Kanjian v Kanjian

Supreme Court of NSW|2020-09-02|Before: Henry J

Solicitors: Piper Alderman (Applicants) McMahon Lawyers (First Defendant/Respondent) File Number(s): 2018/258352 Publication restriction: Nil

These proceedings

These proceedings arise out of disputes between members of the Kanjian family. Ken Kanjian is the son of the plaintiff, Loris Kanjian, and the fourth defendant, Sonia Kanjian, and is the brother of Victor Kanjian, Phillip Kanjian and Marianne Yaghlijan (the siblings). Without any disrespect intended, in these reasons, I refer to the members of the Kanjian family by their first names.
The disputes between Ken on the one hand and Loris and the siblings on the other, broadly relate to the management and control of the two main Kanjian family trust companies; Sahab and the second defendant, Kanjian Holdings No 1 Pty Ltd.
Sahab is the corporate trustee of two Kanjian family trusts, the Metropole Trust and the Kanjian Family Trust (Family Trusts). In that capacity, Sahab holds on trust two properties at Strathallen Avenue, Northbridge (Northbridge properties).
In these proceedings, Loris and Ken make competing claims to the beneficial ownership of one of two A class voting shares in Sahab that is registered in Ken's name. The other A class voting share is registered in the name of Sonia who, with Ken, was a director of Sahab. On 14 December 2018, Sonia was declared by the Court to be incapable of managing her own affairs.
Loris also makes claims against Ken for alleged breaches of common law, statutory and fiduciary duties owed to Sahab arising from an agreement for lease relating to the Northbridge properties entered into on 10 May 2018 between Sahab and Senses (agreement for lease) and seeks an order that Sahab be removed as trustee of the Family Trusts.
Pursuant to the agreement for lease, Sahab had to consent to a development application that Senses wished to lodge with council in relation to a redevelopment of the Northbridge properties (development application). Loris and the siblings opposed, but Ken supported, the agreement for lease and the related development of the Northbridge properties by Senses. On 6 December 2018, Ken gave an undertaking in these proceedings not to give Sahab's consent to the Senses' development application.
The Senses proceedings were commenced on 19 December 2018. In the Senses proceedings, Senses sought to compel Sahab to provide its consent to the development application.

Appointment of Receivers

On 25 February 2019, Loris' application seeking the appointment of receivers and managers of Sahab was heard and determined by Lindsay J: Kanjian v Kanjian [2019] NSWSC 166. Loris' application was supported by the siblings through Kanjian Holdings No 1. Ken sought, but was refused, an adjournment of the application.
In his reasons, Lindsay J referred to the deadlock in Sahab at the shareholder level, the casual vacancy of Sonia's role as director by reason of her infirmity, and the breakdown in the relationship between Loris and Ken, noting their opposing views about the agreement for lease: at [17], [19], [20] and [21]. His Honour made the appointment orders having assessed that the only practical means of bringing order to the administration of the Family Trusts was to appoint the Receivers to the property held on trust by Sahab and authorise them to manage the Senses proceedings: at [29].
Lindsay J made orders appointing the Receivers, jointly and severally, as receivers and managers of the property held on trust by Sahab in relation to the Family Trusts until final determination of these proceedings or until further order (Order 2) and for them to have the powers set out in s 420 of the Corporations Act 2001 (Cth) for the purposes of managing the properties of the Family Trusts (Order 3).
His Honour also ordered that, subject to further order, in the conduct of the receivership, the Receivers were: 1. authorised to appear on behalf of Sahab in the Senses proceedings and to defend any and all claims for relief by Senses made against Sahab or the property of the Family Trusts in those proceedings: Order 4(a); 2. authorised to indemnify Sahab from the property held on the Family Trusts against liability for costs arising from the conduct of the Senses proceedings in its name: Order 4(b); 3. directed not to make any claim for relief by way of a cross-claim in the Senses proceedings (otherwise than by way of a cross-claim against Senses) or compromise those proceedings, without Loris, Ken and Kanjian Holdings No. 1's prior written consent and notice given to the NSW Trustee or the Court's prior leave: Order 4(c)(d); 4. directed not to sell, charge or otherwise dispose of any estate or interest in the Northbridge properties without Loris, Ken and Kanjian Holdings No. 1's prior written consent and notice given to the NSW Trustee or the Court's prior leave: Order 4(e); 5. authorised and directed to apply the net income, other than any income received from Senses, derived from the Family Trusts, first, towards payment of the Receivers' remuneration proportionate to the income derived; secondly, in satisfying any liability Sahab may have against costs in the Senses proceedings; and thirdly, by distributing certain income to the named persons and entities: Order 4(f); and 6. subject to further order, entitled to remuneration calculated in accordance with the rates set forth in Annexure "B" to the affidavit of Bradley Tonks sworn on 19 February 2019 (ordered rates): Order 5.
Pursuant to their appointment, the Receivers undertook work in relation to the Senses proceedings that included, amongst other things, engaging solicitors (Piper Alderman) and Senior Counsel to advise and appear in the Senses proceedings; instructing their solicitors to file a defence on 14 March 2019 and an amended defence on 11 July 2019; liaising with solicitors and stakeholders (including Ken) in relation to the potential for settlement and other steps in the Senses proceedings; and instructing their solicitors and Senior Counsel to prepare for and appear at the hearing on issues other than damages before Emmett AJA on 7 August 2019.
On 11 September 2019, Emmett AJA delivered judgment in the Senses proceedings in favour of Senses: Senses Northbridge Pty Ltd v Sahab Holdings Pty Ltd [2019] NSWSC 1201. His Honour found that Senses was entitled to the relief sought in the nature of specific performance. His Honour held that Sahab was estopped from denying that the development application prepared by Senses and presented to Sahab was not "the development application" referred to in the agreement for lease, despite the plans submitted as part of the development application being different to the concept plans that formed part of the agreement for lease: at [63], [96], [97], [101].

