Yunghanns v Elfic Pty Ltd
[2000] VSC 113
•30 March 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
COMMERCIAL LIST
No. 5970 of 1997
F.4932
| YUNGHANNS & ORS | Plaintiffs |
| v | |
| ELFIC PTY LTD & ORS | Defendants |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 and 15 March 2000 | |
DATE OF JUDGMENT: | 30 March 2000 | |
CASE MAY BE CITED AS: | Yunghanns & Ors v Elfic Pty Ltd & Ors (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 113 | |
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Discovery – application to inspect documents for which privilege claimed - privilege – joint privilege – common interest privilege – joint venture relationship – retainer – contractual and fiduciary duties – whether a fiduciary duty owed by one joint venturer not to claim privilege against another joint venturer.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Dr C.L. Pannam QC and | Strongman & Crouch |
| For the 1st, 2nd and 5th Defendants | Mr N. Young QC and | Arthur Robinson & Hedderwicks |
| For the 6th and 7th Defendants | Mr P. Willee QC and Dr K. Emerton | Hunt & Hunt |
HER HONOUR:
The plaintiffs seek an order from the Court that they have leave to inspect certain documents in respect of which legal professional privilege is claimed by the first, second and fifth defendants. The total documents sought to be inspected number 750 contained in 34 folders. The documents pursued constitute communications between the first, second and fifth defendants and their former solicitors, Corrs Chambers Westgarth.
The background circumstances of the proceeding between the plaintiffs and the defendants relate to the period between 1984 and 1991 when the plaintiffs allege there was a joint venture in place between the plaintiffs (hereafter referred to as the "Yunghanns Group") and the first defendant (hereafter referred to as "the Elders Group"). The joint venture was said to have consisted of Elders providing the finance through Elfic P/L ("Elfic") and Yunghanns providing the expertise in terms of selecting corporate takeover targets or selecting shares for strategic purposes in other companies. The existence of the joint venture is denied by the first, second and fifth defendants in the pleadings.
The plaintiffs and the defendants rely on different facts. As the application is an interlocutory hearing it is unnecessary and inappropriate that I reach conclusions of fact. However, due to the different facts relied upon by the parties their respective broad versions of events warrant setting out.
It is alleged by the Yunghanns Group that the sixth and seventh defendants, Corrs Chambers Westgarth ("Corrs"), a firm of solicitors, were jointly retained by both the Elders interests and the Yunghanns interests during the period of the joint venture. In essence, the Yunghanns Group allege that Corrs acted for the Yunghanns Group over a long period of time and in particular acted for Mr Peter Yunghanns in relation to events leading to the transactions that are the subject of the proceedings. The Yunghanns Group allege that Corrs is privy to substantial confidential information concerning the plaintiffs. Initially, Corrs were retained as solicitors for the defendants, prior to their joinder as parties to the proceedings. As a result of orders made by Gillard, J. on 3 July 1998 the Elders Group were restrained from retaining Corrs Chambers Westgarth as their solicitors in the proceedings. Subsequently Corrs were joined by the plaintiffs as sixth and seventh defendants in the proceedings.
The Yunghanns Group consisted of a number of companies that were used as vehicles in relation to the takeover and investment arrangements that were the subject of the joint venture arrangements. The companies included Mardasa Nominees P/L ("Mardasa"), Merim P/L ("Merim"), Rentiers P/L ("Rentiers"), Tygola P/L ("Tygola"), Jones & Mayhew P/L, Relwag Investments P/L ("Relwag"), Summit (Knox) P/L ("Summit") and Schadenfreude P/L ("Schadenfreude").
Between 1984 and 1988 the Yunghanns Group and the Elders Group took over target companies and acquired shares and Elfic provided the funding for those transactions. Funds were advanced to or on behalf of Merim. It is alleged that before July 1988 Merim owed Elfic $100m. but that neither Peter Yunghanns personally nor the Yunghanns Group of companies were indebted to Elfic or any of the Elders Group whether by way of guarantee, indemnity or otherwise. Mardasa owned land in Knox that was developed as the Knox District Shopping Centre and held that property as trustee for the Yunghanns' interests. The land was subject to a mortgage under which there was an equity of approximately $32m. The Yunghanns Group allege that the Knox property was not pledged to secure the debts of any member of the Yunghanns Group.
In February 1988 an agreement was entered into between the second defendant, EFG Leasing Ltd ("EFG") and Yunghanns and Mardasa to advise on and assist in the implementation of the refinancing of the Knox land. As a result, the plaintiffs allege that EFG owed Yunghanns and Mardasa contractual duties as a result of the agreement. At about the same time, that is February 1988, EFG procured Elfic to assist and act on behalf of EFG. Between February 1988 and May 1988 pursuant to the retainer Elfic recommended to Yunghanns and Mardasa that an arrangement be entered into with Elfic with respect to the Knox land. By July 1988 Elfic determined to improve its overall security position in respect of the joint venture and debt and alleges that it obtained access to the equity of the Yunghanns Group in the Knox land to secure the joint venture debt. In October 1988 Elfic proposed to Yunghanns and Yunghanns agreed in principle to restructure the joint venture. In November 1988 Elfic presented documents to Yunghanns to implement the proposed restructure including a loan facility agreement in favour of Schadenfreude. Elfic presented, also, a guarantee and indemnity by Merim, Mardasa, Yunghanns, Rentiers and Schadenfreude to secure liabilities due to Elfic.
