By way of very brief background, the plaintiff company runs a business which primarily provides plumbing and air-conditioning services. The first defendant was originally an employee of the plaintiff, but later also became a director. The other defendants are associated with the first defendant. The fifth defendant is the first defendant's spouse.
The first defendant's association with the plaintiff began in 2011 and ended in April 2022. In these proceedings the plaintiff alleges that the first defendant, before his separation from the plaintiff, conducted himself in breach of the fiduciary duty he owed to the plaintiff. In effect, the first defendant allegedly diverted "a significant amount of work, customers and staff to a separate company which negatively impacted the Company's financial performance."
The plaintiff now seeks damages and declarations arising from the alleged improper conduct of the first defendant. The proceedings were commenced in July 2022.
In the course of the preparation of this matter the parties' issued subpoenas. One of the recipients of a subpoena from the defendants was a firm of solicitors, located in Queensland, called DuxRoe Pty Ltd (DuxRoe). A Mr Jeff Chung is a principal of this firm. DuxRoe produced documents to the court but made a claim for privilege in respect of the documents.
Some of the documents produced by DuxRoe were later agreed to be available for access. The claim for privilege was however maintained in respect of the balance of the documents. These have been conveniently referred to as the documents in Packet S-7.
On 23 August 2024, the first and third to sixth defendants filed a notice of motion challenging the claim for privilege and seeking access to the documents contained in Packet S-7.
The motion is supported by an affidavit of Mr Christopher Nielson dated 23 August 2024. Mr Nielson is the solicitor for the first and third to sixth defendants. The second defendant is in liquidation and has taken no active part in the proceedings. I will refer to the first and third to sixth defendants as 'the defendants'.
The plaintiff relies on an affidavit of Mr Michael Chisholm dated 4 October 2024. Mr Chisholm is a director of the plaintiff company.
According to Mr Chisholm the plaintiff engaged DuxRoe to provide legal advice in September 2023.
In G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 16) [2024] NSWSC 955, from [60] McGrath J conducted a comprehensive examination of the principles concerning a claim for legal professional privilege, including quoting at [81] from Kenny J in Commissioner of Taxation v Pratt Holdings Pty Ltd (2005) 225 ALR 266; [2005] FCA 1247:
"81. In the oft-cited summary of the accepted principles on legal professional privilege collected in Commissioner of Taxation v Pratt Holdings Pty Ltd (2005) 225 ALR 266; [2005] FCA 1247, Kenny J at [30] said (citations and quotations omitted in part):
(1) [The party claiming the privilege] carries the onus of establishing its claim for privilege, whether by evidence as to the circumstances in which the documents were brought into existence, reference to the nature of the documents, or by argument.
(2) …where a document is created for the 'dominant purpose' of obtaining legal advice, privilege will be attracted.
(3) The purpose for which a document is brought into existence is a question of fact. Where there are a number of purposes for the creation of a document, it can be difficult to identify the dominant purpose. The dominant purpose must be determined objectively, having regard to the evidence, the nature of the documents and the parties' submissions. The purpose will ordinarily be that of the maker of the document, but this will not always be the case.
(4) The evidence of the intention of the document's maker, or of the person who authorised or procured it, is not conclusive of purpose. Further, the existence of the privilege is 'not necessarily or conclusively established by resort to any verbal formula or ritual'. As their Honours said in [Grant] 'in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence'.
(5) The dominant purpose for the creation of a document is to be determined at the time of its production. … [T]he privilege attache[s] to the relevant communications rather than the documents ... If the purpose for the making of a document by a third party is to enable another party to make the communication necessary to obtain the legal advice, then the document is protected by the privilege.
(6) … [T]he fact that a document is provided to solicitors for advice is not determinative of the purpose for which it was created. As Brennan CJ said in Propend:
The test is anchored to the purpose for which the document was brought into existence; the use to which a document is put after it is brought into existence is immaterial.
A document can become privileged from production even if it is a copy of a non-privileged document. Further, the relevant purpose is that for which the document is brought into existence and not that for which the information is obtained.
(7) The dominant purpose is not the same as the 'primary' or the 'substantial' purpose. The 'dominant' purpose may be described as the ruling, prevailing, paramount or most influential purpose. The 'dominant purpose' brings within the scope of the privilege a document brought into existence for the purpose of a client being provided with professional legal services notwithstanding that some ancillary or subsidiary use of the document was contemplated at the time.
(8) Where two purposes are of equal weight, neither is dominant in the relevant sense. Hence:
(a) a document is not privileged from production where one purpose for its creation is to obtain legal advice, but there is another equally important purpose; and
(b) if the decision to bring the document into existence would have been made irrespective of any intention to obtain legal advice, the purpose of obtaining legal advice cannot be the dominant purpose for the making of the document.
(9) Where the claim is in respect of communications in documents, the Court may examine the documents to ascertain the purpose for their creation.
(10) A document that records the substance of a privileged communication between client and legal adviser is itself protected, by the privilege, from disclosure unless the privilege has been waived. The relevant inquiry is whether the disclosure of a document would involve disclosure of a privileged communication. [T]his inquiry may involve a question whether privilege, which may have subsisted, has been waived.
(11) If the Court is satisfied on the balance of probabilities that the entirety of the document was created for the requisite purpose, then the entire document attracts the privilege. If, however, the Court finds that parts but not all of the document were created for this purpose, then those parts attract the privilege."
In relation to "dominant purpose" McGrath J said at [71]-[72]:
"The 'dominant' purpose test is one which is described as involving 'clear paramountcy', with its ordinary meaning being the ruling, prevailing or most influential purpose: Sydney Airports Corporation Ltd v Singapore Airlines Ltd [2005] NSWCA 47, Spigelman CJ (with whom Sheller JA and Campbell AJA agreed) at [7]. Neither the primary purpose nor a substantial purpose satisfies the dominant purpose test: Grant, Barwick CJ at 678.
The relevant purpose is to be determined objectively but the subjective purpose of the person responsible for the document coming into existence will always be relevant: Sydney Airports, Spigelman CJ at [6], citing Esso Australia, Callinan J at [172]."
According to Mr Chisholm:
1. In March 2022, the plaintiff retained Rose Litigation Lawyers to act on its behalf in respect of the current proceedings.
2. In September 2023, the plaintiff retained DuxRoe Lawyers "to provide legal advice to the plaintiff relating to certain taxation and other legal matters."
3. The plaintiff also retained ReGroup Solutions to provide accounting services and advice and McLeods Accounting to provide restructuring advice.
4. In the course of providing the assorted advice in respect of which they had been individually retained, DuxRoe Lawyers, ReGroup Solutions and McLeods Accounting communicated from time to time with each other and with Rose Lawyers.
The phrase "legal advice in relation to certain taxation and other legal matters" is repeated seven times in Mr Chisholm's affidavit. I asked plaintiff's counsel what the phrase meant. His response did not provide an answer; rather he said that the meaning was not important. He emphasised that the important issue was whether or not the relevant communications had the dominant purpose of legal advice. While I agree with the statement of principle, I do not agree that the failure to explain "certain tax matters and other legal matters" was not relevant. I will return to this point below.
The defendants primary submission was that the plaintiff had failed to discharge its onus to establish the claim for privilege. It was submitted that the evidence relied upon, effectively Mr Chisholm's affidavit and its annexures, were not enough to overcome the onus.
