While it is now well established that corporations cannot claim privilege against self-incrimination or privilege from exposure to civil penalties, the position has been less clear in relation to partnerships. In circumstances where all partners can potentially be liable for wrongs committed by any one partner, a question arises as to whether the privileges can be claimed by the partners not directly involved in the alleged wrong.
This issue recently arose for consideration in an ongoing class action in the Federal Court over the financial collapse of Hastie Group Limited (“Hastie“). Deloitte Touche Tohmatsu (“Deloitte”) sought to claim the privileges in respect of all its partners. The ensuing judgments of Moshinsky J discuss the principles behind the privileges. With a subsequent “extraordinary and troubling” turn of events, an application for leave to appeal, and the production of documents still to occur, the case may yet yield further developments on the ability of partners to claim the privileges.
The representative applicant in the Hastie class action is Sadie Ville Superannuation Fund (“Sadie Ville”). It alleges that Sadie Ville sustained losses from share purchases completed in reliance upon representations made by Deloitte, which had been Hastie’s auditor. Deloitte had prepared various reports in respect of audits and reviews conducted in 2010 and 2011, including a report for inclusion in a prospectus released by Hastie in June 2011. Sadie Ville claims that Deloitte failed to conduct the audits in accordance with auditing standards, and knowingly or recklessly made false or misleading statements in respect of Hastie’s financial position and financial performance. Hastie subsequently went into liquidation on 28 May 2012.
By reason of r 9.41(2) of the Federal Court Rules 2011, Sadie Ville was able to bring the action against partners in the partnership name, effectively suing all of the partners who were part of the Deloitte partnership at the relevant times.
The claims for privilege
When discovery was ordered against Deloitte, both the individual partner involved in the alleged misconduct and all Deloitte partners at the relevant times, sought to claim the privilege against self-incrimination and the privilege against exposure to penalties. Deloitte argued that Sadie Ville’s case was very broad and included allegations of multiple civil contraventions of provisions that are also offence provisions and/or pecuniary penalty provisions.
In determining the claims for privilege in Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 3)  FCA 1107; 357 ALR 695, Moshinsky J summarised the principles regarding the privilege against self-incrimination and the privilege against exposure to penalties. These principles include that:
- No one “is bound to answer any question or produce any document if the answer or the document would have a tendency to expose that person to the imposition of a civil penalty or to conviction for a crime”: .
- While the privileges are distinct (), they are both personal in nature. They are also “in the nature of a human right, designed to protect individuals from oppressive methods of obtaining evidence of their guilt for use against them”, and to maintain a fair state-individual balance: .
- Both privileges are only available to natural persons, not to artificial legal entities such as corporations: .
- In general, only the person who is exposed to the risk of prosecution or the imposition of a penalty can invoke the privileges; they cannot be invoked on the ground that another person would tend to be incriminated: .
- In order to validly make out either privilege, there must be a “real and appreciable risk” of prosecution or institution of penalty proceedings: .
- There can be no real and appreciable risk if the limitation period has expired: .
Was there a “real and appreciable risk”?
His Honour found that in respect of partners directly involved in the impugned conduct, there was a real and appreciable risk of prosecution for contraventions of the Corporations Act. This was so even though there was no evidence that either the Australian Securities and Investments Commission (ASIC) or the Commonwealth Director of Public Prosecutions were presently investigating or considering a prosecution. Accordingly, the claim for privilege against self-incrimination was made out in respect of partners with direct involvement.
However, in respect of Deloitte partners who were not directly involved in the relevant audits and reviews (the “Uninvolved Partners”), Moshinsky J denied both of the claims for privilege. His Honour found that production of the documents would not give rise to a real and appreciable risk of prosecution or the institution of proceedings for a pecuniary penalty against the Uninvolved Partners. He considered the prospects of an Uninvolved Partner being criminally pursued theoretical rather than real in circumstances where the directly involved partners would be the focus of any prosecution. In respect of pecuniary penalty provisions, Moshinsky J considered that these were out of time and there was, therefore, no real and appreciable risk.
The order to produce
Accordingly, Deloitte partners who were directly involved in the audits and reviews were excused from producing the requested documents, having successfully claimed the privilege against self-incrimination. However, as the claim for privilege was not made out by the Uninvolved Partners, and as his Honour found (at ) that the documents were within their control, the Court ordered that they must produce the documents: . Accordingly, an order to produce was made that was directed to Deloitte partners other than any partner directly involved in the relevant engagements. It was not necessary for the order to individually list the partners to whom it applied: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 4)  FCA 1218.
