Solicitors:
Henry Davis York (applicants)
FRA Legal (respondents)
File Number(s): 2015/286048
[2]
Judgment (ex tempore)
The liquidators of Kimberley Diamond Company Pty Limited ("KDC") have issued examination summonses to the first applicant Alexandre Alexander and the second applicant Rodney Sainty, who were directors of the company, which examinations are listed to take place before a Registrar of the court next week - Mr Alexander's on Monday 8 February and Mr Sainty's on Wednesday 10 February. By interlocutory process filed by leave of the court yesterday 4 February 2016, and returnable this morning, the applicants have applied for orders staying or adjourning Mr Alexander's examination pending the determination of related criminal proceedings that have been brought against him; alternatively, that that examination be held in private; and also that Mr Sainty's examination be held in private.
As I have said, Mr Alexander and Mr Sainty were directors of KDC. Mr Alexander was also a director and executive chairman of a related company Kimberley Diamonds Limited ("KDL") from 5 May 2011 to 22 May 2014, and its non-executive chairman after 22 May 2014. KDC went into voluntary administration pursuant to (CTH) Corporations Act 2001, s 436A, on 1 July 2015. On 5 August 2015, at the s 439A meeting, the creditors resolved that the company should be wound up, and the voluntary administrators became the liquidators. They are the respondents to the present application.
On 9 November, the liquidators issued an examination summons addressed to Mr Alexander, which was subsequently revised (in a presently irrelevant respect) and reissued on 18 December 2015. On 27 January 2016, the liquidators issued an examination summons addressed to Mr Sainty. As I have said, the examinations are due to take place next week.
Meanwhile, on 15 September 2015 or thereabouts, Mr Alexander was arrested and charged with four offences under the (CTH) Corporations Act 2001, s 1309 - that he did, as an officer of KDL, give information, or authorise or permit the giving of information, to the ASX relating to the affairs of KDL that was to his knowledge false or misleading in a material particular. In the statement of facts prepared by ASIC in connection with those proceedings, ASIC asserts that the prosecution case is strong, that the alleged offence is very serious, and that if convicted it is highly likely that Mr Alexander would face a full-time custodial sentence.
The present application is made essentially on the footing that Mr Alexander's defence of the criminal proceedings may be prejudiced by the questions he may be required to answer in the course of the examination, bearing in mind, of course, that he is not entitled to decline to answer questions on grounds of self-incrimination, although if he does claim privilege in that respect his answers may not be tendered in evidence against him in the criminal proceedings. At this stage no criminal proceedings have been brought against Mr Sainty, but his application is put on the basis that because he was a director of the company, there is a risk or apprehension that such proceedings may be brought and thus, at least for the time being, the risk that he might be required to incriminate himself in an examination should be guarded against by having the examination conducted in private.
Mr Stack - who appears for the liquidators - has informed the court that the focus of the proposed examinations is a transaction that took place on or after 1 July 2014, whereas Mr Alexander's criminal charges refer to conduct that took place on 31 October, 2 December 2013, 17 March and 25 March 2014 involving the supply of information to the ASX on those dates. Mr Stack - for reasons that are understandable - declined to give an undertaking of the kind that was proffered in Corporate Affairs Commission v Lombard Nash International Pty Limited (No 4) (1987) 12 ACLR 475 to avoid examining in areas that are the subject of criminal charges; but nonetheless indicated that he anticipated that there would be minimal if any overlap with the territory of the criminal charges, and that to the extent that there was any, it would likely be limited to background matters concerning the general financial position of the company. In particular, he did not intend to ask questions directed to the alleged supply of the alleged misleading information.
On that basis, although one cannot be certain, it seems likely that the extent of any overlap between the examinations and the subject matter of the criminal charges will be slight and relatively remote. At the highest, it might amount to what was described by Toohey J in Hamilton v Oades (1989) 166 CLR 486 at 516 as "merely tending to incriminate the person being examined as distinct from seeking to elicit a direct confession of guilt."
