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[2023] VSC 446
General information, not legal advice.
Supreme Court of Victoria
2023-07-31
Hetyey AsJ
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Legal professional privilege - Application by defendants for orders that documents produced by subpoenaed non-parties are the subject of legal privilege and not available for inspection - Where plaintiff contends crime or fraud exception to legal privilege under common law applies - Where alleged falsification of board minutes in contravention of s 1307(1) of the Corporations Act 2001 (Cth) - Whether prima facie case of contravention - Whether documents prepared or communications made in furtherance of commission of alleged offence.
CORPORATIONS - Corporations Act 2001 (Cth) - Alleged offence under s 1307(1) - Discussion of physical and mental elements of offence - Whether conduct that results in the falsification of books affecting or relating to affairs of the company - Contentious wording of resolution of board of directors - Whether draft board minutes are a book affecting or relating to affairs of the company - Whether signed minutes were falsified - Whether later board minutes approving and ratifying earlier minutes were falsified - s 251A - Requirement for signing and retention of minutes of meetings - s 251A(6) - Relevance of presumption that minute signed and recorded is evidence of the proceeding, resolution or declaration to which it relates, unless contrary proved.
1 National Tiles Co Pty Ltd ('National Tiles' or 'Company'), Frank Walker Group Pty Ltd ('FWG'), and Mr Frank Walker (collectively, 'defendants') claim legal professional privilege over documents produced by non-parties to the proceeding under subpoenas issued by Mr John Selak ('plaintiff'). However, the plaintiff contends that legal professional privilege is unavailable because the relevant documents are communications in furtherance of a crime or fraud, namely the falsification of minutes of the board of National Tiles ('Board') in contravention of s 1307(1) of the Corporations Act 2001 (Cth) ('Corporations Act'). In those circumstances, can the defendants maintain their claims for legal professional privilege over the subpoenaed documents? For the reasons that follow, the answer is they can. The evidence does not suggest, on a prima facie basis, that the Board minutes have been falsified. The likely inference available on the evidence is that they are the subject of a genuine dispute.
2 The proceeding concerns an Employee Share Option Plan ('ESOP') adopted by National Tiles and an offer made by the Company to Mr Selak, a former director of the Company, inviting him to participate in the ESOP by acquiring options in the Company. Mr Selak alleges, among other things, that upon acceptance of the offer and payment of the price for the options, an agreement came into existence between himself and National Tiles pursuant to the written terms of the offer and the ESOP ('Agreement'). The ESOP contemplated the preparation of a shareholders' agreement, should a person wish to exercise their options and acquire shares in the Company. Mr Selak contends he was provided with a shareholders' agreement approved by National Tiles, containing terms so unreasonable that no reasonable minority shareholder would agree to be bound by them. He also says the terms of the proffered shareholders' agreement were inconsistent with the Agreement, depriving him of all, or a substantial part of, the benefit or reward under the Agreement. Mr Selak alleges National Tiles breached the Agreement and that its holding company, FWG, and Mr Walker[1] procured the said breach. He seeks exemplary and aggravated damages for breach of contract and the tort of procuring breach of contract.
3 The plaintiff's originating process was filed on 22 December 2020. At a directions hearing on 12 March 2021, Connock J made various pre-trial timetabling orders, including for the discovery of documents and the filing and service of witness outlines and expert reports. The proceeding is currently set down for trial on an estimated duration of eight days over October and November 2023.
4 Over February, March, and May 2022, Mr Selak issued subpoenas to the following addressees, all of whom are non-parties to the proceeding:
(a) a subpoena dated 3 March 2022 addressed to Greg Larsen ('Larsen subpoena'), a non-executive director and chairperson of the Board;
(b) subpoenas dated 3 March 2022 and 23 May 2022 addressed to Herbert Smith Freehills ('HSF') ('HSF subpoenas'), solicitors for the defendants in the proceeding. On 24 December 2015, HSF was engaged by FWG to provide legal advice regarding the terms of the ESOP; and from around 27 April 2020, HSF provided legal advice to both National Tiles and FWG concerning the ESOP and associated shareholders' agreement.[2] Separately, on 17 June 2020, HSF was engaged by National Tiles and FWG in relation to anticipated proceedings by Mr Selak;
(c) a subpoena dated 3 March 2022 addressed to PricewaterhouseCoopers ('PwC'). In mid‑April 2020, PwC was engaged by National Tiles to provide legal advice and services (including taxation advice) regarding the closing out of the ESOP. Additionally, in August 2020, PwC advised National Tiles on an email sent in late July 2020 by Ms Sue Morphet, the former chairperson of the Board, concerning the minutes of a Board meeting held on 23 April 2020; and
(d) a subpoena dated 24 March 2022 addressed to PricewaterhouseCoopers Securities Ltd ('PwCS'), which was engaged by National Tiles to undertake an independent valuation of the shares of the Company in connection with the ESOP.
5 The Larsen subpoena called for documents concerning any proposed agreement or understanding for financial reward or other incentive between Mr Larsen and the Company and/or Frank Walker, and which evidenced any resulting payments. The HSF subpoenas sought precedent shareholders' agreements used by HSF, documents prepared by Mr Andrew Clyne of HSF concerning the Board meeting on 21 May 2020, and instructions, advice, and comments concerning that Board meeting. The subpoenas directed to PwC and PwCS (collectively, 'PwC entities') required production of, among other things, documents regarding the valuation of National Tiles on about 29 January 2020 and pursuant to a report prepared by PwC and dated 22 April 2020, a record of what was said at a meeting between the directors of National Tiles and PwC representatives on about 1 April 2020 regarding the valuation of National Tiles, and file notes prepared by persons at the PwC entities regarding the Board meeting on 23 April 2020.
6 By summons dated 7 July 2022,[3] the defendants sought orders that certain documents produced by the addressees of the relevant subpoenas are the subject of legal professional privilege and should therefore not be uplifted or inspected ('privileged documents'). Mr Selak opposes the summons insofar as it concerns a subset of the privileged documents ('opposed documents'), to which he contends legal professional privilege cannot attach because they constitute communications between a lawyer and a client in furtherance of a crime or fraud ('crime or fraud exception'). In particular, he alleges there has been a falsification of minutes of a Board meeting held on 23 April 2020 ('April Minutes'), in contravention of s 1307(1) of the Corporations Act. The alleged falsification concerns the wording of a resolution about the shareholders' agreement required under the ESOP ('shareholders' agreement resolution'). Save for the opposed documents and a small number of privileged documents that were apparently disclosed by the defendants to the plaintiff during the course of the proceeding, the plaintiff concedes there is no other basis to challenge the defendants' privilege claims over the balance of the privileged documents. The parties also agree there is no need for the Court to separately determine whether the claim for legal professional privilege is otherwise made out in relation to the entirety of the privileged documents.
7 On 17 June 2022, Connock J made orders, among other things, listing the hearing and determination of the privilege claims made by the defendants before me. The only issue for determination is whether legal professional privilege is unavailable in respect of the opposed documents because of the crime or fraud exception.
8 In support of his application, the plaintiff relies on the affidavits and exhibits of Janet Whiting sworn 22 July 2022 ('first Whiting affidavit'), 19 August 2022 ('second Whiting affidavit'), and 12 September 2022 ('third Whiting affidavit'), together with written submissions dated 25 July 2022 and 19 August 2022, respectively.
9 The defendants rely on the affidavits and exhibits of Peter Holloway affirmed 9 May 2022 ('first Holloway affidavit'), 6 July 2022 ('second Holloway affidavit'), 5 August 2022 ('third Holloway affidavit'), and 12 September 2022 ('fourth Holloway affidavit'), together with written submissions dated 5 August 2022.
10 The parties also made reference to the plaintiff's further amended statement of claim dated 22 October 2021 and the defendants' amended defence to the further amended statement of claim dated 5 November 2021.
11 The opposed documents are found in the three schedules prepared by the defendants' lawyers:
(a) documents 41-53 and 57-59 in the schedule at pages 105-109 to Exhibit 'PJH‑1' of the first Holloway affidavit (which were produced by the PwC entities) ('PwC privilege schedule');
(b) documents 1-9 (including 1a) in the updated schedule at page 62 of Exhibit 'PJH‑2' of the second Holloway affidavit (which were produced by Mr Larsen) ('Larsen privilege schedule'); and
(c) documents 4, 16-47 and 59 in the schedule at pages 55-58 of Exhibit 'PJH‑2' of the second Holloway affidavit (which were produced by HSF) ('HSF privilege schedule').
(each a 'privilege schedule' and, collectively, 'privilege schedules').
12 The application was heard on 13 September 2022 and the Court reserved its decision. At the conclusion of the hearing, the parties were requested to jointly prepare a neutrally‑worded chronology. They did so on 11 November 2022, and a copy of the submitted chronology has been placed on the Court file.
13 Given the serious nature of the allegations made in the application, it is necessary to set out, in some detail, the background to the proceeding.
14 The dramatis personae that appear in the relevant background are as follows:
Non-Executive Director and Chairperson of the Board of National Tiles
7 May 2015 to 5 May 2020; a date between 5 May 2020 and 21 May 2020 to 24 June 2021 (Chairperson)
Director of National Tiles and Frank Walker's daughter
Chief Financial Officer and Secretary of National Tiles
15 Both FWG and its wholly owned subsidiary, National Tiles, are under the effective control of Frank Walker, who holds equal shares (50 per cent) in FWG with his wife, Rhonda Walker. FWG holds its shares in National Tiles as trustee for the Frank Walker Family Trust.
16 The ESOP was adopted by the Board on 7 April 2016 and enabled eligible persons, including employees and non-executive directors of National Tiles, to acquire shares in the Company on terms set out in the ESOP. There is evidence indicating Mr Selak himself was involved in the drafting of the ESOP in September 2015, in his then capacity as Partner in the Transaction Advisory Services team at Ernst & Young.
17 By cl 2.4.1 of the ESOP, eligible persons who applied for, or were granted options, are deemed to have agreed to:
(a) be bound by certain rules of the ESOP ('ESOP Rules') and the terms and conditions set out in a letter of offer;
(b) become a shareholder following the allocation of shares upon the exercise of options and to enter into a 'Shareholders' Agreement' if required by the Company; and
(c) be bound by any relevant Company policy.
18 The ESOP defines a 'Shareholders' Agreement' to mean a shareholders' agreement in terms approved by the 'Majority Shareholder', which would include certain conditions, such as trading restrictions.
19 By a letter of offer dated 20 April 2016 ('offer letter'), Mr Selak was invited to participate in the ESOP by purchasing four million options, with a price hurdle of 50 cents per option. The purchase price payable on grant of the options was set at 0.3444 cents per option, equal to the market value of an option at the date of the offer letter. Upon valid exercise of the options by payment of the relevant exercise price (12.3 cents per option), one ordinary share would be allocated for each option exercised.
20 An attachment to the offer letter, titled 'Section A Key Terms and Conditions - FY16 Offer', sets out various provisions, including the grant of options, vesting and exercise of the options, and the allocation of shares following the exercise of the options. Relevantly, one of the vesting conditions identified is the satisfaction of a 'share value hurdle'. If no 'Liquidity Event'[4] occurred before 20 April 2020, that date would be the 'Vesting Date', and the value of the shares for the purpose of the share value hurdle would be determined by a valuation as at 31 December 2019, to be undertaken by an independent third-party valuer nominated by the majority shareholder. The percentage of options that vested on the Vesting Date was determined on a sliding scale, based on the value of an ordinary share of National Tiles as at the Vesting Date, as follows:
21 The document also provided that '[u]pon the allocation of shares, [the participant] agree[s] to become a member of the Company and will be required to agree to the terms of the Shareholders' Agreement'. Defined terms in the document appear to correspond with definitions found in the ESOP itself.
22 Shortly after receiving the offer letter, Mr Selak accepted the offer and acquired four million options in National Tiles.
23 Mr Selak alleges (and the defendants admit) that upon acceptance of the offer letter and payment of the relevant price for the options, the Agreement came into existence between himself and National Tiles, in accordance with the written terms of the offer letter and the ESOP.
24 It is the plaintiff's evidence that, on 31 October 2019, Mr Walker informed the non‑executive directors of National Tiles that, following the meeting of the Board to be held in April 2020, Mr Larsen, and Ms Morphet would retire as directors and Mr Selak would continue as director and be appointed as chairperson of the Board, replacing Ms Morphet ('October 2019 succession plan').
25 On 21 February 2020, Mr Walker sent an email to HSF, copied to the other members of the Board, his wife Rhonda Walker, son Nick Walker, and daughter Georgie Bell. In that email, Mr Walker noted that following a stroke he had apparently suffered in the prior month, he had resolved to immediately appoint Ms Walker and Ms Bell as directors of the Company. Ms Walker and Ms Bell were subsequently appointed to the Board on 24 February 2020. The composition of the Board then became: Frank Walker, Georgie Bell, Greg Larsen, John Selak, Nick Walker, Rhonda Walker and Sue Morphet. At the time of this change in Board membership, Mr Selak raised concerns in an email exchange with Mr Walker regarding the latter's decision to appoint his wife and daughter as directors of the Company, which he believed could compromise the third-party independence of the valuation process and associated ESOP closure, and potentially expose Mr Walker to allegations that he had 'stacked' the Board.
26 With no 'Liquidity Event' having yet occurred, in accordance with the offer letter, it was then necessary for National Tiles to appoint an independent third party to conduct a valuation of National Tiles' shares. To that end, a proposal from PwCS was sought. However, between January and April 2020, a disagreement arose between Mr Walker and Mr Selak in relation to the valuation methodology to be applied by PwCS. Notably, Mr Selak was of the view that an amended valuation proposal, in which PwCS proposed to use the 'single point estimate' method of valuation, did not meet the appropriate standards. By email dated 1 February 2020 from Mr Selak to Mr Walker, Mr Selak sought Board access to PwCS's initial and amended proposal 'so that the appropriate level of transparency [be] maintained'.
27 In an email dated 3 February 2020 and sent to Mr Selak, Mr Walker disagreed that PwCS had erred by using a single point estimate and noted he had invited Nick Wormald of HSF, the author of the ESOP documentation, to the next Board meeting to address any legal questions concerning the valuation and any other relevant processes.
28 PwCS was ultimately engaged by National Tiles on 14 February 2020 to perform a valuation of the Company's ordinary shares as at 31 December 2019. The engagement was signed off by Mr Chris Herrick as Chief Financial Officer.
29 The Board met on 26 February 2020 ('February Board meeting') to discuss, among other things, the ESOP, and PwCS' valuation. A timeline was agreed whereby PwCS would present a draft redacted valuation report to the Board, with the final report to be presented by PwCS at the April 2020 Board meeting. The minutes of the February Board meeting record that Frank Walker confirmed his wife and daughter would remove themselves from any future voting requirement regarding the ESOP.
30 Following the February Board meeting, PwCS provided a draft report to the Board on 26 March 2020 ('PwCS draft report'), in which they set out their assessment of the fair market value of an ordinary share of National Tiles as at 31 December 2019.
31 On 29 March 2020, following distribution of the PwCS draft report, Mr Walker emailed the Board, stating that he rejected the PwCS draft report and identifying various alleged inaccuracies and erroneous assumptions contained within it. He relevantly said:
I propose this valuation matter be set aside until a more appropriate time in the future, hopefully within the next month or so.
In reserving my rights in every role I play in this matter, if my concerns are not satisfactorily addressed, I confirm I plan to take action against PwC[S] in the Federal Court for providing me false and misleading information and to seek to have the valuation deemed null and void.
32 After consulting with Mr Larsen and Mr Selak, Ms Morphet replied to Mr Walker's concerns by email dated 30 March 2020 in the following terms:
[I]t is not appropriate for the company to change or delay the agreed option valuation timeline as stipulated in the Share Option Plan. Nor should the specific time line of the PWC[S] valuation process be changed. This timeline was agreed by the board in February.
...
I also don't think its [sic] helpful for you to be threatening to take legal action against PWC[S] ...
These threats are extremely vexatious and undermine our common desire for courteous and professional discussion.
33 Mr Walker responded the same day, emphasising that '[t]he valuation [would] not be proceeding based on the current Redacted report'. He stated that he had 'been given false and misleading information by PwC[S]' and '[would] be taking action ... unless the matter [was] resolved to [his] absolute satisfaction'.
34 In further email exchanges later that day, Ms Morphet said she was of the view that the Board 'should continue with the agreed process', but Mr Walker considered this approach 'unacceptable' and purported to suspend the valuation process 'effective immediately'. He also said that if the Board voted to challenge his decision, he would immediately seek directions from the Federal Court of Australia as to the appropriateness or otherwise of the valuation continuing in its then form.
35 Ahead of the Board meeting on 23 April 2020 ('April Board meeting'), Nick Walker circulated a proposed agenda on 21 April 2020 to Ms Morphet and Mr Herrick, which noted various matters for discussion, including the 'PwC[S] Business Valuation Engagement', 'ESOP Legal & Tax Considerations (Board discussion)', and 'Non‑Executive Director tenure'. Ms Morphet forwarded this agenda to other Board members on the day before the April Board meeting (22 April 2020).
36 Immediately prior to the April Board meeting, PwCS finalised their valuation report dated 22 April 2020, a copy of which was circulated to the Board by Mr Herrick on the same day. The report assessed the fair market value of each share in National Tiles to be 47.6 cents. This resulted in 3.2 million of Mr Selak's options vesting, upon the execution of a shareholders' agreement, exercisable at a price of $393,600 (12.3 cents per option).
37 On the morning of the April Board meeting, at 7:51am, Nick Brown, a Legal Partner at PwC, circulated by email to Ms Morphet and Mr Herrick, 'sample resolutions' for the Board's consideration, including 'resolutions relating to the interim vesting outcomes, the NED [(Non-Executive Director)] related resolution ... and a resolution about the preparation of a shareholders agreement'. The email records that Ms Morphet suggested the sample resolutions be shared with Mr Herrick before the meeting. The document attached to the email was entitled, 'Summary of Resolutions that May Be Considered by the Board of Directors on 23 April 2020'. The document sets out the following sample resolution:
IT WAS RESOLVED THAT the Company engage [x] to prepare the shareholders' agreement (ensuring that specific provisions required by the definition of "Shareholders' Agreement" in the ESOP Rules are incorporated) and that the market standard minority protections (for example, pre‑emption rights on new shares issues) are included in the documentation.
38 Mr Herrick subsequently forwarded Mr Brown's email to another employee at National Tiles and requested that she upload the attached 'sample resolutions' onto Diligent, which I understand to be a file-sharing platform. He also forwarded the email and attached the 'sample resolutions' to Ms Rebecca Weir, an Assistant Company Secretary of BoardRoom Australia.
39 The April Board meeting, which was chaired by Ms Morphet, opened at 8:06am and concluded at 12:12pm. All directors of the Company were in attendance. Others in attendance by invitation were: Mr Herrick; Ms Weir; Mr Brown; Mr Hamish Emms, Director of PwC; and Mr Nigel Smythe, a Partner of PwC. The Board was satisfied that Mr Larsen, Mr Selak, and Ms Morphet had met 80% of their share value hurdle and were, respectively, entitled to exercise 3.2 million options. A resolution was therefore passed in relation to preparation of a shareholders' agreement to give effect to the allocation of shares upon the exercise of their options under the ESOP. However, the wording of that resolution is a matter of significant controversy between the parties in the present application.
Implementation of changes to the Board and ESOP close out
40 On the plaintiff's evidence, Frank Walker telephoned Mr Selak shortly after the April Board meeting concluded and requested that he resign from the Board.
41 The next day, on 24 April 2020, Frank Walker sent an email titled 'Board Announcement' to Mr Herrick and members of the National Tiles executive team, and copied to the Board. In that email, he announced the conclusion of Ms Morphet's, Mr Larsen's, and Mr Selak's respective statutory positions as non-executive directors of the Company. He also confirmed Mr Larsen's agreement to remain with the Company as interim chairperson, pending recruitment of a replacement.
42 Following the announcement of the Board changes, on 28 April 2020, Ms Morphet and Mr Selak circulated a letter to the directors of National Tiles, setting out a proposal for the closing out of the ESOP ('ESOP close out proposal'). The letter identified that Ms Morphet and Mr Selak each had 3.2 million vested options, with an intrinsic value of 35.3 cents per option, equating to approximately $1.13 million each, or roughly $2.26 million in total. To apparently assist the Company with its cashflow, they proposed that their options be cancelled and they be paid $2.26 million in 12 equal monthly instalments of $188,267 ($93,133 each per month) commencing July 2020. This was said to equate to a net cash outlay for National Tiles, after tax, of $132,000 per month for 12 months, with 'no need for a shareholder's agreement as there will not be any minority shareholders'.
43 On the same day, Ms Morphet emailed Ms Weir and Mr Herrick about the distribution of draft minutes of the April Board meeting, in order that she could sign those minutes by 30 April 2020 and complete her tenure as chair of the Company.
44 On 29 April 2020, at 11:50am, Ms Weir circulated a draft of the April Minutes ('Draft April Minutes') to Ms Morphet, Mr Herrick, and Nick Walker to review. In her covering email, Ms Weir stated:
With regards to the ESOP resolutions these are an adjusted version of the draft resolutions Nick Brown provided (adjusted to reflect the ESOP outcome).
