Flugge’s challenge

flugge_narrowweb__300x4530Boy, 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:

ASIC accepts that the Court has a common law discretion to stay civil proceedings in the interests of justice if criminal proceedings could be commenced against a defendant for an offence constituted by substantially the same conduct raised in the civil proceedings. Each defendant, save Mr Ingelby, concedes that relevant principles on the exercise of that discretion are set out in McMahon v Gould. Mr Ingelby contends that McMahon v Gould was wrongly decided or is no longer good law. If McMahon v Gould was not wrongly decided, each defendant contends that, applying the factors referred to in McMahon v Gould, a stay should be granted. Further and in any event, they each contend that the factors referred to in McMahon v Gould ought to be modified or adapted to deal with a civil penalty claim and also the High Court’s decision in Reid v Howard, a decision on the right of silence, and that so modified or adapted, a stay should be granted. ASIC also concedes that a “refinement” of the principles in McMahon v Gould should be made by reason of the High Court decision in Reid v Howard. The defendants also rely on ASIC v HLP Financial Planning (Aust) where the Federal Court of Australia stayed a civil proceeding for an injunction to restrain conduct that also constituted a criminal offence under the Corporations Act 2001. Mr Flugge and Mr Ingelby also rely on the Charter of Human Rights.

In the end, after all this precedent wrangling, Robson J granted all of the stays except for Lindberg, the guy who wasn’t the subject of a recommendation from the Cole report for criminal prosecutions. He cited not only the right to silence point but also the unfairness of getting the defendants to fork out for two sets of legal fees (civil and criminal), especially given the criminal matter would come second.

So, the Charter issue therefore fell away:

After the hearing concluded, Mr Flugge sought leave to make submissions that he will not receive a fair hearing if he is forced to give up his right of silence and reveal his defence to the potential criminal charges he faces in the civil proceeding. Mr Ingelby adopted Mr Flugge submissions. Mr Flugge submits that under the Charter, the Court has a duty to enforce his right to a fair hearing. As I have granted Mr Flugge’s and Mr Ingelby’s applications for a stay, it is unnecessary for me to decide this issue in relation to them.

Mr Lindberg did not adopt the submissions. As indicated below, the proceedings against Mr Lindberg are to continue. I do not consider it appropriate to consider whether Mr Lindberg can avail himself of the Charter and the Court’s assistance without Mr Lindberg raising the issue and making submissions on why he alleges he will be denied a fair hearing in the civil proceedings or in any potential criminal proceedings.

Hmmm. Why didn’t Lindberg adopt those submissions? And why isn’t it ‘appropriate’ to apply the Charter if it’s applicable? Judges don’t just ignore other statutes, do they, even if a particular party doesn’t mention them?

That being said, while the rights argument is a solid one, especially if it focuses on the fairness of the civil proceeding (as the criminal one hasn’t started yet),  it wouldn’t have succeeded under the Charter anyway, because the Supreme Court isn’t bound by the Charter when it’s acting in an administrative capacity and the remaining entities involved are federal and hence not bound by the conduct mandate either. (One of the non-Flugge prosecutions is a state prosecution, so maybe there’d be something there, but presumably the stay would have to be against the prosecution, not the civil matter.) There’s no relevant statutory provision (is there?) And I have my doubts about whether the remedy of a stay falls within Charter s. 39. The only argument would be to say that Charter s. 6(2)(b) binds the Supreme Court and that that provision (and Charter s. 24) is picked up by the Judiciary Act. Tricky.

Robson briefly talked about a double jeopardy point – it’s not clear if it was a Charter point – arguing that ‘civil penaltiies’ are still penalties for double jeopardy purposes. He didn’t have to deal with that because the civil penalty proceedings were the only ones on foot. The issue would arise if civil proceedings were followed by criminal ones, but that can’t happen now (except, I guess, for Lindberg.) Again, the operative issues would prove a difficulty.

Robson concluded by adding his name to the many who’ve called for a rethinking of the McMahon v Gould test:

For the purposes of this case I assume I am bound to follow the McMahon v Gould line of authorities. Nevertheless, I wish to add my voice to those at first instance suggesting that an appellate court may wish to reconsider McMahon v Gould. In particular, an appellate court may consider that the right of silence should not only be recognised but protected by the courts by preventing a defendant from being effectively compelled to waive his right of silence and thereby help those who seek to prove an offence by requiring him to defend civil actions relating to the same or similar conduct the subject of existing or potential criminal proceedings before those civil proceedings are completed. Compelling the defendant to defend civil proceedings, particularly those which impose a penalty, may assist the Crown in its prosecution by putting the Crown onto a train of inquiry or enable it to adjust its case to meet the anticipated defence in advance. It might be thought that such a circumstance denies the defendant his or her basic common law right to have the Crown establish its case against him or her without any assistance from the defendant.

What a pity that, thanks to the constitutional claptrap that led to the Charter being crippled when it comes to reviewing the common law, the Charter cannot play a role in this important issue of incompatibility of the common law with human rights. Perhaps the Attorney-General should ask VEOHRC to review this issue under Charter s. 41(b)?

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