In Short

The Background: In a shareholder class action, the plaintiff sought discovery of documents from the defendant partnership in relation to alleged statutory contraventions associated with its role as auditor of a company that had gone into liquidation.

The Issue: The defendant sought to resist production of the documents on the basis of the privileges against self-incrimination and self-exposure to penalties.

The Outcome: The partners who were directly involved in the relevant audits could rely on the privileges to resist production, on the basis that production of the documents would give rise to a real risk of prosecution. Other partners in the audit firm could not rely on the privileges.

Impact for Class Actions: The privileges may be claimed by individual defendants (e.g., partners, directors and other officers) in a class action, or individuals subject to requirements to produce documents for a class action, where there is real risk of self-incrimination or self-exposure to penalties.

Background

The privileges against self-incrimination and self-exposure to penalties mean that a person is not bound to answer any question or produce any document if doing so may expose that person to a criminal conviction or civil penalty. The High Court of Australia has previously held that these privileges do not apply to companies under Australian law: Environment Protection Authority v Caltex (1993) 178 CLR 477.

In Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (No 3) [2018] FCA 1107 ('Sadie Ville'), the Court considered whether an audit firm structured as a partnership of individuals was entitled to rely on these privileges to resist the production of documents, in circumstances where:

  • The group comprised persons who had acquired an interest in shares in Hastie Group Ltd, which subsequently went into liquidation.
  • The defendant partnership had acted as auditors of Hastie prior to its collapse.
  • The plaintiff alleged that the defendant contravened various statutory provisions in its conduct as Hastie's auditor.
  • The Court ordered discovery of certain categories of documents, which the defendant challenged on the basis of the privileges.

Decision

Justice Moshinsky ordered that only the audit-firm partners who were not directly involved in the relevant audits were required to give discovery.

Production of documents by the partners who were directly involved was found to give rise to a real and appreciable risk that those partners would be exposed to criminal or civil penalties. However, where other partners had possession, custody or power over documents that fell within the discovery categories, there was no proper basis upon which to resist discovery. This was because the privileges against self-incrimination and self-exposure to penalties can be claimed only by the individual who may be incriminated or exposed, and only in respect of his or her own production of evidence.

Justice Moshinsky acknowledged that, as a matter of practical effect, ordering partners who were not directly involved to produce documents may undermine the privileges claimed by the partners who were directly involved. However, His Honour emphasised that the privilege is against self-incrimination or self-exposure. It could not be relied upon by partners who were not at risk of prosecution in respect of the Hastie audits.

This decision has relevance for class action strategy. Many investor, shareholder and financial-services class actions involving claims for compensation may be founded on allegations that could also support criminal or civil penalty proceedings against individuals, such as directors and officers. On the basis of the decision in Sadie Ville, such individuals may be entitled to resist production of documents in the class action on the basis that production gives rise to a real risk that they will be exposed to criminal or civil penalty proceedings.

Three Key Takeaways

  1. The privileges against self-incrimination and self-exposure to penalties can be relied upon only by natural persons to resist producing documents that may incriminate or expose them. These privileges cannot be relied upon to resist producing documents on the basis that such documents may incriminate or expose another person or a company.
  2. As a matter of Australian law, the privileges cannot be claimed by a body corporate.
  3. The decision in Sadie Ville provides key guidance regarding how far the privileges will extend. It is clear that, in a class action brought against a company or partnership, the potential for evidence to incriminate or expose individual partners, directors and other officers may provide a basis upon which such individuals may resist giving evidence or producing documents.