45 The Draft April Minutes contained resolutions in the following terms:
IT WAS RESOLVED THAT:
- the Major Shareholder (or his representative) prepare the shareholders' agreement (ensuring that the specific provisions required by the definition of "Shareholders' Agreement" in the ESOP Rules are incorporated) and that market standard minority protections (for example, pre-emption rights on new shares issues) are included in the documentation; and
- [Nick Brown], as the Company's legal counsel would review the agreement on behalf of the Company (as a party to the Shareholder Agreement) to ensure the rights of the future minority shareholders were protected and that any implications on the effective management of the Company were fully considered.
46 As can be seen, the Draft April Minutes contained a form of resolution that contemplated a shareholders' agreement in similar language to the Sample Resolution suggested by Mr Brown of PwC on 23 April 2020. Both the Sample Resolution and the Draft April Minutes made specific reference to the shareholders' agreement containing 'market standard minority protections'.
47 Later that day, Mr Herrick sent a reply email to Ms Weir and Ms Morphet, stating that he and Nick Walker had reviewed the Draft April Minutes and had made a number of marked-up 'recommended changes'. The suggested changes were to various items in the minutes, including a minor change to the note accompanying the resolution regarding review of the shareholders' agreement, so that it read:
NB, as the Company's legal counsel would review the agreement on behalf of the Company (as a party to the Shareholder Agreement) to provide a view that ensure the rights of the future minority shareholders were protected and that any implications on the effective management of the Company were fully considered and consistent with market standard.
48 Having not heard from Ms Morphet in relation to the Draft April Minutes, Ms Weir sent a follow up email on 1 May 2020 at 9:40am, asking if she had any comments. On that same morning, at 10:28am, Mr Herrick emailed Ms Weir, stating that he had spoken to Ms Morphet and 'there were a couple of further minor amendments' captured in a further marked-up version of the Draft April Minutes. Shortly thereafter, at 10:43am, Mr Herrick again emailed Ms Weir, asking her to hold off on circulating the draft minutes as Ms Morphet had additional proposed changes.
49 Later that day, at 12:19pm, Ms Weir sent the Draft April Minutes to the wider Board, including Ms Bell, Mr Larsen, Mr Walker, and Mr Selak. She noted that the minutes had already been reviewed by Ms Morphet, Nick Walker, and Mr Herrick. Mr Selak indicated his approval of the Draft April Minutes by email on 1 May 2020 at 1:04pm. Mr Larsen did the same at 3:20pm that day.
50 At 4:04pm on 1 May 2020, Mr Walker replied to Ms Weir's email and copied in the other Board members, including Mr Selak and Ms Morphet. He said:
The minutes do not reflect my understanding of the shareholder agreement resolution as recorded.
Please await my written account of what was resolved which I will provide prior to their adoption.
51 Shortly after sending that email, at 4:09pm, Mr Walker separately emailed Ms Morphet and Mr Selak, noting his discussions with other directors individually about their ESOP close out proposal. He informed them that a final response to the ESOP close out proposal would follow the next Board meeting scheduled for May, but that 'its acceptance [was] most unlikely' and it would be:
[P]rudent for [them] to continue [their] deliberations on whether [they] wish[ed] to exercise [their] options on the basis [they would] need to personally fund the 12.3c per option exercise price ...
52 At 5:18pm, Ms Morphet replied to the 1 May Walker email, copying in the other Board members, and stating that Mr Walker's 'recollections must be sent to all members of the [April Board] meeting' and that 'any unresolved disagreement' ought to be mediated by the Company's lawyer in the event that his disagreements related to the resolutions made at the April Board meeting ('1 May Morphet email'). The next day, she responded to Mr Walker's separate 1 May 2020 email about the ESOP close out proposal, requesting that she be informed of the reasoning for the rejection.
53 On 4 May 2020, on the instructions of Frank Walker, Mr Clyne of HSF separately emailed Mr Selak and Ms Morphet, attaching a written form of notice of resignation as director of National Tiles. They were requested to sign and return the form within the week.
54 On 5 May 2020, in response to Mr Clyne's email, Mr Selak made various amendments to the attached resignation form and noted he had not sought legal advice, but reserved the right to do so. His amendments recorded that: he had been asked to resign by Mr Walker; his resignation was not voluntary; and he had an entitlement under the ESOP amounting to approximately $1.13 million, although there was still doubt as to how this entitlement would be 'monetised'. Mr Selak also stated:
My resignation is also subject to me agreeing [to] the final form of the minutes of the board meeting held on 23 April 2020. I note that the final draft of these minutes was prepared by our acting company secretary Rebecca Weir from Boardroom Pty Ltd. They were then reviewed by our CFO Chris Herrick and then by the Chair Sue Morphet, before they were sent to the rest of the board for approval. Nick Walker, Greg Larsen and myself all approved them. Frank is yet to approve them indicating that he will want some changes. I don't know what changes he will want, however, if they in any way change the essence of what everyone else has agreed to, I will be seeking legal advice.
55 In her email of 5 May 2020, Ms Morphet stated she was unable to resign as director and chairperson until the minutes of the April Board meeting had been signed off. She noted that the Draft April Minutes had been approved by all April Board meeting participants, but were awaiting Frank Walker's review.
56 Mr Larsen proceeded to sign a 'Notice of Resignation as Director and Secretary' on 5 May 2020, the effect of which was that he ceased acting as a director of National Tiles from the close of the April Board meeting. Mr Larsen confirmed he had 'received all money, consideration or benefits' to which he was entitled as director and secretary of the Company, save for any entitlements under the ESOP.
Wording of shareholders' agreement resolution
57 On 7 May 2020 at 10:48am, Mr Walker emailed Mr Larsen, copying in Nick Walker, Georgie Bell, and Rhonda Walker about the Draft April Minutes ('7 May Walker email'). He said:
Please find enclosed a copy of the draft minutes sent last week and my proposed alteration below to [the] Shareholder's Agreement, which I will be putting to the May board meeting. On Nick Wormald and Andrew Clyne's advice, I have discussed this yesterday with Nick, Georgie and Rhonda and all have confirmed that my recollection reflects what was resolved which was:
It was resolved that the majority shareholder be invited to prepare and provide to the company for adoption a shareholder agreement (as defined in the ESOP rules) in terms approved by the majority shareholder for the purpose of giving effect to the requirements of the ESOP rules.
58 Mr Walker requested that the above form of resolution replace the existing resolution in the Draft April Minutes.
59 Later that morning, Mr Larsen emailed Ms Weir directly at 11:40am, providing the 'alternative view' of the relevant resolution, in the form proposed by Mr Walker. He requested that Ms Weir consider the change and, if appropriate, send him a copy of the changed draft before it was recirculated. At 11:48am, Ms Weir indicated she was comfortable with the proposed change as 'it [was] in line with [her] recollection (albeit a shorter version)'. She said that if the rest of the Board was comfortable, she did not 'see any potential issues arising'. She attached a revised version of the Draft April Minutes containing the form of resolution contended for by Mr Walker, which was in the following terms:
IT WAS RESOLVED THAT the Majority Shareholder be invited to prepare and provide to the Company for adoption a shareholders agreement (as defined in the ESOP rules) on terms approved by the Majority Shareholder for the purpose of giving effect to the requirements of the ESOP rules.
60 Ms Weir requested that Mr Larsen review the Revised April Minutes prior to their recirculation for Board approval. He responded by saying there was no need to recirculate the Revised April Minutes and that, as new chair of the Board, he would include the document in the papers for the next Board meeting scheduled for 21 May 2020 ('May Board meeting') for the purpose of its 'ratification'.
61 Later in the day, on 7 May 2020 at 1:40pm, Ms Weir forwarded a copy of the Revised April Minutes by email to Mr Herrick for the purpose of approval at the next Board meeting. Mr Herrick replied, saying he had spoken with Mr Larsen that afternoon, and was 'comfortable' with the Revised April Minutes being tabled at the May Board meeting.
62 On 8 May 2020, Mr Walker emailed Ms Morphet and Mr Selak to provide detailed answers to the queries they had previously raised, including the status of the minutes of the April Board meeting ('8 May Walker email'). He provided detailed reasons as to why the ESOP close out proposal would 'most certainly be rejected' at the May Board meeting, citing prevailing economic conditions, such as the predicted doubling of Australia's unemployment rate and the shrinking of the construction industry, which led him to conclude that National Tiles no longer held the value it did in December 2019. Mr Walker stated that Ms Morphet and Mr Selak were 'sophisticated investors' and knew the Company intimately. He considered that the Company would benefit if Ms Morphet and Mr Selak decided to exercise their collective full entitlements 'with a much welcome cash injection of up to circa $800k'. Mr Walker indicated that the drafting of a shareholders' agreement was 'progressing well and [was] due to be signed off by the [B]oard' at the May Board meeting. Mr Walker noted there had been a shareholder resolution removing each of Ms Morphet and Mr Selak as directors of the Company and that the notification of changes to the Board composition would be made to the Australian Securities and Investments Commission ('ASIC') within 28 days. A record of the shareholder resolution was signed by Mr Walker, as sole member of National Tiles, on the same day as the 8 May Walker email.
63 Finally, Mr Walker explained in the 8 May Walker email that the Board minutes for the April meeting would be tabled at the May Board meeting for consideration and final adoption. Additionally, given that five of the seven directors present at the April Board meeting would be in attendance at the May Board meeting, Mr Walker had 'absolute confidence that the minutes that [would] be adopted [would] reflect what the [B]oard believes was resolved at the April [Board] meeting'.
64 Mr Walker concluded his email by stating that the Frank Walker Family Trust has resolved to remove each of Mr Selak and Ms Morphet as directors of National Tiles, and that the Company would arrange for ASIC to be notified accordingly.
65 The May Board meeting was held on 21 May 2020. The directors present were: Mr Larsen, Nick Walker, Ms Bell, Frank Walker, and Rhonda Walker. Mr Herrick, Mr Clyne, and Ms Weir were in attendance by invitation. At this point, HSF had been retained by FWG to prepare the shareholders' agreement contemplated by the ESOP Rules and the April Minutes. Minutes of the May Board meeting ('May Minutes') relevantly record that:
(a) the Board resolved to approve the shareholders' agreement, subject to minor amendments, and the final draft would be circulated to the ESOP participants;
(b) Mr Larsen had resigned from the Board effective 23 April 2020, but he wished to withdraw his resignation. The Board resolved to accept his withdrawal of resignation and authorised Mr Herrick to update ASIC;
(c) Mr Larsen was appointed as chairperson of the Board effective from the day of the May Board meeting; and
(d) the Board confirmed the Revised April Minutes to be a true and correct record of the April Board meeting and authorised Mr Larsen to sign the minutes as chairperson (which he had already done on the day prior).
66 This final version of the April Minutes contained the shareholders' agreement resolution in the form proposed by Frank Walker in the Revised April Minutes. The document did not contain the Minority Protection Resolutions in the form set out in the Draft April Minutes. In particular, it did not include the reference to 'market standard minority protections', nor did it include the resolution concerning review of the shareholders' agreement, in respect of which Chris Herrick and Nick Walker had proposed changes. For the sake of clarity, the April Minutes ultimately approved by the Board and signed off by Mr Larsen as chairperson expressed the relevant resolution as follows:
IT WAS RESOLVED THAT the Majority Shareholder be invited to prepare and provide to the Company for adoption a shareholders agreement (as defined in the ESOP rules) on terms approved by the Majority Shareholder for the purpose of giving effect to the requirements of the ESOP rules.
67 On 22 May 2020, Mr Herrick emailed Ms Morphet and Mr Selak, attaching the April Minutes, in the form confirmed by the Board at the May Board meeting. He foreshadowed that a shareholders' agreement would be provided to them the next business day. Mr Herrick then provided a version of the April Minutes to Ms Morphet with 'tracked changes from the version that was circulated for approval on 1 May'.
68 On 25 May 2020 at 9:45am, Ms Morphet forwarded the April Minutes and Mr Herrick's accompanying emails to Mr Brown of PwC, and stated:
Nick [t]hese changes remove everything we agreed in the meeting[.] When are you free for me to discuss this with you[.]
69 Later in the afternoon of 25 May 2020, Ms Morphet emailed Mr Walker, Mr Nick Walker, Mr Larsen, and Mr Herrick, to ask whether the ESOP close out proposal of 28 April 2020 had been accepted by the Board. She also sought guidance on the current market value of National Tiles' shares and any mid-term business forecasts to assist her and Mr Selak to 'make some important decisions over the next few weeks'. On 26 May 2020, Mr Walker responded, confirming that the ESOP close out proposal had been formally rejected by the Board for the reasons conveyed to her on 8 May 2020. Mr Walker stated, among other things, that the Board did not intend to form a view on the current value of a National Tiles share, but would rely on an expert valuer to do so if and when the need arose. He also said that the Board did 'not believe it prudent to speculate on the value of [Ms Morphet's] options if exercised and put to the market under the terms of the adopted shareholder agreement'.
70 The next day, on 26 May 2020, at 7:19am, Mr Larsen sent an email to Mr Walker entitled, 'Record of Conversation'. Given the significance that has been attached to this correspondence by the plaintiff, it is appropriate to set out its contents in some detail:
Dear Frank
I thought I would note my understanding of the conversations we have had since the 15 April concerning my ongoing arrangements with the Walker family and National Tiles. I am very appreciative of your continued confidence in me and your offer, in perpetuity, to Colleen and myself. Given my ongoing role, to be discussed below, I would like to have a common understanding as to what it means so that I have a basis for decisions I should make in relation to the ESOP and in relation to my other business activities.
The story started with our conversation that the easiest way to resolve the ESOP and valuation questions might be to just acknowledge the work of the 3 NEDS [(non-executive directors)] by some sort of ex gratia payment and forget the ESOP and valuation outcomes.
You advised that you had put this idea to Nick(Wormald) and he did not like it.
You then made to me a unexpected offer which I recall as being along the following lines;
"Rhonda and I have discussed this and we will always believe that Greg Larsen has been the major reason, in any number of ways, why we have had such business success over the last 10 years. Yes, it would have been successful, but the way that you have worked me and developed Nick to successfully succeed me, means much of the success is due to you. This has resulted in the outcomes we now have.
Therefore irrespective, of the valuation and ESOP outcomes, we want to give you an annual retainer at the level of your current director[']s fees for the rest of your life, and, if you predecease Colleen, for the rest of her life. The only condition is that you will keep your current options( presumed at that point to be 4 million) and if/when we sell the company you will receive your share and , as there will no longer be a Company to pay the amount , the retainer will cease"
...
My quandary at the time was whether I had a conflict with my fellow directors in relation to the valuation and the ESOP. Obviously if the valuation was out of the money there was no issue.
...
My decision to myself, was that my first responsibility( ethically and legally) was as a director of National Tiles and that I must act to get those matters resolved in the Company's best interests. I needed to proceed to arrive at a fair and equitable and legally indisputable outcome for my fellow directors and the other ESOP beneficiaries. This was especially so as they had no knowledge at that time of your separate undertaking to me. This is the approach that I took and would continue to do so until 30 April , when I assumed this "chapter" to be closed.
The valuation from PWC resulted in an outcome where the ESOP options vested at 80% which for me and the other 2 NEDS equalled 3.2 million options. The Exercise Period , as per the agreement, is a period commencing on the day following the Vesting Date and ending on 30 September 2030 or such other shorter period notified to you by the Board. Given that the NEDS were all leaving in April 2020, the date for the exercise of options was extended to 23 June 2020 - which is the timescale both John Selak and Sue Morphett [sic] are working to. Your conversation with me led me to believe that the 23/6/2020 time limitation does not apply to me as I would have a continuing role as with the company as an Advisory Director which I have relied upon and I do not intend to exercise any options at this time
As of 1 May, I have deemed for myself to have commenced a new chapter on my journey with the Walker family. We had a conversation last week and agreed that it would be sensible and practical for the Company for me to withdraw my resignation as director of National Tiles and to continue in that role for the foreseeable future and carry out the duties as Chairman of Directors. I agreed to do that.
Frank, I would appreciate your confirmation that the above record is in accordance with your understanding and therefore something that I can rely upon. If so, I will not be exercising my options in the immediate future and certainly not by 23 June 2020
...
(emphases added)
71 On 9 June 2020, Gilbert + Tobin sent a letter by email to Frank Walker on behalf of Ms Morphet and Mr Selak ('9 June Gilbert + Tobin letter'). The letter asserted, among other things, that:
(a) Mr Walker had resiled from prior representations to Ms Morphet and Mr Selak that they would be compensated for their sustained contributions to National Tiles' business over the years, including by way of cash payments under the ESOP;
(b) Mr Walker had been unjustly enriched as a result;
(c) the terms of a proffered shareholders' agreement were 'manifestly oppressive', unreasonable, and 'a marked departure from what may be typically expected in a shareholder[s'] agreement'. The shareholders' agreement was also said to contain terms contrary to the resolutions passed at the April Board meeting, which required that it contain 'market standard minority protections';
(d) Mr Walker had interfered with the valuation process, appointed family members to the Board, and removed Mr Selak and Ms Morphet from the Board; and
(e) Mr Walker had amended the Draft April Minutes previously approved by all persons in attendance (other than him) to delete references to 'market standard minority protections'.
72 The letter concluded by demanding payment to Mr Selak and Ms Morphet of $1,129,600 each within seven days, failing which Mr Selak and Ms Morphet would initiate proceedings for damages for misrepresentation and unjust enrichment, 'at which time [the] dispute [would] become public'.
Falsification allegations by Mr Selak and Ms Morphet
73 On 24 July 2020, Ms Morphet sent an email to Mr Larsen ('24 July Morphet email'). The email is not in evidence because it is headed 'Without Prejudice'. Nevertheless, it is common ground that the email contained a direct allegation by Ms Morphet that the April Minutes had been falsified and fabricated.
74 On 10 August 2020, Mr Larsen replied to the 24 July Morphet email. His responding email, which was not marked 'Without Prejudice', relevantly stated that:
(a) each of the remaining directors (including himself) who attended the April Board meeting disagreed with Ms Morphet's recollection of the April Board meeting 'insofar as the discussion and resolution concerning the preparation of a new shareholders' agreement [was] concerned'. He said it was 'unsurprising there are differing recollections about that part of the meeting given how spirited the discussion became at times and the personal interests of some of the participants in the subject matter of the debate';
(b) 'there [was] no basis for [Ms Morphet's] comments about documents being falsified and fabricated';
(c) Ms Morphet's 'unsubstantiated "concern" that documents [were] being deleted or edited in breach of the criminal law is entirely unwarranted';
(d) allegations of 'falsification, fabrication, document destruction and criminal conduct' had been made against himself and other directors, including Mr Walker, Nick Walker, Rhonda Walker, and Ms Bell. He characterised such allegations as unwarranted, unsubstantiated, and defamatory and stated that each of the directors expressly reserved their rights in respect of the allegations; and
(e) he emphasised the ESOP Rules, which bind the Company and the option holders and require that any option holder must (on exercise of their options) enter into a shareholders' agreement on terms approved by the Majority Shareholder, irrespective of any resolution passed at the April Board meeting.
75 On 13 August 2020, Mr Selak emailed Mr Larsen and relevantly stated:
[T]he wishes of the majority shareholder (Frank) should not be confused with what's in the best interests of the company. As Directors, our duty is to act in the best interests of the Company.
The ESOP rules provide the Board with significant discretion throughout the close‑out process. Why would it not be in the Company's best interests for the Shareholders' Agreement to contain standard market minority shareholder protection provisions for the Company's ESOP participants? This is especially so for the three executives with vested options, particularly in light of what we have seen from Frank over the previous 3 months. I refer you to Sue's email to Frank on 4 April 2020, wherein she said;
"The whole Board (not just the 3 independent NEDs), has a higher duty of care to the executive ESOP participants because they aren't sitting around the boardroom table when these critical decisions are being made. They trust that the whole Board will do the right thing by them and by the company. Allowing anyone to change the rules now would be a breach of that trust."
In respect of the [April] [M]inutes:
* On 1 May 2020, you replied to Rebecca's email approving the minutes which rightly contained the minority shareholder protection provisions
* You then cut a deal with Frank
* At the Board meeting held in May 2020, as Chairman, you signed a subsequent version of the minutes of the 28 April 2020 meeting as being "true and correct" even though they fundamentally varied from the draft minutes you approved on 1 May 2020.
You would have to admit that the aesthetics of this aren't good.
...
That's the problem when you lose your objectivity and allow Frank's lawyers to rewrite history.
Greg, once you and Frank have been served and the Statement of Claim is lodged with the Court, this matter will effectively be in the public domain. Naturally, both you and Frank will have the opportunity to defend your conduct both before the Court and in the court of public opinion. I hope for your sake, that the deal you cut with Frank, was worth it.
76 Mr Selak's email was marked 'Without Prejudice', but he now accepts that it is not so.
77 On 18 August 2020, Mr Larsen replied to the 13 August Selak email and stated that he had already addressed the points raised in his earlier correspondence to Ms Morphet dated 10 August 2020, and would not otherwise provide a 'detailed response to the inappropriate and defamatory accusations' set out in the 13 August Selak email. He observed that Mr Selak's use of the 'Without Prejudice' descriptor was misplaced and put Mr Selak 'on notice that each of the directors of National Tiles ... expressly reserve [their] rights in respect of the allegations set out in [Mr Selak's] email ...'
