Yunghanns v Elfic Pty Ltd

Yunghanns v Elfic Pty Ltd - [2000] VSC 113 - VSC 2000 case summary — Zoe

[14]

It is appropriate to describe the factual position of the Elders Group. For the Elders defendants it was submitted that the evidence and the contemporaneous documents exhibited to affidavits demonstrated that the factual allegations asserted by the plaintiffs could not be made out. In summary, the circumstances relied upon were that in April 1984 Elders Finance made a $25m. loan facility available to Merim for the purpose of funding a proposed takeover of a company, Industrial Engineering Ltd. It was said that the loan to Merim was on commercial terms and that profits and losses were to be shared equally. It was said that the security was to include a personal guarantee by Mr Yunghanns. A guarantee executed in 1985 by Mr Yunghanns with respect to the obligations of Merim under the facility was produced to the affidavit of Mr Bruce Elliott (see Ex. "BDE5"). It was said that in September 1985 Elders Finance made available to Industrial Engineering Ltd. a loan facility of up to $5m. and that the loan was guaranteed by Mr Yunghanns and various other companies within the Yunghanns Group. So much was deposed to by Mr Elliott (see Ex. "BDE7"). It was alleged that in August and September 1986 the two facilities already referred to were replaced by a $55m. equity finance facility and that it was a term of the facility that there be joint and several guarantees from both Mr Yunghanns and various companies within the Yunghanns Group. These matters again were deposed to by Mr Elliott (see Ex. "BDE10"). Pursuant to the facility agreement it was said that Mr Yunghanns executed a guarantee (Ex. "BDE11"). It was said that the guarantee was sent to Elders Finance under cover of a letter from Mr Yunghanns dated 23 September 1986. Subsequently, in August or September 1987 the existing facility was increased to $125m. (see Ex. "BDE13"). It was said that subsequently it was discovered that Merim advanced the funds to another subsidiary that in turn advanced the funds to another Yunghanns' company, Tygola. These advances were unsecured. Following the crash of the stock market in October 1987 the position at that time was that a total amount of approximately $110m. had been advanced by the Elders Group to Merim. Following the share crash the equities had a value of about $70m. leaving a shortfall or loss of about $40m. to be shared equally. At that time none of Merim, Mr Yunghanns and the other guarantors were in a position to repay the $110m. less the $20m. reflected in the half share of the loss to be borne by the Elders Group. It was also said that Mr Yunghanns had effective control over $70m. worth of equities because Yunghanns had caused the loan funds to be advanced on an unsecured basis to Tygola. It was said, further, that as a result of these uncertain circumstances discussions occurred concerning the amount of the loss, the amount outstanding and the manner in which Mr Yunghanns could repay the debt.

[21]

A number of affidavits were filed on both sides in support of and in opposition to the application. The plaintiffs relied upon three affidavits sworn by Mr Yunghanns on 12 November 1997, 3 April 1998 and 21 February 2000. They also relied upon an affidavit of Peter Robert Camm sworn 21 February 2000. The first, second and fifth defendants sought leave to cross-examine Mr Yunghanns. Mr N. Young, Q.C. who appeared with Mr M. Connock for the Elders defendants submitted that serious allegations of impropriety were levelled against Elders on the basis that Mr Yunghanns was unaware of and did not consent to the cross-collateralisation of securities in 1988 and 1989. Mr Young submitted that the allegation was strongly contested by the Elders defendants. On the basis that it was a fundamental premise of the Yunghanns' application that Mr Yunghanns was unaware that securities were being taken that made the Knox property available as security for all debts of the Yunghanns Group to the Elders Group, Mr Young submitted that the Elders defendants asserted that it was made clear to Mr Yunghanns as to the actual situation. It was submitted that Mr Yunghanns expressly assented to the cross-collateralisation of securities in 1988 and 1989 because he was in a position where he owed more than $100m. to the Elders Group. It was asserted, further, that at the relevant time Mr Yunghanns was not servicing the debt to Elders and that he needed also to refinance the Knox property. Those pressing financial circumstances it was said occurred in the context of the withdrawal by the ANZ Bank of proposed re-financing of the Knox property and Mr Yunghanns was faced with the financial reality that he could only achieve refinance through Elders. Mr Young asserted that it was the Elders defendants' case that Mr Yunghanns expressly consented to the condition of the refinancing that the securities be cross-collateralised. Mr Young submitted that in essence the whole argument of the Yunghanns Group concerning dishonesty, trickery and deception was based upon the assumption that Mr Yunghanns was not a consenting party to the agreement. Mr Young urged that leave be granted to the Elders defendants to cross-examine Mr Yunghanns to expose the unsoundness of the contention by the Yunghanns Group. Mr Young was joined in the application by Mr P. Willee, Q.C. who appeared with Dr K. Emerton for the Corrs defendants. I refused the application for leave to cross-examine Mr Yunghanns.

