First Plaintiff v Second Plaintiff [2014] VSC 93 | Case summary

Supreme Court of Victoria|2014-03-14|Before: Derham AsJ

PRACTICE AND PROCEDURE - Application that an affidavit and exhibits be taken off the court file - Supreme Court (General Civil Procedure) Rules 2005, r 1.14(2) and r 27.07(b) - Affidavit and exhibits tending to incriminate third defendant or expose him to a civil penalty - Whether affidavit and exhibits filed by plaintiffs which reveal documents that may tend to incriminate a defendant or expose him to a penalty is scandalous.

For the First, Second, Third, Sixth and Seventh Defendants

1 By summons filed 17 July 2013, the third defendant (Nicholls) applies for orders that:

(a) pursuant to Rule 1.14(2) and Rule 27.07(b) of the Supreme Court (General Civil Procedure) Rules 2005 (Rules), the affidavit of Michael Andrew Nurse sworn on 9 May 2013 and the exhibits thereto be taken off the Court file in this proceeding;

(b) pursuant to Rule 29.11(c) of the Rules and section 131A(1) of the Evidence Act 2008, Nicholls be granted leave to rely upon the privilege against exposure to a penalty or self-incrimination in relation to the disclosure and production of the documents contained in the confidential exhibit being exhibit "JBT6 " to the affidavit of Jonathan Bowers-Taylor sworn on 17 July 2013 (the claim), which documents are otherwise subject to the discovery orders originally made on 23 May 2013 and extended on 5 June 2013; and

2 At issue is the ability of Nicholls to resist disclosure (that is the inspection) of discovered documents, and have documents taken off the court file, on the basis of the privileges against self-incrimination and self-exposure to a penalty (the Privileges)

3 The second plaintiff, Pavjo Pty Ltd (Pavjo) became a unit holder in the HRF Unit Trust (the Unit Trust) on or about 27 July 2009, having purchased 40 units for $400,000.00.[1] The Unit Trust was a trading trust, essentially operating a construction business known as HRF Constructions (the Business).

4 The initial trustee of the Unit Trust was HRF Constructions Pty Ltd. On 1 January 2010 HRF Constructions Pty Ltd retired as trustee and the first plaintiff, HRF Nominees Pty Ltd (in liquidation) (HRF Nominees) was appointed in its stead. Nicholls was the sole director of HRF Nominees. HRF Nominees went into liquidation on 22 February 2012.

5 Pavjo is also a creditor of HRF Nominees in the sum of $370,005.57.

6 HRF Nominees owned the Unit Trust's Plant & Equipment referred to in schedule "A" to the Statement of Claim (the Unit Trust Assets).

7 Since the liquidation of HRF Nominees, the plaintiffs have discovered that:

(a) By a purported Asset Sale Agreement dated 16 August 2011 made between HRF Nominees as vendor and Nicholls as trustee of the JSG Trust, Nicholls acquired all of the Unit Trust Assets;[2]

(b) by a purported lease made on or about 8 November 2011 between Nicholls, as trustee of the JSG Trust, and the First Defendant, MAN Civil Constructions Pty Ltd (MAN Civil), Nicholls leased certain Unit Trust Assets to MAN Civil for $19,640.00 per month. MAN Civil was incorporated on or about 8 November 2011 with the second defendant, Justine Sarah Greer (Mr Nicholls' de facto spouse)[3] (Greer), as the sole director, secretary and shareholder;[4] and

(c) On 8 November 2011, Nicholls retired as trustee of the JSG Trust and JSG Nominees was appointed in its stead. Nicholls is the sole director and shareholder of JSG Nominees.

8 The plaintiffs contend that Nicholls is in breach of trust, has breached his fiduciary duty owed to HRF Nominees and has breached his duties as a director of HRF Nominees. Barnes v Addy[5] claims are made against Nicholls, Greer, MAN Civil and JSG Nominees.

9 The underlying contention of the Plaintiffs is that Nicholls has "phoenixed" MAN Civil and JSG Nominees to take over the Unit Trust Assets and operate the business of HRF Nominees, to the detriment of Pavjo and other creditors of HRF Nominees. Further, there is a prima facie case to suggest that the arrangements to transfer the Unit Trust Assets into the new corporate structure were done after the date of the purported Asset Sale Agreement.

10 In support of that contention, the plaintiffs refer to the exhibits to Michael Nurse's affidavit sworn 9 May 2013, in particular exhibits MAN-4, MAN-6, MAN-7, MAN-8, MAN-10, MAN-12 and MAN-14.

11 This proceeding was commenced in the Corporations List on 8 June 2012 seeking interlocutory injunctions restraining the first, second and third defendants from disposing of the Unit Trust Assets and the removal of the then liquidator of HRF Nominees.

12 Initially Pavjo was the sole plaintiff and the defendants were MAN Civil, Ms Greer, Nicholls, HRF Nominees and one Andrew Leonard Dunner, the then liquidator of HRF Nominees. By order of Ferguson J made on 21 June 2012, the plaintiff was given leave to join MAN Constructions Pty Ltd, the present sixth defendant, and JSG Nominees Pty Ltd, the present seventh defendant.

(a) The proceeding to remove Mr Dunner as Liquidator was resolved and in his stead Michael Carrafa, Richard John Cauchi and Terry van der Velde were appointed as joint and several liquidators of HRF Nominees;

(b) the proceeding against Mr Dunner was dismissed without any adjudication on the merits; and

(c) the first, second, third, sixth and seventh defendants undertook not to transfer or dispose of the property the subject of the proceeding until the further hearing of the application for interlocutory relief.

