FEDERAL COURT OF AUSTRALIA

Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562

THE COURT ORDERS THAT:

1.    The proceeding be stayed until the conclusion of the hearing of the charges brought against the respondents pursuant to s 247G of the Crimes Act 1958 (Vic) (excluding any appeal) or until further order.

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

REASONS FOR JUDGMENT

Introduction

1    In this proceeding, which was commenced on 16 March 2011, the applicant, Websyte Corporation Pty Ltd (“Websyte”) alleges, inter alia, that the respondents, its former employees, Lachlan Alexander and Shane McGrath, have breached their fiduciary duties and obligations of confidence, have breached the applicant’s copyright and have trespassed on its computer system.

2    The respondents have recently been charged with unauthorised access to, and modification of, the applicant’s restricted computer data pursuant to s 247G of the Crimes Act 1958 (Vic) (“the Crimes Act”) returnable on 5 June 2012. The Victoria Police have also been investigating a contravention of s 132AJ of the Copyright Act 1968 (Cth) (“the Copyright Act”) and the applicant has sought that they also investigate conspiracy under s 321 of the Crimes Act. It was not disputed that the actual and potential criminal charges involve the same subject matter as that of this proceeding.

3    The respondents now seek to stay this proceeding pending the determination of the criminal proceedings. (For convenience, in these reasons, although the respondents are the applicants for a stay, unless otherwise indicated, I continue to refer to them as “the respondents” and to Websyte as “the applicant”).

4    By amended interlocutory applications dated 30 April 2012 and 1 May 2012, the respondents apply for the following orders:

(a)    that the proceeding be stayed until after the criminal prosecution has been finalised and any relevant appeal period has expired;

(b)    that the applicant pay the respondent’s costs; and

(c)    any other order the Court deems fit.

5    Before me, the respondents alternatively sought a more limited stay until the hearing and determination of the s 247G proceedings.

6    The first respondent’s stay application was supported by, or relied on:

(a)    the affidavit of Barry Woods, the lawyer for the first respondent, sworn on 30 April 2012;

(b)    the affidavit of Lachlan Alexander sworn on 1 May 2012;

(c)    the affidavit of Andrew Price sworn on 12 December 2011; and

(d)    written submissions dated 1 May 2012.

7    The second respondent’s stay application was supported by:

(a)    the affidavit of David Bullard, the lawyer for the second respondent, sworn on 16 December 2011;

(b)    the affidavit of Andrew Price sworn on 12 December 2011;

(c)    the supplementary affidavit of Andrew Price sworn on 30 January 2012;

(d)    the affidavit of Paul Meyers sworn on 31 January 2012;

(e)    the affidavit of Barry Woods sworn on 30 April 2012;

(f)    the affidavit of Patrick D’Arcy sworn on 2 May 2012; and

(g)    an amended revised outline of submissions dated 2 May 2012.

8    The applicant opposed a stay of the proceeding. It relied on the following material in opposition:

(a)    the affidavit of Benjamin Patrick, of the solicitors for the applicant, affirmed on 1 February 2012;

(b)    the affidavit of Benjamin Patrick affirmed on 9 March 2012;

(c)    the affidavit of Benjamin Patrick affirmed on 3 May 2012;

(d)    the independent solicitor’s report of Annette Hughes dated 21 March 2011;

(e)    the affidavit of Paul Meyers sworn on 16 March 2011;

(f)    the affidavit of documents of Lachlan Alexander sworn on 15 December 2011;

(g)    the affidavit of documents of Shane McGrath affirmed on 28 February 2012; and

(h)    written submissions dated 2 May 2012.

bACKGROUND

9    On 16 March 2011, the applicant applied ex parte for, and was granted, a search order against both respondents. The search order made by Jessup J was executed against the first respondent at his home in Greensborough on 17 March 2011. It appears that the search order was not, and has never been, executed against the second respondent.

10    The search order provided, inter alia that the independent solicitor must not inspect or permit to be inspected by anyone, including the applicant and the applicant’s solicitors, anything handed to the independent solicitor, but must deliver it to the Court at or prior to the hearing on the return date.

11    At the return of the matter on 21 March 2011, the first respondent was unrepresented and the second respondent did not appear. Ryan J ordered, inter alia, that the items listed in an annexure to the report of the independent solicitor, Ms Hughes, and copy hard drives, be delivered into the custody of the court.

12    Order 2 of Ryan J’s orders stated:

The applicant’s lawyers have leave to inspect and take copies of the items referred to in paragraph 1 of this Order on their undertaking to keep the same confidential and not disclose them to any other person and to use the information derived therefrom solely for the purpose of these proceedings.

13    In late March 2011, the applicant applied for leave for its director, Paul Meyers, and an expert forensic information technology specialist, to review the documents obtained during the search order.

14    The first respondent resisted, on the basis of confidentiality, the grant of access to some material which he claimed to own.

15    The proceeding was allocated to my docket and on 1 April 2011, subject to a number of qualifications, I granted leave for the applicant’s independent computer expert to inspect the items referred to in order 1 of Ryan J’s order. This was on the basis that the computer expert undertake to keep the information obtained confidential, not disclose it (save to lawyers for the parties or any other independent computer expert engaged by the applicant) and that it be used solely for the purpose of these proceedings.

16    I also granted Mr Meyers leave to inspect copies of items on his undertaking as follows:

(a)    to inspect the information and data the subject of this order, being the Relevant Data, strictly in accordance with this order;

(b)    to keep all of the information received, searched and/or inspected by him confidential and not disclose the information received, searched and/or inspected by him to any other persons (except lawyers for the parties or any independent computer expert engaged by the Applicant); and

(c)    to use the information derived as a result of the searches and inspections referred to above solely for the purpose of these proceedings.

17    On 25 July 2011, I made orders for, inter alia, the filing and service of pleadings as follows:

(1)    By 4.00pm on 29 July 2011, the applicant shall file and serve any amended application and a statement of claim.

(2)    By 4.00pm on 26 August 2011, each respondent shall file and serve a defence.

(3)    By 4.00pm on 23 September 2011, the applicant shall file and serve any reply.

18    The applicant filed and served an amended application dated 4 August 2011, which sought declarations that the respondents had engaged in or authorised the infringement of copyright of the Websyte software, breached their duty of confidence by use of Websyte’s confidential information, breached their employment duties and breached restraints in their confidentiality deed.

19    The applicant also filed and served a statement of claim dated 4 August 2011. The statement of claim alleged, inter alia, trespass to the applicant's computer system. The applicant pleaded that it owned various websites, including the website at “www.communityguide.com.au” which is a directory for businesses on the internet (the “Community Guide Website”) hosted on Websyte's servers (the “Websyte Server”) and that at various times from August 2010 to early March 2011, the respondents accessed, or caused to be accessed, the Websyte Server by using the Websyte Access Information (as defined) without authorisation, for their own purposes. It was further alleged that the respondents inserted unauthorised content into the Websyte Server or otherwise interfered with the software on that server.

20    The statement of claim alleged:

30.    At sometime prior to November 2010 the Respondents accessed the Websyte Server, or alternatively Alexander accessed that website and McGrath authorised that access, and inserted content into the Community Guide Website to promote the Respondents' Printer Cartridge Business and the Respondents' Printer Cartridge Domain Names (the First Unauthorised Links).

