HIS HONOUR: The plaintiff tenders a chain of emails between the second defendant Mr Gary Williams and one John Alex D, and a further chain of emails between Mr Williams and one Michael Mazzone. The defendants object on the basis of client legal privilege under (NSW) Evidence Act 1995, ss 118 and 119. This judgment is concerned with that tender and objection.
[3]
Background
The first defendant company Optimisation Australia Pty Ltd is held, in substance, as to 35% by the plaintiff Brian Kearney, as to 33% by his brother-in-law the second defendant Gary Williams, and as to 32% by his sister the third defendant Susan Williams. Prior to April 2013, all three were employed by the company, and had been so employed since its inception in 2006. Although the remuneration arrangements had varied over that period, each was as at April 2013 entitled to an annual salary, calculated on the basis of $100,000 for a full-time equivalent. However, Brian was dismissed as redundant on 30 April 2013. In these proceedings, he contends that he was not truly redundant, and that his dismissal was oppressive and/or unfairly prejudicial and discriminatory within meaning of (CTH) Corporations Act 2001, s 232. While other matters are also relied on, it is fair to say that that allegation is the central plank of Brian's oppression case. The defendants' case is that a combination of changes in the company's business model, and Brian's refusal to undergo re-training, rendered him redundant, and that his dismissal was in the interests of the company.
By March 2013, disharmony had emerged between Brian on the one hand, and Gary and Susan on the other. On 5 March 2013 at 6.27pm, Brian sent an email to Gary raising a number of questions about the company's finances, including in particular a request to sign documents that would permit Brian to access the company's bank accounts and become a signatory to them. Approximately four hours later, at 10.30pm, Gary sent the first email to John Alex D, who is a solicitor. he email was sent from Gary's work email account at Optimisation Australia (gary.williams@optimisation.com.au), on electronic stationery that bore the company's logo and privacy notice and Gary's signature block as Operations Manager. Without objection from either party - indeed, it was practically inevitable in the way this case had developed that I would do so - I have inspected the documents that are the subject of the claim in each case, to form a judgment on whether they were confidential, and whether it was likely that there was an intention to disclose them. For present purposes, it is suffice to say that the email to John Alex D sought advice on a number of issues concerning Brian's interest in and future in the company. John Alex D's very modest fee for providing such advice was personally paid by Gary.
On 27 March 2013, Gary sent the first email in the chain to Mr Michael Mazzone, a solicitor of Diamond Conway. It too was sent from Gary's Optimisation Australia work email account on electronic stationery that bore the company's logo and privacy notice, and Gary's official signature block. This email too sought advice referable to Brian's interest in and future in the company.
Gary and Susan did not then proceed with a proposal to remove Brian as a director, although they did proceed with a proposal to appoint Susan as director who, at least formally, had not until 29 April 2013 or thereabouts been a director. On 29 April 2013, when Gary and Susan voted to appoint Susan as a director, Susan emailed Brian to advise him that a directors' meeting had been called to discuss HR and operational issues. Brian says that, given the hostile relationship between him and Gary and Susan, he did not attend the shareholders' meeting on 29 April. On 30 April, Gary and Susan held a directors' meeting, at which Brian was dismissed as an employee, the assertion being that his position as sales consultant had been made redundant. No notice of intention to dismiss him had been given, beyond the reference to a meeting to discuss HR and operational issues. He was given notice of his redundancy at 4.16pm that day by email from Susan.
The purpose of the tender of the email in question is apparently to endeavour to undermine the contention that Brian was bona fide made redundant.
These proceedings were commenced by originating process filed on 17 May 2013. In his initial supporting affidavit, sworn on 14 May 2013, Brian (at [99]) said:
On or around 7 March 2013, I accessed the OA server and noticed that on or about 6 or 7 March Gary exchanged email correspondence with John Alex D who appears to be a solicitor. Located behind tab 13 of exhibit BK1 is a true copy of said email.
In the same affidavit, Brian said (at [133]):
On or around 27 March 2013, I accessed the OA server and located an email from Gary to Mr Michael Mazzone. Located behind tab 43 is a true copy of said email.
