In the matter of Moage Ltd (in liq) Sheahan, John v Pitterino, Robert and Ors
[1998] FCA 183
•9 MARCH 1998
FEDERAL COURT OF AUSTRALIA
PRACTICE AND PROCEDURE - legal professional privilege - alleged improper purpose - whether alleged improper purpose may remove privilege where examination summons under Part 5.9 Corporations Law - scope of expression “in furtherance of” improper purpose - whether documents “in furtherance of” improper purpose - required degree of satisfaction of existence of improper purpose - prima facie case of improper purpose established - documents not protected by legal professional privilege.
Company (Acquisition of Shares) (Victoria) Code, s 11
Corporations Law, s 597(9)
Evidence Act 1995 (Cth), s 125(1)(a)
Australian Federal Police v Propend (1997) 141 ALR 545, applied
Attorney General (Northern Territory) v Kearney (1985) 158 CLR 500, applied
Re Compass Airlines Pty Ltd (1992) 35 FCR 447, applied
R v Cox and Railton [1884] 14 QBD 153, considered
Varawa v Howard Smith & Co Ltd (1910) 10 CLR 382, considered
IN THE MATTER OF MOAGE LIMITED (IN LIQUIDATION) (ACN 004 270 848)
JOHN SHEAHAN as Liquidator of Moage Ltd (in Liquidation)
(ACN 004 270 848) v ROBERT PITTERINO, JOHN STUMBLES,
JAMIE HUTCHINSON, SIDNEY LESLIE GRIFF, RODNEY ADLER,
RODNEY HALSTEAD, JOHN GLENN CRANE, JOHN AUSTIN,
RICHARD BERRY, DIANNE LESLIE JAGELMAN, JOSEPH GRANT JAGELMAN and JOHN LANDERER
SG 3011 of 1997
MANSFIELD J
ADELAIDE
9 MARCH 1998
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
SG 3011 of 1997
IN THE MATTER OF MOAGE LIMITED
(IN LIQUIDATION) (ACN 004 270 848)
BETWEEN:
JOHN SHEAHAN
as Liquidator of Moage Ltd
(In Liquidation) (ACN 004 270 848)APPLICANT
AND:
ROBERT PITTERINO,
JOHN STUMBLES,
JAMIE HUTCHINSON,
SIDNEY LESLIE GRIFF,
RODNEY ADLER,
RODNEY HALSTEAD,
JOHN GLENN CRANE,
JOHN AUSTIN,
RICHARD BERRY,
DIANNE LESLIE JAGELMAN,
JOSEPH GRANT JAGELMAN and
JOHN LANDERERRESPONDENTS
JUDGE:
MANSFIELD J
DATE:
9 MARCH 1998
PLACE:
ADELAIDE
REASONS FOR DECISION
Atlantic Capital Corporation (“ACC”) is the fourth respondent in Federal Court proceedings SG 3069 of 1995 being conducted in the New South Wales District Registry of the Court (“the principal proceeding”). In the principal proceeding, the applicant is Moage Ltd (in liquidation), (together with its liquidator hereinafter called “Moage”). It sues a number of parties including ACC, in effect arising out of the change in control of Moage effected during about July and August of 1987.
The further amended statement of claim alleges a detailed series of steps involving a number of entities and persons. I set out a brief summary of those allegations in the following paragraphs. They are of course only allegations.
In about July 1987, Joseph Grant Jagelman through his associated entities held a substantial shareholding in Moage, sufficient to control it. It was proposed that a group of entities associated with Malcolm Keith Johnson (“the Johnson group”) would acquire that shareholding so as to get control of Moage. That shareholding control carried with it a significant parcel of shares in Claremont Petroleum NL (“Claremont”) held by Moage, which together with another substantial shareholder in Claremont, enabled Moage and that other shareholder to control Claremont, and through Claremont’s shareholding in Beach Petroleum NL (“Beach”) also enabled Moage and that other shareholder to control Beach. It was part of the plan that that other shareholder in Claremont would also sell its shares in Claremont to the Johnson group, so that control of Claremont would be exercisable by the Johnson group directly. It was then proposed that assets of Moage, Claremont and Beach would each be appropriated to Moage to recover amounts paid in the share acquisition referred to and for the purposes of the Johnson group. The Jagelman group would receive greater than market value for its Moage shares. The other large shareholder in Claremont would recover greater than market value for its Claremont shares. The Johnson group would get control of Moage and Claremont without complying with the Company (Acquisition of Shares) (Victoria) Code (“CASC”), in particular without making an offer to all Moage shareholders in the same terms as it acquired the Moage shares from the Jagelman group and without making an offer to all Claremont shareholders in the same terms as it acquired the Claremont shares from that other shareholder. The transaction whereby the Johnson group got such control of Moage and Claremont, and the fact of its control, was to be kept secret.
