Chapel Road Pty Limited v Australian Securities Investments Commission (No 10)
[2014] NSWSC 346
•28 March 2014
Supreme Court
New South Wales
- Summary available
- Amendment notes
Medium Neutral Citation: Chapel Road Pty Limited v Australian Securities Investments Commission (No 10) [2014] NSWSC 346 Hearing dates: 18 November 2013, 19 November 2013, 20 November 2013, 21 November 2013, 22 November 2013, 25 November 2013, 26 November 2013, 27 November 2013, 28 November 2013, 2 December 2013 and 3 December 2013 Decision date: 28 March 2014 Jurisdiction: Common Law Before: Schmidt J Decision: Chapel Road's statement of claim is dismissed. The usual order as to costs is that they follow the event. In the event that the parties wish to be heard on that order they should approach within 14 days, otherwise that will be the Court's order.
All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.
Catchwords: TORTS - malicious prosecution - misfeasance in public office - elements of tort - revocation of security dealer's licence - whether plaintiff pleaded case it pressed - can tort of misfeasance in public office be established by aggregating the conduct of various ASIC officers as plaintiff sought to do - statutory framework - the elements of tort of misfeasance in public office - plaintiff's approach to the tort not available - whether factual findings sought can be made - credit issues - Jones v Dunkel inferences - expert evidence - ASIC's practises in 1999 - expert's views - Regulation 7.3.02 of Corporations Law - compliance system - whether decision to commence second surveillance motivated as alleged - whether conduct of ASIC officers in second surveillance was conducted and motivated as alleged - whether decision to use results of second surveillance for revocation of or imposition of conditions upon plaintiff's licence motivated as alleged - whether decision of the delegate to revoke licence motivated as alleged - damages - causation - expert evidence as to valuation - orders Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Corporations Law (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345
Australian Securities Commission v Kippe [1996] 67 FCR 499; 137 ALR 423
Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC 718; 42 ASCR 515
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336
Chapel Rd v ASIC [2006] NSWSC 1014
Chapel Road v ASIC (No 2) [2007] NSWSC 975; Aust Torts Reports 81-912
Chapel Rd Pty Ltd v Australian Securities and Investments Commission (No 6) [2012] NSWSC 511
Chapel Road Pty Limited v Australian Securities Investments Commission (No 7) [2012] NSWSC 584
Cornwall v Rowan [2004] SASC 384; 90 SASR 269
Dasreef Pty Ltd v Hawcher [2011] HCA 21; 243 CLR 588
Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; 24 ALR 577
Fabre v Arenales (1992) 27 NSWLR 437
Jones v Dunkel [1959] HCA 8; 101 CLR 298
Leinenga v Logan City Council [2006] QSC 294
Luxton v Vines [1952] HCA 19; 85 CLR 352
Minister of Aboriginal and Torres Strait Islander Affairs of the Commonwealth of Australia v Malcolm Mcdonald Douglas and Valerie Anne Douglas and Francis Djaigween, Frank Sebastian, Mathew Gilbert and Joe Bernard [1996] FCA 1509 (28 May 1996)
Manly Council v Byrne and Anor [2004] NSWCA 123
McLachlan v Australian Securities & Investments Commission [1999] FCA 244; 85 FCR 286
Moder v Commonwealth of Australia [2012] QCA 92; 261 FLR 396
Neilsen v The City of Swan [2006] WASCA 94; 147 LGERA 136
Northern Territory v Mengel [1995] HCA 65; 185 CLR 307
Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129
Sanders v Snell [1998] HCA 64; 196 CLR 329
Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; 200 CLR 121
Singh v Minister for Immigration and Multicultural Affairs [2001] FCA 389; 109 FCA 152.
Three Rivers District Council v Bank of England No 3 [1000] 3 All ER 1
Trobridge v Hardy [1955] HCA 68; 94 CLR 147Category: Principal judgment Parties: Chapel Road Pty Limited (Plaintiff)
Australian Securities Investments Commission (Defendant)Representation: Counsel:
Mr A Black SC with Mr I Todd and Mr S Walsh (Plaintiff)
Mr NJ Williams SC, Mr JR Clarke SC and Mr TL Phillips
Solicitors:
Creagh & Creagh (Plaintiff)
Ashurst Australia (Defendant)
File Number(s): 2006/266784 Publication restriction: None
Judgment
In April 2001, the Australian Securities and Investments Commission revoked Chapel Road's security dealers' licence, after a decision made by its delegate, Mr Reynolds. Chapel Road successfully challenged that decision before the Administrative Appeals Tribunal, with the result that in July 2003 the revocation decision was set aside. The matter was remitted to ASIC with a direction that Chapel Road's licence be reinstated, subject to appropriate conditions, with a view to ensuring effective compliance with the conditions of its licence. Despite that success, Chapel Road did not resume its former business.
Chapel Road brought these proceedings in 2006, claiming that its licence had been revoked for improper reasons, ASIC having intended thereby to wrongly do it harm. It pursued both exemplary and aggravated damages for the torts of misfeasance in public office and malicious prosecution.
In 2006, Harrison AsJ struck out Chapel Road's statement of claim (see Chapel Rd v ASIC [2006] NSWSC 1014). In August 2007, Howie J upheld an appeal, in part, from that decision, concluding that her Honour had erred in holding that a company could not maintain a claim for malicious prosecution, ASIC having conceded that point. His Honour also concluded that the tort of malicious prosecution did not extend beyond legal proceedings and was generally confined to criminal proceedings, as well as some specific civil proceedings. Accordingly, it was not available to Chapel Road in the circumstances of this case (see Chapel Road v ASIC (No 2) [2007] NSWSC 975; Aust Torts Reports 81-912).
Harrison AsJ had also concluded that ASIC had acted in accordance with the power vested in it by the Corporations Law (Cth) and that Mr Reynolds' decision had not involved an invalid or unauthorised act. On appeal, Chapel Road's case was that her Honour had:
"... failed to consider whether there was an arguable case on the basis of the allegations raised in the pleadings to the effect that ASIC had carried out its functions and duties in respect of Chapel Road in bad faith, with the intention of harming the company and that such can be inferred from its conduct prior to the hearing by its delegate and is confirmed by the unreasonableness of the delegate's findings' ([54]).
Howie J concluded at [60]:
"[60] ...The allegation is to the effect that ASIC had determined to revoke the licence before the hearing and thereby deprived the company of a chance of meeting the concerns of ASIC and maintaining its licence. Upon that allegation which can be derived from the pleadings, although with some difficulty, an arguable case of misfeasance in public office is made out: Northern Territory v Mengel (1994) 185 CLR 307 at 357 per Brennan J. The allegation was of a lack of procedural fairness, not as a result of any defect in the hearing, but on the basis that the result of the proceedings had been contrived at by ASIC in the manner in which the whole of the investigation and procedure had been conducted and that ASIC acted in the way in order to harm the company by depriving it of its licence so that it could not operate its business."
His Honour considered that there were real difficulties in proving such a case, but that it could not be concluded that it was completely hopeless and so this aspect of the appeal was upheld. The pleadings were later amended to address this pleading problem, but still, whether the case was adequately pleaded and raised an arguable case of misfeasance in public office remained in issue.
The hearing finally proceeded on the second further amended statement of claim filed by Chapel Road pursuant to leave granted in April 2012 (see Chapel Road Pty Limited v Australian Securities Investments Commission (No 7) [2012] NSWSC 584).
The case pressed at the hearing was that ASIC had acted upon a series of decisions made by various of its officers who had intended to harm Chapel Road, which had resulted in administrative proceedings which were procedurally unfair and attended by malevolence towards Chapel Road.
ASIC's case was that the claims so advanced had not been pleaded; that the case pressed was not one available as a matter of law; that the evidence did not provide a factual foundation for the findings on which Chapel Road's case rested; and that what was claimed had not been established on the evidence.
Chapel Road denied that its pleadings were deficient, contending that it was entitled to rely on a course of conduct of a number of ASIC officers, for which it was responsible and by which the tort it alleged had been established.
The issues as finally formulated
When the hearing commenced, the issues lying between the parties had not been agreed. Chapel Road then identified its case to be concerned with the acts of various ASIC officers. They included Mr Burgess, who led the surveillance ASIC had conducted of Chapel Road's operations; ASIC's Director of DISC, Ms Layton; its general counsel, Ms Redfern; officers involved in the proceedings before Mr Reynolds; and Mr Reynolds himself.
ASIC contended that the issues lying between the parties could only be concerned with the acts of Mr Reynolds.
In a lengthy opening it was explained for Chapel Road that the case it would pursue was one of targeted malice as discussed by Buss J in Neilsen v the City of Swan [2006] WASCA 94; 147 LGERA 136 at [43].
While Chapel Road accepted that ASIC was entitled to investigate its operations as it had, it contended that ASIC had wrongly targeted it for punishment from some time in February/March 2000, after it had investigated a fraud which Robyn Cochrane, the mother of one of its proper authority holders, Stephen Cochrane, had engaged in. ASIC had considered that Chapel Road should pay out any claimant affected after Mr Cochrane joined it and had misstated Chapel Road's attitude to those who made claims upon it. The eventual result was that its licence was wrongly revoked as the result of conduct wrongly pursued by ASIC officers until the decision revoking its licence was made by Mr Reynolds. That conduct was malicious, pursued with the intention of damaging it, by loss of its licence.
Chapel Road also alleged that during this time, ASIC had deliberately concealed feedback as to the outcome of the surveillance it had conducted of its operations, even though self evidently it was in the interests of the public that such feedback be provided, so that it could improve its performance. That decision was also motivated by an intention to damage Chapel Road, which ASIC pursued successfully, until Mr Reynolds' decision was overturned by the AAT. It had gone to the hearing before Mr Reynolds not offering Chapel Road the facility of an enforceable undertaking, but intending that its licence be revoked. In the result its conduct was malicious.
For its part ASIC denied any wrongdoing. Its case was that it had no obligation to provide Chapel Road with technical internal reports provided by Ms Donselaar of its National Compliance Unit to its investigators, on which Chapel Road's case relied. It was a matter for it to determine whether the concerns it had should be dealt with by way of enforceable undertakings, or a hearing before a delegate. It had determined to pursue a hearing for good reason. Mr Reynolds had, however, been critical of its failure earlier to provide Chapel Road with copies of Ms Donselaar's reports and so it was provided with those reports and given an opportunity to deal with them, before the hearing proceeded. The failure to provide the reports earlier could not establish the malice alleged. Nor could the eventual decision to revoke the licence, made after Chapel Road had been given a fair hearing.
As the hearing advanced it became apparent that there was a measure of agreement between the parties as to some matters. At the end of the second day of the hearing, Chapel Road recast the issues which it contended had to be resolved as:
"1 The Tort - Misfeasance in Public Office
Elements of the Tort:
a. Invalid, unlawful or unauthorised act,
b. done maliciously
c. by a public officer
d. in purported discharge of his (her) public duties
e. which causes loss to the plaintiff
The plaintiff contends that if the 'act' (otherwise within power) is done for improper/ulterior motive (to intentionally harm someone), then the act is done in bad faith, and the power is exercised unlawfully.
2. The plaintiff contends that:
2.1 The decision to commence the 'second (June 2000) surveillance [para 24 FASOC],
2.2 The decision [para 41(a) FASOC] to withhold the March 2000 Donselaar Report
2.3 The conduct of the defendant's officers in the manner in which the second surveillance was conducted and reported [paras 26 - 31, 33, 34, 35, 41(a), (c) FASOC]
2.4 The decision to use the March 2000 Donselaar report, and results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the playoffs license [para 39]
2.5 The decision of the delegate to revoke the plaintiff's license [para 39]
3[A] were acts and decisions performed in bad faith, for an ulterior motive, (and thus "unlawfully"), and
[B] were acts and decisions performed with the intention of causing harm to the plaintiff, and
[C] (if it is necessary to stipulate over and above [A]) were done maliciously, and
[D] such acts did in fact cause loss to the plaintiff."
