FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Caratti [2018] FCA 465

ORDERS

THE COURT ORDERS THAT:

1.    In these orders, documents means the documents and things the subject of order 4 of the orders made on 31 May 2017.

2.    The following matters be referred for inquiry and report by a referee:

(a)    the separate identification of those documents which, in the opinion of the referee, are properly the subject of legal professional privilege and inspection by the applicant can be refused on that basis (Category A documents);

(b)    the separate identification of those documents other than Category A documents in respect of which, in the opinion of the referee, there may be a reasonable basis to claim legal professional privilege (Category B documents);

(c)    the separate identification of those documents in respect of which, in the opinion of the referee, there is no reasonable basis to claim legal professional privilege (Category C documents);

(d)    the procedure adopted by the referee to give effect to the directions attached to these orders; and

(e)    a concise summary of the legal principles and any other matters that the referee has applied in forming those opinions.

3.    The inquiry shall be conducted in accordance with the directions attached to these orders.

4.    The referee may apply for further directions upon 2 clear days notice to the parties.

5.    The referee shall provide regular reports to the Court in respect of tranches of documents and to the extent reasonably practicable those reports shall be provided monthly.

6.    The applicant shall notify the referee of an email address for notifying each party to these proceedings (and of any update to such email addresses from time to time) which shall be the email address for service where available (Email Addresses) and the referee shall make available a copy of each report promptly by email to each of the Email Addresses marked Confidential.

7.    Each report by the referee shall not include any material that the referee considers is the subject of legal professional privilege or in respect of which there may be a reasonable basis to claim legal professional privilege.

8.    Upon the provision to the Court of each report, any party may apply to the Court on notice to the other parties for all or any of the following:

(a)    access to the Category C documents the subject of the report;

(b)    the provision by the referee of a list of each of the Category B documents with a description, as far as possible, of a kind that would be provided by a party claiming legal professional privilege from production for inspection on discovery;

(c)    the adjudication of any claim to privilege in respect of any of the Category B documents; and

(d)    any other orders as to the adoption, variation or rejection of part or all of the report.

9.    The referee shall be an independent barrister of at least 15 years experience in practice.

10.    The parties shall confer by 16 April 2018 as to the identity of the referee and the terms of engagement of the referee.

11.    If the parties agree upon the identity of the referee and the terms of engagement then within 7 days the applicant shall apply to the court to appoint that person as referee.

12.    If the parties do not agree upon the identity of the referee or the terms of engagement or both then within 7 days each party who seeks to be heard on the appointment of the referee shall file an affidavit identifying the person that the party proposes be appointed as referee, the proposed terms of engagement of the referee, a consent from the proposed referee stating that the person is willing to be appointed as referee on the proposed terms of engagement and the terms of these orders and any other matter on which the party relies to support the appointment of the proposed referee.

13.    When appointed, the referee shall engage assistants who need not be legally qualified on terms approved by the Court in order to give effect to the directions provided that the referee shall not be liable for the costs of the assistants.

14.    The referee and the assistants shall be given access to the secure location of the documents for the purposes of giving effect to these orders.

15.    The costs of the referee and the assistants shall be costs of these proceedings.

16.    Subject to order 15, the costs of the referee and the assistants shall be paid by the applicant, provided that the applicant may apply at any time for a variation of this order based upon the outcome of the reports prepared by the referee or any other matter.

17.    There be liberty to any party to apply for the variation of these orders or for further orders concerning the inquiry and report of the referee.

18.    The applicant do arrange for a copy of these orders to be sent to each of the Email Addresses.

19.    The costs relating to the consideration and making of these orders be reserved.

DIRECTIONS

A    The referee shall convene an initial conference at a time and place notified to the parties by email to each of the Email Addresses. At the initial conference, lawyers for any party to these proceedings may provide such information as that party wishes to provide concerning names of individual lawyers or legal firms who may have provided privileged advice to their clients and any other information that may bear upon the matters for report by the referee.

B    The referee shall prepare a draft of a procedure to be followed by the assistants for the review and removal of documents by the assistants for consideration by the referee as to whether they are Category A documents or Category B documents. The procedure shall be prepared so as to identify all documents which may possibly be the subject of a claim to legal professional privilege having regard to their character, contents and the information provided by the parties pursuant to direction A.

C    The draft procedure shall be provided to the parties to these proceedings by email to each of the Email Addresses for comment and the referee shall convene a further conference to consider any requests by any party to amend the draft procedure. After the conference, the referee shall finalise the procedure and provide a copy of the final procedure to the parties.

D    The assistants shall implement the procedure by identifying each document to be removed in accordance with the procedure, marking each removed document with a unique identification number and replacing the removed document with a page marked with the unique identification number (Removed Documents).

E    The referee shall sort the Removed Documents into Category A, Category B and Category C documents.

F    If the referee forms the opinion that any of the Removed Documents are Category C documents then the referee shall arrange for each of those documents to be returned to its original place in the secure location.

G    All documents that have been reviewed by an assistant and are not Removed Documents shall form part of the Category C documents.

H    The Category C documents shall be identified by reference to the relevant archive box or other convenient description (but not listed) in each report. The Category A and Category B documents shall be identified by reference to files or folders or other convenient description (but not listed) in each report.

I    Subject to these directions, the referee may otherwise conduct the inquiry in any way the referee thinks fit.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

COLVIN J:

1    On 31 May 2017, this Court ordered that the documents stored in a shipping container located at an address in Southern River in Western Australia be delivered up to, and held in safe storage by, the Commissioner of Taxation. The orders provided that the Commissioner could not review or copy any of the documents until there was a further hearing. At the time of the making of those orders some 62 parties were named as respondents. Those parties had been identified as possibly having a claim to ownership or legal professional privilege or both in respect of the documents.

2    The documents were obtained by the Commissioner and delivered to a secure place at barristers’ chambers known as Francis Burt Chambers. The Commissioner seeks access to the documents subject to the maintenance of any claim of legal professional privilege. Ordinarily, orders might be made for the various interested parties to make any claim to privilege and for those claims to be considered and, if necessary, adjudicated by the Court. However, there are a number of difficulties with that course.

3    First, the sheer number of documents. They comprise some 216 archive boxes. Second, there is uncertainty as to ownership of the documents. Some respondents are insolvent and there are claims by various administrators to documents owned by those parties. There does not appear to be any ready means of identification of the particular owner of particular documents. Therefore, it is necessary to examine the documents in order to determine ownership. A process of inspection whereby any party with a claim to ownership may inspect the documents to determine ownership may result in claims to privilege being compromised. Third, at the time that orders were made not all respondents had been formally served. In those circumstances, on 28 June 2017 orders were made, at the request of the Commissioner, for a barrister to inspect the documents and create a list describing each document and for the completed list to be distributed to the parties. It was then proposed that parties would raise any claim to ownership or privilege by reference to the list.

4    When the matter came before me in March 2018 the process of preparing the list had reached the point where 67 boxes of documents had been reviewed and catalogued, leaving 149 boxes to be examined and indexed. Further, steps had not been taken by the Commissioner to serve all parties (or obtain appropriate orders in relation to service).

5    Orders were proposed by which the barrister might be relieved of duty and be replaced by two other barristers to continue the indexing process. Given the progress to date and the fact that continuing with such an approach would not advance any determination of claims to privilege, I raised with the parties the possibility of appointing a referee who would prepare a report in which three categories of documents were identified. First, those documents which in the opinion of the referee were clearly privileged (Category A documents). Second, those documents other than Category A documents in respect of which there is, in the opinion of the referee, a reasonable basis to claim legal professional privilege (Category B documents). Third, those documents in respect of which, in the opinion of the referee, there is no reasonable basis to claim legal professional privilege (Category C documents).

6    The Category A and Category B documents could then be separated from the Category C documents and access could be given to the Category C documents on a confidential basis so that claims to ownership could be addressed and the Commissioner could consider the contents of the documents for statutory purposes.

7    Adopting such an approach was likely to avoid the need to index the documents in Category A and Category C and could result in the release of documents in Category C in tranches.

8    I adjourned the matter for consideration of draft orders. I provided to the parties draft orders by which such an approach might be implemented. (At the request of the Commissioner, I made orders to allow the process of preparing the list to continue in the meantime).

9    The draft orders proposed directions to the referee to prepare a procedure for sorting the documents to be implemented by assistants to the referee and further directions to the referee as to the manner in which documents in each of Category A, Category B and Category C might be identified and separated. The draft orders contemplated reports being prepared by the referee on a rolling basis. The reports would state the procedure that had been adopted (and followed) as well as a concise summary of the legal principles and any other matters that the referee had applied in forming relevant opinions.

10    The proposed directions to the referee were as follows:

1.    The referee shall convene an initial conference at which lawyers for any party to these proceedings may provide such information as that party wishes to provide concerning names of individual lawyers or legal firms who may have provided privileged advice to their clients and any other information that may bear upon the matters for report by the referee.

