ASIC Information Sheet 165 – Legal Professional Privilege and Responding to Compulsory Production Notices

Late last year (13 December 2012) ASIC released its Information Sheet 165 outlining the approach it takes to claims of legal professional privilege (LPP). ASIC has compulsory information gathering powers to require disclosure of information. This power may be exercised in respect of their regulatory work. As ASIC stated in its press release, documents and information that attract a valid claim of LPP does not have to be provided. However, when the recipient of a notice compelling production of documents makes a claim of LPP, issues can arise as to whether the claim has been properly established, and whether LPP information can be provided to ASIC on a limited and confidential basis.

In Section 6 of the information sheet, ASIC states in summary that if in ASIC’s opinion a claim of LPP is not substantiated by the information provided, or in their view it is otherwise not valid (by reason of waiver or because it is simply not privileged, in their view) then you, the party claiming LPP in a document, have several choices. You may (a) withdraw your claim of LPP and provide the information to ASIC, (b) enter into a voluntary LPP dispute resolution process with ASIC, or (c) make an application to Court to seek a declaration that the information is privileged.There is also a fourth choice: (d) maintain your claim of LPP but provide the documents voluntarily on a strictly confidential basis.

Earlier in ASIC’s Information Sheet, at Section 5, ASIC outlines the procedure they refer to as “Voluntary confidential disclosure of LPP information”. Under this approach, ASIC may accept, on a confidential basis, privileged information voluntary provided by a notice recipient. Broadly, ASIC and the privilege holder agree that the disclosure of the information is on a strictly confidential basis, and ASIC and the privilege holder agree that the disclosure is not a waiver of any privilege existing at the time of the disclosure. ASIC notes that this prevents ASIC from later asserting that the provision of the information to it amounts to waiver, but may not prevent third parties from asserting that privilege has been waived thereby.

In this regard, I note that in the Centro privilege decision I reviewed last year, PwC sought to argue that Centro had waived privilege by their provision of documents to ASIC by virtue of notices issued under s 30 of the ASIC Act 2001 (Cth) requiring their compulsory production. Centro had provided some unredacted documents to ASIC 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. Bromberg J held that while there might have been a limited waiver by Centro as against ASIC, there was not necessarily waiver as against a third party like PwC. His Honour referred to the High Court’s decision in Mann v Carnell [1999] HCA 66; 201 CLR 1 at [32]. See Kirby v Centro Properties Limited (No 2)[2012] FCA 70 and my post of February 2012 entitled “Centro class action developments – (a) privilege and (b) a bombshell”. (The privilege section of this post was later republished in extended form, and may be viewed here.)

It is useful to consider the judgment by Bromberg J in Kirby v Centro on this issue of the “voluntary” provision of privileged documents to ASIC in response to a notice from ASIC compelling production, in particular the passages at [97]-[108].

In relation to waiver, the judgment provides some comfort, 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 (cf AWB Ltd v ASIC [2008] FCA 1877 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 in Kirby v Centro 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]). It is instructive to have regard to some of the statements their letters included, bearing in mind the successful result they obtained here on the question of privilege –

  • 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.

(I note that on 28 February 2012 PwC sought leave to appeal the judgment of Bromberg J, but leave was refused by North J (link).)

Interesting UK decision on legal professional privilege and its application to advice by accountants

On 23 January 2013 the UK Supreme Court handed down a very interesting decision on the question of whether the UK legal advice privilege (LAP) extended, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession and, if so, how far the privilege extends, or should be extended. The case is Prudential plc, R v Special Commissioner of Income Tax [2013] UKSC 1 (link).

A company had obtained legal advice from its accountants PwC in relation to a tax avoidance scheme, and argued that it was entitled to refuse to comply with a notice to produce from the tax office, on the ground that the documents were covered by LAP. Its position was supported by the intervenor, the Institute of Chartered Accountants for England and Wales. They argued, inter alia, that given that the privilege is justified by the rule of law, and that it exists for the benefit of a client who seeks and receives legal advice, for instance on its tax affairs, there is no principled basis upon which it can be restricted to cases where the advisor happens to be a member of the legal professions, as opposed to a qualified accountant (see [26]).

The contrary case was advanced for Her Majesty’s Revenue & Customs office, supported by the Law Society, the Bar Council and the AIPPI UK (an intellectual property body). They argued that it has been universally assumed that LAP is restricted to advice given by lawyers, and that the Court should not extend it to accountants in connection for tax advice for reasons which boiled down to the argument that it was a matter for Parliament to extend the privilege to legal advice given by accountants if it saw fit (see [27-28]).

