Hutchins v Cap Coast Telecoms Pty Ltd

REASONS FOR JUDGMENT 1 On 14 August 2015, I refused an application by Richard Sebastian Ludwig that Gillis Delaney Lawyers be restrained from acting as lawyers for the plaintiffs in these proceedings. 2 These are my reasons for that decision.

Background facts 3 Mr Ludwig was at all relevant times the sole director of the defendant ("Cap Coast"). 4 On 20 January 2015, the plaintiffs were appointed as liquidators of Cap Coast pursuant to a creditors' voluntary winding up. 5 Leave has been granted to the liquidators to issue and serve an examination summons on Mr Ludwig. That examination summons was made returnable on 5 August 2015 but the hearing was vacated as a result of this application, and the need to determine Mr Ludwig's associated application for a review of a decision of Registrar Hannigan made on 3 August 2015. 6 A notice to produce dated 8 May 2015 was served on Mr Ludwig. The notice to produce was returnable before a Registrar of the Court on 22 July 2015. On that occasion, counsel for Mr Ludwig produced documents including a bundle of documents contained in a sealed yellow A4 envelope marked "No access - claim for privilege" ("disputed documents"). 7 Orders were made by the Court for uplift and photocopy access to documents not subject to a claim for legal professional privilege. In addition, Registrar Ng made the following order: 4. In respect of any objection to access on grounds of confidentiality or privilege to the [order for production] [addressed] to Richard Ludwig. (a) The person [objecting] to access to serve a list of documents in respect [of] which privilege is claimed by 4.00pm on Friday, 24 July 2015. (b) Any submissions or Affidavits in support of access or to be relied upon for the hearing to be filed and served by 4.00pm on 27 July 2015. (c) Any dispute over access be listed for hearing before Registrar Hannigan at 3.00pm on Friday, 31 July 2015 at Law Courts Building, Queens Square, Sydney. 8 Through an error made by the Registry, the disputed documents were provided to Gillis Delaney's service providers, Law in Order, and copied. 9 The disputed documents were delivered to the offices of Gillis Delaney late in the afternoon of Friday 24 July 2015. 10 Also on 24 July 2015, Mr Ludwig's solicitors served on Gillis Delaney a list headed "list of documents served pursuant to order 4(a) of the orders made on 22 July 2015 by Registrar Ng". 11 Mr Perkes is a solicitor employed by Gillis Delaney, with the title "Special Counsel". Mr Perkes was asked to assist in attending to correspondence and appearing in Court on the return of orders for production on 22 July 2015. I accept Mr Perkes' evidence that he is the only legal practitioner acting for the liquidators to have seen the disputed documents. I also accept Mr Perkes' evidence that the disputed documents were not provided to the liquidators. 12 Mr Perkes gave the following evidence: On Monday morning 27 July 2015 I first looked at the bundle of documents received from Law In Order and cursorily scan read those documents. In doing so, I focused on the tab numbers in the right hand top corner of some of the documents and I did not absorb the contents of the documents. Those tab numbers appeared to correlate with the index numbers on the List of Documents faxed to Gillis Delaney by [Kalus Kenny Intelex, solicitors for Mr Ludwig], being the documents over which Mr Ludwig claims privilege. 13 Mr Perkes deposed to the following communications between Gillis Delaney and Jennifer Rozea, Mr Ludwig's solicitor, following his review of the documents described above: (a) At 10:56 am, Mr Hayter sent an email to Ms Rozea, attaching a letter which said relevantly: In relation to the privilege argument concerning documents produced by Richard Ludwig, we refer you to our letter dated 17 July 2015 in which we requested that you provide to us a list which clearly identifies the documents over which privilege is claimed, and that you specify the facts relied upon by Mr Ludwig as establishing the existence of the privilege. In lieu of that information you have provided us with a List of Documents, which appears to be a list of the documents that have now been produced by Mr Ludwig to the Court. The Orders made on 22 July 2015 included: "6......(a) The person objecting to access to serve a list of documents in respect of which privilege is claimed by 4 :00 p.m., 24 July 2015" We request same by return. (b) At about 11:18am, Mr Hayter received the following reply, copied to Mr Perkes: Dear Michael, I refer to your letter attached to your email below. The list of documents served on you on Friday is the list of documents over which our client claims privilege. You will note the heading on the court document states that the list is provided pursuant to Order 4 (a) made on 22 July 2015. Regards, Jennifer Rozea (c) At about 11:33 am, Mr Perkes responded as follows: Jennifer Your Counsel produced a large bundle of documents in answer to the Notice to Produce, and a smaller Yellow A4 envelope said to contain the documents over which privilege was sought. The bundle (and index thereof) are merely emails going back and forth between the parties, including some of our letters, for the period from about March to July 2015, and does not respond at all to the documents required pursuant to the Notice to Produce, as amended pursuant to our letter dated 10 July 2015, see attached. It is those documents that we want produced, and separately details of the documents that you do not want to produce in answer to Items 5 and 8, going back to 1 January 2013. Regards, Ray Perkes (d) At about 11:44am, Mr Perkes received the following: Dear Raymond, Our client has produced all documents in his possession or control in response to the Notice to Produce, and there are no further documents. The list of documents served on you on 24 July is a list of the documents contained in the yellow A4 envelope. Regards, Jennifer Rozea 14 Mr Perkes then asked a secretary at Gillis Delaney to contact Law in Order to confirm that it had copied the correct bundle of documents. The response was to the effect that the Registry had provided the documents to which access was granted. 