ASIC v Vines [2003] NSWSC 701 | Case summary

3138/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V GEOFFREY WILLIAM VINES & 2 ORS JUDGMENT (revised for typographical and similar errors on 1 August 2003) 1 HIS HONOUR: In this proceeding the plaintiff seeks declarations that each of the three defendants has contravened ss 232(3), 232(4) and 232(6) of the Corporations Law (as taken to be included in the Corporations Act 2001 (Cth) by s 1401 of the Act) in relation to GIO Australia Holdings Limited and GIO Insurance Limited. The plaintiff also seeks orders prohibiting each of the defendants from managing a corporation for such period as the Court may specify, and compensation orders in favour of GIO Insurance Limited under s 1317HA of the Corporations Law. In addition, the plaintiff seeks orders that each of the defendants pay to the Commonwealth a pecuniary penalty, in relation to each contravention by that defendant, of $200,000. 2 The case has been set down for final hearing by me in the six weeks beginning 20 October 2003. To date there have been 15 interlocutory hearings, for directions and for interlocutory applications, the last seven hearings being before me. The present judgment deals with an application by the second defendant, supported by the other defendants, to set aside or vacate a direction made by me on 30 June 2003 for the defendants to notify their objections to the plaintiff's tender bundle and affidavits by a date well before the trial. The application is confined to notification of objections to the affidavits of the plaintiff's experts. The second defendant contends that this direction infringes the privilege against exposure to a penalty. The scope of the privilege against exposure to a penalty 3 The principle against exposure to a penalty immunises a defendant in civil penalty proceedings from pre-trial information-gathering processes by way of discovery and interrogatories, as well as from any obligation to give evidence at the hearing. Recently there has been a difference of judicial opinion as to whether the privilege prevents courts from directing a defendant to file and serve affidavits or witness statements prior to the hearing: compare Sidebottom v Commissioner of Taxation (Cth) [2003] VSCA 2 and Australian Competition and Consumer Commission v FFE Building Services Limited [2003] FCA 107 (Wilcox J), with Australian Competition and Consumer Commission v Amcor Printing Papers Group Limited (1999) 163 ALR 465 (Sackville J), Australian Securities and Investments Commission v ABC Fund Managers Limited [2001] VSC 92 (Warren J), Australian Securities and Investments Commission v Rich (2003) 45 ACSR 305 (my judgment) and Australian Competition and Consumer Commission v FFE Building Services Limited [2003] FCAFC 132. That issue was not before the Court in the present application, as the plaintiff does not seek a direction for the defendants to file and serve their affidavits before the hearing, and has accepted, for present purposes, the Full Federal Court's statement of law in the FFE Building Services case. Additionally, the plaintiff has conceded that once the privilege is applicable, it cannot be abrogated by discretionary considerations such as those relating to case management. 4 The parties to the present application disagree as to the scope of the privilege. The defendants say that the privilege prevents the Court from giving any directions that would provide assistance to the plaintiff in proving its case. The plaintiff contends that the privilege protects a defendant from being compelled to give evidence that may tend to expose him or her to a penalty, or to disclose information that may lead to the discovery of real evidence that would expose the defendant to a penalty, but it does not prevent the Court from giving a pre-trial direction to the defendant simply on the ground that compliance with the direction would assist the plaintiff. 5 The privilege against exposure to a penalty is different from, but closely connected to, the privilege against self-incrimination. The relationship between the two privileges was explored in Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96. In that case, the question for the Full Federal Court was whether notices to produce directed to a corporation, Abbco, should be set aside on the ground that compliance might expose it to the imposition of the civil penalty. In Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477, the High Court had held by a bare majority that the privilege against self-incrimination is not available to a corporation, and there were some observations in the majority judgments as to whether the privilege against exposure to a penalty applied to a corporation. In Abbco, Burchett J (with whom Black CJ and Davies J agreed) concluded (at 129), after a close analysis of the Caltex decision and other authorities, that "the privilege against self-incrimination, and that against self-exposure to a penalty, are both reflections of the one fundamental principle. It has been stated in various ways, and with different emphases. But, with respect, it cannot be better expressed than by the words which Deane, Dawson and Gaudron JJ used in Caltex (at 532) with reference to self-incrimination: 'In the end, [the privilege] is based upon the deep-seated belief that those who allege the commission of a crime should prove it themselves and should not be able to compel the accused to provide proof against himself.' Substituting 'the incurring of a penalty' for 'the commission of a crime' and 'the defendants' for 'the accused', I think this statement applies to the privilege against self-exposure to a penalty." 