Whilst the majority of the Lords (5:2) held that LAP did not extend to the advice provided by PwC, a certain amount of reluctance is clearly detectable. The minority, Lords Sumption and Clarke, gave powerful dissenting judgments, which are also worth a read.

Lord Neuberger, with whom Lord Walker agreed, in giving one of the majority judgments raised the finely balanced question of whether if the Court allowed the appeal it would be extending the breadth of the privilege, or simply identifying the breadth of the privilege. The former would involve changing the law; the latter, declaring what the common law has always been. However his Lordship noted that it is universally believed that LAP only applies to communications in connection with advice given by members of the legal profession (see [29] and the authorities, texts and reports cited at [30-33]), legislation had been framed upon that basis, and the UK Parliament had rejected a proposal in 2003 that the privilege be extended to legal advice given by lawyers.

Lord Neuberger concluded that allowing the appeal would involve extending the privilege, and would not be treated as limited to tax advice given by expert accountants, as it would ineluctably follow that legal advice given by some other professional people would also be covered.

However interestingly, his Lordship evaluated the principled arguments for restricting LAP to lawyers’ advice as “weak, but not wholly devoid of force” (at [43]), in contrast with his description of the argument for allowing the appeal as “a strong one in terms of principle” (at [40]). He summarised the case for allowing the appeal as –

  • Legal advice privilege is based on the need to ensure that a person can seek and obtain legal advice with candour and full disclosure, secure in the knowledge that the communications involved can never be used against that person,
  • LAP is conferred for the benefit of the client, and may only be waived by the client; it does not serve to protect the legal profession;
  • In light of this, it is hard to see why, as a matter of pure logic, that privilege should be restricted to communications with legal advisers who happen to be qualified lawyers, as opposed to communications with other professional people with a qualification or experience which enables them to give expert legal advice in a particular field.

His Lordship rightly noted that once the privilege is extended, it would be difficult to determine where the line ought be drawn. Where it is confined to lawyers, it is not such a difficult matter. However once it is extended one gets into various shades of grey. It becomes something of a minefield. He concluded that the appeal gives rise to issues of policy, which should best be left to Parliament. His Honour also noted that if LAP is to be extended to professions other than lawyers, its extension may only be appropriate on a conditional or limited basis.

Lord Sumption’s dissenting judgment is quite compelling. I will not go through it in any detail, but I commend it to you if you have an interest in this issue.

At [123], he makes the point that:

“Once it is appreciated (i) that legal advice privilege is the client’s privilege, (ii) that it depends on the public interest in promoting his access to legal advice on the basis of absolute confidence, and (iii) that it is not dependent on the status of the advisor, it must follow that there can be no principled reason for distinguishing between the advice of solicitors and barristers on the one hand and accounts on the other. The test is functional. The privilege is conferred in support of the client’s right to consult a skilled professional legal adviser, and not in support of his right to consult the members of any particular professional body. …[T]oday there are at least three professions whose practitioners have as part of their ordinary professional functions the giving of skilled legal advice on tax. Accountants are among them. Any distinction for this purpose between some skilled professional advisers and others is not only irrational, but inconsistent with the legal basis of the privilege.”

He addresses the counter-arguments that other professionals (non-laweyrs) did not have the same stringent legal obligations of non-disclosure as lawyers, and that barristers and solicitors have a unique relationship with the courts (at [125]). His Lordship disposes of these at [126-127].

Lord Sumption took the view that allowing the appeal would not involve extending the privilege, but rather would mean only recognising that as a matter of fact much legal advice falling within the principles is nowadays given by legal advisers who are not barristers and solicitors but are accountants (at [129]). His view as to the question of identifying where the line is drawn, if legal advice privilege is extended beyond advice given by lawyers, is set out at [138]. His Lordship does recognise some of the complexities, but sees a difference between the giving of legal advice on the one hand, and the position on the other hand where a knowledge of the law on an issue can be purely incidental to the exercise of a broader advisory function, such as by an investment banker or an auditor.

My own view is mixed. I do not quite accept Lord Sumption’s suggestion as to the simplicity in identifying the boundaries of the entitlement to the privilege were it extended, and would see there as being a sizeable leap in the numbers of claims of privilege, with many being difficult to adjudicate upon.

On the other hand, there is a compelling logic to the application of the principles underpinning legal advice privilege beyond the legal profession, as discussed in this case. And in a functional sense, to put it at its most simple…when one regards our mountainous body of tax legislation and case law, what is it, if it is not law? And what is advice upon it, if it is not legal?

Next, once the privilege is extended beyond the legal profession to accountants giving tax advice (leaving aside other professionals)…what about other areas of law upon which accountants who specialise in other areas advise? Insolvency and corporations law, for example?

An interesting issue. Perhaps one way to solve the question of where the line ought be drawn, if the privilege is treated as extending beyond advice given by lawyers, is that suggested by Lord Hope, who wrote the other dissenting judgment. His Lordship agreed with Lord Sumption that the legal advice privilege extends to advice given by members of a profession which has as an ordinary part of its function the giving of skilled legal advice. Lord Hope added that he would expect that criterion to be satisfied only where, and to the extent, that they are members of a properly regulated professional body (at [149]).

In Australia, on 15 April 2011, the Assistant Treasurer the Hon Bill Shorten released a discussion paper which explores the issue of the extension of the privilege to tax advice by accountants, and called for submissions from interested parties. Submissions were due by 15 July 2011. As far as I am aware, the matter has progressed no further.

* I must acknowledge and thank my tax barrister colleague in Lonsdale Chambers for drawing this interesting case to my attention.

Newsflash: Great Southern Class Actions to start tomorrow (Monday 29 Oct)

One of the largest set of group proceedings yet commenced in the Supreme Court of Victoria is set to start tomorrow (Monday 29 October 2012). The trial will be heard by his Honour Justice Croft and at this stage is estimated to run for 4-5 months. Interestingly, the Supreme Court is providing a live streaming facility on its website, for the viewing of the opening addresses. The webcast portal may be found here.

The Great Southern class actions comprise in excess of 22,000 group members and individual plaintiffs. According to the Supreme Court website, there are 16 group proceedings and 12 individual proceedings which were commenced in the Supreme Court with respect to various agribusiness projects (managed investment schemes) undertaken by Great Southern on behalf of investors. The various agribusiness projects included forestry, horticulture, viticulture and cattle schemes. There are also a large number of County Court proceedings which were uplifted to the Supreme Court (though a large number of these were stayed pending the outcome of the trial).

In broad terms, the Great Southern class actions involve various claims against the Great Southern entities and their directors, including whether certain product disclosure statements for the various agribusiness projects complied with the Corporations Act 2001 (Cth), and whether the Great Southern entities breached their statutory duties as responsible entities variously of the managed investment schemes. There are also allegations of misleading and deceptive conduct.

Each of the 16 separate group proceedings, brought pursuant to Part IVA of the Supreme Court Act 1986 (Vic) relates to a distinct product disclosure statement issued in respect of one or more Great Southern managed investment schemes. The plaintiffs were investors in these schemes.

In the months leading up to the commencement of trial, there have been a multitude of pre-trial issues to be addressed, and disputes to be resolved. One of these has been a contest between the parties as to whether a claim for privilege could be maintained by Great Southern Managers Australia Limited (GSMAL) in a board paper that contained some legal advice. The plaintiffs/investors wanted to tender the so-called “2005 Board Paper” at trial. The issue was whether or not  s 124 of the Evidence Act 2008 (Vic) permitted them to do so.

Last month, on 5 September 2012, the Court of Appeal handed down its judgment on the issue. Aside from a minor point as to the breadth of the declaration to be made, their Honours agreed with his Honour Sifris J, who had held at first instance that  s 124 of the Act permitted the plaintiffs/investors to tender the document.

Various arguments were advanced, but in essence, the issue turned on the proper construction and operation of s 124 of the Act; the section governing the loss of client legal privilege where the privilege is that of joint clients. Section 124 provides as follows –

“124. Loss of client legal privilege – joint clients

(1) This section only applies to a civil proceeding in connection with which 2 or more parties have, before the commencement of the proceeding, jointly retained a lawyer in relation to the same matter.

(2) This Division does not prevent one of those parties from adducing evidence of – 

(a) a communication made by any one of them to the lawyer; or

(b) the contents of a confidential document prepared by or at the direction or request of any one of them – 

in connection with that matter.”

The legal advice said to be contained in the June 2005 Board Paper consisted of emails which contained legal advice provided to GSMAL as principal client, which had been sought by GSMAL for the benefit also of scheme members (investors).

The Court of Appeal agreed with Sifris J’s conclusion that the requirement of a lawyer having been ‘jointly retained’ in s 124(1) was met in circumstances where the advice as sought for the benefit of the scheme members (investors). The section does not require all of the joint privilege holders to expressly retain the lawyer. It is directed to the substance of the transaction, not the agency through which it is effected. (See [21]-[30]).

For this and other reasons, the Court of Appeal held the plaintiffs/investors entitled to adduce evidence of the 2005 Board Paper at the trial. The judgment may be read in full here.

