Full Federal Court upholds effectiveness of voluntary disclosure agreement in ASIC v Macleod [2024] FCAFC 174

In brief

• The Full Court has allowed an appeal to overturn a previous Federal Court decision which found that Noumi had waived privilege in an investigation report by disclosing that report to ASIC under a Voluntary Disclosure Agreement (VDA).
• While the Full Court’s decision confirms that VDA arrangements can be an effective way to maintain legal professional privilege, its reasons underscore the need for care to be taken before commissioning an investigation report, and entering into any limited waiver arrangement, such as VDAs.

Executive summary

Last year, the Federal Court delivered a significant judgment that called into question the effectiveness of VDAs as a means of protecting legal professional privilege in materials disclosed under those arrangements: see ASIC v Noumi Ltd [2024] FCA 349. In that judgment, the Federal Court found that a report prepared by PwC had been the subject of a proper claim for privilege but that Noumi had waived that privilege by disclosing it to ASIC under a VDA. Both ASIC and Noumi applied for leave to appeal the decision.

The Full Court has now made orders allowing the appeals and finding that Noumi did not waive privilege in the PwC report by disclosing it to ASIC under a VDA.

Recap and key background

In 2020, Noumi was engaging with ASIC regarding issues around Noumi’s quantification of inventory. Noumi agreed to provide ASIC with a copy of an investigation report prepared by PwC relating to those issues. PwC had been engaged by Noumi’s external lawyers on behalf of Noumi to enable its lawyers to provide legal advice. 

ASIC subsequently commenced proceedings in 2023 against Noumi, its former CEO (Mr Macleod) and its former CFO, for alleged contraventions of the Corporations Act 2001 (Cth) associated with disclosures of inventories in Noumi’s financial reports. In the discovery process, Noumi sought to claim privilege over the PwC report. The privilege claim was challenged by Mr Macleod, who primarily argued: first, that the PwC report was not privileged, and in the alternative, that Noumi’s voluntary disclosure of the PwC report to ASIC gave rise to an implied waiver of privilege. ASIC sought to be heard on the question of waiver and made submissions in support of the effectiveness of the VDA.

The primary judge was satisfied that the PwC report was privileged, essentially accepting the objectively discernible purpose of Noumi’s external lawyers in commissioning it (being to provide legal advice and professional legal services to Noumi). That purpose was shared by members of Noumi’s Board, who received the PwC report from Noumi’s external lawyers.

However, the primary judge held that Noumi’s conduct in providing the report to ASIC under a VDA was inconsistent with the maintenance of privilege, as it enabled ASIC to use the report ‘in a derivative way’ against Mr Macleod. Additionally, specific unfairness arose insofar as Noumi sought to maintain confidentiality over the PwC report in circumstances where ASIC could use and consider that same information against Mr Macleod.

The Full Court’s decision

The key issues that arose for the Full Court’s determination can be summarised as follows:

• Mr Macleod challenged the primary judge’s findings that the dominant purpose test was satisfied such that the PwC report was properly subject to a valid claim for legal professional privilege; and
• ASIC and Noumi contended that the primary judge erred in finding that Noumi waived legal professional privilege in the PwC report by disclosing it to ASIC pursuant to a VDA. ASIC also challenged certain aspects of the primary judge’s construction of the VDA.

What was the dominant purpose of the PwC Report?

The Full Court rejected Mr Macleod’s grounds of contention and upheld the primary judge’s finding that the PwC report was privileged. In doing so, the Full Court placed emphasis on the terms of the engagement with PwC, which required PwC to perform work ‘at the direction’ of Noumi’s external lawyers in order to assist those lawyers to provide legal advice. The Full Court also accepted that PwC’s work did not amount to a factual investigation into the inventory issue ‘generally’ or ‘“what happened” at large’.

Importantly, the Full Court considered that the primary judge was correct to accept the evidence of Noumi’s external lawyers that the PwC report was commissioned for the purpose of providing legal advice and that no decision was made by Noumi’s Board to share the PwC report with ASIC until after the Board had considered it. Against that background, the Full Court found that ‘the possibility of a contingent subsequent use of the PwC report did not override the dominant purpose for which it was commissioned’.

Did disclosure under the VDA amount to a waiver?

On the question of waiver, the Full Court accepted that the test had been correctly stated by the primary judge. What brings about the waiver of privilege is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large. However, the Court overturned his Honour’s finding that Noumi’s disclosure to ASIC constituted a waiver of privilege. The Full Court placed emphasis on the following matters:

• It was clear from the terms of the VDA and the circumstances surrounding the provision of the PwC report to ASIC that Noumi intended for that report to remain confidential.
• The primary judge erred in finding that Noumi acted inconsistently with the maintenance of confidentiality in the PwC report by permitting ASIC to use the information in the PwC report in a derivative way, including as against Mr Macleod. According to the Full Court, even though the terms of the VDA allowed ASIC to use the confidential information in the PwC report, such use did not amount to a disclosure of the information. Indeed, the terms of the VDA expressly prohibited ASIC from disclosing the information in the PwC report.
• The Full Court rejected the primary judge’s reasoning on the issue of unfairness. Neither the existence of an information asymmetry nor the relevance of the privileged material are sufficient (without more) to establish unfairness of the requisite kind. What is needed is ‘forensic unfairness as between the privilege holder and the privilege challenger’. Insofar as ASIC’s investigations (including those undertaken in reliance on the information in the PwC report) informed ASIC’s case against Mr Macleod, he was entitled to that material through pre-trial processes (including discovery).
• The Full Court also considered that Noumi’s subjective intention in disclosing the PwC report was relevant to the question of unfairness. The Full Court accepted the primary judge’s finding that Noumi did not act for a calculated or forensic purpose and did not disclose the PwC report to gain a forensic advantage.

Potential implications and key takeaways

The Full Court’s decision is an important contribution to what has, in recent times, been an evolving area of law. While the principles of legal professional privilege and waiver are well-settled, this latest decision underscores how fact-specific these cases can be.

The upholding of a finding of privilege in the PwC report must be understood in context. Whether investigation reports, including those prepared by accounting or consulting firms, can properly be the subject of a claim for legal professional privilege raises complex questions which have led to a number of significant decisions. Only last year, the Full Federal Court held that a report prepared by Deloitte into the 2022 Optus cyberattack and data breach had been prepared for mixed legal and non-legal purposes and was therefore not privileged. It is clear from the Full Court’s and earlier decisions that the question of purpose is highly fact‑dependent, and careful consideration should be given to the terms of any third party or expert engagement to enhance the prospects of a successful claim. You can find our podcasts on this issue here.

At a threshold level, the Full Court’s decision gives confidence that VDAs can be an effective way to maintain legal professional privilege. There will invariably be circumstances where companies will want to share privileged documents with a regulator, and the Full Court’s decision should assuage concerns that VDAs are an ineffective means of setting up a limited waiver arrangement. Even so, there remain important reasons to take considerable care before sharing privileged documents with a regulator. Among other things:

• As explained by the Full Court, the purpose informing the disclosure will be relevant to the question of unfairness. Insofar as any disclosure is being contemplated to obtain a forensic advantage, this could nevertheless weigh in favour of a finding of waiver.
• In ASIC v Noumi, the parties accepted that waiver over the PwC report would lead to an associated waiver over a number of other documents. It therefore may not be possible to disclose a final report or advice without sharing earlier drafts and instructions.
• A company which provides material under a VDA may create an expectation that it will be willing to do so in subsequent investigations.
• Complications could arise where there are cross-border or multi-jurisdictional issues. While a limited waiver arrangement could be effective in Australia, this may not be the case in other jurisdictions.
• The standard terms of ASIC’s VDA may not be an effective means of protecting privilege in all cases. Before entering into any VDA, companies should seek legal advice on whether any amendments to the standard terms are warranted.