Reported Decision : 61 ACSR 381 New South Wales Supreme Court CITATION : Scott Darren Pascoe in his capacity as liquidator of Charter Workforce Pty Ltd (In Liq) & Anor v Divisional Security Group Pty Ltd & Ors [2007] NSWSC 211 HEARING DATE(S) : 27/11/06 JUDGMENT DATE : 14 March 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J DECISION : See paragraph 53 of judgment. CATCHWORDS : PRACTICE AND PROCEDURE – Privilege – Privilege against self-exposure to a penalty – Production and inspection – Pleadings – Evidence – Whether privilege available in proceedings for compensation orders under a civil penalty provision – Whether defendant can rely on privilege to avoid filing and serving a defence, or filing a defence not verified by affidavit and without certificate required under s 347 of Legal Profession Act 2004 (NSW) – Whether defendant can rely on privilege to avoid giving discovery, producing documents for inspection or filing or serving evidence in proceedings until after close of the plaintiffs' case – Whether a corporation can rely on privilege to avoid giving evidence which would tend to expose a natural person to a penalty – Where prospect of penalty arises from no more than a possibility of future proceedings – Considered (CTH) Corporations Act 2001, ss 588G(2), 588M(2), 1317E(1)(e), 1317F, 1317G, 1317H, 1317HA, 1317J(2) and 1317J(4) – Held that privilege not available. - PRACTICE AND PROCEDURE – Application for stay until further and better particulars provided by plaintiff – Application to strike out plaintiffs' statement of claim – Applications refused – No question of principle. Corporations Act 2001 (Cth) LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW) Legal Profession Act 2004 (NSW) One.Tel Limited (In Liq) v Rich & Ors (2005) 53 ACSR 623 Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat & Livestock Corporation (1979) 42 FLR 204 Australian Securities and Investments Commission v Rich & Ors (2004) 50 ACSR 500; 22 ACLC 1232 Derby Corporation v Derbyshire County Council [1897] AC 550 The King v Associated Northern Collieries (1910) 11 CLR 738 Pyneboard Pty Ltd v Trade Practices Commission & Anor (1983) 152 CLR 328 Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 Australian Securities and Investments Commission v Rich (2003) 45 ACSR 305 CASES CITED : Rich v Australian Securities and Investments Commission (2003) 203 ALR 671 Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 McMahon v Gould (1982) 7 ACLR 202 Sidebottom v Commissioner of Taxation (Cth) (2003) 6 VR 302 Australian Competition and Consumer Commission v FFE Building Services Ltd (2003) 130 FCR 37 Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 Chief Executive Officer of Customs v Camile Trading Pty Ltd [2004] NSWSC 1256 Trade Practices Commission v Abbco Iceworks Pty Ltd & Ors (1994) 52 FCR 96 Controlled Consultants Pty Ltd v Commissioner for Corporate Affairs (1985) 156 CLR 385 Scott Darren Pascoe in his capacity as liquidator of Charter Workforce Pty Ltd (In Liq) & Anor PARTIES : v Divisional Security Group Pty Ltd & Ors FILE NUMBER(S) : SC 3391/06 COUNSEL : Plaintiff: S J Pearlman Defendant: R Glasson SOLICITORS : Plaintiff: Jones King Lawyers Defendant: Era Spinks Legal IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 14 March 2007 3391/06 Scott Darren Pascoe in his capacity as liquidator of Charter Workforce Pty Ltd (In Liq) & Anor v Divisional Security Group Pty Ltd & Ors JUDGMENT 1 HIS HONOUR: The first and third defendants have applied by notice of motion for the following orders: 1. Pursuant to Rule 14.2(1)(b) of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), that these proceedings be tried without further pleadings. 2. In the alternative to Order 1, that the First and Third Defendants each be granted leave to file a Defence:- (a) which does not comply with Rule 14.23 of the UCPR in that it is not verified by Affidavit as required by that Rule; and (b) which does not comply with section 347 of the Legal Profession Act 2004 (NSW) in that it does not bear the certificate required by that provision. 3. That the First and Third Defendants not be required to give discovery of any document in these proceedings until after the Plaintiffs have closed their case. 4. That the First and Third Defendants not be required to produce any documents for inspection by any party or by the court in these proceedings until after the Plaintiffs have closed their case. 5. That the Defendants not be required to file and/or serve any evidence in these proceedings until after the Plaintiffs have closed their case. 6. Costs. 7. That the Plaintiffs' Statement of Claim be struck out. 8. In the alternative to Order 7, above, that the Plaintiffs provide further and better particulars of their Statement of Claim (or of any Amended Statement of Claim) in accordance with the First and Third Defendants' requests for particulars made on 18 August 2006 and 18 October 2006. 9. That these proceedings be stayed until the Plaintiffs have complied with Order 8, above. Nature of Proceedings 2 The first plaintiff is the liquidator of the second plaintiff. The claim against the first defendant, Divisional Security Group Pty Ltd, is that it was the holding company of the second plaintiff; that the second plaintiff incurred debts when it was insolvent, or alternatively became insolvent as a result of the incurring of the debts; there were reasonable grounds for suspecting that the company was insolvent or would so become insolvent; and the first defendant, or one or more of its directors, was aware at the time that there were such grounds for so suspecting, or it is reasonable to expect that a holding company in its circumstances would have been so aware, or that one or more of its directors would be so aware. It is alleged that by reason of those matters, the first defendant contravened s 588V(1) of the Corporations Act 2001 (Cth). The first plaintiff seeks to recover compensation pursuant to s 588W of the Corporations Act from the first defendant for the loss or damage suffered by the creditors of the second plaintiff as a result of the incurring of the debts. 