Nathans Finance Limited (in rec) v Doolan HC Auckland CIV 2010-404-2360

[2010] NZHC 1916

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-2360

BETWEEN  NATHANS FINANCE LIMITED (IN RECEIVERSHIP)

Plaintiff

ANDMERVYN IAN DOOLAN First Defendant

ANDKENNETH ROGER MOSES Second Defendant

ANDDONALD MENZIES YOUNG Third Defendant

ANDJOHN LAURENCE HOTCHIN Fourth Defendant

ANDSTAPLES RODWAY Fifth Defendant

Hearing:         27 September 2010

Appearances: M J Tingey and T B Fitzgerald for Plaintiff

N Gedye for First and Fourth Defendants
D P H Jones QC and A C Cook for Second and Third Defendants
M Atkinson for Fifth Defendant

Judgment:      15 October 2010 at 4 p.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

15.10.10 at 4 pm, pursuant to

Rule 11.5  of the High Court Rules. Registrar/Deputy Registrar

Date……………

Counsel:

Bell Gully, P O Box 4199, Auckland –  murray[email protected]

N Gedye, Barrister, Auckland - [email protected]
David P H Jones QC, P O Box 1750, Auckland –  [email protected]

Jones Fee, P O Box 1801, Auckland –[email protected]

NATHANS FINANCE LIMITED (IN RECEIVERSHIP) V DOOLAN AND ORS HC AK CIV-2010-404-2360

15 October 2010

Table of Contents

Background ................................................................................................................................ 3

The grounds for the application and the plaintiff’s grounds for opposing ................................. 4

The applicants’ grounds ......................................................................................................... 4

The opposition ....................................................................................................................... 6

The approach the Court generally takes to stay applications ..................................................... 7

The factor of overlapping issues between the two cases – ground (a) of application ................ 9

Evidence in the criminal proceedings will help unravel issues in the civil proceeding –

ground (b)................................................................................................................................... 9

Burden  of  defending  civil  proceedings  while  preparing  for  criminal  trial  would  be oppressive – ground (c) and the proximity of the criminal trial – ground (d)............................ 9

Defendants have not done anything to delay or hinder civil proceedings nor resorted to civil jurisdiction – ground (e)........................................................................................................... 13

Prejudice would result if stay were not granted but none if stay ordered – ground (f) ............ 13

Disclosure of defence and avoidance of onus of proof if stay not granted – ground (g) ......... 13

Civil proceedings giving rise to Self incrimination in criminal proceedings – ground  (h)..... 17

The involvement of Mr McCloy - issue (i) .............................................................................. 19

Issue (f) .................................................................................................................................... 20

Conclusion ............................................................................................................................... 20

Background

[1]      The following summary of the background to this case is largely based on the summary set out in the plaintiff’s counsel’s submissions. The plaintiff is Nathans Finance NZ Ltd (in receivership), a former finance company.  The defendants are its current and former directors (the first – fourth defendants) and its former auditors (the fifth defendant).

[2]      The plaintiff issued debenture stock to the public.  Between April 2004 and 1

August 2007 the plaintiff used the proceeds of those securities to enter into a number of loan facilities in favour of its parent company, VTL, other related companies, and companies which had a relationship with the plaintiff or its parent.  The plaintiff was put into receivership on 2 August 2007, at which time it owed its investors approximately $169 million.   Only a small part of those debts are likely to be recoverable.

[3]      The plaintiff alleges that the directors caused or allowed the plaintiff to enter into the loans, and so caused the plaintiff a loss, in breach of their statutory and common law duties.  It also alleges that its auditors breached their common law and contractual duties, and are also responsible for the losses.  The purpose of the claim is to recover money for the plaintiff’s investors.

[4]      A key background fact is that on 15 March 2011 the defendants are to stand trial on criminal charges.  It is estimated the trial will be of eight weeks duration.  At the earliest it will therefore not conclude until the end of April 2011.  The second and third defendants have applied to stay the proceedings pending the resolution of criminal prosecutions that have been brought against the first – fourth defendants under the Securities Act 1978.  Their proceedings relate to whether the prospectuses issued by the plaintiff were misleading.     The period with which the criminal proceedings will be concerned spans the period 2005 until August 2007.

