Brook Asset Management Limited v Firmin HC Auckland CIV-2010-404-3591

[2011] NZHC 1997

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-3591

BETWEEN  BROOK ASSET MANAGEMENT LIMITED

First Plaintiff

ANDBROOK ASSET MANAGEMENT PTY LIMITED

Second Plaintiff

ANDMACQUARIE NEW ZEALAND LIMITED

Third Plaintiff

ANDMEL TONY FIRMIN First Defendant

ANDDEVON FUNDS GROUP LIMITED Second Defendant

Hearing:         1 December 2011

Counsel:         J R Billington QC and S Langton for applicant

C Meechan and H McDonald for defendants

Judgment:      13 December 2011 at 10:30 AM

JUDGMENT OF LANG J

[on application for review of Associate Judge’s decision]

This judgment was delivered by me on 13 December 2011 at 10.30 am, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

BROOK ASSET MANAGEMENT LTD V FIRMIN HC AK CIV-2010-404-3591 13 December 2011

[1]      This proceeding arises out of the decision of the first defendant, Mr Firmin, to leave the employment of the plaintiffs and take up a position with the second defendant, Devon Funds Group Limited (“Devon”).   When Mr Firmin left the plaintiffs' employment to join Devon, two other employees left with him.

[2]      The plaintiffs allege that Devon and Mr Firmin were parties to an unlawful conspiracy aimed at recruiting Mr Firmin and his two fellow employees.  They also allege that, prior to his resignation as a director of the first plaintiff, Mr Firmin breached fiduciary duties he owed to the plaintiffs by failing to advise them about the fact that Devon was endeavouring to recruit not only himself but also the other two employees.

[3]      The plaintiffs contend that Devon and Mr Firmin‟s wrongdoing has caused their asset management business to suffer significant losses.  They seek to recover damages in respect of those losses from both Devon and Mr Firmin.

[4]      When Mr Firmin joined Devon, he took up a shareholding in the company. During the discovery process, the plaintiffs ascertained that on 3 and 14 May 2010

Devon‟s solicitors, Bell Gully, produced two draft shareholders‟ agreements setting out the terms upon which Mr Firmin was to take up his shares.  Bell Gully provided these to Devon‟s chairman, Mr Paul Glass, who subsequently passed them on to Mr Firmin for his consideration.  Mr Firmin then took legal advice in respect of the draft agreements.

[5]      Devon and Mr Firmin have declined to produce the documents for inspection, because they contend that they are subject to a claim for privilege that has never been waived.  Following a defended hearing, Associate Judge Sargisson upheld these

arguments.[1]  The plaintiffs now seek to review the Associate Judge‟s decision.

[1] Brook Asset Management Ltd & Others v Firmin & Anor HC Auckland CIV-2010-404-3591, 24

June 2011.

[6]      The application for review raises two issues:

(a)       Were  the  documents  privileged  after  Mr  Glass  gave  them  to  Mr

Firmin; and

(b)      If so, did Devon and Mr Firmin waive privilege?

[7]      A subsidiary issue arises as to whether or not the Judge erred in not explicitly ordering Devon and Mr Firmin to file further lists of documents containing more particularised descriptions of the two agreements.

Were the documents privileged after Mr Glass gave them to Mr Firmin?

[8]      Counsel agree that this issue falls to be determined under ss 53(3) and 54(1)

of the Evidence Act 2006 („the Act”).

[9]      These sections largely reflect common law principles relating to claims for privilege.    Section  54  codifies  the  principles  relating  to  what  was  previously generally known as legal professional privilege.   Section 53 permits a privilege holder to  require other persons  who are in  possession  of privileged  material  to withhold that material from production in any proceeding.

[10]     Included within legal professional privilege was legal advice privilege.  The principle underlying advice privilege is that communications between a client and his or her legal adviser will be privileged where they are intended to be confidential, and where they occur in the course, and for the purpose, of obtaining legal advice. The defendants contend that advice privilege applies to the draft shareholder agreements.

