FEDERAL COURT OF AUSTRALIA

Spalla v St George Motor Finance Ltd (ACN 007 656 555) [2004] FCA 1014

ANTHONY PATRICK SPALLA, ANDREW DAVID BENTLEY STILL, IRLMOND PTY LTD (ACN 066 314 870) (RECEIVERS AND MANAGERS APPOINTED;  IN LIQUIDATION)  -v-  ST GEORGE MOTOR FINANCE LTD (ACN 007 656 555), ST GEORGE WHOLESALE FINANCE PTY LTD (ACN 001 834 886), ANDREW WILLIAM BECK, ANDREW STEWART HOME, DELOITTE TOUCHE TOHMATSU, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION AND SIMON ALEXANDER WALLACE SMITH

V 3203 of 2002

RYAN J

6 AUGUST 2004

MELBOURNE

THE COURT ORDERS THAT:

1.         The motion on notice dated 5 April 2004 be refused. 

2.         The first and second respondents pay the applicants’ costs of the said motion to be taxed in default of agreement and there be no order as to the costs of the other respondents of the said motion.

3.         There be a further directions hearing herein on a date to be fixed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT ON MOTION FOR STAY OF PROCEEDINGS

1                     There is before the Court a motion on notice filed 5 April 2004 on behalf of the first and second respondents (hereafter collectively called “St George”) seeking, amongst other things;

‘2.        That the proceedings be stayed as an abuse of process;

3.         Further or alternatively, insofar as the Amended Statement of Claim of the Applicants filed and dated 9 December 2003 or the Replies filed by the Applicants refers to documents obtained by the First and Second Applicants or their legal advisors in the course of the criminal proceedings, and through them the liquidator of the Third Applicant, it be stayed as an abuse of process;’

Background

2                     In about August 2002, a criminal trial of the first and second applicants in this proceeding, Mr Spalla (“Spalla”) and Mr Still (“Still”) on charges preferred by the Director of Public Prosecutions for the Commonwealth (“the DPP”) commenced in the County Court of Victoria before his Honour, Judge Hart.  Before that trial commenced, Corrs Chambers Westgarth (“Corrs”), a firm of solicitors had acted for St George in relation to the appointment on 12 April 1999 of receivers (Mr Beck and Mr Home) to the third applicant herein (“Irlmond”) and APS Wholesale Pty Ltd (“APS”).  Each of those companies had effectively been controlled by Spalla and through them he had conducted different aspects of the business of a motor trader carried on under the name “Essendon Mitsubishi” and “North City Daewoo”.  In the course of that retainer, Corrs had given advice to St George and communicated with the receivers.

3                     In the course of investigations which led to the criminal trial and while investigating the conduct of Beck and Home, the Australian Securities and Investments Commission (“ASIC”) obtained various documents from St George and Corrs.  To facilitate the procurement of some of those documents, ASIC had issued to Corrs and St George notices under ss 30 and 33 of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”).  Those sections provide;

‘30       (1)        ASIC may give to:

(a)        a body corporate that is not an exempt public authority;

or

(b)        an eligible person in relation to such a body corporate;

a written notice requiring the production to a specified member or staff member, at a specified place and time, of specified books relating to affairs of the body.

(2)       ASIC may give to:

(a)        the responsible entity of a registered scheme; or

(b)        an eligible person in relation to the responsible entity;

a written notice requiring the production to a specified member or staff member, at a specified place and time, of specified books relating to the operation of the scheme.’

‘33       ASIC may give to a person a written notice requiring the production to a specified member or staff member, at a specified place and time, of specified books that are in the first-mentioned person's possession and relate to:

(a)        affairs of a body corporate; or

(ab)      affairs of a registered scheme; or

(b)        a matter referred to in any of paragraphs 31(1)(g) to (m), inclusive; or

(c)        a matter referred to in paragraph 32A(c) or (d).’

4                     By s 5(1) of the ASIC Act “books” is defined to include;

‘(a)      a register;  and

(b)       financial reports or financial records, however compiled, recorded or stored;  and

(c)        a document;  and

(d)       banker’s books;  and

(e)        any other record of information;’

5                     Between 13 November 1999 and 6 March 2003 various documents were provided to ASIC by St George or by Corrs on behalf of St George.  Some of those documents were provided under compulsion of the notices under s 30 or s 33 of the ASIC Act referred to at [3] above and others were provided voluntarily.  Notices under s 33 of the ASIC Act also compelled the production to ASIC of various legal files compiled by Corrs in the course of advising and acting for St George in respect of the appointments of Home and Beck as receivers and litigation, related thereto in this Court being proceedings No VG74 of 1999 and by way of appeal.  The provision of some of those files was accompanied by an assertion of legal professional privilege and certain stipulations in these terms in a letter dated 24 September 2001;

‘We confirm that permission to you to inspect these documents and the delivery of these documents is on the clear basis that the contents will be maintained on a strictly confidential basis and that by producing the documents, no legal professional privilege is waived in any of the communications which would otherwise be subject to a proper claim for legal professional privilege.  In particular, we confirm that no document obtained by your from us is to be made available to or (sic) any third party, and more particularly Mr Tony Spalla and his associates, without our express consent, or that of St George or the Receivers.’

Those assertions and stipulations were acknowledged in a letter dated 25 September 2001 from ASIC to Corrs. 

6                     It appears that, in the course of either committal proceedings or the trial in the County Court, certain of the documents obtained by ASIC in one or other of the ways described in [3] and [5] were provided to either or both Mr Hayes QC who was then representing the first abovenamed applicant (“Spalla”) and Mr Chettle of Counsel (as he then was) who appeared for the second applicant (“Still”) in those proceedings.  The documents were provided by or on behalf of the Director of Public Prosecutions (“the DPP”) in discharge of what has been called a “prosecutorial duty of fairness”. 

