Flugge’s challenge

Boy, it’s suddenly gotten busy. Two challenges to SSOMA . One to MC(IP)A. Bell’s hearing next week on mental health. A taste of Victoria’s glorious Chartered future. But those are pending matters. Decided matters still drip through and make little splash. Today, the Victorian Supreme Court issued judgment in Trevor Flugge’s Charter challenge, Re AWB Limited [2008] VSC 473. Flugge won, but the Charter point wasn’t considered.

Flugge’s case and its demise follows directly from these conclusions of the Cole report into the Australian Wheat Boad’s role in the Oil-for-Food scandal:

I]n my view:

• Mr Flugge might have been either reckless, or intentionally dishonest, and might have failed to exercise his powers or discharge his duties either in good faith in the best interests of AWB or for a proper purpose and therefore might have committed an offence against s 184(1) of the Corporations Act 2001
  
• Mr Flugge might have dishonestly used his position and been reckless as to whether the use of his position may have resulted in Iraq or an Iraqi entity directly or indirectly gaining an advantage and therefore might have committed an offence against s 184(2) of the Corporations Act 2001
  
• Mr Flugge might have failed to exercise his powers and discharge his duties in the best interests of AWB and for a proper purpose and therefore might have contravened s 181 of the Corporations Act 2001
  
• Mr Flugge might have failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in AWB’s circumstances and occupied the office held by, and had the same responsibilities within the corporation, as Mr Flugge and therefore might have contravened s 180 of the Corporations Act 2001.

It is a serious matter for an officer of a public corporation such as AWB to authorise the corporation to enter into agreements in breach of statutory duties that the officer owes to the corporation, particularly where the officer acts intentionally, dishonestly or recklessly in breach of those duties.

I recommend that this matter be referred to the Task Force for consideration of whether proceedings under sections 180, 181 and 184 of the Corporations Act 2001 be instituted against Mr Flugge.

I note that section 1317K of the Corporations Act 2001 imposes a six year limitation period for the commencement of proceedings arising from contraventions of civil penalty provisions. Accordingly, the referral to ASIC should only be in relation to the conduct of Mr Flugge that occurred from 2001 onwards

The key nuance is that Cole’s findings supported both ‘civil penalty’ proceedings (which can attract disqualification and ‘pecuniary penalties’) and criminal proceedings (which can attract fines and prison.) While the concept of a civil penalty proceedings was initially conceived as an alternative to criminal prosecution, the scheme was eventually changed to allow criminal proceedings to go ahead even though civil proceedings were in place or had concluded. The reverse couldn’t occur, unless the civil proceeding failed.

In the case of Flugge and four other directors against whom Cole recommended both civil and criminal proceedings, ASIC said that it would do the civil proceedings first, because of the civil statute of limitations. (By coincidence, one of the relevant contracts commenced on 20th December 2001, meaning that the six year cut-off was 19th December 2007. If Coghlan’s ridiculous decision in BAE Systems Australia is correct, then that starting-point, weeks before the Charter’s full commencement, would have barred the Charter from the case. That’s a point wasn’t resolved here.)

What was argued was that the serial procedings were unfair to the defendants, mainly because they would have to choose between revealing their defences (including possibly testifying) in the civil proceedings (which will feed handy information for the criminal prosecutions) or not doing so, possibly harming their civil defence. There is a provision barring the use of evidence adduced by the defendant in civil proceedings in the later criminal ones. But, like the other Charter case involving overlapping proceedings – Bongiorno’s concern about the coercive questioning regime operating in parallel with a criminal prosecution – the bar doesn’t extend to ‘derivative’ information.

