Federal Court: March 2025

EVIDENCE

Appeal from interlocutory evidentiary rulings – ss 118, 122 and 126 Evidence Act 1995 (Cth) – email contained eight words alluding to privileged communications – adduction of evidence concerning communications in cross-examination of witness – whether ss 118, 122 and 126 applicable  

In Boral Limited v Parkin [2024] FCAFC 169 (Perram, Colvin and Abraham JJ), two investor class actions were brought against Boral Limited (‘Company’) for loss and damage resulting from their purchase of shares at an alleged overvalue. The basis for the claim was the Company failed to disclose to the market accounting irregularities in certain parts of one of its subsidiaries. The adequacy of the accounting controls at the subsidiary was, accordingly, in issue in the proceedings.

During the proceedings, the trial judge made evidentiary rulings concerning the potential future cross-examination of a witness about the contents of an email (‘Exhibit A1’). It contained eight words which alluded to privileged communications between the Company’s external lawyers and Ernst & Young (‘EY’), being a company retained by the lawyers to conduct certain work at the subsidiary. The eight words were ‘if controls were as bad as EY suggests’. It had been held the reports produced by EY were the subject of valid claims for privilege. Exhibit A1 had been adduced into evidence in the proceedings. It was not, itself, the subject of objection on the ground of privilege; however, it had been the subject of an objection on the ground of relevance.

The author of Exhibit A1 was cross-examined and objection was taken when questions were asked about the content of communications he had which resulted in his observation that EY suggested the controls in the subsidiary were ‘bad’. The basis for the objection was that it would disclose privileged communications.

A voir dire was conducted after which the trial judge handed down three rulings.

The effect of the rulings was that the cross-examiner was allowed to proceed with the cross-examination as anticipated. The result of this would be the disclosure of the author’s understanding of EY’s findings when he sent Exhibit A1, and the testing of that understanding.

The proceedings were adjourned during this period and remained adjourned to enable the Company to seek leave to appeal the rulings.

General position on grant of leave to appeal evidentiary rulings

The Full Court granted leave to appeal the evidentiary rulings given the result of questioning the author of Exhibit A1 would have been irreversible in the sense it could not be ‘undone’ should the matter be the subject of an appeal after final judgment. Further, as the trial judge adjourned the proceedings, the usual principle of avoiding fragmented proceedings did not apply. Notwithstanding this, the Full Court made it clear that such leave is sparingly granted, stating:

‘Generally speaking, the Full Court will not grant leave to appeal in relation to rulings made by a trial judge on evidentiary matters arising during the course of a trial and the Court’s reasons ought not be taken as any kind of encouragement for such a practice’ (at [48]).

Issues on appeal

The appeal concerned the complex interaction of sections 118 (legal advice privilege), 122(1)-(3) (loss of legal advice privilege) and 126 (loss of client privilege: related documents and communications) of the Evidence Act 1995 (Cth).

The decision

Per curium, the trial judge had determined s 126 applied to require evidence of other communications to be adduced to understand the eight words in Exhibit A1. This was based on a finding that Exhibit A1 was, itself, a privileged communication the privilege of which had been lost due to s 122.

The rulings were reversed for two reasons.

First, the Full Court determined Exhibit A1 was not adduced into evidence as a result of the operation of s 122, specifically s 122(2) (acts inconsistent with objection to disclosure of evidence). This was because no objection based on privilege had been made by the Company. Accordingly, s 126 was not engaged. The Full Court rejected arguments to the effect that s 126 picked up common law waiver, stating the text of s 126 required s 122(2) to be first enlivened. This required an objection to be raised in accordance with the usual position that it is up to the party with the privilege to exercise the right.

Secondly, the Full Court determined that Exhibit A1 was not privileged because it did not disclose the substance of the communication. In making this determination, the Full Court noted there was a tension in the trial judge’s ruling that Exhibit A1 disclosed the substance of a privileged communication (and so was privileged) and yet required that other communication to be disclosed in order to have a proper understanding of it. Specifically, Exhibit A1 did not disclose EY’s findings about, for example, which controls or processes were affected, and the time they were effected.

Further grounds were raised concerning s 126 and abuse of process, which the Full Court declined to consider given the assumption required (that Exhibit A1 was privileged) was not available.

In the result, the appeal was allowed with the ruling set aside and a replacement ruling instituted.

PRIVILEGE

Legal professional privilege – third party report – implied waiver – whether voluntary disclosure to regulator inconsistent with maintenance of confidentiality – whether ‘derivative use’ and/or ‘derivative disclosure’ amounted to waiver of privilege.

The decision of Australian Securities and Investments Commission v Macleod [2024] FCAFC 174 (‘ASIC v Macleod’) examines important considerations as to what is required to establish legal professional privilege at common law and whether such privilege can be maintained when there are confidential disclosures of such privileged material made to third parties.

Background facts

The substantive proceedings that gave rise to the interlocutory application by the second respondent, Noumi Ltd (‘Noumi’), concerned allegations that from 1 January 2019 to 30 June 2020, Noumi had accumulated large amounts of unsaleable inventory in circumstances where there was no adequate policy in place for writing down the carrying value of that inventory (‘Inventory Issue’) (ASIC v Macleod at [15]). The first respondent and former director of Noumi, Mr Rory Macleod (‘Macleod’), was allegedly made aware of the Inventory Issue in early October 2019 (at [16]).

In March 2020, Noumi took steps to engage law firm, Ashurst, to provide legal advice relating to another matter concerning Noumi’s employee share option plan (‘ESOP Issue’) (at [17]). On or around 15 April, the third respondent and Noumi’s former Chief Financial Officer and Company Secretary, Mr Campbell Nicholas (‘Nicholas’), sought assistance from Ms Paddy Carney, a partner at PwC, in regard to the ESOP Issue. Nicholas was subsequently provided with a proposed scope of work regarding the ESOP Issue (at [18]).

On 30 May, Mr Trevor Allen, a former non-executive director of Noumi, sent an email to Nicholas and Macleod, addressing matters to be included in a brief to PwC. Among those matters was a ‘review [into] the process for determining the quantification of the stock provision requirement’ (at [20]).

On 5 July, an engagement letter was provided by Mr Stephen Longley, a partner at PwC, to Mr Perry Gunner, the Executive Chair of Noumi. That engagement letter confirmed the scope of PwC’s services and noted the Inventory Issue (at [25]).

On 8 July, Ashurst provided its investigation report into the ESOP Issue to Noumi. On 9 July, Noumi provided that report to the applicant, being the Australian Securities and Investment Commission (‘ASIC’), pursuant to a Voluntary Confidential Legal Professional Privilege Disclosure Agreement (‘VDA’) (at [26]).

On 20 August, a formal engagement letter between Ashurst and PwC was executed (at [27]). Ms Rani John, a partner at Ashurst, stated that Ms Cassandra Michie, a forensic accounting partner at PwC, was ‘engaged to assist … in the provision of advice to Noumi’ (at [28]).

On 28 September, PwC finalised their Report (‘PwC Report’) (at [32]).

On 14 October, ASIC and Noumi entered into another VDA concerning disclosure of the PwC Report (at [34]).

On 19 October, the PwC Report was provided by Ashurst to ASIC pursuant to the VDA (at [35]).

Procedural history

In the substantive proceedings, the Court made orders for the production of documents by ASIC (at [2]). Following first access granted to Noumi to examine the documents, an interlocutory application was filed by Noumi seeking a declaration that legal professional privilege attached to a number of documents including the PwC report (at [2]). The Court was only required to determine if legal professional privilege attached to the PwC Report and, if so, was that privilege waived by reason of disclosure to ASIC. The parties accepted the answer to that question would apply to all the other documents over which Noumi sought privilege (at [2]).

At first instance, Shariff J held legal professional privilege did attach to the PwC Report but such privilege was waived as there was derivative disclosure of the PwC Report to ASIC (at [3]).

On 28 May 2024, Noumi and ASIC filed applications for leave to appeal, contending the reasons and orders of Shariff J were attended with sufficient doubt as to warrant reconsideration by the Federal Court of Australia Full Court (‘FCAFC’) (at [5]).

