REID v HOWARD SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL MAHoNney JA, HANDLEY JA and SHELLER JA 13 May 1993 [1993] NSWCA 231 Mahoney JA, Handley JA and Sheller JA. This is an application by a defendant for leave to appeal from orders made by Hodgson J on 25 March and by Powell J on 6 April. The Court generally does not give reasons in applications for leave to appeal but the circumstances of the present case are unusual and we will therefore give brief reasons. The claimant practised as a chartered accountant in various partnerships between 1976 and 1987 but in 1987 he left his then partnership and thereafter until March this year he was a sole practitioner. The opponents are former clients. It appears from a written statement which the claimant made and signed on legal advice and which was given to the police that from the middle of 1987 onwards he misappropriated funds entrusted to him by the opponents for investment and management on their behalf. According to his statement he did so not only to meet his business and living expenses but also to fund investments for his own benefit. It appears that he may have misappropriated sums in excess of $2 million from the variousopponents. The investments are said to have been unsuccessful and it certainly appears, prima facie, that substantial sums belonging to the opponents have been lost. It is evident that the claimant is insolvent. On receipt of this statement the police obtained and executed a search warrant in relation to the claimant's business premises and seized all his business papers. Criminal proceedings have not yet been commenced against him. The first opponents on becoming aware of the claimant's misappropriations commenced proceedings in the Equity Division to protect their right to trace the misappropriated funds into his assets. On 24 March Hodgson J as duty judge granted ex parte a Mareva injunction directed to the claimant, and appointed a receiver of some of his assets. On 25 March following service on the claimant these orders were continued and the receivership was extended to the whole of his property. Hodgson J also made an order in aid of the Mareva injunction that required the claimant on or before 30 March 'subject to any claim for privilege against self incrimination' to serve an affidavit on the plaintiffs setting out the assets which he owned or which were directly or indirectly under his control and particulars of their acquisition. In the course of the proceedings that day Hodgson J ordered the claimant's solicitor to produce to the Court a copy of his client's signed statement which had been given to the police. A claim for legal professional privilege was made in respect of this statement but the Judge held that the privilege had been waived when it was given to the police. Having inspected the document he ordered it to be produced to the plaintiffs. Later that day the second opponents also commenced proceedings against the claimant. The claimant did not comply with the order for service of an affidavit of assets and he did not file and serve an affidavit claiming privilege against self-incrimination. Accordingly on 30 March the first opponents filed a notice of 2 UNREPORTED JUDGMENTS motion seeking orders that the claimant be dealt with for his alleged contempt. All proceedings came on for hearing before Powell J on 1 and 2 April. The claimant relied on an affidavit sworn 31 March in which he claimed to be excused from complying with the order for service of an affidavit of assets on the ground that compliance would tend to incriminate him. Powell J overruled the claim of privilege on the ground that, having regard to the disclosure in his signed statement given to the police, the jeopardy in which he stood would not be any greater if he were obliged to file and serve affidavits of assets of the nature ordered by Hodgson J. He made orders in favour of both opponents for the taking of accounts before the Master and ordered that within fourteen days or any further time allowed by the Court of Appeal the claimant should file and serve an affidavit identifying which assets had been acquired, retained or maintained with moneys belonging to the opponents, the amounts so applied, and the whereabouts of the evidence of title. As a result of orders of this Court the time for compliance has been extended up to this date. The claimant sought leave to appeal from the order of Hodgson J requiring production and disclosure to the plaintiffs of his signed statement to the police, a similar order of Powell J on 1 April in favour of the second opponents, and the orders for the taking of accounts and for the filing and service of affidavits of assets. In our opinion the challenges to the orders for production and for the taking of accounts have no prospects of success and we refuse leave to appeal from them. In our view the claimant has an arguable case for challenging the decision that the disclosure required by the orders of 6 April did not expose him to any greater jeopardy. Any affidavit filed and served in compliance with these orders would not be admissible against the claimant in criminal proceedings because it would not have been voluntary and s 410 of the Crimes Act would also apply. However there is an arguable case that he might be further incriminated by such affidavits because they might assist the