Network Ten Ltd v Capital Television Holdings Ltd

Judgment 1The second defendant company ("HM&O") (which is now liquidation) and its wholly owned subsidiary Teach & Play Pty Ltd ("Teach & Play") (which is also now in liquidation) sued the plaintiffs ("the Ingrams") in this Court for damages (claimed to be in the millions) in connection with the sale by the Ingrams to them of a business which designed and manufactured playground equipment ("the proceedings"). HM&O and Teach & Play (to which I will refer collectively as "the Companies" where it is not necessary to distinguish between them) claimed that the Ingrams had engaged in misleading or deceptive conduct. 2The directors of the Companies included, at all material times, Messrs Christopher John Salmon and Glenn John Rufford (to whom I shall refer collectively as "the Individuals"). HM&O was a trustee company for family trusts associated with the Individuals and a Mr O'Shea. Owen Hodge Lawyers were the solicitors on the record for the Companies in the proceedings. 3The proceedings were heard by McDougall J over some months during 2011 and 2012. The last hearing day of the trial was 16 August 2012. 4On 29 August 2012 his Honour's associate notified the parties' solicitors that his Honour would give judgment on Friday 31 August 2012. 5On 30 August 2012 HM&O transferred assets to the first defendant company ("Y Twelve") which had been incorporated on or about 23 August 2012. It too is associated with the Individuals. A transfer on that date is admitted by Y Twelve in its Commercial List Response. 6His Honour gave judgment on 31 August 2012, holding that the Ingrams had made two misleading or deceptive representations and that the Companies had established damages of $10,000. His Honour expressed the tentative view that the Companies had failed and that the Ingrams should have their costs. His Honour stood the matter over for further argument on costs. 7On 26 September 2012 his Honour made costs orders which, it is not in dispute, will result in a substantial liability on the part of the Companies to the Ingrams. 8On 29 October 2012 Teach & Play was placed into liquidation and on 30 October 2012 HM&O went the same way. 9The present proceedings were initiated by the Ingrams on 21 December 2012. They seek declarations that the transfers of assets by HM&O were alienations of property with intent to defraud creditors within the meaning of s 37A of the Conveyancing Act 1919 (NSW), and void ab initio. They seek orders for the re-transfer of the assets to HM&O. 10On 17 April 2013, at the instance of the Ingrams, there was issued a subpoena to Owen Hodge Lawyers seeking documents concerning the transfer or any proposal to transfer assets to Y Twelve, documents and communications recording, referring to or concerning the risks of an adverse costs order in the proceedings, and documents recording or concerning advice provided to any or all of HM&O, Teach & Play, Y Twelve and Messrs Salmon, Rufford and O'Shea in relation to any of those matters. 11Twelve documents were returned on the subpoena by Owen Hodge Lawyers. They are identified in an affidavit sworn by Y Twelve's solicitor, Ms Sarah Furlonger. Both parties agreed that the Court should inspect the documents. The conclusions I have reached are drawn in part from my reading of the documents. 12No privilege is claimed by the liquidators of the Companies over any of the documents. Indeed, the liquidators have formally waived any privilege that might have attached to them. 13Access to ten documents (numbered 1 to 10) is resisted by the Individuals on the basis of common interest legal professional privilege. 14By way of Motion filed 14 June 2013 seeking access to the documents, the Ingrams challenge the Individuals' privilege claim. The contestants agreed that the contest is to be resolved by applying common law principles, rather than provisions of the Evidence Act 1995 (NSW). Their joint position was that the result would be the same anyway. 15It will suffice to describe common interest legal professional privilege in the briefest terms. 16If a person entitled to claim legal professional privilege in relation to a document discloses it to a third party having an interest sufficient for common interest privilege, the disclosure is not a waiver of the privilege. Whether there is a sufficient common interest is a question of fact in each case. A waiver by one of the persons with the common interest may, if fairness dictates, be effective as against another: Network Ten Ltd v Capital Television Holdings Ltd (1995) 36 NSWLR 275 at 279 and following; Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 at 409 and following. 17Common interest legal professional privilege is to be distinguished from joint legal professional privilege, which arises when advice is given to joint clients. In that case, each must waive the privilege: Ampolex v Perpetual Trustee at 412. 18A company can only manifest its acts and intentions by the acts and declarations of human beings. Acts done by the directors of a company in that capacity are acts of the company itself, not of the individuals. For this reason, a director's knowledge of a decision by a company to obtain advice, and knowledge of that advice on his or her part, is not treated as a disclosure to a party separate from the company itself. Directors act as the mind and directing will of the company: see Black v Smallwood (1996) 117 CLR 52; Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR ¶40-940 at 50,255; Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601 at 608-609. 