Re AWB Ltd (No 1)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

CORPORATIONS LIST

IN THE MATTER OF AWB LIMITED (ACN 081 890 459)

No. 10077 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
TREVOR JAMES FLUGGE	Defendant

No. 10078 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
ANDREW ALEXANDER LINDBERG	Defendant

No. 10079 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
PAUL JOHN INGELBY	Defendant

No. 10080 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
CHARLES ERIC STOTT	Defendant

No. 10081 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
PETER ANTHONY GEARY	Defendant

No. 10082 of 2007

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	Plaintiff
v
MICHAEL JOHN LONG	Defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	28, 30 & 31 July 2008 and 16 October 2008
DATE OF JUDGMENT:	12 November 2008
CASE MAY BE CITED AS:	Re AWB Limited
MEDIUM NEUTRAL CITATION:	[2008] VSC 473

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CORPORATIONS – Civil penalty proceedings – Application to stay civil proceedings where criminal proceedings reasonably possible – Whether real injustice if proceedings not stayed – Whether criminal proceedings “on the cards” – Whether substantial prejudice to defendants not to stay proceedings – Whether plaintiff’s rights harmed if proceedings stayed – Privilege against self-incrimination – Likelihood of civil proceedings being stayed under s 1317L by criminal proceedings being started - Application of McMahon v Gould line of authorities – Civil penalty proceedings stayed - Sections 180, 181, 184, 189, 206C, 1317E, 1317L, 1317M, 1317N, 1317P, 1317S and 1331 of the Corporations Act2001 (Cth).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N J O’Bryan SC with Mr A Hanak and Mr C H Truong	Australian Securities & Investments Commission
For Mr Flugge	Mr J H Karkar QC with Mr S K Dharmananda	Corrs Chambers Westgarth
For Mr Lindberg	Mr D G Collins SC with Ms M Tittensor	Galbally & O’Bryan
For Mr Ingelby	Mr M L Abbott QC with Mr M Burnett	Logie-Smith Lanyon
For Mr Stott	Mr N J Clelland SC with Mr C J Winneke	Tony Hargreaves & Partners
For Messrs Geary and Long	Mr T Forrest QC with Mr L C Carter	Galbally Rolfe

Adler v ASIC (2003) 46 ACSR 504

ASIC v HLP Financial Planning (Aust)Pty Ltd (2007) 164 FCR 487

ASIC v Intertax Holdings Pty Ltd [2006] QSC 276

ASIC v Krecichwost [2007] NSWSC 1458

ASIC v Mining Projects Group Ltd (2007) 164 FCR 32

ASIC v Rich (No. 3) (2003) 45 ACSR 305

ASIC v Rich [2007] NSWSC 39

ASIC v Vizard(2005) 145 FCR 57

Australian Securities Commission v Kavanagh (1993) 12 ACSR 69

Baker v Commissioner of Australian Federal Police (2000) 104 FCR 359

Caesar v Sommer [1980] 2 NSWLR 929

Cameron’s Unit Services Pty Ltd v Kevin R. Whelpton Associates (Aust) Pty Ltd (1984) 4 FCR 428

Commonwealth Bank of Australia v May [2007] NSWSC 490

DPP v Selway(2007) 16 VR 508

Elliot v Australian Prudential Regulation Authority [2004] FCA 586

Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477

Gallaher v Collins [2006] VSC 139

Griffin v Sogelease Australia Ltd [2002] NSWCA 421

Guglielmin v Trescowthick (No 3) (2005) 220 ALR 535

Halabi v Westpac Banking Corporation (1989) 17 NSWLR 26

Hamilton v Oades (1989) 166 CLR 486

Jefferson Ltd v Bhetcha [1979] 1 WLR 898

Lamb v Munster (1882) 10 QBD 110

MacDonald v ASIC (2007) 65 ACSR 299

McMahon v Gould (1982) 7 ACLR 202

Niven v SS [2006] NSWCA 338

Osric Investments Pty Ltd v Probst [2007] QSC 293

Philippine Airlines v Goldair (Aust) Pty Ltd [1990] VR 385

Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328

R v Associated Northern Colliers (1910) 11 CLR 738

R v BBC; ex parte Lavelle [1983] 1 WLR 23

R v Boyes (1861) 1B & S 311

R v Coroner; Ex parte Alexander [1982] VR 731

Ragg v Magistrates’ Court of Victoria & Corcoris [2008] VSC 1

Refrigerated Express Lines (Australasia) Pty Ltd v Meat and Livestock Corporation (1979) 42 FLR 204

Reid v Howard (1995) 184 CLR 1

Rich v ASIC (2004) 220 CLR 129

Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16

Sorby v The Commonwealth (1983) 152 CLR 281

SZHUF v Minister for Immigration and Citizenship [2007] FCA 1686

Trade World Enterprise Pty Ltd v DCT (2006) 64 ATR 316

Yuill v Spedley Securities Ltd (1992) 8 ACSR 272

TABLE OF CONTENTS

INTRODUCTION.............................................................................................................................. 2

ASIC’S claims against the defendants....................................................................................... 6
Application for a stay................................................................................................................. 8

RELEVANT PRINCIPLES TO GRANTING A STAY.............................................................. 12

Authority of McMahon v Gould............................................................................................. 14
Relevant statutory provisions.................................................................................................. 16
Statutory context..................................................................................................................... 26
History..................................................................................................................................... 26
Present position....................................................................................................................... 27
Background to present position............................................................................................... 28
Limited revocation of privilege................................................................................................ 29

THE STAY PRINCIPLES AND REID V HOWARD.................................................................. 29

STAY PRINCIPLES AND ASIC v HLP FINANCIAL PLANNING......................................... 36

CHARTER OF HUMAN RIGHTS AND RESPONSIBILITIES ACT 2006 (VIC)................ 42

SHOULD A STAY BE GRANTED?.............................................................................................. 43

Mr Flugge................................................................................................................................ 43
Mr Lindberg............................................................................................................................. 45
Mr Stott................................................................................................................................... 45
Mr Ingelby, Mr Geary and Mr Long....................................................................................... 45
Stay and Civil Proceedings...................................................................................................... 46
Inconvenience to the defendants and the court........................................................................ 48
Was McMahon v Gould wrongly decided?............................................................................. 50
Double jeopardy....................................................................................................................... 51

CONCLUSION................................................................................................................................. 52

HIS HONOUR:

INTRODUCTION

The Australian Securities Investments Commission seeks declarations, civil penalties and an injunction against each of the defendants alleging contravention of s 180(1) and s 181(1) of the Corporations Act2001 (Cth) whilst an officer of AWB Limited by breaching his duties under the Corporations Act2001 in relation to AWB’s contracts with Iraq under the United Nations Oil-for-Food Programme.

The background to the claim may be found in The Report of the Inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme by the Royal Commissioner The Honourable Terrence R H Cole (the Cole Report). The following summary is taken from Volume 1.[1] In 1990, following the invasion of Kuwait by Iraqi forces, the United Nations imposed trade sanctions on the Iraqi administration which had the effect of depriving the country of foreign currency. In 1995, in order to alleviate some of the harsher consequences this had on the general Iraqi population, the United Nations established the Oil-for-Food Programme that permitted Iraq to sell oil with the proceeds of sale being paid into an escrow account controlled by the United Nations. The proceeds of the account could be used by Iraq to purchase humanitarian goods, including wheat. Contracts for such purposes were to be approved by the United Nations.
[1]Commonwealth, Inquiry into certain Australian Companies in relation to the UN Oil-For-Food Programme, Report (2006) vol 1.

By 1999, AWB was selling to Iraq large amounts of wheat. Sales of wheat were made on a Cost, Insurance and Freight (CIF) basis, which effectively meant that AWB’s contractual obligations terminated on delivery of the wheat to the nominated port in Iraq, Umm Qasr. Iraq was responsible thereafter for unloading and transporting the wheat to the ultimate usage or distribution points in Iraq. In June 1999, Iraq, through the Iraqi Grain Board (IGB), introduced as a condition of tender a requirement that sales of wheat be on terms “CIF Free on Truck to the silo at all governorates. Cost of discharge at Umm Qasr (the port) and land transport will be USD12.00 per metric tonne to be paid to the Land Transport Co (an Iraqi entity). For more details contact the Iraqi Maritin in Basrah.” The Cole report states that AWB learnt from Iraq that the US$12.00 per metric tonne was to be included in the price quoted by AWB and thus recouped from the UN escrow account. The Cole report states AWB understood that:

·        The inland transportation fee (or trucking fee) was fixed by Iraq.
·        It was being paid to Iraq.
·        It was being paid to the benefit of Iraqis.
·Imposition of the inland transportation fee was a method of obtaining US dollars from the UN escrow account.
·AWB did not have to arrange or effect the discharge of the wheat at Umm Qasr.
·AWB did not have to arrange or effect the discharge of wheat within Iraq.
·AWB was not required to enter into a contract with any transport company.
·The Iraqis would continue to organise the discharge, transportation and distribution of wheat in Iraq, as they had under the earlier phases of the Oil-for-Food Programme and under their earlier contracts with AWB.
·AWB’s obligations were limited to payment of the fee set by the Iraqis.
·The Iraqis had said that they either had obtained or would obtain UN approval for the payment of the inland transportation fee.
·The method of payment of that fee had not been approved.
·It was up to AWB to find a method of payment that was acceptable to the Iraqis.
·One method of payment suggested by Iraq was payment to an Iraqi bank in Amman, Jordan.
·AWB was not prepared to raise with the United Nations the issue of the transportation fee for fear it might be prohibited by the United Nations, thus costing AWB its Iraq market.[2]

[2]Commonwealth, Inquiry into certain Australian Companies in relation to the UN Oil-For-Food Programme, Report (2006) vol 1, xiii-xiv.