That proposal was implemented through, and involving, a number of other persons and entities including Sir Cecil Burney on behalf of ACC. It involved ACC making various loans to facilitate share acquisitions, including to entities which operated as intermediaries ultimately of the Johnson Group, but which themselves had nominal assets only, and in the knowledge that those share acquisitions by those intermediaries were ultimately held for the Johnson group and in the knowledge that the implementation of the proposal would breach the CASC. ACC is alleged to have made a number of loans totalling more than $28 million to support the overall proposal, and to have received substantial commitment fees as well as interest on the loans. The loans were effected upon the advice of, and with documentation prepared by, Mallesons. It is the documents or some of the documents relating to those loan transactions, as identified in the schedule to the examination summons of John Stumbles by reference to paragraphs of the further amended statement of claim in the principal proceeding, that are in issue on this motion. The examination summons is referred to below.
I shall refer to those allegations hereafter as “the scheme”.
The scheme was designed to subvert the provisions of s 11, CASC which prohibited any entity or group of associated entities from acquiring more than 20 per cent of the shares of Moage or Claremont other than in accordance with CASC, in particular by making a takeover offer to all its shareholders under s 12, CASC in the same terms as the terms upon which the shares in Moage and Claremont were acquired. It was also designed to subvert the provisions of the Foreign Takeovers Act 1975 (Cth), which prohibited the Johnson group from acquiring more than 15 per cent of the shares of either Moage or Claremont without the approval of the Treasurer of the Commonwealth of Australia.
In this proceeding, on 23 May 1997, the Court made various orders for the examination of persons under s 596B of Part 5.9 of the Corporations Law (“the Law”) and for the production of documents under s 597(9) of the Law. One such summons to attend for examination under s 596B was directed to John Stumbles (“Mr Stumbles”) of Mallesons Stephen Jaques (“Mallesons”), solicitors, which firm is the sixth respondent in the principal proceedings. The summons duly issued on 26 May 1997. Included in its terms was a direction that Mr Stumbles present at his examination certain documents for the purposes of the examination. A motion was brought by Mr Stumbles to set aside that examination order, and by consent on 15 September 1997, that motion was dismissed save that the schedule of documents to be produced pursuant to the summons was altered. The documents then required to be produced, as relevant to this application, are:
“Copies of all documents records and files of Mallesons Stephen Jaques relating to acting for Atlantic Capital Corporation in relation to the transactions referred to in paragraphs 105, 130-135, and paragraphs 215A.3, 215A.8, 215A.9 and 215A.10 inclusive of the further amended statement of claim filed in the [principal proceeding].”
The documents so specified have been produced to the Court. It was proposed that Mr Stumbles’ examination would then be conducted in December 1997. Prior to producing those documents, Mallesons informed ACC of the summons and of the documents required to be produced pursuant to it. Certain of the documents, it appeared, may have been the subject of an entitlement on the part of ACC to legal professional privilege. ACC instructed Mr Stumbles to claim that privilege on its behalf.
Those documents which do not involve any claim by ACC to legal professional privilege have been produced to the Court and are available for inspection by Moage. There are however extensive documents produced to the Court and contained in folders numbered respectively 1B - 53B in respect of which a claim for privilege is being maintained. Having taken the claim for privilege at the time of production of the documents, Mr Stumbles has left it to ACC to maintain that claim for privilege before the Court.
By notice of motion dated 5 December 1997, ACC duly applied for orders that Moage not have access to the documents so produced to the Court by reason of its legal professional privilege. (The application in fact relates to documents produced by Mr Stumbles and by another member of Mallesons, but it is unnecessary to distinguish between them.)
The documents so produced have been categorised into three groups by solicitors for ACC, namely:
(a)those in connection with one or more of the loan transactions by virtue of which ACC is said to have provided finance to facilitate or assist in the fulfilment of the scheme (“the transaction documents”)
(b)those in connection with ACC considering and determining whether to enforce the recovery of the various loan transactions where there has been default in repayment (“the enforcement documents”), and
(c)those in connection with enforcement or recovery pursuant to the loan transactions where litigation is anticipated or has in fact commenced (“the litigation documents”).
In the course of submissions, it became apparent that there is no difference in principle in the submissions concerning the enforcement documents and the litigation documents, and they may be treated as one category. However, it also appeared from the course of submissions that the transaction documents were themselves broken up in to two categories, by virtue of what was described to be a critical document dated 29 July 1987, namely a memorandum apparently from Sir Cecil Burney to Guy Dove. It was contended that, at best from the point of view of Moage, that document signalled the commencement of the time at which ACC may have become involved in the scheme in a conspiratorial way, so that transaction documents preceding that date were privileged from production even though transaction documents on and succeeding that date may not be so privileged.
The documents produced in the folders described above not yet available for inspection to Moage are separated, so that it can be readily identified whether documents are transaction documents or enforcement documents and litigation documents. It is not readily ascertainable within the six folders which contain transaction documents said to be both pre and post 29 July 1987, which documents fall within which of those two categories. There are ten folders said to contain transaction documents only concerning the pre 29 July 1987 period. In the light of my ruling, I propose if necessary to direct that ACC provide a list of documents in respect of any documents or group of documents not presently required by my order to be available for inspection, so that Moage through its legal advisers may consider that list and, in the light of my reasons, challenge any particular document or documents said to fall within protected categories.
On 9 December 1997 the Court gave directions that ACC provide a schedule of documents for which legal professional privilege is claimed by a certain date, and that Moage then respond, so that ACC should then provide a schedule of the disputed documents to which the claim of legal professional privilege was maintained. Unfortunately, I suspect due to the scope of the dispute, the matter has not proceeded in that way. The directions on that date also required ACC to file and serve any affidavit in support of its claim for legal professional privilege by 16 January 1998. Subsequent directions required Moage to file and serve any affidavit in opposition to the claim for privilege by 2 February 1998. In the event, there are only three affidavits filed, and only two that were received for the purpose of this motion. One is from a solicitor on behalf of ACC which recites generally the history of events leading to its motion. That affidavit does not assert the foundation of the claim for legal professional privilege in respect of the documents in issue. The other is from a solicitor acting for Moage, Glen Stuart Davis (“Mr Davis”), which exhibits a series of documents relied upon by Moage in support of its opposition to the claim for privilege. Mr Davis also gave evidence in respect of one document about which there was a challenge to its authenticity. I accept his evidence. I accept therefore that the document described as a memorandum from Sir Cecil Burney to Guy Dove dated 29 July 1987 is that document, and that it was provided to him personally by Sir Cecil Burney. I accept his description as accurate. There were no other challenges to the authenticity of the documents adduced in evidence through Mr Davis and relied upon in submissions by counsel for Moage.
The proposed examination of Mr Stumbles on 10 and 11 December 1997 was in the circumstances deferred. The Registrar of the Court proposed that examination be carried out on 11-13 March 1997. He fixed 2-4 March 1998 as the time to determine the motion. After argument before him proceeded for some time, counsel for ACC on 2 March 1998 applied to the Registrar to arrange for the application to be determined by the Court: s 35A(7)(b), Federal Court of Australia Act 1976. Upon that request, the Registrar was obliged not to proceed to hear and determine the motion and to arrange for it to be heard by the Court. I heard the motion on 3 March 1998.
There is, as I have indicated, no affidavit evidence from ACC supporting its claim to privilege. It invited the Court to look at the documents for the purpose of being satisfied that they are privileged. It described the documents in eighteen general categories in a schedule, but all said to involve Mallesons in the provision of legal advice to ACC or to have come into existence for that purpose. It does not identify any particular topics or transactions, but refers in the eighteen categories to persons with whom there have been communications made, of which there is a record of Mallesons, all said to be for that overall general purpose. I do not regard that as an appropriate procedure, necessarily involving the Court in considering many volumes of material. However, counsel for Moage indicated that, for the purposes of the motion at this point, it was accepted that the documents may be subject to legal professional privilege.
The matter has therefore been argued on the basis that the documents for which privilege is claimed may be privileged from production unless they fall into the exception to the entitlement to privilege asserted by Moage. Where a claim for privilege is disputed, the determination of the claim will depend upon the facts established in evidence, including the circumstances in which the document came into existence: National Employers Mutual General Insurance Association Ltd v Waind (1979) 141 CLR 648. I propose to reserve to Moage the right to require of ACC evidence by affidavit in proper form of the basis for the claim to privilege which it asserts in respect of any documents which, by my ruling on the motion to the extent I determine it, are not to be made available to Moage.
THE LAW
The general principle underlying legal professional privilege is set out in Grant v Downs (1976) 135 CLR 674 per Stephen, Mason and Murphy JJ at 685 as follows:
“The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available.”
Consequently, it is plain that communications with legal advisers which are criminal in themselves, or which are intended to further a criminal or fraudulent purpose, do not fall within that protection: R v Cox and Railton [1884] 14 QBD 153. The balancing of public policy considerations which is reflected in the law’s recognition of legal professional privilege does not arise in such circumstances. There is no interest of justice, or of the administration of justice, in the protection from publication of such communications: Australian Federal Police v Propend (1997) 141 ALR 545 eg. per Dawson J at 559 and per Gaudron J at 578 where her Honour said:
“Because legal professional privilege attaches to communications contained in documents (including copy documents) brought into existence and provided to a lawyer solely for the purpose of obtaining legal advice or solely for use in legal proceedings, the privilege does not attach to documents which are brought into existence or which are provided to a lawyer for the purpose of furthering some illegal object.”
