Carrafa v Asfar (No. 3)

[2023] NSWSC 24

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Carrafa v Asfar (No. 3) [2023] NSWSC 24

Hearing dates:

In Chambers

Date of orders:

1 February 2023

Decision date:

01 February 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Client privilege claimed by the second and third defendants lost. Orders made for disclosure of the documents together with consequential directions.

Catchwords:

PRIVILEGE – CLIENT PRIVILEGE – Evidence Act1995, s 125 – plaintiffs are trustees of the estate of a bankrupt – the plaintiffs contend that in 2016 the executor of an estate, the first defendant, held certain real property on trust for the bankrupt – the second and third defendants are creditors of the estate of the bankrupt – the fourth defendants are the solicitors for the second and third defendants – the second and third defendants secure the appointment of the plaintiffs as trustees of the estate of the bankrupt in place of the Official Trustee – the second and third defendants seek freezing orders against the real property said to be held by the first defendant on trust for the bankrupt – the plaintiffs claim that the second and third defendants pursued the freezing orders acting as fiduciaries on behalf of the plaintiffs for the benefit of the general creditors of the bankrupt’s estate – the second and third defendants reach a settlement agreement with the first defendant in which real property held by the first defendant is sold, and the proceeds of sale are distributed partly to the second and third defendants and partly to the first defendant – the plaintiffs allege the settlement agreement was made dishonestly in breach of the second and third defendants’ claimed fiduciary duty to the plaintiffs and concealed from the plaintiffs and had the effect of fraudulently disadvantaging the other creditors of the bankrupt estate – the plaintiffs contend that client privilege has been lost in the documents because the documents were created in furtherance of the commission of a fraud or were communications which ought reasonably to have been known to have been prepared in furtherance of an abuse of power, within Evidence Act, s 125 – whether client privilege has been lost in the documents by reason of Evidence Act, s 125.

Legislation Cited:

Evidence Act1995, ss 91(1), 125, 126,131A, 133

Legal Profession Uniform Conduct (Barristers) Rules 2015, rr 24 and 25

Real Property Act 1900

Cases Cited:

Amcor Ltd v Barnes [2011] VSC 341

AMV Australia Pty Ltd v Premier Compensation Lawyers Pty Ltd [2020] NSWSC 446

Carrafa v Asfar [2020] NSWSC 530

Carrafa v Asfar [2022] NSWSC 1177

Clements, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police (2001) 188 ALR 515

Cleveland Investments Global Pty Ltd v Ficaro Pty Ltd [2016] NSWSC 473

Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501

Director of Public Prosecutions (Cth) v Kinghorn (2020) 102 NSWLR 72

Director of Public Prosecutions (NSW) v Stanizzo (2019) 367 ALR 256

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222

Kang v Kwan [2001] NSWSC 698

Kaye v Woods (No 2) (2016) 309 FLR 200

KTC v David [2022] FCAFC 60

Marcolongo v Chen (2011) 242 CLR 546

Marsden v Amalgamated Television Services Pty Ltd [1999] NSWSC 259

Talacko v Talacko [2014] VSC 328

Trendlen Pty Ltd v Mobil Oil Australia Pty Ltd [2005] NSWSC 741

Van Der Lee v New South Wales [2002] NSWCA 286

Category:

Procedural rulings

Parties:

Plaintiff: Michael Carrafa and Fabian Micheletto in their capacities as joint and several trustees in bankruptcy of the estate of Peter Ronald Evans

First Defendant: Johnny Asfar
Second Defendant: Cleveland Investment Global Ltd
Third Defendant: Ficaro Pty Limited
Fourth Defendants: Terence Paul Sperber, Harry Simon Snow, Mary Elizabeth Digiglio, Alistair Francis Jaque, Michael Phillips, Greg Paul Parker, Richard Bruce Otley, Antonio D’Agostino, Marc Richard Baddams, Annette Wilson, Christopher Henry Shaw, Eric James Ziehlke, Angela Harvey, Warwick Paul Ryan and Michelle Esther Harpur trading as Swaab Attorneys

Representation:

Counsel:
Plaintiff: E. Holmes
First Defendant: no appearance
Second & Third Defendants: A. Cheshire SC
Fourth Defendant: I. Pike SC; R. Jedrejczyk

Solicitors:
Plaintiffs: Stephen Michael Polczynski, Polczynski Robinson
Second & Third Defendants: Tean Kerr, Kerrs Law
Fourth Defendant: Timothy Randolph Price, YPOL Lawyers Pty Ltd

File Number(s):

2017/165065

Publication restriction:

No

Judgment

1. This is the Court’s third judgment in these proceedings. In its May 2020 judgment, the Court granted leave to the plaintiffs to file its Third Further Amended Statement of Claim, joining Mr Simon Fletcher as the fifth defendant, and Mr John Fletcher as the sixth defendant to the proceedings, and vacating a hearing listed to commence that month: Carrafa v Asfar [2020] NSWSC 530 (“the first judgment”).

2. The Court’s September 2022 judgment determined that the plaintiffs had waived privilege in certain documents over which the plaintiffs had claimed client privilege and gave directions for their disclosure: Carrafa v Asfar [2022] NSWSC 1177 (“the second judgment”). The parties had requested that the Court determine the issue in the second judgment before determining the complementary client privilege issue the subject of this judgment.

3. The factual background to these proceedings is fully set out in the first and second judgments and is not repeated here. This judgment should be read with the Court’s first two judgments. Events, matters and persons are referred to in this judgment in the same way as they are in the two previous judgements.

4. This judgment determines the relief sought on the plaintiffs’ motion dated 11 October 2021, namely the plaintiffs’ claim for access to certain documents over which the defendants claim client privilege. The basis of the plaintiffs’ claim on the motion is that the defendants have lost any client privilege over the documents in question by reason of their misconduct and the application of the doctrines embodied in Evidence Act1995, s 125. The plaintiffs do not dispute that but for the application of Evidence Act, s 125 the defendants’ claim for client privilege is valid.

The Challenge to the Defendants’ Claims of Client Privilege

5. The Court’s second judgment (at [5] – [12]) sets out the origins of the present contest, in which the plaintiffs contend that the claims of Cleveland and Ficaro and Swaab Attorneys of client privilege over certain documents have been lost due to their alleged misconduct which is said to enliven the operation of Evidence Act, s 125(1).

6. After the Court’s first judgment, during preparation for a further hearing the plaintiffs issued notices to produce to Cleveland, Ficaro and Swaab Attorneys. These notices to produce included claims for documents that became the subject of claims by Cleveland, Ficaro and Swaab Attorneys for client privilege. The plaintiffs contended that the documents should be produced despite the client privilege claim, as the plaintiffs submitted they were communications made in furtherance of the commission of a fraud or an abuse of power within Evidence Act, s 125(1).

