Cleevecorp Pty Ltd v Ng (Privilege dispute)
[2019] VSC 828
•18 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2018 00897
BETWEEN:
| CLEEVECORP PTY LTD (IN ITS CAPACITY AS TRUSTEE FOR THE CLEEVE TRUST) (ACN 067 454 782) (and another) | Plaintiffs |
| - and - | |
| WENDY SZE TENG NG (IN HER CAPACITY AS ADMINISTRATOR OF THE DECEASED ESTATE OF ADRIAN XAVIER CLEEVE) (and others) | Defendants |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 November 2019 |
DATE OF RULING: | 18 December 2019 |
CASE MAY BE CITED AS: | Cleevecorp Pty Ltd v Ng (Privilege dispute) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 828 |
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PRIVILEGE – Legal professional privilege at common law – Principles – Document prepared for purpose of instructing solicitors in contemplated litigation – Document provided by client to accounting firm and insolvency practitioner – Document produced by accounting firm under subpoena – Whether the dominant purpose for communicating document to accounting firm was for contemplated litigation – Whether the dominant purpose of communicating the document to insolvency practitioner was for obtaining legal advice – Whether communication of document to accountant and insolvency practitioner constituted waiver of privilege.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Peters QC with Mr J Ross | Hall & Wilcox |
| For the Defendants | Mr J Moore QC with Ms V Bell | Mills Oakley |
HIS HONOUR:
By subpoena filed 8 July 2019, Matthews Steer Pty Ltd (‘Matthews Steer’) was ordered to produce the following documents:
Documents relevant to the preparation of the Financial Statements and Income Tax Return for the year ending 30 June 2017 for CleeveCorp Pty Ltd as Trustee for the Cleeve Trust. We expect these documents to include, but not be limited to:
a.All journal entries listing made in order to prepare Financial Statements for the year ending 30 June 2017;
b. Trial balance;
c.Working papers that were created to explain, calculate or record items listed in the Financial Statements;
d.Minutes and/or notes from meetings relevant to the preparation of the Financial Statements and Income Tax Return for the year ending 30 June 2017 for CleeveCorp Pty Ltd as Trustee for the Cleeve Trust;
e.Instructions received in relation to the preparation of the Financial Statements and Income Tax Return for the year ending 30 June 2017 for CleeveCorp Pty Ltd as Trustee for the Cleeve Trust;
f.Instructions received regarding the proposed accounting treatment of the Investment – ATC Capital; the change of treatment of the loan to ATC Capital as an asset to a non-current investment and the creation of a non-current investment named Touch Holdings options exercised.
By letter dated 29 July 2019 to the Prothonotary of this Court, Hall & Wilcox, the solicitors for the plaintiffs, objected to inspection by the defendants of any documents produced pursuant to the subpoena under r 42A.08(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
On 30 August 2019, the Court dismissed the plaintiffs’ application to set aside the subpoena but ordered that the plaintiffs have the first right to inspect the documents produced pursuant to the subpoena to identify the documents that fall within category 1(f) of the subpoena.
By summons filed 1 November 2019, the plaintiffs apply for the following orders:
1.The defendants not inspect the Memorandum attached to an email from Ben Cleeve to Ken Matthews and Stephen Wooster (copied to Sam Kaso, Ged Cleeve and Terence Cleeve) dated 24 October 2017 entitled “Cleeve Family Group” that was produced to the Prothonotary by Matthews Steer Pty Ltd pursuant to a subpoena issued at the request of the Defendants and dated 19 July 2019.
2.The Memorandum be removed from the Prothonotary’s office and returned to Matthews Steer Pty Ltd.
Background
The first plaintiff is the trustee of the Cleeve Trust. The second plaintiff is the trustee of the Cleeve Group Trust. Both trusts are family trusts of the Cleeve family.
At all relevant times, Adrian Xavier Cleeve (‘the deceased’), Terence Cleeve, Keith Cleeve and Lawrence Cleeve were directors of the plaintiff corporations.