7                     After the trial in the County Court had commenced, representations were made by Corrs to Mr Hayes QC and Mr Chettle about their use of documents provided to them as described in [6] above which were said to be subject to claims of legal professional privilege.  It seems that those concerns were acknowledged by Counsel who nevertheless asserted the right to refer obliquely or directly to any of the allegedly privileged documents if they considered that a need to do so had arisen.  In the result, none of the allegedly privileged documents was adduced in evidence or disclosed in open Court during the criminal trial. 

8                     Independently of the criminal proceedings, on 21 March 2002 the accounting firm Ernst & Young furnished to ASIC an audit report related to the accounts lodged with ASIC by the receivers and managers of Irlmond and APS pursuant to s 432(2) of the Corporations Act 2001 (“the Ernst & Young report”).  There were numerous appendices to the Ernst & Young report including, as Appendix 14, a copy of the letter dated 22 November 1999 from Mr Beck to Mr Carroll of Corrs seeking his advice as to the treatment of proceeds from the sale of assets applied in reduction of debts owed by Irlmond and APS to St George.

9                     In the course of correspondence concerning discovery in the present proceedings in this Court, between Middletons, the solicitors now acting for St George, and Home Wilkinson & Lowry, the solicitors for the applicants in the present proceedings, reference has been made to documents of which the applicants had given discovery and which were asserted to be still subject of legal professional privilege enuring to the benefit of St George.  As well, the solicitors for St George asserted that Spalla and Still were subject to an implied undertaking not to use the documents for a purpose collateral to the criminal proceeding.  That implied undertaking was understood on both sides to be the obligation recognised by the House of Lords in Home Office v Harman [1983] 1 AC 280 although there was no agreement on behalf of the present applicants that it bound them in respect of any of the allegedly privileged documents. 

10                  The basis of the motion for a stay of the present proceedings emerges from these paragraphs of an affidavit by Peter John Sinn of Middletons, the solicitor for St George, sworn 2 April 2004;

‘31.      In the commencement of the within proceedings and in particular drawing the Statement of Claim dated 9 December 2003 the Applicants Spalla and Still have used the documents obtained by them from ASIC or the DPP, including documents in respect of which there was clearly a prima facie claim to legal privilege, without any heed to the implied undertaking that governed the circumstances in which those documents were provided to them and without following any proper channel.  This was in circumstances where their respective Counsel at the criminal trial were specifically advised that the St George parties objected to any attempt to the tender of the legally privileged documents as evidence.

32.       Further, an accountant retained by the Applicants Mr Andrew Fisher, in advance of discovery having been ordered in the within proceeding, has also apparently been provided with the documents in respect of which there is a claim for legal privilege.  Mr Fisher has sworn an Affidavit of 24 September 2003 which to the best of my knowledge was served on the First to Fifth Respondents to which is exhibited a ‘draft report’.  The draft report contains precise reference to the documents which are the subject of a claim for legal professional privilege by St George and/or the Receivers which it is admitted by the Applicants Still and Spalla have been provided to them in the criminal trial by the DPP.  Objection was taken to the offending paragraphs of the Affidavit on 1 October 2003 by Counsel for St George.

33.       It is also apparent from the Affidavit of Ms Arslan sworn 11 March 2004 that for the purposes of the criminal proceedings of the Applicants Still and Spalla obtained copies of confidential transcripts audio and written of Section 19 Examinations of inter alia Daniel Cahill an employee of St George and Peter Carroll a partner in the firm of Corrs who was legal advisor to St George.  ….’

11                  On 7 April 2004, Spalla and Still applied to his Honour Judge Hart to be released from any implied undertaking in respect of the disputed documents insofar as such undertaking was held to exist or to remain extant in relation to the use of the s 19 documents in the present proceeding.  That application was stood over until after the hearing and determination of the present motion with liberty to the applicants and the Crown to apply on not less than 5 days’ notice.

The pleadings in the present proceedings

12                  By their further amended statement of claim (“the statement of claim”) filed on 16 December 2003 pursuant to leave granted by Goldberg J on 9 December 2003, the applicants have pleaded that St George Motor Wholesale Pty Ltd (“Motor Wholesale”), a motor vehicle floorplan financier, had bailed new vehicles on floorplan to APS, which is now in liquidation.  As well, it is pleaded, Motor Wholesale had bailed used vehicles to Irlmond.  Apparently to secure the performance of their obligations under the relevant bailment agreements, Irlmond and APS executed a debenture charge dated 24 February 1994 in favour of St George. 

13                  By par 14A of the statement of claim it is pleaded that, in proceedings No V74 of 1999 in this Court between Spalla and St George Motor Finance Ltd (“Motor”) and others, Finkelstein J, in reasons for judgment published on 27 April 1999, had found that on 12 February 1999;

‘(a)      APS was indebted to St George in the total sum of $2,337,455.22.

(b)       Irlmond was indebted to St George in the total sum of $68,802.09 of which $45,672.74 was owing by Irlmond to Motor in respect of demonstrator vehicles;

(c)        the receivers were validly appointed by Motor and Finance to APS and Irlmond pursuant to the APS debenture and the Irlmond debenture respectively,  and

(d)       Irlmond was not indebted to St George pursuant to any obligation incurred by APS under the bailment agreements.’

