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[2005] VSC 104
Supreme Court of Victoria
2005-04-15
MASTER, EVANS
Original judgment source is linked above.
PRACTICE PROCEDURE - Discovery - Production - Legal professional privilege - Formulation of claim - Waiver - Express - Implied - Communications in furtherance of civil 'fraud' not privileged.
Mr P. Collinson on 11/8/04, 1/9/04, 8/9/04, 14/2/05 and 15/2/05
1 In this proceeding the plaintiffs allege, among other things, that:-
(i) The first plaintiff, P & V Industries Pty. Ltd. ('P & V') is and was at all material times trustee of the Porto and Valente Unit Trust.
(ii) Each of the 2nd-10th plaintiffs ('the unitholders') are and were at all material times -
(b) engaged in business as a property developer and/or as an investor in property development.
(iii) P & V provided services to and acquired benefits for those unitholders in their business.
(a) from about 11 September 1989, to about 30 May 1997, was employed by P & V;
(b) from about 1990 to about 30 May 1997, was employed by P & V as its Land Development Manager;
(c) from about 5 September 1990, to about 22 May 1997, was company secretary of P & V;
(d) from 2 February 1993 to about 22 May 1997, was a director of P & V;
(f) had duties as an employee, director and officer which included reporting to P & V all opportunities for property development which were or might be worthy of consideration for purchase and/or development by P & V or by or on behalf of the unitholders;
(g) as an employee, director and officer had duties, fiduciary duties and a duty to act in accordance with S232 (2), (4), (5) and (6) of the Corporations Law which he owed to P & V.
(v) The second defendant, Garry Lawes ('Garry') and the third defendant, Stephen Lawes ('Stephen') knew, at all material times, of the matters referred to in paragraph (i)-(iv) above.
(vi) The fourth defendant, Kennedy Guy ('the solicitors') -
(a) from about 1994, until about late 1998, was the firm acting as solicitors to P & V and the unitholders or some of them;
(b) knew of the facts referred to above in paragraphs (i)-(iv) above.
(vii) The fifth defendant, Lawport Pty. Ltd. ('Lawport'), is and was at all material times a company of which Porto and Stephen are and were directors.
(viii) The sixth defendant, Morton Homestead Pty. Ltd. ('Morton Homestead') -
(a) had as its sole director from its incorporation at 4 April 1997, to 16 December 1997, Colin Kennedy, a partner in the solicitors firm who was also for some period commencing on its incorporation its sole shareholder until the shareholding was transferred to Stephen;
(b) is and was at all material times a trustee for among others Oakley Bridge Pty. Ltd., Norwood Gardens Pty. Ltd., Porto, Elisa Porto, Stephen and Lynn Lawes.
(ix) The seventh defendant, Portcorp Developments Pty. Ltd. ('Portcorp Developments') which -
(a) is and was at all material times a company of which Porto is and was a director and in which Portcorp Pty. Ltd. ('Portcorp') was the beneficial shareholder;
(b) a trustee for (among others) Porto, Elisa Porto, Portcorp and Pan Nominees Pty. Ltd.
(a) is and was at all material times a company of which Garry and his wife, Janice, are and were directors and since 1 December 1998, of which Stephen is and was a director;
(b) had until 1997, two issued shares one held but not beneficially by Janice, and the other by Lawton Nominees Pty. Ltd. ('Lawton');
(c) has since 1997, had 2 issued shares both held by Lawton.
(xi) In the course of his employment and 'his office', Porto was 'introduced' to land which may be suitable for development -
(a) at 638-752 Taylor's Road, Melton, ('the Taylor's Hill land') in or about 1995;
(b) at Kenny and Ardlie Streets, Attwood, ('the Attwood land') in or about 1995;
(c ) in Rowes Road, Werribee ('the Werribee land') at some time between about 1995 and 30 May 1997; and became aware of other land which was or may have been suitable for development.
(xii) Porto did not report to P & V or the unitholders that any of that land represented an opportunity or might be suitable for property development.
