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Cityside Asset Pty Ltd v 1 Solution Ltd [2012] NZHC 3162; [2013] 1 NZLR 722; (2012) 22 PRNZ 93 (26 November 2012)

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ORDER PROHIBITING PUBLICATION OF THE NAME OF THE DEFENDANTS' SOLICITOR OR ANY IDENTIFYING PARTICULARS

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-4394 [2012] NZHC 3162

BETWEEN CITYSIDE ASSET PTY LIMITED First Plaintiff

AND HAMWREX NOMINEES PTY LIMITED Second Plaintiff

AND HIRE INTELLIGENCE INTERNATIONAL LIMITED Third Plaintiff

AND 1 SOLUTION LIMITED First Defendant

Cont ...

Hearing: 13 August 2012

Counsel: K M Quinn for the Plaintiffs

D O'Neill for the Defendants

Judgment: 19 November 2012

Reasons: 26 November 2012

_{REASONS FOR JUDGMENT OF WOODHOUSE J}

This judgment was delivered by me on 26 November 2012 at 2:30 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

..........................................

Counsel:

Mr K M Quinn, Barrister, Auckland Mr D O’Neill, Barrister, Hamilton Plaintiffs’ Instructing Solicitor:

_{Mr S Germann, Stewart Germann Law Office, Solicitors, Auckland}

CITYSIDE ASSET PTY LIMITED V 1 SOLUTION LIMITED HC AK CIV-2011-404-4394 [19 November

2012]

_{Cont ...}

AND GRANT MILES SANDERSON Second Defendant

AND HIRE INTELLIGENCE LIMITED Third Defendant

AND ROBERT KENNEDY PRITCHARD Fourth Defendant

AND BRYRE ANN PRITCHARD Fifth Defendant

[1] By judgment dated 19 June 2012 Associate Judge Faire made two orders of present relevance: (1) an order under s 67(1) of the Evidence Act 2006 disallowing a claim by the third, fourth and fifth defendants to solicitor-client privilege in respect of part of an email to the fourth defendant from the solicitor for the third, fourth and fifth defendants; and (2) a declaration that the remainder of the email is subject to solicitor-client privilege.

[2] The plaintiffs applied for review of the order numbered (2). In response, the third, fourth and fifth defendants applied for review of the order numbered (1).

[3] By formal judgment dated 19 November 2012 I dismissed the defendants’ application and granted the plaintiffs’ application. In consequence privilege was disallowed in respect of the email in its entirety. I did not provide reasons. These are my reasons.

The plaintiffs’ claims

[4] The third plaintiff owns a business system designed to facilitate the hiring of computer equipment. The first and second plaintiffs have licenses from the third plaintiff to grant franchises of the system. On this application it is unnecessary to distinguish between the plaintiffs and I will refer collectively to “the plaintiffs”.

[5] Franchises for commercial use of the system were granted by the plaintiffs to the third defendant. The fourth and fifth defendants (the Pritchards) are, and at material times were, the directors of the third defendant. The Pritchards provided guarantees and indemnities in respect of the obligations of Ambrose Ltd and the third defendant.

[6] The franchises came to an end in February 2010, when the third defendant gave notice that it would not be renewing the franchises. The plaintiffs allege, in broad terms, that the third defendant and the Pritchards have breached obligations owed to the plaintiffs as a consequence of continued dealings with the system in conjunction with the first and second defendants, following termination of the

franchise agreements. The plaintiffs contend that there have been breaches of, amongst other things, restraint of trade provisions, obligations of confidentiality, and an obligation on the third defendant to make available for purchase by the plaintiffs, at the plaintiffs’ option, equipment owned by the third defendant and used for its franchise business. The plaintiffs further contend, in essence, that the first defendant was established by the Pritchards, or on their behalf, for the purpose of wrongfully continuing the businesses that had been operated under the franchises, that this was done utilising a structure designed to conceal the connection of the third to fifth defendants with the first defendant, and that the second defendant, Mr Sanderson, as a former employee of the third defendant was engaged to continue operation of the business through the first defendant.

The Evidence Act : ss 54 and 67(1)

[7] The third to fifth defendants contend that the communication is privileged pursuant to s 54 of the Evidence Act 2006; that is to say, they contend that solicitor- client privilege applies. The plaintiffs accept that the communication comes within the provisions of s 54(1), but contend that privilege should be disallowed under s 67(1). Section 67(1) provides:

67 Powers of Judge to disallow privilege

(1) A Judge must disallow a claim of privilege conferred by any of sections 54 to 59 and 64 in respect of a communication or information if satisfied there is a prima facie case that the communication was made or received, or the information was compiled or prepared, for a dishonest purpose or to enable or aid anyone to commit or plan to commit what the person claiming the privilege knew, or reasonably should have known, to be an offence.

[8] There are, therefore, alternative grounds for disallowing a claim of privilege: a dishonest purpose, or enabling or aiding anyone to commit or plan to commit an offence. The plaintiffs relied on both grounds.

The email

[9] The email is dated 14 April 2011. It contains advice from the solicitors for the third defendant and the Pritchards following an email from Mr Crage, the

managing director of the plaintiffs, to Mr Pritchard. Mr Crage’s email is dated 8

April 2011. Mr Crage said, in part:

It appears that you continue to rent computers on a short term basis in breach of your contractual obligations.

