Temwell Pty Ltd v DKGR Holdings Pty Ltd

REASONS FOR RULING ON PRIVILEGE OF SUBPOENAED DOCUMENTS PRODUCED BY DEACONS LAWYERS 1 On 23 July 2003, the mCom respondents caused a subpoena to be served on the Managing Partner of Deacons Lawyers ("Deacons") requiring production of documents held by that firm on behalf of Mr Daniel Elbaum and D & E Consulting Pty Ltd ("D&E"). I have summarised in a previous ruling the issues raised by the pleadings in this application: see Temwell Pty Ltd (ACN 08206560157) v DKGR Holdings Pty Ltd [2003] FCA 806 at [1]-[9]. The present ruling should be read in the light of that summary supplemented by what follows to permit an understanding of the claim of legal professional privilege advanced on behalf of Mr Elbaum and D&E. 2 In October 1998, Temwell agreed, by a Sale of Software Agreement, to purchase what has been called "the Application Software" from the first respondent ("DDS"). Pursuant to the Sale of Application Software Agreement ("the Software Agreement"), Temwell acquired the copyright in, and all confidential information in connection with, the Application Software. Temwell subsequently granted a licence to DDS to maintain, develop and commercialise the Application Software on terms that DDS would pay royalties to Temwell in accordance with a Licence, Research and Commercialisation Agreement. 3 On 24 March 2000, DDS sold its business to the second respondent, mCom Solutions Inc ("mCom") and subsequently assigned all its rights in the Application Software to mCom. Temwell alleges that the assignment was made without its consent and in breach of both the Software Agreement and Licence Research and Commercialisation Agreement. 4 At all relevant times, D&E and Mr Elbaum were shareholders in DDS, holding over 60% of the issued shares between them. Mr Elbaum was the sole shareholder of D&E as well as a director of both D&E and DDS. 5 The subpoena required Deacons to produce documents in four separate categories: (1) (a) documents created between 1 January 2000 to 1 July 2000 relating to the Sale of Business Agreement between DDS, Mr Elbaum, D&E Consulting Pty Ltd and mCom Inc; (b) dealings concerning Temwell Pty Ltd and the other cross-respondents in relation to the Sale of Business Agreement; (2) documents relating to meetings, discussions, conversations and correspondence between representatives of DDS and the ANZ Bank, the State Revenue Office and the Australian Taxation Office during 1 January 2000 to 1 July 2000; (3) documents relating to either or both of the conditions precedent of the Sale of Business Agreement that Temwell provide (a) written confirmation that the Application Software may be repurchased within 12 months of the date of the Heads of Agreement and (b) all necessary consents to the sale of the assets and business contemplated by the sale of the Business Agreement and (4) documents relating to communications between and meetings attended by or on behalf of representatives of DDS, mCom Inc and/or Temwell Pty Ltd on and from 22 March and up to and including 24 March 2000. 6 Deacons responded to the subpoena on 18 August 2003 by producing to the Court 39 folders of documents which have been collated in five groups as follows: (1) DDS: Sale of Business; (2) DDS: Restructure; (3) DDS: Temwell; (4) DDS: IT Technology; and (5) Folders not in the name of DDS. 7 On the return of the subpoena, I made orders, amongst others, that the documents produced in answer to the subpoena be released for inspection by the solicitors for the mCom respondents save for those documents for which privilege had been claimed on behalf of either or both Mr Elbaum and D&E. I further ordered that there be a hearing of the claim to privilege on 20 August 2003. 8 To support the claim, Mr Goldblatt of Counsel appeared for both Mr Elbaum and D&E. He submitted that, having regard both to the affidavit evidence of Mr Elbaum and the documents that had been produced in answer to the subpoena, Deacons had acted for Elbaum, DDS and D&E and, to the extent that privilege in these documents exists, it is a joint privilege. Particular reliance was placed on accounts rendered by Deacons for professional services rendered in respect of matters to which the subpoenaed documents were related. That was by way of illustrating that Deacons had billed D&E Consulting, DDS and Mr Elbaum interchangeably in respect of the same matters. In respect of documents that the liquidator