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 (Revised to correct typographical errors) 1 HIS HONOUR: Senior counsel for the defendants has endeavoured to cross-examine Ms Reynolds, a witness for ASIC, about a set of observations to counsel prepared by Ms Redfern, a senior lawyer who is an officer of ASIC, headed "Observations". He has also foreshadowed that he wishes to cross-examine Ms Reynolds about another document, which is headed "ASIC v Rich re One.Tel Memorandum", and is a legal advice by Mr Pembroke SC dated 31 October 2001. ASIC has objected to the use of these documents in cross-examination on the ground that they are privileged communications, and has made an application for the return of the documents, relying on Hooker Corporation v Darling Harbour Authority (1987) 9 NSWLR 538. 2 The principal question is whether any privilege attaching to the documents, which I shall call " the Observations" and "the Memorandum", has been waived because the defendants were given access to them, either by ASIC or by PricewaterhouseCoopers as its agent, in response to a subpoena issued by the defendants to PwC. The defendants rely on s 122(2) of the Evidence Act 1995 (NSW), which says that Part 3.10 Division 1 (client legal privilege) does not prevent the adducing of evidence if the client or party has knowingly and voluntarily disclosed to another person the substance of the evidence, and the disclosure was not made in four stated circumstances (which are not relevant in the present case). Under s 122(2), the critical question is whether ASIC, or PwC as its agent (and therefore within the definition of "client" in s 117(1)), knowingly and voluntarily disclosed the substance of the Observations and the Memorandum to the defendants, when the defendants were given access to those documents pursuant to the subpoena. 3 The meaning of the words "knowingly and voluntarily" was touched upon by Rolfe J in Ampolex v Perpetual Trustee Co (Canberra) Pty Ltd (1996) 40 NSWLR 12 at 22, where his Honour said: "I assume that the word 'voluntarily' is intended to mean something other than 'under compulsion of law' which appears in paragraph (c). I think the distinction is that the disclosure was made voluntarily, in the sense that it was not made by way of mistake, it being possible that a disclosure may be made 'knowingly' yet by way of mistake, and accordingly, perhaps not voluntarily." 4 In the present case the documents were produced without any claim to privilege, and subsequently an attempt has been made to restore the privilege by saying that the production was mistaken and inadvertent. In that respect the present case is similar to Meltend Pty Ltd v Restoration Clinics of Australia Pty Ltd (1997) 75 FCR 511. There Goldberg J observed (at 526, in the context of discovery and inspection): "A party seeking inspection should be entitled to assume that the discovering party has carried out the process of discovery properly and in accordance with relevant principles. Otherwise parties will be placed in difficult situations if documents can be withdrawn from inspection after an initial inspection with the result that there is then an inability to use information properly obtained on discovery." These observations are applicable, mutatis mutandis, where documents are produced under subpoena or pursuant to a notice to produce. 5 Goldberg J held (at 522-3) that not every "mistake" avoids the application s 122(2). In his Honour's opinion, where an agent for a party directs his attention to the issue whether the documents should be the subject of a claim for privilege, and decides not to claim privilege, but there is inadvertence or mistake in that he does not direct his attention to the correct principle or the relevant facts, the inadvertence or mistake is not enough to reinstate or maintain the privilege. 6 For the purpose of determining whether privilege has been waived, I have conducted a voir dire, although by agreement of the parties the evidence given by Ms Reynolds that is relevant to the question of waiver is to be treated as evidence at the hearing rather than only evidence on the voir dire. 7 On 21 July 2004 the defendants issued a subpoena to the partners of PricewaterhouseCoopers ("the second subpoena"). Paragraph 1 required production of, inter alia, all documents considered by Mr Carter or the persons who assisted him in the preparation of any of his reports dated 31 May 2002, 13 December 2002 and 14 April 2004 ("the Reports"), for the purposes of preparation of the reports, other than certain specified categories of documents. 8 On 28 July 2004 Ms Rees on behalf of ASIC wrote to the defendants' solicitor, Ms Kelly, saying that application would be made to set aside some paragraphs of the second subpoena, including paragraph 1. She said that "apart from a possible claim for legal professional privilege", the paragraph was objectionable as to form and relevance and on the basis of oppression. Amongst other points, she said that in production of the documents required by paragraph 1 would consume PwC in a process that it had already undertaken, at a time when the commencement of the hearing was imminent. She added that "because of the wording of paragraph 1, ASIC itself will potentially be forced to inspect all documents answering the description of paragraph 1 to assess whether a claim for legal professional privilege subsists over the documents produced". 