Fletcher & Ors v Fortress Credit Corporation

PROCEDURE - DISCOVERY AND INTERROGATORIES - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - CLIENT LEGAL PRIVILEGE - WHAT CONSTITUTES - PARTICULAR CASES - where the plaintiffs seek the production of some 2000 documents over which the defendants claim privilege - where the plaintiffs confined their application to 243 documents - whether the subject documents were created for the dominant purpose of obtaining legal advice or for use in legal proceedings - whether an affidavit by a solicitor acting for the defendants was sufficient proof of the claims for privilege - whether the judge should inspect the documents to determine the claims for privilege - whether the claims for privilege are made out in respect of each subject document.

PROCEDURE - DISCOVERY AND INTERROGATORIES - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - CLIENT LEGAL PRIVILEGE - WHAT CONSTITUTES - PARTICULAR CASES - where the plaintiffs seek the production of some 2000 documents over which the defendants claim privilege - where in the principal proceeding the plaintiffs bring claims against the defendants alleging breaches of statutory and fiduciary duties arising out of the collapse of the Octaviar Group of companies in 2008 - where the plaintiffs allege that the purpose of the communications, for which privilege is claimed, was in furtherance of a crime or fraud - whether the plaintiffs have established such a prima facie case as to make it right to treat the claim of privilege as unfounded.

PROCEDURE - DISCOVERY AND INTERROGATORIES - PRODUCTION AND INSPECTION - GROUNDS FOR RESISTING PRODUCTION - CLIENT LEGAL PRIVILEGE - WAIVER OF PRIVILEGE - where the plaintiffs seek the production of some 2000 documents over which the defendants claim privilege - where the plaintiffs confined their application to 243 documents - whether by the defendants' pleadings, they have impliedly waived privilege in the subject documents - whether the defendants have directly or indirectly put the contents of privileged communications in issue in the principal proceedings.

Conveyancing Act 1919 (NSW), s 37A

Corporations Act 2001 (Cth), s 9, s 79, s 558FB, s 588FF, s 558FG

Evidence Act 1995 (Cth), s 118, s 119, s 125

Property Law Act 1974 (Qld), s 228

Uniform Civil Procedure Rules 1999 (Qld), r 5, r 166(3), r 213

Attorney-General for the Northern Territory v Kearney [1985] HCA 60; (1985) 158 CLR 500, cited

Attorney-General of the Northern Territory v Maurice [1986] HCA 80; (1986) 161 CLR 475, cited

AWB Ltd v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30, cited

Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, applied

Commissioner of Taxation v Rio Tinto Limited [2006] FCAFC 86; (2006) 151 FLR 341, applied

Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 553, applied

Crisp v GSF Australia Pty Ltd, Re Foodlife Inventory Holdings Pty Ltd (in liq) [2006] FCA 1682, cited

Edwards v R [1992] HCA 19; (1992) 173 CLR 653, cited

Grant v Downs [1976] HCA 63; (1976) 135 CLR 674, applied

Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1, applied

Mulley v Manifold [1959] HCA 23; (1959) 103 CLR 341, cited

O'Rourke v Darbishire [1920] 1 AC 581, applied

R v Cox and Railton (1884) 14 QBD 153, applied

Watson v McLernon Group (Insurances) Pty Ltd [2000] NSWSC 306, cited

Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, cited

L F Kelly QC, with J K Taylor and D E F Chesterman, for the plaintiffs

N C Hutley SC, with C N Bova and R C Higgins, for the defendants

[1] The plaintiffs apply for the production of documents which have been disclosed by one or more of the first, second, fifth, sixth, seventh, eighth and ninth defendants ("the Fortress defendants") but for which they claim legal professional privilege.

[2] This is a large and complex case which is being managed on the Supervised List by Boddice J. His Honour set the present application down for hearing in the Civil List over three days. Although the plaintiffs did narrow their application at the hearing, it occupied four days and was the subject of considerable evidence and very extensive written submissions. This application exemplifies the practical difficulties in applying rules which were developed for the disclosure and production of documents at a time before the electronic age so greatly increased the amount of documentation which is thought to be directly relevant to the litigation.

[3] To discuss the questions for present determination, it is first convenient to outline the issues in the principal proceeding. In this judgment, I will confine myself to the pleadings as they were at the time of the hearing. (I have learnt that amended pleadings have since been filed but neither side thought it relevant for me to consider the amendments.)

[4] This case results from the collapse of the Octaviar Group of companies in early 2008. The ultimate holding company was Octaviar Limited ("OL"). The second plaintiff ("OA"), of which the first plaintiffs are the liquidators, acted as the treasury for the Octaviar Group. Any substantial cash deposits within the Group were held by it.

[5] The first defendant ("Fortress") was a lender to some companies in the group. In June 2007, it lent $250 million to the company which became known as Octaviar Castle Pty Ltd ("Castle"), a wholly owned subsidiary of OL. It was a facility initially for three months but, by a series of agreements, extended to be repaid on 29 February 2008. As a condition of that last extension, $100 million had to be repaid to Fortress by 30 November 2007.

[6] OL guaranteed the facility for Castle and as security for that, granted a fixed and floating charge over the assets of its assets. But Fortress did not hold a charge over OA and was not a creditor of OA.

[7] In January 2008, there was a deemed default under the Castle facility when OL's share price fell dramatically, resulting in a trading halt on its shares. And on 31 January 2008, Castle defaulted in paying its January instalment to Fortress.

[8] By this time, directors of OL were discussing with Fortress the financial state of the Octaviar Group. One of the directors, the third defendant Mr Anderson, sent to Fortress's Mr Kwei a balance sheet for the group on 31 January 2008.

[9] The major asset of the Octaviar Group was the collection of hospitality and tourism businesses, operated by a group of subsidiaries within the Octaviar Group which were known collectively as the Stella Group. By the end of January 2008, the directors of OL were looking to dispose of a part interest of the Stella Group, in order to provide apparently urgently needed funds for the survival of the Octaviar Group. On 3 February 2008, a written contract was made between OL, a subsidiary called MFS Stella Holdings Pty Limited ("Holdings") and an arms length buyer called Global Voyager Pty Limited for the sale of the shares in another subsidiary called Stella Holdings No 1 Pty Limited. The sale price was $400 million. Completion was to take place no later than 26 February 2008. It was a term of that contract that all "inter-company balances owned by any Transaction Entity [effectively any member of the Stella Group] to any member of the [balance of the Octaviar] Group are extinguished or otherwise cancelled before the Completion Date". Holdings promised to procure that cancellation.

[10] OA was not a party to that contract. The seller was Holdings which was directly and wholly owned by OL. OA was not a creditor of Holdings but it was owed in total some hundreds of millions of dollars by other companies in the Stella Group.

[11] By the sale of these shares, the companies in the Stella Group would become owned by the buyer, but part of the price was to be paid by the buyer's parent company issuing shares to Holdings. In that way, a minority interest in the Stella Group would be effectively retained within the Octaviar Group. The balance of the sale price was the sum of $4 million, to be paid on completion.

[12] OL was a party to this contract of sale as a guarantor of the seller's performance.

[13] There followed several discussions between representatives of the Octaviar Group and Fortress in which the Castle facility and the potential for its repayment from the sale of the Stella Group were discussed. A Deed of Amendment of that facility was drafted on 7 February 2008 and executed on 18 February 2008, pursuant to which Fortress was to lend a further $50 million to Castle (most of which was to be immediately paid back to Fortress as interest or fees) and the date for repayment of the facility was extended to the earliest of 31 March 2008, the date of completion under the Stella sale agreement or the date of its termination.

[14] It was a further term of that Deed of Amendment that OL should see that each member of the Octaviar Group did not forgive any inter-company loan (a loan between companies in the Group) without the consent of Fortress. OA was not a party to this Deed.

[15] The Stella sale was due to be completed on 29 February 2008, when Fortress was asked to consent to the releases of the inter-company debts between the Stella Group and (the remainder of) the Octaviar Group. The draft Deed of Release was prepared by the lawyers for Octaviar to those releases.

[16] The plaintiffs' case is that OA was the only significant creditor of a Stella Group company, which they say was recorded in that Deed of Release. The plaintiffs says that this meant that without any further agreement, the proceeds of the sale of the Stella Group would have been paid to OA. They further contend that OA was then insolvent or likely to become insolvent and that the directors of OA were thereby obliged to protect its distinct interests in respect of the completion of the Stella Sale.

[17] However, on 29 February 2008, the date upon which the Stella Sale was completed, a deed called the Stella Proceeds Deed was executed. It was drafted by Fortress's solicitors, Baker & McKenzie. The plaintiffs allege that Fortress would give its consent to the release of any debt owing by any of the Stella Group to a company in the Octaviar Group only upon execution of this Stella Proceeds Deed.

[18] The Stella Proceeds Deed recorded that most of the moneys owed by Stella companies to an Octaviar company were in fact owed to OL rather than OA. The plaintiffs say that this was false. That Deed required that $189 million from the proceeds of sale of the Stella Group was to be paid by the buyer directly to Fortress and not through an Octaviar Group company and more particularly OA. That payment was to be a full repayment of the Castle facility. OA was a party to this Deed, which made no provision for the payment to it of any of $400 million to be paid on completion. Consequently, OA received no payment on completion but then gave up the debts which had been owed to it by the Stella Group.