78 The Board (now constituted by Frank Walker, Rhonda Walker, Nick Walker, Georgie Bell, Greg Larsen, and a new director, Mr Peter Davis) met again on 19 August 2020 ('August Board meeting'). At this meeting, the topic of the April Minutes was again discussed, as was the escalating dispute with Mr Selak and Ms Morphet. The minutes for the August Board meeting ('August Minutes') record that because of an unspecified conflict of interest on the part of Mr Larsen, Nick Walker took over the role as chairperson for this aspect of the meeting. The August Minutes note that Ms Morphet and Mr Selak had disputed the form of the April Minutes as they related to the wording of the shareholders' agreement resolution. The August Minutes further state:
It was noted that the form of the ... April [M]inutes was different to a draft of the minutes of that meeting that had been circulated by Ms Rebecca Weir of Boardroom ... and that had been informally confirmed by several directors prior to the [May Board meeting].
79 The August Minutes recorded correspondence passing between Gilbert + Tobin (on behalf of Mr Selak and Ms Morphet) and HSF (on behalf of Mr Walker), along with the 24 July Morphet email, Mr Larsen's responsive email of 10 August 2020, the 13 August Selak email, and Mr Larsen's response of 18 August 2020, had been uploaded onto the Diligent board platform. This correspondence was tabled and noted. The Board resolved that the April Minutes be ratified.
80 In their affidavit material, the parties introduced further contextual evidence, in addition to setting out the above chronology of events.
81 In the first Whiting affidavit, Ms Whiting referred to contemporaneous file notes taken at the April Board meeting by Mr Herrick ('April Board meeting file notes'), which, among other things, record: 'minority protections in the s/holders agreement'. She also referred to the 26 May Larsen email, which was said to record prior discussions between Mr Larsen and Mr Walker, as well as a proposal that had apparently been put by Mr Walker to Mr Larsen at an earlier time (described by the plaintiff in his pleadings and affidavit material as 'the Proposal').
82 In the second Whiting affidavit, Ms Whiting deposed that she was instructed by Mr Selak, and believed, that the Minority Protection Resolutions referred to in the Draft April Minutes were passed at the April Board meeting. She said she had corresponding instructions from Ms Morphet. Regarding the Proposal, Ms Whiting observed that the defendants do not admit (but do not deny) the Proposal in their pleadings. On 12 November 2021, Gilbert + Tobin wrote to HSF, seeking an explanation for the non‑admission and have since complained about the adequacy of the response received.
83 In the third Whiting affidavit, Ms Whiting exhibited a handwritten note dated 5 May 2020, which had been produced by Mr Larsen pursuant to his subpoena ('Larsen handwritten note'). The plaintiff made various submissions about the interpretation and significance of the Larsen handwritten note.
84 In the third Holloway affidavit, Mr Holloway exhibited a copy of the constitution of National Tiles ('National Tiles Constitution'), which was signed by Mr Walker and dated 30 August 2001. At that time, the Company was known as Statewide Ceramics Pty Ltd. The National Tiles Constitution provides, among other things, that '[a] resolution of the Directors must be passed by a majority of votes cast by Directors entitled to vote on the resolution' (cl 13.2.1) and that 'the chairman of the meeting has a casting vote if necessary in addition to any vote the chairman has in the chairman's capacity as a Director' (cl 13.2.2). Mr Holloway also exhibited the Memorandum of Association of the Company when it was known by the earlier name of Jamela Pty Ltd ('National Tiles Memorandum of Association'). That document states, among other things, that minutes of Board meetings 'shall be signed by the chairman of the meeting at which the proceedings were held or by the chairman of any succeeding meeting' (cl 62(c)).
85 In addition, Mr Holloway provided further information concerning the circumstances of the April Board meeting. Mr Holloway said he had been informed by Mr Herrick, and believed, that the usual practice of National Tiles was to conduct Board meetings in person. However, because the April Board meeting occurred during COVID-19 restrictions, it was held remotely and was apparently unrecorded. Mr Herrick instructed Mr Holloway that he attended the April Board meeting in full and that the Sample Resolution prepared by Mr Brown of PwC was discussed. Mr Herrick relayed to Mr Holloway that, at the April Board meeting, Mr Selak and Ms Morphet expressed their views that the shareholders' agreement should be drafted to include minority protections, but the Board did not agree or resolve for that to occur, nor was the Sample Resolution passed. Mr Herrick informed Mr Holloway that the expression, 'minority protections in the s/holders agreement', which is referred to in the April Board meeting file notes, records the fact that discussions took place at the meeting about whether the shareholders' agreement should include minority protections. However, he informed Mr Holloway that the words did not record any agreement about that issue.
86 It is important to note that, aside from the solicitors' affidavits prepared by Ms Whiting and Mr Holloway for the purpose of this application, the parties have not adduced any direct evidence from any participant or observer at the April Board meeting about what transpired at that meeting. The same can be said for the May and August Board meetings.
Legal professional privilege and the crime or fraud exception
87 The parties' written submissions initially proceeded on the basis that the defendants' privilege claims (and the plaintiff's opposition to those claims) should be determined pursuant to the statutory framework found in the Evidence Act 2008 (Vic) ('Evidence Act'). However, at the hearing of the matter, the parties agreed that the correct approach was to consider the plaintiff's challenge to the opposed documents in accordance with common law principles. It is appropriate to briefly explain why that approach is correct.
88 Section 125(1)(a) of the Evidence Act provides:
125 Loss of client legal privilege - misconduct
(1) This Division does not prevent the adducing of evidence of -
(a) a communication made or the contents of a document prepared by a client or lawyer (or both), or a party who is not represented in the proceeding by a lawyer, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; ...
89 Section 125 is housed within Part 3.10 of the Evidence Act, which deals with privileges. That provision should be read together with s 131A of the Evidence Act, which is also found in Part 3.10. Section 131A relevantly states:
131A Application of Part to preliminary proceedings of courts
(1) If -
(a) a person is required by a disclosure requirement to give information, or to produce a document, which would result in the disclosure of a communication, a document or its contents or other information of a kind referred to in Division 1, 1C or 3; and
(b) the person objects to giving that information or providing that document -
the court must determine the objection by applying the provisions of this Part (other than sections 123 and 128) with any necessary modifications as if the objection to giving information or producing the document were an objection to the giving or adducing of evidence.
(2) In this section, disclosure requirement means a process or order of a court that requires the disclosure of information or a document and includes the following -
(a) a summons or subpoena to produce documents or give evidence; ...
90 At the hearing, Ms Mintz of counsel for the plaintiff submitted that, for s 125 of the Evidence Act to apply, the 'person' referred to in s 131A, being the subject of a 'disclosure requirement', must be the same person who objects to disclosure of the information. On that basis, the statutory framework relating to privileges set out in Part 3.10 of the Evidence Act has no application here because it is not the PwC entities, Mr Larsen, or HSF, as addressees of the subpoenas, who are objecting to the disclosure of the documents in question. Rather, it is the defendants who have voiced objections and claimed privilege over the opposed documents.
91 This construction of the legislative provisions finds support in the decision of Connock J in Alphington Developments Pty Ltd v Amcor Ltd (No 2) ('Alphington').[5] Alphington was an appeal and cross-appeal from a decision of an Associate Justice relating to claims of legal professional privilege made by Amcor Developments Pty Ltd in respect of documents produced to the Court by a third party. Before the Associate Justice, each party maintained that the questions of privilege were to be determined under ss 117, 118, and 119 of the Evidence Act and not the common law. On appeal, it was argued that the Court was led into error by applying those provisions of the Evidence Act, rather than common law principles.
[W]here a person is required to produce documents in answer to a subpoena, s 131A of the [Evidence] Act is only engaged where:
(a) 'a person' is required to produce documents pursuant to the subpoena; and
(b) 'the person' objects to providing the document/s.
Consequently if ... 'a person' producing the documents ... is not 'the person' objecting to the documents being provided ... then s 131A(1) is not engaged and ss 118 and 119 of the [Evidence] Act do not apply.
As unsatisfactory as that may appear,[7] the language of the statute is clear and the position is the subject of settled authority.[8]
93 Having regard to the analysis of Connock J in Alphington, I am persuaded that the provisions of the Evidence Act are not relevant for the purposes of this application. As it is the defendants who are claiming privilege over the opposed documents, rather than the addressees of the subpoenas themselves, by reason of s 131A of the Evidence Act, s 125 has no work to do. Instead, the principles of the common law apply.
94 At common law, the legal advice limb of professional privilege protects from disclosure a communication made or a document prepared for the dominant purpose of a lawyer providing, or a client obtaining, legal advice or services.[9] In Esso Australia Resources v Federal Commissioner of Taxation, Gleeson CJ, Gaudron and Gummow JJ explained the rationale of the privilege in this way:
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 a 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 [(1976) [1976] HCA 63; 135 CLR 674] 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 ...[10]
95 To enliven the protection of legal privilege, the onus is on the party claiming privilege to establish that the relevant communications were undertaken for the dominant purpose of giving or obtaining legal advice.[11]
96 However, communications made in furtherance of a crime or fraud are not protected by legal professional privilege, ostensibly because the privilege never attaches to them in the first place.[12] Whilst the concept is sometimes referred to as an 'exception' to legal professional privilege or an instance of the loss of such privilege, it has also been said that it is the illegal object of such communications that prevents them from being privileged at the first instance.[13]
97 The principles concerning the crime or fraud exception to legal privilege at common law were comprehensively set out by Young J in AWB Ltd v Cole (No 5) ('AWB').[14] In that case, AWB Ltd, whose conduct was the subject of a Royal Commission, sought a declaration from the Federal Court that some 900 documents were, or recorded, confidential communications that were the subject of legal professional privilege and were therefore protected from inspection.[15] An issue that arose for determination was whether legal privilege attached to AWB Ltd's documents, for which legal advice had been obtained, in the event that such advice had been procured 'in furtherance of a fraud, wrongful conduct or sham transaction'.[16] After inspecting the relevant documents, Young J concluded that the documents in question were not protected by legal privilege as they were, 'prima facie, brought into existence in furtherance of an improper and dishonest purpose'; namely, the inflation of certain contracts to extract payment out of a United Nations escrow account to satisfy a compensation claim by the Grain Board of Iraq.[17] The evidence established that the transaction was 'deliberately and dishonestly structured' by AWB Ltd to misrepresent the true nature of certain transport fees and to 'work a trickery on' the United Nations.[18] His Honour considered that it would be contrary to public policy for the privilege to enure in communications of that kind.[19] In arriving at that conclusion, Young J explained the rationale of the crime or fraud exception to legal privilege as follows:[20]
Communications between a lawyer and client which facilitate a crime or fraud are not protected by legal professional privilege. This principle is often referred to as the 'fraud exception' to legal professional privilege, but this does not capture its full reach: Attorney-General (NT) v Kearney [1985] HCA 60; (1985) 158 CLR 500 at 515; [Commissioner of Australian Federal Police v] Propend [Finance Pty Ltd (1997) 188 CLR 501] at 546; Clements, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police [2001] FCA 1858; (2001) 48 ATR 650; 188 ALR 515 at [30].
The principle encompasses a wide species of fraud, criminal activity or actions taken for illegal or improper purposes: see North J's review of the authorities in Clements[, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police [2001] FCA 1858; (2001) 188 ALR 515] at [35]-[44]. The scope of conduct caught by the principle has been articulated in a variety of ways, often without particular precision: [Commissioner of Australian Federal Police v] Propend [Finance Pty Ltd (1997) 188 CLR 501] at 545. Classic formulations have been spoken of communications in furtherance of a 'crime or fraud': R v Cox (1884) 14 QBD 153 at 165; a 'criminal or unlawful proceeding': Bullivant v Attorney-General (Vic) [1901] UKLawRpAC 15; [1901] AC 196 at 201; 'any unlawful or wicked act': Annesley v Anglesea (1743) 17 State Tr 1139 at 1229; and 'all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery, and sham contrivances': Crescent Farm (Sidcup) Sports Ltd v Sterling Offıces Ltd [1972] Ch 553 at 565. In [Attorney-General (NT) v] Kearney [(1985) [1985] HCA 60; 158 CLR 500], the High Court applied the principle to deny legal professional privilege to legal advice obtained by the Northern Territory Government which was prima facie a 'deliberate abuse of statutory power' to defeat a land claim under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth). In his reasons for judgment, Gibbs CJ (with whom Mason and Brennan JJ agreed) stated at 515 that 'legal professional privilege will be denied to a communication which is made for the purpose of frustrating the processes of the law itself, even though no crime or fraud is contemplated'.
...
Where a client is engaged in fraudulent conduct, communications with his or her lawyer in furtherance of the fraud are not privileged, regardless of whether the lawyer is a party to the fraud or not: Clements[, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police [2001] FCA 1858; (2001) 188 ALR 515] at [213]. The principle applies to communications passing between a client and lawyer where the lawyer is innocent of the fraud or improper purpose: R v Bell; Ex parte Lees [1980] HCA 26; (1980) 146 CLR 141 at 145. Further, the fraud need not be that of the client or the lawyer; it may be that of a third party: Capar v Commissioner of Police (1994) 34 NSWLR 715; R v Central Criminal Court; Ex parte Francis [1989] AC 346, cited with approval in Clements[, Dunne & Bell Pty Ltd v Commissioner of Australian Federal Police [2001] FCA 1858; (2001) 188 ALR 515] at [217]-[218].
It is important to bear in mind that the fraud exception is based on public policy grounds. The principle is sufficiently flexible to capture a range of situations where the protection of confidential communications between lawyer and client would be contrary to the public interest: see [Attorney-General (NT) v] Kearney [(1985) [1985] HCA 60; 158 CLR 500] at 514-515; R v Cox at 614. This aspect of the principle is reflected in the statement that '[t]he privilege takes flight if the relationship between lawyer and client is abused': Clarke v United States of America [1933] USSC 52; 289 US 1 at 15 (1933); see also [Attorney-General (NT) v] Kearney [(1985) [1985] HCA 60; 158 CLR 500] at 514 and 524.
98 His Honour further explained how the crime or fraud exception may apply in a particular case:[21]
For the principle to apply, there must be more than a mere assertion or allegation of fraud or impropriety: Bullivant [v Attorney-General (Vic) [1901] UKLawRpAC 15; [1901] AC 196] at 201, 203 and 204-205. In [Commissioner of Australian Federal Police v] Propend [Finance Pty Ltd (1997) 188 CLR 501] at 514, Brennan CJ expressed the test as being one of 'reasonable grounds for believing' that the relevant communication was for an improper purpose. The requirement has also been described as one of a 'prima facie case': Butler v Board of Trade [1971] Ch 680 at 689; cf Baker v Evans (1987) 77 ALR 565 at 574. In [Attorney-General (NT) v] Kearney [(1985) [1985] HCA 60; 158 CLR 500] at 516, Gibbs CJ approved the test formulated in O'Rourke v Darbishire [1920] AC 581 at 604, namely that 'there must be something to give colour to the charge'; 'the statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact'. The High Court in [Commissioner of Australian Federal Police v] Propend [Finance Pty Ltd (1997) 188 CLR 501] applied this test: at 514 per Brennan CJ, 521 per Dawson J, 534 per Toohey J, 546 per Gaudron J, 556 per McHugh J, and 592 per Kirby J.
It is not necessary to prove an improper purpose on the balance of probabilities. The 'prima facie' test arguably reflects the fact that issues of legal professional privilege are usually dealt with in the interlocutory stages of a proceeding, but the authorities have not departed from that formulation where a declaration is sought in relation to privilege issues: Butler [v Board of Trade [1971] Ch 680]; [Commissioner of Australian Federal Police v] Propend [Finance Pty Ltd (1997) 188 CLR 501]; Beazley [v Steinhardt [1999] FCA 1255]. It must also be established, on the same prima facie basis, that the communication which is the subject of the claim for privilege was made in furtherance of, or as a step preparatory to, the commission of the fraud or wrongdoing. In Butler [v Board of Trade [1971] Ch 680], Goff J found at 687 that a letter written by the plaintiff's lawyer which volunteered a warning that the plaintiff may incur serious consequences if he did not take care was not shown to be 'in preparation for or in furtherance of or as part of any criminal designs on the part of the plaintiff': see also Zemanek v Commonwealth Bank of Australia (unreported, Federal Court, Hill J, 2 October 1997).
99 The following principles can therefore be distilled from Young J's decision in AWB and the authorities cited therein:
(a) lawyer-client communications that facilitate, or are in furtherance of, a crime or fraud are not protected by legal professional privilege;
(b) the so-called crime or fraud exception to legal privilege is flexible and sufficiently broad in its application to capture different species of criminal or fraudulent activities or dishonest conduct, including trickeries or shams;[22]
(c) once established that a client is engaged in fraudulent or criminal conduct, lawyer-client communications in furtherance of the crime or fraud cannot be privileged, irrespective of whether the lawyer is a participant of the crime or fraud or aware of the nefarious purpose of the communication;
(d) for the crime or fraud exception to apply, more than mere assertion or allegation of fraud or impropriety is required. The assertion or allegation must be made in clear and definite terms.[23] Vague or generalised contentions of crimes or improper purposes will not suffice;[24]
(e) there must be 'reasonable grounds for believing' the fraud or offence has been committed, that a 'prima facie case' has a foundation in fact, or 'something to give colour to the charge'; and
(f) there must be a prima facie case that the relevant communication was made 'in furtherance of', or 'as a step preparatory to', wrongdoing.
100 The onus in establishing that the crime or fraud exception to legal professional privilege applies rests with the party who argues the exception applies.[25] Because of the serious ramifications of overriding legal professional privilege, the Court is required to carefully weigh the quality and strength of the evidence relied upon in support of the crime or fraud exception,[26] notwithstanding that proof to a lesser standard than the balance of probabilities is permitted. Further, the nature of the evidence required to establish the exception will invariably depend on the circumstances of the case.[27]
101 As to the surrounding circumstances, in O'Rourke v Darbishire,[28] Viscount Finlay said:
The statement [(ie the allegation of fraud)] must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact ... The Court will exercise its discretion, not merely as to the terms in which the allegation is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications.[29]
102 There is some debate as to whether direct evidence, as distinct from hearsay evidence, is necessary to exclude the protection of legal privilege under common law. In Commissioner of Australian Federal Police v Propend Finance Pty Ltd ('Propend'),[30] Brennan CJ, McHugh and Gummow JJ determined that the absence of admissible evidence would mean a claim for privilege is not displaced by the allegation of illegal or improper purpose;[31] Gaudron J held that inadmissible evidence would ordinarily be excluded, but hearsay evidence admitted for another purpose could be relied upon;[32] whereas Dawson J held that admissible evidence was not required and that hearsay evidence should not be excluded;[33] Toohey J held there was no reason for hearsay evidence to be excluded, but also observed that if there was nothing more than hearsay evidence, a court was unlikely to be persuaded to the requisite standard;[34] and Kirby J held that something more than mere assertion was required but that something less than full proof of illegality by admissible evidence is called for.[35] All of the judges emphasised that evidence beyond mere assertion is necessary.
103 In Roberts-Smith v Fairfax Media Publications Pty Ltd (No 32),[36] Abraham J held that '[t]o establish a prima facie case of fraud or other illegal purpose so as to displace a claim of privilege, it is necessary for the party seeking to do so, to rely on admissible evidence'.[37] Her Honour concluded that given there was no admissible evidence to found the claim of fraud, it was 'unnecessary (and inappropriate)' to consider whether the material relied upon gave rise to the inference contended for by the party resisting the privilege claim.[38]
104 In Carbotech-Australia Pty Ltd v Yates ('Carbotech'),[39] Brereton J considered the notion of communications being 'in furtherance of' the commission of a crime or fraud. In that case, the plaintiffs sought access to documents that had been produced to the Court in answer to subpoenas for production filed by two law firms.[40] The defendants opposed that access on the basis of client legal privilege. By contrast, the plaintiffs contended, among other things, that the documents were not privileged or, alternatively, the defendants were deprived of privilege because the crime or fraud exception applied.[41]
105 After deciding to approach the case on the basis that the common law test for legal privilege applies, his Honour was 'far from convinced that the provisions of the Evidence Act would result in any different outcome'.[42] In discussing the concept of a communication being 'in furtherance of' a crime or fraud, Brereton J cited the following passage from the judgment of Hodgson CJ in Equity in Watson v McLernon:[43]
[A] purpose of merely concealing previous dishonest conduct, and avoiding adverse consequences, such as penalties or claims for damages, which could flow therefrom, would not amount to furtherance of the improper purpose. The policy of the law is to encourage people to get legal advice so that they can be aware of their rights in relation to such matters. However, if the person seeking advice proposes to continue the dishonest conduct, in this case to go on using the opportunities and information dishonestly acquired, in a business competing with the employer in such a way as would be likely to damage the employer, and proposes to use legal advice to assist in this purpose, then in my opinion that would be sufficient to amount to a furtherance of the improper purpose.[44]
In other words, if the client is obtaining legal advice in the context of an ongoing dishonest or fraudulent undertaking, so that the advice will or may impact upon or inform the client in the course of that undertaking, it will be regarded as being in furtherance of the improper purpose.[45]
In my opinion, there is no absolute rule that conduct occurring after a fraud, an offence or an act is completed cannot be held to be 'in furtherance of the commission' of the fraud, offence or act. Whether such conduct satisfies the expression, 'in furtherance of the commission' in s 125 will depend on the nature and purpose of the conduct.
