[2009] FCA 407
Australian Securities and Investments Commission v Mining Projects Group Ltd (2007) 164 FCR 32
(2007) 65 ACSR 264
(1990) 64 ALJR 412
Source
Original judgment source is linked above.
Catchwords
[2009] ATPR 42-287[2009] FCA 407
Australian Securities and Investments Commission v Mining Projects Group Ltd (2007) 164 FCR 32(2007) 65 ACSR 264(1990) 64 ALJR 412(1990) 93 ALR 435(1990) 5 BR 109[1990] HCA 31
Macdonald v Australian Securities and Investments Commission (2007) 73 NSWLR 612(2007) 65 ACSR 299[2007] NSWCA 304
Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372(2002) 187 ALR 362(2002) 53 IPR 225[2002] AIPC 91-780[2002] FCA 3
Pascoe v Divisional Security Group Pty Ltd (2007) 209 FLR 197
Judgment (16 paragraphs)
[1]
N & K Gazal Pty Ltd (In Liquidation) as Trustee for the Nathans Trust ABN 53 622 723 716 (Seventh Plaintiff)
Bleecker Development Pty Ltd (In Liquidation) ACN 625 763 215 (Eighth Plaintiff)
Nahi Gazal (First Defendant)
Nathan Gazal (Second Defendant)
Nazih Nasri Gazal (Third Defendant)
Bassem El Youssef (Fourth Defendant)
Susana Oliveira (Fifth Defendant)
Cash Supply Pty Ltd ACN 627 780 376 (Sixth Defendant)
NG Property Management Pty Ltd as Trustee for Ramsgate Unit Trust ABN 57 699 815 797 (Seventh Defendant)
NNG Holdings Pty Ltd as Trustee for NNG Family Trust ABN 74 497 353 852 (Eighth Defendant)
Belfield Development Pty Ltd as Trustee for Belfield Development Unit Trust ABN 24 973 708 574 (Ninth Defendant)
Representation: Counsel:
Mr P Lonergan (Plaintiffs)
Mr P Bruckner (First Defendant and Ninth Defendant)
Mr P Wiggins (Second Defendant)
Ms C Gazi (solicitor) (Fourth Defendant)
[2]
Solicitors:
Reuben George Lawyers (Plaintiffs)
Hardinlaw (First Defendant and Ninth Defendant)
Francom Legal (Second Defendant)
Eden King Lawyers (Fourth Defendant)
File Number(s): 2022/199859
Publication restriction: N/A
[3]
Introduction
These reasons concern an application by three individual defendants and one corporate defendant for dispensation from the requirements to plead defences to the plaintiffs' claims for civil relief on the basis of the individual defendants' claims of privilege against self-incrimination and privilege against self-exposure to penalties. For the reasons that follow, I have determined that the individual defendants' claims of privilege are bona fide and that relief should be granted in substantially the terms sought, including the relief sought by the corporate defendant in order to avoiding impinging on the privilege of its sole director.
[4]
The parties and the proceedings
The first plaintiff in these proceedings, Mr Graeme Beattie, is the liquidator of:
1. The second plaintiff, Bleecker Property Group Pty Ltd (in liquidation) ACN 616 710 135, which is also named as the third plaintiff in these proceedings in its capacity as trustee for NNG Properties Unit Trust ABN 18 872 534 725 (Bleecker Property and the NNG Trust);
2. the fourth plaintiff, Greenacre Garden Development Pty Ltd (in liquidation) ACN 636 176 602, which is also named as the fifth plaintiff in its capacity as trustee for the Bankstown Development Trust ABN 42 665 236 015 (Greenacre and the Bankstown Trust);
3. the sixth plaintiff, N & K Gazal Pty Ltd (in liquidation) ACN 152 873 599, which is also named as the seventh plaintiff in these proceedings in its capacity as trustee for the Nathans Trust ABN 53 622 723 716 (NKG and the Nathans Trust); and
4. the eighth plaintiff, Bleecker Development Pty Ltd (in liquidation) ACN 625 763 215 (Bleecker Development).
Each of those companies was wound up voluntarily by members' resolutions passed on 22 September 2020.
The current pleadings comprise the originating process filed on 8 July 2022 together with a supporting affidavit of Mr Beattie sworn on 30 June 2022, and an amended statement of claim filed on 5 June 2023. The salient aspects of the plaintiffs' claims for present purposes may be summarised as follows.
The plaintiffs allege that certain payments made by Bleecker Property and NKG to the defendants during the period from February 2018 to September 2020 are voidable transactions pursuant to s 588FE of the Corporations Act 2001 (Cth) and that they were made in breach of duties owed by the alleged directors and shadow directors of those companies.
The payments in question include:
1. amounts totalling $11,916,580.33 paid by Bleecker Property to the first defendant, Mr Nahi Gazal, or to his close associates for his benefit, during the period from February 2018 to September 2020;
2. amounts totalling $3,371,982.02 paid by NKG to Mr Nahi Gazal, or to his close associates for his benefit, during the period from September 2019 to August 2020;
3. amounts totalling $2,455,430.24 paid by NKG to the ninth defendant, Belfield Development Pty Ltd as trustee for Belfield Development Unit Trust ABN 29 973 708 574 (Belfield), during the period from March 2020 to May 2020;
4. amounts totalling $421,816.60 paid by Bleecker Property to the second defendant, Mr Nathan Gazal, during the period from February 2018 to September 2020;
5. amounts totalling $4,700.00 paid by NKG to Mr Nathan Gazal during the period from February to June 2020; and
6. amounts totalling $107,227.00 paid by Bleecker Property to the fourth defendant, Mr El Bassam Youssef, during the period from March 2018 to July 2020.
[5]
The case in relation to payments made by Bleecker Property
The plaintiffs allege that Mr Nahi Gazal, Mr Nathan Gazal, or Mr El Youssef caused Bleecker Property to make the various payments that are the subject of these proceedings (the Bleecker Property payments), including the payments referred to at [6] above. The plaintiffs allege that Mr Nahi Gazal was a shadow director of Bleecker Property at all relevant times, that Mr Nathan Gazal was an appointed director until at least 30 April 2018 and a shadow director at all other relevant times, and that Mr El Youssef was an appointed director on and from 29 April 2018. The plaintiffs allege that each of Mr Nahi Gazal and Mr Nathan Gazal was a signatory for the Bleecker Property bank accounts during the period in which the Bleecker Property payments were made.
The plaintiffs plead that, according to an audit conducted by the Australian Taxation Office (ATO) in 2020, Bleecker Property had not been conducting an enterprise since 9 January 2017 (either in its own right or in its capacity as trustee for NNG Trust), and had incorrectly claimed GST credits in its Business Activity Statements (BAS) lodged for the tax period 1 May 2017 to 29 February 2020.
According to Mr Beattie's affidavit sworn on 30 June 2022, Mr Nahi Gazal provided Bleecker Property's former accountant with GST calculations for the purpose of those BAS returns. Mr Beattie has deposed that, based on his investigations, he believes that:
1. Mr Nahi Gazal caused Bleecker Property to lodge misleading BAS with the ATO;
2. based on the misleading BAS:
1. the ATO paid GST refunds totalling $2,691,900.74 to Bleecker Property during the period from 1 May 2017 to 29 February 2020; and
2. the ATO paid further GST refunds totalling $2,580,079.00 to Bleecker Property in its capacity as trustee for NNG Trust during the period from 9 January 2017 to 31 January 2020;
1. Mr Nahi Gazal then caused Bleecker Property to make the Bleecker Property payments; and
2. Bleecker Property had "entered into a tax deficit on 21 June 2017", did not receive a benefit from making the Bleecker Property payments during the period from February 2018 to September 2020, and does not have the financial capacity to pay the amount of $10,638,667.29 claimed in the ATO's proof of debt submitted in the winding up of Bleecker Property, which Mr Beattie understands relates to GST refunds paid on the basis of the allegedly misleading BAS, plus tax shortfall penalties.
