Jackson v Bell Gully
[2021] NZHC 2173
•20 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1044
[2021] NZHC 2173
UNDER section 12 of the Receiverships Act 1993 and the inherent jurisdiction of the High Court BETWEEN
NEALE JACKSON and NATALIE GYTHA
BURRETT as receivers of PYNE HOLDINGS LIMITED (IN
RECEIVERSHIP)
ApplicantsAND
BELL GULLY
Respondent
AND
AUSTRALASIAN EQUITY PARTNERS (GP) NO. 1 LIMITED
First Interested Party
GEORGE CHARLES DESMOND KERR
Second Interested Party
Hearing: 30 July 2021 Counsel:
M D Arthur and N D Whittle for applicants No appearance for respondent (abiding)
G P Blanchard QC and S J Nicholson for interested parties
Judgment:
20 August 2021
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 20 August 2021 at 4pm, pursuant to r 11.5 of the High Court Rules
Solicitors:
Registrar/Deputy Registrar Date:
Chapman Tripp, Auckland for applicants Bell Gully, Auckland for respondent
Lowndes Jordan, Auckland for interested parties
JACKSON v BELL GULLY [2021] NZHC 2173 [20 August 2021]
Introduction [1]
The application [10]
Background facts [12]
The chronology of relevant events [18]
Bell Gully engagement and advice [21]
The formation and registration of the limited partnership, AEP [24]
The takeover offer [29]
Events after 30 March 2012 – the proposed second takeover offer [32]
The receivership enquiries [33]
Bell Gully’s involvement in the transactions and the documents in its possession [35] The disputed documents [38]
The applicable principles [41]
The Category 1 documents dated 14 October 2011 to 30 March 2012 [42]
Mr Kerr’s position [42]
Decision on the first category of documents [51]The Category 2 documents dated 31 March 2012 to 25 April 2012 [58]
The Category 3 documents dated 26 April 2012 and later [61]
Conclusions [71]
Orders [73]
Costs [74]
Introduction
[1] On 29 April 2021, the applicants Neale Jackson and Natalie Burrett (the receivers) were appointed by Bank of New Zealand (BNZ) as receivers of Pyne Holdings Limited (PHL), formerly called Pyne Family Holdings Limited.
[2] Bell Gully is a law firm which, in and after August 2011, advised and provided legal services to PHL in connection with a takeover offer for the shares in Pyne Gould Corporation (PGC), including about the establishment of a vehicle for the takeover: a limited partnership in which PHL would be a limited partner.
[3] Mr George Kerr is the sole shareholder and now the sole director of PHL. Australasian Equity Partners (GP) No. 1 Limited (AEPGP or the General Partner) is the general partner of the limited partnership that was formed, Australasian Equity Partners Fund No. 1 LP (AEP).
[4]On 15 June 2021, Walker J made orders and issued directions that:1
1 Jackson v Kerr [2021] NZHC 1413 at [61].
(a)Required Mr Kerr to deliver, by electronic or other means, to the receivers within seven days, all books, records, documents and information of PHL or under PHL’s control, being personal property of PHL over which the applicants have been appointed receivers.
(b)Required Mr Kerr to deliver, by electronic or other means, to the receivers within seven days, all books, records, documents and information in his possession or control relating to assets of PHL, and all books, records, documents and information in PHL’s possession or control, being personal property of PHL over which the receivers have been appointed receivers.
(c)The books, records, documents and information to be delivered include documents created before the date of receivership that are confidential and subject to legal professional privilege (including any joint or common interest privilege) in favour of PHL and were prepared to advise on, settle, or defend any claims made by BNZ including any privileged legal advice given to PHL in relation to the settlement communications with BNZ in 2019 and 2020.
(d)The receivers are not to disclose to BNZ without leave of this Court any documents that are confidential and legally privileged (or information in such documents which is confidential and legally privileged) if prepared for the purposes of advising on, settlement of, or defence of, any claims by BNZ for payment including any privileged legal advice given to PHL in relation to the settlement communications with BNZ in 2019 and 2020.
[5] Mr Kerr and the General Partner claim that certain documents and records held by Bell Gully that related to the legal services provided by the firm regarding the takeover were never the property of PHL which was not, at the relevant times, Bell Gully’s client. They say the documents and information are confidential to Mr Kerr and the General Partner and are protected from disclosure by legal professional privilege.
[6] The receivers maintain that PHL was a client of Bell Gully at all relevant times, and they apply for orders requiring Bell Gully to deliver the documents and information that the firm holds on PHL’s behalf.
[7] Bell Gully abides the decision of the Court, but the application is opposed by Mr Kerr and the General Partner.
[8] The Court has accorded urgency to this proceeding and, given the need for the parties to have the benefit of the Court’s decision as soon as possible, time does not permit the full discussion of the issues and the applicable principles that the matters in dispute would otherwise have warranted.
[9] The central questions are when, and for what purposes, PHL was a client of Bell Gully, and whether and, if so, when the firm ceased to act for PHL.
The application
[10] The proceeding is brought as an originating application under pt 19 of the High Court Rules 2016.2 The order sought by the receivers is for Bell Gully to immediately deliver to them, in electronic or hard copy, all documents and records Bell Gully holds on PHL’s behalf, including the documents referred to in a letter from Bell Gully to the applicants’ solicitors dated 25 May 2021 described below.
