Director fails to access ASIC’s pre-litigation witness communicationsOct 2019 | Insurance
On 9 September 2019, in Australian Securities and Investments Commission v Mitchell,1 Justice Beach2 once again provided a clear explanation of the relevant test to be satisfied when seeking to rely on litigation privilege.
In dismissing a director’s challenge to the Australian Securities and Investments Commission’s (ASIC) claims to litigation privilege, his Honour confirmed the test requires the party claiming privilege to show the confidential documents in question were created for the dominant purpose of use in existing or reasonably anticipated litigation.
Various types of privilege exist at common law and under statute.3 Litigation privilege, alongside legal advice privilege, falls under the umbrella of legal professional privilege (LPP). LPP is commonly relied upon by disputing parties to withhold from disclosure confidential communications by which they give or receive legal advice or prepare for litigation.
On 16 November 2018, ASIC commenced a civil penalty proceeding4 against former Tennis Australia Ltd directors, Harold Mitchell and Stephen Healy (directors). The proceeding concerns Tennis Australia Ltd’s 2013 decision to award the domestic television broadcast rights of the Australian Open to the channel Seven Network without any competitive tender process.
ASIC alleges the directors breached their director duties under the Corporations Act 2001 (Cth) and ought to pay a pecuniary penalty and be disqualified from managing corporations.
In the course of the civil penalty proceeding, a dispute arose about ASIC’s decision to withhold certain documents created from 5 July 2017 about communications it had with potential witnesses and their lawyers for the purpose of eliciting evidence. The identified point in time:
- was after ASIC commenced its investigation and appointed in-house litigation counsel;
- coincided with ASIC briefing senior and junior counsel to advise whether it had reasonable grounds to commence a proceeding against the directors; and
- was before ASIC received counsel’s opinion on prospects and before litigation was commenced.
ASIC’s submissions were to the effect that each document was made for the purpose of, or in connection with, gathering the evidence of potential witnesses for the proceeding or otherwise to assist ASIC prepare witness evidence in the proceeding.
Mr Mitchell submitted that a reasonable anticipation of litigation could only exist when there were reasonable grounds for bringing the litigation (i.e. once counsel had given their advice on prospects), that as at 5 July 2017 there was no more than the 'mere possibility' of litigation rather than a real prospect of litigation, that a number of the documents were for the purpose of compliance with ASIC’s compulsory powers and that ASIC, overall, failed to demonstrate the documents were created or made for the dominant purpose of use in any anticipated litigation.
The director’s submissions were not accepted.
Despite numerous media outlets5 reporting that Mr Mitchell’s team accused ASIC of withholding critical documents, delay, obstruction and stalling tactics, the Court had no hesitation dismissing the director’s challenge to ASIC’s claims to LPP.
Justice Beach confirmed the relevant test for claiming litigation privilege is whether the communication (or document recording the communication) was created for the dominant purpose of use in existing or reasonably anticipated legal proceedings. The documents must also be confidential – but this was not an issue in dispute.
Citing Ensham Resources6 with approval, his Honour noted that a proceeding is 'reasonably anticipated' if it is 'more likely than not or is a real prospect' (as distinct from being a 'mere possibility' only). The judge found that, by 5 July 2017, there was a reasonable anticipation of litigation in terms of it being a 'real prospect' even if it was not at that time 'more likely than not'.7 On the evidence, the judge was satisfied that the 'dominant' purpose was the litigation even if there was also an investigative purpose underlying some of the documents.8
His Honour helpfully summarised the following nine relevant principles:9
- Claims for privilege are to be assessed under common law principles rather than under s 119 of the Evidence Act 1995 (Cth), as the question concerns the dominant purpose of the document rather than whether the document should be adduced in evidence;
- The party claiming privilege bears the onus of proving each factual element necessary to establish a communication’s confidential nature and requisite dominant purpose;
- The relevant time for ascertaining purpose is when the communication was made or came into existence (for example, in considering a copy of a document, the purpose for creating the copy is relevant rather than the purpose for creating the original);
- The particular circumstances of each case will dictate whether the relevant purpose is that of the author of the communication or that of the person who requested it;
- The purpose is to be objectively ascertained and requires consideration of all the facts and circumstances (subjective intention of the author or requester is also relevant, but not determinative);
- The requisite purpose must predominate (it is insufficient to show a substantial purpose or a purpose that is one of two or more equal purposes);
- It may be that all or only part of a document meets the dominant purpose test;
- A document may be privileged to the extent to which it records a privileged communication, even if the document itself would not satisfy the dominant purpose test; and
- The Court has the discretion to examine the documents in question, but should generally not do so if the affidavit evidence sufficiently identifies the documents and the claim to privilege appears to be properly made.
