ASIC v Rich

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN DAVID RICH & ORS JUDGMENT 1 HIS HONOUR: Cassandra Reynolds is a partner in PricewaterhouseCoopers. She was formerly a senior manager in the firm, assisting Paul Carter to prepare several expert reports on which ASIC wishes to rely in this case, and providing assistance to ASIC on forensic accounting issues. Senior counsel for the defendants has explored, during his cross-examination of Ms Reynolds, the role played by PwC in ASIC's decision to commence the present proceeding. The decision was taken by ASIC's National Enforcement Co-ordination Committee ("NECC"), at a meeting held on 3 December 2001, after deliberation at an earlier meeting held on 21 November 2001. On 21 November 2001 the NECC received a report from Mr Carter with respect to the financial collapse of the One.Tel group and the roles of its directors in the group's failure. Mr Carter made a supplementary presentation to the NECC entitled "Analysis of Damages" at the 3 December meeting. The meetings also considered legal advice, including (on 21 November) a preliminary opinion by Michael Pembroke SC. 2 On 29 and 30 September 2004, during the course of her cross-examination, Ms Reynolds gave evidence that she was involved in a meeting at which there was consideration as to whether two individuals should be joined as parties to legal proceedings. She said she thought this occurred at the NECC meeting on 21 November 2001. She agreed that she and Mr Carter were present at the meeting, and that a report by Mr Carter was presented to ASIC at the meeting. Senior counsel for the defendants then asked her whether there was any discussion at the meeting as to which people ought to be sued by ASIC. Given that Ms Reynolds had already agreed that there had been consideration as to whether two individuals should be joined as parties, the new question appeared to me to be directed to adducing evidence of the content of the discussion of the question who should be sued, rather than the simple fact that the discussion occurred. 3 Senior counsel for ASIC objected to the question on the grounds of client legal privilege and relevance. Senior counsel for the defendants responded by providing to the court a written submission contending that privilege had been waived, and that the question of what transpired at the NECC meetings was relevant to the state of mind of Mr Carter, on the basis that Mr Carter's approach to his evidence was at least potentially influenced by what occurred at the NECC meetings. 4 With the consent of the parties, I directed ASIC to provide a written submission to support its objection, and allowed the cross-examination to proceed on other subjects. On 5 October, the next hearing day, after considering the written submissions of the parties (including a submission in reply made by the defendants on the morning of 5 October), I announced my decision to reject the question on the ground of privilege, for reasons to come. These are my reasons. 5 I agree with the defendants' submission concerning relevance, which is an adequate statement not needing elaboration. However, I agree with ASIC's objection on the ground of privilege. 6 The question to the witness seeks to adduce evidence about the content of a discussion concerning the legal question of identifying the appropriate defendants to the present proceeding, which was initiated after the discussion had taken place. The discussion occurred at a meeting (the meeting of 21 November) attended by Mr Pembroke SC, Ms Redfern (ASIC's legal counsel) and another ASIC lawyer, Ms Rees, as well as by commissioners of ASIC, ASIC officers, Mr Carter and Ms Reynolds. Clearly the discussion of joinder of parties was, or involved, a confidential communication made between one or more lawyers for ASIC and officers of ASIC, for the dominant purpose of the lawyer or lawyers providing legal advice to the client, and therefore would be protected under s 118 of the Evidence Act 1995 (NSW), unless s 118 were inapplicable for some reason. The defendants did not contend otherwise. Instead, they said that ASIC had produced, without any claim for privilege, various documents which disclosed what had been communicated at the meeting of 21 November, and had therefore waived client legal privilege. 7 The documents produced by ASIC reveal, in various ways, the fact that legal advice was given to it before the NECC made its decision on 3 December to commence the present proceeding. But disclosure of the fact that legal advice has been given, without disclosing its content, does not give rise to any waiver of client legal privilege: see, for example, NRMA Ltd v Morgan (No 2) [1999] NSWSC 694, at [9]. 8 In their written submissions, the defendants referred to the common law principle relating to implied or imputed waiver, as stated by Gleeson CJ, Gaudron, Gummow and Callinan JJ in Mann v Carnell (1999) 201 CLR 1, at [29]: "Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect. When an affirmative answer is given to such a question, it is sometimes said that waiver is 'imputed by operation of law'. This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege … 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 confidentiality …". 