Peter John Brannigan and Others Appellants v Sir Ronald Keith Davison Respondent

[1997] AC 238

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(Judgment by: Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Lloyd of Berwick, Lord Nolan, Lord Nicholls of Birkenhead)

Peter John Brannigan and Others Appellants
v.Sir Ronald Keith Davison Respondent

Court:

Judges:
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
Lord Lloyd of Berwick
Lord Nolan
Lord Nicholls of Birkenhead

Legislative References:
Commissions of Inquiry Act 1908 - s 6
International Companies Act 1981-1982 - s 227
Commissions of Inquiry Act 1908 - s 4D
Judicature Act 1908 - s 56B
Civil Evidence Act 1968 - s 14
New Zealand Bill of Rights Act 1990 - s 23(4); s 25(d)
Cook Islands Act 1915 - s 340-347

Case References:
King of the Two Sicilies v. Willcox - (1851) 1 SimNS 301
United States of America v. McRae - (1867) LR 4 Eq 327; LR 3 ChApp 79
Adstream Building Industries Pty Ltd v. The Queensland Cement and Lime Co Ltd (No 4) - [1985] 1 QdR 127
FF Seeley Nominees Pty Ltd v. El Ar Initiations (UK) Ltd - (1990) 96 ALR 468
United States v. (Under Seal) - (1986) 794 F2d 920 (4 th Cir)
United States v. First National Bank of Chicago - (1983) 699 F2d 341
Mishima v. United States - (1981) 507 FSupp 131
Murphy v. Waterfront Commission of New York Harbor - (1964) 378 US 52
Reg v. Director of Serious Fraud Office, Ex parte Smith - [1993] AC 1
Spencer v. The Queen - [1985] 2 SCR 278
United States v. Field - (1976) 532 F2d 404
United States v. Frank - (1974) 494 F2d 145

Hearing date: 1, 2, 3, 4 July 1996
Judgment date: 14 October 1996

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Judgment by:
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
Lord Lloyd of Berwick
Lord Nolan
Lord Nicholls of Birkenhead

14. October. The judgment of their Lordships was delivered by LORD NICHOLLS OF BIRKENHEAD.

This appeal from a decision of the Court of Appeal of New Zealand concerns the winebox inquiry, as it is known colloquially. On 12 September 1994 Sir Ronald Davison, a former Chief Justice of New Zealand, was appointed to be a commission pursuant to the Commissions of Inquiry Act 1908. His task was to inquire into and report on whether the Commissioner of Inland Revenue and the Director of the Serious Fraud Office and their staffs acted properly and competently in dealing with the transactions referred to in papers presented to the House of Representatives in March 1994. He was also charged to inquire into and report on whether any changes in the criminal or tax law should be made to protect New Zealand's tax base from the effects of fraud, evasion and avoidance.

The papers were presented to the House of Representatives in a winebox. They are said to have been stolen from the European Pacific group of companies by an employee. The tabled papers are said to show that between 1987 and 1994 the Government of the Cook Islands, in effect, sold tax credit certificates for a fee which was only a small fraction of the amount shown as withholding tax in the certificates issued.

The transactions were numerous and complicated. Something of the flavour can be captured by a simplified version of the Magnum transaction. This involved the payment of withholding tax (in very round figures, $2m.) by European Pacific to the Cook Islands Government in respect of interest paid by one European Pacific company to another, the purchase by the Cook Islands Government of a promissory note from a European Pacific company, and the sale of the same note by the government to another company in the group at a substantial loss ($1·95m.). All these dealings were part of a single, pre-arranged scheme. Their economic effect was to pay back almost all the tax paid.

The withholding tax certificate was then presented to the New Zealand tax authorities by a company in the European Pacific group, and used to reduce the amount of New Zealand tax otherwise payable. The amount of the reduction corresponded to the amount of tax shown as paid on the certificate. Thus European Pacific was better off by $1·95m., the Cook Islands Government was better off by $50,000, and the New Zealand Government was worse off by $2m.

