ASIC v Plymin and Ors (No 2)
[2002] VSC 356
•26 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7748 of 2000
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| PLYMIN AND ORS | Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21-23 August 2002 | |
DATE OF JUDGMENT: | 26 August 2002 | |
CASE MAY BE CITED AS: | ASIC v Plymin and Ors (No 2) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 356 | |
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corporations – proceeding for civil penalty order – application for stay of proceeding on basis that decision to commence proceeding was a nullity– whether ASIC entitled to have regard to statements made in examinations under Australian Securities and Investments Commission Act 1989 (Cth) s.19 for the purpose of deciding to commence civil penalty proceeding
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | N.J. Young QC with P. Clarke SC, P. Crutchfield, and E. Heerey | ASIC |
| For the First Defendant | In person | |
| For the Second Defendant | M. Wyles | Tress Cocks & Maddox |
| For the Third Defendant | L. Glick SC with A. Young | Phillips Fox |
HIS HONOUR:
This is an application by the second defendant pursuant to a summons filed 16 August 2002 that this proceeding be stayed, or otherwise struck out on the basis that the plaintiff, ASIC (“the Commission”), in making the decision to commence this proceeding acted beyond power. The second defendant withdrew an application for leave to amend the summons by adding two further applications for relief. These withdrawn applications firstly sought in the alternative that the proceeding be struck out as an abuse of process on the basis that at the time of issuing this proceeding the Commission had no reasonable basis to believe that it could succeed in obtaining a pecuniary penalty order against the second defendant and secondly sought that the Commission be restrained from using any material in this proceeding which was obtained by the Commission after 29 May 2000 during the investigation commenced pursuant to s.13 of the ASC Act 1989 (Cth) and any information obtained by the Commission in utilisation of the investigation information. As these proposed amendments to the summons were withdrawn it is unnecessary to say any more about them.
The background to this application is briefly as follows. The principal proceeding before the Court is an insolvent trading proceeding against three directors of the Water Wheel group of companies (“Water Wheel”) in which the Commission claims civil penalties, compensation and disqualification orders. On 29 May 2000 the Commission commenced an investigation into the affairs of Water Wheel and into suspected contraventions of s.588G of the then Corporations Law, as in operation in 1999 and early 2000. Under s.1317DA of the Law, s.588G was a civil penalty provision. There is in evidence a copy of the determination made pursuant to s.13 of the Australian Securities and Investment Commission Act 1989 (Cth) (“ASIC Act”) to carry out this investigation. In the course of the investigation, the Commission gathered evidence from a range of potential witnesses, including the administrators of the Water Wheel companies and auditors, lawyers, officers, employees, bankers and trade creditors of Water Wheel. Some of that evidence was gathered pursuant to the Commission’s power under ss.30 and 33 of the ASIC Act and some was provided voluntarily to the Commission by potential witnesses. The Commission utilised its power under s.19 of the ASIC Act in the course of this investigation in relation to four persons only. These persons were the defendants and one other director of Water Wheel. The examinations were conducted on 3,4 and 21 August 2000 (Mr Plymin), 10 and 11 August 2000 (Mr Harrison), 14 August 2000 (Mr Elliott) and 8 August 2000 (another director, Mr Carnie). Some other notices were served pursuant to s.19 but no examinations were ultimately conducted. The transcripts of the examinations were provided to Counsel for the Commission as they became available for use by Counsel in forming their views on the Commission’s prospects of success in a contemplated civil penalty proceeding.
By 12 September 2000, the Commission was of the view that this was not a matter in which a criminal prosecution should be pursued but that before excluding the possibility of a criminal prosecution the view of the Commonwealth Director of Public Prosecutions should be obtained. The Commission or its officers had further reached the view, it would seem, that it would be desirable and appropriate to commence a civil penalty proceeding but no final decision had been made to commence such a proceeding. On 12 September 2000, the Commission sent an advice brief to the Commonweath DPP, the contents of which have not been disclosed as privilege has been claimed but a covering letter is in evidence which shows that the Commission was seeking “the DPP’s confirmation that it agrees with ASIC’s view that this is not a matter in which a criminal prosecution should be pursued”. On 2 October 2000 the Commonwealth DPP informed the Commission that the DPP “has no objection to ASIC’s proposal that this matter proceed by way of an application for a civil penalty”. The final “formal” decision to commence this proceeding was made on 26 November 2000, although a meeting of officers of the Commission on 1 November 2000 resulted in an instruction to prepare for the commencement of the proceeding subject to such final formal decision.
This proceeding was commenced by the Commission on 27 November 2000. In February 2001 about 137 affidavits including affidavits of two experts were filed by the plaintiff and served on the defendants. In addition, the defendants received at about that time a substantial Statement of Claim. The case of the plaintiff has been well known since February 2001. The Commission has from time to time filed further affidavits, some of them much later than was permitted by interlocutory orders of the Court but none of that material has essentially altered the case made in February 2001. On 19 July 2001 the date for the trial was fixed for 29 July 2002 or thereabouts, so there was very significant notice of the trial date and substantial lead time provided to the defendants. Subsequently, an adjournment of the trial date was granted and the trial of the proceeding commenced on Monday 19 August 2002. The plaintiff has opened its case and the opening is also recorded in a comprehensive written document which has been provided to the defendants and to the Court.
The application by summons to stay the proceeding was deferred by me until after the hearing of the opening in order that the plaintiff would have time to answer this very late application and also in order that it could be decided in the context of a fuller understanding of what the proceeding is about (in so far as that might be necessary).
The second defendant contends that the decision by the Commission to bring this proceeding was a nullity and that accordingly the Commission had no power to commence this proceeding. Notwithstanding the unacceptable delay in making this application and in advancing such a contention, it is so fundamental that I decided that it should be heard and determined at once to avoid the risk that if it was correct, many weeks or months of trial would be wasted and attendant cost, inconvenience and embarrassment (to say the least) of the defendants would be incurred without any justification. I was assisted in coming to that conclusion, despite the contentions of the Commission to the contrary, by the second defendant’s decision to withdraw a belated Notice to Produce which would have involved lengthy argument about the production of numerous otherwise irrelevant documents and whether they were privileged or not and further by the second defendant’s decision not to cross-examine the Commission’s deponents in relation to this application. The questions raised are essentially questions of law dependant only upon the facts which I have already recited.
The second defendant’s application is made pursuant to the Court’s power to stay a proceeding as an abuse of process. Counsel for the second defendant stated that he did not seek to invoke or rely at all upon the powers of the Court under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“ADJR Act”) although it was common ground that, pursuant to s.1337B(3) of the Corporations Act 2001 (Cth), this Court had jurisdiction with respect to matters arising under the AJDR Act involving or related to decisions made under the Corporations legislation by the Commission and that, as I understand it, the decision of the Commission to bring this proceeding was such a decision covered by s.1337B(3). As reliance was not placed upon the ADJR Act, it is unnecessary to consider this aspect further.
Before turning to the submissions which were made, it is necessary to deal briefly with the applicable law because the Corporations Law has gone through a number of changes and has now, of course, been replaced by Commonwealth legislation. Senior Counsel for the Commission submitted that the applicable version of the Corporations Law was that which existed prior to the amendments which came into effect on 13 March 2000 pursuant to Act No. 156 of 1999. This result is reached by reference to s.1401(1), (2) and (3) of the Corporations Act 2001 which applies the “old corporations legislation”, as defined, to any “pre-commencement liability” whether civil or criminal that was incurred under a provision of the old corporations legislation of a State. It is unnecessary to detail the operation of these provisions but they were discussed by Austin J in Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619 at 622 – 3. The effect of the foregoing provisions is to take one to s.1473 of the Corporations Law as in force immediately before the commencement of the Corporations Act 2001 which provides that Part 9.4B of the old Law (dealing with the civil consequences of contravening civil penalty provisions) continues to apply in relation to a contravention of a civil penalty provision listed in s.1317DA of the old Law (which is a reference to the Corporations Law which applied before 13 March 2000). The foregoing is a summary of what was submitted by Senior Counsel for the Commission and which, I am satisfied, is a correct analysis of the relevant provisions. I therefore proceed upon the basis that the relevant provisions of the Corporations Law which govern this proceeding are those which existed immediately prior to 13 March 2000. I should say that if this proceeding were to continue and anything of substance were to turn upon this conclusion, I would be prepared in those events to reconsider the matter after hearing further argument. I will proceed on that basis. I add that there is little, if any, difference between the relevant provisions for present purposes, but unfortunately many of the section numbers are different.
The essential submission now made on behalf of the second defendant is that the decision of the Commission to commence this proceeding was a nullity and that accordingly, this proceeding should be stayed as an abuse of process of the Court. It is submitted by the second defendant that the Commission’s decision was a nullity because, in making that decision, the Commission had illegitimate recourse to information obtained from and as a result of the examinations of the defendants conducted pursuant to s.19 of the ASIC Act. It cannot be disputed that the Commission had power pursuant to s.1317EB(1)(a) of the Corporations Law to bring this proceeding, it being an application for a civil penalty order (see too ss. 1317DA, 1317EA and 1317ED). The argument is that the exercise of that power was tainted by the impermissible use of material obtained for other purposes under s.19 of the ASIC Act, which was then used for unauthorised or illegitimate purposes; namely, the reaching of a decision to bring this proceeding. It was submitted by counsel for the second defendant that the Commission’s power to make an investigation pursuant to s.13 of the ASIC Act and its power to require a person to attend an examination under s.19 of the ASIC Act could lead only to two relevant consequences; namely, a criminal prosecution pursuant to s.49 of the ASIC Act or a representative civil proceeding pursuant to s.50 of the ASIC Act, that these were the only legitimate purposes for such investigations and examinations and that the Commission had no power or authority to use its coercive powers under s.19 of the ASIC Act for any other purpose, and in particular for a purpose not mentioned in the ASIC Act, namely, the commencement of a proceeding for a civil penalty pursuant to the Corporations Law.
In my opinion, these submissions are totally misconceived for the following reasons. Section 13(1) of the ASIC Act empowers the Commission to make “such investigation as it thinks expedient for the due administration of a national scheme law…where it has reason to suspect that there may have been committed” a contravention of a national scheme law or a contravention of some other Commonwealth or State law relating to (in short) corporate matters. “National scheme law” means for present purposes the Corporations Law of the State of Victoria (s.5(1), ASIC Act). It seems to me, without needing to look at any other provision of the ASIC Act, that s.13 of itself authorises the Commission to launch an investigation for the purpose of considering, or having the possible consequence of, the commencement of a civil penalty proceeding (whether that be the sole purpose or consequence or one of a number of purposes or consequences). I think that it is beyond debate that, where the Commission has reason to suspect that there may have been committed any contravention (criminal or civil) of a national scheme law, the due administration of such law (ie the Corporations law) is necessarily capable of leading to consideration of the question whether any proceeding of whatever kind relevant to the suspected contravention might be commenced under the Corporations Law. There are of course a wide variety of proceedings and remedies available to the Commission under the Corporations Law, any or all of which might be a possible purpose or consequence of such an investigation in relation to a suspected contravention. A proceeding for an injunction is but one of many examples.
Senior Counsel for the Commission referred to s.11 of the ASIC Act in support of the width of the functions and powers of the Commission which might be served by an investigation (see in particular ss.11(1), (4) and (7)). The section supports his argument, but I consider that s.13 has a clear intent standing alone.
Counsel for the second defendant said that the mere conduct of an investigation and the use of information obtained in such an investigation would not taint a decision to bring a civil penalty proceeding – but the use of the coercive power under s.19 of the ASIC Act would do so. I consider that distinction to be illogical. The power of the Commission under s.19 depends upon the existence of an investigation. Section 19(1) provides that the section applies where the Commission, on reasonable grounds, suspects or believes that a person can give information “relevant to a matter that it is investigating, or is to investigate, under Division 1” (ie, ss.13 – 18 dealing with investigations).
Given that the due administration of the Corporations Law must, in an appropriate case, include giving effect to whatever provisions are contained in the Corporations Law from time to time, for example, the provisions dealing with insolvent trading and the provisions dealing with civil penalty orders, and that an investigation might be launched in relation to suspected contraventions which might be covered or dealt with by any of those provisions, it necessary follows, in my view, that the powers under s.19, which include the power to require a person to attend for examination on oath and to answer questions, may be utilised where the application of such provisions is in contemplation.
There are other provisions of the ASIC Act which point to the same conclusion. Section 76(1) provides that a statement that a person makes at a s.19 examination is admissible in evidence against the person in a “proceeding”. “Proceeding” is defined by s.5(1) to include a proceeding in a court or in a tribunal whether the proceeding is of a civil, administrative, disciplinary or other nature. Section 76(1) provides that a statement is not admissible where inter alia it is inadmissible because of s.68(3) or is irrelevant or is privileged. Thus s.76 provides a qualified but express authority for the use of material obtained on a s.19 examination in any proceeding. If statements made in a s.19 examination may be admissible in evidence in a proceeding against the person making the statement, it would be an absurd construction of the Act to find that such material could not be utilised in deciding whether to launch such a proceeding. Analogous comments might be made in relation to s.77 of the ASIC Act which authorises, subject to various safeguards, the use in evidence of statements obtained on a s.19 examination by a person “absent” from the proceeding.
In support of the foregoing constructional approach, reference should also be made to the objects of the ASIC Act (s.1(1)) and the aims of the Commission (s.1(2)). In particular, s.1(2)(g) of the ASIC Act requires the Commission to strive to take whatever action it can take, and is necessary, in order to enforce and give effect to the laws that confer functions and powers on it, and the Act has effect and is to be interpreted accordingly (s.1(3)).
Contrary to the submissions made both by the second and the third defendant, I do not think that the introduction of s.1317EH (later s.1317R) of the Corporations Law should be regarded as providing an indication that the investigatory and other powers of the Commission under the ASIC Act should be given a limited scope simply because some of the powers of the Commission are duplicated in s.1317EH. There are a number of other provisions in the ASIC Act which in my view show that the use of use of s.19 examinations is not to be limited in the way argued by the second defendant. Section 127(3) of the ASIC Act expressly empowers the Commission to disclose information obtained in the course of s.13 investigations and s.19 examinations to any member or staff member of the Commission for the purpose of that person performing his or her functions, and s.127(4) permits the Chairperson of the Commission to disclose that information to a wide variety of organisations, including the government or agency of a State if it will enable or assist such organisation to perform a function or exercise a power. Section 127 also permits use and disclosure of such information in a number of other circumstances, including disclosure to the Australian Stock Exchange. Given the number of bodies to whom, and the breadth of purposes for which, such information may be disclosed, it would be absurd to conclude that ASIC cannot use such information other than for the purposes of ss.49 and 50 of the ASIC Act. In my view, nothing in the ASIC Act supports such a conclusion. I note that s.68 provides that it is not a reasonable excuse for a person to refuse to give information or to produce a book (see the further powers contained in Division 3) that the information or production of the book might tend to incriminate the person or make the person liable to a penalty. Section 68(3) renders the statement obtained on a s.19 examination inadmissible in evidence against the person making the statement in a criminal proceeding or in a proceeding for the imposition of a penalty, but no other limitation is placed upon the use or disclosure of such a statement other than such limitations as arise from the proper construction of such sections as s.127. I have already referred above to the operation of s.76(1) of the ASIC Act which makes a statement obtained on a s.19 examination admissible in a proceeding subject to the qualifications therein contained.
Counsel for the second defendant cited Marcel v Commissioner of Police [1992] Ch 225, 234 per Browne-Wilkinson V.-C. for the proposition that “powers conferred for one purpose cannot lawfully be used for other purposes without giving rise to an abuse of power”. One need not quarrel with this proposition, but it is in my view inapplicable having regard to the proper construction of the ASIC Act to which I have referred. Reference was made on both sides to Johns v Australian Securities Commission (1993) 178 CLR 408. In my opinion, a number of statements by the members of the High Court in that case support the construction advanced by the Commission on this application. I refer to what was said by Brennan J (as he then was) at 424-5, and in particular, the following: “as investigations are but some of the functions of the A.S.C.…the Act contemplates that information acquired on examinations under s.19 may be used and disclosed for the purpose of the performance or exercise of any of the functions of the A.S.C.”
There was considerable debate before me as to whether the primary submissions of the second defendant, even if correct, led to the conclusion that the decision of the Commission to commence this proceeding was a nullity and if so, whether to commence this proceeding was an abuse of the process of the Court. I think that there is some strength in the arguments put by the Commission that, in any event, the decision of the Commission would not be a nullity, and this proceeding would not in any event be an abuse of process. However, I do not need to decide either of those matters having regard to the conclusion that I have reached that the primary submissions of the second defendant should be rejected.
In his reply, Counsel for the second defendant sought to raise a separate argument based upon the alleged failure of the Commission to perform a duty laid upon it by s.16 of the ASIC Act to prepare an interim report relating to a s.13 investigation where the Commission forms the opinion that “a serious contravention of a law of the Commonwealth or a State or Territory has been committed”.
I adjourned the proceeding on Friday to enable Counsel for the second defendant to elaborate further on this argument, but this morning a new summons was filed raising a number of matters based upon or related to that argument. For that reason, I need not consider it in these reasons, and I will simply deal with the summons before the Court.
The summons by the second defendant is dismissed with costs.
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