[5]      It was explained to me that in order for the prosecution to succeed in a prosecution under the relevant section of the Securities Act all that needs to be established is that the defendant in question was a director of Nathans at the time that he signed, or there was signed on his behalf, a registered prospectus distributed by Nathans, or that at a time when he was a director there was distributed by the company an investment statement that included an untrue statement in each case. There is no need for the prosecution to establish that the defendant had a particular state of mind.

[6]   The financial position of Nathans leading up to the issue of prospectus number eight on the 13 December 2006 (the first date in the indictment-counts one and two), and of the issuance of the investment statement on the same date, is the subject of extensive evidence on the depositions filed in the prosecution proceeding.

[7]      The subject  matter of the proceedings brought  by way of prosecution is different from the present civil proceeding.   This may be a factor which becomes relevant to the exercise of the discretion which I have been asked to exercise in favour of the defendants to grant a stay of the present proceedings.

[8]      The first and fourth defendants support the application for a stay.  It is agreed that if a stay is granted against the second and third defendants, it should apply as against the first and fourth defendants as well.

[9]      The fifth defendant (Staples Rodway) is in a different position.  The factors which the director defendants say justify a stay against them do not apply to the fifth defendant.  Although the fifth defendant filed a stay application, that application is no longer being pursued.

The grounds for the application and the plaintiff’s grounds for opposing

The applicants’ grounds

[10]     The defendants contend that the proceedings brought by the receiver raise similar issues to those in the criminal proceedings.  It was submitted that the present

proceeding should be stayed pending the outcome of the criminal prosecution.  The grounds upon which the application is based were stated to be the following:

4.1Allegations against the directors in the criminal proceedings will also arise in  the Nathans civil proceedings.  There is a commonality of issues and evidence.

4.2The receiver of Nathans, Mr McCloy, is a Crown witness in the criminal   proceedings.   The defendants in these civil proceedings would be unfairly and irretrievably prejudiced as accused in the criminal proceedings if required to plead substantively  to  the  statement  of  claim,  take  substantive steps and/or provide material to the plaintiff in the civil proceedings.

4.3It is a breach of fair trial considerations, the onus of proof and  privilege     against  (potential)  self  incrimination,  to require  an  accused  person  to  take  substantive  steps  and supply information in a civil proceeding which also relates to a criminal proceeding which has yet to be determined.

4.4It would be oppressive in the circumstances to require the second and third defendants to defend substantial civil proceedings over the same period as they would be required to prepare for trial in a serious criminal prosecution.

4.5      There is no prejudice to the plaintiff if a stay is granted.

4.6      It is in the interests of justice to grant the orders sought.

[11]     In his submissions, Mr David Jones QC for the applicants summarised the factors that the defendants relied upon as follows:

(a)       Significant overlap of factual and legal issues between the criminal proceedings and the receiver’s proceedings.

(b)Evidence  in  the  criminal  proceedings  will  help  unravel important   allegations the subject of the civil proceedings which will likely shorten the length of the civil trial(s) as well as the time and resources required for preparation for same.   The underlying factual matrix for all three sets of proceedings is essentially the same.

(c)The oppressive burden in requiring the defendants to defend very substantial civil proceedings (only relatively recently commenced) whilst also preparing for a substantial and serious criminal  prosecution  set  down to  commence  in a little over 5 months time.

(d)       The proximity of the criminal trial; the delay to the civil proceedings  would not be (unreasonably) long, particularly in the context of the receiver’s behaviour.

(e)The fact the defendants have not done anything to delay or hinder the   civil proceedings, nor resorted to the civil jurisdiction themselves.

(f)The fact that there would  be no unnecessary prejudice  or injustice to the plaintiff (or the interests of the creditors the plaintiff represents), particularly when compared with the illegitimate prejudice and injustice to the accused if a stay is not granted.

(g)       A possible miscarriage of justice by, in particular, disclosure of defences and considering the reverse onus on the defendants.

(h)      The privilege against self-incrimination.