31.    On 6 November 2010, McGrath, knowing of the First Unauthorised Links, wrote an email to Alexander and instructed him to remove the First Unauthorised Links.

32.    On 6 November 2010, after receipt of the email referred to in the previous paragraph, Alexander accessed the Websyte Server without permission or authorisation of Websyte and removed the First Unauthorised Links.

33.    On 1 January 2011 the Respondents exchanged emails about the possibility of placing further links within the Community Guide Website or another website owned by Websyte.

34.    On 5 January 2011, after their employment with Websyte had ceased, Alexander offered to McGrath that he could access the Community Guide Website and insert content into that website to further promote the Respondents' Printer Cartridge Business and the Respondents' Printer Cartridge Domain Names (the Second Unauthorised Content).

35.    On 5 January 2011 McGrath responded to the aforementioned email and discussed insertion of the Second Unauthorised Content into the Community Guide Website or other website associated with Websyte.

36.    On 5 January 2011 Alexander informed McGrath that he would insert the Second Unauthorised Content into the Community Guide Websyte.

37.    Sometime after 5 January 2011 Alexander accessed the Websyte Server and inserted the Second Unauthorised Content into the Community Guide Website.

38.    On 4 March 2011, believing that the Respondents' activities had been detected by Websyte, McGrath sent an email to Alexander instructing him to again access the Websyte Server and to remove the Second Unauthorised Content from the Community Guide Website.

39.    At sometime prior to 15 March 20011 [sic], under the instruction and supervision of McGrath, Alexander accessed the Websyte Server and removed at least some of the Second Unauthorised Content.

40.    In the acts referred to at paragraphs 29 to 39 above, the Respondents acted together and, to the extent that Alexander took any of the actions referred to in paragraphs above, he was acting together with or under the direction of, or was caused to do so and authorised by McGrath.

…

Trespass to Applicant's Computer System

55.    At all relevant times the server for the Community Guide Website was secure to Websyte and accessible only by using the Websyte Access Information and neither the First or Second Respondent had permission or authorisation to:

(a)    access the Websyte Server for the purposes of inserting the content referred to in the above paragraphs; and

(b)    further, after resigning employment on 7 January 2011, Alexander had no permission to access the Websyte Server for any reason

56.    The acts of Alexander comprise a trespass on the Websyte Server.

57.    The acts of McGrath comprise a trespass on the computer server of the Community Guide Website or, alternatively, in the circumstances referred to above McGrath has authorised the conduct of Alexander in trespassing on the Websyte Server.

58.    Websyte has suffered loss and damage by the trespass referred to above and the Respondents have gained a benefit in that they have promoted the Respondents’ Printer Cartridge Business and the Respondents' Printer Cartridge Domain Names on the Community Guide Website.

59.    The Respondents threaten, unless permanently restrained by this honourable Court, to continue to access or cause to be accessed the Websyte server.

21    The above allegations were, in many instances, particularised by emails (or extracts thereof) passing between the respondents, which were obtained from the material produced under the search order.

22    The first respondent filed a defence dated 30 September 2011 in which, inter alia, he denied acting together with the second respondent in the commission of the acts alleged in the statement of claim.

23    The second respondent filed a defence dated 14 October 2011 in which, inter alia, he admitted that he became aware of the first respondent’s unauthorised access to the applicant’s computer after the fact and denied acting in concert with, or aiding and abetting, the first respondent in trespass to the applicant’s computer system. The second respondent also denied that unauthorised access to a database amounted at law to trespass.

24    On 2 November 2011, I made orders for preparation for trial by consent. The orders provided for any request for further and better particulars and the filing and service of the applicant’s and respondents’ witness statements by 2 February 2012 and 1 March 2012 respectively, their expert evidence by 4 April 2012 and 3 May 2012 respectively, and of court books by 30 May 2012.

25    By a request dated 16 November 2011, the applicant sought further and better particulars from the second respondent. They included when he first became aware and details of the “First Unauthorised Links” and particularisation of his assertion (at [38]) that he did not consent to the insertion of the “Second Unauthorised Content” and instructed the first respondent to remove it. The second respondent provided the requested particulars dated 30 November 2011.

26    On 15 December 2011, the first respondent filed and served a list of documents and an affidavit, deposing that many electronic documents and files had been lost because of a computer hardware malfunction in or about September 2011. Before me, the applicant complained that the discovery was deficient.

27    Several months after this proceeding commenced, Mr Meyers, on 2 June 2011, made a statement to Victoria Police and informed it that the applicant wished to press charges against the respondents in relation to alleged contraventions of s 247G of the Crimes Act (as Jessup J found in Websyte Corporation v Alexander [2012] FCA 69).

28    Section 247G of the Crimes Act provides:

247G    Unauthorised access to or modification of restricted data

(1)    A person who—

(a)    causes any unauthorised access to or modification of restricted data held in a computer; and

(b)    knows that the access or modification is unauthorised; and

(c)    intends to cause the access or modification—

is guilty of an offence and liable to level 7 imprisonment (2 years maximum).

(2)    An offence against this section is a summary offence.

(3)    In this section restricted data means data held in a computer to which access is restricted by an access control system associated with a function of the computer

29    Section 321 of the Crimes Act and ss 132AJ (1) and (2) of the Copyright Act are also potentially applicable to the respondents’ conduct alleged in this proceeding.

30    Section 321 of the Crimes Act provides:

321    Conspiracy to commit an offence

(1)    Subject to this Act, if a person agrees with any other person or persons that a course of conduct shall be pursued which will involve the commission of an offence by one or more of the parties to the agreement, he is guilty of the indictable offence of conspiracy to commit that offence.

(2)    For a person to be guilty under subsection (1) of conspiracy to commit a particular offence both he and at least one other party to the agreement—

(a)    must intend that the offence the subject of the agreement be committed; and

(b)    must intend or believe that any fact or circumstance the existence of which is an element of the offence will exist at the time when the conduct constituting the offence is to take place.

(3)    A person may be guilty under subsection (1) of conspiracy to commit an offence notwithstanding the existence of facts of which he is unaware which make commission of the offence by the agreed course of conduct impossible.

(4)    An indictment charging an offence against this section must not be filed without the approval of the Director of Public Prosecutions or of a person authorized by the Director of Public Prosecutions to give approval for the purposes of this subsection.

31    Section 132AJ of the Copyright Act provides:

132AJ    Possessing infringing copy for commerce

Indictable offence

(1)    A person commits an offence if:

(a)    the person possesses an article, with the intention of doing any of the following with the article:

(i)    selling it;

(ii)    letting it for hire;

(iii)    by way of trade offering or exposing it for sale or hire;

(iv)    offering or exposing it for sale or hire to obtain a commercial advantage or profit;

(v)    distributing it for trade;

(vi)    distributing it to obtain a commercial advantage or profit;

(vii)    distributing it to an extent that will affect prejudicially the owner of the copyright in the work or other subject-matter of which the article is an infringing copy;

(viii)    by way of trade exhibiting it in public;

(ix)    exhibiting it in public to obtain a commercial advantage or profit; and

(b)    the article is an infringing copy of a work or other subject-matter; and

(c)    copyright subsists in the work or other subject-matter at the time of the possession.

(2)    An offence against subsection (1) is punishable on conviction by a fine of not more than 550 penalty units or imprisonment for not more than 5 years, or both.