[6]
The case in relation to payments made by NKG
The plaintiffs allege that the third defendant, Mr Nazih Nasri Gazal, or alternatively Mr Nahi Gazal, caused NKG to make the various payments that are the subject of these proceedings (the NKG payments), including the payments referred to at [6] above. The plaintiffs allege that Mr Nahi Gazal was a director or shadow director of NKG at all relevant times until at least January 2020, and that Mr Nazih Nasri Gazal was an appointed director on and from 1 January 2020. The plaintiffs also allege that Mr Nahi Gazal was a director or shadow director of NKG at the time that the NKG payments were made to him or to his close associates for his benefit. It is not in dispute that Mr Nahi Gazal was also the sole director of Belfield at the time that company received NKG payments. The plaintiffs also allege that Mr Nahi Gazal was a signatory for NKG's bank accounts during the period in which the NKG payments were made.
The plaintiffs plead that, according to an audit conducted by the ATO in 2020, NKG as trustee for the Nathans Trust had not been conducting an enterprise since 1 January 2017, and had incorrectly claimed GST credits in its BAS lodged for the tax period 1 January 2017 to 31 January 2020.
According to Mr Beattie's affidavit sworn on 30 June 2022, Mr Nahi Gazal provided NKG's former accountant with GST calculations for the purpose of those BAS returns. Mr Beattie has deposed that, based on his investigations, he believes that:
1. Mr Nahi Gazal caused NKG to lodge misleading BAS with the ATO;
2. based on the misleading BAS, the ATO paid GST refunds totalling $2,748,806.00 to NKG as trustee for the Nathans Trust during the period from 1 January 2017 to 31 January 2020;
3. Mr Nahi Gazal then caused NKG to make the NKG payments; and
4. NKG had "entered into a tax deficit" on 26 May 2017, did not receive a benefit from making the NKG payments, and does not have the financial capacity to pay the amount of $5,372,119.90 claimed in the ATO's proof of debt submitted in the winding up of NKG, which Mr Beattie understands relates to GST refunds paid on the basis of the allegedly misleading BAS, plus tax shortfall penalties.
The plaintiffs allege that, in contravention of s 286 of the Corporations Act, the books and records of NKG failed to correctly record and explain its transactions and financial position, and did not enable true and fair financial statements to be prepared and audited for the company, and the company is presumed to have been insolvent pursuant to s 588E(4). According to Mr Beattie's affidavit sworn on 30 June 2022, NKG has no records of invoices evidencing the expenses that it claimed to have incurred when claiming GST credits from the ATO, and no receipts evidencing any payment of such expenses.
[7]
Other claims for declaratory relief
In addition to the relief referred to above concerning the Bleecker Property payments and the NKG payments, the plaintiffs claim:
1. a declaration that Mr Nahi Gazal was a shadow director and officer of Greenacre at all material times; and
2. a declaration that Mr Nahi Gazal was a shadow director and officer of Bleecker Development at all material times.
The plaintiffs plead that Mr Nahi Gazal was a director of Greenacre and/or Bleecker Development at all material times. I understand this as an allegation that he was an appointed director of each of those companies. If so, then the basis of the plaintiffs' claim for declarations that Mr Nahi Gazal was a shadow director and officer of those companies is unclear. I note that the plaintiffs do not claim any other relief for the benefit of Greenacre or Bleecker Development, and that the amended statement of claim does not reveal any controversy between the plaintiffs (or any of them) and Mr Nahi Gazal that would be resolved if the Court were to make the declarations sought. As will be seen below, Greenacre and Bleecker Development were named as entities of interest or associated entities in the search warrant that was issued on 19 July 2022 as part of the ongoing criminal investigation.
[8]
The ongoing criminal investigation
On 19 July 2022, a search warrant was issued pursuant to s 3E of the Crimes Act 1914 (Cth) authorising the executing officer to enter and search certain premises for specified evidential material relating to bank accounts and BAS of or relating to persons of interest (including Mr Nahi Gazal, Mr Nathan Gazal and Mr El Youssef), entities of interest (including Bleecker Property in its capacity as trustee for NNG Trust, NKG in its capacity as Trustee for the Nathans Trust, Greenacre in its capacity as trustee for the Bankstown Development Trust, and Bleecker Development), or their associates (including Bleecker Property in its own right, NKG in its own right, Greenacre in its own right, and Belfield) named in the warrant, as to which there were reasonable grounds for suspecting that the evidential material will afford evidence as to the commission of the following indictable offences:
1. that Mr Nahi Gazal lodged 185 fraudulent BAS during the period between 1 January 2017 and 31 May 2020 for numerous business entities (including Bleecker Property in its capacity as trustee for NNG Trust, NKG in its capacity as trustee for the Nathans Trust, Greenacre in its capacity as trustee for the Bankstown Development Trust, Bleecker Development, and the seventh defendant in these proceedings - NG Property Management Pty Ltd as trustee for Ramsgate Unit Trust ABN 57 699 815 797 (NGPM), and thereby dishonestly obtained a financial advantage from the Commissioner of the ATO in the form of refunds totalling $20,645,529.00 to which he was not entitled, contrary to s 134.2(1) of the Criminal Code; [1] and
2. that Mr Nahi Gazal lodged a further 12 fraudulent BAS during the period between 1 January 2017 and 31 May 2020 for numerous business entities (including Bleecker Property in its capacity as trustee for NNG Trust, NKG in its capacity as trustee for the Nathans Trust, Greenacre in its capacity as trustee for the Bankstown Development Trust, Bleecker Development, and NGPM) in an attempt to defraud the Commissioner by way of refunds totalling $2,761,424.00 contrary to s 11.1 and the Fraud provisions of the Criminal Code.
The search warrant was executed on 21 July 2022.
Ms Christina Niagos, a solicitor employed by the solicitors on the record for Mr Nahi Gazal and Belfield, has given evidence that she believes the criminal investigation is ongoing. Ms Niagos has deposed that there are ongoing communications concerning privilege claimed in respect of material seized in the execution of the warrant, and that the material has not been returned. Mr Paul Hardin, another solicitor employed by the firm of solicitors acting for Mr Nahi Gazal and Belfield, has given evidence to the same effect.
[9]
The present applications
Each of Mr Nahi Gazal, Mr Nathan Gazal, and Mr El Youssef invoke the privilege against self-incrimination and the privilege against self-exposure to penalties in seeking orders dispensing with the requirements of rr 14.14 and 15.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to the extent that their compliance with those rules would interfere with those privileges. Belfield accepts that, as a corporate entity, it does not have either of these privileges. However, it seeks dispensation from those pleading rules to the extent that a defence pleaded in compliance with those rules would undermine the privileges of Mr Nahi Gazal, who was the sole director of Belfield at relevant times, and who is said to be the only appropriate person to provide instructions in relation to the pleading of Belfield's defence.
Those defendants acknowledge that these are civil proceedings, but submit that the dispensation sought is necessary to protect their privilege against self-incrimination and privilege against self-exposure to penalties because:
1. the plaintiffs have "pleaded crimes":
1. by referring to sections of the Corporations Act, including s 184, in their particulars of the duties that Mr Nahi Gazal, Mr Nathan Gazal, and Mr Youssef are alleged to have breached;
2. by pleading alleged contraventions of s 286(1) of the Corporations Act; and
3. by pleading alleged contraventions of s 588G of the Corporations Act, "which section includes a crime under s 588G(3)";
1. the plaintiffs have sought declarations under s 1317E of the Corporations Act, which may have effect beyond the present proceedings, including in any future application that may be made by ASIC for pecuniary penalties or for orders disqualifying Mr Nahi Gazal, Mr Nathan Gazal, or Mr El Youssef from acting as company directors;
2. Mr Beattie's evidence in his 30 June 2022 affidavit - and particularly the evidence referred to at [9] and [20] above - discloses a real and appreciable risk that information disclosed in defences filed and served by them in these proceedings may be used against them in other criminal or penalty proceedings in violation of their privileges against self-incrimination and self-exposure to penalty; and
3. the issue of the search warrant on 19 July 2022 demonstrates that there is a real and appreciable risk of criminal proceedings, and of information in their defences in these proceedings being used against them in any such criminal proceedings.