In due course, the proceedings continued on pleadings. In Brian's amended statement of claim, dated of 11 March 2014, he pleaded (at [47]):
In March 2013, the second defendant determined to (a) remove or prevent the plaintiff from involving himself in the management of the first defendant; (b) nullify or prevent the plaintiff from involving himself in the financial decision-making of the first defendant.
Particulars: the determination is evinced [sic] in an email from the second defendant to a person unknown in March 2013.
The defendants requested particulars of that allegation on 21 March 2014, in the following terms:
Please provide a copy of the email from the second defendant to a person unknown in March 2013 referred to in the particulars of para 47.
The plaintiff's answer of 11 April 2014 was, relevantly:
The details of how the second defendant removed or prevented the plaintiff from involving himself in the financial decision-making of the first defendant are set out in the exchange of emails between Gary Williams and John Alex D located behind tab 13 of the affidavit of Brian Kearney sworn 14 May 2013.
No objection was taken to the pleading, nor was any application made to strike it out, or at least that part of it. In the defence to the amended statement of claim, which was filed on 23 May 2014, paragraph [48] simply denied paragraph [47] of the amended statement of claim.
In an affidavit sworn on 16 July 2014 (at [328]), Brian said that he became aware that the defendants wanted him out of the business and were prepared to do so any way they could, "because on 27 March 2013, I located an email on the OA server. The email was from Gary to his solicitor that he used at the start of these proceedings: Michael Mazzone from Diamond Conway Lawyers." Brian then set out an extract from the email, and exhibited a copy of it.
In an affidavit sworn on 10 September 2014, in connection with an interlocutory dispute in the proceedings, Brian said (at [288]):
In February and March 2013, I began pressing on historical issues I had faced accessing the books and records. On 5 March 2013, I located an email on the server from Gary to someone who appears to be a solicitor. The relevant part of the email states -
and he then sets out an extract from the email, and exhibited to the affidavit a copy of it. That affidavit was relied on and the exhibit to it tendered, in interlocutory proceedings before the Court on 22 September 2014, although it is fair to say that no reference was made in that hearing to the particular paragraphs or emails to which I have referred; nor was there anything that transpired during that hearing to which those emails or paragraphs were relevant.
In an affidavit sworn on 7 January 2015, Brian said:
On 5 March 2013 at 10.30pm is the first Gary emailed 'John Alex D' concerning me and among other things Gary asked ... the relevant email chain between Gary and John Alex D is located behind tab 17 of my affidavit sworn 16 July 2014. Gary continued his communication with John Alex D and on 11 March 2013 he forwarded the correspondence to Susan who was in Sydney. Located behind tab 17 of my affidavit sworn 16 July 2013 is a copy of the emails.
In the same affidavit, Brian said (at [236]):
On 27 March 2013 I located an email on the OA server for [sic] Gary to Michael Mazzone … Located behind tab 43 of my affidavit sworn 14 May 2013 is a copy of the email.
In his affidavit of 30 May 2015 (at [50(c)]), Brian referred again to Gary's email to John Alex D on 5 March, as referred to in Brian's affidavit of 14 May 2013. At [81], [164] and [205] in the same affidavit, he referred again to that email. The email was also referred to by Brian in another affidavit sworn 30 May 2015 (at [98] and [154]).
On 5 January 2016 or thereabouts, a notice to admit facts and authenticity of documents was issued and served on behalf of Brian which, at documents D25, D28 and D39, included the email chains between John Alex D and Michael Mazzone. On 25 January 2016, the defendants' solicitors sent an email to Brian referring to those documents in the notice, which said, "We put you on notice that our clients claim client legal privilege over these documents." At least so far as the evidence reveals, that was the first occasion on which such a claim was advanced.
On or about 22 February 2016, the defendants received Brian's opening outline of submissions which included reference to the two email chains in question. On that date, the defendants' solicitors sent to the plaintiff's solicitor an email referring to the relevant paragraphs of the plaintiff's opening outline and continuing:
As you would be aware, those paragraphs refer to privileged and confidential documents. On 25 January 2016 the defendants made a legal privilege claim over those documents that you refer to. We demand that you withdraw the references to legal advice in paras 37, 40 and 42 and not read those paragraphs in court.
It was not and could not be suggested that the communications in question were other than for the dominant purpose of obtaining legal advice, and/or the provision of legal services in connection with contemplated proceedings; nor was it suggested that they were other than confidential documents within the definition in Evidence Act, s 117, at least to the extent that the recipients - John Alex D or Michael Mazzone - were under an implied, if not express, obligation to keep them confidential. However, the plaintiff contended that the documents were nonetheless admissible. In this respect, two main issues require consideration. The first is whether Gary and Susan personally were the clients entitled to claim the privilege, or whether the relevant client was the company Optimisation; and the second is whether, if Gary and Susan personally were the relevant clients entitled to claim privilege, that privilege has been lost by the subsequent course of events which I have summarised above.
[4]
Who was the client entitled to claim the privilege?
As to who was the relevant client, there are some aspects of ambiguity in the communications. One pointer in favour of the company being the client is that the types of action which the advice sought contemplated were actions which ultimately could be taken only by the company and not by the individuals. Another is that company resources, electronic stationery and signature blocks were used. Nonetheless, it is clear enough that the advice was sought on behalf of Gary and Susan and not on behalf of the company, notwithstanding that because they constituted a majority within the company, the advice they received might ultimately be reflected in decisions of the company. For that reason, the fact that the action contemplated could be taken only by the company does not really speak in the opposite direction. It was open to them as shareholders and directors to seek advice that would influence how they would act in that capacity and bring about a decision of the company.
In each case, the correspondence contains indicia that the advice was being sought on behalf of them personally, and in particular that the solicitors in question acted on the basis that the individuals and not the company were their client. The advice was paid for by the individuals personally. Gary's assertion in his affidavit of 2 March 2016 that the advice was sought "by Susan and I personally as shareholders, not the company" was not challenged. Moreover, the true nature of the dispute - though it concerned the company - was a dispute between the shareholders of the company personally, rather than a dispute between one of them and the company.
All these matters ultimately warrant the conclusion that despite the use of company electronic stationery, the true client so far as the solicitors were concerned in each case were Gary and Susan. Prime facie, therefore, they are entitled to maintain a claim for privilege in respect of the documents.
[5]
Has the privilege been lost?
The question then is whether that privilege has been lost or whether, even if the originals remain privileged, secondary evidence can be given by the tender of the documents, of which Brian now has possession, having obtained them from the company's server.
[6]
Common law
At common law, there is little doubt that even had the documents been obtained illegally or improperly, they would be admissible secondary evidence, notwithstanding that the original communications were privileged. Since Lloyd v Mostyn (1842) 10 M&W 478, the position has been that a claim of privilege in respect of a document does not preclude a party calling secondary evidence of their contents, even though that secondary evidence would disclose what was otherwise a privileged communication or document. This was affirmed in Calcraft v Guest [1898] 1 QB 759.
It has been suggested that Lord Ashburton v Pape [1913] 2 Ch 469 is inconsistent with those decisions; but in my view, it only confirms them. As was explained in Lord Ashburton v Pape, the rule of evidence in Calcraft v Guest is that if a litigant wants to prove a particular document, which by reason of privilege or some circumstance cannot be furnished by the production of the original, the litigant may produce a copy as secondary evidence, even though it has been obtained by improper means and even if it may be by criminal means. Kennedy LJ said (at 474):
The better view seems to me to be that although it is true that the principle which is laid down in Calcraft v Guest must be followed, yet, at the same time, if, before the occasion of the trial when a copy may be used, although a copy improperly obtained, the owner of the original can successfully promote proceedings against the person who has improperly obtained the copy to stop his using it, the owner is none the less entitled to protection...
Swinfen Eady LJ at 475-477 said:
The principle upon which the Court of Chancery has acted for many years has been to restrain the publication of confidential information improperly or surreptitiously obtained…[and] to restrain the disclosure of confidential information…there is here a confusion between the right to restrain a person from divulging confidential information and the right to give secondary evidence of documents where the originals are privileged from production, if the party has such secondary evidence in his possession. The cases are entirely separate and distinct. If a person were to steal a deed, nevertheless in any dispute to which it was relevant the original deed might be given in evidence by him at trial.