9 Subsequently there was a change of heart on the part of ASIC. On 6 August 2004 ASIC made informal production, on behalf of PwC, of a DVD purporting to comply with those parts of the subpoenas calling for the production of electronic records. That included paragraph 1, which sought production of "documents" including electronic documents. 10 At some time before 12 August 2004, PwC made a large quantity of documents available to the defendants for inspection at PwC's office. According to the evidence of Ms Reynolds, who was responsible within PwC for responding to the subpoena, PwC staff under her direction created indexes of documents providing a general description of the contents of each folder, and then she went through those indexes and selected folders that she thought fell within the description in the subpoena. Boxes containing the selected folders were then put into a meeting room for the legal representatives of the defendants to review them. There were 200 or more lever-arch folders in about 55 boxes. 11 It appears that ASIC did not carry out the inspection and assessment of documents, to identify claims for legal professional privilege, that had been foreshadowed in the letter of 28 July, prior to making the documents available to the defendants for inspection. There is no direct evidence explaining this, but senior counsel for the defendants invited me to infer that ASIC adopted the position at some time after its letter of 28 July, presumably on legal advice, that no such claim could be generally sustained in respect of a large quantity of documents falling within the description in the subpoena - that is, documents that had been considered by Mr Carter for the purposes of his Reports. That inference would be consistent with ASIC's written submissions dated 7 October 2004, which say that "ASIC accepts that if the documents were considered for the purposes of preparation of those reports or affidavits, ASIC would not be entitled to claim privilege in respect of them". I agree that this inference should be made. 12 It appears that, on or before 12 August 2004, legal representatives of the defendants inspected the documents produced under the second subpoena at PwC's office. They tagged what they wanted to have copied. At about that time, Ms Reynolds discovered that the documents made available for inspection had included at least one folder of legal documents marked "privilege", which included a chronology prepared by counsel for ASIC. She said she "realised" that those documents should not have been produced. She telephoned Ms Rees on 12 August and told her that some documents including the chronology had been "mistakenly included" in the material that had been produced. It appears that the Observations and the Memorandum were not in the folder marked "privilege". 13 According to the evidence of Mr Breckenridge, a solicitor seconded to work for ASIC, on 12 August he was instructed by Ms Rees to go to PwC's office and inspect the documents before any of them were copied for the defendants, to claim privilege over the chronology and any other privileged documents PwC had mistakenly included. 14 On the same day Mr Breckenridge went to PwC's premises. Ms Reynolds told him that the defendants did not want copies of documents in boxes on one side of the room, but they had attached orange tags to some lever-arch folders and some individual documents which were the in boxes on the other side the room, signifying material that they wanted to have copied. Mr Breckinridge briefly reviewed the boxes not containing tagged folders or documents, to ascertain whether any of them could contain material that was potentially subject to claim for legal professional privilege by ASIC. He did not locate any documents over which he believed that ASIC might wish to make such a claim. He then spent about three hours inspecting the boxes of documents which included tagged folders and documents. He focused his attention on the tagged materials. His purpose was to ascertain whether any of the documents in these boxes could contain material is potentially subject to a claim for legal professional privilege by ASIC. 15 According to his evidence, the tagged materials comprised folders in about 25 boxes. He located some documents over which he believed that ASIC would wish to claim privilege and put them to one side on a chair. He said there were 9 or 10 folders in that category. 