FEDERAL COURT OF AUSTRALIA

Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 3) [2018] FCA 1107

ORDERS

THE COURT ORDERS THAT:

1.    Within seven days, the parties submit minutes of proposed orders to give effect to these reasons.

2.    Within seven days, each party file and serve a written submission (of no more than two pages) on costs.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    The issue to be considered in these reasons is whether the first respondent, Deloitte Touche Tohmatsu (DTT), a firm, should be required to provide a list of documents, and to produce documents, in respect of which it has claimed the privilege against self-incrimination and the privilege against exposure to penalties.

2    This proceeding was commenced in 2017 by the applicant, Sadie Ville Pty Ltd (as trustee for the Sadie Ville Superannuation Fund) (Sadie Ville) on its own behalf and as a representative party pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth). Sadie Ville had purchased shares in Hastie Group Limited (Hastie) at various dates between 14 June 2011 and 21 February 2012 (the Relevant Period). Hastie subsequently went into liquidation. DTT had been the auditors of Hastie and had prepared: an audit report in respect of its audit of Hastie’s financial statements for the financial year ended 30 June 2010; a review report in respect of its review of Hastie’s financial statements for the half-year ended 31 December 2010; an audit report in respect of its audit of Hastie’s financial statements for the financial year ended 30 June 2011; and an investigating accountants’ report for inclusion in a draft prospectus released by Hastie on 14 June 2011 (the Pathfinder) and in a prospectus released by Hastie on 17 June 2011 (the Prospectus). The second respondent, Deloitte Corporate Finance Pty Limited (DCF), a wholly-owned subsidiary of DTT, had prepared a report on directors’ forecasts for inclusion in the Pathfinder and in the Prospectus. Sadie Ville brought the proceeding on its own behalf and on behalf of certain other persons who had acquired shares in Hastie during the Relevant Period (together, the Claimants).

3    In its second amended statement of claim (the statement of claim), Sadie Ville alleges that DTT contravened various provisions (each as at 2010-2011) of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), and the Australian Consumer Law (Victoria) (the ACLV), being the Australian Consumer Law text as applied by the Fair Trading Act 1999 (Vic) as amended by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic). Some of the provisions that DDT is alleged to have contravened, as well as providing a basis for a claim for compensation, are offence or pecuniary penalty provisions. In particular, DTT is alleged to have contravened s 1041E of the Corporations Act, s 12DB of the ASIC Act and s 29 of the ACLV. Further, the statement of claim in effect alleges that DTT contravened s 307A of the Corporations Act.

4    The Federal Court Rules 2011 permit a proceeding to be brought against two or more persons who it is claimed are liable as partners in the partnership name: r 9.41(2). This is a convenient procedural device; the proceeding is in fact brought against all of the partners of the partnership. Thus, in the present case, although DTT is named as the first respondent, the proceeding is in substance brought against all of the partners of the firm at the relevant time or times for the purposes of the allegations in the statement of claim.

5    On 5 March 2018, the Court made orders for discovery in the proceeding. DTT was required to give discovery, by 4.00 pm on 3 April 2018, of the following categories of documents:

(a)    its audit files (however titled) and working papers for:

(i)    the DTT audit of Hastie’s financial statements for the financial year ended 30 June 2010;

(ii)    the DTT review of Hastie’s financial statements for the half-year ended 31 December 2010; and

(iii)    the DTT audit of Hastie’s financial statements for the financial year ended 30 June 2011;

(b)    Hastie’s Audit and Risk Management Committee (ARMC) meeting packs and minutes for the period 25 February 2010 to 28 May 2012; and

(c)    the file and working papers (as the case may be) in relation to the investigating accountants’ report contained in the Pathfinder and the Prospectus issued by Hastie in June 2011.

6    Subject to any claims for privilege, DTT was required to produce the discovered documents by 4.00 pm on 10 April 2018.

7    On 3 April 2018, the respondents filed and served their list of documents, verified by an affidavit of Anthony Lee, Senior Legal Counsel at DTT, affirmed on 3 April 2018 (the First Lee Affidavit). Part 2 of the list related to documents in the control of DTT in respect of which privilege was claimed. This part comprised nine categories, numbered 5 to 13. It is sufficient for present purposes to refer to categories 5 to 9, which were as follows:

8    In [5] of the First Lee Affidavit, Mr Lee stated that the documents set out in Part 2 were in the control of DTT but he claimed privilege from production of each of those documents on the grounds set out in Part 2. The grounds identified in Part 2 of the list were the privilege against self-incrimination and the privilege against exposure to penalties.

9    By an interlocutory application dated 16 May 2018, Sadie Ville seeks orders that:

(a)    DTT provide a list of documents that describes each document in categories 5 to 8 of the respondents’ list of documents for which privilege from production is claimed; and

(b)    DTT produce to Sadie Ville the documents in categories 5 to 13 of the list.

10    Pursuant to r 20.32 of the Federal Court Rules 2011, a party may apply to the Court for an order that another party produce for inspection any document that is included in the second party’s list of documents and that is in that party’s control.

11    Insofar as the interlocutory application sought an additional order, in paragraph 3, that is not pressed. Further, DTT does not press its claim for privilege in relation to categories 10 to 13 in the list of documents. Accordingly, it is only necessary to consider categories 5 to 9 for present purposes.

12    DTT relies on the privilege against self-incrimination and the privilege against exposure to penalties to resist production of the documents. DTT submits, in summary, that: the allegations in the statement of claim include multiple contraventions of provisions that are offence provisions and/or pecuniary penalty provisions; Sadie Ville seeks to advance the broadest case possible of audit/review wrongdoing in respect of the relevant engagements; and production of the documents in question would give rise to a real and appreciable risk of prosecution and/or the institution of proceedings for the recovery of a pecuniary penalty.

13    Sadie Ville submits, in summary, that: the only partners who could, even theoretically, be at risk of prosecution or the imposition of a penalty are those who were involved in the relevant audits, reviews and reports; the documents in question can be produced by any other partner without the risk of prosecution or exposure to a penalty; and, in the alternative, there is no real or appreciable risk that production of the documents would expose any DTT partner to criminal prosecution or a pecuniary penalty proceeding.

14    For the reasons that follow, I consider that, in relation to the partners who were directly involved in the relevant engagements, production of the documents in question would give rise to a real and appreciable risk of prosecution for (at least) contraventions of ss 307A and 1041E of the Corporations Act. Accordingly, insofar as the claim for privilege is made by or on behalf of the partners who were directly involved in the relevant engagements, I consider the claim to be made out.

15    However, in respect of the other partners of DTT, I do not consider that production of the documents would give rise to a real and appreciable risk of prosecution for an offence or the institution of proceedings for a pecuniary penalty. I therefore reject the claim for privilege made on behalf of the other partners. DTT contends that the other partners do not have “control” of the documents in question (in the sense of possession, custody or power in respect of the documents) and therefore an order for production should not be made against them. I do not consider this to have been established and I infer that they do have control of the documents. Accordingly, I consider it appropriate to make an order that the other partners of DTT produce the documents in categories 5 to 9 of the respondents’ list of documents.

16    These reasons will be structured under the following headings:

(a)    The evidence;

(b)    The privilege claim;

(c)    The pleadings;

(d)    The offence and pecuniary penalty provisions;

(e)    Factual findings;

(f)    The parties’ submissions; and

(g)    Consideration.

The evidence

17    Sadie Ville relies on two affidavits of Timothy Finney (a solicitor), one dated 16 May 2018, the other dated 12 June 2018.

18    DTT relies on the First Lee Affidavit, an affidavit of Mr Lee dated 4 June 2018 (the Second Lee Affidavit) and an affidavit of Mr Lee dated 18 June 2018 (the Third Lee Affidavit). Although described as “Senior Legal Counsel at DTT” in the First Lee Affidavit and “a Senior Legal Counsel at DTT” in the Second Lee Affidavit, Mr Lee is employed by a company called Deloitte Services Pty Ltd.

