FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission in the matter of Northwest Resources Limited v Craigside Company Limited BVI company number 74124 named in the Schedule [2013] FCA 201

:

IN THE MATTER OF NORTHWEST RESOURCES LIMITED ACN 107 337 379

THE COURT ORDERS THAT:

1.    The proceeding be stayed until seven (7) days after the plaintiff notifies the second and third defendants in writing that it will neither institute criminal proceedings against them nor brief the Commonwealth Director of Public Prosecutions with respect to any charge or indictment or to give advice or consideration to bringing any charge or indictment against the second or third defendants arising from any matter the subject of this proceeding.

2.    If the plaintiff notifies the second and third defendants in writing that it will institute criminal proceedings against them or has briefed the Commonwealth Director of Public Prosecutions with respect to any charge or indictment or to give advice or consideration to bringing any charge or indictment against the second or third defendants arising from any matter the subject of this proceeding, the stay in order 1 continue until further or other order.

3.    The stay in order 1 not prevent any party from applying for separate determination of the issues in respect of paragraphs 2, 2A and 4A of the amended originating process.

4.    The proceeding be listed for directions on 22 October 2013 to determine whether the stay should be continued or the proceeding dismissed.

5.    The plaintiff pay 60% of each of the second and third defendants’ costs of the interlocutory applications they filed as agreed or taxed.

6.    Any party wishing to vary order 5 may apply to do so by an email to all parties and the Associate to Jagot J within seven (7) days of the date of these orders seeking to list the matter for the purpose of a hearing on costs of the interlocutory applications.

7.    The interlocutory applications filed 21 December 2012 by the second and third defendants otherwise be dismissed.

Note:    Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF NORTWEST RESOURCES LIMITED ACN 107 337 379

REASONS FOR JUDGMENT

THE INTERLOCUTORY APPLICATIONS

1    The second and third defendants to this proceeding, John Merity and Anthony Nedderman, each seek orders by an interlocutory application for a stay of the proceeding pending the applicant, the Australian Securities and Investment Commission (ASIC), deciding whether it will prosecute them in connection with the same subject-matter as the proceeding and, if ASIC decides to prosecute, the final determination of the prosecutions, and the striking out of part of the originating process as amended on 9 November 2012.

SOME BASIC FACTS

2    By the amended originating process ASIC seeks declarations that Mr Merity has contravened s 671B and s 672B and Mr Nedderman has contravened s 672B of the Corporations Act 2001 (Cth). Section 671B requires a person to give information to the listed company and each relevant market operator of specified matters including their voting rights in the company in respect of any substantial holding the person has in the company. Section 672B requires a person who has been given a direction to disclose information including full details of their own relevant interest in the shares of the company and of the circumstances that give rise to that interest, the name and address of each other person who has a relevant interest in any of the shares or interests, as well as the name and address of each person who has given the person instructions about the shares, specifically, the exercise of any voting or other rights attached to the shares or interests. Contraventions of s 671B and s 672B are offences of strict liability. The penalty for each offence is 25 penalty units and/or imprisonment for six months.

3    It is common ground that in October 2009 ASIC commenced an investigation into suspected contraventions of ss 205G, 208 and 671B of the Corporations Act in connection with, amongst other things, a parcel of shares held by the first defendant, Craigside Company Limited (Craigside), in the fourth defendant, Northwest Resources Limited (NWR). The investigation has continued since that time. ASIC acknowledges that Mr Merity’s conduct forms part of this investigation and that it is possible ASIC may seek to prosecute Mr Merity for contraventions of the Corporations Act in the future. Mr Nedderman is not currently the subject of this investigation by ASIC but ASIC has refused to rule out the possibility of Mr Nedderman also being prosecuted for contraventions of the Corporations Act in the future (undertakings having been sought by Mr Nedderman from ASIC in the context of this proceeding that ASIC would not do so but ASIC having refused to give any such undertaking).