14                  It is then pleaded that St George had been obliged to allow Irlmond to redeem the security which it had given by the debenture charge of 24 February 1994 upon payment of the sum of $45,672.74 (“the secured sum”) referred to in sub-par (b) of the finding of Finkelstein J recited at [13] above.  It is further pleaded in par 20B of the statement of claim that St George had not been entitled to appoint the seventh respondent, Mr Wallace-Smith, as receiver and manager of APS and Irlmond which, according to par 21, had, as at 12 February 1999, current assets of approximately $10.1 million.  Some of the particulars to that paragraph refer to the letter dated 22 November 1999 from Beck to Corrs which was one of the documents made available to Spalla and Still by ASIC and as noted at [8] above was annexed to the Ernst & Young report.  That report had been into the conduct of the receivership of APS and Irlmond by Messrs Beck and Home.  By par 24 of the statement of claim it is further alleged that Motor Wholesale, as bailor to APS and Irlmond, was not party to any debenture agreement with those companies and the only sum secured by such an agreement was the secured sum of $45,672.74 owed by Irlmond to Motor.  Consequently, on 12 February 1999, APS remained the absolute owner of all its assets and undertakings.

15                  Paragraphs 24 to 107 have been deleted from the statement of claim and pars 108 and 108A go on to allege that the receivers failed immediately to repay the secured sum owing by Irlmond to St George, wrongfully acted as receivers for APS, treated Irlmond and APS as one administration and failed to maintain a separate bank account for Irlmond.  It is then pleaded in par 108B that, on 13 August 2003, the Companies Auditors and Liquidators Disciplinary Board (“the Board”) made various findings of misfeasance by Home and Beck.  Paragraph 108C alleges that, had it not been for the receivers’ breaches of duty, Irlmond would, shortly after 12 February 1999, have repaid the secured sum and avoided the sale of its business which occurred on 20 May 1999.  At least $2.8 million of the proceeds from that sale is alleged to have been used to discharge the indebtedness of APS to St George and in excess of a further $1.2 million from the same source is alleged to have been used to defray the receivers’ costs and expenses.  That conduct, it is pleaded in par 109, constituted a conversion of Irlmond’s assets for the benefit of St George.

16                  It is next alleged in par 110E that St George wrongfully created a clog on Irlmond’s equity of redemption of the debenture charge.  By way of particulars of the means by which St George prevented Irlmond from exercising its equity of redemption, it is recited in sub-par (i) that the prevention occurred;

‘through the solicitor Mr Carroll of Corrs, by instructing the receivers to keep or maintain the moneys said to be owing by Irlmond to St George as high as possible so as to prevent the Spalla interests from exercising Irlmond’s equity of redemption;’

17                  Paragraphs 119 to 127K of the statement of claim embody the claim by Spalla and Still against Home, Beck and ASIC for malicious prosecution.  That cause of action is founded on a report by the receivers to ASIC of 13 August 1999 (“the 13 August report”) falsely alleging that Spalla and Still had improperly removed Irlmond’s and APS’ books and records and had misappropriated for Spalla’s benefit cheques totalling $753,707.34 in favour of Irlmond.  The allegations charging ASIC with malicious prosecution in bringing the criminal proceedings against Spalla and Still are contained in pars 133A to 149 of the statement of claim and include allegations against certain ASIC officers and Mr Salmon, a Commonwealth police officer seconded to ASIC.  One such allegation is that Salmon committed perjury in the course of the criminal proceedings against Spalla and Still.  Another is that Salmon and other ASIC officers uncritically accepted the statements and recommendations by the receivers in the 13 August report and had been biased against Spalla and Still.  Paragraph 140 recites that, on 19 September 2002, his Honour Judge Hart directed that Spalla and Still be acquitted of the remaining charges in the criminal proceedings.  By par 150 of the statement of claim it is alleged that the receivers were the “moving force” behind the prosecution of Spalla and Still.  Paragraphs 150A and 150B allege further or alternatively that ASIC was the prosecutor of Spalla and Still or is vicariously liable for their malicious prosecution for which Spalla and Still seek to recover damages, including exemplary damages.

The Contentions on the Motion

18                  In support of the motion, Mr Harris of Counsel for St George referred to the judgment of the Victorian Court of Appeal (J D Phillips, Batt and Buchanan JJA) in British American Tobacco Australia Services Ltd v Cowell [2003] VSCA 43 (“the BAT case”).  In that case the plaintiff, whose legal personal representative was the respondent to the appeal, had sought a declaration that she was not bound by the implied undertaking in respect of some 38 documents which had been tendered in evidence in proceedings commenced by the plaintiff on 25 January 2002.  In essence, the plaintiff had contended that she was no longer bound by the implied undertaking because the 38 documents had been admitted into evidence in the earlier proceeding.  As a result, so the contention went, she was free to use the documents for such lawful purposes as she wished, including their provision on request to the US Department of Justice and the Australian Competition and Consumer Commission which claimed to be investigating possible breaches of the Trade Practices Act 1974.  It was common ground that the 38 documents had been produced under coercion either by reason of a notice to produce addressed to the defendant or subpoenas served on two firms of solicitors.  Some 32 of the subject documents were held by the Court of appeal to be protected by legal professional privilege which had not been waived except for the limited purpose of an application in the earlier proceeding to strike out the defence.  In relation to the implied undertaking, the Court of Appeal made these observations at [19]-[20] of its reasons;

‘It was common ground before us that the 38 documents, the subject of this proceeding, were produced to the court only as a result of the coercive processes of the Court (whether by subpoena duces tecum addressed to the appellant's solicitors, or by notice to produce addressed to the appellant itself after discovery, or otherwise) and that, accordingly, all 38 were subject to an implied undertaking by the party gaining access to the documents not to make use of them or their contents otherwise than for the legitimate purposes of the litigation: Distillers Co. (Bio-chemicals) Ltd. v. Times Newspapers Ltd. [1975] Q.B. 613 at 618-20, Riddick v. Thames Board Mills Ltd. [1977] Q.B. 881 at 895-6, Harmanv. Secretary of State for the Home Department [1983] 1 A.C. 280, Sybron Corporation v. Barclays Bank Plc [1985] Ch. 299, Crest Homes PLC v. Marks [1987] A.C. 829 at 853, BibbyBulk Carriers Ltd. v. Cansulex Limited [1989] Q.B. 155 at 160-2, Esso Australia Resources Ltd. v. Plowman (1995) 183 C.L.R. 10 at 32, 46, Mobil Oil Australia Ltd. v. Guina Developments Pty. Ltd. [1996] 2 V.R. 34 at 37-38, and more recently Hamersley Iron Ltd. v. Lovell (1998) 19 W.A. R. 316, where the common law in respect of the implied undertaking is, if we may say so with respect, very helpfully explored, to name but a few.

