A recent decision of the Federal Court of Australia provides a timely reminder, in the context of reports prepared by third-party experts, of the importance of:

1. at the time of making a privileged communication, ensuring that evidence will be available in support of a claim of privilege over the communication, in the event that it becomes necessary to make such a claim in the future. In particular, when retaining an expert to prepare a report for an internal investigation, ensure that any retainer or letter of engagement makes clear the privileged purpose for retaining the expert;
2. once a privileged report or communication has been made, ensuring that appropriate safeguards are in place to prevent conduct which could amount to a waiver of privilege over the communication; and
3. as the case shows, depending on the nature and structure of the privileged expert report, a disclosure of part of the report (even in an oblique way) may result in privilege over the entire report being waived.

Background facts and issues in dispute

TerraCom Ltd (TerraCom) is an ASX-listed resource explorer which was under investigation by the Australian Securities and Investments Commission (ASIC) for suspected contraventions of the Corporations Act 2001 (Cth).

As part of that investigation, ASIC executed a warrant at a certain TerraCom office and also issued TerraCom a notice to produce books and documents. The warrant resulted in ASIC seizing a report which had been prepared by PwC (PwC Report), pursuant to an engagement on behalf of TerraCom by TerraCom’s external lawyers (Ashurst) to provide forensic support in respect of an internal investigation. That investigation related to allegations made by a terminated employee of TerraCom against the company and its officers regarding the falsification of particular certificates. This, relevantly, gave rise to adverse media coverage.

TerraCom applied to the Federal Court seeking a declaration that legal professional privilege attached to the PwC Report, such that TerraCom was not obliged to produce it to ASIC in answer to the notice, and so that ASIC was not entitled to inspect the copy it had seized in executing the warrant.

ASIC opposed TerraCom’s application, broadly on two grounds. 

First, ASIC contended that TerraCom had not discharged its evidentiary onus of proving that privilege attached to the PwC Report.

Secondly, ASIC contended that any privilege over the PwC Report had been waived, by reason of:

1. the confidential provision of information to a communications advisory firm, Teneo, in the course of seeking advice from Teneo with respect to a communications strategy following the adverse media coverage regarding the allegations of wrongdoing made against TerraCom (Teneo Disclosure); and
2. the statements that had been made by TerraCom in an open letter to its shareholders (Shareholders Letter) and in a subsequent announcement to the Australian Securities Exchange (ASX Disclosure) regarding the allegations of wrongdoing made against TerraCom.

A further issue arose as to whether the statements in the Shareholders Letter and ASX Disclosure resulted in a waiver of privilege over the whole, or only part of, the PwC Report.

Did TerraCom discharge its onus of proving that the PwC Report was privileged?

ASIC contended that TerraCom had failed to adduce “focused and specific evidence” on whether the PwC Report was privileged and had instead resorted to “the use of verbal formulae”. In this connection, ASIC sought to resist TerraCom’s invitation for the Court to inspect the PwC Report as a means of confirming that it had been prepared for a privileged purpose, relying upon the decision of Hancock v Rinehart (Privilege) [2016] NSWSC 12 at [31] to submit that it was not open to the Court to examine the document at the invitation of the party claiming the privilege, but only at the invitation of the party resisting the privilege (in order to scrutinise and test the claim for privilege).

In order to determine whether privilege attached to the PwC Report, his Honour considered the letters of engagement that had been prepared by Ashurst and PwC in respect of the engagement to prepare the PwC Report, as well as an affidavit in support of the privilege claim that had been prepared by Mr Ransley, TerraCom’s Executive Chairman. In Stewart J’s view, based on those documents alone, it was obvious that privilege attached to the PwC Report. His Honour considered the dominant purpose test was satisfied as the letters of engagement with Ashurst and PwC made it clear that the purpose of the preparation of the PwC Report was for it to be given to Ashurst as a basis for Ashurst to give legal advice to TerraCom.

In those circumstances, his Honour did not need to inspect the PwC Report in order to determine whether privileged attached to it, and did not need to rule on the issue raised by ASIC as to whether it was open to the Court to do so on the invitation on the party claiming privilege.

Did the Teneo Disclosure amount to a waiver of privilege?

The Court found that TerraCom had not waived privilege over the PwC Report by the Teneo Disclosure. His Honour noted that information, including draft media statements, were kept within a confidential advisory relationship between TerraCom and Teneo and that there was no evidence that they were disclosed beyond Teneo. His Honour also accepted that the PwC Report was never provided or revealed to Teneo. Accordingly, TerraCom’s communications with Teneo were found not to have been inconsistent with the maintenance of privilege.

Did the Shareholders Letter and ASX Disclosure amount to a waiver of privilege?

Following media coverage regarding the allegations of wrongdoing made by the terminated employee, TerraCom published:

1. the Shareholders Letter which, relevantly, noted that “an independent forensic investigation was conducted and found no evidence of wrongdoing” by TerraCom’s CEO and CFO; and subsequently  
2. the ASX Disclosure in relation to the CEO and CFO which stated that: “… an investigation found that the allegations against them were unfounded and neither had done anything wrong”.

His Honour found that TerraCom’s reliance on, and voluntary public disclosure of, PwC’s finding of no wrongdoing by its CEO and CFO was inconsistent with the maintenance of privilege that otherwise attached to the report. Accordingly, privilege was waived as the gist or conclusion of the privileged communication was disclosed.

A factor in His Honour’s reasoning was that ASIC was not in a position to test TerraCom’s statements to its shareholders as to whether those statements were false or misleading without seeing the PwC Report. His Honour noted that it “would operate a tangible unfairness if TerraCom could, in effect, hide behind its statements as to the conclusion of the report whilst at the same time maintaining privilege over the report”.

Was privileged waived over part, or the whole of, the PwC Report?

Justice Stewart found that TerraCom had waived privilege over the PwC Report to the extent of the subject-matter of allegations that its CEO and CFO had been involved in wrongdoing. To that end, his Honour exercised discretion to examine the PwC Report to decide whether privilege over the whole PwC Report had been waived, or whether TerraCom’s disclosures meant that only parts of the report relating to that subject-matter would be waived.

His Honour found that given the way the PwC Report was structured, excising particular sections would leave them incomplete and liable to be misunderstood. In those circumstances, the Court found privilege was waived over the whole report.

Concluding remarks

TerraCom Ltd v ASIC serves as a timely reminder that the success of legal professional privilege claims will depend on the strength of available evidence in support of such claims and the care taken to ensure that privilege over the document has not been waived.

Authors: Richard Harris, Andrew Floro, Colleen Platford, Jason Oliver and Ahmed Gamar.