The deceased:
(a) married the first defendant, Wendy Sze Teng, in May 2016;
(b)died intestate in November 2016, and was survived by the first defendant, a daughter born in May 2017 and six siblings;
(c)is registered as the owner of 3,200,000 shares in Afterpay Touch Group Ltd (‘Afterpay’); and
(d)was the sole director and shareholder in the third defendant, ATC Capital Pty Ltd (‘ATC’), which owns 9,984,400 shares in Afterpay.
In May 2017, the first defendant and Equity Trustees, the second defendant, were appointed administrators of the deceased’s estate (‘the Administrators’).
In the Administrators’ affidavit affirmed 17 May 2017, they addressed the plaintiffs’ claims of loans owed by the deceased in their favour, and a beneficial interest in shares held by the deceased in ATC, as follows:
We are aware that the deceased's brother and accountant, Terence Cleeve, has alleged that the deceased held the two ordinary shares in ATC Capital Pty Ltd on bare trust for the benefit of Cleevecorp Pty Ltd as trustee for the Cleeve Trust, and not for his own benefit. The plaintiff Wendy Sze Teng Ng does not agree that the deceased held the shares in ATC Capital Pty Ltd on bare trust. Mills Oakley, who has been acting for Wendy Sze Teng Ng, has asked Terence for evidence to support this allegation, and he has not provided any such evidence. Accordingly, the plaintiff Wendy Sze Teng Ng does not consider that the shares in ATC Capital Pty Ltd were held on bare trust and rather, were held by the deceased for his own benefit, and accordingly, form part of his estate.
We are also aware that the deceased's brother and accountant, Terence Cleeve, has alleged the existence of various loans allegedly owing from the deceased to Cleevecorp Pty Ltd as trustee for the Cleeve Trust, to Cleeve Group Pty Ltd as trustee of the Cleeve Group Trust and to Touch Media Pty Ltd. However, he has not provided sufficient evidence to substantiate the existence of these loans upon Mills Oakley's written request to him. We will continue to investigate these loans, and if evidence is provided to support the existence of any of the loans, we undertake to the Court that we will recognise their existence in administering the deceased's estate and file a supplementary inventory of assets and liabilities with the Court.
We are also aware that Terence Cleeve has alleged that the deceased has an asset of $193,200.00 in relation to loan(s) receivable from ATC Capital Pty Ltd. We have no knowledge or understanding of this being an asset of the deceased’s estate. Terence has not provided any evidence to substantiate the existence of this asset. As above, we will investigate whether this is indeed an asset of the deceased’s estate, and if evidence is provided to support its existence, we undertake to the Court that we will recognise its existence in administering the deceased’s estate and will file a supplementary inventory of assets and liabilities with the Court.
In late May 2017, the plaintiffs engaged Hall & Wilcox to advise them with respect to the administrators’ refusal to accept the claim by the first plaintiff that the shares were held on trust and the loan claims by the plaintiffs.
In mid-August 2017, Benjamin Cleeve and Gerard Cleeve (known as Ged), prepared a memorandum (‘the Memorandum’) for the purpose of providing instructions to Hall & Wilcox in preparing a statement of claim and advising the plaintiffs in relation to the dispute over the ownership of the shares and the loans due by the deceased. Benjamin and Ged Cleeve are sons of Damien Cleeve, a director of the first plaintiff.
On or about 6 September 2017, Benjamin Cleeve deposes that Cor Cordis was engaged in the following circumstances:
At about the same time [that the Memorandum was prepared], I was concerned and uncertain about the obligations of the directors of Cleevecorp and Cleeve Group in the event that they did not succeed in the litigation.
I spoke to Ben Lancaster at Clayton Utz, who were advising Cleevecorp and Cleeve Group at the time on general corporate matters, including corporate and taxation obligations. I asked him if Clayton Utz could provide legal advice regarding the matters in [the immediately preceding paragraph]. He said that they could and that it would assist to engage a specialist insolvency practitioner to work with them. He recommended Sam Kaso of Cor Cordis.