32    Section 247G of the Crimes Act creates a summary offence, and in this case it was necessary to commence the prosecution prior to 6 March 2012. That limitation period did not apply to prosecutions under s 321 of the Crimes Act and s 132AJ(1) and (2) of the Copyright Act, which create indictable offences.

33    On 2 November 2011, Mr Meyers met the detective handling the investigation of the complaint, provided him with the statement of claim and defences filed in this proceeding and suggested that the information obtained during the execution of the search order might be useful.

34    The Victoria Police investigated the respondents for possible offences under s 247G of the Crimes Act and s 132AJ of the Copyright Act. The Victoria Police sought access to the “additional material” obtained pursuant to the search order.

35    It was necessary for the applicant and Mr Meyers to obtain a release from their various confidentiality undertakings in order to provide the additional material to Victoria Police. The applicant’s solicitors, Holding Redlich, by letters dated 3 November 2011 wrote to the respondents’ solicitors requesting their consent to release from the undertakings and to variations of the 1 April 2011 order.

36    The letters also stated:

Independently of these proceedings, our client has been concerned that the conduct of Mr Alexander and Mr McGrath constitutes a criminal offence. We refer to sections 247G and 321 of the Crimes Act 1958 (Vic). To this end a complaint has been made to the Victoria Police and our client has been requested to provide any information obtained during the Anton Piller Order to assist with the investigation. We attach an email received from Victoria Police.

37    The email referred to in the letter of Holding Redlich was sent by Detective Senior Constable Andrew Price to Mr Meyers on 2 November 2011. It stated:

Hi Paul,

As per our conversation earlier today, can you please make application to the Federal Magistrates Court seeking leave to provide Victoria Police with any further information that you have obtained that would assist our investigation.

Please keep in mind the 12 month statute of limitations on one of the relevant offences when making the application.

Kind regards

Andrew Price

38    As the respondents did not consent to the release, the applicant, by an interlocutory application filed on 12 January 2012 (“release application”), sought that the court grant a release from the applicant’s implied undertaking as to confidentiality in respect of the items listed in the independent solicitor’s report (together with the copy hard drives referred to therein) for the purpose of assisting the Victoria Police with any investigations into possible charges against the respondents. The applicant also applied for release from the undertaking of the applicant’s lawyers given on 21 March 2011, to permit them to provide the Victoria Police with a copy of the confidential affidavit of Benjamin Patrick sworn on 12 January 2012, including the exhibits thereto; and release from Mr Meyers’ undertaking given on 1 April 2011, to permit Mr Meyers to provide to the Victoria Police a copy of Mr Patrick’s confidential affidavit and the exhibits.

39    By an affidavit sworn on 12 December 2012 in support of the application for release from the undertakings, Detective Senior Constable Price of the Victoria Police deposed:

In relation to the allegations under section 247G of the Crimes Act 1958 (Vic), I have reviewed the allegations in the Statement of Claim and the documents referred to in the particulars. These documents, in particular the communications between Alexander and McGrath, will be relevant to any investigation and provide contemporaneous documentary evidence in relation to those offences. The quotes extracted from those emails indicate to me that Victoria Police is likely to use those emails as part of any criminal investigation and use them as evidence if charges are pressed.

The evidence required to prove an offence under section 132AJ of the Copyright Act 1968 (Cth) is different to that of section 247 of the Crimes Act 1958 (Vic). The Copyright Act offence require an analysis of the software being used by McGrath and Alexander in the furtherance of their business “cartridgenet.com.au” (Cartridgenet). To properly consider whether charges should be laid, the Victoria Police would therefore require access to the contents of the server that was running the Cartridgenet website during the time the alleged offences may have been committed, being between January and March 2011. This will enable us to consider whether the contents of the server contained material that breached any copyright owned by Websyte.

The offences under section 132AJ of the Copyright Act also requires proof that McGrath and Alexander possessed an infringing copy with the intention of exhibiting it in public or distributing it for trade. Again, the quotes from the emails referred to in the particulars to the Statement of Claim indicate to me that those emails are likely to provide contemporaneous documentary evidence of any offences that may have occurred.

40    By an interlocutory application filed on 17 January 2012, the second respondent sought that the proceeding be stayed, that the orders for preparation for trial made on 2 November 2011 be set aside and that the search order made by Jessup J be discharged.

41    Both the applicant’s and the second respondent’s interlocutory applications were returnable before Jessup J as duty judge on 1 February 2012. Jessup J considered the stay application should be dealt with by the docket judge and did not determine it.

42    His Honour heard the release application and refused to release the applicant, its lawyers and Mr Meyers from their undertakings. In his reasons for judgment dated 13 February 2012, Jessup J found that the emails particularising the alleged modifications to the applicant’s software were available only as a result of the execution of the search order. He noted Mr Meyers’ testimony that he regarded the statement of claim into which the emails were incorporated as a public document and that he drew the police officer’s attention to the restrictions and confidentiality imposed on him by the search order. Jessup J did not, however, accept Mr Meyers’ evidence that he provided the statement of claim solely for the purpose of the interlocutory application. His Honour found that another purpose was to give the detective a better understanding of the matters that might sustain the laying of criminal charges. Mr Meyers therefore breached his undertaking given on 1 April 2011.

43    Jessup J found that the breach of the undertaking militated against a release, because the assessment of the criminal charges’ viability depended, partly at least, on information provided to the police in breach of the undertaking, and the applicant had engaged in self-help. Although recognising the importance of enforcing s 247G of the Crimes Act and s 132AJ of the Copyright Act, his Honour found that, in all the circumstances, including the applicant’s election to obtain the sweeping and immediate relief under a search order in March 2011 rather than going directly to the police, it was in neither the public interest nor the interests of justice to grant release from the undertakings.

44    At a hearing in relation to the costs of the release application on 13 February 2012, Jessup J stated:

[N]othing in the evidence which was led and nothing in the findings which I made would justify the conclusion that the applicant was wilful or reckless in its approach towards the obligations which it had by reason of the undertakings it had given, in fact, quite the contrary as I pointed out in my reasons. Mr Meyers was at pains to keep within the undertaking as he understood them.

45    On 29 February 2012, charges pursuant to s 247G of the Crimes Act were filed against each respondent in the Heidelberg Magistrates’ Court. The charges were signed by Detective Senior Constable Simon Florence. The stated charge was that:

The accused between 4/3/2011 and 16/3/2011 did cause unauthorised access to or modification of restricted data held in a computer and did know that the access or modification is unauthorised and intended to cause the access or modification.

46    The charges are returnable on 5 June 2012 at the Heidelberg Magistrates’ Court.

47    Mr Woods, the solicitor for the first respondent, deposed that the first respondent had not yet been served with a copy of the charge sheet. Mr Woods also referred to, and exhibited, two articles on the internet which referred to the present proceeding and in one case, the provision of information to the police.

48    By his affidavit sworn on 1 May 2012, the first respondent deposed to the service and execution of the search order on 17 March 2011 which required him to appear at the hearing on 21 March 2011. He deposed that he lacked the money to engage a solicitor, and, having unsuccessfully sought assistance from PILCH, appeared on his own behalf on 21 March 2011, at which he was ordered to file and serve an affidavit deposing, inter alia, to the whereabouts of software the subject of the proceeding.

49    The first respondent deposed that he did not understand what he was required to do on 21 March and obtained, through PILCH, the services of Mr Downie of counsel to draft the affidavit. He obtained the services of a solicitor through the LIV Legal Assistance Scheme, and subsequently, through PILCH, the services of Ms Rozner of counsel.