The plaintiffs alleged that the intention of the guarantee and indemnity was to fulfil the July 1988 transaction regardless of whether the proposed restructure was implemented. The plaintiffs alleged that false representations were made by Elfic to Yunghanns as to the purpose of the guarantee and indemnity. The representations are alleged to have included a representation to the effect that the sole purpose was to implement the proposed restructure. The plaintiffs alleged as a consequence that Elfic breached contractual and fiduciary duties in not disclosing the true intention of the guarantee and indemnity. The plaintiffs alleged that the representations were made in breach of contractual and fiduciary duties and were perpetrated with the intention of inducing Yunghanns Group to execute the relevant guarantee and indemnity. In the alternative a claim is made of misleading and deceptive conduct under the Trade Practices Act 1974.
In 1989 Elfic proposed a further restructure of the joint venture. The plaintiffs claim that false representations were made by the Elders Group to Yunghanns including, in particular, the non-disclosure of the intention of using the guarantee and indemnity to access the Yunghanns equity in the Knox property so as to secure the joint venture debt. The same allegations are made in respect of the execution of this guarantee and indemnity.
In December 1990 Yunghanns was in financial difficulties. The Yunghanns Group alleged that seized with this knowledge the Elders Group through Elfic wrongly threatened to enforce the 1988 and 1989 guarantees and indemnities to recover or further secure the joint venture debt. The plaintiffs alleged that the threats made in December 1990 amounted to a breach of contractual and fiduciary duties by Elfic. Again, the Yunghanns Group alleged that the Elders Group induced Yunghanns to execute certain agreements in 1991 without disclosing the real purpose of those agreements.
The claims made by the plaintiffs against Corrs are addressed to the sixth and seventh defendants who were partners of Corrs. It is alleged that Corrs acted for both Elders and Yunghanns in the joint venture, the transactions relating to the Knox property, the 1988 and 1989 restructures and the proposed 1991 agreement. The plaintiffs alleged that as a result of the transactions and the conduct of Corrs the solicitors have breached fiduciary duties owed by them to the Yunghanns Group. In particular, it is alleged that Corrs knew the true consequences and ramifications of the guarantees and indemnities and did not inform Yunghanns of those matters and the consequences that flowed.
It is appropriate to describe the factual position of the Elders Group. For the Elders defendants it was submitted that the evidence and the contemporaneous documents exhibited to affidavits demonstrated that the factual allegations asserted by the plaintiffs could not be made out. In summary, the circumstances relied upon were that in April 1984 Elders Finance made a $25m. loan facility available to Merim for the purpose of funding a proposed takeover of a company, Industrial Engineering Ltd. It was said that the loan to Merim was on commercial terms and that profits and losses were to be shared equally. It was said that the security was to include a personal guarantee by Mr Yunghanns. A guarantee executed in 1985 by Mr Yunghanns with respect to the obligations of Merim under the facility was produced to the affidavit of Mr Bruce Elliott (see Ex. "BDE5"). It was said that in September 1985 Elders Finance made available to Industrial Engineering Ltd. a loan facility of up to $5m. and that the loan was guaranteed by Mr Yunghanns and various other companies within the Yunghanns Group. So much was deposed to by Mr Elliott (see Ex. "BDE7"). It was alleged that in August and September 1986 the two facilities already referred to were replaced by a $55m. equity finance facility and that it was a term of the facility that there be joint and several guarantees from both Mr Yunghanns and various companies within the Yunghanns Group. These matters again were deposed to by Mr Elliott (see Ex. "BDE10"). Pursuant to the facility agreement it was said that Mr Yunghanns executed a guarantee (Ex. "BDE11"). It was said that the guarantee was sent to Elders Finance under cover of a letter from Mr Yunghanns dated 23 September 1986. Subsequently, in August or September 1987 the existing facility was increased to $125m. (see Ex. "BDE13"). It was said that subsequently it was discovered that Merim advanced the funds to another subsidiary that in turn advanced the funds to another Yunghanns' company, Tygola. These advances were unsecured. Following the crash of the stock market in October 1987 the position at that time was that a total amount of approximately $110m. had been advanced by the Elders Group to Merim. Following the share crash the equities had a value of about $70m. leaving a shortfall or loss of about $40m. to be shared equally. At that time none of Merim, Mr Yunghanns and the other guarantors were in a position to repay the $110m. less the $20m. reflected in the half share of the loss to be borne by the Elders Group. It was also said that Mr Yunghanns had effective control over $70m. worth of equities because Yunghanns had caused the loan funds to be advanced on an unsecured basis to Tygola. It was said, further, that as a result of these uncertain circumstances discussions occurred concerning the amount of the loss, the amount outstanding and the manner in which Mr Yunghanns could repay the debt.
It was the position of the Elders defendants that at this time Mardasa, being another Yunghanns’ company, owned the Knox District Shopping Centre as trustee for the Yunghanns Group. The centre had been constructed under finance that required re‑financing. Elders was assisting Mr Yunghanns in preparing a re‑financing proposal of about $55-$60m. The proposed financier was the ANZ Bank. At a late stage the ANZ Bank withdrew its proposed re‑finance of the Knox land. It was said that Elders stepped into the breach of providing the re‑finance required by the Yunghanns Group of the Knox land. The manner in which the re‑finance was achieved was the creation of a unit trust known as the Mardasa Building Unit Trust under which EFG Leasing was to subscribe for income units and Elders Finance was to advance loan funds. At this stage the debt of Merim stood at over $90m. and had not been repaid. The Elders Group was not prepared to proceed with the re‑financing of the Knox land (then involving a sum of approximately $60m. over and above the $90m. already owed by the Yunghanns Group) unless all facilities were cross-collateralised. It was said on behalf of the Elders defendants that as a consequence the Knox District Shopping Centre came to form part of the security for the existing indebtedness of the Yunghanns Group to the Elders Group. As a consequence and as a part of the re‑financing of the Knox land the guarantee was signed by Mr Yunghanns in 1988. It was submitted on behalf of the Elders defendants that the 1988 guarantee on its face made it clear that the guarantee related to both Merim and Mardasa.
