Plaintiff v Defendant

2 The first plaintiff is a Korean registered company which acts as a collective investment scheme manager investing funds in both Korea and overseas. Between March and June 2019 the plaintiffs entered into eight separate commercial loan agreements pursuant to which the second plaintiff advanced funds to the first defendant totalling $394,740,000 (the advanced funds).[2] The plaintiffs allege that the funds were advanced on condition that they would be invested only in specified properties which were to be leased to eligible tenants registered under the National Disability Insurance Scheme.[3]

3 The plaintiffs allege that the first, second and fifth defendants forged or procured the forging of numerous documents: insurance certificates, contracts of sale, title documents, legal advises and other documents and provided the forgeries to the plaintiffs in purported compliance with the terms of the commercial loan agreements.[4]

4 The plaintiffs allege that the first, second and fifth defendants did not use the advanced funds for the acquisition of the NDIS properties, but rather expended the funds for unauthorised purposes, including:

(a) the acquisition of other properties which had not been specified in the commercial loan agreements and were not capable of being leased to eligible NDIS tenants;

(b) applied the funds towards the deposits for the acquisition of other real estate which had not been specified in the commercial loan agreements and which was not capable of being leased to eligible NDIS tenants;

(c) applied the funds towards the acquisition of unauthorised design and construction services and brokerage and advisory services; and

(d) otherwise dissipated the funds in a manner unknown to the plaintiffs but not authorised by the commercial loan agreements.[5]

5 It is not in dispute that of the advanced funds, the sum of $337,264,583 has been voluntarily returned to the first plaintiff by the defendants.[6]

6 The fifth defendant is the sole director of the first, second, third and fourth defendants.[7] The plaintiffs allege that the fifth defendant sent a number of forged documents to representatives of the plaintiffs and executed a number of the contracts for the purchase of unauthorised properties.[8]

7 The plaintiffs allege that the sixth defendant was at all material times a senior employee of the first defendant.[9] The plaintiffs allege that the sixth defendant forged 38 documents and forwarded these documents to representatives of the plaintiffs under the guise of the documents being genuine in order to satisfy the conditions precedent under the commercial loan agreements.[10] The plaintiffs also allege that the sixth defendant aided, abetted or procured a contravention of the Australian Consumer Law in relation to misleading representations made by the fifth defendant, or alternatively, was knowingly concerned in the contravention, either directly or indirectly, by providing some of the forged documents to the plaintiff.[11] The plaintiffs further allege that the sixth defendant aided or abetted a contravention of the Australian Consumer Law in relation to unconscionable conduct by the fifth defendant or alternatively was knowingly concerned in the contravention, either directly or indirectly, from no later than 21 June 2019, by providing some of the forged documents to the plaintiff.[12]

8 The plaintiffs allege that between 18 April 2018 and 30 August 2018, the eighth defendant was a director of the second defendant.[13] The plaintiffs allege that between January 2019 and September 2019 the eighth defendant held himself out to the plaintiffs as the managing director and/or a senior representative of the first defendant.[14] The plaintiffs allege that the eighth defendant was aware that two properties (Hall Street and Margaret Street) for which the plaintiffs advanced funds were not in fact subject to any sale agreement.[15] The plaintiffs allege that the eighth defendant attended a meeting with representatives of the plaintiff in Korea on 29 April 2019 together with the fifth defendant and advised those in attendance that the Hall Street and Margaret Street properties had been acquired. The plaintiffs allege that on the next day both the eighth defendant and the fifth defendant received an email from the developer of the Hall Street and Margaret Street properties confirming that the purchase of the properties would not proceed.[16]

9 The fifth defendant has not currently been charged with any criminal offence. However, the Victorian Government Solicitor's Office has advised the plaintiffs' and fifth defendant's solicitors that a criminal investigation is ongoing and that charges are 'on the cards'.[17]

10 The first to fifth defendants seek an order that the proceeding be stayed until further order the completion of any criminal investigation and prosecution of the fifth defendant. The application is supported by the sixth and eighth defendants, who submit that if the proceeding is stayed as against the fifth defendant it should also be stayed as against them.

