KELLY & LOMAX
[2013] FamCA 556
•26 July 2013
FAMILY COURT OF AUSTRALIA
| KELLY & LOMAX | [2013] FamCA 556 |
| FAMILY LAW – EVIDENCE – ADMISSIBILITY – whether evidence illegally obtained FAMILY LAW – EVIDENCE – ADMISSIBILITY – whether communication in connection with attempt to negotiate a settlement of the dispute FAMILY LAW – EVIDENCE – EXCEPTIONS TO INADMISSIBILITY – whether Court likely to be misled unless otherwise privileged communication admitted FAMILY LAW – EVIDENCE – EXCEPTIONS TO INADMISSIBILITY – whether otherwise privileged communication affects the right of a person FAMILY LAW – EVIDENCE – EXCEPTIONS TO INADMISSIBILITY – whether otherwise privileged communication made in furtherance of the commission of an act that renders a person liable to civil penalty – whether contempt comprising an attempt to mislead a Court renders a person liable to a civil penalty FAMILY LAW – EVIDENCE – EXCEPTIONS TO INADMISSIBILITY – whether otherwise privileged communication made in furtherance of the commission of a fraud – whether prejudice to the interests of creditors comprises fraud for purposes of s 131(2)(j) of the Evidence Act (Cth) Family Law Act 1975 (Cth) ss 70 NEB, 79, 112AP Hazan v Elias [2011] FamCA 376 | |
Brown v Commissioner of Taxation (2001) 187 ALR 714
Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 27
Brightstars Holding Co Pty Ltd v Johnston [2012] NSWSC 929
Asciak v Australian Secured and Managed Mortgages Pty Ltd [2008] FCA 753
Kendling & Kendling(Contempt) [2008] FamCAFC 154
Vernon v Bosley (No.2) [1999] Q.B. 18
Kang v Kwan [2001] NSWSC 698
Barclays Bank v Eustice [1995] 4 All ER 511
| APPLICANT: | Ms Kelly |
| RESPONDENT: | Mr Lomax |
| FILE NUMBER: | BRC | 6009 | of | 2010 |
| DATE DELIVERED: | 26 July 2013 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Tree J |
| HEARING DATE: | 16 July 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr P Baston |
| THE RESPONDENT: | In person |
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kelly & Lomax has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT |
FILE NUMBER: BRC6009/2010
Applicant Ms Kelly
And
Respondent Mr Lomax
REASONS FOR JUDGMENT
INTRODUCTION
On 13 March 2013, I reserved my decision in relation to a number of interim applications that were heard by me on 11, 12 and 13 March 2013.
By Application in a Case filed 18 April 2013, the applicant wife sought to re-open her case to rely upon additional material which had been obtained by her pursuant to a subpoena which she had issued to the National Australia Bank. In my decision delivered 27 June 2013, amongst other things, I gave leave for her to re-open her case to rely upon that additional material.
Prior to delivering that decision, the applicant had filed a further Application in a Case seeking further leave to reopen to rely upon additional material obtained during the course of conversations with the respondent husband on 1 and 2 May 2013.
The respondent objected to the admission of the further material on two bases. The first basis for objection was that the attempt by the wife to put forward evidence of the conversation of 2 May 2013 – which she had arranged to be recorded – was either directly prohibited by section 45 of the Invasion of Privacy Act (Qld), or otherwise ought be excluded pursuant to section 138 of the Evidence Act (Cth). Mr Baston, who appeared as counsel for the wife, contended that the conversation of 2 May was a communication made in the course of legal proceedings, and hence admissible pursuant to s 45(2)(b) of the Invasion of Privacy Act. The second basis of objection was that both conversations were communications in connection with an attempt to negotiate a settlement of the dispute between the parties, and therefore inadmissible pursuant to s 131 of the Evidence Act. Mr Baston contended that the material was admissible, either because it was not a communication in connection with an attempt to negotiate a settlement of the dispute, or if it was, because it fitted within one or more of the exceptions established in s 131(2).
This is my decision and reasons in relation to the admissibility of the further evidence.
