Grofam Pty Ltd v Messrs KPMG Peat Marwick

[1993] FCA 500

GROFAM PROPRIETARY LIMITED and OTHERS v. MESSRS KPMG PEAT MARWICK and OTHERS
No. VG286 of 1993
FED No. 500
Number of pages - 7
Contract - Injunction
(1993) 43 FCR 396
(1993) 27 IPR 215

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Olney J(1)

CATCHWORDS

Contract - confidential information supplied to professional accountants - suspicion that criminal offence committed in course of accountants' duties - whether accountants may disclose confidential information to police in course of their enquiries.

Injunction - criminal law - suspected breach - confidential information - public interest.

Attorney-General (NT) v Maurice 161 CLR 475

A v Hayden 156 CLR 532

HEARING

MELBOURNE, 21 July 1993

#DATE 23:7:1993

Mr R.A. Finkelstein QC and Mr I. Jones (instructed by Mallesons Stephen Jaques appeared for the applicants.

Mr P. Duggan of Phillips Fox appeared for the first, second and third respondents.

Mr M.S. Weinberg QC and Mr H. A. Aizen (instructed by the Commonwealth Department of Public Prosecutions) appeared for the fifth respondent.

ORDER

The Court orders that:

1. The interim injunction made on 21 July 1993 be discharged;

2. Upon the applicants giving the usual undertaking as to costs pending the hearing and determination of this proceeding or until further order, the first respondent by its partners, employees and consultants, by themselves, or by their servants or agents, and the second respondent be restrained from disclosing to any member of the Australian Federal Police, or to any other person, the confidential information contained in the documents set out at Annexure "A" (other than information contained in an affidavit sworn by the second respondent on 6 July 1993 and filed in proceeding VG 399/1992), without the consent of the applicants;

3. The respondents file and serve defences within 7 days;

4. The application be listed for directions on 29 July 1993;

5. General liberty to apply;

6. Costs reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

BACKGROUND

OLNEY J The applicants other than the second and third applicants are companies which can conveniently be described as members of the Grollo group. The second and third applicants are members of the family which controls the group.

1. The first respondent is a firm of chartered accountants which at material times employed the second respondent. The third respondent is a partner in the first respondent and the fourth respondent is a former partner.

2. The fifth respondent is the Commissioner of the Australian Federal Police (AFP).

3. At relevant times the first respondent either in its current name or in the name of its predecessor has acted as auditor and taxation advisor to the applicants.

4. In about December 1982 the third respondent entered into partnership with a company not a party to these proceedings for the purpose of building the Rialto Towers building in Melbourne. The partnership is referred to as the Rialto Joint Venture.

5. In its capacity as accountant, auditor and taxation advisor to the applicants the first respondent has come into possession of information which is confidential and relates to the affairs of the applicants and the Rialto Joint Venture. As a result of the first respondent's relationship with the applicants the second, third and fourth respondents have come into possession of information which is confidential and which relates to the affairs of the applicants and of the Rialto Joint Venture.

6. In about June 1993 officers of the AFP requested, inter alia, the second, third and fourth respondents to disclose confidential information in relation to the affairs of the applicants and of the Rialto Joint Venture.

7. On about 12 July 1993 the first and second respondents informed the applicants that they intended to hand to the fifth respondent a prepared statement (the statement) concerning the involvement of the second respondent in an audit by the Australian Taxation Office (ATO) of the applicants.

8. The applicants assert that the statement may contain confidential information in relation to the affairs of the applicants and of the Rialto Joint Venture.

9. The foregoing statements have been extracted from the applicant's statement of claim in these proceedings and for present purposes can be taken as factual. At this stage the statement of claim has not been pleaded to nor has any contradictory evidence been adduced.

10. On 14 July 1993, prior to the commencement of proceedings, the applicants sought an interim injunction to restrain the first four respondents from supplying confidential information to the fifth respondent, and further to restrain the fifth respondent from seeking such information. The application for interim injunction was supported by an affidavit of Michael Andrew Clough (Clough) sworn 14 July 1993 (the first affidavit), to which reference will be made later. After hearing counsel for the applicants and for the fifth respondent I granted an interim injunction restraining the first four respondents from disclosing to any member of the AFP or to any other person any confidential information relating to the affairs of the applicants or to the Rialto Joint Venture without the consent of the applicants.

11. An application and statement of claim were filed on 15 July 1993.

12. On 21 July 1993, the applicants sought an interlocutory injunction (in a form slightly different from the interim injunction) until trial of the application. A further affidavit of Clough sworn 21 July 1993 (the second affidavit) was filed and relied upon. The applicants and the fifth respondent appeared by counsel. The first, second and third respondents appeared by their solicitor. After hearing argument I reserved my decision until 23 July 1993 and extended the interim injunction until 4.30pm on that day.

