Australian Securities Commission v Graco

[1991] FCA 311

Re: AUSTRALIAN SECURITIES COMMISSION
And: GARY FRANCIS GRACO
No. V G3026 of 1991
FED No. 311
Corporations
5 ACSR 1/9 ACLC 828
29 FCR 491

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Jenkinson J.(1)

CATCHWORDS

Corporations - Companies - Administration of companies legislation - In general - Australian Securities Commission - Power to require attendance before member or staff member of Commission for examination in connection with investigation - Form of notice to attend - Notice to state the "general nature of the matter" to be investigated - Sufficiency of statement considered.

Australian Securities Commission Act 1989 - Divisions 1 and 2 of Part 3

HEARING

MELBOURNE

#DATE 12:6:1991

Counsel for the Applicant: Mr P.G. Nash QC and Mr R.M. Downing

Counsel for the Respondent: Mr A.C. Archibald QC and Mr M.W. Shand

Solicitor for the Applicant: Regional General Counsel for Victoria,

Australian Securities Commission

Solicitor for the Respondent: Ebbsworth and Ebbsworth

JUDGE1

Inquiry pursuant to s.70(3) of the Australian Securities Commission Act 1989 as to whether the respondent should be ordered to comply with a requirement made of him by the Australian Securities Commission ("the Commission") to give to the Commission all reasonable assistance, and to appear before a specified staff member of the Commission for examination on oath and to answer questions, in connection with an investigation by the Commission in Victoria.

1. Part 3 of the Australian Securities Commission Act 1989 ("the Act'), which has for heading the words "Investigations And Information - Gathering", commences with the following section:
   

"13(1) 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. 13(2) Where the Commission has reason to suspect that unacceptable circumstances within the meaning of Part 6.9 of the Corporations Law of this jurisdiction have, or may have, occurred, the Commission may make such investigation as it thinks expedient:

(a) for the purposes of determining whether or not to make an application under subsection 733(1) or 734(2) of that Law; or

(b) otherwise for the due administration of a national scheme law. 13(3) Where the Commission has reason to suspect that a contraventi on of a relevant previous law of this jurisdiction may have been committed, the Commission may make such investigation as it thinks appropriate. 13(4) Neither of subsections (1) and (3) limits the generality of the other.

13(5) Where:

(a) immediately before the commencement of this subsection, the NCSC was investigating a matter under a relevant previous law of this jurisdiction; and

(b) either or both of subsections (1) and (3) empower the Commission to investigate the matter;

then

(c) the Commission may continue the NCSC's investigation of that matter; and

(d) the investigation, as continued by the Commission, is taken to be an investigation under that subsection, or each of those subsections, as the case may be."

The expression "national scheme law" is defined in s.5(1) of the Act to mean:

"(a) the following:

(i) the Corporations Act 1989;

(ii) the Corporations Law of the Capital Territory;

(iii) this Act; or

(b) a law of another jurisdiction that corresponds to an Act or Law referred to in paragraph (a)."

1. The expression "national scheme law of this jurisdiction" is defined in s.5(1) to mean "an Act or Law referred to in paragraph (a) of the definition of `national scheme law' in this subsection". But in the Corporations Act of each State it is provided that the Australian Securities Commission Act 1989, other than certain excluded provisions of the Act which are immaterial for present purposes, applies as a law of that State, and that in that application the expression "this jurisdiction" in the Act means that State. Section 5(2) of the Act provides:
   

"Subject to this Act, an expression has the same meaning in this Act as in the Corporations Law of the Capital Territory."

In that Corporations Law the word "jurisdiction" is defined to mean "a State or the Capital Territory", and the expression "relevant previous law" is defined to mean, in relation to a jurisdiction-

"(a) in the case of the Capital Territory - a relevant Act within the meaning of the Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980; and

(b) in the case of any other jurisdiction - a relevant Code within the meaning of a law of that other jurisdiction."

The letters "NCSC" are in that Corporations Law defined to mean the National Companies and Securities Commission.

1. Patrick John Whitehouse, in exercise of a function delegated to him by the Commission in pursuance of s.102 of the Act, "resolved to commence", as he swore, investigation which he conceived to be "pursuant to" s.13 of the Act. Terry Peter Dalziel, in exercise of a function or power delegated to him by the Commission in pursuance of the same section, undertook the making of that investigation. No point was taken in this proceeding by counsel for the respondent that the evidence seemed to suggest that one delegate conceived himself to have reason to suspect that contraventions of certain provisions of a national scheme law may have been committed and resolved to commence the investigation and another delegate undertook the making of the investigation; and I pass it by.

2. The requirement made of the respondent was by a written notice for the giving of which s.19 of the Act provides, in these terms:
   "(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.

(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.

(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."

Section 13 is the first section of Division 1, which has for heading the word "Investigations". Section 19 is the first section of Division 2, the heading of which is "Examination of persons". The notice addressed, and given, to the respondent was in the form prescribed by the Australian Securities Commission Regulations. The respondent declined to comply with the requirements communicated by the notice, and in particular declined to appear before Mr Dalziel for examination. Section 63(1) of the Act provides that a person shall not, without reasonable excuse, fail to comply with a requirement made under s.19, and prescribes a penalty of $10,000 or imprisonment for 2 years, or both, for contravention. Section 70 provides:

"(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).

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

(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."

Section 70 is within Part 3 of the Act. The respondent's failure to comply with the requirement to appear for examination pursuant to the notice has been certified to the Court by writing. Mr Whitehouse made the certificate in exercise of power delegated to him by the Commission. The cause asserted on the respondent's behalf by Mr Archibald QC, who appeared with Mr Shand, for the respondent's failure to appear in compliance with the requirement of the notice was that the notice was not a valid exercise of the power conferred by s.19(2) because the notice failed to satisfy the requirement prescribed by paragraph 19(3)(a). The prescribed form of notice makes provision for compliance with that requirement by a phrase, prefatory to the words "you are hereby notified", in these terms : "In relation to an investigation of......" A footnote directs the insertion, after those words, of "the nature of the matter to which the investigation relates". In the notice given to the respondent the words inserted are "Titan Hills Australia Ltd."

1. Mr Archibald's submission founded upon the provision which defines the power conferred upon the person who conducts the examination on oath which paragraph 19(2)(b) contemplates. In Division 2 of Part 3 that person is called the "inspector" and the person who appears before him for examination pursuant to a requirement made under s.19(2) is called the "examinee". (See s.20.) Section 21(1) empowers the inspector to require the examinee to either take an oath or make an affirmation. Section 21(3) provides:
   

"The inspector may require the examinee to answer a question that is put to the examinee at the examination and is relevant to a matter that the Commission is investigating, or is to investigate, under Division 1."

The extent of the power thereby conferred is defined by reference to the relevance of the question, put to the examinee, to "a matter that the Commission is investigating, or is to investigate, under Division 1". What paragraph 19(3)(a) requires is in Mr Archibald's submission to be determined with due regard to the significance which the operation of s.21(3) attaches to ascertainment of the "matter that the Commission is investigating, or is to investigate". Only when the examinee has ascertained what that "matter" is can he know whether or not a question put to him by the inspector is one to which the inspector has power to require his answer. Just as a notice under s.155(1) of the Trade Practices Act 1974 is invalid unless its content discloses the "matter" relating to which are the documents or information required by the notice so that the person to whom the notice is directed may judge whether that relationship between matter and document or information exists, so in Mr Archibald's submission the "matter" the subject of investigation must be disclosed to the examinee before he is required to answer a question. (See, as to s.155(1), Bannerman v Mildura Fruit Juices Pty. Ltd. (1984) 55 ALR 367.)

1. Assuming, for the purposes of the argument, the correctness of those submissions, I turn to the next proposition advanced by Mr Archibald, that the purpose, or one of the purposes, of the requirement in paragraph 19(3)(a) is that the disclosure, of the matter being, or to be, investigated, which according to the last preceding submission is required, should be effected by making the disclosure in the notice.

2. I cannot accept that submission. The contrast which the phrase "state the general nature of the matter" makes with a conception which requires description of that matter to enable a determination to be made of the relevance of a question to the matter is striking. In its context the expression "general nature" invites both comprehensiveness and brevity in description of the matter, and gives no encouragement to definitional particularity. It is in my opinion not an expression indicative of a legislative intention of the kind for which Mr Archibald contended.

3. Sections 23(1) and 68, the effect of which paragraph 19(3)(b) requires that the notice set out, make provision for an examinee's lawyer to be present at the examination and to take some part in it, and provision with respect to acts which might tend to incriminate the person doing those acts under compulsion of provisions of Part 3. In my opinion the legislative intention disclosed in s.19(3) is that the person served with a notice may be forewarned of circumstances likely to make it desirable that in his own interest he consider before the day fixed by the notice for his examination whether he should take legal advice and whether he should have his own lawyer present at the examination. It accords with that intention that the "general nature of the matter" being investigated, or to be investigated, should be disclosed in the notice. And it is, I think, not surprising that no more specific or detailed information about that "matter" was required to be disclosed.

