[2005] NSWSC 123
Archer Capital 4A Pty Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc (No 2) (2013) 306 ALR 384
[2013] FCA 1098
Australian Rugby Union Limited v Hospitality Group Pty Limited [1999] FCA 1061
(1999) 165 ALR 253
AWB Limited v Cole (No 5) [2006] FCA 1234
(2006) 155 FCR 30
AWB Ltd v Cole [2006] FCA 571
Source
Original judgment source is linked above.
Catchwords
[2005] NSWSC 123
Archer Capital 4A Pty Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc (No 2) (2013) 306 ALR 384[2013] FCA 1098
Australian Rugby Union Limited v Hospitality Group Pty Limited [1999] FCA 1061(1999) 165 ALR 253
AWB Limited v Cole (No 5) [2006] FCA 1234(2006) 155 FCR 30
AWB Ltd v Cole [2006] FCA 571(2006) 152 FCR 382
Baker v Campbell [1983] HCA 39(1983) 153 CLR 52
British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 3 All ER 816[1988] 1 WLR 1113
Cantor v Audi Australia Pty Ltd [2016] FCA 1391
Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3(1997) 188 CLR 501
Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247(2005) 225 ALR 266
Commissioner of Taxation v Rio Tinto Limited (2006) 151 FCR 341[2006] FCAFC 86
Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49(2002) 213 CLR 543
Director of Public Prosecutions (Cth) v KinghornKinghorn v Director of Public Prosecutions (Cth) (2020) 379 ALR 345[2020] NSWCCA 48
DSE (Holdings) Pty Limited v InterTAN Inc [2003] FCA 1191(2003) 135 FCR 151
Esso Australia Resources Ltd v Commissioner of Taxation (Cth) [1999] HCA 67
(1999) 201 CLR 49
Expense Reduction Analysts Group Pty Limited v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46
(2013) 250 CLR 303
Farrow Mortgage Services Pty Limited (in liq) v Webb (1996) 132 FLR 466
(1996) 14 ACLC 1240
(1996) 39 NSWLR 601
Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34
(1996) 186 CLR 404
Financial Reporting Council Limited v Sports Direct International Plc [2018] EWHC 2284 (Ch)
[2019] 2 All ER 974
Financial Reporting Council Limited v Sports Direct International Plc [2020] 2 WLR 1256
[2020] EWCA Civ 177
Gardner v Irvin (1878) LR 4 Ex D 49
Goldberg v Ng [1995] HCA 39
(1995) 185 CLR 83
Grant v Downs (1976) 11 ALR 577
(1976) 135 CLR 674
Hancock v Rinehart [2016] NSWSC 12
Hastie Group Limited (in liq) v Moore (t/as Deloitte Touche Tohmatsu) [2016] NSWCA 305
(2016) 339 ALR 635
Hellenic Mutual War Risks Association (Bermuda) v Harrison (The "Sagheera") [1997] 1 Ll Rep 160
Mann v Carnell [1999] HCA 66
(1999) 201 CLR 1
Mitsubishi Electric Australia Pty Limited v Victorian WorkCover Authority (2002) 4 VR 332
[2002] UK HL 21
R v Derby Magistrates' Court
Ex parte B [1995] 4 All ER 526
[1996] AC 487
R v Kinghorn (No 4) [2019] NSWSC 1420
Rawlinson & Hunter Trustees SA v Akers [2014] 4 All ER 627
[2014] EWCA Civ 136
Rawlinson and Hunter Trustees SA v Akers [2013] All ER (D) 357 (Jul)
[2013] EWHC 2297 (QB)
Re Global Advanced Metals Pty Limited [2019] NSWSC 1545
Singtel Optus Pty Ltd v Weston (2011) 81 NSWLR 526
Judgment (19 paragraphs)
[1]
nal Plc [2020] 2 WLR 1256; [2020] EWCA Civ 177
Gardner v Irvin (1878) LR 4 Ex D 49
Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83
Grant v Downs (1976) 11 ALR 577; (1976) 135 CLR 674
Hancock v Rinehart [2016] NSWSC 12
Hastie Group Limited (in liq) v Moore (t/as Deloitte Touche Tohmatsu) [2016] NSWCA 305; (2016) 339 ALR 635
Hellenic Mutual War Risks Association (Bermuda) v Harrison (The "Sagheera") [1997] 1 Ll Rep 160
Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1
Mitsubishi Electric Australia Pty Limited v Victorian WorkCover Authority (2002) 4 VR 332; [2002] VSCA 59
National Crime Authority v S (1991) 100 ALR 151, 159
New Cap Reinsurance Corporation Ltd (In Liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258
Nine Films and Television Pty Ltd v Ninox Television Ltd [(2005) 65 IPR 442
Osland v Secretary, Department of Justice (2008) 234 CLR 275; [2008] HCA 37
Parry-Jones v Law Society [1969] 1 Ch 1
Pricewaterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583
R (Morgan Grenfell and Co Limited) v Special Commissioner of Income Tax [2003] 1 AC 563; [2002] UK HL 21
R v Derby Magistrates' Court; Ex parte B [1995] 4 All ER 526; [1996] AC 487
R v Kinghorn (No 4) [2019] NSWSC 1420
Rawlinson & Hunter Trustees SA v Akers [2014] 4 All ER 627; [2014] EWCA Civ 136
Rawlinson and Hunter Trustees SA v Akers [2013] All ER (D) 357 (Jul); [2013] EWHC 2297 (QB)
Re Global Advanced Metals Pty Limited [2019] NSWSC 1545
Singtel Optus Pty Ltd v Weston (2011) 81 NSWLR 526; [2011] NSWSC 1083
Telstra Corporation Ltd v Australis Media Holdings (No 2) (1997) 41 NSWLR 346
Thomason v The Council of The Municipality of Campbelltown [(1939) 39 SR (NSW) 347
Westpac Banking Corporation v 789Ten Pty Ltd (2005) 55 ACSR 519; [2005] NSWCA 321
Category: Principal judgment
Parties: Robert Hutson (First Plaintiff)
Scott Langdon (Second Plaintiff)
New Hope Corporation Limited (Applicant/Interested Party)
Representation: Counsel:
Mr D Cook SC / Mr D Krochmalik (Plaintiffs)
Mr J Giles SC / Mr C Mitchell (Applicant/Interested Party)
HER HONOUR: New Hope Corporation Limited seeks to restrict access to documents produced by its auditor, Deloitte Touche Tohmatsu, on the basis of client legal privilege. The documents are said to disclose legal advice obtained by New Hope from Baker McKenzie. The documents were produced in answer to an order for production issued by this Court at the request of Robert Hutson and Scott Langdon, liquidators of two wholly owned subsidiaries of New Hope, Northern Energy Corporation Limited (in liquidation) and Colton Coal Pty Limited (in liquidation), in connection with liquidators' examinations scheduled to take place next month.
The first issue is whether New Hope has established a claim for client legal privilege in respect of Baker McKenzie's advice, not being a joint privilege shared with its subsidiaries: Farrow Mortgage Services Pty Limited (in liq) v Webb (1996) 132 FLR 466; (1996) 14 ACLC 1240; (1996) 39 NSWLR 601 at 608; Hellenic Mutual War Risks Association (Bermuda) v Harrison (The "Sagheera") [1997] 1 Ll Rep 160 at 165. The second issue is whether, by disclosing the advice to its auditor, New Hope waived privilege limited to Deloitte only, or also to Northern Energy and Colton Coal, or to the world at large. The last possibility may not be necessary to decide, it being sufficient for the liquidators' purpose that any privilege was waived vis a vis the subsidiaries.
The parties agreed that the common law governs the position. This is because section 131A of the Evidence Act 1995 (NSW) - which extends the operation of the Act to pre-trial production and inspection of documents - does not extend to a claim for privilege made by a third party rather than the person required to produce documents. In such a case, the common law continues to apply: Singtel Optus Pty Ltd v Weston (2011) 81 NSWLR 526; [2011] NSWSC 1083 at [25]-[28] per White J; R v Kinghorn (No 4) [2019] NSWSC 1420 at [75]; Director of Public Prosecutions (Cth) v Kinghorn; Kinghorn v Director of Public Prosecutions (Cth) (2020) 379 ALR 345; [2020] NSWCCA 48 at [36]. Whilst it is unlikely that a different result will pertain in respect of the existence of the privilege, common law principles in respect of waiver are not identical to section 122 of the Evidence Act as to the circumstances in which privilege may be lost: Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 at [23].
[4]
EVIDENCE IN SUPPORT OF APPLICATION
In support of the claim for privilege, New Hope relied on affidavits sworn by its general counsel and company secretary, Janelle Moody, its chief financial officer, Matthew Busch and its solicitor. The liquidators relied on affidavits sworn by Mr Hutson.