14 On 14 August 2012, Ferguson J ordered, upon the undertaking of the first, second, third, sixth and seventh defendants not to transfer or dispose of the "assets" alleged in Pavjo's Originating Motion until further order, that:

(a) HRF Nominees is reinstated as trustee of the HRF Construction Unit Trust;

(b) There be directions for the filing and service of pleadings and the making of discovery by the parties filing lists of documents.

15 On 4 October 2012, Associate Justice Randall ordered (by consent) that HRF Nominees be joined as a plaintiff and that otherwise the orders made for the filing and service of pleadings and the giving of discovery be varied.

16 The varied orders for the filing and service of defences were not complied with. On 7 December 2012 Randall AsJ made further orders extending the times for the delivery of defences and other pleadings and for discovery. By 25 January 2013 the defendants had still not filed their defences. On that day Randall AsJ extended the time for the delivery of defences again and ordered that failing compliance the defendants be taken to be defendants who, being required to file a defence, have not done so within the time limited.

17 On 1 February 2013 the first, second, third, sixth and seventh defendants filed their defences. There was no claim made in the defences that by responding to any of the allegations pleaded against him, Nicholls would incriminate himself or expose himself to a civil penalty. In the case of Nicholls, he did advance a positive case that on 16 August 2011 the Unit Trust Assets were sold by HRF Nominees (as Trustee for the HRF Construction Unit Trust), by an Asset Sale Agreement, to himself.[6]

18 On 1 March 2013, Efthim AsJ ordered that the parties provide discovery by 21 March 2013. This was not done and on 19 April 2013 Randall AsJ extended the time for discovery by the first, second, third and seventh defendants to 24 April 2013. The matter came before me on 26 April 2013. There were no appearances made that day on behalf of the defendants. I ordered that upon the filing of an affidavit proving the failure of the first, second, third and seventh defendants to file their affidavits of documents pursuant to the order of Randall AsJ made on 19 April 2013, the defences of those defendants be struck out.

19 The affidavits of documents of the first, second, third and seventh defendants were filed that day. They had all been sworn on 24 April. It turned out that they had been faxed to the plaintiffs' solicitor, but due to some technical and administrative problems had not come to the notice of the relevant solicitor, Mr Nurse.[7] Nicholls made no claim to the Privileges in his affidavit of documents, although there was a general claim to client legal privilege.

20 By summons filed on 9 May 2013, the plaintiffs sought discovery of certain specified documents pursuant to Rule 29.08 and for leave to issue subpoenas for production directed to Steve Marks (aka Stephen Mark O'Neal) (Marks) and SME's R Us Pty Ltd (SME's R Us).

(a) the plaintiff have leave to file and serve subpoenas on Marks and SME's R Us; and

(b) adjourned the summons for discovery under Rule 29.08 to 23 May 2013 with leave to the first, second, third and seventh defendants to file affidavits in response to the application.

22 The first, second, third and seventh defendants did not file any affidavits in response to the application.

23 On 23 May 2013, after hearing the solicitor for the first, second, third and seventh defendants, I ordered those defendants to file and serve affidavits pursuant to Rule 29.08 in accordance with the Plaintiffs' summons and adjourned the matter for further directions to 5 June 2013. No matter of the Privileges was raised as a reason not to make the order.

24 On 5 June 2013, Mr Herskope of Counsel appeared for the first, second, third and seventh defendants. He raised the issue that the documents sought in the application under rule 29.08 might give rise to a claim for privilege - the privilege against self-incrimination or self-exposure to a penalty. Directions were given allowing Greer and Nicholls leave to make application claiming the Privileges if so advised.

25 Also on 5 June 2013 the First, Second, Third, Sixth and Seventh Defendants filed an objection to inspection of documents produced under the Subpoenas issued on Marks and SME's R Us. The grounds of objection are that "some or all of the documents (or parts thereof) ..... may be subject to a claim of privilege by one or more of our clients."

26 On 1 August 2013 Nicholls filed a supplementary Affidavit of Documents in which he identified the documents in Exhibit JBT 6 to the affidavit of Mr Bowers-Taylor sworn 17 July 2013, as referred to below, and claims the right not to produce them until his application is determined.

27 The affidavit of Mr Nurse of 9 May 2013, being the affidavit that Nicholls seeks be taken off the Court file, includes the following:

(a) That during the course of this proceeding HRF Nominees had been provided with various emails in the possession of a Mr Stephen Southwood, who was at all relevant times the general manager of HRF Constructions;

(b) That those emails identify, amongst other things, the involvement of Mr Steven Marks (as that person is identified in the relevant emails exchanged) and SME's R US in the transfer of the business conducted by HRF Nominees to MAN Civil;

(c) That a company search of SME's R Us identifies a Mr Stephen Mark O'Neill as the current director of that company and that Mr Nurse believes that it is reasonable to conclude that, where there is a reference in the emails to Steve Marks, that person is likely to be Steven Mark O'Neill; and

(d) produces a number of emails which are the subject of the application by Nicholls.

28 The summons of 17 July 2013 (referred to above) was purportedly filed pursuant to my order made on 5 June 2013, and supported by the affidavit of Mr Jonathan Bowers-Taylor sworn that day. In that affidavit, Mr Bowers-Taylor swears that he is informed by Nicholls and believes that Mr Stephen Southwood was never an employee of HRF Nominees and that -

(a) Mr Southwood's services as general manager of HRF Nominees were provided either by Southwood Financial Services Pty Ltd or by him personally by way of consultancy;

(b) At the time that that consultancy was terminated (which was some time shortly before 11 January 2012) Mr Southwood was required to return to the company all of its property including documents;

(c) Mr Southwood was not authorised or permitted by HRF Nominees to retain any company property at any time after the end of the consultancy; and

(d) At no time did Mr Southwood inform HRF Nominees that he or his company was in possession of property of HRF Nominees.

