Will waiver of legal professional privilege over part of a privileged investigation report result in waiver over other parts of the report?

Introduction

The Federal Court’s recent decision in TerraCom Ltd v Australian Securities and Investments Commission¹ considered when waiver of legal professional privilege over part of a privileged investigation report will result in waiver over other parts of the report.

The Court was required to consider the following three issues:

1. Whether the forensic investigation report was prepared for the dominant purpose of providing legal advice and was therefore privileged.
2. Whether TerraCom waived privilege over the report by referring to the report in public statements.
3. Whether partial disclosure of the contents of the report, gave rise to a waiver of privilege over the whole report.

With respect to issue 1, the Court held that the report was privileged. We discuss issues relating to privilege in investigations in our Global Guide to Legal Privilege in investigations. This update considers issues 2 and 3.

The decision illustrates the importance of exercising care when referring to privileged reports in public and other non-confidential communications.

Background

In August 2019, TerraCom, an ASX-listed resource explorer, terminated the employment of a commercial general manager, in the context of serious allegations he made about the company, and its CEO and CFO, regarding the tampering with sample quality certification results of coal exported by TerraCom.

TerraCom instructed external solicitors to provide legal advice on the issues arising in relation to those allegations. The solicitors engaged a consulting firm to prepare a forensic investigation report to assist the solicitors to provide advice to TerraCom. The consulting firm produced its report in December 2019.

In February 2020 a coal analysis company announced to the ASX that it had commenced an independent forensic investigation of its certification processes. Media reports linked the certifier’s announcement of the investigation to the allegations about TerraCom by its former employee.

In response to the media reports, TerraCom made a number of public disclosures to the ASX and in an open letter to shareholders published in a mainstream newspaper. The disclosures referred to the internal investigation report and the conclusions reached by the consulting firm with respect to alleged wrongdoing by the CEO and CFO. The disclosures also stated TerraCom’s belief that the broader allegations of wrongdoing against TerraCom were unfounded.

For example, in an open letter to shareholders published in a mainstream newspaper in March 2020, TerraCom said:

As previously stated, TerraCom took allegations that its CEO and CFO had been involved in a scheme relating to the fake analysis of coal samples seriously and an independent forensic investigation was conducted and found no evidence of wrongdoing.

… to suggest TerraCom was involved in an international conspiracy to undertake false testing is ludicrous.

ASIC commenced an investigation into suspected contraventions of the Corporations Act 2001 (Cth) by TerraCom and its current and former officers, in relation to the testing, certification and sale of coal. In response to a warrant and a notice to produce books and documents, TerraCom claimed privilege in respect of the internal investigation report and sought declarations to that effect.

Was privilege waived?

With respect to the public disclosures in the open letter to shareholders and in an ASX announcement, the Court found TerraCom’s reference to the conclusions in the investigation report exculpating its CEO and CFO was inconsistent with the maintenance of the privilege over the subject-matter of the report relating to the CEO and CFO.

In particular, the Court concluded that TerraCom employed the finding in the investigation report for a “forensic or commercial advantage”² to deflect public criticism of the CEO and CFO, and itself, seeking to “deflect the attention of any regulator in an investigation” and to maintain “the company’s commercial good standing and its share price.” The Court held TerraCom had waived legal professional privilege over the privileged investigation report, at least to the extent of the subject-matter of allegations concerning the CEO and CFO’s involvement in the fake coal sample analysis scheme.

Specifically in relation to ASIC’s investigation, the Court observed that maintaining TerraCom’s privilege would “operate a tangible unfairness”³ by preventing ASIC from testing whether TerraCom’s statements to shareholders and to the market were false and misleading.

However the Court found that the statements made by TerraCom regarding the broader allegations against the company and its employees, other than the CEO and CFO, did not waive privilege over the subject-matter of the report in respect of those matters. They amounted to statements of TerraCom’s belief or assertion, rather than a disclosure of the findings of the privileged investigation report. The Court then considered whether waiver of part of the report lead to a waiver over the entire report.

Had privilege been waived over the entirety of the internal investigation report?

To determine this issue, the Court first considered whether it had the power to inspect the privileged material where the party resisting the privilege claim (namely, ASIC) did not consent to such an examination. The purpose of the examination was to determine the extent to which the subject-matter of the disclosure was separable from the subject-matter of other parts of the document.⁴

The Court considered it had the power to examine the report and it was not practical to resolve the issue without doing so.

On inspection, the Court held that the subject-matter of the part of the report over which privilege was waived was integrated in the report in such a way that it was not practical, and it would result in the disclosed parts being misleading or incomplete, to separate out parts of the report dealing with the relatively narrow disclosures by TerraCom. Not permitting ASIC access to those parts of the report “would prejudice a proper understanding” of those issues.⁵

Relying upon Attorney-General (NT) v Maurice,⁶ the Court affirmed that, in the circumstances of this case, in order to ensure that ASIC was not misled by an inaccurate interpretation of the disclosed communication, fairness required that waiver of one part of the internal investigation report resulted in waiver of privilege over the whole report.