Australian Securities Commission v Avram

[1996] FCA 1009

CATCHWORDS

CORPORATIONS - AUSTRALIAN SECURITIES COMMISSION - Validity of notice requiring appearance for examination in relation to an investigation - Notice required to state the “general nature of the matter” - Extent to which notice must disclose matter under investigation - Reference to the management of affairs of the company sufficient where coupled with reference to a breach of a specific legislative provision - No failure to identify conduct being investigated where the nature of the provision discloses the conduct - No requirement that identity of suspect be stated - Requirement that a notice disclose questions likely to be asked discussed

Australian Securities Commission Act 1989, s.19

Australian Securities Commission v Graco (1991) 29 FCR 491
Johns v Connor (1992) 35 FCR 1
Little River Goldfields NL v Moulds (1991) 32 FCR 456
Stockbridge v Ogilvie (1993) 10 ACSR 688

AUSTRALIAN SECURITIES COMMISSION -v- AVRAM

No VG 398 of 1996

Before:           North J
Place:             Melbourne
Date:              21 November 1996

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION

No VG 398 of 1996

B E T W E E N :

AUSTRALIAN SECURITIES COMMISSION

Applicant

AND

KATHY AVRAM

Respondent

MINUTES OF ORDER

JUDGE:  North J
PLACE:   Melbourne
DATE:     21 November 1996

THE COURT ORDERS THAT:

1. The application is allowed with costs.

2. The respondent shall appear, on a date and at a time to be fixed, for examination on oath or affirmation and to answer questions put, and to give the applicant all reasonable assistance in accordance with the requirements of the notice dated 19 June 1996 given to the respondent by the applicant under s.19(2) of the Australian Securities Commission Act 1989.

NOTE:  Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION

No VG 398 of 1996

B E T W E E N :

AUSTRALIAN SECURITIES COMMISSION

Applicant

AND

KATHY AVRAM

Respondent

JUDGE:  North J
PLACE:   Melbourne
DATE:     21 November 1996

REASONS FOR JUDGMENT

This is an application by the Australian Securities Commission (“ASC”) under s.70(3) of the Australian Securities Commission Act 1989 (“the ASC law”). The Court is asked to enquire into the failure of Kathy Avram, the respondent, to comply with a notice issued under s.19 of the ASC law requiring her to appear at the offices of the ASC for examination, and to order that she attend for such examination. The central issue is whether the notice served by the ASC on the respondent is valid.

The ASC’s power to serve a notice requiring the attendance of the respondent is contained in s.19 of the ASC law which provides:

19(1)  This 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.

19(2)  The Commission may, by written notice in the prescribed form given to the person, require the person:

(a)to give to the Commission all reasonable assistance in connection with the investigation; and

(b)to appear before a specified member or staff member for examination on oath and to answer questions.

19(3)  A notice given under subsection (2) shall:

(a)state the general nature of the matter referred to in subsection (1); and

(b)set out the effect of subsection 23(1) and section 68.”

The power to investigate referred to in s 19 is contained in s 13(1), which provides:

“The Commission may make such investigation as it thinks expedient for the due administration of a national scheme law of this jurisdiction where it has reason to suspect that there may have been committed:

(a)a contravention of a national scheme law; or

(b)a contravention of a law of the Commonwealth or of a State or Territory, being a contravention that:

(i)concerns the management or affairs of a body corporate; or

(ii)involves fraud or dishonesty and relates to a body corporate, securities or futures contracts.”

The notice dated 19 June 1996 required the respondent to appear for an examination before officers of the ASC and to give reasonable assistance:

“In relation to an investigation into the management of the affairs of CARLIS HOLDINGS PTY LTD ACN 006 700 107 and GLOBAL CHARTER CORPORATION PTY LTD ACN 060 369 708 (hereinafter referred to as ‘the Companies’) with respect to a breach of section 229(3) of the Corporations Law from 31 May 1995 to the date of this notice (hereinafter referred to as ‘the period’)”.

Section 229(3) of the Corporations Law referred to in the notice provides:

“229(3)  A person who has, whether before or after the commencement of this Part, been convicted:

(a)on indictment of an offence against an Australian law, or any other law, in connection with the promotion, formation or management of a body corporate or corporation; or

(b)of serious fraud; or

(c)of any offence for a contravention of section 232, 590, 591, 592, 595, 996 or 1307, of Part 6.6, of Division 2 of Part 7.11, or of a previous law corresponding to any of those provisions; or

(d)of an offence of which the person is guilty because of subsection 1317FA(1);

shall not, within 5 years after the conviction or, if the person was sentenced to imprisonment, after release from prison, without the leave of the Court, manage a corporation.”

