Deloitte Touche Tohmatsu (A Firm) v Sadie Ville Pty Ltd (As Trustee for Sadie Ville Superannuation Fund)
[2020] FCAFC 23
•27 February 2020
FEDERAL COURT OF AUSTRALIA
Deloitte Touche Tohmatsu (A Firm) v Sadie Ville Pty Ltd (As Trustee for Sadie Ville Superannuation Fund) [2020] FCAFC 23
Appeal from: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 3) [2018] FCA 1107;
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 4) [2018] FCA 1218;
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 5) [2018] FCA 2066
File numbers: VID 1063 of 2018
VID 65 of 2019Judges: WIGNEY, MARKOVIC AND O'CALLAGHAN JJ Date of judgment: 27 February 2020 Catchwords: PRACTICE AND PROCEDURE – discovery – privilege against self-incrimination – privilege against exposure to penalties – where accounting firm objected to production of its audit files, review files and working papers in relation to the relevant engagements – where the statement of claim alleged contraventions of statutory provisions that were offence provisions and/or pecuniary penalty provisions – whether production of the documents would give rise to a real and appreciable risk of prosecution and/or institution of proceedings for a pecuniary penalty – whether primary judge erred in finding no real or appreciable risk of criminal or civil penalty proceedings being commenced against partners of the accounting firm who were not directly involved in the relevant engagements
PRACTICE AND PROCEDURE – discovery – control – where primary judge made production order requiring uninvolved partners to produce the relevant documents – whether primary judge erred in finding that the uninvolved partners had control of the relevant documents at the time of making the production order
PRACTICE AND PROCEDURE – discovery – application to be excused from complying with production order or that the production order be discharged – where a partner who was not required to produce the relevant documents (on the basis of a successful claim of privilege against self-incrimination) obtained the documents and refused to make them available to the other partners – whether in the circumstances the partners who were subject to the production order should be excused from complying with the production order – whether the production order should be discharged – where primary judge did not excuse the relevant partners from complying with the production order, nor discharge the production order, on the basis of the events that occurred after making the production order – whether primary judge erred in finding that the relevant partners had failed to discharge the onus of establishing a proper basis for excusing the partners from complying with the production order or discharging the order
Legislation: Australian Consumer Law (Victoria) ss 29, 29(1), 151, 151(1), 151(1)(b), 151(4), 151(5), 151(6), 224, 228, 228(2), 236
Australian Consumer Law and Fair Trading Act 2012 (Vic) s 10, Pt 2.2
Australian Securities and Investments Commission Act 2001 (Cth) ss 5(2)(a), 12DB, 12DB(1), 12DB(1)(a), 12DB(3), 12GB, 12GB(1), 12GB(1)(a), 12GB(6), 12GBA, 12GBA(1), 12GBB, 12GBC, 12GBC(1), 12GBC(2), 12GF, 12GM
Competition and Consumer Act 2010 (Cth) Sch 2, Australian Consumer Law
Consumer Protection Act 1969 (NSW) ss 32, 32(3)
Corporations Act 2001 (Cth) ss 307A, 307A(2), 307A(4), 324AA, 324AB, 324AB(1), 324AB(3), 324AB(5), 324AF(1), 728, 729, 761F, 1041E, 1311, 1311B, 1325, Pt2M.3 Div 3, Ch 7, Sch 3
Criminal Code Act 1995 (Cth) Sch s 11.2
Federal Court of Australia Act 1976 (Cth) s 23
Federal Court Rules 2011 (Cth) rr 9.41, 39.05, 39.05(c)
Partnership Act 1890 (UK) ss 10, 12
Partnership Act 1892 (NSW) ss 10, 10(1), 12
Partnership Act 1958 (Vic) ss 14, 14(1), 16
Partnership Act, RSBC 1996, c 348, s 12
Trade Practices Act 1974 (Cth) ss 77, 77(1)
Trade Descriptions Act 1968 (UK) ss 1, 24
Cases cited: Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2016) 244 FCR 190
Bishop v Chung Brothers (1907) 4 CLR 1262
Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44
Clode v Barnes [1974] 1 WLR 544
Clone Pty Ltd v Players Pty Ltd (in liq) (2016) 127 SASR 1
Collins v Poole (1977) 2 TPC 173
Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501
Comptroller-General of Customs v Parker [2006] NSWSC 390; (2006) 200 FLR 44
Dubai Aluminium Co Ltd v Salaam [2002] All ER (D) 60 (Dec); [2003] 2 AC 366
Griffin v Sogelease Australia Ltd (2003) 57 NSWLR 257
Jago v District Court (NSW) (1989) 168 CLR 23
Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304
Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627
Parsons v Barnes [1973] Crim LR 537
Professional Administration Service Centres Pty Ltd v Commissioner of Taxation [2012] FCAFC 180; (2012) 295 ALR 52
Reid v Howard (1995) 184 CLR 1
Riley and others v Director of Public Prosecutions [2016] EWHC 2531; [2017] 1 WLR 505
Rochfort v Trade Practices Commission (1982) 153 CLR 134
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (2017) 123 ACSR 223
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 3) (2018) 357 ALR 695; FCA 1107
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 4) [2018] FCA 1218
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 5) [2018] FCA 2066
Seeto v The Queen [2008] NSWCCA 227
Strother v 3464920 Canada Inc [2007] 2 SCR 177
Taylor v Santos Ltd (1998) 71 SASR 434
The Attorney-General of the Commonwealth v Oates (1999) 198 CLR 162
Theodore v Australian Postal Commission [1988] VR 272
Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR 647
W. Stevenson & Sons (A Partnership) v R [2008] EWCA Crim 273
Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1
Date of hearing: 6 May 2019 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 295 Counsel for the Appellant: Mr I R Pike SC with Mr A Shearer Solicitor for the Appellant: Clifford Chance Counsel for the Respondent: Mr L W L Armstrong QC with Mr A D Pound Solicitor for the Respondent: Phi Finney McDonald ORDERS
VID 1063 of 2018
VID 65 of 2019BETWEEN: DELOITTE TOUCHE TOHMATSU (A FIRM)
Appellant
AND: SADIE VILLE PTY LTD (AS TRUSTEE FOR SADIE VILLE SUPERANNUATION FUND)
Respondent
JUDGES:
WIGNEY, MARKOVIC AND O'CALLAGHAN JJ
DATE OF ORDER:
27 FEBRUARY 2020
THE COURT ORDERS THAT:
1.The appellant has leave to appeal.
2.The appellant file notices of appeal within seven days of this order, the notices of appeal to be in the form of the draft notices of appeal which accompanied the applications for leave to appeal.
3.The appeals be dismissed.
4.The appellant pay the respondent’s costs of the appeals.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WIGNEY J:
Sadie Ville Pty Limited (as trustee for Sadie Ville Superannuation Fund) has commenced representative proceedings in this Court against Deloitte Touche Tohmatsu, a firm or partnership which conducts a business which includes the provision of accounting, auditing and advisory services. Sadie Ville alleges in those proceedings that Deloitte is liable to compensate it and group members on whose behalf the proceedings have been commenced for losses or damage arising from alleged breaches by Deloitte of various provisions of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act2001 (Cth) (ASIC Act) and the Australian Consumer Law (Victoria). Some of those provisions create criminal offences. Others are civil or pecuniary penalty provisions; meaning that a regulator may institute proceedings against a person who is alleged to have contravened the provisions for the recovery of a pecuniary penalty payable to the Commonwealth or a State or Territory.
This application for leave to appeal by Deloitte concerns interlocutory rulings by the primary judge the effect of which was to require certain of the present or former partners of Deloitte to discover and produce documents in respect of which they had claimed privilege against self-incrimination or the privilege against exposure to a penalty. The primary judge upheld privilege claims made by one particular partner, Mr Reuben Saayman, and any other partner who, like Mr Saayman, was directly involved in the relevant engagements which gave rise to the alleged contraventions. Those engagements involved the provision of audit reports in respect of the financial statements of a public company, Hastie Group Limited, and the provision of an investigating accountant’s report for inclusion in a prospectus released by Hastie. Crucially, however, the primary judge found that there was no real or appreciable risk that criminal or civil penalty proceedings would be commenced against any partner or partners who were not directly involved in the Hastie engagements. His Honour also rejected Deloitte’s contention that the so-called “uninvolved partners” did not relevantly have control of the documents which were the subject of the production order.
In support of its application for leave to appeal, Deloitte contended that the primary judge erred in finding both that there was no real or appreciable risk that criminal or civil penalty proceedings would be commenced against the uninvolved partners and that the uninvolved partners had control of the relevant documents. It was also contended that his Honour subsequently erred in not excusing the uninvolved partners from complying with the production order, or in not discharging the production order, on the basis that events which occurred after the making of the production order meant that the uninvolved partners were unable to comply with it.
I have read the reasons to be published by Markovic and O’Callaghan JJ. I agree with their Honours that leave to appeal should be granted but that the appeals should be dismissed with costs. Subject to what follows, largely by way of elaboration or further elucidation, I also agree with their Honours’ reasons.
I gratefully adopt Markovic and O’Callaghan JJ’s detailed recitation and summary of Sadie Ville’s pleaded case, the evidence which was before the primary judge, the decisions and reasoning of the primary judge, the grounds of appeal and the submissions made by the parties in relation to those grounds of appeal. That allows me to go directly to the three critical issues which are raised by the appeals: first, whether the primary judge was right to conclude that there was no real or appreciable risk that criminal or civil penalty proceedings would be commenced against the uninvolved partners; second, whether his Honour was correct in finding that the uninvolved partners had control of the relevant documents at the time of the making of the production order; and third, whether the primary judge erred in any way in finding that Deloitte had failed to discharge its onus of establishing a proper basis for excusing the uninvolved partners from complying with the production order or discharging the order.
REAL OR APPRECIABLE RISK OF PROSECUTION OR PENALTY
Deloitte did not take issue with the primary judge’s consideration of the principles regarding the privilege against self-incrimination and the privilege against exposure to penalties: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 3) (2018) 357 ALR 695; FCA 1107 (Sadie Ville v DTT (No. 3)) at [91]-[102]. In simple terms, a person claiming the privilege bears the onus of establishing that their provision of information or documents by compulsion would give rise to a real and appreciable risk of prosecution, in the case of the privilege against self-incrimination, or a real and appreciable risk of the institution of proceedings for a civil penalty, in the case of the privilege against exposure to penalties.
The primary judge found that Mr Saayman and the other partners who were directly involved in the Hastie engagements that gave rise to the alleged contraventions (the so-called “involved partners”) had discharged that onus. His Honour accordingly upheld their privilege claim. The critical issue was and is whether the uninvolved partners – partners who had no direct involvement in those engagements, and who therefore had not been, and were not alleged to have been, engaged in, or been aware of, any of the conduct that was alleged to constitute the alleged contraventions – faced any real or appreciable risk of criminal or penalty proceedings being commenced against them.