While you have gone to great length to hide the fact that you continued to trade in breach of your master franchise and franchise agreements the attached documents provide evidence of contractual breaches. The attached are simply samples of what we have discovered. ...

The documents do provide prima facie evidence of breaches of the type alleged in the plaintiffs’ statement of claim. Mr Crage referred to the alternatives of settlement discussions and litigation. The email of 14 April from the solicitor is in response to what obviously was a written enquiry for advice from Mr Pritchard. Mr Pritchard’s enquiry is not in evidence.

[10] The solicitor’s email of 14 April is in evidence because it was inadvertently disclosed to the plaintiffs.¹ I will set the email out in full, excluding the solicitor’s name and the name of his firm. I have inserted shaded numbers into the text of this email. This is for ease of reference when I come to discuss the inferences that may be drawn from this email.

Sent: Thursday, 14 April 2011 9:09 AM

To: Rob

Subject: υHire Intelligence

Hello Rob

ϖJust moving through the comments made by you in the same order, and with the same numbering system.

A

1. Gift Duty will apparently be abolished on the 1 October 2011. It is possible that you can forgive outstanding balances as at that date, but each case will turn on its own merits, and we will have to examine the legislation and your particular position to determine that forgiveness is the right option.

¹ The plaintiffs originally contended that there had been waiver of privilege as well as making the application under s 67 of the Evidence Act. The Associate Judge dismissed the plaintiffs’ contention in that regard and an application for review of that part of the Associate Judge’s decision was not pursued.

2. The debt owed by Godfrey Trust to yourself and Bryre can be forgiven subject to the change in legislation. There should be no concern about other loans to that trust.

3. William’s money should be in an account in his own name with

Bryre as the sole signatory.

B

1. The restraint of trade states that you shall not for a period of two years from the date of expiration or termination of the agreement directly or indirectly be engaged or concerned or interested in any capacity whatsoever in a business which carries on a business similar to or which competes with the Higher [sic] Intelligence business. Acting as the accountant for 1Solution is almost certainly in breach of the restraint of trade clause. Permanently delete the accounts, and until the end of the restraint of trade period, Grant should have them completed by another accountant.

2. It would be better if you were not in possession of the old HI

equipment.

3. It is highly unlikely that any sort of Court Order would be made allowing a “search” of your house. However, Court proceedings may result in what is called a Discovery Order under which you have to discover, or disclose, all relevant information or material held by you.

4. They have to prove that you are directly or indirectly engaged or concerned or interested in any capacity whatsoever in a business which carries on a business similar to or which competes with the Higher [sic] Intelligence business.

C

1. I can’t give you a copy of the Sito Trust Deed without Barbara’s consent. ξIf she agrees, Grant Sanderson might be named as a beneficiary. You have no control over the trust or who its beneficiaries are. ωThere may or may not be a direct connection between the trust and you. {It is always possible that Higher [sic] Intelligence could obtain a copy of the trust deed under discovery, but it would be quite a tortuous and difficult process for them.

2. ψIf Grant were to become a beneficiary of Sito Trust then it would be quite simple to “hand over” the business by way of a distribution from the trust. ζAlternatively, the trust might sell the business to Grant with a debt back which would then provide some options at a later stage as to whether or not the debt should be forgiven, or whether Sito Trust might come back in as a shareholder at some later stage. |We can discuss the options with you if necessary, although we are not inclined to think that any such charge is a good idea.

3. 4. Our comments concerning looking at the trust deed are above.

The ultimate settlor is Barbara. The only possible connection you have with the trust is as a potential beneficiary of the trust.

However, we cannot see that it makes you “engaged or concerned or interested in any capacity whatsoever” because you don’t even have a guaranteed position as a beneficiary.

Turning to your response to the email from Tom Crage. Our inclination is that a very short and direct response should be used. The allegations themselves are brief, and they don’t actually provide direct evidence (merely an inference) that you are trading. Your reply might be something like this:

“Hi Tom

I can see how you might have formed the conclusion that I am trading in breach of the Master Franchise and Franchise Agreements.

I am not. I am employed full time as a contractor to Esito in Hamilton (working as an accountant). I am not renting out computers on a short term basis. I am not trading. }It is true that I have occasionally helped out others, but I have no interest in any organisation that I have helped, have not traded with them, have not been engaged by them in any capacity and have received no financial benefit as a result.

You will have noticed that I have been totally co-operative with you throughout the period since termination of the Master Franchise and Franchise Agreements. I have returned money to you when it was sent to my bank account, helped you get equipment into the country using my customs code when you didn’t have a code, and you will also recall that I was called by the Department of Internal Affairs following your breach of New Zealand emails scamming [sic] law when you sent 27,000 emails in one night.

Regards

Rob Pritchard”

The judgment under review and the contentions on review

[11] The Judge upheld the plaintiffs’ argument that there was a prima facie case that the communication was made to enable or aid Mr Pritchard to commit or plan to commit what Mr Pritchard, as the person claiming privilege, knew or reasonably should have known to be the offence of attempting to pervert the course of justice. The Judge did not uphold the plaintiffs’ argument that the email was also made for a dishonest purpose. The Judge further held that privilege should be disallowed only in respect of paragraphs 1 and 2 in section B of the email.