[10]
Consideration and determination
I have considered all of the written and oral submissions made on behalf of Mr Nahi Gazal, Mr Nathan Gazal, Mr El Youssef, and Belfield in support of their respective applications, and all of the written and oral submissions made on behalf of the plaintiffs. I have summarised the key elements of those submissions above, and I refer to the substance of the submissions further below only to the extent that it is necessary to do so in order to explain the reasons why I have determined that each of those defendants is entitled to relief substantially in the terms sought, save for the proposed order reserving liberty to each of those defendants to file an amended defence after the close of the plaintiffs' case "pleading any additional facts not traversed in the pleadings". In my opinion, an order in those terms would grant liberty to the defendants to expand their pleading beyond merely articulating the facts relied upon in support of any statutory defence or positive case by way of defence that they had previously notified the plaintiffs they intended to rely upon. An order in those terms could result in procedural unfairness to the plaintiffs. Given that the defendants have not, at this stage, identified whether they intend to rely on statutory defences, or some positive case by way of defence, the preferable course is to defer for later consideration the question of whether or to what extent they should have leave to amend their defences after the close of the plaintiffs' case.
[11]
Mr Nahi Gazal
The allegations to which Mr Nahi Gazal has declined to plead on the basis of the privilege against self-incrimination and/or the privilege against self-exposure to penalties in his draft defence exhibited to the affidavit of his solicitor, Mr Paul Hardin, affirmed on 27 June 2023, fall into the following categories:
1. allegations concerning the alleged directorship, and Mr Nahi Gazal's alleged shadow directorship, of Bleecker Property, that company's alleged role as trustee for NNG Trust, the duties allegedly owed by Mr Nahi Gazal to Bleecker Property as a director or shadow director of that company, his alleged position as a signatory of Bleecker Property's bank accounts, and his alleged conduct in signing that company's tax returns and financial statements for the 2017 to 2019 financial years; [3]
2. allegations concerning Mr Nahi Gazal's alleged directorship and shadow directorship of NKG, that company's alleged role as trustee for the Nathans Trust, the duties allegedly owed by Mr Nahi Gazal to NKG as a director or shadow director of that company, and his alleged position as a signatory of NKG's bank accounts; [4]
3. allegations concerning Mr Nahi Gazal's alleged directorship of Greenacre and that company's alleged role as trustee for the Bankstown Development Trust; [5]
4. allegations concerning Mr Nahi Gazal's alleged directorship of Bleecker Development; [6]
5. allegations concerning Mr Nahi Gazal's alleged directorship or shadow directorship of NGPM and that company's alleged role as Trustee for Ramsgate Unit Trust; [7]
6. allegations concerning Mr Nahi Gazal's alleged directorship or shadow directorship of the eighth defendant - NNG Holdings Pty Ltd (NNG Holdings) - and that company's alleged role as Trustee for NNG Family Trust ABN 74 497 353 852 (the Family Trust); [8]
7. allegations concerning Mr Nahi Gazal's directorship of Belfield, and that company's alleged role as Trustee for Belfield Trust; [9]
8. the allegations that: [10]
1. Mr Nahi Gazal caused Bleecker Property to make the Bleecker Property payments to himself (or his close associates, for his benefit) and to the other defendants;
2. Mr Nahi Gazal benefitted from each of those payments, to the detriment of Bleecker Property, and that he breached his duties as a director or shadow director of Bleecker Property in causing that company to make those payments to himself (or to his close associates);
3. those payments to Mr Nahi Gazal (or his close associates) were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act; and
4. Mr Nahi Gazal is liable to pay Bleecker Property the sum of $11,916,508.33 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to the company under s 588FF of the Corporations Act, or as compensation for the alleged breaches of Mr Nahi Gazal's duties as a director or shadow director);
1. the allegations that: [11]
1. Mr Nahi Gazal caused NKG to make the NKG payments to himself (or his close associates, for his benefit) and to the other defendants, including Belfield;
2. Mr Nahi Gazal benefitted from each of those payments, to the detriment of NKG, and that he breached his duties as a director or shadow director of NKG in causing that company to make those payments to himself (or his close associates); and
3. the payments to himself (or his close associates) were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act;
4. Mr Nahi Gazal is liable to pay NKG the sum of $3,371,982.02 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to the company under s 588FF of the Corporations Act, or as compensation for the alleged breaches of Mr Nahi Gazal's duties as a director or shadow director);
5. those payments to Belfield, of which Mr Nahi Gazal was the sole director, were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act, and that Belfield is therefore liable to pay NKG the sum of $5,212,178.08 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to NKG under s 588FF of the Corporations Act); and
1. the allegations that the books and records of each of Bleecker Property, NKG, Greenacre, and Bleecker Development failed to correctly record and explain each company's transactions and financial position and performance, and did not enable true and fair financial statements to be prepared and audited for each company, in contravention of s 286 of the Corporations Act, and that each company is therefore presumed insolvent pursuant to s 588E(4) of the Corporations Act. [12]
[12]
Belfield
The allegations to which Belfield has declined to plead on the basis of Mr Nahi Gazal's privilege against self-incrimination in Belfield's draft defence exhibited to the affidavit of its solicitor, Mr Paul Hardin, affirmed on 27 June 2023, fall into the following categories:
1. allegations concerning Mr Nahi Gazal's alleged directorship and shadow directorship of NKG; [23]
2. allegations concerning Mr Nahi Gazal's directorship of Belfield and that company's alleged role as trustee for Belfield Trust; [24]
3. the allegations that Mr Nahi Gazal caused NKG to make payments to Belfield totalling $2,455,430.24 during the period from 23 March 2020 to 13 May 2020; [25] and
4. the allegations that NKG's payments to Belfield - of which Mr Nahi Gazal was the sole director - were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act, and that Belfield is therefore liable to pay NKG the sum of $5,212,178.08 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to NKG under s 588FF of the Corporations Act). [26]
As I have already mentioned, Mr Nahi Gazal was the sole director of Belfield at all times relevant to the present proceedings, which coincide with the times relevant to the suspected offences that are the subject of the criminal investigation. I accept the submission made on behalf of Belfield and Mr Nahi Gazal that he is the only person who can meaningfully provide instructions on behalf of the company for the preparation and filing of a defence. Unlike the process of discovery and production of documents which might be undertaken by any employee of the company with knowledge of the documents required to be discovered or produced, the preparation of a defence to these proceedings cannot fairly or reasonably be delegated to another person (assuming, for present purposes, that Belfield has other officers or employees). [27]
Applying the principles summarised at [42]-[46] above, I am satisfied that information provided by Belfield in defending the allegations in categories (1) and (2) above may tend to incriminate Mr Nahi Gazal for the same reasons, and to the same extent, as would be the case in respect of information provided by Mr Nahi Gazal in defending the allegations referred to in his categories (1) to (6) and (7) discussed at [48] and [49] above. I am also satisfied that information provided by Belfield in defending the allegations in categories (3) and (4) above may tend to incriminate Mr Nahi Gazal for the same reasons, and to the same extent, as would be the case in respect of information provided by Mr Nahi Gazal in defending the allegations referred to in his categories (8) and (9) discussed at [50] above.
[13]
Mr Nathan Gazal
The allegations to which Mr Nathan Gazal has declined to plead on the basis of privilege against self-incrimination in his draft defence exhibited to the affidavit of his solicitor, Ms Samantha Langan, sworn on 30 June 2023, fall into the following categories:
1. the allegation that Mr Nathan Gazal was a signatory of Bleecker Property's bank accounts at all material times; [28]
2. the allegations in relation to payments allegedly made by Bleecker Property to Mr Nathan Gazal totalling $421,816.60 during the period from 26 February 2018 to 24 September 2020:
1. that Mr El Youssef or, alternatively, Mr Nahi Gazal or, alternatively, Mr Nathan Gazal (as an alleged shadow director of Bleecker Property), caused Bleecker Property to make those payments; [29]
2. that Mr Nathan Gazal benefitted from each of those payments, to the detriment of Bleecker Property, and that he breached his duties as a shadow director of Bleecker Property in causing that company to make those payments to himself; [30]
3. that each of those payments were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act; and
4. that Mr Nathan Gazal is liable to pay Bleecker Property the sum of $421,816.60 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nathan Gazal to pay that sum to the company under s 588FF of the Corporations Act, or as compensation for Mr Nathan Gazal's alleged breaches of his duties as a shadow director of Bleecker Property); [31]
1. the allegation that Mr Nathan Gazal, as director or shadow director of Bleecker Property, or alternatively Mr Nahi Gazal, caused that company to make payments to Mr El Youssef totalling $107,227.00 during the period from 16 March 2018 to 29 July 2020; [32]
2. the allegations that the books and records of Bleecker Property failed to correctly record and explain that company's transactions and financial position and performance, and did not enable true and fair financial statements to be prepared and audited for the company, in contravention of s 286 of the Corporations Act, and that Bleecker Property is therefore presumed insolvent pursuant to s 588E(4) of the Corporations Act; [33]
3. the allegations in relation to payments allegedly made by NKG to Mr Nathan Gazal totalling $4,700.00 during the period from 13 February 2020 to 22 June 2020:
1. that Mr Nahi Gazal caused NKG to make those payments; [34]
2. that those payments were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act; and
3. that Mr Nathan Gazal is liable to pay NKG the sum of $4,700.00 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to the company under s 588FF of the Corporations Act). [35]
[14]
Mr El Youssef
The allegations to which Mr El Youssef has declined to plead on the basis of privilege against self-incrimination in his draft defence exhibited to the affidavit of his solicitor, Ms Claudette Gazi, sworn on 27 June 2023, fall into the following categories:
1. the allegation that Mr El Youssef was a director of Bleecker Property from 29 April 2018; [36]
2. the allegations that Mr El Youssef caused Bleecker Property to make payments: [37]
1. to himself totalling $107,227.00 during the period from 16 March 2018 to 29 July 2020;
2. to Mr Nahi Gazal (or his close associates) totalling $11,916,580.33 during the period from 26 February 2018 to 24 September 2020;
3. to Mr Nathan Gazal totalling $421,816.60, during the period from 26 February 2018 to 24 September 2020; and
4. to other defendants in these proceedings;
1. the allegations that each of those payments were uncommercial transactions, insolvent transactions, unfair preferences, and/or unreasonable director-related transactions, and are therefore voidable transactions pursuant to s 588FE of the Corporations Act; [38]
2. the allegations that Mr El Youssef benefitted from the payments made by Bleecker Property to him, to the detriment of Bleecker Property, and that he breached his duties as a director of that company in causing it to make those payments; [39]
3. the allegation that Mr El Youssef is liable to pay Bleecker Property the sum of $107,227.00 (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr El Youssef to pay that sum to the company under s 588FF of the Corporations Act, or as compensation for his alleged breaches of duty as a director of Bleecker Property); [40]
4. the allegations that Mr Nahi Gazal benefitted from the payments made by Bleecker Property to Mr Nahi Gazal (or his close associates), to the detriment of Bleecker Property, and that Mr Nahi Gazal breached his duties as a director or shadow director of Bleecker Property in causing that company to make those payments; [41]
5. the allegation that Mr Nahi Gazal is liable to Bleecker Property for an amount equivalent to the amounts that Bleecker Property paid to him or to his close associates (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nahi Gazal to pay that sum to Bleecker Property under s 588FF of the Corporations Act, or as compensation for alleged breaches of Mr Nahi Gazal's duties as a director or shadow director of that company); [42]
6. the allegations that Mr Nahi Gazal was a signatory of Bleecker Property's bank accounts, and signed that company's tax returns for the 2017, 2018, and 2019 financial years on or about 10 March 2020; [43]
7. the allegations that Mr Nathan Gazal was a shadow director of Bleecker Property at all material times and that the payments made by that company to Mr Nathan Gazal involved a breach of Mr Nathan Gazal's duties as a shadow director because those payments benefitted him to the detriment of Bleecker Property; [44]
8. the allegation that Mr Nathan Gazal is liable to Bleecker Property for an amount equivalent to the amounts that Bleecker Property paid to him (presumably on the basis that the liquidator claims to be entitled to an order requiring Mr Nathan Gazal to pay those sums to Bleecker Property under s 588FF of the Corporations Act, or as compensation for alleged breaches of his duties as a shadow director); [45]
9. the allegation that Mr Nathan Gazal was a signatory of Bleecker Property's bank accounts; [46] and
10. the allegations that the books and records of Bleecker Property failed to correctly record and explain that company's transactions and financial position and performance, and did not enable true and fair financial statements to be prepared and audited for the company, in contravention of s 286 of the Corporations Act, and that Bleecker Property is therefore presumed insolvent pursuant to s 588E(4) of the Corporations Act. [47]
[15]
Orders
For all of the reasons explained above, the orders of the Court are as follows:
1. Order the first defendant, Mr Nahi Gazal, to file and serve on or before 7 August 2023 an unverified defence to the Amended Statement of Claim, in respect of which the requirements of rr 14.14 and 15.1 of the Uniform Civil Procedure Rules 2005 (NSW) are hereby dispensed with on the grounds of privilege against self-incrimination insofar as those rules would otherwise apply:
1. to the pleading of defences to those paragraphs of the Amended Statement of Claim that are identified in paragraph [40] of these reasons for judgment, with the exception of:
1. paragraph 9(b) of the Amended Statement of Claim, to the extent that it relates to the ninth defendant, Belfield Development Pty Ltd; and
2. paragraph 16(c) of the Amended Statement of Claim;
1. to the pleading of any facts and the provision of any particulars to be relied upon in support of any statutory defence or other positive case to be asserted by way of defence to any of the plaintiffs' claims, provided that the first defendant shall notify the plaintiffs in his defence of any intention to invoke any such defence and (at least) the statutory provision or legal principle to be relied upon in respect of any such defence.
1. Note that the first defendant is entitled to respond to each of the allegations in the Amended Statement of Claim referred to in order 1(a) above with a statement of non-admission, coupled with a statement that he invokes the privilege against self-incrimination in respect of his response to that allegation.
2. Order the ninth defendant, Belfield Development Pty Limited, to file and serve on or before 7 August 2023 an unverified defence to the Amended Statement of Claim, in respect of which the requirements of rr 14.14 and 15.1 of the Uniform Civil Procedure Rules 2005 (NSW) are hereby dispensed with on the grounds of the first defendant's privilege against self-incrimination insofar as those rules would otherwise apply:
1. to the pleading of defences to those paragraphs of the Amended Statement of Claim that are identified in paragraph [55] of these reasons for judgment, with the exception of:
1. paragraph 9(b) of the Amended Statement of Claim, to the extent that it relates to the ninth defendant; and
2. paragraph 16(c) of the Amended Statement of Claim;
1. to the pleading of any facts and the provision of any particulars to be relied upon in support of any statutory defence or other positive case to be asserted by way of defence to any of the plaintiffs' claims, provided that the ninth defendant shall notify the plaintiffs in its defence of any intention to invoke any such defence and (at least) the statutory provision or legal principle to be relied upon in respect of any such defence.
1. Note that the ninth defendant is entitled to respond to each of the allegations in the Amended Statement of Claim referred to in order 3(a) above with a statement of non-admission, coupled with a statement that it invokes the first defendant's privilege against self-incrimination in respect of its response to that allegation.
2. Order the second defendant, Mr Nathan Gazal, to file and serve on or before 7 August 2023 an unverified defence to the Amended Statement of Claim, in respect of which the requirements of rr 14.14 and 15.1 of the Uniform Civil Procedure Rules 2005 (NSW) are hereby dispensed with on the grounds of privilege against self-incrimination insofar as those rules would otherwise apply:
1. to the pleading of defences to those paragraphs of the Amended Statement of Claim that are identified in paragraph [59] of these reasons for judgment;
2. to the pleading of any facts and the provision of any particulars to be relied upon in support of any statutory defence or other positive case to be asserted by way of defence to any of the plaintiffs' claims, provided that the second defendant shall notify the plaintiffs in his defence of any intention to invoke any such defence and (at least) the statutory provision or legal principle to be relied upon in respect of any such defence.
1. Note that the second defendant is entitled to respond to each of the allegations in the Amended Statement of Claim referred to in order 5(a) above with a statement of non-admission, coupled with a statement that he invokes the privilege against self-incrimination in respect of his response to that allegation.
