Australian Stock Exchange Ltd v McLachlan - [2002] NSWCA 374

No judgment structure available for this case.

Reported Decision:
(2003) 43 ACSR 362
(2003) 21 ACLC 250

New South Wales

Court of Appeal

CITATION: Australian Stock Exchange Ltd v McLachlan [2002] NSWCA 374

FILE NUMBER(S): CA 40071/02

HEARING DATE(S): 17/06/02

JUDGMENT DATE:
19 November 2002

PARTIES :

Australian Stock Exchange Ltd (Appellant)
Malcolm Boyd McLachlan (Respondent)

JUDGMENT OF: Mason P at 1; Heydon JA at 2; Hodgson JA at 98

LOWER COURT JURISDICTION : Supreme Court

LOWER COURT
FILE NUMBER(S) : SC 5076/00

LOWER COURT
JUDICIAL OFFICER : Santow J

COUNSEL: Mr J Griffiths SC (Appellant)
Mr A S Bell (Respondent)

SOLICITORS: Allens Arthur Robinson (Appellant)
Tress Cocks & Maddox (Respondent)

CATCHWORDS: Corporations - listed companies - ASX Business Rules - "Affiliates" and "Participating Organisations" of ASX - breach of Rules - construction - Rule 13.5.1(4) - Rule permitting ASX to charge "an Affiliate or Participating Organisation" with breach of Rules or Prohibited Conduct - meaning of "or" - conjunctive or disjunctive interpretation - purpose of Rule - whether punitive or protective - ND

LEGISLATION CITED: Corporations Act 2001

CASES CITED:
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
Tesco Supermarkets Ltd v Nattrass [1972] AC 153
Trade Practices Commission v Tubemakers of Australia Ltd (1983) 76 FLR 455

DECISION: See paragraph 97

CA 40071/02
SC 5076/00

MASON P
HEYDON JA
HODGSON JA
19 November 2002

AUSTRALIAN STOCK EXCHANGE LTD v McLACHLAN

Corporations – listed companies – ASX Business Rules – “Affiliates” and “Participating Organisations” of ASX – breach of Rules – construction – Rule 13.5.1(4) – Rule permitting ASX to charge “an Affiliate or Participating Organisation” with breach of Rules or Prohibited Conduct – meaning of “or” – conjunctive or disjunctive interpretation – purpose of Rule – whether punitive or protective

From 1964 to 1987 Malcolm McLachlan was a member of the Stock Exchange of Adelaide Ltd; from 1987 to 13 October 1998 he was a member of the ASX; and from 13 October 1998 he was an “Affiliate” of ASX. At all material times up to 13 October 1998 Thompson Brindal Ltd (“TBL”), a stockbroking firm based in Adelaide, was a member organisation of ASX; and from 13 October 1998 until about 1 February 1999 it was a Participating Organisation of ASX. At all material times Malcolm McLachlan was the Managing Director of TBL.

Under Article 51 of its Articles, ASX charged TBL with Prohibited Conduct within the meaning of the ASX Business Rules in relation to investment behaviour engaged in during the period August 1991-October 1992. It also charged Malcolm McLachlan with Prohibited Conduct which “arose out of the same facts and events”. The National Adjudicatory Tribunal of the ASX fined TBL $100,000 for breach of the Rules. At a separate hearing the Tribunal found (1) Malcolm McLachlan liable to pay part of TBL’s commission to the NAT and (2) that the NAT could not fine him separately in view of the fine imposed on TBL because of Business Rule 13.5.1(4). An appeal to the ASX’s Appeal Tribunal was successful. Upon the Appeal Tribunal’s construction of Rule 13.5.1(4) McLachlan was liable to be fined separately for breach of the Rule. The ASX initiated Supreme Court proceedings when payment of the $100,000 imposed on McLachlan on appeal was not made, seeking a declaration that the construction of Rule 13.5.1(4) given by the Appeal Tribunal was correct.

(Heydon JA, Mason P and Hodgson JA agreeing), allowing the appeal,

Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd

Tesco Supermarkets Ltd v Nattrass

Trade Practices Commission v Tubemakers of Australia Ltd

O R D E R S

CA 40071/02
SC 5076/00

MASON P
HEYDON JA
HODGSON JA

19 November 2002

AUSTRALIAN STOCK EXCHANGE LTD v McLACHLAN

Judgment

1 MASON P: I agree with Heydon JA.

2 HEYDON JA: This is an appeal from orders made by Santow J on 19 December 2001 dismissing an Amended Summons with costs. By that Amended Summons the plaintiff/appellant (“ASX”) sought orders the effect of which would have been to compel the defendant/respondent (“Malcolm McLachlan”) to pay a $100,000 fine imposed on him by the ASX’s Appeal Tribunal.

Background

3 From 1964 to 1987 Malcolm McLachlan was a member of the Stock Exchange of Adelaide Ltd; from 1987 to 13 October 1998 he was a member of ASX; and from 13 October 1998 he was an “Affiliate” of ASX.

4 At all material times up to 13 October 1998 Thompson Brindal Ltd (“TBL”), a stockbroking firm based in Adelaide, was a member organisation of ASX; and from 13 October 1998 until about 1 February 1999 it was a Participating Organisation of ASX.

5 At all material times Malcolm McLachlan was the Managing Director of TBL.

6 In the period August 1991-October 1993 TBL traded in shares and options on behalf of Retireinvest Pty Ltd, an investment planning company, for individual investors known as “the Retireinvest Clients”. Substantial trading losses were incurred.

7 On 12 January 1998, under Article 52 of its Articles, ASX charged TBL with Prohibited Conduct in relation to the Retireinvest Clients, together with thirteen other charges that TBL had breached the ASX Business Rules.

8 On 12 January 1998 ASX also charged Malcolm McLachlan with Prohibited Conduct in relation to the Retireinvest Clients, but laid no other charges. The charge against him and charge 1 against TBL, it is agreed, “arose out of the same facts and events”, to use the words of ASX’s Appeal Tribunal in a determination dated 22 May 2000 signed by its Chairman, Mr R I Barrett (as he then was).

9 On 21 December 1998 the ASX’s National Adjudicatory Tribunal (“the NAT”) noted that the ASX had agreed not to press parts of charge 1, that TBL had agreed not to contest the balance of charge 1, and that the ASX had agreed not to press charges 2-14. The NAT accepted that charge 1 as amended was established. It imposed a fine of $100,000, decided that its decision should be circulated to Participating Organisations, and cancelled recognition of TBL as a Participating Organisation with effect from 1 February 1999.

10 On 31 May and 1 June 1999 a contested hearing of the charge against Malcolm McLachlan took place before the NAT. On 21 July 1999 it determined that the charge was proved and on 18 August 1999 it published detailed reasons for that conclusion.

11 On 13 September 1999 the NAT determined that Malcolm McLachlan should pay a part of the commission earned by TBL to the NAT, and ordered cancellation of his recognition as an Affiliate of ASX. It accepted his submission that in view of the $100,000 fine imposed on TBL, it could not fine him by reason of Business Rule 13.5.1(4). On 7 October 1999 the NAT gave detailed reasons for these conclusions.

12 On 23 December 1999 the NAT concluded that the sum payable by Malcolm McLachlan as part commission was $815,369. It gave detailed reasons for that view on 7 January 2000.

13 On 2 May 2000 the ASX’s Appeal Tribunal heard an appeal by Malcolm McLachlan. On 22 May 2000 it determined that appeal, inter alia, by reversing the order that he pay $815,369, and by ordering him to pay a fine of $100,000. This latter conclusion rested on a construction of Rule 13.5.1(4) which was different from that which the NAT had adopted.

14 On 2 August 2000 the ASX demanded payment of the $100,000 fine within seven days. No payment has been made. The ASX instituted proceedings seeking, inter alia, a declaration that the Appeal Tribunal’s construction of Rule 13.5.1(4) was correct and orders that Malcolm McLachlan pay the fine with interest.

The relevant rules

15 Rule 13.5.1 provides:

13.5 DISCIPLINARY ACTION: BREACH OF RULES, PROHIBITED CONDUCT

13.5.1 BREACH OF RULES OR PROHIBITED CONDUCT

(1) If the Exchange considers that an Affiliate or Participating Organisation should be charged with a breach of any of the Rules or Prohibited Conduct, it shall give the Affiliate or Participating Organisation concerned written notice of the particulars of the charge and of the date (being not less than 7 days after the date when such notice is served) when such charge is to be heard. The Affiliate or any partner, officer, or employee of the Participating Organisation shall, if the Affiliate or such person so wishes, be heard in answer to the charge.

