Staying Civil Penalty Proceedings when Criminal Proceedings are Threatened in Respect of the Same Conduct: Implications for the Right to a Fair Hearing

Re AWB Limited [2008] VSC 473 (12 November 2008)

The Supreme Court of Victoria (Robson J) has held that civil penalty proceedings against five former directors of AWB Limited should be stayed in the exercise of the Court’s inherent jurisdiction.  This was on the basis that criminal proceedings are threatened against them for conduct that is substantially the same as the conduct that is the subject of the civil penalty proceedings.  Whilst the stay applications were not decided on the basis of the defendants’ Charter right to a fair hearing, the principles discussed by the Court provide guidance as to how Victorian courts may give content to the right in other proceedings.

Facts

In 2006, a Royal Commissioner found that AWB Limited made improper payments to the Iraqi regime whilst participating in the UN Oil-for-Food Program.  The Commissioner also found that, in so doing, the company and certain persons associated with it may have breached Australian law.

In December 2007, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings in the Supreme Court of Victoria against six former directors of AWB Limited.  ASIC alleged contraventions of ss 180 and 181 of the Corporations Act 2001 (Cth), which require company officers to act with care and diligence and to discharge their duties in good faith and for a proper purpose.

The defendants applied to stay the civil penalty proceedings pending decisions on whether criminal proceedings in respect of substantially the same conduct would be commenced.  At the time of making their applications, ASIC, the police and the prosecutorial agencies were continuing to investigate and consider possible criminal charges against five of the defendants (ie all excluding Lindberg).

Section 1317N of the Corporations Act provides that if criminal proceedings are commenced in respect of conduct that is substantially the same as conduct that forms the basis of civil penalty proceedings, the civil penalty proceedings are automatically stayed pending resolution of the criminal proceedings.

However, here the defendants sought to stay the civil penalty proceedings even before the s 1317N ‘trigger’ came into effect, i.e. while criminal proceedings were under consideration but not yet commenced.  This was on the basis that (amongst other grounds):

• having to defend civil penalty proceedings would infringe their right of silence in the ongoing criminal investigation and any future criminal proceedings;
• the continuation of the civil penalty proceedings would attract significant publicity which may adversely influence potential jurors in any future criminal proceedings;
• having to defend civil penalty proceedings would mean that the defendants would incur unnecessary and substantial costs in proceedings that would be automatically stayed if criminal proceedings were commenced; and
• court resources associated with hearing and determining the civil penalty proceedings would be unnecessarily wasted if criminal proceedings were commenced.

Reliance on the Charter

In McMahon v Gould (1982) 7 ACLR 202, the Supreme Court of Victoria held that it had an inherent power to stay civil proceedings if criminal proceedings could be commenced against a defendant in respect of substantially the same conduct.  The overriding consideration was what the interests of justice required in the circumstances.  This was to be determined by reference to a number of factors.  However, generally speaking, it was a ‘grave matter’ to interfere with the entitlement of a civil plaintiff to have its action tried in the ordinary course of the procedure and business of the court, requiring justification on ‘proper grounds’.

However, in Reid v Howard (1995) 184 CLR 1, the High Court confirmed the fundamental importance of the privilege against self-incrimination, holding that it may only be abrogated by statute, not by courts under any discretion or on a case management basis.

All parties agreed that the factors set out in McMahon ought be modified in light of the High Court’s decision in Reid.  The defendants submitted that so modified, the factors favoured the grant of the stay.

After oral argument had concluded, two of the defendants (Flugge and Ingleby) sought leave to make further submissions to the effect that they would not receive a fair hearing within the meaning of s 24(1) of the Charter if they were forced to reveal in the civil penalty proceedings their defences to potential criminal charges.  Those defendants submitted that under the Charter, the Court had a positive duty to enforce their right to a fair hearing by granting a stay.

Decision

Robson J held that McMahon makes it clear that a civil plaintiff is not automatically prevented from pursuing their cause of action merely because to do so might result in the defendant having to disclose their likely defence to any existing or potential criminal proceedings.  The Court is not concerned to preserve any tactical advantage a defendant to criminal proceedings may have as a consequence of their right of silence.  Rather, the Court must consider whether there is a real danger of injustice if the defendant is required to reveal their criminal defence in the civil proceedings.