(i)        The  fact  that  the  receiver  Mr  McCloy  is  an  important prosecution  witness in the upcoming criminal trial and any   material   and/or   information   provided   to   him pursuant to this civil proceeding would be provided not only to a Crown witness, but also a person who has an ability (already exercised on various occasions) and in some cases an obligation to assist certain other enforcement agencies.  Without commencing the instant proceedings, he would not otherwise have had access to such material and information.

The opposition

[12]     The relevant parts of the Notice of Opposition which the plaintiff filed in response to the application for a stay of proceedings were to the following effect:

(a)The fact of criminal prosecutions that have an overlap of issues and evidence with civil proceedings does not give rise to a right to stay the civil proceedings;

(b)In the circumstances, there is no real danger of injustice arising from the fact that the plaintiff’s receiver is a witness in the criminal prosecutions, other than the risk inherent in the mere fact of criminal prosecutions that have an overlap of issues and evidence with civil proceedings;

(c)In the circumstances, no real danger of injustice, nor breach of fair trial  considerations, nor breach of the onus of proof, nor breach of the privilege against self incrimination would arise from requiring the defendants to take substantive steps and/or provide material to the plaintiff in the civil proceedings;

(d)In the circumstances, it would not be oppressive to require the defendants to take substantive steps and/or provide material to the plaintiff in the civil proceedings;

(e)      Granting the stay risks causing serious injustice to a large number of people:

(i)The ultimate beneficiaries of the civil proceedings will be the approximately 7,000 members of the public that hold Nathans’ secured debentures.  Many of these creditors are private individuals whose financial certainty requires these proceedings to be resolved.   Many are also elderly, and a stay may jeopardise their ability to enjoy the fruits of the litigation;

(ii)      The proceedings concern events of more than six years ago.   Further delaying the proceedings risks reducing the reliability of memories of witnesses about details of the relevant events.

(f)It would not be in the interests of justice to grant the orders sought.

The approach the Court generally takes to stay applications

[13]     I shall first make reference to some of the relevant principles that are engaged when the Court determines applications of this kind before I go on to examine each ground upon which a stay is sought in the notice of application.

[14]     Section 405 of the Crimes Act 1961 provides:

405     Civil remedy not suspended

No  civil remedy for any act or omission shall be suspended by reason that such act or omission amounts to an offence.

[15]     As  both  parties  accepted,  there  is  no  statutory  bar  to  civil  proceedings continuing simply because the underlying act or omission amounts to an offence. The starting point is that prima facie a plaintiff is to have his action tried in the ordinary course of the procedure and business of the Court[1]  unless to allow that course would cause an injustice in parallel criminal proceedings.  This is however a rebuttable presumption.[2]

[1] Rochfort v John Fairfax & Sons Limited [1972] 1 NSWLR 16 at 19

[2] General distributors Ltd v Hilliard CIV-2008-404-1057 at [36] (per Heath J).

[16]     In deciding whether there would be relevant injustice the Court is to have regard to a number of factors that have been recognised in decided cases.

[17]     One of the leading cases is the Australian decision of McMahon v Gould.[3]   In that case the liquidator had brought proceedings against a director to recover monies which the director had fraudulently misapplied in breach of his duties as a director. The director had been committed for trial on conspiracy charges arising out of the same events.  The Judge, Wootten J, said that prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the Court.[4]   He further concluded on the basis of authority that it was a grave matter to interfere with this entitlement by way of a stay of proceedings.  There was a burden on the defendant in the civil action to show that it was just and convenient that the plaintiff’s ordinary rights should be interfered with.[5]    An accused did not have an entitlement as of right to have a civil proceedings stayed because of a pending criminal proceeding.  The Court’s task was one of “the balancing of justice between the parties”.[6]   Each case was to be judged on its own merits.

[3] McMahon v Gould [1982] 1 ACLR 202

[4] at page 101

[5] Jefferson Limited v Bhetcha [1979] 1 WLR 898 at 905

[6] ibid page 904

[18]     In McMahon, Wootten J concluded that the Court should determine whether there was a real and not merely notional danger of injustice in the criminal proceedings.   In assessing whether that was so, the Court would consider matters such as whether the civil proceedings might result in publicity that might reach and influence  jurors;  the  proximity  of  the  criminal  hearing;  the  possibility  of  a miscarriage of justice e.g. by disclosure of a defence and enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses. A further indicator which has significance in the circumstances of this case is that the Court could take into account that the burden on the defendant of preparing for both sets of proceedings   concurrently  might  cause  injustice  in  the  criminal  proceedings. Wootten J also referred to another matter that is of relevance to this case, namely, that in assessing whether a stay ought to be granted the Court should take into account the effect on the plaintiff as well as the defendant.

The factor of overlapping issues between the two cases – ground (a) of application

[19]     I return to the list of factors summarised by Mr Jones in his submissions.  The first of these was significant overlap of the factual and legal issues which fell to be decided in the civil and criminal proceedings.  Mr Tingey submitted that in fact there is no real overlap between the subject matter of the two proceedings.   While the criminal proceedings are concerned with misstatements allegedly made in securities documents, the civil proceedings are based upon breaches by the directors of their statutory duties and of their common law duties of care as well as reckless trading.

[20]     In my view, the most that can be said is that both sets of proceedings are brought against the defendants in their capacity as directors of Nathans during the period when prospectuses and investment statements, which are the subject matter of the criminal proceedings, were issued.  This period broadly overlaps with the period when it is claimed they breached the duties they owed to the company as directors.

Evidence in the criminal proceedings will help unravel issues in the civil proceeding – ground (b)

[21]     The authorities make it clear that that factor on its own will not justify a stay. The assertion that permitting the criminal proceedings to go first has the potential to resolve matters in the civil litigation cannot, in my mind, give rise to the element of injustice that needs to be present before the Court will stay proceedings.  Further, I am sceptical that there is any substantial reason to suppose that any “unravelling” of issues might occur.  The issues in the two cases are distinct and the standard of proof required is materially different. These factors in combination would suggest that the criminal proceedings are not necessarily likely to resolve the contest between the parties in the civil proceedings.

Burden of defending civil proceedings while preparing for criminal trial would be oppressive – ground (c) and the proximity of the criminal trial – ground (d)

[22]     While these points were dealt with separately in counsel for the defendant’s submission, I will deal with them jointly because they raise similar issues.

[23]     I consider that in principle a plaintiff should be entitled to continue with a proceeding  once  started  because  that  is  the  corollary of  the  plaintiff  having  an unfettered right of access to the Court to commence proceedings in the first place. The latter is of reduced value in the absence of the former.

[24]     Essentially the defendants’ submission is that because it will now only be some five months until the criminal trial starts – a period into which the Christmas vacation of approximately a month falls – little could be achieved in the intervening period and therefore a deferral would not cause any real prejudice to the plaintiff.  At the same time, requiring the defendants to make progress with the civil proceeding while they and their counsel are preparing for the criminal trial would be oppressive. Conversely, ordering a stay would not disadvantage the plaintiff.  As the foundation for this submission, Mr Jones relied upon the fact that even if uninterrupted progress was made in the event that the stay application was declined, a trial in the civil proceeding would not be scheduled until 2012.  That would appear to be factually correct.

[25]     Mr Jones said that he did not accept that undue prejudice would result from delay.   In any event, he drew to my attention the fact that the median amount lost by the investors in Nathans was approximately $11,500 while the average loss was approximately $24,000.   But as Mr Tingey for the plaintiff pointed out several thousand people have lost savings as a result of the failure of the company and it is important that their claims should not be unnecessarily hindered.

[26]     Mr  Jones  was  critical  of  the  delay  on  the  part  of  the  receiver  for  first notifying his intention to claim against the defendants and then, having done so, issuing proceedings in furtherance of his intentions.  The only comment that I would make is that in the context of an application which is concerned with preventing injustice to defendants in criminal proceedings, it is difficult to see what relevance delay on the part of the plaintiff might have.

