57 In reliance upon the underlined portion of the judgment in paragraph 82, the Bank submitted that the fact that PWC had statutory duties as an auditor to use the advice provided by HDY for the purpose of forming an independent view of the Bank's financial reports, did not prevent PWC being the Bank's agent for the purpose of receiving that advice.
58 It needs to be remembered that this is a different set of circumstances to that which prevailed in Australian Rugby Union Ltd v Hospitality Group Pty Ltd (1999) 165 ALR 253 as cited by Allsop J. As his Honour said, the meeting with third parties (the client and the solicitors) was for the purpose of those third parties, one of whom was an agent of the client, providing information to the solicitors for use in their advice. In this case it was the solicitors who were authorised to provide information to the third party, the auditor, for the purpose of the audit.
59 In Nickmar Pty Ltd & Anor v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 44, also relied upon by the Bank, a question that arose was whether the report from loss adjusters to the insurer at the request of the solicitor was privileged. Wood J, as his Honour then was, said at 56:
In Wheeler v Le Marchant, the supply of documents to a solicitor for advice by an agent of the client, was placed on all fours with their supply by the client itself: see Anderson v Bank of British Columbia (at 658 per Mellish LJ). It was submitted in the present case that reports obtained from investigators or experts retained formally by solicitors, but on the explicit instructions of the client, should be regarded in a similar light. I accept this submission. Any other view seems to place undue emphasis on form, and to ignore the substance of the engagement of the expert as an agent by direction. In such circumstances I believe the information could probably be regarded as collected and communicated confidentially on behalf of the client to its legal adviser, in the character, and for the purpose of obtaining legal advice.
60 Once again the circumstances of this case are quite different from that in Nickmar. In this case there was authorisation for the solicitors to provide information to the auditor for the purposes of the audit.
61 The onus is on the plaintiff to establish its claim that the auditor was the agent of the Bank, it being claimed that such agency should be implied from the HDY letters and the surrounding circumstances gleaned from those letters. Division 3 of Part 2M.4 of the Corporations Act 2001 entitled "Auditor Independence" sets out in rather intense detail provisions relating to "auditor independence". An auditor has an obligation to notify ASIC, irrespective of whether such notification may tend to incriminate the auditor, if a "conflict of interest situation exists in relation to the audited body while the individual auditor or audit company is the auditor of the audited body" (s. 324CA(1A)(b)). A "conflict of interest situation" exists at the relevant time if: (i) the auditor is not capable of exercising "objective or impartial judgment" in relation to the conduct of the audit (s 324CD(1)(a); or (ii) a reasonable person, with full knowledge of all relevant facts and circumstances, would conclude that the auditor is not capable of exercising objective and impartial judgment in relation to the conduct of the audit (s 324CD(1)(b)). Although it appears that some words may have been inadvertently omitted from s 324CD(2), the effect of the subsection is that for the purposes of assessing whether a "conflict of interest situation" exists, regard should be had to "relevant relationships" including the relationship between the auditor and the audited company. The auditor of a public company is required to provide to the directors of the audited company a written declaration of compliance with the "auditor independence requirements" of the Act (s 307C).
62 The auditor has a "right" to access the books of the company and may "require" (such request must be "reasonable") any officer of the company to give the auditor "information, explanations or other assistance for the purposes of the audit or review" (s 310). It seems to me that an auditor's request of an officer of a company to disclose material that is protected by advice privilege which is not consented to by the Company would not be a reasonable request. It is the auditor who has to make appropriate judgments about whether the accounts give a true and fair view of the company's financial position. In my view, the fact that the Corporations Act requires an auditor to be independent of the audited company weighs against the implication that an auditor stands in the shoes of the audited company as its agent in receiving information from third parties about the company.
63 Counsel for the Bank drew my attention to the following portion of the text Disclosure (Matthews, P and Malek, H.M Disclosure 2nd ed Sweet & Maxwell, London, 2000) at par 9.024:
The lawyer advising a third party
The privilege only extends to the lawyer advising his own client, and a communication between the lawyer and the third party (not being the agent of either lawyer or client for the purposes of such communication) is not privileged under this head. Thus, if the lawyer writes to the client's auditor's to inform them of the state of the client's legal affairs (debts, titles, claims made, actual or prospective litigation), then even if the letter should amount to advice, it may not be advice to the client (because the auditor is independent of the company), and hence, the original in the auditors' hands would not be privileged under this head. As the auditor is not the company's agent, the document is not discloseable by the company as in its "control", but would have to be produced to the Court if sought by witness summons, or under the third party disclosure procedure. Any copy retained by the lawyer would, depending on the precise facts, either be retained on behalf of the client (when it would be in the client's control) or as part of the lawyer's working papers (when it would not). But, as a copy of a non-privileged document, almost certainly made for a non-privileged purpose, it would not itself be privileged. In order to maintain privilege, the lawyer must write to the client with advice on the position. The client may then permit the auditor to inspect the advice (confidential basis, so as not to waive the privilege). But this may not be acceptable to the auditor. The client must then choose.
64 Reference was also made to McGregor Clothing Company Ltd's Trade Mark [1978] FSR 353. In that case Whitford J dealt with the question of whether a letter written by an American attorney, who was advising intervenors in an application for rectification of the trademark register, to the intervenors' Trade Mark agents in the United Kingdom was privileged. The agents in the United Kingdom had written to the intervenors in relation to a question touching the assignment of the Trade Mark, the subject of the litigation. The intervenors approached the American attorney for advice and the American attorney wrote a letter containing that advice, the original of which was sent to the agents in the United Kingdom and a copy of which was sent to the intervenors. Whitford J, in deciding that the claim to privilege was made out, said at 354:
If the advice is confined as between the client and the professional advisor then the privilege claimed may be good. If the advice is broadcast at large then, no doubt the privilege claimed is bad.
