ASIC v Plymin and Ors (No 3)
[2002] VSC 358
•28 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 |
---
JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 – 27 August 2002 | |
DATE OF JUDGMENT: | 28 August 2002 | |
CASE MAY BE CITED AS: | ASIC v Plymin and Ors (No 3) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 358 | First Revision 28 August 2002 |
---
Corporations – proceeding for civil penalty order – application for stay of proceeding on basis that second defendant was not accorded procedural fairness during the investigative process – whether the Commission was required to prepare an interim report and the consequences, if any, of its failure to do so
---
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.D. Wyles | Tress Cocks & Maddox |
| For the Third Defendant | L. Glick SC with A. Young | Phillips Fox |
HIS HONOUR:
In order to understand the background facts and some aspects of the applicable statutory provisions in relation to this proceeding, these reasons must be read in conjunction with the reasons published on 26 August 2002 in ASIC v Plymin & ors (No. 2) [2002] VSC 356. I will not repeat here what was stated there.
By summons filed 26 August 2002 the second defendant makes a further application for this proceeding to be permanently stayed, as against him, on the ground of lack of procedural fairness. The basis of the application is as follows.
Section 16(1) of the Australian Securities and Investments Commission Act 1989 (Cth) (“the ASIC Act”) provides:
“Where, in the course of an investigation under this Division, the Commission forms the opinion that:
(a)a serious contravention of a law of the Commonwealth or a State or Territory has been committed;
…
it shall prepare an interim report that relates to the investigation and sets out:
(d)if paragraph (a) applies – its findings about the contravention and the evidence and other material on which those findings are based;
…
and such other matters relating to, or arising out of, the investigation as it thinks fit.”
The second defendant submits that the Commission did form the opinion that a serious contravention of a law of a State (the Corporations Law of Victoria) had been committed but failed to prepare an interim report as required by s.16(1) of the ASIC Act. I note that s.18(1) and (2) of the ASIC Act requires the Commission to give a copy of such a report to the Minister and empowers the Commission, where a serious contravention is involved, to give a copy of a whole or part of the report to various authorities including the Director of Public Prosecutions. It is convenient here to also note that s.18(3) of the ASIC Act provides that where such a report or part of a report “relates to a person’s affairs to a material extent” the Commission may, at the person’s request or of its own motion, give to the person a copy of the report (or part thereof).
The second defendant submits that the failure of the Commission to prepare an interim report, in breach of its obligation under s.16(1) of the ASIC Act, has resulted in procedural unfairness to the second defendant because he has been deprived of the opportunity to make submissions to the Commission in relation to the alleged contravention and the possible commencement of a proceeding in relation to it. Because no interim report was prepared, the second defendant says that he was necessarily unaware that the Commission had formed the opinion that he had committed a serious contravention, a matter of which he would have been aware if a report had been prepared. The second defendant says that he would have been aware of the formation of that opinion if a report had been prepared because, although he was only entitled to request rather than demand a copy of the report, he was entitled, by implication, to be informed of the existence of any interim report. The second defendant submits, in effect, that this is a necessary implication because without knowledge of the existence of a report his right to make a request for a copy of it as contemplated by s.18(3) of the ASIC Act would be rendered nugatory. The second defendant says that, as a result, the Commission’s decision to commence this proceeding was made in excess of its jurisdiction or power, because he was denied the opportunity, which he was reasonably entitled to expect, of putting submissions to the Commission before its decision to commence this proceeding was made. Finally, the second defendant contends that in those circumstances the Court may permanently stay this proceeding as an abuse of the process of the Court and should do so.
The first step in this argument requires proof that the Commission did in fact form the opinion that the second defendant had committed a “serious” contravention of the Corporations Law relating to insolvent trading. In order to understand this step in the argument, it is necessary to refer both to the applicable provisions of the Corporations Law (in the form which applied prior to 13 March 2000) and to the evidence before the Court on this application.