The supposed conflict between the cases was explained in the judgment of the Court of Appeal in Goddard v Nationwide Building Society [1987] 1 QB 760 where May LJ, while observing that the decision in Lord Ashburton v Pape was not logically satisfying - depending as it does upon the order in which applications were made - said:
Nevertheless, I think that it and Calcraft v Guest are good authority for the following proposition: if a litigant has in his possession copies of documents to which legal professional privilege attaches, he may nevertheless use such copies as secondary evidence in his litigation. However, if he has not yet used the documents in that way, the mere fact that he intends to do so is no answer to a claim against him by a person in whom the privilege is vested for delivery up of the copies or to restrain him from disclosing or making any use of the information contained in them.
It is worth observing that in that case, when it came to the notice of the plaintiffs that the defendants intended to use a privileged document by reason that the defendants used it as the basis for an amendment to their defence, the plaintiffs applied to have those portions of the defence struck out, and sought an injunction restraining the defendants from using or relying on the copied note and requiring its delivery up.
Reference might also be made to the judgment of Jordan CJ in Bell v David Jones Ltd (1948) 49 SR(NSW) 223 (at 227 and 228), to the effect that the other party, if he is fortunate enough to possess a copy, however obtained, may put it into evidence as secondary evidence of the original, notwithstanding that the original is privileged.
In Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd [2012] NSWCA 439, (2012) 295 ALR 348, Campbell J reviewed these authorities and observed (at [126]) that the decision in Lord Ashburton v Pape has been referred to in the High Court many times without adverse comment.
In Australian Securities and Investments Commission v Lindberg (2009) 25 VR 398, Mandie JA observed (at 407 [44]):
In Baker v Campbell, a number of members of the High Court said that this was the position. Gibbs CJ referred to the "rather remarkable rule" that if the privileged document or copy of it had been obtained by the opposing party, by accident, trickery or even by theft, it may be given in evidence although the party entitled to the privilege or his solicitor could not have been compelled to produce it. Mason J said that, according to authority, it seemed that the availability of the claim for privilege was lost once the document passed into the possession of another who might then tender it in evidence. Dawson J said that there was authority for the proposition that the privilege might be lost if a document to which it attached came into the hands of someone other than the legal advisor or his client, even dishonestly, so that secondary evidence of it might be given. Brennan and Deane JJ also referred to the rule, although not uncritically.
Thus, in ASIC v Lindberg, Mandie JA acceded to the proposition that where a privileged document or copy of it has been obtained by the opposing party -even by accident, trickery or theft - it may be given in evidence, although the party entitled to the privilege or his solicitor could not have been compelled to produce it.
In the current case, no application had been made, before the occasion arose for their tender in evidence, for an injunction or for delivery up of the communications and the copy emails, or to strike out the relevant paragraphs of the pleadings. It follows that, at least at common law, Brian would not be preventing from tendering them in evidence as secondary evidence, even if they were improperly or illegally obtained. If an application founded on breach of confidence were made now for delivery up of the documents or an injunction, it would necessarily be defeated by laches or analogous principles.
Accordingly, if the common law position prevails, the documents tendered would be admissible, regardless of any other question of waiver.
[7]
Evidence Act, ss 118 119
However, although this was not addressed in argument, the common law position no longer prevails. This is because Evidence Act, s 118 and s 119, are not concerned with the production of documents, but with the adducing of evidence. The sections provide that evidence is not to be adduced if, on objection, the court finds that adducing the evidence would result in disclosure of a confidential communication of the relevant type. Secondary evidence of such a communication results in disclosure of the communication just as much as primary evidence does. This was touched on, although it seems to me not clearly disposed of, by Vickery J in Hodgson v Amcor Limited [2011] VSC 269, (2011) 32 VR 568, where after referring to Mandie J's judgment in Lindberg, his Honour said (at 5858 [78]):
However, these observations made in ASIC v Lindberg as to the common law do not apply to the Evidence Act which has since come into operation in this state. The authority is distinguishable. Section 118, and its counterpart s 119 in relation to the litigation privilege, does not concern the production of documents, they concern the adducing into evidence of the documents protected by privilege.