prosecution to frame charges and identify and locate the documentary evidence to prove them. Accordingly we propose to grant leave to appeal from the orders of Powell J of 6 April which required the claimant to file and serve these affidavits. The proposed appeal also raises an important question whether the Court is entitled, under s 23 of the Supreme Court Act, its inherent jurisdiction or otherwise, to make and enforce orders for compulsory disclosure against defendants in civil proceedings subject to safeguards which prevent such disclosures becoming available to the prosecution authorities. See generally as to the scope of s 23 and the inherent jurisdiction Riley McKay Pty Ltd v McKay (1982) 1 NSWLR 264 at 276 and Walton v Gardiner 29 April 1993 (High Court — not yet reported) espec 6, 8-10. The decisions of the Court of Appeal in In Re O (Restraint order: Disclosure of Assets) [1991] 2 QB 520 and of the House of Lords in Istel Ltd v Tully [1993] AC 45 support the view that the courts have inherent jurisdiction to make such orders in aid of the effective administration of justice in civil proceedings. As Lord Ackner said at 63: ... I would allow this appeal on the ground that the courts are entitled to substitute some different protection in place of the privilege against self-incrimination, providing that such protection can properly be considered as adequate. However as at present advised, and with respect, we are not persuaded that the effective exercise of this jurisdiction is dependent on any agreement or concession by the prosecution authorities. On the contrary it appears to us that if URJ REID v HOWARD (Mahoney JA, Handley JA and Sheller JA) 3 the courts can make effective orders with the consent of the prosecution authorities to protect defendants against incrimination as a result of compulsory disclosures they can also make such orders without any such agreement or concession. In our view it is at least arguable that the Court has jurisdiction to order that the original affidavits be treated as confidential by the Court Registry and not be disclosed or produced to anyone without the leave of the Court. The Court can order that copies served on the solicitors for the opponents be treated as confidential and the solicitors and clients can be restrained from delivering those copies or disclosing their contents to any other person without the leave of the Court. Persons who are not parties to litigation and are not directly bound by an injunction may nevertheless be guilty of contempt of court if, with knowledge of the injunction, they act to cause a breach. See Seaward v Paterson [1897] 1 Ch 545 and CCOM Pty Ltd v Jiejing Pty Ltd (1992) 36 FCR 524. Accordingly injunctions of this kind may become indirectly enforceable against third parties, including the prosecution authorities. As at present advised we see no reason why the Court should not be able to enforce such orders and thereby effectively prevent the prosecuting authorities from obtaining access to the contents of the affidavits. In theory the Court would retain jurisdiction to relax those orders in a proper case (compare Crest Homes v Marks [1987] AC 829) but having compelled disclosure on the basis that the deponent would not beprejudiced in any criminal proceedings the Court can be expected to keep its implied promise except in relation to possible proceedings for contempt of court, perjury or false swearing. See generally Ex parte James [1874] LR 9 Ch 609 at 614 and Groom's Maxims 10th ed, (1939) 73-75. The grant of leave to appeal should not be allowed to prejudice the interests of the opponents more than is absolutely necessary. The claimant has been in breach of the orders of Hodgson J and Powell J directing the filing of affidavits and the Court is concerned that the proposed appeal should not provide either the occasion or the opportunity for the claimant to commit breaches of the Mareva injunctions and to conceal their existence from the Court and the opponents until the conclusion of any criminal proceedings. In particular as far as possible the claimant should not be allowed to compound what appear to have been acts of dishonesty and grievous breaches of trust and fiduciary duty by using any remaining assets in his hands in which the opponents have equitable interests for living or legal expenses. Accordingly the orders that the Court will make for leave to appeal and to continue the existing stay of the disclosure orders of 6 April will be made on strict conditions for the protection of the opponents and if those conditions are not duly complied with, leave could and presumably would be revoked. The orders that the original and service copies of the affidavits be lodged with the Court in a sealed envelope and the associated order that the solicitor for the claimant file and serve an affidavit that to the best of his or her knowledge information and belief the claimant has sworn and filed a proper affidavit, are directed to ensuring that the orders of Powell J are now promptly and faithfully complied with andthat the solicitors for the claimant take proper professional responsibility for such compliance. Nevertheless the status quo, as far as disclosure is concerned, is preserved pending the hearing of the appeal and any possible further proceedings in the High Court. Compare George v Rockett (1990) 170 CLR 104 at 105 , 109 , 122. 