THE FURTHER MATERIAL
As previously indicated, the additional material is comprised within two conversations between the applicant and the respondent. At paragraph 3 of the applicant’s affidavit in support of application sworn 28 May 2013, she deposed as follows: –
On 1 May 2013 at about 11:00 am I received a seven minute phone call from .. which I recognised as the office number of [D Pty Ltd] and spoke to [Mr Lomax]. He told me that my barrister, Peter Baston had spoken to him and suggested that [Mr Lomax] and he get together to discuss settlement of our dispute. When I queried what issues he wanted discussed he told me he would like to meet with me to discuss issues related to the settlement of this case.
They met the following day. Also present were the respondent’s current wife, Ms Lomax, and a friend of the applicant, Ms T. The ensuing conversation was recorded by Ms T. A transcript of that recording was tendered as an exhibit to an affidavit of Ms U filed 15 June 2013. Mr Lomax conceded that the transcript was accurate, save that there were aspects of the conversation which were not contained within the transcript.
Part of the conversation dealt with the means by which this litigation could be concluded in a manner which enhanced the prospect of the applicant retaining control of all or most of the net proceeds of sale of the former matrimonial home, in which the wife still resides. In the conversation the husband identified two major impediments to that aim, firstly, that the wife had given security for a loan of $400,000 or thereabouts from a litigation funder by mortgaging her interest in the home to it (albeit that her registered interest was only 1per cent, and 1per cent of the value of the home was much less than $400,000) and secondly, that any funds received by the wife may be depleted or exhausted by her liability to pay her counsel’s fees.
The husband’s proposal was that there should be consent orders entered into between the parties to the effect that the net assets of the parties ought be divided 90 per cent to the husband, and 10 per cent to the wife. During the course of the conversation the husband said: –
Now the reason that is [Company V] and Baston can only get their money out of your settlement, okay so you’re then, you’ve done your thing in accordance your agreement and their screwed. They can’t come back under this agreement and chase for the shortfall, so from 600 grand [Company V] would get their 60 and Baston would get whatever percentage he is going to get. And what we do then, before that happens, have a private meeting where whatever share you get (inaudible) that the kids, goes into a trust account. So we, while we in theory get 90% ... We’d keep our bit say it’s 200 grand, the other 350,000 goes into a trust account. A trust account that I don’t have access to, the trust account is set up for [W] and [X] and [Y], but you have, you’re the trustee of that trust. So as soon as we are out of the picture you can do whatever the hell you want with the trust money. It’s yours and it’s up to you when the benefit of that is you still get some money, or the alternative to that is that you get absolutely nothing, so you still end up with $350,000 or whatever, it gets [Company V] out of the picture and gets Baston out of the picture. But obviously Baston is never going to agree to something like that because it diddles him out of his money plus I think he’s in bed with [Company V]…
Of itself and without more, the preceding material is irrelevant to the outstanding applications before me. Rather, the only component of the 2 May conversation directly relevant to those applications occurred in the second half, when the respondent was seeking to persuade the applicant of the futility in pressing on further in an attempt to prove that he has the effective control of a consulting business, which in the proceedings before me he had asserted was under the control of his now wife, Ms Lomax. Relevant parts of that conversation were as follows: –
… You know, the only thing that could help you, is if you somehow got up to say [D Pty Ltd] is the same company as the other company and what I was going to say is (inaudible) that can’t possibly happen because as you’re aware we got into that litigation thing with the [Country J company] with [L Pty Ltd], without these professional indemnity insurance companies involved, and they, once you have a claim against a professional indemnity insurance company, which they, which that company did, you cannot get professional indemnity insurance for that company or for me or for (inaudible). To be in the … consulting business you’ve got a have professional indemnity insurance for you can’t, you can’t get a single job, so was never an option of keeping [L Pty Ltd] or keeping me as part of that company because you can’t operate because it cannot get PI insurance…
…
… if Justice Tree came along and said, oh it’s the same company, it’s an alter ego of [L Pty Ltd] that company would have to get shut down and it have to be another company set up the next day and [Ms Lomax’s] name so there be no value there because she’s got a have the company that her company to get the PI insurance. It’s, it’s just not giving get you anywhere, because it cannot operate as a company that is my alter ego, or [Mr A’s first name], because we can’t get PI insurance and you know how easy it is to skip from one company to another, because there’s no value in a, in a professional services organisation and Justice Tree knows that (inaudible) so unfortunately you’re just not going to get anywhere…
Presumably in due course, if that evidence is admitted, the wife will assert that it demonstrates that the consultancy business remains, at least, a financial resource of the husband, in that it and its cash flows remain under his effective control, and that the assertion that Ms Lomax is the controller of the company is nothing more than a necessary ruse to obtain professional indemnity insurance. Of course on another view, the evidence may support precisely the opposite position, but that is not a matter which I need to determine at this point.
