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Federal Court judgments

Federal Court judgments

By Dan Star QC

Judgment Practice & Procedure 

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Corporations law

False, misleading or deceptive conduct – contraventions of s1041H of the Corporations Act 2001 (Cth) and ss12DA(1) and 12DB(1)(i) of the Australian Securities and Investments Commission Act 2001 (Cth) 

In Australian Securities and Investment Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932 (22 November 2019) the Court found for the regulator (ASIC) in its case against a financial services advice business (Dover) alleging that its “Client Protection Policy” was “misleading or deceptive” or “likely to mislead or deceive” within the meaning of s1041H of the Corporations Act 2001 (Cth) (Corporations Act) and s12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and a “false or misleading representation” within the meaning of s12DB(1)(i) of the ASIC Act (at [115]). Central to the case was the introductory clause to the Client Protection Policy which stated: “Dover’s Client Protection Policy sets out a number of important consumer protections designed to ensure every Dover client gets the best possible advice and the maximum protection available under the law . . .”

O’Bryan J summarised his decision at [3]: “. . . the title of that document was highly misleading and an exercise in Orwellian doublespeak. The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law. Some 19,402 clients of Dover’s authorised representatives were provided with the Client Protection Policy in conjunction with a statement of advice”.  

The judgment contains a convenient recent summary of the applicable principles concerning the statutory prohibition of misleading or deceptive conduct (and closely related prohibitions) in the Australian Consumer Law, the Corporations Act and the ASIC Act (at [98]-[101]).

Practice and procedure

Requirements in preliminary discovery application

In Gold Coast Marine Aquaculture Pty Ltd v HTC Trading Pty Ltd [2019] FCA 1995 (27 November 2019) the Court granted the applicant’s application for preliminary discovery pursuant to Rule 7.23 of the Federal Court Rules 2011, which concerns discovery from a prospective respondent, against the respondent and a commonwealth department. 

There are three elements to rule 7.23, namely: (1) a reasonable belief that it may have right to obtain relief from the prospective respondent (7.23(1)(a)) (2) after making reasonable inquiries, it does not have sufficient information to decide whether to start a proceeding (7.23(1)(b)) and (3) a belief that the prospective respondent has relevant documents that would assist (7.23(1)(c)). The Court relied on the scope and operation of Rule 7.23 as explained in Pfizer Ireland Pharmaceuticals v Samsung Bioepis AU Pty Ltd [2017] FCAFC 193; 257 FCR 62. At [30], Anastassiou J adopted what Allsop CJ stated in Pfizer at [121], namely: “In practice, to defeat a claim for preliminary discovery it will be necessary either to show that the subjectively held belief does not exist or, if it does, that there is no reasonable basis for thinking that there may be (not is) such a case. Showing that some aspect of the material on which the belief is based is contestable, or even arguably wrong, will rarely come close to making good such a contention. Many views may be held with which one disagrees, perhaps even strongly, but this does not make such a view one which is necessarily unreasonably held . . .”

Costs

Costs in preliminary discovery application

In Autosports Castle Hill Pty Ltd v Altitude Brighton Pty Ltd [2019] FCA 2065 (9 December 2019), one day before the hearing of an application for preliminary discovery pursuant to Rule 7.23 of the Federal Court Rules 2011, the respondent agreed to provide the discovery sought. Yates J noted that the Court’s jurisdiction to order preliminary discovery is an extraordinary one and that a successful prospective applicant has no automatic entitlement to an award of costs in its favour (at [21]). However, in the circumstances, the Court concluded that a costs orders should be made in favour of the applicant against the respondent (at [22]). 

Evidence 

Privileges against self-incrimination and against exposure to penalties in relation to discovery by a one-person company

In Meneses v Directed Electronics OE Pty Ltd [2019] FCAFC 190 (1 November 2019) the Full Court considered a claim by the sole director and shareholder of a company that he is entitled to invoke the privilege against self-incrimination and the privilege against self-exposure to penalties (the penalty privilege) to resist an order for production of documents.