29 In his affidavit, Mr Bowers-Taylor also swore that:

(a) Since the order made on 5 June 2013, Nicholls had provided him with documents fitting the description of the documents the subject of the discovery order made on 23 May 2013;

(b) He has considered the documents so provided and also the provisions of ss 180-182 and 184 of the Corporations Act 2001 (Cth) and the likelihood that certain of the documents may render Nicholls liable either to a civil penalty or a criminal offence or offences if he is required to disclose those documents or produce them for inspection. He produces as confidential Exhibit JBT-6 a bundle of emails that he says "fit the description" of the documents the subject of the discovery order made on 23 May 2013;

(c) By reason of these matters he is instructed by Nicholls to seek the relief set out in paragraph 2 of the summons of 17 July 2013 (being the relief referred to in paragraph 1 (b) of this judgment above).

30 I have reviewed confidential Exhibit JBT-6. It contains a number of emails that are different prints of the same email messages as are included in the Disputed Documents. However, the Disputed Documents also include some emails that are not in Exhibit JBT-6, and by the same token, Exhibit JBT-6 includes a significant number of emails that are not in the Disputed Documents. These emails fall into the category of documents that might tend to expose Nicholls to a penalty arising from contraventions of ss 180-182 and 184 of the Corporations Act (as to which see s 1317G) (the Discovered Disputed Documents).

31 On 5 August 2013, a supplementary affidavit of documents of HRF Nominees sworn on 2 August 2013 was filed. The deponent is one of the joint and several liquidators, Richard John Cauchi. That affidavit includes in item 11 a bundle of emailed documents provided by Mr Stephen Southwood in December 2012.

32 Also on 2 August 2013, Mr Cauchi swore an affidavit in which he deposed that the documents exhibited to Mr Nurse's affidavit (in exhibits MAN-4 to MAN-14) are documents provided to the liquidators by Mr Southwood and are included in item 11 in the supplementary affidavit of documents.

33 Section 128 of the Evidence Act, which is in Division 2 of Part 3.10, applies if a witness objects to giving particular evidence, or evidence on a particular matter, on the ground that the evidence may tend to prove that the witness has committed an offence against or arising under an Australian law or a law of a foreign country or is liable to a civil penalty. If the Court determines that there are reasonable grounds for the objection, the Court is not to require the witness to give the evidence, and is to inform the witness that the witness need not give the evidence unless required by the Court to do so under subsection (4) and that the Court will give a certificate under the section in certain circumstances which will prevent the evidence being used against the person.

34 Section 131A of the Evidence Act, which is in Division 4 of Part 3.10, applies where a person is required by a disclosure requirement (which is defined to mean process or order of a court that requires the disclosure of information or a document and includes discovery and subpoena) to give information, or to produce a document, which would result in the disclosure of a communication, a document or its contents or other information of a kind referred to in Divisions 1, 1C or 3 of Part 3.10, and the person objects to giving that information or providing that document. Division 1 concerns client legal privilege, Division 1C concerns Journalist privilege and Division 3 concerns evidence excluded in the public interest.

35 Where it applies, s 131A requires the Court to determine the objection by applying the provisions of Part 3.10 (other than s 123 and 128) with any necessary modifications as if the objection were an objection to the giving or adducing of evidence.

36 It is therefore doubly clear that in relation to an order of the Court requiring discovery and inspection of documents, or a subpoena requiring the production of documents for inspection, s 128 has no application. The position is akin to that applying before s 131A was introduced, as determined by the High Court in Esso Australia Resources Ltd v Federal Commissioner of Taxation,[8] so that the common law applies to the question of whether the privilege applies to the Disputed Documents.

37 The common law principles were not in dispute. The privilege against

self-incrimination is a substantive right which is deeply ingrained in the common law. A statute is not to be construed so as to take away that right unless a legislative intention to do so clearly emerges.[9] Although a separate privilege and conceptually different in some respects, the privilege against self-exposure to a civil penalty serves the purpose of ensuring that those who allege conduct in breach of the law should prove it.[10]

38 Although the privilege against exposure to penalties had its origins in the rules of equity relating to discovery,[11] the privilege has long been recognised by the common law and is no longer simply a rule of equity relating to discovery.[12] The privilege operates to prevent the evidence gathering powers of the Court from being used by the plaintiff to prove its case. It applies as well to the production of documents as to interrogatories.[13] In more recent times the privilege was extended to apply also to non-judicial executive inquiries where it is not otherwise removed by statute.[14]

39 It was also not in dispute that the summary of the relevant principles by Robson J in Re APCH (No 2),[15] and adopted by Ferguson J in Le Roi Homestyle Cookies Pty Ltd (in liquidation) v Gemmell (Le Roi),[16] were an accurate and convenient summary of the law relating to the Privileges. It is as follows:

(a) In the case of self-incrimination privilege, the defendant must establish that the provision of information or the production of documents in the civil case leads to a real and appreciable risk of a criminal prosecution before the privilege can be invoked;[17]

(b) In an action to recover a penalty it is not necessary for a defendant to establish that there is a risk the defendant will be subjected to a penalty by providing information to the plaintiff. The plaintiff is seeking the information for that very purpose;

