Deputy Commissioner of Taxation v Malone
[2020] ACTSC 44
•28 February 2020
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Deputy Commissioner of Taxation v Malone |
Citation: | [2020] ACTSC 44 |
Hearing Date: | 13 December 2019 |
DecisionDate: | 28 February 2020 |
Before: | Crowe AJ |
Decision: | See [107] |
Catchwords: | PRACTICE – PLEADINGS – Defence – Privilege against self-exposure to penalty – civil penalty pleadings – pleading defence where privilege exists – requirement to comply with rules – obligation to make positive assertions of fact together with particulars thereof – proceedings for recovery of penalty under the Tax Administration Act 1953 (Cth) – averment provision – consideration of the Court Procedures Act 2004 (ACT)and the Court Procedures Rules 2006 (ACT) – parts of defence struck out with leave to replead |
Legislation Cited: | Corporations Act 2001 (Cth) – ss 180, 181, 182, 436A, 436B, 436C. Court Procedures Act 2004 (ACT) – s 5A. Tax Administration Act 1953 (Cth) – sch 1 ss 255-1, 255-5, 255-45, 255-50, 269-15, 269-20, 269-35. |
Cases Cited: | A & L Silvestri Pty Ltd v CFMEU [2005] FCA 1658; 226 ALR 247 Anderson v Australian Securities and Investments Commission [2012] QCA 301; 2 Qd R 401 Williams v Florida 399 US 78 (1970) |
Parties: | Deputy Commissioner of Taxation (Plaintiff) Ian Malone (Defendant) |
Representation: | Counsel P Bindon (Plaintiff) C Peadon (Defendant) |
| Solicitors Hunt & Hunt Lawyers (Plaintiff) McInnes Wilson Lawyers (Defendant) | |
File Number: | SC 208 of 2018 |
Crowe AJ:
By Originating Claim (OC) filed on 11 May 2018, the plaintiff, the Deputy Commissioner of Taxation (the DCT), sought to recover from the defendant (Mr Malone) the sum of $451,583.21 as a liquidated debt. That debt is said to arise under sub-div 269-B of sch 1 to the Tax Administration Act 1953 (Cth). Schedule 1 of the Tax Administration Act 1953 (Cth) ‘Collection and Recovery of Income Tax and Other Liabilities’ will be referred to as the Schedule for the purposes of this judgment. Pursuant to s 255-5 of the Schedule, such a debt is due to the Commissioner of Taxation (the Commissioner). The DCT is authorised to sue in his official name to recover the debt.
The statement of claim (SoC) filed with the OC pleads that Mr Malone was a director of Haytel Pty Ltd (the Company) at all relevant times during the period 1 April 2012 to 28 August 2016. During that period, a number of amended, default or actual assessments of Superannuation Guarantee Charges (payable under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA)) were issued to the Company. The Superannuation Guarantee Charges represented the assessment made under the SGAA of the shortfall in superannuation contributions which an employer is required to make by reference to the quarterly salary or wage base of each employee. It was alleged that the Company did not pay the Superannuation Guarantee Charges by the relevant due dates. Pursuant to s 269-20 of the Schedule, the plaintiff claimed that Mr Malone became liable to pay to the Commissioner (as a penalty) the amount which should have been paid by the Company in respect of each Superannuation Guarantee Charge.
It is important to note that the SoC pleads reliance on s 255-50 of the Schedule. That section provides:
255‑50 Certain statements or averments
(1)In a proceeding to recover an amount of a *tax‑related liability, a statement or averment about a matter in the plaintiff’s complaint, claim or declaration is prima facie evidence of the matter.
(2)This section applies even if the matter is a mixed question of law and fact. However, the statement or averment is prima facie evidence of the fact only.
(3)This section applies even if evidence is given in support or rebuttal of the matter or of any other matter.
(4)Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits. This section does not increase or diminish the credibility or probative value of the evidence.
(5)This section does not lessen or affect any onus of proof otherwise falling on a defendant.
There are three groups of penalties said to have been imposed by reason of the Company’s failure to pay the Superannuation Guarantee Charges by certain due dates. These groups of penalties are pleaded in similar terms. It is convenient to set out the first of these by way of example. It is pleaded by paras [7]-[14] of the SoC:
DIRECTOR PENALTIES IMPOSED IN RESPECT OF SUPER GUARANTEE CHARGE (DEEMED ASSESSMENTS)
7. The company lodged with the Commissioner of Taxation a superannuation guarantee statement for each of the quarters commencing on 1 July 2014, 1 January 2015, 1 April 2015, 1 July 2015 and 1 October 2015.
8. Pursuant to section 35 of the Superannuation Guarantee (Administration) Act 1992 (“the SGAA 1992”) each superannuation guarantee statement has effect as an assessment of the company’s superannuation guarantee shortfall and of the superannuation guarantee charge payable on the shortfall for the relevant quarters.
9. The details of the company’s superannuation guarantee charge liabilities under the SGAA 1992 for each of the relevant quarters, together with details of the initial day and the due day for the purposes of Division 269 of Schedule 1 of the TAA 1953, are as follows:
The Superannuation Guarantee Charge
The Relevant Quarter (The initial day the quarter ended)
Due Day pursuant to s269-10(3), Sch 1 TAA 1953
Amount of Superannuation Guarantee Charge
First
1 July 2014 to 30 September 2014
28 November 2014
44,200.94
Second
1 January 2015 to 31 March 2015
28 May 2015
40,188.39
Third
1 April 2015 to 30 June 2015
28 August 2015
35,637.33
Fourth
1 July 2015 to 30 September 2015
28 November 2015
36,389.42
Fifth
1 October 2015 to 31 December 2015
28 February 2016
27,433.32
Total
$183,849.40
10. At the end of each Due Day, the directors of the company were, in respect of each amount of superannuation guarantee charge, still under an obligation under section 269-15 of Schedule 1 to the TAA 1953 to cause the company to comply with its obligation under the SGAA 1992 because:
(a) the company had not complied with its obligations under the SGAA 1992 to pay to the Commissioner the superannuation guarantee charge;
(b) an administrator of the company had not been appointed under section 436A, section 436B or section 436C of the Corporations Act; or
(c) the company had not begun to be wound up within the meaning of the Corporations Act.
11. The defendant was a director of the company at or before the end of each Due Day.
PARTICULARS
The defendant was a director of the company continuously in the period beginning on 1 July 2014 and ending on 28 February 2016.
12. By reason of the foregoing:
(a) the defendant became liable to pay to the Commissioner a penalty, by force of subsection 269-20(1) of Schedule 1 to the TAA, in respect of each amount of superannuation guarantee charge;
(b) each penalty became due and payable, pursuant to subsection 269-20(2) of Schedule 1 to the TAA 1953, at the end of the Due Day of the relevant quarter; and
(c) the amount each penalty was, pursuant to subsection 269-20(5) of Schedule 1 to the TAA 1953, equal to the unpaid amount of the superannuation guarantee charge for the relevant quarter.
13. The unpaid amount of each penalty is:
(a) a tax-related liability, within the meaning of section 255-1 of Schedule 1 to the TAA 1953; and
(b) a debt due to the Commonwealth and payable to the Commissioner, pursuant to section 255-5 of Schedule 1 to the TAA 1953.
14. The total amount of the penalties that remain unpaid and due and payable is the sum of 183,849.40.
On 11 January 2019, Mr Malone filed a defence to the SoC (the Defence). It is noted that there is no requirement for the verification of a defence in this Court. The Preface to the Defence contained the following:
A.The Defendant claims, and reserves the right to claim, privilege against exposure to penalties and privilege against self-incrimination, and nothing in this Defence should be taken as constituting or otherwise indicating that the Defendant intends to waive any such privilege: see Australian Securities and Investments Commission v Mining Projects Group Ltd (2007) 164 FCR 32 at [12] and [24]; MacDonald v ASIC (2007) 73 NSWLR 612 at [71] (Mason P; Giles JA agreeing).
B.The Defendant gives notice that he may seek leave to file and serve a further amended defence following the conclusion of the Plaintiff’s case: see MacDonald v ASIC (2007) 73 NSWLR 612 at [72]-[74] (Mason P; Giles JA agreeing).
In the Defence, Mr Malone admits that he was a director of the Company at the relevant times during which the alleged Superannuation Guarantee Charge liabilities became due. However, in relation to the circumstances which are said to have given rise to each liability, Mr Malone denied the allegations in the SoC, and in relation to each such plea he has responded in the same terms as the following plea:
2. In answer to the allegations in paragraphs 7, 8, 9 and 10 of the Statement of Claim:
(a)the Defendant denies the allegations therein;
(b)further or in the alternative, the Defendant says that he is not liable to pay any penalty under Division 269-B of Schedule 1 to the Taxation Administration Act 1953 by reason of sections 269-35 (1) or (2). The Defendant reserves the right to advance in his case additional material in support of his defence, the details thereof will be disclosed by amending this paragraph after the close of the Plaintiff’s case.
Section 269-35 of the Schedule relevantly provides:
269-35 Defences
Illness
(1)You are not liable to a penalty under this Division if, because of illness or for some other good reason, it would have been unreasonable to expect you to take part, and you did not take part, in the management of the company at any time when:
(a) you were a director of the company; and
(b) the directors were under the relevant obligations under subsection 269‑15(1).
All reasonable steps
(2)You are not liable to a penalty under this Division if:
(a) you took all reasonable steps to ensure that one of the following happened:
(i)the directors caused the company to comply with its obligation;
(ii)the directors caused an administrator of the company to be appointed under section 436A, 436B or 436C of the Corporations Act 2001;
(iii)the directors caused the company to begin to be wound up (within the meaning of that Act); or
(b) there were no reasonable steps you could have taken to ensure that any of those things happened.
...
(3)In determining what are reasonable steps for the purposes of subsection (2), have regard to:
(a) when, and for how long, you were a director and took part in the management of the company; and
(b) all other relevant circumstances.
...
When you can rely on this section
(4)For the purposes of:
(a) proceedings in a court to recover from you a penalty payable under this Division; or
(b) proceedings in a court against you in relation to a right referred to in paragraph 269‑45(2)(b) (directors jointly and severally liable as guarantors);
subsection (1) or (2) of this section does not apply unless you prove the matters mentioned in that subsection.
Against this background, on 10 October 2019, the DCT filed an Application in Proceeding seeking the following orders:
1.Pursuant to r 434 of the Court Procedures Rules 2006, the defendant is to give better particulars of his defence dated 11 January 2019 regarding any defence relied upon under sections 269-35(1) or (2) of the Taxation Administration Act 1953 (Cth).
2.Further, or in the alternative:
a. pursuant to r 6700(3) of the Court Procedures Rules 2006, the defendant is to give evidence in this proceeding by affidavit; and
b. pursuant to r 6718 of the Court Procedure Rules 2006, the defendant is to file and serve any affidavit upon which he intends to rely in this proceeding within 28 days of these orders.
3.Any other orders that the Court considers appropriate.
This Application is the subject of this judgment.
Submissions
Submissions of the DCT
The DCT submitted that the claim made in the SoC relies on s 269-15 of the Schedule which creates an obligation on a director of a company to pay to the Commissioner a Superannuation Guarantee Charge under the SGGA on the due date, provided that:
(a)The company has not complied with its obligation to pay the Superannuation Guarantee Charge;
(b)An administrator has not been appointed to the company under s 436A, 436B or 436C of the Corporations Act 2001 (Cth) (the Corporations Act); and,
(c)The company has not begun to be wound up within the meaning of the Corporations Act.
Failure of a director to comply with the obligation under s 269-15 of the Schedule, renders the director liable to pay the Commissioner a penalty under s 269-20(1) of the Schedule which is equal to the unpaid amount of the Superannuation Guarantee Charge at the end of its due day. While it remains unpaid, the amount of that penalty is deemed to be a “tax-related liability” under s 255-1 of the Schedule and is a debt due to the Commonwealth, payable to the Commissioner, under s 255-5 of the Schedule.
The DCT is entitled, under s 255-5(2) of the Schedule, to sue to recover an unpaid amount of a tax-related liability. In such a proceeding, s 255-45 of the Schedule allows the DCT to issue an evidentiary certificate which operates as prima facie evidence of the matters stated in it, including that a person has a tax-related liability and that a sum (specified in the certificate) is a debt due and payable by the person to the Commonwealth. Moreover, s 255-50(1) of the Schedule provides that, in a proceeding to recover a tax-related liability, a statement or averment about a matter in the DCT’s statement of claim is prima facie evidence of the matter.
In his submissions, the DCT referred to the statutory defences available to Mr Malone under s 269-35 of the Schedule (see para [7] above), which were also identified in the Defence. The point was made by the DCT that the mere reference to the above subsections of the Schedule does not put the DCT on notice of the material facts on which Mr Malone intends to rely, nor does it inform the DCT of the real nature of the positive case which Mr Malone will seek to make in his defence.
As extracted at para [5] above, Mr Malone referenced two cases in the Preface of the Defence, those being Australian Securities and Investments Commission v Mining Projects Group Ltd [2007] FCA 1620; 164 FCR 32 (Mining Projects) and MacDonald v Australian Securities and Investments Commission [2007] NSWCA 304; 73 NSWLR 612 (MacDonald). The DCT submitted that in Mining Projects, Finkelstein J had accepted the correctness of the case Bridal Fashions v Comptroller-General of Customs (1996) 17 WAR 499 (Bridal Fashions), which is discussed later in this judgment. It was submitted that Mining Projects was distinguishable from the current proceedings on the following bases:
(1)In Mining Projects, the Australian Securities and Investments Commission (ASIC) was seeking an order by the court imposing penalties on the defendants. Here, the penalties have already been imposed by statute. This action is a claim to recover payment of an amount owed to the Commonwealth as a debt. In that sense, the current proceedings are not proceedings for the imposition of a penalty.
(2)Unlike the situation in Mining Projects, there was nothing in the potential defences open to Mr Malone under s 269-35 of the Schedule which could expose him to a criminal sanction.
(3)There was no averment provision in Mining Projects. Here, s 255-50(1) of the Schedule places the matter on all fours with Bridal Fashions. It follows that, as in Bridal Fashions, the proper pleading of facts to support the statutory defences could not tend to incriminate Mr Malone, nor could they expose him to a penalty. That pleading could only seek to exculpate Mr Malone.
The DCT also sought to distinguish the case of MacDonald from the current proceedings. In MacDonald, ASIC sought the imposition of civil penalties for breaches of directors’ duties under ss 180 and 181 of the Corporations Act. A pecuniary penalty was sought under s 1317G of the Corporations Act and a disqualification order was also sought under either s 206C or s 206E of the Corporations Act. The defendant had sought an order that the pleading requirements under the relevant court rules be dispensed with in order to preserve his right of penalty privilege.
The DCT submitted that the circumstances in MacDonald were very close to those in Mining Projects and that the present case was therefore distinguishable on the same bases (summarised at para [13] above).
The DCT relied on the decision in Bridal Fashions as supporting the requirement for a defendant to properly plead any positive defence he or she wished to rely on. Ms Bindon, the DCT’s counsel, argued that as in Bridal Fashions, the pleading of facts in support of the statutory defences argued by Mr Malone could only raise matters by way of exculpation. Ms Bindon submitted that having regard to the averment provision, such a pleading could not assist or advance the DCT’s case.
In that context, Ms Bindon relied on the decision of Foster J in Australian Securities and Investments Commission v Whitebox Trading Pty Ltd (No 3) [2017] FCA 429 (Whitebox). In Whitebox, ASIC was seeking penalty orders against a company and a director under the Corporations Act. ASIC had filed and served the evidence on which it relied upon in relation to liability. The issue of liability was to be determined separately from penalty. The trial on the former issue was listed for September 2017. At a case management hearing before his Honour in March 2017, the defendants raised the penalty privilege. No order was made at that stage requiring the filing and serving of the defendants’ evidence. However, an issue arose on that occasion as to whether an order should be made in relation to the filing and serving of objections to ASIC’s evidence. The defendants argued that a requirement for the notification of objections might lead ASIC to a train of inquiry which could disclose evidence against the defendants or disclose factual defences intended to be taken by the defendants. Relying on the penalty privilege, the defendants argued that no order should be made about objections, or if one was to be made, the time by which the objections should be notified should be set no earlier than one to two weeks before the hearing.
In Whitebox, Foster J referred at some length to the decision of the Full Court of the Federal Court of Australia in Australian Competition and Consumer Commission v FFE Building Services Ltd [2003] FCAFC 132; 130 FCR 37 (FFE) as being the leading authority on the nature and scope of penalty privilege in the Federal Court of Australia. The issue in FFE was whether the requirement for a defendant in an action for the imposition of a penalty, should be ordered to file and serve evidence in advance of the hearing having regard to the penalty privilege. The Full Court concluded that such an order should not be made. The rationale was that in practical terms, such an order would compel the defendant to file evidence and would have the effect of undermining the penalty privilege. At para [24] of Whitebox, Foster J set out paras [12]-[14] from FFE which explain the rationale for the privilege. Those paragraphs from FFE provide:
[12] The privilege against self-incrimination protects an individual from making a disclosure that may lead to incrimination or to the discovery of real evidence of an incriminating nature: Sorby v Commonwealth of Australia (1983) 152 CLR 281 at 310. Further, a respondent in a proceeding that is solely for the recovery of a pecuniary penalty should not be ordered to disclose information or produce documents that may assist in establishing his or her liability to the penalty: Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Livestock Corp (1979) 42 FLR 208; Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 at 336.
[13] The privilege of refusing to answer questions or provide information on the ground that the answers or the information might tend to expose the party to the imposition of a pecuniary penalty:
· is not confined to discovery and interrogatories;
· is available at common law;
· is distinct from the privilege against exposure to conviction for a crime (Pyneboard (at 337)).