While ASIC accepted that the allegation in 2.5 that Mr Reynolds' decision to revoke the plaintiff's licence had been adequately pleaded, it contended that the other issues had not. The identity of the other alleged decision makers had not been pleaded and what was contended in 2.3 did not identify any particular conduct, officer or state of mind, necessary to establish the claimed tort.
ASIC did not contest that the decision to issue a notice of hearing and the decision to revoke Chapel Road's licence involved the exercise of public power. That other decisions on which Chapel Road relied were acts or decisions performed by ASIC officers in the discharge of its public duties was in issue. Their alleged malicious motives were denied.
In written submissions advanced in closing as to the applicable legal principles, Chapel Road reformulated the issues which had to be resolved (MFI 97). They were then identified to be:
"(a) The decision to commence the 'second '(June 2000) surveillance [para 24 FASOC]
(b) The conduct of the defendant's officers in the manner in which the second surveillance was conducted and reported [paras 26 - 31,33, 34, 35 FASOC]
(c) The decision to use the results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the plaintiff's license [para 39]
(d) The decision of the delegate to revoke the plaintiff's license [para 39]
[A] were acts and decisions performed in bad faith, for an ulterior motive (and thus "unlawfully"), and
[B] were acts and decisions performed with the intention of causing harm to the plaintiff, and
[C] (if it is necessary to stipulate over and above [A]) were done maliciously, and
[D] were acts and decisions performed by a public officer (ASIC) in the purported discharge of its public duties; and
[E] did in fact cause loss to the plaintiff."
It was only in its closing submissions that Chapel Road revealed that its case was advanced on the basis of 24 findings of fact (MFI 93), which were sought by reference to 215 events identified in an aide memoire evidenced by various documents (MFI 94). It addressed its oral submissions to those matters, after ASIC had made its closing submissions.
Chapel Road then pressed its case on the basis that this evidence established that it was Ms Redfern, Ms Layton, Mr Burgess and Mr Reynolds who were all motivated by ill will towards it and that they, acting in combination, had taken the actions which constituted the tort it alleged.
ASIC had not called any of these officers to give evidence. Chapel Road relied on this to submit that an inference would be drawn that nothing that any of them, or other ASIC officers who had not been called, such as Ms Donselaar, could have said would have assisted ASIC's case. That was in issue.
ASIC's position was that the findings which Chapel Road sought could in the main not be made and that the tort could not be established in the way Chapel Road contended.
It was finally apparent that the parties were not agreed as to whether the case pressed at the hearing had been adequately pleaded; what the elements of the tort of misfeasance in public office were; whether the case which Chapel Road finally advanced was capable of establishing the tort alleged, relying as it did on the acts of a number of ASIC officers, including the delegate, in combination, absent an allegation such as conspiracy between those officers; whether the facts on which Chapel Road's case rested, as finally pressed, could support the factual findings it sought; whether the inferences it sought to draw from the documents on which its case rested were available; whether those facts could constitute the tort it alleged; and whether Chapel Road had established the damages it claimed to have suffered.
Did Chapel Road plead the case it pressed?
Chapel Road pleaded in its second further amended statement of claim amongst other things that:
● ASIC had a usual practice as part of a policy aimed at prompting compliance and certainty to provide financial service business with feedback, information and/or reports (16)
● ASIC's usual practice before commencing enforcement action was to:
(a) provide copies of reports such as Ms Donselaar's March 2000 report to the licensee or to provide the licensee with feedback and information in relation to the issues raised in the reports
(b) to give the licensee an opportunity to respond
(c) to give the licensee an opportunity to rectify any deficiencies identified (17)
● Contrary to its usual practice ASIC did not provide it with any such information or feedback.(18)
● Despite a number of requests Mr Burgess did not provide it with Ms Donselaar's March and August 2000 reports. (19)
● Those reports were not provided until December 2000 (20)
● If it had been informed of the compliance issues would have addressed them promptly (21).
● After a meeting on 7 February 2000 and before a meeting on March 2000, through its general counsel Ms Redfern ASIC had wrongly formed opinions or beliefs were erronope and had no proper basis that it:
- It had a responsibility to compensate clients of Robyn Cochrane for losses suffered as a result of her conduct
- As a result of changes in its directors Chapel Road would not cooperate with the settlement of the Cochrane claims.
- That Chapel Road was a recurring problem and dangerous (22 and 23)
Chapel Road further claimed that as a result, at a meeting on 22 March 2000 ASIC determined through its officers including Ms Redfern, to:
(a) Commence a second period of surveillance.
(b) Broaden the scope of the surveillance.
(c) Conduct the surveillance in an aggressive manner.
(d) Use the surveillance to obtain support for revocation of its licence; or to impose conditions on the licence.
(e) To seek revocation or condition on the licence.
(f) To proceed to a hearing. (24)
Chapel Road claimed that thereby, ASIC intended to do it harm and that alternatively, it was recklessly indifferent to what harm it might cause (25). ASIC then pursued further surveillance between March and November 2000, not making its investigator Ms Donselaar aware that a copy of her March report had not been provided to it. It pursued the second surveillance and commissioned a further report from Ms Donselaar, not making her aware that it had not been provided with her March report or made aware of its contents. It did not provide the March and August reports until after the notice of hearing had been issued, (26-29). .
Chapel Road also contended that:
1 ASIC officers involved, including Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess did not have an honest belief that the notice of hearing issued in November should have been issued to it, or that its licensee should have been revoked (39).
2 A person of ordinary prudence and caution in ASIC's circumstances, having the information available to it, could not reasonably have made the decision made (40).
3 That through its officers, including but not limited to Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess ASIC displayed bad faith in the performance of its functions and duties under the Corporations Law then in force, by:
(a) Withholding the March 2000 and August 2000 Reports;
(b) Through Mr Burgess, representing to it that there were no reports;
(c) Conducting the second period of surveillance for the ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, alternatively impose conditions on the Plaintiff's licence;
(d) Treating the Plaintiff differently to other licensed authority holders including Count Financial Group Pty Ltd, Grosvenor Securities Pty Limited, Westpac Banking Corporation and Suncorp Metway Group;
(e) Failing to honestly perform the functions of their office;
(f) Wilfully turning a blind eye to the truth regarding Chapel Road's activities, and at the very least displaying a reckless disregard for the inevitable consequences of their conduct;
(g) Having previously published a "Hearing Procedure Manual" setting out in clear, unambiguous and relatively particularised form, the manner in which it sought to exercise its powers, duties and functions in following a practice of enforcement, encouragement and certainty and in so doing, causing least disruption to the business community - failing to follow its own guidelines and in doing so denied it procedural fairness and natural justice;
(h) Breaching its statutory obligation to observe procedural fairness;
(i) Failuring to provide natural justice in withholding information regarding its investigations, knowing that had it been informed Chapel Road could have addressed all relevant issues of concern, and by such a deliberate and consistent course of conduct displaying malice and lack of any honest attempt to perform the functions of its office;
(j) Being motivated by a purpose extraneous to the purpose for which the duties were bestowed upon it under "the statutory scheme" was given, in that the Defendant acted maliciously;
(k) acting with the intention of causing Chapel Road harm (41).
4 ASIC had engaged in such conduct either intending or with reckless disregard for the inevitable consequences of that conduct to Chapel Road's security business(42).
Chapel Road sought damages, plus interest, pursuant to s 100 of the Civil Procedure Act 2005 (NSW) for the period 26 April 2011 to date and continuing to judgment, for:
1. Costs incurred in dealing with the surveillance, the hearing and the decision to cancel its licence, including the AAT appeal.
2. Loss of profits resulting from:
2.1 damage which ASIC's conduct caused to its business.
2.2 ASIC's continuing conduct, which amounted to an abuse of the powers and functions of its office.
3. Aggravated damages for loss of the opportunity to expand and grow its business, due to ASIC's conduct.
4. Exemplary damages.
By its defence, ASIC contended that in 1999 it became aware that Robyn Cochrane had given investment advice to clients of her son, Mr Stephen Cochrane, one of Chapel Road's proper authority holders. It subsequently investigated Chapel Road's adherence to its licence conditions. ASIC admitted various of the factual matters on which Chapel Road relied as to the surveillance which it had conducted, the resulting reports issued by its officers and the steps it later pursued, which finally resulted in the revocation of Chapel Road's licence. ASIC also admitted that the AAT had set aside the delegate's decision on the basis that:
"(a) there was reason to believe that Chapel Road would satisfy the required compliance standards and perform its duties as a dealer efficiently, honesty and fairly and
(b) there had been a sufficient deterrent effect arising from the revocation, the proceedings in the AAT and the effective cessation of its business n the intervening period."
ASIC did not admit that it had the usual practice Chapel Road claimed in relation to the provision of feedback, information or reports. It denied having the opinions Chapel Road asserted, or having wrongly conducted itself, as it claimed.
ASIC contended that the decision to issue the November 2000 notice of hearing and later to revoke Chapel Road's licence were those of the delegate, Mr Reynolds. It denied that he did not have an honest belief that the notice should be issued, or that Chapel Road's licence should be revoked. It also denied that others had made those decisions.
ASIC also contended that Chapel Road had not properly pleaded its damages claim and did not admit that it had suffered any loss or damage. At the hearing ASIC submitted that Chapel Road's pleaded case was deficient, not identifying with necessary particularity the case it sought to establish.
Chapel Road narrowed the case it pressed at trial, but still ASIC maintained that it had not identified with necessary specificity the decisions on which its case rested, or the officers it claimed had made them, as it had to do, given the serious nature of the allegations made and the state of mind of the decision makers it had to prove.
ASIC's case was finally that the only substantive decision which involved the exercise of any public power or performance of any public duty, or which could have caused Chapel Road the damage it claimed to have suffered, was Mr Reynolds' decision to revoke its licence.
It seems to me that while Chapel Road's case could certainly have been better pleaded than it was, it did largely meet the obligation imposed by Rule 14.4 of the Uniform Civil Procedure Rules 2005 to plead specifically any matter that if not pleaded specifically, could take the defendant by surprise.
There was, however, a problem with the pleadings in relation to the malice which it alleged and on which its case depended. That flowed from the way in which Chapel Road approached the elements of the tort and how it considered they could be proved, to which I will now turn.
Can the tort of misfeasance in public office be established by aggregating the conduct of various ASIC officers as Chapel Road sought to do?
The statutory framework
In resolving what lies between the parties in relation to the tort which Chapel Road alleges ASIC committed, it is necessary to bear in mind the statutory regime under which ASIC operated and Chapel Road was licensed.
ASIC is a body corporate consisting of a number of members (see s 8 and s 9 of Australian Securities and Investments Commission Act 1989 (Cth) - (the 'ASIC Act'). It had functions conferred upon it by that Act and by the Corporations Law, including powers of investigation (see s 13(1)). It acted through its Commissioners and officers, including in the case of delegated powers such as those exercised by Mr Reynolds, through its delegates (see s 102). There was no issue between the parties as to its liability for such acts.
Chapel Road held a licence regulated by the Corporations Law. Section s 817 made licensees liable to third parties for the conduct of their authorised representatives (see also s 806). Section 788 required Chapel Road to lodge information as to its securities business as directed from time to time by ASIC. Section 787 obliged licensees to notify ASIC of breaches of licence conditions.