The Elders defendants acknowledge that commencing in 1984 there were commercial arrangements in place pursuant to which loan funds were advanced on commercial terms to Merim for the purpose of acquiring shares on the basis that profits and losses would be shared equally. It is further acknowledged by the Elders defendants that the arrangement was described by the parties in various documents as a "joint venture". However, the Elders defendants deny that there was a joint venture of the kind or type alleged by the plaintiffs. They deny, further, that there is any shared privilege in the privileged documents, that there is any obligation upon the Elders defendants not to seek to rely upon the privilege and that there was any fraud. With respect to the latter matter the Elders defendants alleged that insofar as evidence is forthcoming from the Yunghanns Group relied upon to make out allegations of "dishonesty, trickery and deception" constituting fraud such allegations are not made out.
By way of further background it is to be observed that the Elders defendants alleged that the first plaintiff, Mr Yunghanns, had an obligation to pay Elfic the sum of $11.3m. due on 25 June 1997. The writ was issued by the plaintiffs in this proceeding the day after those moneys were due. The Elders defendants complain that the application to inspect documents for which privilege is claimed is nothing more than an attempt by the plaintiffs to frustrate the legal process and permit the plaintiffs to embark upon a fishing expedition.
In an affidavit sworn by Mr Yunghanns on 12 November 1997 he acknowledged that a "Chinese wall" was erected by Corrs giving rise to the circumstance that Mr Syme of Corrs acted for the Yunghanns Group in relation to Mardasa and Mr McGuire acted in relation to the Elders Group. Further, in the affidavit of Mr Yunghanns sworn 12 November 1997 he acknowledged that he was advised by Corrs in relation to the guarantee provided in 1988. The circumstances surrounding the provision of the advice by Corrs to Mr Yunghanns was that under cover of a letter dated 1 August 1988 Corrs provided a summary of the documents to be executed in relation to the 1988 transaction. In relation to the 1988 guarantee the summary provided:
" Guarantee from PNY and Rentiers
This is a Guarantee required from PNY [Mr Yunghanns] and Rentiers in relation to all moneys due by the borrowers being Mardasa and PNY.
General
The documents enclosed with this memorandum and further documents to follow constitute a highly sophisticated package of documents designed to give the respective financiers the maximum protection possible. In acting to protect their own interest, the various financiers are not required to have particular regard to your interests. Whilst formal breaches of the numerous obligations may be waived by the respective financiers, this is not a decision that they will make in advance. In such event, you’ll need to seek the mercy of the particular financier at the time. Subject to the financier being assured that its security and return are adequately protected, mercy may be shown. If however, there is concern as to risk, the financiers may well rely on formal breaches to justify enforcement of their respective securities.
The various documents are presented in a form which should be reasonably easy to understand and you and your staff should familiarise yourself with these documents to ensure that you are aware of your ongoing obligations. Please contact the writer [Mr Syme] if there are any points you have difficulty understanding or any areas where you feel the documentation does not accurately effect he [sic] commercial agreement reached."
Mr Elliott for the Elders defendants deposed that at the same time that the re‑financing of the Knox land was occurring discussions ensued regarding the repayment of the Merim debt. It was vigorously disputed by the Elders defendants that the 1988 guarantee was part of the re‑financing arrangement for the Knox property. Ultimately the 1988 re‑financing did not proceed and discussions ensued throughout 1989 and part of 1990. In any event, by June 1989 the re‑financing of the Knox property was completed. Mr Elliott in his affidavit on behalf of the Elders defendants deposed that the latter were only prepared to proceed with the re‑financing of the Knox property on the basis that Mr Yunghanns and the Yunghanns Group executed security documents including a further guarantee from Mr Yunghanns. It was said that if the guarantee had not been executed the Elders defendants would not have proceeded with the re‑financing of the Knox land.
A number of affidavits were filed on both sides in support of and in opposition to the application. The plaintiffs relied upon three affidavits sworn by Mr Yunghanns on 12 November 1997, 3 April 1998 and 21 February 2000. They also relied upon an affidavit of Peter Robert Camm sworn 21 February 2000. The first, second and fifth defendants sought leave to cross-examine Mr Yunghanns. Mr N. Young, Q.C. who appeared with Mr M. Connock for the Elders defendants submitted that serious allegations of impropriety were levelled against Elders on the basis that Mr Yunghanns was unaware of and did not consent to the cross-collateralisation of securities in 1988 and 1989. Mr Young submitted that the allegation was strongly contested by the Elders defendants. On the basis that it was a fundamental premise of the Yunghanns’ application that Mr Yunghanns was unaware that securities were being taken that made the Knox property available as security for all debts of the Yunghanns Group to the Elders Group, Mr Young submitted that the Elders defendants asserted that it was made clear to Mr Yunghanns as to the actual situation. It was submitted that Mr Yunghanns expressly assented to the cross-collateralisation of securities in 1988 and 1989 because he was in a position where he owed more than $100m. to the Elders Group. It was asserted, further, that at the relevant time Mr Yunghanns was not servicing the debt to Elders and that he needed also to refinance the Knox property. Those pressing financial circumstances it was said occurred in the context of the withdrawal by the ANZ Bank of proposed re‑financing of the Knox property and Mr Yunghanns was faced with the financial reality that he could only achieve refinance through Elders. Mr Young asserted that it was the Elders defendants’ case that Mr Yunghanns expressly consented to the condition of the refinancing that the securities be cross-collateralised. Mr Young submitted that in essence the whole argument of the Yunghanns Group concerning dishonesty, trickery and deception was based upon the assumption that Mr Yunghanns was not a consenting party to the agreement. Mr Young urged that leave be granted to the Elders defendants to cross-examine Mr Yunghanns to expose the unsoundness of the contention by the Yunghanns Group. Mr Young was joined in the application by Mr P. Willee, Q.C. who appeared with Dr K. Emerton for the Corrs defendants. I refused the application for leave to cross-examine Mr Yunghanns.