(c) In civil actions, where no claim for penalty is made, the defendant must show that providing the information requested would tend to subject him to a penalty in separate proceedings before he can rely on the privilege;[18]

(d) The privilege against exposure to penalty is a common law right of privilege that may be availed of as of right and is enforced and protected by the Court;

(e) The privilege against the exposure to penalty may be relied on by a defendant to a civil procedure in which a penalty is not sought ("the non-penalty civil proceeding");[19]

(f) The privilege against the exposure to penalty extends to the obligation upon a defendant to plead, give discovery and answer interrogatories in the non-penalty civil proceeding;[20]

(g) As a general rule, the privilege does not entitle a defendant to a non-penalty civil proceeding to obtain an order in limine excusing him or her from giving discovery or answering interrogatories;

(h) In exceptional circumstances, a defendant may be entitled to such orders in limine;

(i) By extension, in exceptional circumstances, a defendant may be entitled to orders in limine that he may deliver a defence that departs from the Rules of Court only insofar as to protect his privilege against exposure to penalty;

(j) Exceptional circumstances may exist where the defendant to the civil proceeding is also the subject of separate civil penalty proceedings alleging the same or similar conduct;[21] and

(k) Where a defendant seeks to take the privilege against exposure to penalty in a defence, the proper course is to plead accordingly and - if challenged - the defendant will be required to justify that the privilege is taken in good faith and on reasonable grounds for the privilege to stand.

40 As Ferguson J pointed out in Le Roi,[22] in civil actions, where no claim for penalty is made, for the defendant to show that providing the information requested would tend to subject them to a penalty in separate proceedings, the defendant must show, or it must be clear, that there is a real and appreciable risk of criminal prosecution or tendency to subject the person to a penalty. The precise measure or degree of the risk to a defendant is something which the Court is not called upon to assess so long as there is a degree of risk which cannot be dismissed as tenuous or illusory or so improbable as to be virtually without substance. The question is, whether there is a recognisable risk: Rio Tinto Zinc Corporation v Westinghouse Electric Corporation.[23]

41 It is important to recognise two fundamental propositions relevant to this matter. First, one person cannot assert the self-incrimination privilege on the ground that the giving of discovery, or compliance with a subpoena or notice to produce, tends to incriminate another person: Rochfort v Trade Practices Commission;[24] Environment Protection Authority v Caltex Refining Co Pty Ltd;[25] Trade Practices Commission v Abbco Iceworks Pty Ltd;[26] Bond v Tuohy;[27] Microsoft Corporation v CX Computer Pty Ltd.[28]

42 Secondly, and vitally to this matter, an individual cannot complain about the giving of discovery or responding to a subpoena or notice to produce by a company, or another person, on the ground that he (the individual) might tend to be incriminated as a result, because this is not self-incrimination: cf Environment Protection Authority v Caltex Refining Co Pty Ltd;[29] Garvin v Domus Publishing Ltd;[30] Microsoft Corporation v CX Computer Pty Ltd;[31] Australian Securities and Investments Commission v Mining Projects Group Ltd (No 2).[32] The same principle applies to self-exposure to a penalty.

43 The privilege against self-incrimination has been held capable of waiver: BTR Engineering (Aust) (formerly Borg-Warner Australia Ltd) v Patterson;[33] Reid v Howard;[34] Reid v Howard (on appeal);[35] Accident Insurance Mutual Holdings Ltd v McFadden;[36] Registrar, Court of Appeal (NSW) v Craven;[37] Registrar, Supreme Court of South Australia v Zappia;[38] Australian Securities and Investments Commission v Mining Projects Group Ltd.[39] But the Court may be less ready to infer waiver in the case of this privilege than in other cases: Accident Insurance Mutual Holdings Ltd v McFadden.[40]

44 The Privileges will be waived when a person who is entitled to claim the privilege voluntarily gives up information. The waiver will only operate to the extent of the information that has been provided.[41] In Australia, the authorities support the view that a person may impliedly waive self-incrimination privilege by his conduct.[42]

45 Speaking of imputed or implied waiver of legal professional privilege at common law, Gleeson CJ, Gaudron, Gummow and Callinan JJ said in Mann v Carnell:[43]

What brings about the waiver is inconsistency, which the courts, where necessary informed by the consideration of fairness, perceive, between the conduct of the client and the maintenance of the confidentiality; not some overriding principle of fairness operating at large.

46 The test for imputed waiver had previously been expressed in terms of fairness: see Attorney-General (NT) v Maurice.[44] Fairness has become a subsidiary consideration; it may be relevant to the Court's assessment of inconsistency in some contexts but not in others.[45]

47 In any application of Mann v Carnell,[46] the starting point must be an analysis of the disclosures or other acts or omissions of the party claiming privilege that are said to be inconsistent with the maintenance of confidentiality in the privileged material.[47]

48 Against this background it must be recognised that, as Finkelstein J observed in Australian Securities and Investments Commission v Mining Projects Group Ltd,[48] although in a civil action a defendant is required to deliver a defence he cannot be compelled to make any admissions in relation to the matters alleged against him. That is, penalty privilege operates to relieve a defendant from the need to deliver a defence that complies with the pleading rules if the rules would override the privilege. To the extent that pleading rules purport to impose such an obligation they must give way to the privilege.