of DDS had produced pursuant to an earlier subpoena addressed to them, Mr Goldblatt submitted that any inadvertent waiver of privilege by the liquidator did not preclude the other holders of the joint privilege from continuing to assert it. Amongst other authorities, Mr Goldblatt referred to Farrow Mortgages Services Pty Ltd (In Liq) v Webb (1996) 39 NSWLR 601 where Sheller JA (at 608) said: "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 persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege. So is it also if one group of persons in a formal legal relationship communicates with a legal adviser about a matter in which the members of the group share an interest. … Logically the joint nature of the privilege means that all to whom it belongs must concur in waiving it". 9 For the mCom respondents it has been contended that any legal professional privilege which attaches to the subpoenaed documents is that of DDS and not that of either or both of Mr Elbaum and D&E. In particular, mCom contends that Mr Elbaum and D&E, in order to assert the joint privilege, need to establish that they were parties together with DDS to a formal joint retainer of Deacons and that required, in the case of Mr Elbaum, participation in a joint retainer, not as a director of DDS, but in his personal capacity. Furthermore, the mCom respondents contended that, irrespective of the form of retainer, it has to be established that Mr Elbaum and D&E jointly sought and received legal advice from Deacons or that they reasonably believed that Deacons was acting for either or both of them and for DDS as joint clients. Mr Delaney, for the mCom respondents, submitted that, except in respect of documents in category 5 identified at [6] above of these reasons, neither Mr Elbaum nor D&E Consulting have produced any evidence to show that they were referred to by Deacons as clients in the instructions or advice received by those solicitors or that Deacons were instructed to, or did, advise Mr Elbaum personally or D&E in matters affecting it otherwise than as a shareholder in DDS. 10 In the alternative, Mr Delaney contended that if, contrary to his primary submission, both Mr Elbaum and D&E were jointly entitled to assert privilege, in certain documents that privilege was waived when Mr Elbaum, in an affidavit filed in this proceeding, put in issue the advice given to him by Deacons concerning both the ownership of the MTD3000 software and the settlement of the sale to mCom. In those circumstances, it was said the privilege could not be maintained in the face of the principle enunciated by Mason and Brennan JJ in Attorney-General (NT) v Maurice (1986) 161 CLR 475, at 488; 'The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains: "[W]hen his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder." (Wigmore, Evidence in Trials at Common Law (1961), vol 8, par 2327, p 636.) In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in waiver as to the rest of the communication on that subject-matter: see Great Atlantic Insurance Co v Home Insurance Co[1981] 1 WLR 529; [1981] 2 All ER 485. Hence, the implied waiver inquiry is at bottom focused on the fairness of imputing such a waiver. On this principle, an American court refused to imply a waiver when the person entitled to the privilege, who had been subjected by court order to an exceptional accelerated discovery process, accidentally disclosed some protected communications: Transamerica Computer Co Inc v IBM Corp. (1978) 573 F (2d) 646. Likewise, a waiver was not implied beyond actually disclosed material when the person entitled to the privilege, in a spirit of co-operation, disclosed some confidential communications to opposing counsel, not to the court, and the partial disclosure did not prejudice the opposing litigant: Weil v Investment/Indicators, Research & Management (1981) 647 F (2d) 18. As the court in Champion International Corp v International Paper Co (1980) 486 F Supp 1328, at p 1333 asked rhetorically, "Can the disclosure of a very slight amount of privileged material, produced in a spirit of openness in discovery, be the basis for a waiver of a large amount of other privileged material?"' 