The standard of fair play
Should a statutory duty of prosecutorial fairness be imposed on ASIC in connection with civil penalty proceedings?
"I cannot refrain from expressing my surprise that it should be taken on behalf of the Crown (a technical point). It used to be regarded as axiomatic that the Crown never takes technical points, even in civil proceedings, and a fortiori not in criminal proceedings. I am sometimes inclined to think that in some parts – not all - the Commonwealth, the old fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with its subjects, which I learned a very long time ago to regard as elementary, is either not known or thought to be out of date. I should be glad to think that I am mistaken." [1
In recent years, in a number of high profile cases, the Australian Securities and Investments Commission (“ASIC”) has very actively pursued civil penalty proceedings against directors where companies have become insolvent. Within such proceedings ASIC routinely seek orders for the disqualification of the directors (from managing corporations for periods up to twenty years) and compensation orders (valued in millions of dollars). The above passage could have been taken from any number of those cases. In fact, the passage has come from a 1912 court decision – but in light of the recent ASIC prosecutions, never has the call for prosecutorial fairness in civil penalty proceedings been more relevant.
This article argues that having regard to the nature of such civil penalty proceedings brought by ASIC, a statutory duty of prosecutorial fairness should be imposed on ASIC, similar if not identical to the obligation of prosecutorial fairness imposed on prosecutors in criminal prosecutions. Before considering the current position in civil penalty proceedings, it is useful to review the principles that apply to prosecutors in criminal proceedings.
Prosecutorial fairness – a criminal context
The duties of a prosecutor are well established in criminal proceedings. Given, that the outcome of a criminal prosecution may result in the deprivation of rights of citizens and the imbalance between the resources available to the State compared to the individual citizen, which may result in unfair outcomes in trials, relatively stringent duties are imposed on the Crown concerning how it must conduct its case. These stringent duties have been established over many years.
In Whitehorn v R [2], Deane J considered the duty of the prosecutor, and stated:
“Prosecuting Counsel in a criminal trial represents the State. The accused, the court and the community are entitled to expect that, in performing his function of presenting the case against an accused, he will act with fairness and detachment and always with the objectives of establishing the whole truth in accordance with the procedures and standards which the law requires to be observed and helping to ensure that the accused’s trial is a fair one.”
Specific examples of the Crown’s duty to act fairly when acting as prosecutor include:
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calling relevant witnesses, even if their evidence does not assist the prosecution[3];
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not making decisions whether to call a witness (or not) for tactical reasons[4];
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not try to shut out evidence which could be of importance to the case of an accused[5];
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to present its case completely and not calling evidence in reply to the defence case where it could have anticipated that the defence would raise a particular issue[6];
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an overriding duty to assist the court to make certain that justice is done as between the subject and the State[7]; and
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a duty of complete disclosure, for example the prosecution is required to provide the defence with copies of draft witness statements and all other documents in the possession of the prosecution that may be relevant to the defence case.
These duties are imposed by the Courts on the prosecution so as to ensure that the underlying objective, of justice between the individual and the State, is achieved in criminal prosecutions.
What is the position when it comes to civil penalty proceedings? As we will see below, although certain obligations are imposed on prosecutors in civil penalty proceedings, those obligations are not as extensive as those imposed on prosecutors in criminal proceedings.
Civil penalty proceedings
In civil penalty proceedings, ASIC as a plaintiff will usually be seeking an order from the Court against a company director, for the payment of a financial penalty, the making of a compensation order for any loss allegedly suffered by a company and/or an order for the disqualification of the director from managing a corporation for a period of time.
Civil penalty proceedings have many characteristics in common with criminal proceedings. At the heart of these proceedings lies the possible deprivation of rights or entitlements of the individuals concerned (eg banning orders for directors, depriving them of ability to earn a livelihood in their chosen profession etc), which goes beyond the mere imposition of a penalty or compensation order.
They are concerned with a wrong committed by a director of a company and have been held by the High Court to have a punitive purpose [8].
They involve ASIC acting as an agent of the Commonwealth, with significant resources and investigative powers. Those investigative powers include the power to compel the production of books and records[9] and the power to compel individuals to attend examinations[10], during which they are interrogated by ASIC with the purpose of obtaining information to aid a prosecution.
When taking such civil penalty proceedings, ASIC is acting in its capacity as a regulator enforcing the Corporations Act 2001 (“Act”), and, it is submitted, should be concerned with achieving justice rather than being motivated by considerations of being successful in any proceedings commenced.
Unlike other civil proceedings, until recently civil penalty proceedings did not require a defendant to give discovery of documents or answer interrogatories before a trial.
When considering the nature and potential outcome of civil penalty proceedings it is clear that they have more in common with criminal proceedings than they do with ordinary civil proceedings. Given that position there are good reasons why ASIC when taking such actions should be held to standards similar to those required of the prosecution in criminal proceedings.
However section 1317 L of the Act provides that in civil penalty proceedings, the court must apply the rules of evidence and procedure for civil matters.
ASIC’s obligation in civil proceedings
In ordinary civil proceedings the Courts have held that the Crown has an obligation to assist the court to arrive at a proper and just result [11].
Furthermore the Commonwealth and its agencies, such as ASIC, are required to act as a model litigant in civil litigation in accordance with the Commonwealth’s Legal Services Directions 2005 (“the Direction”), issued by the Attorney General in accordance with s 55ZF of the Judiciary Act 1903.
