Voluntary disclosure of privileged information to regulators: the Full Court's decision in ASIC v Macleod

What you need to know

• The Full Court of the Federal Court of Australia unanimously allowed Noumi and ASIC's appeals from a first instance decision that provision of a privileged report by Noumi to ASIC under a Voluntary Disclosure Agreement (VDA) resulted in waiver of privilege in the report.
• With the period for any application to the High Court for special leave having expired, the Full Court's decision provides greater confidence that VDAs can be used to effectively preserve privilege in information shared with regulators.
• However, it's still necessary to exercise caution in entering limited waiver arrangements such as VDAs. Effectively protecting against waiver remains context-dependant.

What you need to do

• The Full Court's decision has important implications for the effectiveness of limited waiver arrangements such as VDAs. It provides reassurance that companies and individuals can disclose privileged information to ASIC, or other third parties, beyond the lawyer-client relationship, in a way that still preserves privilege 'as against the rest of the world'.
• Nevertheless, you should still be careful and deliberate in disclosing privileged information under limited waiver arrangements, and seek legal advice before doing so, as the ability to guard against waiver will depend on the facts and circumstances of each case.

Background

In May 2020, Noumi's Board began to become aware of accounting issues connected with the accumulation of large amounts of unsaleable inventory, where provision had not been made for that inventory in Noumi's accounts. The Board engaged Ashurst to advise. To assist it in providing legal advice to Noumi, Ashurst engaged a forensic accounting team from PwC to investigate and prepare a report in relation to various matters, including aspects of the inventory issues (the PwC Report). After receiving and considering the report, Noumi disclosed it to ASIC under a Voluntary Disclosure Agreement (VDA), with the express intention of preserving Noumi's privilege claim over the report against the rest of the world, and maintaining the confidentiality of the report.

After an investigation, ASIC commenced civil penalty proceedings against Noumi, Mr Macleod (Noumi's former CEO) and Mr Nicholas (Noumi's former CFO) in February 2023, alleging various contraventions of the Corporations Act 2001 (Cth). In those proceedings, ASIC gave informal discovery of all documents it had obtained during its investigation. This included the PwC Report. Noumi claimed privilege over the PwC Report and objected to the other parties having access to it. Mr Macleod disputed that the PwC Report was privileged. He also argued that if it was privileged, that privilege had been waived for several reasons, including because it was disclosed to ASIC pursuant to a VDA.

The VDA and its terms

When ASIC conducts an investigation, it has statutory powers to compel the production of documents, as it did in relation to Noumi. However, it does not have the power to compel the production of privileged material. The VDA is a form of agreement that ASIC has promoted since 2012 as a way for parties to share privileged information with ASIC on a confidential basis, while preserving the privileged character of that information against the rest of the world. Other regulators, such as the Fair Work Ombudsman, also have policies to accept voluntary confidential disclosure of information subject to legal professional privilege, on terms similar to those set out in ASIC's pro forma VDA.

Noumi essentially adopted the standard form VDA from ASIC's website (with some minor amendments). The key terms of the VDA agreed between Noumi and ASIC were as follows:

• ASIC will keep the PwC Report confidential. It will not disclose the report or the information in it other than to its external advisers and experts, and in limited circumstances, relevant Commonwealth Ministers or Parliamentary Committees, on a confidential basis.
• ASIC will not:
  • contend the PwC Report was not privileged because of its disclosure to ASIC; or
  • present the PwC Report as evidence in any proceedings.

• ASIC can:
  • use the PwC Report for its consideration of the subject matter of the investigation and its consideration of proceedings connected to the subject matter of the investigation; and
  • use the PwC Report to assist ASIC in obtaining other admissible evidence, that can be used against Noumi or third parties.

Under the last of those provisions, ASIC could use the PwC Report to assist it in identifying witnesses it may wish to talk to, and documents it may wish to seek, in its investigation. This was described in the first instance judgment as 'derivative use'. Once ASIC had engaged in that derivative use, it could use the fruits of it in its investigation and in any legal proceedings, including in legal proceedings against third parties (such as Mr Macleod).

The primary judge held that providing the PwC Report under the VDA led to waiver of privilege

In ASIC v Noumi [2024] FCA 349, the primary judge found that the PwC Report was privileged, a conclusion supported both by evidence of the subjective intention of the Ashurst partner who commissioned the report, and the terms on which PwC had been engaged by Ashurst.

