FEDERAL COURT OF AUSTRALIA

Domain Paper (Australia) Pty Ltd v Galloway [2014] FCA 936

THE COURT ORDERS THAT:

1.    On or before 4.00pm on 5 September 2014 Maddocks (a firm) provide to the Victoria District Registry of this Court its complete original file in the name of John Findlay Galloway carrying file number 5637569 (“the Maddocks file”).

2.    Until further order the Maddocks file is to remain in the possession and custody of the Court.

3.    Each of the parties to this proceeding and their solicitors, and the liquidator of Angus Agencies Pty Ltd, Norman Kenneth Jones, may inspect and copy the Maddocks file upon giving the Registry reasonable notice of their intention to do so, and provided that a Registrar or his or her delegate is available to supervise that process.

4.    The First and Second Respondents pay the Applicant’s costs of and incidental to the interlocutory application dated 14 August 2014 to be taxed in default of agreement.

5.    The Applicant’s solicitor shall forthwith serve a copy of this order on the Managing Partner of Maddocks by email and by ordinary post.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

introduction

1    The applicant, Domain Paper (Australia) Pty Ltd (“Domain”), seeks an interlocutory order that the first and second respondents, John and Elizabeth Galloway, produce for inspection the original file held by the legal firm Maddocks in Mr Galloway’s name under file number 5637569 (“the Maddocks file”).

2    Domain’s application is supported by:

(a)    affidavits of David Graer, a forensic accountant, made on 1 November 2012 and 19 June 2014 together with attachments;

(b)    affidavits of its solicitor, Nathan Abrahams, made on 1 November 2012 and 12 August 2014 together with attachments; and

(c)    an affidavit of the solicitor for Angus Agencies in the Paperlinx Proceedings, Jeffrey Choy, made on 22 October 2013 together with attachments.

3    Mr and Mrs Galloway oppose production of the file on the basis that it is subject to legal professional privilege. Mr and Mrs Galloway did not file any affidavit material in support of their claim for privilege. Nor did they rely on any of the earlier affidavits filed by the respondents in other contexts. Counsel for Mr and Mrs Galloway frankly conceded that the decision to file no affidavit evidence was a forensic one.

4    For the reasons I set out below their claim for privilege fails.

The substantive proceeding

The agreement between Domain and Angus Agencies

5    Domain is in the business of supplying bulk paper, often it seems on 90 day credit terms, and Angus Agencies Pty Ltd (“Angus Agencies”) (now in liquidation) was one of its customers. Mr and Mrs Galloway were the sole directors and shareholders of Angus Agencies.

6    Angus Agencies had an agreement to purchase bulk paper from Domain for which it was invoiced by Domain, which Angus Agencies then sold at cost plus a margin to Quality Print Group Pty Ltd (“Quality”) which was at the time owned and controlled by Paul Canty. Domain directly delivered the paper to Quality. Angus Agencies was just a middleman but under its agreement with Domain it was liable to meet the invoices for the paper supplied by Domain to Quality.

7    According to Domain, underlying this two tiered supply agreement was the fact that Mr Canty had a poor reputation in the paper industry and he was seen by Domain and other large paper suppliers as a high credit risk. It appears that Domain will argue that it was prepared to deliver bulk paper to Quality only because Angus Agencies was the purchaser and was liable to meet Domain’s invoices.

8    I infer that the point of the arrangement from Angus Agencies’ perspective (and that of Mr and Mrs Galloway) was that it could charge a margin on the bulk paper provided to Quality.

9    Although it operated successfully for some years, the agreement between Domain and Angus Agencies did not ultimately provide the protection that Domain had anticipated. In the period between 20 August 2009 and 25 May 2010 Angus Agencies ordered paper from Domain to the value of about $1.97 million and did not pay the invoices rendered. On 27 August 2010 Domain obtained judgment for $2,044,322 against Angus Agencies in the County Court of Victoria. After reductions for some stock recovered from Quality and the addition of interest Domain was owed a total of $1.83 million as at 17 August 2012. Angus Agencies went into liquidation without meeting this debt.

Domain’s claims

10    Domain’s claims in the substantive proceeding fall into two categories which may be broadly described as:

(a)    claims by Domain in its own right, which arise out of the alleged conduct of Mr and Mrs Galloway in ordering paper from Domain while they stripped or diverted the assets of Angus Agencies as part of a dishonest and fraudulent scheme to defraud creditors including Domain. Domain alleges that Mr and Mrs Galloway’s conduct was misleading or deceptive in breach of the Australian Consumer Law (“ACL”) being Schedule 2 of the Competition and Consumer Act 2010 (Cth), and in breach of the Fair Trading Act (“FTA”). The pleadings do not indicate whether Domain relies on the FTA (Vic) or (NSW) or both, and the cause of action may have arisen in either or both of those two states;

(b)    claims by Domain as an assignee of Angus Agencies’ rights in the proceeding, which arise out of the alleged conduct of Mr and Mrs Galloway as directors of Angus Agencies. Angus Agencies was the second applicant in the proceeding when it was commenced. Domain then purchased Angus Agencies’ right, title and interest in the proceeding by a deed of assignment dated 4 June 2014. Later, by order of the Court Angus Agencies ceased to be a party to the proceeding. Domain, as Angus Agencies’ assignee, alleges that Mr and Mrs Galloway breached their general law and statutory directors duties to Angus Agencies, including by:

