CC Containers Pty Ltd & Ors v Lee & Ors

2 Messrs Chong and Neale have filed defences which are not responsive to the allegations against them that might also form the basis of criminal charges or a civil penalty claim. They say that they are not required to plead to those allegations because they are entitled to claim privilege against self incrimination and penalty privilege (which they assert in their defences).

3 The plaintiffs have applied to strike out those defences.

4 The issue is whether the defences should be allowed to stand in circumstances where Messrs Chong and Neale have not put on evidence to establish that there is a real and appreciable risk of prosecution or whether it is sufficient to assert the privilege given the nature of the claims made against them in the statement of claim.

5 The claims arise out of the operation of a shipping container repair and storage business and its purchase by the first plaintiff, CC Containers Pty Ltd ("CCC"). The business was purchased from a company that is referred to by the parties as CCC Old Co. That company is in liquidation. The third plaintiff, Mediterranean Shipping Company SA ("MSC") was engaged in the carriage of goods by sea, and the second plaintiff, Mediterranean Shipping Company (Aust) Pty Ltd ("MSCA"), arranged for its shipping containers to be repaired by CCC Old Co before February 2008. MSC is the ultimate holding company of both CCC and MSCA.

6 As I have already noted, a number of serious allegations of fraud are made against the defendants. One example is what is referred to as the "repair fraud". Part of the plaintiffs' claim is for the tort of conspiracy by unlawful means. In broad terms, it is alleged that false repair invoices (which either inflated the value of the repairs or duplicated legitimate invoices) were issued to MSC and MSCA and paid by them. The plaintiffs allege that the unlawfulness of the inflated invoices arises by reason of at least ss 82, 83 and 83A of the Crimes Act 1958 (Vic). The plaintiffs then allege that the moneys paid by MSC and MSCA were shared by CCC Old Co and two of the defendants, one being Mr Neale, who was a director of MSCA at the relevant times, and the other being Kain Chong.

Privilege against self incrimination and penalty privilege

7 A person may invoke the privilege against self incrimination if there is a real and appreciable risk that by answering questions or producing documents they will face criminal prosecution.[1] Penalty privilege will apply in a civil proceeding if the person claiming the privilege establishes that answering questions or producing documents will tend to subject them to a penalty in separate proceedings.[2] The importance of the privileges is unquestionable. Privilege against self incrimination has been described by the High Court as a "fundamental ... bulwark of liberty."[3]

8 In Australian Securities and Investments Commission v Mining Projects Group Ltd & Ors[4] Finkelstein J held that both privileges relieve a defendant from filing a defence that complies with the relevant pleading rules. His Honour noted that this gives rise to a potential problem if the defendant wishes to run a positive case at trial. His Honour observed:

[I]f a defendant who wishes to run a positive case is required to plead his case that can be accommodated while maintaining the privilege. What should occur is that the defendant should be entitled to rely on the privilege until the plaintiff's case is concluded. If at that point the defendant decides to run a positive case he can deliver an amended defence that will outline his case. In an exceptional case the judge may grant a short adjournment to allow the plaintiff time to prepare, if he is otherwise taken by surprise. In most cases that will not be necessary. By the time the plaintiff has closed his case the nature of the defence will usually be apparent. That is the experience of those who prosecute criminal cases. The advocate who runs a civil penalty proceeding should be equally adept at dealing with the defendant and his witnesses without knowing in advance every word they are about to say.[5]

9 In Bridal Fashions Pty Ltd v Comptroller-General of Customs,[6] the Full Court of the Western Australian Supreme Court considered whether a defendant was required to plead to a claim against him for a civil penalty under the Customs Act 1901 (Cth). Under that Act, the pleading of facts in the statement of claim is prima facie evidence of those facts.[7] Consequently, the practical effect is that to succeed, a defendant has to plead and run a positive case. The Full Court stated:

Should the defendant set up an affirmative case [in its defence] it would not incriminate itself. In the circumstances, the privilege has no practical application in the pleading of a defence to the statement of claim in a Customs prosecution. Accordingly, the privilege against self-exposure to a penalty or self-incrimination does not preclude [the defendant] from pleading in the ordinary way to the allegations in the statement of claim.[8]

10 In the Mining Projects case, Finkelstein J considered Bridal Fashions and observed:

Properly understood, the point made by the Full Court is a narrow one. In a Customs Act case neither penalty privilege nor self-incrimination privilege is of any use to a defendant because, if either privilege is claimed and no positive case is run, the defendant will suffer an adverse judgment. For that reason, a positive plea could not be incriminating; it could only be exculpatory.