(xiii) Instead he introduced the land as such an opportunity to others including Garry, Stephen, Morton Homestead, Lawport, the solicitors, Portcorp Developments,Kumbelin, Australand Holdings Ltd. and Ardel Pty. Ltd. or some of them.
(xiv) The Taylor's Hill land was acquired by Morton Homestead and has sincebeen subdivided and developed.
(xv) The Werribee land was acquired by Portcorp Developments and Kumbelinand has since been subdivided and developed.
(xvi) The Attwood land was introduced inter alia to Ardel Pty. Ltd. by one or someor all of Porto, Garry, Stephen and Lawport which bought it.
(xvii) Inter alia, this conduct of Porto and/or Lawport and/or Portcorp Developmentswas a breach by Porto of his employment,fiduciary and statutory duties andby reason of those breaches the plaintiffs have suffered loss and damage.
(xviii) Garry, Stephen, the solicitors, Lawport, Morton Homestead and Kumbelinwell knew or ought to have known of the breaches.
2 By summons filed on 19 February 2004, the plaintiffs sought production for inspection of a great number of documents discovered by the solicitors in an affidavit of documents sworn 6 April 2001, ('the first affidavit') and in a 'supplementary' affidavit of documents sworn 6 December 2001, ('the second affidavit') identified in a notice to produce said to be dated 12 January 2004, but in fact dated 13 January 2004, served on their solicitors.
3 The application was before the Court on 5 April 2004, when an order was made by consent. Paragraph 1 of that order was in the following terms:-
"Any party seeking to be added as a Respondent to the Plaintiffs' Summons filed 19 February 2004 ("added Respondent") give written notice to the Plaintiffs, the Fourth named Defendant and the Court by 4:00 PM on 7 April 2004 and thereafter each added Respondent be deemed to be a Respondent to the said summons and the summons be deemed amended accordingly, without prejudice to any argument as to costs in relation to the joinder of each added Respondent."
4 I have been unable to find on the Court file any written notices from any defendants indicating that they sought to be added as respondents to the application. If none were given by 4 p.m. on 7 April 2004, then none of the other defendants have formally become respondents to the application.
5 When the application came before the Court on 29 July 2004, all defendants appeared as if they were responding to the summons. On the resumption of the hearing on 11 August 2004, it was indicated that the 2nd, 3rd and 8th defendants no longer wished to be heard and would abide the court's decision on the application. The other defendants appeared and contested the application until the hearing was formally completed on 15 February 2005.
6 The plaintiffs have proposed minor amendments to the application against the solicitors. These were not opposed and will be made in due course. I have no note or recollection of any application to seek production of the documents no longer in the solicitors' possession from Porto, Lawport and Morton Homestead (even if they had actually become respondents). Given the course of discovery made by those defendants and the manner in which they have participated in the hearing, opposed production and tendered for inspection by the Court the remaining documents in issue in the application I would of course be prepared to make the necessary amendments to raise claims for production of those documents against the relevant defendants.
7 Each of the 'documents' sought to be inspected was a file created on behalf of a client by the solicitors. In the first affidavit the files were discovered in Part 1 of Schedule 1, the part in which a party is obliged to discover relevant documents for which the party makes no objection to production of a client's file. Strictly speaking, a solicitor does not have the right to claim privilege from production. The privilege is that of the client. The solicitor is simply obliged to raise the issue with the client before production and if the client wishes to claim the privilege to notify the party to whom discovery has been made of that fact and withhold production until that privilege is tested on an application for production to which the client is a respondent. In the usual case, the claim would be verified by the client in that application.
8 The relevant 'documents' in the first affidavit were listed under the name of the client entitled to claim privileges and the word 'PRIVILEGED' appeared under the heading 'File Name' in respect of each 'document'. The deponent stated in respect of all of them, inappropriately, that the 'fourth defendant claims solicitor-client privilege over the details regarding the files opened on behalf of its clients who are defendants in this action'.
