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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV2006-404-003078
BETWEEN R L STICKLAND AND OTHERS
First Plaintiff
AND TERRY PROPERTIES LIMITED
Second Plaintiff
AND P
S DRUMMOND AND OTHERS
Defendants
Appearances: C Light for First and Second
Plaintiffs
G Hall and S Pidgeon for Defendants
Judgment: 29 May 2008 at 3 pm
RESERVED JUDGMENT OF ASSOCIATE
JUDGE H SARGISSON
This judgment was delivered by Associate Judge Sargisson on 29 May 2008 at 3 pm pursuant to Rule 540(4) of the
High Court Rules
Registrar/Deputy Registrar
Date .............................
Solicitors:
Stace Hammon, PO Box 19-101, Hamilton
Buddle Findlay, PO Box 1433, Auckland
STICKLAND AND OTHERS AND ANOR V DRUMMOND AND OTHERS HC AK CIV2006-404-003078
29 May 2008
[1] The background to this litigation is dealt with in two other judgments where I
have dealt with interlocutory matters.
[2] This judgment deals with the plaintiffs' application challenging the
defendants' claim to solicitor client privilege for
48 documents that came into
existence in 2001. The plaintiffs contend that any privilege attaches solely to DF
Mainland Limited (now
in liquidation) or its liquidators, and not to the defendants,
the former directors of DF Mainland.
[3] The defendants oppose
the application. They contend that they have a
legitimate claim to privilege for all 48 documents.
[4] With the consent of
the plaintiffs, the defendants have provided the
documents for my inspection on a confidential basis. I am asked by both sides to
inspect the 48 documents when determining whether the defendants are entitled to
claim privilege for each.
[5] There is a further
and related issue as to waiver of privilege that I am asked to
determine.
Background to Privilege Application
[6] The defendants
have claimed legal privilege for a large number of documents
that came into existence between February 2001 and the present. The
claim to
privilege was made on behalf of the defendants by one of the former directors of DF
Mainland, Mr Richard Braddock, in an
affidavit of documents sworn on 7 November
2006.
[7] Counsel for the plaintiffs signalled their dissatisfaction with the claim
to
privilege at a case management conference held on 29 November 2006. Their
primary concern related to documents that Mr Braddock
grouped globally as items
3.1 and 3.2 in the schedule of privileged documents to his affadavit. The documents
were described simply
as correspondence dated 2001-11/2003 between the
defendants/DF Mainland and Buddle Findlay. The plaintiffs also raised concerns
about four documents that Mr Braddock listed as items 3.7 to 3.10 in the schedule.
These were described as communications March
to July in 2001 between DF
Mainland and Mr P Doogue. The privilege that Mr Braddock claimed for both sets of
documents was solicitor
client privilege.
[8] There was no dispute that DF Mainland would have been entitled to claim
solicitor client privilege in
these documents had it been a party to the litigation. Mr
Doogue and Buddle Findlay both acted as its legal advisers at different
times in
2001. The concern was whether the entitlement to privilege extended to the
directors.
[9] At the conference, key
issues raised by counsel for the plaintiffs were:
a) Whether the client of Mr Doogue and Buddle Findlay was in reality
DF Mainland solely, and if it was,
b) What was the specific basis for the defendants' claiming solicitor
client privilege for the documents in items
3.1 and 3.2 and 3.7 to 3.10.
[10] After discussion with counsel I made directions by consent. The directions
required counsel
for the defendants to provide to counsel for the plaintiffs a schedule
identifying each document in 3.1 and 3.2 and in 3.7 to 3.10,
and stating for each
whether the claim to privilege was joint interest or common interest privilege. Other
details were to include
the name of the author and the name of the person to whom
the document was addressed.
[11] The purpose of the directions was
to provide the plaintiffs with sufficient
information to decide whether or not to accept the claim to privilege for these
documents
was properly made. I also directed by consent that if the plaintiffs wished
to challenge the claim to privilege in respect of any
documents they were to file a
formal application.
[12] Counsel for the defendants provided the memorandum as directed.
