Hodgkinson v Companies Auditors and Liquidators Disciplinary Board

[1994] FCA 355

JOHN VINCENT HODGKINSON v. COMPANIES AUDITORS AND LIQUIDATORS DISCIPLINARY
BOARD (comprising Mr. T. Haines (Chairman), Mr. G. Dixon and Mr. K. Cross) AND
AUSTRALIAN SECURITIES COMMISSION
No. QG60 of 1993
FED No. 355/94
Number of pages - 7
Administrative Law - Corporations Law
(1994) 12 ACLC 648
(1994) 13 ACSR 637

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
DRUMMOND J

CATCHWORDS

Administrative Law - Administrative Decisions (Judicial Review) Act 1977 - application to review decision under s. 1292(1)(d) Corporations Law that auditor had failed to adequately perform duties of registered company auditor - allegation of breach of natural justice because Board made decision by reference to applicant's audit of a group of companies when he thought he had to answer a case concerned only with his audit of the parent company - sufficient notice - no genuinely held error as to what the critical issue for determination was - application dismissed.

Corporations Law - application pursuant to Administrative Decisions (Judicial Review) Act 1977 to review decision under s. 1292(1)(d) Corporations Law that auditor had failed to adequately perform duties of registered company auditor on ground of denial of natural justice - application dismissed.

Administrative Decisions (Judicial Review) Act 1977 (Cth) - ss. 216(1), 218, 218(2)
Australian Securities Commission Act 1989 - Part 11 Division 2
Companies (Queensland) Code - ss. 266(1), 269(8), 285(3)
Companies Regulation - reg. 57(1)
Corporations Law - ss. 1292, 1292(1), 1292(1)(d)

Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487
Kioa v West (1985) 159 CLR 550
Sullivan v Department of Transport (1978) 20 ALR 323

HEARING

BRISBANE, 26 May 1994
#DATE 27:5:1994

Counsel for the applicant: P.W. Hackett

Solicitors for the applicant: Stokes and Panettiere

Solicitor for the respondent: Australian Government Solicitor

Counsel for the intervener: D.J. McGill

Solicitor for the intervener: Australian Securities Commission

ORDER

1. The application to review the decision of the respondent is

dismissed.

2. The applicant pay the intervener's costs of and incidental

to the application.

3. The applicant pay the respondent's costs limited to its

costs of the first directions hearing.

NOTE: Settlement and entry of orders is dealt with in Order 36 of

the Federal Court Rules.

JUDGE1

DRUMMOND J This is an application under the Administrative Decisions (Judicial Review) Act 1977 to review a decision of the Companies Auditors and Liquidators Disciplinary Board made on 1 April, 1993 pursuant to s. 1292 the Corporations Law. After a hearing that took place over a number of days, the Board found in terms of s. 1292(1)(d) that Mr. Hodgkinson had failed to carry out and to perform adequately and properly the duties of a registered company auditor. The Board ordered that Mr. Hodgkinson's registration as an auditor be cancelled. The Board's reasons showed that it reached its conclusions adverse to Mr. Hodgkinson on the basis of his audits for the 1987, 1988 and 1989 years of the accounts of the Black and White Cabs group of companies.

1. The grounds on which it is contended that this decision should be reviewed include the following:
   

1) that a breach of the rules of natural justice occurred in connection with the making of the decision; 2) that the Board improperly accepted evidence outside the scope of the application.

1. The other grounds for review are really variations upon these two.

2. As to the issue raised by the second ground, it was contended that the application by the Australian Securities Commission ("ASC") pursuant to s. 1292(1) the Corporations Law was an application which made examinable by the Board only Mr. Hodgkinson's conduct of the audits for the three years in question of the parent company, B and W Cabs Ltd., rather than his conduct of the group audits. However, I reject the invitation of counsel for Mr. Hodgkinson to closely analyse the ASC's application as if it were a pleading to see if the ASC should be held to have confined its case against Mr. Hodgkinson as one founded on his conduct of the audits of the parent company only, rather than on his audits of the group.

