ASIC v Rich

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: These reasons for judgment relate to some rulings that I made on 17 November 2004 to disallow questions put by senior counsel for the defendants to Mr Carter during cross-examination. Notwithstanding the observations of the Court of Appeal in Kwan v Kang [2003] NSWCA 336 at [113] - [114], to the effect that the court has no general obligation to give reasons for evidentiary rulings, I think it appropriate to do so on this occasion, where the defendants have requested reasons, and the issues have been fully argued with citation of authorities and (in the case of the defendants) written submissions. 2 Mr Carter, a partner with PricewaterhouseCoopers ("PwC"), is a forensic accountant. ASIC wishes to read his affidavits and tender his report as expert evidence, and also tender the exhibits to the report and its tender bundle of documents. Mr Carter is giving oral evidence on the voir dire as to the admissibility of this documentary evidence. 3 ASIC has allowed PwC to produce to the defendants, without any claim for privilege, a copy of Mr Carter's typed file note dated 24 October 2001 of a meeting that he attended on that day. His file note records that the following persons were also present at the meeting: · Ms Redfern, a lawyer who was Deputy Executive Director of Enforcement of ASIC, and was also the solicitor on the record in this proceeding, performing some functions of the New South Wales First General Counsel during a transitional phase; · Mr Connor and Ms Croft, officers of ASIC; · Ms Rees, a solicitor who is a consultant to ASIC and has the carriage of the present proceeding; and · Mr Pembroke SC. 4 The file note records matters discussed at the meeting, and other matters that were not discussed at the meeting. The matters discussed at the meeting are listed in four paragraphs, numbered A, B, C and D. Paragraph A identifies some key issues or questions arising from the discussion, relating to whether the board was receiving inadequate information, whether there were inadequacies in respect of certain specific matters, and "who knew what when?". Attention has been concentrated, in submissions, on paragraphs B and C, which I shall set out in full. Paragraph D sets out "issues for PwC to consider". 5 Paragraphs B and C are as follows: "B. There are two schools of thought in relation to the approach/scope of work: 1. The 'Knowledge Approach' (the approach preferred by Jan Redfern) - provide a narrow case which is certain a. who knew what and lied about it or put another way 'who, when, what, when why' 2. The 'Systems Approach' (the approach preferred by Paul Carter, Michael Pembroke & Joanne Rees) a. Did the board received accurate and complete information? b. Were the board reports sufficiently detailed? c. Were the systems reliable? C. ASIC is pursuing charges under s 1317 of the Corporations Law ('Civil Penalties') If directors are guilty of breaching s 1317 then ASIC has the power to ban individuals from being directors" 6 The defendants rely on the contents of the file note, and in particular on paragraphs B and C, as constituting disclosure waiver in respect of anything said at the meeting that would otherwise be protected by legal advice privilege. They also rely, in support of their waiver argument, upon some notes of the meeting by Ms Croft and Mr Connor, produced by ASIC without claim to privilege. 7 The relevant part of Ms Croft's note is as follows: "Pembroke 24/10/01 1) Adequacy of Reporting Systems 2) Forecasts to 75m cash flow positive - ever supportable - cease to the supportable 3) Knowledge of individual directors - should have known - duty of care oblig - continuous disclosure" 8 The relevant part of Mr Connor's note is harder to read. It appears to be a record of the meeting, noting attendances, with three numbered headings about inadequacies of information provided to the board, whether the 75m cash forecast was supportable, and what the board members knew. Above each of the three numbers are the initials "MP", which indicate, in my opinion, that the three points were addressed by Mr Pembroke. Some comments by Mr Carter about the second and third matters are noted. A point is noted about the "75m" for the group possibly being misleading, and some specific information deficiencies to the board are noted (consolidated balance sheets and business plans). The note appears to record some tasks to be performed. 9 Senior counsel for the defendants commenced to cross-examine Mr Carter about his file note of the meeting of 24 October 2001, on 16 November 2004 (Transcript pages 2486-2489). Mr Carter agreed with the proposition that in writing his file note he had intended to set out in full, as best he could, the substance and effect of the discussions at the meeting. He said he did not recollect making any attempt to exclude discussions in which legal advisers had participated at the meeting. 10 Then he was asked this question: "Q. There was discussion at the meeting as to the shape which any civil penalty proceedings might take, wasn't there?" 11 Senior counsel for ASIC objected to the question, on the ground that the form of the question was liable to elicit privileged material. Senior counsel for the defendants responded by contending that, to the extent that there had been any confidential communications, the substance of them had been disclosed by the file note and its production without any claim for privilege. But he did not ask me to rule at that time, saying that he wanted to check something overnight. 