Equuscorp Pty Ltd & Anor v Glengallan Investments Pty Ltd [2000] QSC 355

"341 g7 State Reporting Bureau Tran$cript of Proceedings Copyright in ihis transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau. - SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION HELMAN J No 1688 of 1991 EQUUSCORP PTY LTD and REVISED COPIES ISSUcD; State Reporting 8ureal! Oate..:,.2_ I 10 I o o First Plaintiff RURAL FINANCE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) Second Plaintiff ( IN LIQUIDATION) and GLENGALLAN INVESTMENTS PTY LTD No 5061 of 2000 GLENGALLAN INVESTMENTS PTY LTD HGT INVESTMENTS PTY LTD BARRY THORNTON BRIAN JAMES PRENDERGAST CYRIL WILL_IAM ANDERSON and EDWIN THOMAS CODD and ARTHUR ANDERSEN BRISBANE .. DATE 26/09/2000 JUDGMENT =toor, The Law Courts, George Street, Brisbane, 0. 4000 Defendant Applicants Respondent Telephone: (07) 3247 4360 Fax: (07) 3247 5532 1 -- 1 of 18 -- 26092000 T6-7/JJD24 M/T 8273/2000 (Helman J) HIS HONOUR: There are two applications before the Court. One is in proceeding number 1688 of 1991 and the other is in proceeding 5061 of 2000. I shall deal first with the application in proceeding number 1688 of 1991. The plaintiffs in this proceeding apply for an order that the defendant make further and better disclosure and other ancillary relief. The plaintiffs rely on Rule 211 of the Uniform Civil Procedure Rules 1999, which, so far as it is relevant, provides: 211 (1) A party to a proceeding has a duty to disclose to each other party each document - (a) in the possession or under the control of the first party; and (b) directly relevant to an allegation in issue in the pleadings; (2) The duty of disclosure continues until the proceeding is decided. (3) An allegation remains in issue until it is admitted, withdrawn, struck out or otherwise disposed of. The trial of this proceeding, together with those of five related proceedings, began on 21 February 2000 and concluded on 8 March 2000, when I reserved my decision. The plaintiffs in each of the other proceedings were the plaintiffs in this proceeding, and the defendants were HGT Investments Pty Ltd in the second proceeding, Mr Barry Thornton in the third, Mr Brian Pre~dergast in the fourth, Mr Cyril Anderson in the fifth, and Mr Edwin Codd in the sixth: Nos. 1689, 1690, 1691 and 1692 of 1991, and no. 9485 2 JUDGMENT 1 10 20 30 40 50 60 -- 2 of 18 -- 26092000 T6-7/JJD24 M/T 8273/2000 (Helman J) of 1998 respectively. Each of the defendants was associated with the GWA group of companies, of which Mr Thornton is the chairman. The determination in this application will apply to all proceedings before this Court. In May 2000, I had not yet handed down my decision and was notified by the solicitors for the parties that further consideration was required. On 23 May this application was filed, and on 1 June, it was set down for hearing. I heard argument in July, and, at the request of the defendants, today. This application has been made in reliance on part of the contents of an affidavit sworn on 13 April 2000 by Mr Ian Hogg and filed in the Brisbane Registry of the District Court in support of an application in a proceeding before that court made by the defendants in the proceedings in this court. Mr Hogg is a solicitor employed by the solicitors for the defendants. The plaintiffs in this court are also the plaintiffs in the District Court proceeding (no. D3399 of 1991), and the defendant in the District Court proceeding is Mr Kenneth Schroder, who is also associated with the GWA group of companies and who gave evidence in the trials before me. In paragraph 3(a) of Mr Hogg's affidavit, he swore that he was informed by Mr Prendergast and verily believed that Arthur Andersen & Co, accountants, were the accountants for the defendants and had been retained by them in late 1991 to 3 JUDGMENT 1 10 20 30 40 50 60 -- 3 of 18 -- 26092000 T6-7/JJD24 M/T 8273/2000 (Helman J) provide legal advice concerning an audit then being conducted by the Australian Taxation Office into the Red Claw aquaculture project, in which the defendants were investors. The defendants' investment in that project gave rise to the proceedings before me. Mr Hogg swore further that the defendants were concerned to preserve the deductability for taxation purposes of expenditures incurred by them in relation to the project, and that documents sought by the plaintiffs in the proceeding in the District Court by means of a writ of non-party discovery served on Arthur Andersen on 30 June 1999 concerned "highly sensitive information provided by Mr Prendergast on behalf of the [defendants] to Brad Stanfield, a partner of the Accountants, for the sole purpose of receiving legal advice in respect