3. The Corporations Law does not prescribe any form for an application by the ASC under s. 1292 the Corporations Law. It was not suggested that there are any provisions of the Corporations Law which touch on the formal requirements for such an application. The way the Board is to conduct its hearing, including those held pursuant to s. 1292 the Corporations Law, is governed by Part 11 Division 2 the Australian Securities Commission Act 1989.

4. The following provisions are relevant: s. 216(1) provides that the Disciplinary Board may, at a meeting of the Disciplinary Board, hold a hearing for the purpose of the performance of its functions, or the exercise of its powers. Section 218 provides for the conduct of proceedings. It reads:
   

"(1) At a hearing:

(a) the proceedings shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of national scheme laws and a proper consideration of the matters before the Disciplinary Board permit;

(b) the Disciplinary Board is not bound by the rules of evidence; and

(c) the Disciplinary Board may, on such conditions as it thinks fit, permit a person to intervene in the proceedings."

(2) The Disciplinary Board shall observe the rules of natural justice at and in connection with a hearing."

1. Given these provisions, it would be wrong to import into the procedure the Board must follow, an obligation to ensure that an application brought under s. 1292 the Corporations Law must take the form of a properly particularised statement of the material facts relied upon. What the Board must ensure so far as concerns the nature of the notice that has to be given to a respondent, of the matters upon which the ASC intends to rely in invoking the Board's jurisdiction under s. 1292(1), is defined and circumscribed by s. 218(2) the Australian Securities Commission Act 1989. So long as a respondent has sufficient notice of the matters upon which the ASC is relying to seek a determination of the Board under the section, which notice meets the requirements of procedural fairness applicable in the circumstances of the particular case, then I think that an allegation that the Board received evidence outside the scope of the application, read as a pleading or as an indictment, cannot be sustained.

2. In my opinion, the sole point open to Mr. Hodgkinson in seeking the review of the Board's decision is that he was not given adequate notice of the matters upon which the ASC was relying to seek a decision of the Board against him under s. 1292(1)(d) the Corporations Law. I do not accept that, if a lay person who is brought before a tribunal and who is not legally represented forms a bona fide but wholly wrong-headed opinion as to the scope of the matters upon which the tribunal must make a determination, the requirements of natural justice are nevertheless satisfied so long as that person has been given a clearly-worded notice identifying the matters to be investigated. In deciding whether the requirements of natural justice have been satisfied, the emphasis is on the adoption of procedures that are fair to the particular person concerned. See, e.g., Kioa v West (1985) 159 CLR 550 per Mason J at page 585 where his Honour said:
   

"In this respect the expression "procedural fairness" more aptly conveys the notion of a flexible obligation to adopt fair procedures which are appropriate and adapted to the circumstances of the particular case. The statutory power must be exercised fairly, ie, in accordance with procedures that are fair to the individual concerned in the light of the statutory requirements, the interests of the individual and the interests and purposes, whether public or private, which the statute seeks to advance or protect or permits to be taken into account as legitimate considerations ... The critical question in most cases is not whether the principles of natural justice apply. It is: what does the duty to act fairly require in the circumstances of the particular case?"

1. Since the emphasis is on the tribunal affording fairness to the particular individual, it is recognised that this may require the same tribunal to adopt different procedures in different cases. See, e.g., Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487 per Aickin J at 513-514, where his Honour said:
   

"The cases show clearly that the principles of natural justice do not comprise rigid rules, but the requirements of compliance with those principles will depend upon the particular circumstances. `Fairness' may require, or be satisfied by, different procedures even by the same statutory authority in difference circumstances."

1. Moreover, where the rules of natural justice apply, the obligation is on the decision-maker, i.e., the Board here, to ensure that those requirements have been observed; that objection is not one resting on other parties involved in the matter. This is explicitly declared to be the case here by s. 218(2) the Australian Securities Commission Act 1989. If, in a case such as that to which I have referred, a tribunal realises or ought reasonably to realise that the respondent is labouring under a bona fide error as to the scope of the issues being investigated, then in my view there will be a want of natural justice if a tribunal proceeds with the hearing without clearly informing the respondent of his error and giving him such time as may reasonably be necessary to marshal his answering case to the charge actually before the tribunal. Whether the person in question is or is not legally represented is, of course, a very relevant matter for the tribunal to take into account when it has to form a view as to whether the person may be labouring under such an error.

