Katoria Trustee Limited v Toon
[2022] NZHC 3037
•22 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-000697
[2022] NZHC 3037
UNDER the Companies Act 1993 BETWEEN
KATORIA TRUSTEE LIMITED (as trustee of the CA QUINN TRUST)
Applicant
AND
VICTORIA TOON
First Respondent
BRUCE JAMES THOMPSON
Second RespondentCAROLINE MARY THOMPSON and STEWARTCO TRUSTEE SERVICES
LIMITED as trustees of the CM Thompson Trust
Third Respondent
PAMELA ISABEL QUINN
Fourth Respondent
Hearing: 18 October 2022 Appearances:
S P Bryers for the Applicant
J Alexander for the First Respondent
Judgment:
22 November 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 22 November 2022 at 12.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
KATORIA TRUSTEE LTD v TOON [2022] NZHC 3037 [22 November 2022]
Introduction
[1] The applicant applies for an order for inspection of legal advice the first respondent, Victoria Toon (the Liquidator), obtained in her role as liquidator of Investacorp Holdings Limited (in liquidation). Alternatively, the applicant applies for a direction requiring the Liquidator to provide a copy of the legal advice. It says it wants to see the advice to determine whether to make a claim against the author for providing erroneous legal advice resulting in loss to Investacorp and its shareholders.
[2] The Liquidator opposes the application. She says that there is no good reason for the applicant to inspect the legal advice, and furthermore it is protected by legal advice privilege.
[3]The application raises three main issues:
(a)Who owns the privilege in the legal advice?
(b)Has the privilege been waived?
(c)Does the applicant have a good reason for inspecting the advice?
[4] As a preliminary point, I record that the application was originally brought by Clive Anthony Quinn and Philip Samson Wells as trustees of the CA Quinn Trust (a shareholder of Investacorp associated with Mr Quinn and his wife, Pamela Quinn). Mr Quinn and Mr Wells have subsequently resigned as trustees and have been replaced by Katoria Trustee Limited (Katoria) as trustee. The directors of that company are Mr and Mrs Quinn. An order is sought pursuant to r 4.52 of the High Court Rules 2016 substituting Katoria as applicant for Messrs Quinn and Wells. The Liquidator does not oppose that application provided Mr Quinn confirms he is still liable for costs. Mr and Mrs Quinn agree to ensure that Katoria pays any costs award made against it. On that basis, I order that Katoria Trustee Limited is substituted as applicant in this proceeding.
Background
[5] The background to this application is found in the judgment of the Court of Appeal concerning an application under ss 286 and 284 of the Companies Act 1993 for a declaration that the Liquidator breached her professional duties to Investacorp; and the Liquidator’s application for approval of her remuneration under ss 276(2) and 284(1)(e) of the Companies Act.1
[6] The proceedings arose out of the liquidation of Investacorp. At the time of the liquidation, the shareholders in Investacorp were three siblings (Pamela Quinn, Bruce Thompson and Elizabeth Bakker), Clive Quinn, and interests associated with Mr Thompson and Mr and Mrs Quinn.2
[7] There was considerable longstanding acrimony between Mr and Mrs Quinn and Mr Thompson (including in relation to directors’ fees charged by Mr and Mrs Quinn).3
[8] In 2016, Mr Thompson initiated proceedings under s 174 of the Companies Act.4 In May 2017, a settlement was reached to which the directors and shareholders were parties but Investacorp was not.5 Investacorp was placed in liquidation and the Liquidator was appointed.6
[9] Acting on legal advice, the Liquidator investigated the possibility of recovering the allegedly excessive fees charged by Mr and Mrs Quinn to Investacorp.7
[10] In August 2018, the trustees of the CA Quinn Trust (Quinn Trust) applied under ss 286 and 284 of the Companies Act for a declaration that the Liquidator had breached her professional duties to the company and directions that she cease investigating the matters raised by Mr Thompson and complete the liquidation.8
1 Toon v Quinn [2021] NZCA 696 [CA Judgment].
2 CA Judgment at [1].
3 At [13].
4 At [18].
5 At [19].
6 At [20]–[21].
7 At [33].
8 At [44].
[11] In December 2018, the Liquidator decided it would not be cost effective to commence proceedings against the Quinns.9 In March 2019, having distributed most of the company’s assets, the Liquidator applied for approval of her fees. The hearing took place in September 2019.
