Trade Practices Commission v Ampol Petroleum

Both the liquidator and the directors resist production on the grounds of legal professional privilege. Whether that ground is available to the liquidator raises, I think, different considerations from those raised by the directors' own claim that their copies of the transcript are protected from production by legal privilege.

It is true that the liquidator, in the affidavit he filed seeking the order for this compulsory examination, which he obtained from the Supreme Court, explicitly sought the order to obtain information for use in the action he has brought in this Court on behalf of Southern Cross against Arthur Andersen and the directors; he said in this affidavit "[m]y sole purpose for conducting the examinations is to obtain statements of evidence from the directors for use by the company in prosecuting the Federal Court action against Arthur Andersen and to determine whether the directors ought to be joined as defendants in the action", as has now occurred. He also successfully sought a direction under s 597(4) that the examinations be held in private for the reason, elaborated on by him in his affidavit, that if the examinations were held in public he would lose "a significant forensic advantage" in connection with the litigation, viz, being able to deny Arthur Andersen access to the transcripts in the conduct of the litigation and in possible settlement negotiations.

But the liquidator obtained the transcripts as a result of the examination of the directors under compulsion of law. Even if the circumstances in which the transcripts were brought into existence at the behest of the liquidator might otherwise cloak them with legal professional privilege, the question whether Arthur Andersen is entitled to production of them on discovery in the litigation must, I think, depend upon the relevant provisions of the Corporations Law under which the examinations, of which the transcripts are a record, were held. As a general principle, where a person obtains a document under statutory compulsion for the purpose of using it in litigation in which that person is, or is about to be, involved, it is the statute, not the person's motive or purpose for procuring the document by invoking the statutory process, that governs whether that person can deny access to the document to opposing parties in the litigation. See Trade Practices Commission v Ampol Petroleum (Victoria) Pty Ltd (1994) 54 FCR 316 at 323 - 324. Confidentiality in respect of the transcripts, which is an essential foundation for a good claim of legal professional privilege, can therefore only arise in the present context by virtue of the statutory provisions which empower the Court to order compulsory examination and which regulate, either expressly or impliedly, the use the liquidator can make of documents so obtained, including the extent to which it is permissible for him to restrict dissemination of those documents.

Section 596A empowers the Court to summon a former officer of a company in liquidation on application by the liquidator. Section 596F empowers the Court to give directions in respect of a mandatory examination. It provides:

(1) Subject to section 597, the Court may at any time give one or more of the following:

(a) a direction about the matters to be inquired into at an examination;

(b) a direction about the procedure to be followed at an examination;

(c) a direction about who may be present at an examination while it is being held in private;

(d) a direction that a person be excluded from an examination, even while it is being held in public;

(e) a direction about access to records of the examination;

(f) a direction prohibiting publication or communication of information about the examination (including questions asked, and answers given, at the examination);

(g) a direction that a document that relates to the examination and was created at the examination be destroyed.

(3) A person must not contravene a direction under subsection (1).

Section 597 deals with the conduct of such an examination. It provides:

(4) An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.

(13) The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record.

(14) Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.

(b) is to be open for inspection by anyone else on paying the prescribed fee.

On the liquidator's application, under s 596A, Byrne J, on 24 January 1997, made the following orders and directions:

1. The persons whose names and addresses are set forth in the Schedule ("the examinees") be summoned pursuant to section 596A of the Corporations Law before the Magistrates Court at Brisbane ("the court") for examination about the examinable affairs of Southern Cross Airlines Limited (in liquidation) (A.C.N. 006 982 387) at a time fixed by the Clerk of the Court from day to day until the conclusion of the examination.

2. The examination of each examinee shall be held in private.

4. For the duration of the examinations only the following persons may be present in court:

i. the liquidator, his staff, solicitors and counsel;

iii. staff of the Australian Securities Commission.

5. Upon the liquidator by his counsel undertaking not to examine the directors without having a transcript made of the directors' evidence, it is directed that:

(a) the liquidator release a copy of the transcript to the Australian Securities Commission (ASC);

(b) without the leave of the Court or a Judge, the ASC shall not copy, and may not disseminate the transcript to any person except to the Commonwealth Director of Public Prosecutions (Melbourne Office) (DPP) on terms that:

(i) The DPP will not copy or disseminate the transcript (or any copy of it) to any person unless the DPP gives the liquidator 7 days notice in writing of its intention to copy all or any part of the transcript for a specified purpose, or release all or any part of the transcript (or any copy thereof) to a specified person; and

(ii) Within 60 days of receiving the transcript from the ASC, the DPP will return the transcript to the solicitors for the liquidator.