It
attached a schedule listing the documents in the group that Mr Braddock listed
globally as items 3.1 and 3.2 in his
affidavit, plus the 4 specific communications
between DF Mainland and Mr Doogue that Mr Braddock listed. In all, there were 48
documents.
With one exception, counsel numbered each of the 48 items in the
schedule, with numbering that runs from 1.1 to 1.47. The document
that is not
numbered is located at tab 27 of the bundle of the 48 documents provided to me for
inspection. The documents listed in
counsel's schedule as items 1.27 to 1.47 are
located at tabs 28 and 48 of the bundle. For convenience I shall refer to the
documents by their tab numbers in the bundle.
[13] Counsel indicated in the memorandum that the defendants claim both joint
interest
privilege and common interest privilege in respect of the 48 documents.
[14] The plaintiffs did not accept the claim to privilege.
They filed a formal
application challenging the claim for all 48 documents. It is their position that there
is no basis for the claim
to joint or common interest privilege but that if that is
wrong, then any privilege has been waived.
[15] The documents in the
bundle are among papers that have came into the
custody of the DF Mainland's liquidators. The liquidators have indicated their
willingness
to release them to the plaintiffs unless the defendants establish that they
have privilege in them which they (the defendants) have
not waived.
[16] There is one final matter I should mention by way of background. The
schedule attached to counsel's memorandum
indicated that some documents were
dated 2003, but the bundle given to me contains an amended schedule that indicates
that all 48
documents came into existence in 2001. Having perused the documents, I
am satisfied that references to 2003 are simply typographical
errors.
The basis for claiming privilege
[17] As advanced at the hearing, the defendants' basis for claiming joint privilege,
was that all of the documents came into existence as a result of a joint retainer or a
request for legal advice by DF Mainland on
its own behalf and the directors'.
Alternatively or additionally, it claimed the documents were provided or disclosed to
the directors
in circumstances where common interest privilege arose.
[18] The factual circumstances relied on to justify the claim for privilege
under
each head were in each case the same and were raised in or by:
a) Statements in Mr Braddock's affidavit of
documents and in an
affidavit sworn by Ms De Villiers, a solicitor at Buddle Findlay;
b) The particular
context in which two legal advisers gave their advice,
and the nature of the current action against the directors;
c) The contents of the documents themselves.
[19] I discuss each briefly. Before doing so, it is appropriate
to note that counsel
for the defendants relied on common law principles to justify the claim to joint
interest and common interest privilege. Counsel for
both sides were in substantial
agreement as to the principles that are applicable to the application. Neither
indicated
that those principles do not reflect the relevant test under the Evidence Act
2006. I proceed on that basis.
The Affidavits
[20]
In Mr Braddock's affidavit he describes the defendants as the clients of the
solicitors in the two solicitor client relationships
that the privilege claim is allegedly
based on.
[21] Ms de Villiers, in her affidavit, does not verify that the defendants and
DF
Mainland jointly retained Mr Doogue and Buddle Findlay. She states that it is her
professional opinion that joint and common interest
privilege apply to all of the
listed documents and says, without reference to specific documents, that the
documents attract privilege
because they fall into one or more of three categories as
follows:
a) Documents which relate to confidential legal
advice sought jointly by
both the defendants and DF Mainland;
b) Documents where the defendants and
DF Mainland were jointly
concerned in obtaining confidential legal advice;
c) Documents where the defendants
and DF Mainland have a common
interest in the confidential subject matter of the documents that is
either identical or so closely related as to make it inappropriate to treat
the parties differently.
[22] Ms de
Villiers exhibited correspondence between Buddle Findlay and the
plaintiff's solicitors, Stace Hammond, for the purpose of describing
the
communications for which privilege was claimed and the basis for the claim.
[23] The exhibits include a letter from Buddle
Findlay to the plaintiffs' solicitors,
Stace Hammond, dated 15 November 2006. The letter states:
We consider that the documents
listed globally at 3.1, 3.2, and 3.7 to 3.10
are the subject of common or joint interest privilege between the defendants
and DF Mainland Group Limited (in liquidation) ("DF Mainland"). The
communications were made by the defendants to and
from Buddle Findlay
and Peter Doogue for the purpose of giving or obtaining legal advice to both
DF Mainland and the
defendants as directors of DF Mainland. Further, the
respective duties the directors owed in their capacity as the directors
of DF
Mainland were identical or closely related to duties owed by DF Mainland.