Motion to discharge Receivers

On 26 September 2019, Ken filed a notice of motion seeking orders for the discharge of the Receivers, that they file itemised accounts, for the Court to determine their remuneration and other related orders (Discharge motion).
In support of the Discharge motion, Ken served an affidavit dated 25 September 2019 in which he expressed concerns about the costs of the receivership and the Receivers' conduct of the Senses proceedings. In his affidavit, Ken states that he had lost trust and confidence in the Receivers and asserted a belief that they had not acted fairly, reasonably, responsibly or impartially during the course of the receivership.
It is not necessary to detail all of the matters referred to in Ken's 25 September affidavit other than to note that Ken referred to and took issue with decisions made by the Receivers in the conduct of the Senses proceedings, including their decision to defend the proceedings (at [48]); the terms on which they defended them, including their non-admissions of paragraphs 5 and 6 of the statement of claim (at [50] to [52]); their stated reasons for continuing to defend the proceedings, including that the agreement for lease "was, prima facie, a very bad deal" (at [65] and [66]); their failure to accept a Calderbank offer received in March 2019 (at [53] to [55], [58] and [59]); their decision to prepare and serve affidavits from Loris as part of the Senses proceedings which raised allegations about Ken's conduct (at [74] to [77]); and their settlement considerations (at [85] and [86]).
In response to the Discharge motion, the Receivers served an affidavit of Mr Tonks dated 12 November 2019 (Tonks Nov affidavit).
In the Tonks Nov affidavit, Mr Tonks refers to the Senses proceedings, notes that Ken had made various criticisms of his conduct and decisions throughout the course of the Senses proceedings, and gives evidence about steps taken during the Receivers' conduct of the Senses proceedings. Amongst other matters, Mr Tonks gives evidence that: 1. the conduct of the Senses proceedings by him as a Receiver was subject to a range of considerations, one of which was the advice of the legal team retained by the Receivers (at [36.1]); 2. at all stages throughout the Senses proceedings, he obtained advice from the legal team retained to act (at [37]); 3. he took advice from his legal team as to the merits of defending the Senses proceedings following the appointment orders being made (at [39]); 4. on 11 July 2019, an amended defence was filed in the proceedings and that, prior to doing so, he obtained legal advice from his legal team (at [43]); 5. following the amendment to the Statement of Claim by Senses, evidence was filed in the Senses proceedings (as detailed later in his affidavit) which responded to new allegations and that he took advice from his legal team as to the merits of the further evidence filed (at [48]); and 6. the value of the remuneration claimed by the Receivers with respect to the work performed for the period 25 February 2019 to 31 October 2019 is $202,601.50, of which they had been paid $89,483.22 to date (at [74] and [77]).
On 26 November 2019, Ken issued the first notice to produce to the Receivers (26 Nov notice) seeking production to the Court at the hearing of the Discharge motion of: 1. any Document/s containing, recording or evidencing the 'advice of the legal team' referred to in paragraph 36.1 of the affidavit of Bradley John Tonks sworn 12 November 2019. 2. any Document/s containing, recording or evidencing the 'advice of the legal team' referred to in paragraph 37 of the affidavit of Bradley John Tonks sworn 12 November 2019. 3. any Document/s containing, recording or evidencing the 'advice from my legal team' referred to in paragraph 39 of the affidavit of Bradley John Tonks sworn 12 November 2019. 4. any Document/s containing, recording or evidencing the 'advice from my legal team' referred to in paragraph 43 of the affidavit of Bradley John Tonks sworn 12 November 2019. 5. a copy of the excel spreadsheet of receipts and payments referred to in paragraph 30.4 of the affidavit of Bradley John Tonks sworn 12 November 2019.
By letter dated 13 December 2019, the Receivers agreed to produce the documents sought by paragraph 5 and raised a number of matters about the documents sought by paragraphs 1 to 4, including that they did not refer to "specified documents" as required by rule 34.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); the relevance or legitimate forensic purpose had not been identified; the documents were clearly privileged and there had been no waiver; insistence on production would only serve to increase costs, about which Ken has previously complained; and the volume of the documents meant that the 26 Nov notice was oppressive.
By email dated 13 December 2019, Ken's solicitors rejected that the 26 Nov notice did not comply with UCPR, r 34.1. They stated that the documents sought by paragraphs 1 to 4 were relevant to determining whether the receivership should be brought to an end, were also relevant to allegations made by Ken in his affidavit about the reasonableness with which the receivership was conducted and that, in light of the context in which Mr Tonks made reference to the documents, privilege can no longer attach to the communications.
In emails exchanged on 16 December 2019, the Receivers' solicitors maintained the claim of privilege and Ken's solicitor asserted that privilege had been waived. Ken's solicitor advised that Ken intended to call on the 26 Nov notice at the hearing of the Discharge motion and that, if the Receivers failed to produce, submissions would be made as to that further demonstrating why the Receivers should be discharged.
On 17 December 2019, the Discharge motion was listed before me for hearing. The motion was largely resolved by consent as the Receivers did not contest Ken's application for them to be discharged. The Tonks Nov affidavit was not read and Ken did not call on the 26 Nov notice.
On that day, the orders sought by paragraphs 1, 2 and 5 of the Discharge motion discharging the Receivers, requiring them to file and serve itemised final accounts of their receivership and requiring them to surrender to Ken all documents relating to property owned by the Family Trusts were made by consent. The parties agreed between themselves the terms of an undertaking given by Ken not to take steps on behalf of Sahab to deal with the property owned by the Family Trusts, that Victor was to be appointed as a director of Sahab and permitted monitoring online access to Sahab's bank accounts and that Ken was permitted to appoint a third director of his choosing, which dealt with paragraphs 6 and 7 of the Discharge motion.
Paragraphs 3 and 4 of the Discharge motion, seeking orders relating to the Receivers' remuneration and an account of money held by the Receivers, were not dealt with as the Receivers' evidence on those matters was not complete. The Receivers' Counsel proposed, and Ken's Senior Counsel agreed, that the Court should defer consideration of those matters until after the accounts had been finalised and up to date evidence of the Receivers' remuneration had been prepared. The balance of the Discharge motion was stood over to the hearing of these proceedings, which was listed for 23 March 2020. No order was made in relation to the 26 Nov notice.
The balance of the Discharge motion seeks: 3 An order that the Court determine remuneration payable to the [Receivers]. 4 An order that the [Receivers] account to [Sahab] for all monies held by them or on their behalf in respect of the receivership subject to withholding a sum to be determined by the Court to abide the filing and passing of final accounts. 8 Such further or other orders as the Court sees fit. 9 Costs.