Deloitte contended, in effect, that there was a real or appreciable risk of criminal or penalty proceedings being commenced against the uninvolved partners simply because they were partners of the firm; that is, because they were partners of Mr Saayman and any of the other partners who were directly involved in the Hastie engagements and who had engaged in the conduct which was alleged to have constituted the contraventions. It should perhaps be noted in this context that Deloitte is a large national partnership with upwards of 700 partners. The evidence suggested that the vast majority of those partners were not in the audit division of the firm and had no involvement in that aspect of the firm’s business, let alone any direct involvement in, or even knowledge of, the Hastie engagements or the audit and investigating accountant’s reports which were provided pursuant to those engagements. The effect of Deloitte’s contention, therefore, was that there was a real and appreciable risk that upwards of 700 partners might be prosecuted or face civil penalty proceedings by a regulator simply because they were partners of Mr Saayman or some other partner who was responsible for the provision to Hastie of the relevant reports. Some of the relevant criminal offences were punishable by imprisonment.
The uninvolved partners’ potential liability in that regard was said by Deloitte to arise in various different ways. First, it was said to be implicit in the way Sadie Ville had pleaded its case. Second, it was contended that the risk that the uninvolved partners might be exposed to prosecution or penalty proceedings arose by reason of the operation of s 14 of the Partnership Act 1958 (Vic) and similar provisions in other States. Third, it was contended that various authorities supported the proposition that a partner may be held to be vicariously criminally liable for another partner’s criminal conduct. Fourth, it was contended that various authorities also established that where one partner committed a strict liability offence in the course of carrying on the partnership business, his or her partners were “automatically” guilty of the same offence.
It is necessary, before considering the various different ways that Deloitte contended that the uninvolved partners might be exposed to prosecution or penalty for the alleged criminal or contravening acts of Mr Saayman or other involved partners, to give close consideration to the relevant offence and civil penalty provisions. As will be seen, close consideration of those provisions confirms that the only possible basis upon which it could be said that there was a real or appreciable risk that the uninvolved partners might be prosecuted or be the subject of civil penalty proceedings is if they might somehow be considered to be vicariously criminally liable, or liable to pay a penalty as a contravener of a civil penalty provision, simply because they were partners of Mr Saayman or some other involved partner.
Sections 1041E and 1311 of the Corporations Act.
Section 1041E of the Corporations Act, read together with s 1311 of the Corporations Act, creates a criminal offence, the relevant elements of which may be summarised as follows: first, the accused “person” makes a statement which is false in a material particular or is materially misleading; second, when the person made the statement, the person either did not care whether the statement or information was true or false, or knew, or ought reasonably to have known, that the statement or information was false in a material particular or was materially misleading; and third, the statement or information was likely to induce persons to apply for financial products, or induce persons to dispose of or acquire financial products or have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market. The offence created by s 1041E is not a strict liability offence; the second element is a “fault” element for the offence.
A firm or partnership is not necessarily a “person” for the purposes of a criminal offence provision such as s 1041E of the Corporations Act. That would depend on the proper construction of the offence provision in question; however the “difficult question of whether a criminal statute … applies to a partnership as an independent entity and, if so, how that impacts on the potential liability of individual partners does not arise where the legislation in question provides express answers to these questions”: W. Stevenson & Sons (A Partnership) v R [2008] EWCA Crim 273 at [20]-[30]. That is the case with s 1041E of the Corporations Act. That is because s 761F of the Corporations Act provides that, subject to certain “changes”, Chapter 7 of the Corporations Act “applies to a partnership as if the partnership were a person”. Section 1041E is within Chapter 7 of the Corporations Act.
One of the key changes specified in s 761F is that any contravention of a provision of Chapter 7 that “would otherwise be a contravention by the partnership is taken (whether for the purposes of criminal or civil liability) to have been a contravention by each partner who: (i) aided, abetted, counselled or procured the relevant act or omission; or (ii) was in any way knowingly concerned in, or party to, the relevant act or omission…”.
The effect of s 761F of the Corporations Act, in terms of the offence created by s 1041E, is thus that while a partnership may be a “person” for the purposes of s 1041E, a partner can only commit an offence against s 1041E if he or she aided, abetted, counselled or procured, or was in any way knowingly concerned in, or party to, the relevant act or omission that amounted to a contravention of s 1041E. The relevant act or omission is the making of a statement, or the dissemination of information, that was false in a material particular or was materially misleading.
Sadie Ville’s pleaded case did not allege that any uninvolved partner aided, abetted, counselled or procured, or was in any way knowingly concerned in, or party to, the making of any statement, or the dissemination of any information, which amounted to a contravention of s 1041E. Sadie Ville’s pleading also did not include any factual allegation that any uninvolved partner engaged in any such conduct with the relevant fault element. Nor did Deloitte adduce or point to any evidence that suggested that the production of any documents in response to the production order would expose any uninvolved partner to the risk that any such allegation would or might be made, let alone form the basis of any potential criminal prosecution.
It follows from this analysis that the uninvolved partners’ claim of privilege against self-incrimination based on the risk of prosecution for an offence against s 1041E could only possibly be made out on the basis that they might somehow be vicariously liable for an offence committed against s 1041E by a partner who was alleged to have engaged in such conduct with the relevant fault element, either by reason of the Partnership Act or otherwise. Deloitte’s contentions in that regard are considered later in these reasons. It suffices at this stage to emphasise that the only basis upon which it could possibly be contended that any uninvolved partner faced any risk of prosecution for an offence against s 1041E was that the uninvolved partner was somehow criminally liable – that is, could be said to have committed an offence – simply because he or she was the partner of Mr Saayman, or some other involved partner.
Sections 307A and 1311 of the Corporations Act
Subsection 307A(2) of the Corporations Act applies where, relevantly, an audit firm conducts an audit or review of a financial report for a financial year or half-year. It imposes an obligation on the “lead auditor” for the audit or review. That obligation is to “ensure that the audit or review is conducted in accordance with the auditing standards”. A failure to comply with that obligation is a strict liability offence: subs 307A(4). The “lead auditor” is the “registered company auditor who is primarily responsible to the audit firm … for the conduct of the audit”: subs 324AF(1) of the Corporations Act.
The proper construction of subs 307A(2), read together with s 1311 of the Corporations Act, is that if, in the conduct of an audit or review, there is a failure to comply with the obligation to ensure that the audit or review is conducted in accordance with the auditing standards, it is the lead auditor, and only the lead auditor, who commits an offence. That is because the obligation is imposed on the lead auditor, and only the lead auditor. It follows that only the lead auditor of the audits or reviews in question in this case – the registered company auditor who was primarily responsible to Deloitte for the conduct of the relevant audits – could be said to be exposed to any risk of prosecution for an offence against subs 307A(2) of the Corporations Act in this case. There is no suggestion, in Sadie Ville’s pleadings or otherwise, that any uninvolved partner was the lead auditor for any of the relevant audits. Indeed, that is almost by definition not the case.
Deloitte nevertheless contended that the uninvolved partners were at risk of prosecution for an offence by reason of the operation of s 324AB of the Corporations Act. That contention is wholly misconceived.
Subsection 324AB(1) relevantly provides that the appointment of a firm as auditor of a company is taken to be an appointment of all persons who, at the date of the appointment, are members of the firm and registered company auditors. It follows that the appointment of Deloitte as the auditor of the relevant company in this matter must be taken to have been the appointment of all of the Deloitte partners who were registered company auditors at the time of the appointment. That may perhaps include some uninvolved partners, though there could be no suggestion that it would include all of the uninvolved partners, most of who had nothing to do with Deloitte’s audit business.
In any event, it does not follow that any uninvolved partners who were registered company auditors at the time of Deloitte’s appointment as auditor, and who therefore may be taken to have been appointed as auditor, were at risk of prosecution of an offence against subs 307A(2). That is because there was, and is, no suggestion that any such uninvolved partners were the lead auditor in the relevant audits. They were accordingly not subject to the obligation created by subs 307A(2) and cannot be said to have committed the offence of failing to comply with that obligation.
Subsection 324AB(5) provides that, for the purposes of criminal proceedings under the Corporations Act against a member of an audit firm, an act or omission by a member, employee or agent of the audit firm acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority, is also to be attributed to the audit firm. The operation of subs 324AB(5) does not alter the fact that only the lead auditor is subject to the obligation created by subs 307A(2) and only the lead auditor can be prosecuted for any failure to comply with that obligation. The only relevant effect of subs 324AB(5) in the context of this case is that, for the purposes of any prosecution of the lead auditor for an offence against subs 307A(2), an act or omission by a member, employee or agent of the audit firm, within authority, may be attributed to the audit firm and thus to the lead auditor.
It follows from this analysis of the offence in subs 307A(2) that the uninvolved partners’ claim of privilege against self-incrimination based on the risk of prosecution for an offence against that section could only be made out on the basis that they might somehow be vicariously criminally liable, under the Partnership Act or otherwise, for an offence committed by the lead auditor: that is, that they were liable to be prosecuted for an offence against subs 307A(2) simply because they were the lead auditor’s partner.
Sections 728 and 1311 of the Corporations Act
Section 728 of the Corporations Act, read together with s 1311 of the Corporations Act, relevantly creates an offence with the following elements: first, the accused “person” offered securities under a disclosure document; second, there was a misleading and deceptive statement in the disclosure document, or any application form that accompanied the disclosure document, or any document that contained the offer; and third, the misleading or deceptive statement was materially adverse from the point of view of an investor.
The contention that there may be a real and appreciable risk that any uninvolved partner may be prosecuted for an offence against s 728 of the Corporations Act may be dealt with shortly. In its pleaded case Sadie Ville does not allege that Deloitte, or any partner of Deloitte, offered securities under a disclosure document. Nor does the pleading refer to any fact which could form the basis of any such allegation. There is, accordingly, no basis upon which it could be suggested that any partner of Deloitte, let alone an uninvolved partner, is at risk of being prosecuted as principal for an offence against s 728 of the Corporations Act.
Given the nature of the allegations in Sadie Ville’s pleading concerning a Deloitte report which was included in a relevant disclosure document, it could perhaps be argued that there was a risk, albeit perhaps a fairly remote one, that any partner directly involved in the preparation or provision of that report might be prosecuted as an accessory to an offence committed by a person who offered securities under the relevant disclosure document. Accessorial liability is provided for in the Criminal Code, which is the Schedule to the Criminal Code Act 1995 (Cth), in particular s 11.2. It suffices, for present purposes, however, to note that there is no allegation in Sadie Ville’s pleaded case, nor any other basis to believe or suspect, that any uninvolved partner was knowingly involved with the relevant Deloitte report in such a way that might give rise to accessorial liability.
It follows again that the uninvolved partners’ claim of privilege against self-incrimination based on the risk of prosecution for an offence against s 728 of the Corporations Act could only possibly be made out on the basis that the uninvolved partners might somehow be vicariously criminally liable, under the Partnership Act or otherwise, for an accessorial offence committed by an involved partner: that is, that they might be prosecuted simply because they were that involved partner’s partner.
