Solicitors:
Jordan Djundja Lawyers (Applicant)
Kent Attorneys (Plaintiff/Respondent)
File Number(s): 2017/383393
[2]
Judgment - ex tempore (revised 21 february 2018)
By Interlocutory Process filed on 9 February 2018, Mr Michael McPhee, who was the sole director and sole shareholder of Resource Group Services Pty Limited (in liq) ("Company"), initially sought an order that an order for production addressed to him be set aside. That question has been addressed, by agreement between the liquidator of the Company and Mr McPhee, by amendments made to the order for production. Mr McPhee also sought an order that documents identified in an accompanying affidavit of his solicitor, Mr Jordan, not be required to be produced by KPMG Tax Pty Ltd, trading as KPMG Legal and Tax Services ("KPMG"), on the grounds of legal professional privilege under s 118 of the Evidence Act 1995 (NSW) or under common law or otherwise. Alternatively, Mr McPhee sought an order that the liquidator not be granted access to the documents identified in the relevant affidavit and produced by KPMG in response to the order for production. The latter application is more relevant, where documents have already been produced by KPMG, and the question now is whether the Company, by its liquidator, should have access to them.
Farrow Mortgage Services Pty Ltd (in liq) v Webb [2018] NSWSC 203 | Case summary | Zoe
Section 118 of the Evidence Act provides that evidence is not to be adduced if, on objection by a client, the Court finds that adducing that evidence would result in disclosure of a confidential communication made between the client and a lawyer, or a confidential communication between two or more lawyers acting for a client, or a confidential document prepared by the client, lawyer or another person, for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client. It is not necessary to determine, for the purposes of this application, whether s 118 of the Evidence Act is capable of applying in respect of orders for production issued in the context of a liquidator's examination, as distinct from legal professional privilege applying at general law, since neither party suggested that there is any difference in the applicable principles between those that would apply under s 118 of the Evidence Act and those that would apply at general law, and Mr McPhee relies both on s 118 of the Evidence Act and those that would apply at general law for the purposes of the application.
The Court has been provided, pursuant to a direction it made, with a helpful and detailed schedule which refers to the documents, by way of at least a broad description of their character, and their author, sometimes described as by reference to an entity such as "KPMG Legal" and sometimes by a particular person, for example, a person who appears from correspondence to be a senior lawyer with that firm. That document was admitted, for reasons I have indicated in an ex tempore judgment, to identify the relevant documents, but not as evidence of their character.
Mr McPhee relies on the fact that the Australian Taxation Office sent a letter to him, in his capacity as a director of the Company, on 19 June 2015, referring to an audit meeting, which seems to have been the origin of subsequent events. Mr McPhee in turn relies on the affidavit of his solicitor, Mr Jordan, dated 8 February 2018, which refers to the circumstances in which the orders for production were issued, and refers to his instructions to claim legal professional privilege on various documents produced by KPMG and to Mr McPhee's instructions that advice was sought from KPMG both by the Company and Mr McPhee in his personal capacity as a director. Mr Jordan also refers to Mr McPhee's instructions that the advice sought related to various matters, many of which were relevant to the Company, and some of which were, on those instructions, relevant to the personal legal position of Mr McPhee in relation to tax withholding obligations. Mr Jordan's evidence, again presumably on the basis of instructions, was also that the advice was sought by both the Company and Mr McPhee personally. That is, of course, an assertion made on instructions, and cannot be given more weight than that. Mr McDonald, who appears for Mr McPhee, indicated in submissions that it is accepted that any advice was, to put it at its most favourable to Mr McPhee, sought by the Company and Mr McPhee, and not by Mr McPhee alone.
There are, of course, limits to the weight which can be given to a solicitor's affidavit of this character, in an application of this kind, which were noted by Markovic J in her helpful decision in Equititrust Ltd (in liq) (rec apptd) [2016] FCA 738. However, Mr McPhee also led evidence, by affidavit, to support the application. Much of that evidence was admitted with a limiting order under s 136 of the Evidence Act as either identifying the documents which were the subject of the claim for legal professional privilege, or as submission in support of the application. The fact that significant parts of that affidavit were inadmissible in form or conclusory in character potentially raised difficulties for Mr McPhee's application. However, I will assume, without deciding, for the purposes of this application, that many of the documents, and at least the brief to Counsel for which privilege was claimed, were capable of a claim for legal professional privilege made by the Company, and possibly by Mr McPhee, which would have prevented access by a third party.
Mr McPhee also referred in his affidavit to the circumstances in which KPMG became involved in the matter, and identified relevant correspondence. In particular, by letter dated 12 December 2014, an accounting firm which then acted for the Company drew attention to income tax applications for the Company in respect of matters that had previously occurred in dealings with a consultant to the Company. That letter identified a potential that Mr McPhee could be liable in respect of the superannuation guarantee charge, as a director of the Company, and recommended that "you" obtain advice from KPMG and confirm the implications with respect to the matter and how the Company should address that matter in personal income tax returns, as well as its implications for Mr McPhee and the consultant. The reference to "you" there appears to be a reference to the Company, and I will assume that the reference to KPMG is at least, potentially, a reference to persons practicing as legal advisers within KPMG, rather than accounting professionals providing taxation advice. By a further letter dated 12 March 2015, again addressed to the Company, although marked to the attention of Mr McPhee as its director, the accountants for the Company identified issues arising from the audit by the Australian Taxation Office and recommended that "you", which I again understand to be a reference to the Company to which that letter was addressed, obtain specialist taxation advice in relation to the matter. That letter also drew attention to the possibility that a director of the Company could be personally liable in the amount of unpaid PAYG withholding tax, a matter which gave rise to potential liability on the part of Mr McPhee.
Mr McPhee's affidavit in turn identified, in paragraphs which I have noted above were largely admitted as identifying the claim for privilege or as submission, 16 documents which were said to be confidential communications between KPMG Legal and Mr McPhee or his agent. The list of those documents annexed to Mr McPhee's affidavit indicates that they appear to be transaction documents, mainly draft loan agreements, which ordinarily would not, without more, be the proper basis of a claim for legal professional privilege. Mr McPhee also indicates, in evidence that was admitted with a limiting order under s 136 of the Evidence Act by way of a submission only, that "he sought advice" from KPMG in respect of particular matters. There is a fundamental ambiguity in that proposition, even if it were treated as evidence rather than submission, since that statement could equally be made if Mr McPhee sought that advice for the Company or sought that advice for himself.
Mr McPhee's affidavit did not, by way of any particular identification of communications or correspondence or conversations with KPMG, indicate any occasion on which he sought advice in a personal capacity, as distinct from seeking advice in respect of the Company. There is, of course, no logical inconsistency in the proposition that a director of a company may seek advice for the company, in respect of matters which may include the position of the director in respect of the company's affairs. Where it is possible for a director to seek personal advice in respect of those matters, and possible for the company to do so, it is not possible to assume, without more, that advice is sought in one or other capacity. Mr McPhee's affidavit, as I have noted above, does not seek to establish, and does not establish, that such advice was sought for Mr McPhee personally rather than for the Company. It also appears that KPMG understood its retainer to be with the Company, rather than with Mr McPhee. As Mr McDonald fairly acknowledged in the course of submissions, KPMG had written to the Registrar of the Court confirming that it was engaged by the Company to provide legal advice with respect to various tax issues, and that the Company may be entitled to claim privilege over the documents enclosed, but acknowledged that the Company, by its liquidator, had sought the production of the documents. At least KPMG did not appear to proceed on the basis that it had a separate retainer with Mr McPhee.
It seems to me that Mr McPhee's application, so as to prevent access to the documents to the Company, by its liquidator, cannot succeed. The first difficulty with that application, which is ultimately not determinative, is the absence of specific evidence as to the circumstances in which and purposes for which particular documents were created. Mr McDonald submits that it is not necessarily straightforward to lead such evidence without disclosing the content of the documents. However, it is possible to do so, including by identifying the circumstances in which particular advice was sought, and by whom it was sought, and the purpose for which it was sought. That may be done, for example, by tender of the document which seeks that advice, or by evidence of a conversation which led to it being obtained. Here, the mere identification of the documents, without further identification of the circumstances in which they were prepared, would not be sufficient to establish that the particular documents were provided for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice, particularly where it is apparent that taxation matters were also in issue. Had that been the only difficulty with Mr McPhee's application, it is likely that I would have acceded to a request made by Mr McDonald that I at least review the documents constituting a brief to Counsel, which on the face of it may well have been the subject of a proper claim for legal professional privilege by the Company or possibly Mr McPhee.
The more fundamental difficulty with Mr McPhee's application is that he does not submit, and the evidence does not establish, that he was obtaining advice for himself to the exclusion of the Company. There is no evidence of a separate retainer of KPMG by Mr McPhee personally, to the exclusion of a retainer by a Company, or a request at any point that Mr McPhee be provided with separate advice than that which was being provided to the Company, as to matters which may have had personal implications for Mr McPhee. The highest which Mr McDonald put the manner, in the course of submissions, was that some of the documents contained references to matters which impacted on Mr McPhee's interests and which were directed to his position. That is of course, not inconsistent with the advice being provided to the Company, or to the Company and, at its highest, also to Mr McPhee.
Mr McPhee's application assumed that, if advice was provided to the Company and Mr McPhee, or to the Company in a manner that addressed issues of concern to Mr McPhee, then Mr McPhee could assert a claim to legal professional privilege to prevent the Company obtaining access to the advice. That is a surprising proposition, so far as it would have the result that the Company would be prevented from obtaining access to the advice that it had obtained from KPMG. The authorities on which Mr McDonald relies do not support a conclusion that legal professional privilege can be asserted in that way, so as to allow one party who obtains advice (even assuming in Mr McPhee's favour that the advice obtained by the Company was sought jointly with him) to prevent the other obtaining access to that advice. The decision in Pioneer Concrete (NSW) Pty Ltd v Webb (1995) 18 ACSR 418 was expressly directed to a different situation, where one of two parties who together obtained legal advice objected to a third party obtaining access to that advice; see also the review of the authorities by Markovic J in Equititrust Ltd (in liq) above. The authorities indicate that, where a solicitor acts for multiple parties jointly, legal professional privilege is not available to allow one of those parties to prevent the other obtaining access to the documents. As Brereton J observed in Sharpe v Grobbel [2017] NSWSC 1065, by reference to a detailed review of the authorities, if an issue subsequently arises between those two parties, they cannot claim privilege against each other in respect of communications made during the subsistence of the joint retainer, although they can maintain privilege against the rest of the world, and that position applies both in respect of the advice legal privilege and the litigation legal privilege. His Honour also there referred to the Court of Appeal's decision in Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 608 to emphasise that that principle applied not only in the case of a joint retainer, but extended to circumstances in which multiple parties had a common interest in the subject matter of the communication, although only one of them retained a solicitor.
Assuming, as Mr McPhee contends, there was a joint retainer of KPMG by the Company and Mr McPhee, or a common interest in the subject matter of the communication so that advice obtained by the Company for its benefit from KPMG was subject to a common interest claim for privilege by the Company and McPhee, Mr McPhee cannot assert legal professional privilege to prevent the Company (as distinct from a third party) accessing that advice.
Mr McDonald sought to avoid this result by a submission that, for these purposes, the Company should be distinguished from its liquidator. I do not accept that submission. Mr McDonald, in submissions, fairly acknowledged that the proposition for which he contended could not extend to the position where, for example, Mr McPhee was a director of the Company at one point and the Company then obtained advice addressing matters that were relevant to him, and he then resigned as a director and another director was appointed. Mr McDonald accepted that Mr McPhee could not then assert privilege to prevent the Company, under the management of its new director, obtaining access to advice which it had obtained. It seems to me that the position is no different, once a liquidator has been appointed, where that liquidator is functioning as the relevant officer of the Company in determining whether to obtain access to the advice and whether to assert any claim for privilege. I accept, of course, that an application for a liquidator's examination under s 596A or s 596B of the Corporations Act 2001 (Cth) is brought by the liquidator and an order for production is made on the liquidator's application in such an examination. However, once that order for production is made, then the question whether a claim for privilege exists is determined by reference to s 118 of the Evidence Act or the general law, by reference to the authorities to which I referred above.
I also do not accept, as Mr McDonald at one point suggested, that this application turns on any question of the liquidator waiving privilege. A party does not waive legal professional privilege by accessing the advice which it obtained. This is not a question where, for example, some third party other than the Company (or the liquidator, as its offer) is given access to such advice. The position also does not differ, it seems to me, because the liquidator invokes the regime under s 596A or s 596B of the Corporations Act, rather than causing the Company to request KPMG to produce that advice to it pursuant to the retainer, as the client for whom it was prepared.
For these reasons, it seems to me that Mr McPhee cannot assert a claim for legal professional privilege in order to prevent the Company, by its liquidator, obtaining access to advice which it has obtained. In these circumstances, the balance of Mr McPhee's application, so far as it seeks to prevent access to documents produced by KPMG to the liquidator, should be dismissed. Mr McPhee must pay the costs of that part of the application.
I make the following orders in addition to the order which I have previously made by consent:
Paragraphs 2 and 3 of the Interlocutory Process filed by Mr McPhee on 9 February 2018 be dismissed.
Mr McPhee pay the costs of and incidental to that Interlocutory Process, so far as it concerned the objection to production or access to the relevant documents by reference to legal professional privilege.
Mr Gordon in his capacity as liquidator of Resource Group Services Pty Ltd (in liq) have immediate access to all documents produced by KPMG Tax Pty Ltd, trading as KPMG Legal and Tax Services, in response to the order for production.
[3]
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: 01 March 2018