4. There is in my opinion a further consideration against a conclusion that the statement required by paragraph 19(3)(a) was designed to provide a means of determining relevance of questions for the purpose of s.21(3). While it is unwise to express any concluded opinion on the point, I think that the nature of the function conferred by s.13(1) would move a court strongly to a construction of that sub-section which would authorise the Commission to change the "matter" under investigation as information from time to time derived from the investigation gave it reason to change its opinion as to what was "expedient for the due administration of a national scheme law". If the investigation of a "matter" afforded the Commission reason to suspect that there may have been committed a contravention of a kind specified in the lettered paragraphs of s.13(1) which had not been suspected when the investigation commenced, that would no doubt enliven again the power conferred by the sub-section. But, even if no such a suspicion was engendered by the investigation, a construction of s.13(1) which would authorise a modification from time to time of what the Commission should think expedient, and so a modification of "the matter" to be investigated, would in my opinion accord well with the legislative purpose in conferring investigative power of the kind described in the sub-section. If such a construction were adopted, definition or description of "the matter" for the purposes of s.21(3) would not be possible until the question, the relevance of which fell for determination, was asked, for the content of "the matter" might have changed after service of the notice.

5. The statement made in the notice of "the general nature of the investigation" may fairly be said to carry generality and brevity of description to an extreme. Mr Nash QC, who appeared with Mr Downing for the applicant, submitted that the words "investigation of Titan Hills Australia Ltd." would, in the legal context in which the notice has its being, be understood to mean "investigation of the affairs of Titan Hills Australia Ltd." If the submission be accepted, very little is added to the statement. Mr Archibald submitted that the expression, "the affairs of" a corporation, was not a description of anything which might constitute a "matter" within the meaning of the latter word in Part 3. He supported the submission by reference to s.14, which provides:
   "(1) Where, in the Minister's opinion, it is in the public interest in
   

respect of this jurisdiction for a particular matter to which subsection (2) applies to be investigated, he or she may by writing direct the Commission to investigate that matter.

(2) This subsection applies to a matter relating to any of the

following, whether occurring, or alleged to have occurred, within this jurisdiction or elsewhere:

(a) an alleged or suspected contravention of a national scheme law or of a relevant previous law of a jurisdiction;

(b) an alleged or suspected 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;

(c) the affairs, or particular affairs, of a corporation;

(d) dealing in securities;

(e) dealing in futures contracts;

(f) the establishment or conducting of a stock market or futures market;

(g) the provision of clearing house facilities for a futures market;

(j) the giving of advice, analyses or reports about securities or futures contracts.

(3) The Commission shall comply with a direction under subsection (1).

(4) A direction under subsection (1) does not prevent the Commission

from delegating a function or power."

The terminology of paragraph 14(2)(c) showed, in Mr Archibald's submission, that the affairs of a corporation might be the subject of relationship to a "matter", but showed also that the legislative concept of "a matter" did not include that which the words "the affairs, or particular affairs, of a corporation" describe.

1. I do not accept the submission. Section 14 takes for its subject "a particular matter to which subsection (2) applies" and s.14(2) then limits its application to "a matter", which must be "a particular matter", "relating to" any of the subjects described in its lettered paragraphs. To say of two subjects that they relate one to the other, one being described as "a matter" or as "particular matter" and the other by other words, is not in my opinion necessarily to indicate that that other is not within the meaning the speaker attributes to "a matter" or to "a particular matter" as the case may be. In W.A. Pines Pty. Ltd. v Bannerman (1980) 30 ALR 559 at 565-566 Brennan J. attributed to the word "matter" in s.155(1) of the Trade Practices Act 1974 the meaning he described thus:
   

"`Matter', said Franki and Northrop JJ in Melbourne Home of Ford Pty. Ltd. v Trade Practices Commission (1979) 5 TPC 26 at 47; ATPR 40-10 7 at 18,097 `is to be construed in its ordinary sense of an affair or a thing'. It refers to a body of facts, a body of facts which `constitute' or `may constitute' a contravention. A contravention is constituted by the conduct of persons (whether corporate or natural) and the factual circumstances attendant upon conduct, so the `matter' to which s.155(1) refers comprehends the conduct of persons and the circumstances attendant upon it. Whether or not the relevant body of facts constitutes a contravention is a matter of law, and that question does not turn upon the perception or knowledge of the facts held by the Chairman or any other person. But when the section speaks of a matter which `may constitute' a contravention, it speaks not of the relevant and entire body of facts as they exist or have existed - for that body of facts either does or does not constitute a contravention - but of a body of facts which are not fully known and which, if and when they are fully known, may reveal themselves as constituting a contravention. A `matter that may constitute a contravention' is the facts being investigated, some of which are not known by the Commission, the Chairman or the Deputy Chairman. However, a `matter that may constitute a contravention' does not take its character from the belief of the Commission, the Chairman or the Deputy Chairman, but from the nature and quality of the facts as they are or have been and as they may reasonably be suspected to be or to have been. A matter which `may constitute' a contravention also encompasses future facts, that is, facts which will occur or the future occurrence of which may reasonably be suspected. The character of the matter is determined objectively, and if it could be shown that a contravention would not be constituted by a concatenation of facts which exist or have existed and facts which might reasonably be suspected to exist or to be about to exist or to have existed, there would be no `matter' relating to which a person could furnish information etc, as provided for by s.155(1)."