9 A distinction is sometimes drawn between "disclosure" waiver and "issue" waiver, although they may be simply different examples of the application of the principle stated in Mann v Carnell. In the case of "disclosure" waiver, a party behaves inconsistently with the maintenance of privilege by disclosing part, but not all, of a privileged communication. In the case of "issue" waiver, a party behaves inconsistently with the maintenance of the privilege by putting in issue the state of mind of a person in circumstances where that state of mind is likely to have been influenced by a privileged communication. 10 Here the question of waiver arises at the final hearing, and is governed by s 122 of the Evidence Act 1995 (NSW). There is a question whether the statutory provisions leave room for the common law approach to be applied, especially to the extent that the common law invokes a principle of fairness not expressly articulated in s 122. The defendants submit that the principles in Mann v Carnell apply under s 122(1), which permits the adducing of evidence given with the "consent" of the client, which (they say) extends to implied and imputed consent. The issue is complicated, partly because some of the cases which address the relevance of the common law approach to the interpretation and application s 122(1) were decided before the High Court resolved the "derivative modification" dispute about the extension of the statutory principles to the common law of legal professional privilege, in Esso Australia Resources Ltd v Commission of Taxation (1999) 201 CLR 49. 11 Telstra Corporation Ltd v BT Australasia Pty Ltd (1998) 85 FCR 152 was a case about "issue" waiver, decided before the Esso case, at a time when the "derivative modification" theory had some currency. In the Full Federal Court, Branson and Lehane JJ (Beaumont J dissenting) held (at 167, 168) that s 122(1) extended to a case of imputed waiver, arising by virtue of the client putting in issue its own state of mind. That decision was followed by another Full Federal Court (Ryan, Carr and Marshall JJ) in Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [1999] FCA 925 (a case that was decided after the decision of the Full Federal Court in Esso, but before the High Court's decision). 12 In those two cases the courts stated the law concerning implied or imputed waiver partly by reference to whether "fairness" required that access be given to the privileged material. In Fort Dodge Australia Pty Ltd v Nature Vet Pty Ltd [2002] FCA 501, a case decided after the High Court's decisions in Esso and Mann v Carnell, Hely J expressed the opinion (at [10]) that there was little difference between the issue at common law and under s 122(1), because in each case, "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". In this court, Bergin J in Garrat's Ltd v Thanga Thangathurai [2002] NSWSC 39 at [51], and McDougall J in Singapore Airlines v Sydney Airports Corporation [2004] NSWSC 380 at [55], have expressed the view that the balance of authority favours the proposition that "consent" for the purposes of s 122(1) extends to the implied or imputed consent by waiver considered in Telstra. I am content to adopt those observations, and the observations of Hely J, although it is strictly not necessary for me to take a final view in this case, since I have concluded that there has been no waiver on the facts. 13 Here, the defendants rely on "disclosure" waiver. They say that ASIC has disclosed part of the communication that occurred at the meeting on 21 November 2001, thereby waiving part of a protected communication, in circumstances where fairness dictates that the waiver of that part should result in waiver of the rest of the communication. They rely on Attorney-General for the Northern Territory v Maurice (1986) 161 CLR 475 at 488, where Mason and Brennan JJ said: "The holder of the privilege should not be able to abuse it by using it to create an inaccurate perception of the protected communication. Professor Wigmore explains: '[W]hen his conduct touches upon a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder' (Wigmore, Evidence in Trials at Common Law (1961), vol 8, para 2327, p 636). In order to ensure that the opposing litigant is not misled by an inaccurate perception of the disclosed communication, fairness will usually require that waiver as to one part of a protected communication should result in waiver as to the rest of the communication on that subject-matter." 14 I accept the defendants' submission that the principle about waiver through partial disclosure of a privileged communication applies not only where the disclosure takes place during the evidence at the final hearing, but also where it occurs in response to a notice to produce. Section 122(1) talks about evidence "given with the consent of the client", and does not in terms preclude the consent (that is, the waiver) from being given at an earlier time. A generally different view was taken, in England, in General Accident Fire and Life Assurance Corporation Ltd v Tanter [1984] 1 WLR 100, but (although it was followed by the Supreme Court of the Northern Territory in Prus Grybowski v Everingham (1986) 44 NTR 7) Tanter has been criticised, distinguished or not followed in other cases: see esp Sevic v Roarty (1998) 44 NSWLR 287 at 297-8 per Sheller JA, cf at 303ff per Powell JA; Re Konigsberg [1989] 1 WLR 1257 at 1264-5. 