Clements v Bower; Yaxkley v Bower; Rouse and McQuestin v Bower
[1989] TASSC 60
•7 November 1989
Serial No 59/1989
List "A"
CITATION: Clements v Bower; Yaxkley v Bower; Rouse and McQuestin v Bower [1989] TASSC 60; A59/1989
PARTIES: CLEMENTS
v
BOWER
BARRY
DWYER
NATIONAL COMPANIES AND SECURITIES COMMISSION
CASWELL
YAXLEY
v
BOWER
BARRY
DWYER
NATIONAL COMPANIES AND SECURITIES COMMISSIONCASWELL
ROUSE
McQUESTIN
v
BOWER
BARRY
DWYER
NATIONAL COMPANIES AND SECURITIES COMMISSION
CASWELL
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 859/1988
860/1988
861/1988
DELIVERED ON: 7 November 1989
JUDGMENT OF: Wright J
Judgment Number: A59/1989
Number of paragraphs: 66
Serial No 59/1989
List "A"
File Nos 859/1988860/1988
861/1988
CLEMENTS v BOWER, BARRY, DWYER, NATIONAL COMPANIES AND SECURITIES COMMISSION AND CASWELL
YAXLEY v BOWER, BARRY, DWYER, NATIONAL COMPANIES AND SECURITIES COMMISSION AND CASWELL
ROUSE AND McQUESTIN v BOWER, BARRY, DWYER, NATIONAL COMPANIES AND SECURITIES COMMISSION AND CASWELL
REASONS FOR JUDGMENT WRIGHT J
7 November 1989
The Statement of Claim in each of these three actions is in substantially the same terms. It alleges that in or about November 1987, the fifth named defendant Caswell, ("the Commissioner") was the Commissioner for Corporate Affairs for the State of Tasmania and he, as delegate of the National Companies and Securities Commission, ("the Commission") authorised the first three defendants, Bower, Barry and Dwyer ("the Investigators") to make investigation into the affairs of Richardsons Meat Industries Ltd, Holmans Consolidated Pty Ltd, Tas Meats Ltd, The Master Butchers Ltd, and SP Holman & Sons Pty Ltd, ("the RMI Group"). The four last named companies were wholly owned subsidiaries of Richardsons Meat Industries Ltd ("RMI"). The investigation was to include the question of whether or not the directors of the named companies had contravened certain sections of the Companies (Tasmania) Code. The Investigators were authorised by the Commissioner to conduct a hearing for that purpose and they were required to report thereon to the Commissioner.
The plaintiffs allege that the authorisation of the Investigators to conduct a hearing was contrary to natural justice in a number of ways. It is claimed that:
a)prior to the appointment the Investigators had already formed views that the companies in the RMI Group were unable to pay their debts, and had formed views that breaches of s556 of the Code had likely, or possibly occurred;
b)the Investigators had, prior to their appointment formed views adverse to the plaintiffs that they were possibly or likely in breach of s556 of the Companies (Tasmania) Code; and
c)the Investigators promoted and participated in the setting up of the investigation and the hearing and thereby adopted the role of accusers, Investigators and tribunal members.
It was further alleged that at all material times the plaintiffs, Clements, Yaxley and Rouse were directors of one or more of the relevant companies and that the plaintiff McQuestin was an alternate director for Rouse. It was also alleged that at all material times it was the intention of the Commissioner, or alternatively, the Commission, to determine after the receipt and consideration of the report, whether to bring proceedings against the directors in respect of suspected contraventions by them, or some of them, of ss229 and 556 of the Companies (Tasmania) Code. It was also alleged that on or about 14 December 1987, the Investigators commenced to hold the hearing which they were authorised to undertake and that in conducting the hearing, they were required to observe the rules of natural justice. The defendants did not deny the historical facts alleged nor did they deny that the Investigators were required to observe the rules of natural justice. However, the did deny that those rules had been breached.
Each of the plaintiffs was summoned to appear before the Investigators to give evidence. The plaintiff Clements attended on 18 December 1987 and 13 July 1988 and gave sworn viva vocé evidence on both occasions. The plaintiff Yaxley attended on 14 December 1987 and gave sworn viva vocé evidence, and attended again for the purpose of giving evidence on 14 July 1988 but was not then required to do so. The plaintiff Rouse was required to attend the hearing to give evidence on 20 July 1988 and the plaintiff McQuestin was required for that purpose on 21 July 1988. Because of the happening of the events which gave rise to the present actions, a hearing did not take place on those dates. These facts are not in dispute.
It is also alleged that on 13 July 1988 and for the purposes of the report which they intended to submit to the Commissioner, the Investigators made a number of determinations adverse to the plaintiffs and the RMI Group of companies. It is alleged that these determinations were made without due regard to all relevant issues and matters and before the Investigators had concluded the hearing or received all evidence in relation thereto, including that of the plaintiffs Yaxley, Rouse and McQuestin.
It is alleged that the Investigators concealed the determinations so made from the plaintiffs and that on 20 July 1988 the Investigators confirmed that their determinations applied to each plaintiff, but refused to provide the plaintiffs "with the bases upon which they made the said determinations, thereby depriving each of the plaintiffs of an effective opportunity to rebut the same."
It is alleged that by reason of these matters the Investigators conducted the hearing, and their determinations were arrived at, in breach of the rules of natural justice. The plaintiffs now seek orders from the court restraining the Investigators from publishing the determinations and the report concerning the same without first affording natural justice to the plaintiffs.
The plaintiffs seek declarations that the Investigators have failed to observe the rules of natural justice at, and in connection with, the said hearing, and that have been guilty of bias or alternatively perceived bias as against the plaintiffs. The plaintiffs also seek (inter alia) injunctions restraining the Investigators from further conducting the hearing insofar as it concerns the plaintiffs, alternatively, injunctions restraining the Investigators from further proceeding with the said hearing without first according natural justice to the plaintiffs, injunctions restraining the defendants from publishing the said report or any part thereof, and permanent injunctions restraining the Investigators from making any further investigation, conducting any further hearing and reporting to the Commissioner.