Sections 12DB and 12GB of the ASIC Act
Subsection 12DB(1)(a) provides that a “person” must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services, make a false or misleading representation that services are of a particular standard, quality, value or grade. Subsection 12GB(1) provides that a person who: (a) contravenes; or (b) aids, abets, counsels or procures a person to contravene; or (c) induces, or attempts to induce, a person to contravene; or (d) is in any way knowingly concerned in, or party to, the contravention by a person of; or (e) conspires with others to contravene, relevantly, subs 12DB(1) is guilty of an offence.
Subsection 12DB(3) provides that an offence under subsection 12GB(1) relating to subsection (1) of s 12DB is an offence of strict liability. That is a somewhat puzzling provision. One can readily understand how subs 12GB(1) can operate to create a strict liability offence of contravening subs 12GB(1)(a) of the ASIC Act. It is, however, difficult to conceive how an offence of aiding, abetting, counselling or procuring a person to contravene, or being knowingly concerned in or a party to a contravention, or conspiring with another to contravene, subs 12GB(1) could possibly be said to be strict liability offences. That is because those forms of accessorial liability invariably involve mental or fault elements.
Fortunately it is unnecessary for present purposes to resolve that issue concerning the proper construction or operation of subs 12GB(1). That is because, critically for the purposes of this case, s 761F of the Corporations Act applies to subs 12DB(1) by reason of subs 5(2)(a) of the ASIC Act. Accordingly, as is the case with the offence provision in s 1041E of the Corporations Act, a partnership can be a “person”, for the purposes of subs 12DB(1), but any contravention of subs 12DB(1) that would otherwise be a contravention by the partnership, is only taken to have been a contravention by any partner who aided, abetted, counselled or procured the relevant act or omission, or was in any way knowingly concerned in or party to, the relevant act or omission.
It follows that the analysis and reasoning applied earlier in the context of the contention that there was a risk of prosecution of the uninvolved partners for an offence against s 1041E of the Corporations Act applies equally to the contention that there was a risk of prosecution of the uninvolved partners for an offence under subs 12DB(1) and subs 12GB(1). Sadie Ville did not allege that any uninvolved partner aided, abetted, counselled or procured, or was in any way knowingly concerned in, or party to, the making of any statement, or the dissemination of any information, which amounted or may have amounted to a contravention of subs 12DB(1). Sadie Ville’s pleading did not include any factual allegation that any uninvolved partner engaged in any such conduct. Nor was there any evidence to suggest that the production of any documents in response to the production order would expose any uninvolved partner to the risk that any such allegation would or might be made, let alone form the basis of any potential criminal prosecution.
It follows again that the uninvolved partners’ claim of privilege against self-incrimination based on the risk of prosecution for an offence against subs 12DB(1) could only possibly be made out on the basis that they might somehow be vicariously criminally liable for an offence committed against subs 12GB(1) by a partner who was alleged to have engaged in such conduct, either by reason of the Partnership Act or otherwise. That is, that they committed an offence simply because they were a partner of someone who committed an offence against subs 12GB(1) of the ASIC Act.
Sections 12DB and 12GBA of the ASIC Act
A person who is found to have contravened s 12DB of the ASIC Act may also be liable to pay a pecuniary penalty to the Commonwealth by reason of subs 12GBA(1) of the ASIC Act. Proceedings to recover such a penalty may only be commenced by the Australian Securities and Investments Commission (ASIC): subs 12GBC(1) of the ASIC Act.
The above analysis of the elements of the offence under s 12GB constituted by a contravention of s 12DB of the ASIC Act applies equally to any action by ASIC to recover a pecuniary penalty for a contravention of s 12DB of the ASIC Act. Any contravention of subs 12DB(1) that would, for the purposes of pecuniary penalty proceedings pursuant to s 12GBA of the ASIC Act, otherwise be a contravention by a partnership, is taken to have been a contravention by each partner who aided, abetted, counselled or procured the relevant act or omission, or was in any way knowingly concerned in or party to, the relevant act or omission. It follows that only a partner who engaged in that conduct, with the relevant state of mind, could be said to have contravened s 12DB for the purposes of s 12GBA of the ASIC Act.
In those circumstances, any individual partner of Deloitte could only be liable to pay a pecuniary penalty for a contravention of subs 12DB(1) if they aided, abetted, counselled or procured, or were in any way knowingly concerned in or party to, the making of the allegedly false or misleading statements in the relevant audit and investigating accountant’s reports. No such allegation is made against the uninvolved partners. Nor was there any evidence to suggest that the production of any documents in response to the production order would expose any uninvolved partner to the risk that any such allegation would or might be made, let alone form the basis of any potential pecuniary penalty proceedings by ASIC. It follows that the uninvolved partners’ claim of privilege against exposure to penalties based on the risk of civil or pecuniary penalty proceedings pursuant to s 12GBC of the ASIC Act could again only possibly be made out on the basis that they might somehow be vicariously liable for a contravention of subs 12DB(1) of the ASIC Act by Mr Saayman, or another involved partner, either by reason of the Partnership Act or otherwise.
There is an additional issue as to whether any action to recover a pecuniary penalty against any of the partners of Deloitte would be statute-barred. The primary judge held that to be the case. That issue is considered later in these reasons.
Section 151 of the Consumer Law
The Consumer Law is the Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth), as applied to the State of Victoria by Part 2.2 of the Australian Consumer Law and Fair Trading Act 2012 (Vic).
Subsection 151(1)(b) of the Consumer Law is in similar terms to subs 12DB(1)(a) of the ASIC Act. It relevantly provides that a “person” commits an offence if the person, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, makes a false or misleading representation that services are of a particular standard, quality, value or grade. Subsection 151(4) of the Consumer Law provides that the offence in subs 151(1) is a strict liability offence.
Unlike in the case of s 1041E of the Corporations Act and subs 12DB(1)(a) of the ASIC Act, there is no provision in the Consumer Law which provides that a partnership may be a “person” for the purposes of subs 151(1) or any other provision of the Consumer Law. Nor is there anything in the text, context or purpose of s 151 or the Consumer Law generally that would compel the conclusion that a partnership can be a person for the purposes of that section, or that s 151 may apply to a partnership as an independent legal entity: cf. Stevenson & Sons at [29]; see also Bishop v Chung Brothers (1907) 4 CLR 1262 at 1267. There is no doubt that a body corporate may be a “person” for the purposes of s 151, and indeed subss 151(5) and 151(6) provide for different penalties depending on whether the offence is committed by a body corporate or a person other than a body corporate. There is no similar provision in relation to offences committed by a partnership. Nor is there any provision in the Consumer Law which imposes any restriction on the assets that could properly be available to meet any penalty imposed on a partnership, a factor which was considered important in Stevenson & Sons (at [29]-[30]) if a criminal statute was to be construed as permitting a charge to be laid against a partnership.
In all the circumstances, the proper construction of s 151 of the Consumer Law is that a partnership is not a “person” for the purposes of that section and therefore a partnership cannot commit an offence under that section.
In those circumstances, on what possible basis could it be said that any of the uninvolved partners, being partners who were not in any way involved in, or even knew about, the relevant audits, made any allegedly false or misleading representations in the relevant audit reports for the purposes of s 151 of the Consumer Law? The relevant provisions in Pt 2M.3 Div 3 of the Corporations Act relating to audit reports make it tolerably clear that it is the “lead auditor”, or the auditor who conducts an audit, who is responsible for audit reports, not that person’s firm. That may suggest that, at least for the purposes of offence provisions, such as s 151 of the Consumer Law, any false or misleading representations in an audit report could only be said to be made by the lead auditor, or the auditor who conducted the audit, not their firm. That said, s 324AA of the Corporations Act makes provision for the appointment of a firm as auditor and subs 324AB(1) of the Corporations Act provides that when a firm is appointed auditor, the effect is that all members of the firm who were registered company auditors at the time of the appointment are taken to be appointed. Subsection 324AB(3) of the Corporations Act also provides that an audit report may be made or given by an audit firm, so long as it is signed by a member of the firm who is a registered company auditor both in the firm’s name and in his or her own name.
In any event, even if it could be said that the relevant audit and investigating accountant’s reports in this matter were made or given by Deloitte, because they were signed by Mr Saayman, or some other involved partner, both in the firm’s name and that partner’s own name, it would not necessarily follow that every partner of Deloitte, including the uninvolved partners, could be taken to have made the relevant representations in those reports for the purposes of s 151 of the Consumer Law. That is because, as Gross LJ (with whom Andrews J agreed) noted in Riley and others v Director of Public Prosecutions [2016] EWHC 2531; [2017] 1 WLR 505 at [29], “in the sphere of partnership as elsewhere, criminal liability is ordinarily personal to the individual offender”. Gross LJ also referred in that context to the observation made by Lord Widgery CJ in Parsons v Barnes [1973] Crim LR 537 at 538 that “[n]o general proposition could be laid down that one partner was necessarily responsible for the acts of his co-partner”.
In all the circumstances, there is no sound basis to conclude that every partner of Deloitte could be found to have made the alleged false or misleading representations in the audit and investigating accountant’s reports for the purposes of s 151. The better view is that only the lead auditor, or the partners who were directly responsible for the Hastie engagements, could be said to have made those statements, though it could perhaps be argued other partners who were registered company auditors at the time of Deloitte’s appointment as auditor might also be regarded to have made them. There is, however, no basis for finding that a partner who had no involvement in the provision of Deloitte’s audit or accounting services and no involvement in the Hastie engagements could be criminally liable under s 151 for the making of the allegedly false or misleading representations.
Since the uninvolved partners, or at least those who were not registered company auditors at the time of Deloitte’s engagement by Hastie, could not be said to be criminally liable under s 151 for the alleged false or misleading representations, the uninvolved partners’ claim of privilege against self-incrimination based on the risk of prosecution for an offence against s 151 of the Consumer Law must again hinge on the proposition that they might somehow be vicariously or jointly liable, either by reason of the Partnership Act or otherwise, for an offence committed against s 151 by a partner who was responsible for making the relevant representations.
Sections 29 and 224 of the Consumer Law
Section 29 of the Consumer Law is in the same terms of s 151 of the Consumer Law, save that it does not provide that a person who engages in the conduct proscribed by the section commits an offence. Rather, a person found to have contravened s 29 is liable to be ordered to pay a pecuniary penalty at the suit of the Director of Consumer Affairs Victoria: see s 224 of the Consumer Law and s 10 of the Fair Trading Act.
The issues that arise in relation to the suggestion that the uninvolved partners may be exposed to a pecuniary penalty for a contravention of s 29 of the Consumer Law are essentially the same as those that have been considered in the context of s 151 of the Consumer Law. In short, a partnership is not a “person” for the purposes of s 29 of the Consumer Law. More significantly, even if it could be said that the relevant audit and investigating accountant’s reports in this matter were made or given by the partnership, Deloitte, it would not necessarily follow that every partner of Deloitte, including the uninvolved partners, could be taken to have made the relevant representations in those reports for the purposes of s 29 of the Consumer Law. It follows, once again, that any potential liability on the part of the uninvolved partners for a pecuniary penalty arising from any alleged contravention of s 29 of the Consumer Law must hinge on the proposition that the uninvolved partners were somehow at risk of being found to have vicariously contravened s 29 of the Consumer Law simply because they were the partner of Mr Saayman or some other involved partner.