[11] The interested parties do not dispute PHL’s right to uplift documents from its former lawyers that were brought into existence when PHL was a client of Bell Gully.3 Nor do they dispute the right of the receivers to obtain PHL’s property, including legal advice provided to the company.4
Background facts
[12] There has been no cross-examination of deponents but the facts asserted by the receivers and upon which they rely are not disputed, except on the central issues.
2 High Court Rules 2016, r 19.4(b).
3 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 4.4.1.
4 Jackson v Kerr [2021] NZHC 1413 at [44].
[13] The receivers understand that, at the time of their appointment, PHL owed BNZ approximately $67.7 million, the debt arising from various facility agreements under which PHL was either the borrower or a guarantor. The relevant debts were secured by, among other things, a general security agreement granted by PHL in favour of BNZ in respect of all of PHL’s present and future assets.
[14] In his affirmation filed in support of the application, Mr Jackson summarised in a diagram (attached as annexure 1 to this judgment) the receivers’ understanding of the company group structure related to PHL that was current at the date of the receivers’ appointment. The information contained in the diagram is said to be based on a review of Companies Office records; publicly available reports for the relevant companies and correspondence between the receivers and relevant parties during the receivership.
[15] PGC is a Guernsey-registered company and is listed on the international stock exchange. Until late 2018, PGC had been a New Zealand-registered company that was listed on the New Zealand stock exchange. In mid-2011, PHL held approximately 13 per cent of PGC’s issued shares. Mr Kerr was sole shareholder and a director of PHL and also a director of PGC.5 PHL is a 100 per cent shareholder in the General Partner and Mr Kerr is its sole director.
[16] At the time of the receivers’ appointment, BNZ informed them that one of PHL’s main assets was a shareholding in PGC. BNZ told the receivers it understood the shares were held by PHL as at November 2008, when BNZ took security over all of PHL’s present and future personal property. BNZ also informed the receivers that it had reason to believe PHL still owned shares in PGC but was not able to confirm any details of the shareholding.
[17] Notwithstanding that PHL was obliged to contribute 80 per cent of AEP’s capital, a sum of $60 million, the receivers determined that, at the time of their appointment, PHL had an effective interest in only about 14 per cent of PGC shares. Mr Kerr informed the receivers that PHL had defaulted on is obligations under the
5 Mr Michael Tinkler was also a director of PHL at material times between mid-2011 and 30 March 2012 at least, though Mr Kerr alone executed all relevant documents on behalf of PHL.
limited partnership agreement and that other limited partners had joined the arrangement, but he has not disclosed any further information, claiming that he is not required to do so. He says also that Bell Gully must not disclose any further information from its files that the receivers seek, because PHL was not Bell Gully’s client at the time the firm obtained the information or created the documents and records.
The chronology of relevant events
[18] For the purposes only of considering this application, on the basis of the untested evidence currently before the Court, I find the following facts to be proved on a balance of probabilities. I include in the chronology the steps taken by Bell Gully in the administration of their files.
[19] In his affidavit filed in opposition to the receivers’ application, Mr Kerr explains that, in about April 2011, it came to his attention that Baker Street Capital LP (Baker Street), an investment corporation based in the United States, intended to build a shareholding stake in PGC. By August 2011, Baker Street had acquired 19.9 per cent of PGC’s shares.
[20] Mr Kerr says he was concerned about Baker Street’s intentions; he did not want them gaining control to the extent they could dictate or frustrate the PGC board’s future plans for the company. This led to a meeting in August 2011 at which Mr Kerr and Baker Street representatives discussed the possibility of joining together to make a takeover offer for PGC. Mr Kerr then approached Bell Gully for legal advice on how to structure a joint takeover bid.
Bell Gully engagement and advice
[21] On 23 August 2011, Bell Gully partner James Gibson sent Mr Kerr a letter of engagement. It reads, relevantly:
New Engagement – Project
Thank you for instructing Bell Gully to act for you and/or Pyne Family Holdings Limited in this matter.
1.Description of Legal Services
You have instructed us to provide legal advice in connection with the potential transaction in relation to Pyne Gould Corporation Limited (PGC), including advising on potential acquisition strategies, joint venture arrangements and preparation of any relevant documentation.
It may be that we are asked to act for your interests and any joint venture partner, if matters develop that way.
2.Person responsible
Gavin Macdonald and I will be the Partners who have overall responsibility for your work within Bell Gully. James Cooney, a corporate senior associate, will be assisting us as will other lawyers as appropriate.
….
By continuing to engage us on this or any other matter, you will be deemed to have accepted our Terms of Engagement, unless other arrangements are made between us.
[22] The terms of engagement referred to in the letter of 23 August 2011 include the following statements:
Our client on any particular matter will be the party identified as such in the engagement letter we send on the matter or as otherwise agreed (“you”).
….
Scope of our role
We will represent and advise you on all legal matters that properly fall within the scope of your instructions.
…
When your instructions on a matter are completed, our representation will end. We will advise you that the matter is completed and summarise what we have done since any previous report to you. We will only advise you further on issues arising from the matter (e.g., implementation and other dates, changes in relevant law or regulation or any post-transaction notifications) if you specifically engage us to do so.
