Thomas & Ors v SMP

LEGISLATION CITED : New South Wales Crime Commission Act 1985

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Fried v National Australia Bank [2000] FCA 911 Hospital Products Ltd v United States Surgical Corporation (1985) 156 CLR 41 Jack Brabham Engines Ltd v Beare [2010] FCA 35 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 CASES CITED : Liristis v Gadelrabb [2009] NSWSC 441 McKenzie v McDonald (1927) VLR 134 Meinhard v Salmon (1928) NY 458 R v Saleam (1989) 16 NSWLR 14 Re Coomber [1911] 1 Ch 723 Warman International Ltd v Dwyer (1995) 182 CLR 544 United Dominions Corporation Ltd v Brian (1985) 157 CLR 1

TEXTS CITED : P D Finn (ed) Essays in Equity (Law Book Co, Sydney, 1985) T G Youdan (ed), Equity, Fiduciaries & Trusts (The Carswell Co, Toronto, 1989)

Eric Clyde Thomas John Leslie Sullivan Softsand Design Investments Pty Limited PARTIES : SMP (International) Pty Limited Eugene King David Joseph King Gergory Paul Willett Deborah Willett

P E King with J Loxton - for plaintiffs COUNSEL : W Carney - for third defendant R J Weber SC with I R Pike - for fourth defendant F Kalyk - for fifth defendant

Hayes Partners - for plaintiff SOLICITORS : Husseini Lawyers - for third defendant Moray & Agnew - for fourth defendant Bartier Perry - for fifth defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2003/85446 - ERIC CLYDE THOMAS & ORS v SMP (INTERNATIONAL) PTY LTD & ORS (NO 2)

JUDGMENT 1 This is an application by the fourth defendant (Mr. Willett) to set aside a subpoena issued by the plaintiffs to the New South Wales Crime Commission. The subpoena seeks the production of the transcript of a record of interview, or hearing, at which Mr Willett was examined by the Commission.

The Transcript 2 Hearings before the Commission are held in private: Section 13(5) of the New South Wales Crime Commission Act. However, the Commission has power, with the approval of the Management Committee, to release the transcript to such persons or bodies as it thinks appropriate: Section 7. In response to the subpoena, the Commission exercised that power in order to make the transcript available to the plaintiffs. Its decision to do so is subject to this application. 3 The parties have informed me that the subject matter of Mr Willett's examination was his knowledge of, or involvement in, possible money laundering activities by a Mr Barkl. Before dealing with the specific contentions in relation to the subpoena, I should explain, by way of background, the factual context and the competing legal issues which arise in the proceedings.

Mr Willett 4 Mr Willett is a well known identity who has carried on business for a considerable time in Cronulla as an accountant, financial advisor and business agent. He has many clients and is a leading player agent for rugby league footballers. The broad central allegation in these proceedings concerns Mr Willett's advice and conduct in connection with recommendations by him for the investment of the monies of Mr Thomas and Mr Sullivan. Among other things, Mr Thomas and Mr Sullivan contend that they were in a fiduciary relationship with Mr Willett and that he owed them certain duties arising from that relationship. 5 The fiduciary relationship is said to have first arisen in 1998 and to have subsisted until 2002. During that period, Mr Thomas and Mr Sullivan caused substantial monies to be invested, loaned or outlaid in transactions recommended and encouraged by Mr Willett. In the case of Mr Thomas, the provenance of those monies was a judgment for approximately $5 million which he received following a personal injury which he had suffered.

Factual Issues - the Context 6 The hearing is still at an early stage and I am conscious that it has been frequently said of cases involving an alleged fiduciary relationship that there is "no class of case in which one ought more carefully to bear in mind the facts of the case": Re Coomber [1911] 1 Ch 723 at 728-9. With that warning in mind, the primary factual issues so far appear to concern (1) the true nature and purpose of the business relationship between Mr Thomas, Mr Sullivan and Mr Willett, especially in relation to two companies referred to as SMP and SSDI; (2) the characterisation of the payments and transfers of monies which Mr Thomas and Mr Sullivan made on the recommendation of Mr Willett; (3) whether statements made by Mr Willett and, to a lesser extent, Mrs Willett, in connection with SMP, were false; and (4) whether there was any non-disclosure by Mr Willett, especially in connection with SMP. It seems likely that in some transactions, Mr Thomas, Mr Sullivan and Mr Willett were joint venturers.

Legal Issues - The Context 7 The plaintiffs contend that their relationship with Mr Willett was characterised by ascendancy, influence, vulnerability, reliance, trust and confidence. In the circumstances, they contend that they were entitled to expect that Mr Willett would act in their interests, or at least in their joint interests - without false, reckless or extravagant representations and with good faith, loyalty, honestly and full and frank disclosure. Sir Owen Dixon once described the essential requirements of a fiduciary relationship as "full disclosure and fair and open dealing": McKenzie v McDonald (1927) VLR 134 at 145; see also P D Finn, "The Fiduciary Principle" in T G Youdan (ed) Equity, Fiduciaries & Trusts, 1989, Carswell, pages 4-5, 41-54

8 Accepting the plaintiffs' case at its highest, the well known statement of Justice Cardozo in Meinhard v Salmon (1928) 249 NY 458 at 463-464 may possibly represent a touchstone for the resolution of the issues in dispute: Joint adventurers, like co-partners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible on a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions (Wendt v Fischer, 243 NY 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.

