Gartner v Carter; In the matter of Gartner Wines Pty Limited

Background 5 The Gartner family have for many years carried on a farming business in the Coonawarra district of South Australia ('the Coonawarra'). Mr Michael Gartner and his wife, Alice Gartner, have three sons, David, Gregory and Philip. Since 1988 various companies have been incorporated in which Mr Michael Gartner and his wife, or Mr Gartner alone, holds shares. 6 In late 1998 and early 1999, Mr Gartner became interested in becoming involved in a winery business in the Coonawarra. In May 2001 he retained Ernst & Young, a firm of chartered accountants, and a related consultancy firm (together 'EY'), to raise capital for the construction of a winery by the Gartner Group. As part of its retainer EY made submissions to, amongst others, NAB to achieve this end. 7 By letter dated 11 October 2001, NAB offered to provide financial facilities to fund the construction of the Winery ('the facility'), which offer was accepted. NAB was to advance to Gartner Wines Pty Ltd ('Gartner Wines') the sum of $14.5 million made up of a construction facility of $10.5 million and a working capital facility of $4 million. The working capital facility was expressed to have a fluctuating limit 'in accordance with working capital requirements'. The limit of $4 million was to apply from the commencement of the facility until 30 June 2002. The facility also provided for an additional advance of $4.41 million to another company in the Gartner Group, Tynski Pty Ltd ('Tynski'), to enable it to refinance its indebtedness to the ANZ Banking Group Ltd, and for an additional advance of $6 million to the partnership of MJ and AW Gartner to refinance their facilities with another bank. 8 To secure the facility, each member of the Gartner Group granted to NAB a fixed and floating charge over all of its assets. The mortgage debenture executed by Gartner Wines and subsequently registered by NAB under s263 of the then Corporations Law was exhibited to the affidavit of Mr Carter sworn on 13 October 2003 and marked "BJC 2". I presume that the terms of this mortgage debenture are representative of those agreed to by each of the Gartner companies that provided such security. 9 In addition, a cross guarantee was given by each member of the Gartner Group and Mr & Mrs Gartner to the extent of $18,000,000, in respect of the indebtedness of Gartner Wines. Mr & Mrs Gartner also granted mortgages in respect of certain real estate to secure the facility. 10 The facility was drawn down on 14 and 21 December 2001 to the extent of $9 million by Gartner Wines, $4.41 million by Tynski, and $5.7 million by the partnership of MJ and AW Gartner. 11 There was a shortfall of about $3.3 million in the funding required to complete construction, details of which were provided to NAB by way of letter from EY dated 25 January 2002. Gartner Wines claims to have been aware there would be a shortfall since November 2001, and that the matter was discussed with NAB and EY prior to the Gartner Group accepting the terms of the facility letter. 12 In February 2002, NAB appointed Bruce James Carter ('Mr Carter') of Ferrier Hodgson Chartered Accountants to investigate the affairs of the Gartner Group. A draft report was prepared by Mr Carter and was provided to Mr Gartner in March 2002. The Gartner Group was asked to verify the accuracy of the report's contents. 13 Mr Guy D'Arrigio, an accounting and business adviser to the Gartner Group responded to the draft report on behalf of the Gartner Group. The letter in response attached a schedule of additional comments. 14 Apparently prior to the issue of the draft report, the facility provided by NAB was restructured. By deed dated 6 March 2002, the relevant companies in the Gartner Group, together with Mr & Mrs Gartner, acknowledged that the facility was amended in accordance with the terms of a letter dated 4 March 2002 from Finlaysons to Mr & Mrs Gartner, Garter Wines and Tynski. 15 Relevantly, the restructure involved increasing the Gartner Wines construction account from $10.5 million to $13,784,117.60. Further, all amounts advanced under the facility were made repayable by 30 September 2002. A part of the increased facility was to facilitate repayment of the working capital account, which was reduced to a limit of $300,000 pursuant to the restructure. Another part of the increased facility was to facilitate the payment of construction creditors to ensure their continued work. From the date of restructure, the working capital account was to be used for specific purposes which did not include the payment of construction creditors. 16 In July 2002 NAB again commissioned Mr Carter to investigate the Gartner Group and provide a further report. In a report dated 2 August 2002 Mr Carter concluded that the Gartner Group was insolvent. 17 On 6 August 2002, NAB issued a notice of demand to Gartner Wines, requiring repayment of the sum of $13,467,702 by 11.00 am on 9 August 2002. 18 In a letter dated 8 August 2002, Gartner Wines, by its solicitors purported to be entitled 'to avoid the transaction between Gartner Wines and the Bank, including the Gartner Wines Facilities and the Mortgage, and to avoid the consequences and effect of that transaction, Facilities and Mortgage'. In that letter, Gartner Wines provided further detail concerning the $3.3m shortfall. The shortfall was said to derive from a 'misunderstanding' concerning indebtedness which existed at the time the facility was provided. Apparently, NAB understood that $3.3m of the $10.5m construction facility was to be applied to discharge existing debts incurred in the construction of the winery. The Gartner Group claims that the $10.5m advance was required in addition to the existing expenditure of $3.3m. The Gartner Group claims that it accepted the terms of the facility on the strength of representations made by NAB and EY as to the future availability of further advances to cover the shortfall. It was on the basis of such representations that the Gartner Group claimed to be entitled to avoid the transactions between itself and NAB. 19 NAB appointed receivers and managers ('receivers') on 9 August 2002. 20 On 13 August 2002 the Gartner Group instituted the principal proceedings against EY and NAB. Following the appointment of the respondents as receivers and managers to Gartner Wines, several proceedings have been instituted in the Supreme and District Courts of South Australia.