19    In addition, DTT relies on an affidavit of Reuben George Saayman (a partner of DTT) dated 5 July 2018 (the Saayman Affidavit). This affidavit was filed, with leave, after the hearing. I do not, however, receive paragraph 4 of the affidavit into evidence, for the following reasons. At the hearing of the application, I raised with senior counsel for DTT whether, if I considered it appropriate for Mr Saayman to provide an affidavit claiming the privileges (the evidence indicating that Mr Saayman was one of the partners responsible for the relevant engagements), he would be prepared to do so. Later during the hearing, senior counsel for DTT in effect sought leave to file an affidavit of Mr Saayman confirming that he wishes to claim the privileges (T25). On this basis, leave was given to DTT to file an affidavit of Mr Saayman following the hearing. I raised with senior counsel for Sadie Ville whether it sought leave to file a submission following the filing of the affidavit. Senior counsel responded that, on the basis that Mr Saayman’s affidavit would do no more than formally confirm that he claims the privilege, leave to file a submission was not required (T78). On 5 July 2018, the Saayman Affidavit was filed. Paragraph 1 to 3 constituted a claim by Mr Saayman on his own behalf. However, paragraph 4 went further, and related to the other partners. Sadie Ville objected to this paragraph on the basis that it went beyond what was contemplated at the hearing. Sadie Ville indicated that it would not oppose leave being granted for DTT to rely on paragraph 4, provided Sadie Ville had the opportunity to file a short (two page) submission. My chambers sent an email to the parties indicating that: I considered paragraph 4 of the Saayman Affidavit to go beyond what was contemplated at the hearing, which was an affidavit by Mr Saayman on his own behalf; and I was minded not to receive the paragraph into evidence absent an application for leave to re-open by DTT. DTT was invited to indicate how it wished to proceed. DTT then indicated that it did not press paragraph 4.

20    In addition to the affidavits, DTT also tendered one document.

21    Mr Lee was cross-examined during the hearing. I note two matters regarding Mr Lee’s evidence at this stage. The first is that Mr Lee said that he did not speak directly with Mr Saayman for the purposes of preparing his affidavits. (As noted above, the evidence indicates that Mr Saayman was one of the partners responsible for the relevant engagements.) When asked who within the firm gave him (Mr Lee) instructions in relation to the claims of privilege, he said Mr Saayman did, and that one of Mr Lee’s team members obtained those instructions from Mr Saayman. The second matter is that, although Mr Lee made the claim of privilege on behalf of the firm, it is unclear the extent to which he looked at the documents in respect of which privilege is claimed. When he was asked whether he had looked at the privileged material, Mr Lee initially answered “Not myself, no”. Mr Lee subsequently qualified this by saying that he did not look at all of the documents.

The privilege claim

22    In [5] of the First Lee Affidavit, Mr Lee stated that the “documents set out in part 2 are in the control of the First Respondent but I claim privilege from production of each of these documents on the grounds set out in part 2”. In [9] of the Second Lee Affidavit, Mr Lee stated that he wished to clarify that paragraph of the earlier affidavit. The clarification was that [5] of the First Lee Affidavit should be read as a privilege claim made on behalf of the DTT partners at the relevant time or times of the conduct complained of in the statement of claim.

The pleadings

23    I now outline the case pleaded by Sadie Ville in the statement of claim, which provides context for the issue raised by the interlocutory application. DTT relies on the nature of the allegations in the statement of claim in support of its privilege claims.

24    Paragraph [5] of the statement of claim alleges that: DTT operated as partnership; and acted by a partner of the firm acting in the firm’s name, acting in the ordinary course of business of the firm, and with the authority of his or her co-partners, within the meaning of s 14 of the Partnership Act 1958 (Vic) and s 10 of the Partnership Act 1892 (NSW). Paragraph [6] of the statement of claim is as follows:

In the premises in paragraph 5, at all material times, DTT:

6.1    was a partnership conducting business in Victoria and New South Wales as accountants, auditors and advisors;

6.2    was and is able to be sued in the partnership name, under Rule 9.41 of the Federal Court Rules 2011 (Cth);

6.3    was a partnership that included, among its partners and employees practising in Victoria and New South Wales, persons who are registered company auditors within the meaning of section 9 and Part 9.2 of the Corporations Act; and

6.4    was a person within the meaning of:

(a)    section 729 of the Corporations Act;

(b)    sections 1041E and 1041H of the Corporations Act, by reason of section 761F of the Corporations Act;

(c)    sections 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and

(d)    sections 18 and 29 of the Australian Consumer Law (Vic) (ACLV).

25    The paragraph set out above refers to s 761F of the Corporations Act, which provides that Ch 7 of the Corporations Act applies to a partnership as if the partnership were a person (but with certain changes to the way the provisions operate). Section 761F is in the following terms:

761F Meaning of person—generally includes a partnership

(1)    This Chapter applies to a partnership as if the partnership were a person, but it applies with the following changes:

(a)    obligations that would be imposed on the partnership are imposed instead on each partner, but may be discharged by any of the partners;

(b)    any contravention of a provision of this Chapter, or a provision of this Act that relates to a requirement in a provision of this Chapter, that would otherwise be a contravention by the partnership is taken (whether for the purposes of criminal or civil liability) to have been a contravention by each partner who:

(i)    aided, abetted, counselled or procured the relevant act or omission; or

(ii)    was in any way knowingly concerned in, or party to, the relevant act or omission (whether directly or indirectly and whether by any act or omission of the partner).

(2)    For the purposes of this Chapter, a change in the composition of a partnership does not affect the continuity of the partnership.

(3)    Subsections (1) and (2) have effect subject to:

(a)    an express or implied contrary intention in a provision or provisions of this Chapter; and

(b)    the regulations, which may exclude or modify the effect of those subsections in relation to specified provisions.

26    Section 761F of the Corporations Act provides a basis upon which to plead that DTT (as distinct from individual partners) contravened s 1041E. Likewise, it provides a basis upon which to plead that DTT contravened s 12DB of the ASIC Act (see s 5(2) of the ASIC Act and s 761A of the Corporations Act). However, it is unclear whether there is a proper basis upon which to plead that DTT contravened s 29 of the ACLV. This provision applies to a “person”, but DTT, as a partnership, is not a legal person. There is no provision like s 761F for the purposes of s 29 of the ACLV. In these circumstances, I propose to proceed on the basis that the allegations that DTT contravened s 29 of the ACLV are to be read as allegations that each partner of DTT contravened that provision.

27    Paragraph [15] of the statement of claim relates to the auditors’ obligations. It is alleged in [15.2] that DTT was required to conduct its audits of Hastie’s full year reports in accordance with the applicable auditing standards (defined as the “Auditing Standards”). The particulars under [15.2] refer to s 307A of the Corporations Act, which is an offence provision: see Corporations Act, s 1311 and Sch 3. The obligations described in [15] are defined as “DTT’s Statutory Audit Obligations”. Although the statement of claim does not directly allege that DTT contravened s 307A, it indirectly alleges contraventions of this provision, by alleging that DTT did not conduct the audits in accordance with DTT’s Statutory Audit Obligations (eg, [27.2]) or the Auditing Standards (eg, [32.1]).

28    Part D of the statement of claim, dealing with Hastie’s 2010 full year results, is structured as follows:

(a)    It is alleged that Hastie made a number of representations on or about 25 August 2010, at the time of releasing its annual financial report for the 2010 financial year – these are defined as “Hastie’s August 2010 Representations” ([25]).

(b)    It is alleged that Hastie’s actual position as at August 2010 was as set out in [26] of the statement of claim – the matters referred to in that paragraph being defined as the “August 2010 Information”.

(c)    It is alleged that the August 2010 Information was material to the accuracy of the representations of Hastie’s financial position and financial performance conveyed by its financial statements for the 2010 financial year ([27]). It is further alleged that the August 2010 Information concerned matters that the auditing standards required an auditor to consider and to obtain sufficient appropriate audit evidence about ([27]). There is also an allegation in [27] that the August 2010 Information was information that ought reasonably to have been detected and reported by a professional company auditor exercising due care and skill to conduct the audit of Hastie’s financial statements for the 2010 financial year “in accordance with DTT’s Statutory Audit Obligations” (defined to include s 307A of the Corporations Act – see [15] of the statement of claim), but was not disclosed in Hastie’s financial statements for the 2010 financial year.

(d)    It is alleged that Hastie’s financial report for the 2010 financial year included DTT’s audit report in respect of Hastie’s financial statements (defined as the “DTT FY2010 Audit Report”) ([28]).

(e)    It is alleged that, by the audit report, DTT made certain statements and representations (together defined as the “DTT FY2010 Audit Representations”) ([29]).

(f)    It is alleged (among other things) that the DTT FY2010 Audit Representations were: made in relation to a financial product within the meaning of ss 763A(1)(a) and 764A(1)(a) of the Corporations Act and s 12BAA of the ASIC Act, namely Hastie securities; statements or information likely to induce persons to apply for, dispose or acquire Hastie securities; and information that a reasonable person would expect to have a material effect on the price or value of Hastie securities ([30]).