The primary purpose of implying such an undertaking, it seems, is to protect the subject party's privacy and thereby inter alia to encourage full and frank disclosure whenever required for the purposes of the litigation. As Lord Roskill said in Harman [1983] 1 A.C. at 322-33, of documents obtained on discovery:-

"My Lords, a party to whom discovery has been made is in relation to his opponent's documents at a great advantage in comparison with the rest of the world. Their owner until the moment of discovery arrives is entitled, subject only to such exceptions as a subpoena duces tecum, to absolute protection and privacy for them against all who seek them out however meritorious the motives may be of those who seek them out in the search for truth. Regret it as some may, there is no freedom of information statute in force in this country. That absolute right is qualified once the moment for discovery in litigation has arrived. But it is only qualified as respects the other party to that litigation who thereupon acquires a privilege special to himself of seeing his opponent's documents but on terms that those documents may only be used by him or his advisers in furtherance of the litigation between them. This is a privilege or an advantage upon which our judicial process insists. Other judicial processes do not insist upon the like practice. But our judicial process insists upon this and that process involves invasion of an otherwise absolute right to privacy, albeit on strict terms in order that that privilege or advantage should not be abused. The sole purpose of according that privilege is that once discovery and inspection have taken place the party who has thus acquired this privilege or advantage may use those documents in the litigation against the party who has disclosed and produced them." [emphasis added by Court of Appeal] 

To that end the party gaining access to the documents is bound to the court by means of the implied undertaking not to use the documents which it has been privileged to see for any "collateral or ulterior purpose", as that phrase was explained by Lord Diplock in Harman, at 302 - or at all events not to so use them without the leave of the court.’

19                  Their Honours went on to note that the common law principle had been abrogated in England in 1987 (see O 24 r 14A of the Rules of the Supreme Court) and in this Court in 1989;  see O 15 r 18, which provides;

‘Any order or undertaking, whether express or implied, not to use a document for any purpose other than those of the proceedings in which it is disclosed shall cease to apply to such a document after it has been read to or by the Court or referred to, in open Court, in such terms as to disclose its contents unless the Court otherwise orders on the application of a party, or of a person to whom the document belongs.’

20                  However, as the Court of appeal pointed out, the common law principle remains the law in Victoria and, I accept, applies with undiminished force to documents produced in the County Court in response to that Court’s coercive powers and processes.

21                  In the course of their reasons in the BAT case, their Honours at [40] distinguished a case much closer to the present, Eltran Pty Ltd v Westpac Banking Corporation (1990) 25 FCR 322 which they noted;

‘concerned documents which had been produced under compulsion, this time in earlier criminal proceedings, and which had later been used to draft a statement of claim in a fresh proceeding.  The question, however, was not contempt but whether the use of the documents constituted an abuse of process, so again the problem was a different one.’

22                  Counsel for St George next referred to Taylor v Director of the Serious Fraud Office [1999] 2 AC 177.  In that case a letter and file note had been brought into existence in the course of an investigation by the Serious Fraud Office (“SFO”).  The documents contained suggestions that the first plaintiff, a solicitor, and the second plaintiff, a company controlled by the first plaintiff, had been guilty of conspiracy.  No criminal charges were laid against the plaintiffs but criminal proceedings were instituted against two other persons and the documents were shown to their solicitors, presumably in discharge of the “prosecutorial duty of fairness” which has been invoked in the present case.  Those solicitors showed the documents to the first plaintiff when asking him to give evidence for one of the accused.  The plaintiffs then began an action in defamation based on the contents of the documents.  At first instance the plaintiffs’ action was struck out as an abuse of process on the ground that the disclosure of the documents had been subject to the implied undertaking that they would not be used for any purpose other than the defence to the criminal charges.  The Court of Appeal held that there was no such implied undertaking but dismissed the plaintiffs’ appeal on the ground that the documents were immune from suit because they had been brought into existence for the purposes of a criminal investigation.  On appeal to the House of Lords, it was held that out of court statements made in the course of investigating a crime or possible crime were subject to an absolute immunity from suit in respect of an action for defamation.  In addition, Lord Hoffmann with whom Lord Lloyd of Berwick (on this point), Lord Goff of Chieveley, Lord Hope of Craighead and Lord Hutton agreed, observed, at 212;

‘In my opinion, therefore, the disclosure of documents by the prosecution as unused material under its common law obligations did generate an implied undertaking not to use them for any collateral purpose.  I agree with the reasoning of Brooke J. on this point in Mahon v. Rahn and I think that Sir Michael Davies was right to strike out the action for the reasons which he gave.’

23                  In Mahon v Rahn [1998] QB 424 documents including a letter, obtained by the SFO from a bank were similarly provided to the accused in criminal proceedings for fraud.  The letter was read in open court during the criminal trial.  After their acquittal the accused claimed damages for libel against the partners in the bank.  The defendants moved to strike out that action as an abuse of process on the ground that the disclosure of the letter had been subject to an implied undertaking that it would not be used in any other proceedings without the leave of the Court.  That claim was upheld by Sir Michael Davies at first instance, but on appeal to the Court of Appeal, it was held that no implied undertaking, analogous to that in Home Office v Harman (supra), existed in relation to material discovered in civil proceedings.  It was further indicated that, had there been any such implied undertaking, it would cease to apply once the material had been read in open court.

