The Owners - Strata Plan No. 74602 v Eastmark Holdings Pty Limited

The Proceeding 3The dispute concerning access to the Documents arises in a proceeding brought by Eastmark against the Owners Corporation and three other defendants, Mr Eddie Kabraji, hendersenhayes Pty Limited (hendersenhayes) and Mr Kris Bruckner (the Proceeding). The Owners Corporation is the owners corporation under Part 2 of the Strata Schemes Management Act 1996 (the Management Act) in respect of a residential tower building in Berry Street, North Sydney, known as Beau Monde (the Building). Eastmark is the registered proprietor of 9 of 242 lots in the strata scheme relating to the Building. Mr Kabraji is the sole director and shareholder of hendersenhayes and is a member and chairman of the executive committee of the Owners Corporation. Mr Bruckner is also a member of the executive committee of the Owners Corporation. 4In the statement of claim filed in the Proceeding, Eastmark makes the following allegations:

• at a meeting of the Owners Corporation held on 30 June 2011, it was resolved that the Owners Corporation enter into a project and management services agreement with hendersenhayes;
• on 1 July 2011, the Owners Corporation and hendersenhayes executed a project and management services agreement (the Agreement);
• Mr Kabraji owed fiduciary duties to the Owners Corporation as a member and chairman of its executive committee, including a duty not to place himself in a position where his personal interests may conflict with the interests of the Owners Corporation;
• Mr Kabraji breached his fiduciary duty to the Owners Corporation, in that he caused hendersenhayes to propose the Agreement to the Owners Corporation, caused hendersenhayes to enter into the Agreement with the Owners Corporation and took no steps to inform or warn the Owners Corporation that the Agreement was or might be to his personal advantage;
• Mr Kabraji took those steps in circumstances where:
• Mr Kabraji does not have any formal legal education or training and many of the services to be provided under the Agreement are ostensibly legal in nature;
• the remuneration payable to hendersenhayes is excessive;
• the nature of the purported services is such that they ought to be able to be undertaken by the executive committee and the strata manager of the Owners Corporation; and
• numerous terms of the Agreement are unfair or contrary to the legitimate interests of the Owners Corporation; and
• the interests of justice require that Eastmark bring the Proceeding to enforce the rights of, and duties owed to, the Owners Corporation, in circumstances where the Owners Corporation has not itself sought to set aside the Agreement and has actively and repeatedly resisted the attempts by Eastmark to do so. 5In the Proceeding, Eastmark claims declarations that Messrs Kabraji and Bruckner have breached fiduciary duties owed to the Owners Corporation and that the Agreement is the result of breaches of fiduciary duty on the part of Messrs Kabraji and Bruckner. Eastmark also claims an order that the Agreement be set aside and that an account be taken of all dealings between hendersenhayes and the Owners Corporation. Eastmark does not seek any relief directly against the Owners Corporation. 6The Owners Corporation has filed a defence to the statement of claim, in which it accepts that Mr Kabraji owed a duty to the Owners Corporation to take into account its interests when exercising his functions as a member and chairman of the executive committee, but does not admit the allegation as to the existence of fiduciary duties. The Owners Corporation denies that there has been any breach of any fiduciary duty that may be owed to it.

The Subpoena 7Eastmark procured a subpoena to be issued requiring Holding Redlich, solicitors for the Owners Corporation, to produce documents to the Court. The documents described in the schedule to the subpoena included the following:

