FEDERAL COURT OF AUSTRALIA Australian Securities & Investments Commission v Southcorp Limited [2003] FCA 804 PRACTICE AND PROCEDURE – legal professional privilege – expert witness retained to provide report for use in anticipated litigation – expert's notes of things said by solicitors and counsel in relation to expert's draft report – counsel's annotations on a draft of the report – draft reports themselves – correspondence between solicitors and expert. Corporations Act 2001 (Cth) Esso Australia Resources Ltd v Commission of Taxation (1999) 201 CLR 49 cited Mann v Carnell (1999) 201 CLR 1 cited Wheeler v Le Marchant (1881) 17 ChD 675 cited Trade Practices Commission v Sterling (1979) 36 FLR 244 cited Interchase Corporation Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 Qd R 141 cited Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 cited Spassked Pty Ltd v Commissioner of Taxation (No 4) (2002) 50 ATR 70 cited Attorney-General (NT) v Maurice (1986) 161 CLR 475 cited Goldberg v Ng (1995) 185 CLR 83 cited Instant Colour Pty Ltd v Canon Australia Pty Ltd [1995] FCA 870 cited Australian Competition and Consumer Commission v Lux Pty Ltd [2003] FCA 89 cited Dingwall v Commonwealth of Australia (1992) 39 FCR 521 cited Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd (No 2) (1998) 83 FCR 397 cited AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v SOUTHCORP LIMITED (ACN 007 722 643) N 3010 OF 2003 LINDGREN J SYDNEY 1 AUGUST 2003 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3010 OF 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF AND: SOUTHCORP LIMITED (ACN 007 722 643) DEFENDANT JUDGE: LINDGREN J DATE OF ORDER: 1 AUGUST 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The costs of the argument over legal professional privilege touching documents produced in response to a subpoena addressed to Frank Anthony Villante, be reserved. 2. Each party have liberty to apply generally on 24 hours' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 3010 OF 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF AND: SOUTHCORP LIMITED (ACN 007 722 643) DEFENDANT JUDGE: LINDGREN J DATE: 1 AUGUST 2003 PLACE: SYDNEY REASONS FOR JUDGMENT (No 1) (Client Legal Privilege) INTRODUCTION 1 The plaintiff, the Australian Securities and Investments Commission ("ASIC"), alleges that the defendant, Southcorp Limited ("Southcorp"), contravened subs 674(2) of the Corporations Act 2001 (Cth) ("the Act") on or about 18 and 19 April 2002, by failing to notify Australian Stock Exchange Limited ("ASX") of some of the information ("the Information") conveyed in an email which Southcorp sent at 4.29 pm on 18 April 2002 to eleven named stock market analysts. The Information was that "the gross profit impact of the poor 2000 vintage from the sale of the super premiums (Penfolds and Wynns) ... on 2003 compared to 2002 ... was expected to be of the order of $30 million" (ASIC's originating process par 1.2; ASIC's statement of claim, par 5). 2 Pursuant to s 1317G of the Act, ASIC seeks a declaration of contravention and an order that Southcorp pay to the Commonwealth or to ASIC a pecuniary penalty. As well, ASIC seeks an order for costs. 3 These reasons for judgment relate to an interlocutory question: Is ASIC entitled to the benefit of legal professional privilege (client legal privilege) in relation to certain documents the subject of a subpoena for production which was issued on Southcorp's application. 4 The subpoena, issued on 6 May 2003, was addressed to Frank Anthony Villante, an expert witness retained by ASIC. Mr Villante had earlier sworn an affidavit on 26 February 2003, to which were annexed ASIC's letter of instructions to him dated 21 February 2003 and his report dated 26 February 2003 ("Final Report"). The Final Report answered questions posed in ASIC's letter. 5 ASIC's letter of instructions incorporated, by reference, documents identified as being variously located behind 38 numbered tabs in four lever arch folders. The Final Report comprised text of 21 pages (40 paragraphs) and annexures A to F of 53 pages. The bare statement of these facts indicates the improbability that Mr Villante would have been able, within only five days, to produce such a report in response to such instructions. ASIC's evidence explains that Mr Villante had in fact been retained much earlier, in response to which he had produced an earlier report dated 17 December 2002 ("First Report"). The First Report has been produced by ASIC to Southcorp. The evidence also shows that from that time down to the production of the Final Report, there was considerable interaction between Mr Villante and ASIC's lawyers in relation to the preparation of the Final Report. In fact Mr Villante's affidavit of 26 February 2003 referred to in [4] above accompanied the originating process which commenced this proceeding on that day. 6 The subpoena for production is in respect of documents described in it as follows: "1. All Documents which are or concern communications with Australian Securities & Investments Commission (ASIC) or anyone on its behalf in relation to the allegation that Southcorp Limited failed to disclose material information in connection with the 2000 vintage, including without limitation: (a) records of discussions; (b) instructions from or on behalf of ASIC; (c) requests for instructions; and (d) any document which records or constitutes any advice or opinion given by you to ASIC or anyone on its behalf. 