Plaintiffs v Defendants

Supreme Court of Victoria|2014-07-16|Before: ELLIOTT J

EVIDENCE - Client legal privilege - Loss of privilege by the commission of a fraud - Relevant principles - Meaning of "in furtherance of the commission of a fraud" - Whether the fraud must be consummated - Evidence Act 2008 (Vic), ss 91, 125.

2 The associate judge held that s 125(1) of the Evidence Act 2008 (Vic) applied, at least in part, to the Documents and that there had been a loss of their immunity from disclosure.

3 The contents of the Documents were read by the associate judge in arriving at her Honour's decision. In these circumstances, the Documents formed part of the evidence before the court. I informed the parties at the commencement of the appeal that I had also read the Documents in preparation for the appeal.[3] It was understood I would rely on the contents of the Documents in determining the appeal, which were specifically addressed by the Appellant's submissions.[4]

4 The 4th defendant, Judith Gail Talacko, also appeared on the appeal, as she had done below. She is the wife of the Appellant. Limited submissions were made on her behalf during the course of the appeal.

5 The Appellant's parents, Alois and Anna Talacko ("the Parents"), left their home country of Czechoslovakia in 1948. In so doing, they left behind a large number of properties located in Czechoslovakia and in what was then East Germany, including properties the subject of the dispute between the parties ("the Properties").[5]

6 The Properties were seized by the State during communist rule. In late 1989, under new governments, processes were put in place for the Properties to be returned to the original owners, or their descendants. By this time the Parents were dead.

7 The Parents had 3 children; the Appellant, Helena (her executor is the 1st plaintiff) and Peter. Peter died on 24 November 1995. His children, Alexandra (the 2nd plaintiff), Martin (the 3rd plaintiff) and Rowena (the 4th plaintiff), have claimed for what they allege Peter was entitled.

8 David Talacko (the 2nd defendant) and Paul Talacko (the 3rd defendant) are the sons of the Appellant. With the exception of the Appellant and the Parents, the family members will be referred to by their first names.

9 Since on or about 16 October 1998, Judith has been the registered proprietor of a property located at 312 Glenferrie Road, Malvern in the State of Victoria ("the Malvern Property"). The registration occurred pursuant to a transfer of land dated 23 September 1998. Immediately prior to the time of the transfer to Judith, the Malvern Property was owned by Judith and the Appellant as joint proprietors.

10 The Supreme Court (General Civil Procedure) Rules 2005 (Vic) provide that, on an appeal from an associate judge, a judge of the court has power to, amongst other things, give any judgment and make any order which ought to have been given or made and make any further or other order as the case may require.[6] The appeal is not a hearing de novo.

11 Ordinarily, an appellant is required to demonstrate error before the court may exercise its appellate power.[7]

C.2 The Evidence Act

12 Division 1 of part 3.10 of the Evidence Act is concerned with client legal privilege. The division contains provisions for the protection of confidential communications and confidential documents in certain circumstances. Broadly speaking, the circumstances concern communications and documents created for the dominant purpose of a lawyer or lawyers providing legal advice to a client, or providing professional legal services relating to existing, anticipated or pending proceedings, either in Australia or overseas.

13 Section 125 of the Evidence Act, which is entitled "Loss of client legal privilege -misconduct", provides as follows:

(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; or

...

(2) For the purposes of this section, if the commission of the fraud, offence or act, ... is a fact in issue and there are reasonable grounds for finding that:

(a) the fraud, offence or act, ... was committed; and

(b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act ...;

the court may find that the communication was so made or the document so prepared.

14 By reason that the Appellant has objected to disclosure of any of the Documents, the court is required to determine each objection by applying the provisions of part 3.10 of the Evidence Act.[8] If the court determines pursuant to the provisions of part 3.10 that the evidence in the Documents must not be adduced or given in a proceeding, it is not admissible in the proceeding.[9]

15 In Amcor Ltd v Barnes,[10] Kyrou J considered the legal principles relevant to s 125 of the Evidence Act.[11] Save for the meaning of "fraud", the principles as stated by his Honour were not challenged by the Appellant.[12] From Kyrou J's helpful analysis (and leaving aside the meaning of the word "fraud" in s 125, to which I will refer below[13]), the following propositions may be stated:

(1) The court does not need to be satisfied on the balance of probabilities that a fraud, an offence or an act that renders a person liable to a civil penalty ("Penalty Act") has been committed, but rather that there are reasonable grounds for finding the fraud, offence or Penalty Act has been committed.[14]

(2) The section requires that "the client"[15] be knowingly involved in the fraud, offence or Penalty Act.[16] A client may be knowingly involved in the fraud, offence or Penalty Act of another person by: [17]

(a) conspiring with that person to commit the fraud, offence or Penalty Act;

(b) being a knowing participant in the other person's fraud, offence or Penalty Act; or

(3) Legal advice procured by a client for the purpose of assisting another person to commit a fraud, offence or Penalty Act falls within s 125(1)(a) and is not privileged.[18]

(4) Where a person, who is not aware of any fraudulent purpose, obtains legal advice as agent for another person, and that other person has an undisclosed fraudulent purpose in obtaining the advice, s 125(1)(a) applies. The other person is the true client, even if the lawyer is not aware of the client's existence.[19]

(5) The word "furtherance" in the phrase "in furtherance of the commission of a fraud or an offence or the commission of [a Penalty Act]" means "the fact of being helped forward; the action of helping forward; advancement, aid, assistance".[20]

(6) There is no absolute rule that conduct occurring after a fraud, an offence or a Penalty Act has been completed cannot be held to be "in furtherance of the commission" of the fraud, offence or Penalty Act. Subsequent conduct may or may not be in furtherance, depending on the nature and purpose of the conduct.[21]

(7) Positive steps taken by a fraudster to conceal information about the fraud or to place the property beyond the legal reach of the victim once the fraud is discovered can be in furtherance of the fraud insofar as the steps continue its efficacy.[22]

(8) Legal advice 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, fall outside the rationale for legal advice privilege and may be described as advice prepared in furtherance of the commission of a fraud.[23]

(9) Legal advice about legal consequences of a past fraud, the legal remedies that may be invoked by the victim of the fraud and any legal defences would not be in furtherance of the commission of a fraud.[24]

(10) Where the commission of a fraud, offence or Penalty Act is not a fact in issue in a proceeding, by operation of s 125(1) a document will not be privileged if the party who alleges that the document is not privileged satisfies the court that there is a prima facie case that a fraud, offence or Penalty Act has been committed and a document was prepared in furtherance of that fraud, offence or Penalty Act.[25]

(11) If a communication is made or a document is prepared for the purpose of planning or otherwise furthering a fraud, offence or Penalty Act, the communication or document falls within s 125(1)(a). This position is not affected by the subsequent events by which the fraud, offence or Penalty Act either is or is not committed.[26]

16 To elaborate on what must be established before the requirements of s 125(1)(a) may be satisfied:

(1) Although the person challenging the claim for privilege is not required to prove the alleged fraud or other improper purpose on the balance of probabilities, such a person must do more than simply allege that a fraud or other improper conduct has occurred, or was intended to occur at the time of the impugned communication or document. There must be "something to give colour to the charge" at a prima facie level that has foundation in fact.[27]

(2) What is sufficient to establish reasonable grounds to give "colour to the charge" will depend upon the circumstances of the case.[28]

17 The grounds of appeal may be summarised as follows:

(1) The associate judge erred in finding that the Documents were caught by the exception in s 125(1) of the Evidence Act.

(2) The associate judge was wrong in deciding that the principles as set out in Amcor v Barnes[29] applied to cause the legal privilege in respect of the Documents to have been lost and should have found that the Documents were confidential communications for the dominant purpose of the provision of legal professional services relating to an Australian or overseas proceeding or anticipated or pending Australian or overseas proceeding in which the Appellant is, or may be, or was, or might have been, a party.

18 In addition to the above, at the hearing the Appellant sought to raise issues beyond those contained in the notice of appeal.

19 The first new issue was whether or not an affidavit was accepted by the associate judge as being evidence before her at the hearing at first instance. An affidavit of David Paul Phelan sworn 12 March 2014 was tendered by the Respondents,[30] but was the subject of objection before her Honour. The transcript did not disclose an express ruling in relation to the objection.

20 In the written submissions made on behalf of the Appellant, filed 2 days before the hearing of this appeal, and in emails from the parties an issue was raised as to the admissibility of the affidavit and whether or not her Honour had ruled that the affidavit was inadmissible. Further, at the hearing of the appeal, it was contended by the Appellant that the transcript showed that her Honour had ruled that the affidavit was not admissible. Having read the transcript, it is difficult to understand how that submission was made. Further, her Honour's reasons strongly suggest the affidavit was taken into account. In any event, in order to clarify the position, before the hearing I inquired of her Honour as to whether the affidavit had been considered in making the orders that she did. I was informed that the affidavit had been taken into account as part of her Honour's considerations.

21 At the commencement of the appeal, I indicated that, as a result of this written submission, I had sought to clarify the position with the associate judge. I informed the parties as to the status of the affidavit, as set out above.

22 Secondly, in response to this, the Appellant sought to amend the notice of appeal to include the following ground:

The associate judge should have found that the affidavit of David Paul Phelan sworn 12 March 2014 was hearsay and should not have been admitted into evidence and relied upon by her Honour in determining as she did.

23 In opposition to the application to amend the notice of appeal, counsel for the Respondents indicated that if the matter had been raised in the notice of appeal, a further affidavit would have been prepared in order to deal with any difficulties that might exist in relation to the hearsay evidence. The Respondents said that if leave were granted, it would be necessary for there to be time for such an affidavit to be prepared and to be the subject of an application for leave under r 77.06.9(3).

24 I granted leave for the notice of appeal to be so amended. Having granted that leave, I then ruled that, as hearsay is permissible in an interlocutory application,[31] the ground of appeal was bound to fail.

25 Thirdly, upon this ruling being given, the Appellant then sought to further amend the notice of appeal to introduce a ground that the affidavit contained impermissible hearsay and should not have been received in evidence by her Honour. That application having been foreshadowed, I indicated to the solicitor for the Appellant that, subject to any submissions the other parties may wish to make, I was inclined to grant leave to the Appellant to further amend the notice of appeal, adjourn the appeal for a hearing early the following week and to require the Appellant to pay the costs of the adjournment by reason of the lateness of the application. The application to further amend the notice of appeal was then withdrawn.[32]

26 Given that the circumstances of the case must be considered in determining whether the Respondents have established "colour to the charge", it is appropriate to record some background facts. The subject matter relating to the dispute in this proceeding has a very long and unfortunate history. It traces back to a proceeding commenced in 1998 ("the 1998 Proceeding"), which concerned an agreement reached in the early 1990s between the Appellant, Helena and Peter ("the Original Agreement").

27 In August 2009, Kyrou J had occasion to consider whether or not a freezing order ought to be made in this proceeding. In his Honour's judgment ("the Freezing Order Judgment"), he set out some of the relevant history:[33]

The trial of the 1998 Proceeding commenced on 21 February 2001. The parties agreed to settle and terms of settlement dated 23 February 2001 were executed ('Terms'). The Terms are set out in full below:

In full settlement of the matters the subject matter of the [1998 Proceeding] the plaintiffs and the defendant [ie the Appellant] agree as follows:

The defendant to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the Amended Statement of Claim herein.

This clause does not apply to any interest in land purchased by the defendant as from this date.