4 UNREPORTED JUDGMENTS Moreover the claimant's solicitors" necessary involvement in the preparation of the affidavits and their knowledge of the contents will place them on notice of the identity of assets owned by the claimant or which are under his direct or indirect control in which the opponents have or may have equitable interests. They will not be free to accept payment from or security over such assets without rendering themselves liable to account to the opponents if they succeed in tracing their misappropriated funds into such assets. See Barnes v Addy [1874] LR 9 Ch Ap 244 at 251-252 and compare Carl Zeiss v Herbert Smith (No 2) [1969] 2 Ch 276 and D M Gordon (1970) 44 ALJ 261. The opponents sought orders that the claimant provide security for the costs of the appeals but we do not think that this is a proper case for the making of such orders. We make the following orders: 1. Leave to appeal from order I(c) and order 2(c) made by Powell J on 6 April 1993 in proceedings ED 1885 and 1923 of 1993 respectively. 2. Otherwise leave to appeal from the orders of Hodgson J of 25 March and Powell J of 6 April refused. 3. Stay the said orders 1(c) and 2(c), and proceedings on such orders until and including 4 pm on 25 May 1993 and thereafter until 21 days after the determination of the appeal on condition that on or before 4 pm on 20 May -(a) The claimant swear proper affidavits in accordance with such orders to the best of his knowledge skill and ability and lodge the originals and two copies of each in a sealed envelope with the Registrar of this Court, (b) the claimant's solicitor swear and file an affidavit in each proceeding that to the best of his or her knowledge information and belief the affidavit of the claimant in that proceeding complies with such orders, (c) the claimant's solicitors serve copies of the solicitor's affidavits in each proceeding on the solicitors for the opponents and notify them in writing that the sealed envelope has been lodged with the Registrar. 4. (a) If the appeal is allowed the envelope shall, after the expiration of 21 days, be returned unopened to the solicitors for the claimant, but if an application for special leave to appeal to the High Court is filed within the 21 days it shall be retained by the Registrar unopened, subject to any order of the High Court, until proceedings in that Court have been determined. (b) If the appeal fails and an application for special leave to appeal to the High Court is filed within the twenty one (21) days the Registrar shall retain the envelope unopened subject to any order of the High Court until proceedings in that Court have been determined. (c) If the appeal fails and no application for special leave to appeal to the High Court is filed within the 21days or if the result of any proceedings in the High Court is that orders 1(c) and 2(c) made by Powell J are substantially confirmed the Registrar shall appoint a time for the solicitors for the parties to attend when the envelope shall be opened and the original and copies of the affidavits shall be dealt with in accordance with order 5 herein. URJ REID v HOWARD (Mahoney JA, Handley JA and Sheller JA) 5 (d) On or before the time fixed for the appointment the solicitors for the opponents in each proceeding shall file with the Registrar and serve on the claimant's solicitors a notice nominating the partner and the employed solicitor in that firm who will take and retain possession of the copy affidavits and be responsible for ensuring that the confidentiality orders are properly complied with. 5. If order 4(c) takes effect: na 10. (a) (b) (c) The Registrar shall mark the original affidavits confidential and deliver them to the Principal Registrar of the Equity Division who shall retain them in safe custody. Such affidavits shall not be disclosed to any person or produced in answer to any subpoena without the leave of a Judge of that Division. The Registrar shall deliver copies of the affidavits sworn in each proceeding to the nominated partner or employed solicitor for the opponents in that proceeding who is present at the appointment. The solicitors for the opponents in each proceeding and any person to whom disclosure is made in accordance with this order are hereby restrained from disclosing by themselves, their servants or agents those copy affidavits or any further copy thereof or the information therein to any person other than the nominated partner and employed solicitor, their counsel and their clients, or the nominated partner and employed solicitor for the other opponents or their counsel, from making any further copy thereof, and from parting with possession of such copy affidavits or any further copy thereof whether pursuant to a subpoena, search warrant or otherwise except to their counsel, without the leave of a Judge of the Equity Division. Costs of these proceedings costs in the appeal. Order that the appeals be consolidated and expedited and specially fixed for hearing on 25 May 1993 at 10.15 am. Fix Monday 17 May, 1993 at 3 pm before the Registrar for the settlement of the index to the appeal papers. The appellant's written submissions on the appeal shall be filed and served by 5 pm on 21 May 1993, and the respondents" written submissions shall be filed and served by 5 pm on 24 May. Liberty to apply. Orders accordingly.