The offence ground

[12] The offence relied on by the plaintiffs is the offence under s 117(e) of the Crimes Act 1961 of attempting to obstruct, prevent, pervert, or defeat the course of justice in New Zealand. I will refer to this as attempting to obstruct the course of justice. The plaintiffs submitted that there was a prima facie case of attempting to obstruct the course of justice because, in particular, section B of the email contained advice that would improperly interfere with, and possibly defeat, the plaintiffs’ entitlement to discovery by destroying evidence. This would be contrary to the obligation of the defendants under r 8.3 of the High Court Rules to take all reasonable steps to preserve documents that are, or are reasonably likely to be,

discoverable in the proceeding.²

[13] The Judge discussed this issue, including submissions for the defendants, as follows:

[39] Mr O’Neill [counsel for the defendants] submitted that the email did not recommend the destruction of the accounts, only their deletion. On that basis, he said there could be no recommendation to obstruct, prevent, pervert or defeat the course of justice. He submitted that in reality all the solicitor was recommending was a course of action that would ensure that there would be no continuing breach of the restraint of trade in the future. I reject that submission. The advice given by the solicitor was to delete a piece of evidence which the solicitor acknowledges in the email as evidence of a breach of the restraint of trade. There is a further matter, and that relates to possession of the old HI equipment [that is to say, the third defendant’s equipment]. There is in the material before me a request to exercise an option to purchase that equipment which is provided for in clause 12.8 of the franchise agreements. This provision is admitted in the proceedings. It is referred to in paragraph 22 of the statement of claim. Bearing in mind that the central allegation in this case is that the third, fourth and fifth defendants have allowed the third defendant’s business to be handed over to the first defendant, it is not surprising that the plaintiff would want access to “old HI equipment”. An instruction to be “not in possession of it” is, in fact, nothing short of getting rid of evidence that might well be highly relevant in the determination of this proceeding. I find Mr Quinn’s [counsel for the plaintiffs] submissions on this point

² The plaintiffs further submitted that there was a prima facie case of breach of r 13.9 of the Rules of conduct and client care for lawyers 2008 imposed on the solicitor, as an officer of the Court, to ensure that Mr Pritchard’s discovery obligations were fully complied with by Mr Pritchard as the lawyer’s client. There are questions as to whether breach of the rule would constitute “an offence” and

whether there is a prima facie case that Mr Pritchard, being the person claiming privilege, reasonably should have known that it would be an offence. It is unnecessary to consider the application of r 13.9.

compelling. On that basis, it is appropriate that the claim to privilege be disallowed.

Dishonest purpose

[14] The plaintiffs argued before the Judge, and on this application for review, that privilege should be disallowed for the entire communication – the email as a whole – if there was a finding for the plaintiffs on the commission of an offence ground. The plaintiffs further argued, at both hearings, that in any event privilege for the entire email should be lost because it was made for a dishonest purpose; in essence, dishonest concealment of the fact that the Pritchards, or at least Mr Pritchard, retained an ongoing interest, direct or indirect, in the substance of the franchise business that had been terminated. The Judge dealt with the alternative argument of dishonest purpose before considering whether privilege should be disallowed in whole or in part.

[15] He referred first to discussions of the meaning of the expression “dishonest purpose” in decisions of this Court in Red Bull Gmbh v Manhaas Industries Ltd³ and Fullerton-Smith v Fullerton-Smith.⁴ The Judge concluded that to establish dishonesty or a dishonest purpose requires evidence of fraud, sham, or trickery.⁵

[16] The Judge referred to the evidence supporting the plaintiffs’ contentions that all five defendants conspired by unlawful means to injure the plaintiffs’ interests and, as part of this, to seek to conceal the fact that the first plaintiff had been incorporated for the purpose of improperly acquiring the business or businesses that had been operated under the franchises. The Judge then said:

[52] Mr Quinn also sought to persuade me that the references in the paragraphs under the main headings “C” and “A” to the trusts were for the dishonest purpose of concealing the true beneficial entitlement to the business of the first defendant and, more particularly, whether that entitlement was in reality the Pritchards’. There is not before me proof of those assertions. What is clear from the email is that the Pritchards apparently do not have a beneficial interest in the two trusts that are referred to under the headings “A” and “C” of the email. I do not overlook the fact that the solicitor has offered to discuss options. All that presupposes that

³ _{Red Bull Gmbh v Manhaas Industries Ltd HC Wellington CIV-2010-485-1866, 29 July 2011 (Kós J).}

⁴ _{Fullerton-Smith v Fullerton-Smith HC Hamilton CIV-2011-419-615, 26 August 2011 (Heath J).}

⁵ At [49].

either the settlor or the trustee of the Sito Trust is prepared or, for that matter, authorised under the trust deed to make changes to the trusts themselves. More particularly the implication is that at the moment the Pritchards do not have any beneficial interest so that the trusts themselves could not be considered as devices which effectively hide the true beneficial interest in the alleged trading by the first defendant which is said to be a breach of the restraint of trade. A client is, after all, entitled to ask a lawyer for advice as to how the client should structure beneficial ownership of the client’s interests in the client’s assets. There is nothing illegal or dishonest in a client inquiring of a solicitor as to whether assets should be held in trust. There is nothing illegal or dishonest in asking a solicitor to advise on whether a particular person should be the beneficiary or that the beneficiaries be limited to a class of persons.