Orders for examination and production 21 On 6 May 2003, the respondents obtained orders that Mr Michael Gartner and others be summoned pursuant to s 596A of the Act to attend before the Court to be examined in relation to the examinable affairs of the Gartner Group. An order for production of books and records in their possession was also made pursuant to s 596D of the Act. 22 The date for compliance with the order for production was later set as 23 July 2003. 23 Mr Gartner was represented in the application before me and in relation to the s 596A examination by a firm of solicitors. That firm had the responsibility of causing Mr Gartner to comply with the s 596D order. A solicitor employed in that firm has deposed to having referred the order for production to a clerk within the firm for the purpose of identifying and collating the relevant documents and preparing an index. An index was prepared and the documents were collated and produced to the Court. The index specified that no documents the subject of legal professional privilege were produced. Whether or not Mr Gartner was obliged to produce privileged documents to the Court pursuant to the production order was the subject of extensive correspondence between the parties. It developed into an issue which the respondents asked me to decide on this application but which was resolved between the parties during the course of the hearing. 24 On 28 July 2003, the District Registrar ordered that the respondents and their solicitors be entitled to inspect the documents produced by the applicant to the Court. Such inspection took place and the documents were inspected by Finlaysons, solicitors for the respondents. 25 By letter dated 7 August 2003, Finlaysons advised the applicant's then solicitors that certain documents which might attract a claim of legal professional privilege had been produced to the Court and inspected by them.

The proceedings before me 26 Although no application had been lodged with the Court, on 8 August 2003, the applicants sought an urgent hearing. An affidavit of the applicant's then solicitor was filed before the hearing, exhibited to which was a list of the documents which had been produced to the Court in response to the s 596D order, and in respect of which privilege was claimed ('ACH 1'). 27 The examination of Mr Gartner had commenced that day and one item listed in ACH 1 was tendered by counsel for the respondents during the course of the afternoon. 28 Copies of the relevant documents had been made by Finlaysons and the originals had been returned to the Court. 29 After some discussion, I adjourned the matter on an undertaking given by Mr Hoffman and Finlaysons in the following terms: 'I, Mark Hoffman and the firm of solicitors, Finlaysons, undertake not to further copy or disseminate the documents identified in ACH1 to Mr Hurren's affidavit of 8 August 2003 until disposal of the matter, save only the document identified as 1.3, which has been tendered as an exhibit in Mr Gartner's public examination today.' 30 I directed that the original documents in the custody of the Court be sealed up, only to be inspected by the applicant's then solicitors and counsel for Mr Gartner. 31 The interlocutory process was ultimately filed on 22 August 2003 and it sought the following orders: '1. A declaration of this Honourable Court that the documents, described in annexure A to this Interlocutory Process (which documents are collectively referred to as 'the privileged documents'), were the subject of legal professional privilege. 2. A declaration of this Honourable Court that the privileged documents were produced to the Court in purported compliance with the Order of Registrar Christie dated 6 May 2003, inadvertently. 3. An order of this Honourable Court that the privileged documents, and all copies thereof be delivered up to the Court by Finlaysons and their counsel, Mr Mark Cameron James Hoffman ('Mr Hoffmann'), and that this be verified by way of affidavit. 4. An order that the solicitors for the said examinee be at liberty to uplift from the Court the privileged documents. 5. An order that Finlaysons and Mr Hoffman be permanently restrained from making any use of the privileged documents. 6. Orders for the costs of and incidental to this application. 7. Such further or other orders and directions as this Honourable Court deems fit.' 32 I shall refer to the documents listed in 'Annexure A' to the application as 'the documents'. 33 The application was supported by two affidavits of clerks employed by the applicant's then solicitors from which I am satisfied that the production of the documents was inadvertent. In any event, when the matter was again before me on 22 August 2003, Mr Hoffman, counsel for the receivers, conceded that the production of the documents and the failure to claim legal professional privilege was inadvertent. 34 At that time, I gave leave to Finlaysons to inspect the documents sealed in Court on 8 August 2003 for the purpose of ensuring that those documents in the possession of Finlaysons were in fact copies of the documents held by the Court. 35 By letter dated 1 September 2003, Finlaysons agreed to the return of 8 of the documents listed in Annexure A to the interlocutory process. On 9 September, I noted an undertaking given through Mr Barrett, a partner in Finlaysons, that the receivers and managers of the Gartner Group would not 'introduce secondary evidence of the documents referred to in the final paragraph of the letter of Finlaysons dated 1 September and, in particular, the documents referred to in paragraphs 1.1, 1.2, 1.7, 1.8, 1.17, 1.20, 1.21 and 2.3 of the Annexure, and to return those documents.' 36 On 25 September 2003 I granted leave to Mr Gartner to amend the interlocutory process filed on 22 August 2003 by adding a further document to the list contained in the annexure thereto. The document is now described in the interlocutory process as '2.4 - type written notes headed 'Strategic Plan for Gartner Restructure - Document prepared on behalf of Mr Gartner for the purpose of obtaining legal advice from A of XY and provided to A' ('the strategic plan'). I made some further directions and adjourned the matter for hearing until 29 October 2003. 37 By the time the matter came before me for hearing, the only document in dispute was that document added to the Annexure by leave granted by me on 25 September, the strategic plan. The respondents resisted the applicant's claim for legal professional privilege on the basis that the document was generated in furtherance of a fraud. 38 For reasons which I will give later the respondents need to establish that there are reasonable grounds for believing that the strategic plan was created for an illegal or improper purpose. To that end they will have to establish a prima facie case. In other words they will have to establish that the charge has colour to it. When I speak of making a finding or being satisfied, I mean that a prima facie case, as that is understood in matters of this type, has been made out.

The 'Strategic Plan' 39 The document in respect of which the applicant seeks the declaration (see para 1) is said by the respondents to evidence, and to have been drawn in furtherance of, a plan to put assets of the Gartner Group beyond the reach of NAB. The respondents claim that in these circumstances the strategic plan did not attract legal professional privilege. 40 The strategic plan outlines several proposed transactions and suggestions for restructuring of the Gartner Group and the businesses of the various entities within that group. I think I was asked to view the proposed transactions collectively as constituting the intended fraud giving rise to the 'exception' to the doctrine of legal professional privilege. 41 By way of summary, the strategic plan was said by the respondents to outline a plan to: (i) cause debts owed to a Gartner company subject to a security held by NAB to be paid to an entity not the subject of such security [Item E in strategic plan]. (ii) transfer the profitable business operations of an entity which was subject to a security held by NAB to a new entity within the group not subject to such a security [Item D in strategic plan]; and (iii) assign a debt owed by Mr & Mrs Gartner to Gartner Wines personally, so as to divest Gartner Wines of an asset that might be pursued by NAB [Item B in strategic plan]; and (iv) cause Gartner Wines to enter into uncommercial grape sale agreements whereby title to the wine produced would remain with the grape supplier until payment was received ('retention of title proposal') [Item H in strategic plan]; or (v) cause Gartner Wines Marketing Pty Ltd ('Gartner Marketing'), a company not subject to any security held by the NAB, to enter into grape sale agreements with Gartner Wines being retained as a contract processor so that title to the produced wine would remain with Gartner Wines [Item H in strategic plan]; 42 The document is said by the respondents to outline a broader plan to defeat the interests of NAB. This plan is said to be evidenced by the document itself, by transactions which took place and which were contemplated in the document, and by transactions which took place but are not mentioned in the document. For example, it was also alleged that Gartner Wines transferred a considerable quantity of wine to Gartner Wines Marketing (SA) Pty Ltd ('Gartner Marketing') so as to put that asset beyond the reach of NAB.

