Solicitors:
William James (Plaintiffs)
RE Barros & Company (Defendants)
File Number(s): 2018/71774
[2]
Judgment (ex tempore - revised 22 april 2018)
HIS HONOUR: The first defendant, Mr Kent, was employed as Chief Financial Officer by the Pace group of companies. Three companies in that group say that Mr Kent has misappropriated very substantial sums of money over a number of years. The current estimate is that the misappropriations may have exceeded in total $9 million.
There is evidence that Mr Kent has made oral admissions as to the misappropriations. However, there is no confirmation (from a source other than the plaintiffs' witnesses) of those admissions. There is, however, evidence of an admission made in writing by Mr Kent to an investigative accountant retained by the plaintiffs that he misappropriated approximately $1.2 million by one particular fraudulent mechanism and that he may have misappropriated $7 million to $9 million in total.
I am concerned today with Mr Kent's application for a stay of the proceedings. He seeks that stay because he has been charged with three counts of breach of s 192E(1)(b) of the Crimes Act 1900 (NSW). In essence, each charge alleges that, on a number of occasions, Mr Kent dishonestly obtained a financial advantage or caused disadvantage by deception. In each case the company said to have been the victim of that conduct is the third plaintiff. No criminal charges have been laid in respect to any losses that the first two plaintiffs claim to have suffered.
Mr Kent gives evidence that he wishes to see if he can negotiate a plea of guilty in the criminal proceedings. The negotiations will commence, he says, once the brief of evidence is served. There is evidence from Mr Kent's solicitor in the criminal proceedings, Mr Danny Eid, confirming that the negotiations may commence once the brief of evidence has been served. Mr Eid estimates it may take up to six months for that to happen and for the negotiations to be complete.
Mr Kent seeks the stay because he says that if he is compelled to answer the civil case against him, including by filing in due course a commercial list response and by serving his evidence, his ability to negotiate the plea may be prejudiced. Presumably, that prejudice would arise if Mr Kent were required to file a commercial list response in compliance with paragraph 11 of Practice Note SC Eq 3. That paragraph contemplates that a response will either admit or deny the matters alleged in the commercial list statement. By implication, at least, it forbids a traverse by non-admission. It has to be said that the implication is disobeyed as often as it is obeyed. Mr Kent says, further, that prejudice will arise if, once the plaintiffs put on their evidence, he is compelled to serve evidence in response.
There are a number of features of the case which make the application very difficult to assess. One is that the criminal charges that have been laid relate to the position as between only Mr Kent and the third plaintiff. Another is that there are in all 10 defendants, the second of them being Mr Kent's wife. The allegation against the other defendants in these proceedings is in effect that they have received the proceeds of the alleged fraudulent behaviour and are liable to account or disgorge accordingly. None of those defendants is the subject of any existing criminal charge.
Another relevant factor is that freezing orders have been imposed, the effect of which is to prevent all the defendants from disposing of or diminishing their assets. There are the usual exceptions, as I understand it, for living expenses in respect of the first two defendants and for legal expenses in respect of all defendants.
However, the most unusual feature of this application is that at present the plaintiffs have not served their commercial list statement. A fortiori, they have not served all their evidence. Thus, at this stage, what is being sought will have the effect that the plaintiffs will be prevented, by force of the stay, from taking those steps. It is very hard to see what prejudice of any relevant kind could accrue to Mr Kent if those steps were to be taken.
I have come to the conclusion that the application can be dealt with on a very narrow basis. It is convenient to do this because a more detailed consideration would take substantial time, and would involve analysis of many authorities, not all of which speak with a consistent voice.
For example, the starting point taken in submissions by Ms Madgwick of Counsel, who appeared for Mr Kent, was that the discretion ordinarily falls to be exercised by reference to the considerations discussed by Wootten J in McMahon v Gould [1] . She referred to his Honour's well known statement of the discretionary guidelines at 206-207. Those guidelines had been adopted as appropriate on many occasions, including in the Court of Appeal of this State. Ms Madgwick submitted, however, that they were nonetheless inconsistent with subsequent High Court authority on the point. She referred in particular to Reid v Howard [2] and to Commissioner of the Australian Federal Police v Zhao [3] . I do accept that there are propositions in those two High Court cases that could be seen to be inconsistent with some of the propositions stated as guidelines by Wootten J in McMahon.
However, Mr Hynes of Counsel, who appeared for the plaintiffs, submitted that unless and until either the High Court or an intermediate appellate court dealt with the matter authoritatively, I should adopt the guidelines stated by Wootten J in McMahon. He submitted, correctly, that those guidelines had been accepted on many occasions as appropriate, including by decisions of the Court of Appeal (as I have said). He pointed out that at least some decisions of the Court of Appeal adopting Wootten J's guidelines postdate the High Court's decision in Reid (see for example Niven v SS [4] ).