Moage asserts that each of the documents for which legal professional privilege has been claimed by ACC, and which it has been assumed in the circumstances outlined above do comprise documents to which legal professional privilege might attach, are not so privileged from production. It contends that the documents in issue are all in preparation for, or in furtherance of, an illegal or fraudulent purpose, namely the fulfilment of the scheme.
Thus, it opposes the ACC motion.
The respondent accepts that, to make out its contention, it must make out by admissible evidence to the necessary degree the alleged purpose: Attorney General (Northern Territory) v Kearney (1985) 158 CLR 500.
Kearney (above) also addressed the reach of the “crime or fraud” exception to the legal principle which recognises legal professional privilege. Counsel for ACC did not contend that, if the purpose alleged by the respondent and reflected in the scheme was made out, that purpose would not bring the transaction documents (or at least those which came into existence on or after 29 July 1987) within the “crime or fraud” exception. Thus it is not necessary to address the boundaries of the exception.
What remains in issue between the parties is:
whether the exception applies to limit a claim for legal professional privilege made in response to the production of documents for the purposes of an examination to be conducted under Pt 5.9 of the Law
whether the evidence adduced by Moage, uncontroverted by any evidence from ACC, makes out the purpose alleged against ACC to the necessary degree, and
whether the purpose, if made out, removes from the documents otherwise privileged the transaction documents which came into existence prior to 29 July 1987, and also the enforcement documents and the litigation documents.
Counsel for ACC did not dispute the proposition of Moage that, for the purposes of deciding whether the “crime or fraud” exception applies, it is not necessary to establish that the legal advisers were themselves conscious participants in fulfilling the improper purpose: see Cox and Railton (above, at 167); Varawa v Howard Smith & Co Ltd (1910) 10 CLR 382 per O’Connor J at 386 and per Isaacs J at 390. As the privilege is that of the client, the client’s improper purpose, if it is made out, is sufficient for the privilege to be lost. I note that the contrary seems to have been assumed by the applicant in submissions in Zemanek v Commonwealth Bank of Australia (Hill J, 2 October 1997, unreported). It is not asserted in this proceeding, nor in the principal proceeding, that Mr Stumbles or Mallesons were conscious participants in fulfilling the improper purpose.
Neither counsel contended that the outcome of this motion would in any respect be different if the Evidence Act 1995 (Cth) applied to the production of documents to the Court, and their availability to the respondent, for the purposes of an examination proposed to be conducted under Pt 5.9 of the Law. The decision of the Full Court in The Adelaide Steamship Co Ltd v Spalvins (Olney, Kiefel and Finn JJ, 2 March 1998, unreported) indicates that in ancillary processes to the ultimate trial of a matter, it is the common law that determines the availability of legal professional privilege (I have used that phrase in these reasons rather than the phrase ‘client legal privilege’ simply because it was used by the parties), but that the common law should be applied as modified or adapted to reflect derivatively the provisions of the Evidence Act 1995 (Cth). There may also be a question whether proceedings for an examination to be conducted under Pt 5.9 of the Law, at the point of the examination itself, are properly described as ancillary to the principal proceeding. Some of the differences between the common law prior to 1995, and as adapted to reflect the provisions of the Evidence Act 1995, as may be relevant to issues such as the present are referred to in the reasons of Hill J in Zemanek (above). As was the case before his Honour, for present purposes no relevant difference was identified in submissions, and in a practical sense such differences as exist do not affect the outcome of this motion. In particular, it was not disputed by counsel for ACC that, if the purpose alleged by the respondent is made out, then the documents produced to the Court which are “in furtherance of” that improper purpose would not attract legal professional privilege. Thus it is not necessary to address specifically s 125(1)(a), save to observe that the improper purpose alleged would, in my view, fall within its purview. Section 125(1)(a) provides:
“(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 proceedings 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;
. . .”
Apart from the issue of whether the improper purpose alleged constitutes a “fraud”, in my view the scheme involving contravention of s 11, CASC in any event amounts to an “offence” under s 125(1)(a). Breach of s 11, CASC constitutes an offence punishable by a fine or imprisonment or both: s 53, CASC.
The Full Court in Re Compass Airlines Pty Ltd (1992) 35 FCR 447 decided that, in respect of an examination order made under the then s 597 of the Law, legal professional privilege was not abrogated. A person required to attend for examination, or to produce documents or both, is entitled to claim legal professional privilege in relation to those processes. There is no reason to think that the restricted provisions for such examination processes now contained within Pt 5.9 of the Law alter that position. In Re Interchase Corporation Ltd (1996) 68 FCR 481, that decision was applied to an examination under Pt 5.9 of the Law where the examination order was sought to be set aside on the ground that, having regard to the legal professional privilege claimed by the proposed examinee, the examination would prove fruitless.
