Liquorland (Australia) Pty Ltd v Anghie (No 2)

[2003] VSC 160

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 6974 of 2001

LIQUORLAND (AUSTRALIA) PTY LTD (ACN 007 512 414) and AUSTRALIAN LIQUOR GROUP LTD (ACN 089 094 557)

Plaintiffs

v

MICHAEL LEE ANGHIE and others

and

ROGER CHRISTIAN STEINEPREIS and others

Defendants

Third Parties

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	23 April 2003
DATE OF JUDGMENT:	2 June 2003
CASE MAY BE CITED AS:	Liquorland (Australia) Pty Ltd v Anghie (No. 2)
MEDIUM NEUTRAL CITATION:	[2003] VSC 160

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Evidence – legal professional privilege – whether documents created for the dominant purpose of anticipated litigation.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr Jonathan Beach QC with Mr Stewart M. Anderson and Mr Andrew Broadfoot	Freehills
For the firstnamed and thirdnamed Defendants	Mr M.R. Pearce	Norton Gledhill

HIS HONOUR:

1. This litigation arises out of a takeover by the firstnamed plaintiff, Liquorland (Australia) Pty Ltd, of the secondnamed plaintiff, Australian Liquor Group Ltd (“ALG”), in 2001.  The takeover commenced in April 2001 with a formal announcement by Coles Myer Ltd, the parent company of Liquorland, and was completed on 18 July 2001 when the share purchases were compiled.  After the takeover, Liquorland complained that certain financial information previously provided by ALG overstated its true position so that its purchase was at an overvalue.  It has, therefore, sued the former directors of ALG, including Michael Lee Anghie, the firstnamed defendant, and Malcolm Robert Higgs the thirdnamed defendant, seeking damages. 

1. The litigation is very complex and many more persons and entities have been joined as parties.  Needless to say, a central factual issue in the proceeding is the true value of ALG at the time of the takeover.  Another issue is what Liquorland knew of the value of ALG at that time. 

1. The case has moved through its interlocutory stages towards a trial date which has been fixed for 13 October 2003.  In recent months this proceeding has been under my management.  Generally speaking, the interlocutory processes have been hard fought with few concessions made.  The present discovery application is but another example of this. 

1. In early July 2001, the accounting firm PricewaterhouseCoopers (“PwC”) was engaged to investigate and report on the ALG business.  I express myself this way because there is some uncertainty who engaged it, Coles Myer or Liquorland, and what work it was engaged to perform.  In any event, PwC prepared a number of reports including two whose discovery numbers and descriptions are as follows: 

LIQX.0082.0002:  Australian Liquor Group PwC Progress report 30 July 2001 – this document takes the form of an agenda and concludes with the following statement:

“A summary of key findings and recommendations is attached summarising the main findings, issues and points for completion.”

The summary was not attached to the discovered document.

LIQX.0078.0007-8.  Australian Liquor Group PwC Progress report 30 July 2001.  This document also takes the form of an agenda but it contains more items.  It, too, concludes with the same statement: 

“A summary of key findings and recommendations is attached summarising the main findings, issues and points for completion.”

The summary was not attached to the discovered document.

1. In his affidavit sworn 27 September 2002, Dale Anthony McKee, a partner of PwC, says that the summary referred to in the statement at the foot of each of these documents is the same document.  Kenneth Alexander Adams, a member of Freehills, the solicitors for the plaintiffs, says in his affidavit of 7 October 2002 that he believed that the summary was created by PwC in July 2001. 

1. Mr Adams also deposed that PwC on or about 22 October 2001 prepared a final report entitled “Summary Report, Australian Liquor Group Ltd (ALG), Financial Position 1 July 2001, Confidential and Privileged”.  There were at least three drafts of this, the final PwC report.  They are the following:

·     Document entitled “Australian Liquor Group, Agreed upon procedures review”

LIQX.0078.0014-0082.

·     “Summary Report, Australian Liquor Group Ltd, Financial Position 1 July 2001, Confidential and Privileged”, which was provided on 18 September 2001.

·     “Summary Report, Australian Liquor Group Ltd (ALG), Financial Position 1 July 2001, Confidential and Privileged”, which was provided on 21 September 2001.

Legal professional privilege is claimed with respect to the final PwC report and to each of these drafts.

1. I return for a moment to the two progress reports and the reference in them to the “summary of key findings and recommendations”.  Mr Adams has deposed that this summary was an extract from the first of the draft reports, “Australian Liquor Group, Agreed Upon procedures review”.  The solicitors for the defendants Anghie and Higgs, by summons filed on 16 April 2002, sought production of this summary.  This was resisted on the ground of privilege.  The claim for privilege was rejected by Master Evans on 28 November 2002 and on 5 December the Master ordered production, and this was done.  The Master observed in his reasons, and my examination of the document confirms his observation, that “even if there were no contentious aspects involved in the takeover, it would still have been necessary for Liquorland to obtain from PwC the summary and the report on which the summary is based as to the state of the accounts of ALG and as to what had to be done to bring them into line with statutory requirements”. 

1. Encouraged by the Master’s decision, the solicitors for the defendants Anghie and Higgs, on 13 December 2002, sought production of the draft reports upon which the summary was based.  Freehills considered this over the Christmas break and on 31 January 2003 advised that privilege was no longer claimed with respect to the first of the drafts, ALG Agreed upon procedures review, and a copy of this document was produced.  This left only the draft PwC reports of 18 September and 21 September and the final PwC report of 22 October for which legal professional privilege is claimed.  By summons filed on 14 March 2003 the defendants Anghie and Higgs seek discovery of the final PwC report of 22 October, the two September drafts, and “all documents recording instructions given to PwC in respect of the above reports, all drafts of the reports and all of PwC’s working papers in relation to the reports”.  This is the application presently before the Court.

1. In the application before the Master, the terms of the employment of PwC which produced these reports were described in the affidavits filed on behalf of Liquorland with an engaging coyness.  The Master castigated the evidence as enigmatic and an example of “ritualistic incantation”.  I agree.  They have now been supplemented by further affidavits of Mr McKee and Mr Adams each sworn on 24 March 2003.  These, too, demonstrate an artful effort to disclose as little as may be necessary to support the claim.  It appears from them that PwC had four engagements with respect to ALG:

(1)Investigation Engagement.  This is described by Mr McKee as an “engagement by Freehills [the solicitors for the plaintiffs] to undertake an investigative financial due diligence of ALG “.  The date of this engagement is given as following “discussions in late June 2001 and in July 2001”.  The terms of the engagement are the subject of a privilege claim.

1. The participants in these discussions were Mr McKee, Mr Adams and representatives of Liquorland and Coles Myer.  The subject matter of the discussions was said to be litigation against the former ALG directors.  Mr Adams says that in the course of these discussions, he instructed PwC to prepare a report which he called “the PwC Report” to determine the accuracy of certain criticisms of ALG accounts.  The PwC report was published on 22 October 2001.  He says that his dominant purpose for engaging PwC to prepare the PwC report was to obtain evidence or information which would lead to the obtaining of evidence for use in the anticipated litigation against the former directors.  This is surprising because Mr McKee, who was present at the meeting, says only that he has been informed by Brian Maddigan, another Freehills solicitor, that, at the time, “the present litigation was either anticipated, or pending”.  I infer from this terminology that Mr McKee himself then had no personal knowledge of this;  this suggests that the fact of the anticipated litigation was not discussed at the meeting which led to the Investigation Engagement and at which Mr Adams directed PwC to prepare the report.  Nor, it would seem, did Mr Adams disclose to Mr McKee his intention as to the dominant purpose of the report which he says he then entertained. 

1. PwC forwarded a draft engagement letter to Freehills on 3 July 2001.  It does not appear whether this was ever accepted or, indeed, what were its terms, for privilege is claimed in respect of this document, too. 

(2)Reconstruction Engagement.  This was an engagement of PwC by Liquorland.  Mr McKee’s description of it bears quoting in full:

“to perform specific procedures to assist Freehills and the management of Liquorland in the reconstruction of financial records of ALG and in identifying required financial adjustments to the financial information pertinent to ALG.”

1. I understand this to mean that PwC was to assist Freehills and Liquorland to determine the true financial position of ALG, perhaps as at 30 June 2001.  This is confirmed by PwC’s draft terms of engagement of July 2001 sent to Liquorland on 26 July 2001.

1. This engagement followed discussions in late June 2001 between Philip Hattingh, Craig Terry and Craig Watkins, all of Liquorland, and Mr McKee.  In his letter of 26 July 2001 Mr McKee described these discussions as “our recent discussions”.  It was in this letter, too, that Mr McKee submitted to Liquorland the terms of this engagement.  It is evident from this that the value of PwC’s work in assisting Freehills in the litigation was incidental only to the purpose of Liquorland and its parent determining the full financial position of the company which had been brought into the Coles Myer Group.

(3)Consolidation Engagement.  This was an engagement by Coles Myer for PwC to audit the consolidation of ALG into Coles Myer’s accounts.  No claim to privilege is made in respect of the product of this engagement.

(4)Audit Engagement.  This was an engagement by Coles Myer for PwC to audit ALG.  No claim to privilege is made in respect of the product of this engagement.

1. On some unspecified date after PwC commenced work under the Investigation Engagement and the Reconstruction Engagement, Mr McKee merged the two engagements so that the product was the single final PwC report of 22 October and the three known drafts which led to it.  Privilege for the first draft, the Agreed upon Procedures Report, is no longer asserted. 

1. As to the remaining two drafts and the final PwC report, Mr McKee says that that of 18 September was sent to Freehills and Liquorland and that of 21 September to Freehills, Liquorland and Coles Myer.  A copy of this later draft was also sent to the financial controller of ALG and to other PwC personnel.  The final PwC report was likewise sent on 22 October to Freehills, Liquorland, Coles Myer and a copy to Mr McKee himself.

1. I am satisfied that each of the drafts and the final report was brought into existence at a time when the Investigation Engagement and the Reconstruction Engagement had merged and that each report or draft was the product of the merged engagement.  I am satisfied, too, that at the time these two engagements were first made, litigation against the former directors was under consideration and that the product of the engagements might be useful for and used in the giving of advice with respect to the litigation, in making a decision to undertake it, and in the litigation itself. 

1. The question which is determinative of this application is that as to the dominant purpose for the creation of the documents in question.  Furthermore, in a case such as the present, the purpose in question is that of the “person under whose direction, whether particular or general, the relevant document was produced or brought into existence”[1].  The onus lies on Liquorland in this case to show that this purpose was for use in the anticipated litigation against the directors.

   [1]Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332 at 338 [14] per Batt JA.

1. The evidence as to the person under whose direction the draft reports and the final  PwC report were prepared by PwC is scanty.  It is known from Mr Adams’ affidavit of 24 March 2003[2] that “a report” was directed by Mr Adams to be prepared and that such direction was given in the course of discussions with Mr McKee and Mr Hanson of PwC and with certain unidentified representatives of Liquorland and Coles Myer following which the Investigation Engagement was entered into.  It is clear, too, that representatives of Liquorland and Coles Myer participated in these discussions.  Mr McKee says nothing of any such direction by Mr Adams or by anyone.  Indeed, he says nothing of the purpose of the Investigation Engagement or of the report which was to be its product.  It is known, too, that on another occasion, possibly some time later, Mr McKee had further discussions with Liquorland representatives, not Mr Adams, and that another report was agreed to be produced.  Again, no witness spoke of the terms of the direction to prepare the report, the person responsible for this or any expressed purpose of the Reconstruction Engagement or of this report. 

   [2]Paragraph 10.

1. A reading of paragraphs 10, 12 and following of Mr Adams’ affidavit of 24 March might leave the reader with the impression that the report, the subject of this application, was the report which Mr Adams directed to be prepared and whose dominant purpose he asserts.  A careful examination of these paragraphs, however, shows that his words do not necessarily support such an impression.  Moreover, the evidence as a whole demonstrates that such an impression would be erroneous. 

1. If it were not for paragraph 10 of Mr Adams’ affidavit there would be no evidence that the report, the product of the Investigation Engagement, was created for a dominant privileged purpose.  His description of the subject matter of this report, however, does not support such a conclusion and the details of the engagement which might shed some light on this are not given.  There is no evidence to warrant a conclusion that the dominant purpose of the Reconstruction Engagement or its product was one giving rise to privilege.  In the event, the two engagements merged and one report was the product.  By this time, the purposes also had merged.  Whatever might be said of the purpose of Mr Adams at the time of the discussions of June and July, I am not satisfied that in September and October the dominant purpose for which each of the documents in question was created was one which would give rise to no privilege.  Doubtless the reports would be and were intended by Liquorland, Coles Myer and PwC to be of value in the litigation against the directors, which litigation was commenced by writ filed on 1 August 2001.  To my mind, however, this was not the dominant purpose.  The claim for privilege has not been made out.

1. I will, therefore, direct that the plaintiffs produce for inspection the final report of PwC of 22 October 2001 and any drafts of that report.  In paragraph 1(d) of the summons, the defendants Anghie and Higgs also seek PwC’s working papers.  There is no evidence that these are in the possession of the plaintiffs.  As to the documents recording instructions to PwC, I cannot see how they might be privileged if the reports themselves are not.  If relevant to an issue, they too should be produced. 

1. I should add that I was invited to look at the documents themselves.  I have reached this conclusion on the evidence to which I have referred rather than by resort to the documents.

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