Federal Court of Australia

Parkin v Boral Limited (Privilege Argument) [2022] FCA 1467

ORDERS

THE COURT RULES THAT:

1.    The respondent’s claim of legal professional privilege in respect of the three investigation reports of Alston & Bird dated 1 December 2019, 18 December 2019 and 21 January 2020 be upheld.

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

ORDERS

THE COURT RULES THAT:

1.    The respondent’s claim of legal professional privilege in respect of the three investigation reports of Alston & Bird dated 1 December 2019, 18 December 2019 and 21 January 2020 be upheld.

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:

The issue

1    Two representative parties (the applicants) commenced separate proceedings against the respondent, Boral Ltd, seeking damages and statutory compensation for losses allegedly suffered on the value of shares in Boral that the applicants or group members acquired or sold by reason of the alleged failure of Boral to comply with its market disclosure obligations. The failure centred on the consequences of Boral’s discovery in early November 2019 of alleged fraudulent accounting entries in one of its United States’ subsidiaries, known as its Windows business.

2    The applicants have raised challenges to numerous claims for legal professional privilege that Boral made in its list of documents. The parties agreed to seek rulings on a number of sample documents, the decisions about which they hope will enable them to agree on the fate of most, if not all, of the thousands of other challenged claims. One important class of claim in issue is Boral’s assertion that three investigation reports prepared by its United States lawyers, Alston & Bird, who were located in Georgia, on 1 and 18 December 2019 and 21 January 2020, were privileged.

Background

3    Around 7 and 8 November 2019, once its senior management learnt of the nature of the issues in the Windows business, Marie Joseph, then acting as Boral’s senior in house lawyer, and other officers of Boral, recognised that it faced accounting, auditing, market disclosure and corporate governance issues. Ms Joseph immediately retained Dan Diffley and his law firm, Alston & Bird, to give legal advice. As she deposed, she retained Alston & Bird “about the proper process to be followed and Boral’s legal position in relation to these irregularities” as well as to make whatever enquiries that they considered necessary to provide Boral with legal advice about its legal position, its rights and obligations, the facts in respect of the inventory irregularities in the Windows business, including who was involved, such as employees, vendors or third parties, what was missing, what Boral could do to recover any inventory and further issues as they emerged.

4    Mr Diffley said that, when he first spoke to Ms Joseph:

At the time we understood very little about what had happened other than what had been conveyed to me by Marie Joseph. But we did know that there were going to be accounting and financial issues related to that. So we wanted to make sure that we had that level of expertise as part of our team that was going to be advising Boral on this matter.

(emphasis added)

5    Mr Diffley understood that Alston & Bird would have to undertake a detailed investigation of the facts, including ascertaining the financial position as reported and what it was in fact. He, his partner, Meredith Kingsley, and Alston & Bird decided to engage Ernst & Young, an external independent firm of accountants for the latter purpose. Mr Diffley regarded his firm’s engagement of Ernst & Young as necessary for the retainer and that this task should not be given to Boral’s auditors, KPMG, as appears to have been contemplated by some officers of Boral. As Mr Diffley appreciated, KPMG would have had an obvious conflict of interest in respect of any potential liability KPMG might have had if there were any failure, in its audit activity, to detect the issues that had come to light. Mr Diffley also decided that Alston & Bird needed to engage an independent firm of investigators, Nardello & Co, to assist in providing its legal advice. Mr Diffley said that Alston & Bird’s lawyers, Ernst & Young and Nardello & Co would all engage to compile a comprehensive information for Alston & Bird to consider and on which it could then give Boral the legal advice and information it sought.

6    I have read the three investigation reports and I have had the benefit of the evidence of one of their authors, Mr Diffley, as well as of others, together with the parties’ detailed oral and written submissions. For the reasons below, I formed the opinion that the claims of legal professional privilege over the three investigation reports must be upheld.

The applicants’ submissions

7    The applicants contended that Boral needed to take action independently of taking or considering legal advice on various matters that, inevitably, Alston & Bird’s investigation covered or would cover. Thus, they submitted, Boral had to meet, regardless of any legal advice, its obligations to make continuous disclosure under s 674(2) of the Corporations Act 2001 (Cth), to comply with accounting standards, and cooperate with its auditors, KPMG, in ensuring that they could comply with the auditing standards, including ASA240. In addition, the applicants argued that Boral’s own need to understand and take action to address what had occurred in the Windows business, including in respect of any fraudulent or illegal activity of one or more employees, meant that it needed the very same information that Alston & Bird was gathering or had gathered.

8    The applicants argued that Boral had to address these considerations in any event. They contended that its numerous purposes in seeking, and Alston & Bird’s purposes in providing, the three investigation reports negated a conclusion that the dominant purpose of Boral or Alston & Bird, for or by which each of those documents was produced or brought into existence, was to use it or its contents in order to obtain legal advice or to conduct, or aid in the conduct, of litigation.

Consideration

9    Barwick CJ formulated the dominant purpose test for legal professional privilege in Grant v Downs (1976) 135 CLR 674 at 677 that, subsequently, Gleeson CJ, Gaudron and Gummow JJ, and Callinan J, approved in Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49. The Chief Justice stated the principle as follows (135 CLR at 677):

a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection.

10    Where a client consults a lawyer to seek legal advice about how to proceed or deal with a situation with which the client is faced, ordinarily the client will have more than one decision to make or consideration to take into account in respect of the subject-matter of the advice sought. There is a distinction between legal advice which a client seeks and then considers, on the one hand, and the decision or action that the client takes having had the benefit of the legal advice, on the other.

11    Stephen, Mason and Murphy JJ explained in Grant 135 CLR at 685 that there is a public policy purpose for the law’s recognition of legal professional privilege, in a passage that Gibbs CJ cited and applied, with the agreement of Mason and Brennan JJ, in Attorney-General (NT) v Kearney (1985) 158 CLR 500 at 511, 517 as follows:

The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisors, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of the public interest over a more general public interest, that which requires that in the interests of a fair trial, litigation should be conducted on the footing that all relevant documentary evidence is available.

(emphasis added)

12    Gibbs CJ added:

The reasons justifying the privilege apply when a public authority preparing regulations which will have the force of law seeks legal advice from its legal advisers. It is in the interest of the public as well as that of the authority that the latter should make full and candid disclosure to its advisers so that it may obtain sound legal advice.

(emphasis added)

13    Gummow J said in applying the sole purpose test in Hartogen Energy Limited (in liq) v The Australian Gas Light Company (1992) 36 FCR 557 at 568–569, albeit the principle is equally applicable in relation to the dominant purpose test:

The purpose for which a document is brought into existence is a question of fact: Grant v Downs at 692 (Jacobs J); Waterford v Commonwealth (supra) at 66 (Mason, Wilson JJ), 78 (Brennan J). In Grant v Downs (at 692) Jacobs J said:

“[T]he question the court should pose to itself is this – does the purpose of supplying the material to the legal adviser account for the existence of the material? I use the purpose here in the sense of intention – the intended use.”

The purpose will ordinarily be that of the maker of the document, but this will not always be the case. In Laurenson v Wellington City Corporation [1927] NZLR 510, Skerrett CJ looked to the person who “calls into existence documents in the bona fide belief that litigation will probably ensue …” [emphasis supplied]. And the phrase I have emphasised was employed by Stephen, Mason, Murphy JJ in Grant v Downs (at 682-683). It is apt to describe the situations where, for example, solicitors commission the provision of a technical report; the relevant intention will not be that of the author but the solicitor.

(emphasis added)

14    Similar considerations apply to any person, whether an individual or corporation, which seeks advice about a legal dilemma in which it finds that it is placed.

15    I reject the applicant’s argument that relied on statements such as that of Boral’s chief executive officer, Mike Kane, in his email to the chief financial officer of Boral America of 22 November 2019: “Only question is what is the final number? Don’t we need to get to mid-December first or early January?” The answers to those questions depended upon the legal and other advice that Boral’s executives would have to consider and make decisions on to arrive at “the final number”.

16    The dominant purpose of Alston & Bird’s work, including in the three investigation reports, was to give Boral legal advice that it could consider and take into account in making decisions that included what it would disclose to the market.

17    It is also implausible that Boral would wish to act on such a serious issue without as full a consideration of its legal position as was possible for Alston & Bird to provide in the circumstances at the time it was called upon to give its various advices. As Bromberg J said in Kirby v Centro Properties Ltd (No 2) (2012) 87 ACSR 229 at 254 [88]:

In seeking advice as to the correct classification of its debt there can be no doubt that Centro held the operational purpose of wanting to utilise that advice to correct its classification of debt if that was required. But the existence of that operational purpose does not diminish the dominant purpose of obtaining legal advice. Legal advice is rarely sought in a commercial context merely for the sake of receiving advice. It is almost always sought by a client for the purpose of applying the advice to a commercial or other operational purpose. The existence of a posterior operational purpose of that kind is of no moment where the client’s purpose in engaging its lawyer is to seek legal advice and assistance.

(emphasis added)

18    Having read each of the three investigation reports and considered Mr Diffley’s and Ms Joseph’s evidence, I am satisfied that the dominant, indeed, the sole purpose of Mr Diffley and Ms Kingsley, the authors of each report, in providing it to Boral, was to provide Alston & Bird’s legal advice to its client, Boral, and to aid it in the conduct of the existing Windows litigation in the United States. I am also satisfied that this was the dominant purpose of those in Boral who caused the three investigation reports to come into existence.

Conclusion

19    For those reasons, I am satisfied that the three investigation reports are the subject of valid claims for legal professional privilege that has not been lost.

Associate:

Dated:    6 December 2022