13. I propose now to summarise the facts relied upon by the applicants in support of their case which facts are set out in Clough's affidavits. No affidavit material has been filed by any of the respondents.

THE FIRST AFFIDAVIT
15. On 17 September 1992 certain search warrants (the validity of which has been challeged in other proceedings) were issued in respect, inter alia, of the premises of the first respondent. The warrants relate to an investigation by the AFP into the affairs of the applicants, which investigation is believed to have been prompted by a referral made by the ATO during the course of an ATO audit of the applicants. On 6 July 1993 the second respondent swore, and the applicants' solicitors filed and served, an affidavit in proceedings VG 399/1992, being proceedings in which the present applicants have challeged the validity of the search warrant referred to above. The second respondent's affidavit in proceedings VG 399/1992 was sworn at the request of the applicants and to the extent that the affidavit discloses information which is confidential to the Grollo group, such confidentiality was waived. A copy of the second respondent's affidavit filed in proceedings VG 399/1992 is exhibited. On 9 July 1993 officers of the AFP attended the premises of the first respondent seeking to speak to the second respondent. The officers met the second respondent and formally advised her that she was now suspected of being guilty of conspiracy. The officers invited her to attend at AFP headquarters, if she wished, to answer questions. She was told that if she did not attend, the officers would reserve their rights to exercise their powers as police officers. Initially the first and second respondents refused to provide confidential information to officers of the AFP but an appointment was made for the second respondent to be interviewed on 15 July 1993. At the time of swearing the affidavit Clough had been told by the solicitors for the first and second respondents that the second respondent proposed to provide to the AFP a prepared statement setting out her involvement with the ATO audit into the affairs of the applicants and other matters but that no undertaking could be given that it would be made available to the applicants prior to the interview.

1. I interpolate here that the order made on 14 July 1993 was based upon my conclusion (drawn from the foregoing evidence) that there was a serious question to be tried namely the question as to whether or not a person in the position of the second respondent who is suspected of having committed an offence is justified in breaching commercial or professional confidentiality for the purpose of exculpating herself.

THE SECOND AFFIDAVIT
17. In the second affidavit Clough identified the types of categories of confidential information which he believes the applicants have supplied to the first respondent and further sets out a list of documents in respect of which legal professional privilege has been claimed in proceeding VG 399/1992.

1. He gives particulars of certain specific information which he believes the second respondent is in possession of and which is said to be confidential. He believes that the second respondent had full access to the files and staff of the applicants for the purpose of writing submissions to the ATO and that she, together with the first respondent had express or implied permission to review all such files. Further, he believes that the fourth respondent has been approached by officers of the AFP and asked to provide information said to be confidential and that in about June 1993 the fourth respondent made a statement to the AFP which is likely to have contained information of that nature.

THE APPLICATION FOR INTERLOCUTORY RELIEF
19. At the hearing on 21 July 1993 the solicitor for the first and second respondents made available to counsel for the applicants a draft copy of the statement proposed to be given to the AFP by the second respondent. After perusing the statement counsel indicated that it contained some information of a confidential nature which the applicants were not prepared to consent to being made available to the AFP. Counsel also indicated that on behalf of the applicants he had sought from the fifth respondent an undertaking that the AFP would not ask for any further information than appears in the statement (presumably on the basis that the statement be made available in its present form) and an undertaking from the second respondent that she would not disclose information of a type that the applicants contend in confidential. In neither case was the undertaking given. In these circumstances counsel indicated that the applicants sought interlocutory injunctive relief against the first and second respondents. The form of the order sought was that the restraint apply in relation to the types of categories of confidential information and the documents in relation to which legal professional privilege has been claimed as set out in Clough's second affidavit.

THE QUESTION OF WAIVER
20. Counsel for the fifth respondent argued that by reason of the filing and serving of the second respondent's affidavit in proceedings VG 399/1992 the applicants had waived their right to insist that the second respondent maintain confidentiality. In counsel's words, the argument was put thus:

We say that by going on affidavit as to her role and the part that she played in relation to the tax audit, by filing that affidavit as our learned friends have done in the course of the civil proceedings, and therefore exposing Ms Kay to general cross-examination about her role in the tax audit which is going to occur within the next few weeks, there has been a complete waiver about the matters that she proposes to the police about and which the police propose to question her about. (Ts 6)

1. Counsel referred to a passage from the judgment of Gibbs CJ in Attorney-General (NT) v Maurice 161 CLR 475 at p 481 where His Honour said:
   

The decisions in which this question has been considered seem to me to be particular applications of the rule that in a case where there is no intentional waiver the question whether a waiver should be implied depends on whether it would be unfair or misleading to allow a party to refer to or use material and yet assert that that material, or material associated with it, is privileged from production. Thus it has been held that the privilege in respect of a document is not waived by the mere reference to that document in pleadings ... or in an affidavit ... although the position will be different if the document is reproduced in full in the pleading or affidavit: ... These cases may be explained by saying that it is not unfair or misleading to refer to a document in a pleading or affidavit which is not put into evidence but that if the document is set out in full the privilege is waived. A fortiori, of course, privilege in respect of materials used in drawing a pleading or an affidavit and not referred to therein, would not lose their privilege because they had been used in that way.

