Almona Pty Ltd v Parklea Corporation Pty Ltd

The law

1. Section 125 of the Act was recently considered by the Court of Appeal in a judgment of the Court in Director of Public Prosecutions (NSW) v Stanizzo [2019] NSWCA 12 ("Stanizzo"). I respectfully adopt and apply the Court's analysis: [30] It may be noted that s 125(2) is procedural: it permits findings to be made for the purposes of subs (1) where the court has "reasonable grounds" for such a finding. That is, a ruling that s 125(1) permits evidence to be adduced does not require the court to be satisfied on the balance of probabilities as to the existence of the fraud or abuse of power, or the connection between the communication and the furtherance of the fraud or abuse of power. Nevertheless, findings as to these matters must be based on evidence. … [33] The onus of proof rests with the party alleging that the privilege has been lost. There must be "reasonable grounds" for the Court to find that the fraud, offence or act, or abuse of power was committed and that the communication was made in furtherance of it. To enliven the operation of the section, there must be evidence admitted in the proceeding, not merely an allegation about the fraud, offence or act, or abuse of power. As Dawson J explained in Commissioner of Australian Federal Police v Propend Finance Pty Ltd. "In O'Rourke v Darbishire, Viscount Finlay said: 'there must be, in order to get rid of privilege, not merely an allegation … of a fraud, but there must be something to give colour to the charge.' That test was accepted in Attorney-General (NT) v Kearney (1985) 158 CLR 500 at 516 by Gibbs CJ, with whom Mason and Brennan JJ agreed. Gibbs CJ added the further words of Viscount Finlay: 'The statement [ie the allegation of fraud] must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact … The Court will exercise its discretion, not merely as to the terms in which the allegation is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications.'" … [40] There was nothing in the evidence admitted on the application, including the statement of Mr Barr, justifying the findings that each of Ms Valvano and Mr Badarne "falsely and maliciously induced the prosecution of [Mr Stanizzo] by making false and malicious allegations to the police". Much less was there any evidence relating to what the primary judge described as the "timing of the complaint" and the "known fraud in relation to the civil proceedings". Even on the "reasonable grounds" standard provided for in s 125(2) of the Evidence Act, the evidence was plainly insufficient to support a finding under ss 125(1)(a) or 125(1)(b). It is not enough, for the purposes of s 125 of the Evidence Act simply to take into account allegations in a pleading. Whilst there is a debate in the High Court about whether direct evidence (as distinct from hearsay evidence) is required to enliven the power now found in s 125 each of the judges in Propend emphasised the need for evidence beyond mere assertion. It follows that ground 2 of the appeal should be upheld. … [43] The second limb of par (a) relates to "the contents of a document prepared by a client or lawyer". That would be satisfied with respect to the notes prepared by the lawyers, but there was no basis in the evidence to suppose that those notes were prepared in furtherance of the commission of a fraud or offence, namely the pursuit of a false prosecution. In order for the Director's client legal privilege to be lost, it would not be sufficient to demonstrate that the Director or his lawyers had reasonable grounds for believing that the victims and the witness lied in order to have the Director maintain a prosecution which would depend upon perjured testimony. It was necessary to demonstrate reasonable grounds for finding that the Director, or at least his lawyers, was or were party to the fraud in the sense that he was aware, personally or through his lawyers, that the evidence was false.

Almona's case

1. Almona's further amended statement of claim includes: "Contract for Sale of the Land 30. On 13 January 2016, without further notice to the plaintiff, and without providing a response to the request for a payout figure referred to in paragraph 29, the second defendant entered into a conditional contract for the sale of the Land to the first defendant as mortgagee in possession (Contract). 31. In so exercising its power of sale, the second defendant owed to the plaintiff a duty to exercise the power of sale in good faith and not wilfully or recklessly disregard or sacrifice the interests of the plaintiff. 32. The express terms of the Contract included the following: a. The contract was conditional on the second defendant notifying the first defendant obtaining., by not later than 14 March 2016, that the approval of the "Investment Committee" established by the Pacific Alliance Group of companies and responsible for approvals for significant transactions undertaken by PAG Group members (Investment Committee) had approved the sale of the Land under the Contract, failing which either party could rescind the Contract by notice in writing (the Approval Condition). b. In the event that the Mr Constantine remained in occupation of the Residence at the time of settlement, the purchase price of the Land was to be $81,100,000 but in the event that he vacated the Residence prior to settlement, the purchase price of the Land was to be $85,350,000 (The Occupation Condition) … e. The deposit payable was 10% of the price but payment of the deposit was to be paid as follows: (a) $1,000,000 on the contract date; and (b) $3,267,500 within three business days from receiving written confirmation the Investment Committee approval had been obtained; and (c) the balance of the 10% on the earlier of completion and the date the second defendant is entitled to terminate the contract by reason of the first defendant's default. … g. Completion of the Contract was to occur on the latest of: a. 28 January 2016; b. 14 days after the approval of the Investment Committee; or c. any extended completion date pursuant to the Completion Condition … 33. The second defendant did not notify the plaintiff of the execution of the Contract. The plaintiff first became aware of the sale on or about 18 January 2016 when it was informed that a caveat had been recorded against the title to the Land by the first defendant claiming an interest pursuant to the Contract. … 40. On 15 March 2016, in the belief that the outstanding amount of the Mortgage Debt was less than $65,000,000, Mr Constantine entered into a heads of agreement with AMB Capital Partners Pty Ltd (AMB) and Mackycorp (Heads Of Agreement) for the purpose of refinancing the Mortgage Debt (Proposed Transaction). Particulars a. The following were express terms of the Proposed Transaction: (i) the plaintiff would transfer a part of the Land to AMB for a purchase price of $65,000,000; and (ii) the plaintiff would continue to manage the Parklea Markets on the Land in return for payment of a $1,000,000 per annum salary; and (iii) the plaintiff would retain title to the Residence and soccer pitch on the Land and would be responsible the subdivision of this lot; and (iv) the plaintiff would repurchase a triangular shaped parcel of land fronting Sunnyholt Road, comprising a part of the Land, for $3,000,000 excluding GST subject to subdivision and with a twelve month settlement. 41. On 15 March 2016, BP provided to KWM and GT a letter from AMB to Mr Constantine dated 14 March 2016 confirming that AMB, the investment business for the Angela Bennett family, was in a position to provide finance at Mr Constantine's request for the purpose of refinancing the Mortgage Debt in full, subject to completion of a three week due diligence period to review the further information and finalise the documentation. BP requested that completion of the Contract be delayed in order to enable the financier to complete the due diligence. Particulars a. Email from Mr Donato to Mr Dixon-Smith at 1.22pm of 15 March 2016 a duplicate of which was emailed to GT. b. Letter from BP to KWM dated 15 March 2016. c. Letter from AMB to Mr Constantine dated 15 March 2016 (first comfort letter). … 46. On 17 March 2016, with knowledge of the availability or potential availability of the Proposed Transaction, and with knowledge that the Proposed Transaction was or may be more advantageous to the plaintiff than the proposed sale to the first defendant, or that other arrangements with AMB for the discharge of the Mortgage Debt more advantageous to the plaintiff than the proposed sale to the first defendant may be available, the second defendant notified the first defendant that it had obtained the Investment Committee's approval of the Contract as required by the Approval Condition, with a date for completion on 1 April 2016. Particulars a. Letter from GT to Madison Marcus dated 17 March 2016. b. BP facsimile transmission report of 17 March 2016 … 48. On Friday, 18 March 2016 the plaintiff commenced proceedings in the Supreme Court of New South Wales (Proceedings), seeking relief against forfeiture, abridgement of time for service of the summons and an injunction restraining the second defendant and receivers from dealing with the Land. The return date for the Summons was 22 March 2016. 