9 See also United Dominions Corporation Ltd v Brian (1985) 157 CLR 1 at 14-15 (Dawson J); Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

10 However, even if the relationship is properly characterised as fiduciary, an issue will still arise as to what were the legal incidents of the relationship. In particular, an issue will arise as to what relevant fiduciary duties, if any, were owed by Mr Willett to the plaintiffs having regard to the particular features of their commercial relationship: Hospital Products Ltd v United States Surgical Corporation (1985) 156 CLR 41 at 69 (Gibbs CJ) and 102 (Mason J).

11 Mr Willett denies that his relationship with Mr Thomas and Mr Sullivan had the characteristics of ascendancy, trust, reliance and confidence. His central contention is that Mr Thomas and Mr Sullivan were arm's length commercial investors and lenders who sought higher returns and accepted the higher correlative risks to which they were consequently exposed. It is said that those risks, not any wrongful conduct by Mr Willett, have resulted in the losses which the plaintiffs claim. 12 In support of his defence, Mr Willett is entitled legitimately to point to well known warnings to the effect that strained applications of equitable principle do not promote justice: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19 at [101]; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [179]. He is also entitled to point to reservations about an occasional tendency by courts to find fiduciary duties too readily in a commercial relationship where it is inappropriate to do so: Lehane, "Fiduciaries in Commercial Context", in P D Finn (ed), Essays in Equity; 1985, Law Book Co; John Alexander's Clubs (supra) at [90]. 13 I should point out that the alleged fiduciary relationship is not the only issue in this case. There are also issues as to whether Mr Willett is responsible for other wrongful conduct, arising from the same broad facts, consisting of negligent misrepresentation, misleading conduct and breach of contract. But it is clear nevertheless, that on the plaintiffs' case, the overall relationship between Mr Thomas, Mr Sullivan and Mr Willett is said to have been suffused with a paramount fiduciary quality.

Loan to Mr Barkl 14 I should now turn to the subpoena. As I have mentioned, the subpoenaed transcript concerns Mr Willett and Mr Barkl. Mr Barkl was a friend and client of Mr Willett. The evidence has so far traversed a number of payments including a payment of $100,000 to Mr Barkl in December 1998. The payment to Mr Barkl was made by cheque drawn by Mr Willett on the account of SSDI. Mr Thomas says that SSDI was established and recommended by Mr Willett for his benefit as a vehicle for the investment of his judgment monies. Until Mr Willett gave certain advice and made certain recommendations to Mr Thomas in 1998, those monies had been placed on deposit with Mr Thomas' bank. 15 Although the true nature of numerous transactions is in dispute, the payment of $100,000 to Mr Barkl in December 1998 is relatively clear. On Mr Willett's recommendation, Mr Thomas lent the monies to Mr Barkl through SSDI. In his affidavit, Mr Thomas said at [60}: On or about early November 1998, Willett phoned me about a personal loan for one of his clients. Willett said to me (words to the effect). 'Would you be interested in making a personal loan to our clients the Barkl's for $100,000.00? They need this money to pay an urgent tax bill and have insufficient funds to pay for it immediately; they're the people that bought my townhouse in Kirkwood Road. You will get the standard Willett and Associates interest which is 10% and the Barkl's will have it repaid within 12 months. We (Willett and Associates) personally guarantee all our inter client loans. As I told you before, it's common practice for us to borrow from and lend to our clients, it generates good interest and returns for all concerned much better than dealing with the banks and is quick and easy. I know these people very well, I'm their accountant and they bought our townhouse at 40 Kirkwood Road Cronulla. It's a safe loan as I know all their financial details and their ability to repay it. 16 There was brief cross examination on this topic in which it was suggested to Mr Thomas that it was Mr Sullivan, not Mr Willett, who recommended the loan to Mr Barkl. Mr Thomas' revealing and indignant response to this question was: "You've got to be kidding". Grounds Supporting Subpoena 17 The plaintiffs rely on two grounds to support the subpoena. Credit and relevance are both deployed. It is said that one of the legitimate forensic purposes justifying the subpoena is that there is a reasonable basis for concluding that the transcript will facilitate the cross examination of Mr Willett on his credit. It is also said that there is a reasonable basis for concluding that the transcript (or at least statements by Mr Willett recorded in the transcript) are, or may well be, relevant to issues of fact that I must determine in these proceedings. I will deal first with the relevance ground.