Circumstances surrounding the production of the disputed document 43 At the hearing of the application I was concerned to identify precisely which document was the subject of the application. There was some discussion at the commencement of the hearing as to the number of copies / versions of the strategic plan in existence. Versions of the document were communicated to various people, and identifying the claim for privilege required the precise identification of the document in dispute. 44 The original strategic plan was produced by Mr Stephen Wilkins, a lawyer, friend and business associate of Mr Michael Gartner. On or shortly after 5 June 2002, Mr Wilkins advised Mr Gartner's then solicitors that Mr Gartner wished him to assist in obtaining legal advice from them in relation to Mr Gartner's involvement in the construction of the winery at Coonawarra. 45 The original [Document 1]was faxed from the Heathcote Winery Administration to Mr Michael Gartner on 9 June 2002 [Document 2]. The document was then faxed by Mr Wilkins to a partner of the firm of solicitors on 11 June 2002, and this document was entitled 'Strategic Plan for Gartner Restructure' [Document 3]. The partner deposed to having discussed with Mr Wilkins the purpose for which the document was being sent to him, and being told by Mr Wilkins that the document was sent for the purpose of obtaining legal advice. 46 The partner advised Mr Wilkins to amend the document heading so as to better identify the purpose for which the communication was made. Mr Wilkins then amended the document by re-titling it 'Notes for Advice from [XY] re: proposed Gartner Restructure in light of potential litigation by NAB'. [Document 4] This amended version of the strategic plan was then emailed to the partner. [Document 5] 47 Document 3 was the document inadvertently produced to the Court. It was this document which was faxed by Finlaysons to the applicant's then solicitors under cover of their letter dated 7 August 2003 (see para 25 above) [Document 6]. 48 Document 3 is the subject of the present application. It is conceded that this document was produced inadvertently and that it would have been the subject of legal professional privilege if it had not been generated in furtherance of a fraud. 49 The strategic plan was created in or about June 2002, shortly before NAB commissioned Mr Carter to carry out his second investigation and provide a report. 50 When the document was generated, there was no actual dispute between NAB and the Gartner Group. No demand had been made for repayment of monies advanced. The strategic plan, however, records the view apparently held by the Gartner Group (as at the date of the document) that '[a] combination of overruns (not unusual), the initial $3Million shortfall, and NAB's refusal to provide further funding has left the Winery with dearth of working capital and $5Million of creditors'. 51 The likelihood of a dispute between the Gartner Group and NAB is recognised by Mr Wilkins identifying the purpose for providing the document to the Gartners' then solicitors as being to obtain legal advice on the proposed restructure 'in light of potential litigation by NAB'.

Gartner Farms and D.M. and T.A. Gartner 52 Gartner Farms Pty Ltd ('Gartner Farms') operated an onion processing and packing operation in the Coonawarra. Michael and Alice Gartner and their three sons were all directors and shareholders of Gartner Farms. Gartner Farms was one of the Gartner companies that executed a mortgage debenture granting a fixed and floating charge over its assets to support a guarantee it had provided in respect of the Gartner Group's indebtedness under the facility provided by NAB in October 2002. 53 The mortgage debenture expressed the charge to be floating over 'all the Mortgaged Property which is not charged by way of fixed charge'. "Mortgaged Property" was defined in the debenture to mean 'the undertaking of the Mortgagor and all its property and assets whatsoever and wheresoever both present and future …' The fixed charge did not attach to the book debts of the company. The book debts were the subject of a floating charge. 54 The strategic plan claimed that the book debts of Gartner Farms were in reality owed to the onion growers. Gartner Farms was 'just the agent'. It was proposed that the packing business be operated by a new entity, and the 'money currently owed to be directed to new entity'. 55 The respondents argued that the strategic plan thereby disclosed a scheme to divest Gartner Farms of its assets (the book debts) so as to put those assets beyond the reach of NAB. The strategic plan was also said to evidence a proposal to transfer the profitable operations of Gartner Farms to another entity, presumably one which was not the subject of any security held by NAB. 56 The respondents' case was that on 9 August 2002, after their appointment as receivers and managers, Mr David Gartner caused a direction to be sent to the trade debtors of Gartner Farms instructing them to pay any amounts owing to Gartner Farms to another company, D.M. and T.A. Gartner Pty Ltd ('D.M. and T.A. Gartner'). D.M. and T.A. Gartner is not indebted to NAB and has not given any security to NAB. Mr David Gartner and his wife, Ms Tracey Gartner, are co-directors and equal shareholders in D.M. and T.A. Gartner. 57 A copy of a facsimile transmission sent from D.M. and T.A. Gartner to a trade debtor of Gartner Farms, 'Tom & Franks', instructing them to make all future 'EFT payments' to the account of D.M. and T.A. Gartner was exhibited to Mr Carter's affidavit. 58 This and related conduct by the Gartner Group is the subject of litigation in the Supreme Court of South Australia (Action No. 346 of 2003). In that action, the respondents, as receivers, on behalf of Gartner Farms, allege that Gartner Farms purported to transfer all of its assets to D.M. and T.A. Gartner between 1 July 2002 and 9 August 2002. The statement of claim further pleads the instruction to trade debtors of Gartner Farms to pay outstanding accounts to D.M. and T.A. Gartner. It is also pleaded that cheques made payable to Gartner Farms were transferred or signed over to D.M. and T.A. Gartner. However, the respondent's case on the present application was not put so high. The focus was on the re-direction of trade debt payments to D.M. and T.A. Gartner. 59 The transfer of assets and re-direction of trade debtors is pleaded in the statement of claim as constituting breaches of director's duties, and to have been effected with the intention of putting assets beyond the reach of NAB. 60 The defence in this Supreme Court action was also exhibited to Mr Carter's affidavit. It is clear from that document that the Gartners deny the transfer of Gartner Farms assets to D.M. and T.A. Gartner. In respect of the alleged re-direction of trade debt payments, the Gartners say that Gartner Farms did not sell produce; it merely provided a packing service to growers for which it received a fee. 61 On the hearing of this application, counsel for the applicant, Ms Layton QC, argued, as the strategic plan contends, that Gartner Farms was merely the agent for the onion growers. Any payments received by it for the sale of onions were received by it as agent for the growers (ie: D.M. and T.A. Gartner). D.M. and T.A. Gartner were said to have supported Gartner Farms with assets required in the packing (and peeling) business. 62 Counsel for the respondent, in seeking to give 'colour to the charge', referred me to the transcript of the examination of Mr David Gartner conducted on 12 August 2003: 'Right. Well, up to 9 August all amounts were paid into the account of Gartner Farms, weren't they?