Kang v Kwan

[2001] NSWSC 698

CITATION:	Kang v Kwan & 2 Ors [2001] NSWSC 698 revised - 17/08/2001
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3510/99
HEARING DATE(S):	14/08/01, 15/08/01, 16/08/01
JUDGMENT DATE:	16 August 2001
PARTIES :	Wei Ling Kang (Plaintiff) Christopher Anthony Kwan (First Defendant) Kate Woowin (Second Defendant) Eileen Woowin (Third Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	G C Lindsay, SC/ M A Robinson (Plaintiff) M L D Einfeld, QC/ F P Donohoe (First Defendant) C Champion (Schrader & Associates/ Mr Davidson)
SOLICITORS:	Legal Aid Society (Plaintiff) Verekers (First Defendant)
CATCHWORDS:	EVIDENCE — Legal professional privilege — whether lost — could evidence nonetheless be adduced under s122 of s125 of Evidence Act 1995 — Meaning of consent for purposes of s122(1) — Meaning of fraud and abuse of power for purpose of s125 — Production of documents under court order — Effect of subsequent discovery of letter by producing party referring to possible privilege when clients out of jurisdiction — dealt with in two contemporaneous judgments to be read together — Capacity to object to adducing of evidence when client out of jurisdiction — Continuance of retainer for that purpose — Duty of lawyer — Recourse to s133 to examine documents.
LEGISLATION CITED:	Conveyancing Act s37A Evidence Act Part 3.10, s118, s119, s122, s125, s133
CASES CITED:	Attorney General (NT) v Maurice (1986) 65 ALR 230 Barclays Bank plc v Eustice [1995] 1 WLR 1238 Commissioner, Australian Federal Police v Propend Finance Pty Ltd (1997) 91 A Crim R 451 Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 141 ALR 545 Commissioner of Taxation (Cth) v Citibank Ltd (1989) 85 ALR 588 Flower & Hart v White Industries (Qld) Pty Limited (1999) 87 FCR 134 Idoport Pty Limited & Anor v National Australia Bank Limited & Ors [2001] NSWSC 222 Rosenberg v Jaine [1983] NZLR 1 State Drug Crime commission v Larsson (1991) 53 A Crim R 131 Stevens v Canada (Privy Council) (1998) 161 DLR (4th) 85 Tuckiar v The King (1934) 52 CLR 335 Watson v McLearnon [2000] NSWSC 19, Hodgson CJ in Eq, 1 February 2000. Williams v Spautz (1992) 174 CLR 509 Zemanek v Commonwealth Bank of Australia & Ors (FCA, Hill J, 2 October 1997, unreported)
DECISION:	s125 of Evidence Act applicable.

REVISED — 17 August, 2001
IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 3510/99
Wei Ling Kang
Plaintiff
Christopher Anthony Kwan
First Defendant
Kate Woowin
Second Defendant
Eileen Woowin
Third Defendant
JUDGMENT

INTRODUCTION

1    What follows is a revision of the judgment handed down urgently on 16 August 2001, incorporating certain factual corrections or clarifications. It replaces my earlier judgment and takes account of further submissions by the parties.

2    Arising as a matter of urgency in these proceedings is a question of legal professional privilege. This judgment should be read with my other judgment handed down contemporaneously on a matter subsequently arising. It is necessary to put that claim of privilege in the context of the present litigation. Also to identify the role of the claimants for that privilege in these and other related proceedings in the District Court.

3    The Plaintiff, Mr Kang, was also the Plaintiff in proceedings No. 9041 of 1997 in the civil jurisdiction of the District Court of New South Wales at Sydney (“the District Court proceedings”).

4    The First Defendant, Christopher Kwan, is and was at all material times a personal friend of the Second Defendant (Kate Woowin) and the Third Defendant (Eileen Woowin). I shall refer to them, without disrespect as Christopher, Kate and Eileen and the latter two collectively as “the Woowins”.

5    Initially the Second and Third Defendants took an active part in these proceedings, retaining solicitors (not the solicitors for the First Defendant but Russo & Partners) filing a Defence and subsequently an Amended Defence on 9 June 2000. The Defence is verified by affidavit dated 19 March 2000.

6    Eileen and Kate swear that they believe that the allegations of fact denied in the Defence are untrue and having made reasonable enquiries do not know that the allegations of fact which are stated in that Defence to be not admitted are true and believe that the allegations in fact in that Defence are true. That affidavit is sworn in Beijing.