[53] Accordingly, I conclude that the balance of the email contains material which is privileged. I have not been satisfied in terms of s 67 that this material provides a basis for the privilege attaching to it being removed because of some dishonest purpose.

Disallowing privilege in part

[17] The Judge considered whether there was a principled basis for disallowing privilege in part only and, if so, whether privilege should be disallowed as to part only of the email. He referred to the discussion of this question in New Zealand Institute of Chartered Accountants v Clarke⁶ and Unilever plc v The Procter & Gamble Co.⁷ Both of those cases were concerned with privilege in respect of “without prejudice” communications, now governed in New Zealand by s 57 of the

Evidence Act 2006. The Judge concluded that the principles also applied to solicitor-client privilege. He said:

[62] By analogy to the “without prejudice” privilege, I agree that there should normally be a blanket privilege for solicitor–client communications. However, a special reason exists in this case to split the email into two communications, only one of which should have privilege disallowed. The special reason is that a piece of advice that furthers a crime should not deserve privilege, but that principle should only intrude upon solicitor–client privilege as little as possible, given the crucial role it plays in the legal system.

[18] This led to an order disallowing the claim of privilege for paragraphs 1 and 2 of section B. These are the paragraphs concerned directly with what the Judge had

_{decided constituted enabling or aiding Mr Pritchard to obstruct the course of justice.}

⁶ _{New Zealand Institute of Chartered Accountants v Clarke [2009] NZHC 249; [2009] 3 NZLR 264 (HC).}

⁷ Unilever plc v The Procter & Gamble Co [2001] 1 WLR 2436, [2001] 1 All ER 783 (CA).

Discussion : aiding an offence

[19] I am satisfied the Judge was correct on this limb of s 67(1), and essentially for the reasons he gave, as recorded above at [13]. I add the following, directed principally to some of Mr O’Neill’s submissions on this issue.

[20] Mr O’Neill submitted that the plaintiffs “must establish that what [the solicitor] was doing was attempting to corrupt a jury or a witness”. This submission was founded on the heading to s 117 – “Corrupting juries and witnesses”. The text of s 117 makes clear that the offences contained in s 117 go well beyond what is

indicated in the heading.⁸

[21] The submission that it must be shown that it was the solicitor who was attempting to commit the offence is contrary to the clear words of s 67(1). The sub- section refers to a communication or information “to enable or aid anyone to commit or plan to commit” (emphasis added) an offence. It is not necessary that the person providing the information, or the recipient of the information, be the person who is being enabled or aided, although if either or both of those persons are planning to commit the offence that obviously would meet this requirement of s 67(1).

[22] Section 117(e) is wide in its terms and directed to civil proceedings as well as criminal proceedings. The offence itself is attempting to obstruct the course of justice. It is therefore unnecessary for the plaintiffs in this case to establish that the course of justice was in fact obstructed.⁹

[23] Mr O’Neill submitted:

The Plaintiffs must also establish (on a prima facie basis) that [the solicitor] was wilfully attempting to obstruct, prevent, pervert or defeat the course of justice in New Zealand.

In order to do so, the Plaintiffs must firstly show, on a prima facie basis, that there was a wilful attempt to do so and secondly, that there was an attempt to pervert the course of justice.

⁸ _{See R v Coneybear [1965] NZCA 19; [1966] NZLR 52 (CA); McMahon v R [2009] NZCA 472 at [70]- [73].}

⁹ For the wide scope of s 117(e), and the particular elements in respect of obstruction, preventing, perverting and defeating the course of justice, see the discussion in Sir Bruce Robertson (ed) Adams on Criminal Law (online looseleaf ed) at CA117.04.

[24] This, to an extent, conflates the elements of the offence, or blurs the nature of the offence, when related to the provisions of s 67(1) of the Evidence Act. Advice from a solicitor to a client that evidence should be destroyed by the client at least establishes a prima facie case of an attempt by the solicitor to obstruct justice and that would come within the words of s 67(1) of the Evidence Act whether or not the client took any relevant steps. The specific requirement under s 67(1) in respect of the client, as the person claiming the privilege, is that the client knew or reasonably should have known that the destruction of the evidence would be an offence. I am satisfied on the evidence available that Mr Pritchard would have known that destruction of the evidence would be an obstruction of the course of justice. It would not be necessary to establish a prima facie case that Mr Pritchard had knowledge of the provisions of s 117(e) of the Crimes Act. What has to be established, to the requisite standard, is Mr Pritchard’s knowledge of facts constituting the offence and relevant intention. On the evidence there was a direct enquiry from Mr Pritchard as to what he should do with the old equipment and the accounting records because he recognised that his possession of these items might emerge in the course of the proceeding.

[25] There is no evidence about any of this from Mr Pritchard. The absence of evidence from Mr Pritchard means that adverse inferences that may be drawn from the evidence relied on by the plaintiffs are not answered.

[26] There are two affidavits from the solicitor. The first was filed for the purpose of the original applications heard by the Associate Judge. This is directed essentially to the question whether there had been waiver of privilege and is supportive of the defendants’ contention that the email is covered by s 65 of the Evidence Act.

