No issue waiver of 2nd solicitor’s advice on regretted settlement made necessary by 1st solicitor’s negligent advice

Banjo (NT) Pty Ltd v Ward Keller Pty Ltd [2006] NTCA 1

A tenant alleged its solicitors gave it bad advice on its obligations under a lease which led to it losing the chance to renew the lease. It said it got a new lease, but in order to do so, had to settle disadvantageously a claim for damages for breach of the lessor’s duties to repair. By the time of that negotiation it had taken the advice of its new solicitors. But for the disadvantageous negotiating position it had been put in, it said, it would have pursued the claim for damages for the lessor’s breach and would have won. In the suit against the first solicitors for compensation for loss of the opportunity to sue for damages for that breach, the NT Court of Appeal said it did not have to show them the second set of solicitors’ advice it had received in settling the claim; there was no implied waiver of the legal professional privilege which prima facie enured in the lawyer-client communications.

The landlord and tenant of a Katherine motel were in dispute about who had to repair what following the 1998 Katherine flood. The solicitors advised the tenant it had no repair obligations. So it did not paint the motel before the renewal of the lease. The tenant said that as a consequence it lost its right to renew the lease on the terms of the old lease, and had to negotiate a new lease. By the time of the renegotiation, it seems new solicitors had been retained. In order to get the new lease, the tenant said, it had to settle on unfavourable terms its claim for breach of the landlord’s contractual duty to repair.

The solicitors argued that communications between the second set of solicitors at the time of the allegedly disadvantageous settlement, which were discovered as privileged documents, should be produced for inspection. It said that, in suing its first set of solicitors, the tenant had impliedly waived privilege in the communications. It was alleged that there was, as a matter of fairness, an issue waiver as the result of the tenant putting into issue its state of mind at the time of the settlement: see Liquorland (Australia) Pty Ltd and Anor v Anghie and Ors (2003) 7 VR 27.

The Court of Appeal said, unanimously, in a flamboyantly brief 1,000 word judgment:

“[9] The [tenant’s] loss as a result of the alleged negligent advice was the loss of the right of renewal of the lease. The lease was in fact renewed, but as a result of compromise, a feature of which was the allegedly unfavourable settlement of the [tenant’s] claim for repairs and maintenance against the lessor. The issue at trial is not the [tenant’s] state of mind or the legal advice given to the [tenant] relative to the settlement of the repair and maintenance claim against the lessor but whether as an objective fact that settlement was reasonable and constituted a financial loss to the appellant. The question is not why the [tenant] settled, that is, did what it did, but what [it] would have done had the [first set of solicitors] not given the advice it did. The [tenant] says it would have renewed its lease and successfully pressed its claim for repairs and maintenance against the lessor. The question whether [it] would have so acted had it been given the correct advice by the respondent is a question of fact far removed in time and circumstance from any legal advice given to the [tenant] to compromise its claims against the lessor in order to recapture the lost lease. Any advice given to the [tenant] by its new solicitors is not relevant to these questions or any other issue between the parties.

[10] The [old solicitors] submitted that the loss of the right of action for the claim for repairs and maintenance against the lessor was not caused by the alleged negligent advice given by [them], but was caused by the fact that the claim against the lessor was hopeless. Counsel for the [old solicitors] submitted that the appellant received legal advice from its new solicitors, that it is likely that that advice was to the effect that the claim was worthless and that the real cause of the settlement of the claim was that the appellant relied upon that advice. …

[11] However, … it is no part of the appellant’s case that it relied upon the advice of its new solicitors. The [old solicitors are] not precluded from showing, at trial, that the claim against the lessor was in fact worthless, so no question of fairness arises. In other words, there is no inconsistency between the conduct of the appellant in the manner in which the appellant proposes to present its case at trial and the maintenance of the confidentiality and in those circumstances there is no implied waiver: see Mann v Carnell (1999) 201 CLR 1 at 13 (para[29]). Implied waiver does not arise because the [old solicitors] may wish to show that the true cause of the [tenant’s] loss was that the [it] settled relying on its new solicitor’s advice.”

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