7    On 20 September 2000, a Notice of Ceasing Act was filed by Mr Russo on behalf of the Second and Third Defendants.

8    Thereafter it appears that the Second and Third Defendants became uncontactable. On 9 February 2001 (PX3) the solicitor for the Plaintiff wrote to Kate and Eileen Woowin to a Beijing address, stating as follows:

“As you are aware, orders were made in the Supreme Court in this matter on 1 September 2000. One of those orders provided that on or before 24 November 2000 the Defendants (who include yourselves) file and serve verified list of documents giving discovery to the Plaintiff of all documents described in a schedule attached to the orders. Your legal representatives were in court when those orders were made.
To date, no such list has been received. Notice is hereby given that unless such a list is received by the close of business on 15 February 2001, application will be made to strike out your defence without further notice to you.”

9    No response has been received to that or the subsequent correspondence and the Second and Third Defendants have not appeared in the current proceedings or taken any further part therein.

10    I should note that the Second Defendant, Kate, is the daughter of the Third Defendant, Eileen.

11    These proceedings arise out of earlier proceedings in the civil jurisdiction of the District Court. Those District Court proceedings were proceedings between Mr Kang as Plaintiff, Eileen as First Defendant and Kate as Second Defendant. There is ample evidence that Christopher, the First Defendant in the Supreme Court proceedings, played an assisting role for the Woowins in obtaining legal advice during the relevant period in 1999 until replaced around the last week of May 1999 by Linda Lau. There is however so far no suggestion that the relationship between Christopher and the Woowins had ceased to be close.

12    The history of the District Court proceedings is set out in an agreed Statement of Facts dated 19 February 2001 contained in the file. For present purposes I should simply note several salient matters. First, that Mr Kang obtained an order for judgment on or about 23 April 1999 which was subsequently set aside upon and by virtue of Notice of Grounds of Defence filed by Eileen and Kate on 1 June 1999. Those proceedings were the subject of a hearing date for the purpose of assessment of Mr Kang’s entitlements on 2 June 1999 which hearing date was vacated by Her Honour Judge Sidis on 1 June 1999 on the application of Eileen and Kate during which Christopher was present. The proceedings were finally heard between 28 July 1999 and 12 October 1999 and were the subject of a judgment given by Herron DCJ on 29 October 1999. By that District Court judgment Herron DCJ determined that Mr Kang was entitled, as against Kate and Eileen, to the sum of $108,345 representing monies for work performed by Mr Kang between 14 December 1991 and 5 October 1995 on the Woowin’s property, plus interest.

13    The present proceedings relate to certain transactions concerning property at Castlecrag, particulars of which are again set out in the Agreed Statement of Fact. For present purposes I need simply note that the Castlecrag property was until sold from 8 September 1987 owned by Kate. The property is divided into two titles, with the principal title covering house property with a separate title in respect of a laneway at the rear. Mr Kang’s successful claim was based upon work he had carried out on the property while living upon it.

14    On or about 21 May 1999 Mr Kang caused a caveat to be entered on the title to the Castlecrag laneway but not to the house property, doing so evidently in error. There was never a caveat entered on the title to the Castlecrag property itself other than the laneway.

15    The transactions which give rise to the present proceedings commence on or about 25 June 1999 where Kate and Christopher agreed to instruct Verekers, Solicitors, who are the solicitors also for the First Defendant in the present proceedings in the Supreme Court. They were instructed to prepare a mortgage of the Castlecrag property in favour of Christopher and a contract of sale of that property to a third party. By Memorandum of Mortgage dated 28 June 1999 and registered on the same day as dealing number 593222A (“the Mortgage”) Kate granted the Mortgage to Christopher over the Castlecrag property in support of an alleged advance made by Christopher to Kate “in or about January 1998”.

16    On or about 9 July 1999 Kate sold the Castlecrag property to a third party completed on or about 22 July 1999. On completion of the sale, Kate paid the whole of the net proceeds of sale to Christopher, on or about 22 July 1999. This was on the Plaintiff’s case “purportedly” pursuant to and in discharge of the Mortgage. On the Defendants’ case it was actually and properly so applied. The sale price was $825,000 inclusive of the deposit of $82,500. On settlement of the sale an amount of $743,717.03 exclusive of the deposit was paid by the purchaser as the balance of the sale price adjusted for outgoings. That amount $741,380 was paid by the purchaser to Christopher at the direction of the Kate. After deduction of commission and legal costs, the balance of the deposit (comprising a sum of $63,607.98) was also paid to Christopher at the direction of Kate. The total amount paid to Christopher from the sale proceeds was accordingly $804,987.98.

