FEDERAL COURT OF AUSTRALIA

Citation Resources Ltd v Landau [2016] FCA 1114

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff’s application for discovery filed 27 June 2016 be dismissed.

2.    The defendant’s application for a stay of proceedings filed 6 July 2016 be dismissed.

3.    There be no order as to costs.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

TWO APPLICATIONS

1    Citation Resources Ltd (ACN 118 710 508) sues Mr Landau for breach of director’s duties and related relief. The proceedings are in a relatively early stage, and these reasons address two applications. The first is by Citation for limited discovery and the other is by Mr Landau for an indefinite stay of the proceedings. Each of the applications needs to be seen against a background of investigation of Mr Landau by the Australian Securities and Investments Commission (ASIC) in relation to alleged offences, some of which are also the subject of these civil proceedings. Mr Landau opposes giving that discovery as it may add to his jeopardy in the investigation. For similar reasons, namely, that criminal prosecution is ‘on the cards’, he seeks an indefinite stay of the proceedings. For the following reasons, these proceedings should continue for now but without further discovery of documents by Mr Landau. Both applications will be dismissed.

BACKGROUND

Pleaded issues

2    It is accepted that Mr Landau was a director of Citation until January 2016. He owed various duties as a director. (There is a minor debate between the parties as to the nature of those duties. It does not need to be resolved at this point.) Mr Landau was also the sole director of Okap Ventures Pty Ltd. Notably, Ms Hannah Cabatit was an employee of Okap. Ms Jane Flegg was company secretary of Okap. The ultimate holding company of Okap was Doull Holdings Pty Ltd. Mr Landau was the sole director and majority shareholder of Doull and Ms Flegg was the company secretary. Mr Landau was also a director of ICBC Capital Pty Ltd, to which a liquidator was appointed on 18 March 2016. Ms Flegg was the company secretary of ICBC and Mr Landau was a shareholder of ICBC.

3    Claiming privilege against self-incrimination, Mr Landau does not plead to the following matters asserted by Citation. Citation contends that on or about 1 April 2015, Mr Landau caused a bank account to be opened with Westpac Banking Corporation in the name of ‘Citation Resources Limited’ (Westpac account). Citation contend that Mr Landau caused, procured, authorised, or acquiesced in the opening of the Westpac account for and in the name of Citation, but with Mr Landau and no other Citation director to be a signatory to the Westpac account. Ms Flegg and Ms Cabatit were the signatories. Ms Flegg and Ms Cabatit were authorised to make online banking transactions on the Westpac account. Ms Flegg, as administrator of the Westpac account, had authority to:

(a)    set up an online business banking account for the Westpac account;

(b)    determine who could access the Westpac account and what tasks they could perform;

(c)    set daily payment limits for online banking transactions by authorised account users on the Westpac account;

(d)    set the number of people required to approve payments and other tasks with respect to the Westpac account; and

(e)    manage security devices with respect to online banking transactions on the Westpac account.

4    It is further claimed that the Westpac account was, in effect, opened by Mr Landau and Mr Anthony Eastman, a former director of Citation. Citation relies on an email of 31 March 2015 from Ms Flegg informing an identified banker at Westpac that the type of account required for Citation was ‘a transaction account and a cash reserve account’ and that she would be the administrator of the Westpac account, while Ms Cabatit and Mr Landau would be signatories. Ms Flegg was then listed as ‘administrator’ and ‘approver’ for the Westpac account, with a daily payment limit of $1 million and Mr Landau was listed as ‘approver’ for the Westpac account with a daily payment limit of $1500.

5    Citation also contends that Mr Landau caused, procured, authorised or acquiesced in the following payments being made from the Westpac account:

(a)    $1,709,500 to Okap between 15 June 2015 and 11 February 2016;

(b)    $3,000 to Okap on 11 February 2016;

(c)    $7,000 to Okap between 14 February 2016 and 19 February 2016;

(d)    $101,237 into an account entitled ‘International Goldfields’ on 31 December 2015;

(e)    $150,000 to an unknown transferee on 12 June 2015, 15 June 2015 and 2 November 2015, described by Mr Landau in the books of Citation as ‘transfer/replenishment by authority’; and

(f)    $174,000 to ICBC on 3 November 2015 and 5 November 2015.

6    Citation says the payments were made to third parties: who had no lawful entitlement to be paid the amount; without Citation having any legal liability to make the payments; for which Citation received no consideration; and without any authority from Citation.

7    Citation also says the payments: were not in its best interest; not made for a proper purpose, caused detriment to it; gained an advantage for those to whom the payments were made; and gained an advantage for Mr Landau as a shareholder of Doull and ICBC.