[23] It is highly probable that Bell Gully had a meeting or otherwise obtained instructions from Mr Kerr, likely to have been on 21 August 2011, prior to sending him the letter of engagement on 23 August 2011. Bell Gully has disclosed to the receivers a nine-page memorandum of advice, also dated 23 August 2011, which begins as follows:
Project X – Potential transaction in relation to Pyne Gould Corporation Limited (PGC)
1.Background
· George Kerr and interests associated with him (GK) are interested in investing further in PGC, including through potentially making a takeover offer for PGC.
· The current shareholding structure of PGC is set out below …
[The memorandum contained a chart demonstrating what the lawyers believed was the then-current shareholding structure of PGC showing Pyne Family Holdings Limited owning 14 per cent of the shares, Baker Street holding 19.9 per cent of the shares and public shareholding of 66 per cent.]
· After Baker Street acquired its stake in PGC, GK made contact with Baker Street to ascertain its intentions in relation to PGC.
· From that discussion GK considers that there may be merit in his interests and Baker Street making a joint bid for PGC, under a structure to be determined.
The formation and registration of the limited partnership, AEP
[24] On 3 October 2011, Bell Gully wrote to the Takeovers Panel in connection with a question it had raised about Mr Kerr’s prior association with Baker Street. The lawyers said they were “acting for George Kerr and his affiliated entities”. Given that the related entities most closely associated with the proposed takeover offer at that stage included PHL, there can be no doubt that Bell Gully was acting for PHL at that time.
[25] On 7 October 2011, AEP was registered on the Limited Partnerships Register; PHL and Baker Street were expected to be the limited partners. Between 9 and 11 October 2011, the following relevant documents were executed:
(a)AEP, the General Partner, PHL and Baker Street entered into a costs- sharing agreement relating to the takeover of PGC. PHL agreed to pay 80 per cent of the “Relevant Costs” of the takeover bid and Baker Street 20 per cent. The “Relevant Costs” were defined as:
(i)all cost and expenses incurred by AEP under the limited partnership agreement;
(ii)all cost and expenses reasonably incurred by any of the parties to the costs-sharing agreement in the creation of the operational structure of AEP, the establishment and registration of AEP (including negotiating and finalising the limited partnership agreement) and in connection with the full takeover offer (including any costs incurred in relation to any dealings with any regulator or payable by AEP under r 49(2) of the Takeovers Code);
in each case, only to the extent incurred prior to the offer being declared unconditional in accordance with its terms.
(b)PHL signed a lock-up agreement with AEP under which it agreed to sell AEP its 28,594,252 ordinary shares in PGC for 33 cents per share, a total purchase price of $9,436,103.16, within 30 days of AEP’s full takeover offer for PGC.
(c)AEP issued a substantial security holder notice in respect of PGC, on the basis that it had the power to acquire all of PHL’s shares in PGC under a pre-bid lock-up agreement dated 10 October 2011 between PHL and AEP.
(d)The General Partner, PHL and Baker Street signed the limited partnership agreement with AEP under which PHL was obliged to contribute $60 million in capital to the limited partnership, being an 80 per cent contribution. Baker Street was required to contribute
$15 million in capital or 20 per cent.
[26] The partnership agreement provided that the capital contributions were required to be made upon the issue of a drawdown notice given by the General Partner from time to time to ensure that AEP was able to satisfy its payment obligations
regarding the takeover offer. Those obligations included all fees, costs and expenses of AEP, PHL, Baker Street and the General Partner in connection with the establishment and documentation of the limited partnership and its activity in relation to the takeover offer, including legal fees and expenses, whether incurred prior to or after the establishment of AEP. The agreement also provided for termination and liquidation of the partnership, subject to certain provisions – including provisions imposing obligations on PHL – that were intended to survive the termination if necessary.
[27] On 13 October 2011, Bell Gully changed the name of the debtor on its file from PHL and Mr Kerr to AEP. This change was consistent with the arrangements under the limited partnership agreement, but PHL and Baker Street remained ultimately responsible for meeting Bell Gully’s fees in accordance with their capital contributions and the costs-sharing agreement.
[28] Notably, Mr Kerr signed all relevant documents in his various capacities as a director of PHL, the General Partner and AEP.
The takeover offer
[29] AEP’s takeover offer for PGC was issued on 3 November 2011. On 4 November 2011, PHL accepted the offer in accordance with its lock-up agreement with AEP and issued a notice to the New Zealand stock exchange and PGC disclosing a change in the nature of its interest as a substantial security holder in PGC. The notice was signed by Mr Kerr as director; it gave Belly Gully’s address as PHL’s “contact details” and listed James Gibson and James Cooney as PHL’s contacts for any queries.
[30] On 17 November 2011, AEP increased the takeover offer from 33 cents to 37 cents per share and extended the closing date from 2 December 2011 to 9 December 2011. The amount payable to PHL under the lock-up agreement of 10 October 2011 increased correspondingly.
[31] On 14 February 2012, AEP announced that its offer was unconditional and that it had received acceptances for 65 per cent of PGC’s shares. AEP’s offer closed on
30 March 2012, with the limited partnership holding or controlling 76.3 per cent of the shares.
Events after 30 March 2012 – the proposed second takeover offer
[32] It appears from a letter dated 25 May 2021 from Bell Gully to the receivers’ solicitors that Bell Gully holds a few documents dated after 30 March 2012, which concerned a proposed second takeover offer by AEP. Bell Gully also informed the receivers that the firm had identified a further matter, concerning the proposed second takeover offer, on which they opened a file on or around 26 April 2012 in the name of PHL and/or Mr Kerr. No documents or other information about those matters have been disclosed pending the Court’s decision. How Belly Gully treated the opening of files related to the second takeover offer is discussed more fully below.