Accordingly, the communications listed
globally at 3.1 and 3.2 between the
defendants and DF Mainland to their joint solicitors is subject to common or
joint
interest privilege.
[24] Ms de Villiers also exhibited a second letter from Buddle Findlay to Stace
Hammond. It is dated 12 December
2006 and restates the grounds for claiming
privilege as follows:
DF Mainland and the defendants as directors of DF Mainland
share a
common and joint interest in respect of the [convertible] notes issue and
related activities referred to in
the pleadings. Accordingly both the company
and its directors instructed their solicitors in a joint capacity and
communications
between the solicitors and either the company on the one
hand or the directors on the other remain privileged from production
to other
parties.
The documents in relation to which privilege is claimed do not relate to legal
advice concerning
the procedure to be followed when making the
[convertible notes] offer. Privilege in relation to that advice alone has been
waived.
Context and Current Action
[25] Counsel for the defendants did not press the argument that the defendants'
claim
to privilege is founded on a joint retainer of Mr Doogue's services or Buddle
Findlay's. His primary submission was that during the
relevant period the legal
advisers were instructed not only on behalf of DF Mainland but also on behalf of the
defendant directors in relation
to the convertible notes offer. He submitted that this
is inferred from the context in which the advice was given. The context he
relied on
was the seeking and giving of advice about the convertible notes issue and related
duties under the Securities Act 1978.
He said:
a) A prospectus was not going to be issued for the convertible notes that
DF Mainland proposed
to offer because the convertible notes issue
would not be offered to the public.
b) Therefore both DF
Mainland and its directors were required by the
Securities Act to ensure that the allotment of convertible notes would
be made only to those persons falling within the exceptions contained
in s 3 of the Act; and
c) The company and the directors would be jointly and severally liable
under s 37 in relation to the offer
of the convertible notes if not made
in accordance with the Act;
d) Both had potential joint and several
obligations under s 56 of the Act
with respect to advertisements of securities, also attracting potential
joint and several liability under the Act.
[26] Counsel argued that in these circumstances the company and the directors
clearly had identical interests in the legal advice the company obtained at the time of
the issue of the notes. Both had to be satisfied
about the appropriateness of the
proposal under the Act. He submitted that as in Farrow Mortgage Services Pty Ltd
(in Liquidation)
v Webb (1995) 13 ACLC 1329, the interests of the company and the
directors were inextricably tied together. Therefore the inference that the company
was seeking
advice for the directors and itself is inescapable, making it inappropriate
to treat the interests of the company and the directors
separately. In effect, the
submission was that if there was not a joint retainer, then this was a case where the
company's intention
obviously would have been to obtain the advice for both itself
and the directors.
[27] Without making any concessions about joint
privilege, counsel also argued
that the same factors meant that both the company and the directors had a common
interest privilege
in the legal advice obtained about the convertible notes proposal.
He added that as the company's and the directors' interests in
the advice the
company obtained in connection with the issue of the convertible notes they were so
closely related that they could
not but satisfy the test for common interest privilege.
[28] Counsel also relied on the nature of the various causes of action
against the
directors. He argued that most of the causes of action could have been brought just
as readily against the company if
the company were not in liquidation, and that had
DF Mainland not been in liquidation the same causes of action would have been
advanced
against it. He argued this supports the contention that there must have
been a joint or common interest in the advice that was obtained.
[29] Counsel did not refer expressly to the funding proposals that preceded the
convertible notes proposal. It was implicit in
his argument that the defendants are
entitled to claim privilege in these documents for essentially the same reasons.
The Documents
[30] All 48 documents were created largely as a result of instructions received and
acted upon by the two separate legal advisers
to DF Mainland in 2001, or were part
or the exchanges between DF Mainland and its legal advisers. None of the
communications were
addressed expressly to or from the directors as opposed an
individual director at DF Mainland. Most were addressed to or from Mr
Cairns, as
managing director of DF Mainland.