By s 786, Chapel Road's licence was subject to conditions and restrictions prescribed by regulation or imposed by ASIC, which also had the power to vary those conditions, subject to compliance with s 837. The Corporations Law itself also imposed various obligations on licensees, including for example by s 849, which obliged licensees to disclose to clients any commission, fee or other benefit or advantage they would receive in connection with any recommendation or dealing in securities the client may make.
It was not in issue that Chapel Road had breached various of these obligations. Whether other alleged breaches had occurred was disputed. There was, for example, disagreement about Chapel Road's compliance with Regulation 7.3.02, which provided:
"CONDITIONS TO WHICH LICENCES ARE SUBJECT
7.3.02. (1) [Training and supervision of representatives] For the purposes of section 786 of the Corporations Law, a licence is subject to the conditions that the holder of the licence must ensure that each representative of the holder:
(a) is adequately supervised in the performance of the duties that he or she is required by the holder to perform; and
(b) is sufficiently trained in relation to those duties before acting as a representative; and
(c) keeps up to date in relation to those duties by means of continuing training programs.
7.3.02(2) [ASIC may require proof of training, etc] ASIC may, by notice in writing, require a holder of a licence to satisfy it that the conditions referred to in subregulation (1) have been met by the holder."
ASIC investigated Chapel Road's compliance with its licence conditions first in 1999 and again in 2000. On both occasions the view reached by the surveillance team was that it was in breach of its licence conditions and other obligations. No statutory or regulatory provision relied on by the parties, or any policy in evidence, obliged ASIC to assist licensees in meeting their licence obligations, as Chapel Road complained ASIC failed to do. Nor did they impose any obligation on ASIC to provide a licensee with copies of reports it claimed it should have been provided, before Mr Reynolds issued a notice of hearing in November 2000. The experts called by the parties gave evidence as to its then practice. That evidence finally did not support Chapel Road's case.
The consensus reached by the experts was that contrary to Chapel Road's case, the approach ASIC adopted to the provision of those reports to Chapel Road, that is in not providing them prior to hearing, did not depart from its then usual practice.
ASIC had power under s 93AA of the ASIC Act to accept enforceable undertakings from licensees in relation to conditions of their licence. Such undertakings were ordinarily drafted by ASIC. Under the policy then in force, ASIC had to consider, amongst other things, that such an undertaking was an appropriate regulatory outcome in respect of the concerns it had identified in relation to the licensee, having regard to the significance of those issues to the market and the community.
The evidence showed that ASIC did consider whether it should deal with concerns which it came to have about Chapel Road's adherence to its obligations by way of such an undertaking, but never finally offered Chapel Road that opportunity. Nor were undertakings ever proffered by Chapel Road to ASIC. Undertakings were initially recommended as the appropriate regulatory response by Mr Burgess and other members of ASIC's surveillance team after its first surveillance in 1999. Ms Donselaar, ASIC's in house expert, then gave advice to the surveillance team. This led to a second period of surveillance in 2000 and the view finally that undertakings were not adequate, so that possibility was not pursued with Chapel Road.
Section 827 of the Corporations Law empowered ASIC to suspend a licence. Section 826 empowered ASIC to revoke a licence for contravention of a condition of the licence, if:
"...
(c) the licensee contravenes a securities law;
(d) the licensee contravenes a condition of the licence;
...
(j) the Commission has reason to believe that the licensee has not performed efficiently, honestly and fairly the duties of a holder of a dealers licence or an investment advisers licence, as the case requires; or
(k) the Commission has reason to believe that the licensee will not perform those duties efficiently, honestly and fairly."
Section 837(2) obliged ASIC to give a licensee an opportunity to appear, make submissions and lead evidence at a hearing, before a licence was revoked. That was the course which ASIC pursued after the 2000 surveillance, after taking further advice from Ms Donselaar. The hearing was conducted by Mr Reynolds in accordance with ASIC's policies and the ASIC Act which governed the conduct of such a hearing. It provided in s 59 and s 60:
"59 Proceedings at hearings
(1) A hearing shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of national scheme laws of this jurisdiction and a proper consideration of the matters before the Commission permit.
(2) At a hearing, the Commission:
(a) is not bound by the rules of evidence;
(b) may, on such conditions as it thinks fit, permit a person to intervene; and
(c) shall observe the rules of natural justice.
(3) Subject to subsection (4), Division 4 of Part 4 (other than section 104) applies, so far as practicable, in relation to a hearing as if the hearing were a meeting of the Commission.
(4) At a hearing before a Division of the Commission, 2 members of the Division form a quorum.
(5) At a hearing, a natural person may appear in person or be represented by an employee of the person approved by the Commission.
(6) A body corporate may be represented at a hearing by an officer of the body corporate approved by the Commission.
(7) An unincorporated association, or a person in the person's capacity as a member of an unincorporated association, may be represented at a hearing by a member or officer of the association approved by the Commission.
(8) Any person may be represented at a hearing by a barrister or solicitor of the Supreme Court of a State or Territory or of the High Court.
60 Commission to take account of evidence and submissions
The Commission shall take into account:
(a) evidence given, or a submission made, to it at a hearing; or
(b) a submission lodged with it under section 57;
in making a decision on a matter to which the evidence or submission relates."
In exercising its powers and functions ASIC was obliged by s 1(2) of the ASIC Act to strive to:
"(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b) promote the confident and informed participation of investors and consumers in the financial system; and
(c) achieving uniformity throughout Australia in how the Commission and its delegates perform those functions and exercise those powers; and
(d) administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and
(e) receive, process and store, efficiently and quickly, the information given to the Commission under the laws that confer functions and powers on it; and
(f) ensure that information is available as soon as practicable for access by the public; and
(g) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it."
ASIC accepted that the key substantive requirements of natural justice in the context of such a hearing were that any material relevant to the making of the order be made available to a licensee prior to or at the hearing and that licensees be given the opportunity to appear, make submissions and give evidence. As I will explain, Chapel Road was afforded those things.
Both Mr Reynolds and Handley DP, who later reviewed his decision, plainly came to consider that it would have been preferable had Ms Donselaar's reports to ASIC been provided and Chapel Road been given the opportunity to respond to her criticisms, before the notice of hearing was issued. Chapel Road was, however, given the reports and an opportunity to respond to them, before the hearing proceeded.
That Ms Donselaar's reports were not provided before the matter was referred to Mr Reynolds and that what occurred prior to and during the hearing was the result of targeted malice engaged in for the purpose of harming Chapel Road, was in issue.
The elements of the tort of misfeasance in public office
The elements of the tort were described by Dean J in Northern Territory v Mengel [1995] HCA 65; 185 CLR 307 at [23] to be:
"(i) an invalid or unauthorised act; (ii) done maliciously; (iii) by a public officer; (iv) in the purported discharge of his or her public duties; (v) which causes loss or harm to the plaintiff. That summary statement of the elements of the tort inevitably fails to disclose some latent ambiguities and qualifications of which account must be taken in determining whether a particular element is present in the circumstances of a particular case. The critical element for present purposes is malice."
Chapel Road's case was that the tort was not confined to these strict parameters and that in the case of targeted malice such as it alleged, it may not be necessary to establish that the act relied on was invalid or unauthorised (see Three Rivers DC v Bank of England No 3 [2000] All ER 1 at 49). In any event, if an act within power was done for the improper or ulterior motive of doing the target harm, then it was done in bad faith and was exercised unlawfully (see Cornwall v Rowan [2004] SASC 384; 90 SASR 269 at [209] - [216]). That was in issue.
It is apparent from the authorities that the limits of the tort are not yet settled (see Sanders v Snell [1998] HCA 64; 196 CLR 329 at [42]). There is, however, no question that conduct which constitutes an abuse of power may be either a deliberate act or a deliberate omission (see Mengel per Brennan J at 357), but not all acts of a public officer involve the exercise of a public power or duty (see Neilsen v City of Swan at [128] - [138]). Brennan J described the tort in Mengel (at 357) as involving "a purported exercise of some power or authority by a public officer otherwise than in an honest attempt to perform the functions of his or her office whereby loss is caused to a plaintiff". A denial of procedural fairness is an act which can constitute the tort, but it is not every such denial which will be sufficient (see Snell at [38] - [45]).
How the cases were pressed
Chapel Road accepted that it had to establish the wrongful motives it alleged for the acts and omissions on which its case rested. It sought to do so by drawing inferences from documents and other evidence which revealed actions taken and decisions made by various ASIC officers. Together that evidence, it was claimed, established ASIC's malicious state of mind.
That this tort, claimed to be the result of targeted malice, could be established by so aggregating the acts of various officers, as Chapel Road sought to do, was also in issue. On ASIC's case the serious allegations which Chapel Road sought to advance had not been adequately pleaded and could not be rolled up, as Chapel Road sought to do.
Chapel Road's approach to the tort is not available
As Mullins J discussed in Leinengav Logan City Council [2006] QSC 294 at [64], this tort is difficult to establish. That is in part because of the seriousness of the conduct involved in the tort, which must be properly pleaded, including as to motive. Proof of what must be established has to be approached in accordance with the requirements of s 140(2) of the Evidence Act1995 (NSW) That section imports the principles discussed in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336, which require that the Court bear in mind the seriousness of what is alleged when determining whether the onus falling on the plaintiff has been met, on the balance of probabilities.
In Mengel Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ observed (at 347) as to motive that:
"It may be that analogy with the torts which impose liability on private individuals for the intentional infliction of harm would dictate the conclusion that, provided there is damage, liability for misfeasance in public office should rest on intentional infliction of harm, in the sense that that is the actuating motive, or on an act which the public officer knows is beyond power and which is calculated in the ordinary course to cause harm. However, it is sufficient for present purposes to proceed on the basis accepted as sufficient in Bourgoin, namely, that liability requires an act which the public officer knows is beyond power and which involves a foreseeable risk of harm."
But proof of malice alone is not sufficient. As Brennan J discussed in Mengel (at 356):
"A number of elements must combine to make a purported exercise of administrative power wrongful. The first is that the purported exercise of power must be invalid, either because there is no power to be exercised or because a purported exercise of the power has miscarried by reason of some matter which warrants judicial review and a setting aside of the administrative action. There can be no tortious liability for an act or omission which is done or made in valid exercise of a power. A valid exercise of power by a public officer may inflict on another an unintended but foreseeable loss - or even an intended loss - but, if the exercise of the power is valid, the other's loss is authorised by the law creating the power. In that case, the conduct of the public officer does not infringe an interest which the common law protects. However, a purported exercise of power is not necessarily wrongful because it is ultra vires. The history of the tort shows that a public officer whose action has caused loss and who has acted without power is not liable for the loss merely by reason of an error in appreciating the power available. Something further is required to render wrongful an act done in purported exercise of power when the act is ultra vires."
Chapel Road's case was that there was no requirement that a challenged act be susceptible to judicial review. That was but one means by which invalidity or lack of authority could be established. It was the intention to injure which was critical. That was also in issue, ASIC submitting that there could be no tortious liability for an act or omission done or made in valid exercise of a public power.
The additional element which Brennan J identified was the officer's necessary state of mind, malice or knowledge, "that is to say the mental element is satisfied when the public officer engages in the impugned conduct with the intention of inflicting injury or with knowledge that there is no power to engage in that conduct and that that conduct is calculated to produce injury" (at 357).
This tort is not concerned with mere errors of judgment (see Mengel at 352). What is critical is intention. What Chapel Road had to establish on the evidence is malice on the part of those on whose conduct it relied, that is, that they acted with an intention to do it harm, as well as acting with express knowledge of the absence of power or acting recklessly as to whether or not the power exists (see Mengal at 345-7). Given the targeted malice which Chapel Road pursued, it was thus crucial for attention to be focused on the various acts and omissions of the ASIC officers in question and what they intended thereby, at that time.
