Legal Professional Privilege and Voluntary Disclosure to ASIC

The Full Court of the Federal Court of Australia has upheld an appeal by ASIC, finding that providing documents to ASIC pursuant to a Voluntary Disclosure Agreement does not necessarily constitute a waiver of legal professional privilege. Australian Securities and Investments Commission v Noumi Ltd [2024] FCA 349 is an important decision for the regulated community, particularly with respect to the engagement of external third-party consultants in the provision of legal advice and preparation of investigation reports which may ultimately be disclosed to regulators.

This decision delivers some clarity to corporates who may be considering disclosing confidential and privileged documents to regulators voluntarily.

Context

For over a decade, ASIC has utilised Voluntary Confidential Legal Professional Privilege Disclosure Agreements (VDAs) for the purpose of permitting it to gain access to documents the subject of legal professional privilege claims by recipients of compulsory production notices issued by ASIC.

The utility of VDAs has been two-fold: they may permit regulators to fast-track investigations by electing to accept privileged information on agreed terms. Companies on the other hand consider entering into a VDA to cooperate with a regulator, while maintaining their rights to claim privilege over privileged information produced.

However, a decision of the Federal Court in 2024 highlighted a key risk to the use of VDAs: that the voluntary disclosure of documents pursuant to such a regime may result in the waiver of legal professional privilege.

At first instance

At first instance, the Federal Court in Australian Securities and Investments Commission v Noumi Ltd [2024] FCA 349 held that there was a waiver of legal professional privilege by the voluntary provision of documents to ASIC under a VDA.

The proceedings followed an investigation by ASIC into Noumi Ltd (Noumi) (formerly Freedom Foods Group Ltd) which in part focused on irregularities in the company’s accounts. Noumi’s solicitors commissioned a report from PwC (PwC Report) which provided factual findings as to the involvement and knowledge of numerous people, including their former CEO.

Noumi had disclosed the PwC Report to ASIC under a VDA which was prepared in the standard form with some minor amendments as agreed between the parties. The stated purpose of the disclosure was to assist ASIC with its investigation, including an examination of allegations concerning current and former executives, and made clear that Noumi did not intend to waive privilege over the PwC Report.

In 2023, ASIC commenced proceedings against Noumi, and its former CEO and CFO for alleged contraventions of the Corporations Act. During the discovery stage of these proceedings Noumi claimed privilege over the PwC Report. This was disputed by Noumi’s former CEO who claimed that the PwC Report was not privileged and alternatively that privilege was waived by reason of Noumi’s disclosure to ASIC. In response, both ASIC and Noumi made submissions that the PwC Report was privileged, and importantly that privilege had not been waived.

While the Federal Court agreed that the PwC Report was privileged, the Court was satisfied that privilege had been waived. The Court held that Noumi had permitted ASIC to consider the information contained in the PwC Report in connection with investigating the conduct of its former CEO and that the disclosure was inconsistent with the maintenance of confidentiality in the PwC Report. The key reasons for the Court’s findings were:

1. The terms of the VDA inform the question as to whether there was a waiver of privilege.
2. Whilst under the VDA ASIC could not use the PwC report as evidence in proceedings or provide it to any third party, ASIC could use the information in the PwC Report for its investigations or proceedings against the former CEO and to elicit evidence in the PwC report by derivative means.

The Court held that the disclosure of the PwC Report to ASIC for the purpose of permitting ASIC to utilise the information contained therein to assist ASIC’s investigation against the former CEO was inconsistent with the maintenance of confidentiality and legal professional privilege.

The appeal

Following an appeal by ASIC and Noumi, the Full Court of the Federal Court of Australia overturned the first instance decision. The Court first considered whether the dominant purpose for creating PwC Report was the provision of legal advice. The Court received a number of submissions from the former CEO that the PwC Report dominant purpose was something other than being for the provision of legal advice, including, for example, that it was prepared to assist in implementing solutions and controls to satisfy the public and Noumi’s shareholders of its commitment to corporate governance, and facilitate a good corporate culture. The Court found that the law firm’s terms of engagement with PwC established that the preparation of the PwC Report was to be at the direction of the law firm, the scope of the PwC Report was shaped and refined by the firm, and the PwC Report was created to assist the firm in providing legal advice to Noumj. The Court ultimately affirmed the finding of the primary judge that the dominant purpose of the PwC Report was the provision of legal advice, which resulted in the PwC Report being subject to a valid claim for legal professional privilege.

The Court agreed with the primary judge that Noumi sought to maintain confidence over the PwC Report, given the terms of the VDA expressly sought to maintain confidence except in limited circumstances. However, the Court disagreed with the primary judge’s view that Noumi’s disclosure of the PwC Report, in the knowledge that it would be used by ASIC to support its statutory investigations (for example, to identify witnesses to examine or areas to explore), was inconsistent with the maintenance of privilege. The Court determined that this ‘derivative use’ of the information by ASIC did not amount to disclosure of the information, which was expressly prohibited in the VDA.

The Court then turned to the primary judge’s finding that there was unfairness as a result of the production. This finding was made on the basis that Noumi had disclosed information to ASIC that it could consider and use in its investigations and potential proceedings against Mr Macleod, but which was inaccessible to him.

While the Court acknowledged that there was an ‘information asymmetry’ between the parties, it noted that this does not of itself amount to unfairness, nor does the mere withholding of relevant material. To be inconsistent with the maintenance of privilege, the unfairness between Noumi and the former CEO had to be ‘forensic unfairness’. Here, the Court determined that Noumi did not gain an advantage over Mr Macleod by disclosing the information to ASIC that could be said to be forensic unfairness. This was supported by the primary judge’s finding that there was no subjective intention on Noumi’s part to gain an advantage or forensic benefit. Further, the former CEO was not deprived of anything he was entitled to by the disclosure of the PwC Report to ASIC. This is because he was still entitled to access materials and admissible evidence that ASIC sought to use against him during the usual pre-trial processes.

Tips moving forward

The decision provides helpful guidance for persons who may consider disclosing privileged information to regulators voluntarily and the potential consequences of doing so. It is salient for companies, and their advisors, moving forward to:

• ensure that when engaging third-party legal advisors and consultants to provide legal advice and prepare investigation reports that the terms of engagement and the dominant purpose of the engagement are clear;
• ensure strict protocols are in place for the maintenance of legal professional privilege over documents so as to not inadvertently waive privilege; and
• exercise caution when disclosing documents to ASIC under a VDA.

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Authored by:
Daniel Maroske, Partner
Matthew Lunney, Partner
Anna Fanelli, Senior Associate
Timothy Buckley, Senior Associate
Benjamin Jones, Lawyer
Caitlin Holmes, Lawyer