GR Finance Limited v Waldron
[2010] FMCA 133
•18 February 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GR FINANCE LIMITED v WALDRON | [2010] FMCA 133 |
| BANKRUPTCY – Creditor’s petition – discovery of confidential deed of settlement in litigation between creditor and third party – relevance to debtor’s grounds of opposition to petition – legal privilege not established – inspection ordered in the interests of justice. |
| Bankruptcy Act 1966 (Cth), ss.52(2), 52(2)(b) Evidence Act 1995 (Cth), s.119 Federal Court Rules (Cth), O.15, rr.2, 2(3)(c), 7, 10, 18 |
| Buzzle Operations (in liquidation) v Apple Computer Australia [2009] NSWSC 225 Home Office v Harman [1983] 1 AC 280 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 40 |
| Applicant: | GR FINANCE LIMITED ACN 093 549 305 |
| Respondent: | JOSEPHINE CARMEL WALDRON |
| File Number: | SYG 2254 of 2009 |
| Judgment of: | Smith FM |
| Hearing date: | 18 February 2010 |
| Delivered at: | Sydney |
| Delivered on: | 18 February 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr F Salama |
| Solicitors for the Applicant: | Marsdens Law Group |
| Counsel for the Respondent: | Mr D Bowles |
| Solicitors for the Respondent: | Bowles Lawyers Pty Limited |
ORDERS
Inspection, without copying, is to be given to the respondent in relation to the deed produced to the Court in response to her notice to produce dated 26 November 2009.
The hearing of the petition is adjourned to 9 March 2010 at 10.15am.
Any additional affidavits relied upon by the respondent must be filed and served no later than 4pm on 2 March 2010.
Any affidavits in reply must be filed and served no later than 4pm on 5 March 2010.
Any written submission or list of authorities relied upon by a party must be filed and served before 4pm on 1 March 2010.
The parties have liberty to apply for further directions on a date allowing 2 working days’ notice to the other party.
Costs reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2254 of 2009
| GR FINANCE LIMITED ACN 093 549 305 |
Applicant
And
| JOSEPHINE CARMEL WALDRON |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This judgment explains my reasons for granting access to a document produced to the Court under a notice to produce, and for then adjourning the hearing of a bankruptcy petition.
GR Finance Limited (“GR Finance”) lent money to Mr and Mrs Waldron, secured by a second mortgage over property at Wahroonga. Payments under the finance agreement were not made, and a default judgment was entered in May 2008 against Mr and Mrs Waldron, for $689,269.88 and costs. There is evidence suggesting that the security is valueless in relation to the second mortgagee. Mrs Waldron has now been served with a bankruptcy notice in relation to the judgment debt, and has committed an act of bankruptcy which is uncontested. The present petition is GR Finance’s second attempt to obtain a sequestration order against Mrs Waldron, based upon that indebtedness and act of bankruptcy. Meanwhile, GR Finance has arrived at a settlement with several valuers of the Wahroonga property, whom it sued in the Federal Court in an endeavour to recover its losses under the finance agreement.
The present petition against Mrs Waldron was filed on 16 September 2009. As I understand it, the notice of opposition as amended which is relied upon by Mrs Waldron, does not take issue with GR Finance’s entitlement to obtain a sequestration order, subject to the exercise of the Court’s discretion to decline that order under s.52(2) of the Bankruptcy Act 1966 (Cth).
Mrs Waldron opposes the petition, and relies upon grounds set out in an amended notice of opposition. It provides:
1.The Respondent disputes that the amount claimed by the Applicant is due and payable.
2.Judgment was entered in favour of the Applicant against the Respondent and her husband Francis Gerard Waldron on 15th May 2008 for $689,269.88 plus costs of $2,751.00 (“the judgment debt”).