The receivership enquiries
[33] As at the date of the receivers’ appointment, AEP’s shares in PGC were held by Lynchwood Nominees Limited as custodian. The receivers say that PGC’s annual reports and consolidated financial statements published in recent years have shown a fluctuating percentage of AEP’s shareholding in PGC, ranging from 80.16 per cent of shares in PGC as at 30 June 2019, to 65.71 per cent of shares in PGC as at 30 June 2020, to 65.74 per cent of PGC’s shares as at 31 December 2020.
[34] In May 2021, Mr Kerr’s solicitors informed the receivers that the 28,594,252 PGC shares held by Lynchwood as custodian for AEP were being distributed to PHL on an in specie basis and were in the process of being registered in the name of PHL. The receivers calculate that the shareholding amounts to a 14.13 per cent shareholding in PGC but, at the time of filing his affirmation with the Court, Mr Jackson had not received share certificates confirming PHL’s ownership of the shares.
Bell Gully’s involvement in the transactions and the documents in its possession
[35] The substantial security holder notice issued by PHL on 4 November 2011 established for the receivers that Bell Gully (specifically, James Gibson and James Cooney) were acting for PHL on the AEP takeover of PGC in November 2011. On
5 May 2021, Mr Jackson emailed Mr Gibson asking for a copy of the files held by the firm relating to its work for PHL. Bell Gully responded on 7 May 2021 saying that it was “not clear at our end that the one relevant file is solely PHL’s as there is cross over with AEP and George Kerr”. At that stage, the receivers’ solicitors, Chapman Tripp, took over the correspondence with Bell Gully on the matter.
[36] Bell Gully informed the receivers on 20 May 2021 that Mr Kerr and his advisers had asserted that either Mr Kerr or AEP were entitled to assert privilege and/or confidentiality in respect of some or all of the documents the receivers sought. Following a review of the file, however, Bell Gully had concluded that PHL was “entitled to receive a copy of all client material on the file”. The context Bell Gully described to the receivers included, among other things, that the relevant file was opened in the name of George Kerr and/or Pyne Family Holdings Limited (as PHL was then known).
[37] On 24 May 2021, Bell Gully provided the receivers with documents related to the first takeover dated between 21 August 2011, when Bell Gully first received instructions from Mr Kerr, and 13 October 2011, when Bell Gully changed the name of the debtor on its file from PHL and Mr Kerr to AEP. Mr Kerr and AEP accept that PHL was Bell Gully’s client during that initial period and that PHL’s receivers were entitled to see the documents.
The disputed documents
[38] The disputed documents in respect of which Mr Kerr and AEP assert privilege are those dated on or after 14 October 2011. They fall into three categories:
(a) Category 1: Documents related to AEP’s first takeover offer that were mostly but not exclusively documents dated between 14 October 2011 and 30 March 2012 when the takeover offer closed. These are documents created following the establishment of AEP and the change of debtor by Bell Gully. They relate to the making of the takeover offer; the disclosure of the lock-up agreement between PHL and AEP; the increase of the takeover offer from 33 cents to 37 cents per share and the closure of the first takeover offer. Bell Gully acknowledges that
AEP was a client in respect of this work, but the firm also considers that the work was undertaken pursuant to a joint instruction from Mr Kerr and PHL and that PHL remained a client throughout that period.
(b) Category 2: Documents related to the proposed second takeover offer dated between 31 March 2012 and 25 April 2012. Bell Gully opened the file concerning the proposed second takeover offer in the name of PHL and/or Mr Kerr, relying on the original engagement letter of 23 August 2011. Bell Gully has informed the receivers, however, that the second takeover offer was ultimately dealt with by the firm “under new matters opened under a new letter of engagement addressed solely to AEP.” Bell Gully considers that there is a stronger argument that this work was conducted solely for AEP, notwithstanding that the work was conducted under the original letter of engagement.
(c) Category 3: Bell Gully has identified a further matter opened on or about 26 April 2012 in the name of PHL and/or Mr Kerr. The firm says this also related to the proposed second takeover offer and it regards the documents as being likely to have the same status as the documents in Category 2.
[39] The views of the Bell Gully partners responsible for carrying out the instructions received from PHL, Mr Kerr, the General Partner and AEP from time to time are material to the decision about when, if ever, Bell Gully ceased to act for PHL in connection with the relevant transactions. Mr Kerr’s assertions about his intentions and when Bell Gully began to act solely for AEP are also relevant. Mr Kerr and the General Partner assert that Bell Gully ceased to act for PHL from 14 October 2011, after AEP was established, and that Belly Gully should have provided a new letter of engagement addressed solely to AEP when it changed the name of the firm’s debtor. They say Bell Gully acted exclusively for AEP on all matters dealt with from that date, whether related to the first takeover offer or the second proposed takeover offer and notwithstanding how the firm recorded the client name in its internal records.
[40] The subjective views of Mr Kerr and Bell Gully, however, are not determinative.