[27] The second affidavit was filed for the review hearing. In this affidavit the solicitor, in effect, responds to and challenges the adverse findings in the judgment now under review. There are two preliminary points to make about this affidavit. The first is that material parts of it contain opinion or are argumentative and those parts should not have been in the affidavit. The second point, and this applies also to the first affidavit, is that neither affidavit should have been tendered in evidence because the solicitor is the solicitor on the record for the third, fourth and fifth

defendants. This was discussed with Mr O’Neill. Reference should be made, in particular, to r 13.5 of the Rules of conduct and client care for lawyers 2008. The facts of this case amply illustrate the reasons for r 13.5. Notwithstanding these matters I will address some aspects of the second affidavit and Mr O’Neill’s further submissions.

[28] In respect of the accounting records the solicitor said:

12. I viewed the accounting advice which Mr Pritchard had been giving

1 Solution Limited as potentially a breach of the restraint of trade. I

took the view that if Mr Pritchard had any financial accounts for 1

Solution Limited on his computer then he should delete such accounts because, in my view, to retain them would have been a

continuing breach of the restraint of trade. Mr Sanderson, for the

company, would have had those accounts in any event and they would have been able to be discovered by him.

13. That is why I advised Mr Pritchard to delete them because I did not think he should retain any documentation which might have been a continuing breach of the restraint of trade (if any).

14. It was never my intention to advise Mr Pritchard to destroy evidence. The manner in which I gave the advice was as a result of my view that he was probably using a computer and therefore he should delete the accounts so that he could not see them and therefore not continue to breach the restraint of trade if that was what he was doing.

15. In any event, the evidence was not destroyed. If it was deleted (if it existed and I was not sure about that), then it was only deleted off the screen. I am aware that such information can be recreated if a party wants to recreate it off the hard drive of the computer.

16. Furthermore, when one reads the sentence it, if taken in context, was that the accounts should be deleted and Grant (Sanderson) should have such accounts completed by another accountant.

17. Therefore, Mr Sanderson has his accounts and I am sure he has probably discovered them. I would imagine they are relevant and discoverable.

[29] The solicitor said that he had no intention to attempt to pervert or defeat the course of justice and that he was aware of his obligations as an officer of the Court and that he would not breach them.

[30] In respect of the “old HI equipment” the solicitor said:

19. The other part of the e-mail which was allowed in and again which the Associate Judge has found that there should be lifting of the legal privilege was the comment:-

“It would be better if you were not in possession of the old

HI equipment.”

I was proffering an opinion. There was no attempt at giving criminal advice. I was only saying that it would be better that Mr Pritchard not have it in his possession. Even if he did get rid of it, it might be a breach of the franchise agreement, but nothing further. There was no attempt, nor intention, on my part to give any advice about committing a crime and in my view that clause does not say that anyway.

[31] Mr O’Neill made a general submission in respect of the affidavit that it should be accepted by the Court because it is “unchallenged evidence”. As I have already indicated, parts of it do not constitute admissible evidence. In respect of those parts which are admissible evidence, I agree with Mr Quinn’s submission on behalf of the plaintiffs that there was no evidence that the plaintiffs could usefully or properly adduce in response. This does not mean that the Court cannot weigh this evidence. And the matters put forward in the affidavit were certainly challenged in submissions quite properly made on behalf of the plaintiffs.

[32] In my judgment, numbers of the statements in this affidavit, weighed against the evidence presently before the Court, are disingenuous and in some respects do not address the relevant point. The present significance of Mr Pritchard’s possession of accounts for the first defendant is that it shows a continuing connection with the first defendant, not that it might come within the provisions of the restraint of trade clause. In any event, deleting the accounts is the deletion of evidence. The argument that the evidence was not intended to be “destroyed” is disingenuous. It is also, on the face of it, an attempt to reconstruct what is said in the email. The instruction was to “[p]ermanently delete the accounts” (emphasis added). The affidavit amounts to an argument designed to obscure the obvious significance of that word. Similar observations may be made about the statement, which also is argument and not evidence, that the accounts would be discoverable by the first and second defendants. That is far from the point presently at issue.

[33] The suggestion in paragraph 19 that the statement about the old equipment was simply “proffering an opinion” also is disingenuous. It is advice from a lawyer to a client to get rid of the equipment. A plain purpose of this advice, like the advice about the accounts, was to remove evidence connecting Mr Pritchard to the continuing business. It would also protect the third to fifth defendants from the likely adverse consequences of the fact that the third and fourth defendants told the plaintiffs, when the franchises were coming to an end, that they had not retained any of the equipment in respect of which the plaintiffs said they were considering exercise of the option to purchase.

[34] A prima facie case of enabling or assisting an offence as found by the Judge is made out by the plaintiffs.

Discussion : dishonest purpose

The meaning of “dishonest purpose”

[35] As noted above, the Judge referred to the discussions of the meaning of dishonest purpose in Red Bull¹⁰ and Fullerton-Smith.¹¹ The Judge drew from these cases his conclusion that “dishonest purpose” requires “fraud, sham or trickery”. Those words come from Crescent Farm (Sidcup) Sports Ltd v Stirling Offices Ltd in which Goff J said: ¹²

I agree that fraud in this connection is not limited to the tort of deceit and includes all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances ...

[36] Kós J, who decided the Red Bull case, again considered the question in Rollex Group (2010) Ltd v Chaffers Group Ltd.¹³ The judgment was delivered six days before the judgment of Associate Judge Faire and the Judge was not referred to this

_{very recent decision.}

¹⁰ Red Bull Gmbh v Manhaas Industries Ltd HC Wellington CIV-2010-485-1886, 29 July 2011 (Kós

_J).

¹¹ _{Fullerton-Smith v Fullerton-Smith HC Hamilton CIV-2011-419-615, 26 August 2011 (Heath J).}

¹² _{Crescent Farm (Sidcup) Sports Ltd v Sterling Offices Ltd [1972] 1 Ch 553(ChD) at 565 (Goff J).}

¹³ Rollex Group (2010) Ltd v Chaffers Group Ltd [2012] NZHC 1332, [2012] NZAR 746.

[37] The central question of principle in Rollex Group was whether the communication or information had a relevant operative effect in respect of a dishonest purpose. After a review of a number of decisions of Courts of England and Wales the Judge concluded:

[45] At common law therefore it is apparent that the advice has to be part of the instrumentation of the illegal purpose for it to lose its ordinary protection. ... In each case where the privilege was set aside the legal advisers’ participation was essential or desirable to effect the dishonesty, or the adviser was a witting participant in that dishonesty.

[38] The meaning of the expression “dishonest purpose” does not appear to have been the central issue in the Rollex Group case, but the judgment reviews a number of New Zealand decisions, together with some decisions of Courts of England and Wales, Australia and Canada.¹⁴ The New Zealand decisions referred to and decided under the Evidence Act 2006 indicate a preference for defining “dishonest purpose” as “fraud, sham or trickery”.¹⁵ Kós J described the test of fraud, sham or trickery as a more stringent test than suggested in the pre-Evidence Act decision of Laurenson J in Gemini Personnel Ltd v Morgan and Banks Ltd.¹⁶ In that case Laurenson J was addressing the common law exception described as the “fraud exception”. He concluded that three elements are required before privilege can be excluded: (1) the conduct must be prejudicial to the interests of another; and (2) sufficient to attract a civil remedy; and (3) be attended by dishonesty, i.e. conscious deception or sharp practice.

[39] The starting point for analysis must be the words of the Act. As the Supreme Court has observed when dealing with other provisions of the Evidence Act, it is generally unnecessary and inappropriate to have resort to cases decided at common law unless the provision of the Evidence Act in question requires consideration of

_{the common law or s 10 of the Evidence Act applies.}¹⁷ _{Section 10 is as follows:}

¹⁴ _{At [32]-[43].}

¹⁵ Red Bull (Kós J), Fullerton-Smith (Heath J), Rollex Group (Kós J) and Manifest Capital

_{Management Ltd v Lawrence HC Auckland CIV-2010-404-7741, 20 December 2011 (Heath J).}

¹⁶ _{Gemini Personnel Ltd v Morgan & Banks Ltd [2000] NZHC 369; [2001] 1 NZLR 14 (HC) at 68.}

¹⁷ Mahomed v R [2011] NZSC 52, [2011] 3 NZLR 145 at [4]; Wi v R [2009] NZSC 121, [2010] 2

NZLR 11 at [25]-[26].

10 Interpretation of Act

(1) This Act—

(a) must be interpreted in a way that promotes its purpose and principles; and

(b) is not subject to any rule that statutes in derogation of the common law should be strictly construed; but

(c) may be interpreted having regard to the common law, but only to the extent that the common law is consistent with—

(i) its provisions; and

(ii) the promotion of its purpose and its principles; and

(iii) the application of the rule in section 12.

(2) Subsection (1) does not affect the application of the Interpretation

Act 1999 to this Act.

[40] On the face of it, the provisions of s 67(1) are reasonably straightforward and indicate an approach which, at least to an extent, is contrary to some aspects of the earlier decisions of this Court. For example, in Red Bull and in Rollex Group, Kós J explained that he preferred the higher threshold than that indicated by Laurenson J in

Gemini Personnel because of public policy considerations; as Kós J put it:¹⁸ “the

general societal importance of protecting legal adviser communications – emphasised by the Privy Council in B v Auckland District Law Society¹⁹”. The importance of privilege in respect of legal adviser communications is not in issue, but s 67(1) does not express any presumption in favour of protection of privilege if there are s 67 issues.

[41] I am also doubtful that it materially assists to find synonyms for the expression “dishonest purpose”. Each of the words “fraud”, “sham” and “trickery” may convey meanings different from “dishonesty”, or narrow its meaning. A preference for the composite test of “fraud, sham or trickery” as setting a higher threshold in itself indicates some divergence from what Parliament apparently meant and intended by using the expression “dishonest purpose”.

[42] A quick review of the history of s 67(1) lends some emphasis to this approach. The Law Commission’s preliminary paper on evidence law discussed the exception as one applying in cases of crime or fraud.²⁰ The original draft of what is now contained in s 67(1) was as follows:

15 Powers of court to disallow privilege

(1) A court may disallow a claim of privilege conferred by this Part in respect of a communication or information if the court considers that the communication was made or received or the information was compiled or prepared to enable or aid anyone to commit or plan to commit what the person claiming the privilege knew, or reasonably should have known, to be an offence, a fraud, or other unlawful act.