The underlying proceeding was brought by Directed Electronics OE Pty Ltd (Directed OE) against a number of respondents. Directed OE is an Australian automotive electronics developer and supplier. In summary, Directed OE alleged that Mr Meneses dishonestly arranged for his own company, OE Solutions Pty Ltd (OE Solutions), to be an intermediary in the supply of goods by another party to Directed OE, and dishonestly charged marked-up prices to Directed OE. There are many causes of action alleged against OE Solutions and Mr Meneses (the Meneses parties). The claims include breaches by Mr Meneses of duties under ss182 and 183 of the Corporations Act 2001 (Cth), which are civil penalty provisions: s1317E.

On the ex parte application of Directed OE, the docket judge made a search order as authorised by Division 7.5 of the Federal Court Rules 2011 (Cth) directed to various persons, including Mr Meneses and OE Solutions. The order made specific provision for the preservation of claims to privilege against self-incrimination and the penalty privilege. In accordance with the process that followed execution of the search order, the Meneses parties made discovery by filing a joint list of documents verified by an affidavit of Mr Meneses in which the Meneses parties objected to production of numerous documents on the grounds of privilege against self-incrimination and the penalty privilege. Directed OE challenged those claims for privilege. A separate judge heard that dispute and held that the Meneses parties’ claims to privilege should be refused. This was the subject of the application for leave to appeal.

The Court explained the commonalities and differences between the privilege against self-incrimination and the penalty privilege (at [84]-[90]). By operation of s187 of the Evidence Act 1995 (Cth), which reflects the Australian common law, both privileges are not available to corporations that are called on to produce documents in proceedings in the Court (at [91]). The Full Court discussed at length cases addressing the complexities that arise in relation to one-person companies (at [92]-[120]) including the United States authorities, some of which have been referred to by the High Court (at [121]-[148]).

The Court granted leave to appeal and held that the appeal should be allowed. The errors of the primary judge included ordering an individual who is himself or herself at risk of prosecution or the institution of proceedings for a civil penalty to produce the relevant documents on behalf of a company. Insofar as the US cases suggested that an act of production by a director of a company is merely an act as agent for the company, the Full Court said those cases do not reflect Australian law (at [152]).

However, an order for production can still be made against a one-person company. Moshinsky, Wheelahan and Abraham JJ explained at [153]: “This is not to say that an order for production cannot be made against OE Solutions (assuming that there are relevant documents in its control). The privilege against self-incrimination and the penalty privilege are available only to natural persons and not to corporations. Thus, OE Solutions cannot rely on the privileges to resist production of documents that are in its control. As the privileges are against self-incrimination and self-exposure to penalties (see [90] above), OE Solutions cannot resist production on the basis that production of documents by the company would expose Mr Meneses to a real and appreciable risk of prosecution or institution of proceedings for a civil penalty. Nor can Mr Meneses complain about the production of documents by OE Solutions on the ground that the production of documents by the company might incriminate him or expose him to a penalty. However, in circumstances where OE Solutions is essentially a one-person company and that person (Mr Meneses) is entitled to rely on the privileges to resist production of the documents, it is necessary to consider mechanisms by which OE Solutions could produce the documents (other than by Mr Meneses doing so on its behalf). These mechanisms include the appointment of a receiver of the company for the purposes of producing the relevant documents on behalf of the company: see Ronen at [79] per Spigelman CJ; Re Australian Property Custodian Holdings at [159] per Robson J. We consider that a receiver could be appointed by the Court in circumstances such as this pursuant to the power conferred by s57 of the Federal Court of Australia Act 1976 (Cth): see also s23 of the Federal Court of Australia Act and see, generally, The University of Western Australia v Gray (No 6) [2006] FCA 1825 at [64]-[66], [71]-[74] per French J (as his Honour then was). It is important and necessary that such a mechanism exist; otherwise, a one-person company such as OE Solutions would be effectively immune from producing documents in its control notwithstanding that it is not entitled to claim the privilege against self-incrimination or the penalty privilege”.

The trial in the underlying proceeding commenced on 9 December 2019. ■


Dan Star QC is a Senior Counsel at the Victorian Bar, ph (03) 9225 8757 or email danstar@vicbar.com.au
The full version of these judgments can be found at www.austlii.edu.au. Numbers in square brackets refer to paragraph numbers in the judgment.

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