Robson J considered that, in the instant case, there was such a real danger of injustice in respect of five of the defendants, ie those for whom criminal proceedings were ‘on the cards’.  His Honour held that it would be neither fair nor just that they should have to expend resources defending civil penalty proceedings initiated by the state, when those proceedings were likely to be stayed as a result of a decision of the state to commence criminal proceedings in respect of substantially the same conduct.  His Honour also considered that it would be neither fair nor just that the defendants should have to duplicate the defence of their actions.

Robson J also noted that the McMahon factors require the court to consider and weigh the effects of a stay on the plaintiff against the effects on the defendant.  In the instant case, ASIC was not pursuing the defendants in satisfaction of a private wrong.  Rather, it was a regulator seeking to advance the public interest by ensuring that alleged corporate wrongdoers were punished for contravention of their duties and restrained from managing corporations in the future.  There would therefore not be any prejudice to ASIC’s interests if a stay were granted.

His Honour therefore stayed the civil penalty proceedings against five of the defendants (excluding Lindberg) until such time as the state indicated to those defendants that no criminal proceedings would be commenced in respect of the same conduct.  Lindberg was found by Robson J to be in a different position, in that criminal proceedings were not threatened against him, and hence his application for a stay was dismissed.

Robson J therefore found it unnecessary to consider the Charter arguments made by Flugge and Ingleby.  Given that Lindberg did not make any submissions in relation to the Charter issues, his Honour considered that it would be inappropriate to consider whether his Charter right to a fair hearing would be affected by the continuation of the civil penalty proceedings against him.

Relevance to the Victorian Charter

In the course of his reasons for judgment, Robson J commented that, whilst it cannot be said that McMahon is no longer good law, it may be appropriate for an appellate court to review McMahon in light of the High Court’s decision in Reid.  To this it may be added that McMahon may require review in light of the enactment of the Charter.  The McMahon factors may be considered to de-emphasise the primacy of the privilege against self-incrimination, undoubtedly one of the most important common law rights, which is arguably subsumed within right to a fair hearing (s 24(1)), as well as given some independent protection by the right of persons charged with criminal offences not to have to testify against themselves or confess guilt (s 25(2)(k)).

In the instant case, had the stay not been granted, the defendants’ Charter right to a fair hearing may have been breached in two ways.  If the civil penalty proceedings had continued and the defendants maintained their right of silence during those proceedings, they may not have received fair civil hearings.  However, if the civil penalty proceedings progressed and they actively defended them in such a way that provided the prosecutors with additional evidence that could be used in later criminal proceedings, or revealed the defences that they were likely to adopt, they may not have received fair criminal hearings.

Robson J’s recognition that the avoidance of unnecessary cost and duplication are two factors relevant to the grant of a stay where civil and criminal proceedings are likely in respect of substantially the same conduct is useful in elaborating what a ‘fair hearing’ constitutes.  In addition, his Honour’s reassertion of the central importance of the right of silence, even before the commencement of criminal proceedings, is useful to those seeking to argue that the right of silence is subsumed within the broader right to a fair hearing under s 24.  This is particularly important given that s 25(2)(k) of the Charter only protects a person from self-incrimination once they have been charged with a criminal offence.

Additional matters of interest relating to the Charter in the instant case (which were not explored in the reasons for judgment) include:

• whether, given that the grant of a stay is almost certainly a judicial function, and hence the Court would not be a ‘public authority’ when considering such an application, the Court has a positive obligation to use its processes to give effect to the Charter right to a fair hearing and protection from self-incrimination; and
• the applicability of the Charter to proceedings in Victorian courts when they are exercising federal jurisdiction (as the Supreme Court was here).

The decision is available at http://www.austlii.edu.au/au/cases/vic/VICSC/2008/473.html.

Daniel Perkins is a student in the Master of Laws program at The University of Melbourne