50    The first respondent deposed that when he gave instructions to draw his defence filed on 3 October 2011, he was not aware of the potential danger or risk of criminal prosecution arising from admissions or disclosures in the civil proceedings.

51    The first respondent deposed:

9.    I only became aware of the risk of criminal prosecution when the applicant's solicitors wrote to Barry Woods advising that their client had made a complaint to the Police and was seeking permission to release the material taken from my home to the Police as evidence of criminal conduct to found the laying of charges against me under the Crimes Act 1958 (Vic) and the Copyright Act 1968 (Cth).

10.    If I had been aware of the risk or danger of criminal prosecution arising from the same matters as alleged against me in the statement of claim I would not have made the admissions or statements contained in my defence and I would have objected to providing the affidavit filed on 1 April 2011 in compliance with the search order and my affidavit of documents, which I filed on 16 December 2011 in compliance with orders of the Court.

11.    I believe that the provision of my defence to the Police with the statement of claim containing extracts from emails removed from my home by Mr Meyer has directly led to the commencement of the criminal prosecution against me for breach of section 247G of the Crimes Act 1958 (Vic) and l apprehend that if the hearing of the matters alleged against me in the statement of claim proceeds I will be forced to incriminate myself in respect of other far more serious potential criminal charges as well as civil penalties under the Corporations Act 2001 (Cth).

52    Mr D’Arcy of Bullards, the solicitors for the second respondent, deposed that according to his instructions, the second respondent first retained Chadwicks to act on his behalf in this proceeding on 25 March 2011, but on or about 23 September 2011, that firm ceased to act and the second respondent became a self-represented litigant, as he was no longer able to afford representation. Mr D’Arcy further deposed:

5.    I am instructed by the Second Respondent that the Second Respondent obtained some assistance from the Public Interest Law Clearing House ("PILCH") and on or about 14 October 2011 filed and served his Defence in this proceeding.

6.    On or about 12 December 2011 Bullards accepted a referral from the Law Institute of Victoria Legal Assistance Scheme to act on the Second Respondent's behalf in relation to an application for a stay of this proceeding.

7.    On or about 7 March 2012 Bullards received in the mail a Charge Sheet and Summons dated 29 February 2012 charging the Second Respondent with a criminal offence. Now produced and shown to me and marked with the letters "PD1" is true copy of the Charge Sheet and Summons.

8.    I am instructed by the Second Respondent that the Second Respondent will be put under substantial pressure preparing both the civil and criminal proceedings should his stay application be dismissed.

Relevant legal principles and case law

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

54    In Rochfort, the Court of Appeal allowed the appeal against an order granting the defendant newspaper a stay of the plaintiff’s defamation action until after the plaintiff’s criminal trial on charges of conspiracy had been determined (the subject matter of which the defendant newspaper had reported).

55    In Rochfort, the stay was not sought, but rather resisted, by the party subject to criminal charges. The defendant newspaper sought the stay until after the conclusion of the criminal trial on grounds of public interest and its own alleged loss of advantage in the conduct of the civil action, should it be tried first.

56    Sugerman ACJ (with whom Holmes and Mason JJA agreed) acknowledged the “fundamental principle that a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court, subject only to an exercise of judicial discretion on proper grounds as part of the court's inherent powers…” (at 19).

57    His Honour acknowledged a plaintiff’s right of access to the courts to bring and prosecute an action, observing that while stays could be granted in the interests of justice, restraint of the plaintiff’s right was a grave matter requiring the existence of proper grounds.

58    Sugerman ACJ referred to the historical rule (sometimes called “the felonious tort rule”) which required the postponement of a civil action for a felonious wrong until after prosecution for the felony. His Honour observed that the rule was artificial, abrogated in England and largely unnecessary, because it was directed to a historical situation which no longer applied, where the initiation of a prosecution for felony was principally left to private individuals, who could elect to proceed either civilly or criminally.

59    Sugerman ACJ reasoned that the court’s independent discretion to stay proceedings was unrelated to the archaic felonious tort rule.

60    Subsequently in McMahon v Gould (1982) 7 ACLR 202, Wootten J referred to Sugerman ACJ’s discussion of the historical rule and a number of other decisions in which it was “pronounced dead” or otherwise not applied.

61    Wootten J also referred to Jefferson Ltd v Bhetcha [1979] 1 WLR 898, which he described as an application of the discretion to stay proceedings in the interests of justice. His Honour discussed in considerable detail the factors relevant to exercising the discretion to stay a civil proceeding when a defendant faced actual or possible criminal proceedings involving the same subject matter.

62    Wootten J stated (at 206):

I approach the decision of this matter with the following guidelines:

(a)    Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court (Rochfort v John Fairfax & Sons Ltd at 19);

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

(c)    The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should be interfered with (Jefferson v Bhetcha at 905);

(d)    Neither an accused (ibid) nor the Crown (Rochfort v John Fairfax & Sons Ltd at 21) are entitled as of right to have a civil proceeding stayed because of a pending or possible criminal proceeding;

(e)    The court's task is one of “the balancing of justice between the parties” (Jefferson Ltd v Bhetcha at 904), taking account of all relevant factors (ibid at 905);

(f)    Each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors (ibid at 905);

(g)    One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's “right of silence”, and the reasons why that right, under the law as it stands, is a right of a defendant in a criminal proceeding (ibid at 904). I return to this subject below;

(h)    However, the so-called “right of silence” does not extend to give such a defendant as a matter of right the same protection in contemporaneous civil proceedings. The plaintiff in a civil action is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting an application for summary judgment, in the pleading of his defence, or by way of discovery or otherwise, what his defence is likely to be in the criminal proceeding (ibid at 904–5);

(i)    The court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings (ibid at 905);

(j)    In this regard factors which may be relevant include:

(i)    the possibility of publicity that might reach and influence jurors in the civil proceedings (ibid at 905);

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

(iii)    the possibility of miscarriage of justice eg by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses (ibid at 905);

(iv)     the burden on the defendant of preparing for both sets of proceedings concurrently (Beecee Group v Barton);

(v)    whether the defendant has already disclosed his defence to the allegations (Caesar v Somner at 932; Re Saltergate Insurance Co Ltd at 736);

(vi)    the conduct of the defendant, including his own prior invocation of civil process when it suited him (cf Re Saltergate Insurance Co Ltd at 735–6);

(k)    The effect on the plaintiff must also be considered and weighed against the effect on the defendant. In this connection I suggest below that it may be relevant to consider the nature of the defendant's obligation to the plaintiff;

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

63    Wootten J discussed in detail “the right of silence”, which he described as a convenient rubric for several rules and practices of various origins and purposes, which provoked controversy. His Honour noted, inter alia, that some advantages conferred by the right of silence were not justifications for its existence. Such tactical advantages included depriving the prosecution of the opportunity to check the defendant’s story or to stay silent until the end and then fabricate a story or last minute alibi.

64    Wootten J stated (at 208):

In exercising its discretion to stay civil proceedings the court need not be concerned to preserve these advantages. It should be concerned to avoid the causing of unjust prejudice by the continuance of the civil proceedings, not to preserve the tactical status quo in the criminal proceedings whether it be just or unjust.

