GROFAM PROPRIETARY LIMITED & ORS v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED & ORS

Judges:
Heerey J

Court:
Federal Court

Judgment date: Judgment handed down 11 August 1993

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Heerey J

The applicants in this proceeding are Messrs Bruno and Rino Grollo and eight associated companies (the Grollo Group). In the 1980s a member of the Grollo Group, in a joint venture with the St Martins Property Group, built the Rialto, a large office building in Melbourne. The identity of the particular Grollo company which was in truth the builder is a central issue in the disputes which give rise to this litigation. The Australian Tax Office (ATO), after an investigation of the Grollo Group, suspects that there has been a large scale evasion of tax on the profit made within the Group on the construction of the Rialto.

The Australian Federal Police (AFP) obtained warrants to search the homes of the Grollos as well as the offices of their accountants and solicitors and the premises of their bankers, the ANZ Bank, at 187 Collins Street, Melbourne. The present application raises questions as to the applicability of legal professional privilege to certain documents discovered by the AFP. Those questions are-

• (i) Does the privilege extend to communications between the ATO, the AFP and the Director of Public Prosecutions (DPP) in the circumstances?
• (ii) Do parts of AFP ``running sheets'' attract the privilege?

The Investigation

Within the ATO there is a section known as the Audit Prosecutions Unit (APU). When tax investigation raises a suspicion that a taxpayer might have committed a tax related criminal offence, the matter is referred to the APU for legal advice and, if considered appropriate, prosecution. If the APU decides that a serious offence might have been committed the matter is referred to the DPP for legal advice and possible prosecution. The APU prosecutes less serious offences itself.

In the latter half of 1990 a case officer auditing the affairs of the applicants informed the APU of his suspicion that criminal offences may have been committed by some or all of the applicants. The matter was then referred to the APU. By a letter dated 20 December 1990 the Deputy Commissioner of the ATO sought advice from the DPP as to suspected tax fraud by the applicants. The DPP formally responded to this request by a minute of advice dated 9 July 1992.

In August and September 1992 a number of meetings took place attended by Mr Peter Wood, who is Deputy Director of Public Prosecutions and in charge of the DPP's Melbourne office, together with AFP and ATO officers and, on a number of occasions, senior and junior counsel retained by the DPP. A decision was made to apply for search warrants.

On 14 September Detective Sergeant Kenneth McDermott of the AFP lodged with the Bench Clerk's office at the Melbourne Magistrates' Court a draft information. The following day Sergeant McDermott received a telephone call from the clerk to Mr Robert Tuppen conveying some queries Mr Tuppen had about the draft information. At Mr Tuppen's request Sergeant McDermott attended at his chambers on 16 September together with Mr Wood and Mr Leon Maddern of the ATO. Mr Tuppen referred to the matters which his clerk had conveyed the previous day. Those matters are described in detail in an affidavit sworn in these proceedings by Sergeant McDermott. In respect of some of the matters Mr Wood and Sergeant McDermott agreed to make amendments to the draft information. As to others Mr Tuppen indicated he was satisfied with the responses given.

After that meeting Sergeant McDermott made a number of alterations to the draft information and on 17 September, together with Mr Wood, again attended Mr Tuppen's chambers and drew his Worship's attention to the changes. Mr Tuppen said he was now satisfied with the information and was prepared to issue the warrants, subject only to being provided with a second copy of the information. That was done later in the day when Sergeant McDermott returned and swore the information before Mr Tuppen who then issued the warrants. The warrants were executed at the homes of the Grollos and their accountants' and solicitors' offices on 18 September. The warrant in respect of the bank's premises was executed by agreement with the bank on 30 September.

There have been other proceedings commenced in this Court as a consequence of the issue and execution of the warrants. The proceeding in which the present application is made was commenced on 19 April 1993 (VG 110 of 1993). By an amended application filed on 17 May relief is sought against the ANZ