(c) in the event that the prosecution appointed to commence on 2 April 1997 in the Supreme Court of Victoria of Douglas Edward Reid concludes prior to the commencement of the examinations of the directors the liquidator is relieved of his obligations in sub-paragraph (a) above.

7. A summons in the form annexed hereto and marked "A" be issued in respect of each examinee.

It can be seen that Byrne J did not give any direction that a transcript be kept of the examination, although it is apparent that it was the intention of the liquidator, and the understanding of the judge, as reflected in his orders, that a transcript would be made. Part 5.9 Division 1 the Corporations Law does not contain any general provision that deals with the making of a transcript of the examination. Section 597(13) empowers the Court to make an order for the making of a special kind of transcript, ie, one recorded in writing and signed by the examinee, and s 597(14) regulates the admissibility in any legal proceedings against the examinee of that special transcript and also "any transcript of an examination of a person that is authenticated as provided by the rules", ie, by the transcript recorder or by any person present at the examination. See Rule 81(2) the Corporations (Queensland) Rules. A person over whom the liquidator has no control, eg, the judicial officer before whom the examination is conducted, can therefore authenticate a transcript not specially ordered under s 597(13), with the result that it will be admissible in evidence in any legal proceedings brought by anyone against the examinee. The transcripts here in question were prepared pursuant to a private arrangement between the liquidator and the State Reporting Bureau. In my opinion, Part 5.9 Division 1 leaves it to the person conducting the examination to determine whether a transcript of the examination is to be kept, in the absence of the Court exercising its powers under s 597(13). In deciding whether to have a transcript made, the examiner will no doubt be guided by the wishes of the liquidator or other person at whose behest the examination was ordered.

Section 597(14A) provides for the inspection, including public inspection, of any special transcript directed to be made by the Court under s 597(13). But there is no provision that deals with whether an ordinary transcript is to be open to inspection by the public or by any particular person or whether it can, in particular circumstances, be kept confidential by the liquidator or other person who invokes the power of compulsory examination.

Byrne J exercised the power conferred by s 596F(1)(e) to give directions about access to the transcripts: he gave a direction for the release by the liquidator of a copy of the transcripts of the examination to the ASC and a direction that the ASC should itself be permitted to disseminate the transcript to the Commonwealth Director of Public Prosecutions, on certain terms. Byrne J also directed that the examination was to be held in private. It was therefore argued, on behalf of the liquidator, that the order should be interpreted as an order limiting access to the transcript to the liquidator and to the ASC and the Director of Public Prosecutions. As I read Byrne J's direction under s 596F(1)(e), it would not, however, place any fetter on the entitlement of the Director of Public Prosecutions to make the transcripts public in the course of an actual trial. Copies of the transcripts were given to the Director of Public Prosecutions, but were returned to the liquidator's solicitors following the completion of the criminal trial of Mr Reid, a director of Southern Cross. It does not appear from the evidence before me whether any public use was made of the transcripts in that trial. But even if the order is interpreted as the liquidator would have it, the order cannot be read as imposing any limitation on the uses which the liquidator could make of the transcript for the purposes of his administration. The liquidator expressly sought the examination of the former directors of Southern Cross to obtain evidence for use in the litigation mounted by him to recover damages in respect of wrongs allegedly done to the company which will swell the funds available for distribution in the winding-up. That is one of the main purposes of the power of compulsory examination in s 596A. See Australian Corporation Law: Principles and Practice, Butterworths, vol 2, para 5.7B.0010.

It can be accepted that a liquidator is entitled to invoke the mandatory examination provisions of the Corporations Law for the purpose of gathering evidence for use by him in the conduct of his administration, including use in litigation he commences for the purposes of the winding-up and for the purpose of assessing the practical worth of such claims as he may contemplate pursuing in the courts. He has, under the Corporations Law, special advantages in that regard not possessed by ordinary litigants. But I can see no policy consideration and nothing in the Corporations Law that would justify excepting a liquidator from the ordinary rules of discovery in litigation which are designed to ensure that there is no trial by ambush and that each litigant has proper opportunity to asses both the true strengths and weaknesses of its position.