19The Individuals accepted that the legal advice in this case was given only to the Companies and that there was no joint retainer of the lawyers. Rather, they submitted that the Companies and its directors had a common interest in the outcome of the proceedings because the directors "hold the ultimate shareholding and the ultimate beneficial interest" in the Companies and therefore, in the proceedings. They put that, to the extent that advice was given to the Companies in relation to the proceedings, there "must be a common interest" between the Individuals and the Companies in it. 20The Individuals' contention is said to be supported by the affidavit of Ms Furlonger. The pertinent paragraphs follow: 5. I am instructed by Messrs. Salmon and Rufford that: (a) Document Nos. 1, 2, 4, 5, 6 and 8 as set out in the table set out are communications passing between Owen Hodge and Mr. Rufford and or Mr. Salmon in their capacities as Directors of HM&O Investments Pty Limited (now in liquidation) ("HM&O Investments") and Teach and Play Pty Limited (now in liquidation) ("Teach and Play") for the sole or dominant purpose of the provision of legal advice in connection with Proceedings No. 2009/297464, being proceedings in which HM&O Investments and Teach and Play were Defendants; (b) Document Nos. 3 and 7 are communications between Owen Hodge Lawyers and Counsel brief in relation to Proceedings No. 2009/297464; (c) Document No. 9 appears to be a file note prepared by Owen Hodge Lawyers in relation to a meeting, and records legal advice given by Owen Hodge Lawyers to Mr. Christopher Salmon in his capacity as Director of HM&O Investments and Teach and Play in connection with Proceedings No. 2009/297464; and (d) Document No. 10 appears to be a file note prepared by Owen Hodge Lawyers in relation to legal advice provided to Mr. Christopher Salmon in his capacity as Director of the entities comprising the Group (as the term is defined at paragraph 5 of the Defendant's List Response Statement filed in these proceedings); 6. In the premises, Messrs. Salmon and Rufford claim legal privilege over the documents set out at paragraph 4 above on the basis that such documents record communications which came into existence for the sole or dominant purpose for the provision of legal advice in relation to Proceedings No. 2009/297464 or for the sole or dominant purpose of providing advice to Mr. Rufford and or Salmon in their capacities as directors of entities within the Group (as the term is defined at paragraph 5 of the Defendant's List Response Statement filed in these proceedings). 21The Individuals placed reliance on the following statement of Young J (as his Honour then was) at first instance in Farrow Mortgage Services Pty Ltd (in liq) v Webb [1995] NSWSC 1787; (1995) 13 ACLC 1329: Where there is a closely held corporation, where the directors and the corporators and the corporation itself are substantially identical, it seems to me artificial in the extreme to dissect the entities and to say that the company alone has privilege in communications from lawyers, which the company intended would be obtained for the benefit of both itself and the directors. Despite the paucity of evidence, it seems to me in the instant case that the information was sought on behalf of both the company and the directors and that there is a joint privilege. 22I have some difficulty with the proposition that it is artificial to distinguish between closely held corporations and the individuals owning or controlling them, but it is not necessary to consider this further. 23Young J concluded, despite a paucity of evidence, that the advice there was not only sought by and given to the company but also separately to the directors. 24The facts before his Honour were materially different from the facts here. In that case, the advice addressed three subject matters, the affairs of the company, the duties of the directors of the company and the potential liability of directors to third parties. That is not this case. 25Young J's finding was upheld by majority; see Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601. At 618 Sheller JA (with whom Waddell AJA agreed) said: But Young J was also right to conclude, in my opinion, that advice was being sought from the solicitors not only by the companies but also by the respondents and the occasions of the seeking and giving of that advice were privileged in consequence. This left for consideration the question whether that privilege had been waived. 26The Individuals submitted that Young J had in mind not joint interest but common interest privilege. This submission is unsustainable. A submission to similar effect may well have been made to Giles CJ Comm Div (as his Honour then was) in Ampolex v Perpetual Trustee, given that at 412, his Honour said of Young J's judgment: As I read Farrow Mortgage Services Pty Ltd v Webb, his Honour had in mind a situation of joint clients rather than common interest privilege of the kind considered earlier in these reasons, since he found that the relevant advice was sought and obtained on behalf of both the company and its directors before asking whether the directors had waived the privilege as well as the company. 27Moreover, in a very succinct dissenting judgment in Farrow Mortgage Services v Webb, Meagher JA at 604, after concluding that there was no joint interest, said: In my view, the so-called "common interest" cases have nothing to do with the matter. They establish that if, for example, CH Webb disclosed the privileged documents to the directors but did nothing else, that disclosure does not constitute a waiver of privilege, and further that no person may obtain such documents from the directors. That is not the case here. 28The supporting affidavit itself does not provide facts (even on information and belief) from which the conclusion that advice was disclosed to the directors other than as an emanation of the Companies themselves could properly be reached. In paragraph 5 the deponent sets out instructions from the Individuals as to the nature of the documents and that the documents reflect or record legal advice given to each of the Individuals in his capacity as a director of the Companies. Paragraph 6 asserts that in the premises, the Individuals claim legal privilege on the basis that the documents record communications which came into existence for the sole or dominant purpose for the provision of legal advice in relation to proceedings or for the sole or dominant purpose of providing advice to the Individuals in their capacities as directors of the Companies. 