Ehrenfeld and Australian Securities and Investments Commission

[2017] AATA 883

Ehrenfeld and Australian Securities and Investments Commission [2017] AATA 883 (16 May 2017)

Division:TAXATION & COMMERCIAL DIVISION

File Number(s):      2016/3122

Re:Gabriel Ehrenfeld

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Senior Member J F Toohey  

Date:16 May 2017  

Date of written reasons:        24 May 2017

Place:Sydney

The Applicant’s application for recusal is refused.

.........................[sgd]...............................................

Senior Member J F Toohey

Catchwords

Practice and procedure – request for recusal on grounds of bias – summons to produce documents – interlocutory hearing to determine whether summonses should be set aside – summonses set aside – applicant’s request that Senior Member recuse herself from determining the substantive application for review on grounds of bias – actual bias – whether a fair-minded observer might reasonably apprehend a lack of impartiality – application for recusal refused

Legislation

Administrative Appeals Tribunal Act 1975, ss 37(1), (2)

Corporations Act 2001, s 206F(1)

Cases

Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337
Isbester v Knox City Council [2015] HCA 20
Re J.R.L.; Ex parte C.J.L. (1986) 161 CLR 342
Re Radge v Commissioner of Taxation [2007] AATA 1317
Sun v Minister for Immigration & Ethnic Affairs (1997) 81 FCR 71; 151 ALR 505

Wannakuwattewa v Minister for Immigration and Ethnic Affairs (unreported, Federal Court, North J, No VG 451/1994, 24 June 1996)

REASONS FOR DECISION

Senior Member J F Toohey

24 May 2017

INTRODUCTION

1. By application lodged on 15 June 2016, Mr Ehrenfeld sought review of a decision made on 12 May 2016 by the Australian Securities and Investments Commission (ASIC) under s 206F(1) of the Corporations Act2001 that he be disqualified from managing corporations for five years.

2. Following an interlocutory hearing on 7 April 2017, Mr Ehrenfeld requested that I recuse myself from dealing further with his application for review on the ground that I displayed bias against him in the conduct of that hearing.  I have decided to decline Mr Ehrenfeld’s request.   These are my reasons.

   BACKGROUND

3. At a case management directions hearing on 16 December 2016, the Tribunal, differently constituted, made directions for the filing and serving of documents.   The directions were later amended for reasons it is not necessary to go into here and the matter was listed for hearing before me on 10, 11, 12 and 13 April 2017.

4. When it appeared, for reasons not presently relevant, that delays in filing documents meant the matter might not be ready for hearing as listed, I convened a telephone directions hearing on 10 March 2017 to discuss a timetable for the filing of documents.   It became apparent at that directions hearing that the matter could not proceed on 10 April 2017.  It was re-listed for hearing on 5 to 9 June 2017 and I issued amended directions for the filing and serving of statements of issues, facts and contentions and evidence by both parties. 

5. There was discussion at the directions hearing about a summons to produce documents issued by the Tribunal on 7 March 2017 addressed to Alice Rees, an officer of ASIC, at Mr Ehrenfeld’s request.  As the respondent had not been served with a sealed copy of the summons, it was not dealt with further at the directions hearing.  However, Mr Ehrenfeld indicated that he proposed to request further summonses issue for production of “further significant documents” by ASIC and other parties.  I directed that he make any request for further summonses by 17 March 2017.

6. On 20 March 2017, a further eight summonses to produce documents were issued at Mr Ehrenfeld’s request, each returnable by 12 April 2017.  They included a second summons addressed to Ms Rees. 

7. By letter dated 27 March 2017, the respondent objected to the summonses addressed to Ms Rees and requested the matter be listed for an interlocutory hearing.  An interlocutory hearing was listed for 5 April 2017 and was subsequently re-listed to 7 April 2017.    

8. Parties appeared in person before me at the interlocutory hearing, at the conclusion of which I made directions setting aside the summonses addressed to Ms Rees. For reasons I will come to, I also directed that, if Mr Ehrenfeld wished to request the Tribunal to issue a notice to the respondent under section 37(2) of the Administrative Appeals Tribunal Act1975 (the AAT Act), he was to make such request no later than close of business on 19 May 2017 and was to specify the particular documents he said were in the possession of the respondent.