WAS THE FURTHER MATERIAL ILLEGALLY OBTAINED?
The Respondent argued that section 45(1) of the Invasion of Privacy Act precluded the applicant from adducing evidence derived from or otherwise relying upon, a transcript of the conversation of 2 May, whether pursuant to the operation of section 45 itself, or alternatively under section 138 of the Evidence Act.
A convenient starting point to consider this argument is section 43 of the Invasion of Privacy Act. Relevantly it provides: –
43 Prohibition on use of listening devices
(1) A person is guilty of an offence against this Act if the person uses a listening device to overhear, record, monitor or listen to a private conversation and is liable on conviction on indictment to a maximum penalty of 40 penalty units or imprisonment for 2 years.
(2) Subsection (1) does not apply--
(a) where the person using the listening device is a party to the private conversation; or
…
Section 45 relevantly provides: –
45 Prohibition on communication or publication of private conversations by parties thereto
(1) A person who, having been a party to a private conversation and having used a listening device to overhear, record, monitor or listen to that conversation, subsequently communicates or publishes to any other person any record of the conversation made, directly or indirectly, by the use of the listening device or any statement prepared from such a record is guilty of an offence against this Act and is liable on conviction on indictment to a maximum penalty of 40 penalty units or imprisonment for 2 years.
(2) Subsection (1) does not apply where the communication or publication--
(a) ..; or
(b) is made in the course of legal proceedings; or
…
(3) In subsection (2)--
legal proceedings includes--
(a) proceedings (whether civil or criminal) in or before any court; and
(b) proceedings before justices; and
(c) proceedings before any court, tribunal or person (including any inquiry, examination or arbitration) in which evidence is or may be given; and
(d) any part of legal proceedings.
There is no reason to doubt that the conversation in question was a private conversation, as defined in s 4 of the Act, and that the recording device used by Ms T was a listening device for the purposes of the Act. Ms T was a party to the private conversation. Her recording of it was therefore not prohibited by s 43.
The effect of section 45 is that the publication of a transcript of the lawfully obtained recording of a private conversation is not unlawful where that publication is in the course of legal proceedings. There is no doubt that the annexure of the transcript of the recording to an affidavit in these proceedings is publication in the course of legal proceedings.
It therefore follows that there is no breach of section 43, nor of section 45, and therefore no basis to preclude the admission of the evidence either pursuant to the Privacy Act or under section 138 of the Evidence Act.
I note that a concession that this was the effect of those provisions in the Invasion of Privacy Act in proceedings in this Court was not subject of any adverse comment by Watts J in Hazan v Elias [2011] FAMCA 376 at [16].
THE S 131 ARGUMENT
Does the exception s 131(1)(a) apply?
Section 131(1) of the Evidence Act relevantly provides as follows: –
(1) Evidence is not to be adduced of:
(a)a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute;
(b)...
It does not seem to be in contention that the 2 May conversation comprised a communication between persons in dispute. What is contentious is whether or not the part of conversation relating to D Pty Ltd was in connection with an attempt to negotiate a settlement of that dispute.