Ms Moody became general counsel and company secretary of New Hope Corporation on 1 May 2018. Ms Moody's responsibilities include providing legal advice to New Hope or entities within the New Hope Group, retaining independent legal advisers to provide legal advice and "ensuring that legal advice is appropriately disseminated within New Hope, and where necessary to other advisers, to preserve the confidential and privileged nature of that legal advice". Mr Busch became the chief financial officer of New Hope in 2014. His responsibilities include oversight of the internal management team, management reporting and financial reporting obligations of the New Hope Group.
Of course, a claim for privilege may also be established "by reference to the nature of the documents, supported by argument or submissions" (AWB v Cole (No 5) at [44]) and, here, the documents were the key piece of evidence. The parties agreed that I should look at the documents and I was provided with an unredacted copy.
[5]
RETAINER OF AUDITOR
New Hope is the parent company for the New Hope Group, which has diversified business interests and operations spanning coal mining, exploration, port operation, oil, agricultural and investment. The financial report of the New Hope Group is prepared on a consolidated basis, including reporting on the financial position of Northern Energy and Colton Coal. The financial year for the New Hope Group ends on 31 July of each calendar year.
As a company listed on the Australian Stock Exchange, New Hope must have its annual financial report audited. Deloitte has been the auditor for the New Hope Group for, at least, the 2017 and 2018 financial years. Deloitte's audit engagement letters for these audits are in evidence and in like terms. In each case, the audit engagement letter was addressed to the chair of the audit committee of New Hope and signed by Mr Busch on behalf of New Hope. In each case, Deloitte was engaged to audit the financial report of New Hope "and its subsidiaries". In addition, Deloitte was specifically engaged to audit the special purpose financial report of Northern Energy, although Mr Hutson has not found any separate audited financial statements for Northern Energy, or Colton Coal for that matter. Mr Hutson's review of the audit files maintained by Deloitte confirms that the financial statements or positions of Northern Energy and Colton Coal were audited in the context of a single audit of each of the companies in the New Hope Group.
The audit engagement letters confirmed that Deloitte was independent of New Hope, as required by the Corporations Act 2001 (Cth) and applicable professional standards, and required to comply with ethical requirements. Deloitte noted that, as such, it would exercise professional judgment and maintain professional scepticism throughout the audits. The engagement would be conducted on the basis that the directors acknowledged and understood their responsibility inter alia to provide Deloitte with access to all information relevant to the preparation of the financial report including additional information that Deloitte may request. The directors agree to give Deloitte unrestricted access to persons from whom Deloitte determined it necessary to obtain evidence.
This is consistent with the auditor's right of access described at [66], as is clause 11 of Deloitte's standard terms and conditions accompanying the audit engagement letters, which provided:
11 What you agree to do
11.1 You agree to co-operate with us and provide us with all reasonable and necessary assistance so that we can provide the Services to you. This includes providing us with timely and reasonable access as appropriate, to your premises, facilities, Information and Representatives.
11.2 In addition to any responsibilities you may have that are set out in the Letter, you are responsible for:
…
(e) providing us with accurate and complete Information. Where any Information that we require in order to provide the Services is to be provided by someone else, you are responsible for ensuring that Information is provided to us. You will need to give us all Information that is relevant to the Services, even if the same Information has been given to us previously during another engagement; and
…
11.3 You acknowledge that:
…
(b) our ability to provide the Services depends on you meeting your responsibilities under this Agreement and instructing us or responding to our requests in a timely and effective manner; and
(c) we are entitled to and will rely on Information provided by you, the decisions you make and any approvals you give; and
(d) we will not be liable for any default that arises because you do not fulfill your obligations.
[6]
2017 audit
To backtrack for context, and drawing on events as relayed in the portions of a New Hope memorandum over which no privilege is claimed, Northern Energy holds coal exploration assets including the "Colton Project". In September 2011, Colton Coal entered into a "Take or Pay Agreement" with Wiggins Island Coal Export Terminal Pty Limited (WICET). Northern Energy is the guarantor of the "Take or Pay Agreement". The term of the agreement was ten years from the mechanical completion date, which occurred in May 2015. A downturn in the mining sector delayed the commencement of operations at the Colton Project so that Northern Energy began making payments under the agreement some years before any benefits were expected to be received.
As best I can tell, in the course of auditing the 2017 financial statements, Deloitte prepared a file note entitled "Impact of current WICET obligations". Drawing on workpapers from the 2016 audit and more recent events, Deloitte considered whether the "Take or Pay Agreement" could be considered an onerous contract under Australian Accounting Standard AASB 137 "Provisions, contingent liabilities and contingent assets". A claim for privilege is made over a portion of the note, which I have considered at [76].
[7]
2018 audit
Deloitte was retained on 9 February 2018 to audit the 2018 financial year. According to the New Hope memorandum, in February 2018 a review of the resources and reserves for the Colton Project, including an update under the JORC 2012 code, was identified for action. "JORC" refers to Joint Ore Resources Committee. I understand the JORC 2012 code to be a reference to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, being a professional code of practice that sets minimum standards for public reporting of minerals exploration results, mineral resources and ore reserves: www.jorc.org. The decision to engage external experts was discussed with New Hope's legal counsel. In March 2018, an independent expert, Barry Saunders, was engaged to prepare a "JORC" resources assessment for the New Hope Group.
According to the New Hope memorandum, on 4 June 2018, a director of Colton Coal, Shane Stephan, issued a No Adverse Effects notice to WICET, which confirmed the reserve positions had not altered at that time. From mid-June 2018, however, New Hope also began to speak with Mark Dempsey about preparing a reserves review and issuing a reserves report for the Colton Project under the JORC 2012 code. Mr Dempsey was provided with some preliminary information. In July 2018, an updated resources report was issued to the New Hope Group in compliance with the JORC 2012 code, which indicated that resources for the Colton Project project were reduced from 76 megatonnes to 68 megatonnes.
[8]
RETAINER OF BAKER McKENZIE
On 13 August 2018, according to the New Hope memorandum, Andre Du Preez, New Hope's primary liaison with Mr Saunders, advised Executive Management (presumably, of New Hope) that Mr Dempsey had some concerns based on the information he had received to date that there may be a reduction in the reserves position of the Colton Project. The New Hope memorandum records:
On 13 August 2018 after being made aware of a potential issue with the JORC reserves position of the Colton project, Shane Stephan and Matthew Busch contacted the New Hope Chairman to outline the concerns. Immediately after speaking to the Chairman Steven Glanz from Baker McKenzie was engaged to provide advice. The New Hope Audit Committee Chair was also briefed on the position.
It will be seen from this note that the reduction in reserves was seen to be a significant matter to bring to the attention of two main bodies: the board and the audit committee.
On 14 August 2018, Baker McKenzie sent an email to Mr Busch and Mr Stephan. A claim for privilege has been made over reference to the content of this email in a later Deloitte's file note. On 17 August 2018, New Hope retained Baker McKenzie to give advice regarding WICET arrangements. The letter of retainer was sent by Baker McKenzie to Mr Busch and noted that the firm would be acting for New Hope. The scope of work described in the letter was:
In this assignment Baker & McKenzie will provide legal services relating to contractual arrangements with Wiggins Island Coal Export Terminal.
The liquidator points to the wide scope of work, noting the retainer does not specify that advice will be provided to New Hope but, rather, legal services will be provided "relating to" the WICET contract, which was sufficiently broad to encompass providing legal services to Deloitte in respect of the matter. Beyond the email and letter, New Hope's witnesses say nothing about the circumstances in which it was thought necessary to retain Baker McKenzie and for what purpose.
On 18 August 2018, Mr Dempsey was engaged to prepare a reserves review and issue a reserves report for the Colton Project under the JORC 2012 code. On 22 August 2018, an update was provided to the full board. Management noted the perceived concerns in relation to the reserves position, although work still needed to be done before a JORC report could be released. Management challenged the assumptions included within the reserves' estimation model. Ongoing discussions over subsequent weeks regarding assumptions in the underlying reserves assessments culminated in a meeting between New Hope management and Mr Saunders on 3 September 2018. At the meeting, Executive Management formed a view that there was unlikely to be a position which resulted in reserves being maintained.
[9]
SUBMISSIONS
In addition to the submissions already set out, New Hope submitted that each communication over which privilege is claimed conveys the substance of a request for legal advice from, or the provision of legal advice to, New Hope by its lawyers, principally Baker McKenzie. Each request for, or provision of, legal advice was disclosed to Deloitte on an express term of confidentiality and solely for the purposes of an audit of New Hope. Disclosure in these circumstances was not inconsistent with maintenance of confidentiality. It was submitted that Ms Moody and Mr Busch's evidence supported a finding that the documents contained confidential and privileged legal advice received by New Hope which was disclosed to Deloitte on an express term of confidentiality and solely for the purposes of an audit. The disclosure to Deloitte constituted a limited waiver only and privilege was maintainable against third parties.
The liquidators submitted that the evidence did not establish that the materials were privileged, did not rise above mere assertion and did not meet the evidentiary requirements described in Hancock v Rinehart [2016] NSWSC 12. Apart from the fact that Baker McKenzie was retained to provide advice and there was a meeting between representatives of New Hope, Deloitte and Baker McKenzie, the evidence otherwise made general (inadmissible) conclusory statements that the documents disclosed the substance of legal advice. There is no evidence as to the circumstances of the legal advice provided to New Hope such as when it was provided, to whom and by whom. Nor was there evidence of the circumstances in which the documents were created by Deloitte. Nobody from Deloitte gave evidence; nor was there any hearsay evidence on information and belief from any representative of Deloitte. The liquidators' senior counsel submitted:
… There is absolutely no attempt made by New Hope to explain why it was that Baker McKenzie were asked to advise on the contractual arrangements concerning WICET at that particular point in time years after contract had been entered into.
… nobody from New Hope has actually gone hand on heart and told your Honour that the advice referred to in these documents is given for the dominant purpose of providing legal advice to New Hope.
… your Honour has every basis for drawing an inference that the dominant purpose or at least an equal purpose of bringing Baker McKenzie into this particular issue, in light of the concerns raised by Deloitte, is to fend off Deloitte's concerns so that they don't get a qualified opinion for the audit …
[10]
COMMON LAW ADVICE PRIVILEGE
There was no dispute as to the principles. At common law, client legal privilege attaches to confidential communications passing between a client and the client's legal adviser for the dominant purpose of obtaining or giving legal advice: Baker v Campbell [1983] HCA 39; (1983) 153 CLR 52 at 122; Esso Australia Resources Ltd v Commissioner of Taxation (Cth) [1999] HCA 67; (1999) 201 CLR 49 at 64. The privilege attaches to the confidential communication rather than the document recording the advice. Although a document will commonly be the means of communication; "the focus is always on the communication, not just the document which records or manifests the communication": Cantor v Audi Australia Pty Ltd [2016] FCA 1391 at [63]; Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; (1997) 188 CLR 501 at 529, 543, 552, 568, 580-581, 585; New Cap Reinsurance Corporation Ltd (In Liq) v Renaissance Reinsurance Ltd [2007] NSWSC 258 at [19].
The privilege is a fundamental common law right: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543 at 552-553. The privilege exists to serve the public interest in the administration of justice by encouraging full and frank disclosure by clients to their lawyers: Esso at 64; Cantor v Audi at [56]. As explained by Lord Taylor CJ in R v Derby Magistrates' Court; Ex parte B [1995] 4 All ER 526; [1996] AC 487 at 507:
The principle … is that a [person] must be able to consult [their] lawyer in confidence, since otherwise [they] might hold back half the truth. The client must be sure that what [they tell their] lawyer in confidence will never be revealed without [their] consent. Legal professional privilege … is a fundamental condition on which the administration of justice as a whole rests.
[11]
Communications with third parties
Baker McKenzie's advice was communicated to someone other than New Hope, being to a third party, Deloitte. Unlike litigation privilege - which protects confidential communications made in connection with the provision of legal services in relation to legal proceedings - advice privilege is not available "where one of the parties to the communication is a third party who is not the agent of the client for the purpose of the communication": Mitsubishi Electric Australia Pty Limited v Victorian WorkCover Authority (2002) 4 VR 332; [2002] VSCA 59 at [9]. A third party may be a mere conduit, passing on information from or to the lawyer or client and such communications using the third party as a messenger are privileged: DSE (Holdings) Pty Limited v InterTAN Inc [2003] FCA 1191; (2003) 135 FCR 151 at [91]. A third party may be more than a conduit, for example, they may make independent investigations, assessment and comment in order that legal advice be given.
Such communications will be privileged if the third party is an agent of the client and if the communication is both confidential and made to the solicitor in their professional capacity with a view to providing legal advice to the client: Australian Rugby Union Limited v Hospitality Group Pty Limited [1999] FCA 1061; (1999) 165 ALR 253 at [29]. The question is whether the communication between the third party and the solicitor is to be taken to be the same as a communication between the client and the solicitor; "What is necessary is that the third party be the client's deputed agent to communicate with the lawyer in connection with the provision of legal advice": DSE (Holdings) at [94], [96].
A company's auditor is unlikely to be regarded as its agent for the purpose of legal advice privilege: 789Ten Pty Ltd v Westpac Banking Corporation Ltd (2005) 215 ALR 131; [2005] NSWSC 123 at [22], [73] (appeal dismissed in Westpac Banking Corporation v 789Ten Pty Ltd (2005) 55 ACSR 519; [2005] NSWCA 321). At first instance, Bergin J considered that the fact that the Corporations Act 2001 (Cth) requires an auditor to be independent 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 (at [62]), although noted that caution needs to be exercised in making generalisations as each situation needed to be assessed individually: at [70]. On appeal, Tobias JA (with whom the other members of the Court agreed) considered that Bergin J's conclusions in respect of agency were "clearly cogent" and correct: at [29]. New Hope does not suggest that Deloitte was its agent for the purpose of legal advice privilege.
[12]
Dominant purpose
For privilege to attach, the dominant purpose of the communication must be obtaining or giving legal advice. The "dominant purpose" is the ruling, prevailing or most influential purpose having the element of clear paramountcy: 789Ten v Westpac at [22]; Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; (1996) 186 CLR 404 at 416. A confidential communication with a legal adviser will not attract privilege unless the dominant purpose is to obtain or give legal advice rather than advice of a purely commercial or public relations nature, although the concept of legal advice will be interpreted widely so as to include advice as to what a client should prudently or sensibly do: AWB Limited v Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30 at [47].
Where the purpose of obtaining legal advice is to provide it to a third party (which I understand is what the liquidators say happened here), then the implications for 'dominant purpose' are as described by Bromwich J in Cantor v Audi at [68]:
If the facts as found on the evidence demonstrate objectively that subsequent use, for example by provision to a third party, was a purpose in creating it equal to or greater than the purpose of providing legal advice, that will be sufficient to displace the provision of the advice to the client as being dominant in the sense of being the ruling, prevailing, or most influential purpose. In that event, there is no privilege. But a later decision to use legal advice in that way, even if made immediately after communication and perhaps dependent on considering the contents of the advice or the conclusions reached in making that decision, will not displace the dominant purpose otherwise established.
In ascertaining the "dominant purpose", it is important to look at the whole of the correspondence rather than simply rely upon a statement by the person claiming the privilege as to the reason why a letter from a solicitor was sought: 789Ten v Westpac at [46]. The Court will look at 'purpose' from an objective standpoint, looking at all relevant evidence including evidence of subjective purpose: Rawlinson & Hunter Trustees SA v Akers [2014] EWCA Civ 136; [2014] 4 All ER 627 at [13].
A good illustration of "dominant purpose" in the context of auditors is Pricewaterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583. Pricewaterhouse was auditor of Bank of Credit & Commerce International SA (BCCI). A committee of investigation was established by BCCI's controlling shareholders to investigate problem loans, on Pricewaterhouse's recommendation as auditor. Pricewaterhouse was a member of the committee. Under the terms of reference of the committee, Pricewaterhouse was required to report to BCCI's solicitors, Allen & Overy, to enable them to give legal advice to BCCI. Following the collapse of BCCI, the Serious Fraud Office and the Bank of England served notices requiring the production of documents by Pricewaterhouse. BCCI claimed privilege over documents brought into existence by Pricewaterhouse.
[13]
Waiver
A person who would otherwise be entitled to the benefit of legal advice privilege may waive that privilege; "It is inconsistency between the conduct of the client and maintenance of the confidentiality which effects a waiver of the privilege": Mann v Carnell at [28]. And further, at [29]:
What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
See likewise Expense Reduction Analysts Group Pty Limited v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46; (2013) 250 CLR 303 at [30].