of preserving their deductions and to undertake negotiations with the Australian Taxation Office on their behalf to attempt to resolve any dispute pertaining to the deductions". Mr Hogg continued by swearing that the documents included "instructions given on behalf of the [defendants] to Brad Stanfield for the sole purpose of providing legal advice as well as Brad Stanfield's advice to them, together with documents passing between Brad Stanfield and the Australian Taxation Office, on behalf of the [defendants] for that purpose". Further details of the dealings between the defendants and Arthur Andersen are provided in an affidavit of Mr Thornton, filed on 6 July 2000, in which he swore that the defendants first went to see Mr Stanfield for advice in relation to the 4 JUDGMENT 1 10 20 30 40 50 60 -- 4 of 18 -- 26092000 T6-7/JJD24 M/T 8273/2000 (Helman J) Red Claw project when they received a letter from the first plaintiff dated 27 March 1991 which requested them personally to acknowledge "the debts in the Red Claw project". Mr Thornton swore further that the defendants provided Mr Stanfield and Mr Michael Hennessey, Mr Stanfield's manager, with copies of "the loan agreements, the guarantee documents and the audit letter" together with their instructions "in respect of the matter''. The defendants terminated their retainer of Arthur Andersen about the middle of 1993, Mr Thornton swore. It is reasonable to infer that the documents in question are directly relevant to allegations in issue in the pleadings in the proceedings. They concern the terms of the loan agreements between the second plaintiff and the defendant in each case. The plaintiffs' allegation is that those agreements are to be found only in written loan agreements executed on 30 June 1989, whereas the defendants in each case allege an oral "operative agreement" made in June 1989, which was intended to limit the effect of the written agreement. The documents, it appears from the evidence before me, are in the possession of Arthur Andersen, but are under the control of the defendants. Mr Thornton swore, in the affidavit to which I have referred, that, on being advised prior to the trials by Mr Stanfield of the plaintiffs' attempts to inspect the Arthur Andersen files, he instructed Mr Stanfield "to protect the confidentiality of those 5 JUDGMENT 1 10 20 30 40 so 60 -- 5 of 18 -- 26092000 T6-7/JJD24 M/T 8273/2000 (Helman J) documents and to assert a claim for privilege and to resist any claim by the Plaintiffs for production of the documents". In a letter dated 4 July 2000 from the solicitors for Arthur Andersen to the defendants' solicitors the following concerning documents in the Arthur Andersen file appears: "We confirm our client's assertion that it is not correct to state that its files are your client's property, the ownership of documents on the file being a matter of individual characterisation. 1 10 We note that you have inspected documents and requested 2 o copies of same. We have advised our client by fax this morning that it is appropriate for copies of those documents to be provided. It would appear from your summary of the documents that some of them would undoubtedly be the property of our client. Nevertheless our client will make the documents available to assist your clients." In a letter dated 24 August 2000 from the defendants' solicitors to the solicitors for Arthur Andersen the following appears: 30 "We refer to today's telephone conversation with your 40 Mr Harley and confirm that the photocopies we have requested will be provided on the basis that your client's do not concede ownership of the documents and that we (and our clients) do not attempt to use the photocopies without your specific authority to do so. We confirm our agreement to these terms and await your advice as to when we can attend and collect the photocopies from you." The response, dated 28 August 2000, was as follows: "We refer to your letter 24 August 2000 and confirm the terms on which we will forward you the documents. They should be available shortly. We ask specifically that you do not release the photocopies from your possession without our express permission." 6 JUDGMENT 50 60 -- 6 of 18 -- 26092000 T8-9/JAP22 M/T 8273/2000 (Helman J) That correspondence must be seen in the context of a letter dated 12 July 1999 written by the defendants' solicitors, who were then acting for Arthur Andersen, to the plaintiffs' solicitors in which it was said that Arthur Andersen had a policy of destroying files "after a period of six years and/or where relevant returning any documents contained on them to the client". 