6 Applying this reasoning, Burchett J held that if the foundation of the privilege against self-incrimination does not support allowing the privilege to a body corporate (as the majority in Caltex had held), it did not support the allowance to a body corporate of the privilege against exposure to a penalty. Gummow J reached the same conclusion, by reasoning from the evolution of the doctrines, practices and procedures of English courts. 7 The majority approach in Abbco, and also the reasoning of Gummow J, ties the privilege against exposure to two propositions, the second qualifying the first. The first is that the plaintiff in a penalty case must prove the case without assistance from the defendant. The second is that the defendant should not be compelled to provide proof against himself. The second proposition qualifies the first because it means that the defendant is immunised from assisting the plaintiff only where the assistance is in some fashion relevant to providing proof against him. The fault in the defendants' reasoning in the present case is that they have sought to liberate the first proposition from the second so as to render it absolute, but in so doing they have removed its rationale. 8 Admittedly there are unqualified statements in the some of the leading cases to the effect that the privilege against self-incrimination is said to derive from the principle that the Crown must prove its case and the accused is entitled, guilty or not, to stand by and provide no assistance. But the context in which such statements are made usually makes it clear that the underlying judicial concern is to protect the defendant from being compelled to give incriminating evidence or to provide information that may lead to the discovery of incriminating evidence. This rationale makes the privilege both wider and narrower than the proposition that the defendant should not be compelled to give forensic assistance to the prosecutor. It is wider in that the immunity is available to a person (subject to statutory restriction), not only in criminal proceedings in which the person is a defendant, but in any litigious or investigatory context in which the compulsory extraction of information would tend directly or indirectly to incriminate. It is narrower in that it does not apply unless compliance would tend directly or indirectly to incriminate, and therefore it does not immunise the defendant from assisting the plaintiff per se. 9 Thus, in Sorby v The Commonwealth (1983) 152 CLR 281, 294-5 Gibbs CJ said: "If a witness is compelled to answer questions which may show that he has committed a crime with which he may be charged, his answers may place him in real and appreciable danger of conviction, notwithstanding that the answers themselves may not be given in evidence. The traditional objection that exists to allowing the executive to compel a man to convict himself out of his own mouth applies even when the words of the witness may not be used as an admission. It is a cardinal principle of our system of justice that the Crown must prove the guilt of the accused person, and the protection which that principle affords to the liberty of the individual will be weakened if power exists to compel a suspected person to confess his guilt." 10 The focus of these observations is on the principle that a person should not be compelled to incriminate himself, thereby weakening the principle that the Crown must prove guilt, rather than on the latter principle in isolation. 11 In a similar vein, in Australian Competition and Consumer Commission v Amcor Printing Papers Group Limited (1999) 163 ALR 465, 469, Sackville J said that the privilege against self-incrimination is a reflection of the "fundamental principle, namely, that those who allege the commission of a crime … should prove it themselves"; but his Honour did not leave that "fundamental principle" at large, adding the qualifying words "and not be able to compel the accused … to provide proof against himself or herself …". 12 In Reid v Howard, 184 CLR at 14, the joint judgment describes the privilege against self-incrimination as "a universal right which … protects the innocent and the guilty". But this proposition is tied down to circumstances where compliance would tend to incriminate, for their Honours observe that the purpose of the privilege is "the completely general purpose of protecting against 'the peril and possibility of being convicted as a criminal' [citing Lamb v Munster (1882) 10 QBD 110 at 111]", and earlier (at 12) they say that the principle "operates so that a person cannot be compelled 'to answer any questions, or to produce any document or thing, if to do so may tend to bring him into peril and possibility of being convicted as a criminal' [citing Sorby v The Commonwealth, 152 CLR at 288 per Gibbs CJ, who in turn quotes from Lamb v Munster, 10 QBD at 111]". 