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Bank, Mr Peter Macauley (the Commissioner of the AFP), Sergeant McDermott and Mr Tuppen. On the same day an amended statement of claim was filed. Part of the amended statement of claim raises complaints about an alleged apprehended disclosure by the ANZ Bank to the AFP of material concerning the applicants in circumstances which it is said would breach the bank's obligation of confidentiality to its clients. The amended statement of claim goes on to plead the issue of the search warrant by Mr Tuppen under s. 10 of the Crimes Act 1914 (Cth) with respect to the premises of the bank and the subsequent seizure by the AFP of documents from the bank. There then follow complaints about the warrant. It is alleged that at the time of issue Mr Tuppen ``was not or ought not to have been satisfied by the information on oath before him'' that the offences alleged in the warrant had been committed or that there were reasonable grounds for suspecting such offences had been committed. It is alleged further that the warrant was too wide in that it went beyond the offences alleged in the information, that Mr Tuppen was not or ought not to have been satisfied that items the subject of the warrant would be on the bank's premises, that the warrant was so general that it was on its face oppressive, that the steps taken by the AFP and Mr Tuppen in relation to the making of the decision to issue the warrant and the execution of it were an exercise of power that was excessive and not bona fide and that the AFP did not make full and frank disclosure to Mr Tuppen of all matters relevant to the making of the decision to issue the warrant. Those matters are said to have amounted to failure to observe the procedures required by s. 10 of the Crimes Act within the meaning of s. 5(1)(b) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). It is also alleged that Mr Tuppen did not have jurisdiction under s. 10 of the Crimes Act and that his decision was not authorised thereunder. Complaint is made that the making of the decision to issue the warrant gave rise to a number of grounds of review under the s. 5(1)(e) of AD (JR) Act, namely by Mr Tuppen taking into account irrelevant considerations, failing to take into account relevant considerations, exercising the power to grant the warrant for a purpose other than a purpose for which the power was conferred, making his decision in accordance with a rule of policy without regard to the merits of the particular case and making a decision that was so unreasonable that no reasonable person could have made it. Further it is said that the decision involved an error of law within the meaning of s. 5(1)(f) of the AD (JR) Act, that there was no evidence or other material to justify the making of the decision within the meaning of s. 5(1)(h) and that the decision was otherwise contrary to law within the meaning of s. 5(1)(i). It also said that the documents seized did not fall within the terms of the warrant.

The DPP and Legal Professional Privilege

Counsel for the applicants took a general objection to the claim for professional privilege in respect of all documents enumerated in Part 2 of Schedule 1 of the AFP's amended further list of documents on the ground that at the time the documents came into existence the DPP did not have the capacity to act as a legal adviser for any other person or authority in relation to the Grollo investigation. Counsel said that no privilege attached to that which the DPP was not allowed to do. In any event, he argued, the ATO and AFP were not clients of the DPP for the purposes of legal professional privilege because the DPP was conducting investigations for his own purposes and the ATO and AFP were assisting him after the matter had been ``referred'' to his office.

Counsel principally relied on s. 9(11) of the Director of Public Prosecutions Act 1983 (Cth). Section 9 is headed ``Powers of Director''. Sub- section (1) provides for the Director to prosecute by indictment in his official name indictable offences against the laws of the Commonwealth, although ``nothing in this sub- section prevents the Director from prosecuting an offence against a law of the Commonwealth in any other manner''. Sub-section (2) deals with the signing of indictments. Sub-section (3) provides for the Director to take over a prosecution on indictment for an offence against the law of the Commonwealth being a prosecution by another person other than the Attorney-General or a Special Prosecutor. Sub- section (3A) provides for taking over prosecutions by a Special Prosecutor under the Special Prosecutors Act 1982 (Cth) when a Special Prosecutor dies or ceases to hold office. Sub-section (4) provides in effect for the issue of a nolle prosequi by the DPP. Sub-section (5) provides for the taking over by the Director of a proceeding being carried on by another person for the commitment of a person for trial in

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respect of an indictable offence against the law of the Commonwealth or for summary conviction for such an offence. Sub-section (6) provides that the Director may give undertakings that certain statements made in proceedings will not be used in evidence against the person making them. Sub-section (7) provides that where the Director has instituted or taken over the prosecution of an offence against a law of the Commonwealth, the Director may exercise in addition to such rights of appeal (if any) as are exercisable by him otherwise than under the subsection, such rights of appeal (if any) as are exercisable by the Attorney-General in respect of that prosecution. Sub-section (8) provides that sub- section (7) is not to prevent the exercise by the Attorney-General of a right of appeal which he would otherwise have. Sub-section (8A) contains a definition of ``right of appeal''. Sub- section (9) provides for the Director instituting proceedings for pecuniary penalties. Sub- section (10) makes similar provision for proceedings for civil remedies in connection with the recovery of tax. Sub-section (11) provides:

``Where an authority of the Commonwealth is a party to a proceeding in respect of a matter-

• (a) that has arisen out of or is connected with the performance of any of the functions of the Director; or
• (b) that may result in the performance by the Director of such a function;

the Director, or a person who is entitled to represent the Director in proceedings referred to in subsection 15(1), may act as counsel or solicitor for that authority.''

The AFP and the ATO both fall within the definition of ``authority of the Commonwealth'': see s. 3(1). I accept, at least for the purposes of this argument, that the term ``proceeding'' in s. 9(11) (that expression not being defined in the Act) refers to litigation which has been commenced in a court or tribunal: cf
Viner & Ors v Australian Building Construction Employees' and Builders Labourers' Federation (No. 1) (1981) 56 FLR 5 at 29. It follows, says counsel for the applicants, that s. 9(11) prohibits the DPP from acting as a lawyer for an authority of the Commonwealth before that authority becomes a party to an actual proceeding, an event which in the present case has probably not yet occurred and at best occurred when the warrant was issued on 17 September 1992. The consequence is that legal professional privilege does not attach to any legal advice which the DPP purported to give at an earlier stage, or to communications between the DPP and the AFP and ATO for that purpose.

The purpose for which s. 9(11) was inserted in the Act is not at all clear to me, particularly having regard to the express conferring on the Director and members of his staff who are legal practitioners of rights of audience: see s. 16. Senior counsel for the AFP, who speaks with some authority on the subject since he has himself held the office of DPP, was unable to point to any reason for the sub-section other than Parliament's occasional tendency to be abundantly cautious. Whatever be the sub- section's purpose, I am however satisfied that it does not carry with it the implied prohibition contended for by counsel for the applicants. I do not think s. 9(11), or the other miscellaneous specific provisions in s. 9, derogate from the generality of s. 6. Section 6(1) of the Act sets out the functions of the DPP. It provides-

``6(1) The functions of the Director are:

• (a) to institute prosecutions on indictment for indictable offences against the laws of the Commonwealth;
• ...
• (c) to institute proceedings for the commitment of persons for trial in respect of indictable offences against the laws of the Commonwealth;
• ...
• (n) to do anything incidental or conducive to the performance of any of the functions referred to in paragraphs (a) to (m) and in subsection (2).''

The approach of the ATO to the DPP for advice about the applicants' possible criminal liability raised the real possibility that at some time in the future the DPP might institute proceedings against the applicants for indictable offences or for the commitment of them for trial for such offences. It was incidental or conducive to the performance of such a function for the DPP to give the advice sought by the AFP and ATO since they were engaged in an investigation of a kind which was necessary, or at least likely to be of assistance, for any such future proceedings.

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It is a legitimate function of the ATO and the AFP to investigate possible breaches of the criminal laws of the Commonwealth in relation to tax matters. Whether in doing so in the present case they have themselves committed some illegality or impropriety is of course not for me to decide on the present application. However, one only has to look at the extensive and complex allegations of the applicants in their amended statement of claim to realise how fraught with potential for legal error is the investigative process in cases like the present where the stakes are high and persons under suspicion, as is their undoubted right, are likely to take advantage of any legal error by those who would seek to enforce the law against them. In the words of Mason and Wilson JJ in
Waterford v The Commonwealth of Australia (1986-1987) 163 CLR 54 at 62:

``... it is clearly in the public interest that those in government who bear the responsibility of making decisions should have free and ready confidential access to their legal advisers.''

Later in their judgment their Honours say (at 64):

``The growing complexity of the legal framework within which government must be carried on renders the rationale of the privilege, as expressed in Grant v. Downs, increasingly compelling when applied to decision-makers in the public sector. The wisdom of the centuries is that the existence of the privilege encourages resort to those skilled in the law and that this makes for a better legal system. Government officers need that encouragement, albeit, perhaps, for reasons different to those which might be expected to motivate the citizen.''

I am satisfied that up until the issue of the warrant (and thereafter) the ATO and the AFP were in substance in the position of clients of the DPP. They were seeking the DPP's legal advice as to matters arising in the investigation of possible criminal offences. Acceptance of the applicants' argument to the contrary would mean that the AFP and ATO would in this investigative phase be confined to such legal advice as they had in-house, or could be obtained from the private legal profession, because Parliament had intended to prohibit them from seeking advice from the very body which Parliament itself has established as the independent and expert authority for prosecution of breaches of the criminal laws of the Commonwealth. I would not impute such an unlikely intention to Parliament unless clear language in the statute compelled that conclusion. Such is not the case.