The rationale for the privilege is that an applicant must prove its own case and should not get any assistance from the respondent in proving its case: Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 at 129; Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2002) 192 ALR 561 at 570, at [31]. The privilege can only be abrogated by statute: Reid v Howard (1995) 184 CLR 1. As the privilege is not subject to judge-made exceptions or qualifications, it cannot be abridged or undermined in consequence of a Court accepting undertakings proffered by the applicant designed to avoid or diminish the danger that provision of the information would expose the respondent to a penalty.
[14] By requiring an individual respondent, prior to the closure of an applicant's case, to file statements of evidence proposed to be given by witnesses to be called by that respondent, such a respondent would be exposed to the risk that indirect or derivative evidence, being evidence obtained by using the material disclosed in the statement as a basis of investigation, could be tendered against the respondent. The provisional disclosure of information may set in train a process that may lead to the imposition of a penalty or may lead to the discovery of real evidence in support of the imposition of a penalty: Reid v Howard (at 6).
The defendants in Whitebox submitted that the privilege excuses a defendant from providing any assistance whatsoever to the plaintiff in advancing the plaintiff’s case. It was submitted that the court should not inquire as to the actual extent of the prejudice which might be suffered by the defendant as a result of the relevant procedural step in question. In response to that submission, his Honour said (at para [32]):
In support of that proposition, the defendants cited Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at 147–148 [39] and FFE at 44 [32]. The proposition that it is not appropriate to enquire into the actual extent of the prejudice to a defendant is supported by both passages cited and is correct. However, neither of the quoted passages supports the proposition that the privilege excuses the defendant from providing any assistance to the plaintiff. The observations made by the Full Court in FFE which are relied upon by the defendants here, in particular, at 44 [32] and at 44–45 [33], are directed to the making of an order requiring the defendant to “provide information” (eg by producing documents as part of discovery; answering interrogatories; providing witness’ statements; and pleading positive defences).
His Honour went on to say (at para [33]):
The defendants also submitted (correctly) that the plaintiff who seeks the imposition of a pecuniary penalty must prove its case and every element of it without being entitled to any assistance from the defendant. This principle derives from a similar principle which is fundamental to Australian criminal law.
ASIC submitted (quoted at para [37]):
The provision of evidentiary objections do (sic) not create any such danger where those objections have no evidentiary status and could not rationally be characterised as placing the defendants in a position in which they were required to provide proof against themselves.
His Honour then noted (at para [38]):
ASIC also argued that, in FFE, the Full Court did not refer to assistance in a general and undefined way. The assistance must logically be referable to “proving the plaintiff’s case” (at 40 [13]). The defendant must be compelled to provide information that can be used as evidence or that creates a train of inquiry for the discovery of such evidence that is to be adduced against the defendant.
His Honour accepted ASIC’s submissions as a correct statement of principle; see para [40]. His Honour also accepted as correct the approach taken by Austin J in the matter of Australian Securities and Investments Commission v Vines [2003] NSWSC 701; 176 FLR 106 where the court concluded:
[25] In my opinion the privilege against exposure to a penalty does not prevent the court from directing the defendants to notify their objections to the expert evidence before the trial. While I accept that the direction is likely to assist the plaintiff in the preparation and presentation of its case, the provision of forensic assistance is not, per se, prohibited by the privilege, for the reasons I have given. There is nothing inherent in the process of notifying objections to the admissibility of evidence that would connect that process to the provision of evidence tending to prove conduct exposing the defendants to a penalty, or providing leads for the discovery of real evidence to that effect.
Ultimately, Foster J in Whitebox ordered the defendants to file and serve their objections by a date no later than six weeks before the hearing.
During the DCT’s submissions, Ms Bindon relied on the distinction drawn in Whitebox between a procedural step that could lead to assisting a plaintiff’s case against a defendant in some real way, and a procedural step which might simply provide forensic assistance to a plaintiff in progressing its case. Ms Bindon argued that the requirement for the defendant to properly plead its positive defence in the face of an averment was akin to the latter type of procedural step and thus did not infringe the penalty privilege.
Finally, Ms Bindon relied on the comments of Philip McMurdo JA (Holmes and White JJA agreeing) in Anderson v Australian Securities and Investments Commission [2012] QCA 301; 2 Qd R 401 where his Honour, after referring to Mining Projects and MacDonald, said:
[21] The present questions are not affected by the decision of a Full Court of the Supreme Court of Western Australia in Bridal Fashions Pty Ltd v Comptroller-General of Customs, where it was held that in an action to recover a civil penalty under the Customs Act 1901 (Cth), a defendant would have to go further than simply putting the plaintiff to proof of the allegations in the statement of claim. As Finkelstein J explained in ASIC v Mining Projects Group Ltd, that conclusion was in the context of s 255 of the Customs Act providing that an averment of the facts alleged in the statement of claim is prima facie evidence of those facts, “the practical effect” being to require the defendant in such proceedings to plead and run an affirmative case. [footnotes omitted]
Submissions of Mr Malone
Mr Peadon, counsel for Mr Malone, argued that the true effect of the defences available under s 269-35 of the Schedule was to place before the court a dispute as to whether the director was liable for a penalty. In that sense, the proceeding was not one of mere debt recovery on the basis of a statutory penalty. By reference to Rich v Australian Securities and Investments Commission [2004] HCA 42; CLR 129 (Rich) at para [35], Mr Peadon submitted that in characterising the nature of the proceeding in question it is necessary to analyse it by reference to the affect the relief sought would, if granted, have on the defendant. The claim here is a “civil action to recover a penalty” in the sense described by Isaac J in R v Northern Associated Collieries (1910) 11 CLR 738, whereby, “[T]he whole and avowed object of the proceeding is the infliction of the penalty”. Reference was also made to Mining Projects at para [10].
In relation to the decision in Bridal Fashions, Mr Peadon noted that the decision is now 25 years old and that it was made before the High Court decision in Rich. In his submission, Mr Peadon relied on the comment by Spigelman CJ in MacDonald (at para [26]) that, having regard to Rich, the decision in Bridal Fashions “…must be treated with care.”
Mr Peadon also submitted that Bridal Fashions must be considered by reference to the statutory regime in question (the Customs Act 1901 (Cth), as it was in the early 1990s). The relevant regime here is governed by the very prescriptive recovery provisions in the Schedule. In relation to the regime under consideration in Bridal Fashions, the Full Court was satisfied that nothing which might be pleaded by way of a positive defence could assist the Comptroller-General to prove his case against either defendant.
In contrast, Mr Peadon noted that the defences available under s 269-35 of the Schedule included that “for some other good reason” it would have been unreasonable to expect a director to take part in the management of the company, and the director did not take part in the management of the company during a material time. Pleading the facts to establish such a defence could, Mr Peadon submitted, disclose a contravention under ss 180 (Care and diligence – civil obligation only), 181 (Good faith – civil obligations) and/or 182 (Use of position – civil obligations) of the Corporations Act. Mr Peadon gave the following example in oral submissions:
One can imagine very difficult personal circumstances striking a director which may or may not have to do with their personal capacity, may have to do with people that are involved in, family situations, where the director has to go and attend to other matters for a great deal of time and does not pay attention. The other directors might say to him, I’m looking after it.
It was submitted that the risk of providing information which could lead to a claim for a penalty under the Corporations Act, placed the current proceedings closer to the factual circumstances in MacDonald than those in Bridal Fashions. Moreover, Mr Peadon emphasised, by reference to Rich and FFE, that the privilege extended to a step in the litigation which might expose a defendant to direct or indirect prejudice, including, as in Rich, “…the prejudice of providing clues about where to trace documents” (see per Mason P in MacDonald at [65]).
In that context, Mr Peadon submitted that the Defence as filed here, complied with the analysis of MacDonald and Mining Projects. It was, Mr Peadon submitted, all a question of timing. Mr Malone would still file a proper defence. However, in order to preserve his penalty privilege, he would not file it until the close of the DCT’s case. Such an approach, supported by the comments of Finkelstein J in Mining Projects at paras [13] and [17], was now “orthodox”. It was submitted that this would cause minimal disruption to the conduct of the hearing.
It was further submitted on behalf of Mr Malone that s 255-50 of the Schedule was merely “facilitative”. The averment provision did not, however, change the fundamental nature of a proceeding which was one concerning whether the statutory criteria justifying a finding of liability for a penalty are satisfied. The legislature could easily have limited the privileges available to someone in the position of Mr Malone, but it did not do so.
Mr Peadon also relied on the privilege against self-incrimination. In oral submissions, Mr Peadon said that although Mr Malone did not need to go that far, it was still open to him to rely on that privilege because of the hypothetical possibility of criminal sanctions should it be disclosed that Mr Malone had withheld moneys payable to the Commonwealth with the intent necessary to engage the relevant offence provisions.
DCT’s Submissions in Reply
Ms Bindon returned to the discussion in Bridal Fashions at 516-517, to submit that the circumstances in that case were relevantly indistinguishable from those here. By way of example, the matters pleaded in paras [7]-[10] of the SoC are established prima facie by having been pleaded. Nothing which the defendant might plead can advance the proof of the DCT’s case, because it is already proved. The defendant might plead facts which could rebut the facts averred, however that would be a rebuttal of an existing proof. It would in no way assist the DCT to make out his case. There is no discretion involved in the formulation of the penalty. It is fixed by statute. This case is thus fundamentally different from the penalty cases under the Corporations Act.
Ms Bindon submitted that reference to what Spigelman CJ said in MacDonald at para [10], demonstrated that the critical issue is whether having to properly plead the defence at this stage will assist the DCT in any way to prove his case. It was submitted that Mr Malone had provided no satisfactory explanation as to how pleading his defence fully at this stage would assist the DCT.
Consideration
Legal Principles
The issue in this case turns on the tension between the modern focus on efficient case management and the need to enforce an individual’s right to claim privilege against the imposition of a penalty. It arises here in the very particular context of an action by the DCT for the recovery of a “tax-related liability”.
Relevantly, s 5A of the Court Procedures Act 2004 (ACT) provides:
5A Main purpose of civil procedure provisions
(1)The main purpose of the civil procedure provisions is to facilitate the just resolution of disputes—
(a)according to law; and
(b)as quickly, inexpensively and efficiently as possible.
(2)Without limiting subsection (1), the main purpose includes the following objectives:
(a)the just resolution of the real issues in civil proceedings;
(b)the efficient use of the judicial and administrative resources available for the purposes of the court;
(c)the efficient disposal of a court’s overall caseload;
(d)the timely disposal of civil proceedings;
(e)the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
(3)The civil procedure provisions must be interpreted and applied, and any power or duty imposed by them (including the power to make rules) must be exercised or carried out, in the way that best promotes the main purpose.
(4)The parties to a civil proceeding must help the court to achieve the objectives.
(5)In this section:
civil procedure provisions means—
(a)the rules made under section 7, in their application to civil proceedings; and
(b)any provision of this Act in relation to the practice and procedure of a court in civil proceedings.
court includes a tribunal that is a prescribed tribunal under section 6.
The relevant rules of the Court Procedures Rules 2006 (ACT) (CPR) appear to be:
406 Pleadings—statements in
(1)Each pleading must—
…
(b)contain a statement in a summary form of the material facts on which the party relies but not the evidence by which the facts are to be proved; and
(c)state specifically any matter that if not stated specifically may take another party by surprise; and
…
(e)if a claim or defence under a statute is relied on—identify the specific provision of the statute.
…
430 Pleadings—all necessary particulars must be included
(1)A party must include in a pleading of particulars necessary to—
(a)define the issues for, and prevent surprise at, the trial; and
(b)enable the opposite party to identify the case that the pleading requires the opposite party to meet; and
(c)support a matter specifically pleaded under rule 407 (Pleadings—matters to be specifically pleaded).
(2)This rule does not require a party to include in a pleading particulars of any claim for interest up to judgment other than those required by rule 51 (2) (Originating claim—additional matters for claims for debt and liquidated demands) or rule 304 (2) (Third-party notice—additional matters for claims for debt and liquidated demands).
434 Pleadings—application for better particulars
(1)A party may apply to the court for an order for better particulars of the opposite party’s pleading.
NotePt 6.2 (Applications in proceedings) applies to an application for an order under this rule.
(2)The court may make any order under this rule it considers appropriate, including, for example, an order about the future conduct of the proceeding.
NoteRule 6901 (Orders may be made on conditions) provides that the court may make an order under these rules on any conditions it considers appropriate.
(3)Unless the court otherwise orders, the making of an application under this rule does not extend the time for pleading.
(4)Particulars required under an order under this rule must repeat the relevant part of the order so the particulars are self-explanatory.
441 Pleadings—denials and non-admissions
(1)It is not enough for a party to deny generally the grounds alleged in a pleading.
(2)Instead, a party must deal specifically with each allegation of fact.
(3)However, a pleading in response to a pleading that alleges damage or damages is taken not to admit the allegation unless it specifically admits the allegation.
(4)A party in a pleading must not deny an allegation of fact in the previous pleading of an opposite party in an evasive way.
(5)Instead, a party must answer the point of substance.
Example
A plaintiff alleges that a defendant received an amount of money. It is not enough for the defendant to deny that the defendant received that amount. Instead, the defendant must deny that the defendant received that amount or any part of it, or set out how much the defendant received.
(6)If an allegation is made with various circumstances, it is not enough to deny it along with the circumstances.
447 Pleadings—allegations admitted unless denied etc
(1)An allegation of fact made by a party in a pleading is taken to be admitted by any opposite party required to plead in response unless, either expressly or by necessary implication—
(a)it is denied in the pleading of the opposite party; or
(b)it is stated to be not admitted in the pleading of the opposite party; or
(c)a joinder of issue under rule 482 (Pleadings—joinder of issue) operates as a denial of the allegation.
NoteRule 441 (3) (Pleadings—denials and non-admissions) provides that a pleading in response to a pleading that alleges damage or damages is taken to deny the allegation unless it specifically admits the allegation.
(2)However, there is no admission under subrule (1) because of a failure to plead by a party who is, or was at the time of the failure to plead, a person with a legal disability.
It is immediately apparent that the current pleading in the Defence in response to each allegation in the SoC of the facts said to give rise to the liability of the Company, and thus the obligation upon Mr Malone under s 269-15 of the Schedule, fails to comply with rr 406(1)(b),(c) or 430 of the CPR. That plea is set out in para [6] above.
The substance of the above court rules is not distinguishable from those in question in Bridal Fashions or MacDonald. It is also likely that the equivalent Federal Court rules were behind the summary of Finkelstein J at para [3] in Mining Projects. However, none of those cases arose in the particular statutory context of the DCT’s claim. Indeed, counsel were unable to refer me to such a case, nor have my researches found one.
The starting point is, it seems to me, the decision in Bridal Fashions. In that matter the Comptroller-General of Customs had brought proceedings against the corporate defendant and a director, Mr Venturini, seeking the imposition of penalties in relation to false entries in import documents relating to 38 shipments of bridal wear. The action was commenced by writ and statement of claim. The latter contained 512 paragraphs asserting the facts necessary to establish liability in relation to the 38 shipments. The first five paragraphs were mechanical. The defendants filed a defence pleading simply “The defendants deny paragraphs 6-512 of the statement of claim.” The Comptroller-General applied to strike out that paragraph.
The Master struck out the paragraph in relation to the company, but refused to do so in relation to Mr Venturini. The Company appealed, and the Comptroller-General cross appealed in relation to the latter order.
The provisions of the Customs Act relied upon by the Comptroller-General in the action were as follows (cited historically):
233 Smuggling and unlawful importation and exportation
(1)A person shall not:
(a) smuggle any goods; or
(b) import any prohibited imports; or
(c)export any prohibited exports; or
(d)unlawfully convey or have in his possession any smuggled goods or prohibited imports or prohibited exports.
(1AA) A person who contravenes subsection (1) is guilty of an offence punishable upon conviction:
(a) in the case of an offence against paragraph (1) (a) or an offence against paragraph (1) (d) in relation to smuggled goods-as provided by subsection 233AB (1); or
(b) in any other case-as provided by subsection 233AB (2).
…
233AB Penalties for offences against sections 233 and 233A
(1) Where an offence is punishable as provided by this subsection, the penalty applicable to the offence is:
(a) where the Court can determine the amount of the duty that would have been payable on the smuggled goods to which the offence relates if those goods had been entered for home consumption on:
(i) where the date on which the offence was committed is known to the Court-that date; or
(ii) where that date is not known to the Court-the date on which the prosecution for the offence was instituted;
a penalty not exceeding 5 times the amount of that duty and not less than 2 times that amount; or
(b) where the Court cannot determine the amount of that duty, a penalty not exceeding $50,000
(2) Where an offence is punishable as provided by this subsection, the penalty applicable to the offence is:
(a) where the Court can determine the value of the goods to which the offence relates, a penalty not exceeding:
(i) 3 times the value of those goods; or
(ii) $50,000;
whichever is the greater; or
(b) where the Court cannot determine the value of those goods-a penalty not exceeding $50,000.
234 Customs offences
(1) A person shall not:
(a) Evade payment of any duty which is payable;
(b) Obtain any drawback, refund, rebate or remission which is not payable;
(d)Knowingly or recklessly:
(i) make a statement to an officer that is false or misleading in a material particular; or
(ii) omit from a statement made to an officer any matter or thing without which the statement is misleading in a material particular;
(g) Refuse or fail to answer questions or to produce documents;
(h) Sell or offer for sale, any goods upon the pretence that such goods are prohibited imports or smuggled goods.
(2) A person who contravenes subsection (1) is guilty of an offence punishable upon conviction:
(a) in the case of an offence against paragraph (1) (a), by:
(i) where the Court can determine the amount of the duty on goods the payment of which would have been evaded by the commission of the offence if the goods had been entered for home consumption on:
(A) where the date on which the offence was committed is known to the Court-that date; or
(B) where that date is not known to the Court-the date on which prosecution for the offence was instituted;
a penalty not exceeding 5 times the amount of that duty and not less than 2 times that amount; or
(ii) where the Court cannot determine the amount of that duty, a penalty not exceeding $50,000;
(b) in the case of an offence against paragraph (1) (b), by a penalty not exceeding 5 times the amount of drawback, refund, rebate or remission that was obtained by the commission of the offence and not less than 2 times that amount;
(c) subject to subsection (3), in the case of an offence against paragraph (1)(d), by a penalty not exceeding $5,000; or
(d) in the case of an offence against paragraph (1) (g) or (h), by a penalty not exceeding $1,000.
