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DELETE THE EVIDENCE, SOLICITOR TELLS FRANCHISEE

by Davenports Harbour Lawyers,
last updated 18/06/2013

A solicitor who encouraged a franchisee to be dishonest to avoid falling foul of a restraint of trade provision has had their name withheld

The Evidence Act 2006 codifies well-established common law principles that seek to protect communications that would otherwise be required to be disclosed during legal proceedings, ie. ‘privileged’ communications. One such privilege is the privilege for communications with legal advisors.

Section 54 of the Act provides that a person who obtains professional legal services from a legal advisor has the right to refuse to disclose in a proceeding any communication between that person and their legal adviser if the communication was intended to be confidential and was made in the course of and for the purpose of the person obtaining professional legal services from their legal adviser or their legal adviser providing such services to the person.

The defendant parties in Cityside Asset Pty Limited & Ors v 1 Solution Limited & Ors [2012] NZHC 3075 sought to rely on this privilege by claiming that an email sent by their solicitor was protected from being disclosed during the legal proceedings.

In this case, legal proceedings were brought against a former franchisee of the Hire Intelligence Group who was argued to be, among other things, in breach of its restraint of trade provision in the franchise agreement for operating a competing business within the restraint period.

One of the ex-franchisee’s directors sought legal advice when proceedings were threatened by the franchisor and received an email response from his solicitor which noted that noted the defendants had ‘gone to great lengths to hide the fact that you continued to trade in breach’ and included advice that ‘acting as an accountant for [the competing entity] is almost certainly in breach of the restraint of trade clause. Permanently delete the accounts, and until the end of the restraint of trade period, [the competing entity's director] should have them completed by another accountant. It would be better if you were not in possession of the old [franchise] equipment.’

The email was mistakenly sent by the ex-franchisee's solicitor’s secretary to the licensor of the franchise system, instead of being sent to the ex-franchisee's director who had sought the advice.

When proceedings were eventually initiated by the plaintiffs (being the licensor and the franchisor entities) who sought injunctions and damages, the defendants sought a court order that the email communication is protected from disclosure during the proceedings by way of legal privilege (relying on section 54 of the Evidence Act).

The plaintiffs opposed such order, insisting on the disclosure, arguing that an exception to solicitor-client privilege applied in this case as there was a prima facie case that the communication was made or received for a dishonest purpose or to enable or aid the commission of an offence. The Court agreed and refused to grant the order protecting the disclosure of the email.

 The Court agreed that there was a prima facie case that the communication was made or received for a dishonest purpose, as the email contained ‘advice to assist in continuing and better perfecting intentional deception of the plaintiffs through dishonest concealment.’ The Court also considered that there was a prima facie case that the communication enabled or assisted an offence, given that the deletion of evidence was ‘an attempt by a solicitor to obstruct justice.’

Justice Woodhouse excluded the name of the solicitor and the name of the solicitor’s firm in his judgment, despite those details being published in an earlier decision by Associate Judge Faire.

No final determination has been published in this case, whch may have been settled out of court.

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