Kazacos v Pacific International Trust Company Ltd [2001] VUSC 46; Civil Case 044 of 1998 (7 May 2001)

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Dr. M. KAZACOS
C/- Juris Ozols & Associates,
1^st Floor Lolam House, Port-Vila
Plaintiff

PACIFIC INTERNATIONAL TRUST COMPANY LIMITED
of International Building, Kumul Highway, Port-Vila, Vanuatu
Defendant

The plaintiff, Dr Michael Kazacos, is an Australian citizen resident in Queensland, Australia. The defendant, Pacific International Trust Company, (“PITCO”) is a company incorporated in Vanuatu, and carrying on business in Vanuatu. By Amended Summons filed on 28 July 1999, the Plaintiff claimed for:

1. An order that the defendant provide further and better discovery and in particular that it discover:

(a) all correspondence and other documents passing between the defendant and its Australian solicitors and barristers in respect of the matters for which the defendant is seeking reimbursement from the Plaintiff in respect of the fees of such Australian solicitors and/or barristers;

(b) all correspondence and documents passing between the defendant and the National Crime Authority in respect of the plaintiff;

(c) all correspondence passing between defendant’s Australian solicitors and their barrister and copies of any briefs to counsel and any advices from counsel in relation to the matters for which the defendant is seeking reimbursement from the plaintiff of its legal fees;

(d) all documents relating to the work performed by the defendant’s Australian solicitors and barristers in respect of the matters for which the defendant is seeking reimbursement from the plaintiff in respect of the fees of such Australian solicitors and/or barristers.

2. For the avoidance of doubt the Court hereby makes a further order that the prohibitions on release of information contained in Parts 3 and 3(a) of the Orders of the Court made on 19 February, 1997 and 24 February , 1998 in Civil Case No.8, 12 and 13 of 1997 are hereby discharged and both the plaintiff and the defendant are at liberty to disclose any such information pursuant to the laws of Vanuatu.

3. That the defendant provide copies of any documents inspected without imposition of any conditions as to non removal of documents subject to both parties giving undertakings that copies of any documents obtained from the other party by way of discovery in these proceedings will not be used for any purposes other than Civil Case No.44 of 1998.

4. An order that the amount of AUD105,000 paid into Court by the defendant on 13 October, 1998 be paid out to the plaintiff.

The defence in reply filed a Summons dated 2 August 1999 seeking for the following relief:

1. That by reason of the operation of the National Crime Authority Act 1984 (Commonwealth of Australia) (“NCA Act”) in relation to the defendant its servants and agents, failure to discover any documents the disclosure of which is prohibited by the NCA Act constitutes a reasonable excuse for failing to discover such documents.

2. That copies of any documents obtained from the defendant by way of discovery in these proceedings not be used for any purposes other that Civil Case No.44 of 1998.

3. That no copies of any documents obtained from the Defendant by way of discovery by removed from the jurisdiction of the Supreme Court of Vanuatu.

4. That the plaintiff’s Summons dated 11 December 1998, as amended by Summons dated 28 July 1999 be dismissed.

5. That the plaintiff pay the defendant’s costs of and in connection with this Summons.

The plaintiff opened an account with the defendant entitled “Society Nominee Account” and other accounts. Sometime after opening these accounts, the plaintiff was charged with tax fraud in Australia and during the investigation, the Australian National Crime Authority inquired into the plaintiff’s accounts with the defendant. Meanwhile, in Vanuatu, the Attorney General brought proceedings under the Serious Offences (Confiscation of Proceeds) Act against Dr Kazacos and his former wife both of who held these accounts with PITCO. In those proceedings, the Supreme Court of Vanuatu ordered that the funds in “Society Nominee Account” and the other accounts be frozen on 17 February 1997. This order was subsequently lifted when the National Crime Authority in Australia revealed that the funds in the accounts were not the proceeds of crime. The plaintiff was convicted of tax fraud in Australia, fined and jailed. After his conviction, the National Crime Authority in Australia stated that their interest in the plaintiff was finished.

Early in 1998, the plaintiff directed the defendant to remit the funds upon their release to himself and his former wife, and requested a detailed statement from the defendant of all interest and charges applied to his account. The defendant remitted the balance of the funds to the plaintiff after it had deducted AUD119, 984 for its costs, and also AUD105,000 to be held on account of future costs. During these present proceedings, this court ruled that the AUD105, 000 held by the defendant on behalf of the plaintiff for future expenses be paid into the Supreme Court of Vanuatu Trust Fund and this was duly complied with.

During the course of these proceedings, the character of the issues has changed considerably. Initially the dominant issues related to the agreements between the parties as to costs charged, how these costs came about, and whether the defendant was entitled to withhold funds for future expenses. However, as the matter progressed, the ancillary issue of discovery of documents appeared to gain importance through a series of summonses filed with this Court. Simply put, the defendant refused to discover documents between the staff of the defendant and the defendant’s lawyers in Australia on the basis that Australian law prohibits the disclosure of any dealings with the National Crime Authority. These Australian lawyers were hired by the defendant to deal with demands placed on employees of the defendant who, while they were in Australia, were approached by the Australian National Crime Authority which was investigating the plaintiff’s accounts.

The plaintiff submitted that in its affidavit of documents, the defendant has not specifically listed documents, or the categories of the documents over which it is claiming privilege. The plaintiff further submitted that while the Australian National Crime Authority Act 1984 contains provisions dealing with disclosure relating to summonses issued by the National Crime Authority, these provisions do not determine the defendant’s obligations to give discovery in proceedings in Vanuatu. The plaintiff submitted that the defendant is claiming privilege against self-incrimination under the laws of Australia, however in Brannigan v Davison [1], the Privy Council held that no such privilege applies where a prosecution would flow from the law of a foreign country. The plaintiff further submitted that it is significant that the defendant has given discovery of a substantial number of documents, disclosure of which apparently breached the Australian Act.

The plaintiff submitted that the contentious documents are discoverable as they are the means by which the trustee’s claim of entitlement to take trust moneys can be tested. These are undetailed bills for approximately AUD65,000 from the Defendant’s Australian solicitors and as well as the undetailed work performed by the defendant which has been claimed at AUD49,984. The plaintiff submitted that the defendant is a trust company and holds the plaintiff’s money as a trustee, and therefore is obliged to account to the plaintiff for its dealings with the plaintiff’s money. The plaintiff further submitted that the defendant is subject to the ordinary trustee’s obligations to provide information, and any proper account by the defendant must involve full disclosure of the details of expenditure, especially where scope exists, as it does in this matter, for a conflict of duty and interest to arise.

The plaintiff submitted that in certain circumstances, if a court has exercised its proper discretion and declined to compel a person claiming privilege to make an incriminating disclosure, the remedy granted will be on the basis that the disclosure had not been made. There is no statutory context in this case for discretionary relief as far as its obligation to provide discovery, however if the defendant wants a weighing up in favour of its contentions, then it must be prepared to accept the consequences. The plaintiff cited ASC v Bank Leumi Le-Israel (Switzerland) and Others[2] in support.

The plaintiff submitted that by analogy to Order 33, Rule 21, the consequences in this case should be that the defendant not be able to claim the amount for its Australian lawyers, and also the amount claimed by the defendant’s staff. The plaintiff submitted that the court should strike out the defendant’s defence where it resists payment by the defendant of AUD115,000 and order payment of the amount to the plaintiff.

Regarding the AUD105,000 paid into court, the plaintiff submitted that evidence shows that the Australian National Crime Authority has finished its investigations into the plaintiff and his accounts and therefore the defendant cannot justify retaining that money in case of future costs connected with the National Crime Authority. The plaintiff further submitted that even if there was a reasonable apprehension that further investigations may be made of the plaintiff by the Australian authorities, the defendant’s terms of deposit provide no basis for the defendant to retain funds against possible future investigations of the plaintiff. The plaintiff submitted that those funds should be paid to the plaintiff.

The plaintiff submitted that as a trustee, the defendant is obliged to comply with the instructions of the beneficiary, which in this instance was to close the account and forward the proceeds to the beneficiary.

The defendant submitted that it is well established in the authorities that communications between a client and his legal advisers are privileged from production. The defendant cited Wheeler v Le Merchant [3]and Anderson v Bank of British Columbia [4] in support.

The defendant submitted that, for unclear reasons, it is only discovery of the communications with legal advisors in Australia which the plaintiff seeks, and not legal advisors in Vanuatu. The defendant submitted that all communication with the lawyer is privileged regardless of which jurisdiction, and that it is only important that there be a relationship of lawyer and client as between the party claiming the privilege and the advisor. The defendant cited Great Atlantic Insurance Company v Home Insurance Co. [5] in support.

The defendant submitted the account opening form refers to the principal, here the plaintiff, being responsible for all charges or liabilities incurred by the defendant in connection with the account. However, the form does not refer to a review of the advice sought from legal representatives by the defendant. The defendant further submitted that this situation could be analogous to a situation where a bank must enforce a security, and it would not be open for the customer to seek discovery of the bank’s correspondence with its lawyers in connection with the enforcement while the customer was disputing a claim by the bank for reimbursements of costs of enforcement. The defendant submitted that if the costs were to be taxed, the authority of Pamplin v Express Newspapers Ltd[6] indicates that a party contesting a taxation does not have a right of access to the other party’s otherwise privileged documents. The defendant further submitted that in this matter, the defendant has discovered documents which reflect the costs incurred by the defendant.

The defendant submitted that cases such as Lillicrap v Nader[7] and NGR Holding v Bacon & Woodrow[8] are distinguishable. The defendant submitted that the Lillicrap case concerned proceedings brought by a plaintiff against his solicitor for negligence in giving poor advice and is authority for the proposition that there is an implied waiver of privilege where proceedings are instituted against the solicitor. The defendant further submitted that if such a waiver should apply to this matter, there would need to be an express provision for it in the terms of the agreement between the plaintiff and the defendant, and there is not.

The defendant submitted that implied waiver in Lillicrap case discussed by the court in NGR Holding v Bacon & Woodrow is limited to circumstances where the client sues his solicitors.

The defendant referred to the Supreme Court of Bermuda case of Hans Heinrich Tsyssen-Bornemisza v George Heinrich Tsyssen-Bornemisza [9] where both of the above cases were considered. The defendant distinguished this case where a claim of privilege was rejected, as in this present case it is the nature of dealings and the circumstances giving rise to the instructions of lawyers and not the relationship between the defendant and his lawyers, nor the advice given, which are in issue.

The defendant submitted that employees of the defendant who have been approached by the National Crime Authority are prevented from disclosing information, including whether any documents exist, under the Australian National Crime Authority Act. The defendant submitted that therefore the defendant is reasonably excused from its failure to provide discovery of any documents if they exist relating to the National Crime Authority investigation by the prohibition placed by Australian law. The defendant cites Brannigan v Davison [10] , Bank of Valletta PLC v National Crime Authorities[11], and The Canada Trust Company and Others v Wolfgang Atto Stolzenberg and Others[12] as authority for the proposition that there is a weighing up exercise to be carried out by a judge in determining whether a party is bound to comply with disclosure obligations under the domestic law when there is a sanction under foreign law for making this disclosure. The defendant further submitted that disclosure would probably assist the defendant in this matter, however one of the defendant’s employees concerned in this matter is an Australian resident who intends to return to Australia in the near future and is concerned about possible prosecution in Australia if disclosure is made in Vanuatu.

The defendant submitted that the setting aside of orders made before the court in civil cases 8, 12 & 13 of 1997 has no bearing on the present matter.

In relation to documents discovered in Vanuatu proceedings leaving the jurisdiction, the defendant submitted that the circumstances of this case are extreme and require further restrictions to those implied undertakings for discovery which would normally apply. The defendant cited Format Communication v ITT (United Kingdom) [13] as authority. The defendant further submitted that it is concerned that if documents regarding the National Crime Authority investigation leave Vanuatu, they would not be protected from a search and seizure warrant. The defendant further submitted that evidence shows that the National Crime Authority may still be undertaking some investigations where the defendant is involved, and this has not been able to be clarified during the hearing.

The defendant submitted that to allow documents to leave Vanuatu would put the defendant at a disadvantage as it would be possible for the National Crime Authority to obtain these documents which it would not otherwise be entitled to demand from the defendant. To allow the documents out of the jurisdiction would have the effect of assist the National Crime Authority in Australia, or at least have the risk of doing so. The defendant further submitted that steps taken by the plaintiff to set aside the confidentiality orders made in cases 8, 12 and 13 of 1997 raise serious doubts as to the plaintiff’s intentions in this matter.

The defendant submitted that the plaintiff has chosen to sue before the courts of Vanuatu and has legal representation here. The defendant further submitted that to ensure the sovereignty of the law of Vanuatu must be maintained by the solicitors from Vanuatu and also any solicitors from Australia. The defendant submitted that Australian authorities should use the proper channels of mutual assistance legislation if there are allegation of criminal conduct by the defendant, and not circumvent these processes by using the Vanuatu courts.

The defendant submitted that regarding the AUD105, 000, the plaintiff is not a resident of Vanuatu, and as far as it is aware, has no other assets. The defendant has made no application for security of costs because of the deposit of that money with the court, and no application has been formally made by the defendant to seize those funds. The defendant submitted that because of the above, the application for the release of the money is misconceived.

The critical issue in this case is that the defendant refused to disclose documents between the staff of the defendant and the defendant’s lawyers in Australia on the basis that Australian law prohibits the disclosure of any dealings with the National Crime Authority.

Is the defendant reasonably excused from its failure to provide discovery of any documents if they exist relating to the National Crime Authority Investigation by the prohibition place by Australian law?

There are persuasive authorities for the proposition that there is a weighing up exercise whether a party is bound to comply with disclosure obligations under the domestic law when there is a sanction under foreign law for making this disclosure. In this case the defendant must be prepared to accept the consequences which is that the defendant would not be able to claim for the amount of its Australian lawyers of AUD65,000. The defendant’s defence to this effect is struck out and the defendant is ordered to pay the amount of AUD65,000 to the plaintiff.

The amount of AUD49,984 was to be retained by the Defendant as payment of the work performed by the defendant.

As to the AUD105,000, since the plaintiff is not a resident in Vanuatu, and has no other assets in the Republic, the amount of AUD105,000 is deposited with the Court for security of costs and will be disposed off once the matter between the parties are finally determined. The application for the release of the money is misconceived.

In relation to documents discovered in Vanuatu proceedings, leaving the jurisdiction, I refuse to issue further restrictions to those implied undertaking for discovery which normally apply. There is no evidence to this effect.

2. The amount of AUD49,984 is to be retained by the Defendant as payment of the work performed by the defendant.

3. The application for the release of AUD105,000 paid into Court Trust Account is misconceived.

4. Order for further restriction sought on implied undertakings in relation to documents discovered in Vanuatu proceedings leaving the jurisdiction is refused.

5. Civil Case No.44 of 1998 is listed before the Court for Conference on remaining issues on Friday 22 June 2001 at 8.30am.

ENDNOTES:

[1] [1977] AC 238

[2] (1996) 69 FCR 531

[3] (1881) 17 ChD 675

[4] [1876] ChD 644

[5] [1981] 2AllER 485

[6] [1985] 1 WLR 689

[7] [1993] 1AllER 724

[8] [1995]1AllER 976

[9] (1998/99) 2 OFLR 98

[10] [1997] AC238

[11] [1999] FCA 791

[12] 1 OFLR 696

[13] [1983] FSR 473