To give effect to paragraph 1, the defendant will sign all necessary documents and give all necessary documents and attend at any place as required by law in respect of the signing of such documents.
If by reason of applicable law, or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms in respect of a particular property or properties the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell such property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction.
The plaintiffs to be responsible for and pay in the first instance all transfer costs, expenses, taxes, duties, levies and charges in any way payable in respect of the transfer or sale of the properties.
The defendant to pay to the solicitor for the plaintiffs the sum of $150,000 in part payment of the plaintiffs' costs on or before 23 June 2001.
In the event that the defendant breaches any term, condition or warranty in this agreement, then the plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.
The parties shall forthwith consent to orders of the Court that the proceeding be struck out with no order as to costs, together with a right of reinstatement for the purpose of enforcing these terms.
The parties agree to release each other from all actions, suits, demands, liabilities and costs arising out of or in any way related to the subject matter of the proceeding.

9. The defendant warrants that:

(i) he has not reduced his right, title and interest in the properties the subject of these terms since the commencement of the proceeding;

(ii) the properties the subject of these terms, or any of them, are not encumbered;

(iii) that he shall not deal with the properties the subject of these terms otherwise than in accordance with these terms; and

(iv) that until transfer or sale he will pay costs, taxes and expenses associated with each property the subject of these terms.[34]

The plaintiffs reinstated the 1998 Proceeding in 2005, alleging that Jan Talacko [ie the Appellant] had breached the Terms. On 24 April 2008, Osborn J held that Jan Talacko had breached the Terms.[35] Subject to resolution of some outstanding defences,[36] Jan Talacko is liable to pay equitable compensation to the plaintiffs in accordance with cl 6 of the Terms. Apart from the outstanding defences, the principal issue in the 1998 Proceeding is the assessment of equitable compensation.

In the 1998 Proceeding, the plaintiffs claim equitable compensation by reference to two-thirds of the value of the Properties together with an adjustment for income earned on those Properties. The plaintiffs were looking to the Properties as the main assets of Jan Talacko from which to satisfy any judgment in the 1998 Proceeding.

On 16 October 1998, Jan Talacko transferred his interest in the family home located at 312 Glenferrie Road, Malvern ('Malvern Property') to his wife, Judith Talacko, the fourth defendant in the 2009 proceeding. The transfer was executed a few days before the commencement of the 1998 Proceeding.[37] As the August Order[38] does not affect Judith Talacko or the Malvern Property, I will not refer to them in any detail.

In May 2009, Jan Talacko transferred interests in some of the Properties to his sons David and Paul Talacko, the second and third defendants in the 2009 proceeding, by way of gift. Some of the transfers have been registered whereas the registration of the other transfers is pending. The transfers are discussed in detail later in these reasons.[39]

The plaintiffs commenced the 2009 proceeding on 17 July 2009. They allege a number of causes of action against the first three defendants in respect of the transfers of the Properties. Against Jan Talacko, they allege a breach of the Terms, a breach of trust, a breach of fiduciary duty and conspiracy. Against David and Paul Talacko, they allege tortious conduct involving inducement of Jan Talacko to breach the Terms, causing loss by unlawful means and conspiracy, and knowing participation in Jan Talacko's breach of trust and breach of fiduciary duty. The causes of action are discussed in detail later in these reasons.

On 10 August 2009, I gave leave to the parties in the 2009 proceeding to refer to and rely on any affidavits filed in the 1998 Proceeding.

The August Order and these reasons are based on the evidence and submissions I have received and heard to date. David and Paul Talacko have not yet appeared and nothing in the August Order or these reasons is intended to preclude them from presenting evidence or making submissions on any matter that affects them.

28 Also in the Freezing Order Judgment, Kyrou J set out the following:[40]

During an interlocutory hearing before Osborn J on 20 June 2008, there was discussion about whether there was any real prospect of Jan Talacko dissipating his assets. The discussion was in the context of an ex parte injunction application the plaintiffs had made in the District Court of Prague in relation to the Properties. The following exchange took place between Osborn J and Jan Talacko's senior counsel, Mr Berglund QC:

MR BERGLUND: Your Honour, if I can address the question of the spectre of disposition having been raised.

HIS HONOUR: Yes.

MR BERGLUND: The judgment and the injunction was ex parte.

HIS HONOUR: Yes.

MR BERGLUND: My client says that he had no intention of disposing of the assets, and the court said, if he has no intention. But he didn't say it to the court when the injunction was raised. It was ex parte, and - - -

HIS HONOUR: He can undertake to this court not to dispose of them. There's no - if he did that that simplifies it all.

MR BERGLUND: That's right.

HIS HONOUR: If he did that, you would say there would be no reason at all to maintain the Czech proceedings.

MR BERGLUND: No.

HIS HONOUR: Yes, I understand.

MR BERGLUND: Those are the issues, and we ought not to be diverted from the spectre of it being disposed of because it was ex parte. There was no indication that he was intending to dispose of it, they just said, well you know we just want an injunction to restraining him from doing it.

29 Kyrou J also recorded that in an affidavit sworn by the Appellant on 9 September 2008 in this proceeding the Appellant stated, amongst other things, that he had no intention of disposing of any of the Properties. That affidavit contained the following statement:

My sole intention with respect to the Properties is to continue to rehabilitate and modernise them to a comparable state to which they were prior to them being forcibly taken from my Parents. I have no intention of selling, disposing, encumbering or in any other way dealing with the Properties other than in the normal course of letting some of them out on normal commercial terms where that is permitted.

30 As a result of this affidavit being put forward by the Appellant, the summons seeking the freezing order was not pursued by the Respondents at that time.

31 Accordingly, in the terms of the settlement dated 23 February 2001 ("the Terms of Settlement"),[41] in representations made to the court on 20 June 2008 and in an affidavit sworn 9 September 2008, the Appellant either denied any intention to, or agreed he would not, dispose of the Properties or deal with the Properties other than in a manner consistent with the Terms of Settlement. Further, the Appellant never gave notice of any change in his position.[42]

32 The Freezing Order Judgment records that:[43]

On 12 May 2009, Jan [the Appellant], David and Paul Talacko executed in Prague:

(a) a donation agreement in respect of interests in some of the Properties in Repy;

(b) a donation agreement in respect of interests in some of the Properties in Kbely and Prague 1;

(c) a donation agreement in respect of interests in the Properties in Holesovice; and

(d) applications for change of ownership under a donation agreement in respect of the interests in the Properties referred to in (a), (b) and (c) above ("the Applications for Registration").

33 On this appeal, the solicitor appearing for the Appellant acknowledged there was no dispute between the parties that the arrangements as outlined in the previous paragraph ("the Transfer Arrangements") had in fact occurred. This was the accepted position at trial in the 1998 Proceeding.[44]

34 The documents the subject of the Transfer Arrangements were subsequently registered, but took effect as at 12 May 2009.[45] As may be seen from the excerpt in paragraph 27 above, by August 2009 some registrations had already occurred, but others had not.

35 When the Respondents learned of the Applications for Registration, they again approached the court seeking freezing orders. On 11 June 2009, freezing orders were made by Kyrou J in relation to the Properties.[46]

36 Previously, on 25 March 2009, Kyrou J had ordered that the final hearing of the 1998 Proceeding be fixed for trial on 5 October 2009. Directions had been made to meet that trial date, including interlocutory steps in relation to discovery. Those discovery obligations were not complied with in full by the Appellant.[47]

37 In June 2009, the Appellant swore an affidavit stating it was not within his power to unilaterally withdraw the Applications for Registration. The Appellant deposed that he had informed Paul and David of the court's orders, but, in effect, he stated there was nothing more that he could do.[48]

38 On 7 July 2009, the Appellant terminated the instructions of his solicitor on the record in the 1998 Proceeding. That solicitor applied for leave to file a notice of cessation to act, which proposed notice stated a Prague address for the Appellant rather than the address of the Malvern Property.[49]

39 Despite having provided evidence to the court to suggest the Appellant was doing what was required of him to comply with the court orders concerning the Transfer Arrangements, the Appellant's Czech attorney sent a letter dated 17 June 2009 to the real estate registry in Prague providing information that the registry requested for the purpose of progressing the Applications for Registration. This was discovered by the plaintiffs on or about 9 July 2009.[50] As a result, the plaintiffs again approached the court, this time seeking orders for contempt of court and the issue of a warrant against the Appellant.

40 On or about 13 July 2009, the Appellant was observed at the Qantas international departures enquiry desk at Tullamarine Airport. However, the Appellant remained in Australia, leaving the airport by taxi. Also on 13 July 2009, Bongiorno J issued an arrest warrant.[51] Later on 13 July 2009, Bongiorno J remanded the Appellant in custody to appear before the practice court the next morning.[52]

41 On 14 July 2009, Byrne J granted an injunction which prevented the Appellant from leaving Victoria, attending any point of international departure or applying for any further passport, until the conclusion of the hearing of the summons seeking contempt orders. Orders were also made for the delivery up of the Appellant's existing passports.[53]

42 In an affidavit filed on or about 15 July 2009,[54] the Appellant stated that the letter sent on 17 June 2009 by his Czech attorney to the real estate registry in Prague[55] was without his instructions. However, he acknowledged that he had failed to comply with order 8 of the orders made 23 June 2009.[56] On 15 July 2009, the Appellant informed the court he had reinstated his instructions to his solicitor to act in the 1998 Proceeding.[57]

43 As already noted, on 17 July 2009, this proceeding commenced. On the same day, Kyrou J made orders against David and Paul restraining them from taking any further steps by themselves or otherwise for the purpose of or in furtherance of the registration of the transfers the subject of the Transfer Arrangements. Those orders continued until 4.15 pm on 24 July 2009.[58]

44 On 23 July 2009, the plaintiffs in this proceeding sought further orders against the Appellant, David and Paul, effectively requiring them to sign documents cancelling the transactions the subject of the Transfer Arrangements. On 24 July 2009, Kyrou J extended the orders that had been made on 17 July 2009 until 4.15 pm on 10 August 2009.[59]

45 On 10 August 2009, Kyrou J made orders (referred to above[60] as the August Order). In substance, Kyrou J ordered that, until the hearing and determination of the 1998 Proceeding, the Appellant be restrained from taking any further steps by himself or otherwise from dealing with the Properties. It was also ordered that the Appellant was required to communicate by telephone with David and Paul the contents of the August Order, which required the completion and signing of a cancellation deed together with withdrawal of the Applications for Registration.[61]

46 In September 2009, a further application was made by the plaintiffs in the 1998 Proceeding seeking orders that the Appellant not leave the State of Victoria, that he not attend any point of international departure and that he not apply for another passport. There were also related undertakings sought from the Appellant's solicitor.

47 On 2 October 2009, Habersberger J[62] set out further matters by way of background in relation to events leading up to the application before his Honour. Those events included:[63]

An order in similar terms to that sought in the present application was made by Byrne J on 14 July 2009 except that, as amended on 15 July 2009, the restraint was expressed to be "until the conclusion of the hearing of the summons filed 14 July 2009 or further order". It was recited in the "Other Matters" part of the order made on 14 July 2009 that Mr Witt [the Appellant's solicitor] had given an undertaking, which was in similar terms to that sought in the present application.

The summons filed on 14 July 2009 referred to in the order of Byrne J sought to have the defendant [ie the Appellant] committed for contempt for breach of orders made by Kyrou J on 11 and 23 June 2009. Thus, the effect of the no departure injunction was to prevent the defendant fleeing the jurisdiction, if he had been so minded, prior to the contempt application being heard.

On 30 July 2009, Byrne J found that the defendant was in contumelious breach of paragraph 11 of the order made by Kyrou J on 23 June 2009 concerning the provision of copies of the defendant's tax returns. His Honour declined to commit the defendant for contempt. Instead, Byrne J ordered that his no departure injunction be extended until further order. It was recited in the "Other Matters" part of that order that "the intention" of the above order was that the no departure injunction remain in force until the defendant had complied with paragraph 11 of the order of Kyrou J made on 23 June 2009 "to the satisfaction of the court". Mr Witt's undertaking was continued.

At a directions hearing in this proceeding on 10 August 2009, the defendant applied for an order discharging the no departure injunction and Mr Witt applied to be released from his undertaking. In a judgment delivered on 21 August 2009, Kyrou J ruled that the defendant had not fully complied with paragraph 11 of his order made on 23 June 2009 and he therefore refused the applications. However, his Honour granted liberty to the defendant and Mr Witt to renew the applications.

In his judgment, Kyrou J made the following relevant observations:

I have taken into account Mr Williams' submissions about the defendant's human rights. The defendant's right to travel overseas is not an absolute right. Among other things, it is subject to what the interests of justice require in this proceeding. In my view, the interests of justice in this case overwhelmingly require that the defendant comply with his discovery obligations, which he has persistently failed to do, and, in particular, to comply with Order 11.

On 4 September 2009, Kyrou J ordered that the plaintiffs have leave to file and serve the summons referred to above. It was recited in the "Other Matters" part of that order that Kyrou J had informed the parties that he was satisfied that the defendant had complied with his order made on 23 June 2009 requiring production of copies of the defendant's tax returns. However, it was further noted that the no departure injunction granted by Byrne J and the undertaking in respect of the defendant's passport was to continue until further order.

(Citations omitted.)

48 Habersberger J made many adverse findings in relation to the evidence and conduct of the Appellant. Out of an abundance of caution, I do not propose to take those findings into account for the purposes of this application.[64] Suffice to record that as a result of the application, it was ordered that, until the hearing and determination of the 1998 Proceeding, unless the Appellant pay the $2.3 million into court, the Appellant could not leave the State of Victoria. Other related orders were also made.

49 The trial of the 1998 Proceeding commenced on 7 October 2009. On 8 October 2009, Kyrou J made the following ruling:[65]

Clause 6 of the [Terms of Settlement] means that once the Court has found that the defendant has breached any term, condition or warranty in the [Terms of Settlement], the plaintiffs are entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, without needing to prove either the existence of the fiduciary duty or the breach of it.

This is because by entering the [Terms of Settlement] the defendant has irrevocably consented to such judgment being entered against him on the bases that he is taken to have (1) owed the fiduciary duty as alleged in the amended statement of claim; and (2) committed the breach of the fiduciary duty as alleged in the amended statement of claim.

50 After this ruling the trial continued until 30 October 2009.[66]

51 On 24 November 2009, Kyrou J delivered judgment in the 1998 Proceeding in which his Honour found that the plaintiffs in that proceeding, Helena, Alexandra, Martin, Rowena and Margaret, were entitled to equitable compensation in the sums of €8,955,016 and $881,017, together with costs.[67]

52 By the 2nd amended statement of claim dated 21 December 2009 ("the Statement of Claim"), the plaintiffs set out as material facts some of the history set out above, including the Terms of Settlement. The Statement of Claim includes allegations to the effect that the Appellant breached the Terms of Settlement by failing to do all things reasonable and necessary to carry out the Terms of Settlement.

53 The particulars to that allegation include that in or about May 2009, the Appellant sought "covertly, knowingly and dishonestly" to transfer his interests in the Properties in order to deny the plaintiffs the benefits and their entitlements under the Terms of Settlement. The particulars state further that David, Paul and Judith "covertly, knowingly and dishonestly participated in and connived at the purpose of the [Appellant] in seeking to deny the plaintiffs the benefits of their entitlement under the Terms of Settlement".

54 In addition, allegations are made in relation to the Malvern Property, which property was not the subject of the 1998 Proceeding. In relation to the Malvern Property, it is alleged that 4 days after the service of the 1998 Proceeding, the Appellant transferred his interest in the Malvern Property to his wife, Judith, in consideration "of the marriage" and for no other consideration.

55 It is further alleged that the transfer of the Malvern Property was done with the intention to defraud the plaintiffs of the benefit of any judgment to which they may become entitled in the 1998 Proceeding. The particulars to the allegation refer to the timing of the transfer, and the persons involved, in supporting inferences and a conclusion that the transfer was intended to place the Malvern Property beyond the reach of the court and beyond being able to be used to satisfy a judgment obtained by the plaintiffs against the Appellant. It was further alleged that the circumstances attracted the operation of s 172 of the Property Law Act 1958 (Vic).

56 By their defences, the Appellant and Judith admit they were registered as joint proprietors prior to 23 September 1998, that they executed a transfer on 23 September 1998 and that, pursuant to that transfer, the Appellant transferred his estate in fee simple to Judith. They otherwise deny the relevant allegations. In other words, the allegations concerning consideration are not specifically addressed. Thus, the defences indicate neither the Appellant nor Judith intend to advance a positive case that valuable consideration formed part of the transaction in relation to the transfer of the Malvern Property.

G. Reasonable grounds for finding fraud was committed

57 As may be seen from the Statement of Claim, this case concerns very serious allegations. Essentially, the plaintiffs allege the Appellant, in concert with David, Paul and Judith, has arranged for the transfer of his interests in the Properties to deliberately defraud the plaintiffs. Like allegations are made in relation to the Malvern Property, but the allegations in this regard are confined to the Appellant and Judith.

G.2 The Malvern Property - some preliminary matters

58 Section 172(1) of the Property Law Act 1958 (Vic) provides as follows:

Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

59 In Marcolongo v Chen,[68] the High Court considered an analogous provision to s 172 of the Property Law Act. In the plurality judgment[69] a number of relevant observations were made.

60 First, the term "defraud" in s 172(1) in the phrase "intent to defraud creditors" was designed to reproduce the meaning of the expression "delay, hinder or defraud" from previous legislation.[70]

61 Secondly, by reference to Story,[71] it was observed that the object of the previous legislation (from which provisions such as s 172(1) were derived) was for "the protection of creditors 'from those frauds which are frequently practised by debtors under the pretence of discharging a moral obligation [to] wives, children, and other relations'".[72]

62 Thirdly, it was stated that an inference might be drawn of an intention by a transferor to "defeat or delay creditors, even in the absence of direct evidence of that intention, where this outcome was the necessary consequence of a voluntary settlement".[73]

63 Fourthly, there is no requirement that the requisite intention be the sole or even the predominant purpose of the conveyance.[74] To elaborate, in identifying what is required to prove intent for the purposes of such a provision, the plurality quoted from Halsbury's Laws of England,[75] as follows:[76]

In an action to set aside an alienation under the statute the onus of proof of actual fraud on the part of the grantor, and that the grantee was privy to the intent, rests upon the plaintiff where the alienation is for valuable consideration. Where, however, the alienation is voluntary, then on proof that ... the natural consequence of the alienation was to delay, hinder or defraud creditors, or that the circumstances under which the alienation was effected bore one of the indications or badges of fraud hereafter mentioned, the onus of upholding the alienation is imposed on the defendants.

(Citations omitted.)

G.3 Appellant's position as to what may be relied upon

64 The Appellant submitted that, by reason of s 91 of the Evidence Act, the court could not rely upon any findings of fact made in other judgments of the court. It was submitted those judgments could not be used as evidence in order to determine the issues on this application. In essence, it was contended that, although it was appropriate to refer to and rely upon the history of what had occurred previously in this proceeding and in the 1998 Proceeding, any previous findings of fact could not be relied upon as evidence to support findings on this application.

65 Section 91 of the Evidence Act provides:

(1) Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.

(2) Evidence that, under this Part, is not admissible to prove the existence of a fact may not be used to prove that fact even if it is relevant for another purpose.

66 The submission seeks to extend the operation of s 91 beyond its terms. In Ainsworth v Burden,[77] it was observed that:[78]

It is clear that s 91 does not prevent the tender of judgments which contain findings as to the existence of facts relevant to the issues in the trial in which they are tendered. It merely prevents the judgments from being tendered for the purpose of proving the existence of those facts. If they are admissible for some other purpose - as they are in the present case, in order to demonstrate that they would have persuaded any honest-minded person that the defendant's allegations were false - they may not then be used to prove the existence of those facts, a consequence which would otherwise have flowed from s 60 of the Evidence Act.

(Original emphasis.)

G.4 There are reasonable grounds for finding the frauds alleged were committed

67 Strictly speaking, it is not necessary to determine the proper construction and operation of s 91 for the purposes of this appeal for a number of reasons.

68 First, this is an appeal and the court ought, ordinarily, decide the outcome of the appeal on the materials and the basis that the matter was before the court at first instance, unless such an issue is raised in the notice of appeal. No appeal point was taken based on s 91 of the Evidence Act.[79]

69 Secondly, as already noted,[80] it is common ground that the Transfer Arrangements were entered into. It is also accepted that the 1998 Proceeding was set down for trial on 25 March 2009 for hearing on 5 October 2009, and that the Transfer Arrangements were entered into on 12 May 2009.

70 Thirdly, there is no dispute that the Appellant, prior to 12 May 2009, having repeatedly given assurances on solemn occasions that he would not dispose of or deal with the Properties, voluntarily entered into the Transfer Arrangements without notice to the plaintiffs. The Transfer Arrangements involved no valuable consideration. Those facts alone are sufficient to give "colour to the charge" in relation to the allegations concerning the Properties.

71 Equally, there is no dispute that the 1998 Proceeding was commenced on 2 October 1998, and that, for most of 1998, the Malvern Property was owned jointly by the Appellant and Judith as joint proprietors. Further, it is not an issue that, on 16 October 1998, Judith became the registered proprietor of the Malvern Property. Although there is some issue on the pleadings as to when, in 1998, the transfer of the Malvern Property occurred, the difference in the timing is negligible.

72 Moreover, the relevant inference is properly open whether the transfer occurred before or after the 1998 Proceeding commenced. On either scenario, the Appellant had not performed the Original Agreement or the Terms of Settlement, and it was highly likely 1 or more of the plaintiffs would seek to enforce the Terms of Settlement against the Appellant.

73 Accordingly, there is also, based on these facts alone, "colour to the charge" in relation to the allegations regarding the Malvern Property. The position might have been less clear if Judith had paid an amount at or close to full value for the Malvern Property. There is no evidence any consideration was paid. The pleadings of the Appellant and Judith suggest otherwise.[81] In any event, absent some further explanation, even if consideration was paid, in my view the liquidating of the Appellant's fixed asset in the circumstances in which he found himself would mean there is "colour to the charge" on either scenario.

74 Finally, with respect to the Properties and the Malvern Property, there are the contents of the Documents. In the context of the matters raised above, the contents of the Documents themselves give "colour to the charge" in relation to the allegations regarding the Properties, the allegations in relation to the Malvern Property or other fraudulent conduct the subject of the relevant emails.[82]

G.5 Evidence is not inadmissible by reason of s 91 of the Evidence Act

75 In any event, I agree with the submission made on behalf of the Respondents that the Respondents did not seek to "prove the existence of a fact" by tendering judgments previously delivered in this proceeding and in the 1998 Proceeding. Those documents were tendered simply to establish that there are reasonable grounds for finding the alleged frauds. Such a purpose does not equate to seeking to prove the existence of the frauds on the balance of probabilities.[83]

H. Meaning of "fraud" in s 125 of the Evidence Act

76 The Appellant referred to the decision of Amcor Ltd v Barnes[84] and the findings in relation to the meaning of "fraud" for the purposes of s 125 of the Evidence Act. In particular, reference was made to the finding that the word "fraud" was intended "to apply to all categories of fraud known to the law irrespective of whether dishonesty is a necessary element of such a fraud".[85]

77 This position was contrasted with the decision of the New South Wales Supreme Court in Idoport Pty Ltd v National Australia Bank Ltd,[86] where Hodgson CJ in Eq expressed his "tentative opinion" that "fraud" for the purposes of the provision required an element of dishonesty and that unless the conduct in question could be characterised as dishonest it would not fall within s 125. This was adhered to by his Honour as a member of the Court of Appeal in Van Der Lee v New South Wales.[87] On both occasions, his Honour's views were obiter dicta. These views were expressly considered, before being rejected by Kyrou J.