[22]

Mr Young took me to documents that were exhibited to affidavits which he submitted demonstrated inconsistencies in Mr Yunghanns' position in relation to the cross-collateralisation of the securities. An internal memorandum of the Elders Group dated 6 March 1991 revealed that Mr John McGuire a partner of Corrs raised with the Elders Group his concern that because Mr Yunghanns had been a client of Corrs for many years he could claim at a later date that he believed Corrs were acting for both he and Elders and thereby give rise to difficulties in the transactions between the parties. The memorandum recorded that Mr McGuire had not met Mr Yunghanns or acted on any of his matters. The memorandum recorded, further, the perception of the Elders Group that there was a sense of concern among the partners of Corrs in relation to this matter. As a consequence, by letter dated 22 March 1991 the Elders Group wrote to Mr Yunghanns specifically requiring his confirmation that he had no objection to Corrs acting for the Elders Group in relation to the matters then being finalised notwithstanding that Corrs had acted for Mr Yunghanns previously. By letter also dated 22 March 1991, Mr Yunghanns responded to the Elders Group advising that he had already confirmed that he had no objection to Corrs preparing the documents and reconfirming his attitude. In an affidavit filed in support of this application Mr Yunghanns raised allegedly for the first time his lack of understanding and apprehension of the true purpose of the 1988 and 1989 transactions. It was this particular inconsistency that Mr Young wished to put to Mr Yunghanns by way of cross-examination. He also wished to raise the legal and commercial knowledge, acumen and experience of Mr Yunghanns. I refused leave on a number of grounds. Firstly, in my view, insofar as there were inconsistencies in the statements of Mr Yunghanns as to his position such inconsistencies were appropriately a matter for submission. Secondly, insofar as there was potential for an allegation of recent invention against Mr Yunghanns again such matter was appropriate for submission. Thirdly, in my view, it is undesirable except in special compelling circumstances for a court to permit a party to have the opportunity at an interlocutory stage to cross-examine an opposing party upon an issue of fact that goes to the core of the proceeding. To do so enables the party seeking to cross-examine to have, in effect, a dress rehearsal of a vital component of evidence to be ventilated at trial. Fourthly, I formed the view that in the exercise of the discretion I would not be assisted by the cross-examination of Mr Yunghanns.

[37]

Mr Young for the Elders defendants urged that it was clear from the evidence on the application that there was no joint privilege in respect of all of the advice that the Elders Group obtained and, in particular, Elfic obtained, in its capacity as lender and security holder. He submitted that before this court could find that joint privilege attached it would be necessary for evidence that met a stricter standard than that provided in Mr Yunghanns' affidavits. In support of his submission Mr Young emphasised that Mr Maguire of Corrs deposed on affidavit that he had never acted for Mr Yunghanns. So much does not appear to have been in issue as Mr Maguire purported at all times to act for Elders. Mr Young urged, also, that Mr Yunghanns acknowledged in his affidavit of November 1997 that he and the Elders defendants were separately represented by Corrs in that Mr Syme acted for Mr Yunghanns and Mr Maguire acted for the Elders Group. In essence the submission made by Mr Young in this respect was tantamount to saying that a Chinese wall could exist within the firm of solicitors and unless advice was provided jointly by the same partner within the firm privilege could not attach. I do not accept such analysis. In the context that the same firm provided advice to two clients on the same matter including transactions between those two clients then prima facie joint privilege attaches to communications between both or one or other of the clients and the firm. The argument of the Elders defendants, if accepted, would result in an inappropriate restriction of the joint privilege principle. It would lead to the situation that the attachment of privilege would occur in circumstances where one of the clients sought legal advice in relation to a matter affecting both clients from a member of the firm who deals exclusively with or advises the first mentioned client. The analysis in my view involves an artificial dissection of the relationship between the two sets of clients and the firm of solicitors.

[46]

"No privilege attaches to communications between solicitor and client as against persons sharing a joint interest with the client in the subject-matter of the communication, e.g. as between partners; a company and its shareholders; trustee and cestui que trust; lord and tenants of a manor as to customs of manor; a lessor and lessee as to production of the lease; reversioner and tenant for life as to common title; two persons stating a case for their joint benefit; or a husband and wife who are not genuinely, but collusively, in contest. Nor does any privilege attach as between joint claimants under the same client - e.g. between claimants under a testator as to communications between the latter and his solicitor. Thus where two persons agree to divide the profits made by one of them on contracts made with third parties, the person who does not make the contracts is entitled to production from the person who does of, for example, the opinions of counsel relating to litigation between the contractor and a third party. But where the communications relate to matters outside the joint interest, they are privileged even as against a person bearing the expense of the communications - e.g. communications between a plaintiff corporation and its solicitors, against a defendant ratepayer as to matters not connected with rates; or between a company and its solicitors consisting of confidential advice to the former in an action against a shareholder; or between a trustee and his solicitor as against the cestui que trust, where the communication is not made for the former's guidance in the trust, but to enable him to resist litigation by the latter; or where it concerns his character, not as trustee, but as mortgagee of the client. Though the privilege does not protect one person with a joint interest from disclosing to the other matters which are the subject of that interest, both parties are entitled to maintain the privilege against the rest of the world. But the rest of the world for these purposes does not include the trustee in bankruptcy of one of the parties, or his successor in title. In case of joint interest, it is sufficient, as against third persons, if one only of the interested parties claims the privilege, though all must concur in waiving it. A joint interest for these purposes is not a rigidly defined concept. It is apparent that those categories described above, such as partners and the like, come within these principles. But a mere common interest in that outcome of litigation will be sufficient to enable any party with that interest to rely on it."

[54]

In the particular case before the High Court Mason, Brennan and Deane JJ considered that the subject relationship concerned with a shopping centre venture was a fiduciary one partly on the basis that the participants were venturers in a commercial enterprise with a view to profits that were to be shared. It was observed that the policy of the joint enterprise or venture was ultimately a matter for joint decision. The observation can readily be made in the present matter that there were arrangements in place between the Yunghanns Group and the Elders Group whereby there was a commercial enterprise with a view to profits that were to be shared between the two Groups and decisions relating to acquisition of companies and shares appeared to have been a matter for joint decision. It is the case of the Elders defendants that the transactions under which the Yunghanns Group brings these proceedings were discrete transactions by virtue of which the Yunghanns Group gained financial advantage and financial support from the Elders Group and that the latter required security for that benefit. However, for the present application I need not go so far as to determine whether or not there was a joint venture between the Yunghanns Group and the Elders Group. That is a matter for ultimate determination at trial. In my view there is sufficient evidence before the court on the application to enable me to be satisfied that there is a prima facie case that there was a joint venture between the Yunghanns Group and the Elders Group and that there was a fiduciary duty owed by the latter to the former arising from that relationship (see United Dominion Corporation Limited v Brian Pty Ltd & Ors, supra; Biala Pty Ltd & Ors v Mallina Holdings Limted & Ors (No. 4) (1993) 13 WAR 11, 57-58; also J.R.F. Lehane, "Fiduciaries in a Commercial Context", Equity and Commercial Relationships (1987), P.D. Finn, p.95-108; J. Glover Commercial Equity - Fiduciary Relationships (1995) p.76-80, paras. 3.90-3.96; B.H. McPherson "Joint Ventures", Equity, P.D. Finn, p.35-36).

[55]

I accept the two pronged submission urged by Dr Pannam. Following the decision of the High Court in United Dominion I am satisfied that on a prima facie basis for the purposes of the present application there existed between the Elders Group and the Yunghanns Group at the relevant times mutual obligations of trust and confidence so that one would not take advantage of the other. It is apparent from the authorities and the commentaries in the area of joint ventures that a critical indicia of a joint venture is that of trust. Against that indicia of trust the Elders Group rely upon the Chinese wall that was said to have existed with Corrs to support the assertion that joint privilege does not attach to the documents pursued. Such response fails to take account of the fundamental purpose of the Chinese wall. It is intended to overcome a conflict of interest that a firm of solicitors may encounter. It is not a basis to enable a party to a joint venture to modify or seek to avoid the fiduciary obligations that otherwise exist as a result of the joint venture between those parties. The question can be posed thus: does the assent of one joint venturer that the other joint venturer should be able to enjoy the legal services of the same firm which has previously acted for both of them operate to modify the fiduciary obligation that would otherwise arise between the joint venturers? In my view it does not. It is an essential part of both the relationship created by the joint venture itself and the relationship created by the financial adviser retainer that leads to every item of information that is inconsistent with the interests of the other joint venturer having to be disclosed. It is a fundamental element of the joint venture relationship that the parties act with the utmost good faith towards one another (United Dominion Corporation Limited v Brian Pty Ltd & Ors, supra; also Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41). Utmost good faith is another of the indicia of the joint venture relationship. It involves a joint venturer committing him or herself to not taking advantage of the other joint venturer including not sheltering behind legal professional privilege in order to extract an advantage against the other joint venturer.