12 On the morning of 17 November he returned to the matter in the absence of the witness, providing me with written submissions (which I have numbered DS 34) and drawing my attention to the handwritten notes of the meeting by Ms Croft and Mr Connor (the issue is addressed at Transcript pages 2496-2502). He submitted that the production of the three sets of notes of the meeting, and in particular Mr Carter's notes, amounted to a voluntary disclosure by ASIC of the "gist or conclusion" of any legal advice, to the extent that legal advice may have been given at the meeting. The quoted words are taken from the judgment of Gyles J in Bennett v Chief Executive Officer, Australian Customs Service (2004) 210 ALR 220 at 237 [65]. Counsel also drew attention to the well-known decision of Rolfe J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12, to the same effect. Counsel submitted that the gist or conclusion of the communications at the meeting was disclosed in paragraphs A to D of Mr Carter's file note, and he drew attention to Mr Carter's evidence that the file note was intended to set out the whole of the relevant parts of the meeting without any attempt to exclude matters of a legal nature. 13 Senior counsel for ASIC submitted that the disclosure of the notes of the meeting did not mean that everything said at the meeting had been disclosed in such a way as to waive privilege over any legal advice given at the meeting. He contended that none of the three sets of notes indicated, on their face, that they were recording legal advice. He said the question that had been put to the witness invited him to give evidence of legal advice that may have been given at the meeting, and should be reformulated so as to exclude the possibility of such a response. 14 I have addressed the legal principles governing waiver of legal advice privilege in several interlocutory judgments in this case, for example, ASIC v Rich [2004] NSWSC 923 (7 October 2004). It is unnecessary to restate the principles now, except to note that the gist or substance of legal advice is disclosed and waiver occurs if the ultimate legal conclusion is revealed, even without the supporting reasoning process:, Bennett at 237 [62] per Giles J; Ampolex at 19 per Rolfe J. The issue in the present case is not about the content of the legal principles, but their application. In my 7 October 2004 judgment I decided that there had been no waiver of privilege by ASIC's disclosure of notes of a meeting of the National Enforcement Coordination Committee on 21 November 2001, because the notes had disclosed decision-making and administrative matters not protected by privilege, rather than the communication of legal advice. That distinction needs to be borne in mind here. 15 The onus of establishing a privileged communication and the absence of waiver is borne by ASIC: Mitsubishi Electric Australia Pty Ltd v Victorian WorkCover Authority (2002) 4 VR 332, 337 per Batt JA. It appears to me, given the presence of Mr Pembroke and other lawyers at the meeting, and the general subject matter of the discussion as disclosed in the file notes, that there was at least a substantial prospect that legal advice may have been given during the course of the meeting. If so, the communication of that advice by one or more lawyers to ASIC officers would have been a confidential communication to which legal advice privilege would attach, subject to any question of waiver. The question is whether the file notes amount to waiver of any such privilege. If they do not, then I agree with senior counsel for ASIC that broadly-framed questions should not be allowed to the extent that they invite the witness to disclose privileged communications. 16 I ruled that the question under objection should be allowed, having regard to paragraph B of Mr Carter's file note. As I explained at the time, I made this ruling on the basis that the question did not invite the witness to give an answer which would disclose confidential legal advice, and therefore the issue of waiver had not at that stage arisen. I predicted that the issue of waiver would, however, arise fairly soon. 17 Senior counsel for the defendants returned to the meeting of 24 October 2001 during his cross-examination of Mr Carter on the afternoon of 17 November (Transcript pages 2544-2556). He asked several questions to which objection was taken. I adopted the procedure, with the consent of the parties, that I would make immediate rulings without at that stage giving reasons. When I made rulings adverse to the defendants, senior counsel for the defendants requested reasons for those rulings and I reserved those reasons so as to make optimum use of hearing time. At the conclusion of the day's hearing I alerted counsel to the possibility that, by virtue of some evidence that I heard after I made the relevant rulings, I might regard it as appropriate to revisit one or more of the rulings, and I would regard myself as in a position to do so. I gave counsel the opportunity to make any additional submissions in light of that statement but they chose not to do so. 18 After establishing that Ms Redfern and Ms Rees, had expressed views about the "systems approach" referred to in paragraph B of the file note and that there was a discussion about a narrower case based on the knowledge of various directors, senior counsel for the defendants asked (Transcript page 2547): "Q. Ms Redfern was expressing the view that she wanted to run a narrower case that was more certain in her mind --" 19 The question was objected to and I rejected it. I said that although Ms Redfern at that time occupied dual legal and administrative roles, the question related to her position as a legal officer and was likely to produce an answer that would violate ASIC's privilege. I expressed the view that the matters relied on by the defendants as constituting waiver did not amount to waiver of that privilege. 20 In making that ruling I had in mind the wording of paragraph B of the file note, which speaks of "two schools of thought in relation to the approach/scope of work". The words "approach/scope of work" do not necessarily designate a subject of legal advice, suggesting instead a work program for the gathering of information. The "knowledge approach" would involve a more narrowly based work program than the "systems approach". 21 Having had the opportunity to study the transcript overnight, I have reached the conclusion that my construction of paragraph B in this fashion is inconsistent with Mr Carter's oral evidence. He agreed with the proposition (Transcript pages 2546 and 2549-2550) that the subject of discussion was the way in which a negligence claim against some of the directors could be bought in a civil penalty proceeding, and he said that there were two approaches to that matter. In other words, the two approaches recorded in paragraph B did not relate to a work program for investigation, arguably not a matter for legal advice, but to the content and nature of claims in a legal proceeding, very much a legal question. He agreed (Transcript pages 2548-9) that it was likely that Ms Redfern and Ms Rees said things at the meeting to cause him to say in the file note that Ms Redfern preferred the knowledge approach and Ms Rees preferred the systems approach. Later (Transcript page 2553) he agreed that Mr Pembroke's contribution to the discussion was legal advice and that he had recorded in the file note that Mr Pembroke agreed with the systems approach. 22 Construed in accordance with Mr Carter's oral evidence, paragraph B does amount to disclosure of the gist or conclusion of legal advice, that is to say advice that a case in negligence might be brought against some directors in a civil penalty proceeding by adopting the knowledge approach or the systems approach, and that one lawyer (Ms Redfern) preferred the first approach while the other two (Mr Pembroke and Ms Rees preferred the second approach, as a matter of legal advice. The fact that two alternative views were presented with a difference of opinion amongst the lawyers does not count against that conclusion. It follows that, having regard to my review of Mr Carter's evidence, I should now reverse my ruling on that question and allow it. 23 Senior counsel for the defendants asked another question to which objection was taken (Transcript page 2550), as follows: "Q. There was no suggestion at the meeting that ASIC were going to be proceeding with criminal actions against the directors, was there?" 24 I disallowed the question, expressed in that general form. Then senior counsel for the defendants asked (Transcript page 2551): "Q. There was no discussion at the meeting as to criminal actions against the directors, or any of them, was there?" 25 Objection was taken and I ruled that this question had the same vice as the previous one. In the absence of the witness, I explain that my problem with the two questions was that they were cast in such a general form as to tend to invite the witness to give evidence of privileged advice (if any) given by lawyers at the meeting. I said I agreed with the submission of senior counsel for ASIC, made earlier in the day, that the problem could be overcome if the question were cast in such form as to exclude from its scope evidence of privileged legal advice. 26 Having reviewed the evidence, I have decided that my ruling on these two questions was correct. The file note, read in light of Mr Carter's oral evidence, discloses the gist or conclusion of legal advice concerning the approach to be taken in a civil penalty proceeding alleging negligence against some directors. It does not purport to address criminal proceedings. The same is true of the handwritten notes made by Ms Croft and Mr Connor. Although the two questions under objection are expressed in general terms with respect to the discussion at the meeting, and do not specifically ask the witness to give evidence of legal advice given at the meeting, in substance they invite such evidence to be given, bearing in mind the presence of three lawyers at the meeting. 27 The questions would have been allowed if they had been framed so as to exclude any invitation to give evidence of privileged communications with respect to criminal proceedings. It would be permissible, for example, to ask whether there was in fact any discussion about possible criminal proceedings against the directors or any of them, provided that the cross-examiner made it clear that the question was confined to establishing the fact of the discussion rather than any content comprising legal advice. **********

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