CC Containers Pty Ltd & ors v Lee & ors (No. 2)  VSC 149
In CC Containers Pty Ltd ors v Lee & ors (No. 2), the plaintiffs made serious allegations of fraud against the defendants in connection with a shipping container repair and storage business. These included allegations that invoices inflating the cost of repairs and duplicated invoices had been issued to and paid by the plaintiffs.
The plaintiffs’ claim included the tort of conspiracy by unlawful means. They alleged that the unlawfulness of the invoices arose under provisions of the Crimes Act 1958 (Vic) relating to obtaining financial advantage by deception, false accounting, and the falsification of documents.
Some of the defendants filed a non-responsive defence, on the basis that the allegations against them, if proven, might lead to criminal charges or civil penalty claims. The defendants claimed that they were not required to plead substantive defences, because they were entitled to rely on the privilege against self incrimination and penalty privilege. The plaintiffs applied to have the defence struck out.
The privilege against self incrimination may generally be invoked if there is a real and appreciable risk that by answering questions or producing documents a person may face criminal prosecution. Penalty privilege may apply if a person establishes that answering questions or producing documents may tend to subject them to a civil penalty.
It had previously been determined by Finkelstein J in Australian Securities and Investments Commission v Mining Projects Group Ltd & Ors that the privileges can in certain circumstances relieve a defendant from having to comply with pleading rules when filing a defence, unless and until the plaintiff’s case has concluded at trial. If at that time, after hearing the plaintiff’s evidence, the defendant decides to run a positive case, he or she can deliver an amended defence.
In the case of CC Containers, the plaintiffs submitted that because other proceedings for the imposition of a penalty or prosecution had not been issued, and there was no evidence before the Court that the matter had been investigated by any enforcement agency, the defendants ought not be relieved from their ordinary pleading obligations.
Justice Ferguson considered the allegations to be of a serious nature, entailing alleged systematic fraud, and therefore there was a real and appreciable risk of criminal prosecution or penalty proceedings should the allegations be proven. Thus, Her Honour ruled that the defendants were not required to file a responsive defence until the plaintiffs’ case had concluded at trial.
Further, Her Honour ruled that if, after the plaintiffs concluded their case, the defendants wished to amend their defence to plead a positive case, it would be a matter for the trial judge to determine whether to grant them leave to do so and if so on what terms, taking into account all the relevant circumstances at that time.
In certain cases where allegations of fraud are made, the very nature of the allegations may demonstrate that if they are proven at trial there is a real and appreciable risk of criminal prosecution or penalty proceedings being issued against a defendant. In those instances, a defendant may in the first instance file a non-responsive defence, asserting privilege against self incrimination and penalty privilege, without filing affidavit material to establish the risk of criminal or civil prosecution.