Boys & Ors v Ausn Securities Comm

[1998] HCATrans 223

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P3 of 1998

B e t w e e n -

ALAN HAROLD BOYS, RONALD GEORGE HOWARD, DESMOND FRANK CRAWLEY, ANTHONY HAYES DOUGLAS‑BROWN and ANTHONY HOWARD LEIBOWITZ

Applicants

and

AUSTRALIAN SECURITIES COMMISSION

First Respondent

ERNST & YOUNG (A Firm)

Second Respondent

PHILLIPS FOX (A Firm)

Third Respondent

PETER REYMOND QUIGLEY

Fourth Respondent

KEVIN LEE CHRISTENSEN

Fifth Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 JUNE 1998, AT 11.59 AM

Copyright in the High Court of Australia

_____________________

MR C.G. GEE, QC:   May it please the Court, I appear with my learned friend, MR A.N. SIOPIS, for the applicants.  (instructed by Hunt & Humphrey)

MR J. GILMOUR, QC:   If your Honours please, with MR M.D. HOWARD I appear for the first respondent.  (instructed by Regional General Counsel Western Australia)

MR R.A. CONTI:   If it please your Honours, I appear with MR J.R.B. LEY for the second respondent.  (instructed by Tottle Christensen)

GLEESON CJ:   Yes, Mr Gee.

MR GEE:   Your Honours, could I just very briefly sketch in the factual background, compressing it as much as I can, before I go to some submissions about leave points.  The Geneva group of companies got into great financial difficulties and the trustee for debenture holders, a perpetual trustee company, appointed a Mr Quigley as receiver.  That happened in July 1990.  There were losses of the order of $34 million.  In November 1991 the ASC through a Mr Atkinson determined that there would be examinations under section 13 of the ASC Law but limited to possible breach of section 129(1) of the then relevant Code in Western Australia, that section having nothing to do with the conduct of auditors.

Now, thereafter an arrangement or understanding was reached in which it was decided that the ASC would employ, pursuant to a consultancy arrangement,

Mr Quigley, whom I have mentioned, and his solicitor, a Mr Christensen, to provide the ASC with services in relation to investigation of the Geneva companies.  The consultancy agreement in broad terms had these characteristics:  first, that it meant that those gentlemen, once they became consultants, also became staff members of the ASC within the meaning of the ASC Law.

What it was agreed they would do in the broadest terms was to, among other things, conduct examinations and to give advice on the future direction of investigations in relation to the Geneva companies.  It was also a feature of that agreement that no payment would be made by the ASC to those staff members in relation to those services and their expenses were entirely defrayed out of the assets of the companies, effectively through approvals from time to time by Perpetual, the trustee for debenture holders.

Now, at that stage, which was early 1992, the ASC and the persons who were entering into the agreement, Messrs Quigley and Christensen, knew that one of the possibilities was complaint against the conduct of the trustee itself.  That had been raised by aggrieved debenture holders.  The consultancy agreement was entered into.  Some examinations took place of members of the firm for which we appear, the former auditors of the Geneva group, who had also acted as investigating accountants in respect of some prospectus issues.

Those investigations took place because the new consultants made suggestions as to the widening of the investigation so that there was a fresh determination ultimately that there would be a section 13 investigation into the possibility that there was a breach by auditors of sections 107 or 285 of the Code, which are sections that have to do with the conduct of auditors in relation to companies.  Those examinations took place and in those examinations Messrs Quigley and Christensen took part. 

Now, thereafter this happened.  Part of the understanding between the ASC and Messrs Quigley and Christensen as found at first instance and reiterated in the court immediately below was that, in addition to getting the services paid for out of the assets of the company, the consultants would receive, provided it was legal for them to do so, information especially but not limited to transcripts of the examinations so that they could pursue intended proceedings in negligence against our client firm.  Indeed, at a certain stage proceedings were issued, although they have not formally been served and the relevant originating process has been renewed from time to time.

Pursuant to that last understanding to which I just made reference, transcripts and other material were indeed furnished to Messrs Quigley and Christensen.  That would have had to have been done pursuant to section 25 of the ASC Law.  Thereafter our clients became concerned about the fact that that had occurred, raised the matter with the ASC and this happened.  The material was returned to the ASC by those who had previously received it.  They reiterated their application and it was to restrain compliance with that second request that the proceedings were brought that now come before the Court.  The proceedings sought injunctive relief of two kinds:  one, that the ASC should not comply with the renewed request and, two, that the consultants, Messrs Quigley and Christensen, could no longer in any event act in relation to the proceedings against the firm.