The question whether any proceedings under s 224 of the Consumer Law to recover a pecuniary penalty for breach of s 29 would be statute-barred, as found by the primary judge, is considered later in these reasons.
Liability under the Partnership Act
Deloitte contended, in effect, that the uninvolved partners were jointly and severally liable for any penalty that may be imposed on Mr Saayman, or any other involved partner, by reason of subs 14(1) of the Partnership Act (and like provisions in other States), which relevantly provides that “where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his or her co-partners … any penalty is incurred the firm is liable therefor to the same extent as the partner so acting or omitting to act”. In Deloitte’s submission, subs 14(1) applied broadly to all civil and criminal wrongs, including those the subject of the allegations in this matter. Therefore, so it was contended, the uninvolved partners were exposed to the same risk of prosecution or penalty as the involved partners were.
The difficulty with that contention is that, even if it may be accepted that Deloitte, as the relevant firm, may by reason of subs 14(1) of the Partnership Act be liable for any penalty incurred by Mr Saayman or any involved partner arising from their wrongful acts, it does not follow that the uninvolved partners can be said to be exposed to any real or appreciable risk of prosecution or pecuniary penalty proceedings being commenced against them. That is because provisions such as subs 14(1) are “concerned with satisfying debts and liabilities for which a partnership has become liable; they do not operate to impose criminal liability where none has otherwise been established”: Riley at [33]. Put another way, the fact that, by reason of subs 14(1) of the Partnership Act, Deloitte may ultimately be liable to pay any fine imposed on Mr Saayman or any involved partner by reason of their conviction of a criminal offence does not mean that the uninvolved partners are somehow criminally liable, or liable to be prosecuted for that offence.
Subsection 14(1) of the Partnership Act does not provide that if a partner of a firm commits an offence, all of the partners in the firm may also be prosecuted for that offence. It simply provides that the partners in a firm are liable to pay any monetary penalty, for example, a fine, that may be imposed on the rogue partner upon their conviction for the offence. While an uninvolved partner may be civilly liable to pay a fine which may be imposed on an involved partner, that is fundamentally different to saying that an uninvolved partner may be taken to have committed an offence simply on the basis that he or she is the partner of a person (an involved partner) who committed that offence. None of the authorities relied on by Deloitte, including Dubai Aluminium Co Ltd v Salaam [2002] All ER (D) 60 (Dec); [2003] 2 AC 366 and Walker v European Electronics Pty Ltd (in liq) (1990) 23 NSWLR 1, support the contrary proposition advanced by Deloitte.
Exactly the same can be said in relation to any potential liability that Deloitte may have in respect of any pecuniary penalty that may be imposed on Mr Saayman or any involved partner by reason of a finding that they contravened a pecuniary penalty provision. The fact that Deloitte may have to satisfy that liability by reason of subs 14(1) of the Partnership Act does not mean that any uninvolved partner can be said to have contravened a pecuniary penalty provision, or that a regulator can seek or obtain a pecuniary penalty order against any of the uninvolved partners. All Deloitte partners, including the uninvolved partners, may ultimately be liable to pay any pecuniary penalty imposed on Mr Saayman or any involved partners who are found to have contravened a civil penalty provision, but that is fundamentally different to saying that the uninvolved partners face a risk of having a court find that they have contravened a civil penalty provision and must pay a pecuniary penalty to the Commonwealth or a State or Territory pursuant to either s 12GBA of the ASIC Act, or s 224 of the Consumer Law.
It follows that any potential liability that Deloitte may have under subs 14(1) of the Partnership Act to pay any penalty imposed on Mr Saayman or any involved partner does not give the uninvolved partners any right to claim privilege against self-incrimination or exposure to a penalty in response to the production orders. The mere fact that Deloitte may incur such a liability does not expose the uninvolved partners to any risk of prosecution or pecuniary penalty proceedings, or any risk of being found to be criminally liable, or liable to pay a penalty on the basis that they contravened a civil penalty provision.
It should perhaps be noted in this context that the reasons of the primary judge do not deal with any argument based on subs 14(1) of the Partnership Act. That would appear to be because no argument based on that provision was squarely or clearly put to the primary judge.
Liability of one partner for the criminal act of another partner
Deloitte contended that the uninvolved partners were exposed to the risk of prosecution on the basis of some broader general law principle that one partner may be liable for the criminal acts of another partner in the course of carrying on the partnership business, either in respect of strict liability offences or generally. That principle was, in Deloitte’s submission, established by two cases: Clodev Barnes [1974] 1 WLR 544 and Collins v Poole (1977) 2 TPC 173.
In Clode v Barnes, two partners conducted a business called Wholesale Car Co. which, as the name suggests, was a used car dealership. One of the partners, Mr Thomas, was involved in dealing with customers and the other partner, the defendant, was responsible for the administration of the business. Mr Thomas falsely represented to one customer that a particular motor vehicle had “done no more than 2,000 to 3,000 miles”. The customer bought the car. The defendant did not know anything about the false representation made by Mr Thomas. Mr Thomas and the defendant were charged with jointly supplying a car, in the course of trade as a used car dealer, to which a false trade description had been affixed contrary to s 1 of the Trade Descriptions Act 1968 (UK). The defendant appealed his conviction.
The main issue on the appeal was whether the relevant offence was a strict liability offence, or required proof that the defendant knew that the false trade description had been affixed to the car. Lord Widgery CJ held that the offence was a strict liability offence. His Lordship also found that Mr Thomas and the defendant had jointly supplied the car to the customer, reasoning (at 547) that “[p]artners carrying on business jointly, jointly supply vehicles which it is the business of that partnership to sell”. As there was no issue that the vehicle had affixed to it a false trade description and the offence was one of strict liability, the defendant’s appeal was dismissed.
Clode v Barnes is not, as Deloitte effectively contended, authority for the broad proposition that where one partner is found to have committed a strict liability offence, that partner’s partners are “automatically” guilty of the same offence. Nor, in my opinion, is it authority for the equally broad proposition that criminal acts carried out by one partner in the course of the partnership’s business can always be attributed to the other partners; that the other partners will always be considered to also have engaged in those criminal acts. The critical finding in Clode v Barnes was simply that, on the particular facts of that case, Mr Thomas and the defendant jointly sold the car to the customer and therefore jointly committed the relevant offence as was alleged. To the extent that the decision in Clode v Barnes has any precedent value, it should essentially be confined to its own fairly narrow set of facts and circumstances.
The only strict liability offences in issue in this matter are the offence created by s 307A and s 1311 of the Corporations Act and the offence against s 151 of the Consumer Law. In relation to the s 307A offence, as discussed in detail earlier, there could be no suggestion that any uninvolved partner jointly committed that offence with Mr Saayman or any other involved partner. That is because the relevant conduct in relation to that offence – failing to ensure that the audit or review was conducted in accordance with the accounting standards – could only have been engaged in by the “lead auditor”. It could not sensibly be argued that the relevant obligation was jointly imposed on the uninvolved partners and that the uninvolved partners therefore jointly failed to comply with the relevant obligation.
As for s 151 of the Consumer Law, in my view it could not seriously be contended that the uninvolved partners jointly committed that offence with Mr Saayman and any other involved partner on the basis that they jointly made the allegedly false or misleading representations in the reports furnished by Mr Saayman and any other involved partners. Deloitte was at the relevant time a very large partnership which operated in various States and Territories. Its business was not limited to providing auditing and accountancy services. It might possibly be arguable that Deloitte partners who were registered company auditors, and who therefore jointly carried on that part of Deloitte’s business which involved supplying auditing and accounting services, thereby jointly made any statements in audit reports issued by the firm. Could it seriously be suggested, however, that a Deloitte partner who was not a registered company auditor and had nothing whatsoever to do with Deloitte’s business relating to auditing or the provision of accountancy services, let alone anything to do with the Hastie engagements, jointly made the false and misleading representations in the relevant reports simply because he was a partner? Could it seriously be suggested, for example, that a partner who was involved in providing tax advice, or forensic IT services, in an interstate office of Deloitte somehow jointly made a statement in an audit report prepared by an audit partner in a different office? I think not. The facts and circumstances of this case are far removed from Clode v Barnes.
I should add that even if it was arguable that the uninvolved partners may be considered to have jointly committed the alleged offence against s 151 of the Consumer Law simply by reason of being partners of Mr Saayman or other involved partners, I agree with the primary judge’s conclusion (Sadie Ville v DTT (No. 3) at [110]) that it was “much less likely that a prosecution would be brought against a non-involved partner compared with a partner who was involved” and that in those circumstances the prospect of prosecution of a non-involved partner was “theoretical rather than real”. In so concluding the primary judge was not, as Deloitte appeared to suggest, simply making some idiosyncratic assumption about what the relevant regulator or prosecuting authority might or might not do. His Honour was, rather, evaluating the relevant risk having regard to the facts and circumstances of the particular case.
The decision in Collins v Poole does not advance Deloitte’s case any more than Clode v Barnes does. Collins v Poole was a decision of a single judge in the Industrial Commission of New South Wales. The facts were not dissimilar to the facts in Clode v Barnes, though, as will be seen, the offence provision in question was substantially different. Mr Collins and Mr Salter carried on the business of a used car dealership under the registered business name 623 Car Sales. One of the cars in the dealership had displayed on its front window a sign which falsely represented that it had a mileage of 27,000 miles. Both Mr Collins and Mr Salter were convicted of an offence under s 32 of the Consumer Protection Act 1969 (NSW). The elements of that offence were: first, that the accused person published or caused to be published a statement; second, the statement was intended or “apparently intended” by the accused or any other person to promote the sale of any goods; and third, that the statement was to the accused’s knowledge false or misleading in any material particular. Subsection 32(3) provided, in effect, that the accused was deemed to have known the falsity of a published statement unless he proved that he had taken reasonable precautions and had reasonable grounds to believe that the statement was true and had no reason to suspect it was false or misleading. The effect of subs 32(3) was thus to effectively reverse the onus of proof in relation to the knowledge of the falsity of the statement.
It would appear that there was no evidence connecting Mr Collins with the impugned sign, though there was evidence that the informant had a conversation with Mr Salter about the mileage of the car. Mr Collins appealed his conviction. Dey J dismissed that appeal and upheld the conviction. In doing so, his Honour purported to follow Clode v Barnes, holding (at 182) that Mr Collins was a “joint supplier” of the vehicle, presumably with Mr Salter. That was a curious finding given that the offence did not involve any element relating to the supply of a vehicle. In any event, Dey J’s conclusion in that regard appeared to be based on a finding (at 186) that there was a “joint venture” between Mr Collins and Mr Salter and that accordingly Mr Collins was “liable for the infringement … which was committed by [Mr] Salter”. The basis upon which Mr Collins was said to be liable for the infringement committed by Mr Salter was not explained.