Mere reference to the existence of a privileged communication will not suffice; waiver ordinarily only occurs where the contents of privileged communications are relied upon: Hastie Group Limited (in liq) v Moore (t/as Deloitte Touche Tohmatsu) [2016] NSWCA 305; (2016) 339 ALR 635 at [53] per Leeming JA. As Allsop J summarised the position in DSE (Holdings) at [61], privilege will be waived where a confidential communication has been laid open to necessary scrutiny and by so doing, that is, by expressly or impliedly making an assertion about the contents of the communication or laying the communication open to scrutiny, the inconsistency enunciated in Mann v Carnell is brought about. Further, "quite specific inconsistency is necessary to establish waiver. Even reference to legal advice, without more, will not suffice. The inconsistency must be reasonably manifest": Cantor v Audi at [99].
In order to determine whether there has been waiver of client legal privilege, the Court is bound to analyse the acts or omissions of the privilege holder that are said to be inconsistent with the maintenance of the privilege: Commissioner of Taxation v Rio Tinto Limited (2006) 151 FCR 341; [2006] FCAFC 86 at [45]. Osland v Secretary, Department of Justice (2008) 234 CLR 275; [2008] HCA 37 is a useful illustration. Ms Osland was convicted of murder and petitioned the Governor of Victoria for mercy. The Attorney-General for Victoria issued a press release stating that he had obtained a joint opinion from three Queen's Counsel recommending that the petition be denied. Ms Osland sought access to the joint advice and the Attorney-General claimed privilege. As to whether any privilege had been waived by the press release, Gleeson CJ, Gummow, Heydon and Kiefel JJ applied the principles as stated in Mann v Carnell, noting that whether a party's conduct was inconsistent with maintaining privilege "is to be made in the context and circumstances of the case, and in light of any considerations of fairness arising from that context or those circumstances": at [45].
[14]
Limited waiver
In Goldberg v Ng [1995] HCA 39; (1995) 185 CLR 83, Deane, Dawson and Gaudron JJ observed that waiver of privilege can be limited so that it applies only in relation to particular persons, materials or purposes: at 95-96. In Mann v Carnell, Gleeson CJ, Gaudron, Gummow and Callinan JJ reviewed Goldberg v Ng in terms which indicate that limited waiver is not a sub-set of waiver; rather, the same considerations of inconsistency and fairness apply which may have the result, in a particular situation, that waiver to one does not result in waiver to all. At [30]-[31]:
30 In Goldberg v Ng this Court considered a case in which there was disclosure of a privileged communication to a third party, for a limited and specific purpose, and upon terms that the third party would treat the information disclosed as confidential. The Court was divided upon whether, in the circumstances of the case, privilege was waived. However, the reasoning of all members of the Court was inconsistent with the proposition that any voluntary disclosure to a third party necessarily waives privilege. No application was made on the present appeal to re-open Goldberg or any of the earlier authorities on the subject. In Goldberg, reference was made [at 120] to the statement of Jordan CJ in Thomason v The Council of The Municipality of Campbelltown [(1939) 39 SR (NSW) 347 at 355]:
"The mere fact that a person on some one occasion chooses to impart to another or others advice which he has received from his solicitor indicates no intention on his part to waive his right to refuse on other occasions to disclose in evidence what that advice was, and supplies no sufficient reason for depriving him of a form of protection which the law has deemed it specially necessary to throw around communications between solicitor and client".
31 His Honour's reference to intention must be read subject to what has been said above.
Limited waiver is perhaps most often seen in a regulatory context, when a person is requested or obliged to disclose privileged material to a regulator but may nonetheless maintain privilege to prevent the material being used in a wider context: British Coal Corporation v Dennis Rye Ltd (No 2) [1988] 3 All ER 816; [1988] 1 WLR 1113 (privileged documents handed to police in criminal investigation); Parry-Jones v Law Society [1969] 1 Ch 1 (solicitor hands privileged documents to Law Society under statutory investigative powers). The Australian Securities and Investments Commission (ASIC) offers such an arrangement in Information Sheet 165, "Claims of legal professional privilege", and ASIC's "Voluntary confidential LPP disclosure agreement" published on . As Section 5 of Information Sheet 165 explains, the agreement provides that ASIC and the privilege holder agree that disclosure of information to ASIC is not a waiver of privilege, although notes that the agreement does not prevent third parties from asserting that privilege has been waived. Further:
ASIC believes there can be a public benefit in accepting privileged documents (or documents claimed to be privileged) on this basis, as it may assist in the effective and efficient conclusion of ASIC's investigation and determination of consequential steps (which might include no further regulatory action). It may also assist the parties to identify efficiently, and with precision, the critical issues to be addressed in an investigation. It will often be in the public interest for ASIC, in seeking to perform its regulatory functions, to have access to LPP material and it will often not be detrimental to the privilege holder for this to occur.
[15]
Limited waiver to auditors
Applying these principles, particularly the analysis demonstrated in Osland v Secretary, Department of Justice, one must consider the context in which a company discloses privileged information to its auditor. Whilst some companies may choose to have their accounts audited, other companies, particularly publicly listed companies, must have their accounts audited in accordance with Division 3 of Part 2M of the Corporations Act and obtain an auditor's report: section 301(1), Corporations Act. The auditor has a right of access at all reasonable times to the books of the company and to require any officer to give the auditor information, explanations or other assistance for the purposes of the audit, so long as the request is reasonable: section 310, Corporations Act. Likewise, where accounts and financial statements are prepared on a consolidated basis, then the auditor has a right of access to the books of any subsidiary: sections 323, 323A and 323B, Corporations Act. Failure to comply with sections 323 or 323B is a strict liability offence.
Based on the books of the company supplemented by further information, explanation and assistance sought from and provided by the company, the auditors must form an opinion as to whether the company's financial report is in accordance with the Corporations Act, complies with accounting standards and gives a true and fair view of the financial position and performance of the company or consolidated entity: section 307, Corporation Act. An auditor is obliged to report to the members of the company as to the opinion which the auditor has formed (section 308 of the Corporations Act) and, potentially, also to report to ASIC (section 311 of the Corporations Act). The auditor's report will accompany the financial statements of a publicly listed company and thus become publicly available.
In this context, the evident purpose of disclosing privileged information to an auditor is likely to be to discharge one's statutory obligations to provide information to the auditor and, more importantly, to give the auditor access to the material they need to form an opinion as to whether the company's financial report is in accordance with the Corporations Act and accounting standards and gives a true and fair view of the financial position of the company. Of course, if the legal advice disclosed to an auditor was procured for the purpose of persuading the auditor, or in order to advise the auditor, then a claim for privilege will fail. This is not because privilege has been waived but because the legal advice was not privileged in the first place; the legal advice was not obtained for the dominant purpose of giving legal advice to the company.
[16]
Onus and evidentiary requirements
The onus of establishing a claim for privilege is on the person claiming it, and is not achieved simply by resort to a verbal formula or ritual: Grant v Downs (1976) 11 ALR 577; (1976) 135 CLR 674 at 689; Mitsubishi Electric at [11]. Likewise, it is the challenger of the privilege who bears the onus of demonstrating waiver of privilege: Archer Capital 4A Pty Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc (No 2) (2013) 306 ALR 384; [2013] FCA 1098 at [100].
The evidence in support of a claim for privilege must be specific enough to show something of the deponent's analysis of the purpose for which the documents were created, and should refer to such contemporary material as is possible without disclosing the privileged material: Rawlinson v Akers [2014] at [13]. As Brereton J observed in Hancock v Rinehart at [7]:
To sustain a claim of privilege, the claimant must not merely assert it; but must prove the facts that establish that it is properly made. Thus a mere sworn assertion that the documents are privileged does not suffice, because it is an inadmissible assertion of law; the claimant must set out the facts from which the court can see that the assertion is rightly made [Gardner v Irvin (1878) LR 4 Ex D 49, 53], or in other words "expose … facts from which the [court] would have been able to make an informed decision as to whether the claim was supportable" [National Crime Authority v S (1991) 100 ALR 151, 159 (Lockhart J)]. The evidence must reveal the relevant characteristics of each document in respect of which privilege is claimed, and must do so by admissible direct evidence, not hearsay. …
The reference to "hearsay" in [7] may be understood as "inadmissible hearsay": Re Global Advanced Metals Pty Limited [2019] NSWSC 1545 at [16]-[17].