The essential points we want to put are two.  First, that in principle it is not open to the ASC in the light of the confidentiality provisions of the ASC Law to release to persons, who have been staff members thereof and therefore subject to confidentiality obligations, material as if they were, shall I say, strangers who were making quite independent applications to the ASC for the provision of information pursuant to section 25.  That is one of the two general points that we submit is opened up by this litigation.

The second is that the process of appointment of these gentlemen as consultants, the process of examination that resulted and the process of any disclosure of information that followed was itself all, in effect, prohibited by the proper interpretation and operation of the ASC Law.  In brief, we say that where persons such as Messrs Quigley and Christensen by their appointments, in this case as receiver and solicitor for the receiver, come under a body of private obligations to a particular body, in this case debenture holders, it is not then open to the ASC, which is pursuing public purposes and, as in this case, pursuing an inquiry into whether there might have been a breach of criminal provisions by auditors, to employ such persons knowing, we would submit, that they must have at least a potential for essential conflict and knowing that the aim of those persons in undertaking the process is not solely to pursue, if at all, the public purpose, but, without disguise, also to pursue, or perhaps only to pursue, the private purpose of obtaining material which would assist in the negligence action.

GLEESON CJ:   What exactly do you mean when you say it is not open to them to do it?  Do you mean it is an offence against the law for them to do it?  Do you mean it is an abuse of power?  Do you mean it is beyond power, ultra vires?

MR GEE:   I cannot point to an offence, your Honours, because that would require me to be able to point to words which imposed on somebody a criminal sanction in the event that they went ahead with that process, but what we do say, your Honours, is that on the proper construction of the law as a whole it will be ultra vires that law to appoint such persons.

GLEESON CJ:   They have no power to appoint them?

MR GEE:   They do not have a power to do it and, in any event - and this may be merely a restatement of the same thing - given that there is an ineradicable conflict between the appointment of such persons and the public aims of the ASC Law, that it is not within the power of the ASC to engage in such conduct.  I think I have restated the same thing twice, your Honour, and for that I must apologise.

CALLINAN J:   Mr Gee, can you just tell me a little more clearly what the conflict is?  I mean, there is a conflict, you really say, between a public and a private purpose, as it were.

MR GEE:   Yes.

CALLINAN J:   But is there a further conflict?  To whom were the appointees beholden and in what precise respects were they beholden?

MR GEE:   They were beholden essentially to the debenture holders, a private, admittedly, very substantial body with a very substantial interest in, among other things, the progression of recovery proceedings.

CALLINAN J:   With a priority to that extent as debenture holders and of shareholders.

MR GEE:   I am sorry, it is also, in our respectful submission, easy to lose sight of the fact that that same body did not have an interest in appointing a receiver confined to having him perhaps set up a negligence action, for example, against auditors but part of his duties may well be to consider in an appropriate case whether the trustee itself might have been guilty of some conduct which would enable further investigation at the very lowest by the parties for whom he was in his private capacity charged to act.

Now, I have to link that a little, your Honour, to try to answer your Honour’s question.  If that is so, then the submission is that when such a person came to be clothed with the whole public panoply of becoming a staff member of the ASC, including an obligation pursuant to the consultancy agreement to consider further future directions of the investigation, it is possible that there might be a conflict between his relationship with the person who appointed him, the trustee, on the one hand, on the private side, and, on the other, the public need absolutely, frankly to investigate all issues.  In other words, there is a possibility of that kind of conflict arising so that there might be a suppression, conscious or unconscious, of the guns being turned in a particular direction.

Now, I appreciate, your Honours, that one of the ways in which that was dealt with below was that it was found that Mr Quigley personally had an appreciation of the possibility but, in our respectful submission, a much wider question is involved in whether in a particular case you may be able to say that a given appointee understood that he had this or that obligation.  In our respectful submission, we are looking here at a deeper question of the whole relationship of the public law of the ASC and the implications that flow from consultancy arrangements being entered into, particularly, if I may say so, consultancy arrangements which cause the services to be provided at the expense of the private body, as in this case, and that it ought not to be permitted.