78 In the circumstances of this case, it is not necessary for me to determine the issue in question. On the facts, it is clear that the conduct in question[88] may properly be characterised as dishonest.

79 In any event, if I were required to decide the point, I could only differ in approach if I were to form the view that Kyrou J is clearly wrong.[89] Having considered his Honour's reasons, I form no such view.

80 For the reasons stated above, the court need not be satisfied on the balance of probabilities that a fraud has been committed. If it is established that there are reasonable grounds for finding that either the Appellant or another person has committed a fraud and that the Documents were prepared in furtherance of the commission of that fraud, or an intended fraud, then the decision of the associate judge must stand.

81 Having regard to the factual background as set out above, I will refer to each document in turn (without specifically disclosing the contents):

(1) Document 1 is dated 13 January 2009. It is sent by Peter to Judy and copied into others. There are no lawyers privy to the email. It is difficult to understand how this document would attract ss 118 or 119 of the Evidence Act. There is nothing in the relevant part of the email to suggest the involvement of a lawyer in the proposed course of conduct.[90] In any event, dealing with the non-redacted part of the Document, the communication reflects an intention to seek to put the Malvern Property, or at least a very large part of the equity held in the Malvern Property, out of the reach of the creditors of Judy. It was prepared in furtherance of the commission of a fraud. By reason of what is set out above,[91] it matters not whether the proposed course of conduct actually took place.

(2) Document 2 is dated 18 December 2008. It concerns advice in relation to transferring the Properties prior to the actual agreements for the transfers. The document meets the description of being prepared in the furtherance of the commission of a fraud in May 2009.

(3) Document 3 is dated 16 May 2009. It contains advice given on 11 May 2009 in relation to the transfer of the Properties. It fits into the same category as document 2. The fact that the document refers to a primary purpose different to those purposes the subject of the allegations in the Statement of Claim, when viewed objectively and in light of the factual background of the case, does not alter my view that the document was prepared in furtherance of a fraud.[92]

(4) Document 4 consists of 2 emails dated 11 June 2009 and 12 June 2009. The earlier email is from a lawyer providing information about what occurred in court on that day. It also contains advice about what the lawyer's client had to do. The contents of that advice are not in furtherance of the commission of a fraud. In my view, contrary to the decision of the associate judge, privilege is entitled to be maintained in relation to this email. The later email is a communication from Paul to Judy and copied into others, none of whom are lawyers. In my opinion, there is no proper basis upon which a claim for privilege can be made in relation to this communication. Further, and in any event, it is directed towards subverting the processes of the court and falls within s 125(1). Accordingly, the associate judge was correct in ordering production of this part of document 4. The Appellant sought to argue that the subject matter of this email was irrelevant to the proceeding. This basis of challenging the decision below was not the subject of the notice of appeal. In any event, the contents are plainly relevant.

(5) Document 5 is dated 17 June 2009. It relates to advice about how a different explanation might be given after the event for transactions the subject of the Transfer Arrangements in May 2009. The document was prepared in furtherance of the commission of a fraud in that it is a relatively contemporaneous document that relates to an attempt to conceal the real purpose of the transactions.

(6) Document 6 is dated 18 July 2009. It is an email from a lawyer. It relates to steps to be or not to be taken to ensure the transactions the subject of the Transfer Arrangements of May 2009 were able to proceed. It is a document prepared in furtherance of the commission of a fraud.

(7) Document 7 is dated 29 March 2000. It is from Judy to the Appellant and copied into others, none of whom are lawyers.[93] It is not readily apparent how this document is privileged, but I will assume in favour of the Appellant that the contents referring to advice from a person whose first name is given in the email is that of a lawyer. This document falls into the same category as document 1 above.

(8) Document 8 is dated 27 August 2008.[94] The non-redacted part of the document reproduces an earlier email addressed to a lawyer. The entire email was written on behalf of the Appellant and sought advice on how to defraud the Appellant's creditors. It was prepared in furtherance of the commission of a fraud.

82 Apart from a very minor matter, the Appellant has failed to establish any error. The appeal will be allowed in part to deal with this matter, but otherwise will be dismissed. Accordingly, for the reasons stated, with the exception of part of document 4 comprising the email dated 11 June 2009, each of the Documents in their redacted form must be made available by the Appellant for inspection by the Respondents.

[1] It appears that the 5th plaintiff is recently deceased: AB 168.22-169.16.

[2] The associate judge redacted the Documents in part. There has been no challenge to the redactions.

[4] This was done in a manner which did not disclose the contents of the Documents to the Respondents.

[5] For the purposes of this appeal, it is not necessary to specify the properties left behind. The Properties the subject of dispute between the parties are set out in par 27 below.

[7] Oswal v Carson [2013] VSC 355, [11] (Ferguson J), referring to Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194, 203-204 [14] (Gleeson CJ, Gaudron and Hayne JJ).

[8] Section 131A(1). There are exceptions, which are not relevant.

[11] At [32], [38]-[70].

[12] Indeed, the notice of appeal effectively assumes the correctness of Amcor Ltd v Barnes [2011] VSC 341, but contends the principles ought not to have been applied as they were: see par 17(2) below.

[13] See pars 76 to 79 below.

[14] At [32], referring to Kyrou J's earlier decision of Hodgson v Amcor Ltd (unreported, Supreme Court of Victoria, 20 June 2011), [28]-[30]. See also par 15(11) below.

[15] See also par 15(4) below.

