Beware the powers of the Royal Commission to refer matters at anytime for action

There are a number of issues to be considered for those planning to make voluntary submissions to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Dr Tom Middleton writes.

Dr Tom Middleton • 14 March 2018 • Politics

Beware the powers of the Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission) held its first public hearing on Monday, 12 February 2018 in Melbourne.

The Royal Commissions Act 1902 (Cth) (the Act) that authorises the federal government, through the Governor-General, to initiate this inquiry is bristling with powers that let the Royal Commission inquire into and report on any matter specified in the Letters Patent, and refer any suspected contraventions to the regulators for enforcement.

The Royal Commission can refer suspected misconduct to regulators – at any time

The Royal Commission can’t resolve individual disputes, award compensation or make orders requiring a party to a dispute to take or not take any action. However, under s 6P of the Act, the Royal Commission can, if it thinks it’s appropriate, refer any suspected misconduct to the relevant regulator responsible for that area of law, such as the Australian Taxation Office (ATO), Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA) or the Australian Competition and Consumer Commission (ACCC). The regulators don’t need to wait for any final report; the Royal Commission can refer a suspected contravention of the law to a regulator for action at any time during the course of the inquiry.

If a suspected contravention is referred to ASIC, it has the power to:

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ban persons from operating in the financial services industry;
cancel or suspend an Australian Financial Services (AFS) Licence;
seek court orders freezing assets and requiring defendants to pay compensation to victims of contraventions;
apply for disqualification orders and pecuniary penalties against directors who have breached their duties; and
initiate criminal proceedings.

The focus of the Royal Commission is to get to the truth about whether there have been breaches of the financial services laws and other relevant regulatory laws. Members of the public can voluntarily upload their submissions to the Royal Commission. Voluntary submissions let the RoyalCommission gather evidence quickly in contrast to the lengthier process of compelling witnesses to appear and produce documents. Such evidence may trigger further lines of inquiry by the Royal Commission and/or the regulators.

There can be no deliberations without evidence to consider, so the Royal Commission’s current push is to gather voluntary submissions from individuals or entities across all the banking, superannuation and financial services sectors.

Volunteering evidence: a risky business

Volunteering can be fraught with risk. If your clients (who are members of financial institutions or individuals) are planning to make voluntary submissions, there are a number of issues to be considered:

1. Immunity. There’s no evidential immunity for a voluntary informant. The information that your clients submit voluntarily to the Royal Commission can be used against them in future civil, civil penalty and/or criminal proceedings. They won’t be given evidential immunity under the Act in those proceedings.

2. Confidentiality and privilege. The voluntary disclosure of confidential or privileged information to the Royal Commission may mean that there’s an implied waiver of confidentiality or legal professional privilege in relation to that information in subsequent litigation.

3. Employment. There are no clear general law protections for employees where they voluntarily disclose confidential information to the Royal Commission.

Protections for persons who are compelled to give evidence to the Royal Commission

By contrast, there are protections afforded by the Act to your clients when they’re compelled to provide information to the Royal Commission, including protections for employees and “evidential immunity” to summoned witnesses. For example, section 6N of the Act provides that any employer who dismisses any employees from their employment, or prejudices them in their employment, for giving evidence (pursuant to a summons) to the Royal Commission, commits an indictable offence. Section 6AA of the Act outlines the circumstances in which legal professional privilege can be claimed as a “reasonable excuse” for non-compliance with the Royal Commission’s summons to give evidence.

Section 6DD of the Act provides that, where a witness is compelled by a summons to give evidence to the Royal Commission, that evidence isn’t admissible against a natural person in any civil or criminal proceedings in any court of the Commonwealth, or of a state or territory. It is, however, admissible against a corporation.

However, evidential immunity under s 6DD doesn’t protect clients (who have been compelled to give evidence to the Royal Commission) from a regulator, such as ASIC, using their evidence as a springboard to gather secondary or derivative evidence, and using that derivative evidence against them.

Your clients should carefully consider the potential risks of volunteering information to the Royal Commission (including no evidential immunity, the possible waiver of legal professional privilege and potential adverse employment consequences). They should also be prepared for the risk of litigation based on derivative evidence if they’re compelled to provide information to the Royal Commission.

Dr Tom Middleton is an Associate Professor at the James Cook University law school in Townsville. He is the author of Thomson Reuters’ ‘ASIC Corporate Investigations and Hearings’.

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