CALLINAN J:   And you would say, I suppose, that it might always be attractive to the ASC to engage somebody who has some knowledge of the matter because of the likely saving in expense, so that the conflict could arise in the future.

MR GEE:   Yes.  Now, the fact that in a case it might be possible to say, in effect ad hoc for that case, that it did not look as though there would be a conflict, does not, in our respectful submission, answer the question because, although this in heavy disguise, in our submission, that would mean that the ASC in making its decision to make appointments of consultants and making them staff members, giving them the appropriate powers and cloaks and so on, would itself be engaging in discretionary processes that are not themselves envisaged by the ASC Law, that is, making decisions, for example, about whether a conflict might arise.

CALLINAN J:   And whether to recommend a prosecution.

MR GEE:   And matters of that kind.  So that we would respectfully submit that what happened below - and I am speaking in broad terms obviously - the view seems to have been taken that because things seemed to be all right in this case, there could not be a problem and, therefore, as a matter of convenience, everything was all right.  What I would very much like to have the opportunity to do, your Honours, in the remaining minutes is to take the Court to some passages in Johns v Australian Securities Commission 178 CLR 408.

I should preface my remarks by saying that at the time of the events in question - I am sorry, could I just say one other thing?  The index to the book of authorities is erroneous.  Would your Honours be good enough to go to tab 8.  Your Honours, this case, of course, was one in which judgment was handed down after the events with which the court was concerned at first instance, the consultancy agreement, the examinations.  The first release of the material had occurred before anyone had the benefit of instruction from this case.

Now, this case did not involve the question of the possible conflict of the appointment of a person such as a receiver who had already been appointed by somebody else.  This started from the position that by what we might call normal processes the ASC had conducted examinations and issues arose as to the release of transcripts to a royal commission being conducted into the Tricontinental affairs and the extent to which that should or should not have occurred, but in the course of the case it was first of all determined very firmly that, once information is obtained pursuant to the examination process enabled by section 19 of the ASC Act, that is subject to a statutory obligation of confidence.

I do not read the passages but in particular I refer to the judgment of his Honour Justice Brennan as he was at that time at page 424, particularly Justice McHugh at 467.  So that the starting point is that a person who is acting under a section 19 examination process, which in turn has been the subject of an anterior decision under section 13 to conduct it, obtains information which is subject to a statutory obligation of confidence.  I then put considerable weight, your Honours, on what fell from Justice McHugh at 467 after he made that statement and in particular he said:

An ASC member who obtains information under s 19 has no power to use the information for any purpose other than that purpose or such other purposes as the legislation authorizes ‑

that is, purposes of the ASC in investigating a matter ‑

Thus, the examiner, upon receiving the information, becomes subject to an obligation to keep the information confidential unless it is necessary to use the information for the purposes of the Act ‑

that is, the public purposes as opposed to, in this case, the use of it to pursue private rights said to lie in tort or in breach of contract ‑

The terms of s 22 of the Act.....reinforce the conclusion that information obtained under s 19 is obtained in confidence.

Section 127(1) then imposes a further obligation.  It requires the ASC to “take all reasonable measures to protect from unauthorized use or disclosure information given to it in confidence”.

Then there are provisions that his Honour pointed to that deemed certain uses to be authorised uses, and at the next page:

When s 25(3) is read against this background, it becomes obvious that it cannot be taken as giving the ASC an unfettered discretion to give copies of the record of an examination to such persons as it thinks fit.

I ask the Court to take into account the balance of the page bearing in mind, as I do, the time constraints that have now arrived.

Now, the fundamental submission, your Honours, is that the statutory obligation of confidence that is imposed upon those who act under the Act is wholly inconsistent with, firstly, the appointment of persons who already owe private obligations elsewhere and who must be under some duty to pursue those and, secondly, entirely inconsistent with the idea that that same person can doff his cloak of ASC‑hood, become a person’s lawyer or applicant for information under section 25 and simply obtain it.

GLEESON CJ:   Thank you, Mr Gee.  Yes, Mr Gilmour.  Have you and Mr Conti agreed on a division of the time between you?

MR GILMOUR:   I must say we have not, your Honour.

GLEESON CJ:   Well, half each.  Go ahead.

MR GILMOUR:   Your Honours, whatever interesting points arise about such agreements generally, this is not, in our submission, a suitable vehicle.  The applicants’ contentions at first instance on appeal and now before your Honours depended upon and depend upon the acceptance of certain fundamental facts.  In the courts below those facts have not been made out and, in our submission, there is no prospect of this Court reversing those findings which are now concurrent.

To the extent that matters of law have arisen, they are matters of statutory construction in respect of which there has been both argument and essential agreement in the courts below and no new point of principle, in our submission, arises.  The applicants’ case below was put on two limbs.  My learned friend for the applicants really only dealt with the first and that is broadly that the applicants contend that for various reasons the Commission acted beyond power and, therefore, unlawfully by virtue of which it is beyond power in turn either for the ASC to use information obtained or, alternatively, to release information under the provisions of section 25(1).

There are four primary propositions said to be constituting ultra vires.  The first is that the decision to hold the Geneva investigation had an improper purpose, namely, to implement an understanding.  Your Honours, a question of fact arises and arose as to what was that understanding.  At page 28 of the application book the matter was put this way by counsel for the applicants at first instance.  He said that:

the alleged understanding that Messrs Quigley and Christensen would obtain information to be used in connection with the contemplated Supreme Court proceedings ‑

that is, your Honours, an unqualified “would”, a “would” in any event, whatever happened, that is to say that without regard to the provisions of section 25(1), but that proposition was rejected at first instance and was not overturned on appeal.  The finding was that the understanding was that the information would be released only if, at the time the application for the information was made under section 25(1), it could be released lawfully.  So much appears from the judgment at first instance and on appeal.  So that primary factual matter stands against the applicants, that there was no improper purpose, there was no, in effect, unlawful arrangement.  There was to the contrary a quite lawful arrangement.  That cannot, in our respectful submission, be overcome.

It was then said that it was the decision to hold that investigation for that reason which was beyond power and that is the way the matter was put, but it was found that the understanding did not concern the decision to hold the investigation but, rather, that decision having been made, it went to the manner in which the investigation was carried out.  The applicants then put their case in terms of the arrangement being beyond power in this way.  They said that the engagement of Mr Quigley and Mr Christensen, by reason of their having a conflict of interest which they did not intend to avoid, as they were obliged to do under section 125(3) of the ASC Act, and which matters were known to the Commission, and that was rejected as a matter of fact, as appears from page 51.

So far as questions of conflict of interest arose otherwise, the findings were at first instance that there was no conflict - page 50.  To the contrary, there was a coincidence of interests between Mr Quigley, on the one hand, seeking to pursue an action against the auditors, and the Commission on the other hand.  The auditors were not the only subject of the ASC’s investigations, but certainly were included in the ASC’s investigations.  That matter is a subject of very clear findings at first instance at pages 38 and 39, 45 and 50 of the application book and by the Full Court at pages 111, 114, 120 and 121.

So far as concerned the assertion made that Mr Quigley somehow had a conflict of interest as between his role as a staff member for the ASC, on the one hand, and his duty towards Perpetual Trustees, his appointer as receiver and manager, on the other hand, the findings were that Mr Quigley was investigating the role of Perpetual.

CALLINAN J:   Mr Gilmour, where is the clearest instance of a finding that there was no conflict?  What do you say is the clearest expression of it?

MR GILMOUR:   At page 50 and at line 30.

CALLINAN J:   Page 50 of the application book?

MR GILMOUR:   Of the application book, at line 30.  His Honour the trial judge said:

In my view, the applicants have not made out their contention that there was any relevant conflict of interest within s125 of the ASC Act.

CALLINAN J:   Does that depend upon the fact that there were very few unsecured creditors?

MR GILMOUR:   I do not think that matter was ventilated.

CALLINAN J:   Well, there is a reference to it in square brackets immediately before the passage to which you referred us:

[There was very little (comparatively) owed to unsecured creditors.]

MR GILMOUR:   Your Honour, there is a very lengthy treatment of the relationship that existed between Mr Quigley and Perpetual Trustees.  It certainly did not depend upon that factual finding.

