Martin and Martin and Anor (No. 3)
[2014] FamCA 402
FAMILY COURT OF AUSTRALIA
| MARTIN & MARTIN AND ANOR (NO. 3) | [2014] FamCA 402 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Subpoena objection on the grounds of legal professional privilege – Prima facie case of improper purpose established – Privilege does not attach. |
| Evidence Act 1995 (Cth) Family Law Act 1975 (Cth) |
| Archer Capital 4A Pty Ltd (as trustee for the Archer Capital Trust 4A (ACN 123 463 749)) and Others v Sage Group PLC (No 3) [2013] FCA 1160 Attorney-General (NT) v Kearney (1985) 158 CLR 500 AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234 Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86 Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 553 Grant v Downs (1976) 135 CLR 674 Kang v Kwan & 2 Ors [2001] NSWSC 698 Mann v Carnell [1999] HCA 66 P & V Industries Pty Ltd v Anthony Porto (No 3) [2007] VSC 113 Southern Equities Corporation Ltd (in liq) v Arthur Anderson and Co (1997) 70 SASR 166 Stamp v Stamp (2007) FLC 93-314 Varawa v Howard Smith & Co Ltd (1910) 10 CLR 382 |
| APPLICANT: | Ms Martin |
| RESPONDENT: | Mr Martin |
| INTERVENOR: | X Firm |
| FILE NUMBER: | MLC | 9829 | of | 2007 |
| DATE DELIVERED: | 16 June 2014 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 29 April 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Ambrose |
| SOLICITOR FOR THE APPLICANT: | Cahill & Rowe Family Law |
| COUNSEL FOR THE RESPONDENT: | Mr Glick SC with Mr Puckey |
| SOLICITOR FOR THE RESPONDENT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE INTERVENOR: | Mr Kirkham QC |
| SOLICITOR FOR THE INTERVENOR: | Nedovic & Co |
Orders
That the file of M Firm produced under a subpoena be released for inspection and copying by all parties.
That the objections to such release by the husband and the wife be dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Martin & Martin and Anor (No. 3) 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 MELBOURNE |
FILE NUMBER: MLC 9829 of 2007
| Ms Martin |
Applicant
And
| Mr Martin |
Respondent
And
| X Firm |
Intervener
REASONS FOR JUDGMENT
The outstanding interlocutory issue here concerns an application for the release and inspection of the file(s) in the wife’s name with M Firm who were the legal practitioners she consulted around the time of the termination of her relationship with X Firm. It is an argument about legal professional privilege. Counsel for the wife, supported by senior counsel for the husband, strongly opposed the order sought by X Firm. The wife relies upon legal professional privilege and denies there is any basis to say she has waived that privilege.
In my previous reasons relating to objections to the release of material produced under subpoenae, I did not deal with this issue because I was unclear whether it was still being pressed. Any uncertainty evaporated on 29 April when X Firm sought the order now contemplated.
X Firm relies on two grounds for the Court to reject the wife’s claim of privilege:
(a) First, it is said, legal professional privilege is impliedly waived if the maintenance of the privilege is inconsistent with the conduct of a party’s case (relying on Stamp v Stamp (2007) FLC 93-314); and
(b)Secondly, the communications (between the wife and M Firm) were “made for the purpose of furthering or assisting a crime or fraud”.
The approach for determining whether privilege has been waived or an exception to privilege applies depends on the purpose and stage of the application. Section 118 of the Evidence Act 1995 (Cth) provides that evidence is not to be adduced if, on objection by a client, the court finds that adducing it would result in disclosure of a confidential communication made between the client and the lawyer or the contents of a confidential document prepared by the client, the lawyer or another person. For the purposes of this dispute however, that provision does not apply because the evidence is not being adduced. Because of that and the stage at which this application is made, the common law applies.
The rationale of legal professional privilege and thus, the common law position, was stated by Stephen, Mason and Murphy JJ in Grant v Downs (1976) 135 CLR 674 as being that it promoted the public interest because it assisted and enhanced the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. That occurred by the lawyers keeping their communications with their clients secret.
Their Honours noted that (at 685):
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.
Their Honours then warned that the privilege was not to be “exorcised” by judicial decision. Notwithstanding the seriousness with which the law treats the privilege, it does have limitations. Some of those may be found in the two issues which are to be determined here.
There are here two different tests for two different approaches. The first relates to whether the conduct of the wife has been inconsistent with the maintenance of the privilege such that she has lost it. That is implied waiver. The second concerns the question of whether there is a prima facie case established that as a result of her conduct, privilege does not attach to the documents. If so found, the claim of privilege fails.
I propose to deal with the two issues in that order.