The applicable principles
[41] I have had the benefit of helpful submissions from counsel on the legal principles to be applied in considering the central questions. I mean no disservice to the quality of their respective arguments by stating the principles I have applied without discussing them:
(a)The person who asserts the existence of a contract of retainer between solicitor and client bears the onus of establishing both the existence and the terms of the contract.
(b)It is common ground that, although rr 3.4 and 3.5 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the client care rules) require solicitors to provide certain information in writing to clients in advance of legal services, the terms of a solicitor’s retainer can be written or oral, express or implied. Rule 1.2 of the client care rules provides:
retainer means an agreement under which a lawyer undertakes to provide or does provide legal services to a client, whether that agreement is express or implied, whether recorded in writing or not, and whether payment is to be made by the client or not.
(c)The relationship is normally started by a retainer, but the retainer will be presumed if the conduct of the two parties shows that the relationship of solicitor and client has in fact been established between them.6
(d)The existence of an implied retainer rests on the proof of facts and circumstances sufficient to establish tacit agreement to provide legal services, determined by inference from the objective facts and not merely from a lawyer’s belief as to whom he or she was acting.
6 Groom v Crocker [1939] 1 KB 194 at 211, applied in Bartle v GE Custodians [2010] 1 NZLR 802 (HC) at [130].
(e)Relevant factors that may impact upon a client’s reasonable expectation of retainer include the capacity in which the lawyer acted; who instructed the lawyer; who is liable for the lawyer’s charges; and whether a contractual relationship existed in the past.
(f)It is not unusual, however, for a person to engage a solicitor on the basis that the fees are paid by someone else and instructions are commonly given by more than one party.
(g)The arrangement between the parties about who should pay for the work may be of limited significance in answering the questions of for whom the work is done and to whom the professional duties are owed.7
(h)The terms of a retainer may be varied by express or implied agreement, either by words or conduct. In the present case, Bell Gully’s standard terms permitted the client to unilaterally change the scope of the instructions at any time.
(i)Matters evolve during the course of a retainer and it is not uncommon for the identity of the client to change, particularly when the clients in respect of any transaction are related parties. Best practice suggests that any change should be recorded but, even in the absence of a recorded change, a court is required to undertake a factual enquiry to determine the true position at the material time.8
(j)Similarly, the question of whether there is a joint retainer with two or more parties is essentially a question of fact and what originally began as a joint retainer may become a retainer between the solicitor and one client only.9
7 Pegrum v Fatharly (1996) 14 WAR 92 at 105, relying on Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 and 396 and Morgan v Blyth [1891] 1 Ch 337 at 359.
8 R (on the application of Ford) v Financial Services Authority [2011] EWHC 2583 (Admin) at [39].
9 See Love v Fawcett [2011] EWHC 1686 (Ch) where the court found there was no joint retainer, even though the party claiming to be a client had previously been a client and had an interest in the relevant matter.
(k)Although Bell Gully’s standard terms provided that Bell Gully would report to the client upon termination of the retainer, solicitor/client relationships commonly come to an end naturally once the work is complete and no particular form of communication is required to terminate the relationship. It is not necessary for there to be a formal offer and acceptance to conclude that there was an agreement to bring a retainer to an end. As with the formation of the contractual arrangement, whether and when it has come to an end is one of intention objectively manifested by the parties.10
The Category 1 documents dated 14 October 2011 to 30 March 2012
Mr Kerr’s position
[42] Mr Kerr refers to the terms of Bell Gully’s engagement letter recording that the instructions were “to provide legal advice in connection with the potential transaction”, particularly to give advice on the vehicle and structure to use for a takeover offer. He said the reason PHL was recorded in the engagement letter was because he had anticipated that PHL might be used as the takeover vehicle. He said, however, that the advice he received from Bell Gully dated 23 and 28 August 2011 was that they should use a limited partnership rather than PHL, and that he accepted that advice.
[43] Mr Kerr acknowledges that Bell Gully was acting for PHL and the other entities when:
(a)AEPGP was incorporated as a registered New Zealand company on 5 October 2011;
(b)AEP was registered as a limited partnership under the Limited Partnerships Act 2008 on 7 October 2011;
(c)the limited partnership agreement was executed on 10 October 2011; and
10 Tecnicas Reunidas SA v Andrew [2018] NSWCA 192 at [52].
(d)PHL executed the lock-up agreement on 10 October 2011.
[44] Mr Kerr says that, at that point, Bell Gully’s initial instruction was completed. The firm had provided advice on the appropriate takeover vehicle and prepared the documentation for the limited partnership. Mr Kerr says that once the takeover vehicle was established and PHL had committed itself to contributing capital, all of Bell Gully’s work was carried out for the limited partnership, AEP. Although it is acknowledged that PHL took further steps as part of the takeover,11 Mr Blanchard QC argues that these were only administrative steps implementing arrangements that had already been concluded by 13 October 2011. Mr Kerr and AEP say all advice given by Bell Gully and all documents created thereafter belong to AEP and that PHL’s receivers have no valid claim to them.
[45] Mr Kerr says Bell Gully’s work for PHL “came to a natural conclusion on 10 October 2011 when PHL was dropped as the takeover vehicle”. He says that the limited partnership was a substantively different entity from PHL. PHL was part of his group of companies but AEP was a joint venture entity owned by Baker Street and, later, others. He notes that:
(a)no invoices were rendered by Bell Gully to PHL for any of the work related to the establishment of the limited partnership and the takeover; and
(b)Bell Gully had confirmed that, after 13 October 2011, there was no evidence of any instructions having been given by either Mr Kerr or Mr Tinkler specifically on behalf of PHL.
[46] Although there was no express termination of the retainer addressed to PHL on 23 August 2011, Mr Kerr says that the reality was that any work for PHL ceased on 10 October 2011. He claims that the documents on Bell Gully’s files that have not been disclosed to the receivers are strictly confidential and they include confidential communications with Baker Street’s New Zealand solicitors, Chapman Tripp. He
11 Such as issuing a substantial security holder notice, entering the lock-up agreement with AEP and transferring its PGC shares to AEP.
refers to the strict confidentiality obligations imposed on the limited partners and AEP by cl 15.2 of the limited partnership agreement, noting that the number of limited partners extended beyond PHL and Baker Street. He says he wishes “to preserve to the fullest extent possible” the confidentiality and legal professional privilege in the documents belonging to AEP.
[47] Mr Blanchard argues that the documents that are subject to legal professional privilege and confidentiality obligations that only AEP can waive include all takeover documents created between 14 October 2011 and 30 March 2012 when the first takeover offer closed, and all documents related to the proposed second takeover offer that were created after 30 March 2012.
[48] In support of the position taken by Mr Kerr and AEP, Mr Blanchard notes that there was no written retainer recording AEP as a client of Bell Gully in relation to the first takeover offer. Consequently, the Court must infer the terms of that retainer. Counsel submits it is clear from all the circumstances that AEP must have been a client of Bell Gully from the time it was established and that, thereafter, it was the sole client for all of the work on the takeover. He submits that that is because, among other reasons, AEP gave all of the instructions to Bell Gully, was rendered all of the invoices by Bell Gully and paid the firm on those invoices. He argues that upon the establishment of AEP, it was no longer necessary or desirable for PHL to be a client and emphasises the significance of Bell Gully’s changing the name of the debtor associated with the file from “PHL and Mr Kerr” to “AEP” to coincide with AEP’s establishment.
The receivers’ position
[49] For the receivers, Mr Arthur argues that the initial advice provided by Bell Gully, as recorded in the letter of engagement of 23 August 2011, was clearly directed to Mr Kerr and PHL. He says that under the description of legal services, Bell Gully noted that the instructions included not only advising on potential acquisition strategies, but also the preparation of any relevant documentation. Counsel emphasises also that Bell Gully signalled the possibility that the firm would be asked
to act for Mr Kerr’s interests and any joint venture partner, if matters developed that way.
[50] Mr Arthur notes also that Bell Gully’s terms of engagement declared that representation of Mr Kerr and PHL would end when their instructions on a matter were completed and that Bell Gully undertook to advise Mr Kerr that the matter was completed and summarise what the firm had done since any previous report to him. Bell Gully has confirmed to the receivers that it has not identified any written record of its engagement with PHL being terminated or any clear contemporaneous evidence of PHL’s engagement of Bell Gully. The firm has also told the receivers that it has not been able to identify:
· any explicit amendment of its terms of engagement;
· confirmation that Bell Gully’s client was no longer PHL;
· written confirmation that its engagement with PHL was complete on 13 October 2011;
· any express limitation that the firm’s representation of PHL was limited to the period up until the takeover was announced;
· any other solicitor acting for PHL after 13 October 2011;
· any advice to the Takeovers Panel that Bell Gully had ceased to act for PHL;
· any explicit discharge of Bell Gully from its engagement by PHL;
· any express discussion of PHL’s liability to Bell Gully for its fees.
Decision on the first category of documents
[51] Applying the applicable principles to the established facts, I am satisfied PHL continued to be a client of Bell Gully during the first takeover up to and including the time when the takeover offer closed on 30 March 2012.
[52] I do not accept Mr Blanchard’s proposition that PHL’s involvement in the takeover amounted purely to the administration of the steps that had been predicated by the arrangements made up to 13 October 2011. The documents Mr Kerr executed on behalf of PHL after 14 October 2011 must have been prepared by Bell Gully on Mr Kerr’s instructions as PHL’s director, and PHL would have required advice and to have legal work undertaken, separately from any advice given to Baker Street, the General Partner and AEP, in connection with its agreement to sell its shares to AEP, the issuing of public notices, and the transfer of its shares to AEP.
[53] I note, moreover, that PHL would undoubtedly have required advice if, as Mr Kerr has said, it defaulted on its obligations under the limited partnership agreement to provide $60 million in capital to support AEP’s bid. It is not clear when such default occurred and Mr Kerr has provided no evidence that PHL sought advice on that matter from any firm other than Bell Gully. He has not provided any evidence either about advice that I infer PHL must have been given about the implications of other limited partners joining AEP and who undertook the necessary legal work on PHL’s behalf in respect of the default and the admission of new partners.
[54] Although Bell Gully changed the name of the debtor in its records on 13 October 2011 and billed only AEP for the work done in connection with the first takeover offer, that was consistent with the establishment of AEP as the takeover vehicle. PHL, however, retained ultimate liability for the payment of 80 per cent of Bell Gully’s fees by virtue of the costs-sharing agreement and the provisions of the limited liability partnership agreement. That agreement required PHL to provide 80 per cent of the capital of AEP in order to fund the acquisition of shares pursuant to the takeover offer, and to meet the associated costs and expenses.