2. Order the fourth defendant, Mr Bassam El Youssef, to file and serve on or before 7 August 2023 an unverified defence to the Amended Statement of Claim, in respect of which the requirements of rr 14.14 and 15.1 of the Uniform Civil Procedure Rules 2005 (NSW) are hereby dispensed with on the grounds of privilege against self-incrimination insofar as those rules would otherwise apply:
1. to the pleading of defences to those paragraphs of the Amended Statement of Claim that are identified in paragraph [63] of these reasons for judgment;
2. to the pleading of any facts and the provision of any particulars to be relied upon in support of any statutory defence or other positive case to be asserted by way of defence to any of the plaintiffs' claims, provided that the second defendant shall notify the plaintiffs in his defence of any intention to invoke any such defence and (at least) the statutory provision or legal principle to be relied upon in respect of any such defence.
1. Note that the fourth defendant is entitled to respond to each of the allegations in the Amended Statement of Claim referred to in order 7(a) above with a statement of non-admission, coupled with a statement that he invokes the privilege against self-incrimination in respect of his response to that allegation.
2. Reserve for further consideration at an appropriate time after the filing of defences in accordance with orders 1 to 8 above the question whether, or to what extent, any of the first, second, fourth, and ninth defendants should be granted leave to file an amended defence pleading additional facts after the plaintiffs have closed their case.
3. Costs reserved.
Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Livestock Corp (1979) 42 FLR 204 (Deane J); Permanent Building Society (in liquidation) v Metcalf and Others (1994) 12 WAR 535 at 538-540 (White J) and the authorities there referred to; Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372; (2002) 187 ALR 362; (2002) 53 IPR 225; [2002] AIPC 91-780; [2002] FCA 3 at [40]-[41] (Lindgren J) and the authorities there referred to; Pascoe v Divisional Security Group Pty Ltd (2007) 209 FLR 197; (2007) 61 ACSR 381 [2007] NSWSC 211 (Pascoe) at [18]-[36] (White J) and the authorities there referred to; CC Containers Pty Ltd v Lee (No 2) [2012] VSC 149, especially at [18] (Ferguson J); In the matter of Australian Property Custodian Holdings Limited (in liquidation) (receivers and managers appointed) (controllers appointed) (No 2) (2012) 93 ACSR 130; [2012] VSC 576 (Re APCH), especially at [115] (Robson J); Australian Building and Construction Commissioner v O'Halloran [2021] FCAFC 185, especially at [100]-[102] (Kerr and Wigney JJ).
Parties
Applicant/Plaintiff:
Australian Building and Construction Commissioner
Respondent/Defendant:
O'Halloran
Legislation Cited (6)
(Schedule to the Criminal Code Act 1995 (Cth)) Evidence Act 1995(NSW)
The plaintiffs allege that, in contravention of s 286 of the Corporations Act, the books and records of Bleecker Property failed to correctly record and explain its transactions and financial position, and did not enable true and fair financial statements to be prepared and audited for the company, and that the company is presumed to have been insolvent pursuant to s 588E(4). According to Mr Beattie's affidavit sworn on 30 June 2022, Bleecker Property has no records of invoices evidencing the expenses that it claimed to have incurred when claiming GST credits from the ATO, and no receipts evidencing any payment of such expenses.
The plaintiffs also allege that Mr Nahi Gazal signed Bleecker Property's company tax returns and financial statements for the 2017, 2018, and 2019 financial years on 10 March 2020, purportedly as a director of that company.
The plaintiffs claim that the Bleecker Property payments were insolvent transactions, uncommercial transactions, unfair preferences, and unreasonable director-related transactions, and are voidable pursuant to sub-ss 588FE(2), (3), (4), and/or (6A) of the Corporations Act. The plaintiffs seek orders under s 588FF requiring each defendant to pay to Bleecker Property amounts equivalent to the Bleecker Property payments received by that defendant.
The plaintiffs allege that, by causing Bleecker Property to pay amounts totalling $11,916,580.33 to himself, or to his close associates for his benefit, Mr Nahi Gazal breached fiduciary and statutory duties that he owed to Bleecker Property as a shadow director of that company.
The plaintiffs allege that, by causing Bleecker Property to pay amounts totalling $421,816.60 to himself Mr Nathan Gazal breached fiduciary and statutory duties that he owed to Bleecker Property as a shadow director of that company.
The plaintiffs allege that, by causing Bleecker Property to pay amounts totalling $107,227.00 to himself, Mr El Youssef breached fiduciary and statutory duties that he owed to Bleecker Property as a director of that company.
The plaintiffs claim the following relief in relation to the Bleecker Property payments:
1. a declaration that Mr Nahi Gazal was a shadow director and officer of Bleecker Property at all material times;
2. declarations that:
1. payments totalling $11,916,580.33 made by Bleecker Property to Mr Nahi Gazal, or to his close associates for his benefit, during the period from 26 February 2018 to 24 September 2020;
2. payments totalling $421,816.60 made by Bleecker Property to Mr Nathan Gazal during the period from 26 February 2018 to 24 September 2020;
3. payments totalling $107,227.00 made by Bleecker Property to Mr El Youssef during the period from 16 March 2018 to 29 July 2020; and
4. Bleecker Property payments made to the other defendants;
are:
1. insolvent transactions pursuant to s 588FC of the Corporations Act;
2. unreasonable director related transactions pursuant to s 588FDA of the Corporations Act;
3. uncommercial transactions pursuant to s 588FB of the Corporations Act;
4. voidable transactions pursuant to sub-ss 588FE(2), (3), (4), and/or (6A) of the Corporations Act; and
5. void against Mr Beattie as liquidator of Bleecker Property;
1. orders pursuant to s 588FF(1) of the Corporations Act that:
1. Mr Nahi Gazal pay to Bleecker Property the sum of $11,916,580.33;
2. Mr Nathan Gazal pay to Bleecker Property the sum of $421,816.60;
3. Mr El Youssef pay to Bleecker Property the sum of $107,227.00; and
4. each other defendant who received Bleecker Property payments is to pay to Bleecker Property a sum equivalent to the payments received by that defendant;
1. declarations that, by causing Bleecker Property to make the Bleecker Property payments to themselves and to the other defendants, each of Mr Nahi Gazal, Mr Nathan Gazal, and Mr El Youssef breached his duty to Bleecker Property pursuant to s 588G of the Corporations Act, and orders pursuant to s 1317H that each of them pay compensation to Bleecker Property for loss that the company suffered as a result of his alleged contraventions of s 588G; and
2. a declaration that, by causing Bleecker Property to make the Bleecker Property payments to himself and to the other defendants, each of Mr Nahi Gazal, Mr Nathan Gazal, and Mr El Youssef contravened ss 180, 181, and 182 of the Corporations Act and breached his fiduciary duties to Bleecker Property (including fiduciary duties to act honestly), and an order pursuant to s 1317H that each of them pay compensation to Bleecker Property for the loss that it suffered as a result of their alleged conduct.
I need not refer to the claims for relief set out in the originating process against the third defendant, Mr Nazih Nasri Gazal, as the plaintiffs discontinued the proceedings against him in late 2022.
The plaintiffs claim that the NKG payments were insolvent transactions, uncommercial transactions, unfair preferences, and unreasonable director-related transactions, and are voidable pursuant to sub-ss 588FE(2), (3), (4), and/or (6A) of the Corporations Act. The plaintiffs seek orders under s 588FF of the Corporations Act 2001 (Cth) requiring each defendant to pay to NKG amounts equivalent to the NKG payments received by that defendant, including an order requiring Belfield to pay to NKG the total sum of $2,455,430.24 that it received from NKG during the period from March 2020 to May 2020 when Mr Nahi Gazal was its sole director.
The plaintiffs allege that, by causing NKG to pay amounts totalling $3,371,982.02 to himself, or to his close associates for his benefit, Mr Nahi Gazal breached fiduciary and statutory duties that he owed to NKG as a director or shadow director of that company.
