Factory 5 Pty Ltd (In Liquidation) v State of Victoria

1 On 20 June 2008 Registrar Moore made the following orders, amongst others: 4. The First Respondent have leave to join in the Notice to Produce filed and served by the Second and Third Respondents dated 26 May 2008. 5. The Respondents have leave to uplift, inspect and copy the Funding Deed between International Litigation Partners Pty Ltd, Andrew Hugh Jenner Wily, and Factory 5 Pty Ltd (in liquidation), produced in response to the Respondents' Notice to Produce dated 26 May 2008, such document to be redacted to remove the amounts set out in paragraph 2.1 thereof. 6. Paragraph 5 of this order is stayed until 21 days from today's date, or if an application under subsection 35A(5) of the Federal Court of Australia Act 1976 is made within that time, until the determination of that application. … 8. The further return of the subpoena addressed to the Proper Officer, Stage 5 Pty Ltd be heard at the same time as the hearing of any application referred to in paragraph 6 of these orders … 2 The notice to produce referred to in pars 4 and 5 of the orders in [1] required the applicant to produce at the return of the applicant's subpoenas for production issued on 3 April 2008 the "litigation funding agreement entered into by the joint liquidators of the applicant … and referred to in the statutory accounts lodged by the liquidators with the Australian Securities and Investments Commission". 3 The subpoenas of 3 April 2008 sought production of various documents by Stage 5 Pty Ltd (Stage 5), which is not a party to the proceeding. On 7 May 2008 Stage 5 produced, amongst others, a number of documents it claimed to be privileged. The documents the subject of the claim are those described in par 5 of Mr Glover's affidavit of 27 May 2008: 5.1 Letter dated 20 May 2005 from Fetter Gdanski, Factory 5's solicitor, to Rob Hilton and Simon Strapp, directors of Factory 5 Pty Ltd which is a confidential communication made for the dominant purpose of providing legal advice in respect of the Concessionaire Agreement between the applicant and the first respondent (the Concessionaire Agreement) and possible causes of action arising from alleged breaches of that agreement in contemplation of litigation; 5.2 Letter dated 3 May 2005 from Alastair Little of Tresscox Lawyers, Factory 5's solicitor, to Derek Glover, director of Factory 5 Pty Ltd which is a confidential communication made for the dominant purpose of providing legal advice in respect of the Concessionaire Agreement; 5.3 Letter dated 16 March 2005 from Alastair Little of Tresscox Lawyers, Factory 5's solicitor, to Derek Glover, director of Factory 5 Pty Ltd which is a confidential communication made for the dominant purpose of providing legal advice in respect of the Concessionaire Agreement; 5.4 Letter dated 14 October 2005 from Bettina Evert of Fetter Gdanski, Factory 5's solicitor, to Simon Strapp, director of Factory 5 Pty Ltd which is a confidential communication made in contemplation of litigation; 5.5 Email dated 22 May 2005 from Derek Glover, director of Factory 5 to Alastair Little of Tresscox Lawyers, Factory 5's solicitor, which is a confidential communication made for the dominant purpose of requesting legal advice in relation to the Concessionaire Agreement; 5.6 Email dated 20 August 2005 from Derek Glover, director of Factory 5 to Bettina Evert of Fetter Gdanski, Factory 5's solicitor, which is a confidential communication made for the dominant purpose of requesting legal advice, in contemplation of litigation; 5.7 Draft Affidavit of Andrew Hugh Jenner Wily dated November 2005 which was created in contemplation of litigation. 4 Within the time specified in par 6 of the Registrar's orders the applicant sought review of par 5 of the orders under s 35A(5) of the Federal Court of Australia Act 1976 (Cth). Its notice of motion seeks orders that: (a) par 5 of the Registrar's orders be set aside; (b) the notice to produce of 26 May 2008 be set aside, and (c) the documents produced by Stage 5 pursuant to the applicant's subpoena and marked "privileged" are the subject of common interest privilege between Stage 5 and the applicant. 5 The material relied on by the applicant in support of the motion consisted of three affidavits sworn by Mr Glover and two by Mr Wily. In the first of Mr Glover's affidavits (21 May 2008) he says: · he is the sole director of Stage 5 · he is also a director of the applicant, which is in liquidation · Stage 5 holds all the shares in the applicant · he is in possession of the documents produced by Stage 5 in response to the subpoena, as a director of the applicant · Stage 5 has an interest in maintaining privilege over the documents as it is the sole shareholder of the applicant "and therefore has an interest in the outcome of these proceedings". Mr Glover then briefly lists the documents over which privilege is claimed (in an abbreviated form to that described at [3]). 6 In his second affidavit (27 May 2008) Mr Glover lists more fully the privileged documents (see [3]). He also says: 3. Stage 5 and The Promotions Factory Pty Ltd entered into a joint venture for the purpose of acting as the official concessionaire in respect of souvenirs, memorabilia and apparel for the 2006 Melbourne Commonwealth Games. Factory 5 was the joint venture vehicle which was formed to be the official concessionaire. 