FEDERAL COURT OF AUSTRALIA Coffs Harbour City Council v Australian and New Zealand Banking Group Limited (trading as ANZ Investment Bank) [2016] FCA 306 File numbers: NSD 1021 of 2014 NSD 1018 of 2014 NSD 1020 of 2014 NSD 957 of 2015 NSD 1126 of 2015 NSD 1334 of 2015 Judge: RARES J Date of judgment: 1 March 2016 Catchwords: PRACTICE AND PROCEDURE – protection of confidential information – whether court order for production in place of tender of documents preserves confidentiality PRACTICE AND PROCEDURE – representative proceeding brought pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) – where order for disclosure of litigation funding agreement in accordance with practice note CM 17 – whether legal professional privilege applies to prevent disclosure of a litigation funding agreement – whether protection of confidential information is a relevant ground for redaction of particular provisions of a litigation funding agreement Legislation: Federal Court of Australia Act 1976 (Cth) Pt IVA Cases cited: Attorney-General v Leveller Magazine Ltd [1979] AC 440 Campbells Cash and Carry Pty Limited and Fostif Pty Limited (2006) 229 CLR 386 Cook v Pasminco Pty Limited (No 2) (2000) 107 FCR 44 CSR Ltd v Eddy (2008) 70 NSWLR 725 Dickason v Dickason (1913) 17 CLR 50 applied Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 Grant v Downs (1976) 135 CLR 674 referred to Hancock v Rinehart [2016] NSWSC 12 Hodges v Waters (No 7) (2015) 232 FCR 97 Hogan v Australian Crime Commission (2010) 240 CLR 651 Kingsheath Club of the Clubs Limited (in liq) [2003] FCA 1034 Marshall v Prescott [2013] NSWCA 152 O'Brien v Komesaroff (1982) 150 CLR 310 Scott v Scott [1913] AC 417 Spatialinfo Pty Limited v Telstra Corporation Limited [2005] FCA 455 The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 Date of hearing: 1 March 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant in NSD 1021 of 2014, NSD 1018 of 2014, NSD 1020 of 2014, NSD 957 of 2015, NSD 1126 of 2015 and NSD 1344 of 2015: C Withers with E Bathurst Solicitor for the Applicant in NSD 1021 of 2014, NSD 1018 of 2014, NSD 1020 of 2014, NSD 957 of 2015, NSD 1126 of 2015 and NSD 1344 of 2015: Squire Patton Boggs Counsel for the Respondent in NSD 1021 of 2014: J R Williams Solicitor for the Respondent in NSD 1021 of 2014: Allens Counsel for the Respondents in NSD 1018 of 2014, NSD 1020 in 2014, NSD 957 of 2015, NSD 1126 of 2015 and NSD 1344 of 2015: IJM Ahmed Solicitor for the Respondents in NSD 1018 of 2014, NSD 1020 in 2014, NSD 957 of 2015, NSD 1126 of 2015 and NSD 1344 of 2015: Clifford Chance ORDERS NSD 1021 of 2014 BETWEEN: COFFS HARBOUR CITY COUNCIL ABN 79 126 214 487 Applicant AND: AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED (TRADING AS ANZ INVESTMENT BANK) Respondent JUDGE: RARES J DATE OF ORDER: 1 MARCH 2016 THE COURT ORDERS THAT: 1. Confidential exhibit "LET-1" to the affidavit of Louise Elizabeth Treloar sworn on 1 February 2016 be provided to the Court. 2. Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), until further order the following matter, in the funding agreement between the applicant and Litigation Capital Partners Pte Ltd (titled "Credit Sail II Class Action Funding Agreement"), being the document referred to in order 1, not be published or disclosed to any person other than the parties to that agreement, other members of the class represented in the proceedings, and, counsel and solicitors acting for the applicant, namely: (a) the percentage figure in cl 1.37; (b) the matter appearing after "as follows" in cl 11.1(c); (c) clause 11.1(d) in its entirety; (d) the matter in cl 12.8 between "will be" in the first line and before "one appointed by the President" in the second last line of the clause; (e) clause 12.12 in its entirety; (f) the matter between "LCP is entitled", and "to terminate its obligations" in the first line of cl 18.1; (g) the matter between "than obligations accrued", and "to the Claimant" in the second line of cl 18.1; (h) all matter in cl 18.2 after "If LCP terminates its obligations pursuant to cl 18.1 above"; (i) the matter between "If" in the first line of cl 19.1 and "the representative party in a test case or" in the second line of cl 19.1; (j) the matter between "If" in the first line of cl 19.2 and "the Claimant will be deemed to have terminated" in the second line of cl 19.2; and (k) all matter in cl 19.5 after "of the Claims of the Claimant at that time or at any later time". 3. The applicant provide to the respondent a copy of the Credit Sail II Class Action Funding Agreement with only the material set out in sub-paras (a)-(k) of order 2 above redacted. 