(g)    Various alleged failures of DTT in carrying out the audit are alleged in [31].

(h)    In [32], it is alleged that, in the premises of the earlier paragraphs: DTT did not conduct the audit of Hastie’s financial statements for the 2010 financial year “in accordance with the Auditing Standards”; DTT had not obtained sufficient and appropriate audit evidence to provide a basis for its audit opinion; DTT had not exercised the care and skill to be expected of a competent professional company auditor in the conduct of the audit; and DTT did not have reasonable grounds for the audit opinion it expressed and the representations alleged earlier in the pleading (these matters being defined together and severally as the “DTT FY2010 Audit Breaches”).

(i)    In [33], it is alleged that DTT, in making the DTT FY2010 Audit Representations, made a statement or disseminated information that was false in a material particular or materially misleading.

(j)    In [34], it is alleged that DTT ought reasonably to have known: the August 2010 Information; the DTT FY2010 Audit Breaches; and the matters alleged in [33].

(k)    It is alleged that, in the premises of certain previous paragraphs, “by issuing the DTT FY2010 Audit Report DTT contravened s 1041E of the Corporations Act” ([35]). Section 1041E is an offence provision: see Corporations Act, s 1311 and Sch 3.

(l)    It is alleged that, by issuing the audit report, DTT made certain false representations and that, in the premises, DTT contravened s 12DB of the ASIC Act, and, further or alternatively, s 29 of the ACLV ([36]). Section 12DB is an offence provision: see ASIC Act, s 12GB. Section 29 of the ACLV is a pecuniary penalty provision: see ACLV, s 224. Further, there is an offence provision in substantially the same terms as s 29 in s 151 of the ACLV.

(m)    Further or alternatively, it is alleged that DTT engaged in conduct that was misleading or deceptive or likely to mislead or deceive and, in the premises, contravened s 12DA of the ASIC Act, s 1041H of the Corporations Act, and, further or alternatively, s 18 of the ACLV ([37]). These provisions are not offence or pecuniary penalty provisions.

29    The pleadings in relation to the review of the financial statements for the half-year ended 31 December 2010 (Part E) adopt a broadly similar structure, with some differences in the formulation of the allegations on account of the fact that DTT conducted a review rather than an audit of the half-year financial statements. Contraventions of the same offence and pecuniary penalty provisions are alleged.

30    Part H, which deals with the alleged Prospectus conduct, does not adopt the same structure, but also alleges that DTT contravened s 1041E of the Corporations Act ([83]), and s 12DB of the ASIC Act and s 29 of the ACLV ([84]). In [77] of the statement of claim, it is alleged that the DTT Prospectus Representations (defined in [68]) were misleading or deceptive within the meaning of s 728(1) of the Corporations Act. That provision makes it an offence to offer securities in certain circumstances. It is not suggested that DTT itself offered securities; the allegation in relation to s 728 is relied on as a basis for civil liability under s 729. Given the terms of s 728, and the circumstances, there does not appear to be a basis upon which it could be said that any DTT partner directly contravened s 728; the only potential issue concerns accessorial liability. For present purposes, this adds little to the issues raised by the other provisions. Accordingly, I propose not to focus on s 728.

31    Part I (Post-Prospectus Conduct) includes allegations relating to the audit of the financial statements for the 2011 financial year. This section of the pleading adopts a similar structure to Part D. Contraventions of the same offence and pecuniary penalty provisions are alleged.

32    Sadie Ville alleges that the contraventions by the respondents caused the Claimants to suffer loss or damage ([125]). One of the ways in which this is put is that, but for the alleged contraventions, the equity raising in June 2011 would not have been undertaken, the Hastie securities would not have been available for acquisition after 14 June 2011, or the securities would not have been available for acquisition at the relevant offer prices ([97I]). In the alternative, Sadie Ville alleges that, at all material times from no later than 17 June 2011, the price at which Hastie securities traded on the ASX was inflated by reason of the alleged representations ([114A]-[114E]), and some of the Claimants acquired Hastie securities in a market inflated by the representations ([115]).

33    As I observed in an earlier interlocutory judgment, the allegations “are pitched at a high level of generality and, in combination, amount to an attack on the whole conduct of the audit”: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (2017) 123 ACSR 223 at [28].

34    The respondents have filed a defence, dated 28 February 2018. I note that, in [6] of the defence, the respondents raise some issues concerning the way in which the statement of claim is pleaded against DTT as a partnership.

The offence and pecuniary penalty provisions

35    It is convenient at this point to set out the statutory provisions relied on in the statement of claim that may give rise to an offence or a pecuniary penalty. For present purposes, the parties did not suggest that there were any material differences between the legislation at the time of the conduct and the current legislation.

36    Section 307A of the Corporations Act provides as follows:

307A Audit to be conducted in accordance with auditing standards

(1)    If an individual auditor, or an audit company, conducts:

(a)    an audit or review of the financial report for a financial year; or

(b)    an audit or review of the financial report for a half year;

the individual auditor or audit company must conduct the audit or review in accordance with the auditing standards.

(2)    If an audit firm, or an audit company, conducts:

(a)    an audit or review of the financial report for a financial year; or

(b)    an audit or review of the financial report for a half year;

the lead auditor for the audit or review must ensure that the audit or review is conducted in accordance with the auditing standards.

(3)    An offence based on subsection (1) or (2) is an offence of strict liability.

Contravention of s 307A constitutes an offence under s 1311(1). The penalty for contravention of s 307A is 50 penalty units: see Corporations Act, Sch 3.

37    Section 1041E of the Corporations Act provides:

1041E False or misleading statements

(1)    A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if:

(a)    the statement or information is false in a material particular or is materially misleading; and

(b)    the statement or information is likely:

(i)    to induce persons in this jurisdiction to apply for financial products; or

(ii)    to induce persons in this jurisdiction to dispose of or acquire financial products; or

(iii)    to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and

(c)    when the person makes the statement, or disseminates the information:

(i)    the person does not care whether the statement or information is true or false; or

(ii)    the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.

(2)    For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1), paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(c).

(3)    For the purposes of an offence based on subsection (1), strict liability applies to subparagraphs (1)(b)(i), (ii) and (iii).

Contravention of s 1041E constitutes an offence under s 1311(1). The current penalty for contravention of s 1041E(1) in the case of an individual is: (1) imprisonment for 10 years; and/or (2) a fine the greater of (a) 4,500 penalty units, or (b) if the court can determine the total value of the benefits that have been obtained by one or more persons and are reasonably attributable to the commission of the offence – three times that total value: Corporations Act, Sch 3. The serious nature of a contravention of s 1041E was recognised by the High Court in Selig v Wealthsure Pty Ltd (2015) 255 CLR 661, where a plurality observed it “involve[s] a higher level of moral culpability than the conduct referred to in s 1041H. Unlike s 1041H, contravention of any of ss 1041E-1041G constitutes an offence, an element of which is knowledge or recklessness”: at [36] per French CJ, Kiefel, Bell and Keane JJ.

38    Section 12DB of the ASIC Act provides in part:

12DB False or misleading representations

(1)    A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:

(a)    make a false or misleading representation that services are of a particular standard, quality, value or grade; or

…

(3)    An offence under subsection 12GB(1) relating to subsection (1) of this section is an offence of strict liability.

39    Contravention of s 12DB constitutes an offence under s 12GB(1) of the ASIC Act, which provides:

12GB Offences against Subdivision D

(1)    A person who:

(a)    contravenes; or

(b)    aids, abets, counsels or procures a person to contravene; or

(c)    induces, or attempts to induce, a person whether by threats or promises or otherwise, to contravene; or

(d)    is in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of; or

(e)    conspires with others to contravene;

a provision of Subdivision D (sections 12DA to 12DN) other than section 12DA, is guilty of an offence punishable on conviction:

(f)    in the case of a person who is not a body corporate—by a fine not exceeding 2,000 penalty units; or

(g)    in the case of a person who is a body corporate—by a fine not exceeding 10,000 penalty units.

40    Contravention of s 12DB may also lead to the imposition of a pecuniary penalty under s 12GBA, which provides in part:

12GBA Pecuniary penalties

(1)    If the Court is satisfied that a person:

(a)    has contravened a provision of Subdivision C, D or GC (other than section 12DA); or

(b)    has attempted to contravene such a provision; or

(c)    has aided, abetted, counselled or procured a person to contravene such a provision; or

(d)    has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; or

(e)    has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or

(f)    has conspired with others to contravene such a provision;

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate.

The maximum pecuniary penalty for a contravention of s 12DB if the person is not a body corporate is 2,000 penalty units.

41    Section 29 of the ACLV provides in part:

29 False or misleading representations about goods or services

(1)    A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

…

(b)    make a false or misleading representation that services are of a particular standard, quality, value or grade; or …

Although s 29 is not an offence provision, there is an offence provision in substantially the same terms: ACLV, s 151(1). This creates an offence of strict liability: s 151(4). The penalty for the offence if the person is not a body corporate is $220,000. Section 29 is a pecuniary penalty provision: ACLV, s 224(1). The maximum penalty for a contravention of s 29 if the person is not a body corporate is $220,000: ACLV, s 224(3).

Factual findings

42    I now set out my factual findings relevant to the issue of privilege, based on the affidavit and documentary evidence, and the cross-examination of Mr Lee during the hearing.

DTT

43    DTT is and was at all material times structured as an Australian partnership of individuals.

44    As at June 2017, DTT had approximately 721 partners. The evidence does not indicate the number as at the relevant time or times for the purposes of the allegations made in the statement of claim. I would infer that there were a comparable number of partners at that time.

45    Mr Finney states at [5] of his second affidavit that he understands that: DTT is a professional services firm; in addition to audit and assurance services, it also provides consulting services, economics advice, tax advice, financial advisory services, risk advisory services, and private client services; and it is organised into divisions based on these service offerings. I accept the evidence of Mr Finney as set out in this paragraph, in circumstances where it was not contradicted in the Third Lee Affidavit. I would also infer that the structure was similar at the relevant times for the purposes of the allegations in the statement of claim.

46    It appears from the evidence gathered by Mr Finney and set out at [7]-[10] of his second affidavit that about 50 of the current partners are in the audit and assurance division of the firm. I accept this evidence. I would also infer that the number was comparable at the relevant times for the purposes of the allegations in the statement of claim.

The documents in question

47    The statutory audit and review files referred to in categories 5, 6 and 7 of the respondents’ list of documents include:

(a)    “audit working papers” within the meaning of s 307B of the Corporations Act;

(b)    (in respect of the audit files referred to in categories 5 and 7) “audit documentation” within the meaning of Australian Auditing Standard ASA230 (as in force at the time of each audit) (respectively, ASA230-2006 and ASA230-2009); and

(c)    (in respect of the review file referred to in category 6) “review documentation” under Standard on Review Engagements ASRE2410 (as in force at the time of the review) (ASRE2410).

48    The review file referred to in category 8 of the respondents’ list of documents includes “review documentation” under Standard on Review Engagements ASRE2405 (as in force at the time of the preparation of the draft investigating accountants’ report and the final report (ASRE2405).

49    The standards referred to above specify (in respect of audit and review files (as applicable)) matters to the following effect:

(a)    in respect of ASA230-2006, the auditor shall prepare the audit documentation so as to enable an experienced auditor, having no previous connection with the audit (Experienced Auditor), to understand:

(i)    the nature, timing and extent of the audit procedures performed to comply with the auditing standards and applicable legal and regulatory requirements;

(ii)    the results of the audit procedures performed and the audit evidence obtained; and

(iii)    significant matters arising during the audit and the conclusions reached thereon;

(b)    in respect of ASA230-2009, the same matters set out in subparagraph (a) above, save that, among other things, the auditor shall also prepare the audit documentation that is sufficient to enable the Experienced Auditor to understand significant professional judgments made in reaching the conclusions referred to in subparagraph (a)(iii) above;

(c)    in respect of ASRE2410, the auditor shall prepare review documentation that is sufficient and appropriate to provide a basis for the auditor’s conclusion, and to provide evidence that the review was performed in accordance with ASRE2410 and applicable legal and regulatory requirements; and

(d)    in respect of ASRE2405, the assurance practitioner shall prepare review documentation that is sufficient and appropriate to provide a basis for the assurance practitioner’s conclusion and to provide evidence that the review was performed in accordance with ASRE2405.

50    Mr Lee gives evidence, and I accept, that: the files referred to in categories 5, 6, 7 and 8 of the respondents’ list of documents comprise, among other things, various records and notes of members of the relevant engagement team (including some DTT partners) (in each case, the Relevant Engagement Team), documents reflecting observations made and conclusions reached by members of the Relevant Engagement Team in the course of the audit or review (as applicable), and documents that were reviewed by members of the Relevant Engagement Team in the course of the audit or review (as applicable), including primary documents reviewed and relied upon as audit or review evidence (as applicable); the majority of the documents referred to in those categories have been annotated either electronically or by hand by members of the Relevant Engagement Team; and the documents reveal work that was done in performance of the relevant engagements.

51    Mr Lee also gives evidence, and I accept, that the statutory audit and review files referred to in categories 5, 6 and 7:

(a)    are organised according to a filing hierarchy, with each document within them categorised broadly by reference to a phase/component of the audit/review (as applicable);

(b)    contain working papers which have been allocated a reference number (together with a title or description of the working paper) which refers back to the filing hierarchy; and

(c)    reveal who within the DTT audit/review engagement team (as applicable) performed the audit work, the date such work was completed, and who reviewed the audit work, including with annotations on working papers recording the initials of the engagement team members, and the relevant date.

52    Category 9 in the respondents’ list of documents comprises one document, namely the minutes of Hastie’s ARMC meeting on 26 August 2011. Mr Lee gives evidence, and I accept, that: the meeting had been attended by DTT partners; and the substantive part of the minutes records statements made by one of the DTT partners to the ARMC and matters considered by the ARMC in connection with Hastie’s financial report for the 2011 financial year and DTT’s report to the ARMC in relation to its audit of Hastie’s financial report for that financial year.

Previous disclosure of the documents

53    Some of the documents in categories 5 to 9 are already in the hands of third parties. The liquidators of Hastie had access to at least some of the audit and review papers for the purposes of a proceeding they commenced against DTT in the Supreme Court of New South Wales.

54    In January 2013, the liquidators (then administrators) of Hastie prepared a report pursuant to s 439A of the Corporations Act (the 439A Report). The 439A Report indicates that the liquidators had access to various ARMC documents including, it is to be inferred, the ARMC minutes that are the subject of category 9.

55    The liquidators of Hastie conducted an examination proceeding in this Court (proceeding No VID176/2015) (the Examination Proceeding) in which the audit and review papers covered by categories 5 to 7 of the respondents’ list of documents, and the document comprising category 9 of that list, were summonsed. In this regard, Mr Lee gives evidence, which I accept, that:

(a)    summonses under s 596B of the Corporations Act were issued by the liquidators to Bruce Moore and Mr Saayman (the Summonses), requiring, among other things, production of certain categories of documents, including documents which comprise categories 5, 6 and 7 of the respondents’ list of documents, and the document in category 9 of that list (the Summonsed Files);

(b)    compulsory production of the Summonsed Files (as required by each of the Summonses) was made to the Court in tranches (in various hard copy and electronic formats, including production of a laptop, on 25 May 2015, 10 June 2015 and 15 July 2015;

(c)    when attending before the Court to be examined by the liquidators pursuant to the Summonses, Mr Moore and Mr Saayman claimed the privilege against self-incrimination in respect of their answers to the liquidators’ questions; and

(d)    on 22 November 2017, the laptop was returned to DTT’s solicitors by the liquidators’ solicitors.

56    Mr Lee gives evidence, and I accept, that no documents were produced to the liquidators in the course of the Examination Proceeding on any basis other than under compulsion to the Court in response to the Summonses.

Risk of prosecution

57    Hastie was placed in voluntary administration on 28 May 2012. It was a matter of public record that DTT was the auditor of Hastie for many years prior to its collapse. Initial reporting in the wake of Hastie’s collapse raised questions about the role of its auditors.

58    Mr Finney gives evidence that, to his knowledge, neither the Australian Securities and Investments Commission (ASIC) nor the Commonwealth Director of Public Prosecutions (CDPP) has expressed an intention to prosecute DTT (or any of its partners or employees) or to commence proceedings seeking to impose a pecuniary penalty or other sanction on DTT (or any of its partners or employees). Mr Finney caused a solicitor in the employ of this firm to undertake a review of ASIC’s website and of media reporting in relation to the collapse of Hastie. Mr Finney states that:

(a)    the review of the ASIC website did not disclose any information which suggested that ASIC was investigating or considering an investigation of DTT (or any of its partners or employees) in respect of the engagements that are the subject of this proceeding;

(b)    the review of media reporting did not disclose any information which suggested that either ASIC or the CDPP was investigating or considering an investigation of DTT (or any of its partners or employees) in respect of the engagements that are the subject of this proceeding; and

(c)    the only media article that was identified in which either ASIC or the CDPP commented on the role of auditors in Hastie’s collapse was an article in the Australian Financial Review on 18 December 2012 entitled “Boards must drill auditors: ASIC” in which it was reported that:

In light of high-profile collapses such as Centro Properties, Hastie Group and Westpoint, [ASIC Chair] Mr Medcraft urged auditors to lift their standards at the release of ASIC’s quality assessment review earlier this month.