--- That's right. Now, aside from peeled product, there were other amounts invoiced to customers of Gartner Farms, weren't there?--- Yes. That were trade debtors owing to Gartner Farms?--- You call them trade, sir, debtors. I call them growers' payments. And the trade debtors were invoiced by Gartner Farms?--- Yes, I believe so. The amounts in respect of those invoices were paid into the account of Gartner Farms up to 9 August 2002?--- That's right sir. … Didn't you give the instruction to Ms Kennedy redirecting payment to make sure that Gartner Farms didn't receive the money - because you thought that the receivers would keep it for themselves, didn't you?--- The receivers were up to lots of things, sir. Well, answer my question. You instructed Ms Kennedy to send this fax to redirect payment to the account of D.M. and T.A. Gartner because you thought if the money was paid to Gartner Farms the receivers and managers would keep the money for themselves?--- What was I supposed to do, sir? Like, not get the money and get landed with all the creditors? Answer my question, please, Mr Gartner. Mr Gartner, listen to my question?--- I was supposed to get stuck with all the creditors, let my money disappear and then pay the creditors out of my own personal account. … You gave the instruction to redirect payment?--- Of this account here, this one account here to Tom and Franks, yes. Yes, and you gave that because you were concerned that if the money was paid, as it had been up to 9 August, to Gartner Farms…?--- No, I wasn't concerned about that at all. I wanted the money so I could pay the creditors. I was recovering my money. Mr Gartner, will you kindly listen to my question?--- I'll listen to your question. Thank you. You gave the instruction for amounts owing by Tom and Franks to be redirected to D.M. and T.A. Gartner because you knew that if the money was paid to Gartner Farms it would be retained there by the receivers and managers didn't you?--- No, because I wanted my money, and this was a way of guaranteeing I got my money. Gartner Farms was in receivership. Gartner Farms - as far as I'm concerned, from 30 June Gartner Farms was finished, but I, with my responsibility as a director, after 30 June was to see all creditors paid, and the money from Gartner Farms was to pay creditors Whose creditors?--- Gartner Farms' creditors' 63 David Gartner acknowledges that payments up to 9 August 2002, the date the receivers and managers were appointed, were received by Gartner Farms. 64 In this regard, the "trading account" statement for Gartner Farms for the year ending 30 June 2002 shows a net income of $793,499 from the purchase and sale of onions. This is inconsistent with Gartner Farms being simply the agents of the onion growers and consistent with the respondent's assertions that onions were purchased from growers and then on-sold to wholesalers such that any amount owing by a wholesaler would be a receivable to Gartner Farms, and any debt owing by Gartner Farms to a grower would be separately accounted for. The balance sheet as at 30 June 2002 shows receivables in the order of $1.5 million. A note (note 4) to the balance sheet shows that of this amount, $1,291,820 is accounted for by trade debtors. An 'amount due to growers' of $853,533 is separately recorded as a liability (note 7). 65 The financial statements are consistent with the respondents' contention that the trade debts were assets of Gartner Farms. 66 The date of the redirection of trade debtors is also significant, being the date upon which the receivers and managers were appointed. It would be the most extraordinary coincidence if the redirection was not Gartner Farms' reaction to that appointment. 67 Mr David Gartner consistently referred to 'his' money, and presumably he means by that the money of D.M. and T.A. Gartner. 68 However, it is unclear why Mr David Gartner, presumably on behalf of D.M. and T.A. Gartner, would pay the creditors of Gartner Farms. One explanation was that the business of Gartner Farms had been transferred to D.M. and T.A. Gartner such that D.M. and T.A. Gartner had become liable to satisfy the creditors of Gartner Farms. Mr Hoffman, who appeared for the respondents, suggested that Mr David Gartner saw the receivers as seeking to secure the assets and leave only liabilities, and that Mr Gartner took action to prevent that by gathering in trade debts to D.M. and T.A. Gartner so that the unsecured creditors of Gartner Farms could be paid. 69 Mr Gregory Gartner was examined on 5 August 2003. His understanding was that the amounts shown in the Gartner Farms accounts as owing by various produce wholesalers, were actually owed to Mr David Gartner or D.M. and T.A. Gartner. 70 Mr Philip Gartner was unable to assist on this question during his examination. No evidence on this point from the examination of Mr Michael Gartner was proferred by the respondent. 71 Mr Michael Gartner was examined about the transfer of the Gartner Farms business to D.M. and T.A. Gartner. His evidence was that the plan was for Mr David Gartner to 'take over' the packing business of Gartner Farms, but he could not recall whether any steps were taken by anyone to ensure that Gartner Farms was compensated for any such 'take over'. 72 The effect of the examination evidence of each of these three members of the Gartner family was that they took no steps to ascertain whether Gartner Farms received valuable consideration for the transfer of any of its assets or its business to D.M. and T.A. Gartner. 73 No evidence was tendered by the applicant to prove any agency agreement, although as I have already mentioned some members of the Gartner family assert that monies recorded as owing to Gartner Farms were in fact owed to David Gartner or D.M. and T.A. Gartner. 74 I cannot determine, on the evidence, whether there has been a transfer by Gartner Farms of its business to D.M. and T.A. Gartner. The evidence is inconclusive. It appears that David Gartner, through D.M. and T.A. Gartner was to 'take over' the business of Gartner Farms, but no-one could point to any consideration provided to Gartner Farms in respect of any such 'take-over'. 75 On the evidence before me I am satisfied that the financial statements of Gartner Farms accurately reflect the trade debts owing to that company and its separate liabilities to the onion growers. I find that the 'redirection' of trade debts to D.M. and T.A. Gartner was prompted by the NAB's appointment of the respondents as receivers and managers. 76 I find that the 'redirection' of the trade debts was for the purpose of putting those assets out of the reach of NAB. I find that the action taken on 9 August 2002 was that contemplated in the strategic plan [Item E]. 77 I cannot make any finding as to whether any attempt was made to transfer the business of Gartner Farms to DM and TA Gartner. [Item D] If I were to accept the applicant's submission I am not sure that Gartner Farms had a business except as an agent. 78 I am satisfied that the respondents have established at least a prime facie case that Mr David Gartner did what he did on 9 August 2002 to frustrate NAB and to allow the family to continue to conduct that part of the Gartner Groups' business free of any liability to NAB. 79 To the extent that the strategic plan outlines the proposed redirection of trade-debts, that document was drawn for an improper purpose, being to frustrate NAB's apparently legitimate claim to the assets of Gartner Farms.