4. I was provided contemporaneously with copies of the documents over which privilege is claimed both as a director of one of the joint venture entities (being Stage 5) with a direct interest in the success of Factory 5, and also, and primarily, in my role as a director of Factory 5 itself. I produced the documents pursuant to the subpoena as I was a director of Factory 5. 7 In Mr Glover's third affidavit (4 July 2008) he explains what he meant by "contemporaneously" in par 4 of his second affidavit. He intended thereby to convey that he received copies of the documents "contemporaneously with their creation", that is to say, he received each of them on or about the dates they were created. Mr Glover also says: · documents 5.2, 5.3, 5.5 and 5.6 were addressed to him and received on or about the dates they bear · documents 5.1 and 5.4 were not addressed to him, but were provided to him by Simon Strapp, who was a director of the applicant at that time, on or about the dates they bear · he received document 5.7 on or about the date it bears, but cannot recall from whom he received it. By way of further clarification of his earlier affidavits, Mr Glover says he received the documents "simultaneously in both of my capacities; that is, as a director of the applicant and a director of Stage 5". 8 Mr Wily swore two affidavits. In the first (14 May 2008) he says that on 1 November 2005 he and Mr Hurst were appointed liquidators of the applicant. The balance of the affidavit essentially repeats what Mr Glover said about the documents for which Stage 5 claimed privilege. 9 Mr Wily's second affidavit (21 October 2008) was objected to by the respondents on the ground that he had failed to comply with notices that he attend for cross‑examination. Ultimately, nothing turned on the objection because everything in the affidavit was covered by other evidence, in particular the fact that "in or around March 2006" Mr Wily executed the litigation funding agreement the subject of the 26 May 2008 notice to produce in his capacity as liquidator of the applicant. 10 The first respondent relied on the affidavit of its solicitor, Matthew McCarthy, who produced records of the Australian Securities and Investment Commission in respect of the applicant. This material can be summarised as follows: (a) in a letter of 20 October 2005 Mr Hurst informed the applicant's creditors that the directors had requested him to assist them in calling a meeting to have the applicant placed into liquidation; (b) the Summary of Affairs that accompanied the letter described the applicant's financial position as comprising assets of $100 (cash at bank) and liabilities of $87,290.23 (unsecured creditors); (c) the unsecured creditors were Stage 5 ($12,290.23 and $37,500) and The Promotions Factory (Aust) Pty Ltd ($37,500); (d) contingent assets were $6 million - claim against Melbourne 2006 Commonwealth Games Corporation (this proceeding); (e) at a meeting of creditors on 24 March 2006, at which Paul Lindholm of IMF Limited (IMF) and Mr Hurst were present, it was resolved: · that the liquidators be authorised to enter into "a further funding arrangement to proceed with public examinations and any subsequent legal actions" · that the liquidators be authorised to make periodic payments in respect of their remuneration accrued to date of $21,395.20 · that the liquidators be authorised to make periodic payments in respect of their future remuneration, up to a maximum of $75,000 · that the liquidators' fees be uplifted at the rate of 25% in the event of successful recoveries by them; (f) for the period 1 November 2005 to 30 April 2006 the applicant received from IMF $95,000 of litigation funding ($50,000 on 30 March 2006 and $45,000 on 13 April 2006) and made payments to its solicitors for legal fees (13 April 2006) of $94,510.56; (g) the documents in respect of the period in (f) record that the liquidators do not "expect that a dividend will be paid to any class of creditor"; (h) documents for later six monthly periods up to 1 May 2008 record further receipts of litigation funding and payments to the applicant's solicitors, as well as statements of the same expectation as in (g) that no dividend will be paid to creditors. 11 Division 1 of Part 3.10 of the Evidence Act 1995 (Cth), dealing with client legal privilege, consists of ss 117 to 126. Section 118 deals with privilege in relation to legal advice. Section 119 deals with privilege in relation to litigation. Sections 121 and 122 concern the loss of privilege. Section 122(2) and (4) deal with loss through disclosure in certain circumstances. Subsection (5)(b) provides that nothing in sub‑ss (2) or (4) applies to: a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to a proceeding or an anticipated or pending proceeding in an Australian court or a foreign court. 12 There is no definition of the expression "common interest". Odgers gives examples of situations where the common interest would exist - disclosure by insured to insurer, partner to partner, co‑tenant to co‑tenant and liquidator to a company's creditors: Uniform Evidence Law (7th ed, Lawbook Co., 2006) at [1.3.11200]. 