Allens

Litigation & Dispute Resolution

Focus: APRA not required to produce documents in class action

5 october 2012

In brief: The Victorian Supreme Court has held that the Australian Prudential Regulation Authority was not required, in response to a subpoena issued on behalf of claimants in a class action against National Australia Bank, to produce certain internal documents relating to its meetings with the bank. Partner Alex Cuthbertson (view CV) and Senior Associate Susie Stone report.

How does it affect you?

  • This decision, Pathway Investments Pty Ltd & Anor v National Australia Bank Limited,1 provides some comfort that third-party plaintiffs cannot force the Australian Prudential Regulation Authority (APRA) to disclose protected documents, even where they are sought by operation of the court's compulsory powers to require production.
  • However, the decision's wider application is likely to be limited. It was based on particular provisions of the Australian Prudential Regulation Authority Act 1998 (Cth) (the Act), which may not be replicated for other regulators. In any event, it is clear that APRA has the power to approve disclosure of protected documents if it sees fit in a particular case, and it may not object to production in all cases.

Background

In 2010, shareholders commenced a class action against NAB, alleging that it failed to disclose provisions for losses (or the need for such provisions) regarding its exposure to more than $1 billion of collateralised debt obligations (CDOs) in the first half of 2008 (ie during the development of the global credit crisis).

On 7 August 2012, the plaintiffs in the class action sought a number of documents from APRA by subpoena under Order 42A of the Court Rules (which requires production of documents to the Prothonotary). The subpoena required APRA to produce documents relating to meetings with NAB or the accounting firm Ernst & Young in the period between 1 January 2008 and 31 July 2008, relevant to matters the subject of the class action. APRA objected to producing those documents.

In support of its objection, APRA sought to rely on the provisions of section 56 of the Act; in particular, s56(2), which provides that an officer of APRA is guilty of an offence if they disclose 'protected information' or a 'protected document' to any person or 'to a court' (otherwise than in accordance with the Act). Section 56(8) provides that an officer of APRA 'cannot be required to disclose to a court any protected information, or to produce in a court a protected document, except when it is necessary to do so for the purposes of a prudential regulation framework law'. In broad terms, 'protected information' and 'protected documents' are information and documents obtained under, or for the purposes of, a prudential regulation framework law and relating to the affairs of an entity regulated by APRA, with certain exceptions.

APRA asserted that:

  • any production of the documents sought would require a natural person to act in contravention of these provisions; and
  • the purpose of s56 was to prevent production in all circumstances other than those specifically permitted in the Act, and the inclusion of the words 'to a court' was intended to prevent production by operation of the court's compulsory powers, including upon subpoena.

The plaintiffs argued that:

  • the provisions that APRA relied on did not apply, because there is no prohibition on APRA itself providing information and documents (as opposed to an officer of APRA);
  • complying with a subpoena under Order 42A would involve production of documents to a person (the Prothonotary) rather than 'to a court'; and
  • s56 of the Act was designed only to prevent production without APRA's official or formal authorisation, such that there was no reason to prevent a subpoena to APRA itself. Production by a person in discharge of an obligation upon APRA itself would be an act of APRA and therefore authorised by APRA.

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The Supreme Court's decision

Justice Pagone held that APRA's objection should be maintained. His Honour agreed that the inclusion of the words 'a court' in subsections 56(2) and (8) must have been intended to exclude production by operation of the court's compulsory powers to require production and discovery. In his reasons, he expressed the following views:

  • While the prohibitions in s56 are not expressed to apply to APRA itself, there is no need for them to do so, because APRA can only produce documents through a person and the prohibitions are expressed to apply to a person. The language of the subsections is not limited to production that has not been authorised by APRA, and there is no reason to limit the ordinary meaning of the words in the manner contended for by the plaintiffs.
  • The fact that subpoenas under Order 42A require production to the Prothonotary did not assist the plaintiffs. The rule is in aid of production to the court, with the Prothonotary being an employee or official of the court.
  • Section 56(5) of the Act gives APRA a broad discretion to approve the disclosure of protected information or the production of a protected document by an instrument in writing. Where the legislature has conferred upon APRA the power to approve disclosure and production that is otherwise prohibited, it is for APRA to decide whether to exercise the power, regardless of whether a subpoena is issued.

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Conclusion

The power of APRA and other regulators (including the Australian Competition and Consumer Commission (the ACCC) and the Australian Securities and Investments Commission (ASIC)) to require the production of documents and to examine individuals during the course of regulatory investigations has long given rise to concerns about the use of the documents and information in subsequent litigation by third parties. This decision provides some assurance that third-party plaintiffs will not always be successful in gaining access to such documents, in circumstances where the regulator objects to disclosure.

However, it is far from certain that regulators will, in fact, object to disclosure in every case. Indeed, representatives of both ASIC and the ACCC have recently praised class action litigation, indicating that such litigation improves both corporate behaviour and access to the law, particularly in light of the funding pressures they face in pursuing cases.2 Further, Greg Medcraft, the Chairman of ASIC, has stated that ASIC is prepared to provide information gathered during an investigation to third parties, within the limitations of statutory provisions.3 In this context, s25(1) of the Australian Securities and Investments Commission Act 2001 (Cth) provides that where ASIC conducts an examination in connection with an investigation, it may give a copy of a written record of the examination to a person's lawyer, if the lawyer satisfies ASIC that the person is carrying on, or contemplating in good faith, a proceeding regarding a matter related to the examination.

Accordingly, potential defendants cannot assume that regulators will necessarily protect from third-party plaintiffs the information and documents gathered in the course of an investigation.

Footnotes
  1. [2012] VSC 429.
  2. 'Regulators praise private court actions', The Australian Financial Review, 5 April 2012.
  3. Ibid.

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