But that meaning was derived from the collocation of words, "furnishing information, producing documents or giving evidence relating to a matter that constitutes, or may constitute, a contravention of this Act". In Divisions 1 and 2 of Part 3 of the Australian Securities Commission Act 1989 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".

1. Mr Whitehouse deposed that "as a result of preliminary enquires and information received in relation to the affairs of Titan Hills Australia Ltd, I resolved to commence an investigation pursuant to Part 3 of the Australian Securities Commission Act 1989. Now produced and shown to me and marked with the letters `PJW 1' is a true copy of a file note to this effect dated 3 May 1991." The exhibit PJW 1 reads:
   

"After having reviewed material received from the Surveillance Division of the Australian Stock Exchange Ltd and reports and affidavits received from Messrs Spark and Selak from Ferrier Hodgson and Company relating to a proposed takeover of Precision Data Holdings Ltd by Titan Hills Aust Ltd, I have formed the view that there is reason to suspect that breaches of Sections 995(2)(b)(iii), 232(6) 999 1308(4) 1309(2)(c) of the Corporations Law may have been committed by the directors of Titan Hills Aust Ltd and Section 997 of the Corporations Law by Dabby Pty Ltd.

I therefore approve of an investigation pursuant to Section 13 of the ASC Law."

There was no direct evidence either that the Commission or its delegate had conceived the suspicion described in s.13(1) or that the Commission or its delegate had had reason to conceive such a suspicion. Findings to that effect must rest on the unsatisfactory basis of inference. (Cf NCSC v Simm (1986) 10 ACLR 515; Sim v NCSC (1988) 13 ACLR 191.)

1. Mr Archibald submitted that the authority conferred on the Commission by s.13(1) was limited to the making of such an investigation as it should think expedient for the due administration of a national scheme law, being such an investigation as might fairly be thought likely to concern the suspected contravention. The submission was advanced in support of the conclusion, for which Mr Archibald contended, that a description of the "matter", which the Commission's delegate is in this case investigating, in the terms "in relation to Titan Australia Ltd." could not be regarded as a statement of the "general nature" of that matter.

2. What the relationship is that must subsist between the investigation and the suspicion which has provided the occasion for the exercise of the power conferred by s.13(1) may prove not an easy question. It was not the subject of detailed submission. I think it unnecessary, and unwise to attempt an answer to the question in this inquiry. Even if Mr Archibald's submission on the question be assumed to be correct, the statement of the general nature of the matter which is being investigated has not been shown, except in one respect, to be so inadequate as to justify the conclusion that the requirement of s.19(3)(a) has not been complied with. All that can be inferred about the suspicion is that it is of misleading conduct on the part of the directors of Titan Hills Australia Ltd. in connection with, or having an effect on, a proposed takeover by that company of Precision Data Holdings Ltd., and of transactions in securities of a body corporate, to which Dabby Pty. Ltd. may have been a party, having or likely to have the effect of reducing the price of securities of that body corporate on a stock market. Even if Mr Archibald's submission be assumed to be correct, an investigation of Titan Hills Australia Ltd. during a particular period might be a matter having the connection with suspicions of that kind which in Mr Archibald's submission is required by s.13(1).

3. There would, however, be some temporal boundaries of the subject of an investigation originating in suspicion of conduct connected with "a proposed takeover". I was informed by Mr Archibald, with the acquiescence of Mr Nash, that the life of Titan Hills Australia Ltd. was to be measured in years and that during that life the business and control of the company had changed a substantial time before any takeover of Precision Data Holdings Ltd. was contemplated. It may in my opinion be safely inferred that the investigation proposed is not of that company throughout its life. The failure to include in the statement required by s.19(3)(a) any temporal limit leads in my opinion to the conclusion that there was a failure to comply with that requirement.

4. The case was argued on the assumption that the conclusion I have stated would lead in turn to the conclusion that the notice was invalid and of no legal effect. Even if that assumption were incorrect, s.70(3) confers a discretionary power. The few facts disclosed by the evidence in this case provide no basis for an exercise of that discretion in the Commission's favour. The proceeding will be dismissed.