The Shed People Pty Ltd v Turner & Others No. Scgrg-99-89

[2000] SASC 196

THE SHED PEOPLE PTY LTD v TURNER & OTHERS
[2000] SASC 196

Appeal from a Master

1................ DEBELLE J.  (ex tempore)        The issues in this appeal concern a claim for legal professional privilege in relation to documents in the defendants’ list of documents.

1. The plaintiff company is in liquidation. The company used to conduct the business of erecting sheds. The only directors of the company at the material times were Colin Jones and Gary Jones. They were also the major shareholders in the company. Colin offered to buy the interest of Gary in the business. Gary accepted the offer. Colin instructed Scales & Partners, a firm of solicitors, to act in respect of the transaction. All of the defendants in this action are members of the firm of Scales & Partners. I will refer to the defendants as “Scales & Partners”. Colin first instructed Scales & Partners when he saw Mr Hart, one of the partners, on 26 August 1994.

2. On 16 December 1994 Colin and Gary Jones entered into an agreement by which Gary sold his shares to Colin. The shares were transferred on 16 December 1994. The company later went into liquidation. In this action the liquidator alleges that the company gave financial assistance to Colin Jones to purchase the shares from Gary Jones in breach of s 205 of the Corporations Law. He alleges that Scales & Partners aided, abetted, counselled, procured, or was knowingly concerned in a breach of s 206(4) of the Corporations Law.

3. Scales & Partners have not yet filed their defence. However, on 14 June 1999, they were ordered to file a list of documents. They have done so. In Part II of the First Schedule of their list they claim legal professional privilege for 33 documents. The issues in this appeal concern documents 12 to 33. They cover the period 14 October 1994 to 22 December 1994. Broadly speaking, the documents can be described as documents concerning communications between Colin Jones and Hart. Most are notes of attendances by Hart on Colin Jones or notes of telephone conversations between them. In addition, there is one letter from O’Brien & Co to Hart.

4. About one month after he had initially instructed Scales & Partners, Colin Jones sought advice because it appeared that Gary Jones might not proceed with the transaction. On 26 September 1994, Colin Jones was advised by Scales & Partners to consult another solicitor because it was possible that a conflict of interest might arise between himself and Gary Jones. It appears that one of the partners in Scales & Partners had formerly given advice to Gary Jones. Colin Jones, therefore, consulted Mr T Mellor of Mellor Olsson and was advised by him. Mr Mellor wrote two letters of advice to Colin Jones, one dated 27 September and one dated 29 September. There is no evidence that Mr Mellor thereafter advised Mr Jones or that, in any respect, Mr Jones consulted him. From 27 September 1994 to 22 December 1994, Colin Jones continued to communicate with Hart. There is no evidence that in the period 27 September 1994 to 22 December 1994 any firm of solicitors other than Scales & Partners represented the company.

5. The liquidator asserts that he is entitled to inspect the documents because Colin Jones originally instructed Scales & Partners on behalf of himself and the company.

6. The application was heard by a Master who concluded that Scales & Partners acted for the company between 27 September and 22 December 1994 and that the firm represented the company only and did not represent Colin Jones. He ordered that the documents numbered 12 to 33 be produced for inspection. Scales & Partners appeal from that decision.

7. The Master inferred from the following facts that Scales & Partners represented the company and did not represent Jones:

(a)     that Jones was advised by Mr T Mellor;

(b)that there was no evidence that at any material time any other firm of solicitors acted for or represented the company;

(c)that the memorandum of agreement dated 16 December 1994 between Gary Jones, Colin Jones and the company relating to the sale and purchase of the shares had been prepared by Scales & Partners and that it provided, among other things, as follows:

“13.2......... The Company shall grant to the Vendor a second-ranking mortgage debenture over the assets of the Company to secure the payment of all money due and payable to the Vendor under this agreement and the Consultancy Agreement.

13.3the consultancy agreement and the mortgage debentures shall be prepared by the solicitors of the Company and shall be executed by the Company and the Vendor on or before the date of settlement”;

(d)that a debenture between the company and Gary Jones had been prepared by Scales & Partners as provided in clauses 13.2 and 13.3.

In addition, the Master inferred that in the communications between Colin Jones and Hart in the period 26 September to 22 December 1994, Jones was then instructing Hart on behalf of the company. He also concluded that, as Colin Jones had been advised to consult Mellor Olsson, Mellor Olsson acted on behalf of Colin Jones in his personal capacity from and after that date.

1. There are some difficulties with the inferences which the Master has drawn. First, although Mr Mellor had given advice to Colin Jones in two letters dated 27 and 29 September 1994, there was no evidence that Mr Mellor continued to advise him. Indeed, the evidence suggests the contrary. The second letter initially refers to the fact that Gary Jones appeared to be taking a more reasonable stance in relation to the sale and purchase agreement. The letter then contains advice concerning the provisions of the Corporations Law to the effect that a company cannot assist in the purchase of its own shares and concludes with an invitation to retain the firm. At the foot of the letter appear the words, “I confirm your instructions to act in this matter upon the basis set out above”, with provision for that instruction to be signed by Mr Jones. There is no evidence that Mr Jones retained Mellor Olsson in that form or any other form. In the absence of such evidence, I conclude that he did not. It is difficult to conclude, therefore, on the balance of probabilities, that in the period 27 September 1994 to 22 December 1994, Jones was instructing Hart on behalf of the company only.

2. Mr Harris QC, who appeared for the liquidator, submitted that there is no evidence to show that the conflict of interest, be it real or potential, had resolved. Submitting that a court would not likely infer that solicitors would continue to act where a conflict or potential conflict of interest existed, he submitted that it was open to the Master to reach the conclusion that from 27 September 1994 Mr Jones was advised by Mellor Olsson in all respects, particularly as there was no evidence to show that the conflict identified in September 1994 had in any respect ceased to exist. There is a good deal of force in these submissions. However, they must be balanced with the fact that there is simply nothing to indicate that Mr Mellor was, in any respect, consulted by Mr Jones on or after 29 September 1994. In light of the fact that he continued to consult Mr Hart in that period, it is difficult to resist the conclusion that Scales & Partners thereafter continued to act for him as well as for the company. This is not the occasion to consider whether it was proper for Scales & Partners to continue to act for them.  The only question is whether the firm did act. The evidence is clear that they did act. That conclusion is reinforced by the fact that the documents were prepared by Scales & Partners for Colin Jones as well as for the company. There is no evidence that Mellor Olsson or Mr T Mellor prepared any documents on behalf of Colin Jones or in any respect advised in relation to them.

3. The fact that Scales & Partners prepared a debenture between the company and Gary Jones shows no more than that Scales & Partners were acting for both the company and Colin Jones. That conclusion is reinforced by clause 14 of the agreement which provides:

   “The Purchaser shall bear the costs of and incidental to the negotiation, preparation and execution of this agreement. All documents to be executed pursuant to this agreement or to give effect to the provisions hereof shall be prepared by the solicitors for the Purchaser at the costs in all things of the Purchaser. All stamp duty and other government fees and charges in respect of this agreement and any other document to be executed pursuant to this agreement or otherwise relating to the sale and purchase of the said shares shall be borne and paid by the Purchaser.”

The purchaser referred to in that clause is Colin Jones. There are other provisions in the agreement, an example of which is clause 5, which bind both the company and Colin Jones. Most significantly, although clause 14 provided that Colin Jones was to bear the costs of preparing the agreement, those costs were, in fact, paid for by the company. They amounted to $2329.

1. There was other evidence to which the Master did not refer. Evidence was adduced on behalf of Scales & Partners that the file had been opened in the name of Colin Jones. However, that evidence is equivocal in that other records of Scales & Partners show the name of Colin Jones together with the name of the company.

2. The company is a party to both the agreement dated 16 December 1994 and the mortgage debenture. No other firm of solicitors was retained on behalf of the company. It is apparent, therefore, that when he retained Scales & Partners, Colin Jones retained that firm both on his own behalf and on behalf of the company. As a director of the company, he was giving instructions on behalf of the company as well as on his own behalf. Significantly, the company paid for this advice as to preparation of the documents. Furthermore, there was evidence led before the Master of an examination by the liquidator of Mr Colin Jones. Scales & Partners had objected to the admission of that evidence but, relying on the decision of the Duke Group Ltd (In Liquidation) v Arthur Young (1990) 54 SASR 498, the Master had admitted the evidence. This was no appeal from the admission of that evidence. In his evidence on that occasion Mr Jones said that he had consulted Scales & Partners on behalf of both the company and himself.

3. When two or more persons communicate with a legal adviser for the purpose of retaining his legal services or obtaining legal advice, their communications with him are the subject of a joint privilege. For instance, a joint privilege arises when a company and its legal advisers are engaged in litigation with a shareholder: Woodhouse and Co Ltd v Woodhouse (1914) 30 TLR 559, and where a company director and shareholder both seek legal advice concerning their relationship: Gouraud v The Edison Gower Bell Telephone Co of Europe Ltd (1888) 59 LT 813. The latter decision is also an example of the principle that a party cannot resist production of documents which have been obtained by means of payment from moneys belonging to the party applying for production: see Gouraud (supra) at 814 and W Dennis & Sons Ltd v West Norfolk Farmers’ Manure and Chemical Co-operative Co Ltd [1943] Ch 220 at 222 – 223. This last principle does not apply where the communications relate to matters outside the joint relationship: Mayor and Corporation of Bristol v Cox (1884) 26 Ch D 678 at 683; and Woodhouse and Co Ltd v Woodhouse. As Rix J noted in Hellenic Mutual War Risks Association (Bermuda) Ltd and General Contractors Importing and Services Enterprises v Harrison [1997] 1 Lloyd’s Rep 160 at 165, parties who grant a joint retainer to solicitors retain no confidence as against one another: if they subsequently fall out and sue one another, they cannot claim privilege. But against all the rest of the world, they can maintain a claim to privilege for documents otherwise within the ambit of legal professional privilege.

4. In this case, all the dealings and communications which Colin Jones had with Scales & Partners concerned the purchase by Colin Jones of his brother’s shares in the company, arrangements which also involved the company as a party to the agreement and the debenture. Those dealings and communications concerned, among other things, both Colin Jones and the company. There are instances where a solicitor acts for two parties with opposing interests in a transaction, for example, he acts for both the vendor and the purchaser of land, and the parties severally pay for the advice which is received. In those instances the privilege is not joint and the court will attempt to identify the documents for which one party may claim legal professional privilege as against the other: see Perry v Smith (1842) 9 M&W 681, 152 ER 288 and Rochefoucauld v Boustead (1896) 65 LJ Ch (NS) 794. As is implicit in the reasons in Perry v Smith, even on those occasions some documents will be the subject of joint privilege. This is not such a case since the company and Colin Jones had a joint interest and, in any event, the company has paid for the advice.

5. This is, therefore, an instance of joint privilege where the company has paid for legal services provided by Scales & Partners in relation to matters directly involving both Colin Jones and the company. The company is, therefore, entitled to production of the documents. As the liquidator is the agent of the company, he is entitled to inspect the documents. I therefore agree with the conclusion of the Master, albeit for different reasons.

6. For all of these reasons, I dismiss the appeal. The order will be:

7. Appeal dismissed.

8. The appellants will pay the respondent’s costs of the appeal.