Australian Securities and Investments Commission v Mining Projects Group Limited

Federal Court of Australia|2008-01-24|Before: Finkelstein J, Gordon J

INTRODUCTION 1 In Australian Securities and Investments Commission v Mining Projects Group Limited [2007] FCA 1620 at [1], Finkelstein J described these proceedings in the following terms: In this action, which is still in its interlocutory phase, the plaintiff, the Australian Securities and Investments Commission seeks various forms of relief in respect of alleged contraventions of the Corporations Act 2001 (Cth). The defendants are Mining Projects Group Limited (MPG), a minerals exploration company, and two of its directors, Mr Frost and Mr Revelins. ASIC contends that in breach of s 1041H MPG made misleading public announcements about the mineralisation and exploration potential for uranium mining at Niue Island in the South Pacific. The nub of the complaint is that the potential was overstated. The directors are alleged to have knowingly procured the breach and thereby contravened ss 180 and 181, the directors' duties sections. There are also claims that the directors engaged in insider trading (s 1043A) and improperly used company information (s 183). The only relief sought against MPG is a declaration that it contravened s 1041H. But ASIC seeks the imposition of pecuniary penalties against the directors (s 1317G) and an order that they be disqualified from managing a corporation (s 206C). … The Defendants seek a stay of the claims made against MPG by ASIC on alternate bases. They seek a stay of the claims made against MPG by ASIC pending the hearing and determination of the claims made against Frost and Revelins and, presumably, any appeal in relation to those claims. Alternatively, they seek a stay of the claims made against MPG by ASIC until the Court has made findings of fact in relation to the claims against Frost and Revelins but before final orders.

RELEVANT PRINCIPLES 5 Any application for stay must be considered in the context of some well established principles. First, civil proceedings under the Corporations Act (of which this is one) are not to be stayed merely because the proceeding discloses or arises out of the commission of an offence: s 1331 of the Corporations Act. 6 Secondly, it is a serious allegation to allege abuse of process in the commencement or continuation of a proceeding. The onus borne by the party alleging an abuse of process is a "heavy one": ACCC v Pacific Dunlop Ltd (2001) ATPR 41-283 at [80] citing Williams v Spautz (1992) 174 CLR 509 at 529. 7 Thirdly, the privilege against self-incrimination and penalty privilege, referred to as the basis for the application for a stay, apply to Frost and Revelins, not MPG: ASIC v Mining Projects Group Ltd [2007] FCA 1620 at [5]. Consistent with that principle: (1) a corporate defendant (such as MPG) may be required to provide documents and information which may tend to incriminate its officers: Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 at 116; (2) a corporate defendant cannot invoke privilege on the grounds that an order or requirement to produce documents or information might tend to incriminate a natural person, such as a director: Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 at [32]-[33] (per Lindgren J) and ASIC v Mining Projects Group Ltd [2007] FCA 1620 at [5]; (3) a natural person cannot complain that a corporate defendant's compliance with an order or requirement to produce documents or information might tend to incriminate him or her: Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 at [32]-[33] (per Lindgren J) and ASIC v Mining Projects Group Ltd [2007] FCA 1620 at [5]; (4) the relevant enquiry is whether an order directed to the corporate defendant will require that a natural person tend to incriminate himself or herself: Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 at [32]-[33] (per Lindgren J) and ASIC v Mining Projects Group Ltd [2007] FCA 1620 at [5]. No submission has been made to that effect; (5) a corporate defendant cannot refuse to comply with a direction for the filing of evidence on the basis that its evidence may incriminate other natural person defendants or expose them to a penalty: Chief Executive Officer of Customs v Camile Trading Pty Ltd (2004) 58 ATR 163 at 170. However, a corporate defendant will not breach such a direction if it fails to file a statement or an affidavit from a witness where that witness claims privilege: ACCC v J McPhee & Son (Australia) Pty Ltd (1997) 77 FCR 217 at 220 and ACCC v Eurong Beach Resort Ltd [2005] FCA 1134 at [10], [12] and [13]. That is to say, compliance is not required if the only source of the information is the director defendants and they are entitled to remain silent (Emphasis added): ASIC v Mining Projects Group Ltd [2007] FCA 1620 at [5]. If the corporate defendant has other sources of information available from which it can comply with the direction, then it must do so.