Chapel Road's case however rested on inferences which it claimed, taken together, established ASIC's malicious intent, submitting that in a civil case such as this, inferences may be drawn where the circumstances raise a more probable inference in favour of what is alleged. That submission rested on Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352 where Dixon, Fullagar And Kitto JJ observed (at 358):
"...But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co. Ltd. v. Astley (1911) AC 674, at p 687. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise: cf. per Lord Loreburn (1911) AC, at p 678". (at p358)"
Those observations explained the difficulty Chapel Road faced in establishing the inferences its case rested on. It had to establish not only that it could be inferred that ASIC officers were acting with the malicious intent it alleged, but also that there were no other inferences which could be drawn, of equal probability, as to their intentions. On ASIC's case the competing inference was that its officers were pursuing its legitimate purposes in the pursuit of its investigations into Chapel Road.
A further difficulty for Chapel Road's case was that it had not pleaded or alleged any conspiracy amongst those who had made the decisions and pursued the acts on which its case rested. It contended that was not necessary in the case of a corporation such as ASIC, which can act only through its officers, this tort not being confined to one act, or the acts of only one officer. On its approach, each act and decision relied on being that of ASIC and all having been pursued for a malevolent purpose, namely to harm Chapel Road, they were together capable of constituting the tort it alleged.
ASIC's case was that the fictional intention attributed by the law to it was the intention of the particular officer or delegate undertaking the particular act or acts alleged to constitute the tort on its behalf. Chapel Road could not establish its case on a composite or aggregation of the conduct of a number of individual officers as it sought to do (see Logan City Council [2006] QSC 294 at [66] and Moder v Commonwealth [2012] QCA 92; 261 FLR 396 at [73]).
In the result, on ASIC's approach, the only pleaded act which could have caused the loss Chapel Road claimed to have suffered and whose state of mind should be considered, was that of Mr Reynolds.
On Chapel Road's approach the tort could thus be demonstrated by a course of conduct, or a number of acts pursued by a number of officers acting in concert, just as readily as by one act. The real question to be resolved was whether ASIC had acted maliciously in so acting through its officers. The motive or intention which it had to establish was that of ASIC, whose state of mind was to be determined by reference to that of all of its employees or officers. This, too, was in issue.
There was, it seems to me, real difficulty with Chapel Road's approach.
While the precise limits of this tort remain undefined, it is settled that it is a deliberate tort, which requires examination of motive or intention. Given that ASIC is a corporation which can only act through its officers, in order to impute an officer's motive to ASIC, both the officer's act or omission and his or her motive, must be both pleaded and established. If the tort is alleged to rest on the combined effect of the acts and omissions of a number of officers, each having the requisite motive, that too must be both pleaded and established.
The licence revocation which Chapel Road claims caused the damage it seeks to have redressed, was the end result of a number of steps taken beforehand, only some of them by ASIC officers. While such revocation is obviously likely to damage a licensee's business, it does not necessarily follow that what was intended by any particular officer who took any particular action which, together with other actions taken by other officers, ultimately led to revocation of the licence was either licence revocation, let alone damage to the licensee.
Officers who take actions which finally lead to licence revocation may be pursuing quite other motives, when particular actions which precede that final result are taken. Further, even licence revocation itself may be the result of a motive other than inflicting damage on the licensee.
As discussed in Australian Securities Commission v Kippe [1996] FCA 517; 67 FCR 499 at 508 for example, the legal effect intended by a banning order is "preventative in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein." Considerations of personal and general deterrence are also involved (see Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC 718; 42 ASCR 515 at [627] per Gzell J). Considerations of punishment can also arise (see Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129 at [42] - [43] for example). These are all results which may motivate licence revocation and the steps which precede it.
It follows that proof of an individual officer's intention to cause Chapel Road harm must come from something other than the fact of the licence revocation itself, or from the fact that particular actions taken by an officer beforehand, together with actions taken by other officers, or the licensee itself, eventually resulted in a decision to revoke the licence.
Even though a corporate entity such as ASIC can only act through its officers or delegates, when targeted malice is alleged, given the nature of this tort, concerned as it is with the acts and intentions of individuals, the tort cannot be established simply by aggregating the acts of various public officers, or establishing a course of conduct, which it is claimed was improper or tainted in some way. As discussed by Mullins J, in Logan City Council, such a case must be pleaded, including as to the knowledge that the impugned conduct would be likely to cause the particular damage attributed to the misfeasance, which is claimed to be linked to that conduct. As her Honour observed at [66] as to the vice in the statement of claim there advanced:
"... vicarious liability is for each act of each officer, but the critical allegations about intention of the Council found in paragraphs 68 and 173 of the statement of claim depend on an aggregation of the alleged state of mind of each of the officers for each of the alleged acts committed by them, in order to establish the requisite intent or reckless indifference of the Council in relation to any particular impugned conduct, but the plaintiffs have not alleged any basis in the pleading that would enable such aggregation of the states of mind of each of the officers."
That was also a deficiency with the way in which Chapel Road pleaded its case. A similar conclusion was reached by the Queensland Court of Appeal in Moder which held at [73]:
" Paragraph 13(a) of the statement of claim seems to be an allegation that bad faith can be inferred from the multiplicity of errors by the department and the MRT over seven years. However, a case of misfeasance in public office cannot be built upon a foundation that is a composite of the conduct of a number of individual officers, let alone a department or a statutory tribunal."
It seems to me that even if a case such as that which Chapel Road pursued were capable of being advanced or established, the alleged acts and common intentions of the officers relied on to constitute the tort must firstly be pleaded expressly, so that they can be understood and met by the defendant. They must then be proved by reliable evidence which also establishes that those acts were the result of the pursuit of a common intention to damage the plaintiff, the officers in question having acted both maliciously and in concert with each other.
Chapel Road did not set out to establish such a case.
Even if I am wrong in this view, for reasons which I will explain, I have not been convinced that the evidence establishes the case which Chapel Road finally did seek to prove, namely, that the acts relied on were engaged in by Ms Layton, Mr Burgess, Ms Redfern and Mr Reynolds between February/March 2000 until the decision revoking its licence was made in 2001, they each acting maliciously, wrongly intending thereby to damage Chapel Road by their pursuit of the revocation of its licence.
Can the factual findings which Chapel Road sought be made?
Chapel Road called evidence from Mr Bennett, Mr Davies, Mr Gadd, Mr Hollands and Ms Giles. Ms Giles was not required for cross-examination. The credit of Mr Bennett, Mr Davies, and Mr Hollands was in issue.
ASIC finally called no evidence from any of the officers involved with Chapel Road or from Mr Reynolds. Chapel Road's position was that the failure to call such evidence inevitably led to adverse inferences having to be drawn against ASIC. ASIC's position was that the evidence Chapel Road relied on was incapable of establishing what it alleged and so no adverse inferences could be drawn against it.
The parties also called expert evidence which was relevant to the factual findings which were in issue. It is convenient to deal with these matters, before resolving what was in issue as to the facts.
Credit issues
The witnesses each gave evidence about matters which had occurred between 1998 and 2003. No doubt the memory of all witnesses was refreshed by reference to contemporaneous documents.
Of those who were required for cross-examination, Mr Gadd, Chapel Road's former compliance manager, readily conceded not having a memory of certain events and conversations. His credit was not challenged. That of other witnesses who were not prepared to make such concessions, was.
Mr Davies was Chapel Road's former general manager. He confirmed as to various matters that his memory rested on previous notes which he had read and that he could not recall certain matters, including, for example, when he first saw ASIC's letter of 24 September 1999, which advised Chapel Road of the outcome of the first surveillance; what had happened at a meeting he had attended with Ms Diplock, an ASIC Commissioner; and the reason for then seeking a three month extension on the second surveillance ASIC conducted in 2000.
His evidence was particularly relevant to one of the matters in issue, whether ASIC had misled Chapel Road as to the existence of Ms Donselaar's reports.
Mr Davies said in cross-examination that when he commenced at Chapel Road in 2000 he was made aware that it was awaiting ASIC's determination of the appropriate outcome following the 1999 surveillance. He did not, however, recall anyone telling him about the September 1999 letter, or anyone from Chapel Road giving it to him. He had given evidence in the AAT proceedings that he did not recall whether he had ever seen that letter. He also said that he could not recall, even when writing to Mr Burgess in May 2000, whether he had seen the letter. Later he confirmed, however, that Mr Burgess had given him a copy of that letter at a meeting on 10 or 11 May 2000.
Mr Davies insisted, however, that he had a recollection, "as clear as day", that when he had asked Mr Burgess on a number of occasions between March and May 2000 whether any reports had been completed from the surveillance, Mr Burgess told him that "no report exists". Mr Davies claimed that he had made a note of that advice, which he had not kept, but agreed that this advice was never referred to in his reports to the Board or in Board minutes.
Mr Davies denied that he could be mistaken in his recollection of what Mr Burgess had told him, or even that Mr Burgess might have said that "there is no report", rather than "no report exists", even though later Mr Davies agreed that he had understood as the result of his conversations with Mr Burgess that there was no ASIC report to be given to him.
Mr Davies' insistence that Mr Burgess had told him that "no report exists" was finally difficult to credit. It seems unlikely that Mr Burgess would have told Mr Davies that no report existed. There was a surveillance report created after the 1999 surveillance, the detail of which had already been communicated to Chapel Road by the 24 September letter. It was Mr Burgess who seems to have given Mr Davies a copy of that letter, which outlined what was contained in the first report.
That Mr Burgess told Mr Davies in March 2000, what he had advised Mr Gadd in February 2000, namely, that he had no other report to give him, seems much more likely. That was consistent with the evidence of the experts that it was not then ASIC's practice to provide reports such as that which Ms Donselaar had provided the surveillance team to licensees. It also accorded with the evidence which Mr Davies had himself earlier given in the AAT proceedings. Then he agreed in cross-examination that in March, April and May 2000, Mr Burgess had told him there would be "no report provided to you". Indeed at one point in his cross-examination in these proceedings, he said that Mr Burgess had told him that several times, even though he then insisted that Mr Burgess had said there was "no report".
Mr Davies complained variously during his cross-examination that he was being called a liar and that his integrity was being questioned. He also said he appreciated that his credit was on the line, but insisted that he had a clear recollection of what Mr Burgess had said to him, namely that "no report exists". Later, however, he agreed in relation to another matter that he claimed to recollect, that what he was doing was pursuing an approach to his evidence by saying what seemed logical to him.
Mr Davies still refused to accept that there was any difference between Mr Burgess telling him that no report was to be given to Chapel Road and that no report existed. The difference is, however, a clear and important one in the context of these proceedings, given how Chapel Road pressed its case, even if Mr Davies could not, or would not, recognise it.
Given his agreement as to how he was approaching the giving of his evidence, by way of logical reconstruction rather than memory, it became apparent that Mr Davies' evidence had to be approached with some caution. In the result, I could not accept that he had an accurate recollection of conversations which took place some 13 years ago, or that his evidence that Mr Burgess had repeatedly told him between March and May 2000 that no report existed, reflected an accurate or actual recollection.
Mr Hollands replaced Mr Gadd in 2000. He insisted that his memory was much better than it clearly was. When asked when he had received a copy of the 24 September 1999 ASIC letter, his evidence was that if it wasn't before he was appointed in 2000, it was soon afterwards. In the evidence he had given in the AAT some 10 years earlier, however, he said that he was not told about the letter when he was appointed and that:
"Q. Well, so the position was that when you were appointed there was some material available indicating ASIC's concerns but you weren't provided with it?
A. That's correct.
Q. And therefore you didn't have an opportunity to assess the position in terms of ASIC's criticisms of Chapel Road?
A. Not on that specific document, no." "
Mr Hollonds agreed that the evidence which he had then given was correct. That concession shed real light on his ability to recollect what had occurred some 13 years previously.