Next steps and further notice to produce

On 23 January 2020, Ken's solicitors wrote to the Receivers' solicitors and notified them that, while not called on at the 17 December hearing, the 26 Nov notice and the Discharge motion remained on foot and that they required the Receivers to answer the 26 Nov notice prior to the substantive hearing of these proceedings. They also asserted that the documents caught by the 26 Nov notice formed part of the documents to be surrendered to Ken.
On 28 January 2020, the Receivers' solicitors asserted that the documents sought by the 26 Nov notice were no longer relevant as the Discharge motion had been determined except for the issue of "costs". They also rejected the claim that the documents sought were encompassed by the surrender order made on 17 December 2019.
There was then further correspondence between the solicitors for Ken and the Receivers, including an email dated 30 January 2020 in which, among other things, Ken's solicitors asserted that paragraphs 2 and 5 of the Discharge motion had not yet been determined, the documents sought by the 26 Nov notice were relevant to the determination of those paragraphs and that they intended to call on the 26 Nov notice when the proceedings were next before the Court on 6 February 2020. Pausing here, I note that paragraphs 2 and 5 of the Discharge motion had been dealt with by the orders made on 17 December 2019.
On 6 February 2020, these proceedings were listed before me for a directions hearing. Ken's Counsel called on the 26 Nov notice and the Receivers' Counsel informed the Court that they would be filing a notice of motion seeking to set it aside.
On 7 February 2020, the Receivers filed a notice of motion seeking an order that paragraphs 1 to 4 of the 26 Nov notice be set aside (Receivers' motion). In support of the Receivers' motion, an affidavit from Mr Tonks sworn 6 February 2020 was served (Tonks Feb affidavit).
On 9 March 2020, Ken filed a notice of motion seeking, amongst other orders, an order that he be given access to all documents ordered to be produced by the Receivers in response to the 26 Nov notice (Ken's access motion).
On 27 March 2020, the Receivers served an affidavit of Mr Tonks sworn that day by way of compliance with the order made on 17 December 2019 for the Receivers to file and serve itemised final accounts (Tonks March affidavit). The Tonks March affidavit also calculates the up to date amount of the remuneration claimed by the Receivers in accordance with the ordered rates. It exhibits a Remuneration Report that records the total amount of work undertaken by the Receivers and their staff and the invoices issued by the Receivers for their remuneration and for the legal and non-legal disbursements, including those related to the conduct of the Senses proceedings.
On 23 March 2020, the hearing of the substantive issues in these proceedings resumed and was completed on 10 July 2020. Judgment is currently reserved. During closing submissions, the Court noted that there appeared to be a number of notices of motion that had been stood over to the hearing and asked the parties to confer, including with the Receivers, and provide an update to the Court as to what issues continued to be pressed in relation to each motion.
On 21 July 2020, the Court requested Ken's legal representatives provide an update as to the remaining issues in dispute and a proposal for next steps in respect of each of the motions, including a timetable for any further submissions and whether the parties were content for the issues to be determined on the papers.
On 7 August 2020, Ken's legal representatives informed the Court that issues remained to be determined between Ken and the Receivers relating to the 26 Nov notice and requested the Receivers' motion be listed for hearing in Court.
On 2 September 2020, the Receivers' motion and Ken's access motion were listed before me for hearing.
In accordance with an agreed timetable, the Receivers and Ken had served written submissions in relation to the Receivers' motion.
Prior to the hearing but after his written submissions were served, Ken issued a further notice to produce on the Receivers dated 10 August 2020 (10 Aug notice) seeking the production of "any Document containing, recording or evidencing 'the advice from my legal team as to the merits of the further evidence filed in the Senses Proceedings' referred to in paragraph 48 of the [Tonks Nov affidavit]".

The disputed paragraphs of the notices to produce and issues for determination

At the 2 September 2020 hearing, Counsel for the Receivers did not take issue with the service of the 10 Aug notice. He accepted that it raised the same issues as paragraphs 1 to 4 of the 26 Nov notice and contended that it should also be set aside for similar reasons advanced in relation to the 26 Nov notice.
During the hearing, Ken's Counsel indicated that paragraphs 1 and 2 of the 26 Nov notice were no longer pressed. He also confirmed that Ken no longer claimed that the documents sought by the 26 Nov notice were required to be surrendered to Ken pursuant to the orders made on 17 December 2019, as advanced in the correspondence referred to at [31].
Thus, only two paragraphs of the 26 Nov notice (paragraphs three and four) and the 10 Aug notice (which comprises one paragraph) remain in issue. They are in similar terms and seek the production of documents containing, recording or evidencing legal advice referred to in paragraphs [39], [43] and [48] of the Tonks Nov affidavit (disputed paragraphs), namely the legal advice as to the merits of defending the Senses proceedings following the appointment orders being made (at [39]); legal advice obtained prior to an amended defence being filed on 11 July 2019 (at [43]); and legal advice as to the merits of the further evidence filed (at [48]).
The Receivers contend that the notices to produce should be set aside on the grounds: 1. that the disputed paragraphs do not refer to "specified documents" as required by UCPR, r 34.1; and 2. of relevance and no legitimate forensic purpose on the remaining issue of the Receivers' remuneration.
If they are not set aside on those grounds, there is also a dispute as to whether there has been a waiver of legal professional privilege in the legal advices referred to in paragraphs [39], [43] and [48] of the Tonks Nov affidavit.

Do the disputed paragraphs "specify" the documents to be produced?