49 Where a defendant entitled to claim the Privileges delivers a defence that makes admissions and advances a positive case, as Nicholls' defence in this case does to a limited extent, that waives the Privileges as regards the admitted and asserted "facts", only.[49]

50 There is good authority for the view that a defendant who admits a particular fact in his defence does not thereby waive his right to claim the self-incrimination privilege (at least) for all other facts. That is to say, the waiver goes no further than what has been admitted or asserted: Accident Insurance Mutual Holdings Ltd v McFadden.[50]

51 In the context of the Privileges, there is nothing inconsistent or unfair in this result. By way of contrast, it has been said in relation to legal professional privilege that partial disclosure in court of privileged material might result in inconsistency or unfairness and the interests of justice rightly demand that there should be full disclosure. However, this rule cannot be carried over into pleadings, the purpose of which is merely to put the parties on notice about the scope of the trial.[51]

52 Similarly, the waiver by inconsistency approach has severe limits in its application to the Privileges when they are called into play with respect to discovered documents. This is because penalty privilege "serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it".[52] That is, a plaintiff must prove his case without any assistance from a defendant.[53]

53 In the result it is my view that the approach referred to above in relation to pleadings should also apply, by parity of reasoning, to the ordering of inspection of discovered documents. That is, where an incriminating document, including a document that may expose Nicholls to a penalty, has been obtained from another source by the plaintiffs, and that document, or one substantially the same, is included in the documents discovered by Nicholls, then those discovered documents are not protected by the Privileges. This is because the privilege is not available where it is clear that revealing the document will not add to the individual's jeopardy.[54] The discovered documents that are the same as, or substantially the same as, the Disputed Documents, are not protected by the Privileges.

54 On the other hand, where the documents in Exhibit JBT-6 include documents that are not in the Disputed Documents - the Discovered Disputed Documents - then those documents are protected by the Privileges and may not be inspected by the plaintiffs.

55 Rule 1.14 of the Rules is an enabling provision. It is headed "Exercise of power" and provides, so far as relevant, that -

(1) In exercising any power under these Rules the Court -

(a) shall endeavour to ensure that all questions in the proceeding are effectively, completely, promptly and economically determined;

(b) may give any direction or impose any term or condition it thinks fit.

(2) The Court may exercise any power under these Rules of its own motion or on the application of a party or of any person who has a sufficient interest.

56 Rule 27.07 of the Rules is headed "Scandalous matter" and provides:

Where a document for use in the Court contains scandalous, irrelevant or otherwise oppressive matter, the Court may order -

(b) if the document has been filed, that it be taken off the file.

57 In relation to the power under Rule 23.02 to strike out pleadings that are scandalous, frivolous or vexatious, it has been found that allegations made for the purpose only of abusing or injuring the opposite party, and allegations which are indecent or offensive, are scandalous within the meaning of the rule, and liable to be struck out: Christie v Christie;[55] Coyle v Cuming;[56] Cashin v Craddock.[57] It may be that the matter is defamatory or grossly disgraceful and irrelevant to the claim or defence: Black's Law Dictionary, 7th Ed. Similarly, in relation to applications to strike matters out of affidavits under Rule 27.07, and its predecessors, matters will be struck out where it is both scandalous, in a sense used above, and irrelevant: McPherson v Kerr;[58] or it may be unnecessarily indecent or libellous, and irrelevant: Cayron v Russell.[59]

58 Rule 29.11(c) of the Rules provides that, in relation to an order for discovery, where a party objects to produce any document for inspection, the Court may order the party to do such act as the case requires.

59 In relation to the application to take Mr Nurse's affidavit, and the Disputed Documents, off the Court file, Mr Herskope submitted on behalf of Nicholls that:

(a) The facts and matters deposed to in paragraphs 4 (a)-(e) of the Bowers-Taylor affidavit are uncontradicted (see paragraph 28 above);

(b) The affidavit of Mr Nurse sworn on 9 May 2013 makes clear that the source of the Disputed Documents is Mr Southwood;

(c) Nicholls was at all relevant times a director of HRF Nominees and its controlling mind. It is self-evident from each of the exhibits to Mr Nurse's affidavit, Nicholls either generated or was a recipient of the Disputed Documents;

(d) The nature and purport of the Disputed Documents expose Nicholls to penalty proceedings;

(e) Having regard to the circumstances in which HRF Nominees came into possession of the Disputed Documents, Nicholls had no means or opportunity to review or have those documents reviewed or make any decision himself to hand over the documents before they came into the possession of HRF Nominees;

(f) Upon receiving the Disputed Documents from a third party, it ought to have been obvious to HRF Nominees that the contents of the documents were highly contentious and because HRF Nominees was being administered by officers of the Court and they, in turn, having retained experienced legal representatives, it must have been obvious that Nicholls was not waiving his privilege;

(g) Accordingly, there has been no voluntary giving up of the Disputed Documents of the kind required to operate as a waiver: see ASIC v Mining Projects Group Limited;[60]

(h) Given the principles set out by Ferguson J in Le Roi,[61] HRF Nominees ought never, on proper analysis, have sought to rely upon Mr Nurse's affidavit or the Disputed Documents, let alone bring those documents into the public domain;

(i) It follows that Mr Nurse's affidavit is scandalous and the Court has the requisite power to require removal of the affidavit from the Court record in those circumstances.

60 In relation to the claim to resist discovery and inspection of the Disputed Documents in reliance on the Privileges, Mr Herskope submitted:

(a) The content of the Disputed Documents on their face make out the entitlement to resist inspection, in the sense that from the face of the Disputed Documents the Court must be satisfied that there is a real and genuine basis for the assertion by Nicholls that he will tend to be exposed to proceedings or penalties, or that there is a degree of risk which cannot be dismissed as tenuous or illusory or so improbable as to be virtually without substance; and

(b) Thus, the Disputed Documents themselves make good the conclusion reached by Mr Bowers-Taylor in paragraph 6 of his affidavit (see paragraph 29 (b) above), and accordingly the relief sought in paragraph 2 of the Summons (paragraph 1 (b) above) ought to be granted.

