Regulatory investigations and legal professional privilege: key take aways from ASIC v Macleod

Introduction

While there is not a one‑size‑fits‑all approach to be taken to regulatory investigations, sometimes voluntarily providing information and documents to regulators can assist in obtaining better outcomes. However, legitimate concerns exist about whether legally privileged documents should be provided to regulators and, if so, whether voluntary disclosure agreements (or ‘VDAs’) can work to keep the documents privileged.

The Full Court of the Federal Court of Australia’s decision in ASIC v Macleod[1] considered these issues.

Relevant facts

Suppose the following:

• a law firm engaged by a company hires an expert third party to undertake an investigation to find out the facts so legal advice can be given to the company
• this occurs and the law firm receives the expert report and uses it to provide legal advice to the company
• subsequently, the corporate regulator investigates the company and executives
• the company wants to help the regulator to understand facts by providing the privileged report
• disclosure of the report will mean that privilege in the report is lost and the regulator could use the report against the company and executives
• to attempt to avoid losing the privilege, the company and the regulator enter into a VDA
• the regulator then sues and the executives, who have never seen the report, want access to it
• the company and regulator resist producing the report and claim it is privileged.

These were substantially the circumstances that arose for Noumi (formerly Freedom Foods Group) Pty Ltd with ASIC. The third-party accountant’s report was obtained on instructions from the company’s lawyers and, together with other privileged documents, was provided to ASIC after the company and ASIC entered into a VDA.

ASIC sued the company, its former CEO and another, the former CFO. The claim against the company and the CFO was determined by admissions and agreed orders. The claim against the former CEO continued and a dispute arose about whether the former CEO was entitled to a copy of the accountant’s report. The former CEO argued that the report was not privileged and, even if it was, then the voluntary disclosure of the report to ASIC meant that privilege had been waived. ASIC and Noumi argued the report was privileged and that the VDA had the effect that there had been no waiver.

Was the report privileged?

A document attracts privilege protection if it was brought into existence for the dominant purpose of giving or obtaining legal advice or the provision of legal services.[2] This is known as the dominant purpose test.

The dominant purpose test can be challenging to apply where documents are brought into existence for more than one purpose. Where this is the case, ‘dominant’ purpose will be the purpose that is found to be the ‘prevailing or paramount purpose or one which predominates over other purposes’.[3]

The trial judge found that the report was commissioned for the purpose of providing legal advice and not, as the former CEO alleged, for the purpose of being provided to ASIC. The Full Court agreed and found the report was privileged.

Did the VDA protect privilege in the report?

Whether there is a waiver of privilege depends on the circumstances. Waiver can either be express or implied. Whether there is an implied waiver depends on whether, in the circumstances, there is conduct by the privilege holder that is inconsistent with the maintenance of confidentiality that the privilege is intended to protect.[4] The test of inconsistency can be informed by questions of specific unfairness but not some overriding principle of general unfairness.[5]

The trial judge initially found that the company waived privilege over the report by allowing ASIC to make derivative use of the information in the report under the VDA. However, the Full Court disagreed, stating that using information in the report is not the same as disclosing that information. The VDA explicitly barred ASIC from disclosing the report’s confidential information. It was found that the use of information did not breach the confidentiality in the report because the report had not been disclosed. Thus, the Full Court concluded that Noumi had not acted inconsistently with maintaining confidentiality because the VDA protected the report against disclosure.

The former CEO also claimed there was specific unfairness since the report could be used against him without his access. The Court dismissed this, stating that withheld material alone does not imply an inconsistency needed for an implied waiver. Accordingly, the Full Court reversed the trial judge’s decision and held that ASIC’s VDA was so drafted as to preserve legal professional privilege in the circumstances of the case.

Comments

The Court’s decision provides useful clarification for those considering the voluntarily disclosure of privileged materials to regulators like ASIC. It also provides some guidance on voluntary disclosure in non-regulatory contexts.

However, it should not be taken as a blanket recommendation for parties to hand over privileged documents without legal advice on the drafting of the VDA to ensure confidentiality is maintained. For disclosures to ASIC, very careful consideration should be given as to whether there should be disclosure and of the proposed VDA terms.

Businesses and in-house counsel should ensure robust internal controls for handling privileged documents exist. The decision highlights the importance of considering all options and seeking advice during regulatory investigations regarding the disclosure of privileged material and the potential terms of VDAs. Maintaining clear records of voluntary disclosure decisions and engaging early with external lawyers when regulators approach is also crucial.

Cooper Grace Ward’s market-leading disputes and litigation team and its corporate advisory team understand the balance between protecting business interests and meeting regulatory requirements. With extensive experience in handling investigations and acting in regulatory disputes and litigation, the CGW teams can assist in preparing for and responding to any kind of regulatory matter.

[1]           [2024] FCAFC 174

[2]           Esso Australia Resources Ltd v Cmr of Taxation (1999) 201 CLR 49 at [61]; Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [9].

[3]           AWB v Cole [2006] FCA 571 at [105]; Archer Capital 4A Pty Ltd as trustee for the Archer Capital Trust 4A v Sage Group plc (No 2) [2013] FCA 1098 at [11]; Kenquist Nominees Pty Ltd v Campbell (No 5) [2018] FCA 853 at [11].

[4]           Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29].

[5]           Cantor v Audi Australia Pty Ltd [2016] FCA 1391 at [88] applying Mann v Carnell (1999) 201 CLR 1; Australian Securities and Investments Commission v Noumi Ltd [2024] FCA 349 at [102].