[11]     The Associate Judge concluded that privilege applied to the draft agreements because, as all parties accepted, they were originally subject to privilege as between Bell  Gully and  Devon  at  the time that Bell  Gully prepared  the documents  and provided them to Mr Glass.   She took the view that the fact that Mr Glass subsequently gave copies of the document to Mr Firmin did not destroy the privilege that attached to them.

[12]     The Associate Judge expressed her conclusion on this point as follows:

[30]     … Once a document is cloaked with privilege, as I have held the copies of the draft agreements to be, the purpose of dissemination is irrelevant.  Whether the privileged copies were disseminated for the process of obtaining legal advice or otherwise, is only relevant so far as it is inconsistent with the claim of confidentiality.  The submission confuses the waiver requirements under s 65 with the grounds for attracting privilege under s 54.

Analysis

[13]     Both Mr Glass and Mr Firmin depose that they believed their discussions were confidential, and that Mr Glass gave the documents to Mr Firmin in circumstances where both men understood that the documents remained subject to privilege.  Whether or not the parties regard a communication or document as being privileged does not, however, necessarily determine its status.  That issue must be determined having regard to the tests contained in the Act.

[14]    In the present case, three separate and distinct forms of communication occurred.  The first comprised the discussions between Bell Gully and Devon that led to the draft agreements being produced.  The second comprised the discussions between Mr Glass and Mr Firmin relating to the terms upon which Mr Firmin and his associates would join Devon.  Mr Glass gave the draft agreements to Mr Firmin during these discussions.  The third comprised the advice that Mr Firmin sought and received from his solicitors after he received the documents from Mr Glass.

[15]     It is common ground that privilege attached to the first and third sets of communications.   They occurred when Devon and Mr Firmin sought legal advice from their respective solicitors regarding the draft agreements.  As a consequence, they fell squarely within the definition of privileged communications in s 54 of the Act, which provides as follows:

54     Privilege for communications with legal advisers

(1)     A person who obtains professional legal services from a legal adviser has a privilege in respect of any communication between the person and the legal adviser if the communication was—

(a)     intended to be confidential; and

(b)     made in the course of and for the purpose of—

(i)     the person obtaining professional legal services from the legal adviser; or

(ii)     the legal adviser giving such services to the person. (2) …

[16]     It  is  also  common  ground  that  privilege  did  not  attach  directly  to  the discussions between Mr Glass and Mr Firmin.  Neither man was a legal adviser in terms of s 54.  Their discussions did not form part of the process under which either of them was seeking legal advice.  Rather, they took place within the context of a commercial negotiation between two business people.   The object of those communications was to settle the terms upon which Mr Firmin would be employed by, and take up shares in, Devon.  The draft agreements that Mr Glass gave to Mr Firmin during these discussions were no doubt designed to convey Devon‟s offer to Mr Firmin in relation to those issues.  At that stage, Mr Firmin had not yet consulted his own solicitors.

[17]     At the heart of Devon‟s argument, as accepted by the Associate Judge, is the proposition that the draft agreements were initially privileged because they were produced during the discussions between Devon and its solicitors.  Devon contends that the documents did not lose that status even though Mr Glass gave them to Mr Firmin during discussions that did not attract privilege.

[18]     Devon relies upon B v Auckland District Law Society as authority for this proposition.[2]   In that case, counsel for a law firm had provided a lawyer nominated by the Law Society with copies of documents that were subject to privilege in existing litigation in which the law firm was a party.   He did so upon the express basis that the law firm had not waived privilege.  Furthermore, the lawyer to whom the documents were given was not permitted to copy them, to show them to anybody

else or use them for any purpose other than that for which they were provided.  The Privy Council held that in those circumstances the Law Society had no right to use the documents for any other purpose.   In delivering its advice, the Privy Council said:[3]

The Society argued that, once the documents were produced to Mr Ennor, they ceased to be privileged.  Their Lordships consider that this is playing with words.  It confuses the nature of the documents with the rights to which the arrangements with Mr Ennor gave rise.  The documents are privileged because  they  were  created  for  the  purpose  of  giving  or  receiving  legal advice.     If  they  are  not  produced  voluntarily,  production  cannot  be compelled.  If they are produced voluntarily, the right to withhold production no longer attaches to them.  In that sense the privilege may be said to be lost. But they are the same documents, and it is not inappropriate to describe them as privileged.  Their inherent characteristics are the same.  The policy which protected them from unauthorised disclosure is the same.  The cat is still a cat. It can be put back in the bag.

[2] B v Auckland District Law Society [2004] 1 NZLR 326.

[3] At [69].

[19]     The factual matrix of the present case is, however, completely different.  Mr Glass did not, either expressly or impliedly, place any restrictions at all upon Mr Firmin‟s use of the documents.  Nor did he restrict the range of persons to whom Mr Firmin could disseminate them.  The fact that both men understood their discussions to be confidential is understandable, because Mr Firmin was considering leaving the plaintiffs employment to take up a senior position with a competitor.  That does not mean, however, that their communications were privileged in terms of the Act.

[20]     Although Mr Glass deposes that he never intended to waive privilege in respect of the documents, there is no indication that he (or Mr Firmin for that matter) actually  turned  his  mind  to  the  issue  of  privilege  at  the  time  he  handed  the documents to Mr Firmin.  That is not surprising because the focus of both men was

probably on the substance of the information contained in the documents, and not

their legal status.   If Bell Gully had sent the documents directly to Mr Firmin‟s solicitors for their consideration, the documents could not have attracted privilege.  I see no difference in principle when one party to a commercial transaction hands a document directly to the other party without imposing any restriction upon the use to which it might be put.

[21]     In my view, Devon‟s argument could only succeed if the documents fell

within the protection of s 53(3), which provides:

53     Effect and protection of privilege

...

(3)     A person who has a privilege conferred by any of sections 54 to 59 and 64 in respect of a communication, information, opinion, or document may require that the communication, information, opinion, or document not be disclosed in a proceeding—

(a)    by the person to whom the communication is made or the information is given, or by whom the opinion is given or the information or document is prepared or compiled; or

(b)     by any other person who has come into possession of it with the authority of the person who has the privilege, in confidence and for purposes related to the circumstances that have given rise to the privilege.

[22]     Section 53(3)(a) clearly does not apply to communications between Mr Glass and Mr Firmin.   Rather, it would permit Devon to require Bell Gully to withhold from production all communications that occurred between them.

[23]  Section 53(3)(b) is obviously designed to ensure that privileged communications, information and documents do not necessarily lose that status when they are disseminated to third parties.  Where such material comes into the hands of a third party with the privilege holder‟s authority, it will remain privileged so long as it has been disseminated to the third party “for purposes relating to the circumstances that have given rise to the privilege.”

[24]     The section therefore permits privileged material to be disseminated without privilege being lost where the dissemination occurs for a purpose related to the circumstances giving rise to the privilege.  That could occur, for example, where a

solicitor provides an accountant or tax professional with privileged information so that  the accountant  or tax  professional  can  advise  the solicitor about  the wider taxation or accounting implications of a proposed transaction.  The solicitor might need such advice in order to provide the client with overall advice about the risks associated with the transaction.

[25]     Dissemination of the privileged material to an accountant or tax professional in those circumstances would plainly come within the wording of s 53(3)(b).   It would have been done for a purpose related to the advice that the client had sought, and the solicitor was required to provide.   If, however, dissemination was for a purpose unrelated to the seeking and giving of advice, s 53(3) would have no application.

[26]     This reflects the underlying principle that advice privilege should only attach to communications relating in some way to the seeking or giving of legal advice.  All documents that emanate from a solicitor‟s office reflect, in one way or another, advice that has already been sought and given.  In this context, the courts have drawn a distinction between documents prepared during the course of discussions between solicitor and client and those that are produced and distributed to others after advice has been given.

[27]     In Lakatoi v Walker, for example, Rolfe J said:[4]

Thus a situation may arise where a draft is prepared, on the existing instructions, which, after consideration by the client and before the draft has been furnished to any other party, is the subject of substantial amendment because of a change in instructions.   It seems to me that in principle the production of such a draft, even without notations, amendments and corrections, would property be held to constitute a disclosure of instructions and, in my opinion, for this reason the draft would attract client legal privilege.  The situation, however, becomes very different once the draft goes into the public domain, e.g. by its being sent to the solicitors for the other party for comment in the usual course of drafting and ultimately concluding commercial documentation.(Emphasis added)

[4] Lakatoi v Walker [1999] NSWSC 156 at [15].

[28]     Similarly,  in  Henry  v  Henry  Deeny J  drew  a  distinction  in  this  context between a draft will and the final product[5].  He said:[6]

... The draft will given by the solicitor, if one is involved, is undoubtedly a form of giving legal advice to the client.  But once that draft will has been executed the client is no longer seeking and the lawyer is no longer giving such advice.  It is the product of that process which now exists. ...

[5] Henry v Henry [2007] NIQB 67.

[6] At [13].

[29]     Any draft agreements that Bell Gully prepared but which Devon did not provide to Mr Firmin would therefore be privileged, because they would disclose the instructions that Devon had provided and/or the advice that Bell Gully had given in relation to those documents.  The documents that Mr Glass provided to Mr Firmin fell  into  a different  category.    They were drafts  in  the sense that  they did  not necessarily represent the agreement that the parties would ultimately reach.   They were in final form, however, to the extent that Devon was happy for Mr Glass to give them to Mr Firmin for his consideration.

[30]     Mr Glass did not provide Mr Firmin with the documents either directly or indirectly in the course of Devon seeking advice from Bell Gully.  Rather, he did so when Devon had already obtained that advice.  Mr Glass provided Mr Firmin with the  documents  so  that  Mr  Firmin  was  aware  of  the  terms  upon  which  Devon proposed to offer him shares in the company, and so that he could obtain his own legal advice in relation to Devon‟s offer.

[31]   The dissemination therefore occurred for a purpose unrelated to the circumstances giving rise to the privilege formerly held by Devon.  For that reason I have concluded that s 53(3)(b) does not apply to the documents that Mr Glass gave Mr Firmin during the course of their negotiations.

[32]     It follows that I respectfully take a different view from the Associate Judge regarding the relevance of the purpose for which Mr Glass made the documents available to Mr Firmin.  In the present case it is largely determinative of the claim to withhold production of the documents.

[33]     It follows also that no issue as to waiver arises.   That issue would only assume  relevance  in  the  event  that  the  documents  were  held  to  be  subject  to

privilege.

Should the defendants be required to file and serve amended lists of documents to address deficiencies in their original lists?

[34]     The fact that the plaintiffs are now to receive copies of the documents may remove the need for the defendants to file and serve amended lists of documents describing the draft agreements with greater particularity than has been the case to date.

[35]     The Associate Judge clearly considered that this issue had been resolved by agreement between counsel because she said:

[13]     Despite this deficiency in the verified lists, all counsel concur that I should deal with the issues of privilege on the basis that Devon‟s solicitors provided the copies of two versions of the draft shareholders‟ agreement to Mr Firmin and his solicitors and that Devon claims legal professional privilege for them. Further that, on this basis, the application for further discovery is may be treated as resolved.

[36]     This is an issue that should properly be the subject of review when the matter is next before the Associate Judge.  I decline to make any further order in relation to it.

Result

[37]     The application for review is granted.

[38]     I direct that Devon and Mr Firmin are to produce copies of the two draft agreements for inspection by the plaintiffs within 14 days.

Costs

[39]     My tentative view is that the plaintiffs have succeeded on the application for review and are entitled to costs on a Category 2B basis together with disbursements as fixed by the Registrar.  If any party takes a different view, counsel for that party should file and serve a memorandum to that effect within 14 days.  I will then set a timetable for the sequential filing of submissions so that the issue of costs can be

resolved on the papers.

Lang J

Solicitors/Counsel: J R Billington QC

Langton Hudson Butcher, Auckland

Bell Gully, Auckland