Almona Pty Ltd v Parklea Corporation Pty Ltd

In these proceedings, the plaintiff (“Almona”) alleges that the second defendant (“SAP”) breached the duties which SAP is alleged to have owed to Almona in selling certain land (the “Land”) as a mortgagee to the first defendant (“Parklea”).

This judgment resolves a dispute over access to certain documents evidencing communications that were produced by SAP in respect of which it claimed client legal privilege pursuant to s 118 of the Evidence Act 1995 (NSW) (the “Act”). In these reasons I shall refer to “documents”, which should be understood as referring to the communications evidenced by those documents.

Almona submits that even if the documents are privileged, that privilege has been lost pursuant to s 125 of the Act because the documents were prepared “in furtherance of the commission of a fraud” (the “Exception”). The Court accepts SAP’s submission that any privilege has been lost in relation to one of those documents and will order that SAP have access to that document.

Mr D L Williams of Senior Counsel appeared with Ms E A Bishop of Counsel and Mr E A Walker of Counsel for Almona. Mr E Hyde of Counsel appeared with Mr T Epstein of Counsel for Parklea.

This application initially came before me in the Duty List at a somewhat procedurally unusual moment in the history of the proceedings.

The final hearing of this matter was held before Robb J between 4 and 8 March 2019. His Honour ordered a timetable for the preparation of written submissions and adjourned the matter until later this year to hear closing arguments.

I was informed by the parties that the hearing before Robb J was conducted largely by reference to documents. Almona called one witness and tendered a large number of documents. The defendants both elected not to call any oral evidence but have tendered some documents.

During the course of the hearing, SAP produced a number of documents in response to notices to produce issued by Almona. Almona may wish to supplement its evidence in the adjourned hearing with documents that have been produced by SAP. The documents in question before me were part of that production.

SAP opposed access on the basis the documents were subject to client legal privilege. Almona responded that SAP had failed to demonstrate that the documents were privileged and that, in any event, that privilege had been lost by reason of the Exception:

There was no dispute that the commission of a fraud is a fact in issue in these proceedings for the purposes of s 125(2) of the Act.

The parties agreed that it was inappropriate for Robb J, as the trial judge, to resolve the dispute over these documents. That is why Almona’s application for access was referred to the Duty Judge and came before me in that capacity. Unfortunately, the press of business in the Duty List meant that I was unable to complete the hearing while sitting as Duty Judge. A further short hearing was required a few days later.

While mindful of the Court’s obligation to provide proper reasons, there are at least two reasons why I set out these reasons with some circumspection.

First, I am conscious that Robb J has had the benefit of the complete hearing of the matter and the totality of the evidence. I am not called upon to reach any final conclusion as to the merits of the dispute between the parties. I have not seen all the evidence Robb J has seen. It is no criticism of Almona to observe that it has tendered only so much evidence as it is considers necessary to enable me to be satisfied of the matters required to be demonstrated to establish the Exception, including that “there are reasonable grounds for finding that the fraud … was committed”. That tender nevertheless comprised 72 documents filling a lever arch folder. It must therefore be understood, and I emphasise, that any conclusions I express in relation to the merits are confined to the issue of “reasonable grounds” and are based upon less than the totality of the evidence before Robb J.

The second reason for circumspection arises in relation to my description of the documents, especially the document about which I am satisfied that the Exception applies. Against the possibility that the matter may go further, I do not propose in these reasons to describe the contents of the documents in any detail.

Section 125 of the Act was recently considered by the Court of Appeal in a judgment of the Court in Director of Public Prosecutions (NSW) v Stanizzo [2019] NSWCA 12 (“Stanizzo”). I respectfully adopt and apply the Court’s analysis:

Almona’s further amended statement of claim includes:

It will be noted that paragraph 62 of the pleading, just quoted, refers in its particulars to two statements of particulars. In fact, there were three such documents before Robb J:

A large number of the documents tendered by Almona in the present application before me are documents which are said to provide evidence of the various particulars of its case that Almona has provided.