[12] The High Court determined both applications together. The Court held that the Liquidator had breached her duties to collect and distribute the company’s assets reasonably and efficiently.10 Specifically, Associate Judge Bell held that the Liquidator’s decision to pursue her investigation of the fees charged by the Quinns was a “wrong turn” and led to the liquidation costs being higher than they ought to have been.11 He made the directions sought by the Quinn Trust for the Liquidator to complete the liquidation.12 In relation to the Liquidator’s application, the Associate Judge concluded, given his earlier finding, that her fees ought to be lower than what she had applied for.13
[13] The Liquidator appealed this Court’s decision. The Court of Appeal allowed the appeal, finding that the Judge erred in engaging in a lengthy legal analysis of whether the May 2017 settlement agreement precluded any claim against the Quinns in relation to the fees they had been charging the company.14 The Court of Appeal found that the Judge was “not required to determine the correct legal position, but, rather, to make an evaluative judgment as to what remuneration was reasonable in the context of the liquidation”. To do that, “[the Court] had to decide whether the steps Ms Toon took were those that a reasonably competent liquidator would have taken”.15 Both experts had given evidence that it was reasonable to get legal advice. The Liquidator did this and relied on the advice to proceed.16 The Liquidator had given evidence that her lawyer had advised her that the settlement agreement was not binding on the company, with the result that she was entitled to proceed further.17
9 CA Judgment at [3].
10 Quinn v Toon [2020] NZHC 816 at [147].
11 At [125].
12 At [148]–[149].
13 At [146].
14 CA Judgment at [76].
15 At [77].
16 At [80].
17 At [50].
[14]The Court concluded:18
…Ms Toon sought specific advice from her own lawyer, at the outset of the liquidation, about whether she should investigate a potential claim on behalf of the company. The expert evidence was that it was reasonable for her to have done so. It must also, therefore, have been reasonable for her to have acted on the advice that she received. In these circumstances, the relevance of the legal advice cannot be discounted. But nor can it be the sole determining factor as to whether it was reasonable to take action. That question also depends on the question of materiality.
[15]The Court said that: 19
… the real question for the Associate Judge was whether the steps that Ms Toon took after receiving legal advice were reasonable, having regard to the questions of value and proportionality on which any assessment of remuneration would be based.
[16] The Court found that the Judge wrongly assessed the Liquidator’s conduct with the benefit of hindsight, and that “the liquidation unfolded as an unfortunate legacy of Mr Quinn’s and Mr Thompson’s dealings with one another over a very long time, and Ms Toon was caught between them”.20 They concluded:21
In our view Ms Toon was entitled to investigate Mr Thompson’s complaint until she had sufficient information to satisfy herself that pursuing it would not be cost effective.
[17] The Court concluded that the Liquidator could not have been expected to properly review the merits of the complaint before receiving Mr Quinn’s detailed explanation at the end of July 2018. For various reasons, the Liquidator did not reach her view until December 2018, but the delay did not add materially to the cost of the liquidation. Accordingly, the High Court judgment was set aside and the Liquidator’s remuneration was approved.
[18] The applicant applied for leave to appeal to the Supreme Court. The application was unsuccessful.22
18 CA Judgment at [88].
19 At [89].
20 At [106].
21 At [107].
22 Quinn v Toon [2022] NZSC 53.
Legal principles
[19]The application is made under ss 256 and 284 of the Companies Act.
[20]Section 256 relevantly provides:
256 Duties in relation to records
(1) The liquidator of a company must—
(a) keep accounting records and other documents of the liquidation and permit those records, and the records and other documents of the company, to be inspected by—
(i) any liquidation committee appointed under section 314, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation; and
(ii) if the court so orders, a creditor or shareholder;
...
[21]Section 284 relevantly provides:
284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a) give directions in relation to any matter arising in connection with the liquidation:
(b) confirm, reverse, or modify an act or decision of the liquidator:
(c) order an audit of the accounts of the liquidation:
(d) order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:
(e) in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f) to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(g) declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:
(h) make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.