He threatened to use new powers ratified by Treasury allowing ASIC to speak directly to company executives and board members about audit issues if quality continued to deteriorate.

59    Mr Finney also gives evidence based on reports produced by ASIC each half year as to the outcomes of its enforcement activities. Mr Finney caused a paralegal in the employ of his firm to review these reports. On the basis of that review, Mr Finney states that:

(a)    the reports include statistics as to enforcement actions by ASIC against auditors;

(b)    the statistics identify the number of criminal matters, civil matters, and administrative actions in respect of auditors by ASIC in the relevant half-year; and

(c)    ASIC has never included in its reporting (which runs from the second half of 2011 to date) any reference to any auditor or firm of auditors against whom it has sought criminal sanctions, or a civil penalty.

60    Mr Lee gives evidence that he considers there to be a real and appreciable risk that one or more DTT partners could be prosecuted for an offence and/or face a proceeding for imposition of a pecuniary penalty if the relief sought in the proceeding is granted (whether in whole or in part), on the basis of the following matters:

(a)    the allegations in respect of the various engagements are extremely broad and wide-ranging;

(b)    the allegations pleaded in the statement of claim attract not only civil liability but criminal liability and/or liability for a pecuniary penalty;

(c)    the contents and structure of the material in respect of which privilege is claimed reveal work that was done and might be contended, by implication, to reveal what work was not done in the context of the relevant engagements;

(d)    accordingly, production of the material in respect of which privilege is claimed may assist Sadie Ville to establish its case in respect of the elements of the various contraventions alleged in the statement of claim; and

(e)    if, as a consequence of paragraph (d) above, the Court made adverse findings against DTT in a manner consistent with Sadie Ville’s case as pleaded in the statement of claim, the risk of a regulator such as ASIC or a prosecutorial authority instituting proceedings against one or more DTT partners to prosecute an alleged offence or pursue a pecuniary penalty reflecting the case advanced by Sadie Ville (in respect of civil contraventions of the same provisions) cannot be dismissed.

61    In relation to the part of the interlocutory application that seeks a list of the documents in categories 5 to 8 of the respondents’ list of documents, Mr Lee gives the following evidence:

(a)    The allegations pleaded against DTT in the statement of claim include that it failed to obtain sufficient and appropriate audit evidence and like allegations. Requiring DTT to describe each individual document in the audit and review files referred to in categories 5 to 8 could enable Sadie Ville to identify documents and the nature of work contained on the audit or review file (as applicable) and Sadie Ville could contend that inferences should be drawn as to what evidence was and/or was not obtained and considered during the course of the relevant engagements.

(b)    Accordingly, Mr Lee considers that provision of a list of documents would give rise to a real and appreciable risk of the kind he describes in relation to the production of the documents, or otherwise provide a link in the chain of inquiry that would give rise to that risk.

62    Mr Lee annexes to the Second Lee Affidavit copies of various media reports and media releases issued in the aftermath of Hastie’s collapse (ie, from 28 May 2012 onwards). These indicate that ASIC was considering whether to conduct investigations into Hastie and its subsidiaries.

63    The 439A Report stated, among other things, that the administrators:

(a)    “lodged a report with ASIC in accordance with section 438D of the [Corporations Act] which covers the issues raised in section 7.3 and 9 of [the 439A Report]”; and

(b)    “had several discussions with ASIC representatives and are continuing to liaise with them on all relevant Hastie Group matters”.

64    Section 7.11 of the 439A Report dealt with “Auditor Duties” and stated that “[b]ased on [the administrators’] initial investigations, it appears [Hastie’s] auditor may not have fully complied with a number of his obligations under the Australian Auditing Standards”.

65    Mr Lee annexes to the Second Lee affidavit various media releases issued by ASIC during the period since the release of the 439A Report, which indicate that:

(a)    ASIC continues to have an interest in investigating matters related to the collapse of Hastie;

(b)    ASIC has referred certain matters relating to the collapse of Hastie to the CDPP for criminal prosecution;

(c)    two former key executives of Hastie Services Pty Ltd (a subsidiary of Hastie) (Hastie Services), namely Glyn Raines and Samantha Cousins, have been prosecuted for, and convicted of, criminal offences including:

(i)    conspiracy to falsify the books and records of Hastie Services; and

(ii)    conspiracy to give false or misleading information to an auditor (being DTT);

(d)    the CDPP has also instituted criminal proceedings against two other former key executives of Hastie Services, namely, Joseph Farrugia and Ian Thompson, for offences in connection with conspiring to falsify company books and conspiring to give false or misleading information to an auditor (being DTT).

66    Mr Lee gives evidence that: to his knowledge, neither ASIC nor the Australian Competition and Consumer Commission (nor any other regulator or prosecutorial authority) has provided any indication to DTT that it does not intend to commence, or has no present intention of commencing, prosecution or proceedings for a pecuniary penalty against any DTT partners or any employees of DTT in respect of Hastie; and, given his role, Mr Lee expects that he would be aware of any such communication.

67    I will consider the issue of the risk of prosecution and the risk of proceedings for a pecuniary penalty further in the “Consideration” section of these reasons.

Access to the documents

68    A disputed factual issue is whether the partners of DTT other than Mr Saayman have access to the documents in question (that is, the documents in categories 5 to 9 of the respondents’ list of documents).

69    In the First Lee Affidavit, Mr Lee stated that the “documents set out in part 2 [of the respondents’ list of documents] are in the control of the First Respondent”. I take the reference to the first respondent to be a reference to the partners of DTT at the relevant time or times for the purposes of the allegations in the statement of claim (consistently with the clarification in the Second Lee Affidavit). I take the word “control” to mean control in the sense used in the Federal Court Rules, namely possession, custody or power.

70    While that paragraph of the First Lee Affidavit may be taken to suggest that all of the partners of DTT (at the relevant time or times) have control of the documents, the position was the subject of further evidence in the Third Lee Affidavit. In that affidavit, Mr Lee stated at [6]:

The documents comprising the Privileged Material [that is, the documents over which privilege is claimed] are maintained securely and access to them is limited to domain administrators within [DTT’s] IT services team and/or [DTT’s] in-house litigation team. Otherwise, [DTT] partners and staff can only access the Privileged Material with the consent of Reuben Saayman and a member of [DTT’s] in-house litigation team.

71    Mr Lee was cross-examined on the question of access to the relevant documents. Mr Lee said that, when he said in the First Lee Affidavit that the documents were “in the control of the First Respondent”, he meant that they were in control of “[a]ny of the partners”. He then indicated that by this he meant any one of the partners.

72    Mr Lee accepted that the firm operates under a partnership deed. He accepted that: the board of the firm could make decisions in relation to the disposition of partnership property; the board could make decisions by way of giving directions to the chief executive officer in respect of any matter that the board on behalf of the partners considered appropriate; and the board is elected by the partners of the firm.

73    In relation to access to audit files, the following exchange took place during Mr Lee’s cross-examination:

Mr Lee, how are decisions made within the partnership regarding procedures for the storage of documents like audit files?---Audit files are generally, like – the audit files are stored such that only the engagement teams have access.

And that practice is a result of a decision made by a decision making body within the partnership; is that correct?---I don’t know how that came about.

…

Now, that procedure in relation to the storage of audit files is the result of some decision made within the partnership that that procedure should apply; is that correct?---I can’t say.

Right. Are you able to say, Mr Lee, whether a decision made within the partnership regarding that kind of procedure for the storage of audit files is a decision which a meeting of the partners generally is authorised to change?---I can’t say.

Is it a decision regarding procedure – I withdraw that. Is it – sorry. That decision regarding the procedure for storing audit files is a decision that would be amenable to review by other decision-making bodies within the partnership, correct?---I wouldn’t know.

You don’t know?---No.

Mr Lee, do you know anything about the process for making decisions within the Deloitte’s partnership in relation to the management or storage of audit files?---All I know is what I said before, which is they’re limited to the audit engagement team members.

All right. And where does that limit come from?---I don’t know.