Mr Young took me to documents that were exhibited to affidavits which he submitted demonstrated inconsistencies in Mr Yunghanns’ position in relation to the cross-collateralisation of the securities. An internal memorandum of the Elders Group dated 6 March 1991 revealed that Mr John McGuire a partner of Corrs raised with the Elders Group his concern that because Mr Yunghanns had been a client of Corrs for many years he could claim at a later date that he believed Corrs were acting for both he and Elders and thereby give rise to difficulties in the transactions between the parties. The memorandum recorded that Mr McGuire had not met Mr Yunghanns or acted on any of his matters. The memorandum recorded, further, the perception of the Elders Group that there was a sense of concern among the partners of Corrs in relation to this matter. As a consequence, by letter dated 22 March 1991 the Elders Group wrote to Mr Yunghanns specifically requiring his confirmation that he had no objection to Corrs acting for the Elders Group in relation to the matters then being finalised notwithstanding that Corrs had acted for Mr Yunghanns previously. By letter also dated 22 March 1991, Mr Yunghanns responded to the Elders Group advising that he had already confirmed that he had no objection to Corrs preparing the documents and reconfirming his attitude. In an affidavit filed in support of this application Mr Yunghanns raised allegedly for the first time his lack of understanding and apprehension of the true purpose of the 1988 and 1989 transactions. It was this particular inconsistency that Mr Young wished to put to Mr Yunghanns by way of cross-examination. He also wished to raise the legal and commercial knowledge, acumen and experience of Mr Yunghanns. I refused leave on a number of grounds. Firstly, in my view, insofar as there were inconsistencies in the statements of Mr Yunghanns as to his position such inconsistencies were appropriately a matter for submission. Secondly, insofar as there was potential for an allegation of recent invention against Mr Yunghanns again such matter was appropriate for submission. Thirdly, in my view, it is undesirable except in special compelling circumstances for a court to permit a party to have the opportunity at an interlocutory stage to cross-examine an opposing party upon an issue of fact that goes to the core of the proceeding. To do so enables the party seeking to cross-examine to have, in effect, a dress rehearsal of a vital component of evidence to be ventilated at trial. Fourthly, I formed the view that in the exercise of the discretion I would not be assisted by the cross-examination of Mr Yunghanns.
Before addressing the three bases upon which the application was founded it is to be observed that the plaintiffs place particular emphasis upon the factual circumstances before the Court as providing a foundation for the application. Dr C. Pannam, QC who appeared with Mr S. Anderson for the plaintiffs submitted that it was a critical matter in respect of the present application that all defendants, that is the Elder defendants and the Corrs defendants, denied in their pleadings that a joint venture existed. Dr Pannam traversed a number of exhibits to the affidavit of Mr Yunghanns sworn 21 February 2000 to support two matters. Firstly, that there were extensive references to a "joint venture". Secondly, that there were references to the retainer by Mr Yunghanns of Elfic in February 1988 as a financial adviser. Dr Pannam submitted that the unqualified denials by the defendants of these matters in the face of the evidence deposed to by Mr Yunghanns entitled the Court to draw an adverse inference. He submitted that the defendants by their denials sought to avoid the significant consequences that would attach to contractual and fiduciary relationships if the joint venture and retainer as alleged existed. It is unnecessary for me to make a finding on the basis of an adverse inference. Given that the present application is an interlocutory application I need be satisfied only that there is at least an arguable case that the joint venture and retainer existed. In order to make an ultimate finding on these matters it would be necessary for me to conduct a mini trial which would be entirely inappropriate at this interlocutory stage.
For the purposes of the present application I am not required and, indeed, it would be inappropriate for me to make a finding of fact as to whether or not there was a joint venture, the nature of the retainer and, significantly, whether the 1988 guarantee was part of the re‑financing of the Knox property or provided as security for the ongoing debts owed by the Yunghanns Group to Elders. Such matters can only be determined at trial. I need be satisfied of no more than that the plaintiffs have an arguable case.
The plaintiffs’ application to inspect the documents for which privilege is claimed is put upon three bases. Firstly, that the privilege claimed with respect to the documents by the first, second and fifth defendants is also the privilege of the plaintiffs. Secondly, the alleged joint venture arrangements between Merim and the Elders defendants gives rise to an obligation on the part of the Elders defendants not to seek to rely upon the privilege to prevent inspection. Thirdly, by reason of the exception arising in fraud, the privilege cannot prevent inspection because the documents relate to communications of an illegal, dishonest or improper purpose.
The basic relevant legal principles can be stated as follows:
(1)Firstly, the common law test for claiming privilege is the dominant purpose test (Esso Australia Resources Limited v The Commissioner of Taxation (1999) 168 ALR 123, 140, 146).
(2)Secondly, a person is entitled to obtain legal advice in relation to his or her affairs and for the purposes of or in anticipation of litigation without the fear and risk of subsequent disclosure of communications between the person and the legal adviser (Esso, supra 132-3; Waterford v The Commonwealth (1987) 163 CLR 54, 64; Baker v Campbell (1983) 153 CLR 52, 114).
(3)If two or more persons seek and obtain the advice of a lawyer then the privilege that attaches to the communications passing between them or one or other of them and the lawyer is joint privilege (Farrow Mortgage Services Pty Ltd v Webb (1996) 39 NSWLR 601, 608).
I turn to consider each of the grounds relied upon by the plaintiffs in support of their application for inspection of the privileged documents.