[31] The four specific communications passing between DF Mainland and Mr
Doogue,
at tabs 45 to 48, were exchanged between Mr Cairns as managing director
and Mr Doogue. The first is dated July 2001 and deals with
the payment of
remaining fees for services and related matters. The others are dated between
February and March 2001 and are essentially
concerned with a proposal that Mr
Doogue act as minute secretary at DF Mainland's board meetings and the like, and
deal with his
proposed fees for the same.
[32] The remaining 44 documents, at tabs 1 to 44, are communications between
Buddle Findlay and DF
Mainland and attachments. With limited exceptions they
broadly relate to the various proposals DF Mainland considered for the purpose
of
raising funds to pay for its purchase of the retail securities business of JP Morgan or
the part of that business including Ord
Minnett. They fall into several categories.
July 2001 documents-R Schofield
[33] The first category comprises documents at
tabs 20 to 26. These documents
were created in July 2001. They do not relate to the convertible notes issue. The
proposal under consideration
was a proposal that a Mr R Schofield, an individual
financier, fund DF Mainland's JP Morgan purchase, by the acquisition of $3m
redeemable
preference shares in DF Mainland. There are related exchanges between
Mr Cairns and Buddle Findlay involving a draft heads of agreement
document and a
draft redeemable preference share deed.
August 2001 documents- Peter Francis Securities Ltd and proposed share offer
by
private placement
[34] The second category comprises documents at tabs 1 and 2 and tabs 36 to 40.
These documents were created
in August 2001 and form parts of an exchange
between Mr Cairns and Mr Wayne Collins of DF Mainland and Buddle Findlay
containing
detailed advice and draft documentation.
[35] Again, the proposal under consideration was not the convertible notes offer,
but it raised
the same issues under the Securities Act. It was a proposal for Peter
Francis Securities Ltd to provide a facility to fund DF Mainland's
acquisition of JP
Morgan and the raising of funds to repay the facility by way of a share issue which
would be underwritten by other
interests. The share issue was to be by private
placement to existing shareholders or to a larger pool of investors who would not
qualify as members of the public under s 3 of the Securities Act.
[36] The documents include a letter of advice, a draft investment
advertisement
and newsletter, and a draft underwrite proposal. They contain sufficient reference to
Security Act issues to support
the contention that the advice relating to these
documents, or the advice of which these documents were part, was for the joint
benefit
of the company and the directors.
September 2001 AGM advice
[37] The third category comprises documents at tabs 41 44.
These documents
were created in September 2001. The first group includes a letter from Buddle
Findlay dated 12 September addressed
to DF Mainland returning documents that Mr
Cairns had passed to Buddle Findlay. The enclosures are a draft notice of AGM with
attachments.
The attachments are, or relate to, draft special resolutions. They also
include copies of a special resolution and directors' resolution
signed and dated 9
August 2001. It is apparent that the documents were passed between DF Mainland
in the context of Buddle Findlay
providing advice about the agenda for the AGM and
in particular the agenda items relating to the JP Morgan acquisition.
[38]
The documents in this group do not expressly refer to the convertible notes
offer, but the drafts deal expressly with the issue of
shares to a select group of clients
and investors. In that respect they avert to the issues raised about the company's and
the directors'
duties under s 36 and s 56 of the Securities Act.
[39] There is nothing however in the signed 9 August resolutions that indicates
any such connection. These resolutions are the last annexures at tabs 42.
[40] The second group is an email dated 25 September
from Buddle Findlay to Mr
Cairns with draft agenda for the AGM attached. The contents of the email indicate
that Buddle Findlay sent
it after a discussion about the draft agenda earlier that day
to provide advice about recommended amendments to the resolutions relating
to the
issuing of the ordinary shares in connection with the JP Morgan acquisition. It deals
with alternative means to attract the
required capital including offering forms of debt
or equity securities as opposed to shares. It expressly includes reference to the
option of an issue of $3m new capital notes to close business associates or habitual
investors either as shares or convertible notes.
