**I first posted an earlier version of this article on 27 February 2012. This updated version was then published with my permission in the December 2012 issue of the Australian Corporate Lawyer’s quarterly journal, the Australian Corporate Lawyer, volume 22, issue 4, pp 26-31.

On 10 February 2012, Bromberg J handed down his reasons on an application by PricewaterhouseCoopers that various Centro companies be compelled to produce specified documents for inspection – Kirby v Centro Properties Ltd (No 2) [2012] FCA 70. Centro had resisted inspection on the basis that the documents or parts of them were subject to legal professional privilege. His Honour had heard and determined the application urgently in November 2011, dismissing PwC’s application and giving short reasons then; full reasons now. Bromberg J, not being the trial judge allocated the various proceedings, considered and determined these questions of privilege in order to avoid the trial judge (Gordon J) being exposed to documents the subject of privilege claims.

To explain the privilege claims it is useful to give a more detailed overview of the claims made in these proceedings. It is also useful, as his Honour did, to divide the related Centro corporations concerned in the litigation into two groups. The first is the Centro Properties Group (CNP) and the second the Centro Retail Group (CER).

The first principal claim made against CNP relates to what is referred to by the parties as the ‘classification issue’. The investors alleged that in publishing its financial statements for the year ending 30 June 2007, CNP misclassified debt such that its current debt was understated and its non-current debt overstated. This was claimed to be in breach of the Corporations Act 2001 (Cth), the ASIC Act 2001 (Cth) and the Fair Trading Act 1999 (Vic). CNP admitted the misclassification, and its failure to comply with accounting standard AASB101, however it denied liability on various grounds.

The second principal claim made against CNP relates to what has been termed the ‘refinancing risk issue’. The gist of this claim is that CNP should have, but failed to, disclose to the market that it had short-term debt about to become due which it either could not refinance or could only refinance at greater cost. This was said to be in breach of the continuous disclosure obligations of the Corporations Act.

CNP (and CER) claimed against CNP’s auditors PricewaterhouseCoopers on a number of bases, including claims of misleading and deceptive conduct by making various representations to CNP concerning its 2007 financial statements. CNP alleged that PwC represented that the financial statements were appropriate for approval by the CNP Board in that they complied with the Corporations Act and relevant accounting standards, including AASB101, when in fact they did not. PwC denied liability to CNP on a number of grounds, including that any such misrepresentation was caused by CNP’s failure to disclose relevant material to PwC. CNP, in turn, denied that.

The investors also made claims directly against PwC in relation to the classification issue. They asserted that PwC represented that CNP’s financial accounts gave a true and fair view of CNP’s financial position, when they did not, and complied with the Corporations Act and relevant accounting standards, when they did not. PwC admitted that accounting standard AASB101 was not complied with, but denied liability on other grounds.

Bromberg J noted that PwC’s application for inspection of documents – opposed on grounds of privilege – fell to be determined under the common law rather than the Evidence Act 1995 (Cth) (at [10]). His Honour cited the “12 principles” distilled by Young J in AWB Ltd v Cole and Another (No 5) [2006] FCA 1234; (2006) 155 FCR 30 at [44]. They are, in summary –

(1) The party claiming privilege bears the onus of proving that the communication was undertaken, or the document was brought into existence, for the dominant purpose of giving or obtaining legal advice.

(2) The purpose for which a document is brought into existence is a question of fact that must be determined objectively. Evidence of the intention of the document’s maker, or of the person who authorised or procured it, is not necessarily conclusive.

(3) The existence of legal professional privilege is not established merely by the use of verbal formula. There will be cases in which a claim of privilege will not be sustainable in the absence of evidence identifying the circumstances in which the relevant communication took place and the topics to which the instructions or advice were directed.

(4) Where communications take place between a client and his or her independent legal advisers, or between a client’s in-house lawyers and those legal advisers, it may be appropriate to assume that legitimate legal advice was being sought, absent any contrary indications.

(5) A “dominant purpose” is one that predominates over other purposes; it is the prevailing or paramount purpose.

(6) An appropriate starting point when applying the dominant purpose test is to ask what was the intended use or uses of the document which accounted for it being brought into existence.

(7) The concept of legal advice is fairly wide. It extends to professional advice as to what a party should prudently or sensibly do in the relevant legal context; but it does not extend to advice that is purely commercial or of a public relations character.

(8) Legal professional privilege protects the disclosure of documents that record legal work carried out by the lawyer for the benefit of the client, such as research memoranda, collations and summaries of documents, chronologies and the like, whether or not they are actually provided to the client.