As already mentioned, the Defence in each case does not join issue with the historical sequence of events set forth in the Statements of Claim. However, it denies that there has been a breach of the rules of natural justice or bias, or apparent bias on the part of any of the defendants in any of the respects alleged.
The trial of each action took place in Hobart on 4, 5 and 6 October 1989. No oral evidence was given by or on behalf of any party. Instead, four volumes of agreed documents were placed before me as the sole evidence to be considered. The authenticity of these documents was accepted by counsel, and my attention was directed to relevant documents as each counsel presented his clients' case. Mr Hedigan QC for the plaintiffs, without objection or dispute, presented additional historical facts as to the involvement of the plaintiffs with the relevant companies.
It transpires that in or about May 1985 through corporate vehicles, Messrs Clements, Yaxley and Rouse acquired a substantial number of the shares in RMI, and on 27 May 1985, they were all appointed directors of that company. By about 10 July 1986 however, the company's affairs had developed in such a way that Messrs Crawford and Cook, accountants and liquidators were called in to consider the position and, on 22 July 1986, the ANZ Bank, a major secured creditor appointed Crawford and Cook as receivers of the property of the company. In November 1987, the member companies of the RMI Group were ordered to be wound up.
In April 1987, the Tasmanian Corporate Affairs Commission seized the records of the RMI Group and shortly after, the defendant Dwyer, a Corporate Affairs officer gave a report recommending that a s16A investigation should take place based upon information which he had received. In November 1987 the Commission delegated to the Commissioner, power to conduct a hearing and in turn, pursuant to powers contained in the National Companies and Securities Commission (State Provisions) Act 1981, the defendant Caswell appointed the defendants Bower, Barry and Dwyer to conduct a hearing and inquiry. The taking of evidence commenced in December 1987.
Section 16A of the Companies (Tasmania) Code provides:
"Where the Commission has reason to suspect that –
(a)an offence under a provision of a relevant Code or
(b)an offence relating to a company being an offence that involves fraud or dishonesty or concerns the management of affairs of the company, may have been committed, the Commission may make such investigation as the Commission thinks it expedient for the due administration of a relevant Code."
Plainly enough, as Mr Bugg senior counsel for the defendants pointed out, a prerequisite for the making of an investigation is the existence of a reasonable suspicion that a relevant offence has been committed, and consequently it can hardly be said that the existence of suspicion in the minds of the Investigators or the Commission can of itself constitute a breach of the rules of natural justice which each of them is bound to observe. Section 7 of the National Companies and Securities Commission (State Provisions) Act 1981 provides that the Commission may hold hearings for the purpose of the performance of a function or the exercise of a power conferred upon it. Section 8 gives power to a member of the Commission to summons witnesses and to take evidence on oath. Section 9 requires that, at a hearing before the Commission, proceedings shall be conducted with a lack of formality and with as much expedition as is appropriate. The Commission is not bound by the rules of evidence and s9(1)(d) requires that:
"The Commission shall observe the rules of natural justice;"
Section 12 provides for the delegation of the Commission's functions or powers to any person and (inter alia) provides that such a delegate may exercise those functions or powers including the power to hold "hearings". As mentioned in National Companies and Securities Commission v News Corporation Ltd (1984) 156 CLR 296 per Gibbs CJ at p309, "hearing" in this sense does not imply a hearing such as takes place between contending parties.
When Mr Yaxley attended before the Investigators on 14 December 1987, he was represented by Mr Ritter of counsel. Mr Bower, who was acting as chairman of the Investigators at the time, explained to Mr Yaxley the nature of the inquiry and the purpose for which he had been summoned to answer questions. The Investigators made it clear that they were aware of their obligation to exercise natural justice in the course of the hearing and were at pains to explain to Mr Yaxley how the investigation would proceed. Mr Ritter was advised that at the conclusion of the hearing or such other time as was considered convenient, he would be afforded the opportunity of examining his client on matters put to him for the purpose of explaining any matter requiring clarification. He was also told that if his client sought advice or required an adjournment, such requests would be complied with. It was also made plain that the inquiry was to be conducted in private for the purpose of providing a confidential report to the Commission and further, insofar as the Investigators were able to ensure it, if there was any proposal by the Commission to subsequently publish any matter adverse to, or critical of Mr Yaxley, he would be given a further opportunity to be heard on the matter.
It was also explained that the Investigators were concerned with possible breaches of ss229 and 556 of the Companies (Tasmania) Code. The details of these sections were not spelt out but there is no reason to suppose that either Mr Yaxley or Mr Ritter were unaware of the salient aspects of each section.
When Mr Clements attended for the purpose of giving evidence on 18 December 1987, he also was represented by Mr Ritter. A similar outline of the nature of proceedings and proposed procedure was given by the Investigators to Mr Clements in his counsel's presence. I have not examined the transcript of Mr Yaxley's evidence in its entirety but I have consulted the passages to which counsel made special reference. I have also read the whole of the transcript pertaining to Mr Clements' appearances before the Investigators on 18 December 1987 and 13 July 1988. I have found it necessary to do this because although Mr Hedigan made no complaint of lack of fairness to Mr Clements during the course of those proceedings, except at the very end, I considered it essential for the purpose of evaluating some of the criticisms which he made of the Investigators to have a clear understanding of the thrust or direction which their inquiries took on those occasions. It is plain to me from a reading of that transcript that from a procedural point of view, Mr Clements was accorded every courtesy and he was not harassed by unfair or oppressive questioning. His counsel was also allowed considerable scope to intervene in the questioning process.
When the inquiry resumed on 13 July 1988, after the Investigators had concluded their questioning of Mr Clements, Mr Ritter was afforded the opportunity (of which he availed himself) to re–examine his client.
On the basis of the questioning of Mr Clements, both by the Investigators and his own counsel and the comparatively unfettered discussion that took place, there can be no doubt that both he and his counsel were fully aware of the two central issues to which those processes were directed, namely, whether or not at or immediately before the time at which the company incurred debt whilst Mr Clements was a director, there were reasonable grounds to expect that it would not be able to pay all of its debts as and when they became due, and secondly, whether or not if this was the case, any such debt was incurred without the express or implied authority or consent of Mr Clements, and whether or not when the debts were incurred he did not have reasonable cause to expect that the company would not be able to pay all of its debts as and when they became due.
I think it fair to say that the picture presented by Mr Clements was that he and his fellow directors appointed in May 1985 had an unwritten agreement between them from the time that they acquired their initial shareholding in RMI, that they would inject funds into it as and when required to maintain it in a satisfactory state of liquidity. Each of them made a substantial contribution for this purpose early in their association with the company, but Mr Joseph Chromy as the largest shareholder, subsequently became reluctant to make further funds available although he did not finally refuse to do so until mid July 1986. At about this same time, Roberts Limited, a major creditor became aware of RMI's parlous financial state as a consequence of overtures made to one of its directors to take an equity position with RMI with the unexpected result that Roberts Limited forthwith withdrew all credit facilities to the company. Thereupon with some haste, Mr Crawford was called in to make a report on the company's position and, after investigating the same, reported that the only feasible option was to invite the two major secured creditors of the company, (ANZ Bank Ltd and the Commonwealth Trading Bank) to place the company into receivership. Mr Crawford drew attention to the perils confronting the directors if the company continued to trade, having regard to the provisions of s556 of the Code. The effect of Mr Crawford's advice was pithily and accurately summarised by Mr Cavanagh of the ANZ Bank who shortly thereafter prepared a report in which he stated:
"Taking all this into account Mr Crawford projects the need for a cash injection of $3.54.5M in the short term to enable the group to carry on and to meet its debts/obligations as they fall due.
This would still leave creditors, other than livestock creditors, at 90 days and bank OD's more or less fully drawn."
In the course of giving evidence to the Investigators Mr Clements conceded that he was aware that the company had cash flow difficulties when he assumed responsibilities as a director but said that he expected these problems to turn around as from about November 1985 because of the improved seasonable trading pattern that could be expected at about that time. He also claimed that there was a long standing practice that creditors, other than livestock creditors, were paid on an extended credit basis and that those creditors did not necessarily expect payment of debts due within 30 days. He said that he was aware about 2 May 1986 that the company would require a further injection of funds and that he approached Mr Chromy as to this. He agreed that on 17 June 1987, in a letter which he wrote to the then company secretary, Mr Whitehouse, he recommended that in view of the company's "parlous liquidity situation" the directors should not draw their fees on a regular basis. He also agreed that he had access to information as to the company's developing financial position during his tenure of office as a director. It was put to him by the Investigators that he was aware from soon after the time that he assumed office as a director, of the existence of a report by Coopers and Lybrand dated 6 February 1985 in which they advised the previous Board of RMI of the practical difficulties in restoring the company to financial liquidity. Part of that report reads as follows:
"The practical problem exists as to the funding of an additional $2.2 million when the current security position shows the company is insolvent and the current secured creditors are more than likely at risk.
It is understood that financially the group cannot continue to function past the end of February 1985 without a sufficient injection to bring outstanding creditors, both livestock and trade, back into normal payment terms."
It was put to Mr Clements that he was aware of the existence of this report, or at least its essential conclusions and ramifications, as the result of access which he had to the minutes of the meeting of the Board as it was then constituted which took place on 11 April 1985, six weeks before the sale which took place which resulted in his being appointed to a directorship. In those minutes is recorded the comment by one of the members of the Board at that time, referring to the financial situation of the company that, "the picture was Armageddon". It was also put to Mr Clements that there were clear indications from the financial reports being made available that during his tenure of office, creditors were not being paid promptly and that settlement of their accounts was being held back for periods of up to three months.
Whilst this brief summary does not canvas all of the matters that were explored with Mr Clements, it suffices I think to indicate the thrust of the Investigators' inquiry and it is against this background that I must assess the complaints made by each of the plaintiffs in these actions that they have not been accorded natural justice in the course of the investigations.
In their essentials the submissions made on behalf of the plaintiffs were as follows:
1The Investigators were either biased in fact against the plaintiffs or they so conducted themselves that a fair minded person would consider that there was a real likelihood of bias on their part.
2The plaintiffs were refused reasonable information as to the substance of the matters which would be relied upon by the Investigators to support any proposed recommendation or report by them to the Commission, and in particular they refused to state the essential basis upon which they had reached the conclusion that the company was unable to pay its debts at any relevant time.
I shall deal with each of these complaints in turn.
It was submitted that as a matter of general principle, investigations of the kind here in question should be carried out by persons who have not been involved in any preliminary investigation which may have had the effect of arousing in them suspicion, or colouring their perception of the direction which further inquiries should take. Whilst there is no doubt that there is a statutory obligation upon the Investigators to discharge their functions with due regard to the principle of natural justice, it was made abundantly clear by the High Court in the National Companies and Securities Commission v News Corporation Ltd (supra) that the rules of natural justice may vary from case to case and according to the circumstances. It was also made clear that the requirements of natural justice or fairness have different connotations according to whether or not the procedure in question involves judicial, quasi–judicial or administrative decision making on the one hand, or an investigation as in the present case, on the other.
As Brennan J said in National Companies and Securities Commission v News Corporation Ltd (supra) at p326:
"The terms of the statute which creates the function, the nature of the function and the administrative framework in which the statute requires the function to be performed are material factors in determining what must be done to satisfy the requirements of natural justice:"
Similar submissions to those made in the present case were made to Neasey J in In Re the Medical Act 1959 re Roy (Serial No 44/1973), but in that case after an extensive review of the authorities and a consideration of the relevant statutory provisions, Neasey J was unable to conclude that there was a failure to accord the prosecutor natural justice in a situation where one of the original investigators also participated in the deliberations of the Medical Council for the purpose of exercising its disciplinary powers. On the other hand, in Stollery v The Greyhound Racing Control Board (1973) 128 CLR 509, the High Court concluded that the manager, to whom a bribe had allegedly been offered, should not have been present when the Greyhound Racing Control Board deliberated upon his complaint. That however, was not a case in which a statutory framework of procedure was relied upon to justify the course that was followed and furthermore the Board was involved in a hearing process for the purpose of actually determining the appellant's rights. It seems to me that in the present case, having regard to the function that the Investigators were fulfilling and the processes that they were undertaking, particularly in light of the fact that the relevant statutory framework envisages that a delegate of the Commission may proceed straight from an initial inquiry into an investigative hearing, I think that there is little substance in the plaintiffs' complaint. The words of King CJ in Karounos v Corporate Affairs Commission (SA.) (1989) 15 ACLR 363 at p367 which are reproduced later in these reasons are also directly germaine to this issue.