4    In this regard, it is relevant that ASIC has a broad investigative power vested in it by s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). By s 13 ASIC may make such investigation as it thinks expedient for the due administration of the corporations legislation (other than the excluded provisions) where it has reason to suspect that there may have been committed a contravention of the corporations legislation (other than the excluded provisions) or a contravention of a law of the Commonwealth, or of a State or Territory in this jurisdiction, being a contravention that concerns the management or affairs of a body corporate or managed investment scheme or involves fraud or dishonesty and relates to a body corporate or managed investment scheme or to financial products.

5    It is apparent from the commencement of this proceeding, which also relates to the parcel of shares which Craigside holds in NWR, that ASIC believes there is a proper evidentiary foundation to establish that Mr Merity has contravened ss 671B and 672B of the Corporations Act and Mr Nedderman has contravened s 671B of that Act, both contraventions constituting offences of strict liability. How this relates to the continuing investigation is unknown other than that the investigation involves the same subject-matter and prosecution of Mr Merity and Mr Nedderman is possible in the future, prosecution of Mr Merity perhaps being more likely than that of Mr Nedderman at this time given ASIC’s confirmation that Mr Merity’s conduct is the or a subject of the continuing investigation.

THE COMPETING POSITIONS

Mr Merity and Mr Nedderman

6    In circumstances where ASIC is continuing to investigate Mr Merity and Mr Merity’s conduct is related to that of Mr Nedderman, Mr Merity and Mr Nedderman contend that the continuation of this proceeding against them, in the face of future possible prosecution of them for the same or related conduct, constitutes a form of abuse of process. The abuse arises because: - (i) forensic decisions they will have to make in the present proceeding will have to be made knowing that a future prosecution is possible, (ii) as such, the substantive right they would have in any prosecution, being their privilege against self incrimination, would or may be undermined by the need to defend this civil proceeding, (iii) it is oppressive and unduly burdensome for them to have to face the prospect of two sets of proceedings in respect of the same conduct, and (iv) in addition, the court should not or would not make declarations of contraventions of offence provisions in circumstances where a declaration, if made, would be based on the civil standard of proof and, because future prosecutions are on the cards, may later be falsified by acquittals in the criminal prosecutions. Mr Merity and Mr Nedderman submit that the abuse of process should be remedied by this proceeding being stayed for six months to enable ASIC to determine whether it wishes to prosecute Mr Merity and/or Mr Nedderman. If ASIC confirms it will not prosecute, this proceeding may continue. If ASIC decides it will prosecute, then the stay of this proceeding should be continued.

7    As to the strike out, paras 2A(c)(iii) and (d) of the amended originating process seek orders to the effect that ASIC be at liberty to decline to make any payment out of the proceeds of sale of the shares in dispute (that is, the shares held by Craigside in NWR, in respect of which freezing orders are in place and the defendants all consent to their sale by ASIC in an appropriate manner) unless specified information on oath or affirmation is provided by the person claiming the payment including information about the person’s interest at any time in the shares and, if appropriate, an explanation to ASIC as to why such information was not provided to ASIC at an earlier time. Mr Merity contends that the proposed orders are inconsistent with the statutory regime in Pt 9.7 of the Corporations Act and thus would not be made. He additionally contends that the requirements for the provision of information on oath or affirmation are also inconsistent with Pt 9.7 and would tend to undermine the privilege against self incrimination and would not be made for the same reason. Accordingly, that part of the amended originating process should be struck out.

ASIC

8    ASIC’s response is that the applications for a stay are not well-founded. There is a possibility that ASIC may prosecute Mr Merity and/or Mr Nedderman in the future but that alone is insufficient to deny ASIC the right to have this proceeding heard and determined in the ordinary course. Mr Merity and Mr Nedderman have both filed defences. The proceeding is at the stage where ASIC’s evidence is complete. Mr Merity and Mr Nedderman can make the forensic decisions as they see fit. Any undermining of the privilege against self incrimination is mere speculation not only in terms of the prospect of future prosecution but also in terms of the prospect of the forensic decisions which may need to be made. If any real threat emerges, Mr Merity and Mr Nedderman can make further applications as they see fit at that time. Otherwise, insofar as concerns about the making of declarations arise, they are premature. The court may determine whether or not to make any declarations having heard the whole of the matter.