In the decision of Seven Network Ltd v News Ltd [2006] FCA 343 at [50] Graham J said:-
For a communication to answer the description of one ‘in connection with an attempt to negotiate a settlement’ of a dispute there must be a direct connection. ‘Connection’ does not in the context of s 131(1) of the Act connote a tenuous connection (see GPI Leisure Corporation Limited (in liquidation) v Yuill .. (1997) 42 NSWLR 225 at 226).
The relevant passage in the decision of Young J in GPI Leisure Corporation Limited (in liquidation) v Yuill is as follows:-
The scope of the “without prejudice” privilege under the common law was not consistently stated by the courts, some expressing it relatively widely and others narrowly: see S B McNicol, Law of Privilege, LBC Sydney (1992) at 435 et seq. In Field v Commissioner for Railways for NSW (1957) 99 CLR 285 at 292, the High Court said of the scope of the privilege: “It depends upon what formed part of the negotiations for the settlement of the action and what was reasonably incidental thereto.” There needed to be a “proper connexion with any purpose connected with the settlement of the action” (at 293). In Trade Practices Commission v Arnotts Ltd (1989) 88 ALR 69 at 71-73,
Beaumont J reviewed and contrasted cases where the parties discussed a
possible compromise on the one hand (privileged) and where they had
discussions merely asserting their respective positions (not privileged). An example of the latter is Buckinghamshire County Council v Moran [1990] Ch 623 at 634-635.These considerations incline me to the view that the “connection” referred to in s 131 is a direct connection.
It could not seriously be argued that the respondent’s attempt to persuade the applicant to accept a 90/10 division of the net assets of the parties, albeit with a further agreement that some or all of the husband’s 90 per cent entitlement would be placed into a trust of which the applicant was trustee, was not an attempt to negotiate a settlement of the dispute. To the extent that that may have been argued by the applicant, I reject such an argument. Rather the question is whether or not that part of the conversation which dealt with D Pty Ltd had a direct connection with that attempt to settle.
In my view, the sole purpose for the respondent introducing D Pty Ltd into the conversation was in an attempt to persuade the applicant that she was unlikely to have it taken into consideration by the court as either property of the parties, or a financial resource of the husband, and hence her prospects of negotiating a settlement better than that which was being offered by him in that conversation were slim, or non-existent. In my view that establishes a sufficiently direct connection between the two aspects of the conversation, such that section 131 applies to both.
Does the exception in s. 131(2)(g) apply?
Section 131(2) contains an exhaustive list of circumstances which, if established, exclude the application of subsection (1). Subparagraph (g) provides: –
(g)evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict order qualify that evidence;
Counsel for the applicant relied on this provision in that he said that, in the evidence thus far before the court, there had been no advertence to professional indemnity insurance as being the reason why L Pty Ltd ceased to conduct the consulting business, or D Pty Ltd commenced to operate such a business. It can therefore be seen that the construction contended for by the applicant of sub-paragraph (g) was a broad one, and would permit otherwise privileged communications to be admitted to contradict any relevant fact about which the court may otherwise be misled.
There appears to be some divergence of judicial opinion as to whether such a broad construction of subparagraph (g) is correct. The broad view has been expressly rejected by Emmett J in Brown v Commissioner of Taxation (2001) 187 ALR 714 and Bromberg J in Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 27. In that latter case, Bromberg J, in reviewing both lines of authority, said: –
45It is apparent that the applicants seek to use the disputed evidence to show that agents of the respondent have made prior inconsistent statements to those to be relied upon at trial. The applicants contend that without reference to the disputed evidence the Court will likely be misled into accepting the accounts as to the derivation of the Grange designs given by Ms Wilson or Mr Rowley.
46The difficulty for the applicants is that the construction of s 131(2)(g) contended for by them pays insufficient regard to the context in which the words utilised in s 131(2)(g) are found and fails to properly take into account the origin of the provision and its intended purpose.