Gartners' Viniculture Management Pty Ltd and LCVM Pty Ltd 80 Gartners' Viniculture Management Pty Ltd ('GVM') provided vineyard development and management services to the Gartner Group and involved itself in vineyard investment projects. It was one of the companies in the Gartner Group that provided a guarantee and security to NAB in respect of the October 2001 facility. 81 The strategic plan noted that Mr Michael Gartner had requested that the relevant project managers appoint a 'new sub-contracted vineyard manager' from 1 July 2002. 82 On the respondents' case, the strategic plan disclosed a proposal to transfer the profitable business operations of GVM to an entity which had not given any security to NAB. It appears from the strategic plan iteslf that GVM had not entered into formal management agreements, such that the vineyard investment project managers were free to enter into formal agreements with a new entity. Having said this, 'a grape supply agreement' dated 21 March 2003, to which I will further refer, identifies GVM as 'the manager of the Community Title Scheme in Coonawarra…'. 83 LCVM Pty Ltd ('LCVM') was incorporated in June 2002 and Mr Philip Gartner, the youngest of the Gartner sons appears to be the sole director and shareholder of that company. In June 2002, LCVM entered into management service contracts with various project managers in respect of projects which had previously been managed by GVM. LCVM stands outside the security held by NAB. 84 During his s596A examination, Mr Philip Gartner said that he caused LCVM to be incorporated in anticipation of LCVM taking over the business of GVM. 85 It appears that the management services were then subcontracted from LCVM to GVM, and LCVM incurred a debt to GVM in respect of the services it subsequently provided. The interposition of LCVM meant that that the Gartner Group had no direct liability to GVM. Instead, it became liable to LCVM. LCVM would in turn, incur a liability to GVM in respect of the subcontract. During his examination, Mr Philip Gartner indicated that GVM had not been paid by LCVM because the receivers were indebted to LCVM in respect of work undertaken by Mr Philip Gartner (presumably on behalf of LCVM), and that such debt was to be set-off against monies owed to GVM. How a debt owed by the receivers of the Gartner Group to LCVM could be set off against a debt owing by LCVM to GVM has not been explained. 86 Although Mr Hoffman could not point to any positive evidence, the respondents' case was that the business previously carried on by GVM was profitable. I was asked to infer that the business was profitable, because the incorporation of LCVM and the subsequent management service contracts arrangements would not otherwise have been undertaken. Mr Philip Gartner conceded during his examination that GVM had received a fee as far as he was aware, and that LCVM had incurred debts to GVM in respect of the subcontracted services provided by it. 87 The applicant argued that Mr Philip Gartner's evidence disclosed that he was unaware of the guarantee and charge granted by GVM in favour of NAB. Further, Philip Gartner's evidence was that he was always destined to carry on the viniculture management side of the Gartner Group. The inference I was asked to draw was that the transfer of the GVM business to LCVM was in the ordinary course of events, and was not done in furtherance of a scheme to put assets beyond the reach of NAB. 88 In my opinion, that evidence, even if accepted, does not support the inference contended for. It may have been that Philip Gartner was unaware of the security held by NAB, and that Philip Gartner was always destined to control the viniculture management aspect of the Group's operations. However, that does not rebut the claim that GVM was divested of its primary asset in circumstances where the appointment of receivers to that company was imminent. 89 It was clearly within the power of the applicant to call evidence as to the circumstances surrounding the transfer of business from GVM to LCVM. The applicant contended, however, that he was not required to do so until a prima facie case was made against it that an asset had in fact been voluntarily transferred for no consideration. In my opinion, a prima facie case was established at the hearing, although I draw no adverse inference from the applicant's failure to adduce evidence of the circumstances surrounding the relevant transactions. 90 I find that the transaction involving LCVM was to provide LCVM with income and to divert income that would otherwise have been paid to GVM. I find that the purpose of the transaction was to put the assets beyond the reach of NAB. In so finding, I am of the opinion that this part of the strategic plan document was drawn in furtherance of an improper purpose.