The liquidator's motive, in invoking the statutory provisions to gather evidence for use in the litigation, cannot give the transcripts the requisite confidential character if the statutory provisions themselves do not confer that on the documents. I have already referred to s 597(14): the transcript itself, appropriately authenticated, can be used in evidence in legal proceedings brought by any person against the examinee. This suggests that the transcript is, in general, not a confidential document, although it may be made such by appropriate directions under s 596F(1)(e). No doubt the Court, by an appropriate exercise of the directions power in s 596F(1)(e), could impose a restriction on access to such a transcript which, quite independently of any question of legal professional privilege, might prevent a person sued by the liquidator from getting access to it so long as that direction stood. But Byrne J did not give any such direction in express terms. The examination of the directors was specifically sought by the liquidator to obtain evidence for use in the litigation; in these circumstances, the absence of any express direction restricting the use the liquidator could make of information, including the transcript obtained as a result of the examination, in the litigation he had in contemplation strongly suggests that the order should be read as leaving questions of discovery of the transcript to the general law.

Even if s 596A can be used quite properly by a liquidator to fish for evidence for use in proceedings he may bring against third parties, it may still well be beyond the proper use of the power conferred on the Court by s 596F(1)(e) to give directions confining access to the transcript of a compulsory examination under s 596A to the liquidator in order to confer on him the forensic advantage of being able to deny access to that transcript on discovery in the action to other parties when, in the absence of such a direction, the liquidator would not enjoy that immunity. The purpose of the legislation, viz, to arm the liquidator with extraordinary powers to gather information of assistance in his administration is fully served once he obtains the information; it is, in my opinion, strongly arguable that, if the liquidator goes beyond that and seeks to use the compulsory examination powers to obtain tactical advantages for himself in the litigation not obtainable under the general law, that may well involve an abuse of the statutory power. See Australian Corporation Law: Principles and Practice, Butterworths, vol 2, note 20 to para 5.7B.0020. But that question does not now arise.

There is nothing in any of the relevant statutory provisions that I can see which confers on the transcript of a compulsory examination sought by a liquidator confidentiality of the kind which must exist as a foundation for a claim of legal professional privilege, even if the examination is sought for the special purpose of gathering evidence for use in litigation in the course of his administration. The statute does not empower the liquidator to invoke the mandatory examination provisions of the Act solely for the purpose of conducting litigation in the course of his administration. He cannot, because of acting with such a motive, divest himself of the other statutory obligations which may operate to impose on him duties which have nothing to do with the conduct of litigation, but which can arise from the information he obtains from such an examination. For example, s 533 obliges him to report to the Australian Securities Commission on a range of matters, such as possible offences by officers of the company and whether the company may be unable to pay a dividend of more than $0.50 to unsecured creditors; moreover, s 533(1)(e) empowers the Commission to insist upon production by the liquidator to it of a transcript of such an examination in circumstances in which s 533(1) operates. There is nothing in the Act, apart from s 597(12A), to prevent the Commission making such use of that transcript as it sees fit, including production of it in open court, in any prosecution it may instigate. The directions power in s 596F(1)(e) could not be used to deprive the Commission of its statutory entitlement to access to a transcript in discharging the duties which s 533(1) envisages that the Commission is to perform.

It follows, in my opinion, that, it being common ground that the transcript of examination of each of the former directors is a document relevant to the issues in the action between Southern Cross and Arthur Andersen, it must be produced by the liquidator for Arthur Andersen's inspection.

As to the other document, the legal advice in respect of which Arthur Andersen alleges the liquidator has waived legal professional privilege, Arthur Andersen identifies the document and the basis for the waiver argument by reference to the following passage in a report by the liquidator to creditors:

The relationship between Apogee and the company is a complex one and I have uncovered a number of documents which the ASC and I believe are not genuine. My solicitors have advised me that the Company has potential claims against Apogee and certain members of its management pursuant to Section 205 of the Corporations Law, and in relation to the sum of US$500,000 which was paid to Apogee and its management.

It is common ground that Southern Cross' dealings with Apogee which are likely to be the subject of this advice are relevant to issues in the action between Southern Cross and Arthur Andersen.

