Australian Competition and Consumer Commission v Daniels Corporation... [2002] NSWSC 231 | Case summary

Such a direction, if given, would supplement a general direction concerning cooperation by the liquidators with the HIH Royal Commission given by Santow J on 5 November 2001: Re HIH Insurance Ltd (2001) 39 ACSR 645. 2 The notice referred to in the form of direction now sought is dated 1 March 2002 and is under the hand of the Honourable Justice Neville John Owen who, by letters patent of 29 August 2001 (as amended on 6 February 2002), has been appointed a Commissioner to enquire into the reasons for and the circumstances of the failure of the HIH companies prior to the appointment of provisional liquidators on 15 March 2001. The notice was issued under s.2(3A) of the Royal Commissions Act 1902 (Cth). It requires the liquidators to produce a very broadly defined class of documents to Richard St John, a person authorised by the Commission, at a nominated time and place. 3 The issues which have prompted the liquidators to seek the direction of the court centre upon the question of legal professional privilege. The documents caught by the notice inevitably include certain documents subject to such privilege, the privilege being that of the relevant HIH companies. As insurers, many of the HIH companies had occasion to obtain written advice from lawyers about potential and actual litigation arising from insurance claims. 4 The problem the liquidators face is that the documents to which the s.2(3A) notice is directed are contained in some 60,000 boxes. To go through those boxes searching for and isolating those documents to which legal professional privilege attaches would be a very time consuming and expensive task. It is with a view to avoiding that expenditure of time and resources and, at the same time, preserving the privilege that the liquidators approach the court. 5 The regime that the liquidators are considering adopting is set out in the letter of 20 March 2002 from Mr Daley, the principal solicitor assisting the Commission, to Mr Mainsbridge of the liquidators' solicitors, Blake Dawson Waldron. That letter proposes what was referred to when I heard the matter as "the protocol". The relevant part of the letter reads as follows: "I also confirm that the Commission's officers, including Counsel Assisting, Solicitors Assisting and any expert consultants engaged by the Commission ('Commission officers') will not, without your agreement or first giving prior 72 hours notice to you, knowingly convey to persons who are not Commission officers, any document obtained pursuant to N112 [i.e., the s.2(3A) notice] which appear to the Commission might give rise to a claim for legal professional privilege by the liquidators." 6 The course of action with respect to which the liquidators seek the direction of the court is thus the indiscriminate furnishing of documents to the Commission without prior steps to test whether the liquidators can resist production on the grounds of legal professional privilege or to identify and isolate the documents which are protected by such privilege, the intention being that Commission staff, as and when they come across such documents, will not communicate them to any other party without either receiving the consent of the liquidators or giving 72 hours' prior notice to the liquidators. 7 The nature and effect of such a direction are discussed at some length in the judgment of McLelland J in re Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674. One point his Honour emphasised is that the function of the court is limited to giving what is effectively advice as to the administration of the company rather than resolving matters which are or may become matters of dispute between the liquidator and a third party, although there may be cases where declarations can appropriately be made if all affected parties consent to that course. Otherwise, the only binding effect of a direction is that, if the liquidator has made full and frank disclosure to the court, he will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction. 8 The nature of the consequences of a direction causes the court to decline to involve itself in the making of purely commercial decisions. It will, however, become concerned in what Young J in Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 described as "questions involving legal procedure (e.g. whether a liquidator should settle curial proceedings and, if so, on what terms)". 9 In the present case there is a threshold legal question confronting the liquidators, namely, whether the notice of 1 March 2002 requires them to produce documents to which legal professional privilege attaches or, more precisely, whether as a consequence of the service of the notice the Royal Commissions Act compels such production. The proposal to enter into the protocol can only be considered sensibly against that background. 10 The notice was, as I have said, issued under s.2(3A) of the Royal Commissions Act. Section 3(4) compels a person served with such a notice requiring the production of documents to comply with it on pain of fine or imprisonment. However, s.3(5) says that s.3(4) does not apply "if the person has a reasonable excuse". Section 1B contains a definition of "reasonable excuse", but it is a definition that applies only "in relation to any act or omission by a witness or a person summoned as a witness before a Commission". In the case of an act or omission of such a person, "reasonable excuse" means an excuse which would excuse the equivalent act or omission by a witness or a person summoned as a witness before a court of law. 11 This "reasonable excuse" definition applies to two of the three situations dealt with in the subsections of s.3. Those two relate to actions of a person summoned "to appear as a witness" (s.3(1)) and a person "appearing as a witness" (s.3(2)). The third situation, the one with which we are concerned here under s.3(4), relates to a person served with a notice to produce documents. There is no indication that a person in the last category is to be regarded as a witness or potential witness within the contemplation of the definition of "reasonable excuse" which works by analogy with court proceedings. The analogy is simply not extended to treat such a person as if the notice was a subpoena for production issued by a court. 12 The non-application of the "reasonable excuse" definition in s1B to a person served with a s.2(3A) notice seems to me to mean that "reasonable excuse" in s.3(5) affecting the statutory obligation under s.3(4) is confined to its ordinary and accepted meaning in contexts of this kind where, generally speaking, it refers to physical or practical difficulties of complying and does not extend to matters such as legal professional privilege: see, for example, Controlled Consultants Pty Ltd v Commissioner for Corporate Affairs (1985) 156 CLR 385, Corporate Affairs Commission v Yuill (1991) 172 CLR 319. That, therefore, leaves at large the question whether legal professional privilege qualifies a statutory obligation which, on its face, is unqualified. The same general line of authority (recently reviewed by the Full Federal Court in Australian Competition and Consumer Commission v Daniels Corporation International Pty Ltd (2001) 108 FCR 123) makes it clear that such privilege will not be regarded as taken away without clear words, although blunt words of compulsion and command, operating without qualification, are increasingly regarded as overriding the privilege, particularly where some public purpose of investigation of possible wrongdoing is involved. A Royal Commission is, it seems to me, recognised by s.6P of the Royal Commissions Act as having some such role, apart altogether from its particular terms of reference. In this case, I would regard that role as reinforced by the terms of reference. 