7. Cleveland, Ficaro and Swaab Attorneys applied to set aside these notices to produce on the grounds that the client privilege should be maintained as s 125 did not apply. In November 2020 to facilitate the determination of this issue, the Court directed that the parties exchange concise bundles of documents. Each party’s bundle was directed to be prepared to contain all those documents that each party said either supported or answered the plaintiffs’ contention that Evidence Act, s 125 defeated Cleveland and Ficaro’s claims for client privilege over the documents caught by the notices to produce.

8. The documents were supplied by March 2021 in concise bundles and submissions in chief and in reply were all exchanged by May 2021. On 28 May 2021 the solicitors for the plaintiffs notified the solicitors for Cleveland, Ficaro and Swaab Attorneys that they proposed to amend existing evidence in the proceedings filed on behalf of Mr Micheletto, before the Court determined the s 125 issue. A change was foreshadowed to Mr Micheletto’s affidavit evidence of 11 October 2018, with respect to the date on which Mr Micheletto said he first became aware of a caveat over the Hardy’s Bay property lodged on behalf of Cleveland and Ficaro and the reference in that caveat to the 2016 deed. On 23 June 2021 the plaintiffs’ solicitors informed the Court of this new issue, which required the plaintiffs to swear a further affidavit. On 9 July 2021 the plaintiffs’ solicitors, Polczynski Lawyers, served the foreshadowed affidavit of Mr Micheletto. The contents of this affidavit and the way in which it contrasted with Mr Micheletto’s earlier evidence were the subject of detailed analysis in the Court’s second judgment.

9. In response to Mr Micheletto’s new affidavit of 9 July 2021, YPOL, the solicitors for Swaab Attorneys served on 23 July 2021 a notice to produce on the plaintiffs, seeking documents, including documents passing between the plaintiffs and their solicitors which would otherwise be the subject of claims for client privilege. The parties exchanged submissions in relation to the issue of whether the plaintiffs had waived their client privilege. The Court ultimately found in favour of Swaab Attorneys on that issue in the second judgment. Consequent upon the second judgment the parties agreed upon a regime for the inspection of the plaintiffs’ documents that had been revealed by the second judgment. A further round of submissions on the s 125 issue then took place. That issue is now to be resolved in this third judgment.

10. The second judgment gives a detailed exposition of the pleading (second judgment at [13] – [53]) and gives a detailed review of the facts (second judgment at [54] – [82]) based upon the affidavits and concise bundles of documents provided by each party pursuant to the Court’s directions. Those findings, supplemented by additional findings in this third judgment, provide the platform for the Court’s conclusions in this judgment.

Relevant Legal Principles – Evidence Act, s 125

11. The applicable legal principles in relation to s 125 may be shortly stated. The issues in these proceedings engage the operation of Evidence Act, s 125, which provides as follows:

“[125] Loss of Client Legal Privilege: Misconduct

(1)   This Division does not prevent the adducing of evidence of:

(a)   a communication made, or the contents of a document prepared by a client or lawyer (or both), or a party who is not represented in the proceeding by a lawyer, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty, or

(b)   a communication or the contents of a document that the client or lawyer (or both), or the party, knew or ought reasonably to have known was made or prepared in furtherance of a deliberate abuse of a power.

(2)   For the purposes of this section, if the commission of the fraud, offence or act, or the abuse of power, is a fact in issue and there are reasonable grounds for finding that:

(a)   the fraud, offence or act, or the abuse of power, was committed, and

(b)   a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power,

the court may find that the communication was so made or the document so prepared.

(3)   In this section: power means a power conferred by or under an Australian law.”

12. If Evidence Act, s 125 is engaged, s 126 may apply to widen the class of documents for disclosure. It provides as follows:

“[126] Loss of client legal privilege: related communications and documents

If, because of the application of section 121, 122, 123, 124 or 125, 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.”

13. Evidence Act, s 125 is founded upon principles developed at general law. The provision has been commented upon in authorities since its enactment, sometimes drawing upon earlier general law developments. The following principles can be drawn from these authorities:

1. Section 125 relates only to the “adducing of evidence”. No question of adducing evidence has yet arisen in these proceedings. The present contest is concerned with an order for access to documents produced on discovery but Evidence Act, s 131A provides for the application of s 125 at this stage of the proceedings.

2. The “fraud” within s 125 is not limited to legal fraud in the narrow sense and extends to “all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances”. Santow J in Kang v Kwan [2001] NSWSC 698 (“Kwan”) at [37] said the term “fraud” within section 125 included the kind of sharp practice often associated with equitable fraud encompassed by the Shorter Oxford Dictionary sense of dishonesty, namely “lack of probity; disposition to deceive, defraud or steal”:

3. The fact that s 125(1) does not require the commission of an offence or an act that renders a person liable to a civil penalty involving dishonesty, indicates that the section is intended to apply to all categories of fraud known to the law irrespective of whether dishonesty is a necessary element of such a fraud: Amcor Ltd v Barnes [2011] VSC 341 (“Amcor”) at [47].

4. It is unresolved whether direct evidence (as distinct from hearsay evidence) is required to enliven the power now found in s 125, but something beyond mere assertion is required: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501; (1997) 71 ALJR 327; (1997) 91 A Crim R 451; [1997] HCA 3.

5. To attract s 125, an allegation of fraud must be made in clear and definite terms and there must be some prima facie evidence that the allegation has some foundation in fact to ground it: Director of Public Prosecutions (NSW) v Stanizzo (2019) 367 ALR 256; [2019] NSWCA 12 (“Stanizzo”) at [33]. And some particulars of the alleged conduct should be given to the party claiming the privilege: Marsden v Amalgamated Television Services Pty Ltd [1999] NSWSC 259 at [19] per Levine J. Although in this case that obligation is satisfied by the particulars in the pleading, as the fraud and abuse of power relied upon by the plaintiffs to ground the loss of client privilege are also final issues in the proceedings.

6. The better view is that the client, or the lawyer, must know or ought reasonably to have known of the fraud or abuse of power said to be furthered by the communication or document in question. This is clearest in the terms of s 125 (1)(b), which state a requirement that either the party or the lawyer (or both) “knew or ought reasonably to have known [that the communication or contents of the document] was made or prepared in furtherance of a deliberate abuse of a power.” In respect of s 125(1)(a) the requirement of knowledge is less clear. Although the terms of s 125(1)(a) require that the communication itself must be in furtherance of the commission of a fraud, the subparagraph says nothing expressly, unlike subparagraph (b), about the knowledge of the individuals involved in the communication. But authority suggests that it is necessary to demonstrate reasonable grounds for finding that the client, or the lawyers, were a party to the fraud in the sense of being aware personally, or through the lawyers, of the fraud: Stanizzo at [43]. Moreover, the view of s 125(1)(a) stated by Kyrou J in Amcor is compelling: namely, that a “construction of s 125(1)(a) that does not require that the client be knowingly involved in the fraud, offence or act that renders a person liable to a civil penalty would be contrary both to the public interest principles that underpin privilege and to the statutory context of the provision”. Although s 125(1)(a) may apply even if the client does not appreciate the legal effect – the commission of an offence or the incurring of a civil penalty – of the client’s knowledge: Kwan [at [41].