Particularly relevant to the Federal Court’s decision to uphold ASIC’s claim for litigation privilege was that ASIC’s affidavit material sufficiently identified each document by reference to the maker of the communication, the reasons or purpose for making the communication, the subject matter of the communication, and the person for whom the communication was made.10 The Court was therefore able to satisfy itself that ASIC’s claims to privilege appeared to be properly made.
The civil penalty proceeding against the directors is listed for a three week hearing commencing 4 November 2019.
ASIC’s usual approach to claims of LPP is outlined in its investigation and enforcement information sheets, which confirm the recipient of an ASIC compulsory notice may – but is not required to – waive LPP.11 Nonetheless, the regulator is demonstrating that it is increasingly prepared to take a hard line in its investigations and subsequent civil penalty proceedings against directors and officers; particularly in relation to documents withheld on the basis of privilege.
In recent times, ASIC has sought to adduce in evidence at hearing otherwise privileged documents acquired through its compulsory information gathering powers,12 challenged other party’s claims of privilege,13 publically announced that it is prepared to take court action where needed to resolve inappropriate LPP claims14 and sought to uphold claims of privilege over its own documents.15
This decision not only articulates the test for litigation privilege, but also provides a useful reminder that:
- ASIC will seek to enforce its rights to withhold the disclosure of documents protected by LPP, while actively pursuing potentially discoverable documents from the parties it seeks to prosecute; and
- Directors and officers the subject of an ASIC prosecution may face an uphill battle to access ASIC documents if there is a reasonable argument those documents may have been created for reasonably anticipated litigation.
Inquiries and prosecutions can be a significant cost burden for corporations, directors and officers. As a director or officer, it is important that you and your company’s legal, risk and compliance staff are aware of your rights and obligations when faced with an ASIC compulsory notice. It is also important to consider your company’s insurance needs and have in place appropriate insurance that will, amongst other things, cover you for legal costs incurred in defending investigations, inquiries and prosecutions.
1 ASIC v Harold Mitchell & Anor  FCA 1484.
2 The same Federal Court judge who decided Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Ltd (No 4)  FCA 796 (see Carter Newell’s previous case note: <https://www.carternewell.com/page/Publications/Archive/When_disclosure_to_an_insurer_risks_waiving_privilege/>.
3 Including, for example, 'common interest privilege', 'without prejudice privilege' or 'privilege against self-incrimination'.
4 See VID1449/2018 ASIC v Harold Mitchell & Anor, <https://download.asic.gov.au/media/4941086/18-346mr-originating-process.pdf>.
5 See <https://www.smh.com.au/business/banking-and-finance/wholly-unsatisfactory-harold-mitchell-lawyers-slam-asic-for-delays-20190801-p52crn.html
6 Ensham Resources Pty Ltd v AIOI Insurance Company Ltd (2012) 209 FCR 1.
7 ASIC v Harold Mitchell & Anor  FCA 1484 , , .
8 Ibid .
9 Ibid  - .
10 Ibid .
11 INFO 165 at <https://download.asic.gov.au/media/1339100/infosheet-165-legal-professional-privilege.pdf and INFO 145 at <https://asic.gov.au/about-asic/asic-investigations-and-enforcement/asic-s-compulsory-information-gathering-powers/>.
12 ASIC, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd  FCA 324.
13 See for example ASIC v Park Trent Properties Group Pty Ltd  NSWSC 342; VID1602/2018 ASIC v AMP Limited & Anor available at https://download.asic.gov.au/media/4966656/18-379mr-originating-process-amp.pdf>
14 See <https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-052mr-amp-and-clayton-utz-surrender-in-asic-court-battle-over-failure-to-produce-documents/>.
15 See for example Bolton v ASIC  AATA 4640; ASIC v Harold Mitchell & Anor  FCA 1484.
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