4. Two thirds of the costs of the respondent's interlocutory application filed 18 December 2015 be the Respondent's costs in the cause. THE COURT NOTES THAT: 5. The ground for order 2 is that it is necessary to prevent prejudice to the proper administration of justice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) RARES J: 1 These are interlocutory applications for disclosure of the redacted portions of litigation funding agreements entered into by the applicants in six representative proceedings brought under Part IVA of the Federal Court of Australia Act 1976 (Cth). The proceedings involve claims by the various applicants against in five cases, including one brought by Coffs Harbour City Council, McGraw-Hill Financial Inc and its subsidiaries commonly known as Standard & Poor's, the well-known ratings agency, in respect of ratings given to synthetic collateralised debt obligations (SCDO) purchased by those applicants. The sixth case, also brought by the Council, is against the vendor to it of another SCDO, namely Australia and New Zealand Banking Group Limited (trading as ANZ Investment Bank). Each of the SCDOs in issue suffered losses of capital invested by the applicants during the Global Financial Crisis despite their high credit ratings. 2 The parties agreed that the dispute over disclosure of the contents that the applicants redacted from their five funding agreements with Litigation Capital Partners LLP Pte Ltd (the funder) can conveniently be resolved by determining what redactions, if any, the Council is entitled to maintain when disclosing its funding agreement to the Bank and Standard & Poor's. Background 3 On 23 June 2015, Wigney J ordered the Council to provide the Bank with a copy of any agreement by which a litigation funder was to pay or contribute to the cost of the proceedings pursuant to paragraph 3.6 of practice note CM 17. That provided: 3.6 At or prior to the initial case management conference each party will be expected to disclose any agreement by which a litigation funder is to pay or contribute to the costs of the proceeding, any security for costs or any adverse costs order. Any funding agreement disclosed may be redacted to conceal information which might reasonably be expected to confer a tactical advantage on the other party. (emphasis added) 4 Subsequently, on 13 January 2016, the Court made publicly available for comment a consultation draft class action practice note, as part of the process preparatory to the issue by the Chief Justice of new practice notes to harmonise the Court's practice and procedure under the National Court Framework that has recently been introduced for purposes of case management in the Court. The draft practice note provided that, subject to any genuine objection, the applicant should disclose to the parties and to the Court any standard form litigation funding agreement (cl 6.1(b)) and in cl 6.3(b) that such a document: (b) may be redacted by the applicant or the applicant's lawyers prior to disclosure to conceal any information which might reasonably be expected to confer a tactical advantage on another party to the proceeding including, without limitation, information: (i) as to the funds available to the applicant, in total or for any step or stage in the proceeding; (ii) which might reasonably be expected to indicate an assessment of the risks or merits of the proceeding or any claim in or aspect of the proceeding. (emphasis added) 5 The parties engaged in exchanges of correspondence after the initial provision on 26 June 2015 of a redacted copy of the funding agreement. Those exchanges resulted in the Council deciding to disclose some more, but not all, of the previously redacted portions. The non-tender of the unredacted funding agreement 6 Initially, the Council's solicitors had proposed in their affidavit evidence to tender an unredacted funding agreement in order that I could determine which redactions could be maintained. However, the Council's position changed by reason of the recent decision of Brereton J in Hancock v Rinehart [2016] NSWSC 12 at [23], [34]-[35]. His Honour held there that a party seeking to establish a claim for legal professional privilege over a document would waive that privilege if the party tendered the document to enable the Court to determine the claim. 7 The Council avoided any challenge to that decision and instead indicated its preparedness to produce the funding agreement if I ordered it to do so. Such a course is conformable with what Gleeson CJ, Gaudron and Gummow JJ said in Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 at 70 [52] (see too per Callinan J at 107 [172]), namely: A claim for privilege is not conclusively established by the use of a verbal formula. A court has power to examine documents in cases where there is a disputed claim, and it should not be hesitant to exercise such a power [See also Trade Practices Commission v Sterling (1979) 36 FLR 244]. In appropriate cases, there is also power to allow cross-examination of a deponent of an affidavit claiming privilege [National Crime Authority v S (1991) 29 FCR 203]. (emphasis added) 8 Their Honours said that this point had been emphasised earlier by Stephen, Mason and Murphy JJ in Grant v Downs (1976) 135 CLR 674 at 689 when they said: It is for the party claiming privilege to show that the documents for which the claim is made are privileged. He may succeed in achieving this objective by pointing to the nature of the documents or by evidence describing the circumstances in which they were brought into existence. But it should not be thought that the privilege is necessarily or conclusively established by resort to any verbal