15 At 12:27 pm, Mr Perkes wrote the following email to Ms Rozea: Jennifer That cannot be correct. The Court will not grant us photocopying access to documents for which privilege is claimed until that issue has been determined by the Registrar. Our law clerks have confirmed that the documents on your List, copies of which we now hold, were the ones for which access was granted. None of those documents go back before about March or April this year, and we are seeking tax returns etc and other financial documents and related correspondence going back to 1 January 2013. We still require production of all documents from Richard Ludwig in accordance with the Notice to Produce, as varied by our recent letter. Regards, Ray Perkes 16 At some time between writing this email and 2pm, Mr Perkes received a telephone call from the Federal Court Registry. Mr Perkes was told of the Registry's error and asked to destroy the documents. 17 Mr Perkes then arranged for the documents to be shredded. The documents were shredded on the afternoon of 27 July 2015. 18 Mr Perkes gave the following additional evidence about the disputed documents: He did not read or analyse the documents except to the extent necessary to form a view about what they were. He was uncertain about whether they were subject to a claim for privilege until he received the call from the Registry; No other staff member of Gillis Delaney who is involved in the liquidators' examinations has seen the documents; He did not summarise the documents, make any notes about them or keep any copies of them; He has not communicated to anyone, whether a member of Gillis Delaney or Cor Cordis (accountants assisting the liquidators) or anyone at all, orally or in writing about the contents of the documents and has no knowledge of the documents, except as explained in his affidavit. 19 Mr Ludwig's counsel, Mr Herskope made the following submissions: (i) Each of the documents on their face are communications between the client and his lawyers and/or his counsel; (ii) This fact alone should have been sufficient for any experienced practitioner to have appreciated that the documents were of the type and nature which would normally attract client legal privilege; (iii) If this was not the case, then it should have immediately become obvious once a comparison was made between the documents enumerated in the list that had been served and the documents themselves; (iv) Two things should then occurred immediately - Gillis Delaney should have informed the Court of what had occurred and simultaneously Mr Ludwig's legal representatives should have been informed. 20 The first proposition is not correct. At least the first five documents in the bundle are not on their face communications between client and lawyer. 21 Accordingly, I do not accept that Mr Perkes should have realised immediately appreciated that the documents were of a type and nature which would normally attract client legal privilege. I have now ruled on the question of privilege and concluded that the majority of the documents do not attract legal professional or common interest privilege. 22 As to the third proposition, I accept that Mr Perkes should have realised that the disputed documents were subject to claims of privilege once he compared them with the list served on 24 July 2015. It appears from the emails above that Mr Perkes made this comparison by 10:56 am on 27 July 2015. However, it also appears from the emails that Mr Perkes did not conclude that the documents were subject to privilege claims: rather, he was uncertain. I accept that he was uncertain because he did not expect to have received such documents, because he was told that the Federal Court did not make mistakes of the kind which had occurred and because the documents, looked at cursorily, did not appear to be documents that were of a type and nature which would normally attract client legal privilege. In this regard, I note that the first email in each document (being the final email in an email chain, or a single email) was a communication to or from Steven Marks, a person not identified in the emails as a lawyer. 23 I accept that Mr Perkes should probably have raised the question of whether the disputed documents were correctly provided to Law in Order with the Federal Court Registry. I do not accept that Mr Perkes should have done anything more by way of communication with Ms Rozea: he first wrote to her at 11:33 am concerning the documents, having reviewed them that morning, to seek to clarify why he had not received the kind of documents that he expected to be produced. He did not tell Ms Rozea that he had documents that were subject to a claim for privilege because he did not understand that to be the case. Mr Perkes described the documents in his possession sufficiently to enable Ms Rozea to work out that he had received the disputed documents. It was Mr Perkes' emails that led to the discovery of the Registry's error.