16 The Observations and the Memorandum were not put into evidence for the purpose of my determination of the question of waiver of privilege. But Mr Breckenridge said that he did not recall having seen either document during his inspections of documents at PwC's premises on 12 and 16 August 2004. He said that, in the case at each of the two documents, if he had seen it during the inspections he would have recognised it as a document over which ASIC may wish to claim legal professional privilege, and that he would have taken steps to bring it to the attention of Ms Rees and counsel for the purpose of assessing whether a claim to privilege ought to be made over it. 17 In cross-examination, Mr Breckenridge agreed that he could not say positively one way or another whether he saw the Observations and the Memorandum in the course of his inspection of documents at PwC's office but he repeated that he did not recall having seen them during his inspection and review. When asked whether he could say positively one way or another whether either of the two documents was amongst those which were set aside for later consideration by Ms Rees, he said he did not recall them as being within the documents that he set aside. 18 Mr Breckenridge's evidence is that, on the following day, Ms Rees went to PwC's office and met with Ms Reynolds to inspect the documents he had put to one side and "to make a final determination, in consultation with ASIC's counsel, on whether a claim for legal professional privilege would be maintained by ASIC over those documents". Ms Reynolds gave evidence that Ms Rees was there for a few hours. 19 Mr Breckenridge went to PwC's office again on 16 August to inspect the balance of documents to be made available to the defendants' legal representatives, this time considering whether the documents responded to the second subpoena as well as whether they could contain material that was potentially the subject of a privilege claim. There is no suggestion in the evidence that Mr Breckenridge's two inspections of the documents were rushed or that he had inadequate time to carry out his tasks thoroughly. 20 Then on 18 August 2004 Ms Rees wrote to Ms Kelly saying that some documents had been "inadvertently" produced to the defendants over which ASIC wished to claim privilege under s 119 of the Evidence Act. She set out a list of those documents. The listed did not include the Observations or the Memorandum. It was supplemented by letter dated 31 August 2004 regarding a facsimile from Mr Macfarlan QC to Mr Carter dated 17 May 2002. 21 On 2 September 2004 there was a further supplementation to the list of documents over which ASIC wished to claim privilege. The supplementary list included the Memorandum, as well as other legal advices and the facsimile from Mr Macfarlan to Mr Carter. It did not include the Observations. 22 Ms Reynolds gave evidence that a number of mistakes were made in the production of documents under the subpoena, in that some documents were produced that had not been considered for the purpose of preparation of the Reports. Some time after the initial production of the documents, staff of PwC under the direction of Ms Reynolds went through the documents more carefully than they previously had, to identify whether there were documents that had been produced which had not been considered or relied upon by Mr Carter or those assisting him in preparation of the Reports. On 9 September 2004 Ms Reynolds wrote to Ms Rees attaching lists of hardcopy and electronic documents that had been produced in response to the subpoena, but which had not in fact been considered for the purpose of preparation of the Reports. 23 On 17 September 2004 Ms Kelly wrote to Ms Rees regarding ASIC's production, pursuant to some notices to produce, of an advice that appears to have been a copy of the Memorandum. According to Ms Kelly, the legal representatives of the defendants took the view, given many previous waivers of privilege by ASIC, that any claim to privilege in respect of that document had been waived, but Ms Kelly drew the matter to the attention of Ms Rees because a claim for privilege had been notified in the letter of 2 September. Ms Kelly said in the letter that the defendants would continue to assume that privilege had been waived unless Ms Rees contacted her urgently. 24 On the same day Ms Rees sent an e-mail to Ms Kelly saying that production of the Memorandum was inadvertent and that ASIC made a specific claim for privilege over it, which had not been waived. On 19 September 2004 Ms Kelly responded, saying that the e-mail provided no details as to how production had occurred without a claim for privilege having been made, and inviting an explanation of the circumstances and nature of the alleged error. No response has yet been given to that letter. 