47It is of particular importance in the context of a qualification or exception, such as that contained in s 131(2)(g), to identify the mischief which the provision is concerned to address. Section 131(2)(g) identifies a number of limited qualifications to an exclusionary rule which protects privileged settlement communications from being used at trial. In that context, paragraph (g) should be understood to be dealing with the non-applicability of the privilege or protection provided by s 131(1) because, unless that is done, the court is likely to be mislead. That suggests that paragraph (g) is addressing the need to ensure that reliance upon the privilege or protection is not the source of or reason for the court being misled. In other words, the privilege afforded by s 131(1) is not to be abused by allowing a party that has adduced evidence to use the privilege to hide the truth and mislead the court. That is the mischief to which the paragraph is directed.
48That contextual analysis is confirmed by the likely origin of the provision in what has been referred to as the principle in Pitts v Adney.
49In Pitts v Adney (1961) 78 WN (NSW) 886, Walsh J at 889 said:
It is of importance that the rule protecting from disclosure, discussions taking place in an endeavour to put an end to pending litigation should, in general, be applied. But it is, after all, a rule based upon public policy. It cannot be permitted to put a party into the position of being able to cause a Court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely. In McFadden v Snow evidence was given on behalf of one party that no reply had been received to a letter. Thus it was sought to establish an admission by silence as to a relevant fact. Kinsella J admitted a letter headed “without prejudice” tendered in disproof of that evidence. He said “The privilege that may arise from the cloak of “without prejudice’ must not be abused for the purpose of misleading the court”. With respect, I state my emphatic agreement with that observation. If one applies it to the situation which I have postulated, as that which could have arisen if these proceedings had followed a more formal course, the result would have been that claim of privilege could not have been used to mislead the Court into acting on the erroneous belief that no offer of 5,300 had been made by the lessee, or communicated to the lessor, before the making of the order of 27 July.
50As is apparent from that passage, the limitation upon the exclusionary privilege at common law is based upon a causal connection between a party’s reliance upon the privilege and the court being misled.
51In Austotel Management v Jamieson (1995) 57 FCR 411, Burchett J at 415-416 referred to the principle in Pitts v Adney and to its affirmation by the Court of Appeal of New South Wales in Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) [1] BPR 97,00014.
52In Brown v Commissioner of Taxation (2001) 187 ALR 714, Emmett J explained that the source of exceptions to the general law exclusionary principle recognised under the general law are concerned with reprehensible behaviour and impropriety. His Honour observed that it is appropriate to consider the exceptions listed in s 131(2) in the light of the general law: at [183]. Emmett J also acknowledged the link between the principle in Pitts v Adney and s 131(2)(g) in the following passage at [184]-[185]:
I consider that s 131(2)(g) is designed to deal with the sort of circumstances that arose in Pitts v Adney (1961) 78 WN (NSW) 886. Evidence of a “without prejudice” communication was admitted in that case in order to prove the fact of and the nature of the communication. It was not tendered in order to contradict evidence as to the matters in issue, or as an admission.
It is not appropriate to attempt an exhaustive exposition of the effect of s 131(2)(g). However, I consider that it will not be attracted simply because evidence to which s 131(1) applies contradicts or qualifies evidence that has already been adduced. Section 131(2)(g) will apply where the court would be likely to be misled as to the existence or contents of an excluded communication or document, where those matters are in issue in the proceeding.
53The construction of s 131(2)(g) applied by Emmett J in Brown was adopted by Hamilton J in Bloss Holdings Pty Ltd v Brackley Industries Pty Ltd [2005] NSWSC 756. In Korean Airlines, Jacobson J referred to Brown at [78] without apparent dissent.
54A number of decisions of courts in New South Wales have adopted a broader construction of s 131(2)(g) than that applied in Brown: Moran v Moran (No 3) [2000] NSWSC 151; DTC No 1 Pty Ltd v Matthew [2009] NSWSC 1280; Kalambaka Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 [2009] NSWLEC 57; and Mulkearns v Chandos Developments (No 4) (2005) 12 BPR 22,993 at [66]-[67]. Other than Mulkearns none of those decisions appear to have considered Brown. Whilst Young J referred to Brown in Mulkearns at [66]-[67], it is not apparent whether and if so why, the construction applied in Brown was not followed.