7. Where a client is engaged in fraudulent conduct, s 125 operate such that the client’s communications with the client’s lawyer in furtherance of the fraud are not privileged, regardless of whether the lawyer is a party to the fraud or not: Clements, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police (2001) 188 ALR 515 at 562. Thus, it is not necessary to establish the lawyer’s own knowledge or participation in furthering the fraud for client legal privilege to be unavailable due to the application of s 125.

8. Fraud is used in the section in a sense that connotes dishonesty but a broad meaning can be given to the concept of “dishonesty”, extending it to “an intention to hinder, delay or defeat creditors”, based on the judgment of the High Court in Marcolongo v Chen (2011) 242 CLR 546; 85 ALJR 380; [2011] HCA 3 at [32]: AMV Australia Pty Ltd v Premier Compensation Lawyers Pty Ltd [2020] NSWSC 446, Davies J at [45]–[50].

9. The communication must be made, or the document prepared with the intention of facilitating the fraud. It is insufficient that the document is evidence of fraud, but the documents must help advance or assist the fraud: Kaye v Woods (No 2)(2016) 309 FLR 200; [2016] ACTSC 87 at [38].

10. Thus, for example, “any positive steps taken by the fraudster to conceal information about the fraud or to place the property beyond the legal reach of the victim once the fraud is discovered can be in furtherance of the fraud in so far as they continue its efficacy”: Amcor, at [60].

11. Once a document is prepared for the purpose of planning or otherwise furthering a fraud, client privilege cannot be claimed; and this status is not changed by subsequent events, for example it does not matter whether the fraud, offence or act is consummated: Amcor, at [65].

12. The fraud, offence or act, or the abuse of power, relied upon for the application of s 125 is commonly a fact in issue in the substantive proceedings. Section 125 (2) resolves the conundrum that the Court might have to decide a final issue in the proceedings about whether such a fraud had occurred, before hearing all the evidence at a final hearing, but instead dealing with it as an ancillary issue in applying s125. In its proper construction, the s 125 (2) “fact in issue” refers to a fact in issue in the substantive proceedings as opposed to only being a fact in issue on the s 125 application: Director of Public Prosecutions (Cth) v Kinghorn (2020) 102 NSWLR 72; (2020) 379 ALR 345; [2020] NSWCCA 48 at [114]. Section 125(2) relieves against the problem (of deciding the ultimate fact in issue during an interlocutory client privilege application) by providing that if there are “reasonable grounds for finding” that (a) the fraud, offence or act, or the abuse of power, was committed, and (b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power, then s125 (1) will be satisfied. As the Court of Appeal explained in Stanizzo at [30]:

“It may be noted that s 125(2) is procedural: it permits findings to be made for the purposes of subs (1) where the court has “reasonable grounds” for such a finding. That is, a ruling that s 125(1) permits evidence to be adduced does not require the court to be satisfied on the balance of probabilities as to the existence of the fraud or abuse of power, or the connection between the communication and the furtherance of the fraud or abuse of power. Nevertheless, findings as to these matters must be based on evidence.”

13. Section 125(1)(b) raises special considerations. The word “deliberate” requires knowledge that the acts in question are an abuse of power, not merely that acts are deliberately done which are in fact an abuse of power: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 222 (“Idoport”) at [64] and Van Der Lee v New South Wales [2002] NSWCA 286 at [24], [61], and [68].

13. The preferred view as to the meaning of the expression “the exercise of a power” in s 125(1)(b) is that bringing of (or defending) legal proceedings is the “exercise of a power” which is “conferred by or under an Australian law”: Kwan at [37](12) and [42]. A dishonest communication to a court, in furtherance of a purpose standing outside the (legitimate) scope of the relevant legal process, so as to amount to an abuse of process, would therefore invoke s 125(1)(b), as constituting a deliberate abuse of a power. But the communication need not necessarily be made to the court: Trendlen Pty Ltd v Mobil Oil Australia Pty Ltd [2005] NSWSC 741 at [82]. Some contrary authority exists suggesting that the reference to “a power” in 125(1)(b) is a reference to a power to affect more directly the rights of other people than by the mere commencing or advancing of legal proceedings: Idoport at [64]. The broader view of this authority is preferred.

14. The plaintiffs rely in part upon the findings and reasoning in the judgment of Kunc J in Cleveland Investments Global Pty Ltd v Ficaro Pty Ltd [2016] NSWSC 473. This submission raises the question of the extent to which findings in judgments may be relied upon in applications to resist claims of client privilege based on s 125. Evidence Act, s 91(1) provides that “[e]vidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding”. To the extent that the Court here relies upon findings of fact in Kunc J’s decision, the views Elliott J expressed in Talacko v Talacko [2014] VSC 328 (“Talacko”) are persuasive. His Honour reasoned in Talacko (at [75]) that use of prior judgments to establish that there were “reasonable grounds” for finding alleged frauds “does not equate to seeking to prove the existence of the frauds on the balance of probabilities”, thereby avoiding a contravention of s 91(1).

14. Here the Court has made use of Evidence Act, s 133 to inspect the documents over which the plaintiffs claim privilege to determine the question in issue although as will be seen, it has not as yet been necessary to consider contests about individual documents are exempted from the application of s 125.

The Plaintiff’s Fraud Case and the application of Evidence Act, s 125

15. Before analysing the parties’ submissions it is worthwhile to stand back and look at the essential events that constitute the plaintiffs’ fraud case based on the pleading which has been fully discussed in the second judgment. The following conclusions are at least open on a prima facie basis on the available evidence.

16. Cleveland and Ficaro start the relevant course of events as unsecured creditors of Mr Evans for $369,067. The will appointing Mr Asfar as Ms Evans’ executor and giving the estate to him may have been a forgery, but it can be accepted for the purposes of this analysis that that conclusion is contestable. It can also be accepted for the purposes of this analysis that whether clause 3 of the will creates a bare trust in favour of Mr Evans is also contestable.

17. Cleveland and Ficaro successfully applied to Kunc J for a freezing order on 15 April 2016, which once obtained, prevented Mr Asfar dealing with the Hardy’s Bay property, without at least getting Cleveland’s and Ficaro’s approval. The making of the freezing order gave Cleveland and Ficaro for the first time a measure of control over the future disposition of the Hardy’s Bay property.

18. There is ample material in the transcript of the proceedings before Kunc J and in Kunc J’s judgment to support the inference that Cleveland and Ficaro obtained the freezing order by stating to the Court that they were acting on behalf of the Official Trustee and on behalf of all creditors of Mr Evans in making the application and that the Court relied upon these statements made to it.

