Elliot v Australian Prudential Regulation Authority

REASONS FOR JUDGMENT 1 By this application, the applicants seek to restrain the continuance of an administrative process, on the ground that its continuance will force them to disclose matters they are not otherwise obliged to disclose, because of the possibility that they will be charged with criminal offences. 2 In form, the orders sought today are interlocutory orders. In reality, if the applicants are entitled to the orders they seek, they will in effect have final relief in the proceeding. For that reason, it seems to me that I ought to apply a somewhat stricter test than simply the question of whether there exists a substantial question to be tried, and the question as to where the balance of convenience lies.

3 The administrative process concerned is to be conducted, or is being conducted, by the respondent, the Australian Prudential Regulation Authority, pursuant to its statutory functions under the Superannuation Industry (Supervision) Act 1993 (Cth) ('the SIS Act'). 3 4 Under s 120A(1) of the SIS Act, the respondent, in its capacity as regulator, is empowered to disqualify a person if satisfied that the person has contravened the SIS Act on one or more occasions, and the nature or seriousness of the contravention or contraventions, or the number of contraventions, provides grounds for disqualifying the person. The effect of such a disqualification for present purposes is dealt with by s 121. If disqualified, a person would commit an offence by intentionally being or acting as a trustee of a superannuation entity, by being or acting as a responsible officer of a body corporate that is a trustee of a superannuation entity, or by failing to inform the regulator in writing that the person is a disqualified person. 5 In addition, in relation to the first applicant, the respondent proposes to invoke its powers under s 131 of the SIS Act, under which it may disqualify a person from being an approved auditor for the purposes of the SIS Act, and its power under s 131A of the SIS Act, under which the respondent may refer a person who is an approved auditor to the auditor's professional association, for the purposes of disciplinary or other action against the person. 5 6 The circumstances of the case arise from the administration of a superannuation fund called the Wall and Ceiling Superannuation Fund. A firm of accountants, MV Anderson & Co, is alleged to have been involved in the administration of that fund. The first and second applicants are partners in that firm. The third applicant is an employee of that firm. 7 There has been an investigation of the affairs of the fund, conducted by an officer of the Australian Federal Police, seconded to the respondent for the purpose. In the course of that investigation, the first and second applicants, by their solicitor, declined to be interviewed by the Australian Federal Police. They thereby exercised their right to remain silent. The investigator has referred to the Director of Public Prosecutions of the Commonwealth a brief and, I am told, more recently a supplementary brief. The Director of Public Prosecutions is considering whether to lay charges in respect of criminal offences against each of the applicants. 8 The date by which the decision of the Director of Public Prosecutions will be made is not known. In the course of argument this morning, I raised the question whether any inquiry had been made to ascertain when a decision was likely to be made, because it seemed that any information that might be obtained in response to such an inquiry might be of relevance to the outcome of the proceeding. Eventually, I managed to prompt inquiries to be made by those instructing counsel for the applicants, with the result that the position remains indeterminate. 8 9 By means of letters dated 31 October 2003, the respondent has invited each of the applicants to show cause why the respective statutory powers should not be exercised against him or her. The letters are in similar, although not identical, form. The substantial differences seem to be the result of the different course taken in respect of the first applicant in the invocation of wider statutory powers than is the case with the other two applicants. In each case, however, there is a reference in the letter to a possible contravention of s 85 of the SIS Act, and possible contraventions of s 307 of the SIS Act. Section 85(1) provides: 'A person must not enter into, commence to carry out, or carry out, a scheme if the person entered into, commenced to carry out, or carried out the scheme or any part of the scheme with the intention that: (a) the scheme would result, or be likely to result, in an artificial reduction in the market value ratio of the fund's in‑house assets; and (b) that artificial reduction would avoid the application of any provision of this Part to the fund.' 10 The existence of such a scheme, and the involvement of each of the applicants in it, is apparently alleged by the respondent. Section 307 of the SIS Act contains a number of provisions relating to false or falsified accounts or other documents. Each of these provisions gives rise to an offence punishable on conviction by imprisonment for a term not exceeding two years. 10 Section 85, in its own terms, is what is described as a civil penalty provision. By s 196 of the SIS Act, the Court may impose a civil penalty in respect of a contravention of that provision. By s 202(1), however if the contravention is done knowingly, intentionally or recklessly, and either dishonestly and intending to gain, whether directly or indirectly, an advantage for the person concerned, or intending to deceive or defraud someone, then the person is guilty of a criminal offence, punishable on conviction by imprisonment for not more than five years. 11 The SIS Act contains provisions designed to resolve possible conflicts between criminal proceedings and civil penalty proceedings. Those provisions are not applicable to the present case, because the conflicting proceeding in the present case is an administrative process under the SIS Act and not a civil penalty proceeding. 