The Federal Court decided
The Federal Court in
IN BRIEF
TerraCom Limited (TerraCom ) claimed legal professional privilege over a report prepared by PwC. The report was seized by an ASIC warrant (in the context of an investigation of suspected Corporations Act 2001 (Cth) breaches byTerraCom and its current and former officers and employees).-
The PwC report was prepared for the purposes of
TerraCom being provided with legal advice by a law firm (the Law Firm) in relation in relation to the issues arising from the allegations of misconduct made by a commercial general manager, and in relation to proceedings that were expected to be brought by him. -
The Court found that privilege "obviously" attached to the PwC report, but that a letter sent by
TerraCom to shareholders and an ASX announcement which conveyed the purported conclusion of the investigation waived the legal professional privilege over the report. The Court found that reliance byTerraCom on the finding in the PwC report of no wrongdoing by its CEO and CFO "is inconsistent with the maintenance of the privilege that otherwise attaches to the report".
Background
As part of the investigation, ASIC executed a warrant which caused a particular document, a "Project Rex Report" by PwC dated
The background to the PwC report
13 August 2019 :TerraCom terminated the employment of a commercial general manager,Justin Williams , in circumstances in which he had made serious allegations against the company and its officers and employees with regard to the falsification of certificates of analysis of coal exported byTerraCom .TerraCom instructed the Law Firm to act for it, and to provide legal advice to it, on the issues arising in relation to the allegations of misconductMr Williams had made. For that purpose, the Law Firm engaged PwC to provide forensic support in locating, identifying and providing a report to the Law Firm on potentially relevant materials and information so that the Law Firm could consider the report and provide their advice having regard to its contents.3 September 2019 :Mr Williams commenced a general protections application againstTerraCom in theFair Work Commission .Mr Williams made various allegations including thatTerraCom procured that certificates of analysis used as the basis for its commercial invoices to customers were fraudulently altered by the superintending company that produces such certificates of analysis. He alleged that he had detailed discussions withTerraCom's CEO about that conduct but that the CEO had instructed him to continue doing it.11 October 2019 :TerraCom appointed a communications advisory firm (the Communications Advisory Firm) to advise it on a communications strategy and to liaise with the media.16 December 2019 : the PwC report was produced.26 February 2020 :The Communications Advisory Firm emailed a first draft of a statement toTerraCom , which included the wording: "[a] forensic investigation found that the allegations were completely unfounded and that none of our employees did anything wrong".9 March 2020 : An article was published in the Australian Financial Review (the AFR). It reported thatMr Williams had made allegations ofTerraCom's coal analysis being faked with major laboratories' help. It reported thatTerraCom had highlighted its "independent forensic investigation" had found no wrongdoing.12 March 2020 :TerraCom published an open letter to shareholders in the AFR. The letter refers to the dispute withMr Williams concerning the termination of his employment, and states the following:
"As previously stated,
. for
2 April 2020 :The Communications Advisory Firm emailedTerraCom with a draft media statement, which included the words:
"As previously stated,
That investigation found that the allegations against them were unfounded and neither had done anything wrong."
The statement was published the following day as an ASX announcement.
The Court's findings
The PwC report was privileged
The Court found that the PwC report was "obviously" privileged on the basis that the purpose of the preparation of the report was for it to be given to the Law Firm as a basis for the Law Firm to give legal advice.
The Court restated that the test for waiver is whether there has been an inconsistency between what a client has done and retention of the privilege.
ASIC relied on three independent categories of disclosure of the substance, gist or conclusion of part or all of the PwC report outside of the privileged lawyer-client relationship as amounting to waiver of the privilege over the report: first, to the Communications Advisory Firm; second, in the open letter to shareholders; and third, in the ASX announcement on
Disclosure to the Communications Advisory Firm did not constitute a waiver of privilege
Prior to the report being finalised,
In those circumstances, the Court found that disclosure by
Letter to shareholders and ASX announcements did constitute a waiver of privilege
The Court held that reliance by
"
The Court said the voluntary disclosure of the gist or conclusion of legal advice amounted to waiver in respect of the whole of the advice to which reference was made including the reasons for the conclusion.
Accordingly,
How much of the privileged document was waived?
Without disclosing the full nature of the report, the Court summarised that the "relatively narrow" disclosure made by
However, in the Court's view, even to excise those sections of the report would leave them incomplete and liable to be misunderstood because of the way in which the report is structured and the manner in which the different concerns interrelate.
Accordingly, in the circumstances, the partial disclosure of the contents of the report led in this case to waiver of legal professional privilege in respect of the whole report.
Commentary
This decision is a timely reminder for companies which are (or whose officers are) the subject of a regulatory investigation or other court proceedings that great care needs to be taken when making public statements about the investigation or proceedings. There can be a natural temptation to use such reports for a commercial advantage; that is, to seek to maintain the company's (or its officers') good standing (or reputation) and the company's share price. However, this temptation needs to be balanced against the risk of a waiver of legal professional privilege.
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
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