25 In summary, it appears that (a) staff of PwC under the direction of Ms Reynolds identified and assembled documents in answer to the subpoena, and Ms Reynolds reviewed indices of those documents to assess whether, relevantly, they were documents considered by Mr Carter or his team for the purpose of preparation of the Reports, and documents thought to fall into that category were assembled in about 200 lever-arch folders in 55 boxes; (b) ASIC decided not to make claims for privilege in respect of documents that had been considered for the purpose of preparation of the Reports, and consequently the defendants' legal representatives were allowed to inspect the 55 boxes without any prior review of the documents for privilege claims; (c) the defendants' legal representatives conducted their inspection and attached orange tags to folders and documents they wish to have copied, that material comprising about 25 boxes; (d) after Ms Reynolds realised that some legal documents had been made available for inspection and informed Ms Rees, the decision was taken on behalf of ASIC to review the 55 boxes, and particularly the folders and documents of which the defendants wanted copies, to see whether privilege should be claimed notwithstanding the earlier decision; (e) the Observations and the Memorandum were somewhere in the 55 boxes and were documents that had been tagged for copying, or were contained in folders that had been tagged for copying, and indeed they were later copied and supplied to the defendants; (f) on two occasions Mr Breckenridge reviewed the 55 boxes to consider whether claims for privilege should be made for any documents, concentrating on the 25 boxes of folders and documents which had been tagged, and he put aside 9 or 10 folders containing documents for which privilege might be claimed, for Ms Rees to review; (g) Ms Rees subsequently visited PwC's office and, according to Mr Breckenridge's understanding, reviewed the 9 or 10 folders; (h) subsequently claims for privilege were asserted in correspondence, including a claim for privilege in respect of the Memorandum but not the Observations. 26 Here, as in the Meltend case (at 522), the starting point is that from an objective standpoint, there was a waiver of privilege when the two documents were produced as part of a very large volume of documents, and the defendants' legal representatives were allowed to inspect them. That is so, in my opinion, not only in a case such as Meltend where there was a particular document in contention, but also in a case such as the present, where there is a decision to produce a category of documents and the particular documents are within that category. Consequently (as conceded by senior counsel for ASIC), ASIC carries an evidentiary onus of explaining why it was that, according to its contention, the disclosure was not knowing and voluntary. 27 The evidence gives rise to the inference that the two documents were amongst the folders and documents tagged by the defendants for copying, and therefore were amongst the documents that were the focus of Mr Breckenridge's attention when he inspected the documents on two occasions, over substantial periods of time on each occasion, to consider whether claims for privilege should be made. Ms Reynolds' evidence that she had not seen the Observations before the hearing is not inconsistent with that inference, because she explained that she reviewed indices of the documents to be produced rather than the documents themselves. 28 All that Mr Breckenridge can say is that he does not recall seeing the two documents during the course of his reviews, and does not recall whether they were amongst the documents set aside for later consideration by Ms Rees, but he cannot positively say whether or not he saw them. There were 25 boxes of documents containing folders and documents tagged for copying. Bearing in mind the frailty of human memory when so many documents are involved, I do not believe that the evidence permits me to conclude, on the balance of probabilities, that the documents were not reviewed by Mr Breckenridge or that he did not include them in the 9 or 10 folders set aside for inspection by Ms Rees. Mr Breckenridge's notes are not specific enough to be of assistance. On the evidence before me, the question whether the two documents were reviewed by Mr Breckenridge is an open question. I think the position would have been different if Mr Breckenridge had been able to say that he had not inspected the two documents, but his evidence, which was carefully presented, fell short of that proposition. 29 Where a witness says he has inspected 20 documents and does not recall seeing the crucial document among them, the inference is fairly available that the crucial document was not inspected. But here Mr Breckenridge reviewed 25 boxes of documents. The volume of documents is so large that the grounds for such an inference are very weak or non-existent. Given Mr Breckenridge's evidence that he cannot say positively whether or not he saw the documents, the inference should not, on balance, be drawn. 30 ASIC is not assisted by Mr Breckenridge's unchallenged evidence that he would have set the documents aside if he had seen them. That evidence supports the possibility, not rebutted by ASIC's evidence, that the two documents were indeed set aside and were reviewed by Ms Rees. 31 Consequently I am not able to find, on the evidence, that the two documents were not contained in the 9 or 10 folders made available for Ms Rees to review. There is no direct evidence from Ms Rees as to what she did when she attended at PwC's office to inspect the documents. I do not know whether she inspected the two documents, or if she did, whether she decided not to claim privilege in respect of them. 32 I should say something more about this last point. Observations to counsel and a memorandum of advice by counsel would