The Receivers argue that paragraphs [39], [43] and [48] of the Tonks Nov affidavit are mere general references to the fact of the Receivers having taken legal advice about the Senses proceedings and none of the disputed paragraphs refer to, itemise or otherwise describe any legal advice with any particularity. They rely on Koolan Iron Ore Pty Ltd v Infrassure Ltd [2020] FCA 233 at [13] to argue that the mere reference to the existence of legal advice is not a direct allusion to the document containing the advice so as to make them sufficiently identified.
Ken's submission, which I accept, is that the disputed paragraphs identify the documents sought by the notices to produce with sufficient particularity for the purposes of r 34.1.
Rule 34.1 of the UCPR provides that a party may, by notice served on another party, require that other party to produce any "specified document" or thing.
The word "specified" in r 34.1 means "described" or "identified" and corresponds to the requirement under UCPR, r 33 that a subpoena to produce documents identify those documents by "cut[ting] the document out from the universe of documents by some description or specification": Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 869 at [12], [13].
This is to be contrasted with UCPR, r 21.10, which relevantly provides that a party may require the other party to produce for inspection "any specific document or thing that is clearly identified", and r 20.31(1) of the Federal Court Rules 2011 (Cth), with which Koolan was concerned, which provides that a party may require for inspection "any document mentioned in a pleading or affidavit".
In my view, paragraph 3 of the 26 Nov notice and the 10 Aug notice go beyond mere references to legal advice generally and seek specified documents as they seek the production of the documents by reference to a description of the subject matter of the legal advice received which is also linked to particular dates and events; namely, the legal advice as to the merits of defending the Senses proceedings that was obtained following the appointment of the Receivers on 25 February 2019 and the merits of filing further evidence after Senses amended its statement of claim and filed evidence.
Although paragraph 4 of the 26 Nov notice could be read as seeking the production of more general legal advice prior to 11 July 2019, having regard to the terms of paragraph [43] of the Tonks Nov affidavit (as set out at [22(d)] above), I accept Ken's submission that it should be read as seeking more limited and specific types of documents, namely the production of legal advices obtained with respect to the preparation and the filing of the amended defence.
Mr Tonks refers to obtaining and receiving the type of legal advice sought by the disputed paragraphs in his own affidavit. In that context, I also accept that there should be little doubt as to what documents are referred to and are specified to be produced pursuant to the disputed paragraphs.
For these reasons, I have concluded that each of the disputed paragraphs sufficiently identifies and thus specifies the documents required to be produced for the purposes of UCPR, r 34.1 and the notices to produce should not be set aside on that ground.

Should the disputed paragraphs be set aside because they do not serve any legitimate purpose?