The Shorter Oxford English Dictionary defines 'furtherance' as 'the fact of being helped forward; the action of helping forward; advancement, aid, assistance'. In my opinion, this definition provides a useful indication of conduct that may be held to be 'in furtherance of the commission' of a fraud, offence or act.
...
[T]he rationale of legal advice privilege is to enable clients to obtain advice from their lawyers to facilitate the organisation of their affairs within the law. Legal advice that is sought for the purpose of committing a fraud falls outside this rationale. In my opinion, so does legal advice that is sought about what positive steps can be taken to give continuing efficacy to the fraud, such as advice on positive steps to conceal the fraud or positive steps to place the relevant property beyond the reach of any court order that the victim may obtain. Advice about the taking of such steps can be described as advice prepared in furtherance of the commission of a fraud.
[A]dvice on the legal consequences of a past fraud, the legal remedies that may be invoked by the victim of the fraud and any legal defences that may be available in respect of any claim by the victim would not be in furtherance of the commission of the fraud.[48]
108 After considering the parties' submissions and inspecting the relevant documents in dispute, Kyrou J ultimately determined that legal privilege did not attach to the documents in question by virtue of s 125 of the Evidence Act because the documents were prima facie prepared in furtherance of the commission of a fraud and serious breaches of the Corporations Act.[49]
109 It has been held that a letter from a solicitor to their client advising that certain conduct could lead to a prosecution falls outside the crime or fraud exception.[50] Similarly, advice as to how a client might order their affairs so as to not do something prohibited by statute would not be in furtherance of a crime or fraud.[51]
110 Lastly, it is important to observe that for a document or communication to be in 'furtherance of' a crime or fraud, it is insufficient that the document or communication itself is evidence of the crime or fraud or merely relevant to it.[52] Rather, the document or communication must be connected to the crime or fraud 'in the sense of helping it, advancing it or assisting it'.[53]
Sections 251A and 1307(1) of the Corporations Act
Operation of s 251A
111 Section 251A of the Corporations Act, which concerns the requirements for minutes of, among other things, directors' meetings, relevantly provides:
(1) A company must keep minute books in which it records within 1 month:
(a) proceedings and resolutions of meetings of the company's members; and
(b) proceedings and resolution of directors' meetings (including meetings of a committee of directors); and
...
(d) resolutions passed by directors without a meeting; and
...
(2) The company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following:
(a) the chair of the meeting;
(b) the chair of the next meeting.
...
(a) its registered office; or
(b) its principal place of business in this jurisdiction;
...
(5A) An offence based on subsection (1), (2) ... or (5) is an offence of strict liability.
(6) A minute that it so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved.[54]
112 It is noteworthy that s 251A does not refer to draft minutes of meetings, but only concerns the retention of signed minutes of meetings by a company. Further, by virtue of s 251A(6), a minute of meeting recorded and signed in accordance with the requirements of s 251A is taken to be evidence of the proceeding or resolution to which it relates, unless that presumption is rebutted by evidence to the contrary. Whether the contrary is proved is judged on the whole of the evidence and if the evidence establishes that an event recorded in a minute did not occur, the fact of its recording in the minute has no effect.[55]
113 In Australian Securities and Investments Commission v Hellicar ('Hellicar'),[56] the regulator sought to appeal the New South Wales Court of Appeal's decision (which overturned the first instance decision of Gzell J in Australian Securities and Investments Commission v MacDonald[57]) and to uphold declarations of contravention, pecuniary penalty orders, and disqualification orders against certain directors of a publicly listed company on the basis that they had breached their duties as directors or officers. ASIC alleged, and the directors denied, that the directors had approved the release of a misleading announcement to the Australian Stock Exchange ('ASX') by the relevant company. There were minutes of a board meeting that recorded the tabling of the draft ASX announcement and its approval by the board. Those minutes were confirmed at a subsequent board meeting. The directors contended that the minutes were false and contained an inaccurate record of what occurred at the meeting. They argued that they had not approved the draft ASX announcement. The High Court held that the directors' allegations of falsity of the minutes were required to be assessed in light of the relevant statutory provisions of the Corporations Act, including s 251A.[58] Ultimately, the minutes were not shown to have falsely recorded that the draft ASX announcement was tabled and approved.[59] As a document created and adopted close in time to the events in question, the board minutes were held to be a formal record (and adopted by the board as a correct record) of what had occurred at the meeting and evidenced the truth of the matters recorded, namely the tabling of a draft ASX announcement.[60] Whilst the minutes were inaccurate in several respects and did not accurately record what had transpired at the meeting,[61] such inaccuracies did not counter the probative value of the minutes as a contemporaneous and formally adopted record of what was done at the relevant meeting.[62] Further, the matters upon which the respondents relied as founding an inference or demonstrating that the minutes were false, were not inconsistent with the minutes being accurate.[63]
Operation of s 1307(1)
114 Section 1307(1) of the Corporations Act provides:[64]
An officer, former officer, former employee, member or former member of a company who engages in conduct that results in the concealment, destruction, mutilation or falsification of any securities of or belonging to the company or any books affecting or relating to affairs of the company is guilty of an offence.
115 The term 'books' finds definition in s 9 of the Corporations Act and includes a register, any other record of information, and a document. The word, 'document', in turn, means any record of information and includes anything on which there is writing. Sections 9 and 53 of the Corporations Act define a company's 'affairs' extremely broadly to include, among other things: the promotion, formation, membership, control, business, trading, transactions and dealings of the company, and the internal management and proceedings of the company.
116 In Roach v The Queen ('Roach'),[65] the New South Wales Court of Criminal Appeal discussed the purpose and scope of s 1307(1). That case involved an appeal against conviction and leave to appeal against sentence for counts concerning conduct resulting in the falsification of books affecting or relating to the affairs of a publicly listed company, Healthzone Limited ('Healthzone'). On 10 or 11 May 2011,[66] the Healthzone board had met in Shanghai and approved a $1 million loan to the applicant for the specific purpose of increasing his shareholding in the company. However, the funds were ultimately advanced to the applicant for a different purpose, namely to repay a $900,000 debt owed by the applicant. The Crown submitted that the falsified board minutes, along with other falsified documents, gave the false impression that a bank had agreed to give the applicant a personal loan of $1 million and that the board had resolved to approve that arrangement. One of the issues on appeal was whether certain documents, including minutes of a directors' meeting, were 'books' for the purposes of s 1307(1).
117 Count 9 (the relevant count for present purposes) was expressed in this way:
Between about 10 May 2011 and about 12 May 2011, in China, and elsewhere, the applicant being an officer, namely a director, executive chairman and chief executive officer of Healthzone Ltd, engaged in conduct that resulted in the falsification of books relating to the affairs of Healthzone Ltd.
Particulars
Peter Roach altered the Healthzone Ltd board minutes dated 10 May 2011 which resulted in a false book, being purported Healthzone Ltd board minutes dated 2 May 2011, that Peter Roach emailed to Mary Ann Harper on 12 May 2011 at 9:46 + 1000 as an attachment contrary to s 1307(1) and s 1311(1) Corporations Act 2001 (Cth) (Law Part Code: 44331).
118 A marked-up copy of the relevant minutes, which identify the alterations made by the applicant, are attached to the Court's judgment. The applicant had back-dated the date of the minutes and the date of the meeting to 2 May 2011. He had also changed the description of the financial assistance received, including by deleting reference to the loan agreement.
119 The Court (comprising Bathurst CJ, Bell P and Johnson J) dismissed both the appeal against conviction and leave to appeal against sentence, holding:[67]
[I]t does not necessarily follow that the falsification of any document which considers or refers to the affairs of the company will be a document relating to the affairs of the company within the meaning of s 1307. Section 1307 falls within Pt 9.3 which deals with books of the company. The purpose of the division is to make books that are required by the Corporations Act to be kept by the company readily available and available for inspection (s 1300 - s 1304), to provide that the books kept by the company are admissible in evidence (s 1305), to preserve the safety and physical integrity of books required to be kept by the company (s 1306(3)) and to prohibit falsification of books affecting or relating to affairs of the company (s 1307).
It follows from the context in which the provision appears that although s 1307 in its terms extends beyond books which are required to be kept by the Corporations Act, the section, in our opinion, is limited to books forming part of the records of the company or any securities ... belonging to the company, and there must be a connection between those books and the company's affairs.
The falsification of a record required to be kept by the company relating to its affairs would clearly fall within the section, whilst falsification of correspondence between the company and third parties would not do so unless it affected or related to the affairs of the company as defined. ... Further, the falsification of the minutes the subject of Count 9 is a falsification of a document required to be kept by the company by virtue of s 251A of the Corporations Act and made available to members by virtue of s 251B. It **clearly falls within s 130**7.
120 There is some dispute between the parties about the application of Roach to the facts of the present case. That is a matter to which I will return.
Physical element of s 1307(1) and meaning of falsification
121 By virtue of s 1308A of the Corporations Act, Chapter 2 of the Schedule to the Criminal Code Act 1995 (Cth) ('Criminal Code') applies to the offence found in s 1307(1) of the Corporations Act. Chapter 2 of the Criminal Code concerns the general principles of criminal responsibility for Commonwealth offences, irrespective of how the offence is created. Section 3.1 of the Criminal Code confirms that an offence consists of physical and fault elements. According to s 4.1, the physical element may be conduct; a result of conduct; or a circumstance in which conduct, or a result of conduct, occurs. The term 'engage in conduct', which appears in s 1307(1) of the Corporations Act, is defined by s 4.1 of the Criminal Code to mean 'do an act' or 'omit to perform an act'. The physical element of s 1307(1) of the Corporations Act is therefore to engage in conduct that produces a particular result;[68] namely, the falsification of a book affecting or relating to the affairs of a company.
122 The concept of falsification has been discussed in numerous authorities. In R v Webber ('R v Webber'),[69] for example, the New South Wales Criminal Court of Appeal considered the meaning of the word 'falsifies' in the context of s 158 of the Crimes Act 1900 (NSW), which essentially provided that a clerk or servant who 'destroys, alters, mutilates or falsifies' any document belonging to his employer with intent to defraud is guilty of an offence. In that case, the appellant was indicted in the New South Wales District Court on charges under s 158 for falsifying a requisition supporting and authorising the issuing of a cheque with intent to defraud. In dismissing an appeal against conviction, Lee J (with whom Carruthers and Grove JJ agreed) expressed the view that there was no reason why the word 'falsifies', as it appeared in s 158, should not be given 'its entire meaning of making false in any way'.[70] His Honour embraced the dictionary definition of 'falsifies' found in the Shorter Oxford English Dictionary, which included 'both making false or incorrect, and declaring or proving to be false'.[71] Further, his Honour held that the concept of alteration was subsumed within the first part of the definition.[72]
123 In Dempster v National Companies and Securities Commission ('Dempster'),[73] the Full Court of the Supreme Court of Western Australia considered the meaning of 'falsify'[74] under s 5601(1) of the now repealed Companies (Western Australia) Code,[75] which was in similar, but not identical, terms to s 1307(1) of the Corporations Act. Chief Justice Malcolm (with whom Walsh and Anderson JJ agreed) held:
The ordinary meaning of "falsifies" according to the Shorter Oxford Dictionary is "The action of making something false ... ; fraudulent alteration". The word "falsify" means "To make false or incorrect ... ; counterfeit ... " Thus, the creation of a new document such as a cheque by forging a signature involves making something false, as does the making of a counterfeit banknote ... In my opinion, "falsifies" in s 560(1) simply means "make false" and does not require an alteration to a previously existing document: see R v Webber (1988) 15 NSWLR 49.[76]
124 The case of Dutton v O'Shane[77] dealt with the concept of falsification in the context of an application for review of orders made by a magistrate under s 21 of the Extradition Act 1988 (Cth). The applicant was alleged to have committed various offences in South Africa, mostly relating to the making of fraudulent misrepresentations in connection with the purchase of foreign currency under foreign exchange laws then in force in that country. Justice James found that had the alleged conduct taken place in New South Wales, it would have constituted extradition offences under s 1307 of the Corporations Act.[78] In doing so, James J adopted the wide meaning of 'falsifies' referred to in R v Webber and Dempster, which includes 'the making of a document which contained particulars which are false and is not limited to the altering of a document so that the particulars in the document become false'.[79]
125 The definition of 'falsifies' referred to in the above cases inevitably leads to the question of what makes a document false. To be false, a document will not simply contain material untruths; it must purport to be something that it is not.[80]
Mental element of s 1307(1)
126 Section 1307(1) of the Corporations Act does not specify a mental or fault element for the offence. By virtue of s 1308A of the Corporations Act, Chapter 2 of the Schedule to the Criminal Code applies to the offence. That chapter sets out the general principles of criminal responsibility under Commonwealth laws that apply to any offence, irrespective of how the offence is created. Section 5.6 of the Criminal Code provides for the requisite fault elements for offences that are silent about the fault element required. The provision says:
(1) If the law creating the offence does not specify a fault element for a physical element that consists only of conduct, intention is the fault element for that physical element.
(2) If the law creating the offence does not specify a fault element for a physical element that consists of a circumstance or a result, recklessness is the fault element for that physical element.
Note: Under subsection 5.4(4), recklessness can be established by proving intention, knowledge or recklessness.
(1) A person has intention with respect to conduct if he or she means to engage in that conduct.
(2) A person has intention with respect to a circumstance if he or she believes that it exists or will exist.
(3) A person has intention with respect to a result if he or she means to bring it about or is aware that it will occur in the ordinary course of events.
128 Conversely, s 5.4 of the Criminal Code relevantly provides:
(1) A person is reckless with respect to a circumstance if:
(a) he or she is aware of a substantial risk that the circumstance exists or will exist; and
(b) having regard to the circumstances known to him or her, it is unjustifiable to take the risk.
(2) A person is reckless with respect to a result if:
(a) he or she is aware of a substantial risk that the result will occur; and
(b) having regard to the circumstances known to him or her, it is unjustifiable to take the risk.
(3) The question whether taking a risk is unjustifiable is one of fact.
(4) If recklessness is a fault element for a physical element of an offence, proof of intention, knowledge or recklessness will satisfy that fault element.
129 The plaintiff contended that Mr Walker and Mr Larsen 'intentionally caused minutes to be amended in a manner they knew to be false'. In doing so, he made a number of allegations of 'knowing falsification' (which I will examine shortly). This would suggest a reliance on intention as the fault element for s 1307(1) of the Corporations Act, pursuant to s 5.6(1) of the Criminal Code. By contrast, the defendants suggested that given the 'result' contemplated by s 1307(1) is falsification of a book affecting or relating to the affairs of a company, then pursuant to s 5.6(2) of the Criminal Code, recklessness is the applicable test, as set out in s 5.4.
130 The case of Gregg v The Queen[81] involved an appeal against conviction of the Chief Financial Officer of Leighton Holdings Limited ('LHL') for offences contrary to s 1307(1) of the Corporations Act. The first count related to a payment instruction given by the appellant to the LHL treasury, authorising a payment of $15 million to another company. It was alleged that the payment was not made for the stated purposes (for advertising and advisory services and a loan). The second count related to a 'buy and sell agreement', which was alleged to be a sham agreement. The New South Wales Court of Criminal Appeal ultimately allowed the appeal, quashing the verdicts of guilty and entering verdicts of acquittal. In doing so, Bathurst CJ (with whom Hoeben CJ at CL and Leeming JA agreed) confirmed that the requisite mental element for an offence under s 1307(1) of the Corporations Act is recklessness,[82] specifically noting the operation of ss 5.6(2) and 5.4 of the Criminal Code, including s 5.4(4), which states that recklessness will be satisfied by proof of intention, knowledge or recklessness. His Honour also held that, in the particular case, it would have been open for the jury to conclude the appellant was reckless rather than dishonest.[83] His Honour did not take issue with a direction given by the trial judge to the jury on the question of recklessness, which focused on the appellant's state of mind and the manner in which the Crown sought to prove his state of mind, having regard to the expansive definition of recklessness found in s 5.4 of the Criminal Code.[84]
131 For the sake of completeness, I note that in accordance with s 1311 of the Corporations Act, a person who contravenes s 1307(1) is guilty of an offence. Pursuant to s 1311E and Schedule 3 of the legislation, the maximum penalty for contravention of s 1307(1) is five years' imprisonment.
132 I will now set out, in some detail, the respective written and oral submissions of the parties in this application. The submissions were extensive and highly fact-specific. I have done my best to summarise them fairly, avoiding any repetition.
133 In his written submissions, the plaintiff relevantly contended that:
(a) at the April Board meeting, the directors resolved that Mr Selak was entitled to exercise 3.2 million options and acquire 3.2 million shares in National Tiles and if he did exercise his options, he would be required to enter into a shareholders' agreement;
(b) critically, the Board also made the Minority Protection Resolutions, which were recorded in the Draft April Minutes. This is supported by the April Board meeting file notes, which record: 'minority protections in the s/holders agreement';
(c) the Draft April Minutes were prepared by an external company secretary (Ms Weir) and approved as accurate by nearly every attendee of the April Board meeting, including Mr Larsen. However, Frank Walker, who had effective control over the corporate defendants falsely asserted that the minutes were inaccurate and proposed the alternative and false Revised April Minutes;
(d) following the April Board meeting, Frank Walker told Mr Selak he wanted him to resign from the Board. This was a departure from the earlier agreed October 2019 succession plan. Subsequently, on 8 May 2020, Mr Selak and Ms Morphet were removed as directors of National Tiles by shareholder resolution;
(e) in accordance with the Proposal, Frank Walker offered to appoint Mr Larsen as chairperson of the Board and to pay him an amount equal to his director's fees for the remainder of his life and if he predeceased his wife, for the remainder of her life. Accordingly, there is evidence that between mid‑April to mid-May 2020, Mr Walker offered to 'pay off' Mr Larsen. Although Mr Larsen signed a notice of resignation from the Board on 5 May 2020, he changed course, at least in part, to facilitate the falsification of the April Minutes;
(f) Frank Walker caused the April Minutes to be altered, such that the Minority Protection Resolutions were removed and the minutes falsely recorded that the Board had passed a resolution in accordance with the Revised April Minutes;
(g) despite being falsified, the April Minutes were approved as accurate at the May Board meeting and ratified at the August Board meeting. Mr Larsen signed the falsified April Minutes, notwithstanding his earlier approval of the Draft April Minutes;
(h) in July and August 2020, Ms Morphet and Mr Selak alleged the April Minutes had been falsified;
(i) prior to the above events, Frank Walker had sought to control the closing out of the ESOP and to frustrate the process of valuation of the Company's shares. To consolidate his control over National Tiles, Mr Walker appointed his wife and daughter as directors. He otherwise sought to control the valuation process following receipt of the PwCS draft report, including by making false allegations against PwCS and, without a proper basis, threatening to take legal action against it;
(j) the offence on which the plaintiff relies for his privilege challenge is s 1307(1) of the Corporations Act. The falsification of minutes clearly falls within s 1307(1).[85] When Mr Walker caused the April Minutes to be altered, including by the Proposal, he engaged in conduct that resulted in the falsification of the Company's books. Likewise, when Mr Larsen signed the falsified minutes, he engaged in conduct that resulted in the falsification of the Company's books;
(k) legal advice was given in furtherance of this offence. There are also reasonable grounds to find that Mr Walker sought and obtained advice on how to conceal his offending. By way of example:
(i) from about April to August 2020, the defendants obtained legal advice from both PwC and HSF;
(ii) advice was also given in relation to matters raised by Ms Morphet and Mr Selak. At least insofar as such advice post-dates 24 July 2020 (being the date of the 24 July Morphet email containing allegations of falsification), the advice relates to the falsification of the April Minutes;
(iii) the form of resolution contained in the April Minutes was first proposed by Frank Walker on 7 May 2020 (in the Revised April Minutes) on advice from HSF;
(iv) a solicitor from HSF attended the May Board meeting, at which the April Minutes were confirmed by the Board to be 'a true and correct record of that meeting'. This confirmation was in furtherance of the initial offence and may, in and of itself, be an offence against s 1307(1) of the legislation. Similarly, at the August Board meeting, the Board 'ratified' the April Minutes, which was in furtherance of the initial offence in the relevant sense and may, in and of itself, be an offence against s 1307(1); and
(l) insofar as advice was given concerning, justifying, approving, confirming, or ratifying the falsified April Minutes, or about concealing the wrongdoing, no privilege can attach to such advice because it was made in furtherance of the falsification of the April Minutes. The opposed documents therefore cannot be privileged because they are captured by the crime or fraud exception.
134 The plaintiff's written submissions also engaged with the descriptions of the opposed documents as outlined in the privilege schedules. The plaintiff contended there are reasonable grounds to find that a number of the opposed documents relate to, at least in part, an attempt to justify the falsification of the April Minutes. The plaintiff asked the Court to inspect the opposed documents because of an asserted 'information asymmetry' between the parties.