11 Accordingly 11 , the letter continues, 11 it proposes to return the records that it has located which relate to the 1989 and 1990 income tax years to Mr Schroder so that he may deal with them in accordance with his discovery obligations in the action in which the Writ was issued". That is a reference to the writ of non-party discovery served in the District Court proceeding. In the circumstances, then, it appears to me that the documents are under the control of the defendants. There seems no reason to suppose that Arthur Andersen will obstruct the defendants in their obligations to make disclosure. The plaintiffs sought disclosure of documents of the kind in question as early as 2 November 1992. By a letter of that date to the defendants' solicitors the plaintiffs' solicitors said: "We refer to your letter dated 30 October 1992 in which you advise that your clients do not propose to make any further discovery. We are astonished to receive that advice in view of the amendments which have been made to both the Defence and Counterclaim and Reply and Answer, and in particular, the amendments to the Reply and Answer going to the relationship between your clients' taxation affairs and the so called operative agreement which your clients have each alleged in their defence. We have perused the current Affidavit of Documents made by each of your clients and note that there has not 7 JUDGMENT 1 10 20 30 40 50 60 -- 7 of 18 -- 26092000 T8-9/JAP22 M/T 8273/2000 (Helman J) been a single record relating to your clients' taxation affairs discovered. Accordingly, we request that you advise as a matter of priority with respect to the following matters in relation to each of your GWA Investor clients: 6. Taxation Accountant's File Could you please advise whether each of your clients, or any of them, had a taxation adviser or accountant (whether engaged privately or being an employee or officer of GWA) acting on their behalf for the purpose of attending to their taxation affairs and the preparation of income tax returns. If so, can you please advise whether there exists any file or files held by any such tax advisers or accountants on behalf of your clients or which relates to their taxation affairs. Could you please also advise whether there are any documents such as working appears, draft accounts, correspondence, reports or other financial records produced or held by any such tax adviser or accountant 1 10 20 on behalf of any or all of your clients. 30 If any of these documents or files exist, could you please advise as to the basis for your clients not discovering them." By a letter dated 8 January 1993 the defendants' solicitors responded to that request: "The Defendant, Mr Thornton is a chartered accountant and is responsible for the preparation of all returns and other financial documents. Therefore no files of external firms of accountants exist." The solicitors for the plaintiffs continued to seek any documents of the kind referred to in Messrs Hogg's and Thornton's affidavits up to the trial. On the first day of the trial Arthur Andersen responded _to a subpoena for production of relevant documents directed to it at the request of the plaintiffs by applying for an order that it 8 JUDGMENT 40 so 60 -- 8 of 18 -- 26092000 T8-9/JAP22 M/T 8273/2000 (Helman J) be set aside. Mr Stanfield swore in an affidavit in support of Arthur Andersen's application that compliance with the subpoena would have been onerous and would have taken "a time equivalent to many person months of work to complete". The plaintiffs and Arthur Andersen then arrived at a consent order requiring Arthur Andersen to search for and produce to the court only documents in files in the names of the defendants at its Brisbane office. In a report to the Registrar of the court dated 23 February 2000 the solicitors for Arthur Andersen said that they had been advised by their clients that their clients did not have any files in those names and accordingly there were no documents, current or archived, to produce in answer to the subpoena. It now appears that the documents were in a file in the name of GWA Pty Ltd: the memorandum of fees which includes an item concerning the Red Claw project was directed to "GWA Pty Ltd". The defendants resisted the plaintiffs' application on a number of grounds. First, Mr David Cooper S.C. argued on their behalf that since the plaintiffs had closed their cases in the trials on 23 February 2000 they should not be permitted to proceed with this application as it is not a proper case to permit them to re-open their cases. Mr Cooper pointed to evidence that the existence of the documents was made known to the plaintiffs before the trial. That appears from evidence of 9orrespondence between those - acting for Arthur Andersen