Mr Hollonds had a practice of keeping on his desk a book of detailed chronological handwritten notes, of things which occurred throughout the working day, made immediately after the phone call or action taken had occurred. Not all his phone calls were, however, there recorded. Those notes were in evidence. It emerged that Mr Hollonds had referred to them in preparing his statement, but he denied that the account which he had given in his statement of various conversations reflected what his notes suggested, rather than any independent memory which he then had. He insisted that his memory was clear and that he could not be mistaken in various evidence which he had given.
I was not able to accept this evidence.
One conversation which Mr Hollonds claimed to have an independent recollection of was a conversation with Mr Burgess on about 28 July:
"Burgess: "... there are mistakes in the Compliance Manuals".
Hollands : "... what are they..?"
Burgess: "it's not our position to tell you, take it up with your consultant".
That recollection did not accord entirely with the note Mr Hollonds made that day, which did not follow his usual practice of identifying the person who he spoke with and the time. Instead, there was a note written alongside that entry, that "Burgess rang requesting information". Nor did it accord with a letter which Mr Hollonds himself later wrote to Mr Burgess.
The note which Mr Hollonds made on 28 July dealt with a number of matters which he later took up in the letter which he sent to Mr Burgess on 7 August. There he said that it had been three weeks since he and Mr Burgess last spoke and referred to matters Mr Burgess had discussed with Mr Davies. Despite this, Mr Hollonds insisted that he was not wrong in his recollection of himself having the above conversation with Mr Burgess on 28 January. What he recorded in the note was:
"Compliance manual - Kerry Giles contact to find out mistakes - ASIC advise there are many
Copy of CPD Presentation for ASIC
Bill to supply July Balance Sheet
* Draft Letter to Brian Burgess ASIC - Disk with Forris
* Induction course details and Implementation"
Mr Hollonds also remembered Mr Burgess saying:
Hollands : "Do you have a report yet from the surveillance visits?"
Mr Burgess: "no a report has not been compiled as yet. I hope to respond by next week"
This claimed recollection also had to be considered in the context of a memo written the same day by Mr Davies, advising Mr Bennett and others that he had been told by Mr Burgess that day that Chapel Road should not expect a report on ASIC's recent surveillance; that there were concerns that it still did not have an induction course; and that there were errors in its compliance manual.
Mr Hollonds explained that he and Mr Davies worked in the same office. That made it entirely possible that he was present when Mr Davies spoke to Mr Burgess that day. He certainly came to know of their discussion. Mr Davies did not address his note to Mr Hollonds, but Mr Hollonds recollected discussing it and what ASIC required with Mr Davies. Still Mr Hollonds claimed to have an independent recollection of himself having a discussion with Mr Burgess on 28 July in the terms to which he had deposed, even though what he remembered departed from his note and also from the advice which Mr Davies had unquestionably received the same day from Mr Burgess.
Mr Hollonds vehemently denied having reconstructed a supposed conversation with Mr Davies from his 28 July notes, or that his memory was mistaken, even though when later asked about another conversation of which he had made notes in accordance with his usual practice, he said that he could not remember specific contents without a diary note. Later Mr Davies said that he had used the notes as points of reference which "bring recall", which he explained to mean that the notes jogged his memory of the conversations.
Given the terms of Mr Hollonds' note of his conversation with Mr Burgess on 28 July and the letter which Mr Hollonds himself later wrote on 7 August, I found Mr Hollonds' evidence as to the state of his memory about his claimed conversation on 28 July with Mr Burgess to be simply implausible. There were other problems with the accuracy of his recollection, which are unnecessary to detail. In the result, I came to the view that his evidence also had to be approached with some caution.
Chapel Road's evidentiary case on damages rested in large part on the evidence of Mr Bennett. Apart from earning trailing commissions, Chapel Road is not now operating a financial advisory business. Mr Bennett is now the controlling shareholder and managing director of Benwest Investment Services Pty Limited ("Benwest") and also the sole director of Chapel Road. He clearly had a significant interest in Chapel Road's case succeeding. Initially, he owned some 20% of Chapel Road and at the time of the hearing, through various entities he was its principal shareholder. He increased his interest in Chapel Road after it lost its license. He became the sole director in 2001. He was funding the litigation. Orders for security for costs have been made against him (see Chapel Rd Pty Ltd v Australian Securities and Investments Commission (No 6) [2012] NSWSC 511).
Mr Bennett had worked as a financial adviser since 1988, when Benwest was issued with its dealer's license. On Mr Bennett's evidence he also had experience in valuation.
Chapel Road was established to acquire the financial planning division of Benwest, with the exception of Mr Bennett's own clients. Some 95 proper authority holders then transferred to Chapel Road. His main focus remained with Benwest, but he provided Chapel Road with consultancy services, assisting Mr Bahles, the managing director and Mr Gadd, its compliance officer. After Chapel Road's licence was revoked, many of its proper authority holders transferred to Benwest.
In evidence was a letter of instructions which Mr Bennett had given Dr Ashe, the expert engaged in 2009 to value Chapel Road's business, when he was asked to provide a quote to undertake a valuation of Chapel Road as at June 1999 and June 2001. The evidence established that the instructions which Mr Bennett gave Dr Ashe were incorrect in part and also incomplete, in a number of relevant respects. They also departed from the evidence which Mr Bennett and others, Mr Gadd, for example, later gave in these proceedings.
For example, Mr Bennett instructed Dr Ashe that [ex AAA tab 12]:
● Chapel Road appointed Stephen Cochrane as an adviser in November 1997. He took over his mother's business and she was apparently retiring. She had been licensed to Financial Wisdom which she subsequently left.
● On finding out about the enforceable undertaking given by Robyn Cochrane to ASIC not to provide investment advice, Chapel Road audited Stephen Cochrane and found he had operated in a proper manner "outside a number of minor issues".
● Robyn Cochrane continued to advise clients between November 1998 and June 1999. Some time later she handed herself in to police and was charged with misappropriating 25 clients' money, having stolen about $2.4 million.
● Financial Wisdom paid out most of these claims.
● In July 1999, ASIC began a surveillance of Chapel Road, but not ANZ or Financial Wisdom, the other dealers Robyn Cochrane had operated under.
● ASIC ordered Chapel Road to conduct an independent audit of Stephen Cochrane's files, at a cost of some $65,000 and then ordered it to reduce the number of its proper authority numbers "(ASIC does not have the legal right to do this)". The numbers were reduced to 42 by June 2000.
● The surveillance visit continued until April 2001 when its licence was revoked. "The whole process was a contrived process for ASIC to show strength to the market. It fraudulently withheld reports that it claimed didn't exist" and "used the fact that Chapel Road didn't implement recommendations in the reports it did not receive."
● Chapel Road was successful in having its license restored by the AAT in early 2004. In that time it lost all of its clients and advisers. Its name, that of its directors and advisers was tarnished as a result.
The evidence which Mr Bennett and Mr Gadd gave contradicted aspects of these instructions. For example, in cross-examination, Mr Gadd's evidence was that Chapel Road had reduced the number of its proper authority holders because it had a number who were doing a small amount of business and it wanted to focus on the representatives who were bringing business through the door. It was Chapel Road's decision to eliminate some of those who were not turning business over. That was a decision taken at a time when Chapel Road was contending with resource issues, which had an impact on its ability to meet the conditions of its licence, which required it to ensure that all of its representatives received ongoing training and supervision.
Mr Gadd's evidence was consistent with some evidence which Mr Bennett himself gave, contrary to the instructions he had given Dr Ashe in 2009. In his first statement, for example, Mr Bennett said that in August 1999, Mr Snape of ASIC told him that "Chapel Road will have to employ further Staff to assist Mr Gadd with compliance or cut the number of proper authorities issued." In the circumstances, that appears to have been sound advice. While Chapel Road did reduce the number of its proper authority holders, there was no evidence that ASIC ever ordered it to do so, as Mr Bennett instructed Dr Ashe.
The assumptions Dr Ashe had been instructed by Mr Bennett to make came to be a matter of some importance to his valuation, which in part rested on other instructions and assumptions which Mr Bennett had instructed him to make in discussions. Those instructions had not been documented and Dr Ashe could not recollect or articulate them when giving his evidence. In the result, it became apparent that a basis for Dr Ashe's valuation had not been established.
In the circumstances Mr Bennett's evidence and Dr Ashe's opinions needed to be approached with some care.
Jones v Dunkel inferences
Under the Jones v Dunkel [1959] HCA 8; 101 CLR 298 rule, a failure to call evidence may, in appropriate circumstances, lead to an inference that the evidence which a witness could have given would not have assisted the case of a party who did not call that witness.
If it applies, the rule permits an available adverse inference to be more readily drawn from the evidence. No such inference can be drawn unless evidence is given of facts which require an answer by the party who fails to call the witness, or where that party is required to explain or contradict something. That depends, of course, on what is in issue in the particular case.
Where, as in this case, a public officer is not called to give evidence as to why a power was or was not exercised, a Jones v Dunkel inference can be drawn (see Minister of Aboriginal and Torres Strait Islander Affairs of the Commonwealth of Australia v Malcolm Mcdonald Douglas and Valerie Anne Douglas and Francis Djaigween, Frank Sebastian, Mathew Gilbert and Joe Bernard [1996] FCA 1509 (28 May 1996). Such an inference may not be available if documents in evidence, such as reasons for a decision, throw light on the matter (see Singh v Minister for Immigration and Multicultural Affairs [2001] FCA 389; 109 FCR 152 at [71]).
Here Chapel Road's case depended on the drawing of various adverse inferences from documentary evidence. It submitted that given the nature of its case, the evidence of ASIC's motives necessarily had to be established inferentially, as Kitto J discussed in Trobridge v Hardy [1955] HCA 58; 94 CLR 147 at 162:
"The word "malice" must here mean what has been variously called express malice, actual malice or malice in fact as contrasted with malice in law which is no more than the unlawful intent which is present whenever an injurious act is done intentionally and without just cause or excuse: Shearer v Shields (1914) AC 808, at pp 813, 814, 815. Malice in the latter sense is not a separate matter of proof. In the former sense, however, it forms the subject of a separate issue of fact on which the party alleging it must establish that the conduct of which he complains was actuated solely or predominantly by a wrong or indirect motive. This means, where that conduct could only be justified by reference to an authority possessed by the actor to perform functions for the enforcement of law, that he acted "from an indirect and improper motive, and not in furtherance of justice": Abrath v North Eastern Railway Co (1883) 11 QBD 440, at p 455. That is to say, from some desire other than "to discharge his duty to the public": Cruise v Burke (1919) 2 IR 182, at p 186. What has already been said about the conduct of the defendant in the present case means that malice, in this sense of the word, was proved quite convincingly. But the evidence by which it was proved was circumstantial evidence - cogent enough, but circumstantial. For that reason, it could not fulfil the requirement of "direct proof" if, as we were invited to hold, that expression means proof which does not depend upon the drawing of inferences. But proof of motive is always and necessarily a matter of inference, except where a party whose motive is to be ascertained makes a direct admission on the point after the event and either in or out of court. Even proof of statements made by him before the event, and showing a clear intention to do for an improper reason the acts which thereafter he did, would not be direct proof of malice, for they could provide no more than a ground, when considered with all other relevant circumstances, for drawing an inference that the improper reason persisted at the material time and provided the defendant at that time with his actuating motive. If the legislature had really intended that nothing but proof of an admission by the defendant should suffice as proof of malice, a less happy choice of words than "direct proof" could hardly have been made.
ASIC did not call evidence from the officers whose motives were in issue. Whether adverse inferences could be drawn from that failure was in issue.