• all files relating to any matter regarding the preparation, negotiation and finalisation of the Agreement;
• all documents relating to any matter regarding instructions to Holding Redlich in relation to the Agreement;
• all documents relating to any matter relating to whether a conflict of interest existed or arose in relation to the Agreement;
• all drafts or versions of the Agreement;
• any fee proposals, costs agreements and invoices issued in relation to the Agreement;
• all documents relating to any communications to or from anyone employed by Holding Redlich regarding any matter relating to the Agreement; and
• any documents relating to any communications to or from anyone employed by Holding Redlich regarding any matter relating to the Proceeding. 8Holding Redlich produced a number of documents to the Court in accordance with the subpoena. A packet of documents produced was marked 'Privileged'. By motion filed on 7 June 2012, the Owners Corporation sought an order that access to the documents in that packet be restricted to the Owners Corporation until further order. The documents were identified in two Schedules, which were numbered 1 and 2. 9On 3 December 2012, the primary judge ordered that the notice of motion be dismissed and that Eastmark was entitled to inspect the documents. The primary judge concluded that no privilege attached, as between the Owners Corporation and Eastmark, in relation to the documents that were relevant, and that, even if documents relating to the advice from Holding Redlich on the Agreement were privileged, that privilege had been waived. His Honour considered that most of the documents should be made available for inspection, being documents 1-21, 23, 25, 30-34 in Schedule 1 and documents 3-19 in Schedule 2. On 13 December 2012, the Owners Corporation filed a summons seeking leave to appeal from those orders.

The Agreement 10In order to put the dispute in context, it is necessary to say something of the Agreement. The pivotal provision of the Agreement is clause 2, which provides that hendersenhayes must provide the project management and administrative services of Mr Kabraji, in accordance with the terms of the Agreement. By Clause 3.1(a), the Owners Corporation agrees that the description of the services in the annexure to the Agreement is an adequate and appropriate description of its requirements. Under clause 3.1(b), hendersenhayes must, if requested by the Owners Corporation, liaise, consult, cooperate and integrate the services with the services of other managers, consultants and contractors engaged by the Owners Corporation. Under clause 7.1, the Owners Corporation must ensure that, at all times, it cooperates fully with hendersenhayes and does everything on its part that is necessary for the performance of the services by hendersenhayes. 11The annexure to the Agreement consists of an "Executive Summary" relating to a Scope Management Plan, which appears to have been prepared as a proposal put to the Owners Corporation by hendersenhayes or Mr Kabraji. The purpose of the Plan is stated to be to advise the executive committee and the Owners Corporation on the following: "...the reasons behind the legal actions we are pursuing, the Commercial and Legal impacts on the decisions we are making, whether these are commercially viable for the Owners Corporation, whether there are substantial benefits which will accrue to the Owners Corporation by going down this route, the risks the Owners Corporation runs if we do not do [sic] go down this path and whether there is reasonable justification to have someone administer the workload caused by our current and future impending actions." 12Under the heading "Reasons", the Executive Summary states that there are current general levies outstanding totalling over half a million dollars, which Eastmark, a few owners associated with Eastmark and a few other owners in the minority, have not paid a month to 9 months after they fell due. The Reasons refer to proceedings that could cost the Owners Corporation up to a million dollars or more because it refused to renew a caretaker agreement. The Reasons also refer to a cross-claim against Eastmark. 13Under the heading "Status", the Executive Summary refers to the fact that levies are needed to pay creditors as bills fall due. Reference is made to reasonable grounds for believing that the Owners Corporation has cross-claims against Eastmark. Under the heading "Requirement for a Scope Management Plan", the Executive Summary then says, as follows: "We are tendering for a Project Management and Administration Services role, so we have prepared a Scope Management Plan for the Management of Legal matters. It is necessary that the Owners Corporation understands the number of proceedings that are on foot, the intricacies involved in managing each legal matter, the degree of difficulty the manager of legal matters experiences, the risks involved, the strategic repositioning which is required to deal with each matter and the management of transformation and change. ... There are literally thousands of pages to read and understand and then there is our Shared Facility Constitution which is the SMS, the By Laws, the Agreements like Caretaker, Concierge and Cleaning and the many amendments to the past Development Application, the construction and amenity impacts, the Sales Deeds, the Car Parks that both State and Local Government Planning and Eastmark burdened us with by approving both Beau Monde and now this 'Major Project' for the development of a Commercial Building and Hotel..." 14Under the heading "Project Names", the Executive Summary sets out legal matters that are currently being processed as follows: Owners Corporation (OC) 74602 v Eastmark Holdings - Four (4) Potential Proceedings OC v Ms Hee Soo Lee and Mr Joseph Park - Two (2) Statement of Claims [sic] and a potential for a third in August BMAUS v OC (Defence Proceeding) OC v Eastmark Holdings/BMAUS and a potential to Include Linders Strata Choice OC v Brookfield Multiplex OC v Eastmark Holdings (SMS Distribution and Retrospective Compensation) - CTTT (Mediation and Adjudication) OC v Eastmark Holdings SMS Distribution and Retrospective Compensation) [sic] - Supreme Court OC v Eastmark - Construction Impacts to Beau Monde Residential (TBD) 15Under the heading "Project Areas", the Executive Summary refers to four statutory demands for outstanding levies and three statements of claim for outstanding levies. It then refers to, amongst others, a "BMAUS/Eastmark" cross-claim. 16Thus, it is apparent that the Agreement relates, at least to a fairly substantial extent, to services in connection with actual or prospective litigation between the Owners Corporation and Eastmark. A question that arises, therefore, is whether the disputed documents relate to legal advice provided to the Owners Corporation by Holding Redlich in connection with the Agreement or whether they relate to legal advice provided in connection with the actual or prospective litigation between the Owners Corporation and Eastmark. Eastmark does not seek access to documents in the second category. However, it claims that it is entitled to access to documents in the first category.