[27]     I now set out my conclusion on the proximity of criminal trial point.  First, I accept that if a stay were to be granted between now and the date of the criminal trial (which is scheduled to take place between March and May of next year), it should

still be possible for the parties to complete the interlocutory phases of the civil proceeding in time for a trial in 2012.   On the other hand, the more rapidly the interlocutory phases are completed, the earlier  in 2012 it should be possible to allocate a trial. Further, the sooner matters such as discovery can be cleared away, the earlier attention can be given to joining any additional necessary parties.  That leads to a further issue which is that the more rapidly pre-hearing matters can be progressed, the earlier any potential settlement can be expected.  These factors are not inconsiderable given the fact that there were some 7,000 investors in Nathans, many of whom will be anxious for the outcome of this proceeding to be known.

[28]     In relation to the point made that a stay would not prejudice the creditors of Nathans, it is my conclusion that while the amounts of the plaintiff’s claims might be viewed by some as modest, I have no doubt that to retired people and those of reduced means, the money that they lost in the Nathans failure will be grievously felt.

[29]     In my view progress ought to be made in the civil proceeding unless there is a real prospect of prejudice to the defendants so far as the criminal trial is concerned.

[30]      There are limits to how far one can go in trying to analyse what effect it might have on the defendants were they to be required to continue progress in the civil proceedings while at the same time preparing for their criminal trial. What follows is an attempt to summarise the outlines of the problem.

[31]     In practical terms, whether or not a stay is granted will have ramifications for case management directions which the plaintiff will no doubt invite the Court to make (assuming no stay is to be ordered) at the next case management conference in October.  Included in the directions to be sought, I expect, will be that the defendants provide discovery and thereafter inspection.  I do not know what the scope of that work will be.   I cannot safely assume that discovery will be a minor undertaking given the subject matter of the proceedings.  I assume that if matters take their usual course in regard to discovery, what would happen would be as follows. Counsel would provide advice to the defendants concerning their obligations to provide discovery and would provide guidance as to what constitutes relevant documents.

The defendants would be advised on what categories of documents which they probably have in their possession require to be discovered. The task of assembling the documents, sorting them and preparing lists would not need to be undertaken by Counsel. It is likely that it could be carried out by the defendants in conjunction with junior to intermediate practitioners, under the overall guidance of counsel.  It would not be to the point, of course, for the defendants to object to having to obtain legal assistance to help with discovery. That is because it is inevitable that at some point, resources are going to have to be made available to carry out these functions.   That fact is not altered by the consideration that there is also a criminal trial to prepare for. But, it would not seem necessary other than to the limited extent I have described earlier in this paragraph for the discovery issue to be dealt with in person and in detail by counsel who are carrying out preparation for the criminal trial.   In the absence of some contrary explanation, I would not see that they need to be.

[32]     As to its impact on the defendants, I do not know whether all or any of the defendants  are  in  full-time  work  but  at  some  point  they  are  going  to  have  to undertake the exercise which I have just discussed.  Even accepting that there will be a substantial body of documents to be produced for discovery, it would be difficult to accept that such a task would occupy them continuously between now and next March or even for the greater part of that time so that there would be insufficient time for them to properly instruct their counsel and assist in preparation for trial.  My overall conclusion is that there will be adequate time to make substantial progress with discovery between now and next March without prejudicing the ability of the defendants and their Counsel in that litigation to prepare for trial.  Any difficulties that may face the defendants in that regard can be mitigated by taking account of the impending criminal trial when the timetable is set.  While directions as to discovery are not before me now, it might be that the date for completing discovery (which has the potential to be the most burdensome obligation on the defendants) might not be required until after the criminal trial has reached its conclusion.  The date could be fixed on the assumption that while discovery and inspection will not be completed in their entirety before March next year, it should not be necessary for there to be a period of complete inactivity in the civil proceedings between now and then.  As I have said, if proper resources are committed to the task, progress can be made with

discovery and inspection, even though that process might not be completed in its entirety before the criminal trial starts.

[33]     My conclusion is that the factors mentioned under this heading would not justify the making of a stay order.  Any potential prejudice could be met by careful staging of the interlocutory steps.

Defendants have not done anything to delay or hinder civil proceedings nor resorted to civil jurisdiction – ground (e)

[34]     I  accept  that  the  points  made  under  this  heading  are  factually  correct. However, in the circumstances of the case under discussion, I do not see them as having any particular relevance. Where a case might otherwise have been made out for a stay, it could be imagined that the Court in its discretion would refrain from making an order where there had been disentitling conduct on the part of the applicant, for example, persistently obstructing progress in the civil proceedings. That is not the issue here, but its absence is not to be viewed as an affirmative factor favouring the grant of a stay.