Relevance 18 I do not see any reasonable basis for concluding that statements by Mr Willett recorded in the transcript might be relevant to any issue of fact that I must determine. The fact of the loan of $100,000 by SSDI to Mr Barkl, with monies provided by Mr Thomas, is not in dispute. Nor do the plaintiffs seek any relief in relation to that particular advance. Mr Willett's ability to persuade Mr Thomas to part with his monies so as to invest or lend those monies through SSDI, or directly with SMP, is relevant to the characterisation of the overall relationship between Mr Thomas, Mr Sullivan and Mr Willett. But the primary facts in relation to the particular $100,000 loan to Mr Barkl are not contentious. At the conclusion of the hearing, I will be able to draw inferences about that relationship from the primary facts. But I do not think that there is any reasonable likelihood that statements made by Mr Willett in his examination by the Commission in relation to any possible money laundering activities of Mr Barkl will assist me. Mr Willett's transcript does not satisfy the test of apparent relevance. I do not think that the subpoena can be supported on that basis. Credit 19 Nor do I think that the subpoena can be supported on the credit basis. There have been a number of relatively recent judicial statements about the extent to which the credit basis can justify a subpoena. They reveal a difference in emphasis reflecting the varied factual circumstances in which the issue can arise, as well as the discretionary nature of the considerations to which a judge will have a reference on such an application. Three of the more important decisions in which such statements have been made are: Fried v National Australia Bank [2000] FCA 911 (Weinberg J); Liristis v Gadelrabb [2009] NSWSC 441 (Brereton J); Jack Brabham Engines Ltd v Beare [2010] FCA 35 (Jagot J). There is, I think, a common thread in each of these decisions which I will endeavour to explain: (a) As a general principle, the production of documents intended to be used solely to impeach the credit of a witness may be a legitimate forensic purpose: Fried (supra) at [24]. It is not therefore an objection, by itself, that the subpoena seeks documents relating only to credit: Liristis (supra) at [5]; R v Saleam (1989) 16 NSWLR 14 at 19 (Hunt J). On the other hand, in order to support the subpoena, it is not sufficient, by itself, merely to say that the documents relate to the credit of a witness; (b) In all cases, there must be some actual identifiable basis - reasonably precise and tolerably clear - that indicates what the legitimate forensic purpose really is. The forensic purpose requires realistic consideration of the potential strategic and evidentiary use of the documents in the context of the legal and factual issues that are required to be determined;

(c) If the subpoena is legitimate, two features of its intended forensic purpose will usually demonstrate its legitimacy. First, the particular credit issue will be capable of reasonable articulation, making due allowance for the necessity for some generalisation depending on the stage that the hearing has reached. Second, the probable connection between the documents sought to be produced and that credit issue, will be apparent;

(d) A credit issue of doubtful plausibility is unlikely to be sufficient to justify the subpoena. The same result will follow if the supposed connection between the credit issue and the documents sought, is strained, opaque or speculative;

(e) The court will exercise particular caution when a subpoena is sought to be justified solely on the credit basis: Fried (supra) at [27]. The judge must be satisfied about the utility of the production of the documents, and the fairness to the witness, having regard to the potential for abuse and the need to control and confine cross examination within manageable limits;

(f) A subpoena that does little more than speculatively trawl for documents that may possibly be used to impugn a witness's credit has never been justifiable: Fried (supra) at [29]. 20 The difference between the decision in Liristis (upholding the subpoena) and the decision in Fried (setting aside the subpoena) can be explained by reference to some of these considerations. In the latter, the explanation of the purpose for which the documents were required was "altogether too vague and unsatisfactory to persuade me of its legitimacy": Fried (supra) at [30]. In the former, there was precision about the category of documents sought and the logical and rational reason why the documents might be probative (on credit) was quite apparent: Liristis (supra) at [7]. Setting Aside Subpoena 21 In this case, there is, in fact, no sound evidentiary basis for me to infer that the transcript of Mr Willett's evidence to the Commission contains any statements by him that might be capable of being deployed to impeach his credit. The propensity of the transcript to achieve that result is utterly speculative. The mere fact that the subject matter is Mr Barkl's alleged money laundering activities does not advance the analysis beyond guesswork and innuendo. 22 It is undoubted that the credit of Mr Willett in this case is likely to be relevant to the findings of primary fact that I must make concerning conversations in which he participated and representations which he made. Most of these conversations and representations relate to the financial position of SMP, its prospects and Mr Willett's role in connection with it. But no fact in issue turns on anything done by Mr Barkl, or Mr Willett's possible facilitation of money laundering by him. 23 Other than at the highest level of speculative generality, there is no obvious legitimate forensic purpose to be served by the production of the transcript. No actual identifiable basis has been explained, let alone with reasonable precision and tolerable clarity, that could support any reasonable likelihood that the transcript might be successfully deployed. There is no plausible basis for assuming that any statements attributed to Mr Willett in the transcript might assist me in the resolution of any fact in issue - to which Mr Willett's credit might be relevant. 24 For those reasons, I will order that the subpoena dated 26 June 2010 to the New South Wales Crime Commission be set aside.

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