Applicant v Defendant

(a) leave to continue the proceeding vis-à-vis the Applicant ("QBH") now in liquidation pursuant to section 500(2) of the Corporations Act 2001 (Cth); and

(b) a declaration that privilege has been lost in respect of advice given by the First and Third Non-Parties ("Armour" and "Mr Burton" respectively) and by Mr John Selimi (the counsel for QBH) to QBH.

2 Section 500(2) of the Corporations Act prohibits the continuation of a proceeding against a company in liquidation without leave of the Court. The grant of leave under these provisions is an exercise in judicial discretion the relevant principles to be applied in the exercise of such discretion having been considered and stated by the New South Wales Court of Appeal in _Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) - _adopting Austin and Black's annotations of the Corporations Act 2001 [5.471B]:[1]

The relevant factors to be taken into consideration include the amount and seriousness of the claims; the degree and complexity of the legal and factual issues involved; the stage to which the proceedings, if commenced, have progressed; the risk that the same issues would be relitigated if the claims were to be the subject of a proof of debt; whether the claim has arguable merit; whether proceedings are already in motion at the time of liquidation; whether the proceedings will result in prejudice to creditors; whether the claim is in the nature of a test case for the interest of a large class of potential claimants; whether the grant of leave will unleash an "avalanche of litigation"; whether the cost of the hearing will be disproportionate to the company's resources; delay and whether pre-trial procedures such as discovery and interrogatories are likely to be required or beneficial (Austin and Black's Annotations to the Corporations Act at [5.471B]).

3 Only the Respondent made submissions in respect of the application for leave to proceed against a company in liquidation,[2] and for the reasons set out in paragraphs 8 to 15 of the Respondent's written submissions,[3] I am of the view that the discretion should be exercised in favour of granting leave to continue the proceeding against QBH to:[4]

(a) avoid potential duplication of litigation;

(b) allow the present application for a declaration in respect of the question of legal professional privilege (Privilege) to be determined; and

(c) permit the call for production of evidence of any communication or document referred to or relevant to any advice given by Armour, Burton or Selimi (then counsel for QBH) disclosed in the document filed by Mifsud with the Court by email on 22 February 2018,[5] (the Mifsud Statement).

Moreover, it is helpful to refer specifically to the Respondent's submissions at [14] and [15], as follows:[6]

1. Consequently and respectfully, the Court should exercise its discretion to permit the maintenance of the proceeding vis-à-vis QBH, on the balance of convenience,[7] as there is a real question to be determined as to whether privilege in the relevant legal advice(s) has been lost (see the following submissions) and whether it is appropriate that a costs order be made against QBH for its commencement of the substantive proceeding.
2. Such questions cannot properly be proved as debts in the winding up, at least, not without relevant orders of the Court. The first question, in respect of privilege, cannot be quantified for the purpose of such, and the second question, regarding costs, lies in the discretion of the Court in circumstances where there are multiple non-parties at risk of joint and/or several adverse costs orders.

4 While the liquidator of QBH indicated in its letter of 6 April that it did not intend to participate in the proceedings - at least in relation to the present application for leave to proceed - it did request that if leave be granted, such leave be subject to a sunset date.[8] This issue will be addressed in the settling of the final form of Order following the publication of these reasons.

5 The statutory regime for various species of privilege is now to be found in sections 117 to 134 of the Evidence Act 2008. Particular reference should, in the present circumstances, be made to sections 117 to 119 of the Evidence Act, as follows:[9]

1. The Evidence Act 2008 (Vic) (EA) establishes the statutory regime for various privileges in Part 3.10, from sections 117 to 134. Relevantly, section 118 states:

Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of -

(a) a confidential communication made between the client and a lawyer; or

(b) a confidential communication made between 2 or more lawyers acting for the client; or

(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person -

for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.

1. EA section 117 defines "confidential communication" and "confidential document" as follows:

""confidential communication" means a communication made in such circumstances that, when it was made -

(a) the person who made it; or

(b) the person to whom it was made -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law;

"confidential document" means a document prepared in such circumstances that, when it was prepared -

(a) the person who prepared it; or

(b) the person for whom it was prepared -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law.