(9) Subject to meeting the dominant purpose test, legal professional privilege extends to notes, memoranda or other documents made by officers or employees of the client that relate to information sought by the client’s legal adviser to enable him or her to advise. The privilege extends to drafts, notes and other material brought into existence by the client for the purpose of communication to the lawyer, whether or not they are themselves actually communicated to the lawyer.

(10) Legal professional privilege is capable of attaching to communications between a salaried legal adviser and his or her employer, provided that the legal adviser is consulted in a professional capacity in relation to a professional matter and the communications are made in confidence and arise from the relationship of lawyer and client. Some cases have added a requirement that the lawyer who provided the advice must be admitted to practice. However in other cases, the Court has not regarded the possession of a current practising certificate as an essential precondition.

(11) Legal professional privilege protects communications rather than documents, as the test for privilege is anchored to the purpose for which the document was brought into existence. Consequently, legal professional privilege can attach to copies of non-privileged documents if the purpose of bringing the copy into existence satisfies the dominant purpose test. In Propend at 512, Brennan CJ added a qualification: the otherwise privileged copy may lose its protection if the original unprivileged document cannot be found and no other evidence is made available to prove the contents of the original.

(12) The Court has power to examine documents over which legal professional privilege is claimed. Where there is a disputed claim, the High Court has said that the Court should not be hesitant to exercise such a power.

For greater detail of each principle and the authorities cited for each, see Bromberg J’s judgment where he sets out Young J’s 12 principles in full at [11].

Observing that a practical and cost efficient approach is to be encouraged when it comes to issues relating to the discovery of documents, Bromberg J then turned to consider each class of documents in question.

Retainers and Related Documents

PwC contended that a retainer was not a document generally protected by legal professional privilege. However his Honour noted that this proposition is not absolute and the specific content of a retainer must be examined. Some communications contained within a retainer may be protected from disclosure because they are “within the sphere of protection provided by the privilege”. Centro contended that insofar as the retainers identified the nature of the legal advice sought, they were privileged to that extent.

Bromberg J agreed with Centro. His Honour also rejected PwC’s contention that privilege had been waived by Centro (see below). He also rejected PwC’s contention that legal professional privilege did not extend to a retainer because a retainer pre-dates the formation of the solicitor-client relationship.

Documents Provided by Centro to ASIC  

There were two categories of these – (1) the “subpoenaed documents” provided by Centro to ASIC in the course of ASIC’s proceedings against Centro, and produced by ASIC pursuant to subpoenas issued in these proceedings at the behest of PwC;  (2) the “other ASIC documents” – those provided by Centro to ASIC but at a later time than the subpoenas to ASIC were issued and returned.

The Subpoenaed Documents – the Hourigan Records

The vast bulk of these comprised handwritten notes taken by Elizabeth Hourigan, the Company Secretary of CNP and CER and each of their controlled entities at the relevant time. They were notes taken at Board meetings or Board Audit and Risk Management Committee meetings of the various Centro companies.

The parts of Ms Hourigan’s notes that were in issue comprised what Ms Hourigan deposed to be records of either (i) confidential communications between Board members and Centro’s General Counsel at the meeting for the dominant purpose of the General Counsel giving and the Board receiving legal advice on behalf of Centro; (ii) confidential communications between Board members and Centro’s external lawyers at the meeting for the same dominant purpose; or (iii) confidential communications between Board members at the meeting which disclosed legal advice obtained by Centro from its external lawyers. Centro’s General Counsel Mr Hutchinson gave similar evidence, including that his communications were for the sole or dominant purpose of giving legal (and not commercial advice) and that the advice he gave was independent, objective advice given in his professional capacity.

PwC did not cross-examine either Ms Hourigan nor Mr Hutchinson, but argued Centro had adduced insufficient evidence to discharge its burden of demonstrating that the documents in question were privileged. PwC contended that Centro had adopted a formulaic approach which failed to provide evidence about any particular communication, identify any author or source of each communication and provide evidence from the author or source as to the purpose of their communication.

Bromberg J rejected PwC’s arguments. He was satisfied that Ms Hourigan’s approach was not “formulaic” in the sense that no more than a bare assertion of privilege being made.  It was true that evidence was not provided by the multiple authors of each separate conversation made in the multiple conversations in question, however his Honour did not deem that necessary in the circumstances. His Honour pointed to Young J’s principles 4 and 10. His Honour observed that here the calling of direct evidence from each author of a part of the conversations in question would “unduly complicate, extend and render unacceptably expensive, the process of determining privilege issues…”, and was satisfied that the evidence established that the exchanges covered by all 3 of the categories listed above came into existence for the dominant purpose of a client seeking or obtaining legal advice from that client’s lawyer, or disclosed that legal advice.