In Compass Airlines (above), all members of the Full Court recognised that legal professional privilege was available to a proposed examinee, but further recognised that the privilege does not extend to communications made in furtherance of any criminal or fraudulent purpose: per Lockhart J at 455-456, and Beaumont and Gummow JJ at 459-462. Their Honours’ reasons reflect the proposition that the doctrine of legal professional privilege is a substantive rule of the common law: Baker v Campbell (1983) 153 CLR 52. Its extent is determined by the common law. One of the boundaries of its operation is that the communications under consideration should not be in furtherance of a criminal or fraudulent purpose.
I reject the first proposition of counsel for ACC. It is contrary to the authority of Compass Airlines (above). It treats the “exception” to legal professional privilege in a way inconsistently with the doctrine being a matter of substantive law with its limits of operation defined by substantive law. There is no reason why its scope, as a matter of substantive law, should differ in respect of proceedings under Pt 5.9 of the Law from any other proceedings. In truth, it is not an exception at all: Carter v Managing Partner, Northmore Hale Davy & Leake (1995) 183 CLR 121 per McHugh J at 163.
It is no answer, in my view, that the matter raised necessarily involves some preliminary determination of the issue ultimately to be decided at the trial of the principal proceeding. In any ancillary process, that problem will arise, eg. in Kearney (above). It is for that reason that the Courts have had to consider the means by which the alleged crime or fraud may be established, and the degree of satisfaction necessary as to the existence of the crime or fraud, to exclude documents from the ambit of protection which might otherwise be afforded to them by legal professional privilege.
Those issues were addressed in Kearney (above). I have referred to the ‘means of proof’ issue above. The Land Rights Commissioner at first instance had found a “prima facie” case that the communications in issue came into existence for an improper purpose. Apart from the ‘means of proof’ issue, that case was mainly concerned with the question whether the alleged improper purpose was one which, if established, excluded the communications from the protective scope of legal professional privilege. However, each member of the Court comprising the majority expressed satisfaction with the adequacy of the expression “prima facie” case as to the necessary degree of satisfaction of the alleged improper purpose: see per Gibbs CJ at 516, Mason and Brennan JJ at 517, and Wilson J at 525.
Gibbs CJ at 516 said:
“The privilege is of course not displaced by making a mere charge of crime or fraud or, as in the present case, a charge that powers have been exercised for an ulterior purpose. This was made clear in Bullivant v. Attorney-General (Vict.) [1901] AC at 201, 203, 205 and in O’Rourke v Darbishire [1920] AC 581 at 604, 613-614, 622-623, 632-633. As Viscount Finlay said in the latter case, “there must be something to give colour to the charge”. His Lordship continued:
“The statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact . . . The Court will exercise its discretion, not merely as to the terms in which the allegation is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications.” ”
In Propend (above), Brennan CJ at 553 said:
“In determining whether a claim of legal professional privilege can be upheld it is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege is claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest. I state the criterion as “reasonable grounds for believing” because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something “to give colour to the charge”, a “prima facie case” that the communication is made for an ulterior purpose. The purposes that deny the protection of privilege for a communication (whether documentary or oral) between a client and the client’s solicitor or counsel include the furthering of the commission of an offence.”
Those views are, in my opinion, consistent with similar expressions in the reasons for judgment of Dawson J at 559, Toohey J at 569, Gaudron J at 579 and McHugh J at 587. In approaching that question, I am mindful of the seriousness of the allegations made in the principal proceedings: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362. What will be sufficient evidence will obviously depend upon the facts of each case.
Ultimately, counsel for ACC did not seek to contend for some other standard of satisfaction, but really focussed on the adequacy or otherwise of the evidence presented to provide the necessary level of satisfaction of the alleged improper purpose.
The third of the ACC’s propositions is that, if it is established that the improper purpose alleged is made out, nevertheless the transaction documents which came into existence prior to 29 July 1987, and the enforcement documents and the litigation documents are not documents which are shown to be “in furtherance of” the improper purpose, and so retain their privilege.
The expression “in furtherance of” the improper purpose has been used in Cox and Railton (above, at 167) and in many other cases dealing with this issue. In the authorities provided to me, and in the short time available to research the question, I have not found much judicial consideration of the full extent of its scope. That may simply reflect the proposition that the categorisation of a particular document as being in furtherance of an identified purpose is a question of fact necessarily to be addressed in each individual case.