formula or ritual. The court has power to examine the documents for itself, a power which has perhaps been exercised too sparingly in the past, springing possibly from a misplaced reluctance to go behind the formal claim of privilege. It should not be forgotten that in many instances the character of the documents the subject of the claim will illuminate the purpose for which they were brought into existence. (emphasis added) 9 In some cases a party will seek to protect from disclosure to third persons documents or communications, or portions of documents or particular communications, that are claimed to be confidential information or subject to public interest immunity. It may be that the claimant can only demonstrate the basis of the claim for protection from disclosure by putting the very document or statement before the Court so that its content may "illuminate the purpose for which [it was] brought into existence": cf Grant 135 CLR at 689. 10 In his classic speech in Scott v Scott [1913] AC 417 at 437-438 (which was applied by Barton ACJ, Isaacs, Gavan Duffy, Powers and Rich JJ in Dickason v Dickason (1913) 17 CLR 50 at 51) Viscount Haldane LC said: … the chief object of Courts of justice must be to secure that justice is done. ... The other case referred to, that of litigation as to a secret process, where the effect of publicity would be to destroy the subject-matter, illustrates a class which stands on a different footing. There it may well be that justice could not be done at all if it had to be done in public. As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity be superseded by this paramount consideration. (emphasis added) 11 Here, the subject matter of the Council's claim is that it be entitled to redact matter from the funding agreement consistently with the requirements of the order made on 23 June 2015 for its production. The confidentiality of that subject matter would be destroyed if the only way in which the claim could be proved required the redacted contents, or their substance, to be disclosed in open court or to the parties (the Bank and Standard & Poor's) or their lawyers to whom the Council does not wish that matter be disclosed: cf Hogan v Australian Crime Commission (2010) 240 CLR 651 at 667 [42] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ. 12 For this reason, I required the Council to provide me with a copy of the unredacted funding agreement for the purposes of being able to understand, and rule on, the nature of its claims for privilege and confidentiality. The Council's privilege argument 13 The Council initially argued that it was entitled to claim legal professional privilege at common law over the redacted portions of the funding agreement, in addition to maintaining its right to rely on the redactions to protect its interests in accordance with the intent of cl 3.6 of practice note CM 17 to prevent disclosure of information that might reasonably be expected to confer a tactical advantage on its opponents. 14 Legal professional privilege is an important common law right, or immunity: The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at 553 [11] per Gleeson CJ, Gaudron, Gummow and Hayne JJ. Consideration – privilege 15 In Marshall v Prescott [2013] NSWCA 152 at [85]-[88] Barrett JA, with whom McColl and Ward JJA agreed, held (following CSR Ltd v Eddy (2008) 70 NSWLR 725 at 740 [66] per Basten JA with whom Hodgson and McColl JJA agreed) that, in general, a funding agreement is not a document that attracts legal professional privilege. Barrett JA also followed what Lindgren J said in Cook v Pasminco Pty Limited (No 2) (2000) 107 FCR 44 at 53 [47], namely, that such an agreement "is not created for the dominant purpose of the giving or receiving of legal advice or of being used in existing or anticipated legal proceedings" ([2013] NSWCA 152 at [80]). 16 There is nothing in the redacted matter that is protected from disclosure because of legal professional privilege. The funding agreement was a document that dealt with the relationship between the various interests of parties on the Council's side of the class action, being the funder, the lawyer, the representative party and members of the class. 17 In my opinion, there is no basis in any of the matter that the Council sought to be redacted to suggest that the matter was subject to any sustainable claim for legal professional privilege. The Bank's and Standard & Poor's' submissions – confidentiality 18 Both the Bank and Standard & Poor's argued that the practice note CM 17 and the draft practice note identified some special class of information that transcended the concept of confidential information, that the Council had to establish existed in order to justify any redactions of the funding agreement. They argued that this was the consequence of the use of the words "information which might reasonably be expected to confer a tactical advantage on the other party" in cl 3.6 of practice note CM 17, and expressions that had been used in previous judgments on this issue. They relied on what Goldberg J had said in Kingsheath Club of the Clubs Limited (in liq) [2003] FCA 1034 at [33], concerning