13 The defendants laid emphasis on the following passage from the judgment Deane J in Reid v Howard, 184 CLR at 7, where his Honour criticises the Court of Appeal's orders on the ground that they are inconsistent with the privilege: "If the disclosed material itself innocently came within the possession of the prosecution authorities (eg by being received in the mail from an unidentified source), those authorities would be entitled [under the terms of the Court of Appeal's orders] to proceed to investigate any specific offences which that material disclosed and to seek admissible evidence of their commission …". 14 The defendants submitted, noting the use of the word "admissible", that his Honour regarded the privilege as extending to questions of admissibility of evidence. But it is clear from other passages in the judgment that his Honour saw the privilege as directed at the risk of incrimination by direct or derivative evidence (at 6 and 7). 15 It is a concern to protect individuals from being compelled, by direct or "derivative" evidence, to convict themselves out of their own mouths, that makes the privilege against self-incrimination a "fundamental … bulwark of liberty" (Smith v Read (1737) 1 Atk 526,527 [26 ER 332]), "deeply ingrained in the common law" (Sorby v The Commonwealth, 152 CLR at 309), and leads to the conclusion that there is no scope for any exception to the privilege, other than by statute: Reid v Howard (1995) 184 CLR 1, 14 per Toohey, Gaudron, McHugh and Gummow JJ. 16 Cases dealing with the privilege against exposure to a penalty are consistent with this analysis. In the Abbco case, Burchett J (at 116) described the privilege as "a right to decline to be themselves the authors of their own destruction by producing the evidence [emphasis in original]". What causes the privilege to be attracted is the risk that, by complying, the defendant will directly or indirectly produce evidence of conduct to which a penalty attaches. Mandie J applied that observation in Australian Securities and Investments Commission v Plymin (2002) 4 VR 168, holding that the defendants should not be directed to file and serve before the trial the affidavits of their witnesses, because (at 170) "they might expose themselves to that potentiality [that is, the potentiality to be the authors of their own destruction] either directly or derivatively by putting the plaintiff in the position of being able to carry out further investigations on the basis of the evidence which they were required to produce". 17 In Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (1997) 77 FCR 217, 219, Heerey J said that no distinction could be drawn on the basis that the case before him was concerned with the privilege against exposure to a penalty rather than the privilege against self-incrimination. But now one must take into account some observations in the joint judgment in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 77 ALJR 40. The question for the High Court in that case was whether s 155 of the Trade Practices Act 1974 (Cth) abrogated legal professional privilege. The High Court had held by majority in Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328, that s 155 abrogated the privilege against exposure to penalties. In the course of deciding that legal professional privilege is an important common law immunity which cannot be overridden except by clear statutory language, and that the reasoning on statutory construction in Pyneboard should not be followed, Gleeson CJ, Gaudron, Gummow and Hayne JJ suggested (at 47, paragraph [31]) that Pyneboard might be supportable having regard to the nature of the privilege against exposure to a penalty. After quoting from Naismith v McGovern (1953) 9 CLR 336 at 341-2, their Honours said: "Today the privilege against exposure to penalties serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it [citing Abbco at 129 per Burchett J]. However, there seems little, if any, reason why that privilege should be recognised outside judicial proceedings." 18 If the privilege against exposure to a penalty is not recognised outside judicial proceedings, it is importantly different from the privilege against self-incrimination as well as legal professional privilege. Their Honours' reliance on the passage quoted from Naismith suggests that the difference flows from the historical origin of the privilege against exposure to a penalty, which emerged from in equity's attitude to orders for discovery or interrogatories in favour of a common informer. This historical approach was not the approach taken by Burchett J in Abbco, although their Honours in Daniels referred with evident approval to Burchett J's conclusions. 