CORPORATIONS - directors - statutory right of access to company's financial records - general law right of access to company's books and records - where director seeks relief by way of declaration or order allowing access to all such documents - whether appropriate to order declaratory or other relief
CORPORATIONS - legal professional privilege - where director and company in adversarial relationship - where prior proceedings between the parties - where director seeks access to company's invoices and retainer agreements relating to legal representation in the prior proceedings - where director seeks access to company's privileged advice relating to the prior proceedings - whether statutory and general law rights of access abrogate company's claim to maintain privilege against director
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading Hammond v Quayeyeware Pty Ltd
Sign in free to access the full text
Details
AGLC
Hammond v Quayeyeware Pty Ltd [2021] FCA 293
Case
[2021] FCA 293
Decision Date
CaseChat Overview and Summary
This case was brought by Ms Hammond, a director of Quayeyeware Pty Ltd (Quay), against Quay and Mr Dean, the majority shareholder and managing director. Ms Hammond sought access to certain documents, including privileged legal advice, invoices, and retainer agreements, to assist her in a dispute between her and the majority shareholders of Quay. The court had to decide whether Ms Hammond was entitled to access the company's financial records and privileged documents under the statutory and general law rights of access and whether these rights abrogated the company's claim to maintain privilege against her.
The court held that Ms Hammond was not entitled to access the privileged documents because the statutory and general law rights of access did not abrogate the company's claim to maintain privilege against her. The court held that the privileged status of the documents must be determined at the time they were created, and that the relationship between the parties at that time was adversarial. The court also held that the company was entitled to rely on its privilege, as Ms Hammond was no longer a director and therefore had no rights of access or role as a director. The court found that the privileged communications in question were advice or requests for advice related to legal proceedings between Ms Hammond and the company, and that the company was entitled to maintain privilege against her.
The court made an order allowing Ms Hammond access to certain non-privileged documents, including invoices, retainer agreements, and receipts relating to the company's engagement of lawyers and counsel for the purpose of the proceedings. The court also ordered the parties to confer as to the proposed terms of a regime for the purpose of identifying privilege claims maintained by the company against Ms Hammond. The question of costs was reserved for agreement or further hearing.
Orders
Orders of the court
1. There be liberty to apply with respect to the manner of access by the plaintiff to:
(a) category 14 as set out in the letter of Gadens to HWL Ebsworth dated 6 May 2020; and
(b) the defendant's non-privileged communications by way of invoices, retainer agreements and receipts relating to the defendant's engagement of lawyers and counsel for the purpose of the proceedings Elevate Brandpartners Ltd v Hammond NSD 488 of 2019 and Hammond v Quayeyeware Pty Ltd, in the matter of Quayeyeware Pty Ltd VID 550 of 2019.
2. The parties by their counsel are to confer as to the proposed terms of a regime for the purpose of identifying privilege claims maintained by the defendant against the plaintiff and, to the extent orders are sought, are to provide to the Court a minute of consent orders or competing minutes within 21 days, or such further length of time as the parties agree.
3. There be liberty to apply with respect to the process anticipated by order 2.
4. The application is otherwise dismissed.
5. The question of costs is reserved for agreement or further hearing.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Table of Contents
The events
[3]
Quay's business
[4]
Sale of majority shareholding to Elevate
[8]
Deterioration of relationship
[14]
Elevate and Quay commence breach proceedings against Hammond parties
[29]
Hammond parties commence access proceedings against Quay
[38]
The position after the December 2019 agreement
[46]
The 6 May 2020 letters from Gadens to HWL
[65]
These proceedings are commenced
[75]
Developments after these proceedings commence but before the hearing
[78]
The access that Ms Hammond seeks
[93]
Ms Hammond's purpose for seeking documents generally
[94]
Ms Hammond's purpose for seeking privileged documents
[97]
Mr Boyd's evidence
[102]
The witnesses
[108]
Access to company documents
[111]
Preliminary
[111]
Introduction - avenues for production
[112]
Statutory right of access - s 290
[113]
General law right of access
[121]
Declaratory relief
[133]
Consideration - any basis for the relief sought
[146]
Access to privileged company documents
[183]
The public interest in recognising legal professional privilege
[183]
Rights of access and abrogation of privilege
[188]
Whose privilege is it anyway?
[196]
The privileged communications in this case
[201]
Invoices and retainers - non-privileged parts
[203]
Privileged communications and advice
[205]
Assumptions as to basis for privilege
[207]
The decision in Barrett
[213]
When is the privileged status to be determined?
[214]
Can Quay assert privilege against Ms Hammond?
[220]
Has the privilege been lost?
[225]
Conclusion
[231]
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Beyond that, Ms Hammond did not enunciate any specific claim that Quay might be able to bring. As senior counsel for Quay said, it appeared that she wanted access to the privileged documents because she wished to 'investigate whether there's something [she] can get the company to do adversely [to] the majority directors'.Mr Boyd's evidence In an affidavit filed in May 2020, Mr Boyd referred to his 2017 appointment as a director, and said that he considered it essential that he and Ms Hammond be properly informed about the business of Quay, so that they could have input as to the strategic direction of Quay and make decisions about its business. He said that without sufficient financial information it is difficult to assess the solvency of Quay. He said that he did not consider the information he had received since his appointment in 2017 was sufficient for those purposes. Mr Boyd accepted during the course of the hearing that on various occasions since he had been appointed, he had voted in favour of dividend payments, and that he would not have done so had he not been satisfied as to the solvency of Quay. Mr Boyd accepted that in assessing whether a dividend should be paid, it is necessary to consider whether such payment might materially prejudice the ability of the company to pay its debts, and that involves considering the financial position of the company over a longer period of time than simply the date of the intended dividend payment. Mr Boyd accepted that he voted in favour of dividend payments in each of the years 2017, 2018 and 2019, although he said that he proposed the dividend for the 2018 year (recommended in April 2019) only on the condition that there had been no dilution in the value of the cash division of Quay during the period 1 January 2019 to 31 March 2019. He accepted that he received enough financial information from Quay to assess solvency in order to make or support those dividend proposals. Mr Boyd's qualification as to the dividend approved in April 2019 was based on the absence at that time of financial reports to the preceding month end, that is, to 31 March 2019. Mr Boyd's evidence about dividend recommendations indicated that, contrary to the impression given by his affidavit evidence, over much of the period of his directorship he had been provided with sufficient information to assess Quay's solvency. Mr Boyd accepted that since December 2019 he has been able to access Quay's financial information by access to the data room. He said he has no ongoing concerns about its solvency. In March 2020 Mr Boyd did not vote in favour of approving the draft 2019 audited accounts as final accounts. However, his decision was not based on any question of solvency but on the treatment of legal fees in those accounts. Mr Boyd said that in February 2020 he made contact with Ms [R] of PWC (Quay's auditors) and asked about the treatment of the legal fees in the 2019 accounts. Despite Ms [R's] confirmation that there was sufficient treatment of the legal fees in the accounts, he remains concerned that the fees should not have been treated as an expense of Quay; that they should have been treated as shareholder expenses; and so there may have been a loss of shareholder value if Quay made payments it did not need to make.
Decision
Reasons for decision
It must be borne in mind that Quay has not as yet particularised any privilege claims, and so these reasons proceed on the basis of the assumptions.The decision in Barrett Because the parties referred to Barrett extensively, it is appropriate to make some observations:(a)in Barrett, the privileged documents in question were advice or requests for advice related to commercial transactions entered into by the Bank some years earlier (at 74);(b)the advice was sought by and given to the Bank when the respondents seeking access to the advice all held office as directors of the Bank (at 75), and there is no suggestion it related to advice sought by the Bank at the time about actions it might have taken against the then directors;(c)it appears to have been accepted that although the then directors may not have accessed the privileged advice at the time, they were entitled to do so. There was no suggestion that the relationship between the directors and the Bank was adverse at the time the advice was sought and received. There was a commonality of interest between the directors and the Bank in the advice at that time; and(d)the respondents sought access to the advice only after they had retired as directors, and the Full Court came to the view that they were not at that time entitled to access the documents because the directors no longer had any rights of access or role as a director, and the bank was entitled to rely on its privilege.When is the privileged status to be determined? Generally, the time at which the question of privilege is to be determined is the time at which the communications are created. Whether they are privileged depends on the relationship between the parties when the documents were created, the purpose for which the documents were created and their confidentiality. That is not to say a different time is not relevant in other contexts. The time when documents were shared will be important in the context of common interest privilege. Subsequent facts will be relevant to whether privilege has been waived. The focus on the relationship between the parties is reflected in a number of other scenarios. For example, in Gray v BNY Trust Company of Australia Ltd (formerly Guardian Trust Australia Ltd) [2009] NSWSC 789; (2009) 76 NSWLR 586, Bergin CJ in Eq said the following:[54]The real issue for determination in this application is whether the privilege claim made by the defendant is unsustainable by reason of the court's order that the plaintiff pay part of the defendant's costs and that the defendant was entitled to indemnification out of the assets of the Estate for its costs of the previous litigation. The cases referred to above do not address this particular issue. However the South Australia v Barrett case points up the character of the relationship between the plaintiff and the defendant in this case. In aspects of the previous litigation the plaintiff was an adversary of the defendant. His present purpose in seeing the documents is, in part, to support his claims in the Accounts Motion in which he is attempting to allege, inappropriately in my view, that the defendant was not justified 'in recovering indemnity from the estate' for the costs that were awarded by Austin J. Austin J has already decided that matter adversely to the plaintiff. Be that as it may, it is necessary to focus on the relationship at the time the documents were created. There is no doubt that at the time the documents were created in relation to the main proceedings in which the plaintiff was suing the defendant the communications were privileged. The plaintiff's claim against the defendant for revocation was unjustified and he was ordered to pay the defendant's costs. The defendant was also entitled to be indemnified out of the assets of the Estate for its costs. This does not in my view mean that the plaintiff has a proprietary interest in the documents in the sense that the cases recognise beneficiaries' entitlement to access trust documents. These documents were not for the benefit of the plaintiff. They were documents created for the purpose of the defendant defending itself against the unjustified litigation against it by the plaintiff. The fact that an order was made that the plaintiff pay the defendant's costs coupled with an order of its entitlement to indemnification, does not in my view convert the privileged advice received by the defendant to defend itself into an advice for the benefit of the plaintiff and thus a trust document to which the plaintiff is entitled to access.
Ratio Decidendi
Legal Principle Established
According to Ms Hammond, until that time it was customary for Quay to hold quarterly board meetings either in person or over the telephone. In advance of those meetings she would receive a board pack, which would run close to 200 pages and include information such as bonuses, strategic initiatives and tactics, monthly cash flows and balance sheets, influencer strategies and other such information. Ms Hammond said that the flow of information was sufficient for her to perform her functions as a director. Ms Hammond also had a direct line of communication with the general manager of Quay at the time. Ms Hammond says that the general manager readily and promptly responded to any requests for further information that she had.Deterioration of relationship According to Ms Hammond, from August 2017 or September 2017 the flow of information to her as a director of Quay significantly deteriorated. Ms Hammond said that board meetings post September 2017 were conducted by telephone only. Further, the board packs that Ms Hammond had become familiar with were not being provided: they were significantly less comprehensive. The length of the meetings themselves was reduced. Ms Hammond deposed further that the board packs no longer contained spending for large marketing or collaborations. She said she only became aware of such projects when they were announced, an example being Quay's signing of the musician [redacted]. A chain of emails between Ms Hammond and Mr Dean displays their deteriorating relationship. In late August 2017 Ms Hammond requested information from Mr Dean, to which he responded:Getting 1-2 data requests per day from board members is time-consuming and distracting when trying to run a business. It would be great if you could collate your questions and submit once a month so that the team is not constantly stopping [what] they are doing to answer your questions. It takes away from important value-creation activities. Our team will plan to collect your questions and submit answers once a month as well. Ms Hammond responded:Hi Chris, are you refusing to provide the information we are entitled to?When paying a management fee of [$ redacted] a year for this information the emails will be submitted when required.Please have the below email answered in a timely manner.Is there something in the constitution we are not aware of that entitles 2 of the board members to have this information once a month?If so, please provide this extract. Mr Dean responded:Of course we are not refusing to provide information. We want you to have all the information you need to properly conduct your board role. We are just asking for a more reasonable cadence and indicating that we plan to answer your questions monthly. This is in keeping with prior precedent as we previously had a monthly call to answer your questions. Under the new format, we will provide written answers.If it is too much trouble to collate your questions monthly, please continue to submit daily. We will collect them and provide written answers monthly to avoid the significant business interruption that answering questions on a daily basis creates.