The court's powers under (CTH) Corporations Act 2001, s 596F, to give inter alia a direction about the matters to be inquired into at an examination or about the procedure to be followed or about who may be present whilst it is being held in private are expressed to be subject to (CTH) Corporations Act 2001, s 597. Under s 597(4), the examination is to be held in public except to such extent, if any, as the court considers that, by reason of special circumstances, it is desirable to hold the examination in private. The notion of special circumstances has been examined by judges in many contexts - including in the present context by Young J in Lombard Nash, to which I have referred, where his Honour suggested that it meant something abnormal about a particular case. However, later authorities - although not necessarily in the same field - make clear that the notion of special circumstances is one used by the legislature when it is intended to give a judge or court a wide ranging general discretion, not constrained by reference to a particular list of factors, where it may be desirable because of features special or particular to the case to depart from a general practice. Circumstances do not have to be unique to be special.
The potential for a liquidator's examination to impinge on the fairness of a criminal prosecution has been considered in a number of cases including Lombard Nash, Hamilton v Oades and Friedrich v Herald and Weekly Times Limited (1989) 1 ACSR 277. More recently, they were considered by Ward J, as her Honour then was, in Re Clarecastle Pty Limited [2011] NSWSC 490. In that case, her Honour referred - as the minority did in Hamilton v Oades - to the circumstance that a public examination on oath or affirmation of a person charged with an indictable offence on matters which the charges concerned would ordinarily be viewed as serious and unfairly burdensome, prejudicial or damaging if, for good reason, it would ordinarily be viewed as involving a real risk of affecting the integrity of the charge (and defence to it). This is because, although answers given under cover of a claim of privilege cannot be tendered as evidence in the criminal prosecution, nothing prevents their derivative use. In addition, answers given might, without more, assist the prosecution by disclosing lines of defence. In Hamilton v Oades, Deane and Gaudron JJ - as the minority - also said:
The pendency of the charge will ordinarily constitute a special circumstance warranting the conduct of the examination in private and a direction to that effect may be an appropriate resolution of the tension in some cases. But if it is not, the powers conferred and confirmed by s 541(5) [I interpose the predecessor of current s 596F] are apt to encompass other means, including the giving of directions limiting the matters to be examined.
But, as it seems to me, it was that view which distinguished the position of the minority and the majority in Hamilton v Oades. Mason CJ said (at 497):
In the light of the statutory provisions and the public purposes which I have outlined, it will be going too far altogether to view the existence of the discretion as requiring ordinarily the giving of the directions which will protect the witness from the consequences of abrogation of the privilege insofar as they include the derivative use of the answers of the witness. To give such directions as a matter of course would be to frustrate the statutory purpose.
His Honour cited with approval (at 498) what Pincus J had said in Re Gordon (1988) 18 FCR 366 at 372 in respect of then s 541:
It must have been obvious to the draftsman in s 541 that attempts by a liquidator to recover a failed company's property and criminal proceedings against the alleged malefactors in relation to the affairs of the company may be lengthy and concurrent. There would have been no difficulty, had that been the legislature's true intention, in adding a qualification that the express requirement to answer questions, though they might tend to incriminate, should not apply where charges had actually been laid, as opposed to being merely expected. The statute considered by the Court of Appeal contains no such qualification; nor does the provision with which I am concerned.
The reference to the Court of Appeal was to the judgment of the Court of Appeal in Oades v Hamilton (1987) 11 NSWLR 138 - which was overturned by majority in the High Court - where an order was made to the effect that the examinee was not to be compelled to answer any questions the answers to which may tend to incriminate him in respect of the pending charges, and which would either concern facts constituting the ingredients of the offences or tend to disclose his defence to the charges. Mason CJ was of the view that an order, the effect of which was to reinstate the privilege against self-incrimination, was inconsistent with and unauthorised by s 541. [1] Toohey J observed that "one of the bases on which an order for examination may be obtained is that it appears that the person to be examined has been guilty of misconduct in relation to the company", and that subject to the ability to give directions concerning certain questions, "the person may be questioned on any matter relating to the affairs of the company" and, in particular, that the power under s 541 "does not permit the court to direct that a question need not be answered if the only objection to the question is that the answer may tend to incriminate the person under examination," even if the direction is qualified in the way in which it was by the order of the Court of Appeal.