9    ASIC contends that the strike out application of part of the amended originating process is premature. The orders ASIC seeks may be considered appropriately as part of the final hearing and should not be dismissed on a summary basis having regard to the wide scope of remedial orders the court is empowered to make and the caution with which any power of summary dismissal of the part of a claim must be exercised.

CONSIDERATION

The stay applications

10    There was an issue of principle between the parties as to the continuing authority of the decision in McMahon v Gould (1982) 7 ACLR 202 (McMahon v Gould) on which ASIC relied. In McMahon v Gould at 206 Wootten J considered the court’s power to grant a stay of a civil proceeding when a defendant faced the prospect of criminal proceedings for the same or related conduct, identifying the following guidelines:

(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 [[1972] 1 NSWLR 16 at 20)] 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 [[1979] 1 WLR 898] 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 proceedings (ibid at 905);

(ii)    the proximity of the criminal hearing (ibid at 905);

(iii)    the possibility of miscarriage of justice eg 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 [(1980) 5 ACLR 33]);

(v)    whether the defendant has already disclosed his defence to the allegations (Caesar v Somner [[1980] 2 NSWLR 929] 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 (1980) 4 ACLR 733] 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;

(1)    In an appropriate case the proceedings may be allowed to proceed to a certain stage, eg, setting down for trial, and then stayed Beecee Group v Barton).

11    Mr Merity and Mr Nedderman identified inconsistency between that approach and the High Court’s recognition of the privilege against self incrimination as a fundamental and substantive common law right in Reid v Howard (1995) 184 CLR 1. They also submitted that the approach of Finkelstein J in Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487; [2007] FCA 1868 (HLP Financial Planning) in which his Honour refused to make declarations of contraventions of offence provisions was to be preferred. At [58] and [59] Finkelstein J concluded in these terms:

[58] I would sum up the position as I see it as follows. The English and Australian authorities that warn of the dangers of a civil court becoming involved in criminal conduct continue to apply in an appropriate company case. The general rule in a company case is that a civil court will usually be the appropriate court to deal with a contravention of the Corporations Act. But the court should be wary of granting relief, including the grant of a declaration or an injunction, if the case is likely to end up before a criminal court. Ordinarily, a civil court should not intervene in those circumstances unless its failure to do so will result in irreparable injury. That strict rule need not be applied if the case involves undisputed facts and the issue raised gives rise to a question of pure law. Then a declaration can be a very useful remedy. As Barwick CJ said in Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305 that is the kind of case “which contributes enormously to the utility of the jurisdiction.”

[59] The case at bar is a particularly good example of one in which the court should not interfere. First of all, a criminal prosecution is on the cards. Second, the facts are not agreed. On the contrary, if there is to be a trial, the Crown would be put to its proof on most issues and some of the “facts” to be asserted by the Crown are likely to be in contest. Third, there is potential for an adverse impact on the jury. The civil case will be decided on evidence that, for the most part, will not be available to the prosecutor in a criminal trial. Imagine what would happen if a jury discovers that a civil court has ruled that Mr Berlowitz’ conduct is illegal. The judge presiding over the criminal trial will be obliged to tell the jury to leave that out of account. It is axiomatic in our courts that jurors can be trusted to leave out of their consideration things that they are instructed to leave out. Yet many regard this kind of instruction as little more than wishful thinking. Perhaps the jurors will have explained to them that the judge who made the ruling acted on evidence not before the jury and that in any event a lower standard of proof was required in the civil court. Whether those instructions will result in a fair criminal trial may be strongly doubted. Last, but by no means least, is the falsification point made by Fryberg J which, if it occurs, will bring the law into disrepute.

12    In so doing Finkelstein J declined to follow Heerey J in Australian Securities and Investments Commission v Fuelbanc Australia Ltd (2007) 162 FCR 174; [2007] FCA 960 (Fuelbanc Australia) Heerey J himself had declined to follow Fryberg J in Australian Securities and Investments Commission v Intertax Holdings Pty Ltd [2006] QSC 276. As Finkelstein J explained at [54] – [57]:

[54] One case in which the possibility of a criminal proceeding was mentioned is Australian Securities and Investments Commission v Intertax Holdings Pty Ltd [2006] QSC 276. There ASIC sought a declaration that the defendants had contravened s 601ED(5) (when a managed investment scheme must be registered), s 727 (offering securities without a current disclosure document) and s 911A (need for an Australian financial services license). It also sought orders restraining them from continuing to engage in the allegedly unlawful conduct. Fryberg J refused to grant the declaration. He acknowledged there was jurisdiction to make the order but said that “[w]here the possibility of prosecution is open, it would, in my judgment, be contrary to the ordinary practice for the authority of this court to be given to a declaration which, in substance, amounted to a declaration that a defendant had committed a crime. One should not make a declaration which might be falsified by a subsequent acquittal in proceedings between the same parties.” The judge did grant a restraining order as it was clear on the facts that the directors had aided their company’s contraventions of the Corporations Act.

[55] The other case is Australian Securities and Investments Commission v Fuelbanc Australia Ltd [(2007) 162 FCR 174; [2007] FCA 960]. The case involved a petrol payment scheme where subscribers, by paying a joining fee and making upfront contributions of cash and so-called “barter units”, were provided with a debit card to which a specified amount was deposited every week to purchase petrol at participating service stations. ASIC alleged that the scheme constituted an unregistered management investment scheme in breach of s 601ED and that the defendants conducted an unlicensed financial services business in breach of s 911A. It sought an order that the scheme be wound-up as well as declarations, injunctions and other ancillary relief. The defendants did not contest the facts upon which ASIC based its claim. Nor did they oppose the orders sought. But because counsel for ASIC could not rule out the possibility of future criminal proceedings against the defendants he drew the court’s attention to Intertax Holdings. Heerey J was not troubled by the case. He referred to the “consistent practice” in company cases of courts making declarations of criminal conduct, citing, in particular, Transphere [Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596;], Sankey v Whitlam [(1978) 142 CLR 1] and Australian Softwood Forest [Australian Softwood Forests Pty Ltd v Attorney-General (NSW) ex rel Corporate Affairs Commission (1981) 148 CLR 121] among other cases.

[56] I do not doubt that because the facts were not in dispute and the defendants were content for the case to go ahead an application of the traditional rules would not require the judge to stay the case. Yet Heerey J thought that Intertax Holdings, if good law, stood in his way. He expressed the view, however, that Intertax Holdings was wrongly decided. He explained (at 1235):

While courts are still reluctant to grant declaratory relief on issues which are theoretical or hypothetical, the Intertax argument against the grant of declaratory relief is based on a hypothetical fact, indeed a hypothesis upon a hypothesis — that there will be a prosecution and that such prosecution will result in an acquittal” [citations omitted].

[57] For my own part I do not regard this criticism as justified. Intertax Holdings was different from the case that confronted Heerey J. In the former case the facts were in dispute and the defendants did not want the facts to be determined in a civil action in advance of a criminal trial. In addition, one must not lose sight of the fact that one object of the caution rule is to protect the defendant.

13    Heerey J in Fuelbanc Australia and Finkelstein J in HLP Financial Planning were dealing with the issue of the making of final declarations following a hearing. They were not dealing with applications for a stay before a hearing. ASIC made this point and it presumably explains why neither Heerey J nor Finkelstein J felt the need to refer to McMahon v Gould. Be that as it may there is no doubt that the analysis of Finkelstein J in HLP Financial Planning involves consideration of the underlying principles of the potential problems of hearing and determining civil proceedings when the subject matter of the civil proceedings is or may be the subject of criminal prosecutions. So much is apparent from the way in which his Honour ultimately resolved the issue by the grant of a stay at [60] as follows:

For the foregoing reasons I decline to entertain, on a final basis, the application for declaratory and injunctive relief against Mr Berlowitz. I am, however, prepared to stand the matter over until a final decision is taken as regards a criminal prosecution. If Mr Berlowitz is to be charged I would dismiss this proceeding against him and leave it to the criminal court to decide his fate. On the other hand, if the decision is made not to lay charges, this case can be brought back on.

14    Another, more recent decision, which involved an application for a stay and directly raised for consideration the relationship between McMahon v Gould and Reid v Howard is Websyte Corp Pty Ltd v Alexander (No 2) [2012] FCA 562 (Websyte v Alexander) in which Dodds-Streeton J granted a stay until the completion of a criminal prosecution concerning the same subject matter as the civil proceeding with which her Honour was dealing. Presumably because Fuelbanc Australia and HLP Financial Planning deal with issue of the making of declarations of the contravention of offence provisions in the face of possible criminal prosecutions, rather than applications for a stay, it appears her Honour’s attention was not drawn to either decision. Despite this it is apparent that on the facts of the case before her Dodds-Streeton J was persuaded to adopt the same approach as Finkelstein J in HLP Financial Planning.

15    Relevantly, in HLP Financial Planning ASIC was considering whether to commence a criminal prosecution against the defendant in respect of the same subject matter as the declarations ASIC sought before Finkelstein J (at [17]). In Websyte v Alexander the defendants had already been charged with offences relating to the subject of the civil proceeding before Dodds-Streeton J. Finkelstein J stayed the civil proceeding on the basis (at [59]) that a criminal prosecution was “on the cards”, the facts in the civil proceeding were in dispute, the civil case would be decided on evidence that, for the most part, would not be available to the prosecutor in a criminal trial, and, if declarations were made, they may be subsequently falsified by acquittal of the defendant in the criminal prosecution which, if it occurs, would bring the law into disrepute. Dodds-Streeton J stayed the civil proceeding on the basis that charges on a related matter had already been laid and further charges in respect of the same subject matter were on the cards (at [117]), the defendants had already been prejudiced by providing material to the police which breached undertakings to the court (at [118]), and there was a real risk of prejudice in that:

[120] First, there is a real risk that in the preparation for, and trial of, this proceeding, the respondents’ legitimate, rather than merely tactical interests, in the criminal trial may be significantly compromised.

[121] In this proceeding, while the pleadings are closed and most interlocutory steps apparently completed, further interlocutory applications, including for discovery, are not improbable. More importantly, should the respondents continue to defend, they will be required to file witness statements, would probably give evidence at trial and would be subject to cross-examination. Protections, including a Hearne v Street (2008) 235 CLR 125 [[2008] HCA 36] obligation or a certificate under s 128 of the Evidence Act, may not apply to all material or evidence disclosed or given, or continue to apply once it is in evidence. Moreover, even if matters disclosed in the course of the civil proceeding are not admissible against the respondents in the criminal proceedings, as Deane J recognised in Reid v Howard, prejudice may result from indirect or derivative evidence. In the circumstances of this case, the potential prejudice to the respondents by such means extends beyond an impact on their right of silence (and any dependent tactical advantages) due to the disclosure of their defences (and indeed, the statement of claim) which has already occurred.

[122] Further, the risk of prejudice in the criminal proceeding relevant to a stay is not limited to prejudice by reason of disclosure, but, as recognised in McMahon v Gould, extends to the prejudice in the criminal proceeding due to hardship on the defendants in preparing for two cases concurrently.

16    In reaching this conclusion Dodds-Streeton J (in common with Finkelstein J in respect of the making of a declaration of conduct amounting to an offence) carried out an extensive analysis of the discretion to grant a stay of a civil proceeding where a criminal prosecution relating to the same subject matter is “on the cards”. Relevantly, her Honour said:

•    “It is well established that this court has an extensive jurisdiction to stay proceedings in the interests of justice and that “the matter is one of judicial discretion” (See Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16 at [19] and [21] per Sugerman ACJ (with whom Holmes and Mason JJA agreed)) (at [53]).

•    “On the present state of the law, there is no automatic entitlement to a stay of a civil proceeding simply because there are or may be parallel criminal proceedings involving the same or related subject matter” (at [113]).

•    “While many courts have recognised tension between Wootten J’s approach in McMahon v Gould to the right of silence in a parallel civil proceeding and the High Court’s approach to the privilege against self-incrimination in Reid v Howard, it has been recognised that any authoritative re-evaluation of McMahon v Gould should be made only by an appellate court, or perhaps the High Court itself” (at [114]).

•    “While McMahon v Gould, unless authoritatively re-evaluated, remains applicable, Wootten J did not purport to establish a rigid code, but expressly recognised that the relevant considerations will vary according to the individual case and that his guidelines were not exhaustive. It is also important to observe that Wootten J did not suggest that potential impact on the privilege against self-incrimination was irrelevant in this context” (at [115]).

•    “The “real risk of injustice” relevant in this context can relate either to an actual or potential criminal proceeding” (at [117]).

17    In the context of the Corporations Act, s 1331 is also relevant. It 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.

18    Section 1317P is also relevant, at least by way of comparison. It provides that 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.

19    I accept that these provisions disclose that the mere fact that a contravention involves an offence is not a reason of itself to stay a civil proceeding. Nor is the mere fact of a declaration of a contravention in a civil proceeding a reason to prevent the prosecution of an offence. To this extent, there is no divergence between the provisions and the common law. The provisions do not, however, purport to prevent the granting of a stay in an appropriate case where, on the facts, the risk of substantial injustice by reason of the continuation of a civil proceeding outweighs the interest in all proceedings being heard and determined in the ordinary course.

20    I adopt the reasoning of Dodds-Streeton J in Websyte v Alexander with respect to the relationship between McMahon v Gould and Reid v Howard. I note also the reference Dodds-Streeton J made at [72] to the important observation of Deane J in Reid v Howard (at 6) that the protection of the privilege against self-incrimination extends not only to the risk of incrimination by direct evidence, but also by indirect or derivative evidence.

21    I am satisfied that a prosecution of Mr Merity and Mr Nedderman in respect of the same subject matter as this proceeding is on the cards. ASIC has acknowledged that it is continuing to investigate Mr Merity’s conduct. It is obvious that one reason for this continuing investigation is to enable ASIC to decide whether to prosecute Mr Merity. Mr Nedderman’s conduct, as disclosed in this proceeding, is related to that of Mr Merity. Moreover, ASIC must already believe it has a sufficient basis to establish to the civil standard of proof that Mr Nedderman has contravened a provision of the Corporations Act involving an offence of strict liability. In these circumstances, it is difficult to characterise a prosecution of Mr Nedderman in respect of the same subject matter as this proceeding as not “on the cards” merely because ASIC has said he is not the subject of the investigation at present. In addition, the obtaining of indirect evidence by ASIC through this proceeding if continued against Mr Nedderman alone is relevant and may itself prejudice Mr Merity and Mr Nedderman in any future prosecution.

22    In terms of prejudice to Mr Merity and Mr Nedderman, it is true that each has filed defences. It is apparent that the essential facts underlying the declarations which ASIC seeks, being declarations that offence provisions of the Corporations Act have been contravened, are in dispute. ASIC has filed all of its evidence. The next step in the proceeding would be for Mr Merity and Mr Nedderman to file evidence, if they chose to do so. The making of that choice will almost inevitably involve them in considering whether, by so doing, they might incriminate themselves in respect of any future prosecution. The pressure on their forensic decision-making in this regard will be particularly acute given that it is apparent that ASIC’s investigation is continuing apace, with ASIC having served a notice for a person to appear to give evidence on oath on 7 March 2013 in connection with NWR during the period from 27 September 2004, being the same subject matter as this proceeding. It is one thing for ASIC to say that they are free to make such forensic decisions as they see fit. The reality is another thing; by the requirements of this civil proceeding the legitimate interests of Mr Merity and Mr Nedderman in the prospective criminal prosecutions, as Dodds-Streeton J found at [120] in Websyte v Alexander, may be significantly compromised. The same will be true of any decisions with respect to discovery, another issue which has not yet been addressed in this proceeding. The fact that offences against ss 671B and 672B will not be prosecuted before a jury is accepted, but does not remove the real risk of substantial injustice to Mr Merity and Mr Nedderman as identified. In addition, as Mr Merity and Mr Nedderman submitted, they will have the additional, not insignificant burden, of defending this proceeding whilst at risk of being prosecuted for the same events thereafter, involving yet another proceeding and all of the expense and inconvenience which that necessarily entails.