Prejudice would result if stay were not granted but none if stay ordered –

ground (f)

[35]     I refer to this matter below.

Disclosure of defence and avoidance of onus of proof if stay not granted –

ground (g)

[36]     It was Mr Jones’ contention that the Court would recognise the existence of prejudice in circumstances where the defendants would, in the absence of a stay order, be obliged to provide information which would indirectly disclose what their defence was going to be in the criminal proceedings.   Mr Jones said this would represent a contravention of the principle that the onus of proof in criminal proceedings is on the prosecution.   Counsel explained to me that in the criminal proceedings in order to establish the prosecution case, the prosecution would be required   only   to   establish   that   the   documents   issued   contained   misleading statement(s) and that the defendants were associated with the issue of the documents.

The statements allegedly made in the prospectus and advertisements concern such matters as whether Nathans had bad debts and whether it operated a robust credit assessment process, amongst others. Further, it is not necessary for the prosecution to prove a particular dishonest state of mind on the part of the defendants.   If the prosecution reached that point and the defendants did not then affirmatively establish a defence they would be convicted of the charges.  The defence that each defendant would have to establish on the balance of probabilities would be either that the statement in the advertisement for the registered prospectus was immaterial or that he  had  reasonable  grounds  to  believe  and  did  believe  up  to  the  time  of  the distribution of the prospectus or advertisement, that the statement was true.

[37]     The subject matter of the civil proceedings is of course different from that of the criminal proceedings.   They would appear to be concerned with whether the directors met their obligations – an issue which will be tested against objective standards of what was reasonably expected of them. This necessarily very limited discussion of the issues leaves open the possibility that matters which are relevant to the civil proceedings could, in theory, impinge upon the defences which the defendants might wish to raise in a criminal proceeding.

[38]     Counsel for the receiver Mr Tingey did not accept that the application for a stay could be justified in this case if the principles that underpin such applications were properly applied.   A stay would be justified in order to prevent illegitimate prejudice  being  caused  to  the  criminal  defendant.     It  was  not  sufficient  to demonstrate that by continuing the proceedings prejudice would result. All the proceedings are inherently likely to cause prejudice to a criminal defendant and it was only when they crossed the line into being unfair prejudice that the Court would intervene.

[39]     On the issue of disclosure of defences, I intend to be guided by an authority to  which  both  counsel  made  reference,  namely  the  English  Court  of  Appeal judgment Jefferson Ltd v Bechta[7]and McMahon v Gould[8].    In the former case the Court was considering the conclusion of the Court below that a stay would be

ordered in cases where proceeding with the civil litigation could result in a party being required to disclose in that proceeding a defence which might be available to him/her in criminal proceedings.  As I understand it, the conclusion of the Court was that there was no firm rule that a proceeding would be stayed where disclosure of a defence in the criminal proceedings might occur.    Rather it is a matter of discretion, and  in  the  exercise  of  that  discretion  the  Court  is  guided  by considerations  of whether a stay is required to prevent injustice.

[7] Jefferson Limited v Bhetcha [1979] 1 WLR 898 at 904

[8] Supra

[40]     In , McMahon v Gould, Wootten J said:

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 judgement, in the pleading of his defence, or by way of discovery or otherwise,  what  his  defence  is  likely  to  be  in  the  criminal proceeding.[9]

[9] supra page 101

[41]     In  the same judgment  he referred  to the various advantages which  were available to a defendant in a criminal proceeding as a consequence of the right to remain silent.  He said:

These include the opportunity it may give the accused to remain silent till the end of the evidence against him at the trial, and then produce a fabricated story perfectly tailored to meet that evidence. They include the possibility of depriving the prosecution of any opportunity to check the accused’s story and obtain evidence to refute it before the trial is over... These 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 criminal proceedings whether it be just or unjust.

[42]     The decision in McMahon v Gould has been applied in New Zealand.[10]    In General Distributors Heath J specifically referred to the references to tactical advantage which appeared in the judgment of Wootten J in McMahon v Gould.