Legal framework and submissions on behalf of Mr Ludwig 24 The Court has power to restrain a solicitor from acting in a particular matter for a particular client where such a course is in the interests of justice: Western Australia v Ward (1997) 76 FCR 492 at 498. 25 The test to be applied in considering whether to exercise this power is "whether a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice": Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 ("Kallinicos") at [76]; Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065; (2014) 228 FCR 252 at [94]. 26 Mr Ludwig accepts that the Court will only exercise the relevant power in exceptional circumstances, but submits that this is such a case. He also accepts that the liquidators are generally entitled to have the legal representatives of their choice and should not be deprived of that right without due cause, but says that the exceptional circumstances of this case far outweigh that entitlement. 27 Mr Herskope submitted that a fair minded, reasonably informed member of the public would be "aghast" at the prospect that Gillis Delaney could continue to act for the liquidators. The matters upon which Mr Herskope relies are: (1) Gillis Delaney (through Mr Perkes) has knowledge of the contents of confidential communications passing between Mr Ludwig and his legal representatives, through no fault of Mr Ludwig. Mr Perkes is continuing to instruct counsel in the matter; (2) It is artificial to suggest that the problem has gone away because the documents have been destroyed and it is asserted that no notes were made of the documents. The damage was done. Gillis Delaney's position is so infected with what has occurred that the need to maintain the integrity of the judicial process requires the Court's intervention; (3) The Court should not accept that Mr Perkes did not read or analyse the documents except to the extent necessary to form a view about what the documents were, having regard to the 11:33 am and 12:27 pm emails; (4) In ordinary circumstances, Gillis Delaney would have no more in its possession than a "generic description" of the disputed documents; (5) Mr Ludwig is subject to a summons to attend a liquidators' examination. 28 In his oral submissions, Mr Herksope referred to the cases of Kallinicos, Grimwade v Meagher [1995] 1 VR 446 and Black v Taylor [1993] 3 NZLR 403. In particular, he cited the following passage in Kallinicos at [44]: In Black v Taylor [1993] 3 NZLR 403, the New Zealand Court of Appeal dismissed an appeal from a declaration that a solicitor should not act further as counsel in certain proceedings on the ground of conflict of interest arising from the solicitor's past receipt of confidential information, but did so on a basis which did not rest on protection of confidential information. Cooke P said (at 406) that the inherent jurisdiction of courts to determine who may be allowed to represent parties to argue cases before them extended to the propriety of a representative appearing in a particular case, which pertained not to the right of practice generally, but to what was needed or may be permitted to ensure in a particular case both justice and the appearance of justice; though the jurisdiction was one to be exercised with circumspection. Richardson J (at 408-409) said that the court had an inherent jurisdiction to control its own processes, which included determining who should be permitted to appear before it as advocates, one aspect of which was the control of a particular proceeding in the court. His Honour described the right to choice of counsel as an important but not an absolute value. After reference to Everingham v Ontario, his Honour held that where it was satisfied that the interests of justice so required, the High Court had an inherent jurisdiction to restrain a barrister from continuing to act as counsel for a particular party in proceedings before the court. His Honour agreed with the approach of the Ontario court, holding that disqualification (in a particular case) would ordinarily be the appropriate remedy where the integrity of the judicial process would be impaired b counsel's adversarial representation of one party against the other (at 412): "… The decision to disqualify is not dependent on any finding of culpable conduct on the lawyer's part. Disqualification is not imposed as a punishment for misconduct. Rather it is a protection for the parties and for the wider interests of justice. The legitimacy of judicial decisions depends in large part on the observance of the standards of procedural justice. Where the integrity of the judicial process is perceived to be at risk from the proposed or continuing representation by counsel on behalf of one party, disqualification is the obvious and in some cases the only effective remedy although considerations of delay, inconvenience and expense arising from a change in representation may be important in determining in particular cases whether the interests of justice truly demand disqualification."

