Deloitte Touche Tohmatsu v Australian Securities Commission

[1996] HCATrans 363

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S166 of 1996

B e t w e e n -

DELOITTE TOUCHE TOHMATSU (formerly known as DELOITTE HASKINS & SELLS and DELOITTE ROSS TOHMATSU)

Applicant

and

AUSTRALIAN SECURITIES COMMISSION

Respondent

Application for special leave to appeal

BRENNAN CJ
TOOHEY J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 2 DECEMBER 1996, AT 9.00 AM

Copyright in the High Court of Australia

MR R.A. CONTI, QC:   Your Honours, I appear with DR J.E. GRIFFITHS for the applicant.  (instructed by Mallesons Stephen Jaques)

MR T.A. GRAY, QC:   May it please the Court, I appear with MR R.J. WHITINGTON, for the respondent.  (instructed by Australian Securities Commission)

BRENNAN CJ:   Mr Conti.

MR CONTI: Your Honours, the matters of importance which arise in relation to this application, if leave be granted, are set out in paragraphs 27 to 31 of our written submission, and I was proposing not to merely read that material but to pass to other issues, namely, whether the construction for which we contend of section 50 is, prima facie, a viable one, and secondly, whether, in any event, the subject proceedings provide a suitable vehicle for determination of that point of construction. I do not think that your Honours have been handed the only, as it were, authority to which we wish to refer which is the statute, itself. I was wondering if I could pass up the full text of the statute.

BRENNAN CJ:   Thank you.

MR CONTI: Your Honours, the fundamental issue arising, if leave to appeal be granted, is the interpretation of section 50, and your Honours have doubtless read the text of section 50 because it appears in each of the judgments. Moving to the section, if I could ask you to open it before you, the judgments below indicate that resort to the precursors of this legislation have been historically rare. That has not been the case with section 50 in its present form, as our written submissions have sought to exemplify by reference to some of the cases that have thus far come before the courts. So that the section is very much a live one, has been very much enlivened by its re‑enactment for the purpose of the Corporations Law 1990.

Both at first instance and on appeal the Federal Court has been unanimous to the following effect: firstly, that the appearance to the Commission, which of course are the words used in the introductory section of section 50, that it is in the “public interest for a person to begin and carry on” proceedings of the kind that are stipulated in the section, implies the making of a reviewable decision. That is therefore not an issue. The second matter is that the review of any such decision of the ASC, if I could use that abbreviation for the Commission, involves the exposure for the court’s consideration the reasons for the conclusion of the ASC that it has been in the public interest to begin and carry on the requisite proceedings.

Thirdly - and again this is common ground - that the notion of appearance to the ASC to be in the public interest are words of wide import - let us make that concession from the outset - and invests in the ASC a wide discretion. Fourthly, common ground, section 50 confers on the ASC, nevertheless, an extraordinary power. Why is it an extraordinary power - and, again, it is common ground between the court at first instance and on appeal - is that “to begin and carry on proceedings” involves the pursuit of a choses in action of a citizen and not, of course, of the Australian Securities Commission, itself. It is a power conferred on the Commission in addition to the numerous powers that are already conferred by the Corporations Law of which the ASC Act is its handmaiden.  Already under the Corporations Law there are very extensive powers invested in the corporation to pursue injunctions; to pursue proceedings for damages arising out of contravening conduct.  There is also, already, extensive powers conferred by the Corporations Law on some of the bodies that are referred to in section 1 of this Act to take disciplinary proceedings against directors and auditors. So, it is not as if section 50 is something that just stands on its own, it is does it confer this extraordinary power.

In the case of a natural person, the ASC has no power to pursue his or her cause of action of the kind that is listed in section 50, irrespective of how pervasive may be the public interest. Consent is absolutely mandatory, irrespective of the degree of public interest involved. In the case of a company, Mr Justice Lindgren, as the trial judge, implied an obligation to consult with and give consideration to the views of the company as to the pursuit of the company’s own causes of action, subject only to the qualification, albeit somewhat broadly expressed, the qualification as to wrongdoer control, or put another way, exceptional circumstances, as has been enunciated by the courts below, or by his Honour Mr Justice Lindgren below.

Mr Justice Lindgren said that the matters to which I have just drawn you attention cause there to be leapt from the pages of the statute this implied obligation to consult.  The Full Court said no, that is being too sophisticated, too technical, but so far as his Honour at first instance is concerned -  we would urge upon you as a prima facie viable argument worthy of further consideration - they leap from the pages because, on the one hand you have the natural person who can put an absolute embargo with respect to the public interest; on the other hand, there has been, in effect, usurped or appropriated, the cause of action of another person ‑ ‑ ‑

TOOHEY J:   But the very absence in paragraph (c) of any obligation to consult or to take into account particular considerations rather tells against the argument, does it not, Mr Conti?