(2) If any partner, officer, employee, Settlement Agent or securities representative of a Participating Organisation does an act which if done or not done (as the case may be) by the Participating Organisation would constitute a breach of the Rules or Prohibited Conduct, such act or omission shall be deemed for the purposes of this Rule 13.5.1 to be the act or omission of the Participating Organisation concerned and dealt with hereunder accordingly.

(a) censure the Affiliate or Participating Organisation; or

(b) impose a fine not exceeding $100,000 upon the Affiliate or Participating Organisation; and/or

(c) suspend the Affiliate or Participating Organisation from all or any of the privileges of the status of Affiliate or Participating Organisation (as the case may be) of the National Adjudicatory Tribunal; and/or

(d) prohibit the Affiliate or Participating Organisation from transacting any business with or through any Participating Organisation for a period not exceeding 3 months upon such terms and conditions as the National Adjudicatory Tribunal thinks fit; and/or

(e) require that the Affiliate or Participating Organisation institute in a form directed by the Exchange or upgrade to the satisfaction of the National Adjudicatory Tribunal, an education and compliance programme designed to prevent future contravention of the Rules by the Affiliate or Participating Organisation and the partners, officers, employees and representatives of the Affiliate or Participating Organisation; and/or

(f) require the Affiliate or Participating Organisation to pay the total commission or gross profit or part thereof arising from the transaction concerned to the National Adjudicatory Tribunal and the National Adjudicatory Tribunal may deal with such amount in such manner as it thinks fit; and/or

(5) ... . "

16 “Affiliate” is defined as meaning “a person who is recognised as and remains recognised as an Affiliate by the Exchange under the Rules”. Rule 5A.1.1(1)-(3) provides:

RECOGNITION

(1) Subject to Rule 5A.1.2 and to payment of the fee under 5A.1.3, the Exchange shall recognise a natural person as an Affiliate provided the requirements specified in Rule 5A.1.1(2) are satisfied and provided the applicant:

(a) has been engaged for an aggregate of not less than two years:

(i) in the business of a Participating Organisation;

(ii) by the Exchange or a related corporation of the Exchange; or

(iii) in the business of any person or entity which is considered by the Exchange to provide substantially equivalent experience to that derived from engagement under sub-paragraph (i) or (ii) above;

commerce, economics, law, accountancy, business administration, banking, secretarial practice or any other qualification considered by the Exchange to be substantially equivalent;

(ii) has successfully completed the following subjects (or their predecessors or successors) conducted by the Securities Institute of Australia or its subsidiaries:

(a) Financial Markets and Economics or Understanding Financial Markets – subject number (C1) or (21C) at the candidate’s option.

(b) Securities Industry Law and Ethics or Understanding Securities Law – subject number (C3) or (22C) at the candidate’s option.

(c) The Australian Stock Market – subject No (25).

(d) Stockbrokers’ Administration Procedures – subject No (27); and

(iii) has, within 3 months prior to lodging with the Exchange an application for recognition as an Affiliate of the Exchange, obtained a pass mark of 65% for the recognition examination set by the Exchange to satisfy the Exchange as to the applicant’s knowledge of the Rules and the customs and usages of the Exchange;

(c) is not an insolvent under administration within the meaning of that expression in the Corporations Law;

(d) is satisfied that the applicant has the required financial resources to meet his or her obligations as an Affiliate; and

(c) applies to be recognised as an Affiliate in accordance with Rule 5A.1.2.

(2) The Exchange shall recognise a natural person as an Affiliate where the applicant meets the requirements specified in Rule 5A.1.1 if the Exchange:

(a) has no reason to believe that the applicant is not of good fame and character and high business integrity;

(b) has no reason to believe that the applicant will not carry out his obligations as an Affiliate efficiently, honesty and fairly;

(c) is satisfied that the applicant intends to devote the substantial part of the working week to the business of a Participating Organisation as a partner, officer, employee or securities representative.

(3) The Exchange may in its discretion recognise a natural person as an Affiliate notwithstanding that the applicant does not satisfy each of the conditions set out in Rules 5A.1.1(1)(a) and (1)(b)(i).”

17 Rule 5A.1.5 provides:

REGISTRATION BY AFFILIATE OF ASSOCIATED PARTICIPATING ORGANISATIONS

An Affiliate shall register with the Exchange the name and address of the Participating Organisation with which he or she is associated. For this purpose an Affiliate is associated with a Participating Organisation if he or she is a partner, officer, employee or securities representative of the Participating Organisation or in the opinion of the Exchange is otherwise associated with the Participating Organisation.”

18 Rule 5A.1.7 provides that the ASX is to maintain a register of Affiliates stating for each Affiliate, among other things, the name and home address of the Affiliate.

19 Rule 5.1 provides:

5.1 RESPONSIBILITY FOR AFFILIATES AND SECURITIES REPRESENTATIVES

(1) Each Participating Organisation shall be responsible to the Exchange for the conduct of:

(a) each securities representative of the Participating Organisation; and

(b) any Affiliate who is associated with that Participating Organisation within the meaning of Rule 5A.1.5,

as provided below in rule 5.1(2).

(2) The Participating Organisation is responsible to the Exchange for:

(a) the compliance by the securities representative or the Associated Affiliate with the provisions of the Rules; and

(b) all debts liabilities and engagements incurred or undertaken by the securities representative or the Associated Affiliate;

in his capacity as a securities representative to or an Affiliate of that Participating Organisation or in any way arising out of his connection with that Participating Organisation.”

20 “Participating Organisation” is defined as meaning:

“(a) a company or partnership that is recognised as and remains recognised as a Participating Organisation under the Rules; or

(b) a natural person who is recognised as a Participating Organisation under Rule 5A.2.6(1) and remains recognised as a Participating Organisation under the Rules.”

21 “Prohibited Conduct” is defined as including:

“(a) conduct which amounts to impropriety affecting professional character and which is indicative either of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to clients or the public;

(b) unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence;

(c) conduct which is or could reasonably be considered as likely to be prejudicial to the interests of the Exchange or its Participating Organisations or Affiliates,

and need not involve a breach of any of the Rules or a contravention of any law.”

The trial judge’s reasons for judgment

22 After a lengthy and careful survey of the background facts, the relevant rules and the competing contentions, the trial judge exposed Rule 13.5.1 to detailed analysis. In understanding his analysis, it is necessary to keep in mind that by the words “common factual matrix” interpretation, he was referring to Malcolm McLachlan’s argument that the proviso to Rule 13.5.1(4) “catches the case where there is an actual charge against a Participating Organisation which derives from, in the sense of arises out of, the same factual matrix as founded the charge against the Affiliate, though the two sets of charges may differ.” By the “broad correspondence” interpretation, he was referring to a variant of that argument, namely that Rule 13.5.1(4) “is to cover the case where there are actual breaches by both Participating Organisation and Affiliate of the Rules, leading to charges under the Rules against both. The proviso to sub-rule (4) then places the $100,000 cap only where the two sets of charges ‘broadly correspond’ as between Participating Organisation and Affiliate; that is, there must be more than a common factual matrix.”

23 The trial judge said:

“I consider interpretation of the proviso in sub-rule (4) is assisted by considering the relationship between sub-rule (4) and the preceding sub-rules of Rule 13.5.1.

either

or

However, the sub-rules which follow then provide a scheme for when charges may be brought against both the Affiliate and the Participating Organisation (as well as either of them). Sub-rule (2) thus permits a charge to be brought purely derivatively in relation to the Participating Organisation to which the relevant ‘partner, officer, employee, Settlement Agent or securities representative’ is connected. These are typically but not inevitably Affiliates. That simply amounts to deemed derivative liability. Sub-rule (2) so understood is therefore the only place where one would expect to find the means for establishing a purely derivative liability on the part of the Participating Organisation. In that context, it is perfectly understandable that purely derivative liability should depend upon the relationship being sufficiently close to the Participating Organisation such as with a partner, officer, employee, etc., without also requiring that such person be an Affiliate.

Sub-rule (4) on the other hand applies to an Affiliate who is also a partner, officer, employee, etc. of the Participating Organisation. It therefore fits into a scheme where derivative liability in the pure sense is already, and only, imposed by sub-rule (2). For sub-rule (4) then to do the same work (posited on pure derivative liability) does not have any logic in such a scheme. This is more especially when sub-rule (4) expressly contemplates two sets of hearings and determinations. This would make no sense at all for a purely derivative liability, where the second hearing would be a repetitious farce.

In taking the ‘broad correspondence’ construction as I do, rather than attributing a broader ambit to the proviso to sub-rule (4) to embrace all cases where the same matrix of fact underlies the charges however differentiated, I must here have regard to the protective purpose of these Rules in regulating Stock Exchange conduct. That is served by the available non-monetary penalties. That protective purpose does not need the additional penalty effect of a multiplicity of $100,000 fines, as would result from splitting the charges between Affiliates and the Participating Organisation. Common factual matrix as a sole test would in practice be unduly lenient. In a broad sense a common matrix of fact would invariably be found, simply by aggregating the overall conduct of all the protagonists and calling it a common matrix. However, the test of ‘broad correspondence’ in the nature of the charges brought by reference to the common underlying conduct is more stringent. Yet it still maintains the policy of avoiding punitive multiple fines exceeding $100,000 in aggregate, where the ‘case’ against Participating Organisation and Affiliate is in that sense sufficiently similar. One might indeed have applied a somewhat more stringent test of ‘substantially similar’, though I would on balance say that goes further than the words require. That said, I doubt its application, if adopted, would produce a different result in the present case … .”

24 He summarised his approach as follows at the end of his reasons for judgment:

“To sum up:

either

or

(b) Sub-rule (2) then is apt to deal exclusively with the purely derivative liability of a Participating Organisation; that is, for breach by a partner, officer, employee, Settlement Agent or securities representative thereof, who typically is, but need not be, an Affiliate. It allows ASX to charge the Participating Organisation, though not itself the party that in fact committed the relevant act or made the omission.

(c) Sub-rule (3)(b) then imposes a fine capped so it does not exceed $100,000 in that class of case.

(d) Sub-rule (4), if simply replicating that effect of sub-rule (2) with its cap in sub-rule (3)(b), would be merely repetitious. There can be no logical basis for a distinction based on sub-rule (4) narrowing the class of case dealt with in sub-rule (2); that is by adding the qualifying ‘Affiliates’ to the various enumerated persons who make up the sub-rule (2) class.

(e) That textual context therefore points to a wider ambit to sub-rule (4). So too does its differing language, particularly the absurdity of duplicating hearing and determination for what (on that hypothesis) was a purely derivative liability. Sub-rule (4) deals rather with cases where the Participating Organisation and the Affiliate separately commit acts, or make omissions, though they may overlap, which breach the Rules or constitute Prohibited Conduct, and give rise to two sets of charges. It expressly permits the Exchange to bring such charges against both, notwithstanding sub-rule (1) with its disjunctive ‘or’ as seeming to require an election. (If sub-rule (4) in addition included the case of purely derivative liability, then its proviso would be simply repeating the $100,000 cap, though it already applies under sub-rule (3)(b) so the result would remain the same).

(f) The proviso to sub-rule (4) then operates where there is at least a broad correspondence between the two sets of charges, placing again a cap of $100,000. Broad correspondence is capable of being made out, though the charge against the Participating Organisation includes failure of supervision of the relevant Affiliate whose act or omission constitutes the charge against that affiliate, in the particular circumstances of this case. This is where the charge is against the managing director who customarily has the overall supervisory responsibility (and, in this case, moreover dominated the Participating Organisation). It is not, however, enough to find a common matrix of fact, as such a test would be rather too vague and imprecise and would unduly weaken the necessary protective purpose.

(g) The interpretation in (f) above derives from the textual context. It is the construction that best harmonises various elements of the overall scheme. It also best accommodates the language of sub-rule (4). It thereby mitigates what would otherwise be an excessively harsh penal or quasi-penal regime, at odds with the earlier cap in sub-rule (3)(b). Otherwise, by the simple device of inserting minor differences in the charges brought, the $100,000 cap would be readily circumvented. Such an interpretation is not in harmony with its context nor compatible with its quasi-penal character.

(h) Moreover it exceeds what is necessary to fulfil the Business Rules' protective purpose. It must be remembered there still remain extensive additional non-monetary sanctions cumulatively available, including disqualification. Thus this interpretation is not so lenient as to conflict with the protective purpose of the Rules … .”

25 The trial judge decided that the charges against TBL did “broadly correspond” with those against Malcolm McLachlan, and were “substantially similar”. Hence, on the trial judge’s construction, the proviso operated to preclude any fine of Malcolm McLachlan in view of the fact that TBL had already been fined $100,000.

The ASX’s arguments to this Court on construction

26 While the ASX graciously said that it would not “go so far as to say that [the trial judge’s] construction is … risible”, it advanced the following criticisms of it.

27 It began by pointing out that by successive legislative provisions, the one now in force being the Corporations Act 2001 s 793B, the ASX Business Rules have effect as a contract under seal between the ASX and those who are allowed to participate in the stock market under the ASX Business Rules. Those so entitled are Affiliates (who are natural persons) and Participating Organisations (which include natural persons, companies and partnerships).

28 The ASX said that Affiliates, who must meet the qualifications listed in rule 5A.1.1(1), play a significant role since a company or partnership cannot become a Participating Organisation unless, if there are four or fewer directors, two are Affiliates, and in other cases, at least one quarter of the directors are Affiliates. Affiliates are to be contrasted with Approved Representatives, who are merely employed by or act for or by arrangement with a Participating Organisation in connection with the securities business carried on by the Participating Organisation. Affiliates have a special status setting them apart from the general class of other persons engaged in the relevant market, such as partners, officers, employees, Settlement Agents and securities representatives. They must meet high standards in terms of qualifications, training and experience. In particular they must devote a substantial part of the working week to the business of one Participating Organisation – only one, not more than one (see Rule 5A.1.5) – and this condition cannot be waived by the ASX.

29 The ASX submitted that Rule 13.5.1(1), which permitted the ASX to charge “an Affiliate or Participating Organisation” with a breach of the Rules or Prohibited Conduct, did not prevent it from charging both an Affiliate and a Participating Organisation in respect of their separate conduct in connection with the same set of circumstances. The ASX submitted that the trial judge erred in reading the word “or” appearing twice at the start of Rule 13.5.1(1) as disjunctive.

30 The ASX submitted that Rule 13.5.1(2) imposed derivative liability on a Participating Organisation for the acts of its partners, officers, employees, Settlement Agents or securities representatives. But it was submitted in writing that Rule 13.5.1(2) did not impose derivative liability on Participating Organisations for the acts of Affiliates engaged in the business of Participating Organisations. This was said to be so because Affiliates were contractually bound by the Rules and were directly liable for any breaches of the Rules or Prohibited Conduct they engaged in. The purpose of Rule 13.5.1(2) was to ensure that where the conduct complained of was carried out by partners, officers, employees, Settlement Agents or securities representatives of Participating Organisations who were not contractually bound by the Rules and hence were not subject to regulation by the ASX, the ASX was not debarred from taking disciplinary action against their employer. In oral argument this submission was modified. It was accepted that if the “partner, officer, employee, Settlement Agent or securities representative” happened to be an Affiliate, sub-rule (2) operated. But it was stressed that the criterion of liability under sub-rule (2) was not the status of Affiliate but the status of “partner, officer, employee, Settlement Agent or securities representative”.

31 The ASX submitted that the purpose of Rule 13.5.1(4) was to provide a mechanism for imposing derivative liability on Participating Organisations for the acts of Affiliates engaged in while carrying out the business of the Participating Organisation in circumstances where the Participating Organisation itself had not engaged in any impugned conduct, but was liable only because of its derivative liability for the acts or omissions of an Affiliate. In the words of the Appeal Tribunal which the ASX adopted as part of its argument on the appeal:

“The effect of the proviso is thus to limit to $100,000 the aggregate of the fines which may be imposed in relation to the actual charge against the Affiliate and the derivative charge against his or her Participating Organisation which together comprise the single ‘case’.”