It was further submitted by reference to the decision of O'Bryan J in the Supreme Court of Victoria in Waverley Transit Pty Ltd v The Metropolitan Transit Authority Court (unreported dated 2 June 1988) that if an apparently investigative body is in fact the body ultimately making the final decision upon rights, liabilities and legitimate expectations of an aggrieved citizen, it will be no answer to complaints of denial of natural justice to say that the Investigators were not the final arbiters. Such however, is not the case, or is certainly not shown by the plaintiffs to be the case, in the current situation. There is nothing to show that if and when Messrs Bower, Barry and Dwyer make their recommendations to the Commission, the Commissioner will not exercise an independent judgment of his own in determining whether or not to accept the report, its conclusions and recommendations, if any.
Having said this, it should not be taken that I necessarily accept the criticism of the conduct of the Investigators which was based upon the material referred to by Mr Hedigan which I will now examine in a little more detail.
It was suggested firstly that Mr Bower's lack of impartiality was exposed in a letter which he wrote to the Commissioner for Corporate Affairs dated 2 November 1987. That is a fairly lengthy letter referring to the fact that Mr Bower had been to Hobart to review the steps that had been taken in relation to the RMI Group investigation. The first three paragraphs of the letter are as follows:
"Dear Frank,
I refer to my recent trip to Tasmania in the company of Mr D Barry when we reviewed the situation insofar as the matter of the investigation into Richardson's Meat Industries Limited and other companies is concerned.
You will be aware that during my three days in Hobart I reviewed much of the material which was available to me and had discussions with persons involved in the inquiry. I have also given consideration to Mr David Lovett's letter to Mr SP Dwyer of 2nd June 1987 which in my opinion is a good summary of the position. Mr Lovett suggests that offences may have been committed under Section 44 of the Companies (Acquisition of Shares) Code, Sections 125 and 126 of the Securities Industry Code, Sections 563 and 564 of the Companies Code and Section 229 of the same Code. These references appear on page three of the letter. On pages three and four reference is made to the possibility of offences against Section 556 of the Companies Code and on page four reference is made to the possibility of offences under Sections 564 and 229 of the Companies Code. Finally on page five reference is made to the possibility of offences under Section 267 of the Companies Code.
It is my view, having had regard to the limited amount of material available to me, that these opinions are soundly based."
Reference was also made to the following passage on page 3 of the letter:
"Indemnity
I am very concerned that the people which [sic] whom I will be dealing are, as I understand, powerful and influential people in Tasmanian business circles. It must be possible that these people will use means available to them to try and frustrate my involvement in the hearings. Thus it is a condition of my consent to be authorised to conduct such hearings that I receive and indemnity against any litigation or other claim which may be preferred against me arising from these hearings."
(Mr Bower then set forth a suggested form of indemnity.)
Whether viewed in isolation or in the context of the letter as a whole, I see neither of these passages as supportive of the claim that Mr Bower was or must appear to a fair minded person to be, incapable of exercising a properly impartial approach to his investigative duties. In neither of the passages quoted has he expressed a concluded view on any of the matters in question. It was plainly competent and desirable that he should address his mind at an early stage to the possibility of particular offences having been committed. To review the material available, and comment upon an opinion expressed previously on the matter, seems me to be a perfectly normal and legitimate way of approaching this function. To foresee the possibility of attempts to frustrate the hearings is also, in my opinion, no more than normal caution and experience might suggest, particularly when an explanation is being proffered by the writer for his request that he be granted an indemnity.
Strong criticism was also made of a passage in Mr Bower's later letter of 22 December 1987 to the Commissioner for Corporate Affairs, written at a time when the hearings had already commenced. The following passage from the letter explains its subject matter:
"The purpose of this letter is to set out my views on the matter and suggest the next course of action. During the week we examined seven former officers of the companies concerned over a wide range of matters – not all over the same areas but generally spread to cover the areas in question. I believe that some one thousand pages of transcript will be produced with more than two hundred individual exhibits.
In my view the issues are now fairly well defined and consideration should now be given to those issues before deciding on the next phase of the investigation and before too much more time and money is expended on this matter.
Whilst I am not prepared at this stage to put my preliminary views on paper, it is my concern that if the Caratti case continues to be good law, your office faces a considerable obstacle which will need to be overcome if the matter has any chance to proceed to prosecution stage in relation to s 556 Companies Code.
Thus it is my recommendation that a meeting be held between yourself, Mr David Lovett, myself and my co–delegates to seriously consider the issues that have been exposed."
It was submitted that this document reveals the fact that Mr Bower and his colleagues had departed from the role of seekers after truth and transmitters of fact, to considering the prospect of a successful prosecution. It was also suggested that the cases support the proposition that an investigator's role is only to find facts and not to expand into these other areas, and that to do so demonstrates bias or apparent bias on the part of the Investigators.
I regard this submission as without substance. In my view, an investigator who does not attempt to confine the issues or plan ahead foreseeing appropriate avenues of inquiry to be made, is not doing his job. Nor does he fail to accord natural justice to those involved simply because he foresees and expresses difficulties, whether of a legal or practical kind, which beset the way ahead.