19. It is open to infer that these statements to the Court on behalf of Cleveland and Ficaro (leading to the freezing orders being granted by Kunc J) were an implied continuing representation to the Court that Cleveland and Ficaro would henceforth only deal with the assets the subject of the freezing order (including the Hardy’s Bay property) in the interests of all the creditors of Mr Evans. Future dealings with the Hardy’s Bay property in the interests of all the creditors of Mr Evans could only sensibly take place if they occurred upon the instructions of a representative of the creditors of Mr Evans, not just Cleveland and Ficaro. The only available representatives of the general creditors of Mr Evans were the Official Trustee or the plaintiffs.

20. The representations Cleveland and Ficaro made to the Court to obtain the freezing orders in the interests of all the creditors of Mr Evans could only be fulfilled by Cleveland and Ficaro fully disclosing to the Official Trustee or to the plaintiffs all their proposed dealings with the Hardy’s Bay property consequent upon the freezing orders before those dealings occurred. Such disclosure would have ensured that the creditors of Mr Evans had an opportunity to scrutinise any such proposed dealings of Cleveland and Ficaro to ensure they were consistent with the general creditors’ interests.

21. The legal basis of this obligation was arguably twofold. First, the representations made to the Court on 16 April 2022 are characterised by the plaintiffs in the pleading as creating a fiduciary duty in Cleveland and Ficaro towards the creditors of Mr Evans to act in their interests. That characterisation (of the creation of a fiduciary relationship in which Cleveland and Ficaro undertook to act in the interests of the general creditors of the estate of Mr Evans) is maintainable on the known facts and the applicable authorities. It can be accepted that the general creditors of Mr Evans did not know what had been said by Cleveland and Ficaro to Kunc J but fiduciary obligations to those general creditors can arise nevertheless in Cleveland and Ficaro. The law is clear that the reposing of actual trust or confidence is not a necessary feature of all fiduciary relationships: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (“Hospital Products”) per Gibbs CJ at 69. But the element which is critical to establishing a fiduciary relationship, and which is arguably present here, is “that the fiduciary undertakes or agrees to act for or on behalf of or in the interest of another person in a legal or practical sense”: Hospital Products, per Mason J at 69. Here the statements made by Cleveland and Ficaro to Kunc J can arguably be characterised as just such an undertaking.

22. Second, an obligation of a somewhat similar character may be sourced in a party’s duty not to mislead the Court. A party has a duty to ensure that statements made to the Court are not misleading and do not become misleading without being corrected: see for example Legal Profession Uniform Conduct (Barristers) Rules 2015, rr 24 and 25:

“24.   A barrister must not deceive or knowingly or recklessly mislead the court.

25.   A barrister must take all necessary steps to correct any misleading statement made by the barrister to a court as soon as possible after the barrister becomes aware that the statement was misleading.”

23. There is a persuasive argument available to the plaintiffs that the same statements made to the Court arguably became misleading as soon as Cleveland and Ficaro began negotiations with Mr Asfar without the knowledge of the general creditors of Mr Evans. For example, had the Court been informed shortly after 16 April that Cleveland and Ficaro were not proposing to inform the Official Trustee or the plaintiffs and obtain their instructions in advance of Cleveland and Ficaro and Mr Asfar dealing with the Hardy’s Bay property, the Court is likely to have requested to hear from the Official Trustee or the plaintiffs before the freezing orders were dissolved and any further dealings with the Hardy’s Bay property were permitted.

24. Instead, what seems to have happened is that on 25 May 2016 the freezing orders were dissolved without either the Court or the plaintiffs or the Official Trustee being informed that Cleveland and Ficaro and Mr Asfar were negotiating towards execution of a deed (ultimately signed on 6 June 2016), which made no provision for the interests of the general creditors of Mr Evans and tended to work to defeat those interests.

25. Why were the plaintiffs or the Official Trustee not informed in advance of the 2016 deed being made? Why were the instructions of the Official Trustee or the plaintiffs not obtained to ensure that the interests of the general creditors of Mr Evans were protected when the 2016 deed was made?

26. There is no obvious answer to these questions other than that to make such disclosure and to seek such instructions would have disadvantaged the financial interests of Cleveland and Ficaro. The defendants reply to such a submission by contending that they had no duty, either fiduciary or to the Court to make such disclosure or to seek such instructions. But what was said to Kunc J lays a firm foundation to argue that such a contention by the defendants arguably is wrong. And the most compelling practical answer to these two questions is that if Cleveland and Ficaro had disclosed their negotiations with Mr Asfar to the general creditors of Mr Evans that would have been likely to inhibit the making of the deal they were proposing excluding the interests of general creditors, such as became embodied in the 2016 deed.

27. An inference of dishonest conduct on the part of Cleveland and Ficaro in negotiating with Mr Asfar towards the 2016 deed, in dissolving the freezing orders, in executing and in acting upon the 2016 deed to the financial disadvantage of the general creditors of Mr Evans without the full knowledge of either the plaintiffs or the Official Trustee (in dishonest breach of their fiduciary duty), is clearly available from these facts on a prima facie basis. Not honouring a duty of full timely and candid disclosure throughout all these events arguably enabled Cleveland and Ficaro to gain financial advantages at the expense of the general creditors of Mr Evans.

28. As will be seen below the defendants point out that there is material showing that the plaintiffs became aware of the existence of the 2016 deed as early as July 2016. But such arguments somewhat miss the real thrust of the plaintiffs case based on a fiduciary relationship. If the fiduciary duty for which the plaintiffs now argue were to be established, the plaintiffs or the Official Trustee should not have been left in the position that they were, struggling to work out for themselves what was going on between Mr Asfar and Cleveland and Ficaro. They should have been fully informed of these negotiations by a fiduciary acting in their interests. The defendants’ cases do not attempt to assert that they were fully informed.

29. It is likely in these circumstances that all documents created for or communicated on behalf of Cleveland and Ficaro in negotiating with Mr Asfar towards the 2016 deed, in dissolving the freezing orders, in executing and then in acting upon the 2016 deed to the financial disadvantage of the general creditors of Mr Evans without the full knowledge of either the plaintiffs or the Official Trustee were arguably documents in furtherance of the commission of a fraud within s 125(1)(a).

30. Although the Court does not have to decide the matter on the alternative basis under s 125(1)(b), in the Court’s view it is equally open to conclude that the documents were created in furtherance of an abuse of power, namely the power to approach and seek orders from a superior court of record. The relevant abuse of power was failing to relist the proceedings before Kunc J to inform the Court that subsequent events had made previous statements to the Court misleading and to correct those misleading statements.

31. The Court’s analysis here may raise questions when these proceedings are concluded as to whether any contempt of Court may have occurred. That does not have to be considered now. The parties’ submissions can now be considered in light of this analysis.

The Defendants’ Submissions

32. Through Mr Cheshire SC the second and third defendants support the fourth defendant’s claim to maintain client privilege over the documents that are subject to the notice to produce.