55I respectfully agree with the analysis of Emmett J at [185] in Brown and his Honour’s conclusion that s 131(2)(g) is not attracted simply because evidence to which s 131(1) applies, contradicts or qualifies evidence that has already been adduced. I would respectively add that s 131(2)(g) is only attracted where the exclusionary rule in s 131(1) would operate to allow a party which has adduced evidence, to use the exclusionary rule as an instrument for misleading the court.
56That construction serves the policy objectives which s 131 seeks to protect. Nothing could be more calculated to undermine settlement discussions, than the prospect of statements made in the course of those discussions being used to discredit evidence adduced at trial, should settlement negotiations fail. The construction contended for by the applicants, would replace the exclusionary cloke of s 131 with a thin veil behind which little would ever be said or done in pursuit of the amicable settlement of a dispute.
This aspect of the decision has been expressly followed by Stevenson J in the New South Wales Supreme Court in Brightstars Holding Co Pty Ltd v Johnston [2012] NSWSC 929. In my view, it is correct for the reasons identified by Bromberg J and I gratefully adopt his Honour’s reasoning. I therefore hold that, merely because the conversation of 2 May does, or may tend to, contradict other evidence before me, is insufficient to enliven the exception in subparagraph (g).
Does the exception in s 131(2)(i) apply?
Subparagraph (i) is as follows: –
(i)making the communication, or preparing the document, affects the right of a person;
Although expressly abandoned by Mr Baston during the course of his oral submissions before me, subsequent written submissions filed by him on 16 July 2013 appeared to resile from that concession. In my view the subparagraph has no application in this case. It is insufficient that the communication or document is relevant to an existing right of a person. In Asciak v Australian Secured and Managed Mortgages Pty Ltd (ACN 112 603 219) [2008] FCA 753 Goldberg J at [32] – [34] said:-
32I do not consider that subpar (i) of s 131(2) applies. The plaintiff submitted that the communication in question was designed to affect the plaintiff’s rights as a director because the agreement that was entered into, and the orders made in consequence of that agreement, provided for him to transfer his shares in the defendants and resign as a director of the defendants. However, the communications in respect of which the plaintiff wishes to adduce evidence related to financial matters pertaining to the defendants. The making of the communications did not affect any right of the plaintiff; rather, they provided him with information which he could take into account in making a decision as to how to resolve his outstanding disputes with his wife.
33In Glass v Demarco [1999] FCA 482, a bankruptcy petition was before the court. The debtor filed an affidavit in which he gave evidence about an offer of compromise in another court proceeding. Objection was taken by the petitioning creditor to the admissibility of that evidence who relied on s 131(1) of the Evidence Act. The debtor relied on s 131(2)(i) of the Evidence Act. At par [10] Emmett J said:
“… The contention, as I understand it, is that a right of the debtor is affected by the offer because the debtor, by reason of the offer, has a right to accept it and thereby create a contract of compromise. I consider that the reference to a right in s131(2)(i) is to an existing right and it is not satisfied by reason of a right coming into existence upon the making of an offer.”
Although it might be said that the plaintiff had at the date of the conciliation conference rights by virtue of his position as a director of the defendants, that right was not affected by the making of the communications in respect of which the plaintiff wishes to adduce evidence.
34In Talbot v NRMA Limited [2000] NSWSC 602, Hodgson CJ in Eq said at par [3]:
“Mr Shand has referred me to s 121(3) of the Evidence Act, which states that privilege would not prevent the producing of evidence of a communication or document which affects the rights of a person. In my opinion, that cannot mean a communication or document that is relevant to a right of a person because that would virtually eliminate the legal professional privilege as a ground for non‑admission of evidence. In my opinion, that must mean a communication or document that affects in some fairly direct way what are the actual rights and perhaps also duties of a person.”
I consider that these observations apply equally to the communications in respect of which the plaintiff wishes to adduce evidence. They do not affect in any direct way the actual rights of the plaintiff.