15 The defendants also rely on s 122(4) of the Evidence Act, which has the effect that privilege is waived in legal advice the substance which has been disclosed with the express or implied consent of the client. That subsection was considered and applied by Rolfe J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12. His Honour held that the statement that "Ampolex maintains that the correct ratio is 1:1 and has legal advice supporting this position" amounted to disclosure of the "substance" of the legal advice for the purposes of s 122(4). He observed (at 19): "In my opinion the substance of the advice may well be disclosed if the ultimate conclusion, without the supporting reasoning process, is revealed." 16 Finally, the defendants invoke s 126 of the Evidence Act, which provides that, once an otherwise privileged communication or document has been disclosed, privilege does not prevent the adducing in evidence of "another communication or document if it is reasonably necessary to enable a proper understanding of" the communication or document that has been disclosed. 17 ASIC does not contest these legal propositions, but it contends that they have that no application in the present case. It submits that there has been no partial disclosure of a protected communication, for the purposes of s 122(1) and the principle stated in the Maurice's case, and no disclosure of the substance of legal advice that it received on 21 November or 3 December for the purposes of s 122(4). It says that s 126 has no application because no privileged communication or document has been relevantly disclosed. In ASIC's submission, it has disclosed, appropriately, matters going to the making of the NECC's decision to commence the present proceeding, but it has not disclosed, in any respect, matters relating to the content of the legal advice that it received before the decision was taken. 18 The defendants rely on ASIC's production, without any claim to privilege, of three documents concerning the meeting of 21 November, and three documents concerning the meeting of 3 December, as constituting waiver of client legal privilege. I shall consider each of the six documents in turn.

(1) Mr Connor's notes of the meeting of 21 November 19 Mr Connor, an officer of ASIC, made a brief note of the NECC meeting of 21 November, recording the names of the persons participating. He recorded three items: an introduction by Ms Redfern (ASIC's legal counsel), an item called "Brief Paul Carter with presentation", and an item called "Preliminary Advice Pembroke". 20 Mr Connor's notes indicate that the meeting heard Mr Carter's presentation, and that the meeting also heard preliminary legal advice from Mr Pembroke. There is nothing in the note to indicate any waiver of privilege in respect of that advice. 21 Importantly for present purposes, Mr Connor's notes, when read together with document (6) below, indicate that there were several matters before the NECC meetings of 21 November and 3 December. The meetings reviewed the One.Tel civil investigation and eventually, at the second meeting, the NECC decided to commence the present proceeding. Before reaching its decision, it received forensic accounting reports from Mr Carter and legal advice from Mr Pembroke. I infer that part of the proceedings at the meeting of 21 November involved the communication of legal advice by lawyer to client in privileged circumstances, and part of it involved decision-making and administrative matters which were not protected by client legal privilege (and ASIC has not claimed privilege for these matters). 22 It follows that, by disclosing material going to ASIC's decision-making and administration, ASIC has not engaged in conduct which is inconsistent with the maintenance of the confidentiality of material going to the communication of legal advice given to assist it to make its decision, such as to give rise to imputed waiver under the Mann v Carnell principle and consent for the purposes of s 122(1). For the same reasons, this is not a case of the waiver of part of a protected communication, in circumstances where fairness dictates that the waiver of part should result in waiver of the rest, so as to lead to a finding of consent for the purposes of s 122(1). There is no principle of implied and imputed consent, or any other principle of fairness, that would require disclosure of the privileged communication of legal advice to ASIC simply by virtue of disclosure of non-privileged material relating to ASIC's general discussion and subsequent decision. Nor can be said, for the purposes of s 126, that it is reasonably necessary to require that evidence be given about the privileged communications at the meetings in order to permit a proper understanding of the notes and documents that have been produced. What remains for consideration is whether, by producing the documents it has produced, ASIC has disclosed the substance of the evidence to which privilege otherwise attaches, within s 122(4) and the Ampolex test.

