The first defendant, McGrath, was the director of the first plaintiff housing society and the sole director, secretary and shareholder of the second defendant, McGrath Financial Services Australia (“MFSA”). The plaintiffs alleged that McGrath breached his statutory and fiduciary duties to the plaintiff society by failing to inform the society’s members about particular matters before outstanding loans and mortgages owned by the society were transferred to MFSA. McGrath claimed the privileges against self-incrimination and exposure to penalty on the basis that the plaintiffs’ allegations were capable of criminal punishment, and the defendants sought limited dispensation from the pleading rules and in limine relief from their disclosure obligations. After a notable analysis of relevant authorities and principles, Ryan J granted McGrath relief from the pleading rules on narrow terms, and declined MFSA similar relief in all but one instance. Similarly, while her Honour granted McGrath in limine relief from disclosure on a limited basis, the company was denied that same relief.
10 December 2019
Eureka Co-operative Housing Society Ltd (in liquidation) (“Eureka”), the second plaintiff, was engaged in acquiring and on-lending funds to its members. . McGrath, the first defendant, was the director of Eureka. . McGrath was also the sole director, secretary and shareholder of McGrath Financial Services Australia (“MFSA”), the second defendant. . In 2018, Eureka’s members approved the transfer of Eureka’s outstanding member loans and registered mortgages to MFSA for a price of $187,000. –. The effect of that transfer was that a beneficial loan surplus of approximately $812,000 that would otherwise have been distributed to Eureka’s members, passed entirely to MFSA. , .
Eureka and its liquidators later sued McGrath and MFSA, alleging McGrath breached his statutory and fiduciary duties as a director of Eureka by failing to inform its members about the loan surplus, their rights to distribution, or the consequences of the transfer to MFSA. –, . McGrath claimed the privileges against self-incrimination and exposure to penalties on the basis that the breaches of the Financial Intermediaries Act 1996 (“FI Act”) alleged against him could give rise to criminal sanction. –, –. The defendants in turn sought dispensation from the Uniform Civil Procedure Rules 1999 (“UCPR”) pleading requirements in respect of particular paragraphs of the plaintiffs’ Amended Statement of Claim, and in limine relief from the UCPR disclosure requirements. –.
In support of their application, the defendants pointed to the potential for the allegations against McGrath to give rise to criminal punishment, and highlighted that the relevant Regulator under the FI Act had provided financial support for the plaintiffs’ claim. . While only McGrath was entitled to claim the privileges, the defendants contended that as McGrath was the only person capable of giving instructions or evidence on behalf of MFSA, to require him to do so would amount to requiring him to engage in self-incriminating conduct. , –. Similarly, the defendants argued that the UCPR disclosure obligations would require them to create documents which “by their nature” may be incriminating, and that the identification of particular documents might cause the Regulator to embark on a train of inquiry that might uncover incriminating information. , –.
Whether limited dispensation from the pleading rules ought be granted
After notable analysis of authorities and principles concerned with dispensation from pleading rules and relief from disclosure (–), Ryan J turned to whether the defendants ought to be granted limited dispensation from the pleading rules. –. Her Honour reasoned that despite limited evidence, the fact that success by the plaintiffs required proof of allegations constituting criminal conduct and the involvement of the Regulator revealed that the defendants had a real and appreciable apprehension of McGrath’s self-incrimination in an offence. –. In the circumstances Ryan J concluded that the risk of self-incrimination was not so improbable as to be considered as virtually without substance. .
Relying on the defendants’ submissions to establish a reasonable risk of self-incrimination, Ryan J considered the matter of dispensation from the pleading rules on a paragraph-by-paragraph basis for each of McGrath and MFSA. , –. Having regard to the content of each paragraph of the Amended Statement of Claim in its full context, and giving the appropriate latitude to the defendants’ arguments, her Honour granted McGrath dispensation from pleading to six of the seven paragraphs in respect of which dispensation was sought. –, –.
Importantly, Ryan J did not grant McGrath dispensation from pleading to paragraph 20 of the Amended Statement of Claim because her Honour considered that the paragraph was a mere recitation of facts to which pleading did not further imperil McGrath in any way. –. Having regard to the plaintiffs’ pleading and evidence, her Honour concluded that in all but one respect McGrath was not the only person capable of instructing or giving evidence on behalf of MFSA. –. As such, MFSA was granted dispensation from pleading to only one paragraph of the Amended Statement of Claim. –.
Whether in limine relief from disclosure ought be granted
Ryan J noted that the authorities distinguished between pleading and disclosure obligations, and observed that there was a strong disposition in favour of ordering discovery. –. However, her Honour acknowledged that a real and appreciable risk of the disclosure requirements leading to self-incrimination might still exist in exceptional circumstances. . Ryan J in turn underscored the particular significance of the fact that the contraventions alleged against McGrath were capable of criminal punishment. .
Even allowing the defendants latitude for the lack of evidence presented, Ryan J considered that there were “sweeping aspects” to the defendants’ application for in limine relief. . In that context her Honour was not prepared to grant McGrath in limine relief from disclosure other than in relation to the paragraphs to which he was no longer required to plead. –. Her Honour did however grant McGrath liberty to apply concerning the degree of specificity required for describing a document relevant to the paragraphs to which he was still required to plead. . On the basis of her previous conclusions concerning MFSA, Ryan J refused the company’s application for in limine relief.