24                  In the course of his reasons for judgment on the appeal in Mahon v Rahn, Otton LJ observed, at 432, that “once the document has been read to or by the court or referred to in open court the matter is governed by R.S.C., Ord. 24 r.14A, which was brought into force in order to reverse the effect of Home Office v Harman”, noted at [19] above.  However, as I have observed at [20] above no similar rule governs the practice of the County Court in Victoria.  His Lordship, with whom Schiemann and Staughton LJJ agreed, went on to observed, at 449;

‘Accordingly, in my view exceptional or special circumstances in the criminal context can exist but should be confined to matters of public interest immunity, and absolute privilege.  I do not regard the position of the Crown in a criminal case as analogous to that of a party in civil proceedings. The former is bound by a strict common law (and now statutory) duty to disclose documents of which the body is rarely the author or owner. Such documents are often obtained by compulsion. The disclosure must be 'in the interests of justice' so that the accused knows the nature of the case against him, and so that he has access to documents which might assist his case.  I am unable to accept that public policy requires a duty on an accused not to use disclosed documents for any purpose other than the criminal proceedings on the ground that the Crown would be deterred from complying with their obligations of full disclosure in the interests of justice'. The common law duty ensured that this did not happen; it is now a statutory duty.’

25                  It was next argued on behalf of St George that the documents in question had been obtained by ASIC and made available to Spalla and Still at a time whenitwas believed, in the light of Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319, that ASIC’s coercive powers overrode the right to claim legal professional privilege.  However, as that view of the law could no longer be maintained in the face of Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] 192 ALR 561, it was said that this Court should be astute to give full effectto the implied undertaking in relation to documents which have been made available by their owners or creators as a result of ASIC’s exercise of its statutory powers.  A similar approach was said to be ordained by Johns v Australian Securities Commission (1993) 178 CLR 408 in relation to the transcripts of examinations under s 19 of the ASIC Act.

26                  Reliance was also placed, on behalf of St George, on Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 where it was held that the privilege against self-incrimination could be invoked by a party required by an Anton Piller order to give discovery.  That was so, the House of Lords held, notwithstanding the discretion of a subsequent criminal court to exclude evidence improperly obtained if to admit it would unfairly prejudice an accused person.

27                  Mr Hayes QC who appeared with Mr Wotherspoon of Counsel for the applicants contended that the grant or withholding of a stay in these proceedings involved a weighing of competing policy considerations.  He emphasised that the documents in question had been the subject of cross-examination in criminal proceedings in open court, had been brought into existence, not by investigators, but by primary accusers, and were part of the transaction which founded the cause of action in this Court.  It was also emphasised that at least some of the subject documents had been provided voluntarily to ASIC and that St George, at the time of providing them, had not sought to impose any restrictions on the use to which they could be put.  ASIC, in turn, did not seek to restrict the use to which the documents could be put when it furnished copies to the accused in the course of the criminal trial, although Mr Honey of ASIC was aware that Spalla and Still intended to use the documents to institute civil proceedings against St George and Corrs.

28                  It was also submitted on behalf of the applicants that the letters of 27 May and 3 June 1999 had been written to the receivers and managers of Irlmond and APS in their capacity as such receivers and managers.  Accordingly, they were the property of those companies and became available to Mr Rambaldi as liquidator of Irlmond, to use, without restriction, in that company’s prosecution of the present proceedings.

29                  Counsel for the applicants further contended that the implied undertaking not to use documents for a collateral purpose, if it had arisen in the circumstances of this case, was capable of being waived;  see Dagi v The Broken Hill Proprietary Company Ltd [1996] VR 567 where Byrne J observed, at 572;

‘The rationale underlying the implied undertaking which attaches to discovered material is, as I have mentioned in my judgment on the first application, that private rights of confidentiality be not disturbed except to the extent necessary for the purpose of the administration of justice. Although it is expressed in terms of an undertaking to the Court, the obligation of the party in receipt of discovered material may be modified or removed by consent of the other party without the intervention of the Court. In such a case as the present, it may be said that the confidentiality attaching to the reports has a dual nature. Insofar as they are based on discovered material, the obligation on the plaintiffs depends upon the implied undertaking to which I have referred. The obligation on the defendants arose from the acceptance by the parties before me that they should be treated as confidential. In each case the obligation is capable of modification by consent or waiver. Nor is there any reason why this consent or waiver should be express, although it would be imprudent for a party too readily to infer consent or waiver from some equivocal conduct of the other. The proper course is to deal with the matter openly and before the Court as did the plaintiffs on the first application.’

30                  However, it is not clear what acts by St George are relied on as establishing waiver of the implied obligation (assuming it to have arisen) not to use the relevant documents for a collateral purpose.  It may be that the applicants point to the time which has been allowed to elapse since the applicants’ pleading of one or other version of the amended statements of claim first evinced resort to the subject documents.  Equally, waiver may be said to have been constituted by St George’s having allowed the documents to go to ASIC without any stipulation as to the use which could be made of them.  I find these illustrations unhelpful.  The lapse of time can only assist the applicants if it can be established that, in the intervening period, St George was aware that use of the documents for the purposes of the proceedings in this Court would be in breach of the implied undertaking and elected to do nothing about it.  I am not persuaded that the evidence, in its present state, discloses any such election.  Likewise, the provision by St George to ASIC of the relevant documents antedated the coming into existence of the implied undertaking.  It can therefore hardly be said to have constituted a waiver of it.

31                  A similar circularity may be involved in the applicants’ contention that the implied undertaking does not prevail against the obligation of the other party to give inspection in a subsequent proceeding;  see Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 where Mason LJ pointed out, at 33, that:

‘It would be inequitable if a party were compelled by court process to produce private documents for the purposes of the litigation yet be exposed to publication of them for other purposes. No doubt the implied obligation must yield to inconsistent statutory provisions and to the requirements of curial process in other litigation, eg discovery and inspection, but that circumstance is not a reason for denying the existence of the implied obligation.’

32                  However, that observation presupposes, I consider, that the litigation in which the requirements of discovery and inspection have arisen has been instituted without recourse to documents or information subject to the implied obligation.

33                  It was next urged on behalf of the applicants that they and their advisers have knowledge from other publicly available sources of information of the communications between Mr Carroll of Corrs and Mr Beck.  One instance of such an alternative source was said to be correspondence from Mr Carroll to Victorian Lawyers RPA and the Ombudsman for the State of Victoria.  In a related way it was pointed out that Deloittes, which, no less than St George, was entitled to assert confidentiality or legal professional privilege in the documents, had not joined in the present motion or a stay.

34                  The distinction between voluntary production of the subject documents and their production in response to ASIC’s coercive powers was said not to be persuasive or, at least decisive, in this case.  However, it was noted that in Atlas v Director of Public Prosecutions [2001] 3 VR 211 Bongiorno J, at 227, noted that there are “serious restrictions implied by law affecting documents produced under compulsory process,” and referred to the discussion in cases like Riddick v Thames Board Mills [1977] QB 881, Harman v Home Office (supra) and Taylor v Serious Fraud Office (supra).  In Riddick v Thames Board Mills a plaintiff in an action against his former employer for wrongful arrest and false imprisonment had obtained discovery of a memorandum from an employee in the defendant’s personnel department to the staff personnel manager questioning the plaintiff’s efficiency and temperament.  The plaintiff later brought a second action in defamation based on the memorandum.  In holding that the plaintiff was not entitled to use the memorandum in that way, Lord Denning MR observed at 895;

‘The reason for compelling discovery of documents in this way lies in the public interest in discovering the truth so that justice may be done between the parties.  That public interest is to be put into the scales against the public interest in preserving privacy and protecting confidential information.  The balance comes down in the ordinary way in favour of the public interest of discovering the truth, i.e. in making full disclosure.  This balancing act, of weighing the competing public interests, is what I advocated in my judgment in D v National Society for the Prevention of Cruelty to Children [1976] 2 WLR 124 at 132-134.  I did not intend in any way to diverge from the 16th Report of the Law Reform Committee (Privilege in Civil Proceedings) (1967) (Cmnd 3472), para 1.  I went, no doubt, a little too far in suggesting a presumption in favour of confidentiality, as the House of Lords afterwards pointed out [1977] 2 WLR 201.  But otherwise I find nothing in the speeches to detract from the balancing process.  The thing to do in every case is to weigh the competing public interests and see which way the scales come down; and this, I gather, was the view preferred by Lord Simon of Glaisdale:  see [1977] 2 WLR 201 at 229;  and by Lord Edmund-Davies at p 233 (V) and (VI).

I proceed to hold the balance in the present case.  On the one hand discovery has been had in the first action.  It enabled that action to be disposed of.  The public interest there has served its purpose.  Should it go further so as to enable the memorandum of 16th April 1969 to be used for this libel action?  I think not.  The memorandum was obtained by compulsion.  Compulsion is an invasion of a private right to keep one's documents to oneself.  The public interest in privacy and confidence demands that this compulsion should not be pressed further than the course of justice requires.  The courts should, therefore, not allow the other party, or anyone else, to use the documents for any ulterior or alien purpose.  Otherwise the courts themselves would be doing injustice.  Very often a party may disclose documents, such as inter-departmental memoranda, containing criticisms of other people or suggestions of negligence or misconduct.  If these were permitted to found actions of libel, you would find that an order for discovery would be counter-productive.  The interdepartmental memoranda would be lost or destroyed or said never to have existed.  In order to encourage openness and fairness, the public interest requires that documents disclosed on discovery are not to be made use of except for the purpose of the action in which they are disclosed.  They are not to be made a ground for comments in the newspapers, or for bringing a libel action, or for any other alien purpose.  The principle was stated in a work of the highest authority 93 years ago by Bray J, Bray on Discovery, 1^st ed (1885), p 238:

“A party who has obtained access to his adversary's documents under an order for production has no right to make their contents public or communicate them to any stranger to the suit:  ..… nor to use them or copies of them for any collateral object .....  If necessary an undertaking to that effect will be made a condition of granting an order: …..”’

35                  In the present case, so it was submitted, it is not possible to find that all of the subject documents had been provided by St George to ASIC by force of compulsion by ASIC.  The provenance of some documents, whether from St George, Deloittes or Corrs, was uncertain.  Some documents which had been provided by Corrs in a yellow folder were outside the dates stipulated in ASIC’s notice for compulsory production and were conceded in a letter from Corrs dated 1 May 2001 to have been “inadvertently included.”

Exercise of the Court’s Discretion to Stay Proceedings

36                  I have come to a clear view that it would not be an appropriate exercise of this Court’s discretion to stay the present action on the ground that the applicants have used documents made available to them for the purposes of the criminal proceedings in the course of formulating the current version of the statement of claim.  The power to stay a proceeding as an abuse of process is one which “ought to be very sparingly exercised and only in exceptional cases”;  see Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275 per French J at 279 and the cases there cited.  In what follows I have set out, not exhaustively, the salient considerations which have impelled me to exercise the discretion in the way just indicated.

37                  In the first place, I am not persuaded, on the present state of the evidence that any duty of confidentiality arose in the circumstances in which information contained in the documents in question was disclosed to Counsel for Spalla and Still or otherwise made available to the applicants.  In expressing this view, I am not to be taken to have pre-empted a resolution, which is still to occur, of claims that legal professional privilege attaches to the documents or that a use has been made of the s 19 transcripts for purposes other than those for which ASIC could legitimately disclose them.  For a discussion of the limits on a duty of confidentiality in respect of information which might be derived in the course of examinations under ss 596A and 596B of the Corporations Act 2001 (Cth) see Re Gartner Wines Pty Ltd (2003) 44 ACSR 162.

38                  It is far from clear that the use of information derived from the disputed documents has been for a purpose “collateral” to that for which the disputed documents were made available by ASIC if that was their only source.  It is true that the information is now being used in civil proceedings whereas its disclosure was for the purpose of facilitating the conduct of criminal proceedings in the County Court.  However, the civil proceedings are brought against persons who effectively accused Spalla and Still of the crimes with which they were charged.  Moreover, one of the causes of action in the civil proceedings is for malicious prosecution which arises directly out of, rather than being collaterally related to, the criminal charges.  The relation between the criminal trial and the present proceedings is, I consider, quite different from, and much closer than, that which arises where use is sought to be made in a defamation action of a document which fortuitously comes to light in connection with a prior civil or criminal trial.  Thus in Mann v Medical Defence Union [1997] FCA 45 (unreported 7 February 1997) noted by Groves:  The Implied undertaking Restricting the Use of Material Obtained During Legal Proceedings (2003) 23 Aust Bar Rev 316 at 326, I held that documents discovered in an action for breach of contract and contravention of the Trade Practices Act could not be used to amend the statement of claim in the same action to plead a new cause of action in defamation.  I there said, at 11;

‘I accept that whether the proposed use of a discovered document is for the purposes of the action in which it has been discovered is not to be determined by concentrating on the causes of action so far pleaded or the parties to that action as constituted at the time when discovery was given.  Nevertheless, the authorities to which I have been referred make it clear that the proposed use must bear a reasonable relation to the prosecution of the case sought to be made or the mounting of a defence to that case.  So it is that the use of a discovered document to frame a case of fraud in addition to one of breach of contract is permissible if the fraud is said to have infected the same transaction even if additional parties are alleged to have been implicated or the allegations of fraud are sought to be raised by way of cross-claim.  Allstate v ANZ Banking Group Ltd[57 FCR 360] I regard as a case of this kind.

However, I do not consider a claim in defamation to have the requisite relationship with a claim for damages in the form of financial loss occasioned by breach of contract or contravention of the Trade Practices Act by misrepresentations which are alleged to have induced an applicant to enter into a contract.  The damages sought to be recovered in an action for defamation are for injury to reputation.  Moreover, such an action involves questions of the nature and extent of publication and a defence to it may raise issues such as qualified privilege and malice which are quite extraneous to matters in controversy between parties to a contract.  The attack which the applicant seeks to make against the MDU by pleading a cause of action in defamation could succeed or fail quite without reference to the resolution of other existing issues between the parties.  I therefore regard it as entirely collateral to the attack which the applicant seeks to mount through the remaining parts of his proposed further amended statement of claim.’

39                  By contrast, the causes of action in conversion and malicious prosecution arise directly out of facts connected with the criminal proceedings.  The action in malicious prosecution is founded upon allegations that the receivers of Irlmond and APS prepared the 13 August report with the malicious intention that Spalla and Still be prosecuted for dishonest false accounting in relation to Irlmond and APS and that report was adopted by ASIC in investigating and preferring the charges of which Spall and Still were subsequently acquitted.  I cannot discern a rational application of the implied undertaking which would make information available to an accused person to assist in the successful defence of a criminal charge yet deny that person the use of the same information to support a later civil claim that the criminal charge had been maliciously brought.  In my view, the use of the information for that second purpose is not collateral to, but is directly connected with, the purpose for which it was initially made available.  The connection with Irlmond’s claim in conversion is not so clear or obvious.  However, some of the particulars furnished in relation to elements of that claim are common to the allegations in support of the action for malicious prosecution.  For that reason and because all three applicants are represented by the same counsel and solicitors, I consider it would be artificial and a wrong exercise of discretion to attempt to give effect to the implied undertaking by staying the action in conversion and allowing that for malicious prosecution to proceed.

40                  In reaching the conclusion just expressed, I should not be taken as upholding the submission advanced on its behalf that Irlmond and its liquidator, as strangers to the criminal proceedings, cannot be bound by the implied undertaking if it arose on the provision of documents to counsel for Spalla and Still in the course of the trial.  To be effective, the undertaking must bind the litigant by whom it is given and his or her privies.  It cannot be circumvented by disclosure of information subject to the undertaking to a third party or the retainer by a third party of the same legal advisers.  However, a real question remains in the present case of the extent to which the claim by Irlmond and its liquidator has been based on information acquired separately from its disclosure in discharge of the duty of prosecutorial fairness.  For example, much of Irlmond’s claim is equally capable of being based on information derived from the Ernst & Young report or in the course of the earlier proceedings in this Court (VG 74 of 1999).  Other alternative sources appear to be evidence relied on in support of a bankruptcy petition against Spalla and correspondence with Victorian Lawyers RPA about the conduct of Mr Carroll then of Corrs.

41                  I am not able to make a finding as to whether the Ernst & Young report became a public source of information but I infer that it was distributed sufficiently widely, including to Spalla and Still, to make applicable this observation of the Court of Appeal in the BAT case at [28];

‘It seems to us that if the party has available an alternative source of information about the contents of the documents, even a source deriving from the discovery of the documents, then, if that source be public, the party to whom the documents were first discovered should arguably be as free to make use of that alternative source of information as any member of the public undoubtedly is.’