(2) Ms Collier's notes of the meeting of 21 November and her copy of Mr Carter's presentation annotated by her 23 Ms Collier is an ASIC Commissioner. She participated in the meetings of 21 November and 3 December. Her note of the meeting of 21 November describes the meeting as a "One.Tel briefing". She records various items of fact or factual contention. 24 At one point she notes "'forceful, intelligent, interested non-exec director'-Michael?" This might be an indication that Mr Pembroke, whose first name is Michael, said something at the meeting, but that is far from clear. In my opinion, it is impossible to deduce from a reading of the note whether it records something that Mr Pembroke said, or something said by another person at the meeting, or Ms Collier's own thoughts or interpretation of discussion. Later she says "weight of Elisabeth Alexander (he thinks high) re info systems", but it is impossible to say whether the reference in the word "he" identifies a legal adviser or someone else. 25 Subsequently, she notes "Rich and Keeling - disqual orders - their conduct wholly or in part because of conduct" and then "criminal offences S & B? What only disqualification? Rich & Keeling - trading while insolvent - criminal? - deliberate s 588 G(3) Market Manipulation?". Later again, she records "Silbermann & Beck - criminal proceedings s 596 - s 178BA Crimes Act Banning order - Rich & Keeling - query whether would get Packer and Murdoch." 26 The notes that I have quoted appear to relate to legal considerations concerning potential liability of various persons including the defendants. It is not clear, however, whether they record legal advice, given by Mr Pembroke or anyone else. I was asked to infer that Ms Collier's notes were made in connection with the statements made by Ms Redfern and Mr Pembroke, rather than Mr Carter's presentation, because she made some handwritten notes on hard copies of the PowerPoint presentation pages used by Mr Carter. But this was a meeting in which a number of people participated, in addition to the accountants and the lawyers. On the evidence presented to me, there is no basis for inferring that the handwritten notes relate to statements made by lawyers as opposed to other participants in the meeting. 27 Indeed, it would not be justifiable to infer from a reading of the notes that they record statements made by anyone, as opposed to thoughts and summaries of discussion by Ms Collier herself. 28 To the extent that they might have recorded something said by one of the lawyers, the notes contain no expression of any legal conclusion or even any legal reasoning, but only a series of queries. In this respect, the notes are in stark contrast to the succinct but direct communication of a legal conclusion in the statement made in the Ampolex case. 29 This is not an occasion for the application of Jones v Dunkel (1959) 101 CLR 298 so as to draw an inference adverse to ASIC from the fact that it has not adduced direct evidence as to the content of Ms Collier's note or the circumstances in which it was made. The issue of waiver of privilege has arisen out of an objection to a question put in cross-examination, in circumstances where to adduce direct evidence from the author of the note or someone else present at the meeting would add to what is already likely to be a very long hearing. It would be unfair to draw an adverse inference from the fact that ASIC has not sought to establish a voir dire so as to give evidence of the circumstances surrounding creation of the note. Since the issue is whether disclosure of the note amounted to a waiver in respect of all evidence of the content of discussions at the meetings, it is appropriate for ASIC to take the course of inviting the court simply to read the note and decide whether its disclosure amounted to disclosure of the substance of privileged communications.