All right. So far as you know, it is just a practice by convention?---It’s – I think it – well, the practice is there to prevent partners that aren’t supposed to have access to certain audit files – to obtain access to those audit files, because they don’t need access.

(Emphasis added.)

74    Mr Lee also gave evidence during re-examination that, once litigation is commenced, he seeks approval from the engagement partner to obtain access to the materials for the litigation team and that, once permission is obtained, the files are “quarantined”.

75    As the evidence set out in [73] makes clear, Mr Lee is not familiar with: who determines the access arrangements in relation to audit and review files; whether the arrangements can be changed by the partners in general meeting; or whether the arrangements are amenable to change by other bodies within the partnership. In light of this, I consider the evidence set out in [6] of the Third Lee Affidavit to do no more than describe the current administrative arrangements in relation to access to the documents in question. This is consistent with the way Mr Lee expressed himself during cross-examination (as set out in [73] above), which seems to describe administrative arrangements.

76    It follows that I do not regard Mr Lee’s evidence as going to the ownership of the documents in question, or the legal entitlement of partners other than Mr Saayman to access the documents. It is plain from Mr Lee’s evidence during cross-examination that he has no knowledge of these matters.

The parties’ submissions

77    I will now outline the parties’ submissions. Consistently with the approach taken by the parties in oral submissions, I will focus on the aspect of the interlocutory application that seeks production of the documents, as distinct from provision of a list of the documents.

78    Both parties proceeded on the basis that the onus is on DTT to establish the privileges.

DTT’s submissions

79    DTT’s submissions can be summarised as follows:

(a)    Each of the relevant engagements is impugned in the statement of claim in broad terms. Almost every aspect of every stage of the engagements from their beginning to their end is impugned. That includes planning, execution and completion. It is alleged that DTT did not conduct its engagement in accordance with relevant standards and some 173 breaches of those standards seem to be alleged.

(b)    The supposed misconduct in the engagements is not limited to some discrete aspect of Hastie’s financial statements or its business operations. So, for example, the supposed defects are not tied to an assessment of one line item in the financial statements or something to do with one of Hastie’s business operations. The allegations relate to numerous substantive items in the financial statements and seemingly every aspect of Hastie’s business operations around the world through its numerous subsidiaries.

(c)    Nor, on Sadie Ville’s case, is the audit/review misconduct limited to an isolated instance. The same misconduct, the same serious and widespread failings, are in substance alleged to have been repeated over and over again across successive engagements for multiple audit and review periods. Sadie Ville seeks to advance the broadest case possible of audit/review wrongdoing in respect of the four engagements, and that case is unconfined.

(d)    The alleged audit/review wrongdoing is said to ground multiple contraventions of s 1041E of the Corporations Act, s 12DB of the ASIC Act, s 29 of the ACLV and (necessarily implicitly) s 307A of the Corporations Act. Further, various of the allegations do not involve innocent wrongdoing but allegations that are tantamount to fraud. Even some of the individual allegations of audit misconduct are objectively serious taken in isolation; for example, the allegations that the auditor did not assess forecasts for the following year and did not assess the entity’s ability to continue as a going concern.

(e)    To compound matters, these allegations are made in the context of sustained regulatory/prosecutorial interest in the affairs of Hastie, including the current prosecution of former high-ranking executives of one of Hastie’s subsidiaries.

(f)    Given all this, there can be no doubt as to the existence of a relevant risk giving rise to the privilege. The risk arises where production could be used as a basis for investigation or further investigation by a regulator or prosecutor. As recognised in Reid v Howard (1995) 184 CLR 1, one way this can occur by way of disclosure in civil proceedings is where the documents are used in support of findings of wrongdoing which could then be used to prompt further investigation by relevant authorities. Where the allegations raised in the civil proceeding, if proved, amount to criminal conduct, the conclusion as to the existence of the risk is straightforward. The conclusion is fortified by the fact that the conduct complained of is allegedly not limited to an isolated instance but is said to form part of a series of not dissimilar events.

(g)    If the material were used to support the allegations and the Court made findings consistent with the allegations advanced in the statement of claim as to serious, systemic, widespread, repeated, knowing misconduct by a professional auditor with a public function which give rise to contraventions of provisions attracting criminal/civil penalty liability as well as ordinary civil remedies, there is self-evidently a real or appreciable risk of prosecution and/or institution of proceedings for a civil penalty. The allegations are undoubtedly serious, and this makes it more likely that there is a (real) possibility of a criminal prosecution or civil penalty proceeding being instituted: TTAC Pty Ltd v Williams [2018] VSC 79 at [24].

(h)    Consistent with the authorities, the mere fact that the allegations in the statement of claim would, if proved, amount to criminal conduct and/or conduct giving rise to a civil penalty, is sufficient to establish a real or appreciable risk.

(i)    The Court could not conclude, in the circumstances of this case, that the risk is “fanciful” or “tenuous or illusory or so improbable as to be virtually without substance”. The Court could not conclude that, if it made findings of such widespread wrongdoing in the conduct of multiple audits/reviews consistent with Sadie Ville’s case, a regulator with public responsibilities and obligations would just turn a blind eye and ignore the matter (cf ss 1(1)(a) and 1(2) of the ASIC Act in relation to the role of ASIC).

Sadie Ville’s submissions

80    Sadie Ville’s primary submission is that the only DTT partners who could, even theoretically, be at risk of prosecution or the imposition of a penalty are those who were involved in the relevant audits, reviews and reports. Sadie Ville submits that the documents in question can be produced by any other partner without the risk of prosecution or exposure to a penalty.

81    Sadie Ville submits that it is critical to understand the limited nature of the privilege against self-incrimination and the privilege against exposure to penalties. In particular, Sadie Ville submits that one person cannot assert the privileges on the ground that the answering of a question or the giving of discovery is likely to incriminate another: Rochfort v Trade Practices Commission (1982) 153 CLR 134 (Rochfort) at 145, 150; Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 (Caltex) at 549; Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96 (Abbco) at 116; Bond v Tuohy (1995) 56 FCR 92 at 99-100; Microsoft Corporation v CX Computer Pty Ltd (2002) 116 FCR 372 (Microsoft) at [32]; HRF Nominees Pty Ltd (in liq) v Man Civil Constructions Pty Ltd [2014] VSC 93 at [41]-[42]. It is submitted that only the person who is exposed to the risk of prosecution or the imposition of a penalty can invoke the privileges.

82    Sadie Ville makes an alternative submission that there is no real and appreciable risk that production of the documents would expose any DTT partner to criminal prosecution or a pecuniary penalty proceeding because there is no realistic possibility of any prosecution or pecuniary penalty proceedings being brought against any DTT partner in respect of the conduct the subject of this proceeding.

83    Sadie Ville also submits that production of the documents to Sadie Ville in this proceeding would not expose any DTT partner to any additional jeopardy, that is, any jeopardy beyond that already faced.

Submissions relating to limitation periods

84    It is common ground between the parties that, in respect of the Corporations Act offence provisions, a prosecution would not be out of time. Section 1316 of the Corporations Act provides as follows: “Despite anything in any other law, proceedings for an offence against this Act may be instituted within the period of 5 years after the act or omission alleged to constitute the offence or, with the Minister’s consent, at any later time.” In Attorney-General (Cth) v Oates (1999) 198 CLR 162 (Oates), the High Court held that s 1316 of the Corporations Law (which was in substantially the same terms as the current s 1316) was facultative, not restrictive. It is common ground, on the basis of Oates, that a prosecution for contravention of s 307A or 1041E would not be out of time.

85    However, there is an issue between the parties as to whether proceedings in relation to the other provisions that are relevant for present purposes would be out of time. I will set out the relevant provisions and then indicate the parties’ respective positions.

86    In relation to an offence against s 12GB(1) based on a contravention of s 12DB of the ASIC Act, the relevant provision is s 12GB(6), which provides as follows:

A prosecution for an offence against subsection (1) may be commenced within 3 years after the commission of the offence.

87    In relation to a pecuniary penalty proceeding under s 12GBA for contravention of s 12DB of the ASIC Act, the relevant provision is s 12GBC, which provides:

12GBC Civil action for recovery of pecuniary penalties

(1)    ASIC may institute a proceeding in the Court for the recovery on behalf of the Commonwealth of a pecuniary penalty referred to in section 12GBA.

(2)    A proceeding under subsection (1) may be commenced within 6 years after the contravention.

88    In relation to an offence against s 151 of the ACLV, the relevant provision is s 212 of the ACLV, which provides:

212 Prosecutions to be commenced within 3 years

A prosecution for an offence against a provision of this Chapter may be commenced at any time within 3 years after the commission of the offence.