The Receivers accept that, as part of the Court's determination of their claim for remuneration, they have the onus of justifying the reasonableness and prudence of the tasks undertaken and the reasonableness of the remuneration claimed. They argue that this focusses on the time claimed for the tasks undertaken and whether those tasks were within the scope of their appointment. They submit that the detailed time records produced to Ken in February and March 2020 and the Tonks March affidavit, to which no comment has been made by Ken in response, should be sufficient for the purposes of the determination of their claim: In the matter of Gondon Five Pty Ltd and CUI Family Asset Management Pty Ltd [2019] NSWSC 469 (Gondon Five) at [34] and [50].
As to the grievances set out in Ken's 25 September affidavit and to which the Tonks Nov affidavit responded, the Receivers submit that Ken's general assertions about the unreasonableness of their decisions and conduct of the Senses proceedings were made for the purposes of and in support of the Discharge motion (which was resolved by consent on 17 December 2019) and not cast as complaints in terms of remuneration. The Receivers also point to Ken's justification for the 26 Nov notice as going to issues relevant to determining whether the receivership should be brought to an end and his solicitors' claim that paragraphs 2 and 5 of the Discharge motion remained on foot as being wrong, to argue that the documents sought by that notice cannot be relevant to the issues that remain for determination.
The Receivers also rely on Brereton J's decision (as his Honour then was) in In the matter of Australasian Barristers Chambers Pty Ltd [2019] NSWSC 799 (Australasian Barristers) to submit that Ken's complaint about the reasonableness of their decision to defend, and continue to defend, the Senses proceedings will not be an issue in or relevant to the determination of the Receivers' remuneration having regard to the scope of their appointment. They also rely on the decision in Re Barokes Pty Ltd (in liq) [2020] VSC 555 (Barokes), which they submit applies the same approach as Brereton J in Australasian Barristers, to argue that a remuneration application is not a forum to inquire into the conduct of the Receivers or review their decisions.
They also submit that Ken cannot merely assert that their decision to defend the Senses proceedings was unreasonable when it was clearly within the scope of their appointment and seek to conduct a wide ranging inquiry on remuneration and obtain the Receivers' legal advice in circumstances where no allegation of improper or unfaithful performance is made or pursued through accepted processes, such as under s 423 of the Corporations Act.
Ken submits that an issue in both the application for the discharge of the Receivers and the determination of their remuneration was whether the Receivers had acted reasonably in the conduct of the receivership and whether their work was reasonably necessary. He submits that one of the main matters calling for scrutiny to determine the reasonableness of the Receivers' conduct and necessity for the work performed by them is the manner they conducted the Senses proceedings.
He submits that the legal advices sought by the disputed paragraphs will materially assist to test the reasonableness of the Receivers' conduct as the advice informed Mr Tonks' state of mind and whether it was, at some point, appropriate or reasonable for the Receivers to have continued with the defence of the Senses proceedings and the manner in which and reasons they did so. He submits that Mr Tonks' state of mind and whether the Receivers' conduct of the Senses proceedings was reasonable is in issue on the determination of the Receivers' remuneration as that determination will consider whether the work was reasonably undertaken or reasonably necessary.
Ken also argues that the scope of the inquiry the Court is entitled to make in determining the Receivers' remuneration can include an inquiry into the reasonableness of the Receivers' conduct of a scope wider than that contended for by the Receivers. He relies, as an example, on Gondon Five, a case in which there was a dispute about whether substantial parts of work done by a court appointed receiver was reasonably performed and whether they had acted impartially in the context of a remuneration application.
The principles applicable to determining whether a notice to produce should be set aside on the grounds of relevance and legitimate forensic purpose are the same as those applicable to setting aside a subpoena and are referred to by Ward CJ in Eq in Rinehart v Rinehart [2018] NSWSC 1102 at [43] to [47].
As her Honour stated in Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2020] NSWSC 620 at [36]: …there must be a legitimate forensic purpose for a… notice to produce in that the documents sought must be relevant and must have a sufficient apparent connection to the issues in the case to justify their production (or, put differently, it must be able to be concluded that they could possibly throw light on the issues in the case)… It is not, however, sufficient merely to show that the documents sought are, or may be, relevant to an issue for decision; rather, it must be shown that it is likely that the documents will materially assist on an identified issue or that there is a reasonable basis, beyond speculation, that it is likely that they will materially assist… This must be determined by reference to the issues in the proceeding.
As the party who issued the 26 Nov and 10 Aug notices to produce, Ken bears the onus of establishing they have a legitimate forensic purpose for which access is sought.
Thus, the question is whether Ken has demonstrated that the legal advice in relation to the merits of defending the Senses proceedings, the filing of the amended defence and the merits of filing further evidence are not just relevant to and have a connection to the proceedings but whether they could "possibly throw light" or there is a reasonable basis beyond speculation that it is likely that they will materially assist on an identified issue(s) that arises for consideration on the Court's determination of the remuneration payable to the Receivers, as sought by paragraph 3 of the Discharge motion.
The Court has a wide discretion in fixing the basis and level of remuneration of Court appointed receivers under UCPR, r 26.4. The relevant principles are set out by Brereton J (as his Honour then was) in Gondon Five at [34] and Australasian Barristers at [20].
On a remuneration determination, the ultimate question is what amount of remuneration is 'reasonable', which involves consideration of whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership (and whether it was reasonably necessary) and whether the amount claimed for it is fair and reasonable reward for such work. Whether the work was reasonably undertaken will be informed by the object and scope of a receiver's appointment: Gondon Five at [34(3)], [37]; Australasian Barristers at [20], [27].
This means, as Ken submits, that the determination of the Receivers' remuneration may involve more than just a mere calculation based on the ordered rates and the Court may consider matters raised by way of challenge to the Receivers' claim.
That said, having regard to the object and scope of the Receivers' appointment, I am persuaded by the Receivers' submissions that Ken's broad ranging complaint about the reasonableness of the Receivers' decision to defend the Senses proceedings is unlikely to be relevant and that he has not demonstrated that the legal advices sought by the disputed paragraphs will be likely to materially assist on an identified issue on the determination of the remuneration payable to the Receivers.
In Australasian Barristers, Brereton J declined to permit broad ranging complaints raised about a receiver's conduct to be agitated in the course of a receiver's remuneration application other than in a limited way in respect of certain notified objections if they were relevant to showing whether the work done in relation to the possession and sale of the asset (in respect of which the complaints were made) was unreasonably performed. In doing so, his Honour observed that on a remuneration application he was not considering a claim for compensation against a receiver for breach of duty but whether work for which remuneration was claimed was reasonably undertaken, the starting point for which was the object and scope of the receiver's appointment: at [25], [27].
After concluding that taking possession of and selling the asset was within the scope of the receiver's appointment, the question for Brereton J then became whether the time and costs in selling the asset were unreasonably incurred when alternative and less expensive options were available. His Honour answered that question by asking whether the work was reasonable having regard to the object of the appointment and not whether the receiver had wrongfully disregarded a lease, breached a duty or ought to have conducted some other marketing campaign or auction: at [28] and [36].
As to Barokes, I accept Ken's submission that it may be distinguished from this case as it concerned an assessment of remuneration pursuant to s 60-12 of the Insolvency Practice Schedule (Corporations Act 2001 (Cth), sch 2) rather than a determination of remuneration of a Court appointed receiver. But I am not persuaded by his submission that Gondon Five is an example of a case that supports an inquiry into the "reasonableness" of the Receivers' decision to defend and their conduct of the Senses proceedings as part of the remuneration determination of the broad nature that he seemingly wishes to pursue.
In Gondon Five, Brereton J considered whether it was reasonable for the receiver to have undertaken the work about which complaint was made having regard to the scope of the receiver's appointment, consistent with his approach in Australasian Barristers. His Honour concluded that some of the work was not reasonably undertaken as the interim receiver was neither required nor expected to conduct investigations into pre-appointment transactions but to merely take possession and control of the assets of the companies so that they would not be dissipated and would be preserved pending a further hearing: at [54], [68] and [69].
His Honour also considered allegations of impartiality made against the receiver by applying the accepted general position that a receiver should not be partisan, should not get involved in arguing for or against the continuation of the appointment and should not intermeddle in any litigation between the parties: at [77]. His Honour concluded that the receiver had crossed the line as he had invited instructions to investigate transactions which preceded his appointment, and also concluded that they became involved in assisting the plaintiff's case, critiquing the evidence of the respondents and contemplating procuring the removal of the respondents' solicitors in legal proceedings that the directors of the companies were authorised to conduct: at [7], [77] - [82].
In this case, and in contrast to the position of the receiver in Gondon Five, the very object and scope of the Receivers' appointment required them to be responsible for and get involved in the Senses proceedings until the final determination of these proceedings or further order. Their appointment was made to enable a neutral third party to take control of the Senses proceedings on Sahab's behalf in the context whether there were disputes between Ken, Loris and the siblings about the desirability of the agreement for lease and what stance should be taken in the Senses proceedings.