While accepting that in a civil case such as this there was no expectation that ASIC would call evidence on the issues on which it bore the onus of proof, Chapel Road relied on the rule in Jones v Dunkel, to establish its case. It also submitted that the weighing of the matters to be taken into account in resolving the disputed issues lying required the approach discussed by Lord Masfield in Blatch v Archer [1774] 1 Cowp 63; 98 ER 969 at 2 to be followed, namely that:
"... all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" (1744 Engram 2). "
That approach was considered in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 347. There the High Court was concerned with ASIC's failure to call evidence from a witness it was plainly in a position to call. It was there observed that Lord Masfield's approach it did not permit a departure from the principles which flow from Jones v Dunkel and that at [165]:
"Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles..."
Those principles include that if a prima facie case is not established, or if the party is not in a position to call the witness in question, or has a reasonable explanation for not calling the witness, about which ASIC advanced certain explanations in this case, the rule does not apply. Further, as discussed in Fabre v Arenales (1992) 27 NSWLR 437 at 445-6 a Jones v Dunkel inference will not be drawn:
"... if there are facts which provide an explanation of why the witness was not called or which show that the reason for not calling him was not that the party 'fears to do so'".
The rule also does not permit the failure to call a witness to be used to fill gaps or deficiencies in the evidence (see Schellenberg v Tunnels Holdings Pty Limited [2000] HCA 18; 200 CLR 121 at [51] - [53]). Nor does it permit the conclusion that the witness' evidence would have damaged the case of the party who did not call that witness.
In Australian Securities and Investments Commission v Hellicar, for example, ASIC had tendered documents which showed that a draft ASX announcement had been tabled and approved by the Board. It did not call evidence from a solicitor, Mr Robb, from whom it had taken and served a statement, who could have given evidence as to what had happened at the Board meeting. It was held that it could not have been inferred from the failure to call Mr Robb, that he would have give evidence adverse to ASIC's case, namely, evidence that what was recorded in the Board minutes was false (see at [168] - [170).
Whether an adverse inference may be drawn has to be determined in light of the evidence, once it has all been received. As discussed in Manly Council v Byrne and Anor [2004] NSWCA 123 at [54]:
"The inferences licensed by Jones v Dunkel are ones which are drawn, if at all, once all the evidence in the case is in. This has significance in two ways. The first is that, though Jones v Dunkel licenses drawing more confidently, an inference available against the party who has failed to call the evidence, before that can happen there must first be available to be drawn, on the evidence which has been admitted, an inference against that party. As Spigelman CJ said in State Bank of NSW v Brown [2001] NSWCA 22; (2001) 38 ACSR 715 at [17]-[18]:
"As expressed in Cross on Evidence, above, at [1215]:
... The rule in Jones v Dunkel permits an inference that the untendered evidence would not have helped the party who failed to tender it, and entitles the trier of fact to take that into account in deciding whether to accept any particular evidence which relates to a matter on which the absent witness could have spoken, and the more readily to draw an inference fairly to be drawn from the other evidence by reason of the opponent being able to prove the contrary had the party chosen to give or call evidence ... [Emphasis added]
The formulation "fairly to be drawn from the other evidence" reflects the terminology of Windeyer J in Jones v Dunkel at 312, (most recently quoted with approval by the joint judgment in RPS, above, at [26]):
... where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference. [Emphasis added]
(See also Insurance Commissioner v Joyce (1948) 77 CLR 39 at 49; 55 ALR 356.)"
That reasoning of Spigelman CJ was adopted by Hodgson JA at [104] (with whose reasons Handley JA agreed)."
In this case, given what the evidence, particularly the contemporaneous documents of both ASIC and Chapel Road established in relation to the actions taken by Ms Redfern, Ms Layton, Mr Burgess, Mr Reynolds and other ASIC officers, I have come to the conclusion that there were not adverse inferences available to be drawn, which supported the case which Chapel Road advanced as to their motives.
The reasons for this conclusion are given in detail below. In short, I was satisfied that the evidence did not establish that any ASIC officers had acted wrongly or for improper purposes, intending to harm Chapel Road as it alleged. To the contrary, the evidence established that they had acted in order to investigate both what Stephen and Robyn Cochrane had done; to deal with the complaints which emerged; to deal with other of Chapel Road's proper authority holders which it came to investigate and deal with; and to investigate and deal with Chapel Road's failures in adherence to the obligations imposed upon it under the applicable legislation and its licensing conditions in relation to its own operations and the supervision of its proper authority holders.
Amongst the concerns which ASIC came to hold was a concern as to Chapel Road's complaint handling system, which ASIC not only investigated in the surveillance it pursued in 1999 and 2000, but observed in operation as the complaints about Robyn Cochrane's fraud emerged and were dealt with by Chapel Road. That it was wrong, improper or the result of the malice alleged for views formed as to the operation of that system to have formed a part of ASIC's consideration as to how it would deal with the results of its surveillance of Chapel Road, was not established.
On 3 April Mr Hollands wrote to Mr Reynolds about Ms Donselaar's reports in detail, explaining why he disagreed with her comments and conclusions. He observed that there was no obligation for a financial planning organisation to have a compliance plan and that Chapel Road was the only one, to its knowledge, which had one. He disputed that any breach of the law had occurred and queried how ASIC could have allowed Chapel Road to continue to operate, if it had had the concerns Ms Donselaar had, since the surveillance commenced. He advised Mr Reynolds that he considered her concerns in relation to training to be completely unfounded and her summary invalid.
Given Mr Reynolds' advice as to the reliance he would place on Ms Donselaar's opinions, the consensus reached by the experts as to the foundation for Ms Donselaar's opinions and the problem with the approach that Chapel Road had adopted to meeting ASIC's concerns since advised of them in September 1999 about its ongoing problems, this appears to have been a most unfortunate response. It explains why Mr Reynolds came to the view that licence revocation, rather than licence conditions which had been prepared for his consideration should result.
Mr Reynolds certainly did not accept what Chapel Road advanced through its submissions. He delivered a written decision on 26 April 2001, by which Chapel Road's licence was revoked. There he dealt with the concerns identified in the notice of hearing, by reference to the various documents before him, including the reports of Ms Donselaar and Mr Brady and Chapel Road's oral and written submissions.
In relation to initial training, Mr Reynolds concluded that Chapel Road considered that a person who had passed a number of stages of the DFP, had knowledge to adequately perform the duties of a proper authority holder and therefore was sufficiently trained. He considered that this required some assessment of the practical application of the knowledge gained. He then referred to the position of three appointees. He concluded that Chapel Road had failed to ensure that its authority holders were sufficiently trained prior to their appointment; and that given the purpose of its induction course, that it did not provide adequate initial training to any person being appointed a proper authority holder.
In relation to ongoing training, while Mr Reynolds accepted that Chapel Road had a continuous training program, he had not been provided with information which demonstrated its continuous training strategy or the content of its program. He was thus unable to form a positive view that any program it conducted was adequate in providing authority holders with the knowledge for the conduct of their duties efficiently, honestly and fairly.
Mr Reynolds concluded that the recruitment and selection of proper authority holders, was ad hoc and that there was no process or procedure as to how recruitment was to be conducted or what factors were to be taken into account.
In relation to ongoing supervision, Mr Reynolds also concluded that its approach was ad hoc. There was no contract with the external provider THC and no terms of reference or criteria specified for audits conducted, indicating what was intended to be achieved. He noted that remedial action which THC had identified was required in October 1999 and May 2000 in relation to one representative, had not been undertaken. He was concerned that Chapel Road did not have sufficient resources to undertake compliance audits.
Mr Reynolds did not consider ASIC's role to be an industry consultant for individual licensees and that it was not its role to provide feedback of the kind Chapel Road had sought for improvement of its processes.
As to quality of advice provided by advisers, Mr Reynolds concluded that shortcomings identified were not more of record keeping, than quality of advice, as Chapel Road had submitted, given identified failures to adhere to the law. He concluded that this reflected a lack of supervision and training by Chapel Road and that it had failed to ensure the quality of advice given by its proper authority holders.
As to disclosure of proper authority holders' interests, he noted Chapel Road's submission that their practice had improved dramatically. He did not find any contravention of s 849, but concluded that through a lack of adequate supervision, Chapel Road was not aware of the conduct of named proper authority holders.
As to unsuitable advice, no breach of s 851 was found, but again Mr Reynolds concluded that through a lack of adequate supervision, Chapel Road was not aware of the conduct of named proper authority holders.
As to compliance with the Australian Standard in relation to complaints handling, Mr Reynolds concluded procedures which had been put in place were adequate to meet the standard.
As to compliance structure, Mr Reynolds concluded that adequate resources were not devoted to compliance. He acknowledged that Chapel Road was not required by law to have a compliance committee, but considered that given that it had one, it should have a majority of external members, as the law contemplated for such committees. In the absence of external members, he did not consider that the committee could give adequate independent oversight of Chapel Road in relation to compliance and that it was inadequate in ensuring appropriate controls were being maintained to ensure effective compliance.
As to the audit committee, Mr Reynolds concluded that it was no longer operating and that the compliance committee was undertaking its role.
As to the compliance plan, Mr Reynolds noted that Chapel Road was not required to have such a plan by law. He considered that if it chose to have one, it should comply with the Australian Standard. He also considered that Chapel Road did not understand the purpose of such a plan and that its plan was inadequate. Mr Reynolds concluded that Chapel Road's compliance manual was adequate, but required some further revision.
Mr Reynolds considered that Ms Donselaar's reports should have been provided to Chapel Road. He took the view that given that the views expressed in her first report were mirrored in her second and third reports, that Chapel Road had not been caused any detriment, but concluded that if her first report had earlier been provided, concerns expressed about the compliance manual in the notice of hearing may not have been so adverse.
He concluded that Chapel Road had not efficiently, honestly and fairly performed the duties of the holder of a dealer's licence and that there was reason to believe that it would not do so.
While Mr Reynolds accepted that revocation or suspension of its licence would cause detriment to Chapel Road's employees and authority holders, he also considered "the wider picture as to whether ASIC's decision in respect to that licensee fostered the integrity of the market place and the public confidence in the securities market". He concluded that Chapel Road "is a perceived threat to public interest and to public confidence in the securities market"; that it had fallen short of required standards; and that a revocation order should be issued.
The evidence did not establish that these were views which Mr Reynolds did not hold, or that there was no foundation for them, or that he was motivated to reach these conclusions, maliciously intending to damage Chapel Road, as it claimed. To the contrary, the expert evidence supported the conclusion that there was a proper foundation for the views which he reached.
In his evidence Mr Hollands explained the aspects of Mr Reynolds' decision with which he disagreed. It is not necessary to outline his views.
Chapel Road ceased trading its security business, not resuming it, despite the stay of Mr Reynolds' decision later granted by the Administrative Appeals Tribunal by consent. Chapel Road claimed that the result of the revocation was that it ceased to trade, at a time when it was looking to consolidate and expand its business, which then had an estimated value in excess of $5 million.
Chapel Road challenged Mr Reynolds' decision and on 27 April sought a stay in the AAT. There were negotiations about terms which were resolved and on 7 May, a stay was granted on agreed terms which required Chapel Road to provide prospective clients with information about Mr Reynolds' decision, to advise existing clients of the decision and to provide ASIC with a client list.
Concerns later arose as to whether Chapel Road had breached the terms of the stay. Mr Bennett agreed that advice given by a proper authority holder that no client money had been misappropriated was inaccurate, so far as Ms Grieve was concerned.
Many of its proper authority holders then transferred to Benwest of which Mr Bennett is the major shareholder, bringing their client base with them. Some later moved on to other dealers. On 31 July, Chapel Road's solicitors advised ASIC that it no longer had any proper authority holders, but that it needed to retain its licence on the conditional basis, to permit trailing commissions to be collected. On 13 August 2001, the conditions of the stay were varied by consent to accommodate this. It continues to receive such commissions.
