms Forbes have denied the allegation that they had no such belief. Ms Forbes has also, in her submission, placed in issue the nature of the instructions she received from Mrs Shannon by issuing a notice to admit facts, asking the appellants to admit that Ms Forbes acted in good faith when she lodged the caveats.
[21] In the alternative, Ms Duffy submitted that any evidence given by Mrs Shannon or Ms Forbes on the existence of an honest belief as to reasonable grounds for lodging the caveats will result in the privilege being impliedly waived - see Chandris Lines Limited v Wilson Horton Limited [1981] 2 NZLR 600, Equiticorp Industries Group v Hawkins and Tau v Durie [1996] 2 NZLR 190. She submitted that Mrs Shannon has already waived any privilege attaching to the communications by making disclosures in the affidavits, which were filed in opposition to the summary judgment application. Ms Duffy pointed out that, in her affidavit, Ms Forbes had deposed to the instructions given to her by Mrs Shannon. Mrs Shannon did nothing to challenge that affidavit and must therefore be taken to have waived privilege.
[22] Ms Duffy submitted that Mrs Shannon and Ms Forbes should be required to disclose all privileged communications relating to the lodging of the caveats under the “cherry picking” principles so that the Forest Park group could ensure that the instructions conform to what is said in the affidavit and that complete information is put before the court. In Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corporation & Others (No 2) [1981] Com LR 138 at 139 Mustill J held that:

where a party chooses to deploy evidence which would otherwise be privileged the court and the opposition must, in relation to the issue in question, be given the opportunity to satisfy themselves that they have the whole of the material and not merely a fragment.

[23] Ms Duffy also referred to Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145. There, this Court considered that it had to make an objective judgment as to whether the party’s conduct was consistent with maintaining privilege or constituted an abuse of the privilege.

The respondents’ submissions

[24] Ms Forbes abides the decision of the Court on this issue.
[25] Ms Aikman, for Mrs Shannon, submitted that the authorities from other jurisdictions relied on by the Forest Park group deal with specific situations and do not support an exception to legal professional privilege in this case. In her submission, Hearn v Rhay held that, in the special area of a civil rights claim, privilege attaching to advice from the Attorney-General was limited to advice given to the state officers defending the claim, not the state in general. The exception only applied where the party asserting privilege had used the protected information by some affirmative act for his own benefit and where maintaining privilege would be manifestly unfair to the opposing party. She submitted that in Southern Equities the South Australia Supreme Court examined the exception and concluded that privilege would not apply only where there is an arguable case that the communications were made for the purpose of furthering or assisting a crime or fraud. In her submission, the Court held that it was not enough to allege sharp practice or something falling below the normal standard of commercial probity.
[26] Ms Aikman submitted that these cases therefore do not support a principle that legal privilege is avoided simply where it is alleged that actions of an opponent and solicitor were not “reasonable”. In her submission, the recent House of Lords decision in Three Rivers District Council v Bank of England [2004] UKHL 48 suggests that there is even less scope for exceptions to solicitor-client privilege. This, in her submission, is consistent with New Zealand law as expressed by the Privy Council in B v Auckland District Law Society. Three Rivers emphasised that, if a document qualified for privilege, that privilege could not be overridden by some supposedly greater public interest, even if “as a result cases may sometimes have to be decided in ignorance of relevant probative material” (at [34] per Lord Scott).
[27] Even if there is a “putting in issue” exception to privilege in New Zealand, Ms Aikman submitted that the tests expounded in Capital Realty v Floratos are not met in this case. It is not the privileged material that is relevant to whether the caveats were reasonable, but the objective circumstances in which the properties were purchased and the actions of the parties at the time. This will be the subject of evidence before the Court. In her submission, neither the Court nor the Forest Part group will be prejudiced by not having access to the specific instructions, which can be readily inferred from the evidence filed in the substantive proceedings. In her submission, there is nothing in Gordon v Treadwell Stacey Smith to suggest that the Court should go behind privilege to determine what the actual instructions were, as opposed to examining the factual matrix which existed at the time.
[28] Ms Aikman also submitted that Mrs Shannon did not waive privilege by indicating that she had a defence to summary judgment proceedings. This action did not deploy privileged material in an unfair manner, but merely set out the evidence that would be brought in defence of the substantive claim. Ms Aikman relied on Rochester & Ors v Fujitsu General CA147/02 12 March 2003, which held that the respondents had not waived privilege by filing an affidavit in support of an application to file an amended statement of claim on the basis of advice received from senior counsel. Rather, this Court held that the appellants must show that the statements contained in the affidavits were inconsistent with maintaining privilege.
[29] In her submission, there is nothing to indicate that Mrs Shannon and Ms Forbes have acted inconsistently with the instructions given (as was the case in both Nea Karteria and Derby v Weldon & Ors (No. 10) [1991] 2 All ER 908), or that there has been any attempt to deceive or mislead the Court as to the nature of the advice. Nor is it a case, as in Tau v Durie, where actions are being defended on the basis of legal advice.
[30] To the extent that Ms Forbes, a party to the litigation in her own right, has given evidence of her instructions, this, in Ms Aikman’s submission, cannot waive her client’s privilege. If waiver were to be imputed every time a solicitor gives evidence as to the reasonableness of a caveat, solicitors could be placed in an impossible position between preserving their client’s privilege and defending themselves against unwarranted proceedings.