It will be interesting to see how this proceeding unfolds, including how significant this particular evidence proves to be.

Centro class action developments – (a) privilege and (b) a bombshell

* An updated version of this article was republished 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.

There have been some interesting developments this month in the lead up to the big Centro class action trial, which is due to commence in the Federal Court in just a few weeks (early March) before her Honour Justice Gordon and is expected to run for at least 15 weeks.

By way of background, there are 5 class actions issued in 2008 and 2010 by different sets of Centro investors, variously represented by Maurice Blackburn and Slater & Gordon. Broadly – and I stress the use of that term – the investors are suing the old Centro Properties group over the events of 2007 shortly before the group’s collapse, when they failed to disclose approximately $3.1billion of short-term debt. Centro’s then auditors PricewaterhouseCoopers were joined as a co-defendant by Centro Properties and in turn, PwC has cross-claimed against Centro. The investors are also suing the auditors PwC  directly, and in those proceedings too there are cross-claims by PwC against Centro. Indeed there are a multitude of cross-claims as between Centro and PwC.

To address the interesting developments occurring this month (February) in reverse order –

The bombshell – Centro Retail Australia’s “no liability” defence

In October 2011, Barrett J of the New South Wales Supreme Court approved a new corporate group structure for Centro. Subsequently, it appears that in or about December 2011, Centro Retail Australia Ltd took over as the responsible entity (RE) for the Centro group from Centro MCS Manager Ltd.

However, it is reported that submissions made in Court on Thursday suggest that this change in RE may not have been disclosed to the market and for some time remained unknown to the parties to the class action. Michael Lee SC, counsel for the Centro investors represented by Maurice Blackburn, reportedly said that the new RE was only discovered “by happenstance” by lawyers acting for PricewaterhouseCoopers, who ran repeated corporate searches of the new Centro Group structure after it was approved in October. PricewaterhouseCoopers has now successfully applied to join Centro Retail Australia to the class action.

On Thursday in Court, Centro Retail Australia revealed what its defence would be. It was something of a bombshell revelation. Certainly Centro Retail Australia was only newly joined to the action (on 14 February), however its predecessor as RE cannot claim the same. In Court, Counsel for PwC demanded to know if Centro Retail Australia would stand in the shoes of the old RE and assume its liabilities. Pressed by Gordon J, counsel for Centro Retail Australia Norman O’Bryan SC is reported as having said that it was “highly likely” the new entity would argue that it was excluded from certain liabilities of the old Centro. He reportedly indicated reliance would be placed upon Corporations Act provisions to argue these types of liabilities were not inherited by the new responsible entity in the restructuring.

Mr Lee is quoted as having described this new defence as “a matter of potentially extraordinary significance”. If successful, it could have the effect that the shell that is Centro MCS Manager Ltd retains the key liability, such that if the class action were successful, judgment might be made against an entity without assets. Concerns were also reportedly raised in Court by Mr Lee as to whether this proposed defence had been disclosed to the NSW Supreme Court on the restructure.

The orders made by Gordon J as shown on the Federal Court portal include that Centro Retail Australia must file its defence and any cross claim by 29 February and responding pleadings be filed by 2 March. For the full article discussing last week’s hearing see the Age article here.

Kirby v Centro Properties Limited (No 2) [2012] FCA 70 – Legal Professional Privilege

On 10 February, Bromberg J handed down his reasons on an application by PricewaterhouseCoopers that various Centro companies be compelled to produce specified documents for inspection. Centro had resisted inspection on the basis that the documents or part 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 allege 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 is claimed to be in breach of the Corporations Act 2001 (Cth), the ASIC Act 2001 (Cth) and the Fair Trading Act 1999 (Vic). CNP admits the misclassification, and its failure to comply with accounting standard AASB101, however it denies 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 is said to be in breach of the continuous disclosure obligations of the Corporations Act.

CNP (and CER) have 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 alleges 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 denies 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, denies that.

The investors also make claims directly against PwC in relation to the classification issue. They assert 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 admits that accounting standard AASB101 was not complied with, but denies 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 themsleves 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 agianst 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 Huthinson 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 bewteen 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 determinnig 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 Subpeonaed 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. The judgment may be read in full here.

His Honour made an order allowing PwC 14 days to file a written application for leave to appeal, meaning a deadline of Friday 24 February. I stand to be corrected, but my search today of the Federal Court portal discloses no such application as having been filed in any of the five proceedings concerned.

With regards to the class actions and the fast-approaching trial, we can all await further developments with interest.