65    His Honour concluded that, in the case before him, the defendant had not demonstrated such a real risk of injustice as to justify denying the plaintiff his fundamental right to a hearing in the ordinary course. There was no evidence that the civil case was likely to attract prejudicial publicity, that the criminal trial was imminent, that disclosure of the accused’s case might give rise to malpractice in the criminal trial or that he might suffer unfairly in cross-examination (at 208). The possibility of prejudice to the defendant therefore did not outweigh the interests of the liquidator (acting on behalf of creditors and shareholders) to call the defendant to account.

66    In Rural Export Trading (WA) Pty Ltd v Hahnheuser [2004] FCA 1053, Gray J refused to stay civil proceedings against a respondent, who was currently subject to criminal prosecution for an offence connected with the same subject matter.

67    His Honour stated at [5] to [6] the law no longer recognised an automatic entitlement to a stay of civil proceedings due to the existence, or even the threat, of a parallel criminal proceeding concerned with the same subject matter, against the defendant.

68    Gray J stated at [5] – [6]:

The law has developed, however, so that there is no longer any automatic entitlement to a stay of the civil proceeding. The development began with a case called McMahon v Gould (1982) 7 ACLR 202. The line of authority was summarised by Gyles J in Baker v Commissioner of Federal Police [2000] FCA 1339; (2000) 104 FCR 359 at [27] as follows:

There is a long line of authority which establishes that the granting of a stay of civil proceedings in those circumstances is discretionary in the civil court and that the choice of either fully pursuing a civil claim or a defence to a civil claim or not doing so to avoid the risk of self-incrimination is not sufficient in itself to warrant a stay.

There have been various formulations in the authorities as to the proper test to be applied. In Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1984) 4 FCR 428 at 434, Wilcox J spoke of the likelihood of causing injustice in the criminal proceedings. More recently, in Golden City Car & Truck Centre Pty Ltd v Deputy Commissioner of Taxation [1999] FCA 922; (1999) 42 ATR 379 at [13], Cooper J spoke of the need to establish a ‘real prospect of substantial prejudice in the criminal proceedings if the civil action continues.’

69    His Honour concluded that the requirement was not satisfied in the case before him, as there was nothing to persuade the judge that the first respondent would be prejudiced. The relevant respondent had “not even seen fit to swear an affidavit to the effect that he would be prejudiced by abandoning his right of silence in the criminal proceeding” (at [7]).

70    In Reid v Howard (1995) 184 CLR 1, the High Court did not refer to McMahon v Gould or the principles relevant to a stay of civil proceedings when there are actual or potential criminal proceedings involving the same subject matter. It nevertheless strongly acknowledged the importance of the privilege against self-incrimination in terms which have been suggested to be in tension with the statements in McMahon v Gould about the right of silence. In Reid v Howard, the High Court allowed an appeal from the New South Wales Court of Appeal. While recognising that the appellant, a trustee, was entitled to maintain his privilege against self-incrimination in civil proceedings for default brought by beneficiaries, the Court of Appeal required him to swear affidavits disclosing what was done with various assets, subject to a protective regime imposed to limit the disclosure and the use of the material in the affidavits.

71    Deane J held that the Court of Appeal’s orders were vitiated by error of law, although he did not think that the Court of Appeal lacked jurisdiction to make them. His Honour stated (at 5):

…both Powell J and the Court of Appeal were correct in refusing to deny the benefit of the privilege against self-incrimination to a trustee (or other fiduciary) who is involved in civil litigation with a beneficiary. “The privilege against self-incrimination is deeply ingrained in the common law.” It reflects “a cardinal principle” which lies at the heart of the administration of the criminal law in this country. It can be, and has increasingly been, overridden or modified by the legislature. It can be waived by the person entitled to claim it. Otherwise, it is unqualified. In particular, it should not be modified by judicially devised exceptions or qualifications. Unless it appears that the assertion of potential incrimination is unsustainable, a claim to the benefit of the privilege cannot, in the absence of statutory warrant, properly be disregarded or overridden by the courts.

72    Deane J concluded that the ordered disclosure “represents a significant overriding of the appellant's privilege against self-incrimination regardless of whether the fact of involuntary disclosure and the matters disclosed would themselves be admissible against the appellant in any subsequent criminal proceedings” (at 6). His Honour observed that the protection of the privilege against self-incrimination extended not only to the risk of incrimination by direct evidence, but also by indirect or derivative evidence (at 6).

73    In Reid v Howard, the plurality (Toohey, Gaudron, McHugh and Gummow JJ) stated that (at 11):

The 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.

74    Their Honours further stated (at 14):

There is simply no scope for an exception to the privilege, other than by statute. At common law, it is necessarily of general application — a universal right which, as Murphy J pointed out in Pyneboard Pty Ltd v Trade Practices Commission, protects the innocent and the guilty. There is no basis for accepting any class or category of person whether by reference to legal status, legal relationship or, even, the offence in which he or she might be incriminated because, as already indicated, its purpose is the completely general purpose of protecting against “the peril and possibility of being convicted as a criminal”. For the same reason, there can be no exception in civil proceedings, whether generally or of one kind or another. Moreover, it would be anomalous to allow that a person could refuse to answer questions in criminal proceedings or before investigative bodies where the privilege has not been abrogated if that person could be compelled to answer interrogatories or otherwise make disclosure with respect to the same matter in civil proceedings.

75    The plurality concluded that the Court of Appeal did not have power to make the relevant orders (at 16).

76    In Re AWB Ltd (No 1) (2008) 21 VR 252, in December 2007, ASIC brought civil proceedings seeking declarations, civil penalties and injunctions against directors and officers of AWB Ltd for contravention of ss 180(1) and 181(1) of the Corporations Act 2001 (Cth) (“the Corporations Act”) for breach of duty in relation to AWB’s contracts with Iraq under the United Nations Oil for Food Programme.

77    The defendants sought a stay of the civil proceedings pending decision by ASIC and the Oil-for-Food Task Force on whether criminal proceedings should be brought against them. ASIC acknowledged the common law discretion to stay civil proceedings in the interests of justice if criminal proceedings could be commenced against a defendant for an offence constituted by substantially the same conduct raised in the civil proceeding (at 259).

78    ASIC also conceded that a refinement of the principles in McMahon v Gould should be made, by reason of the High Court’s decision in Reid v Howard (at [19]).

79    In contrast to the present case, in Re AWB Ltd (No 1), no charges had yet been laid and the civil action would terminate if that occurred. This was due to provisions of the Corporations Act which abolished the right to seek a civil penalty if criminal proceedings in respect of substantially the same conduct were on foot and terminated ASIC’s right to obtain a civil penalty if a conviction were obtained in respect of such conduct. The McMahon v Gould line of authorities was thus subject to a statutory limitation in the case of civil penalty proceedings (at [78]-[79]).

80    In Re AWB Ltd (No 1), the defendants submitted that criminal proceedings were “on the cards”, which Robson J construed as meaning that they were a reasonable possibility (at [86]).

81    Robson J stated (at [99]):

Applying the McMahon v Gould principles, subject to the refinement in Pt 9.4B [of the Corporations Act], I take into account that the guiding principle is the interests of justice and that each case is to be judged on its merits. In particular, I consider whether there is a real and not merely a notional danger of injustice in the criminal proceedings.