   Mr Ehrenfeld’s request that I recuse myself

9. By email on 20 April 2017, Mr Ehrenfeld stated that he was “extremely concerned” at the bias shown against him by me during the interlocutory hearing and, accordingly, he objected to me presiding over the “substantial hearing”.  He asked that I recuse myself from dealing further with his matter.  He stated he did not object to the decisions made by me at the interlocutory hearing (which, he said, were wrong in any event) but he objected to the “unfairness” with which I conducted the hearing and which “in turn may have led to decisions adverse to [his] interests”.

10. As to the conduct of the interlocutory hearing, Mr Ehrenfeld stated:

    I attended as a self-represented party.  The Respondent attended with three (3) people from ASIC legal team together with two (2) barristers from two separate chambers – a total of five (5) legal team members.  From the outset, it should have been abundantly clear to the Senior Member that the procedures to be followed would need to ensure that I received a fair opportunity to present on all matters.  However this did not occur.  In particular, whilst permitted limited time to speak to certain issues, I was not given an opportunity to properly ventilate, and in some instances no opportunity to comment at all, on the issues of most importance to the proceeding.

    Counsel for the Respondent was allowed an open microphone to present as he wished for as long as he wished.  None of this is a criticism of counsel for the Respondent who was simply discharging his role: it is squarely a criticism of the Senior Member that permitted counsel to whitewash the proceedings by accepting everything counsel offered without allowing me a fair opportunity to make comments in reply.

    The comments, tone and facial expressions of the Senior Member displayed disdain for my positions.

11. Attached to Mr Ehrenfeld’s email was a schedule of 14 “Errors by AAT in relation to Application for Review of ASIC Decision” said to have been made between 16 June 2016 and 8 December 2016.  Most can fairly be described as alleged administrative errors such as the failure to place his correspondence on file.  All related to matters dealt with either by administrative staff or by different Tribunal members, prior to the matter being constituted for hearing by me.  In my view, none has any bearing on whether I should recuse myself.

12. By email on 24 April 2014, the Tribunal asked Mr Ehrenfeld to make any further written submissions in support of his recusal application by close of business on 1 May 2017.  The Tribunal asked that, if the respondent wished to make any submissions in response, it do so by close of business on 5 May 2017.

13. On 27 April 2017, the respondent advised that it would provide written submissions and asked that the matter be determined on the papers.

14. Mr Ehrenfeld filed written submissions on 1 May 2017, stating that he would “refrain from commenting on [whether the matter should be determined on the papers] until after the receipt and review of the submissions of the Respondent”.  The respondent filed its submissions on 5 May 2017. 

15. By email on 8 May 2017, the Tribunal advised Mr Ehrenfeld that, if he wished to make any submissions as to why the matter should not be determined on the papers, he should do so in writing by close of business on 12 May 2017.  No further submissions having been received, I have decided to determine Mr Ehrenfeld’s request on the written submissions.

    Mr Ehrenfeld’s submissions

16. In his written submissions, Mr Ehrenfeld restated his comments about the number of the respondent’s legal representatives at the interlocutory hearing.  He maintained that he was not given an opportunity “to properly ventilate” and in some cases not at all, and that counsel for the respondent was allowed to speak for as long as he wished, “effectively allowing counsel to whitewash the proceedings”.

17. Mr Ehrenfeld attached a schedule of what he described as “references to legal errors by the Senior Member” during the conduct of the hearing.  He maintained that his complaint was not with legal errors but with “the Senior Member’s conduct in relation to those errors, either in arriving at them or actions taken subsequent to her falling into error, where applicable, that is the subject of this complaint and these submissions”.

18. Mr Ehrenfeld asserted that “the Senior Member displayed bias in favour of the Respondent in the conduct of the proceedings”.  He submitted that bias:

    …need not take any aggressive form: it need only show particular tendency, trend or inclination to exhibit different treatment to different parties in the same environment.  Once identified in the observation of the same is notified, particularly supported by objective evidence, it is incumbent upon the judicial officer displaying, or perceived to be displaying the bias, to recuse himself or herself from the proceeding.

19. Mr Ehrenfeld submitted that, even if there was no “bias in fact” there was apprehended bias and the “fair-minded observer” test should be applied. By this submission I understand him to assert that, even if actual bias was not made out, bias could be apprehended from my conduct of the hearing.   He cited, correctly, the test for determining apprehended bias as set out in cases including Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337.