Evidence

8    In support of the discovery application, Citation relies on its solicitor’s affidavit deposing on information and belief from Mr Turco, director of Citation, that Mr Landau used his personal or other non-Citation related email addresses for the purposes of his communication on behalf of Citation with Citation staff and third parties. On that basis, it was believed that Mr Landau would hold documents in his control that had been created or received by him in his capacity as an officer of Citation. On that basis, and because of the involvement with opening and operation of the Westpac account, it is believed that documents were, or have been, in Mr Landau’s possession, custody or control. The belief is also supported by Mr Landau’s involvement in Okap, Doull and ICBC.

9    Citation also relies upon an affidavit from Mr Turco in support of the originating process, who swears that on 23 October 2015, Citation issued a prospectus offering to issue 123,360,894 fully paid ordinary shares to existing shareholders and, to the extent those shares were not taken up, an offer of the balance to the public to raise in total $6,168,045. In addition to that, in June and July 2015, Citation raised funds by way of share placement. The prospectus closed on 6 November 2015, with the public offer under the prospectus being fully subscribed. Mr Turco, relying on information from Mr Eastman, secretary of Citation, believes that investors wishing to pay the subscription money to Citation by way of electronic funds transfer, and who inquired of Citation as to the appropriate account for the transfer, were each advised details of a bank account operated by Citation with Bankwest (Bankwest account). Bank statements for the Bankwest account disclosed $4,542,089 in share subscription funds being deposited to that account following 10 November 2015.

10    In late 2015, Mr Turco discovered that there existed another bank account in the name of ‘Citation Resources Ltd’, namely the Westpac account. He made inquiries of Westpac and obtained copies of bank statements on the Westpac account. On information from Westpac, Mr Turco swore to his belief that the signatories for the Westpac account were, until March 2016, Mr Landau, a former director of Citation and Ms Flegg. Ms Flegg has no role, position or connection with Citation and, to the best of Mr Turco’s knowledge, never has. However, Ms Flegg is a director of Okap. On 29 February 2016, he obtained a copy of the Westpac account statements from Westpac and became concerned that as much as $1.8 million may have been misappropriated from the Westpac account. The Westpac account is now depleted and contains less than $1000. Mr Turco says that from his search of the books and records of Citation, he can find no evidence of any decision or authorisation concerning the Westpac account, including with respect to any withdrawal and application of any funds from it. He swears that on numerous occasions he has requested Mr Landau to provide, amongst other things, the details of the transactions of the Westpac account. On 8 January 2016, Mr Turco received an email from Mr Landau attaching a reconciliation spreadsheet, recording, amongst other things, the deposit of funds by investors in Citation in two tranches in June and July 2015 totalling over $1.7 million and a deposit by the underwriter of the Public Offer, Pac Partners in the sum of $1.3 million.

11    Mr Turco met with Mr Landau on 8 January 2016. At that meeting he says Mr Landau told him that there was still approximately $485,000 in the Westpac account as indicated in the reconciliation statement which he had provided earlier that day. Mr Turco sought verification of this. Mr Landau informed him that he would transfer the $485,000 into the Bankwest account or Turco and Co’s trust account, so that Mr Turco could deal with the various people demanding money from Citation. Mr Landau also told Mr Turco that he would provide him with the bank statements for the Westpac account.

12    On 12 January 2015, Mr Turco sent Mr Landau an email in which he asked him to attend to, amongst other things, the supply of the bank statements for the Westpac account and to confirm that there were no other liabilities or unresolved transactions in relation to Citation.

13    On 13 January 2016, Mr Turco received from Mr Landau an ‘Outgoing Director’s Disclosure Letter’ in which he represented to the Board of Citation in relation to the transactions between Citation and Pearl Global Pty Ltd that:

(a)    all schedules, documents and information relating to funds received, share options, etc had been accurately provided to Mr Turco;

(b)    all financial commitments, loans, etc had been settled in full as disclosed in a due diligence process conducted by Pearl; and

(c)    there were no other liabilities or unresolved issues relating to Citation.

14    Mr Turco swears that on 14 January 2016, he had a discussion by telephone with Mr Landau in which:

(a)    Mr Landau confirmed that all debts had been paid, and all issues with shareholders queries were sorted or taken care of and settled;

(b)    Mr Turco suggested that they meet so that he could receive the bank account statements for the Westpac account; and

(c)    Mr Landau requested Mr Turco’s trust account details so that he could deposit the $485,000, which he had previously promised to remit. Those details were forwarded.

