Brook Asset Management Limited v Firmin HC Auckland CIV-2010-404-3591
[2011] NZHC 864
•24 June 2011
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: 18 February 2011
Appearances: S C Langton and R M Tomkinson for Plaintiffs C M Meechan and T Woods for First Defendant I Gault and B McKinlay for Second Defendant
Judgment: 24 June 2011 at 4:00 PM
RESERVE JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Application for Discovery)
This judgment was delivered by me on 24 June 2011 at 4 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date .......................... Langton Hudson Butcher, Auckland
Bell Gully, Auckland
Russell McVeagh, Auckland
BROOK ASSET MANAGEMENT LIMITED v FIRMAN HC AK CIV-2010-404-3591 24 June 2011
Introduction
[1] The plaintiffs seek orders against the first and second defendants, Mr Mel Tony Firmin and Devon Funds Group Limited, for particular discovery and setting aside privilege claims.
[2] The questions that remain at issue are essentially as follows:
(a) Did Mr Firmin and Devon fail to comply with their discovery obligation to list in their affidavit of documents the copies of the draft versions of a shareholders’ agreement that Devon and its solicitors sent to Mr Firmin and his solicitors while negotiating its terms?
(b)Did Devon have privilege in the copies before their dissemination to Mr Firmin? If so, did Devon retain the privilege following dissemination?
[3] There is no dispute that if I find that Devon does maintain privilege, Mr Firmin will be bound to retain the privilege over the copies he has of the draft shareholder agreement.1
[4] The application arises in the context of an action against former directors, shareholders, and senior employees of the plaintiffs, who are now directors, shareholders, and employees of a competitor. The plaintiffs claim damages against the defendants for breach of duties of fidelity, and for conspiracy to cause harm by inducing senior employees to leave the third plaintiff.
The first question
[5] The first question can be dealt with in relatively short order.
[6] The defendants, through acknowledgments of counsel at the hearing, disclose
that two versions of the draft shareholders’ agreement, dated 3 and 14 May 2010, were prepared by Devon’s solicitors. Copies were given to Mr Firmin’s solicitors
1 Hutchings v Williams HC Wellington CP589/86, 8 December 1987 at 5.
when he was considering joining Devon. Counsel for Mr Firmin acknowledges that the terms on which he might own shares were material to his decision to join Devon. Hence, copies of the two draft versions were provided so that he could take his own legal advice for the purpose of negotiating terms.
[7] However, neither Devon nor Mr Firmin lists the copies as documents for which privilege is claimed. This is plain from their verified lists of documents and the evidence each gives of the entry that purportedly contains the relevant disclosure.
[8] The relevant entry in Mr Glass’ list of privileged documents states:
Doc No.
Date
Doc Type
Privilege
Category
2.1
Various
BG File containing copy original and draft correspondence E, documents, F, FN, HWN, I, L and M
SC, LP
[9] The entry makes no express mention of the draft shareholders’ agreement or the copies that were taken and sent to Mr Firmin. Without such mention, it is impossible to conclude that there has been discovery of the copies. Nor is it possible to conclude that there has been any claim to privilege, or the basis of such a claim.
[10] The same must be said of Mr Firmin’s list of privileged documents. He asserts that he has discovered the copies of draft shareholders’ agreement that he received from Devon. He relies on the following entry in his list of privileged documents:
Doc
No
Date
Document
Description
From
To
Nature of
Privilege
2.1
17.05.10
L/Draft Agreement
MC
MTF
P1
[11] Though the entry refers to a letter and draft agreement, it implies these documents were prepared by Mr Firmin by his own solicitors, Meredith Connell. It does not reveal that Devon sent a copy of these drafts to Mr Firmin.
[12] The omission, in each case, is not inconsequential. The parties are required to provide a sufficient description of a document to demonstrate the basis for any privilege claimed.2 The need for further and particular discovery is therefore made out. Mr Firmin and Devon failed to discover the copies.
[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.
[14] This leaves for determination the two remaining questions about Devon’s
claim to privilege.
The second question
i) Did Devon have privilege in the copies before their dissemination to Mr Firmin?