Flugge et al argued that the civil proceedings ought to be stayed until the criminal matters are resolved. This would, of course, solve ASIC’s statute of limitations problem, but ASIC nevertheless resisted the stay. The question of whether or not a stay should be granted turned on a 1982 case, McMahon v Gould, which set out an ‘interests of justice’ test that gave priority to the right of ‘plaintiffs’ to pursue whatever actions they want. But later authorities suggested that the balance should shift in favour of a stay, in particular because of the potential for defendants in civil proceedings to have to testify (or otherwise defend themselves), thus undermining their right to silence in a later criminal matters. The Charter was thrown into this mess of precedents as follows:

The Charter vs Numbies

Hearne v Street [2008] HCA 36, decided yesterday, presses so many of my buttons. First, I have not the slightest sympathy for the plaintiffs, who moved into apartments overlooking Sydney’s Luna Park, gaining all the benefits of views of Sydney Harbour that were unblockable because the iconic park could never be built on, but then objecting (like the Millers in Lord Denning’s famous judgment on newcomers who ‘came to the nuisance’ of village cricket) that the re-opened park was too noisy. In that, I’m not that different from most Sydneysiders, doubtless inflamed by articles like this one:

The NUMBY* files – Why Luna Park’s neighbours aren’t smiling

DISRUPTED violin lessons, entrapped Chinese herbal medicine fumes and smoking daughters have been cited by residents as reasons why Luna Park should shut down rides. The Daily Telegraph has seen several affidavits filed in the Supreme Court by Milsons Point residents against the amusement park, which re-opened in April last year. Here is a summary of some of the residents’ affidavits, which make interesting reading. The court is likely to decide in July whether to grant the residents’ injunction order to close down five rides. Luna Park says this order, if granted, could cause it major financial pain.

KEVIN SEETO Kevin Seeto and wife Judith purchased their Milsons Point unit in The Cavill, in Cliff St, Milsons Point, in 2001. Mr Seeto said he assumed that Luna Park would only re-open with noise guidelines to protect local residents. Mr Seeto said he is “forced” out of his own home by the noise on weekends and also has a major cooking problem. The smell from Asian cooking prepared by himself and his wife stinks out the apartment and they can’t open balcony windows to release the fumes due to noise. “This problem of odours is worse when Judith boils up Chinese herbal medicine,” the affidavit reads. “I find the smells from the Chinese herbal medicines to be putrid.”

BERYL LESKE, OBE The renowned violin teacher bought her Peninsula Tower unit with husband Clemens in 1999. Ms Leske is unhappy about noise from the Ranger ride which she claims stops her using her balcony and affects her violin teaching, done in the apartment. “It is impossible to teach when in the background there is constant squealing … it completely breaks concentration for me and the student,” the affidavit by Ms Leske reads. “Part of my teaching involves teaching students to project their music to an imaginary audience in the distance, in my case to McMahons Point. “With the sliding door shut, the exercise simply loses all impact.”

PHILLIP CAVE Mr Cave, who has bought an apartment at 30 Glen St, said one of the park’s side-effects is that one of his daughters no longer visits. He said she was not allowed to smoke in the home but doesn’t like smoking on the terrace, due to the screaming from patrons. “If I can only smoke on the condition that I listen to the screaming, I would rather not come here at all,” the daughter allegedly said.

And so on. Snort. NUMBY is helpfully defined as “Not Under My Balcony, the city cousin of the NIMBY”. This article was the start of the matter that the High Court decided, because the press was given the affidavits by the defendants, who had obtained them as part of compulsory court process. This, it turns out, was a breach of the law.

And that’s my second button pressed: I’ve spent many year battling to get documents out of court files, continually stonewalled by court bureaucrats who think that court files are owned by either them or the parties (and who seem to have trouble finding them anyway, not to mention charging extortionate fees to search and photocopy.) This a dramatic contrast to other countries, notably the US, whose federal courts put all filed documents on the net for a nominal fee for anyone who wants to look at them. Without such access, the only scrutiny of court process that is possible is by either attending at court, paying a smallfortune for a transcript or reading what is said about the evidence in a court’s judgment. On the rare occasions I’ve gotten access to documents, I’ve invariably found that the latter misrepresents the evidence (e.g. the major High Court case, Fox v Percy, which overruled expert reports about accident causation in favour of ‘incontrovertible evidence’ of skid marks; my search discovered that that evidence was a single unscaled stick-figure diagram no bigger than my thumb, drawn in the dark on a dirt road by a police officer who had it in for the tattooed plaintiff.)  It’s no surprise that courts have no particular interest in exposing court files to scrutiny. In this case, the defendants had to hurriedly apologise for the article in the Tele and undertake not to release any more documents. Alas, two directors did release more documents to a NSW Minister and now have been found guilty of contempt.

