Elliott v Knott
[2002] FCA 1030
•16 AUGUST 2002
FEDERAL COURT OF AUSTRALIA
Elliott v Knott [2002] FCA 1030
ADMINISTRATIVE LAW – judicial review – ASIC investigation – improper use of statutory powers – materials used to commence action in Supreme Court of Victoria – interlocutory application – whether appropriate to enjoin continuance of Victorian action – discretionary factors – application to be made to Supreme Court – delay
Bugg v Director of Public Prosecutions [1993] QB 473
Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916] 2 AC 307
Director of Public Prosecutions v Head [1959] AC 83
Flynn v Director of Public Prosecutions [1998] 1 VR 322
Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892
Marcel v Commissioner of Police of the Metropolis [1992] Ch 225
Reg v Wicks [1998] AC 92
Russian Commercial and IndustrialBank v Comptoir d’Escompte de Mulhouse [1925] AC 112
Selangor United Rubber v Cradock (No.4) [1969] 1 WLR 1773
Wandsworth London Borough Council v Winder [1985] AC 461JOHN DORMAN ELLIOTT v DAVID KNOTT, GILLIAN SEGAL, JOSEPH LONGO, ALFRED JAMIE ORCHARD, DEBRA RUSSELL, IAN CORNISH and NATALIE DURR
V 3147 of 2002
FINKELSTEIN J
16 AUGUST 2002
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 3147 of 2002
BETWEEN:
JOHN DORMAN ELLIOTT
ApplicantAND:
DAVID KNOTT,
GILLIAN SEGAL,
JOSEPH LONGO,
ALFRED JAMIE ORCHARD,
DEBRA RUSSELL,
IAN CORNISH and
NATALIE DURR
RespondentsJUDGE:
FINKELSTEIN J
DATE OF ORDER:
16 AUGUST 2002
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1. The application for interlocutory relief be dismissed.
2. The applicant to pay the 1st, 4th and 7th respondents’ costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 3147 of 2002
BETWEEN:
JOHN DORMAN ELLIOTT
ApplicantAND:
DAVID KNOTT,
GILLIAN SEGAL,
JOSEPH LONGO,
ALFRED JAMIE ORCHARD,
DEBRA RUSSELL,
IAN CORNISH and
NATALIE DURR
Respondents
JUDGE:
FINKELSTEIN J
DATE:
16 AUGUST 2002
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
Two years ago the Australian Securities and Investments Commission began an action in the Supreme Court of Victoria against the former directors of Water Wheel Holdings Ltd and Water Wheel Mills Pty Ltd. ASIC contends that on and after 14 September 1999, or alternatively, 3 October 1999, the two Water Wheel companies were insolvent, there were reasonable grounds for suspecting that they were insolvent, during the period of insolvency the companies continued to incur debts, and the directors failed to prevent the companies from incurring those debts. If these allegations are correct, the directors have contravened s 588G of the Corporations Law, which was the legislation in force at the relevant time. In the action ASIC seeks a variety of orders, including declarations that the directors have contravened s 588G, orders that the directors pay compensation equal to the loss and damage suffered by the companies’ creditors and orders that each director be prohibited from managing a corporation. When the action began the orders were sought under s 1317EA and s 588J. There are comparable provisions in the current legislation, the Corporations Act 2001 (Cth).
The trial of the Supreme Court action is to begin next Monday, 19 August 2002, and it is expected to run for at least three months. The parties have been aware of the trial date for just over a year because the Listing Master of the Supreme Court, as long ago as 19 July 2001, had tentatively fixed the case for hearing to begin on 22 July 2002. For one reason or another, the trial date was extended for about one month.
Mr Elliott’s application in the Federal Court is directly concerned with the Supreme Court action. Mr Elliott seeks to quash the decision made by officers of ASIC that it institute the Supreme Court action. He anticipates that if he obtains such an order this will bring the Supreme Court action to an end. Although his counsel, Mr Wyles, did not explain how this might come about, perhaps he would rely on cases such as Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916] 2 AC 307, Russian Commercial and IndustrialBank v Comptoir d’Escompte de Mulhouse [1925] AC 112 and Selangor United Rubber v Cradock (No.4) [1969] 1 WLR 1773 which hold that if the court becomes aware that a plaintiff has not given a retainer to commence an action, for example when the directors of a company have not given instructions for the institution of proceedings, the action will be struck out. At the present time, Mr Elliott does not ask for final relief. He seeks an interlocutory injunction against three respondents (Alfred Jamie Orchard, Ian Cornish and Natalie Durr) preventing them from taking any steps to advance ASIC’s claim against Mr Elliott in the Supreme Court. He also seeks an interlocutory injunction staying the Supreme Court proceeding against him, but as ASIC is not a party to this application it is hard to see how such an order could be made, whatever be the merits of Mr Elliott’s cause of action.
It is convenient now to describe the nature of the claim that Mr Elliott brings against officers of ASIC. I hope to do no injustice to Mr Wyles’ submissions by dealing with the matter somewhat briefly. In 1999 ASIC commenced an investigation into the affairs of the Water Wheel companies. The investigation was commenced on the basis that there was reason to suspect that conduct relating to the two companies may have amounted to contraventions of provisions of the Corporations Law. As to the powers to begin an investigation in such circumstances, see s 13 of the Australian Securities and Investments Commission Act 1989 (Cth). To carry out its investigation ASIC relied upon statutory powers to require persons to produce books and records contained in ss 30 and 33 of the ASIC Act, and the examination power in s 19.
Part 3 Division 5 of the ASIC Act describes the proceedings which ASIC may commence after an investigation. Section 49 provides, in substance, that the Commission may cause a prosecution for certain offences to be begun and carried on. Section 50 provides, in substance, that the Commission may begin and carry on proceedings for the recovery of damages in the name of the person who has suffered them.
Mr Elliott says that some time during the course of the year 2000, he cannot say precisely when, it had become apparent to those who were conducting the investigation that ASIC would never be in a position to bring proceedings under either s 49 or s 50. One person who was involved in the investigation, Ms Durr, explained in an affidavit filed in a discovery dispute that, “at least as early as 22 June 2000, the proceedings that were being contemplated to be commenced [by ASIC], were civil penalty proceedings against one or more of the Directors for contraventions of s 588G(2).” Obviously that is not a proceeding under s 49 or s 50 of the ASIC Act. It is a proceeding which was then contemplated by the Corporations Law, and now by the Corporations Act.
Nevertheless ASIC continued with its investigation, making use of its statutory powers. Mr Wyles says that it was improper for ASIC to do that: that is, he says that once ASIC decided that it could not bring any proceedings under s 49 or s 50, its continued use of the statutory provisions to carry out an investigation was an abuse of power. Reference might be made, in this connection, to Marcel v Commissioner of Police of the Metropolis [1992] Ch 225, 234 where the Vice Chancellor Sir Nicolas Browne-Wilkinson said in reference to a statutory power conferred on police to seize documents: “Powers conferred for one purpose cannot lawfully be used for other purposes without giving rise to an abuse of power.” The next step in the argument is the assertion that it was improper for ASIC to make use of the information it had improperly obtained for the purposes of deciding whether or not to begin the Supreme Court action. A somewhat similar issue came up for consideration in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892 but was not resolved. At all events, it is on that basis that Mr Wyles says the decision to bring the action can be quashed.
I do not wish to say anything about the merits of the case Mr Elliott seeks to raise. As this application has been brought on with very short notice, none of the parties have had the opportunity to research the law, and in the short time that has been available to me to consider the matter, I have not been able to find any authorities which bear directly upon the issues raised by Mr Elliott. For present purposes, however, I am prepared to proceed on the basis that Mr Elliott will be able to make out a case at trial that ASIC officers have improperly used the investigatory powers in the ASIC Act, and that this is a proper foundation to set aside the decision to begin the action because ASIC should be deprived of any benefit from ill gotten gains.
Notwithstanding my willingness to accept the existence of a good claim, there are compelling reasons why I should not make any order which would affect the action that is currently before the Supreme Court. The principal reason is that the issues which Mr Elliott seeks to raise in the Federal Court can be dealt with by the Supreme Court in an application to the trial judge to stay or strike out the Supreme Court action. That application would require the Supreme Court to inquire into the validity of an administrative decision otherwise than on an application for judicial review under O 56 of the Supreme Court rules. Nevertheless, I do not believe that there is any reason why the Supreme Court would not consider a collateral challenge to the decision. I appreciate that in Flynn v Director of Public Prosecutions [1998] 1 VR 322, McDonald J held that it was not permissible to mount a collateral challenge to an administrative decision in a criminal proceeding. He was of opinion that an administrative decision could only be challenged in proceedings for judicial review under O 56. That description of the decision should be qualified. McDonald J in fact held that it was not permissible to mount a collateral attack when the complaint alleges procedural deficiencies in the making of the decision and not deficiencies of a substantive kind. This is the distinction that was drawn by Woolf LJ in Bugg v Director of Public Prosecutions [1993] QB 473, which McDonald J followed.
However, Flynn’s case will not trouble Mr Elliott. First, however one characterises his complaint, it is not a complaint which is based on some alleged procedural deficiency in the manner in which ASIC made its decision to commence the action. He says that the continued investigation was improper, that it was in abuse of power. Even Bugg’s case would allow a collateral attack of that kind: see Bugg [1993] QB at 500.
Second, Flynn is incorrectly decided and, in the absence of an appellate court decision which requires a single judge of the Supreme Court to follow it, I am satisfied that it would not be followed. An examination of the cases shows that Flynn is inconsistent with two earlier decisions of the House of Lords, Director of Public Prosecutions v Head [1959] AC 83 (a criminal case) and Wandsworth London Borough Council v Winder [1985] AC 461 (a civil case). It is also inconsistent with a very recent decision of the House of Lords, Reg v Wicks [1998] AC 92, which overruled a number of the cases upon which Flynn was based, including Bugg’s case.
The second reason why I should not interfere with the Supreme Court action is the timing of the present application. It goes without saying that in the interests of good administration and of third parties who may be affected by a decision, it is desirable that challenges to administrative decisions be brought on quickly. Part 54 of the English Civil Procedure Rules requires an application for judicial review to be made promptly but in any event not later than three months after the claim first arose, although the time may be extended for good reason. In Victoria the claim must be commenced within sixty days and the time can only be extended in special circumstances: see O 56 r 2 of the Supreme Court Rules. In the federal sphere an application for judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) must be commenced within twenty-eight days after the receipt of reasons for the decision, although there is power to extend the time. Strangely the Federal Court rules do not impose any time limits within which an application for judicial review must be commenced. But both commonsense and principle indicate that a court should rarely grant relief in an application that is brought on after a lengthy delay.
That is precisely the position we have in this case. The facts upon which the present application is based have been known to Mr Elliott for at least twelve months. The explanation which is put forward to explain the delay is that counsel did not appreciate the existence of the point now sought to be argued. I am prepared to accept that the issue had escaped counsel’s attention. I am not, however, willing to hold that this is a sufficient reason to justify the delay. Were Mr Elliott required to apply for an extension of time under O 56, with the consequent need to show special circumstances, it is likely that his application would be refused.
In all the circumstances I am of the view that the application for interlocutory relief should be dismissed.
I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate:
Dated: 16 August 2002
Counsel for the Applicant: Mr M Wyles Solicitor for the Applicant: Tress Cocks & Maddox Counsel for the 1st, 4th & 7th Respondents: Mr N J Young QC
Mr P CrutchfieldSolicitor for the 1st, 4th & 7th Respondents: Australian Securities and Investments Commission Date of Hearing: 15 August 2002 Date of Judgment: 16 August 2002
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