Adler & Anor v Australian Securities and Investments Commission

[2004] HCATrans 182

[2004] HCATrans 182

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S444 of 2003

B e t w e e n -

RODNEY STEPHEN ADLER

First Applicant

ADLER CORPORATION PTY LIMITED

Second Applicant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 28 MAY 2004, AT 10.42 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR I.M. JACKMAN, SC, for the applicant.  (instructed by Gilbert & Tobin)

MR R.B.S. MACFARLAN, QC:   If the Court pleases, I appear with my learned friend, MR J.P.A. DURACK, for the respondent.  (instructed by Australian Securities and Investments Commission)

GLEESON CJ:   I think I asked the Registry to inform counsel for the parties that I have had some affairs in HIH.  That was not soliciting sympathy.  It was inviting submissions.

MR JACKSON:   Your Honour, we have not the slightest objection to your Honour hearing the matter.

GLEESON CJ:   Yes.

MR JACKSON:   Thank you, your Honour.  Your Honours, this application concerns an issue, in our submission, an important issue, of procedural fairness in dealing with the imposition of pecuniary penalties and a disqualification from office as a director of companies under the civil penalties regime of the Corporations Act.  May I in that regard take your Honours to volume 2 at page 418.  Your Honours will there see that the applicant was disqualified in relevant respects “from managing corporations . . . for a period of 20 years” and was ordered to pay a pecuniary penalty of $450,000.  That is in addition to various substantial compensation orders.

Your Honours, may I indicate in essence the point which we seek to make, and it is this. The proceedings against the applicant were instituted by the amended statement of claim which appears in the respondent’s additional materials at page 29. The document alleged various contraventions and sought four things. Could I take your Honours to page 56 – declarations pursuant to section 1317E of the Corporations Law.  At page 60 it sought disqualification orders.  At page 60 again an order for pecuniary penalties and at page 61 compensation.  They are the matters dealt with under the heading.

GLEESON CJ:   At what stage in this process of decision making does the question of dishonesty become relevant?

MR JACKSON:   Your Honour, the question of dishonesty so far as this application is concerned becomes relevant, in our submission, at two points.  It becomes relevant in terms of decision making at the time when the penalty or disqualification order is to be made, but it becomes relevant, in our submission, at an earlier point, that is, at the time when the application is made.  When I say the application is made, I am referring relevantly to the filing of the statement of claim which sets out the allegations. 

Could I say, your Honours, what we seek to say in essence is this, that whilst it may not be necessary in terms of alleging the facts which give rise to a contravention to indicate that they have a particular quality of honest, dishonesty or there are offences which do not have a particular mental element, at the same time, if at the time of the imposition of a disqualification order or of a penalty there is to be relied on a matter which is of a circumstance, in a sense – and I use the term loosely – of aggravation such as fraud, dishonesty or a matter of that kind, that should be set out as part of the particulars or matters to be relied on for penalty.  So that at the start of the proceedings – and I would recognise the ability to amend if necessary as time went by – it is apparent for a person who is the subject of the application of the order for these matters that one of the questions which will be in issue at the time of imposition of the penalty or seeking of the disqualification order that the conduct of that kind is to be relied on.

GLEESON CJ:   Is there an excusing provision relevant to these contraventions?

MR JACKSON:   Your Honour, there is an excusing provision, but in the end it is one that, in our submission, is not relevant.  It assumes that there have been breaches.  Your Honours, it is referred to in the written submissions of our learned friends in volume 3.  I am sorry, your Honours, I have just lost the reference to it.

GLEESON CJ:   You know the sort of thing I have in mind.

MR JACKSON:   Yes, I do, your Honour.

GLEESON CJ:   …..acted honestly or ‑ ‑ ‑

MR JACKSON:   There are two provisions that were referred to, but they are provisions that do not go to the question of the conduct itself.

GLEESON CJ:   Were they pleaded?

MR JACKSON:   They were relied on in respect of some of them, yes.  Our learned friends refer to that in their written submissions.  Our submission is this, that that is something that it is up to us to raise if we wish to, but if one has a situation where what is being sought as part of the imposition of the penalty is reliance, as there was in this case, by the person seeking the penalty or the disqualification on particular matters, then those are matters which at the start of the case should be sufficiently identified.  Your Honour, the detail of the matter is, if I could deal with it shortly ‑ ‑ ‑

GUMMOW J:   And if they are not?

MR JACKSON:   Well, if they are not, your Honour, the position is that the ‑ ‑ ‑

GUMMOW J:   Your client is entitled to assume something?

MR JACKSON:   Yes.  If they are not, your Honour, we are entitled to assume that the case is based on the matters that are pleaded and particularised.

GUMMOW J:   Even as it unfolds?

MR JACKSON:   As it unfolds, your Honour, yes, because what you have, of course, is contentions made in relation to contraventions of particular provisions of the Corporations Law or Act, as the case might have been.  Now, in relation to that, those are contraventions which can be constituted by conduct of a particular kind.  That being so, it may be that in proving the case it is demonstrated that conduct has been of a particular kind and that the conduct has been better or worse, for example, than the minimum that is required.  But all that does is to establish that there is a contravention.