[22] The applicant explains that it relies on s 284 for procedural reasons because that section enables the Court to direct the Liquidator to provide a copy of the legal advice to the applicant, rather than the applicant being required to attend and inspect the Liquidator’s records to find the advice.
[23] The basis upon which the Court will allow a creditor or shareholder to inspect accounts and records under s 256(1)(a)(ii) was discussed by the Court of Appeal in Levin v Lawrence.23 The Court endorsed the “good reason” test adopted by Toogood J in the High Court decision: 24
[T]here must be some good reason for the Court to order inspection in circumstances where the statutory scheme does not ordinarily permit it. The test of “good reason” does not require any further elaboration; whether the Court will exercise its discretion to order access to the records will depend on the particular circumstances of each case.
(citations omitted)
[24] The Court of Appeal said that, while no inflexible rules can or should be laid down, the “good reason” test may be elaborated as follows:25
(a)Mere suspicion or assertion by a creditor that a liquidator has not undertaken – or is not undertaking – the liquidator’s statutory task properly is not sufficient.
(b)It is not permissible for a creditor or shareholder to apply merely in order to embark on a fishing expedition – in order to sift through the accounts and records of the liquidator to see if that might turn something up.
(c)At a minimum, the applicant must put forward some persuasive, tangible or concrete reasons why inspection should be required. An example might be where the creditor, from its own dealings with the
23 Levin v Lawrence [2013] NZCA 394, (2013) 11 NZCLC 98-018.
24 At [29].
25 At [53].
company in liquidation, has a genuine concern about a particular aspect of the company’s affairs. If the liquidator declined to investigate this area, or declined to say whether it had been investigated, the s 256(1)(a)(ii) threshold would be crossed.
[25] Before applying this test to the present application, it is necessary to address the submissions made concerning the privileged character of the legal advice. These submissions focused on two questions: who owns the privilege; and whether the privilege has been waived. I note however that these issues are not determinative. The applicants must establish a good reason for inspecting the document, whether it is privileged or not.
Who owns the privilege in the legal advice?
[26] Katoria submits that the legal advice related to a matter raised during the liquidation, and to a potential avenue for recovery of company assets (ie a claim against the directors). Therefore, it submits that the legal advice was obtained and received by the Liquidator as agent for Investacorp and for the purpose of the liquidation. Accordingly, the privilege attaching to the legal advice is held by Investacorp, not the Liquidator personally.
[27] Katoria relies on comments by the Supreme Court in Mana Property Trustee Ltd v James Developments Ltd.26 When determining an application by a third party for costs against both the company in liquidation and the liquidators personally, the Supreme Court dismissed the application for costs against the liquidators personally and stated:27
The party to the litigation is the company, not the liquidator, even in the case of a proceeding commenced against the company after its liquidation. It was therefore James itself which was the successful appellant in the Court of Appeal and the unsuccessful respondent in this Court. The liquidators were merely its agents in relation to the litigation, having taken over the conduct of its affairs from its director.
26 Mana Property Trustee Ltd v James Developments Ltd [2010] NZSC 124, (2011) 2 NZLR 25.
27 At [9].
[28] In contrast, the Liquidator contends that the privilege belongs to her personally. She says that she was the client and points to the invoices marked for the attention of “Corporate Restructuring Ltd”. Alternatively, the Liquidator submits that she and Investacorp jointly hold the privilege. She says that joint privilege cannot be waived by one client under s 66 of the Evidence Act 2006.28 Therefore, unless the company and the Liquidator both waive privilege, the advice will not be made available.
[29] The Liquidator refers to Body Corporate 194481 v Mason, where the Court ordered disclosure of the liquidator’s documents subject to a number of conditions, including that the liquidators were “not required to make available for inspection documents for which they or the company can claim privilege”. 29
[30] In reply, Katoria refers to several authorities that discuss privilege in an agency situation, including Robert v Foxton Equities Ltd and Brandlines Ltd v Central Forklift Group Ltd.30 These authorities confirm that where a third party agent seeks advice for a principal (the client), privilege will extend to communications between the agent and the principal’s solicitor.
