ASIC v MICHALIK

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

4434/04 - AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ANDRZEJ JANUSZ MICHALIK AND 2 ORS JUDGMENT 1 On 10 August 2004, the plaintiff, Australian Securities and Investments Commission, filed an originating process seeking certain orders against and in respect of three defendants, being Mr Andrzej Michalik, Mr Martin Michalik and Kilahim Pty Ltd. The applications are expressed to be made under ss.1323 and 1324 of the Corporations Act 2001 (Cth). 2 To the extent that ASIC invokes the jurisdiction created by s.1323, it does so in aid of an investigation being carried out by it under the Australian Securities and Investments Commission Act 2001 (Cth) or the Corporations Act in relation to an act or omission that constitutes or may constitute a contravention of the Corporations Act (see s.1323(1)(a)). Particulars sufficient to show that such an investigation is in progress in respect of the defendants are contained in the supporting affidavit of an ASIC Senior Investigator sworn on 10 August 2004. 3 Certain orders sought by ASIC were made ex parte by White J on 10 August 2004. Among them were orders abridging time for service and making the originating process returnable in the Corporations List on 16 August 2004. When the matter came before me on that day, Mr Stack of counsel appeared for ASIC and Mr Slowgrove of counsel appeared for the defendants. Certain orders were made by consent. Among those orders were the following orders 9 and 10: "9. Except to the extent that a claim of privilege against self incrimination is made, each of the First, Second and Third Defendants shall by 4.00pm on Friday, 27 August 2004, or such other time as the Court orders, deliver or cause to be delivered to the Plaintiff a full and detailed affidavit sworn by each of them or their proper officer each setting out: (a) the name and address of any bank, building society or other financial institution at which there is an account in the name of or under the control of the respective Defendant, together with the number of such account, the name of such account and the balance of that account as at 20 August 2004; (b) the name and address of any person or persons indebted to the respective Defendant as at 20 August 2004, and the amount of the indebtedness; (c) an itemised inventory of the respective Defendant's assets and liabilities; (d) an itemised inventory of any and all property whether real or personal: (i) owned by the respective Defendant; (ii) controlled by the respective Defendant; and (iii) in which the respective Defendant has an interest; (e) in respect of any of the property referred to in sub-paragraphs 9(a) to (d) above, whether that property has been given as security for any debt, and, if so, the nature of the security and the debt so incurred. 10. In the event that any of the Defendants refuse to provide in whole or in part the affidavit referred to in paragraph 9 based on a claim of privilege against self incrimination that the respective defendant shall by 4.00pm on 27 August 2004, or such other time as the Court orders, file an affidavit specifying the information in respect of which the claim is made and specifying the grounds on which the claim is made." 4 These orders 9 and 10 were made as an adjunct to or in support of certain orders of an asset preservation kind also made by consent on 16 August 2004. The asset preservation orders were made until further order and affected all three defendants. There can be no doubt that asset preservation orders have a part to play in proceedings of the present kind (see, for example, the observations of Santow J in Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266) but, since the orders in this case were made by consent, I do not wish to be taken to express any opinion on the question whether circumstances warranting the making of them existed on 16 August 2004. 5 On 20 September 2004, orders 9 and 10 were varied, upon ASIC's application, by substituting 24 September for 27 August 2004 in each case. On the same day, I directed that the matter be listed for mention and directions on 27 September 2004. 6 When the matter came back before the court briefly on 27 September 2004, Mr Slowgrove again appeared for the defendants and made short submissions to the effect that everything required by order 9 to be included in the affidavit of each defendant is of such a nature as to attract the privilege against self- incrimination. As a result, it was said, order 9 should be regarded as having no effective operation. 7 In support of those contentions, the defendants relied on an affidavit of their solicitor, Mr Bruce Dennis, referring to certain search warrants issued under the Crimes Act 1914 (Cth) which, except as to the premises to which they relate, appear to be in identical terms. Each warrant authorises the officers therein specified to enter the relevant premises and to search for and seize certain documents. The documents are identified by means of three criteria, all of which must be satisfied in relation to a particular document to cause it to be caught by the warrant. The first criterion goes to the description or type of document, the second to connection with any one or more of several identified persons (who include, but are not confined to, all three defendants) and the third is introduced by the following words: "Things as to which there are reasonable grounds for suspecting that they will afford evidence as to the commission of the following offence(s) against the laws of the Commonwealth."

There then follow five segments each of which is prefaced by a reference to a particular section of the Corporations Act followed by the words: "That Andre Tomaszewski alias Andrzej Michalik alias Stanislaw Konstanty Krawczyk and Martin Michalik between [certain dates] did [certain things] which is an offence by virtue of subsection 1311(1) of the Corporations Act." 8 The search warrants, as I read them, do no more than confirm what is already apparent from the affidavit filed in support of the originating process (and implied by the invocation of s.1323), namely, that there are in train investigations into circumstances which, when examined and assessed, may or may not be found to form a basis for proceedings in which the question whether offences have been committed by one or more of the defendants comes before a court for adjudication. 9 It is the contention of the defendants that the position just described leads inexorably to the conclusion that the furnishing by any of them of any of the several items of information that order 9 requires to be disclosed on affidavit will be inconsistent with the privilege against self-incrimination, so that there is nothing upon or in relation to which order 9 can operate. 10 Order 9, as it affects a particular defendant, is framed in such a way as to exclude from its operation material in respect of which a claim for privilege against self-incrimination is made. The exception is not applicable to the third defendant because it is a corporation: Environmental Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477; and see s.187 of the Evidence Act 1995. So far as the two natural person defendants is concerned, order 9, viewed alone, appears to be framed in a way intended to ensure that the compulsion it exerts is within boundaries recently drawn by the Court of Appeal in analogous circumstances in Ross v Internet Wines Pty Ltd [2004] NSWCA 195. 11 Order 9 permits each of the individual defendants to withhold any information which, in the defendant's view, grounds a claim that disclosure will tend to incriminate him. The breadth of the exception is indicated by the following passage in the judgment of Tobias JA (with whom Meagher and McColl JJA agreed) in Griffin v Sogelease Australia Ltd (2003) 57 NSWLR 257: "It is well established that the privilege against self-incrimination is available whether or not the person claiming the privilege has been charged with a criminal offence or not. No doubt this is because, as was noted by Mason, Wilson and Dawson JJ in Sorby, the privilege extends to the making of a disclosure which may lead to incrimination or to the discovery of real evidence of an incriminating character. Thus in Reid , Deane J (at 6) observed that the protection which the privilege against self-incrimination confirms extends not only to the risk of incrimination by direct evidence (that is evidence of the fact of disclosure and of the material disclosed) but also to incrimination by indirect or 'derivative' evidence (ie 'evidence obtained by using' the disclosed material 'as a basis of investigation'). 12 It was held in Griffin that an order under Part 23 rule 3 of the Supreme Court Rules that a list of discoverable documents be prepared by a party under a regime allowing the party to make a subsequent claim for self-incrimination privilege as to any document in the list could not properly be made where the privilege was properly applicable. This is because the very listing of the documents in question may entail indirect or derivative incrimination which could ultimately be used in a criminal prosecution or as a basis for further criminal investigation. As Tobias JA said at p.267: "Again, it is well established that the privilege extends to protect a person against a requirement that he or she produce or identify incriminating documents or reveal their whereabouts or explain their contents in an incriminating fashion: Controlled Consultants Pty Ltd v Commissioner for Corporate Affairs (1985) 156 CLR 385 at 393; Sorby v Commonwealth ibid at 291-292; Vasil v National Australia Bank ibid at 213 (paragraph 24)." 13 In the present case, order 9 does not require either of the defendants in relation to whom the privilege applies to include in his affidavit delivered in accordance with that order anything in respect of which a claim of privilege against self-incrimination is made. In that way and to that extent, the defendant's privilege appears to be preserved and accommodated. The privilege, I might say, should be understood in its broad sense, that is, as extending not only to matters having a direct tendency to incriminate the particular defendant but also to matters identifying incriminating documents or providing insights into their contents. 14 But this, it seems to me, raises significant questions in relation to order 10. I am not sure how, consistently with the preservation of the privilege that order 9 clearly intends should not be invaded or compromised, a relevant defendant would, in an affidavit sworn and filed in obedience to order 10, specify information omitted from the order 9 affidavit and the grounds for the privilege claim in respect of that information. It may be that the answer lies in the differing procedural requirements as between order 9 and order 10: in the first case, the affidavit containing the required disclosure is to be delivered to ASIC, whereas the requirement imposed by order 10 is that the affidavit be "filed", there being no reference to service on or delivery to ASIC or anyone else. The word "filed" no doubt refers to the process of lodgment and acceptance specified in Part 1 rule 9A of the Supreme Court Rules. 15 It may be contemplated that, in this way, the content of an order 10 affidavit will not go beyond the court file except upon a considered decision of the court with adequate opportunity for the relevant defendant to be heard. Such an assumption or expectation is perhaps valid in a purely abstract sense but needs to be viewed in light of standard procedures under which any party to a proceeding may have relatively easy access to the court file in relation to that proceeding and non-parties' requests for access to court files may be dealt with by a registrar upon the lodgment of a standard application form in conformity with Practice Note 97. There is no requirement at present that any affidavit of the kind contemplated by order 10 be filed in a sealed envelope under a supplementary order creating a regime similar to that under s.596(2) of the Corporations Act and rule 11.3(4) of the Supreme Court (Corporations) Rules 1999 (see the observations of Stein JA in Vasil v National Australia Bank Ltd (1999) 46 NSWLR 207 at [9]). 16 Even under such a sealed envelope procedure, however, there might still be a question whether the privilege against self-incrimination would be infringed and, therefore, whether the procedure is one which the court should sanction. I refer, in that connection, to observations of Deane J in Reid v Howard (1995) 184 CLR 1 at pp.7-8 where doubts were cast on the efficacy, in cases such as this, of confidentiality restrictions "liable to be rendered nugatory by the leave of a judge …". I also refer to reservations expressed by Giles JA (with whom Spigelman CJ and McColl JA agreed) in Ross v Internet Wines Ltd (above). His Honour referred to a procedure, imposed by court order, under which a person was required to bring into existence and put into the possession of the court an affidavit identifying grounds for invoking the privilege against self-incrimination. His Honour then said at paragraphs [101] and [102]: "The appellant was obliged to deliver a disclosure affidavit to the judge's associate, and it would be 'inspected' by the judge at a hearing. I will assume, without deciding, that the appellant would thereby be a witness for the purposes of s 128(1). But by compliance with the obligation his fundamental common law right would already be infringed. In order to have his claim to privilege determined, he would have to disclose the material which he said was incriminatory and should not be disclosed. There would be offence to the principle underlying the observation of Lord Denning MR in R io Tinto Zinc Corporation v Westinghouse Electric Corporation (1978) AC 547 at 574, that a witness 'should not be compelled to go into detail - because that may involve his disclosing the very matter to which he takes objection'. See also Accident Insurance Mutual Holdings Ltd v McFadden cited above, stating that the court will determine a claim to privilege 'without requiring the witness fully to explain how the effect would be produced, for if it were necessary, the protection which the rule is designed to afford the witness would be annihilated'.

If the information in the disclosure affidavit tended to incriminate the appellant, he was imperilled because he had brought into existence an incriminatory document: the respondents' acceptance of infringement if it had been found that whatever was in the disclosure affidavit would infringe the appellant's privilege recognised the peril. The respondents submitted that the appellant was no more imperilled than a person who was ordered by subpoena to produce a document at court, the order being good and the claim to privilege being made at the time appointed for production. But that is different. The appellant was compelled to make a document which did not previously exist, and no longer had control of the document after its delivery to the judge's associate: all this without any s 128 certificate." 17 Giles JA continued (at [103] and [104]): "True it is that the court would exercise control over the document, such that it should only go beyond the judge's eyes after it had been decided that a certificate should issue pursuant to either s 128(2), (3) or s 128(5), (6). But that control would initially be exercised without the opposite party having access to the disclosure affidavit itself, upon which amongst other materials the judge decided whether privilege had been made out. As earlier noted, the protection of a s 128 certificate is not complete and, as was recognised in Bax Global (Australia) Pty Ltd v Evans (at [43]-[45]), there 'may on occasions be a special risk of prejudice to the witness even though a certificate is given'. I recognise the objective of the Bax Global (Australia) Pty Ltd v Evans procedure in the administration of justice. In my opinion, however, it is impermissible for the court to substitute for a person's fundamental common law right the statutory balance of rights, supplemented by court-devised additional protection by way of artificially making the disclosing party a witness, closure of the Court, limitations on who can see the disclosure affidavit, or if privilege is upheld and no certificate is granted return of the affidavit to its maker; all not pursuant to statute but by the court devising a procedure intended to inhibit the direct or derivative use against the person of information tending to incriminate. Taking up the words in Reid v Howard at 17, it is - ' … inimical to the administration of justice for a civil court to compel self-incriminatory disclosures, while fashioning orders to prevent the use of the information thus obtained in a court vested with criminal jurisdiction with respect to the matters disclosed. Nor is justice served by the ad hoc modification or abrogation of a right of general application, particularly not one as fundamental and as important as the privilege against self-incrimination.'" 18 I shall say something presently about an alternative contention of the present defendants based on s.128 of the Evidence Act 1995. Subject to that, I do not at this point have before me in any direct way questions of the kind canvassed in Reid v Howard, Vasil v National Australia Bank Ltd, Griffin v Sogelease Australia Ltd and Ross v Internet Wines Ltd in relation to judge-made regimes for the disclosure of information necessary to test claims that self-incrimination privilege excuses someone from compliance with a court order. I have only to deal with the defendants' contention referred to at paragraphs [6] and [9] above. 19 It is sufficient, at this point, merely to say, first, that, in view of the principle recognised in the Caltex Refining case, that contention cannot be supported so far as any question of self-discrimination of the third (corporate) defendant is concerned; and that, in the case of the natural person defendants, the fact of the existence of the search warrants and the ASIC investigation does not in any way lead to a conclusion that disclosure of everything that order 9 requires to be included in the particular defendant's order 9 affidavit will be inconsistent with maintenance of the privilege. Let it be assumed, for the purposes of illustration only, that a person has obtained money by a single dishonest act entailing criminality, has deposited all that money in a particular bank account and has then applied the money in buying a single item of property by means of a single cheque drawn on that bank account. Those events and their nature might attract the exception by which order 9 is introduced. But the exception would not be attracted in relation to all of the person's other property, bank accounts and bank account entries. 20 The objective of orders 9 and 10 is to require the defendants not only to make their own initial judgment as to which, if any, of the required disclosures will compromise the privilege against self-incrimination. There is also an objective of ensuring that, once a defendant has made that judgment, he should specify in affidavit form the subject matter of the disclosure to which objection is taken and the matters constituting the grounds for the objection. The intention is that there will thereby be a means of subjecting the particular objection to judicial scrutiny so that there may eventually be a decision as to the validity of the claim for the privilege. 21 The approach the defendants took on 27 September 2004 of making a blanket claim in respect of all conceivable disclosures called for by order 9 is inconsistent with the system of particularisation and assessment created by orders 9 and 10. Their approach neither identified any particular disclosure claimed to involve the privilege nor permits any means of assessment of the claim. To the extent that the blanket claim of the defendants implies any application for relief from the requirements of order 9, the application is not one that can be acceded to, at least on the material the defendants have so far chosen to put before the court. 22 There are, however, aspects of the order 10 regime that, in my opinion, require further examination in light of the principles emerging from decided cases to which I have referred. And since order 10 operates in close conjunction with order 9 (in that the two together make up a single and integrated system of disclosure), the reality is that both may require re-assessment. For that reason, the court will, of its own motion, stay the operation of both order 9 and order 10 for a short period to allow the defendants an opportunity to file any interlocutory process they may wish to file for the purpose of seeking variation of those orders. 23 It is necessary to deal briefly with another matter, namely, the defendants' submission (which can apply only to the natural person defendants) that they should be given a certificate under s.128 of the Evidence Act 1995 and be required to comply with order 9 only after such a certificate has been given. That submission throws up a number of issues that were not addressed when the basic proposition was aired briefly before me on 27 September 2004. First and foremost, there is the question whether a natural person defendant required to create and deliver an affidavit in accordance with order 9 or to create and file an affidavit in accordance with order 10 thereby becomes a "witness" as referred to in s.128, that being a term defined in Part 1 of the Dictionary in the Act by reference to clause 7 of Part 2. That question goes to the threshold issue of the availability of s.128 to serve the envisaged purpose. There are also questions about the scope and coverage of a s.128 certificate, once validly and properly given. Not least among these, in the present kind of context, is the question whether the content of an affidavit brought into existence in conformity with order 9 or order 10 is "evidence" as referred to in the protective provisions of s.128(7). Matters of this kind are addressed in Griffin v Sogelease (above) and Ross v Internet Wines (above), each of which comments on the procedure based on Bax v Global (Australia) Pty Ltd v Evans (1999) 47 NSWLR 538. 24 Just as the court is not in a position to accept the submission that everything possibly subject to the disclosure requirement of order 9 is protected by the privilege against self-incrimination, so too it is at this point unable to address the question of "reasonable grounds" (as well as other questions) that must be determined in order to know whether the course dictated by s.128(2) is made applicable. 25 Although, at this stage, the defendants have not made out a case for the grant of either form of relief sought by them on 27 September 2004, I am satisfied, as I have said, that the court should, of its own motion, stay orders 9 and 10 for a short time. This will allow the defendants to consider the possibility of making, by reference to further evidence and submissions, an application for variation of orders 9 and 10 and any application based on s.128 of the Evidence Act they consider warranted, or both such applications. The orders and directions of the court are accordingly as follows:

(1) Order that the operation of orders 9 and 10 made herein on 16 August 2004 be stayed up to and including 25 October 2004.

(2) Direct that any interlocutory process by which the defendants or any one or more of them seek an order varying the said orders 9 and 10 or an order with respect to the giving of a certificate under s.128 of the Evidence Act 1995 (or both such orders), together with affidavit or affidavits in support, be filed and served not later than 15 October 2004, such interlocutory process to be returnable before the Corporations List Judge at 10am on 25 October 2004.

(3) Direct that any affidavit to be relied on by the plaintiff in reply be filed and served not later than 21 October 2004.

(4) Order that the originating process be stood over to 10am on 25 October 2004 before the Corporations List Judge. **********

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