ASIC's hard-line regulatory approach receives further endorsement

By Tim Jones, Daniel Maroske, Nick Josey and Tim George
01 Oct 2020
ASIC is prepared to seek the Court's assistance in ensuring robust compliance with notices that it issues.

Two recent Federal Court judgments have provided a reminder of the requirement to properly comply with notices issued by the Australian Securities and Investments Commission (ASIC), as well as ASIC's preparedness to challenge what it considers to be "wholly inadequate" unsubstantiated claims of legal professional privilege.

The decisions give useful guidance for responding to regulatory notices and claims for legal professional privilege, and highlight the distinction between the information-gathering powers available to ASIC under legislation and the discovery and subpoena regimes in the State and Federal Courts.

Maxi EFX: how broadly can an ASIC notice go?

Australian Securities and Investments Commission v Maxi EFX Global AU Pty Ltd [2020] FCA 1263

The Maxi EFX proceeding concerned a Notice to produce documents issued by ASIC to Maxi EFX Global AU Pty Ltd to produce documents pursuant to section 33 of the ASIC Act 2001 (Cth). In seeking to comply with the Notice, Maxi EFX produced in excess of 10,000 documents to ASIC responsive to a number of categories of the Notice. Maxi EFX did not, however, provide all of the documents requested by ASIC in the Notice.

In April 2020, ASIC certified to the Court that Maxi EFX had failed to comply with the Notice and sought an order which, in effect, required Maxi EFX to comply with the Notice. Maxi EFX opposed the order sought by ASIC and contended, amongst other matters, that the Notice was unreasonably broad, and that Maxi EFX did not have "possession" of many of the books that ASIC alleged had not been produced in response to the Notice as they were said to be in the physical possession of third party services providers located overseas.

The Court held that:

  • the Notice was validly issued and that the documents requested were in the possession, custody or control of Maxi EFX, notwithstanding they may have been physically retained by third parties overseas. In so ruling, the Court held that the production of a large number of documents does not mean that a notice is too broad. A notice issued 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";
  • the use of expressions such as "relating to" or "referring to" will not make a notice invalid for lack of sufficient precision or clarity;
  • the overseas 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; and
  • mere inconvenience and expense would not ordinarily provide a reasonable excuse for non-compliance with a notice issued by ASIC.

RI Advice proceeding: can ASIC challenge claims for legal professional privilege?

Australian Securities and Investments Commission v RI Advice Group Pty Ltd

The RI Advice proceeding resulted from an investigation and subsequent litigation commenced by ASIC against RI Advice Group Pty Ltd and an adviser authorised by RI to provide financial advice. In the course of the parties exchanging pleadings, a dispute arose in respect of the admissibility of an internal report (the Third File Review) that ASIC sought to introduce in its evidence.

There were two important factors:

  1. A version of the Third File Review had been produced to the Royal Commission in April 2018 by ANZ (then RI's parent company) without any claim to privilege having been made. That copy of the document was still available on the Royal Commission's website at the time of this proceeding; and
  2. RI had previously produced copies of the report without objection to ASIC in response to notices issued under section 33 of the ASIC Act.

ASIC applied to the Court seeking an order under section 118 of the Evidence Act 1995 (Cth) which, in effect, provided that the Third File Review was able to be adduced into evidence. RI contested this application on the grounds that the Third File Review had been prepared at the direction of an in-house lawyer for the purposes of the lawyer giving legal advice and was therefore subject to a claim of legal professional privilege.

The Court considered RI's evidence and observed there was no direct evidence provided regarding the purpose of creating the Third File Review. It was noted by the Court that where there is no direct evidence of the dominant purpose for the creation of a document from the person who requested or commissioned it, the Court is entitled more readily to infer that the information it contains was required for multiple or competing purposes. Ultimately, the Court was not satisfied that the Third File Review was created for the dominant purpose of RI receiving legal advice.

In coming to this conclusion, the Court stated that even if RI had a valid claim from legal professional privilege over the Third File Review, RI had lost privilege in the document by producing four copies of it to ASIC in November 2018, without objection. Justice O'Callaghan accepted ASIC's argument that privilege in the Third File Review had been waived, and held that it was insufficient for RI to state in the covering email by which the documents were produced that the documents were being produced on a confidential basis and "consistent with… legal professional privilege", as that amounted to an attempt to bypass the step of obtaining ASIC's formal agreement to accept the document on a privileged basis. The Court made the orders sought by ASIC.

Takeaways for dealing with ASIC

Together, the decisions demonstrate that:

  • ASIC is prepared to seek the Court's assistance in ensuring robust compliance with notices that it issues.
  • The expense and inconvenience of complying with a notice will not ordinarily provide a reasonable excuse for non-compliance.
  • ASIC's power to require production of documents in a person's "possession" extends to documents in the person's custody or under their control. It is not a reasonable excuse not to produce documents merely where they are in the physical possession of a third person.
  • Parties should take care to only claim legal professional privilege over documents in which it holds a valid claim which can be substantiated. ASIC has demonstrated its appetite to challenge claims it does not consider are appropriate.
  • Parties need to be careful when disclosing documents pursuant to a notice to ensure that claims for legal professional privilege are consistently made for documents and not inadvertently waived.

Where a party seeks to claim legal professional privilege over a document requested by ASIC, it should follow the process outlined by ASIC at INFO 165.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.