49. On 18 March 2016, a Notice of Motion, Summons and affidavit of Vaughn Taylor of 17 March 2016 and affidavit of David Creais dated 18 March 2016 were served on the first-defendant, the second defendant and receivers 50. On or about 18 March 2016, with knowledge of the Proposed Transaction and/or that other arrangements with AMB for the discharge of the Mortgage Debt more advantageous to the plaintiff than the proposed sale to the first defendant may be available, and with knowledge of the proceedings referred to in paragraph 48, the first and second defendants agreed to bring forward the completion date of the Contract to 21 March 2016. Particulars a Letter from Madison Marcus to GT dated 21 March 2016 … 53. On 22 March 2016, BP advised KWM that AMB was willing and able to provide finance sufficient to discharge the Mortgage Debt in full subject to due diligence and provided KWM with a second comfort letter from AMB to that effect. Particulars a. Letter from AMB to Mr Constantine dated 21 March 2016 (Second Comfort Letter). b. Letter from BP to KWM dated 22 March 2016 at 8.32am. 54. On 22 March 2016, the first defendant and second defendant executed a further Deed of Variation of the Contract of Sale (Second Variation) by which the front pages and special conditions of the Contract were replaced such that: a. the purchase price was amended by deleting the provision for $85,350,000 in the event of satisfaction of the Occupation Condition; and b. the obligation to satisfy the GST Condition prior to completion was modified to permit an application to be made after completion. Particulars a. Deed of Variation of Contract dated 22 March 2016 … 56. On 22 March 2016 the plaintiff consented to the adjournment of the proceedings to enable settlement of the sale to the first defendant to occur based on the limited information provided to it by the first and second defendants at the time. 57. On 22 March 2016, completion of the Contract took place. Particulars a. Email from Mr Dixon-Smith to Mr Donato at 4.10pm on 22 March 2016. 61. Breach of duty of good faith and fraud under s 42 of the RPA In the premises, the second defendant breached the duty referred to in paragraph 31 in that: a. it failed to provide reasonable assistance to the plaintiff to obtain a sale on the terms most advantageous to the plaintiff by: (a) failing to respond reasonably to requests for information as to the amount required to discharge the Mortgage Debt; and (b) failing to advise the plaintiff of the proposed sale and the terms of that sale to the first defendant; b. it failed to take steps to facilitate a prompt settlement of the Contract prior to becoming aware of the Proposed Transaction; c. when it became aware of the Proposed Transaction, it took steps to obtain and/or notify the first defendant of Investment Committee approval and thereby satisfy the Approval Condition and frustrate the plaintiff's attempt to obtain a sale on the terms most advantageous to it; 62. The second defendant's said breaches were fraudulent within the meaning of section 42 of the Real Property Act (1900) NSW. Particulars a. The second defendant sought to deliberately frustrate the plaintiff's attempts to sell the Land under the terms of the Proposed Transaction or to complete any alternative available arrangement with AMB by declining to provide payout figures, accelerating the satisfaction of the Approval Condition, bringing forward the completion date, concealing the Occupation Condition and waiving the GST Condition Further, it did so in circumstances where associated entities would benefit from the Contract through the provision by the third defendant of loan finance to the first defendant and where the first defendant would benefit, at the plaintiff's expense, from the plaintiff's ignorance of the Occupation Condition. b. Statement of Particulars paragraphs 1 to 36 and Statement of Further Particulars dated 1 March 2019."
2. It will be noted that paragraph 62 of the pleading, just quoted, refers in its particulars to two statements of particulars. In fact, there were three such documents before Robb J: 1. Plaintiff's statement of particulars of fraud, breach of duty and unconscionability with references to supporting evidence dated 19 February 2019; 2. Plaintiff's statement of further particulars of fraud, breach of duty and unconscionability with references to supporting evidence dated 1 March 2019; and 3. Plaintiff's second statement of further particulars of fraud, breach of duty and unconscionability dated 6 March 2019.
