By: Amanda Beattie and Gavin Davies.

At a glance

• The Full Federal Court has determined that disclosure of a privileged expert report to ASIC in accordance with a voluntary disclosure agreement (VDA) did not amount to a waiver of privilege.
• This decision restores confidence in VDAs as a valuable tool for companies cooperating with ASIC while maintaining privilege protections.

Introduction

Last week, the Full Federal Court of Appeal delivered a much-anticipated judgment in the privilege stoush between ASIC, Noumi (formerly Freedom Foods) and its former CEO, Rory Macleod.¹

The primary judgment, which was delivered in April 2024, called into question the privilege protections provided in ASIC’s voluntary disclosure agreements (VDAs). VDAs are, as the name suggests, agreements between ASIC and corporates/individuals that facilitate the disclosure of privileged information to ASIC on the basis that ASIC agrees to keep the document confidential and acknowledges that privilege is not waived.

What was the case about?

Noumi, a publicly listed company, were engaged in discussions with ASIC in 2020 in relation to accounting irregularities that resulted in significant overstatement of the value of its inventory in the company’s financial reports. Upon Noumi’s board becoming aware of the issues in June 2020, its shares were placed in a trading halt/suspension that ended up lasting nearly 9 months.

Shortly after the accounting issues first came to light, Noumi retained external lawyers and briefed PwC to conduct an investigation and prepare a report on its findings. PwC’s report was delivered to Noumi’s Board (via its external lawyers) in September 2020. Then, in October 2020 provided ASIC with a copy of the PwC report, pursuant to a VDA.

In February 2023 ASIC commenced proceedings against Noumi and various of its senior executives, including Mr Macleod. Noumi settled the proceeding with ASIC, by admitting to contraventions of its continuous disclosure obligations and agreeing to pay a penalty of $5 million. However, Mr Macleod has not reached a settlement with ASIC and continues to defend the claim.

Mr Macleod challenged Noumi’s privilege claim over the PwC report, with the view to relying on the report in defence of the ASIC proceedings. He contends that the report was not created for the dominant purpose of providing legal advice and, even if it was privileged at the time it was created, that privilege claim was waived when the report was given to ASIC.

In the primary judgment, Shariff J held that while the PwC report was indeed privileged at the time it was created, that privilege was waived when the report was provided to ASIC. The Court’s central reasoning was that although the terms of the VDA required that ASIC not disclose the report to anyone, ASIC was permitted to use the information to aid its investigation into, and proceedings against, Mr Macleod. For example, although the VDA prohibited ASIC from tendering the report as evidence in proceedings against Mr Macleod, it was free to use the information in the PwC report to “identify witnesses to examine, the topics to be explored with them, the questions to be asked and so on” [146]. The Court held that this disparity of information created an unfairness that weighed in favour of privilege being waived.

The primary judge labelled this use of the privileged information a “derivative use”, which had the effect of eroding the confidentiality of the PwC report such that Noumi could not maintain its claim for privilege.

Appeal

Both Noumi and ASIC appealed the decision to the Full Federal Court. The primary focus of the appeal was whether the primary judge erred in concluding that the “derivative use” was inconsistent with the maintenance of confidentiality in the PwC report.

In a unanimous judgment, the Full Federal Court allowed the appeal and overturned the primary judgment. Critically, the Full Court explained that [147]:

• “it cannot be said that such derivative use of information amounts to a disclosure of that information“, and
• “the primary judge erred in finding that by permitting ASIC to use the Disclosed Information in a derivative way against Mr Macleod, Noumi expressly or impliedly acted in a way that was inconsistent with the maintenance of the confidentiality which the privilege is intended to protect“.

Decision

In reaching the decision, the Court noted that whilst ASIC may have used the content of the report to identify lines of enquiry those investigations cannot be said to amount to a disclosure of the information in the report, such as to deprive it of its confidential nature. Much of that turned on the clauses of the VDA which expressly required ASIC to treat the information as confidential.

The decision is a welcome one both for companies, ASIC, and presumably other regulators. Since April 2024 when the primary judgment was handed down, the VDA regime has been cast under a cloud of doubt and uncertainty. With this judgment, the Full Federal Court has re-established VDAs as a useful tool for ASIC to maximise its options for information gathering, as well as corporates looking to proactively engage with the regulator during the investigation process.