82    His Honour concluded that there was a real risk that criminal proceedings were “on the cards” for most defendants, that the civil proceedings would be stayed if not determined before the criminal proceedings commenced, and the defendants would thereby potentially waste significant expenditure on the civil proceedings. Robson J also weighed the effect on the plaintiff, noting that ASIC was pursuing the public good in the civil action, the defendants owed no obligation to ASIC, and both the civil and criminal proceedings would be brought by an emanation of the State.

83    In contrast, his Honour considered that it would be premature to grant a stay in relation to one defendant, Mr Lindberg, as criminal proceedings against him were not “on the cards”.

84    In the course of his reasons, Robson J extensively analysed the relevant authorities and observed that McMahon v Gould and Reid v Howard did not sit easily together (at [56]).

85    His Honour stated (at [47] to [48]):

The principles in McMahon v Gould provide guidelines on whether to stay a civil proceeding because of pending criminal proceedings. They provide that a plaintiff 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 what his defence is likely to be in the criminal proceeding. Another relevant factor is whether the defendant has already disclosed his defence to the allegation. In Australian Securities Commission v Kavanagh, Hayne J said, after reviewing the principles to be applied in determining the applications for a stay, that:

In my view, it is therefore clear that unless reason is shown to the contrary, a plaintiff is entitled to have its action tried in the ordinary course of the procedure and business of the court and that it is a grave matter to interfere with that entitlement by a stay of proceedings the grant of which would require justification on proper grounds. In the end the task is one of the balancing of justice between the parties taking account of all relevant factors and judging the case on its merits.

ASIC concedes however, that these statements of principle should be refined by reason of the High Court of Australia decision in Reid v Howard. There, the High Court confirmed the fundamental importance of the privilege against self-incrimination and, in particular, that it cannot be abrogated other than by statute.

86    His Honour discussed Reid v Howard in detail and cited authorities which in terms dealt with compulsory disclosure leading to incrimination, albeit by direct or indirect evidence.

87    His Honour stated (at [50] to [51]):

I have already referred to the doubts expressed about McMahon v Gould particularly since the decision in Reid v Howard. The guidelines give little weight to the fact that the defendant may be compelled to waive his right of silence if he wishes to defend the civil action. In Cameron’s Unit Services Pty Ltd v Kevin R Whelpton Associates (Aust) Pty Ltd, Wilcox J said:

The fact that the existence of the civil action may result in a decision by the accused person to waive his right of silence is not, in itself, a sufficient reason to stay that action. The real question must be the likelihood of causing injustice in the criminal proceedings …

Accordingly, on this approach the right of silence is not infringed if the defendant elects to waive his right of silence to defend the civil proceedings by raising and running a positive defence. In this case, the defendants are alleged to have contravened ss 180 and 181 of the Corporations Act. The statutory defences to s 180(1) include the business judgment rule in s 180(2) and the honesty defence in s 1317S. The business judgment rule requires the defendant to establish he made the judgment in question in good faith for a proper purpose. The honesty defence requires the defendant to establish he acted honestly. These defences to the civil proceedings would squarely raise the additional elements that the prosecution of the defendants under s 184 would raise and impose on the prosecution, that is, dishonesty and lack of good faith. The defendants who were directors may also rely on s 189 which imposes on the defendant an obligation to establish good faith. The defendants argue that it is a relevant consideration that the defence of the civil proceedings may require the defendants to forego or waive their right to silence with the adverse consequences that may follow to the defendant in the subsequent criminal proceedings. The McMahon v Gould line of authorities provides little support for this view.

88    His Honour referred to Australian Securities Commission v Kavanagh (1993) 12 ACSR 69 and Philippine Airlines v Goldair Australia Pty Ltd [1990] VR 385, where Young CJ approved the statement of Megaw LJ in Jefferson Ltd v Bhetcha [1979] 1 WLR 898 that (at [54]):

There is, I say again, in my judgment, no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for the conduct of civil actions merely because so to do would, or might, result in the defendant, if he wished to defend the action, having to disclose, by an affidavit under order 14, or in the pleading of his defence, or by way of discovery or otherwise, what his defence is or may be, in whole or in part, with the result that he might be giving an indication of what his defence was likely to be in the contemporaneous criminal proceedings. The protection which is at present given to one facing a criminal charge — the so-called “right of silence” — does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings.

89    Robson J concluded at [58]:

For the purposes of this case, I assume I am bound to follow the McMahon v Gould line of authorities. Nevertheless, I wish to add my voice to those at first instance suggesting that an appellate court may wish to reconsider McMahon v Gould. In particular, 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. Compelling the defendant to defend civil proceedings, particularly those which impose a penalty, may assist the Crown in its prosecution by putting the Crown onto a train of inquiry or enable it to adjust its case to meet the anticipated defence in advance. It might be thought that such a circumstance denies the defendant his or her basic common law right to have the Crown establish its case against him or her without any assistance from the defendant.

90    In Naidu v The Queen [2011] VSCA 14, Maxwell P referred to the authorities reviewed by Robson J, which in Maxwell P’s view, showed that the courts should be astute to protect a defendant from prejudice in the present context by staying the civil proceeding. His Honour stated at [23]:

There is, I think, an instructive parallel between the position of the present applicant and the position of a defendant in a civil proceeding who is, or is likely to become, a defendant to criminal charges relating to the same subject-matter. As appears from the authorities reviewed by Robson J in Australian Securities and Investments Commission v Geary, the court will be astute to protect such a defendant against prejudice in the criminal proceeding, by the grant of a stay of the civil proceeding. The justification for such an order is that the defendant should not be put in a position where he/she is obliged to disclose in the civil proceeding matters which may affect his/her defence in the criminal proceeding. Similar considerations applied here.

91    In De Simone v Bevnol Constructions and Developments Pty Ltd [2010] VSCA 231, the Victorian Court of Appeal (Redlich, Mandie and Hansen JJA) (at [6]) identified the “ultimate question” in McMahon v Gould as:

… has there been demonstrated such a real risk of injustice to the defendant that the court would be justified in denying the plaintiff his fundamental right to a hearing in ordinary course?

92    Their Honours stated (at [7] – [9]):

The McMahon v Gould guidelines have been applied in Australian courts many times. Young CJ did so in Philippine Airlines v Goldair. Often the case will be determined without express reference to the guidelines but by reference to the justice of the situation, and in that sense such cases follow the McMahon v Gould line of authority.

Counsel for the Attorney-General provided us with a lever arch file of authorities which reflected the wide acceptance of the McMahon v Gould guidelines. Some of the cases contain expressions of concern that the guidelines may not appropriately accommodate the privilege against self-incrimination particularly in view of the reminder in Reid v Howard that the privilege is a common law right which applies unless excepted by statute or waiver. Hence there have been suggestions in some cases that McMahon v Gould should be reconsidered “so as to decide whether too little weight is given to the practical as well as legal prejudice to the accused and to the primacy of criminal proceedings in our justice system”.

Notwithstanding such concerns, the McMahon v Gould line of authority remains firmly established and the guidelines have not been modified by an appellate court. It is apparent, as has been acknowledged by judges, including in appellate decisions that the suggested reconsideration of McMahon v Gould and the subsequent line of authority therefrom, could only be performed by an appellate court and it may be by the High Court. It is axiomatic that any such reconsideration should occur in a case in which the facts and circumstances render it appropriate to undertake the reconsideration. Overwhelmingly, the present is not such a case.