11 12 The SIS Act appears to contain no express provision to resolve a possible conflict between, for instance, the process of disqualification contemplated by s 120A, and a criminal proceeding, much less a possible future criminal proceeding. It is therefore necessary to go to the authorities to determine how the Court should resolve a conflict of priorities of the kind inherent in this case; that is, a conflict between the right to silence or the privilege against self-incrimination associated with a criminal investigation or criminal proceeding on the one hand, and a civil proceeding, including an administrative process, concerned with the same subject matter on the other hand. 13 Some years ago, it used to be an almost universal principle that the existence of a parallel criminal proceeding, or indeed the threat of one, entitled a person to a stay of a civil proceeding concerned with the same subject matter, simply on the ground that some prejudice to the person might arise from the conflict between the two proceedings. More recently, however, there has been a development of the law so that there is no longer any automatic entitlement to a stay of the civil proceeding. 14 The current law is generally regarded as being part of a line of authority stemming from McMahon v Gould (1982) 7 ACLR 202. It was summarised by Gyles J in Baker v Commissioner of Federal Police [2000] FCA 1339 (2000) 104 FCR 359 at [27] in the following terms: 'There is a long line of authority which establishes that the granting of a stay of civil proceedings in those circumstances is discretionary in the civil court and that the choice of either fully pursuing a civil claim or a defence to a civil claim or not doing so to avoid the risk of self‑incrimination is not sufficient in itself to warrant a stay.' 15 There are various formulations in the authorities of the circumstances in which the Court will be likely to exercise its discretion to stay a civil proceeding. For instance, in Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1984) 4 FCR 428 at 434, Wilcox J spoke of 'the likelihood of causing injustice in the criminal proceedings'. More recently, in Golden City Car & Truck Centre Pty Ltd v Deputy Commissioner of Taxation [1999] FCA 922 (1999) 42 ATR 379 at [13], Cooper J spoke of the need to establish 'a real prospect of substantial prejudice in the criminal proceedings if the civil action continues'. At [24], his Honour spoke of 'real prejudice or injustice' in the criminal trial. In Hurley v Commissioner of Taxation (1992) 37 FCR 11 at 13, Hill J said that: 'the court must weigh up against the Commissioner's right to have the taxpayer's application heard and decided, the danger that prejudice or injustice may be caused to the taxpayer in the criminal proceedings.' 16 It is therefore plain that more is required than simply the existence of the parallel proceedings, in order to persuade a Court that a civil proceeding should be stayed. That the same principles apply to the conduct of an administrative process is made plain by reference to Baker. In Baker, the conflicting proceedings were pending criminal charges on the one hand, and administrative proceedings, which had been commenced by the Commissioner of Federal Police to determine whether two police officers, who were charged with those offences, should be dismissed from their employment in the Australian Federal Police. In the course of that case, Gyles J examined the McMahon v Gould line of authority. His Honour referred at [32] to Reid v Howard (1995) 184 CLR 1, which contains a powerful statement of the strength and generality of application of the privilege against self-incrimination. In the light of that, at [34] - [35], his Honour expressed the opinion that there is some merit in the submission that there should be some reconsideration of the McMahon v Gould line of authority, so as to decide whether too little weight is given to the practical as well as legal prejudice to the accused, and to the primacy of criminal proceedings in the justice system. His Honour pointed out, however, that such reconsideration would need to be undertaken either by a Full Court or the High Court, and regarded himself as bound to follow the McMahon v Gould line of authority in the context of the question whether he should stay the continuation of an administrative process. I regard myself as similarly bound and do not take counsel for the applicants to have suggested otherwise. 16 17 What counsel for the applicants did suggest was that the McMahon v Gould line of authority has been undermined more recently by a Full Court of this Court in Australian Competition & Consumer Commission v FFE Building Services Ltd [2003] FCAFC 132. There is no doubt that FFE Building Services, like Reid v Howard, contains a strong statement of the importance of the principle of the right to silence or the privilege against self-incrimination to our system of justice. Specifically, the Full Court made it clear that there is no difference in substance between the right to silence or the privilege in relation to criminal proceedings, and in relation to proceedings to recover civil penalties. The Full Court was not concerned, however, with the question of parallel or conflicting proceedings. The case of FFE Building Services was concerned with a single proceeding. It was concerned with a case in which the Australian Competition and Consumer Commission ('the ACCC')had sought, and been denied, an order that would have required individual respondents to a proceeding to have filed witness statements by themselves, and any other witnesses they might contemplate calling, prior to the trial of the proceeding. The Full Court recognised that the requirement to file witness statements at an early stage of the proceeding, even if accompanied by undertakings on the part of the ACCC not to make use of those statements as part of its own case or as part of any submission that any respondent had no case to answer, would effectively undermine the right of the respondents not to assist the ACCC to make its case against them if they chose not to do so. 17 18 The McMahon v Gould line of authorities was not the subject of consideration by the Full Court in that case. The firm statement by the Full Court at [13] that the privilege admits of no judge-made exceptions was not directed to the McMahon v Gould line of authority at all. That line of authority is not constructed by way of any exception to the privilege against self-incrimination or self-exposure to a penalty. Rather, it represents a means which the courts have developed to deal with the possible conflict between actual or pending criminal proceedings and civil proceedings or administrative processes. 