33. The Swaab Attorneys submissions. The Swaab Attorneys submissions note that the relevant “fraud” for the purposes of s 125 is the alleged dishonest and fraudulent design that is pleaded in [67A] and [72A] of the pleading. Those submissions contend that to rebut the defendants’ claim of privilege successfully, the plaintiffs must be able to point to some prima facie evidence that the conduct alleged against the second to fourth defendants has the requisite character of dishonesty, in the sense that it involves “a transgression of ordinary standards of behaviour”: Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [123]-[125] per Leeming JA.

34. The Swaab Attorneys submissions draw extensively upon the decision of the Full Court of the Federal Court of Australia in KTC v David [2022] FCAFC 60 (“KTC”) including observations of Anastassiou J (at [369]) that, “as a general proposition, without more, a solicitor asked to prepare transaction documents is unlikely to be found to be a knowing participant” in a client’s dishonest scheme.

35. Then applying KTC, Swaab Attorneys put four principal submissions:

“17.   First, for the reasons explained in Swaab’s submissions in chief, the plaintiffs’ contentions that Cleveland and Ficaro “represent[ed] to the Court that they were acting to protect all creditors” on the freezing order application and that the Hardy’s Bay property was “frozen expressly for the benefit of the Official Trustee and all creditors” are based on an inaccurate reading of the submissions that were made to Kunc J and should be rejected.

18.   Second, in order for their conduct to have been dishonest, Cleveland and Ficaro (and through them, Swaab) must have known that the Hardy’s Bay property formed part of Peter Evans’ bankrupt estate. In other words, Swaab could not have knowingly assisted the alleged dishonest and fraudulent design unless it knew that the construction of clause 3 of the Purported Will advanced by Cleveland and Ficaro in support of the application for the freezing order was the only correct construction at law. Yet no such allegation is pleaded in the 3FASOC or made good by any of the documents on which the plaintiffs rely in support of the present application. Rather, the evidence indicates that the freezing order was obtained on the basis that there was a serious question to be tried as to whether clause 3 of the Purported Will might properly be construed in the manner put forward by Cleveland and Ficaro. That question was not determined by the Court. Thus, in circumstances where Cleveland and Ficaro acted upon a construction of the Purported Will that was reasonably open, and they had no basis to believe that the construction advanced by Mr Asfar was plainly incorrect, any breach of fiduciary duty by Cleveland and Ficaro could not have been dishonest in the requisite sense of involving a transgression of ordinary standards of honest behaviour, and Swaab could not have assisted the breach knowing that it was a dishonest and fraudulent design.

19.   Third, the allegation that Swaab took steps, or assisted Cleveland and Ficaro in taking steps, to conceal the existence and terms of the Settlement Deed is without merit, by reason of the following matters:

(a)   As explained in Swaab’s submissions in chief, on 18 May 2016, Mr Baddams informed the plaintiffs directly that, despite his earlier expectations, he did not have instructions from Cleveland and Ficaro to engage with the trustees of Peter Evans’ bankrupt estate. Mr Baddams also advised Mr Micheletto during a telephone call on the same day that the plaintiffs “may need to seek alternative representation” if they formed the view that it was necessary to extend the operation of the OT caveat. That is not the conduct of a solicitor who is intent on concealing his clients’ intentions.

(b)   The documents that the plaintiffs produced in line with the Court’s ruling on the waiver of privilege (see paragraph 2(i) above) confirm that, by 18 July 2016, Mr Micheletto was aware of the existence of the Settlement Deed and that a lapsing notice had been issued in respect of the OT caveat. A letter sent by the plaintiffs’ solicitor on that date, a copy of which is attached to this outline as Annexure A, stated:

In carrying out updated land title searches, it has come to our attention that:

3.1.1   [Cleveland] and Ficaro have lodged the attached caveat upon the title of the [Hardy’s Bay property]. The caveat claims an interest pursuant to a deed of settlement and charge dated 6 June 2016, such that it is reasonable to infer that Asfar has agreed to pay them money to avoid further inquiry.

3.1.2   A title search of the Property (attached) also records an “unregistered dealing”, marked with an “LX” dealing code. This code signifies that a lapsing notice has been issued in respect of a caveat upon the property.

Could you please enquire with the Official Trustee whether they have been served with a lapsing notice in relation to their caveat upon the Property and let us know whether they have so that we may consider whether any steps should be taken in response. (Emphasis added)

It is clear, therefore, that as at 18 July 2016, the plaintiffs were expressly on notice that (i) Cleveland, Ficaro and Mr Asfar had entered into a deed of settlement, pursuant to which Cleveland and Ficaro were claiming an interest in the property; (ii) it was likely that Mr Asfar had agreed to “pay [Cleveland and Ficaro] money to avoid further inquiry”; and (iii) a lapsing notice had been issued in respect of the OT caveat. Despite being aware of those matters, the plaintiffs did not make inquiries of Swaab or Ms Asfar’s lawyers until the commencement of the bankruptcy proceedings in August 2016. For these reasons, the documents which are before the Court on the present application do not provide a sufficient basis to conclude that the alleged ‘concealment’ of the Settlement Deed and the lapsing of the OT caveat is capable of being a dishonest and fraudulent design.18

20.   Fourth, as the Full Court made clear in KTC, the preparation of documents by a lawyer, without more, is not sufficient to establish knowing assistance in a dishonest or fraudulent design. Thus, in the absence of facts which are capable of proving dishonesty, Swaab’s conduct in drafting or preparing the Settlement Deed and the other legal documents which gave effect to the relevant transactions does not establish that it assisted a dishonest or fraudulent design.

21. For these reasons, the matters on which the plaintiffs rely in relation to the present application do not provide reasonable grounds for finding that the communications over which Cleveland and Ficaro have claimed privilege were prepared in furtherance of the commission of a fraud, within the meaning of s 125(2) of the Evidence Act.”

36. The theme of all of these Swaab Attorneys submissions is much the same. The Swaab Attorneys submissions appear to be directed to showing that the plaintiffs’ case must fail against the firm at final hearing (and therefore upon the present application) because there is no prima facie basis for that claim against the firm. But that is not the correct issue here. Whether the plaintiffs’ claim against Swaab Attorneys is strong or weak will be determined at trial.

37. The issue now before the Court is a different one and does not require the Court to assess whether the plaintiffs are likely to be successful against Swaab Attorneys, as distinct from there being a prima facie case of fraud against Cleveland and Ficaro. As the discussion of authority above shows, the application of s 125 may result in the defendants losing their claim to client privilege, even if the prima facie evidence of fraud only implicates the second and third defendants, the two clients Cleveland and Ficaro, and does not implicate the firm Swaab Attorneys. Importantly the authorities and the terms of s 125 make clear that the plaintiffs only need to show that either the lawyers, or the client (but possibly both), knew or had reason to know of the fraud alleged. Here, to enliven the application of s 125 it is sufficient for the plaintiffs to assume the burden of showing that there are reasonable grounds for finding that Cleveland and Ficaro knew or had reason to know that documents passing between them, and Swaab Attorneys were in furtherance of a fraud or an abuse of power. In the Court’s view the plaintiffs have discharged that burden. Whether Swaab Attorneys also knew or had reason to know that a fraud or abuse of power was occurring on the balance of probabilities will be determined at trial.

