Shipley v Masu Financial Management

Australian Securities and Investments Commission Act 2001 (Cth) LEGISLATION CITED : Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth)

Johns v Australian Securities Commission (1993) 178 CLR 408 Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 138; (2000) 18 ACLC 609 Saleam v R (1989) 16 NSWLR 14 CASES CITED : National Employers' Mutual General Insurance Association Ltd v Waind and Hill [1978] 1 NSWLR 372 R v Saleam [1999] NSWCCA 86 Attorney General (NSW) v Chidgey [2008] NSWCCA 65 DPP v Selway [2007] VSC 244 Ragg v Magistrates' Court of Victoria [2008] VSC 1

James Shipley and Patricia Shipley in their own right and as representative for the persons in Sched A to the Originating Process PARTIES : v Masu Financial Management Pty Ltd

COUNSEL : Plaintiffs: R G Forster SC & A J Abadee Defendant: D L Williams SC

SOLICITORS : Plaintiffs: Slater & Gordon Defendants: Gilchrist Connell

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1817/07 James Shipley and Patricia Shipley in their own right and as representative for the persons in Sched A to the Originating Process v Masu Financial Management Pty Ltd JUDGMENT 1 HIS HONOUR: The plaintiffs issued a subpoena to the Australian Securities and Investments Commission ("ASIC") for the production of records of examinations conducted under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act") of directors, officers or agents of the defendant, and any related books. 2 ASIC produced 19 folders of documents in response to the subpoena. The defendant and three of its officers, who were examined under s 19 of the ASIC Act, seek to restrain the plaintiffs from having access to the transcripts of the examination and some of the other documents produced by ASIC on subpoena. 3 The applicants have not objected to the plaintiffs having access to documents produced by ASIC which came into existence contemporaneously with the transactions under investigation. 4 The plaintiffs have not pressed a claim in respect of access to some of the documents produced. The documents in dispute are the transcripts of examinations and correspondence between ASIC and the defendant, or between ASIC and the examinees from 2006, in connection with ASIC's execution of its coercive investigative powers. 5 The plaintiffs sue for themselves and as representatives of 27 investors in promissory notes issued by three companies, called mezzanine companies, in the Westpoint Group. The plaintiffs allege that, through its authorised representatives, the defendant provided advice as a financial services licensee to them, and to group members, and in doing so contravened s 945A of the Corporations Act 2001 (Cth). The plaintiffs also allege that the defendant was required to give them and the group members product disclosure statements in relation to the investment in the promissory notes. It is said that the investment was a managed investment scheme and that the defendants contravened s 1012A of the Corporations Act by failing to provide such a statement. 6 The authorised representatives for whose conduct the defendant is alleged to be liable include its two directors, Mr Martin Speiser and Mr Surendra Pather. They were examined by ASIC under s 19 of the ASIC Act. A Mr Alan Pashut was also examined. 7 The plaintiffs' proceedings were commenced on 13 March 2007. Notices under s 19 of the ASIC Act were served on the examinees requiring their attendance on 10 October 2007, 8 November 2007 and 13 December 2007. 8 On 8 November 2007, ASIC announced that it would take action under s 50 of the ASIC Act for the benefit of investors in the Westpoint group seeking compensation for their failed investments. 9 Section 50 of the ASIC Act provides that where, as a result of an investigation, or from a record of examination, it appears to ASIC to be in the public interest for a person to begin or carry on a proceeding for the recovery of damages, for, inter alia, a breach of duty committed in connection with a matter to which the investigation related, ASIC may, in the case of an individual with his or her written consent, cause such a proceeding to be begun and carried on in the person's name. 10 In its press release of 8 November 2007, ASIC announced it would allege that, in selling products with the risk and financial characteristics of Westpoint, five financial services licensees, including the defendant, did not comply with the law. It announced that it expected proceedings to be filed by the end of the year. 11 On 18 December 2007, an investor, Mr Stogef, commenced proceedings in the Federal Court on behalf of himself and others who were clients of the defendant and invested in Westpoint products in reliance on advice from the defendant and suffered financial loss as a result. This is a group proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth). The group excludes those represented by the plaintiff in these proceedings. 12 It is common ground that ASIC has caused those proceedings to be brought pursuant to s 50 of the ASIC Act. 13 Those proceedings extend to five "mezzanine companies", including three companies the subject of claims in these present proceedings. In the Federal Court proceedings, additional causes of action are alleged, but claims are made to the same effect as those made by the plaintiffs in these proceedings, although, of course, they are made on behalf of different investors. 14 The examinations of the three individual applicants were conducted compulsorily and in private (ASIC Act, ss 19 and 22). Notices were apparently given pursuant to s 30(2) of the ASIC Act to produce documents. It also appears that in 2006, ASIC required the defendant to provide information pursuant to s 912C of the Corporations Act. 15 Section 127(1)(a) of the ASIC Act provides: " 127 Confidentiality