The appointment orders specifically authorised the Receivers to appear on behalf of and defend the claims made against Sahab in the Senses proceedings, such that they had the mandate and positive purpose of conducting the defence of, and taking steps in, the Senses proceedings. The appointment orders also provided for a specific authorisation to apply income, other than that received from Senses, to the Receivers' remuneration and, subject to further order, at the ordered rates.
The defence of the Senses proceedings was, therefore, clearly within the scope of the Receivers' appointment and undertaken in the due course of the receivership.
In the context of the appointment orders made in this case and applying the principles adopted by the Court in the cases referred to above, I accept the Receivers' submission that the Court's determination of the Receivers' remuneration will involve a form of inquiry that will consider whether the work done was reasonable by reference to the Receivers having been appointed to defend the Senses proceedings, and not by reference to the broader question as to whether their actual decision to defend the Senses proceedings was "unreasonable", not in "good faith" or undertaken for "some collateral purpose". I also accept their submission that those matters are more relevant to an application for an inquiry into whether the Receivers "faithfully performed their functions" under s 423 of the Corporations Act and that it is not appropriate for Ken to seek to conduct a wide ranging inquiry and challenge their decision to defend (and continue to defend) the Senses proceedings when he did not seek a review of the Receivers' decisions at the time they were made, despite being notified of the relevant reasons during the course of their conduct of those proceedings, or to vary the appointment orders made by Lindsay J.
It will, of course, be open to Ken to challenge whether the evidence adduced by the Receivers, as set out in the exhibit to the Tonks March affidavit, sufficiently proves that the work for which they have made a claim was done, its value and the time involved, and whether that work was reasonably undertaken or reasonably necessary having regard to the object and scope of their appointment. He may, for example, challenge that certain work was unreasonably undertaken or was not necessary on the basis that the Receivers were not required or expected to conduct investigations into certain matters, or that too much time was spent on certain work.
It has been observed that the task of meeting the test of whether there is a legitimate forensic purpose will become difficult where the issue relied upon cannot be identified because either it has not been included in the pleadings or particulars or the terms in which it has been expressed are obscure and imprecise: ICAP Pty Ltd v Moebes [2009] NSWSC 306 at [33].
Relevantly, Ken has not responded to the Tonks March affidavit and the material exhibited. In his written submissions, he did not refer to any particular aspect of the Receivers' claim for remuneration (as set out in those materials) or state with any precision the specific basis or ground on which he actually wishes to challenge what has been claimed. He has not asserted that too much time was spent on a particular task or how much remuneration should not be allowed. Nor has he asserted that certain work was unreasonably undertaken because it was outside the scope of the Receivers' appointment. In those circumstances, it is difficult to see how it can be said that the legal advices sought by the disputed paragraphs could be likely to "materially assist" on an identified issue.
At the hearing, Ken's Counsel submitted that the legal advices sought by paragraphs 3 and 4 of the 26 Nov notice might assist to test the reasonableness of certain of the Receivers' decisions, such as: 1. the Receivers' decision for continuing to defend the Senses proceedings and whether the decision was in "good faith", referring to the reasons set out in the 23 May 2019 email from their solicitors, which he submitted indicated that the defence of the proceedings was pursued for commercial reasons and the collateral purpose of undoing the deal between Sahab and Senses; 2. their decision to "not admit" paragraphs 5 and 6 of Senses' statement of claim filed 28 February 2019 when Ken told the Receivers that those paragraphs were entirely or substantially correct and, he submits, if admitted, the Senses proceedings could have taken a materially different path; and 3. the Receivers' decision not to accept Senses' Calderbank offer on 27 March 2019 which Ken submits ought to have been accepted.
As noted earlier, I accept the Receivers' submission that Ken's allegation that the decision to continue to defend the Senses proceedings was in "bad faith" and his general assertions of impartiality and unreasonableness are more appropriate for an inquiry under s 423 of the Corporations Act rather than on a remuneration determination in the context of the appointment orders in this case.
The submissions at [85] also fail to address how it is said that the work undertaken by the Receivers relating to their decision to continue to defend, the non-admissions to paragraphs 5 and 6 and the decision not to accept the Calderbank offer was unreasonably undertaken or unnecessary having regard to the scope and object of their appointment.
There was no submission made that it was outside the scope of the Receivers' appointment to consider the commercial reasons referred to in the 23 May email or to put Senses to proof by not admitting certain matters. It is also unclear what consequences the "non-admissions" to paragraphs 5 and 6 of the statement of claim had on the Senses proceedings. Based on the terms of Orders 4(c) and (d) of the appointment orders and the fact that Loris and Kanjian Holdings No. 1 (via the siblings) did not consent to Senses' settlement proposal, it also seems to me very unlikely that the "reasonableness of the Receivers' decision not to accept Senses' Calderbank offer" could be an issue on the determination of the remuneration payable to the Receivers.
Ken was also notified of, and given an opportunity to comment on, the Receivers' decisions around the time they were made and has been provided with information and reasons for the positions adopted during the conduct of the Senses proceedings: see for example, the matters referred to at [41] and [42] and the correspondence exhibited at [44] of the Tonks Nov affidavit regarding the reasons for defending and continue to defend the Senses proceedings and the matters referred to and correspondence exhibited at [51] to [55] regarding settlement. As the Receivers submit, if Ken wishes to make a challenge to the remuneration claimed for work undertaken on those aspects of the defence of the Senses proceedings, he has documents available to him in order to do so.
Even if I were to accept that the matters referred to at [85] might be relevant to the determination of the Receivers' remuneration, the disputed paragraphs of the 26 Nov notice do not seek advice limited to those particular matters but call for the production of legal advices relating to the defence of the proceedings more generally, and are arguably objectionable on that basis.
As to the 10 Aug notice, Ken's Counsel submitted that the legal advice might assist in testing Mr Tonks' state of mind and reasoning at the time of providing instructions for certain affidavits and evidence to be prepared, including the affidavits of Loris, which he argued were not necessarily relevant to the Senses proceedings.
I accept that it may be open to Ken to challenge the remuneration claimed by the Receivers for the work they did in relation to Loris' affidavits. As the Receivers accepted at the hearing, remuneration may be disallowed for time in relation to the service of manifestly irrelevant affidavits. Assuming that Ken proposes to make a challenge to that time, I am not persuaded that he has demonstrated that it is likely that the legal advice would materially assist on that issue in circumstances where the relevance of the further evidence was explained to him in correspondence between the solicitors (Tonks Nov affidavit at [60]) and the reasons for not reading Loris' affidavits is set out in correspondence from the Receivers' lawyers to Ken, Loris and the siblings' solicitors (Tonks Nov affidavit at [59]). A challenge could also be made on objective grounds based on the fact the affidavits were not read at the hearing and the issue of what amount (and time) should be disallowed for work done in relation to those affidavits should also be easily calculated and determined.
I also do not accept that there is a legitimate forensic purpose to the notices because the legal advices might cast light, one way or another, on Mr Tonks' state of mind at the time he provided instructions or engaged in certain conduct. As the Receivers' submit, Mr Tonks' state of mind is not likely to be of central relevance on the determination of the Receivers' remuneration. The focus will be on comparing whether the work that was done and for which remuneration has been claimed was reasonably undertaken or necessary having regard to the scope and object of the Receivers' appointment.
Nor do I accept that, by the Tonks Nov affidavit, Mr Tonks has directly put in issue his state of mind that his conduct of the Senses proceedings was reasonable on the issue of remuneration. Mr Tonks' affidavit does not, in terms, assert that his conduct was reasonable because he relied on the contents of the legal advice he obtained or that his claim for remuneration is reasonable on that basis. Rather, he gives evidence of the fact that the Receivers retained experienced lawyers and counsel from whom they obtained legal advice throughout the Senses proceedings, including on certain aspects of the case, that the legal advice formed one of a number of considerations that he (as a receiver) took into account during the course of the Senses proceedings, and that he engaged with the relevant stakeholders and took account of representations made by those stakeholders, including Ken and his solicitors.
Given what led to the Receivers' appointment, it seems inevitable that decisions would be made by the Receivers in relation to the defence and conduct of the Senses proceedings with which one side of the relevant stakeholder group, in this case Ken, would disagree. That Ken continues to take issue with the Receivers' decision to defend the Senses proceedings may be understandable based on the outcome of the hearing before Emmett AJA. But as his Counsel accepted at the hearing, the remuneration determination will not involve a consideration of whether the Receivers' decision to defend was right or wrong or the veracity of any legal advice they received. Rather, and as stated above, it will involve consideration of whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership and whether the amount claimed for it is fair and reasonable reward for such work having regard to the scope and object of their appointment.
For these reasons, I am not satisfied that Ken has established the notices to produce have a legitimate forensic purpose for which access to the legal advices are sought and have concluded that paragraphs 1 to 4 of the 26 Nov notice and the 10 Aug notice should be set aside.