His Honour also found (at 186) that there was “joint and several liability which arose from the fact that there was a wrongful act committed in the ordinary course of the firm and for which a penalty was incurred”. Again, the precise basis of the finding of “joint and several liability” was left largely unexplained, though it appears again to have been based on the fact that Mr Collins and Mr Salter were said to have been involved in a “joint venture” in relation to the “car sale yard”. His Honour concluded (at 186), in that context, that the “absence of proof of direct involvement of [Mr Collins] should not excuse him from liability for the wrongful act”.
Finally, Dey J found (at 186) that the offence created by s 32 of the Consumer Protection Act was an offence of “absolute liability”, apparently on the basis that the Act “would be ineffective if it were open to a member of a firm to say that although the firm’s advertisement was false or misleading the member of the firm charged was not the one who framed it”. That finding was, with the greatest respect, plainly wrong. An offence which includes an element that the accused knew that the relevant statement was false or misleading could not possibly be considered to be a strict or absolute liability offence. While the deeming provision in subs 32(3) effectively reversed the onus of proof in respect of knowledge, that is not to say that the offence was one which involved no mens rea. It is one thing to say that, in light of the fact that Mr Collins apparently did not give evidence, Mr Collins was deemed to have known that the statement was false. It is quite another thing to say that it was unnecessary to prove that Mr Collins knew that the statement was false.
Deloitte appeared to rely on Collins v Poole as authority for the broad proposition or principle that, at least in the case of offences involving false, misleading or deceptive representations, a partner is automatically liable or responsible for another partner’s contravention. I do not consider Collins v Poole to be good authority for that broad proposition or principle. Nor do I consider that it should be followed.
As already indicated, in my view the finding by Dey J that the offence was one of absolute liability was plainly wrong and should not be followed. Perhaps more significantly, the critical finding that Mr Collins was liable for Mr Salter’s infringement and that there was “joint and several liability”, apparently simply arising from the fact that Mr Collins and Mr Salter were partners, was unsupported by authority and Dey J’s reasoning is at best difficult to follow. His Honour’s curious reference to Clode v Barnes and “joint supply” may suggest that his Honour was persuaded that Mr Collins and Mr Salter had, by reason of their partnership, jointly published the false statement. If that is so, the decision in Collins v Poole does not advance the matter beyond Clode v Barnes which, as already indicated, is a case which, to the extent it has any precedent value, should essentially be confined to its own fairly narrow set of facts and circumstances. The same can be said of the decision in Collins v Poole.
Needless to say, the facts and circumstances of this case are far removed from the facts and circumstances in both Clode v Barnes and Collins v Poole. The offences considered in those cases are also materially different to the offences the subject of this matter. In all the circumstances, Deloitte’s contention, based on those authorities, that there was a real and appreciable risk that the uninvolved partners may be prosecuted, or criminally liable, simply because Mr Saayman or some other involved partner may be prosecuted or be criminally liable, has no merit and is rejected.
In any event, even if there was some merit in that contention, like the primary judge (Sadie Ville v DTT (No. 3) at [110]) I consider that the prospect of any prosecution of the uninvolved partners simply on the basis that, by reason of their partnership with Mr Saayman and any involved partners, they are somehow jointly liable for their offences, is theoretical rather than real. I do not consider that there is a real or appreciable risk of the uninvolved partners being prosecuted for any of the relevant offences on that basis. Indeed, the suggestion that uninvolved partners who had nothing whatsoever to do with the relevant engagements, or even knew anything about them, faced any risk of being prosecuted for a serious offence, such as the offence created by s 1041E and s 1311 of the Corporations Act, which carries a potential penalty of imprisonment, simply on the basis that they were partners of those who carried out the allegedly criminal acts, borders on being fanciful. The primary judge was correct in finding that if there was any risk, it was at best theoretical rather than real.
Civil penalty proceedings statute-barred
There is another reason why there was no real and appreciable risk that the uninvolved partners would be exposed to the risk of civil penalty proceedings. That reason is, as the primary judge held, that any civil penalty proceedings based on the alleged contraventions are statute-barred.
The only alleged contraventions which could give rise to civil penalty proceedings are the alleged contravention of s 12DB of the ASIC Act, which may be the subject of civil penalty proceedings pursuant to s 12GBA and s 12GBC of the ASIC Act, and s 29 of the Consumer Law, which may be the subject of civil penalty proceedings by reason of s 228 of the Consumer Law. In the case of the ASIC Act contraventions, subs 12GBC(2) provides that any proceeding by ASIC to recover a pecuniary penalty “may be commenced within 6 years after the contravention”. While the provisions of the ASIC Act concerning the commencement of proceedings to recover pecuniary penalties were amended in March 2019, those amendments do not apply where, as here, the conduct allegedly constituting the relevant contraventions occurred prior to March 2019. In the case of the Consumer Law contraventions, s 228 of the Consumer Law similarly provides that any action by a regulator to recover a pecuniary penalty “may be commenced at any time within 6 years after the contravention or conduct”.
The primary judge held that any civil penalty proceedings against the uninvolved partners would be statute-barred (Sadie Ville v DTT (No. 3) at [111]). Deloitte contended that his Honour erred in so finding (ground 2 of the appeal). I agree with Markovic and O’Callaghan JJ that Deloitte’s submissions in support of that ground of appeal have no merit and that the primary judge’s finding was correct. Even putting the decision of the Full Court in Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2016) 244 FCR 190 at [520]-[522] to one side, the point remains that the terms of subs 12GBC(2) of the ASIC Act and s 228 of the Consumer Law are materially different to the terms of the provisions considered in The Attorney-General of the Commonwealth v Oates (1999) 198 CLR 162 and, perhaps more significantly, if subs 12GBC(2) of the ASIC Act and s 228 of the Consumer Law are not construed as providing limitation periods, they would have no work to do.
Sadie Ville’s pleadings
It remains to briefly say something about Deloitte’s contentions concerning Sadie Ville’s pleadings. Deloitte relied on the fact that Sadie Ville brought the proceedings in the partnership name pursuant to r 9.41 of the Federal Court Rules2011 (Cth). More significantly, Deloitte pointed out that Sadie Ville had alleged, in its pleading, that Deloitte was a “person” for the purposes of certain of the relevant offence and civil penalty provisions, including s 1041E of the Corporations Act and s 12DB of the ASIC Act. Sadie Ville also alleged in its pleading that Deloitte had not conducted the audit of Hastie in accordance with the accounting standards (an implicit allegation that Deloitte had contravened s 307A of the Corporations Act) and that Deloitte had contravened s 1041E of the Corporations Act and s 12DB of the ASIC Act. It was submitted, in those circumstances, that “Sadie Ville cannot gainsay that all of the Deloitte Partners are exposed to penalties for contravention of” those provisions.
The content of Sadie Ville’s pleadings provides no support for the contention that there was a real and appreciable risk that the uninvolved partners may be the subject of criminal prosecution or civil penalty proceedings. It is true that Sadie Ville commenced proceedings in the partnership name and that it is asserted in various parts of the proceeding that Deloitte contravened relevant provisions of the Corporations Act, ASIC Act and Consumer Law. It is tolerably clear from the pleading, however, that Sadie Ville’s case is that the alleged contraventions relate to or arise only from the conduct of those partners who were directly responsible for the Hastie engagements: see in particular paragraph 5.2 and the particulars thereto of the Second Amended Statement of Claim. The pleading does not contain any material facts which could support any finding that any uninvolved partner engaged in any conduct which amounted to a contravention of any of the relevant criminal and civil penalty provisions, let alone that any uninvolved partner was criminally liable or liable to pay a pecuniary penalty. Sadie Ville no doubt commenced the proceeding and couched its case in the way it has because it contends that all of the partners of Deloitte at the time of the alleged contraventions, including the uninvolved partners, are liable to compensate it for loss or damage suffered as a result of the contraventions by the partners responsible for the Hastie engagements. In that regard it relies on s 729 and s 1325 of the Corporations Act, s 12GF and s 12GM of the ASIC Act and s 236 of the Consumer Law: see in particular paragraphs A, B and C at pages 164-167 of the Claim.
It would also appear that Sadie Ville relies on s 14 of the Partnership Act, which in this context relevantly provides that “where by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his or her co-partners loss or injury is caused to any person not being a partner of the firm … the firm is liable therefor to the same extent as the partner so acting or omitting to act”. For the reasons given earlier, s 14 of the Partnership Act does not have the effect of imposing criminal or pecuniary penalty liability on the uninvolved partners. It does, however, have the effect of imposing liability on all partners of the firm at the time of the alleged wrongful acts to, relevantly, compensate any non-partner for any loss or injury caused by the wrongful act or omission of any partner.
It may have been open to Sadie Ville to plead its case differently. It may, for example, have been open to it to couch its allegations of contravention specifically against Mr Saayman and any other involved partner and then allege that the other partners were liable pursuant to s 14 of the Partnership Act for loss or damage suffered by it as a result of the contraventions by the involved partners. That perhaps may have been a clearer and more satisfactory way of pleading its case. There has apparently been a dispute concerning the way in which the case has been pleaded: see Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (2017) 123 ACSR 223; Sadie Ville v DTT (No. 3) at [33]-[34]. That issue is not the subject of this application. It suffices, for present purposes, to say that the manner in which Sadie Ville has pleaded its case lends no support to Deloitte’s contentions that there is a real and appreciable risk that the uninvolved partners might be prosecuted or exposed to a penalty.
Conclusion – No real and appreciable risk of prosecution or penalty
The primary judge did not err in finding that there was no real and appreciable risk that any of the partners of Deloitte who were not directly involved in the Hastie engagements would or might be prosecuted, or be the subject of civil penalty proceedings, such that they were able to validly claim privilege against self-incrimination or privilege against exposure to penalty. There was, and is, no proper basis for finding that the uninvolved partners were exposed to any such risk. There was no suggestion that any of them had engaged in, or were alleged to have engaged in, any conduct which may have amounted to a contravention of any of the relevant criminal or civil penalty provisions of the Corporations Act, ASIC Act and Consumer Law. The various bases upon which Deloitte contended that the uninvolved partners might somehow be criminally liable, or be liable to pay a penalty on the basis of their contravention of any pecuniary penalty orders, were and are misconceived and have no merit.
Grounds 1 and 2 of the notice of appeal in VID 1063 of 2018 accordingly have not been made out. Ground 3 concerned the question of control of the relevant documents.
CONTROL
The primary judge found that the relevant documents were relevantly in the control of the partners of Deloitte, including the uninvolved partners: Sadie Ville v DTT (No. 3) at [116]. Deloitte contended that there was no evidence to support that finding. That contention has no merit and is rejected.
Mr Anthony Lee, a Senior Legal Counsel at Deloitte, swore an affidavit verifying Deloitte’s list of documents filed pursuant to a discovery order made by the primary judge. In that affidavit, Mr Lee stated that the documents that were the subject of the privilege claim “are in the control of the First Respondent [Deloitte]”. At the time Mr Lee swore this affidavit, the relevant hard copy documents (and a CD containing electronic copies of relevant documents) were secured in a litigation room at Deloitte and electronic copies of relevant documents were stored on Deloitte’s IT network or server. It was no doubt on that basis that Mr Lee deposed that the documents were in the control of Deloitte.