(1) ASIC must take all reasonable measures to protect from unauthorised use or disclosure information: (a) given to it in confidence in or in connection with the performance of its functions or the exercise of its powers under the corporations legislation (other than the excluded provisions); ... " 16 There is no question but that the documents and information provided to ASIC by the applicants, which are now in dispute, including answers given to questions on oath or affirmation in the examinations, were provided in the confidence imposed by the provisions of the ASIC Act (see Johns v Australian Securities Commission (1993) 178 CLR 408 at 423-424; Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 138; (2000) 18 ACLC 609 at [9] ("Maronis")). In Maronis, Bryson J (as his Honour then was) said (at [9]): " The cumulative effect of the requirement that the examination take place in private, the restriction on the persons who may attend, the regulation by s25 of distribution of copies and the overriding limit restricting the collection and use of information to the purposes for which the powers were conferred is that a person who has been examined has a claim to protection of confidentiality. That claim is not unqualified because disclosures of information may take place in the course of proper use of the information for the purpose for which the information was obtained. Disclosure to others may take place in the course of conducting a prosecution, adducing evidence in a prosecution and in other ways. " 17 The applicants contend first that ASIC was entitled to object to the plaintiffs inspecting subpoenaed documents on the ground that ASIC was entitled to claim legal professional privilege and public interest immunity. ASIC made no such claims and was not a party to this present application. The applicants contend that s 127(1)(a) obliged ASIC to advance such claims to protect the confidentiality of the examinations and of the documents produced to it. The applicants submitted that their entitlement to protection of confidential communications should not be destroyed because ASIC failed to maintain claims of privilege. 18 Secondly, the applicants submitted that the subpoena sought a wide range of documents which might have no relevance to the issues in the present proceedings and would probably extend well beyond matters relevant to these proceedings. They submitted that the subpoenas were a fishing exercise; that the plaintiffs had not identified a legitimate forensic purpose for the issue of the subpoena; and they had not demonstrated, as they were required to do, that it is "on the cards" that the documents will materially assist the plaintiffs' case. 19 The applicants submitted that, for those reasons, the plaintiffs should not be entitled to inspect the documents to which objection is now taken. 20 Thirdly, the applicant submitted that if the plaintiffs might otherwise be entitled to inspect the documents in question, a balancing exercise is required and that their claims to confidentiality should be protected in preference to what might otherwise be the plaintiff's prima facie right to inspect the documents produced. In this respect, Bryson J said in Maronis (at [15]): "When the Court is considering what directions it should give allowing or restricting access to and inspection of documents which have been produced to it under subpoena it should take into account claims of confidentiality and give them appropriate protection; however protection of claims of confidentiality is not the only consideration before the Court when a party applies for access, and may be overridden by other considerations relating to public interest in the administration of justice and the interests of litigants in having relevant evidence available for tender. " 21 There are fundamental difficulties with the applicant's first submission. The first is that s 127(1)(a) requires ASIC to take all reasonable measures to protect information given to it in confidence in connection with the exercise of its powers from unauthorised use or disclosure. In producing documents to the Court pursuant to a subpoena, ASIC was not making a disclosure of such information (Maronis at [12]). Nor would any use or disclosure of information resulting from its compliance with the subpoena be unauthorised. The command of the subpoena, and the order of the Court permitting inspection, authorises disclosure to those to whom inspection is given, and authorises use of the information for the purposes of the proceedings (see Maronis at [28]). 22 The second difficulty with the submission is that ASIC is not a party to this application. Even if s 127(1)(a) had the meaning for which the applicants contend, I could not conclude on the present evidence, and in the absence of ASIC, that ASIC would be entitled to object to the plaintiffs' inspecting documents on the ground of privilege, or that it was reasonable to maintain such a claim to protect the applicant's confidentiality. 23 As to the applicant's second submission, it is true that the subpoena calls for a wide range of documents. But ASIC did not claim the subpoena was oppressive on that ground or otherwise object to its width. It produced the documents without objection (see Saleam v R (1989) 16 NSWLR 14 at 17). 24 I accept that it is likely that the subpoenaed material will include documents and transcripts of examinations which go to matters outside the issues in these proceedings. The ASIC investigation covered a longer period than the period the subject of these proceedings, and it may be inferred from its press release and the allegations in the Federal Court proceedings that the investigation covered additional transactions than those the subject of these proceedings. 25 Nonetheless, it is clear that material relevant to these proceedings would be contained in the documents now in dispute. The applicants submitted otherwise, but led no evidence as to the subject matters of the inquiry; which could have been done without revealing confidential material. In correspondence the defendant's solicitors said that if access to the disputed subpoenaed material were allowed, this would affect the scope of matters to be addressed in the defendant's lay evidence. From this, it is clear that material relevant to the issues in these proceedings is contained in the disputed subpoenaed material. 26 However, that is not sufficient in itself to justify inspection. The plaintiffs referred to the observations of Moffitt P in National Employers' Mutual General Insurance Association Ltd v Waind and Hill [1978] 1 NSWLR 372 at 385 where his Honour said: " No right of the opposing party is involved in making an order permitting inspection of a stranger's documents. It is difficult to see on what basis he can object. His right is to have only admissible evidence adduced. " 27 No submissions were made as to whether this was part of the ratio of National Employers' Mutual General Insurance Association Ltd v Waind and Hill. The position is now dealt with in R v Saleam [1999] NSWCCA 86 where Simpson J, with whom Spigelman CJ and Studdert J agreed, said (at [11]): " The principles governing applications of this kind are no different from those governing applications for access to documents produced in answer to a subpoena. Before access is granted (or an order to produce made) the applicant must (i) identify a legitimate forensic purpose for which access is sought; and (ii) establish that it is 'on the cards' that the documents will materially assist his case. So much was established in earlier proceedings brought by this applicant: R v Saleam (1989) 16 NSWLR 14, per Hunt CJ at CL; see also R v Ali Tastan (1994) 75 A Crim R 498 per Barr AJ, as he then was." 28 This was recently reaffirmed in Attorney General (NSW) v Chidgey [2008] NSWCCA 65 at [64]. 29 The forensic purpose of the subpoena identified by the plaintiffs was in: " ... accessing documents that indicate what, if anything, Messrs Pather, Speiser and Pashut disclosed to ASIC in late 2007 about the financial product advices they supplied on the defendant's behalf (or had knowledge or information about what was supplied) to retail clients, and the circumstances (including basis or bases) in which such advices were supplied, in the period from December 2003 to September 2005. " 30 I accept that this is a legitimate forensic purpose. The primary legitimate forensic purpose is seeking relevant admissions; whether or not such admissions can be tendered or can be used in cross-examination, either to establish facts or on credit. It is also a legitimate forensic purpose to identify lines of enquiry relevant to the plaintiff's claims or the defence. 31 The more difficult question is whether the plaintiffs have established that it is "on the cards" that the material will materially assist their case. It is not sufficient to demonstrate that the documents are likely to contain relevant material (see Chidgey at [72], [77] and [78]). The plaintiffs do not need to demonstrate that it is probable that the subpoenaed material will be of assistance, only that that is a reasonable possibility (Chidgey at [74]-[78] and cases there set out, particularly DPP v Selway [2007] VSC 244; Ragg v Magistrates' Court of Victoria [2008] VSC 1 at [95]). 32 I infer that there is such a reasonable possibility from two matters. First, it was after the examination of Mr Pather on 10 October 2007 that ASIC had announced its intention to cause proceedings to be brought against the defendant pursuant to s 50 of the ASIC Act. Those proceedings extend to the matters which are the subject of the plaintiffs' claim. 33 Secondly, the defendant's solicitors have said that its lay evidence will need to take into consideration the outcome of the present motion and that such evidence cannot be completed until judgment on this motion is given. It is a reasonable inference that if the disputed subpoenaed material is produced for the plaintiffs' inspection, it will contain matters that will call for an explanation. 34 Neither party submitted that I should review the disputed material myself to determine its likely relevance or possible assistance to the plaintiffs, although both parties said they would not object to such a course. In Maronis, Bryson J inspected the material on his own initiative. 35 The applicants referred me to Saleam v R where Hunt J (with whom Carruthers and Grove JJ agreed), said (at 18): " Before granting access when such an objection has been taken, the judge should usually inspect the documents (or those which the Crown may suggest are sufficiently representative) for himself, as it is unfortunately not unknown for the objection taken to be misconceived: see also the remarks of Brennan J in [ Alister v R (1984) 154 CLR 404] (at 455, 456). If no public interest immunity or other privilege is claimed (and upheld), and if a legitimate forensic purpose for their production has been demonstrated, the judge should not withhold access to the documents simply on the basis that in his view that purpose would not be satisfied in that particular case because he can see nothing in the documents which will in fact assist the accused in his defence. Provided that a legitimate forensic purpose has been demonstrated, it should be for the accused (or, in appropriate cases, for his legal advisers only) to satisfy himself on that score after his own inspection of the documents. " (My emphasis.)