[57]

The third and remaining basis of the application by the plaintiffs was that the claimed privilege by the Elders Group did not prevent inspection by the plaintiffs because the documents related to communications of an illegal, dishonest or improper purpose. In light of my findings thus far it is unnecessary to determine this aspect of the application. Nevertheless there are observations that should be made. At the outset it must be observed that the allegations are of a serious and odious nature. Consequently, the standard applied by the court will ordinarily be a stricter standard that is otherwise the case. It has been recognised by the High Court that a claim for privilege can be challenged in pursuance of an illegal, dishonest or improper purpose (see Attorney-General for Northern Territory v Kerney [1985] HCA 60; (1985) 158 CLR 500, 512-515, 524; Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501, 514, 531, 545 and 572). It is a well established principle that an attempt to overcome or displace the privilege on such basis does not require a demonstration that the legal advisers were themselves conscious participants in fulfilling the improper purpose (see R v Cox & Railton (1884) 14 QBD 153). However the High Court authorities make it abundantly clear that it is not sufficient to overcome or displace the privilege by merely making allegations; on the other hand it is not necessary to fully prove the allegations (see Kearney, 516, 525; Propend, 521-2, 546, 556, 572 and 591). In the words of Brennan CJ in Propend (at 514) " ... It is open to the party resisting the claim to show reasonable grounds for believing that the communication effected by the document for which legal professional privilege was claimed was made for some illegal or improper purpose, that is, some purpose that is contrary to the public interest". The learned Chief Justice went on to state that in setting the criterion of reasonable grounds for the belief the test is objective and that it is not necessary to prove ulterior motive. Significantly, Brennan CJ in Propend at 514 said " ... There has to be something 'to give colour to the charge', a 'prima facie case' that the communication is made for an ulterior purpose". Having considered the affidavits relied upon by both parties in support of and in opposition to the application I am not satisfied that the plaintiff has met the standard prescribed by Brennan CJ in Propend. Whilst the evidence relied upon by the plaintiffs was sufficient to establish the joint retainer, the joint venture and the consequential duties it is an entirely different matter for that evidence to go so far as to make out a prima facie case of dishonest or improper purpose. The affidavits of Mr Elliott in this regard exhibit extensive documents that contradict any improper purpose. It was asserted on behalf of the plaintiffs that the course of conduct between the Yunghanns Group and the Elders Group during the period between 1988 and 1991 including the involvement of Corrs gave rise to sufficient "colour" to enable this court to compel inspection on the basis of improper purpose. In my view the prima facie case is not made out. Furthermore, it is relevant in this regard that the allegations of Mr Yunghanns are made relatively recently and he appears on his earlier affidavits to have not taken the opportunity to make the allegations that he does now. Ultimately the substantive issue will be determined at trial. However, for present purposes I cannot be satisfied that the improper purpose is made out on a prima facie basis.

[59]

An additional matter to be considered is whether or not the court should take the opportunity in any event to inspect the 750 documents contained in 34 folders sought to be inspected by the plaintiffs. Such course was recognised most recently by the High Court in Esso Australia Resources Limited v Commissioner of Taxation, supra (at 350 para. {52})where Gleeson CJ, Gaudron and Gummow JJ observed that a court has a power to examine documents in cases such as the present and that it should not be hesitant to exercise such a power. In the present matter there is some hesitation. The hesitation arises from the sheer volume of documents that are the subject of the application. Furthermore, there is the fact that the exercise would involve an extensive amount of judicial time being taken up with the exercise. I have given consideration to the possibility of referring the examination of the 34 folders of documents to a Master. In the circumstances of this matter particularly as the hearing before me was conducted over two days it is difficult to apprehend that a Master could assume the task without the benefit of the re-ventilation of the submissions and arguments heard by me. Ultimately, I consider that if inspection was to be conducted by the court the task must fall to the judge who heard the application. Furthermore, there is the fact that the proceedings are within the Commercial List, a list within this court that conducts proceedings on an expeditious indeed rapid basis. If I was to embark upon inspection of the documents I apprehend it would cause a delay in the proceedings (and other proceedings within the Commercial List). The final matter to be considered is the fact that this proceeding has been fixed for trial on 21 August 2000 on an estimate of a minimum duration of eight weeks. In my view it is desirable in all the circumstances that there be no delays if they can be avoided. Ultimately I am of the view that having made the findings I do with respect to the nature of the relationship between the plaintiffs and the Elders defendants thereby giving rise to a common interest privilege it is unnecessary for this court to embark upon inspection of the documents despite the urgings of the Elders defendants to do so.

At a glance

Court

Decision date

Before

Source

Judgment (60 paragraphs)

Parties

Cases Cited (8)