15    On 16 January 2016, Mr Landau resigned from the Board of Citation, confirming to Mr Turco in conversation there were no outstanding issues.

16    Mr Turco refers to the reasons for decision of Barker J in Australian Securities and Investments Commission v Continental Coal Limited [2016] FCA 416, in which the evidence filed on behalf ASIC was to the effect that ASIC suspects that the funds used to pay creditors of Continental Coal Limited may have been funds misappropriated from Citation by Okap and/or Mr Landau.

17    Mr Turco swears to the fact that there has been no deposit of monies held in the Westpac account into the Bankwest account or Turco & Co trust accounts. Investigations continue.

18    From the perspective of Mr Landau, there are two affidavits relied upon. His own affidavit of 5 July 2016, as with an affidavit of his solicitors, is essentially in support of the stay application, but is also relevant to the discovery application. Mr Landau makes clear that he applied for a stay on the basis that the subject matter of the proceedings is the same subject matter of an investigation being conducted by ASIC in respect of him, amongst others. He produces a copy of the notice requiring him to attend an investigation to be conducted by ASIC, issued on 26 May 2016 and a further notice on 23 June 2016. The notices list numerous suspected contraventions of the Corporations Act 2001 (Cth) and of the Criminal Code Act Compilation Act 1913 (WA). He attended examinations on 26 May 2016, which took about four hours, and 23 June 2016, which took about three hours. The examinations were conducted under a direction of confidentiality. He was represented by Mr Lemonis at the examinations. The confidentiality direction was varied to enable him to disclose in these proceedings the nature of the investigation in relation to the establishment of, operation of and payments made from the Westpac account.

19    His solicitor produces an ASIC notice of 14 April 2016 requiring Mr Landau to attend an examination on 26 May 2016, which notice was replaced by the notice annexed by Mr Landau to his affidavit.

20    Mr Landau swears to his financial situation, the details of which are unnecessary to record, but suffice it to say, that the information disclosed does not suggest any surplus of assets over liabilities. Okap and Doull have no funds to contribute to legal costs. Doull owns a Volkswagen Amarok vehicle which he drives. It is valued at between $40,000 and $50,000, but there is $37,588 owing on it.

21    Freezing orders have been made by Barker J in relation to Mr Landau’s assets and income and the companies in Federal Court proceedings WAD 717 of 2015.

22    An important part of Mr Landau’s case is the fact that in WAD 717, ASIC, by one of its officers swore an affidavit on 13 April 2016 to the fact that Mr Landau was ‘potentially facing criminal action’ as a result of ASIC’s investigation. That factor was relied upon by ASIC in support of an application for travel restraint orders against Mr Landau.

23    Mr Landau seeks a stay of the proceedings on the basis that:

(a)    absent a stay, his right of silence will be infringed;

(b)    the continuation of the proceedings may result in the disclosure of the responses available by him to the matters the subject of the ASIC investigation; and

(c)    Mr Landau has only limited financial resources available to him and would be substantially prejudiced if required to attend to the defence of this proceeding at the same time as addressing the investigations which ASIC has in place pertaining to him in relation to the same matters.

DISCOVERY

Arguments

24    Citation seeks discovery in electronic format or otherwise of limited specific categories of documents, being the following:

(1)    All documents relating to the opening of the Westpac account;

(2)    All documents to relating to the operation of the Westpac account;

(3)    All documents relating to payments referred to in particular paragraphs of the amended statement of claim; and

(4)    All documents relating to any agreement, transaction, service or other matter to which any of the payments in the third category relate.

There can be no debate that the categories are directly relevant to the pleaded matters.

25    The application is pursued pursuant to r 20.14 of the Federal Court Rules (Cth) (FCR), which relevantly provides as follows (emphasis added):

20.14    Standard discovery

(1)    If the Court orders a party to give standard discovery, the party must give discovery of documents:

(a)    that are directly relevant to the issues raised by the pleadings or in the affidavits; and

(b)    of which, after a reasonable search, the party is aware; and

(c)    that are, or have been, in the party’s control.

(2)    For paragraph (1)(a), the documents must meet at least one of the following criteria:

(a)    the documents are those on which the party intends to rely;

(b)    the documents adversely affect the party’s own case;

(c)    the documents support another party’s case;

(d)    the documents adversely affect another party’s case.

(3)    For paragraph (1)(b), in making a reasonable search, a party may take into account the following:

(a)    the nature and complexity of the proceeding;

(b)    the number of documents involved;

(c)    the ease and cost of retrieving a document;

(d)    the significance of any document likely to be found;

(e)    any other relevant matter.