Has privilege been waived?

Because they will be set aside, it is not necessary to determine the question of whether the references at [39], [43] and [48] in the Tonks Nov affidavit amounts to a waiver of legal professional privilege that would otherwise subsist in the legal advices. However, as the parties made submissions on the issue, it is appropriate that I say something about why I would have found that privilege had not been waived.
Section 131A of the Evidence Act 1995 (NSW) has the effect that the question of waiver is determined under s 122 of the Evidence Act, which relevantly provides that: 122 Loss of client legal privilege: consent and related matters … (2) Subject to subsection (5), this Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120.
The considerations that apply to waiver at common law apply with equal force to the statutory question posed by s 122(2): Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46 at [32].
Waiver, express or implied, arises where the Court perceives some inconsistency between the conduct of the privilege holder (in this case the Receivers) and the maintenance of the confidentiality which the privilege is intended to protect. While considerations of fairness may inform that issue, the test of inconsistency is not one of a general principle of fairness operating at large: Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 (Mann v Carnell) at [28], [29].
Waiver will ordinarily occur where the contents of the privileged communication are relied upon. Mere reference to the existence of a document, without more, will not suffice. Quite specific inconsistency is necessary to establish waiver and the inconsistency must be reasonably manifest: Cantor v Audi Australia Pty Ltd [2016] FCA 1391 at [99]; Col Crawford Pty Ltd v Nissan Motor Co (Australia) Pty Ltd [2020] NSWSC 87 (Col Crawford) at [34]; Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305 at [53].
Privilege may be waived where the privilege holder directly or indirectly puts the contents of an otherwise privileged communication in issue, makes an assertion (express or implied) which is either about the contents of the confidential communication or lays them open to scrutiny such that an inconsistency arises between the act and the maintenance of the confidence: DSE (Holdings) Pty Ltd v Intertan Inc (2003) 127 FCR 499; [2003] FCA 384 at [58], [61]; Commissioner of Taxation v Rio Tinto Ltd (2006) 151 FCR 341; [2006] FCAFC 86 (Rio Tinto) at [61].
It is also not sufficient that the content of the privileged communications could, as a reasonable possibility, be relevant and of assistance to the other party, although the relevant inconsistency may arise if the privilege holder makes assertions about their state of mind and there are confidential communications likely to have affected that state of mind or which are material to the formation of that state of mind: Col Crawford at [35]; Council of the NSW Bar Association v Archer (2008) 72 NSWLR 236; [2008] NSWCA 164 (Archer) at [48].
In Ferella v Official Trustee in Bankruptcy (2010) 188 FCR 68; [2010] FCA 766, Yates J stated at [65]: … the question is not simply whether the holder of the privilege has put that person's state of mind in issue but whether that person has directly or indirectly put the contents of the otherwise privileged communication in issue: see Rio Tinto at [65]. Indeed, even the fact that the holder of the privilege makes clear that the advice was relevant or contributed to a particular course of conduct would not be sufficient to waive the privilege unless, possibly, the contents of the legal advice (and not merely the fact of the advice) are specifically put in issue by relying on the contents of the advice to vindicate a claimed state of mind: Rio Tinto at [67].
The context and circumstances in which disclosure of legal advice is made may also be relevant to determining whether the requisite inconsistency exists. Each case will turn on its own facts and circumstances. The circumstances may include the degree of relevance of any advice to the issues in the proceedings and the centrality of the relevant issues in the proceedings: Osland v Secretary to the Department of Justice (2008) 234 CLR 275; [2008] HCA 37 at [45] and [46]; Rio Tinto at [45]; Viterra Malt Pty Ltd v Cargill Australia Ltd (2018) 58 VR 333; [2018] VSCA 118 at [72]; Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 at [41].
As the challenger of the privilege, Ken bears the onus of demonstrating waiver: Archer Capital 4A Pty Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc (No 2) [2013] FCA 1098 at [100].
Ken submits that privilege has been waived over the legal advices sought by the disputed paragraphs because Mr Tonks refers, in the Tonks Nov affidavit, to having obtained legal advice on particular issues to inform his decisions with respect to the taking of particular steps in the Senses proceedings and to justify the reasonableness of those steps in response to the criticisms made by Ken. He submits that, by doing so, Mr Tonks has disclosed his state of mind, which he argues is in issue in the proceedings. He submits that Mr Tonks' reliance on the fact of having obtained advice from his legal team as to why his conduct was reasonable is inconsistent with maintaining a claim for privilege over the documents that contain that advice, and that privilege has been waived in accordance with the principles in Mann v Carnell and Archer.
Relevantly, Ken does not assert that privilege has been waived because the substance of the legal advices to which Mr Tonks refers has been disclosed. Although Mr Tonks refers to obtaining advice on the merits of defending the Senses proceedings, in relation to the amended defence and the merits of filing further evidence, he does not disclose the conclusions, substance, gist or effect of the advice given on those matters or otherwise make any assertion about their contents.
Critical to Ken's submission that privilege has been waived is his contention that Mr Tonks has put into issue his state of mind that his conduct of the Senses proceedings was by having obtained and relied on the legal advices.
As noted above, I am not persuaded that Mr Tonks' state of mind is likely to be of central relevance to the determination of the remuneration payable to the Receivers nor do I accept that Mr Tonks has put his state of mind directly in issue.
Even if I were to accept that Mr Tonks has put his state of mind into issue, in the sense of referring to the formation of the view that his conduct of the Senses proceedings was reasonable, that view is not, by itself, inconsistent with the maintenance of privilege over documents which may be relevant to the formation of that state of mind: Rio Tinto at [65].
The question would be whether Mr Tonks has directly or indirectly put into issue the contents of the legal advices. Put another way, has he (as one of the privilege holders) made an assertion as part of the Receivers' claim for remuneration that lays open the legal advices to scrutiny with the consequence that an inconsistency arises between the making of the assertion and the maintenance of the privilege? In my view, the answer to that question is no.
While accepting that the matters referred to in the Tonks Nov affidavit are in response to criticisms made by Ken about the Receivers' conduct of the Senses proceedings, it seems to me that what Mr Tonks has opened up to scrutiny is the process he followed, which relevantly included the fact of obtaining legal advice during the course of the proceedings on aspects of the case, rather than the contents of the legal advices themselves.
Even though the legal advices may have contributed to Mr Tonks' decisions, the mere reference to them as a consideration is not necessarily inconsistent with the maintenance of privilege in circumstances where Mr Tonks does not assert that his conduct was reasonable based on the reasoning or contents of the particular legal advices over which privilege is claimed.
Further, and even if I were to accept that the legal advices might be of assistance to Ken (for example, if the legal advices indicated that Loris' affidavits were not relevant at the time they were prepared and served, knowledge of that advice might assist Ken in challenging that part of the Receivers' claim for remuneration for work done in relation to those affidavits), that does not rise above potential relevance to reasonably manifest inconsistency or unfairness in the Receivers' position that seeks to maintain privilege over the advice. While Ken might be deprived of a potential forensic advantage that access to the legal advices might have afforded, he remains free to test and challenge whether the work claimed by the Receivers was reasonably undertaken by means of the other information he has available to him, and to which reference has already been made.
As noted above, the Tonks Nov affidavit was not read at the 17 December hearing. According to the Receivers, it was served to respond to matters raised by Ken's 25 September affidavit relating to the question of whether the Receivers should be discharged, which was resolved by consent, and there is no suggestion the Receivers intend to rely on it going forward. Thus, its status in the proceedings is not entirely clear. Accepting that an implied waiver may arise where disclosure or assertion of the contents of legal advice is made in an affidavit that has been served, it also seems to me to be not irrelevant to considerations of fairness (but not at all determinative) that the Receivers' purpose in referring to having obtained the legal advices was not to secure any forensic advantage on the issue of their remuneration.
Accordingly, my view is that the Receivers have not expressly or implicitly laid open for scrutiny the contents of the legal advices they obtained and to which reference is made at [39], [43] and [48] of the Tonks Nov affidavit and that it would not be inconsistent or manifestly unfair for Mr Tonks to maintain privilege even though the legal advices may have impacted his state of mind.