[31] Katoria submits, relying on R (on the application of) Ford v Financial Services Authority,31 that there is no evidence that the Liquidator communicated with the lawyer in a personal capacity, or that she made clear to the lawyer that she was seeking the advice in a personal capacity rather than in her role as liquidator of Investacorp.
[32] Katoria further submits that the Liquidator cannot claim sole privilege in legal advice obtained for the purpose of carrying out her duties, and that either the privilege belongs to the principals for whom the Liquidator was carrying out those duties, or the privilege is jointly held between the principals and the Liquidator. In this respect, the applicant argues that Bunting v Buchanan was wrongly decided.32 In that case, this Court held that where legal advice is obtained as performance of a liquidator’s statutory duty (as distinct from performance of a duty to the company) or to enable the
28 Messenger v Stanaway Real Estate Ltd [2014] NZHC 2103 at [55].
29 Body Corporate 194481 v Mason [2016] NZHC 2858 at [14].
30 Robert v Foxton Equities Ltd [2014] NZHC 726; Brandlines Ltd v Central Forklift Group Ltd HC Wellington CIV-2008-485-2803, 11 February 2011.
31 R (on the application of) Ford v Financial Services Authority [2012] 1 All ER 1238.
32 Bunting v Buchanan [2013] NZHC 1921.
liquidator to carry out that duty, the privilege belongs to the liquidator and not to the company.
[33] Finally, Katoria relies on the Supreme Court decision of Lambie Trustee Ltd v Addleman.33 In that case, the beneficiary of a trust sought disclosure from the trustees of legal advice obtained by the trustees. The Court held that the joint interest exception to legal professional privilege applied to legal advice relating to the general administration of the trust. In so doing, the Court said:34
The joint interest exception to legal professional privilege is engaged in circumstances in which the joint interest in legal advice is less direct than in the case of joint privilege. Thus a company and its shareholders may share a joint interest in legal advice obtained by the company35 despite the company not being an agent of the shareholders, and those shareholders not having a direct proprietary interest in the assets of the company.36
[34] From this, the applicant submits that the shareholders have a joint interest in the legal advice obtained by the Liquidator acting as agent for Investacorp. As joint interest privilege can only be claimed against a third party, not between the parties who hold the privilege, the shareholders are entitled to the information held by the Liquidator.
[35] In my assessment, the general principles concerning legal professional privilege in an agency context, or a trustee context, do not necessarily apply to legal advice procured by a liquidator. As the authors of Heath and Whale observe, a liquidator “has a unique legal status.” The liquidator’s relationship with the company is not a normal agency position because the liquidator controls the principal (the company) and has statutory duties under the Companies Act which are focussed on
33 Lambie Trustee Ltd v Addleman [2021] NZSC 54.
34 At [72].
35 See for instance Gouraud v Edison Gower Bell Telephone Co of Europe (1888) 57 LJR 498 (Ch); W Dennis and Sons Ltd v West Norfolk Farmers’ Manure and Chemical Co-Operative Co Ltd [1943] Ch 220 (Ch) at 222–223; and BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch), [2011] Ch 296 at [58].
36 As is noted in Hodge M Malek (ed) Phipson on Evidence (19th ed, Sweet & Maxwell, London, 2018) at [24-02], a shareholder has no right to see documents held by a company. So in practice, the joint interest exception applies only where, in litigation between a company and shareholder, the company attempts to resist discovery in respect of legal advice on grounds of legal professional privilege.
protecting the interest of creditors.37 The liquidator’s position, while sometimes referred to as a trustee, is better described as that of a statutory agent whose responsibilities are to perform obligations under the Act, and to distribute property divisible among creditors in accordance with statutory priorities.38
[36] In my view, the question of who “owns” the privilege in legal advice obtained by a liquidator is determined by the purpose for which that advice is obtained. There may be circumstances where a liquidator obtains legal advice for personal reasons, for example concerning their potential personal liability for their actions as liquidator. However, where the purpose of the legal advice is to assist the liquidator to determine whether to pursue litigation for the company against its directors to recover funds to distribute to creditors (and potentially shareholders) consistent with their statutory duty, the legal advice is not procured by the liquidator in their personal capacity. Rather, the advice is procured by the liquidator in their unique capacity as liquidator of the company. In this capacity, they are both agent of the principal (the company) and the directing mind of the principal for the duration of the liquidation.