I spoke to Sam Kaso soon after. I told him that Clayton Utz had recommended him to assist Cleevecorp and Cleeve Group and work with Clayton Utz to provide the advice set out above.
In a conversation I had with Sam Kaso a few weeks later, I told him I was concerned about confidentiality and said that I may need to provide him with sensitive documents. He said he would keep anything I sent him confidential.
On about 6 September 2017, Cor Cordis was engaged.
Further, in October 2017, Benjamin Cleeve deposes that Matthews Steer was engaged in the following circumstances:
In the process of preparing instructions for Hall & Wilcox, I had developed concerns about the accuracy of the accounts of Cleevecorp and Cleeve Group. Whilst I have a background in financial analysis and have some proficiency in reading financial accounts, I am not an accountant and was not confident that I could instruct Hall & Wilcox accurately on these matters without assistance. Moreover, the claims that are the subject of this proceeding involve large sums of money, many transactions made over numerous years and a vast number of documents.
I formed the view that I would need the assistance of accountants to help me to instruct Hall & Wilcox, including to review, reconstruct and reconcile all the accounts.
In about early October 2017, I asked Sam Kaso, if he could recommend an accounting firm that could assist me as set out … above. He recommended Matthews Steer.
On 23 October 2017, I attended a meeting at Cor Cordis' offices at 360 Collins Street, Melbourne with Ged, Ken Matthews and Stephen Wooster of Matthews Steer and Sam Kaso. I told Stephen Wooster and Ken Matthews about the Administrators Affidavit and the dispute of the shares and the loans. I said Cleevecorp and Cleeve Group intended to sue the estate and that Cleeve Group and Cleevecorp had instructed Hall & Wilcox.
I asked Stephen Wooster and Ken Matthews if they could assist in auditing each of the accounts Cleeve Group and Cleevecorp as I needed to have an accurate understanding of the finances to instruct Hall & Wilcox. Stephen indicated that while they were not an audit firm, they would be able to review, reconstruct and reconcile the historical financials to ensure they presented an accurate financial picture and identify any issues. I said that an audit of the underlying transactions would still be necessary, and that I would need the assistance of Matthews Steer in reconstructing and validating the transactions underlying the loans to accurately instruct Hall & Wilcox to advance the claims. Stephen said they could advise and assist me on this matter.
I discussed my concerns about the confidentiality and sensitivity of documents that we would need to provide Matthews Steer to assist us with this process. Stephen said they regularly deal with legal matters and that any documents would be kept strictly confidential.
Ged said that it may help Matthews Steer to review a copy of the Memorandum as it would assist their understanding of the issues in the litigation.
By email of 24 October 2017 to Ken Matthews and Stephen Wooster of Matthews Steer (copied to Sam Kaso of Cor Cordis and Ged and Terence Cleeve), Benjamin Cleeve attached the Memorandum and stated:
Hi Ken and Stephen
Thanks again for taking the time to meet with us yesterday. We would like to proceed with engaging Mathews Steer subject to working out any details. The entities we would like to engage your services for are:
·Cleevecorp Pty Ltd atf the Cleeve Trust
·Cleeve Group Pty Ltd atf Cleeve Group Trust
·Touch Media Pty Ltd atf the Touch n' Win Trust
·Albion Road Capital Pty Ltd atf Azdrim Trust
I have attached draft FY 17 accounts and FY 16-13 for the first three entities, with Albion Road Capital being a relatively new and separate entity with very simple accounts that I can take you through later. By way of background on the family group history I have also attached a copy of Ged's memo.
Please let me know if you would like any further information in the interim. I will be in touch later in the week with some initial questions particularly as they relate to the current accounts and tax returns, and subject to your availability and thoughts it may be worthwhile to schedule a meeting or call next week to discuss the way forward. Feel free to contact me if you have any questions in the interim.
By writ filed 13 March 2018, the plaintiffs sought the following relief:
(a) The first plaintiff sought:
(i)a declaration that the first and second defendants hold 3,200,000 shares in Afterpay on constructive trust, or alternatively resulting trust, for the first plaintiff as trustee of the Cleeve Trust;
(ii)a declaration that the third defendant holds 9,984,400 shares in Afterpay on express trust, or alternatively constructive trust, for the first plaintiff as trustee of the Cleeve Trust; and
(iii)repayment of a debt of $1,570,019 by the first and second defendants.
(b)The second plaintiff sought repayment of a debt of $6,653,572.64 by the first and second defendants.[1]
[1]Amended from $6,703,931 by the further amended statement of claim filed 21 June 2019.
Plaintiffs’ submissions
The plaintiffs submitted that the communications of the Memorandum to Matthews Steer and Cor Cordis were each privileged for the following reasons.
The preparation of the Memorandum and its communication to Hall & Wilcox in May 2017, after the administrators’ refusal to accept the claims by the plaintiffs, were plainly in contemplation of litigation.
The subsequent communication of the Memorandum to Matthews Steer was subject to litigation privilege for the following reasons:
(a) Matthews Steer was engaged to:
(i)prepare the accounts and associated tax returns for the plaintiffs and others for FY2017 onwards; and
(ii)review, reconstruct and reconcile the accounts;
to help Benjamin Cleeve instruct Hall & Wilcox to advance the claims (‘the Privileged Purpose’).
(b)The Memorandum was sent to Matthews Steer for the Privileged Purpose, being to help them understand the issues surrounding the litigation to enable them to be ‘on the team with our lawyers’.
(c) Stephen Wooster of Matthews Steer undertook to keep any documents received strictly confidential.
No waiver of privilege could arise by communication of the Memorandum to Cor Cordis because that communication was subject to advice privilege for the following reasons:
(a)The plaintiffs had engaged Clayton Utz to advise on general corporate matters, including corporate and taxation obligations. Benjamin Cleeve then engaged Clayton Utz to provide additional legal advice regarding the obligations of the directors of the plaintiffs if the litigation failed (‘the Additional Advice’). For the purpose of providing the Additional Advice, Clayton Utz suggested Sam Kaso of Cor Cordis, a specialist insolvency practitioner.
(b)Benjamin Cleeve engaged Mr Kaso to ‘work with Clayton Utz to provide the [Additional Advice]’.
(c) Mr Kaso said he would keep any documents received confidential.
Further, with respect to the communications to each of Matthews Steer and Cor Cordis, Benjamin Cleeve had given uncontradicted evidence that he would not have sent the Memorandum to Matthews Steer and Cor Cordis if they were not going to assist in the litigation.
Defendants’ submissions
The defendants submitted that the plaintiffs had not satisfied the burden of establishing that the dominant purpose of the communication of the Memorandum to Matthews Steer was privileged because Benjamin Cleeve’s self-serving assertion was outweighed by the following circumstances:
(a)Reference to the email of 24 October 2017 supports the conclusion that the dominant purpose of the communication of the Memorandum was to assist in the preparation of the FY2017 financial statements and other regulatory requirements because:
(i) it stated that the Memorandum is attached ‘[b]y way of background on the family group history’;
(ii) two of the entities in respect of which accounting advice was sought are not parties to the proceeding;
(iii) the email did not reference litigation or copy in solicitors; and
(iv) Cor Cordis, which was not involved in the litigation, was copied into the email with the attached Memorandum.
(b)The letter dated 19 July 2019 from Hall & Wilcox objecting to the subpoena of Matthews Steer did not refer to the privileged purpose.
(c)The non-privileged part of the retainer, being reconstruction of the plaintiffs’ accounts, would also require factual background to be communicated to the accountants to enable verification.
(d)Reference to the documents produced by Matthews Steer does not disclose any documents prepared in relation to the litigation.
It was also submitted on behalf of the defendants that the plaintiffs had not established that the Memorandum had been communicated to Cor Cordis in the circumstances giving rise to advice privilege for the following reasons:
(a) Cor Cordis records the engagement as being by the directors.
(b)The advice to be provided by Cor Cordis was ‘simply advice to the individuals of accounting matters’.
Accordingly, the Court should conclude that the objective evidence does not support the evidence of Benjamin Cleeve about the conversations of two years ago.
Further, it was submitted that, as the Memorandum was provided to Cor Cordis in non-privileged circumstances, the plaintiffs had waived their privilege because it would be inconsistent to allow the plaintiffs to maintain the privilege with respect to the communication of the Memorandum to Matthews Steer.
Principles
The plaintiffs’ entitlement to resist production of the Memorandum prior to trial is governed by the common law, and not the Evidence Act 2008 (Vic) (‘Evidence Act’) as it would be if it was proposed to produce the Memorandum into evidence at trial.[2] Section 131A of the Evidence Act does not apply because the person producing the document is not the person objecting to the document being provided.[3]
[2]Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49, 59-63 [17]–[28] (Gleeson CJ, Gaudron and Gummow JJ), 73 [64] (McHugh J) (‘Esso’).
[3] Alphington Developments Pty Ltd v Amcor Limited (No 2) [2018] VSC 293, [25] (Connock J).
A party will be entitled to protection on the grounds of legal professional privilege with respect to a communication made for the dominant purpose of:
(a) contemplated or pending litigation; or
(b) obtaining or giving legal advice.[4]
[4]Esso (1999) 201 CLR 49 (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby and Callinan JJ).
The privilege extends to communications between a client and third parties provided the communication is made for the dominant purpose of litigation or obtaining legal advice. As was explained by the Full Court of the Federal Court in New South Wales v Betfair Pty Ltd:
Provided a communication is made with the dominant purpose of the client seeking or obtaining legal advice, we see no reason why privilege should not protect communications between the client and third parties whose knowledge is desirable or necessary for the client to obtain the legal advice the client desires, as in this case.[5]
[5](2009) 180 FCR 543, 553 [40] (Kenny, Stone and Middleton JJ).
Accordingly, the critical issues to be determined are:
(a)whether the dominant purpose for communicating the Memorandum to Matthews Steer was for contemplated litigation; and
(b)whether the dominant purpose of communicating the Memorandum to Cor Cordis was for obtaining legal advice.
The burden of proving the dominant purpose of the communication rests with the party asserting the privilege, in this case the plaintiffs.[6] In determining the purpose, the mere assertion by the privilege holder is not determinative.[7] Accordingly, the Court must have regard to the whole of the circumstances and in particular the client’s conduct.[8]
[6]National Crime Authority v S (1991) 29 FCR 203, 211 (Lockhart J with whom Keely J agreed).
[7]McConnell Dowell Constructors (Aust) Pty Ltd v BHP Billiton Petroleum (Vic) Pty Ltd [2007] VSC 292, [20] (Hollingworth J).
[8]New South Wales v Betfair Pty Ltd (2009) 180 FCR 543, 551 [33] (Kenny, Stone and Middleton JJ) (‘Betfair’).
In my opinion, the plaintiffs have established that the dominant purpose of communicating the Memorandum to Matthews Steer was to assist in the then contemplated litigation, which is now the subject of this proceeding, for the following reasons:
(a)The Memorandum was prepared by Benjamin and Ged Cleeve specifically ‘for the purpose of providing instructions to Hall & Wilcox to assist it in preparing a statement of claim and advising Cleevecorp and Cleeve Group in relation to the dispute over the ownership of the shares and the loans to [the deceased]’. This is the evidence of Benjamin Cleeve in his affidavit of 25 October 2019 and it is substantiated by a review of the Memorandum, which is entirely consistent with this purpose.
(b)The nature of the document is such that there is no apparent purpose for it being provided to Matthews Steer for an accounting purpose, and in particular, for the preparation of the accounts of the plaintiffs and others for FY2017 and future years. It was not put to Benjamin Cleeve that the Memorandum could be used to assist such an accounting retainer.
(c)The nature of the claims in this proceeding will require detailed accounting advice for the purpose of assisting the solicitors in formulating the claims both based on trust and debt. As Benjamin Cleeve deposes in his affidavit, ‘the claims that are the subject of this proceeding involve large sums of money, many transactions made over numerous years and a vast number of documents’. In my opinion, there is no doubt that accountants would need to be instructed to assist Hall & Wilcox in the conduct of the litigation, and there is no evidence that any other firm has been engaged to do so. In particular, in this case it is apparent that the historical accounts will be a significant issue in the proceeding both for the purpose of determining whether they support:
(v) the alleged loans; and/or
(vi) the trust claims.
(d)In complex litigation such as this, it would subvert the purpose of legal professional privilege to limit the privilege to communications between legal adviser and client. As Stone J observed in Pratt Holdings Pty Ltd v Commissioner of Taxation:
If, however, the policy implicit in the rationale for legal professional privilege is not to be subverted, the dominant purpose criterion must be applied recognising that the situations in which people need legal advice are increasingly complex and that the client may need the assistance of third party experts if he or she is to be able to instruct the legal adviser appropriately.[9]
[9](2004) 136 FCR 357, 381 [86].
In the circumstances, I accept the evidence of Benjamin Cleeve that he ‘would not have given the Memorandum to [Matthews Steer] if they were not going to assist in the litigation’.
In my opinion, the plaintiffs have also established that the dominant purpose for the communication of the Memorandum to Cor Cordis was for the purpose of obtaining legal advice, for the following reasons:
(a)Benjamin Cleeve deposed that Sam Kaso of Cor Cordis was engaged at the suggestion of Clayton Utz because that firm said that they could provide the legal advice requested but ‘it would assist to engage a specialist insolvency practitioner to work with them’.
(b)The fact that:
(i)Benjamin and Ged Cleeve as clients, Ken Matthews and Stephen Wooster of Matthews Steer and Sam Kaso of Cor Cordis met at Cor Cordis’s office on 23 October 2017, and were told about the dispute with respect to the shares and loans and the intention to sue the estate; and
(ii)on the following day, Benjamin Cleeve sent the email to the same persons attaching the Memorandum;
is consistent with his assertion that he ‘thought it would help them understand the issues surrounding the litigation. I wanted them on the team with our lawyers. I wanted all the legal and accounting advisors working together because there was significant cross-over complexity in the issues’.
Waiver
On the basis of the above findings, the question of whether the plaintiffs waived privilege in their communication with Matthews Steer by including Cor Cordis in the email does not arise.
However, on the assumption that the communication of the Memorandum to Cor Cordis was not privileged, the defendants contended that the mere communication of the privileged document to a third party for a non-privileged purpose was sufficient to give rise to inconsistency in privilege being maintained with respect to the communication of the same Memorandum to Matthews Steer.
The test of waiver is one of inconsistency, which is necessarily informed by considerations of fairness. In Mann v Carnell, the majority stated:
Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect … What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.[10]
[10](1999) 201 CLR 1, 13 [29] (Gleeson CJ, Gaudron, Gummow and Callinan JJ).
The burden of proving waiver rests with the defendants.
I do not consider that there is any inconsistency, informed by considerations of fairness, in the plaintiffs maintaining the privilege with respect to the Memorandum communicated to Hall & Wilcox and Matthews Steer subsequent to its communication to Cor Cordis.
On any view, Cor Cordis was engaged by the directors of the plaintiffs and probably the plaintiffs for the purpose of giving advice with respect to matters closely associated with the litigation. Cor Cordis was engaged to give confidential advice and to maintain confidentiality with respect to documents provided. I do not consider that the necessary element of inconsistency is established in these circumstances.[11]
[11]See, eg, the discussion in Betfair (2009) 180 FCR 543, 556-7 [54]-[56] (Kenny, Stone and Middleton JJ); Spotless Group Ltd v Premier Building and Consulting Group Pty Ltd (2006) 16 VR 1, 12-13 [29] (Chernov JA, with whom Warren CJ agreed; Neave JA dissenting).
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