the right to keep private the details of a party's "war chest" available to fund it in litigation, and to what Sundberg J had said in Spatialinfo Pty Limited v Telstra Corporation Limited [2005] FCA 455 at [70]-[71], concerning protection of information such as the amount and level of funding, that could unfairly assist respondents or defendants. The Bank and Standard & Poor's contended that these expressions created some guiding principle that governed the ability of the party resisting disclosure of the full contents of the document from being able to do so. 19 After I ordered the Council to produce the unredacted funding agreement, I determined that a number of the redactions could not be justified after hearing argument from the Council's counsel. The Council's solicitors then prepared and provided to the Bank and Standard & Poor's, over the luncheon adjournment, a newly redacted version that revealed the matter that I had found should not have been concealed. Neither the Bank nor Standard & Poor's advanced any substantive argument for further disclosure based on the newly revealed matter. Consideration – confidentiality 20 The evident purpose of the order made on 23 June 2015 for provision of the funding agreement pursuant to cl 3.6 of practice note CM 17 and, indeed of both the current and draft practice notes, is to strike a balance between the rights and interests of the parties as they are, or may be, affected by the involvement of, relevantly, the funder, in the six proceedings. The current practice note addresses that balance by creating an expectation of some transparency in respect of the funder's role and involvement in the conduct of a representative proceeding or class action. In ordinary experience, such proceedings are often complex, expensive and lengthy cases. 21 However, cl 3.6 recognises that some aspects of the relationships between the representative party, or applicant, his, her or its lawyers, the group members or class and the funder should not be revealed at the outset of the litigation. The Court has currently identified an expectation of limited transparency of the funder's involvement as between the parties to representative proceedings in the current practice note that, however, retains flexibility and, in particular, is subject to the Court's control in any individual proceeding. The use of such a procedure conforms with what Gummow, Hayne and Crennan JJ (with whom, on this aspect, Gleeson CJ at 407 [1] and Kirby J at 451 [146] agreed) in Campbells Cash and Carry Pty Limited and Fostif Pty Limited (2006) 229 CLR 386 at 435 [95] said, namely: The difficulties thought to inhere in the prosecution of an action which, if successful, would produce a large award of damages but which, to defend, would take a very long time and very large resources, is a problem that the courts confront in many different circumstances, not just when the named plaintiffs represent others and not just when named plaintiffs receive financial support from third party funders. The solution to that problem (if there is one) does not lie in treating actions financially supported by third parties differently from other actions. And if there is a particular aspect of the problem that is to be observed principally in actions where a plaintiff represents others, that is a problem to be solved, in the first instance, through the procedures that are employed in that kind of action. (emphasis added) 22 I am of opinion that the rationale for permitting redactions to be made to funding agreements contemplated by the terms of cl 3.6 of practice note CM 17, cl 6.3 of the draft practice note and the authorities to which I have referred, is the protection of confidential information. One reason why such information may be confidential in a particular case is that its disclosure would confer a tactical advantage or would reveal the amount of resources available to the funded party or would reveal information of a kind referred to in the relevant provisions of current and draft practice notes. The basis on which such information may be confidential will depend on the facts in any particular case, and the means for making any assessment of that basis may vary from case to case: cf Hodges v Waters (No 7) (2015) 232 FCR 97 at 118-119 [104] per Perram J; O'Brien v Komesaroff (1982) 150 CLR 310 at 326-327 per Mason J with whom Murphy, Aickin, Wilson and Brennan JJ agreed. 23 Sometimes, information that a person seeks to say is confidential, has been disclosed previously, or its general nature has been disclosed, so as to blow the gaff (to use Lord Russell of Killowen's description in Attorney-General v Leveller Magazine Ltd [1979] AC 440 at 468F-G) and thus deprive those who would otherwise seek to assert its confidentiality from being able to do so. 24 In the course of managing representative proceedings such as this, if the Court requires a person to disclose a funding agreement or similar document but allows redactions from it, that person must be able to justify the redactions and, as Gummow, Hayne and Crennan JJ indicated in Fostif 229 CLR at 435 [95], the Court can manage the process and determine whether or not the redactions are appropriate to protect matter that is, or should be treated as, confidential. 