The Subpoenaed Documents – the Hutchinson Records

These were the notes prepared by Mr Hutchinson of Board meetings he attended. Privilege was claimed in respect of extracts of these. Mr Hutchinson deposed that the notes were prepared by him in his capacity as General Counsel of CNP and CER and other Centro companies, for the benefit of their use by Centro as a record of what occurred at those meetings. The redacted extracts comprised his notes of confidential communications between Board members and himself which occurred for the dominant purpose of him giving legal advice to Centro, and the Board receiving it on behalf of Centro. Mr Hutchinson also deposed that these communications were made for the sole or dominant purpose of him giving and Centro receiving legal and not commercial advice or assistance and that the advice provided by him was independent objective advice given in his professional capacity.

PwC argued this evidence was too general, and there was a failure to identify the nature of the communication or whether it was a communication to Mr Hutchinson or from him. PwC also contended generally that Mr Hutchinson was unable to speak to the dominant purpose of others, for instance those that communicated with him.

Bromberg J again upheld the claim for privilege. He considered that the evidence before the Court in relation to the Hutchinson Records demonstrated that the challenged communications occurred between Centro and its independent legal adviser in uncontroversial circumstances, and provided a sufficient basis upon which the Court could be satisfied that the communications in question came into existence for the dominant purpose of Centro seeking and obtaining legal advice from its lawyer.

The Subpoenaed Documents – the Reid/Stawell Documents

There were two emails from Ashley Reid of Centro to Peter Stawell, a partner of Freehills. Their attachments had been discovered (an earlier email and attachment sent from BNP Paribas to Mr Reid). Mr Stawell gave evidence that during 2007 he provided advice to CNP and CER in relation to banking facilities with BNP Paribas and that the emails in question were forwarded to him by Mr Reid for the sole purpose of Mr Stawell providing legal advice to Centro.

PwC contended this was just a bare assertion by a lawyer as to somebody else’s purpose. However Bromberg J was satisfied that Mr Stawell’s evidence was sufficient evidence of the circumstances in which the communications were brought into existence, and that the communications by Mr Reid came into existence for the relevant dominant purpose.

The Other ASIC Documents

His Honour was satisfied that for similar reasons as for categories of the subpoenaed documents, these documents too – revealing the content of legal advice provided to Centro variously by Freehills and Middletons – were protected from disclosure by legal professional privilege.

The Investigation Documents

These documents sought by PwC comprised “file notes of interviews, witness statements and any draft or final reports” relating to any investigations conducted in or about the period December 2007 to February 2008 by any of KPMG, Middletons and/or Freehills, into the classification of the interest bearing liabilities of CNP and/or CER and related matters.

A large number of lawyers involved as either the maker or receiver of a communication with Centro in relation to these investigations gave evidence, each of whom deposed that his or her sole or dominant purpose was to give, and for Centro to obtain, legal advice and assistance under the terms of their firm’s retainer.

Aside from communications passing between Centro and its external lawyers or Centro and its internal lawyers, the Investigation Documents also included –

▪    notes taken by Freehills and Middleton solicitors of interviews and meetings,

▪    internal communications between solicitors at Freehills,

▪    internal communications between solicitors at Middletons,

▪    communications between Freehills or Middletons and KPMG,

▪    communications between Middletons and Freehills, or Middletons and Gadens, or Middletons and Strongman & Crouch.

PwC called evidence directed to show that Centro had a multiplicity of purposes in reviewing the classification issue including, primarily, the conduct of an accounting disclosure exercise to determine for operational purposes the correct classification of the debt which may have been misclassified. Even if there was an additional, legal purpose, PwC argued that the Court ought not be satisfied on the evidence before it that this was Centro’s dominant purpose.

Essentially, PwC hinted darkly that the involvement by Centro of Freehills and Middletons was a sham, contrived to cloak their investigations into what had happened with the protection of legal professional privilege, although his Honour noted they stopped short of making that submission. PwC contented that CNP and CER had statutory accounting obligations which had required the inquiry to take place, and that the belated involvement of Freehills and Middletons did not of itself cloak the entirety of that process with legal professional privilege. Nor, so PwC argued, could a factual inquiry conducted so that CNP and CER could form a view as to an accounting position, be rendered privileged just because the factual inquiry was undertaken by external lawyers or an external accounting firm.

Bromberg J accepted PwC’s contention that Centro had an additional purpose rather than just to obtain legal advice, in retaining each of Freehills/KPMG and Middletons/KPMG – the conduct of an accounting enquiry or investigation independent of management to determine the correct classification of debt. However, his Honour stated this did not persuade him that the prima facie position as to Centro’s dominant purpose having been to obtain Freehills and Middleton’s legal advice should be displaced.

