TerraCom Ltd v Australian Securities and Investments Commission

Introduction 1 This is an appeal from an order made by a judge of this court dismissing a proceeding brought by TerraCom Ltd (the appellant), in which it sought a declaration that legal professional privilege attached to a particular document, being a "Project Rex Report" prepared by PricewaterhouseCoopers Consulting (Australia) Pty Ltd (PwC) dated 16 December 2019 (the PwC report or report), such that the appellant was not obliged to produce it to the respondent (ASIC). 2 It was agreed that the appeal would be dealt with on the papers. 3 The learned primary judge asked and answered the three questions argued below as follows: (1) Was the PwC report prepared for the dominant purpose of the appellant's lawyers providing it with legal advice or legal services? Answer: Yes. (2) If it was, and in that sense legal professional privilege attached to it, was privilege over the whole or any part of the report waived by the appellant? Answer: Privilege was waived over part of the PwC report. (3) If privilege over only part of the report was waived, did that have the result that privilege over the whole report was lost? Answer: Yes. 4 The appellant did not challenge the primary judge's answers to questions 1 and 2. The notice of appeal contains a single ground which relates to his Honour's answer to question 3.

The relevant facts 5 The primary judge summarised the relevant facts in his reasons. That which appears under this heading is derived from them. 6 The proceeding below arose out of an investigation by ASIC of suspected contraventions of the Corporations Act 2001 (Cth) by the appellant and its current and former officers and employees in relation to the testing, certification, and sale of coal during a period from late 2016 to early 2020. 7 As part of the investigation, ASIC executed a warrant at the appellant's Blair Athol mine site offices in March 2021. In May 2021, ASIC also issued a notice to the appellant to produce books and documents. 8 The warrant caused the PwC report to be seized by ASIC and thereby come into its possession. The report was also caught by the notice to produce. Pending resolution of the privilege dispute before the primary judge, the parties agreed to a standstill arrangement. 9 On 13 August 2019, the appellant terminated the employment of a commercial general manager, Mr Justin Williams, in circumstances in which he made serious allegations against the appellant and its officers and employees with regard to the falsification of certificates of analysis of coal that it exported. 10 By letter of engagement dated 22 August 2019, the appellant appointed Ashurst "to act for and advise [it] on issues arising in relation to allegations of misconduct that former employee Justin Williams has made against the company and certain company personnel", to "[c]ommunicate with, and engage, PwC for forensic support in the investigation", and to "[p]repare a preliminary report of the allegations following the initial interview, and plan for further investigations (in conjunction with PwC)". 11 By letter of engagement dated 29 August 2019, the appellant appointed PwC to prepare a report to enable Ashurst to provide legal advice. 12 On 3 September 2019, Mr Williams commenced a general protections application against the appellant in the Fair Work Commission. He made various allegations including that the appellant procured that certificates of analysis used as the basis for its commercial invoices to customers were fraudulently altered by the superintending company that produced such certificates of analysis. He alleged that he had detailed discussions with the appellant's CEO, Mr Danny McCarthy, about that conduct but that Mr McCarthy had instructed him to continue doing it. 13 On 5 December 2019, Mr Williams commenced a proceeding under the Fair Work Act 2009 (Cth) in the Federal Circuit Court of Australia, naming six individual respondents, each of whom was an officer of the appellant. Among other things, Mr Williams made allegations similar to those that he had made in the Fair Work Commission concerning the appellant's alleged falsification of coal analyses. 14 On 16 December 2019, the PwC report was produced. 15 On 9 March 2020, an article was published in the Australian Financial Review (AFR). It reported that Mr Williams had made allegations of the appellant's coal analysis being faked with major laboratories' help. It reported that the appellant had highlighted that its "independent forensic investigation" had found no wrongdoing. 16 On 12 March 2020, the appellant published an open letter to shareholders in the AFR. The letter addressed two topics, one of which was "Legal Dispute with Justin Williams". The letter referred to the dispute with Mr Williams concerning the termination of his employment, and stated relevantly as follows: As previously stated, [the appellant] took allegations that its CEO and CFO had been involved in a scheme relating to the fake analysis of coal samples seriously and an independent forensic investigation was conducted and found no evidence of wrongdoing. … for Mr Williams to suggest [the appellant] was involved in an international conspiracy to undertake false testing is ludicrous. 17 On 2 April 2020, ALS Ltd, a global testing, inspection and certification business, published an Australian Securities Exchange announcement and media release. It stated that the independent forensic investigation which it had commissioned had identified evidence that approximately 45-50% of the certificates of analysis in its coal superintending and certification unit in the financial year ended 31 March 2019 were manually amended in its laboratories without justification. 18 On 3 April 2020, the appellant published an ASX announcement. (The primary judge referred to it as the second ASX announcement. The first one is irrelevant for the purposes of this appeal.) It included the following: As previously stated, [the appellant] took the allegations by Mr Williams that its CEO and CFO had been involved in a scheme relating to the fake analysis of coal samples seriously and an independent forensic investigation was conducted. That investigation found that the allegations against them were unfounded and neither had done anything wrong.