Mr Lee was cross-examined about this statement in his affidavit. His evidence was as follows:
Now, Mr Lee, when you refer to the first respondent in this affidavit, you’re referring to Deloitte Touche Tohmatsu the firm; correct? --- Yes. That’s correct
And that firm is a partnership of over 700 partners; correct? --- That’s correct.
And in your first affidavit when you say that the documents are in the control of the first respondent, you mean that the documents are in the control of the 700-odd partners of the first respondent; correct? --- Any of the partners.
Right. And in fact it’s the case that the documents are within the control of all of the partners; is that correct? --- Well, it’s anyone [any one] of the partners.
Mr Lee did not otherwise qualify his evidence concerning control. It might perhaps be said that Mr Lee’s responses to the questions put to him about the statement in his affidavit were somewhat vague or ambiguous. What is clear, however, is that he did not retract his unequivocal statement that the relevant documents were in the control of Deloitte. Nor did he deny or dispute that that meant that the documents were in control of the partners of Deloitte. What he seemed to be saying was that the documents were in control of each or every one of the partners.
Mr Lee’s evidence provided a sound basis for the primary judge’s finding. That was so particularly given that, as the primary judge noted, Deloitte did not adduce any clear evidence that the uninvolved partners did not have possession, custody or power in respect of the documents: Sadie Ville v DTT (No. 3) at [116].
Deloitte contended that when Mr Lee said, during cross-examination, that the relevant documents were in the control of “any” or “anyone [any one] of the [700-odd] partners”, he was saying that the documents were in the possession of Mr Saayman alone, apparently on the basis that Mr Saayman was “any” or “anyone” of the partners. There is no substance whatsoever in that contention. If that is what Mr Lee meant, or intended to say, he plainly would not have said that the documents were in the possession of any or any one of the partners. He would have said that the documents were in the possession of only one of the partners, being Mr Saayman. He did not say that. It is impossible to construe Mr Lee’s evidence in the way Deloitte contended that it should be construed.
It should be made clear that the primary judge’s findings concerning control, in this context, occurred at a time before Mr Saayman apparently took it upon himself to take possession of the relevant documents. The situation or circumstances that arose after that occurred is considered later in the context of Deloitte’s application for the uninvolved partners to be excused from complying with the production order.
Ground 3 in the notice of appeal in VID 1063 of 2018 must accordingly be rejected.
FORM OF THE PRODUCTION ORDER
Ground 4 of the notice of appeal in VID 1063 of 2018 may be dealt with shortly. It relates to the form of the production order. The complaint is that the production order is not directed to individual partners, but to the “first respondent, other than Mr Saayman and any other partner directly involved in the relevant engagements”. The circumstances in which the order came to be framed in those terms is explained in Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 4) [2018] FCA 1218 (Sadie Ville v DTT (No. 4).
The form that the production order took was largely a product of both the fact that Sadie Ville had taken advantage of the procedural rule permitting it to bring the proceedings in the partnership’s name and the way that the privilege issue had been argued by the parties. The primary judge found that the order in those terms was sufficiently clear and less cumbersome than naming all the individual partners: Sadie Ville v DTT (No. 4) at [4]. Importantly, the primary judge had also directed the parties to provide draft orders to give effect to the reasons in Sadie Ville v DTT (No. 3). Somewhat unhelpfully, Deloitte did not provide a form of order which named all the uninvolved partners to whom the production order should be directed: Sadie Ville v DTT (No. 4) at [4]. It simply raised objections concerning the form of the order proposed by Sadie Ville. Had it pursued a more helpful and constructive approach, the issue may have been dealt with differently.
In any event, Deloitte has not demonstrated how the form of the order, at this stage of the proceeding, gives rise to any practical or substantive uncertainty or unfairness. It may be that this issue will need to be revisited if the uninvolved partners continue to resist production in answer to the production order. There may, for example, be issues in relation to the enforcement of the order in its current form if the uninvolved partners fail to comply with it. These are matters that can and should be raised with the primary judge at an appropriate time. If the complaint is persisted with, it could readily be remedied by the primary judge requiring Deloitte to provide a list of the relevant uninvolved partners so that an order can be made in those terms. In the context of this application, however, it suffices to say that the form of the production order provides no basis to allow the appeal. Even if it did, the appropriate order would be to simply remit the matter to the primary judge to vacate the existing order and make an order naming each of the relevant uninvolved partners.
THE APPLICATION TO EXCUSE COMPLIANCE OR DISCHARGE THE ORDER
Deloitte subsequently applied for an order that the uninvolved partners be excused from complying with the production order, or that the production order be discharged, apparently on the basis that they were unable to comply with that order. As Markovic and O’Callaghan JJ have explained, having regard to the nature of the application, the effect of which was to set aside, vary or discharge an interlocutory order made after a contested hearing, Deloitte bore the onus of proving that there had been a material change of circumstances since the production order was made. The primary judge held that Deloitte had not discharged that onus. While there may have been a change in circumstances after the production order had been made, his Honour was nonetheless not satisfied that the change of circumstances was material because he was not satisfied that the uninvolved partners were unable to produce the relevant documents in answer to the production order: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 5) [2018] FCA 2066 (Sadie Ville v DTT (No. 5)) at [57].
The relevant change in circumstances that Deloitte contended provided a basis for an order that the uninvolved partners be excused from complying with the production order, or that the order be discharged, was that at some point in time shortly after the production order was made, Mr Saayman took possession of the relevant hardcopy documents (including a CD containing electronic copies of documents) and removed them from Deloitte’s premises. He also encrypted the electronic files on Deloitte’s network or server. He subsequently told one of Deloitte’s partners, in a series of apparently carefully contrived and scripted emails, some of which had been settled by Deloitte’s lawyers, that he was not prepared to allow access to the documents and was not prepared to provide the password to the encrypted files. It was on that basis, and that basis alone, that Deloitte contended that the uninvolved partners were unable to comply with the production order.
The primary judge, with admirable restraint and understatement, described the circumstances created by Mr Saayman’s actions as “extraordinary and troubling”: Sadie Ville v DTT (No 5) at [54]. I would go further. I would not be so charitable. Indeed, I would characterise Mr Saayman’s conduct as outrageous and contumacious, if not bordering on contempt. Deloitte’s conduct was not much better.
On the basis of the evidence before the primary judge, the inference that Mr Saayman’s actions were calculated to frustrate or impede compliance with the production order is almost inescapable. It certainly cannot be doubted that his actions had the effect of frustrating or impeding compliance with the production order that had been made by the primary judge. Mr Saayman undoubtedly knew that, after a strongly contested hearing, the uninvolved partners’ privilege claims had been rejected and they had been ordered to produce the relevant documents. The documents were clearly the property of the partnership, not the property of Mr Saayman alone. He had no right, without the authority of his partners, to take possession of them and remove them from Deloitte’s premises. Nor did he have any right, without authority, to encrypt the electronic files. It may readily be inferred that Mr Saayman knew that to be the case. Yet within about two weeks of the making of the production order, Mr Saayman deliberately took those steps which he must have known would be likely to frustrate the production order and impede the uninvolved partners from producing documents in compliance with the order. Indeed, it may readily be inferred that Mr Saayman intended that his actions would have that effect, or at least that he believed that his actions would have that effect.
Mr Saayman, of course, was not called by Deloitte to explain his actions. His actions were conveniently set out in a series of carefully contrived emails with one of his partners. He was thereby shielded from any prospect of cross-examination. Given the outrageous nature of Mr Saayman’s conduct, it is perfectly understandable why he would not have wanted to front the primary judge to give an account of his actions. It is equally understandable why Deloitte did not attempt to adduce evidence from him.
As for Deloitte’s response to Mr Saayman’s outrageous conduct, the best that could be said is that the evidence revealed that Deloitte had effectively done nothing more than conveniently, if not cynically, rely on the circumstances supposedly created by Mr Saayman’s actions to defeat the production order. The evidence adduced by Deloitte showed that the partnership or its management had shown no apparent interest in finding out how it was that Mr Saayman had been able to take off with the hardcopy documents and encrypt the electronic documents. The hardcopy documents had been in a secure litigation room, access to which was limited to Deloitte’s in-house litigation team, of which Mr Lee was no doubt a member. The electronic files had been securely maintained by Deloitte’s “IT services team”. Yet none of the witnesses called by Deloitte in support of its application had troubled themselves to ascertain when and how Mr Saayman had been able to enter the secure litigation room and take the documents or when and how Mr Saayman had been able to encrypt files on Deloitte’s supposedly secure IT network.
It is true, as counsel for DTT contended, that reading s 12GBC(2) of the ASIC Act in the way that we do means that a similarly worded provision in the same Division of the Act dealing with prosecutions, like s 12GB(6), is to be read differently. But, in our view, unless s 12GBC(2) of the ASIC Act and s 228(2) of the ACLV are read, consistently with the views expressed by the Full Court in Garuda, as imposing a time limitation on the bringing of an action for a pecuniary penalty, then, as counsel for Sadie Ville submitted, those provisions would have no work to do.
It follows that because the time limits of six years have expired in this case, there can be no risk of any DTT partner being exposed to a pecuniary penalty for any contravention of s 12DB of the ASIC Act or s 29 of the ACLV.
The Privilege Appeal – Ground 3; the Discharge Appeal – Grounds 1-2 (“control” of the Engagement Documents)
DTT’s submissions summarised
The Privilege Appeal – Ground 3
DTT submits that the primary judge erred in finding that the documents in question were in the control of the DTT partners other than Mr Saayman, including because “[t]here was no evidence to support that positive finding at the hearing on 29 June 2018”.
DTT points to Mr Lee’s evidence in chief that the Engagement Documents could only be accessed with the consent of Mr Saayman and a member of [DTT's] in-house litigation team: see [6] of the Third Lee Affidavit set out at [180] above. As senior counsel for DTT put it in oral argument, “the material, we say, quite clearly established that it was Mr Saayman who, as the engagement partner or audit partner, was the person who had the custody of the audit file at the conclusion of the audit”.
DTT also submits that in making the Production Order the primary judge proceeded on the basis that all of the Uninvolved Partners had control, including partners who are now former partners (Sadie Ville v DTT (No 4) at [5]), and that there was “no evidentiary basis for such a positive finding before the Court …”
DTT says that that finding is wrong because:
The proceeding is brought against all of the partners of the firm at the relevant time or times, which extend back to 2010. As has been observed, the “First Respondent” is comprised of some former and some present partners. For example, it could not seriously be said that a long since retired-partner from the Perth office could knock on the door of an East-coast office and demand access to another person’s client files, remove those documents and log-on to a computer and copy files. From its own experience, this Court would know that the idea that a long-since departed former partner could show-up at the office and have a right to possession of any client file of any of their former partners is far-fetched.
The Discharge Appeal – Ground 1
DTT submits that the primary judge’s “inquiry … as to which he wanted a ‘detailed explanation’” of how Mr Saayman had come into possession of the Engagement Documents “suffered from numerous vices”. The principal so-called “vices” referred to in DTT’s written submissions were as follows.