“Extraordinary and troubling” circumstances
A few months after the order was made, the parties were back before the Court. The Uninvolved Partners who were subject to the order had applied to be excused from complying with it: Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) (No 5)  FCA 2066. The basis for the application was that one of the Deloitte partners directly involved in the audits, Mr Reuben Saayman, had obtained the documents and would not release them to the Uninvolved Partners.
Quite how and when Mr Saayman came to hold the documents was not made clear to the Court. Deloitte’s Senior Legal Counsel with carriage of the proceedings on behalf of Deloitte gave evidence that, prior to Mr Saayman obtaining the documents, they were held by Deloitte’s in-house lawyers in the “litigation room” in the firm’s Sydney offices (the “Litigation Room”). The Litigation Room was secured by swipe card access, and access was said to be limited to Deloitte’s litigation team. Yet Mr Saayman not only obtained from the Litigation Room both hard and soft copies of the documents, but also a laptop computer containing many of the relevant documents. Mr Saayman also accessed the firm’s computer system and encrypted files that contained copies of the documents. Mr Saayman would not release the password.
Despite these apparent breaches of its internal procedures, Deloitte appeared not to have investigated what happened. Deloitte’s Senior Legal Counsel gave evidence during cross-examination that he did not authorise Mr Saayman to access the Litigation Room or for documents to be removed from the Litigation Room. But he also gave evidence that he made no enquiries to find out whether anybody else had authorised Mr Saayman to do so, when the files were removed, when the encryption was applied, whether the encryption could be broken, or whether copies of documents were held by others. Deloitte had also not made enquiries as to whether there were backups of the documents anywhere on the firm’s network, despite the firm’s information security policy stating that “[i]nformation saved to shared drives is automatically backed up daily and archived monthly”.
The circumstances leading to the application were, as Moshinsky J observed, “extraordinary and troubling”: . His Honour repeatedly noted that the series of events appeared to have been “designed” to bring about a situation where the Uninvolved Partners could argue (as they did) that they were unable to produce the documents in accordance with their discovery obligations:  and .
His Honour considered that the situation was compounded by Deloitte’s lack of explanation as to how Mr Saayman had been able to acquire the documents and by Deloitte’s failure to have done much, if anything, to investigate the matter. He also observed that there was evidence that copies of the relevant documents may be accessible to the Uninvolved Partners from Hastie’s liquidators, or from backup files. His Honour also commented on the fact that a complete copy of all of the documents covered by the order resided on a database used by Deloitte’s lawyers. Moshinsky J noted that in these circumstances a claim for legal professional privilege over such documents could potentially be lost.
A “convenient” inability to produce the documents?
In the absence of a detailed explanation as to how Mr Saayman obtained the documents, Moshinsky J was not satisfied that the Uninvolved Partners were unable to produce the documents. In refusing Deloitte’s application to be excused from compliance with the order, His Honour commented at :
Generally, one gets the impression that it is convenient for the Uninvolved Partners if they are unable to get the documents and they have not tried very hard to overcome the present impediments.
His Honour indicated that a range of options proposed by Sadie Ville remained open for consideration in the event the documents were not produced. These options include that Mr Saayman’s privilege claim might be revisited; that Sabre orders could be made to require the Uninvolved Partners to use their enforceable rights to recover the files and obtain the password;or that the production order could be varied to no longer excuse Mr Saayman on the basis that he ought not be entitled to disable other persons from producing documents that might incriminate him. While Moshinsky J declined to deal with these submissions “at least at this stage”, it remains to be seen whether such measures will be required.
The judgments of the Federal Court in the Hastie class action emphasise that in order to successfully make out a claim of privilege against self-incrimination or privilege from exposure to civil penalties in the context of a partnership, the individual partners must be able to show that they are personally at risk of prosecution or civil penalty proceedings. That risk may not be sufficiently real or appreciable in respect of partners not involved in the alleged misconduct if any prosecution would most likely be limited to the partners who were directly involved. The privilege will also not be enlivened if any pecuniary penalty proceedings would be out of time.
It remains to be seen whether Deloitte will achieve a different result on appeal. The application for leave and, if granted, the substantive appeal, have been set down for 6 May 2019.
 In particular, s 1041E of the Corporations Act 2001 (Cth), s 12DB of the Australian Securities and Investments Commission Act 2001 (Cth), s 29 of the Australian Consumer Law (Victoria), and in effect, s 307A of the Corporations Act.
 Sabre Corporation Pty Ltd v Russ Kalvin’s Hair Care Company (1993) 46 FCR 428.
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