Carter v Northmore Hale Davy & Leake

At the hearing before the respondent on 20 April 1995 the applicant was represented by counsel. (Mr C was not present, but the applicant's counsel was heard too on Mr C's entitlement to refuse to answer the relevant questions.) The applicant invoked legal professional privilege in respect of questions concerning legal advice sought and obtained from Mr C about the sale of shares in Y Pty Ltd and the purchase of a freehold commercial property in Sydney. On the voir dire the applicant was examined by his own counsel and cross-examined by counsel assisting the respondent. Counsel assisting also tendered material, including copies of witness statements by two chartered accountants. One document, a copy of a mortgage, was included in the tender at the request of the applicant's counsel. The information so disclosed may be briefly summarized. I shall use only the initial of the surname to identify individuals and I shall also render anonymous by an appropriate initial all business entities. The applicant had been a director of a company which I shall call X Pty Ltd. That company had owned a freehold commercial property in Sydney ("the property"), which had been mortgaged in 1984 to the Commonwealth Bank of Australia ("the bank"). On 26 September 1988 a registered valuer, acting under instructions from Citibank-Private Bank, had determined the current market value of the property for mortgage purposes as $4 million. Some time prior to November 1988 a chartered accountant in Sydney, Mr W, was consulted by the applicant in the company of Mr C and two other solicitors, Mr F and Mr D. They sought from Mr W tax advice on the purchase of a building. He gave this and confirmed it later in writing. The applicant also sought advice on how to avoid income tax and capital gains tax on any profit on the sale of the building. Mr W declined to give such advice on the basis that it may possibly involve defrauding the Commonwealth by evasion of tax. Mr W did, however, refer the applicant to Mr T, a chartered accountant in Hong Kong, although he said that he could not be involved in the implementation of any scheme. Mr W telephoned Mr T to tell him that the applicant would be seeking a tax structure. Mr C telephoned Mr T and told him that he was acting for the applicant. He wished to establish a structure whereby a trust established in Hong Kong, of which the applicant was to be the beneficiary, became the beneficial owner of the shares in Y Pty Ltd. The trust was to purchase the shares in a Hong Kong shelf company which was, in turn, to purchase the shares in another Hong Kong shelf company. This last mentioned company was to be granted an option to purchase the shares in Y Pty Ltd at an exercise price of $100,000. The option was to be granted by attorneys in Hong Kong appointed by Mr F and Mr D, who were the shareholders in Y Pty Ltd. Mr T arranged for a trust to be established in Hong Kong on 20 November 1988. It may be referred to as the B Trust. The same day the trust purchased the two issued shares in a Hong Kong company that I shall call B Limited, and B Limited purchased the two issued shares in another Hong Kong company that I shall call A Limited. Mr T's firm provided the trustee of the B Trust and the nominee facilities for B Limited and A Limited. On 22 November 1988 Mr T faxed Mr C draft powers of attorney to be executed by Mr F and Mr D. On 2 December 1988 Mr T faxed Mr C a draft agreement providing for the attorney named in the draft powers to grant A Limited an option to purchase the shares in Y Pty Ltd at a price of $100,000 exercisable within 5 years. Mr T has never received from Mr C an executed option agreement. By an instrument dated 6 December 1988 X Pty Ltd transferred the property to Y Pty Ltd for a stated consideration of $1.7 million. This entire amount was apparently paid by X Pty Ltd to the bank in discharge of its mortgage. On 17 January 1989 the applicant presented a debtor's petition under the Bankruptcy Act 1966. It was accepted on 31 January 1989. The applicant's statement of affairs showed the Australian Tax Office as an unsecured creditor for $4 million in respect of income tax and penalties. The applicant also disclosed his ownership of 30,000 shares in X Pty Ltd to which he attributed "Nil" value. On 29 January 1990 Mr C received by telegraphic transfer from Hong Kong the sum of $99,845. His trust account receipt shows the sum as being for "exercise of option" and the client as Mr T. The relevant ledger card shows the funds so received being distributed the same month to Mr F and Mr D. At the hearing before the respondent counsel assisting conceded that "prima facie" the communications between the applicant and Mr C were within the ambit of legal professional privilege. However, he submitted that they fell within what the cases described as "the well-recognized crime or fraud exception". Specifically, counsel assisting charged that the transfer of the property from X Pty Ltd to Y Pty Ltd for $1.7 million in December 1988 was part of a fraud designed to raise enough money to discharge the mortgage to the bank but "preserve for [the applicant's] benefit his equity in the property and then put it beyond the reach of tax by transferring the money overseas". On the other hand, the primary submission of the applicant's counsel was that the exception did not apply at all at a hearing before the respondent under the Act. This submission was renewed on the hearing before me. Since the respondent published its decision on 23 May 1995, the importance of the doctrine of legal professional privilege has again been affirmed by the High Court in Carter v Northmore Hale Davy & Leake (1995) 69 ALJR 572. Counsel for the respondent submitted that the judgments in this case demonstrated the flaw in the applicant's central contention in support of his present application. In particular, the judgments of Deane J at 578-579 and McHugh J at 595 explain the true nature of the recognized exceptions. McHugh J said: "The so-called exceptions to the doctrine are in truth not exceptions at all. Rather they identify circumstances where the doctrine does not apply to communications between legal adviser and client. They exclude from the protection of the privilege communications that are designed to facilitate future wrongdoing. Thus, communications that come within the exceptions never attract the grant of legal professional privilege."