9 The documents listed included files opened for Porto, Portcorp Developments, Lawport and Morton Homestead.
10 In the second affidavit, the deponent did not persist in the claim for privilege in respect of many of the documents. Those for which the claim was maintained were listed in part 2 of Schedule 1 to the affidavit, the documents constituting each file were enumerated and described and the subject matter of each file was described. Certain of the documents were no longer in the possession of Kennedy Guy. Of these, document 15, a file opened for Porto, was now believed to be in the possession of Porto and documents 72 and 150, files opened for Morton Homestead, were now believed to be in the possession of Lawport and/or Morton Homestead. Schedule 2 of the second affidavit did not set out any details of the time when and circumstances in which these documents left the possession of the solicitors.
11 When the hearing of the application resumed on 1 September 2004, the number of 'documents' the subject of the application has been reduced, by a process of attrition, to seven. One of these, document 15, was not in the possession of the solicitors at the time the application was made and the application for production against them in respect of it must be dismissed.
12 That document was not enumerated and described in Porto's first affidavit of documents sworn 8 April 2003. In the second part of the first schedule to that affidavit he simply described the solicitors' files for which he had earlier claimed legal professional privilege in a compendious and thoroughly unsatisfactory manner. The most that can be said of the discovery made in that affidavit was that it could not be said definitely of any solicitor's file that it was or was not the subject of the claim to privilege.
13 Porto made a 'supplementary' affidavit of documents on 8 April 2003, repeating the claim to privilege for documents of the same description. In a further 'supplementary' affidavit of documents sworn 10 August 2004, he discovered document 15 as being in his possession, claimed legal professional advice privilege in respect of the contents of the file and in a schedule enumerated and described the contents of the file.
14 The plaintiffs sought production of this 'document' and all other documents still in issue on three bases:-
15 There was no evidence to support this alleged waiver. If it cannot be said whether the document was discovered or not in Porto's initial discovery, it cannot be said that there was such a waiver. When he did clearly discover it, he made the claim to privilege.
16 The basis for the claim that there had been such a waiver was not clearly articulated and consequently neither the Court nor Counsel for Porto could understand it. In reply, Senior Counsel for the plaintiffs suggested as best I could understand him that because Porto had waived privilege in respect of a number of the files in relation to the Taylor's Hill subdivision it would be unfair to maintain privilege in any file relating to it. That point was not developed by reference to what had been discovered in those files. Accordingly, it could not be said that there was something in those files which could only be fully understood by inspecting Document 15. No interdependence, association with or derivation from Document 15 was demonstrated other than that they were all generally connected with the Taylor's Hill subdivision.
17 There has been no evidence of use of Document 15 by Porto or partial disclosure of its contents which would dictate in fairness that waiver should be implied because an inaccurate or incomplete perception of the privileged communication would otherwise be created.[1]
III. The communications contained in Document 15 were made in furtherance of a 'fraud'
20 Neither counsel for Porto nor for the other respondents contended that there had not been, as there must be, a prima facie case of criminal or civil fraud made out by the plaintiffs in relation to Porto's involvement in the Taylor's Hill land development.[4] There is ample evidence of breaches of statutory and fiduciary duties of a dishonest nature in support of the application. There is prima facie evidence which arguably demonstrates the involvement of Colin Kennedy, a partner in the solicitors' firm in those breaches and in measures designed to conceal those from the plaintiffs.
21 It was simply contended on behalf of Porto that the communications in Document 15 were so remote in time from those activities that they could not be regarded as being in furtherance of any such 'fraud'. Porto's counsel invited me to conclude that the communications were confidential communications for the purpose of obtaining legal advice in relation to a letter written to Porto by the plaintiffs' solicitors, Secombs, on behalf of the members of the Porto & Valente Group on 23 September 1999. That letter sought 'information as to any dealings' by Porto with property 'outside the Group' while he was still an employee and director of the Group Companies.
22 I was invited by Porto's Counsel to inspect the file and conclude that there was nothing in furtherance of a fraud to be found in the documents on it. I did so and having done so have concluded that the communications were for the purpose of furthering the fraud. Central to that conclusion is the view that to conceal a fraud is to act in furtherance of it;[5] Re Golightly.[6]
23 I must reveal the process of reasoning that leads me to that view but will do so in a way that does not render futile any appeal from my decision.