The debt allegedly owed by Michael and Alice Gartner to Gartner Wines 91 The strategic plan refers to a proposal to deal with a debt owed by Michael and Alice Gartner ('M & A Gartner') to Gartner Wines in such a way that the debt would be put beyond the reach of NAB. M & A Gartner were indebted to Gartner Wines. 92 The proposal appears to involve the assignment by Gartner Wines of a debt owed by to it by M & A Gartner to Gartner Wines Marketing (SA) Pty Ltd ('Gartner Marketing') in satisfaction of a debt owed by Gartner Wines to Gartner Marketing. Gartner Marketing is not indebted to NAB either as a principal or as a surety. The end result would be that M & A Gartner would become indebted to Gartner Marketing, a company not subject to any security held by NAB. 93 The respondents contend that as at 30 June 2002, the partnership of M & A Gartner owed Gartner Wines $2.237 million. In his second report of July 2002, Mr Carter noted that 'The management advises that "[a]t 1 July 2001 the partnership did not owe any money to Gartner Wines but at 30 June 2002 the partnership owes $2,237,251"'. 94 The Gartner Wines Financial Statements for the year ended 30 June 2002 were exhibited to Mr Carter's affidavit. Those statements disclose a debt owing from MJ and AW Gartner to Gartner Wines in the amount $2,131,011. 95 There is a discrepancy in the order of $200,000 between the figure mentioned by Mr Carter in his report, and the debt disclosed in the company's financial statements. The discrepancy was not explained by Counsel or by the materials before me. However, the Financial Statements for M & A Gartner for the same financial year (marked 'Draft') were also exhibited to Mr Carter's affidavit and disclose a current liability (by way of 'loan') to Gartner Wines in the sum $2,237,251. Presumably, the information provided to Mr Carter for the purposes of his report was derived from this statement. 96 Gartner Wines' financial statements record a debt owing to Gartner Marketing in the sum $2,154,492. 97 Mr Michael Gartner disputes that he and his wife are or ever have been indebted to Gartner Wines as claimed. 98 The alleged debt is the subject of debt recovery proceedings by the receivers in the Supreme Court of South Australia (Action No. 345 of 2003). The statement of claim in those proceedings was exhibited to the affidavit of Mr Carter. It is pleaded in that action that in December 2001, Gartner Wines advanced $6,286,775 to M & A Gartner. A portion of that sum was to discharge a debt owed, and $3,362,189 was advanced by way of loan. It is pleaded that this debt was reduced by $1,124,938 in the 6 months between 31 December 2001 and 30 June 2002. 99 Also exhibited to Mr Carter's affidavit is an affidavit sworn by Mr Michael Gartner in the Supreme Court proceedings. In that affidavit, Mr Gartner deposes: '… to the extent that draft accounts purport to disclose an indebtedness of my wife and me to Gartner Wines, then those accounts are wrong. They are incomplete and do not correctly record transactions between my wife and me and Gartner Wines. Neither my wife nor I have acknowledged any accounts which disclose an indebtedness of us to Gartner Wines.' 100 Mr Gartner further deposes to a complex history of financing arrangements and contends in the end result that the receivers have failed to recognise an indebtedness on the part of Gartner Wines to M & A Gartner in the amount $1.8 million. The applicant's case was that in the event that the debt of $2.3 million was held to exist, then it was not due and payable because a set-off in the order of $1.8 million had not been taken into account. 101 It is not possible for me to determine, on the evidence before me, whether M & A Gartner are indebted to Gartner Wines in the amount shown in M & A Gartner's financial statements or the amount shown in Gartner Wines' financial statements or some lesser some or, indeed, at all. I have a strong suspicion about the true state of affairs but suspicion is not enough. I make no finding on any debt. It follows that I cannot find that M & A Gartner and Gartner Wines restructured their affairs to frustrate NAB's ability to recover its advances.

The Grape Sale Agreements 102 The strategic plan proposes that Gartner Wines enter into grape sale agreements with third parties, pursuant to which the grape suppliers would have a lien over any wine produced by Gartner Wines until they received payment in respect of the grapes. The grape suppliers were entities in which Mr Michael Gartner had an interest. 103 The strategic plan also disclosed a proposal whereby Gartner Marketing would enter into grape sale agreements and retain Gartner Wines as a contract processor such that title to any wine produced would remain with Gartner Marketing, a Gartner company outside the charge group. 104 In either case, any wine produced by Gartner Wines would not be an asset of that company and be available to NAB in satisfaction of the security held by it. 105 A retention of title agreement was entered into between Gartner Wines and various grape suppliers on 21 March 2002 ('the grape supply agreement'). The grape supply agreement was exhibited to the affidavit of Mr Carter as 'BJC 29'. The agreement provided that grapes supplied by growers to Gartner Wines would be processed at cost to Gartner Wines, and that the growers would retain title to any wine produced until purchased by Gartner Wines. The respondents claimed that this arrangement was not commercial and was not entered into in the best interests of Gartner Wines. In proceedings instituted in the Supreme Court of South Australia, the receivers also seek a declaration that the grape supply agreement is illegal, having been entered into in breach of the Liquor Licensing Act 1997 (SA). They also seek a declaration that Gartner Wines is entitled to the 2002 Vintage. 106 The wine produced from grapes supplied pursuant to the grape supply agreement constitutes the Gartner Wines 2002 vintage. 107 The strategic plan was generated in or about June 2002. The grape sale agreement, which broadly reflects the proposal contained within the strategic plan, was executed some months earlier. The respondents asked me to infer that the grape sale agreement was back-dated to put assets of Gartner Wines beyond the reach of NAB. 108 The strategic plan notes that 'there were originally two options'. I think that suggests that retention of title arrangements were considered some time before the creation of the strategic plan document. The strategic plan does not identify whether either of the options (or a variation thereof) was ever adopted by the Gartner Group. 109 Assuming the 'proposals' referred to in the strategic plan relate to proposed future events, then an inference might be available to me that the grape sale agreement of 21 March 2002 was in fact entered into some time later. Another possible inference is that the original strategic plan was drafted some time earlier than June 2002, and acted upon, and later forwarded to the applicant's solicitors for advice. I was not asked to draw this inference, and such an inference is relevant only to the status of the original document with which I am not presently concerned. I note however, that this the second instance where 'proposals' disclosed by the strategic plan were put into effect before legal advice was sought in June 2002. 110 It suffices to say that the material available to me is not sufficient to support an inference that the grape sale agreement of March 2002 was in fact entered into later, but backdated so as to defeat NAB's claims.