In Cantor v Audi, Bromwich J described the various ways in which a claim for privilege may be established. At [69]:
Proof of the various necessary characteristics of being in substance legal advice, confidentiality and dominant purpose can be achieved in a variety of ways, depending on the case at hand. In discharging the onus, "focused and specific evidence" is usually needed; where possible a court should be assisted by evidence of the thought processes behind, or the nature and purpose of the advice sought: Barnes at 605 [18]. However specific evidence is not always needed; nor is evidence of thought processes always required. The nature and extent of the evidence needed to prove the existence of privilege is very much fact and circumstance dependent, albeit with an inherent level of risk if that sort of evidence is not adduced. There is no fixed evidentiary path or process for discharging the onus, although mere verbal formulae and conclusions as to purpose will not suffice. As was pointed out in Cole (No 5) at 44 [44(1)] (referring to Grant v Downs at 689, Commissioner of Taxation (Cth) v Pratt Holdings Pty Ltd [2005] FCA 1247; (2005) 225 ALR 266 at 278 [30] and AWB Ltd v Cole [2006] FCA 571; (2006) 152 FCR 382 at 402 [63]):
… The onus might be discharged by evidence as to the circumstances and context in which the communications occurred or the documents were brought into existence, or by evidence as to the purposes of the person who made the communication, or authored the document, or procured its creation. It might also be discharged by reference to the nature of the documents, supported by arguments or submissions… .
[17]
CONCLUSION
There was a paucity of evidence adduced by New Hope in support of the claim for privilege. New Hope's affidavit evidence did have a formulaic quality. In respect of each of the documents, either Mr Busch or Ms Moody deposed that the portion of the document over which a claim for privilege was made disclosed the subject of legal advice; they are not aware that the legal advice disclosed by New Hope to Deloitte and summarised in the document was disclosed by New Hope to Deloitte on any basis and for any purpose other than solely for the purposes of the audit services Deloitte provided to New Hope under the terms of its retainer. Mr Busch has no recollection of the telephone conference with Deloitte and Baker McKenzie referred to at [29], but did recall retaining and providing instructions to Baker McKenzie, although didn't say what the purpose of retaining the firm was.
The evidence of Ms Moody and Mr Busch was relevant to limited waiver, but not to the existence of client legal privilege. Thus, determination of the claim for privilege largely turned upon what I could extract from the privileged documents themselves, and thus perhaps made the task of deciding questions of privilege more laborious. I do not doubt that the information and documents provided by New Hope to Deloitte were confidential. The information was commercially sensitive. Under the terms of its retainer, Deloitte agreed to maintain the confidentiality of the material, subject to complying with its statutory obligations as an auditor under the Corporations Act and auditing standards, and subject to compulsory legal process including orders for production issued by this Court. In respect of the Baker McKenzie advices supplied to Deloitte on 17 September 2018 (see [36]), it is clear that privilege and confidentiality were maintained in respect of those advices.
The audit engagement letters, when viewed against the context of the Corporations Act, audit standards and the evidence of New Hope's witnesses and Mr Hutson, indicate that Deloitte was retained by New Hope to audit consolidated financial statements, including to audit the accounts of Northern Energy and Colton Coal. This might involve obtaining further information from New Hope or its subsidiaries before forming an opinion as to whether New Hope's financial report gave a true and fair view of the financial position and performance of the consolidated entity. If, in the course of the audit, Deloitte became aware of a significant matter affecting the accounts of Northern Energy and Colton Coal but which was known only to New Hope, then Deloitte could expect New Hope to communicate this matter to its subsidiaries or, if not, Deloitte may not issue its report in respect of the accounts.
[18]
ORDERS
For these reasons, and noting that the liquidators have already been provided with redacted versions of the documents over which a claim for privilege is made, I make the following orders and directions:
1. No person be given access to Packet S-4 and Packet S-5 other than New Hope Corporation Limited and Deloitte Touche Tohmatsu.
2. Packet S-4 and Packet S-5 be returned to Deloitte Touche Tohmatsu, and that Packet S-4 and Packet S-5 may be uplifted by the solicitors for Deloitte Touche Tohmatsu and returned to Deloitte Touche Tohmatsu.
3. New Hope Corporation Limited to retain a copy of the documents in Packet S-4 and Packet S-5 for 12 months, after which those copies be returned by New Hope Corporation Limited to Deloitte Touche Tohmatsu (or its solicitors).
[19]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 August 2020
Deloitte's standard terms and conditions provided, "this Agreement sets out the terms on which we will provide the Services to you. Where the Letter is addressed to more than one Addressee, each Addressee is a party to, and is bound by, the terms of this Agreement. …": clause 1. As the audit engagement letters were addressed only to New Hope, it was thus submitted by New Hope that Deloitte's engagement was by that company alone.
The liquidators submitted that one must look to the scope of the retainer rather than the specific wording of the audit engagement letters, and the scope included auditing the accounts of Northern Energy and Colton Coal. The liquidators submitted that the likely explanation as to why there was only one audit engagement letter for the New Hope Group is that there is no requirement for a separate audit engagement letter when the auditor of the parent entity is also the auditor of a subsidiary. The liquidators relied on Para. A27 of the explanatory section to Australian Auditing Standard ASA 210 Agreeing the Terms of Audit Engagements, which provides:
Audits of Components
A27. When the auditor of a parent entity is also the auditor of a component,* the factors that may influence the decision whether to send a separate audit engagement letter to the component include the following:
• Who appoints the component auditor;
• Whether a separate auditor's report is to be issued on the component;
• Legal requirements in relation to audit appointments;
• Degree of ownership by parent; and
• Degree of independence of the component management from the parent entity.
* See ASA 600 Special Considerations - Audits of a Group Financial Report (Including the Work of Component Auditors).
Both New Hope and the liquidators called in aid Para. 48 of Australian Auditing Standard ASA 600 Special Considerations - Audits of a Group Financial Report, which provides: (emphasis that of the liquidators)
Communication with Group Management and Those Charged with Governance of the Group
Communication with Group Management
…
48. A component auditor may be required by statute, regulation or for another reason, to express an audit opinion on the financial report of a component. In that case, the group engagement team shall request group management to inform component management of any matter of which the group engagement team becomes aware that may be significant to the financial report of the component, but of which component management may be unaware. If group management refuses to communicate the matter to component management, the group engagement team shall discuss the matter with those charged with governance of the group. If the matter remains unresolved, the group engagement team, subject to legal and professional confidentiality considerations, shall consider whether to advise the component auditor not to issue the auditor's report on the financial report of the component until the matter is resolved. (Ref: Para. A65)
Para. 48 is densely packed with defined terms. Para. 9 of ASA 600 provides:
(a) Component means an entity or business activity for which group or component management prepares financial information that should be included in the group financial report. (Ref: Para. A2-A4)
(b) Component auditor means an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit. (Ref: Para. A7)
(c) Component management means management, or those charged with governance, responsible for the preparation of the financial information of a component.
…
(e) Group means all the components whose financial information is included in the group financial report. A group always has more than one component.
…
(i) Group engagement team means partners, including the group engagement partner, and staff who establish the overall group audit strategy, communicate with component auditors, perform work on the consolidation process, and evaluate the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial report.
…
(k) Group management means management, or those charged with governance, responsible for the preparation of the group financial report.
…
Light is shed on the matter by Para. A65 of the explanatory section to Australian Auditing Standard ASA 600, which explains: (emphasis that of New Hope)
Communication with Group Management and Those Charged with Governance of the Group
Communication with Group Management (Ref: Para. 46-48)
…
A65. Group management may need to keep certain material sensitive information confidential. Examples of matters that may be significant to the financial report of the component of which component management may be unaware include the following:
• Potential litigation.
• Plans for abandonment of material operating assets.
• Subsequent events.
• Significant legal agreements.
That is, if in the course of auditing consolidated accounts, the auditor becomes aware of a significant matter affecting a subsidiary which should be addressed in the audit report for the subsidiary's accounts - such as plans by the parent company to abandon a key asset - then the management of the parent company will need to liaise with management of the subsidiary in respect of sensitive matters about which the subsidiary may not be aware and, if the parent company refuses to inform the subsidiary of this matter, an auditor's report may not be issued in respect of the subsidiary or perhaps the consolidated entity.
Clause 6 of Deloitte's standard terms and conditions dealt with confidentiality and provided:
6. Confidentiality
6.1 Each of us agrees to protect and keep confidential any Confidential Information that is given to us by the other.
6.2 Except as set out in this Agreement, or where both of us agree otherwise in writing, we will only use or disclose your Confidential Information to provide the Services to you or other services you may request.
…
6.5 Subject to subclause 6.6, either of us may disclose any Confidential Information to the extent that it is required to be disclosed by Law, order of any court, tribunal, authority or regulatory body, rules of any stock exchange or any professional obligations or requirements.
6.6 A party disclosing any Confidential Information under subclause 6.5 must, where practical and to the extent permitted by Law, notify the other of the requirement to disclose and only disclose the minimum Confidential Information required to comply with the Law or requirement.
"Services" meant the services described in the audit engagement letter: clause 28. "Confidential Information" included "any information designated as confidential by either of us" but excluded any information "required to be disclosed as contemplated by subclause 6.5": clause 28.