Mason CJ identified two important public purposes served by examinations, one being to enable the liquidator to gather information which will assist in the winding up involving protecting the interests of creditors, and, the other, to enable evidence and information to be obtained to support the bringing of criminal charges in connection with the company's affairs. [2] Those purposes had been identified in Mortimer v Brown (1970) 122 CLR 493 at 496 and 499. Nowadays, bringing civil enforcement proceedings in connection with the company's affairs would be added to those purposes. Elsewhere, the purposes of an examination have been suggested to include the ascertainment of information about the location and possible recovery of assets of the company, the deterrent factor, and informing the public about the affairs of the failed company. [3] The deterrent factor was also referred to by the Full Court of the Supreme Court of Victoria in Friedrich (at 287). Mason CJ observed that the cases in which a court had stayed an examination on the grounds of a pending criminal prosecution when charges have not been laid were rare, [4] and then, with reference to the passage to which I have already referred from Re Gordon, that there was no reason to distinguish the situation where charges had been laid from the situation in which they had not.
It seems to me to follow from Hamilton v Oades that the mere circumstance that criminal charges against the examinee are pending, and that the examination could conceivably include questions, the answers to which might tend to incriminate the examinee in respect of those charges, does not afford a basis for directing that those matters not be enquired into in the examination. Indeed, Hamilton v Oades directly, by its decision, supports that position.
That said, Hamilton v Oades acknowledges that there is discretion to give directions, under what is now s 596F, and adverted to some of the circumstances in which particular directions might be justified. Mason CJ acknowledged that if a liquidator were to conduct an examination directed to compel the examinee to disclose defences or give pre-trial discovery or establish guilt, then that might be restrained as an abuse of process. [5] His Honour also acknowledged that an examination may need to be held in private - again with reference to Huston v Costigan - and that it may be that the court in conducting the examination may feel it necessary not to permit a particular question to be asked which would prejudice the examinee's fair trial but that that should not be predicted by a court in advance. Dawson J acknowledged that the fact that an answer might tend to incriminate, notwithstanding exclusion of the privilege, was a matter to be taken into account in determining what questions may be asked, provided that it is borne in mind that the court's performance of its duty to enquire into misconduct prevailed over the privilege against self-incrimination. [6] His Honour said that where a question had only a remote or doubtful bearing upon the matters which the section requires to be investigated, and the harm which may be done to an individual by requiring an answer to be given outweighs any benefit to be obtained, it may be proper to disallow it. [7] And more specifically, Toohey J observed that answers to questions which would tend to disclose the defences to the criminal charges were questions which might well fall within the area of discretionary disallowance. [8] His Honour also suggested that a question designed to elicit a direct admission of guilt would fall into that category, but that it was not enough that the question may merely tend to incriminate. [9]
If it is not appropriate to direct that the examination not enquire into the matters the subject of the criminal charge, then it must follow that it is not appropriate to adjourn the examination on account of the pendency of a criminal charge. At the forefront of the applicant's case was an argument that there was no prejudice in deferring the examination, but the mere absence of prejudice which is potentially relevant to discretion is insufficient of itself to provide a ground for doing so. That is not to say that if an examination were to be conducted on the eve of a criminal trial different considerations might not obtain, but that is not the situation here. Thus if, in the course of the examination, specific questions are asked that, for example, were to seek to elicit a direct confession of guilt, or of a particular essential ingredient of one of the charges, or the disclosure of a defence, then it remains open to the examining Registrar - and if she or he does not do so, on referral to this court, a Judge - to direct that that particular question be disallowed. I do not intend by this decision to preclude that course whatsoever.
I turn then to the question of whether the examination should be conducted in private, a course which Hamilton v Oades acknowledges was open in appropriate circumstances.