1. With respect, I have some difficulty in applying the dictum quoted to the present facts. It is true that the applicants have intentionally waived any claim to confidentiality in respect of the contents of the second respondent's affidavit and having exhibited a copy of the affidavit in these proceedings there can be no doubt about the waiver. And it is equally clear that the second respondent is liable to be cross-examined in proceedings VG 399/1992, and will be required to answer all relevant questions even though those answers may require her to divulge information that might otherwise be regarded as confidential. But that is not to say that there has been a true waiver at this stage of all confidential matter relevant to the subject matter of the affidavit unless it be the case the whole of the confidential information which the applicants seek to protect is encompassed by the affidavit. The partial waiver by the applicants is beyond question, but nothing about it or the use to which it is proposed to make of the material suggests that it would be unfair or misleading to allow that material to be referred to and used in proceedings VG 399/1992 and yet to maintain the assertion that other material associated with it is privileged from production. Once the second respondent has been cross-examined the position may well be different.

CONFIDENTIALITY v PUBLIC INTEREST
23. Counsel for the fifth respondent referred to the decision in A v Hayden 156 CLR 532, and after quoting a passage from the judgment of Mason J at p 555 said:

... the principle is absolutely clear cut in our submission, that whatever the private obligations which might arise pursuant to a contract, even if there be a contractual obligation of confidence, even if there be an equitable obligation of confidence, we say it is nothing short of absurd to suggest that if the police wish to pursue an investigation, to question a person who is suspected of having committed an offence such person being willing to assist the police in the investigation and to answer their questions it is a mockery, in our respectful submission, to suggest that any equitable principle, any contractual principle, would operate to prevent that investigation from being carried out. (Ts. 8)

and later:

Here we have a suspect. This suspect is prepared to speak to the police, nothing should be done to frustrate that. The police cannot use the confidential information which is imparted by this suspect to go out and damage the trade reputation of the Grollos or give away trade secrets or anything of that kind. They are obliged under the terms of their own legislation to use this information only for proper purposes an they would be committing offences if they use this for information that might be imparted to them for any purpose other than the bona fide investigation of this crime, or alleged crime. And here we have a witness, or a suspect, who is prepared to speak to them and we say it is just quite literally absurd that the police should be prevented from speaking to that particular suspect. (Ts. 8-9)

1. The first problem I have with this argument is that apart from the suggestion that the second respondent is suspected of being guilty of conspiracy nothing has been put before the Court to identify the particular nature of the offence of which she is suspected nor has the Court been told anything to assist it to make a judgment as to the relative balance between the interests of the applicants in maintaining the confidentiality of its information and those of the AFP in investigating an alleged offence.

2. At p 546 of A v Hayden Gibbs CJ said:
   

It is clear that a person who owes a duty to maintain confidentiality will not be allowed to escape from his obligation simply because he alleges that crimes have been committed and that it is in the public interest that he should disclose information relating to them. He bears the burden of establishing the facts upon which he relies to relieve him of the obligation.

and at p 547:

Similarly, where an obligation of confidentiality has arisen, whether as a result of express contract or because the relationship between the parties gave rise to a duty of confidence, the party who alleges facts which show that the obligation does not extend to the circumstances of the case must prove his allegations. That means that in the present case the defendants must establish, at least prima facie, that the failure to disclose the information would tend to obstruct the course of justice and would be contrary to the public interest. It would not be enough to justify the disclosure of the confidential information in the present case that the police have requested it. It would be necessary to show, at the very least, that there is reasonable ground to believe that any plaintiff whose identity it is sought to disclose is implicated in the commission of an offence. Put in another way, at least what has to be shown prima facie is that there is "a bona fide and reasonably tenable charge of crime" against any plaintiff whose identity is sought to be disclosed. The bona fides of the police in the present case is not in doubt, but it is a question whether any charge against each plaintiff is reasonably tenable.

1. Gibbs CJ concluded his judgment thus (at p 549):
   

However, for the reasons I have given, it is the responsibility of the Court to decide, in each of the present cases, whether the enforcement of the obligation of confidentiality undoubtedly owed by the Commonwealth would tend to obstruct the course of justice and would therefore be contrary to the public interest and it cannot reach a decision on that question until it has been possible to determine whether certain of the allegations made by the plaintiffs are correct.