In my view there is no possible basis to argue that any part of the conversation of 2 May in any way affected an existing right of any person. It was at best an offer which, if accepted, may have tended to adversely prejudice the potential enjoyment of a right of a person, in the sense that the applicant’s creditors may have been less likely to recover their debts, but unless and until accepted, the communication had no such potential for effect.
I therefore conclude that the exception under subparagraph (i) is not enlivened.
Does the exception in s 131(2)(j) apply?
S 131(2)(j) provides:-
(j) the communication was made, or the document was prepared, in furtherance of the commission of a fraud on an offence or the commission of an act that renders a person liable to a civil penalty;
Mr Baston relied upon three matters which he said enlivened this exception. The first was an assertion that the conversation was in furtherance of the commission of a contempt of this court, namely an attempt to mislead it as to the terms of settlement between the parties. He submitted that such a contempt was an act that would render Mr Lomax liable to civil penalty. The second was an assertion that the offer made by the respondent were in furtherance of the commission of a fraud, namely to enter into an arrangement with the express purpose of defeating the recovery of debts by the applicant’s creditors. The third was that the communication was made in furtherance of an offence contrary to ss 42 and/or 43 of the Crimes Act (Cth).
Turning firstly to the allegation of contempt, the evidence does not support the proposition that the respondent was of the view that the purported 90/10 settlement in his favour would mislead the court at all. The relevant part of the transcript of the conversation is as follows: –
… I think [the judge would] understand what’s going on and he would understand if you came along and did a ninety ten split, he would know there’s something going on behind the scenes (inaudible). They’re looking for a fair and equitable outcome for everyone (inaudible) it’s probably not fair and equitable to [Company V], but [Company V] should never have done this (inaudible) it’s actually not legal which doesn’t help us. And he, he would know because he’s got a property background, he would know it is not legal, that he would know about the law in equity (inaudible)…
Moreover this view appeared to be shared by the applicant as well, in that the transcript records that her response to the suggestion of seeking a 90/10 split was that the judge would “probably send me off for a psychiatric analysis.”
It should also be remembered that notwithstanding the terms of any settlement between the parties, in exercising any jurisdiction under section 79 of the Family Law Act, the court needs to be satisfied that the outcome is just and equitable as between the parties. If the court were to refuse to make such an order because it was unpersuaded that it was just and equitable, then of course it would be open to the parties to nonetheless conclude their dispute on that basis, albeit without the sanction and protection of court orders.
It appears to me that the intention of the respondent in making the offer to the applicant in the conversation of 2 May was not so much to mislead the court as to the true basis of the settlement, but rather to conceal it from the applicant’s creditors and hence protect her assets from being used to satisfy those debts. Hence the intention of having the ostensible settlement embodied in court orders does not appear to have had as its real motive the misleading of the court, but rather the misleading of creditors.
If I am wrong as to this, and there was an intention to mislead the court, then it seems to me that there is a more fundamental difficulty in alleging that a contempt comprising the misleading of a court is sufficient to fit within section 131(2)(j), because that sub-paragraph is restricted to civil penalties, rather than criminal punishment. There seems little doubt that every litigant is under a duty not to mislead the court or his opponent (see Vernon v Bosley (No. 2) [1999] Q.B. 18 at 37) and that in certain circumstances a breach of that duty may comprise a contempt (see Aldridge, Eady & Smith on Contempt, 4th ed., at 10-138) however at common law such a contempt would be criminal in nature, as it is committed in the face of the court. It therefore would render a person liable to a criminal penalty, including potential imprisonment, rather than a civil penalty.
Nothing in s 112AP of the Family Law Act derogates from the common law position that such a contempt is criminal in nature; indeed ss 112 AP (2) and (4), both of which refer to punishment, tends to confirm it, particularly when contrasted with, for instance, the powers of the Court, and the language by which those powers are described in s 70NEB. Moreover in Kendling & Kendling(Contempt) [2008] FamCAFC 154, the Full Court, albeit adverting to some judicial criticism of the construction of any distinction between civil and criminal contempt, did not appear to suggest that potential contempts of the character raised by the facts of the instant case were not criminal in nature.
