In the matter of Plutus Payroll Australia Pty Ltd (in liq) and the companies listed in Schedule 4 to the Amended Originating Process [2020] NSWSC 46

Background

1. Mr Chalabian is a solicitor. He has been charged on indictment with two alleged criminal offences of jointly dealing in proceeds of crime at a value of $1 million or more, contrary to s 400.3(1) and s 11.2A(1) of the Criminal Code (Cth). He has pleaded not guilty to these charges. His trial is listed to commence in the Supreme Court on 12 October 2020 with an estimate of three to four weeks.
2. In brief outline, the Crown case statement alleges a conspiracy between a number of individuals involved in the establishment and operation of Plutus as a payroll services company and a number of other related subcontracting companies, controlled by the alleged conspirators, solely for the purpose of depriving the Commissioner of Taxation of Pay-As-You-Go Withholding and Goods and Services taxes. The Crown alleges that monies were received from the conspirators relating to the conspiracy as part of the alleged blackmail arrangements into the trust account of Mr Chalabian's former legal practice, Lands Legal, and that he dispersed such monies, or arranged for the disbursement of such monies, being monies that were, or that he believed to be, proceeds of crime.
3. It is uncontroversial that the alleged conspiracy has received significant media attention since 2017.
4. The application by Mr Chalabian is made on the basis that he believes that the liquidator's examination will have a significant detrimental impact upon the pending criminal proceedings for the following reasons: 1. given the likely subject matter of the examination, Mr Chalabian expects that there will be a significant overlap between the questions asked at the examination and the subject matter of the pending criminal proceedings, including the alleged Plutus tax fraud conspiracy; 2. given the above overlap and in light of the fact that his trial will be before a jury, there are risks that Mr Chalabian suffer real prejudice if a public examination takes place and is openly reported due to the publicity of the pending criminal proceedings; 3. a public examination may result in a real risk of affecting the integrity of Mr Chalabian's defence to the charges; 4. Mr Chalabian will be obliged to give answers within the examination that might assist the prosecution in his criminal proceedings by disclosing lines of defence, given that he is not entitled to decline to answer questions during the examination on the grounds of self-incrimination.
5. Following correspondence between Mr Chalabian's solicitors and the solicitors for the liquidators, the liquidators agreed to the making of consent orders that the examination of Mr Chalabian be held in private and restricting access to the transcript or any other written record of the examination.

Should the examination be held in private?

1. Whilst the liquidators consent to the examination being held in private, the Court cannot merely give effect to the parties wishes, but must consider whether there are special circumstances as contemplated by s 597(4) of the Corporations Act which provides: An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, is desirable to hold the examination in private.
2. The legislative expectation is that examinations will usually be held in public. As Campbell J explained in Re Eurostar Pty Ltd (in liq) [2004] NSWSC 462 at [13]: Part of the purpose of conducting examinations in public is that there is a public interest in all aspects of the circumstances which led to a corporate collapse being available to all those who might be interested. Incorporation is a privilege which is made available because there is seen to be public benefit in it, but there is a public interest in that privilege not being abused. The privilege of incorporation is given on terms that, if the company collapses, its affairs can be examined, and that examination will ordinarily be in public. In at least some instances, publicity of information given in examinations can cause information which was otherwise not available to be brought to the attention of those investigating the circumstances of the corporate collapse. There needs to be a good reason before full openness to public scrutiny of what is said in such examinations should be removed.
3. Accordingly, Mr Chalabian must positively establish that it is desirable for the examination to be held in private by reference to special circumstances: Friedrich v Herald and Weekly Times Ltd [1990] VR 995 at 1001-1003; Jagelman v Sheehan [2002] NSWSC 419; (2002) 41 ACSR 487; Re Eurostar at [13]; Re Shepard (in his capacity as administrator of Hunter Bulk Materials Pty Ltd) (subject to deed of company arrangement) [2011] NSWSC 467; (2011) 83 ACSR 436 at [81]; Wambo Coal Terminal Pty Ltd v Shepard (in his capacity as deed administrator of Hunter Bulk Materials Pty Ltd) (subject to a deed of company arrangement) [2011] NSWSC 639; (2011) 84 ACSR 660.
4. 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 Hamilton v Oades (1989) 166 CLR 486; Corporate Affairs Commission (NSW) v Lombard Nash (1987) 12 ACSR 475 (Lombard Nash); Freidrich; Re Clarecastle Pty Ltd Limited [2011] NSWSC 490; Kimberley Diamond Company Limited [2016] NSWSC 1963. It has been said that the fact that the person to be examined is also the subject of concurrent criminal proceedings may but will not necessarily establish "special circumstances" warranting an order that an examination be held in private: Lombard Nash.
5. In Kimberley Diamond Company at [19], Brereton J remarked 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) at [19]: 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.
6. I agree with those remarks.
7. There is an additional reason enlivening the discretion here. It can be reasonably anticipated that a public examination would attract significant media publicity which has the prospect of affecting potential jurors in the upcoming trial to commence in October this year. Given that the charges against Mr Chalabian involve Commonwealth offences, it is not possible for this risk to be mitigated by an application by him for a trial before a judge alone: Commonwealth Constitution, s 80.
8. I am persuaded that there is sufficient reason to make the order which is sought for a private examination.