32 The Appeal Tribunal continued:

“Thus understood, sub-rule (4) has no application in this case. It is true that TBL was made the subject of charges covering substantially the same ground as the charge brought against Mr McLachlan, although the charge against him concentrated on elements of failure to exercise appropriate supervision and the like. It is also true that both charges arose out of the same facts and events … But the crucial factor is that the charges which TBL faced and upon which it was fined derived from its own conduct as a corporation and were not derivative in the sense relevant to the operation of sub-rule (4) as outlined above. The charges against TBL were not a mere flow-on constructed out of the contravening conduct of Mr McLachlan. TBL itself, as a separate entity, was accused of offending against the business rules because of its own conduct. The charges against TBL did not result from the invocation of sub-rule (4).”

33 Hence the ASX submitted that sub-rule (4) did not apply where a Participating Organisation was charged in relation to acts or omissions of its own under sub-rule (1) or acts or omissions of persons other than Affiliates for which it was responsible under sub-rule (2).

34 The ASX submitted that its preferred construction had the advantage that it enabled the ASX to:

“charge and ultimately fine an Affiliate in respect of his impugned conduct and charge the Participating Organisation on a derivative basis – ultimately leading to a sanction such as for example imposing an education and compliance programme [under Rule 13.3.1(3)] on the Participating Organisation with a view to ensuring that its Affiliates do not engage in such impugned conduct in the future.”

35 The ASX found textual support in sub-rule (4) for its preferred construction in two respects. The first turned on the words “as if”. The trial judge’s construction permitted sub-rule (4) to apply to cases where an Affiliate did something wrong and the Participating Organisation also did something wrong, and resulted in the cap of $100,000 applying even though there were two distinct contraventions, so long as there was “at least a broad correspondence between the two sets of charges”. The ASX submitted that there was no purpose in sub-rule (4), by using the words “as if”, creating a fiction of “separate contraventions” if there were in fact separate contraventions. The other textual indication on which the ASX relied were the words “case arising out of any one charge shall not exceed $100,000.” That language was said to point to the notion of a single “case” involving one piece of conduct but two “charges” which were really not separate contraventions, but were to be treated as though they were.

36 In oral argument the ASX also derived some comfort from the verbs “charged” and “charge” and the nouns “charges” and “charge” in sub-rule (4). On the face of it the language is awkward. It contemplates one charge against the Affiliate and another charge against the Participating Organisation. Yet the concluding words “any case arising out of any one charge” may suggest a single charge. For reasons of that kind the ASX said the language was “a little sloppy”, but it fitted in with the overall construction advanced. Sub-rule (2) imposed derivative liability on Participating Organisations for the acts or omissions of “any partner, officer, employee, Settlement Agent or securities representative”. Sub-rule (4) avoided possible doubts about whether, if the “partner, officer, employee, Settlement Agent or securities representative” was also an Affiliate, there would be derivative liability in the Participating Organisation, and personal liability in the Affiliate. In those circumstances there were two charges, but an aggregate cap of $100,000 for “any case arising out of any one charge”, ie any case in which, because of a single act or omission of an Affiliate, both Affiliate and Participating Organisation were liable.

37 The ASX submitted that because the legislation made the Business Rules a contract under seal binding on Affiliates and Participating Organisations, but not on “partners, officers, employees, Settlement Agents or securities representatives” who are not Affiliates, the ASX had no capacity to lay charges against any member of that class unless the member were an Affiliate. It submitted that the raison d’être of sub-rule (4) lay in the following state of affairs:

“And because of the capacity of the Stock Exchange to charge such a person who is an Affiliate with either a breach of the rules or prohibited conduct, and because of the potential for sub-rule [(2)] to give rise to derivative liability on the part of the Participating Organisation for such action or omission on the part of the Affiliate it was necessary to include sub-rule[(4)], because sub-rule [(4)], in our respectful submission, directly and specifically deals with a circumstance where charges are laid against an Affiliate in respect of the Affiliate’s own actions or omissions and charges are also laid by the Participating Organisation based on those actions or omissions of the Affiliate and not on any conduct or action on the part of the Participating Organisation itself.”

38 The ASX contended that the starting point for the trial judge’s error in relation to sub-rule (4) concerned an erroneous approach to sub-rule (2). The trial judge construed sub-rule (2) as creating “pure derivative liability” on the part of Participating Organisations for the acts or omissions of Affiliates. He then sought to construe sub-rule (4) in a manner which did not duplicate that imposition of derivate liability. One aspect of the erroneous reasoning in relation to sub-rule (2) on which the ASX fastened was the trial judge’s statement that persons falling within the expression “partner, officer, employee, Settlement Agent or securities representative” are “typically but not inevitably Affiliates”. The ASX submitted that the contrary was the case. It submitted that in view of the high level of education, qualifications and experience called for in Affiliates, and in view of the fact that only one quarter of the directors of a Participating Organisation need be Affiliates (where there are more than four directors), most partners, officers, employees, Settlement Agents and securities representatives were likely not to be Affiliates. Sub-rule (2) could obviously apply in relation to those persons in that class who are in fact Affiliates, but the omission of the expression “Affiliates” was deliberate in view of the ASX’s ability to charge Affiliates under sub-rule (1) by reason of their direct liability for their own acts and omissions as contracting parties to the Rules.

39 Another criticism advanced by the ASX was directed to the following statement of the trial judge (made while summarising Malcolm McLachlan’s arguments, but corresponding to his own view):

“Would it not be something of a charade literally to repeat the hearing that has already occurred for the Affiliate, when it comes to the self-same identical, but purely fictional charge against the Participating Organisation? What is there to hear again if the charge is purely derivative?”

“However, no such charade is necessarily involved. In circumstances where (on ASX’s construction of sub-rule (4)), … a Participating Organisation is charged on a purely derivative basis because an Affiliate has been charged, the notion of separate hearings is understandable, not the least because there may be different considerations to be taken into account in assessing the appropriate sanction to be imposed in respect of the Participating Organisation on a derivative basis, as opposed to the Affiliate. This does not mean that the hearings need necessarily be conducted entirely separately. Presumably the hearings could be heard together for reasons of efficiency.”

40 The ASX criticised the trial judge’s statement that on the ASX argument, “the only purpose of sub-rule (4) is to allow the ASX to have automatic access to the Participating Organisation in recovering a penalty for the Affiliate’s breach”. The ASX submitted that on its argument the purposes of sub-rule (4) were as follows. First, it was consequential upon sub-rule (2) and put it beyond doubt that derivative charges could be laid against a Participating Organisation where an Affiliate had been charged. Secondly, in those conditions it imposed a $100,000 cap. Thirdly, it made it clear that even though the conduct of the Affiliate caused the Participating Organisation to be derivatively liable, the Affiliate remained liable, leaving it open for findings of Prohibited Conduct or breaches of the Rules against both together with the grant of whatever the appropriate remedies were against both.

41 The ASX criticised the trial judge’s description of sub-rule (4) as providing for “actual and fictional charges”. It said that both types of charge were actual, not fictional; the only fiction was that created by the words “as if”, requiring the charges to be treated as constituting separate contraventions.

42 The ASX then criticised an argument advanced on behalf of Malcolm McLachlan to which the trial judge appeared to show some favour. One aspect of the argument was that even if sub-rule (4) was construed so as to permit extensive capping, all the other provisions in sub-rule (3) applied without restriction, and this permitted fulfilment of the protective purpose of the Rules. To this the ASX said:

“Although that may be so, the same logic would apply in respect of the proper construction of each of the other individual possible sanctions which may be imposed under sub-rule (3). For example, that logic could be applied to the power to suspend under paragraph (c) of sub-rule (3), to produce a result whereby only one and not both of the Affiliate and the Participating Organisation could be suspended from ASX, but any of the other sanctions (including a monetary penalty) could be imposed severally to accomplish the protective public purpose.”

“We submit that argument can have no force because it simply begs the question. It begs the question in the sense that on the proper construction of the rules it is our position that the aggregate cap simply has no application where charges are laid against an Affiliate and a Participating Organisation in respect of their own individual conduct or, in the case of the Participating Organisation, the conduct of some person, employee, etcetera, for whom the Participating Organisation has vicarious liability.”

43 The last main criticism which the ASX advanced was that the trial judge’s construction carried the disadvantage of depending on words calling for a “broad correspondence” between the charge against the Affiliate and the charge against the Participating Organisation. Those words did not appear in the Rules and had to be read in.

Submissions of Malcolm McLachlan to this Court on construction

44 Since the key elements of the trial judge’s reasoning rested largely on an acceptance of arguments advanced to him on behalf of Malcolm McLachlan, it is not surprising that the trial judge’s reasoning was adopted afresh and defended in this Court. It is necessary to notice only some elements in the case advanced which were stressed.

45 It was submitted that sub-rule (4) called for a process of characterisation – an inquiry whether there was a “case where the charge against the Participating Organisation arose out of the charge against the Affiliate”. The expression “arising out of”, it was submitted, did not suggest exact or virtual identity. The expression suggested a connection between two things. A thing which “arises” out of another thing must be different from that out of which it has arisen or emerged. Hence “arising out of” suggested that sub-rule (4) extended beyond merely derived or vicarious liability. Authorities were cited from other contexts to support the proposition that “arising out of” were words indicating a broad rather than a narrow connection between two things.

46 It was also submitted that it would be strange if, after sub-rule (2) dealt with vicarious or derivative liability in a particular form of language, it was dealt with again in different language in sub-rule (4).

47 In general, it was submitted that if sub-rule (4) were designed to provide a clarification of the relationship between sub-rule (1) and sub-rule (2), or clarification of sub-rule (2) considered by itself, one would expect the clarification to appear after sub-rule (2), not sub-rule (3). Its presence after sub-rule (3) suggested that its only purpose was to cap fines, and it was in no way limited to cases of derivative liability.

The construction of Rule 13.5.1

48 It is convenient initially to clear certain immaterial matters out of the way.

49 The argument on both sides tended to approach Rule 13.5.1 as though it were impeccably drafted. On that assumption each side criticised the other’s arguments if they led to some degree of repetition in the drafting or other conventional flaw. The fact is, however, that the Rule is not well drafted. Even in respects not important to this appeal, as pointed out by the ASX, it has in it a number of unexplained features and clear blunders. It is not clear why in sub-rule (2) the expression “partner, officer, employee, Settlement Agent or securities representative” is used, while in sub-rule (4) the same expression is used with the omission of “Settlement Agent”. In sub-rule (3)(e) the expression is different again, omitting additionally the word “securities” before “representatives”. Yet “representatives” simpliciter are not persons having any function or attention under any other part of the Rules. Sub-rule (3)(c) assumes that Affiliates and Participating Organisations have privileges which can be described as “privileges … of the National Adjudicatory Tribunal”: that is not so. There are, rather, relevant privileges of the status of Affiliate or Participating Organisation in relation to the ASX. Sub-rule (3)(e) also contemplates that “Affiliates”, who are natural persons, can have “officers” which is an expression appropriate only to companies.

50 In these circumstances it would not be surprising if there were other mistakes in the Rule. A construction selected solely with a view to avoiding the existence of other mistakes would not be rationally based. For similar reasons, so far as the arguments accepted by the trial judge and arguments advanced on appeal to support that acceptance took the form “if the result said by the ASX to have been brought about were sound, it would have been very easy to use clear express words to achieve it”, they are unconvincing. It is wrong to approach the sub-rules in question on the presumption that the ASX employed highly skilled draftsmanship capable of achieving any goal beyond controversy. On any view it is necessary to engage in a fairly energetic process of paraphrase to make sense of them.

51 One criticism made of the ASX’s construction was that it called for two hearings – one for the charge against the Affiliate, one for the charge against the Participating Organisation – and that the second would be a “charade” (as the trial judge’s summary of Malcolm McLachlan’s argument put it) or a “repetitious farce” or “absurdity” (as the trial judge put it in stating his own reasoning). This criticism is unsound. The NAT could conduct a single hearing on both charges against both the Affiliate and the Participating Organisation in relation to both liability and penalty. It could conduct a single hearing on both charges on liability, followed by another single hearing on both charges in relation to penalty. Or it could conduct a separate hearing on liability on both charges (though this might carry the risk of inconsistent results), followed by separate or joint hearings on penalty. It is common for joint trials of more than one accused person and civil trials affecting more than one defendant to take place even though their interests may conflict. The point is that the words in sub-rule (4) “the charges shall be heard and determined as if they constituted separate contraventions” do not require separate hearings, and even if separate hearings took place it would not follow that either of them would be a charade. If the charge were made out against the person charged at the first hearing, the person charged at the second hearing would have every interest in seeking to achieve a different outcome at the second hearing and would be at liberty to tender items of evidence or present arguments which were different from those considered at the first hearing. Whether the matter is seen from the point of view of the ASX or the point of view of the person charged at the second hearing, while there might be some repetition (which could be overcome by having a single hearing), there would be nothing absurd or farcical or charade-like about the second hearing.

52 The ASX criticism of the trial judge’s construction of “or” in sub-rule (2) as being disjunctive is sound, but it is not clear how far that error was material in leading to the conclusions at which the trial judge arrived in construing sub-rule (4).

53 The ASX criticised the trial judge for a “factual” error in saying that persons falling into the class “partner, officer, employee, Settlement Agent or securities representative” are “typically but not inevitably Affiliates”. Even if that was an error, it appears to be an immaterial one.

54 Before turning to the precise construction of Rule 13.5.1, it is relevant to consider the general law background against which Rule 13.5.1 was drafted. The Rule has, by virtue of statute, contractual force between the ASX, Affiliates and Participating Organisations, but without express language there would appear to be no room for the importation of general law doctrines of vicarious liability. Hence when an Affiliate is charged with breach of a Rule or Prohibited Conduct, that Affiliate, as a natural person, is only liable for conduct carried out by that Affiliate directly. Where a Participating Organisation which is a corporation is charged with breach of a Rule or Prohibited Conduct, its liability depends on conduct it carries out directly.

55 In Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at 713-714 Viscount Haldane LC, while discussing a provision excluding a shipowner from liability for loss “happening without his actual fault or privity”, said:

“a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself, or it may be, and in some companies it is so, that that person has an authority co-ordinate with the board of directors given to him under the articles of association, and is appointed by the general meeting of the company, and can only be removed by the general meeting of the company. … [If] Mr Lennard was the directing mind of the company, then his action must, unless a corporation is not to be liable at all, have been an action which was the action of the company itself within the meaning of s 502. … It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondeat superior, but somebody for whom the company is liable because his action is the very action of the company itself.”

56 In Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 171 Lord Reid said:

“Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company.”

57 In Trade Practices Commission v Tubemakers of Australia Ltd (1983) 76 FLR 455 at 472 Toohey J summarised these cases by saying:

“A corporation must act through living persons but the person who acts is not speaking or acting for the company. He is acting as the company and the mind which directs his acts is the mind of the company. The question is not one of vicarious liability.”

58 If sub-rule (1) stood by itself without sub-rules (2) and (4), while there could be direct liability on the part of corporate Participating Organisations by reason of the conduct of sufficiently senior Affiliates, depending on the constitutional structure of the relevant companies, there would be no room for vicarious liability – no liability on the part of Participating Organisations merely because employees had acted within the scope of their employment, for example. The effect of sub-rule (2) is to make Participating Organisations liable in relation to the conduct of persons much less senior than those who cause them to attract liability under sub-rule (1).

59 If the matter is approached from the perspective of an Affiliate’s conduct, it can be seen that where an Affiliate is charged, a Participating Organisation can also be charged in two ways. First, the Participating Organisation could be charged on the ground that the conduct of an Affiliate could be the conduct of the Participating Organisation, as where, to take the example of a corporate Participating Organisation, the Affiliate is senior enough to be part of the directing mind of the Participating Organisation. A charge so based would have nothing to do with the operation of sub-rule (2): it would arise only from sub-rule (1). Secondly, the Participating Organisation could be charged, not because the conduct of the Affiliate was the conduct of the Participating Organisation, but because the conduct of the Affiliate would be attributed to the Participating Organisation by reason of sub-rule (2).

60 The importance of sub-rule (2) is that it creates a form of non-direct liability on the part of Participating Organisations by permitting acts or omissions by “any partner, officer, employee, Settlement Agent or securities representative” to be deemed to be acts or omissions of the Participating Organisation for the purposes of Rule 13.5.1 “and dealt with hereunder accordingly”.

61 Several points arise.

62 First, since sub-rule (2) provides that the act or omission of the “partner, officer, employee, Settlement Agent or securities representative” is deemed to be the Participating Organisation’s act or omission, it assumes that the Participating Organisation is not otherwise responsible for that act or omission. If the Participating Organisation were otherwise responsible, there would be no point in deeming it to be responsible. That is, sub-rule (2) says nothing about actual acts or omissions by the Participating Organisation; it deals with actual acts or omissions by the “partner, officer, employee, Settlement Agent or securities representative” which are not actual acts or omissions of the Participating Organisation. The act or omission which sub-rule (2) makes the Participating Organisation liable for is an act or omission of another person, which would not, apart from sub-rule (2), create liability in the Participating Organisation.

63 Secondly, sub-rule (2) assumes that if there had been an actual act or omission by a Participating Organisation, the Participating Organisation could have been charged under sub-rule (1).

64 Thirdly, no part of Rule 13.5.1 makes provision for any charge to be brought against a “partner, officer, employee, Settlement Agent or securities representative” as such. Hence at least where the “partner, officer, employee, Settlement Agent or securities representative” is not an Affiliate, the only charge which sub-rule (2) contemplates is a charge against the Participating Organisation.

65 Fourthly, however, the words “partner, officer, employee, Settlement Agent or securities representative” can include Affiliates, and sub-rule (1) provides for Affiliates to be charged.

66 Fifthly, from the points of view just discussed sub-rule (2) is merely an expansion of the range of operation of sub-rule (1). If sub-rule (2) had not existed, a non-Affiliate “partner, officer, employee, Settlement Agent or securities representative” could not be charged, and a Participating Organisation could not be charged in relation to the acts or omissions of such a non-Affiliate unless the non-Affiliate’s acts and omissions were those of the Participating Organisation. Once sub-rule (2) is brought into account, it opens up a further avenue through which charges against Participating Organisations can be brought under sub-rule (1); and the concluding five words of sub-rule (2) (“and dealt with hereunder accordingly”) make it clear that sub-rule (3) applies to charges brought via that avenue as well as charges brought via sub-rule (1) in its independent application.

67 Sixthly, the extent to which the deemed act or omission of the Participating Organisation under sub-rule (2) is to be “dealt with hereunder” is not limited to the provisions of sub-rule (3). It includes those in sub-rule (4).

68 Seventhly, if sub-rule (4) had not been adopted, questions may have arisen about the acts or omissions of any “partner, officer, employee, Settlement Agent or securities representative” who was an Affiliate. For non-Affiliates the position would have been clear: no liability in the non-Affiliate, deemed liability in the Participating Organisation as a result of sub-rule (2) and so no possibility of double fines. However, for Affiliates there would have been a problem of double fines. But it is clear that sub-rule (4) was intended to deal with more than the problem of double fines. The words “In the case where an Affiliate … is charged … the Exchange may also charge the Participating Organisation” may imply some possible barrier to the Participating Organisation being charged which sub-rule (4) is designed to overcome. The perceived barrier may have been that sub-rule (2) by itself does not contemplate that a “partner, officer, employee, Settlement Agent or securities representative” of a Participating Organisation responsible for an act or omission will be charged in respect of that act or omission; rather the Participating Organisation will. That is, does sub-rule (1) prevent sub-rule (2) applying? Does the initiation of a charge against an Affiliate under sub-rule (1) for conduct he or she is directly responsible for prevent the institution of a charge against the Participating Organisation by reason of sub-rule (2) having deemed that conduct to be the Participating Organisation’s conduct? Another problem is whether the deeming effect of sub-rule (2), permitting Participating Organisations to be charged for the conduct of a wide class of persons including Affiliates, means the conduct is deemed not to be that of the Affiliates. Sub-rule (4) removes these doubts. It makes it clear that notwithstanding sub-rule (2), Affiliates can be charged. And it makes it clear that notwithstanding the fact that Affiliates can be charged, Participating Organisations can be charged as well.

69 Hence one function of sub-rule (4) was to make it clear that if an Affiliate was charged under sub-rule (1), and that Affiliate was a “partner, officer, employee or securities representative” (Settlement Agents for some reason being left out), there was no bar to charging the Participating Organisation also under sub-rule (2). This does not, however, create any overlap with or duplication of sub-rule (2). If the conduct of an Affiliate “partner, officer, employee or securities representative” answers the requirements of sub-rule (2), that conduct would be conduct which, while it might make the Affiliate directly liable under sub-rule (1), was conduct which did not make the Participating Organisation liable without the operation of sub-rule (2). Sub-rule (4) in that aspect of its operation merely clarifies the application of sub-rule (2) by making it clear that if an Affiliate is charged under sub-rule (1) and that Affiliate is a partner, officer, employee or securities representative whose acts or omissions caused the Participating Organisation to be liable under sub-rule (2), sub-rule (2) continues to have effect.

70 In short, one purpose of sub-rule (4) was to clarify the introduction of sub-rule (1) (permitting Affiliates to be sued for their personal breaches of Rules or acts of Prohibited Conduct) and sub-rule (2) (permitting the conduct of particular persons (some of whom may be Affiliates) to be treated as the conduct of Participating Organisations). The clarification is that the direct liability of Affiliates remains under sub-rule (1) and the deemed liability of Participating Organisations remains under sub-rule (2).

71 However, sub-rule (4) also cleared up another problem. If the proviso had not been inserted, it would have been open to the NAT to fine the Affiliate charged under sub-rule (1) $100,000 for his or her contravention and to fine the Participating Organisation charged under sub-rule (2) in relation to the Affiliate’s conduct $100,000 for its contravention. But where the only reason why the Participating Organisation is liable is because of the deeming effect of sub-rule (2), there is no culpability in the Participating Organisation beyond the culpability in the Affiliate for which sub-rule (2) makes the Participating Organisation responsible. In those circumstances it appears to have been thought harsh to permit double fining. However, this aspect of sub-rule (4) does not apply only to the impact which sub-rule (2) has on the liability of Participating Organisations for the conduct of Affiliates. It applies also in relation to the conduct of an Affiliate, independently of sub-rule (2), which renders a Participating Organisation directly liable under the general law. Again there is, as it were, only one piece of culpable conduct, namely the misconduct of the Affiliate. But since it renders both the Affiliate and the Participating Organisation liable, a risk of the NAT levying two fines for one piece of culpability would be created were it not for the proviso to sub-rule (4).

72 The opening words of sub-rule (4) direct attention to a “case” in the sense of a “set of circumstances” or an “instance” where an Affiliate is charged and the Participating Organisation in relationship with that Affiliate is also charged. Sub-rule (4) requires the two “charges” to be heard and determined “as if” they constituted separate contraventions even though in substance and reality they are not separate contraventions but a single contravention, and not separate charges but a single charge. The hearing and determination of the charges as if they constituted separate contraventions does not call for separate hearings any more than litigation against two defendants alleging related torts or crimes requires separate hearings. The charge brought against the Affiliate and the charge brought against the Participating Organisation are in substance the same because they relate to the same breach of the Rules or the same Prohibited Conduct, because they are to be heard as separate contraventions even though they are not, and because they are part of the same “case”. They together comprise the “case” referred to at the start of sub-rule (4), and that is the “case” referred to in the proviso. It is true that the words “any case arising out of any one charge” would sometimes mandate a search for a “charge”, and then a search for a “case” arising out of it. The proviso might better have been expressed as “the aggregate fines imposed on the abovementioned charges shall not exceed $100,000” or “the aggregate fines imposed in any hearings arising out of the abovementioned charges shall not exceed $100,000”. But if the word “case” in the proviso is related to the word “case” at the start of sub-rule (4), its meaning must be governed by it. If the word “case” in the proviso is not related to the word “case” at the start, its meaning in the proviso is simply “hearing” or “determination”, or it represents an ellipsis, and the true meaning of “any case arising out of any one charge” is “any two or more hearings arising out of the facts giving rise to any one charge or charges”.