Consideration 29 I accept that Mr Perkes has knowledge of the contents of confidential communications passing between Mr Ludwig and his legal representatives to the extent that he described in his affidavit. I accept that this knowledge was obtained through no fault of Mr Ludwig and that Mr Perkes is continuing to act for the liquidators despite this knowledge. 30 I do not accept that there is any inconsistency between Mr Perkes' evidence about the extent of his consideration of the disputed documents and the terms of his 11:33 am and 12:27 pm emails. 31 I also do not accept that, in the ordinary course, Gillis Delaney would have no more in its possession than a "generic description" of the disputed documents. I have ruled that the majority of the documents are not privileged. As to the balance of the disputed documents, while I accept that the Registrar ordered Mr Ludwig to supply only a list of the disputed documents, in order for Gillis Delaney to determine whether to challenge the claims, it was necessary for them to have more information than this. A generic description would only have been sufficient if that description justified the claims. In the ordinary course, in my view, Gillis Delaney would have had all of the documents that are not privileged and a description of the other documents sufficiently detailed to enable Mr Perkes to be satisfied that those documents were properly the subject of protection for reasons of privilege. 32 As to the question of harm, it was not suggested that Mr Perkes has any particular knowledge that has been used or that could be used to Mr Ludwig's detriment. There is no real risk of the misuse of confidential or privileged information: cf Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065; (2014) 228 FCR 252 at [104]. 33 The relevant harm is harm to public confidence (including Mr Ludwig's confidence) in the due administration of justice arising out of the Registry's mistake and the consequent review of the documents by Mr Perkes. But where there is no real risk of misuse of information, I do not accept that a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires Gillis Delaney to cease to act. There is no obvious legitimate advantage to Mr Ludwig in restraining Gillis Delaney from acting: cf Kingston v State Fire Commission (1998) 8 Tas R 152 at 164. Conversely, if the order were made, the liquidators would be put to the expense and inconvenience of retaining new lawyers for no practical benefit and where there is no factual basis for a perception of risk of harm to the integrity of the judicial process. 34 In my view, such an order would be inconsistent with the proper administration of justice, because it would impose significant expenditure and inconvenience on the liquidators to deal with a theoretical risk. In contrast to this case, in GT Corporation Pty Ltd v Amare Safety Pty Ltd [2007] VSC 123 the solicitors were not restrained from acting, even though they had referred in correspondence to the privileged documents that were inadvertently disclosed. 35 Kallinicos is a very different case from this one, and Mr Herskope did not submit that the facts were analogous. In Kallinicos, the question was whether the Court should prevent a solicitor from acting, due to the likelihood of his being a material witness and having a perceived interest in the outcome of the proceedings. 36 I am confident (and I consider that a fair minded, reasonably informed member of the public would be confident) that Mr Perkes will be able to put any knowledge gained from his review of the documents to one side: cf Expense Reduction Analysis Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 at [49].

Costs 37 The liquidators sought an order for indemnity costs, submitting that the application was entirely without merit. The application was based on a construction of the facts which I have not accepted. I am not satisfied that the application was wholly untenable and misconceived, or that the evidence supports a conclusion that the application was brought for an ulterior purpose of delaying the liquidators' examinations. While I am not satisfied that Mr Perkes' handling of the matter warrants criticism, as Mr Herskope submitted, I accept that Mr Perkes may have been able to do more to identify the Registry's mistake more quickly, by telephoning Ms Rozea or the Registry. If more had been done, the application may have been averted. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.