13 In South Australia v Peat Marwick Mitchell (1995) 65 SASR 72 at 75‑77, Olsson J said: [W]here a privileged document is exchanged between two parties with a common interest, both parties are entitled to claim and maintain that privilege. … It is to be borne in mind that the concept of common interest privilege is invoked so as to counter a suggestion that privilege has been waived by the deliberate release or publication of privileged material, by the party entitled to claim privilege, to a third party. … [A] joint or common interest is not to be taken as a rigidly defined concept. It spans a variety of potential relationships, including partnership. 14 In order for interests to be common, they need not be identical: Thiess Contractors Pty Ltd v Terokell Pty Ltd [1993] 2 Qd R 341 (an insured/insurer case). 15 In Network Ten Ltd v Capital Television Holdings Ltd (1995) 36 NSWLR 275 at 279‑280, Giles J said: If two parties with a common interest exchange information and advice relating to that interest, the documents or copy documents containing that information will be privileged from production in the hands of each; thus, if one of the parties obtains a letter of advice attracting legal professional privilege and provides it to the other, the other can also claim legal professional privilege. … Examples of interest sufficient for common interest privilege can be seen in the cases, but the concept is not rigidly defined and it is a question of fact in each case. 16 It is not necessary to decide whether documents 5.2 and 5.3 are protected by common interest privilege. It is now common ground that privilege has been waived in relation to them. Subject to the issues canvassed at [17] to [23], in my view common interest privilege attached to the other documents listed at [3] at the time they came into Mr Glover's possession. I accept the applicant's submission that joint venturers are analogous to partners for the purpose of the existence of a common interest. A fiduciary relationship exists between partners. It will often exist between joint venturers. See United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10‑13 and 15‑16. As indicated in the cases discussed earlier, "common interest" is not "a rigidly defined concept", and whether it exists in a particular case is a question of fact. Here the evidence, albeit skimpy as the applicant conceded, is that Stage 5 and The Promotions Factory Pty Ltd (Promotions) entered into a joint venture, using the applicant as the joint venture vehicle, to act as the official concessionaire in respect of souvenirs, memorabilia and apparel for the 2006 Commonwealth Games. Mr Glover was provided with copies of the documents in question at about the time each was created in his capacity as a director of Stage 5 and the applicant. 17 The respondents submit that Mr Glover's claim to "maintain" the privilege is said to derive from Stage 5's shareholding in the applicant, which is then said to give it an interest in the outcome of the proceeding. They contend that it is a question of fact whether, in a particular case, a shareholder has such an interest, and that in a case such as the present, where the applicant is clearly insolvent, no such interest exists because Stage 5's shareholding is valueless. They rely on Re Bauhaus Pyrmont Pty Ltd (in liquidation) [2006] NSWSC 543 (Bauhaus). There, one Widdup was a director of the company in liquidation and the indirect owner of all the company's shares. Justice Austin held that Mr Widdup did not have a common interest in privileged documents given to him because there was no prospect of a distribution to contributors in the winding up. 18 The respondents rely on the matters set out at [10] to show that Stage 5 stands in the same position as Mr Widdup in Bauhaus. The applicant sought to distinguish Bauhaus on the ground that it concerned a liquidator of a company giving privileged documents to a shareholder who, at the time of receipt, had no prospect of a return from the winding up. 19 Section 122(5)(b) of the Evidence Act (set out at [11]) excludes the waiver provisions of sub‑ss (2) and (4) in relation to a disclosure to a person who, at the time of the disclosure, shared a common interest with the client. Accordingly, I accept the applicant's submission that common interest is to be tested at the time Mr Glover came into possession of the documents. 20 The party claiming privilege has the onus of establishing the basis of the claim. Order 33 rule 11(1) of the Federal Court Rules provides that: Where the Court, by subpoena or otherwise, orders any person to produce any document or thing, and any person makes and substantiates sufficient lawful objection to production on grounds of privilege, the Court shall not compel production of that document or thing except production to the Court for the purpose of ruling on the objection. (Emphasis added.) 21 The expression "ground of privilege" is defined in rule 11(5) as a ground on which a person may rely to make an objection under Part 3.10 of the Evidence Act. That includes common interest privilege. See s 122(5)(b) and Bauhaus at [24]. On onus in relation to client legal privilege in general, see Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332 at 337. The claimant must establish the facts giving rise to the privilege: National Crime Authority v S (1991) 100 ALR 151 at 158‑159. 