I do not propose to set out the contents of the additional particulars or the underlying materials in any detail. It is sufficient to note for present purposes that part of the sequence of events of which Almona complains includes the establishment of corporate arrangements, not obvious to an outsider including Almona, between SAP (or its corporate group) and Parklea (or its corporate group).

Another part of Almona’s case relates to the contract by which SAP sold the Land to Parklea. On 13 January 2016, SAP (as mortgagee exercising its power of sale) entered into a conditional contract for sale of the Land to Parklea (the “Contract”), the condition being the approval of the transaction by SAP’s investment committee. An important part of Almona’s case is that SAP impermissibly accelerated the completion of the Contract when it became aware that Almona had obtained an indication of support from a financier to pay out Almona’s debt to SAP.

That indication came in a letter to Mr Constantine of Almona from AMB Capital Partners (“AMB”) dated 15 March 2016. That letter was forwarded on the same day by Almona’s solicitors to Mr Dixon-Smith of King & Wood Mallesons (“KWM”), who was acting for SAP and associated entities. AMB’s letter included:

Within a quarter of an hour of receiving a copy of that letter from Almona’s solicitors, Mr Dixon-Smith forwarded it to his clients under the cover of an email which included (I have emphasised the words to which Almona draws particular attention):

Other emails show that Mr Dixon-Smith had been made aware of AMB as the proposed financier for Almona at least the day before (14 March 2016) and that he had told his clients that they would need to speak about that development “tomorrow” (15 March 2016). One of the steps which Almona says was part of the fraudulent acceleration of the completion of the Contract was the giving of a notice to Parklea that SAP’s investment committee had approved the transaction in circumstances where the approval had in fact been obtained in January 2016 but the notice was not given until 17 March 2016. There was no dispute between the parties that by the giving of that notice, the Contract became unconditional on 17 March 2016.

The documents that were in issue before me were contained in a lever arch folder with 13 dividers. It is convenient if I refer to documents by their divider number.

In between the two hearings before me I inspected the documents. During the course of the second hearing I indicated to the parties by reference to the individual documents which claims for client legal privilege the Court was satisfied had been made out and which claims the Court rejected. This left for determination whether, in relation to any document that the Court had found was privileged, whether that privilege did not apply by reason of the Exception. There is one document about which I am satisfied that is the case.

Having reviewed Almona’s amended statement of claim, the various particulars to that claim and the documents that have been tendered by Almona in support of its present application, I am satisfied that, for the purposes of s 125(2), there are reasonable grounds for finding that the fraud alleged by Almona was committed. I am satisfied that the documents relied upon take the matter beyond mere allegations and “give colour to the charge”. Against the background of that finding, I will now turn to the documents.

This is an email from Mr Dixon-Smith to his clients sent on 15 March 2016 at 11.18am. It will be appreciated that it comes after Mr Dixon-Smith had been made aware that AMB had indicated they would be able to provide finance to Almona, but before the letter referred to in paragraph [21] above had been received.

In a concession which, with respect, was entirely properly made, Mr Hyde accepted (Transcript 7 May 2019; p 25 line 50) that if I did not accede to his primary submission that there could be no case of fraud in the absence of a higher offer having been sacrificed, his client could not resist production of this document if I was otherwise satisfied that there were reasonable grounds for finding that the fraud was committed. It is therefore necessary for me to deal with Mr Hyde’s submission on this point.

The factual basis for Mr Hyde’s submission was that the purchase price under the Contract was for in excess of $80,000,000, which was more than what was owing to SAP under its mortgage. On the other hand, insofar as what was pleaded as the “proposed transaction” (see paragraph 40 of the amended statement of claim set out in paragraph [16] above) involving AMB, this would result in no more than a payout of the mortgage (approximately $65,000,000). Mr Hyde’s short point was that there could be no fraud on the power of sale by a mortgagee in circumstances where there was no sacrifice of a higher offer. In this case, SAP had accepted what turned out to be a higher offer than what might have been offered by AMB acting at the instigation of Almona and where AMB’s involvement was subject to a three week due diligence period.

Mr Williams SC submitted that it was not the law that fraud on a mortgagee’s exercise of its power of sale was confined to sales at an undervalue or otherwise sacrificing a higher offer. He drew attention to the judgment of Kitto J in Latec Investments Limited v Hotel Terrigal Pty Limited (in liquidation) (1965) 113 CLR 265. In that case (at 272) his Honour identified as impermissible conduct which “would amount to a virtual foreclosure”. In the circumstances of that case, his Honour found (at 274) that:

Mr Williams SC submitted that it was that kind of case which Almona sought to make out against SAP, such that the question of sale at an undervalue did not really arise. To like effect, he relied on the High Court’s decision in Forsyth v Blundell [1973] HCA 20; (1973) 129 CLR 477 where again there was no suggestion of the sale being at an undervalue, but the Court found (as is recorded in the headnote) that it was open to find that the mortgagee in making the sale had acted with calculated indifference to the interests of the mortgagor and, accordingly, that it did not exercise its power of sale in good faith.

I accept Mr Williams SC’s submission that, as a matter of law, the absence of the sacrificing of a higher offer is not a complete answer to Almona’s case. Access should be granted to that document. Notwithstanding Mr Hyde’s concession, I should also formally record that I am satisfied that in relation to this document, there are reasonable grounds for finding that it evidences a communication that was made by a lawyer (in this case Mr Dixon-Smith) in furtherance of the commission of the fraud alleged by Almona in the proceedings. That is because it is clear from the materials tendered that Mr Dixon-Smith was intimately involved, and played a guiding role, in SAP’s conduct which is challenged in the proceedings such that I find he had the requisite knowledge of the matters alleged to constitute SAP’s fraud (see paragraph [43] of Stanizzo).

Finally in relation to this document, Mr Hyde made the alternative submission that if the Court was of the view that the Exception applied, it would not apply to the section of four paragraphs commencing “At present” under the second sub-heading on the second page of the document because the matters described in those paragraphs had nothing to do with the impugned conduct. I do not agree. This section is an integral part of what is one, internally coherent communication and cannot be severed in the way Mr Hyde submitted. Alternatively, if (contrary to the view I have just expressed) those paragraphs are capable of being treated as a separate communication, then s 126 of the Act applies because they are reasonably necessary to enable a proper understanding of the rest of the email.

These are the only other documents which it seems to me could fall within the Exception. They are emails to Mr Dixon-Smith from one of his assistant solicitors on 23 December 2015 at 6.41pm and 23 December 2015 at 7.19pm. They relate to the corporate arrangements referred to in paragraph [19] above. However, in relation to those communications, even if the other elements of s 125 were satisfied, the evidence does not establish that there are reasonable grounds for finding that the solicitor had sufficient knowledge of the matters which are the subject of Almona’s complaint for the Court to be satisfied that the solicitor’s communications were in furtherance of the commission of the fraudulent conduct alleged (see paragraph [43] of Stanizzo).

In relation to the other communications which I have held to be subject to client legal privilege, I have reviewed them in the light of the parties’ submissions in relation to the Exception. I am satisfied that none of them falls within the Exception for reasons including:

For completeness, I record that I reject Mr Hyde’s submission that the Exception could not be satisfied in relation to documents brought into existence after the Contract became unconditional. As it happened, however, this issue was not decisive in relation to any document.

Almona has demonstrated that it is entitled to access to Mr Dixon-Smith’s email of 15 March 2106 at 11.18am which is under Tab 3 of the bundle. I will hear the parties as to appropriate orders to give effect to these reasons and as to costs.