Issues

[31] The first issue for this appeal is whether there is a “putting in issue” exception in New Zealand. If there is not, the second issue is whether one should be introduced. The third issue is whether s 146 of the Land Transfer Act requires legal privilege to be overridden. The final issue is whether there has been an actual or implied waiver of privilege in this case. Before we move to those issues, we set out the elements of the “putting in issue” exception, as established in the Australian cases.

What is the “putting in issue” exception?

[32] The “putting in issue” exception, at its broadest, was articulated in Wardope. That case concerned an allegation that the defendants and their insurer were induced to compromise the plaintiff’s action for damages by his fraudulent misrepresentations. The plaintiff applied for an order that the defendants disclose the written advice and recommendations relating to the settlement of the action furnished to the insurer by its solicitors. That order was granted essentially on the basis that the communications were relevant to an issue in the proceeding. Derrington J said (at 226):

Notwithstanding the high status of professional privilege and the careful protection which the law affords it, when the contents of a privileged communication become the subject of a legitimate and reasonable issue in the litigation, then the privilege is lost.

[33] The narrower form of the exception is exemplified in Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 156 ALR 634, where the doctrine was confined to cases where the party asserting the privilege has put the legally privileged communications in issue. In Telstra, BT Australasia (BTA), a subsidiary of British Telecommunications plc (BT), claimed damages against the State of New South Wales for breach of contract and against both the State and Telstra for misleading and deceptive conduct. The State sought, with Telstra’s support, orders for production for its inspection of documents in respect of which BT and BTA had claimed legal privilege.
[34] The Federal Court held that BT had put in contest, by reason of the elements of their pleaded cause of action, an issue incapable of fair resolution without reference to relevant legal advice received by them. BT had pleaded reliance upon allegedly misleading and deceptive representations made on behalf of the State to establish the necessary causal connection between the conduct of the State and the damage allegedly suffered by them. Branson and Lehane JJ held (at 647) that:

Where, as in this case, a party pleads that he or she undertook certain action “in reliance on” a particular representation made by another, he or she opens up as an element of his or her cause of action, the issue of his or her state of mind at the time that he or she undertook such action. The court will be required to determine what was the factor, or what were the factors, which influenced the mind of the party so as to induce him or her to act in that way. That is, the party puts in issue in the proceeding a matter which can not fairly be assessed without examination of relevant legal advice, if any, received by that party. In such circumstances, the party, by putting in contest the issue of his or her reliance, is to be taken as having consented to the use of relevant privileged material, or to put it another way, to have waived reliance on the privilege which such material would otherwise attract.

