MACDONALD v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Court of Appeal (NSW)|2007-10-19|Before: Spigelman CJ, Mason P, Giles JA, Young CJ, Young J

CITATION: MACDONALD v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION [2007] NSWCA 304

JUDGMENT OF: Spigelman CJ at 1; Mason P at 34; Giles JA at 77

CATCHWORDS: PROCEDURE - Supreme Court procedure - New South Wales - procedure under Rules of court - pleadings - functions of pleadings - Defence - requirement to file a defence - requirement to raise statutory and/or positive defence - requirement to make positive assertions of fact and provide particulars - whether requirements can be dispensing with under the privilege against self-incrimination - privilege against self-exposure to a penalty - Uniform Civil Procedure Rules 2005, r14.14, r15.1

Civil Procedure Act 2005 Corporations Law, s1317E LEGISLATION CITED: Customs Act 1901 (Cth), s247 Uniform Civil Procedure Rules 2005 J D Heydon, Cross on Evidence 6th Aust ed

A & L Silvestri Pty Ltd v CFMEU [2005] FCA 1658, 226 ALR 247 Australian Competition and Consumer Commission v FFE Building Services Ltd [2003] FCAFC 132; (2003) 130 FCR 37 Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Bridal Fashions Pty Ltd v Comptroller-General of Customs (1996) 135 FLR 100, (1997) 17 WAR 499 CEO of Customs v Camile Trading Pty Ltd [2004] NSWSC 1256, 58 ATR 163 CEO of Customs v Evenfont Pty Ltd [2007] NSWSC 431 Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 Dare v Pulham (1982) 148 CLR 658 Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 CASES CITED: Hadgkiss v CFMEU [2005] FCA 1453, 146 IR 106 In the Matter of Water Wheel Mills Pty Ltd , Victorian Supreme Court, unreported 22 June 2001 Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 Rank Film Ltd v Video Information Centre [1982] AC 380 Re New World Alliance Pty Ltd (Receiver and Manager Appointed); Syncotex Pty Ltd v Baseler (1993) 47 FCR 90 Reid v Howard (1995) 184 CLR 1 Rich v Australian Securities and Investment Commission (2004) 220 CLR 129 Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 Sorby v The Commonwealth (1983) 152 CLR 281 Williams v Florida 399 US 78 (1970)

PARTIES: Peter MacDonald Australian Securities and Investments Commission

COUNSEL: Appellant: D Fagan SC/ D B Studdy/ D Mackay Respondent: R Beech-Jones SC/ J Single/ A Kuklik

SOLICITORS: Appellant: Minter Ellison Respondent: S E Hayden, ASIC

LOWER COURT JURISDICTION: Supreme Court - Equity Division

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40625/07

SPIGELMAN CJ MASON P GILES JA

Peter MacDONALD v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION JUDGMENT 1 SPIGELMAN CJ: The facts and issues are set out in the judgment of Mason P which I have read in draft. His Honour also refers to the relevant authorities. I agree that leave to appeal should be given and will address the Claimant as the Appellant 2 The principal issue addressed by Young CJ in Eq was the assertion on the part of the Appellant that he should be excused in limine from filing any kind of defence at all. His Honour, correctly in my opinion, rejected the proposition that the privilege against self-exposure to penalties was of so wide a range that it should exclude even the requirement to address the issues raised in the initiating process and determine whether to make a voluntary admission. The Appellant abandoned any such proposition at the oral hearing of this application. 3 The relief ultimately sought was in a significantly narrower compass, namely the following supplementary direction to those made by Justice Young: "4a With respect to the First Defendant, the requirements of Rule 14.14 and Rule 15.1 are dispensed with and the Defence of the First Defendant may be limited to identifying which paragraphs of the Further Amended Statement of Claim are admitted, not admitted and denied respectively. 4b Reserve liberty to the First Defendant to file an Amended Defence, pleading any additional facts not already traversed in the pleadings, after the Plaintiff has closed its case." 4 It is necessary to identify with precision the nature of the jurisdiction invoked. Before Young CJ in Eq the Appellant sought an order under r 14.2(1) that the proceedings be tried "without further pleadings", on the basis that it may properly be so tried by reason of the penalty privilege. The amended form of order sought in this Court is not based on this rule. The basis for the order now sought is s14 of the Civil Procedure Act 2005 which authorises the Court to dispense with any requirement of the rules "if satisfied that it is appropriate to do so". In order to protect the interests of the Appellant within the scope of the penalty privilege it would be appropriate, it is submitted, to dispense with the requirements of r 14.14 and r 15.1 and that is the form of order sought. 5 The submissions in this Court focussed upon the exculpatory provisions of the Corporations Act 2001 (Cth) upon which counsel appearing for the Appellant indicated that the Appellant may wish to rely. 6 In the nature of the proceedings disclosed in the Statement of Claim, and on the basis of the Court's experience with other such proceedings, it is virtually certain that reliance will be placed on the exculpatory provisions of the Corporations Act. The Respondent could not say that it had been taken by surprise, irrespective of when any formal pleading in this respect is filed and served. The difficulty for the Respondent, and the difficulty for the Court in the effective and efficient management of a case of this character, arises from the timing of disclosure of the facts and matters upon which the Appellant will rely in these respects. 7 The issue before the Court is not whether a general pleading in the bare terms of the statute should be required. In my opinion, such a pleading would serve little practical purpose and a significant function of pleadings, and of case management with respect to the content of pleadings, is to serve practical objectives of the administration of justice. In any event, what is sought is an exemption from rules which require facts to be pleaded and particulars to be provided. Those rules are not the source of the obligation to plead the intention to rely on the exculpatory provisions in general terms. 8 There was no contest that the Statement of Claim sought to impose a penalty, namely a monetary penalty under s1317G of the Corporations Act and/or a disqualification order under s206C or s206E of that Act. 9 The first issue is to determine whether or not the privilege from self-exposure to a penalty ("the penalty privilege") is brought into play by reason of an element of compulsion, whether of a formal or practical character. (As to the significance of the practical realities of the situation see Australian Competition and Consumer Commission v FFE Building Services Ltd [2003] FCAFC 132; (2003) 130 FCR 37 at [29].) The relevant provisions of the Uniform Civil Procedure Rules 2005, set out by Mason P, clearly contain an element of compulsion by requiring that in any defence "a party must plead specifically …" (r 14.14(2)) and "a pleading must give such particulars …" (r 15.1(1)). 10 The second issue to be determined is whether the penalty privilege is engaged by reason of the requirement to identify the matters set out in r 14.14(2) and r 15.1(1). The test is whether there is a likelihood or, indeed, a non-fanciful risk that, either directly or derivatively, compliance may assist the Respondent to establish any part of its case which could result in the imposition of a penalty. 