In Varawa (above), the plaintiff’s claim was for damages for malicious arrest under a writ issued at the instance of the defendants, and for an abuse of the process of the Court in procuring that writ. The plaintiff sought to interrogate the defendants about whether they had obtained legal advice about the alleged liability of the plaintiff, upon which the application for the writ was based. The appeal to the High Court challenged the defendants’ entitlement to object to answer such interrogatories on the ground of legal professional privilege, as any such advice must (it was said) be related to the alleged wrongful reason for procuring the writ. The Court refused to direct the interrogatory be answered. Griffith CJ noted that the supposed communication inquired into was before the enterprise commenced. He added (at 385):
“There is nothing criminal or unlawful in a solicitor telling his client that he does not think he has a good cause of action. So far there is nothing in the nature of a crime or unlawful proceeding. The unlawful proceeding does not begin until after the advice has been given.”
O’Connor J at 386 said:
“. . . the privilege will not be lost unless in the course of the proceeding in which the evidence is tendered it is definitely charged that the communication was in itself a step in the commission of a crime or preparatory to or in aid of the commission of a crime. The same rule applies where the communication is a step in, or preparatory to, or in aid of what has been called “civil fraud,” that is the carrying out of a fraud not amounting to a crime, but in respect of which the Civil Courts will give relief.”
Isaacs J at 389-390 said:
“It must be something, either part of the commission of the act, which in one sense embraces everything, or incidental to it, which is really saying in other words that it must be in furtherance of the illegal object.”
Of course, the furtherance of the illegal object may include the procuring of advice intended to facilitate or guide the client in the participation in or commission of that improper object: see eg. Cox and Railton (above). I note also the reasons of Wilson J (with whom Aickin J agreed) in The Queen v Bell; ex parte Lees (1979-1980) 146 CLR 141 at 161-163, and his Honour’s observations in Kearney (above) at 522. As his Honour said, it is appropriate to measure the circumstances in which the claim to privilege arises against the purpose of the doctrine itself to determine whether, in the circumstances, the claimed privilege serves that purpose.
It is in the light of those observations that I shall consider whether, even if I am satisfied as to the existence of the improper purpose alleged, certain of the documents in issue are nevertheless privileged from production to Moage.
THE FACTS
I have considered the documents adduced in evidence. In reaching my conclusions, I stress that any findings I make are no more than prima facie findings on limited material. It has not been tested by ACC. No evidence has been adduced by ACC. Such conclusions cannot be taken to reflect in any way the probable outcome of the litigation; cp. Gibbs CJ in Kearney at 516.
It was common ground that an important document was the memorandum from Sir Cecil Burney to Guy Dove dated 29 July 1987. It refers to a proposal by “Malcolm”, a reference I find to be to Mr Malcolm Johnson, to take control of Moage, Claremont and Beach. Under the heading “Moage Deal” it sets out the numbers, price, and settlement dates for six tranches of shares and options in Moage over a short period and the current (significantly lower) market price of those shares and options, to be followed by a rights issue in each of those three companies. It then describes the group cash position prior to, and as a result of, those proposed transactions. It includes reference to finance apparently provided or to be provided by the Clarendon Group Ltd (“Clarendon”) of which ACC was a subsidiary and, by ACC, as to ACC’s exposure and the security available to it, as to the allocation of the ultimate profit from the scheme when implemented including a very substantial sum to Clarendon, and as to the return to ACC. It refers to “the Australian code”, clearly a reference to the relevant provisions of the CASC.
ACC by its counsel disputed that that document was capable of being evidence of the knowledge of ACC of the scheme as at that date or subsequently. Thus, it was contended, Moage had not shown any awareness of ACC of the detail of the scheme or any intention on its part to participate in the scheme so as to subvert s 11, CASC.
I reject that contention. Sir Cecil Burney was at material times a senior executive officer or agent of ACC responsible for negotiating and implementing the loans, as well as being a director of and a member of the Investment Committee of Clarendon. The document on its face contemplates the involvement of ACC in, and the benefits to it as a result of its participation in, the scheme. Other evidence illustrates that the scheme occurred, in accordance with its terms, including the participation of ACC. In many respects, exact numbers recorded in the document are reflected in the transactions implementing the scheme and in which ACC took part. The address on the heading of the document ‘4 Lowndes Street, London’ is not the address of ACC, nor is the document on its letterhead, but other evidence shows that that address was used for other action taken by ACC and as its address for certain purposes related to the scheme. Guy Dove was at material times vice president and chief investment officer of ACC and a director of Clarendon.