61 Mr Russell Moore, who appeared for the plaintiffs, submitted that:

(a) The affidavit of Jonathan Bowers- Taylor shows that Nicholls is unsure whether Mr Southwood was engaged contractually to HRF Nominees in his personal capacity or through Southwood Financial Services Pty Ltd, although a "consultancy" is asserted;

(b) It is unclear upon what basis Nicholls claims that upon the consultancy's termination, Southwood was required to return to the company all of its property, including the Disputed Documents. No contract has been produced disclosing such a term and Nicholls denies that Mr Southwood was an employee;

(c) Even if it is assumed that Mr Southwood owed HRF Nominees a contractual or other enforceable obligation to return company property, including the Disputed Documents, he has discharged that obligation by delivering the documents to the company's liquidator (as deposed to by Mr Richard John Cauchi in his affidavit sworn on 2 August 2013);

(d) It would have been improper for Mr Southwood to have delivered the Disputed Documents to Nicholls any time after the liquidation of HRF Nominees on 22 February 2012;

(e) Since no contractual restraint on imparting confidential information is relied on by Nicholls, any obligation contended for is likely to be equitable. In those circumstances "ordinary principles dictate that injunction ought not go at the suit of an applicant who comes to equity with unclean hands or where the subject-matter of the communication 'is the existence or real likelihood of the existence of an iniquity in the sense of a crime, civil wrong or serious misdeed of public importance, and the confidence is relied upon to prevent disclosure to a third party with a real and direct in interest in redressing such crime, wrong or misdeed'";[62]

(f) The iniquity in this case is established, at least prima facie from the Disputed Documents;

(g) In the case of self-incrimination privilege, Nicholls must establish that the provision of information or the production of documents in the civil case leads to a real and appreciable risk of a criminal prosecution before the privilege can be invoked;

(h) In civil actions, where no claim for penalty is made, Nicholls must show that providing the information requested would tend to subject him to a penalty in separate proceedings before he can rely on the privilege;

(i) As a general rule, the privilege does not entitle a defendant to a non-penalty civil proceeding to obtain an order in limine excusing him or her from giving discovery or answering interrogations;

(j) In a non-penalty civil proceeding an order for discovery will usually be made and the party against whom the order is made may object to the production of the particular document on the ground that it may tend to expose him to a penalty: APCH Ltd (No 2) [63];

(k) Penalty privilege may be waived by contract and impliedly by conduct. In relation to self-incrimination privilege, whether waiver is possible is unclear (Australian Securities and Investments Commission v Mining Projects Group Ltd) [64];

(l) Privilege may be waived by making assertion of facts in a defence (Australian Securities and Investments Commission v Mining Projects Group Ltd [65]);

(m) The disclosure and production by Nicholls of the Disputed Documents will not lead to a real and appreciable risk of civil penalty or criminal conviction as the documents have already been disclosed (to the liquidator and Mr Coleiro) and are available to statutory authorities should civil penalty proceedings or criminal charges be laid. Nicholls' disclosure of the documents and their production will not add to his jeopardy: BTR Engineering Ltd v Patterson;[66]

(n) Nicholls has waived his privilege by making assertions of fact and swearing an affidavit inconsistent with the Privileges. He ought not be allowed to plead (and run) a positive case supported by sworn evidence (the affidavit) and, at the same time, hide behind the protection of privilege. (See paragraphs 1(b)(iv), 18, 25(d) of Nicholls' defence dated 31 January 2013 and the affidavit of Nicholls sworn 16 June 2012.); and

(o) At the very least he should be compelled to swear a further affidavit of documents disclosing whatever of the Schedule A categories of documents are in his possession and thereafter make a claim for privilege on each document sought to be inspected.

62 The submissions on behalf of Nicholls, in relation to the application to take Mr Nurse's affidavit, and the Disputed Documents, off the Court file, are misconceived. They proceed on the footing that the Privileges available to Nicholls is to be assimilated with any privilege of his company, HRF Nominees, if some privilege were available to it. Of course, s 187 of the Evidence Act, and the decision of the High Court in Environment Protection Authority v Caltex Refining Co Pty Ltd[67] make it clear that HRF Nominees is not entitled to the Privileges.

63 Contrary to the submissions made on behalf of Nicholls, nothing turns on the terms of engagement of Mr Southwood by HRF Nominees. Regardless of whether he was an employee or a consultant, documents which Nicholls either generated or received in his capacity as a director of that company remain the property of HRF Nominees and not of Nicholls.

64 Even if they were the property of Nicholls and were sent and received in his personal capacity, they have been sourced from a third party. Just as an individual cannot complain about a company, or another person, giving discovery or responding to a subpoena on the ground that the individual might tend to be incriminated as a result, so too is Nicholls precluded in this case from complaining about the production of documents by Mr Southwood or by HRF Nominees itself, which might incriminate him.

65 The fact that Nicholls had no means or opportunity to review the Disputed Documents or to have them reviewed, and make a decision himself whether or not to hand over the documents is beside the point. The simple answer is provided by the fact that production by a third party of the Disputed Documents is not self-incrimination (as referred to in paragraph 42 above).

66 For this reason there is no basis grounded in the Privileges for Mr Nurse's affidavit and the Disputed Documents that are exhibited to it to be removed from the Court file. The documents are plainly relevant and do not involve matters that are scandalous within the meaning of Rule 27.07. They are plainly relevant to establish the claims that Nicholls breached his fiduciary and statutory duties to HRF Nominees. They do not involve the production of the documents merely for the purpose of abusing or injuring Nicholls. There is no indecency or offensive aspect to the documents or the content of the affidavit. To the extent that the affidavit or the Disputed Documents may be defamatory, it is only by reason that they may reveal conduct of Nicholls that is possibly a breach of his fiduciary and statutory duties.

67 For these reasons it seems to me there is no ground established by or on behalf of Nicholls for Mr Nurse's affidavit and the Disputed Documents to be taken off the Court file.

68 It may be that the argument advanced on Nicholls behalf on this aspect of the matter sough to invoke either:

(a) The principle that where a privileged document (a confidential document subject to legal professional privilege or client legal privilege) is stolen or otherwise comes into the possession of another party without the knowledge of the party possessing the privilege there can be no question of waiver of privilege by the holder of it;[68] or

(b) The principle that where a privileged document is inadvertently disclosed, the Court should ordinarily permit the correction of that mistake and order the return of the document, if the party receiving the documents refuses to do so: Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd.[69]

69 There can be no question of these principles applying on the facts before me. So far as the evidence discloses, the Disputed Documents are rightly in the possession of HRF Nominees. Moreover, the principles relate ultimately to the power of a Court, in its equitable jurisdiction, to grant an injunction to preserve the confidentiality of the document or communication.[70] There is no basis laid in the evidence in this case for any confidentiality to subsist in the Disputed Documents. If there were, the iniquity exception referred to by Counsel for the plaintiffs would, in my view, be applicable.[71]

70 As Lindgren J observed in Microsoft Corporation v CX Computer Pty Ltd,[72] the true scope of the privilege against self-incrimination must be understood. It cannot, without qualification, be identified simply as a privilege against being compelled to do something which may tend to show that the person has committed an offence. Assume, for example, that the individual has already been convicted or acquitted of all the relevant offences, would he subsequently, in a civil proceeding be excused from the obligation to give discovery or to answer a notice to produce? Clearly not, because the privilege operates to prevent a person from being compelled to answer any question, or to produce any document or thing, if to do so may tend to bring him into the peril and possibility of being convicted as a criminal: Sorby v Commonwealth.[73]

71 The privilege is not available where it is clear that the taking of the step in question will not add to the individual's jeopardy: Sociedade Nacional de Combustiveis de Angola UEE v Lundqvist;[74] Marcel v Commissioner of Police of the Metropolis;[75] BTR Engineering (Australia) Ltd v Patterson;[76] Microsoft Corporation v CX Computer Pty Ltd.[77]

72 Some of the documents identified by Jonathan Bowers-Taylor and included in Exhibit JBT-6 to his affidavit are the same as the Disputed Documents. The latter documents were obtained by HRF Nominees from Mr Southwood. Should Nicholls be required to properly discover and make available for inspection the documents in Exhibit JBT-6 that are also in the Disputed Documents, Nicholls could not be exposed to any additional peril of being prosecuted for offences. The documents are already in possession of HRF Nominees and available, via the liquidators, to the Australian Securities and Investments Commission. Any peril already exists and will not be increased at all by the disclosure of the documents by Nicholls.

73 In civil actions, where no claim for penalty is made, the privilege should not excuse a party in limine from giving discovery, and the party should be left to object to producing particular documents for inspection (but subject to some rare exceptions). It is appropriate to excuse an individual giving discovery in limine in the rare case where that course is the only means of protecting against self-incrimination or self-exposure to a civil penalty. The rare case might be one where the very description of the document may tend to incriminate the individual or expose him or her to a penalty.[78] In this case, Nicholls has taken the step, after much delay and resistance, of making an affidavit of documents that discovers the documents in Exhibit JTB-6, the Disputed Documents. But the individual documents are not identified.

74 In relation to the contention of the plaintiffs that Nicholls has waived his privilege by making assertions of fact[79] and by swearing an affidavit,[80] upon an examination of the pleadings and that evidence it is not apparent to me that the assertion of the positive case (which is primarily the entry into an Asset Sale Agreement) is inconsistent with the maintenance of any privilege arising in this case. It is the assertion of a fact which the plaintiff will contend is incorrect. It will maintain that it is incorrect because the Disputed Documents that it alleges are inconsistent with the Asset Sale Agreement having being entered into at the time Nicholls alleges.

75 Moreover, by Nicholls delivering a defence which makes admissions and advances a positive case, limited as it is in this case, that waives the Privileges as regards the admitted and asserted "facts", only.[81] His affidavit is little different in this regard from his defence.

76 But if my conclusion in that regard is mistaken, it matters not, for the reasons I have given above. That is, the production for inspection of the Disputed Documents would not expose Nicholls to any greater jeopardy, or risk of prosecution, than already exists as a result of the liquidator of HRF Nominees being in possession of the same documents.

77 In relation to the Discovered Disputed Documents - documents in Exhibit JBT-6 that are not included in the Disputed Documents - they are protected by the Privileges. This because in the circumstances of this case, and my inspection of the documents in Exhibit JBT-6, there are documents in that exhibit that may tend to expose Nicholls to a penalty (at least). Further, I have concluded that waiver of the Privileges by 'inconsistency' has severe limits in its application when the Privileges are called into play with respect to discovered documents. This is because, as I have said, the Privileges "serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it."[82] That is, the plaintiff must prove its case without any assistance from the defendant.[83] The Disputed Discovered Documents would assist the plaintiffs in their claims for breaches of directors' statutory duties, and the Court cannot compel Nicholls to expose himself to a penalty or to incriminate himself.