The plaintiffs' claims for relief relating to the NKG payments are:
1. a claim for a declaration that Mr Nahi Gazal was a shadow director and officer of NKG at all material times;
2. declarations that:
1. payments totalling $3,371,982.00 made by NKG to Mr Nahi Gazal, or to his close associates for his benefit, during the period from 23 September 2019 to 24 August 2020;
2. payments totalling $4,700.00 made by NKG to Mr Nathan Gazal during the period from 13 February 2020 to 22 June 2020; and
3. payments totalling $2,455,430.24 made by NKG to Belfield during the period from 23 March 2020 to 13 May 2020;
are:
1. insolvent transactions pursuant to s 588FC of the Corporations Act;
2. unreasonable director related transactions pursuant to s 588FDA of the Corporations Act;
3. uncommercial transactions pursuant to s 588FB of the Corporations Act;
4. voidable transactions pursuant to sub-ss 588FE(2), (3), (4), and/or (6A) of the Corporations Act; and
5. void against Mr Beattie as liquidator of NKG;
1. orders pursuant to s 588FF(1) of the Corporations Act that:
1. Mr Nahi Gazal pay to NKG the sum of $3,371,982.00;
2. Mr Nathan Gazal pay to NKG the sum of $4,700.00; and
3. Belfield pay to NKG the sum of $2,455,430.24;
1. a declaration that, by causing NKG to make the NKG payments to himself (or his close associates), Belfield and the other defendants, Mr Nahi Gazal breached his duty to NKG pursuant to s 588G of the Corporations Act, and an order pursuant to s 1317H that he pay compensation to NKG for the loss that it suffered as a result of his alleged contraventions of s 588G;
2. a declaration that, by causing NKG to make the NKG payments to himself (or his close associates), Belfield and the other defendants, Mr Nahi Gazal contravened ss 180, 181, and 182 of the Corporations Act and breached his fiduciary duties to NKG (including a duty to act honestly), and an order pursuant to s 1317H that he pay compensation to NKG for the loss that it suffered as a result of his alleged conduct;
I need not refer to the claims for relief set out in the originating process against the third defendant, Mr Nazih Nasri Gazal, because the plaintiffs discontinued the proceedings against him in late 2022.
Each of Mr Nahi Gazal, Mr Nathan Gazal, Mr El Youssef, and Belfield have served draft defences in which some allegations in the amended statement of claim are admitted, some are not admitted, and others are responded to in the following terms: "Not pleaded to. Privilege claimed." The difficulty with that response is that each allegation that is not pleaded to is taken to be admitted by reason of r 14.26 of the UCPR.
During the course of the hearing of the present applications, each of those defendants revised the terms of the orders sought by reference to the principles articulated by the Court of Appeal in Macdonald v Australian Securities and Investments Commission (Macdonald v ASIC). [2]
The intention underlying the revised terms is that those defendants are relieved from compliance with rr 14.14 and 15.1 of the UCPR only to the extent that compliance would interfere with their privileges (or, in the case of Belfield, compliance would interfere with Mr Nahi Gazal's privileges), and that they are entitled to that extent to respond to allegations in the amended statement of claim with a statement of non-admission coupled with a statement that they invoke the privilege against self-incrimination or self-exposure to penalties. They are otherwise obliged to deny those allegations which they believe to be untrue, to make a statement of non-admission in relation to those allegations that they believe might not be true, and to admit those allegations which they believe to be true. Whilst they are required to put the plaintiffs on notice of any intention to invoke any statutory defence or to assert any positive case by way of defence, they are not required to plead in their defences the facts to be relied on in support of such defences, or to provide any particulars of such facts, if that may tend to incriminate them or to expose them to penalties. They are entitled to wait until the close of the plaintiffs' case, at which point they will be required to plead such facts and provide such particulars if they choose to run those statutory defences or other positive case defences.
The revised terms of the proposed orders provide for the filing of unverified defences. That is intended to facilitate statements of non-admission being made in those instances where the defendants claim privilege against self-incrimination or self-exposure to penalty (which in turn avoids those allegations being deemed to be admitted under r 14.26 by reason of not being traversed), without Mr Nahi Gazal, Mr Nathan Gazal, and Mr El Youssef being required by r 14.23 of the UCPR to swear or affirm in relation to those non-admissions that, after reasonable inquiry, they do not know whether or not the allegations not admitted are true.
The plaintiffs initially opposed the applications of Mr Nahi Gazal, Mr Nathan Gazal, and Mr El Youssef, submitting that admissions, denials, or non-admissions made by those defendants would merely define the issues for trial in the present proceedings and that "such a state of affairs does not give rise to any basis to claim privilege". The plaintiffs also submitted that the Court should not be satisfied that there was a real and appreciable risk of criminal proceedings in which any information disclosed in defences in the present proceedings might be used by the prosecution against the defendants. Nor should the Court be satisfied, according to the plaintiffs' submission, that filing defences in the present proceedings might prove that the defendants were liable to penalties. The plaintiffs submitted that the possibility of information contained in a defence filed by Belfield in these proceedings being used against Mr Nahi Gazal was of no consequence because the filing of Belfield's defence would not involve Mr Nahi Gazal incriminating himself in circumstances where there was no evidence that he was the only person who could provide meaningful instructions for the purpose of Belfield filing a defence.
During the hearing of the present applications, the plaintiffs accepted that, in view of the ongoing criminal investigation, Mr Nahi Gazal is entitled to dispensation from the pleading rules in order to maintain his privilege against self-incrimination. However, the plaintiffs maintained their opposition to the relief sought by the other defendants. The plaintiffs also contend that Mr Nahi Gazal's privilege against self-incrimination does not require dispensation from the pleading rules to the extent sought.
Mr Hardin has given evidence on information and belief that Mr Nahi Gazal has concerns that, if he were compelled to plead to the allegations referred to above, this would require him to respond to allegations made against him in these proceedings of offences under ss 184 and 286 of the Corporations Act, and to disclose information that may be used against him in, or in connection with, criminal or penalty proceedings arising out of the criminal investigation concerning the allegedly false BAS, including any criminal investigation or proceeding relating to the alleged use of proceeds of crime. Mr Hardin also refers to the potential use of such information in any future proceedings against Mr Nahi Gazal for an offence under s 588G(3) of the Corporations Act, noting that the plaintiffs in the present proceedings plead that the payments made by Bleecker Property and NKG to Mr Nahi Gazal and to each of the other defendants were insolvent transactions, that Mr Nahi Gazal is alleged to have breached fiduciary duties owed to each of those companies in causing those payments to be made, that the relief sought by the plaintiffs in the originating process includes declarations that Mr Nahi Gazal breached his fiduciary duties to act honestly, and that dishonesty is an element of an offence under s 588G(3).
Thus, Mr Nahi Gazal's application relies on both the privilege against self-incrimination and the privilege against self-exposure to penalties. As Finkelstein J said in Australian Securities and Investments Commission v Mining Projects Group Ltd (Mining Projects Group): [13]
"7 Each privilege operates to excuse a person from being compelled to answer any question or produce any document if doing so would have the tendency in one case to expose that person either directly or indirectly to a criminal charge and in the other to a penalty. Though often said to be analogous and based on the same rationale, the privileges are quite distinct. The privilege against self-incrimination is a 'fundamental … bulwark of liberty' (Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328, 340) that 'protects personal freedom, privacy and human dignity' (Caltex Refining 178 CLR 477, 500) and is 'deeply ingrained in the common law' (Sorby v The Commonwealth (1983) 152 CLR 281, 309). It applies in curial proceedings, including procedures related to curial proceedings, and non-curial proceedings: Pyneboard 152 CLR 328, 340-341; Sorby 152 CLR 281, 309. By contrast, the penalty privilege is different in several fundamental respects. The penalty privilege is not a substantive rule of law: Rich v Australian Securities and Investments Commission (2004) 220 CLR 129, 142 and 179. It is merely a procedural rule that applies in curial proceedings to require the plaintiff to prove his case without any assistance from the defendant: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543, 559."
Being compelled to plead a defence in accordance with the applicable pleading rules in a civil proceeding (where no penalty is sought) may tend to expose the defendant to a criminal charge or to a penalty if there are criminal proceedings or penalty proceedings on foot alleging the same or similar conduct that is the subject of the non-penalty civil proceeding, or if there is a real and appreciable risk of such criminal or penalty proceedings. This is one example of what is sometimes referred to as "exceptional circumstances" which may warrant some dispensation from the pleading rules in the non-penalty civil proceedings. [14]
Any dispensation from pleading rules should only go so far as is necessary to serve the privileges and the interests they protect. [15] As Mason P said in Macdonald v ASIC: [16]
"64 The privilege serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it (Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at 559[31], Rich at 142[24]). But this does not define the scope of the privilege. The related privilege touching the criminal law is one of self-incrimination (emphasis added). The nub of the privilege is that the State should not be able to compel a defendant to provide proof against him or herself (Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 at 532; Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 at 129). The privilege extends to protect against compelled disclosure of evidence or documents that would increase the tendency of exposure to penalty (Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 at 612F per Lord Wilberforce).
65 In Rich the High Court held that the privilege meant that a court could not order discovery in civil penalty proceedings under the Corporations Law (Cth). The High Court's reasons for refusing in limine to order discovery illustrate its recognition of the need to guard against direct or indirect prejudice, including the prejudice of providing clues about where to trace documents or to link them with the defendant. In the joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, the majority explained the setting aside of the order for discovery in the following terms (at 148[39] citations omitted):
'As Isaacs J pointed out in R v Associated Northern Collieries, once it is determined that the proceedings expose a person to penalty, the proper course is to refuse any order for discovery. As Isaacs J said, to leave the party at risk of penalty to object to production of documents, having first listed them, may lead to the very mischief which the privilege is designed to prevent. In the words of Lord Coleridge CJ in Jones v Jones, to which Isaacs J referred:
"The whole case for the plaintiff may depend upon his power to trace a particular document into the possession of the defendant, and, upon its non-production, to prove its contents by secondary evidence."
That being so, the proper course in this matter was to refuse the application for discovery.'
66 A defendant is entitled to be protected against both direct and indirect self-incrimination. Accordingly, the privilege also protects against the compelled disclosure of information that "may set in train a process which may lead to incrimination or may lead to the discovery of real evidence of an incriminating character" (per Lord Wilberforce in Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 at 443, cited by Gibbs CJ in Sorby v The Commonwealth (1983) 152 CLR 281 at 294. See also Sorby at 310 per Mason, Wilson and Dawson JJ; Reid v Howard (1995) 184 CLR 1 at 6-7 per Deane J.).
67 The need for a privilege claim to be bona fide and reasonable is well established (see generally Heydon J D, Cross on Evidence 6th Aust ed, Butterworths, Sydney, 2000 at [25100]). But courts err on the side of caution lest an apparently innocuous disclosure has unforeseen adverse consequences (see generally Re New World Alliance Pty Ltd (Receiver and Manager Appointed); Syncotex Pty Ltd v Baseler (1993) 47 FCR 90 at 96-7 per Sheppard J)."
Contrary to the submissions made on behalf of the plaintiffs in the present proceedings, these principles apply to admissions in a defence filed in a non-penalty civil proceeding in the same way as they apply to the disclosure of other information in a defence. The direct effect of an admission is limited to communicating that the defendant is content for the proceedings in which the defence has been filed to be determined on the basis that the admitted allegations are true or have been proved. [17] However, an admission may give rise to an inference that the defendant accepts the truth of the allegation pleaded, which would be an admission against interest that could be used against that defendant in any subsequent proceedings. That risk exists even if the defence is not required to be verified. [18] In addition, an admission compelled by pleading rules in a non-penalty civil proceeding may set in train a process, or be used in an existing investigation or other process, that may lead to incrimination or exposure of the defendant to a penalty. [19]
There are several cases in which the courts have held that admissions made in defences filed in penalty proceedings waived the privilege against self-incrimination and the privilege against exposure to civil penalties in respect of the facts admitted. [20] As counsel for Mr Nahi Gazal submitted, it is conceivable that the privileges may be waived by a defendant making admissions in a defence filed in non-penalty civil proceedings if the defendant failed to exercise the privileges by applying for dispensation from the pleading rules to the extent necessary to maintain the privileges in accordance with the principles referred to above.
Mr Beattie's 30 June 2022 affidavit that was filed in support of the plaintiffs' originating process, and particularly his evidence referred to at [9] and [20] above, demonstrates the substantial degree of overlap between the factual matters that are the subject of these proceedings and the subject matter of the ongoing criminal investigation.
In my opinion, the provision of information in a defence to the allegations in categories (1) to (6) above may directly or indirectly incriminate Mr Nahi Gazal in relation to the offences that are the subject of the ongoing criminal investigation, or in relation to offences relating to dealing in the proceeds of those alleged crimes. Each of the companies referred to in categories (1) to (6), or the trusts for which those companies act as trustees, is the subject of the ongoing investigation concerning the lodgement of allegedly fraudulent BAS. As Mr Hardin deposed, information about directorship of and control over those companies, including whether Mr Nahi Gazal was a signatory to the bank account of one or more of those companies, is relevant to the question whether he has committed the suspected offences referred to in the search warrant. The plaintiffs' claim in these proceedings for declarations that Mr Nahi Gazal was a shadow director of Greenacre and Bleecker Development is perhaps indicative of some connection - or at least substantial overlap - between the plaintiffs' prosecution of these proceedings and the ATO audit that led to the present criminal investigation. The control of Greenacre and Bleecker Development has no apparent relevance to any controversy between the plaintiffs and the defendants in the present proceedings, the scope of which is delineated by the amended statement of claim. However, the control of those two companies is of obvious relevance to the suspected offences referred to in the search warrant. There is a real and appreciable risk that the investigation in aid of which that search warrant was issued will result in criminal proceedings being brought against Mr Nahi Gazal, and against other named persons of interest, in respect of offences of the kind described in the warrant or of dealing in the proceeds of those offences.
Those observations apply equally to category (7) above, save that the information that Mr Nahi Gazal was a director of Belfield has already been disclosed by Mr Nahi Gazal and Belfield during the hearing of the present applications. [21] That information is no longer protected by the privileges against self-incrimination and self-exposure to penalties.
As Mr Hardin deposed, information in any defence filed to the allegations in categories (8) and (9) above may directly or indirectly expose Mr Nahi Gazal to criminal prosecution for offences involving dealing in the proceeds of the allegedly fraudulent BAS. By way of example, Mr Hardin refers to s 400.6 of the Criminal Code, which provides that it is an offence punishable by imprisonment for a person to deal with money to the value of $10,000.00 or more that is proceeds of an indictable crime, where the person knows, or is reckless or negligent as to the fact that, the money is proceeds of an indictable crime. In my opinion, there is a real and appreciable risk that Mr Nahi Gazal may be directly or indirectly incriminated in relation to such offences by providing information in response to the allegations in categories (8) to (9) above, including the allegations that he caused Bleecker Property and NKG to make the alleged payments to himself (or his close associates), the allegations that those payments benefitted him to the detriment of Bleecker Property and NKG, and the allegations that a reasonable person in the position of Bleecker Property and NKG would not have made those payments. The risk is illustrated by Mr Beattie's evidence referred to at [9] and [20] above to the effect that Mr Nahi Gazal engaged in a course of conduct that commenced with the lodgement of allegedly false BAS and culminated in him making the impugned payments to himself (or his close associates, for his own benefit) and to the other defendants in these proceedings out of the proceeds of the GST refunds procured by lodging those allegedly false BAS.
In relation to category (10) above, I accept Mr Hardin's evidence that information disclosed by Mr Nahi Gazal in response to these allegations may tend to prove that he committed the suspected offence of lodging false BAS. Indeed, Mr Beattie's 30 June 2022 affidavit draws the link between the plaintiffs' allegation that Bleecker Property and NKG failed to keep the financial records required by s 286 of the Corporations Act, and the allegedly false BAS. As referred to at [10] and [21] above, Mr Beattie has deposed in his affidavit sworn in supporting of the plaintiffs' claims for relief in the originating process that Bleecker Property and NKG have no record of incurring or paying the expenses in respect of which they claimed GST credits in the BAS that are the subject of the criminal investigation.
Those are sufficient reasons to make orders of the kind sought by Mr Nahi Gazal dispensing with the pleading rules to the extent that they would require him to respond to the allegations to which he has presently declined to plead on the grounds of privilege against self-incrimination, with the exception of the allegation that he was a director of Belfield at times material to the present proceedings. The orders to be made will be in terms that achieve the objectives explained at [35] above. Those objectives are consistent with the principles summarised at [42]-[46] above, and with the approach taken in Macdonald v ASIC and in O'Halloran to the dispensing with pleading rules for defendants exercising their privilege against self-incrimination who may ultimately wish to run a statutory or other defence that involves making positive assertions. The terms of the orders will differ somewhat from those proposed by Mr Nahi Gazal, because the proposed terms are capable of being read as requiring him to make admissions of any matters that he believes to be true, even where this undermine and possibly waive his privilege against self-incrimination. That is not the intended effect of the proposed orders, as I have explained above.