The respondent did not appear for the examination. Instead, her solicitors wrote to the ASC asserting that the notice was invalid because
it did not state the “general nature” of the matter which the ASC was investigating or was to investigate as is required by s.19(3) of the ASC law. The procedure available to the ASC in respect of non-compliance with a s.19 notice is contained in s.70 of the ASC law. It provides:

“70(1)  This section applies where the Commission is satisfied that a person has, without reasonable excuse, failed to comply with a requirement made under this Part (other than Division 8).

70(2)  The Commission may by writing certify the failure to the Court.

70(3) If the Commission does so, the Court may inquire into the case and may order the person to comply with the requirement as specified in the order.”

On 10 July 1996, the ASC filed a certificate under s.70(2) of the ASC law certifying the failure of the respondent, without reasonable excuse, to comply with the notice. As a result, under s.70(3) of the ASC law, the Court may now inquire into the case and may make orders requiring the attendance of the respondent at the offices of the applicant for examination pursuant to the notice.

I now turn to the issue of the validity of the notice served on the respondent. The respondent was represented by Mr Cawthorn of counsel, who put three arguments against the validity of the notice. I will deal with each argument in turn.

“THE MANAGEMENT OF THE AFFAIRS”

It was contended that the phrase “the management of the affairs” used in the notice was too broad to constitute compliance with s.19(3) of the ASC law. Counsel for the respondent relied on some observations of Lockhart J in Johns v Connor (1992) 35 FCR 1 concerning the use of the word “affairs” in a notice given under s.19. His Honour said, at 12:

“‘Affairs’ is a word of very wide import. In its ordinary meaning ‘affairs’ in relation to a corporation includes the activities, business or concerns of the corporation.”

Further, at 13, he said:

“The use of the word ‘affairs’ in the notice does little, if anything, to specify or identify what the investigation is about. The only words of limitation appearing in the notice are those of temporality.”

Finally, at 14, he said:

“In my opinion the notice does not state the ‘general nature of the matter referred to in subsection (1)’ as required by s.19(3). It says nothing about any possible contravention that some company or person may have committed or the particular ‘affairs’ that are the subject of investigation. It may be contrasted with the form of the notice issued in Little River Goldfields NL.”

The notice in Johns required the person to whom it was directed to appear for examination “In relation to an investigation into the affairs of Hotel and Immobilien Development AG (‘HMI’) covering the period 20 December 1991 to 31 March 1992 ....” His Honour’s observations concerning the reference to the affairs of the company were made in the context of a notice which gave no further description of the nature of the investigation being undertaken or to be undertaken by the ASC. The case is authority for the proposition that a reference in a notice to an investigation into the affairs of a company generally will not, on its own, amount to a statement of the general nature of the investigation as required by s.19(3). There is a strong suggestion by his Honour that a reference in a notice to an investigation into the affairs of a company in
respect of an offence under a specific section would state the general nature of the investigation. He said, at 13:

“A notice is not a pleading. But some general hint must be given in the notice itself of the nature of the matter to be investigated by the inspector. In some cases this will call for the statement of the possible offence with reference to the section of the particular statute; in other cases this may not be necessary, though generally it would be. The notice the validity of which was challenged before Davies J in Little River Goldfields NL (supra) (at 303) (but not on any point relevant to the present proceeding) referred to ‘an investigation of suspected offences which may have been committed pursuant to s.128 of the Securities Industry (NSW) Code in respect of dealings in securities of Little River Goldfields NL during the period February 1988 to February 1990 inclusive’. This is the kind of statement that one would expect to find in a notice given pursuant to s.19 and would generally be a sufficient, though minimal, statement of the ‘general nature of the matter referred to in subsection (1)’ as required by s.19(3). After all, the ASC must have reason to suspect that there may have been committed a contravention of the relevant law before its power to conduct an investigation pursuant to s.13(1) is enlivened. It is not asking too much that it states the general nature of the matter that it is investigating in the notice itself.”

The critical difference between Johns and the present case is that the reference to “the management of the affairs” of the companies in the present case is part of a composite expression which includes the words “with respect to a breach of s.229(3) of the Corporations Law”. These words explain the nature of the investigation into the management of the affairs of the companies. They import a reference to the terms of s.229(3) of the Corporations Law, which is set out earlier in these reasons. In Johns, the reference to an investigation into the affairs of the company did not explain the nature of the investigation. There was no reference to an offence under any section to which the investigation was directed or was to be directed.

Thus, I reject the argument that the notice fails to state the general nature of the investigation by virtue of its reference to the management of the affairs of the specified companies.