AFP Running Sheets

Items 137 to 145 in Part 2 of Schedule 1 of the AFP's amended further list of documents are described in each case as ``Note extracted from typed AFP running sheets on meeting of [various dates are given] re investigation into the Grollos/drafting of Information and search warrants''. In each case the persons present at the meeting are identified. The dates of the meetings run from 10 August to 16 September 1992. Mr Wood, Mr Maddern and Sergeant McDermott are recorded as being present at most meetings and at six of the meetings it is recorded that Mr Peter Faris QC and Ms Rosemary Carlin (counsel instructed by the DPP) were present. I have inspected the running sheets themselves. They are printed forms headed ``Australian Federal Police - Occurrences'' with three columns headed ``Date and Time'', ``Report of Occurrence'' and ``Action Taken''. Each sheet bears a typed number on the top right hand corner. All the entries appear to relate to the Grollo investigation, but only some of them correspond to the descriptions numbered 137 to 145. Counsel accepted that for present purposes no distinction is to be drawn between the ``note extracted'' and the entry in the running sheet itself. I shall refer to those entries corresponding to items 137 to 145 as ``the contested entries''.

Since the running sheets all relate to the investigation of the applicants they therefore would be relevant for the purposes of discovery. Apart from the contested entries, the running sheets would not attract legal professional privilege. Can privilege be claimed for the contested entries? Counsel for the applicants relied on a recent decision in the Supreme Court of Victoria
Hongkong Bank of Australia Ltd v Murphy (Supreme Court of Victoria, Smith J, 24 December 1992, unreported). In that case Smith J said (at 21):

``High Court authority does not in my view support the proposition relied on by Hongkong Bank that privilege can attach to part of a document. The propositions advanced by the High Court advert to the whole document in question and the purpose

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of its creation. Severance was considered in Waterford's case [
Waterford v Commonwealth (1987) 163 CLR 54] by Mason and Wilson JJ (at 66) and Dawson J (at 103) but this occurred in the context of the Freedom of Information Act 1982 which expressly provided for severance of passages that gave rise to claims of privilege for a document. Deane J asserted that the common law permitted severance of a distinct part of a document that contained otherwise privileged material (at 85) but this was not consistent, in my view, with the views expressed by other members of the court or earlier High Court decisions.''

However it would seem that his Honour was not referred to a decision of the Full Court of the Supreme Court of Queensland
Curlex Manufacturing Pty Ltd v Carlingford Australia General Insurance Ltd [1987] 2 Qd R 335, which coincidentally was delivered on the same day as the High Court heard argument in Waterford. In Curlex McPherson J, in what I respectfully find a scholarly and convincing judgment, and with the concurrence of the other members of the Full Court, came to the conclusion that there is no rule of law that objection cannot be taken to production of part of a document on the ground of legal professional privilege. The document in question was a draft report by a firm of accountants. Objection was taken to production of pages 6 to 11. After reviewing the law and practice of discovery both before and after the Judicature Act, McPherson J concluded (at 342):

``In the present case the material the subject of the claim for privilege (pages 6 to 11 of the report) is capable of isolation from the remainder of the report (pages 1 to 5 and the schedule). It was therefore possible for the defendant, as it did in its affidavit of documents, to claim privilege from production of a described part (pages 6 to 11) of the report. Had that not been possible, or had it been impracticable to seal up parts of the document, it may, on the authority of
Churton v. Frewen [(1865) Dr & Sm 390; 62 ER 669], have been open to the defendant to claim privilege from production in respect of the whole of the report. Failure to do so involved no waiver of privilege on the part of the defendant. To that, the question whether the subject matter of pages 1 to 5 of the report was the same as, or different from, that of pages 6 to 11, was and is in my view quite irrelevant.''

I respectfully disagree with Smith J that Waterford requires any different conclusion. The issue in Waterford concerned correspondence between the Attorney- General's Department and the Treasury which apparently included a mixture of legal advice about FOI proceedings which were then in train and general policy advice about the administration of the Freedom of Information Act 1982 (Cth) (see 163 CLR at 83-84). The principal majority judgment was that of Mason and Wilson JJ. Their Honours concluded against the appellant on a ground which made it unnecessary to consider any question of separate treatment of parts of the documents. Their Honours said (at 66):

``The appellant's submission fails to appreciate that the sole purpose test is a test that looks to the reason why the document was brought into existence. If its sole purpose was to seek or to give legal advice in relation to a matter, then the fact that it contains extraneous matter will not deny to it the protection of the privilege. The presence of matter other than legal advice may raise a question as to the purpose for which it was brought into existence but that is simply a question of fact to be determined by the Tribunal and its decision on such a question is final. It may also be appropriate in a particular case for the Tribunal to require those parts of the document which do not bear the necessary relation to legal advice to be disclosed. The doctrine of legal professional privilege allows room for questions of fact and degree such as these to fall for decision. Moreover, the Act contemplates that where an exempt document contains material which, standing alone, would not render the document exempt, the agency or Minister should, if it is reasonably practicable to do so, delete the privileged material and grant access to the remainder: s. 22.''