20. Mr Ehrenfeld then referred to the respondent’s submissions in support of its objection to the summonses which, as he noted correctly, were on the basis of their relevance.   Referring to the issues identified by the respondent as relevant, Mr Ehrenfeld asserted that all but 17 of the 59 items listed in the second summons were “directly connected” to the issues identified by the respondent and others had “significant relevance albeit a less direct connection to these matters”.

21. Against this backdrop, Mr Ehrenfeld submitted, “any ruling that there is no relevance of those items in the Second Summons to the Respondent’s Summary of Issues would be implausible”.   He concluded:

    It follows that any ruling based on the conclusion that there is no nexus between those items in the Second Summons and the Respondent’s Summary of Issues is not a ruling that is likely drawn by an impartial observer.  It follows that any such ruling can only exist in an environment of bias.

22. In a schedule of “Submissions of the respondent at the hearing”, Mr Ehrenfeld stated his disagreement with nine submissions made by the respondent at the interlocutory hearing.  He maintained that “every submission” made by counsel for the respondent was accepted without allowing him fair opportunity to make comments in reply. 

23. In the “Schedule of matters displaying bias against the applicant” Mr Ehrenfeld listed seven matters, some of which asserted errors of law such as a lack of power to set aside a summons once issued (which he did not dispute at the interlocutory hearing) and others which he cited as instances of being denied an opportunity to speak. 

    The summonses

24. The summons issued to Ms Rees on 7 March 2017 required production of documents described as:

    All due diligence files provided by or on behalf of Mazu Alliance Limited ACN 077 226 183 (“Company”) in relation to prospectuses lodged by the Company dated 13 April 2015 and 25 August 2015 respectively.

    All internal work papers, memorandums, emails, notes, notices and records of discussion produced by the Respondent in relation to the same.

25. The summons issued to Ms Rees on 20 March 2017 required production of documents “as per attached schedule”.  A full copy of the schedule is annexed to these reasons.   It includes a table of 59 “Identified Issues” including: 

    ·Hand delivery on 22 April 2015 of a letter dated 11 March 2015 by ASIC to the Applicant.

    ·Attendance of ASIC at the Federal Circuit Court on 17 April 2015 at the delivery of the judgement of Judge Lloyd-Jones in the matter of Kenny Zhang and the Applicant.

    ·Attempt by ASIC to serve the Applicant’s barrister with documents at the Federal Circuit Court on 17 April 2015.

    ·The issue by ASIC on 21 April 2015 of proceedings against the Applicant in the Sutherland Local Court in the matter of Fundamental Capital Pty Ltd ACN 130 103 623.

    ·Communications between members of ASIC working on any Prospectus, Replacement Prospectus or any Supplementary Prospectus issued by Mazu Alliance Ltd ACN 077 226 186 and members of ASIC working on any investigation involving the Applicant.

    ·Early closure of ASIC on 29 December 2015.

    ·Failure of ASIC to respond to the Applicant’s letter dated 30 December 2015 concerning the early closure of ASIC on 29 December 2015.

    ·Vetting process used by ASIC in assessing external parties utilised to serve any document on the Applicant.

    ·Results of any vetting process used by ASIC in assessing external parties utilised to serve any document on the Applicant.

26. In respect of each “Identified Issue” the summons the “Required Documents” were described as “each and any of the following”:

    ·File notes and other documents prepared by ASIC in relation to the Identified Issue.

    ·Internal or external memoranda of advice prepared by staff or officers of ASIC in relation to the content of the Identified Issue.

    ·Notes or minutes of any meetings in person or by telephone between staff or officers of ASIC in relation to the content of the Identified Issue.

    ·Copies of all emails or other electronic communication between staff or officers of ASIC in relation to the content of the Identified Issue.

    ·Any correspondence received from any party in relation to the Identified Issue. In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Notes or minutes of any meetings in person or by telephone between staff or officers of ASIC and any party in relation to the Identified Issue. In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Copies of all emails or other electronic communication between staff or officers of ASIC and any other party in relation to the Identified Issue.  In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Transcripts or recordings of any meeting or conference or interview between ASIC and any party in relation to the Identified Issue.   In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Copies of any correspondence forwarded by ASIC to any party in relation to the Identified Issue.   In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Copies of any correspondence received by ASIC from any party in relation to the Identified Issue.  In this paragraph “any party” includes the Applicant and any person claiming or purporting to represent or act on behalf of the Applicant.

    ·Record of any instructions given by staff or officers of ASIC in relation to the Identified Issue, howsoever given.

    ·All drafts of any document described above.

    The interlocutory hearing

27. By email on 6 April 2017, Mr Ehrenfeld advised the Tribunal and the respondent that he intended to apply at the interlocutory hearing for orders:

    (a)that he could issue further notices to produce documents to parties within seven days of being provided with a return time and date for those summonses by the Tribunal registry;

    (b)that a summons to produce documents issued to James Peter Mawhinney be served by email to a nominated email address;

    (c)that the respondent not communicate with any of the parties to whom summonses had been issued prior to their compliance with the summons;

    (d)that the respondent not communicate with any of the parties to whom summonses would be issued “from the earlier of the date of issue of the summons or the date on which the respondent becomes aware of the person to whom the summons is to be issued, until compliance with the summons by the named recipient of the summons”; and

    (e)that the date on which he was required to provide a statement of issues facts and contentions “being extended to 28 days following full compliance by the respondent with the summonses to produce documents dated 7 March 2017 and 20 March 2017”.

28. At the start of the hearing, I outlined the history of the proceedings and my understanding of Mr Ehrenfeld’s application for review.  I proposed that the respondent make submissions first.  I then asked Mr Ehrenfeld for his submissions.  I explained to him that the Tribunal conducts merits review and why it is not the Tribunal’s task to identify legal errors in ASIC’s decision.  I asked him to focus on why the documents sought to be produced would be relevant to the matters the Tribunal has to decide.

29. Mr Ehrenfeld maintained that “the whole case is essentially about sections 180, 181 and 182 of the Corporations Act2001”.  Those sections impose duties on directors and other officers of a corporation to exercise their powers and discharge their duties with care and due diligence, in good faith in the best interests of the corporation and for proper purposes, and not to use their position improperly to gain advantage for themselves or others, or to cause detriment to the corporation.  Mr Ehrenfeld maintained that ASIC has in its possession documents that would answer the descriptions in his summons and would establish that he acted in accordance with his duties.

30. I asked Mr Ehrenfeld to explain how documents relating to the “identified issues” in the schedule to the second summons would throw light on what the Tribunal has to decide, being whether his disqualification under s 206F(1) was justified. Mr Ehrenfeld maintained they would show that he managed “with a high standard of care” and that ASIC had “done whatever they can to try and fabricate areas of concern”. Further, that “everything about the internal documents of ASIC will demonstrate a course of conduct that is inappropriate, involves deletion, shredding of documents, removal from the record, falsification of documents, fabricated affidavits – a whole lot”. When pressed, Mr Ehrenfeld acknowledged that some of the documents going to ASIC’s conduct “possibly” would not assist with the Tribunal’s task, but he maintained that others were relevant.

31. After hearing from Mr Ehrenfeld at some length, I asked counsel for ASIC whether he wished to comment on the documents discussed to that point. Counsel proposed that “a way forward” would be to set aside the summonses, leaving it open to Mr Ehrenfeld, once he had lodged his statement of facts, issues and contentions, to request the Tribunal to order ASIC to lodge documents in accordance with s 37(2) of the AAT Act. This course, counsel submitted, would reflect the centrality of s 37 to the proceeding and the Tribunal’s comments in ReRadge v Commissioner of Taxation [2007] AATA 1317 about the appropriateness of the Tribunal using the summons power to obtain documents from the parties themselves.

1. Section 37(1) requires a decision-maker to lodge with the Tribunal every document in his or her possession or control that is relevant to the review of the decision by the Tribunal. Section 37(2) provides that, where the Tribunal is of the opinion that particular other documents, or other documents included in a particular class of documents, may be relevant to the review, the Tribunal may, by written notice, require lodgement of those documents.

2. In Radge (above) Deputy President Forgie observed that the power to summons documents “should generally be reserved to obtain documents from third parties”, leaving it open, if it appeared that relevant documents had not been produced by a respondent under s 37, for the Tribunal to order their production under s 37(2).

3. I advised Mr Ehrenfeld that counsel’s suggestion seemed a sensible way to proceed; it would allow him to lodge a statement of issues facts and contentions and any evidence on which he sought to rely and, if he could identify particular documents in ASIC’s possession that had not been produced and which were relevant to the decision to be made by the Tribunal, he could ask for an order under s 37(2). I said I understood he might not be confident that ASIC would produce documents but that the Tribunal would be.

4. The directions made at the conclusion of the interlocutory hearing reflected that discussion.

   Summonses issued to other persons

5. Other summonses issued on 20 March 2017 were not returnable until after the interlocutory hearing and were only discussed in passing. 

6. Mr Ehrenfeld’s request for an order for “substituted service” on James Peter Mawhinney was discussed.  Mr Ehrenfeld asked to be allowed to serve Mr Mawhinney by email to an inquiries email address.   He outlined the physical, telephone and internet searches he had made which indicated that neither Mr Mawhinney nor the company of which he has been principal was known at any of their contact details. 

7. It was not clear to me that the Tribunal had power to make such an order, and I doubted that it did.  After some discussion, I declined to make the order sought by Mr Ehrenfeld but indicated, and counsel for the respondent agreed, that there was no reason Mr Ehrenfeld could not try to serve Mr Mawhinney in that way.

8. The directions made at the conclusion of the interlocutory hearing reflected that discussion. 

9. For reasons discussed with the parties, I did not consider it appropriate to make directions to the effect that the respondent not communicate with any person to whom summonses had issued, and I declined to make the directions sought by Mr Ehrenfeld. 

   CONSIDERATION

10. Actual bias requires a finding of a disposition in a decision-maker to “approach the issues in (the) case otherwise than with an impartial and unprejudiced mind”:  Re J.R.L.; Ex parte C.J.L. (1986) 161 CLR 342, cited in Sun v Minister for Immigration& Ethnic Affairs (1997) 81 FCR 71; 151 ALR 505. Put another way, “that the Tribunal had a closed mind to the issues raised and was not open to persuasion by the applicant’s case”: Wannakuwattewa v Minister for Immigration and Ethnic Affairs (unreported, Federal Court, North J, No VG 451/1994, 24 June 1996) also cited in Sun per Wilcox J. North J in Sun described actual bias (at 134) as existing “where the decision-maker has prejudged the case against the applicant, or acted with such partisanship or hostility is to show that the decision-maker had a mind made up against the applicant and was not open to persuasion favour of the applicant”. He observed that “courts have rarely found actual bias to exist”.

11. The transcript shows that I asked Mr Ehrenfeld repeatedly to tell me how documents referred to in the summons would assist to determine his application for review.   The fact that he was unable to persuade me of the relevance of the documents is not evidence of actual (or apprehended) bias.  I do not accept I demonstrated a closed mind or an unwillingness to be persuaded as to the relevance of the documents sought to be produced or, importantly, of the matters to be decided in the substantive review. 

12. As to apprehended bias, in Ebner, the High Court said at [6] that a judge is disqualified by reason of apprehended bias:

    …if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide. That principle gives effect to the requirement that justice should both be done and be seen to be done, a requirement that reflects the fundamental importance of the principle that the tribunal be independent and impartial.  It is convenient to refer to it as the apprehension of bias principle.

13. This statement was affirmed by the High Court in in Isbester v Knox City Council[2015] HCA 20.

14. It is trite to say that one is not an objective observer of one’s own conduct of a hearing.  However, I do not accept that a fair-minded lay observer, observing the conduct of the interlocutory hearing, might reasonably believe that I did not bring an impartial mind to the question of the summonses, or might not bring an impartial mind to the substantive question in the review, being whether Mr Ehrenfeld should have been disqualified from managing corporations.  I reject his assertion that I did not afford him a fair opportunity to be heard and I reject any suggestion that I displayed disdain for his position.

15. As I read Mr Ehrenfeld’s submissions, his assertion of bias rests principally on the outcome of the interlocutory hearing which, in his view, is evidence itself of bias.  I do not accept that a fair-minded person would apprehend bias from the mere fact of my decision to set aside the summonses.

    CONCLUSION

16. For these reasons, Mr Ehrenfeld’s request that I recuse myself from dealing further with his application for review is refused.

I certify that the preceding 47 (forty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member J F Toohey

............................[sgd]............................................

Associate

Dated:            24 May 2017

Date(s) of hearing:	7 April 2017
Date final submissions received:	5 May 2017
Applicant:	In person
Solicitors for the Respondent:	Australian Securities & Investments Commission
Counsel for the Respondent:	Mr D Healey & Ms D Tucker