(i)    stripping the assets of Angus Agencies as part of a dishonest and fraudulent scheme to advantage themselves, to the detriment of Angus Agencies and its creditors including Domain;

(ii)    diverting the assets of Angus Agencies to the newly created third respondent, Angus Graphics Pty Ltd (“Angus Graphics”), of which Mr and Mrs Galloway’s son Mark Galloway (the fourth respondent) and daughter Kim Phipps (the fifth respondent) are the sole directors and shareholders;

(iii)    causing Angus Agencies to incur debts which Mr and Mrs Galloway knew it could not pay;

(iv)        failing to exercise their powers and discharge their duties with the care and diligence of a reasonable person in their position as directors;

(v)    failing to exercise their powers and discharge their duties in good faith in the best interests of Angus Agencies and for proper purposes; and

(vi)    improperly using their positions to gain advantage for themselves and others (including Angus Graphics and their son and daughter) or to cause detriment to Angus Agencies.

11    Broadly, Domain alleges that:

(a)    from 29 January 2010 (immediately following the incorporation of Angus Graphics) Mr and Mrs Galloway implemented a scheme whereby the assets of Angus Agencies were stripped or diverted and the business of Angus Agencies was transferred to Angus Graphics (“the Phoenix Scheme”);

(b)    the Phoenix Scheme was part of a dishonest and fraudulent design by Mr and Mrs Galloway whereby Angus Agencies’ assets were stripped or diverted as alleged, and it continued to incur debts (including substantial debts to Domain) which it was unable to pay by virtue of the Phoenix Scheme; and

(c)    Mr and Mrs Galloway implemented the Phoenix Scheme by:

(i)    not informing Domain of the changes in Angus Agencies;

(ii)    allowing Angus Graphics Pty Ltd to use the name Angus Graphics which was the business name under which Angus Agencies had traded since 1992;

(iii)    making false representations to Domain which induced it to continue to deliver paper to Quality on the understanding that Angus Agencies would meet the invoices; and

(iv)    allowing Angus Graphics to operate from the same premises as those from which Angus Agencies had operated.

As a result, Domain says it was unaware of the sham restructure that it alleges occurred within Angus Agencies, a company that owed it significant monies and was continuing to purchase paper from it on credit.

12    Domain alleges that in pursuit of the Phoenix Scheme from early 2010 Mr and Mrs Galloway:

(a)    assigned a valuable asset of Angus Agencies to Mr and Mrs Galloway for no consideration, being a debt in the amount of $949,925 owed by Fox Timber Imports Pty Ltd (“the Fox Timber debt”) to Angus Agencies. Fox Timber was owned and controlled by Russell Phipps who is married to the fifth respondent, Ms Phipps;

(b)    assigned valuable plant and equipment including motor vehicles from Angus Agencies to Angus Graphics for no consideration;

(c)    assigned a valuable agreement with a company named “Century 21” from Angus Agencies to Angus Graphics for no consideration. I note that in an affidavit sworn 19 October 2012 Mr Galloway described the business relationship with Century 21 as an intangible asset of Angus Agencies;

(d)    transferred the registered business name “Angus Graphics” owned by Angus Agencies to the newly created company, Angus Graphics Pty Ltd for no consideration;

(e)    diverted monies paid to Angus Agencies for their own benefit, rather than using the monies for the benefit of Angus Agencies, by paying its creditors including Domain;

(f)    transferred their shareholdings and directorships to a “puppet” director, Gary Wood (the brother in law of Mr Canty) who had no capacity to run the Angus Agencies business and who played no substantive role in the company thereafter; and

(g)    continued to operate Angus Agencies’ bank account even after transferring their directorships to Mr Wood.

13    Mr and Mrs Galloway deny the substantive allegations and I make no findings in relation to them. I detail them only in order to provide the context in which the claims of legal professional privilege are made.

The Paperlinx proceeding

14    Another large paper supplier, Paperlinx Australia Pty Ltd (“Paperlinx”) also brought proceedings against Mr Galloway (and Angus Agencies) doing so in the NSW District Court (“the Paperlinx proceeding”). Those proceedings show that Paperlinx’s agreement with Angus Agencies was similar to Domain’s. Angus Agencies ordered bulk paper from Paperlinx for which it was invoiced, and it on-sold the paper to Quality. Paperlinx delivered the paper directly to Quality.

15    The judgment of Gibson DCJ in the Paperlinx proceeding delivered on 7 July 2014 following an eight day trial (“the Paperlinx judgment”) shows that from 2003 to 2010 Paperlinx delivered paper to Quality pursuant to its agreement with Angus Agencies. Angus Agencies met the invoices until it failed to do so in respect of paper delivered between 6 April 2010 and 2 June 2010, to the value of $166,397.

16    Gibson DCJ held that Mr Galloway had engaged in misleading or deceptive conduct by undertaking a sham restructure of Angus Agencies and that Mr Galloway was unable to satisfactorily explain why he did not inform Paperlinx about that restructure. Her Honour described Mr Galloway’s conduct as deceitful. However, the judgment and findings of fact in the Paperlinx proceeding are not admissible to prove the existence of a fact in this proceeding. The findings are put forward by Domain on the basis that the Court can take some “comfort” from them in relation to the orders sought, but I point to the judgment only to further describe the background to the present case.