Section 1317DA of the Corporations Law lists a number of “civil penalty” provisions, of which s.588G is the relevant provision in this proceeding. Section 1317EA deals with the power of the Court to make civil penalty orders. A “civil penalty order” is defined by s.9 of the Law to mean “a declaration or order made under s.1317EA…”. The declaration referred to is that which the Court may make under s.1317EA(2), namely, a declaration that the person has, by a specified act or omission, contravened the relevant civil penalty provision in relation to a specified corporation. The other orders referred to in the definition of “civil penalty order” are an order prohibiting the person for a specified period from managing a corporation (s.1317EA(3)(a)) and an order that the person pay to the Commonwealth a pecuniary penalty of a specified amount (s.1317EA(3)(b)). By s.1317EA(5), the Court is not to make an order for a pecuniary penalty unless it is satisfied that the contravention is a “serious” one. That requirement does not apply to the other kinds of civil penalty order which the Court is empowered to make. Finally by s.1317EB(1), the Commission is empowered to apply for a civil penalty order as so defined.
In the light of the foregoing provisions, in particular s.1317EA(5), the second defendant argues that because the Commission has claimed in this proceeding, among other things, an order for a pecuniary penalty against the second defendant, the Commission must have formed the opinion prior to deciding to commence this proceeding that the second defendant had committed a “serious” contravention of s.588G. In addition to this line of reasoning, the second defendant points to the evidence that two of the persons primarily charged with responsibility for the preparation and conduct of this matter on behalf of the Commission believed that the second defendant’s alleged contravention was a serious contravention. Those persons are Mr Orchard, who was at all relevant times the Director, Enforcement, Victoria and Joint Project Sponsor, and Ms Dürr, who was at all relevant times employed as a Senior Lawyer by the Commission, and who was also Team Leader in relation to this matter and a delegate of the Commission (although the contents of the delegation are not in evidence). So the second defendant contends that the Commission must have formed the opinion that the second defendant had committed a serious contravention, having regard both to the nature of the relief sought in this proceeding and to the opinions held by the individuals primarily responsible for the preparation of this proceeding within the Commission’s staff.
In this regard the second defendant also relied upon a chronology, the relevant principal dates of which (all in the year 2000) were as follows:
· 29 May: The Commission determined to carry out an investigation pursuant to s.13 of the ASIC Act into suspected contraventions of s.588G of the Corporations Law in relation to Water Wheel;
· 22 June: Officers of the Commission from this date onwards were contemplating a proceeding for a civil penalty order against directors of Water Wheel;
· May – June: Staff of the Commission were involved in the investigation and in obtaining legal and expert advice and interviewing witnesses;
· July: Senior Counsel’s advice was sought;
· August: Examinations of directors pursuant to s.19 of the ASIC Act were conducted; advice was obtained from Senior Counsel; a report from a second expert was sought; advice from a second Senior Counsel was sought; the Commission endorsed the continued preparation of the proceeding for a civil penalty order;
· September: The Commission had a preference for a civil penalty proceeding and the view that a criminal prosecution should not be pursued; the advice of the Commonwealth DPP was sought in relation to this;
· October: The Commonwealth DPP advised that he had no objection to ASIC’s proposal to proceed by way of application for a civil penalty order;
· 25 October: Opinion of second Senior Counsel was received;
· 1 November: The Commission endorsed the continued preparation for the commencement of the proceeding and authorised an appropriate Commission delegate to make the final decision to institute the proceeding unless adverse evidence should emerge in the meantime;
· 23 November: The Commission faxed a letter advising of the imminent institution of this proceeding to the solicitors then acting for all of the present defendants;
· 26 November: The final “formal” decision was made by Ms. Dürr (“as a delegate of the Commission holding the position number 3904”) to commence this proceeding;
· 27 November: This proceeding was commenced.
The next step in the argument is that, having formed the opinion that a serious contravention had been committed, the Commission was obliged by s.16 of the ASIC Act to prepare an interim report.
The next step is that the failure to prepare a report, and the consequential failure to inform the second defendant that the Commission was of the opinion that he had committed a serious contravention, has deprived the second defendant of an opportunity to make submissions to the Commission in relation to the alleged contravention and to the possible commencement of this proceeding and this is said to be properly characterised as a substantial failure to accord procedural fairness to the second defendant.
I note here that the second defendant rightly does not seek to contend either that the preparation of an interim report under s.16 of the ASIC Act is a condition precedent to making a decision to commence a proceeding such as this or a condition precedent to the commencement of such proceeding – compare Deloitte Touche Tohmatsu v ASC (1994) 54 FCR 284, 291 per Lindgren J (see too on appeal (1996) 70 FCR 93, 106) – as was said by Lindgren J, s.16 (and also s.18) of the ASIC Act are “directed to ensuring that discovered violations of legal rules and prohibitions are drawn to the attention of appropriate authorities”. The provisions as to reports are not required to be observed in connection with the making of a decision to bring proceedings, either under s.50 of the ASIC Act (as Lindgren J decided) or, as in this case, under s.1317EB(1) of the Corporations Law.
The final step, or steps, in the argument are that the decision to commence this proceeding was therefore made in excess of jurisdiction or power and was thus unauthorised or beyond power, and that accordingly, this proceeding should be stayed as an abuse of the process of the Court.
It is now convenient to summarise the answering submissions made on behalf of the Commission. It is submitted on behalf of the Commission that there is no evidence proving directly or by inference that in the course of the investigation the Commission had formed the opinion contemplated by s.16(1)(a) of the ASIC Act that a serious contravention had been committed. It is further submitted that the phrase “a law of the Commonwealth or a State or Territory” in s.16(1)(a) of the ASIC Act does not cover a national scheme law. It is next submitted that even if the Commission had formed the opinion referred to in s.16(1)(a) of the ASIC Act and was thereby obliged to prepare an interim report, its failure to do so gave rise to no relevant failure to accord procedural fairness to the second defendant, and accordingly that the Commission’s decision to institute this proceeding was not thereby vitiated or affected. Finally the Commission submits that even if all of the foregoing contentions are determined against it, there is no basis made out upon which the Court can, or should, permanently stay the proceeding as an abuse of process of the Court.
The first question which needs to be decided is the proper interpretation of the phrase “forms the opinion” in s.16(1)(a) of the ASIC Act. In Deloitte Touche Tohmatsu v ASC (1994) 54 FCR 284, 290 – 291, Lindgren J said:
“The expression “forms the opinion” in s.16(1)(a) may denote a formal and deliberate process of developing and “formulating” an opinion with an eye to the provision. On the other hand it may denote merely an opinion formed in fact. According to the latter construction, whenever it can be said that the ASC has in fact formed the opinion described, the statutory duty to prepare an interim report arises. Whether “the ASC”, on the facts of a particular case, have formed that opinion would be a mixed question of law and fact. … I have not found it necessary to choose between the two constructions of “forms an opinion”…”.
In my opinion, the first of the alternative constructions proposed by Lindgren J is the correct one. What s.16 of the ASIC Act contemplates is that the Commission itself, or its delegate or officer if duly authorised to do so, should form the relevant opinion with an eye to that provision. There are three kinds of opinion which may be formed under s.16(1)(a), (b) and (c) as a result of which the Commission is obliged to prepare an interim report. Each of them, in my view, involves the Commission initiating the consideration of the relevant matter and forming the relevant opinion with an eye to that provision. So, s.16(1)(b) involves the Commission forming the opinion that to prepare an interim report would enable or assist the protection or recovery of property and s.16(1)(c) involves the Commission concluding that there is a need of sufficient urgency for a national scheme law to be amended that an interim report is required to be prepared. Likewise, under s.16(1)(a) the Commission will be involved in the process of considering whether in its opinion, a contravention has been committed of sufficent seriousness to require it to prepare an interim report. There is no evidence that the Commission considered the formation of an opinion as to whether any contravention had been committed of sufficient seriousness for this purpose, let alone formed an opinion to that effect. The fact that two of those in charge of this particular investigation and in charge of the preparation of this proceeding were of the belief that the alleged contravention of s.588G was serious does not amount to the formation of an opinion by the Commission that a serious contravention had been committed for the purposes of s.16(1)(a).
Those conclusions are sufficient to dispose of this application. However, in case the foregoing conclusions of law and fact are incorrect, I next consider whether the expression in s.16(1)(a), and also in s.18(2), “law of the Commonwealth or a State or Territory” includes a “national scheme law” as defined (for present purposes, the Corporations Law of Victoria). It was submitted on behalf of the Commission, having regard to the dichotomy set up by the ASIC Act between a national scheme law and other laws of the Commonwealth or of a State or Territory that this phrase should be construed as not including a national scheme law. Reference was made to ss.13(1), 14(2), 28 and 40. The argument went on to suggest that a consideration of ss.16, 17 and 18 of the ASIC Act showed that the purpose of the provisions relating to serious contraventions was to empower and require the Commission to report to other relevant authorities and agencies where any serious contravention of a law, other than a national scheme law, was identified. In the case of a contravention of a national scheme law, it was submitted, the Commission itself had the authority to prosecute or otherwise deal with the contravention, and accordingly these provisions were inapplicable to that situation. I do not set out the full argument. Reference was made by the second defendant to Explanatory Memoranda which, if anything, supported the construction advanced by the second defendant, although the indications were not particularly strong either way. It is worthy of comment, however, that ASC v Solomon (1996) 19 ACSR 73, a decision of Tamberlin J in the Federal Court, shows that the Commission acted in that case contrary to the submission now advanced by relying upon an interim report prepared under s.16(1)(a) on the basis that a serious contravention of the Corporations Law had been committed for the purpose of seeking a winding up order. The plain and ordinary meaning of the expression “a law of the Commonwealth or a State or Territory” includes a national scheme law and in my opinion, although the contrary is arguable, that meaning should be taken to have been intended. If Parliament had intended otherwise, I consider that national scheme laws would have been expressly excluded by ss.16(1)(a) and 18(2) of the ASIC Act.
Assuming (again contrary to my earlier conclusions) that the Commission was required in the circumstances to prepare an interim report, what is the consequence of the Commission having failed to do so? It was submitted on behalf of the second defendant, as I have said, that the failure to prepare an interim report had deprived him of an opportunity to make submissions to the Commission concerning the contravention and the possible institution of proceedings in relation to it.
In my opinion, both the preparation of an interim report and the failure to prepare an interim report are equally irrelevant in law to the Commission’s decision to institute a proceeding such as this, and are likewise equally irrelevant in law to the actual institution of such a proceeding.
It seems to me that the second defendant’s submission amounts in reality to a contention that the second defendant was entitled to be informed that the Commission had formed the opinion that he had committed a serious contravention of s.588G of the Corporations Law, a matter of which he would have been aware or ought to have been made aware if an interim report had been prepared, even if such report were never supplied to him.
The complaint by the second defendant thus might be expressed as follows: that he had a legitimate or reasonable expectation that he would be afforded, on request, an opportunity to put submissions to the Commission, if it formed the opinion that he had committed a “serious” contravention of s.588G, for the purpose of persuading the Commission not to institute any proceeding for civil penalty orders which included a claim for a pecuniary penalty order.
It is hard to understand why considerations of procedural fairness should entitle a person in the position of the second defendant to an opportunity to put such submissions in those circumstances, but not in circumstances where proceedings under the ASIC Act or the Corporations Law were contemplated by the Commission but the question of an interim report or the formation of an opinion as to a serious contravention did not arise. I do not consider that s.16(1)(a) of the ASIC Act gives rise to any special considerations of procedural fairness where none would otherwise arise.
Counsel for the second defendant referred to the principles relating to procedural fairness as enunciated, inter alia, in the well known authorities of Kioa v West (1985) 159 CLR 550, Annetts v McCann (1990) 170 CLR 596 and Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. Counsel referred in that regard to the effect upon the reputation of the second defendant of the mere institution of this proceeding.
However in my opinion, although each case must turn on its own context including any applicable statutory provisions, the authorities show that, in general, procedural fairness does not extend to require that a proposed defendant must be afforded an opportunity to put submissions in relation to a decision to institute a prosecution or a like proceeding, such as a disciplinary proceeding (see The Medical Board of Queensland v Byrne (1958) 100 CLR 582, 591, 594; Barton v The Queen (1980) 147 CLR 75, 95; Commissioner of Police v Reid (1989) 16 NSWLR 453, 461; Cornall v A.B. [1995] 1 VR 372, 396-7, 400-401; Maxwell v The Queen (1996) 184 CLR 501, 512, 534).