October 2001 - November 2001: Convertible Notes Proposal
[41] The fourth category comprises documents tabs 3 and 8 to 19. They
were
created in October 2001 and relate to the convertible notes offer. They comprise
email exchanges between Mr Cairns and Buddle
Findlay and Mr A Warner, the chief
executive officer of DF Mainland, and Buddle Findlay, together with draft
documentation from Buddle
Findlay. The draft documentation includes draft terms
for the convertible notes issue that DF Mainland was proposing to replace the
ordinary share issue, drafts of the proposed underwrite deeds, schedules listing
various underwriters, and a draft offering memorandum.
[42] Of particular note is an email letter at tabs 14 and 15 from Buddle Findlay
dated 21 November 2001 addressed to Mr Warner
and Mr Cairns. The letter advises
on the obligations of the company in relation to the offering memorandum and is
relevant to both
the company's and the directors' statutory obligations to investors
who wish to subscribe. As such it deals directly with the interests
of company and
directors that are inextricably tied together.
November December 2001 transition agreement
[43] The next category
of documents comprises documents at tabs 27 to 29 and 30
to 35. Created in November December 2001, they relate to a transition
agreement
between DF Mainland and Mr Collins. They start with a request from Mr Warner to
Buddle Findlay seeking advice as to a formal
agreement with Mr Collins as to the
basis on which Mr Collins would undertake certain activities on behalf of DF
Mainland and include
several drafts of a transition agreement.
[44] The documents on their face do not relate in time or otherwise to the
convertible
notes issue, and there is nothing in them to indicate that the advice being
sought was being sought on behalf of the directors as
well as the company.
December 2001 Notes Certificates
[45] The final category comprises documents created in December
2001 relating
to the convertible notes issue. These are at tabs 4 7. These are an email dated 4
December 2001 from Buddle Findlay
to Mr Warner enclosing a draft form of note
certificate and attached draft certificate.
[46] Although concerned with the convertible
notes issue and steps to complete its
proper documentation by ensuring the necessary certificates are issued to note
holders, there
is no suggestion in this documentation that advice is being sought
other than by and for the benefit of the company.
Privilege
[47] Legal professional privilege, which protects confidential communications
between a client and the client's legal adviser
by rendering them inadmissible in
evidence, is a fundamental condition on which the administration of justice rests: R v
Derby Magistrates'
Court, ex parte B [1995] UKHL 18; [1996] AC 487. The privilege is that of the
client.
[48] In some circumstances there may be more than one party able to claim
privilege.
These are instances of joint interest or common interest privilege.
[49] Cross on Evidence describes the difference between
joint interest and
common interest privilege as "significant": 10.22. Cross says that:
A joint interest privilege arises
where two or more persons are jointly
concerned in obtaining the privileged communication
Whereas:
A common
interest privilege arises where there has been a disclosure of
privileged material to another person with a common interest
at the time of
the disclosure.
[Emphasis added]
[50] With regard to joint or common interest privilege in
the context of the
separate legal personality of a company a company will, as a separate legal entity,
usually retain legal advice
through the agency of its directors or officers. It is trite
law that privilege attaching to such advice will belong to the company
and that the
directors would not have privilege in the advice unless the circumstances entitle
them to claim joint or common interest
privilege.
[51] In the same context of a company's separate legal personality Cross says at
10.22:
There is a joint
interest privilege, for example, where solicitors are instructed
to advise both a company and its directors on the consequences
of a
particular transaction.5
5 Farrow Mortgage Services Pty Ltd (in Liq) v Webb (1995) 13 ACLC
1329; (1996) 14 ACLC 1240 and Pioneer Concrete (NSW) Pty Ltd v Webb
(1995) 18 ACSR 418.
[52] This follows the general statement earlier in 10.22, cited by the defendants,
that something less than a joint retainer
can be sufficient provided that the privileged
communication concerns the joint interests of the parties at the time of the
communication.
[53] With regard to common interest privilege, citing South Australia v Barrett
(1995) 13 ACLC 1369; (1995) 64 SASR 73, Cross
says at 10.22:
A director does not have a common interest in privileged company
documents by reason only of his
or her power and duty to see those
documents in the performance of the office of director.
[54] However, it is clear
that parties who have a common legal or commercial
interest in the subject matter of a privileged communication may claim common
interest privilege where one of the parties discloses its privilege material to another
party with an interest in them. The two interests
must be either identical or so
closely related as to make it inappropriate to treat the parties claiming privilege
separately.