36. The plaintiffs’ submissions take issue with the main points made in the Swaab Attorneys submissions. The plaintiffs’ reply submissions engage directly with the defendant’s submissions by attempting to demonstrate at least a prima facie case that Swaab Attorneys knew or had reason to know of the fraud identified in the pleading, even though as has been explained, establishing that is not necessary for a loss of privilege under s 125. It is now convenient to consider the plaintiffs’ reply submissions in conjunction with the Court’s analysis of the the Swaab Attorneys submissions.

The Plaintiff’s Submissions and the Court’s Analysis of the Submissions.

39. The plaintiffs answer the Swaab Attorneys’ first submission as follows:

“9.   In respect of the first point, the transcript of the submissions made on behalf of the second and third defendants before Kunc J on their application to obtain the Freezing Orders is clear. The specific transcript references to those submissions set out at [74] to [76] of the 3FASOC, the most illuminating of which is as follows (T12:L24-L37):

“Another reason for not getting it in the ordinary way, this is an application for an order against a third party. The application is made on the basis that all of the assets of the third party are assets which should properly be in the hands of Mr Evans’ trustee in bankruptcy so it is not quite the same as a case where Mr Evans, unshackled by bankruptcy, is being asked to lock up more of his assets than he otherwise should. All of his assets should he locked up. That is what the provisions of the Bankruptcy Act say and in the short term whilst some decisions are made about how that is given effect to the order I seek in an unrestrained or unlimited way will preserve those assets for the benefit of all creditors in the bankruptcy and given Mr Evans does not currently have them in his hands and we say Mr Asfar has no proprietary interest in those assets there is no limitation on the freedom of either to spend their money in the way that is ordinarily sought to be protected by the limitation one customarily obtains in these orders.” (emphasis added).

10.   See also [19] of the Kunc J Judgment on the Freezing Order Application by the second and third defendants (Cleveland Investments Global Limited v Ficaro Pty Limited & Ors [2016] NSWSC 473) where his Honour said:

“[19] Counsel for the applicants has properly drawn to my attention that the form of the order is not limited as to value but refers to the assets of the estate. That course, it is submitted, is justifiable in at least the first instance in circumstances where, if the applicants are correct, then the assets of the estate should ultimately, in their entirety, be in the possession of Mr Evans' trustee in bankruptcy as an independent third party entitled to them by operation of the bankruptcy law.”

11.   The second and third defendants obtained the Freezing Orders for the benefit of all creditors of the bankrupt estate. If the case were otherwise the Freezing Order would have been limited to the estimate of the amount actually owing pursuing to the judgment owing by the Bankrupt to the second and third defendants of just over half a million dollars.”

40. The plaintiffs’ first reply submission here is persuasive in showing that there is a sound basis in the transcript to infer that the statements made to Kunc J on behalf of Cleveland and Ficaro for the purposes of obtaining the freezing orders clearly represented to the Court that the application was being made on behalf of all the creditors of Mr Evans. The defendants’ first submission is not sustainable once the reasons of Kunc J and the text of what was said to the Court on behalf of Cleveland and Ficaro are considered.

41. The plaintiffs answer the Swaab Attorneys’ second submission as follows:

“12.   In respect of the second point, it is not necessary for the second, third or fourth defendant to have known that the Hardy’s Bay Property in fact formed part of the Estate.

13.   In his reasons for judgment in Attorney -General (NT) v Kearney [1985] HCA 60 (25 September 1985) (Gibbs C.J., Mason, Wilson, Brennan and Dawson JJ.); 158 CLR 500; 61 ALR 55, Gibbs CJ (with whom Mason and Brennan JJ agreed) stated at 515 that “legal professional privilege will be denied to a communication which is made for the purpose of frustrating the processes of the law itself, even though no crime or fraud is contemplated”. Some authorities have expressed the principle as applicable to prevent a ‘fraud on justice’ in a broad sense. The concept of a ‘fraud on justice’ was adopted by Lander J in Gartner v Carter [2004] FCA 258, at [130] and [139]-[140] to deny protection to a communication between a lawyer and client for the purpose of the client putting assets beyond the reach of the legitimate claims of secured creditors.

14.   The second and third defendants admit that they had no legal or equitable interest in the Hardy’s Bay Property (3FASOC [45](b), which is admitted by the second and third defendants at 45(b) of the Defence to the 3FASOC), and to which the fourth defendants do not respond in substance. The fourth defendants must have also known this, it being clear from the decision of Kunc J at [19] of the Freezing Order Judgment that “if the applicants [the second and third defendants] are correct, then the assets of the estate should ultimately, in their entirety, be in the possession of Mr Evans' trustee in bankruptcy”.

15.   It is a reasonable inference to draw that, knowing the views of Kunc J (without formally determining the question), the second to fourth defendants undertook a series of steps to, put simply, do a deal with Mr Asfar, in secret, without informing the plaintiffs, to be paid a certain amount in satisfaction of the amount the Bankrupt owed to the second and third defendants, and avoid the whole Hardy’s Bay Property forming part of the Bankrupt Estate.

16.   Further, it is reasonable to infer that the second and third defendants would not have made, and the fourth defendants would not have advised the second and third defendants to make, the Freezing Order Application, knowing that their position/argument on the construction of the Will was ‘hopeless’.

17.   It is therefore reasonable to infer that each of the second, third and fourth defendants held a reasonable belief that the Hardy’s Bay Property would form part of the Bankrupt Estate.”

42. The plaintiffs’ answer to this submission is persuasive. It is not necessary for the second, third or fourth defendant to have known in July 2016 that the Hardy’s Bay property in fact formed part of the estate of Mr Evans. The defendants can be taken at their word when they said to Kunc J that they were acting on behalf of all creditors in bringing an application. It only made sense to bring an application on behalf of all creditors if it was thought that Mr Evans’ bankrupt estate at least had an arguable claim to the Hardy’s Bay property. It is unlikely such a statement would have been made to the Court on behalf of Cleveland and Ficaro unless they had some belief that the estate of Mr Evans had an arguable claim to the Hardy’s Bay property. Reasonable grounds for a finding that Cleveland and Ficaro were involved in a fraud upon the general creditors of Mr Evans can be established against Cleveland and Ficaro without establishing that they had clear knowledge of the ownership of the Hardy’s Bay property, a matter which would ultimately only be determined in a final hearing of the proceedings.

43. The plaintiffs answer the Swaab Attorneys’ third submission as follows:

“18.   As to the third point, there is no merit in the submission that the second, third and fourth defendants took steps or put the plaintiffs on notice of the situation for the following reasons:

18.1   As the Defendants’ Submissions state at [19(a)] and footnote 17, Mr Baddams and Mr Micheletto give divergent evidence of the conversation which occurred on 18 May 2016. This is a matter for the ultimate hearing. For the purposes of this application the plaintiffs are not required to prove on the balance of probabilities a fact. They must adduce prima facie admissible evidence that the allegation has some foundation in fact, which they have done.