[35] As an aside, we do not consider that merely indicating that a s 146 claim will be defended would amount to putting the legally privileged communications in issue. As indicated below at [51], whether or not the caveat was lodged without reasonable cause is essentially judged on the objective facts. In addition, Mrs Shannon in this case does not even say in her affidavit that she relied on legal advice before lodging the caveat – see at [57] below. Thus we doubt that the narrower form of the test, if it existed in New Zealand, would, in any event, have been met in this case.

Is there a “putting in issue” exception in New Zealand?

[36] In B v Auckland District Law Society, the Privy Council pointed, at [37], to the exposition of the rationale of legal professional privilege in the speech of Lord Taylor of Gosforth CJ in R v Derby Magistrates’ Court ex p B (at 507-508), where he said that legal professional privilege is more than an ordinary rule of evidence. It is a fundamental condition on which the administration of justice as a whole rests and is not for the benefit of any particular client but in the wider interests of all those who might otherwise be deterred from telling the whole truth to their solicitors.
[37] The Privy Council rejected any suggestion that there should be a balancing exercise when considering the admissibility of privileged material (see at [46]-[57]). It approved the statements of the High Court of Australia in Waterford v Commonwealth of Australia [1987] HCA 25; (1987) 163 CLR 54 at 64-65 that legal professional privilege is itself the product of a balancing exercise between competing public interests whereby, subject to the well recognised crime or fraud exception, the public interest in the perfect administration of justice is accorded paramountcy over the public interest that requires, in the interests of a fair trial, the admission in evidence of all relevant evidence. This approach was recently confirmed by the House of Lords in Three Rivers - see the comments of Lord Scott of Foscote at [25] and Lord Rodger of Earlsferry at [54]. The rationale is that a lawyer has to be able to give a client an absolute and unqualified assurance that whatever a client reveals in confidence will never be disclosed without the client’s consent. Such an assurance is inconsistent with the existence of a balancing exercise.
[38] We agree with Potter J that the Privy Council decision in B v Auckland District Law Society is inconsistent with the broad form of the “putting in issue” exception argued for by Ms Duffy, where mere relevance to an issue is enough to destroy privilege. It is even, in our view, inconsistent with the narrower form of the exception where relevance to an issue raised by the client, combined with a broad notion of fairness, is sufficient. This narrower form of the test appears to us to involve the very kind of balancing exercise the Privy Council has said has already been performed. We also consider that such an exception is inconsistent with the reasoning of this Court in its recent decision of Ophthalmological Society – see the discussion of that case at [55]-[56] below.
[39] The exception is, therefore, in our view not currently the law in New Zealand.

Should a “putting in issue” exception be introduced?

[40] This Court may have been free to come to a different view on policy matters before B v Auckland District Law Society, as was pointed out by the Privy Council at [55]. We do not, however, consider ourselves now free to depart from that decision, being a recent decision that was clearly binding on this Court at the time it was made. We also see no reason to depart from the recent decision of this Court in Ophthalmological Society.
[41] We doubt, in any event, whether the “putting in issue” exception, at least in its broadest manifestation, is justifiable in policy terms. We refer to the D L Mathieson QC and Julian Page article, “Implied Waiver of Privilege” [2000] NZLJ 355. They point out that a broad putting in issue rule of implied waiver constitutes a fundamental inroad into legal professional privilege, which would have enormous scope if used to its full extent. They consider that such an inroad should be resisted as a matter of public policy. In their view, legal professional privilege is vital to ensure a candid exchange of information between solicitor and client and to ensure the proper functioning of the judicial system. It should therefore be protected to the greatest extent possible.
[42] They say that the cases that support a broader “putting in issue” exception have perverted the waiver doctrine and misconstrued the type of unfairness that it is designed to prevent as simply the existence of the privilege itself. They criticise the Auburn article referred to by Ms Duffy – see at [19] above - for failing to distinguish between the unfairness caused by reliance upon the substance of privileged evidence to advance a claim, while denying the other side access to that evidence, and the unavoidable ‘unfairness’ caused by every assertion of privilege. In their view, there is incomplete evidence before the court whenever a party raises a privilege. If privilege is raised, a court will always be required to decide the factual questions without examining all relevant evidence.
[43] This “unfairness” is, in the authors’ view, distinguishable from that in cases of implied waiver, caused where a party seeks to inject the substance of privileged evidence into a proceeding to justify its position, but at the same time asserts privilege over that evidence. This is unfair due to the possibility that a selective use of privileged evidence may create a misleading impression of that evidence and because it deprives the opponent of a proper opportunity of answering evidence used against him or her.
[44] We consider that the Mathieson/Page comments are well made. We thus do not consider that this Court should extend the implied waiver doctrine in New Zealand beyond that set out in Ophthalmological Society, even were it free to do so. For the avoidance of doubt, we remark that, to the extent that the test articulated in Capital Realty v Floratos is different from that in Ophthalmological Society, it is not good law in New Zealand. This does not of course necessarily mean that the result in that case would have been different had the Ophthalmological Society test been employed and we make no comment on that point.
[45] We are conscious in making these comments that, on one reading, the Law Commission appears to have recommended the adoption of some form of “putting in issue” exception to legal professional privilege, although, if that was intended, it is clearly limited to where the privilege holder puts the privileged material in issue (ie the Telstra position) rather than where it is placed in issue by either party (ie the Wardrope position).
[46] Section 69 of the Law Commission’s draft Evidence Code (NZLC R55 Vol. 2 1999) provides that:

(1) A person who has a privilege conferred by this Part may waive that privilege either expressly or impliedly.

(2) A person who has privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.

(3) A person who has a privilege waives the privilege if that person

(a) acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or
(b) institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.

(4) A person who has a privilege in respect of a communication, information, opinion, or document which has been disclosed to another person does not waive the privilege if the disclosure occurred involuntarily or mistakenly or otherwise without the consent of the person who has the privilege.

[47] The proposed waiver provision thus covers both waiver by partial disclosure (s 69(2)) and waiver by putting the privileged communication in issue (s 69(3)). The Law Commission’s final report does not discuss the rationale or application of this latter exception in much detail. It merely gives the example that those who sue their lawyer for malpractice cannot rely on legal professional privilege to prevent disclosure of communications between them that are relevant to defending the claim – the situation covered by the proposed s 69(3)(b). The Law Commission does not elaborate on the type of situations to which s 69(3)(a) might apply. Cases, such as Telstra and Wardrope, involving the “putting in issue” exception, are not discussed. As these cases were not discussed, we in fact doubt that the proposed s 69(3)(a) of the Code was intended to introduce even the narrower form of the “putting in issue” exception. The paragraph talks about putting the privileged communication in issue. This is not the same thing as putting a matter in issue which cannot fairly be assessed without reference to the relevant legal advice.
[48] We also note that, in its earlier discussion paper Evidence Law: Privilege (NZLC PP23 1994), the Law Commission appeared to distance itself from a wider “putting in issue” exception. It said at 67-68:

171 The privilege is lost if the client voluntarily waives the privilege...The principle seems to be that it is unfair and misleading for the client to refer to one part of the document only...

172 New Zealand courts seem to proceed on two grounds. Privilege will be lost if it is unfair for the client to take the benefits of disclosure while also seeking to retain the benefits of privilege. And it will be lost if what the client has done is inconsistent with a claim to keep the document confidential.

173 An important illustration of the latter is where the client puts the advice received from a lawyer into issue in legal proceedings. For example, the client sues the lawyer for negligence or malpractice. The lawyer may seek to use the content of conversations with the client in order to defend the claim (eg, Lillicrap v Nalder & Son [1993] 1 All ER 724). The client has put the facts of the relationship between lawyer and client in issue by bringing the claim, and privilege is seldom a problem in such cases.

174 Some Australian cases appear to have considerably extended this notion of waiver. In one case, a widow referred to the fact that she had received legal advice when making an application for compensation (Thomason v The Council of Municipality of Campbell Town [1939] NSWStRp 10; (1939) 39 SR (NSW 347). During a hearing before a compensation commission the application form was tendered in evidence. The Court in this case held that the reference in the form to legal advice having been received involved a waiver of the privilege attaching to the communication between the widow and her lawyer. In another case, it was held that a witness had waived the privilege attaching to a document because the witness had used the privileged document to refresh his memory before giving evidence (Trade Practices Commission v TNT Management (1984) 56 ALR 647, 687). The Commission doubts whether waiver should have extended that far. Under our proposals the privilege in each of these cases would have been qualified. The court can consider exercising its discretion in these situations to override the privilege. This would seem to be a more appropriate way of dealing with such cases.

[49] Whatever the extent of the “putting in issue” exception recommended by the Law Commission, its introduction is best left to Parliament. The policy issues can be fully canvassed in that forum.

Does s 146 require privilege to be waived?

[50] The next issue is whether, whenever an intention to defend an action under s 146 is signalled, legal privilege is necessarily waived with regard to instructions given as to the lodging of the caveat and any legal advice received because of the nature of the statutory inquiry under s146 itself. In B v Auckland District Law Society, the Privy Council held at [59] that, if a section is capable of being interpreted on the supposition that the privilege is not abrogated, it should be so interpreted. They referred in that regard to this Court’s decision in Commissioner of Inland Revenue v West-Walker [1954] NZLR 191 (CA) at 213.
[51] We see nothing in s 146 that would as a matter of course put legal advice or instructions given at issue. In our view, Potter J was correct to hold that the inquiry for a court in any s 146 action is whether, on the objective facts as found to exist at the time the caveat was lodged, that caveat was lodged without reasonable cause. This inquiry does not depend in any sense on the instructions given to any solicitor involved. It is an inquiry into the facts, not an inquiry into what a solicitor was told the facts were. We agree therefore with Potter J that the privileged material is irrelevant to the inquiry.
[52] There has been a gloss put on the statutory wording by the case of Gordon v Treadwell Stacey Smith, in the sense that this Court said that there must be an honest belief that there was reasonable cause to lodge the caveat and that it must not be lodged for an ulterior purpose. A defendant in a s 146 action would, therefore, need to attest, as Mrs Shannon and Ms Forbes have done, to the honesty of their belief and the lack of an ulterior purpose. It may well be that it would be helpful, in order to assess those assertions, to have access to privileged material in order to see whether there is material inconsistent with them. Denying access to that material, absent waiver by the client, may therefore deprive the court of material relevant to that assessment.
[53] As pointed out by the Privy Council in B v Auckland District Law Society, however, the balancing has been done already, and the public interest in the encouragement of frank communication with a legal advisor is given paramountcy over the public interest in ensuring that all relevant material is before a court. There is nothing in the statutory provision itself that requires privilege to be waived. In our view it would be a strange result, given the principle in West-Walker, for a statutory gloss to be held to require privilege to be abrogated. We do not consider it does in this case. A caveatee, asserting lack of honest belief or ulterior motive, must look to material other than privileged material in order to prove his or her case.
[54] Further, in this case, as in most s146 cases, the person claiming the privilege is not bringing proceedings against her legal adviser. Rather, the caveatees, who have never had access to the privileged communications, are bringing the proceeding. In such a case it is hard to see why the caveatees’ actions in instituting proceedings should have been seen by the Legislature as automatically waiving the legal privilege between the opposing party and her solicitor.

Has there been a waiver of privilege in this case?