who, for a time as I have related were the defendants' solicitors, and the plaintiffs' 9 JUDGMENT 1 10 20 30 40 50 60 -- 9 of 18 -- 26092000 T8-9/JAP22 M/T 8273/2000 (Helman J) solicitors concerning Arthur Andersen's response to the writ of non-party discovery served in the District Court proceeding. In addition, the existence of the documents was confirmed when Mr Thornton gave evidence at the trial. By failing to pursue the matter further at the trial, particularly in the cross-examination of Messrs Thornton, Prendergast, and Codd, the plaintiffs made a deliberate decision from which they now seek to resile, Mr Cooper argued. A deliberate decision of that kind will ordinarily tell decisively against such an application to reopen, Smith v. The New South Wales Bar Association (1992) 176 C.L.R 256 at p.266 per Brennan, Dawson, Toohey and Gaudron JJ. But the conduct of the plaintiffs' case upon which the defendants rely must be seen in the context of the report on behalf of Arthur Andersen to the Registrar on 23 February 2000. Mr Thornton gave evidence subsequently to that, beginning on 28 February. Mr Prendegast's evidence began on 29 February and Mr Codd's on 1 March. Also subsequent to the report was something that happened in early March, the failure of the plaintiffs to inspect documents in the possession of Arthur Andersen before 9 March 2000 in accordance with a draft consent order signed on behalf of Arthur Andersen and the plaintiffs in the District Court proceeding. In those circumstances I am not persuaded that the conduct of the plaintiffs' case at the trial should preclude their pursuing their application for further disclosure. 10 JUDGMENT 1 10 20 30 40 so 60 -- 10 of 18 -- 26092000 Tl0/MTl M/T 8273/2000 (Helman J) Another argument advanced by Mr Cooper was that the plaintiffs' application is based upon a "speculative/ argumentative affidavit" which simply raises the suspicion of non-disclosure of relevant documents. The plaintiffs are on stronger ground than that in my view. They can properly rely on paragraph 3(a) of Mr Hogg's affidavit sworn on 13 April 2000 and Mr Thornton's affidavit filed on 6 July 2000. While the details of the contents of the documents have, it is true, not been revealed their relevance to the issues. in the proceedings is, as those affidavits show, beyond question. I do not think that it is appropriate that I inspect some of documents with a view to determining this application, as has been suggested on behalf of the defendants. In reaching that conclusion I am mindful of the pitfalls of such a course discussed by Davies J. in Holmes & Ors v. Deputy Federal Commissioner of Taxation (1987) 88 A.T.C. 4010. At page 4016 his Honour said: "When the claim is made of legal professional privilege in respect of documents brought into existence by reason of the proceedings before him, a trial Judge will be reluctant to embark upon an inspection of the documents, for to do so may be thought to prejudice his impartiality. 11 That comment applies as much to the documents in this case as it did to those with which his Honour was concerned, in my view. Apart from the question of a possible perception of prejudice to my impartiality, there is the difficulty that I should be required to determine matters of relevance 11 JUDGMENT 1 10 20 30 40 50 60 -- 11 of 18 -- 26092000 Tl0/MTl M/T 8273/2000 (Helman J) and weight without the assistance of submissions of behalf of the plaintiffs. It is no doubt regrettable that this application, if successful, will cause some further delay in the determination of the proceedings, but, bearing in mind the continuing duty to disclose and the undoubted importance of the documents, I see no proper discretionary basis for withholding the relief the plaintiffs seek. A discretionary refusal of the application was however not all that was advanced on behalf of the defendants in support of the proposition that the application should be refused. An issue arose as to whether the documents in question could be the subject of a valid claim to legal professional privilege. The defendants rely on Mr Thornton's evidence to the effect that the documents came into existence to enable the defendants to obtain legal advice from Mr Stanfield. Messrs Stanfield and Hennessy have degrees in law but it was not suggested that either had been admitted to practise as solicitor or barrister. But clearly enough, as a partner in a firm of chartered accountants, Mr Stanfield practises as a chartered accountant. In paragraph 39 of an affidavit filed on 6 July 2000 Mr Iain Marshall, solicitor and member of the firm of solicitors acting for the defendants, refers to Arthur Andersen as "the firm of chartered