[10] For example in General Distributors Ltd v Hilliard CIV-2008-404-1057

[43]     Reference  was  made  in  the  course  of  submissions  to  Mr  McCloy,  the receiver, being an active participant in both sets of proceedings.  In the case of the

criminal proceedings I understand he is to be a witness for the prosecution.   The defendants are said to be anxious that Mr McCloy should not relay to the prosecuting party in the criminal proceedings information which he has gleaned from his involvement in the civil proceedings and which might give the drift of the defences which the accused are likely to offer in the criminal proceeding.  From a practical perspective,  I am  unable  to  agree  that  there  is  any real  likelihood  of  prejudice resulting to the defendants because of this reason.  Any further steps that might be required of the defendants are unlikely to enable anyone, that is Mr McCloy or anyone else, even if they were minded to do so, to ascertain information that would provide a valuable advance warning to the prosecution in the criminal trial.  As Mr Tingey said, the denials contained in the statements of defence in the civil proceedings are unlikely to throw much light upon the tactics which the defendants intend to adopt at the criminal trial.

[44]     When considering the practical aspects of this issue, it is important to keep in mind what is likely to take place between now and the criminal trial and what is not. In that regard it is likely that discovery will be directed on terms that will mean that the timetable to be imposed will result in the defendants having to start work on preparation for and compilation of affidavits of documents prior to the criminal trial. But it would seem to be unlikely that the resulting affidavits will not have to be filed until a week or two after the trial.  That being so, the practical consequence is that while they will be required to take steps to progress discovery between now and the criminal trial it is unlikely that affidavits of documents will have been filed and served by the date of the trial.

[45]     In the circumstances of this case there is no risk of the type of injustice which the Court will be vigilant to prevent.  At most, there is a theoretical possibility that steps which the defendants are required to take in the civil proceedings might alert the prosecution in the criminal proceeding to what line the defendants are going to take at the criminal trial.   But given the limited nature of any defence which the defendants could put forward at the trial, it is difficult to see that there would be any practical advantage that the prosecution might obtain.   In any case, McMahon v Gould makes it clear that loss of tactical advantages is not a matter that the Court

normally concerns itself with when deciding a stay application.  In practical terms, I cannot see that there is even a risk of a tactical disadvantage.  That is because, even if no stay order is made, there is no risk to the defendants through being required to take steps in the civil proceedings which give the prosecution a clue as to what line of defence is to be taken at the trial.   The affected defendants have already filed statements of defence.

[46]     In summary, I do not accept that a stay can be justified in principle by concerns that the defendants may have to disclose their defence prior to the criminal trial.  Further, there is no practical basis for concerns that injustice would be caused to the defendants in the criminal proceedings by the disclosure of something that is not already known to the plaintiff and which the plaintiff could make known to the prosecuting authority in the criminal proceedings.  As well, if the case management of the proceeding is dealt with sensitively,  there should not be any element of oppressiveness arising from the fact that the defendants are simultaneously being required to progress the civil proceedings while they are preparing for their criminal trial.

Civil proceedings giving rise to Self incrimination in criminal proceedings –

ground (h)

[47]     A further ground upon which it was said a stay could be justified was that permitting the civil proceedings to continue while the criminal trial was pending would offend against the defendants’ right not to incriminate themselves.   It seems to me that there are two possible ways in which incrimination would occur, one is as a result  of  being  required  to  participate  in pre--trial  processes  and  the  other  is through giving evidence at trial.

[48]     Because the civil proceedings are not going to come to trial prior to the criminal hearing commencing, the second of these possibilities can be dismissed. The concern is also met by s 60 of the Evidence Act to which Mr Tingey referred me which provides:

60       Privilege against self-incrimination

(1)      This section applies if—

(a)a  person  is  (apart  from  this  section)  required  to provide specific information—

(i)       in the course of a proceeding; or

(ii)       by a person exercising a statutory power or duty; or

(iii)      by a police officer or other person holding a public  office  in  the  course  of  an investigation into a criminal offence or possible criminal offence; and

(b)the information would, if so provided, be likely to incriminate the person under New Zealand law for an offence punishable by a fine or imprisonment.

(2)      The person —

(a)       has a privilege in respect of the information   and cannot be required to provide it; and

(b)cannot be prosecuted or penalised for refusing or failing to provide the information, whether or not the person   claimed   the   privilege   when   the   person refused or failed to provide the information.

(3)      Subsection (2) has effect —

(a)unless an enactment removes the privilege against self incrimination either expressly or by necessary implication; and

(b)to the extent that an enactment does not expressly or by   necessary   implication   remove   the   privilege against self incrimination.

(4)Subsection (2) does not enable a claim of privilege to be made—

(a)      on behalf of a body corporate; or

(b)on  behalf  of  any  person  other  than  the  person required  to  provide  the  information  (except  by  a legal  adviser  on  behalf  of  a  client  who  is  so required); or

(c)by a defendant in a criminal proceeding when giving evidence about the matter for which the defendant is being tried.

(5)      This section is subject to section 63.

[49]     As to self incrimination being occasioned by the pre-trial processes, the position seems to be covered by s 63 of the Evidence Act which provides:

63Replacement of privilege with respect to disclosure requirements in civil proceedings

(1)This section applies to a person who is required by an order of the court made for the purposes of a civil proceeding—

(a)       to disclose information; or

(b)      to permit premises to be searched; or

(c)to  permit  documents  or  things  to  be  inspected, recorded, copied, or removed; or

(d)      to secure or produce documents or things.

(2)The  person  does  not  have  the  privilege  provided  for  by section 60 and must comply with the terms of the order.

(3)No   evidence  of  any  information  that   has   directly  or indirectly   been   obtained   as   a   result   of   the   person's compliance with the order may be used against the person in any criminal proceeding, except in a criminal proceeding that concerns the falsity of the information.

[50]     On my reading of that section, it would seem to apply not only to documents obtained in discovery but also any responses to interrogatories that might be administered.  It is clear that this section protects the defendants against any risk that they  may  incriminate  themselves  in  the  criminal  proceedings.     I  have  made comments elsewhere about the sequence in which discovery and other steps are likely to be directed to occur in this case.  Having regard to those matters it would seem very unlikely that there is any practical risk that the defendants would incriminate themselves through giving discovery or being subjected to other interlocutory processes.  For  those  reasons  and  because of  the  provisions  of  the Evidence Act to which I have referred, I am unable to agree that a failure to order a stay could have the effects which the defendants contend.

The involvement of Mr McCloy - issue (i)

[51]     It would seem to me that any arguments based upon the role of Mr McCloy as  party  to  the  civil  litigation,  on  the  one  hand,  and  witness  in  the  criminal

proceeding on the other, raises another aspect of supposed tactical disadvantage to the defendants in the criminal trial.  I suppose that that is reasonable to share in that the prosecution might be better informed about the overall circumstances of the Nathans group of companies as a result of communicating and obtaining information from the receiver.  Further, because of his knowledgeable position, it is probable that the receiver’s evidence at the criminal trial would carry greater authority.  But those matters are not legitimately to be taken into account when considering a stay application because the focus of such an application must be on whether the impact of permitting the continuation of the civil litigation from this point forward would result in an element of injustice or oppressiveness in the criminal proceedings.   A stay order by its nature is not concerned with what has happened prior to this point.

[52]      I do not expect that any steps will be taken between now and the date of trial which would have the practical consequence that injustice or impropriety would result  from  the  fact  that  Mr  McCloy  is  in  touch  with  the  prosecution  and  is apparently to be a prosecution witness.

Issue (f)

[53]     I mention this issue out of order for the reason that I consider that matters of prejudice or injustice to the plaintiff and the defendants respectively were adequately dealt with as part of the other topics, in particular, issues “(c)” and “(d)”.

Conclusion

[54]     I am not satisfied that there ought to be a stay of proceedings ordered in this case and the application by the defendants is dismissed.   I would suggest that the parties confer on the issue of costs with a view to agreeing on the incidence and scale of costs that are applicable.   If the parties are unable to agree, they should let me have memoranda not exceeding six pages on each side, within 14 days.

J.P. Doogue

Associate Judge