In separate proceedings in the Chancery Division of the High Court of Justice, ACC has brought proceedings against Sir Cecil Burney, Guy Dove, and others. In its amended Statement of Claim, which apparently includes allegations relating to ACC loans made in pursuance of the scheme, are contained allegations upon which the status of Sir Cecil Burney and Guy Dove as noted above are based. It was specifically acknowledged by counsel for ACC that I could treat that document as containing admissions for the purpose of this motion. It was said that Moage must take the admissions in their context, so I note that it is alleged also that both Sir Cecil Burney and Guy Dove breached their fiduciary duty to, and acted without authority of, ACC in negotiating and implementing the various loans. In my view, whilst noting those allegations, the assertions as to the status of Sir Cecil Burney and Guy Dove, which it is accepted I may take as admissions as to their respective roles in ACC at material times, do add to the issue as to whether that document is capable of illuminating the state of mind of ACC at material times. Of course, those admissions are but part of the material which leads me (at least prima facie and for the purpose of this motion only) to that view.
The documentary evidence then, taken as a whole, does satisfy me that the particular document is capable of being evidence against ACC despite the submission to the contrary.
I propose to say relatively little about the evidence. It will be dealt with at length at the trial of the principal proceeding. It is sufficient to say that, putting to one side the role and knowledge of ACC, there is evidence on which I conclude prima facie that the scheme was implemented in the way envisaged. In the sense used by Brennan CJ in Propend (above, at 553), I conclude that there are reasonable grounds for believing that the scheme as alleged did exist and was implemented.
It is appropriate to pay particular attention to the evidence touching upon the role and knowledge of ACC. There is evidence which indicates that ACC made the several loans contemplated by the scheme, and that those several loans were specifically for share and option acquisitions of Moage shares and options contemplated by the scheme. The evidence also indicates that Sir Cecil Burney on behalf of ACC was closely involved in those processes. His memorandum of 29 July 1987 shows that he was aware of the transaction which the individual loan transactions were designed to serve, as part of the implementation of the scheme. I have found above evidence sufficient to satisfy me to the necessary degree that his role at that point was as an officer of, and on behalf of, ACC. It includes an annexure which was available to, and used by, other persons involved in the development and implementation of the scheme. It appears to have been prepared to represent the capital structure of Moage before the commencement of implementation of the scheme, but illustrates an involvement with others involved in the formulation of the scheme or its early stages of implementation.
Accordingly, to the necessary degree, I conclude that there is a prima facie case based upon admissible evidence that ACC knew of the scheme and its purposes, and took part in its implementation in the way alleged in the further amended statement of claim in the principal proceeding. It cannot, however, be overstressed that that conclusion is upon the limited evidence and for the limited purpose required at this stage of the proceeding upon the motion.
The transaction documents which precede 29 July 1986 are extensive. There is no list of them. I do not know to what they specifically relate, save that Mr Stumbles has produced them by reason of the summons to him. Apparently they relate in some to the transactions referred to in the identified paragraphs of the further amended statement of claim in the principal proceeding identified in the schedule to that summons.
That does not mean that there is no legal professional privilege in those documents. They will be privileged from production, subject to the caveats referred to above, unless they came into existence by reason of communications made in furtherance of the improper purpose which I have found prima facie to be made out. That expression may include communications preparatory to or in aid of the scheme. I have made a brief inspection of some of the documents in the folders which were identified as pre 29 July 1987 transaction documents. That inspection disclosed some documents relating to the 1986 year only, as well as some spanning the early months of 1987 up to July 1997. The documents I looked at did not refer specifically either to the scheme, or to any of its component transactions, or in particular to the loan transactions by which ACC aided in the fulfilment of the scheme. Whilst it may be that the documents, or some of them, may reflect communications in furtherance of the scheme, I am unable presently to conclude that that is the case. Nor am I able to conclude positively that that is not the case. ACC is in large measure responsible for that uncertainty, because it has not sought to prove by affidavit the privilege asserted nor provided a detailed list of those documents by which Moage may itself address those documents.
I have not overlooked that Moage asserts that those documents all relate to a transaction which is described by it as the “Pennant Pacific Resources/Gloucestershire Trust Transaction” in its submission. That transaction is described in some detail in the reasons for decision of von Doussa J in Beach Petroleum NL v Johnson (1993) 115 ALR 411 at 448-449. It is contended that the transaction documents which pre-date 29 July 1987 are all documents which relate to that transaction, and that that transaction itself was for an improper purpose, and that ACC as a financier to that transaction was also involved improperly in it. It is thus contended that there is no legal professional privilege in those documents.
I am presently unable to make a finding on those matters. There are sixteen folders which are, either in whole or in part, said to contain pre 29 July 1997 transaction documents. It would be unfair to ACC to adopt a blanket ruling over those documents, even if I were satisfied as to the matters contended for by Moage referred to in the preceding paragraph. I have not adopted the expedient of simply finding that the privilege claimed has not been proved, although that is the case. I consider, in the interests of justice, ACC should be given a further opportunity to establish its claim to privilege over those documents in a proper manner. I will hear it as to whether it wishes to do so, and set a timetable within which it should do so bearing in mind the motion was issued on 5 December 1997. In the light of any affidavit material, no doubt including a list of the documents for which privilege is claimed, it will emerge whether all or which of those documents relate to the “Pennant Pacific Resources/Gloucestershire Trust Transaction” and whether some relate to one or more other transactions. To the extent that they relate to the former, in the light of the evidence presented, I will then rule on whether those documents are or are not protected from production by legal professional privilege. To the extent that they relate to other transactions, I will give Moage the opportunity as it may be advised to adduce material and to make submissions in opposition to any privilege claimed.
