Le Roi Homestyle Cookies Pty Ltd (in liquidation) v Gemmell [2013] VSC 452 (29 August 2013): sections 588G, 588M and 597 of the Corporations Act 2001, Privileges waived in respect of answers – No dispensation from compliance with pleading or discovery Rules

September 1, 2013 |

The consequences of an examinee not claiming privilege against self incrimination during a public examination by a liquidator are dealt with in Ferguson J’s decision in Le Roi Homestyle Cookies Pty Ltd (in liquidation) v Gemmell [2013] VSC 452.

FACTS

The Liquidators of Le Roi Homestyle Pty Ltd allege that the Defendants have contravened the insolvent trading provisions of the Corporations Act 2001 (“The Act”).  Before issuing proceedings the Liquidators conducted public examinations of each of the Defendants pursuant to section 597. In large part, the insolvent trading claim against the Defendants is based on information elicited in the course of the public examinations.

Neither defendant claimed either privilege during his examination.The Associate Judge before whom the public examination read out the provisions of section 597(1) of the Act and explained its meaning and operation [20] – [21].

The Defendants applied for orders dispensing with and relieving them from complying with the pleading and discovery requirements to the extent that compliance may have a tendency to expose them directly or indirectly to a civil penalty in respect of the subject matter of the proceeding and possible criminal sanction. An Associate Judge dismissed the application and ordered that defences be filed and that all parties make discovery [1].

The Defendants relied on the allegation in the amended statement of claim that they each breached section 588G(2) of the Act [14].

The Liquidators submitted that:

  1. the prospect of criminal prosecution was remote and the penalty privilage is a of lower order of importance [16]
  2. the approach urged by the Defendants would have serious repercussions for the management of the trial and would work an injustice on the Liquidators as the Defendants would not need to file any defences nor make discovery before trial and there would have to be a split trial if they subsequently did elect to run a positive defence and give evidence [35]

The Defendants submitted that:

  1. the mere fact that the Defendants had not said the word ‘privilege’ before any answers did not establish that they had waived their right to claim penalty privilege and privilege against self-incrimination because waiver would require that they gave up the right advertently, consciously or deliberately [22].
  2. a person having failed to claim the privileges on one occasion could not be required to incriminate themselves on a different occasion, for example, in pleading a defence or by making discovery [23]
  3. the privileges cannot be overridden by considerations about the disruptive effect on the trial if they were excused for the time being from complying with the procedural rules that apply to the pleading of a defence and the giving of discovery [36]

 

DECISION

Her Honour dismissed the appeal addressing each ground in seriatim.

Have the Defendants established that pleading defences would tend to subject them to a penalty in separate proceedings?

At [9] her Honour  extracted Robson J’s summary  in Re APCH of the relevant principles applicable in pleading or providing discovery where penalty privilege/privilege against self incrimination are claimed, being:

(a) In the case of self-incrimination privilege, the defendant must establish that the provision of information or the production of documents in the civil case leads to a real and appreciable risk of a criminal prosecution before the privilege can be invoked.

(b) In an action to recover a penalty it is not necessary for a defendant to establish that there is a risk the defendant will be subjected to a penalty by providing information to the plaintiff. The plaintiff is seeking the information for that very purpose.

(c) In civil actions, where no claim for penalty is made, the defendant must show that providing the information requested would tend to subject him to a penalty in separate proceedings before he can rely on the privilege.

(d) The privilege against exposure to penalty is a common law right of privilege that may be availed of as of right and is enforced and protected by the Court.

(e) The privilege against the exposure to penalty may be relied on by a defendant to a civil [proceeding] in which a penalty is not sought (“the non penalty civil proceeding”).

(f) The privilege against the exposure to penalty extends to the obligation upon a defendant to plead, give discovery and answer interrogatories in the non penalty civil proceeding.

(g) As a general rule, the privilege does not entitle a defendant to a non penalty civil proceeding to obtain an order in limine[16] excusing him or her from giving discovery or answering interrogatories.

(h) In exceptional circumstances, a defendant may be entitled to such orders in limine.

(i) By extension, in exceptional circumstances, a defendant may be entitled to orders in limine that he may deliver a defence that departs from the Rules of Court only insofar as to protect his privilege against exposure to penalty.

(j) Exceptional circumstances may exist where the defendant to the civil proceeding is also the subject of separate civil penalty proceedings alleging the same or similar conduct.

(k) Where a defendant seeks to take the privilege against exposure to penalty in a defence, the proper course is to plead accordingly and – if challenged – the defendant will be required to justify that the privilege is taken in good faith and on reasonable grounds for the privilege to stand.

Her Honour added:

  1. that the privilege may overriden by statutory authority and may not be abrogated by purported exercise of judicial discretion  [10].
  2. may not be abrogated by the purported exercise of a judicial discretion [10].
  3. there must be a real and appreciable risk of criminal prosecution or tendency to subject the person to a penalty for the privileges invoked [11].

She found, at [17], that if the Liquidators establish their claim

“..it is almost inevitable that the facts necessary for the imposition of a civil penalty will also be established. It would also be likely to establish at least some of the elements that would need to be proved in a criminal prosecution.”

That does not excuse the filing of a defence or the provision of discovery.

What is the effect of the Defendants having failed to claim privilege during their public examinations?

Her Honour found that the warning that the Associate Judge gave was clear and the Defendant’s lack of legal representation is of little moment [22] (see also [34]) .

This was not a case where the Defendants are obliged to further incriminate themselves or further exposing themselves to a penalty [30]. The Defendants did not submit that their defences and making discovery would provide more information than given in the public examinations [32].   The Defendants waived the right to claim privilege to the answers they gave during the public examinations and:

It should not be forgotten that a person who has answered questions in earlier court proceedings (as the Defendants have here) is not entitled to claim the privilege against self-incrimination to refuse to answer the same questions when put.  By analogy, they should also not be permitted to avoid pleading and providing discovery. Further, if the Defendants were to be excused from pleading the matters about which they have already answered questions in their public examinations, the outcome would be irrational.[31]

Are procedural considerations relevant in determining whether the Defendants ought be required to file defences and make discovery?

Her Honour agreed that the Associate Judge erred in taking into account procedural considerations in relation to the effect of claiming privilege stating, at [36]:

“..if the privileges are available, then it is not relevant that the effect on the trial would be disruptive. As I noted above, the privilege against self-incrimination is a substantive right. It cannot be overridden by procedural rules. Nor can either privilege be abrogated by judicial decision”

ISSUE

Ferguson undertook a detailed analysis of the principles relating to privilege in the context of public examinations.  Any person under examination should carefully consider his or her position when answering questions.  The waiver of privilege may have significant pleadings consequences in the likely subsequent civil proceedings.

 

 

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