The plaintiffs, the partners at the relevant time of PricewaterhouseCoopers ("PwC"), commenced these proceedings against Aoyin Group Limited ("Aoyin") in the District Court of NSW to recover unpaid fees.
Aoyin brought a cross claim which caused the proceedings to be transferred to this Court.
By that cross claim, Aoyin contends that, in or about 5 February 2015, it engaged PwC to provide advisory and professional services in connection with the establishment of a locally-incorporated, authorised deposit-taking institution ("ADI") and obtain regulatory authorisation from the Australian Prudential Regulation Authority ("APRA") to carry on a banking business.
In its cross claim, Aoyin alleges that:
1. to establish a locally incorporated ADI and obtain regulatory authorisation to carry on a banking business, it was obliged to comply with identified "APRA Guidelines";
2. from March 2015 to October 2015, Aoyin offered "Class A1" shares by subscription, initially pursuant to an Information Memorandum dated 23 March 2015, and subsequently pursuant to a Replacement Information Memorandum dated 11 September 2015, under which 3 billion Class A1 shares were to be issued at $0.05 per share; and
3. on or about 29 October 2015, Aoyin issued 3 billion Class A1 shares pursuant to the Replacement Information Memorandum.
By its cross claim Aoyin alleges that, relevantly, PwC breached its contractual and general law duties of care in providing the advisory services in that, immediately after the allotment of shares in Aoyin, on or around 29 October 2015, PwC failed to (relevantly):
1. advise Aoyin of the content and significance of APRA's "Fit and Proper Requirement";
2. conduct, or advise Aoyin to conduct, due diligence on its substantial shareholders; and
3. advise Aoyin to avoid incurring expenses and to have satisfied its substantial shareholders complied with the Fit and Proper Requirement.
Aoyin claims damages for what it contends to be wasted expenditure incurred in pursuing this project from 29 October 2015 onwards.
The proceedings are set down for hearing for 8 days commencing on 17 May 2021.
I am now dealing with a dispute as to whether Aoyin has waived privilege in relation to communications it received between October 2014 and September 2015 from its then solicitors, Baker McKenzie.
Thus, by notice of motion filed on 10 February 2021, PwC seeks orders that Aoyin produce communications from Baker McKenzie in respect of which a claim for privilege has been made.
I have been greatly assisted by the written submissions I have received from counsel for PwC and Aoyin. Much of what appears in these reasons concerning uncontroversial background matters is taken with gratitude from those submissions.
Some measure of agreement has been reached in relation to this dispute.
What remains in dispute is whether Aoyin has waived privilege in relation to three categories of documents referred to in a subpoena that PwC has directed to Baker McKenzie.
Those documents are communications from Baker McKenzie to Aoyin in relation to:
1. the issue of shares by Aoyin or the allotment of shares in Aoyin;
2. the Information Memorandum or the Replacement Information Memorandum, including the Client Document Checklist referred to in those documents; and
3. the transfer of, or transferability of, shares in Aoyin, or the existence or otherwise of the ability to transfer shares in Aoyin.
PwC seeks the documents in [13(a) and (c)] for the period between the Information Memorandum (23 March 2015) and the Replacement Information Memorandum (11 September 2015) and the documents in [13(b)] for the slightly longer period from when Baker McKenzie first started acting for Aoyin (1 October 2014) to the date of the Replacement Information Memorandum (11 September 2015).
There is no dispute that, on the face of things, the documents sought are privileged.
The dispute is as to whether Aoyin has acted in a way that is inconsistent with its maintenance of that privilege.
In that regard, s 122(2) of the Evidence Act 1995 (NSW) provides that:
"… [T]his Division does not prevent the adducing of evidence if the client or party concerned has acted in a way that is inconsistent with the client or party objecting to the adducing of the evidence because it would result in a disclosure of a kind referred to in section 118, 119 or 120."
The relevant principles were recently summarised by Macfarlan JA [1] in GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2] where his Honour said: [3]
"I draw from these authorities the following propositions of present relevance:
(1) The test is one of inconsistency between the privilege holder's conduct and its maintenance of the privilege, not one of general fairness or of relevance to an issue in the proceedings.
(2) Enquiring whether the privilege holder has made express or implied assertions about the contents of the confidential communications, and whether its conduct has therefore 'laid open the communications to scrutiny', assists in ensuring that the court's focus is on inconsistency rather than simply relevance. If the privilege holder is understood to be asserting something about the contents of the communications, it is but a short step to conclude that it would be inconsistent for it to prevent those contents being scrutinised.
(3) On the other hand mere relevance of the content of the privileged communications to an issue raised in the proceedings by the privilege holder does not equate to inconsistency - something more is needed. It is of the essence of legal professional privilege that, if maintainable, it entitles a party to withhold potentially relevant documents from inspection by the other party.
(4) The determination of whether there has been an express or implied assertion about the contents of privileged communications giving rise to a relevant inconsistency is an evaluative decision to be made after consideration of the whole of the circumstances of the case. No hard and fast rules can be formulated. Those circumstances will include the degree of relevance of any advice to the issues in the proceedings, the centrality of the relevant issues in the proceedings and the likelihood of advice having been given, informed, as the High Court said in Mann v Carnell, by considerations of fairness.
(5) Having considered all those circumstances, the court must decide whether it would be inconsistent with the privilege holder's conduct for it to maintain privilege. The line between relevance to an issue and inconsistency in this context may be very fine and therefore one on which views might well differ."