1. Mason J's conclusion is express at p 561 in these terms:
   

I return finally to the question of whether non-disclosure of the names of the participants to the Chief Commissioner will have a tendency to adversely affect the enforcement of the criminal law. The question must be answered in the affirmative if on the facts recited in the stated case there are reasonable grounds for apprehending that the plaintiffs or any of them participated in the commission of the offences which the Deputy Commissioner

(Operations) of the Victoria Police believes were committed in the course of the training exercise. The list of possible offences recited in the stated case seems to be exaggerated. However, it has not been contested that there are reasonable grounds for apprehending that the plaintiffs participated in the commission of one or more of the offences, though I do not understand how K. was involved in them. In the circumstances the question must be answered in the affirmative.

1. In a joint judgment Wilson and Dawson JJ pointed out at p 565 that the Deputy Commissioner (Operations) of the Victoria Police had deposed that he believed a number of breaches of the criminal law of Victoria had been committed and that it was essential that he identify the participants in order to properly investigate whether any crimes were committed and if so to apprehend the offenders and to bring charges against them.

2. At pp 587-8 Brennan J said:
   

That is not to say that obligations of confidence cannot be accepted by contract or imposed by law but such obligations cannot enjoin silence where disclosure is reasonably required by the police (or other law enforcement agency) to assist in the investigation of crimes reasonably suspected to have been committed and such disclosure is justified in the public interest: ... A term of a contract not to disclose confidential information though disclosure is reasonably so required to be made and though disclosure is in the public interest is void. A general term not to disclose information might be read down so as to permit disclosure in those circumstances, but unless disclosure in those circumstances is permitted the term is void whether the contract be made by the Crown or by a subject. The term is void because it is contrary to public policy. The Crown has no capacity to bind itself by a term which is contrary to public policy, and no servant or agent of the Crown has or can be given authority to bind the Crown by such a term. The powers of the Crown cannot be exercised contrary to what the law recognizes as public policy. It follows that the Crown's ability to assist in the investigation of crimes reasonably suspected to have been committed cannot be ettered by an unqualified contractual obligation not to disclose the identity of a person: circumstances may arise which justify disclosure in the public interest.

1. During argument a brief reference was made to a passage from the judgment of Deane J but it seems to me that a more extensive examination of his Honour's reasons is called for. His Honour said (at pp 593-4):
   

The concerted action, the breaking open of the door with a sledge-hammer, the "jostling" of the hotel manager, the firearms including automatic weapons and the masks combined to raise at least a reasonable apprehension that criminal offences had been committed and to call for investigation by the Victorian police force in the ordinary administration of the criminal law of that State. The Deputy Commissioner (Operations) of that force has sworn an affidavit in which he deposes that he believes that the "participants" in the exercise "committed breaches" of the State's criminal law and that "it is essential that he identifies the participants in order to investigate properly whether any (such) crimes have been committed, to apprehend offenders and to bring charges against them". The Premier of Victoria has requested the Commonwealth to disclose the names of such participants to the State's Chief Commissioner of Police. For their part, the Commonwealth Minister of State for Foreign Affairs, the Acting Director-General of ASIS and the Commonwealth ("the defendants") all "desire to comply" with that request. The plaintiffs seek in these actions to restrain such disclosure.

... Ordinarily, there would be considerable force in a submission that a general term of a contract requiring the preservation of confidentiality of the identity of one of the contracting parties should be read as subject to implied limitations including a limitation that would permit disclosure to an officer of a competent police force investigating a reasonably apprehended breach of the criminal law by that party to the contract.

and at pp 595-6:

Whether enforcement or observance of a term of a particular promise of confidentiality would obstruct that administration is a question which must be determined in the context of the circumstances of the particular case. Plainly enough, the enforcement of such a promise by an order forbidding a threatened voluntary disclosure to the Commissioner of a State police force of the identity of the participants in joint activity which involved actual or reasonably apprehended offences against the criminal law of that State would involve obstruction of the due administration of that criminal law.

1. I have made extensive reference to the reasons in A v Hayden because of the obvious authority of that case in similar, but not altogether comparable, circumstances. The overall thrust of the passages to which I have referred suggests to me that a departure from an obligation to maintain confidentiality for the purpose of providing information to law enforcement authorities is justified only when the information is required in the course of the investigation of an actual or reasonably apprehended breach of the criminal law.

2. In my opinion the applicants are entitled to protect the confidentiality of information in the possession of the first and second respondents unless it is shown that such information is relevant in some way to an actual or reasonably apprehended offence against the criminal law which the fifth respondent wishes to investigate. No such offence or reasonable apprehension has been demonstrated.

3. The applicants are entitled to the interlocutory relief sought.