obviously be protected by client legal privilege, absent any waiver. In normal circumstances, it would be most unlikely that a party to litigation would waive privilege over such documents if they were relevant to the case. But the circumstances of the present case are far from normal. ASIC has decided not to claim privilege in respect of substantial quantities of documents which would obviously be privileged in a normal case. There is a list summarising such occasions in paragraph 15b of the defendants' submissions dated 6 October 2004, which I shall place with the papers. They include task lists containing disclosure of instructions given by ASIC's legal advisers and counsel to PwC, various documents bearing the legend "privileged and confidential", draft affidavits, and other communications between counsel and ASIC and PwC. Therefore the very nature of the two documents does not give rise to any form of inference or assumption as to whether, in this case, ASIC would wish to assert privilege over them. 33 I should also note that in the special circumstances of this case, I reject the submission made on behalf of ASIC that the defendants' solicitor had any obligation, legal or otherwise, to draw ASIC's attention to the fact that these two documents had been produced, so as to give ASIC the opportunity to correct an apparent mistake. The defendants' solicitor acted properly, in my view, by querying the status of the Memorandum after noticing that it appeared in a list of documents for which privilege would be claimed, but there was no obligation to raise the matter until the list appeared, and no obligation to query the status of the Observations (which did not appear in any such list). 34 Moreover, ASIC has taken the view that documents considered by Mr Carter or his team for the purpose of preparation of the Reports are not privileged. Ms Reynolds gave evidence that she did not recall seeing the Observations until a few days ago and she did not think they had been considered for the purpose of preparation of the Reports. She said that the Memorandum had no connection to the Reports. But it was not Ms Reynolds who had to decide whether documents in the 9 or 10 folders set aside by Mr Breckenridge should be the subject of claims for privilege. That decision was taken by Ms Rees, who has not given evidence. The court is not in a position to conclude that Ms Rees would have taken the same view as Ms Reynolds on this point. 35 I do not think it is necessary, in order to reach my conclusion, to rely on any Jones v Dunkel (1959) 101 CLR 298 inference, other than the obvious inference (conceded by senior counsel for ASIC) that her evidence would not have assisted ASIC's case on waiver of privilege. The fact that Ms Rees claimed privilege over the Memorandum as soon as its production was brought to her attention in correspondence, is itself ambiguous. It may have signified nothing more than a change of mind after knowing and voluntary disclosure had occurred. 36 I note in passing that senior counsel for the defendants submitted that, in the absence of evidence from Ms Rees, the court was not in a position to conclude that she had confined her review to the documents in the 9 or 10 folders set aside by Mr Breckenridge. I do not accept this submission. In my view the evidence justifies the inference that Ms Rees attended to review the documents selected for review by Mr Breckenridge. 37 The result is that, ASIC not having discharged the evidentiary onus created by the fact of production without a claim for privilege, I have reached the conclusion on the balance of probabilities that the Observations and the Memorandum were disclosed knowingly and voluntarily for the purposes of s 122(2), and consequently they are no longer protected by client legal privilege. 38 In these circumstances, it is unnecessary for me to deal with the second ground advanced on behalf of the defendants, namely that there was implied or imputed consent to the documents being used in evidence by virtue of "issue" waiver, as the documents had been considered for the purposes of preparation of the Reports upon which ASIC relies in this case. 39 I was invited by senior counsel for the defendants to inspect the two documents before reaching my conclusion about waiver of privilege. Senior counsel for ASIC submitted that I need not do so. I have reached a conclusion favourable to the defendants without inspecting the documents. The purpose of an inspection would principally have been in respect of "issue" waiver, a matter with which it is unnecessary to deal. 40 I have sympathy for the plight of ASIC and PwC, being confronted with cascading subpoenas and notices to produce in the months and weeks prior to commencement of this long hearing (and, indeed, notices to produce after the hearing began). But there is no suggestion in the evidence that ASIC's decision to make the documents available for inspection, and the subsequent reviews of the produced documents by Mr Breckenridge and Ms Rees, were constrained or foreshortened by time pressure.

Last Modified: 10/13/2004 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.