CALLINAN J:   But there was some money owed to unsecured creditors; is that correct?

MR GILMOUR:   As I understand it.

CALLINAN J:   And then there were the debenture holders who were the major creditors, I take it; is that right?

MR GILMOUR:   Yes.

CALLINAN J:   Who, of course, had priority over unsecured creditors and, indeed, shareholders who would have come last; is that right?

MR GILMOUR:   Yes, that would be so, your Honour.

CALLINAN J:   And Messrs Quigley and Christensen would have been acting as consultants theoretically in the interests of all three, shareholders, unsecured creditors and debenture holders, and, indeed, the trustee.  Is that not correct?  All of those persons would have an interest in the outcome of anything that they did.  I just have difficulty with the expression “coincidence of interest” as in some way contrasting it with “conflict of interest” here.

MR GILMOUR:   It is comparing a supposed conflict of interest to Mr Quigley bearing some duty, it might be said, to Perpetual, on the one hand, and his duties to the ASC, but the findings of fact, and well‑founded, were that Mr Quigley was pursuing investigations into the role of Perpetual.  He had taken legal opinion as to a possible action in negligence against Perpetual and he had disclosed these matters for the purposes of section 125(3) of the ASC Act to the ASC.  The ASC was fully informed.  There is no obligation on the ASC when a possible conflict is made known to it to not permit a staff member to be engaged in an investigation and that is the way the matter was found and it is in that sense that it is said to be a coincidence of objects, that is the pursuit by the ASC and by Mr Quigley of the interests of, amongst others, the debenture holders and, if necessary, by action against Perpetual.

GLEESON CJ:   Yes, thank you, Mr Gilmour.  Mr Gee, we will see what you want to say in reply to Mr Gilmour before we go on to Mr Conti.

MR GEE:   The importance of the general point does not, in my submission, depend upon the particular factual findings below.  I put submissions about that.  I sum them up by saying the fact that you can find a commonality of interest or aims between A and B does not exclude the possibility also of conflict on some other point between A and B and that is ultimately the vice.  We are dealing here, if your Honours please, obviously with legislation of national effect and if the Court needed some scintilla of evidence that the matter is regarded in the commercial and corporate world as being of potential importance and giving rise to difficulties, we would first of all rely on the cautionary paragraph in Justice Merkel’s judgment at the end about problems that might be posed by these arrangements whereby the ASC gets the free use of consultants and also, as it happens - and I do not want to put too much weight on it - there was a recent article in the Australian Law Journal by Mr Baxt about the implications.  I do not know whether your Honours would be assisted by seeing a copy of that but ‑ ‑ ‑

GLEESON CJ:   Is this amongst our materials?

MR GEE:   No, it is not.  I will have to hand up some extra copies, your Honour, and I will hand over copies to my learned friends.

GLEESON CJ:   Thank you.

MR GEE:   The learned author discussed the implications of this case in the Full Court and concluded with remarks that I would respectfully ask the Court to consider in the right‑hand column at page 339 in respect of the difficulties which this learned gentleman regarded as being thrown up by the very case.

GLEESON CJ:   I am sorry, 339?

MR GEE:   Page 339, right‑hand column, your Honour, where he, in effect pulls his strings together.

GLEESON CJ:   Yes.

MR GEE:   Now, your Honours, in our respectful submission, the problem is that the courts below in focusing on whether there might actually be conflict or whether Mr Quigley appreciated that he had various duties just ignored the problem that the appointee under the consultancy arrangement in becoming a staff member came under all of the obligations, strictures and responsibilities of a public character identified particularly by Justice McHugh in Johns’ Case, so that there are, in our submission, wide questions involved that have already excited the interest of at least one part of the commercial and corporate community and the reliance by our learned friends on the proposition that they enjoyed factual findings below, in our submission, simply misses the point.

GLEESON CJ:   We do not need to hear you, Mr Conti.

The Court considers that this case, on the facts found by the courts below, is not a suitable vehicle for considering the issues of statutory construction and of conflict of interest which the applicant desires to agitate.  Special leave to appeal will be refused.

Do you resist an order for costs?

MR GEE:   No, your Honour.

GLEESON CJ:   The applicant must pay the costs of the respondents of the application.

AT 12.36 PM THE MATTER WAS CONCLUDED