In dealing with the question of the penalty that is appropriate for the contravention, then one takes into account the nature of the offence, but where what is being relied upon in relation to the penalty to be imposed – where what is being relied on are allegations that there has been conduct which is, for example, fraudulent, dishonest or falling within those kinds of categories, that reliance is something which should be indicated – flagged, as it were – by a pleading of the particulars or giving of particulars about conduct at the start of the proceedings.

Now, your Honours, that is something, in our submission, that should be done and if one does not have that material being given then it – I am sorry, the reliance upon that material is something which will affect the way in which the whole case is conducted.  Not only affect the way in which the whole case is conducted, but assuming that the case is conducted on the basis the material has been given, when it comes to the question of penalty, what happened, as in this case, was that there was reliance not merely upon the fact of contravention that had been established, but upon various findings that the judge made on questions of honesty, dishonesty on the way through, those matters then being aggregated as part of the findings which had to be dealt with or set aside on the question of penalty.

Your Honour asked me for the reference to the provisions that dealt with excuse, as it were.  Your Honours will see those are sections 1318(1), which is a provision akin to the provision in Trustee Acts, and then there is also another provision which is section 1317S and 1317S(2) which says:

If:

. . . 

(b)      in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:

(i)       the person has acted honestly;

. . . 

the court may relieve the person wholly or partly from a liability –

Now, your Honours, if I could say this about the case, that this was a case where the trial judge had made findings which included findings which amounted to species of dishonesty.  They are summarised in volume 3 at page 705, paragraph 744.  Your Honours will see them set out.  They are extracts from the submissions at first instance.  Your Honours will see those commencing in that paragraph at about line 40 on page 705 and they go over for two further pages.  The Court of Appeal accepted that the judge had acceded to that characterisation.  That is in the same volume at page 708, paragraph 746. 

Your Honours, it may have been one thing to make observations of that kind in resolving whether there had been the contraventions alleged, but in the end on liability, as it were, the question was whether the contraventions as alleged were made out.  Our submission is, as I put it before, that if the respondent was going to seek a penalty or disqualification on the basis that that conduct had been engaged in dishonesty, that should have been raised at the start of the case, not at the end of the case on liability.

Could I just take your Honours to the basis for the Court of Appeal’s decision.  It appeared to accept that procedural fairness was required if dishonesty in conduct was to be taken into account on penalty.  That is at page 708 in volume 3, paragraph 747, particularly the last sentence, and then paragraph 748, and in particular in paragraph 748 about line 40 it is the passage commencing:

For both pecuniary penalty and disqualification the task is normative –

Your Honours will see that goes through to the end of that page and there is a recognition of a requirement for procedural fairness about five lines from the bottom of page 708.  But the basis for the court’s ultimate decision appears to have been two things.  One is that the contention which we made at page 711 paragraph 756 should be rejected.  The reasons for the rejection are in the following two paragraphs, 757 and 758, and particularly the observation in the second sentence of 757:

Dishonesty in the present case was not conduct distinct from the conduct constituting the contraventions, but the finding as to the nature of the latter conduct.

Your Honours, our submission is that that is really to misunderstand what was being relied on.  The point which we would seek to make is that cases such as Smith v New South Wales Bar Association indicate that the essence of those cases is that conduct to be relied on as a reason for disqualification or other penalty should be properly made out and particularised.  Your Honours, that reflects the notion in, for example, the Akhil Holdings’ Case, to which we referred in our written submissions, that fraud and matters of that nature should be raised at the start of a case and pleaded and particularised.

Your Honours, it is obvious, we would submit with respect, that the course to be taken by a defendant in proceedings of this kind will be affected from the start by knowing whether the case against them is to result in contentions that the penalty should be greater because of the quality of the conduct involved.

GUMMOW J:   Now, it is said against you that at the distinct hearing to deal with the relief your client’s case was to say, “Well, my dishonesty was out of character”.

MR JACKSON:   Your Honour, the position was, of course, that was after the event.  We would say, your Honours, it is really no answer to say that once the findings have been made we then had to deal with them.  The point we are seeking to make is that if they had been made at the start, and it was clear that was being suggested as something that would deal with penalty, that was a matter which would affect the way in which we deal with it.  The case may have been conducted entirely differently.

GUMMOW J:   But there was no objection taken at the beginning, was there, as to any deficiency?  You did not know what was going to be on the table at some later stage because of absence of particulars.

MR JACKSON:   No, I am sorry, your Honour, the point really arose because of the judge’s decision on the question of liability.  The pleading that we had – and your Honours will see the pleading there – is one that does not raise, except to the limited extent that we have set out in our submissions, any of these questions.  What one saw was that the judge took a view on his findings of liability and on the weight of the declarations, which, of course, were a stage on the way.  What he made was findings that did involve the question of dishonesty.  The observations that he made were then extracted into the long list that I showed your Honours earlier, and that list is then relied on as forming part of the case on penalty.

If the case on penalty was going to be one based on particulars of dishonesty, that aspect of the case should have been apparent from an earlier point.  That is the point we would seek to make, your Honours.  It is too late really at the stage my learned friend’s submissions speak of.  Your Honours, those are our submissions.

GLEESON CJ:   We do not need to hear you, Mr Macfarlan.

The Court is of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave and the application is refused with costs.

AT 10.58 AM THE MATTER WAS CONCLUDED