The Direction requires that the Commonwealth and its agencies act honestly and fairly in litigation by, among other matters [12]:
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acting consistently in the handling of claims and litigation;
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endeavouring to avoid, prevent and limit the scope of legal proceedings (wherever possible);
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where it is not possible to avoid litigation, acting to keep the costs of litigation to a minimum by, not requiring the other party to prove a matter which the Commonwealth or the agency knows to be true and not contesting liability if the Commonwealth or the agency knows that the dispute is really about quantum;
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not to take advantage of a litigant who lacks the resources to litigate a legitimate claim; and
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not to rely on technical defences unless the Commonwealth or the agency’s interests would be prejudiced by the failure to comply with a particular requirement.
Although the Direction imposes certain obligations on ASIC in the manner that it is required to conduct itself in civil litigation, those obligations fall far short of the duty of prosecutorial fairness imposed on the Crown in criminal proceedings.
The deficiencies in the Direction include, but are not limited to the following:
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it does not require ASIC to call all witnesses relevant to the facts in issue in a civil penalty proceedings, regardless of whether they assist the defendant or not;
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it does not prohibit ASIC from making tactical decisions about whether or not to call a particular witness or generally;
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it does not impose a duty on ASIC to assist the Court to make certain that justice is achieved in the proceedings; and
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it does not require ASIC to disclose to the defence all documents that ASIC has in its possession and which may be of assistance to the defence or relevant to the proceedings.
Extending the criminal standards to civil penalty proceedings – why?
As seen above, the consequences of civil penalty proceedings can involve deprivation of rights and entitlements just like criminal proceedings. Such proceedings involve the prosecution of a case by the State, which has the inherent risk that there will be an imbalance between the resources available to the State (ASIC) and to the individual the subject of the civil penalty proceedings.
In criminal proceedings, the Crown is required to meet a higher burden of proof. It must prove its case beyond reasonable doubt. In civil penalty proceedings a lower threshold applies and ASIC must prove its case on the balance of probabilities[13] although the Court may take into account the gravity of the matters alleged, in deciding whether it is satisfied that the balance of probabilities supports the alleged conduct [14].
In criminal proceedings, the courts consider the resource imbalance between the crown and the defendant. In particular, they are concerned to ensure that defendants should not be disadvantaged in the proceedings through a lack of their own resourcing to properly fund their defence (eg legal aid can cover both solicitors and barristers including Queen’s or Senior Counsel). This is not a consideration in civil penalty proceedings, where the proceedings can take years to resolve and are inherently expensive, with the consequence that only those defendants with substantial financial resources are in a position to properly defend such proceedings. Defendants that do not have such resources may be significantly prejudiced in their defence of civil penalty proceedings.
The availability of D&O insurance cover can in some instances reduce the prejudice suffered by a defendant. However, even if cover is available to a defendant, practical issues such as limitations on the amount or level of fees that the policy will meet for professional fees and the timing of payments made by insurers in respect of fees incurred on behalf of a defendant, may have a significant limiting effect on the ability of a defendant to fully and properly prepare their defence.
If a statutory duty of prosecutorial fairness was imposed on ASIC then this would ensure that ASIC was obliged, among other matters, to assist the court to ensure that justice was achieved between the parties, and the imbalances identified above and the inherent prejudice that results could be substantially cured.
Conclusion
The Supreme Court of NSW, in the long running civil penalty proceedings involving ASIC and Jodee Rich, has recently considered the question of whether ASIC has a duty of prosecutorial fairness[15]. Justice Austin, relying on the decision of the NSW Court of Appeal in Adler v ASIC[16], held that no such duty existed. In the Adler case, the Court of Appeal held:
“However it has not been suggested that when the State engages in civil litigation as it frequently does, its representative’s functions have a similar content, or that the failure to call a material witness can lead to a reversal of a judgment in the State’s favour because of a miscarriage of justice. The concepts have been developed in the particular circumstances of criminal proceedings. By declaring that these proceedings are to be conducted as civil proceedings, the legislature has plainly declined to pick up these concepts”. [17]
Although the legislature has declared that civil penalty proceedings are to be conducted as civil proceedings, they have been characterised by the High Court as having punitive purpose, they affect the rights of the individual citizen and involve ASIC (a well resourced agent of the State). In these circumstances, the question of whether a duty of prosecutorial fairness should be imposed by the legislature needs be carefully considered. The result otherwise may be that these proceedings are oppressive and that injustice is done to defendants.
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[1] Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333
[2] (1981) 152 CLR 657 at 663
[3] Seneviratne v R [1936] 3 All ER 36 (PC)
[4] Whitehorn v R (1981) 152 CLR 657 at 663
[5] R v Lucas [1963] VR 693 at 705
[6] Shaw v R (1952) 85 CLR 365
[7] R v Lucas [1973] VR 693 at 705
[8] Rich v ASIC (2004) 78 ALJR 1354
[9] S 33 Australian Securities and Investments Commission Act 2001
[10] S 19 Australian Securities and Investments Commission Act 2001
[11] Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342
[12] Legal Services Directions 2005, Appendix B, para. 2.
[13] S 1332 Corporations Act 2001
[14] Briginshaw v Briginshaw (1938) 60 CLR 366
[15] ASIC v Rich (2005) 53 ACSR 752
[16] Adler v ASIC (2003) 179 FLR 1
[17] Adler v ASIC (2003) 179 FLR 1 at 678