(4)    In this rule, a reference to an affidavit is a reference to:

(a)    an affidavit accompanying an originating application; and

(b)    an affidavit in response to the affidavit accompanying the originating application.

Note:    Control is defined in the Dictionary.

26    Mr Landau stresses that it is necessary for Citation to establish that the order for discovery sought will facilitate the just resolution of the proceedings quickly, inexpensively and efficiently as possible (see r 20.11 FCR). Mr Landau emphasises the just resolution.

27    The real issue is self-incrimination or related prejudice. In that regard, Citation acknowledges that Mr Landau has asserted self-incrimination privilege in his defence, but submits that such a claim does not prevent the Court from imposing a discovery order against Mr Landau. It relies, for example, on Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 4) [2010] FCA 863 (at [61]) where Logan J said (at [62]-[64]) (emphasis added):

62    The privilege against self-incrimination can extend to the protection of a person not only against being required to produce particular documents but also to identifying particular documents or explaining their whereabouts: Controlled Consultants Pty Ltd v Commissioner for Corporate Affairs (1985) 156 CLR 385 at 393. In circumstances in which an ability to claim the privilege arises it protects against even a seemingly innocuous requirement which may nonetheless provide a link in a chain of investigatory inquiry. That counsels a cautious approach both to the imposition of a discovery requirement or its enforcement in circumstances where the basis for a claim of privilege may exist.

63    A requirement to file a verified list of documents for the purposes of discovery does not carry with it a denial of any valid self-incrimination privilege claim. Rather, it is for the person subject to the requirement to point to facts which enable that person to refuse to give discovery in respect of certain documents. The following observations made by Isaacs J in R v Associated Northern Collieries (1910) 11 CLR 738 at 742-743 are pertinent:

The test whether an order for discovery can be made is whether the Court can see that the discovery may expose the party to a penalty or not. Very often that depends upon whether the action itself is a penal proceeding. It does not rest upon the fact that it is a civil action. An action is none the less civil merely because it is penal ...

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 proceedings is the infliction of the penalty, and the discovery sought of documents relevant to the claim can therefore have no other intended consequence. It does not require in such a case the oath of the defendant to establish the fact that the production of the documents would tend to penalize him. The Court can see the effect of discovery from the nature of the proceeding. In the former case there is no such necessary consequence, and whether the objectionable tendency exists or not has to be otherwise ascertained, and claiming immunity upon oath in the course of making discovery is the most usual, but not the only other means of establishing it. [Emphasis added]

64    The requirements in respect of making of a claim for self-incrimination privilege were described by Gibbs CJ in Sorby v The Commonwealth of Australia (1983) 152 CLR 281 at 288 in the following way:

It has been a firmly established rule of the common law, since the seventeenth century, that no person can be compelled to incriminate himself. A person may refuse to answer any question, or to produce any document or thing, if to do so "may tend to bring him into the peril and possibility of being convicted as a criminal": Lamb v. Munster (1882) 10 QBD 110, at p 111. The mere fact that the witness swears that he believes that the answer will incriminate him is not sufficient; "to entitle a party called as a witness to the privilege of silence, the Court must see, from the circumstances of the case and the nature of the evidence which the witness is called to give, that there is reasonable ground to apprehend danger to the witness from his being compelled to answer": R v. Boyes [1861] Eng R 626; (1861) 1 B & S 311, at pp 329-330 [1861] Eng R 626; (121 ER 730, at p 738) .

28    The analysis by Ashley JA (with whom Neave JJA and Almond AJA agreed) in Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) (2014) 46 VR 583 is also helpful (particularly at [100]-[106] and [112]) where his Honour said (footnotes omitted) (emphasis added):

100    It is only necessary to consider the position of the individual respondent. Lindgren J held that the provision against self-incrimination is not available when it is clear that the taking of the step in question will not add to the individual’s jeopardy. In the event, he ruled that the individual respondent must give discovery and comply with the notice to produce.

101    His Honour said this:

The true scope of the privilege against self-incrimination must be understood. It cannot, without qualification, be identified simply as a privilege against being compelled to do something which may tend to show that the person has committed an offence. Assume, for example, that [the party] had been already convicted or acquitted of all the offences referred to in [the provisions of the Copyright Act and the Trade Marks Act]. Would he subsequently, in a civil proceeding such as the present one, be excused from the obligation to give discover or to answer a notice to produce? Clearly not, because the privilege operates to prevent a person from being compelled “to answer any question or to produce any document or thing, if to do so ‘may tend to bring him into the peril and possibility of being convicted as a criminal’”.