11 In this regard the Appellant relied upon the specific pleading which it was required to provide namely to: · "Plead … any matter that, if not pleaded specifically, may take the opposite party by surprise." (r 14.14(2)(a)) · "Plead specifically any matter … that raises matters of fact not arising out of the preceding pleading." (r 14.14(2)(c)) · "Give such particulars … as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet." (r 15.1(1)) 12 In my opinion, it is not appropriate to answer a question of this character in the abstract. The identification of a likelihood or a non-fanciful risk requires some form of specification of the probability or of the risk. The only basis suggested in this appeal concerns the specific exculpatory provisions in the Corporations Act 2001. Of particular significance for present purposes is the possibility, indeed, the virtual certainty, that the Appellant will rely upon the business judgment rule and the honesty defences for which that Act makes specific provision. 13 Section 180(2) of the Corporations Act establishes the business judgment rule which has the effect of deeming an officer of the corporation to have met the requirements of s180(1), being one of the sections alleged to have been contravened by the Appellant. Amongst the requirements for establishing the applicability of this "rule", relevantly with respect to decisions or conduct said to have constituted a contravention, are: · That the officer has informed him or herself "about the subject matter of the judgment to the extent that they reasonably believe[d] to be appropriate" (s180(2)(c)); · That the officer did in fact "rationally believe that the judgment is in the best interests of the corporation" (s180(2)(d)). 14 The reference to "rationality" with respect to the second matter identified constitutes a requirement going beyond mere grounds for a belief and could require identification of the facts and matters upon which any such belief was based. 15 In both these respects, namely the process of the officer informing himself or herself about the relevant subject matter and having a rational basis for his or her belief, a pleading could require reference to facts and matters associated with the relevant decision making process that is alleged to have constituted a contravention. The identification of matters of this character may very well be matters that "may take the (opponent) by surprise" or that raise matters of fact not arising out of the Statement of Claim, within the meaning of r 14.14(2)(a)(c)). Furthermore, particulars of the matters so identified may well be "necessary to enable the opposite party to identify the case that the pleading requires him or her to meet" within r 15.1(1). 16 The Appellant also relies on s189, which enables a director to establish that it was reasonable for him or her to rely on information or advice given by employees, professional advisers, experts and others directors or officers or a committee of directors in the circumstances identified in s189(a). This is likely to be of relevance to the alleged contravention of s180(1): the duty of care and diligence. It is possible that it will also be relevant to the alleged contravention of s181(1): the duty of good faith. 17 The detailed Statement of Claim alleging contravention on the part of the Appellant of the duties imposed by s180(1) and s181(1) contains a number of references to advice of experts and other officers of the corporation, which indicate a real potential for the Appellant to invoke s189 in order to establish the reasonableness of his reliance. Again, as in the analysis of other sections, the requirement to plead facts and to provide particulars with respect to the information and advice said to have been relied upon by him, may assist the Respondent's case both with respect to establishing the contravention and convincing the Court to impose a penalty. 18 What is determinative for present purposes is the fact that the matters which are so identified may very well overlap, in a direct or contextual manner, with the facts and matters that need to be established by the Respondent in the proceedings in order to establish a contravention. 19 Further, such matters may be significant when determining whether or not a pre-condition to the imposition of a pecuniary penalty was established, i.e. was the contravention "serious" or did it "materially prejudice" the interests of the Corporation, its members or its ability to pay its creditors within s1317G(1)(b). 20 Finally, the required pleading or particulars may involve aspects of the knowledge, purpose or intention of the Appellant that could be of significance for the purposes of the Court's exercise of the discretion to impose a pecuniary penalty. 21 Parallel issues arise with respect to a disqualification order under s206C or s206E of the Corporations Act. The Court has a similarly wide range of considerations to take into account in the course of determining whether the "Court is satisfied that the disqualification is justified" (s206C(1)(b), s206E(1)(b)). In this respect the Court must have regard to "the person's conduct in relation to the management, business or property of any Corporation" (s206(C)(2)(a), s206E(2)(a)). Matters identified in the Appellant's case, by way of pleading facts or providing particulars, could either directly or derivatively extend to facts and matters capable of supporting the Respondent's case, particularly with respect to the exercise of the discretion to make a disqualification order. 22 The other exculpatory statutory provision upon which the Appellant relied was the honesty defence for which s1317S makes provision. The requisite elements, in substance, are identical with respect to the power of the Court to refuse to make orders by force of s1318. Of particular significance for present purposes is the wide ranging nature of the power to relieve from liability for contravention of a civil penalty provision. Section 1317S requires the Court to have regard to "all the circumstances of the case" and to determine that "the person ought fairly to be excused for the contravention" (s1317S(2)(b)(ii) c/f the virtually identical formulation in s1318(1)). 23 A requirement to identify the circumstances of the case that are pertinent to determining whether or not the Appellant "ought fairly to be excused" may involve facts which could take the Respondent by surprise or raise matters not arising out of the Statement of Claim within r 14.14(2) and the particularisation of which may be required under r 15.1(1). Again these are matters which could overlap with the Respondent's case, either directly or contextually, as to whether contravention has occurred and, if so, whether a penalty should be imposed. 24 The Respondent relied on the decision of the Supreme Court of the United States in Williams v Florida 399 US 78 (1970) where the Court determined that a requirement to give notice of an alibi did not offend the privilege against self-incrimination found in the Fifth Amendment for the Constitution of the United States. It can readily be accepted that aspects of criminal practice and procedure that do not infringe the privilege against self-incrimination will not infringe the penalty privilege. 25 The critical feature of an alibi defence which distinguishes the treatment of that matter from the issues before this Court is that, by its very nature, there can be no overlap between such a defence and matters which have to be proven in the prosecution case. Of course, raising a deficient alibi defence can adversely affect the defence case, but it cannot be said that the facts and matters required to be investigated for an alibi defence overlap with the elements of the offence required to be established by the prosecution. For the reasons given above the position is quite different here. 26 The Respondent also relied on observations by the Full Court of the Supreme Court of Western Australia in Bridal Fashions Pty Ltd v Comptroller-General of Customs (1996) 135 FLR 100. This authority, which preceded the High Court decision in Rich v Australian Securities and Investment Commission (2004) 220 CLR 129, must be treated with care. 27 The Respondent submitted that the reasons of Young CJ in Eq should be understood as an application of part of the reasoning of the Full Court. In that case the Full Court was concerned with s255 of the Customs Act 1901 (Cth), which provided that averments in an information had to be treated as prima facie evidence of the matters averred. The Court said at 516 to 517: "In practice, however, the practical effect of s255(1) is that a defendant will ordinarily be required to raise an affirmative allegation in its defence. With pleading the facts and circumstances of an affirmative case the defendant will not be able to tender positive exculpatory evidence … The defendant could readily plead an affirmative case by averring, for example: 'if (which is denied or not admitted) the alleged fact was as pleaded in para X of the Statement of Claim, the defendant says …' Should the defendant plead an affirmative case on this basis it would not thereby incriminate itself. On the contrary, the purpose of the affirmative case would be to set up a defence against the case brought against him by the prosecution." 28 In my opinion this passage in the joint judgment does not cover the circumstances of the present case. The requirements of r 14.14(2) and r 15.1(1) do not permit the Appellant only to plead in the manner set out by the Full Court. These rules require the Appellant to make positive assertions of fact, and to provide particulars thereof, going well beyond simply an acceptance that: if, which is denied or not admitted, the facts and matters in the Statement of Claim should be accepted, etc. Indeed this is the very purpose of r 14.14(2)(a) and (c). 29 Mason P is of the view that a pleading and particulars should be ordered which identifies allegations in the Statement of Claim which, if established, would be relied upon by the Appellant in its case under one of the exculpatory provisions. His Honour sets out a form of pleading at [72] which is directed to s189 but can be adapted to other exculpatory provisions. Like the formulation from Bridal Fashions this suggested pleading refers only to matters alleged in the Statement of Claim. 30 On this basis r 14.14(2)(c) referring to facts not alleged in the pleading has no application. Similarly, I do not see how the obligation to give particulars "necessary to enable (ASIC) to identify the [Appellant's] case" within s15.1(1) would apply. The scope of the pleading envisaged by Mason P appears to me to be confined to the "surprise" factor in r 14.14(2)(a). 31 As presently advised, I do not see that there would be any practical significance to such a pleading. Notwithstanding the fact that the Court has, unusually, made orders with respect to case management of a trial, they remain interlocutory directions and can be amended by the judge managing the case or conducting the trial. If a matter of practical significance emerges this issue can be re-agitated. 32 The Court should make an order of the character sought by the Appellant albeit in a more specific form. There is no warrant for making any order for costs of the proceedings before Young CJ in Eq, which were simply a normal part of the process of case management in which a number of different issues were raised. I agree with Mason P that there should be no order as to the costs in this Court. 33 The orders I propose are:

2 Add the following direction to the orders of Young CJ in Eq of 29 August 2007: 4(a) With respect to the first Defendant, the requirements of Rule 14.14 and 15.1 are dispensed with, with respect to any matters that arise pursuant to the provisions of s180(2), s189, s1317S, s1318, s206C or s206E of the Corporations Act 2001 (Cth). 4(b) Reserve liberty to the First Defendant to file an Amended Defence, pleading any additional facts not traversed in the pleadings, after the Plaintiff has closed its case.

3 No order as to the costs of the appeal. 34 MASON P: The opponent (ASIC) has commenced civil penalty proceedings against the claimant and 11 other defendants. Eight of the defendants are natural persons, two are trading corporations. 35 The prayers for relief referable to the claimant include declarations of various contraventions of the Corporations Law (Corporations Act 2001 (Cth), s1317E)); orders that the claimant pay a pecuniary penalty (s1317G); orders that the claimant be prohibited from managing a corporation (ss206C and 206E); and costs. 36 The Further Amended Statement of Claim extends beyond 200 pages, pleading ASIC's allegations of contravention in considerable detail. The allegations include matters referable to the corporate structure of the companies involved, the offices held by the natural defendants at various times, matters of background, and resolutions passed at meetings of shareholders and directors. These matters are unlikely to be contentious. 37 Other allegations are such that it may be expected that the claimant will wish to deny them or not admit them. 38 As regards some alleged contraventions the claimant has foreshadowed his intent to invoke statutory defences under the Corporations Law including the business judgment rule (s180(2)), good faith reliance upon information or advice supplied by others (s189) and also to claim relief based on honesty (ss1317S(2), 1318(1)). These defences will hereafter be referred to as the statutory defences. 39 The question at issue is the Court's power to order the filing of a Defence that is pleaded and particularised in accordance with the Uniform Civil Procedure Rules 2005 (UCPR). The appropriateness of doing so having regard to the overriding purpose of the Civil Procedure Act 2005 and the objects of case management could scarcely be denied. But the law of privilege confers substantive rights to which procedural rules must yield unless there is clear statutory authority to the contrary. 40 Section 1317L of the Corporations Law stipulates that the Court must apply the rules of evidence and procedure for civil matters when hearing the subject proceedings. This language does not abrogate the relevant privilege (Rich v Australian Securities & Investment Commission (2004) 220 CLR 129 at 140[19]-[20]). 41 Before Young CJ in Eq, the claimant contended that to require him to file any Defence would contravene the privilege available to natural defendants in civil penalty proceedings. The proposition was advanced in absolute terms: no Defence should be ordered to be filed, now or at any stage of the proceedings. 42 On 29 August 2007 Young CJ in Eq ordered the defendants to file and serve unverified Defences on or before 30 October 2007. Pursuant to s14 of the Civil Procedure Act, the requirement in the UCPR r14.23 that the Defences be verified by affidavit was dispensed with. 43 The claimant seeks leave to challenge these orders. The Court has heard full argument as on an appeal. 44 At the commencement of the hearing in this Court, senior counsel for the claimant withdrew the absolute proposition that had been advanced below. The claimant now accepts that he may be required at this stage of the proceedings to file a Defence indicating the extent to which ASIC's allegations are admitted, denied or not admitted. 45 This concession was properly made. Its lateness should be reflected in the costs order made in the appeal. 46 The rules of procedure that the Supreme Court is commanded to apply by s1317L of the Corporations Law include the principles of pleading as recognised by or stipulated in the UCPR. These principles and rules are directed to regulating the mode or conduct of court proceedings with a view to promoting fairness, efficiency and despatch. 47 In Dare v Pulham (1982) 148 CLR 658 the High Court said (at 664, citations omitted): Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it …; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial …; and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings…. See also Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286. 48 A defendant may in a pleading deny or not admit particular allegations, or plead limitation or other statutory defences, without in any way self-incriminating or exposing him or herself to a civil penalty. A defendant may choose to admit particular allegations, thereby shortening the trial and/or reducing the risk of an adverse costs order. 49 Indeed, a defendant who refuses to file a Defence exposes him or herself to a most significant prejudice. Without filing a Defence the allegations in the statement of claim stand admitted. It would then be open for the moving party (here ASIC) to apply for judgment according to the nature of its claim for relief (see UCPR r16.3). This consequence would flow from the direct application of s1317L with reference to the standard rules of procedure in the Supreme Court. It would have nothing to do with the defendant self-incriminating.

50 An alternative submission was advanced in this Court. 51 UCPR r14.14(2) and (3) provide: (2) In a defence or subsequent pleading, a party must plead specifically any matter: (a) that, if not pleaded specifically, may take the opposite party by surprise, or (b) that the party alleges makes any claim, defence or other case of the opposite party not maintainable, or (c) that raises matters of fact not arising out of the preceding pleading. (3) Matters which must be pleaded pursuant to subrule (2) include (but are not limited to) fraud, performance, release, statute of limitation, extinction of right or title, voluntary assumption of risk, causation of accident by unknown and undiscoverable mechanical defect and facts showing illegality. 52 UCPR r15.1(1) provides: (1) Subject to this Part, a pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet. 53 The claimant now seeks directions that the requirements of Rule 14.14 and Rule 15.1 of UCPR be dispensed with; that his Defence be limited to identifying which paragraphs of the Further Amended Statement of Claim are admitted, not admitted and denied respectively; and that liberty be reserved to him to file an Amended Defence, pleading any additional facts not already traversed in the pleadings, after ASIC has closed its case. 54 For reasons developed below, I do not accept that the claimant's privilege goes so far as to require such a blanket dispensation from the rules of pleading. Given the terms of s1317L, dispensation should only go so far as is necessary to serve the privilege and the interests it protects. 55 In concluding that it was open for him to order a Defence to be filed, the Chief Judge placed particular reliance upon Bridal Fashions Pty Ltd v Comptroller-General of Customs (1996) 135 FLR 100. That case involved a "Customs prosecution" for the recovery of penalties which, like these proceedings, was required to be tried in accordance with the usual practice of the Court in civil cases (Customs Act 1901 (Cth), s247). The Full Court of the Supreme Court of Western Australia (Malcolm CJ, Ipp and Owen JJ) accepted that the privilege against self-exposure to a penalty was available to natural defendants and that it had not been abrogated by the Customs Act. The Court held, nevertheless, that the privilege had no practical application in the pleading of a defence to a statement of claim in a Customs prosecution (see at 116-8). 56 This decision has been followed in the New South Wales Supreme Court in relation to a Customs prosecution (see CEO of Customs v Camile Trading Pty Ltd [2004] NSWSC 1256, 58 ATR 163 (Dunford J)) and in the Federal Court in relation to other types of civil penalty proceedings (see Hadgkiss v CFMEU [2005] FCA 1453, 146 IR 106 (Graham J); A & L Silvestri Pty Ltd v CFMEU [2005] FCA 1658, 226 ALR 247 (Gyles J)). 57