2. In relation to your report to ASIC dated 21 February 2003 [sic – 26 February 2003]; (a) notes and working papers prepared in connection with that report; and (b) drafts of that report." 7 ASIC has produced, and has not opposed inspection of, many documents falling within the subpoena. The documents which remain in dispute are contained in a lever arch folder and constitute Confidential Exhibit A1 on the present hearing ("the Documents in Dispute"). 8 There is no motion before the Court. The present dispute over access arises as on the return of the subpoena. ASIC'S SUBMISSION 9 ASIC submits that disclosure of the Documents in Dispute would result in disclosure, in breach of the privilege to which it is entitled in accordance with common law principles, of confidential communications which took place for the dominant purpose of the obtaining or giving of legal advice or assistance, or of use in connection with legal proceedings, or both; cf Esso Australia Resources Ltd v Commission of Taxation (1999) 201 CLR 49 at [35], [61] per Gleeson CJ, Gaudron and Gummow JJ; Mann v Carnell (1999) 201 CLR 1 at [27] per Gleeson CJ, Gaudron, Gummow and Callinan JJ. Ultimately, ASIC pressed its claim as one of litigation privilege alone. Adapting the terms of s 119 of the Evidence Act 1995 (Cth), ASIC claims that disclosure of the Documents in Dispute would result in disclosure of: (a) a confidential communication between lawyers acting for ASIC and Mr Villante, that was made; or (b) the contents of confidential document (whether delivered or not) that was prepared, for the dominant purpose of ASIC being provided with professional legal services relating to the (then proposed) present proceeding. EVIDENCE 10 The evidence before the Court consists of the Documents in Dispute, which I have read without objection; two affidavits of Helen Tot, a lawyer employed by ASIC, sworn 24 June 2003 and 11 July 2003; and Ms Tot's cross-examination. 11 The Documents in Dispute fall into two categories: 1. Three draft reports of Mr Villante dated 16 December 2002, 19 February 2003 and 26 February 2003. (It will be recalled the First Report was dated 17 December 2002 and the Final Report, 26 February 2003, both of which have been made available to Southcorp); 2. Correspondence and emails between lawyers at ASIC having the conduct of the matter and Mr Villante over a period from 16 December 2002 to 10 April 2003. 12 The evidence shows the general nature of the documents in dispute to be as follows. 13 The draft report dated 16 December 2002 was produced as a result of a conference between Mr Villante, Ms Mira Vucic, a "Senior Lawyer" employed by ASIC, and counsel. It bears the handwritten notations of Mr Villante. He made the notations in the course of discussing the draft with Ms Vucic and counsel as a step directed to production of the First Report on 17 December 2002. More precisely, Mr Villante told Ms Tot that he made the annotations following a conference with Ms Vucic and counsel, for the purpose of enabling him to ask questions at the next conference which was to take place the following day. The notes consist of handwriting and symbols, such as ticks, underlining and sidelining. 14 On the basis of Ms Tot's testimony and the nature of the annotations, I infer that the annotations represent Mr Villante's notes of a mixture of: · advice given by Ms Vucic and counsel; · various outcomes of his discussion with them; · reminders to himself; and · queries which he wished to raise with them. 15 The Draft report dated 19 February 2003 addressed far fewer questions than the draft report of 16 December 2002 (and, no doubt, than the First Report, which I have not seen) had done. Those responsible had decided that it was not necessary for Mr Villante to cover as extensive a field as the First Report had done. The change of instructions to Mr Villante meant that the draft of 19 February 2003 differed from that of 16 December 2002, which had preceded by one day the First Report. 16 That draft was discussed at a conference between Mr Villante, Ms Vucic, counsel and Ms Tot. The draft bears both annotations of Mr Villante and annotations of counsel. Ms Tot's understanding was that counsel's annotations were made by him during the conference as a record of things said by Mr Villante. Mr Villante's annotations were made after the conference as a result of further discussion of the draft by him with Ms Vucic, counsel and Ms Tot. 17 On the basis of my inspection of the manuscript, I cannot distinguish between the annotations which were made by counsel and those which were made by Mr Villante. The annotations are again in the form of handwriting and symbols. I do not infer that counsel's notes were literally of words uttered by Mr Villante. The presence of symbols demonstrate that they were not. Rather, I understand Ms Tot's testimony to be that her understanding was that counsel's notes were made in response to things said by Mr Villante and represented attempts by counsel to summarise what Mr Villante had said. An element of selection and interpretation by counsel would have been involved. 