As it appears, the wording of ss 118 and 119 was no accident. In the Australian Law Reform Commission Reports from which (NSW) Evidence Act 1995 derived, reference was made to this very issue. The Evidence (Interim) Report (1985) (ALRC 26), referred (at [440]) to the "use of improperly obtained copies of privileged documents", and to observations of the Law Reform Committee of Great Britain about the undesirability of a party being deprived of a privilege if an adversary obtains the document as a result of his own or a third person's wilful misconduct. In the Commission's conclusions, it summarises (at [883]) its recommendations as including in respect of secondary evidence: "So long as the privilege has not been lost in respect of the original communication, secondary evidence of the communication will not be admissible." In Annexure C to the report, which contained a summary of the existing state of the law, under the heading "Copies Of Privileged Documents", reference was made to Calcraft v Guest, Ashburton v Pape and subsequent authorities referring to them, including the observations that I have mentioned in Baker v Campbell.
In the Final Report (1987) (ALRC 38), the Commission summarised (at [195]) the proposals in the Interim report, including:
"The privilege should not be lost simply because evidence of the communication or material was disclosed accidentally or obtained illegally."
After discussing other issues that were raised in submissions about the Interim report, the inference being that this issue was not further debated, the Commission recommended (at [200]) that subject to certain immaterial changes, the interim proposals should be implemented. Thus, ss 118 and 119 overturn the rule in Calcraft v Guest, and have the consequence that secondary evidence is not admissible.
[8]
Waiver under s 122(2)
That means that I must therefore turn to the question of waiver under Evidence Act, s 122(2), of which relevantly provides that ss 118 and 119 do not prevent the adducing of evidence if the client or party concerned "has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of the relevant kind".
There are two respects in which it might be contended that the defendants have acted inconsistently, for the purposes of s 122(2). The first is the manner in which the emails in question were created and stored. They were created using the corporate email account on the company's electronic stationery, using the company's resources and stored on the company's server.
A director of a company is entitled to inspect a company's documents. As Street CJ pointed out in Edman v Ross (1922) 22 SR(NSW) 351 (at 361):
The right to inspect documents and, if necessary, to take copies of them is essential to the proper performance of a director's duties and although I am not prepared to say that the Court might not restrain him in the exercise of this right, if it is satisfied affirmatively that his intention was to abuse the confidence reposed in him and materially to injure the company. It is true, nevertheless, that its exercise is generally speaking not a matter of discretion with the Court and that he cannot be called upon to furnish his reasons before being allowed to exercise it.
In Shepherd v Fox Williams LLP [2014] EWHC 1224, Simler J in the Queen's Bench Division held that privilege had not been waived in respect of emails sent or forwarded by the client to his girlfriend at the girlfriend's work email address. The finding of fact in that case was that the client had forwarded the email to his girlfriend at her personal email address, and she had further forwarded it to herself at the work email address. In those circumstances, it is difficult to see how it could seriously have been contended that by forwarding it to his girlfriend at her personal address, the client could have intended to waive privilege by disclosing the email outside his legitimate circle of intimacy and confidentiality.
Those circumstances are very different from the present case. Those who created these emails in contention appear to be more than ordinarily computer literate. They did so using company resources and company stationery, in circumstances where every director of the company was entitled to know what correspondence was being sent out from the company. It is as if they took company letterhead, wrote on company letterhead paper, signed as if in their official capacities on that company letterhead paper, sent it in an envelope bearing the logo of the company, and left a copy of it on the company's outgoing correspondence file for anyone entitled to inspect the company's documents to see. Creating and sending the emails in the manner in which they were created and sent is inconsistent with any legitimate expectation that they would be kept confidential from others entitled to see the company's records, particularly as these parties were not unfamiliar with the distinction between work and personal email accounts: the evidence reveals - although I am not sure that I have seen evidence of Mr Williams having a private email account - that at least Mrs Williams and Mr Kearney had private as well as work email accounts.