New Hope submitted that the effect of clause 6 was that Deloitte agreed to protect and keep confidential any information that was proprietary to New Hope, acquired by Deloitte solely by reason of providing audit services to New Hope or specifically designated as confidential by either New Hope or Deloitte. The liquidators submitted that Deloitte's contractual obligation of confidentiality yielded to its statutory duties to independently review the consolidated financial statement of the New Hope Group and its subsidiaries. Further, clause 6.5 contained an exception where disclosure is required "by Law … or any professional obligations or requirements".
Further, the liquidators submitted that, as there were common directors on the boards of New Hope, Northern Energy and Colton Coal and each company had the same managing director, it could not be suggested that there was any confidentiality as between New Hope, on the one hand, and Northern Energy and Colton Coal on the other. Whilst I do not doubt the liquidators' senior counsel, there was no evidence before the Court in respect of common directors and managing directors. New Hope submitted that the Court should not lose sight of the fact that the three companies were separate corporate entities.
On 4 September 2018, Deloitte noted that the assessment of marketable reserves for the Colton Project impacted the Reserve Life Cover Ratio under clause 3 of the "Take or Pay Agreement". Where the Reserve Life Cover Ratio fell below 1.1:1 due to a reduction in the assessed marketable reserves, a mechanism in the "Take or Pay Agreement" was triggered under which accelerated payments of the Terminal Handling Charge may be required. On 5 September 2018, the chairman of the board and the chairman of the audit committee were briefed in respect of management concerns with regards to the JORC reserves position. On 7 September 2018, a full meeting of the board was convened and management were requested to prepare additional information for consideration by the board. On 11 September 2018, the board considered the potential accounting implications for the 2018 financial year and broader commercial issues associated with project viability as a result of increasing WICET costs. Also on 11 September 2018, Deloitte attended an audit committee meeting.
In September 2018, Baker McKenzie provided a memorandum containing legal advice in relation to various broad areas. Privilege has been claimed over a description of the memorandum in later Deloitte file notes. The dates on which the advice was given, and to whom, is not revealed on the evidence.
On 12 September 2018, three of the documents over which a claim for privilege has been made came into existence. First, the finance manager of New Hope sent a memorandum to Mr Busch entitled "New Hope Group, Colton Coal - accounting considerations 31 July 2018", which was produced by Deloitte. The facts set out in this judgment are largely drawn from this document. The memorandum provides details of the impairment considerations for the Colton exploration assets for the year ended 31 July 2018. The memorandum sets out the review of resources and reserves already described, the board's interactions on the subject, the key contracts, in particular the "Take or Pay Agreement" and its key terms, noting, "There are several complexities to the contractual terms of the WICET agreement (and other take or pay contracts)". The impairment assessment and consideration whether the "Take or Pay Agreement" is an onerous contract are then set out together with proposed accounting disclosures. A claim for privilege is made over portions of this memorandum to the extent that it refers to legal advice.
The second document are minutes of meeting prepared by Deloitte of a telephone conference held at 2.00 pm between a partner of Baker McKenzie, Mr Busch, another representative of New Hope and three representatives of Deloitte. A claim for privilege is made over the subject and contents of the minutes. The only part over which no claim is made is: (emphasis in original)
NOTE: Discussions and minutes below are subject to Common Interest Privilege. The information provided to us has been provided under common interest privilege.
We note that Baker McKenzie has been engaged by New Hope.
As to the nature of the common interest privilege claimed, New Hope's senior counsel submitted that it was intended to be as between Deloitte and New Hope. The fact that Deloitte made such a notation on its file note may suggest an understanding on Deloitte's part that Baker McKenzie was giving legal advice to Deloitte. During the telephone conference, Baker McKenzie spoke to, and expanded upon, the legal advice referred to in the New Hope memorandum.
Third, Deloitte produced a memorandum, "Colton reserves assessment and associated accounting implications", in which the firm considered whether to accept management's position to fully impair the Colton Project assets of $133 million and recognise a $14.9 million onerous contract provision in respect of the "Take or Pay Agreement". Although Deloitte's memorandum is dated 12 September 2018, it refers to events which occurred after that date and, thus, the memorandum was added to after 12 September 2018. Deloitte's memorandum incorporated the information contained in the New Hope memorandum together with the contents of the telephone conference with Baker McKenzie. Included in the memorandum is a corporate structure showing the relationship between New Hope, Northern Energy and Colton Coal, a description of the process which had been undertaken to review the Colton resources and reserves, and a review of the "Take or Pay Agreement" (privilege is claimed over part of this review) noting:
Management have assessed whether, as at 31 July 2018, there was any additional present legal obligation related to potential payments under take or pay contracts linked to Colton including in relation to the WICET [Take or Pay] contract (i.e. over and above the onerous contract provision assessed above). As part of making this assessment management have obtained legal advice from Baker McKenzie. Management have formed the view that as at 31 July 2018 no present obligation existed in relation to any potential accelerated Terminal Handling Charge costs which may arise as a result of a revised marketable reserves position being reported to WICET by Colton Coal Pty Ltd
…
The update of the JORC reserves position to nil for the Colton exploration project is expected to impact the [Reserve Life Cover ratio] as it could result in an accelerated terminal handling of approximately $130m becoming payable to WICET once they have informed New Hope of the re-calculated expiry date and [Terminal Handling Charge]. …
The memorandum included a timeline of events in relation to the reserves review and obligations under the "Take or Pay Agreement" from February 2018 to September 2018. Relevant accounting standards were then analysed (privilege is claimed over part of this analysis including applying the decision tree including in the accounting standard to the problem at hand), following which Deloitte concluded, "Based on the considerations above we are satisfied as at 31 July 2018 a present obligation for the accelerated WICET charges did not exist".
On 13 September 2018, Baker McKenzie sent an email to Mr Busch in respect of the subject "Auditor/WICET", over which a clam for privilege is made save for the concluding paragraph:
You may share this note with [New Hope]'s Auditors on the understanding with them that this advice is privileged and is only being provided to the Auditor confidentially and for the limited purpose of the auditors advising [New Hope] on the annual report.
Mr Busch forwarded the email to Deloitte. Essentially, Baker McKenzie provided written confirmation of what had been discussed in the telephone conference on 12 September 2018, at the request of the auditors.
On 13 September 2018, Deloitte prepared an addendum to the report to the audit committee for the 2018 year in respect of proposed accounting entries related to the Colton Project assets, the proposed recognition of a provision for onerous contracts and associated disclosures in the draft financial report. Subject to satisfactory completion of various items, Deloitte was satisfied the accounting positions adopted by management were appropriate in accordance with the relevant accounting standards. Privilege is claimed over part of this addendum entitled "Audit considerations and procedures", which essentially set out in more detail matters later summarised in Deloitte's audit letter set out at [38].
On 14 September 2018, Deloitte attended another audit committee meeting and - from this meeting and the earlier audit committee meeting on 11 September 2018, together with discussions with the chair of the audit committee - Deloitte understood that the New Hope board was considering withdrawing support from Northern Energy and Colton Coal as an option which best protected the interests of New Hope's shareholders, although no firm decision had been made.
On 17 September 2018, Ms Moody sent an email to Deloitte entitled "Access to New Hope Legal Advice re Colton" in response to a request for copies of "certain legal advice that has been received by the Company in relation to certain matters the subject of the audit". Ms Moody advised that the company, which I take to be New Hope (not defined in the email), was prepared to allow access to the advice on conditions of strict confidentiality. Deloitte would ensure that the advice was kept confidential at all times and would not make any further disclosure of, or reference to, the advice or the substance or gist of the advice without the Company's express written consent. If Deloitte was required to produce the advice to the Court, Deloitte was obliged to immediately notify the Company and take all reasonable steps to claim or maintain a claim for legal professional privilege over the advice. Deloitte consented to these conditions in a letter sent to Ms Moody at New Hope. Copies of the "certain legal advices" were not produced by Deloitte and thus presumably were returned after Deloitte had reviewed the material.
On 17 September 2018, a New Hope board meeting was held at which the accounting position adopted in relation to Colton Coal was discussed. On 17 September 2018, Deloitte prepared a file note in respect of sighting legal advice provided by Baker McKenzie and discussions at the New Hope board meeting that day. The purpose of the memorandum was to ensure nothing in the written legal advice was inconsistent with information provided by New Hope management and earlier provided by Baker McKenzie by phone and email. Privilege is claimed over the portion of the file note which describes the Baker McKenzie advice, being I assume the advice provided following the exchange of emails that day. The final document over which claim for privilege is made is a "Laws and Regulations Memo" outlining procedures performed by Deloitte in relation to the consideration of any litigation, claims and compliance with laws and regulations. Privilege is claimed over two portions of the memorandum, one of which appears unrelated to any matter affecting Northern Energy or Colton Coal. I have considered the claim for privilege in respect of documents concerning the 2018 audit at [83]-[84].
