Moage Ltd v Jagelman and Others

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50067/01 MOAGE LIMITED (in liquidation) v JAGELMAN & OTHERS JUDGMENT 1 The fifth defendant applied by notice of motion for leave to provide copies of affidavits and exhibits served on it by the plaintiff by direction of the court to the Commonwealth Director of Public Prosecutions ("DPP") and the Australian Securities and Investments Commission ("ASIC"). The application is supported by the first and second defendants. 2 The material in question comprises an affidavit sworn by Malcolm Keith Johnson on 6 October 1999, a further affidavit sworn by him on 26 July 2002, a memorandum dated 29 July 1987 from Sir Cecil Burney to Guy Dove, an affidavit by Guy Dove sworn on 7 December 1999, an affidavit sworn by Lynne Brooke on 13 November 1998 and the exhibits thereto ("Material"). Apart from the memorandum, the Material has not been read in open court. I had recourse to the Material as on a voir dire for the purpose of the application. 3 In my view the Material establishes a strong case that, in 1987, Johnson orchestrated the acquisition of a controlling interest in the plaintiff by Independent Resources Limited ("IRL") and other entities controlled by him in circumstances where a formal takeover offer was not made to all shareholders in contravention of the Companies (Acquisition of Shares) (Victoria) Code and without the approval of the Treasurer in contravention of the Foreign Takeovers Act 1975 (Cth). 4 The application has been brought because of recent newspaper articles suggesting that Johnson will give evidence in these proceedings and that the DPP has indicated by letter that it is not aware of any criminal matters that could lead to Johnson's arrest if he returned to Australia and that no fresh charges against him are in contemplation. 5 According to the newspaper articles, Johnson has been fighting extradition proceedings since 1989. He was arrested in 1992 and extradited from Vienna to London in 1994. He was ultimately cleared of charges of alleged share market manipulation after three trials. Following his release he was arrested again after Australian authorities launched fresh extradition proceedings against him in 1995 to face court over fraud and conspiracy charges which the National Crime Authority had laid against him in 1993. 6 The plaintiff alleges that in July 1987 Johnson, Joseph Grant Jagelman, the first defendant, the fifth defendant through its representative John Austin and others entered into an arrangement whereby IRL and other interests associated with Johnson would obtain control of the plaintiff and thereby substantial interests in Claremont Petroleum NL and Beach Petroleum NL without making a takeover bid. A critical component in the plaintiff's case, which the plaintiff alleges was put together by Austin, was the complicity of Jagelman who sold shares and, secretly, options in the plaintiff to interests associated with Johnson at a high premium to market value. The plaintiff alleges that in agreeing to participate in this scheme, Jagelman breached his fiduciary duties to the plaintiff and that the fifth defendant, through Austin, knowingly assisted in that breach. Johnson is able to give first hand evidence which is largely contained in his first affidavit. 7 This matter has been set down for a three week trial commencing on 18 November 2002. There is a suggestion that the trial may take longer than three weeks. Counsel for the plaintiff says, however, that if the matter proceeds on 18 November 2002 the plaintiff's evidence would be completed in three weeks including the evidence of Johnson if he is called. 8 The solicitors for the fifth defendant wrote to the solicitors for the plaintiff seeking the consent of the plaintiff and its liquidator to releasing the fifth defendant from any implied undertaking in relation to evidence filed and served in these proceedings so far as any such undertaking might preclude disclosure of the material to ASIC and the DPP. That consent was not forthcoming in the time sought. 9 Thereafter the solicitors for the fifth defendant wrote to ASIC and the DPP referring to the allegations in the newspaper articles, alleging that the Material suggested that Johnson may have committed serious criminal offences, putting the authorities on notice of this application and asking whether they wished to express views or be heard. The DPP responded that it did not wish to express a view nor to be heard on the application. ASIC responded that it would consider the various affidavits and exhibits should they be referred to it. Neither authority appeared on the application. 10 It is the duty of a party to civil litigation who, in the course of discovery has obtained possession of copies of documents belonging to the other party, to refrain from using the advantage enjoyed by virtue of such possession for some collateral or ulterior purpose not reasonably necessary for the proper conduct of the action (Home Office v Harman [1983] 1 AC 280 at 302). As Lee J points out in Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476 at 484 while the basis of a party's obligation to limit the use of discovered documents is expressed in terms of an implied undertaking to the court, its underlying rationale can be traced to broader notions of public policy. In Riddick v Thames Board Mills Ltd [1977] QB 881 at 895 Lord Denning MR noted that the reason for compelling discovery lies in the public interest in discovering the truth so that justice may be done between the parties. That public interest is to be put into the scales against the public interest in preserving privacy and protecting confidential information. The balance comes down in the ordinary way in favour of the public interest of discovering the truth ie in making full disclosure. 11 The implied undertaking extends beyond documents produced on discovery to other court documents (see, for example, Ainsworth v Hanrahan (1991) 25 NSWLR 155 at 166-168, 169-170). The undertaking has been held to apply to witness statements and affidavits (Central Queensland Cement Pty Ltd v Hardy [1989] 2 Qd R 509 at 501-511, Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 at 223, Abigroup Ltd v Atkins (1997) 42 NSWLR 623 at 627-628, McCabe v British American Tobacco Australia Services Ltd [2002] VSC 150 at [15]). The undertaking extends to the information derived from the documents (Crest Homes Plc v Marks [1987] AC 829 at 854). The undertaking is particularly strong when the information is provided pursuant to a court order or other compulsory process (Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 3 All ER 878 at 886). 12 Once a document has been read in open court, however, it looses its confidentiality and looses the protection of the undertaking (Harman at 306, 307-308, 319-326, Ainsworth at 168, Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 32-33). 13 Since the implied undertaking is one given to the court, the court may in appropriate circumstances release a party from the undertaking or modify it (Crest Homes at 854). In these proceedings the fifth defendant seeks to be released from its implied undertaking with respect to the Material. 14 I do not express an opinion whether the solicitors for the fifth defendant breached their undertaking to the court by forwarding their letter to ASIC and the DPP. That matter was not argued. My judgment should not be construed as an imprimatur for such conduct. 15 As a general proposition, a court will not release or modify the implied undertaking save in special circumstances and where the release or modification will not occasion injustice to the person providing the documents or information in question (Crest Homes at 860. See also Prudential Assurance at 895, Ainsworth at 168, Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 at 578, Springfield Nominees at 225, Minister for Education v Bailey (2000) 23 WAR 149 at 157,). 16 In Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 at 447 Lord Fraser of Tullybelton recognised that where the information is sought with respect to a prosecution there might be a public interest in favour of disclosure which would override the public interest in the administration of justice which goes to preserve the confidentiality of documents discovered on discovery. 17 The exercise for the court is to weigh up competing considerations of public interest and determine how the interests of justice are best met (Bailey at 486, Australian Competition and Consumer Commission v Telstra Corporation Ltd (2000) 96 FCR 317 at 321). 18 The fifth defendant submitted that the public interest in an appropriate investigation whether a criminal offence has been committed, outweighs the public interest in the preservation of confidentiality. In this case it was submitted that no evidence of prejudice had been tendered by the plaintiff. The first and second defendants argued that the liquidator was under a duty to report the possible commission of an offence to ASIC under the Corporations Act 2001 (Cth), s 533 and it ill behoved the liquidator to resist the release from the undertaking. 19 The plaintiff submitted that the public interest in preservation of confidentiality was predominant as no special circumstances had been demonstrated. It was asserted that prejudice is obvious and can be inferred from the Material. If the Material is provided to ASIC and the DPP, Johnson may decide not to return to Australia. The plaintiff questioned the motives of the fifth defendant in bringing the application. It was submitted that the application was brought in an attempt to frighten Johnson from returning to give evidence at the trial. The plaintiff argued that the liquidator had also to think of the interests of the creditors and contributories. 20 The fifth defendant countered that the motives of the parties were irrelevant and that the interests of creditors and contributories was no excuse for the liquidator failing to do his duty and to disclose the possible commission of offences to ASIC. 21 The public interest in an appropriate investigation of the possible commission of offences is a powerful consideration. However, in this case the defendants have had for a considerable time the advantage of disclosure of the Material and might have brought this application a long time ago. It is apparent that the recently reported prospect of Johnson returning to Australia to give evidence against the fifth defendant lies behind the current application. I do not agree that the motive of the parties is irrelevant. The reason for the application and the fifth defendant's motive in bringing it are, in my view, significant factors to be weighed in the scales. 22 Another matter which enters the scales is the prospect that in mid-November Johnson may give evidence in which case the affidavits will be read in open court, pass into the public domain and be available for any purpose, including an investigation by ASIC or the DPP. I raised the question with Counsel for the fifth defendant whether, in those circumstances, the application was premature. Counsel submitted, correctly in my view, that that consideration was not determinative because if it was, there would be little need to release or modify the implied undertaking to the court. One would simply wait until the matter was canvassed in open court. While not determinative, I am of the view that the consideration is significant, the more so because ASIC and the DPP have been apprised of the allegation that Johnson committed criminal offences and have evinced a lack of urgency with respect to any investigation. 23 In the circumstances of this case, weighing the issues as I do, I have concluded that the motion should be dismissed. If Johnson returns to Australia and gives evidence at trial, the information will be available for scrutiny by ASIC and the DPP. If he does not, a new application can be made. 24 The plaintiff and the fifth defendant made detailed submissions on whether and to what extent the communications in the Material remained the subject of legal professional privilege. The plaintiff argued that common law privilege remained until the documents are read in open court. The fifth defendant argued that since many of the communications in the Material had been incorporated into particulars, the privilege had been lost. It was further argued that it was appropriate, in view of recent decisions of the High Court, to expand the notion of the limited waiver formerly thought to be associated with disclosure of privileged witness statements to an opponent under court order. Finally, it was submitted that a release from or modification of the undertaking not to use information in privileged communications, access to which was gained in the court process, for some collateral or ulterior purpose, presupposed that privilege was lost. 25 These are important issues which, in view of the approach I have taken to the motion, are inappropriate for resolution in this application. 26 I propose to dismiss the notice of motion. I will hear the parties on costs. I would have thought it appropriate to order the fifth defendant to pay the plaintiff's costs of the motion and to make no order as to the costs of the first and second defendants.

Last Modified: 11/04/2002 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.