Equititrust Limited (in liquidation) (receiver appointed) (receivers and managers appointed) (in its capacity as responsible entity of the Equititrust Income Fund) v Equititrust Limited
[2019] NSWSC 1656
Supreme Court of NSW|2019-11-18|Before: Rees J, Mr P
HER HONOUR: I have been asked to rule on a claim for client legal privilege made by Robert Yazbek and Scott Sweeney, directors of Atlas Construction Group Pty Ltd (in liquidation) (Atlas), over documents produced by Ashurst Australia in answer to an Order for Production issued by the Court at the request of the liquidator of Atlas.
The question is whether documents which came into existence between when Ashurst was retained in July 2017 and when administrators were appointed to Atlas in May 2018 are protected from production by client legal privilege in favour of the directors alone or whether any client legal privilege is a joint privilege with Atlas.
Whether the documents are privileged and whether the privilege is joint or not is a question of fact to be determined on the evidence. The facts are these. Atlas was incorporated in 1999. In April 2016, Atlas retained Ernst & Young to provide tax services. In December 2016, the registered office of Atlas became an address in Maroubra which was also the address of Mr Yazbek, who became a director of Atlas at about that time.
In February 2017, Atlas received some $11 million under a garnishee notice issued by Atlas to its principal, Fitz Jersey Pty Ltd. Atlas then paid dividends to its shareholders: $6,103,403 to Kebzay Pty Ltd and $678,156 to Sweenham Pty Ltd. In March 2017, the Court of Appeal handed down a decision in relation to the garnishee notice, dismissing Fitz Jersey's appeal: Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (2017) 94 NSWLR 606; [2017] NSWCA 53.
On 11 July 2017, Ernst & Young sent an email to Ashurst entitled "new matter" advising that they had a client that needed the benefit of Ashurst's views, enquired as to Ashurst's availability for a conference and asked that an engagement letter be sent. Ernst & Young advised,
The client (for the purposes of conflict checks) is Atlas Constructions Pty Ltd (of which Mr Scott Sweeney and Mr Robert Yazbek are Directors).
By return, Ashurst sent a letter of engagement for review and signature. The letter was marked to the attention of Messrs Sweeney and Yazbek at Atlas. Ernst & Young forwarded the letter to Matthew Vartuli for review and signature. I am unsure as to Mr Vartuli's role but the solicitor for the directors, Peter Hegarty, deposed that Mr Vartuli sent emails on behalf of the directors.
On 12 July 2017, Mr Vartuli responded to Ernst & Young, copied to Mr Yazbek, saying,
I believe that Robert Yazbek and Scott Sweeney (personally) should be engaged rather than Atlas Construction Group.
Mr Vartuli also asked that the address of the client be changed to the Maroubra address. Ernst & Young agreed, and Mr Vartuli emailed Ashurst directly noting that the directors "should be engaged directly rather than Atlas". Mr Hegarty deposed that he was informed by Mr Vartuli that the request that Ashurst be engaged directly by Mr Yazbek and Mr Sweeney was made so that all communications would be protected by legal professional privilege. Whilst it is clear that this was the reason why the letter of engagement was changed, the question for me is whether, in fact, Ashurst was retained by the directors only or whether Ashurst was also retained to give advice to Atlas.
On 14 July 2017, Ashurst sent its amended retainer letter. Importantly, whilst the letter was now addressed to Mr Sweeney and Mr Yazbek at the address in Maroubra, the retainer included the following:
What you have asked us to do
You have asked us to assist you with strategic options for the Company.
"Company" was not defined in the revised letter but it is readily apparent that this was a reference to Atlas. The scope of the retainer was thus consistent with Ashurst being retained to provide advice to the directors and the company.
The types of advice which Ashurst gave were described by Mr Hegarty and included: advice on the voluntary administration process including any exposure to the directors arising from the appointment of a voluntary administrator; an application to replace the administrators; a deed of company arrangement proposal; the prospects of success of any challenge by a liquidator to the issue of dividends by Atlas; and, funding the administrators including the appropriate form of an indemnity. Some of Ashurst's advice is in evidence as it was produced on subpoena by Worrells: on 8 August 2017, Ashurst sent an email to Ernst & Young and Worrells setting out 'high level thoughts' on various matters which, by the content of the advice, might be relevant to the directors personally but also to Atlas. The liquidators of Atlas submitted that it was noteworthy that the advice was sent by Ashurst to Ernst & Young, being the tax consultant retained by Atlas, rather than to the directors personally. I agree that this is a relevant fact.
On 30 October 2017, Atlas paid $15,455.85 to Ashurst. Daniel Soire, employed by the liquidator, has reviewed the general ledger of Atlas. The payment to Ashurst was credited against the "Atlas general" account and debited against the company's "legal expenses" account. Mr Soire has not been able to identify any other entries in the general ledger which indicate that the payment of Ashurst's legal fees was taken to be offset or applied to any loan account maintained by the company on behalf of the directors or shareholders of the company.