3 The claim against the third defendant is that at the time the debts to creditors were incurred, he acted in the position of a director of the second plaintiff, or was a person on whose instructions or wishes the second plaintiff's director (namely, the second defendant) was accustomed to act. It is alleged that the third defendant was himself a director of the second plaintiff within the meaning of the definition of "director" in s 9 of the Corporations Act. It is alleged that at the time the debts were incurred, there were reasonable grounds for suspecting that the company was insolvent or would so become insolvent, and it is alleged that the third defendant was aware that there were grounds for so suspecting, or it was reasonable to expect, that the third defendant would have been so aware. 4 The liquidator claims compensation pursuant to s 588M(2) as a debt due to the second plaintiff, an amount equal to the loss or damage suffered by the creditors. The plaintiffs seek leave to amend the statement of claim to allege expressly that the third defendant contravened s 588G(2). First and Third Defendants' Submissions 5 Section 588G(2) is a civil penalty provision (s 1317E(1)(e)). The first and third defendants submitted that neither of them should be compelled to file verified or certified defences, or to provide discovery, or to serve affidavits, in advance of the close of the plaintiffs' case. They submitted that the third defendant was entitled to privilege against exposure to a penalty. They submitted that a finding that the third defendant contravened s 588G(2) could be relied upon subsequently in separate proceedings brought by the Australian Securities and Investments Commission ("ASIC") against the third defendant seeking the imposition of a civil penalty. They submitted that if the Court were to find that the third defendant had contravened s 588G(2), it would be required to make a "declaration of contravention" pursuant to s 1317E(1)(e) of the Act. Such a declaration of contravention could be relied upon by ASIC, amongst others, it was said, when seeking the imposition of a pecuniary penalty upon the third defendant pursuant to s 1317G of the Act. It was said to follow that neither the first defendant nor the third defendant should be required to file or serve verified and certified pleadings, or to serve evidence in advance of the close of the plaintiffs' case, or to give discovery, or to produce documents. 6 The first and third defendants relied particularly upon the judgment of Bergin J in One.Tel Limited (In Liq) v Rich & Ors (2005) 53 ACSR 623. There, the company in liquidation commenced proceedings against Mr Rich, Lifecell Pty Ltd and Mr Adler. The plaintiff, One.Tel Limited (In Liq), had sought a declaration pursuant to s 1317E that Messrs Rich and Adler, and other directors of the plaintiff, had contravened certain civil penalty provisions of the Corporations Law and of the Corporations Act. It also sought an order for compensation pursuant to s 1317H or s 1317HA. Subsections 1317H(1) and 1317HA(1) provide for the making of compensation orders in favour of a corporation against a person who has contravened a civil penalty provision in relation to the corporation. 7 Section 1317J(1) provides that ASIC may apply for a declaration of contravention, a pecuniary penalty order or a compensation order. Subsection 1317J(2) provides that the corporation may apply for a compensation order. Subsection 1317J(4) provides that no person may apply for a declaration of contravention, pecuniary penalty order or a compensation order unless permitted by that section. During the hearing of the motion in One.Tel Limited (In Liq) v Rich, the plaintiff indicated it would not press for any declarations of contravention of the civil penalty provisions. 8 Mr Rich and Lifecell applied for an order that the proceedings be summarily dismissed or struck out, or alternatively a declaration that the proceedings were a proceeding for the imposition of a penalty, and further that an order that they file and serve evidence be vacated. Bergin J declared that the plaintiff did not have standing to seek declarations of contravention of the civil penalty proceedings. Her Honour also concluded that the proceedings for a compensation order under s 1317H(1) or under s 1317HA(1) were not proceedings for the imposition of a penalty. 9 Notwithstanding that her Honour concluded that proceedings brought by the corporation for a compensation order under s 1317H or s 1317HA were not proceedings for the imposition of a penalty, her Honour nonetheless held (at [79]) that an order requiring the defendants to file evidence should not be made as it required the defendants to provide information, that is, evidence, which might be used to establish their liability to a penalty in other proceedings. Her Honour held that such an order would offend the principles expounded by Deane J in Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat & Livestock Corporation (1979) 42 FLR 204 at 207-208. Her Honour quoted the following passage from Deane J's judgment: " It is a well-established principle that a defendant in proceedings which are solely for the recovery of a pecuniary penalty should not be ordered to disclose information or produce documents which may assist in establishing his liability to the penalty … Even where … the proceedings are not for recovery of a penalty but to prevent and redress civil injury, a party to litigation ought not to be compelled to provide information or produce documents for inspection by the other party if the result thereof will be to provide evidence against him which may be used to establish his liability to a penalty in other proceedings [ Mayor of the County Borough of Derby v Derbyshire County Council [1897] AC 550 at 552]. " 10 Her Honour vacated the order requiring the defendant to file evidence. Her Honour concluded (at [81]): " I am satisfied that I should vacate the order requiring the defendants to file evidence in these proceedings. It is a matter for them whether, at the end of the plaintiff's case they intend to call evidence to defend the proceedings, which have at their core the aim of establishing contraventions of civil penalty provisions of the Act. " 11 The first and third defendants argued that the decision in One.Tel Limited (In Liq) v Rich could not be distinguished on the ground that in that case, the compensation order for breach of the civil penalty provisions was sought pursuant to s 1317H or s 1317HA, whereas in the present case, compensation is sought against the third defendant pursuant to s 588M. In both cases, an essential prerequisite to the making of the order for payment of compensation is a finding that the director contravened a civil penalty provision. 12 I agree that One.Tel Limited (In Liq) v Rich cannot be distinguished on this ground. Neither in this case, nor in One.Tel Limited (In Liq) v Rich is the proceeding one for the imposition of a penalty. In both cases, the application is for compensation arising from the alleged breach of a civil penalty provision, where, for the plaintiffs to succeed, they must establish that such provisions have been contravened. Declaration of Contravention Under s 1317E not Available 13 I do not accept the submissions for the first and third defendants that if, in proceedings for relief under s 588M, the Court were to find that the third defendant had contravened subs 588G(2), the Court would be required to make a declaration of contravention pursuant to s 1317E(1)(e). Sections 1317E and 1317F provide: "1317E Declarations of contravention (1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention: (a) subsections 180(1) and 181(1) and (2), 182(1) and (2), 183(1) and (2) (officers' duties); (b) subsection 209(2) (related parties rules); (c) subsections 254L(2), 256D(3), 259F(2) and 260D(2) (share capital transactions); (d) subsection 344(1) (requirements for financial reports); (e) subsection 588G(2) (insolvent trading); (f) subsection 601FC(5) (duties of responsible entity) (g) subsection 601FD(3) (duties of officers of responsible entity) (h) subsection 601FE(3) (duties of employees of responsible entity) (i) subsection 601FG(2) (acquisition of interest in scheme by responsible entity) (j) subsection 601JD(3) (duties of members) (ja) subsection 674(2), 674(2A), 675(2) or 675(2A) (continuous disclosure); (jb) section 1041A (market manipulation); (jc) subsection 1041B(1) (false trading and market rigging—creating a false or misleading appearance of active trading etc.); (jd) subsection 1041C(1) (false trading and market rigging—artificially maintaining etc. market price); (je) section 1041D (dissemination of information about illegal transactions); (jf) subsection 1043A(1) (insider trading); (jg) subsection 1043A(2) (insider trading); (k) subclause 29(6) of Schedule 4. These provisions are the civil penalty provisions . Note: Once a declaration has been made ASIC can then seek a pecuniary penalty order (section 1317G) or (in the case of a corporation/scheme civil penalty provision) a disqualification order (section 206C). (2) A declaration of contravention must specify the following: (a) the Court that made the declaration; (b) the civil penalty provision that was contravened; (c) the person who contravened the provision; (d) the conduct that constituted the contravention; (e) if the contravention is of a corporation/scheme civil penalty provision—the corporation or registered scheme to which the conduct related. 1317F Declaration of contravention is conclusive evidence A declaration of contravention is conclusive evidence of the matters referred to in subsection 1317E(2). " 14 Neither the corporation nor its liquidator has standing to apply for a declaration of contravention under s 1317E (ss 1317J(1) and (4)). Accordingly, the Court could not make a declaration of contravention under s 1317E upon an application by the liquidator under s 588M (One.Tel Limited (In Liq) v Rich at [67]). Section 1317E deals with a case where an application is made by ASIC under s 1317J(1) for a declaration under s 1317E. In other words, it is to be understood as providing that if in a proceeding brought for a declaration under that section, a Court is satisfied that a person has contravened a civil penalty provision, then the Court must make a declaration of contravention. 15 Likewise, s 1317F, despite its literal width, applies only for the purposes of proceedings brought under Pt 9.4B (Australian Securities and Investments Commission v Rich & Ors (2004) 50 ACSR 500; 22 ACLC 1232 at [48]-[68]). 