The relevant reasons of the primary judge 19 Having dealt with the two other questions not relevant on appeal, his Honour found in relation to question 3 (at [66]): [B]y the letter to shareholders and the second ASX announcement which conveyed the purported conclusion of the investigation, [the appellant] waived legal professional privilege over the PwC report, at least to the extent of the subject-matter of allegations that its CEO and CFO had been involved in a scheme relating to the fake analysis of coal samples. Whether or not that limited disclosure nevertheless has the result that privilege over the whole report is waived is a matter I will return to below. 20 His Honour then turned to the question of whether "the disclosed subject-matter [was] separable from the rest of the report". 21 His Honour turned first to the applicable legal principles, none of which is in dispute on appeal, as follows (at [68]-[69]): In Attorney-General (NT) v Maurice [1986] HCA 80; 161 CLR 475 it was said that in order to ensure that the opposing party 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": at 481-2 per Gibbs CJ, 488 per Mason and Brennan JJ and 497-8 per Dawson J. See Federal Treasury Enterprise v Spirits International (No 6) [2019] FCA 337; 369 ALR 267 at [15]-[19]. In Federal Treasury at [25], which was adopted in Commonwealth Director of Public Prosecutions v Citigroup Global Markets Australia Pty Ltd [2021] FCA 511 at [138] per White J, I explained as follows: Different considerations may arise between circumstances where, for example, an assertion is made in a pleading which is said to have the effect of waiving privilege (sometimes referred to as issue waiver) and where, as another example, privilege is waived over part of a document or communication and not over other parts of it (sometimes referred to as partial disclosure). Those different considerations must, however, inform the assessment of whether there is inconsistency between the maintenance of the privilege and the relevant conduct of the party. One consideration in the case of partial disclosure is whether the disclosed and the undisclosed parts of the communication cover the same or different subject matters. That is because if they cover the same subject matter, disclosure of only part of the communication may lead to the meaning or import of the disclosed part being distorted or inaccurately perceived. Thus in the case of partial disclosure, the assessment of whether or not there is relevant inconsistency is likely to include a consideration of whether or not the disclosed and undisclosed parts cover different subject matter. 22 Having explained why he exercised his undoubted discretion to inspect the PwC report, his Honour continued under the heading "A distinct subject-matter?" (at [80]-[87]) as follows: 80 Mindful of maintaining [the appellant's] rights of appeal by not disclosing too much about the content of the PwC report, I can describe the report as follows. 81 The executive summary of the report identifies several "concerns" raised by Mr Williams. These are identified and numbered 1(a) and (b), 2(a) and (b), and 3(a), (b) and (c). That numbering suggests that there are three principal topics each of which can be further divided into two or three sub-topics. 82 Concern 3 covers a topic of allegations, of which 3(b) is about the CEO, Mr McCarthy. [The appellant] submits that it is only the sections of the report which deal with concern 3(b) in respect of which it should be concluded that privilege was waived by the limited disclosures in the letter to shareholders and the ASX announcements. However, the overall subject-matter of concern 3 is dealt with in an integrated way such that it is not practical, and it would result in the disclosed parts being misleading or incomplete, to separate out only those sections or sub-sections of the report that deal exclusively with concern 3(b). For example, section 3.4 of the report deals with concern 3. Subsections 3.4.1, 3.4.2 and 3.4.3 deal with general matters about concern 3 before then going on to the narrower matters within concern 3 and making key findings with respect to each of the sub-topics identified as concerns 3(a), (b) and (c). 83 In those circumstances, the relatively narrow disclosures by [the appellant] necessarily lead to at least the waiver of all the sections of the report dealing with concern 3, namely 1.2.3, 1.2.4 and 3.4. 84 However, in my view even to excise those sections of the report will leave them incomplete and liable to be misunderstood because of the way in which the report is structured and the manner in which the different concerns interrelate. For example, section 1 of the report contains the executive summary. Subsection 1.1 deals with the background, which explains why the report came to be commissioned and what the different concerns are. This introductory part of the report is important for a proper understanding of the treatment of concern 3. Section 2 of the report deals with the scope of and approach to PwC's task. The section relates as much to concern 3 as it does to any of the other concerns. Concern 3 cannot be fully comprehended without risk of misunderstanding if it is divorced from sections 1 and 2. 85 Section 3 of the report outlines the report's findings. Subsection 3.1 details the processes and contextual information that is relevant to all three of the principal topics, including concern 3. Subsections 3.2 and 3.3 deal with concerns 1 and 2 and could, on one view, be excised. However, in my view such an approach runs the danger of leaving the report in a disjointed and incomplete condition such as to prejudice a proper understanding of the treatment of concern 3. 86 The report has four appendices each of which is relevant to concern 3. 87 In the circumstances, the partial disclosure of the contents of the report by the disclosure of the subject-matter of concern 3(b) leads ineluctably in this case to waiver of legal professional privilege in respect of the whole report.