Regardless of that, the failure to take the objection, and advance the claim any earlier than January this year, in the context of these proceedings, amounts to a waiver under Evidence Act, s 122(2). It is well established that a failure to make a timely claim of privilege may amount to a waiver. Thus, in Spedley Securities Ltd v Bank of New Zealand (1991) 26 NSWLR 711, Cole J - as he then was - said (at 730):
There seems to me to be no reason in principle why a party may not, by conduct, waive legal professional privilege by omitting to claim that privilege when it is available. There is no distinction in principle between failure to claim legal professional privilege for a document by including it in the list of documents discovered and available for inspection, without claiming legal professional privilege, and on the other hand sitting by and allowing use of the document already in the hands of the other party without claiming legal professional privilege, or omitting to take steps to claim legal professional privilege in respect of the document known to be in the hands of the court, or as here, the liquidator, which it was obviously intended to use. Each constitutes an implicit waiver because it constitutes an abandonment of the claim for protection.
In the latter circumstance the abandonment flows from an express or implicit decision by the party having the right to claim legal professional privilege not to seek to protect that right when it is known that the right is about to be infringed.
In Norman v O'Mahony [2006] FCA 1169, Cowdroy J pointed out that whether privilege had been impliedly waived depended upon an objective assessment of whether the conduct was inconsistent with the maintenance of the privilege, and not a consideration of the subjective intention of the party whose confidentiality the privilege affects. His Honour said (at 25), that it was clear the failure to claim privilege can in some circumstances constitute a waiver, for which proposition his Honour cited in Spedley Securities v Bank of New Zealand.
The decision of Lyons J in Nolan v Nolan [2013] QSC 140, bears some similarities to the present case. In that case, the plaintiff had not only seen the defendant's privileged documents in question and acquired knowledge of their contents, but had pleaded them in the statement of claim - just as here Mr Kearney had pleaded and particularised them, as well as deploying them repeatedly ad nauseam in his affidavit evidence. With reference to those matters, her Honour said (at [46]) that the defendants had waived privilege in relation to those documents.
In my view, it was apparent from the very first affidavit in these proceedings that the documents in question were in Mr Kearney's possession, and were intended to be deployed. If a claim of privilege were to be maintained in respect of them, then it was simply too late to leave it until the eve of the trial in January 2016. The failure to make any such claim at an earlier stage amounted to an abandonment and waiver of it.
If it were necessary to point to any prejudice arising from that course, there is at least this. Many of the cases in respect of accidental disclosure refer to the unfairness of requiring a party, or the lawyers for a party, to whose mind knowledge of an otherwise privileged document has come, from segregating and putting out of their mind that knowledge, at least when it is attributable to mistake or accident other than an obvious one on the part of the party entitled to privilege. In this case, the plaintiff was originally represented by solicitors who no longer act for him. Those who act for him now were not acting for him in May 2013, when these proceedings were instituted. Had a timely claim been made, knowledge of the contents of these documents would never have been acquired by those who currently act for the plaintiff. It would be unfair in those circumstances for them to be required somehow to put out of their mind the knowledge that they have acquired in the absence of any such objection.
[9]
Conclusion
Gary and Susan were the relevant clients, for the purposes of Evidence Act, ss 118 and 119, and were entitled to privilege in the documents currently under consideration. At common law, Brian would be entitled to tender those documents, regardless of how he acquired them, as secondary evidence of those communications. However, the common law position is now overturned by Evidence Act, ss 118 and 119, which preclude the adducing of secondary evidence.
Nonetheless, privilege has been lost under Evidence Act, s 122(2), because the circumstances of creation and sending of the emails using corporate resources, corporate email accounts and corporate electronic stationery, in the context of a director's right to inspect all corporate documents, is inconsistent with maintaining that privilege. Moreover, the failure to make a timely claim for privilege, after it became clear as early as May 2013 that the plaintiff intended to deploy the communications in court, also and independently amounts to a waiver of the privilege.
Accordingly, the documents under objection and the relevant passages of the affidavits to which objection has been taken will be admitted.
[10]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 08 November 2016
Parties
Applicant/Plaintiff:
Armstrong Strategic Management and Marketing Pty Ltd