16 It follows that a finding that the third defendant contravened s 588G could not itself be relied upon in separate proceedings brought by ASIC against the third defendant seeking the imposition of a civil penalty. ASIC is not a party to these proceedings. There would be no res judicata or issue estoppel as between ASIC and the third defendant. There would be no declaration of contravention under s 1317E because neither the corporation nor its liquidator has standing to apply for a declaration of contravention under that section. Section 1317F would not make a finding of contravention, or a declaration of contravention made in the Court's equitable jurisdiction and not under s 1317E, binding as between the third defendant and ASIC. 17 However, this is equally true of the circumstances in One.Tel Limited (In Liq) v Rich. Privilege Claims Where Proceedings are for Redress of a Civil Injury 18 It has long been established that the procedures to be followed in a proceeding for a penalty, that is, a proceeding whose object is the imposition or recovery of a penalty, are different from the procedures to be followed in a proceeding which is not for a penalty, but where compliance with a requirement to produce a document or to provide information, may be used against the person so compelled in other proceedings for the imposition or recovery of a penalty. The distinction was adverted to by Lord Herschell in Derby Corporation v Derbyshire County Council [1897] AC 550 at 552. It was described by Isaacs J in The King v Associated Northern Collieries (1910) 11 CLR 738 at 742, where his Honour said: " There is an inherent distinction between a civil action to prevent or redress a civil injury on the one hand, and a civil action to recover a penalty on the other. In the latter case the whole and avowed object of the proceedings is the infliction of the penalty, and the discovery sought of documents relevant to the claim can therefore have no other intended consequence. It does not require in such a case the oath of the defendant to establish the fact that the production of the documents would tend to penalize him. The Court can see the effect of discovery from the nature of the proceeding. In the former case there is no such necessary consequence, and whether the objectionable tendency exists or not has to be otherwise ascertained, and claiming immunity upon oath in the course of making discovery is the must usual, but not the only other means of establishing it. " 19 In Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat & Livestock Corporation, Deane J described (at 207-208) the two types of proceeding: on the one hand, a proceeding for the recovery of a pecuniary penalty; and on the other, proceedings not for the recovery of a penalty, but to prevent or redress civil injury. After the passage cited by Bergin J in One.Tel Limited (In Liq) v Rich, set out at para [9] above, Deane J said (at 208) of cases of the second kind, that "there is no general rule precluding the making of an order for discovery or interrogatories and there will ordinarily be no proper ground for objecting to an order for production of documents or provision of information being made. The party against whom such an order is made is left to object to producing particular documents or providing particular information on the ground that such production or provision may tend to expose him to a penalty." (At 208). 20 After referring to a number of English decisions, his Honour continued (at 210-211) "These strongly worded statements plainly establish the general rule that a party to proceedings which are for civil redress and not for a penalty ought not ordinarily be excused, in limine, from giving discovery or answering interrogatories but should be left to object to producing particular documents or answering particular questions on the ground that such production or answer might tend to expose him to liability to a penalty …" 21 His Honour contemplated that there may be exceptional cases which would justify departure from such a general rule, such as where a requirement to make an affidavit of discovery which would reveal what documents were or had been in the possession of the defendant, as distinct from a requirement to produce documents for inspection, could itself expose the defendant to jeopardy. However, his Honour said (at 211) that such a case would be rare, "in view of the fact that the party will remain entitled to refuse to answer questions asked or produce documents discovered if the answers or production might tend to incriminate him or expose him to a penalty." The test to be applied in such a case is the same as where a party objects to producing a particular document or to answering a particular question on the ground of privilege against self-incrimination. The Court must be satisfied that there are reasonable grounds for believing that the production of the document or the giving of the answer may tend to prove that the person has committed an offence or is liable to a civil penalty. That is not assumed in an action for compensation to redress a civil injury. 22 These principles were affirmed by Mason ACJ, Wilson and Dawson JJ in Pyneboard Pty Ltd v Trade Practices Commission & Anor (1983) 152 CLR 328 at 335-336. Their Honours said: " Indeed, in a civil action brought merely to establish a forfeiture or enforce a penalty the rule is that neither discovery nor interrogatories will be allowed ( Re a Debtor [1910] 2 KB 59 at 66; Associated Northern Collieries , (1935) 54 CLR 126 at 130). See generally the discussion by Deane J in Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat and Live-stock Corporation (1979) 42 FLR 204. There his Honour drew a distinction between discovery in a mere action for a penalty and discovery in an action which was not for a penalty the result of which might be used to establish a party's liability to a penalty in other proceedings (at 207-8). In the first situation, the court should, in the absence of statutory provision to the contrary, refuse to make any order for discovery, production of documents or the provision of information for the reason that an intended consequence of the discovery, production of documents