Redacted version previously provided to ASIC 23 On 28 June 2022, O'Callaghan J refused an application by ASIC seeking orders that the appellant provide the PwC report to ASIC's counsel on a confidential basis on terms set out in certain undertakings, or that the court appoint an amicus, a contradictor, or any other independent third party to review it. He did, however, make an order by agreement of the parties that the appellant file and serve a redacted version of the PwC report, which permitted ASIC to see those parts of it in respect of which the appellant agreed privilege had been waived. See TerraCom Ltd v Australian Securities and Investments Commission [2022] FCA 745.

Parties' submissions on appeal 24 The parties agreed that in circumstances where ASIC was unable to see the whole of the report, and the appellant was unable to be too specific about what it said, lest it waive privilege over the whole of the document, there was, realistically speaking, little to be said by either side by way of substantive submission. 25 The appellant's written submissions included the following: The appellant contends that the conclusions reached by the primary judge were erroneous, to the extent those conclusions went beyond accepting that there had been a waiver in respect of that part of the Report which addressed the CEO/CFO Involvement Allegation [that is, the allegation that the appellant's CEO and CFO had been involved in a scheme for the fake analysis of coal samples]. The only way in which this Court can form its own view as to the matter is to read and consider the Report, as the primary judge did. It is accepted that the primary judge was correct to identify the existence of sections of the Report that addressed the CEO/CFO Involvement Allegation. The relevant issue number in the Report is issue 3(b) identified in the summary table on page 4 of the Report, and that issue was addressed in paragraphs 3.4.5 and 3.4.7 of the Report. The appellant accepts these parts of the Report were the subject matter of the disclosure, and privilege in relation to this part of the Report was waived as a result. … It is accepted that the CEO/CFO Involvement Allegation was a particular allegation within the Alleged Fake Analysis [that is, a scheme for the fake analysis of coal samples] contention that Mr Williams had made. It is also accepted that the primary judge was correct to observe, at [J 82] … a connection, in a broad subject matter sense, between the various concerns identified using the number 3 (summarised in the table at page 4 of the Report) and the particular CEO/CFO Involvement Allegation. His Honour referred to those concerns collectively in the judgment as "concern 3". What is challenged on this appeal is the correctness of the view held by the primary judge that is expressed in the last two sentences of [J 82] … and the conclusion based on that view that is set out in [J 83] … In this regard, the disclosure by the appellant in the public announcements was as to a specific matter (CEO/CFO Involvement Allegation). The other parts of the Report to which the primary judge refers at [J 82] … do not address that particular allegation. That allegation, namely the CEO/CFO Involvement Allegation, is dealt with on its own in bespoke parts of the Report. It is respectfully submitted that the primary judge erred in treating the various separate items identified using the number 3 as if they were one concern (referred to by his Honour as "concern 3"). Conceptually and legally they each stood on their own, albeit arising in the context of the same broad subject matter. Applying the relevant test outlined above, it is submitted that there is not an inconsistency between the disclosure as to one subject matter (i.e. CEO/CFO involvement in a matter) and the maintenance of privilege over the Report's consideration of whether the matter occurred. That correctness of that contention is revealed by an appreciation of the fact that whether the matter in question occurred or not is, in fact, irrelevant to whether or not the CEO or CFO were involved - that is, even if one could assume for the sake of this argument that the matter occurred or there was some evidence or finding as to that topic, it does not begin to follow that the CEO or CFO were in any way involved. 26 The appellant also made an alternative proposal about redactions. 27 The appellant contended that if we did not accept its contentions, and agreed with the primary judge that the necessary inconsistency existed, we should nonetheless find that there was only waiver in respect of the parts of the PwC report identified in an alternatively masked confidential version of it provided to the court and marked "B". That version contains significantly fewer redactions, which the appellant said concern matters that are sufficiently removed from the subject matter of the letter to shareholders and the relevant ASX announcement, such that no inconsistency between the maintenance of the privilege and the appellant's conduct arises. 28 ASIC submitted that the appellant must establish "an error of principle or a material error of fact, or, if no specific error can be identified, [it must demonstrate] that the decision is unreasonable or plainly unjust", citing UBS AG v Tyne (2018) 265 CLR 77 at 105 [74] (Gageler J); and House v The King (1936) 55 CLR 499 at 505 (Dixon, Evatt and McTiernan JJ). ASIC contended that in answering question 3, the judge made "evaluative conclusions in respect of which the applicable legal criteria permitted of some latitude of choice or margin of appreciation such as to admit of a range of legally permissible outcomes", and that the principles in House v The King thus apply, citing Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at 561 [44] (Gageler J). See also Ghosh v NineMSN Pty Ltd (2015) 90 NSWLR 595 at 601 [37] (Macfarlan JA) (evaluative decisions of a subjective nature, regarding an issue upon which minds may differ, are not strictly discretionary decisions but appellate intervention nevertheless depends upon satisfaction of the same principles in House v The King). 29 We do not accept that contention. In deciding that although privilege over only part of the report had been waived, partial disclosure of the contents of the report by the disclosure of the subject matter of concern 3(b) led "ineluctably" to waiver of legal professional privilege in respect of the whole report, the learned judge was not exercising a discretion of the type contemplated in the well-known passage from House v The King (1936) 55 CLR 499 at 504-505, viz: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 30 Although the point was not fully argued, it seems to us that where on appeal a party challenges a decision of a trial judge contending that, by its limited disclosure of legal advice contained in a report (or other document), it has waived privilege over the whole of that report (or document), the correctness or otherwise of that decision is a question susceptible of only one answer. Compare Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at 552 [18] (Kiefel CJ), 565-566 [55]-[56] (Gageler J), 574-575 [85]-[87] and 580 [117] (Nettle and Gordon JJ), and 593-594 [154]-[155] (Edelman J). It follows that, in our view, this court is in as good a position as the primary judge to determine the correct answer to question 3, and the principle in House v The King has no application to the issue on appeal here. 31 Otherwise, as ASIC said in its written submissions, it was "unable properly to engage with whether the redacted parts of the PwC Report deal with distinct or different subject-matters and to advance submissions in respect of that question".

Consideration 32 We have read and considered three versions of the PwC report, being (i) an unredacted copy of it; (ii) a copy containing the redactions in annexure "A" provided to the court; and (iii) a copy containing the redactions in annexure "B" provided to the court. 33 ASIC has submitted that there is a procedural unfairness in annexure "B" being put before the court as it is a document that was not provided to ASIC and in relation to which ASIC cannot make submissions, and because the appellant has not sought (nor been granted) leave to provide "fresh material" to the court in its appellate jurisdiction. It further submitted that the ground of appeal is limited to the correctness of the decision of the primary judge that there had been a waiver of privilege over the whole of the PwC report, not those parts of the report that might be expressly waived by the appellant. 34 We do not agree. Annexure "B" is a differently masked version of the same document considered by the primary judge. It is not new material that is sought to be put to the court in its appellate jurisdiction. As submitted by the appellant, annexure "B" is a convenient and practical way of identifying those parts of the PwC report that "fall for particular scrutiny". The same objective could have been achieved by identifying paragraph numbers. 35 Mindful that this is an intermediate appellate court, we, like the primary judge, must be circumspect in how we express the reasons for the decision we make. 36 In our view, subject to what we say about annexure "B", the primary judge was correct, for the reasons he gave (at [22] above), to answer question 3 in the affirmative. 37 His Honour did not have the benefit of the appellant's submission made in respect of the redactions contained in annexure "B". In our view, the matters referred to in the redactions in annexure "B" are sufficiently removed from the subject matter of the letter to shareholders and the ASX announcement, such that ASIC will not be misled by an inaccurate perception of the parts that will be disclosed. The redactions work no unfairness to ASIC and are appropriately made. 38 We shall make orders accordingly, and also order that the appellant pay ASIC's costs of the appeal. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices O'Callaghan, Jackson and Halley.