11 The principles relevant to the stay of civil proceedings where there are concurrent criminal proceedings were summarised by J Forrest J in Crespin v Frances & Anor:[18]

1. Turning now to the principles relevant to concurrent civil and criminal proceedings. In a general sense and, subject to one important qualification, the guidelines set out by Wooten J in McMahon v Gould describe the manner in which an application such as this is to be determined. These are:

(a) Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court;

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

(c) The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should be interfered with;

(d) Neither an accused nor the Crown 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', taking account of all relevant factors;

(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;

(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. 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;

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

(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;

(ii) the proximity of the criminal hearing;

(iii) the possibility of miscarriage of justice e.g. by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses;

(iv) the burden on the defendant of preparing for both sets of proceedings concurrently;

(v) whether the defendant has already disclosed his defence to the allegations;

(vi) the conduct of the defendant, including his own prior invocation of civil process when it suited him;

(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;

(1) In an appropriate case the proceedings may be allowed to proceed to a certain stage, e.g. setting down for trial, and then stayed.

1. The qualification is significant. It is that, as was recognised by the Court of Appeal in Zhao, and impliedly on the appeal in the High Court, the McMahon guidelines arguably failed to accord sufficient primacy to the accused's right to a manifestly fair criminal trial.
2. Kirby P's judgment in Yuill v Spedley Securities Ltd (in liq) is worth repeating, as it was by the Court of Appeal in Zhao:

One day it may be appropriate for this court to reconsider the guidelines stated by Wootten J in McMahon v Gould. There are, in my view, considerations additional to those which are referred to by Wootten J which it would be relevant to consider in proceeding to determine an application for a stay such as was before Rolfe J. For example, it is in my opinion relevant to take specifically into account the public's own interest in the normal primacy of the administration of criminal justice, being a part of the public law of the community relevant to its good order and peaceful government. This consideration might help explain why, ordinarily but not universally, such proceedings should be heard and determined first.

Also relevant is the fact that serious criminal proceedings are still determined, in most cases in this State, by juries. Most civil litigation is now decided by judges sitting alone. Judges, by their training, are conventionally considered to be better able to make the mental adjustments for excluding the prejudicial effect of pre-trial publicity than lay jurors are. The sensational and highly personalised presentation of much news by the news media today has become a factor relevant to the fair trial of prominent "personalities". Guarding their right to a manifestly fair criminal trial is as much in the interest of the community and its legal institutions as in the interests of the individuals concerned.

A further consideration in cases of this class is the 'deep-rooted' inclination of our law to avoid, directly or indirectly, depriving a person of the right to silence in criminal proceedings. Sometimes the prior litigation of the [civil] trial may have that effect, either by its interlocutory procedures or by the need of the accused, in the forensic setting of the civil trial, to give evidence or ask questions, thereby disclosing a defence to the outstanding criminal charge.

More than lip service must be paid by courts to the preservation of these enduring features of the criminal process, whether in the interpretation of apparently inconsistent statutes or in the exercise of a discretion to stay civil proceedings until related criminal proceedings are completed. Such features exist not only to protect the rights of the individual accused but also to help define the relationship between the organised state and citizens generally. In the context of cases such as the present, it is possible that the guidelines in McMahon v Gould need to be revised to reflect more accurately such considerations. Basic rights matter most where they seem most painful to accord.

1. On appeal, the High Court in Zhao reaffirmed the principle that there must not merely be a link between the criminal and civil conduct, rather, the accused must demonstrate there is a real risk of prejudice:

The Commissioner contends, as the primary judge had held, that it was necessary that the second respondent state the specific matters of prejudice before a stay could be contemplated. However, to require the second respondent to do so would be to make the risk of prejudice a reality by requiring him to reveal information about his defence, the very situation which an order for a stay seeks to avoid. Similarly, the Commissioner's contention that the court should defer making an order for a stay until the parties have exchanged their evidence is beside the point.