Angus Agencies’ attempts to obtain the Maddocks file

17    Following the failure of Angus Agencies, Domain purchased the company and Domain thereby obtained access to Angus Agencies’ records. A forensic accountant, David Graer, was appointed a director of the company and he undertook a review of the records. Following this Mr Graer deposed in an affidavit made 1 November 2012 that Mr and Mrs Galloway had implemented a “phoenix” scheme under which Angus Agencies’ assets were diverted to Angus Graphics. He said that the scheme “involved” Maddocks which I take to mean that Maddocks provided legal advice to Mr and Mrs Galloway in respect of it.

18    Mr Graer reached the view that Maddocks acted for Angus Agencies in advising on and preparing documents for the various transactions which were undertaken as part of the alleged scheme, and in December 2010 he sought to obtain the relevant Maddocks file. It is not contentious that file number 5637569 in the name of Mr Galloway is the relevant Maddocks file.

19    On 16 December 2010 Mr Graer sent an email to Maddocks seeking all documents, records and files held on behalf of Angus Agencies. Duncan Hall, a partner of Maddocks, and Marelda Hibberd then a senior associate of the firm, responded by emails on 17 December 2010 that Mr Galloway was the firm’s client, that the firm did not act for Angus Agencies and that the firm held no documents on behalf of the company. Mr Hall also said that he was unable to explain why Angus Agencies had paid the firm’s accounts on file number 5637569.

20    Mr Graer deposed that in November 2011 the solicitors for Angus Agencies complained to the Victorian Legal Services Commission alleging a conflict of interests against Maddocks. In responding to that complaint on 7 May 2012 Ms Hibberd said:

…

1.    Maddocks has acted for Mr John and Mrs Elizabeth Galloway in relation to matters associated with their roles as directors and shareholders of Angus Agencies Pty Ltd and Angus Graphics Pty Ltd. Maddocks has never acted for Angus Agencies Pty Ltd in its own capacity.

2.    To the extent that any documents associated with Angus Agencies have been required to be prepared by Maddocks, that has been done in our capacity as solicitors for Mr and Mrs Galloway.

…

21    In late September 2012 the applicants (at that time both Domain and Angus Agencies) served a subpoena on Maddocks which called for production of “all documents forming file number 5637569 from the period 1 January 2009 and 1 December 2010”. On 11 October 2012 Maddocks filed an interlocutory application to set aside the subpoena.

22    The application to set aside the subpoena was supported by an affidavit of Peter Francis, a partner of Maddocks, made on 9 October 2012 (“the Francis affidavit”). He deposed that Maddocks was instructed to act on behalf of John Galloway on or about 22 December 2009 and that the firm never acted for Angus Agencies or Angus Graphics.

23    Maddocks’ challenge to the subpoena was broadly framed and the firm argued that the subpoena was a fishing exercise, the documents would be discoverable from Mr Galloway in any event as a copy of the file had been provided to his new solicitors, Buttar, Caldwell and Co, the documents in the file were privileged, and the subpoena was an abuse of process.

24    In response the applicants filed the affidavit of Mr Graer to which I earlier referred, Mr Graer identified various examples of legal work which the applicants argued showed that Maddocks had provided legal services for Angus Agencies in furtherance of the alleged Phoenix Scheme. He also deposed to Angus Agencies having met Maddocks’ accounts for the legal work performed on the file.

25    The application to set aside the subpoena was returnable on 2 November 2012 but it was stood over so that the applicants could file submissions and any further affidavits on the issue of who Maddocks’ client was when it provided the relevant legal advice and services. However, the applicants did not appear at the next directions hearing on 29 May 2013 and did not file their further material. On 24 July 2013 the Court made further orders for the filing of submissions and affidavits but the applicants did not comply with this timetable either.

26    On 26 August 2013, I referred the application to set aside the subpoena to be heard before a Registrar. Because the applicants had not complied with the timetable ordered Registrar Hetyey declined to allow them to argue that Angus Agencies was in fact Maddocks’ client in relation to the legal services the firm had provided.

27    On 6 December 2013 Registrar Hetyey set aside the subpoena essentially because Maddocks file number 5637569 had already been copied and provided to Mr and Mrs Galloway’s solicitors, Buttar, Caldwell and Co. The Registrar considered that, subject to the determination of any claim for legal professional privilege, the claim to inspect the Maddocks file should be determined as part of the discovery process between the parties. He later made orders for the filing of any interlocutory application and supporting affidavits in relation to the production and inspection of documents the subject of claims for legal professional privilege.

General principles reGARDING legal professional privilege

28    Although both parties addressed the issue of legal professional privilege by reference to the provisions of the Evidence Act 1995 (Cth) (“Evidence Act”), it is clear that the application falls to be determined under the common law rather than under the Evidence Act. Section 118 of the Evidence Act refers to adducing evidence in a proceeding, and it does not cover all of the circumstances in which a claim from privilege might apply: Esso Australia Resources Limited v Commissioner of Taxation of the Commonwealth of Australia (1999) 201 CLR 49 at [16] per Gleeson CJ, Gaudron and Gummow JJ.

29    The “advice privilege” limb of legal professional privilege is a rule of substantive law which may be relied on to resist the giving of information or the production of documents which would reveal communications between a client and his or her lawyer for the dominant purpose of giving or obtaining legal advice or the provision of legal services: The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [9] per Gleeson CJ, Gaudron, Gummow and Hayne JJ. It is inappropriate to take a narrow, technical or formalistic approach to the identification of documents falling within the protection of the scope of the privilege: AWB Ltd v Cole and Another (No 5) (2006) 155 FCR 30 (“AWB”) at [46] per Young J; DSE (Holdings) Pty Ltd v InterTAN Inc (2003) 135 FCR 151 at [31] per Allsop J.

30    In AWB at [44] Young J helpfully set out 12 general principles in relation to legal professional privilege (“the Principles”) which I respectfully adopt. The Principles which are relevant in the present application include the following:

(1)    The party claiming privilege carries the onus of proving that the communication was undertaken, or the document was brought into existence, for the dominant purpose of giving or obtaining legal advice.  The onus might be discharged by evidence as to the circumstances and context in which the communications occurred or the documents were brought into existence, or by evidence as to the purposes of the person who made the communication, or authored the document, or procured its creation.  It might also be discharged by reference to the nature of the documents, supported by argument or submissions: see Grant v Downs (1976) 135 CLR 674 (Grant v Downs) at 689; Commissioner of Taxation v Pratt Holdings Pty Ltd (2005) 60 ATR 466 (FCT v Pratt Holdings) at [30]; and AWB v Cole (2006) 152 FCR 382 (AWB v Cole) at [63].

(2)    The purpose for which a document is brought into existence is a question of fact that must be determined objectively.  Evidence of the intention of the document’s maker, or of the person who authorised or procured it, is not necessarily conclusive.  It may be necessary to examine the evidence concerning the purpose of other persons involved in the hierarchy of decision-making or consultation that led to the creation of the document and its subsequent communication: see AWB v Cole at [110]. 

(3)    The existence of legal professional privilege is not established merely by the use of verbal formula: Grant v Downs at 689 per Stephen, Mason and Murphy JJ.  Nor is a claim of privilege established by mere assertion that privilege applies to particular communications or that communications are undertaken for the purpose of obtaining or giving “legal advice”: National Crime Authority v S (1991) 29 FCR 203 at 211–212 per Lockhart J; Candacal Pty Ltd v Industry Research & Development Board (2005) 59 ATR 615; 223 ALR 284 at [70]; Seven Network Ltd v News Ltd [2005] FCA 142 at [6]–[8].  If assertions of that kind are received in evidence in support of the privilege claim, their conclusionary nature can leave unclear what advice was really being sought.  There will be cases in which a claim of privilege will not be sustainable in the absence of evidence identifying the circumstances in which the relevant communication took place and the topics to which the instructions or advice were directed: Kennedy v Wallace (2004) 142 FCR 185 (Kennedy v Wallace) at [12]–[17] per Black CJ and Emmett J and at [144]–[145] and [166]–[171] per Allsop J; see also Southern Equities Corporation Ltd (in liq) v Arthur Andersen & Co (No 6) [2001] SASC 398. 

(4)    Where communications take place between a client and his or her independent legal advisers, or between a client’s in-house lawyers and those legal advisers, it may be appropriate to assume that legitimate legal advice was being sought, absent any contrary indications: Kennedy v Wallace (2004) 208 ALR 424 at [65] per Gyles J; affirmed on appeal, Kennedy v Wallace at [23]-[27] per Black CJ and Emmett J.  In Kennedy v Wallace, Black CJ and Emmett J inclined to the view that in the ordinary case of a client consulting a lawyer about a legal problem in uncontroversial circumstances, proof of those facts alone will provide a sufficient basis for a conclusion that legitimate legal advice is being sought or given.

(5)    A “dominant purpose” is one that predominates over other purposes; it is the prevailing or paramount purpose: AWB v Cole at [105]-[106]; FCT v Pratt Holdings at [30] per Kenny J.

(6)    An appropriate starting point when applying the dominant purpose test is to ask what was the intended use or uses of the document which accounted for it being brought into existence: Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357 at 366 [35] per Finn J.

…

(12)    The Court has power to examine documents over which legal professional privilege is claimed.  Where there is a disputed claim, the High Court has said that the court should not be hesitant to exercise such a power: Esso; see also Grant v Downs at 689.  If the power is exercised, the court will need to recognise that it does not have the benefit of submissions or evidence that might place the document in its proper context.  The essential purpose of such an inspection is to determine whether, on its face, the nature and content of the document supports the claim for legal professional privilege.

31    I note that the determination of the issue of privilege in the present context is interlocutory rather than final, and it is unnecessary that the evidence on the issue be adduced in admissible form as if at trial: Re Southland Coal Pty Ltd (receivers and managers appointed)(in liq) (2006) 203 FLR 1 at [26] per Austin J.

Consideration

32    I have reached the view that Mr and Mrs Galloway’s claim of legal professional privilege must fail. I do so for two main reasons, namely:

(a)    they failed to adduce any evidence to meet their onus to establish their claim; and

(b)    the evidence adduced by Domain tends to show that, at least in respect of some important parts of the legal advice and services sought and obtained by Mr Galloway from Maddocks under file number 5637569, Mr Galloway was instructing Maddocks in his capacity as a director of Angus Agencies. At least in respect of such legal advice and legal services I am not satisfied that the documents in the Maddocks file were created or procured for the dominant purpose of providing legal advice and legal services to Mr and Mrs Galloway personally. While I accept the possibility that there may be other documents in the file which were brought into existence by Maddocks for Mr and Mrs Galloway in their personal capacity, the respondents did not identify any such documents or set out the specific ground for their claim. Again, they did not adduce any evidence to meet their onus to establish a claim of privilege in respect of such documents.

I now go to these two reasons in more detail.

Did Mr and Mrs Galloway fail to discharge the onus?