73 In short, on its true construction the meaning of sub-rule (4) is that in the case where an Affiliate who is a partner, officer, employee or securities representative of a Participating Organisation is charged under sub-rule (1) in relation to a breach of the Rules or Prohibited Conduct, the ASX may also charge the Participating Organisation concerned in relation to that conduct (either because the conduct of the Affiliate is the conduct of the Participating Organisation, or because the conduct of the Affiliate is by reason of sub-rule (2) deemed to be that of the Participating Organisation); though the contravening conduct which is the subject of the charges, namely the breach of the Rules or Prohibited Conduct, is the same conduct, the charges are to be heard and determined as if they constituted separate contraventions, provided that the aggregate fines imposed in the case for the contravening conduct shall not exceed $100,000.

Did the charges fall within Rule 13.5.1(4)?

74 The ASX submitted that if the trial judge’s test calling for “broad correspondence” between the charges against TBL and those against Malcolm McLachlan was rejected, it was not necessary to examine his reasoning which concluded that there was broad correspondence. Strictly speaking that is true. But it does remain necessary to consider whether the conduct charged against Malcolm McLachlan was the same as that charged against TBL, or whether the conduct of Malcolm McLachlan is by reason of sub-rule (2) deemed to be that of TBL.

75 Malcolm McLachlan contended to this Court that TBL was charged only for his acts: there was “equivalence” or “a complete overlap”. This contention is unsound.

76 The following differences between the charges exist. In examining them, it will be seen that not only are there differences, but that in some respects the charge against Malcolm McLachlan was wider than the charge against TBL.

77 First, charge 1 against TBL, as amended, did not charge it with dishonest conduct, since the words “honest”, “honesty” and “and refrain from concealing from” were omitted, though they remained in the corresponding charge against Malcolm McLachlan. And charge 1 against TBL, as amended, did not charge it with Prohibited Conduct with respect to “the obligation to exercise due diligence to learn the essential facts regarding the Retireinvest clients, their investment objectives, financial situation and needs and to advise those clients accordingly”, but the charge against Malcolm McLachlan did.

78 Secondly, charge 1 against TBL charged it with Prohibited Conduct in relation to “the trading activities, and the supervision of the trading activities” of two of TBL’s former client advisers, Bob Mennie and Hamish McLachlan. But the charge against Malcolm McLachlan dealt with Prohibited Conduct in relation only to “the supervision of the trading activities” of Bob Mennie and Hamish McLachlan, not the trading activities themselves.

79 Thirdly, even though both TBL and Malcolm McLachlan were charged with failure to supervise Bob Mennie and Hamish McLachlan, there is a difference between TBL’s failure to supervise and Malcolm McLachlan’s failure to supervise. Counsel for Malcolm McLachlan endeavoured to negate this difference by stressing findings by the NAT that Malcolm McLachlan was an autocrat. The NAT said:

“TBL was a long established stockbroking firm in Adelaide and a Member Organisation of ASX. Six of its directors were Natural Person Members of ASX. McLachlan was the Managing Director of TBL at all relevant times.

The Tribunal acknowledges what is apparent from the transcript of all of the interviews of directors and employees of TBL that McLachlan managed TBL’s business in an autocratic manner, having close to absolute control over all aspects of the business. The other directors apparently played little or no role in the management of the firm, and had little or no say in the decisions made regarding the business. McLachlan has a dominant and forceful personality, and was accustomed to imposing his will upon the board. McLachlan had more or less sole responsibility for operating procedures, supervision of client advisers and other staff, debtor control and general administration.

Meetings of directors at TBL were only held to the extent that they are required by law. McLachlan’s practice was to hold management meetings most Mondays, attended by the directors who held equity in TBL. The meetings had no written agenda or minutes and the purpose appears to have been for McLachlan to inform the directors of the company’s financial performance and of the decisions he had made. No written financial information was distributed, but McLachlan would once each month report on the brokerage earned and the profit for the month. There was no weekly, monthly or quarterly balance sheet or profit and loss account made available to the directors.”

80 The trial judge said:

“the evidence is clear that Mr McLachlan was in fact the Chief Executive Officer of TBL and dominated its affairs. It is artificial in the extreme to differentiate TBL's supervision of Mr Bob Mennie and Mr Hamish McLachlan from the supervision which its Chief Executive Officer Mr McLachlan should have exercised over these two persons. …

it is difficult to see how TBL's conduct by omission could be other than attributed to Mr McLachlan's dominating influence as its Chief Executive Officer. To suppose otherwise is wholly artificial.”

81 In making findings adverse to Malcolm McLachlan, the NAT said:

“These observations [quoted above] are not meant as a criticism of Mr McLachlan or of his management style. The board of TBL was entitled to run it or allow it to be run as they saw fit. The significance for this matter is that it was McLachlan, and McLachlan alone, who had complete control over the affairs of the company and knowledge of what was going on within the company. This state of affairs, together with his position as managing director and the absence of any effective monitoring of his conduct by the board, created an obligation on McLachlan to be particularly vigilant to the company’s legal obligations and internal procedures and the supervision of the trading staff.”

82 This is reinforced by the fact that the $100,000 fine imposed on TBL was imposed not only in relation to things Malcolm McLachlan had done, but things others had done. Among the matters which the NAT took into account were:

“(a) Thompson Brindal had no effective understanding of and had no effective risk management in place to monitor and review the options trading undertaken on behalf of the Retireinvest clients;

(b) Thompson Brindal undertook no independent steps to ascertain the investment objectives, financial situation and needs of those Retireinvest clients;

(c) The directors knew or ought to have known that Mennie had no written authority from the Retireinvest clients. TBL took no steps to ensure that the Retireinvest clients knew of the losses and that substantial losses had been incurred;

(d) Thompson Brindal showed a total lack of supervision of its client advisers;

(e) Thompson Brindal’s directors showed a complete lack of understanding of their obligations and duties;

…

(g) Thompson Brindal’s conduct involved the most serious breaches and failures to achieve the standards required of a Participating Organisation.”

83 The references to TBL as distinct from Malcolm McLachlan, and to the directors in the plural as distinct from the Managing Director, are important. Though Malcolm McLachlan was Managing Director and though he was found to have an autocratic style, he was not the only director or officer; the reasoning attacks the directors as a class; and Malcolm McLachlan’s mind was not found to be the only mind making up the corporate mind. Indeed, as counsel for the ASX pointed out, it is curious that Malcolm McLachlan should seek to obtain an advantage, namely escaping any fine, from the fact that he asserted autocratic powers over the other directors, while TBL is obliged to bear the maximum fine because of his misconduct. That the argument produces such advantages for the primary wrongdoer suggests some flaw in it.

84 There are other differences in the conduct charged. It has been seen that the charge against Malcolm McLachlan did, while charge 1 against TBL, as amended, did not, allege Prohibited Conduct in relation to “the obligation to exercise due diligence to learn the essential facts regarding the Retireinvest clients, their investment objectives, financial situation and needs and to advise those clients accordingly.” That was sub-paragraph (vii) of charge 1 against TBL before it was amended. While the charge against Malcolm McLachlan did not allege that he “caused or permitted the commencement of trading activities in options by Mennie on behalf of Retireinvest clients to be approved by a Registered Options Principal” of TBL “in circumstances where [he] had failed to conduct” certain inquiries, charge 1 against TBL did. In this regard counsel for Malcolm McLachlan argued that that part of the particulars to charge 1 against TBL had been dropped as a consequence of the dropping of sub-paragraph (vii) of the substantive charge. However, counsel for the ASX contended correctly that that part of the particulars supported more than sub-paragraph (vii) in that it alleged that TBL’s failure to supervise Bob Mennie’s trading activities and in that it alleged that it had caused or permitted Bob Mennie to commence trading activities in options.

85 The ASX accepted that if there were a duplication of charges and the circumstances were such that ordinarily sub-rule (4) would apply, the effectuation of a minor variation with a view to avoiding the effect of sub-rule (4) could be dealt with as an abuse of process. The differences between the charges here are not of that character. They reveal that the charges against TBL were neither simply a result of the application of sub-rule (2); nor simply a result of treating Malcolm McLachlan as the sole mind of TBL so as to make it liable under sub-rule (1). While there was a large common element, there were significant differences between the charges so as to take the charge against Malcolm McLachlan out of the proviso to sub-rule (4) and indeed out of the sub-rule as a whole. It cannot be said that the charge against Malcolm McLachlan and charge 1 against TBL were part of one “case” or that the charges are one charge or one contravention.