3. A large number of the documents tendered by Almona in the present application before me are documents which are said to provide evidence of the various particulars of its case that Almona has provided.
4. I do not propose to set out the contents of the additional particulars or the underlying materials in any detail. It is sufficient to note for present purposes that part of the sequence of events of which Almona complains includes the establishment of corporate arrangements, not obvious to an outsider including Almona, between SAP (or its corporate group) and Parklea (or its corporate group).
5. Another part of Almona's case relates to the contract by which SAP sold the Land to Parklea. On 13 January 2016, SAP (as mortgagee exercising its power of sale) entered into a conditional contract for sale of the Land to Parklea (the "Contract"), the condition being the approval of the transaction by SAP's investment committee. An important part of Almona's case is that SAP impermissibly accelerated the completion of the Contract when it became aware that Almona had obtained an indication of support from a financier to pay out Almona's debt to SAP.
6. That indication came in a letter to Mr Constantine of Almona from AMB Capital Partners ("AMB") dated 15 March 2016. That letter was forwarded on the same day by Almona's solicitors to Mr Dixon-Smith of King & Wood Mallesons ("KWM"), who was acting for SAP and associated entities. AMB's letter included: "Dear Mr. Constantine Almona Pty Ltd (Receivers and Managers Appointed) We understand that PPB Advisory has been appointed as Receivers and Managers over Almona Pty Ltd (Almona) on 17 April 2015 by the secured creditor Secured Assets Portfolio III Limited (Lender). We understand the Lender advanced Almona in excess of $50 million (Facility), and that with capitalised interest and other charges, the amount owed by Almona is now in the vicinity of $65 million. Whilst you have asked for an update of the amount that is currently owed by Almona under the Facility, you have not been provided with a recent payout figure or indication of the current amount owing. To this end, we make the following confirmations: 1. AMB Capital Partners, the investment business for the Angela Bennett family, is in a position to provide to or at your request for the purpose of refinancing the Facility in full, subject to completion of a three (3) week exclusive due diligence period to review the further information and finalise the necessary documentation (assuming that all reasonable information requested by us is provided by you and the receivers promptly) (Due Diligence Period). 2. AMB Capital Partners has undertaken preliminary due diligence, but requires necessary further information, including information from PPB Advisory (or Colliers) in order to complete due diligence and the transaction. 3. AMB Capital Partners has liquid funds available to complete this transaction at or above the amount stated above and can provide support if required. We require written confirmation from PPB Advisory that during the Due Diligence Period (commencing on 17 March 2106) they will not enter into or complete any agreement for the sale of any assets of Almona (including Parklea Markets) (Assets) over which security has been granted to secure Almona's obligations under the Facility."
7. Within a quarter of an hour of receiving a copy of that letter from Almona's solicitors, Mr Dixon-Smith forwarded it to his clients under the cover of an email which included (I have emphasised the words to which Almona draws particular attention): "Dear All: Please see email below just received and attachments. Woody and James, as envisaged by you, those involved on a proposed refinancing do actually have the firepower to fund this if Con can make it stack up. The good news is that they are asking for three weeks exclusive DD to get it done, so any refinancing can't be closed by the time it is anticipated that the buyer completes the contract. I'll consider a draft reply and circulate for instructions later today."
8. Other emails show that Mr Dixon-Smith had been made aware of AMB as the proposed financier for Almona at least the day before (14 March 2016) and that he had told his clients that they would need to speak about that development "tomorrow" (15 March 2016). One of the steps which Almona says was part of the fraudulent acceleration of the completion of the Contract was the giving of a notice to Parklea that SAP's investment committee had approved the transaction in circumstances where the approval had in fact been obtained in January 2016 but the notice was not given until 17 March 2016. There was no dispute between the parties that by the giving of that notice, the Contract became unconditional on 17 March 2016.