...
(3) Where a person is convicted of an offence against paragraph (1) (d) in relation to a statement made, or an omission from a statement made, in respect of the amount of duty payable on particular goods, a Court may, in relation to that offence, impose a penalty not exceeding the sum of $5,000 and twice the amount of the duty payable on those goods.
Under s 244 of the Customs Act, proceedings for penalties, such as those sought in Bridal Fashions, were characterised as “Customs Prosecutions”. Section 245 of the Customs Act allowed the Comptroller-General to commence proceedings in the appropriate court of each State or Territory having regard to the jurisdiction of that court. Section 247 provided:
247Prosecutions in accordance with practice rules
Every Customs prosecution in a court referred to in subsection 245 (1) may be commenced prosecuted and proceeded with in accordance with any rules of practice (if any) established by the Court for Crown suits in revenue matters or in accordance with the usual practice and procedure of the Court in civil cases or in accordance with the directions of the Court or a Judge.
The Full Court in Bridal Fashions summarised the relevant statutory regime under the Customs Act in the following terms (at 503):
By s 254(1) in every Customs prosecution the defendant is competent to give evidence. Under s 254(2), in every Customs prosecution except for an indictable offence or an offence directly punishable by imprisonment the defendant shall be compellable to give evidence. By s 255 the averment by the plaintiff contained in the statement of claim shall be prima facie evidence of the matters so averred although this does not apply to an averment of the intent of the defendant.
Proceedings of this type are rather curious in nature. They are civil in form but because they extend beyond seeking compensatory relief they are penal in substance. In some ways they may more properly be assimilated to criminal proceedings rather than civil actions. But there is no such thing as a criminal action: see Mexborough (Earl of) v Whitwood Urban District Council [1897] 2 QB 111 at 115. It has to be recognised that they are civil proceedings and they are to be conducted in accordance with the practices and procedures of the court in its civil jurisdiction.
Section 255 of the Customs Act provided:
255 Averment of prosecutor sufficient
(1) In any Customs prosecution the averment of the prosecution or plaintiff contained in the information, complaint, declaration or claim shall be prima facie evidence of the matter or matters averred.
(2)This section shall apply to any matter so averred although:
(a)evidence in support or rebuttal of the matter averred or of any other matter is given by witnesses; or
(b)the matter averred is a mixed question of law and fact, but in that case the averment shall be prima facie evidence of. the fact only.
(3)Any evidence given by witnesses in support or rebuttal of a matter so averred shall be considered on its merits and the creditability and probative value of such evidence shall be neither increased nor diminished by reason of this section.
(4)The foregoing provisions of this section shall not apply to:
(a)an averment of the intent of the defendant; or
(b)proceedings for an indictable offence or an offence directly punishable by imprisonment.
(5)This section shall not lessen or affect any onus of proof otherwise falling on the defendant.
The Full Court concluded that nothing about the recovery scheme in the Customs Act abrogated Mr Venturini’s privilege against the imposition of a penalty. However, it also held that the privilege was not available to the corporate defendant.
As to whether the privilege extended to pleadings, the Full Court noted that no authority could be found on the point. In relation to Mr Venturini, the Court said (at 515):
So far as concerns the second respondent, counsel made this submission:
'' ... in relation to the claim as a whole, any admission by the defendant in relation to matters such as this where the defendant is liable to exposure to a penalty, the defendants are entitled to say, 'We are not obliged to assist the prosecutor in any way at all' and that is by an admission on any matters.''
We think this over-simplifies the point. It is not a question of "helping the prosecutor''. A defendant must raise a plea that will take the matter to trial and to the extent that they are consistent with the existence of the privilege the normal rules of pleading must be followed.
After setting out s 255 of the Customs Act the Court said (at 516-7):
It would be open to the defendant, if it chose, to admit, in its defence, the allegations in the statement of claim. An admission in those terms would constitute a waiver of the privilege against self-exposure to a penalty or self-incrimination.
By reason of s 255(1) it would not be open to the defendant simply to put the plaintiff to the proof of the allegations in the statement of claim, as a defence drawn in such terms would not enable the defendant to lead any evidence whatever in order to negate the impact of the operation of s 255(1). Thus a plea that the defendant neither admits nor denies the allegations in the statement of claim would be an exercise in futility. Accordingly, there is no need, in practice, to consider the application of the privilege against self-exposure to a penalty or self-incrimination to a plea of this kind.
It would be open to a defendant to plead a denial to the allegations made in the statement of claim. The defendant would then be entitled to lead oral evidence in an attempt to refute the prima facie effect of s 255(1). Such a denial could not be categorised as an act of self-incrimination on the part of the defendant.
In practice, however, the practical effect of s 255(1) is that a defendant will ordinarily be required to raise an affirmative allegation in its defence. Without pleading the facts and circumstances of an affirmative case a defendant will not be able to tender positive exculpatory evidence: see Pinson v Lloyds & National Provincial Foreign Bank Ltd [1941] 2 KB 72 at 79, per Scott J; Australian National Airways Ltd v Phillips [1953] SASR 278; Crook v Derbyshire [1961] I WLR 1360 at 1365; [1961] 3 All ER 786 at 790; O'Brien v Komesaroff (1982) 150 CLR 310 at 318, per Mason J. A defendant could readily plead an affirmative case by averring, for example: ''If (which is denied or not admitted) the alleged fact was as pleaded in par X of the statement of claim, the defendant says ... ." Should the defendant plead an affirmative case on this basis it would not thereby incriminate itself. On the contrary, the purpose of the affirmative case would be to set up a defence against the case brought against it by the prosecution.
To summarise, a pleading in the defence that the defendant does not admit an allegation, and puts the plaintiff to the proof thereof would not prevent the operation of s 255(1). It would not be an appropriate plea. Should the defendant admit an allegation in the statement of claim, it would thereby waive the privilege against self-incrimination. If the defendant were to deny an allegation in the defence it would not incriminate itself. Should the defendant set up an affirmative case in the form suggested it would not incriminate itself. In the circumstances, the privilege has no practical application in the pleading of a defence to the statement of claim in a Customs prosecution. Accordingly, the privilege against self-exposure to a penalty or self-incrimination does not preclude the appellant or the second respondent from pleading in the ordinary way to the allegations in the statement of claim.
The Full Court dismissed the appeal and upheld the first two grounds of the cross-appeal. The result was that Mr Venturini was required to plead his defence in accordance with the relevant rules of court.
I find the reasoning of the Full Court in Bridal Fashions persuasive insofar as it deals with the particular nature of an action for a penalty where the plaintiff has the benefit of an averment provision. It is true that there was, in the Customs Act, no statutory defence equivalent to s 269-35 of the Schedule. However, for reasons discussed further below I do not consider that that makes any difference.
However, as Mr Peadon pointed out, 25 years has elapsed since the decision in Bridal Fashions. It is important therefore to consider the case in the light of the subsequent cases, particularly Mining Projects and MacDonald.
Both Mining Projects and MacDonald concerned proceedings for the imposition of penalties under the Corporations Act. In Mining Projects, the defences delivered by the defendant had pleaded significant detail by way of confession and avoidance. ASIC claimed that insufficient detail had been provided and that further particulars should be ordered. The defendants resisted this, claiming penalty privilege. Finkelstein J summarised (at para [6]) the issues raised in the following terms:
The first is whether either privilege would ordinarily relieve the directors from any obligation to provide further details of their defence. Assuming the privileges can be relied upon, the second issue is whether the directors have waived, in whole or in part, their right to assert either privilege by filing detailed defences.
In discussing the relevant privileges Finkelstein J noted (at paras [9]-[10]):
[9] In the case of self-incrimination privilege the defendant must establish that the provision of information or the production of documents in the civil case leads to a real and appreciable risk of a criminal prosecution before the privilege can be invoked: Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547, 574; Rank Film Distributors Ltd v Video Information Centre [1982] AC 380, 392; Sorby 152 CLR 281, 290 and 294. That will not be difficult to show when, as here, the proceeding is aimed at proving that the directors engaged in conduct which would establish, or go a long way toward establishing, that they had also committed criminal acts.
[10] The manner in which penalty privilege is to be claimed depends upon the type of proceeding in which the claim is made. In R v Associated Northern Collieries (1910) 11 CLR 738, Isaacs J drew attention (at 742) to the “inherent distinction between a civil action to prevent or redress a civil injury on the one hand, and a civil action to recover a penalty on the other. In the latter case the whole and avowed object of the proceeding is the infliction of the penalty”. See also Mayor of Derby County Borough v Derbyshire County Council [1897] AC 550, 552; Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-Stock Corporation (1979) 42 FLR 204, 207. In an action to recover a penalty it is not necessary for the defendant to establish that there is a risk he will be subjected to a penalty by providing information to the plaintiff. The plaintiff is seeking the information for that very purpose. It does not matter that in the proceeding the plaintiff also claims other relief: Birrell v Australian National Airlines Commission (1984) 1 FCR 526, 530. In civil actions where no claim for a penalty is made the defendant must show that providing the information requested would tend to subject him to a penalty in separate proceedings before he can rely on the privilege.
