ASIC Adopts Assertive Approach to Information-Gathering Powers and Challenging Privilege Claims
The Situation: Australia's corporate regulator, the Australian Securities and Investments Commission ("ASIC"), enjoys broad statutory information-gathering powers to require the production of documents and examination of persons who ASIC reasonably believes can provide relevant information. ASIC's powers to compel the production of information are subject to a person's right to claim legal professional privilege in appropriate circumstances.
The Development: In two recent cases decided by the Federal Court of Australia, ASIC has signalled a tougher approach in regards to parties' compliance with compulsory notices and a preparedness on the part of the regulator to challenge in court broad or vague claims of legal professional privilege.
Looking Ahead: Parties subject to ASIC oversight should be prepared for ASIC to heavily scrutinise claims for privilege in the context of regulatory investigations. To avoid unnecessary time and costs being incurred in defending privilege claims in court, parties should endeavour to supply ASIC at the outset with sufficient details of the basis of such claims.
ASIC's information-gathering powers include section 33 of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act"). This section empowers ASIC to compel a "person" (which includes a corporation) by written notice ("s 33 notice" or "notice") to produce to ASIC "specified books" that are in the "possession" of that person.
In the event of non-compliance, ASIC can approach the court to enforce compliance. Intentional or reckless failure to comply with an s 33 notice (without a reasonable excuse) constitutes an offence and carries a maximum penalty for individuals of two years' imprisonment.
Recipients of s 33 notices are entitled to make valid claims of legal professional privilege to justify the non-production of particular documents that would otherwise be "caught" by the notice. ASIC's notices make clear that the recipient "must provide ASIC with sufficient information to allow its officers to make an informed decision about whether the claim for privilege can be supported". Accordingly, notices require (consistent with ASIC's Information Sheet 165) that privilege claims over information in documents be set out in an itemised schedule with specified information provided for each document, including names of authors and recipients and the basis of the claim (for example, legal advice or litigation privilege).
Section 33 notices also state that, while privileged documents are not required to be produced, ASIC may accept on a confidential basis privileged documents that are provided voluntarily. The terms on which ASIC may accept such documents are set out in the "Voluntary Confidential Legal Professional Privilege Disclosure Agreement" on ASIC's website, to which notice recipients are directed.
The reach of the s 33 notice is demonstrated by the recent decision of ASIC v Maxi EFX Global AU Pty Ltd  FCA 1263.
ASIC issued a s 33 notice to Maxi EFX ("Maxi"). Maxi failed to produce some of the documents sought, asserting that the notice was unclear, too broad, and that ASIC was not entitled to demand documents in the possession of overseas third party entities. ASIC sought an order to compel Maxi to comply.
Justice Wigney of the Federal Court held that there was no proper or reasonable basis for the argument that the notice lacked precision. His Honour recognised a general requirement for clarity in s 33 notices but held that this requirement "is not to be applied in a precious, over-technical or hypercritical way".
Furthermore, Justice Wigney found that the notice was not impermissibly broad merely because it called for the production of a large number of documents.
Many of the documents within the scope of the s 33 notice were said to be physically retained by third party entities "in various exotic locations overseas". For this reason, Maxi contended that it did not have possession of the relevant documents. As the word "possession" means "possession, custody or control", his Honour found that the evidence was sufficient to establish that Maxi was in possession, custody or control of the documents. This was so because the third party entities held the documents "on behalf of, or on account of" Maxi which was in a position to request the documents be returned. Finally, Maxi did not have a reasonable excuse for non-compliance. Inconvenience and expense were no excuse.
ASIC's willingness to challenge privilege claims by way of court proceedings is illustrated by ASIC v RI Advice Group Pty Ltd  FCA 1277.
RI Advice ("RI") claimed privilege over an internal report. RI claimed that an in-house lawyer directed the preparation of the internal report for the purpose of giving legal advice. ASIC challenged this assertion.
Justice O'Callaghan of the Federal Court found that RI's evidence was inadequate to establish its privilege claim. To support its privilege claim, RI only adduced "hearsay and opinion evidence" from its current solicitor who was not its solicitor when the document was created. Nor was evidence adduced from RI's CEO, who had been closely involved in the process that led to the creation of the report. The Court found that the precise role played by the in-house lawyer who requested the report was unclear.
Furthermore, Justice O'Callaghan rejected an argument that an email sent to ASIC when RI first produced the report established privilege. The email stated that the document was provided on a confidential basis, and "consistent with…legal professional privilege". The Court accepted ASIC's contention that in its s 33 notice ASIC had "communicated the basis on which it might agree to production of privileged documents and RI apparently decided to attempt to bypass this process."
His Honour also determined that, even if the privilege claim could have been made out, privilege would have been waived by RI having produced at an earlier point in time copies of the documents to ASIC without objection.
Daniel Faber, an associate in the Sydney Office, assisted with the preparation of this Commentary.
Five Key Takeaways
- ASIC enjoys broad statutory powers to compel the production of a wide range of documents. It is permissible for such notices to capture a voluminous set of documents. ASIC can call for specified documents within a person's possession, custody or control, which may include documents held by third parties in jurisdictions outside Australia.
- Anecdotal evidence suggests ASIC's use of s 33 notices is on the rise, so it is important that companies and their counsel clearly understand the scope and bounds of ASIC's powers.
- Legal professional privilege is a reasonable excuse for the recipient of a notice not producing a document to ASIC. However, care must be taken to ensure that privilege can properly be established, that the basis for such claims is articulated clearly and that actions taken to comply with a notice do not waive privilege. Consistent with ASIC's enforcement approach of "why not litigate", ASIC has demonstrated its preparedness in a number of recent court proceedings to challenge non-compliance with production notices, including insufficiently particularised privilege claims.
- Legal professional privilege is a fundamentally important principle, but if it is abused, that could threaten its continued applicability on regulatory matters, given regulators' concerns over recent years about blanket claims and invalid claims for privilege. If privilege is claimed then it must be able to be substantiated.
- A recipient of a compulsory production notice from ASIC is advised to seek legal advice without delay, including in relation to the documents that fall within the scope of the notice which are in the party's possession, custody or control, and to ensure that any claims for privilege are made properly and with sufficient detail at the outset of the party's engagement with ASIC.
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