2. There are limits to what a tribunal bound to accord natural justice to a party must do to comply with that obligation. See, e.g., Sullivan v Department of Transport (1978) 20 ALR 323 at 343. But fundamental to the notion of natural justice is the need for the decision-maker to bring to the attention of the person who will be affected by the decision the critical issue or factor on which the decision is likely to turn so that he may have an opportunity of dealing with it: Kioa v West, supra, at 587. I do not see how this can be said to have been done if the decision-maker knowingly allows a party to labour under a genuinely held error as to what that critical issue is.

3. It was in reliance on such a proposition that counsel for Mr. Hodgkinson sought to argue that the Board had denied natural justice to him. Counsel submitted that Mr. Hodgkinson's statement filed in the proceedings before this Court demonstrates that the hearing before the Board was being conducted by Mr. Hodgkinson and the ASC on different bases. On the one hand the ASC was conducting the hearing as if it related to B and W Cabs Ltd. and subsidiaries, whereas Mr. Hodgkinson was conducting the hearing as if the application was limited to B and W Cabs Ltd.. In those circumstances, it was submitted, the Board failed in its duty to ensure that Mr. Hodgkinson understood the critical issue in the hearing. It was further submitted that that there was confusion in this regard should have been apparent to the Board during the opening address on behalf of Mr. Hodgkinson and that it was at that point that the Board should have ruled on the scope of the ASC's application and ensured that Mr. Hodgkinson understood its true extent.

4. However, the question is always whether the party has been given a reasonable opportunity to present his case. This is a question of substance, not of form. If any respondent, whether legally represented or not, deliberately chooses to adopt the position that a charge he has to answer before a tribunal is of a particular scope, when he well knows that his opponent and the tribunal regard the charge as being of wider scope, then there can be no room for complaint that that person has been denied natural justice even though the tribunal does not take the trouble to put on record its rejection of his attempt to narrow the debate.

5. While Mr. Hodgkinson was not legally represented, it is not irrelevant in examining what happened at the Board's hearings to note that Mr. Hodgkinson is a professional man who qualified as a chartered accountant in 1957 and has practised that profession for several decades.

6. It is clear that Mr. Hodgkinson's case before the Board was run on two bases. A perusal of the written submissions handed up to the Board on behalf of Mr. Hodgkinson in the course of his closing address demonstrates this. In section 3 of the written submissions headed "The Application by the Australian Securities Commission" the point is made that, if the ASC wished to include consolidated or group material in the review by the Board, it should have made this clear in its application to ensure that Mr. Hodgkinson knew the allegations he had to meet. There follows, in this written submission, an analysis of the evidence, including that given by Mr. Coulson, the ASC's main witness, which is based on the assumption that Mr. Hodgkinson's primary argument (that the ASC's case was limited to an investigation of his audit of the parent company) was accepted by the Board.

7. However, section 4 of these submissions is headed "Extended (Open Ended) Approach." The submissions here made cover a number of pages. The argument advanced in this section of the submissions, on behalf of Mr. Hodgkinson, in the alternative to his primary argument, deals with the possibility that the Board will look at the wider case the ASC sought to make out against him, i.e., that in respect of his audits of the group. Once again, detailed criticisms of the evidence relied on by the ASC in support of this wider case are made. If Mr. Hodgkinson had believed that he was only being called on to answer the narrow case, concerning the quality of his audits of the parent company, and never appreciated that it was a wider case, involving the quality of his audits of the group, that the ASC had brought before the Board, it would have been unnecessary for him to have included this section in his submissions. Moreover, it seems quite clear from the opening address made by Mr. Glass on behalf of Mr. Hodgkinson at the very start of the hearing before the Board that both well realised that they were there to deal with the wider case, even though they were attempting to persuade the Board that it was confined to investigating only the narrow one - an attempt which they never gave up pursuing.