11 There is annexed to an affidavit affirmed on 19 August 2003 by Emily Jane Hudson, a solicitor for the mCom respondents marked EJH10 what has been called "the modified Walker Herceg schedule". That document ("the schedule") conveniently identifies each document for which legal professional privilege has been claimed by one or more of Mr Elbaum, D&E and DDS and indicates, by shading, each document which is said not to be the subject of legal professional privilege by reason of the description attributed to it by Walker Herceg the solicitors who have acted for DDS on the return of the subpoena. I uphold that contention in respect of the documents in the schedule numbered 38.14, 38.15, 38.16, 38.19, 38.22, 38.23, 38.29, 2.28, 38.34, 38.32, 38.33, 2.30, 2.31, 38.38, 38.39, 3.51, 3.71, 3.77, 38.40, 38.41, 38.43, 3.39, 3.42, 3.44, 3.45, 3.46, 3.48, 3.49, 3.56, 3.52, 3.54, 3.72, 3.75, 3.78, 3.79, 3.61, 3.63, 3.64, 3.65, 3.73, 3.76, 32.14, 3.81, 3.82, 32.13, 32.8, 32.2, 32.1, 31.4 and 30.4. Some other documents have been similarly shaded but I considered that it is not possible to conclude from the description given to them in the schedule whether or not they were brought into existence for the purpose of giving or obtaining legal advice. I instance, by way of example, document 12.14 "Handwritten diagram", document 18.1 "Flowchart showing various DDS and D&E company relationships" and document 32.10 "Fund Utilisation Statement (2 copies)". If required, I shall examine each of those documents for myself to determine whether the purpose for which it was brought into existence was such as to attract legal professional privilege. 12 I adopt, with respect, Sheller JA's formulation of the principle governing joint privilege which is to be found in the quotation from Farrow Mortgages Services Pty Ltd (In Liq) v Webb reproduced at [8] above. In some cases it may be necessary to identify in respect of each particular document whether the privilege is joint or several and, if joint, each client of the legal adviser who is entitled to assert the privilege. It may then be necessary, as Sheller JA suggests, to consider in relation to each document to which joint privilege attaches whether each joint holder has concurred in waiving it, either expressly or by implication applying the "fairness test" enunciated in Attorney-General (NT) v Maurice (supra). However, I do not consider that analysis to be necessary in the present case because, at the time when the claimed privilege attached to each of the disputed documents, Mr Elbaum either directly or, in conjunction with D& E, was a majority shareholder in DDS. As he has said at par 25 of his affidavit sworn 20 February 2003 "I had control of the board of DDS as the Managing Director and CEO and through my 65% ownership of shares in the company. I was the person ultimately responsible for deciding what DDS would do with regard to the sale [to mCom]." Accordingly, the "fairness test" in relation to privilege claimed by DDS falls to be applied in the light of the evidence which has been given, or is given in the future, in this case by Mr Elbaum, Mr Cattanach or any other witness who, at the relevant time was an officer or employer of DDS. As I apprehend it, relief is not any longer sought in the present proceedings against DDS as the first respondent and I cannot perceive any detriment which could be occasioned to its creditors or any shareholders of DDS, other than Mr Elbaum and D&E, to the extent that its privilege were held to be waived by application of the test in Attorney-General (NT) v Maurice. To guard against any incidental prejudice which I may have overlooked, I shall direct that access to any documents in respect of which privilege is held to be waived shall be confined to Counsel and solicitors for the mCom respondents on their undertaking not to disclose or use, otherwise than for the purposes of these proceedings, any information obtained as a result. 13 I have examined each of the substantive affidavits sworn by Mr Elbaum in these proceedings. In par 29 of his affidavit of 26 July 2002 it is deposed; 'I understood that the 1998 assignment to Temwell, in the transaction documents, included the then current version of the MTD software (which was modified or enhanced from the MTD 2000 software), and all further modifications and enhancements to be created in the future, as well as the PIMPOS operating system (without which the MTD software could not operate - similarly PIMPOS operating system was useless without the application software). I informed Mr Hains of the mCom Group of this understanding. I set out in detail below matters concerning my dealings with Mr Hains.' 