Ryder v Frohlich

[2006] NSWSC 1324

CITATION:	Ryder v Frohlich [2006] NSWSC 1324 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	20/09/06
JURISDICTION:	Equity
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	09/20/2006
DECISION:	Claim for privilege upheld, tender rejected
CATCHWORDS:	EVIDENCE – Privilege – Without Prejudice communication – whether “in connection with an attempt to negotiate a settlement” – whether “affects a right of a person” – whether in furtherance of a deliberate abuse of power – whether evidence of abuse of process – Evidence Act 1995 (NSW), ss 11, 131
LEGISLATION CITED:	Evidence Act 1995 (NSW), ss 11, 131
CASES CITED:	Frigo v Culhaci (unreported, Mason P, Sheller JA and Sheppard AJA, NSWCA, 17 July 1998, BC9803225) GPI Leisure Corporation (In Liq) v Yuill (1997) 42 NSWLR 225 Van Der Lee v State of New South Wales [2002] NSWCA 286
PARTIES:	Nicholas John Ryder (First Plaintiff/First Cross-Defendant) Protected Equity Investments Pty Ltd ACN 086 671 516 (Second Plaintiff/Second Cross-Defendant) Peter Frohlich (First Defendant/First Cross-Claimant) Coastal Capital Ltd ACN 061 336 445 (Second Defendant/Second Cross-Claimant)
FILE NUMBER(S):	SC 2314/03
COUNSEL:	Mr M Young (First & Second Plaintiffs/First & Second Cross-Defendants) Mr R McHugh (First & Second Defendants/First & Second Cross-Claimants)
SOLICITORS:	Grahame Jackson & Associates (First & Second Plaintiffs/First & Second Cross-Defendants) Speed and Stracey Lawyers (First & Second Defendants/First & Second Cross-Claimants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

BRERETON J

Wednesday 20 September 2006

2314/03 Nicholas John Ryder & Anor v Peter Frohlich & Anor

JUDGMENT (Ex tempore - on tender of document)

1 HIS HONOUR: In these proceedings the defendants seek a Mareva order against the plaintiffs in aid of a judgment for costs which they anticipate will be given in their favour. To found that application the defendants’ solicitors on 8 September 2006 sent to the plaintiffs’ solicitors by facsimile a letter of that date in which they sought, in substance, an undertaking that the defendants would not, without first having given 14 days’ notice, alienate or encumber their assets, including specified real property, to the extent that they do not exceed $444,475, subject to the usual exceptions, and requiring a written undertaking to that effect by close of business on Tuesday 12 September 2006.

2 On 14 September 2006, the plaintiffs’ solicitors sent to the defendants’ solicitors a facsimile, which was plainly expressed to be on a without prejudice basis. The defendants tender that facsimile (MRS9) and the plaintiffs object, invoking the without prejudice privilege contained in Evidence Act 1995 (NSW), s 131.

3 It is convenient to approach the matter in the sequence of the submissions of Mr McHugh, for the defendants/applicants, who argued that the document was not entitled to privilege.

4 First, Mr McHugh submitted that the communication in question was not one “in connection with an attempt to negotiate a settlement of the dispute”, within s 131(1)(a). Reference was made to the judgment of Young J (as his Honour the Chief Judge then was) in GPI Leisure Corporation (In Liq) v Yuill (1997) 42 NSWLR 225, in which his Honour held that a document, albeit headed “Without Prejudice”, was not an attempt to negotiate a settlement of the dispute, because although it conveyed an indication that if the litigation could be dealt with in some practical way the writer was open to suggestions, or that if a claim arose in the future, a mechanism could be put in place to deal with it, it did not suggest a method of compromising the underlying dispute. His Honour thought it not sufficiently close to an attempt to negotiate a settlement to fall within s 131(1)(a).

5 That case indicates that the question may be one of degree, although the phrase “in connection with” makes clear that to attract the privilege it is not necessary that the communication be or contain an offer. In this case the communication in issue was in response to a request for an undertaking, and contained this statement:-

Therefore, my client is willing to enter into some form of undertaking along the lines proposed provided that such an undertaking recognises my client’s rights to validly liquidate or otherwise deal with his assets for the purposes set out above ... .

6 To my mind, that is plainly at least “in connection with” an attempt to negotiate a settlement of the dispute. It proposes a way in which the current dispute about the defendants’ entitlement to costs, the quantum of those costs and, more significantly, the question of Mareva relief, might be addressed and compromised. In my opinion, the communication is plainly within s 131(1)(a).

7 Next, it was submitted that the communication fell within various of the exceptions referred to in s 131(2). The first to which reference was made was s 131(2)(i); namely, “that making the communication .... affects a right of a person”. In my opinion, that provision is directed to communications which, of themselves, have legal consequences for the rights of parties, such as transactional communications; they may well also involve, as Mr McHugh suggested, communications which are defamatory because the publication of a defamatory communication, even “without prejudice”, might create a right in a party.

8 I do not see how this communication creates or affects the rights of a person. It contains a proposal, but goes no further.

9 Next, reference was made to s 131(2)(k); namely, that:-

One of the persons in dispute .... knew or reasonably ought to have known that the communication was made .... in furtherance of a deliberate abuse of a power.

10 The power being abused, so it was submitted, was the power of the plaintiff’s wife, Mrs Ryder, to make an application for financial adjustment in Family Law proceedings. The letter contained the statement:-

Furthermore, I am advised that as a result of Mr Ryder’s current predicament, Mrs Ryder wishes to commence Family Law proceedings.

11 I accept that the balance of authority - despite the persuasive inclination of Hodgson JA to the contrary - is that the power of a person to make an application to a court is a power within s 131(2)(k) [Van Der Lee v State of New South Wales [2002] NSWCA 286, [68] (Santow JA, with whom Mason P concurred at [24], cf Hodgson JA at [61])]. However, I am unable to see in the letter, or otherwise, any basis for concluding that an application by Mrs Ryder to the Family Court would be a deliberate abuse of a power. While by reason of s 131(4) the Court may find that a communication was made in furtherance of an abuse of power if there are reasonable grounds for doing so, there is before me no ground for doing so, save the mere statement that Mrs Ryder wishes to commence family law proceedings. To my mind, that is an insufficient basis for engaging s 131(4) to draw such an inference.

12 Mr McHugh’s third submission invoked s 11 of the Evidence Act, which provides that the power of a court to control the conduct of a proceeding - and, in particular, the powers of a court with respect to an abuse of process in a proceeding - are not affected by the Evidence Act, except so far as it otherwise provides.

13 In Van Der Lee, Hodgson JA, with whom Santow JA concurred on this point, concluded that s 11(2) had the effect that when evidence is tendered that could be evidence of an abuse of process, albeit in “without prejudice” settlement negotiations, that evidence may be received on the voir dire and if, by itself, or in combination with other evidence, it established an abuse of process, it could then be ruled admissible, and appropriate orders made to deal with that abuse of process. His Honour concluded that the powers of a court with respect to an abuse of process include its powers to receive evidence, and that at common law communications evidencing abuse of process were not protected by without prejudice privilege. His Honour also concluded that s 131 did not, for the purposes of s 11, provide otherwise, either expressly or by necessary intendment.

14 On that authority, I accept that if the letter in question were potentially, on its own or in combination with other evidence, such as to establish an abuse of process, it could be admitted, at least on the voir dire, notwithstanding its otherwise “without prejudice” character. I also accept that proceedings for Mareva relief are concerned with abuse of process, because the fundamental purpose of a Mareva order is to prevent a prospective judgment debtor from avoiding or circumventing the processes and procedures of the Court by rendering himself, herself or itself judgment proof. So s 11(2) is capable of application in circumstances such as the present.

15 The question then is whether the letter, the subject of the tender, by itself, does, or in combination with other evidence could, establish an abuse of process. It is, of course, not an abuse of process to pay one’s bona fide debts, even if doing so results in insufficient assets being available to satisfy a potential judgment creditor. Nor is it an abuse of process to pay taxation liabilities, nor to defend family law proceedings brought against one by one’s spouse. Nor is it even an abuse of process to file a debtor’s petition, if insolvency is pending. But it is an abuse of process to render oneself judgment proof by dissipating assets or removing them from the jurisdiction in a way which defeats a prospective judgment creditor, other than to pay bona fide liabilities, living expenses and the like.

16 The letter contains a suggestion that Mr Ryder will have to liquidate his assets to fund further substantial legal costs, presumably the defence of family law proceedings, and to pay his other liabilities. Those other liabilities are apparently a prospective liability to the Australian Taxation Office, and loans from his parents and parents-in-law, used to fund the purchase of a property which Mr Ryder occupies.

17 The matter which has caused me the greatest concern is the suggestion of repayment of loans to persons who are not at arm’s length, namely, his parents and parents-in-law. It is conceivable that, with further evidence, it could be shown that a threat to repay a non-arm’s length loan in priority to a judgment was not a bona fide transaction. However, on the evidence before me as it stands, there is also a proffer in the letter of an undertaking, subject to excepting certain dealings from it. It is, of course, commonplace for debtors and prospective debtors to suggest to their creditors that if they pursue them for everything, and do not accept a compromise, there will ultimately be nothing left for anyone. If that threat is made in the context that the debtor’s assets will be removed or taken away, then an abuse of process may well be involved, but if it is no more than a statement of the true position - namely, that the debtor does not have sufficient assets to meet all the claims and the costs involved of defending them - there is no abuse of process. I am not sufficiently satisfied, on the evidence before me, to make the relatively serious finding that this letter evidences or may evidence an abuse of process, so as to justify its being deprived of its “without prejudice” privilege.

18 Having, for the purposes of the substantive application, re-read the judgment of the Court of Appeal in Frigo v Culhaci (unreported, Mason P, Sheller JA and Sheppard AJA, NSWCA, 17 July 1998, BC9803225), I am reinforced in that view: one of the errors which the primary judge was found to have made in the context of an application similar to the present, was to have had regard to a “without prejudice” communication, in which the defendant had foreshadowed insolvency if a settlement could not be negotiated.

19 Accordingly, I reject the tender of MRS9. I otherwise admit as AX01 the contents of the folder entitled “Exhibits to affidavit of Malcolm Stewart” being tabs 1 to 8 and 10 in that folder. Tab 9 is to be removed and returned.

**********

06/12/2006 - Correct typographical error on front page - Paragraph(s) Cover page