However, his Honour held that Noumi had waived privilege by disclosing the PwC Report to ASIC under the VDA, because the VDA permitted 'derivative use' of the report. In his view, this was inconsistent with maintaining confidentiality of the report (notwithstanding that Noumi had expressly stated its intention to maintain confidentiality and privilege), and it gave ASIC an advantage over Mr Macleod, who did not have access to the report. Noumi's arguments that there was no unfairness to Mr Macleod, because he had full disclosure of ASIC's case and of the evidence relied upon by ASIC against him, were rejected.

This decision was the first time there had been a successful challenge to the VDA regime. It created uncertainty as to whether there were any circumstances in which ASIC's form of VDA could be effective, and left the door open for claims of waiver in relation to information shared under other limited waiver agreements.

The Full Federal Court found that provision of the PwC Report under the VDA did not waive privilege

Noumi and ASIC sought leave to appeal the primary judge's decision.

In ASIC v Macleod [2024] FCAFC 174, the Full Court unanimously allowed Noumi and ASIC's appeals, maintained the primary judge's finding that the PwC Report was privileged (at [89], [105]), and overturned his Honour's finding that privilege had been waived by provision of the PwC Report to ASIC. The Full Court also dismissed Mr Macleod's notices of contention in which, among other things, he challenged the primary judge's finding that the PwC Report was privileged.

The Full Court held, in relation to waiver:

a. Waiver occurs where the privilege holder acts in a manner that is inconsistent with maintaining privilege. Whether there has been inconsistency can be informed by considerations of fairness (at [129]-[140]). When Noumi provided the PwC Report to ASIC, Noumi intended that it remain confidential. The VDA contained an express term to this effect. By its terms, ASIC could use the PwC Report as set out in the VDA (as described above) but could not disclose its contents or tender it in evidence (at [142]-[143]).

b. ASIC's 'derivative use' of the information in the PwC Report was not equivalent to 'disclosure' of that information. The VDA expressly prohibited 'disclosure' of the information in the report. Permitting such use by ASIC (eg, to use the content of the PwC Report to identify lines of enquiry or potential witnesses) was not acting in a way that was inconsistent with the maintenance of the confidentiality which the privilege is intended to protect (at [145]-[147]).

c. The primary judge considered whether there was unfairness in disclosing the PwC Report to ASIC that may inform the conclusion as to inconsistency. His Honour concluded that unfairness of the requisite kind arose because Noumi had disclosed information to ASIC that ASIC could consider and use in its statutory investigations and potential proceedings against Mr Macleod, but maintained confidentiality over the same information as against Mr Macleod (at [149]).

d. The Full Court disagreed, finding that there was no relevant unfairness to Mr Macleod. The kind of unfairness needed to demonstrate inconsistency with maintaining privilege was forensic unfairness as between Noumi (the privilege holder) and Mr Macleod (the privilege challenger). Noumi did not disclose the PwC Report to ASIC to gain an advantage over Mr Macleod in related litigation, and mere information asymmetry does not of itself amount to unfairness. As Noumi argued at first instance, Mr Macleod was able to access material ASIC may have gathered through 'derivative use' of the PwC Report, that might be deployed against him in the proceedings, in the course of normal pre-trial processes (at [150]-[151]).

e. The Full Court did not accept other arguments raised in Mr Macleod's notices of contention on waiver, including that since the VDA recognised ASIC's obligations to disclose material to Parliament or the Minister in certain circumstances, this generated a relevant inconsistency with maintaining confidentiality. The existence of such a provision ought not to deprive the documents of legal professional privilege (at [155]).

Conclusion

Voluntary Disclosure Agreements are a useful tool for ASIC to access privileged information not otherwise available to it. From the perspective of a party providing information on that basis, VDAs offer a mechanism for assisting ASIC with its investigative activities, while maintaining privilege against the rest of the world.

The Full Court's decision has removed the uncertainty created by the first instance judgment, and confirmed that the VDA regime can be a valid and workable mechanism for disclosing privileged information to ASIC on a confidential basis, without waiving privilege more broadly.

Nevertheless, companies and individuals should still be careful and deliberate in disclosing privileged information, and seek legal advice before doing so, as the question of waiver will depend on the facts and circumstances of each case.

If you'd like assistance in dealing with limited waiver arrangements or other issues around protecting legally privileged information, please get in touch.

_{*Ashurst acted for Noumi at first instance and in the appeal.}

Authors: Rani John, Partner and Jacqui Turner, Lawyer.