I do not think that the evidence shows that the documents referred to as the enforcement documents and the litigation documents are properly categorised as having in any sense been brought into existence in furtherance of the improper purpose. I conducted a short random sampling of those documents. Once the scheme was effected, the contemplation was that the loans by ACC would have been repaid. At least some of them were not. Thus, at a later point, ACC has addressed with its solicitors the enforcement of those loans and in some cases taken advice with a view to legal proceedings to recover them. Such steps necessarily post-dated the scheme. Almost by definition, the communications with legal advisers at that point were not in furtherance of the scheme, but because despite the scheme the loans had not all been repaid. It is true to say that the problem would not have confronted ACC but for its participation in the scheme, but in my view that does not take Moage far enough. Once ACC had got into the position of having substantial unpaid and overdue loans, I conclude that communications with legal advisers to enforce those loans including by legal action were not in furtherance of the scheme. To adopt the approach suggested by Wilson J in Kearney (above, at 522), at that point I do not consider that the public policy reasons underlying legal professional privilege are displaced by public policy considerations in the interests of justice, or in the administration of justice, requiring their disclosure. I add the rider, of course, that thee is no affidavit evidence seeking to establish that privilege nor any list of those documents. My observations must therefore be regarded as provisional only, based upon ACC’s very general description of the purpose for which the documents were brought into existence and my brief random look at documents in a few of the folders said to contain documents of those descriptions.
The result is that, in my view, there is no legal professional privilege in the documents in folders 6B, 8B, 20B, 21B, 28B, 29B, 41B, 42B, 44B, 45B, 46B, 47B and 50B which ACC has identified as containing only transaction documents on and from 29 July 1987 or in the transaction documents (as distinct from the enforcement documents and the litigation documents) in folders 23B, 24B, 25B, 32B, 33B and 35B which also only relate to the period on and from 29 July 1987. I direct that they be made available to Moage for its inspection. Further, those transaction documents in folders 1B, 3B, 12B, 19B, 36B and 43B, which relate to the period on and from 29 July 1987 are also in my view documents for which legal professional privilege does not exist. There is presently no separate list of those documents. I shall hear the parties as to how those documents should be separated.
I shall also hear the parties, as foreshadowed, on the preparation of a list of the transaction documents in those folders 1B, 3B, 12B, 19B, 36B and 43B which are not required to be produced by my order, and in folders 2B, 4B, 7B, 9B, 11B, 14B, 27B, 34B, 48B and 49B (which are those folders which are said to contain only pre 29 July 1987 transaction documents). My purpose is that ACC may then adduce evidence to support its claim for privilege with respect to those documents and Moage may then consider that material including that list and determine whether, in the light of my ruling, it wishes to press for inspection of those documents or any of them as being documents to which legal professional privilege does not attach and itself adduce further evidence if the claim for privilege extends beyond the “Pennant Pacific Resources/Gloucestershire Trust Transaction”.
For the reasons given above, I am presently provisionally of the view that the enforcement documents and the litigation documents are the subject of legal professional privilege. That includes the documents in folders 13B, 16B, 17B, 18B, 22B, 26B, 30B, 31B, 37B, 51B, 52B and 53B as well as portion of the documents in folders 19B, 23B, 24B, 25B, 27B, 32B, 33B, 34B and 35B which can readily be isolated. I accordingly decline presently to make an order for them to be available for inspection to Moage. As foreshadowed, because there is no affidavit foundation presently laid for the claim to legal professional privilege claimed in those documents, or any detailed list of them, I will permit Moage to require such affidavit evidence to be provided and I will permit it to give written notice that a list of those documents be filed and served so that it may consider and, if thought fit, challenge the claim for legal professional privilege. I will however not presently formally direct that that be done, as it may be that, in the light of my reasons, Moage may determine no longer to dispute the claim for legal professional privilege with respect to them.
I will hear the parties as to the appropriate formal orders to be made on the motion in the light of my rulings and orders and directions.
I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.
Associate:
Dated: 9 March 1998
Counsel for the Applicant on the Motion: Mr S Walsh QC Solicitors for the Applicant on the Motion: McCabes Counsel for the Respondents on the Motion: Mr J Kelly SC
with him
Mr G DavisSolicitors for the Respondents on the Motion: Piper Alderman Date of Hearing: 3 March 1998 Date of Decision: 9 March 1998
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