1. EA section 119 establishes privilege over communications or document made for the dominant purpose of litigation.

6 While Mr Mifsud does not make any submissions on this issue,[10] in relation to these provisions Armour Legal and Mr Burton in their written submissions make particular reference to s 117 of the Evidence Act and argue as follows:[11]

1. Section 117 of the Evidence Act defines "client" to include "an employee or agent of a client".
2. Mr Mifsud was the sole director of QBH immediately prior to its liquidation. Therefore, prior to the liquidation of QBH, Mr Mifsud was an agent of QBH and came within the definition of "client" for the purposes of section 122 of the [Evidence] Act. Mr Mifsud could have at that time authorised the waiver of QBH's privilege.
3. The effect of the winding up order is that the powers of the director cease, although not the office of director.[12] Mr Mifsud cannot waive any legal professional privilege QBH may have been entitled to in respect of communications made by or to it.
4. Even if Mr Mifsud remains an agent of QBH, the liquidator has not authorised the waiver of privilege for the purposes of section 122(4).
5. Given the liquidator's clear refusal to waive privilege, it cannot be said the substance of the legal advice has been disclosed with his express or implied consent for the purposes of subsection 122(3)(b).
6. Therefore, neither subsection 122(3) (a) or (b) has been satisfied and privilege has not been waived.

7 The basis of legal professional privilege was stated by the High Court in Mann v Carnell, as follows:[13]

... Legal professional privilege exists to protect the confidentiality of communications between lawyer and client. It is the client who is entitled to the benefit of such confidentiality, and who may relinquish that entitlement. ...

Thus, the rationale underpinning privilege is that a client should be able to consult a lawyer in confidence without fear of having to disclose communications between them at a later date.

8 In the present circumstances the Respondent argues that the confidentiality of the communications the subject of the present application has been lost - for the reasons and on the bases set out in paragraphs 28 to 33 of the Respondent's submissions:

1. In the present circumstances, prior to any claim of privilege, the substance and effect of the advice given by Armour, Burton and Selimi, has been disclosed by Mifsud in the Mifsud Statement. In particular, the Mifsud Statement asserts:[14]
   1. ... The advice I received from Armour Legal and also Mr Brian Burton was that if another surveyor went to site and could accurately demonstrate that the pits and pipework were at the same levels as I had installed, that we could show [the Respondent] mislead [sic] the arbitrator and Fraud occurred therefore the award would be set aside.
   2. On the 8th June 2017 Troy Copper and associates were engaged to survey the development. ... Both Armour Legal and Mr Brian Burton advised me that we now had sufficient evidence and ground to set aside the award in the Supreme Court of Victoria. ...
   3. ... both Armour Legal and Mr Brian Burton explained that our chances to have the award set aside were good based on the evidence they had obtained. Being my Legal representatives "I took their word for it" and proceeded in writing and filing my affidavit under their guidance.
   4. Before writing the affidavit and proceeding a meeting with counsel being John Selimi had occurred in his chambers. John indicated that a high threshold or degree of proof would be needed to succeed. Again... Armour Legal and Mr Brian Burton advised me that this threshold had been met and that we were in the right.
2. This document recording the substance and effect of the legal advice received was volunteered by Mifsud to the Court and now forms part of the public record. In his covering email to the Mifsud Statement,[15] and by affixing his signature to the document, Mifsud made it patently obvious that his communication of the Mifsud Statement and the disclosure of the substance and effect of the communications and advice to the Court was a conscious and deliberate act, done in support of his opposition to an application for an adverse personal costs order.
3. As the Mifsud Statement is now part of the Court record of the proceeding, it is in the public domain and consequently the advice and communications described within it have lost any quality of confidentiality. Further, to the extent that the Court may consider removing the Mifsud Statement from the Court's record of proceeding, the document has been disclosed to [the Respondent], Armour and Burton and their legal representatives. Given the nature of the costs application brought by [the Respondent] and Armour & Burton's responding disposition to the same, it would be unfair to [the Respondent], Armour and Burton to allow [the Respondent] to maintain privilege over the matters disclosed in the Mifsud Statement.
4. Further and in the alternative, by its failure to object to the filing of the Mifsud Statement or otherwise to act in a manner to protect any privilege attaching to the matters addressed in the Mifsud Statement, QBH has impliedly waived privilege, or otherwise has acted (or by its failure to act) in a manner consistent with the maintenance of the privilege by allowing the substance and gist of the advice and communications to be disclosed.[16]
5. In any event, by reason of the absence of the essential quality of confidentiality that Privilege seeks to protect, there is no longer any Privilege to assert or otherwise now waive in respect of the content of the Mifsud Statement.
6. It is too late for [Evidence Act] section 118 and 119 to assist QBH should it seek to assert Privilege over any communication or document referred to in the Mifsud statement because any such objection only applies to confidential communications or confidential documents, and further, such objection must be made prior to the disclosure of the substance of the advice.

9 Thus it is said that by reason of the absence of the essential quality of confidentiality that the privilege claimed seeks to protect there is no longer any privilege to assert or otherwise now to waive in respect of the content of the Mifsud statement.

10 However, the, so called, Mifsud Statement upon which the Respondent relies in terms of disclosure (see Respondent's Submissions [28]-[33]) was provided under covering email dated 22 February 2018 - QBH having been placed into voluntary liquidation on 7 February 2018. Thus the operation of s 122 of the Evidence Act arises - and in circumstances where the liquidator has refused to waive privilege.

11 On this basis Armour Legal and Mr Burton submit as follows:[17]

1. Section 122 of the Act deals with loss of client legal privilege.
2. The relevant parts of that section state:

(2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.

(3) Without limiting subsection (2), a client or party is taken to have so acted if:

(a) the client or party knowingly or voluntarily disclosed the substance of the evidence to another person; or

(b) the substance of the evidence has been disclosed with the express or implied consent of the client or party.

(4) The reference in sub-section (3)(a) to a knowing and voluntary disclosure does not include a reference to a disclosure by a person who was, at the time of the disclosure, an employee or agent of the client or party or of a lawyer of the client or party unless the employee or agent was authorised by the client, party or lawyer to make the disclosure.

1. Paragraphs 3, 4, 5, and 6 of the Mifsud affidavit disclose the substance of legal advice given to QBH by Armour.
2. Such advice was privileged pursuant to sections 118 or 119 of the [Evidence] Act given it was contained in confidential communications between a lawyer and a client for the dominant purpose of:

(a) the lawyer providing legal advice (section 118); and/or

(b) the client being provided with professional legal services relating to an anticipated Australian proceeding (section 119).

1. Section 117 of the [Evidence] Act defines "client" to include "an employee or agent of a client".
2. Mr Mifsud was the sole director of QBH immediately prior to its liquidation. Therefore, prior to the liquidation of QBH, Mr Mifsud was an agent of QBH and came within the definition of "client" for the purposes of section 122 of the [Evidence] Act. Mr Mifsud could have at that time authorised the waiver of QBH's privilege.
3. The effect of the winding up order is that the powers of the director cease, although not the office of director.[18] Mr Mifsud cannot waive any legal professional privilege QBH may have been entitled to in respect of communications made by or to it.
4. Even if Mr Mifsud remains an agent of QBH, the liquidator has not authorised the waiver of privilege for the purposes of section 122(4).
5. Given the liquidator's clear refusal to waive privilege, it cannot be said the substance of the legal advice has been disclosed with his express or implied consent for the purposes of subsection 122(3)(b).
6. Therefore, neither subsection 122(3) (a) or (b) has been satisfied and privilege has not been waived.

12 In my view this analysis is in the present circumstances entirely correct - and it must follow that in the absence of authority from the liquidator as at 22 February 2018 the operation of section 122(4) of the Evidence Act deprived Mr Mifsud of capacity to make any relevant disclosure; hence privilege in the communications the subject of this application has not been waived and nor can it be said that confidentiality in any presently relevant sense has been lost.

13 Finally, the Respondent's contention that inaction by the liquidator of QBH amounts to acquiescence to the disclosure by Mr Mifsud and therefore implied waiver cannot be accepted.[19] Given that the position at the conclusion of the directions hearing (held the day after the Mifsud Statement was made) was that the Respondent would enquire of the liquidator whether it was willing to waive privilege,[20] and having regard to the limited financial resources available to the liquidator, it cannot be said that the liquidator - either through conduct or acquiescence - waived privilege by failing to take active steps in response to the making of the Mifsud Statement.

14 For the preceding reasons the Respondent's application for leave to continue the proceeding vis-à-vis QBH has been successful but the declaration sought that privilege in the relevant communications has been lost is refused.

15 The parties are to bring in orders to give effect to these reasons. I reserve the question of costs and will hear the parties on this issue.

QBH COMMERCIAL ENTERPRISES PTY LTD (ACN 163 992 498) (IN LIQUIDATION)

[1] [2012] NSWCA 435, [33].

[2] See Affidavit of Jordan Mifsud (29 March 2018); Outline of Submissions of Jordan Mifsud (Non Party) in Respect of the Respondent's Application for Costs (22 February 2018); Letter from Nicholas Giasoumi (the liquidator) to Skerret Legal (6 April 2018); Submissions by Armour Legal and Burton on Potential Waiver of Legal Professional Privilege by Jordan Mifsud (3 April 2018).

[3] Respondent's Outline of Submissions on the Questions of Leave to Continue the Proceeding against a Company in Liquidation and Privilege (3 April 2018), which are as follows (citations omitted):

8. By a letter to [the Respondent's] solicitor (Skerrett) dated 29 March 2018, QBH's liquidators notified Skerrett that the Second Non-Party (Mifsud) had made certain allegations against [the Respondent] which appear to be congruent with his allegations of fraud in the substantive proceeding before this Honourable Court. In this letter, QBH's Liquidators appear to suggest that they consider Mifsud's allegations to be a live issue which they have the power to investigate notwithstanding the outcome of both the arbitration and the substantive dispute in the present proceeding.

9. Should QBH's liquidators decline to accept [the Respondent's] proof of debt of the amount of the arbitral award in the winding up of QBH (even if the arbitral award were to be registered with the Court), this could lead to further litigation which would likely traverse the same subject matter advanced by QBH in the substantive dispute in the present proceeding.

10. It is respectfully submitted that the Court should exercise its discretion to grant leave to continue the proceeding against QBH (in liquidation) to:

b. allow the present application for a declaration in respect of the question of legal professional privilege (Privilege) to be determined; and

c. permit the call for production of evidence of any communication or document referred to or relevant to any advice given by Armour, Burton or Selimi (then counsel for QBH) disclosed in the document filed by Mifsud with the Court by email on 22 February 2018, (the Mifsud Statement).

11. Given that the substantive proceeding between QBH and [the Respondent] is concluded (i.e. the application to have the arbitral award set aside), the only remaining element of the dispute is an application for costs and the present application in respect of the question of privilege and leave to continue against QBH.

12. Further, such an exercise of judicial discretion would not be unreasonably adversely prejudicial to QBH's creditors, and in respect of the application for a declaration in respect of privilege, it is not a matter that could reasonably be expected to be proved in the winding up of QBH.

13. QBH's liquidators are aware of the present litigation and have so far declined to engage with the proceeding (as is their right), save for the present assertion of privilege over the substance of legal advice which is in the public domain and is the subject of following submissions.

14. Consequently and respectfully, the Court should exercise its discretion to permit the maintenance of the proceeding vis-à-vis QBH, on the balance of conveniences, as there is a real question to be determined as to whether privilege in the relevant legal advice(s) has been lost (see the following submissions) and whether it is appropriate that a costs order be made against QBH for its commencement of the substantive proceeding.

15. Such questions cannot properly be proved as debts in the winding up, at least, not without relevant orders of the Court. The first question, in respect of privilege, cannot be quantified for the purpose of such, and the second question, regarding costs, lies in the discretion of the Court in circumstances where there are multiple non-parties at risk of joint and/or several adverse costs orders.

[4] Respondent's Outline of Submissions on the Questions of Leave to Continue the Proceeding against a Company in Liquidation and Privilege (3 April 2018), [10].

[5] Affidavit of Skerrett sworn 3 April 2018 at [3], [4] and exhibit MFS-48.

[6] Respondent's Outline of Submissions on the Questions of Leave to Continue the Proceeding against a Company in Liquidation and Privilege (3 April 2018), [14]-[15].

[7] Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers Appointed); In the Matter of Forge Group Ltd (In Liq) (Receivers and Managers Appointed) [2016] FCA 1471, [22], citing Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484 per Lee J.

[8] Letter from Nicholas Giasoumi to Skerrett Legal (6 April 2018).

[9] Respondent's Outline of Submissions on the Questions of Leave to Continue the Proceeding against a Company in Liquidation and Privilege (3 April 2018), [20]-[22].

[10] Affidavit of Jordan Mifsud (29 March 2018), [4]. Nor does the liquidator, see Letter from Nicholas Giasoumi (the liquidator) to Skerret Legal (6 April 2018).

[11] Submissions by Armour Legal and Burton on Potential Waiver of Legal Professional Privilege by Jordan Mifsud (3 April 2018), [11]-[16].

[12] Mercantile Credits Ltd v Dallhold Investments Pty Ltd (In Liquidation) [1994] FCA 1398 at [12]; [1994] FCA 1398; (1994) 130 ALR 287. Now see subsection 198G(1) of the Corporations Act 2001 (Cth), while a company is under external administration, an officer of the company must not perform or exercise a function or power of that company. None of the exceptions in section 198G(3) apply in this situation.

[13] [1999] HCA 66; (1999) 201 CLR 1 at 13 [28].

[14] Affidavit of Skerrett sworn 3 April 2018 at [3], [4] and exhibit MFS-48 at [3] to [6].

[15] Affidavit of Skerrett sworn 3 April 2018 at [3], [4] and exhibit MFS-48.

[16] Mullet v Nixon [2016] VSC 129.

[17] Submissions by Armour Legal and Burton on Potential Waiver of Legal Professional Privilege by Jordan Mifsud (3 April 2018), [7]-[16].

[18] Mercantile Credits Ltd v Dallhold Investments Pty Ltd (In Liquidation) [1994] FCA 1398 at [12]; [1994] FCA 1398; (1994) 130 ALR 287. Now see subsection 198G(1) of the Corporations Act 2001 (Cth), while a company is under external administration, an officer of the company must not perform or exercise a function or power of that company. None of the exceptions in section 198G(3) apply in this situation.

[19] See Respondent's Outline of Submissions on the Questions of Leave to Continue the Proceeding against a Company in Liquidation and Privilege (3 April 2018), [31].