I have reached the conclusion that it would really make nonsense of the claim to privilege if the mere communication of what was undoubtedly privileged advice as between [the American attorney] and the [intervenors] were to lose privilege by transmission for action to the agents of the [intervenors] in this country.
65 Once again, the circumstances of that case are different to this. There was no discussion of any requirements of the agent in the United Kingdom having any statutory responsibilities of independence. The present case is a claim of implied agency in circumstances where the auditor, the alleged agent, has statutory responsibilities of independence from the audited company.
66 In In re Transplanters (Holding Company) Ltd [1958] 1 W.L.R. 822 an applicant claimed that the auditor's certificate on the balance sheets of the company was sufficient acknowledgement of a debt within the meaning of s 23 and 24 of the Limitation Act 1939, because the debt appeared amongst the loans to the company. Wynn-Parry J said at 826:
In my view, an auditor of a company is (apart from any special contract, and there is none in this case) not an agent of the company, at any rate for the purpose of being able to bind the company by merely signing the normal certificate at the foot of the balance-sheet. To hold otherwise would, I think, be contrary to the Companies Act, 1948. No doubt, for certain purposes, the auditors may be regarded as servants of the company, so that the court will not, by mandatory injunction, force upon the company auditors whom the shareholders do not desire to act … But apart again, as I say, from any special contract, the relations between the company and its auditors are governed by the provisions of the Companies Act, 1948, and their duty, as expressed by section 162 (1), is to make a report to the members on the accounts examined by them, and on every balance-sheet and every profit and loss account, and their report is to contain statements as to the various matters mentioned in the Ninth Schedule. That scheme seems to me designed to produce this result, that a skilled professional man or a firm of skilled professional men is or are appointed in order that there is to be before the company all the requisite information indicated in the Act, and that by their certificate they pledge themselves that they have properly performed their statutory duty. But I cannot spell out of their certificate anything which would amount to an acknowledgement within sections 23 and 24 of the Limitations Act, 1939, because I cannot spell out of their relations with the company, as to be extracted from the Companies Act, 1948, any authority to do anything in the nature of giving an acknowledgement within the Limitation Act, 1939, or any authority to do more than to perform the duties laid upon them as auditors by the Companies Act, 1948.
67 Applying the approach adopted by Wynn-Parry J in his review of the applicable Companies Act, I can find nothing in the Corporations Act 2001 that would authorise the auditor, PWC, to act as the Bank's agent. Indeed what is found in the Corporations Act 2001 is quite the opposite. Although the Act anticipates that conflict of interest situations may arise and requires them to be notified to ASIC, the scheme of Part 2M.4 suggests that the conflicts of interest situations are those that arise, for instance, when systems in place to identify them have let the auditor down. In other words, they are relationships that are not presently obvious and may have occurred by reason of another partner in the firm having a relevant relationship or the auditor having acted in the past for clients that may prevent the auditor from exercising, or being seen (by the reasonable person) to be able to exercise, objective and impartial judgment in relation to the conduct of the audit.
68 Section 324CD(1)(b) brings in the necessity for the perception of independence. That is, the auditor should not only be independent but should also be seen to be independent by the statutorily imported reasonable person. That "reasonable person" must be taken to expect that the auditor will comply with the statutory obligation and be independent of the audited company. If an auditor accepts an agency role to receive privileged material not for transmission to the client but for the audit process, the question may arise as to whether the reasonable person who becomes aware that an auditor has knowingly taken on the role as the audited company's agent to receive privileged information with a duty to keep it secret from third parties, would reasonably conclude that the auditor is not capable of exercising objective and impartial judgment in relation to the conduct of the audit of the company. It will probably depend upon the facts of each case but, in cases of implied agencies, the provisions of Part 2M.4 of the Corporations Act 2001 suggest that the answer to that question would be in the affirmative.
69 The provisions of Part 2M.4 of the Corporations Act 2004 militate against the concept of an auditor acting as agent for the audited company. Distinctions may be drawn between the various types and extent of agency relationships. It may be suggested that the auditors are acting as the audited company's agent when they seek information from third parties in relation to the company for the purposes of the audit. Indeed in this case the Bank submitted that "a prudent auditor would be unlikely to be satisfied that a company's financial statements present a "true and fair view" for the purposes of s 297 or s 305 of the [Corporations] Act unless (a) solicitors provided confirmation of directors estimates of contingent liabilities in litigation; and (b) this confirmation was provided directly to the auditor" (written submissions 24/02/05 par 42). No authority was cited for this proposition and no evidence was called in support of it.
70 Caution needs to exercised in respect of such generalisations. Each situation needs to be assessed individually. The responsibility is on the audited company to obtain the detail from third parties and provide it to the auditor. The arrangements made for the auditor making direct contact with third parties may be for ease of operation and the audit process. When that process is adopted the auditors are acting with the authority of the Company to receive the information, not as the Company's agent, but as the independent auditor with the authority for such disclosure to be made to them for the purpose of the audit.
71 It is assumed that the auditor, PWC, acted consistently with its statutory duties of independence and did not agree to become the Bank's agent. In any event, for the Bank to establish an agency relationship between the auditor and the Bank, I am of the view there would have to be evidence of some special contract in the circumstances of this case. There is no such evidence. I do not, as I was requested to do by the Bank, infer from the HDY letters there was such an agency relationship. Indeed the inference is that the Bank understood the sensitivity of at least some of the material and expressly "authorised" HDY to "discuss" them with "our auditors, PricewaterhouseCoopers, if requested".