The Cole report concluded:

Thus, from mid-1999 AWB knew it was not required to discharge the wheat and effect delivery to all governorates of Iraq, despite any tender or contractual terms to that effect. The obligation to transport the wheat to all governorates was to remain with the Iraqis, as it always had. Suggestions in the tender or contracts to the contrary were a sham designed to deceive the United Nations and extract hard currency from the UN escrow account for payment to Iraq. AWB’s obligation was to deliver the wheat to Umm Qasr and to pay a fee in US dollars in an account nominated by the IGB.[3]

[3]Ibid

In the Cole report, the Commissioner reported on whether any person associated with AWB might have committed a breach of any law of the Commonwealth, State or Territory. The Commissioner made findings and recommendations in relation to Trevor James Flugge, the former Chairman of AWB. He said Mr Flugge might have aided, abetted, counselled or procured certain offences that AWB may have committed against the Crimes Act 1914 (Cth), the Criminal CodeAct 1995 (Cth) and the Crimes Act1958 (Vic). He also reported and made findings as follows:

If, as I have found, Mr Flugge, in the period from about June 1999 to March 2002, used his position or exercised his powers as an officer:
· to cause, authorise or permit AWB to enter into arrangements with IGB relating to the sale of wheat, which arrangements he knew included:
-AWB’s agreement to include in the wheat price a fee so that the fee was paid from the escrow account to AWB;
-AWB’s agreement to pay such fee to Iraq or an Iraqi entity;
-the submission of written contracts to DFAT, and thus to the United Nations, for approval for payment from the escrow account under the Oil-for-Food Programme, which did not fully and accurately disclose, or disclose at all, AWB’s agreement to pay the fee to Iraq or an Iraqi entity or the inclusion of the fee in the wheat price
-that the fee would be initially paid to a nominated third party (or to that third party via other third parties) to disguise the fact that the fee was ultimately paid to Iraq or an Iraqi entity in contravention of the UN sanctions
-the concealment of the above facts from DFAT and the United Nations.

then, in my view:
· Mr Flugge might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001
· Mr Flugge might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001
· Mr Flugge might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and therefore might have contravened s 181 of the Corporations Act 2001
· Mr Flugge might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in AWB’s circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Flugge and therefore might have contravened s 180 of the Corporations Act 2001.
It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.
I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 180, 181 and 184 of the Corporations Act 2001 be instituted against Mr Flugge.
I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Flugge that occurred from 2001 onwards.[4]

[4]Ibid Vol 4 p 224-225

Mr Cole’s findings and recommendations about each of Paul John Ingelby, the former Chief Financial Officer of AWB, Charles Eric Stott, the former General Manager, International Sales Marketing of AWB, Peter Anthony Geary, the former Group General Manager, Trading and Michael John Long, the former General Manager, International Sales and Marketing, who succeeded Mr Stott, included similar findings and recommendations to those made against Mr Flugge, including that each may have committed an offence against s 184 of the Corporations Act2001. He, similarly, recommended that those matters be referred to the Oil-for-Food Task Force[5] for consideration as to whether proceedings under s 184 of the Corporations Act2001 be instituted against each of them. The findings went beyond breaches of the Corporations Act2001 and included offences under the Crimes Act1914 (Cth) and the Crimes Act1958 (Vic).
[5]The establishment of the Oil-for Food Task Force is discussed below.

As for Andrew Alexander Lindberg, the former Managing Director of AWB, Mr Cole concluded:

Mr Lindberg has resigned as Managing Director of AWB. In so doing he has accepted responsibility for events which happened during his stewardship. As he said in evidence, speaking of the payments to Iraq via Alia[6]:
It would appear that it was set up before I arrived by former employees and it continued under my stewardship, and it shouldn’t have.

That was a correct statement.
Mr Lindberg was not well served by some of those who reported to him, and on whom he relied. He has paid a very considerable price in reputational and no doubt monetary terms. I wish to make clear that on the material before me he has not been guilty of any criminal conduct.[7]
[6]Alia Transportation and General Trade Co of Jordan
[7]Commonwealth, Inquiry into certain Australian Companies in relation to the UN Oil-For-Food Programme, Report (2006) vol 4, p 261-262

ASIC’S claims against the defendants

ASIC’s claims against the defendants are similar in that they all relate to the alleged improper payment of the inland transportation fee and the deception of the UN. By way of example I will summarise the claim against Mr Flugge. In substance, ASIC alleges that under the terms of UN Resolution 661, member states’ trade with Iraq and making funds available to Iraq were prohibited. It also alleges that under the terms of UN Resolution 687, the prohibition on sale of commodities and such like in Resolution 661 should not apply to foodstuffs notified to the UN. Further, ASIC alleges that under UN Resolution 986, member states were permitted to import petroleum from Iraq, notwithstanding Resolution 661, so long as the proceeds were paid into an escrow account and the proceeds were then used solely to meet humanitarian needs of the Iraqi population. ASIC alleges that in order to obtain payment from the UN escrow account, exporters of foodstuffs to Iraq were required to submit to the United Nations Office of the Iraq Programme (the OIP), the concluded contract for each transaction.

In the case of Mr Flugge, ASIC alleges two nominated contracts entered into between AWB and IGB contained terms for the payment of a purported inland transportation fee. (The contracts vary between the defendants.) ASIC alleges that AWB received payment from the UN escrow account for the wheat contract, including the inland transportation fee. ASIC alleges AWB paid the inland transportation fee to Alia Transportation and General Trade Co of Jordan (Alia). ASIC alleges Alia had no legitimate role to play in the purchase, importation or transportation of the wheat and there was no legitimate basis for AWB to pay the sum to Alia. ASIC pleads the payments were made in contravention of UN Resolutions 661 and 986. ASIC alleges Mr Flugge knew or ought reasonably to have known the contracts included the inland transportation fee; that the purported inland transportation fees were not fees for the provision of transport services but were amounts being paid to IGB or other Iraqi government instrumentalities; that UN sanctions prohibited the payment of the fees; and UN Resolution 986 did not permit AWB to obtain funds from the UN escrow account on account of payments of the inland transportation fees.

ASIC alleges that the transactions harmed AWB and that Mr Flugge knew or ought to have known that they would do so. ASIC alleges Mr Flugge owed duties to AWB under ss 180 and 181 of the Corporations Act 2001 and contravened those provisions by taking no or no reasonable step to ensure that the payment by AWB of the purported inland transportation fees and the obtaining by AWB from the UN escrow account of funds were disclosed to the United Nations or were approved by it; Mr Flugge made no or no reasonable enquiries of AWB employees responsible for the negotiation and administration of Iraqi wheat contracts and failed to direct others to make such enquiry as to whether in substance these funds could be properly obtained from the UN and paid to Alia; Mr Flugge took no or no reasonable steps to prevent AWB from entering into the contracts; Mr Flugge permitted or assisted AWB to enter into the contracts; Mr Flugge took no or no reasonable steps to prevent AWB from making payments for purported inland transportation fees; Mr Flugge permitted or assisted AWB to make the payments; Mr Flugge failed to take any or any reasonable steps to advise the Board of AWB of these matters, and finally that Mr Flugge had failed to take any or any reasonable steps to ensure that AWB complied with UN Resolutions 661 and 986 when selling and exporting wheat to Iraq and obtaining payments from the UN escrow account.

The allegations against Mr Lindberg rely on slightly different facts. Again it is alleged that Mr Lindberg knew or ought to have known of the inland transportation payments and that they were being paid and obtained in breach of United Nations Resolutions.

Each of the claims against each of the other defendants in substance alleges that the defendant knew or ought to have known that the dealings between the AWB and Iraq, and in particular the payment of the inland transportation fees and the obtaining of moneys from the UN escrow account to pay those fees, were in breach of UN Resolutions and risked causing harm and damage to AWB and that they breached their duties under ss 180 and 181 by participating in and failing to prevent inland transportation payments.

Application for a stay

Mr Flugge and the other defendants have each applied to stay the proceedings or stand over the proceedings pending decisions by ASIC and the Oil-for-Food Task Force on whether criminal proceedings should be brought against him.

Each proceeding was instituted on 19 December 2007. When the proceedings were instituted, ASIC issued a press release explaining that investigations into the civil penalty proceedings was given greater priority by ASIC because of the statute of limitation periods which apply to these actions and which do not apply to possible criminal proceedings, of which investigations by ASIC continue.

On the recommendation of Mr Cole, in November 2006 the Commonwealth established an Oil-for-Food Task Force comprising members of relevant agencies led by the AFP and including ASIC and the Victoria Police to consider possible prosecutions in consultation with the Commonwealth and Victorian Directors of Public Prosecutions arising from the adverse findings of the Cole inquiry.

After the proceedings were instituted, Mr Flugge asked ASIC whether and if so when criminal proceedings are to be commenced. ASIC informed Mr Flugge that ASIC was conducting its own investigation into suspected contraventions of the Corporations Act independently of the investigation being conducted by the Oil-for- Food Task Force. ASIC referred any inquiries that Mr Flugge may have in relation to the Task Force to it and said it was unable to say when any criminal proceedings may be commenced. Consequently, Mr Flugge made inquiries of the Task Force and the manager of the Task Force, Commander Donaldson of the AFP, advised him that he was unable to indicate when the Task Force inquiries will conclude, although he would advise Mr Flugge if the Task Force inquiry should establish that formal criminal proceedings may issue against Mr Flugge.

Similar communications have been given to the other defendants, save that in relation to Mr Stott he has been informed charges are probable. Mr Donaldson informed Mr Stott’s solicitors:

(1) The investigation of the Task Force is ongoing.

(2) In due course, when the investigation reaches the stage where it is appropriate to do so, a brief of evidence against Mr Stott will be submitted to the Commonwealth Director of Public Prosecutions with a recommendation Mr Stott be charged with committing one or more of the offences referred to in the findings of the Cole Commission, unless, in the future, exculpatory evidence is obtained which would alter the current status of Mr Stott.

(3) It is hoped that the brief of evidence will be submitted to the Commonwealth DPP by the end of this year.

(4) The Task Force will not issue any charges against Mr Stott until advice has been received from the Commonwealth DPP.

(5) In summary, the probability is that Mr Stott will be charged with committing one or more of the offences referred to in the findings of the Cole Commission.

ASIC accepts that the Court has a common law discretion to stay civil proceedings in the interests of justice if criminal proceedings could be commenced against a defendant for an offence constituted by substantially the same conduct raised in the civil proceedings. Each defendant, save Mr Ingelby, concedes that relevant principles on the exercise of that discretion are set out in McMahon v Gould.[8] Mr Ingelby contends that McMahon v Gould[9] was wrongly decided or is no longer good law. If McMahon v Gould[10] was not wrongly decided, each defendant contends that, applying the factors referred to in McMahon v Gould, a stay should be granted. Further and in any event, they each contend that the factors referred to in McMahon v Gould[11] ought to be modified or adapted to deal with a civil penalty claim and also the High Court’s decision in Reid v Howard,[12] a decision on the right of silence, and that so modified or adapted, a stay should be granted.
[8](1982) 7 ACLR 202
[9]Ibid
[10]Ibid
[11]Ibid
[12](1995) 184 CLR 1

ASIC also concedes that a “refinement” of the principles in McMahon v Gould[13] should be made by reason of the High Court decision in Reid v Howard.[14]
[13](1982) 7 ACLR 202
[14](1995) 184 CLR 1

The defendants also rely on ASIC v HLP Financial Planning (Aust)[15] where the Federal Court of Australia stayed a civil proceeding for an injunction to restrain conduct that also constituted a criminal offence under the Corporations Act2001. Mr Flugge and Mr Ingelby also rely on the Charter of Human Rights.[16]
[15] (2007) 164 FCR 487
[16]Charter of Human Rights and Responsibilities Act 2006 (Vic)

Each of the defendants contends that if a stay is not granted of the civil proceedings:

(1) The defendants’ right of silence will be infringed;

(2) The civil proceedings would attract significant publicity which may adversely influence potential jurors;

(3) The defendants will probably incur unnecessary and substantial legal costs in preparing for the civil proceedings that will be automatically stayed if the criminal proceedings are started;

(4)The court’s resources in the conduct of these proceedings may be wasted in the event that they are not completed if criminal proceedings are commenced;
(5)The defendant will have endured the additional personal loss including the time, anxiety and stress associated with being the subject of civil proceedings and accompanying media attention, in the event these proceedings are not completed prior to the criminal proceedings starting;
(6)Very little weight should be given to the prima facie entitlement of ASIC, or the plaintiff in those proceedings, to have this action tried in the ordinary course of the procedure and business of the court.

In addition, Messrs Flugge, Ingelby, Stott, Geary and Long, in the alternative, and in the event of a stay not being granted, seeks an order that they be excused from filing any defence until after ASIC has closed its case; or, in the alternative, and in the event the defendant is required to file a defence prior to ASIC closing its case, the defence of the defendant be limited to identifying which paragraphs of the amended Statement of Claim are admitted, not admitted and denied respectively.

Messrs Flugge, Ingelby and Stott make a further application to strike out the statement of claim. The hearing of these applications were deferred pending the hearing and determination of the stay applications.

Thus the issues arising on each of these applications are:

(1) What are the relevant principles to granting a stay of civil proceedings?

(2) Have the stay principles been altered or refined by Reid v Howard?[17]

(3) Have the stay principles been altered or refined by ASIC v HLP Financial Planning?[18]

(4) Applying those principles, should a stay be granted?

[17](1995) 184 CLR 1

[18](2007) 164 FCR 487

For the reasons set out below, I assume that the applicable principles on granting a stay are those set out in McMahon v Gould[19] as modified by Part 9.4B of the Corporations Act2001. Applying those principles, I find that the interests of justice are best served if the proceedings are stayed against all defendants save Mr Lindberg.
[19](1982) 7 ACLR 202

As a stay is granted, it is unnecessary to decide whether the defendants (other than Mr Lindberg) should be excused from filing a defence in this case. Mr Lindberg has not sought a direction concerning a defence at this stage.

RELEVANT PRINCIPLES TO GRANTING A STAY

As indicated above, the Court has inherent power in its discretion to stay civil proceedings if criminal proceedings could be commenced against a defendant for an offence constituted by substantially the same conduct.[20]
[20]Ibid

The position under the Corporations Act2001 is as follows. If criminal proceedings are started, civil proceedings for a declaration of contravention or a pecuniary penalty order under the Corporations Act2001 are automatically stayed.[21] The civil proceedings may only be resumed if the person is not convicted of the offence.[22] A court must not make a declaration of contravention or a pecuniary penalty or against a person for a contravention if the person has been convicted of an offence constituted by conduct that is substantially the same as the conduct constituting the contravention.[23]
[21]Corporations Act 2001 (Cth) s 1317N
[22]Corporations Act2001 (Cth) s 1317N(2)
[23]Corporations Act2001 (Cth) s 1317M

In McMahon v Gould,[24] Wootten J listed a range of what he called guidelines to consider in deciding whether to grant a stay application where criminal proceedings are on foot or threatened. The overriding consideration in deciding whether to exercise the inherent jurisdiction of the court to grant a stay of proceedings is always what “the interests of justice” require in the circumstances.[25] The relevant guidelines stated by Wootten J in McMahon v Gould are as follows:[26]
[24](1982) 7 ACLR 202
[25]McMahon v Gould (1982) 7 ACLR 202 at 205; quoting Sugerman ACJ in Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16 at 19.
[26](1982) 7 ACLR 202

(a) Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court (Rochfort v John Fairfax & Sons Ltd at 19);
(b) It is a grave matter to interfere with this entitlement by a stay of proceedings, which requires justification on proper grounds (ibid);
(c) The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should be interfered with (Jefferson v Bhetcha at 905);
(d) Neither an accused (ibid) nor the Crown (Rochfort v John Fairfax & Sons Ltd at 21) are entitled as of right to have a civil proceeding stayed because of a pending or possible criminal proceeding;
(e) The court's task is one of “the balancing of justice between the parties” (Jefferson Ltd v Bhetcha at 904), taking account of all relevant factors (ibid at 905);
(f) Each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors (ibid at 905);
(g) One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's “right of silence”, and the reasons why that right, under the law as it stands, is a right of a defendant in a criminal proceeding (ibid at 904). I return to this subject below;
(h) However, the so-called “right of silence” does not extend to give such a defendant as a matter of right the same protection in contemporaneous civil proceedings. The plaintiff in a civil action is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting an application for summary judgment, in the pleading of his defence, or by way of discovery or otherwise, what his defence is likely to be in the criminal proceeding (ibid at 904–5);
(i) The court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings (ibid at 905);
(j) In this regard factors which may be relevant include:
(i) the possibility of publicity that might reach and influence jurors in the civil [sic][27] proceedings (ibid at 905);
(ii) the proximity of the criminal hearing (ibid at 905);
(iii) the possibility of miscarriage of justice e.g. by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses (ibid at 905);
(iv) the burden on the defendant of preparing for both sets of proceedings concurrently (Beecee Group v Barton);
(v) whether the defendant has already disclosed his defence to the allegations (Caesar v Somner at 932; Re Saltergate Insurance Co Ltd at 736);
(vi) the conduct of the defendant, including his own prior invocation of civil process when it suited him (cf Re Saltergate Insurance Co Ltd at 735–6);

(k) The effect on the plaintiff must also be considered and weighed against the effect on the defendant. In this connection I suggest below that it may be relevant to consider the nature of the defendant's obligation to the plaintiff;
(l) In an appropriate case the proceedings may be allowed to proceed to a certain stage, e.g., setting down for trial, and then stayed. (Beecee Group v Barton).[28]
[27]The reference should be to criminal proceedings.
[28]Ibid 206

Authority of McMahon v Gould

ASIC submits the principles set out above are well established and have been applied in numerous other cases.[29] It submits they should be followed in the present case.[30] There are, however, indications that the principles may require review by an appellate court. In Yuill v Spedley Securities Ltd[31] Kirby P referred to McMahon v Gould[32] as “the existing law.” His Honour indicated, however, that one day it may be appropriate for the guidelines referred to by Wootten J in McMahon v Gould[33] to be reconsidered. Kirby P said that the guidelines do not take specifically into account the primacy of the administration of criminal justice in our legal system.In Niven v SS[34] Beazley JA of the New South Wales Court of Appeal said there was force in Kirby’s opinion although the case before him was not the case to reconsider McMahon v Gould.[35] In Baker vThe Commissioner of Federal Police[36] Gyles J said that in view of Reid v Howard[37] there was some merit in the view that there should be reconsideration of the manner in which the McMahon v Gould[38] line of authorities is now applied so as to decide whether too little weight is given to the practical as well as legal prejudice to the accused and to the primacy of criminal proceedings in our justice system.[39] Gyles J said:
The applicants rely upon the decision of the High Court in Reid v Howard[40] to suggest that the line of authority commencing with McMahon v Gould has given insufficient weight to, and has not fully appreciated the extent of, the privilege against self-incrimination. There is no doubt that Reid v Howard does re-affirm the importance of the privilege against self-incrimination, and does not give any encouragement to think that any devaluation of the principle which may apply in the United Kingdom will be applied in Australia.[41]
[29]See for example, Philippine Airlines v Goldair (Aust) Pty Ltd [1990] VR 385 at 387 and 389-90 per Young CJ; Halabi v Westpac Banking Corporation (1989) 17 NSWLR 26, 58 per McHugh JA; Yuill v Spedley Securities Ltd (1992) 8 ACSR 272, 275 per Priestley JA; Australian Securities Commission v Kavanagh (1993)12 ACSR 69 at 72, 75-76 per Hayne J; Griffin v Sogelease Australia Ltd [2002] NSWCA 421 at [5] – [14] per Sheller, Ipp JA and Davies AJA; Guglielmin v Trescowthick (No 3) (2005) 220 ALR 535 per Mansfield J at [9] – [12]; Niven v SS [2006] NSWCA 338 at [25] – [35] per Tobias JA (Giles JA agreeing); Gallaher v Collins [2006] VSC 139 at [27] per Hargrave J; Trade World Enterprise Pty Ltd v DCT (2006) 64 ATR 316 at [12] per Chernov JA (Nettle and Redlich JJA agreeing); Commonwealth Bank of Australia v May [2007] NSWSC 490 per Einstein J at [5] to [7]; Osric Investments Pty Ltd v Probst [2007] QSC 293 per Daubney J at [11] to [12]. See also Elliot v Australian Prudential Regulation Authority [2004] FCA 586; French J.
[30]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135].
[31]Yuill v Spedley Securities Ltd (1992) 8 ACSR 272
[32](1982) 7 ACLR 202
[33](1982) 7 ACLR 202
[34][2006] NSWCA 338
[35](1982) 7 ACLR 202
[36](2000) 104 FCR 359
[37](1995) 184 CLR 1
[38](1982) 7 ACLR 202
[39]Baker v Commissioner of Australian Federal Police (2000) 104 FCR 359 at [34]
[40](1995) 184 CLR 1
[41]Baker v Commissioner of Australian Federal Police (2000) 104 FCR 359 at [32]
Gyles J said, however, that any such reconsideration would need to be undertaken either by the Full Court of the Federal Court of Australia or the High Court. This approach to McMahon v Gould[42] was also adopted by Gray J in Elliot v APRA.[43] Gray J did hold that the line of authority in McMahon v Gould[44] was not constructed by way of any exception to the privilege against self-incrimination or self-exposure to a penalty. He said:
Rather, it represents a means which the courts have developed to deal with the possible conflict between actual pending criminal proceedings and civil proceedings or administrative processes.[45]
The approach taken by Gyles J was also adopted by Mansfield J in Guglielmin v Trescowthick (No.3).[46]
[42] (1982) 7 ACLR 202
[43][2004] FCA 586 at [16] – [19]
[44](1982) 7 ACLR 202
[45]Elliot v Australian Prudential Regulation Authority [2004] FCA 586 at [18]
[46](2005) 220 ALR 535 at 541

Nevertheless, in Trade World Enterprises Pty Ltd v DCT[47] Nettle JA (with whom Redlich JA agreed) said the relevant principles applicable to the exercise of discretion on an application for adjournment or stay were conveniently set out by Young CJ in Philippine Airlines v Goldair (Aust) Pty Ltd[48] where Young CJ cited with approval the guidelines in McMahon v Gould.[49] There was no examination of the reservations referred to by Kirby P.
[47]Trade World Enterprise Pty Ltd v DCT (2006) 64 ATR 316 at [12]
[48][1990] VR 385
[49])1982) 7 ACLR 202

Relevant statutory provisions

ASIC seeks orders under ss 1317E, 1317G and 206C (1) of the Corporations Act 2001 (Cth). In essence, ASIC seeks:

·declarations as to contraventions of ss 180 and 181;
·pecuniary penalties to be imposed on the defendants; and

· an order disqualifying the defendants from managing a corporation for a period the Court considers appropriate.

Each of the defendants contend that ASIC alleges conduct not merely constituting a contravention of s 181(1) but also conduct that satisfies s 184(1). The defendants submit that save for the additional mental elements of recklessness or intentional dishonesty, the wording of s 184(1) is identical to s 181(1). Section 184 expressly states that a breach of this provision is a criminal offence.

The relevant sections of the Corporations Act 2001 are as follows:

Part 2D.1 – Duties and powers
…
Division 1 – General duties
180 Care 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.

Note: This subsection is a civil penalty provision (see section 1317E).
Business judgment rule
(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the judgment; and
(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.

The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
Note:This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)--it does not operate in relation to duties under any other provision of this Act or under any other laws.

(3) In this section:
"business judgment" means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

181 Good 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.
Note 1:This subsection is a civil penalty provision (see section 1317E).
Note 2:Section 187 deals with the situation of directors of wholly‑owned subsidiaries.

(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1:Section 79 defines involved.
Note 2:This subsection is a civil penalty provision (see section 1317E).

…

184 Good faith, use of position and use of information – criminal offences
Good faith - directors and other officers
(1) A director or other officer of a corporation commits an offence if they:
(a)are reckless; or
(b)are intentionally dishonest;
and fail to exercise their powers and discharge their duties:
(c)in good faith in the best interests of the corporation; or
(d)for a proper purpose.
Note:Section 187 deals with the situation of directors of wholly‑owned subsidiaries.

Use of position - directors, other officers and employees
(2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly:
(a)with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or
(b)recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

Use of information - directors, other officers and employees
(3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly:
(a)with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or
(b)recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

…

Part 2D.6 – Disqualification from managing corporations
…
206C Court power of disqualification - contravention of civil penalty provision
(1) On application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:
(a)a declaration is made under:
(i) section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision; or
(ii) section 386‑1 (civil penalty provision) of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 that the person has contravened a civil penalty provision (within the meaning of that Act); and
(b)the Court is satisfied that the disqualification is justified.

(2) In determining whether the disqualification is justified, the Court may have regard to:
(a)the person's conduct in relation to the management, business or property of any corporation; and
(b)any other matters that the Court considers appropriate.

(3) To avoid doubt, the reference in paragraph (2)(a) to a corporation includes a reference to an Aboriginal and Torres Strait Islander corporation.

…

Part 9.4B of the Act deals with civil penalty proceedings.

Part 9.4B – Civil consequences of contravening civil penalty provisions
1317DA Definitions
In this Act:
corporation/scheme civil penalty provision means a provision referred to in subsection 1317E(1), other than a financial services civil penalty provision.
financial services civil penalty provision means a provision referred to in any of paragraphs 1317E(1)(ja) to (jg).
1317E Declarations of contravention
(1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention:
(a)subsections 180(1) and 181(1) and (2), 182(1) and (2), 183(1) and (2) (officers' duties);

…
These provisions are the civil penalty provisions.
Note:Once a declaration has been made ASIC can then seek a pecuniary penalty order (section 1317G) or (in the case of a corporation/scheme civil penalty provision) a disqualification order (section 206C).

(2) A declaration of contravention must specify the following:
(a)the Court that made the declaration;
(b)the civil penalty provision that was contravened;
(c) the person who contravened the provision;
(d) the conduct that constituted the contravention;
(e)if the contravention is of a corporation/scheme civil penalty provision--the corporation or registered scheme to which the conduct related.

1317F Declaration of contravention is conclusive evidence
A declaration of contravention is conclusive evidence of the matters referred to in subsection 1317E(2).
1317G Pecuniary penalty orders
Corporation/scheme civil penalty provisions
(1) A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if:
(a)a declaration of contravention by the person has been made under section 1317E; and
(aa) the contravention is of a corporation/scheme civil penalty provision; and
(b)the contravention:
(i) materially prejudices the interests of the corporation or scheme, or its members; or
(ii) materially prejudices the corporation's ability to pay its creditors; or
(iii) is serious.

…
Penalty a civil debt etc.
(2) The penalty is a civil debt payable to ASIC on the Commonwealth's behalf. ASIC or the Commonwealth may enforce the order as if it were an order made in civil proceedings against the person to recover a debt due by the person. The debt arising from the order is taken to be a judgment debt.

1317H Compensation orders--corporation/scheme civil penalty provisions
Compensation for damage suffered
(1) A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:
(a)the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and
(b)the damage resulted from the contravention.

The order must specify the amount of the compensation.
Note:An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.

…
1317J Who may apply for a declaration or order
Application by ASIC
(1) ASIC may apply for a declaration of contravention, a pecuniary penalty order or a compensation order.

Application by corporation
(2) The corporation, or the responsible entity for the registered scheme, may apply for a compensation order.
Note:An application for a compensation order may be made whether or not a declaration of contravention has been made under section 1317E.

(3) The corporation, or the responsible entity for the registered scheme, may intervene in an application for a declaration of contravention or a pecuniary penalty order in relation to the corporation or scheme. The corporation or responsible entity is entitled to be heard on all matters other than whether the declaration or order should be made.

Compensation order relating to financial services civil penalty provision - any other person who suffers damage may apply
(3A) Any other person who suffers damage in relation to a contravention, or alleged contravention, of a financial services civil penalty provision may apply for a compensation order under section 1317HA.
Note:An application for a compensation order may be made whether or not a declaration of contravention has been made under section 1317E.

No one else may apply
(4) No person may apply for a declaration of contravention, a pecuniary penalty order or a compensation order unless permitted by this section.
(5) Subsection (4) does not exclude the operation of the Director of Public Prosecutions Act 1983.

1317K Time limit for application for a declaration or order
Proceedings for a declaration of contravention, a pecuniary penalty order, or a compensation order, may be started no later than 6 years after the contravention.
1317L Civil evidence and procedure rules for declarations of contravention and civil penalty orders
The Court must apply the rules of evidence and procedure for civil matters when hearing proceedings for:
(a) a declaration of contravention; or
(b) a pecuniary penalty order.

1317M Civil proceedings after criminal proceedings
A court must not make a declaration of contravention or a pecuniary penalty order against a person for a contravention if the person has been convicted of an offence constituted by conduct that is substantially the same as the conduct constituting the contravention.
1317N Criminal proceedings during civil proceedings
(1) Proceedings for a declaration of contravention or pecuniary penalty order against a person are stayed if:
(a)criminal proceedings are started or have already been started against the person for an offence; and
(b) the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention.

(2) The proceedings for the declaration or order may be resumed if the person is not convicted of the offence. Otherwise, the proceedings for the declaration or order are dismissed.

1317P Criminal proceedings after civil proceedings
(1) Subject to subsection (2), criminal proceedings may be started against a person for conduct that is substantially the same as conduct constituting a contravention of a civil penalty provision regardless of whether:
(a)a declaration of contravention has been made against the person; or
(b)a pecuniary penalty order has been made against the person; or
(c)a compensation order has been made against the person; or
(d)the person has been disqualified from managing a corporation under Part 2D.6; or
(e)an order has been made against the person by ASIC under section 920A (banning orders) or by the Court under section 921A (disqualification by Court).

(2) Subsection (1) does not apply if:
(a)an infringement notice is issued to the person for an alleged contravention of subsection 674(2) or 675(2); and
(b)the infringement notice is not withdrawn under section 1317DAI.

1317Q Evidence given in proceedings for penalty not admissible in criminal proceedings
Evidence of information given or evidence of production of documents by an individual is not admissible in criminal proceedings against the individual if:
(a)the individual previously gave the evidence or produced the documents in proceedings for a pecuniary penalty order against the individual for a contravention of a civil penalty provision (whether or not the order was made); and
(b) the conduct alleged to constitute the offence is substantially the same as the conduct that was claimed to constitute the contravention.

However, this does not apply to a criminal proceeding in respect of the falsity of the evidence given by the individual in the proceedings for the pecuniary penalty order.
1317R ASIC requiring person to assist
(1) ASIC may require a person to give all reasonable assistance in connection with:
(a)an application for a declaration of contravention or a pecuniary penalty order; or
(b)criminal proceedings for an offence against this Act.

(2) ASIC can require the person to assist in connection with an application for a declaration or order if, and only if:
(a)it appears to ASIC that someone other than the person required to assist may have contravened a civil penalty provision; and
(b)ASIC suspects or believes that the person required to assist can give information relevant to the application.

(3) ASIC can require the person to assist in connection with criminal proceedings if, and only if:
(a)it appears to ASIC that the person required to assist is unlikely to be a defendant in the proceedings; and
(b)the person required to assist is, in relation to a person who is or should be a defendant in the proceedings:
(i) an employee or agent (including a banker or auditor) of the other person; or
(ii) if the other person is a corporation--an officer or employee of the other person; or
(iii) if the other person is an individual--a partner of the other person.

(4) ASIC can require the person to assist regardless of whether:
(a)an application for the declaration or penalty order has actually been made; or
(b)criminal proceedings for the offence have actually begun.

(5) The person cannot be required to assist if they are or have been a lawyer for:
(a)in an application for a declaration or penalty order--the person suspected of the contravention; or
(b)in criminal proceedings--a defendant or likely defendant in the proceedings.

(6) The requirement to assist must be given in writing.
(7) The Court may order the person to comply with the requirement in a specified way. Only ASIC may apply to the Court for an order under this subsection.
Note:The person must comply with the requirement and may commit an offence if they do not, even if there is no order under this subsection (see section 104 and subsection 1311(1)).

(8) This section does not limit and is not limited by section 49 of the ASIC Act.

1317S Relief from liability for contravention of civil penalty provision
(1) In this section:
"eligible proceedings”:
(a)means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 1317H or 1317HA); and
(b)does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H or 1317HA).

(2) If:
(a)eligible proceedings are brought against a person; and
(b)in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:
(i) the person has acted honestly; and
(ii) having regard to all the circumstances of the case (including, where applicable, those connected with the person's appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention;

the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.
(3) In determining under subsection (2) whether a person ought fairly to be excused for a contravention of section 588G, the matters to which regard is to be had include, but are not limited to:
(a)any action the person took with a view to appointing an administrator of the company or Part 5.7 body; and
(b)when that action was taken; and
(c)the results of that action.

(4) If a person thinks that eligible proceedings will or may be begun against them, they may apply to the Court for relief.
(5) On an application under subsection (4), the Court may grant relief under subsection (2) as if the eligible proceedings had been begun in the Court.
(6) For the purposes of subsection (2) as applying for the purposes of a case tried by a judge with a jury:
(a)a reference in that subsection to the court is a reference to the judge; and
(b)the relief that may be granted includes withdrawing the case in whole or in part from the jury and directing judgment to be entered for the defendant on such terms as to costs as the judge thinks appropriate.

(7) Nothing in this section limits, or is limited by, section 1318.

Statutory context[50]

[50] Adapted from Mr Flugge’s written submissions of 18 May 2008

Part 9.4B was introduced in 1993. Prior to the commencement of the Corporate Law Economic Reform Program Act 1999 (Cth) (CLERP) on 13 March 2000, commencement of a civil suit for breach of civil penalty proceedings precluded any later criminal proceedings for the same contravention.[51] Currently, criminal proceedings are no longer precluded.[52] However, civil penalty proceedings cannot commence after criminal proceedings have started.[53] Where civil penalty proceedings are on foot, and criminal proceedings are started, the civil penalty proceedings are stayed, and can only be resumed if there is no criminal conviction.[54] The present provisions have a history examined below.
[51]Corporations Law s 1317FB
[52]Corporations Act 2001 (Cth) s1317P
[53]Corporations Act 2001 (Cth) s 1317M
[54]Corporations Act 2001 (Cth) s 1317N

History

The explanatory memorandum to the Corporate Law Reform Bill 1992 (Cth) contained the following.

Paragraph 117:
Proposed Divisions 3 and 4 of Part 9.4B will generally prevent a person being subjected to both a criminal and civil proceedings [sic] out of the one contravention.

Paragraph 118:
Proposed Division 3 of Part 9.4B, entitled ‘Criminal proceedings’ and comprising proposed sections 1317FA and 1317FB, retains criminal sanctions in relation to a contravention of a civil penalty provision committed with dishonest intent. The Division will also prevent criminal proceedings for these offences from being commenced if an application has already been made for a civil penalty order in relation to the contravention.

Paragraph 119:
Proposed Division 4 of Part 9.4B, entitled ‘Effect of criminal proceedings on application for civil penalty order’ and comprising proposed sections 1317GA to 1317GL, provides that where criminal proceedings have commenced in relation to the contravention of civil penalty provisions, and the defendant is not convicted at trial because the court is not satisfied that the element of dishonesty required by section 1317FA has been proved beyond reasonable doubt, the court will be able to go on to consider whether a civil penalty order (which requires no element of dishonesty) should be made. This will generally avoid the need for a separate proceeding to deal with the civil penalty issue.

Paragraph 148:
Proposed section 1317FB provides that where civil penalty proceedings are initiated in respect of a contravention of a civil penalty provision, no criminal proceedings may be initiated in respect of the same contravention (irrespective of the outcome of the civil penalty proceedings). This provision is necessary because of the lower standard of proof, and more liberal rules relating to the discovery of evidence, which apply in civil proceedings. To allow criminal prosecution to follow a civil action could significantly disadvantage a defendant in a criminal prosecution.

The previous bar on a subsequent prosecution for a criminal offence after proceedings for a civil penalty order commenced was removed.

Present position

ASIC can now commence criminal proceedings against a person for conduct that is substantially the same conduct constituting a contravention of a civil penalty provision[55]. The defendants submit this creates the tension now exposed in this application. However, evidence given in the course of a proceeding for a pecuniary penalty order is not admissible against the person in a prosecution for a criminal offence constituted by substantially similar conduct.[56]
[55]Corporations Act 2001 (Cth) s 1317P
[56]Corporations Act 2001 (Cth) s 1317Q

Background to present position

Paragraphs 6.128, 6.129 and 6.130 of the explanatory memorandum to the CLERP amendments concern ss 1317M, 1317N, 1317P and 1317Q. They are as follows:

6.128 A contravention of a civil penalty provision may also give rise to a criminal offence, if the contravention is accompanied by dishonesty. The civil penalty provisions currently include a number of complex provisions designed to address the situation where a prosecution for the criminal offence has failed, but the court is satisfied that there has been a contravention of the relevant civil penalty provision. In these circumstances the court is currently able to make a civil penalty order. It is proposed to repeal these provisions. Instead, where a criminal prosecution has failed, the ASC would have to commence fresh proceedings to obtain a civil penalty order.

6.129 Currently, the commencement of proceedings for a civil penalty order is a bar to a subsequent prosecution for the corresponding criminal offence. This is intended to prevent evidence obtained in the course of the civil proceedings being used in subsequent criminal proceedings. However, the rule does not operate as a bar to commencing criminal proceedings under other Acts (for example, the Crimes Act). It also provides a significant disincentive for the ASC to commence civil penalty proceedings.
6.130 It is proposed to repeal the bar and provide instead that evidence given in the course of proceedings for a pecuniary penalty order is not admissible against the person in a prosecution for a criminal offence constituted by substantially similar conduct. This is designed to prevent the evidence being used in the prosecution of any offence involving substantially similar conduct, not merely in the criminal prosecution of offences established by the civil penalty provisions. It will also allow a later prosecution to commence where this would be appropriate, without prejudice to the defendant’s right to a fair trial because of the earlier proceedings if it wishes to pursue civil remedies following an unsuccessful prosecution.

The defendants submit the statutory context reveals that the legislature deliberately left open court management of civil and criminal proceedings to ensure a fair trial. The defendants submit the recent amendments to the Corporations Act 2001 (Cth), discussed below, serve only to highlight this fact.

Ordinarily, the court must apply the rules of procedure and evidence for civil penalty orders.[57] This includes rules relating to the penalty privilege.[58]
[57] Corporations Act 2001 (Cth) s 1317L
[58] See Adler v ASIC (2003) 46 ACSR 504 at [660]; ASIC v Rich (No. 3) (2003) 45 ACSR 305 at [24], [26]; Rich v ASIC (2004) 220 CLR 129 at [19], [20], [24], [25]; ASIC v Krecichwost [2007] NSWSC 1458 at [34].

Limited revocation of privilege

Some of the protections are said to be revoked by the insertion of s 1349 of the Corporations Amendment Insolvency Act 2007 (Cth). But this section only applies to proceedings commenced after 31 December 2007. Paragraph 5.55 of the Explanatory Memorandum to the Corporations Amendment Insolvency Bill 2007 (Cth) reads:

The amendments commence on the date of Royal Assent, and where relevant, will apply to a proceeding for a disqualification or banning order, or order for licence suspension or cancellation within the specified provisions of the Corporations Act that commences on or after the date of Royal Assent.

Section 1349(1) applies despite s 1317L. Section 1349(1) applies to requirements to provide information under court rules. It only applies if the proceedings are for disqualification orders and declarations and no other penalty order.

The defendants submit that the importance of this is two-fold. First, ASIC cannot obtain the benefit of this provision as the proceedings were commenced before the section came into operation. Secondly, the proceedings do not fall within the section, in any event, because ASIC seeks a pecuniary penalty. The defendants submit it remains the case that the High Court’s guidance in ASIC v Rich[59] is relevant.

THE STAY PRINCIPLES AND REID V HOWARD[60]

[59][2007] NSWSC 39

[60](1995) 184 CLR 1

The principles in McMahon v Gould[61] provide guidelines on whether to stay a civil proceeding because of pending criminal proceedings. They provide that a plaintiff is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose what his defence is likely to be in the criminal proceeding. Another relevant factor is whether the defendant has already disclosed his defence to the allegation. In Australian Securities Commission v Kavanagh,[62] Hayne J said, after reviewing the principles to be applied in determining the applications for a stay, that:
In my view, it is therefore clear that unless reason is shown to the contrary, a plaintiff is entitled to have its action tried in the ordinary course of the procedure and business of the court and that it is a grave matter to interfere with that entitlement by a stay of proceedings the grant of which would require justification on proper grounds. In the end the task is one of the balancing of justice between the parties taking account of all relevant factors and judging the case on its merits.[63]
[61](1982) 7 ACLR 202
[62](1993) 12 ACSR 69
[63]Ibid 72
ASIC concedes however, that these statements of principle should be refined by reason of the High Court of Australia decision in Reid v Howard.[64] There, the High Court confirmed the fundamental importance of the privilege against self-incrimination and in particular that it cannot be abrogated other than by statute. Deane J said:
[64](1995) 184 CLR 1
The privilege against self-incrimination is deeply ingrained in the common law.[65] It reflects ‘a cardinal principle’[66] which lies at the heart of the administration of the criminal law in this country. It can be, and has increasingly been, overridden or modified by the legislature. It can be waived by the person entitled to claim it. Otherwise, it is unqualified. In particular, it should not be modified by judicially devised exceptions or qualifications. Unless it appears that the assertion of potential incrimination is unsustainable, a claim to the benefit of the privilege cannot in the absence of statutory warrant, properly be disregarded or overridden by the court.[67]
In the joint judgment of Toohey, Gaudron, McHugh and Gummow JJ, they said:
The privilege, which has been described as a ‘fundamental … bulwark of liberty’,[68] is not simply a rule of evidence, but a basic and substantive common law right.[69]
They further said:
There is simply no scope for an exception to the privilege, other than by statute. At common law, it is necessarily of general application – a universal right which, as Murphy J pointed out in Pyneboard Pty Ltd v Trade Practices Commission,[70] protects the innocent and the guilty. There is no basis for accepting any class or category of person whether by reference to legal status, legal relationship or, even, the offence in which he or she might be incriminated because, as already indicated, its purpose is the completely general purpose of protecting against ‘the peril and possibility of being convicted as a criminal’.[71] For the same reason, there can be no exception in civil proceedings, whether generally or of one kind or another. Moreover, it would be anomalous to allow that a person could refuse to answer questions in criminal proceedings or before investigative bodies where the privilege has not been abrogated if that person could be compelled to answer interrogatories or otherwise make disclosure with respect to the same matter in civil proceedings.[72]
[65]Sorby v The Commonwealth (1983) 152 CLR 281 at 309 per Mason, Wilson and Dawson JJ
[66]Ibid at 294 per Gibbs CJ
[67](1995) 184 CLR 1 at 5
[68]Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 at 340
[69]Reid v Howard (1995) 184 CLR 1 at 11
[70](1983) 152 CLR 328 at 346
[71]Lamb v Munster (1882) 10 QBD 110 at 111
[72]Reid v Howard (1995) 184 CLR 1 at 14
The protection which the privilege against self-incrimination confers extends not only to the risk of incrimination by direct evidence but also to incrimination by indirect or “derivative” evidence.[73] This principle was confirmed by Gibbs CJ in Sorby v The Commonwealth where he said:
[73]Ibid at 6 per Deane J
If a witness is compelled to answer questions which may show that he has committed a crime with which he may be charged, his answers may place him in real and appreciable danger of conviction, notwithstanding that the answers themselves may not be given in evidence. The traditional objection that exists to allowing the executive to compel a man to convict himself out of his own mouth applies even when the words of the witness may not be used as an admission. It is a cardinal principle of our system of justice that the Crown must prove the guilt of an accused person, and the protection which that principle affords to the liberty of the individual will be weakened if power exists to compel a suspected person to confess his guilt. … It is true that in some cases the legislature may consider that it can only achieve the intended purpose of the statute by limiting or abrogating the privilege against self-incrimination, but as I have said, if the legislature intends to render the privilege unavailable it must manifest clearly its intention to do so.[74]
Mason, Wilson and Dawson JJ also said in the same case:
… the privilege protects the witness not only from incriminating himself directly under a compulsive process, but also from making a disclosure which may lead to incrimination or to the discovery of real evidence of an incriminating character.[75]
In Reid v Howard, Deane J said:
The protection which the privilege against self-incrimination confers extends not only to the risk of incrimination by direct evidence (i.e. evidence of the fact of disclosure and of the material disclosed) but also to incrimination by indirect or ‘derivative’ evidence (i.e. ‘evidence obtained by using’ the disclosed material ‘as a basis of investigation.’).[76] As Lord Wilberforce pointed out in Rank Film Distributors Ltd v Video Information Centre:[77]
‘… Whatever direct use may or may not be made of information given, or material disclosed, under the compulsory process of the court, it must not be overlooked that, quite apart from that, its provision or disclosure may set in train a process which may lead to incrimination or may lead to the discovery of real evidence of an incriminating character. … The party from whom disclosure is asked is entitled on established law, to be protected from these consequences.’[78]
[74](1983) 152 CLR 281 at 294-295
[75]Ibid 310
[76]Sorby v The Commonwealth (1983) 152 CLR 281 at 312 per Murphy J
[77](1982) AC 380 at 443
[78]Reid v Howard (1995) 184 CLR 1 at 6 per Deane J
I have already referred to the doubts expressed about McMahon v Gould[79] particularly since the decision in Reid v Howard.[80] The guidelines give little weight to the fact that the defendant may be compelled to waive his right of silence if he wishes to defend the civil action. In Cameron’s Unit Services Pty Ltd v Kevin R. Whelpton Associates (Aust) Pty Ltd,[81] Wilcox J said:
The fact that the existence of the civil action may result in a decision by the accused person to waive his right of silence is not, in itself, a sufficient reason to stay that action. The real question must be the likelihood of causing injustice in the criminal proceedings …[82]
[79](1982) 7 ACLR 202
[80](1995) 184 CLR 1
[81](1984) 4 FCR 428
[82]Ibid 434
Accordingly, on this approach the right of silence is not infringed if the defendant elects to waive his right of silence to defend the civil proceedings by raising and running a positive defence. In this case, the defendants are alleged to have contravened ss 180 and 181 of the Corporations Act2001. The statutory defences to s 180(1) include the business judgment rule in s 180(2) and the honesty defence in s 1317S. The business judgment rule requires the defendant to establish he made the judgment in question in good faith for a proper purpose. The honesty defence requires the defendant to establish he acted honestly. These defences to the civil proceedings would squarely raise the additional elements that the prosecution of the defendants under s 184 would raise and impose on the prosecution, that is, dishonesty and lack of good faith. The defendants who were directors may also rely on s 189 which imposes on the defendant an obligation to establish good faith. The defendants argue that it is a relevant consideration that the defence of the civil proceedings may require the defendants to forego or waive their right to silence with the adverse consequences that may follow to the defendant in the subsequent criminal proceedings. The McMahon v Gould[83] line of authorities provides little support for this view.
[83](1982) 7 ACLR 202

The courts have rejected as a relevant consideration the loss by the defendant of any tactical advantage that flows from his “right of silence.” In Australian Securities Commission v Kavanagh,[84] Hayne J dealt with an application to stay civil proceedings (as distinct from civil penalty proceedings) brought by ASC (the forerunner of ASIC) against defendants who were the subject of criminal proceedings instigated by ASC. Under the civil proceedings, ASC were seeking compensation orders for the benefit of the company concerned. The criminal proceedings arose out of the defendants’ conduct as officers of that company. The defendants sought a stay, inter alia, on the grounds that the trial of the civil proceedings would mean that in practical terms the defendants forfeit the right not to reveal their defence. Hayne J cited with approval Wootten J in McMahon v Gould.[85] He stated that:
For the reasons I have given earlier, the statement that the respondents would, in practical terms, forfeit their right not to reveal their defences, is a statement that is unsustainably broad. The respondents have already stated the grounds of their defence in the civil proceedings; if committed for trial it may be expected that they will have to file other material revealing their defence to the criminal charges. What underlies the proposition is that the respondents do not wish to have to choose whether to expose themselves to examination and cross-examination in the civil proceedings before the criminal trial begins. As Wootten J said in McMahon v Gould,[86] there are:
… advantages which the ‘right of silence’ gives to an accused, but they cannot reasonably be regarded as part of the reason why the right exists. In exercising its discretion to stay civil proceedings the court need not be concerned to preserve these advantages. It should be concerned to avoid the causing of unjust prejudice by the continuance of the civil proceedings, not to preserve the tactical status quo in the criminal proceedings whether it be just or unjust.[87] (Emphasis added).
[84](1993) 12 ACSR 69
[85](1982) 7 ACLR 202
[86]Ibid at 208
[87]Australian Securities Commission v Kavanagh (1993) 12 ACSR 69 at 76
Hayne J concluded that he did not consider the applicants for a stay as having demonstrated something more than a mere concern to preserve whatever tactical advantage they may have in any criminal trial by not having earlier given evidence in answer to the allegations made against them. He said that was not reason enough to warrant staying the civil proceedings.[88]
[88]Ibid

In Philippine Airlines v Goldair (Aust) Pty Ltd,[89] Young CJ held that the privilege against self-incrimination is a right of a defendant in criminal proceedings and does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings. He refused an application for a stay of civil proceedings until completion of criminal proceedings where the alleged offences arose out of the same conduct impugned in the civil proceedings. He accepted the principles set out in McMahon v Gould “as a useful guide to the exercise of the court’s discretion in cases of this kind.”[90] He cited Jefferson Ltd v Bhetcha[91] where Megaw LJ held the “right of silence” is a right of a defendant in criminal proceedings and does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings. Megaw LJ said:
There is, I say again, in my judgment, no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for the conduct of civil actions merely because so to do would, or might, result in the defendant, if he wished to defend the action, having to disclose, by an affidavit under order 14, or in the pleading of his defence, or by way of discovery or otherwise, what his defence is or may be, in whole or in part, with the result that he might be giving an indication of what his defence was likely to be in the contemporaneous criminal proceeding. The protection which is at present given to one facing a criminal charge – the so-called ‘right of silence’ – does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings.[92]
[89][1990] VR 385
[90]Ibid 389
[91][1979] 1 WLR 898
[92]Cited in Philippine Airlines v Goldair (Aust) Pty Ltd [1990] VR 385 at 389
Young CJ said he found the observations of Megaw LJ “highly persuasive.” After referring to R v BBC; ex parte Lavelle[93] and Caesar v Sommer[94] and Wootten J’s discussion of the “right of silence” in McMahon v Gould,[95] Young CJ concluded that the “right of silence” is a right which relates to criminal proceedings and held it would need a very strong case indeed before the court should intervene solely on that ground to stay civil proceedings pending determination of criminal proceedings.[96]
[93][1983] 1 WLR 23 at 39 per Woolf J
[94][1980] 2 NSWLR 929
[95](1982) 7 ACLR 202
[96][1990] VR 385 at 390

CHARTER OF HUMAN RIGHTS AND RESPONSIBILITIES ACT 2006 (VIC)

After the hearing concluded, Mr Flugge sought leave to make submissions that he will not receive a fair hearing if he is forced to give up his right of silence and reveal his defence to the potential criminal charges he faces in the civil proceeding. Mr Ingelby adopted Mr Flugge submissions. Mr Flugge submits that under the Charter, the Court has a duty to enforce his right to a fair hearing. As I have granted Mr Flugge’s and Mr Ingelby’s applications for a stay, it is unnecessary for me to decide this issue in relation to them.

Mr Lindberg did not adopt the submissions. As indicated below, the proceedings against Mr Lindberg are to continue. I do not consider it appropriate to consider whether Mr Lindberg can avail himself of the Charter and the Court’s assistance without Mr Lindberg raising the issue and making submissions on why he alleges he will be denied a fair hearing in the civil proceedings or in any potential criminal proceedings.

SHOULD A STAY BE GRANTED?

Returning to the principles in the McMahon v Gould[117] line of authorities, ASIC submits that the court must weight up any disclosure which a defendant has made of his defence against the extent to which the defendant may be required to make disclosure in the civil penalty proceedings. ASIC referred to ASC v Kavanagh[118] where Hayne J took into account the fact that the defendants had already made some disclosure of their defence in the civil proceeding and also to McMahon v Gould[119] where Wootten J referred to the fact that the defendant had already given evidence about the same subject matter in different proceedings. In Reid v Howard[120] the defendant had already given a statement to the police. Nevertheless, the High Court conceded there were further details that were needed and for that reason the police had not been able to formulate criminal charges against him.[121]
[117](1982) 7 ACLR 202
[118]12 ACSR 69 at 75
[119]7 ACLR 202 at 208
[120](1995) 184 CLR 1
[121]Ibid at 9

Mr Flugge

In the case of Mr Flugge, ASIC submits that any benefit Mr Flugge may have had by remaining silent has been severely compromised. In particular:

(a)Mr Flugge provided three witness statements to the inquiry carried out by The Hon. T R H Cole AO RFD QC (“Cole Commission”) and gave sworn evidence over three days;[122]
(b)Mr Flugge was examined on a wide range of matters including matters relevant to the civil penalty proceeding;[123]
(c)Mr Flugge’s statements and transcripts of examination have been available publicly on the Cole Commission website;[124]
(d)the hearings of the Cole Commission were held in public or were made public later.[125] Mr Flugge’s examination occurred during a public hearing;[126]
(e)the media coverage of the Cole Commission was extensive;[127]
(f)the findings of the Cole Commission contain detailed discussion of the evidence given by Mr Flugge and other witnesses who implicate Mr Flugge.[128]

[122]Kotsopoulos affidavit, paragraph 7

[123]Kotsopoulos affidavit, paragraph 8

[124]Kotsopoulos affidavit, paragraphs 3 to 6, CJK-3 at 7.25 to 7.26

[125]Kotsopoulos affidavit, CJK-3 at 7.14 to 7.16, 7.22 and 7.26

[126]Kotsopoulos affidavit, paragraph 7; CJK-3 at 7.16

[127]CJK-3 at 7.24

[128]CJK-4 at 31.275 to 31.292

ASIC contends that Mr Flugge will not be required to make discovery and will not be ordered to file witness statements prior to the close of ASIC’s case in the civil penalty proceeding. ASIC assumes that Mr Flugge would be required to file a defence, but only in the limited McDonald[129] form, which is designed to protect his right of silence and the penalty privilege.
[129]MacDonald v ASIC (2007) 65 ACSR 299

ASIC makes similar submissions with respect to the other defendants as follows:

Mr Lindberg
(a) Mr Lindberg gave two witness statements to the Cole Commission.[130]
(b) Mr Lindberg gave sworn evidence at the Cole Commission over eight days.[131]
(c) Mr Lindberg’s examination occurred during a public hearing.[132]
(d) Mr Lindberg’s statements and transcript of his evidence have been and continue to be available publicly at the Cole Commission’s website.[133]

Mr Stott
(a) Mr Stott gave two witness statements to the Cole Commission.[134]
(b) Mr Stott gave sworn evidence at the Cole Commission over nine days.[135]
(c) The findings made by Commissioner Cole as outlined in the Cole Commission report.[136]
[130]Kotsopoulos affidavit, paragraph 7
[131]Kotsopoulos affidavit, paragraph 7
[132]Kotsopoulos affidavit, paragraph 7; CJK-3 at 7.15 and 7.16
[133]See above, paragraph 21(c) and (d). The same references apply in relation to the affidavit sworn in Mr Lindberg’s proceeding. Mr Lindberg was examined during the public hearings. See Kotsopoulos affidavit, paragraph 7; CJK-3 at 7.16
[134]Kotsopoulos affidavit, paragraph 7
[135]Kotsopoulos affidavit, paragraph 7 and 9; CJK-2
[136]Kotsopoulos affidavit, CJK-4 at 31.495, 31.506 to 341.516

Mr Ingelby, Mr Geary and Mr Long

ASIC submits their right of silence has been significantly undermined in the same way as the other defendants. None of these submissions were contested by the defendants.

Each of the defendants concedes that s 1317Q of the Act prohibits the use of the defendant’s evidence in any subsequent prosecution. They submit that there is still a very real risk of the derivative use of evidence circumventing the accused’s right to silence and point to R v Coroner; Ex parte Alexander[137] which referred to the decision of R v Boyes[138] as authority for that proposition in which Cockburn CJ stated;

a question which might appear at first sight a very innocent one, might, by affording a link in a chain of evidence, become the means of bringing home an offence to the party answering.[139]

[137][1982] VR 731

[138](1861) 1B & S 311

[139]Cited in R v Coroner; Ex parte Alexander [1982] VR 731 at 736. See also Deane J in Reid v Howard (1995) 184 CLR 1 at 6

The defendants submit that to prove the contentions made by ASIC that there was a breach of duties pursuant to ss 180 and 181, it is alleged, inter alia, by ASIC that each of the defendants knowingly permitted or assisted:

(a) AWB to make payments that, to his knowledge, were or were likely to be paid to the Government of Iraq in contravention of UN Resolution 661; and

(b) AWB to obtain funds to which it was not entitled, from the UN escrow Account in contravention of UN Resolution 986.

The defendants submit that to compel the defendant to make positive assertions of fact to allegations in the Statement of Claim touching on matters which are relevant to possible criminal charges entails the risk of providing ASIC with an opportunity to establish linkages in the chain of evidence.[140]
[140] TP 207-208

Stay and Civil Proceedings

ASIC concedes that the provisions of the Corporations Act2001 have adjusted the McMahon v Gould principles in connection with civil penalty proceedings and the like.[141] Under the McMahon v Gould[142] line of authorities, prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court. Section 1317N abolishes this prima facie right if criminal proceedings are started or have already been started against the person for an offence and the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention. Further, proceedings for a declaration or order may be resumed if the person is not convicted of the offence. Otherwise, the proceedings for the declaration or order are dismissed.[143] Under s 1317P, criminal proceedings may be started after civil proceedings, but a court must not make a declaration of contravention or a pecuniary penalty order if the person has been convicted of an offence by conduct that is substantially the same as conduct constituting the contravention.[144]
[141]Transcript 269
[142](1982) 7 ACLR 202
[143]Corporations Act 2001 (Cth) s 1317N(2)
[144]Corporations Act 2001 (Cth) s 1317M

Thus, the legislation provides ASIC with a limited right to seek a civil penalty. ASIC is not able to seek a civil penalty if criminal proceedings in respect of substantially the same conduct is on foot. Further, ASIC’s right to obtain a civil penalty is lost if a conviction has been obtained in respect of substantially the same conduct.

In the exercise of the court’s discretion to stay the civil proceedings it is appropriate for the court to keep in mind the statutory connection between the civil penalty proceedings and any criminal proceedings in respect of substantially the same conduct. It is also appropriate for the court to keep in mind the statutory limitation of the McMahon v Gould[145] line of authorities in the case of civil penalty proceedings.
[145](1982) 7 ACLR 202

ASIC contends that the fact that the statutory stay did not extend to situations where criminal proceedings were “on the cards” indicates an intention that a stay should not be granted. On the other hand, s 1317N directs that the court “must” apply the rules of evidence and procedure when hearing proceedings for a pecuniary penalty order. The rules of procedure include the court’s power to order a stay where the interests of justice require a stay in the circumstances. Accordingly, I do not draw any limitation on the court’s power by reason of s 1317N. On the contrary, I believe the existence of s 1317N highlights a concern by the legislature that it would be unfair for a person to be tried for an offence and at the same time be sued for a civil penalty order or, if the conviction is obtained, be further subject to a civil penalty order.

In this context, ASIC also rely on s 1331 in Part 9.6 Proceedings which provides that no civil proceedings under this Act are to be stayed merely because the proceeding discloses, or arises out of, the commission of an offence. ASIC accepts that, despite s 1331, the McMahon v Gould[146] discretion still exists.[147] ASIC says, however, that s 1331 is relevant and supports ASIC’s contention that the defendants’ submissions do not reflect the law. Section 1331 is in Part 9.6. It is not in Part 9.4B which deals with civil consequences of contravening civil penalty provisions. Usually, the general should give way to the particular and, in this instance, in my opinion, s 1331 does not limit s 1317L.
[146]Ibid
[147]Transcript 214

Inconvenience to the defendants and the court

Each of the defendants contends that unless the civil penalty proceedings are stayed, he will be likely to incur unnecessary and substantial legal costs in preparing for and conducting the civil proceedings that will be automatically stayed if the threatened criminal proceedings are instituted. Further, the defendants face the burden of unnecessary duplication of proceedings. Each of the defendants contends that these are relevant considerations in determining where the balance of justice lies. In addition to the costs to the defendants, which are likely to be wasted, the court will also waste resources that are needed elsewhere. Each of the defendants submits that criminal proceedings are reasonably possible . Mr Stott has been informed charges are probable.

The defendants contend that ASIC will not suffer any prejudice. If the criminal proceedings do not eventuate, ASIC may continue to pursue a civil penalty. If the criminal proceedings do eventuate, the civil proceedings must be stayed in any event (unless the civil proceedings are completed before the criminal proceedings are started). ASIC does not seek to recover any damages for AWB, but merely seeks a pecuniary penalty and an order that the defendants be disqualified from managing a corporation (which has been determined by the High Court to also constitute a penalty).[148] ASIC is not seeking to right a wrong. It seeks to pursue the defendants by imposing civil penalties on the defendants. Each of the defendants submits the court should consider the public purse and the imposition on the limited resources available to the courts and the inefficient waste of resources that would eventuate if the proceedings were not stayed.
[148]Rich v ASIC (2004) 220 CLR 129 where the High Court set aside the orders of the New South Wales Court of Appeal on the basis that the disqualification proceedings were in fact punitive and penal in nature and not merely protective

The defendants submit that very little weight should be given to any prima facie entitlement of ASIC to have the action tried in the ordinary course of the procedure and business of the court, by reason of the nature of these proceedings. First, it is said that civil penalty proceedings are of a fundamentally different nature to ordinary civil cases. It is said there is an “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.”[149]
[149]R v Associated Northern Colliers (1910) 11 CLR 738 at 742, cited with approval by Finkelstein in ASIC v Mining Projects Group Ltd (2007) 164 FCR 32 at [10]; Refrigerated Express Lines (Australasia) Pty Ltd v Meat and Livestock Corporation (1979) 42 FLR 204 at 207-8

The defendants submit that the timing of the commencement of the civil penalty proceedings by ASIC was driven by the application of limitation periods.[150] They say it was for this reason that the civil penalty proceedings were given priority over possible criminal proceedings.[151] There is weight in these submissions and in my opinion they are relevant matters to consider in exercising my discretion.
[150]Press release
[151]Ibid

Each defendant submits that criminal proceedings are on the cards. Finkelstein J made reference to criminal proceedings as being “on the cards.” As indicated above, both Cummins J[152] and Bell J[153] have interpreted “on the cards” to mean “a reasonable possibility.” In this case, I accept that criminal proceedings are a reasonable possibility for each defendant save Mr Lindberg.
[152]DPP v Selway(2007) 16 VR 508
[153]Ragg v Magistrates’ Court of Victoria & Corcoris [2008] VSC 1 at [92]-[95]

Was McMahon v Gould wrongly decided?

Mr Ingelby submits that the decision in McMahon v Gould[154] was wrongly decided, or if it did correctly state the law in 1982, it does not state the law today by reason of Reid v Howard,[155] or, if it was correctly decided, has no application in these proceedings.[156] For reasons expressed elsewhere, I do not need to decide whether McMahon v Gould was correctly decided or whether it is still good law.
[154](1982) 7 ACLR 202
[155](1995) 184 CLR 1
[156]TP 152

Mr Ingelby submits that, even if the McMahon v Gould[157] guidelines were to be applied, a stay should be granted.[158] He argues that the plaintiff’s prima facie entitlement should be considered primarily where the plaintiff is a party in an ordinary civil action concerning the recovery of money and not in proceedings, such as these, where the plaintiff is a statutory authority seeking civil penalties. Further Mr Ingelby submits that there is a real danger of injustice to the defendant in the event of a criminal proceeding commencing which arises in three ways.[159]

1)If the civil penalty proceedings continue, the defendant will be required to file his defence. The filing of the defence before the resolution of the criminal proceedings will impinge upon the defendant’s right of silence and his privilege against self incrimination.
(2)Whilst the statutory regime permits, in certain circumstances[160] two sets of penalties (criminal and civil penalty) being imposed in respect of the same conduct, that is not desirable and should be avoided if possible[161].
(3)The proceedings and underlying events have received considerable publicity. It is ASIC’s case that the public revelation of the alleged breaches of the UN sanctions has caused loss of share price in AWB, loss of confidence in AWB by the Australian wheat growers, staff disruption and loss of the single desk[162]. Mr Ingelby submits that in such circumstances, a court should be wary of granting civil relief in cases where criminal proceedings, arising out of substantially the same conduct, “are on the cards” because of the potential adverse effect on the jury.[163] This adverse effect, as submitted by Mr Ingelby can be attributed to the publicity surrounding the proceeding and the requirement of the court to make determinations in the civil proceeding as to the honesty of the defendant in respect of certain conduct.
[157](1982) 7 ACLR 202
[158]Outline of Submission of the defendant (Ingelby), p 6 [18].
[159]Outline of Submission of the defendant (Ingelby), p 8 [28].
[160]Corporations Act 2001 (Cth) s 1317P
[161]See Pearce v R (1998) 194 CLR 610 at 614 per McHugh, Hayne and Callinan JJ
[162]Paragraphs 66 (C)(F), (G) and (GG).
[163]Outline of Submission of the defendant (Ingelby), p 10 [37].

There may be merit in each of these submissions. It is not necessary, however, for me to decide his application on these grounds.
Double jeopardy

The defendants contend that the statutory scheme weakens the principle of double jeopardy by permitting criminal proceedings to follow civil penalty proceedings, and similarly permits a civil penalty proceeding to follow an acquittal of criminal charges, notwithstanding such proceedings rely on substantially the same conduct. They contend that the principle of double jeopardy is recognised by s 1317M that prohibits a declaration of contravention or a pecuniary penalty order following a conviction of an offence constituted by conduct that is substantially the same as the conduct constituting the contravention.

The defendants submit that if a criminal prosecution is reasonably possible, then the significant burdens upon the citizen akin to those that form the rationale for the principle of double jeopardy should weigh heavily in favour of a stay of the civil penalty proceedings.

In any event, even it if could be demonstrated that civil penalty provisions are, sufficiently enough, analogous to a criminal penalty provision to enliven the right against double jeopardy, none of the defendants has been prosecuted for any offence and has not been a party to any other civil proceeding relating to the conduct in question.[164]
[164]Finkelstein J in ASIC v Vizard(2005) 145 FCR 57 at [40] observed that ‘A civil penalty provision lies somewhere between a provision contravention of which is an offence, and a provision contravention of which can lead only to civil proceedings.’

The right against double jeopardy is not relevant in this case where civil proceedings are on foot, notwithstanding the remedies sought are relying on civil penalty provisions.

CONCLUSION

I have not found these applications easy to decide. Nevertheless, I have come to a firm conclusion. For reasons which will become apparent, I will deal with the applications of Mr Flugge, Mr Ingelby, Mr Stott, Mr Long and Mr Geary separately from the application of Mr Lindberg.

I accept that the court’s inherent jurisdiction confers on me discretion to grant a stay of the civil penalty proceedings against the defendants where criminal proceedings are threatened for conduct that is substantially the same as the conduct constituting the contravention alleged in the civil claim. I accept that discretion is preserved by s 1317L. I assume that in exercising that discretion, I am bound by the McMahon v Gould[165] line of authorities. Although ASIC has accepted that these principles require refinement in view of Reid v Howard,[166] ASIC has not suggested what refinement this might be.
[165](1982) 7 ACLR 202
[166](1995) 184 CLR 1

McMahon v Gould[167] makes clear that a plaintiff is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting the action, what his defence is likely to be in the criminal proceeding. Further, McMahon v Gould[168] makes clear that the Court is not concerned to preserve any tactical advantages flowing from the right of silence to the defendant in the criminal proceedings.
[167](1982) 7 ACLR 202
[168]Ibid

McMahon v Gould[169] suggests the Court is to consider whether there is a real and not merely notional danger of injustice in the criminal proceeding. In this regard, the Court may have regard to several specified factors which include whether the defendant has already disclosed her or his defence to the allegation. The factors specified in McMahon v Gould do not include that to defend the civil proceeding the defendant may be compelled, in a practical sense, to waive his “right of silence” and thereby provide proof against himself in the criminal proceeding by direct evidence or derivative evidence. This consideration may lead a superior court to make a refinement to the McMahon v Gould principles in the light of Reid v Howard.[170] As it is, I do not need to apply any principles other than those applied in the McMahon v Gould line of authority.
[169](1982) 7 ACLR 202
[170](1995) 184 CLR 1

The critical difference between these civil penalty proceedings and the typical civil action where the criminal proceedings arise out of the same conduct that constitutes the civil cause of action, is that the statutory scheme in Part 9.4B overrides the principles in McMahon v Gould where criminal proceedings are started. The legislation prevents a civil penalty being imposed where a criminal conviction is obtained and provides that a civil penalty proceeding may not be continued once the criminal proceedings have started. Although Part 9.4B is silent on the position where criminal proceedings are threatened as opposed to started, the granting of a stay where criminal proceedings are threatened is not inconsistent with the purpose and object of s 1317N.

The features of Part 9.4B indicate that the civil penalty proceedings should not be treated as a separate civil right that a litigant has and the issue before the Court on a stay application is only the timing of the hearing of the civil claim. Rather, in my opinion, the civil penalty proceedings are one part of a punishment and enforcement regime imposed on company officers who fail to observe their obligations under the Corporations Act2001. That regime is a mixture of civil, civil penalty and criminal procedure.[171] It is relevant, therefore, in applying the McMahon v Gould[172] guidelines to take account of the interrelationship between civil penalty proceedings and criminal proceedings as set out in Part 9.4B of the Corporations Act2001 and the effective statutory amendment of those principles.
[171]See ASIC v HLP Financial Services (2007) 164 FCR 487 at [40]-[50]
[172](1982) 7 ACLR 202

Applying the McMahon v Gould[173] principles, subject to the refinement in Part 9.4B, I take into account that the guiding principle is the interests of justice and that each case is to be judged on its merits. In particular, I consider whether there is a real and not merely a notional danger of injustice in the criminal proceedings.
[173]Ibid

In my view, there is such a risk in the case of each defendant, other than Mr Lindberg. In each case, the criminal proceedings are “on the cards.” If the civil proceedings have not been heard and determined, at trial and on appeal (if any), the result of the criminal proceedings starting will be to stay the civil penalty proceedings. The defendants may have expended not insignificant resources to defend themselves from pecuniary penalties which probably will be wasted. I expect that the defendants do not have unlimited resources. I do not consider it either fair or just that a defendant should have to waste resources, that could be used in defending the criminal proceedings, in defending civil penalty proceedings that are likely to be terminated in consequence of a decision of the plaintiff, or another arm of the State, to institute criminal proceedings for an offence that is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention alleged in the civil penalty proceedings. I do not consider it fair or just that the defendant may have to unnecessarily duplicate the defence of his actions. The matter is not made any fairer by the fact that if the State fails in the criminal proceedings, it can continue to pursue the civil penalty proceedings.

The McMahon v Gould[174] principles require the effect on the plaintiff be considered and weighed against the effects on the defendant. It is also relevant to consider the nature of the defendant’s obligation to the plaintiff. ASIC instituted the civil proceedings at this stage, as the limitation period was about to expire. ASIC is not seeking to right a wrong to AWB. It is pursuing the public good of seeking to punish the defendants for their alleged contravention of their duties as officers of AWB and to restrain them from managing a corporation. The defendants owe no obligation to ASIC (other than their civic duties to the State and to its laws). I also take into account that the civil penalty proceedings and the criminal proceedings will be brought by the same party, the State, or an emanation of the State. Accordingly, for these reasons, I intend to stay the civil proceedings. The stay will remain in force unless and until the State, through one or other of its responsible emanations, indicates to the defendants that no criminal proceedings will be instituted against the defendants that relies on conduct of the defendant that is substantially the same as that alleged by ASIC herein.
[174]Ibid

Mr Lindberg is in a different position. I find that criminal proceedings are not “on the cards” against him. Mr Cole found on the material before him that Mr Lindberg had not been guilty of any criminal conduct. Accordingly, on the evidence before me, it is unlikely criminal proceedings will be instituted against him and thus the civil penalty proceedings be stayed. He is not likely to bear the burden of preparing for two sets of proceedings. His right of silence and his privilege against self-exposure to a penalty will be fully protected in the civil proceedings.

It follows that in relation to the applications of the defendants other than Mr Lindberg, I do not need to decide whether the HLP case has any and if so what relevance to the stay application it has on this stage of the proceedings. In relation to Mr Lindberg’s application, I have already found that on the evidence before me, a criminal prosecution is not “on the cards.” Accordingly, in my view, it is premature to consider whether the proceedings against Mr Lindberg should be stayed on the grounds identified by Finkelstein J in the HLP case. For reasons expressed above, I do not need to deal with the issues in respect of the Charter of Human Rights and Responsibilities Act 2006.

All defendants, save Mr Lindberg, sought an order that they be excused from filing a defence at this stage. In view of the orders I propose to make, it is unnecessary for me to decide that issue. In the case of Mr Lindberg, I propose to make directions for the hearing of the claims against him. If any issue about a defence arises, I will deal with it at that time.

Accordingly, I propose to make the following orders. In each of the applications by Mr Flugge, Mr Ingelby, Mr Stott, Mr Geary and Mr Long, I stay the civil penalty proceedings herein until and unless ASIC, the Oil-for-Food Task Force or the DPP of the Commonwealth advise the defendant that no criminal proceeding will be instituted against him that relies on conduct of the defendant that is substantially the same as that alleged by ASIC herein, or until further order. I order that the costs of each application be costs in the cause.

Mr Lindberg’s application is dismissed. I order that the costs of his application be costs in the cause. I direct that a directions hearing be held as soon as possible for the disposition of ASIC’s civil penalty proceedings against Mr Lindberg.

[2008] VSC 473

12 November 2008