Restricting access to the transcript or other record of examination

1. Whilst the answers given at an examination cannot be directly tendered in the criminal proceedings, Mr Chalabian seeks an order under s 596F(1)(e) restricting access to the transcript or other written record of the examination to minimise the risk of derivative use of material obtained in the examination. Mr Chalabian also seeks an order under s 596F(1)(f) restricting publication of the questions and answers given at his examination. Reliance was placed on Kimberley Diamond Company where Brereton J made such orders.
2. Section 596F(1) relevantly provides: (1) Subject to s 597, the Court may at any time give one or more of the following: … (e) a direction about access to records of the examination; (f) a direction prohibiting publication or communication of information about the examination (including questions asked, and answers given, at the examination).
3. Importantly, the power to give a direction under s 596F(1)(e) and (f) is expressly made "Subject to s 597". It is necessary to refer to several sub-sections of s 597: (9) The Court may direct a person to produce, at an examination of that or any other person, books that are in the first‑mentioned person's possession and are relevant to matters to which the examination relates or will relate. (10A) A person must not refuse, or intentionally or recklessly fail, to comply with a direction under subsection (9). … (13) The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record. (14) Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person. (14A) A written record made under subsection (13): (a) is to be open for inspection, without fee, by: (i) the person who applied for the examination; or (ii) an officer of the corporation; or (iii) a creditor of the corporation; and (b) is to be open for inspection by anyone else on paying the prescribed fee.
4. The interaction of s 596F(1) and s 597 was considered by Barrett J in Strarch International Ltd [2005] NSWSC 583 who explained at [18] that s 597 is to prevail over s 596F, given the opening words of s 596F "subject to s 597": … Bearing in mind ss.597(7)(d), 597(9), 597(9A) and, in particular, s.597(14) (to be mentioned in greater detail presently), the "records" referred to in s.596F(1)(e) may include things additional to any record of the questions and answers made in conformity with a s.597(13) order. That being so, the "subject to" specification with which s.596F(1) begins is to be read as indicating that the right to inspect given by s.597(14A) in relation to a "written record made under subsection (13)" may not be curtailed by a s.596F(1)(e) direction, even though such a direction might operate to deny, allow or otherwise regulate access to some other part of the wider subject matter comprehended by the description "records of the examination" in s.596F(1)(e).
5. Barrett J concluded at [25] that there was no power to make orders under s 596F(1)(e) restricting the right to access to transcript of an examination that was the subject of an order under s 597(13): In my opinion, the provisions in question must, despite what is said in the Emanual Investments case, be approached on the basis that s.597(14A) is a legislative directive that every person who wishes it is to have the ability to inspect any written record of question and answers made pursuant to s.597(13). A fee must be paid where the person desiring to inspect is not within s.597(14A)(a); otherwise, inspection is free of charge. There is also, in my view, a manifested legislative intention that the ability to inspect is not to be curtailed through an order under s.596F(1)(e), even though such an order may preclude access to the whole or any part of the remainder of the "records of the examination" in the wider sense referred to by Santow J; and this is so whether or not the examination is conducted in private or in public.
6. In Re Clarecastle, Ward J agreed at [85] with the conclusion of Barrett J in Strarch International.