Further directions, costs and orders

Based on the above, I will make orders, as sought by the Receivers' motion, that paragraphs 1 to 4 of the 26 Nov notice be set aside as well as an order that the 10 Aug notice be set aside.
As to Ken's access motion, the only issue that remained to be determined was his claim for access to the documents sought by the 26 Nov notice. Accordingly, I will order that Ken's access motion be dismissed.
At the hearing on 2 September 2020, the parties were requested to send to chambers agreed short minutes with respect to the outstanding issues in relation to the balance of the Discharge motion, which I would then make when I handed down my reasons. On 15 December 2020, my chambers were informed that the parties could not agree on those directions. In those circumstances, I have listed the balance of the Discharge motion in the General Equity call-over list at 8.30am on 9 February 2021. Any directions to be made can be dealt with on that occasion.
As to costs, the usual order is that they follow the event: UCPR, r 42.1. Although the general position with respect to the costs of interlocutory applications is that they should follow the general costs of the proceedings (UCPR, r 42.7), given the discrete issues raised by these applications and the Receivers' success, I consider it appropriate for costs to follow the event and will, accordingly, make an order that Ken pays the Receivers' costs in relation to the Receivers' motion and the hearing on 2 September 2020.
For completeness, I note that, at the hearing, I indicated my preliminary view that costs should follow the event and requested the parties to inform my chambers if they objected to such an order. No communication has been received from the parties on that issue.
For these reasons, I make the following orders: 1. Pursuant to r 34.2 of the Uniform Civil Procedure Rules 2005 (NSW), paragraphs 1 to 4 of the notice to produce to Court issued by the First Defendant addressed to the First Respondent and Second Respondent (Receivers) dated 26 September 2019 be set aside. 2. Pursuant to r 34.2 of the Uniform Civil Procedure Rules 2005 (NSW), the notice to produce to Court issued by the First Defendant addressed to the Receivers dated 10 August 2020 be set aside. 3. The First Defendant's notice of motion filed on 9 March 2020 be dismissed. 4. The First Defendant pay the Receivers' costs of their notice of motion filed on 7 February 2020 and the hearing on 2 September 2020. 5. List the balance of the First Defendant's notice of motion filed 26 September 2019 for directions in the General Equity call-over list at 8.30am on 9 February 2021.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 January 2021

Insolvency Practice Schedule (Corporations Act 2001(Cth)

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