[15] There is no dispute that the draft agreements were privileged. It is common ground that legal professional privilege was conferred on Devon under s 54(1) of the Evidence Act 2006 in respect of both versions of the draft shareholders’ agreement when its solicitors prepared them. There is also no dispute that Devon retains privilege in those drafts, despite dissemination of the copies to Mr Firmin.
[16] It is the copies of the privileged drafts, taken for the purposes of dissemination and negotiation, that are the subject of dispute.
[17] Counsel for the plaintiffs submits that though Devon has privilege in respect of the original drafts, the copies are separate documents for discovery purposes in
2 High Court Rules, r 8.21.
which Devon could never have held privilege. He submits this is because the copies were not made to enable Devon to seek or obtain confidential legal advice from its lawyers. Rather they were, from their inception, made to communicate Devon’s position in the negotiations over the terms of the agreement. Such purpose, he submits, does not attract legal professional privilege under s54. There is no other basis for the conferral of privilege.
[18] Section 54 states:
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.
[19] The basis for the conferral of the privilege on draft transaction documents was discussed by the Court of Appeal in Simunovich v TVNZ:3
Such documents may be privileged ... because their disclosure would reveal the content of a privileged communication: Dalleagles Pty Ltd v Australian Securities Commission (1991) 6 ACSR 498 at 506 (SC (WA)).
[20] In Dalleagles the Supreme Court of Victoria stated:4
What is protected, of course, is that which is communicated between solicitor and client. It is the communication that is privileged. But this is not to say that material that is not literally a communication or manifestly the record of a communication is never protected. There are many instances of protection being extended to such material. The examples of the draft statement of claim have already been referred to. The reason why such material is protected is often stated to be that disclosure of it will, or will tend to, reveal the privileged communication…
There is much in the cases to support the view that this is the true basis upon which draft agreements, draft letters, draft pleadings and the like have long been accepted as privileged; that it is not so much because they are
3 Simonovich Fisheries v Television New Zealand [2008] NZCA 350 at [160].
4Dalleagles Pty Ltd v Australian Securities Commission (1991) 6 ACSR 498 at 506 (SC (WA)).
themselves “advice” or “communication” but because they will, if disclosed,
reveal, or tend to reveal, the content of privileged communications.
[21] It may be that the copies of the two versions of the draft shareholders’ agreement are separate documents for discovery purposes, but for privilege purposes it should matter not whether the documents are the source or original drafts or copies taken from them. Prior to dissemination there was no communication of their identical privileged contents outside of the solicitor and client relationship, and if disclosure of the contents of either were to occur it would be to identical effect.
[22] The words of Henry J in C-C Bottlers Ltd are apposite:5
To the extent that some Australian authority (see for example Vardas v South British Insurance Co Ltd [1984] 2 NSWLR 652) may be read as suggesting that copies of privileged documents must be assessed as themselves having been created for the purpose of giving or receiving legal advice before they will be deemed privileged, I respectfully disagree. If the principal communication is privileged, copying it cannot in my view of itself destroy the privilege, and subsequent dissemination to a third party will only do so if the circumstances establish a waiver by the client. The only waiver which could here be inferred is one limiting disclosure to Touche Ross and cannot avail the defendants.
[23] There can be therefore no substance to the plaintiffs’ submission that privilege never attached to the copies that Devon made for Mr Firmin. That the copies were made with a view to enabling Mr Firmin, and not Devon, to obtain legal advice does not affect privilege. I turn then to the main issue I am asked to determine.
ii) Did Devon maintain privilege in the copies following dissemination to Mr
Firmin?
[24] The argument reduces to whether dissemination to Mr Firmin constituted the destruction of privilege, and hence loss of the right to resist disclosure against the world generally, or merely a disclosure that involved a loss of confidentiality limited to Mr Firmin, and hence a limited waiver of the right to assert privilege.
[25] As counsel conveyed at the hearing, the parties agree that:
5 C-C Bottlers Ltd v Lion Nathan Ltd [1993] 2 NZLR 445 at 453.
(a) Both copies were disseminated to Mr Firmin for the limited purpose of enabling him to seek legal advice and negotiating terms. they also agree that the content was not simply commercially sensitive, but that it was implied, if not expressed, that Devon intended to maintain confidentiality in the contents of the copies against everyone else but Mr Firmin and his solicitors.
(b)In claiming privilege in the disseminated copies, Devon and Mr Firmin do not rely on common interest privilege. They accept this is not a case where common interest privilege arises.
(c) Devon and Mr Firmin must allow inspection of the concluded shareholders’ agreement. No privilege attaches to the concluded version. This is a document in the public domain.
[26] I proceed on this agreed basis.
[27] Counsel for the plaintiffs argues that there was no privilege once dissemination occurred. The basis for this argument is two-fold:
(a) That the copies did not attract privilege under s 54 when they were given to Mr Firmin.
(b) In the alternative, privilege was waived upon dissemination to Mr
Firmin.
[28] Turning to the first submission, this too can be broken down into two limbs. The first limb is that the dissemination was for the purpose of negotiations between parties to a commercial agreement, albeit on a confidential basis. This not attract privilege under s 54. Following the approach adopted in Henry v Henry, when Devon gave the copies to Mr Firmin, they were no longer seeking or obtaining legal advice. Rather, they were putting any legal advice into effect.6 Privilege cannot
attach to the copies in such circumstances.
6 Henry v Henry [2007] NQIB 67.
[29] The second limb is that privilege cannot attach to the copies because the communication was no longer between solicitor and client. Its purpose was instead to enable Mr Firmin to obtain legal advice. Again, this does not fall within the ambit of the s 54 privilege because the communication put the draft shareholder agreements in the public domain. Counsel relies on the following statement of the
New South Wales Supreme Court in Lakatoi v Walker:7
It seems to me that in principle the production of such a draft, even without notations, amendments and corrections, would properly 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]
[30] Both limbs of this first submission can be dealt with together. I consider the reliance on Henry and Lakatoi to be misguided and out of line with New Zealand law. 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 a claim of confidentiality. The submission confuses the waiver requirements under s 65 with the grounds for attracting privilege under s 54.
[31] The following statement by Lord Millet in B v Auckland District Law Society
is apposite:8
The documents are privileged because they were created for the purpose of giving or receiving legal advice...If they are produced voluntarily, the right to withhold the 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.
[32] I consider the second submission, that dissemination amounted to a waiver of privilege under s 65, to be more tenable.
7 Lakatoi v Walker [1999] NSWSC 156 at [15].
8 B v Auckland District Law Society [2003] UKPC 38 at [69].
[33] Waiver of privilege occurs in the circumstances set out in s 65. Materially, s
65(1) and (2) state:
65 Waiver
(1) A person who has a privilege conferred by any of sections 54 to 60 and
64 may waive that privilege either expressly or impliedly.
(2) A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.
[emphasis added]
[34] The submission assumes that dissemination to an opposing party in a negotiation always equates to disclosure to the world at large or the communication being placed in the public domain. If this is the case, privilege will undoubtedly have been waived.
[35] Yet, it is clear from the terms of s 65 that disclosure of a privileged document will not always have this result. The disclosure must be inconsistent with a claim of confidentiality before privilege will have been waived. Disclosure of a draft agreement to a third party in confidence for a limited purpose, if not inconsistent with a claim to confidentiality, will not amount to a general waiver of privilege
against the world.9 Whether or not the disclosure amounts to waiver in the particular
circumstances is necessarily fact dependent.
[36] I agree with counsel for Devon that disclosure in these circumstances was for a limited purpose: to enable Mr Firmin to obtain legal advice on the draft agreements. I find support for my conclusion in counsel for the plaintiffs’ concession that Devon intended to maintain confidentiality in the contents of the copies against everyone else but Mr Firmin and his solicitors. The waiver was therefore limited.
Devon still has privilege in the copies as against the plaintiffs.
9 At [68].
Result
[37] For the above reasons I am satisfied that I must uphold the claim to solicitor client privilege in the copies made by Devon and Mr Firmin.
[38] I make orders as follows:
(a) The plaintiffs’ challenge to privilege in respect of the copies of the
draft shareholder agreement of 3 and 14 May 2010 is disallowed. (b) Costs are reserved.
[39] I will hear from counsel on the issue of costs on 17 August 2011. The matter
is to be listed in the chambers list at 2:15pm on the day for the purpose.
Associate Judge Sargisson
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