(3) A general file note of the meeting of 21 November 30 The file note, created by Michael Ryan in the Perth office of ASIC, records that the NECC received a briefing on the status of the overall One.Tel civil investigation to date, including presentations by Mr Carter and Mr Pembroke. The note records that the NECC asked Mr Pembroke to provide further advice on available enforcement options, and that another meeting of the NECC would be held on 3 December at which Mr Pembroke would present the further advice. 31 The file note records the fact that legal advice was given at the meeting, and the fact that further legal advice was sought, but not anything about the content of the legal advice. Its production does not imply any waiver of privilege.

(4) A copy of Mr Carter's presentation to the meeting of 3 December 32 Mr Carter's presentation to the meeting of 3 December, entitled "Analysis of Damages" is a hard copy of a PowerPoint presentation in which he expresses opinions about various matters, including the time at which the company became insolvent, the likely action that the non-executive directors would have undertaken had they known the truth in a timely fashion, and the consequent decline in net worth of the company. Disclosure of the hard copy PowerPoint presentation did not amount to as disclosure of the substance of the legal advice given at the meetings.

(5) Ms Collier's notes of the meeting of 3 December, with a portion masked 33 Ms Collier's notes of the NECC meeting on 3 December begin with the following: "In summary - go for Rich, Keeling & Greaves - strategically & legally not go for Packer, Murdoch & Adler [indecipherable]-not going for P, M & A - media frenzy - briefing in Greaves complicating matters." 34 Then there is a masked part, except for the initials "MP", which indicate that the masked part recorded some advice given by Mr Pembroke. The notes then record something said by Ms Redfern, but it does not appear to relate to any legal matter. Then there are notes which evidently relate to the presentations by Mr Carter, because they begin with his name and firm as a heading. That part of the notes, which does not appear to relate to legal advice, is ruled off. Then there are notes about a brief relating to Mr Silbermann being with the DPP who was considering it, and it is said that "before fraud can be laid, need to know about financial position". 35 In my opinion none of this material discloses any of the content of legal advice, let alone the substance of the advice. Indeed, it appears that the notes have been masked precisely to avoid doing so. The first part of the notes colloquially records either the Committee's decision or, perhaps, a recommendation. The last part, relating to the DPP, seems to be a report of a factual kind about what the DPP was doing, rather than the transmission of any legal advice. The notes are not evidence of disclosure of privileged communications.

(6) Correspondence admitting that the decision by the NECC to commence the present proceeding was taken at the meeting of 3 December 36 On 11 August 2004 Ms Rees of ASIC wrote to Ms Kelly, solicitor for the defendants, saying Ms Redfern's diary indicated that a Commission meeting was held on 3 December 2001 and her recollection was that a decision was made to commence proceedings on that day. Although the letter speaks of a "Commission" meeting, it refers to Mr Ryan's file note and seems to imply that the meeting was to be the NECC meeting of 3 December. 37 As I understand it, it is not contested that the decision to commence the present proceeding was taken by the NECC's has meeting on 3 December. Conclusions 38 The documents relied upon by the defendants did not disclose any of the contents (reasoning or conclusions) of the legal advice given to ASIC prior to its decision to commence the present proceeding. A fortiori, there has been no disclosure of the substance of a privileged communication. None of the other grounds of waiver put forward by the defendants has been established. 39 The question, seeking to elicit from the witness evidence about discussions relating to legal matters and likely to involve the disclosure of privileged communications, is therefore disallowed.

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