14 To the extent that the understanding there referred to was based on advice from Deacons, I consider that privilege in any document by which the advice was sought by DDS or conveyed to it has been waived, and such document should be made available to the legal advisers to the mCom respondents. I have been unable to identify any such document from among those described in the schedule. However, if there is a dispute about whether a particular document answers the description just given, I shall resolve it by inspecting the document for myself. 15 Mr Elbaum has referred at par 38 of the same affidavit to the "preparation of the Deloittes valuation report" and I consider that constitutes an implied waiver of the document in the schedule dated 23 March 2000 and numbered 2.20. Similarly, there should be disclosure of all documents passing between Mr Elbaum and Deacons or brought into existence by Deacons in relation to the meeting on 23 March 2000 at the office of Arnold Bloch Leibler to which Mr Elbaum has deposed in par 70 of his affidavit of 26 July 2002. They would appear to include, at least, documents numbered 2.14 to 2.19 inclusive and 2.21, 2.22, 2.24, 2.25, 19.11 and 19.12 in the schedule. 16 Likewise, there has been an implied waiver of privilege in respect of the seeking and receipt of legal advice to which Mr Elbaum has deposed in par 73 of his affidavit of 26 July 2002. There should be disclosure of the documents for which privilege has been claimed in respect of that matter. 17 Legal professional privilege in the documents identified at [15] above has also been waived by the assertion in par 24 of Mr Elbaum's affidavit sworn 20 February 2003 that "I believed that Temwell's consent to the assignment of DDS' rights under the transactions documents was necessary. I became aware at the 22 March 2000 meeting that such consent had not been given." I have reached a similar conclusion in relation to any documents for which privilege has been claimed which refer to, or record, the seeking or giving of advice about the unexecuted and executed "Further Agreement' referred to in pars 52 and 53 of Mr Elbaum's affidavit of 20 February 2003. 18 I do not consider that any assertions made in any of the other substantive affidavits by Mr Elbaum which have been filed in these proceedings on behalf of Temwell constitutes a partial disclosure of a privileged communication which would make it unfair to maintain the privilege in relation to the remaining documents in the schedule. However, should cross-examination of Mr Elbaum elicit such a partial disclosure, I shall revisit this issue and, if necessary, examine for myself documents in the schedule then said to contain communications in respect of which privilege has impliedly been waived. 19 I have also examined the several affidavits sworn by Kenneth Cameron Cattanach on 26 July and 21 August 2002 and 17 February, 10 April and 14 August 2003. Mr Cattanach was Director of Finance and Administration for DDS from January 1997 until March 2000 and was one of its directors from 4 January 2000 until 14 July 2001. I consider that references in pars 15 to 19 of his first affidavit and pars 6 and 12 of his affidavit of 19 February 2003 support the conclusion that DDS has waived privilege in respect of the documents in the schedule numbered 2.15, 2.16, 2.17, 2.18, 2.21, 2.22, 2.24, 19.11 and 2.26 identified at [15] above. 20 However, I do not consider that any of the remaining paragraphs of Mr Cattanach's affidavits raises an assertion that amounts to an implied waiver by DDS of its privilege in respect of other documents in the schedule. As with the evidence of Mr Elbaum, if answers given by Mr Cattanach in cross-examination arguably make it fair to disclose to the mCom respondents communications in those other documents, I shall review those documents at that time. 21 It is not presently clear to me what arrangements have been made in respect of Deacons' costs and expenses incurred in complying with the subpoena of 23 July 2003. It is also appropriate that Counsel for the parties and for Mr Elbaum and D&E have an opportunity, in the light of this ruling, to make submissions about the costs of the hearings on 7, 18 and 20 August 2003. I shall therefore reserve all questions of costs of and incidental to the said subpoena issued on 23 July 2003 until after further argument on a date to be fixed. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.