The parties’ submissions

93    The second respondent primarily submitted that the High Court’s statements in Reid v Howard either implicitly modified the principles in McMahon v Gould, or that the principles should not be applied rigidly in the light of Reid v Howard. The second respondent also submitted that even on the unmodified principles in McMahon v Gould, properly construed, a stay was justified in this case as there was a real, and not merely notional, danger of injustice to the second respondent in the pending criminal proceedings on a number of grounds, as follows:

(a)    The proximity of the criminal hearing to the civil hearing. While the criminal matter is listed for a first return date of 5th June 2012, it may take twelve months before the matter is listed for trial. While the trial date for the civil matter has been vacated, there is a real risk the proceedings will run in parallel.

(b)    The burden on the second respondent preparing for both sets of proceedings concurrently. The Second Respondent is impecunious and relying on the assistance of the Public Interest Law Clearing House (PILCH) which has agreed to assist him only in this Stay application. The referral to Bullards Solicitors in relation to same expires after this application has been heard.

(c)    The Second Respondent filed his Defence on 14 October 2011, prior to being made aware on 3 November 2011 that he was at peril of criminal prosecution.

(d)    In essence, the Defence raised by the Second Respondent is that the Second Respondent became aware of the First Respondent's unauthorised access to the Applicant's computer after the fact (Defence at [38]). The Second Respondent denies acting in concert with, or aiding and abetting, the First Respondent in any trespass of the Applicant's computer system (at [30]). Further, the Second Respondent denies that unauthorised access of a database amounts at law to trespass (at [58]).

(e)    At the time of filing of his Defence, the Second Respondent had sought some assistance from the Public Interest Law Clearing House, but was unrepresented. The Second Respondent drafted and filed his own defence.

(f)    The possibility that negative publicity about the civil proceeding promulgated on the internet may contaminate jurors if the second respondent elected to take an indictable charge to trial. This is supported by the Affidavit of Barry Joseph Woods dated 30 April 2012 which exhibits articles that have appeared online in relation to the civil proceeding and which contain direct quotations from the alleged emails between the Respondents which were subject to this Courts non-disclosure undertaking.

94    The second respondent submitted that the following matters also supported the grant of a stay in this case:

(a)    In assisting the police to lay criminal charges by providing material obtained under the search order in breach of their undertakings, the applicant and Mr Meyers violated the protection to which the second respondent was entitled. The information derived from the search order had probably provided the framework for laying the extant summary charges under s 247G of the Crimes Act and also the potential indictable offences under the Copyright Act. In such circumstances, the applicant could not fairly complain if the criminal proceeding thus instituted led to a stay of the civil proceeding.

(b)    The second respondent’s defence was also provided to the police for the purposes of a police investigation. The provision of the derivative information to the police also amounted to an abuse of process.

(c)    The provision of various documents produced by the second respondent in response to compulsory civil procedures had effectively cut across his right to silence.

(d)    The applicant had used the second respondent’s denials as admissions to trespass in its outline of submissions in support of the release application, thus illustrating the potential peril of his further participation in the compulsory civil procedures in relation to further prosecution or self-incrimination.

(e)    Compliance with court orders for further discovery and the filing of affidavits would not only further disclose the second respondent’s defence, but might be used by the police as admissions adverse to the interests of the accused in the criminal proceedings.

(f)    Moreover, the likelihood of self-incrimination was real and s 128 of the Evidence Act 1995 (Cth) (“the Evidence Act”) would not protect the second respondent in relation to any further discovery, other pre-trial disclosure or affidavits which might be required prior to the trial of the proceeding.

95    The first respondent largely adopted the submissions of the second respondent, but advanced some different and additional contentions. Counsel for the first respondent submitted that he had already suffered unfair prejudice in relation to the criminal proceedings, because when the search order was executed against him, he was initially unrepresented due to his impecuniosity and thereafter had precarious representation dependent on pro bono agencies. The first respondent did not understand that criminal proceedings might be instituted or his entitlement to take the privilege against self-incrimination and consequently made no objection when the search order was executed. He also filed a frank defence and made discovery in the civil proceedings, to his potential prejudice in the criminal proceeding.

96    Counsel for the first respondent conceded that a stay of the civil proceeding at this point may not undo any damage already caused by the breach of the undertaking, but submitted that the past prejudice sustained was a discretionary factor in favour of a stay.

97    Counsel for the first respondent also emphasised that it was necessary to stay this proceeding until the determination of the s 247G proceeding in order to prevent further prejudice in relation to other potential criminal prosecutions and civil penalty provisions (such as ss 182 and 183 of the Corporations Act 2001 (Cth)), because the respondents must otherwise go into evidence to explain the basis of their denials of acting together, giving rise to danger that the information thus disclosed could be used derivatively to found further criminal charges for indictable offences.

98    Further, if the respondents filed witness statements and gave evidence at trial in this proceeding prior to trial in the s 247G criminal proceeding, they would be prejudiced in the latter, as once in evidence in this proceeding, material could be used in the s 247G proceeding and other criminal prosecutions.

99    The first respondent also submitted that after the s 247G proceeding was determined, the hearing of the civil proceeding would be more straightforward, and, depending on the outcome, the respondents could give their evidence in it without fear of further self-incrimination.

100    Counsel for the first respondent submitted that he had unwittingly forfeited protections available under ss 128A and 128 of the Evidence Act in complying with the search order and the orders for filing an affidavit, filing a defence and making discovery as, prior to November 2011, he was unaware of the risk of criminal prosecution arising from the disclosure of the material in the civil proceeding, to which he might have objected.

101    The first respondent also submitted:

a.    There is a real danger that negative publicity on the internet would contaminate jurors if the indictable charge under section 132AJ of the Copyright Act 1968 (Cth) or section 321 of the Crimes Act 1958 (Vic) were brought to trial;

b.    The first respondent would suffer a great burden in preparing for both sets of proceedings concurrently, which would be likely if the stay were not granted.

…

g.    The remaining steps in the [civil] proceeding are the filing of witness statements and the hearing. In carrying out those steps the first defendant will be forced to disclose the basis of the denial in paragraph 39 of his defence that he acted together with the second respondent and would be compelled to incriminate himself in respect of the potential criminal charges under s132AJ Copyright Act and conspiracy.

h.    Both of the respondents are impecunious and unlikely to be in a position to meet any order for damages or compensation that might be made against them in these proceedings. The applicant is therefore unlikely to be prejudiced by any delay in the making of damages or compensation orders against the respondents in the event that the stay is granted.

102    The applicant opposed the stay. It contended that the respondents relied only on submissions, rather than cogent evidence, in support of the stay.

103    The applicant submitted that the first respondent’s assertions that he was initially unaware of the right to object or claim privilege against self-incrimination were implausible, as the independent solicitor stated in her report that she informed the first respondent of his rights and asked whether he understood. Further, by 1 April 2011, both respondents were represented by lawyers who, as a matter of inference, would have informed them of their rights. The claim of prejudice by reason of failing to object under the search order, providing a frank defence and giving discovery, should thus be rejected.

104    The applicant submitted that the first respondent had not sought to withdraw any admissions in his defence and had made only inadequate discovery after learning of the potential criminal charges, deposing to a loss of documents by an alleged multiple computer malfunction, which was not satisfactorily explained. While the applicant contended that the first respondent’s allegedly deficient discovery and related implausible assertions weighed against the exercise of the discretion, it conceded that it had filed no evidence and made no application in relation to those allegations.

