Can the muzzle come off Crown Casino employees?
The arrest of 19 Crown Casino employees in China in 2016 and subsequent 'guilty' plea to criminal offences related to the illegal promotion of gambling has culminated in an intriguing shareholder class action in Australia’s Federal Court. This latest issue revolves around an application for orders allowing the applicant's solicitors to confer with potential witnesses who were subject to contractual confidentiality obligations – Application granted.
This is a shareholder class action against Crown Resorts Ltd (Crown) for misleading or deceptive conduct and breach of continuous disclosure obligations.
In February 2016, the Chinese government announced a crackdown on the promotion of overseas gambling to Chinese nationals. In October 2016, employees of a Crown subsidiary were arrested in China and later charged with criminal offences related to the promotion of gambling. In June 2017, 19 of Crown’s employees ultimately pleaded guilty to the offences and were convicted in Baoshan District Court in Shanghai, China.
The applicant (Zantran) alleges that prior to and during the relevant period employees of Crown engaged in promotional activities designed to recruit Chinese 'high roller' gamblers to gamble at Crown's casinos in Melbourne, Perth and Macau. Zantran alleges that these promotional activities were illegal under Chinese criminal law, and that, at least from the date that Crown's employees were at risk of being arrested and detained, there was a risk that Crown would not continue to receive the significant revenue it generated from the recruitment of Chinese 'high rollers’' Zantran alleges that by failing to disclose that risk, Crown breached the continuous disclosure regime in the Corporations Act 2001 (Cth) and engaged in misleading or deceptive conduct.
Zantran's application to confer with the Crown Employees
This judgment concerned an interlocutory application filed by Zantran for orders that 19 former Crown employees (Crown Employees) be relieved of any obligation of confidence owed by them to Crown for the limited purpose of conferring with Zantran’s solicitors (Maurice Blackburn) to provide witness statements and/or produce documents relating to their criminal prosecutions and convictions.
Each of the Crown Employees owed express confidentiality obligations to Crown pursuant to contracts of employment and/or further deeds entered into in 2017 and 2018. Zantran accepted that these confidentiality terms were capable of being construed as preventing the Crown Employees from conferring with Maurice Blackburn about the work they performed when employed by Crown.
Crown accepted that the Crown Employees could be called to give evidence at trial, but opposed them conferring with Maurice Blackburn prior to trial and argued that they ought to be held to their express contractual bargains to maintain confidentiality.
His Honour held that refusing to allow Maurice Blackburn to consult with the Crown Employees would potentially have a serious adverse effect on the administration of justice, which outweighed the public interest in maintaining the contractual obligations of confidence between Crown and its former employees. As such, his Honour held that it was appropriate to make the orders sought by Zantran, pursuant to ss 33ZF, 21, 23 and 37P of the Federal Court of Australia Act 1976 (Cth) (FCAA) (save with respect to one of the Crown Employees, being Mr Chen, who was not charged with or convicted of criminal offences in China – see ).
Central to his Honour’s decision was s 37M of the FCAA, which provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. His Honour observed that s 37M(3) of the FCAA provides that the Court must exercise or carry out any power or duty conferred by the civil practice and procedure provisions “in the way that best promotes the overarching purpose” (at ). His Honour stated that, having regard to the terms of s 37M (at ):
"… it is plain that Parliament recognised a public interest in ensuring as far as possible that civil proceedings be heard and determined as fairly, quickly, inexpensively and efficiently as possible, which applies both to pre-trial and trial processes. It recognised that the public interest in the administration of justice goes beyond the interests of the parties to the immediate dispute and includes any effects upon the Court and on other litigants. Parliament saw a public interest in the efficient use of available judicial and Court resources, the efficient disposal of the Court’s overall caseload and the disposal of all proceedings in a timely manner."
The circumstances of the case that were relevant to his Honour's determination included the following:
- The evidence suggested that the Crown Employees (or at least some of them) were willing to confer with Maurice Blackburn and give evidence in the proceeding.
- The evidence of the Crown Employees could prove highly probative of the central issues in the case, including whether during the relevant period Crown knew or ought to have known that the promotional activities carried out by the Crown Employees were in breach of Chinese criminal law and posed a risk to its continued receipt of revenue from the recruitment of Chinese 'high rollers'. In this regard, his Honour noted that discovery in the proceeding was complete or almost complete and that to date Crown had only discovered one document in relation to the Crown Employee’s criminal prosecution, and relatively few documents concerning the activities of the Crown Employees in mainland China. His Honour indicated that it was open to infer that the low level of documents discovered about these matters reflects (at least in part) advice that Crown received in a report by the Mintz Group in 2015 (which had been discovered by Crown in the proceeding) to minimise digital communications in order to avoid running afoul of the Chinese government crackdown.