And now for my third button: this aspect of the law on contempt (like other aspects) is a bit of the common law that demonstrates that any reference to the ‘genius’ of the law can only be sarcastic. In the middle of each of the last two centuries, English courts decided that documents obtained compulsorily as part of a litigation process come with a string attached: an ‘implied undertaking’ that the documents will only be used ‘for the proceedings’. Not only is this terminology inapt – the obligation arises whether or not any undertaken is given and applies to people (like the directors) regardless of whether they know of it – but the rule is bizarrely broad, covering not only genuinely compelled documents, confidential information,  broad publication and wholly unrelated uses but (as here) documents released through routine discovery, stating evidence intended to be put publicly at trial, disseminated privately (with an instruction not to quote publicly) and for a legitimate purpose of (successfully!) lobbying for political support (by defendants to litigation against the plaintiffs.) I’m no contempt expert, but I wonder whether the same rule applies in criminal matters, something that would have had terrible ramifications for Mohammed Haneef, who is free today because of the ‘leaking’ of an interview transcript that the police had to provide as part of pre-trial criminal process. As it happens, even the High Court had to concede that no-one really knows whether contempt is a criminal or civil matter (a distinction vital here as the defendants were initially acquitted, before that was overturned by the Court of Appeal), with the Court having to rely on a vague test that seeks to distinguish between remedial and punitive motivations on the part of the plaintiffs!

Fourth button: the High Court, which showed not to slightest interest in reforming this (or any other) crappy law, despite making it clear that it is the only judicial body in Australia that is permitted to do so. Justice Kirby basically begged the plaintiffs to both ask for a reformulation of the law and also to seek a specific defence for their particular disclosure (to a minister as part of a lobbying process for remedial legislation, i.e. a form of petition to parliament.) But, despite the apparent merit to these arguments – constitutional free speech, anyone? – the plaintiffs wouldn’t bite. It’s not hard to see their thinking, as they looked past Kirbs to the four Howard-appointed drones that made up the rest of the bench. Instead, they eschewed arguments based on policy, modernisation and human rights in favour of a technical argument about the distinction between express and implied undertakings. Now there’s a choice that evinces total contempt of court (albeit wholly deserved.) It didn’t pay off: in a judgment obviously written by Heydon – it’s just a series of put-downs of the defendants’ arguments and a brief lecture on the law (he should blog!) – the majority dismissed the technical argument (instead stating the law of contempt in the broadest imaginable terms) and knocked back the parliamentary point  with a nonsensical claim that petitioning is a vestige of an undemocratic franchise. (And see here for what Dyce thinks of the franchise!)

And that brings me to my fifth and final button, which is Charter-related (I always get there!):

The Charter’s first report card

These days, report cards aren’t the feared documents I recall from my school days. My toddler’s creche gives its ‘students’ report cards. As you might imagine, they aren’t heavy on the criticism. Nevertheless, you’d have to be a very proud parent to miss the faintness of some of the praise they came up with: “Zachary has a lot of fun trying to eat”; “Zachary primarily communicates through laughter”; “Zachary is learning to explore other children and their hair.”; “Zachary is starting to learn about cause and effect. He spends all day tapping the floor with a toy hammer.” At least he’s happy.

The Charter got its first report card today, courtesy of its chief carer VEOHRC and Charter s. 41(a):

The Commission has the following functions in relation to this Charter-

(a) to present to the Attorney-General an annual report that examines-

(i) the operation of this Charter, including its interaction with other statutory provisions and the common law; and

(ii) all declarations of inconsistent interpretation made during the relevant year; and

(iii) all override declarations made during the relevant year

There’s nothing to report on paras (ii) and (iii) to date (if there ever will be), and the Charter was hobbled in its first year by the delayed commencement of the interpretation and conduct mandates, but VEOHRC’s report still runs to 80 pages. It’s called “First Steps Forward“. (Sniff. That’s more praise than Zachary got when he was one. He first walked at 18 months, just scraping into the 5th percentile.)

I found First Steps Forward a surprisingly illuminating read for an annual report (but that’s me.) For those who aren’t so involved, here’s some interesting instances of measured praise: