The State of South Australia (Respondent) and South Australian Asset Management Corporation (Appellant) v Lewis Barrett, David Winston Simmons, Robert David Eavestaff Bakewell, Molly Veronica Byrne, William Field..

[1995] SASC 5055

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA COX(1), OLSSON(2) AND MULLIGHAN(3) JJ

CWDS
Evidence - documentary evidence - private documents - Appeal against ruling that certain documents were not subject to legal professional privilege - not disputed that the documents attracted legal professional privilege as against strangers to the bank - clear that the Bank is at all times a separate legal entity from its members and officers - 'right' of directors to have access to documents exists as a consequence of directors' due diligence obligations - this is a power which the court will enforce for the benefit of the corporate body - the 'right' of access exists only as long as the director continues in office - respondents are being sued in their personal capacities - they are no longer directors and their due diligence powers Ceased - the documents attracted legal professional privilege and ex-directors have no present entitlement to access - appeal allowed - remitted to Perry J for further consideration and determination of issues of waiver.

The Queen v Goodall (1975) 11 SASR 94; Lee v Lee's Airfarming Ltd (1961) AC
12 and Conway and Ors v Petronius Clothing Co Ltd and Ors (1978) 1 All ER 185, applied. Berlei Hestia (NZ) Ltd v Fernyhough (1980) 2 NZLR 150, distinguished. Woodhouse and Co (Limited) v Woodhouse (1914) 30 TLR 559; Gouraud v The Edison Gower Bell Telephone Company of Europe (1888) 57 Ch 498; State of Tennessee v The Society for the Preservation of the Book of Common Prayer (1985) 693 SWR
2d Series 340 and Cohen v Cocoline Products Inc 309 NY 119 (1955), discussed.

HRNG ADELAIDE, 7-8 March 1995 #DATE 27:4:1995 #ADD 24:5:1995

Counsel for appellants SA Asset
Management Corporation, State of
South Australia and respondents
Hartley And Johnson:                 Mr M R Martin QC
   with Mr T L Stanley

Solicitors for above:                Crown Solicitor

Counsel for respondents Barrett,
Simmons, Bakewell, Byrne, Nankivell,
Searcy and Summers:                 Mr M L Abbott QC
   with Mr M Selley

Solicitors for above:                Piper Alderman

Respondent Clark:  No Attendance

Counsel for respondent FAI General
Insurance Company Limited:         Mr M Maurice QC
   with Mr G L Muecke

Solicitors for FAI:                 Morcombe Townsend

ORDER
Appeal allowed.

JUDGE1 COX J I am in general agreement with the reasons prepared in this case by the other members of the Court. I would allow the appeal, set aside the order of 8 February 1995 and remit the matter to the learned Judge so that he may deal with the respondents' submission as to waiver.

JUDGE2 OLSSON J In the form in which it ultimately went forward, this is an appeal, by leave, against an order made by Perry J on 8 February 1995, whereby he directed production to all of the respondents of a series of documents in relation to which the plaintiff Bank had claimed privilege.

2. It is unnecessary, for present purposes, to describe the relevant documents in detail. It will suffice to say that the documents in question ("the subject documents") were said, by Perry J, to be in the nature of advices to or requests for advice from the Bank with respect to aspects of the transactions which are the subject of the present litigation.

3. The order ultimately made by the learned Judge was the end product of full debate which took place in the context of a lengthy directions hearing. In essence two major strands of argument which were advanced by the respondents concerning the subject documents were that:-
    (a) they were not properly the subject of legal professional
    privilege vis-a-vis the respondents

(b) if, contrary to that contention, they had been subject
    to such privilege, that privilege had been waived.

4. In the event, the learned Judge held in favour of the respondents as to the first point and made no ruling as to the second.

5. His ruling was pronounced, in ex tempore reasons, on 7 February 1995 and was followed by the making of a formal order to give effect to it on 8 February 1995. On the hearing of the present appeal, it became apparent that the intended legal effect of the formal order as finally pronounced, by consent as to its actual form, was differently viewed by the parties. However, this court was content to accept the assurance of Mr Martin QC, of senior counsel for the appellant, that, at the time that the order was made, it had not been his intention that it was to subsume the ruling to which it purported to give effect. It was, he said, no more than a practical means of implementing the ruling of Perry J in a manner which recognised certain concerns of the Bank as to preservation of confidentiality.

6. The litigation which is the subject of these proceedings arises from certain commercial transactions said to have been entered into by the Bank in 1988 with the conditional approval of the first to eighth respondents, who were, at the time, members of its Board of Directors. As at the time of commencement of the present proceedings all of them had resigned as directors. The ninth respondent ("the insurer") has been joined as an insurer of the non executive directors for the purpose of obtaining a binding declaration of liability against it.

7. A variety of grounds of action have been pleaded against the directors. However, the essential thrust of the appellants' claim is that, by virtue of breaches of duty, breaches of trust and breaches of statutory obligation, they are liable in damages to the appellants in respect of very substantial losses incurred by the Bank as a consequence of the entry by it into the commercial transactions in question.

8. It has never been in dispute that the subject documents properly attract legal professional privilege as against strangers to the Bank. However, it was argued by the personal respondents that, by virtue of the fact that the subject documents were brought into being whilst all of them were directors, then the privilege did not inure as against them. It is not in dispute that, if that argument is correct, the insurer, also, ought to have access to the documents.

9. In the course of his brief, ex tempore, reasons, the learned Judge concluded that, at the time at which the subject documents came into existence, "the ambit of the cloak of legal professional privilege which settled on them did not extend to the directors". He then went on to reason in these terms:-
    "The only question left, and it is, so far as I know, a
    novel one, is whether or not, upon the directors ceasing to
    hold office as such, in some way there was a change in the
    legal position and they then became subject to the privilege
    attaching to the documents, even though the bank has since
    sued the directors.

In my opinion, that question should be resolved in favour of the
    directors. It seems to me to be inconsistent with the undoubted
    fact that at the time they held office they could have had
    access to these documents, that in some way that situation
    should be regarded as having changed when they ceased to hold
    office. True it is that, both while holding office and after
    they ceased to hold office, the directors have a duty of
    confidentiality with respect to strangers and to the world at
    large. But there is no suggestion that any such duty of
    confidentiality would be breached if they were given access to
    documents in the course of these proceedings.

It is an elementary principle of the law relating to discovery
    that a document discovered out of the hands of the parties to
    the proceedings can only be used by the other parties for the
    purpose of those proceedings, and no other purpose."

10. On that basis he ordered production of the subject documents to the respondents.

11. The Bank challenges the propriety of that ruling. In brief, it contends that:-
    - the relevant privilege is that of the Bank, which is a
    juristic entity separate from its board of directors
    - the individual directors of the Bank only had power to
    access the subject documents, by reason of their status as
    directors, so long as they retained office; and then only
    for the purpose of satisfying their legitimate due diligence
    obligations for the benefit of the Bank as a corporate body
    - the directors had no such right of access, in their
    separate, personal capacities and, upon them ceasing to hold
    office, the rationale for their entitlement to access ipso
    facto disappeared
    - the directors are being sued in their personal capacities,
    albeit for acts or defaults said to have been committed
    whilst they were directors. Their former status does not
    give rise to a continuing right of access to documents which
    are properly the subject of a claim to legal professional
    privilege at the hands of the Bank.

12. As the learned Judge recognised, there is no published authority which is directly in point on the issue arising on this appeal. It is necessary to reason from first principles.

13. It seems to me that Mr Martin QC was on sound ground when he took as his commencement point the proposition that a corporation such as the Bank at all times remains a legal entity which is separate and distinct from its members and its officers. So much is trite. In this regard the concept was neatly summarized by Bray CJ in The Queen v Goodall (1975) 11 SASR 94 at 99-100, where he commented:-
    "... an argument was addressed to us on the abstract
    question of whether a director who controls or is one of the
    controllers of a company can be said to aid and abet the
    commission of a crime by the company by the same act or conduct
    which constitutes the commission of the crime by the company
    itself. If the legal existence of the company as a juristic
    person entirely separate and apart from the existence and the
    legal personality of its members is strictly insisted on, I do
    not see why he cannot. If this involves some sort of
    metaphysical bifurcation or duplication of one act by one man so
    that it is in law both the act of the company and the separate
    act of himself as an individual, so be it."

14. That dictum was expressly accepted by the High Court in Hamilton v Whitehead (1988) 166 CLR 121 at 128.

15. No difficulty has been found by the Courts in adopting such an approach whilst, at the same time, recognising the so-called "Tesco" principle that a corporation must, of necessity, act through its officers, for which it is directly, and not merely vicariously, liable. (See discussion on this point in Hamilton v Whitehead (supra) at 127.) Given that situation, it is clear that, nevertheless, a single person may function in dual capacities (Lee v Lee's Air Farming Ltd (1961) AC 12 at 26). Such a concept lies at the heart of the reasoning of von Doussa J in Beach Petroleum NL and Anor v Johnson and Ors
(1993) 115 ALR 411 at 568.

16. In his written submission Mr Martin QC argued that, bearing in mind those fundamental principles, Perry J necessarily erred when he made the point that "the directors were in all relevant senses fully identified with the Bank at the time ... (the subject documents) ... came into existence". It seems to me that, with respect, what fell from the learned Judge begs the question as to what is meant by the expression "fully identified with the Bank". The Bank was certainly a separate legal entity in its own right and, of necessity, its powers were, by statute, exercised through the directors. But what detailed general powers and rights were vested in those directors depends, inter alia, upon the particular circumstances and the relevant statutory provisions and common law principles applicable to them.

17. As I understand the authorities, the general right of access of a director of a corporate body to documents in its possession - absent special legislative provisions in that regard - stems from common law principles. (Conway and Ors v Petronius Clothing Co Ltd and Ors (1978) 1 All ER 185 at 201.) As Slade J pointed out in that case, the "right" exists as a consequence of a director's due diligence obligations, to enable that person effectively to carry out his or her duties as a director. The court has a discretion as to whether or not to assist a director in enforcing it. The discretion will normally be exercised for the benefit of the corporation, but would not be exercised if there was evidence that such an exercise would be injurious to it. As Slade J stressed (at p202), the director "can claim the right as a personal right only in the sense that he may invoke it so as to enable him to discharge his personal obligations to the company and his statutory obligations".

18. I have deliberately referred to the word "right" in quotation marks because it seems to me that, viewed in the manner adverted to by Slade J, there is much to be said for the comment of Mahon J, in Berlei Hestia (NZ) Ltd v Fernyhough (1980) 2 NZLR 150 at 164-5, that the ability to gain access is not, in the strict sense, a legal right at all. Rather it is really a power which the court will enforce, where that enforcement is for the benefit of the corporate body - by way of contrast with where there may be what is seen as an attempt to gain information for a purpose contrary to its interest. In the latter case the exercise of the power would not facilitate the due diligence obligation of the director.

19. The relevant authorities render it patent that, because of the very reason for its existence, the "right" of access persists only so long as the director continues in office (Conway and Ors v Petronius Clothing Co Ltd and Ors at 201, Berlei Hestia (NZ) Ltd v Fernyhough at 164, Funerals of Distinction Pty Ltd and The Companies Act (1963) NSWR 614 at 615.

20. The above processes of reasoning derive support from the analysis by Beaumont J of the relevant authorities, as expressed in his judgment in Molomby v Whitehead and Australian Broadcasting Corporation (1985) 63 ALR 282 at 292-3 and, by analogy, from the reasoning of Lord Brightman in Birmingham City District Council v O and Anor (1983) AC 578 at 593.

21. It is clear, then, that, as a matter of principle, even whilst they held office as directors, the personal respondents were only entitled to access to documents privileged in the hands of the Bank for the limited due diligence purposes for which their power of access existed, and not for any reasons private and personal to them. The common law principle did not negate the existence of legal professional privilege qua the directors, it merely qualified it to the extent of a bona fide exercise of their power so far as it was necessary to enable them to discharge their legal obligations. That is to say, the power would be enforced by the courts only for the purpose for which it existed and not for a purpose antipathetic to the best interests of the corporation.

22. That, as it seems to me, is the short answer to the reasoning of Perry J. The privilege to which the Bank was entitled always continued, subject only to the qualified right of access recognised by the common law. To say as Perry did that:-
    "(i)t seems to me to be inconsistent with the undoubted fact
    that at the time they held office they could have had access
    to these documents, that in some way that situation should
    be regarded as having changed when they ceased to hold
    office." is, with respect, to misconceive the very rationale for the existence of the power.

23. To my mind it is nothing to the point to seek to argue that, because the present proceedings against the personal respondents relate to their conduct whilst directors of the Bank, it must follow that they may still enjoy the powers which they possessed whilst directors. Such a contention is both illogical as a proposition of law and flies in the face of the principle from which the authorities to which I have referred derive their validity.

24. The plain fact of the matter is that the personal respondents are being sued in their personal capacities, albeit that the claim relates back to their activities whilst directors. They are no longer directors and their due diligence powers ceased when they relinquished office.

25. In the course of his submissions Mr Abbott QC, of senior counsel for the personal respondents, sought to make two points which ran counter to the above reasoning.

26. First, he contended that, where privilege exists, it arises at the point of bringing the relevant document into existence (Grant v Downs (1976) 135 CLR
674; and that in the instant case, the circumstances which gave rise to the creation of the documents brought about what was, in effect, a joint privilege in favour of both the Bank and the personal respondents. This was because the documents were raised in the common interest of both, in the sense in which that expression was used in Woodhouse and Co (Limited) v Woodhouse (1914) 30 TLR 559 at 560. He also referred to the reasoning of Chitty J in Gouraud v The Edison Gower Bell Telephone Company of Europe (1888) 57 Ch 498 at 499-500 in that regard.

27. In my opinion that line of argument is untenable. The dicta upon which he relied were directed towards situations in which documents are brought into existence as a consequence of expenditure from a common fund in which both parties have a beneficial interest and which are expressly raised in their common interest. Both authorities relied upon focused on shareholders rights vis-a-vis the company in which they had a beneficial interest.

28. I have some doubt as to what is there said can be considered good law in light of more recent authorities - the more so as the reasoning is said to be based upon partnership law and actions against trustees by a cestui que trust, the principle being that a party cannot resist production of documents which have been obtained by means of payment from the moneys belonging to the party applying for their production. With all due respect, it is difficult to perceive a parity of logic between that situation and the position of shareholders vis-a-vis a corporation, where the legal relationships are quite different.

29. Moreover, quite apart from the fact that a director, as such, has no beneficial interest of the nature of that above mentioned, the relevant privilege was plainly solely that of the Company. The only entitlement to access arose by virtue of the common law principle to which I have earlier referred.

30. Secondly, Mr Abbott QC sought to argue that it was an established principle of law that, apart from other considerations, any privilege of a Corporation cannot be maintained as against a director who is personally sued by it, in respect of some default said to have occurred during the incumbency of that person as director.

31. In this regard the only support which he was able to produce in favour of his proposition was an obiter comment of Cooper CJ in State of Tennessee v The Society for the Preservation of the Book of Common Prayer (1985) 693 SWR 2d Series 340 at 343 which, in turn, seems to have been based on Cohen v Cocoline Products Inc 309 NY 119 (1955). This comment arose in the context of a ruling that the right of a director to inspect the books and records of a corporation ceases on the removal of that person as a director, by whatever lawful means, "absent a showing that the director has been or may reasonably be charged with some act or failure to act during his incumbency for which he might be held personally responsible".

32. The argument advanced by Mr Abbott QC completely ignores the fact that these authorities were not concerned with questions of privilege at all. They related to the general right (under American law) of a director, in order to discharge his fiduciary duty to a corporation and its members, to seek and obtain full and complete information as to the general financial affairs of that corporation. This is a completely different question, arising under a different legal and statutory system, related to corporate law and the general rights and duties of directors. It is simply of no relevance to the issues arising on this appeal.

33. Accordingly, there is no substance in either of the arguments sought to be advanced.

34. In the foregoing circumstances I am compelled to the conclusion that the order made by Perry J cannot be supported. Plainly, the subject documents attracted legal professional privilege in the hands of the Bank and, prima facie, the ex-directors have no present entitlement to access to them.

35. Having said that, there remains for consideration the issues of general and specific waiver adverted to by counsel. These have not been the subject of a ruling by the learned Judge and, indeed, detailed evidence and argument has not been directed to him as to specific documents. At best some global arguments of general principle have been advanced.

36. In the circumstances I would allow the appeal in its amended form, set aside the order of 8 February 1995 and remit the respondents' application to Perry J for further consideration and determination as to such issues of waiver as the parties may see fit to debate before him, bearing in mind the aspects which have already been the subject of submissions on the original application for directions.

JUDGE3 MULLIGHAN J This is an appeal, by leave, from the order made by a Judge of this Court on 8th February 1995 that, upon the respondents giving an undertaking in specified terms, the appellants produce to the respondents certain documents which are the subject of legal professional privilege.

2. In order to appreciate the issues raised in this appeal, it is necessary to say something about the litigation between the parties. The second appellant, the State Bank of South Australia ("the Bank"), is an instrumentality of the Crown established by s6 of the State Bank of SouthAustralia Act 1983 and, at all material times, held its property for, and on behalf of, the Crown in the right of the State of South Australia. Pursuant to s21 of the Act, the liabilities of the Bank are guaranteed by the Treasurer of the State and any liability arising under that guarantee is to be satisfied out of the General Revenue of the State of South Australia.

3. The governing body of the Bank is the Board, the members of which were appointed by the Governor. It is convenient to refer to them as the directors of the Bank. The first eight respondents are all former directors of the Bank and the eighth respondent was also the Chief Executive Officer of the Bank. The ninth respondent is an insurer and is alleged to have been the insurer of the directors of the Bank and officers of the Bank at relevant times.

4. The Bank incurred substantial losses and liabilities which the Treasurer had to pay pursuant to the guarantee. The Crown in the right of the State of South Australia, the first appellant, and the Bank, the second appellant, have brought this action against the directors of the Bank alleging breaches of duty, breaches of trust and breaches of statutory obligation in various respects. They claim damages, and also compensation from the eighth respondent, with respect to a transaction entered into by the Bank, involving the acquisition by the Bank of all of the shares in Oceanic Capital Corporation and its subsidiary companies in 1988 for $59m. The directors of the Bank held those positions at this time. It is alleged that at the relevant times, the value of the shares was between $26m and $34m. It is unnecessary for present purposes to describe the appellants' causes of action in detail. It is sufficient to say that it is alleged that if the directors of the Bank had not been in breach of their relevant duties and obligations, the acquisition would not have taken place and the Bank would not have incurred substantial losses in consequence of the transaction. The directors of the Bank ceased to be directors after the events which are the subject of the causes of action in the proceedings.

5. The ninth respondent is sued as the insurer of the directors of the Bank. It is alleged that, by reason of the policy of insurance between them and the ninth respondent, it indemnified them against various liabilities, including those which are alleged to be the foundation of the claims against them in this action. The appellants seek a declaration that the ninth respondent is obliged to indemnify the directors of the Bank for any legal costs and/or damages incurred by them in consequence of judgment being entered against them in this action.

6. This action has not yet proceeded beyond an early stage. It would seem that the pleadings have not closed and the various pre-trial interlocutory steps are proceeding. On 16th November 1994 the first seven respondents sought orders for inspection of various documents discovered by the appellants in respect of which the appellants had claimed legal professional privilege. There is no dispute that the documents are subject to that privilege as against anyone outside the Bank. The learned Judge described them as being "in the nature of advice to or requests for advice from the Bank with respect to aspects of the transactions in question in the proceedings". However, the first seven respondents contend that as former directors of the Bank they are, in that capacity, entitled to have access to each of the documents regardless of whether they, or any of them, comprised legal advice or, for any other reason, were privileged.

7. The learned Judge heard extensive argument from the parties, except the eighth respondent. He did not appear before the learned Judge or on this appeal. The learned Judge gave a ruling that the documents were not subject to the privilege so far as the directors of the Bank are concerned as "the cloak of legal professional privilege which settled on them did not extend to the directors" (p3 of judgment). He expressed his reasons as follows:
    "Counsel were not able to point to any authority directly in
    point.

Mr Martin QC argued that whatever the significance of the fact
    that the directors were, in a sense, part of the corporate
    personality of the bank, that ceased when they resigned. But it
    seems to me that once it is accepted that the directors were in
    all relevant senses fully identified with the bank at the time
    these documents came into existence, the necessary consequence
    is that no legal professional privilege can be said to have
    existed qua the directors at that time. It is not to the point
    that legal professional privilege settled on these documents qua
    the world at large from the time at which they were brought into
    being. Legal professional privilege never prevents access by
    the client or the giver of the advice or the professional
    adviser responsible for the creation of the document in
    question; it only ever applies to other persons. So that it
    seems that, from the outset, these documents qua the directors
    were not subject to legal professional privilege or, perhaps
    more accurately, the ambit of the cloak of legal professional
    privilege which settled on them did not extend to the directors.

The only question left, and it is, so far as I know, a novel
    one, is whether or not, upon the directors ceasing to hold
    office as such, in some way there was a change in the legal
    position and they then became subject to the privilege attaching
    to the documents, even though the bank has since sued the
    directors.

In my opinion, that question should be resolved in favour of the
    directors. It seems to me to be inconsistent with the undoubted
    fact that at the time they held office they could have had
    access to these documents, that in some way that situation
    should be regarded as having changed when they ceased to hold
    office. True it is that, both while holding office and after
    they ceased to hold office, the directors have a duty of
    confidentiality with respect to strangers and to the world at
    large. But there is no suggestion that any such duty of
    confidentiality would be breached if they were given access to
    documents in the course of these proceedings."

8. The Bank challenges this conclusion and reasoning on this appeal.

9. It is appropriate to mention one matter of detail with respect to the appellant's causes of action. It is alleged that on 24th March 1988, the Board resolved to approve the acquisition of the shares for $60m subject to various terms and conditions, one of which was the "preparation of a legal agreement acceptable to our advisers". It is further alleged that the agreement in writing for the acquisition of the shares was executed by a person acting on behalf of the Bank on 31st March 1988 in accordance with this resolution. We were told by Mr Martin QC that the appellants have waived the privilege with respect to all documents which relate to that matter in accordance with principles of fairness discussed in Attorney-General for the Northern Territory v Maurice and Ors (1986) 161 CLR 475.

10. It was contended before the learned Judge that if the privilege did justify withholding production of the documents to the directors of the Bank, there had been a waiver of that privilege. Because of the view taken by the learned Judge, it was not necessary for him to decide that question. It was accepted at the appeal that we could not resolve that question as the relevant principles of express and implied waiver would have to be applied to each class of the subject documents and possibly to each document and, potentially, in the context of relevant accepted evidence. Consequently, it was accepted that if we took the view that the learned Judge was in error in his ruling that the privilege did not apply to the directors of the Bank, we should allow the appeal and remit the application for inspection to the learned Judge for further consideration, including of the issue of waiver.

11. It seems clear that the learned Judge accepted the contention that the directors of the Bank and the Bank were, in effect, one and the same at the time the documents came into existence and as the privilege arose at that time, it could not extend to them. This approach does not accord with relevant principle. The directors of the Bank and the Bank are not one and the same. A corporation is a legal entity separate and distinct from its members and officers: Salomon v Salomon and Company Limited (1897) AC 22, Lee v Lee's Air Farming Ltd (1961) AC 12, R v Goodall (1975) 11 SASR 94 and Hamilton v Whitehead (1988) 166 CLR 121. The privilege is that of the Bank and not of the directors of the Bank as individuals.

12. The next question is whether any right of the directors of the Bank to inspect documents of the Bank whilst they were directors denies the privilege. Clearly the directors of the Bank had the right to inspect documents but only for limited purposes and if acting in their capacity as directors. A director of a corporation is capable of acting in either of two capacities: as a director or in a personal capacity: see Lee v Lee's Air Farming Ltd (supra) at p25 where it was accepted that the mere fact that someone is a director of a company is no impediment to his entering into a contract to serve the company as an employee. In Beach Petroleum NL and Anor v Johnson and Ors (1990) 115 ALR 411 von Doussa J explored in considerable detail the question of when the conduct and knowledge of a director is not that of a corporation and accepted, at p574, that unless the director is acting within the scope of the director's actual or apparent authority, the knowledge or conduct is not that of the corporation, which illustrates that dual capacity of a director which I have mentioned.

13. It is well recognised that a director of a corporation has the right to inspect documents of the corporation in the interests of the corporation: see Molomby v Whitehead and Australian Broadcasting Corporation (1985) 63 ALR 282 and the cases cited at p292. However, it is clear, in my view, that the right is restricted to directors acting in that capacity and for the purposes of the corporation as distinct from private or personal reasons. The rationale of this right was expressed by Street J in Edman v Ross (1922) 22 SR(NSW) 351 at p361:
    "The right to inspect documents and, if necessary, to take
    copies of them is essential to the proper performance of a
    director's duties, and, though I am not prepared to say that the
    Court might not restrain him in the exercise of this right if
    satisfied affirmatively that his intention was to abuse the
    confidence reposed in him and materially to injury the company,
    it is true nevertheless, that its exercise is, generally
    speaking, not a matter of discretion with the Court and that he
    cannot be called upon to furnish his reasons before being
    allowed to exercise it. In the absence of clear proof to the
    contrary the Court must assume that he will exercise it for the
    benefit of his company."

14. It may be seen that in In Re Funerals of Distinction Pty Ltd (1963) NSWR
614, Jacobs J accepted that the right existed in the director's capacity as a director and that it ceased once he ceased to be a director: p614; see also Conway and Ors v Petronius Clothing Co Ltd and Ors (1978) 1 All ER 185 at p201. In that case Slade J accepted that the right, which he preferred to describe as a power, is conferred by the common law, although recognised by legislation (in South Australia see s267(g) of the Companies (South Australia) Code and s289(9) of the Corporations Law). Slade J also recognised that the right of inspection may only be exercised for the benefit of the company. He said at p202:
    "He can claim the right as a personal right only in the
    sense that he may invoke it so as to enable him to discharge
    his personal obligations to the company and his statutory
    obligations."

15. These principles were also applied in Berlei Hestia (NZ) Ltd v Ferryhough
(1980) 2 NZLR 150 where Mahon J, after a detailed review of the cases, also concluded that the right of inspection existed only in the capacity of a director and to enable him to better perform his or her obligations to the corporation in the interests of the corporation. He accepted that the right of inspection immediately comes to an end upon the director ceasing to hold office.

16. This common law right has been acknowledged in the analogous situation of a member of the council of a local authority wanting to inspect confidential records of the Council. In Birmingham City District Council v O and Anor
(1983) AC 578, it was accepted that a councillor is entitled by virtue of his office to have access to all written material in the possession of the local authority provided he has good reason for such access, namely to enable him properly to perform his duties as a member of the council: see p593.

17. Once it is acknowledged that the right of a director to inspect documents of a corporation is limited in these ways, it may be seen that legal professional privilege may apply against directors. The privilege does not cease to apply merely because the documents come into existence at a time when the directors held that office. The privilege will apply when the directors seek inspection in their private or personal capacity. It will extend when they seek inspection after they have ceased to be directors, subject of course to waiver, including implied waiver on the basis discussed in Attorney-General for the Northern Territory v Maurice and Ors (supra).

18. To my mind it is not to the point, as Mr Abbott QC argued, that the first eight respondents are being sued because they were directors of the Bank, ie for breaches of duty whilst members of the Bank. They are being sued in their private or personal capacities for acts or omissions when directors.

19. Mr Abbott drew our attention to The State of Tennessee v The Society for the Preservation of the Book of Common Prayer (1985) 693 South Western Reporter 2d Series 340 where the Supreme Court of Tennessee considered the right of members and directors of the respondent Society to inspect and copy books and records of the Society. The Court concluded that in the case of a director, any such right ceased upon the removal of the directors from office, "absent a showing that the director has been or may reasonably be charged with some act or failure during his incumbency for which he might be held personally responsible". It was contended that the position of the first eight directors is analogous, in that they have been sued for breaches of duty whilst acting as directors and the same approach should be adopted. It is unnecessary to consider whether the approach in that case reflects the law in this State. I expect for all practical purposes that it does. In criminal proceedings the notion of a fair trial would suggest that an accused would have access to materials relevant to the charge and the same would have to be discovered in civil proceedings. However, that is not to say that a former director charged with a crime or sued in a civil action may inspect documents which are the subject of legal professional privilege. The Tennessee case was not concerned with that privilege.

20. Our attention was also drawn to cases which state 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 their production, eg a cestui que trust. In Gouraud v The Edison Gower Bell Telephone Company of Europe (1888) 57 ChD 498 Chitty J applied this principle between shareholders and the directors of a company with respect to confidential communications between the company and its solicitors for the purpose of obtaining legal advice in connection with the subject matter of the action brought on behalf of the shareholders against the company. In Woodhouse (Limited) v Woodhouse and Co (1914) 30 TLR 559, the Court of Appeal acknowledged the principle between shareholder and company but held that it did not apply where the interests of the company and the shareholders were adverse. In my view this principle could not apply in the present circumstances between a corporation and its former directors who are being used by the corporation and whose interests are clearly adverse.

21. The application of all of the principles discussed does not lead to the conclusion that the legal professional privilege does not apply against the first eight respondents. They are no longer directors of the Bank. Their interests are adverse to those of the Bank. Their purpose in seeing the documents is not to serve the interests of the Bank or to enable the discharge of their duties as directors but to serve their own interests in the litigation.

22. Assuming that the privilege did not apply against them when they were directors of the Bank, it does not follow that it could never apply against them. In my view once they ceased to be directors and no longer had the right of inspection, they were placed in the same position as any other person outside the Bank and the privilege applied against them. There is no reason in principle or logic to conclude that the situation which existed when the documents came into existence must remain forever. The appropriate time to consider whether the privilege extends to relevant persons is when it is claimed.

23. For these reasons, it is my view that the learned Judge erred in reaching the conclusion that the privilege could not apply against the first eight respondents. It was accepted that if they were entitled to inspect the documents so is the ninth respondent which adopted Mr Abbott's argument.

24. The appeal should be allowed and the order of the learned Judge set aside. The application should be remitted to him for further consideration.