or provision of information is the imposition of the penalty, this being the object of the action His Honour described this (at 208) as 'a broad and unqualified rule whose origins are apparently to be found in a reluctance on the part of the Court of Chancery to lend the aid of its discovery proceedings to the common informer (see [ Mexborough, supra ] and Heimann v Commonwealth (1935) 54 CLR 126 at 130)'. To these authorities there should be added a reference to the statement of Lord James of Hereford in National Association of Operative Plasterers v Smithies [1906] AC 434 at 437-8, that courts of equity were averse to actions for penalties and forfeitures being brought and would not assist them. But in the second situation the order will be made and the party against whom the order is made may object to the production of particular documents or to the provision of particular information on the ground that it may tend to expose him to a penalty. " 23 The approval by the majority of the High Court in Pyneboard Pty Ltd v Trade Practices Commission of the statements of principle of Deane J in Refrigerated Express is not affected by comments on other aspects of that case in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543: (Australian Securities and Investments Commission v Rich (2003) 45 ACSR 305 at [26]-[29]). 24 In Rich v Australian Securities and Investments Commission (2003) 203 ALR 671, the Court of Appeal, by majority, considered that the proceedings brought by ASIC against Mr Rich for disqualification orders for alleged contraventions of the civil penalty provisions were not penal in character so as to attract the general rule that a defendant in proceedings for a penalty should not be ordered to disclose information or produce documents which may assist in establishing his liability to a penalty. The High Court disagreed (Rich v Australian Securities and Investments Commission (2004) 220 CLR 129). There is no suggestion in the judgments in the High Court that the approach taken by the Court of Appeal would be wrong if the principles relating to proceedings for the imposition or recovery of a penalty were not to be applied to the proceedings for a disqualification order. 25 By the time the case got to the High Court, the only order in question was the order that the defendants give discovery (at [4]). The High Court said (at [39]): " The primary judge ordered that the appellants make discovery of documents by verified list. That order would permit the appellants to object to production of any document on a ground of privilege. At first sight, that might suggest that the appellants' challenge to the order for provision of a verified list of documents is premature. That is, it might suggest that any question of privilege is one about privilege from production rather than privilege from making discovery. That is not so. As Isaacs J pointed out in R v Associated Northern Collieries [94], once it is determined that the proceedings expose a person to penalty, the proper course is to refuse any order for discovery. As Isaacs J said [95], to leave the party at risk of penalty to object to production of documents, having first listed them, may lead to the very mischief which the privilege is designed to prevent. In the words of Lord Coleridge CJ in Jones v Jones [96], to which Isaacs J referred [97] : The whole case for the plaintiff may depend upon his power to trace a particular document into the possession of the defendant, and, upon its non-production, to prove its contents by secondary evidence. That being so, the proper course in this matter was to refuse the application for discovery. " 26 In this case, the first and third defendants case submitted that to order discovery would be contrary to the principles stated in this paragraph, because the giving of discovery would expose the defendant to penalty. However, the High Court was speaking of an application for a disqualification order which of its very nature had a penal character. The nature of the proceeding was such that the case fell within the second class of civil action to which the observations of Isaacs J in The King v Associated Northern Collieries were directed, that is, civil actions to recover a penalty, as distinct from civil actions to prevent or redress a civil injury. 27 There is a division of opinion at the intermediate appellate level as to whether, in proceedings for the recovery of a penalty, an order requiring the filing of witness statements prior to the hearing, offends against the privilege against exposure to a civil penalty (Sidebottom v Commissioner of Taxation (Cth) (2003) 6 VR 302; Australian Competition and Consumer Commission v FFE Building Services Ltd (2003) 130 FCR 37). Those cases concerned proceedings for the recovery of penalties. In Australian Securities and Investments Commission v Rich (2003) 45 ACSR 305, Austin J considered the authorities. His Honour concluded that the proceedings should not be characterised as proceedings for the imposition of a penalty. His Honour held that because there was no real or appreciable risk that the defendants would be subject to a proceeding for the imposition of a penalty, and because it was not contended that there was a real and appreciable risk that they might become parties to criminal proceedings, there was no good reason for not directing them to file and serve affidavits or witness statements before the trial, in accordance with the normal procedures (at [62]-[65]). His Honour's orders were confirmed on appeal where the question of the appropriateness of orders for the service of evidence in advance of the hearing was treated as depending on the same principles as those governing the question whether objection