- Requiring the Crown Employees to be called 'cold' as witnesses at trial would likely result in either or both parties seeking to adjourn the trial in order to obtain instructions on evidence disclosed for the first time at trial. His Honour observed that such an adjournment would likely be for a substantial period, and would cause "significant delay in the hearing of the case and serious wastage of both the Court’s and the parties' resources" (at ).
- Allowing the Crown Employees to confer with Maurice Blackburn prior to trial would enable each party to prepare its case with a proper appreciation of the evidence, and ensure that expert witnesses are able to consider the Crown Employee’s evidence when reaching their opinions. By contrast, requiring the Crown Employees be called ‘cold’ would, in his Honour’s view, be akin to allowing “trial by ambush” (and unusually, both parties stood to suffer from any such ambush) (at ). His Honour concluded that “[i]t is manifestly in the interests of justice that the evidence be marshalled in an orderly way and without disruption to the trial” (at ).
- The particular features of class action litigation weighed in favour of allowing the Crown Employees to confer with Maurice Blackburn prior to trial. Important to his Honour's determination was the fact that the evidence of the Crown Employees could prove highly probative of the central issues in the case, in circumstances where the Court's findings on the common factual and legal issues will bind a large number of non-parties. Further, both Zantran and its legal representatives owe an obligation to act in the best interests of class members. His Honour stated that unless Maurice Blackburn are permitted to confer with the Crown Employees, it is difficult to see how they could appropriately recommend a settlement of the proceeding (which history suggests is the most likely outcome in shareholder class actions) as being fair and reasonable having regard to the interests of class members, or satisfy the requirements of any settlement approval application under s 33V of the FCAA.
- There would be limited adverse impact to the interests of Crown or the Crown Employees that would result from the Court making the orders.
- The information that Crown sought to protect from disclosure involved details of potential criminal wrongdoing by the Crown Employees, allegedly engaged in for Crown’s benefit and on Crown’s behalf. His Honour considered that "[s]uch information should not be protected from disclosure, at least for the limited purpose and in the limited way the orders contemplate" (at ).
Guiding legal principles
After reviewing the relevant authorities, Murphy J adopted the following summary of the applicable legal principles set out by J Forrest J in AS v Minister for Immigration and Border Protection (Ruling No 6) (2016) 53 VR 631;  VSC 774 (see -):
- an obligation of confidentiality will not be enforced by a court if it has an adverse effect on the administration of justice
- this principle is applicable to both criminal and civil proceedings
- for the protection of a confidence to be lost there must be some 'public element' relevant to the administration of justice that is affected
- determining whether the protection of a confidence should be removed depends on the circumstances, including the following:
- what information is sought to be protected
- the extent of the protection said to be afforded by the agreement
- whether the rights of third parties are affected
- whether there are any wider public policies involved
- a court will not usually interfere with a party's preparation of a case for trial and, in particular, how it lawfully obtains evidence to support the case
- courts are reluctant to relieve a witness of a confidentiality obligation in the pre-trial phase of litigation
- each case turns upon the nature of the confidential relationship, any relevant legislation and whether there is a real prospect of an adverse effect upon the administration of justice which outweighs the public interest in protecting the confidence
- the balancing exercise requires consideration of the various matters set out in (d)(i)-(iv) above.
Crown's application for suppression or non-publication orders
His Honour also refused an interlocutory application filed by Crown for suppression or non-publication orders (under ss 37AF and 37AG of the FCAA) in respect of information revealing that it had entered into 'Finalisation Deeds' with the Crown Employees who pleaded guilty to and were convicted of criminal activities in connection with the promotion of gambling. His Honour held that Crown had not established a proper basis for such orders (see -).
*Crown has since filed an appeal.
Zantran Pty Ltd v Crown Resorts Ltd  FCA 641
- Federal Court of Australia, Murphy J, 8 May 2019
- Applicant's Solicitors: Maurice Blackburn
- Respondent’s Solicitors: Minter Ellison
- Applicant's Funder: ILFP
Read more of Austlii: Zantran Pty Ltd v Crown Resorts Ltd  FCA 641
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