3 September, 2015
WHAT YOU NEED TO KNOW
- In a recent decision of the NSW Supreme Court, the Court found that voluntary disclosure of a compliance manual to ASIC constituted a waiver of privilege over legal advice in relation to compliance where the content of the manual was "deployed" in aid of the party's position.
- Seeking to rely on evidence about a course of conduct in obtaining and acting on legal advice may be inconsistent with the maintenance of privilege in that legal advice.
- Care should be exercised before voluntarily disclosing compliance manuals and details of compliance programs, as this could result in the waiver of legal professional privilege over legal advice concerning compliance.
Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd
[2015] NSWSC 342; (2015) 105 ASCR 565
The issue
The issue in ASIC v Park Trent was whether Park Trent had waived privilege over legal advice by disclosing a compliance manual and relying on a course of conduct in obtaining and acting on legal advice in order to substantiate its defence and avoid relief being sought by ASIC.
Implied waiver of privilege
There may be an implied waiver of client legal privilege when the privilege holder engages in conduct that is inconsistent with the maintenance of privilege. In such a situation, privilege will be waived regardless of the subjective intention of the party claiming privilege.
Disclosure of the conclusion or effect of the privileged communication may not necessarily amount to waiver of privilege depending on the circumstances. A critical question is whether the content of the advice has been deployed to obtain some forensic or other advantage.
Background
ASIC applied for an injunction restraining Park Trent from providing financial services without a licence in contravention of section 911A of the Corporations Act.
During the initial investigation, Park Trent voluntarily disclosed a compliance manual to ASIC, which had been prepared by Park Trent's external solicitors. The compliance manual addressed compliance with financial services laws, consumer laws and marketing regulations. Compliance with the manual was actively monitored by the external solicitors.
Prior to an interlocutory hearing, Park Trent served affidavits and written submissions on ASIC. The affidavits made no explicit reference to the receipt of legal advice, but provided evidence as to the circumstances leading to the production of the compliance manual; the engagement of the external solicitors; the content of the compliance manual; seminars and training provided by the external solicitors to Park Trent and daily reviews of documents by the external solicitors to ensure compliance with financial services laws.
ASIC subsequently issued a notice to produce to Park Trent requesting the production of privileged communications between Park Trent and its solicitors concerning the preparation of the compliance manual and other compliance related reviews, training and advice. ASIC stated that these documents were reasonably necessary to enable a proper
understanding of the compliance manual. ASIC argued that privilege had been waived:
a) as a result of Park Trent seeking to rely on the fact that it had received legal advice and acted in accordance with that advice in order resist the relief being sought pursuant to s 122(2) of the Uniform Evidence Act 1995 (NSW) (the Evidence Act); and/or
b) over the whole of the advice pursuant to s 126 of the Evidence Act by Park Trent voluntarily disclosing the compliance manual which contained the substance of part of the advice.
Judgment
The Court proceeded on the agreed position of the parties that the compliance manual did not disclose the substance of the whole of the legal advice.
An implied waiver of privilege can occur at an interlocutory stage of proceedings
Park Trent argued that there could be no implied waiver at a preliminary stage of proceedings, because any waiver did not arise as a result of the matters pleaded in its defence and it had not yet served its evidence.
Sackar J held that waiver may arise at a preliminary stage and that it was possible that Park Trent waived privilege by serving on ASIC the affidavits and submissions.
Considerations of fairness do not include the fact that privilege is a common law right
Relying on the High Court's decision in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543, Park Trent submitted that in the context of the waiver of privilege in civil penalty proceedings considerations of fairness should include the seriousness of the allegation and the fact that privilege is a common law right, which should not be abrogated without clear words or a necessary implication to that effect.
The Court held that considerations of fairness were relevant, but not in the sense submitted by Park Trent. His Honour referred to the test set out in Mann v Carnell (1999) 201 CLR 1 and stated that, in the context of waiver of privilege, "overriding principles of fairness operating at large" are not relevant, rather the question is "whether it would be fair in the circumstances to maintain the privilege, given the conduct of the client and any inconsistency between
this conduct and the claim to privilege, to maintain the privilege."
Had Park Trent waived privilege?
ASIC argued that there was an implied waiver of privilege as a result of Park Trent expressly or impliedly making an assertion about the contents of otherwise privileged documents for the purposes of seeking to substantiate its defence and to avoid the injunctive relief sought by ASIC. ASIC's argument was twofold:
a) first, it was necessary to examine the legal advice given to Park Trent in order to determine whether or not Park Trent had changed its practices in order to comply with its legal obligations. ASIC should be entitled to consider the advice underlying the compliance manual to ensure that Park Trent did not have an unfair advantage in the litigation;
b) second, privilege was waived by Park Trent asserting that it had a particular state of mind, which it then relied on in arguing that the Court should refuse the relief sought by ASIC.
ASIC submitted that it was clear from Park Trent's submissions and affidavits that Park Trent had "sought to deploy" the fact that it had obtained and implemented the legal advice. This conduct was inconsistent with the maintenance of privilege in the documents.
Park Trent submitted that making statements concerning the actions it took to comply with the Corporations Act could not be inconsistent with the maintenance of privilege in circumstances where it would need to make such submissions as a defence to ASIC's case. In the alternative, Park Trent argued that there could be no waiver of privilege until the affidavits were read.
The Court held that the key question is to what extent has the party claiming privilege "deployed" the privileged material?
Park Trent wanted to take full advantage of its conduct and state of mind in addressing the complaints and concerns of ASIC. Park Trent's actions and state of mind were shaped by the legal advice they received. Sackar J held that "[t]o disclose, what I regard as the effect, or if you like the result, of the advice but not the advice itself both in relation to the compliance manual and review amounts to an inconsistency."
Alternatively, the disclosure of the compliance manual disclosed part of the advice, which caused the waiver of the whole advice ASIC, relying on s 126 of the Evidence Act, submitted that the disclosure of the compliance manual was disclosure of "part of the substance of the advice" and that the privileged documents sought were "reasonably necessary to enable a proper understanding of the compliance manual."
Section 126 requires that the source document be privileged in order for privilege to be waived over other documents reasonably necessary to understand the privileged source document.
Park Trent argued that the compliance manual itself was not a privileged document, as it was not prepared for the dominant purpose of providing legal advice; rather it was prepared for the dominant purpose of compliance. Further, the compliance manual did not refer to or otherwise disclose the advice.
Sackar J accepted ASIC's submission that the compliance manual was a privileged document in which privilege had been waived and that the privileged documents were necessary to enable an understanding of the compliance manual.
It is not clear from the judgment the basis on which the compliance manual on its own could have been a privileged document, but the affidavit evidence going to the external solicitor's extensive involvement in the preparation of the
compliance manual and the implementation of compliance reviews may have been a factor.
Conclusion
The Court held that it was inevitable that Park Trent would want to deploy the compliance manual and the ongoing compliance reviews on the issues of liability and on the question of relief. Park Trent would ultimately want the Court to consider and accept that, having attempted to unsuccessfully engage with ASIC, it adopted a responsible and reasonable course of conduct by retaining solicitors to advise.
His Honour held that, by seeking to take advantage of that course of conduct in its defence, Park Trent disclosed the effect of the legal advice, thus waiving privilege. Park Trent could not take advantage of the effect of the advice and yet maintain confidentiality in respect of it. "It should not as a matter of fairness be permitted to approbate and reprobate in the relevant sense."
For further information, please contact:
Peter Voss, Partner, Ashurst
peter.voss@ashurst.com