On 14 July 2003, the licence revocation was set aside, but Chapel Road did not resume its business
In his decision Handley DP was also critical of ASIC's failure to earlier communicate Ms Donselaar's views to Chapel Road. He found that in August/September 1999 it may have breached its licence in relation to compliance, but that it had made significant improvements by 2001 and that while in August/September 1999 it may not have performed its duty "efficiently, honestly and fairly", there was reason to believe that it would do so in the future.
Handley DP concluded that the revocation of its licence and the AAT proceedings had provided Chapel Road with sufficient deterrence and that the appropriate course was not to revoke the licence, but to impose conditions requiring regular, perhaps six monthly reviews of its compliance regime by external consultants and Chapel Road undertaking to implement reasonable recommendations for change made by the consultant and approved by ASIC.
Despite this success, the steps Mr Bennett gave evidence in the AAT proceedings by Chapel Road intended to take, were not pursued and it never resumed its business.
Was the decision to commence the 'second (June 2000) surveillance [para 24 FASOC] motivated as Chapel Road alleged?
As I explained at [32] the case finally pressed rested on various acts and decisions of Ms Redfern, Ms Layton, Mr Burgess and Mr Reynolds, which it was claimed:
"[A] were acts and decisions performed in bad faith, for an ulterior motive (and thus 'unlawfully'), and
[B] were acts and decisions performed with the intention of causing harm to the plaintiff, and
[C] (if it is necessary to stipulate over and above [A]) were done maliciously, and
[D] were acts and decisions performed by a public officer (ASIC) in the purported discharge of its public duties; and
[E] did in fact cause loss to the plaintiff."
Paragraph 24 of the further amended statement of claim alleged:
"As a consequence of the said opinions and beliefs, at a meeting on 22 March 2000 the Defendant through its officers including Ms Redfern determined:
(a) to commence a second period of surveillance of the Plaintiff;
(b) to broaden the scope of the surveillance;
(c) to conduct the surveillance in an aggressive manner;
(d) to use the surveillance to obtain support for the revocation of the Plaintiffs' license, alternatively imposition of conditions on the Plaintiff's licences;
(e) to seek the revocation of the Plaintiff's license, alternatively imposition of conditions on the Plaintiffs' license;
(f) to proceed to a hearing."
The opinions and beliefs referred to were those formed after a meeting on 7 February and before 22 March, when Ms Redfern formed or already had an opinion or belief that:
"(a) that the Plaintiff had a responsibility to compensate clients of Robyn Cochrane for losses they had suffered as a consequence of the conduct of Mrs Cochrane;
(b) that as a consequence of a change in the directors of the Plaintiff, the Plaintiff would not co-operate with the settlement of the Cochrane claims;
(c) that the Plaintiff was a "recurring problem" and was dangerous"."
For reasons which I have already explained in relation to the factual findings for which Chapel Road contended, the evidence did not establish a factual foundation for this issue to be resolved in its favour.
The evidence did not establish that the decision to commence the second period of surveillance was made by Ms Redfern, or that she had the opinions or beliefs alleged, or that it was made by other ASIC officers who held or were swayed by such opinions and beliefs. Nor did it establish that the decision made to commence the second surveillance period was made unlawfully, for the malicious purposes alleged.
Ms Redfern considered that Chapel Road's attitude to claims emerging as the result of Robyn Cochrane's fraud had changed with the change in its management, following Mr Bahles' resignation. Given Mr Gadd and Mr Bennett's evidence, that view was plainly a legitimate one.
As I have explained, a concern as to how Chapel Road was dealing with the claims which emerged from Robyn Cochrane's activities, certainly grew. That response had shed light on the operation of Chapel Road's complaint handling system, which it was obliged by law to operate and which had been discussed with Chapel Road during the first surveillance.
This ongoing concern was held at a time when Chapel Road had accepted that it was not complying with certain conditions of its licence and was struggling to address its problems. It was not delivering what it had promised to undertake in October 1999.
That anything other than legitimate concerns were then held about Chapel Road by ASIC's officers was not established. There were ongoing problems with the consequences of the Cochrane fraud and with its response to what the first surveillance had uncovered. There was a basis for ASIC officers to properly become concerned that the way in which Chapel Road was responding to the concerns ASIC was pursuing with it, was inadequate.
How these problems should appropriately be dealt with under the applicable regulatory scheme was a matter about which ASIC officers were not all agreed. That motivated advice being sought from Ms Donselaar. She confirmed in March 2000 that there was a foundation for real concern about Chapel Road. The decision to pursue the second period of surveillance resulted from a desire to ensure that an appropriate regulatory response was pursued.
That ASIC or its officers were wrongly, or unlawfully motivated to harm Chapel Road when the decision to pursue a second period of surveillance was made, was not established. At that time, it was considering whether additional licence conditions, rather than enforceable undertakings, were the appropriate regulatory response. Licence revocation was not considered as a possibility before Mr Reynolds came to consider what the second surveillance had uncovered.
The evidence does not permit the conclusion that any officer involved in the decision to pursue a second period of surveillance, acted maliciously.
Issue (b) Was the conduct of ASIC's officers in the manner in which the second surveillance was conducted and reported motivated as Chapel Road alleged? [paras 26- 31,33, 34,35 , 41(a), (c) FASOC]
These paragraphs of the further amended statement of claim referred to the conduct of the second surveillance between March and November 2000; the review of Chapel Road files; the August report Ms Donselaar was commissioned to produce; that report; the failure to provide copies of that report to Chapel Road; that Ms Donselaar was not aware that Chapel Road had not been provided with a copy of the August report; that she was commissioned to produce the November report; that the March and August reports were withheld; and that the surveillance was conducted for "the ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, [or] alternatively impose conditions on the Plaintiff's license".
That the conduct here in issue was engaged in maliciously, rather than for legitimate purposes, namely, to deal with the problems identified in the September 1999 letter, which Chapel Road had accepted had foundations, and the ongoing concerns which developed about the inadequate steps which it took to deal with those concerns, was simply not established on the evidence.
Chapel Road made no complaint that the report which emerged from the first surveillance had not been provided to it, given the advice which it received by the September 1999 letter. That ASIC did not provide it with Ms Donselaar's March assessment of its response to this advice, or her August assessment of what the second surveillance revealed, before Mr Reynolds issued the November notice, did not establish that for which Chapel Road contended.
As both Mr Reynolds and Handley DP came to consider, it would have been preferable for ASIC to have conveyed the advice which it received from Ms Donselaar in March and August 2000 to Chapel Road earlier than it did. Chapel Road accepted that it had no legal obligation to do so. The experts agreed that at the time that there was no practice of ASIC providing licence holders with copies of such reports and that the matters about which it was concerned, which in part were based on Ms Donselaar's concerns, were in fact revealed to Chapel Road by what was pursued in the second surveillance.
Had a decision been made before the second surveillance to advise Chapel Road that it would consider accepting enforceable undertakings, it appears that Ms Donselaar's March report would then have been provided to Chapel Road. It was because it was concluded that this course was not appropriate, given the conclusions which Ms Donselaar reached in her March report, that it was not provided and instead, a second period of surveillance was pursued.
That was pursued in order to ascertain how Chapel Road had dealt with the concerns drawn to its attention in September 1999 and in subsequent correspondence, by implementation of the measures it had advised it would take. ASIC had already advised Chapel Road as to concerns held about what it had proposed and undertaken. At that time, ASIC was considering the imposition of licence conditions.
The evidence did not establish that ASIC then had the alleged "ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, or alternatively impose conditions on the Plaintiff's licence". It certainly wanted to gather more information before pursuing the imposition of licence conditions. It was then in contemplation that a hearing before a delegate might be required.
At the time of the second surveillance no decision had been made that Chapel Road's licence conditions would be suspended or cancelled. Ms Donselaar's August report supported the view that additional licence conditions should be imposed, but no decision had then been made as to what the regulatory response would be.
As I have already explained, the evidence simply provided no foundation for the conclusion that the second surveillance was pursued for the malicious purposes Chapel Road alleged.
Issue (c ) - Was the decision to use the results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the plaintiff's licence motivated as Chapel Road alleged?[para 39]
Paragraph [39] of the further amended statement of claim alleged that Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess did not hold an honest belief that the notice of hearing should be issued or that Chapel Road's licence should be revoked.
The notice of hearing was issued because a view had been reached that regulatory action other than an enforceable undertaking had to be pursued against Chapel Road, given the outcome of the second surveillance. Imposition of further licence conditions was then in contemplation. It was entitled to ask for a hearing if licence conditions were to be imposed.
Chapel Road criticised ASIC for not first asking it whether it would consent to the imposition of such conditions. That may have been the preferable course from both Chapel Road and ASIC's point of view, given all that has resulted from the course pursued. That it was not followed does not, however, establish the motives Chapel Road alleged.
The first delegate was briefed on the basis of draft licence conditions. The matter was referred to Mr Reynolds on his return from leave. He spoke with Ms Anderson, who reported his view to other ASIC officers, that licence revocation might be warranted in the circumstances revealed on the brief. The notice of hearing was drafted on that basis, but the possibility of imposition of licence conditions was not abandoned.
The evidence provides no foundation for a conclusion that these officers did not hold an honest belief that a notice of hearing should be issued. The notice referred to licence revocation or the alterative licence suspension, but licence conditions remained a possible outcome, which was addressed at the hearing. After the hearing, Mr Burgess finalised draft conditions for Mr Reynolds to consider.
It appears to have been Chapel Road's submission as to Ms Donselaar's serious concerns in her 2001 reports as to its past compliance with the law and its licence conditions and its ability in future to adhere to them, having had the opportunity to respond to all of her reports, which convinced Mr Reynolds that its licence should be revoked.
Mr Reynolds had earlier told Chapel Road that he would have to place considerable weight on Ms Donselaar's views. That was not unreasonable in the circumstances. They were views which the experts in these proceedings clearly considered to have real foundations. Had Chapel Road advanced a case of the kind which it later advanced before the AAT, when it called favourable evidence from Mr Walker, in order to meet Ms Donselaar's concerns, rather than merely relying on Mr Hollonds' submissions, which attacked Ms Donselaar's opinions, Mr Reynolds might have come to a different conclusion. Had Mr Reynolds received the expert evidence led in these proceedings, he might not.
That is, however, not to the point. What the evidence clearly demonstrated was that the decision to issue the notice of hearing was not made unlawfully, for a malicious purpose, namely to do Chapel Road harm, as it alleged, the officers in question not holding an honest belief that the notice of hearing should be issued, but rather seeking to harm it.
At that point, no decision had been made that Chapel Road's licence should be revoked. Ms Redfern, Ms Anderson and Mr Burgess plainly considered that licence conditions remained an option, as did Mr Reynolds, even though he was of the view that the matters raised were sufficiently serious that they might warrant licence revocation. The evidence well established that there was a reasonable basis for those views.
Issue (d) - Was the decision of the delegate to revoke the plaintiff's licence motivated as Chapel Road alleged? [para 39]
That Mr Reynolds' decision to revoke Chapel Road's licence was made unlawfully, for a malicious purpose, namely to do Chapel Road harm, as it alleged was not established.
To the contrary, his decision well explained his reasons for reaching the conclusion that its licence should be revoked. The evidence does not provide any foundation for the conclusion that he did not hold those views or that they had no proper basis. To the contrary, the material before him and the case which Chapel Road advanced, well explained the decision which he reached. That it was overturned by the AAT where Chapel Road advanced a different case, is not a reason for coming to any different conclusion.
As Chapel Road accepted, even inadequate or poor performance of duties or the exercise of powers such as those ASIC had under the Corporations Law, is not a basis upon which this tort can be established.
