Seizure of a director's personal information by a liquidator
/Seizure of a director’s personal information by a liquidator: Henderson v Walker [2019] NZHC 2184
In the first successful privacy case since 2012, the High Court has released its decision in the now long-standing battle between David Henderson, former director of Property Ventures Ltd (PVL), and PVL’s appointed liquidator, Robert Walker.
Background
On 27 July 2010, PVL was placed into liquidation and Mr Walker was appointed liquidator. PVL applied for, and was granted, a stay of the liquidation until February 2012. In the words of the High Court judge, Thomas J: “this caused Mr Walker incredible frustration”.
Mr Walker was also appointed liquidator of five subsidiary companies of PVL in December 2010. Upon his appointment, Mr Walker immediately wrote to Mr Henderson requesting, under s 261 of the Companies Act, the records of the five subsidiary companies. Mr Walker let Mr Henderson know that failure to comply was a criminal offence, and that the liquidation could be done “the hard way or the easy way”.
In February 2011, Christchurch suffered a devastating earthquake. Mr Walker wrote to the Police District Commander for the Canterbury Region requesting access to two premises owned by Mr Henderson in the Christchurch CBD, in order to gain access to records of PVL he suspected were on the premises. A search warrant was obtained and executed in April of 2011. The police removed physical files, computers, a laptop belonging to PVL but used by Mr Henderson (the Laptop), and a backup of PVL’s server, stored on a tape drive (the Tape Drive).
The Laptop and Tape Drive (which contained a backup of the Laptop) contained personal documents, including emails from Mr Henderson to his wife, friends and public figures. Over the course of the next few years, Mr Walker disclosed information contained in the documents to various parties, including the Official Assignee in 2011, the Police and third parties.
In 2012, Mr Walker (as liquidator) commenced proceedings against the directors of PVL and its auditor seeking damages in excess of $300 million. As part of these proceedings, Mr Walker discovered a number of documents from the Laptop and Tape Drive. Mr Henderson objected to the personal information being included in the discovery and the discovery had to be completed again.
In this claim, Mr Henderson sought declarations in relation to six causes of action and $100,000 in general damages for personal anguish, humiliation and stress.
Breach of confidence
The Court found Mr Walker owed a duty of confidence in respect of the personal documents that were on the Laptop and the Tape Drive. Thomas J found that Mr Walker had breached his obligation of confidence and awarded Mr Henderson $5,000 in general damages.
Thomas J held that although the Laptop contained business information, the intermingling of both personal and business information did not affect the “quality” of the information. In this respect, the information was found to have a necessary quality of confidence about it.
Mr Walker relied on his statutory status as a liquidator to obtain the warrant to search the Christchurch premises, and eventually obtain the Laptop and Tape Drive. Thomas J looked at UK authority holding that the Police owed an obligation of confidence to the owner of the documents that were obtained through a statutory search power. Thomas J saw Mr Walker’s use of his statutory status as a basis for obtaining the documents as analogous to that of the police and noted there was nothing in the Companies Act 1993 that precluded a liquidator owing a duty of confidence to directors or former directors of companies in liquidation.
Tort of privacy
There has been relatively little development in the tort of privacy since Hosking v Runting [2005] 1 NZLR 1 (CA).
Thomas J applied the “two-part” test set out in Hosking v Runting to establish a breach of the tort of privacy; it must first be shown that there were private facts that attract a reasonable expectation of privacy and, secondly, publicity given to those private facts would be considered to be “highly offensive” to an objective, reasonable person in the shoes of the plaintiff. Thomas J saw Mr Walker’s actions as exactly the type of conduct that should be encompassed by the tort of privacy.
Mr Walker argued that there was no expectation of privacy as the personal documents were stored on the Laptop which belonged to PVL, and Mr Henderson made no effort to separate those documents from PVL’s documents. However, Thomas J did not accept that this meant Mr Henderson’s expectation of privacy was lost, even if the personal information was stored on the Laptop contrary to PVL’s computer policy. Ultimately, the director of a company still has a reasonable expectation of privacy in relation to personal information stored on a company laptop.
Turning to the question of whether the disclosure was “highly offensive”, Thomas J had difficulty with the disclosure of the Tape Drive containing a full backup of the Laptop to the Official Assignee in 2011. Thomas J noted that a reasonable person would expect some personal information to be disclosed to an Official Assignee, especially in cases of personal bankruptcy. However, in this case, Mr Walker was aware the Laptop contained personal and private documents. This, combined with the number and intensity of the personal documents, meant that disclosure would be considered “highly offensive”.
Thomas J concluded that, while Mr Henderson had suffered some ill effects from the disclosure, it did not merit an award of damages. However, Thomas J issued a declaration that Mr Walker was liable for invasion of Mr Henderson’s privacy in relation to the distribution of information to the Official Assignee in 2011.
Conversion
While Mr Henderson was ultimately unsuccessful under this cause of action, Thomas J provided some interesting commentary on the application of property law to intangible assets. Specifically, Thomas J commented that digital assets should be afforded protection under property law.
Possession of digital assets needs to be thought of differently to possession of physical assets. Thomas J used the concept of manual control (as opposed to physical control), looking to see if the “property” had the dual qualities of exhaustibility and excludability. In this regard, Thomas J considered that digital assets satisfied the exhaustibility test as they could be deleted or rendered wholly inaccessible. The judge also considered that digital assets had a quality of excludability as they physically alter the medium they are stored on, allowing others to be excluded by passwords or physical control of the storage medium. Mr Walker returned the Laptop to Mr Henderson in 2011, and only held electronic copies of Mr Henderson’s personal documents from that point.
However, and despite Thomas J’s comments in relation to digital assets, because conversion is based on a party taking adverse possession of another’s (physical) property, conversion did not sit comfortably with the facts. When Mr Henderson requested the personal digital files in late 2012, Mr Walker’s refusal did not constitute conversion, as copies of digital assets cannot be converted.
Comment – Russell Stewart, Partner
This decision is an indication that liquidators need to be cautious with the information they collect in the course of their work, and ensure that private information is not passed on to third parties without authorisation.
At a practical level, directors (and those that may be the target of a liquidator’s investigation) should consider using separate devices for business and personal use. If this is not feasible, at least clearly separate private and personal information so as to avoid it being intermingled with business information.
Russell Stewart is a Partner at Fee Langstone