13 In the time available to me, I have not been able to find any reported case involving a claim of legal professional privilege as a ground for resisting production in response to a notice under s.2(3A) of the Royal Commissions Act, but there is, as I see it, a strong argument in favour of the proposition that the Act compels the liquidators to produce material to which such privilege attaches. If, after testing that matter in appropriately constituted proceedings, the liquidators were shown to be so compelled, the need for the protocol and for a direction of the kind the liquidators now seek would evaporate. 14 I proceed nevertheless to deal with the question which was the focus of submissions when the matter came before me on Friday, namely, whether, if there is no compulsion to produce privileged documents, the voluntary delivery of them to the Commission in the context of the protocol would entail loss of the privilege. 15 Mr Collins QC, who appeared for the liquidators on the application, submitted that the likelihood of loss is very remote. He advanced that proposition mainly by reference to observations of Gleeson CJ and Gaudron, Gummow and Callinan JJ in Mann v Carnell (1999) 201 CLR 1. Some measure of comfort can be derived from their Honours' observations at paragraphs 28 and following, but in the end the majority judgment, as I read it, turned on the point that the relevant disclosure was not to a third party, that is, a stranger to the confidential relationship between lawyer and client. The client was a body politic. The party to which disclosure was made on a confidential basis was a member of the Legislative Assembly who wished to review the executive government's handling of the litigation to which the privileged correspondence related. The majority's view that the member of the Assembly was not relevantly a third party was shared by Kirby J but not by McHugh J. 16 The majority judgment identifies at paragraph 28 what it is that effects or amounts to waiver of legal professional privilege by the client, that is, "inconsistency between the conduct of the client and the maintenance of the confidentiality", being the confidentiality which pertains between lawyer and client. The majority judgment goes on to point out that it is not the subjective intention of the client in relation to the particular conduct that is decisive; rather, it is whether the law views the conduct as inconsistent with the maintenance of confidentiality. Their Honours put the matter thus at paragraph 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." 17 I must confess to distinct reservations as to whether the proposed protocol will be sufficient to preserve privilege. All it will do, according to its terms, is to restrict communication to persons outside the Commission, except with the agreement of the liquidators or until 72 hours after they have been given notice. The problem is that, once documents come into the possession of the Commission, its officers will be under quite independent duties as to what they do with those documents. Clearly, the officers will have a duty to use the documents in furtherance of the Commission's functions where they are relevant to those functions. That might entail their content being referred to in the course of investigative work or at public hearings or incorporated into a report. Information in the documents may be passed on to various authorities and law enforcement agencies under s.6P of the Act. 18 The protocol, at best a contract and quite arguably not even that, would, by its terms, prevent the last of these, but there must be a significant question about a contract which seeks in advance to fetter a statutory power conferred for public purposes, particularly where the contract purports to do so in a global way and not by reference to a particular case or circumstance. 19 It might be possible for matters to be viewed differently if some kind of protocol merely shifted to Commission staff the task of identifying potentially privileged documents on the understanding that the liquidators were not, in reality, relinquishing possession of those documents and that, as and when Commission staff found them, they would be physically returned to the liquidators. Assuming that the legal framework within which the Commission operates were to permit such a course (a substantial question in its own right), the situation would then be much less able to be seen as within the principle of inconsistency with confidentiality which the majority in Mann v Carnell regarded as destructive of the privilege. It could more clearly be regarded as possibly analogous with situations of inadvertent production of privileged material upon discovery and might attract approaches of the kind taken in, for example, the judgment of Hunter J in LMI Australasia Pty Ltd v Baulderstone Hornibrook Ltd [2000] NSWSC 1066. 20 That brings me to the final point I wish to make. Assuming the case is one of voluntary action and choice rather than compulsion, a decision whether to retain legal professional privilege or to waive it or to do something which may jeopardise it is, in the final analysis, a commercial decision. Viewed in the abstract, loss of privilege may be accompanied by benefits which outweigh the loss and strenuous efforts to preserve privilege may be counter-productive in other ways. Decisions on such questions are made virtually every day by clients for whose benefit legal professional privilege exists. They are decisions of a commercial kind on which the court is normally not inclined to give directions under s.479(3) although, of course, questions about the scope and operation of legal professional privilege are clearly within the function of the court. 21 It is not without significance, I think, that the directions given to the liquidator in Mercantile Credits Ltd v Dallhold Investments Pty Ltd (1994) 15 ACSR 230 that he was justified in claiming privilege in certain documents and in waiving privilege in others were made subject to this proviso: "Provided the liquidator forms the view in good faith that [the assertion of such a claim/such waiver of privilege] is or may be in the interests of Dallhold or creditors of Dallhold." 22 I consider it inappropriate that the court give a direction in the terms that the liquidators now seek. It may be that a protocol avoiding the difficulties that trouble me can be worked out or, in particular, that the question of the availability of the privilege in any event, in the face of the statutory compulsion arising from service of a s.2(3A) notice, can be tested in a manner which authoritatively resolves that matter one way or the other. Or it may be that the liquidators can come to a position of greater comfort about the real significance, from the standpoint of interests they serve, of the potential loss of privilege. The matter of a direction might then be revisited. **********

Australian Competition and Consumer Commission v Daniels Corporation International Pty Ltd

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