135 By way of overview, in their written submissions, the defendants relevantly argued as follows:
(a) to establish the crime or fraud exception to the defendants' privilege claims, the plaintiff has made serious allegations against two directors of National Tiles, namely Frank Walker and Greg Larsen. The plaintiff alleges that they falsified minutes of a Board meeting in contravention of s 1307(1) of the Corporations Act. However, his allegations are made without any support in the authorities and they are inconsistent with statutory provisions about the preparation and retention of board minutes;
(b) prior to the April Board meeting, the Sample Resolution was circulated by Mr Brown of PwC to Mr Herrick and Ms Morphet at Ms Morphet's request. All directors of National Tiles were in attendance at the April Board meeting, along with Ms Weir, Mr Herrick, and Mr Brown of PwC, together with Mr Emms and Mr Smythe of PwCS. The only issue in dispute arising from the April Board meeting is whether the Board voted in favour of the Minority Protection Resolutions, which were included in the Draft April Minutes or, alternatively, whether the Board approved a resolution in the form of the Revised April Minutes;
(c) Mr Herrick has instructed Mr Holloway that the April Board meeting file notes do not record the directors resolving to include the Minority Protection Resolutions. His recollection was that the Board did not resolve to include them;
(d) plainly, it was in the interests of Ms Morphet and Mr Selak, as the potential minority shareholders, that the Minority Protection Resolutions were passed;
(e) on 1 May 2020, the day that Mr Walker was first provided with a copy of the Draft April Minutes, Mr Walker told Ms Weir that the minutes did not reflect his recollection of the resolution about the shareholders' agreement. He instructed Ms Weir to await his written account of what was resolved at the meeting. That account was provided in the form of the Revised April Minutes. Ms Weir, as the independent minute taker, confirmed that the Revised April Minutes were 'in line with her recollection (albeit a shorter version)';
(f) at the May Board Meeting, the Board, which then comprised Frank Walker, Greg Larsen, Rhonda Walker, Nick Walker and Georgie Bell (following the removal of Ms Morphet and Mr Selak from the Board on 8 May 2020, in accordance with a shareholder resolution), resolved to accept Mr Larsen's withdrawal of resignation and appointed him as chairperson. Critically, the Board also confirmed the April Minutes and authorised Mr Larsen to sign them;
(g) the National Tiles Memorandum of Association, which accords with s 251A(2) of the Corporations Act, permits minutes of meetings of the directors to be signed by the chair of that meeting or the chair of the next meeting;
(h) section 1307(1) of the Corporations Act applies to books forming part of the records of a company, where there is a connection between those books and the affairs of the company.[86] This relevantly includes minutes required to be kept by virtue of s 251A of the legislation. Accordingly, the nature of the obligations under s 251A must be very carefully evaluated to determine how conduct relating to minutes might constitute a contravention of s 1307(1). It is relevant that s 251A does not contain any obligation regarding the preparation or retention of drafts of minutes. It is also noteworthy that s 251A(6) reflects that it is not uncommon to have an issue in proceedings about the accuracy of minutes of meetings. The provision does not deal with the consequences of any inaccuracy, nor does it envisage that persons responsible for preparing or signing inaccurate minutes are committing a criminal offence;
(i) there is no support in the case law for the proposition that the inaccuracy of minutes, or different versions as to what occurred at a meeting, necessarily results in the minutes having been falsified in contravention of s 1307(1). In ET‑China.com International Holdings Ltd v Cheung ('ET-China'),[87] it was argued before the New South Wales Court of Appeal that the trial judge had erred in finding that a version of the board minutes of a company, which had been signed, was an accurate record of what had occurred at the relevant meeting. The appellant contended that the trial judge ought to have found that a different version of the minutes accurately reflected what had transpired at the meeting. President Bell (as his Honour then was) (with whom Bathurst CJ and Leeming JA agreed) made the following observations:
It is not unknown, still less uncommon, for disputes to arise as to what may have been said at meetings of boards of companies: see, for example, Equity Nominees Ltd v Tucker (1967) 116 CLR 518; [1967] HCA 22 at 524-525; ASIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [111]- [122]; Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 56 SASR 455 at 469-473; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2385]-[2402]; Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 567 at 581; ASIC v Loiterton [2004] NSWSC 172 at [115]- [120]; Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716 at [102]- [115]; Jarrett v Perpetual Trustee Co Ltd [2007] NSWSC 1231; (2007) 64 ACSR 552 at [75]- [85]; ASIC v Rich (2009) 236 FLR 1; [2009] NSWSC 1229; ASIC v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098; ASIC v Macks (No 4) [2020] SASC 209 at [570]‑[575]; Mirvac (WA) Pty Ltd v Binningup Nominees Pty Ltd [2020] WASC 28 at [234]- [248]. Sometimes, the differences may be substantial; sometimes, they may go to matters of emphasis or the extent of detail recorded about particular issues discussed. The mere fact that there may be competing versions of minutes does not mean, moreover, that one of the different versions is necessarily false: recollections of events may differ. Obviously it is desirable that directors reach accord as to the accuracy of minutes but that may not always be possible.[88]
(j) none of the decisions referred to by Bell P in ET-China, as examples of disputes about events at board meetings, considered or suggested that where minutes did not reflect events, those minutes were, or might have been, falsified in contravention of s 1307(1) of the Corporations Act;
(k) whilst the plaintiff relies upon the authority of Roach in support of his allegations that Mr Walker and Mr Larsen contravened s 1307(1) by their conduct relating to the minutes of the April Board meeting, that decision concerned the creation of an entirely false document, which purported to be the minutes of a meeting of directors held on 2 May 2011, in circumstances where no such meeting had occurred;[89]
(l) the plaintiff's allegations are essentially that Frank Walker intentionally caused amendments to the Draft April Minutes to include a resolution that had not in fact been approved by the Board; and that Greg Larsen, in his capacity as chair, had signed the minutes containing that resolution. However, those allegations are not established on the evidence. Rather, on a fair reading of the evidence, the directors simply had different recollections of the resolution in question. No contravention of s 1307(1) can be established in the circumstances. The authorities are clear that competing versions of what occurred at a meeting of directors does not mean the minutes are false. The fact that a director disagrees with draft minutes, and then proposes amendments to reflect his or her recollection, cannot mean that the director's conduct constitutes an offence. If that were so, it would have serious ramifications for the proper functioning of meetings of boards of directors; and
(m) the Court ought to grant the relief sought by the defendants in their summons dated 7 July 2022. Whilst it is unnecessary for the Court to inspect the opposed documents, the defendants do not resist the Court doing so. They submit that such inspection will confirm that there are no reasonable grounds for finding the communications were in furtherance of the commission of the offence alleged.
136 By way of written submissions in reply, the plaintiff squarely alleged that Frank Walker and Greg Larsen intentionally caused minutes to be amended in a manner they knew to be false. In particular, and drawing on the pleadings,[90] the plaintiff alleged (and the defendants have either denied or do not admit) that:
(a) Mr Walker falsely asserted that the Draft April Minutes did not reflect his understanding of the shareholder resolution that had been passed. This was plainly an allegation by Mr Walker that the amendment did not reflect his genuine recollection. It also puts in issue Mr Walker's knowledge and intention;
(b) Mr Walker caused the Draft April Minutes to be altered, so that the resolutions actually passed were removed and the minutes falsely recorded that a different resolution was passed;
(c) Mr Walker made the Proposal to Mr Larsen. After accepting the Proposal, Mr Larsen signed the falsified minutes. The Proposal, which was dishonest conduct, is simply 'not admitted' in the defence. For the purpose of the present application, the only inference open to the Court is that Mr Walker offered to pay off Mr Larsen and Mr Larsen agreed; and
(d) at the May Board meeting, the directors authorised Mr Larsen to sign falsified minutes, which he had already done prior to the meeting.
137 It is said the above matters sufficiently establish that the April Minutes were inaccurately made and that s 1307(1) of the Corporations Act has been contravened.
138 The plaintiff submitted that whilst the defendants say it was in the interests of Ms Morphet and Mr Selak (as potential minority shareholders) that the Minority Protection Resolutions were passed, it was also plainly in the interests of Mr Walker (and his various family members), who, as a matter of commercial reality, was the potential majority shareholder, that those resolutions were not passed. Similarly, Mr Larsen changed his position on the Draft April Minutes after he had accepted the Proposal. Mr Walker and his family members, and Mr Larsen, who was the subject of the Proposal, are the Board members who attended the May Board meeting and verified that the April Minutes were accurate. By that time, Ms Morphet and Mr Selak had been removed from the Board by shareholder resolution. Whilst the minutes of the February Board meeting record Mr Walker confirming that his wife and daughter would remove themselves from any future voting requirement regarding the ESOP, the evidence is unclear whether this occurred at the May Board meeting.
139 The plaintiff notes that the role of Ms Weir was to accurately record what was said at the meetings of the Board. The Draft April Minutes that she circulated record the Minority Protection Resolutions as having been passed. Although she did not positively state that the Draft April Minutes were incorrect, she said that the proposed new resolution contained in the Revised April Minutes was a shorter version. It is said that the resolution contained in the Revised April Minutes is clearly shorter than the resolution contained in the Draft April Minutes because the critical reference to protection for minority shareholders was removed. Further, Ms Weir's qualified acceptance of the alteration of the resolution was on the basis that the directors agreed to such a change.
140 As noted earlier, when the application was heard, the parties were jointly of the view that the correct approach was to consider the plaintiff's challenge to the opposed documents in accordance with common law principles.
141 The principal arguments advanced by the parties at the hearing are set out in summary form below. I will avoid restating any points already made by the parties in their respective written submissions. At the hearing, Mr Kozminsky appeared with Ms Mintz for the plaintiff, and Mr Solomon KC appeared with Ms Folie on behalf of the defendants.
142 Mr Kozminsky confirmed at the outset that, but for the crime or fraud exception, legal privilege arising under common law would attach to the documents referred to in the privilege schedules.
143 He contended that Mr Walker had garnered the support of Mr Larsen by offering to pay him director's fees in perpetuity, in accordance with the Proposal, which was said to be 'inexplicable on any rational commercial basis'. Following his acceptance of the Proposal, and despite his earlier approval of the Draft April Minutes, Mr Walker signed what the plaintiff alleges are falsified minutes. Because the falsification of minutes is an offence, any advice obtained in furtherance of that offending cannot be privileged.
144 Counsel clarified that for the plaintiff to succeed in his case that privilege does not attach to the opposed documents, it was not necessary for the Court to make any findings against legal practitioners. He also contended that the present application largely turns on the facts of the case (which I have already set out in considerable detail above).
145 After production of the PwCS draft report, it became clear that many, if not all, of the options held by Ms Morphet and Mr Selak would vest, subject to the execution of a shareholders' agreement. The plaintiff submitted that, at this point, Mr Walker revealed his true position: he did not want any minority shareholders in National Tiles.
146 The plaintiff also identified key differences between the Sample Resolutions, the Draft April Minutes, and the April Minutes (which are said to be finalised). Attention was drawn to the fact that the Draft April Minutes were reviewed by Nick Walker, Mr Herrick, and Ms Morphet, before being circulated to the broader Board for approval. Mr Selak and Mr Larsen each confirmed the Draft April Minutes by reply email. It was suggested that Mr Larsen's confirmation was likely given prior to the Proposal being put to him by Mr Walker.
147 It was submitted that the Court ought to give weight, as a contemporaneous document, to the April Board meeting file notes taken by Mr Herrick, which record, among other things, 'minority protections in the s/holders agreement', rather than hearsay evidence that is inconsistent with the contemporaneous documents and which cannot be tested. The hearsay evidence before the Court concerning what occurred at the April Board meeting came from Mr Herrick, Ms Morphet, and Mr Selak. It was said that Mr Herrick's hearsay evidence of his recollection of events did not explain his involvement in reviewing and marking up the Draft April Minutes.
148 The plaintiff made various additional submissions in relation to the Proposal, including that:
(a) in the 26 May Larsen email to Mr Walker, Mr Larsen refers to discussions between the parties since 15 April 2020 and the 'unexpected offer' he received from Mr Walker concerning an annual retainer. Neither Mr Selak nor Ms Morphet knew about this separate undertaking to Mr Larsen;
(b) the 26 May Larsen email recorded discussions that actually took place between Mr Walker and Mr Larsen; and
(c) in answer to a question from the bench, counsel conceded it was unclear from the 26 May Larsen email when precisely the Proposal was put to Mr Larsen. Counsel accepted that, for various reasons, there was a level of ambiguity about the email, including that it was sent on 26 May 2020, but purported to describe events that had occurred from the middle of April 2020 through to a conversation in late April 2020. Counsel also submitted that 'it is not clear the precise timing of things and precisely what's going on', but that it was clear from the 26 May Larsen email that the Proposal was put to Mr Larsen.
149 Counsel for the plaintiff sought to extrapolate certain matters from the Larsen handwritten note of 5 May 2020. Although it is unclear precisely what has been recorded, the note mentions Nick Wormald of HSF in connection with an apparent discussion about the ESOP. There is reference to what appears to be the expression, 'expose to inequity'. The document makes apparent reference to the May Board meeting, at which the Board 'will adopt s/holder agreement'. It was also suggested that the document recorded the following words: 'NW - don't want to be forming a new - "sophisticated minority"'. It was submitted that the defendants have not put on any evidence to explain the Larsen handwritten note, but the document itself gives the Court insight into what was 'really going on' at National Tiles.
150 Attention was then drawn to the 7 May Walker email, containing Mr Walker's alternative version of the relevant resolution. It was noted that the email was sent to Mr Larsen, Mr Walker's son, daughter, and wife, but not the other directors. The email references advice received from Nick Wormald and Andrew Clyne of HSF and discussions with Nick Walker, Georgie Bell, and Rhonda Walker, all of whom apparently confirmed Mr Walker's recollection of what was resolved at the April Board meeting. It was argued that Mr Walker had proposed a new resolution in the 7 May Walker email, which did not correspond with the Sample Resolution, nor was it found in the Draft April Minutes circulated by Ms Weir. Moreover, Nick Walker had previously expressed satisfaction with the Draft April Minutes and his subsequent change in position is unexplained. After Ms Weir confirmed to Mr Larsen on 7 May 2020 that the resolution was 'in line with [her] recollection (albeit a shorter version)' and there were no issues as long as the rest of the Board were comfortable with the change, Mr Larsen, in his capacity as the new chair of the Company, decided it would not be necessary to recirculate the Revised April Minutes to the Board, but would instead include them in the papers for the May Board meeting. Mr Kozminsky contended that by this point, Mr Walker had already embarked upon the process of changing the April Minutes.
151 Mr Kozminsky then took the Court to the May Minutes, which he characterised as the 'main minutes'. It was noted that whilst the May Minutes record Mr Larsen as having resigned from the Board effective 23 April 2020, they do not mention the Proposal or why he withdrew his resignation.
152 In bringing together the relevant facts, Mr Kozminsky submitted there can be no doubt from the documents and available evidence that: Mr Walker first sought to prevent the options from vesting by challenging PwCS' valuation; he then proposed a new resolution around the time that he put the Proposal to Mr Larsen; and there is a file note that appears to refer to not wanting a new 'sophisticated minority'.
153 Ms Mintz then proceeded to comprehensively outline the relevant law as it pertains to the application. I have already set out the relevant statutory provisions and authorities. Relying on Carbotech, Ms Mintz said the Court can be satisfied to the requisite prima facie standard that Mr Walker was assisted by his lawyer's advice in preparing the (allegedly falsified) April Minutes, as well as the August Minutes, which are said to be false and to have perpetuated the offending by seeking to ratify the April Minutes.
154 Mr Kozminsky then referred to paragraph 32 of the plaintiff's further amended statement of claim dated 22 October 2021, where it is alleged that by sending the 1 May Walker email, Frank Walker falsely asserted that the Draft April Minutes did not reflect his understanding of the relevant resolution. The Proposal constituted direct evidence that Mr Walker had falsely asserted the Draft April Minutes to be wrong. Counsel emphasised that the present dispute is not about directors having genuine, but differing, recollections of events.
155 Relying upon Chong v CC Containers Pty Ltd,[91] Mr Kozminsky contended that where there is an allegation of fraud, direct evidence is typically lacking and so, ordinarily, the plaintiff will need to satisfy the Court that the inference sought to be drawn is one that arises from the established facts, on the balance of probabilities. However, in the present case, the threshold is a lower one.
156 The plaintiff argued that according to Roach, the falsification of minutes will clearly fall within s 1307(1) and therefore, the crime or fraud exception applies. Further, 'falsification' can include both rendering false an existing document and creating an entirely new, falsified document.[92] Both types of falsification are covered by s 1307(1). For the provision to only capture conduct that renders false existing documents and prohibits the creation of an entirely new false document would yield an absurd result. For present purposes, the alleged falsification of the April Minutes by Mr Walker was, plainly, in respect of books 'affecting or relating to' the affairs of National Tiles.
157 The Court queried the following reference in the plaintiff's written submissions in reply:
[I]f a contravention of s 1307 was not established (which is not the case), the common law principles might in any event be operative in the circumstances alleged. These matters need not be determined, because John Selak submits that both tests are clearly satisfied.
158 Mr Kozminsky argued that, in the alternative, the Court may be satisfied that there is a broader species of fraud contemplated by the authorities or an offence under s 1308 of the Corporations Act, which deals with false or misleading documents.
159 After outlining the plaintiff's position regarding the operation of s 1307(1), Mr Kozminsky made some global observations about the opposed documents in the privilege schedules (a more detailed exposition was contained in the plaintiff's written submissions). Mr Kozminsky submitted, among other things, that:
(a) the plaintiff challenged the privileged status of the opposed documents, effectively from the date of the April Board meeting (23 April 2020) until the date of the August Board meeting (19 August 2020);
(b) Mr Walker was assisted by his lawyers in preparing the allegedly fraudulent April Minutes, and the May and August Minutes, which themselves falsely record what had occurred in the April Board meeting (and, in the case of the August Minutes, sought to ratify them). Opposed documents recording such communications with HSF cannot be privileged; and
(c) similarly, opposed documents produced by Mr Larsen, the PwC entities, and HSF, which record communications concerning the allegations made by Ms Morphet about the falsification of the April Minutes, cannot be privileged because they were in furtherance of the falsification.
160 In oral submissions, Mr Solomon directed the Court's attention to the plaintiff's further amended statement of claim, particularly the allegations about the April Board meeting. Whilst the pleading refers to the April Minutes falsely recording the relevant resolution, Mr Solomon said he understood the plaintiff's case to be that 'an individual did something falsely'. He stated that there was a need to 'inject discipline' into the notion of falsity. Mr Solomon contended that, properly understood, the allegation of falsification only has relevance to the claim for exemplary or aggravated damages outlined in the further amended statement of claim. No freestanding declaration is sought about a contravention of s 1307(1) of the Corporations Act.
161 Mr Solomon doubted the plaintiff's case on the application was really about the alleged falsification of the April Minutes. Instead, properly characterised, the case must be about the alleged falsification of the May Minutes, which recorded the adoption of the April Minutes. Whilst s 1307(1) of the Corporations Act countenances the falsification of minutes of meetings of a company as a possible contravention of the provision, there is no possibility of contravening the provision in respect of draft documents. Further, the process prescribed by cl 62 of the National Tiles Memorandum of Association,[93] which requires that 'minutes shall be signed by the chairman of the meeting at which the proceedings were held or by the chairman of any succeeding meeting', was adhered to in respect of the April Minutes.
162 Five further contextual points were advanced by Mr Solomon. First, attention was drawn to the ESOP and the definition of 'Shareholders' Agreement', which speaks of a shareholders' agreement in terms approved by the majority shareholder at the time that it is entered. This means that the rights or interests conferred on Mr Selak and Ms Morphet when they accepted the offer letter in 2016 were dependent on a later shareholders' agreement, in terms approved by the majority shareholders.
163 Secondly, the allegation of falsification must be seen in the context of Mr Selak and Ms Morphet having a 'personal interest in the subject matter of the disputed resolution'. The resolution contained in the Draft April Minutes, which concerned minority shareholder protections, afforded them a benefit that was greater than any contractual right they obtained upon their acceptance of the offer letter in April 2016.
164 Thirdly, whatever transpired at the April Board meeting was capable of being varied at a subsequent Board meeting, including by the extinguishment of particular resolutions.
165 Fourthly, the plaintiff sought to infer from the Proposal that Mr Walker would pay Mr Larsen significant fees in consideration for Mr Larsen chairing the May Board meeting and adopting the April Minutes, notwithstanding his knowledge that they were false. However, the logic of that inference is flawed. That is because Mr Walker, through the various entities he controls, had the ability to control the composition of the Board, including the chairperson, and could therefore seek to change any resolutions passed at an earlier Board meeting, including the April Board meeting.
166 Fifthly, Mr Solomon contended that s 1307(1) of the Corporations Act is not enlivened because the alleged conduct of Mr Walker between meetings of the Board does not concern minutes of meetings. Further, the Draft April Minutes cannot be said to constitute a book so as to engage s 1307(1).
167 After setting out these contextual matters, Mr Solomon noted that the circumstances in which the Sample Resolution was prepared and Ms Morphet's involvement in that process are matters to be explored at trial. Again, it was observed that the Sample Resolution, which contemplated market standard minority protections, afforded Mr Selak and Ms Morphet greater benefits than under the ESOP and the offer letter. The Sample Resolution preferred the interests of two directors in their capacities as potential shareholders.
168 It was emphasised that within the first few hours of receiving the Draft April Minutes, Mr Walker said they were inaccurate. Conversely, Ms Morphet and Mr Selak have contended the Draft April Minutes represent what was resolved at the April Board meeting. Moreover, following circulation of Mr Walker's revised version of the relevant resolution, Ms Weir said it was 'in line' with her recollection. There is no suggestion that Ms Weir is partisan or in the defendants' camp. It was open for Ms Weir to be subpoenaed by the plaintiff to give evidence in the application, but this did not occur. In fact, the April Minutes record a total of 12 people who attended the meeting. Yet, the plaintiff, who is alleging fraud, has called none of them.
169 It was submitted that the Sample Resolution was not provided to the directors in advance of discussion at the meeting. Mr Solomon noted that the May Minutes record the attendance of Greg Larsen, Nick Walker, Georgie Bell, Frank Walker, and Rhonda Walker. All five directors confirmed the April Minutes to be true and correct and once signed, the April Minutes became part of the books of the Company. By contending that the April Minutes have been falsified, the plaintiff is effectively impugning the honesty of each of the five directors who approved those minutes at the May Board meeting, and who themselves attended the April Board meeting.
170 Mr Solomon took the Court to Roach and noted that it concerned the falsification of minutes already retained by the company in question[94]. The language of the relevant charge (count 9), and the discussion at [121]-[123] of the judgment, suggests there was a minute stored by Healthzone that had been altered. It was submitted that a strict application of the facts in Roach would entail the altering of minutes already in the register of books of a company, although it was conceded that this may be a narrow reading of the case. Counsel cautioned against using the terms 'books' and 'minutes' interchangeably when applying s 1307(1) as it may lead the Court to erroneously consider that draft documents, such as draft board minutes, would fall within the scope of the provision.
171 Drawing upon the remarks of Bell P in ET-China,[95] Mr Solomon noted that directors may not reach accord as to the accuracy of minutes. Accord may not be possible where, as in the present case, two directors sought to obtain shares in the Company as minorities, and where their version of the contested resolution would improve their positions in a way not countenanced by the offer letter and the ESOP.
172 The defendants strongly resisted the Court considering the application on an alternative basis to s 1307(1) of the Corporations Act. It was argued that the defendants met the case under s 1307(1) and not on the basis of some 'free formed application around criminality that's not [s 1307(1)]'.
173 Mr Solomon clarified that the defendants were agnostic as to whether the Court should inspect the opposed documents that are subject to privilege claims by the defendants. The defendants believed they could comfortably resist the crime or fraud exception without the need for inspection.
174 On the matter of Roach, Mr Kozminsky submitted that the relevant board meeting in that case occurred on 10 or 11 May 2011, whereas the altered minute was said to be emailed on 12 May 2011. He submitted it is improbable that the board minutes would have been ratified so quickly, especially given the company was publicly listed; it may therefore be inferred that the altered minute was a draft minute.
175 Finally, Mr Kozminsky clarified that in the event the plaintiff was wrong about the contravention of s 1307(1), his alternative argument relies on a contravention of s 1308(1) of the Corporations Act. That provision provides for the offence of false or misleading documents:
Fault-based offence
(1) A person commits an offence if:
(a) a document:
(i) is required under or for the purposes of this Act; or
(ii) is lodged with or submitted to ASIC or the Registrar; and
(b) the person:
(i) makes, or authorises the making of, a statement in the document; or
(ii) omits, or authorises the omission of, a matter or thing from the document; and
(c) the person knows that the document is materially false or misleading because of the statement or omission.
176 Having regard to the above matters, the following issues arise in assessing whether the crime or fraud exception applies to the defendants' claim for legal privilege over the opposed documents:
(a) whether there is a prima facie case of contravention of s 1307(1) of the Corporations Act? This, in turn, gives rise to the following subsidiary issues:
(i) is the plaintiff's allegation of contravention of s 1307(1) made in clear and definite terms?;
(ii) are the Draft April Minutes and the Revised April Minutes 'books affecting or relating to the affairs of the [C]ompany'?;
(iii) did Frank Walker falsely assert the Draft April Minutes were inaccurate and, relatedly, were the Revised April Minutes false?;
(iv) are the April Minutes false?;
(v) are the May and/or August Minutes false?;
(vi) did Frank Walker and/or Greg Larsen otherwise engage in conduct resulting in the falsification of any of the minutes referred to above?;
(vii) did Frank Walker and/or Greg Larsen know that any of the documents referred to above were false, or intend they be made false, or were they reckless that the documents were made false?;
(b) whether the plaintiff is entitled to argue that the crime or fraud exception applies on some alternative basis, including by reason of a prima facie contravention of s 1308(1) of the Corporations Act?;
(c) if yes to (b), is the crime or fraud exception prima facie made out on the alternative basis?; and
(d) if yes to (a), (b), or (c), were all or any of the opposed documents identified in the defendants' privilege schedules, communications made in furtherance of the commission of the alleged crime or fraud?
177 It is not in dispute that Mr Larsen and Mr Walker were both officers of National Tiles at the relevant time of the alleged offences under s 1307(1) of the Corporations Act. Further, I note, for completeness, that no direct allegation of falsification is made against any of the other directors comprising the Board in respect of any of the abovementioned documents. It is therefore unnecessary to consider whether, on a prima facie basis, they have engaged in any conduct that contravenes s 1307(1) of the statute.
Whether prima facie case of contravention of s 1307(1) of the Corporations Act?
Whether alleged contravention of s 1307(1) in clear and definite terms?
178 As is apparent from the authorities, for the crime or fraud exception to apply, more than mere assertion or allegation of fraud or impropriety is required and the assertion or allegation must be made in clear and definite terms.[96] Whilst the allegations of contravention of s 1307(1) are made directly against Frank Walker and Greg Larsen as the subjects of the alleged falsification, the plaintiff is less precise in identifying the object or objects of the falsification. In his written and oral submissions, the plaintiff variously suggested it was the Draft April Minutes, the Revised April Minutes, and the April Minutes that were falsified. For the purpose of the analysis which follows, I will proceed on the basis that all of these iterations of the April Minutes are alleged to be falsified. Further, whilst not being explicit, it appears that the plaintiff also seeks to impugn the May and August Minutes. The plaintiff suggests that by approving the April Minutes to be true and correct at the May Board Meeting, and ratifying them at the August Board meeting, the resulting May and August Minutes were in furtherance of the initial falsification and may themselves be the subject of an offence under s 1307(1).
179 I also observe that the plaintiff did not separately identify the evidence relied on to make out, on a prima facie basis, each of the physical and mental elements of the offence under s 1307(1).
180 Notwithstanding this lack of clarity, on balance, I accept that the plaintiff has made the assertions or allegations of falsification in sufficiently clear and definite terms. He has purported to set out in his pleadings and written submissions the facts, matters, and circumstances said to give rise to the conduct constituting the alleged falsification of the relevant minutes. Whether those facts, matters, or circumstances constitute the basis of a prima facie case of contravention of s 1307(1) is, of course, a separate inquiry.
Are the Draft April Minutes and the Revised April Minutes 'books affecting or relating to the affairs of the [C]ompany'?
181 As the New South Wales Court of Criminal Appeal confirmed in Roach, s 1307(1) of the Corporations Act is necessarily limited to books forming part of the records of a company where there is a connection between those books and the affairs of the company.[97] However, the Court also held it does not necessarily follow that the falsification of any document or record that considers or refers to the affairs of a company will be a book relating to the affairs of the company within the meaning of s 1307(1).[98] Plainly, board minutes are documents that relate to the affairs of a company because they record the resolutions of its directors and are essential to an understanding of its decision making and governance arrangements. They are also books required to be kept pursuant to s 251A of the Corporations Act. According to s 251A, only board minutes that have been approved by a company's board and signed in accordance with s 251A(2) form part of the books of the company that are required to be retained by s 251A(1). But s 251A does not create any legal requirement relating to the formulation and retention of draft minutes. Plainly, it does not pertain to draft minutes.
182 I accept the plaintiff's submission that the 'falsification' contemplated by s 1307(1) can include both the rendering false of an existing document and the creation of a distinctly new, falsified document.[99] To hold otherwise would unduly constrict s 1307(1) in its scope and undermine its legislative purpose in prohibiting the falsification of books affecting or relating to the affairs of a company. However, I do not accept the plaintiff's contention that, properly construed, Roach concerned the alteration of draft minutes. There are various indicators that tend against such a reading of the decision. In particular, it is unclear on the facts whether the relevant board meeting in Roach occurred on 10 or 11 May 2011, noting that the altered minutes were emailed by the appellant on 12 May 2011. In addition, the framing of the relevant count 9 suggests that the alteration was made to existing board minutes. The minutes, which were dated 10 May 2011, were altered and back-dated to 2 May 2011. This resulted in the creation of a 'false book', being the purported minutes dated 2 May 2011, in circumstances where no such meeting had occurred on that date. Nowhere in the decision does the Court characterise the falsified minutes as being in draft form at the time of the falsification. Moreover, the relevant conduct that resulted in the falsification occurred between 10 and 12 May 2011. It is therefore conceivable that the falsification occurred following the meeting on 10 May 2011 and after the minutes had already been formally approved. Accordingly, I do not consider that Roach concerned the falsification of draft board minutes in the context of s 1307(1).
183 When s 1307(1) is read contextually with s 251A of the legislation, it does not appear that s 1307(1) covers the falsification of draft minutes. Therefore, neither the Draft April Minutes nor the Revised April Minutes are 'a books affecting or relating to the affairs of the [C]ompany' for the purpose of s 1307(1) because they were not required to be retained under s 251A as a record of the Company.
184 However, this is not to say that the Draft April Minutes and the Revised April Minutes are irrelevant for the purposes of the present application. In determining whether there is a prima facie case of contravention of s 1307(1), both draft iterations may be considered as part of the overall conduct that produces the alleged falsification of books affecting or relating to the affairs of the Company, such books being the April, May, and August Minutes. The Court must consider whether those minutes are prima facie false for the purpose of s 1307(1) to support the application of the crime or fraud privilege exception.
Did Frank Walker falsely assert the Draft April Minutes were inaccurate and, relatedly, were the Revised April Minutes false?
185 As discussed, the plaintiff alleges that Frank Walker falsely asserted the Draft April Minutes were inaccurate and did not reflect his understanding or genuine recollection of the shareholder resolution that had been passed. He further alleges that Mr Walker caused the Draft April Minutes to be altered and proposed alternative and false minutes in their place, which were incorporated into the Revised April Minutes.
186 I understand that the plaintiff identifies the 1 May Walker email as recording Mr Walker's alleged false assertion that the Draft April Minutes did not reflect his understanding of events at the April Board meeting. When pressed at the hearing, counsel for the plaintiff referred to the totality of the facts relied on in the application as supporting a prima facie case that Mr Walker falsely asserted the Draft April Minutes were wrong. Those facts include the Proposal and the approval of the Draft April Minutes by everyone other than Mr Walker.
187 Further, I understand the plaintiff to be alleging that the substance of the alleged alternative and false minutes were proposed by Mr Walker in the 7 May Walker email and then incorporated by Ms Weir into the Revised April Minutes later that day, before being tabled at the May Board meeting. The Revised April Minutes were said to be false because they did not include the Minority Protection Resolutions, which appeared in the Draft April Minutes; but instead contained a different form of resolution that preferred the position of the majority shareholder in determining the terms of the shareholders' agreement.
188 For the following reasons, I do not consider that the plaintiff has established a prima facie case that: Frank Walker falsely asserted the Draft April Minutes were inaccurate and did not reflect his genuine understanding of what occurred at the April Board meeting; or he caused the Draft April Minutes to be altered and proposed alternative and false minutes in their place; or the resulting Revised April Minutes were false.
189 First, as observed by Bell P in ET-China, it is not uncommon for disagreements to arise about what was resolved at company board meetings.[100] The fact that there may be competing versions of minutes of meetings does not mean that one version is necessarily false - there may simply be a genuine difference in recollection as to what occurred at a particular meeting.[101] Further, the usual process for the preparation and approval of minutes of a company's board meeting contemplates the distinct possibility that board members may query the accuracy of draft minutes and seek their amendment or alteration prior to final approval. The learned author of Horsley's Meetings: Procedure, Law and Practice[102] provides an explanation of the conventional procedure, which may be relevantly summarised as follows:
(a) minutes should be drafted as soon as possible after the conclusion of the relevant meeting. At that stage, events are fresh in the mind of the secretary and chairperson, to whom the draft minutes should be submitted promptly for comment and approval;[103]
(b) it is desirable that the draft minutes be promptly circulated after the board meeting to every director. Circulation should occur without delay after the chairperson has approved the secretary's draft. The minutes can then be studied at the directors' individual convenience while the proceedings are fresh in their mind. Any serious query as to accuracy is likely to be brought to the secretary's attention at that time;[104]
(c) a director who believes that the draft minutes do not constitute an accurate record should say so immediately, stating clearly how they believe the particular minute should read. In principle, the director should move an amendment that, before being signed, the draft minutes be altered along specific lines. If the meeting agrees that the draft minutes are not accurate, an alteration should be made by the chairperson;[105]
(d) where the minutes have been circulated after a meeting, at the commencement of the following meeting, the minutes can be 'taken as read' with confidence, and the procedure to verify and sign them can be carried out in a responsible way, but swiftly. Any lapses in accuracy may have already been brought to the chairperson's attention and alterations can be agreed to and made promptly;[106]
(e) where the meeting is in accord that the minutes (as amended, if necessary) constitute a correct record, it signifies assent, and the chairperson then signs the minutes;[107] and
(f) once signed, the minutes must not be altered.[108]
190 Secondly, in the present application, there is a distinct absence of direct evidence as to what transpired at the April Board meeting. The parties have forensically determined not to lead such evidence, presumably to avoid the prospect of cross‑examination of key witnesses prior to the trial of the proceeding. Nor have they subpoenaed any other persons who attended the April Board meeting, such as Ms Weir. Instead, the Court is presented with hearsay evidence in the form of solicitors' affidavits, of Ms Whiting and Mr Holloway, which depose to their respective instructions from Mr Selak and Ms Morphet on the one hand, and Mr Herrick on the other hand, of what was discussed and resolved at the April Board meeting. In addition to this hearsay evidence, the plaintiff relies upon circumstantial evidence to support proof of the allegations by inference.
191 Thirdly, there is no direct evidence that Mr Walker or any other member of the Board, aside from Ms Morphet, was specifically shown the Sample Resolution prepared by Mr Brown of PwC prior to the April Board meeting. I also note that it is unclear, on the present evidence, whether Ms Morphet specifically requested Mr Brown and PwC to prepare the Sample Resolution to contain minority protections or whether it was prepared by Mr Brown on his own initiative and sent to Ms Morphet in her then capacity as chair of the Board.
192 Fourthly, although the Draft April Minutes were sent by Ms Weir to Ms Morphet, Mr Herrick, and Mr Nick Walker for their review prior to the Draft April Minutes being circulated to the wider Board, there is no indication that Frank Walker was also provided an advance copy of the Draft April Minutes. What is clear is that within a few hours of receiving the Draft April Minutes from Ms Weir, Mr Walker emphatically stated in the 1 May Walker email that the minutes 'did not reflect [his] understanding of the shareholder agreement resolution as recorded' at the April Board meeting. The immediate and definitive nature of his response to first sighting the Draft April Minutes tends toward the conclusion that he genuinely held a different recollection of events at the April Board meeting. He foreshadowed he would provide his written account of what was resolved prior to adoption of that resolution.
193 In the 1 May Morphet email in response, Ms Morphet sought details of Mr Walker's recollections and said that any 'unresolved disagreement' should be mediated by the Company's lawyer. This suggests Ms Morphet contemplated that she and Mr Walker might not ultimately agree on what was resolved at the April Board meeting. It is notable that she did not suggest, at that time, that Mr Walker's recollection was false.
194 In the 7 May Walker email, Mr Walker then set out the form of resolution purportedly agreed by the Board at the April Board meeting. Ms Weir, an independent person, considered the change and confirmed 'it [was] in line with [her] recollection (albeit a shorter version)'. The actions of Mr Walker in openly asserting the Draft April Minutes to be inaccurate and proposing a differently worded resolution were not inconsistent with the conventional procedure for the preparation and approval of board minutes (as discussed above). It is not the case that Mr Walker previously approved the Draft April Minutes and then changed his position. He disputed the Draft April Minutes when first shown them and then pressed for their amendment.
195 Fifthly, the subject matter of the relevant resolution was one in which Mr Selak, Ms Morphet, and Mr Walker were all personally invested and held potentially opposing interests. The ESOP specifically contemplates that upon the exercise of their options, eligible persons would enter into a shareholders' agreement in terms approved by the 'majority shareholder' of National Tiles. At all material times, FWG was the sole shareholder of National Tiles and under the effective control of Mr Walker. It was therefore in Mr Walker's interests to ensure that the relevant shareholders' agreement was in a form acceptable to the majority shareholder. Conversely, it was in the interests of Mr Selak and Ms Morphet, as potential minority shareholders in National Tiles, to receive a form of shareholders' agreement that included minority protections. Given Mr Selak, Ms Morphet, and Mr Walker were all interested in the form of shareholders' agreement resolution discussed at the April Board meeting, it seems to me there was a greater likelihood that those persons would disagree at the meeting as to the appropriate form of resolution. I also consider there was a greater likelihood they would later disagree as to what was discussed and decided at the April Board meeting. That is all the more so given the Draft April Minutes contemplated the preparation of a shareholders' agreement in terms that arguably went beyond the scope of the definition of a shareholders' agreement set out in the ESOP and the terms of the offer letter accepted by Mr Selak and Ms Morphet on 20 April 2016. All of these factors weigh in favour of there being a genuine dispute about the form of the resolution passed at the April Board meeting, rather than a false assertion by Mr Walker about what was resolved.
196 Sixthly, the fact that most of the Board had either informally or formally indicated their approval of the Draft April Minutes before Mr Walker asserted their inaccuracy does not necessarily mean that Mr Walker's assertion was false. That is not inconsistent with Mr Walker genuinely holding a different recollection of the nature of the resolution passed at the April Board meeting.
197 Seventhly, even if Mr Walker did falsely assert that the Draft April Minutes were inaccurate (which, for the above reasons, I do not accept), the evidence does not establish, to the requisite standard, that Mr Walker was reckless as to the falsity of such statements. He did not baldly contend the Draft April Minutes were wrong without putting forward his alternative understanding of the resolution passed. His alternative view was clearly communicated by the 7 May Walker email and he explained that he had confirmed his recollection with Nick Walker, Rhonda Walker, and Georgie Bell. Nor do I consider the evidence points to Mr Walker's knowledge that the assertions were false or an intention that the assertions be falsely made. Rather, the current evidence tends to suggest Mr Walker opposed the Draft April Minutes because he genuinely believed they did not accord with his recollections of events at the April Board meeting.
198 Lastly, even though I have determined that the Revised April Minutes are not 'a [book] affecting or relating to the affairs of the [C]ompany' for the purpose of s 1307(1), in the event I am mistaken, it follows from the above analysis that the Revised April Minutes, which incorporated the alternative form of resolution set out in the 7 May Walker email, are not prima facie false. Further, the evidence falls short of establishing, on a prima facie basis, that Mr Walker knew or intended that the Revised April Minutes falsely recorded, or was reckless about the Revised April Minutes falsely recording, a resolution that was not passed by the Board. As already mentioned, his alternative recollection of the contentious resolution was clearly communicated by the 7 May Walker email, in which he stated he had tested his recollection with others. Again, the evidence, as it currently stands, suggests he genuinely believed his recollection to be true. On the test of recklessness in particular, there is no evidence that Mr Walker was actually aware of a substantial risk that the alleged falsification would occur and that having regard to the circumstances known to him, he was not justified in taking that risk.
199 In light of the above, the facts, as identified by the plaintiff, do not establish, to the requisite evidentiary standard, that Mr Walker falsely asserted that the Draft April Minutes did not reflect his understanding of what transpired at the April Board meeting. Nor is there a prima facie case that the Revised April Minutes were false (or were falsified).
200 For reasons that are apparent below, the Proposal is more appropriately discussed in connection with the question of whether the April Minutes (and later minutes) were falsified.
201 As previously noted, the plaintiff contends that Frank Walker caused the Draft April Minutes to be altered, so that the resolutions actually passed were removed, and so that the April Minutes falsely recorded that a different resolution was passed; i.e. the resolution contained in the Revised April Minutes, which removed reference to minority shareholder protections. The plaintiff also asserts that after Mr Walker made the Proposal to Mr Larsen, Mr Larsen accepted the Proposal, before then signing the falsified April Minutes.
202 However, rather than establishing a prima facie case of falsification under s 1307(1), the evidence relied on for the purpose of this interlocutory application suggests the contents of the April Minutes were the subject of a genuine dispute between Mr Walker on the one hand, and Mr Selak and Ms Morphet on the other hand. As I have observed, each had a personal interest in the final form of the relevant resolution contained in the April Minutes.
203 As already explained, the authorities indicate that competing versions of what occurred at a board meeting does not mean the resulting minutes are false. The fact that a director disagrees with draft minutes and then proposes amendments or an alternative version to reflect their recollection does not necessarily mean that the director has engaged in conduct resulting in the falsification of the minutes. I generally accept the defendants' submission that to find the commission of the offence in those circumstances may have important ramifications for the proper functioning of board meetings. For example, directors may be more reluctant to comment on the accuracy of draft minutes where there is a potential for disagreement about what occurred at a meeting, notwithstanding those disagreements might be bona fide in nature. Such reluctance may potentially undermine the reliability of board minutes as evidence of the truth of the matters recorded.
204 As the case law also makes clear, it is insufficient for the purpose of establishing the falsity of the April Minutes to simply identify that the minutes are incorrect or contain material untruths. The April Minutes must purport to be something they are not. However, the counterfeit quality of the falsification found in Roach is not evident here. There was no backdating or other material change to the April Minutes that resulted in the creation of an entirely new and false document purporting to be something it was not. Unlike Gregg v The Queen, which concerned the application of s 1307(1) of the Corporations Act in the context of both a fraudulent payment instruction (which falsely stated the purpose of the payment) and a sham agreement, there is no such objective falsity that is obvious and discernible in the April Minutes. Further, unlike Roach, an existing set of board minutes required to be retained under s 251A was not altered after their approval and signing.
205 The evidence before the Court suggests that the April Minutes were a book created in the name of the Company, in circumstances where the Board authorised its creation. The April Minutes were ultimately approved by the Board, as it was then constituted, at the May Board meeting. The Board also authorised Mr Larsen to sign the April Minutes consistent with cl 62(c) of the National Tiles Memorandum of Association and s 251A(2) of the Corporations Act. At the August Board meeting, the Board then ratified the April Minutes, noting that they differed from the Draft April Minutes circulated by Ms Weir and informally confirmed by several directors and that Ms Morphet and Mr Selak disputed the accuracy of the April Minutes. In other words, the August Minutes did not seek to obfuscate the existence of the dispute. However, although the April Minutes were given the imprimatur of the Board at both the May and August Board meetings, the plaintiff does not make allegations of falsification against the entire Board. The direct allegations of falsification are only made against Frank Walker and Greg Larsen.
206 As is made clear by the language of s 251A(6) of the Corporations Act, where a minute is recorded and signed pursuant to ss 251A(1) and (2), it is taken to be evidence of the proceeding or resolution to which it relates, unless that presumption is rebutted by contrary evidence. Further, the High Court confirmed in Hellicar that allegations of falsity of minutes were required to be assessed in light of the regime under s 251A.[109] This was not an aspect of the application upon which the plaintiff focused much attention. The April Minutes were prepared and signed in accordance with the process contemplated by s 251A and cl 62 of the National Tiles Memorandum of Association. Having regard to the totality of the evidence, I am not satisfied that the statutory presumption of accuracy found in s 251A(6) has been prima facie displaced. As discussed above, and further below, much of the evidence relied upon gives rise to competing and more plausible inferences, which are consistent with the April Minutes being accurate.
207 As already observed, there is no direct evidence of what Frank Walker, John Selak, Sue Morphet, or other attendees at the April Board meeting said at the meeting in relation to the contentious resolution the subject of this application. The case of falsification, as presently constituted, is based entirely on inference and founded on circumstantial and hearsay evidence. But, I am not satisfied such evidence rises to the level of a prima facie case that the contents of the April Minutes were false.
208 Whilst the plaintiff submitted that the Court ought to accord weight to the April Board meeting file notes taken by Mr Herrick as a contemporaneous document and prefer it over the inconsistent hearsay evidence given through the defendants' solicitor, I do not accept that the contents of the April Board meeting file notes are as compelling as suggested. Mr Herrick's note-taking style is, at times, sparse. The document largely comprises a series of dot points that are not necessarily grouped under topic headings and which are difficult to interpret in isolation. Further, I note the words 'minority protections in the s/holders agreement' do not appear under the heading 'Resolutions', but immediately under the heading titled, 'Notifications are made'. It is unclear, on a plain reading of the document, and without the benefit of the hearsay evidence of Mr Herrick's recollections, whether the statement records a resolution reached by the Board or a discussion that took place between Board members about the topic. The words seized on by the plaintiff comprise one line in nine pages of handwritten notes, some of which is masked for privilege. Moreover, I could not locate in the April Board meeting file notes any other reference to the shareholders' agreement or the process of its drafting. The notes do, however, discuss the possibility of the options granted under the ESOP being bought out and the resulting tax implications, in addition to the need for tax advice in the event the options were to vest. Frank Walker also apparently stated that the 'Company can't afford to CASH-OUT at this time' and the notes later record that he would 'seek counsel & provide a view to the Board on his conclusion (ie. t/ment of options)'.
209 Whilst the April Board meeting file notes are clearly a contemporaneous document, so too is the 1 May Walker email, in which Mr Walker directly contested the accuracy of the Draft April Minutes. Again, I note that the Court does not have the benefit of direct evidence from those who attended the April Board meeting. Regardless, the contemporaneous documents will, no doubt, be put to key witnesses at trial to confirm their recollection of events. Whether the hearsay evidence of Mr Herrick's recollection of events at the April Board meeting is at odds with his involvement in reviewing and marking up the Draft April Minutes is a matter for another day. Any apparent inconsistency does not, on its own, or in combination with other evidence, support a prima facie conclusion of falsity.
210 For similar reasons, I am unconvinced that the Larsen handwritten note dated 5 May 2020 constitutes compelling circumstantial evidence to support the inference the April Minutes have been prima facie falsified. It is unclear precisely what the note records, although I accept that it may record a discussion with Nick Wormald of HSF in connection with the ESOP. The phrase, 'expose to inequity' (assuming that is what it says), is difficult to contextualise. I am unsure how it relates to the allegations of falsification. Whilst the plaintiff interprets certain words to read as: 'NW - don't want to be forming a new - "sophisticated minority"', I am not satisfied that the words should be read in that way. An alternative and more likely interpretation of those words is: 'NW - don't want to be forming a view - "sophisticated investors"'. Other examples of the rendering of the letters 'n' and 's' in the file note support that reading. Further, the expression 'sophisticated investors' was in fact a phrase used by Mr Walker a few days later in the 8 May Walker email, whereby he explained to Ms Morphet and Mr Selak why their ESOP close out proposal would 'most certainly be rejected' at the May Board meeting and described them as 'sophisticated investors' who knew the Company intimately. Further, it is not apparent to me how the Larsen handwritten note provides insight into what was 'really going on' at National Tiles, as suggested by the plaintiff.
211 I am not persuaded that the Proposal should be accorded the weight given to it by the plaintiff as circumstantial evidence of the alleged falsification. Whilst the plaintiff suggests that Mr Larsen's initial approval of the Draft April Minutes (on 1 May 2020) occurred prior to Mr Walker making him the Proposal, this is ultimately a matter of speculation. As the plaintiff quite properly concedes, the 26 May Larsen email (which refers to the Proposal) does not reveal the precise timing of various conversations and events referred to in the document. In the first paragraph of the 26 May Larsen email, Mr Larsen refers to his understanding of conversations with Mr Walker 'since 15 April concerning his ongoing arrangements with the Walker family and National Tiles'. This assumes at least some of the conversations pre-dated the April Board meeting (held on 23 April 2020) and the dispute concerning the April Minutes. When referring to Mr Walker's 'unexpected offer' to pay Mr Larsen 'an annual retainer at the level of his current director fees for the rest of [his] life', he notes that this was accompanied by the explicit condition that he keep his current options and, in the event the Company was ever to be sold, he would receive his share. Mr Larsen then refers to his primary responsibility to act legally and ethically as a director of National Tiles, given the separate undertaking from Mr Walker had not been disclosed to his fellow directors. He described this as the approach he took until 30 April, when he 'assumed this "chapter" to be closed'. I assume, but cannot be sure, that this is a reference to Mr Larsen's pre-planned resignation as a director in accordance with the October 2019 succession plan. Mr Larsen then refers to a 'new chapter on his journey with the Walker family' commencing 1 May and a conversation he had with Mr Walker in the week prior to the 26 May Larsen email, concerning the withdrawal of his resignation as a director of the Company and his future duties as chairperson. Whilst the defendants do not admit the existence of the Proposal, even taking the 26 May Larsen email at face value, there is no clear nexus between the Proposal and Mr Larsen's withdrawal of his resignation as director, on the one hand, and the changing of his position in relation to the Draft April Minutes, on the other hand. The email makes no mention of either the April Board meeting, the Draft April Minutes, the relevant shareholders' agreement resolution, or the topic of minority shareholder protections.
212 Rather than conclude on a prima facie basis that the Proposal was made to 'buy off' Mr Larsen and influence his position in relation to the relevant resolution recorded in the April Minutes, on the evidence currently before the Court, there is another potential explanation for the Proposal that seems more plausible. That explanation can be found in the terms of the 26 May Larsen email itself. After recording that he had received an offer to be paid an annual retainer commensurate with his director's fees on an ongoing basis, and subject to his understanding that a deadline of 23 June 2020 for the exercise of his options did not apply, Mr Larsen twice stated that he did not intend to exercise his options under the ESOP. Far from the Proposal being 'inexplicable on any rational commercial basis' (as contended by the plaintiff), it may be that the statement by Mr Larsen - that he did not intend to exercise his options - represented his consideration for the ongoing payment of an annual retainer. It is unclear on the evidence whether Mr Larsen ultimately did in fact refrain from exercising his options in exchange for ongoing annual retainer fees and whether the annual retainer was commensurate with the value of that concession. The full context and consequences of the Proposal (assuming it was in fact made and accepted) will, no doubt, be illuminated at trial.
213 Ultimately, although there is some inferential evidence relied upon by the plaintiff to support the case of falsification of the April Minutes, there are conflicting inferences of greater weight that suggest an absence of reasonable grounds to believe there has been a falsification of a book under s 1307(1) of the Corporations Act. Further, there is insufficient prima facie evidence that the April Minutes are false and not what they purport to be.
214 Other contextual matters support these conclusions. For instance, it is noteworthy that there was no complaint about the change to the Draft April Minutes until at least 25 May 2020, when Ms Morphet forwarded the April Minutes to Mr Brown of PwC and complained about the removal of everything allegedly agreed to at the April Board meeting. Further, a direct challenge to the April Minutes was not made until the 9 June Gilbert + Tobin letter, suggesting Mr Walker had wrongly amended the Draft April Minutes, and when Ms Morphet sent the 24 July Morphet email to Mr Larsen, directly alleging that the April Minutes had been falsified and fabricated. According to the chronology, the allegation of falsification only came about after Mr Walker confirmed, on 26 May 2020, that the ESOP close out proposal put forward by Ms Morphet and Mr Selak on 28 April 2020 (by which they had sought to be paid $2.26 million in exchange for the cancellation of their options) had been formally rejected by the Board for the reasons already provided to Ms Morphet and Mr Selak in the 8 May Walker email.
215 Moreover, the April Minutes contemplate a process for the preparation of a shareholders' agreement in terms that appear aligned with the definition of a 'Shareholders' Agreement' set out in the ESOP and the terms of the offer letter accepted by Mr Selak and Ms Morphet on 20 April 2016 concerning the ESOP. It is reasonable to infer that the Board preferred to adopt a resolution consistent with the ESOP, rather than a resolution potentially inconsistent with the ESOP and which granted rights to option holders that arguably exceeded those rights conferred by the offer letter.
216 Whilst the parties made submissions apparently directed to the presence or absence of a motive for the falsification of the April Minutes, I note that motive is not, strictly, an element of the offence under s 1307(1), although it may be relevant to establishing its contravention. In that context, I accept that Mr Walker and his family members effectively controlled the Board. Further, at all times, it was within the power of the Board to amend, alter, or extinguish the resolutions previously passed by the Board and recorded in its minutes of meetings. Given that is the case, the question may be asked whether there was any strategic advantage to Mr Walker engaging in conduct that resulted in the alleged falsification? Even if, as the plaintiff suggests, Mr Walker's true position was that he did not want any minority shareholders in National Tiles, it is not entirely clear how the alleged falsification was said to serve that purported agenda.
217 The above findings and observations mean I am not satisfied, on a prima facie basis, that Mr Walker and Mr Larsen knew or intended that the April Minutes falsely recorded, or were reckless about the April Minutes falsely recording, a resolution that was not passed by the Board. As regards the test of recklessness in particular, there is no evidence that Mr Walker or Mr Larsen were actually aware of a substantial risk that the alleged falsification would occur and, having regard to the circumstances known to them, they were not justified in taking that risk.
218 There is insufficient evidence to support a prima facie case of the falsification of the May Minutes insofar as they approved the April Minutes. That is because, for the reasons already discussed, the April Minutes are not, themselves, prima facie false. As already explained, the Board, as constituted at the time of the May Board meeting, resolved to approve the Revised April Minutes and authorised Mr Larsen to sign those minutes in accordance with cl 62(c) of the National Tiles Memorandum of Association and s 251A(2) of the Corporations Act. Pursuant to s 251A(6), the May Minutes are presumed to be evidence of the resolution they contain, unless the contrary has been proved. I am not satisfied that the contrary has been proved to the requisite standard. Relatedly, the May Minutes cannot be in furtherance of the initial alleged offence of falsification of the April Minutes under s 1307(1) of the Corporations Act if there are no reasonable grounds for believing there has been such an offence in the first place. I have found there are no such reasonable grounds.
219 Similarly, I do not accept that the ratification of the April Minutes by the August Minutes was prima facie in furtherance of the initial offence and itself constitutes an offence under s 1307(1). The Board might have equally reconsidered the shareholders' agreement resolution contained in the April Minutes and voted on it anew with the same result. It is difficult to see how such reconsideration of the issue would have amounted to falsification. Further, in the August Minutes, the Board expressly noted that the April Minutes differed from the Draft April Minutes circulated by Ms Weir and informally confirmed by several directors. Importantly, the August Minutes also recorded that Ms Morphet and Mr Selak disputed the accuracy of the April Minutes. This annotation is more consistent with the existence of a genuine dispute between Board members about what was determined at an earlier board meeting, rather than conduct that results in the falsification of the minutes of the earlier meeting.
220 Whilst the plaintiff says it is unclear whether Rhonda Walker and Georgie Bell excused themselves from voting at the relevant Board meetings in relation to the ESOP (including the May and August Board meetings) in circumstances where they were obliged to do so, this is not a matter that would render false the minutes derived from such meetings. It may, however, give rise to a separate question of whether the relevant resolutions were validly made. But, that is beyond the scope of this interlocutory application.
221 To the extent the plaintiff suggests that the changes to the Board's composition prior to the May and August Board is relevant to the question of falsification, I am not satisfied that issue is particularly relevant because Mr Walker always had the ability, through FWG, to pass a shareholder resolution changing the composition of the Board. The appointments of Ms Walker and Ms Bell occurred several months prior, on 21 February 2020, and purportedly on account of Mr Walker's health, rather than because of a dispute over the conduct of meetings of the Board which had not yet been held.
222 Further, it is important to note that the August Board meeting was also attended by Peter Davis, the newest member of the Board. As a Board member, he was partly responsible for the ratification of the April Minutes. However, the plaintiff has not sought to impugn his conduct. There is no evidence to suggest, and the parties did not submit that, Mr Davis had any personal interest in the outcome of the August Board meeting or the treatment of the April Minutes.
223 I am not convinced that the mental element of the offence under s 1307(1), by the alleged falsification of the May Minutes and/or August Minutes, is made out on a prima facie basis because there is no evidence that Mr Walker and Mr Larsen were reckless about, or knew or intended that:
(a) the May Minutes were false to the extent they approved the allegedly falsified April Minutes; and
(b) the August Minutes were false insofar as they ratified the April Minutes.
224 In particular, I am not satisfied there is evidence that Mr Walker or Mr Larsen were aware of a substantial risk that the alleged falsification would occur and, having regard to the circumstances known to them, they were not justified in taking that risk.
Did Frank Walker and/or Greg Larsen otherwise engage in conduct resulting in the falsification of any of the minutes referred to above?
225 In the reasons above, I have canvassed the relevant conduct relied upon by the plaintiff and said to result in the falsification of the Draft April Minutes, the Revised April Minutes, and the April, May, and August Minutes. I am not satisfied there is a prima facie case that Mr Walker and/or Mr Larsen have otherwise engaged in any other conduct that resulted in the falsification of any of these minutes.
Did Frank Walker and/or Greg Larsen know that any documents referred to above were false, or intend they be made false, or were they reckless that the documents were made false?
226 I have already addressed this question in the above analysis. In summary, there are no reasonable grounds to believe Mr Walker or Mr Larsen possessed any of these mental states.
Whether the plaintiff is entitled to argue the crime or fraud exception applies on some alternative basis?
227 Having regard to the manner in which the interlocutory application was prepared and argued, I do not accept, as a matter of procedural fairness and given the serious consequences of overriding legal professional privilege, that it is appropriate for the plaintiff to be entitled to argue that the fraud or crime exception arises on a basis other than s 1307(1) of the Corporations Act. An alleged contravention of s 1307(1) is the case the defendants have sought to meet in protecting their claims for legal professional privilege over the opposed documents. Reference was made by the plaintiff to s 1308(1) of the Corporations Act for the first time at the conclusion of the hearing. The plaintiff did not address, by reference to the evidence, the specific elements of the fault‑based offence under s 1308(1), which relates to the making of false or misleading documents. Nor did he address how the opposed documents were prepared in furtherance of that offence. The allegation of contravention of s 1308(1) was not made in clear and definite terms. The same can be said for the allegation that there is evidence of a broader species of fraud so as to invoke the crime or fraud exception. That allegation is simply too nebulous. It has not been put on a basis that the defendants can fairly address or that the Court can properly consider.
Conclusion on whether prima facie case or reasonable grounds for believing crime or fraud has been committed
228 Having carefully weighed the quality and strength of the evidence relied upon by the plaintiff in contending for the crime or fraud exception, I am of the opinion that there is an absence of a prima facie case or reasonable grounds for believing that a crime or fraud has been committed that would disentitle the defendants from invoking legal professional privilege over the opposed documents. It may be that, on the basis of more complete and compelling evidence, the plaintiff is ultimately proven to be correct in his recollection of events at the April Board meeting. In the event that he is so vindicated, he would be in a strong position to displace the presumption of accuracy of the April Board Minutes conferred by s 251A(6) of the Corporations Act. However, in the context of the present application, the evidence, which is entirely circumstantial and hearsay in nature, does not go so far as to establish a prima facie case that Mr Walker falsified the Draft April Minutes or the revised April Minutes, or that Mr Walker and/or Mr Larsen falsified the April Minutes or the later Board minutes, which approved and then ratified the April Minutes.
Whether opposed documents are communications in furtherance of alleged crime or fraud?
229 Because I have found there is no prima facie case for the commission of a crime or fraud, it is strictly unnecessary for me to consider whether the opposed documents were also prima facie communications in furtherance of, or as a step preparatory to, the alleged crime or fraud (namely the alleged contravention of s 1307(1) of the Corporations Act). This second part of the inquiry is redundant. Nevertheless, given the point was argued at the hearing and in the event I am wrong in my conclusion about the crime or fraud, I will briefly address the second stage of the inquiry.
230 As previously explained, the evidence discloses that HSF was engaged:
(a) on 24 December 2015 by FWG to provide legal advice on the terms of the ESOP;
(b) on or around 27 April 2020 to provide legal advice to both National Tiles and FWG in relation to the ESOP and the associated shareholders' agreement. This is notwithstanding that the HSF file only identifies National Tiles as the client and the May Minutes record that HSF was acting for FWG in connection with the shareholders' agreement; and
(c) on 17 June 2022 by National Tiles and FWG in relation to anticipated proceedings by Mr Selak.
(a) in mid-April 2020 by National Tiles to provide legal advice and services (including taxation advice) regarding the closing out of the ESOP; and
(b) in August 2020 by National Tiles to provide advice in relation to an email sent in late July 2020 by Ms Morphet, concerning the April Minutes (which I take to be a reference to the 24 July Morphet email).
232 PwCS was separately engaged by National Tiles to undertake an independent valuation of the shares of the Company for the purpose of the ESOP.
233 Having regard to the descriptions of the opposed documents in the privilege schedules, the evidence filed in the application, and the parties' respective submissions, I consider that the evidence, as it presently stands, is insufficient to support a prima facie finding that the relevant communications were in furtherance of the alleged falsification of the April, May, or August Minutes (or the prior iterations of the April Minutes)[110]. Whilst some of the opposed documents are broadly relevant to the allegations of falsification made by the plaintiff and Ms Morphet because they are responsive to those allegations, mere relevance does not render them communications in furtherance of the alleged falsification.[111] As I explain further below, there is no basis in the evidence to suppose they are communications which are connected to the alleged falsification 'in the sense of helping it, advancing it or assisting it'.[112] Nor are there reasonable grounds for believing that National Tiles, Mr Walker, or Mr Larsen sought legal advice from HSF and the PwC entities to conceal the alleged offending.