Whether by the reference he made to it in this report to creditors the liquidator has waived privilege which would have attached to this advice depends upon the Evidence Act 1995 (Cth), particularly s 122, not on common law principles of waiver. See Adelaide Steamship Co Ltd v Spalvins (1998) 152 ALR 418 at 429 - 430. Section 122(4) and (5) provides:

(4) Subject to subsection (5), this Division does not prevent the adducing of evidence if the substance of the evidence has been disclosed with the express or implied consent of the client or party to another person other than:

(b) if the client or party is a body established by, or a person holding an office under, an Australian law - the Minister, or the Minister of the State or Territory, administering the law, or the part of the law, under which the body is established or the office is held.

(a) a disclosure by a client to another person if the disclosure concerns a matter in relation to which the same lawyer is providing, or is to provide, professional legal services to both the client and the other person; or

(b) a disclosure to a person with whom the client or party had, at the time of the disclosure, a common interest relating to a proceeding or an anticipated or pending proceeding in an Australian court or a foreign court.

I do not accept that such a brief general summary of the advice obtained by the liquidator concerning the potentiality for claims by Southern Cross against Apogee and contained in his report is sufficient to amount to a disclosure of "the substance of" that advice, within the meaning of that expression in s 122(4). Counsel for Arthur Andersen relied upon Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12. But what was disclosed there, in the context of whether a Part B statement in takeover litigation was misleading, was advice as to the correctness of a statement in the Part B document about a specific matter that was in issue in the litigation. There can be no doubt about the correctness of the conclusion in Ampolex - it was "arguably correct", according to Kirby J in Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 70 ALJR 603 at 607.

What the liquidator disclosed in his report to creditors here, however, was only the fact that he had received advice that the company has potential claims against Apogee in relation to a fee of US$500,000 paid by Southern Cross to Apogee. In my opinion, that is far too general a statement to amount to disclosure of the substance of the advice sufficient to bring about, subject to s 122(5), the waiver of any legal professional privilege attaching to the advice. It goes little farther than a mere reference to the existence of legal advice: cf Adelaide Steamship Co at 431. That cannot destroy the privilege.

I cannot, with respect, agree that the word "effect" is interchangeable with "substance" in the context of s 122, as Rolfe J said was the position in Ampolex at p 18. As a matter of language, there is, I think, a clear difference between the substance of an advice-containing document and the effect of that document, particularly in this statutory context. Disclosure of the effect of such document may occur where only the conclusion reached has been disclosed. Disclosure of the substance, however, could not, in my opinion, occur without disclosure of both the conclusion and the critical (but not all the) steps by which that conclusion was reached. Rolfe J's comments at p 19 show, by the example there discussed, the extent to which legal professional privilege would be eroded if his Honour's construction of the section is correct. I do not accept that s 122(4) can operate on a very limited reference to privileged material to destroy the very privilege the continued importance of which Division 1 of Part 3.10 the Evidence Act recognises.

However, if I am wrong, I do not consider that the liquidator has waived legal professional privilege attaching to the advice in question by the disclosure in the report to creditors, even if it does constitute a disclosure of the substance of the advice, within the meaning of that expression in s 122(4): that provision is expressly made subject to s 122(5). It is the words of s 122(5) that govern the question now in issue, in view of the decision in Adelaide Steamship Co. All that is required for s 122(5)(b) to apply is that there be a disclosure by a person entitled to claim legal professional privilege to another with whom the privileged claimant "had, at the time of the disclosure, a common interest relating to" the action. It is one central object of liquidation that the liquidator exercise his powers and functions for the benefit of the creditors. In recognition of this, the liquidator, while not subject to direction by the creditors or any of them, is required to keep them informed of the progress of the liquidation and can, moreover, be subject to general oversight by the creditors in general meeting or through a committee elected by the creditors. See ss 479, 509, 548 (and 547) the Corporations Law and McPherson's The Law of Company Liquidation 3rd ed (1987) at pp 230 - 231, 236 and 238. If a liquidator, as here, makes a report to creditors on the progress of his administration, which includes a report on possible avenues of recoupment of funds on behalf of the company which will augment the funds available for distribution to creditors, a disclosure in such a report that the liquidator has good grounds for pursuing claims against a third party is, in my opinion, a disclosure by the liquidator to persons, viz, the creditors, who have a common interest with the liquidator within s 122(5)(b) relating to anticipated action by the liquidator against that third party.