In Hongkong Bank (at 23) Smith J cites that passage, but only up until the words ``... such a question is final.'' The immediate following sentence makes it clear that their Honours are contemplating production of part only of a document and withholding another part which is subject to legal professional privilege. It is

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true that the FOI Act contains a number of specific provisions for exemption from disclosure of parts of documents: see ss. 22, 33(3), 33A(3), 34(3), 35(3), 36(4), 58(2), 64(2) and (4) and 163 CLR at 85. However in using ``Moreover'' to commence the last sentence of the passage, their Honours show they are treating those statutory provisions as something additional to the common law to which they have been referring to in the previous two sentences. They are saying that severance is permitted by ``the doctrine of legal professional privilege'', and also that the Act itself makes similar provisions. But in the view they took it was not necessary to consider severance. (``Severance'' is a convenient description of the concept of withholding part of a document from production. However physical separation or mutilation of the document are not comprehended: see Curlex at 338.) The other member of the majority, Brennan J, did not advert to the issue.

The matter is more explicitly dealt with in the dissenting judgment of Deane J where his Honour says (at 85):

``The circumstance that advice of different categories was contained in some of the disputed documents did not, of itself, give rise to any insurmountable problem. If privileged material was contained in one distinct part of a document and non- privileged material was contained in another, protection of the confidentiality of the privileged part of the document would not, as the Act itself recognizes (see, e.g., ss. 22, 33(3), 33A(3), 34(3), 35(3), 36(4), 58(2), 64(2) and (4)), ordinarily require that that part which was not covered by privilege should also be immune from production: see, e.g.,
Ainsworth v. Wilding [1900] 2 Ch. 315, at p. 325;
Great Atlantic Insurance Co. v. Home Insurance Co. [1981] 1 W.L.R. 529, at p. 534;
Brambles Holdings Ltd. v. Trade Practices Commission [No. 3] (1981) 58 F.L.R. 452, at pp. 459, 462.''

Again, when his Honour speaks of ``the Act itself recognising'' the concept of severance it is plain that there must be something in the common law already existing for the Act to recognise. None of the authorities cited by his Honour were concerned with FOI. To my mind neither this passage nor that from the judgment of Mason and Wilson JJ already referred to provide any support for the proposition that the FOI Act made a provision for severance which the common law did not.

Dawson J, who also dissented on the result, said (at 103):

``No doubt if the legal advice is accompanied by advice of another kind which can be separated from it, e.g., by blanking out parts in a document, then only the legal advice will be privileged. But if the legal advice contains extraneous matter which cannot be separated from it, the legal advice will not lose its privilege for that reason.''

In relation to the issues presently under consideration Waterford needs to be considered in the light of its procedural history. Deane J said (at 88):

``The explanation of the failure of the members of the [Administrative Appeals] Tribunal to address those further matters [i.e. severability and `sole purpose'] would seem to lie in the manner in which the proceedings were conducted before them. The appellant appeared in person. There are passages in the transcript which disclose that he did not press upon the Tribunal the need to examine the question whether the contents of a particular document could be separated into what was privileged and what was not or whether the protection of legal professional privilege was not available for the reason that the document would have been brought into existence, in any event, for the purpose of conveying non-privileged policy advice.''

Since the appeal from the Tribunal to the Federal Court was confined to questions of law (Administrative Appeals Tribunal Act 1975 (Cth) s. 44) that Court, and consequently the High Court on appeal, were inhibited in dealing with the issue of severance which is essentially a question of fact, as Mason and Wilson JJ pointed out.

In the present case the contested entries in the running sheets satisfy the sole purpose test of
Grant v Downs (1976) 135 CLR 674. They were made to record legal advice and communications relating to the giving and seeking of legal advice: see
Trade Practices Commission v Sterling (1979) 36 FLR 244 at 246. Had it not been for the need to seek, receive and record legal advice the contested entries would not have been made. They are not

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entries which would have been made in any event. The AFP is entitled to withhold them from production, even though they are part of a larger document containing relevant but not privileged matter.

Orders

The applicants' notice of motion dated 23 July 1993 will be dismissed with costs, including reserved costs.