Bromberg J noted that the facts of this case are readily distinguishable from a case upon which PwC placed much reliance – Robson J’s decision in Perry v Powercor Australia Ltd [2011] VSC 308, upheld by the Court of Appeal of the Supreme Court of Victoria in Powercor Australia Ltd v Perry [2011] VSCA 239. Powercor concerned investigative reports prepared by technical experts into the course of a major bushfire, which were held in the circumstances of that case not to have been privileged. Bromberg J opined that Powercor is best understood as an example of the kind of non-privileged investigation carried out for the purpose of arming central management of a corporation with actual knowledge of what its agents had done. Here, Bromberg J considered, the evidence showed that the involvement of Freehills and Middletons in the investigation of the correct classification of debt was not artificial, contrived or objectively unjustified.

As to waiver, his Honour summarised the three key principles on the implied or imputed waiver of privilege drawn from the recent judgment of Keane CJ, Downes and Besanko JJ British American Tobacco Australia Limited v Secretary, Department of Health and Aging [2011] FCAFC 107; (2011) 195 FCR 123, by reference to the two High Court decisions of Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 and Osland v Secretary, Department of Justice [2008] HCA 37; (2008) 234 CLR 275 –

(1) Legal professional privilege will be waived, whatever the intention of the person whose conduct is in question, if the conduct of the person seeking to rely upon the privilege is inconsistent with the maintenance of the privilege,

(2) The focus is now upon inconsistency of conduct, but in determining whether there has been an inconsistency of conduct, considerations of fairness are still relevant, and

(3) It is now clear that disclosure of the gist of a privileged communication does not necessarily effect a waiver of legal professional privilege. Whether it does in a particular case will depend on whether, in the circumstances of the case, the requisite inconsistency exists, between a disclosure on the one hand and the maintenance of confidentiality on the other. There is no necessary inconsistency in stating the effect of advice and maintaining a claim of privilege. The purpose for which the privilege-holder made the disclosure is highly relevant including whether or not the disclosure was deployed for a forensic or other advantage.

In relation to the Freehills and Middletons Retainers – PwC pointed to the fact that in the affidavit material filed by Centro in support of its claim for privilege, the task for which the solicitors had been engaged was disclosed. However, His Honour took the view that the descriptions in the affidavits as to the tasks Centro gave its solicitors were general and unspecific, when compared to the terms of the retains themselves. Even if the gist of the advice sought by Centro was disclosed, partial disclosure is not necessarily inconsistent with maintaining a claim for privilege. Indeed the objective purpose of any partial disclosure here was to persuade the Court to protect the retainers from disclosure – entirely consistent with the maintenance of confidentiality. His Honour held there was no waiver in relation to the retainers.

As to the Subpoenaed Documents and Other ASIC Documents – These documents came into ASIC’s hands by virtue of notices issued under s 30 of the ASIC Act requiring their production by Centro. Section 30 provides for a coercive process requiring production under compulsion. However ASIC had sent the notices in each case with a covering letter recognising that Centro may have a valid claim of legal professional privilege with respect to some of the documents, and was not obliged to provide such documents, although it must provide detailed information in support of that claim. Centro provided documents to ASIC in response under covering letters expressing their provision to be on a confidential basis, with an express reservation of privilege and an express lack of intention to waive privilege.

Centro sought to claim privilege in these proceedings over redacted portions of some of those documents which had been provided to ASIC with no parts then redacted. Evidence was given that the documents had been provided to ASIC unredacted for reasons of the large volume of numbers, the shortness of time in which production had had to occur, and mistakes made by inexperienced lawyers or law graduates or Mr Hutchinson working in difficult conditions.

PwC argued that the provision of the disputed extracts to ASIC was a voluntary act of disclosure to a third party which is inconsistent with the maintenance of privilege in the documents. Bromberg J acknowledged that there might have been a limited waiver by Centro as against ASIC, but not necessarily as against another person like PwC. It is not the case that voluntary disclosure to a third party necessarily waives privilege. Disclosure to a third party for a limited and specific purpose did not lead to a loss of the privilege as against a person opposed in litigation in Mann or in any of the cases referred to in Mann at [32].

As to the Investigation Documents – PwC argued that Centro had waived privilege in respect of these because its directors had made submissions relating to the investigations by Freehills, Middletons and KPMG in the course of the penalty phase of the ASIC proceeding. However Bromberg J was not prepared to impute to Centro an understanding that its directors were about to be involved in making a disclosure of the Investigation Documents, and rejected PwC’s contention that the directors did disclose the substance of the legal advice contained in the Investigation Documents.