17    After payment of what was claimed to be an amount owing under the Mortgage by Kate, and an amount allegedly lent by Christopher to Kate, the balance was remitted out of Australia and remains out of the jurisdiction.

18    I should note at this point that the amount of the alleged loan, the subject of the Mortgage, was US$430,580. This when converted to Australian dollars at the exchange rate of US$0.59 for each Australian dollar (alleged by the Plaintiff to be an excessively favourable rate) converted to A$742,379.29.

19    The Plaintiff seeks to attack these transactions and to enforce a lien against the property (referred to in para 29 of its Amended Statement of Claim as “the Substituted Property”) which according to the Plaintiff’s Statement of Claim “represents the proceeds of the sale of the Castlecrag Property paid to or at the direction of Christopher”. The contentions of the Plaintiff include that the alleged loan transaction, the mortgage of 28 June 1999 and the sale and discharge of the Mortgage effected between 9 to 22 July 1999 jointly or severally constituted an “alienation of property” by the Second Defendant within the meaning of the Conveyancing Act s37A. This was said to be with intent to defraud the Plaintiff as a creditor of the Kate, pursuant to the District Court judgment in his favour he being a person “thereby prejudiced” within the meaning of the section. This was in circumstances where it is alleged by the Plaintiff that the First Defendant was not “a purchaser in good faith not having, at the time of alienation, notice of the intent to defraud creditors” within the meaning of the section. The further allegation is that the Defendants conspired, and carried into execution, a conspiracy against the Plaintiff for the purpose of preventing him from recovering any remuneration to which he might be entitled against the Second or Third Defendants for work done at the property.

20    There is a separate allegation that the Defendants, including the First Defendant, conducted the District Court proceedings and secured a forensic advantage in those proceedings upon the express basis that the Castlecrag property would be available to satisfy orders made by the court in favour of the Plaintiff. Further, that no disclosure was made by the Defendants to the Court or the Plaintiff that the property was subject to a charge in favour of the First Defendant nor that the caveat ostensibly lodged by the Plaintiff over the Castlecrag property was in fact lodged only over the rear laneway and not the main title that was later mortgaged and sold after 1 June 1999. The Plaintiff contends that result gives rise to an abuse of process (and estoppel) precluding the Defendants asserting against the Plaintiff the Mortgage and any underlying charge over the property, with a consequent obligation to account.

21    Relevantly, on 1 June 1999 the transcript of proceedings before Sidis DCJ after the Woowins successfully applied for the District Court proceedings to be vacated, reveals (TS 12.35-.45 being PX4 page 89) that the following was said by Mr Davidson, Counsel for the Woowins in connection with an application that the order for costs then made in favour of the Plaintiff and against the Woowins be subject to assessment forthwith:

“Davidson: Your Honour that is perhaps dependent on who is to be the source of funds to pay those costs Your Honour, I’m instructed to ask the Defendants’ former solicitor to be asked to show cause it would perhaps be dependent upon any ruling of the court there as to when your Honour, my learned friend expresses some concern because the Plaintiff has taken a caveat over the premises at Edinburgh Road Castlecrag so in the long term certainly the cost issue is something that is secured Your Honour.”

22    The reference to costs was to the Plaintiff’s costs as would have been thrown away by the vacation of the hearing dates. It is the Plaintiff’s case that the Woowins and Christopher must have been well aware and in a position to instruct counsel that the caveat in fact was not over the property at all but only over the rear laneway such that what counsel put in the presence of Christopher if not the Woowins, misled the court so as to constitute an abuse of process.