…

Consistently with the understanding of the nature of the privilege against self-incrimination just adumbrated, the privilege has been held to be not available where it is clear that the taking of the step in question will not add to the individual’s jeopardy.

102    Lindgren J cited BTR, Sociedade Nacional de Combustiveis de Angola UEE v Lundqvist (‘Sociedade’) and Marcel v Commissioner of Police of the Metropolis (‘Marcel’) in support of his statement of principle.

103    In Sociedade, Staughton LJ cited Brebner and Westinghouse for the proposition that:

… the privilege is not available where the witness is already at risk, and the risk would not be increased if he were required to answer …

104    In Marcel, Dillon LJ referred to the privilege against self-incrimination. His Lordship referred to Sociedade, in the first place with respect to the standard of proof for a claim to the privilege. He then referred to the passage in the judgment of Staughton LJ which I have cited above, and referred also, in support of the proposition, to Khan (Mohammed Krim) v Khan (Iqbal Ali).

105    His Lordship then said:

In the present case the production in evidence by the police pursuant to the subpoena of the plaintiffs’ documents already in the possession of the police cannot, in the words of Griffiths LJ, add a pennyweight to the strength of the criminal case against any of the plaintiffs. Therefore, the privilege against self-incrimination is not available to the plaintiffs …

106    In Westinghouse, Denning MR, having referred to the concept of appreciable risk, identified the situations where a witness had been given a pardon, and where an offence had become obsolete. He then added:

… in the Australian case of Brebner v Perry, where he had already given a like statement to the police – and by giving evidence there was no increase in risk by his being made to answer – he was made to answer. But where there is a real and appreciable risk – or an increase of an existing risk – then his objection should be upheld.

…

112    It does not follow, however, that the appellants may not successfully raise some claims to privilege. To the extent that the appellants would be obliged to go outside their answers on examination in order to plead their defences, or in giving discovery, it cannot be baldly concluded that the appellants would not be at increased risk of jeopardy were the privileges not successfully invoked. It has been consistently said that, once it appears that a witness is at risk, then great latitude should be allowed to him in judging for himself the effect of any particular question. In the present matter, therefore, the appellants may successfully invoke the privilege against potential self-incrimination if there is a real and appreciable risk that a pleading or the giving of discovery might expose them to increased jeopardy of criminal prosecution, and may successfully invoke the privilege against exposure to a penalty if a pleading or the giving of discovery would tend to subject them to increased jeopardy of exposure to a penalty. To be clear, the concept of increased jeopardy has a role to play in this context.

Consideration

29    Two matters are of particular importance. The first is to appreciate precisely what the Citation case is. In substance, it is that Mr Landau established a bank account without authority from Citation into which Citation’s money was banked and from which substantive payments were made to Mr Landau’s benefit or the benefit of others without any authority from Citation. And, secondly, against Citation’s case, it is hardly surprising that privilege against self-incrimination has been claimed. The requirement to give discovery should be approached in the manner discussed by Ashley JA in Gemmell (at [112]).

30    As the submissions made for Mr Landau point out, an affidavit of discovery would be significant both in terms of the documents it discloses Mr Landau has or has had and also those documents that do not exist and/or have not ever existed. Speaking entirely hypothetically, as an example, if the affidavit disclosed that there were never any substantive documents authorising the relevant payments, or identifying the services to which the payments related, in a real sense, that could increase Mr Landau’s jeopardy.

31    By way of another example, in relation to category 1 concerning the opening of the Westpac account, if the answer is that there are no documents which relate to the opening of the Westpac account, then Mr Landau’s jeopardy could be increased because the Westpac account would be opened without any written approval or authority from Citation. If there are documents, which Mr Landau has or has had, and if these documents identify him in the manner in which the case is pleaded, then this may also increase his jeopardy.

32    A similar process of analysis pertains to documents in category 2 relating to the operation of the Westpac account, as well as documents relating to category 3 and category 4. Whether the answer on oath is that there are not documents or never were any documents, or that there are certain documents, unless such documentation falls within the parameters of a legitimate act duly authorised by Citation, then Mr Landau’s jeopardy is inevitably increased as there is no basis on which his affidavit would be privileged as against authorities seeking to rely upon it for implied or express admissions it may contain.

33    I am unable to see a suitable mid-way house in this particular dilemma, although it was put to me by counsel for Citation that orders might be framed in a way that precluded any increase in jeopardy. No specific examples were given as to how such orders might be crafted and having regard to what appears in [112] of Gemmell, it seems to me that in a circumstance such as the present where at least on its face it appears that the increase in jeopardy is relatively obvious, the claim to that privilege should be respected.

34    Although Citation relies upon the Harman v Secretary of State for the Home Department [1983] 1 AC 280 implied undertaking obligations, there is a significant difference between the protection afforded by that implied undertaking on the one hand, and that afforded to a participant who has attended examinations conducted pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). It is clear that under s 68(3) of the ASIC Act, Mr Landau has been entitled and has claimed privilege before answering any questions, such that those answers cannot then be used against him in criminal proceedings or proceedings for a penalty, except in respect of false answer proceedings as identified in s 1349(4) of the Corporations Act. No such protection would be afforded by the implied undertaking.

35    For these reasons, I decline at this stage to make orders in relation to discovery of the categories sought by Citation. It would not preclude further consideration of reframed orders at some later stage, depending on how the ASIC investigation unfolds.

STAY APPLICATION

Arguments

36    Mr Landau applies for an order for the stay of the proceedings on the basis that there is a real prospect of criminal charges being laid against him arising from the same facts and matters which are the subject of the proceedings.

37    The principles applicable in the determination of an application for the stay of civil proceedings, when there is such a real prospect, are set out by Wootten J in McMahon v Gould (1982) 7 ACLR 202 where his Honour said (at 206-207), in effect, that:

(a)    prima facie the plaintiff is entitled to have his action tried in the ordinary course of the proceeding and business of the court;

(b)    it is a grave matter to interfere with this entitlement by way of a stay of proceedings, which requires justification on proper grounds;

(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;

(d)    neither an accused nor the Crown is 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’, taking into account all relevant factors;

(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;

(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;

(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 proceedings;

(i)    the court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings;

(j)    in this respect factors which may be relevant include:

(i)    the possibility of publicity that might reach and influence jurors in the civil proceedings;

(ii)    the proximity of the criminal hearing;

(iii)    the possibility of miscarriage of justice, for example, by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses;

(iv)    the burden on the defendant of preparing for both sets of proceedings concurrently;

(v)    whether the defendant has already disclosed his defence to the allegations;

(vi)    the conduct of the defendant, including his own prior invocation of civil process when it suited him;

(k)    the effect on the plaintiff must also be considered and weighed against the effect on the defendant, in which regard it may be relevant to consider the nature of the defendant’s obligations to the plaintiff; and

(l)    in an appropriate case the proceedings may be allowed to proceed to a certain stage, that is, setting down for trial, and then stayed at that point.

38    As Mr Landau has acknowledged, it was accepted in Re AWB Ltd (2008) 222 FLR 240 (at [19] and [48]) that the principles in McMahon should be refined in light of the High Court’s decision in Reid v Howard (No 2) (1995) 184 CLR 1. In Reid (at 11-12) a majority of the High Court reaffirmed the importance of the privilege against self-incrimination which cannot be abrogated, other than by statute. In the joint judgment of Toohey, Gaudron, McHugh and Gummow JJ, their Honours said (at 11) that privilege which has been ‘described as a “fundamental … bulwark of liberty”, is not simply a rule of evidence, but a basic and substantive common law right.’

39    Justice Deane observed in Reid (at 6) that the protection which the privilege confers extends, not only to the risk of incrimination by direct evidence, but also by indirect or derivative evidence, that is, evidence obtained by using the disclosed material as basis of investigation. So in Sorby v Commonwealth (1983) 152 CLR 281 (at 310), Mason, Wilson and Dawson JJ said:

… the privilege protects the witness not only from incriminating himself directly under a compulsory process, but also from making a disclosure which may lead to incrimination or to the discovery of real evidence of an incriminating character.

40    In Re AWB, Robson J acknowledged (at [58]) that he was bound to follow the McMahon line of authorities, noting that an appellate court may consider that the right of silence should not only be recognised, but protected by the courts by preventing a defendant from being effectively compelled to waive his right of silence and thereby help those who seek to prove an offence by requiring him to defend civil actions relating to the same or similar conduct, the subject of existing or potential criminal proceedings before those civil proceedings are completed.

41    Those principles are not in dispute in the debate between the parties on this aspect of the application. Although Citation also relies upon the recent consideration of the principles by Middleton J in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2016] FCA 504 (at [46]-[51], [68]-[72] and [81]-[100]) (CFMEU). See also the discussion by Gordon J, as a member of this Court, in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 5) [2013] FCA 369 (at [10]-[15]).

42    The real point of dispute is whether there is anything like sufficient evidence that it is ‘on the cards’ that Mr Landau will face criminal prosecution.

43    Mr Landau contends that the matters which the pleaded issues seek to ventilate raise the same topics being investigated by ASIC and which could give rise to criminal prosecution. It is not being argued by Mr Landau that a declaration pursuant to s 1317E of the Corporations Act as to contravention of ss 180, 181 or 182 could be used against him in any direct way in criminal proceedings. However, what is stressed is that under s 1317N of the Corporations Act, civil proceedings for a declaration of a contravention are automatically stayed if criminal proceedings are commenced against a person for an offence and the offence is constituted by conduct that is substantially the same as the conduct alleged to constitute the contravention. Citation, however, rely on the same section for the argument that the legislature has made it very clear when a proceeding will be stayed, that is, on the actual institution of criminal proceedings, and that it is a reasonable inference that until that point has been reached, the legislature did not consider that it was appropriate that there should be any stay. Indeed, that argument is expressly reflected in s 1331 of the Corporations Act 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’.

44    Nevertheless, it is clear that the words ‘merely because’ in s 1331 of the Corporations Act leave open the possibility of a stay in appropriate circumstances. Mr Landau stresses that the subject matter of these proceedings is exactly the same subject matter of the ASIC examinations attended by Mr Landau. The suspected contraventions referred to in the ASIC notice of 26 May 2016 and the notice of 23 June 2016 refer to contraventions of the Corporations Act and the Criminal Code that are offences. Emails from the ASIC officers disclose that the ASIC examination includes investigation into Mr Landau’s involvement in;

(a)    the establishment and operation of the Westpac account; and

(b)    the authorisation of payments from the Westpac account.

Those matters are all directly reflected in the pleaded case.

45    Mr Landau also relies upon the fact that an officer of ASIC, by affidavit sworn on 13 April 2016, in WAD 717 of 2015 swore that Mr Landau was potentially facing criminal action as a result of ASIC’s investigations.

46    Citation argues that a mere potentiality falls well short of prosecution being ‘on the cards’, being the expression used, for example, in Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487 (at [59]), also referred to and adopted in CFMEU (at [57] and [59]) by Middleton J. This has been the primary focus of the debate.

47    In support of that contention, Citation point to the fact that:

(a)    there is no evidence that ASIC has delivered any brief of evidence to the Commonwealth Director of Public Prosecutions (DPP), let alone relating to matters the subject of these proceedings;

(b)    although ASIC examinations have occurred and a freezing order has been made, this will not constitute sufficient evidence, without more, to support a conclusion that ASIC or the DPP will prosecute Mr Landau in relation to matters the subject of these proceedings;

(c)    the mere potentiality referred to by the ASIC officer (in an affidavit that has not been disclosed to the plaintiff or the Court in these proceedings) is not sufficient to establish that there is a ‘reasonable possibility’ of a prosecution; and

(d)    the notices requiring Mr Landau to attend the ASIC investigations with respect to the suspected contravention also relate to suspected contraventions by others, including Mr Landau, both with respect to Citation and also in relation to other companies, which are not the subject of these proceedings, such that it would not be possible to be satisfied that the statement made by the ASIC officer was referable to a potential prosecution of Mr Landau with respect to the matters the subject of these proceedings, as against proceedings in connection with other companies. (In this regard, supplementary evidence filed by Mr Landau appears to make it clear that the topic of focus of ASIC is entirely commensurate with the pleaded case for Citation, but none of this changes the question of whether there is sufficient evidence that a prosecution is ‘on the cards’.)

48    As to a claim by Mr Landau that he may be required in these proceedings to disclose his hand prior to any criminal proceedings going to trial, Citation point out that in ActiveSuper Gordon J held (at [20]) that (citations omitted):

The Courts have rejected as a relevant consideration the possible loss by the defendant of any tactical advantage that might flow from their so-called ‘right of silence’ … It is not [harsh] because in civil proceedings a defendant retains the power to decide what evidence to adduce and what submissions to make in response to allegations [against him or her].

Consideration

49    The expression ‘on the cards’ appears to be interpreted as meaning ‘reasonably possible’ or a ‘reasonable possibility’: see, for example, Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562 per Dodds-Streeton J (at [117]); and see also CC Containers Pty Ltd v Lee (No 2) [2012] VSC 149 per Ferguson J (at [15]). It is not the position that for a prosecution to be ‘on the cards’ a decision must have been made to recommend prosecution or that a decision has already been made to send a brief to the relevant prosecuting authority. In Australian Securities and Investments Commission v Craigside Company Limited [2013] FCA 201, Jagot J considered whether a prosecution was ‘on the cards’ where ASIC has brought proceedings for declarations for contraventions of certain provisions of the Corporations Act against, amongst others, two individuals, one of whom was not the subject of an investigation and one of whom had been investigated. In relation to the person who had not been investigated, ASIC refused to rule out the possibility of his being prosecuted. In those circumstances, the Court took the view that a prosecution of both men was ‘on the cards’. As a matter of commonsense, one reason for ASIC continuing to investigate the first person was to enable it to determine whether or not to prosecute him. In relation to the second person, it was clear that his conduct was related to the first person and the Court concluded that ASIC must already have believed it had a sufficient basis to establish the civil standard of proof that the second person had contravened a provision of the Corporations Act, and even though no steps of investigation had taken place, it was sufficient for a prosecution to be ‘on the cards’.

50    I have referred to HLP above. In that case, ASIC sought a declaration that a director operated an illegal managed investment scheme and carried on a financial services business without an Australian financial services licence. Finkelstein J noted that ASIC’s investigation into the person’s activities was not confined to determining whether he committed merely regulatory offences, but, rather, what was also under consideration was whether he should be charged with any criminal offences. Again, ASIC did not identify the relevant offences. It indicated that if charges were laid, its preliminary view was that they would be tried in a Victorian court, probably the County Court. In those circumstances, Finkelstein J considered that a criminal prosecution was ‘on the cards’.

51    In these cases, decisions to prosecute had not been made and a brief had not been sent to the relevant prosecuting authority. Moreover, in Craigside, the second person was not even the subject of investigation, albeit that ASIC did not rule out the possibility of his being prosecuted.

52    The prospects of criminal prosecution in relation to Mr Landau would appear to be more advanced than these examples. I am entirely unable and expressly make no comment whatsoever about the prospects in relation to such a prosecution. But, in this instance, while any one particular matter may not, taken alone, be sufficient to constitute formation of an opinion that criminal prosecution is ‘on the cards’, the totality of the following matters support such a possibility. Those factors are:

(a)    ASIC has pursued and maintained a freezing order;

(b)    ASIC has applied for travel restraint orders and, in doing so, indicated that Mr Landau was potentially facing criminal charges;

(c)    ASIC has conducted a detailed investigation into Mr Landau, amongst others, relating to the same subject matter as these proceedings (as well as other matters). That investigation is into a number of suspected contraventions constituting criminal offences, not mere regulatory offences; and

(d)    examinations in relation to those topics have consumed some seven hours;

(e)    the allegations made in these proceedings, as with the investigations by ASIC, are serious allegations; and, above all

(f)    a relevant ASIC officer has sworn to the fact that Mr Landau may potentially be facing criminal charges.

53    There are two other factors in favour of Mr Landau’s application. The first is that his apparently limited financial resources are unlikely to extend, at least on their face, to being able to substantially contribute both to the defence of these proceedings and to resisting criminal proceedings. The other factor is that, in light of his apparently scarce financial resources, it is not apparent that Citation would suffer substantial prejudice if civil proceedings were stayed. These proceedings could be resurrected if the criminal proceedings do not eventuate, but in the meantime, the claim for compensation of sums in excess of $2 million could not possibly be met, at least on the face of the assets and liabilities disclosed by Mr Landau. Obviously, that contention would warrant much closer examination and further investigation, but there has been no objection to reliance on that financial material for present purposes.

Conclusion

54    Despite these factors, I consider it is premature to conclude that criminal prosecution in relation to the matters the subject of the pleaded case is ‘on the cards’ for at least four reasons:

(1)    The previous reference to the potentiality was in the context of activities involving two other companies in addition to Citation.

(2)    I am mindful that discovery sought by Citation has been refused by the ruling I have made in these reasons so that in the absence of any positive defence having been pleaded by Mr Landau, and in the absence of giving discovery, it is not apparent at this stage what additional risk he would face if these civil proceedings continue, at least, say, until the time of commencing trial. At that point, if criminal proceedings have commenced in relation to the pleaded matters, then a stay will be automatic. There may, at a later time, also be additional evidence as to the possibility of the specifically pleaded issues being the subject of a criminal prosecution.

(3)    I am mindful that it is unlikely that Mr Landau would be exposed to significant further costs prior to trial, given the nature of his defence, which, in substance, puts Citation to proof.

(4)    Finally, it seems to me that whatever decision has been taken in all these cases, a significant factor is the entitlement of Citation to brings its case to court. Should circumstances change, the question of a stay can be revisited, but at present I consider it to be premature.

CONCLUSION

55    In those circumstances and for the reasons discussed, each of the applications will be dismissed. Each has consumed a similar amount of time, so it is convenient that there be no order as to costs.

Associate:

Dated:    13 September 2016