33    It is uncontentious that Mr and Mrs Galloway have the onus of proving that the documents in the Maddocks file over which they assert a claim of privilege were created or procured by Maddocks for the dominant purpose of Mr and Mrs Galloway seeking or obtaining legal advice or being provided legal services in their personal capacity, rather than as directors of Angus Agencies. In my view they failed to do so.

34    In their sworn Lists of Documents dated 29 July 2013 each of Mr and Mrs Galloway state that the documents under his or her control include the following documents for which privilege is claimed:

Various correspondence between Maddocks and [Mr and/or Mrs Galloway], including but not limited to letters of advice, emails, file notes, advices, file notes [sic], memoranda and draft documents.

35    Rule 20.17(2)(c) of the Federal Court Rules 2011 (“the Rules”) requires that a List of Documents must describe “each document in the party’s control for which privilege from production is claimed and the grounds of the privilege.” A claim of privilege cannot be established by the mere assertion that privilege applies to particular documents on the basis that they were created for the purpose of giving or obtaining legal advice or providing legal services: see AWB Principle 3.

36    It was plainly insufficient for Mr and Mrs Galloway to make a general claim for privilege without identifying the documents in respect of which the claim was made. Their Lists of Documents do not comply with the Rules and in my view the claim of privilege is little more than a bald assertion.

37    Other than their Lists of Documents Mr and Mrs Galloway did not offer any evidence in support of their privilege claim. In a contested claim such as this, I would expect that Mr and Mrs Galloway, a solicitor from Maddocks, or their current solicitors would have sworn an affidavit properly identifying each document in the Maddocks file over which Mr and Mrs Galloway claimed privilege and the grounds of the claim.

38    Counsel for Mr and Mrs Galloway effectively conceded the deficiency in their Lists of Documents but nevertheless argued that I should not order production of the Maddocks file for inspection. Instead counsel contended that the Court should order that Mr and Mrs Galloway properly describe each document over which they make a claim of privilege and the grounds upon which they do so, or alternatively order that the Maddocks file be produced to the Court in order for it to assess the claim for privilege.

39    In my view neither of these approaches is appropriate in the present case.

An adjournment to allow Mr and Mrs Galloway to make a proper claim for privilege?

40    To now order Mr and Mrs Galloway to properly particularise their claims of privilege would require an adjournment of the application for production and inspection of the Maddocks file. The application to adjourn is made when, since September 2010, Angus Agencies has asserted that it was Maddocks’ client in respect of the legal advice and services sought by and provided to Mr Galloway and has sought access to the Maddocks file. Since November 2012 that claim has been before the Court.

41    Mr and Mrs Galloway have been on notice for more than 18 months that Angus Agencies contended that the legal advice and services sought by them and provided by Maddocks could only have been undertaken on instructions from Mr and Mrs Galloway in their capacity as directors of Angus Agencies.

42    Mr and Mrs Galloway’s privilege claim centres on the contention that they only sought, and Maddocks only provided, legal advice and services to them in their personal capacity, and not instead or also in their capacities as directors of Angus Agencies. But as I set out in detail at [58]-[68] below, Domain put on a substantial body of evidence which tends to show that in respect of some important parts of the legal advice and services sought and obtained from Maddocks, Mr Galloway instructed Maddocks in his capacity as a director.

43    Notwithstanding the clear deficiencies in the claim of privilege in their Lists of Documents, and confronted with substantial (and in my view persuasive) evidence that Mr Galloway sought and obtained legal advice and services from Maddocks in his capacity as a director, Mr and Mrs Galloway made a strategic decision to put on no evidence which demonstrated that Maddocks only acted for them in a personal capacity. They chose not to identify any particular document over which they claimed privilege or the grounds of any such claim.

44    Then, when confronted in Court with the deficiencies Mr and Mrs Galloway effectively sought an adjournment to address them. In my view because:

(a)    they bear the onus;

(b)    the application for an adjournment to allow Mr and Mrs Galloway to put on evidence in support of their claim for privilege was made midstream in the hearing;

(c)    significant delay has already occurred in relation to the question of access to the Maddocks file; and

(d)    the requirement for an adjournment arises from Mr and Mrs Galloway’s forensic decision not to put on evidence;

an adjournment is inconsistent with the requirement for the quick, inexpensive, efficient and just disposition of the proceeding: s 37M Federal Court of Australia Act 1976 (Cth) (“FCA”).

45    I am confirmed in my view that an adjournment should not be allowed because fixing another hearing date for this dispute also affects the interests of other litigants: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [111]-[114] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.

Should the Court review the Maddocks file to determine the privilege claim?

46    There is no question that the Court has power to examine documents over which legal professional privilege is claimed, and it should not be hesitant to exercise its power: AWB at [44], Principle 12. However in the circumstances of the present case I do not consider that I should do so.

47    Where communications occur between a client and independent legal advisers it may be appropriate to assume that legitimate legal advice was being sought: AWB Principle 4. But the real question in the present case is not whether legitimate legal advice was provided by Maddocks to Mr and Mrs Galloway, but whether at least some parts of the legal advice and services were sought and obtained by them in their capacity as directors of Angus Agencies.

48    The evidence is that Maddocks’ file number 5637569 runs to seven lever arch binders. Notwithstanding the substantial evidence to which I have referred, Mr and Mrs Galloway have not put on evidence, or even submissions, which identify any documents that were brought into existence for the dominant purpose of their obtaining or Maddocks providing legal advice or services to them personally, or the grounds of any such a claim. Without such evidence and submissions the Court’s task in inspecting the file and reaching a view as to privilege would be both highly time-consuming and inefficient: see s 37M FCA.

49    It is the task of the party claiming legal professional privilege to identify the documents over which the claim is made, and the specific grounds of the claim. I do not accede to the submission that the Court should inspect the file when Mr and Mrs Galloway have made a strategic decision to put on no material whatsoever to assist the Court.

Conclusion regarding onus

50    There were a number of straightforward ways in which Mr and Mrs Galloway could have discharged the onus of proving that particular documents in the Maddocks file were created or procured for the dominant purpose of their seeking, and Maddocks providing, legal advice or services to them in their personal capacity. Among other things, they or their legal representatives could have put on an affidavit identifying the documents over which privilege was claimed and setting out:

(a)    the circumstances and context in which the documents were brought into existence;

(b)    the purposes of the person who authored the documents or procured their creation; or

(c)    the nature of the documents supported by argument or submissions.

See AWB Principle 1. They chose not to do so.

51    As the Full Court explained in Barnes v Federal Commissioner of Taxation (2007) 242 ALR 601 at [18] per Tamberlin, Stone and Siopis JJ:

The authorities emphasise the need for focused and specific evidence in order to ground a claim for legal professional privilege. In Kennedy v Wallace (2004) 142 FCR 185; 213 ALR 108; [2004] FCAFC 337, Black CJ and Emmett J reiterated the principles that verbal formulae and bare conclusory assertions of purpose are not sufficient to make out a claim for privilege: see also National Crime Authority v S (1991) 29 FCR 203 at 211; 100 ALR 151 at 158-160 (per Lockhart J); Grant v Downs (1976) 135 CLR 674 at 689 (per Stephen, Mason and Murphy JJ) … mere general assertions of the purpose of creation of the documents are insufficient to discharge this onus. (Emphasis added.)

52    Mr and Mrs Galloway failed to establish any basis for their claim of privilege. I will make the orders for production and inspection sought by Domain.

Who was Maddocks acting for in respect of the legal advice and services provided?

53    Having concluded that Mr and Mrs Galloway failed to meet their onus it is strictly unnecessary to decide this question.

54    To make out their claim for privilege Mr and Mrs Galloway must establish that the documents in the Maddocks file were brought into existence for the dominant purpose of their obtaining, or Maddocks providing, legal advice and services to them personally rather than in their capacity as directors of Angus Agencies. Documents brought into existence by Maddocks for the dominant purpose of providing legal advice and services to Mr and Mrs Galloway as directors of Angus Agencies cannot be the subject of a claim for privilege by them personally. That privilege rests with Angus Agencies.

55    In support of Mr and Mrs Galloway’s claim of privilege is the fact that the “Disclosure Statement and Costs Agreement” provided by Maddocks to Mr Galloway on 3 February 2010 (“the retainer”) stated that Mr Galloway instructed Maddocks to act in connection with “providing asset protection advice to you, as shareholder of Angus Agencies.” It stated that the scope of the work to be performed included “review of existing group structure” and “advice on asset protection”. The evidence also shows that Maddocks considered that it was acting for Mr and Mrs Galloway personally rather than for the company.

56    There is no written retainer between Maddocks and Angus Agencies but it is not necessary for a retainer to exist in order for a solicitor-client relationship to arise: see Hawksford v Hawksford [2008] NSWSC 31 at [17]-[20] per White J. Nor is the subjective intention of Maddocks in respect of a solicitor-client relationship with Angus Agencies determinative. I respectfully agree with the remarks of Barrett J in Apple Computer Australia Pty Ltd v Wily [2002] NSWSC 855 at [7] where his Honour held that:

a “client” vis-À-vis a lawyer is a person for whom the lawyer performs legal services. Whether a relationship of that kind exists is to be determined by reference to the intentions of the parties objectively ascertained.

57    Objectively viewed, the evidence shows that in respect of some important parts of the legal advice and services that Mr Galloway sought and obtained from Maddocks he was providing instructions to the firm in his capacity as a director of Angus Agencies. His intention should be seen as being to create a solicitor-client relationship between Angus Agencies and Maddocks.

58    I note that the documents attached to Mr Graer’s affidavits, culled from Angus Agencies’ records, show that Maddocks:

(a)    prepared documents regarding the resignation of directors in Angus Agencies;

(b)    prepared the minutes of the Angus Agencies’ meeting on 1 March 2010 concerning changes in shareholdings in the company. The minutes recorded that the company secretary or its legal advisers were to lodge a notification with ASIC of these changes;

(c)    pursuant to the resolution of 1 March 2010 Maddocks notified ASIC of the “Change to company details” by lodging forms with ASIC on 4 March 2010 advising of the changes in shareholdings and directors in the company. Maddocks expressly stated in these forms that it lodged them on behalf of Angus Agencies, and I infer that it was acting for the company;

(d)    prepared a Deed of Assumption and Assignment of Debt between Angus Agencies, Fox Timber and Mr and Mrs Galloway which purported to assign Angus Agencies’ interest in the $950,000 Fox Timber debt to Mr and Mrs Galloway personally;

(e)    prepared a purported sale agreement on Angus Agencies letterhead between Mr and Mrs Galloway and Mr Wood (as trustee for AAG Trust); and

(f)    held and maintained Angus Agencies’ share register.

They tend to show that with respect to important parts of the legal advice and services Mr Galloway sought and received from Maddocks some of his instructions were given in his capacity as a director of Angus Agencies.

59    I note too that, following rulings on implied waiver of privilege by Gibson DCJ in the Paperlinx proceeding, Mr Galloway produced a number of documents from the Maddocks file. They were tendered in that case and they are attachments to the affidavits of Mr Choy and Mr Abrahams in the present case. These documents include:

(a)    file notes of conferences between Maddocks’ solicitors and Mr Galloway on 9 and 11 February 2010 and an email advice from Maddocks dated 15 February 2010 providing advice to Mr Galloway relating (at least in part) to a restructure of Angus Agencies;

(b)    some transactional documents relating to the restructure of Angus Agencies prepared by Maddocks; and

(c)    Maddocks’ accounts, narrative bills and the like in respect of file number 5637569 which record the legal services provided on that file.

These documents also tend to show that Mr Galloway was providing instructions as a director.

60    Maddocks’ file note of the conference with Mr Galloway on 9 February 2010 tends to show that Mr Galloway was looking to sell Angus Agencies and wanted to transfer the Fox Timber debt away from the company. It indicates that Maddocks enquired of Mr Galloway as to Angus Agencies insolvency risk, enquired whether it was appropriate for Angus Agencies to get an insolvency report, and enquired about Angus Agencies’ creditor and debtor position. It indicates that Maddocks advised that if the restructure of Angus Agencies which was under discussion involved uncommercial transactions there could be a “clawback”.

61    Maddocks’ file notes of the conference with Mr Galloway on 11 February 2010 tend to show that Maddocks suggested obtaining a valuation of Angus Agencies, but Mr Galloway said there was no point in doing so. They indicate that Maddocks advised Mr Galloway to make a list of the company’s plant and equipment to be transferred to another entity and advised that the transfer would be voidable if not for market value. They show that Mr Galloway instructed Maddocks that Angus Agencies had no plant and equipment of any material value. They indicate that Maddocks enquired about Angus Agencies’ trade creditors and debtors and advised that if Angus Agencies’ business was sold the company would be left with the current outstanding creditors to pay. They tend to confirm that Mr Galloway instructed Maddocks to look into Angus Agencies assigning the Fox Timber debt prior to any sale of the Angus Agencies business or shares. These were all matters largely to do with Angus Agencies’ interests.

62    Maddocks’ email advice dated 15 February 2010 tends to show that Mr Galloway provided instructions to Maddocks that:

(a)    the business assets of Angus Agencies be transferred into Angus Graphics prior to Mr Galloway’s sale of shares in the company;

(b)    either the business assets or the shares of Angus Agencies be sold to a new company created by Quality (“Newco”); and

(c)    Angus Agencies’ plant and equipment, being computers, desks and the like, were to be transferred to Angus Graphics prior to the sale of Angus Agencies’ assets or its shares to Newco.

63    It is significant that the email provided:

If an asset/business sale was the chosen vehicle, then unless the paper mills agreed otherwise, Angus Agencies would still have the primary obligation to pay for any outstanding orders at the time of the sale. We note that it is not your preferred outcome.

64    Importantly, the email advice shows that Mr Galloway was advised by Maddocks to assign or novate the valuable Fox Timber debt owed to Angus Agencies before any sale of the business assets of Angus Agencies or of shares in the company. The evidence shows that Mr and Mrs Galloway instructed Maddocks to prepare a Deed of Assumption and Assignment of Debt in relation to this debt. Angus Agencies and Mr and Mrs Galloway are parties to the deed which records Angus Agencies’ loan to Fox Timber in the sum of $949,925 and provides that Angus Agencies agrees to assign its right, title and interest in the debt to Mr and Mrs Galloway personally, for no consideration. In my view Mr Galloway was acting as a director when he instructed Maddocks to draft this deed and he signed it on behalf Angus Agencies.

65    It is also likely that Maddocks were acting on behalf of Angus Agencies when it prepared an undated letter (I infer in about mid-May 2010) on Angus Agencies letterhead, which purported to record the obligations of Angus Agencies to Mr and Mrs Galloway under the sale. Mr and Mrs Galloway resigned as employees and directors of Angus Agencies on 1 March 2010 and after that date I infer they were no longer able to instruct the use of Angus Agencies’ letterhead in this way. Mr Galloway continued to work at Angus Agencies as a consultant after 1 March 2010 but he adduced no evidence that he was authorised to instruct Maddocks to use company letterhead in an important document such as this.

66    Maddocks’ accounts and narrative bills also provide some insight into the legal advice and services Mr Galloway sought and obtained from Maddocks. They tend to confirm that at least some of the legal advice and services were sought and obtained by him in his capacity as a director of Angus Agencies. For example the accounts and narratives record:

(a)    1 February 2010 - conferring re restructure issues and considering restructure issues (which I infer relates to the restructure of Angus Agencies);

(b)    9 February 2010 - attendance at teleconference with insolvency lawyers (which I infer related to the solvency of Angus Agencies);

(c)    11 February 2010 - research re Corporations Act provisions dealing with charges/solvency (which I infer related to Angus Agencies);

(d)    15 February 2010 - drafting email to client re loans, deed of assignment and charges;

(e)    15 February 2010 - considering issues re assignment of loans and security;

(f)    16 and 19 February 2010 - drafting Loan Agreement, Deed of Assumption of Debt, and Fixed and Floating Charge. (I infer that the Deed of Assumption of Debt is the assignment of the Fox Timber debt);

(g)    17 February 2010 – drafting share transfer forms, minutes and ASIC forms (which were lodged on behalf of Angus Agencies);

(h)    22 February 2010 - reviewing Deed of Assumption and Assignment of Debt, Loan Agreement and Fixed and Floating Charge

(i)    26 February 2010 - drafting share transfers, minutes, ASIC forms, tax deed;

(j)    2 March 2010 - telephone attendance re stamp duty advice re transfer of assets to Angus Graphics (which involved the transfer of assets from Angus Agencies and I infer instructions from the company);

(k)    25 March 2010 - drafting letter agreement re transferring debtors (which involved the transfer of assets of Angus Agencies and instructions from the company);

(l)    25 March 2010 - reviewing letter re trade debtors…, conferring re cash of Angus Agencies (which I infer relates to the interests of Angus Agencies);

(m)    30 March 2010 - telephone attendance on Mr Galloway re charge, trade debtors… (which in part relates to the interests of Angus Agencies);

(n)    30 March 2010 - drafting Fixed and Floating Charge;

(o)    1 April 2010 - drafting Fixed and Floating Charge, drafting Loan Agreement, conferring with banking and Finance, drafting share transfers and ASIC form;

(p)    8 April 2010 - drafting side letter agreement;

(q)    9 April 2010 - drafting Asset Sale Agreement, drafting email re side letter, drafting email re asset sale agreement (which I infer relates to the sale of Angus Agencies’ assets);

(r)    15 April 2010 - arranging payment of duty, drafting ASIC certificate of compliance

(s)    16 June 2010 - drafting memo on voidable transactions under Corporations Act (which can only be a reference to transactions involving Angus Agencies);

(t)    17 June 2010 - drafting letter re shadow directors and risk (which I infer relates to Mr Galloway’s role as a consultant to Angus Agencies after 1 March 2010);

(u)    18 June 2010 - conferring with Mr Galloway re shadow director issues and email to PWC;

(v)    21 June 2010 - email to Mr Galloway re solvency;

(w)    23 June 2010 - conferring with Mr Galloway, drafting email to QPGA liquidator;

(x)    25 June 2010 - conferring with Mr Newman and drafting email to Mr Galloway re letter to QPGA liquidator;

(y)    27 July 2010 - considering insolvency issues;

(z)    27 July 2010 - conferring with D Newman re liquidation issues and insolvency matters (which I infer relates to the insolvency of Angus Agencies).

67    It is significant too, as the evidence shows, that Angus Agencies paid for the legal services provided under file number 5637569, doing so from its overdraft account in the name of “Angus Agencies Pty Ltd” held at Westpac Bank. The Westpac Bank “Business Finance Agreement” shows that the overdraft facility was in the company’s name, although Mr and Mrs Galloway provided personal guarantees. Counsel for Mr and Mrs Galloway sought to argue that although the account was in the name of Angus Agencies it was in reality Mr and Mrs Galloway’s personal account. They put on no evidence in support of that assertion and I do not accept it.

68    It is plain that a firm of solicitors may act on behalf of a company director and prepare documents to effect the sale of his or her shareholding in the company to a third party, without acting for the company itself. But the evidence shows that Mr and Mrs Galloway sought and obtained legal advice and services from Maddocks well beyond personal advice to them regarding sale of their shares and beyond their personal affairs or concerns in relation to the company. Objectively assessed, some of the legal advice and services sought by them from Maddocks, and provided by that firm, directly concerned the interests of Angus Agencies. The advice and services were sought and provided in their capacity as directors and, objectively assessed, Angus Agencies was a client of Maddocks.

69    In saying this I do not find that Mr and Mrs Galloway were not also clients of Maddocks in respect of some of the legal advice and services provided, nor do I find that Maddocks subjectively considered that it was acting for Angus Agencies.

Waiver?

70    As I have said, in the Paperlinx proceeding Mr Galloway was found to have waived privilege in respect of certain documents from the Maddocks file by:

(a)    deposing in an affidavit to legal advice he had received from Maddocks; and

(b)    giving extensive evidence in the hearing of the Paperlinx Proceedings about the steps he took following and in accordance with legal advice from Maddocks.

Domain points to the fact that Gibson DCJ was satisfied that the restructure transaction was not just a one-off piece of legal advice in January 2010. As I have said, the documents produced by Mr Galloway as a result of her Honour’s rulings have been adduced in evidence in the present case.

71    Domain argues that I should be satisfied that Mr Galloway has in fact waived privilege in respect of the whole of the Maddocks file, and it took me to the relevant parts of the transcript in the Paperlinx proceeding. While Domain’s argument has force it is unnecessary to decide given my finding that Mr and Mrs Galloway have failed to discharge the onus to make out their claim of privilege. Nor is it necessary to decide whether issue waiver applies to the Maddocks file because of the issues joined in the pleadings.

An illegal or improper purpose?

72    It is also unnecessary to reach a view on Domain’s contention that Mr and Mrs Galloway’s privilege claim fails because there are reasonable grounds for believing that their communications with Maddocks were made in furtherance of an illegal or improper purpose, including fraud: see s 125 of the Evidence Act; Kang v Kwan & Ors [2001] NSWSC 698 at [37] per Santow J.

Conclusion

73    I make the orders sought by Domain for the reasons I have set.

Associate:

Dated:    28 August 2014