In particular, I would refer to what was said by the Appeal Division of this Court (Ormiston, Coldrey and O’Bryan JJ) in Cornall v A.B. at 396-7:
“It is therefore important to look at the principles which lie behind these authorities. In our opinion they do not stand for any principle that every investigator or investigative body must afford a person under investigation an opportunity to be heard in the sense understood in the law before they recommend a further step of a kind which will result in a judicial or quasi-judicial determination of the correctness or otherwise of the allegation made by the investigator. To do so would be to stifle the necessary functions performed by the police and the other many and varied authorities who for the protection of the public have to investigate alleged breaches of the law. That is not to imply that police and investigative bodies ought not to act fairly, nor, where appropriate, to seek answers (to the extent permitted by law) from those who are under investigation, but ordinarily the investigative process cannot be hedged around with requirements to seek further explanations at each stage of an inquiry. In this kind of investigation it is not the investigator’s function to reach conclusions as to guilt or innocence, but to determine whether there is an arguable case of sufficient strength to sustain a conviction or which would justify the imposition of monetary penalties or other sanctions by disciplinary or other judicial or quasi-judicial tribunal. Regrettably the reputation of those charged with offences or brought before disciplinary or other tribunals will suffer to an extent in the eyes of those who fail to appreciate the different functions of investigator and decision-maker, whether judicial or quasi-judicial. Where the function of going forward with the prosecution or charge does not involve more than satisfaction as to facts sufficient to form a prima facie case, there is little practical merit in providing to a person so charged a further opportunity to make submissions or reduce facts to an investigator who is not essentially the fact-finding tribunal.
…
Consideration of the relevant principle may properly begin with a statement by the late S.A. de Smith in his Judicial Review of Administrative Action (4th ed.), p. 199, cited with approval by the Privy Council in Crane’s case…at 845:
“Where an act or proposal is only the first step in a sequence of measures which may culminate in a decision detrimental to a person’s interests, the courts will generally decline to accede to that person’s submission that he is entitled to be heard in opposition to this final act, particularly if he is entitled to be heard at a later stage….”
Rightly their Lordships pointed out that in considering the requirements of natural justice, “the Courts should not be bound by rigid rules”… But it is also clear that their Lordships considered the case on appeal was an exception from the “many situations in which natural justice does not require that a person must be told of the complaints made against him and given a chance to answer them at the particular stage in question”… This normally occurred where the investigation was purely preliminary and where there would be a full opportunity in due course adequately to deal with the complaints.
…
It may be thought that in Australia authority points more firmly to the conclusion that where an investigation forms part of an entire process leading to a judicial or quasi-judicial hearing there is ordinarily no obligation at the investigative stage to afford procedural fairness except to the extent required by the language of the statute. Thus in Ainsworth’s case, Mason C.J., Dawson, Toohey and Gaudron JJ. said at 578,
“It is not in doubt that, where a decision-making process involves different steps or stages before a final decision is made, the requirements of natural justice are satisfied if “the decision-making process, viewed in its entirety, entails procedural fairness”…
[emphasis added] “
(I would refer also to what was said at pp.400-401 of the judgment in Cornall).
In my opinion, this proceeding with its penal elements is strongly analogous to a proceeding such as a disciplinary proceeding, if not a prosecution, and further I am of the view that the statutory framework relevant both to the prior investigation and to this proceeding affords no legitimate basis for contending that procedural fairness requires any hearing prior to the hearing at the trial of the proceeding itself. Accordingly I do not accept the submissions of the second defendant to the contrary.
Counsel for the second defendant, in reply, pointed out that whereas at common law the decision to prosecute under a Commonwealth enactment was not reviewable, this was not necessarily the case under the Administrative Decisions (Judicial Review) Act1977 (Cth) (“ADJR Act”) – see Oates v Williams (1998) 84 FCR 348, 353-4. In this regard, it should be noted that on this stay application (as on the stay application decided two days ago) the second defendant does not seek to invoke this Court’s jurisdiction under the ADJR Act (which arises under s.1337B(3) of the Corporations Act 2001 (Cth)). That apart, this Court has no jurisdiction to review the Commission’s decision to institute this proceeding (see s.9, ADJR Act).
It was further submitted by the Commission that an administrative defect in its decision-making process, as alleged here, would not in any event render this proceeding, which was brought bona fide pursuant to an express statutory power, liable to be stayed as an abuse of the process of the Court. Having regard to my previous conclusions, it is unnecessary to canvass that argument.
The summons of the second defendant is dismissed with costs.
---
CERTIFICATE
I certify that this and the 12 preceding pages are a true copy of the reasons for Judgment of Mandie J of the Supreme Court of Victoria delivered on 28 August 2002.
DATED this twenty- eighth day of August 2002.
Associate
114
15
0