I was first of all referred to Barnes v Commissioner of Taxation [2007] FCAFC 88, in particular at [18]:
"The authorities emphasise the need for focused and specific evidence in order to ground a claim for legal professional privilege. In Kennedy v Wallace (2004) 142 FCR 185 at 189, Black CJ and Emmett J reiterated the principles that verbal formulae and bare conclusory assertions of purpose are not sufficient to make out a claim for privilege: see also National Crime Authority v S (1991) 29 FCR 203 at 211 (per Lockhart J); Grant v Downs (1976) 135 CLR 674 at 689 (per Stephen, Mason and Murphy JJ). Where possible the Court should be assisted by evidence of the thought processes behind, or the nature and purpose of advice being sought in respect of, each particular document. The fact that generalised evidence is not challenged in cross-examination does not mean that such evidence must be accepted, particularly when it is as manifestly inadequate as it is in this case. As in Kennedy v Wallace, mere general assertions of the purpose of creation of the documents are insufficient to discharge this onus. Even though in that case some evidence as to the purpose of particular records was adduced, Allsop J at 216 considered that the onus had not been discharged because the evidence did not permit a conclusion to be drawn as to the dominant purpose of the creation of any particular document or entry in a document. Simply to show that one purpose for creation of the document was to obtain legal advice or assistance is not good enough."
The type of evidence relied upon in Barnes is described at [15]-[16]. Notably the court observed that there was no evidence from the solicitor involved and no evidence from any of the persons whose communications were included in the subpoenaed documents. The Court said, of the evidence at [16]:
"This affidavit falls far short of providing any adequate basis for claiming privilege in respect of any individual document. It consists of assertions, conclusions and generalised comments. The documents referred to are from a number of sources. The Further and Better Particulars of Statement of Claim furnished by the appellants refer to several different persons or entities who are said to have been originators of the documents. However, no evidence has been adduced from any of those persons. Most notable of all is the absence of any evidence from Mr Calder. In this context, the fact that Mr Barnes' affidavit does not clarify the reason why any specific document came into existence means that the Court is left to consider the documents on their face and determine as best it can whether the documents are privileged. This is unsatisfactory."
The plaintiff responded by referring me to the decision of Beazley P (as her Excellency then was) and MacFarlan JA in Hastie Group Ltd (in liq) v Moore [2016] NSWCA 305, initially at [12]:
"There are many statements in the authorities that a party who claims privilege for a communication or document bears the onus of proving that it was prepared for the dominant purpose of the provision of professional legal services relating to Australian or overseas proceedings or anticipated proceedings in which the client is or may be a party. Thus, in AWB Ltd v Cole (No 5) (2006) 155 FCR 30; [2006] FCA 1234 Young J, at [44], stated:
'(1) The party claiming privilege carries the onus of proving that the communication was undertaken, or the document was brought into existence, for the dominant purpose of giving or obtaining legal advice. The onus might be discharged by evidence as to the circumstances and context in which the communications occurred or the documents were brought into existence, or by evidence as to the purposes of the person who made the communication, or authored the document, or procured its creation. It might also be discharged by reference to the nature of the documents, supported by argument or submissions…' (emphasis added)"
And then at [33]-[34]:
"We acknowledge that there are statements in the first instance authorities, and in particular, in Hancock v Rinehart (Privilege), which might be thought to support that submission. However, as is accepted, every case depends on its own facts and, as is stated by the plurality in Grant v Downs, there may be circumstances from which privilege may be established without the need for evidence of the detail that the respondents contend is required.
We are also of the opinion that the Court is not confined to the express statements made in support of the claim for privilege. The Court is entitled to draw inferences from other proved facts. That is of particular relevance in the present case."
I do not think that Hastie helps the plaintiff. I think Mr Chisholm's evidence is of the type described in Barnes as "assertions, conclusions and generalised comments." This observation is highlighted by the phrase I have referred to above, namely "legal advice in relation to certain taxation and other legal matters." The same level of generality can be seen in the Schedule of Privileged Documents where the basis of every claim is precisely the same, namely "Confidential communications made for the purpose of obtaining legal advice."
There is no evidence from Mr Chung, who apparently provided the advice and there is no evidence from any of the other persons with whom Mr Chung communicated, namely Mr Heaney of ReGroup Solutions, Mr Keramos of McLeod's Accounting or Mr Kershler of Rose Litigation Lawyers.
The plaintiff submitted that I could draw inferences from Mr Chisholm's affidavit. I agree that inferences are available, but cannot say that they would be the only reasonable inferences that might be available.