In Somerville v Australian Securities Commission (1995) 60 FCR 319, the Commission claimed common law legal professional privilege under the litigation limb of that privilege in respect of legal advice obtained by it prior to the commencement of the action it brought in the names of various injured persons pursuant to s 50 the Australian Securities Commission Act 1989 (Cth). The Full Court held that the Commission was not a party to such litigation and that there could be no client with respect to the litigation who could properly claim legal professional privilege in respect of the Commission's documents in question until the action was actually commenced. It was also held that the ASC did not have a common interest with others in litigation, brought by it under s 50 for the benefit of those others, sufficient to attract privilege those others could claim to the Commission's own documents. It was said that the Commission, in addition to not being a party to the litigation, had no interest in its fruits (p 325) and that it was (at 329):

simply the statutory vehicle to commence and conduct litigation in the public interest. Its interest in the litigation is the furtherance of the public interest by assisting wronged plaintiffs to recover loss or damage or property that has been caused by the wrongful activities of persons whose conduct has been investigated by the Commission pursuant to its investigatory powers. The Commission's position has nothing to do with the role of persons who claim to have common interest in litigation.

As is made clear by Lockhart J's discussion in Somerville of the position of the ASC in an action brought by it under s 50 in the name of and for the benefit of an injured party, the ASC does not have either the same or even a similar interest in the successful outcome of such litigation with the beneficiary of the Commission's action. The latter's interest is in the Commission's action being successful. The Commission's interest is solely in ensuring, not that that person's pecuniary interests are vindicated, but that the litigation provides an appropriate vehicle for vindication by the Commission of the public interest in ensuring that misconduct uncovered by a Commission investigation is not left unremedied by action being taken, whatever be the outcome of that action. See Somerville at 324 - 325 and Australian Securities Commission v Deloitte Touche Tohmatsu (1996) 70 FCR 93 at 114 - 120.

The cases relied on for this view in Somerville were more recently considered in Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601; Sheller JA (Wardell A-JA agreeing and Meagher JA expressing no opinion) said, at 609, that common interest privilege at common law is not a rigidly defined concept, that "[a] mere common interest in the outcome of litigation will be sufficient to enable any party with that interest to rely on it". Since a liquidator and the creditors each have an interest in the proper administration of the company, including the successful outcome of litigation brought by the liquidator in the company's name with a view to augmenting the funds available for the purposes of the liquidator's administration, which include payment of a dividend to the creditors and payment of the fees and commissions due to the liquidator, each has a common interest in the subject matter of advice as to the prospects of such litigation that is sufficient to ensure that the communication of any such privileged advice between them will not destroy the privilege. It matters not that neither the liquidator himself nor any of the creditors have any proprietary interest in the chose in action consisting of a right to claim moneys said to be owing to the company upon which the liquidator sues.

As to the directors' own copies of the transcripts, I accept the submission by their counsel that the validity of their claimed entitlement to refuse to produce these documents on discovery to Arthur Andersen is governed by whether the specific copy documents themselves are the subject of a claim of legal privilege, a submission made in reliance on Commissioner, Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501.

There is no challenge to the evidence of their solicitor as to the circumstances in which these copies of the transcript were brought into existence at the behest of the directors. They obtained these copies after seeking permission from the liquidator, who was responsible for the private arrangement with the State Reporting Bureau for the making of the transcript, and after giving the liquidator their undertaking in writing not to disseminate the transcript or any copy of it to any person other than their legal representatives, and then only for the purpose of this action in which they are involved. I accept their counsel's submissions that all the elements of a claim of legal professional privilege provided for by the Evidence Act are made out in respect of the transcripts.

There will therefore be an order in terms of para 3(a) of the notice of motion and an order dismissing paras 2 and 3(b) to (h) of the notice of motion.

I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Counsel for the Applicant: Mr GA Thompson

Solicitor for the Applicant: Allen Allen & Hemsley

Counsel for the First Respondent: Mr PL O'Shea

Solicitor for the First Respondent: Minter Ellison

Counsel for the Second to Ninth Respondents: Mr JD McKenna

Solicitor for the Second to Ninth Respondents: Corrs Chambers Westgarth

Counsel for the Ninth Cross-Respondent: Mr PD Corkery

Date of Hearing: 24 July 1998

Date of Judgment: 28 July 1998