The first basis was that the privilege is that of the plaintiffs shared with the Elders defendants in any event. Dr Pannam for the plaintiffs urged that the evidence before the court demonstrated that Corrs was acting on behalf of the Yunghanns parties to the joint venture as well as the Elders Group. In support of this assertion Dr Pannam relied upon the findings of Gillard J in Yunghanns & Ors v Elfic Limited, unreported judgment delivered 3 July 1998. Gillard J made a number of findings said (at pp.22‑23) to be relevant to the present application. They were:
(1)That there was a very long relationship between Mr Yunghanns and the Yunghanns Group with Corrs covering a period from 1961 to 1994.
(2)That the relationship of the Yunghanns Group with Corrs involved contact with many partners and employees of the firm.
(3)That there was an appreciation by the Yunghanns Group, the Elders Group and Corrs of conflicts of interest in 1988 and 1991 and steps were taken to avoid repercussions as a result of the conflict of interest.
(4)Corrs was involved in events leading up to the 1991 agreements which provide "the factual foundation for the claims made by Mr Yunghanns and his Group of economic duress and unconscionability".
(5)Whilst Mr Yunghanns did not complain during the period from 1991 to 1995 that Corrs acted for Elders none of the parties were in dispute but in 1995 when Mr Yunghanns received notices to pay he objected to Corrs acting for Elders.
Ultimately, Gillard J determined that the injunction sought by the plaintiffs restraining the Elders defendants from retaining Corrs as their solicitors in this proceeding should be granted. His Honour observed (at pp.25-28):
"First, reposed within this firm is a substantial body of information concerning Mr Yunghanns and his Group, some of which is confidential and concerns his business activities, his thoughts and strategies with respect to business activities, facts which are relevant to the proceeding in question, his attitude to litigation and, importantly, assessments and personnel formed by persons within the firm of the type of person Mr Yunghanns is. In other words, personnel of the firm have got to know Mr Yunghanns very well over some 34 years and got to know a lot about him.
…
Secondly, the very transactions which are the subject of the litigation were as a result of the firm acting for the Elders Group and the events which are relevant and lead up to the transactions involved the provision of legal services by the firm to the Yunghanns Group and the Elders Group, jointly and severally.
…
Thirdly, there is every prospect that because of the issues raised on the pleadings that the plaintiffs will have to seek information from the partners and staff of the firm which will become nearly impossible in the circumstances if the firm is acting for the defendants. The problem will become exacerbated if any member of staff is required to give evidence. If this was to occur it would reflect adversely on the administration of justice.
Fourthly, it is not in the interests of the administration of justice that a firm which has acted for a client for so many years in so many transactions and who would be considered to have an intimate knowledge of the client should then act in a proceeding in which some of the events which are relevant to the issues occurred at a time when the firm was acting for both Groups of parties."
It had been submitted to Gillard J that the difficulties suggested by the plaintiffs in Corrs continuing to act for the Elders defendants in the proceeding could be avoided by the erection of Chinese walls. In this respect Gillard J observed (at p.28):
"The Great Wall of China is the most famous boundary in the world and as an impenetrable line, was a dismal flop. In Corporations Law the concept is used to denote a situation which is established to ensure no leak of information from one person to another. Because of the substantial contact that Mr Yunghanns and his Group has had over many years with the firm, I think the more apt description to describe the suggested arrangements is a Dutch dyke; a good barrier to water but involving the ever present risk of seepage leading to a leak".
Gillard J in granting the injunction to the plaintiffs restraining the defendants from retaining Corrs as their solicitors in this proceeding reached findings of fact that were relevant to the injunction application before the learned judge. In the present matter I am engaged in an entirely separate exercise. The fact that Gillard J made the findings that he did does not persuade or bind me in making necessary findings for the purposes of the present application. I must consider the facts on an entirely separate basis.
It was next submitted by Dr Pannam that Corrs was well aware of the existence of the joint venture arrangements between the parties and that there was "powerful evidentiary support" for the existence of the joint venture arrangements between the Yunghanns Group and the Elders Group.
Mr Young for the Elders defendants urged that it was clear from the evidence on the application that there was no joint privilege in respect of all of the advice that the Elders Group obtained and, in particular, Elfic obtained, in its capacity as lender and security holder. He submitted that before this court could find that joint privilege attached it would be necessary for evidence that met a stricter standard than that provided in Mr Yunghanns' affidavits. In support of his submission Mr Young emphasised that Mr Maguire of Corrs deposed on affidavit that he had never acted for Mr Yunghanns. So much does not appear to have been in issue as Mr Maguire purported at all times to act for Elders. Mr Young urged, also, that Mr Yunghanns acknowledged in his affidavit of November 1997 that he and the Elders defendants were separately represented by Corrs in that Mr Syme acted for Mr Yunghanns and Mr Maguire acted for the Elders Group. In essence the submission made by Mr Young in this respect was tantamount to saying that a Chinese wall could exist within the firm of solicitors and unless advice was provided jointly by the same partner within the firm privilege could not attach. I do not accept such analysis. In the context that the same firm provided advice to two clients on the same matter including transactions between those two clients then prima facie joint privilege attaches to communications between both or one or other of the clients and the firm. The argument of the Elders defendants, if accepted, would result in an inappropriate restriction of the joint privilege principle. It would lead to the situation that the attachment of privilege would occur in circumstances where one of the clients sought legal advice in relation to a matter affecting both clients from a member of the firm who deals exclusively with or advises the first mentioned client. The analysis in my view involves an artificial dissection of the relationship between the two sets of clients and the firm of solicitors.