19 The question whether the privilege against exposure to a penalty applies outside judicial proceedings is not before me in the present case. If there is a distinction between that privilege and the privilege against self-incrimination in that respect, it does not detract from Burchett J's conclusion that the fundamental rationale of the two principles is the same, for his Honour's conclusion was approved by the joint judgment in Daniels. Nor should their Honours' observation in Daniels, that the purpose of the privilege is to ensure that those who allege criminality or illegal conduct should prove it, be seen as creating an absolute prohibition upon directing a defendant to provide forensic assistance to the plaintiff in a penalty proceeding, regardless of whether doing so has anything to do with compelling the defendant to provide proof against himself, for Burchett J's conclusions were cited by their Honours as authority for that very proposition. 20 The defendants in the present case have placed particular reliance on the recent decision of the Full Federal Court in the FFE Building Services case. There the Full Court upheld the trial judge's decision, declining to direct the respondents to file statements of evidence before the commencement of the hearing. The trial judge had followed earlier decisions in the Federal Court, including the Amcor Printing decision, although he expressed a preference for the reasoning of Phillips JA in the Sidebottom case. I expressed a preference for the Federal Court approach in my judgment in Rich, delivered after the first instance decision but before the appeal judgment in FFE Building Services. 21 In FFE Building Services the Court (Emmett, Hely and Jacobson JJ) said (at paragraph [13]) that "the rationale for the privilege is that an applicant must prove its own case and should not get any assistance from the respondents in proving its case". The defendants relied on this statement as immunising them from giving any forensic assistance to the plaintiff, regardless of whether, in doing so, they might provide evidence or leads that could be used against themselves. But the authorities relied upon by the Court for this proposition were Burchett J's conclusions in Abbco, and paragraph [31] of the joint judgment in Daniels. Properly understood, those authorities qualify the proposition about forensic assistance by tying the privilege to immunity from providing proof against oneself. 22 This limitation to the "forensic assistance" proposition is evident in the Court's reasoning at paragraphs [14] and [27]-[33]. A direction requiring a respondent to file statements of evidence prior to closure of the applicant's case would expose the respondent to the risk that the applicant would use the material disclosed as the basis of further investigation, which might produce indirect or derivative evidence that could be tendered against the respondent. The Court said it was common ground that, by furnishing statements before the trial, the respondents might provide information that would assist the applicant to prove its case. But this alone was not the basis for the Court's decision. The critical issue for the Court was that, although the direction sought by the applicant would not oblige the respondents to provide information, it would have the practical consequence that they would be compelled to file statements in order to preserve their option to go into evidence after the conclusion of the applicant's case. The vice in the direction sought by the applicant was not that compliance would assist the applicant's case, but that the direction would create a practical compulsion on the respondents to provide information and thereby expose themselves to the risk of setting in train a process that may lead to the discovery of real evidence in support of the applicant's case. 23 In the present case it has not been suggested that the direction to notify objections to the plaintiff's expert evidence would lead to a chain of inquiry that would produce evidence of conduct exposing the defendants to a penalty. Indeed, the plaintiff concedes that if notification of any particular objection would have this consequence in fact, the privilege would be available. The notification of objections might lead to the plaintiff tendering additional evidence, but it would only be evidence to overcome the deficiencies exposed by the objections. 24 It would not be open to the defendants to withhold their objections to the admissibility of the plaintiff's evidence until the close of the plaintiff's case, for by that time the evidence would have been tendered and its admissibility would have been ruled upon. In the present case the question is only one of timing. Should the defendants be directed to do something before the trial which they will have to do, if they do it at all, early in the plaintiff's presentation of its case at the hearing? 