89    In relation to a pecuniary penalty proceeding under s 224 for contravention of s 29 of the ACLV, the relevant provision is s 228 of the ACLV:

228 Civil action for recovery of pecuniary penalties

(1)    The regulator may institute a proceeding in a court for the recovery on behalf of the Commonwealth, a State or a Territory, as the case may be, of a pecuniary penalty referred to in section 224.

(2)    A proceeding under subsection (1) may be commenced at any time within 6 years after the contravention or conduct.

90    Sadie Ville submits that each of these provisions imposes a limitation period and any prosecution or pecuniary penalty proceeding would be out of time. On the other hand, DTT contends that the above provisions, like s 1316, are merely facultative, not restrictive. DTT submits that: each of the provisions adopts the form that a proceeding “may be commenced” within a given time; that is the same language as used in s 1316 of the Corporations Act; and accordingly, the reasoning in Oates applies.

Consideration

91    The applicable principles regarding the privilege against self-incrimination and the privilege against exposure to penalties may be briefly stated as follows.

92    The rule, in summary, is that “[n]o one is bound to answer any question or produce any document if the answer or the document would have a tendency to expose that person to the imposition of a civil penalty or to conviction for a crime”: Heydon JD, Cross on Evidence (11th Aust ed, LexisNexis Butterworths, 2017), at [25065].

93    The privilege against self-incrimination and the privilege against exposure to penalties are distinct (see Australian Securities and Investments Commission v Mining Projects Group Ltd (2007) 164 FCR 32 (Mining Projects) at [7]), although they are often said to be based upon the same rationale and to have developed into their modern form by analogy and upon the same principles: see Caltex at 504-505, 518-521; Abbco at 117-118, 121, 129; Mining Projects at [7]. The privilege against self-incrimination is a substantive common law right: Reid v Howard at 11; X7 v Australian Crime Commission (2013) 248 CLR 92 at [104]. The privilege against exposure to penalties serves the purpose of ensuring that those who allege criminality or other illegal conduct should prove it: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at [31]; Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [24].

94    The privileges are personal in nature. In its modern form, the privilege against self-incrimination is “in the nature of a human right, designed to protect individuals from oppressive methods of obtaining evidence of their guilt for use against them” (Caltex at 508; see also at 498-499, 545-546) and to maintain a fair state-individual balance (Caltex at 499). The penalty privilege is based on substantially the same rationale: Abbco at 129.

95    In light of their nature and purpose, both privileges are available only to natural persons and not to artificial legal entities such as corporations: Caltex (in relation to the privilege against self-incrimination); Abbco (in relation to the privilege against exposure to penalties); see also Evidence Act 1995 (Cth), s 187.

96    Subject to a possible exception in relation to spouses, one person cannot claim the privilege against self-incrimination on the ground that the answering of a question or the giving of discovery would tend to incriminate another: Rochfort at 145, 150; Caltex at 549; Cross on Evidence at [25075]. Only the person who is exposed to the risk of prosecution or the imposition of a penalty can invoke the privileges.

97    As a general rule, in the absence of exceptional circumstances, a party to non-penalty civil proceedings is not to be excused in limine from giving discovery, but should instead be left to object to producing particular documents on the grounds that such production might tend to expose him or her to criminal liability or a civil penalty: Refrigerated Express Lines (A/asia) Pty Ltd v Australian Meat and Live-stock Corporation (1979) 42 FLR 204 at 208, 210-211; QC Resource Investments Pty Ltd (In Liq) v Mulligan [2016] FCA 813 at [19].

98    The gist of the privileges is that the giving of answers or the production of documents would tend to expose the claimant to the apprehended consequence: Cross on Evidence at [25100].

99    In the context of the privilege against self-incrimination, a valid claim for the privilege can be made out if the claimant can establish that the act of providing information or documents would give rise to a “real and appreciable” risk of prosecution: Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 at 574; Rank Film Distributors Ltd v Video Information Centre [1982] AC 380 at 392; Sorby v Commonwealth (1983) 152 CLR 281 (Sorby) at 290; Microsoft at [40]. By parity of reasoning, a valid claim for the privilege against exposure to penalties can be made out if the claimant can establish that providing the information or documents would give rise to a “real and appreciable” risk of institution of proceedings for a civil penalty. I note that in Mining Projects, Finkelstein J stated at [10] that in civil actions where no claim for a penalty is made, the defendant must show that providing the information requested “would tend to subject him to a penalty” in separate proceedings, before he or she can rely on the privilege. I do not consider this formulation to be substantively different.

100    There can be no real and appreciable risk of prosecution or exposure to a penalty where the limitation period for the commencement of such a proceeding has expired: see Sorby at 290.

101    The privilege against self-incrimination has been held to not be available where it is clear that the taking of the step in question will not add to the individual’s jeopardy: Microsoft at [41] and cases there cited.

102    In some cases, the pleading itself has provided a basis upon which to infer that the act of providing information or documents would give rise to a real and appreciable risk of criminal prosecution: see, eg, CC Containers Pty Ltd v Lee (No 2) [2012] VSC 149 at [18]; see also Re New World Alliance Pty Ltd (Receiver and Manager Appointed); Sycotex Pty Ltd v Baseler (1993) 47 FCR 90 at 98; Mining Projects at [9].

103    In the present case, the statement of claim contains, as central allegations in the case against DTT, alleged contraventions of s 1041E of the Corporations Act, s 12DB of the ASIC Act and s 29 of the ACLV. Further, the statement of claim in effect alleges that DTT contravened s 307A of the Corporations Act. I note, in particular, the following paragraphs of the statement of claim:

(a)    In relation to s 1041E of the Corporations Act: [35], [51], [83], [110] and [126].

(b)    In relation to s 12DB of the ASIC Act: [36.2], [52.2], [84.2], [111.2] and [126].

(c)    In relation to s 29 of the ACLV: [36.2], [52.2], [84.2], [111.2] and [126].

(d)    In relation to DTT’s Statutory Audit Obligations or the Auditing Standards (and thus, in effect, s 307A of the Corporations Act): [27.2], [32.1], [34.2], [34.3], [43.2], [105.2], [107.1], [108.2], [109.2] and [109.3].

104    The alleged contraventions of s 1041E, s 12DB and s 29 are the primary allegations made by Sadie Ville in respect of the relevant engagements. The alleged contraventions of the (less serious) misleading or deceptive conduct provisions follow after the alleged contraventions of s 1041E, s 12DB and s 29. The alleged contraventions of s 307A of the Corporations Act run through the whole of the statement of claim.

105    I will consider, first, the position of the partners, such as Mr Saayman, who were directly involved in the relevant engagements. In relation to these partners, it seems clear enough that production of the documents in question would give rise to a real and appreciable risk of prosecution for contraventions of ss 307A and 1041E of the Corporations Act. In respect of these provisions, a prosecution would not be out of time. It is true that there is no indication that ASIC is investigating the matter or that ASIC or the CDPP are considering a prosecution. But in circumstances where Sadie Ville’s case is that ss 307A and 1041E were contravened, and it is likely that the documents, if produced, would be deployed by Sadie Ville in support of its case, I consider that the production of the documents would give rise to a real and appreciable risk of prosecution for contraventions of ss 307A and 1041E. Although ASIC and the CDPP may not be currently investigating or considering prosecution, this could well change if Sadie Ville obtains the documents and builds and presents a case based on the documents (albeit one directed to establishing contraventions for civil purposes). In light of these conclusions, it is unnecessary to consider whether production of the documents would also give rise to a real and appreciable risk of prosecution or the institution of pecuniary penalty proceedings in respect of the other relevant provisions (namely, s 12DB of the ASIC Act and ss 29 and 151 of the ACLV). It is sufficient that I have concluded that there would be a real and appreciable risk of prosecution for ss 307A and 1041E. Accordingly, insofar as the claim for privilege is made by or on behalf of the partners who were directly involved in the relevant engagements, I consider the claim to be made out.

106    I turn now to consider the position of the other partners of DTT, that is, the partners of DTT who were not directly involved in the relevant engagements. For the reasons that follow, I consider that, in relation to these partners, production of the documents would not give rise to a real and appreciable risk of prosecution or the institution of proceedings for a pecuniary penalty.

107    Insofar as s 1041E of the Corporations Act is concerned, to establish an offence based on contravention of this provision, it would be necessary to establish the requisite elements of the offence to the criminal standard. Reading s 1041E together with s 761F, it would need to be established that the partner aided, abetted, counselled or procured the relevant act or omission, or was knowingly concerned in, or party to, the relevant act or omission. The prospect of prosecuting authorities pursuing such a case against a partner who was not directly involved in the relevant engagements is, to my mind, theoretical rather than real. Although s 761F would not be applicable, the same considerations would apply to an offence based on accessorial liability for a contravention of s 728 of the Corporations Act.