On 17 September 2018, the financial statements for the New Hope Corporation and controlled entities were signed by Deloitte. The financial statements referred to Northern Energy as a significant subsidiary and made reference to the Colton Project in various places. Deloitte expressed the opinion that the accounts gave a true and fair view of the group's financial position and performance and complied with Accounting Standards and the Corporations Regulations 2001 (Cth). Deloitte identified key audit matters that were of most significance in the audit. A key audit area included the full impairment of the Colton Project and recognition of a provision for onerous take or pay agreements of $15 million. As to how the scope of Deloitte's audit responded to this matter, the audit letter stated that Deloitte's audit procedures included:
Obtaining an understanding of the legal considerations relevant to management's assessment and calculation of the Group's lowest unavoidable costs associated with the take or pay contracts …
On 17 October 2018, administrators were appointed to Northern Energy and Colton Coal. On 15 March 2019, special purpose administrators were appointed to Northern Energy and Colton Coal to conduct investigations under section 438A of the Corporations Act. On 26 July 2019, Northern Energy and Colton Coal were placed into liquidation following a creditors' meeting. Mr Hutson and Mr Langdon were appointed as liquidators. On 6 May 2020, the liquidators filed an Originating Process seeking the issue of examination summonses and orders for production, including to Deloitte. On 19 July 2020, Deloitte produced documents to the Court and identified documents over which New Hope may have a claim for legal professional privilege. On 27 July 2020, I granted New Hope first access to these documents to identify any claims for privilege.
Further, the liquidators submitted that providing the Baker McKenzie advice to Deloitte for the purposes of an audit of entities which included Northern Energy and Colton Coal was conduct inconsistent with the maintenance of that privilege as against Northern Energy and Colton Coal. The advice from Baker McKenzie concerned "the contractual arrangements with [WICET]" and, amongst the New Hope group, only Northern Energy and Colton Coal had a contractual relationship concerning WICET. Once the advice from Baker McKenzie was provided to Deloitte, there was a waiver of privilege at least to the extent of Northern Energy and Colton Coal because the material was necessary for Deloitte to form a view on Northern Energy and Colton Coal's financial position. It was inevitable that the companies would be entitled to have received, from Deloitte, the communications recording the legal advice (which was, after all, about their assets and liabilities). There was, therefore, a waiver of privilege at least sufficient to permit access to the advice by the liquidators as the officers now in control of Northern Energy and Colton Coal.
Millett J held that the primary concern of the committee was to establish the amount of the possible losses resulting from problem loans in order to make proper provision for these loans in the accounts and to quantify the amount of further financial support required from the controlling shareholders. As the dominant purpose of the investigation was to establish the facts necessary to determine BCCI's financial position, documents brought into existence in the course of the investigation did not attract privilege merely because legal advice might be necessary in order to fully evaluate the financial implications of the facts, or because recovery proceedings may need to be taken in the future. Whilst aspects of Millett J's judgment which are not presently relevant were overturned or have been disapproved (R (Morgan Grenfell and Co Limited) v Special Commissioner of Income Tax [2003] 1 AC 563; [2002] UK HL 21 at [37]; DSE (Holdings) at [80]-[96]), the assessment of "dominant purpose" continues to be cited: Rawlinson and Hunter Trustees SA v Akers [2013] All ER (D) 357 (Jul); [2013] EWHC 2297 (QB) [54]-[55], upheld on appeal in Rawlinson & Hunter Trustees SA v Akers [2014] at [16]-[18].
An example closer to the facts at hand is 789Ten v Westpac, which the liquidators relied on and New Hope sought to distinguish. Westpac's auditors were PricewaterhouseCoopers. Westpac sent a letter to Henry Davis York solicitors requesting information in connection with the audit, including the solicitors' opinion as to the reasonableness of the directors' estimate of the financial settlement which may be reached in a substantial piece of litigation then on foot. Westpac assured the solicitors that the information provided would not be quoted or otherwise referred to in any financial report and would not be given to the government or any other person without their consent. Henry Davis York sent a letter to the auditors providing the opinion sought. Westpac claimed legal advice privilege over the letter.
Bergin J found, "The auditors apparently needed to know the detail of matters … for the purpose of auditing the provision the Bank had made for such contingencies. HDY was requested to provide its opinion as to the reasonableness of the directors' estimate. … The dominant purpose was to let the auditors know whether the figures could be utilised reasonably in the audit": [47]-[48]. The solicitors were authorised to provide information to the third party, the auditor, for the purpose of the audit: at [58]. Bergin J was not satisfied that the "dominant purpose" of the letter was providing legal advice. Rather, "The dominant purpose was to enable the auditor to use the information in the audit of the Bank's financial statements. It was not for the dominant purpose of providing legal advice to the client": at [73].
The Court of Appeal agreed in Westpac v 789Ten. It was not suggested that the bank's purpose was that Henry Davis York provide an opinion as to the directors' estimate so that the bank became aware of something of which it was otherwise ignorant or so that the opinion could be used in connection with the litigation itself. Per Tobias JA at [59]:
… the only need of the relevant service to be provided by HDY was that of PWC as the Bank's auditor. Accordingly, the letters would have been prepared irrespective of any intention, of which … there was no evidence … of the Bank to ascertain for its purposes the legal opinion of HDY as to the reasonableness or otherwise of the directors' estimates provided to PWC for the purpose of its audit of the Bank's annual accounts.
Thus, the letters were provided for the dominant purpose of the auditor, rather than the bank, being provided with legal services: at [60].
Thus, the conduct of the Attorney-General in issuing the press release was to be considered in context, including the nature of the matter in respect of which the advice was received, the evident purpose of the Attorney-General in making the disclosure that was made, and the legal and practical consequences of limited rather than complete disclosure: at [46]. At [48]-[49]:
48 The evident purpose of what was said in the press release was to satisfy the public that due process had been followed in the consideration of the petition, and that the decision was not based on political considerations. ... This did not involve inconsistency; and it involved no unfairness to the appellant. If she had a legal right to reasons for the decision, then she still has it. If she had no such right, the press release did not deprive her of anything to which she was entitled. …
49 Whether, in a given context, a limited disclosure of the existence, and the effect, of legal advice is inconsistent with maintaining confidentiality in the terms of advice will depend upon the circumstances of the case. As Tamberlin J said in Nine Films and Television Pty Ltd v Ninox Television Ltd [(2005) 65 IPR 442 at 447 [26]], questions of waiver are matters of fact and degree. …
An early example of limited waiver considered under section 122 of the Evidence Act is Telstra Corporation Ltd v Australis Media Holdings (No 2) (1997) 41 NSWLR 346, where McLelland CJ in Eq held that communications between the solicitors for Telstra, News Corporation and Foxtel negotiating an agreement did not result in the waiver of privilege. The communications were made by the solicitors as agents for their respective clients. In respect of each communication, both the person who made it and the person to whom it was made was under an obligation not to disclose its contents. Thus, it was a confidential communication "with the consequence that the disclosures in question would not deprive the documents of any client legal privilege they might otherwise have": at 352.
A recent example of limited waiver relied upon by New Hope is Cantor v Audi, which was determined applying common law principles. Five class actions were brought in the Federal Court against companies within the Volkswagen Group who imported and distributed diesel vehicles in Australia. The vehicles were said to have obtained regulatory approval in Germany from the authority for motor transport, Kraftfahrt-Bundesamt (KBA), by using software which affected the exhaust emissions of the cars during testing. The KBA began investigating the use of such software and required Volkswagen AG to provide a formal binding statement as to whether software had been installed, together with a binding action plan and schedule in respect of measures to be taken to ensure that the vehicles conformed with their regulatory approvals. Volkswagen AG obtained legal advice from Freshfields, which it provided to the KBA as part of its response. In the months which followed, the KBA issued four ordinances to Volkswagen AG which reproduced parts of the Freshfields' advice. The ordinances were not public documents.
