Rav Ovadia Yosef, In one of his rulings, quotes Rabbi Chaim Azulai as saying that the Sephardic approach in Halakha is 'Midat HaCHesed' and therefore they are Mekilim. I looked through the books of Rabbi Chaim David Azulai, and I did not find anything like that. Do you know where did Rav Ovadia get this from?

It’s from Kuntress Massa’ot (manuscript), New York, ch. 131, 5, p. 133b, and cited by R. Meir Benayahu (son of R. Yitzchak Nissim, former Chief Rabbi), in “R. Haim Yosef David Azulay”, vol. 1, p. 165 (both in Hebrew). The Sfaradim claim to continue in the way of the lenient Beit Hillel which is the accepted and preferred ruling. As Rav Ovadia Yosef writes, if an halachic authority is lenient when he should perhaps be more strict, it’s a problem “between man and God” (which Yom Kippur atones), but if conversely, is strict when he could have been more lenient, it’s a problem “between man and his fellow” which is more severe (and is not atoned by Yom Kippur, unless he gets forgiveness from his fellow).