[37] Accordingly, privilege in the legal advice is held by the Liquidator in her capacity as liquidator of Investacorp, and can only be waived by the Liquidator in that capacity. Investacorp has no independent ability to waive privilege as it is under the control of the Liquidator. The applicants, as individual shareholders of Investacorp, are separate again and plainly do not hold the privilege either solely or jointly with the Liquidator. This critical distinction between the liquidator, the company and the shareholders in a liquidation context is reflected in ss 256 and 284.
Has the privilege been waived?
[38] The applicant makes a further and alternative argument: that any privilege in the legal advice was waived by the Liquidator when she voluntarily disclosed the existence and contents of the legal advice in support of her application to the Court for approval of her remuneration. It says that in doing this, the Liquidator has, in terms of s 65 of the Evidence Act:
37 Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online ed, LexisNexis) at [22.3], referring to Dunphy v Sleepyhead Manufacturing Co Ltd [2007] 3 NZLR 602 (CA).
38 Heath and Whale at [22.3].
(a)voluntarily produced or disclosed a significant part of the privileged communication in circumstances which are inconsistent with the claim of confidentiality; and
(b)acted to put the allegedly privileged communication at issue in the remuneration claim proceeding.
[39] Against that, the Liquidator submits that the Court of Appeal held that she had not waived privilege in the legal advice:39
[80] The Associate Judge’s conclusion at [132] that a liquidator in Ms Toon’s position was entitled to “[obtain] legal advice [and tell] Mr Thompson that the liquidator would take no further steps on his complaint” was clearly predicated on the erroneous assumption that any legal advice a liquidator received in those circumstances would have justified declining to take further steps. As discussed, however, the evidence was that Ms Toon’s lawyer had advised her that the settlement agreement was not binding on the company, with the result that she was entitled to proceed further. As a result of this error, the Associate Judge failed to direct his attention to the question of what was reasonable for Ms Toon to do, having regard to the legal advice she had actually received.
[81] Mr Bryers argued that the legal advice was of limited importance because Ms Toon had not, in fact, relied on it and, as a matter of law, Ms Toon was not entitled to seek remuneration on the basis that she had relied on legal advice.
[82] As to the first argument, Mr Bryers pointed out the Mr Taylor’s advice was not referred to in evidence until Ms Toon was examined orally. The lack of reference to the legal advice in the affidavit evidence is not significant because it was not apparent as an issue in either application and when Ms Toon gave evidence about consulting her lawyer it was not suggested to her that she had not relied on the advice she received. Mr Bryers also suggested that if Ms Toon wished to rely on legal advice as a reason for doing what she did, it was incumbent on her to produce the advice. But given that Ms Toon’s evidence was not challenged, and she was not asked to waive privilege in respect of it, that submission is not sustainable.
[40] In reply, Mr Bryers for the applicant submits that the Court of Appeal’s comments regarding waiver were a response to his submission that the Liquidator could not rely on advice if she did not produce it. The issue of waiver was not raised in argument, and the Court’s finding was made without the benefit of any submissions on the issue. He submits that the Court did not consider whether the Liquidator’s reliance on the legal advice constituted a waiver pursuant to s 65 of the Evidence Act.
39 CA Judgment.
[41] I do not accept this submission. If the applicant considered that the Liquidator had waived privilege in the legal advice by referring to it during the High Court hearing, the time to make that argument was then — or if not then, before the Court of Appeal. The fact that the applicant did not make this argument in the Court of Appeal suggests that it did not consider that privilege had been waived. More importantly, it is implicit in the Court of Appeal’s response to the submission that the Liquidator must produce the document that the Court considered that the Liquidator had not waived privilege by referring to the advice in her oral evidence during the High Court hearing. It is not open to me to revisit that issue now.
[42] I now turn to the main issue: whether the applicants have a good reason for inspecting the document.
Do the applicants have a good reason for inspecting the legal advice?
[43] The applicant says that it has provided a good reason, namely, to ascertain whether a claim may be made against the legal advisor for faulty legal advice. Further, it is relevant that Investacorp (and therefore the shareholders) have paid for the legal advice and yet that advice is being withheld from them.