[19] The plaintiffs' case is that this Stella Proceeds Deed was executed on behalf of OA in breach of the statutory and fiduciary duties which were owed by the third and fourth defendants as directors. They were bound to protect the interests of the creditors of OA, it being insolvent or likely to become insolvent. The plaintiffs allege that Fortress was knowingly involved in those breaches of duty and is liable accordingly.

[20] They further allege that this was an uncommercial transaction under s 588FB of the Corporations Act 2001 (Cth). They say that the essential purpose of Fortress, in insisting upon this Stella Proceeds Deed, was to have proceeds from the sale applied in repayment of the Castle facility, in the circumstance where apart from that Deed, Fortress had no entitlement to have any of those proceeds paid to it.

[21] The plaintiffs further allege that Fortress and the second defendant became shadow directors or shadow officers of OA and thereby directors or officers within the meaning of s 9 of the Corporations Act 2001 (Cth). As such, it is alleged that they owed to OA duties which they breached in requiring OA to execute the Stella Proceeds Deed. However that part of the pleaded case was not relied upon in the plaintiffs' argument in the present application.

[22] The plaintiffs allege that OA thereby suffered a loss of the $189 million paid to Fortress on the completion of the Stella Sale.

[23] The other part of the plaintiffs' case which is relevant to this application concerns what the arguments describe as a restructure within the Fortress group in late 2011-early 2012 which, the plaintiffs allege, was made in order to defeat the plaintiffs' claims for the loss of the Stella proceeds. They allege that there were alienations of property which were made with an intention to defraud creditors, thereby engaging s 37A of the Conveyancing Act 1919 (NSW) or (the relevantly identical) s 228 of the Property Law Act 1974 (Qld).

[24] The plaintiffs allege that in late 2011, all of the assets of Fortress (save for some which were the subject of a freezing order in other proceedings commenced by OL) were disposed of by Fortress in favour of related companies for a consideration of about $184 million which, they allege, was applied effectively by a capital reduction and a dividend payment. The payment of the dividend required the constitution of Fortress to be changed, which its directors effected shortly before the payment.

[25] The plaintiffs further complain of a transfer of NZD$19.6 million by Fortress to certain offshore companies which are said to have indirectly owned all of its shares.

[26] The plaintiffs say that these transactions were effected because of an apprehension that Fortress would be sued upon claims which are substantially those which are made in the present proceeding. Fortress was alerted to that prospect by receiving a copy of a letter by the first plaintiffs to the Committee of Inspection on 1 September 2011, in which they wrote that they were "presently considering whether OA also has a cause of action against Fortress ...".

[27] According to the Amended Application the plaintiffs were seeking production of documents which were described by reference to some 10 categories. Boddice J had directed that "the Fortress respondents provide any further affidavit material in support of their claims for privilege, which affidavit material is to relate to not only the categories but each and every document within that category and the basis for that claim ...". However, the affidavit filed by the Fortress respondents, in purported compliance with that direction, departed from the categorisation in the Amended Application. This was the affidavit of Mr D J Walter, a partner of Baker & McKenzie, the solicitors for the Fortress respondents. He has the day-to-day carriage of the proceeding on their behalf. He saw fit to discuss the documents according to a different categorisation. It is not suggested that he thereby overlooked any document within one or more of the categories in the Amended Application. But counsel for the plaintiffs strongly criticised this course as being a breach of the order of Boddice J. In my view, it was not a breach of that direction by his Honour, the apparent purpose of which was to require the Fortress respondents to descend to the detail of each and every document which was the subject of the application.

[28] More than 2,000 documents were the subject of the claims for privilege in the disclosure by the Fortress respondents. But the Amended Application, at its widest, extended only to some of them and in the course of the hearing, counsel for the plaintiffs confined their attention to effectively two groups of documents, which related to transactions of February 2008 and the Fortress restructure.

[29] The parties asked the court to determine the claims for privilege over, in particular, 228 documents (although some documents were listed twice), within the eight page schedule marked as MFI 3, together with an additional one page schedule of 15 documents. The nine pages of schedule show that, for all but eight documents, the basis for the claim of privilege was "s 118", an apparent reference to that section in the Evidence Act 1995 (Cth) and its equivalents in other Australian jurisdictions. The claims for privilege over those eight documents were made upon the basis of "s 119", again an apparent reference to that section in the Commonwealth Act. Of course there are no equivalent provisions which govern this proceeding. But this shorthand description of the bases for the claims for privilege sufficiently indicates the common law bases for the privilege claims.

[30] The documents listed in these nine pages were described in the submissions as the February 2008 documents. However, there is one document which relates to the restructure and not the February 2008 transactions.[1] The remaining (242) documents are drawn from many of Mr Walter's categories. I shall refer to them as the February 2008 documents.

[31] It was thought that a ruling about whether privilege could exist in these 243 documents could effectively determine the outcome for the other documents for which privilege has been claimed. Therefore the application became confined to those 243 documents together with the Fortress restructure documents (which are those within categories 11 and 14 in Mr Walter's affidavit).

[32] Ultimately the parties sought a determination of the following questions:

(1) As to each of the February 2008 documents, whether it was created for the dominant purpose of the provision of legal advice or assistance or for use in legal proceedings;

(2) Whether a claim for privilege in the February 2008 documents should be disallowed according to the exception to privilege explained in R v Cox and Railton;[2]

(3) Whether the privilege (if any) in the February 2008 documents has been impliedly waived;

(4) Whether a claim for privilege to the Fortress restructure documents should be disallowed by the Cox and Railton principle;

(5) Whether the privilege (if any) in documents relevant to the Fortress restructure has been impliedly waived.

The first question: the purpose of the February 2008 documents

[33] As is common ground, it is for the party claiming privilege to establish it, should the claim be challenged. That is reflected in the Uniform Civil Procedure Rules 1999 (Qld), of which r 213 provides as follows:

(a) a party claims privilege from disclosure of a document; and

(2) The party making the claim must, within 7 days after the challenge, file and serve on the other party an affidavit stating the claim.

(3) The affidavit must be made by an individual who knows the facts giving rise to the claim."

[34] No direction was made which relieved the Fortress parties from compliance with this rule. The direction made by Boddice J for further affidavit material was made in the context of that rule. The only affidavit which is in purported compliance with r 213 is that of Mr Walter filed on 4 February 2014.

[35] The plaintiffs submit that the claim for privilege, at least in relation to each of the February 2008 documents, fails because it is not proved by an affidavit in compliance with r 213. Because Mr Walter was not a participant in the events by which any of these documents was created, it is said that he could not have knowledge of "the facts giving rise to the claim". It appears from his affidavit that he has made his own assessment of the existence of the privilege by "personally reviewing each and every Privilege Document". Whilst he says that he had some personal familiarity with the transactions to which some documents related, it is clear that this does not apply to his category 9, described as "repayment of the Castle loan on 29 February 2008 and sale by OL of the 'Stella' business" or to his category 8, described as "amendment of the Castle loan in February 2008".

[36] The submissions for the Fortress defendants do not address the requirements of r 213. Instead they argue that there were so many documents for which privilege was claimed and with so many persons involved in the creation of the documents being in Sydney, Brisbane and New York, that it would be unrealistic to expect that there could be any single witness who could depose to the facts and circumstances which are relevant to the claims for privilege.

[37] The enormity of the task of strict compliance with r 213 in this case is readily apparent. The rule does not anticipate a case of this complexity and with this amount of material, at least in its requirement for an affidavit to be made within seven days of a challenge to a claim for privilege.

[38] The content of the requirement in r 213(3) is not the subject of argument. In particular, the Fortress parties do not argue that Mr Walter became a person who knew the facts giving rise to the claim in consequence of his review of each of the documents. The issue is whether the claim for privilege should be allowed notwithstanding the non-compliance with the rule.

[39] Outside the requirements of r 213, a claim for privilege is often successfully advanced upon the nature of the document itself or the circumstance that it passed between a lawyer and the lawyer's client. Thus in Grant v Downs,[3] Stephen, Mason and Murphy JJ said:

"It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence ... It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence."[4]

[40] By personally reviewing the documents, Mr Walter became aware of the character or nature of each document. In the same way from my own review of each of the February 2008 documents, I became aware of the character or nature of each of those documents, from which I am satisfied that in the majority of cases the claim for privilege is well made (subject to the arguments about improper purpose and waiver).

[41] The court must have regard to UCPR r 5 and facilitate the just and expeditious resolution of issues and the avoidance undue delay, expense and technicality. If these claims for privilege are otherwise satisfactorily established, the non-compliance with r 213 does not warrant an order for production by which the privilege would be lost, especially where compliance with r 213 would be impracticable

[42] The parties agreed that I should, or at least could, inspect the February 2008 documents. This was a proper recognition that the nature or particular content of the documents could prove the requisite purpose or purposes of their creation. In Grant v Downs, Stephen, Mason and Murphy JJ remarked that the court's power to examine the documents for itself had "perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege".[5]

[43] Having reviewed the February 2008 documents, I am satisfied that all but the following documents were created for the dominant purpose of obtaining legal advice or assistance or for use in legal proceedings:

[44] For the documents for which the requisite purpose is demonstrated, I shall not attempt to give reasons for that conclusion beyond the fact that the nature and character of the document and the context in which it was created appears either from the document itself or from that document when read in context with others in the group. I should also note that for this privilege, the concept of legal advice is, as was said in AWB Ltd v Cole (No 5)[6] "fairly wide", extending to professional advice as to what a party should prudently or sensibly do in the relevant legal context.