25 During the course of argument, I indicated to the Council that portions of what it had redacted did not appear to have any particular confidential aspect to them. Some were clauses of a boilerplate or common kind that appear routinely in documents of this nature. For example, cll 4.8-4.11 provided a conventional dispute resolution regime for issues that might arise between the funder, a claimant in the class or the representative party as to the appropriateness of a settlement offer or process. In such cases, it is common for senior counsel to be briefed to give advice on the reasonableness of an offer and for his or her decision to be binding. The issues that such a brief may include can, and often would be expected to, involve advice as to the strengths and weaknesses of various claims by funded persons, the quantum of their claims, the recoverability of a judgment sum from the respondents, the extent to which legal costs would be likely to be recoverable and the risk of the funder being ordered to pay costs in the proceedings. I considered that the same applied to the unsuccessful attempt of the Council to suppress details of another settlement mechanism in cll 12.3-12.11, with the exception of part of cl 12.8. 26 Originally, the Council had sought to suppress the whole of the provisions in the funding agreement dealing with financial matters. For example, it sought to redact the whole of cl 1.37, which reads, with the only redaction that I considered to be confidential because it dealt with part of the quantum of reward for the funder: 1.37. "Project Management Fee" means a fee, payable as Consideration for the Project Management, calculated as ██% of the sum of the total Legal Costs. 27 In cll 11.1(c) and (d), the funding agreement specified percentage amounts and other potential rewards to which the funder might be entitled in particular contingencies. In my opinion, the nature of that information was such that were it disclosed, the Bank and Standard & Poor's could gain, or be in a position to exploit, a tactical advantage in the conduct of settlement discussions. That was because the detail of those clauses could be used by one or both of them in structuring particular offers or seeking to exploit differences in the positions of various persons in the represented class, the lawyers or the funder. Those persons' interests may not all coincide at the particular point of time at which any particular offer might be made. The matter in those clauses appeared to fall within the kinds of confidential information that cl 3.6 of practice note CM 17 and cl 6.3(b) of the draft practice note recognise can be protected in such situations. 28 Likewise, cl 12.8 dealt with the precise details of the agreed settlement mechanism in a manner that appeared to be susceptible of exploitation by the Bank or Standard & Poor's in a way that could confer on each a tactical advantage. As the Council suggested, by way of example in the course of argument, if an opposing party knew that a particular barrister would be briefed or appointed to give advice or make a decision under the funding agreement dispute resolution clause, that opposing party may structure its offer in the expectation that the barrister would be likely to act consistently with his or her known inclinations as to approaches to issues in dispute in dealing with the task he or she may have to perform. 29 Similarly, I considered that cl 12.12 contained a provision that was particularly tailored to the circumstances of those on the Council's side of the record that ought not be disclosed because it might reveal tactical or other considerations, the revelation of which could advantage the Bank or Standard & Poor's. 30 Clauses 18 and 19 dealt with circumstances in which each of the funder, the Council and a claimant, or claimants, could terminate the funding agreement and with some of the consequences of termination. Once again, I was of opinion that the provisions that had been redacted were of such a nature that their revelation to the Bank and Standard & Poor's could confer tactical advantages or insights of which they would not otherwise have knowledge. Conclusion 31 The rulings that I have made in respect of redactions deal with the situation of the litigation at this particular point in time. There may come a point, for example, if or when a judgment or settlement occurs that requires the Court to determine the appropriateness of the reward for which the funder has bargained in the funding agreement so that it becomes public: cf Hodges 232 FCR 118-119 at [104]. Likewise, for example, there may also come a time at which the provisions in the funding agreement dealing with arrangements for settlement or termination that have now been redacted no longer have any confidential aspect to them. 32 Accordingly, the suppression and non-publication orders that I will make to preserve confidentiality of the redacted portions should operate until further order. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 6 March 2016