In respect of Mr Alexander, the liquidators do not oppose an order that his examination be conducted in private. Nonetheless, because the prima facie position under s 597 is that the examination is to be held in public unless the Court is satisfied, by reason of special circumstances, that it is desirable to hold it in private, I cannot merely give effect to the absence of opposition, but must consider whether there are such special circumstances as are contemplated by s 597. A number of cases would suggest that there are not. In Lombard Nash, Young J was of the view that the mere pendency of a criminal prosecution did not amount to special circumstances, and found such circumstances only because the question was then the subject of the Court of Appeal's reserved judgment in Hamilton v Oades. However, the concept of special circumstances adopted by His Honour was perhaps a little narrower than later cases would suggest. In Friedrich v Herald & Weekly Times, the Victorian Full Court expressed the view that under the present legislation an examination in public - in contrast to one in private - was the norm and that where an examination took place in public, an order for non-publication in the press should not be made, save in the most exceptional circumstances; but "most exceptional circumstances" is significantly stronger terminology than the "special circumstances" referred to in s 597.
It seems to me that the pendency of a criminal prosecution, the defence to which might be prejudiced by what transpires in the examination, is something peculiar to an individual examination which is capable, at least in an appropriate case, of amounting to "special circumstances" for the purposes of s 597(4). The fact that a criminal prosecution is pending distinguishes this case from the ordinary run of cases and in that way makes it "special", chiefly on account of the potential prejudice to the defence of those proceedings through derivative use and exposure of lines of defence. In my view the discretion under s 597(4) is enlivened.
Moreover, although the conduct of the examination in public serves the deterrent purpose to which I have adverted, in circumstances where criminal proceedings are already on foot, the necessity for that public deterrent element is, I think, significantly mitigated, because there is already going to be a public deterrent through the prosecution of the criminal proceedings, which will, of course, be conducted in public. And further, after they have come to an end - whether by conviction, acquittal or no bill, or if there is no committal for trial - the transcript of the examination can in any event then be released and made public. The liquidator will still be able to obtain all of the information the liquidator requires through the conduct of a private examination.
To minimise the risk of derivative use of material obtained in the examination, notwithstanding that the answers cannot be directly tendered in the criminal proceedings, and as Deane and Gaudron JJ suggested in Hamilton v Oades, this is a case in which the appropriate balance is struck by having the examination of Mr Alexander conducted in private.
So far as Mr Sainty is concerned, however, there is simply no evidence to establish special circumstances. The fact that he is a director of a company, about which there has been an investigation, is not special in any way.
For those reasons, I will dismiss the application for an adjournment or stay of Mr Alexander's examination but order it be held in private, and I will dismiss the application for an order that Mr Sainty's examination be held in private.
[3]
Costs
The outcome of the application has been that the applicants have obtained no more than they were offered prior to the institution of proceedings in correspondence which also referred to the relevant authorities and arguments. Indeed, although I have been satisfied that it is appropriate in all of the circumstances to make an order for a private hearing, but for the respondents' agreement, much more might have been required. To the extent that this application has occasioned costs to the administration, those costs should not be visited ultimately on the creditors.
[4]
Orders
The Court orders that:
1. Pursuant to (CTH) Corporations Act 2001, s 597(4), the examination of Alexandre Alexander be held in private.
2. Until further order, the conduct of the examination and the transcript thereof be kept confidential and not disclosed to any person other than the liquidators, their legal representatives and consultants (having acknowledged in writing that they are bound by the restrictions in these orders) or published, without notice to Mr Alexander and without the leave of the Court.
3. Until further order, no access be given to any person other than the liquidators, their legal representatives and consultants (having acknowledged in writing that they are bound by the restrictions in these orders), to the transcript of the examination, without notice to Mr Alexander and without the leave of the Court.
4. The interlocutory process filed 4 February 2016 be otherwise dismissed.
5. The applicants pay the respondents' costs of the interlocutory process.
[5]
Endnotes
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 499.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 496.
Corporate Affairs Commission v Lombard Nash International Pty Limited (No 4) (1987) 12 ACLR 475 at 478.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 497.
Hamilton v Oades at 498; with reference to Hugh J Roberts (1970) 91 WN 541; Huston v Costigan (1982) 45 ALR 559 at 563; and Re Gordon supra.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 510.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 510.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 517.
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 515.
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Decision last updated: 20 April 2018