accountants, Arthur Andersen". I take that description of Arthur Andersen to be correct notwithstanding a suggestion by Mr 12 JUDGMENT 1 10 20 30 40 50 60 -- 12 of 18 -- 26092000 Tl0/MTl M/T 8273/2000 (Helman J) Thornton in his affidavit filed on 6 July 2000 that Arthur Andersen's practice encompassed more than accountancy. It follows that there could be no valid claim to legal professional privilege. Communications arising out of confidential relationships other than those of lawyer and client, including those of accountant and client, are not so protected. As Dawson J. put it in Baker v. Campbell (1983) 153 C.L.R.52 at p.128: "Whilst legal professional privilege was originally confined to the maintenance of confidence pursuant to a contractual duty which arises out of a professional relationship, it is now established that its justification is to be found in the fact that the proper functioning of our legal system depends upon a freedom of communication between legal advisers and their clients which would not exist if either could be compelled to disclose what passed between them for the purpose of giving or receiving advice. This is why the privilege does not extend to communications arising out of other confidential relationships such as those of doctor and patient, priest and penitent or accountant and client ... The restriction of the privilege to the legal profession serves to emphasize that the relationship between a client and his legal adviser has a special significance because it is part of the functioning of the law itself. Communications which establish and arise out of that relationship are of their very nature of legal significance, something which would be coincidental in the case of other confidential relationships." See. also Chantrey Martin v. Martin [1953] 2 Q.B. 286 at pp. 293-294, S.B. McNicol, Law of Privilege, (Law Book Company Ltd, Sydney, 1992) pp. 3-4, and R.J. Desiatnik, Legal Professional Privilege in Australia (Prospect Media Pty Ltd, Sydney, 1999) p.61. In Grofam Pty Ltd v. ANZ Banking Group (1993) 45 F.C.R. 445 communications between a lawyer not entitled to give legal advice and clients who had a genuine but mistaken belief that the lawyer was entitled to do so, 13 JUDGMENT 1 10 20 30 40 50 60 -- 13 of 18 -- 26092000 Tll/LZG14 M/T 8273/2000 (Helman J) were held to attract the protection of legal professional privilege. That decision does not assist the defendants in this case because there can be no question here of a genuine belief that Messrs Stanfield and Hennessy were lawyers. In the same category is Calley v. Richards (1854) 19 Beav. 401; 52 E.R. 406 in which communications between a client and a solicitor who had ceased to practise, although the client was not aware of that fact, were held to be privileged. On behalf of the defendants it was also argued that the application should be refused on the ground that without-prejudice privilege prevents disclosure of the documents. As was made clear in Village/Nine Network and Ors v. Mercantile Mutual (1999) Q.C.A. 276 that privilege extends to preventing disclosure to a person not party to the negotiations in question. While the benefit of without- prejudice privilege could conceivably attach to some of the documents if they related to a negotiated dispute between the Australian Taxation Office and the defendant, clearly enough it does not attach to all the documents. It does not apply to documents in which the defendants gave instructions to Arthur Andersen or to documents containing Arthur Andersen's response to those instructions. But Arthur Andersen was engaged by the defendant between about the end of March 1991 and the middle of 1993. That appears to have been before any relevant dispute arose between the Australian Taxation Office and the defendants because the dispute concerned the income tax assessments for the year ended 30 June 1989, and the notices of objection were not 14 JUDGMENT 1 10 20 30 40 50 60 -- 14 of 18 -- 26092000 Tll/LZG14 M/T 8273/2000 (Helman J) lodged until March 1994 to notices of amended assessments dated either 24 January or 15 March 1994: see exhibit 20 at the trials. I therefore conclude that the plaintiffs should have the further disclosure they seek. I shall invite further submissions on the form of the order, any time limits that may be imposed for compliance with it, and the question of costs. The other application is by way of amended originating application filed on 7 July 2000 in which the defendants in proceedings nos. 1688, 1689, 1690, 1691 and 1692 of 1991 and 9485 of 1998 in this court apply for the following principal relief against Arthur Andersen and Co: A declaration that the documents referred to in