In relation to the interplay between the pleading rules and the issue of the privilege, his Honour said (at para [12]):
...it has been held that although in a civil action a defendant is required to deliver a defence he cannot be compelled to make any admissions in relation to the matters alleged against him. That is, penalty privilege operates to relieve a defendant from the need to deliver a defence that complies with the pleading rules if the rules would override the privilege. To the extent that pleading rules purport to impose such an obligation they must give way to the privilege: Hadgkiss v Construction, Forestry, Mining and Energy Union (2005) 146 IR 106, 111-112; A & L Silvestri Pty Ltd v Construction, Forestry, Mining and Energy Union (2005) 226 ALR 247, 251.
In that context, his Honour proceeded in para [13] to conclude that the pleading rules and the privilege could be reconciled by allowing the director defendants to withhold their full, detailed defence pleading a positive case until after ASIC had closed its case at the hearing.
As to the decision in Bridal Fashions, Finkelstein J did not regard his conclusion as inconsistent. However, his Honour saw Bridal Fashions as having very narrow application on the pleading issue. His Honour said:
[15] Properly understood, the point made by the Full Court is a narrow one. In a Customs Act case neither penalty privilege nor self-incrimination privilege is of any use to a defendant because, if either privilege is claimed and no positive case is run, the defendant will suffer an adverse judgment. For that reason, a positive plea could not be incriminating; it could only be exculpatory.
[16] What the Full Court said will apply only where the plaintiff’s case can be proven by averment. The Full Court’s analysis was not intended to, and in any event does not, apply across the board. The reason is that both penalty privilege and self-incrimination privilege protect not only against the risk of exposure to penalty or incrimination by direct evidence but also by indirect or derivative evidence. Disclosing a positive case at the pleadings stage will often provide the plaintiff with an opportunity to follow leads and open up fresh fields of inquiry. A defendant cannot be required to provide information that may be the basis of an investigation that may lead to the discovery of real evidence: Reid v Howard (1995) 184 CLR 1, 6-7. If a defendant is required to plead a positive case there is a risk of that happening: Chief Executive Officer of Customs v Camile Pty Ltd (2004) 58 ATR 163, 169.
[17] In any event even if, contrary to my view, Bridal Fashions stands for the proposition that a positive defence can never incriminate a defendant or expose him to a penalty, it says nothing about when the defence must be delivered. On my alternative approach a defendant can rely on the privilege up to the point he decides to go into evidence. It is only at that moment, if the defendant elects to run a positive case, that he must give up the privilege and file a defence that outlines the case he intends to run.
It is apparent from his Honour’s analysis that he accepted the correctness of Bridal Fashions insofar as a plaintiff has the benefit of an averment provision. In Mining Projects, as Ms Bindon pointed out, there was no averment provision.
The decision in MacDonald highlights the risks for a defendant (who is a natural person) arising from a requirement to properly plead a defence in a penalty proceeding. In that matter, ASIC had commenced proceedings against 12 defendants seeking the imposition of pecuniary penalties and also non-pecuniary penalties (disqualification orders) under the Corporations Act. Eight of the defendants were natural persons. ASIC filed a detailed statement of claim. Some of the allegations were likely to be non-contentious and it was reasonable to expect in relation to others that the defendants would put ASIC to proof. Mr MacDonald indicated that he proposed to rely upon some of the statutory defences available under the Corporations Act, including the business judgment rule (s 180(2)). Before the first instance judge (Young CJ in Eq), Mr MacDonald argued that, having regard to his penalty privilege, he should be relieved from the requirement of the rules of court to file a defence at any stage of the proceedings. Young CJ in Eq rejected that argument and ordered that Mr MacDonald file and serve his defence about two months after the order. Young CJ in Eq relieved him of the obligation to verify the defence.
In the appeal proceedings, Senior Counsel for Mr MacDonald conceded that his client was required to file a defence at least admitting, denying or not admitting, the allegations of fact made against him. However, it was sought to add a direction in the following terms:
Reserve liberty to the First Defendant to file an Amended Defence, pleading any additional facts not already traversed in the pleadings, after the Plaintiff has closed its case.
After setting out the background to the matter, Mason P referred to the relevant pleading rules and stated:
[54] For reasons developed below, I do not accept that the claimant’s privilege goes so far as to require such a blanket dispensation from the rules of pleading. Given the terms of s1317L, dispensation should only go so far as is necessary to serve the privilege and the interests it protects. [Emphasis added]
The reference to s 1317L was to the provision in the Corporations Act which applied the relevant court rules of the NSW Supreme Court to the penalty proceedings under the Corporations Act.
Mason P noted that Young CJ in Eq had placed particular reliance on Bridal Fashions in deciding to order the filing of the defence. His Honour noted (at para [56]), that Bridal Fashions had been applied by the NSW Supreme Court in relation to a Customs prosecution and by the Federal Court of Australia in penalty cases under industrial legislation. His Honour then (at para [57]) considered observations made by Gyles J in A & L Silvestri Pty Ltd v CFMEU [2005] FCA 1658; 226 ALR 247 (Silvestri). In Silvestri, Gyles J accepted that a defence had to be filed, but went on to say:
[17] …The issue would arise in a case where a personal respondent proposes to rely upon a positive defence. Penalty proceeding or not, means must be found to advise the applicant and the court of any positive defence so that the trial can be properly prepared and conducted. It is at that point that there may be a debate as to the appropriate course, which may involve a closer examination of the decisions in Bridal Fashions and Hadgkiss . That has not yet arisen here. Directions can be sought if and when it does.
Mason P at [58] of MacDonald, then pointed to two cases in which the reasoning in Bridal Fashions was qualified through reservations as to whether the requirement for a defendant to plead a positive case might “give leads or open up fresh fields of inquiry to a plaintiff” contrary to the defendant’s privileges: see CEO of Customs v Camile Trading Pty Ltd [2004] NSWSC 1256 at [32] (per Dunford J) (Camile), and also CEO of Customs v Evenfont Pty Ltd [2007] NSWSC 431 at [41] (per Bell J). I note that the central issue in those cases was whether the relevant defendants should be ordered to file affidavits or statements of evidence in advance of the hearing.
In MacDonald, ASIC relied on the US Supreme Court case of Williams v Florida (Williams) 399 US 78 (1970) where White J, delivering the decision of the Court, said:
The adversary system of trial is hardly an end in itself; it is not yet a poker game in which players enjoy an absolute right always to conceal their cards until played.
In Williams, the Floridan criminal procedural rules required Mr Williams to disclose the names of any alibi witnesses in advance of the trial. Mr Williams claimed that that rule infringed the Fifth Amendment to the United States Constitution. In addressing that argument White J said:
In the case before us, the notice-of-alibi rule by itself in no way affected petitioner's crucial decision to call alibi witnesses or added to the legitimate pressures leading to that course of action. At most, the rule only compelled petitioner to accelerate the timing of his disclosure, forcing him to divulge at an earlier date information that the petitioner from the beginning planned to divulge at trial. Nothing in the Fifth Amendment privilege entitles a defendant as a matter of constitutional right to await the end of the State's case before announcing the nature of his defense, any more than it entitles him to await the jury's verdict on the State's case-in-chief before deciding whether or not to take the stand himself.
Petitioner concedes that absent the notice-of-alibi rule the Constitution would raise no bar to the court’s granting the State a continuance at trial on the ground of surprise as soon as the alibi witness is called. Nor would there be self-incrimination problems if, during that continuance, the State was permitted to do precisely what it did here prior to trial: take the deposition of the witness and find rebuttal evidence. But if so utilizing a continuance is permissible under the Fifth and Fourteenth Amendments, then surely the same result may be accomplished through pretrial discovery, as it was here, avoiding the necessity of a disrupted trial.
Mason P expressed agreement with the sentiments of White J at para [63], but went on to say:
… But I recognise that the Australian jurisprudence referable to the privilege appears to arm a defendant with superior rights, including the right to resist compelled advance disclosure of any material that could assist the plaintiff directly or indirectly in its quest for the imposition of a criminal sanction or a penalty.
His Honour then proceeded (at para [65]) to refer to the decision in Rich in support of the recognition referred to above.
While recognising that a claim for privilege had to be “bona fide and reasonable”, Mason P went on (at para [67]) to say:
... But courts err on the side of caution lest an apparently innocuous disclosure has unforeseen adverse consequences (see generally Re New World Alliance Pty Ltd (Receiver and Manager Appointed); Syncotex Pty Ltd v Baseler (1993) 47 FCR 90 at 96-7 per Sheppard J).
His Honour then quoted the reasoning in FFE at paras [14], [29] and [34] before concluding (at para [71]):
In my opinion, these principles mean that the claimant should not be compelled to include in his Defence any information that may have the tendency to expose him directly or indirectly to the penalties being sought by ASIC.
However, Mason P then qualified that conclusion in the next paragraph:
[72] To draw the line conceptually at this point will not relieve the claimant from compliance with UCPR rr14.14 and 15.1 so far as disclosing in his pleading his intention to invoke the statutory defences or any other “positive” defence, regardless of where the onus lies in establishing that defence. Not every form of affirmative defence has the requisite tendency. I see nothing wrong with a pleading in the following form:
If, which is denied, the matters alleged in para X constitute a contravention of sY of the Corporations Law, the defendant says that the matters alleged by ASIC also establish that the claimant relied upon information or professional or expert advice (etc) / acted honestly (etc). The defendant reserves the right to advance in his case additional material in support of his defence, the details whereof will be disclosed by amending this paragraph after the close of ASIC’s case.
See also Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 86, Bridal Fashions at 117.
In his reasoning, Mason P referred to a decision of the Victorian Supreme Court where, in penalty proceedings under the Corporations Act the judge permitted the filing of a defence which only indicated which of the allegations in the statement of claim were admitted, denied or not admitted. His Honour noted his disagreement with that ruling. His Honour went on to say (at para [73]):
In my view, the Rules ought to be departed from no more than is necessary to give effect to the privilege. The pleading mechanism I have suggested would require the claimant to invoke from the outset any relevant defence or statutory ground of dispensation; and it would require him to identify any parts of ASIC’s own allegations intended to be relied upon in that regard. There would also be a framework that defines the legal issues throughout the trial against which rulings as to admissibility could be made (at least in some circumstances). If and to the extent that the claimant exercised his right to plead and particularise in the manner indicated and not to waive his privilege by venturing further, there will still be the likelihood of ASIC’s evidentiary case being split more than it otherwise might be, but at least this consequence would be reduced to a minimum.
His Honour ordered that the pleading rules be dispensed with to the extent of permitting a pleading in accordance with his reasons.
Spigelman CJ reached a similar conclusion in MacDonald. After referring to the relevant background, his Honour expressed agreement with the conclusion in FFE that the pleading rules did impose an element of compulsion on a defendant in the situation of Mr MacDonald. His Honour proceeded to consider whether the penalty provision was engaged by the rules. His Honour described the test in the following terms:
[10] …The test is whether there is a likelihood or, indeed, a non-fanciful risk that, either directly or derivatively, compliance may assist the Respondent to establish any part of its case which could result in the imposition of a penalty.
…
[12] In my opinion, it is not appropriate to answer a question of this character in the abstract. The identification of a likelihood or a non-fanciful risk requires some form of specification of the probability or of the risk. The only basis suggested in this appeal concerns the specific exculpatory provisions in the Corporations Act 2001. Of particular significance for present purposes is the possibility, indeed, the virtual certainty, that the Appellant will rely upon the business judgment rule and the honesty defences for which that Act makes specific provision.
Spigelman CJ then analysed the defences available to Mr MacDonald under ss 180(2) and 189 of the Corporations Act. His Honour noted that the pleading of the facts supporting those defences had the real potential to assist ASIC in making out its primary case for the imposition of penalties. He concluded:
[18] What is determinative for present purposes is the fact that the matters which are so identified may very well overlap, in a direct or contextual manner, with the facts and matters that need to be established by the Respondent in the proceedings in order to establish a contravention.
[19] Further, such matters may be significant when determining whether or not a pre-condition to the imposition of a pecuniary penalty was established, i.e. was the contravention “serious” or did it “materially prejudice” the interests of the Corporation, its members or its ability to pay its creditors within s1317G(1)(b).
[20] Finally, the required pleading or particulars may involve aspects of the knowledge, purpose or intention of the Appellant that could be of significance for the purposes of the Court’s exercise of the discretion to impose a pecuniary penalty.
Spigelman CJ also considered that there was an overlap in relation to the disqualification orders sought by ASIC, the honesty defence available under s 1317S of the Corporations Act and the power of the Court to refuse to make penalty orders under s 1318.
His Honour, in dealing with the submission of ASIC relying on Williams, said:
[25] The critical feature of an alibi defence which distinguishes the treatment of that matter from the issues before this Court is that, by its very nature, there can be no overlap between such a defence and matters which have to be proven in the prosecution case. Of course, raising a deficient alibi defence can adversely affect the defence case, but it cannot be said that the facts and matters required to be investigated for an alibi defence overlap with the elements of the offence required to be established by the prosecution. For the reasons given above the position is quite different here.
As to Bridal Fashions, his Honour said:
[26] This authority, which preceded the High Court decision in Richv Australian Securities and Investment Commission (2004) 220 CLR 129, must be treated with care.
After reference to the Full Court’s suggested form of defence in Bridal Fashions (which ASIC had submitted was the basis for the orders made by the first instance judge in MacDonald), Spigelman CJ said:
[28] In my opinion this passage in the joint judgment does not cover the circumstances of the present case. The requirements of r 14.14(2) and r 15.1(1) do not permit the Appellant only to plead in the manner set out by the Full Court. These rules require the Appellant to make positive assertions of fact, and to provide particulars thereof, going well beyond simply an acceptance that: if, which is denied or not admitted, the facts and matters in the Statement of Claim should be accepted, etc. Indeed this is the very purpose of r 14.14(2)(a) and (c).
His Honour considered that the order as suggested by Mason P would only require the defendant to plead with respect to the matters specifically pleaded in the statement of claim. His Honour was not convinced of the utility of such an order. His Honour concluded that Mr MacDonald’s privilege would be sufficiently protected by orders in the following terms:
4(a)With respect to the first Defendant, the requirements of Rule 14.14 and 15.1 are dispensed with, with respect to any matters that arise pursuant to the provisions of s180(2), s189, s1317S, s1318, s206C or s206E of the Corporations Act 2001 (Cth).
4(b) Reserve liberty to the First Defendant to file an Amended Defence, pleading any additional facts not traversed in the pleadings, after the Plaintiff has closed its case.
Giles JA agreed with the reasons of Mason P. His Honour did not see any inconsistency with those reasons in those of the Spigelman CJ. Giles JA said:
[78] Their Honours differ in giving effect to that entitlement, first in the utility seen in the form of pleading proposed by Mason P and secondly in the Chief Justice’s limitation of immediate dispensation with the requirements of rr 14.14 and 15.1 to matters arising pursuant to identified statutory provisions. The utility may be far from complete, but the form of pleading has a purpose and in principle the privilege should be made out and should be given effect only so far as necessary. Matters may arise other than pursuant to the identified statutory provisions, and there should be allowance for them while making it clear that the appellant must disclose and plead them so far as not thereby exposing himself to a penalty.
[79] Accordingly, I agree with the orders proposed by Mason P.
Discussion
There are, in my view, two fundamental differences between the circumstances of this case and those in Mining Projects and MacDonald. They are:
(1)The availability of the averment provision to the DCT; and,
(2)The fact that there is no discretionary penalty under the relevant provisions of the Schedule.
That is not to say that the substance of the DCT’s claim is not for the imposition of a penalty. I do not accept that simply because, prima facie, liability for the penalty is created by the statutory recovery regime which the DCT is suing under, that alters the nature of the claim. Unless Mr Malone succeeds in one or other of his defences the judgment which will be entered against him will be for a sum which is no less a penalty by reason of being for a fixed sum characterised by the legislation as a debt. I am reinforced in that view by the approach taken by the majority in Rich.
It is true that s 250-50 of the Schedule is “facilitative”. However, as was made clear in Bridal Fashions, and on my reading of the judgments, in MacDonald, the analysis of whether the pleading of a defence might risk undermining a defendant’s privilege (be it against self-incrimination or imposition of a penalty), must be undertaken by reference to the practical realities of the case before the court. The fact that the DCT has the advantage of proving the case on a prima facie basis on the contents of the statement of claim is clearly an important factor, for the reasons accepted by the Full Court in Bridal Fashions. I do not see anything in the decision in Rich which alters that proposition.
Certainly, it is true that the plurality in Rich ruled that protection of Mr Rich’s privilege meant that no discovery at all should have been required of him in proceedings which might result in the imposition of a penalty. The Court in Rich concluded that in characterising the nature of the proceedings, it was necessary to have regard to the effect that an order as sought against the defendant would have. In that case, while a disqualification order (under the Corporations Act) might have other effects (including for example, protection of the public), the majority concluded that it would have the effect of penalising Mr Rich. That was enough to engage the privilege.
It was perhaps the absolute nature of the enforcement of the privilege in Rich which caused the Chief Justice to suggest that the Bridal Fashions decision needed to be considered with care, or it may be the very specific statutory regime which set the frame for the issue to be decided there. Indeed, his Honour may have had both of these elements in mind.
Be that as it may, while approaching the decision in Bridal Fashions with due care, it does seem to me that the case continues to provide valid guidance in revenue cases where the plaintiff has the benefit of a statutory averment provision. I agree with Finkelstein J (see the extract of his decision in Mining Projects at para [58] above) that Bridal Fashions does not stand for the proposition that the need to plead a positive defence (because of an averment provision) can never create a risk of infringing a defendant’s privileges. As Dunford J said in Camile, it is possible to postulate some cases where the requirement to plead a positive exculpatory defence might give leads or open up fresh fields of enquiry to a plaintiff, thus exposing the defendant to incrimination or penalty.