[45] I should mention a document, which appears twice in the nine page schedule, which was numbered FOR.030.002.0026. It is a file note made by Mr Hambrett, a solicitor of Baker & McKenzie, of a meeting which he attended with, amongst others, lawyers then acting for the Octaviar Group and an insolvency practitioner which had been engaged by it. The document was the subject of an express waiver of privilege during the hearing and was then exhibited to and discussed within an affidavit of Mr Hambrett.

[46] The document numbered FOR.030.002.0020 (which is listed twice in the nine pages of schedule) was also handed to me during the hearing by counsel for the respondents and then described as document 16. It is another file note by Mr Hambrett dated 4 February 2008. I am not satisfied that it was made for the dominant purpose of the provision of legal services or advice, as claimed. The document is difficult to read in some places, because of Mr Hambrett's handwriting and shorthand. But it appears to record a meeting or discussion with, amongst others, a representative of Octaviar Group and the insolvency practitioners. In this instance, the particular purpose of the document should have been proved by Mr Hambrett rather than it being left to the court to discern what it could from its own perusal of the document.

[47] There is a further file note by Mr Hambrett dated 5 February 2008 and given the number FOR.030.003.0061. Again, this should have been the subject of proof of the relevant facts from Mr Hambrett.

[48] The documents identified as FOR.012.021.0027 and FOR.012.021.0028 are draft Deeds of Release prepared by Freehills, who were the solicitors acting for Octaviar and not for Fortress. I am not satisfied that these are privileged documents.

[49] In some other cases, there were emails which, for example, simply advised of a scheduled meeting with representatives of Octaviar, about which I was not satisfied of the requisite purpose, at least without evidence from the author.

[50] The result is that the requisite purpose has been demonstrated for about 90 per cent of the February 2008 documents, although only by the court's own perusal of the entirety of this material. Whilst the court's power to peruse documents for this purpose should not be "sparingly used", it should not be regarded in every case as the usual course and relied upon as the means of proving a claim for privilege. In many cases, a claim for privilege could and should be established in a more economical way. Ordinarily, a claim for privilege, when challenged, will be expected to be proved by an affidavit in compliance with r 213. It is also important for documents to be described in a way which will assist in the identification of the purpose of the creation of the document. Had I not inspected each and every document within this group, it is likely that the requisite purpose would have been established for only a small percentage of them, because of the unhelpful description of the documents in many cases.

The second question: the Cox and Railton argument about the 2008 transaction

[51] Legal professional privilege cannot be claimed for a communication the purpose of which was the facilitation of a crime or fraud. This principle is often traced to R v Cox and Railton,[7] where it was applied in a criminal trial when the prosecution called as a witness the defendants' former solicitor. The claim for privilege by the defendants was rejected because it was said to be probable that the communications, of which the former solicitor was to give evidence, were made for the purpose of committing the fraud with which the defendants were charged.

[52] The principle has been extended to communications for the purpose of "all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances".[8] In some Australian jurisdictions, the principle now has a statutory basis, such as in s 125 of the Evidence Act 1995 (Cth), under which legal professional privilege does not prevent the adducing of evidence of a communication or the contents of a document which was made in furtherance of the commission of a fraud or an offence or the commission of an act which renders a person liable to a civil penalty. The principle applies in this jurisdiction according to the common law. But neither of the arguments suggested that there was any difference in its reach according to whether its basis was statutory or the common law.

[53] In Commissioner of Australian Federal Police v Propend Finance Pty Ltd,[9] it was said that legal professional privilege would not attach to a communication made for "some illegal or improper purpose"[10] or for the purpose of furthering an "illegal object".[11] The submissions for Fortress accept that the nature of the conduct which the plaintiffs allege, namely the knowing participation by Fortress in breaches by the third and fourth defendants of their duties as directors, would engage the principle if the allegation of that purpose has a sufficient evidentiary foundation. The argument here is whether there is that foundation.

[54] It is well established that a party which disputes a claim for privilege upon this ground must do more than simply allege that the communication was for an improper purpose. On the other hand, it is unnecessary for that purpose to be proved as a fact, at least in every case. The content of the requisite evidence has been variously described in the authorities.[12] A statement which is frequently cited is that of Viscount Finlay in O'Rourke v Darbishire that "there must be something to give colour to the charge ... some prima facie evidence that it has some foundation in fact".[13] In Propend Finance, Brennan CJ approved that statement and said that the requirement was to show "reasonable grounds for believing that the communication ... was made for some illegal or improper purpose". Brennan CJ explained that the test was objective and that it was not necessary to prove the ulterior purpose.[14]

[55] In the same case, Gaudron J described a shifting evidentiary onus. Her Honour said that the initial evidentiary burden is upon the party challenging the claim for the privilege, who is required to adduce evidence which, if accepted, raises a prima facie case of illegal or other purpose falling outside the privilege. If that burden is discharged, then it is for the person claiming the privilege to show that, in truth, the privilege attaches.[15] Thus on her Honour's approach, a claim for privilege would not be defeated in every instance in which a prima facie case of improper purpose is established. As has been observed, on that approach, the ultimate question would be whether the party claiming the privilege has established that its purpose was a legitimate and not an improper one.[16] But it was not submitted that I should apply that approach.

[56] In O'Rourke v Darbishire, Viscount Finlay said that whether the privilege was to be upheld or denied in this context involved a discretionary judgment:

"The court will exercise its discretion, not merely as to the terms in which the allegation [of improper purpose] is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made out honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications. In the present case it seems to me clear that the appellant has not shown such a prima facie case as would make it right to treat the claim of professional privilege as unfounded."[17]

That passage was cited with approval by Gibbs CJ, with whom Mason and Brennan JJ agreed, in Attorney-General for the Northern Territory v Kearney.[18] It was also cited by Gummow J in Propend Finance, who explained that the determination of a claim for privilege can be affected by the context in which it is made and the evidentiary considerations affecting that determination.[19] His Honour said that one such context is where "one of the issues being tried on the hearing of an action is the existence of the privilege" (of which Propend Finance itself was an example); another was where the "determination of the existence of the privilege is a necessary step to the admission of evidence at a trial" (for which R v Cox and Railton was an example). In such cases, Gummow J said, the discretionary considerations referred to by Viscount Finlay in O'Rourke v Darbishire "do not enter into the matter".[20] His Honour distinguished those situations from where the determination of the existence of the privilege was to be made in the application by the court of its own procedures for discovery, where there are well established limitations on the extent to which the completeness of a party's discovery may be impugned. For example, as his Honour noted, there is usually no right of cross-examination of a deponent of an affidavit of documents and, subject to the qualifications explained by Menzies J in Mulley v Manifold,[21] the affidavit is conclusive.[22] O'Rourke v Darbishire was a case involving a claim for privilege in the context of the process of discovery.

[57] As Gummow J thereby confirmed, in the present context, there is a discretion to be exercised in determining whether the subject documents should be produced for inspection by the plaintiffs and there are limitations upon the extent to which the court will inquire as to the true facts in order to determine whether the claim to privilege should be rejected. The extent of such an inquiry will depend on the circumstances of the particular case, not the least of which is the scope of the factual dispute as well as the limitations in the particular case upon the court's ability to fairly and accurately assess, within an interlocutory hearing, the relative likelihood of the truth of the allegation of misconduct.

[58] The question then is whether the plaintiffs have established "such a prima facie case as to make it right to treat the claim of privilege as unfounded".

[59] I should note that the plaintiffs' submissions expressly disavowed any suggestion that Baker & McKenzie acted improperly in the 2008 transaction and Fortress accepts that it is unnecessary for the plaintiffs to allege that Baker & McKenzie had any awareness that the communications were for an improper purpose.[23]

[60] In essence the plaintiffs' argument is that Fortress procured the repayment of its debt from the proceeds of the Stella sale through the breaches by the third and fourth defendants of their duties as directors of OA, breaches which Fortress aided, abetted, counselled, procured or induced or in which Fortress was knowingly concerned.[24] It is said that Fortress achieved this by having OA agree to the terms of the Stella Proceeds Deed executed on 29 February 2008. The plaintiffs claim that all of the proceeds should have been paid to OA because OA was the only Octaviar company which was a substantial creditor of the Stella group of companies. But Fortress says that OL also was a substantial creditor of the Stella group.

[61] It is necessary for the plaintiffs to prove more than that Fortress acted out of self-interest. They must establish a prima facie case, in the sense which I have discussed, that the relevant communications between Fortress and its lawyers were for the purpose of facilitating the misconduct of Fortress which the plaintiffs allege. This requires, amongst other things, a prima facie case that Fortress knew of the essential elements of a breach or breaches of duty by the third and fourth defendants.[25] As the plaintiffs' argument appears to accept, they must also raise a prima facie case that the third and fourth defendants did breach their duties. Absent that prima facie case being established, the plaintiffs could not show the requisite case that the documents were created in furtherance of an improper purpose.

[62] The plaintiffs' case is that the third and fourth defendants neglected their duties to OA by agreeing to cancel all debt which was owed to it by any member of the Stella group whilst at the same time agreeing to the payment directly to Fortress of $189 million of the proceeds of the sale of the Stella group with no payment to OA. It is said that OA thereby gave up very substantial assets for no benefit to it, in circumstances where OA was already insolvent or became insolvent in consequence of this transaction. Fortress is said to have been involved in the directors' contraventions by requiring that OA so agree.

[63] Much of the plaintiffs' argument is premised upon the allegation that OA was the only company in the Octaviar group which was a significant creditor of any company within the Stella group. The plaintiffs say that this fact was made known to Fortress on a number of occasions and that as Fortress must have realised, a recital within the Stella Proceeds Deed that OL was also a substantial creditor of a Stella group company was false. As I will discuss, not all of the information which the Octaviar side had provided to Fortress was to the effect that OA was the only creditor and the recital that OL was a creditor in a certain amount came from an email which Mr Anderson (the third defendant) sent to representatives of Fortress on the eve of the settlement of the Stella sale.

[64] But if OA was the only significant Octaviar creditor of the Stella group, it would not follow that OA was entitled to all or part of the proceeds of sale. This was because the sale of the Stella group was effected by a sale by Holdings of its 100 per cent shareholding in Stella Holdings No 1 Pty Limited. As already mentioned, OA was not a creditor of Holdings. Holdings did not trade and apparently had no liabilities. Absent any contrary agreement, the proceeds of sale should have been paid to Holdings and in due course they could have found their way to OL upon Holdings being wound up. Therefore, what OA compromised was its entitlement to be paid by one or more other companies in the Stella group, an entitlement which had to be surrendered, extinguished or otherwise cancelled by OA if the Stella group sale was to be completed, because it was a term of that sale that any debt between any member of the Stella group and any member of the Octaviar group be cancelled prior to the completion of the sale.

[65] Consequently, the plaintiffs' case must be one which is to the effect that the third and fourth defendants should have had OA withhold its consent to the cancellation of its Stella debts unless the proceeds of the Stella sale, most particularly those which were paid to Fortress, were instead paid to OA.

[66] At this point it is necessary to consider the extent to which OA was a creditor of any Stella Group companies. Until a restructure of the Stella Group in mid 2007, the group was owned by two wholly-owned subsidiaries of OL, namely MFS Leisure Resort Holdings Pty Ltd ("LRH") and Stella Travel Services Limited ("STS"). By the restructure, the shares in LRH and STS were sold to a new company called Stella Group Holdings Pty Ltd ("SGH"). Its ultimate holding company was OL, but there was a tier of new companies which by this restructure was put in place between them. In descending order from OL were Holdings, Stella Holdings No 1 Pty Limited, Stella Holdings No 2 Pty Limited and Stella Holdings No 3 Pty Limited (which held the shares in SGH). Each of these four new companies was capitalised at $1.00 and had no liabilities or assets apart from its ownership of the shares in the company which was below it in this structure.

[67] It appears that also by this restructure, a company called Stella MLR Group Pty Ltd ("MLR") acquired the shares in Breakfree Asset Holdings Limited and the shares in companies which conducted a business under the name Sun Leisure, namely Sun Leisure Hotels & Resorts Pty Ltd and Sun Leisure Operations Pty Ltd.

[68] The restructure of the Stella Group also involved changes to both its external and internal financing. The external finance was obtained from UBS by a number of facilities which it provided to SGH. This was used to pay out the existing external financiers of the Stella Group and for further operations of the Stella Group. By repaying that existing debt, SGH became a lender to the (Stella) companies which had been the borrowers under that (repaid) debt.

[69] The internal finance for the Stella Group (meaning finance from within the Octaviar Group) was to be restructured according to four loan agreements, all dated 28 June 2007. Under each of these agreements, the financier was, or was to become, OA. Two of them were made with MLR and recorded advances made by OA to it. One of them was a loan which OA had made to MLR in an amount of $48,209,053 for MLR's acquisition of the Sun Leisure companies. The loan was repayable upon demand by OA. The other loan agreement with MLR recorded an advance of $11,050,000 for its acquisition of the shares in Breakfree Asset Holdings Limited. Again that loan was repayable upon demand.

[70] A third loan agreement was between OA and LRH. It recited that OA and OL had "provided various loans to entities within the Stella Group" and that the purpose of the agreement was to "confirm the terms of each of the Loans". A schedule to the agreement set out a number of such loans, totalling $465,147,918. It also set out a number of "offsets" totalling $91,676,250. In net terms therefore, it recorded a total indebtedness of about $373 million. By cl 2 of this agreement, LRH acknowledged that OA "or a related body corporate" had advanced each of those loans to LRH "or a related body corporate". It was agreed that each loan was thereafter to be treated as an advance from OA to LRH, repayable upon demand. The effect then of this third agreement was to gather the various loans to companies within the Stella Group which had been made by OA and other companies within the Octaviar Group and to make them all payable only to OA.

[71] The fourth loan agreement was made between OA and SGH. By this agreement, OA agreed to advance to SGH an amount "equal to the purchase price under the share sale and purchase agreement between [OL] and the Borrower dated on or around the date hereof ...". That was a reference to the agreement between OL and SGH for the sale to it of the shares in LRH and STS.[26] Under that agreement, the shares were to be transferred by OL forthwith for a consideration to be paid subsequently and after it was quantified by the chief financial officer of OL (who was Mr Anderson, the third defendant). Upon that price being determined, then according to this loan agreement, the amount of that price was to be advanced to SGH by OA and then paid to OL. On the plaintiffs' pleaded case, that price payable to OL was determined by Mr Anderson to be (approximately) $305 million. However, it far from appears that any amount was in fact advanced by OA pursuant to this loan agreement or that anything was paid by SGH to OL under the agreement between them. There was an entry in the accounts of SGH for the year ended 30 June 2007 (which were produced in around September 2007) that such a loan had been made by OA. But it does not appear that corresponding entries were made in the accounts for OA and OL. What is clear, it would seem, is that OL transferred the shares to SGH. If nothing was paid to OL for the shares, it was OL and not OA which was SGH's creditor.

[72] It is further pleaded that in February 2008, there was a purported adjustment by Mr Anderson of that price to be paid by SGH, so that it became $825 million. Again there is nothing to indicate that any of this price was paid or that any advance was made by OA for it.

[73] To summarise the apparent effect of these four loan agreements as at the end of February 2008, OA was a creditor of MLR on two loans totalling approximately $60 million and of LRH in an amount of about $373 million. However, as no amount seems to have been advanced under the fourth loan agreement, it would appear that OL and not OA was a creditor of SGH in whatever was the price for the shares transferred to SGH (whether that was $305 million or $825 million).

[74] As earlier discussed, it was a condition of the agreement for the sale of the Stella Group that all debt owed by any member of the Stella Group to any member of the Octaviar Group be extinguished or otherwise cancelled before the completion date. To satisfy that condition, the lawyers for the Octaviar companies drafted a so-called Deed of Release, the parties to which were OL, OA, Holdings, Stella Holdings No 1 Pty Limited, each and every other member of the Stella Group and each and every member of the "seller group" which was defined as OL and its subsidiaries other than those in the Stella Group. Clause 2 of that draft deed provided for OL and each member of the seller group to release Stella Holdings No 1 and each member of the Stella Group from any liability "arising out of or in connection with ... the indebtedness", which was defined to be the "net outstanding balance of all borrowings and indebtedness from or to [OL] and any member of the seller group ...", including the "intra-group Loan Agreements". That last term was defined to include the four loan agreements of June 2007 which I have discussed.

[75] Much reliance is placed upon this document in the plaintiffs' submissions, where it is said that the document recorded that OA was the only creditor or substantial creditor of the Stella Group. However, this deed recognised at least the possibility that other companies within the group, including OL itself, were creditors.

[76] As earlier noted, by the deed of amendment of the Castle facility which was executed on 18 February 2008, OL agreed that it would see that each member of the Octaviar group did not forgive any intercompany loan without the consent of Fortress. This was a remarkable agreement on the part of OL, having regard to the terms of the contract for the Stella sale which had been agreed on 3 February 2008, which required that all loans owned by a Stella entity be extinguished or otherwise cancelled. The Castle agreement of 18 February 2008 apparently gave Fortress the power to prevent the completion of the Stella sale, by withholding its consent to such a forgiveness or discharge. For present purposes it may be accepted, as the plaintiffs submit, that Fortress was able to use this amendment of the Castle facility to insist upon a certain application of the proceeds of the Stella sale as a condition of its consent to the forgiveness or discharge of the Stella group debts.