MR CONTI:   Not if one takes full cognisance of the circumstance that is the policy of the law but except in exceptional circumstances the law does not visit the decisions of the appropriate organ of government of a company irrespective of how right or wrong those decisions might thought to be.  If one balances the general law of non‑interference in the administration of companies except in certain circumstances, plus the circumstance that the cause of action belongs to the company in the normal course, his Honour said that therefore leaps from the pages surely there is an obligation to consult unless there are exceptional circumstances such as of wrongdoer control.  That is the essence of his Honour’s approach, and that is the essence which would urge on your Honours.

GUMMOW J:   Do you say, Mr Conti, that the ASC is bound to take into account consequences for shareholders and double benefits for shareholders?

MR CONTI:   Yes, that is our subsidiary argument, your Honour.  The main argument is what we call the Foss v Harbottle factor, but we would also say, at least in the particular circumstances of this case, the pursuit of the action was brought ostensibly to restore value to shareholders and creditors but here, in our respectful submission, there are reasons why, in either case, that concept was misunderstood and miscarried.  That is only exceptional to the main rule which we pursue.  If I have understood your Honour’s question to me correctly ‑ ‑ ‑

GUMMOW J:   As I understand what Mr Gray says about it, he says the ASC did, in fact, take it into account, even if not bound to do so, and that the courts below took the view that they were not bound to.

MR CONTI:   Your Honour, the only judgment below that deals with the question whether, in fact, the ASC did take into account the views of the company and its directors - its organ of government - the only judgment which deals with that issue is the judgment of Mr Justice Lindgren.  The Full Court determined it was unnecessary for it to consider that particular matter.  That is a matter which I would like to come to very shortly because, obviously, that begs the question as to whether this particular leave application involves an appropriate vehicle.  On the construction point, what we would respectfully submit is that ‑ ‑ ‑

GUMMOW J:   You seem to be trying to read the general law back into it, firstly withe Foss v Harbottle, I suppose.  And then that is put against you, well if you read general law back into it, you would read back in Regal (Hastings) v Gulliver where the change and identity of the shareholders did not matter, the profit had to be handed back.

MR CONTI:   That is a subsidiary matter, I appreciate ‑ ‑ ‑

GUMMOW J:   All I am putting to you is, if you read the common law into it, it may cut both ways.

MR CONTI:   Yes, it may cut both ways but on the prima facie question of the obligation to take into account the wishes of those who control the organ of government, then one looks at the situation of the directors who are the ones who are the ordinary organ of government.

BRENNAN CJ:   What are you saying is a suitable vehicle to consider?  What is the point?

MR CONTI:   The point is, your Honour, the way in which those who control the company at the time of the decision making viewed the matter, the way in which they viewed it shows a clear indication, in our respectful submission, of a failure to give adequate consideration to the matter of relevance:  why?

BRENNAN CJ:   What is the question of law which you say this case is a suitable vehicle to consider?

MR CONTI: The question of law is the question of construction, and the vehicle of section 50 ‑ ‑ ‑

BRENNAN CJ: Of the two phrases in section 50, “it appears to” and “public interest”?

MR CONTI:   Yes, bound up in those phrases and the totality of the section which looks at the question of, as it were, usurpation or appropriation of the cause of action of a company.  When is it in the public interest, absence wrongdoer control, to take away from the directors - - -?

BRENNAN CJ:   What is the error of law which, if special leave were granted, this case would present for correction?

MR CONTI:   The error of law is the failure to fulfil the implied obligation to take account of the view of the organ of government of this company as to whether or not it wished to pursue the cause of action which the Commission seeks to pursue.

BRENNAN CJ:   Why do you say, “fail to take account of”?  The reasons which they expressed indicate sub silentio, perhaps, but indicate in the clearest possible terms that they were aware that the governing body did not propose to take this action or that there was an impasse with respect to it.

MR CONTI:   His Honour’s point, below, was, though they were referred without any analysis to the accompanying letter of the Adsteam chairman, the critical point of the Adsteam chairman’s letter was, “Tell us the facts upon which you say this cause of action should be pursued.  Tell us those facts and we will give consideration as to whether this cause of action, which prima facie belongs to us, should be pursued”.  The ASC deprived itself, so his Honour held below, of the opportunity of giving real and genuine consideration to the critical issue by declining to provide the decision makers for the company, its board of directors, of those facts.