2.    The referee shall instruct assistants as to a procedure to be followed for the review and removal of documents for consideration by the referee on the basis that the documents may be Category A documents or Category B documents, the marking of each removed document with a unique identification number and the replacement of the removed document with a page marked with the unique identification number (Removed Documents).

3.    The referee shall sort the Removed Documents into Category A, Category B and Category C documents.

4.    If the referee forms the opinion that any of the Removed Documents are Category C documents then the referee shall arrange for each of those documents to be returned to its original place.

5.    Subject to these directions, the referee may otherwise conduct the inquiry in any way the referee thinks fit.

11    On return of the matter for a case management hearing, the parties raised a number of issues as to the form of the draft orders. I deal with those matters below.

12    The only objection raised to the overall approach in the draft orders was by two of the respondents, namely Mr Allen Caratti and Ms Tina Bazzo. They claimed that the proposed directions might result in Category C documents being released to the Commissioner in circumstances where they would be denied the opportunity to make claims for privilege over those documents. They said that this should not occur because legal professional privilege was an important common law immunity.

13    These submissions advanced for Mr Caratti and Ms Bazzo misunderstand the nature of the referee process. The respondents are not denied the opportunity to make claims for privilege. Rather, those claims are allowed to be made and are to be adjudicated according to the process to be established as outlined in the proposed directions to the referee. In effect, the process proceeds on the basis that all available claims to legal professional privilege have been made and the referee assesses the merits of those claims and divides the documents into the three categories.

14    A further submission was made to the effect that the contemplated reference would not result in a proper assessment of claims to privilege because “inspection of documents alone is not a proper method to determine claims of privilege” since the question whether a document attracts legal professional privilege depends upon the circumstances and purpose of its creation. It was submitted that the claims to legal professional privilege could not be adjudicated unless Mr Caratti and Ms Bazzo were given an opportunity to inspect all the documents, to formulate claims for privilege after that inspection and to present those claims to a referee or the court.

15    It was submitted that Mr Caratti and Ms Bazzo were in a different position to other parties who had an interest in the documents because the documents in the container had been in their possession previously and therefore they had constructive knowledge of all the documents such that it could not be said that the contents of the documents should not be disclosed to them even if they were subject to a claim for privilege that could be asserted by another party. No evidence was advanced to support a claim that there were likely to be significant numbers of documents in respect of which Mr Caratti or Ms Bazzo had personal claims to privilege. Counsel accepted that he was unable to make a submission to the effect that there were a large number of such documents.

16    These submissions fail to recognise that as part of the process before the referee, all parties would be given an opportunity to put to the referee any matters of which they are aware that might bear upon the matters for report by the referee. It must be borne in mind that the respondents must be expected to have some knowledge of their own documents that came to be held in the container. They should be able to identify the lawyers who were engaged or the types of documents that might be the subject of a privilege claim and why. To the extent that contextual matters might be important these are matters that can be communicated to the referee. The referee will be required to report as to the process that has been followed. No evidence is advanced before me as to why there may be any difficulty for Mr Caratti and Ms Bazzo to participate in the process outlined by the proposed directions.

17    Further, the referee is not being asked to adjudicate all claims to privilege. Rather, the referee is asked to establish a procedure by which documents in respect of which there is no reasonable basis to claim legal professional privilege may be identified. This procedure is to be guided by information provided by the parties. Documents in respect of which there is a basis to claim privilege will then be considered separately.

18    If the claims were to be adjudicated in the manner proposed by Mr Caratti and Ms Bazzo then that approach would produce inordinate delay. No other party seeks an opportunity to inspect the documents as part of the referee process.

19    Further, the draft orders would not allow the release of any documents to any party otherwise than on an application to the Court once a report had been received from the referee. The draft orders contemplate a series of regular reports by the referee in respect of tranches of documents. Then, an opportunity would be given for any party to apply to the Court to seek all or any of the following:

(1)    access to the Category C documents the subject of the report;

(2)    the provision by the referee of a list of each of the Category B documents with a description, as far as possible, of a kind that would be provided by a party claiming legal professional privilege from production for inspection on discovery; and

(3)    the adjudication of any claim to privilege in respect of the Category B documents.

20    I accept that the orders that might be sought upon receipt by the Court of the report from the referee should not be confined to such orders. Rather, there should be an opportunity for any party to seek particular orders as to the adoption, variation or rejection of part or all of report. This is consistent with the referee process.

21    Further, after each referee report has been prepared it should be made clear that there should be no access to any documents unless and until the court has considered the report and received submissions from any party as to whether it should be acted upon. I deal with these amendments below.

22    Otherwise, for the following reasons, I am satisfied that it is appropriate in all the circumstances for orders for the appointment of a referee to be made and I will make orders substantially in terms of the draft orders with some amendment to deal with particular issues raised by the parties.

23    I note that at this time not all respondents have been served. Nevertheless, I am satisfied that it is appropriate to proceed with the referee process. All relevant parties will need to be served before there is any adoption, variation or rejection of the report from the referee in the manner contemplated by the orders.

Referral of questions to a referee

24    Express authority was conferred upon this Court to refer questions to a referee by s 54A of the Federal Court of Australia Act 1976 (Cth) introduced by the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 (Cth). The then Attorney-General, in his second reading speech (Hansard, House of Representatives, 3 December 2008 at 12296), stated in respect of the referee process:

Court efficiency is important if we are to ensure that the cost of justice remains proportionate to the relief being sought. In troubled economic times, it is also important that commercial disputes be resolved as expeditiously and economically as possible.

An important measure introduced by his bill is a power to refer all or part of a proceeding in the Federal Court to a referee for report. Such a power is regularly used by courts in other jurisdictions to assist them to determine issues that are before them. It will allow the Federal Court to appoint an appropriately qualified person to inquire into any aspect of a proceeding and provide a report to the court.

This is an important reform and will enable the court to more effectively and efficiently manage large litigation.

It will be particularly useful in many cases, such as those involving complex technical issues or where detailed examination of financial records is necessary to assess damages. It will also be of assistance in native title matters where a judge could be assisted by an inquiry into a particular aspect of the claim.

The procedural flexibility with which a referee can deal with a question - along with their technical expertise - will allow a referee to more quickly get to the core of technical issues and reduce the cost and length of trials for litigants.

25    The terms of s 54A provide for the Court to refer one or more questions arising in a proceeding in the Court to a referee. The referee is to inquire and report in accordance with the rules of Court. So, the referee procedure is not confined to determining questions of fact or matters that might otherwise be addressed by expert opinion evidence. Indeed, the whole proceeding might be referred to a referee in an appropriate case: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2012] FCA 558; (2012) 203 FCR 520 at [49]. Therefore, it is clear that the Court has power to make orders for a referee to prepare a report in relation to questions of the kind proposed by the draft orders.

26    Division 28.6 of the Federal Court Rules 2011 (Cth) deals with the making of directions as to the manner in which the inquiry will be conducted by the referee.

27    The Central Practice Note: National Court Framework and Case Management (CPN-1) provides in paragraph 8.5 that one of the Court’s case management imperatives is to consider how to best manage justiciable issues and, as part of that process, to consider whether or not some or all issues are susceptible of being referred to a referee.

28    The history of the use of referees by the courts and the change in attitudes to their use was carefully traversed by Lee J in Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139 at [35]-[63]. The advantages of resorting to the appointment of a referee in the determination of complex or technical factual issues is now viewed favourably, particularly by this Court: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd at [11]-[15] and Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340 at [13]. The court should have no predisposition in making or refusing to make an order for a reference to a referee depending upon the wishes of one party, though it will be cautious in doing so over the opposition of all parties: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd at [41]. There is no entitlement to the determination of issues of fact or law by a judge: Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549, 558.

29    In Baulderstone Hornibrook Pty Ltd v Queensland Investments Corporation [2011] NSWSC 127 at [12], the Court ordered the appointment of a referee for determining which documents were privileged in circumstances where the parties agreed to that course. I note that in those proceedings, the Court, after receiving the referee’s report, considered whether to accept and act upon the report of the referee in whole or in part. The course which I propose would allow a similar course to be followed as each report is received from the referee. Importantly, the report will not seek to determine any claims to privilege in respect of Category B documents at all. It will be a matter for further consideration at a later time as to the appropriate approach to be taken in respect of any adjudication of privilege claims in respect of those documents.

30    The referee’s reports will identify Category C and Category A documents and the process and reasoning that has been applied in identifying those documents. The parties will then be able to make submissions as to whether the report of the referee should be accepted. Category A documents will be determined to be privileged if the referee’s report is accepted. Likewise, Category C documents will only be determined to be not privileged if the referee’s report is accepted. As to the circumstances in which a referee’s report should be adopted, albeit in the context of the Supreme Court Rules 1970 (NSW): see Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902 at [12]. Documents will not be released for inspection until that process has been undertaken.