Consideration

1. The documents that were in issue before me were contained in a lever arch folder with 13 dividers. It is convenient if I refer to documents by their divider number.
2. In between the two hearings before me I inspected the documents. During the course of the second hearing I indicated to the parties by reference to the individual documents which claims for client legal privilege the Court was satisfied had been made out and which claims the Court rejected. This left for determination whether, in relation to any document that the Court had found was privileged, whether that privilege did not apply by reason of the Exception. There is one document about which I am satisfied that is the case.
3. Having reviewed Almona's amended statement of claim, the various particulars to that claim and the documents that have been tendered by Almona in support of its present application, I am satisfied that, for the purposes of s 125(2), there are reasonable grounds for finding that the fraud alleged by Almona was committed. I am satisfied that the documents relied upon take the matter beyond mere allegations and "give colour to the charge". Against the background of that finding, I will now turn to the documents.

Document under tab 3

1. This is an email from Mr Dixon-Smith to his clients sent on 15 March 2016 at 11.18am. It will be appreciated that it comes after Mr Dixon-Smith had been made aware that AMB had indicated they would be able to provide finance to Almona, but before the letter referred to in paragraph [21] above had been received.
2. In a concession which, with respect, was entirely properly made, Mr Hyde accepted (Transcript 7 May 2019; p 25 line 50) that if I did not accede to his primary submission that there could be no case of fraud in the absence of a higher offer having been sacrificed, his client could not resist production of this document if I was otherwise satisfied that there were reasonable grounds for finding that the fraud was committed. It is therefore necessary for me to deal with Mr Hyde's submission on this point.
3. The factual basis for Mr Hyde's submission was that the purchase price under the Contract was for in excess of $80,000,000, which was more than what was owing to SAP under its mortgage. On the other hand, insofar as what was pleaded as the "proposed transaction" (see paragraph 40 of the amended statement of claim set out in paragraph [16] above) involving AMB, this would result in no more than a payout of the mortgage (approximately $65,000,000). Mr Hyde's short point was that there could be no fraud on the power of sale by a mortgagee in circumstances where there was no sacrifice of a higher offer. In this case, SAP had accepted what turned out to be a higher offer than what might have been offered by AMB acting at the instigation of Almona and where AMB's involvement was subject to a three week due diligence period.
4. Mr Williams SC submitted that it was not the law that fraud on a mortgagee's exercise of its power of sale was confined to sales at an undervalue or otherwise sacrificing a higher offer. He drew attention to the judgment of Kitto J in Latec Investments Limited v Hotel Terrigal Pty Limited (in liquidation) (1965) 113 CLR 265. In that case (at 272) his Honour identified as impermissible conduct which "would amount to a virtual foreclosure". In the circumstances of that case, his Honour found (at 274) that: "The fact remains - I see no escape from concluding that it is a fact - that the reason why there was only a pretence of attempting to get a better price was simply that the object in view was not really to effect a sale, but was to destroy the mortgagor's interest and get the hotel for the mortgagee's group of companies, without allowing the mortgagor the opportunity to pay off the mortgage which the procedure for foreclosure would have afforded. It is impossible to regard the case as only one of constructive or equitable fraud - there was much more in it than a mere fraud upon the power, as it is sometimes called. There was pretence and collusion in the conscious misuse of a power …"
5. Mr Williams SC submitted that it was that kind of case which Almona sought to make out against SAP, such that the question of sale at an undervalue did not really arise. To like effect, he relied on the High Court's decision in Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 where again there was no suggestion of the sale being at an undervalue, but the Court found (as is recorded in the headnote) that it was open to find that the mortgagee in making the sale had acted with calculated indifference to the interests of the mortgagor and, accordingly, that it did not exercise its power of sale in good faith.
6. I accept Mr Williams SC's submission that, as a matter of law, the absence of the sacrificing of a higher offer is not a complete answer to Almona's case. Access should be granted to that document. Notwithstanding Mr Hyde's concession, I should also formally record that I am satisfied that in relation to this document, there are reasonable grounds for finding that it evidences a communication that was made by a lawyer (in this case Mr Dixon-Smith) in furtherance of the commission of the fraud alleged by Almona in the proceedings. That is because it is clear from the materials tendered that Mr Dixon-Smith was intimately involved, and played a guiding role, in SAP's conduct which is challenged in the proceedings such that I find he had the requisite knowledge of the matters alleged to constitute SAP's fraud (see paragraph [43] of Stanizzo).
7. Finally in relation to this document, Mr Hyde made the alternative submission that if the Court was of the view that the Exception applied, it would not apply to the section of four paragraphs commencing "At present" under the second sub-heading on the second page of the document because the matters described in those paragraphs had nothing to do with the impugned conduct. I do not agree. This section is an integral part of what is one, internally coherent communication and cannot be severed in the way Mr Hyde submitted. Alternatively, if (contrary to the view I have just expressed) those paragraphs are capable of being treated as a separate communication, then s 126 of the Act applies because they are reasonably necessary to enable a proper understanding of the rest of the email.

The documents under Tabs 12 and 13

1. These are the only other documents which it seems to me could fall within the Exception. They are emails to Mr Dixon-Smith from one of his assistant solicitors on 23 December 2015 at 6.41pm and 23 December 2015 at 7.19pm. They relate to the corporate arrangements referred to in paragraph [19] above. However, in relation to those communications, even if the other elements of s 125 were satisfied, the evidence does not establish that there are reasonable grounds for finding that the solicitor had sufficient knowledge of the matters which are the subject of Almona's complaint for the Court to be satisfied that the solicitor's communications were in furtherance of the commission of the fraudulent conduct alleged (see paragraph [43] of Stanizzo).

The other documents

1. In relation to the other communications which I have held to be subject to client legal privilege, I have reviewed them in the light of the parties' submissions in relation to the Exception. I am satisfied that none of them falls within the Exception for reasons including: 1. I am not satisfied that the author had the requisite state of knowledge of the matters said to constitute the fraud; 2. They relate to what appears to be incidental conveyancing or administrative matters; or 3. They are not sufficiently related to a particular of the alleged fraudulent conduct.
2. For completeness, I record that I reject Mr Hyde's submission that the Exception could not be satisfied in relation to documents brought into existence after the Contract became unconditional. As it happened, however, this issue was not decisive in relation to any document.

Conclusion

1. Almona has demonstrated that it is entitled to access to Mr Dixon-Smith's email of 15 March 2106 at 11.18am which is under Tab 3 of the bundle. I will hear the parties as to appropriate orders to give effect to these reasons and as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 May 2019