108    Insofar as s 307A of the Corporations Act is concerned, while it is true that an offence based on this provision is a strict liability offence (as to which, see Clode v Barnes [1974] 1 WLR 544), the focus of the provision appears to be on the lead auditor for the audit or review. Section 307A(2) provides that, if an audit firm conducts an audit or review, “the lead auditor for the audit or review” must ensure that the audit or review is conducted in accordance with the auditing standards. Thus the focus is on those directly involved in the audit or review. In light of this, and notwithstanding the rules of attribution in s 324AB(5) of the Corporations Act, I consider there to be little prospect of a prosecution being brought against a partner who was not involved in the relevant engagements.

109    In relation to prosecution for contravention of s 12DB of the ASIC Act and/or s 151 of the ACLV, I proceed for present purposes on the basis that a prosecution would not be out of time. While the relevant provisions (namely, s 12GB(6) of the ASIC Act and s 212 of the ACLV, set out above) are not expressed in the same terms as the provision considered in Oates – in particular the words “Despite anything in any other law”, which were important in the reasoning of the High Court in Oates, are not present – it is at least arguable that the provisions are facultative and not restrictive. Provisions with similar wording to s 12GB(6) and s 212 were considered in Comptroller-General of Customs v Parker (2006) 200 FLR 44 at [59]-[67] and Seeto v The Queen [2008] NSWCCA 227 at [43]-[44]. In each case, it was held that the provision was facultative, not restrictive.

110    Nevertheless, I do not consider that production of the documents would give rise to a real and appreciable risk of prosecution for the other partners for contravention of s 12DB of the ASIC Act or s 151 of the ACLV. In relation to s 12DB of the ASIC Act, reading this together with s 761F of the Corporations Act (see s 5(2) of the ASIC Act and s 761A of the Corporations Act), the considerations discussed in [107] above would apply equally. In relation to s 151 of the ACLV, while the offence is a strict liability offence, and therefore all partners may be liable for an offence, it is much less likely that a prosecution would be brought against a non-involved partner compared with a partner who was involved. In the circumstances, I consider the prospect of prosecution of a non-involved partner to be theoretical rather than real.

111    In relation to pecuniary penalty proceedings for contravention of s 12DB of the ASIC Act and/or s 29 of the ACLV, I consider that any such proceeding would be out of time. Section 12GBC of the ASIC Act and s 228 of the ACLV are set out above. Each of these provisions adopts the same form as s 77 of the Trade Practices Act 1974 (Cth), now s 77 of the Competition and Consumer Act 2010 (Cth). The first subsection confers a power to bring a proceeding for the recovery of a pecuniary penalty, and the second subsection stipulates a time within which such a proceeding may be commenced. It has been held by a Full Court of this Court that s 77(2) operates as a limitation period: Australian Competition and Consumer Commission v PT Garuda Indonesia Ltd (2016) 244 FCR 190 at [522], [547]; see generally at [526]-[547]. That reasoning is, in my view, applicable to s 12GBC of the ASIC Act and s 228 of the ACLV. These provisions are unlike the provision considered in Oates, and the provisions considered in Comptroller-General of Customs v Parker and Seeto v The Queen, as they involve both a conferral of power to bring a proceeding of a certain character and the stipulation of a time within which such a proceeding may be commenced. Given that more than six years has elapsed since the relevant events, I consider that a pecuniary penalty proceeding would be out of time.

112    I have also given consideration to whether, in respect of the other partners, there may be a real and appreciable risk of prosecution for offences other than those set out above (for example, offences based upon fraud). However, for the reasons expressed above, I consider the risk of prosecution against the non-involved partners to be theoretical rather than real.

113    Further, and generally, there is no indication that ASIC is investigating the auditors of Hastie or that any consideration is being given to prosecuting the auditors. While it is true that there have been some prosecutions in relation to the Hastie collapse, these were instituted some time ago and involved officers of the company rather than auditors. I also note that the onus is on DTT to establish that the privileges apply. I am not satisfied that it has established this in the case of the other partners.

114    Accordingly, I reject the claim of privilege made on behalf of the other partners.

115    DTT contends that the other partners do not have “control” of the documents (in the sense of possession, custody or power in respect of the documents) and therefore an order for production should not be made against them. The evidentiary basis for this submission is [6] of the Third Lee Affidavit. However, as discussed at [68]-[76] above, I consider that paragraph to do no more than describe the current administrative arrangements regarding access to the documents. Mr Lee was not in a position to give evidence about the ownership of the documents or the legal entitlement of partners other than Mr Saayman to access the documents. Accordingly, I do not accept that the other partners do not have control of the documents.

116    DTT refers to the judgment of Gibbs CJ in Rochfort, where the Chief Justice stated (at 139) that “one partner has been held not compellable to produce books which were partnership property when the other partners would not consent to production”, citing Attorney-General v Wilson (1839) 9 Sim 526; 59 ER 461, and Lee v Angas (1866) LR 2 Eq 59. However the circumstances of those cases were quite different to the present case. Attorney-General v Wilson concerned a subpoena duces tecum served on a partner in a bank, requiring him to produce all books and accounts in his custody or power containing entries relating to certain matters or relating to the matters in question in the case. It was held to be “plain … on the face of the affidavits” that the documents were “not in his possession or power, so that he alone, without the consent of his co-partners, can produce them” (at 529; 462). In the present case, there is no comparable evidence. Lee v Angas concerned a subpoena duces tecum requiring a solicitor to produce all papers relating to all dealings and transactions between his firm and the plaintiff and defendants for a period of 30 years. The subpoena was held to be “too wide” (at 63). Attorney-General v Wilson was approved, but there was no substantive discussion of the partnership aspect of that decision. DTT also cites Ex parte Merrett (1997) 140 FLR 412 at 417; 25 ACSR 146 at 151. In that case, the liquidators of a company had sought an order from the Registrar of the Supreme Court of New South Wales to issue summonses for the public examination of the managing partner of a firm and the production of certain books and records. The managing partner applied to set aside the summonses. It was held that the summonses should be set aside. Young J stated that “the point that one partner has not the power to produce the partnership documents unless something more is established as to his or her authority, appears to be correct” (at 151). The case does not contain any further discussion of the issue. I consider the case to be distinguishable. In the present case, there is evidence in the First Lee Affidavit that the documents are in the control of DTT, albeit qualified by Mr Lee’s oral evidence. In the circumstances, including the statement in the First Lee Affidavit and the absence of any clear evidence from DTT that the other partners do not have possession, custody or power in respect of the documents, I infer that the documents are in the control of the other partners.

117    It may be said that ordering the partners who were not directly involved in the relevant engagements to produce the documents would undermine the privilege claimed by the partners who were directly involved. While this may be true as a matter of practical effect, it is important to emphasise that the privilege is against self-incrimination (or self-exposure to a penalty). The partners who were directly involved in the relevant engagements should not be required to produce documents in circumstances where (as described above) production would give rise to a real and appreciable risk of prosecution against them. However, in circumstances where other partners have possession, custody or power in respect of the documents, and production of the documents would not give rise to a real and appreciable risk of prosecution or the institution of pecuniary penalty proceedings against them, there is no proper basis not to order production by those partners.

118    I have given consideration to whether DTT as a partnership can claim the privileges and whether this affects the analysis. Given that DTT as a partnership could not itself be prosecuted for an offence against any of the relevant provisions, the privilege against self-incrimination does not arise. While it would seem to be possible to bring a pecuniary penalty proceeding against two or more partners in the partnership name, for the reasons given above any such proceeding would be out of time. Thus, considering the matter from the perspective of the partnership does not take things any further.

119    Accordingly, I consider it appropriate to make an order that the partners of DTT other than those directly involved in the relevant engagements produce the documents in categories 5 to 9 of the respondents’ list of documents.

Conclusion

120    I consider it appropriate to make an order as set out in [119] above. As the submissions did not focus on the part of the interlocutory application that seeks provision of a list of documents, it is unclear whether, if an order for production of the documents is made, Sadie Ville seeks an additional order regarding a list. If necessary, I will hear from the parties about this. I propose, at this stage, to order that the parties provide minutes of proposed orders to give effect to these reasons. I will also make an order that each party file a short submission on costs.

Associate:

Dated:    26 July 2018