[77] On 29 February 2008, the Stella Proceeds Deed was executed by Fortress, OL, OA, Castle, SGH and another Octaviar company.[27] This deed recited that LRH owed $818,620,211.13 to OL "by way of inter-company loan". The basis for that recital does not appear from the documents which I have described so far. However, there was an apparent basis for it in emails from Mr Anderson to Mr Kwei and other representatives of Fortress. In an email to Mr Kwei of 5 February 2008, Mr Anderson attached a "summary of intercompany loans" as at 31 December 2007, which represented that there were three such loans, two by OA and one by OL which was said to be a loan to LRH in an amount of $826,823.148.13. The loans from OA which were referred to in that attachment were said to be a loan to LRH in an amount of $560,955,483.99 and a loan to STS in an amount of $18,684,052.45. On 28 February 2008, Mr Anderson emailed to Mr Kwei and others at Fortress another "summary of intercompany loans", which detailed loans which precisely corresponded with the recitals in the Stella Proceeds Deed which was executed on the following day. Mr Anderson there described this summary as "a schedule of relevant intercompany loans as I best understand them". According to the loan agreements which I have discussed, it is unlikely that Mr Anderson's understanding was correct. In particular, those documents were inconsistent with a conclusion that OL was owed anything by LRH. But plainly the source of these recitals in the Stella Proceeds Deed was Mr Anderson. As I understand the plaintiffs' case, it is not alleged that Mr Anderson was put up to providing this information in an attempt by Fortress to make it appear to be true.

[78] A consideration which is relevant in assessing the propriety or otherwise of Fortress in respect of the Stella Proceeds Deed, is the irrelevance of this recital to any entitlement of OL and Fortress to a part of the proceeds of the Stella sale (absent the operation of the Deed itself). These proceeds belonged to the seller, which was Holdings. Neither OL nor OA had any proprietary entitlement to them. OL had no entitlement to them regardless of whether it was owed anything by LRH. The Stella Proceeds Deed did not recite that OL had a pre-existing entitlement to any of the sale proceeds or a superior claim to that of OA. As this Deed effectively recorded, it was by the requirement for the consent of Fortress to the cancellation of any of Stella debt that Fortress procured the agreement of the other parties, most importantly the seller (Holdings), to the payment of part of the proceeds to Fortress.

[79] The plaintiffs' argument refers to a balance sheet which Mr Anderson sent to Mr Kwei of Fortress on 31 January 2008. It was a balance sheet for the group headed by SGH as at 31 December 2007. The plaintiffs correctly submit that it represented that an amount in excess of $800 million in total was owed by the Stella group companies to OA and that, on the other hand, OL owed money to the Stella group. The inconsistency between this document and the recitals in the Proceeds Deed is emphasised in the plaintiffs' submissions. And it is said that there was no evidence to explain why this information was ignored when the Stella Proceeds Deed was drafted for Fortress. However it is far from clear that this balance sheet for the Stella group was accurate. In particular, it is difficult to reconcile it with the terms of the four loan agreements. The balance sheet represented that OA was owed by SGH $305,185,030, which is an apparent reference to the price to be paid by SGH to OL under their agreement. As discussed, it far from appears that such an advance had been made by OA. The balance sheet also stated that OA was owed $419,685,509 by LRH. Yet according to the third loan agreement, the debt was about $373 million. Thirdly it recorded that OA was owed by "S8 Accommodation" an amount of $159,630,972 for which there was no support in the loan agreements.

[80] The plaintiffs plead further occasions upon which Fortress received information which was to the effect that OA was the only company in the Octaviar Group that had any or any substantial loans to companies in the Stella Group.[28] Of those not already mentioned, the most important might be thought to be an email from a Mr de Rooy to Mr Kwei and others at Fortress on 28 February 2008, because of its closeness in time to the preparation of the Stella Proceeds Deed. An attachment to that email was a letter from Freehills, the solicitors acting for the Octaviar companies, to Blake Dawson who were acting for another Octaviar creditor. That letter had included what was said to be a series of statements of financial position of the group headed by SGH as at the end of November and December 2007 and January 2008. The 2008 statement showed OA as a creditor in the sum of $838,168,119. This email, having as it did those attachments, is of some significance. But it was not such as plain a representation to Fortress of the position between OA and the Stella Group as Mr Anderson provided by his email on the same day and to which I have referred at [77].

[81] On 28 February 2008, Mr Kwei emailed Mr Anderson, attaching Mr Anderson's advice of 5 February 2008 as to the state of the inter-company loans and asking: "Do you have the balance of these loans as at today's date? Please send whatever latest information you have". About an hour later, Mr Anderson sent his email to which I have referred, attaching "a schedule of relevant inter-company loans as best I understand them".

[82] Fortress had been alerted to the prospect that Mr Anderson's understanding was wrong. For present purposes, I would accept that Fortress was alert to the inconsistencies in the various pieces of information which it had received on the subject of these loans. But as already noted, there is no allegation that Fortress in some way caused Mr Anderson to provide false information which it could employ to its advantage within the Stella Proceeds Deed.

[83] It is alleged that Mr Anderson knew that these recitals in the Proceeds Deed were incorrect.[29] But it is not alleged that Fortress knew or believed that Mr Anderson was providing information which he knew to be false. More generally, the plaintiffs' pleaded case does not go as far as suggesting something in the nature of collusion between Fortress and Mr Anderson and/or Mr White.

[84] Paragraph 88 of the statement of claim pleads the respects in which Mr Anderson and Mr White are alleged to have breached their duties to OA and its creditors in the February 2008 transaction. The extensive particulars of those allegations, with one exception, all refer to things done by the directors on 29 February 2008. They are the execution on behalf of OA of the Stella Proceeds Deed, the Deed of Release (by which OA forgave the debts owed to it), the authorisation of the payment to Fortress pursuant to the Proceeds Deed and the signing of the so-called Allocation Letter on that date. This was a letter from Holdings to, amongst others, the directors of OA by which it was acknowledged that each of OL, OA and another Octaviar company had an entitlement to the balance of the proceeds of sale and that pending agreement as to the appropriate allocation of those proceeds, they should be held by OA. It also recorded that the ongoing interest in the Stella Group (to come from the issue of shares to Holdings) would be held by Holdings again pending agreement between the relevant Octaviar companies, including OA, as to the appropriate ownership of those shares. It recorded that there had not been sufficient time for Holdings, OL, OA and the other Octaviar company to agree on the particular allocation of this property.

[85] The other alleged breach of duty is pleaded as a failure to make any, or any adequate, inquiry to ascertain the true inter-company loan position between the Octaviar companies and the Stella Group.[30] As to that alleged breach, it is probable that Fortress believed that the Octaviar companies may not have properly identified and recorded the position of these loans. For present purposes, that could be inferred from the inconsistencies in the information in this respect which was provided to Fortress. On the evidence which is presently available, there is a real prospect of establishing that these directors were in breach of their duties in this respect. But it is another thing to say that Fortress was in some way a party to that breach of duty. At present, there seems to be no prospect of a finding to that effect.

[86] So apart from the breach of duty which I have just discussed, there is no allegation of a breach of duty owed to OA which preceded those events of 28 and 29 February 2008. In particular, it is not suggested that in some way the directors failed to protect OA's position when the contract for the sale of the Stella Group was made, containing as it did the term requiring the cancellation of all loans which had been made to Stella companies. Nor is it alleged that their duty to OA was in some way breached by the execution of the Deed of Amendment to the Castle facility on 18 February 2008. OA was not a party to either of those agreements. And it is not suggested that by having OL and other companies contract in these terms, in some way the directors breached their duties to OA. Yet it was by the terms of those two agreements, the Stella Group sale contract and the amendment of the Castle facility, that Fortress was able to require the payment which was made to it on completion of the sale. As the statement of claim recognises, this was a practical effect upon OA of the amendment of the Castle facility upon OA.[31]

[87] Therefore, the plaintiffs' case is that the directors should not have allowed OA to agree to the payment of some of the proceeds to Fortress whilst at the same time agreeing to the cancellation of all debts owed by Stella companies to it. OA should have taken a course which, it may be inferred, would have put paid to the completion of the sale of the Stella Group. (It seems fanciful to suppose that the buyer would have completed its acquisition of the Stella companies if one or more of them remained a debtor of OA for some hundreds of millions of dollars.)

[88] The plaintiffs' case here has a narrow focus because it concentrates on a comparison between OA's position, before and after the events of 29 February 2008, only by reference to the debts which it forgave. This is an artificially narrow view of the position in which OA found itself.

[89] Of course OA's interests were distinct from those of OL. But they were related, at least because OL, it appears, was OA's largest creditor. There is no apparent suggestion, in this case at least, that it was contrary to the interests of OL to cause the Stella Group to be sold upon the terms of the contract of sale of 3 February 2008. Nor is it said that there was no likely benefit to other members of the Octaviar Group, most particularly OA, from that transaction. On the present material, the directors of OL apparently considered that it was necessary to make this sale in order to prevent the collapse of OL and at least most of the members of the Octaviar Group. Further, there is no evidence of the value of the debts owed to OA by the Stella companies and indeed whether any substantial sums could have been recovered from them. Therefore, it far from appears that a hypothetical director of OA, who was in all respects independent from OL and other members of the Octaviar Group, would have thought that OA's interests were best protected by a stance which would have prevented the completion of the Stella sale.

[90] And it is the position of Fortress and what it did and did not know which must be considered. Undoubtedly it appreciated that it had secured a strong position from which to demand repayment of the Castle debt from the proceeds of sale. But the plaintiffs must go further and establish a sufficient case to the effect that Fortress was involved in the alleged breaches and contraventions by the directors. This requires a sufficient case to the effect that Fortress knew of the facts which constituted those breaches or contraventions. More particularly, it requires a case that Fortress knew that this transaction, which included the cancellation of the debts owed to OA, would be contrary to OA's interests and those of its creditors. As I have said, whether that was so depended upon many things beyond the facts that OA was giving up these loans and at the same time was not being assured of the beneficial receipt of any of the proceeds of sale.

[91] On the present material, there is not a prima facie case to the effect that Fortress knew that this transaction was contrary to the interests of OA and its creditors. Fortress need not have known of all of the circumstances affecting the Octaviar Group and, in particular, of the potential impact upon OA from the non-completion of this sale and a collapse of the Octaviar Group.

[92] On this question it must be kept in mind that the Octaviar companies had their own legal representation. It may be that, consistently with the plaintiffs' case, OA should have received separate legal advice. But again Fortress was not clearly in a position to know that. It would be difficult to conclude on the present evidence that Fortress knew or should have known that the solicitors acting on the Octaviar side of this transaction had a conflict between their respective duties to the Octaviar companies which were involved in it.

[93] In my conclusion, the plaintiffs have not established a prima facie case of an impropriety on the part of Fortress as to make it right[32] to deprive Fortress of legal professional privilege in documents which are relevant to this 2008 transaction.

The third question: the February 2008 transaction - waiver of privilege?

[94] The plaintiffs say that any privilege attached to any of the documents the subject of this application has been waived by the Fortress parties by their own pleading and evidence adduced in an earlier interlocutory application in these proceedings. In relation to the documents which are relevant to the 2008 transaction, the argument seems to be confined to the defendants' pleading. It is necessary then to set out the effect if not the full text of those parts of the Defence upon which this argument relies.

[95] Paragraph 47A of the statement of claim alleges that the Stella Proceeds Deed was inconsistent with the draft Deed of Release in relation to the inter-company loans. That allegation seems to be plainly correct. But the Fortress defendants have not expressly admitted it and have pleaded in paragraph 47A of their Defence that the recitals in the Stella Proceeds Deed "were premised on a schedule of inter-company loans provided to Fortress by OL and OA on 28 February 2008", in Mr Anderson's email of that date to Mr Kwei (to which I have referred at [77]).

[96] Paragraph 50 of the statement of claim alleges that the recitals in the Stella Proceeds Deed were incorrect and (again) inconsistent with the draft Deed of Release and that deed as executed. In response, the Fortress parties plead (in paragraph 50) that the information in the recitals in the Proceeds Deed was provided by Mr Anderson in his email of 28 February 2008 and that the Fortress defendants believed that the recitals were correct.

[97] In paragraph 80 of the statement of claim, the plaintiffs claim that the court should order under s 588FF(1)(a), (c) or (d) of the Corporations Act 2001 (Cth) that Fortress pay to them the sum which it received from the Stella Sale together with interest. In paragraph 80 of the Defence, the Fortress defendants plead in response that they (more particularly the first defendant or the second defendant) received the benefit of that payment in good faith and with no reasonable ground for suspecting that OA was insolvent at that time or would become insolvent and when a reasonable person in their circumstances would have had no such grounds for suspecting.

[98] The plaintiffs' argument in this respect also refers to paragraph 96(b)-(ea) of the Defence, in which the Fortress defendants dispute that they had knowledge of a number of circumstances about the Octaviar Group, including the alleged insolvency of OA and the (alleged) fact that no company within the Stella Group had any substantial indebtedness to OL. The significance of this paragraph 96 to the plaintiffs' argument seems to be that in these various subparagraphs of it, the Fortress defendants repeat (amongst other things) what they pleaded in paragraph 80 of the Defence.

[99] Lastly, there is paragraph 97A which is pleaded in response to the allegation that certain officers of Fortress, on or around 4 February 2008, "were aware of a risk of knowing involvement in a breach of directors' duties, in connection with the Stella deal". The particulars of the plaintiffs' allegation are that the awareness should be inferred from the handwritten notes of a meeting attended by those persons and others on that date. The Fortress defendants admit that those persons attended such a meeting on that date but deny that there was any discussion at the meeting about any risk of knowing involvement by them in a breach of the duties of OA's directors connected with the sale of the Stella Group.

[100] In Mann v Carnell,[33] Gleeson CJ, Gaudron, Gummow and Callinan JJ said that a waiver of the privilege is brought about by "the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large".[34]

[101] The plaintiffs' argument emphasises what is said to be an unfairness in the Fortress defendants advancing a case as to their own states of mind (as referred to in those paragraphs of the Defence) whilst at the same time withholding the production of documents which are directly relevant to that case. They say that once the Fortress defendants pleaded, for example, that they acted in good faith, they conducted their case in a way which was inconsistent with the withholding of information and documents relating to their communications with their legal advisers which might well disprove their case. They submit that it has been held that the pleading of a "good faith" defence under s 588FG of the Corporations Act 2001 (Cth) effects a waiver of privilege, for which the argument cites Crisp v GSF Australia Pty Ltd, Re Foodlife Inventory Holdings Pty Ltd (in liq).[35]

[102] The plaintiffs' argument identifies the tension between the maintenance of legal professional privilege and the disclosure by a party of all of its directly relevant material. To the party which must litigate an issue upon which relevant material is withheld from it, the operation of the privilege could seem unfair. But that is a tension which the law resolves in favour of the maintenance of the privilege. As Deane J said in Attorney-General of the Northern Territory v Maurice,[36] the purposes served by the principle of legal professional privilege are "not to be sacrificed even to promote the search for justice or truth in the individual case or matter ...".[37]

[103] It follows that a waiver of the privilege is not effected by the party entitled to the privilege simply conducting litigation in a way which makes the privileged documents relevant to an issue. Instead, a waiver of the privilege is effected by the inconsistency between the maintenance of the confidentiality which is protected by the privilege and conduct of that party which discloses, or purports to disclose, that which was confidential.[38] Thus in Commissioner of Taxation v Rio Tinto Limited,[39] the Full Court of the Federal Court (Kenny, Stone and Edmonds JJ) said:[40]

"Where ... waiver is made out, the privilege holder has expressly or impliedly made an assertion about the contents of an otherwise privileged communication for the purpose of mounting a case or substantiating a defence. Where the privilege holder has put the contents of the otherwise privileged communication in issue, such an act can be regarded as inconsistent with the confidentiality that would otherwise pertain to the communication."

Crisp v GSF Australia Pty Ltd applied Commissioner of Taxation v Rio Tinto Limited, as that judge was bound to do. Importantly in that case, the party claiming privilege had not only pleaded that it had acted in good faith, but also disclosed by its evidence some of its legal advice in support of that plea.[41]

[104] In none of the parts of the Defence to which the plaintiffs refer in this argument is there anything pleaded as to the content of a communication between Fortress and its lawyers. The fact that the Fortress parties admit that they had legal advice and contend that they acted in good faith and without knowledge of the various matters alleged, such as the insolvency of OA, is insufficient to waive their privilege. This is because they have not gone further and revealed or asserted, expressly or by implication, the contents of their legal advice. For example, they have not alleged that they held a certain belief or opinion as to a matter in consequence of legal advice which they received about that matter. The question is not whether the Fortress parties have put their state of mind in issue but whether they have directly or indirectly put the contents of the otherwise privileged communications in issue in the litigation.[42]

[105] Therefore the plaintiffs' argument of a waiver of privilege in relation to the 2008 transaction documents, based as it is upon the contents of the Defence in the paragraphs to which I have referred, must be rejected.

[106] The plaintiffs' case is that in late 2011, Fortress disposed of all of its assets in order to defraud its creditors. In particular, it is said that Fortress did so in order to defeat an imminent claim by OA or its liquidators such as that which is made in this proceeding. It claims that the alienations of the property of Fortress are thereby voidable, at the incidence of the plaintiffs as persons prejudiced by that alienation, pursuant to the identical provisions of s 37A of the Conveyancing Act 1919 (NSW) or s 228 of the Property Law Act 1974 (Qld).

[107] The alienations of property fall into four categories. First, there were what the statement of claim[43] describes as the Assignments, by which Fortress "transferred assets consisting primarily of loan books and Fortress's right, title and interest in credit default swaps" in the calendar year 2011 to the fifth, sixth and/or seventh defendants. The statement of claim refers to entries in the accounts for Fortress recording such assignments at a value of $185,958,083. The next category of alienation was by a reduction in capital in an amount of $86,380,677, pursuant to a resolution of the directors of Fortress on 30 December 2011. Third, there was a dividend paid by Fortress to its sole member (the ninth defendant) on or about 30 December 2011 in the amount of $102,121,102. The fourth category is an alleged transfer of about $19.6 million as a purported return of capital or dividend payment made in or around January 2012.