[20] At [59]. This meaning was derived from the Shorter Oxford English Dictionary. See also Macquarie Dicitonary (5th ed, 2009), 676.10, col 3.

[21] At [58]-[59]. For an example where such conduct was not in furtherance of a fraud, see P & V Industries Pty Ltd v Porto (No. 3) [2007] VSC 113, [26]-[32], [46]-[50] (Hollingworth J).

[23] [2011] VSC 341, [61], [63].

[25] At [68]-[69]. This proposition correctly acknowledges that s 125(2) is non-exhaustive of the circumstances in which s 125(1) might be satisfied.

[26] At [64]-[65]. See also Carter v Northmore Hale Davy & Leake (1995) 183 CLR 121, 130.3 (Brennan J), 134.8 (Deane J), 163.5 (McHugh J), which case, although decided before the introduction of any legislation codifying the rules of evidence, records the position that a communication or a document designed to facilitate a future wrongdoing is not privileged.

[27] Kang v Kwan [2001] NSWSC 698, [37.6] (Santow J), referring to Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 556.9 (McHugh J). See also at 514.3 (Brennan CJ), 521.9 (Dawson J), 534.3 (Toohey J), 546.5 (Gaudron J), 575.4 (Gummow J), 592.1 (Kirby J).

[30] Amongst other things, the affidavit exhibited earlier judgments of the court related to the issues the subject of this proceeding.

[31] Evidence Act, s 75; Supreme Court Rules, r 43.03(2).

[32] For completeness, I note that the Respondents sought to tender further affidavits on the appeal. There was no suggestion, nor could there have been, that the further affidavits could not have been tendered by the Respondents at first instance. I refused leave for the Respondents to rely on any further affidavit material.

[33] Talacko v Talacko [2009] VSC 349, [6]-[13].

[34] All errors are in the original hand written Terms.

[35] Talacko v Talacko [2008] VSC 128.

[36] The outstanding defences include that cl 6 of the Terms is a penalty or is uncertain.

[37] The 1998 Proceeding was commenced on 2 October 1998.

[38] The "August Order" is a reference to the orders made by Kyrou J in this proceeding on 10 August 2009, which included freezing-type orders against the Appellant, David and Paul in respect of the Properties. See par 45 below.

[39] See par 32 below.

[41] Clause 9 (iii). See par 27 above.

[42] [2009] VSC 349, [126(e)].

[44] Talacko v Talacko [2009] VSC 533, [25] (Kyrou J).

[46] The detail is set out at [2009] VSC 349, [58]. The Properties the subject of the order are set out in Attachment A to the Freezing Order Judgment.

[47] See par 47 below.

[48] [2009] VSC 349, [63]-[66].

[54] The judgment records that the date of this affidavit was 15 June 2009, but this date cannot be correct given its contents.

[55] See par 39 above.

[56] That order required the payment of $50,000 by the Appellant.

[57] [2009] VSC 349, [75]-[77].

[60] See par 27 and fn 38 above.

[61] The August Order is set out in the Annexure to the Freezing Order Judgment.

[62] Talacko v Talacko (No 2) (2009) 25 VR 613.

[64] Those findings were in the 1998 Proceeding. See pars 64-66 below.

[66] This judgment was not tendered by the Respondents before the associate judge. I merely refer to the ruling and the ultimate finding of the court, without reference to any facts as found by Kyrou J.

[69] French CJ, Gummow, Crennan and Bell JJ.

[71] Story, Commentaries on Equity Jurisprudence, as administered in England and America, (13th ed, 1886), vol 1, [353].

[74] At 555-556 [24]; and 565 [57] (Heydon J). See also Petrovic v Brett Grimley Sales Pty Ltd [2014] VSCA 99, [24] (Neave and Osborn JJA and McMillan AJA); Commissioner of Taxation v Oswal [2012] FCA 1507, [22]-[24] (Gilmour J).

[77] [2005] NSWCA 174 (Hunt AJA, with whom Handley and McColl JJA agreed).

[79] For completeness, I also note from my reading of the transcript of the hearing before the associate judge, s 91 of the Evidence Act was not raised previously.

[80] At par 33 above.

[81] See par 56 above.

[82] See par 81(1), (7) and (8) below.

[83] See par 15 above. The Appellant also sought to rely upon 2 decisions, namely Deputy Commissioner of Taxation (Cth) v Robinswood Pty Ltd [2001] WASC 191; (2001) 24 WAR 284 (Wheeler J) and Pallante v Stadiums Pty Ltd (No.2) [1976] VicRp 32; [1976] VR 363 (McInerney J). Neither of those cases is on point. They are concerned with evidence to be given at trial. They were also concerned with the common law rather than the provisions of the Evidence Act. In any event, they do not support the proposition contended for, namely that evidence in a case cannot be evidence in another case unless the parties and the issues are the same.

[87] [2002] NSWCA 286, [61] (with whom Mason P and Santow JA agreed, [24], [68], but see qualification in agreement by Santow JA at [68]). This case was concerned with s 131(2)(j) of the Evidence Act 1995 (NSW). See also ATH Transport Holding SA v JAS (International) Australia Pty Ltd [2002] NSWSC 956, [13] (Barrett J); Kang v Kwan [2001] NSWSC 698, [37.9 and .11] (Santow J).

[88] That is, the allegations the subject of the Statement of Claim and also the conduct referred to in the Documents which is not the subject of the Statement of Claim.

[89] Engebretson v Bartlett [2007] VSC 163; (2007) 16 VR 417, 429 [63] (Bell J); La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201, 204.5 (Burchett J). See also Herzfeld, Prince and Tully, Interpretation and use of legal sources, the laws of Australia (2013) 624.5 [25.4.160]. Cf Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 151-152 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).

[90] This observation is confined to the non-redacted part of the document.

[91] See par 15(11) above.

At a glance

Court

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Before

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Judgment (206 paragraphs)

Parties

Legislation Cited (16)

Cases Cited (9)