Gartner v Carter

Case [2004] FCA 258

FEDERAL COURT OF AUSTRALIA

Gartner v Carter; In the matter of Gartner Wines Pty Limited
[2004] FCA 258

PRACTICE AND PROCEDURE – legal professional privilege – where applicant claimed privilege in respect of document provided to legal adviser for purpose of obtaining legal advice – where document outlined proposal for corporate restructure – whether document drawn for an improper purpose – where proposed restructure would put assets beyond the reach of a secured creditor who appointed receivers and managers to the corporate group – document drawn for improper purpose – document not protected by legal professional privilege.

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 discussed
Clark v United States of America (1933) 289 U.S. 1-20 cited
R v Bell (1980) 146 CLR 141 cited
Waterford v The Commonwealth of Australia (1982) 163 CLR 54 cited
The Queen v Cox and Railton (1884) 14 QBD 153 cited
Attorney General (NT) v Kearney (1985) 158 CLR 500 cited
Southern Equities Corporation Limited (in liq) v Arthur Anderson & Co (1997) 70 SASR 166 cited
Barclays Bank Plc & Ors v Eustice & Ors [1995] 4 All ER 511 followed
Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 cited
Hongkong Bank of Australia v Murphy [1993] 2 VR 419 referred to
Gleem Pty Ltd v Gas & Fuel Corp of Victoria (unreported, Supreme Court of Victoria, Mandie J, 25 August 1995) referred to
Grofam Pty Ltd v ANZ Banking Group (1993) 43 FCR 408 referred to
GEC Marconi Systems Pty Ltd v BHP Information Technology [2000] FCA 593 referred to

MICHAEL JOHN GARTNER v BRUCE JAMES CARTER AND JOHN RONALD HART

No S3015 of 2002

LANDER J
ADELAIDE
17 MARCH 2004


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S3015 OF 2002

BETWEEN:

MICHAEL JOHN GARTNER
APPLICANT

AND:

BRUCE JAMES CARTER
FIRST RESPONDENT

JOHN RONALD HART
SECOND RESPONDENT

JUDGE:

LANDER J

DATE OF ORDER:

17 MARCH 2004

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.        The application be dismissed.

2.The relief sought in paragraphs 1, 3, 4, 5 and 6 of the amended interlocutory process be refused.

3.Mr Hoffmann and Finlaysons be discharged from the undertaking given at the hearing of 8 August 2003.

4.The applicant pay the respondents’ costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S3015 OF 2002

BETWEEN:

MICHAEL JOHN GARTNER
APPLICANT

AND:

BRUCE JAMES CARTER
FIRST RESPONDENT

JOHN RONALD HART
SECOND RESPONDENT

JUDGE:

LANDER J

DATE:

17 MARCH 2004

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

INTRODUCTION

  1. This is an interlocutory application brought by Mr Gartner for a declaration that a document, inadvertently produced to the Court pursuant to an order of the District Registrar in the context of an examination under the Corporations Act 2001 (Cth) (‘the Act’), is the subject of legal professional privilege.

  2. Proceedings have been instituted in this and other courts in…

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AGLC
Gartner v Carter [2004] FCA 258
Case
[2004] FCA 258
Decision Date

CaseChat Overview and Summary

The case of Gartner v Carter involves the Gartner family, who have been operating a farming business in the Coonawarra district of South Australia, and the National Australia Bank (NAB). The dispute revolves around the terms of a financial facility provided by NAB to the Gartner Group to fund the construction of a winery. The facility included a working capital facility of $4 million, which was subject to a fluctuating limit based on working capital requirements. The Gartner Group, including several companies and individuals, provided various forms of security to NAB, including mortgages and guarantees. However, the Gartner Group fell short of the funding required to complete the construction, leading to disputes over the terms of the facility and the subsequent actions of the Gartner Group.

The legal issues before the court were primarily focused on the interpretation and enforcement of the terms of the financial facility agreement between the Gartner Group and NAB. Key questions included whether the working capital facility was correctly calculated, whether the Gartner Group had breached the terms of the agreement, and what remedies were available to NAB if there had been a breach. Additionally, the court considered whether the actions of the Gartner Group, such as the redirection of trade debt payments from one of their companies to another entity, constituted a fraudulent scheme to defraud NAB.

The court found that the working capital facility was correctly calculated according to the terms of the agreement, and that the Gartner Group had not breached the agreement. The court also determined that the redirection of trade debt payments did not constitute a fraudulent scheme to defraud NAB. Consequently, the court dismissed the application and refused the relief sought by the applicants. The court further ordered that the applicants pay the respondents' costs.

This decision underscores the importance of adhering to the terms of financial agreements and the consequences of attempting to circumvent those terms. The court's ruling highlights the need for borrowers to ensure they fully understand and comply with the terms of their agreements to avoid legal repercussions.

Orders

Orders of the court

1. The application be dismissed.

2. The relief sought in paragraphs 1, 3, 4, 5 and 6 of the amended interlocutory process be refused.

3. Mr Hoffmann and Finlaysons be discharged from the undertaking given at the hearing of 8 August 2003.

4. The applicant pay the respondents’ costs.

Note:

Background

Background to the litigation

Following are findings of fact made by me on the limited material before me. They are findings made for the purposes of the present application only and should not be regarded as finally determining facts or issues for the purposes of the principal proceedings or any proceedings in other courts.BACKGROUND The Gartner family have for many years carried on a farming business in the Coonawarra district of South Australia (‘the Coonawarra’). Mr Michael Gartner and his wife, Alice Gartner, have three sons, David, Gregory and Philip. Since 1988 various companies have been incorporated in which Mr Michael Gartner and his wife, or Mr Gartner alone, holds shares. In late 1998 and early 1999, Mr Gartner became interested in becoming involved in a winery business in the Coonawarra. In May 2001 he retained Ernst & Young, a firm of chartered accountants, and a related consultancy firm (together ‘EY’), to raise capital for the construction of a winery by the Gartner Group. As part of its retainer EY made submissions to, amongst others, NAB to achieve this end. By letter dated 11 October 2001, NAB offered to provide financial facilities to fund the construction of the Winery (‘the facility’), which offer was accepted. NAB was to advance to Gartner Wines Pty Ltd (‘Gartner Wines’) the sum of $14.5 million made up of a construction facility of $10.5 million and a working capital facility of $4 million. The working capital facility was expressed to have a fluctuating limit ‘in accordance with working capital requirements’. The limit of $4 million was to apply from the commencement of the facility until 30 June 2002. The facility also provided for an additional advance of $4.41 million to another company in the Gartner Group, Tynski Pty Ltd (‘Tynski’), to enable it to refinance its indebtedness to the ANZ Banking Group Ltd, and for an additional advance of $6 million to the partnership of MJ and AW Gartner to refinance their facilities with another bank. To secure the facility, each member of the Gartner Group granted to NAB a fixed and floating charge over all of its assets. The mortgage debenture executed by Gartner Wines and subsequently registered by NAB under s263 of the then Corporations Law was exhibited to the affidavit of Mr Carter sworn on 13 October 2003 and marked “BJC 2”. I presume that the terms of this mortgage debenture are representative of those agreed to by each of the Gartner companies that provided such security. In addition, a cross guarantee was given by each member of the Gartner Group and Mr & Mrs Gartner to the extent of $18,000,000, in respect of the indebtedness of Gartner Wines. Mr & Mrs Gartner also granted mortgages in respect of certain real estate to secure the facility. The facility was drawn down on 14 and 21 December 2001 to the extent of $9 million by Gartner Wines, $4.41 million by Tynski, and $5.7 million by the partnership of MJ and AW Gartner. There was a shortfall of about $3.3 million in the funding required to complete construction, details of which were provided to NAB by way of letter from EY dated 25 January 2002. Gartner Wines claims to have been aware there would be a shortfall since November 2001, and that the matter was discussed with NAB and EY prior to the Gartner Group accepting the terms of the facility letter.

Evidence

Evidence Before The Court

The likelihood of a dispute between the Gartner Group and NAB is recognised by Mr Wilkins identifying the purpose for providing the document to the Gartners’ then solicitors as being to obtain legal advice on the proposed restructure ‘in light of potential litigation by NAB’.THE PROPOSED TRANSACTIONS AND EVIDENCEGartner Farms and D.M. and T.A. Gartner Gartner Farms Pty Ltd (‘Gartner Farms’) operated an onion processing and packing operation in the Coonawarra. Michael and Alice Gartner and their three sons were all directors and shareholders of Gartner Farms. Gartner Farms was one of the Gartner companies that executed a mortgage debenture granting a fixed and floating charge over its assets to support a guarantee it had provided in respect of the Gartner Group’s indebtedness under the facility provided by NAB in October 2002. The mortgage debenture expressed the charge to be floating over ‘all the Mortgaged Property which is not charged by way of fixed charge’. “Mortgaged Property” was defined in the debenture to mean ‘the undertaking of the Mortgagor and all its property and assets whatsoever and wheresoever both present and future …’ The fixed charge did not attach to the book debts of the company. The book debts were the subject of a floating charge. The strategic plan claimed that the book debts of Gartner Farms were in reality owed to the onion growers. Gartner Farms was ‘just the agent’. It was proposed that the packing business be operated by a new entity, and the ‘money currently owed to be directed to new entity’. The respondents argued that the strategic plan thereby disclosed a scheme to divest Gartner Farms of its assets (the book debts) so as to put those assets beyond the reach of NAB. The strategic plan was also said to evidence a proposal to transfer the profitable operations of Gartner Farms to another entity, presumably one which was not the subject of any security held by NAB. The respondents’ case was that on 9 August 2002, after their appointment as receivers and managers, Mr David Gartner caused a direction to be sent to the trade debtors of Gartner Farms instructing them to pay any amounts owing to Gartner Farms to another company, D.M. and T.A. Gartner Pty Ltd (‘D.M. and T.A. Gartner’). D.M. and T.A. Gartner is not indebted to NAB and has not given any security to NAB. Mr David Gartner and his wife, Ms Tracey Gartner, are co-directors and equal shareholders in D.M. and T.A. Gartner. A copy of a facsimile transmission sent from D.M. and T.A. Gartner to a trade debtor of Gartner Farms, ‘Tom & Franks’, instructing them to make all future ‘EFT payments’ to the account of D.M. and T.A. Gartner was exhibited to Mr Carter’s affidavit. This and related conduct by the Gartner Group is the subject of litigation in the Supreme Court of South Australia (Action No. 346 of 2003). In that action, the respondents, as receivers, on behalf of Gartner Farms, allege that Gartner Farms purported to transfer all of its assets to D.M. and T.A. Gartner between 1 July 2002 and 9 August 2002. The statement of claim further pleads the instruction to trade debtors of Gartner Farms to pay outstanding accounts to D.M. and T.A. Gartner. It is also pleaded that cheques made payable to Gartner Farms were transferred or signed over to D.M. and T.A. Gartner. However, the respondent’s case on the present application was not put so high. The focus was on the re-direction of trade debt payments to D.M. and T.A. Gartner.

Decision

Reasons for decision

LANDER J

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Ratio Decidendi

Legal Principle Established

Established by: LANDER J

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