36 There may be a slip in this passage. The possibility that objection to access is taken on a misconceived ground would be a reason for a judge inspecting documents before deciding to withhold access rather than before granting access. The reference to the remarks of Brennan J in Alister's case suggests that this is what Hunt J had in mind. 37 I have no prior acquaintance with these proceedings. I do not know what evidence will be relied upon or what are the critical issues. I am not in the position of a trial judge where subpoenaed documents are produced at the hearing. If I were to read the transcripts of examinations and other documents in dispute, I would not be able to make an informed assessment of their likely utility or their non-utility for the plaintiffs. If the applicants wished to contend that the documents would have no legitimate forensic utility to the plaintiffs, it would have been open to them to have tendered the documents on a confidential basis and submitted why that is so. I think it is likely that that could have been done without disclosing the confidential contents. The applicants did not take that course. I do not consider that I should now inspect the documents to attempt to carry out a task for which I am not equipped. 38 The remaining question is whether the applicants' claim to confidentiality should be protected, notwithstanding my conclusion that there is a reasonable possibility that the documents will advance a legitimate forensic purpose of the plaintiffs. The applicants' claim for confidentiality is outweighed by the interests of the plaintiffs and the parties who they represent, and the public interest in the administration of justice, that relevant material which may reasonably be supposed can advance the plaintiffs' case, be made available for inspection, so that all proper material is available at a trial. 39 The difficulty is that it is not presently known how much of the subpoenaed material falls into this category. The applicants are entitled to maintain confidentiality in respect of the balance. I consider the same general approach as was adopted in Maronis should be adopted in this case to balance the competing interests. 40 In the first instance, the subpoenaed material should be produced only to the solicitors and barristers for the plaintiffs and not otherwise disclosed. Once the plaintiffs' legal representatives have identified the material they consider to be of material and of forensic significance, they should seek the defendant's consent to the disclosure of that material to the plaintiffs, the parties they represent, and any other relevant persons such as expert witnesses or a litigation funder. If consent to such disclosure is not forthcoming, leave to make such disclosure can be sought from a judge. I see no reason to limit the number of solicitors or barristers to whom disclosure is made in the first instance, and I see no reason not to permit disclosure to the plaintiffs' solicitors. 41 For these reasons I order that access to documents produced on subpoena by ASIC which are listed in the schedule contained in annexure B to the affidavit of Steve Vrtkovski sworn 8 October 2008 be provided to the solicitors and barristers retained by the plaintiffs. I order that, except with the written consent of the solicitors for the defendant or with the leave of a judge, no part of the contents of such documents is to be communicated to any other person other than the solicitors or barristers retained by the plaintiff, or any secretary or word processing operator, and, in the latter case, for the purpose of seeking such consent or leave. 42 I order that the amended interlocutory process filed on 21 October 2008 be otherwise dismissed. 43 The exhibits may be returned after 28 days. 44 My preliminary view is that costs of the application be the plaintiffs' costs of the proceedings. If any party seeks a different order for costs I will hear them.

[Counsel addressed] 45 I amend the order to provide for access to the solicitors and counsel not only of the documents which are listed in the schedule annexure B to the affidavit of Mr Vrtkovski but also to the transcript of Mr Alan Pashut's examination on 13 December 2007. 46 The costs of the application will be the plaintiff's costs of the proceedings. 47 I make orders in accordance with the short minutes of order which I initial and date today and place with the papers. The proceedings are stood over to the Corporations List judge on 6 March 2009.

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