could be taken to the giving of discovery, as distinct from taking objection to production of particular documents. Austin J said (at [65]): " It seems to me that the present case falls outside the in limine part of the principle in Refrigerated Express , because this is not a proceeding for the imposition of a penalty. It is therefore also outside the extension of the Refrigerated Express principle to the provision of witness statements before the trial, which has been made only in proceedings for the imposition of a penalty or in cases where there is a real and appreciable risk that the witness will be subject to a proceeding for the imposition of a penalty. It follows that there is no good reason for not directing the defendants to file and serve affidavits or witness statements before the trial, in accordance with the normal procedure in this division of the court. " 28 The fact that the High Court held that ASIC's proceedings for a disqualification order were penal in nature, so that privilege could be claimed in limine does not detract from the force of his Honour's reasoning where proceedings are not of that nature. 29 Where the proceedings are to prevent or redress or civil injury, as Bergin J held them to be in One.Tel Limited (In Liq) v Rich, then unless there are exceptional circumstances, the principles applicable to such proceedings are those applied by the Court of Appeal in Rich v ASIC. The Court of Appeal upheld the orders made at first instance that the defendants give discovery, and that their evidence be adduced by affidavits served in advance of the hearing. 30 Unless One.Tel Limited (In Liq) v Rich was an exceptional case of the kind considered by Deane J in Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat & Livestock Corporation, the orders made in One.Tel Limited (In Liq) v Rich would be inconsistent with these authorities. 31 These authorities were not discussed in One.Tel Limited (In Liq) v Rich. I attribute this to Bergin J's concern in the circumstances of that case that the entitlement of the defendants to maintain their privilege in proceedings brought by ASIC should not be allowed to be circumvented by the accident that the corporation had instituted its own proceeding for compensation under ss 1317H or 1317HA, rather than intervene in proceedings brought by ASIC. Proceedings had been commenced by ASIC against Mr Rich in which he was entitled to the privilege which applies to proceedings for the recovery of a penalty. That this was her Honour's concern appears from paragraphs [77] and [78], where her Honour said: " 77 It seems to me that where a corporation makes an application for a compensation order, the proposed defendants ought be entitled to know whether ASIC intends to subsequently proceed against them for penalties based upon the possible proof of the contraventions of civil penalty provisions in the compensation proceedings brought by the corporation. In other words, in the light of the new law and the real possibility that the privilege available in penalty proceedings may be circumvented or rendered nugatory, by the company bringing compensation proceedings before ASIC brings penalty proceedings, some amendment seems to be needed to ensure that this does not occur. Such amendment might prohibit ASIC from proceeding against proposed defendants in relation to contraventions of civil penalty provisions proved in compensation proceedings brought by the corporation in separate proceedings from any ASIC proceedings and prior to any declaration of contravention having been made. There might also be a requirement on the corporation to advise ASIC that it intends to make an application for compensation under s 1317H or s 1317HA, so that ASIC may decide to bring penalty proceedings prior to the corporation's application for a compensation order. The corporation could then seek to intervene, but that intervention would not change the character of the ASIC proceedings being for the imposition of a penalty. Thus the proposed defendants would have the protection of the privilege. 78 Pending such amendment, the Court is able to adjust its procedures to ensure that a trial in which a corporation seeks a compensation order under s 1317H is fair to defendants who may be the subject of subsequent penalty proceedings brought by ASIC reliant upon the contraventions of the civil penalty provisions as proved in the compensation proceedings. " 32 The orders that the natural defendants not be required to serve evidence prior to the close of the plaintiff's case may have been based on the ground of the exceptional circumstance of other proceedings of a penal character being then pending against one of the defendants. In such a case, the Court might be satisfied that an order for the service of affidavits in advance of the hearing would have a tendency to expose the defendants to a penalty. An alternative course is to consider whether the civil proceedings should be stayed pending the determination of proceedings for a civil penalty, by analogy to applications for a stay of civil proceedings where criminal proceedings are pending (McMahon v Gould (1982) 7 ACLR 202 at 206-207). 33 In my view, One.Tel Limited (In Liq) v Rich is one of the exceptional cases referred to by Deane J in Refrigerated Express. If that were not so, I would be respectfully of the view that it is not in accordance with appellate authority by which I am bound. Being such an exceptional case, it is distinguishable. No exceptional circumstances apply in the present case. It is not suggested that proceedings for a pecuniary penalty order or a disqualification order have been brought or foreshadowed by ASIC. The third defendant may be entitled in these proceedings to object to answering particular questions on the grounds that answers may expose him to a civil penalty. He may be entitled to object to producing particular documents for inspection on the same grounds, provided, in each case, that he swears to a belief that to answer the questions, or to produce the documents, would tend to expose him to that jeopardy, and the Court is satisfied that the objection is well taken. Filing Verified and Certified Defences 34 The same principles determine the question whether the third defendant should not be required to file and serve a defence, or alternatively, should not be required to file and serve a verified defence, or a defence certified by his solicitor. Admissions in a defence would not tend to expose the third defendant to liability for a civil penalty. The purpose of pleadings is to define the issues for the trial. Whilst a defendant who makes any allegations of fact in the defence is required to depose that he or she believes the allegations to be true, a defendant is not required to depose that he or she believes allegations of fact in the statement of claim, which are admitted, to be true (Uniform Civil Procedure Rules 2005 (NSW), r 14.23(3)). 35 The filing of an unverified defence is unlikely to create a risk of exposure to a civil penalty (Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 86), although it is possible to conceive of circumstances where unverified allegations of fact in a defence may lead to a train of enquiry by ASIC which could have that tendency (Chief Executive Officer of Customs v Camile Trading Pty Ltd [2004] NSWSC 1256 at [32]). It may be that the pleading of verified allegations of fact or verified non-admissions could have a tendency to expose the third defendant to liability for a civil penalty. However, the third defendant is not to be excused in limine from filing a verified and certified pleading. 36 As the proceedings are not proceedings for the imposition of a penalty, it was necessary for the third defendant to depose on affidavit that the verification of the defence could tend to prove that he was liable to a civil penalty, and for the Court to be satisfied that there were reasonable grounds for that belief. No affidavit was relied upon on this application. 37 I do not accept that it would be appropriate to dispense with certification under s 347 of the Legal Profession Act 2004 (NSW), even assuming there were power to do so. In his submissions, counsel for the first and third defendants did not identify any ground upon which the Court would be entitled to make such an order. 38 Subsection 347(2) of the Legal Profession Act provides: " 347 Restrictions on commencing proceedings without reasonable prospects of success … (2) A law practice cannot file court documentation on a claim or defence of a claim for damages unless a principal of the practice, or a legal practitioner associate responsible for the provision of the legal service concerned, certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success. (3) Court documentation on a claim or defence of a claim for damages, which has been lodged for filing, is not to be filed in a court or court registry unless accompanied by the certification required by this section. Rules of court may make provision for or with respect to the form of that certification. " 39 The third defendant's application to be relieved from the operation of that section assumes that the liquidator's claim under s 588M(2) to recover as a debt due to the company, an amount equal to the amount of the loss or damage suffered by the creditors because of the company's insolvency, is a claim for damages within the meaning of subs 347(2). I will assume that to be so without deciding the question, as the matter was not argued. 40 Assuming that to be so, I was not directed to any power which the Court would have to release a legal practitioner from the prohibition in subss 347(2) and (3). If there is such a power, there is nothing in the privilege against exposure to a civil penalty which would justify its exercise. Section 345(1) of the Legal Profession Act provides that a law practice must not provide legal services on a defence of a claim for damages, unless a legal practitioner associate, responsible for the provision of the services concerned, reasonably believes, on the basis of provable facts and a reasonably arguable view of the law, that the defence has reasonable prospects of success. The prohibition applies equally to the defence of proceedings alleging contravention of a civil penalty provision as it does to any other proceeding. The legislation is directed to the conduct of legal practitioners. They are not to lend their aid to hopeless cases or defences. There is no reason that the policy behind the legislation should not apply equally to a legal practitioner asked to defend an alleged contravention of a civil penalty provision resulting in a claim for damages, as it does to any other claim for damages. Position of Corporate Defendant 41 The first defendant, Divisional Security Group Pty Ltd, is not alleged to have contravened a civil penalty provision. Even if it had been alleged that the third defendant had contravened a civil penalty provision, it would not be entitled to privilege against exposure to a civil penalty (Trade Practices Commission v Abbco Iceworks Pty Ltd (1994) 52 FCR 96). 