18 The draft report dated 26 February 2003 contained notations which Ms Tot made in the form of her electronic "marking up" for the purpose of transmission to counsel by email for his consideration. In cross-examination Ms Tot explained that, although the letter of instructions pursuant to which the Final Report was produced was dated 21 February 2003, Mr Villante had in fact been instructed over the period since producing the First Report on 17 December 2002, to prepare a further "narrower" report which would inevitably contain "much of the same detail". The "instructing" of Mr Villante commenced well prior to 17 December 2002. Consideration 19 In response to the subpoena, ASIC has already produced, and not opposed inspection of: (a) Mr Villante's working papers; (b) Mr Villante's First Report (not to be relied upon by ASIC in the proceeding); (c) Certain correspondence between ASIC and Mr Villante; (d) Printouts generated by ASIC of trading activities of other companies. 20 As noted at [4], Southcorp also has ASIC's letter of instructions dated 21 February 2003 and the voluminous documents referred to in it, and the Final Report, including its annexures. Those annexures include a list of assumptions made by Mr Villante and a list of the documents with which he was briefed by ASIC. 21 I will apply the following principles which I did not understand to be in dispute: 1. Ordinarily the confidential briefing or instructing by a prospective litigant's lawyers of an expert to provide a report of his or her opinion to be used in the anticipated litigation attracts client legal privilege: cf Wheeler v Le Marchant (1881) 17 ChD 675; Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246; Interchase Corporation Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 1) [1999] 1 Qd R 141 ("Interchase") at 151 per Pincus JA, at 160 per Thomas J. 2. Copies of documents, whether the originals are privileged or not, where the copies were made for the purpose of forming part of confidential communications between the client's lawyers and the expert witness, ordinarily attract the privilege: Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 ("Propend"); Interchase, per Pincus JA; Spassked Pty Ltd v Commissioner of Taxation (No 4) (2002) 50 ATR 70 at [17]. 3. Documents generated unilaterally by the expert witness, such as working notes, field notes, and the witness's own drafts of his or her report, do not attract privilege because they are not in the nature of, and would not expose, communications: cf Interchase at 161—162 per Thomas J. 4. Ordinarily disclosure of the expert's report for the purpose of reliance on it in the litigation will result in an implied waiver of the privilege in respect of the brief or instructions or documents referred to in (1) and (2) above, at least if the appropriate inference to be drawn is that they were used in a way that could be said to influence the content of the report, because, in these circumstances, it would be unfair for the client to rely on the report without disclosure of the brief, instructions or documents; cf Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 481 per Gibbs CJ, 487—488 per Mason and Brennan JJ, 492-493 per Deane J, 497—498 per Dawson J; Goldberg v Ng (1995) 185 CLR 83 at 98 per Deane, Dawson and Gaudron JJ, 109 per Toohey J; Instant Colour Pty Ltd v Canon Australia Pty Ltd [1995] FCA 870; Australian Competition and Consumer Commission v Lux Pty Ltd [2003] FCA 89 ("ACCC v Lux") at [46]. 5. Similarly, privilege cannot be maintained in respect of documents used by an expert to form an opinion or write a report, regardless of how the expert came by the documents; Interchase at 148—150 per Pincus JA, at 161 per Thomas J. 6. It may be difficult to establish at an early stage whether documents which were before an expert witness influenced the content of his or her report, in the absence of any reference to them in the report; cf Dingwall v Commonwealth of Australia (1992) 39 FCR 521; Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd (No 2) (1998) 83 FCR 397 at 400; ACCC v Lux at [46]. 22 Counsel for Southcorp submitted that, upon analysis, the Documents in Dispute have the character of instructions to Mr Villante; notes of Mr Villante's unilateral musings; or documents relied on by Mr Villante in preparing the Final Report. Whether they do raises a question of fact, or a mixed question of fact and law, to be resolved by reference to the testimony of Ms Tot and the inferences properly to be drawn from the Documents in Dispute themselves. 23 Applying the above principles, I will state my conclusions in relation to the Documents in Dispute. 1. Letter dated 2 December 2002 from ASIC (signed by Ms Vucic) to Mr Villante and "Contract for Provision of Consultancy Services" dated 9 December 2002 between ASIC and Mr Villante 24 Client legal privilege is not established in respect of these documents. If ASIC desires that access be limited for reasons of commercial confidentiality, I would be favourably disposed towards making an appropriate order. 2. Letter dated 26 February 2003 from ASIC (signed by Ms Tot) to Mr Villante enclosing a copy of his affidavit sworn that day 25 Client legal privilege is not established in respect of this letter. 3. Draft report of Mr Villante dated 16 December 2002 26 Client legal privilege is not established in relation to the draft report itself. I am not dissuaded from this view by the evidence that the draft was produced as the result of a conference between Mr Villante, Ms Vucic and counsel. It is consistent with the evidence that the draft was, nonetheless, relevantly, the expression of Mr Villante's own thinking. I do not infer from the evidence that the draft constitutes or reveals a communication between Mr Villante and ASIC's lawyers. 27 The privilege is, however, established, and has not been waived, in relation to all the annotations on the draft. I do not regard them simply as a record of instructions to Mr Villante or of unilateral musings of Mr Villante. While it is not possible to be certain in relation to every annotation, I am satisfied that the annotations record Mr Villante's understanding of communications, to and fro, between him on the one hand and Ms Vucic and counsel on the other, and that they include or expose expressions of legal opinion. 4. Draft report of Mr Villante dated 19 February 2003 28 In substance the same observations apply to this draft report as I have made above of that dated 16 December 2002. Counsel for Southcorp invites me to find that Mr Villante's writing records the lawyers' instructions to him, and that counsel's annotations record statements made unilaterally by Mr Villante. But a glance at the many symbols on the document (circles, brackets, ticks, question marks, arrows, deletion lines, linkage lines) shows that the true position is more complex. While I cannot be satisfied as to what every annotation signifies, or even who wrote each one of them, I am satisfied that they point to confidential communications, to and fro, between Ms Vucic, Ms Tot and counsel on the one hand and Mr Villante on the other. 29 I am not satisfied that the unannotated draft itself, however, is other than the product of Mr Villante's mind. Client legal privilege is not established in relation to that unannotated document. 5. Draft report of Mr Villante dated 26 February 2003 30 There is no evidence as to the significance of the "marking up" or "tracking" within the document. I infer that it was intended to indicate changes made from the last preceding draft. It can be argued that since the two drafts by Mr Villante would not be exempt from Southcorp's right of access, the marking up or tracking should not be either. Although the marking up or tracking was carried out by Ms Tot, she was apparently merely highlighting the changes made by Mr Villante as between drafts. 31 On the other hand the fact remains that the marking up or tracking is a confidential communication from solicitor to counsel. If the making of copies of otherwise unprivileged documents for the purpose of such a confidential communication attracts the privilege (cf Propend), I do not understand why Ms Tot's marking up or tracking changes for the same purpose should not do so. Consistently with principle, I think it is privileged. (I presume that access to the last preceding and new drafts themselves had been or will be given.) 6. Correspondence and emails between the lawyers at ASIC and Mr Villante over the period from 2 December 2002 to 10 April 2003 32 My conclusion is that the privilege is or is not sustained in relation to the various items of correspondence and emails as follows: Not sustained Sustained email dated 16 December 2002 at 2.44 pm from Vucic to Villante email dated 30 January 2003 at 10.25 am from Vucic to Villante email dated 11 February 2003 at 4.04 pm from Vucic to Villante email dated 20 February 2003 at 10.13 pm from Villante to Tot email dated 20 February 2003 at 3.29 pm from Tot to Villante email dated 21 February 2003 at 3.06 pm from Tot to Villante and first enclosure, but not enclosed letter of instructions dated 21 February 2003 email dated 21 February 2003 at 3.28 pm from Tot to Villante email dated 23 February 2003 at 8.44 pm from Villante to Tot email dated 24 February 2003 at 09.04 am from Villante to Tot email dated 24 February 2003 at 9.27 am from Tot to Villante email dated 24 February 2003 at 8.04 pm from Villante to Tot email dated 24 February 2003 at 4.25 pm from Tot to Villante and enclosures Not sustained Sustained email dated 25 February 2003 at 3.01 pm from Tot to Villante email dated 26 February 2003 at 12.39 pm from Tot to Villante email dated 26 February 2003 at 8.10 pm from Villante to Tot email dated 1 April 2003 at 1.48 pm from Tot to Villante email dated 1 April 2003 at 1.48 pm from Gail Gorham to Tot email dated 24 April 2003 at 7.54 am from Tot to Villante email dated 10 April 2003 at 9.30 am from Tot to Villante CONCLUSION 33 I will publish these reasons and make no order at present other than an order reserving costs. I am presently inclined to think that there should be no order as to costs. There will be leave for either party to have the matter listed if that party seeks the making of orders, including an order as to costs. There also will be liberty to apply generally. Advantage might be taken of that liberty if, for example, there is a physical difficulty in ASIC's producing for inspection the draft reports dated 16 December 2002 and 19 February 2003 without disclosing the annotations. If that physical difficulty exists application may be made to me in that respect on 24 hours' notice. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 1 August 2003 Counsel for the Applicant: D B Studdy Solicitor for the Applicant: Jan Redfern of Australian Securities and Investments Commission Counsel for the Respondent: Dr A Bell Solicitor for the Respondent: Allens Arthur Robinson Date of Hearing: 17 July 2003 Date of Judgment: 1 August 2003