[108] On 1 September 2011, OA's liquidators sent a letter to the committee of inspection stating that they were considering whether OA had any cause of action against Fortress. The Fortress defendants admit that a copy of that letter was sent to Fortress. On 8 December 2011, a Special Purpose Liquidator of OL was appointed by the Supreme Court of New South Wales in place of the first plaintiffs who were also the liquidators of the company. That appointment was made because of the potential competition between OL and OA in relation to claims arising from the payment of the Stella proceeds to Fortress. The Fortress defendants admit that through their solicitors they received a copy of that order on 9 December 2011.

[109] In essence, the plaintiffs' case is that it must be inferred, having regard to the magnitude and timing of these alienations of property, that they were made because of an apprehension that OA and its liquidators would make such claims as are made in this case and that those claims could be successful.

[110] The pleading by the Fortress defendants is not entirely responsive and clear, at least as to this part of the plaintiffs' case. But they seem to agree that the assets of Fortress were disposed of during 2011 (and, as to some of them, in late 2011) and that the proceeds of those dispositions were passed on to Fortress' holding company by a combination of dividends and capital reductions made at about the times which are alleged by the plaintiffs.

[111] In paragraph 145 of the statement of claim, the plaintiffs allege that the Assignments were undertaken with the intention of Fortress to defeat, delay and hinder the potential claim by OA and to adversely affect the enforceability of any judgment based upon such a claim, if successful. Remarkably, that allegation is the subject of a mere non-admission by the Fortress defendants, including Fortress itself.[44] Similarly, there is a non-admission that the assignees knew that Fortress held that intention.[45] And there is a non-admission of the allegations that the capital reduction, the dividend payment and the cash transfer were transactions by which Fortress intended to defeat, delay and hinder the potential claim by OA[46] and that this was known to the ninth defendant.[47] The ninth defendant was the holding company of Fortress.

[112] In the same way there is a mere non-admission of the allegations, in paragraphs 149 through 151, that these various alienations of property were within s 37A of the Conveyancing Act 1919 (NSW) or the equivalent Queensland provision. Lastly, there is a non-admission of the allegation[48] that the capital reduction, the cash transfer, the dividend payment and/or alternatively the assignments and the financing of those transactions together comprised the one alienation of property with an intent to defraud the creditors of Fortress, particularly OA.

[113] The Fortress defendants have sought to explain these non-admissions by pleading, in the words of UCPR r 166(3), that they have made reasonable enquiries to ascertain the truth of the allegations and remain uncertain as to their truth or falsity. Because these allegations involve the states of the defendants' own corporate minds, it is difficult to understand the basis for these non-admissions. If the transactions were effected, not with an intention to defeat the creditors of Fortress, but for some other purpose or purposes, it is to be expected that the Fortress defendants would plead what those purposes were.

[114] However, the defendants' real case as to the purposes for these transactions is indicated by two affidavits which were used on an interlocutory hearing in this proceeding in late 2012. One was an affidavit sworn by Mr D N Goldman, a lawyer employed in New York by another Fortress company. The other affidavit was sworn by Mr J J Walker, a partner of Baker & McKenzie. Mr Goldman's affidavit sets out what he says were the relevant purposes of the transactions. There is a reference to that affidavit within the Defence, where parts of its are incorporated as particulars of a purported denial of the making of the assignments in the calendar year 2011. But that paragraph of the Defence,[49] in substance, admits that the assets of Fortress and the ninth defendant were transferred to the fifth to eighth defendants in 2011, by pleading that they were made (as to some assets) in May 2011 and (as to the balance) in December 2011. The defendants have thereby incorporated at least some parts of Mr Goldman's affidavit within their pleading.

[115] The effect of his affidavit is that in 2007 he began working on a restructure of the Australian operations of Fortress to avoid the incidence of certain United States tax laws which were affecting investors in the funds which were employed by Fortress in Australia. The restructure was ultimately effected in 2011, the delay being attributed by him to first, the complications of Australian stamp duties and later, to the proceedings brought by the liquidators of OL against Fortress in which interlocutory orders had been made against it.

[116] The paragraphs of the affidavit of Mr Goldman which are particularised in the Defence include paragraphs 25 and 26, where Mr Goldman referred to the purpose of avoiding the incidence of US tax laws and paragraph 27 where he referred to the Australian stamp duty complications.

[117] The plaintiffs argue that there is a prima facie case that the relevant communications and documents were made for an improper purpose which was to defraud the creditors of Fortress. They further argue that any privilege was waived by the affidavits of Mr Goldman and Mr Walker. I have concluded that the privilege was waived by those affidavits. It is therefore unnecessary to consider, within this interlocutory application, whether the alternative argument against this claim for privilege should be upheld.

[118] The affidavits were used in an application by the liquidators for injunctions under r 260A of the UCPR to prevent the Fortress defendants from dealing with assets. The application was made upon arguments that correspond with the case which is now pleaded. In particular, it was submitted that there was a sufficiently apparent case that these transactions were made with an intent to defraud the creditors of Fortress. An interim freezing order was granted on 18 September 2012 before an application for interlocutory relief came before Boddice J on 8 and 9 November 2012. Ultimately, the court did not have to decide the application because the Fortress parties agreed, without making any admission, that there should be freezing orders. But that was after these affidavits had been read into evidence.

[119] Mr Walker's affidavit referred to the first and second defendants as the "Australian Fortress Group" and the fifth, sixth, seventh, eighth and ninth defendants as the "Restructured Australian Group". Mr Walker recalled being introduced to Mr Goldman in late 2007 as the "head of tax for the Fortress Australia Group (and its related offshore entities)", soon after which they discussed "US tax costs associated with the Australian Fortress Group and a potential restructure of that group to address this cost issue". Mr Walker began working with Mr Slack of the second defendant upon a new corporate structure for the Australian investment of what were described as the Drawbridge Special Opportunities Funds, which were being invested and managed by the Australia Fortress Group.

[120] Mr Walker said that he was instructed to create "two new streams of entities", under which the fifth and eighth defendants were established for the Drawbridge Special Opportunities "onshore" Fund and the sixth and seventh defendants were established for the Drawbridge Special Opportunities "offshore" Fund. He said that once those entities were established in 2008, he was informed by Mr Slack that the Australian Fortress Group would cease to acquire any new Australian and New Zealand investments which were made instead, beginning in 2009, by the Restructured Australian Group.

[121] At about this time, Mr Walker was also asked by Mr Goldman and Mr Slack to consider the tax and stamp duty costs of transferring the existing investments from the Australian Fortress Group to the Restructured Australian Group. He said that the consideration of this took some time whilst relevant documents were collected and an analysis of the discrete stamp duty regimes in different Australian States was undertaken.

[122] In May 2011, Mr Walker said, Baker & McKenzie was instructed by Mr Goldman, Mr Slack and Mr Kwei to prepare the relevant documents to transfer certain assets from the Australian Fortress Group to the Restructured Australian Group. In December 2011, he said, Baker & McKenzie was instructed to prepare the relevant documents to transfer the remainder of the assets to the Restructured Australian Group. He exhibited copies of deeds of assignment and sale agreements between the two Groups recording those transfers of assets, which he said were finalised and executed on the instructions of Mr Goldman. He said also that the consideration for the assets transferred was determined by reference to their market value at the time of the transfer.

[123] Mr Goldman's affidavit began with an explanation of his position in the Fortress group. He was head of "tax and structuring for the credit funds business at Fortress". His qualifications included a JD from Columbia University School of Law and an LLM in Taxation from New York University. He had been a partner of or associated with certain law firms. In his employment, he was "responsible for ensuring that investment vehicles created by the credit funds and the transactions in which they engage are structured in a manner that is as tax efficient for our investors as is commercially practicable".

[124] He described the Fortress group structure. The business of Fortress was that of a global investment manager, managing through affiliates a number of global investment funds, including that group of funds which were called the Drawbridge Special Opportunities Funds. The Drawbridge Funds consisted of onshore (being the USA) and offshore (being outside of the USA) entities.

[125] The majority of the shares in the ninth defendant were owned indirectly by the Drawbridge Special Opportunities Funds. Fortress was a wholly-owned subsidiary of the ninth defendant. The role of Fortress was to act as a vehicle for the making of loans and other investments in Australia and New Zealand. The investment activities of Fortress were managed by the second defendant the ultimate parent company of which was the Fortress Investment Group LLC.

[126] The majority of the shares in the fifth defendant were owned indirectly by the onshore Drawbridge Special Opportunities Fund. The role of this defendant was to act as a vehicle for the making of loans and other investments in Australia and New Zealand. The eighth defendant was a wholly-owned subsidiary of the fifth defendant. Its role was to act as a nominee company for the purpose of holding security investments and similar property on trust in respect of loans made to borrowers in Australia and New Zealand.

[127] The majority of the shares in the sixth defendant were indirectly owned by the offshore Drawbridge Special Opportunities Fund. Its role was to act as a vehicle for the making of investments here and in New Zealand as well as being the holding company of the seventh defendant. The second defendant also managed the investment activities of the fifth, sixth, seventh and eighth defendants.