First, DTT submits that the inquiry “was completely irrelevant to any issue of ‘control’” because a person will not have “power” sufficient to give discovery of a document if it is necessary for the person to obtain the consent of anyone else to inspect the document (citing Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 (Lonrho) at 635-636 (Lord Diplock); Taylor v Santos Ltd (1998) 71 SASR 434 (Taylor) at 438 (Doyle CJ, Prior J agreeing)). DTT also submits that a person will not have “power” sufficient to produce the document for inspection if that person cannot exercise the power unilaterally (such as where the property is jointly owned with someone else) (citing Taylor at 438). DTT says:
Thus, for any one of the individual Uninvolved [Partners] to have ‘power’ in respect of the relevant documents, that ‘power’ must be exercisable by that individual person unilaterally and without requiring the involvement or consent of any other persons. Hypothetically speaking, even if some Uninvolved Partner opened a door (which, to be clear, is certainly not accepted) that does not mean they have a legal right to possession of the files in Mr Saayman's possession. In no sense could ‘how Mr Saayman obtained the documents’ be relevant to whether, having obtained them, someone had a unilateral legal entitlement to the documents.
(Emphasis in original.)
Secondly, DTT submits that the primary judge’s inquiry was irrelevant because “[o]n well-established principles arising from the nature of the privilege, how a person entitled to the privilege happened to obtain exclusive possession of the documents is irrelevant” (citing Griffin v Sogelease Australia Ltd (2003) 57 NSWLR 257 (Griffin)). DTT submits that that decision highlighted that the privilege against self-incrimination is not “subject to ‘judge-made exceptions or qualifications’” and that someone entitled to the privilege in respect of certain documents (like Mr Saayman) cannot be compelled even indirectly to disgorge them to someone who had legal title to them.
Thirdly, DTT submits that the primary judge’s inquiry was irrelevant because “it is well established that the privilege extends to protect a person against a requirement that he or she reveal the whereabouts of incriminating documents or explain anything about them”, citing Griffin at [42].
Fourthly, DTT submits that “the primary judge speculated that there may be other copies of some of the documents forming part of the Engagement Files which could be produced ([Sadie Ville v DTT (No 5)] [58]ff.)” and that such “speculation” “involved an erroneous view of the Production Order”, which did not require production of any copies because the order to produce the “audit files … and working papers … was not an order for standard discovery in r 20.14. It was for discovery of specific things …”
The Discharge Appeal – Ground 2
DTT submits that the primary judge “erred in not excusing the Uninvolved Partners from complying with the Production Order either in whole or in part in circumstances where none of the Uninvolved Partners has been found to have control over any document the subject of the Production Order or any document referred to in [Sadie Ville v DTT (No 5)] [58], [60] to the exclusion of Involved Partners whose claims for privilege were upheld ([Sadie Ville v DTT (No 5)] [65], [67]-[68])”.
DTT says that the Uninvolved Partners should have been excused, because a valid claim for privilege against self-exposure to penalty that had been raised by some of the joint owners of the documents in question should not in practice be defeated because other joint owners had raised no such objection (citing dicta to that effect in Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR 647 at 696 (Franki J)). Relatedly, DTT also relies on the proposition that a single partner is not liable to produce documents of the partnership, citing Rochfort v Trade Practices Commission (1982) 153 CLR 134 at 139 for the proposition that “one partner has been held not compellable to produce books which were partnership property when the other partners would not consent to their production”.
Sadie Ville’s submissions summarised
The Privilege Appeal – Ground 3
Sadie Ville submits that DTT’s submission that there was no evidence for the primary judge’s finding that the Engagement Documents were in the control of any DTT partner other than Mr Saayman must be rejected in substance because:
(1)the submission entirely overlooks the evidence in the First Lee Affidavit that the documents set out in Pt 2 of the List of Documents “are in the control of the First Respondent” (see Sadie Ville v DTT (No 3) at [8], [22], [69], [116]); and
(2)that evidence was sufficient to sustain the finding made by the primary judge, and it was never relevantly qualified.
The Discharge Appeal – Ground 1
Sadie Ville submits that DTT misunderstands the nature of the Discharge Application. It says that, because DTT was seeking to vary or set aside the Production Order, the issue of control was not to be determined afresh as if the primary judge had not already made a finding that the Uninvolved Partners had control of the Engagement Documents. Rather, it submits, it was necessary for DTT to show a material change of circumstances since the original application was heard, or to be able to point to the discovery of new material which could not reasonably have been put before the court on the hearing of the original application, in order to justify a departure from that finding and a variation of the Production Order (citing Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304 at [32]; Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47).
Sadie Ville submits that DTT therefore bore the onus of establishing that that finding was wrong or, at least, was no longer correct and that it failed to do so. It submits that “[i]n light of the extraordinary circumstances revealed on the Discharge Application” the primary judge was undoubtedly correct to find that he “was not satisfied on the further evidence that the Uninvolved Partners were unable to produce the Engagement Documents: [Sadie Ville v DTT (No 5)], [57]”.
Sadie Ville also says that there is no merit in DTT’s other submission that, because Mr Saayman has seized the Engagement Documents and refuses any Uninvolved Partner (or any partner at all) access to them (in electronic form or the physical manila set), the Uninvolved Partners have no “power” to produce them. In essence, Sadie Ville says that the cases cited by DTT (Lonrho and Taylor) are beside the point because, quite apart from the position at general law concerning the ordinary rights of partners to partnership property, each of the Uninvolved Partners (who form a majority on DTT’s board of directors) has extensive rights under the DTT partnership deed to require Mr Saayman to return or make accessible to them partnership property, including the Engagement Documents. Members of the board of DTT must under the terms of the deed, and by virtue of the Production Order, “exercise their discretions, their powers, their abilities as respondents to the order, to take the steps available to them to get this material back, to vote in a particular way at board meetings, to call a board meeting, to give a direction to Mr Saayman and, if necessary, to expel [him] and say, ‘We want our property back’”. Sadie Ville cites the following clauses of the partnership deed in support of that proposition:
(1)“The Firm Property is owned by the Equity Partners in their Pro-rata Portions” (cl 4.1(a));
(2)“A Partner is not entitled to require:
(i)the realisation or distribution of the Firm Property; or
(ii)for the Firm Property to be otherwise dealt with,
except as expressly contemplated by this contract” (cl 4.1(b));
(3)“The Firm Property must be used or applied only for the benefit of the Firm and in accordance with this contract” (cl 4.1(d));
(4)“The Chairperson and any 3 Elected Board Members who are entitled to vote at Board meetings may call a general meeting of the Partners” (cl 6.2(a));
(5)“The Firm must have a board … [which] has the power to do everything necessary or convenient to be done for or in connection with the performance of its functions” (cl 7.1);
(6)“The Firm Property must so far as practicable be vested in a Deloitte Entity nominated by the CEO to hold upon trust for the Equity Partners and subject to the direction of the Board or the CEO, as the case requires” (cl 7.12(a));
(7)“An Auditor or Reviewer … has a right of access at all reasonable times to the Books of each Group Member …” (cl 10.8 (a));
(8)A Partner may be expelled if, among other things, “the Partner wilfully disobeys a lawful and reasonable direction of the CEO …” (cl 11.2(g));
(9)“To the extent permitted by law, each Partner must answer all questions put to him or her by the CEO or the Board in relation to any Group Businesses, notwithstanding that doing so may incriminate the Partner” (cl 12.15(b));
(10)“A Board Member … may inspect or otherwise have access to the Books of the Group (including its Financial Records) at all reasonable times for any purpose … including for the purposes of a legal proceeding” (Sch 7, cl 6.1); and
(11)“A person who has ceased to be a Board Member may inspect the Books of the Group (including its Financial Records) at all reasonable times for the purposes of a legal proceeding” (Sch 7, cl 6.2(a)).
Sadie Ville submits that DTT’s reliance on Lonrho and Taylor for the proposition that “power” means a presently enforceable legal right to inspect the documents without the need to obtain the consent of another “is a complete misreading” because “[i]f consent were required then there would be no need for an enforceable right. The whole point of enforceability is to override consent. Thus the test is satisfied where there is an enforceable legal right to inspect the documents regardless of the consent of the other person”. Sadie Ville points out that both Lonrho and Taylor concerned respondents to a discovery order who had no anterior rights over the documents in question (citing Lonrho at 633-634; Taylor at 436, 438) and that in this case “[b]y contrast … the Uninvolved Partners (at least those who are current partners) are co-owners of the Engagement Documents”. Accordingly, Sadie Ville submits, the Uninvolved Partners retain “power” over the Engagement Documents because their rights of co-ownership give them a presently enforceable legal right to the documents, even in the face of objection from Mr Saayman, whose claim to PSI does not entitle him to override the pre-existing property rights of his co-owners.
As for DTT’s reliance on Griffin, Sadie Ville submits that it “reflects a fundamental misunderstanding of the nature of PSI. PSI protects a person with a bona fide claim from producing documents pursuant to some compulsory process such as an order for discovery, summons for production or other statutory notice” (citing Griffin at [30]). The submission continued:
None of the cases cited by DTT suggest that PSI is a defence to the enforcement of antecedent proprietary rights, for instance by action in detinue, or indeed contractual rights of the kind involved in enforcement of a partnership deed. Mr Saayman’s claim to PSI is no answer to his partners’ demand for return of their property, being the manila set or the Produced Laptop, or their contractual right via the Board and the CEO to require disclosure of the password(s) to the Encrypted Files, even if the result might be to put those partners in a position to comply with court orders for production, leading in turn to a risk of criminal or penal action against him.
(Emphasis in original.)
Sadie Ville also submits that Griffin is irrelevant because it held only that the New South Wales Supreme Court’s procedural power under s 76A of the Supreme Court Act 1970 (NSW) to give directions for the conduct of the proceedings was not intended to impact on substantive rights, and did not allow the discovery process to be used to make an order compelling a defendant who has a valid claim to PSI to produce documents to another defendant, the co-owner of the documents, in order to procure discovery by that co-defendant.
Sadie Ville further contends that “contrary to DTT’s submission, Griffin is not authority for the proposition that ‘how a person entitled to the privilege happened to obtain exclusive possession of the documents is irrelevant’”.
As for DTT’s submission that it is “well established” that PSI extends to protect a person from revealing the whereabouts of incriminating documents or explaining anything about them, Sadie Ville says that this is so in the context of a compulsory process, like discovery, but points out that PSI is not a defence to the substantive anterior rights of co-owners or contract counterparties to require such information.
As to DTT’s submission that the Production Order only required discovery of the original audit and review files that were statutorily required to be kept – that is, the manila set that is now in the custody of Mr Saayman – and not copies or partial copies of those files, Sadie Ville submits that such a submission “begs the questions of why Mr Saayman took the steps of removing the hard copies and laptop from the Litigation Room, and encrypting the copies on the firm’s server, or why DTT led evidence of attempts to crack the password. The answer is that the submission is unwarranted, and places a late and unwarranted gloss on the Production Order”. In any event, Sadie Ville submits, although copy documents are not discoverable only because the original is discoverable (per r 20.18 of the Federal Court Rules), where the original is no longer within the party’s control an available copy should be discovered (citing Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 509-510; Theodore v Australian Postal Commission [1988] VR 272 at 277, 279; Clone Pty Ltd v Players Pty Ltd (in liq) (2016) 127 SASR 1 at [6], [9], [185], [423]-[424]).
The Discharge Appeal – Ground 2
Sadie Ville submits that DTT’s reliance on Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR 647 and the dicta of Gibbs CJ in Rochfort v Trade Practices Commission (1982) 153 CLR 134 at 139 is misplaced, and says that in both instances the primary judge explained correctly why that is so. As to the former, see Sadie Ville v DTT (No 5) at [66]-[68], and as to the latter see Sadie Ville v DTT (No 3) at [116]-[117].
Consideration
Ground 3 of the Privilege Appeal has no merit. The proposition that there was no evidence for the primary judge’s finding that the Engagement Documents were in the control of any DTT partner other than Mr Saayman, as Sadie Ville submitted, entirely overlooks the evidence in the First Lee Affidavit that the documents set out in Pt 2 of the List of Documents “are in the control of the First Respondent”. Again, as Sadie Ville submitted, in circumstances where that evidence was clearly sufficient to sustain the finding made by the primary judge, and it was never relevantly qualified, Ground 3 must fail.
We turn next to Ground 1 of the Discharge Appeal.
It is well established that the discretion conferred by r 39.05 of the Federal Court Rules to set aside interlocutory orders once entered should be exercised in a judicial manner and only in exceptional circumstances. That is so because of the “principle of finality of litigation which counsels courts to exercise caution when considering whether orders previously made and final on their face and entered should be re-opened for consideration and set aside”: Professional Administration Service Centres Pty Ltd v Commissioner of Taxation [2012] FCAFC 180; (2012) 295 ALR 52 at [53].
In Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304, Besanko J cited with approval the following passage from the judgment of McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47:
The private injustice and public undesirability of permitting the relitigation of matters already litigated once is recognised in a number of principles of law, notably the rules relating to res judicata and issue estoppel, the more flexible rules under the rubric of vexation and abuse of process … and the restrictive provisions governing the adducing of further evidence on the hearing of an appeal even by way of rehearing …
Interlocutory orders, of their very nature, create no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will.
The overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case. In giving effect to that general principle, and in recognition of the public and private interests earlier referred to, rules of practice have been developed in accordance with which the discretionary power of the court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature … and injunctions (or undertakings) made or given by agreement and without contest ‘until further order’ …
In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application …
(Emphasis added.)
In our view, it is plain that DTT’s attempt to re-litigate the Production Order was bound to fail. This is because DTT did not adduce evidence of a material change of circumstance about the critical question of whether the Uninvolved Partners have control of the Engagement Documents. And no contention was ever ventured that DTT had discovered “new material” which could not reasonably have been put before the primary judge on the hearing of the original application.
Each of the three witnesses called by DTT to give evidence in support of the Discharge Application were ill-equipped to answer questions about DTT’s claim that they no longer have control of the Engagement Documents seized by Mr Saayman (or any copies of them not in his custody).
By the end of the hearing of the Discharge Application, DTT’s case confronted a number of factual difficulties, including the following:
(1)when the order for discovery was made (5 March 2018) and Mr Lee made his first affidavit a month later, affirming that the Engagement Documents were “in the control of the First Respondent [DTT]”, the Engagement Documents were stored in the secure Litigation Room in the firm’s Sydney offices, access to which was limited to swipe cards authorised by the in-house litigation team (Sadie Ville v DTT (No 5) at [14], [43], [54]);
(2)it was Mr Lee’s “responsibility to keep [the Engagement Documents] in a place and in a form that made them accessible to him, acting on behalf of the first respondent” (Sadie Ville v DTT (No 5) at [21]);
(3)DTT did not lead any evidence as to when or how the Engagement Documents were removed from the Litigation Room or “conveyed” to Mr Saayman in contravention of the internal procedure that Mr Lee described, involving the quarantining of files in the Litigation Room so that they could be accessible to other partners (Sadie Ville v DTT (No 5) at [55]);
(4)neither Mr Lee nor Mr Murray had made or knew of any inquiries to ascertain how this was allowed to happen (Sadie Ville v DTT (No 5) at [44], [48], [55]);
(5)no request had ever been made by the Uninvolved Partners for the return of the Produced USB (Sadie Ville v DTT (No 5) at [15(e)], [58(b)]); and
(6)no attempt had been made to locate images of the laptop computers of Mr Saayman and Mr Moore (Sadie Ville v DTT (No 5) at [15(g)], [16], [58(c)]).
It is also curious, to say the least, that the only Uninvolved Partner called to give evidence in support of the contention that none of them has relevant control of the Engagement Documents, Mr Murray, was not aware of the CEO or the board of the firm taking any action to get the audit files back from Mr Saayman; had not made any inquiries as to when the encryption was applied to the files; and had not spoken to the CEO, any member of the board, or any person within the IT department, about what could be done to break the encryption.
Mr Taylor was called to testify, we would have thought absurdly, that it would take 12,600 years to break the encryption that Mr Saayman had applied to the files, in aid of a submission that the Uninvolved Partners did not “control” the documents. However, his evidence was also bound to be less than useful given that he is not part of the firm’s IT services team, has no knowledge of the firm’s IT infrastructure, has no familiarity with the firm’s backup systems, has no knowledge of whether IT personnel at the firm control access to servers and backup systems and has no experience of gaining access to backup systems.
Further, presumably because he had not been instructed to, Mr Taylor made no inquiries as to whether there are other copies of the audit file anywhere on the network that have not been encrypted by Mr Saayman, and had not looked for documents that contain copies of the audit file or copies of parts of the audit file.
One would have thought that the inquiries not made by Messrs Lee, Murray and Taylor would have been the starting point for the mounting of a case to persuade the judge to discharge a binding order of the court, but they were never made.
DTT also relied on the email correspondence set out at [182]-[189] above between Mr Saayman and Mr Murray as “evidence” of the want of control by the Uninvolved Partners over the Engagement Documents. But this correspondence was the product of DTT’s external lawyers, and an obvious contrivance on which the learned primary judge was entitled to place no weight.
In any event, given the terms of the DTT partnership deed which are set out in detail above at [264], it is clear, and one would have thought unsurprising, that the Uninvolved Partners, or some of them, are empowered by the express terms of the deed to demand that Mr Saayman provide access to the documents over which he asserts exclusive “control”, and that he be dismissed from the partnership if he fails to do so. Given the powers vested in the CEO, the board and the partners of the firm, it beggars belief that the Uninvolved Partners apparently choose to accept without question Mr Saayman’s assertions in his 5 September 2018 email that “[t]he physical files and back up disks have been locked up securely and only I have the keys to these records”; “[t]he electronic files have been password protected and only I know the password to these files”; and “I am not intending to give anyone access to any of these records”, as if that were the beginning and the end of the matter.
No attempt has been made by the CEO, the board or any DTT partner to enforce the unequivocal terms of the DTT partnership deed. Their apparent disinclination to do so is reason enough to reject Grounds 1 and 2 of the Discharge Appeal.
In those circumstances, it is unnecessary to deal with the other submissions made by DTT with respect to those grounds.
We should, however, deal with DTT’s submission that the terms of the Production Order do not require it to produce copies, even in circumstances where it is admitted that the originals are beyond relevant control. In our view, that submission must be rejected. It is obviously wrong. Where an original document is no longer within the party’s control, because it is lost or because of the more unusual circumstances involved in this case, then absent any legitimate claim to privilege over any copy, of course an available copy must be produced: see Paul Matthews and Hodge M Malek, Disclosure (Sweet & Maxwell, 4th ed, 2012) at [11.36].
The Privilege Appeal – Ground 4 (orders against unnamed individuals)
DTT’s final ground of appeal is that the primary judge “erred in finding that production orders could be made other than in the name of the individuals who are purported to be the subject of the order ([Sadie Ville v DTT (No 4)] [4])”.
It will be recalled that the Production Order is directed to “[DTT], other than Mr Saayman and any other partner directly involved in the relevant engagements”.
The primary judge rejected the contention that forms the basis of this ground in Sadie Ville v DTT (No 4) at [4] as follows:
… I do not consider this argument to have merit. The proceeding is in substance brought against each of the partners of DTT at the relevant time or times. While DTT has not been required to produce a list of those partners, it could be required to do so, and presumably knows who they are. An order that applies to the partners of DTT other than Mr Saayman and any other partner directly involved in the relevant engagements, is in substance the same as an order that names the individual partners of the firm other than Mr Saayman and any other partner directly involved in the relevant engagements. In my view, an order that applies to DTT other than Mr Saayman and any other partner directly involved in the relevant engagements, is sufficiently clear. It is also less cumbersome than an order naming all of the individual partners. Further, in circumstances where the parties were required to provide proposed orders to give effect to the Reasons, if DTT considered it necessary to name each individual partner, the firm should have provided a form of order that included all of their names, to assist the Court in giving effect to the Reasons. However, they did not do so. In the circumstances, I consider that an order for production can be framed against DTT other than Mr Saayman and any other partner directly involved in the relevant engagements.
DTT submits that the primary judge erred in so reasoning. It says that although the proceeding is brought in the partnership name pursuant to r 9.41 of the Federal Court Rules, “the proceeding is in fact brought against all of the partners of the firm at the relevant time or times. There is no provision in the [Federal Court Rules] which would permit an order to be entered, [or] enforced, against any legal persons comprising a subset of the partners of a firm at a past time by the adoption of a firm name. A rule allowing proceedings to be brought in the name of a firm (and here, to be noted, the firm as comprised at a past time) does not enable an order or judgment to be made in the name of the firm and such a judgment or order is improper: cf. Bishop v Chung Brothers (1907) 4 CLR 1262. Rather, any order must name the particular person(s) who are required to produce the documents in question”. DTT says that the court “cannot make orders against a fiction – something which does not exist and has no legal personality – no matter how convenient it is thought to be”.
Sadie Ville submits that the question raised in respect of this ground of appeal “is not a question of substance or power, but an unmeritorious question of form”.
Sadie Ville relies on s 23 of the Federal Court of Australia Act 1976 (Cth), which provides that the court may make such orders as it thinks appropriate in the exercise of its jurisdiction, and says that the court’s procedures authorise references to partners via the description of a firm: Federal Court Rules, r 9.41. Sadie Ville says, as the primary judge held, that “the form in which the Production Order is made is in substance the same as one that names all of the DTT partners other than Mr Saayman and any other partner directly involved in the Engagements, and is far less cumbersome: [Sadie Ville v DTT (No 4)], [5]. Contrary to DTT’s submissions, the Court has not made an order against a fiction. It has made an order against individuals described in a manner expressly authorised by the Rules, leaving no uncertainty as to who is bound or not bound. There is no error in that approach”.
In our view, no error of the type alleged by DTT is demonstrated, and the reasons given by the primary judge for making the order in the form that it was made are correct.
CONCLUSION
Leave to appeal will be granted, and the appeals will be dismissed, with costs.
I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Markovic and O’Callaghan. Associate:
Dated: 27 February 2020
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