Having reached that conclusion for the reasons explained above, I do not find it necessary to consider the submissions made on behalf of Mr Nahi Gazal in support of his application concerning a risk of criminal or civil penalty proceedings against him for contraventions of ss 184, 286, or 588G(3) of the Corporations Act. It is appropriate to note, however, that the insolvent trading claims pleaded by the plaintiffs in these proceedings fail to articulate whether or how any of the impugned payments caused Bleecker Property or NKG to incur a debt. That casts some doubt on whether there is a real risk of Mr Nahi Gazal being prosecuted for an offence under s 588G(3) of the Corporations Act.
Nor do I find it necessary to consider the submission that the declarations sought by the plaintiffs to the effect that Mr Nahi Gazal (and Mr Nathan Gazal and Mr El Youssef) contravened their duties as directors or shadow directors of Bleecker Property and NKJ might be relied on in subsequent civil penalty proceedings. There are no civil penalty proceedings presently on foot and, as counsel for Mr Nahi Gazal submitted, the plaintiffs do not have standing to seek declarations of contravention in any event. [22]
Accordingly, orders will be made dispensing with the requirement for Belfield to comply with the pleading rules to the extent that those rules would require it to respond to the allegations to which it has presently declined to plead on the grounds of Mr Nahi Gazal's privilege against self-incrimination, with the exception of the allegation that Mr Nahi Gazal was a director of Belfield at times material to the present proceedings. The orders to be made will be in terms that achieve the objectives explained at [35] above.
Ms Langan has given evidence on information and belief that Mr Nathan Gazal has concerns that, if he were compelled to plead to the allegations referred to above, this would inform the investigation and potential prosecution of any criminal offences against him, including the suspected offences in respect of which he is named as a person of interest in the search warrant. Ms Langan has also deposed to her concern that, if Mr Nathan Gazal pleads to those allegations, he may be taken to have waived the privilege against self-incrimination, which he instructs her he wishes to exercise. Ms Langan also expresses concern that Mr Nathan Gazal would be pleading to allegations in these proceedings that amount to crimes under ss 184 and 286 of the Corporations Act.
Applying the principles summarised at [42]-[46] above, I am satisfied that, if no dispensation from the pleading rules is granted, information disclosed in any defence pleaded by Mr Nathan Gazal to the allegations in categories (1), (2(a)), and (3) above may tend to incriminate him for the same reasons that I have explained at [48] above in relation to Mr Nahi Gazal's categories (1) to (6). Information disclosed by Mr Nathan Gazal in any defence pleaded to the allegations in the balance of his category (2), and to the allegations in his category (5), may tend to incriminate him for the same reasons that I have explained at [50] above in relation to Mr Nahi Gazal's categories (8) and (9). Although the plaintiffs do not allege that Mr Nathan Gazal caused NKG to make the payments that are the subject of the allegations referred to in his category (4), it is my opinion that there is a real risk in all the circumstances of this case that any information disclosed by him in defending those allegations may expose him to prosecution for an offence against s 400.6 of the Criminal Code. Information disclosed by Mr Nathan Gazal in any defence pleaded to the allegations in his category (4) may tend to incriminate him for the same reasons that I have explained at [51] above in relation to Mr Nahi Gazal's category (10).
Accordingly, orders will be made dispensing with the requirement for Mr Nathan Gazal to comply with the pleading rules to the extent that those rules would require him to respond to the allegations to which he has presently declined to plead on the grounds of privilege against self-incrimination. The orders will be in terms that achieve the objectives explained at [35] above.
Ms Gazi has given evidence on information and belief that Mr El Youssef has concerns that, if he were compelled to plead to the allegations referred to above, this would inform the investigation and potential prosecution of any criminal offences against him, including the suspected offences in respect of which he is named as a person of interest in the search warrant and offences relating to proceeds of crime. Ms Gazi has also deposed to her concern that, if Mr El Youssef pleads to those allegations, he may be taken to have waived the privilege against self-incrimination, which he instructs her he wishes to exercise. Ms Gazi also expresses concern that Mr El Youssef would be required to respond specifically to factual allegations that amount to allegations of criminal conduct.
Applying the principles summarised at [42]-[46] above, I am satisfied that, if no dispensation from the pleading rules is granted, information disclosed in any defence pleaded by Mr El Youssef to the allegations in categories (1), (2), (3) to (5), and (12) above may tend to incriminate him for the same reasons I have explained at [48], [50], and [51] above in relation to Mr Nahi Gazal. As I said at [48] above, there is a real and appreciable risk that the investigation in aid of which the search warrant was issued will result in criminal proceedings against Mr El Youssef, who is named in the warrant as a person of interest, in respect of offences of the kind described in the warrant or of dealing in the proceeds of those offences.
Given that the Bleecker Property payments involved many millions of dollars, and most of those payments were made at a time when Mr El Youssef was allegedly an appointed director of Bleecker Property, it seems to me that there is also a real and appreciable risk of criminal prosecution of Mr El Youssef as an accessory to alleged offences by Mr Nahi Gazal and/or Mr Nathan Gazal of lodging fraudulent BAS and/or dealing in the proceeds thereof. Any information pleaded by Mr El Youssef in defence of the allegations in his categories (6) to (11) above may have a tendency to incriminate him directly or indirectly in respect of such offences. Erring on the side of caution, as Mason P encouraged in Macdonald v ASIC, [48] I am satisfied that Mr El Youssef's bona fide claim of privilege against self-incrimination warrants dispensation from the pleading rules in relation to the allegations in his categories (6) to (11) in addition to his other categories discussed immediately above.
Accordingly, orders will be made dispensing with the requirement for Mr El Youssef to comply with the pleading rules to the extent that those rules would require him to respond to the allegations to which he has presently declined to plead on the grounds of privilege against self-incrimination. The orders will be in terms that achieve the objectives explained at [35] above.
Macdonald v ASIC (2007) 73 NSWLR 612; (2007) 65 ACSR 299; [2007] NSWCA 304 at [39] and [53]-[54] (Mason P, Giles JA agreeing). The question in that case was limited to whether defendants in civil penalty proceedings were entitled to be excused from pleading positive defences on which they intended to rely.
Ibid at [64]-[67] (Giles JA agreeing).
Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70; (1990) 64 ALJR 412; (1990) 93 ALR 435; (1990) 5 BR 109; [1990] HCA 31 at 170 CLR 85-86 (Mason CJ and Brennan J) and 98 (Gaudron and McHugh JJ); Pascoe at [34] (White J). Australian Competition and Consumer Commission v Pratt (No 3) (2009) 175 FCR 558; [2009] ATPR 42-287; [2009] FCA 407 (Pratt) at [72]-[74] (Ryan J).
Evidence Act 1995 (NSW), s 81; Pratt at [72]-[74] (Ryan J); O'Halloran at [99] (Kerr and Wigney JJ).
Macdonald at [66] (Mason P); Pascoe at [35] (White J); Re APCH at [99] (Robson J).
See Fair Work Ombudsman v Hu [2017] FCA 1081 at [21] (Rangiah J) and the cases there cited.
Amended Statement of Claim paras [24], [26], [28]-[29], and [31]-[33].
Amended Statement of Claim paras [43], [45], 46, 47, [48] (insofar as that paragraph relates to Bleecker Property), [49]-[52] (insofar as they relate to Bleecker Property), [66], [68]-[75] (insofar as those paragraphs relate to Bleecker Property), [87]-[95], [105], [107]-[108] (insofar as those paragraphs relate to Bleecker Property), [109]-[110], [111]-[114] (insofar as those paragraphs relate to Bleecker Property), [118] (insofar as that paragraph relates to Bleecker Property), [119]-[127], [130], [131]-[139], and [142].
Amended Statement of Claim paras [96]-[101].
Amended Statement of Claim paras [103]-[104].
Amended Statement of Claim paras [53]-[58].
Amended Statement of Claim para [65].
Amended Statement of Claim paras [60]-[61].
Amended Statement of Claim paras [76]-[81].
Amended Statement of Claim para [85].
Amended Statement of Claim para [82].
Amended Statement of Claim paras [37] and [41]-[42].
At [67].
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Decision last updated: 24 July 2023