In Silvestri, Gyles J said (at [17]): A personal respondent to a penalty proceeding is entitled to put the applicant to proof of its case. Such a respondent cannot be forced to make an admission and no solicitor acting for that person can be held responsible for not ensuring that a party plead in a way which goes further than this. In other words, such a respondent can decline to admit matters alleged against it. To the extent that the rules of pleading require to be modified to enable this to take place, that will be done. There is no occasion, however, for relieving respondents of a duty to plead. Even in a criminal trial, a defendant pleads guilty or not guilty. The issue would arise in a case where a personal respondent proposes to rely upon a positive defence. Penalty proceeding or not, means must be found to advise the applicant and the court of any positive defence so that the trial can be properly prepared and conducted. It is at that point that there may be a debate as to the appropriate course, which may involve a closer examination of the decisions in Bridal Fashions and Hadgkiss . That has not yet arisen here. Directions can be sought if and when it does. 58 In CEO of Customs v Camile Trading Pty Ltd, Dunford J (at [32]) also qualified his approval of the reasoning in Bridal Fashions by reserving the question whether pleading a positive exculpatory case may give leads or open up fresh fields of inquiry to the plaintiff, thus exposing the defendant to incrimination or penalty. See also CEO of Customs v Evenfont Pty Ltd [2007] NSWSC 431 at [41] (Bell J). 59 ASIC submitted that there should be no relaxation of the pleading rules. To require a full pleading does not require the defendant to assist ASIC in its claim for penalties, it merely ensures that the defendant gives timely notice of any positive case he proposes to advance whether by reliance upon evidence tendered by the plaintiff, cross-examination of the plaintiff's witnesses, or (in due course) tendering evidence of his own. Without full pleadings the trial may be prolonged because the defendant could scarcely complain that ASIC was splitting its case if it tendered in reply evidence responsive to material first foreshadowed and revealed in the defence case. 60 This is not the place to be determining issues of micro-management of a complex proceeding, particularly those that may turn upon rulings as to where the onus of proving a particular matter lies. The Court should also avoid judicial advice in hypotheticals. Merely because a privilege may arm a defendant with forensic rights does not mean that he or she will necessarily choose to exercise them, particularly if the consequence might be the lengthening of a trial and/or enabling the plaintiff to present a case in reply. 61 ASIC referred the Court to Williams v Florida 399 US 78 (1970) where the United States Supreme Court held that Florida's rule of criminal procedure requiring a defendant who intends to rely on an alibi to disclose to the prosecutor the names of his alibi witnesses did not violate the Fifth Amendment to the United States Constitution. Justice White, who delivered the opinion of the Court, said (at 82): The adversary system of trial is hardly an end in itself; it is not yet a poker game in which players enjoy an absolute right always to conceal their cards until played.

62 As to the asserted violation of the privilege against self-incrimination, Justice White said (at 83-4, 85): The defendant in a criminal trial is frequently forced to testify himself and to call other witnesses in an effort to reduce the risk of conviction. When he presents his witnesses, he must reveal their identity and submit them to cross-examination which in itself may prove incriminating or which may furnish the State with leads to incriminating rebuttal evidence. That the defendant faces such a dilemma demanding a choice between complete silence and presenting a defense has never been thought an invasion of the privilege against compelled self-incrimination. The pressures generated by the State's evidence may be severe but they do not vitiate the defendant's choice to present an alibi defense and witnesses to prove it, even though the attempted defense ends in catastrophe for the defendant. However 'testimonial' or 'incriminating' the alibi defense proves to be, it cannot be considered 'compelled' within the meaning of the Fifth and Fourteenth Amendments.

In the case before us, the notice-of-alibi rule by itself in no way affected petitioner's crucial decision to call alibi witnesses or added to the legitimate pressures leading to that course of action. At most, the rule only compelled petitioner to accelerate the timing of his disclosure, forcing him to divulge at an earlier date information that the petitioner from the beginning planned to divulge at trial. Nothing in the Fifth Amendment privilege entitles a defendant as a matter of constitutional right to await the end of the State's case before announcing the nature of his defense, any more than it entitles him to await the jury's verdict on the State's case-in-chief before deciding whether or not to take the stand himself. Petitioner concedes that absent the notice-of-alibi rule the Constitution would raise no bar to the court's granting the State a continuance at trial on the ground of surprise as soon as the alibi witness is called. Nor would there be self-incrimination problems if, during that continuance, the State was permitted to do precisely what it did here prior to trial: take the deposition of the witness and find rebuttal evidence. But if so utilizing a continuance is permissible under the Fifth and Fourteenth Amendments, then surely the same result may be accomplished through pretrial discovery, as it was here, avoiding the necessity of a disrupted trial. 63 I share these sentiments. But I recognise that the Australian jurisprudence referable to the privilege appears to arm a defendant with superior rights, including the right to resist compelled advance disclosure of any material that could assist the plaintiff directly or indirectly in its quest for the imposition of a criminal sanction or a penalty. 64 The privilege serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it (Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at 559[31], Rich at 142[24]). But this does not define the scope of the privilege. The related privilege touching the criminal law is one of self-incrimination (emphasis added). The nub of the privilege is that the State should not be able to compel a defendant to provide proof against him or herself (Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 at 532; Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 at 129). The privilege extends to protect against compelled disclosure of evidence or documents that would increase the tendency of exposure to penalty (Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 at 612F per Lord Wilberforce). 65 In Rich the High Court held that the privilege meant that a court could not order discovery in civil penalty proceedings under the Corporations Law. The High Court's reasons for refusing in limine to order discovery illustrate its recognition of the need to guard against direct or indirect prejudice, including the prejudice of providing clues about where to trace documents or to link them with the defendant. In the joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, the majority explained the setting aside of the order for discovery in the following terms (at 148[39] citations omitted): As Isaacs J pointed out in R v Associated Northern Collieries , once it is determined that the proceedings expose a person to penalty, the proper course is to refuse any order for discovery. As Isaacs J said, to leave the party at risk of penalty to object to production of documents, having first listed them, may lead to the very mischief which the privilege is designed to prevent. In the words of Lord Coleridge CJ in Jones v Jones , to which Isaacs J referred: "The whole case for the plaintiff may depend upon his power to trace a particular document into the possession of the defendant, and, upon its non-production, to prove its contents by secondary evidence." That being so, the proper course in this matter was to refuse the application for discovery.

66 A defendant is entitled to be protected against both direct and indirect self-incrimination. Accordingly, the privilege also protects against the compelled disclosure of information that "may set in train a process which may lead to incrimination or may lead to the discovery of real evidence of an incriminating character" (per Lord Wilberforce in Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 at 443, cited by Gibbs CJ in Sorby v The Commonwealth (1983) 152 CLR 281 at 294. See also Sorby at 310 per Mason, Wilson and Dawson JJ; Reid v Howard (1995) 184 CLR 1 at 6-7 per Deane J.). 67 The need for a privilege claim to be bona fide and reasonable is well established (see generally Heydon J D, Cross on Evidence 6th Aust ed, Butterworths, Sydney, 2000 at [25100]). But courts err on the side of caution lest an apparently innocuous disclosure has unforeseen adverse consequences (see generally Re New World Alliance Pty Ltd (Receiver and Manager Appointed); Syncotex Pty Ltd v Baseler (1993) 47 FCR 90 at 96-7 per Sheppard J). 68 In the hearing before the High Court in Rich, ASIC accepted that if discovery should not have been ordered, an order requiring Mr Rich to file and serve affidavits should not have been made. 69 The correctness of that concession had been upheld by the Full Federal Court in Australian Competition and Consumer Commission v FFE Building Services Ltd [2003] FCAFC 132; (2003) 130 FCR 37. The Court (Emmett, Hely and Jacobson JJ) explained why the privilege allowed a defendant to withhold advance filing of witness statements in a penalty case in the following terms (at 41[14]): By requiring an individual respondent, prior to the closure of an applicant's case, to file statements of evidence proposed to be given by witnesses to be called by that respondent, such a respondent would be exposed to the risk that indirect or derivative evidence, being evidence obtained by using the material disclosed in the statement as a basis of investigation, could be tendered against the respondent. The provisional disclosure of information may set in train a process that may lead to the imposition of a penalty or may lead to the discovery of real evidence in support of a penalty: Reid v Howard at 6. 70 The Court further explained its reasons for not ordering the provision of witness statements before trial as follows (at 44[29], 45[34]):

While there would be no direct compulsion on Fodera and Bell to file statements pursuant to the directions sought by the Commission, the practical consequence of the direction may be that they will be compelled to file statements in order to preserve the option to which they are entitled, to decide after the Commission's case is closed, to go into evidence. If they are compelled either to file statements before the commencement of the trial or to be precluded from going into evidence, there is a practical compulsion imposed on them, in order to preserve the option that the law gives to them, to file statements. That is inconsistent with the privilege.

… It is true that, at some stage of the proceedings, a respondent must elect whether or not to go into evidence. But an election which is preserved until after the Commission closes its case is quite different from one which is brought forward to a time before the case is closed. Once it is acknowledged that circumstances may arise before the case is closed under which supplementary evidence may be adduced, even though it was obtained from the respondent's 'leads', it is plain that the privilege is so weakened that it is either impermissibly abrogated or substantially undermined.

71 In my opinion, these principles mean that the claimant should not be compelled to include in his Defence any information that may have the tendency to expose him directly or indirectly to the penalties being sought by ASIC. 72 To draw the line conceptually at this point will not relieve the claimant from compliance with UCPR rr14.14 and 15.1 so far as disclosing in his pleading his intention to invoke the statutory defences or any other "positive" defence, regardless of where the onus lies in establishing that defence. Not every form of affirmative defence has the requisite tendency. I see nothing wrong with a pleading in the following form: If, which is denied, the matters alleged in para X constitute a contravention of sY of the Corporations Law, the defendant says that the matters alleged by ASIC also establish that the claimant relied upon information or professional or expert advice (etc) / acted honestly (etc). The defendant reserves the right to advance in his case additional material in support of his defence, the details whereof will be disclosed by amending this paragraph after the close of ASIC's case.

See also Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 86, Bridal Fashions at 117. 73 In the Matter of Water Wheel Mills Pty Ltd, Victorian Supreme Court, unreported, Mandie J, 22 June 2001, involved a civil penalty claim under the Corporations Law. Mandie J declined to order a defence to be filed going beyond one indicating the matters admitted, denied or not admitted. His Honour was not persuaded to follow Bridal Fashions. He considered that any meaningful pleading of affirmative allegations by way of defence might expose the defendants to a civil penalty or put the plaintiff upon notice of a train of enquiry which might expose the defendants to a civil penalty. 74 I respectfully disagree. In my view, the Rules ought to be departed from no more than is necessary to give effect to the privilege. The pleading mechanism I have suggested would require the claimant to invoke from the outset any relevant defence or statutory ground of dispensation; and it would require him to identify any parts of ASIC's own allegations intended to be relied upon in that regard. There would also be a framework that defines the legal issues throughout the trial against which rulings as to admissibility could be made (at least in some circumstances). If and to the extent that the claimant exercised his right to plead and particularise in the manner indicated and not to waive his privilege by venturing further, there will still be the likelihood of ASIC's evidentiary case being split more than it otherwise might be, but at least this consequence would be reduced to a minimum.

75 I would grant leave to appeal, direct the claimant to file and serve his notice of appeal within 3 days and make the following orders in the appeal:

Set aside the direction that the appellant file and serve an unverified Defence on or before 30 October 2007.

Dispense with the requirements of rr14.14 and 15.1 to the extent of permitting a pleading in accordance with these reasons.

Direct that on or before 9 November 2007 the appellant file an unverified Defence in accordance with these reasons.

Liberty to apply. 76 These orders do not foreclose an application in the Equity Division to raise more specific claims for relief against the Rules. But there would need to be material showing a demonstrable and genuine case for relief in the particular situation (see CEO of Customs v Camile Trading at [32], Silvestri at [15]). 77 GILES JA: I agree with the reasons of Mason P, with which I do not think the reasons of Spigelman CJ are inconsistent, for the appellant's entitlement to protection against exposure to a penalty. 78 Their Honours differ in giving effect to that entitlement, first in the utility seen in the form of pleading proposed by Mason P and secondly in the Chief Justice's limitation of immediate dispensation with the requirements of rr 14.14 and 15.1 to matters arising pursuant to identified statutory provisions. The utility may be far from complete, but the form of pleading has a purpose and in principle the privilege should be made out and should be given effect only so far as necessary. Matters may arise other than pursuant to the identified statutory provisions, and there should be allowance for them while making it clear that the appellant must disclose and plead them so far as not thereby exposing himself to a penalty. 79 Accordingly, I agree with the orders proposed by Mason P. **********

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Corporations Law (Corporations Act 2001(Cth)

(Customs Act 1901(Cth)

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