To tell or not to tell Part 2 - Voluntary disclosures of criminal offences
27 April 2020
27 April 2020
This is the second part in our series considering what you should do when you become aware of the commission of a serious criminal offence.
We discussed in Part 1 that:
In this article, we discuss whether a person should report an offence voluntarily, and the considerations surrounding the making of a report, especially where there is no obligation to report (eg if section 316(1) does not apply, or if outside of NSW).
There are a number of potential benefits to companies of voluntary reporting. These can include:
Directors might also consider that in certain situations, their duties to act with due care and diligence, and in the best interests of the company, arguably require them to report actual or suspected offences. This may be to protect the company and because of the potential benefits described above.
Ultimately, it will be a matter for each director to exercise his or her judgment, balancing the foreseeable risks, benefits and harms arising from the conduct in question.
The decision to make a voluntary report will need to be carefully weighed against the risks, which are described further below.
There are some risks in making a report. The information contained in a report may include personal information and information the subject of confidentiality obligations. This issue may be particularly acute in circumstances where the reporting is technically voluntary.
While such obligations will need to be considered individually, privacy legislation and standard confidentiality clauses in contracts often provide carve-outs for compelled disclosures, or disclosures necessary to assist law enforcement.
One way to trigger such carve-outs could be to request that a formal warrant or subpoena be issued by the relevant law enforcement agency, prior to providing confidential or personal information.
Making a report to the relevant law enforcement agency may also impact on any civil claim the company brings, connected with the same subject matter.
There is no bar that prevents the company from initiating civil proceedings prior to, or concurrently with, any relevant criminal proceeding. A court may, however, on application by the defendant, stay civil proceedings either outright or beyond a certain pre-trial stage, until the related criminal proceedings are completed.
In determining a stay application, the court will need to balance any prejudice to the defendant's right to a fair trial in the criminal proceeding, against the company's right to have its civil claim heard without delay. There are a number of factors that will affect this exercise, although the potential prejudice to the defendant could include:
There is likely to be some delay between lodging a report and the commencement of any criminal proceedings. The company could make use of this lead time and seek to resolve its civil claims prior to any criminal action commencing. Courts are generally hesitant to grant a stay application on the mere possibility that a criminal proceeding may be commenced: Sogelease Australia Ltd v Griffin  NSWSC 1099; ASX Perpetual Registrars Ltd v Golubovic  NSWSC 1157.
Dealing with a police investigation and then criminal proceedings will be costly to the potential defendant – and could reduce the assets that might otherwise be available to satisfy judgment in civil proceedings. The delay (particularly if it is associated with unemployment during that period) will also likely eat into the defendant's available funds, and may create a bankruptcy risk, even if there are freezing orders in place.
However, as discussed above there are potential advantages in "piggy backing" off the back of criminal proceedings which can reduce the costs of or need for civil proceedings.
In-house counsel may be placed in a difficult situation when they learn that a corporation is the victim of a crime committed by one of its employees – do they have a personal obligation to report that crime? That can be a complex question depending on the particular facts and taking into account the in-house counsel's duty to his or her client the corporation (r 4.1.1 of the Australian Solicitors' Conduct Rules), to comply with the law (r 4.1.5), and also "to the court and the administration of justice" (r 3.1).
It is also important to be aware in this context that while legal professional privilege may protect an in-house counsel's communications with his or her client about the matter, privilege will not attach to communications where there is prima facie evidence that the communication is in the furtherance of fraud, crime or any other improper purpose.
Authors: Rani John, Partner; Ian Bolster, Partner; Stephen Speirs, Senior Associate; Joshua King, Lawyer; Phimister Dowell, Lawyer
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.