ANALYSIS 8 There is no basis, whether as alleged or at all, to support the submission that the proceedings against MPG were instituted, or are being continued, by ASIC in circumstances where ASIC does not genuinely want the relief sought in the application but pursues the claim against MPG solely for the purpose of obtaining a procedural advantage over the director defendants. The claims made against MPG are pleaded. As counsel for ASIC submitted, it is possible that the Court might uphold those independent claims and dismiss some or all of the claims against Frost and Revelins for no other reason that there are defences available to Frost and Revelins which are not available to MPG. 9 Further, the Defendants' so called "integrity" proposition (see [3] above) on its face fails to take account of propositions [7(1) to (5)] above. The Defendants seek to say, in effect, that proceedings should not continue against MPG because of harm to individuals associated with MPG. The 'harm' is described as placing Frost and Revelins in positions of conflict of interest, undermining the protections afforded by rules of evidence and procedure for civil matters when hearing proceedings for a declaration of contravention or a pecuniary penalty order pursuant to s 1317L of the Corporations Act. The only forms of harm alleged to arise are those which are wholly met by propositions [7(1) to (5)] above. Other unspecified forms of harm are said to follow from the fact that Frost and Revelins were the relevant actors in the events giving rise to these proceedings. Although it is accurate to describe Frost and Revelins as 'relevant actors' in the events giving rise to these proceedings, there are a number of answers to that contention. First, as I have said, propositions [7(1) to (5)] are a complete answer. Secondly, the statement is factually incomplete. Mr Babbage who is not a party to the proceeding but a director of MPG with extensive accounting and commercial experience, gave evidence that he had some involvement in the announcement by MPG on 15 August 2005. During the course of his evidence, he referred not only to discussions he held but also the receipt of documents relevant to the announcement. Thirdly, there is a practical answer. As ASIC submitted, there is nothing before the Court to suggest that MPG will not have the benefit of the instructions of Frost and Revelins for the purpose of running its case. Put simply, maintaining a claim for privilege does not prevent Frost and Revelins providing instructions which would, on their face, attract litigation privilege. To the extent that MPG submits that it is unable to provide particular evidence because the director defendants are the only source, then if that should occur, it can be dealt with on an individual basis consistent with the propositions discussed in par [7(1) to (5)] above. 10 The only cognisable harm to MPG identified is the possibility of increased cost. However, increased costs, if they should arise, do not in the circumstances of this case, provide any reason for a grant of a stay. Especially is that so when the same lawyers act for the three defendants. 11 ASIC identified a number of practical difficulties if a stay of the claim against MPG was granted. It is neither necessary nor appropriate to consider each of those difficulties separately. It is sufficient for present purposes to record that even if I were otherwise minded to grant a stay (which I am not), the practical difficulties identified by ASIC would suggest that such an order should not be made. Not only would some of the claims made against Frost and Revelins be required to be stayed but it would inevitably lead to fragmentation of the proceedings with the possibility of inconsistent findings of fact on the same issues in the same proceedings. 12 Finally, the alternate basis on which a stay of the proceedings was sought has no better prospects. The submission is that the claims against MPG be stayed until the Court has made findings of fact in relation to the claims against Frost and Revelins but before final orders are made. Counsel for the Defendants submitted that MPG could then be "rejoined" as a party to the proceeding and submit to the final orders of the Court and any appeal would involve the three defendants. This alternate basis was said, in part, to address the problem of fragmentation of issues. I reject the defendants' contentions on the same grounds that I rejected the principal application for stay. The only distinguishing factor is the length of the stay. In the circumstances of this case, this is a distinction without a difference. The Defendants have provided no factual or legal basis which would entitle MPG to be relieved of its obligations which are summarised in par [7(1) to (5)] above, whether in the longer or the shorter term. 13 For those reasons, the application is dismissed and the defendants will pay the Plaintiff's costs of and incidental to the application. I will hear the parties on the question of appropriate directions for the future conduct of this proceeding. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 25 January 2008 Counsel for the Plaintiff: Mr J D Elliott SC with Mr D W Bennett

Solicitor for the Plaintiff Australian Securities and Investment Commission

Counsel for the Defendant: Mr R Richter QC with Mr H Carmichael

Solicitor for the Defendant: Oakley Thompson & Co.

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