42 The privilege is against self-exposure to a civil penalty (Controlled Consultants Pty Ltd v Commissioner for Corporate Affairs (1985) 156 CLR 385 at 393; Trade Practices Commission v Abbco Iceworks Pty Ltd at 129; Rich v Australian Securities and Investments Commission per Spigelman CJ at [44]). Counsel for the first and third defendants submitted that as the claim against the third defendant was based upon the knowledge that the first defendant allegedly had, the claim against the first defendant exposed the third defendant personally to the consequences of a possible penalty. This argument merely restates that making the first defendant liable to compulsory process could expose the third defendant to a civil penalty. The third defendant is not entitled to privilege against such exposure in that way. If, for example, there are documents in the possession of third parties, including the first defendant, which would have that tendency, the plaintiffs are entitled, by a proper subpoena or order for discovery, to obtain production of the document. In doing so, the privilege which the third defendant enjoys against exposure to a civil penalty is not infringed, because he is not being required to expose himself to a penalty. Rather, the plaintiffs would simply be endeavouring to prove the case against him using compulsory processes of the Court against third parties. 43 It follows that the claims for relief in paragraphs 1-5 of the amended notice of motion should be dismissed. Application to Strike Out Statement of Claim 44 The amended notice of motion also sought an order that the plaintiffs' statement of claim be struck out or alternatively, that the plaintiffs provide further and better particulars of their statement of claim (or of any amended statement of claim) in accordance with the first and third defendants' request for particulars made on 18 August 2006 and 18 October 2006. 45 The basis for the claim that the statement of claim be struck out was either that it failed to plead against the third defendant a contravention of s 588G, or, that inadequate particulars were provided of the alleged contraventions. As to the first ground, the plaintiffs have indicated their intention to amend the statement of claim. A proposed amended statement of claim was handed up. The pleading contained amendments to plead expressly a contravention by the third defendant of s 588G(2) of the Act. However, the solicitor for the plaintiffs indicated that he wished to file a modified form of the document because the document handed up did not contain such a pleading against the second defendant. The plaintiffs will have leave to file the amended statement of claim. The only remaining question is whether adequate particulars have been provided. Application for Further Particulars 46 Part of the liquidator's complaint, and one of the grounds upon which he alleges that the second plaintiff was insolvent, was that the second plaintiff, he contends, failed to keep and retain financial records for the period 19 June 2001 to 24 November 2005. Accordingly, the liquidator's ability to provide full particulars as to how and when debts were incurred depends upon his obtaining information from the creditors. That, he has done to the best of his ability, save for conducting examinations of the creditors which could be an expensive process. The liquidator has given particulars that the company owed three debts, namely, debts to the Australian Taxation Office, to Ms Rutter for unpaid wages, and to QBE Workers' Compensation (NSW) Pty Ltd for unpaid workers' compensation premiums. Such particulars as the liquidator has as of the dates at which those debts were incurred have been provided. 47 Particulars have also been given, as requested, of the financial records which the liquidator alleges the second plaintiff was required to keep but did not keep. 48 The defendants sought particulars of the facts, matters and circumstances of which it is alleged that the first and third defendants were aware that there were grounds for suspecting the insolvency of the second plaintiff. 49 I do not consider this was a proper request for particulars having regard to r 15.4(2) of the Uniform Civil Procedure Rules. In any event, the liquidator has provided such particulars as he currently has. He cannot be expected to do more. 50 I also consider that the plaintiffs have given adequate particulars of the allegation that the third defendant was a director of the second plaintiff. It is alleged that the second defendant was the appointed director of the second plaintiff, but that she was accustomed to act in accordance with the third defendant's instructions or wishes. Particulars given of this allegation include, it is said, that the second defendant was the third defendant's mother and resided inter-state from the second plaintiff's place of business. Complaint is made that a particular is also given that on 1 February 1999, the third defendant was prohibited for a period of four years from being a director, promoter or manager of a corporation. I do not think that the plaintiffs can be criticised for drawing attention to the fact that they will ask that inferences be drawn from these alleged facts. 51 The liquidator has also given all the particulars which he is currently able to give of the allegation that the second plaintiff was insolvent during the entire period from 19 June 2001 to 24 November 2005. 52 I decline the order sought for the provision of further particulars. Orders 53 For these reasons, I make the following orders: 1. That the amended notice of motion filed for the first and third defendants on 7 November 2006 be dismissed with costs; 2. Exhibits may be returned after 28 days; 3. Grant leave to the plaintiffs to file and serve an amended statement of claim by 21 March 2007; 4. Direct that by 4 April 2007, the defendants file and serve defences to the amended statement of claim in accordance with the rules; and 5. Stand over the proceedings to the Registrar's list on 11 April 2007. ***** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.