[43] The Law Commission’s redraft of what is now s 67(1), in the Law Commission’s final report, is essentially the same as s 67(1) with one exception. There are the alternative grounds, now in s 67(1), with the first alternative in the Law Commission’s draft using the expression “dishonest purpose”. The exception relates to the standard of proof. The Law Commission’s draft required a “strong prima facie case” not, as enacted, simply a “prima facie case”. The omission of the adjective “strong” also points to the risks in applying common law decisions and reinforces the earlier point that s 67(1) does not carry any presumption in favour of preservation of privilege.

[44] The meaning of dishonest purpose is coloured by its context. It is to be contrasted with, or at least its meaning assessed by reference to, the alternative in s 67(1) of enabling or aiding commission of an offence. This means, amongst other things, a communication or information to aid commission of an offence is likely in

most cases also to be for a dishonest purpose.²¹ A dishonest purpose encompasses

things less than, as well as different from, an offence. Also, as the legislature has chosen to use the expression “dishonest purpose”, rather than “fraud”, or the composite expression “fraud, sham or trickery”, it is reasonable to conclude that the legislature was intending to cover any dishonest purpose, not just those particular types of dishonest purpose.

[45] What is meant by “dishonesty” has been carefully considered in relation to accessory liability or dishonest assistance. The discussion of the meaning of dishonesty by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan²² in this context has been adopted in New Zealand. This includes approval in New Zealand of the objective standard to be applied as discussed in Tan and subsequently by the Privy Council in Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd.²³ The Barlow Clowes decision was discussed with general approval by the New

Zealand Supreme Court in Westpac New Zealand Ltd v MAP and Associates Ltd,²⁴ in

relation to dishonest assistance by a bank. A further recent application of Tan, in respect of a trustee’s liability, is in Spencer v Spencer.²⁵ French J cited with approval the basic test stated by the Privy Council in Tan:²⁶

[A]cting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard.

[46] The Privy Council also observed, in the same discussion:

In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment.

Further examples were given. This particular example is of direct relevance to this case.

[47] Cases will arise from time to time where there is uncertainty as to whether the purpose in question is a dishonest one. Such cases may require further analysis beyond the guidance provided by Tan. And it must be recognised that Tan is a discussion of dishonesty in the specific context of accessory liability or dishonest assistance. The facts of this case do not in my judgment give rise to a case on the

_{margins. The guidance from Tan is sufficient to determine whether the email “was}

²² Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; [1995] 2 AC 378, [1995] 3 WLR 64, [1995] 3 All ER 97 (PC)

_{per Lord Nicholls.}

²³ Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1

WLR 1476[2005] UKPC 37; , [2006] 1 All ER 333. In this decision the Privy Council discussed the conflict between Royal Brunei v Tan and the House of Lords decision in Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164, [2002] 2 All ER 377.

²⁴ _{Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.}

²⁵ Spencer v Spencer [2011] NZHC 2114; [2012] 3 NZLR 229 (HC).

made or received”, or the information in it “was compiled or prepared, for a

dishonest purpose”.

[48] The email must be assessed in the context of the background facts which are sufficiently established by the evidence presently before the Court. There is a broad outline of those facts earlier provided.²⁷ What follows expands on that outline. It is taken, in part, from Mr Quinn’s submissions on the facts which I am satisfied are established to the requisite standard of a prima facie case.

[49] The first defendant commenced operations in or around November 2009. This was approximately three months before expiry of the third defendant’s franchises. This occurred because the third defendant gave notice that it had decided not to renew the franchises. Mr Sanderson, the second defendant, is the sole director of the first defendant. He had worked for the third defendant for approximately seven years before leaving the third defendant’s employment and becoming involved with the first defendant.

[50] Although Mr Sanderson is the sole director of the first defendant, he is not an owner of any shares in the company. The owner is the trustee company of the law firm of the third to fifth defendants. The solicitor who is the author of the email in question is a partner in this firm. The solicitor is the sole director and sole shareholder of the trustee company. In other words, the trustee company is the legal owner of the first defendant and is controlled by the solicitor.

[51] The plaintiffs allege in their statement of claim that the first defendant is owned by a trust in which either or both of the Pritchards have a direct or indirect interest. The pleading in response for the first and second defendants is that they have “no knowledge” in this regard.

[52] Documents discovered by defendants indicate that there was a transfer of customers from the third defendant to the first defendant following termination of the franchises. Other documents indicate that the first defendant began operating its

_{business using the equipment that had previously been owned by the third defendant}

²⁷ At [4]-[6] above.

for the purpose of its franchised business. Terms and conditions for customers of the first defendant are almost identical to terms and conditions for customers of the third defendant. There is evidence that the first defendant was invoicing clients of the third defendant, being clients under the franchise from the plaintiffs, before termination of the franchises.

[53] The analysis of the email is to be made against that factual background, but without any evidence from Mr Pritchard in respect of the advice he sought from his solicitor, following the letter from Mr Crage, or generally, and without any evidence from Mr Sanderson. Nor is there any evidence from the solicitor precisely as to the advice that was sought by Mr Pritchard. As a consequence, inferences that do arise from the context and from the content of the solicitor’s email, are not subject to contradictory and direct evidence from Mr Pritchard or Mr Sanderson, or alternative inferences that might arise from such evidence.