The prospect that civil proceedings may prejudice a criminal trial and that such prejudice may require a stay of the civil proceedings is hardly novel. In some jurisdictions, procedures are provided for making an application for a stay in such circumstances. The risk of prejudice in a case such as this is real. The second respondent can point to a risk of prejudice; the Commissioner cannot.

1. In my opinion, the High Court and the Court of Appeal have made it clear that where a civil proceeding creates a real risk of prejudice to the defence for the criminal charges - which I infer to be one that is not fanciful or remote - then the applicant should, absent a dominant contradictory consideration, be entitled to a stay of the civil proceeding.
2. Moreover, both decisions demonstrate that there should be a focus in an application such as this on the risk of prejudice (and whether it is real) to the accused in the criminal trial in determining whether to grant a stay or not.[19]

12 I accept the submission of Mr Williams QC who appeared for the first to fifth defendants, that any criminal charges which are laid against the fifth defendant are likely to include obtaining a financial advantage by deception and forgery.[20] I also accept Mr Williams' submission that these are very serious offences carrying substantial jail terms on conviction. In this regard it is not disputed that the scale of the plaintiffs' alleged financial losses run to tens of millions of dollars. Mr Williams accepted that there is a 'shortfall' of approximately $40 million comprising the difference between:

(a) The funds advanced to the defendants by the plaintiffs ($394,740,000); and

(b) The funds voluntarily returned ($337,264,583) and the value of the properties in which funds were invested ($15 million).[21]

13 The freezing order made by the Court on 23 August 2019 required the fifth defendant to file an affidavit identifying the assets of the first and second defendants. The affidavit was filed on 16 September 2019. The affidavit does not disclose any assets which have been acquired with the $40 million shortfall. There is no evidence currently before the Court which sheds any light on how the $40 million has been expended.

14 Mr Williams made the following submissions regarding the $40 million shortfall:

Your Honour, I don't shy aware from that which falls from the evidence and what I have said does fall from the evidence. My own client, as was required of him by the orders at the outset, went on oath as to the purchase price as to the various properties. So what I've said doesn't go beyond that. That's the state of the evidence. I'm not here to make - admit additional submissions on behalf of my client, but the evidence that's been directed to file and has filed.[22]

We don't think the plaintiff's entirely in the dark about those matters and we also observe that there have been mutual attempts by the parties to consider getting together and resolving it, including one that went for some extended period late last year.[23]

Certainly our position is that the plaintiffs have a very good understanding of where most, if not all, of the money has gone. It's not all gone into properties and the plaintiffs know that and the plaintiffs have got documents showing the payments and where those payments.[24]

15 In summary, the first to fifth defendants admitted during the hearing on 24 July 2020 that $40 million has been received by them from the plaintiffs but has not been repaid. They also admitted that the money has been spent otherwise than on property.

16 The Court's power to control its proceedings and to order a stay in an appropriate case is informed by the requirements of the interests of justice in each case.[25] It is necessary to focus on the risk of prejudice to the fifth defendant in criminal proceedings which are on the cards.[26] It is also necessary to have regard to any prejudice to the plaintiffs if a stay of the proceeding is granted.[27]

17 The fifth defendant did not file an affidavit in support of the application for a stay. As such, there is no direct evidence before the Court that the fifth defendant intends to give evidence in the proceedings and which identifies the matters about which he intends to give evidence. The plaintiffs submit that in these circumstances there is no proper evidentiary foundation for the Court to grant a stay of proceedings. In response, Mr Williams submits that in light of the allegations made against the fifth defendant in the civil proceedings, including the forgery of documents and misleading representations, the Court can be satisfied of the risk of prejudice to the fifth defendant:

The nature of the allegations pleaded by the allegations pleaded by the plaintiffs in this case makes it clear that James Charisou's [sic] evidence will be central to the determination of the issues. The Plaintiffs seek to prove the making of misleading, indeed fraudulent, representations. They seek to prove reliance on these representations, and loss caused by them. Without Mr Charisiou giving oral evidence, the Applicants will plainly be hamstrung in responding to those allegations. He thus faces the invidious choice of giving evidence, thereby affording his accusers a 'dress rehearsal' of his evidence including cross-examination, or not giving evidence, thereby prejudicing the defence of this proceeding.[28]

18 I accept Mr Williams' submission that if the fifth defendant gives evidence at trial in respect of the allegations of forgery/misrepresentation there is a real prospect that his right to a manifestly fair criminal trial will be prejudiced. Each case turns on its own facts. In some cases a court cannot not be satisfied that there is a real risk of prejudice to a fair criminal trial unless an applicant for a stay deposes to the matters they intend to give evidence about in civil proceedings and how this might prejudice their criminal trial. However, in the present proceeding there is a very strong nexus between the plaintiffs' allegation of forgery and pending criminal charges. The fifth defendant's failure to file an affidavit does not prevent the Court from being satisfied that there is a real risk of prejudice to a fair criminal trial.[29]

19 The risk of prejudice set out above does not justify a blanket stay order precluding any further interlocutory steps from being taken in the proceeding. The interests of justice favour a step by step consideration of which interlocutory steps should be ordered and the appropriate way in which such steps should proceed, taking account of the prejudice to the fifth defendant if he is required to address the allegations of forgery and misrepresentation.[30] This approach does not preclude the fifth defendant from making further applications for a stay of proceedings.[31] I accept that if the fifth defendant is required to give evidence in these proceedings, there is a real risk of prejudice to his right to a fair criminal trial. It is therefore likely that it will be necessary at some point in the future to stay the proceeding.

20 I accept that if the fifth defendant is required to discover documents relevant to the allegations of forgery and misrepresentation his right to a fair trial could be prejudiced. However, I do not accept that a blanket prohibition on discovery is necessary to preserve the fifth defendant's right to a fair trial. The fifth defendant's counsel has admitted that there is a $40 million shortfall in respect of funds advanced by the plaintiffs. The plaintiffs have a legitimate interest in tracing the whereabouts of the $40 million.[32] Interlocutory steps in the proceeding, including targeted discovery, may assist the plaintiffs in tracing the $40 million shortfall. This is a matter which weighs heavily against a blanket stay order. I do not accept that the freezing order made on 23 August 2019 secures the plaintiff's position in respect of the $40 million shortfall. The affidavit filed by the fifth defendant pursuant to the terms of the freezing order does not shed any light on the present whereabouts of the $40 million. If the defendants wish to resist discovery of documents relating to the whereabouts/expenditure of the $40 million they will need to place evidence before the Court which establishes how such discovery prejudices the fifth defendant's right to a fair trial.

21 In considering potential prejudice to the plaintiffs if a blanket stay order is made, I have also had regard to evidence in respect of legal proceedings in Korea. The first plaintiff is being sued by Korean investors who invested funds in investment vehicles managed by the first plaintiff which were used to fund some of the commercial loan agreements between the plaintiffs and the first and second defendants. The shortfall of $40 million forms part of the basis of the Korean claim and is a direct result of the loss claimed against the defendants in the current proceedings.[33] Any damages recovered by the plaintiffs in the current proceeding will potentially reduce the plaintiffs' liability in the Korean proceedings. Whatever damages the plaintiffs recover in the current proceedings could be made available to the Korean investors, thereby reducing the quantum of their claim.

22 Weighing the interests of justice, particularly the fifth defendant's right to a manifestly fair criminal trial as against the legitimate interest of the plaintiffs in seeking to recover an admitted shortfall of $40 million, I do not propose to make a blanket order staying the proceeding until the completion of any criminal investigation and prosecution of the fifth defendant. The interests of justice favour a step by step consideration of which interlocutory steps should be ordered. In the first instance, the plaintiffs are entitled to seek discovery of documents by category from the fifth defendants, provided production of such documents does not prejudice the fifth defendant's right to a manifestly fair criminal trial.