[55] The differences between the two forms of privilege can be difficult to
discern, as illustrated by the Court's decision in
Farrow (supra). In Farrow, a
company sought and paid for legal advice about entering into a particular
transaction. The advice sought
related to the affairs of the company, the duties of the
directors, and the potential liability of the directors to third parties
under s 592 of the
Corporation Law. After obtaining the advice, the company entered into the
transaction. The company later
went into liquidation and the advice of the lawyer
was among the papers which came into the hands of the liquidator. The New South
Wales Court of Appeal held the legal advice had as a matter fact been provided
under a contract between the company and its legal
advisers, but the advice was
sought by the company and its directors. The advice was therefore subject to joint
privilege. The Court
said by way of obiter comment that if the privilege were not a
joint privilege, the directors had a common interest in the advice
with the company
and would attract common interest privilege.
[56] The party claiming privilege must establish the facts giving
rise to it:
National Crime Authority v S (1991) 29 FCR 2. In Kupe Group Ltd v Ariadne
Australia Ltd (1991) 4 PRNZ 135 Wylie J said at 138:
The onus is on the party setting up the claim. It must be remembered that
privilege is just what
it says -- it is an exception to the general rule for
discovery and right of inspection. A party setting up the claim has
an onus to
establish its entitlement to the benefit of the privilege: Re Highgrade Traders
Ltd [1984] BCLC 151 at 161, and in my opinion that entitlement must be
established clearly and unequivocally.
The onus of establishing
common interest privilege is "a heavy one":
Unilateral Investments Ltd v VNZ Acquisitions Ltd [1993] 1 NZLR 468.
Discussion
[57] I do not accept that the affidavits of Mr Braddock and Ms de Villiers advance
the defendants' claim to privilege.
While Mr Braddock's and Ms de Villiers'
evidence is unchallenged and is the only evidence as to the circumstances in which
legal advice was sought and obtained, it contains nothing of substance to support a
finding that there was a joint retainer. Nor
does it contain anything of substance that
points to any other basis for finding that joint or common interest privilege exists for
any of the legal advice that DF Mainland received in 2001. Their evidence is cursory
to say the least and on its own, without reference
to the documents, falls well short of
establishing a proper evidential foundation for joint interest privilege on the basis of
joint
retainer or otherwise.
[58] However, I accept that the directors were fixed with the same statutory
obligations and potential
liabilities in relation to the convertible notes offer as the
company was. I also accept that the identical nature of their statutory
duties and
liabilities under the Securities Act could support the inference that the advice the
company sought on the convertible
notes issue was advice for the benefit of both the
company and the directors. Whether or not it does will depend on whether the
inference
is consistent with the content of the documents. Were it not for the
opportunity to refer to the documents themselves therefore,
I would be unable to find
as a matter of fact that there was a shared privilege in respect of any of the
documents.
[59] That
brings me to the documents. My finding is that some of the documents
attract joint interest privilege but that the defendants have
not discharged the onus of
showing that they have a clear and unequivocal entitlement to privilege for the rest.
Documents attracting
joint interest privilege.
[60] Despite the paucity of detailed evidence, reference to the following
documents indicates that
there is support for the claim that Buddle Findlay's advice
was obtained for the joint benefit of the company and the defendants.
In other words,
both were jointly concerned in obtaining confidential legal advice, in the sense
recognised in Farrow as giving rise
to joint privilege:
[61] The documents are:
a) The convertible notes documents. The documents relating to
the
convertible notes offer do not expressly state that the legal advice was
given to the directors
personally, as well as to DF Mainland.
However, both had interests in the convertible notes proposal that
were based on the same duties and potential liabilities under the
Securities Act and were inextricably bound.
Both had an identical
interest in Buddle Findlay's advice that was given in circumstances
where the company
and the directors could not properly proceed with
the proposal if both did not comply with the requirements of the
Act.
In providing advice about the convertible notes issue and the related
documentation Buddle Findlay
would certainly have been concerned
with the appropriateness of the proposal as far the duties and potential
statutory liabilities under the Securities Act of both the company and
the directors were concerned. In these
circumstances it would be
unreal to suggest that DF Mainland did not seek the advice for the
company
and the directors or that the advice that was given was not
given for both. I am satisfied that Buddle Findlay's advice
was given
not only by the company but for the benefit of the defendants and that
the particular advice
was subject to joint privilege.
b) The documents relating to the Peter Francis proposal. These also
attract
joint privilege. Although not concerned with the convertible
notes offer this proposal was the precursor, and it raised the same
kinds of issues under
the Securities Act for both the company and the
directors. It would be equally unreal to suggest that Buddle Findlay's
advice about this proposal was not sought on behalf of both company
and directors.
c) The
draft AGM documents. They attract joint privilege for the same
reasons.
Documents that do not attract joint or common
interest privilege
[62] The defendant directors have not advanced a sufficient case for a clear and
unequivocal entitlement to
privilege in the remaining documents. Their claim to
joint or common interest privilege was essentially based on the same factual
argument that advice was obtained for the benefit of both company and directors and
turns on the content of the documents and the
context in which Buddle Findlay gave
its advice. There was also no separate argument as to common interest privilege
based on disclosure
as opposed to the obtaining of advice for the joint benefit of both
company and directors.
[63] The documents do not show that
Buddle Findlay was asked to give or gave
legal advice for the benefit of both the company and directors in respect of :
a) The Schofield funding proposal. It appears from the documents that
the financier was to acquire the shares
and there is no indication that
the company or directors were seeking advice about statutory duties
owed under the Securities Act to investors who might be members of
the public, or about associated potential liabilities.
On the face of the
documents those issues simply did not arise.
b) The transition agreement. There is
nothing in the documents to show
advice was being sought for both company and directors in respect of
those statutory duties and liabilities. Indeed, there is no obvious
connection raised in the documents between
the transition agreement
and the convertible notes issue or the other funding proposals for the
JP
Morgan acquisition. The context argument therefore has no
application to these documents.
c) The communications
between DF Mainland and Mr Doogue. The
same comments are apposite. The documents contain nothing to
suggest that advice was being sought for the benefit of the company
and its directors. Further, they have no apparent
connection to the
convertible notes issue or indeed the JP Morgan acquisition generally.
d) The two
resolutions signed in August 2001. There is nothing in these
resolutions that would justify a claim to privilege.
[64] In short, a specific basis has not been advanced for the claim to either joint or
common interest privilege for any of these
documents. Further, the general basis for
claiming privilege is not borne out by their content. If there is a basis for privilege,
it
has not been articulated or supported by the factual evidence, and the defendants
have not discharged the onus of establishing
privilege in them.
Waiver
[65] It is not necessary in the circumstances to consider all of the arguments that
the plaintiffs
raised about waiver. There is only one argument that requires mention.
It is that the defendants waived any entitlement to joint
interest privilege, by
disclosing Buddle Findlay's advice about the procedure for the convertible notes
offer to ensure that the
offer was made solely to persons identified as non-members
of the public in terms of s 3 of the Securities Act.
[66] The procedure
the defendants allege that the company followed is set out at
paragraph 10 of the current statement of defence. The defendants accept
that they
have waived privilege relating to advice about this procedure.
[67] Counsel for the plaintiffs argued that this waiver deprives the defendants of
any entitlement
in respect of legal advice about the convertible notes. His contention
was that advice about procedure could not be given in a vacuum
or seen as a separate
transaction. It must have been given and must be viewed as coming within the
compass of advice whose overarching
purpose was to deal with the legality of the
convertible notes offer under the Act. That advice must necessarily have dealt not
only
with the procedural steps relating to the making of the offer but with the
contents of the documentation used for the offer. For
a complete understanding of
the advice as to legality of one, the one must be viewed with the other.
[68] Counsel for the defendants
contends that the legal advice given in connection
with procedure is quite distinct and separate from the advice that was given about
the
contents of the convertible notes documentation and that there is no waiver of
privilege in respect of the advice about the latter.
[69] Having seen the documents I do not accept the defendants' argument that
they are able to separate out the documents recording
advice about those procedural
aspects of the convertible notes offer from the 48 documents in the bundle.
[70] The issue of
waiver arising from disclosure of a significant part of privileged
communications was discussed in Shannon v Shannon [2005] 3 NZLR 75. The
Court of Appeal held that the test of waiver requires the Court to make an objective
judgment as to whether the party's conduct
was consistent with maintaining the
privilege or constituted an abuse of privilege. The Court referred to
Ophthalmological Society
of New Zealand v Commerce Commission [2003] 2 NZLR
145 where it held that the test to establish waiver involves an assessment of whether
a party's use of privileged material has destroyed
confidentiality. This objective
assessment requires a close analysis of the particular context, what the issue is in
relation to
the privilege, how the evidence relates to that issue, and the question of
whether there is inconsistency that could lead to injustice
if the privilege is upheld.
The weight to be given to fairness will depend on the circumstances, including the
character of the privilege
said to have been waived.
[71] The Court also cited with approval the principle in Nea Karteria Martime Co
Ltd v Atlantic &
Great Lakes Steamship Corporation (No 2) [1981] Com LR 138
that:
...where a party chooses to deploy evidence which would otherwise be
privileged the court and the opposition
must, in relation to the issue in
question be given the opportunity to satisfy themselves that they have the
whole
of the material and not merely a fragment.
[72] The issue of waiver is now provided for by s 65 of the Evidence Act 2006.
Neither
party explicitly referred to this section of the Evidence At 2006 during the
proceedings, but reference to subsection (2) and (3)
of the said section 65 is now
appropriate. These state:
(2) A person who has 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.
(3) A person who
has a privilege waives the privilege if the person
(a) acts so as to put the privileged communication, information,
opinion, or document in issue in a proceeding; or
(b) institutes a civil proceeding against
a person who is in
possession of the privileged communication, information,
opinion, or document
the effect of which is to put the privileged
matter in issue in the proceeding.
[73] In the current case,
the broad issue in dispute between the parties is whether
the issue of the convertible notes offer complied with the requirements
as proscribed
by s 37 of the Securities Act. The defendants have voluntarily waived privilege in
advice from Buddle Findlay about
procedure and set out the recommended steps DF
Mainland allegedly took in their statement of defence. Their purpose is to show that
they have a defence to the allegation that the offer was made to the public. The
alternative purpose is related to the affirmative
defences and the contention (among
others) that the steps they took were in keeping with their legal advice and go to the
Court's
discretion as to relief orders assuming they did unwittingly breach the Act.
[74] Notwithstanding the purpose of the waiver,
the defendants wish to retain
privilege over the remaining legal advice relating to the issue of the convertible notes
that they
allege has no connection with the procedure. I take the view that this is
untenable. The very basis for the defendants' claim to
joint privilege was that all the
advice about the convertible notes offer (and the prior proposals) was concerned with
compliance
with the Securities Act and with avoiding the joint and several liability
that the directors and the company would face in the event
of non-compliance.
When the defendants voluntarily disclosed the procedural advice given by Buddle
Findlay they disclosed a significant
part of the advice concerned with the legality of
the convertible notes offer and they cannot now claim privilege over the rest of
that
advice. Such a claim would be contrary to the approach the Court adopted in
Shannon and inconsistent with the test prescribed
in Ophthalmological Society and
with s 65(2) and (3) of the Evidence Act.
Result
[75] The result is that I make orders as
follows:
a) The defendants' entitlement to joint privilege for the documents in
their bundle at:
i) tabs 1 to 3, 8 to 19, 36 to 41, 43 to 44, and
ii) tab 42 other than the two signed resolutions
dated 9 August
2001,
has been waived.
b) The defendants do not have a valid claim
to privilege in respect of the
remaining documents in the bundle.
c) The documents are to be made available
for inspection. Leave is
reserved to seek directions by memorandum on two days notice for
that purpose if required.
[76] The plaintiffs are entitled
to costs on their successful application in
accordance with the statutory cost regime. There is an order for costs on a 2B basis
plus disbursements to be fixed by the Registrar.
[77] The Registrar is requested to return to the defendants' solicitors the
inspection bundle.
______________________
Associate Judge Sargisson
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URL: http://www.nzlii.org/nz/cases/NZHC/2008/796.html