24 From the description in the schedule to Porto's third affidavit of documents of documents 4 and 5 in Document 15 it appears that the solicitors drafted a response to Secomb's letter for Porto to send to Secombs.
25 Porto responded to Secomb's letter dated 23 September 1999, by letter dated 4 October 1999. In it he professed to be ' at a loss to understand why the Porto & Valente Group has instructed you to act in respect to my departure from the Group'. He went on to state that 'I can only surmise that you may be referred (sic) to the dealings between the Porto & Valente Group and companies associated with the Arturo Porto Family Trust'. Porto's counsel described this as 'playing a dead bat' to the inquiries raised in Secomb's letter. My examination of the file leads me to the conclusion that it is more akin to handling the ball to prevent it hitting the wicket.
26 Document 1 in File No. 997246 is described in the schedule to Porto's third affidavit of documents as 'Kennedy Guy Case Slip - Matter File Creation' dated 27 September 1999. The matter description in it reveals clearly that at the time the file was created Porto, and the solicitor who opened the file too, knew precisely what dealings Secombs were enquiring about. To respond as he did in his letter, Porto was to dissemble with a view to concealing those dealings.
27 In a letter dated 12 October 1999, from Secombs to Porto disabused Porto of his feigned belief that the dealings referred to their earlier letter were dealings between the Porto & Valente Group and companies associated with the Arturo Porto Family Trust. That letter is on the file in issue again it is reasonable to conclude simply from the description of document 8 in the Schedule to that supplementary affidavit that the solicitors drafted a response to Secombs' second letter and sent it to Porto on 18 October 1999. On 25 October 1999, Porto replied to Secombs' second letter. In that letter he again dissembled when he said 'I have no knowledge of what you may be insinuating'.
28 The documents on the file which are connected with Porto's response to the Secombs' letters are Documents 1-8 and 22. It was not so readily apparent that all of the other documents on the file were relevant to matters in issue (save for Documents 14 and 15) but they have been discovered as relevant and must be regarded as tainted by association with the improper purpose which I have discerned in the communications relating to the Secombs' letters.
29 Accordingly, I will order that Porto produce Kennedy Guy File No. 997246 for inspection by the plaintiffs.
Documents 21, 23 - Kennedy Guy files 982502 and 922572
30 These documents were files opened by the solicitors for Lawport and were discovered in Part 1 of Schedule 1 of the solicitors' first affidavit of documents and the client's privilege was asserted in respect of them. In the solicitors' second affidavit of documents, they appeared in the second part of Schedule 1. There the subject matter of Document 21 was described as 'Sale - Lots 1, 2, 7 and 8 Allenby, Sydenham' and the subject matter of Document 23 was described as 'Point Cook Road'.
31 In a joint affidavit of documents sworn by Porto on behalf of Lawport and Morton Homestead on 15 October 2002, a very general claim for legal professional privilege was made for generic classes of documents referred to in part 2 of Schedule 1. Those classes of documents all appear to fall within the litigation head of that privilege. Files 982502 and 992572 were not identified specifically as being subjects of that claim. In a supplementary affidavit of documents sworn by Porto on behalf of those defendants on 17 September 2004, that claim for privilege is repeated in the same terms. Again, those files are not identified specifically as a subject of the claim.
32 As neither file appears to have been brought into existence in anticipation of litigation it can be said that the documents have not been discovered by Lawport. Nevertheless, Counsel for Lawport produced them for inspection by me and in doing so established that Kennedy Guy no longer had physical possession or custody of them. When that firm ceased to do so is not known to the Court.
33 In a somewhat melodramatic turn of events, on resumption of the hearing of the application on 15 February 2005, Counsel for the plaintiffs conceded that the plaintiffs were no longer pursuing the allegations in the statement of claim in relation to the Attwood land, the Werribee land and the other land. As a consequence, it was said by counsel for the plaintiffs the claim to production of Documents 21 and 23 was no longer pursued. I see no point in analysing and expressing conclusions on the merits of the claim for production in respect of Document 23 at this time.