It seems to me that in relying upon the material to which I have just referred in Mr Bower's letters, the plaintiffs are once more adopting the fallacious attitude that the Investigators, although pursuing an inquisitorial function, must act as a judicial or quasi–judicial tribunal. This is similar to the argument that was urged upon King CJ in Karounos v Corporate Affairs Commission (SA) (supra). At p367 his Honour said:
"Mr McNamara also argued that observance of the rules of natural justice required that the hearing be conducted by a person or persons other than those who were engaged in the ground work of the investigation. The investigation is founded on a reasonable suspicion of the commission of an offence, which must have been the suspicion of Moen and Tank. They have pursued the investigation to the point at which they have decided upon a hearing. It was submitted that for Moen and Tank to preside over the hearing placed them in the position of both prosecutor and judge. I think that this argument misconceives the nature of a s16A investigation and s7 hearing. As explained in the passages cited above, the hearing cannot result in any determination of rights or of legal liability or any resolution of issues. It is purely investigatory in character. There is no judicial or quasi–judicial role to be performed at such a hearing and no question of the Investigators being judges in their own cause."
In my respectful submission his Honour has correctly identified the error which occurs in attempting to equate a "hearing" of the type involved in this case with judicial or quasi–judicial proceedings. This tendency to lose sight of the distinction can be seen, not only in relation to these submissions, but also in relation to those which were put before the Investigators on 20 July 1988 when the hearing was effectively terminated to enable the plaintiffs to challenge the investigation in this Court.
In further support of the proposition that the Investigators demonstrated actual or apparent bias against his clients, Mr Hedigan referred also to other documentary material, in particular a letter from Mr Barry dated 22 March 1988 to the Commissioner for Corporate Affairs. The entire text of that letter is set out hereunder:
"Dear Frank,
richardson's meat industries ltd (rmi) and other companies
Simon Dwyer told me that you required a letter setting out what we considered to be the future direction of the RMI enquiry.
On my last trip to Tasmania on 8 March, 1988 the three of us (Simon, Geoff and myself) discussed with David Lovett the evidence obtained at the hearings already conducted and the need to put other documentary evidence to the persons under examination. It was agreed that there were strong grounds to suggest that there had been offences committed under s556 of the Companies Code and that the first leg of that section – that there are reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due – seemed to have been satisfied. However, we see it as a need that all of the documentary and other evidence be put to officers of the companies before we pose the question that arises from the second part of the section – what were the reasonable grounds to expect that, if the company incurred the debt, it would be able to pay all its debts as and when they became due?
At present we could report that there appeared to be evidence that officers of the companies had breached the provisions of s556 of the Companies Code. This could be described as a surface view based on the evidence presented to those officers at the hearings and bolstered by other documentary evidence not yet placed before them for comment or observation. The difficulty that is seen is that we could be accused of failing to render the element of 'natural justice' to those officers by denying to them the right to have our conclusions put to them and for them to have the opportunity to refute or discount.
The main area which I believe may be of major concern to the Corporate Affairs office is the one of cost. If we assume that the enquiry goes in the direction that it should in order that there is room and reason to come to a decision, and that decision is that a prosecution be recommended, then, the accompanying direction as to what was necessary to proceed to a position where a prosecution brief under s556 would be put forward would form the advisory part of that recommendation. It is estimated that there would be between 10 and 14 hearing days before the enquiry would be at the point where we could make this report.
Our examination of the evidence obtained from creditors shows that except for a small number of statements they are deficient for evidentiary ease. The majority of those would have to be re–done. There would also be a requirement to obtain detailed statements from all of the major trade creditors and a wide sampling of those with smaller debts. The personnel required in order that this could be effected over a reasonable period (two–three months) would, we believe, be far in excess of the present capacity of your office. We would suggest that there should be at least four teams under the guidance and direction of Simon Dwyer.
To reiterate the essential advice given above I have set out the chronological sequence of the steps that may be taken.
1Examine under the aegis of Section 7, officers of the RMI group of companies. All documentation assisting in proof of insolvency and of their knowledge of the financial position of the group to be put to them.
Time allowed: 10 – 14 days.
Additionally Simon Dwyer would be required in Sydney for 3 days to assist in preparatory work.
2 Report of delegates.
3If, as it now appears to us, there is good evidence of breaches of Section 556, the interviewing of and statement taking from the groups creditors. Time allowed is dependent on number of staff available.
As you can see it will be a long haul and will cost a great deal of money. We certainly cannot report now that there is no evidence of breaches of the law, and neither can we level charges that there have been breaches without putting all the documentary evidence to those whom we would accuse, without giving them a right of reply.
Will you let Simon know your views on this as he will be in communication with me on other points in the enquiry.
Yours faithfully
D Barry"
For reasons already explained, I can see nothing in this document to suggest that the Investigators had acted unfairly, were acting unfairly, or proposed to act unfairly towards the plaintiffs.
Before leaving this letter it is appropriate to make a response to a separate, but allied criticism made by Mr Hedigan. He suggested that it was no part of the Investigators' function to concern themselves with the possible defences that the plaintiffs may have under s556(2) of the Companies Code, and that they overstepped the mark and exceeded their legitimate role in enquiring into the beliefs or expectations which the plaintiffs may have had that the company could pay its debts. In my opinion, this criticism is misconceived. For an investigator considering a possible breach of s556 to fail to consider a possible defence under s556(1) would, in my opinion, amount to a dereliction of duty. No report or recommendation could properly be made as to the institution of proceedings for a breach of s556(1) unless the existence or non–existence of the statutory defences provided by subs.(2) was also considered and evaluated.
Mr Hedigan also referred to a summary of evidence which appears to have been prepared by Mr Dwyer. It was submitted that it demonstrated prejudice on his part. In my opinion, there is no substance to this submission.
I turn now to the course of events which immediately precipitated these proceedings. On 13 July 1988, soon after Mr Clements had completed his evidence, the Investigators retired for a short time. They then returned to the hearing room and announced to Mr Clements and his counsel, as follows:
"We are to prepare an internal report to the Commissioner for Corporate Affairs in relation to this Hearing. In this report we are to give certain views based on the evidence presented and adduced to the Hearings. We have conferred on this matter and we have reached the view that the RMI Group could not pay its debts as and when they fell due for the period from 1st February, 1986 till 22nd July, 1986 on which latter date a receiver was appointed. Furthermore we have reached the preliminary view that debts were incurred with your express or implied authority or consent and (2) that you did not have reasonable cause from the 21st March, 1986 to expect that the Group would be able to pay all its debts as and when they became due. Before finalising this report to the Commissioner, we invite your submission on our views. Do you wish to make a submission now or would you prefer to make a submission verbally or in writing at some later date?"