There have been several legal challenges to the conduct of the inquiry. The origin of the present proceedings is that the plaintiffs are caught between the conflicting requirements of the laws of two countries, New Zealand and the Cook Islands. On the one hand is the secrecy legislation of the Cook Islands, especially section 227 of the International Companies Act 1981-1982. This was enacted to promote the attractions of the Cook Islands as a tax haven. On the other hand, the plaintiffs have been required to give evidence to the commission in New Zealand. The plaintiffs are concerned that if they give information to the commission on what they know about the transactions, they will thereby commit criminal offences under the law of the Cook Islands, punishable by imprisonment. They claim they should not be required to give evidence when this would expose them to the risk of prosecution.

Each of the three plaintiffs was employed in an accounting or management position in the European Pacific group in the Cook Islands at material times. In August and September 1995 they were summoned by the commission to attend and give evidence, pursuant to section 4D of the Commissions of Inquiry Act 1908. A person who is summoned but refuses to answer a question concerning the subject of the inquiry commits an offence under the Act. This is subject to two qualifications. First, every witness giving evidence has the same privileges as witnesses in courts of law: section 6. The relevant privilege in the present case is the common law privilege against self-incrimination. Second, to attract criminal consequences the refusal to answer must be 'without sufficient cause:' section 9(1)(b). To the like effect section 13A(1)(b) provides that a member of a commission who is a judge or former judge of the High Court may exercise the powers (of detention in custody) conferred by section 56B of the Judicature Act 1908 where a witness before the commission 'without offering any just excuse' refuses to give evidence.

On 27 September 1995 the commissioner ruled that the privilege against self-incrimination did not avail the plaintiffs, and that they lacked sufficient cause within section 9 and just excuse within section 13A to refuse to give evidence. In these proceedings, brought by the plaintiffs against the commissioner, the plaintiffs claimed an order setting aside this ruling and a declaration that they should not be required to give any evidence likely to render them liable to prosecution in the Cook Islands pursuant to that country's secrecy legislation.

On 30 October the proceedings were by consent removed to the Court of Appeal and treated as an application for judicial review. On 16 February 1996 the Court of Appeal by a majority, comprising Cooke P., Richardson, Henry and Thomas JJ., dismissed the proceedings. McKay J. disagreed. On 4 July their Lordships announced they would humbly advise Her Majesty that the plaintiffs' appeal should be dismissed with costs. Their Lordships now give their reasons.

The privilege against self-incrimination

The circumstances in which the plaintiffs invoke the privilege against self-incrimination are unusual, in two respects. The plaintiffs seek dispensation, not from giving evidence of their own prior criminal activities, but from giving evidence when the very giving of the evidence to the commission would itself constitute a criminal offence. Secondly, the criminal offence would arise under the law of another country. The Cook Islands is a fully sovereign independent state.

The first of these two features cannot really arise in isolation from the second. It is inconceivable that the law of a country would simultaneously compel and forbid the doing of an act: here, the giving of evidence to a commission of inquiry. If such a clash of internal law should ever arise, the court would have to determine which of the two inconsistent laws prevailed.

It will be convenient therefore to consider the second feature first: does the rule, or privilege, against self-incrimination apply where the criminal offence arises under the law of another country?

On this there is surprisingly little authority. The starting point is two cases of the last century. In King of the Two Sicilies v. Willcox (1851) 1 Sim.N.S. 301 the defendants resisted production of documents on the ground that production would expose them to criminal proceedings in Sicily. Lord Cranworth V.-C. rejected the contention. He held, at p. 329, that the privilege had reference exclusively to matters penal by English municipal law. His reason was that no judge could know, as a matter of law, what would or would not be penal in a foreign country, and so no judge could evaluate the force of the objection to answer.

In United States of America v. McRae (1867) L.R. 4 Eq. 327; L.R. 3 Ch.App. 79, the United States Government had started proceedings in America to forfeit land owned by the defendant in Alabama, on the ground that he had been a Confederate States agent. In the English proceedings the government claimed an account of all property received by the defendant as agent for the Confederate States during the Civil War. Page Wood V.-C., and on appeal Lord Chelmsford L.C., held that the defendant was not bound to give discovery as this would furnish evidence leading to the forfeiture of his property in the pending American proceedings. The Two Sicilies case, 1 Sim.N.S. 301, was distinguished. In the Two Sicilies case there was insufficient evidence about the foreign law. In McRae's case, however, the exact nature of the penalty was stated and the plaintiff was itself the sovereign power which had instituted proceedings for forfeiture of property lying within its grasp. Lord Chelmsford L.C., L.R. 3 Ch.App. 79 considered that Lord Cranworth V.-C. in the Two Sicilies case, 1 Sim.N.S. 301 had stated his proposition too broadly.

The only other judicial observation in England was some years later. In In re Atherton [1912] 2 K.B. 251, 255, Phillimore J. commented that historically the self-incrimination principle had not been applied where the alleged crime had been committed abroad.

In England the need for an authoritative ruling was overtaken by Parliamentary intervention. In 1967 the Law Reform Committee addressed this question in its 16th Report (Privilege in Civil Proceedings) (Cmnd. 3472), in paragraph 11:

'There are no recent authorities as to whether a person may claim privilege to refuse to answer questions or to produce documents which might incriminate him under foreign law and the two old authorities [the Two Sicilies and McRae cases] are not wholly consistent, although the latter related to discovery only. The problem presents difficulties since, although an English judge is qualified to decide forthwith whether a witness's objection to answering a question on the grounds that it might incriminate him under the law of any part of the United Kingdom is bona fide and realistic or not, it may well be difficult for him to reach such a decision where questions of the criminal law of foreign states are concerned. On the whole, we think that no absolute privilege should be given against self-incrimination under foreign law. The matter is best left to the general discretion of the judge in the particular circumstances in which the claim arises.' In the following year legislation laid to rest the doubts, so far as English law was concerned. Section 14 of the Civil Evidence Act 1968 provided that the privilege applied only to criminal offences under the law of any part of the United Kingdom and penalties provided for by such law.

Divergent views have also been expressed in Australia. In Adstream Building Industries Pty. Ltd. v. The Queensland Cement and Lime Co. Ltd. (No. 4) [1985] 1 Qd.R. 127 McPherson J., sitting in the Supreme Court of Queensland, followed McRae's case, L.R. 3 Ch.App. 79, and held that a defendant was entitled to claim privilege against production of documents concerning shareholdings in a Swiss company where disclosure would tend to expose the party to a penalty under Swiss law. But in FF Seeley Nominees Pty. Ltd. v. El Ar Initiations (UK) Ltd. (1990) 96 A.L.R. 468, 473, Zelling A.J., sitting in the Supreme Court of South Australia, very much doubted whether the privilege exists in relation to incrimination under foreign law.

The prevalent view in the United States appears to be that the privilege does not apply to foreign law: see United States v. (Under Seal) (1986) 794 F.2d 920 (4 th Cir.), and Wigmore on Evidence, 3rd ed., vol. 8 (1940) (McNaughton rev. 1961), pp. 342-346, para. 2258, and the Supplement to Wigmore on Evidence, vol. 8 (1996), pp. 877-878, para. 2258. Where foreign law is involved the court decides whether compelling an answer would be unreasonable in all the circumstances: see American Law Institute, Restatement of the Law, The Foreign Relations Law of the United States, 3d (1986), pp. 244-245, 321, 341, sections 403, 431, 441. What is required is a 'sensitive balancing of the competing interests at stake:' see United States v. First National Bank of Chicago (1983) 699 F.2d 341, 345. However, contrary views have been expressed in some courts. For instance, in Mishima v. United States (1981) 507 F.Supp. 131 the district court held that a claim of Fifth Amendment protection could be validly asserted regarding the threat of prosecution in Japan.

With the authorities in this unsettled state their Lordships go back to first principles. Expressed in various ways, the chief strand of reasoning discernible in the common law rule is the undesirability of the state compelling a person to convict himself out of his own mouth. There is an instinctive recoil from the use of coercive power to this end. The state should not 'subject those suspected of crime to the cruel trilemma of self-accusation, perjury or contempt:' per Goldberg J. in Murphy v. Waterfront Commission of New York Harbor (1964) 378 U.S. 52, 55. A person should not be put in a position where he is exposed to punishment whatever he does: see Reg. v. Director of Serious Fraud Office, Ex parte Smith [1993] A.C. 1, 32, per Lord Mustill. Members of a civilised society ought to treat each other better than this.

This aspiration is so basic that it has been incorporated as a right in many charters enshrining fundamental rights and liberties, such as the International Covenant on Civil and Political Rights, article 14(3)(g), the Fifth Amendment to the United States Constitution, and the New Zealand Bill of Rights Act 1990, sections 23(4) and 25(d). The right is expressed with varying degrees of width, but the consistent emphasis is the benefit and protection of the individual. That is the primary purpose of the right.

Seen from the point of view of the witness, the right may be as much needed where foreign law is involved as where it is not. The difficulty confronting the individual may be just as acute when the feared prosecution is under the law of another country. There is, however, a real problem in letting this lead to the conclusion that the privilege should apply in such a case. The privilege is rigid and absolute. The witness has an unqualified right. Where the privilege applies the witness need not answer. Unless the case falls within a statutory exception, that is the end of the matter. There is no scope for the court to exercise any discretion.

It is the unqualified nature of the right, so valuable as a protection for the witness, which gives rise to the problem when a foreign law element is present. If the privilege were applicable when the risk of prosecution is under the law of another country, the privilege would have the effect of according primacy to foreign law in all cases. Another country's decision on what conduct does or does not attract criminal or penal sanctions would rebound on the domestic court. The foreign law would override the domestic court's ability to conduct its proceedings in accordance with its own procedures and law. If an answer would tend to expose the witness to a real risk of prosecution under a foreign law then, whatever the nature of the activity proscribed by the foreign law, the witness would have an absolute right to refuse to answer the question, however important that answer might be for the purposes of the domestic court's proceedings.

This surely cannot be right. Different countries have their own interests to pursue. At times national interests conflict. In its simple, absolute, unqualified form the privilege, established in a domestic law setting, cannot be extended to include foreign law without encroaching unacceptably upon the domestic country's legitimate interest in the conduct of its own judicial proceedings. Their Lordships respectfully agree with the views to this effect expressed in the Court of Appeal by Cooke P., Henry and Thomas JJ. Their Lordships' conclusion is that the common law privilege does not run where the criminal or penal sanctions arise under a foreign law.

Their Lordships add two points. First, where questions of foreign prosecution are raised during a trial it will often be impracticable to inquire into the state of the foreign law in the course of the trial. This is not a difficulty which arises regarding domestic law. This practical consideration marches hand in hand with the conclusion already expressed, but their Lordships base their decision on the ground of principle. Second, the contrast being drawn between foreign and domestic law is the contrast between the laws of two different countries. Special considerations may apply in countries with a federal structure, as in Australia and the United States, or in countries with a unitary structure but having different laws applicable in different parts of the country, as in the United Kingdom.

The other unusual feature of the present case is that the feared criminality under the laws of the Cook Islands lies not in the previous conduct of the plaintiffs but in the fact of their giving evidence to the commission on what they know of the winebox transactions. Their Lordships consider this additional feature does not assist the plaintiffs. Certainly, if the privilege were available to excuse the plaintiffs from giving evidence of prior criminal acts, one would expect the privilege to be available equally, or more so, when to compel an answer would be to compel the witness to commit a criminal offence. The objections to the use of the state's coercive power are as powerful in the latter case as the former. But when the privilege against giving self-incriminating evidence of prior conduct is not available because of the foreign law element, the privilege likewise cannot avail a witness where the crime under the foreign law would lie in the fact of giving evidence. The reason, already stated, why the privilege is not available in the former case (of prior conduct) applies also in the latter case.

