Hudson Securities Pty Ltd v Australian Stock Exchange

[2000] NSWCA 203

Reported Decision: [2000] 49 NSWLR 353
[2000] 156 FLR 331
[2000] 35 ACSR 55
[2000] 18 ACLC 683

New South Wales

Court of Appeal

CITATION:	Hudson Securities Pty Ltd v Australian Stock Exchange [2000] NSWCA 203
FILE NUMBER(S):	CA 41038/99
HEARING DATE(S):	10 May 2000
JUDGMENT DATE:	4 August 2000
PARTIES :	Hudson Securities Pty Ltd - Appellant Australian Stock Exchange - Respondent
JUDGMENT OF:	Handley JA at 1; Beazley JA at 2; Giles JA at 3

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	4688/99
LOWER COURT JUDICIAL OFFICER :	Santow J

COUNSEL:	A G Hartnell (Solr) & P C Silver (Solr) - Appellant J E Griffiths & J A Kernick - Respondent
SOLICITORS:	Atanaskovic Hartnell - Appellant Johnson Winter & Slattery - Respondent
CATCHWORDS:	STOCK EXCHANGE - business rules - investigations - exchange may require member to cause officers to appear and give information - member refused to appear other than on conditions - whether failed to comply with business rules - held yes - whether exchange could require that that officers give confidentiality undertakings - held no. D
CASES CITED:	FAI Insurances Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 801; National Companies and Securities Commission v News Corporation Ltd (1984) 156 CLR 296; McLachlan v Australian Stock Exchange (1998) 30 ACSR 26; Attorney-General v Great Eastern Railway Co (1880) 5 App Cas 473; Makin v Gallagher (1974) 2 NSWLR 569; National Crime Authority v A, B and D (1988) 18 FCR 439; Australian Securities Commission v Bell (1991) 6 ACSR 281; National Companies and Securities Commission v Bankers Trust Australia Ltd (1989) 24 FCR 217; Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10.
DECISION:	(1) Appeal allowed in part; (2) Set aside para (e) of order 2 made on 16 December 1999; (3) Order the appellant to pay three quarters of the respondent's costs of the appeal, otherwise no order as to costs of the appeal.

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 41038/99

ED 4688/99

HANDLEY JA

BEAZLEY JA

GILES JA

Friday 4 August 2000

HUDSON SECURITIES PTY LTD v AUSTRALIAN STOCK EXCHANGE LTD

JUDGMENT

1    HANDLEY JA: I agree with Giles JA.

2    BEAZLEY JA: I agree with Giles JA.

3    GILES JA: Australian Stock Exchange Ltd (“ASX”) is conducting an investigation into the conduct of the stockbroking organisation Hudson Securities Pty Ltd (“Hudson”) in relation to its trading in the shares of Hudson’s parent company Hudson Investment Group Ltd during 1998. These proceedings are concerned with ASX’s power under rule 13.1(1) of its business rules to require that certain officers of Hudson appear before it and provide information relating to the business of Hudson.

Background

4    Stock exchanges at which brokers trade in securities were established in Australia many years ago. Putting aside earlier, less formal, markets for trading, the Melbourne Stock Exchange was established in the 1860’s, the Sydney Stock Exchange was established in the 1870’s, and stock exchanges in Adelaide, Brisbane, Perth and Hobart were established in the 1880’s and 1890’s (see Bruns, The Stock Exchange, 6th ed, 1970 pp 21-26).

5    The stock exchanges were state-based, and were or came to be conducted through companies limited by guarantee. The memoranda and articles of association and rules under which their members conducted them and traded were “the private rules of a private body” (FAI Insurances Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 801 at 812 per Kirby P, speaking of listing requirements).

6    Beginning with the Securities Industry Acts 1970 and 1971 in New South Wales, Victoria, Western Australia and Queensland, a degree of governmental regulation was added to the self-regulation of the stock exchanges. It included measures directed to the integrity of members of stock exchanges and their trading.

7 I take New South Wales only. Section 6 of the Securities Industry Act 1970 (NSW) outlawed a stock market other than that of a stock exchange. By s 7, Ministerial approval of a body corporate as a stock exchange was required, and amongst the matters on which the Minister had to be satisfied were -

“ … that the rules of the body make satisfactory provision -

(i) for exclusion from membership of persons who are not of good character and high business integrity;

(ii) for the expulsion, suspension or disciplining of members for conduct inconsistent with just and equitable principles in the transaction of business or for a contravention of or failure to comply with the rules of the stock exchange or the provisions of this Act;

…

(vi) generally for the carrying on of the business of the stock exchange with due regard to the interests of the public.”
By s 8, notice had to be given to the Minister of amendment of the rules of a stock exchange, and the Minister could disallow the amendment in whole or in part.

8    The replacement Securities Industry Act 1975 (NSW), matched by like legislation in the other three states and new legislation in South Australia in 1979, contained in ss 27-29 similar, but in some respects more elaborate, provisions. There was a distinction between the business rules of the body corporate and its listing rules, with different criteria for the Minister’s satisfaction. The criteria with respect to the business rules were in substance the same as the previous criteria for rules generally. “Business rules” was defined to mean rules, regulations or by-laws governing the activities or conduct of the body corporate or of its members, or the activities or conduct of other persons in relation to the stock market, being rules, regulations or by-laws made by the body corporate or contained in the memorandum of association or the articles of association of the body corporate.

