In response to the catastrophic failure of the C4 power unit at the Callide Power Station on 25 May 2021, the leadership and board of Callide Energy Pty Ltd, which operated the power unit on behalf of its owners, did what was expected of them. They launched an independent investigation into the causes of the incident, made public statements about preventing similar incidents from recurring and briefed solicitors to provide legal advice in relation to the incident and to engage the independent expert Dr Sean Brady.
The solicitors too did what was expected of them and engaged Dr Brady via a confidential letter that properly set out the expert’s obligations of confidentiality and noted the application of legal professional privilege to all communications between the expert, the solicitors and Callide Energy.
Why is it then, that on 13 June 2024 in the decision in Sparks, in the matter of IG Energy Holdings (Australia) Pty Ltd (Administrators Appointed) [2024] FCA 613 , Justice Derrington of the Federal Court of Australia found that legal professional privilege does not attach to Dr Brady’s report, any drafts of that report or communication between the expert, the solicitors and Callide Energy?
Legal Professional Privilege
The rules of legal professional privilege are well understood if imperfectly practiced. As summarised by the judge, “privilege attaches to a confidential communication between a client and lawyer made for the dominant purpose of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings”. Justice Derrington also adopted the reasoning in the recent decision in Robertson v Singtel Optus Pty Ltd , where Justice Beach referred to his earlier judgment in Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Ltd (No 4) [2014] FCA 796 in support of and to develop the following propositions:
that “[i]t is not sufficient to show a substantial purpose or that the privileged purpose is one of two or more purposes of equal weighting; rather it must predominate, and be the paramount or most influential purpose”;
that the burden of establishing that legal professional privilege exists falls on the party claiming that privilege to prevent disclosure; and
that “[t]he purpose of the communication is that which is objectively ascertained, even though the subjective intention of the author or person requesting the creation of the document may be significant”.
In short, legal professional privilege applies to a narrow scope of information, must be actively protected from inconsistent disclosure and may be waived by a communication despite a person’s sincere subjective intention and belief to the contrary.
Many purposes
Faced with a subpoena from an indirect owner of the C4 power unit that sought the disclosure of the Brady report, its drafts and all communications related to it, Callide Energy did not dispute that there was more than one purpose for Dr Brady’s report. Callide Energy accepted as true its public statements that the report was also to be obtained for the purpose of ascertaining how the failure of the C4 unit occurred so that:
the safety of workers and plant could be improved; and
a separate report could be prepared for public dissemination so that the power generation industry at large could learn from the incident.
As a whole, the steps taken by Callide Energy (a state-owned company) appear to strive for a model response to an event that endangered the lives of workers and concerns the provision and potential improvements in the provision of a public good, while also making every effort to preserve privilege, including by instituting an internal communications protocol and a communications protocol with the Queensland Government in relation to the report.
Essential tension
Callide Energy, however, could not escape the essential tension between its otherwise commendable intentions to use the report for a number of publicly beneficial purposes and the efforts it made to preserve privilege over the report. In affidavits and submissions to the court, Callide Energy contended that the steps taken to preserve legal professional privilege established that Callide Energy’s subjective dominant purpose in commissioning the report was obtaining legal advice from its solicitors.
Justice Derrington instead found that, despite Callide Energy going to greater lengths to characterise the procurement of the Brady report as being for the requisite dominant purpose than Singtel Optus did in relation to its expert, the public statements made by Callide Energy articulated other important purposes for the report. These purposes that were so important to Callide Energy, concluded the judge, that they “felt compelled to publicly articulate them and did so repeatedly.” As a result, Justice Derrington found it impossible to conclude that the procurement of legal advice was the dominant purpose in engaging Dr Brady.
Where to from now: Conflict Between Public Disclosure and Legal Privilege
The decisions in Robertson v Singtel Optus Pty Ltd [2023] FCA 1392 and in the present case illustrate the apparent incompatibility of both:
taking the appropriate steps to publicly respond to a significant public incident, which response necessarily involves some disclosure about the root cause of the incident and steps being taken to prevent its recurrence; and
obtaining expert advice to which legal professional privilege attaches so that the company may receive legal advice on how to appropriately protect or assert its legal rights, including in the context of legal proceedings.
In this context, we also note that expert reports are frequently procured in the construction industry and represent a best practice response to issues and disputes arising during or post-delivery as they enable the commissioning party to more fully inform itself of the often complex circumstances encountered. If such information cannot be adequately protected by privilege, there is a real concern that parties may approach decision-making and dispute resolution without having the best information available.
This problem is, of course, not new and is commonly overcome by engaging separate experts to deliver reports that respond to different purposes. This naturally involves the duplication of costs and the possibility that experts may present inconsistent analysis and recommendations. However, such inconsistency need not be made public (provided that experts are appropriately engaged by solicitors) and privilege may be maintained over a report even if certain findings or recommendations are made public as long as their provenance is not disclosed (noting that this disclosure may beg the question of how these finding and recommendations were arrived at).
What should have Callide Energy done after the explosion at the C4 power unit? We suggest that the appropriate course of action was to engage:
an expert to deliver a report akin to Dr Brady’s for the sole purpose of procuring legal advice from Callide Energy’s solicitors in relation to its culpability for and thus its exposure in relation to the incident; and
a separate expert to address matters of public concern, such as safety and lessons learnt for the energy sector.
We acknowledge that the work of the second expert could not easily or properly be completed without making findings or conducting investigations that go to the company’s culpability. However, if properly instructed and depending on the circumstances, this second expert could still complete and deliver a useful piece of work, albeit a piece of work that would be essentially limited by the need to keep certain information and lines of inquiry privileged and thus inaccessible to this second expert.
Overall, the need to preserve legal professional privilege over information that goes to a company’s rights and liabilities must be balanced against the public interest in disclosure on the basis of fully independent and transparent investigations and the social responsibility a company may have to those with whom it interacts and whom it may affect.
While some may suspect that the metaphorical shade provided by privilege and the corporate veil fosters the growth of poisonous mushrooms like cover-ups and half-truths, we say that it may instead lead to the internalisation of hard lessons uncovered through unimpeded (but privileged) investigations and that unique innovation that arises from failure.
Does this mean that the public and the industry at large are deprived of true transparency? Yes, but society insists on full transparency in only limited circumstances, in areas where the state wields the power necessary to protect lives and preserve public goods. Where that power of the state is not or should not be applied, a company (even a state-owned one) is free and right to protect its interests first and disclose to the public and the industry only that which is not inconsistent with the protection of those interests.