23    Subsequent to the matter being first heard by me earlier this year, the matter was adjourned. During that period further subpoenas were issued. Pursuant to those subpoenas, material was produced by Mr Mark Stenberg (and made available to all parties by Court order) and by Schrader & Associates (in respect of their production). Mr Stenberg had been originally retained by Christopher to act on behalf of the Woowins on 17 December 1998 (PX6). Material was also produced by Mr Davidson of Counsel who acted for the Woowins. Both Mr Stenberg and Mr Davidson were originally acting in the District Court proceedings. However, Mr Stenberg’s instructions were terminated around 27 to 28 May 1999 (PX6). Mrs Champion of Counsel appeared for Schrader & Associates (who acted subsequently) and Mr Davidson and claimed legal privilege on behalf of the Woowins though having no specific instructions to do so from the Woowins beyond that implicit in the original retainer. In the file is a chronology submitted by the Plaintiff based on the documents obtained from the relevant files though obviously not including those in respect of which legal professional privilege is claimed. Most of that chronology is uncontroversial. It appears that following termination of Mr Stenberg’s retainer there was a dispute about the fees owed by the Woowins to Mr Stenberg leading to Mr Stenberg suing the Woowins and Christopher for his costs and disbursements on 18 July 2000 in the District Court. Judgment was entered in his favour on 22 August 2000. Mr Stenberg’s statement of account is already in evidence in what is described as the Plaintiff’s second Tender Bundle (PX6). So too is an affidavit that he filed in proceedings by the Woowins against him for a cost order to recover the costs the Woowins were ordered to pay on vacation of the District Court hearing, such affidavit being dated 11 June 1999 being page 2 and following of PX6. That took some but not all the documents out of confidentiality.

The documents in respect of which privilege is claimed

24    It is convenient that I now record more precisely the various categories of document and communication and the sources thereof in respect of which privilege is claimed.

1. Documentation from the Verekers sale file which can be described generically as hand-written notes bearing date 20 July 1999 in respect of which privilege was claimed when the matter was previously before me.

2. Documents produced by Schrader & Associates which were the subject of an affidavit by Mr Schrader whose firm took over the instructions to act on behalf of the Second and Third Defendants on or about 26 May 1999. This enumerates the privileged documents in the document marked “A” in the Court file. Of these items LL to items RR are also subject of a privilege claim by the First Defendant. This is on the basis that they emanate from Christopher’s solicitors when an affidavit was prepared by Mr McKenzie of Schraders on 28 February 2001. It should however be noted that subsequent to the claim for privilege first made by Mr Schrader, privilege is no longer claimed in respect of those documents which have been crossed out from the document list and marked with the letter “T”. (See now a second judgment of to-day’s date dismissing an application earlier to-day to now maintain privilege in those documents and exclude them from evidence though previously admitted.) That leaves a claim for privilege asserted by Mrs Champion on behalf of the Woowins but she concedes not in respect of the documents identified in a document marked “B” in the Court file. (See my judgment to-day which dismisses to-day’s attempt by Mrs champion to withdraw that concession.) Privilege is asserted only for the remainder (the uncrossed out documents in “A”).

3. Documents produced by Mr Davidson dated 12 March 2001 as itemised in paragraph 5 of his affidavit of 12 March 2001, but omitting item C as this is no longer confidential having been produced on subpoena by Mr Stenberg, as confirmed by Mrs Champion; see document “C” in the file.

4. Pages 3 to 10 of the District Court transcript of 6 July 1999 where indicated in yellow markers where privilege is claimed by the Second and Third Defendants but not by the First Defendant.

5. Documents produced by Verekers under a subpoena by production bearing handwritten date of 8 March 2001 in red ink, being the documents comprised in para 9 of Mr Schrader’s affidavit of 12 March 2001 in sub-paras (LL) to (RR). (see 2. above) and which I conclude retain privilege and may not be adduced.

CHALLENGES TO PRIVILEGE

25 Before turning to the result of my inspecting the relevant documents pursuant to s133 of the Evidence Act (“the Act”) for the purpose of determining the relevant questions arising concerning that privilege, I should deal with the questions themselves. This is as they bear upon the contest over privilege in relation to the relevant provisions of the Evidence Act contained in Part 3.10.

26 Section 118 of the Evidence Act provides as follows:

“ 118 Legal Advice
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 made between the client and a lawyer, or
(b) a confidential communication made between 2 or more lawyers acting for the client, or
(c) the contents of a confidential document (whether delivered or not) prepared by the client or a lawyer,
for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.”

27 Accepting for present purposes that all of the documentation in respect of which privilege is claimed is capable of falling within paragraphs (a) or (b) or (c) of s118 (but see later), and that it is for the dominant purpose of providing legal advice to the client, there are two threshold questions. The first is the capacity of the Woowins to object to the adducing of that evidence and whether that has been effectively done on their behalf. The second concerns whether the relevant communication or document has ceased to be confidential following the production of certain of these documents in the manner I have earlier described and contained in PX6.