23 In light of the conclusions set out above, there is no basis for the proceedings to be stayed as against the sixth and eighth defendants. There is no evidence that the laying of criminal charges against the sixth and eighth defendants is 'on the cards'. Further, I do not consider there is any prejudice to the sixth and eighth defendants if they are also subject to a step by step consideration of which interlocutory steps are to be ordered. Neither of the sixth and eighth defendants have filed a defence. In the first instance, the sixth and eighth defendants will be ordered to file defences. An affidavit filed on behalf of the eighth defendant sworn by his solicitor for the purposes of the present application discloses the defences to be advanced by the eighth defendant to the principal allegations made against him in the amended statement of claim.[34]

24 As regards the sixth defendant, it is alleged in the amended statement of claim that he forged 38 documents. Notwithstanding the absence of evidence that criminal charges in respect of this alleged forgery is on the cards, the sixth defendant will not be required to plead a positive defence to these allegations, if he declines to do so.

25 In addition to filing defences, each of the sixth and eighth defendants should provide discovery. It may be appropriate to limit such discovery to specific categories. If necessary, any dispute regarding the extent of discovery can be the subject of further hearing.

26 The first to fifth defendants' application that the proceeding be stayed until the completion of any criminal investigation and prosecution of the fifth defendant is dismissed. In order to give effect to this judgment it will be necessary for orders to be made requiring the filing of defences by the sixth and eighth defendants and discovery of documents by the fifth, sixth and eighth defendants. The parties should endeavour to reach agreement as to an appropriate form of order. If no agreement can be reached the proceeding will be listed for further hearing. I shall provide the parties with an opportunity to make submissions on the question of costs of the application.

[1] Plaintiffs' written submissions on the stay application filed 22 July 2020 (Plaintiffs' written submissions) at [9].

[2] Amended Statement of Claim filed 28 February 2020 (Statement of Claim) at [16].

[17] Letter from Victorian Government Solicitors Office to Mr Nick Galatas and Ms Jessye Freeman dated 18 May 2020, Exhibit NG-33 to the affidavit of Nick Galatas affirmed 26 June 2020.

[18] [2016] VSC 277.

[19] See also Stocks v Johns (No 2) [2019] VSC 584 at [59]-[61].

[20] Transcript of proceedings, 24 July 2020 T 22 l 17-8.

[25] Williams & Ors v TT Line Co & Anor [2019] VSC 869 at [23]; Commissioner of the Australian Federal Police v Zhao [2015] HCA 5; (2015) 255 CLR 46, 58 [36]; Construction, Forestry, Mining and Energy Union v ACCC [2016] FCAFC 97; (2016) 242 FCR 153, 160 [22].

[26] Crespin v Frances & Anor [2016] VSC 277, [27].

[27] Stocks v Johns (No 2) [2019] VSC 854, [42]-[44]; [70]-[72].

[28] First to fifth defendants' written submissions in support of the stay application filed 17 July 2020 at [13].

[29] Commissioner of the Australian Federal Police v Zhou [2015] HCA 5; (2015) 255 CLR 46, 59 [42].

[30] Impiombato v BHP Group Ltd (2020) 143 ACSR 301, 329-30 [143]; Williams & Ors v TT Line Co Pty Ltd & Anor [2019] VSC 869, [31](m).

[31] MWP Transport Pty Ltd v Michael Thomas Kent [2018] NSWSC 524, [21].

[32] MWP Transport Pty Ltd v Michael Thomas Kent [2018] NSWSC 524 at [19].

[33] Affidavit of James Kang sworn 27 March 2020 at [6].

[34] Affidavit of Maria Kerhoulas, sworn 2 April 2020 at [7](a).