234 As regards the opposed documents produced by the PwC entities, they essentially comprise communications passing between lawyers at PwC and Greg Larsen and/or Frank Walker concerning issues raised by Ms Morphet regarding the ESOP. With the exception of a number of attachments to emails,[113] they all post-date the April Board meeting, the May Board meeting, the 9 June Gilbert + Tobin letter, and the 24 July Morphet email. Those attachments include memoranda of advice, copies of the ESOP, and copies of the various iterations of the April Minutes that were provided to PwC to assist them in giving their legal advice. In light of the evidence given by the defendants concerning the scope of the PwC entities' retainer, the descriptions of the opposed documents produced by the PwC entities, and the date of the relevant documents, there is no indication that the communications contain advice in relation to the formulation of the shareholders' agreement resolution contained in the April Minutes or otherwise relate to the preparation of the April Minutes or the May Minutes. Nor do the descriptions refer to the holding of the August Board meeting or the preparation of the August Minutes. Given the serious nature of the allegations raised by Ms Morphet, Mr Selak, and by Gilbert + Tobin on their behalf, it was entirely appropriate for National Tiles to obtain legal advice concerning the nature and implications of the allegations. The resulting advice appears directed to the Company's response to the allegations of falsification and the manner in which the allegations should be addressed at Board level. It was therefore likely to be advice on the legal consequences of alleged past fraud, the legal remedies that may be invoked by Ms Morphet and Ms Selak as alleged victims of the fraud, and any legal defences that may be available in respect of any claim by Ms Morphet and Mr Selak. Such advice would not be in furtherance of the commission of the alleged fraud.[114]
235 Similar observations can be made about the opposed documents produced by HSF. The relevant documents span the period 1 May 2020 to 18 May 2020, with one document dated 29 June 2020 (document 59 of the HSF privilege schedule). At that time, HSF was formally retained to provide legal advice to both National Tiles and FWG in relation to the ESOP. The communications to and from HSF across the relevant date range followed the April Board meeting and coincided with the 1 May Walker email and the 1 May Morphet email. The documents also followed the various communications with Mr Selak and Ms Morphet about their resignations as directors of National Tiles. The later communication of 29 June 2020 (document 59) was also subsequent to the April Board meeting, the May Board meeting, and the 9 June Gilbert + Tobin letter. The HSF privilege schedule records at least one communication concerning legal advice about the Draft April Minutes (document 16) and various communications regarding the claims made by Mr Selak and Ms Morphet, and the provision of comments upon draft correspondence from Mr Walker to Mr Selak and Ms Morphet.
236 According to the annotations for document 16 in the HSF privilege schedule, advice was given by Nick Wormald and Andrew Clyne of HSF about the April Minutes. It seems that advice was then referenced by Mr Walker in the 7 May Walker email, in which he stated he had taken HSF's advice and discussed his recollections of the April Board meeting with Nick Walker, Georgie Bell, and Rhonda Walker, all of whom confirmed his own recollections. Advice appears to have been legitimately sought and provided in relation to the controversy between members of the Board concerning the content of the April Minutes.
237 Having regard to the relevant dates, I assume the draft correspondence referred to in the HSF privilege schedule to be the 8 May Walker email, in which Mr Walker provided detailed reasons as to why Ms Morphet's and Mr Selak's ESOP close out proposal would likely be rejected at the May Board meeting. That correspondence also made reference to the process of approval of the April Minutes at the May Board meeting, which was said to reflect the conventional procedure for approval of Board Minutes. The 8 May Walker email was a substantive piece of correspondence and understandably required the input of lawyers in settling its content. To the extent that advice was given by HSF in relation to the Draft April Minutes and the 8 May Walker email to enable National Tiles to order its affairs so as not to do something prohibited by statute, such advice is not in furtherance of the alleged crime or fraud.[115] Further, there is no basis to conclude (as suggested by the plaintiff) that advice given in respect of the earlier drafts of the 8 May Walker email was used to justify the alleged falsification of the April Minutes and conceal the alleged wrongdoing.
238 Again, having regard to the evidence given by the defendants concerning the scope of HSF's engagement, the descriptions of the opposed documents produced by HSF, and the date of the relevant documents, there is no prima facie indication that the opposed HSF documents contain advice in relation to the actual formulation of the shareholders' agreement resolution contained in the April Minutes or otherwise relate to the preparation of the April, May, or August Minutes.
239 I turn then to the opposed documents in Mr Larsen's privilege schedule. Aside from one undated document (document 1a), the opposed documents produced by Mr Larsen fall within the period from 20 July 2020 to 18 August 2020 and therefore post‑date the April Board meeting, May Board meeting and 9 June Gilbert + Tobin letter. The communications contain legal advice given by the PwC entities in the lead up to the August Board meeting. The legal advice concerns the claims made by Mr Selak and Ms Morphet, which, according to the chronology, must relate to the claims of falsification of the April Minutes. As already explained, the fact that advice was given in relation to such serious claims is unremarkable. The fact that such advice was given in anticipation of the August Board meeting is also unsurprising because the Board's earlier approval of the April Minutes at the May Board meeting had been challenged and the issue required further consideration by the Board. According to the August Minutes, the Board's ratification of the April Minutes occurred after consideration of the claims articulated by Mr Selak and Ms Morphet in correspondence tabled before the Board, and after specifically acknowledging that the former directors disputed the accuracy of the April Minutes. There are no reasonable grounds for believing that Mr Larsen and the defendants sought advice on how to contravene the law by falsifying the April Minutes, the May Minutes, or the August Minutes (by virtue of their ratification of the April Minutes). They were entitled to seek and obtain legal advice concerning an appropriate response to the allegations of falsification and to a fundamental disagreement between Board members about the accuracy of the April Minutes and how the disagreement ought to be recorded. To the extent advice was sought and obtained about the ratification of the April Minutes, I consider that such advice was directed to enabling the Company to arrange its affairs so as not to do something prohibited by statute (in circumstances where the April and May Minutes had already been challenged), rather than to further the alleged falsification.
240 Some of the communications in Mr Larsen's privilege schedule also refer to, or enclose, earlier communications from PwC legal practitioners prior to, and at, the April Board meeting. These communications pre-date the controversy over the April Minutes. Having regard to the descriptions of the opposed documents produced by Mr Larsen, there is no prima facie indication that those communications contain advice from PwC in relation to the formulation of the shareholders' agreement resolution contained in the April Minutes or otherwise concern the preparation of the April or May Minutes.
241 In applications such as the present, the Court has the power to inspect the documents the subject of dispute.[116] In Amcor, Kyrou J (as his Honour then was) exercised his discretion to inspect the relevant documents because of inconsistencies in relation to how privilege was claimed, the cryptic nature of descriptions used by the party claiming privilege, and because his Honour considered it would be unsafe to determine the important question of whether the documents were prepared in furtherance of the commission of a fraud or an act that renders a person liable to civil penalty without first inspecting them.[117] Here, I have reached the conclusion that the opposed documents are not communications in furtherance of a crime or fraud based on the evidence before the Court, the submissions made by the parties, and the detailed descriptions of the opposed documents in the privilege schedules. There is therefore strictly no need for me to inspect the opposed documents in the present application.
242 However, in the event I have erred in the exercise of my discretion about whether to inspect the documents, and to satisfy myself that the conclusion I have reached is supported by the documents themselves, I determined to undertake a brief inspection. Following my inspection, I am fortified in my conclusion that the opposed documents were not communications made in the furtherance of the alleged falsification of the relevant Board minutes. By way of illustration, I note the following features of particular opposed documents, whilst being necessarily oblique as to their contents:
(a) document 41 of PwC's privilege schedule is a chain of emails between Nick Brown and Ashley Poke (legal practitioners at PwC) dated 4 August 2020, discussing the 24 July Morphet email (which made direct allegations of falsification) and subsequent communications between Mr Larsen and Ms Morphet. There is nothing to suggest that the advice given in relation to Ms Morphet's allegations was in furtherance of the alleged offending;
(b) document 42 of PwC's privilege schedule is a memorandum of advice from PwC dated 22 April 2020. It contains detailed legal and tax advice relating to the ESOP 'close out' process. It does not appear to traverse any issues associated with the form of shareholders' agreement resolution discussed at the April Board meeting;
(c) documents 44 of PwC's privilege schedule is an email from Mr Larsen to Mr Brown of PwC and includes previous emails passing between Mr Larsen and Ms Weir concerning the Revised April Minutes, which incorporated Mr Walker's proposed requested amendments, as communicated in the 7 May Walker email. The attachment (document 45) appears to be the same version of the Revised April Minutes sent by Ms Weir to Mr Larsen on the morning of 7 May 2020. Similarly, document 46 is a further email from Mr Larsen to Mr Brown of the same date for the purpose of National Tiles receiving legal advice attaching earlier versions of the April Minutes, namely: document 47, which is the final version of the April Minutes (as approved by the Board); document 48, which appears to be the version of Draft April Minutes incorporating the amendments initially proposed by Chris Herrick and Nick Walker on 29 April 2020; documents 49, 50 and 51, which appear to be the Draft April Minutes initially circulated by Ms Weir; and document 52, which appears to be the Revised April Minutes, albeit with detail of when Nick Brown left the meeting (a detail that found its way into the final version of the April Minutes). The fact that these versions of the April Minutes were provided to PwC does not suggest that PwC gave advice in furtherance of the alleged falsification of those minutes;
(d) document 4 of the HSF privilege schedule is one of the iterations of the Draft April Minutes. The document was provided by Mr Walker to Nick Wormald of HSF for the purpose of providing legal advice in relation to the minutes. This appears to be the Draft April Minutes incorporating the amendments initially proposed by Chris Herrick and Nick Walker on 29 April 2020. There is no indication on the face of the document that HSF provided any input into the drafting of the April Minutes or that the document includes any amendment to reflect what Frank Walker allegedly falsely asserted was his recollection of events at the meeting;
(e) document 16 of the HSF privilege schedule is an email chain dated 5 May 2020 between Nick Wormald, Stephanie Wilkinson, Andrew Klein, and Robert Prosser, created for the purpose of providing legal advice about the April Minutes. It is an internal discussion between lawyers at HSF. In broad terms, it deals with the legal and procedural issues arising in circumstances where the Company's Board members were unable to agree on what transpired at the April Board meeting. The communication makes reference to Frank Walker's recollections of the positions adopted at the April Board meeting concerning the shareholders' agreement resolution. It does not appear to be a communication that advanced or concealed the alleged falsification;
(f) document 47 of the HSF privilege schedule is a copy of a document titled, 'National Tiles Co Pty Ltd - Action list - Matters arising from board meeting', which is dated 18 May 2020. The document and additional highlighting were apparently created and saved to HSF's internal file for the purpose of HSF providing legal advice. The document makes no reference to the allegations of falsification of the April Minutes. It deals with vesting outcomes for the ESOP and notes that HSF was engaged to draft the shareholders' agreement for the purpose of discussion at the May Board meeting;
(g) document 1 of the Larsen privilege schedule is a set of handwritten notes taken by Greg Larsen on 20 July 2020, in his capacity as chair of the Board, and which recorded a conversation with Nick Brown regarding legal advice by PwC given to National Tiles before and at the April Board meeting. Whilst being necessarily circumspect in relation to the contents of the notes, the notes appear to relate to the mechanical process of preparing a shareholders' agreement and purport to record Mr Brown's account of the discussion about the shareholders' resolution at the April Board meeting.[118] I have no reason to believe that the communication was in furtherance of the alleged offending. I hold the same view in relation to document 1a, which is a handwritten note prepared by Mr Larsen of his discussion with Mr Brown and which concerns the same subject matter; and
(h) document 4 of the Larsen privilege schedule is an email from Mr Larsen to Mr Walker, Nick Walker, Rhonda Walker, Georgie Bell, Chris Herrick, and Ashley Poke of PwC, and copied to Nick Brown of PwC, referring to information to be discussed at a meeting prior to the August Board meeting. Whilst it notes the disputed nature of the April Minutes, on the face of the email, there is no reason to believe that the communication was in furtherance of the alleged offending.
243 For the above reasons, it follows that the defendants' claims of privilege over the opposed documents have not been displaced by the plaintiff's allegation that the relevant communications were made in furtherance of a crime or fraud, namely the falsification of Board minutes under s 1307(1) of the Corporations Act.
244 The parties are requested to confer as to an appropriate form of order to give effect to these reasons, including as to costs. If the parties are unable to reach agreement about those matters, the matter will be listed for a short further hearing and the parties will be required to set out their respective positions in concise written submissions.
[1] A reference in this judgment to 'Mr Walker' is a reference to Mr Frank Walker as opposed to his son, Mr Nick Walker.
[2] The defendants' evidence suggests that both National Tiles and FWG were the relevant clients for this engagement, although the HSF file only identifies National Tiles as the client. Further, Board minutes for a meeting of National Tiles held on 20 May 2020 record that HSF was acting for FWG in connection with the preparation of the shareholders' agreement. Given the parties' approach to the issues in the present application, I am not satisfied that anything turns on these slight inconsistencies.
[3] The summons filed 7 July 2022 ostensibly replaces an earlier summons served on 9 May 2022: see affidavit of Peter Holloway affirmed 9 May 2022, [2].
[4] A 'Liquidity Event' was defined as the listing of National Tiles' shares, the sale of all, or substantially all, of the company's assets or shares to a third party, or such other event determined by the Board to constitute a Liquidity Event.
[6] Ibid [25]-[26] (emphases in original).
[7] Citing discussion in Stephen Odgers, Uniform Evidence Law (Thomson Reuters, 12th ed, 2016)
[8] Citing, by way of example, New South Wales v Public Transport Ticketing Corporation [2011] NSWCA 60, [32] (Allsop P); Singtel Optus Pty Ltd v Weston [2011] NSWSC 1083; (2011) 81 NSWLR 526, 532 [28] (White J); Cargill Australia Ltd v Viterra Malt Pty Ltd (No 8) [2018] VSC 193, [42] (Macaulay J).
[9] See Esso Australia Resources Ltd v Federal Commissioner of Taxation [1999] HCA 67; (1999) 201 CLR 49, 73 [61] (Gleeson CJ, Gaudron and Gummow JJ) ('Esso Australia'), affd Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543, 552 [9] (Gleeson CJ, Gaudron, Gummow and Hayne JJ). See also Australian Crime Commission v Stewart (2012) 87 ATR 31, 36 [7] (Stone J); AWB Ltd v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30, 44 [41] (Young J) ('AWB'); Attorney‑General (NT) v Kearney [1985] HCA 60; (1985) 158 CLR 500, 511 (Gibbs CJ) ('Kearney').
[11] See, eg, Federal Commissioner of Taxation v Pratt Holdings Pty Ltd [2005] FCA 1247; (2005) 60 ATR 466, 477-81 [30] (Kenny J); Mitsubishi Electric Pty Ltd v Victorian Workcover Authority [2002] VSCA 59; (2002) 4 VR 332, 337 [11] (Batt JA).
[12] Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 556 (McHugh J) ('Propend'), citing R v Cox and Railton (1884) 14 QBD 153; Varawa v Howard Smith & Co Ltd [1910] HCA 11; (1910) 10 CLR 382; Kearney, 515 (Gibbs CJ); Sut v Nominal Defendant (1968) 2 NSWR 78; LT & KT v Conlon Lensworth Interstate (Vic) Pty Ltd [1970] VicRp 36; [1970] VR 293.
[13] Propend, 556 (McHugh J), citing Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121, 163.
[14] [2006] FCA 1234; (2006) 155 FCR 30, which was cited by McKerracher J in Lane v Admedus Regen Pty Ltd [2016] FCA 864, [81] and Daubney J in Deppro Pty Ltd v Hannah [2008] QSC 193; (2009) 1 Qd R 1, 6 [18], 8 [21].
[20] Ibid 87-9 [210]-[215] (emphases added).
[21] Ibid 89-90 [217]-[218] (emphases added).
[22] See also Kang v Kwan [2001] NSWSC 698, [37] (Santow J).
[23] See also the decision of the New South Wales Court of Appeal in Director of Public Prosecutions (NSW) v Stanizzo [2019] NSWCA 12, [41] ('Stanizzo'), which involved consideration of the application of s 125(1) of the Evidence Act 1995 (NSW).
[26] See ibid 592 (Kirby J); Bare v Small [2011] VSC 639, [13] (Mukhtar AsJ).
[27] Propend, 592 (Kirby J), citing O'Rourke v Darbishire [1920] AC 581, 623.
[28] [1920] AC 581 ('O'Rourke').
[31] Ibid 514 (Brennan CJ); 556 (McHugh J), 572-3 (Gummow J).
[37] Ibid [20], citing Propend, 514 (Brennan CJ), 547 (Gaudron J), 556 (McHugh J), 572 (Gummow J). See also at [62], where her Honour said that 'the prima facie allegation of fraud must be based on an admissible evidentiary foundation'.
[39] [2008] NSWSC 1151 ('Carbotech').
[44] Ibid [116]; Carbotech, [25] (emphasis added).
[46] [2011] VSC 341 ('Amcor').
[47] Ibid [58]-[63] (emphasis added).
[48] See also P & V Industries Pty Ltd v Porto (No 3) [2007] VSC 113 ('P & V Industries'), where Hollingworth J noted (at [27]) there is an important distinction between seeking advice for the purpose of being guided or helped to commit a proposed or current fraud (which would be acting in furtherance), and seeking advice for the purpose of being defended against a past fraud (which would not be acting in furtherance).
[49] Ibid [117], [126]. An appeal of Kyrou J's decision was refused in Holihan v Amcor Ltd [2011] VSCA 225, [20] (Tate JA, Warren CJ agreeing at [1], Buchanan JA agreeing at [2]).
[50] Butler v Board of Trade [1971] Ch 680, 689 (Goff J) ('Butler v Board of Trade'), referred to in JD Heydon, Cross on Evidence (LexisNexis, 12th ed, 2020) [25290] ('Cross on Evidence').
[51] Kearney, 513-14 (Gibbs CJ), referred to in Cross on Evidence, [25290].
[52] Butler v Board of Trade, 686-7; Carbotech, [24]; Kaye v Woods (No 2) [2016] ACTSC 87, [38] (Mossop AsJ) ('Kaye v Woods'). See also Uniform Evidence Law, [EA.125.90].
[55] Australian Securities and Investments Commission v MacDonald [2009] NSWSC 287; (2009) 256 ALR 199, 218 (Gzell J).
[56] (2012) 247 CLR 345 ('Hellicar').
[58] Hellicar, 381 (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).
[65] [2019] NSWCCA 160 ('Roach').
[66] Whilst [15] of the judgment suggests the relevant board meeting took place on 11 May 2011, the text of the relevant count and the board minutes in question suggest the meeting may actually have taken place the day prior.
[67] Roach, [121]-[123] (emphases added).
[68] Gregg v The Queen [2020] NSWCCA 245, [401] (Bathurst CJ, Hoeben CJ at CL agreeing at [712], Leeming JA agreeing at [713]).
[70] Ibid 51 (Carruthers J agreeing at 52, Grove J agreeing at 52).
[73] [1993] WASC 174; (1993) 9 WAR 215 ('Dempster').
[75] Repealed by the Statutes (Repeals and Miscellaneous Amendments) Act 2009 (WA) s 4.
[76] Dempster, 277 (emphasis added) (Walsh J agreeing at 279, Anderson J agreeing at 280).
[80] See R v Ceylan [2002] VSCA 53; (2002) 4 VR 208, 209 [4] (Winneke P, Batt JA agreeing at 219 [28], O'Bryan AJA agreeing at 219 [29]) (considering the offence of 'making a false document' in s 83A of the Crimes Act 1958 (Vic)); Brott v The Queen [1992] HCA 5; (1992) 173 CLR 426, 435-6 (Deane J) (considering physical element of the offence of forgery).
[87] [2021] NSWCA 24; (2021) 388 ALR 128 ('ET-China').
[88] Ibid 163 [197] (emphasis added) (Bathurst CJ agreeing at 130 [1], Leeming JA agreeing at 179 [287]).
[90] See generally [32]-[34] of the plaintiff's further amended statement of claim.
[91] [2015] VSCA 137; (2015) 49 VR 402, 419 [45] (Redlich, Santamaria and Kyrou JJA) ('Chong').
[93] The Memorandum and Articles of Association originally refer to Jamela Pty Ltd.
[94] Roach, 453-4 [120]-[123] (Bathurst CJ, Bell P and Johnson J).
[96] Kearney, 516; Propend, 521-2; AWB, 89-90.
[102] Anthony David Lang, Horsley's Meetings: Procedure, Law and Practice (LexisNexis Butterworths, 7th ed, 2015).
[110] Namely, the Draft April Minutes and the Revised April Minutes.
[111] Butler v Board of Trade, 686-7; Carbotech, [24]; Kaye v Woods, [38]. See also Uniform Evidence Law, [EA.125.90].
[112] See Kaye v Woods, [38]; Amcor, [59].
[113] The attachments are documents 42, 43, 45, 47-53 of the PwC entities' privilege schedule.
[114] P & V Industries, [27]; Amcor, [63].
[115] Kearney, 513-14 (Gibbs CJ), referred to in Cross on Evidence, [25290].
[116] Amcor, [71]. The discretion of the Court to inspect discoverable documents over which a claim for privilege is made is also contemplated by r 29.13 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
[118] I note, as an aside, that Mr Brown's apparent recollection of the April Board meeting does not appear to be consistent with the April Minutes being false.
Selak
National Tiles Co Pty Ltd & Ors [2023] VSC 446
(1985) 158 CLR 500
(1997) 188 CLR 501
(2001) 188 ALR 515
(1980) 146 CLR 141
(1994) 34 NSWLR 715
(1987) 77 ALR 565
(1988) 15 NSWLR 49
(1967) 116 CLR 518
(2012) 247 CLR 345
(1990) 56 SASR 455
(2012) 44 WAR 1
(1988) 48 SASR 567
(2009) 236 FLR 1
(2020) 382 ALR 425
(2011) 81 NSWLR 526
(1999) 201 CLR 49
(2002) 213 CLR 543
(2006) 155 FCR 30
(2002) 4 VR 332
(1910) 10 CLR 382
(1995) 183 CLR 121
(2009) 1 Qd R 1
(2009) 256 ALR 199
(1993) 9 WAR 215
(2002) 4 VR 208
(1992) 173 CLR 426
(2021) 388 ALR 128
(2015) 49 VR 402