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The recent decision of the Federal
Court in Hammond v Quayeyeware Pty Ltd [2021] FCA 293 reaffirms the
rights of directors to access company documents, and provides an
important clarification on a director’s right to access a
company’s legal advice where the relationship has become
adversarial. It is also a reminder that it is the purpose for which
the documents came into existence that is the relevant
consideration when it comes to determining whether the privilege
exists.
The facts
The plaintiff, Ms Hammond was a founder, director and
shareholder of Quayeyeware Pty Ltd (Quay), a
popular sunglasses company. From August or September 2017, the
relationship between Ms Hammond and Quay deteriorated and there was
a significant reduction in the flow of information to Ms Hammond as
a director of Quay. Ms Hammond claimed that information was
excluded from board packs, such as spending for large marketing or
collaborations, that Quay refused or delayed the provision of
information she requested, and Quay failed to inform her about key
details relating to its business affairs, including new marketing
projects and the appointment of a new CEO.
Subsequently, two legal proceedings were instituted:
- Elevate Brandpartners, the majority shareholder which had
nominated additional directors to the board
(Elevate) and Quay commenced proceedings in April
2019 against Ms Hammond and her husband, their newly incorporated
company, Dream Bandits Australia Pty Ltd, and Mr Boyd (another
director), for various claims including breaches of the
shareholders deed and director’s duties, copyright and
trademark infringements, misleading and deceptive conduct and
tortious interference (Elevate
Proceedings);1 - Ms Hammond and Mr Boyd commenced proceedings in May 2019
against Quay seeking orders to compel access to Quay’s
financial and other books and records (First Access
Proceedings). Ultimately Quay agreed to upload the
requested financial documents to an electronic data room, with
unconditional access being provided to Ms Hammond and Mr Boyd, and
the First Access Proceedings were dismissed by
consent.2
Despite the resolution of the First Access Proceedings, Ms
Hammond raised issues about the electronic data room and continued
to request further information. On 6 May 2020, Ms Hammond wrote to
Quay seeking:
- first, access to various categories of documents
relating to Quay’s business; and - second, access to all letters of engagement or
retainers between Quay and its legal representatives, all written
advice provided to Quay and all invoices rendered to Quay in
relation to the Elevate Proceedings and the First Access
Proceedings.
Quay requested further time to provide the documents in response
to the first request from Ms Hammond but refused the second request
on the basis that those documents were subject to legal
professional privilege.
On 28 May 2020, Ms Hammond commenced proceedings seeking a
declaration as to her right to access the financial records, as
well as orders for general access to Quay’s books and
records.
Directors’ access to company documents and
declaratory relief
Banks-Smith J summarised the avenues for directors to access the
company’s financial and other relevant documents, being:
- the statutory right conferred by section 290 of the
Corporations Act 2001 (Cth) (the Act) to
access financial records at all reasonable times; - the statutory right under section 198F of the Act to inspect
books for the purposes of legal proceedings; and - the common law right of access to books and records (which, in
contrast to the statutory right, is not limited to financial
information).
Her Honour was not persuaded that either declaratory relief nor
the orders should be made on the basis that there was no utility in
granting the relief because the disputes between the parties would
not be resolved, and there was potential for litigation to subsist
even with the declaration, such as litigation as to its scope and
enforceability.3 Ultimately, her Honour held there was
insufficient evidence for her to infer that Quay would not comply
with its obligations to provide access to documents and financial
records when requested in a reasonable period.
Access to privileged company documents
Generally, directors have both a statutory (which includes
sections 290, 198F and 247A of the Act) and common law right of
access to the company’s privileged information. However, this
right of access does not abrogate a company’s claim to legal
professional privilege.4 Relevantly, her Honour noted
that “where a company obtains advice through the request
of the directors… [t]he privilege belongs to the company, and not
to the directors“, and disclosure of privileged
information by the company to its directors does not necessarily
waive privilege.5 One example is where there exists a
commonality in interest in receipt of the advice which may be
assumed to exist with directors, as it is they who assess the
advice as part of their duties.6
Banks-Smith J held that in accordance with section 290 of the
Act, Ms Hammond was entitled to access the invoices and retainer
letters as financial records of the company to the extent that no
privilege attached to them. However, her Honour held that Quay was
entitled to withhold the privileged legal advice obtained for the
Elevate Proceedings and First Access Proceedings on the basis that
it was confidential to Quay and, at all material times, Ms
Hammond’s position in the litigation was hostile to Quay’s
interests. Quay had not obtained the advice with the intention that
all directors would assess and act upon the legal advice. Her
Honour further stated:
Even if there was a commonality of interest between Quay and
the majority directors which did not include Ms Hammond and Mr
Boyd in seeking the advice, in the adversarial circumstances
of that context – litigation or anticipated litigation
– such commonality did not extend to Ms
Hammond.7
Furthermore (and contrary to Ms Hammond’s contention), even
though both proceedings were finalised, privilege “survives
the end of the case”.8 Even though Ms Hammond no
longer considered herself an adversary of Quay, her Honour held
that this did not change the nature of her adverse relationship
with the company at the time the advice was prepared (which was the
relevant time to consider the existence of the privilege).
Key takeaways
- Companies should be aware of a director’s right to access
the company’s financial documents under the Corporations
Act 2001 (Cth) and the broader power to access documents under
the common law. - Directors generally have the right to access the company’s
privileged documents. - Whether privilege over documents can be claimed by a company to
avoid disclosure to a director depends on the relationship between
the company and director at the time the document was created, and
whether the document was intended to be confidential. - If privilege is established over communications and documents,
it will remain privileged unless it is waived or abrogated by
statute – such is the case where privilege is claimed by a
company to prevent disclosure of information to a director in
circumstances which were previously adversarial.
Footnotes
1 See Elevate Brandpartners Ltd v
Hammond [2019] FCA 1103.
2 See Hammond v Quayeyeware Pty Ltd, in
the matter of Quayeyeware Pty Ltd [2019] FCA 2207.
3 Hammond v Quayeyeware Pty Ltd
[2021] FCA 293 at 151.
4 Above n 3, at 188-195.
5 Above n 3, at 197-198.
6 Above n 3, at 198.
7 Above n 3, at 221.
8 Above n 3, at 226.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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