What the Full Court said will apply only where the plaintiff's case can be proven by averment. The Full Court's analysis was not intended to, and in any event does not, apply across the board. The reason is that both penalty privilege and self-incrimination privilege protect not only against the risk of exposure to penalty or incrimination by direct evidence but also by indirect or derivative evidence. Disclosing a positive case at the pleadings stage will often provide the plaintiff with an opportunity to follow leads and open up fresh fields of inquiry. A defendant cannot be required to provide information that may be the basis of an investigation that may lead to the discovery of real evidence. If a defendant is required to plead a positive case there is a risk of that happening.

In any event even if, contrary to my view, Bridal Fashions stands for the proposition that a positive defence can never incriminate a defendant or expose him to a penalty, it says nothing about when the defence must be delivered. On my alternative approach a defendant can rely on the privilege up to the point he decides to go into evidence. It is only at that moment, if the defendant elects to run a positive case, that he must give up the privilege and file a defence that outlines the case he intends to run.[9]

[citations omitted]

Should Messrs Chong and Neale be required to plead to the statement of claim?

11 The plaintiffs submitted that merely stating in the defence that the defendant "claims and reserves" penalty or self incrimination privilege does not give them or the Court an opportunity to assess whether a claim for privilege can be justified or is otherwise reasonable. The nub of their contentions was that Messrs Chong and Neale have not put on evidence to support their claim of privilege and, in those circumstances, they ought not to be excused from providing a fully responsive defence in accordance with the pleading rules.

12 The plaintiffs sought to distinguish the Mining Projects case on the basis that it arose in the context of litigation brought by a regulator or law enforcement agency. They noted that this is not a case where a penalty is sought to be imposed. The plaintiffs submitted that, in the absence of evidence that any other proceedings for the imposition of a penalty exist, or that the conduct of Messrs Chong and Neale is even being considered or investigated by enforcement agencies, they ought not be relieved from their ordinary pleading obligations.

13 The plaintiffs relied on authorities where contemporaneous criminal and civil proceedings were on foot and a stay was sought in respect of the civil proceeding. In particular, they relied on the following passage from Philippine Airlines v Goldair (Aust) Pty Ltd:[10]

There is, I say again, in my judgment, no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for conduct of civil actions merely because so to do would, or might, result in the defendant, if he wished to defend the action, having to disclose, by an affidavit under Order 14, or in the pleading of his defence, or by way of discovery or otherwise, what his defence is or may be, in whole or in part, with the result that he might be giving an indication of what his defence was likely to be in the contemporaneous criminal proceedings. The protection which is at present given to one facing a criminal charge - the so-called 'right of silence' - does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings.[11]

14 Robson J in Re AWB Ltd (No. 1)[12] had to consider whether a civil proceeding should be stayed when criminal proceedings were a possibility. His Honour summarised the relevant principles which included the following:

(a) prima facie, a plaintiff is entitled to have an action tried in the ordinary course of the procedure and business of the Court;

(b) it is a grave matter to interfere with this entitlement;

(c) the burden is on the defendant to show that it is just and convenient to interfere with the plaintiff's rights; and

(d) the Court should consider whether there is a real and not merely a notional danger of injustice in any criminal proceedings.[13]

15 His Honour considered whether a criminal prosecution could be said to be "on the cards" and interpreted that phrase as meaning a "reasonable possibility". On the facts before him, his Honour concluded that an extant criminal investigation by the Australian Securities and Investments Commission, together with recommendations flowing from a Royal Commission were sufficient to make criminal proceedings a reasonable possibility such that he granted a stay of the proceedings against some defendants and not others.