8. Mr. Coulson, in his report upon which the ASC relied as the linchpin of its case, criticised Mr. Hodgkinson's audits on the basis that they fell far short of what was required for proper consolidated group audits. It was part of Mr. Hodgkinson's defence, revealed as I have said by Mr. Glass in his opening comments on the first day of the hearing, that Mr. Coulson's own approach showed what was said to be gross incompetence on his part because, in effect, Mr. Coulson overlooked the fact that an auditor who was required, as was Mr. Hodgkinson here, to produce group accounts, had a choice pursuant to s. 285(3) of the Companies (Queensland) Code, which is the relevant provision, as to how he performed that task.

9. In view of the definition of "group accounts" in s. 266(1) of the Code, an auditor could either audit and prepare a report on the consolidated group accounts or he could audit and prepare a report for each individual member of the group. It was said on Mr. Hodgkinson's behalf that he had adopted the latter course and, in auditing each member of the group, had performed his work properly, something, so it was said, that Mr. Coulson had entirely failed to appreciate. In the course of outlining Mr. Hodgkinson's defence in his opening address, Mr. Glass said of Mr. Hodgkinson's auditing work:
   

"The published accounts for B and W Cabs Limited group included full accounts for the parent company and all subsidiaries, together with balance sheets notes as required by schedule 7. (That is the schedule referred to as "the prescribed requirements" in section 269(8) of the Code and Companies Regulation 57(1).) It is therefore contended that the published accounts of B and W Cabs Limited group are the correct documents to examine in this hearing as these are the documents which comply with schedule 7."

1. The material Mr. Hodgkinson prepared to support his defence to the wider case was described by Mr. Glass in his opening address as comprising:
   

"... a rebuttal report of over one hundred pages ... (with) appendices three volumes high of 1300 pages and affidavits of over 40 pages."

1. Notwithstanding this statement of Mr. Glass, counsel in the proceedings before me submitted that Mr. Hodgkinson only realised at the start of the hearing itself that he had to deal with the wider case. But even if this were the position (something I do not accept), there is still no ground for a finding of a denial of natural justice because the Board denied Mr. Hodgkinson sufficient opportunity to prepare for and to deal with that wider case: it was not suggested that Mr. Hodgkinson or his representative, Mr. Glass, at any time complained that they had been caught unawares and so were not in a position to deal with the complaint by the ASC about Mr. Hodgkinson's audits of the group. Moreover, the hearing extended over a substantial period in at least two episodes separated by a number of weeks. Mr. Hodgkinson would have had ample time during the adjournment to prepare an answer to the wider case, if, contrary to what I think was the true position, he needed that opportunity.

2. The material to which I was referred, in my view, makes it clear that Mr. Hodgkinson well realised from the outset that he was being called before the Board by the ASC to answer for the way he performed the audits of the Black and White group, not just those of the parent company. It is also, in my view, clear that, in an attempt to try and confine the scope of the Board's investigation for the purposes of s. 1292 the Corporations Law, Mr. Hodgkinson seized upon some deficiencies in clarity in the ASC's application to mount what he knew was a technical argument to the effect that the ASC's application should be read in the narrow way for which he contended. Given this, the Board was not required, by its obligation to observe the rules of natural justice, to put on record what I think Mr. Hodgkinson well understood, viz., that the ASC was seeking the Board's determination in respect of Mr. Hodgkinson's conduct of the group's audits and that the Board intended to give its decision after investigating that particular matter. The application for review must be dismissed.
   (After submissions on costs, his Honour said:)

3. So far as costs are concerned, it seems to me appropriate that the ASC, as the party effectively having the carriage of the answering case, should have its costs of and incidental to the application.

1. So far as the Board is concerned, the Board has adopted the perfectly proper attitude of indicating that it would abide the order of the Court. That is, in my view, the only attitude that the Board could adopt given the material that the applicant placed before this Court. It seems to me in these circumstances that the Board is entitled to its costs of one appearance only to inform the Court that it would submit to the order of the Court. I will therefore order that the applicant pay the Board's costs limited to its costs of the first directions hearing.