[128] According to this affidavit, between Mr Goldman's joining Fortress in 2006 and sometime in 2007, he discovered that there were "inefficiencies associated with the structure of the Australian Fortress Group that derived from US tax considerations" and that "for certain US tax reasons, the Australian Fortress Group needed to operate with limited input from the Drawbridge Special Opportunities Funds' senior investment professionals". He said that "the restrictions on interaction between Australia-based personnel and US-based personnel hindered the efficient execution of the Australian business". Accordingly, in 2007, he began to work with Mr Slack on the creation of a new corporate structure for the Australian operations of the Drawbridge Special Opportunities Funds, which eventually became the Restructured Australian Group.

[129] While working on this structure, Mr Goldman determined "that as a result of certain US federal tax rules applicable to the Australian Fortress Group, certain US investors in the onshore Drawbridge Special Opportunities Fund could potentially realise an amount of income for US tax purposes in respect of the Australian Fortress Group that exceeded the net gain actually realised by the Australian Fortress Group". He said he also discovered that there were certain losses which had been incurred by the Australian Fortress Group which could not be utilised to reduce the US tax liability of investors and explained, in summary, the reasons for that position.

[130] In paragraph 25 of his affidavit, he said that "the restructuring the Australian Fortress Group became not just a matter of improving operating efficiencies but also of eliminating economic efficiencies of the group" and that he wanted the Restructured Australian Group to not only make all new investments but "also to acquire all of the assets of the Australian Fortress Group, and as soon as possible, in order to stop the uncorrelated US tax consequences of the old group for certain investors in the Drawbridge Special Opportunities Funds". His affidavit then explained the creation of "two new streams of entities" for the onshore and offshore funds.

[131] He then referred to the stamp duty complications which affected the transfer of investments to the Restructured Australian Group. He said that this delayed a decision to transfer the assets until 2010 when "we reversed that decision and began focussing on transferring the investments ... since doing so would enable us to liquidate the old group and save its operating costs".

[132] He said that "certain of the assets" were transferred from the Australian Fortress Group to the Restructured Australian Group in May 2011 and the remainder were transferred in December 2011. Some of the transfers were effected in May 2011 because of a rearrangement of assets between the offshore fund and the onshore fund interests.

[133] His affidavit also referred to his limited awareness of the proceedings by OL against Fortress and his understanding "based on discussions with my colleagues in Australia that on account of the OL proceedings [Fortress] could not transfer its assets to the Restructured Australian Group prior to its doing so in 2011", although he could not recall "being apprised of the precise details regarding why these transfers could not take place immediately". He also said that at the time of the 2011 asset transfers, he had not been told by any officers or employees of the Australian Fortress Group companies that any further litigation was anticipated or threatened and he had no personal awareness of such at that time.

[134] From Mr Goldman's affidavit, it appears that it was his legal advice, as to the need for a restructure because of US tax laws, which resulted in that restructure. There is no submission that he was not relevantly a lawyer for the purpose of any privilege attaching to communications in which he was providing advice. In Mr Walter's affidavit, in discussing this category of documents, he referred to both Mr Goldman and Mr Slack providing legal advice to the first and second defendants in relation to various steps taken in the restructure in the period 2007 through December 2011.[50] Mr Walter said that based upon his review of the documents, it appeared that the documents which were contained in this category 11 (described as "restructure involving the Fortress defendants") consisted of communications passing between Fortress and Baker & McKenzie in which that firm was providing advice to Fortress or was receiving instructions in relation to that advice, communications passing between employees of Fortress and the second defendant where legal advice from Baker & McKenzie was being considered and (thirdly) "communications passing between Mr Slack or Mr Goldman, and other employees of [Fortress], the second defendant and [another Fortress company] in which Mr Slack and Mr Goldman provided advice to [those companies] or were being provided with instructions in relation to that advice".

[135] By the affidavits of Mr Goldman and Mr Walker, the Fortress defendants put in issue the legal advice which they received, both internally and from Baker & McKenzie, as to the reason or reasons for a restructure and as to how and when it should be implemented. The purpose of that evidence being adduced at the interlocutory hearing of November 2012 was to refute the plaintiffs' case that the restructure was made for the purpose of defrauding the creditors of Fortress, and in particular the plaintiffs.

[136] As I have discussed, the Defence does not directly plead that the purpose of the restructure was as explained by these affidavits. But the Defence does include some parts of Mr Goldman's affidavit, including paragraphs where he refers to that purpose. On the state of this pleading, the Fortress defendants could not be expected to advance a case which does not accord with Mr Goldman's affidavit.

[137] There are 448 documents within Mr Walter's category 11. There is also Mr Walter's category 14, consisting of 120 documents, described as "corporate secretarial advice to [Fortress]". Based on Mr Walter's review of the documents in this category, he understood that they consisted of communications between Fortress and Baker & McKenzie in relation to advice in early July 2007, when Fortress sought and obtained advice "regarding the procedure for it to reduce its capital in accordance with the relevant provisions of the Corporations Act" and in December 2011 and January 2012, when Fortress sought and obtained further advice on that subject.

[138] But have the Fortress defendants effectively put in issue all of the advice which was sought or given in the communications of these (in total) 568 documents? As I have concluded, they have done so in so far as the advice related to the reason or reasons for the restructure and how and when it should be implemented. It is unlikely that every one of those documents would, of itself, be probative of what advice was given on any of those subjects. But taken with other evidence it is likely to do so. For example, documents containing communications about Australian stamp duty would be relevant, as Mr Goldman's affidavit suggests, in explaining the delay between the restructure being conceived in 2007 and its being finally executed in 2011.

[139] The entire course of dealings between Fortress and its internal and external lawyers, in the conception, development and execution of this restructure, will be relevant in considering whether the alienations of property were ultimately effected for the purpose alleged by the plaintiffs. That history will be relevant to the defendants' explanation of the progress (or lack of it) over the years of the implementation of the restructure. Mr Goldman's affidavit has provided what purports to be a summary of the advice which was given at various stages from 2007 to 2012. The legal advice to Fortress from its internal and external lawyers over that entire period has been put in issue.

[140] In identifying an inconsistency between the conduct of the client and the maintenance of the confidentiality from which the privilege is claimed, courts may be informed by considerations of fairness.[51] The Fortress defendants have advanced and inevitably will advance evidence of the legal advice which was being provided about this restructure over a five year period. Yet they would deny to the plaintiffs documents which contain communications in which that advice was sought or given. The evident unfairness of that course results from inconsistency between the conduct of the Fortress defendants in asserting what advice they received whilst trying to keep confidential the documentary evidence of it. In my conclusion, the documents in categories 11 and 14 should be produced for inspection.

[141] It will be ordered that the documents in categories 11 and 14, described in the affidavit of Mr D J Walter filed on 4 February 2014, be produced for inspection. It will be further ordered that the documents listed in the table in paragraph [43] of these reasons for judgment be produced for inspection. I will hear the parties as to any further orders upon the application filed 22 January 2014.

[1] The document numbered FOR.034.001.0355 dated 22 October 2008.

[2] (1884) 14 QBD 153.

[3] [1976] HCA 63; (1976) 135 CLR 674

[6] [2006] FCA 1234; (2006) 155 FCR 30, 45 [44].

[7] (1884) 14 QBD 153.

[8] Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] Ch 553 at 565.

[11] Ibid at 546 per Gaudron J and at 572 per Gummow J.

[12] AWB Ltd v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30 at 89 - 90 [217]-[218].

[13] [1920] 1 AC 581 at 604.

[15] See also Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 546-547.

[16] Watson v McLernon Group (Insurances) Pty Ltd [2000] NSWSC 306 at [113] per Hodgson CJ in Eq.

[17] [1920] AC 581 at 604.

[18] [1985] HCA 60; (1985) 158 CLR 500 at 516.

[19] Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 574.

[21] [1959] HCA 23; (1959) 103 CLR 341 at 343.

[22] Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 574.

[23] JD Heydon, Cross on Evidence (Australian edition) at [25290] citing Finers v Miro [1991] 1 All ER 182 at 186.

[24] Corporations Act 2001 (Cth), s 79(a), s 79(b) and s 79(c).

[25] Edwards v R [1992] HCA 19; (1992) 173 CLR 653; Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661.

[27] MFS Financial Services Pty Ltd which was a party to the Castle facility.

[28] Paragraph 43b of the statement of claim filed 13 May 2013.

[29] Statement of claim, paragraph 86Aa.

[32] O'Rourke v Darbishire [1920] AC 581 at 604.

[33] [1999] HCA 66; (1999) 201 CLR 1.

[35] [2006] FCA 1682 at [15].

[36] [1986] HCA 80; (1986) 161 CLR 475

[38] Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at 13 [28].

[39] [2006] FCAFC 86; (2006) 151 FLR 341.

[41] See [2006] FCA 1682 at [12].

[42] Commissioner of Taxation v Rio Tinto Limited [2006] FCAFC 86; (2006) 151 FLR 341 at 360 [65].

[45] Paragraph 146 of the statement of claim and paragraph 146 of the Defence.

[46] Paragraph 147 of the statement of claim.

[47] Paragraph 148 of the statement of claim.

[48] Paragraph 152A of the statement of claim.

[50] Affidavit of Mr Walter, paragraph 76(c).

[51] Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at 13 [29].