As ASIC continues to exercise its broad-ranging enforcement powers, companies are regularly asked to provide sensitive material to the regulator including documents covered by legal professional privilege. Under the present statutory framework, ASIC has no power to compel the production of privileged material. For many years ASIC has accepted the production of privileged material under a "Voluntary Confidential LPP Disclosure Agreement" (so-called VDAs) from companies, under which a company will agree to provide privileged material to ASIC on the basis that the disclosure amounts to a limited waiver of privilege to assist ASIC but does not constitute a broader waiver of privilege. The VDA arrangements sought to promote the public interest in ASIC gaining access to privileged documents to facilitate ASIC's investigations and determinations.
Last week the Federal Court delivered a landmark judgment challenging the widespread acceptance of the effectiveness of VDAs as a mechanism to protect privilege. Significantly, the Federal Court found that a company (
Key background
In 2020,
ASIC eventually commenced proceedings in 2023 against
The decision
As an initial step, the Court was satisfied that the PwC Report was privileged.
Turning to waiver, the Court applied the well-established common law test, which requires examination of whether there has been conduct by the privilege holder that is inconsistent with the maintenance of privilege, where necessary informed by consideration of fairness. Applying that test, Shariff J was satisfied that the disclosure to ASIC did constitute a waiver. The key planks in his Honour's reasoning were:
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Under the VDA, ASIC could not disclose the PwC Report, or its contents, to another person, and could not use it in evidence. However, at the time of the disclosure,
- Although
Noumi disclosed the PwC Report to ASIC for a limited purpose, in the circumstances that disclosure permitted ASIC to use the information contained in the Report against third parties (includingMr Macleod ), even though the report itself could not be disclosed pursuant to the VDA. In this way, the purpose of disclosure went beyond internal consideration by ASIC. - Permitting ASIC to use the content of the PwC Report in a derivative way against
Mr Macleod in proceedings that could be brought against him was conduct that was inconsistent with the maintenance of confidentiality in the PwC Report as a privileged communication. According to Shariff J, it did not matter that ASIC could not present the PwC Report as evidence in proceedings or disclose it to any third party, other than in specified circumstances. In his Honour's view, this was because, in essence, ASIC was placed in a position where (if it so wished) it could seek to elicit any of the relevant evidence in the PwC Report by derivative means. - "Specific unfairness" arose in circumstances where
Noumi disclosed information to ASIC which it could consider and use againstMr Macleod but sought to maintain confidentiality over that same information as againstMr Macleod . - While the public policy of encouraging candid disclosure to ASIC was acknowledged, in
Justice Shariff's view "the objective of candid disclosure could have been equally promoted byNoumi disclosing the PwC Report to ASIC without attaching confidentiality to it or seeking to maintain privilege". His Honour also noted that ASIC's voluntary disclosure regime is not entrenched in statute and the public policy associated with facilitating candid disclosure would not apply to "every regulated entity on every occasion". - Whether a court would find that privilege had been waived where the privileged information was strictly legal advice, as opposed to factual investigation material that allows ASIC to build a case against future defendants.
- Whether a court's assessment of unfairness in considering a potential waiver would be affected if the privilege holder (here
Noumi ) was not a party to the proceedings, or if the privileged information was not being deployed directly against the party seeking to challenge the privilege claim. - Whether a court would find that privilege had been waived if the disclosure was made at a much earlier stage, where it was less clear to the disclosing party that ASIC was likely to commence a formal investigation (or who the subjects of any such investigation would likely be).
Potential implications
The Federal Court's decision appears to run counter to earlier authorities, which have held that a "limited waiver" (i.e. a disclosure on confidential terms, for a limited purpose) is effective in preserving privilege. It suggests that VDAs may not be effective to set up a limited waiver and may instead result in a blanket waiver of privilege. This same reasoning may apply to any arrangement where the discloser and receiver of privileged information agree that privilege is to be maintained despite the fact that disclosure has been made for a limited purpose.
The Court acknowledged that "[w]hether the sharing of that privileged material will give rise to waiver will be a matter to be determined on a case by case basis", as is the position in all privilege disputes. This leaves room to potentially narrow the application of the decision to its specific facts. However, given the risks and matters at stake, companies would be ill-advised to ignore the potential implications of
At its highest, the decision leaves any privileged information disclosed to a regulator under a VDA (or equivalent limited waiver agreement) open to a privilege challenge, whether in the context of regulatory proceedings or subsequent related claims such as class actions.
The exact bounds of the decision are unclear. Critical questions remain unanswered including:
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Whether ASIC's voluntary disclosure regime could be amended to better protect privilege in information voluntarily provided to ASIC.
Where to from here?
The uncertainty caused by this challenge to the usual VDA practice is unsatisfactory for companies and for ASIC. The parties will have 14 days in which to decide whether to seek leave to appeal. The judgment is clearly unhelpful to ASIC, in that it may dissuade companies from being prepared to share privileged materials with the regulator on a confidential basis. As such, ASIC may also take steps in response to the judgment such as issuing guidance to the market or seeking legislative change.
In the meantime, companies dealing with ASIC can be expected to proceed on the basis that VDAs may be ineffective to prevent a waiver of privilege, and should continue to seek legal advice prior to entering into any VDA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
NSW 2000
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