25 In my opinion the privilege against exposure to a penalty does not prevent the Court from directing the defendants to notify their objections to the expert evidence before the trial. While I accept that the direction is likely to assist the plaintiff in the preparation and presentation of its case, the provision of forensic assistance is not, per se, prohibited by the privilege, for the reasons I have given. There is nothing inherent in the process of notifying objections to the admissibility of evidence that would connect that process to the provision of evidence tending to prove conduct exposing the defendants to a penalty, or providing leads for the discovery of real evidence to that effect. Discretionary considerations 26 In civil proceedings in the Equity Division of this Court, an order requiring a party to notify objections to another party's evidence is commonly made as part of pre-trial directions, although in my experience it is not common to require objections to be notified several months before the hearing. The present case is unusual because of its size, and the nature and factual complexity of the evidence. The plaintiff's evidence will include a tender bundle of documents, and the evidence of lay and expert witnesses, part of it relating to questions of insurance and reinsurance, and practices in the reinsurance industry. 27 In case-managing the proceeding towards final hearing, I have been concerned to avoid the delay and potential confusion that would arise if the contents of the tender bundle were not settled before the commencement of the hearing. On 4 November 2002 I directed the defendants to notify the plaintiff of any objections to the plaintiff's tender bundle by 28 April 2003. On that day I also directed the defendants to file and serve their evidence by 28 April, and I allocated provisional hearing dates beginning 20 October 2003. Thereafter one of the issues at directions hearings was whether the provisional hearing dates should be confirmed or abandoned. 28 On 16 December 2002, I vacated the direction to the defendants to file and serve their evidence, by consent, so the position now is that the defendants will not be required to provide any of their evidence until after the conclusion of the plaintiff's case. On that day I also varied my order for notification of objections to the tender bundle, by consent, by adding the words "and affidavits". There was no substantial contest about the latter order. I did not form the view, and I do not hold the view now, that there is any strong case-management reason for requiring notification of objections to affidavits and witness statements months in advance of the hearing. 29 When the matter came before me for directions on 5 May 2002, I was informed that the first defendant had notified his objections to the tender bundle and the evidence of the plaintiff's lay witnesses, but the second and third defendants had not done so and were considering whether to seek to have that direction set aside. The plaintiff's expert evidence had not been filed and served. The plaintiff took the view that it might be necessary to supplement its lay evidence in relatively minor ways, but it wanted to make a decision on that question only after it had received objections to its evidence from all defendants. 30 At that point it appeared that the interests of the first defendant and the other two defendants had diverged to a degree. The first defendant wanted to see all of the plaintiff's evidence, including any new evidence which might be put forward to overcome his objections to the plaintiff's evidence as filed. He was concerned to have as much notice as possible, given the provisional hearing dates. The second and third defendants were considering whether to resist giving their objections to the plaintiff's evidence before the commencement of the hearing, even though that might lead to the plaintiff applying to supplement its evidence during the hearing. I directed the plaintiff to file and serve all of its affidavit evidence by 16 June 2003, and stood the matter over for directions on 30 June 2003, noting that on that occasion the Court would consider whether to give directions to the defendants to notify objections to the plaintiff's affidavits. 31 At the directions hearing on 30 June 2003 I was informed that the plaintiff had served the affidavits of its expert witnesses on the defendants, but the last of these was sworn on 29 June and served on the defendants only on the morning of the directions hearing, two weeks later than directed. I asked counsel for the plaintiff whether he wished to reserve the possibility of filing further expert evidence, and he replied: "No, the expert evidence is complete. There is absolutely no belief or prospect so far as I can understand it that there would be any additional expert evidence. All I can say is that given the factual complexities of this matter, [which seem] to be inherent in [the] reinsurance industry, it is more than possible in response to objections the plaintiff would seek to produce better evidence, but that is entirely within the [case as] pleaded, entirely within the expert evidence. In case that appears to give rise to [the] possibility there might be a lot of it, there won't be." 32 I heard argument as to whether I should confirm the provisional hearing dates, and I decided to do so, delivering substantial ex tempore reasons for that decision. 33 I also made orders and directions including the directions presently under challenge, which were as follows: "3. In substitution for all previous orders on this subject, I direct each of the Defendants to notify the Plaintiff of their objections to the proposed tender bundle and to the Plaintiff's affidavits on or before 21 July 2003. 