Thus PwC wholly failed in their application, privilege in all of the documents challenged was upheld, and PwC was ordered to pay costs. I note that PwC filed an urgent application for leave to appeal from this decision, but it was refused by North J on 28 February 2012 – see Pricewaterhousecoopers (a firm) v Centro Properties Ltd [2012] FCA 384.

Postscript

The Centro class action was settled during the course of the trial before Gordon J in May 2012, and the settlement was approved by Middleton J in June 2012. For details, go to my posts here and here.

Implications for In-house Counsel

1. The case provides some comfort for in-house counsel with regards to notes they may take at Board meetings (here, the ‘Hutchison Records’). Where they record confidential communications between Board members and in-house counsel for the sole or dominant purpose of counsel giving legal advice and the Board receiving it, rather than for commercial advice or assistance, they may be protected as privileged.
2. The same may apply for notes that others make at the Board meeting in relation to communications in which in-house counsel is engaged at the meeting, where the sole or dominant purpose is the giving and receiving of legal advice.
3. In this case Mr Hutchison also deposed that the advice he gave was “independent objective advice given in his professional capacity”. It is not clear how heavily this aspect weighed in his Honour’s conclusion that the advice was protected by privilege. However Mr Hutchison’s ability so to state calls to mind the difficulties in which Mr Shafron found himself as a result of his role as both general counsel and company secretary of James Hardie Industries Ltd (see Shafron v ASIC [2012] HCA 18). Briefly that case centred on a Board meeting at which the Board was asked to approve an announcement to the ASX to the effect that the new entity to which asbestos claims were to be quarantined was “fully funded” to meet present and future claims. A lot of the controversy turned on what actually happened at the Board meeting and which version of the ASX announcement was approved. Mr Shafron was held to have breached his duties of care and diligence as an officer of the company, by having failed to advise that the company should disclose to the ASX certain information about the Deed governing the separation of the new entity, and for having failed to advise the Board that an actuarial study he had commissioned to predict asbestos-related liabilities suffered from certain critical limitations. Mr Shafron advanced the argument that the application of s 180(1) of the Corporations Act 2001 (Cth) should be restricted to those functions he performed in his capacity as company secretary. He argued the contraventions alleged against him concerned his responsibilities as general counsel, not as an “officer” of the company, and hence should not be subject to s 180(1). The High Court rejected this argument.
4.  It may be that privilege is another area where in-house counsel who also hold another position within their company as an officer, such as company secretary, need to tread carefully. Where legal advice is being given or discussed at a Board meeting, it may serve counsel well to be as conscious as possible of the distinction between when they are giving “independent objective legal advice in their professional capacity” (privileged) and when they may be giving advice which is more commercial in character or of a public relations character (not). This can be a difficult distinction, in practice. Some comfort can be gleaned from the principle that the concept of legal advice extends to professional advice as to what a party should prudently or sensibly do in the relevant legal context (see paragraph [11(7)] of the judgment and the authorities there cited).
5.  In relation to waiver, counsel may also take comfort from this judgment, in that it demonstrates that documents provided under compulsion to ASIC for a limited purpose, may retain the protection of privilege as against other third parties (see paragraphs [97]-[108], cf AWB Ltd v ASIC [2008] FCA 1866 at [26]). However caution is warranted. Much will depend upon the circumstances of their provision, and the extent to which a company can claim that its provision of the documents was consistent with the maintenance of confidentiality in those documents as against third parties. ASIC’s letters accompanying the s 30 notices requiring production of documents stated that ASIC understood a valid claim of legal professional privilege was a reasonable excuse for not producing documents pursuant to the s 30 notice and that accordingly, Centro was not obliged to produce documents which were covered by a valid claim to privilege. However, so ASIC’s letters said, if a claim for legal professional privilege was made, detailed information in support of that claim was required by ASIC in order that ASIC could assess whether the claim was justified. In response Centro provided documents, some unredacted, including those to which it later claimed privilege in these proceedings as against PwC. Centro’s solicitors went to some length in their covering letters accompanying the documents (see paragraph [99]), which included the following statements –

• That Centro did not intend to waive legal professional privilege by providing documents to ASIC to which Centro may be entitled to claim legal professional privilege,
• That in the event that Centro ascertained that a document or part of a document was one over which it was entitled to assert a claim for legal professional privilege, Centro reserved the right to seek to assert legal professional privilege over that document,
• As to confidentiality, that the documents provided to ASIC were confidential and that they were being provided on the basis that ASIC would treat the documents as confidential and not provide them, or disclose the information contained within them to any other person except under legal compulsion or with Centro’s prior written consent.