This approach has been adopted in Canada and the United States. In In re Spencer and The Queen (1983) 145 D.L.R. (3d) 344 the Ontario Court of Appeal held that a bank employee, subpoenaed to give evidence at a Canadian trial, could be required to answer questions about transactions at the Bahamian branch of the bank even if the fact of disclosure would expose him to prosecution under Bahamian law. This was upheld on appeal by the Supreme Court of Canada: Spencer v. The Queen [1985] 2 S.C.R. 278. In In re Grand Jury Proceedings; United States v. Field (1976) 532 F.2d 404 a similar question arose when a witness's testimony would violate the secrecy laws of the Cayman Islands. The Court of Appeals of the Fifth Circuit, at pp. 407-410, carried out a balancing exercise in accordance with the Restatement principles. The court said, at p. 410: 'this court simply cannot acquiesce in the proposition that United States criminal investigations must be thwarted whenever there is conflict with the interest of other states.' United States v. Frank (1974) 494 F.2d 145 is to the like effect.

Discretion and just excuse

If the unqualified application of the privilege to foreign law is unsatisfactory, so also is the opposite extreme. The opposite extreme is that the prospect of prosecution under a foreign law is neither here nor there. Since the privilege does not apply to prosecution under foreign law, the witness must always answer a relevant question in the domestic proceedings, regardless of the nature of the crime under the foreign law and regardless of the likely practical consequences for the witness under that law.

This would be a harsh attitude. It would be a reproach to any legal system. One would expect that a trial judge would have a measure of discretion. It will be recalled that paragraph 11 of the Report of the Law Reform Committee envisaged that the judge would exercise a discretion. Thus a further question arises: where the self-incrimination privilege does not apply because the feared prosecution is under foreign law, does the domestic court, under its inherent power to conduct its process in a fair and reasonable manner, nevertheless have a discretion to excuse a witness from giving self-incriminating evidence?

This important question need not be answered in the present case, and their Lordships consider it better to leave the answer to be supplied on another occasion. The reason why the question need not be answered is that in the present case the statutory 'sufficient cause' and 'just excuse' exceptions provide ample scope for all the circumstances to be taken into account. Inherent in these two expressions, which are synonymous in this context, is the concept of weighing all the consequences of the refusal to give evidence: the adverse consequences to the inquiry if the questions are not answered, and the adverse consequences to the witness if he is compelled to answer.

In his ruling of 27 September 1995 the commissioner expressed a different view. He ruled that the exceptions do not extend beyond the scope of the privileges and immunities preserved by section 6 of the Commissions of Inquiry Act 1908. A witness who does not enjoy the common law privilege against answering a question therefore lacks sufficient cause within section 9 or just excuse within section 13A. Their Lordships agree with the Court of Appeal that on this the commissioner misdirected himself. The width and elasticity of the relieving exceptions are not to be confined and restricted in this way.

Whether relief should be granted

The plaintiffs submitted that the proceedings should be remitted to the High Court to carry out the balancing exercise which the commissioner did not carry out. They submitted that, as matters stand, the balance is in favour of the plaintiffs. They have adduced evidence on why they should not be required to answer the commission's questions. They are citizens and residents of New Zealand, but they have continuing commercial connections with the Cook Islands. They are chartered accountants. The first and second plaintiffs, Mr. Brannigan and Mr. McCullagh, practise in a New Zealand firm which has an office in the Cook Islands. Their practice includes considerable Cook Islands work, necessitating frequent visits there. The firm is now auditor to the Cook Islands Government. The third plaintiff, Mr. Barry, does some contract work for the European Pacific group, and this takes him to the Cook Islands from time to time. The Cook Islands Government has made plain its intention to enforce the Islands' secrecy legislation. The commissioner should now file evidence stating the topics on which information is required from the plaintiffs, and why. He should spell out the importance of the information, and the steps taken to seek it elsewhere. The parties should be cross-examined on their affidavits.

Their Lordships consider this submission is misconceived. Parliament entrusted the conduct of this inquiry to the commission. It is for the commissioner to decide which witnesses to summon, and whose evidence is necessary. In these proceedings the court is not exercising an appellate jurisdiction. It is exercising its supervisory, reviewing jurisdiction. The distinction is not a piece of empty formalism. As the inquiry proceeds and information is gradually gathered from different sources, the commissioner is in a far better position than the court to assess how important the witness's evidence may be, and to weigh that against the proffered excuse. Nor is it for the commissioner to justify in advance the questions or topics he proposes to pursue with the plaintiffs. Such a course would be calculated to stultify the inquiry, and would go beyond the protection those compelled to give evidence are reasonably entitled to expect in an inquisitorial investigation of this nature.

Matters would stand differently if there were no grounds on which the commissioner could reasonably conclude that the statutory exceptions were inapplicable. That is not this case. The commissioner has made clear that he attaches importance to obtaining information from the plaintiffs. There are ample grounds to support this view, in the positions formerly held by them within the European Pacific group and the documentary material before the Court of Appeal.

Nor would any useful purpose be served by setting aside the commissioner's ruling. Although the commissioner misdirected himself on the scope of the statutory exceptions, he also stated his view on the outcome of a weighing exercise similar to the exercise called for under these exceptions. Thus, had he directed himself correctly, his decision would have been the same. The weighing exercise undertaken by the commissioner arose out of the plaintiffs' secondary ground of objection before the commissioner. The plaintiffs contended that the principles of foreign state compulsion afforded them a defence. This was rejected by the commissioner. He held that the justification for compelling them to give evidence in New Zealand was so strong that no balancing of considerations under the foreign state compulsion principle could possibly lead to the witnesses being allowed to refuse to give evidence. In the Court of Appeal Cooke P. regarded this conclusion as unassailable in all the circumstances of this inquiry. Richardson and Henry JJ. also concluded that the balancing exercise inherent in the statutory exceptions yielded an answer in favour of upholding the commissioner's decision. Their Lordships agree.

Of course, time has passed since the commissioner's ruling. The inquiry has moved on. The importance the commissioner attaches to obtaining information from the plaintiffs may have increased. It may have diminished. The subjects on which he needs further information may have altered. There is no reason to doubt that the commissioner will have all this in mind when applying the just excuse test and deciding whether it is necessary to require the plaintiffs to give evidence.

Miscellanea

Their Lordships add three further observations. First, throughout their judgment their Lordships have assumed that the Cook Islands secrecy legislation has extraterritorial effect and applies to New Zealand residents giving evidence in New Zealand. In other words, their Lordships have assumed in favour of the plaintiffs' arguments that, as a matter of interpretation of the Cook Islands statutes, the plaintiffs would be at risk if they gave evidence to the commission. The commissioner vigorously challenged this interpretation of the legislation. It is not necessary for their Lordships to express any conclusion on this point of Cook Islands law.

Secondly, their Lordships recognise that the contradictory commands of different states can give rise to acute problems for individuals. The resolution, or alleviation, of these problems is one object of the principles of foreign state compulsion, which have been developed particularly in the United States. For its part New Zealand has observed these principles. The commission has recognised that KPMG Peat Marwick cannot reasonably be expected to produce documents currently in the Cook Islands. Likewise their Lordships see no reason to doubt that, should occasion arise, the courts of the Cook Islands will give proper recognition to the validity of the compulsion exercised in this case by New Zealand law over acts done by New Zealand residents in New Zealand.

Thirdly, extradition. The plaintiffs contended that if they give evidence, quite apart from the risk of prosecution in the Cook Islands, they will be at risk of being extradited to the Cook Islands in accordance with New Zealand's own extradition laws: see sections 340-347 of the Cook Islands Act 1915. Their Lordships are of the opinion that this risk can properly be regarded as fanciful. It is frankly inconceivable that a New Zealand district judge would order the return, or even the arrest, of a person whose sole offence was that he had done in New Zealand what New Zealand law had compelled him to do.(S. S. )