It therefore follows that subparagraph (j) would have no application to such a contempt.
That then brings me to the second s 131(2)(j) exception relied upon by the applicant, namely that the relevant communications on 2 May were made in furtherance of the commission of a fraud. A useful summary of the relevant principles, albeit in relation to an analogous provision in the then New South Wales Evidence Act, is contained in the decision of Santow J in Kang v Kwan [2001] NSWSC 698 at [37] as follows:-
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] EWCA Civ 29; [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 [1995] EWCA Civ 29; [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] HCA 34; (1992) 174 CLR 509 and Flower & Hart v White Industries (Qld) Pty Limited (1999) 87 FCRs 134 at 150.”
The current iteration of the abovementioned passage in Cross is paragraph 25,290, which relevantly is in the following terms:-
“It has been said to apply to "all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances",5 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,6 or breach of a contractual obligation of reasonableness, honesty and good faith,7or the effecting of transactions at an under value with the purpose of prejudicing a creditor's interests,8 or a conspiracy to pervert the course of justice,9 or the inflating of contract prices in order to extract payments from a third party,10 or the establishment by employees, in breach of their duty of fidelity to their employer, of a rival business,10A or breach by an executive director of duties of loyalty and disclosure owed to the company,10B but not to the tort of inducing breach of contract by non-fraudulent conspiracy11 or trespass and conversion;12 nor to conduct which is merely disreputable or fails to maintain good ethical standards;13 nor to failure to co-operate with the investigations of governmental authorities by lawfully insisting on the privilege, or by seeking legal advice about the rights and obligations of the person in the face of the investigation.14”
Footnote 8 remains a reference to the English Court of Appeal decision of Barclays Bank v Eustice [1995] 4 All ER 511. There the court accepted that the transfer of title to a farm to family members was intended to prejudice the interests of a creditor bank, who held a mortgage over the property and was preparing to exercise its power of sale. The mortgagors claimed privilege over the legal advice in relation to that transfer. At page 524 the Court of Appeal said:-
.. For reasons given earlier in this judgment we start here from a position in which, on a prima facie view, the client was seeking to enter into transactions at an undervalue the purpose of which was to prejudice the bank. I regard this purpose as being sufficiently iniquitous for public policy to require that communications between him and his solicitor in relation to setting up of those transactions be discoverable.
Here, the expressly stated purpose for the proposed structure of the settlement was to prejudice the interests of the applicant’s creditors by making the prospects of them being able to recover their debts more difficult, if not impossible. There seems no logical distinction between the prejudice to the bank in Barclays Bank v Eustice and the prejudice proposed to creditors here. I therefore conclude that the proposed settlement, or more precisely the proposed consent orders of a 90/10 division in favour of the respondent, would have comprised fraud as that term is used in section 131(2)(j).
That only leaves the question of whether the conversation relating to the reason why D Pty Ltd commenced to operate the consulting business, and L Pty Ltd ceased to operate such a business, was a communication made in furtherance of the commission of that fraud. As I previously indicated, I find that that aspect of the conversation of 2 May was an attempt to dissuade the applicant from thinking that by pressing on with her attempt to show that the consultancy business remained either property of the respondent, or a financial resource available to him, she enjoyed any reasonable prospect of greater success than that being proposed by the respondent. In a sense it was part of the respondent’s sales pitch in favour of the offer that was being communicated by him. It therefore was a communication in furtherance of the commission of a fraud.
It therefore follows that I am persuaded that the exception established in section 131(2)(j) is established. The relevant part of the 2 May conversation is therefore not privileged.
This conclusion makes it unnecessary for me to consider the third basis upon which Mr Baston contended that the 131(2)(j) exclusion was established, namely that the communication was made in furtherance of the commission of an offence contrary to sections 42 and 43 of the Crimes Act 1914 (Cth).
CONCLUSION
The evidence of the conversation between the applicant and the respondent on 2 May 2013, insofar as it deals with D Pty Ltd and L Pty Ltd, is admissible.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 26 July 2013.
Associate:
Date: 26 July 2013
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