[44] The Liquidator submits that there is no further utility, in the context of oversight of the liquidation (which s 256 is directed at), for the applicant to be provided with the legal advice. The liquidation is nearly complete, and the Liquidator has been held by the Court of Appeal and the Supreme Court to have complied with her duties and been entitled to her remuneration and legal costs.
[45] The Liquidator also submits that the merits of the potential claim against the legal advisor are relevant. The Liquidator maintains that it is not reasonably arguable that the Liquidator’s legal advisor owed a duty of care to the applicant as a shareholder of Investacorp. Further, the Liquidator does not accept that the legal advice was wrong.
[46] The Liquidator also submits that there is no need for the applicant to receive the privileged advice in order to decide whether to take legal action against the legal advisor. She says that it is clear from their submissions that they have formed their own views about the legal advice. She submits that it is not uncommon for plaintiffs to sue legal advisors without a copy of the legal advice.40
[47] I note at this point that Katoria appears to rely on the Supreme Court’s decision dismissing its application for leave to appeal where it said:41
There was, in fact, no dispute that the settlement agreement was binding on Investacorp, and that the legal advice obtained by Ms Toon to the contrary was wrong, so we do not see the proposed appeal as triggering any requirement to evaluate the legal consequences of the settlement agreement. Nor do we see any risk of a miscarriage of justice in the way the Court of Appeal addressed the settlement agreement.
…we accept that the proposed appeal would raise an issue as to the limits, if any, on the extent to which a liquidator can claim remuneration for work carried out and expenses incurred on the basis of erroneous legal advice and that this is an issue of commercial significance which could be worthy of consideration. But we do not see this case as an appropriate vehicle for consideration of the issue because the advice itself is not in evidence and the decision of the Court of Appeal was based on an evaluation of what the liquidator did, which was essentially a factual assessment in light of the expert evidence before the Court.
[48] Mr Alexander for the Liquidator clarified, with reference to the Liquidator’s submissions in the Court of Appeal and in the Supreme Court on the application for leave to appeal, that the Liquidator has always denied that the legal advice she received was wrong.42
[49] Further, the Liquidator submits that the application is an abuse of process. The Liquidator has offered to disclose the legal advice to the applicant in exchange for the Quinns agreeing to fully release and indemnify the Liquidator. The Quinns have refused the Liquidator’s proposal and are expressly not ruling out further proceedings against her. The Liquidator says that she has reasonable grounds to believe that the
40 For example, where the defendant seeks contribution from the plaintiff’s lawyer. Unless the plaintiff waives privilege, the claim proceeds without the defendant seeing the legal advice.
41 Quinn v Toon [2022] NZSC 53 at [13]–[14].
42 Appellant’s submissions in the Court of Appeal dated 6 July 2021 at [27]; First Respondent’s submissions in the Supreme Court dated 1 March 2022 at [5](a).
applicant will use the legal advice to try to relitigate issues between the parties which had been finally determined by both the Court of Appeal and the Supreme Court.
[50] In reply, the applicant submits that it is premature to determine whether and to whom the legal advisor owed a duty of care. It submits that preventing a party from having an opportunity to consider whether a claim is viable is contrary to the basic principles of justice.
[51] The applicant submits that there has been a substantial diminution of the company’s assets resulting from the costs of the Liquidator’s “unnecessary investigation” of matters settled by the shareholders and the directors. The Liquidator, however, declines to explore a possible avenue for recovering her costs from the solicitor who provided her with the incorrect legal advice. The applicant maintains that it is apparent from the Supreme Court’s decision in respect of the Liquidator’s remuneration that production of the legal advice is essential to determine whether there is a viable claim.
[52] As to the Liquidator’s suggestion that the applicant will use the legal advice to try to relitigate issues between the parties, Mr Quinn deposes:43
I do not agree that Ms Toon has a reasonable basis for her fear that the applicant will use the legal advice to bring a new proceeding against her, and to relitigate matters finally determined by the Court of Appeal and the Supreme Court. The former trustees and the applicant have accepted the decision of the Court of Appeal in relation to Ms Toon’s remuneration, but I believe that it is unjust as a result that Investacorp has become liable for a substantial sum of money, which has significantly reduced the amount of funds available to the shareholders following the liquidation. As has been made clear in the correspondence between the parties’ lawyers, the applicant has no interest in making a claim against Ms Toon, but it is considered that if Ms Toon has no responsibility for carrying out an unnecessary investigation into the matters settled by the shareholders, then the solicitor whose advice Ms Toon relied upon to carry out the investigation has a potential liability for the losses that resulted.