The Reasons of the Primary Judge 17After summarising the substantive issues in the Proceeding, the primary judge observed that the relief sought by Eastmark in the Proceeding is for the benefit of the Owners Corporation only, such that, if the Proceeding be successful, any recovery would accrue to the Owners Corporation and not to Eastmark. His Honour then referred to the retainer by the Owners Corporation of Holding Redlich to provide legal services by letter of 2 June 2011 (the Agreement Retainer). That letter sets out the terms on which Holding Redlich offered to provide legal services and discloses information about the costs of those services and the rights of the Owners Corporation. The letter states that the scope of the work covered by the proposed engagement is as follows: "Advising the Owners Corporation as to the terms and conditions usually required in connection with a Consultancy Agreement with Eddie Kabraji's consultancy firm for "litigation management" and co-ordination fees including outlining the necessary meetings and resolutions and the procedures to create a transparent and binding arrangement". Estimates are given in the letter for:

• detailed advice;
• drafting Consultancy Agreement; and
• negotiations with Eddie Kabraji. 18The primary judge noted that the sole basis for the claim in respect of the documents in dispute is that they consist of confidential communications between the Owners Corporation and Holding Redlich prepared for the dominant purpose of providing legal services to the Owners Corporation. His Honour recorded that it was accepted that any privilege claimed belonged to the Owners Corporation, which was the client of Holding Redlich at the time of entry into the Agreement. 19The primary judge formulated the following questions: a) what is the nature of the privilege on which the Owners Corporation relies; b) whether the common interest, as between the Owners Corporation and lot owners, means that the former cannot assert privilege against the latter in respect of the documents in question; c) whether the advice is not confidential as against lot owners; and d) if the documents are privileged, whether privilege has been waived. 20Section 108 of the Management Act relevantly provides that a lot owner may request an owners corporation to allow an inspection to be carried out. An owners corporation must make any record or document in its custody or under its control available for inspection by a person who makes such a request. A person entitled to inspect a document may take extracts from or make a copy of the document. The primary judge accepted that such statutory provisions are not to be construed as abrogating important common law rights, privileges and immunities, such as legal professional privilege, in the absence of clear words or necessary implication to that effect (referring to Hanks v Admiralty Resources NL (No 2) [2011] FCA 1464, which deals with s 247A of the Corporations Act 2001 (Cth) (the Corporations Act)). His Honour then said that, at common law, a lot owner, in relation to the relevant owners corporation, should be in a similar position with respect to the inspection of documents, to that of a shareholder of a corporation in relation to the corporation before the enactment of the Corporations Act. 21The primary judge considered that, in circumstances where the Owners Corporation was purporting to act on behalf of the lot owners, in obtaining legal advice concerning the entry into a contract that affected the interests of all lot owners, such advice was not confidential as between the lot owners and the Owners Corporation once it was obtained. His Honour considered that the fact that Eastmark and the Owners Corporation were then in dispute as to matters that were the subject of the advice did not alter that fact. 22There are at least two quite separate and distinct lites between the Owners Corporation and Eastmark. The first lis is the subject of the Proceeding, namely, the question of whether the Agreement between hendersenhayes and the Owners Corporation should be set aside. While, nominally, Eastmark and the Owners Corporation are on different sides in the Proceeding, in substance Eastmark seeks to bring a derivative action on behalf of and for the benefit of the Owners Corporation as against hendersenhayes. Accordingly, the interests of Eastmark and the Owners Corporation are identical, in so far as Eastmark seeks to enforce the rights of the Owners Corporation. In so far as Eastmark has standing to enforce the rights of the Owners Corporation in a derivative action, it is entitled to access to the materials of the Owners Corporation, including materials over which the Owners Corporation asserts privilege, to aid in the prosecution of those claims. 23However, it appears that there are other lites or prospective lites as between Eastmark and the Owners Corporation, where their interests are quite divergent, namely, the disputes that are the subject of the services to be provided under the Agreement. Those disputes were in existence prior to the Agreement Retainer and, therefore, prior to the seeking and giving of advice that is the subject of the subpoena. There is every reason why the Owners Corporation should be entitled to assert its legal professional privilege as against Eastmark in respect of documents relating to those disputes. 