[55] PHL maintained a continuing interest and engagement in the takeover process, not merely as an investor in AEP but as a liable party in the steps taken to implement
the takeover and acquire shares from the acceptors. The steps in respect of which I infer Bell Gully advised and acted for PHL include:
(a)PHL’s acceptance of AEP’s offer on 4 November 2011, in accordance with the lock-up agreement;
(b)PHL issuing a notice to the New Zealand stock exchange and PGC disclosing a change in the nature of its interest as a substantial security holder in PGC. I note that Mr Kerr signed the notice as sole director and gave Bell Gully’s address as PHL’s contact.
(c)AEP’s increased takeover offer of 37 cents per share on 17 November 2011, and the extension of the closing date to 9 December 2011. PHL’s liability under the lock-up agreement increased correspondingly.
[56] Given the active steps required to be taken by PHL during the takeover process, it would be wholly artificial to hold that when Mr Kerr executed the necessary documents on PHL’s behalf, he was in fact acting solely for AEP and that Bell Gully’s advice and other legal services in respect of those aspects of the transaction were conducted on behalf of AEP solely and not PHL also.
[57] I find, therefore, that the absence of evidence of any express termination by Bell Gully or by PHL of the solicitor/client relationship at the time of the formation of AEP and thereafter is entirely consistent with the reality. From 14 October 2011 to the closure of the first takeover offer on 30 March 2012, Bell Gully continued to act for Mr Kerr, PHL and AEP consistently with the terms of the original engagement letter.
The Category 2 documents dated 31 March 2012 to 25 April 2012
[58] Bell Gully says it holds documents dated after 30 March 2012 that concerned a proposed second takeover offer. The firm says that “offer was ultimately progressed under new matters opened under a new letter of engagement addressed solely to AEP”.
[59] No further information is available to the receivers and, therefore, to the Court about when the instructions were received by Bell Gully after 30 March 2012 and from whom, nor about the nature of the instructions. In the absence of evidence that PHL’s obligations to AEP under the limited partnership agreement altered after the closure of the first takeover offer, it is reasonable to infer that PHL’s obligations under the agreement to contribute capital and to ensure that AEP met its obligations in respect of any second takeover offer remained the same as those in respect of the first offer. It is indicative of that position, though not determinative, that Bell Gully:
(a)opened the file concerning the proposed second takeover in the name of PHL and/or Mr Kerr in reliance on the original engagement letter; and
(b)did not prepare a new engagement letter at that time.
[60] The original engagement letter of 23 August 2011 described the legal services to be provided by Bell Gully to Mr Kerr and PHL as:
… legal advice in connection with the potential transaction in relation to Pyne Gould Corporation Limited (PGC), including advising on potential acquisition strategies, joint venture arrangements and preparation of any relevant documentation.
In the absence of any express termination of the original engagement, those terms are apt to cover the provision of services related to a second or follow-on takeover offer.
The Category 3 documents dated 26 April 2012 and later
[61] Bell Gully says it has “identified a further matter opened on or around 26 April 2012, in the name of PHL and/or Mr Kerr. This concerned the proposed second takeover offer.” Bell Gully did not prepare a draft engagement letter in the name of AEP until 15 August 2012. The letter sent by Mr Gibson was addressed to Mr Kerr and began as follows:
George Kerr
Australasian Equity Partners Fund No. 1 LP C/- Deloitte
80 Queen Street
Auckland, 1010 Dear George
New Engagement – Follow-on offer and other structures
Thank you for instructing Bell Gully to act for Australasian Equity Partners Fund No. 1 LP (AEP) in this matter.
1.Description of Legal Services
You have instructed us to act for AEP in relation to a potential follow- on takeover offer to acquire the remaining shares in Pyne Gould Corporation Limited (“PGC”) that it does not already own (the “follow-on offer”) and certain other structuring issues involving AEP.
Please contact us as soon as possible if you consider this outline is not accurate.
2.Person responsible
I will be the Partner who has overall responsibility for your work within Bell Gully. Your main contact will however be James Cooney.
….
[62] There is no evidence that the draft was turned into a completed document and it appears to be common ground that a final engagement letter, signed by Mr Gibson, was completed on 31 October 2012 addressed to the General Partner for Mr Kerr’s attention, but reading as follows:
Dear George
New Engagement – Project Dodd
Thank you for instructing Bell Gully to act for Australasian Equity Partners Fund No. 1 LP (AEP) in this matter.
1.Description of Legal Services
You have instructed us to act for AEP in relation to a potential follow-on takeover offer to acquire the remaining shares in Pyne Gould Corporation Limited that AEP does not already own. This will involve:
· assisting you to prepare a takeover offer and associated documents;
· dealing with the LP Agreements and Baker Street as an LP;
· assisting with any financing facilities AEP enters into;
· dealing with any necessary exemptions under the Takeover Code and any other interactions with the Takeovers Panel; and
· other relevant attendances and advice.
Please contact us as soon as possible if you consider this outline is not accurate.
2.Person responsible
I will be the Partner who has overall responsibility for your work within Bell Gully. Your main contact will however be James Cooney.
….