The applicant's central submission must accordingly be rejected, as it was by the respondent. The circumstances revealed on the voir dire dictate whether the particular communication is protected by legal professional privilege at all. No balancing exercise needs to be undertaken in order to determine whether to override such privilege. There is no two-stage process, and there is no question of "displacing the privilege" if it attaches to the communication. At the hearing before the respondent both counsel accepted that the question of legal professional privilege should be determined by a procedure akin to a voir dire as suggested by the Full Court in National Crime Authority v S (1991) 29 FCR 203. At that hearing counsel then appearing for the applicant objected to the use on the voir dire of the witness statements of Mr W and Mr T. In particular, the statement of Mr T contained the hearsay statement of Mr C that the applicant was his client and also there was annexed to it critical correspondence with Mr C. Counsel objected that none of this material could be tested. The objections were pressed in the context of his central submission that the so-called exception could have no application in a hearing before the respondent. The complaints of procedural unfairness were not renewed on the hearing before me. However, it should be said that counsel assisting put to the applicant the material relied on to exclude legal professional privilege attaching to his communications with Mr C. The applicant refused to answer the key allegations put to him on the basis that his answers might tend to incriminate him. In a court the circumstances relied on to exclude privilege must be proved by admissible evidence: Propend Finance Pty Ltd v Commissioner, Australian Federal Police (1995) 128 ALR 657 at 672, 691, 701. But the respondent is not a court. In Attorney-General for the Northern Territory v Kearney (1985) 158 CLR 500 the Aboriginal Land Commissioner inspected the documents in respect of which privilege was claimed at the invitation of the parties. There are, of course, no parties at a hearing before the respondent. Since legal professional privilege is a substantive rule of law, the respondent must do its best to give effect to it, notwithstanding that it is not bound by the rules of evidence. Having regard to the respondent's functions under the Act, it is entirely appropriate, in my view, that in the course of a special investigation under the Act it should have regard to the kind of material tendered by counsel assisting. On the hearing before me counsel for the applicant did submit that the material before the respondent was "insufficient to rebut" the claim for privilege. This submission was not developed by detailed reference to that material. In National Crime Authority v S Heerey J suggested (at 214) that a witness would have an opportunity to expand his or her argument in support of the claim before the Court, but counsel for the applicant was content to rely on the submissions put to the respondent. I am quite satisfied that the respondent was correct in deciding that the applicant's claim is not justified. The material before the respondent, the effect of which I have summarized earlier on, provided a foundation for the charge formulated by counsel assisting. It would not, of course, be sufficient to prove a charge in a criminal court. There are many gaps in the material that might be necessary to prove a civil case of fraud too. The value of the shares in X Pty Ltd would have to be affected by the disposal of an asset owned by that company for a price that is some $2 million less than its real value. It is not to the point that the trustee of the applicant's bankrupt estate will continue to have rights in relation to those shares. In addition, of course, the applicant's statement of affairs failed to disclose any interest under the deed of settlement constituting the B Trust. The decision of the respondent is affirmed. The applicant must pay the respondent's costs. I certify that this and the preceding six pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 20 December 1995 Counsel for the applicant: P.M. Skinner Solicitors for the applicant: Clinch Neville Long Counsel for the respondent: P.S Hastings QC Solicitor for the respondent: Australian Government Solicitor Date of hearing: 11 December 1995