78 For these reasons, the application made by paragraph 1 of the third defendant's summons filed 17 July 2013 will be dismissed.

79 In relation to paragraph 2 of that summons, I will order that -

(a) in respect of those documents in Exhibit JBT-6 to the affidavit of Jonathan Bowers-Taylor sworn 17 July 2013 that are or are substantially the same as documents in the exhibits to the affidavit of Michael Andrew Nurse sworn 9 May 2013 shall be made available for inspection by the plaintiffs;

(b) in respect of those documents in Exhibit JBT-6 to the affidavit of Jonathan Bowers-Taylor sworn 17 July 2013 that are not the same or substantially the same as documents in the exhibits to the affidavit of Michael Andrew Nurse sworn 9 May 2013 shall not be made available for inspection by the plaintiffs.

80 In addition to these orders there may be other orders needed and I will hear the parties as to the costs of the application.

[1] The units are held by Pavjo as Trustee of two Trusts, the Coliero J Super Fund and the Coliero Family Trust: see the affidavit of Jeanmariepaul (John) Coleiro sworn 6 June 2012 at [17].

[2] Affidavit of Mark Andrew Nicholls sworn 16 June 2012 (Nicholls' Affidavit).

[3] Affidavit of Jeanmariepaul (John) Coleiro sworn 6 June 2012 at [39].

[4] Nicholls' Affidavit and affidavit of Justine Sarah Greer sworn 17 June 2012.

[6] For example, Defence of third defendant filed 1 February 2013, paragraph 1(b)(iv)

[7] See Affidavit of Michael Andrew Nurse sworn 29 April 2013. That affidavit also pointed to the failure of the defendants to discover documents concerning communications with Steve Marks (aka Stephen Mark O'Neal) and SME's R Us Pty Ltd.

[9] Sorby v Commonwealth [1983] HCA 10; (1983) 152 CLR 281, 309 per Mason, Wilson and Dawson JJ.

[10] Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129, 142 [24] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ(Rich); Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543, 559 [31] per Gleeson CJ, Gaudron, Gummow and Hayne JJ.

[11] R v Associated Northern Collieries [1910] HCA 61; (1910) 11 CLR 738, 744 citing the judgment of Lord Hardwicke LC in Smith v Read [1736] EngR 59; (1737) 1 Atk 526, 527 [1736] EngR 59; [26 ER 332].

[12] Daniels Corporation International Ltd v Australian Competition and Securities Commission (supra) at 554 [13]; Rich 142 [24]

[13] Bray, Law of Discovery (1885) 314.

[14] Eg examinations under s 155 Trade Practices Act 1974 (Cth) - Pyneboard Pty Ltd v Trade Practices Commission [1983] HCA 9; (1983) 152 CLR 328, 337-341 and 344

[15] [2012] VSC 576 at [115]; reported under the name Australian Property Custodian Holdings Ltd (in liq) (recs and mgrs apptd) (controllers apptd) v Woolridge (No 2) (2012) 93 ACSR 130.

[17] Australian Securities and Investments Commission v Mining Projects Group Ltd [2007] FCA 1620; (2007) 164 FCR 32, [9].

[19] Refrigerated Express Lines (A'asia) Pty Ltd v Australian Meat and Livestock Corp (Refrigerated Express) (1979) FLR 204.

[20] Refrigerated Express (1979) FLR 204; McDonald [2007] NSWCA 304; (2007) 73 NSWLR 612.

[23] [1978] AC 547, 581 per Shaw LJ.

[24] [1982] HCA 66; (1982) 153 CLR 134, 145 per Mason J (with whom Wilson J agreed), 150 per Murphy J.

[26] [1994] FCA 1279; (1994) 52 FCR 96, 116 per Burchett J.

[28] (2002) 187 ALR 362; [2002] FCA 3, [32], per Lindgren J.

[29] [1993] HCA 74; (1993) 178 CLR 477, 490-3 per Mason CJ and Toohey J; 548-549 per McHugh J.

[30] [1989] Ch 335, 348 (Walton J).

[31] (2002) 187 ALR 362; [2002] FCA 3, [32], per Lindgren J.

[41] Australian Securities and Investments Commission v Mining Projects Group Ltd [2007] FCA 1620; (2007) 164 FCR 32 at [20].

[42] Australian Securities and Investments Commission v Mining Projects Group Ltd [2007] FCA 1620; (2007) 164 FCR 32 at [22]- [23].

[43] (1999) 201 CLR 1; [1999] HCA 66. See Stephen Odgers, Uniform Evidence Law (Thomson Reuters Australia, 10th Ed, 2012), 1.3.11070, 667.

[44] [1986] HCA 80; (1986) 161 CLR 475, 481 per Gibbs CJ, 487-8 per Mason and Brennan JJ, 492-3 per Deane J, and 497-8 per Dawson J (Maurice).

[45] AWB Limited v Cole (No 5) (2006) ALR 651; [2006] FCA 1234 at [130] per Young J**;** Perhaps an 'unfair inconsistency': See also Byrne J in Liquorland (Australia) Pty Ltd v Anghie [2003] VSC 73; (2003) 7 VR 27, [41]

[47] AWB Limited v Cole (No 5) [2006] FCA 1234, [134] per Young J.

First Plaintiff v Second Plaintiff

At a glance

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Judgment (237 paragraphs)

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Legislation Cited (16)

Cases Cited (25)