24Having concluded that the Owners Corporation cannot assert legal professional privilege over the disputed documents as against Eastmark, the primary judge then considered whether the relationship between the Owners Corporation and Eastmark was one that gave rise to a common interest. His Honour considered that the interests of Eastmark and the Owners Corporation, at the time when the documents were created, were not adverse to each other since they were not adversaries. That conclusion is correct, in so far as it is directed to the relationship between Eastmark, as a lot owner, and the Owners Corporation, in relation to the setting aside of the Agreement. However, in relation to the potential dispute between the Owners Corporation, on the one hand, and Eastmark, as a third party, on the other hand, against whom the Owners Corporation intends to prosecute claims, they are clearly adversaries. 25The primary judge said that, at the time when the advice on the Agreement was given, the Owners Corporation was in a formal legal relationship with the lot owners, including Eastmark in its capacity as a lot owner, and the Owners Corporation communicated with its legal advisers about a matter in which the lot owners shared an interest. That observation is quite correct in relation to the position of Eastmark as a lot owner, in relation to the Agreement. However, it cannot be correct in relation to the position of Eastmark as a potential defendant in proceedings to be brought by the Owners Corporations against it. 26While it is true, as the primary judge observed, that, in practical terms, the Owners Corporation should want the derivative action brought by Eastmark to succeed, if the breach of fiduciary duty can be established, Eastmark would certainly not want the potential claims by the Owners Corporation against it to succeed. While Eastmark, in its capacity as a lot owner, may be entitled to access to certain of the disputed documents, it is not entitled, in its capacity as a potential defendant in adversarial proceedings brought against it by the Owners Corporation, to access to documents that relate to those disputes. 27The primary judge inspected the disputed documents. His Honour appears to have concluded that all of the disputed documents relate to advice given by Holding Redlich in connection with the Agreement. Further examination of the documents suggests that that is by no means clearly the case. It is apparent that Holding Redlich had several retainers from the Owners Corporation. Only one of those related to the Agreement. Other retainers appear to have related to the prospective claims by the Owners Corporation against Eastmark. 28Examination of the relevant documents in Confidential Exhibit 2 (the documents listed in Schedule 2) and Confidential Exhibit 3 (the documents listed in Schedule 1) indicates the following: (a) The Agreement Retainer related to advice concerning the terms of the proposed agreement and the meeting to be held to approve the entry into it [Ex 3, document 30]. Another retainer related to advice concerning a claim or claims against Eastmark (Retainer 2) [Ex 3, document 29]. (b) On 26 August 2011, Holding Redlich was retained by the Owners Corporation to draft a protocol for the management of conflicts of interest in the administration of the Agreement (Retainer 3) [Ex 2, documents 5 and 6]. (c) On 13 September 2011, Holding Redlich was retained to advise the Owners Corporation in relation to certain matters, including the Strata Management Statement, or SMS, as it is referred to in the Executive Summary annexed to the Agreement. Those matters also included possible claims and disputes against or involving Eastmark (Retainer 4) [Ex 3, document 28]. 29That examination also suggests that in Confidential Exhibit 2: (a) Documents 3, 4, 5, 6 and 7 relate to Retainer 3. They are not relevant to the Agreement Retainer and the subject matter of Retainer 3 does not appear to involve any consideration of particular claims or disputes between Owners Corporation and Eastmark. (b) Documents 8, 9, 10, 11, 12, 13, 17, 18 and 19 relate to the Agreement Retainer. (c) Documents 14, 15 and 16 relate in part to the Agreement Retainer and in part to Retainer 4. To the extent that they relate to the latter retainer, they are not relevant to the Agreement Retainer and concern matters in which the interests of Owners Corporation and Eastmark are different and opposed. 30Similarly, in Confidential Exhibit 3: (a) Documents 1, 2, 3, 31 and 32 relate to Retainer 3. (b) Documents 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 15A, 30 and 33 relate to the Agreement Retainer. (c) Documents 16, 17 and 18 relate partly to the Agreement Retainer and partly to Retainer 4. (d) Documents 19, 20, 21, 23 and 25 relate partly to the Agreement Retainer and partly to Retainer 2. The latter retainer concerns matters in which the interests of Owners Corporation and Eastmark are different and opposed. 31That analysis suggests that the primary judge's ruling, as referred to in [8] above, may not be completely accurate. To the extent that documents relate to Retainers 2 or 4, they are not relevant to the Agreement Retainer and concern matters in respect of which the interests of Owners Corporation and Eastmark are not common or joint. To the extent that documents relate to Retainer 3, they are not relevant to the Agreement Retainer and would appear to relate to a matter in respect of which the interests of Owners Corporation and Eastmark are not different and opposed.

Application for Leave to Appeal and the Appeal 32The draft notice of appeal raises four grounds as follows:

1. The primary judge erred in holding that legal advice obtained by the Owners Corporation was not confidential as between lot owners and the Owners Corporation.
2. The primary judge erred in finding that the interests of the Owners Corporation and Eastmark were not potentially adverse.
3. The primary judge erred in finding that there was common interest between Eastmark and the Owners Corporation sufficient to allow Eastmark to rely upon its common interest.
4. The primary judge erred in finding that the voluntary disclosure of a document containing legal advice was inconsistent with the maintenance of legal professional privilege over other documents containing legal advice and inconsistent with the claim of confidentiality. It is not necessary to deal with the question of waiver. 33The grounds of appeal do not seek to draw the distinction outlined above, namely, the distinction between documents relating to advice relating to the Agreement, on the one hand, and documents relating to advice in connection with actual or prospective claims by the Owners Corporation against Eastmark. The grounds of appeal do not address the possibility that this Court may, on examination, conclude that, to the extent that the disputed documents relate to advice given in connection with the Agreement, the Owners Corporation is not entitled to assert legal professional privilege as against lot owners such as Eastmark, but that others of the disputed documents are concerned with actual or prospective claims against Eastmark over which the Owners Corporation is entitled to assert legal professional privilege as against Eastmark. 34To the extent that the disputed documents relate to advice given in connection with the Agreement, as distinct from advice given in relation to any other matter, the Owners Corporation is not entitled to assert legal professional privilege as against Eastmark. The primary judge made no error in that regard. However, His Honour appears, erroneously, to have treated all of the documents as being in that category. 35Leave to appeal should be granted and the appeal should be allowed. The matter should be remitted to the primary judge, with a direction that the documents identified above as not relating to obtaining or giving advice in connection with the Agreement should not be made available for inspection by Eastmark. Eastmark had no opportunity of making submissions about that category of documents, since it has not had access to any of the documents, whereas the Owners Corporation could have dealt with the different categories, had they been properly examined. Notwithstanding that leave to appeal will be granted and the appeal allowed, the Owners Corporation has been substantially unsuccessful. There should be no order as to the costs of the application for leave or of the appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 July 2013