[54] The broad enquiry in respect of the email is whether the advice given in sections A and C of the email is in some way connected with the businesses that had been operated under the franchises by the third defendant and, if so, whether some dishonest purpose or purposes has been established in this regard on the basis of a prima facie case.

[55] I will record my conclusions in an itemised way by reference to the shaded numbering inserted in the transcript of the email earlier reproduced:

υ The subject matter of the email is “Hire Intelligence”. This is a reference to the plaintiffs and the plaintiffs’ allegations against the defendants.

ϖ This opening sentence indicates that there was an itemised and reasonably detailed written enquiry from Mr Pritchard. This, coupled with the subject matter (υ) and the date of the reply, only six days after Mr Crage’s letter threatening litigation, gives rise to an unanswered inference that the entire letter was concerned with the

threatened litigation and how to respond and better protect the defendants.

ω This sentence – “There may or may not be a direct connection between the trust and you.” – is revealing. Expressed in a different way, this is a statement by the solicitor that there may be a direct connection between Mr Pritchard and the trust. It is also implicit that there is an indirect connection.

ξψ These parts of section C of the email make sufficiently clear that the business of the trust is the business apparently owned by the first defendant and under the apparent directorship of the second defendant, Grant Sanderson, who is named in the email.

ζ This advice, in respect of the business which is a trust asset, amounts to advice as to how better to conceal the connection between the business owned by the trust and Mr Pritchard, with that better concealment to take place during the period of exposure that would arise from litigation.

{ This sentence is implicit acknowledgement by the solicitor of a likely obligation on the part of his clients to disclose information which, at least as matters were structured at the time, could show a link between Mr Pritchard (and presumably Mrs Pritchard) and the business which the plaintiffs were asserting had wrongfully been taken over or carried on by the first defendant.

| The willingness of the solicitor to “discuss the options” in respect of the trust with Mr Pritchard is ample evidence in the present context of a connection between the defendants and the trust of relevance to the plaintiffs’ claims. What this in turn establishes, to the standard required by s 67(1), is that options are being considered for continuation of concealment put in place through the trust structure. In the absence of evidence to the contrary, the further inference is that

this trust structure, in respect of which Mr Pritchard “may or may not” have a direct connection, occurred at the same time that the solicitor incorporated the first defendant. Structures of this nature may be set up for honest purposes. But the email, in part directly from its content, and otherwise when read in context, gives rise to a contrary inference with no evidence to rebut that inference. The conclusions earlier recorded in respect of the content of section B of the email reinforce this conclusion. Section B, in essence, is directed to the defendants’ attempts to cover their tracks. The communication in section B is for a dishonest purpose as well as being to aid in

commission of an offence.²⁸ The rest of the email is concerned with

other means of covering their tracks.

} The purpose of the draft of a reply by Mr Pritchard to Mr Crage is to the same effect – dishonestly to assert a lack of any connection between Mr Pritchard and the first defendant company. This is highlighted by the sentence numbered }. A person who may have a connection with the trust, which trust on the face of it has a connection with the business, cannot honestly assert what is asserted.

[56] In the judgment under review, the Judge referred to the absence of evidence that Mr and Mrs Pritchard have a beneficial interest in either of the trusts referred to in the email. That conclusion is, with respect, justified from a consideration of the positive assertions in the email. However, I am satisfied that a dishonest purpose in the present context is not necessarily dependent upon establishing that the Pritchards have what as a matter of law would amount to a true beneficial interest in the trusts. What is relevant is whether the email, weighed in the context of other relevant evidence, indicates dishonest concealment by the defendants. Having regard to all of the matters referred to I am satisfied that the plaintiffs have established a prima facie case of dishonest purpose in the email. It is advice to assist in continuing and better perfecting intentional deception of the plaintiffs through dishonest concealment. It may be, following a substantive hearing, that this will not be the final determination

_{of the Court. But the defendants have not put up evidence which persuades me that}

²⁸ See the earlier discussion in respect of those two elements above at [44].

the plaintiffs have not at this point established a prima facie case of dishonest purpose.

[57] This conclusion applies to the email in its entirety. For this reason it is unnecessary to consider the question whether, as a matter of principle, privilege might be disallowed for part of a communication only and, if so, whether this is a case where the principle should be applied. I am satisfied that privilege should be disallowed under s 67(1) in respect of the entire email.

Result

[58] The result is as recorded at [3] above.

[59] The plaintiffs are entitled to costs. I would expect the parties to agree on costs. If agreement cannot be reached the plaintiffs should file and serve a memorandum, with a response for the defendants to be filed and served within a month of receipt of the plaintiffs’ memorandum.

The defendants’ solicitor

[60] This judgment contains conclusions adverse to the defendants’ solicitor. Although there are affidavits from the solicitor bearing on the issues, the solicitor was not separately represented in respect of his own interests. For these reasons, and because the conclusions in this case are based on a prima facie case for the plaintiffs, as opposed to final determinations, I am satisfied that it would be unfair to the solicitor for there to be any publication of information which might identify him, pending any further order of the Court. Consequently, there is an order prohibiting publication of the name of the defendants’ solicitor, or any identifying particulars, in

_{connection with this case.}

Woodhouse J