In any event, the evidence does not establish that Mr Reynolds performed his duties or exercised his powers poorly or inadequately. The AAT stood in ASIC's shoes, making a fresh decision by way of merit review on the evidence led before it (see Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; 24 ALR 577.)
Handley DP's decision rested on a quite different case then advanced by Chapel Road, resting as it did not only on the supportive evidence led from Mr Walker, but also the evidence then given by Mr Bennett, which was not put before Mr Reynolds. That addressed concerns as to the resources Chapel Road would have to devote to its supervision of a much reduced number of proper authority holders, if its licence was restored. Had such a different case not been led, it is difficult to see that the conclusion which Handley DP reached would have been available.
Damages
Chapel Road has not established its case, but I will deal shortly with its case on damages, which rested on the evidence of Mr Bennett and the opinions of Dr Ashe. ASIC's case rested on the opinions of Mr Gower.
Both causation and the amount of any damages were in issue.
Causation
The expert's evidence was that before it ceased trading , Chapel Road was not operating profitably.
Mr Bennett's evidence was that Mr Reynolds' decision to revoke its licence required the immediate cassation of Chapel Road's business. The result was that about 20 proper authority holders transferred back to Benwest and others left to join other financial service providers.
When cross examined about the pursuit of the stay later agreed, he said that when its licence was revoked fund managers had refused to pay it what was outstanding and it needed to have a licence, in order to receive that money. He agreed that he was then concerned that clients would move their business elsewhere when they learned of the licence revocation.
Mr Bennett also agreed that Chapel Road had sought and obtained the stay on conditions which included it providing ASIC with a list of new clients and advising existing clients of the decision. Mr Gellett later wrote to its clients, in his capacity as one of its authorised representatives, informing them that no misappropriation of client money had occurred. Mr Bennett accepted that this was inaccurate, so far as Ms Grieve was concerned.
ASIC had considered this to involve a breach of the terms of the stay, resulting in the matter being relisted before the AAT in August 2001. Chapel Road's solicitors then advised ASIC that it no longer had any proper authority holders. Mr Bennett explained that it was then that some 20 advisers had transferred to Benwest. Amended conditions of stay permitting trailing commissions to be earned were then agreed.
In his statement before the AAT Mr Bennett had explained that he was then confident that procedures in place at Benwest more than adequately met all requirements of the law and its licence conditions. He then intended that Chapel Road would do likewise. It intended to resume trading, attracting a small number of proper authority holders holding a Diploma of Financial Planning and to outsource all of its administration and compliance procedures. That did not occur.
Two things follow from this evidence. The first that Chapel Road ceasing to operate its unprofitable business was not only the result of Mr Reynolds' decision, which was stayed by agreement, but also the result of steps which it pursued, despite that stay. The second that it did not take available steps which would have avoided, or at least significantly to mitigated any damage which had resulted from the revocation decision.
That ASIC caused it immediately to cease trading when Mr Reynolds' decision was given, so as to cause the damage which Chapel Road pursued in these proceedings, was not established by this evidence.
In the circumstances it is difficult to come to a favourable finding as to causation.
The expert evidence as to valuation
That Chapel Road suffered the damage which it claimed, given that it was not profitable when it ceased trading, was also in issue.
The experts produced a joint report which identified that they could find no common ground, given the differing bases on which their valuations of Chapel Road rested. While such valuation is plainly not exact and one about which reasonable minds may differ, the concurrent evidence established that Dr Ashe's valuation could not be accepted, with the result that any damages awarded would have had to reflect Mr Gower's assessment.
Dr Ashe's valuation rested in large part on assumptions which Mr Bennett had instructed him to make, as well as on impressions which he had formed about matters which they had discussed at lengthy meetings, which were not disclosed in his reports. Dr Ashe was not able to clearly articulate what those assumptions and impressions were, when he gave his evidence. That did not accord with the approach to the giving of expert evidence discussed in Dasreef Pty Ltd v Hawcher [2011] HCA 21; 243 CLR 588.
Mr Bennett's evidence shed no light on these matters. There were other problems with the instructions which he gave Dr Ashe, which I have earlier discussed. In the result, Dr Ashe's opinions can not be accepted as providing any reliable foundation for an assessment of damages, even if Chapel Road had made out its case.
Dr Ashe had been instructed to provide opinions as to Chapel Road's value as at licence revocation in April 2001; as at February 2000, on the assumption that it had then given an enforceable undertaking to ASIC (no terms for such undertakings having been specified); on that assumption and an assumption that it had been listed on the stock exchange; and on the basis of assumptions that it had given an enforceable undertaking to ASIC in February 2000 (again without such terms being specified) and its proper authority holders having been increased to 100.
Nothing in the evidence provided any basis for a possible listing, or Chapel Road being able to increase its proper authority holders to 100, given the evidence of its reasons for reducing its proper authority holders from that number, namely inadequate resources to supervise that number of representatives, while ensuring compliance with its licensing conditions. Nor was there any basis established for an assumption as to a stock exchange listing or the giving of an enforceable undertaking. As I have explained, Chapel Road never proffered such an undertaking to ASIC, nor did ASIC ever offer it that opportunity.
Dr Ashe used several valuation methods to arrive at his conclusions: a multiple of Funds Under Management (FUM); capitalisation of Future Maintainable Earnings (FME), that is earnings expected to be maintainable in future; and multiples of commission earnings. He explained in his report that there were problems with each of these approaches, as well as other difficulties, such as the small number of available comparators and problems created by seeking to undertake a valuation many years after Chapel Road had ceased trading. Whether the comparators used for various of Dr Ashe's and Mr Gower's calculations were appropriate was in issue.
Another problem with Dr Ashe's approach was that he had disregarded the actual losses which Chapel Road had incurred while it traded, following preceding years of low profitability, basing his calculations on budgeted earnings, without examining whether they were achievable. That approach rested on Mr Bennett's instructions. No reliable foundation for those assumptions was established.
Dr Ashe had partly based his calculations on a 1997 client base and assumptions that Chapel Road had no subsequent loss of clients and that new business reflected the level of business previously written. That resulted in the $8 million valuation, with Dr Ashe concluding a value of $7.5 million to be reasonable. Chapel Road's decision to divest itself of proper authority holders from 100, which I have earlier discussed, also undermined this approach.
On a price earning valuation, Dr Ashe found that in 1999/2000 Chapel Road had an operating loss of $131,000, which he observed would ordinarily preclude a valuation. Earnings of $195,000 were budgeted for 2000/2001. Dr Ashe adopted this figure, after discussion with Mr Bennett, on the basis that "historical business practices" would be implemented, assuming no additional effort was required for ASIC interaction. Dr Ashe said that his calculations rested on information which Mr Bennett had provided him, but he could not articulate what that information was.
Dr Ashe had thus assumed that budgeted earnings represented Chapel Road's normal earnings, without necessary resources being devoted to ongoing communication with ASIC. No basis for that assumption was established.
Dr Ashe also postulated that Chapel Road had a value of some $4 million, that being based on further assumptions all of which it is not necessary to discuss. A basis for that valuation was also not established.
Dr Ashe's calculations figured in estimated losses flowing from management time devoted to meeting ASIC's investigations and concerns, rather than being able to concentrate on growing the business, which on Dr Ashe's view was that ASIC's actions made it "too difficult" to determine the impact of other non recurring abnormal items. The evidence also provided no proper basis for such an approach.
The evidence established that significant management time had to be devoted to meeting ASIC's concerns because Chapel Road was in breach of its licence conditions and did not implement what it had promised to meet those concerns, with the result the ongoing problems it had to contend with. By the time its licence was revoked, Chapel Road had still not solved those problems. Even Handley DP concluded that further licence conditions should be imposed on Chapel Road, which would have required management time to address.
Given what was established on the evidence as to Chapel Road's resource problems and its ongoing inability to ensure that its licence conditions were adhered to, while trading profitably, a basis for Dr Ashe's assumption that it would have achieved its budgeted earnings was not established.
Dr Ashe's calculations rested on an assessment of funds under management of some $218.8million, a calculation he had made based on an extrapolation form commission payments. During the concurrent evidence the parties agreed that damages had to be calculated on the basis of Dr Gower's figure of $179.97 million, which Dr Ashe accepted would affect his calculations. He had concluded that as at February 2000 Chapel Road had a value of between $5-6 million, if it had then been purchased by a listed company, with a value of $5million "being suitable", with a valuation as high as $7.9 million in June 2000 with, if the purchaser was listed. Otherwise it fell within the $1.5 million to $2.5 million range. After licence revocation it had no value.
Mr Gower did not agree with Dr Ashe's approach. Not only did he calculate a lower funds under management figure, after reviewing representative agreements, he considered that Chapel Road's control of all of those funds was questionable.
Mr Gower had been instructed to determine the fair market value of Chapel Road immediately prior to licence cancellation. He had used the net tangible assets valuation methodology, due to its low profit margins and operating losses, which Dr Ashe considered unsuitable for valuation of an ongoing business. Chapel Road's reported tangible assets were negligible, with the result a valuation as at April 2001 of $1,548.
On the basis of a multiple of FUM, Mr Gower had arrived at a value within the range of $112,000 to $450,000. He concluded that as at April 2001 Chapel Roads valuation was $280,000, on his figure of $179.97 million.
Dr Ashe considered the range of companies Mr Gower had used for his calculations to be too small to give a range of indicative values and that he did not give sufficient weight to the state of the then market for firms such as Chapel Road. What Dr Ashe understood that to be was not clear.
Mr Gower considered that the comparators Dr Ashe had used not to be reasonably comparable, given their size and the respective nature of their businesses and that his resulting analysis was unreliable. He also considered that Dr Ashe had not taken necessary account of the premium at which listed companies traded, or the impact of any enforceable undertakings, which Chapel Road might have given.
It is not necessary to explain all of the reasons which they each gave for disagreeing with the usefulness of the comparators they had selected.
As to capitalisation of FME, Mr Gower considered a prudent potential purchaser would not consider Chapel Road to have been a profitable business in 2001 and would not have attributed a value to it on this basis. Dr Ashe considered that a prudent potential purchase could have ascertained its underlying value, without the burden of heavy communication with the regulator, which would permit such a valuation. Given the evidence led in these proceedings, which I have discussed, any valuation which proceeded on the basis that Chapel Road could have traded without attending to its regulatory difficulties, simply cannot be accepted as having a foundation in reality.
Mr Gower also considered that necessary account had not been taken of the fact that Chapel Road was not profitable and that its budgets and forecasts were historically materially inconsistent with its actual results. He considered that the underlying assumptions of forecasts made in 2001 were not apparent and could not provide a reliable indicator of future earnings.
The evidence did not establish that the comparators Dr Ashe had used were appropriate, particularly given his approach to Chapel Road's lack of profitability and its inability to trade profitably, once forced to attend to meeting its licence conditions. Even beforehand, in the years ending 1998 and 1999 it had only been able to generate modest profits of some $107,564 and $80,395 respectively. In 2000 it had a loss of $131,000, at a time when it had pay the cost of investigating the Cochrane files the subject of this Court's orders. Even without that one off cost it would not have been profitable
In the result, if Chapel Road had established its case, at most, calculation of damages would have to be approached on the basis that when it ceased trading, it was valued at no more than the $280,000 Mr Gower assessed.
Orders
For the reasons given Chapel Road's statement of claim must be dismissed. The usual order as to costs is that they follow the event. In the event that the parties wish to be heard on that order they should approach within 14 days, otherwise that will be the Court's order.
All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined.
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Amendments
16 May 2014 - omitted number in first sentence - 'August 200' now 'August 2001'
Amended paragraphs: [515]
Decision last updated: 16 May 2014
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