7. However, in Starch International, Barrett J adverted to the distinction between a transcript as ordered by s 597(13) and otherwise and expressed the view that this enabled a result to be achieved whereby orders precluding access to the transcript could be made. Barrett J explained at [27]-[28]: [27] In drawing the valid distinction between a written record made under s.597(13) and the "records of the examination" referred to in s.596F(1)(e) and observing correctly that the latter comprehends the former, Santow J had no need, in the New Cap Reinsurance case, to mention another species of documentary recording expressly contemplated by s.597. I refer to "any transcript of an examination of a person that is authenticated as provided by the rules". Section 597(14) refers to such a transcript as well as to "any written record of an examination so signed by a person". It is thus clear that there may be either a written record made under s.597(13) or a "transcript" of the kind mentioned in s.597(14) - or, indeed, there may be both. The reference to a "transcript", it seems to me, acknowledges that, as was recognised by Campbell J in Re Doran Constructions Pty Ltd (2002) 194 ALR 101, an examination under s.596A is a proceeding in the court. [28] Where a transcript of an examination is made and authenticated as contemplated by s.597(14) but there is no order under s.597(13) (and accordingly no written record of questions and answers made pursuant to an order under s.597(13)), s.597(14A) does not create any right to inspect the particular form of record of the examination, being the transcript. A transcript of the kind mentioned in s.597(14) is therefore amenable to directions under s.596F(1)(e) in a way that a record made pursuant to an order under s.597(13) is not. That is a circumstance that would no doubt be relevant to a decision as to the more appropriate way of proceeding in a particular case in which the existence of the statutory rights of inspection created by s.597(14A) gave cause for concern.
8. The distinction between a written record made under s 597(13) and a transcript of an examination referred to in s 597(14) had been earlier noted by Drummond J in Southern Cross Airlines Holdings Ltd v Arthur Anderson & Co (1998) 28 ACSR 455 at 458. The distinction was accepted by Ward J in Re Clarecastle at [31]. I agree that there is a valid distinction.
9. In the present case, balancing the interests of the public and the creditors of the Plutus companies to collect all necessary information relating to the winding up of the companies against the interests of Mr Chalabian, the examinee, to a fair trial includinig to maintain his right to silence, I am satisfied that the appropriate course is to make orders similar to the orders in Re Clarecastle. The examination is to be held in private with a regime that would maintain the ability of the Court to preclude access to the transcripts of the examination until after the conclusion of the criminal proceedings.

Orders

1. The Court orders that: 1. Pursuant to s 597(4) of the Corporations Act 2001 (Cth) (the Act), the examination of Sevag Chalabian be held in private. 2. Direct that there be no order for a written record of the examination to be authenticated by Mr Chalabian pursuant to s 597(13) of the Act. 3. Note that a transcript of the examination of Mr Chalabian, as envisaged by s 597(14) of the Act, is to be made for the purposes of authentication pursuant to r 11.7 of the Supreme Court (Corporations) Rules 1999 (NSW). 4. Direct that the conduct of the examination and the transcript of the examination authenticated pursuant to r 11.7 of the Supreme Court (Corporations) Rules 1999 (NSW) for the purposes of s 597(14) of the Act, be kept confidential and not disclosed or published to any person, other than Mr Chalabian, the plaintiffs, their staff and their respective legal advisers without notice to Mr Chalabian and without the leave of the Court, until the determination of the criminal proceedings (2018/216206) against Mr Chalabian.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 February 2020