For the reasons that follow, in respect of the first issue, I find that the wife’s conduct has not been inconsistent with the maintenance of the privilege. That would deny the claimant the right to inspect the documents. However, I am satisfied in respect of the second that there is a prima facie case of what is loosely called “fraud” such as enables the Court to say that the documents are not privileged. In my view, the latter must mean that the wife’s claim for privilege fails for the reasons that follow. I therefore propose to order the release of the M Firm file for inspection.
Counsel for the husband and wife submitted that the evidential basis upon which the subpoena is sought is based heavily on material to which legal professional privilege and settlement negotiation privilege attach and, until there is a finding of an improper purpose, the wife’s privilege ought to be preserved.
In Mann v Carnell [1999] HCA 66 the issue of waiver of privilege at common law gave rise to the following statement from Gleeson CJ, Gaudron, Gummow and Callinan JJ:
29.Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. … What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
In Commissioner of Taxation v Rio Tinto Ltd [2006] FCAFC 86 the Full Court of the Federal Court of Australia contemplated that and other authorities and said:
[52]These authorities show that, where issue or implied waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication.
In Archer Capital 4A Pty Ltd (as trustee for the Archer Capital Trust 4A (ACN 123 463 749)) and Others v Sage Group PLC (No 3) [2013] FCA 1160, Wigney J said:
[12]The governing principle of implied waiver requires a “fact-based inquiry”: Rio Tinto at [61]. Each case will turn on its own facts and circumstances: Rio Tinto at [45], [47]. The court is required to “analyse the acts or omissions of the privilege holder that are said to be inconsistent with the maintenance of the privilege”: Rio Tinto at [45]. Other cases in which implied waiver has been considered provide limited guidance unless they arise out of similar facts: Rio Tinto at [45].
The question to be asked in this case is whether the privilege holder’s conduct is inconsistent with the maintenance of the confidentiality of the communication. That is, has the wife put the contents of her otherwise privileged communication in issue as between she and X Firm?
It is not disputed that M Firm is the lawyer and the wife is the client nor is it disputed that the lawyers have handed their file to the Court pursuant to a subpoena.
X Firm relied upon a decision of Stamp (see 3(a) above).
In Stamp, the parties had consented to final financial orders in 2003. In 2004, the wife sought to set aside the orders under s 79A(1)(a) on the basis, amongst other things, of her mental state at the time that the orders were made. At an interlocutory stage, an order was made that the wife provide particulars of her claim. In complying, a letter by the wife’s solicitors asserted that the wife relied on the “status” of her health as having affected her “capacity” to provide proper instructions to her lawyers for the purposes of entering into the consent orders.
Stevenson J rejected an argument that there had been a waiver of privilege and refused to allow the husband to examine the wife’s former solicitor’s file. On appeal, saying she too would have refused inspection, Finn J said:
13.I agree with her Honour’s analysis that the only issue which the wife had placed in issue to that time, and then only by means of the letter from her solicitors dated 16 December 2004, was “the status of her health at the time she entered into the consent orders as affecting her capacity to provide proper instructions”.
…
17.It may very well be that once affidavits are filed (bearing in mind that there are no pleadings in this court), different issues may emerge which might justify a further application and indeed an order for inspection. (my emphasis)
Finn J concluded that on the material before Stevenson J, an inspection order was premature.
May and Boland JJ disagreed with Finn J and, having noted that as the application was interlocutory in nature, the Evidence Act did not apply, said:
57.It seems that the wife proposes that the head injury of 1996 produced a mental disability, which affected her capacity to provide proper instructions to her solicitors when she agreed to consent orders in December 2003. There is expected to be medical evidence about any disability. The workers compensation records may provide evidence about her injury.
58.If there was a disability, then there must be an issue about the extent to which it affected her capacity to give instructions to her solicitors and how it affected her proper settlement of the property dispute. That will inevitably draw attention to the role played by her solicitors, and any advice to and influence upon the wife. An obvious question is what was the extent and manner of her instructions to them?
…
60.The wife has raised the issue about her capacity to provide proper instructions. That issue is inconsistent with the maintenance of her usual right to procedural legal privilege. She must be taken to have waived her right to that privilege. Accordingly we are satisfied there was an error of principle and leave should be granted. (again, my emphasis).
Notwithstanding the letter was written in compliance with an order of the Court, particulars were provided about the disputed issue inconsistent with the maintenance of the usual right of procedural legal privilege.
May and Boland JJ were not concerned about the state of the evidence that might be given at trial but rather in preparing for that trial, the issue had been flagged and clearly involved the explanation of and exposure of discussion with her lawyers. That was the inconsistency with the maintenance of the right of the privilege.
In this case, the position of the wife has at all times been that the file is privileged and as such, there has to be some evidence to which X Firm can point to say that the wife’s actions are inconsistent with the maintenance of the privilege.
In my view, nothing in the wife’s conduct could be seen to be inconsistent with the maintenance of the privilege.
In respect of the second of the two issues however, a different approach must be taken.
At common law, communications between a lawyer and a client can lose their privilege if they are “made for the purpose of furthering or assisting a crime or fraud” (see Southern Equities Corporation Ltd (in liq) v Arthur Anderson and Co (1997) 70 SASR 166 at 174 per Doyle CJ). Indeed, it is not so much lost as that, because of the fraud, the privilege does not attach.
The exception to the privilege is not limited to crime or fraud in the technical sense and may include communications made to further an illegal purpose (see P & V Industries Pty Ltd v Anthony Porto (No 3) [2007] VSC 113 at [24] per Hollingworth J) or 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” (Varawa v Howard Smith & Co Ltd (1910) 10 CLR 382, per O’Connor J at 386).
In this context, fraud “includes 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 per Goff J).
In Attorney-General (NT) v Kearney (1985) 158 CLR 500, Gibbs CJ (with whom Mason and Brennan JJ agreed) said [515] that “legal professional privilege will be denied to a communication which is made for the purpose of frustrating the processes of the law itself, even though no crime or fraud is contemplated.”
X Firm submitted that the husband and the wife had been involved in collusion to ensure that X Firm was not paid what the wife owed it by way of legal fees. If collusion between the husband and wife for that purpose was established, it would fit within the definitions set out above.
In my earlier ruling of 9 April, I said (paragraph 5) that I was not in a position in an interlocutory hearing to make any findings that there had been any collusion nor that for the particular application was it necessary that I did so. Thus, in relation to the M Firm documents, is this issue any different? In my view it is. I made clear that I was not in a position to make a finding of collusion and that remains. Here however, the test is whether there is a prima facie case of that the relevant communication was made for the purpose of furthering such conduct. It is important to stress that the examination is whether there is a prima facie case.
X Firm points to a series of events which it alleges are part of an improper purpose. In their written submissions dated 27 January 2014, counsel for X Firm referred to the following incidents as being relevant to the “colour of the charge”. In and around this time, X Firm was provided in discovery, a copy of a trust deed in which the wife was shown as an appointor. It is alleged and not denied by the husband or the wife that the property in which the wife lives is owned by this trust. It is relevant also that at the time of the proposed settlement as between the husband and wife which they sought to have Coleman J approve (but which his Honour rejected in 2012), was also contained in a financial agreement which made reference to the husband providing accommodation for the wife. X Firm seeks to understand what communications the wife had and importantly, what the wife instructed M Firm to do. It is that communication which the wife has claimed was privileged.
In particular, it was submitted by X Firm (using the language of the submission) that the circumstances surrounding the communication indicate it was made for an improper purpose because:
(a)The wife has colluded with the husband to avoid the payment of legal fees. As such, although the husband and wife have presented their material to the court on the basis that the husband is required by the Binding Financial Agreement to pay the wife’s rent by way of spousal maintenance, the reality is different;
(It is important to observe that the husband denies this at paragraphs 49 and 53 of his Affidavit filed 7 December 2013.)
(b)The property in which the wife resides at L Street was purchased on or about … August 2012 by a company, L Street Pty Ltd, of which the husband’s father is the sole director and shareholder;
(c)M Firm acted as solicitors for L Street Pty Ltd in respect of its incorporation on … August 2012;
(d)Email correspondence dated 24 August 2012 between Mr O and the real estate agent reveals that the sale of L Street was to be highly confidential and involved, for example, neither sale stickers nor internet and paper notices;
(e)M Firm also provided advice regarding trust structures on or around 29 August 2012. The L Street Investment Trust was settled in March 2013 of which:
i.The wife is one of three appointors (together with the husband’s father and Mr O);
ii.The husband and wife are members of the class of beneficiaries; and
iii.L Street Pty Ltd is appointed as trustee; and
(f)The wife and the husband have not provided adequate disclosure of the ownership of L Street and the L Street Investment Trust. In fact, the ownership of L Street was not disclosed by either the husband or the wife in their trial affidavits and there is no reference to the L Street Investment Trust in the wife’s amended Financial Statement filed 24 January 2014.
Save as to the assertion about collusion, the facts there set out by X Firm were not denied by the husband and wife in any form of evidence. They have been the subject of comment by counsel dismissing them as not supporting a claim of collusion. Indeed, there has consistently been complaint about the use of that colourful language. The evidence relied upon by X Firm was contained not just in an affidavit but in documents produced to the Court. In relation to the affidavit of Ms X that I have previously criticised, notwithstanding I previously indicated that I did not need to rely upon that affidavit for my last determination, there are facts in the affidavit which were not controversial such as what had been gleaned from subpoenaed material.
The Court was handed a schedule drawn from materials produced under subpoenae such as correspondence in August 2012 between the accountant Mr O and a Mr P in which there is reference to “clients”. Those relate to a property purchase. That material was hardly controversial.
The L Street property referred to above was purchased in August 2012 and the proprietor entity incorporated in that same month. X Firm asserted that the company was incorporated by M Firm. The hearing before Coleman J was in September 2012. No mention was apparently made of the company, the trust or the property acquisition.
A trust was settled with the proprietor entity as trustee. That was drawn by R Firm in March 2013 (obviously after the Coleman J hearing) but that was not disclosed by the husband or wife until January 2014 as a result of X Firm becoming aware of its existence through bank documents produced under subpoena. The bank subpoena had been returnable before the Court on 18 December 2013 and the record shows that the release was ordered by Registrar Field. Whether that was consented to or objected to is not clear but in any event, it was not one of several subpoenae that day which were the subject of objection. Accordingly, the bank records were released for inspection. That in turn led to X Firm seeking production of the trust deed and it was then provided by the wife’s solicitors.
The provision of the deed and its relevance to the property was said to be part of the arrangement as between the husband and wife negotiated in 2011 leading up to the hearing before Coleman J. No reference was made by the wife to any interest in the trust or the property as late as her financial statement filed on 24 January 2014. Curiously what she did refer to was the fact that her landlord or lender was herself. It is also convenient to note that husband deposes in his Affidavit of Evidence in Chief filed on 28 November 2013 that he is “not aware of any other income or resources available to [the wife] for her support”. Those documents were prepared by lawyers. There may be a plausible explanation for the absence of any reference to a trust interest, if indeed it is an interest, but at the moment, the explanation for the absence is not immediately apparent.
All of this gives rise to a question of what the basis was for the deed and property purchase. It was submitted by senior counsel for X Firm that this course of conduct along with the matters in the subpoenaed material added to the “colour of the charge”. I accept that submission.
It is important to also note that the husband and wife have not provided evidence as to how this arrangement came about or why (if at all) the arrangement was not calculated avoidance of the payment of the X Firm debt. To the extent that there are any generalised statements about the correctness of the proposed settlement, there can be little probative value attached to them.
The type of onus of proof which lies with X Firm can be found to have been discussed in AWB Limited v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234, Young J considered that a ‘prima facie’ test applied.
Prima facie is sometimes described as an action which appears at first blush to be "open and shut". I prefer to think that it is a case in which, on the face of the allegations, there is a case for a respondent to answer.
Young J went on to note that issues of legal professional privilege were usually dealt with in the interlocutory stages of a proceeding. His Honour observed that it must be established, on the prima facie basis, that the communication, the subject of the claim for privilege, was made for the furtherance of, or as a step preparatory to, the commission of the fraud or wrongdoing. With those views I respectfully agree.
The party seeking to rebut the privilege does not need to prove the fraud, but, bearing in mind they do not have the file and only hear the silence of the husband and wife, they still have the onus of showing “reasonable grounds for believing” that the relevant communication was made for the furtherance of an illegal or improper purpose.
Brennan CJ in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 said at 514:
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 including the furthering of the commission of an offence.
In Kang v Kwan & 2 Ors [2001] NSWSC 698, Santow J dealt with how an alleged crime or fraud may be established and the level of satisfaction that is required to prevent documents from becoming the subject of privilege. His Honour said at [37]:
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 Ltd (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.
With respect, I agree with the views of Santow J and adopt his reasoning.
Thus, the evidence provided by X Firm, in this interlocutory hearing, must reach the prima facie standard to satisfy the Court that the communication was for the furtherance of the commission of an illegal or improper purpose.
Having regard to the matters set out in paragraphs 33 to 40 above, I am satisfied that although the wife’s conduct was not inconsistent with the maintenance of the privilege, X Firm has established a prima facie case that the “colour of the charge” drawn from the subpoenaed documents and the subsequent (or consequent) provision of documents together with the absence of evidence from the husband and wife, leads to the conclusion that the relevant communication was made in furtherance of the commission of the wrongdoing. The privilege therefore does not attach to those documents.
I certify that the preceding Fifty (50) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 16 June 2014.
Associate:
Date: 16 June 2014
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