Applicant v First non-party

1 By summons filed 19 January 2018, the respondent ('Dalle Projects') applied for an order that the applicant ('QBH') and the non-parties, QBH's lawyers Armour Legal and Brian Burton ('Burton'); and QBH's director Jordan Mifsud ('Mifsud') jointly and severally pay Dalle Projects' costs of this proceeding on an indemnity basis pursuant to s 29 of the Civil Procedure Act 2010 ('the CPA') or s 24 of the Supreme Court Act 1986.[1]

2 On the second day of hearing, I ordered by consent that Dalle Projects' claims against Armour Legal and Brian Burton be dismissed with no order as to costs; and Dalle Projects proceeded with its claim against Mifsud.

3 In 2015, Dalle Projects was a builder retained to construct 26 two-storey townhouses at 11 Troward Harvey Way, Craigieburn, Victoria ('the property'). QBH was engaged by Dalle Projects to undertake the plumbing work at the property.

4 On 31 August 2015, QBH stopped work at the property after a dispute with Dalle Projects.

5 By notice of dispute dated 18 April 2016, Dalle Projects claimed that QBH owed it $135,010.16 for works necessary to rectify defects in QBH's plumbing works.

6 On 3 February 2017, Mr B A (Toby) Shnookal QC ('the arbitrator') accepted an appointment as the arbitrator.

7 At the request of the parties, the arbitration was decided 'on the papers' after submissions were made in February and March 2017.[2]

8 By an award dated 27 April 2017 ('the Award'), the arbitrator ordered that QBH pay Dalle Projects the sum of $158,127.77, made up of the following sums:

9 Relevantly, the arbitrator found that, after QBH left the site, Dalle Projects engaged CWD Plumbing and Drainage ('CWD') to complete the plumbing works.[3] His allowance for rectification costs included amounts, which were the subject of:

(a) a tax invoice from CWD dated 15 January 2016 for $9,900 that purported to be for 'Establish[ing] the extent of excavation and rectification of existing in-ground plumbing works';[4] and

(b) a tax invoice no. 685 from CWD dated 28 May 2016 for $115,000 plus GST, that purported to be for 'Removal and reinstatement of defective in-ground plumbing works as quoted per VBA approved report' ('the relevant CWD invoice').[5]

10 Prior to publication of the award, by email of 20 February 2017, Mr Skerrett, the solicitor for Dalle Projects, responded to a letter from the arbitrator dated 15 February 2017. In particular, in response to the arbitrator's sixth direction, Mr Skerrett stated that 'Dalle confirms that the CWD invoice identified as LJD42 [being the relevant CWD invoice] was paid as invoiced'.

11 On 2 May 2017, the first non-party ('Armour Legal') was retained to act for QBH with respect to the Award.

12 On 4 May 2017, Dalle Projects served QBH with a statutory demand for the unpaid sum under the Award.

13 On 4 May 2017, Mifsud attended a conference with Michael Pena-Rees and Burton at Armour Legal's office, with respect to his concerns about the Award.

14 On 8 May 2017, Sam Prendergast of counsel was briefed to advise on behalf of QBH and he provided a memorandum of advice on 23 May 2017.

15 On or about 19 June 2017, Armour Legal lodged a request under the Freedom of Information Act 1982 with the Hume City Council requesting certificates of compliance for the 26 townhouses at the property.

16 On or about 26 June 2017, Armour Legal received a surveying report from Mr Cooper of Ground Surveyors, who had been retained on behalf of QBH to undertake a survey of the stormwater pits for the purpose of identifying if any in-ground rectification works had been completed, as alleged by Dalle Projects in the arbitration. In his affidavit affirmed on 26 July 2017, Mifsud deposed that, on the basis of Cooper's report, he formed the opinion that no work had been completed because:

(a) the stormwater pit heights had moved less than 100 mm; and

(b) all measured heights were higher above sea level than the Plan 'as built drainage' by Flat Out Surveying of 1 July 2015; and he considered rectification works should have lowered each stormwater pit.

17 On or about 28 June 2017, Pena-Rees had a telephone conversation with Mr Dremel, a director of CWD, the substance of which Pena-Rees deposes was as follows:

I stated that an award had recently been given and that I was seeking information regarding the work that was completed by CWD. Mr Dremel was very open and willing to provide information to me regarding the matter. I referred Mr Dremel to a copy of a quote/invoice to the amount of $115,000 plus GST totalling $126,500 for the inground work completed. Mr Dremel stated it sounded like a quote as he recalled invoicing more frequently and for small amounts. Mr Dremel recalled receiving payment of around $250,000 in total for all works completed at the property. Mr Dremel stated he was more than happy to provide us with copies of the invoices he issued to [Dalle Projects], and it was mutually agreed that the best way to do so would be to do so by email.

18 By email of 28 June 2017 to Dremel, Burton stated as follows:

Thanks for the opportunity to discuss this property development. I really appreciate your assistance in clearing up.

I have a couple of follow up questions.

If you could please:

1. Review the attached "quote/invoice" 675 and confirm if this is a quote or invoice?

2. Provide copy invoices for inground work completed?

1. Confirm the approximate completed works for stormwater and sanitary drainage?

4. Provide copies of photographs taken if any, of inground works?

1. Confirm who undertook the excavation necessary for rectification works? and
2. Provide copy purchase orders for materials purchased for inground rectification works?

Any assistance would be greatly appreciated.

Thank you and kind regards.

19 On 6 July 2017, Pena-Rees had a telephone conversation with Simon Flahavin of BSGM Consulting Building Surveyors who had issued the certificates of occupancy for the townhouses constructed at the property in June 2016. Pena-Rees deposes that Flahavin told him in substance as follows:

(a) The certificates of occupancy had been issued during June 2016.

(b) It was common practice for the plumber to issue a compliance certificate for inground plumbing work on one property only in a development like the one completed at the Property.

(c) He was surprised that there had been defects to the plumbing work, and that rectification work to the plumbing, specifically inground works to drainage and sewerage needed to be rectified on the Property.

(d) He would co-operate with a further request for documents.

20 By email of 6 July 2017 to Flahavin, Pena-Rees requested further documentation in the following terms:

Thank you for taking my phone call today.

As discussed, I would greatly appreciate the following documents, I assume they are in your possession:

1. Plumbing or drainage certificates for the townhouses;

1. Any site certificates that would show storm water or drainage connection certificates;

3. Any other documents relating to plumbing compliance;

4. Documents instructing how plumbing works were completed;

5. Any documents for Yarra Valley Water;

6. Any documents for subdivision.

I apologise for the breadth of documents requested, however, any assistance would be greatly appreciated.

21 On about 14 July 2017, Pena-Rees contacted Yarra Valley Water who advised that they had not received the 'as built' sewer plan for the property.

22 On or about 17 July 2017, Pena-Rees telephoned Mr Elliot, a former site supervisor employed by Dalle Projects. Elliot stated he had not been employed by Dalle Projects for approximately 18 months, he had left the employment of Dalle Projects prior to the rectification works and could not say if any works had been done.

23 On 19 July 2017, Armour Legal briefed John Selimi of counsel to settle the draft originating application and supporting affidavit of Mifsud.

24 On 26 July 2017, Armour Legal filed the Originating Application to set aside the Award pursuant to s 34 of the Commercial Arbitration Act 2011, with an overarching obligations certificate, pursuant to s 41 of the Civil Procedure Act 2010, signed by Mifsud. The Originating Application stated that the detailed grounds for seeking the order were contained in the accompanying affidavit of Mifsud affirmed on 26 July 2017. The affidavit summarised the grounds as follows:

1. Dalle relying on a CWD invoice in the arbitration that Mr Dremel of CWD fails to recognise;
2. The certification of above-ground works only by Clinton Dremel of CWD;

1. The surprise by the building surveyor Simon Flahavin that significant in-ground rectification works were supposedly completed, despite his numerous attendances on site to inspect for occupancy;

1. The lack of any meaningful change in stormwater pit heights and the changes being consistently further from the designed plan;

e. The lack of an as-built sewage plan held by Yarra Valley Water.

25 On or about 27 July 2017, the Victorian Building Authority provided documents in response to the Freedom of Information request, being compliance documents relating to the in-ground works of the property. Mifsud deposed, in his affidavit sworn 31 August 2017, that the documents indicated that CWD had not completed any below ground drainage works.

26 On 4 August 2017, Croft J gave directions for the conduct of the proceeding.

27 On 11 August 2017, Armour Legal filed subpoenas directed to:

(a) Dremel, for production of CWD invoices relating to the amount of $126,500 for in-ground plumbing work completed at the property; and

(b) Bendigo and Adelaide Bank, for production of the account identified on the CWD invoice dated 11 April 2017.

1. The documents produced by Dremel in response to the subpoenas included the following:

(a) CWD Invoice No 676 dated 25 February 2016 for $19,822 (of which counsel for Dalle Projects was instructed $17,839.80 was paid and related to rectification).

(b) Payment Certificate dated 25 April 2016 from Dalle Projects to CMJ showing Original Contract Value at $204,880 with $150,562 certified to date with the contract value made up of:

(i) Plumbing Hydraulics Subcontract Order : $152,880

(ii) Repair & replace undergrounds and sewer: $ 52,000

(c) CWD Invoice No 682 dated 25 April 2016 for $33,156.20 (of which counsel for Dalle Projects was instructed $14,500.20 related to rectification).

(d) CWD Invoice No 685[1] dated 3 May 2016 for $15,400 (of which counsel for Dalle Projects did not relate any amount to rectification).

(e) CWD Invoice No 685[2] dated 24 May 2016 for $33,583.00 (of which counsel for Dalle Projects was instructed $14,927.00 was paid and related to rectification).

(f) CWD Invoice No 0014 dated 25 September 2016 for $6,160.00 (of which counsel for Dalle Projects was instructed that all was paid and related to rectification).

As Mifsud deposed, in his affidavit affirmed 31 August 2017, the relevant CWD Invoice No 685 (the third invoice with this number) dated 28 May 2016 for $126,500, was not produced.

28 The documents produced by Bendigo and Adelaide Bank in response to the subpoena included the bank statements disclosing the sum of $156,633.40 being payments by Dalle Projects to CWD made up as follows:

29 On 24 August 2017, Burton had a conversation with Dremel, and deposed that the substance of the conversation was as follows:

1. I asked Mr Dremel if he had quoted [Dalle Projects] $115,000.00 + GST to complete inground plumbing rectification works at the property. Mr Dremel confirmed that he had quoted that figure to conduct rectification of all inground plumbing works. However, Mr Dremel confirmed that he did not complete inground rectification works as quoted, or to any significant extent.
2. I asked Mr Dremel if he could explain the scope of works he completed for inground plumbing works at the property. Mr Dremel responded that he had repaired some storm water pipes that were damaged by an excavator, and some that appeared to have been insufficiently glued. Mr Dremel confirmed that he had left most barrel or stormwater drains in place without interference. Mr Dremel confirmed that he did not do much digging at the property, indicating that he left much of the inground works as is. Mr Dremel also confirmed that he had completed some inground works in February 2016.
3. I asked Mr Dremel how he invoiced [Dalle Projects] for works completed at the property. Mr Dremel confirmed that he invoiced approximately once a month. Mr Dremel indicated that he invoiced for smaller amounts than $115,000.00 + GST because he did not conduct complete rectification of inground plumbing in accordance with his quote.
4. Mr Dremel confirmed that he did not invoice [Dalle Projects] for $115,000.00 + GST at any time, and in the event he did issue an invoice to such a large value, it would be a very detailed invoice, explaining the type and scope of works completed in significant detail.
5. I asked Mr Dremel to confirm how much he had been paid by [Dalle Projects] for inground plumbing works at the property. Mr Dremel could not confirm the exact figure, but could confirm that it was not $115,000.00 + GST. Mr Dremel mentioned that he did not receive approximately $40,000.00 from [Dalle Projects], for which he had invoiced. Mr Dremel then confirmed that any further payments would go to his trustee in bankruptcy anyway, and he was not actively pursuing any debts with [Dalle Projects].
6. Mr Dremel indicated that he would provide material to the Court in response to a subpoena, explaining that some of his business documentation was disorganised as a consequence of his personal bankruptcy.
7. Mr Dremel indicated that he was happy to help by the provision of documents, but did not want to get dragged into the middle of a dispute.
8. I advised Mr Dremel that I looked forward to seeing copies of documents he provided.

30 In his affidavit sworn 31 August 2017, Mifsud summarised the issues as follows:

(a) CWD never provided Dalle with an invoice for $126,500.00 (GST inclusive) for in-ground works completed in accordance with JM-5, however, the Arbitrator was led to believe JM-5 was genuine;

(b) Dalle did not pay the amount to CWD as was claimed by Mr Skerrett to the Arbitrator in JM-10 for in-ground work and rectification in accordance with JM-5;

( c) Mr Dremel confirming in his telephone call with Mr Brian Burton that work completed at the property did not replace all in-ground plumbing to the amount of $126,500 (GST inclusive);

(d) CWD already completed some in-ground works prior to 25 February 2016 as stated in the un-lodged compliance certificate of JM-15, which is prior to the report of Mr Peter Lamborn in JM-5;

( e) Mr Daley failed to provide the Arbitrator with the true and correct invoices that were submitted to Dalle by CWD, and which Daile paid;

(f) No compliance certificates were provided by CWD to Dalle that had been lodged for in-ground works; and

(g) The lack of any meaningful change in stormwater pit heights and the changes being consistently further from the designed plan.

31 By text message on 3 September 2017 to Skerrett, Mifsud said:

Happy Fathers Day Michael! Hope you had a wonderful day! Did you by any chance get to read my affidavit? Should I book a Jail Cell for both Lincoln and yourself? Or would you like 2 x plane tickets out of the country? I know I should stop talking but just wait until after the hearing buddy - I am going to sing like a canary. I know a lot more than you think!

32 By an affidavit affirmed on 11 September 2017, Mr Brett Wood, an accountant engaged by Armour Legal, deposed that he had inspected bank records, invoices and a payment certificate exhibited to the affidavit of Mifsud sworn 31 August 2017; and he had been unable to find a payment with respect to the relevant CWD invoice or the invoice dated 15 January 2016 for $9,900.

33 On 15 September 2017, at a directions hearing before Croft J, Mr Selimi, counsel for QBH, stated that QBH was abandoning its grounds of appeal made pursuant to ss 34(2)(a)(ii) and 34(2)(a)(iii) of the Commercial Arbitration Act 2011. Accordingly, the only ground relied upon by QBH was the public policy ground under s 34(2)(b)(ii) of that Act.

34 On 18 October 2017, the trial of the application before Croft J was adjourned because Dremel failed to comply with the subpoena, served on behalf of QBH, requiring him to attend court and give evidence.

35 By affidavit affirmed on 19 November 2017, filed on behalf of QBH, Dremel deposed in summary as follows:

(a) The invoice for $9,900 dated 15 January 2016 was not paid and 'must have been knocked back by Dalle otherwise it would have shown up in my bank records'.

(b) On 28 May 2016, an invoice was issued to Dalle by CWD for $126,500 (inclusive of GST) but 'this invoice was knocked back' and was not paid.

36 By an affidavit sworn 30 November 2017, filed on behalf of Dalle Projects, Dremel deposed as follows:

(a) Daley had explained to him that the relevant CWD invoice 'would not be paid in full at that time ... [it] needed to be claimed as the works were completed and would then be paid. ... claims were subsequently made by CWD for part values (of this invoice) as they were completed, which were consequentially paid by Dalle Projects'.

(b) The statement in the affidavit of 19 November 2017 about the non-payment of the $9,900 was incorrect. He explained:

I had made this comment after reviewing the bank statements as presented to me by Armour Legal which as I have noted prior is not a complete set of accounts of CWD. Had the invoice not been paid, the investigation works would not have been carried out and they were.

(b) In summary the reason why he had sworn the prior affidavits was as a result of being harassed and intimidated by Armour Legal.

37 By affidavit sworn 1 December 2017, Daley deposed that:

[Dalle Projects] paid CWD Plumbing and Drainage instalments of the $126,500 as when the work was completed. ...

Following 6 May 2016, I paid CWD Plumbing and Drainage Pty Ltd ... the further instalments of the $126,500 as when the works were completed.

38 By affidavit sworn 13 December 2017, Daley deposed that his previous affidavit should have read:

Following 6 May 2016, [Dalle Projects] paid CWD Plumbing and Drainage Pty Ltd ... some of the further instalments of the $126,500 as when the works were completed. [underlining added]

Daley did not produce any record evidencing the payment.

39 On 13 December 2017, the application came on for hearing before Croft J. Pena-Rees deposed that Croft J outlined the relevant principles, as identified in Swiss Singapore Overseas Pte Ltd v Exim Rajathi India ('the Swiss Singapore case'),[6] as follows:

(i) If the fraud alleged is in the shape of perjury, the applicant must prove that its new evidence could not have been discovered or produced, despite reasonable diligence, during the arbitration proceedings;

(ii) The newly discovered evidence must be decisive in that it would have prompted the arbitrator to have ruled in favour of the applicant instead of the other party;

(iii) If the fraud was in the shape of non-disclosure of a material document the document must be so material that earlier discovery would have prompted the arbitrator to rule in favour of the applicant; and

(iv) Negligence or error in judgment in failing to discover a crucial document would not be sufficient to justify a setting aside of the award and for that purpose the non-disclosure must have been deliberate and aimed at deceiving the arbitrator.

As a result of his Honour referring the parties to the Swiss Singapore case, and Mr Selimi's advice to QBH in respect of the impact of that case on QBH's proceeding, QBH sought (and was granted) leave on 13 December 2017 to discontinue the proceeding.

41 On 12 January 2018, QBH filed a notice of discontinuance of its application to set aside the statutory demand, which had been served in the time described by s 459G of the Corporations Act 2001 (Cth).

42 On 19 January 2018, Dalle Projects filed the summons referred to in paragraph 1.

43 By email of 1 February 2018 to Mifsud, Pena-Rees asked whether QBH would waive legal professional privilege over the relevant file maintained by Armour Legal, instructions given by QBH and the advice given to QBH by Armour Legal and counsel.

44 On 7 February 2018, Mr Shane Deane and Mr Nicholas Giasoumi ('the liquidators') were appointed as liquidators to QBH.

45 By a document dated (not sworn) 22 February 2018 entitled 'Affidavit of Jordan Mifsud (Non Party) in respect of the respondent's application for costs' ('the Mifsud Statement'), Mifsud set out the content of communications between QBH's legal advisers and Mifsud as the then director of QBH, which was subject to a claim for legal professional privilege by the liquidators of QBH.

46 By letter dated 7 March 2018 to Skerrett Legal, Deane stated that he did not waive legal professional privilege in respect of any advice provided to QBH.

47 On 12 April 2018, Croft J dismissed an application by Dalle Projects for a declaration that privilege had been lost in respect of the advice to QBH given by Armour, Burton and John Selimi.[7]

48 By letter dated 3 May 2018 to Deane, the solicitors for Armour Legal and Burton referred to background information and, in paragraph 7, asked:

A matter which is relevant to Evidence Act Application is whether the Company objects to the admission of the Document and/or evidence of any other relevant privileged communications or documents into evidence in the Costs Application. Would you please advise whether you object to such admission of the Document and/or evidence of any other relevant privileged communications or documents?

49 By letter dated 9 May 2018 in response to a request by the solicitors for the first and third non-parties as to whether the liquidators objected to admission of the privileged material, Deane stated:

I confirm my previous advice that I do not intend to participate in these proceedings and my position relating to privelege [sic] has not altered.

50 By letter dated 9 May 2018, in response to a request by the solicitors for Armour Legal and Burton to clarify its position with respect to the query in paragraph 7 of the letter, Deane stated:

Your letter states that "... the letter does not provide a response to our query at paragraph 7 of our letter dated 3 May 2018. We would be grateful for a response to that query..."

In my previous letter of earlier today I advised that "... my position relating to privilege has not altered..."

I do not consider this response ambiguous and is a full response to your query at paragraph 7 of your letter of 3 May 2018.

However, for the avoidance of any doubt whatsoever I do not consent to the production of any document or evidence to which privilege attaches.

Dalle Projects' claim for production of the Mifsud Statement and related documents

51 By summons filed 27 April 2018, Dalle Projects sought orders for the production of the Mifsud Statement. The orders ultimately sought at the hearing before me were as follows:

1. Pursuant to Evidence Act 2008 ('EA') section 121(3), the Mifsud Statement affects a right or rights of a person or persons;
2. Nothing in EA part 3.10, division 1 prevents the Mifsud Statement being adduced;

1. Pursuant to Civil Procedure Act 2010 ('CPA') section 26(2)(b), each of the Applicant and the Non-Parties disclose the existence of all documents that are or have been in their respective possession, custody or control of which they are aware relevant to resolving the dispute; and if Dalle Projects is successful in obtaining the foregoing orders,

1. Each of the Applicant, First, Second and Third Non-Parties produce to Dalle Projects evidence of any communication or document referred to, or relevant to, any advice or legal services given by Armour, Burton or Selimi disclosed in the Mifsud Statement; and/or
2. Each of the Applicant, First, Second and Third Non-Parties produce to Dalle Projects evidence of any communication or document reasonably necessary to enable a proper understanding of the Mifsud Statement pursuant to EA section 126.

52 The grounds of the application for an order for production were that:

a. The liquidators had not objected to production within the meaning of ss 118 and 119 of the Evidence Act 2008 ('the Evidence Act'); and

b. The Mifsud Statement affected a right of a person within the meaning of s 121 of the Evidence Act.

53 On 21 May 2018, I dismissed the summons filed 27 April 2018 for the reasons set out below.

54 Section 118 of the Evidence Act provides as follows regarding legal professional privilege with respect to legal advice:

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.

55 Section 119 of the Evidence Act provides with respect to litigation privilege:

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 between the client and another person, or between a lawyer acting for the client and another person, that was made; or

(b) the contents of a confidential document (whether delivered or not) that was prepared -

for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party.

56 Section 121(3) of the Evidence Act provides:

This Division does not prevent the adducing of evidence of a communication or document that affects a right of a person.

57 Section 126 of the Evidence Act provides with respect to the loss of client legal privilege with respect to related communications and documents relevantly as follows:

If, because of the application of section 121 ... this Division does not prevent the adducing of evidence of a communication or the contents of a document, those sections do not prevent the adducing of evidence of another communication or document if it is reasonably necessary to enable a proper understanding of the communication or document.

58 Section 6 of the CPA relevantly provides:

Nothing in this Act is intended to override -

(a) ...

(b) the doctrine of privilege, whether arising by or under the common law, statute or otherwise.

59 Section 26 of the CPA provides:

(1) Subject to subsection (3), a person to whom the overarching obligations apply must disclose to each party the existence of all documents that are, or have been, in that person's possession, custody or control -

(a) of which the person is aware; and

(b) which the person considers, or ought reasonably consider, are critical to the resolution of the dispute.

(2) Disclosure under subsection (1) must occur at -

(a) the earliest reasonable time after the person becomes aware of the existence of the document; or

(b) such other time as a court may direct.

(3) Subsection (1) does not apply to any document which is protected from disclosure -

(a) on the grounds of privilege which has not been expressly or impliedly waived; or

(b) under any Act (including any Commonwealth Act) or other law.

(4) The overarching obligation imposed by this section -

(a) is an ongoing obligation for the duration of the civil proceeding; and

(b) does not limit or affect a party's obligations in relation to discovery.

60 Counsel for Dalle Projects submitted that, ss 118 and 119 of the Evidence Act only prohibit evidence being adduced 'on objection by a client'. The liquidators of QBH, being the client, have not objected because:

(a) refusing to waive privilege does not constitute an objection; and

(b) it is insufficient to assert a claim for privilege by a letter to the Court or another party.

61 In support of the proposition that the liquidators' refusal to waive privilege did not constitute an objection under ss 118 or 119 of the Evidence Act, counsel for Dalle Projects relied upon the following statement by Brereton J in Hancock v Rinehart (privilege):[8]

[T]he grounds of the objection must be stated on oath, so that the court can determine their sufficiency: as already mentioned, the claimant must, by admissible direct evidence, set out the facts from which the court can see that the assertion is rightly made.

62 I reject this submission for the following reasons:

(a) In the above passage, Brereton J is identifying the requirement that attaches to a person who wishes to object to the production of a document on the ground of privilege - being that they are required to set out the relevant facts that support the claim for privilege so that

(i) 'the Court can determine their sufficiency'; and

(ii) 'the Court must rule on the objection before production can be compelled'.[9]

(b) In the present case, the question of whether the advice given by Armour Legal, Burton and Selimi to QBH is properly the subject of a claim of privilege by QBH has been determined in the positive by Croft J.[10]

(c) I consider the liquidators' refusal to waive privilege, as expressed in its letter to Dalle Projects' solicitors dated 7 March 2018 and the two letters dated 9 May 2018 to the solicitors for the first and third non-parties, constitutes a clear and unequivocal objection within the meaning of ss 118 and 119 of the Evidence Act.

Does the Mifsud Statement affect a right of a person within the meaning of s 121 of the Evidence Act?

63 It was submitted by counsel for Dalle Projects that the Mifsud Statement affects the following rights:

(a) Dalle Projects' right for the proper consideration by the Court and the exercise of its judicial discretion with respect to the application for a costs order against the non-parties.

(b) The rights of Armour Legal, Burton and Mifsud because they are each the subject of applications for adverse costs and other compensatory orders; and they should be able to rely upon the Mifsud Statement in an attempt to resist such applications.

(c) Mr Daley's right to know how the allegation of fraud, as the director of Dalle Projects, was made against him.

64 It was further submitted that, on the basis that the Mifsud Statement is admissible under s 121(3) of the Evidence Act, the related documents and communications could also be adduced as evidence because they were reasonably necessary to enable the proper understanding of the Mifsud Statement, within the meaning of s 126 of the Evidence Act.

65 It is well established that the words 'affects a right of a person' does not extend to a communication or document that is simply relevant to the determination of a party's rights.[11] If it were otherwise, legal professional privilege would become virtually inutile because:

(a) only documents, which were irrelevant to the rights under consideration by a court (and therefore usually inadmissible), would be excluded under s 56(2) of the Evidence Act; and

(b) legal professional privilege would be virtually eliminated as a ground for non-admission of relevant evidence.[12]

66 The words 'affects the right of a person' should be interpreted narrowly to communications that directly[13] have 'the result of creating, limiting or terminating a person's rights'.[14]

67 Examples of when s 121(3) would apply have been given by the following courts:

(a) In Green v AMP Life,[15] Campbell J gave the following three examples:[16]

(i) In the case of a testamentary disposition, the legal professional privilege rule did not prevent the court receiving evidence from a solicitor whose client had died, that the client had given the residue of his estate by will to the defendants, intending them to hold it upon a secret trust and that the defendants had agreed to accept that trust (Russell v Jackson [1851] EngR 955; (1851) 68 ER 558);

(ii) A creditor could tender in evidence a statement made by a debtor (in a without prejudice letter written to compromise a dispute), that the debtor had suspended payment of his debts. The creditor relied upon that statement as an act of bankruptcy and it was held that he could do so (Re Daintrey Ex parte Holt (1893) 2 QB 116); and

(iii) A notice of exercise of an option contained in a without prejudice letter written in an attempt to settle pending litigation, could be proved by the tender of the letter (Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625).

(b) In R v P,[17] Hodgson JA gave the example of the circumstances arising in Conlon v Conlon[18] where an interrogatory was directed to whether a client had authorised the solicitors to enter into a settlement, the existence of which was the subject of the proceeding.[19]

(c) In KC v Shiley Inc,[20] Tamberlin J suggested examples of situations, which might fall within the words of the subsection, as being 'defamatory statements, a contractual offer, and acceptance of an offer or exercise of an option or statement which constitute a binding election or waiver'.[21]

68 In my opinion, the Mifsud Statement does not create, limit or terminate any person's rights; and at best it could be said that the statement may have been relevant evidence in a hearing determining such rights. This is not sufficient.

Dalle Projects' claim for costs against a non-party

69 Dalle Projects makes its application for orders against Mifsud under the following sections:

(a) Section 24(1) of the Supreme Court Act 1986, which provides as follows:

24 Costs to be in the discretion of Court

(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

(b) Section 29(1)(a) of the CPA which provides as follows:

Court may make certain orders

(1) If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to -

(a) an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation.

70 In Knight v FP Special Assets Ltd ('Knight'),[22] Mason CJ and Deane J recognised a general category of case in which a court could make an order for costs against a non-party, if the interests of justice require, as arising in the following circumstances:

(a) The party to the litigation is an insolvent person or man of straw.

(b) The non-party has played an active role in the conduct of the litigation.

(c) The non-party (or some person on whose behalf he or she is acting or by whom he or she has been appointed) has an interest in the subject of litigation.

71 Of course the usual costs order in a proceeding is that the costs follow the event - meaning that the losing party is ordered to pay the costs of the successful party. To order the costs against a non-party is exceptional, in the sense that it is 'outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense'.[23] The informing principle of a non-party costs order was explained by the Court of Appeal in Gdanski v Palms Court Management Pty Ltd ('Gdanski'):[24]

[The informing principle] is that, if a party to litigation is liable to pay the costs of the successful party but is unable because of insolvency to do so, justice may require the costs to be paid by a non-party if it can be shown that the non-party played an active part in conducting the litigation and stood to benefit from a successful outcome.

72 Here, there is no issue about the first of the three elements identified in Knight. On 7 February 2018, liquidators were appointed to QBH on a creditors voluntary liquidation and QBH is unable to pay the costs consequential upon its discontinuance of the proceeding on 13 December 2017.

73 The second and third elements, being the active role and the relevant interest, are satisfied if the non-party is 'a real party' to the litigation in 'critical' and 'important' respects.[25]

Did Mifsud play an active role and have a relevant interest in the litigation?

74 Whether Mifsud is a real party to the litigation in a relevant sense is answered by examining his role in the conduct of litigation and his interest in its outcome.[26] Whether the non-party is a real party is to be evaluated by reference to all of the relevant factors; and each of the criteria should not be treated separately. As Basten JA said in FPM Constructions v Council of the City of Blue Mountains:[27]

The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact.

75 The fact that a director instructs and assists solicitors with respect to litigation by a company is unremarkable. As the Court of Appeal said in Gdanski v Palms Court Management Pty Ltd:[28]

Given that Mr Gdanski was acting in his capacity both as a director of the company and as its solicitor, the activities listed are unremarkable. As the authorities recognise, and as senior counsel for Palms properly conceded, a company is an artificial legal entity which must, of necessity, conduct its commercial activities through natural persons, who represent it in commercial dealings and make decisions on its behalf. Likewise, when it engages in litigation, the company must do so through natural persons, who act as its legal representatives.

76 It is apparent that to enliven the discretion to award costs against a non-party 'something more'[29] is required than a director merely assisting the corporate litigant in the conduct of litigation, which may be in accordance with his or her fiduciary duties. The 'something more' may be a director giving instructions to pursue a claim or defence which has no real prospects of success.[30]

77 The institution of a proceeding based on fraud without reasonable grounds or the continuation of such a proceeding 'stubbornly and totally unreasonably'[31] can provide the something more required to enliven the discretion. However, the requirement for there to be reasonable grounds does not necessitate 'a mini trial to reach a conclusion that the allegation must, or indeed would on the balance of probabilities, succeed'.[32]

78 Counsel for Dalle Projects submitted that Mifsud was actively involved in the litigation in that he was aware, or should have been aware, that the proceeding had no real prospects of success - either:

(a) at the time of instituting the proceeding; or alternatively

(b) by the time he swore his second affidavit on 31 August 2017, by which time he had received the subpoenaed documents that demonstrated that Dalle Projects had paid CWD for rectification works.

79 In my opinion, at the time of the commencement of the proceeding there was a reasonable basis for the allegation that the relevant invoice was not genuine and that Dalle Projects had not paid the amount of the invoice for the rectification work. The reasons for this conclusion are as follows:

(a) Prior to institution of proceedings, Mifsud instructed solicitors, obtained advice of counsel and counsel was briefed to settle the Originating Application to set aside the Award, together with the affidavit in support. Although the liquidators of QBH had not waived privilege with respect to the content of any advice, there was no evidence that Mifsud had acted contrary to any advice.

(b) The solicitors for QBH had obtained a surveyor's report for the purpose of identifying if any in-ground rectification works had been completed as alleged by Dalle Projects. On the basis of that report, Mifsud deposed that he formed the opinion that no work had been completed. On this application, there was no challenge to that opinion.[33]

(c) The solicitor for QBH had a telephone conversation with Dremel, a director of CWD, who did not say that the relevant invoice was genuine. Pena-Rees deposed that Dremel said that it 'sounded like a quote as he recalled invoicing more frequently and for small amounts'.[34]

(d) The solicitor for QBH had also spoken to the consultant building surveyor, who had issued the certificate of occupancy for the townhouses. Pena-Rees deposed that the building surveyor had said that 'he was surprised that there had been defects to the plumbing work, and that rectification work to the plumbing, specifically in-ground works to drainage and sewerage needed to be rectified on the Property'.[35]

(e) The solicitor for QBH had also attempted to make other enquiries including:

(i) contacting Yarra Valley Water requesting a copy of the 'as built' sewer plan (which was not available);

(ii) speaking to the former site supervisor who was unable to assist; and

(iii) writing to Dremel and to the building surveyor requesting further information following the respective conversations (which was not supplied).

80 Further, I consider that by the time that Mifsud affirmed his second affidavit on 31 August 2017, there were reasonable grounds for continuing the proceeding. In fact, in my opinion, the following further matters, which had come to light after institution of the proceedings, provided substantial support for an allegation of that the relevant CWD invoice was not genuine and had not been paid:

(a) The relevant CWD invoice was not produced by Dremel on subpoena.

(b) There was no record of payment of the relevant CWD invoice apparent from the bank records. In fact, the statements produced by the Bendigo and Adelaide Bank disclose payments to Dremel of only $104,698.40 for all work after the date of the relevant invoice. On the case as submitted by counsel for Dalle Projects, the invoices produced only evidenced payments of $53,427 related to rectification works.

(c) As submitted by counsel for Dalle Projects, the amounts that related to the rectification works were in fact part of a number of invoices for smaller amounts between February and September 2016. This is consistent with Dremel's statement to Pena-Rees on 28 June 2017. Counsel for Dalle Projects was unable to explain how the issue of the relevant CWD invoice on 28 May 2016 was consistent with the issuing of the six invoices between February and September 2016 (which were produced) for the same rectification work. Neither was there any explanation about why there were three invoices from CWD to Dalle Projects numbered 685.

81 In the circumstances, I do not consider that Dalle Projects has established that Mifsud was a real party to the litigation in the relevant sense for the following reasons:

(a) Mifsud was a sole director of QBH but the shareholder was QBH Holdings Pty Ltd. There was no evidence as to who held the interest in QBH Holdings Pty Ltd.

(b) The fact that Mifsud gave instructions to his solicitors and affirmed affidavits in support of QBH's application does not take him out of the ordinary role of a director who gives instructions and assistance for proceedings on behalf of the company when he is of the opinion it is in the interests of the company to do so.

(c) Mifsud gave instructions to file and continue the proceeding on behalf of QBH after consultation with solicitors and with the assistance of counsel.

(d) Mifsud had reasonable grounds for his belief that:

(ii) contrary to what the arbitrator was told by Dalle Projects, it had not paid all of the amount the subject of the relevant invoice.

82 Other relevant considerations are that at no time did Dalle Projects apply for security for costs, nor was a warning given to Mifsud that Dalle Projects would hold him liable for costs.

83 More significantly, at no time during the proceeding did Dalle Projects demonstrate by reference to records or other evidence that the relevant CWD invoice was genuine and had been fully paid. On the hearing of the application before me, counsel for Dalle Projects was still unable to do so. Counsel contended that Dalle Projects was under no obligation to substantiate the fact that the relevant CWD invoice had been paid. That may be so, but the fact that Dalle Projects did not do so does not assist its current application for costs against the director on the basis that the claim brought by QBH was hopeless. Nor is it consistent with its obligations under ss 20 and 23 of the CPA to cooperate and narrow the issues in the conduct of civil litigation.

84 The further contention that Mifsud can somehow be personally responsible for the fact that QBH's lawyers were not aware of the relevant authorities is without foundation. The authorities were not referred to in the submissions filed on behalf of Dalle Projects for the hearing before Croft J but, even accepting that proper research by the lawyers would have revealed the relevant authorities, I do not consider it is a basis for a non-party costs order against the director of a corporate party.

85 With respect to Mifsud's liability, counsel for Dalle Projects further submitted that the text message of 3 September 2017:

(b) was in breach of Mifsud's obligations under ss 16 and 19 of the CPA;

(c) sought to link the solicitor for Dalle Projects with the allegedly fraudulent conduct; and

(d) was intended to intimidate the solicitor for Dalle Projects in the performance of his duties to the Court and was therefore, in the words of counsel for Dalle Projects, intended to 'frustrate the proper administration of justice or improperly influence an officer of the Court'.

86 While abusive communications from a litigant to a solicitor for another party are to be discouraged, there was no evidence that the text message of 3 September 2017 resulted in the incurring of any costs. An order for costs is compensatory and such an 'order is not in any sense meant to be a penalty'.[36] I do not consider that the fact that Mifsud sent the text message of 3 September 2017 to Dalle Projects' solicitor is a proper basis for a non-party costs order.

87 I propose to dismiss the respondent's summons filed on 19 January 2018 and hear the parties on the question of costs.

[1] The summons also applied for an order that the same parties pay interest pursuant to s 29(1)(c) of the Civil Procedure Act 2010 on the principal sum of the arbitral award but this claim was withdrawn during the course of argument.

[6] [2009] SGHC 231 (Judith Prakash J).

[7] QBH Commercial Enterprises Pty Ltd (in liq) v Dalle Projects Pty Ltd [2018] VSC 171 (Croft J).

[8] [2016] NSWSC 12 [27].

[9] Ibid [25] (emphasis in the original).

[10] QBH Commercial Enterprises Pty Ltd (in liq) v Dalle Projects Pty Ltd [2018] VSC 171 [5], [13].

[11] Talbot v NRMA Ltd [2000] NSWSC 602 [3] (Hodgson CJ in Eq).

[12] Ibid; Director of Public Prosecutions v Galloway [2014] VSCA 272; (2014) 46 VR 809, 819 [41] (Maxwell P, Neave and Coghlan JJA).

[13] R v P [2001] NSWCA 473; (2001) 53 NSWLR 664, 679 [41] (Hodgson JA, with whom Mason P and Ipp AJA agreed; though Ipp AJA departed from Hodgson JA's reasoning on other matters not relevant to the present analysis).

[14] Australian Law Reform Commission (Final Report No 38 - 'Evidence', 1987) [196].

[15] [2005] NSWSC 95.

[17] [2001] NSWCA 473; (2001) 53 NSWLR 664.

[18] (1952) 2 All ER 462.

[19] R v P [2001] NSWCA 473; (2001) 53 NSWLR 664, 679 [42].

[20] Unreported, Federal Court of Australia, 11 July 1997 (BC 9703039).

[22] (1992) 174 CLR 178, 192-3.

[23] Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145, 156 [25(1)] (Lord Brown, who delivered the judgment of the Court); cited with approval in Yu v Cao [2015] NSWCA 276; (2016) 91 NSWLR 190, 216 [139] (McColl JA, with whom Sackville AJA and Adamson J agreed).

[24] [2017] VSCA 348 [66] (Maxwell P, McLeish JA and Keogh AJA).

[25] Ibid [69] approving the formulation in Keboro Pty Ltd v Saunders [2003] FCAFC 5 [111], [113]-[114].

[27] [2005] NSWCA 340 [214] (with whom Beazley and Gyles JJA agreed).

[28] [2017] VSCA 348 [72].

[29] FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 [212].

[30] Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 [87] (Gleeson JA, with whom Macfarlan JA and Leeming JA agreed); Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406, 412 (Callinan J).

[31] Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 179 ALR 406, 412 [30] (Callinan J).

[32] Allstate Life Insurance Co v Australian and New Zealand Banking Group Ltd (1995) 57 FCR 360, 372 (Hill J).

[33] Transcript 209 June 2018 page 45 lines 27-31.

1. [36] Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [No 4] [2012] FCAFC 50; (2012) 200 FCR 154, 171 [93] (Keane CJ, Lander and Foster JJ).