Capacity to Object?

28 The Plaintiff contends that as the Woowins have played no part in the present proceedings once their solicitor ceased to act and in particular have not appeared either personally or through current legal representatives to make specific objection to the adducing of the relevant evidence. Accordingly, that it must follow that the pre-condition for the privilege to be invoked has not been made out. For this, the Plaintiff relies upon the unsuccessful efforts to communicate with the Second and Third Defendants, their filing of a sworn defence, their avoidance of discovery and the fact that Verekers, who originally acted for them upon the relevant conveyancing and mortgage, have no current retainer. These are said to constitute consent for purposes of s122(1) of the Evidence Act by way of imputed waiver. These circumstances are said to preclude any effective objection for purposes of s118 on the Woowins’ behalf by either Verekers (in relation to their production) or Mrs Champion (in relation to Mr Davidson and Schraders’ production).

29    I consider that this contention by the Plaintiff fails. It must be remembered that the privilege is that of the client. Neither solicitor nor an intermediary (who is the agent of either the client or the solicitor) can without the client’s authority either consent to the material being adduced or, again without instructions, abandon that obligation that goes with a solicitor’s retainer, to maintain the privilege. The powers and duties of the solicitor and the agent are not affected by the termination of the solicitor-client relationship or the agency; see Attorney General (NT) v Maurice (1986) 65 ALR 230 at 235 per Woodward J.

30    It is not enough that the solicitor refrain from disclosing a privileged communication. It is well-settled that if he or she does disclose, that solicitor may be liable to the client for damages for breach of duty; see “Cross on Evidence” (Butterworths) 4th ed by D Byrne and J D Heydon at 707. The lawyer’s duty goes further than this. It is to do that lawyer’s best to ensure that a valid claim for privilege is not lost; see Rosenberg v Jaine [1983] NZLR 1 at 7 per Davison CJ; Commissioner of Taxation (Cth) v Citibank Ltd (1989) 85 ALR 588 at 596 per Bowen CJ and Fisher J; State Drug Crime Commission v Larsson (1991) 53 A Crim R 131 at 134 per Newman J; Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 91 A Crim R 451 at 522 per Kirby J. Cf Tuckiar v The King (1934) 52 CLR 335 at 346 per Gavan Duffy CJ, Dixon, Evatt and McTiernan JJ.

31    Indeed in a Canadian case, it was held that legal professional privilege is of such importance to the administration of justice and held in such high regard by the courts that it is not even necessary that the client personally object to the disclosure of the material; that a court may, of its own motion, raise the matter of privilege in order to protect the sanctity of the solicitor-client relationship. See Stevens v Canada (Privy Council) (1998) 161 DLR (4th) 85 at 99 per Linden JA.

32 For whatever reason the Second and Third Defendants have chosen not to participate further in these proceedings. There is nothing in their actions which allows the court to infer that they have authorised the solicitors that they had previously retained or their counsel to fail to take such action as would be necessary to maintain the privilege, being in the present case to make objection as would satisfy s118 of the Evidence Act.

Conclusion

33    I am satisfied that the objection has been properly taken by Verekers in relation to its own documents and Messrs Davidson and Schrader in respect of their documents.

Loss of confidentiality?

34 Turning now to the question of the maintenance of confidentiality, I consider that the documents produced by Mr Stenberg and made available to all parties by Court order and which are to be found in PX6, have rendered no longer confidential that relevant communication or document. Thus legal privilege could not be maintained under s118 ( or indeed s119). The Court is not on notice of any circumstance which would indicate that Mr Stenberg was in breach of his professional obligations in doing so, in circumstances where the production related to a contest over his entitlement to be paid his fees. (See now my other judgment of to-day.) No objection was apparently then made by the Woowins to that production nor has any material been put before the Court as to indicate subsequent objection. In those circumstances they must be taken to have consented (see s122(1) of the Act), or if they have not, then the matter is resolved by the events and according to the reasoning of my other judgment of to-day.

Conclusion

35 Accordingly, insofar as documents the subject of the claim for privilege are no longer confidential, including any documents whose content, though not directly disclosed, was revealed by the disclosure of other documents, they have lost any privilege pursuant to ss118 and 119 of the Act.

Section 125 of the Act — fraud or abuse of power

36 I turn now to the contention by the Plaintiff that client legal privilege has been lost by reason of the application of s125. I quote it 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.”