The documents sought are said by PwC to relate to the issues of whether:
1. PwC ought to have advised Aoyin of the effect of the restrictions on transfer in the Replacement Information Memorandum, being that the restriction would prevent or alternatively substantially inhibit a change in the composition of Aoyin's substantial shareholders from the allotment date of 29 October 2015; and
2. PwC failed to advise Aoyin of the content and significance of APRA's Fit and Proper Requirement.
There is no dispute that the documents are relevant.
Although the debate ranged more widely, I can resolve the issue by reference to evidence given by Aoyin's founder, Mr Ou Yang (Owen) Chen in his affidavit of 13 November 2018 as follows:
"In around July 2015, I was advised by Bakers that it would be preferable to put in place restrictions on the transfer of Aoyin shares, in order to prevent any shareholders from 'dumping' their shares as soon as Aoyin obtained ADI approval, and to demonstrate to APRA that the investment made by Aoyin's shareholders represented a long-term commitment to the company, consistent with APRA's Fit and Proper Requirement. I accepted this advice.
On 1 August 2015, I held a meeting of prospective investors who had applied or who might apply for shares in Aoyin, for the purpose of conveying to them the proposal to introduce restrictions on the transfer of shares. I told these prospective investors that the introduction of restrictions on the transfer of shares had been recommended by Bakers."
In these paragraphs, Mr Chen gives evidence of advice given to Aoyin by Baker McKenzie in July 2015 (that is, within the range in which the documents sought are directed), that Aoyin should:
1. place restrictions on the transfer of Aoyin shares post allotment; and
2. demonstrate to APRA that the investment by Aoyin shareholders would be consistent with APRA's Fit and Proper Requirement.
Mr Chen has here disclosed advice Baker McKenzie gave to Aoyin concerning, first, the general issue of transferability of its shares after allotment.
In those circumstances, I accept the following submissions made by Mr Nixon SC and Ms Bathurst for PwC:
"In light of that express disclosure of the substance of Baker McKenzie's advice, and Mr Chen's asserted reliance on that advice, any claim of privilege over that advice, or over communications with Baker McKenzie relating to that advice, cannot be maintained. It is inconsistent for Aoyin:
(a) to assert that PwC ought to have advised Aoyin of the effect of the restrictions on transfer of shares in the Replacement [Information Memorandum] …;
(b) to purport to disclose (in Mr Chen's affidavit) the substance of advice given by Baker McKenzie regarding the restrictions on the transfer of shares; and
(c) at the same time, to seek to maintain confidentiality over communications recording any advice Baker McKenzie gave to Aoyin about that very issue."
This submission is directed to the proposition that Aoyin has waived privilege over documents concerning advice given by Baker McKenzie regarding "the restrictions on the transfer of shares" (see the reference in (c) to advice given by Baker McKenzie "about that very issue"). It follows from my acceptance of that submission that Aoyin should disclose documents in the category referred to at [13(c)] above, being advice Baker McKenzie gave concerning the transfer of, or transferability of, shares in Aoyin.
In the evidence set out at [21] above Mr Chen has also disclosed advice Baker McKenzie gave Aoyin concerning the need to demonstrate to APRA compliance with APRA's Fit and Proper Requirement.
The "Client Document Checklist" referred to in the Information Memorandum and the Replacement Information Memorandum, in effect, reflected APRA's Fit and Proper Requirement.
Thus, Mr Nixon and Ms Bathurst submitted, and it was not disputed, that:
"The Replacement [Information Memorandum] included a section titled 'Client Document Checklist'. The items in the checklist included 'criminal history background checks'. This section of the Replacement [Information Memorandum] stated that:
APRA Authorisation Guidelines require that the names of 'substantial shareholders' be disclosed to APRA during the authorisation application process. Accordingly, shareholders must be prepared to cooperate with requests for information made by the Company in relation to its anticipated application for authorisation of an ADI to APRA."
In my opinion, it would be inconsistent for Aoyin:
1. to assert that PwC ought to have advised it as to the contents and the significance of APRA's Fit and Proper Requirement;
2. to purport to disclose in Mr Chen's affidavit the substance of advice given by Baker McKenzie concerning the desirability of Aoyin to act consistently with the Fit and Proper Requirement and thus with the Client Document Checklist; and
3. at the same time, seeking to maintain confidentiality over communications recording any advice Baker McKenzie gave Aoyin in relation to that issue.
For those reasons, PwC should be granted access to the documents produced by Baker McKenzie responsive to the categories referred to at [13(b)] above but confined to "the Client Document Checklist referred to in the Information Memorandum or the Replacement Information Memorandum".
I did not detect any submissions from Mr Nixon and Ms Bathurst directed in terms to the remaining category referred to at [13(a)] (the issue or allotment of Aoyin shares generally). I can see no basis on which to conclude that Aoyin has waived privilege over that very broad category of documents.
For those reasons, I order that the Cross-Defendant be granted access to the documents within Packet 201700252324001-S-5 that are responsive to paragraphs 7 (subject to excision of the opening words "the IM or the Replacement IM, including") and 8 of the subpoena and dated between 1 October 2014 and 11 September 2015.
As to the costs of PwC's motion, my preliminary view is that costs should be PwC's costs in the cause.
If either party contends for a different order, the parties should confer and agree on a timetable for short written submissions. I shall deal with any dispute on the papers.
[3]
Endnotes
With whom McCallum JA and Simpson AJA agreed.
[2020] NSWCA 266.
At [57].
[4]
Amendments
04 March 2022 - Case title on coversheet corrected
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Decision last updated: 04 March 2022