Bromwich J was satisfied that the Freshfields' advice was a confidential legal advice rather than a document prepared with an eye to lobbying the regulator, and that Volkswagen AG had not commissioned the advice for the purpose of providing it to the regulator. Expert evidence on the German regulatory system indicated that communications between the regulators and manufacturers were intended to promote candid disclosure to the regulator by protecting the confidentiality of such communications: at [43]. Thus, the disclosure of Freshfields' advice to the regulator was made in a confidential setting. Bromwich J accepted Volkswagen AG's submission that there was a limited waiver of the Freshfields advice to the KBA only. The limited waiver was not eroded by the issue of four ordinances, as these were only issued to Volkswagen AG, being the holder of the privilege. Bromwich J concluded at [123]-[124]:
123 …The KBA, having received the Freshfields document in circumstances of confidence, which of itself is sufficient to preserve privilege over that document absent a relevant inconsistency and perhaps unfairness, was the beneficiary of a limited waiver by conduct for the purpose of performing its regulatory function. There is nothing to suggest, let alone establish, that the ordinances were communicated externally to the KBA beyond Volkswagen AG…
124 In context, the regulator, in issuing the ordinances in which parts of the Freshfields document were being commented upon, was acting in furtherance of its regulatory function in issuing administrative orders to the addressee of each ordinance. This was not a fresh or new communication in the relevance sense…
His Honour concluded that there was no relevant inconsistency between Volkswagen AG seeking to deal with the regulator in confidence as to what had occurred and any remedial action to be taken, and seeking to maintain confidentiality as against the rest of the world, including the applicants in the class actions where the same issues arose. Nor was there relevant unfairness beyond an overriding principle of fairness of the kind which Mann v Carnell held would not suffice.
New Hope also relied on Financial Reporting Council Limited v Sports Direct International Plc [2018] EWHC 2284 (Ch); [2019] 2 All ER 974 at [56], where Arnold J found that disclosure of legal advice by a company to its auditor for the purpose of the audit did not waive privilege, an aspect of the judgment not affected on appeal (Financial Reporting Council Limited v Sports Direct International Plc [2020] 2 WLR 1256; [2020] EWCA Civ 177). I do not think this case advances matters beyond the principles outlined. Arnold J's statement was brief and did not refer to authority.
The audit standards recognise that companies within a corporate group may have secrets from one another, including privileged information. The audit standards provide a framework for auditors to navigate the issues arising from inter-company secrets in order to complete an audit. An incentive is offered to the management of corporate groups to disclose confidential information relevant to the accounts of a subsidiary - the auditor may not otherwise sign-off the accounts of the subsidiary - but there is no ultimatum that secrets must be divulged. The audit standard recognises that issues of privilege will need to be considered and choices made, but does not seek to modify or abrogate client legal privilege.
Turning to the legal and practical consequences of limited rather than complete waiver, limited waiver by a company to its auditor promotes the candid disclosure of information which the auditor needs to do their job. Were it otherwise, a company would have to decide whether to waive privilege before giving its auditor access to the legal advice on which the company relied in making the decisions recorded in the accounts. If the company decides not to give its auditor access to legal advice so as not to waive privilege, then the auditor will have to form their opinion on the basis of incomplete information. The auditor may thereby reach an incorrect conclusion in respect of the accounts. An auditor may issue a qualified audit opinion in circumstances where, if access to the privileged advice had been given, the auditor would have been satisfied that the company's financial position was correctly reported. This would undermine the purpose which audits seek to achieve, which is to certify that the financial statements reflect what is actually going on inside the company. Thus, whilst each case will turn upon its facts, disclosure of confidential legal advice to a company's auditor where conditions of confidentiality and privilege are maintained will not result in waiver of the confidential legal advice beyond the auditor.
The documents do not indicate that Deloitte activated the procedures described in Para. 48 of ASA 600. The impression gleaned from the documents is that information was readily provided by New Hope for use in connection with the audit of the parent and subsidiaries. But that does not detract from the fact that Deloitte was retained by New Hope to audit its accounts and the accounts of its subsidiaries, nor does it detract from the fact that confidential privileged information was provided to Deloitte and not, on the evidence, to its subsidiaries.
The claims for privilege can conveniently be dealt with by audit year. In respect of the 2017 audit document referred to at [21], Ms Moody gives evidence in support of the claim for privilege although, as the file note was prepared before Ms Moody joined New Hope, her evidence does not greatly assist. However, the portion of the document over which the claim for privilege is made appears, on its face, to disclose the subject of legal advice. It is unclear, from Deloitte's file note, who provided the legal advice - whether in-house counsel or external lawyers - or whether the legal advice was obtained by New Hope, its subsidiaries or the New Hope Group. Either way, the legal advice was disclosed to Deloitte for the purposes of the 2017 audit commissioned by New Hope and in confidential circumstances.
As to whether New Hope is entitled to maintain privilege vis a vis Northern Energy and Colton Coal, where one company in a corporate group discloses privileged material to a group auditor then, so long as privilege and confidentiality are maintained when disclosing the communication to the auditor, the company does not thereby waive privilege vis a vis other companies in the corporate group. Nor is there evidence that, by any reference to that legal advice in Deloitte's audit letter or otherwise, it might be considered that New Hope waived privilege at large.
In respect of the 2018 audit, and drawing on the documentary evidence, it appears that by mid-August 2018, it had become apparent that the reserves of the Colton Project had been substantially reduced, which had implications for New Hope and its subsidiaries, Northern Energy and Colton Coal. Difficult decisions needed to be made. There were ramifications for the accounts of the New Hope Group, which were in the process of being audited. Thus, it was a matter that would need to be considered by the board and the auditors.
The retainer of Baker McKenzie on 17 August 2018 was broadly worded; it appears the firm was retained to assist New Hope generally in respect of this issue. I do not think, however, that Baker McKenzie was retained for the purpose of giving legal advice to Deloitte, or to persuade Deloitte of a particular accounting treatment, although it may well have been envisaged that, in the course of performing its retainer, Baker McKenzie would be dealing with Deloitte in respect of the issue. In this respect, I have had regard to the fact that some three weeks passed between when Baker McKenzie was retained and when Deloitte appears to have turned its mind to this issue in the course of the audit: at [27]. One thing is clear, however, Baker McKenzie was retained by New Hope and not by Northern Energy or Colton Coal.
The communications recorded in the redacted portion of the documents dated 12, 13 and 17 September 2018 record confidential legal advice given by Baker McKenzie to New Hope, albeit that the legal advice was later relayed to Deloitte. I am satisfied that the dominant purpose of obtaining advice from Baker McKenzie was to advise New Hope, rather than to provide Baker McKenzie's advice to Deloitte for use in the audit. Unlike Westpac v 789Ten, where the solicitors prepared an advice for provision to the auditor, Baker McKenzie's advice had already been given to New Hope and was then disclosed to Deloitte as part of satisfying the auditor that management's accounting treatment was in fact reflective of the advice which New Hope said it was acting upon.
Accepting, as New Hope does, that it waived privilege in Baker McKenzie's advice to Deloitte, was the waiver limited to disclosure to Deloitte for the purpose of the audit, or did the waiver extend to New Hope's subsidiaries or more widely? Again, in circumstances where New Hope retained Deloitte, where New Hope disclosed confidential and privileged legal advice to Deloitte in circumstances where privilege and confidentiality were maintained, and where the communications were disclosed for the purpose of the audit, albeit that the audit including auditing the accounts of New Hope's subsidiaries, New Hope did not, without more, waive privilege in the legal advice to its subsidiaries.
The final question is whether, by the audit letter of 17 September 2018, the substance or contents of Baker McKenzie's advice are relied upon or "laid open to necessary scrutiny" such that there is an inconsistency between New Hope's conduct and maintenance of confidentiality in the advice resulting in unfairness in the circumstances. I think it is relevant that the letter is written by Deloitte, an independent auditor, rather than by New Hope. The audit letter states that Deloitte "obtain[ed] an understanding of the legal considerations relevant to management's assessment and calculation of the Group's lowest unavoidable costs associated with the take or pay contracts …" Deloitte does not disclose what the legal considerations were, what legal conclusions were reached, or whether legal advice was obtained in-house or externally. All that is conveyed is that Deloitte had satisfied itself that the relevant legal considerations had been considered by management when deciding how the transaction should be recorded in the accounts, and saw no reason to depart from the reported position. In short, Deloitte has disclosed what it did and thought in respect this matter, not what Baker McKenzie did and thought, and privilege in Baker McKenzie's advice was not thereby waived.
Thus I am prepared to make the access orders sought by New Hope. I note that New Hope also seeks costs of its motion. While the Court's powers under section 98 of the Civil Procedure Act 2005 (NSW) to make costs orders extend to ordering a party to pay the costs of a non-party, I am hesitant to do so, and indeed reluctant in circumstances where the paucity of evidence filed by New Hope in support of the claim had the consequence that it was not unreasonable for the liquidators to dispute the claims for privilege. The costs should fall where they lie.