the writ of non-party discovery annexed to the application are confidential and subject to a valid claim for privilege by the applicants and are privileged from disclosure in any legal proceedings including these proceedings; and 1 10 20 30 An order the respondent, by itself, its servants, or 40 agents, be restrained from producing for inspection by Equuscorp Pty Ltd and Rural Finance Pty Ltd (receivers and managers appointed) (In liquidation) or any person on their behalf any of the documents referred to in the writ of non-party discovery which is annexed to the application. The writ of non-party discovery was that issued in the 50 District Court proceeding no. 3399 of 1991 by Equuscorp Pty Ltd and Rural Finance Pty Ltd against Mr Kenneth Schroder. At the hearing of the application for further disclosure by the defendants in the proceedings in this court I heard 60 15 JUDGMENT -- 15 of 18 -- 26092000 T12/FLC4 M/T 8273&8274/2000 (Helman J) argument on this application, in which the applicants sought an interlocutory injunction in the following terms: Until trial or further earlier order the respondent by itself, its servants or agents be restrained from producing for inspection by Equuscorp Pty Ltd and Rural 1 Finance Pty Ltd or any person on their behalf any of 10 the documents referred to in the writ of non-party discovery. To succeed in their application for an interlocutory injunction the applicants must show a serious question to be tried. The right to the principal relief sought turns on 20 the assertion that the documents in question are protected by legal professional privilege or without-prejudice privilege. I have discussed those questions in connexion with the other application. The issues as to legal professional privilege and the without-prejudice privilege 30 asserted to arise in relation to the documents the subject of this application are the same as those that arose on that application. For the reasons I gave on the other application I conclude that there is no serious question to be tried on those issues justifying an interlocutory injunction. Other matters were raised on the application. They all relate to the conduct of the proceeding in the District Court. It was argued that whether Arthur Andersen had authority to extend the time for inspection of the documents as provided for in a draft consent order, whether the documents are relevant to the District Court proceeding, and whether the conduct of the plaintiffs in the proceedings in this court amounts to an abuse of process are all serious 16 JUDGMENT 40 50 60 -- 16 of 18 -- 26092000 T13/DR26 M/T 8274/2000 (Helman J) questions to be tried. But they are all matters which, as I have said, relate to the conduct of the proceeding in the District Court and are appropriately left for consideration by that Court. Having determined that there is no seriously arguable question concerning the principal relief applied for, I am unable to accept that the ancillary questions I have mentioned can justify the granting of an interlocutory injunction. I therefore refuse the application for the interlocutory injunction. Application for order for further and better disclosure HIS HONOUR: I order that within 14 days of this order the defendant in each case provide further and better disclosure of the documents described in paragraph 3(a) of the affidavit of Mr Ian Douglas Hogg, being Exhibit 49 to the affidavit of Ms Susan Forrest filed on 23 May 2000 including the documents described in the schedule to the writ of non-party discovery exhibited to Exhibit 49 in paragraphs (d), (e), (g), (h), and (j) (2) save for David Richard Barry. I order that the defendant in each case pay to the plaintiffs their costs of and incidental to the application, - including reserved costs if any, to be assessed. 17 JUDGMENT 1 10 20 30 40 50 60 -- 17 of 18 -- 26092000 T15/TW12 M/T 8274/2000 (Helman J) Application for interlocutory injunction HIS HONOUR: The application for an interlocutory injunction is dismissed. I order that the respondent be restrained for 14 days, or until further earlier order, from disclosing to the solicitors for Equuscorp Pty Ltd and Rural Finance Pty Ltd the documents in its possession relating to instructions provided to it by the applicants concerning their involvement in the Red Claw project and any communications with the Australian Taxation Office howsoever relating to that matter. I order that the applicants pay to Equuscorp Pty Ltd and Rural Finance Pty Ltd their costs of and incidental to the application, including reserved costs if any, to be assessed. HIS HONOUR: I reserve the respondent's costs of this application. 18 JUDGMENT 1 10 20 30 40 50 60 -- 18 of 18 --