Transfer of the 2001 Vintage to Gartner Marketing 111 The receivers have commenced proceedings in the Supreme Court of South Australia in relation to the alleged transfer of the 2001 Vintage produced by Gartner Wines to Gartner Marketing in July 2002 (Action No. 1123 of 2002). The statement of claim in that proceeding was exhibited to the affidavit of Mr Carter as BJC 28. 112 In that action, it is pleaded that Gartner Wines' 2001 Vintage was transferred to Gartner Marketing on or about 19 July 2002 in purported satisfaction of a debt owed by Gartner Wines to Gartner Marketing. The receivers deny the validity of the transfer and say that the transfer was not minuted or otherwise recorded by the directors of Gartner Wines; that the directors of Gartner Wines did not obtain valuations of the Wine prior to the purported transfer; and that the consent of NAB in respect of the purported transfer was not sought. 113 As trading stock, the wine was the subject of a floating charge held by NAB, and pursuant to the terms of the mortgage debenture, Gartner Wines was not entitled to deal in the wine except in the ordinary course of its business. The receivers case is that Gartner Wines' business plan involved the development of a premium branded bottle product. In those circumstances, disposal of the wine to Gartner Marketing (an associated company which is not indebted to NAB), without valuation, in purported discharge of a debt (disputed by the receivers) was outside the ordinary course of Gartner Wines' business. 114 In the Supreme Court Action the receivers seek declaratory relief to the effect that title to the 2001 Vintage vests in Gartner Wines, or that Gartner Marketing took subject to the mortgage debenture and the transfer is void or voidable, and if voidable, has been avoided. 115 The debt which was said to have been discharged by the transfer of the wine was in the order of $2 million. The debt is recorded in the Financial Statements of Gartner Wines for the year ending 30 June 2002. The Gartner interests say that the transfer was in the ordinary course of business, and was not made in breach of the mortgage debenture as the floating charge had not at that stage crystallised. 116 It must be observed that the debt owed by Gartner Wines to Gartner Marketing was an integral part of the proposal in the 'strategic plan' to assign the debt said by the respondents to have been owed by M & A Gartner to Gartner Wines. However, the strategic plan does not specifically refer to a proposal to transfer any wine to Gartner Marketing. 117 The ordinary course of Gartner Wines' business is a matter for the trial judge in the principal proceedings, and for the Supreme Court of South Australia. I do not see how this transaction relates to any proposed transaction disclosed by the strategic plan. I think the respondent sought to rely on this transaction as evidence of the broader scheme to place assets beyond the reach of the secured creditor, NAB.

Legal Professional Privilege 118 The test to be applied in determining whether or not legal professional privilege attaches to a document or communication is well settled. A communication between a person and the person's lawyer is privileged from disclosure or production if that communication was made for the dominant purpose of obtaining or giving legal advice. Similarly, a document is privileged from production if it was created for the dominant purpose of use in pending or anticipated legal proceedings. There is only one privilege. Both categories of communications / documents are covered by it: Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49. 119 In indicating a preference for the dominant purpose test over the 'sole purpose' test, Gleeson CJ, Gaudron and Gummow JJ noted, at 72, that: ' The search is for a test which strikes an appropriate balance between two competing considerations: the public policy reflected in the privilege itself, and the public policy that, in the administration of justice and investigative procedures, there should be unfettered access to relevant information.' 120 Legal professional privilege is the result of the balancing of those two public policies. Legal professional privilege recognises that relevant information which might be important to a party in legal proceedings will be subject to privilege because it is in the public interest that confidential communications between clients and their lawyers be kept confidential, and without any fear that those communications will be later used to the prejudice of that party. 121 The rationale for the public policy 'reflected in the privilege itself' was identified by their Honours at 64: ' Legal professional privilege (or client legal privilege) protects the confidentiality of certain communications made in connection with giving or obtaining legal advice or the provision of legal services, including representation in proceedings in court. In the ordinary course of events, citizens engage in many confidential communications, including communications with professional advisers, which are not protected from compulsory disclosure. The rationale of the privilege has been explained in a number of cases, including Baker v Campbell (1983) 153 CLR 52, and Grant v Downs itself. The privilege exists to serve the public interest in the administration of justice by encouraging full and frank disclosure by clients to their lawyers.' 122 The public interest in preserving the privilege and thereby the confidentiality of communications between lawyer and client may be displaced in circumstances where the privilege is abused. In Clark v United States of America (1933) 289 U.S. 1 at 15 Cardoza J said: 'The privilege takes flight if the relation is abused'. 123 There are circumstances where the rationale for the existence of the privilege in a particular case is challenged by the threat any privilege poses to other aspects or elements of the public interest. In those circumstances the rationale supporting the existence of the privilege falls away because of the nature of the communication. For example, in R v Bell (1980) 146 CLR 141, Gibbs J (as he then was) said at 146-147: ' These cases support the view that where one party to matrimonial proceedings has failed to comply with an order giving custody of a child to another party, and has taken the child into hiding, the public interest in securing the welfare of the child, and in ensuring that an order made for securing that welfare is not deliberately flouted, prevails over the competing public interest that confidential communications between solicitor and client should be protected from disclosure in order that members of the public may be free to seek that legal advice without which justice cannot properly be administered. That, in my opinion is the correct view. The privilege, which arises only because the public interest requires it, does not exist when it is seen that it would be contrary to a higher public interest to give effect to it.' 124 In that case there was a higher public interest; the identification of the whereabouts of a missing child. 125 There is a further and well recognised 'crime or fraud exception': Waterford v The Commonwealth (1982) 163 CLR 54 at 64. 126 Pursuant to the 'fraud exception', privilege does not attach to a communication between a client and that person's lawyer which was made for the purpose of being assisted in the commission of a crime or a fraud, because the public interest in encouraging full and frank disclosure between client and lawyer in those circumstances does not justify the privilege attaching: The Queen v Cox and Railtan (1884) 14 QBD 153. 127 Fraud in this context has a wide and perhaps even an extended meaning. It includes communications for either an illegal purpose or for an unlawful proceeding: Attorney General (NT) v Kearney (1985) 158 CLR 500 at 514 et seq 128 In that case Gibbs CJ (with whom Mason and Brennan JJ agreed) said: ' These statements of the principle, and the reason on which it is based, suggest that the exception is not confined to cases of crime and fraud, even in the wide sense in which "fraud" has been used in this context, unless the meaning of that word is extended to include anything that might be described as a fraud on justice.' 