22 Putting aside documents 5.2 and 5.3, the communications cover the period from 20 May to some time after 1 November 2005. Given the parlous condition of the applicant as at October 2005 (assets of $100 and a deficiency of $87,290), that Messrs Hurst and Wily had been asked by the applicant's directors before 20 October 2005 to assist in having the company placed into liquidation, and that in respect of the six months beginning 1 November 2005 the liquidators stated that they did not expect that a dividend would be paid to any class of creditor, I find that when document 5.7 came into Mr Glover's possession some time after 1 November 2005, there was no prospect of Stage 5 deriving any return in respect of its shareholding. I infer from the aforesaid considerations that the position would have been much the same on 14 October 2005. That inference is I think more readily to be drawn in view of the fact that Mr Wily did not make himself available for cross‑examination, and offered no explanation for his absence. See [9]. I accept the assurances of Mr Woodward, who appeared for the first respondent, that he had intended to cross‑examine Mr Wily on several topics, which he particularised, one of which was when his firm was first approached by the applicant's directors. Given the available inference, thus strengthened, and the onus the applicant bore to establish the facts supporting the existence of the privilege at the time of the disclosure of the documents to Mr Glover, I am not satisfied that in October 2005 there was any prospect of Stage 5 deriving a return in respect of its shareholding. On the material available I am not prepared to infer that in August 2005 there was no such prospect. 23 Thus, while I accept the applicant's submission that the common interest is to be tested at the time each document came into the possession of Mr Glover, I am not satisfied that documents 5.4 and 5.7 satisfy the test. As to the former it is not necessary that I rule on whether, because Mr Strapp was no longer a director of the applicant when he received the document and gave it to Mr Glover, a common interest would otherwise have existed. 24 On par 3 of the notice of motion I will declare that documents 5.1, 5.5 and 5.6 are the subject of common interest privilege between Stage 5 and the applicant, and that the other documents are not. 25 Paragraphs 1 and 2 of the notice of motion can be dealt with together. A notice to produce may be set aside on the ground of lack of apparent relevance. The test of apparent relevance is whether the documents are reasonably likely to add, in the end, in some way or another, to the relevant evidence. Relevance in an evidentiary/admissibility sense is not the test. See Trade Practices Commission v Arnotts Ltd (No 2) (1989) 88 ALR 90 at 101‑103; Seven Network Ltd v News Ltd (No 11) [2006] FCA 174 at [6]; Telstra Corp Ltd v Minister for Communications, Information Technology and the Arts [2007] FCA 1398 at [44]‑[48]. 26 In my view the litigation funding agreement is reasonably likely to add to the evidence bearing on whether at the relevant times there was a common interest shared by the applicant and Stage 5. Documents 5.1, 5.4, 5.6 and 5.7 are alleged to have been created for use in existing or contemplated litigation. As at 31 October 2005 the applicant's sole asset was $100 cash. Thus, any litigation contemplated by the applicant would necessarily have been funded by a third party. The funding agreement produced in response to the 26 May 2008 notice to produce and said to have been executed in or about March 2006, was entered into as a result of the resolution of 24 March 2006 that the liquidators be authorised to enter into a "further funding arrangement" to proceed with public examinations and any subsequent legal action. See [10(e)]. These matters show that the terms of the funding agreement are germane to the nature of the interest between the applicant and Stage 5 at all times when litigation and, necessarily, litigation funding were contemplated by the applicant, including the dates on which the Stage 5 documents were created and handed to Mr Glover. 27 The Registrar's order for production of the funding agreement permitted the applicant to redact the document to remove the amounts set out in par 2.1 thereof, that is the sections dealing with the amount of funding available. The only unfairness suggested by the applicant was if there were an order that the document be provided without that redaction. See generally Re Kingsheath Club of the Clubs Ltd (in liquidation) [2003] FCA 1034 at [33]‑[34] and Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455 at [69]‑[73]. 28 For the above reasons the notice of motion will be dismissed so far as concerns pars 1 and 2. 29 A matter not covered by the notice of motion was also argued. The first respondent served on the applicant a notice to produce dated 24 October 2008 requiring it to produce: Any litigation funding agreement or any document recording any litigation funding arrangement entered into by: (a) the applicant; or (b) any of the directors of the applicant on behalf of the applicant; or (c) the liquidators of the applicant … on behalf of the applicant; in relation to any possible claim or any claim against any respondent to this proceeding (including Playcorp Pty Ltd). The other respondents served a notice in much the same form. 30 The material before me shows that the funding agreement produced pursuant to the earlier notice to produce is not the only one that has been entered into by the applicant. I will order that the applicant produce any document that satisfies the description in the October notices. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.