31    Finally, I note that the costs of the referee and any assistants acting in accordance with the orders are to be paid by the applicant provided that the applicant may apply at any time for a variation of the order in relation to costs based upon the outcome of the reports prepared by the referee. Once the first report of the referee is available it should become apparent as to the extent to which there is privileged material within the documents from the container. It may also be apparent as to which of the respondents any disputed claims for privilege relate. Ordinarily, the costs of identifying and articulating a claim to privilege would be borne in the first instance by the party making the claim. For these reasons, the Court has reserved liberty to apply to vary that order once more information is available concerning the documents the subject of the order.

Particular matters raised by the parties

32    As I have noted, a process has been underway for many months by which a list is being prepared of all the documents in the container. The Commissioner proposed that the orders for appointment of a referee might require the referee to proceed by considering the documents in the list and the descriptions in the list. This would mean that the process to be undertaken by the referee would be constrained by the time taken to prepare the list. Further, the referee would be required to be guided by the description in the list in determining whether documents fell within Category A, Category B or Category C. In order to determine whether there may be a claim to privilege in respect of particular documents it may be necessary to consider more than a description of the document. For that reason, it is preferable that the referee be free to determine the process to be followed after receiving information from interested parties.

33    Further, if the process of preparing the list was to continue to involve some form of assessment as to whether each document was privileged then there would be a duplication of work. For those reasons, I do not consider it appropriate to require the referee to proceed by reference to the list. Of course, this would not prevent any party from raising with the referee the list as being part of the information that the referee might bring to account in formulating the procedure to be followed in accordance with the proposed directions.

34    I was told that, in any event, the Commissioner wished to proceed with the process of preparing a list. Provided that process is separated from the referee process in the manner I have indicated, I see no reason why the Commissioner should not be allowed to continue to do so. The costs in that regard will be separate from the referee process. They are being borne by the applicant. The applicant should be at liberty to seek any order in relation to those costs. However, that is a matter that should be dealt with separately to the question of the costs of the appointment of the referee.

35    The Commissioner proposed that upon the provision to the Court of each report by the referee, the Commissioner would be entitled to access the Category C documents. However, for reasons I have given it would be necessary for the Court to consider whether the report should be adopted, varied or rejected in whole or in part before any access was provided to any of the documents the subject of the report. I propose to reflect that position in the orders to be made.

36    The draft orders contemplated rolling reports from the referee. There are two advantages to this approach. First, it allows for the possibility of access to at least the Category C documents on a rolling basis. Second, it will allow the Court to review the effectiveness of the referee process upon receipt of the first report. At that time, parties will be able to consider the report and raise any issues in respect of the procedure that has been followed or other matters that may affect the adoption of the report by the Court and the making of orders by the Court for access to documents based upon the report. There is the potential for the process to be refined at that point, if necessary.

37    An issue was raised as to the form of the description of the Category B documents. The draft orders proposed that they comprise the documents other than Category A documents in respect of which, in the opinion of the referee, “there is a reasonable basis to claim legal professional privilege”. It was suggested that this would mean that the documents in respect of which it could not be concluded, on the available information, that there was a reasonable basis to claim legal professional privilege might fall outside that category and yet not properly be included in the Category C documents. At the hearing I proposed that Category B be amended to refer to documents in respect of which “there may be a reasonable basis to claim legal professional privilege to deal with this issue”. No submission was raised against that course and I will incorporate that change in the orders to be made.

38    An issue was raised about whether the procedure to be established by the referee and implemented by the assistants might give rise to concerns that the assistants were adjudicating claims to privilege which, in turn, might be a reason why a report may be objected to and not adopted ultimately by the Court. To reduce the likelihood of this occurring, I will incorporate in the orders a mechanism by which the parties are notified of the draft of the procedure by the referee before deciding on the final procedure. The intention is that the procedure will provide sufficient direction to the assistants to enable them to identify documents which might be the subject of a claim to legal professional privilege having regard to information provided by the parties. It should not entrust to the assistants the making of any determination as to whether documents may be privileged. Rather, it should formulate a procedure to be followed which identifies those documents which need to be considered by the referee and leaves the remainder of documents as clearly falling within Category C. It is intended to reduce the burden on the referee so that the referee need only consider those documents in respect of which a privilege question may arise.

39    It was proposed that the orders be amended to facilitate arrangements for the referee to have secure access to the documents and I have incorporated an order to that effect.

40    For those reasons I make orders in the terms published with these reasons.

Associate:

Dated:    9 April 2018

SCHEDULE OF PARTIES