Relief

86 The Amended Summons sought declarations that the Appeal Tribunal’s construction of Rule 13.5.1 was correct (paragraph 1A), and that Malcolm McLachlan had contravened the express (paragraph 1) or implied (paragraph 2) terms of the Rules in failing to pay the fine imposed. No purpose is to be served by making these declarations which is not equally well served by the publication of the above reasons for judgment. For that reasons the declarations should not be made.

87 The Amended Summons sought two other orders. One was in paragraph 3:

“ … an order under sections 777 and/or 1114 of the Corporations Law directing the Defendant to pay to Australian Stock Exchange Limited within 14 days of such order, the said fine of $100,000 together with interest from 22 July 2002 at a rate determined by Australian Stock Exchange Limited in accordance with Business Rule 13.4.1(2).”

“In the alternative to paragraph 3, … an order for specific performance requiring the defendant to perform its contractual obligation under the Business Rules … to pay to Australian Stock Exchange Limited within 14 days of such order, the said fine of $100,000 together with interest from 22 July 2000 at a rate determined by Australian Stock Exchange Limited in accordance with Business Rule 13.4.1(2).”

88 Rule 13.4.1(2) provides:

“If any Affiliate fails to pay any levy, fee, fine or any sum of money for which he, she or it is liable to the Exchange, within 1 month from the time when such levy, fee, fine or sum of money became payable, the amount of such levy, fee, fine or sum of money shall carry interest at the rate determined by the Exchange and the Exchange may on 7 days’ notice suspend the Affiliate from all privileges of status as an Affiliate until the said sum and interest is paid and he or she shall be reported as under suspension. If, after the expiry of 3 months of suspension, the said sum and interest thereon is still not paid the Exchange may declare the Affiliate, a defaulter and thereupon the Affiliate shall cease to be an Affiliate.”

89 The reason why 22 July 2000 has been selected as the date from which interest on the fine should run is presumably that the Appeal Tribunal’s decision to vary the NAT’s orders by adding an order that Malcolm McLachlan pay a fine of $100,000 was made on 22 May 2000. But the order was that the fine be paid not later than one month after that date. It therefore “became payable” on 22 June 2000, and Rule 13.4.1(2) provided for interest to run one month after that.

90 Counsel for the ASX drew attention to the fact that ss 777 and 1114 of the Corporations Law have been replaced by ss 793C and 1101B of the Corporations Act.

91 Section 1101B does not appear entirely apposite. Section 1101B(4) gives among the examples of orders which the court may make for contravening the Rules:

“(b) an order giving directions about complying with a provision of the operating rules, or the compensation rules (if any) … to a person … who contravened the provision; …”

92 Section 793C(2) gives the court power to “make an order giving directions to” Malcolm McLachlan “about compliance with, or enforcement of, the operating rules”.

93 The order sought in paragraph 4 is a decree of specific performance, and breach of such a decree carries the sanction of imprisonment for contempt of court. The same is true of a breach of orders made under s 793C and s 1101B.

94 The ASX is making a money claim. Save in exceptional circumstances, it is better that failure to comply with orders to pay money should be enforced by execution rather than committal for contempt. For that reason the orders sought should not be made.

95 The Appeal Tribunal was correct to hold that it could order Malcolm McLachlan to pay a fine of $100,000. The power to make that order was part of the contract between the ASX and Malcolm McLachlan. Though the Amended Summons did not in terms seek an order for damages for breach of contract, it did seek “Such further or other orders as the Court may deem fit”. In the course of argument the difficulty of granting money remedies carrying contempt sanctions, as distinct from money remedies enforceable by execution, was indicated to counsel. Counsel for Malcolm McLachlan did not argue in his written submissions to the trial judge, and did not argue either in his written submissions or in his oral submissions to this Court, that he was not liable to pay the fine if the arguments dealt with above failed. In particular, no opposition was expressed to a remedy enforceable by execution. In the circumstances the ASX is entitled to judgment in the sum of $100,000 as damages for breach of contract.

96 On the other hand, no entitlement to interest has been established. The court was not taken to any determination by the ASX of a rate of interest on the fine pursuant to Rule 13.4.1(2). It is not possible to make an order that the fine bear interest under s 94 of the Supreme Court Act 1970, because that section does not “authorise the giving of interest on any debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise”: s 94(2)(b). Under Rule 13.4.1(2), interest on the fine was payable as of right (“shall carry interest at the rate determined by the Exchange”) even though the ASX has not established how that right was enforced.

97 Accordingly the following orders are proposed.

1. The appeal is allowed.

2. The orders of Santow J are set aside.

3. Judgment for the plaintiff in the sum of $100,000.

98 HODGSON JA: I agree with the orders proposed by Heydon JA, and substantially with his reasons.

99 In particular, I agree that Rule 13.5.1(4) makes it clear that Rule 13.5.1(2) does not have the effect of relieving an Affiliate from the consequences of the Affiliate’s own breach of the rules by deeming the relevant act or omission to be not that of the Affiliate but that of the Participating Organisation; and in such a case it permits a charge in respect of that act or omission to be brought against each of the Affiliate and the Participating Organisation. Thus there are in one sense two charges (one against each entity) and in another sense just one charge (it is the same charge against each, arising out of the same act or omission of the Affiliate); and the cap of $100,000.00 applies.

100 I agree that the provision that the charges be “heard and determined as if they constituted separate contraventions” does not require separate hearings. I would expect that separate hearings would be exceptional.

101 It may be that the cap would not be avoided by mere colourable differences in the framing of the charges, in cases where the conduct complained of against the Participating Organisation was in substance the same as that complained of against the Affiliate. In this case, however, these were differences that were not merely colourable, inter alia in that the charge against the Participating Organisation included its vicarious liability under rule 13.5.1(2) for the conduct of employees other than the Affiliate (conduct for which the Affiliate was not vicariously liable), and that certain aspects of conduct not pressed in the charge against the Participating Organisation were pressed and found proved in the charge against the Affiliate.

102 It is true that there was substantial similarity and overlap between the charges, but in my opinion this did not constitute them as “one charge” for the purposes of the cap provided by Rule 13.5.1(4). The existence of two charges with substantial elements in common, but also substantial elements not in common, may have raised a question of duplicity within each charge, but that matter was not raised or argued at any stage; and it may well have been to the respondent’s advantage not to raise it, as it could have resulted in a number of separate charges being brought against the respondent and the Participating Organisation, each charge having its own cap of $100,000.00.

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Citations

Australian Stock Exchange Ltd v McLachlan [2002] NSWCA 374

Cases Citing This Decision

0

Cases Cited

2

Statutory Material Cited

1

Director of the Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (The Yarra's Edge Case) [2016] FCA 772

Trade Practices Commission v Tubemakers of Australia Ltd [1983] FCA 209

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CITATION:	Australian Stock Exchange Ltd v McLachlan [2002] NSWCA 374
FILE NUMBER(S):	CA 40071/02
HEARING DATE(S):	17/06/02
JUDGMENT DATE:	19 November 2002
PARTIES :	Australian Stock Exchange Ltd (Appellant) Malcolm Boyd McLachlan (Respondent)
JUDGMENT OF:	Mason P at 1; Heydon JA at 2; Hodgson JA at 98

LOWER COURT JURISDICTION :	Supreme Court
LOWER COURT FILE NUMBER(S) :	SC 5076/00
LOWER COURT JUDICIAL OFFICER :	Santow J

COUNSEL:	Mr J Griffiths SC (Appellant) Mr A S Bell (Respondent)
SOLICITORS:	Allens Arthur Robinson (Appellant) Tress Cocks & Maddox (Respondent)
CATCHWORDS:	Corporations - listed companies - ASX Business Rules - "Affiliates" and "Participating Organisations" of ASX - breach of Rules - construction - Rule 13.5.1(4) - Rule permitting ASX to charge "an Affiliate or Participating Organisation" with breach of Rules or Prohibited Conduct - meaning of "or" - conjunctive or disjunctive interpretation - purpose of Rule - whether punitive or protective - ND
LEGISLATION CITED:	Corporations Act 2001
CASES CITED:	Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Trade Practices Commission v Tubemakers of Australia Ltd (1983) 76 FLR 455
DECISION:	See paragraph 97