42                  In a related context, I have not been unmindful of the distinction between a document and information about it which has become available to the public by, for example, reference to a transcript of court proceedings or a judgment delivered in open court.  As to that distinction the Court of Appeal in the BAT case concluded, at [49];

‘Given the particular considerations requiring that a party’s privacy be respected so far as compatible with the administration of justice in open court, there seems no logical, or indeed practical, reason why the mere passing of the document into evidence (as witness its being marked as an exhibit) should be taken to relieve the party bound by the implied undertaking from its obligations in that respect. Arguably at least, it would be different if that party was seeking not to make use of the document itself, but to use only the information about it of which the public had become aware (or which, to use another phrase, had passed into “the public domain”) by reason of its use in open court. We include in this last the use of a transcript of the proceedings in court or judgment delivered in which reference is made by counsel, the witness or the judge to the document in question. As to information which is thereby made known generally to the public at large - but only as to such information - there may well be no reason to distinguish between the position of the party bound by an undertaking as to the document itself and the position of any stranger to the litigation. But that is not this case.’

43                  This is not a case like Rank Film Distributors Ltd v Video Information Centre noted at [26] of these reasons.  There the inquiry was into whether the defendants could be required to make any disclosure at all in the teeth of the privilege against self-incrimination.  Here the disclosure has occurred and the inquiry is into what should be its consequences.  On the assumption that the implied undertaking has arisen and continues to bind Spalla and Still, it created an obligation owed to the County Court.  If, despite the indications to the contrary which have been canvassed in this reasons, there has been a breach of that undertaking in formulating one or more of the versions of the statement of claim in the present proceedings, that would be a contempt of the County Court.  It would be inimical for the comity which exists between that Court and this Court for me to determine that such a contempt has been committed and that one of its consequences should be a stay of proceedings in this Court.  There remains extant in the County Court an application by Spalla and Still to be released from the implied undertaking if it has arisen.  The resolution of that application will no doubt be informed by considerations of matters like those identified by Merkel J in Australian Securities and Investment Commission v Marshall Bell Hawkins Limited [2003] FCA 833.  Among the factors to be taken into account in deciding whether to release Spalla and Still from the implied undertaking, if it applies, will be the fact they have used, and propose to use, the documents for their own purposes in the present litigation and not for the purposes of others.  By contrast, one of the factors which weighed with the Court of Appeal in the BAT case was identified in these terms at [53] of its reasons;

‘First and foremost, the plaintiff was applying for leave to use the documents not for some purpose of her own, but for the purposes of others. The plaintiff was seeking for some reason which is not divulged to assist the United States Department of Justice and the ACCC in their respective inquiries into the conduct of the defendant and perhaps its solicitors. Why the appellant or its solicitors should be exposed, at the instance of the plaintiff and now the respondent, to such inquiries was not explained to us; nor was it explained why this Court should be quick to assist the inquiries if as to penalties. Nor could any such use of the documents by others be supervised by the court, or even by the respondent and her solicitors if she or they were so minded. Any improper use of the documents afterwards could scarcely be prevented: compare Bibby Bulk Carriers [1989] QB at 166-167.’

It will remain open to this Court, notwithstanding the refusal of a stay, to take account of the outcome of that application to the County Court in determining what use can be made by the present applicants of the subject documents.

44                  As already indicated, by declining to grant a stay of the present proceedings I have not foreclosed the questions which still remain to be argued of whether legal professional privilege, considerations of confidentiality or statutory limits on ASIC’s power should preclude the admission into evidence in these proceedings of the letters, s 19 transcripts or other documents to which Counsel have pointed.  That reservation will, of course, leave open the question of whether a particular claim of privilege is to be defeated by the “iniquity exception” discussed in, for example, Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 where McHugh J pointed out at 556;

‘A mere allegation of illegal purpose or fraud is not, of itself, sufficient to displace a claim of legal professional privilege. A person who alleges that legal professional privilege does not apply to a communication tenders an issue for decision and has the onus of proving it. Subject to any statutory provisions to the contrary, any evidence tendered in a court of justice to prove an issue must comply with the ordinary rules of evidence. Legal professional privilege is a legal right. Its prima facie application to a communication can only be displaced by admissible evidence. That evidence does not have to prove that the communication was made in furtherance of a crime or the commission of a fraud, but it must establish a prima facie case that the communication was so made. In O'Rourke v Darbishire [1920] AC 581 at 604, Viscount Finlay said that what is required is "something to give colour to the charge. The statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact".

…………

However for the purpose of the proceedings before Davies J, the statements in the informations were hearsay. The out of court statements of Detective Sergeant Taciak recorded in the information were not evidence in the proceedings before his Honour. They got before the Full Federal Court only through the affidavit of Assistant Commissioner Baer. In so far as he can be taken to have deposed to the facts in the information, his evidence was hearsay and inadmissible. There is nothing in s 10 of the Crimes Act, any other part of that Act or any other legislation which declares that the rules of evidence do not apply in determining whether a communication is privileged. That being so, the claim of the appellants that the respondents could not rely on legal professional privilege failed because there was no admissible evidence before Davies J to support the claim.’

45                  The need to which McHugh J there referred for admissible evidence may preclude resort to the very documents for which privilege is claimed as themselves establishing a prima facie case of fraud or illegality.  In any event, I do not consider it a proper exercise of this Court’s discretion to anticipate an inquiry into that issue by staying an action which has as essential hypothesis some illegality, fraud or abuse of power by one or more of the respondents.

Conclusion

46                  For the reasons which I have endeavoured to explain, the motion on notice dated 5 April 2004 will be refused.  St George must pay the applicants’ costs of that motion and there will be no order as to any other party’s costs of the motion.  I shall order that there be a further directions hearing on a date to be fixed when the resolution of outstanding questions of discovery including legal professional privilege can be addressed.  Of course, nothing in the orders which I propose or these reasons should be taken as causing the implied undertaking, to the extent that it is still binding, to cease to apply to a particular document.

Associate:

Dated:              6 August 2004