The base facts found in paras 13 to 19 of Mr Chisholm's affidavit, which would be the source of any inferences, are far too general and vague to permit the drawing of the inferences suggested by the plaintiff.
Therefore, I think the defendants succeed on their primary point.
The defendants enumerated a number of secondary points, essentially based on an analysis of different categories into which the documents fell. I do not think it necessary to deal with these points nor do I think it necessary to examine the question of waiver. There are however, two points that I do think should be examined.
First, it was submitted that any advice being given by DuxRoe was not actually advice to the plaintiff, but rather advice to Mr Chisholm, not in his capacity as a servant of the company but rather as an individual who had dealings with the company, in particular the treatment of a loan he had made to the company.
The submission arose from the contents of the Engagement Letter and the Costs Agreement with DuxRoe.
Under the heading "Work we will do" the Engagement Letter states:
"From our discussion we will advise you on tax implications of reducing $200,000 of debt the company owes you."
Clause 3(a) of the costs agreement states:
"You have instructed us to provide you with advice on the tax implications of reducing $200,000 of debt the company owes you. The scope of works is outlined in our engagement letter to you."
The defendants' argument was that notwithstanding that the Engagement Letter and the Costs Agreement were addressed to, and between, the plaintiff and DuxRoe, in reality the description of the work to be done was the provision of advice to Mr Chisholm and not to the plaintiff.
I think that the "you" referred to in the letter and in the agreement, as quoted above, are references to Mr Chisholm and to advice for his benefit. There is no reason why a company cannot obtain legal advice on behalf of one of its officers or employees. The distinction here however is that the claim for privilege is not being made by Mr Chisholm, rather it is being made by the company. As Mr Chisholm states in his affidavit, at [31]:
"The Plaintiff maintains the claim for privilege over the documents and communications listed in that schedule."
I think there is some merit in the point although I have some reservations about it, in particular as I understand the company, at least since the departure of the first defendant, to effectively be the alter ego of Mr Chisholm. Without more, I do not think the point would have defeated the plaintiff's claim for privilege.
The second point is the plaintiff submitted that I should inspect the documents (85 pages) in order to see whether the claim for privilege was justified. The defendants said that was not appropriate because the plaintiff had failed to overcome the primary obstacle of proving the dominant purpose of the communications.
I agree with the defendants. Production of documents cannot be used to establish a claim which has otherwise not been proved. The point was summarised by Brereton J in Hancock v Rinehart (Privilege) [2016] NSWSC 12 at [35]:
"Thus in my view:
1. Legal professional privilege is a privilege from production, including from production to the court. Such a claim should be made at the first of the Waind & Hill stages, before the documents are produced to the court. To voluntarily produce the documents to the court for the purpose of use in evidence on the application is inconsistent with maintaining a claim for privilege.
2. A claim for privilege must be made on sworn direct evidence - not inadmissible hearsay or opinion - proving the facts on which the claim is founded. This is unaffected by the court's discretionary power to require production in order to enable inspection for the purpose of adjudicating the claim, which exists to enable a claim for privilege to be scrutinised, not to enable it to be proved. No party - least of all the party claiming privilege - may insist that the court inspect the documents."
I do not suggest that the plaintiff was necessarily wrong to produce the documents to the court. What I do take from Hancock is that inspection of the documents is not a substitute for the plaintiff's otherwise held obligation to prove the existence of the privilege.
I will therefore make the orders sought by the defendants. As to costs, I can see no reason why the plaintiff should not pay the defendants' costs of the motion.
Orders
1. The plaintiff's objection to the inspection of documents contained in subpoena packet S-7 is overruled.
2. The first defendant and the third to sixth defendants are granted access to inspect subpoena packet S-7.
3. The plaintiff is to pay the first defendants' and the third to sixth defendants' costs of the motion.
4. The parties have leave to make submissions on a different costs order.
[2]
Amendments
19 November 2024 - Division amended on Cover Sheet
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: 19 November 2024