The principle was stated conveniently by Sheller JA, with whom Waddell A-JA agreed in Farrow Mortgage Services v Webb, supra at 608:
"Two or more persons may join in communicating with a legal adviser for the purpose of retaining his or her services or obtaining his or her advice. The privilege which protects these communications from disclosure belongs to all the persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege. So is it also if one of a Group of persons in a formal legal relationship communicates with a legal adviser about a matter in which the members of the Group share an interest. Communications by one partner about the affairs of the partnership or a trustee about the affairs of the trust are examples. Implicit in the relationship is the duty or obligation to disclose to other parties thereto the content of the communication. Accordingly no privilege attaches to such communications as against others who, with the client, share an interest in the subject matter of communication."
Here the Elders Group and the Yunghanns Group did not "join in" communicating with a partner of Corrs, rather, they each sought advice from different partners within Corrs. Mr Young urged that the evidence on the present application demonstrated that advice was given by Corrs to the Elders Group and not the plaintiffs. I do not consider that the evidence enables the court to state the position so highly. Rather, it is apparent that each of the Elders Group and the Yunghanns Group sought advice from the same firm of solicitors in relation to the same transactions but from different solicitors within the firm. For the reasons already stated it is inappropriate to impose an artificial dichotomy upon the workings of a firm of solicitors. To do so involves the imposition of Chinese walls that gives rise to the very problems described by Gillard J in his reasons with respect to the earlier injunction application.
For these reasons I find that the first submission of the plaintiffs succeeds to the effect that there was a joint retainer of Corrs by the Yunghanns Group and the Elders Group. However, that is not the end of the matter. In support of the claim for joint privilege Dr Pannam sought to support the claim on a two pronged basis. First, there was in fact a joint retainer of Corrs by the Yunghanns Group and the Elders Group. Second, the Elders Group retained the solicitors, Corrs, but the Yunghanns Group shared a joint interest in the retainer and because of the duties that arose from the joint venture relationship exclusive privilege could not be claimed by the Elders Group because of the nature of those duties. Dr Pannam acknowledged that the second plank of the claim for joint privilege was a novel proposition at law. Mr Young challenged the two pronged basis submitted by Dr Pannam on the ground that either there was joint privilege or there was not. It was submitted by Dr Pannam that the Yunghanns Group shared a joint interest in the retainer of Corrs because of the duties that arose from the joint venture relationship and from the financial adviser relationship.
In Farrow Mortgage Sheller JA (at 608) considered the matter of joint or shared interest. The learned judge observed:
"Separate from circumstances giving rise to joint privilege are those where parties have a shared or similar interest in the subject of communications between one or more of them and a legal adviser."
Sheller JA recognised the privilege that arises in the context of a shared interest (at 608-612). However, in that case the learned judge was concerned with a claim by parties with a common interest for privilege against the rest of the world. Here the situation is different. The plaintiffs draw upon the concept of common interest to establish joint privilege.
Sheller JA in Farrow Mortgage Services (at 609) observed, in any event, that common interest is not a rigidly defined concept. The same observation was echoed in the 14th edition of Phipson on Evidence (1990) p.515 para 20-28 where the authors observed:
"No privilege attaches to communications between solicitor and client as against persons sharing a joint interest with the client in the subject-matter of the communication, e.g. as between partners; a company and its shareholders; trustee and cestui que trust; lord and tenants of a manor as to customs of manor; a lessor and lessee as to production of the lease; reversioner and tenant for life as to common title; two persons stating a case for their joint benefit; or a husband and wife who are not genuinely, but collusively, in contest. Nor does any privilege attach as between joint claimants under the same client – e.g. between claimants under a testator as to communications between the latter and his solicitor.
Thus where two persons agree to divide the profits made by one of them on contracts made with third parties, the person who does not make the contracts is entitled to production from the person who does of, for example, the opinions of counsel relating to litigation between the contractor and a third party.
But where the communications relate to matters outside the joint interest, they are privileged even as against a person bearing the expense of the communications – e.g. communications between a plaintiff corporation and its solicitors, against a defendant ratepayer as to matters not connected with rates; or between a company and its solicitors consisting of confidential advice to the former in an action against a shareholder; or between a trustee and his solicitor as against the cestui que trust, where the communication is not made for the former's guidance in the trust, but to enable him to resist litigation by the latter; or where it concerns his character, not as trustee, but as mortgagee of the client.
Though the privilege does not protect one person with a joint interest from disclosing to the other matters which are the subject of that interest, both parties are entitled to maintain the privilege against the rest of the world. But the rest of the world for these purposes does not include the trustee in bankruptcy of one of the parties, or his successor in title.
In case of joint interest, it is sufficient, as against third persons, if one only of the interested parties claims the privilege, though all must concur in waiving it.
A joint interest for these purposes is not a rigidly defined concept. It is apparent that those categories described above, such as partners and the like, come within these principles. But a mere common interest in that outcome of litigation will be sufficient to enable any party with that interest to rely on it."
In the 15th edition of Phipson on Evidence (2000) p.548-549, para 21-08 to 21‑09 the authors expressed the view that common interest privilege will apply where parties have a joint interest in the advice or evidence which is the basis of the privilege. The authors observe, further, that common interest privilege may apply in cases of joint ventures. They went on to observe:
"The use of common interest privilege as a sword is well established in cases where the joint or common interest of the parties in the privileged documents was such that one party could not claim privilege against the other, even though privilege could be claimed against the rest of the world. It does not follow that the sword and the shield are opposite sides of the same coin; it does not follow that common interest privilege will permit a refusal to give disclosure to third parties in the same circumstances as will permit an application based on the use of common interest privilege as a sword. In many cases, they will be opposite sides of the same coin, but because in the shield case the focus is on the third party and in the sword case it is on the parties themselves, it may produce different results. If there is a common interest between two parties, there may be no confidence between them in documents which are supplied by one to the other so that one cannot claim privilege for those documents against the other even though they are privileged against the rest of the world. But it does not follow from that one can necessarily claim to be entitled to disclosure of other documents which have not passed between them but came into existence in similar circumstances."
In Commercial Union Assurance Co PLC & Ors v Mander (1996) 2 Lloyd's Rep. 640 Moore‑Bick J sitting in the Commercial Court of the Queen's Bench Division was concerned with an application by a defendant underwriter for the production for inspection of documents for which privilege was claimed in an action by a plaintiff insurer against the defendant claiming to recover under the re‑insurance with the defendant the plaintiffs' share of sums paid to the plaintiffs' insured under a settlement agreement. Moore‑Bick J was of the view (at 645-646) " … that the right to obtain disclosure of documents in this context depends on their having been obtained by one party in furtherance of a joint interest, and in that sense on behalf of all those who share it. In a case where the documents contain legal advice that joint interest must exist at the time the advice is sought, and if it exists at that time it is not lost simply because the parties subsequently fall out … The fact that the interests of two parties are potentially in conflict does not in my view prevent their having a sufficient joint interest in the subject matter of the advice at the time it is sought to bring this principle into operation". In forming this view the learned judge cited with approval the observations of the authors in the 14th edition of Phipson on Evidence set out above. At 648 Moore‑Bick J expressed the view that as a matter of principle and authority it is right to say:
"… that it is not enough that the person seeking disclosure of confidential documents can show that he has an interest in the subject matter which would be sufficient to give rise to common interest privilege if the documents had been disclosed to him; he must be able to establish a right to obtain access to them by reason of a common interest in their subject matter which existed at the time the advice was sought or the documents were obtained."
Privilege does not attach to communications against a person having a joint interest. The joint interest will encompass relationships falling in a special category including as between partners and between a trustee and cestui que trust. A joint venture is in the nature of a partnership in some respects. It involves the sharing of profits and the division of responsibilities within a relationship. The nature of the arrangement of a joint venture also involves special characteristics of trust and good faith analogous to that of a trust. If privilege does not attach to communications against a person having a joint interest where the relationship is one of partnership or trust then logically the attachment cannot arise where the relationship constitutes a joint venture. Where a joint venture exists the joint venturers have duties and obligations towards one another of a contractual and fiduciary type. It is the nature of the joint venture relationship that gives rise to the right of each joint venturer to obtain access to documents that are otherwise privileged against the world.
In United Dominions Corporation Limited v Brian Pty Ltd & Ors (1984-85) 157 CLR 1 the High Court considered the nature of joint ventures and the duties that may flow therefrom. In the joint judgment of Mason, Brennan and Deane JJ (at 10-11) it was held that the term "joint venture" is not a technical term and connotes an association of persons for a variety of purposes including a financial undertaking with a view to neutral profit. Their Honours observed that there may be difficulty in determining whether a relationship is a joint venture or a simple contract. They observed (at 10):
" … One would need a more confined and precise notion of what constitutes a 'joint venture' than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one. … The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken."
In the particular case before the High Court Mason, Brennan and Deane JJ considered that the subject relationship concerned with a shopping centre venture was a fiduciary one partly on the basis that the participants were venturers in a commercial enterprise with a view to profits that were to be shared. It was observed that the policy of the joint enterprise or venture was ultimately a matter for joint decision. The observation can readily be made in the present matter that there were arrangements in place between the Yunghanns Group and the Elders Group whereby there was a commercial enterprise with a view to profits that were to be shared between the two Groups and decisions relating to acquisition of companies and shares appeared to have been a matter for joint decision. It is the case of the Elders defendants that the transactions under which the Yunghanns Group brings these proceedings were discrete transactions by virtue of which the Yunghanns Group gained financial advantage and financial support from the Elders Group and that the latter required security for that benefit. However, for the present application I need not go so far as to determine whether or not there was a joint venture between the Yunghanns Group and the Elders Group. That is a matter for ultimate determination at trial. In my view there is sufficient evidence before the court on the application to enable me to be satisfied that there is a prima facie case that there was a joint venture between the Yunghanns Group and the Elders Group and that there was a fiduciary duty owed by the latter to the former arising from that relationship (see United Dominion Corporation Limited v Brian Pty Ltd & Ors, supra; Biala Pty Ltd & Ors v Mallina Holdings Limted & Ors (No. 4) (1993) 13 WAR 11, 57-58; also J.R.F. Lehane, "Fiduciaries in a Commercial Context", Equity and Commercial Relationships (1987), P.D. Finn, p.95-108; J. Glover Commercial Equity – Fiduciary Relationships (1995) p.76-80, paras. 3.90-3.96; B.H. McPherson "Joint Ventures", Equity, P.D. Finn, p.35-36).
I accept the two pronged submission urged by Dr Pannam. Following the decision of the High Court in United Dominion I am satisfied that on a prima facie basis for the purposes of the present application there existed between the Elders Group and the Yunghanns Group at the relevant times mutual obligations of trust and confidence so that one would not take advantage of the other. It is apparent from the authorities and the commentaries in the area of joint ventures that a critical indicia of a joint venture is that of trust. Against that indicia of trust the Elders Group rely upon the Chinese wall that was said to have existed with Corrs to support the assertion that joint privilege does not attach to the documents pursued. Such response fails to take account of the fundamental purpose of the Chinese wall. It is intended to overcome a conflict of interest that a firm of solicitors may encounter. It is not a basis to enable a party to a joint venture to modify or seek to avoid the fiduciary obligations that otherwise exist as a result of the joint venture between those parties. The question can be posed thus: does the assent of one joint venturer that the other joint venturer should be able to enjoy the legal services of the same firm which has previously acted for both of them operate to modify the fiduciary obligation that would otherwise arise between the joint venturers? In my view it does not. It is an essential part of both the relationship created by the joint venture itself and the relationship created by the financial adviser retainer that leads to every item of information that is inconsistent with the interests of the other joint venturer having to be disclosed. It is a fundamental element of the joint venture relationship that the parties act with the utmost good faith towards one another (United Dominion Corporation Limited v Brian Pty Ltd & Ors, supra; also Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41). Utmost good faith is another of the indicia of the joint venture relationship. It involves a joint venturer committing him or herself to not taking advantage of the other joint venturer including not sheltering behind legal professional privilege in order to extract an advantage against the other joint venturer.