In the course of the debate which followed this announcement, Mr Ritter said, apparently referring to the announced preliminary view that Mr Clements did not have reasonable cause to expect that RMI could pay its debts from 21 March 1986:
"The point that is raised with [sic] me is it based on the evidence given by Mr Clements. I take it is based on all evidence before the enquiry to date and I take it also that it's based on all the evidence which wherever prejudicial, has been, as it were, outlined to Mr Clements in any event?"
To this Mr Barry replied, "Yes".
The following day, Thursday 14 July 1988, the plaintiff Yaxley appeared to give further evidence before the Investigators. He also was represented by Mr Ritter who suggested that the Investigators had prejudged their findings and it then became obvious, in the course of the debate of that issue, that both the Investigators and Mr Yaxley would need to take further legal advice before the hearing could proceed.
The hearing resumed again on 20 July 1988 when Mr Barry said:
"The investigators' hearing into Richardson's Meat Industries Ltd and other companies is resumed at 10.45. The persons are the three persons authorised to conduct the hearing, a person operating the recording equipment, Mr Alex Chirnov QC, Mr G Ritter of Counsel and Mr P Clarke, solicitor. Mr Ritter or Mr Chirnov on the fourteenth of July Mr Ritter made a statement in respect of the examination of Mr Clements. In essence he requested 1) copies of the transcript of all witnesses and documentation which were relied on as adverse to Mr Clements; 2) an opportunity to examine witnesses who provided evidence adverse to Mr Clements and which was relied on in reaching our preliminary findings; 3) a statement of reasons for the view which we reached and which was announced to Mr Clements. We have obtained legal advice in which we are informed that we are under no obligation to grant you these requests. We have decided that the request be denied. We do note for the record that copies of all documents shown to Mr Clements which were requested by Mr Ritter were, with one exception made available to him. The one exception was a diary note of Mr Cavanagh, Bank Manager of the ANZ, a copy of which was refused on the basis that it is not our document. Do you wish to say anything at this stage?"
No complaint is currently made as to the decision of the Investigators to withhold copies of the transcript of all witnesses and documentation adverse to Mr Clements or their decision to decline to allow witnesses who provided evidence adverse to Mr Clements to be cross–examined, and indeed, it is clear from the decided cases that no such complaint could succeed.
After further debate between Mr Barry and Mr Chirnov, Mr Barry stated at 2.25pm:
"You have sought, in general terms, details of the basis and factual basis as to how we have reached a view that the RMI Group could not pay its debts as and when they fell due for the period from 1st day of February 1986, until 22nd day of July, 1986.
In general terms, but not exclusively, the basis for this view being reached substantially is detailed in the transcript of the examinations of your client Mr Clements held on 18th December, 1987 and 13th July, 1988, together with the exhibits considered whilst your client was being examined on those days. As he is therefore familiar with this material we do not propose to provide any further detail. To do so at this stage would be onerous to say the least. As you are no doubt aware, we have had to consider a significant volume of material during the course of this enquiry. We should point out that we are only inviting your clients to make submissions and if possible, assist us. If he is in a position to make submission and provide further evidence in rebuttal of the view which we have reached, we invite him to assist us by presenting that evidence, or making those submissions. We had expected that our comments made on 13th July last, would have encouraged him to do so."
The Investigators were then asked by Mr Chirnov to confirm that their views relating to the company's inability to pay its debts applied also (inter alia) to the plaintiffs Yaxley, Rouse and McQuestin. This confirmation was given.
It was submitted by the plaintiffs that in making an apparently final determination that the company was unable to pay its debts during the above period, and expressing a preliminary conclusion tantamount to a view that Mr Clements had no defence under s556(2), it was plain that Mr Clements and the other plaintiffs were not being accorded natural justice by the Investigators. In National Companies and Securities Commission v News Corporation Limited (supra) Mason, Wilson and Dawson JJ said at p319:
"It is to be observed that the express declaration that the Commission shall observe the rules of natural justice at any hearing it may conduct relieves the court from examining the Act in order to determine the intention of the legislature in that regard. It is such a task that has often been uppermost in many of the earlier decisions, both in this Court and elsewhere, which have been given in the exercise of judicial review of administrative decisions. However, although in the Act now under consideration the legislature has plainly resolved that question, it remains to consider what the rules of natural justice require in the particular circumstances of this case. In Reg v Commonwealth Conciliation and Arbitration Commission; Ex parte Angliss Group (1969) 122 CLR 546, at pp 552–553, the whole Court said, in a joint judgment:
'But it must be borne in mind that these principles are not to be found in a fixed body of rules applicable inflexibly at all times and in all circumstances. Tucker LJ said in Russell v Duke of Norfolk [1949] 1 All ER 109, at p118: "The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter that is being dealt with, and so forth." This passage was approved by the Privy Council in University of Ceylon v Fernando [1960] 1 WLR 223; [1960] 1 All ER 631, and was used by Kitto J in Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation (1963) 113 CLR 475, at p504. There his Honour observed: "What the law requires in the discharge of a quasi–judicial function is judicial fairness ... What is fair in a given situation depends upon the circumstances." We agree with the foregoing statements of the relevant law.'
The statement of Tucker LJ has been adopted in many subsequent cases: cf Wiseman v Borneman [1971] AC 297; Furnell v Whangarei High Schools Board [1973] AC 660, at p679; Salemi v MacKellar [No 2] (1977) 137 CLR 396, at p444."
