19 April 2024

Can You Maintain Privilege Over Documents Voluntarily Disclosed To ASIC?

As ASIC continues to exercise its broad-ranging enforcement powers, companies are regularly asked to provide sensitive material to the regulator including documents covered by legal professional privilege.
Australia Corporate/Commercial Law
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As ASIC continues to exercise its broad-ranging enforcement powers, companies are regularly asked to provide sensitive material to the regulator including documents covered by legal professional privilege. Under the present statutory framework, ASIC has no power to compel the production of privileged material. For many years ASIC has accepted the production of privileged material under a "Voluntary Confidential LPP Disclosure Agreement" (so-called VDAs) from companies, under which a company will agree to provide privileged material to ASIC on the basis that the disclosure amounts to a limited waiver of privilege to assist ASIC but does not constitute a broader waiver of privilege. The VDA arrangements sought to promote the public interest in ASIC gaining access to privileged documents to facilitate ASIC's investigations and determinations.

Last week the Federal Court delivered a landmark judgment challenging the widespread acceptance of the effectiveness of VDAs as a mechanism to protect privilege. Significantly, the Federal Court found that a company (Noumi) had waived privilege in a report prepared by PwC by disclosing the report to ASIC under a VDA. The decision arose in a particular factual matrix, however the reasoning calls into question the maintenance of privilege in materials disclosed under any VDA, or indeed in any situation where the discloser and receiver purport to agree to maintain privilege.

Key background

In 2020, Noumi was engaging with ASIC regarding issues around Noumi's quantification of inventory. Noumi eventually agreed to provide ASIC with a copy of an investigation report prepared by PwC relating to those issues. The PwC Report was provided on a confidential basis pursuant to a VDA that was substantially in the standard form provided by ASIC, with some minor amendments. The VDA made clear that Noumi sought to maintain privilege over the contents of the PwC Report, notwithstanding that a disclosure was to be made to assist ASIC in investigating. At this point, it was not clear whether or not ASIC had commenced a formal investigation.

ASIC eventually commenced proceedings in 2023 against Noumi, its former CEO (Mr Macleod) and its former CFO for alleged contraventions of the Corporations Act 2001 (Cth) associated with disclosure of information about the value of inventories in its financial reports. In the discovery process, Noumi sought to claim privilege over the PwC Report. That claim was disputed by Mr Macleod, who primarily argued: first, that the PwC Report was not privileged, and in the alternative that voluntary disclosure of the PwC Report to ASIC gave rise to an implied waiver of privilege. ASIC sought to be heard on the question of waiver, and make submissions opposing Mr Macleod's contentions.

The decision

As an initial step, the Court was satisfied that the PwC Report was privileged.

Turning to waiver, the Court applied the well-established common law test, which requires examination of whether there has been conduct by the privilege holder that is inconsistent with the maintenance of privilege, where necessary informed by consideration of fairness. Applying that test, Shariff J was satisfied that the disclosure to ASIC did constitute a waiver. The key planks in his Honour's reasoning were:

  • Under the VDA, ASIC could not disclose the PwC Report, or its contents, to another person, and could not use it in evidence. However, at the time of the disclosure, Noumi knew or could have reasonably contemplated that ASIC could use (in a derivative sense) the information contained in the PwC Report in investigations or proceedings, including in relation to Mr Macleod. The PwC Report contained PwC's findings, but also reference to the underlying evidence supporting those findings, and ASIC could use both. This included information that ASIC could use to identify witnesses, topics to be explored and documents to be obtained.
  • Although Noumi disclosed the PwC Report to ASIC for a limited purpose, in the circumstances that disclosure permitted ASIC to use the information contained in the Report against third parties (including Mr Macleod), even though the report itself could not be disclosed pursuant to the VDA. In this way, the purpose of disclosure went beyond internal consideration by ASIC.
  • Permitting ASIC to use the content of the PwC Report in a derivative way against Mr Macleod in proceedings that could be brought against him was conduct that was inconsistent with the maintenance of confidentiality in the PwC Report as a privileged communication. According to Shariff J, it did not matter that ASIC could not present the PwC Report as evidence in proceedings or disclose it to any third party, other than in specified circumstances. In his Honour's view, this was because, in essence, ASIC was placed in a position where (if it so wished) it could seek to elicit any of the relevant evidence in the PwC Report by derivative means.
  • "Specific unfairness" arose in circumstances where Noumi disclosed information to ASIC which it could consider and use against Mr Macleod but sought to maintain confidentiality over that same information as against Mr Macleod.
  • While the public policy of encouraging candid disclosure to ASIC was acknowledged, in Justice Shariff's view "the objective of candid disclosure could have been equally promoted by Noumi disclosing the PwC Report to ASIC without attaching confidentiality to it or seeking to maintain privilege". His Honour also noted that ASIC's voluntary disclosure regime is not entrenched in statute and the public policy associated with facilitating candid disclosure would not apply to "every regulated entity on every occasion".

Potential implications

The Federal Court's decision appears to run counter to earlier authorities, which have held that a "limited waiver" (i.e. a disclosure on confidential terms, for a limited purpose) is effective in preserving privilege. It suggests that VDAs may not be effective to set up a limited waiver and may instead result in a blanket waiver of privilege. This same reasoning may apply to any arrangement where the discloser and receiver of privileged information agree that privilege is to be maintained despite the fact that disclosure has been made for a limited purpose.

The Court acknowledged that "[w]hether the sharing of that privileged material will give rise to waiver will be a matter to be determined on a case by case basis", as is the position in all privilege disputes. This leaves room to potentially narrow the application of the decision to its specific facts. However, given the risks and matters at stake, companies would be ill-advised to ignore the potential implications of Noumi.

At its highest, the decision leaves any privileged information disclosed to a regulator under a VDA (or equivalent limited waiver agreement) open to a privilege challenge, whether in the context of regulatory proceedings or subsequent related claims such as class actions.

The exact bounds of the decision are unclear. Critical questions remain unanswered including:

  • Whether ASIC's voluntary disclosure regime could be amended to better protect privilege in information voluntarily provided to ASIC.
  • Whether a court would find that privilege had been waived where the privileged information was strictly legal advice, as opposed to factual investigation material that allows ASIC to build a case against future defendants.
  • Whether a court's assessment of unfairness in considering a potential waiver would be affected if the privilege holder (here Noumi) was not a party to the proceedings, or if the privileged information was not being deployed directly against the party seeking to challenge the privilege claim.
  • Whether a court would find that privilege had been waived if the disclosure was made at a much earlier stage, where it was less clear to the disclosing party that ASIC was likely to commence a formal investigation (or who the subjects of any such investigation would likely be).

Where to from here?

The uncertainty caused by this challenge to the usual VDA practice is unsatisfactory for companies and for ASIC. The parties will have 14 days in which to decide whether to seek leave to appeal. The judgment is clearly unhelpful to ASIC, in that it may dissuade companies from being prepared to share privileged materials with the regulator on a confidential basis. As such, ASIC may also take steps in response to the judgment such as issuing guidance to the market or seeking legislative change.

In the meantime, companies dealing with ASIC can be expected to proceed on the basis that VDAs may be ineffective to prevent a waiver of privilege, and should continue to seek legal advice prior to entering into any VDA.

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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