23    Weighed against these considerations is the expectation of this proceeding being heard and determined in the ordinary course. In considering the weight of this consideration in the particular case, it is relevant that after the proceeding was commenced on 14 December 2011, apparently in response to a proposed sale of the shares in dispute, Middleton J made orders by consent on 16 December 2011 restraining the sale of the shares and preventing any dealings with them. That position has remained since 16 December 2011. To the extent that ASIC contended that the market has been misinformed about who has an interest in those shares and controls the associated voting rights, two things are apparent. First, there can be no dealing in the shares at all until the orders of Middleton J are released or varied. Second, ASIC itself issued a press release on 16 December 2011 stating that while Craigside owns the shares ASIC alleges it has no relevant interest in them while those who do have a relevant interest have not disclosed that interest as required to NWR. In these circumstances it is difficult to see any prejudice to ASIC or the public by reason of the stay which is sought other than prejudice in the sense that the proceeding will not be heard and determined unless and until ASIC completes its investigation and decides whether it intends to prosecute Mr Merity and/or Mr Nedderman in respect of the same subject matter as this proceeding. The interest of Mr Merity and Mr Nedderman in not having to defend this proceeding when the threat of criminal prosecution in respect of the same subject matter remains, and in all of the circumstances, outweighs the interest in this proceeding being heard and determined in the ordinary course. It is not necessary to describe the circumstances as giving rise to an abuse of process to reach the conclusion that the proceeding should be stayed to prevent substantial injustice to Mr Merity and Mr Nedderman should the proceeding be permitted to continue at this time.

24    Although not dealt with expressly, it is also apparent that the parties effectively agree that ASIC should sell the shares in an appropriate way (which would require variation of the interlocutory orders of Middleton J). Although I propose to stay the proceeding, there is no reason that the parties could not agree on the sale process and the deduction of ASIC’s costs from the proceeds. This would leave the question of what to do with the balance of the sale proceeds. That seems to me to be a potentially separate issue from the declarations ASIC seeks and if the parties wished that issue to be resolved despite the stay, orders could be made to that effect.

25    I do not agree with the form of orders proposed by Mr Merity and Mr Nedderman. The period of six months for ASIC to make up its mind proposed may or may not be reasonable. It seems to me that ASIC is the party that both wishes to continue with this proceeding and to continue its investigation to decide whether it wishes to prosecute any person, including Mr Merity and possibly Mr Nedderman. ASIC thus is in the best position to work out its priorities and its own timing. Accordingly, it is appropriate to stay this proceeding until ASIC has notified Mr Merity and Mr Nedderman that it does not intend to prosecute them or to brief the Commonwealth Director of Public Prosecutions with respect to the laying of any charge or indictment against them in respect of the same subject matter as this proceeding or ASIC has notified them it does intend to do so and, in the latter event, the stay is to be continued until further order.

The strike out

26    ASIC itself appeared to acknowledge that there may be a real question over its capacity to obtain orders in the form set out in para 2A(d) of the amended originating process, at least on the basis of inconsistency with Pt 9.7 of the Corporations Act. In short, ASIC seeks an order which grafts onto Pt 9.7 a regime which requires things to be done and information to be given which are not required by the statute. In addition, and contrary to ASIC’s submissions, it seems clear that the regime which it proposes does have a punitive element and does tend to undermine the privilege against self-incrimination because it would require any person wishing to claim the balance of the proceeds after sale of the share and payment of all ASIC’s costs, in effect, to confess any related contraventions of the Corporations Act and explain why the confession was not made at an earlier time.

27    While these matters disclose that ASIC may confront significant difficulties in respect of obtaining such orders, ASIC’s basic point that the issue is one to be resolved on a final and not an interlocutory basis is sound. The extent of the court’s powers to make orders in the form ASIC seeks warrants proper argument and consideration. It would not be appropriate to strike out that part of the amended originating process. To do so would be inconsistent with the caution which should attend the exercise of a power of summary dismissal.

28    Orders will be made reflecting the conclusions set out above. As to costs, it seems to me that Mr Merity and Mr Nedderman have succeeded on the major part of their interlocutory application (the stay) but failed on the more minor part (the strike out of part of the amended originating process). Weighing up the whole I consider it appropriate that Mr Merity and Mr Nedderman obtain an order for 60% of their costs to reflect their success compared to ASIC’s success but will grant leave to the parties to seek to vary the costs order should they wish to do so.

Associate:

Dated:    11 March 2013