Their Honours continued at pp323–324:
"It is of the very nature of an investigation that the investigator proceeds to gather relevant information from as wide a range of sources as possible without the suspect looking over his shoulder all the time to see how the inquiry is going. For an investigator to disclose his hand prematurely will not only alert the suspect to the progress of the investigation but may well close off other sources of inquiry. Of course, there comes a time in the usual run of cases when the investigator will seek explanations from the suspect himself and for that purpose will disclose the information that appears to require some comment. Having regard to the express statutory injunction of s38(1)(d) of the NCSC Act, it would clearly be a denial of natural justice if the Commission in the present hearing received evidence adverse to News Corporation without providing an opportunity to News Corporation to be heard. An effective examination of such persons would require that the substance of the adverse information received during the investigation be disclosed to them. Legal representation would be permitted to such witnesses with the opportunity for their further examination by counsel and for submissions to be made touching matters covered by the examination. There is no reason why the Commission should not welcome, time permitting, any request by News Corporation that further persons be called to give evidence. A hearing conducted along these lines, subject to what we have to say in a moment about the publication of the Commission's views, would in our opinion be fair in all the circumstances."
Both Mr Hedigan and Mr Bugg placed some reliance upon what was said by Lord Denning MR in In re Pergamon Press Ltd [1971] 1 Ch 388 at pp399–400:
"It is true, of course, that the inspectors are not a court of law. Their proceedings are not judicial proceedings: see In re Grosvenor & West–End Railway Terminus Hotel Co. Ltd (1897) 76 LT 337. They are not even quasi–judicial, for they decide nothing; they determine nothing. They only investigate and report. They sit in private and are not entitled to admit the public to their meetings: see Hearts of Oak Assurance Co. Ltd v Attorney–General [1932] AC 392. They do not even decide whether there is a prima facie case, as was done in Wiseman v Borneman [1971] AC 297.
But this should not lead us to miminise the significance of their task. They have to make a report which may have wide repercussions. They may, if they think fit, make findings of fact which are very damaging to those whom they name. They may accuse some; they may condemn others; they may ruin reputations or careers. Their report may lead to judicial proceedings. It may expose persons to criminal prosecutions or to civil actions. It may bring about the winding up of the company, and be used itself as material for the winding up: see In re SBA Properties Ltd [1967] 1 WLR 799. Even before the inspectors make their report, they may inform the Board of Trade of facts which tend to show that an offence has been committed: see section 41 of the Act of 1967. When they do make their report, the Board are bound to send a copy of it to the company; and the board may, in their discretion, publish it, if they think fit, to the public at large.
Seeing that their work and their report may led to such consequences, I am clearly of the opinion that the inspectors must act fairly. This is a duty which rests on them, as on many other bodies, even though they are not judicial, nor quasi–judicial, but only administrative: see Reg. v Gaming Board for Great Britain, Ex parte Benaim and Khaida [1970] 2 QB 417. The inspectors can obtain information in any way they think best, but before they condemn or criticise a man, they must give him a fair opportunity for correcting or contradicting what is said against him. They need not quote chapter and verse. An outline of the charge will usually suffice.
That is what the inspectors here propose to do, but the directors of the company want more. They want to see the transcripts of the witnesses who speak adversely of them, and to see any documents which may be used against them. They, or some of them, even claim to cross–examine the witnesses.
In all this the directors go too far. This investigation is ordered in the public interest. It should not be impeded by measures of this kind. Witnesses should be encouraged to come forward and not hold back. Remember, this not being a judicial proceeding, the witnesses are not protected by an absolute privilege, but only by a qualified privilege: see O'Connor v Waldron [1935] AC 76. It is easy to imagine a situation in which, if the name of a witness were disclosed, he might have an action brought against him, and this might deter him from telling all he knew. No one likes to have an action brought against him, however unfounded. Every witness must, therefore, be protected. He must be encouraged to be frank. This is done by giving every witness an assurance that his evidence will be regarded as confidential and will not be used except for the purpose of the report. This assurance must be honoured. It does not mean that his name and his evidence will never be disclosed to anyone. It will often have to be used for the purpose of the report, not only in the report itself, but also by putting it in general terms to other witnesses for their comments. But it does mean that the inspectors will exercise a wise discretion in the use of it so as to safeguard the witness himself and any others affected by it. His evidence may sometimes, though rarely, be so confidential that it cannot be put to those affected by it, even in general terms. If so, it should be ignored so far as they are concerned. For I take it to be axiomatic that the inspectors must not use the evidence of a witness so as to make it the basis of an adverse finding unless they give the party affected sufficient information to enable him to deal with it.
It was suggested before us that whenever the inspectors thought of deciding a conflict of evidence or of making adverse criticism of someone, they should draft the proposed passage of their report and put it before the party for his comments before including it. But I think this also is going too far. This sort of thing should be left to the discretion of the inspectors. They must be masters of their own procedure. They should be subject to no rules save this: they must be fair. This being done, they should make their report with courage and frankness, keeping nothing back. The public interest demands it."
In the subsequent case of Maxwell v Department of Trade and Industry [1974] 1 Q.B., Lord Denning MR said at p534:
"Forbes J thought that, in order to do what was fair, after hearing the evidence and studying the documents, the inspectors ought to come to a conclusion (which was necessarily tentative) and put the substance of that conclusion to the witness. He was led to that view by the observation of Sachs LJ in In re Pergamon Press Ltd [1971] Ch 388, 405. I do not think that is right. Just think what it means. After hearing all the evidence, the inspectors have to sit down and come to tentative conclusions. If these are such as to be critical of any of the witnesses, they have to reopen the inquiry, recall those witnesses, and put to them the criticisms which they are disposed to make. What will be the response of those witnesses? They will at once want to refute the tentative conclusions by calling other witnesses, or by asking for further investigations. In short, the inquiry will develop into a series of minor trials in which a witness will be accused of misconduct and seek to answer it. That would hold up the enquiry indefinitely. I do not think it is necessary. It is sufficient for the inspectors to put the points to the witnesses as and when they come in the first place. After hearing the evidence, the inspectors have to come to their conclusions. These need not be tentative in the least. They can be final and definite, ready for their report."
Similar views were expressed by other members of the Court.
It is not for me to determine whether or not the Investigators were correct in forming the view that the company was unable to pay its debts between February and July 1986. (See for example 3M Australia Pty Ltd v Kemish (1986) 4 ACLC. 185 SC (NSW) 185 at p193). There was however, material upon which they could have come to this conclusion. In expressing that conclusion albeit as a definite conclusion, it seems to me that the Investigators were not foreclosing the possibility that they may be persuaded to a contrary point of view upon the presentation of argument or additional evidence. The material and issues to which this argument or additional evidence may have been directed was, in my opinion, adequately disclosed by the questioning of Mr Clements which took place before the Investigators and there was no obligation upon them to formulate reasons for expressing the views which they held when they did. See Bond and Others v Australian Broadcasting Tribunal (No 2) (1988) 84 ALR 646 at p664, per Wilcox J:
"An obvious way of ensuring that the company would not be 'left in the dark' would be for the Commission to give notice of any tentative adverse conclusion. But this can hardly be necessary in a case where the subject matter of a potential criticism has been flagged as an issue, in the presence of the affected person, during the course of the inquiry; and particularly if questions have been directed to that matter by counsel assisting or by members of the tribunal themselves.
I do not wish to suggest that occasions will never arise in which it will be appropriate for an investigator, like the tribunal, to direct the attention of a party to a particular matter. In rare cases the investigator might do this by indicating a tentative view upon a point: see, for example, the procedure suggested by Woodward J in Freeman v McKenzie (1988) 82 ALR 461. The investigator might simply express concern about the adequacy of the material relating to an aspect of the case. Judges frequently take this course, in an endeavour to gain the maximum assistance from the parties in resolving an issue. In an unusual case – like Mahon, in which the adopted procedure obscured from Air New Zealand the significance of evidence which the Royal Commissioner regarded as condemnatory of that party's conduct – there may be a positive obligation upon the investigator to call attention to a point. But this course will hardly be necessary in a case where the relevant matter has been clearly identified as an issue and has been the subject of contested evidence."
(See also the comments by O'Bryan J in Connell v NCSC (supra) at p771).
In Bankers Trust v NCSC (1989) 85 ALR 475 at p493, Foster J said:
"... it is my clear view that, if the Commission is of the opinion that it is likely, on the material before it, that it will recommend prosecution of any person or persons, natural justice will require that it should accord to that person or persons the opportunity not only to make submissions against the taking of that course, but also to call such relevant evidence as he or they may wish to put before it."
As already indicated I think that the Investigators were prepared to give time to Messrs Yaxley and Clements for the purpose of formulating argument and considering what additional information, (if any) should be placed before the inquiry. I think that had they followed the course which they were invited to follow by Mr Chirnov and Mr Ritter, the inquiry would have developed "into a series of minor trials", to use Lord Denning's words.
It is to be remembered that the Investigators chose to advise Mr Clements of their views at the conclusion of his evidence. They had chosen to advise other directors who are not party to these proceedings in similar, but not identical terms after they had concluded giving their evidence. It was suggested that this was an indication that the Investigators were completely immutable and that they had prejudged the matter before hearing from any of the present plaintiffs.
In my opinion, the indications are to the contrary. They chose to advise the directors of the views that had been formed whilst the subject matter of the investigation was still, no doubt, fresh in the minds of those directors. They were given time in which to consider their position. There is no basis whatsoever for supposing that if they had chosen to make submissions or call additional evidence, those submissions or that evidence would have been ignored by the Investigators.
In Story v NCSC 13 ACLR 225 at p236, Young J had occasion to examine an allegation of perceived bias on the part of one Williams who had been a member of the Division of the Commission which had met and resolved, subject to hearing the plaintiff, to revoke his dealer's licence. Following this, Williams sat at the hearing to determine the matter. It will be noted that this case is not unlike Roy's case and bears a closer resemblance to Stollery than to the present case. Young J said at p236:
"The real practical question in this case is whether, by what happened on 1 September 1987, Mr Williams showed that he had reached the stage of forming a definite conclusion which would apparently not be altered by what might happen at the hearing under s 62 of the Code. For present purposes it is not sufficient that the decision or the hearing was by a person who had given thought to the subject matter, or had thought about it and formed views or some inclination of mind with respect to it: R v The Commonwealth Conciliation & Arbitration Commission; Ex parte The Angliss Group (1969) 122 CLR 546 at 554. The plaintiff was, however, entitled to a mind which had not hardened to a final conclusion or one which, from what it had already produced, indicated to the reasonable observer a fair apprehension that the mind was closed on the question."
This passage was relied on by the plaintiffs, but in my opinion, even bearing in mind the clear distinction between the role being played by Williams in that case and the Investigators in the present actions, there is no sound reason for concluding that their individual or collective minds were "closed on the question."
Perhaps the Investigators could have deferred an announcement of their views until the whole investigation had come to a conclusion. Then, no doubt, they could have called each of the directors before them and advised them in similar terms as to their conclusions. This however, would have entailed an additional appearance by the directors and their legal counsel and it may have entailed a substantial interruption to the investigation to allow all directors and their legal representatives to consider what submissions should be made at that stage.
In my opinion, there was nothing unfair in what the Investigators did or proposed doing. In my opinion, they gave adequate and appropriate notice of the adverse findings that they intended to make concerning the company's inability to pay its debts. They also plainly announced the adverse findings that they intended to make against Mr Clements and his state of belief as to the company's position as preliminary findings only, and they afforded him appropriate opportunity to deal with that proposed finding. There is no reason to suppose they would have treated Mr Yaxley, Mr Rouse or Mr McQuestin any differently. I am therefore of the opinion that this challenge to the investigation fails and it should be permitted to continue unimpeded by orders or directions of this Court.
In conclusion I cannot do better than repeat the words of Marks J in Adler v Cantwell (1988) 14 ACLR 658 at p660:
"The ... defendant is performing a public function of some importance. It is not lightly to be the subject of intervention by this court at the risk of frustrating its purpose and efficacy.
It is to be emphasised that the rules of natural justice require certain matters which are fundamental to a fair hearing, such as: the right to be heard, the right to be given fair notice of any charge or allegation, the right to have an opportunity to meet an allegation or to answer any matter or allegation which might be the subject of the conclusions reached by the inquiry. None of those matters seem at present to be at stake."
Accordingly, in each action there will be judgment for the defendants with costs.
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