4. I direct that any application to set aside or vacate the previous order be made on or before 21 July 2003, such application being returnable before me at 10am on 25 July 2003." 34 My purpose in making the orders in this form was to set up a timetable within which any application by the defendants to resist notifying their objections to the plaintiff's evidence would be made. I did so with an eye to the hearing dates, and in an effort to balance the interests of the first defendant and the other defendants. 35 The present application is by interlocutory process filed on 21 July 2003. The second defendant seeks an order setting aside or vacating order 3, but only so far as it concerns the following affidavits: (a) affidavit of Anthony de Vroome dealing with Francis Robertson sworn 19 July 2003; (b) affidavit of Anthony de Vroome dealing with Timothy Fox sworn 19 June 2003; (c) affidavit of Estelle Elizabeth Pearson sworn 23 June 2003; and (d) affidavit of Andy John Hogendijk sworn 29 June 2003. I was informed from the bar table that the second defendant has in fact conveyed his objections to the tender bundle and the plaintiff's lay evidence. 36 The listed affidavits are the affidavits of the plaintiff's expert witnesses. It is neither necessary nor practicable to deal with their affidavits in any detail, but I shall give a very broad description. Mr de Vroome is a consultant to the reinsurance and insurance industries. He gives evidence in his affidavits as to what a competent reinsurance manager would do in the positions of Mr Robertson and Mr Fox respectively. Ms Pearson is an actuary. She gives evidence about a reinsurance arrangement entered into between GIO Reinsurance and American Reinsurance between November and December 1998. She expresses an opinion as to the amount of risk transferred from GIO Reinsurance to American Reinsurance by the arrangement, and in light of that opinion, she comments on the reasonableness of the price paid for the arrangement. Mr Hogendijk is a company director who has held positions as chief financial officer. He gives evidence as to whether Mr Vines failed to act as would a competent chief financial officer in Mr Vines' position, acting reasonably in the circumstances. 37 I have considered whether, in light of the history of the matter, there is really any justification for departing from the usual practice by requiring notification of objections to the expert evidence so far in advance of the hearing. One of the reasons for requiring notification of objections is to give the Court, as well as the opposing party, the opportunity to consider the objections in advance of the hearing so that decisions on admissibility can be made promptly during the hearing. But that justification requires only that the objections be made available to the judge shortly before the hearing, and therefore would not justify the directions that I have made. 38 On balance, however, I think there is a good enough case to support the directions made on 30 June 2003. It is that, when the case requires a hearing time of six weeks, it would be disruptive of the Court's business for the hearing to be adjourned, if the plaintiff seeks to supplement its expert evidence after hearing the Court's rulings on admissibility at the trial. I do not say that an application for an adjournment would be granted, but the case for an adjournment may be more plausible here than in other cases, when one has regard to the nature of the expert evidence and the probability that it will have (if admissible) central significance. That being so, it is rational to seek to anticipate and avoid that prospect, if one can do so without unfairly prejudicing either party. It is not appropriate for the Court to make rulings on admissibility except in the context of the final hearing after the plaintiff has opened its case, but advance notification of objections to the evidence may contribute to avoiding the disruption with which I am concerned. 39 As to prejudice, while the directions give an advantage to the plaintiff, they also provide an advantage to the Court and the community by giving the plaintiff, a public regulator, a reasonable opportunity to provide the best admissible expert evidence it can; and the directions endeavour to ensure that all this evidence is made available to the defendants in sufficient time for them to prepare answers to it before the trial. 40 I therefore think the directions made on 30 June 2003 were justifiable in the special circumstances of this case. Conclusion 41 The case for vacating or setting aside orders 3 and 4 made on 30 June 2003 has not been made out, either in terms of the privilege against exposure to a penalty or on discretionary grounds. I shall therefore dismiss the second defendant's interlocutory application, and hear the submissions of the parties with respect to costs. **********

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ASIC v Vines

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