BRENNAN CJ:   Why do you say it is the critical issue?

MR CONTI:   It is the critical issue because prima facie, those who then comprised the board of directors of Adsteam, not being, as it were, directors representing in any way wrongdoer control, were not inclined for six particular enumerated commercial reasons to go along with the use of the company’s name for the purpose of these proceedings for damages at least until the ASC gave them the opportunity of considering the facts upon which it is said that there was a good cause of action.

BRENNAN CJ: That is their situation, but the ASC - you are challenging the validity of an exercise of power. The ASC exercised its power under section 50. That exercise of power was conditioned upon it forming a particular view. Unless you can demonstrate that there was some error of law which vitiates the formation of that view, you must fail.

MR CONTI:   As we have already indicated, the formation of the view in the public interest confers a wide discretion.  The critical question is, nevertheless was there an implied obligation, because of the circumstances which we have outlined, to consult with the directors of the company in terms of their long‑established legal entitlement to determine how they should, or what they feel about, or what their view is concerned - concerns their view as to the use of their cause of action.

TOOHEY J: You seem to be hovering between two propositions, Mr Conti. One is that on the proper construction of section 50 there is some obligation to consult with the directors, and that is put as a question of construction, and the other appears to relate to the particular circumstances of this case - what you described as the critical issue being the failure to consult with the directors by reason of the view which the directors had formed of this proposed action.

MR CONTI:   Your Honour, that is the issue dealt with by his Honour at first instance but not by the Full Court because of the construction view the Full Court took.  The only reason why I raise this second issue, being the issue additional to the construction issue, is to demonstrate to you that this is not a case where, assuming you thought the construction issue was viable, it was, nevertheless, on the evidence in the case, a somewhat futile exercise, because the view would be taken by the court that irrespective of the matter of construction, nevertheless there was an appropriate taking into account in accordance with the implied obligation.

TOOHEY J:   So, the proposition of law, or the proposition of construction, is that there is always an obligation to consult with the directors?

MR CONTI:   That is the proposition of law.  The second proposition is purely consequential on the proposition of law, assuming your Honours are of the view that the proposition of law was a viable one or one that is worth ventilating before the court, particularly in view of the matters of public importance which were not explained.  So, your Honour, that is the way in which we would seek to approach the matter. 

We would particularly point out one circumstance before we sit down:  both the court below and the Full Court took into account extrinsic materials.  The emphasis of the court, on appeal, was the Eggleston Report, issued in 1969.  The essence of the approach of his Honour, Mr Justice Lindgren, was the joint select committee’s report on this current section when it was in Bill form, and his Honour particularly gave emphasis to the joint select committee’s report because it considered the question of the general law in relation to companies which was not considered in Eggleston.  In Eggleston, there was essentially a question of considering whether or not the issue of poverty of the company, or insufficient resources, was a factor which was present.

In the joint select committee considerations, considerations which were undertaken when the Bill was between the House of Representatives and the Senate, very considerable emphasis was placed on the circumstance that the rule in Foss v Harbottle was something which had to be taken into account by the legislation.  What was decided - you see, the Bill originally entered the House of Representatives with a consent required for both a

company and a natural person.  By the time it reached the Senate and by the time it was passed, the Bill was in its present form.  Why did it undergo that change? 

That was one of the critical factors that Mr Justice Lindgren addressed and the critical factor was the consideration of what was called the Foss v Harbottle issue, and all of those considerations of company law thereby involved. His Honour took the view that is the matter of extrinsic material which bears most importantly on the construction of section 50, not something 20 years’ earlier which was looking, essentially, at questions of poverty of resources, rather than looking at the circumstance, the critical circumstance, that when this power is exercised the government instrumentality, as it were, usurps, or assumes, or appropriates, the property of the company. Your Honours that is the essential issue of law which we would say is worthy of consideration by the Court of Appeal.

BRENNAN CJ:   Thank you, Mr Conti.  We need not trouble you, Mr Gray.

BRENNAN CJ:   We need not trouble you, Mr Gray.

The interpretation attributed by the Full Court of the Federal Court to the two key phrases in section 50 of the Australian Securities Commission Act 1989 (Cth), namely, “it appears to the Commission” and “in the public interest”, reveals no error of law. The case does not otherwise warrant a grant of special leave. For these reasons, special leave will be refused.

MR GRAY:   We make an application for costs, if the Court pleases.

BRENNAN CJ:   Have you got anything to say to that, Mr Conti?  Special leave will be refused with costs.

AT 9.19 AM THE MATTER WAS CONCLUDED