Trial adjourned part-heard due to evidence objection in Boral shareholder suit

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This judgment arose during the course of the trial of a shareholder class action against the respondent (Boral), and in particular, during the cross-examination of Boral’s CEO at the relevant time, Mr Kane. The proceeding arises out of financial irregularities that were discovered in one of Boral’s US subsidiaries, described as its ‘Windows’ business. Those irregularities were the subject of an investigation and report by Ernst & Young (EY), over which Boral had claimed privilege.

However, earlier in the proceeding Boral had given discovery of an email, which had been sent by Mr Kane, and which referred to the EY investigation and stated, inter alia, that “if controls were as bad as EY suggests how did KPMG, inside audit and Allan and Oren miss it” (Kane Email). Nevertheless, during the course of Mr Kane’s cross-examination, Boral objected to the applicants’ counsel asking questions of Mr Kane as to what he meant by the controls being ‘as bad as’ EY suggested, and in particular, what he had been told by EY about the internal controls in the Windows business. The objection was that those questions would require Mr Kane to disclose privileged communications. The applicant contended that because privilege in the Kane email had been waived by Boral, privilege could not be maintained in relation to the EY communications, because disclosure of those communications was, within the meaning of s 126 of the Evidence Act 1995 (Cth), “reasonably necessary to enable a proper understanding” of the statement in the Kane Email. That section provides, in substance, that where privilege in a communication or the contents of a document is lost, it is also lost in any other communication or document which is reasonably necessary to enable a proper understanding of the first communication or document.

Boral’s arguments were six-fold.

First, that privilege never existed in the Kane Email in the first place, such that s 126 did not apply (‘No Privilege Contention’) (see [50]-[59]). Justice Lee rejected that argument, on the basis that privilege had existed in the Kane Email (and, indeed, had repeatedly been claimed by Boral) insofar as it disclosed the substance of communications with EY, but that privilege was subsequently lost by waiver (at the very latest, when an unredacted copy of the Kane Email was tendered, without objection by Boral, at an interlocutory hearing in the proceedings).

Secondly, that the evidence in question is not ‘relevant’, within the meaning of ss 55 and 56 of the Act (‘No Relevance Contention’) (see [60]-[77]). His Honour held that this contention was “without merit”, and that the evidence in question was plainly relevant to the facts in issue based on the pleadings and on the agreed statement of issues to be determined at the trial (which was also supported by the fact that Boral itself had discovered the Kane Email, and so must have considered that it was ‘directly relevant’ to the issues in dispute in the proceeding).

Thirdly, that even if the evidence is relevant, the Court ought to exclude it on discretionary grounds under s 135 of the Act because its probative value is substantially outweighed by the danger that the evidence might cause or result in undue waste of time (‘Discretionary Exclusion Contention’) (see [78]-[102]).That section requires the Court to undertake a balancing exercise – his Honour did so, and despite some likely additional costs and delay arising from the evidence, he considered that the balancing exercise was “not a close-run thing” and dismissed Boral’s contention.

Fourthly, the proposed questions to be asked of Mr Kane are not “reasonably necessary” to understand the statement in the Kane Email, within the meaning of s 126 of the Act (‘Not Reasonably Necessary Contention’) (see [103]-[115]). His Honour dismissed this contention, including on the basis that it was demonstrably inconsistent with Boral’s other submissions that the statement in the Kane Email was opaque and ambiguous. As his Honour put it (at [109]):

On the one hand Boral maintains that the Proposed Kane Evidence is not reasonably necessary to enable a proper understanding of [the Kane Email] and yet, on the other, Boral contends the relevant communication is opaque and that there is apparently a bona fide dispute as to what the relevant communication conveyed.

Fifthly, the adduction of the evidence in question would amount to an abuse of process on the part of the applicants and their legal representatives, essentially because it involved a challenge to a privilege claim which could, and should, have been mounted earlier, and now had the effect of disrupting the trial and distracting resources away from the conduct of the trial (‘Abuse of Process Contention’) (see [116]-[142]). Although his Honour described the position as ‘suboptimal’, he rejected this contention on the basis that it was Boral’s solicitors who in large part had created the current situation by maintaining up until trial a claim for privilege in relation to the relevant part of the Kane Email which was plainly unsustainable after the email had been tendered at the earlier interlocutory hearing.

Sixthly, the applicants were estopped from contending that the Kane Email was initially privileged, but that privilege had been waived (as opposed to contending that the email was never privileged) (‘Estoppel Contention’) (see [47]). His Honour rejected this contention on the basis that it was based on a false premise (namely, that privilege in the Kane Email was lost by Boral during the course of the trial, when it was in fact lost much earlier).

Accordingly, his Honour ruled that the applicants were permitted to ask questions of Mr Kane about the relevant statement in the Kane Email (subject, of course, to any specific objection that may be made to any particular question asked).

[Postscript: On 13 September 2024 Boral filed an application for leave to appeal from Lee J’s ruling, which has been listed for hearing on 22 November 2024. In light of that application, Lee J acceded to Boral’s application to adjourn the further conduct of the trial until after that application has been heard and determined (see Parkin v Boral Limited (Loss of Privilege Issue) (No 2) [2024] FCA 1082).

Parkin v Boral Limited (Loss of Privilege Issue) [2024] FCA 1039

Federal Court of Australia, Lee J, 9 September 2024
Applicants’ Solicitors: Maurice Blackburn
Respondent’s Solicitors: Herbert Smith Freehills
Applicants’ Funder: N/A

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