37 The issues which are posed by s125 in its application to the present case turn upon whether there are reasonable grounds for finding that a “fraud, offence or act, or the abuse of power” was committed and “a communication was made or document prepared in furtherance of commission of the fraud, offence or act or the abuse of power”. That in turn depends upon what is connoted by those terms. Before answering that question, I have set out below a series of principles and the authorities upon which they depend:

Principles in relation to s125 of Evidence Act

1. Section 118 of the Evidence Act will operate to bestow legal privilege to confidential communications between a lawyer and client if the dominant purpose of those communications is to acquire legal advice. This is so even if the client intends to use the legal advice obtained, in furtherance of a fraud or some other improper purpose: per Hodgson CJ in Idoport Pty Limited & Anor v National Australia Bank Limited & Ors [2001] NSWSC 222 at para [60]. However that privilege does not prevent the adducing of such evidence where the conditions in s125 of the Evidence Act are made out.

2. However, s.118 will not operate where the improper purpose of the client is not to be pursued through the legal advice which is being sought. In those circumstances the claim for privilege fails at the threshold of s118. Thus it fails where legal advice is not obtained for the utility of that advice in furtherance of the improper purpose but instead for the sake of appearance, as by cloaking an illegal step with the appearance that things are being done properly: per Hodgson CJ in Idoport Pty Limited (supra).

3. A person who alleges that legal professional privilege does not apply to a communication tenders an issue for decision and has the onus of proving it: per McHugh J in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 141 ALR 545 at 587.

4. At common law a party seeking to resist a claim for legal professional privilege, based on the communication being to facilitate crime or fraud, need show reasonable grounds for believing that the communication between solicitor and client was one made in furtherance of an illegal or improper purpose, including fraud: per Hill J in Zemanek v Commonwealth Bank of Australia & Ors (FCA, Hill J, 2 October 1997, unreported) at 5. That is the standard in s125(2), namely that “there are reasonable grounds for finding “the fraud, offence, or act, or the abuse of power was committed” and “a communication was made or document prepared in furtherance” thereof.

5. Thus where it is alleged that the communication falls outside the ambit of protection for legal professional privilege it is not sufficient for the party seeking to resist the claim for legal privilege merely to state or assert that the communication was made in furtherance of a fraud or other illegal purpose but must adduce admissible evidence: Commissioner of Australian Federal Police v Propend Finance Pty Limited (supra).

6. Although the standard of proof is not required to the level of proof on the balance of probabilities that the communication was made in the commission of a fraud or other improper purpose, there must be “something to give colour to the charge”, some evidence at a prima facie level that has foundation in fact grounding such a claim: per McHugh J in Propend at 587; Hill J in Zemanek (supra) at 6.

7. Consistent with the reasoning in Propend , the standards for establishing reasonable grounds will depend on the circumstances, though must still be sufficient to “give colour to the charge”, that is at a prima facie level. Thus if a person challenging privilege is clearly not in a position to lead very much evidence concerning purpose, as where the other party has exclusive access to that evidence, the Court may be satisfied with relatively less evidence. In contrast, much more evidence may be required where the party challenging improperly obtained access to that evidence; Watson v McLearnon [2000] NSWSC 19, Hodgson CJ in Eq, 1 February 2000.

8. Nor must it be overlooked that the court, by s133, may inspect the documents the subject of the claim for privilege, for the purpose of determining a question that arises under the relevant Part 3. Such questions include not only the question of the application of s118 but also questions concerning whether the client legal privilege has been lost or whether the evidence may nonetheless be adduced as under s125.

9. I would follow the view, though expressed as tentative, that "fraud", as used in s.125, requires an element of dishonesty; per Hodgson CJ in Eq in Idoport para [63]. I would however use that term to include 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”. I would agree also that an “abuse of power” which is dishonest would be caught by s125(1)(b) as is clear from the requirement that there be a “deliberate” abuse of power. It is difficult to imagine a deliberate abuse of power that does not involve some element of dishonesty but I leave open that possibility for future decision.

10. It follows that the use of the word "deliberate" in s125(1)(b) requires that the client know that the acts in question are an abuse of power, not merely that the client unknowingly but deliberately commit acts that constitute an abuse of power: per Hodgson CJ in Idoport para [64].

11. The range of instances of fraud are not limited to legal fraud in the narrow sense, but as is said in Cross on Evidence by J D Heydon (Butterworths, 1996) at 25,148:

“all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances”, [ Crescent Farm (Sidcup) Sports Ltd v Sterling offices Ltd [1972] Ch 553 at 565; [1971] 3 All ER 1192 at 1200] for example an employee who schemes to take other employees and customers into a business competing with the employer’s after termination of the employment, [ Barclays Bank plc v Eustice [1994] 4 All ER 511 at 521-2; [1995] 1 WLR 1238 at 1249 (CA)] or the effecting of transactions at an under value with the purpose of prejudicing a creditor’s interests, [ Barclays Bank plc v Eustice [1994] 4 All ER 511; [1995] 1 WLR 1238 (CA)]”
12. A communication which is made in furtherance of an abuse of the processes of the Court is not of itself fraud, involving dishonesty or a deliberate abuse of a power in the sense used in s125(1)(b). However, a dishonest communication to the 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 invoke s125(1)(b), as constituting a deliberate abuse of a power. This is because the bringing of (or defending) legal proceedings is the exercise of a power which is “conferred by or under an Australian law”, within the definition of power in s125(3). See Williams v Spautz (1992) 174 CLR 509 and Flower & Hart v White Industries (Qld) Pty Limited (1999) 87 FCRs 134 at 150.

38 For the purpose of answering the questions earlier posed and in particular as to whether s125 does apply, I have, pursuant to s133, inspected the relevant documents. It is clear from an examination of those documents insofar as they constitute communications made or the contents of a document prepared by a client or lawyer that there are reasonable grounds for concluding that a substantial number of them are “in furtherance of the commission of a fraud” or involve “a deliberate abuse of a power”. This is clear by applying the principles earlier set out in the context of the present litigation and by reference to PX6 and the content of the documents themselves. Indeed inferences to that effect sufficient to establish reasonable grounds may fairly be drawn from those documents that are in the public domain, including the documents in respect of which privilege ceased to apply by reason of their ceasing to be confidential.

39    On the basis of my perusal of the privileged documents and the other documents I am satisfied that there are reasonable grounds to draw the following inferences and that these in turn are sufficient to constitute “fraud” in the sense delineated by the above principles:

(i) that advice had been sought by the First Defendant on behalf of the Woowins on or prior to 5 May 1999 as to disposal of the Castlecrag property and as to whether judgment could be enforced against assets held by the Defendants outside the jurisdiction;

(ii) that the First Defendant knew on 21 May 1999 of Kate’s intention not to permit the Plaintiff to have access to the Castlecrag house should they lose the case;

(iii) that legal advice was sought by Christopher on behalf of the Woowins on or about 8 July 1999, the day before completion of the sale of the Castlecrag property to a third party, with respect to the likelihood of success in enforcing a judgment against the property outside the jurisdiction, reflecting an aim to facilitate the dissipation of assets outside the jurisdiction as evinced by the steps taken including subsequent transmission of funds outside the jurisdiction;

(iv) there was at least doubt as to there being any genuine debt owed by the Woowins and in particular Kate, to Christopher; in that regard I draw particular attention to an undated letter from Kate to Christopher. This was produced as a privileged document by Schrader & Associates but which could not be privileged given that the letter must be not confidential or for purpose of legal advice having been written to Christopher, even if he has not retained it or produced it. In those circumstances it is appropriate that I quote that undated letter which is particularly relevant to the genuineness of the debt claimed to exist:

"What make you say that we owe you 600,000 to the lawyers ? If you want to help us to transfer our house to you, you still don’t need to creat (sic) a case of owing you 600,000. And did not our house is worth 850,000 not 750,000 ? And what does it mean that the balance purchase price of 150,000 would then be returned to China ? What does that mean ? If like before, I could transfer the house to you as a gift, now that you are telling the world that I owe you money, if I give you the house, it would mean that I really owe you that much have you considered my feelings ?…I told you that you should not let the other side know that I have funds in Hong Kong, now you are telling them that, it seems you don’t really care what happens to the assets under my name, if I transfer the house to you because I owe you, then the house under your name probably would be safe, but the funds under my name would not be safe, the court would still treat it as the same as the house under my name. Besides, I don’t know what kind of action the court would take if it found that the house was transferred to you only days before the hearing…"

40 I then conclude that there are reasonable grounds for finding that fraud in the sense of alienation of property with intent to defraud creditors did occur by reason of the disposition of the Castlecrag property and the associated mortgage, within the meaning of s37A of the Conveyancing Act 1919, where fraud is used in a sense that connotes dishonesty. If anything, the circumstances are stronger than in Barclays Bank plc v Eustice [1995] 1 WLR 1238. There a client of the Bank effected transactions at an undervalue with the purpose of prejudicing a creditor’s interests. Schiemann LJ writing the leading judgment in the Court of Appeal characterised this as “sharp practice” or conduct which was “iniquitous”. He did so under the common law of legal professional privilege. However, the circumstances of that case may well constitute the kind of sharp practice as is dishonest and thus fraud within s125.

41    Moreover, that case is authority for the proposition that neither client nor legal adviser need appreciate the fraudulent character of the transaction (at 1252 “public policy does not require the communications of those who misapprehend the law to be privileged in circumstances where no privilege attaches to those who correctly understand the situation”).

42 I would go further and say that the action of deliberately seeking to frustrate a judgment by dissipating assets so that they cannot practicably be reached is itself dishonest to the level where it constitutes fraud as that term is used in s125. It is moreover a deliberate abuse of a power (to bring or defend legal proceedings). That that was the intention is an inference I am satisfied I have reasonable grounds to draw.

43    I should note at this point that the substance of the advice sought from Mr Barry, QC is already apparent from documents that could not be the subject of privilege being no longer, if ever, confidential. These are referred to in the Plaintiff’s chronology based on the Plaintiff’s second Tender Bundle; see date entry for 30 April 1999 and also the entries under 5 May 1999. (See now my other judgment of to-day.)

44 In regard to what was said in the District Court to secure vacation of the hearing dates and an adjournment (see earlier) I note that entries in the Plaintiff’s chronology for 21 May indicate two things. First, that Mr Stenberg as at 21 May had received instructions from Christopher to lodge a caveat on the title of the property. Second, that Mr Stenberg’s law stationer had searched the property and ascertained that Mr Kang’s caveat was entered against the title of the laneway and that there was no caveat recorded against the main house property. That strongly suggests that the Woowins would have been aware through their then solicitor that what was stated by Mr Davidson on 1 June 1999 in relation to having the Plaintiff’s costs assessed forthwith in the context of the earlier vacation of the hearing dates that day was seriously misleading. Christopher was present at the hearing on that day though the First Defendant has stated that there will be an issue now as to whether he was present at that moment or if he were, whether he was attentive. To mislead the Court is a clear abuse of process, where the client retains the obligation to the Court though the client’s counsel is unaware that the Court is being misled having regard to the extent of counsel’s instructions. That in turn constitutes a deliberate abuse of a power, namely the power conferred by statute to bring legal proceedings. That independently provides the reasonable grounds for inferring at a prima facie level a dishonest abuse of power within the meaning of s125.

45 There remains the question whether the communications were made or the documents prepared, in furtherance of the commission of the fraud or abuse of power earlier identified. With minor exceptions, I find that, in terms of s125(2), the documents in respect of which there is still an extant claim of privilege were so prepared, there being no necessity that the lawyer be aware of there being an intention to commit fraud or abuse power so long as the clients have that intention.

OVERALL CONCLUSION

46    The documents the subject of the claim for privilege, with minor exceptions identified by pink tags, are not prevented by the relevant provisions of the Evidence Act from being adduced, since they fall within s125 of the Act. I should emphasise, so as to leave no room for misunderstanding, that that finding, and the anterior matters that I have determined are only determined at the prima facie level of there being reasonable grounds. They do not constitute binding findings of fact and may be controverted for the purposes of the substantive issues still to be determined. It remains therefore open to the first Defendant to adduce such evidence and make such submissions as are relevant to those substantive issues.

47 In those circumstances I probably do not need to consider whether client legal privilege was also lost, pursuant to s122 of this Act. Were it necessary to do so, I would conclude:

(a) that no consent of the client or party concerned (the Woowins) was given within s122(1), nor such as should be implied;

(b) the disclosure to Mr Tassel of Verekers of the contents of the conveyancing file, being the solicitor conducting the present case for the First Defendant, even if with the express or implied consent of the Woowins (being aware that Verekers were so acting), did not result in the loss of privilege (under sub-sections (2) or (4) of s122) because still protected by the common interest provisions in s122(5)(b), which have overriding effect.

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Last Modified: 08/20/2001