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Supreme Court 16 August 2001

Kang v Kwan & 2 Ors

[2001] NSWSC 698

Fraud & dishonesty

Citation: Kang v Kwan & 2 Ors [2001] NSWSC 698 (revised 17 August 2001)
Court: Supreme Court of New South Wales, Equity Division
Date: 16 August 2001
Judge(s): Santow J

Background

The plaintiff had successfully obtained a District Court judgment for over $108,000 against two defendants (a mother and daughter, referred to here as the Woowin defendants) for work performed on their Castlecrag property. Shortly before that judgment was finalised, the Woowin defendants mortgaged the Castlecrag property to a close associate (the first defendant in the present Supreme Court proceedings) and then sold it, with the mortgage proceeds paid out to that associate on completion.

The plaintiff commenced these Supreme Court proceedings, alleging the mortgage and related transactions were shams designed to defeat his judgment debt. The two Woowin defendants had originally participated in the proceedings but became uncontactable after September 2000, having apparently returned to Beijing. They ceased engaging with the litigation entirely.

During the Supreme Court proceedings, documents from a conveyancing file were produced under court order. A subsequent discovery of a letter raised questions about whether those documents were protected by legal professional privilege. That question arose urgently during the hearing and forms the subject of this judgment, which is one of two contemporaneous judgments by Santow J intended to be read together.

  • Whether legal professional privilege attached to the documents in the conveyancing file
  • Whether privilege was lost under s 125 of the Evidence Act 1995 (NSW), which removes privilege where communications are made in furtherance of fraud or an abuse of power
  • Whether privilege was alternatively lost under s 122, which concerns loss of privilege by consent or disclosure
  • The meaning of "consent" for the purposes of s 122(1)
  • The meaning of "fraud" and "abuse of power" for the purposes of s 125
  • Whether the common interest provisions in s 122(5)(b) preserved privilege where the conveyancing file had been disclosed to the solicitor now acting for the first defendant
  • The procedural question of who could object to adducing privileged evidence when the clients (the Woowin defendants) were outside the jurisdiction and uncontactable
  • Whether the court could examine documents under s 133 to assess the privilege claim

Decision

Santow J found that the documents were not protected from being adduced in evidence because they fell within s 125 of the Evidence Act 1995. The s 125 exception applies where there are reasonable grounds to infer that the communications were made or documents prepared in furtherance of fraud or an abuse of power, and it is not necessary that the lawyer involved was aware of the client's fraudulent intention.

The court found, at a prima facie level, that the transactions in question constituted a deliberate abuse of the statutory power to bring legal proceedings. Specifically, the filing of proceedings to have the original District Court judgment set aside, while concealing the true nature of the underlying transactions, involved misleading the court. That conduct amounted to a dishonest abuse of power within the meaning of s 125.

On the s 122 question, the court found it unnecessary to decide the point conclusively, given the s 125 finding. However, Santow J indicated that no consent by the Woowin defendants could be implied under s 122(1), and that any disclosure to the solicitor now acting for the first defendant would in any event have been preserved by the common interest privilege provisions in s 122(5)(b).

The court emphasised that all findings were made only at the prima facie level of there being "reasonable grounds." They are not binding findings of fact and remain open to be contested when the substantive issues are determined. The first defendant retains the ability to adduce evidence and make submissions on those issues.

Orders Made

• The documents subject to the claim for privilege, with minor exceptions identified by pink tags, are not prevented by the relevant provisions of the Evidence Act from being adduced, since they fall within s125 of the Act

Key Takeaways

  • Under s 125 of the Evidence Act 1995 (NSW), legal professional privilege is not available where there are reasonable grounds to infer that communications were made or documents were prepared in furtherance of fraud or an abuse of power; the lawyer's ignorance of the client's intention does not prevent the exception from applying.

  • Deliberately misleading a court, including through the use of legal proceedings to conceal fraudulent transactions from a judgment creditor, can constitute a "dishonest abuse of power" sufficient to enliven s 125 at a prima facie level.

  • A prima facie finding under s 125 is not a binding determination of fact; it resolves only whether privileged material can be adduced, leaving the substantive questions open for final hearing.

  • Where clients are outside the jurisdiction and uncontactable, the question of who may assert or waive privilege, and the extent to which a retained lawyer can act for that purpose, is a live procedural issue identified in this decision (addressed more fully in the companion judgment).

  • Disclosure of a conveyancing file to a solicitor acting in related proceedings does not necessarily result in the loss of privilege under s 122(2) or (4), where the parties share a common interest within the meaning of s 122(5)(b), which Santow J treated as having overriding effect.

Legislation and Cases Referenced

Legislation:
- Evidence Act 1995 (NSW): Part 3.10, ss 118, 119, 122, 125, 133
- Conveyancing Act 1919 (NSW): s 37A

Cases:
- Attorney General (NT) v Maurice (1986) 65 ALR 230
- Barclays Bank plc v Eustice [1995] 1 WLR 1238
- Commissioner, Australian Federal Police v Propend Finance Pty Ltd (1997) 91 A Crim R 451; (1997) 141 ALR 545
- Commissioner of Taxation (Cth) v Citibank Ltd (1989) 85 ALR 588
- Flower & Hart v White Industries (Qld) Pty Limited (1999) 87 FCR 134
- Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 222
- Rosenberg v Jaine [1983] NZLR 1
- State Drug Crime Commission v Larsson (1991) 53 A Crim R 131
- Stevens v Canada (Privy Council) (1998) 161 DLR (4th) 85
- Tuckiar v The King (1934) 52 CLR 335
- Watson v McLearnon [2000] NSWSC 19
- Williams v Spautz (1992) 174 CLR 509
- Zemanek v Commonwealth Bank of Australia (FCA, Hill J, 2 October 1997, unreported)