Issues for consideration by the FCAFC

On appeal, there were three questions for the FCAFC to determine:

1. Was the decision attended with sufficient doubt to warrant leave to appeal pursuant to section 24(1A) of the Federal Court of Australia Act 1976 (Cth) (‘FCA Act’)?
2. Did the primary judge err in finding the PwC Report was protected by legal professional privilege?
3. If the answer to question 2 is no, did the primary judge err in finding the privilege had been waived through derivative disclosure?

Relevant legal principles

Leave to appeal

Under s 24(1A) of the FCA Act, leave of the FCAFC is required to appeal an interlocutory judgment. The test is whether the initial decision is attended with sufficient doubt as to warrant reconsideration on appeal, and whether substantial injustice would result if leave were refused (at [7] citing Décor Corporation Pty Ltd v Dart Industries [1991] FCA 844).

Legal professional privilege at common law

The FCAFC agreed with Shariff J’s examination of the principles regarding legal professional privilege at common law in the primary judgment, Australian Securities and Investments Commission v Noumi Ltd [2024] FCA 349 (‘ASIC v Noumi’) (at [75] citing ASIC v Noumi at [57]-[66]). The principles are summarised as follows:

• As this was an interlocutory proceeding in the Federal Court of Australia which did not involve adducing evidence, the question of legal professional privilege was to be determined by reference to the common law rather than the Evidence Act 1995 (Cth) (ASIC v Noumi at [57] citing Esso Australia Resources Ltd v Commissioner of Taxation [1999] HCA 67 (‘Esso’) at [16]-[17]).
• Only a communication that was brought into existence for the dominant purpose of giving or obtaining legal advice or the provision of legal services will attract legal professional privilege (ASIC v Noumi at [58] citing Esso at [61] and Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49 (‘Daniels’) at [9]).
• For privilege to exist and be maintained, the conditions for its existence must be strictly complied with and continue to exist (ASIC v Noumi at [59] citing Esso at [35] and Daniels at [9]-[11]).
• The party who claims privilege bears the onus of proving its existence (ASIC v Noumi at [63] citing Grant v Downs [1976] HCA 63).

Waiver of legal professional privilege at common law

The FCAFC summarised the relevant legal principles for waiver of legal professional privilege at common law as follows:

• Legal professional privilege protects the confidentiality of communications between a lawyer and a client (ASIC v Macleod at [132] citing Mann v Carnell [1999] HCA 66 (‘Mann’) at [28]).
• The client is the person entitled to the benefit of such confidentiality and who may relinquish that entitlement (at [132] citing Mann at [28]).
• Inconsistency between the conduct of the client and the maintenance of the confidentiality is what effects a waiver of the privilege (at [132] citing Mann at [29]).
• The provision of communications or documents the subject of legal professional privilege to a third party in circumstances where that third party is subject to an obligation of confidence will not, of itself, give rise to an ‘express or intentional general waiver of privilege’. That does not, however, prevent an implied waiver of privilege being effected by operation of the law in circumstances where fairness requires the privilege to cease because of an act or omission by the party entitled to the benefit of that privilege (at [135]–[136] citing Mann at [33]-[35] and Goldberg v Ng Hango Holdings Pty Ltd [1995] HCA 39 at [17]-[18]).

Findings of the FCAFC

Leave to appeal

The FCAFC held the decision of Shariff J was attended with sufficient doubt to warrant reconsideration by the FCAFC. It further held that a substantial injustice would result to both ASIC and Noumi if leave was refused. Consequently, leave to appeal was granted (at [8]).

Legal professional privilege at common law

The FCAFC held there was no error in the reasoning and analysis of the primary judge in finding the dominant purpose for the creation and bringing into existence of the PwC Report was to provide legal advice to Noumi, and for Noumi to obtain that legal advice (at [89]).

Waiver of legal professional privilege at common law

The FCAFC held the primary judge erred in finding that legal professional privilege over the PwC Report had been waived by reason of the PwC Report giving ASIC derivative disclosure (at [144]-[147]). Specifically, the FCAFC held derivative use of confidential information cannot amount to disclosure of that information, especially in circumstances where ASIC was prevented by clause 4.1 of the VDA from making such disclosure (at [147]).

Joanne Shepard is a barrister at 12th Floor Wentworth Selborne Chambers and Michael Morgan is a barrister at 13th Floor St James Hall.