The task for the court in the current proceedings is to carefully analyse the factual circumstances in order to determine whether there is indeed a non-fanciful risk that requiring Mr Malone to provide particulars, or to otherwise plead his defence in accordance with the court rules, will expose him to incrimination or penalty in the way noted by Dunford J in Camile, and accepted by the NSW Court of Appeal in MacDonald as providing the appropriate test.
In that context I refer, by way of example, to the substantive allegations made at paras [7]-[10] of the SoC, each of which is denied at para [2(a)] of the Defence (see paras [5] and [6] above). It may be that Mr Malone can establish that the Company did, in relation to some of the quarters pleaded at para [7] of the SoC, lodge with the Commissioner superannuation guarantee statements which demonstrate that some of the charge amounts stated in the table to para [9] of the SoC are incorrect and (presumably) excessive. However, if he was to make that positive case, CPR r 406(b) and (c) would require him to plead the facts supporting that defence. The question then arises, would pleading those facts in any way directly or indirectly assist the DCT in proving his case against Mr Malone? I must say that in the particular circumstances of this case, I struggle to see how that could occur. Because of the averment provision it seems to me that raising such a matter could, in substance, only be exculpatory of Mr Malone; see also Commissioner of Taxation v Price [2006] QCA 108; 2 Qd R 316 at para [32], per Keane JA (McMurdo P and Holmes JA agreeing).
Mr Malone also raises, in a general way, the defences available under sub-ss 269-35(1) and (2) of the Schedule. These provisions are set out in para [7] above. In relation to s 269-35(1), there are two broad circumstances which might provide a defence for Mr Malone. The first of these is that by reason of illness it would not have been reasonable for a director to take part, and the director did not take part, in the management of the company at any time during the period when the company was under the relevant obligation (here, the payment to the Commissioner of the Superannuation Guarantee Charge). The relevant period under the SoC was 28 August 2012 to 28 August 2016. To succeed in this defence, it seems that the director must establish incapacitating illness for the whole of the relevant period: see Canty v Deputy Commissioner Taxation [2005] NSWCA 84; 63 NSWLR 152 (Canty) at para [48]. In any event, I am again unable to see how pleading a defence of incapacitating illness could assist the DCT, directly or indirectly, in advancing his case.
The second broad circumstance is that comprehended by the words “for some other good reason”. Mr Peadon, on behalf of Mr Malone, argued that a defendant may wish to advance a positive defence under that rubric which carried a risk of disclosing a breach of ss 180, 181 and/or 182 of the Corporations Act; see the example extracted in para [30] above.
It is necessary to consider each of these sections in order to assess the submission put by Mr Peadon. The relevant sections provide (omitting notes):
180Care and diligence—civil obligation only
Care and diligence—directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:
(a)were a director or officer of a corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
…
181Good faith—civil obligations
Good faith—directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a)in good faith in the best interests of the corporation; and
(b)for a proper purpose.
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
182Use of position—civil obligations
Use of position—directors, other officers and employees
(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
The example relied upon by Mr Peadon posits a situation where a director has an illness in the family which requires the director’s attention to such an extent that he or she does not take part in the management of the company during the relevant period. However, in the example, that director is reassured by the other directors who say that they are looking after the company.
The difficulty with this example arises from the period in question in the current proceedings, having regard to the SoC. While it might be possible to see a delegation of function as a director for a short duration in a situation of family illness as objectively “reasonable” for the purposes of s 269-35 of the Schedule, it is difficult to see how, in such circumstances it could also be an action falling short of the “degree and diligence that a reasonable person would exercise” for the purposes of s 180(1) of the Corporations Act. Be that as it may, I am not able to conceive of a situation where a director could, acting reasonably, abrogate his or her duty of care and diligence due to family illness for a period of four years. Such a circumstance, while undoubtedly creating a risk of a breach of s 180(1), would by definition fail to provide the basis for an arguable defence under s 269-35(1) of Schedule 1.
In relation to s 181 of the Corporations Act, I have a similar difficulty to that explained in para [95] above with the proposition that a director who failed to exercise his/her power, or discharge his/her duty in compliance with s 181 could possibly meet the objective reasonableness test required by s 269-35(1) of the Schedule.
Section 182 of the Corporations Act restates the fiduciary obligation owed by a director to a company. I do not see it as immediately relevant to the situation of a director who is taking no part in the management of the company. It seems to me fanciful that a director who asserting a defence under s 269-35(1) of the Schedule could thereby plead facts giving risk to an allegation of breach of s 182 of the Corporations Act.
The other defence relied upon by Mr Malone is that arising under s 269-35(2) of the Schedule. That is, that Mr Malone took all reasonable steps to ensure that one of the matters specified in sub-paras (2)(a)(i), (ii) or (iii) happened, or that there were no reasonable steps which he could have taken to ensure that one of those things happened. The operation of the pre-curser to this provision was discussed by Handley JA (Beazley and Santow JJA agreeing) in Canty at paras [31]-[41], see also the additional comments of Santow JA at paras [84]-[86].
The prospect that there were no steps which Mr Malone could have taken to ensure the occurrence of any of the specified outcomes is to my mind so remote as to be unarguable. However, it is possible that he might have taken some steps. If Mr Malone had taken some steps, and those steps were reasonable, the question is then could the taking of such action amount to a breach of ss 180(1), 181 or 182? I am not able to see such a result as a practical reality.
I am conscious of the authorities warning against attempting to analyse the extent of any prejudice which might flow to a defendant from an infringement of the privilege against self-incrimination or imposition of a penalty. However, as noted above, it does seem to me that the exercise requires the court to determine whether the risk arises at all. I am not satisfied on the information currently available, that the risk does arise in the particular circumstances of this case.
Mr Peadon raised in argument the possibility that pleading the defences available to him might expose Mr Malone to a criminal charge. I understood that to involve an element of fraud presumably based upon a dishonest intent at the time certain moneys were not remitted to the Commissioner. Mr Peadon made it clear that Mr Malone did not need to rely on that privilege. Mr Peadon was in no way suggesting that his client had in fact done anything which might have constituted an offence. I should say that I am unable to see how a pleading of a positive defence under s 269-35 of the Schedule could possibly expose Mr Malone to the risk of a criminal charge.
Finally, Mr Peadon submitted that if I was minded to follow the approach taken in Bridal Fashions, the appropriate course of action would be to defer the requirement for a defence pleaded in accordance with the court rules to after the DCT had closed his case. In Bridal Fashions, Finkelstein J certainly did not think that such an approach would be unduly disruptive of the hearing process. I do not share his Honour’s optimism, at least having regard to the listing of substantive hearings in this Court. It seems to me that there would be a very real risk of an adjournment leading to a split hearing and the need for evidence in reply. Such consequences could lead to significant delay and increase in the costs of the parties in dealing with the litigation. That outcome would clearly offend against the objects expressed in s 5A(2) of the Court Procedures Act 2006 (set out at para [38]).
Disposition
I have concluded that the pleading of paragraph B of the Preface in the Defence, and the paragraphs containing the reservation extracted in para [6] above, are in breach of r 406 of CPR. I am not satisfied that the requirement for Mr Malone to properly plead his defence will create a risk of self-incrimination or increase the risk of an imposition of a penalty on Mr Malone for the reasons expressed above. In those circumstances, I do not consider that it is appropriate to defer the requirement to plead out the defence until after the DCT has closed his case.
The DCT has relied on r 434 of CPR to seek better particularisation of the Defence. Sub-rule 434(2) of CPR provides that the Court may make any order under this rule which it considers appropriate, including a rule about the future conduct of the proceedings. In my view, the pleading of the paragraphs referring only in general terms to the statutory defences and reserving the right to amend the Defence is defective and, in the circumstances of this case, should be struck out. An order for better particulars it seems, would be a less efficient means of correcting the pleadings here.
Mr Peadon did raise in his submissions the issue of delay noting that the SoC was filed on 11 May 2018 and the defence was filed on 11 January 2019. This submission has some force. The case has not proceeded as quickly as it should. In my view this matter should be closely managed to a hearing as soon as possible.
In relation to the question of costs, the issues which have arisen here have arisen as part of the exercise of case management. They are novel and appear to be without direct precedent. It seems to me that he appropriate outcome in relation to costs is that they should be costs in the cause.
Orders
The orders of the Court are:
(1)Paragraph B in the Preface to, and paragraphs 2(b), 4(b), 6(b), 8(b), 10(b) and 12(b) of the Defence filed on 11 January 2019 are struck out.
(2)The defendant has leave to file and serve an amended defence within 21 days of the date of this Order.
(3)The matter be listed for directions at 9:00am on Monday 23 March 2020.
(4)The directions hearing on 02 March 2020 be vacated.
(5)The costs of the plaintiff’s application in proceeding dated 11 October 2019 be costs in the cause.
(6)Order (5) be stayed for 14 days.
(7)For the period of 14 days, each party is to have liberty to apply on 2 days notice in relation to Order (5).
| I certify that the preceding one hundred and seven [107] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Crowe. Associate: Date: |
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