DKZN and and Australian Securities & Investments Commission

[2009] AATA 765

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 765

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/6233

GENERAL ADMINISTRATIVE DIVISION		)
Re		DKZN

Applicant

And

Companies Auditors & Liquidators Disciplinary Board

First Respondent

And

Australian Securities & Investments Commission

Second Respondent

DECISION

Tribunal Mr G L McDonald, Deputy President

Date6 October 2009

PlaceMelbourne

Decision The Tribunal declines to make the proposed order under s 33(1)(a) of the Administrative Appeals Tribunal Act 1975. 

..............................................

Deputy President

CATCHWORDS – PRACTICE AND PROCEDURE – application for stay of proceedings – whether the applicant is the subject of criminal investigation and/or proceedings – no evidence of pending criminal proceedings and/or investigation – Tribunal declines to stay the proceedings.

Administrative Appeals Tribunal Act 1975 ss 33 and 41

Corporations Act 2001 ss 9, 533 and 1292

Albarran v Companies Board [2007] 231 CLR 350

Hammond v Commonwealth of Australia (1982) 115 CLR 188

Reid v Howard [1995] 184 CLR 1

Sage v Australian Securities and Investments Commission [2005] FCA 1043

YFFM and Australian Securities and Investments Commission [2009] AATA 489

REASONS FOR DECISION

6 October 2009 Mr G L McDonald, Deputy President

1. On 21 August 2009 the applicant applied to the Tribunal to stay the hearing of this case until further order and consequential orders which would have the effect of relieving him from earlier made directions to file material in support of his substantive application. The power of the Tribunal to make a stay order of the decision under review arises under s 41(2) of the Administrative Appeals Tribunal Act 1975 (AAT Act). It is submitted by the applicant that the power to stay the current proceedings arises under s 33(1)(a). However, the second respondent submits that the Tribunal does not have power to stay its own proceedings. Section 33(1)(a) is as follows:

the procedure of the Tribunal is, subject to this Act and the regulations and to any enactment, within the discretion of the Tribunal;

The section is confined only by the words of limitation appearing. On their face the words do not confine the Tribunal from staying its own proceedings. The matter is within the discretion of the Tribunal. That is distinguishable from a stay applied for under s 41(2) of the same Act which is expressly limited to the consideration of a stay relating to the original or reviewed decision. In the substantive application the applicant seeks review of a decision of the Companies Auditors and Liquidators Disciplinary Board (CALDB) cancelling his registration as a company auditor.[1]  The decision cancelling his registration was made on 22 December 2008 and his substantive application was lodged with the Tribunal on 31 December 2008.  The Tribunal has listed the matter for hearing commencing 7 December 2009.

[1] Section 1292 of the Corporations Act 2001.

2.      There are two grounds upon which the stay application is made.  The first is that the applicant apprehends that from reports of the liquidator concerning one of the companies which he audited, that he may be the subject of criminal investigation and charges.  Until the hearing of the stay application on 29 September 2009, the Australian Securities and Investments Commission (ASIC) refused to confirm or deny that the applicant was the subject of investigation as to whether he may have committed any offences or as to whether any recommendation had been made from ASIC to the Director of Public Prosecutions that he be considered for prosecution.  In such circumstances the applicant claimed to be reluctant to give evidence in Tribunal proceedings which may result in prejudice to any criminal charges.  The second ground is that if criminal charges are subsequently proffered and the applicant was found to be prejudiced by being forced to proceed in the Tribunal prior to the criminal proceedings, the Tribunal may be found to be in contempt of court.

3. In support of the application affidavits from the applicant’s solicitors, sworn 21 August 2009 from Mr S Apostolou and sworn 18 August 2009 from Ms K Griffith have been filed. The affidavit of Mr Apostoulou records a report made to creditors by the liquidator dated 27 March 2009. In that report the liquidator notified that he had not yet submitted a report to ASIC (for purposes of s 533 of the Corporations Act 2001 (the Act)), that he intended to make submissions to ASIC requesting it to take further action against various company officers and other parties.

4.      On behalf of the applicant it was submitted that the report may have been referring to the auditor considering to report on conduct which may involve alleged criminal behaviour.  As the result the applicant became apprehensive that ASIC may be undertaking, or considering to undertake, a criminal investigation into the circumstances surrounding the liquidation.  On 10 August 2009 the applicant’s solicitors wrote to ASIC stating concern that the liquidator may or will recommend criminal prosecution against the applicant.[2]  ASIC responded by letter dated on 21 August 2009 stating that it did not want to comment on whether or not criminal investigation is contemplated or on foot and declined to respond to any hypothetical conjecture.

[2] Exhibit SA2 to Mr Apostolous’ affidavit sworn 21 August 2009.

5.      The affidavit of Ms Griffith exhibits correspondence to the liquidator’s solicitors requesting:

·whether a s 533 report had been submitted to ASIC;

·if so a copy be provided; and

·if no such report had been made, when was it proposed to be made.

6.      Additionally minutes of a creditors meeting held 22 April 2009 with respect to one of the concerned companies audited by the applicant were exhibited to the affidavit.  The minutes report, among other things, a creditor asking whether “… there were jail terms type situations (sic) that would be applicable to the responsible parties”.  The Chairman of the meeting (who was the liquidator) is reported as responding “… he would be pressing ASIC to take a full course of action against those parties” and continued “… more likely penalties would arise, along the lines of director banning orders”.[3] He is reported as saying “I intend to make submissions to ASIC requesting it to take further action against various company officers and other parties…”[4]

[3] Exhibit KG3 page 4 to affidavit of Kaye Griffiths sworn 18 September 2009.

[4] Applicant’s written submissions, dated 27 August 2009, paragraph 7 [Applicant’s emphasis].

7. Section 533(1) relevantly reads (Tribunal’s emphasis):

If it appears to the liquidator of a company, in the course of a winding up of the company that:

(a)a past or present officer or employee, or a member or contributory, of the company may have been guilty of an offence under a law of the Commonwealth or a State or Territory in relation to the company; and

(b)a person who has taken part in the formation, promotion, administration, management or winding up of the company:

(i)may have misapplied or retained, or may have become liable or accountable for, any money or property of the company; or

(ii)may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the company.

8. The Tribunal raised the possibility of an auditor being an officer of the company as that term is defined in s 9 of the Act. The definition is relevantly as follows:

officer of a corporation means:

(a)a director or secretary of the corporation; or

(b)a person:

(i)who makes, or participates in making, decisions that affect the whole or a substantial part, of the business of the corporation; or

(ii)who has the capacity to affect significantly the corporation’s financial standing; or

(iii)in accordance with those instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or

…

9.      The respondent, in a written submission to the Tribunal dated 30 September 2009, rejected this interpretation.  The Tribunal accepts that submission on the basis that by undertaking an audit the auditor does not have the capacity to affect significantly a corporation’s financial standing that is, the auditor does not cause a company to be in any particular financial position.  He undertakes a function the results of which may have consequences but he does not have any capacity as such to cause any affect on the financial standing of a company.  There is therefore no possibility of any report filed by a liquidator lawfully foreshadowing the holding of a criminal investigation and much less foreshadowing likely criminal charges being preferred against the applicant in his position as auditor.  It follows that this evidence does not support the applicant’s application for a stay. 

10.     There, however, remain the concerns expressed by the applicant concerning the report to creditors and the minutes of the meeting as to whether either or both lead to a conclusion that a criminal investigation or criminal charges may arise.  Clearly a question asked by a creditor cannot constitute evidence of any likely criminal investigation.  If anything the response by the liquidator reveals him saying a more likely course is administrative action against directors.  There is no mention of any possibility of any criminal investigation against anyone and that extends to the applicant, as auditor.  

11. At the hearing of the stay application the respondent told the Tribunal that it has received the liquidator’s s 533 report and there were no criminal proceedings contemplated, no investigation into any behaviour of the applicant suggesting he may have engaged in any criminal conduct nor any criminal prosecution recommended to the Director of Public Prosecutions. The respondent also informed the Tribunal that it was the usual practise of the respondent to give any person likely to be the subject of recommendation for prosecution the opportunity of participating in a voluntary interview. There is no evidence from the applicant that any such an invitation had been forthcoming and the respondent’s representative told the Tribunal that no such invitation was pending.

12.     The Tribunal was referred to a number of cases dealing with administrative decisions which may affect subsequent criminal trials.  The principles appear to be as follows:

(a)The function of the CALDB is administrative in nature and aimed at ensuring the public are protected from an auditor’s failure to perform or carry out the ‘duties or functions ... adequately or properly’[5] rather than it is designed to punish a person whose activities have been determined not to reach adequate industry standards.[6]

(b)The decision to grant or refuse a stay under s 33(1)(a) of the AAT Act is discretionary. In the exercising the discretion the Tribunal must be satisfied that there are circumstances which justify the exercise of the discretion. If criminal charges are pending or proposed against an applicant and there is real risk of self incrimination should the person give evidence before the Tribunal then that can constitute circumstances warranting the Tribunal exercising the discretion.

(c)While a distinction can be drawn between proceedings where the privilege against self incrimination applies because a person can be compelled to answer questions[7] and administrative proceedings where an applicant is not compelled to give evidence[8] the circumstances are analogous.  While analogous they are not exactly the same and consideration as to whether there is a real risk of self incrimination arising will be required.

(d)There must be ‘… a real risk, as opposed to a remote possibility…’ that justice will be interfered with before in this type of case a stay order will be considered.[9]  A ‘real risk’ requires that a prosecution has been instigated or is actively being considered.[10]

(e)The ‘real risk’ is the interference of justice which requires consideration to focus on any pending criminal proceedings.[11]  Considerations surrounding the nature of the administrative proceedings and whether they are subject to a private hearing (as in this case before the ASIC delegate) or open to the public (as will usually be the case before the AAT) and the consequences including publicity arising from the making of a banning order must be balanced against concerns such as undue delay in having the administrative proceeding determined[12] are to be considered.

[5] Section 1292(1)(d) of the Act.

[6] Albarran v Companies Board [2007] 231 CLR 350.

[7] Reid v Howard [1995] 184 CLR 1.

[8] Sage v Australian Securities and Investments Commission [2005] FCA 1043 per Goldberg J, at paragraphs 18 and 24.

[9] Hammond v Commonwealth of Australia (1982) 115 CLR 188 at 196.

[10] YFFM and Australian Securities and Investments Commission [2009] AATA 489.

[11] Sage v Australian Securities and Investments Commission, at paragraph 25.

[12] Sage v Australian Securities and Investments Commission, at paragraphs 28 and 30.

13.     The evidence as outlined leaves the Tribunal satisfied that there are no pending criminal proceedings and not even a proposal to undertake an investigation as to whether he has been engaged in any such conduct.  The applicant may decide whether or not he wishes to participate and give evidence before the Tribunal.  Given there is no proposal to even investigate criminal conduct the sooner the administrative proceedings are disposed of the less publicity, if any, will be attracted should, at some future time criminal proceedings, be undertaken.  In such circumstances even if criminal proceedings were ultimately undertaken any prejudice arising from publicity surrounding the Tribunal proceedings would be so remote as not to constitute any practical detriment to the applicant.  The situation in this case is clearly distinguishable from that before the Tribunal in YFFM and ASIC where ASIC had referred a brief for criminal charges to the Director of Public Prosecutions.[13]

[13] YFFM and Australian Securities and Investments Commission [2009] AATA 489.

14. For the above reasons the Tribunal declines to make the proposed order under s 33(1)(a) of the AAT Act. The applicant assured the Tribunal that, despite the application for a stay, preparation for the hearing was well underway. It is not necessary for the Tribunal to issue further directions at this stage. It remains open to either party to make application at short notice should preparation for the hearing look as if it is falling behind.

I certify that the fourteen preceding paragraphs are a true copy of the reasons for the decision herein of
Mr G L McDonald, Deputy President

Signed:         ...............................................................

D De Andrade       Personal Assistant

Date of Hearing  29 September 2009

Date of Decision  6 October 2009
Counsel for the Applicant         Mr J Brereton
Solicitor for the Applicant          Mr I Cull, M W Law
Counsel for the Respondent     Mr N Hopkins

Solicitor for the Respondent     Ms M Northrop, Australian Securities and Investments Commission