129 In Southern Equities Corporation Limited (in liq) v Arthur Anderson & Co (1997) 70 SASR 166 at Doyle CJ said at 174: '… fraud in this context embraces a range of legal wrongs that have deception, deliberate abuse or misuse of legal powers, or deliberate breach of legal duty at their heart'. 130 In my opinion a communication between a client and the client's lawyer for the purpose of the client putting his assets beyond the reach of the legitimate claims of his secured creditors is a fraud on justice. Such a purpose is a fraud on the creditor and there is no public interest in protecting that communication. 131 That was also the decision of the Court of Appeal in England in Barclays Bank Plc and Others v Eustice and Others [1995] 4 All ER 511. Schiemann LJ, (whith whom the other members of the Court agreed) identified the question before that Court at 520/521: ' I turn therefore to the question of general interest in relation to the law governing discovery. We start for this purpose from the position that there is a strong prima facie case that Mr Eustice (the transferor) entered into transactions at an undervalue and that his purpose in so doing was to prejudice the interests of the bank (the claimant). It is also common ground that these documents are relevant to the issues between the parties and therefore disclosable. The question which falls to be resolved is whether legal professional privilege attaches to documents containing or evidencing communications between the transferor and his legal advisers relating to transactions entered into by the transferor at an undervalue for the purpose of prejudicing the interest of persons making a claim against him. If it does then the documents need not be produced for inspection.' 132 In addressing that question he said at 522: ' I regard the present case, however, as being essentially one about advice sought on how to structure a transaction. I accept that it must have been obvious to the defendants that the bank might, once it learnt of the challenged transactions, start proceedings. It was faintly submitted on behalf of the defendants that therefore advice as to structuring the transaction was to be regarded as advice coming into existence for the dominant purpose of being used in contemplated proceedings. That submission I reject. The dominant purpose was to stop the bank from interfering with the defendants' use of what they regarded as family assets.' 133 At 524 he said: '… For reasons given earlier in this judgment we start here from a position in which, on a prima facie view, the client was seeking to enter into transactions at an undervalue the purpose of which was to prejudice the bank. I regard this purpose as being sufficiently iniquitous for public policy to require that communications between him and his solicitor in relation to the setting up of these transactions be discoverable. If that view be correct, then it matters not whether either the client or the solicitor shared that view. They may well have thought that the transactions would not fall to be set aside under s 423 either because they thought that the transactions were not at an undervalue or because they thought that the court would not find that the purpose of the transactions was to prejudice the bank. But if this is what they thought then there is a strong prima facie case that they were wrong. Public policy does not require the communications of those who misapprehend the law to be privileged in circumstances where no privilege attaches to those who correctly understand the situation.' 134 The respondents do not have to prove the fraud, but they do have the onus of showing reasonable grounds for believing that the document containing the communication for which legal professional privilege is claimed was created for some illegal or improper purpose. Such purposes would be contrary to the public interest. In Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 Brennan CJ said at 514: 'I state the criterion as "reasonable grounds for believing" because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something "to give colour to the charge", a "prima facie case" that the communication is made for an ulterior purpose. The purposes that deny the protection of privilege for a communication (whether documentary or oral) between a client and the client's solicitor or counsel include the furthering of the commission of an offence.' (footnotes omitted) 135 The respondents have established to the requisite level of satisfaction, that at least part of the strategic plan was created for the purpose of putting Gartner Group assets beyond the reach of NAB. The strategic plan was communicated to the applicant's solicitors to further a plan to defeat NAB's claim. The applicant intended to transfer assets away from members of the Group which had given security over those assets to NAB. In these circumstances, no public interest is served by allowing a claim of legal professional privilege to the document/communication. 136 The strategic plan dealt with the various proposed transactions separately and under separate sub-headings. Whilst the various transactions proposed in the strategic plan were addressed individually by counsel during the hearing of the application, no submissions were put in relation to the possible division of the document into its various parts for the purpose of determining the status of each of those parts with respect to legal professional privilege. No submission was put that if parts of the document do not disclose an improper purpose those parts could be severed or masked and the confidentiality of those parts maintained. 137 This observation assumes that legal professional privilege may attach to part of a document only, such that no objection can be taken to production of the remainder of the document. This question is not settled. There has been a divergence of judicial opinion since the decision of the High Court in Waterford v Commonwealth (1987) 163 CLR 54: see Hongkong Bank of Australia v Murphy [1993] 2 VR 419; Gleem Pty Ltd v Gas & Fuel Corp of Victoria (unreported, Supreme Court of Victoria, Mandie J, 25 August 1995); Grofam Pty Ltd v ANZ Banking Group (1993) 43 FCR 408 and GEC Marconi Systems Pty Ltd v BHP Information Technology [2000] FCA 593. 138 Because no submission was made that part of the document might be privileged even if the remaining part the privilege was lost, I need not decide whether any part of the document could be severed. 139 I need only record that the strategic plan was said by the respondents' counsel to disclose a broad scheme to restructure the Gartner Group with the intention of putting assets beyond the reach of the Group's secured creditor. He submitted that the restructure was proposed with this objective clearly in mind. If that were accepted it would be inappropriate to sever portions of the document which outline proposals that could not of themselves be said to disclose the improper purpose. Those parts would properly be regarded as part of the one document evidencing a proposed re-structure that had defeating the interests of the secured creditor at its heart. 140 I refuse to make the declarations sought by the applicant. 141 The application will be dismissed. 142 I would make the following orders: 1. The application be dismissed. 2. The relief sought in paragraphs 1, 3, 4, 5 and 6 of the amended interlocutory process be refused. 3. Mr Hoffmann and Finlaysons be discharged from the undertaking given at the hearing of 8 August 2003. 4. The applicant pay the respondents' costs. I certify that the preceding one hundred and forty-two (142) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Counsel for the Applicant: Ms R Layton QC and Mr D Kennelly

Date of Hearing: 29, 31 October 2003; 10 November 2003