34 On the other hand, Document 21 was clearly a document relevant to the Taylor's Hill land. It reflects Lawport's interest in acquiring those lots which are adjacent to the Taylor's Hill land. If they had been acquired the development of the Taylor's Hill land would arguably provide synergies and added value to the development of those lots. Accordingly, the file could be said to be opened as an extension of the original scheme of development. In any event, it was stated by Counsel for Lawport that none of the lots were acquired by Lawport (as was confirmed by an inspection of the file) so it was pointless for the plaintiffs to pursue production of it.
35 This file was purportedly opened on behalf of Moreton Homestead. Privilege was also asserted for it by the solicitors in their first affidavit of documents in the same manner as for the other documents to which the application relates and in their second affidavit it was, as with the others, transposed to the second part of the first schedule and its subject matter described and its contents described and enumerated.
36 Its subject matter was 'Dispute with Porto and Valente'. The file seems to have been created on 17 July 2000. This proceeding was commenced on 18 August 2000. It cannot be concluded positively whether or not Moreton Homestead has discovered it but the application has been conducted on the footing that it asserts a claim to litigation privilege for it (see the earlier comments in relation to the Lawport documents). The file was produced for inspection by me by Counsel for Moreton Homestead.
37 For the reasons advanced in respect of Document 15, I reject the plaintiffs' submissions that there has been express or implied waiver of the privilege.
38 Counsel for the plaintiffs advanced a very ambitious contention to the effect that if it is demonstrated that a person has made a communication with a solicitor for the purpose of committing a 'fraud' or in furtherance of it all later communications on that subject matter with that solicitor cannot attract legal professional privilege if that solicitor was privy to the fraud. If this was the case, then that solicitor could not be used to advise in relation to or conduct the party's defence of litigation in connection with the 'fraud' without the party having to reveal to the opposite party all communications between the party and the solicitor brought into existence for that purpose. The proposition is superficially attractive but must be rejected. It cannot be a criminal object to obtain legal advice in order to defend a charge of fraud. As Stephen J. observed in R v Cox:[7]
" ... in each particular case the Court must determine upon the facts actually given in evidence, whether it seems probable that the accused person may have consulted his legal adviser not after the commission of the crime for the legitimate purpose of being defended, but before the commission of the crime for the purpose of being guided or helped in committing it. We are far from saying that the question whether the advice was taken before or after the offence will always be decisive as to the admissibility of such evidence. Courts must in every instance judge for themselves on the special facts of each particular case ......"
39 The Court in that case no doubt had in mind the possibility of advice being sought after the commission of the crime for the purpose of concealing it.
40 In Grant v Downs[8] in the majority judgment of Stephen, Mason and Murphy JJ, at 688-689, the High Court emphasized the need to scrutinize with care claims to litigation privilege. At 689, they observed:-
"It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual. The Court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past ....."
41 It seems to me that if the Court is satisfied that the solicitor acting in the defence of a proceeding in relation to the 'fraud' had been privy to it then in the event of a challenge to a claim for privilege it ought scrutinise any such claim extremely carefully and not hesitate to exercise the power to inspect documents relating to the defence of the litigation discovered by the alleged fraudster to ensure that a legitimate occasion for the taking of confidential legal advice was not being used simply to conceal the fraud and thereby to pervert the course of justice.
42 Moreton Homestead has had ample opportunity to properly discover this 'document', make a proper claim to privilege for it and to adduce evidence substantiating that claim to privilege but has failed to do so. Even if it was appropriate for the solicitors to make the claim for it (as opposed to advising the Court that it had a right to make a claim) the 'claim' made by the solicitors is too broad-brush, is simply a resort to a verbal formula and fails to address individually the circumstances in which that 'document' was brought into existence.
43 Counsel for Moreton Homestead invited me to inspect the document to determine whether privilege subsists in its contents. Having done so, I cannot be satisfied that it does. The file cover and its contents exhibit some unusual features. It appears that the file was created on 17 July 2000. Its subject matter is 'Dispute with Porto and Valente'. There is no document evidencing instructions to act for Moreton Homestead at this time, approximately a month before the writ in this proceeding was issued. The file cover, the copy case slips dated 17 July 2000, and a document described in the solicitors' second affidavit of documents as copy form undated (KEN 330-002) all bear a notation which can only have been designed to ensure that knowledge of the existence and contents of the file within the firm was limited and controlled.