[63] Mr Blanchard submits that Bell Gully should have issued the new letter of engagement, addressed to AEP only, when it first opened the files after 30 March 2012 relating to the proposed second takeover offer. He submits that the draft provided on 15 August 2012 and the final engagement letter completed on 31 October 2012 were merely administrative steps taken to recognise what had previously been the arrangement and to cure Bell Gully’s failure to put the terms of engagement in place at a much earlier stage.
[64] It is a reasonable inference that such work as Bell Gully may have done on the proposed second takeover offer, including the provision of advice and the preparation of any documents, must have occurred much earlier than 31 October 2012. It would not be reasonable, however, in the absence of evidence that is entirely within the current control of Mr Kerr and AEP, to speculate on the nature of the legal services that might have been provided and whether PHL’s interests in the matter, if any, required it to receive advice and take any steps.
[65] It was open to Mr Kerr and AEP to provide the Court with more information, describing the general nature of the documents and information in Bell Gully’s files that were created after 30 March 2012, but they elected not to do so. The Court was not invited to inspect the files to assist it in reaching a reach a view about whether PHL remained a client after the closure of the first takeover offer.
[66] I have considered whether the reference, in the 15 August 2012 draft and the 31 October 2012 letter, to Bell Gully acting for AEP (rather than PHL and/or Mr Kerr) leads to an inference that Bell Gully was no longer acting for PHL at those times. And I have not overlooked the reference in the more specific description of the legal services in the 31 October 2012 letter as including “dealing with the LP Agreements and Baker Street as an LP” and the absence of any reference to PHL. But I am not persuaded that those features tip the balance of proof in favour of the proposition that PHL was not then a Bell Gully client.
[67] First, the intended services involved completing a partial takeover in respect of which Bell Gully had acted for PHL, using the same vehicle in which PHL was a limited partner, albeit one that is likely to have been in default. The cryptic reference to “dealing with Baker Street as an LP” could mean any number of things including that Baker Street had become disaffected by PHL’s default in the first takeover bid.
[68] Second, the interested parties have presented no evidence of any change in the corporate arrangements whereby Mr Kerr personally has effective control over PHL, the General Partner and AEP. In those circumstances, I infer that PHL was as engaged in the second takeover offer proposal as it had been in the first, and that it remained Bell Gully’s client.
[69] Third, Bell Gully replaced AEP as the debtor in its files in October 2011, even though it was still carrying out legal work for PHL and PHL remained ultimately responsible for the payment of Bell Gully’s fees. The reference in the engagement letter to Bell Gully providing services to AEP does not preclude the conclusion that it was also acting for PHL.
[70] Relying on the principle that it is for the interested parties to establish on a balance of probabilities their entitlement to instruct Bell Gully to withhold the documents in Categories 2 and 3 from the receivers, I find that they have not met the required threshold of proof.
Conclusions
[71]In summary, therefore:
(a)I am satisfied that the documents in Category 1 are clearly documents in respect of which Bell Gully was continuing to act for PHL as well as for the General Partner and AEP, and that they should be disclosed to the receivers.
(b)In the absence of evidence that PHL’s position vis-à-vis its obligations under the limited partnership agreement had altered significantly after 30 March 2012, so that it was in a different position from that which it held up to and including the closure of the first takeover offer, I am not satisfied to the required standard that Bell Gully ceased to act for PHL when instructed regarding the proposed second takeover offer.
[72] I do not know when Bell Gully ceased to act for PHL. I find, however, it was probably not before the firm ceased to provide legal services to Mr Kerr and his associated interests regarding the proposed or any actual follow-on takeover offer for the shares in PGC that AEP did not own on 30 March 2012. The receivers are entitled to the documents in Categories 2 and 3.
Orders
[73]For the reasons given:
(a)I declare that Pyne Holdings Limited (in receivership) was a client of Bell Gully from 21 August 2011 until the firm ceased to provide legal services to Mr Kerr and his associated interests regarding the proposed or any actual follow-on takeover offer for the shares in Pyne Gould Corporation that AEP did not own on 30 March 2012.
(b)I order that Bell Gully, as the former solicitors of PHL, shall immediately deliver to Neale Jackson and Natalie Gytha Burret, as receivers of PHL, in electronic or hard copy, all documents and records Bell Gully holds on PHL’s behalf, including the documents referred to in [2](b)–(c) in Bell Gully’s letter to the receivers dated 25 May 2021, namely:
(i)documents relating to the first takeover offer by Australasian Equity Partners Fund No. 1 LP, being mostly but not exclusively dated between 14 October 2011 and 30 March 2012; and
(ii)documents dated after 30 March 2012 that concerned a proposed second takeover offer; and
(iii)documents that concerned a further matter opened on or around 26 April 2012 in the name of PHL and/or Mr George Kerr.
Costs
[74] The receivers, having been the successful party in this proceeding, are entitled to costs. The parties are encouraged to agree on costs in accordance with categorisation of the proceeding as category 2B for costs purposes.
[75] If costs cannot be agreed, the receivers shall have until 10 September to file and serve a memorandum seeking costs. The interested parties shall have 15 working days from service of the receivers’ memorandum to file and serve a memorandum in response. The receivers may file a brief reply memorandum only by leave of the Court. Costs shall be determined on the papers unless the Court directs otherwise.
Toogood J
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