[55] The final question is whether there has been an actual or implied waiver of privilege. The test is that set out by this Court in Ophthalmological Society at [20] – [30] and involves an assessment of whether a party’s use of privileged material has destroyed confidentiality.
[56] In the Ophthalmological Society case, the Court considered that the approach of Wylie J in Equiticorp Industries Group v Hawkins, where he stressed the need for an “abuse” of privilege, is preferable to the approach in Tau v Durie, which arguably went too far in its emphasis on broad notions of fairness. The Court recognised that the fairness factor can be important in cases where there has been partial disclosure of legal advice and the consideration is whether natural justice requires disclosure of the whole advice. What must be assessed objectively in all cases, however, is the consistency of the conduct with maintaining the privilege. That requires close analysis of the particular context, what the issue is in relation to the privilege, how the evidence relates to that issue, and the question of whether there is inconsistency that could lead to injustice if the privilege is upheld. The weight to be given to fairness will depend on the circumstances, including the character of the privilege said to have been waived.
[57] Where a person merely defends a claim made against him or her under s 146, this would not, in our view, normally entail deliberately subjecting a relationship to public scrutiny while still seeking to preserve its confidentiality. In this case, Mrs Shannon has not even referred to the fact of legal advice to establish her honest belief that she had reasonable cause to lodge the caveat. She deposes that she had the subjective belief that the caveat was justified before consulting her solicitor. In her affidavit filed in opposition to the Forest Park group’s summary judgment application, she said:

In September 1998, I instructed my solicitor, Christine Forbes, to lodge a caveat against the properties in the name of the plaintiff, because it was my firm belief that the monies used to buy the plaintiff’s assets was Alan’s and any money accumulated during our marriage. It was my view that the plaintiff was holding the property on our behalf as an investment. I was afraid that without caveats, Alan, who is a director of the company, could sell the farm and the other company assets.

Alan and I discussed ownership of the deer farm, and it was agreed that a company would be set up and the property would be acquired by the company.

The funds advanced to the company to acquire the deer farm were funds from my US dollars bank account, and were under my control. I believed that therefore I had an interest in the property acquired by the company which I could protect if necessary by lodging a caveat against the property which is what I had to do in September 1998....

I am not a director or shareholder in the company, mainly because the deer farm venture was something that Alan and Grant would be working on together. However, it was always understood by me that it would be a family deal and a long term venture.