18 19 It follows, then, that I am obliged to apply to this case the sorts of tests that have emerged in the McMahon v Gould line of authorities. In the application of those tests, I have been chiefly concerned with the question whether the applicants' material contains enough information to enable me to determine that there could be some real prospect of substantial prejudice to them if they responded to the letters of 31 October 2003. 19 20 There is nothing specific about the nature of the events or the applicants' involvement in them in the applicants' material. The affidavit evidence is of their solicitor. Relevantly, it merely refers to correspondence passing between the applicants' solicitors and the respondent in relation to the letters of 31 October 2003. The existence of prejudice is asserted, but it is asserted on the assumption that the mere conjunction of possible future criminal charges and the administrative process concerned will give rise to the prejudice. It is plain on the authorities that that is not the case. There is no longer an assumption that prejudice will automatically follow because of the existence of conflicting proceedings. The applicants cannot be in a better position because the precise nature of any charges that may be brought against them is not yet known. 20 21 There is a need, in my view, for the applicants to descend to specifics if they wish to establish that there will be injustice or prejudice to them from having to elect whether to respond to the letters of 31 October 2003. It is necessary for each applicant separately to say how he or she might be affected in making any response, so that the Court can see if there is a real risk of prejudice or injustice of a sufficiently substantial nature. 22 In the course of argument this morning, I raised with counsel for the applicants my view that there was a need for material of this kind. I raised it on several occasions. Counsel for the applicants did not respond by stating that the applicants were prepared to put on such material if I thought it was required. The applicants have shown no desire to undertake what I regard as a necessary exercise. This itself suggests that they would have some difficulty in showing real prejudice. 23 It must be remembered that the letters of 31 October 2003 do not require the applicants to do anything. No legal sanction is attached to the failure to respond to them, or to the failure to respond to them in any specific respect. The letters are part of an administrative process in which the respondent has an obligation to afford to the applicants procedural fairness. They are offered an opportunity to say anything that might be either exculpatory of themselves in relation to the events concerned, or might be relevant to the manner in which the respondent exercises its powers. 24 I should expect that, when it comes to deal with these matters, the respondent would have regard to the constraints operating on the applicants by reason of the possibility that they may be charged with criminal offences. I should expect that it would view any responses by them to the letters dated 31 October in that light. 25 In the meantime, I am left with the fact that, as was the case in Baker, there is a public interest in the continuance of the administrative process which the respondent has set in motion. There is a public interest in people whose past record gives rise to real doubt about their integrity continuing to be able to act in various capacities in relation to superannuation funds, just as there was a public interest in the question whether the persons concerned in Baker should continue to be police officers. 25 26 In my view, the applicants have not shown a sufficient case in this proceeding to warrant interfering in the continuance of the respondent's administrative process. 27 The applicants did offer to give to the Court undertakings pending the making of a decision by the Director of Public Prosecutions. Those undertakings would have had the effect of removing the applicants from acting in various capacities in relation to superannuation funds until such time as they became aware of whether they were to face criminal charges, and if so, what those charges were to be. 27 28 I have considered whether, as an alternative to simply dismissing the proceeding, it would be proper for me to accept the undertakings and to await the making of any decision by the Director of Public Prosecutions. I am of the view that I should not take that course. As counsel for the respondent pointed out, if the applicants are not entitled to the relief they seek by way of order, then they do not become entitled to a cessation of the administrative process merely by giving undertakings of this kind. 28 29 In relation to the first applicant, the undertakings offered were substantially less than adequate to cover the situation. The first applicant sought to retain his right to continue to act as an approved auditor for his existing clients and did not deal at all with the possible referral of the first applicant to his professional association if the respondent were to desire to take that course. 29 30 It might have been the case that undertakings of the sort offered by the other two applicants might have been regarded as appropriate if they were only for a very short period. As I have said, there is no indication of when the Director of Public Prosecutions will make a decision, so it cannot be said that there would only be a short term involved. Therefore, in my view, the only option I have is to dismiss the application for interlocutory orders. 31 That leaves me with the question of what orders need to be made in the proceeding generally, and what orders need to be made in respect of costs. 31 32 The orders that I make then are as follows: 1. The application for interlocutory orders be dismissed. 2. The applicants pay the respondent's costs of the application for interlocutory orders, including the costs reserved by the order of Weinberg J made on 7 April 2004. 3. The proceeding be adjourned to a directions hearing on a date to be fixed by the docket judge. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray.