MATTER : GLOBAL FINANCE GROUP PTY LTD (In Liq) (Supervisor Appointed) (ACN 009 380 205)

BETWEEN : GLOBAL FINANCE GROUP PTY LTD (In Liq) (Supervisor Appointed) (ACN 009 380 205)

SIMON ANDREW READ AND JEFFREY LAURENCE HERBERT as liquidators of GLOBAL FINANCE GROUP PTY LTD (ACN 009 380 205)

MATTER : GLOBAL FINANCE GROUP PTY LTD (In Liq) (Supervisor Appointed) (ACN 009 380 205)

SIMON ANDREW READ AND JEFFREY LAURENCE HERBERT as liquidators of GLOBAL FINANCE GROUP PTY LTD (In Liq) (Supervisor Appointed)

Practice and procedure - Application to stay civil proceedings when criminal proceedings pending - No new point of principle

Corporations Law - Application to set aside examination summons issued under s 596A - Criminal proceedings pending - Approach to be adopted

Corporations Law, s 596A, s 597(4), s 597(5B), s 597(12), s 597(14A)

State of Western Australia v Bond Corporation Holdings Pty Ltd (1992) 114 ALR 275

1 MASTER SANDERSON: This is the return of two applications. The first, brought in CIV 2274 of 2000 ("the civil action") is an application by all defendants to stay proceedings until further order. The second is an application by John Geoffrey Margaria and June Helen Margaria to set aside examination summonses which have been issued against them in proceedings COR 196 of 2000. The applications are brought in separate but related matters. Although both applications were argued together, there are important differences between them and I will deal with each in turn. However, there are some facts which can be shortly stated and which are relevant to both applications.

2 The Global Finance Group Pty Ltd ("Global"), prior to its being placed in liquidation, conducted business as a finance broker pursuant to the Finance Brokers Control Act 1975. The first and second defendants (in the civil action) were, at all material times, directors of Global. The third and fourth defendants are companies controlled by them. On or about 15 June 2000 the first defendant was served with a summons issued pursuant to the Justices Act (WA) 1902 charging him with commission of 22 separate offences of criminal fraud pursuant to s 409(1)(c) of the Criminal Code in relation to his conduct as a director of Global ("the Criminal Proceedings"). Although it does not emerge clearly from the affidavit material filed in support of the applications, it appears that the Crown has only recently served on the first defendant the material upon which it intends to rely on the indictments. The copy of the indictment (which appears as annexure "JGM 1" to the affidavit of the first defendant sworn 8 February 2001 in the civil action) shows that the Crown will rely on evidence of 45 witnesses. Just what this evidence might entail and how voluminous it might be is unclear.

3 On 17 August 2000 Justice Owen of this Court made an asset preservation order against the first and second defendants on the application of the second plaintiff. It was a condition of that order that any proceedings against the first and second respondent be issued by 21 September 2000. The civil action was issued on that date. The plaintiffs lodged their statement of claim on 27 December 2000.

4 The statement of claim is a complex document. It runs to more than 80 paragraphs and occupies 43 pages. I will not attempt in the context of these proceedings a detailed analysis of the claims made by the plaintiffs against the defendants. It is enough if I set out the structure of the pleading and the nature of the claims made against the first defendant.

5 The plaintiffs plead that pursuant to s 48 of the Finance Brokers Control Act, Global was obliged to keep a trust account and operate that trust account in line with the statutory provisions. It is said that within the trust account structure Global maintained certain ledgers. It is then pleaded that Global arranged a series of loans whereby certain investors lent money to specified borrowers. In each case Global was appointed as the agent for the investors to administer all matters relating to the loan and mortgage security. It is then pleaded that in relation to the loans, Global made certain unauthorised trust transfers. It is also alleged that Global dealt with the ledgers - that is to say, the trust account - in other improper ways. As against the first defendant it is pleaded that he had knowledge of all of Global's breaches of trust. As a consequence it is said that he is personally liable for losses incurred. The claims against the first defendant are put on a number of different bases - it is said that he has benefited as a consequence of a breach of his fiduciary obligations, that he is liable as he was knowingly concerned in a breach of trust by Global and that he was fraudulent.

6 It is not entirely clear from the materials that are in evidence just how the Criminal Proceedings relate to the civil action. It was submitted by counsel for the plaintiffs that the Criminal Proceedings relate to actions taken by the first defendant prior to funds being obtained from investors, and that the civil action relates to dealing with funds after they were received. Thus, it is said, there is no commonality between the two sets of proceedings. In my view it is not entirely clear as to whether there are overlaps between the Criminal Proceedings and the civil action. All of the charges against the first defendant follow a similar pattern. To quote the first:

"Between 30 July 1998 and 14 August 1998 at Perth JOHN GEOFFREY MARGARIA with intent to defraud, by deceit or fraudulent means, gained a benefit, namely $1,400,000.00 in money, for another, namely Global Finance Group Proprietary Limited."

7 The statement of claim does not deal with an amount of $1,400,000. Furthermore, all of the unauthorised trust transfers dealt with by pars 28 through to 39 deal with the period prior to 30 July 1998 which is the earliest date appearing in the indictments. In relation to the project ledger deficits of the 88 transactions referred to in annexure "B" to the statement of claim, only 11 relate to the period after 1 July 1998. It is not entirely clear how these 11 transactions relate to matters raised in the indictment.

8 I will come back to the importance of this overlap, or lack of it, later in these reasons.

9 The principles to be applied on an application for a stay of a civil action pending conclusion of criminal proceedings was considered by White AJ (as he then was) in Norilya Minerals Pty Ltd v Ireland (1991) 5 WAR 411. His Honour reviewed the authorities and concluded that the court had discretion to stay civil proceedings in a proper case. His Honour then adopted guidelines set out by Wootten J in McMahon v Gould [1982] 7 ACLR 202. Wootten J said (at 206 - 207):

"(a) Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the Court (Rochfort v John Fairfax & Sons Ltd (at 19));

(b) It is a grave matter to interfere with this entitlement by a stay of proceedings, which requires justification on proper grounds (supra);

(c) The burden is on the defendant in a civil action to show that it is just and convenience that the plaintiff's ordinary rights should be interfered with (Jefferson v Bhetcha (at 905; 1113));

(d) Neither an accused (supra) nor the Crown (Rochfort v John Fairfax & Sons Ltd (at 21)) are entitled as of right to have a civil proceeding stayed because of a pending or possible criminal proceeding;

(e) The court's task is one of 'the balancing of justice between the parties' (Jefferson Ltd v Bhetcha (at 904;1113)), taking account of all relevant factors (supra, at 905; 1113);

(f) Each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors (supra, at 905; 1113);

(g) One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's 'right of silence', and the reasons why that right, under the law as it stands, is a right of a defendant in a criminal proceeding (supra, at 904; 1113). I return to this subject below;

(h) However, the so-called 'right of silence' does not extend to give such a defendant as a matter of right the same protection in contemporaneous civil proceedings. The plaintiff in a civil action is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting an application for summary judgment, in the pleading of his defence, or by way of discovery or otherwise, what his defence is likely to be in the criminal proceeding (supra, at 904-905; 1113);

(i) The court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings (supra, at 905; 1113);

(j) In this regard factors which may be relevant include:

(i) the possibility of publicity that might reach and influence jurors in the civil proceedings (supra, at 905; 1113);

(ii) the proximity of the criminal hearing (supra, at 905; 1113);

(iii) the possibility of miscarriage of justice eg by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses (supra, at 905; 1113);

(iv) the burden on the defendant of preparing for both sets of proceedings concurrently (Beecee Group Ltd v Barton (1980) 5 ACLR 33);

(v) whether the defendant has already disclosed his defence to the allegations (Caesar v Somner [1980] 2 NSWLR 929 at 932; Re Saltergate Insurance Co Ltd and the Companies Act (1980) 4 ACLR 733 at 736);

(vi) the conduct of the defendant, including his own prior invocation of civil process when it suited him (cf Saltergate Insurance Co Ltd (at 735-736));

(k) The effect on the plaintiff must also be considered and weighed against the effect on the defendant. In this connection I suggest below that it may be relevant to consider the nature of the defendant's obligation to the plaintiff;

(l) In an appropriate case the proceedings may be allowed to proceed to a certain stage, eg, setting down for trial, and then stayed (Beecee Group v Barton)."

10 His Honour also referred to the decision of Young CJ in Philippine Airlines v Goldair (Aust) Pty Ltd [1990] VR 285. It is important to note that the discretion of the court is unfettered and as Wootten J acknowledges, the guidelines he proposed are not in any way an attempt to fetter that discretion. Each case must be decided on its merits.

11 Dealing then with each of the matters raised by the first defendant, as I have said above, it is by no means clear that there is complete overlap between the Criminal Proceedings and the civil action in this case. Based upon the material available that there might well be some degree of overlap. But I could not conclude that by filing a defence in the civil action the first defendant will reveal his defence in the Criminal Proceedings. Furthermore, there is no suggestion in this case that the plaintiffs will apply for summary judgment. Given the nature of the action against the defendants it would be remarkable if they did so. Assuming then that the first defendant will be required to put on a defence and provide particulars of that defence there is no question of the first defendant being called upon to swear an affidavit in support of his pleaded position. But as Wootten J makes clear, even if that were the case, it does not entitle the first defendant to a stay of proceedings. It would be necessary to show more.

12 In this case there is no evidence that the possibility of publicity might influence jurors in the Criminal Proceedings. There is no evidence as to when the Criminal Proceedings might be heard but they are clearly a long way off. The same might be true of the civil action and it may be the case that some time in the future the two run close together. That is a matter which might justify another application at a later date. There is no evidence that the disclosure of a defence is likely to lead to fabrication of evidence by prosecution witness or interference with defence witnesses. There is no evidence that in the past the first defendant has initiated civil proceedings as and when it suited him and for his own ends.

13 There are, however, two matters which require further attention. The first is the burden which falls upon the first defendant in preparing for both sets of proceedings concurrently. In this context it must be remembered that the first defendant is the subject of an asset preservation order and has only limited recourse to funds. However, by par 8.3 of the preservation order the first defendant has access to his assets to pay legal costs "reasonably and necessarily incurred in defending these proceedings or in the case of the (the first defendant) criminal proceedings brought against him". Assuming then that the first defendant's assets are sufficient to allow him to meet his legal fees, and there was no evidence to the contrary, he is in a position to employ suitable legal representation with respect to both the Criminal Proceedings and the civil action. Although there is a pausity of evidence on the question I accept that there will be a burden on the first defendant in dealing with both sets of proceedings, particularly when, in the face of an asset preservation order, he is obliged to find employment to support himself and his family. But I am not satisfied on the evidence as it stands at present that the burden would he so great as to justify a stay of the civil proceedings. The evidence does not contain any detailed assessment of what tasks the first defendant will need to undertake with respect to the two actions. There is no evidence as to the time involved, the material which must be assessed, the other demands on his time - indeed the evidence led by the first defendant on this question is limited to a bald statement in par 8 of his affidavit of 8 February 2001 and what is to be found in the affidavit of David Brian Shaw sworn 27 December 2000, the first defendant's solicitor, which is singularly unhelpful. In my view the first defendant has failed to discharge the onus which is upon him to establish that the burden of preparing for both sets of proceedings concurrently is such as to warrant the grant of a stay.

14 The first defendant has not yet disclosed his defence to the allegations and I accept this is a factor to be considered in allowing the civil action to proceed. However, this appears to be more of a consideration in a case where at some stage a defendant is likely to be called upon to swear an affidavit in the civil proceedings which might disclose his defence in the Criminal Proceedings. As I have indicated above, an application for summary judgment in the civil action seems unlikely and all the first defendant will be called upon to do is file a defence. In the circumstances I am not satisfied that this is a sufficient reason to warrant the grant of a stay.

15 In all of the circumstances I am not satisfied that this is a case where I ought exercise my discretion and grant the first defendant a stay of the civil proceedings. Furthermore, I can see no basis at all upon which proceedings against the remaining defendants should be stayed. Presumably it is said that if proceedings against the first defendant are stayed, it would be inappropriate to allow proceedings to continue against the other defendants. Having determined that it is inappropriate to stay the proceedings against the first defendant, I need deal with this no further. However, it does seem to me unlikely that where only the first defendant faces criminal proceedings the action against the other defendants would be stayed.

16 The application should be dismissed and the defendants should pay the plaintiffs' costs of the application, including the reserved costs.

17 By application, John Geoffrey Margaria and June Helen Margaria seek to set aside examination summonses which have been issued against them. The examination summonses were issued under s 596A of the Corporations Law and are mandatory summonses as opposed to discretionary summonses which are issued under s 596B. I mention this fact in passing only to highlight the importance the Corporations Law places on the right of a liquidator to examine a person about a corporation's affairs. It is a clear indication that this right should not lightly be interfered with.

18 There is no doubt that the court can, in appropriate circumstances, set aside an examination summons. Most cases arise in situations where civil proceedings have been initiated against an individual and a liquidator then seeks to examine that individual about the affairs of the company. Courts are concerned to ensure that the liquidator does not use the examination for an illegitimate forensic purpose and to obtain material which would not otherwise be obtained in the course of a civil action. In Re Westmex Ltd (In Liq) (1995) 13 ACLC 1070, Santo J reviewed the authorities and set out the principles in some detail.

19 But that is not this case. Counsel for Mr and Mrs Margaria did not suggest either in his written or oral submissions that the examination summons ought be set aside because they might in some way impact upon the civil proceedings. Rather, it was said, that the examination summons may prejudice Mr Margaria in his defence of the Criminal Proceedings. Of course, without knowing precisely what questions are to be put to the examiner at the examination, it is impossible to be sure that any prejudice will arise. It was submitted on behalf of Mr and Mrs Margaria that the prospect that the prejudice might arise was sufficient to set aside the summons.

20 There appears to be no authority directly on this question of when it is appropriate to set aside an examination summons if criminal proceedings are pending. However, in Douglas-Brown v Furzer (1994) 12 ACLC 288, Malcolm CJ had this to say (at 294):

"In my opinion, when one reads sub-s 597(14) and (14A) in the context of the provisions as they now appear, the patent object is to enable the liquidator or any creditor of the corporation to have access to the written record or authenticated transcript of an examination and use it in evidence in any proceedings against the person being examined. Taking all the provisions together, the intention of the legislation appears to be that such examination should now be carried out in such a way which will facilitate not only investigations but also the prosecuting of civil or criminal proceedings, whether contemplated or already commenced, including civil proceedings by individual creditors. The intention is that the persons who are eligible applicants and any other relevant persons are given a forensic advantage which the Court can prevent being abused by its control over the conduct of the examination."

21 His Honour's comments were made in the context of an examination summons issued against a defendant when other civil proceedings were pending. To that extent they are not directly relevant to this application. Nonetheless, his Honour's views are a strong indication of the way in which s 596 and its related provisions are to be approached.

22 There, there are safeguards built into s 597 which offer protection to a witness who is being examined. Under s 597(5B) only questions that the court "thinks appropriate" can be put to a witness who is being examined. Perhaps more importantly, under s 597(12A) a person who is required to answer a question which might tend to incriminate him can claim privilege. If privilege is claimed the evidence is not admissible against that person in any criminal proceeding. Of course, if different evidence is given under oath in later criminal proceedings, the witness is open to a charge of perjury. But that is not to the point. It is the fact that privilege is available to a witness answering questions on an examination summons. Furthermore, the court can, in appropriate circumstances, order that the examination be held in private: s 597(4). While the record of the interview is generally available for public inspection (s 597(14A)), if privilege is claimed with respect to certain questions then access to the record is limited.

23 In light of the specific provisions within s 597 I have some doubts as to the relevance of the guidelines set out in McMahon v Gould and adopted by White AJ in Norilya Minerals Pty Ltd. Insofar as the guidelines are relevant, the prime concern must be that the examination of Mr Margaria pursuant to the witness summons will require him to divulge his defence to the Criminal Proceedings. Assuming that is a risk, I am satisfied that the safeguards built into s 597 are sufficient to protect his position. It may be that the questions asked by the examiner which require disclosure of Mr Margaria's defence would be inappropriate and ruled as such by the person conducting the examination. If questions which tend to disclose his defence are permitted he will be entitled to privilege. That should properly protect his position. I would not be prepared to set aside the examination summons directed to Mr Margaria.

24 In relation to Mrs Margaria it was said that as she is not a compellable witness in criminal proceedings against her husband, if the summons against him was set aside then the summons against her ought also be set aside. Irrespective of the precise grounds upon which the application by Mrs Margaria is made, it would seem to me in the circumstances of this case that there is no basis for setting aside the summons.

25 Both applications should be dismissed. Mr and Mrs Margaria should pay the costs of the application, including the reserved costs.