105    The applicant submitted that the principles in McMahon v Gould were not modified or relaxed by Reid v Howard. In the present case, the respondents’ alleged apprehension that they might incriminate themselves in relation to more serious charges was vague and unparticularised, as only charges under s 247G of the Crimes Act were currently laid. There was no realistic potential for contamination of jurors, as only two articles had been published on the internet to date, and the s 247G proceeding involved a summary offence, which would be heard by a magistrate alone. There was no evidence that the respondents would be charged with indictable offences to be dealt with by a jury.

106    The applicant submitted that there was no plausible evidence that the respondents would be burdened by having to prepare for two proceedings, as the proximity and details of the criminal proceedings and the commitment they would require were unknown. There was no credible evidence of the respondents’ impecuniosity and the first respondent owned over 100 domain names, which the applicant claimed under a constructive trust.

107    The applicant submitted that despite the breach of the undertaking, Jessup J did not characterise Mr Meyer’s breach of undertaking as wilful or reckless. Moreover, the statement of claim could not now be used in the criminal proceeding and the evidence did not establish that the police had used material derived from the search order to lay the s 247G charges, as opposed to acting on the applicant’s initial complaint. Although the respondents had already filed defences in this proceeding which were provided to the Police, they too had been returned and could not be used in the criminal proceeding.

108    The applicant submitted that the possibility that the remaining pre-trial steps in this proceeding would require the respondents to disclose the basis of their denials and actions, thereby incriminating themselves, was not, according to the McMahon v Gould guidelines, a basis for a stay.

Discussion

109    The court has a discretion to grant a stay of civil proceedings when criminal proceedings involving the same subject matter are on foot or “on the cards”. The court’s discretion should not be exercised lightly in this context, but each case will be determined on its merits. The overriding principle is balancing the interests of justice between the parties.

110    The court will consider, according to the various formulations, whether there is a real and not merely notional danger of injustice in the criminal proceedings, a likelihood of causing injustice in the criminal proceedings, or a real prospect of substantial injustice therein if the civil proceeding continues. The plaintiff’s entitlement to bring and prosecute its case is also an important consideration in this context.

111    The defendant bears the onus of establishing that it is in the interests of justice to stay the civil proceeding which the plaintiff is prima facie entitled to bring and maintain.

112    A criminal charge under s 247G of the Crimes Act has now been laid against the respondents, which involves the same subject matter and similar or parallel allegations to those in this proceeding. Further, additional criminal charges based on the same subject matter have been investigated and contemplated by the Victoria Police on the complaint of the applicant, and there is nothing to suggest that interest in bringing further charges has ceased.

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

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

115    While McMahon v Gould, unless authoritatively re-evaluated, remains applicable, Wootten J did not purport to establish a rigid code, but expressly recognised that the relevant considerations will vary according to the individual case and that his guidelines were not exhaustive. It is also important to observe that Wootten J did not suggest that potential impact on the privilege against self-incrimination was irrelevant in this context. His Honour expressly recognised that the right of silence and the reasons for that right (emphasis added) in a criminal trial, were relevant to a stay of civil proceedings. His Honour went on to observe that the right of silence had both legitimate rationales and illegitimate consequences and courts should not be concerned to preserve the latter in exercising its discretion to stay civil proceedings. He stated that the civil proceeding should not be stayed merely (emphasis added) because the defendant (if he wished to defend) would have to disclose his probable defence in the criminal action.

116    Wootten J thus concluded that potential compromise of the right of silence in the criminal proceeding by disclosure of the defence in the civil proceeding (where this could deprive the defendant of tactical advantages of the right of silence in the criminal proceeding) would not automatically, in itself, justify a stay. His Honour did not exclude, however, as a consideration favouring a stay, a risk of prejudice in criminal proceedings constituted by impact on legitimate goals of the right of silence or the privilege against self-incrimination. His Honour did not state that the impact on the right of silence by way of witness statements or evidence at trial was not a relevant consideration favouring a stay. Indeed, Wootten J recognised that it may be appropriate to stay the civil proceeding at the point of setting the matter down for trial.

117    The “real risk of injustice” relevant in this context can relate either to an actual or potential criminal proceeding. In the present case, most significantly, a proceeding under s 247G of the Crimes Act is already on foot, apparently commenced in time to meet limitations requirements. In my view, further proceedings, particularly charges under the Copyright Act, although not yet commenced, are “on the cards” in the sense that they are reasonably possible.

118    As the respondents submitted, they suffered prejudice in relation to the criminal proceedings, when the applicant and its director provided material to the Victoria Police in breach of their undertakings to the court, which (irrespective of whether the s 247G charges would have been brought in any event) assisted in the assessment of whether to bring criminal charges. The prejudice was addressed, to the extent possible, by Jessup J’s decision and the subsequent return of the relevant material, although some lasting prejudice in the criminal proceedings cannot be excluded. A stay of this proceeding at this point could not eliminate such prejudice. Nor could it eliminate prejudice in criminal proceedings already sustained by reason of disclosure of defences, as they have already been filed in this proceeding, were provided to the Victoria Police and have now been returned. It is, however, not irrelevant that the respondents have already been deprived, by breach of undertaking, of protection conferred by court orders. Nevertheless, the important question in this context is whether there is a real risk of prejudice to the respondents in either the s 247G or other criminal proceedings, if the civil proceeding is not now stayed, which outweighs the applicant’s interest in advancing this proceeding.

119    In my opinion, there is such a real risk of prejudice.

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

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

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

123    The s 247G proceeding is first returnable on 6 June 2012. A trial in the civil proceeding could not, within current docket commitments, be fixed prior to 2013, and concurrent or overlapping preparation and trials are not unlikely should this proceeding continue.

124    The respondents are dependent on pro bono representation, the continued provision of which appears uncertain and precarious. I am satisfied that they are impecunious or of limited resources. Irrespective of the financial burden, I accept that the need concurrently to prepare for and participate in, the civil and criminal trials would impose significant strains.

125    Independently of the risk of prejudice entailed by the disclosure of evidence or information should the civil proceeding go forward, the respondents’ financial circumstances and the burden entailed by concurrent civil and criminal proceedings constitute a sufficient risk of real prejudice in the proceeding under s 247G of the Crimes Act. Further, other serious criminal charges are on the cards, which reinforce that risk.

126    I accept, in this context, that there is no immediate risk of jury contamination, as the current criminal proceeding will not involve a jury.

127    The applicant will suffer delay of the civil proceeding by reason of a stay, but the s 247G prosecution is, pursuant to the applicant’s complaint, already on foot. In such circumstances, evidence and recollection are unlikely to be lost. While the applicant argued that delay occasioned by a stay would jeopardise property in the domain names it claims under a constructive trust, there was no evidence of the duration of the domain names or any evidence that a stay would pose a risk of their expiry prior to judgment in the civil proceeding which would otherwise not arise.

128    In all the circumstances, the real risk of prejudice to the respondents in relation to the criminal proceedings is, at this stage, such as to outweigh the applicant’s interest in advancing the civil proceeding. This proceeding should be stayed for the minimum period necessary required in the interests of justice, which, in my opinion, is until the determination of the proceedings under s 247G of the Crimes Act (excluding any appeal). Liberty to apply in the event of a material change in circumstances should be granted.

Associate:

Dated:    30 May 2012