29I turn then to the documents. Document 1 is a letter from Owen Hodge Lawyers to Mr Salmon, Teach & Play, dated 26 July 2011. Its caption is: H M & O Investments Pty Ltd v Ingram Our Ref: RSH:229308 It concerns, principally, the solicitors' fees. It refers to the fact that invoices rendered by them for work done in connection with the proceedings remained unpaid. They state that they were not prepared to undertake further work whilst this was the case. Amongst others, it calls for payment and foreshadowed a Notice of Intention to Cease to Act. It calls for clear instructions. 30Document 2 is a letter from Owen Hodge Lawyers to the Individuals dated 3 September 2012 at the same address as the first letter. It summarises McDougall J's judgment and encloses a copy. It refers to preparation for the costs argument, the possibility of an appeal, the retention of counsel to advise on appeal and the costs of an appeal. It calls for instructions. 31Document 3 is an email dated 24 September 2012 (wrongly referred to in Ms Furlonger's affidavit as being dated 29.09.2012) from counsel briefed in the proceedings, Mr M Loewenstein, to Christine Vrahas, a solicitor at Owen Hodge Lawyers. The subject is "HM @ O". In it, counsel informs of a notification he has received as to the costs order the defendant will be seeking. 32Document 4 is an email dated 25 September 2012 from Christine Takla at Owen Hodge Lawyers to the Individuals. The subject heading is "HM&O Investments Pty Ltd Teach and Play Pty Ltd v Ingram: Costs hearing: Urgent instructions". It seeks urgent instructions for the costs hearing scheduled for the next day and sets out options available to be argued by counsel. It conveys counsels view of the prospects of one of the options and refers to a possible costs order. 33Document 5 is an email of the same date from Mr Salmon to Christine Takla at Owen Hodge Lawyers, with the same subject heading. It provides instructions with respect to the argument on costs. 34Document 6 is an email dated 25 September 2012 from Mr Rufford to Christine Takla, Mr Salmon and solicitors at Owen Hodge Lawyers, with the same subject heading. In it, Mr Rufford comments on the position they are in with respect to costs and raises a query in relation to one of the options. 35Document 7 is an email dated 25 September 2012 from counsel to Christine Vrahas expressing counsel's view as to the appropriate costs outcome and answering the query earlier asked. 36Document 8 is an email from Christine Vrahas to the Individuals with the subject heading "HM&O Investments Pty Ltd Teach & Play: Costs hearing result" setting out the costs orders made by McDougall J on 26 September 2012. 37Document 9 is a handwritten file note dated 15 August 2012, ostensibly recording a discussion (according to the supporting affidavit) with Mr Salmon outside Court at lunch on that day and counsel's views of how the proceedings had gone in Court. 38Document 10 (which may well be part of the same file note which is document 9) is a handwritten note bearing the date 15 August 2012. The initial part of the document records a question asked by "Client" in relation to the expert evidence and counsel's response which concerned the damages claim. The latter part of the document records another question asked and answered about the Companies' assets. There is reference to the position of directors. 39None of the relevant communications constituted by or reflected in the documents under consideration, whether from or to the lawyers, was anything other than a communication to or from the Companies themselves. So far as the communications were directed to or emanated from the directors, the directors were no more than the guiding mind, will and embodiment of the Companies. Except for the brief reference to the directors in document 10, no issues of directors' duties or their potential liability were canvassed. Nothing in these communications extends beyond the affairs of the Companies themselves. There was only a single interest, that of the Companies. No question of common interest or waiver in the hands of the Individuals properly arises. The Companies have effectively waived their privilege. 40But it was not submitted that any of the communications recorded in document 10 is the subject of joint privilege as being advice sought by and given to a director or the directors in his or their own right, as opposed to the subject of common interest privilege. 41A submission was put by the Ingrams, not directed to any particular document - because they did not have access to them - that any privilege that the Individuals may have had would be lost because of the common law principle that where there are reasonable grounds for finding that a fraud was committed and a communication was made in furtherance of it, the communication does not attract legal professional privilege. Fraud in the sense of alienation of property with intent to defraud creditors suffices; see Kang v Kwan [2001] NSWSC 698 at [37], [40]. The only communication in respect of which such a submission might, in my view, have been open is in the second part of document 10. But it is not necessary to consider this further because the communication is not privileged in any event. 42I order that there be general access to the documents described in paragraph 4 of the affidavit of Sarah Furlonger sworn 4 June 2013, produced by Owen Hodge Lawyers in accordance with the subpoena issued to that firm on 17 April 2013.