FAILURE TO IDENTIFY THE CONDUCT BEING INVESTIGATED UNDER s.229(3) OF THE CORPORATIONS LAW

Next, counsel for the respondent contended that the notice failed to describe the conduct being investigated under s.229(3). What was necessary was a summary of the conduct as provided, for example, in the notices which were dealt with in Little River Goldfields NL v Moulds (1991) 32 FCR 456. In that case, the various notices required the attendance of persons in respect of :

“an investigation of suspected offences which may have been committed pursuant to s.128 of the Securities Industry (NSW) Code in respect of dealings in securities of Little River Goldfields NL during the period February 1988 to February 1990 inclusive”.

In my view, the composite expression used in the present case, namely, “in relation to the management of the affairs of .... with respect to a breach of s.229(3) of the Corporations Law” achieves the same description of the general nature of the investigation as did the expression “suspected offences which may have been committed pursuant to s.128 of the Securities Industry (NSW) Code in respect of dealings in securities ....”  It is doubtful whether the words descriptive of the conduct proscribed by the section add significantly to the reference to the section creating the offence. This is particularly so in the case of s.229(3) which creates an offence with a limited number of alternative elements, each of which is very precisely defined. In other words, a reference to the section as the object of the investigation gives a specific and narrow reference to the nature of the investigation. Where an offence
referred to in the notice is broader in its scope, for instance, a reference to the commission of an offence of conspiracy, the notice may need to narrow the reference to the section by including some words of limitation or explanation more narrowly defining the nature of the investigation.

Thus, I reject the contention that the notice fails to state the general nature of the investigation by failing to summarise the conduct being investigated beyond the description of the management of the affairs of the companies with respect to a breach of s.229(3) of the Corporations Law.

FAILURE TO IDENTIFY THE PERSONS SUSPECTED OF ACTING IN BREACH OF s.229(3)

Finally, counsel contended that the notice did not state the general nature of the investigation in the absence of a reference to the identity of the persons alleged to have acted in breach of s.229(3). This very argument was rejected by French J in Stockbridge v Ogilvie (1993) 10 ACSR 688, in relation to a notice reproduced, at 693, which required attendance:

“In relation to an investigation of

suspected contraventions of s.227(2) of the Companies (WA) Code and/or s.229(3) of the Corporations Law between August 1989 and 7 December 1992 in respect of the companies listed in the schedule marked ‘A’ attached to this notice (the Companies) and,

suspected contraventions of ss.43 and 45 of the Securities Industry (WA) Code and/or ss.780 and 781 of the Corporations Law between September 1988 and 5 February 1993”.

Significantly, for the purposes of this case, the notice related to suspected contraventions of s.229(3) of the Corporations Law. His Honour held the notice valid. One argument which had been put in favour of invalidity was described by his Honour, at 694, as follows:

“It was submitted that none of the notices in this case makes any reference to the person whose conduct is being investigated. The identity of such a person is an essential element of the contravention under investigation. The omission to make reference to the suspected contravenors is said to constitute a failure to comply with s.19(3).”

His Honour concluded, at 697:

“In my opinion, whatever the level of generality which will comply with s.19(3), there is no requirement implicit in the section as expounded in the authorities to which I have referred which would require identification of the person or persons suspected of any contravention under investigation when a notice issues. The matter under inquiry may involve the commission of a contravention, in respect of which the identity of the contravenors is uncertain. In my opinion, the applicants fail on this limb of their argument.”

Counsel for the respondent contended that French J should be regarded as having held that the identity of the suspect need not be revealed only if the ASC was uncertain as to identity of the suspect. He further contended that the ASC must have been aware of the identity of the suspect in this case and, consequently, it was bound to include the identity in the notice. It is, however, clear that French J did not base his conclusion on the state of the actual knowledge of the ASC as to the identity of the suspect because, in Stockbridge, the identity of the suspect was known (see 689).

In reaching this conclusion, French J adopted the reasoning of Jenkinson J in Australian Securities Commission v Graco (1991) 29 FCR 491 which had also been adopted by Lockhart J in Johns. The following extracts from the judgment of Lockhart J in Johns, at 12 and 13, indicate the reasoning:

“In Australian Securities Commission v Graco (1991) 29 FCR 491 Jenkinson J discussed the meaning of the word ‘matter’ where it appears in Divs 1 and 2 of Pt 3 of the ASC Act, in particular ss.19(3) and 14. .... his Honour said (at 497-498):

‘In Divs 1 and 2 of Pt 3 of the Australian Securities Commission Act the word has, in my opinion, another of its meanings: a subject, as of discussion or debate or for consideration or investigation. The language of s.14 in my opinion gives no indication that that sense of the word would not comprehend “the affairs, or particular affairs, of a corporation”.’

I agree in substance with what Jenkinson J said. The language of s.19(1) and (3) indicate to me that the ‘matter’ to which they are referring is the subject of the investigation by the ASC; and that is defined by s.13(1) as an investigation by the ASC as to whether a contravention of the kind to which the section is directed may have been committed.

......

I agree, however, with Jenkinson J where he said in Graco (at 495) that the requirement imposed by s.19(3) that the notice shall state the ‘general nature of the matter’ referred to in s.19(1) ‘invites both comprehensiveness and brevity in description of the matter, and gives no encouragement to definitional particularity’.

......

I agree with Jenkinson J in Graco (at 495) that a notice issued pursuant to s.19 of the ASC Act does not have to state matters designed to provide a means of determining the relevance of questions for the purpose of s.21(3) (which empowers the inspector to require the examinee to answer relevant questions put to him at the examination). A notice is not a pleading.”

This reasoning relies on three considerations which are relevant to the determination of whether a notice states the “general nature of the matter”, namely, the scope of the word “matter” as used in the phrase, the characterisation of its “general nature”, and the view that a notice is
not required to state matters so as to enable the examinee to determine the relevance of questions put in the examination.

I agree that the first and second considerations govern the application of the phrase “general nature of the matter”. Further, in my view, these two considerations determine that a statement of the identity of the suspect in the present case is not a requirement of a valid notice. Thus, the general nature of the matter in this case is sufficiently stated by a reference to the corporation under investigation, a reference to the temporal limits of the conduct being investigated, and a reference to the section the contravention of which is under consideration.

I have reservations about the third consideration. It may go too far to say that a notice does not have to state matters in a way which will provide a means of determining the relevance of questions in the examination. The notice is served to secure attendance at an examination which has a defined scope. The purpose of the examination is advanced if the examinee comes prepared. To do so, the examinee must be told of the purpose of the examination in such a way that the examinee can be prepared. In this sense, the requirement that the general nature of the investigation be stated in the notice seems to involve the provision of such information as to allow the examinee to determine the likely questions to be asked. As neither Graco nor Johns depended on an application of this consideration, the issue is not finally determined.

The requirements of s.19(3) relating to the contents of the notice are doubtless designed to provide the ASC with a great degree of flexibility in its investigatory role. But it is not an unrestricted flexibility. Had that been intended, the ASC would have been given power to summon persons without having to state the purpose of the summons. The power
to command attendance at an examination is a mighty power. Not only does it interfere with a citizen’s general interest in privacy and liberty, but it abrogates, albeit to a defined degree, the citizen’s right to remain silent. The requirement that the notice define the general nature of the matter under investigation or to be investigated appears to be a legislative attempt to protect the interest of a citizen in knowing the purpose for which a public agency may be requiring the citizen’s attendance for examination. Given the intrusion into the life and affairs of a citizen which the examination entails, it is not likely that the legislature intended to preclude a court, in determining whether the notice states the general nature of the investigation, from considering whether a notice forewarns the examinee of the likely questions to be asked.

In 1984, the National Crime Authority was given an analogous power to summon citizens by s.28(1) of the National Crime Authority Act 1984 (“the NCA Act”). The requirements of the summons are contained in s.28(3) as follows:

“A summons under subsection (1) requiring a person to appear before the Authority at a hearing shall, unless the member issuing the summons is satisfied that, in the particular circumstances of a special investigation to which the hearing relates, it would prejudice the effectiveness of the special investigation for the summons to do so, set out, so far as is reasonably practicable, the general nature of the matters in relation to which the Authority intends to question the person, but nothing in this subsection prevents the Authority from questioning the person in relation to any matter that relates to a special investigation.” (emphasis added)

Of course, it may be that the passing of s.19(3) of ASC law in 1989 in different terms indicates a legislative intention that the requirement of summons under the ASC law was to be different from the requirement of
a summons under the NCA Act. An alternative view is that s.19(3) expresses in a shorter style the same requirement as expressed in a fuller style in s.28(3) of the NCA Act. But as this is an open question, and an answer is not required for the resolution of this case, it is not necessary that I express a final view on it.

For these reasons, the application is allowed with costs. I will make an order that the respondent attend the offices of the applicant, at a time and date which I will fix after hearing the parties on the question, unless the parties agree on a suitable time and date and advise the Court so that the time and date may be fixed by a consent order.  

I certify that this and the preceding twelve (12) pages are a true copy of the reasons for judgment of his Honour Justice North.

Associate:
Dated:     

Solicitor for the applicant:               P. Hiland, Australian Securities Commission

Counsel for the respondent:            P. Cawthorn

Solicitors for the respondent:          Voitin Walker Davis

Date of hearing:  23 August 1996
Date of judgment:  21 November 1996