3.In May and June 2008 the Applicant served Bankruptcy Notices on the Respondent and Mr Waldron. On 10th July 2008 Creditor’s Petitions were presented in proceedings 1778/2008 and 1779/2008 respectively. On 7th May 2009 the Petitions were dismissed with an order that the Applicant pay the Respondent’s costs on the basis that the Bankruptcy Notices were found to be defective.
4.On 9th September 2008, by way of Application and Statement of Claim the Applicant commenced proceedings in The Federal Court of Australia in proceedings VID706/2008 against Langshaw Valuations Pty Ltd (“the proceedings”).
5.On 20th February 2009 by way of Amended Application and Amended Statement of Claim the Applicant joined Rural Valuations Australia Pty Ltd and Anthony Richard O’Dea to the proceedings as Second and Third Respondents respectively.
6.In the proceedings the Applicant claims damages in the sum of $532,250.00 together with compound interest on that sum and costs.
7.In summary the Applicant alleged that representations made by Langshaw Valuations Pty Ltd and the Second and Third Respondents, if the Court so finds, in respect of the value of a property at 53 Junction Rd Wahroonga owned by the Respondent and her husband Francis Gerard Waldron were misleading and deceptive or likely to mislead or deceive and that as a reason of this loss and damage was suffered by the Applicant. Further or alternatively the Applicant alleges negligence.
8.The Particulars to paragraph 30 of the Amended Statement of Claim alleges that the Applicant “…has lost: (a) the capital sum of $532,250 advanced to the Waldrons; and (b) the opportunity to earn compound interest on the sum of $532,250…or [alternatively to (b)] (c) loss of use of the sum of $532,250…”.
9.The Bankruptcy Notice was issued on 12th May 2009 and was served by post two days later. The Creditor’s Petition was presented on 16th September 2009.
10.The Respondent understands and verily believes that the proceedings have settled and that a substantial sum in damages has been paid, or is to be paid, to the Applicant.
11.By Order made on 6th November 2009 by Justice Sundberg in the proceedings the proceedings were struck out with a right of reinstatement.
12.The Respondent says that the Applicant cannot seek to enforce the judgment debt in full yet at the same time recover damages arising out of the settlement of the proceedings.
13.By fax dated 12th November 2009 the solicitors acting for the Applicant in the proceedings stated that as “The terms of settlement…are private and confidential as between the parties…we are not at liberty to disclose or reveal same” but that “…we are of the view that any commercial settlement reached between the parties referred to above does not impact on the current proceedings against your client(s) in any manner whatsoever.”
14.The Respondent and her husband intend to pay to the Applicant whatever sum it is properly entitled to after deduction of the damages recovered in the proceedings.
15.Because of the circumstances set out above the Petition should be dismissed pursuant to s52(2)(b).
The notice of opposition is not well pleaded, so as to show separate grounds with particulars. However, it appears to present four separate reasons for declining to make a sequestration order, being the contentions found in paragraphs 3, 10, 12 and 14. The newly added paragraph 15 indicates that these contentions are made, not in support of an asserted ability by Mrs Waldron to pay her debts, but as “other sufficient cause” as to why a sequestration order ought not to be made.
The parties have filed affidavits giving more details of GR Finance’s litigation with the valuers, who had provided a valuation in relation to the Waldrons’s Wahroonga property. It claimed to have relied upon misleading or negligently prepared valuations, when advancing the money under the finance agreement to the Waldrons.
GR Finance has filed an affidavit which narrates the history of that litigation, being Mr Desiderio’s affidavit sworn 17 November 2009. His affidavit concludes:
Settlement of GR Finance’s Federal Court Proceeding
16.On or about 5 November 2009, GR Finance settled the Federal Court Proceeding with Langshaw Valuations, Rural Valuations and O’Dea, as a consequence of which Minutes of Consent Orders have been filed with the Federal Court seeking to have the Federal Court Proceeding struck out with a right of reinstatement and with no orders as to costs. Settlement of the Federal Court Proceeding is evidenced by a Deed of Settlement and Release (“Deed”) executed and exchanged as between the parties referred to above.
17.There is an express clause in the Deed whereby the parties have agreed that the existence of the Deed and each and all of the terms and conditions therein are strictly confidential to the parties. This which creates an obligation and duty of confidentiality in relation to the contents of the Deed.
18.In my opinion, the provisions of the Deed do not affect the liability and/or the debt owed by Josephine Waldron pursuant to the Loan Facility and under the Judgment.
19.I understand that breach of the Loan Facility is the basis of a Supreme Court of New South Wales judgment (“Judgment”) in favour of GR Finance, upon which these bankruptcy proceedings are founded.
Mrs Waldron has filed affidavits, including from her husband and her former solicitor, indicating that they are aware of the proceedings in the Federal Court, are aware that they have been concluded by way of a deed of settlement, have sought production of the deed, but production has been resisted.
Two notices to produce have been served on GR Finance in relation to the deed of settlement. The deed has now been produced to the Court, and in the course of today’s hearing of the petition, I am asked to rule upon whether inspection should be permitted.
GR Finance argues that the deed is covered by legal professional privilege, and alternatively that it is not a document which should be ordered to be discovered to the respondents.
In relation to a legal professional privilege, counsel for GR Finance principally referred in his written submission to the privilege given by s.119 of the Evidence Act 1995 (Cth), in relation to the adducing of evidence. It provides:
119Litigation
Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:
(a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made; or
(b) the contents of a confidential document (whether delivered or not) that was prepared;
for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party.
Reference was also made in oral submissions to the common law privilege against production, which applies to interlocutory discovery in Federal Courts. Under the common law, the relevant test is whether the document was prepared for the dominant purpose of use in or in relation to pending or anticipated litigation (see authorities cited by White J in Buzzle Operations (in liquidation) v Apple Computer Australia [2009] NSWSC 225 at [15] and following).
On either test, in my opinion the present deed does not satisfy the dominant purpose tests. I am prepared to accept or assume that the deed may be regarded as relevantly “confidential,” since it contains a clause in which the parties to the deed agreed to keep its terms “strictly confidential to the parties”, although the clause contained the exception of “as required by law”. However, the difficulty is identifying a provision of legal services, or a use in litigation, as the “dominant purpose” of its preparation.
It was argued by counsel for GR Finance that a purpose of the preparation of the deed was to finalise the Federal Court litigation between GR Finance and the valuers, and in that sense, it was prepared for use in those proceedings. He argued that to the extent that it was used to finalise proceedings, it was prepared for the purpose of GR Finance being provided with professional legal services relating to the finalisation of those Federal Court proceedings. It might also be pointed out that the deed, no doubt, was the subject of a great deal of input, by way of professional legal services in its negotiation, drafting, and execution.
However, the document which has been produced is an executed and operative contract. It confers, in its terms, benefits on the parties to the deed going far beyond the finalisation of the proceedings in the Federal Court. Indeed, it gives one party very substantial legal entitlements in relation to the other party, and when doing this it adjusts substantial legal rights and liabilities of its parties. In my opinion, the creation of these effects should be characterised as, at least, the equally motivating purpose of the preparation of the document, if not the sole purpose of the document. I do not consider that the deed, once executed and given legal effect, can be characterised as having been prepared “for the dominant purpose of the client being provided with professional legal services relating to an Australian … proceeding”, nor as having been created with the dominant purpose for use in such a proceeding. There is no evidence suggesting there are any anticipated, or currently pending, proceedings explaining the preparation of the deed, for the purposes of the two rules.
I was not referred to any authority by counsel in relation to the claim for privilege, but I consider that the interpretation I have taken is consistent with the interpretation of s.119 and the common law privilege by White J in Buzzle (supra) at [28], and also by Bergin J in the judgment his Honour cites, being Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 40 at [44] and [46]. I therefore concluded that the document is not privileged from production or inspection by reason of legal professional privilege.
Turning to consider whether the Court should order discovery in the exercise of its discretionary powers, I note that it is not contended that a document which is subject to inter partes obligations of confidentiality is for that reason privileged from production and inspection under court processes.
Counsel for GR Finance referred in his written submissions to ss.55 and 135 of the Evidence Act as the sources of power to withhold production. However, the concept of relevance under s.55, and the discretions of s.135 of the Evidence Act, concern the admission of evidence during a trial, not its discovery to another party prior to or in the course of a hearing, to assist that other party to prepare and present its case.
In my opinion, the considerations governing my power to decline or to allow inspection of the deed which has been produced to the Court, are found in relevant rules in relation to discovery and inspection. In this Court, including in its bankruptcy jurisdiction, these are found in O.15 of the Federal Court Rules (Cth). In these rules, r.2 defines the principles which would, subject to a contrary order by the Court, govern discovery on notice or other less formal means. Duties of discovery may encompass all documents relevant to issues in the case, regardless of whether in fact they would assist the party gaining discovery, or would be admissible at a trial. It is abundantly clear that discovery can be required in relation to documents which will not assist the party seeking to have inspection (see r.2(3)(c) and r.7).
In addition, and apparently relevant to the present situation, O.15 r.10 provides that:
(1)Where a pleading or affidavit filed by a party refers to a document, any other party may, by notice to produce served on him require him to produce the document for inspection. …
The present notice of production could be regarded as coming within that rule, since it seeks inspection of the significant document referred to in the affidavit of Mr Desiderio, which I have referred to above.
It was contended that inspection of the deed should not be permitted because it was not shown that its contents would go to an issue in the case. It was also suggested that Mrs Waldron was engaged in a fishing expedition, and that Mr Desiderio’s affidavit was enough to dispel the prima facie relevance of the deed to her contention that its contents would provide grounds for refusing to make a sequestration order. However, I do not accept these submissions.
The grounds of opposition which rely upon the Federal Court proceedings and its outcome, in my opinion, plainly do raise an arguable ground of exercise of the Court’s discretion under s.52(2)(b). Enough evidence has been filed, though not yet read as evidence in relation to the hearing of the petition, to point sufficiently to a possible factual basis for the contention which is sought to be made by Mrs Waldron. I do not consider that her prima facie right to inspect a document crucial to her contention should be refused merely upon the opinion of GR Finance’s solicitor that its contents would not assist her case. In my opinion, it is in the interests of justice in this case that inspection of the deed should be permitted, according to the normal rules of discovery.
Discovery pursuant to an order for inspection on a notice to produce is subject to well established implied undertakings as to the use which may be made of a document so produced and the information in it (see Home Office v Harman [1983] 1 AC 280, and note Federal Court Rules O.15. r.18). I invited counsel for GR Finance to address me on whether this would sufficiently protect GR Finance’s concern, and whether any additional undertakings or conditions should be imposed on an order allowing inspection of the deed. I also noted that GR Finance has presented no evidence pointing to any particular commercial disadvantage which would flow from inspection of the deed for the purposes of the present proceeding.
Counsel’s submissions pointed only to the fact that the deed itself contained a confidentiality clause, indicating that his client and the other parties to the deed regarded the deed as appropriately the subject of a commercial confidentiality clause. I have given significant weight to that fact. However, it is diminished by the fact that the clause itself envisages the possibility that disclosure may be required “by law”. In my opinion, the laws which I am applying today in relation to the production and inspection of documents are laws coming within the exception identified in the confidentiality clause itself.
In all the circumstances, which have included my own perusal of the contents of the deed, I consider that inspection should be permitted, and I am not persuaded that any additional undertakings or requirements should be imposed, although at this stage I shall not allow any copying of the document.
It was not contested that a short adjournment of the hearing of the petition would be appropriate, to allow Mrs Waldron’s new legal representatives to inspect the deed and take further instructions.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 4 March 2010
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