I can accept that if Mr Kent is required to put on a defence answering, by admission or denial only, the allegations that will be pleaded in the commercial list statement (and it is not hard to imagine what those allegations will be, at least in the generic sense), his fundamental privilege against self incrimination (and I refer to the High Court's characterisation in Reid at 12-13) may be imperilled. Certainly, that will be the case if Mr Kent is required to put on evidence.
As against those considerations, it has to be accepted that there is no absolute right to a stay. The very fact that there have been numerous High Court decisions dealing with the circumstances in which a stay might or might not be granted confirms that. One of the factors to be considered is the right of a plaintiff in civil proceedings to have its case brought to trial and decided. Another, particularly relevant in cases such as this, is the right of a plaintiff in civil proceedings to seek to find out where the money has gone, with a view to considering what tracing or proprietary remedies may be available to it.
Another very important consideration is that proposed by s 56 of the Civil Procedure Act 2005 (NSW). The Court is required to attend to the just, quick and cheap definition and disposal of the real issues in dispute. It might be thought that a stay is inconsistent with that command. However, as Ms Madgwick pointed out, the pursuit of the just, quick and cheap definition and disposal of the real issues in dispute is unlikely to be assisted by some hybrid form of order which seeks to sequester from the authorities whatever admission may appear in any pleading or evidence that Mr Kent is required to and does file or serve.
In that context, I note, further, the observations of the High Court in Reid. Their Honours pointed out [5] that neither the inherent nor the statutory powers of this Court could be used to authorise non-compliance with a search warrant or to excuse compliance with a subpoena. Further, in relation to orders that might prevent the use of material such as a pleading or an affidavit produced by compulsion, their Honours said [6] that it is inimical to the administration of justice for a civil court to compel self-incriminatory disclosures, whilst fashioning orders to prevent the use of the information thus obtained in a court vested with criminal jurisdiction with respect to the matters disclosed.
Mr Hynes submitted that there could be no real question of prejudice in circumstances where Mr Kent had made admissions. I do not think this is to the point. To the extent that the admissions were made orally, it would, I suppose, be open in due course to Mr Kent to deny them. To the extent that they are made in writing (in the document to which I have referred) there is absolutely no assurance that they will be coextensive with the case that, ultimately, the plaintiffs seek to plead and make out.
Taking all those matters into account, I come to the conclusion that it is not appropriate at this stage to order a stay. I express that view because it seems to me that there could be no prejudice, of the relevant kind, to Mr Kent by permitting the plaintiffs to put on their commercial list statement and, in due course, the evidence on which they will seek to rely. Whether or not Mr Kent should be compelled to reply to that evidence is a matter that really can only be analysed properly when the full extent of the case sought to be made out against him is known.
Of course, that jumps over the intermediate step: namely, what Mr Kent might or might not say in his commercial list response. Ms Madgwick submitted that the plaintiffs would not know what evidence to put on until they knew what matters were in issue. In the ordinary way, that submission would meet with ready acceptance. However, I think there is very little risk in this case that the plaintiffs will seek to modify or limit their evidence to accommodate the niceties of pleaded issues. I am reinforced in that view because Mr Hynes accepted that it would be open to the Court to permit Mr Kent put on a commercial list response which contained non-admissions, in effect excusing him from obeying the implied command in paragraph 11 of the Practice Note. It follows inexorably from that submission that the plaintiffs will intend to seek to prove every allegation that they plead, regardless of any admissions that might be made.
I do think that there is a risk of prejudice to the plaintiffs if the matter is stayed. One element of prejudice is that they cannot prepare their case, including by the issue of subpoenas or other processes. It is at least conceivable in my view that if they are forced to halt all preparation, the plaintiffs will suffer prejudice because their attempts to trace and seek proprietary remedies in respect of the proceeds of the alleged defalcations may be impeded. As I have said, I cannot see at present any prejudice to Mr Kent in allowing the plaintiffs to proceed with that aspect of their case.
Ms Madgwick submitted that Mr Kent did not have the financial resources to permit him to defend both these proceedings and the criminal proceedings. It seems to me that there are two answers to that. The first is that it is a situation that he has brought upon himself (I say that because it appears to be reasonably clear, from the document to which I have referred, that he admits very substantial defalcations). However, the real answer is that if all Mr Kent is required to do in these proceedings at the present time is put on a commercial list response in which he may avail himself of non-admissions notwithstanding Practice Note SC Eq 3, paragraph 11, then the costs that he is likely to incur will not be very high.
For those reasons, and on the assumption that appropriate directions can be drafted, I am of the view that the application for a stay is premature and that the notice of motion filed on 11 April 2018 should be dismissed. I wish to make it perfectly clear that nothing in what I have said should be taken as precluding the bringing of a further application for a stay if, in due course, it appears to Mr Kent to be appropriate to do so. My decision is based purely upon the facts revealed by the evidence in support of the particular application with which I have dealt.
That leaves the question of costs and the question of directions, and I will hear counsel on those matters.
[3]
Endnotes
(1982) 7 ACLR 202.
(1995) 184 CLR 1.
(2015) 255 CLR 46.
[2006] NSWCA 338.
At 16.
At 17.
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: 26 April 2018