18.2   It is not the case that the plaintiffs, as of 18 July 2016, were aware of the Deed of Settlement. The plaintiffs’ evidence is that they were aware of ‘a’ Deed of Settlement. The first time Mr Micheletto saw a copy, or became aware of, any of the terms of the settlement deed between the first, second and third defendants dated 6 June 2016 was on either 15 or 16 November 2016 after it had been produced pursuant to orders for production in the bankruptcy examination (see paragraphs [5], [6] and [9] of the Affidavit of Fabian Micheletto sworn on 9 July 2021).

18.3   It is also not the case that the plaintiffs were aware of a lapsing notice having been issued in respect of the OT Caveat. The details on the title search obtained by the plaintiffs on 15 July 2016 simply state that a lapsing notice had been issued and not that the lapsing notice was in respect of the OT Caveat. It is not possible to search for or obtain a copy of an image of the lapsing notice issued. Further, during a conversation between Mr Micheletto and Alinea Creslin of the Official Trustee’s office on 25 July 2016, Mr Micheletto was informed that no lapsing notice had been served on the Official Trustee (see paragraph [16] of the Affidavit of Fabian Micheletto sworn on 9 July 2021).

18.4   Mr Micheletto’s awareness of the existence of ‘A’ Deed of Settlement on 18 July 2016 is of no moment. This is particularly the case given:

18.4.1   the Deed of Settlement was dated 6 June 2016 and no notice of the Deed of Settlement was provided to the plaintiffs;

18.4.2   the fourth defendants caused a caveat to be registered for the benefit of the second and third defendants on 9 June 2016 and no notice of caveat was provided to the plaintiffs;

18.4.3   the lapsing notice was allegedly served on 16 June 2016 and no notice of that lapsing notice was provided to the plaintiffs;

18.4.4   the fourth defendants admit that the OT Caveat lapsed on 13 July 2016 (see Fourth Defendants’ Defence to the 3FASOC at [61] in the context that the historical title search of the Hardy’s Bay Property at Annexure H of the Affidavit of Fabian Micheletto sworn on 9 July 2021 records the Application for Preparation of the Lapsing Notice as being registered on 19 July 2016);

18.4.5   the second, third and fourth defendants both admit that on or about 15 July 2016 the second and third defendants (by the fourth defendants) lodged a caveat on the title to the Hardy’s Bay Property (see both the Second and Third, and Fourth Defendants’ Defences to the 3FASOC at [62]);

18.4.6   on 25 July 2016, Mr Micheletto was informed that no lapsing notice had been served on the Official Trustee (see paragraph [16] of the Affidavit of Fabian Micheletto sworn on 9 July 2021);

18.4.7   the Deed of Settlement expressly prevents all of the defendants from informing the plaintiffs of the existence of the Deed of Settlement and whilst the second and third defendants deny they concealed the existence of the Deed of Settlement from other creditors of the Bankrupt, the Official Trustee and the plaintiffs, no evidence has been adduced by any of the defendants that they informed these parties of the existence of the Deed of Settlement;

18.4.8   in any event (although perhaps not relevant on the facts for which the plaintiffs contend), the relevant pleaded allegation is that the defendants “took steps to conceal” relevant matters, not that the plaintiffs did not know of them.

19.   It is not the case that the plaintiffs did not make enquiries of the fourth defendants or first defendant’s lawyers until the commencement of the bankruptcy proceedings in August 2016 (Defendants’ Submissions at [19(b)]). The evidence from Mr Edney (see paragraph [19] of the Affidavit of Fabian Micheletto sworn on 9 July 2021 which Annexed at “I” the Affidavit of David Edney sworn on 29 July 2016), was that he did make enquiries with Caterina Meduri, an employed solicitor of the fourth defendants, on 7 June 2016.

20.   In any event, the terms of the Deed of Settlement, drafted predominately by the fourth defendants expressly prevents the fourth defendants (and first, second, third, fifth and sixth defendants) from informing the plaintiffs about what was going on, such that even if enquiries were made, they were contractually bound to ignore the plaintiffs’ or their lawyers’ request.”

44. The plaintiffs’ answer to the defendants third submission is persuasive. The plaintiffs’ factual summary set out in their submission on this issue is accurate. It accords with the known facts.

45. Even if the defendants’ submission is accepted as a correct characterisation of the facts, the submission falls well short of repelling the plaintiffs’ case of dishonest concealment. Let it be assumed for the sake of argument that the defendants are right that as at 18 July 2016, the plaintiffs were expressly on notice that (i) Cleveland, Ficaro and Mr Asfar had entered into a deed of settlement, pursuant to which Cleveland and Ficaro were claiming an interest in the Hardy’s Bay property; (ii) it was likely that Mr Asfar had agreed to “pay [Cleveland and Ficaro] money to avoid further inquiry”; and (iii) a lapsing notice had been issued in respect of the Official Trustee’s caveat. And let it further be assumed that despite being aware of those matters, the plaintiffs did not make inquiries of Swaab or Ms Asfar’s lawyers until the commencement of the bankruptcy proceedings in August 2016.

46. Even if these matters are accepted they do not answer the more fundamental case the plaintiffs advance of dishonest breach of fiduciary duty, where the proper discharge of that duty would have required complete disclosure to the plaintiffs or to the Official Trustee in advance of all the steps being taken between Mr Asfar and Cleveland and Ficaro.

47. An argument that it was up to the plaintiffs or the Official Trustee to use their strategic intelligence and independent legal advice to divine what was going on between Mr Asfar and Cleveland and Ficaro misses the main thrust of the plaintiffs’ case of dishonest breach of fiduciary duty. Properly understood the plaintiffs’ case is that full disclosure should have occurred to the representatives of the general creditors of Mr Evans as soon as the freezing orders were obtained and any dealings between Cleveland and Ficaro and Mr Asfar commenced; and, anything short of such complete disclosure from that point onwards, which advantaged Cleveland and Ficaro at the expense of general creditors was arguably dishonest. Such a case is amply available on behalf of the plaintiffs on the materials before the Court and is not displaced by the arguments here advanced on behalf of the defendants. In the inference of a dishonest rather than a casual nondisclosure is more readily drawn when the 2016 deed contains provisions preventing disclosure to the plaintiffs and requiring Cleveland and Ficaro not to fund the Official Trustee in relation to the bankrupt estate of Mr Evans.

48. Finally, the Swaab Attorneys’ fourth submission based on certain statements in KTC (that the preparation of documents by a lawyer, without more, is not sufficient to establish knowing assistance in a dishonest or fraudulent design) Is not directly dealt with by the plaintiffs but is readily answered as follows. This argument misapprehends the plaintiff’s burden on this application. The plaintiffs do not have to establish that Swaab Attorneys’ gave knowing assistance to a dishonest or fraudulent design before s 125 is enlivened to cause a loss of the second and third defendants’ client privilege.

49. Swaab Attorneys also rely upon written submissions that they originally made on 22 March 2021 in the exchange of concise bundles of documents on each side relating to the s 125 issue. These submissions were made before the parties were diverted to deal with the waiver issue the subject of the second judgment.

50. The Swaab Attorneys submissions made on 22 March 2021 do not provide any additional persuasive arguments to resist the application of s 125 to the documents in question. First in those earlier submissions Swaab Attorneys argue that it was clear that in obtaining the freezing orders Cleveland and Ficaro were acting in their own interests and not in the interests of other creditors. The short answer to that submission is that in fact the reverse inference may readily be drawn from the available materials and in particular from the statements made by Cleveland and Ficaro to Kunc J.

51. Second in those earlier submissions Swaab Attorneys relies upon certain correspondence in which Mr Baddams put the plaintiffs on notice that they “may need to seek alternative representation”, if they formed the view that it was necessary to extend the operation of the caveat lodged by the Official Trustee. Swaab Attorneys submit that such conduct does not reflect an attempt to mislead the plaintiffs or to conceal from them the true situation, as at that time the Official Trustee had lodged its caveat on the title to the Hardy’s Bay property, which was readily discoverable by title search.

52. This argument is not persuasive. A statement to the plaintiffs that they “may need to seek alternative representation” is unlikely to have alerted the plaintiffs to the true facts, of which Cleveland and Ficaro were aware – that their negotiations towards the 2016 deed had started with Mr Asfar. Nor is the Swaab Attorneys’ statement persuasive that “whether Cleveland and Ficaro might have chosen to be more forthcoming about their intentions with respect to pursuing negotiations with Asfar is beside the point” at all. It is not “beside the point”; their failure to give such basic information to the plaintiffs is central to the availability of the inference of dishonesty.

53. Third, in those earlier submissions Swaab Attorneys argue that their steps in relation to the removal of the caveat were entirely orthodox and undertaken in accordance with the Real Property Act 1900 and that serving the lapsing notices on the Official Trustee rather than the plaintiffs, who were not the caveator, is not sinister.

54. This argument is not persuasive. It is to be remembered that Cleveland and Ficaro instigated the replacement of the Official Trustee by the plaintiffs which might predictably have reduced the responsiveness of the Official Trustee to act quickly to the receipt of a lapsing notice. This was followed by the defendants decision not to inform the plaintiffs of the lapsing notice and the terms of the agreement in the 2016 deed, all of which did not assist the plaintiffs. Taken together these circumstances may found an inference of dishonesty.

55. Finally, Mr Cheshire SC on behalf of Cleveland and Ficaro submits that for a loss of privilege to occur under s 125 the documents in question must be in furtherance of a fraud rather than merely being documents evidencing a fraud.

56. This distinction is a very fine one in the present circumstances. This argument does not lead the Court to hold that client privilege is retained in respect of any group of documents. As Amcor shows, any positive steps taken by a fraudster to conceal information about the fraud or to place the property beyond the legal reach of the victim once the fraud is discovered, can be in furtherance of the fraud. The Court’s general review of the documents in dispute shows the documents are involved in the negotiation of the 2016 deed or are consequent upon its execution. These can all arguably be said to constitute positive steps by Cleveland and Ficaro to conceal information to further a dishonest breach of fiduciary duty and to place the Hardy’s Bay property beyond the reach of the general creditors of Mr Evans.

57. Otherwise, Mr Cheshire relies upon the same arguments as those put on behalf of Swaab Attorneys, which the Court has already analysed.

44. It is to be noted that where the Court has in these reasons said that inferences of dishonesty are available is statement that there are reasonable grounds for inferring dishonest conduct. But this does not mean that without more those inferences should now be drawn. The contest about drawing those inferences must await a final hearing. In accordance with authority such statements should be construed as only indicating the availability of such inferences.

Conclusion and Orders

59. The defendants’ arguments have been unsuccessful, so the plaintiffs should have access to the second and third, and fourth defendants’ documents in the packets in the Court file marked ‘N1’ and ‘N3’. Should the defendants wish to seek leave to appeal from these orders, they will not become operative until after Friday 17 February 2023.

60. The Court understands from the way the parties’ submissions have been advanced that the parties are prepared to accept that all the documents the subject of challenge under s 125 may be dealt with in much the same way and that a single ruling will grant access to them all. But it may be that the Court’s present reasons for decision will allow for raising of other arguments by the defendants that individual documents may perhaps be treated differently. If that is the case, a limited opportunity will be given to the defendants to put forward such an argument before access is granted to the plaintiffs. But the principles discussed above and the Court’s review of the documents leads the Court to the view that in the absence of such additional submissions that all the documents in dispute may be dealt with together as a class.

61. The second, third and fourth defendants have been unsuccessful in their claims for client privilege adjudicated in this judgment over the documents produced under the notices to produce. Costs would ordinarily follow the event and the Court would ordinarily order the second, third and fourth defendants to pay the plaintiffs’ costs of that application on the ordinary basis.

62. As a result of the Court’s second judgment the plaintiffs were unsuccessful in their claims for client privilege over the documents the subject of the 11 October 2021 motion. Costs would ordinarily follow the event and the Court would ordinarily order the plaintiffs to pay the second third and fourth defendants’ costs of that application on the ordinary basis.

63. Unless either party notifies chambers before 10 February 2023 the Court will make the costs orders in chambers foreshadowed in order (3) below. This should conclude the present contest and the proceedings should now be listed before the Registrar in Equity for the making of further trial management directions to prepare the proceedings for final hearing.

64. For these reasons, the Court makes the following orders and directions:

1. Order that from Friday 17 February 2023 the plaintiffs may have access to all the second and third, and fourth defendants’ documents  in the packets in the Court file marked ‘N1’ and ‘N3’ (“the Defendants’ Documents for Access”);

2. The parties’ motions are otherwise dismissed;

3. Unless either party applies in chambers for a different cost order before 10 February 2023, the Court will make the cost orders in chambers foreshadowed under the heading “Conclusions and Orders” in the Court’s reasons published today;

4. Grant liberty to apply until 10 February 2023 should the defendants wish to advance a contention that any specific document among the Defendants’ Documents for Access falls outside the scope of the Court’s present ruling and should not be disclosed;

5. Subject to any applications that may be made pursuant to order (3) and (4) above the parties’ contest about client privilege is concluded and the matter will be listed before the Registrar for mention at 9 am on Wednesday, 1 March 2023.

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Amendments

01 March 2023 - Order 1 : reference to "Exhibit 1" substituted for "the documents in the packets in the Court file marked ‘N1’ and ‘N3’"

01 March 2023 - [59] Exhibit 1 substituted for documents in the packets in the Court file marked ‘N1’ and ‘N3’.

Decision last updated: 01 March 2023