16 The plaintiffs accepted that if proved, the matters alleged against Messrs Chong and Neale may constitute criminal offences. However, they submitted that Messrs Chong and Neale cannot point to an extant criminal investigation nor even to civil penalty proceedings. The plaintiffs contended that all that Messrs Chong and Neale are able to do is to point to a series of possible future events and, in their submission, that does not constitute a real or appreciable risk.

17 It seems to me that the cases dealing with the stay of civil proceedings have a different focus to cases in which a defendant claims privilege against self incrimination or penalty privilege. In the case of a stay, the plaintiff is deprived of the opportunity of prosecuting its claim with due expedition. Where privilege is claimed however, the civil proceeding continues and the question becomes on what basis should it continue. That is, in circumstances where there is a real or appreciable risk of criminal proceedings or proceedings for the imposition of a penalty, how is the civil proceeding to be conducted to ensure that the trial is fair to all parties? This requires some balancing of the interests of each party.

18 Where, as in this case, the allegations are of a very serious nature and magnitude, the pleading alone is sufficient to establish that there is a real and appreciable risk of criminal prosecution should the matters alleged be proven. Similarly, in this case, the proof of those allegations would tend to subject Messrs Chong and Neale to a penalty in a separate proceeding. These are not trifling matters nor matters which are tangential to the claim. At the heart of this claim are allegations of regular and systemic fraud with the amount claimed being in the many millions of dollars. If the allegations are established, then in my opinion it is likely that a prosecuting agency would examine the case very closely with an eye to criminal prosecution or imposition of a penalty. In those circumstances, the privileges may be claimed.

19 The issue then becomes what should be done with the defence. One possibility is the course Finkelstein J proposed in the Mining Projects case. Counsel for Mr Neale submitted that if that course was followed and at the end of the plaintiffs' case the defendants wished to apply for and were granted leave to amend their defence to plead a positive case, then additional evidence would be led. He contended that this course does not deprive the plaintiffs of an opportunity to run the case they want to run and, in that sense, they are not hampered at all in the conduct of their case. Counsel submitted that the plaintiffs would be given the full opportunity at that point to respond to the new material.

20 It seems to me that in view of the application of the privileges, the defendants ought not to be forced to elect now whether they wish to plead a positive case. The decision as to whether they should be permitted to do so after the plaintiff has presented its case would be a matter for the trial judge. It would not be appropriate to pre-empt or mandate whether leave should be granted at this stage of the proceeding. That decision would be made by the trial judge in the exercise of the discretion at the relevant time taking into account all relevant matters, including what was to occur should leave to amend the defences be granted. In this regard, counsel for Mr Neale accepted that leave to run a positive defence may not be given.

21 The application to strike out the defences of Messrs Chong and Neale should be refused as they are entitled to claim privilege against self incrimination and penalty privilege and ought not now be required to file a responsive pleading. If at some later stage, Messrs Chong and Neale wish to amend their defences to plead a positive case, the grant of leave to do so would be a matter for the judge hearing that application.

[1] Sorby & Anor v The Commonwealth of Australia & Ors [1983] HCA 10; (1983) 152 CLR 281 at 294.

[2] Australian Securities and Investments Commission v Mining Projects Group Ltd & Ors [2007] FCA 1620; (2007) 164 FCR 32, 37 at [10].

[3] Pyneboard Pty Ltd v Trad Practices Commission [1983] HCA 9; (1983) 152 CLR 328 at 340.

[4] (2007) FCR 32.

[6] (1996) 17 WAR 499.

[7] Customs Act 1901 (Cth) s 255.

[8] (1996) 17 WAR 499 at 517.

[9] Australian Securities and Investments Commission v Mining Projects Group Ltd & Ors [2007] FCA 1620; (2007) 164 FCR 32, 38 - 39 at [14] - [17].

[10] [1990] VicRp 34; [1990] VR 385.

[12] [2008] VSC 473; (2008) 21 VR 252.