In April 2018, administrators were appointed to Atlas and the liquidators accept for the purposes of this application that any Ashurst documents which came into existence after the appointment of the administrators are privileged in the hands of the directors.
In July 2018, the directors' current solicitor, Mr Hegarty, was retained and he requested the file from Ashurst, who were then owed some $130,000 in legal fees. The fees were paid, although it is not precisely clear by whom, and Ashurst's file was provided to Mr Hegarty. Ashurst's file contains some 560 documents of which Mr Hegarty says that about 10% pre-date the appointment of administrators.
More recently, an Order for Production was issued by the liquidator to Ashurst and, on 27 June 2019, Ashurst sent an email to the liquidator's solicitors advising that Ashurst's client was not Atlas but the directors. This was repeated in a letter from Ashurst to the liquidator on 16 October 2019. Whilst I place less weight on Ashurst's more recent communications than on the documents contemporaneous to the time that the retainer came into existence, these letters are nonetheless relevant to who retained Ashurst.
Whether the directors are entitled to claim client legal privilege as against the liquidator of Atlas depends upon whether the privilege is a joint privilege with the company or a privilege held solely by the directors. In Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601, Sheller JA, with whom Waddell AJA agreed, explained, at 608:
Two or more persons may join in communicating with a legal adviser for the purpose of retaining his or her services or obtaining his or her advice. The privilege which protects these communications from disclosure belongs to all the persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege. … Accordingly no privilege attaches to such communications as against others who, with the client, share an interest in the subject matter of communication. But the parties together are entitled to maintain the privilege "against the rest of the world"…
In Hellenic Mutual War Risks Association (Bermuda) Limited v Harrison (The "Sagheera") [1997] 1 Lloyd's Rep 160, Rix J noted that parties who grant a joint retainer to solicitors retain no confidence as against one another. If they subsequently fall out and sue one another, they cannot claim privilege against one another: at 165.
In In the matter of Resource Group Services Pty Ltd (in liquidation) [2018] NSWSC 203 per Black J, his Honour noted that it may be necessary on an application such as this to establish by evidence that a director was obtaining advice for him or herself to the exclusion of the company and to point to a separate retainer by the director personally or a request by the director that they be provided with separate advice than that which was being provided to the company, for example, as to matters which may have had personal implications for the director. In that case, some of the documents contained references to matters which impacted on the director's interests and were directed to his position, but his Honour noted that this was not inconsistent with the advice being provided to the company or to the company and, at its highest, also to the director: at [10].
In Equititrust Limited (in liquidation) (receiver appointed) (receivers and managers appointed) (in its capacity as responsible entity of the Equititrust Income Fund) v Equititrust Limited (in liquidation) (receivers appointed) (receivers and managers appointed) (in its own capacity) (No 3) (2016) 341 ALR 301; [2016] FCA 738, Markovic J noted that the evidence which may be brought forward on an application such as this includes an affidavit by the directors that they sought legal advice, for example, as to their duties as a director in relation to specific transactions.
The evidence in this case is far more limited, being emails between Ernst & Young and Ashurst and, in addition, some limited evidence on information and belief from Mr Vartuli as to the purpose for which the emails were sent but not as to why Ashurst were retained by the directors. Whilst it is permissible in an application such as this, particularly in urgent circumstances, to put forward evidence consistently with section 75 of the Evidence Act 1995 (NSW), that is, on a hearsay basis, there is very limited evidence before the Court as to why it was that Ashurst were retained in 2017, that is, whether for the directors personally or also for the company. There are no invoices. There is limited evidence as to who paid the invoices: Atlas paid the first invoice and someone else paid the remaining fees. There is almost no evidence from the clients, assuming that Mr Vartuli speaks for them. There is some evidence from Ashurst.
Putting all of this evidence together it appears to me as a matter of fact that, when Ashurst was retained in 2017, the retainer or proposed retainer was initially by Atlas and advice was sought as to the options and strategies for the company. The terms of the letter of retainer were specifically changed to the names of the directors individually, and the address of one of the directors was given which became the addressee of the letter. This was done to try and ensure that the directors were able to maintain a claim for privilege in respect of Ashurst's documents. They are entitled to maintain a claim for privilege in respect of those documents, but the evidence does not satisfy me that they are entitled to maintain that claim against the company, or its liquidator, as opposed to against the rest of the world.
Therefore I consider that the claim for privilege in respect of the documents which came into existence between when Ashurst was retained and when the administrators were appointed to Atlas is subject to a claim for client legal privilege, being joint privilege with Atlas. The liquidators of the company are entitled to inspect these documents.
[3]
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Decision last updated: 02 December 2019
Parties
Applicant/Plaintiff:
Equititrust Limited (in liquidation) (receiver appointed) (receivers and managers appointed) (in its capacity as responsible entity of the Equititrust Income Fund)