44 Documents KEN 330-001, 066-069, 070-079 and 080-085, all dated 17 July 2000, are ASIC register extracts or relate to them. It is not readily apparent why such extracts were obtained, upon whose instructions they were obtained and how they related to the 'Porto and Valente dispute' to which the file purports to relate.
45 Document KEN 330-009 is a letter from Secombs enclosing by way of service the sealed copy writ in this proceeding by way of service on Moreton Homestead at its registered office, which was at the offices of the solicitors. This document is plainly not privileged. Document KEN 330-007-008 is a letter to S.Lawes of Moreton Homestead enclosing the writ, volunteering some advice in relation to it and enquiring whether or not that company intended to instruct Kennedy Guy to act for it in the proceeding. If the relationship of solicitor/client had not arisen in respect of this proceeding at this stage then how can the claim to privilege succeed. Documents KEN 330-003-004 are a facsimile transmission and report forwarding a copy of the letter dated 21 August 2000, from Secombs forwarding the writ by way of service and the report in relation to that transmission. Document KEN 330-005 is a note of some attendance in response to which the facsimile was sent. Document KEN 330-011-055 is a photostat copy of the writ in this proceeding brought into existence at a time when the solicitors did not have instructions to act in it.
46 Absent any evidence justifying the 'claim' in respect of this document I cannot be satisfied that a properly formulated claim could succeed. I will order that it be produced by Moreton Homestead for inspection by the plaintiffs.
Document 74- Kennedy Guy File No. 997286 - the 'Utri file'
47 This was a document discovered as a privileged file by Kennedy Guy in its first affidavit of documents. In its second affidavit of documents it was omitted as it was said not be relevant. Having inspected the contents of the document, I could find nothing of relevance to this proceeding. I will not order production of the 'document'.
48 These documents were files opened by the solicitors for Colin Lawes who is not a party to the proceeding. They were discovered by the solicitors in their first affidavit of documents and were asserted to be subject to a claim for privilege. In their second affidavit of documents it was deposed that they were files opened by that firm on behalf of non party clients (not identified) and had no relevance to questions in the proceeding.
49 In an affidavit sworn by the solicitor for Kennedy Guy on 28 July 2004, 'without prejudice to the privilege' of its clients the subject matter of the files (both conveyancing transactions - one in mid 1992 and another in 1999) was described and the client was identified as Colin Lawes.
50 I was informed by Counsel for the solicitors that that firm had not been instructed by Colin Lawes to claim privilege for the files. No such claim was made or established on affidavit by Colin Lawes.
51 It seems however that at a time when production of the files remained an issue the solicitors parted with possession of the files and put it beyond the power of the court to order production of them by the solicitors. This fact was asserted by Counsel for the solicitors and I will accept that that is the case for the purpose of this application but will direct that the solicitors make a further affidavit of documents deposing to the circumstances in which and the time when it parted with possession of them and as to what has become of them.
52 In these circumstances, I am obliged to dismiss the application in so far as it relates to those files. Those circumstances will certainly be relevant to the question of costs. Had the files remained, as they should have, in the solicitors' possession I would have ordered that they be produced for inspection in order to verify the assertion that they were not relevant.
53 When the parties have had an opportunity to digest these reasons, I will fix a time for any arguments as to costs. However, I trust that the parties can resolve that question without consuming more of the court's limited time, too much of which has already been consumed by this application.
54 I will make orders in respect of production and further discovery today and would ask Counsel for the plaintiffs to prepare a minute of an order in conformity with these reasons after resolving if possible the question as to when the relevant documents should be produced for inspection.
_____________________________
P & V INDUSTRIES PTY LTD(A.C.N. 005 032 600) (formerly PORTO & VALENTE INDUSTRIES PTY LTD)
(ACN 004 922 972) (formerly ARTURO INVESTMENTS PTY LTD) (ACN 004 922 972)
(1986) 161 CLR 475
(1910) 10 CLR 382
(1974) 4 ALR 405