Court rulings support ASIC’s position on notice compliance and legal privilege

NEWS
Published
Sep 11th '20
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Two recent Federal Court decisions support Australian Securities & Investments Commission’s (ASIC) position on obligations to comply with ASIC Act notices and to clearly substantiate any claims for legal professional privilege.

 

Maxi EFX ordered to produce documents

On 3 September 2020, ASIC successfully obtained an order from the Federal Court of Australia compelling Maxi EFX Global AU Pty Ltd (Maxi EFX) to produce documents in response to an ASIC notice issued to it, pursuant to section 33 of the ASIC Act.

 

ASIC had issued the notice to Maxi EFX in the course of an ongoing investigation into suspected contraventions of the ASIC Act 2001 and the Corporations Act 2001 (19-373MR). Maxi EFX failed to produce certain documents required under the notice, arguing that the notice was unclear, that ASIC was not entitled to seek such a broad range of documents and that certain documents were in the possession of overseas third party entities. Following this failure, ASIC applied to the Federal Court seeking an order compelling Maxi EFX to properly comply with the notice.

 

Justice Wigney held that the notice was validly issued and that the documents requested by the notice were in the possession, custody or control of Maxi EFX, notwithstanding the fact that they may have been physically retained by third party entities located overseas. His Honour determined that these entities held the documents “on behalf of, or on account of” Maxi EFX, which was in a position to request or require them to provide those documents to it so that they could be produced to ASIC.

 

His Honour noted that the notice sought production of a large number of documents and that this did not mean that the notice was too broad. A notice issued under under section 33 of the ASIC Act is not like a subpoena or discovery in litigation and cannot be objected to on the grounds that it involves a “fishing expedition”.

 

His Honour also rejected the argument that the notice was invalid because it did not convey with sufficient clarity the documents required to be produced, noting that the mere use of expressions such as “relating to” or “referring to” does not mean that a notice lacks sufficient clarity or precision.

 

In determining that Maxi EFX did not have a reasonable excuse for its non-compliance, His Honour noted that “…it is tolerably clear that mere inconvenience and expense would not ordinarily provide a reasonable excuse for non-compliance.”

 

ASIC’s successful challenge to RI Advice’s claim for legal professional privilege

Separately, the Federal Court ruled in ASIC’s favour in a dispute over client legal privilege, finding that a privilege claim by RI Advice Group Pty Ltd (RI Advice), an IOOF subsidiary, could not be upheld

 

RI Advice had claimed privilege over an internal report, which it said had been prepared at the direction of an in-house lawyer for the purposes of the lawyer giving legal advice.  RI Advice had previously produced copies of the report to ASIC in response to notices issued under section 33 of the ASIC Act.

 

Justice O’Callaghan found that RI Advice’s evidence was inadequate to establish that the report was privileged, emphasising that “[no] explanation has been given…why RI’s current CEO, who was closely involved in the process that led to the creation of the Third File Review” did not give evidence.

 

His Honour found that, even if the report had been privileged, RI Advice would have waived its privilege by previously producing copies to ASIC without objection.

 

His Honour dismissed an argument that an email sent by RI Advice when it first produced the report was binding on ASIC.  In the email, RI Advice said it was producing the document on a confidential basis, and “consistent with … legal professional privilege”.  His Honour accepted ASIC’s submission that RI Advice had “apparently decided to attempt to bypass” the step of obtaining ASIC’s formal agreement to accept the document on a privileged basis by following the process identified in ASIC’s notice to RI Advice.

 

Clarity provided around notice compliance and legal privilege

Together, these decisions clarify obligations for those who receive ASIC notices requiring them to produce documents:

 

  • Under section 33 of the ASIC Act,ASIC can require the production of specified documents in a person’s “possession” for the purposes of an investigation. Those issued with such a notice are required to produce not only the documents in their physical possession, but those in their custody or under their control.
  • A notice may require production of a large number of documents but this does not mean the notice is too broad. The relevance of documents called for is a matter for ASIC to determine by reference to its investigation.
  • The mere fact that a notice might be burdensome or oppressive because of the work and expense involved in complying with it will not, of itself, provide a reasonable excuse for non-compliance.
  • Those making legal professional privilege claims over a document must be able to substantiate their claims.
  • Producing a document to ASIC without claiming legal professional privilege can be a clear waiver of that privilege.
  • Those wishing to disclose a document to ASIC while maintaining a legal professional privilege claim over it should follow the instructions contained in the notice and seek ASIC’s formal agreement.

 

These actions demonstrate that, in appropriate cases, ASIC will take steps to enforce compliance with its notices.

 

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Background

ASIC has certain information gathering powers that allow it to perform or exercise its statutory functions, including the ability to issue notices requiring the production of books and records that are relevant to a matter that ASIC is investigating. Information Sheet 145 provides further information about ASIC’s compulsory information gathering powers.

 

Maxi EFX is the former corporate authorised representative of Australian Financial Services licensee Union Standard International Group Pty Ltd (in liquidation and AFSL currently suspended) and is no longer authorised to provide financial services in Australia.

 

On 31 October 2019, ASIC commenced civil penalty proceedings against RI Advice, and its former authorised representative, John Doyle, in which ASIC alleges that RI Advice failed to take reasonable steps to ensure that Mr Doyle provided appropriate advice, acted in clients’ best interests and put his clients’ interests ahead of his own, as required by law (19-297MR). The trial of these proceedings is set down for hearing on 1 March 2021.

 

Source: © Australian Securities & Investments Commission. Reproduced with permission.