It follows that the plaintiffs have made out a claim of common interest privilege that disentitles the Elders Group to claim exclusive privilege against the plaintiffs.
The third and remaining basis of the application by the plaintiffs was that the claimed privilege by the Elders Group did not prevent inspection by the plaintiffs because the documents related to communications of an illegal, dishonest or improper purpose. In light of my findings thus far it is unnecessary to determine this aspect of the application. Nevertheless there are observations that should be made. At the outset it must be observed that the allegations are of a serious and odious nature. Consequently, the standard applied by the court will ordinarily be a stricter standard that is otherwise the case. It has been recognised by the High Court that a claim for privilege can be challenged in pursuance of an illegal, dishonest or improper purpose (see Attorney-General for Northern Territory v Kerney (1985) 158 CLR 500, 512-515, 524; Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 514, 531, 545 and 572). It is a well established principle that an attempt to overcome or displace the privilege on such basis does not require a demonstration that the legal advisers were themselves conscious participants in fulfilling the improper purpose (see R v Cox & Railton (1884) 14 QBD 153). However the High Court authorities make it abundantly clear that it is not sufficient to overcome or displace the privilege by merely making allegations; on the other hand it is not necessary to fully prove the allegations (see Kearney, 516, 525; Propend, 521-2, 546, 556, 572 and 591). In the words of Brennan CJ in Propend (at 514) " … It is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege was claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest". The learned Chief Justice went on to state that in setting the criterion of reasonable grounds for the belief the test is objective and that it is not necessary to prove ulterior motive. Significantly, Brennan CJ in Propend at 514 said " … There has to be something 'to give colour to the charge', a 'prima facie case' that the communication is made for an ulterior purpose". Having considered the affidavits relied upon by both parties in support of and in opposition to the application I am not satisfied that the plaintiff has met the standard prescribed by Brennan CJ in Propend. Whilst the evidence relied upon by the plaintiffs was sufficient to establish the joint retainer, the joint venture and the consequential duties it is an entirely different matter for that evidence to go so far as to make out a prima facie case of dishonest or improper purpose. The affidavits of Mr Elliott in this regard exhibit extensive documents that contradict any improper purpose. It was asserted on behalf of the plaintiffs that the course of conduct between the Yunghanns Group and the Elders Group during the period between 1988 and 1991 including the involvement of Corrs gave rise to sufficient "colour" to enable this court to compel inspection on the basis of improper purpose. In my view the prima facie case is not made out. Furthermore, it is relevant in this regard that the allegations of Mr Yunghanns are made relatively recently and he appears on his earlier affidavits to have not taken the opportunity to make the allegations that he does now. Ultimately the substantive issue will be determined at trial. However, for present purposes I cannot be satisfied that the improper purpose is made out on a prima facie basis.
It ought be observed that the Corrs defendants did not seek to take sides in the application. They provided submissions that essentially purported to clarify the role of Corrs in the transactions between the Yunghanns Group and the Elders Group. I have considered those submissions.
An additional matter to be considered is whether or not the court should take the opportunity in any event to inspect the 750 documents contained in 34 folders sought to be inspected by the plaintiffs. Such course was recognised most recently by the High Court in Esso Australia Resources Limited v Commissioner of Taxation, supra (at 350 para. {52})where Gleeson CJ, Gaudron and Gummow JJ observed that a court has a power to examine documents in cases such as the present and that it should not be hesitant to exercise such a power. In the present matter there is some hesitation. The hesitation arises from the sheer volume of documents that are the subject of the application. Furthermore, there is the fact that the exercise would involve an extensive amount of judicial time being taken up with the exercise. I have given consideration to the possibility of referring the examination of the 34 folders of documents to a Master. In the circumstances of this matter particularly as the hearing before me was conducted over two days it is difficult to apprehend that a Master could assume the task without the benefit of the re-ventilation of the submissions and arguments heard by me. Ultimately, I consider that if inspection was to be conducted by the court the task must fall to the judge who heard the application. Furthermore, there is the fact that the proceedings are within the Commercial List, a list within this court that conducts proceedings on an expeditious indeed rapid basis. If I was to embark upon inspection of the documents I apprehend it would cause a delay in the proceedings (and other proceedings within the Commercial List). The final matter to be considered is the fact that this proceeding has been fixed for trial on 21 August 2000 on an estimate of a minimum duration of eight weeks. In my view it is desirable in all the circumstances that there be no delays if they can be avoided. Ultimately I am of the view that having made the findings I do with respect to the nature of the relationship between the plaintiffs and the Elders defendants thereby giving rise to a common interest privilege it is unnecessary for this court to embark upon inspection of the documents despite the urgings of the Elders defendants to do so.
Finally, it is to be observed that there was no dispute before me as to the categories of documents which were sought to be inspected by the plaintiffs. It was a case of all documents or none. It has not been necessary, therefore, for me to consider in my reasons the categories of documents pursued by the plaintiffs. I will hear the parties as to the appropriate form of order, however, the order should reflect the documents described in the annexure to the written submissions filed by the plaintiffs in support of their application.
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