…
43 Affidavit of Clive Anthony Quinn sworn 27 June 2022 at [7]–[8].
The applicant considers that it is unreasonable for Ms Toon to require a release and indemnity as a condition of supplying the legal advice. While the directors of Katoria Trustee Limited have no grounds for suspecting that the legal advice would give rise to a claim against Ms Toon, it is also the case that the directors do not know, for example, whether Ms Toon’s evidence as to the contents of the advice was correct.
[53] I am not satisfied that the applicant has a good reason for obtaining the legal advice. If its sole reason for inspecting the legal advice is to determine whether to take legal action against the legal advisor, by way of derivative action for example, it could have accepted the Liquidator’s offer to disclose the legal advice in exchange for a full release and indemnity.
[54] I infer from the rejection of that proposal that the applicant wants to leave the door open to further legal action against the Liquidator. Mr Quinn’s evidence only lends support to this inference when he says that the directors do not know, for example, whether the Liquidator’s evidence as to the contents of the advice was correct.
[55] At the hearing, I questioned Mr Bryers on why the applicant had not accepted the Liquidator’s offer to provide the legal advice based on an undertaking from the applicant. Mr Bryers stated that the problem is that the applicant does not know what the advice says. He clarified that if the Liquidator’s evidence as to what the advice said turns out to be completely accurate, the Quinns will have no grounds to bring an action against her. However, if the evidence the Liquidator gave is not accurate, this gives rise to two problems: one, that the Liquidator has obtained judgment based on incorrect evidence; and two, that the solicitor would likely have a defence to the Quinns’ claim. It would mean that the “whole case” (which I take to mean the two applications heard by Associate Judge Bell and appealed to the Court of Appeal) was “centred on an incorrect basis.”
[56] I infer that the real reason for this application is the applicant’s desire to test the evidence the Liquidator gave in the High Court (that she received legal advice about the settlement agreement and the advice was that the settlement agreement was not binding on Investacorp).44 This is not a good reason in terms of s 286 of the Act
44 CA Judgment at [80].
and it is a misuse of the s 286 procedure. The time to challenge the Liquidator’s evidence was during the High Court hearing. The Court of Appeal recorded that the applicants did not take that opportunity; and the Court accepted the Liquidator’s evidence. The Court of Appeal stated:45
We note at this point that the Associate Judge’s remarks towards the end of these passages were unfounded. They suggest that there was doubt over whether Ms Toon had, in fact, obtained advice. But her evidence that she did so was not challenged. It was also incorrect to say that Ms Toon had not given evidence as to the nature of the advice, when she clearly did and was not challenged on it. Finally, there was no basis at all on which to suggest that Ms Toon might have pressured her lawyer into giving advice that would support her position.
[57]Later, the Court stated:46
The evidence was that Ms Toon’s lawyer had advised her that the settlement agreement was not binding on the company, with the result that she was entitled to proceed further.
[58] For these reasons, I find that the applicant has not established a good reason for inspection of the legal advice under r 286 or for an order that a copy of the advice be provided to it.
Result
[59]The application is dismissed.
[60] The Liquidator has been the successful party and would ordinarily be entitled to an award of costs on a Category 2B basis, together with disbursements as fixed by the Registrar. The Liquidator has requested an uplift because of the 23 pages of written submissions by the applicant. I do not consider that the length of the written submissions justifies an uplift. The Liquidator’s submissions were no more than 13 pages and the hearing took no more than the scheduled half-day.
45 At [72].
46 At [80].
[61] If the parties cannot agree on costs, they have leave to file memoranda of up to five pages on that issue, and I will determine costs on the papers.
Associate Judge Gardiner
Solicitors:
HC Legal Ltd, Auckland McVeagh Fleming, Auckland
S P Bryers, Auckland
G Blanchard KC, Auckland
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