[58] Mrs Shannon thus simply stated that she instructed her solicitor to lodge caveats (which would have been obvious even without Mrs Shannon disclosing this fact) and her reasons for doing so. This constitutes a reference to the existence of privileged communications, rather than a disclosure of the substance or content of privileged communications. Mrs Shannon is hardly deploying privileged material in an unfair manner simply by stating that she instructed her solicitor to lodge a caveat. In any event, Mrs Shannon does not need to rely on the content of privileged communications to prove that the caveats were lodged reasonably. Rather, she can give evidence of the objective facts that gave rise to what she asserts was a constructive trust.
[59] For completeness, we note that we are not to be taken as accepting that, if she had referred to the existence of legal advice as being the basis for her honest belief, she would be held to have waived privilege. To the contrary, we consider that a bare statement of this kind would not normally waive privilege.
[60] In her affidavit filed in opposition to the Forest Park group’s application for summary judgment, Ms Forbes does refer (in some detail) to instructions given to her by Mrs Shannon. She also refers to discussions with Mrs Shannon in relation to the reasons for lodging the caveat. She has thus clearly referred to privileged material in that affidavit. Neither this, nor Ms Forbes’ service of a notice to admit facts can, however, serve as a waiver by Mrs Shannon. A lawyer cannot waive his or her client’s privilege (see the Privy Council’s remarks in B v Auckland District Law Society at [45]).
[61] Ms Duffy submitted that Mrs Shannon must be taken to have waived privilege because she took no steps to have Ms Forbes withdraw the affidavit. We are not prepared at this stage to infer waiver of privilege by Mrs Shannon in circumstances where Ms Forbes, as a defendant in her own right in the s 146 proceedings and separately represented, has filed an affidavit breaching privilege. This is particularly the case as Mrs Shannon’s focus was to have the application for summary judgment declined so that the caveat proceedings could be heard at the same time as the proceedings relating to the division of relationship property.
[62] Mrs Shannon will, however, have to ensure that Ms Forbes’ affidavit in that form is not relied on for the purposes of the substantive hearing in the caveat proceedings. If she does not, she must be taken to have waived privilege. It goes without saying that, on the principles set out in the Ophthalmological Society case and in Nea Karteria, Mrs Shannon could not seek to rely on the privileged material in that affidavit without having an obligation to disclose the whole file so that the other side has an opportunity to check that there has been disclosure of all relevant material.
[63] We recognise that Ms Forbes was put in a very difficult position when faced with the s146 claim. Normally such a claim would follow a finding of a court that a caveat had been wrongly lodged and the question for the court would be whether it had nevertheless been lodged with reasonable cause. That is not the case here. While it was understandable that Ms Forbes would wish to defend her actions, we do not consider that she should have filed the affidavit in the form she did without a waiver of privilege from her client. She should have deposed to her honest belief and referred to any non-privileged material that gave her a basis for that belief. She could also, by reference to Mrs Shannon’s affidavit, have given her reasons for considering, on the basis of the objective facts there given, that there was reasonable cause to lodge the caveat.
[64] Ms Forbes should, however, at the trial of the s 146 claim, be given the full benefit of any doubt that arises from her inability to use privileged material in her defence. This is similar to the wasted costs jurisdiction in the United Kingdom where solicitors whose clients have not waived privilege must be given full allowance for his or her inability to tell the whole story – see Colin Passmore, Privilege (Birmingham 1998) at 197. See also Baxter v RMC Group plc HC AK CP 262/01 1 July 2003 at [94].
[65] We note that Ms Forbes is not asserting that she was unaware of any matter relied on by Mrs Shannon or that the instructions she was given deviated from the facts as alleged by Mrs Shannon in her affidavit. We have not heard full argument on the effect on privilege if she had been and we therefore leave this question open. Our preliminary view, however, is that, absent any actions of the client which, under the Ophthalmological Society principles, would cause an implied waiver of privilege, privilege will still not be waived. Even if it is found that the objective facts were different to those asserted by Mrs Shannon, Ms Forbes’ actions should be judged on the basis of whether it was reasonable for Ms Forbes to have acted on Mrs Shannon’s version of those facts as asserted in her affidavit and in her evidence in court. We remark here, however, that it may be that, without breaching privilege, a lawyer could depose to having been unaware of a fact that may have changed the position. Gordon v Treadwell Stacey Smith gave the example, at 288, of a client who seeks advice from a solicitor about whether a caveatable interest exists, but deliberately or inadvertently conceals a crucial fact from the solicitor (for example, that the client previously had an interest but has already assigned it absolutely to someone else).
[66] We stress that nothing we have said should be taken as a criticism of Ms Forbes or her legal advisers. We are conscious that previous case law has not dealt with the proper reaction by a solicitor to a s146 claim insofar as privileged material is concerned.

Conclusion and costs

[67] For the reasons set out above, the Forest Park group’s appeal against Potter J’s refusal of the application for Mrs Shannon’s privilege to be waived is dismissed.
[68] With regard to the part of the appeal dealt with in this judgment, we award $4,000 in costs, plus reasonable disbursements, to Mrs Shannon, to be paid by the second, third and fourth appellants. No costs award is made in favour of Ms Forbes.

Solicitors:
Wendy Galvin & Associates, Auckland for Appellants
Nola Dangen & Associates, Auckland for First Respondent
Phillips Fox, Wellington for Second Respondent

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