9    The 1975 Act had additional provisions. By s 30, a stock exchange was obliged to provide assistance to the Corporate Affairs Commission in the performance of its functions and duties under the Act, and specifically -

“(2) Where a stock exchange reprimands, fines, suspends, expels or otherwise takes disciplinary action against a member of the stock exchange, it shall forthwith give to the Commission in writing particulars of the name of the member, the reason for and nature of the action taken, the amount of the fine (if any) and the period of the suspension (if any).”

By s 31, the Commission or a person aggrieved by the failure of any person obliged to observe, enforce or give effect to the business rules or listing rules of a stock exchange to do so, could apply to the Court for “an order giving directions to [the person] concerning the observance or enforcement of, or the giving effect to, those business rules or listing rules”.

10    As part of the 1980 scheme for national legislation, by the Securities Industry (Application of Laws) Act 1981 (NSW) New South Wales adopted the Securities Industry Act 1980 (C’th). The other states did the same, and the previous state legislation fell away. With some different language and again some elaboration, the existing regulation was continued by ss 37-42. The approval was now that of the Ministerial Council, and the governmental body was the National Companies and Securities Commission. “Business rules” now meant the provisions of the constituent documents of the body corporate and any other rules, regulations or by-laws made by the body corporate, other than listing rules. A new provision was that, by s 40, the Commission could prohibit trading in particular securities. By s 42(1), in the event of failure of any person obliged to comply with, observe, enforce or give effect to the business rules of a stock exchange to do so, there could be application to the Court for an order giving directions to the person: now it was application by the stock exchange, as well as by the Commission or a person aggrieved by the failure.

11    In 1987 the then six state stock exchanges merged as a national stock exchange, conducted through ASX. ASX was again a company limited by guarantee. The merger was recognised and facilitated by the Australian Stock Exchange and National Guarantee Fund Act 1987 (C’th), which amended the Securities Industry Act 1980 to provide, amongst other things, that ASX was by definition a stock exchange. The amendments reflected that the memorandum and articles of association of ASX and its proposed business rules had been lodged with the Commission, and by s 36E(4) the latter were deemed to be made by ASX under its articles. It may be taken, therefore, that it was considered that the Ministerial Council was satisfied as to the business rules.

12    Passing over subsequent amendments to the 1980 Act, the more comprehensive 1989 scheme for national companies and securities legislation brought the adoption in New South Wales by the Corporations (NSW) Act 1990 (NSW) of the Corporations Law (C’th). Again the other states did the same. With some changes in language, provisions similar to those in the 1980 Act were included in the Law (see ss 767, 769, 771, 774-777). The approval was now that of the Minister, on application to the Australian Securities Commission. “Business rules” was defined to mean, in the case of a body corporate conducting a stock market, the provisions of the constitution of the body corporate and any other rules, regulations or by-laws made by the body corporate, other than listing rules.

13    In 1998 ASX changed its status from a company limited by guarantee to a public company limited by shares. Amendments and additions to the Law were made by the Corporations Law Amendment (ASX) Act 1997 (C’th).

14    The effect of s 766B(2)(e) was that the change in status required Ministerial approval to the new constitution, business rules and listing rules. By s 769A, a securities exchange (a wider concept, including a stock exchange, introduced into the legislation at an earlier time) was obliged to -

“(a) to the extent reasonably practicable, do all things that are necessary to ensure that each stock market of the exchange is an orderly and fair market; and

(b) have adequate arrangements for monitoring and enforcing compliance with its business rules ... ”
By s 769B the Minister could direct the exchange to do specified things which the Minister believed would promote compliance by the exchange with the requirements in s 769A, and if the direction was contravened the Court, on application by the Commission, could order the exchange to comply with the direction. By s 769C, the exchange had to provide to the Commission annual reports as to compliance with the requirements, and by s 769D the Minister could call for a special report on the extent to which the exchange was complying with the requirements.

15    By s 766D, the members of ASX ceased to be members, shares were taken to be issued equally amongst all persons who satisfied certain criteria set out in its constitution, and those persons were taken to have consented to be members of ASX and became members. By s 772A -

“The business rules of a securities exchange have effect, by force of this section, as a contract under seal:
(a) between the exchange and each member; and
(b) between a member and each other member;
under which each of those persons agrees to observe and perform the provisions of the business rules as in force for the time being, so far as those provisions are applicable to that person.”


“Business rules” was now defined to mean any rules, regulations or by-laws made by the body corporate or contained in its constitution, governing the activities or conduct of the stock market or the activities or conduct of persons in relation to the stock market, other than listing rules.

The business rules

16    The constitution of ASX provides in art. 13 that it must make and promulgate business rules concerning, amongst other things, the maintenance and operation of markets and facilities operated by ASX; the admission, recognition, rights and obligations of corporations and partnerships as participating organisations of ASX; participating organisations’ access to and use of markets and facilities operated by ASX; and consequences of breach of the rules by a participating organisation. By art. 13.2 it is mandatory for the business rules to -

“(b) provide for exclusion from the position of participating organisation of -
(i) any organisation where a director or a person concerned in management or having control or substantial control of the organisation is not of good character and high integrity; and
(ii) any person who is not of good character and high business integrity; and

(c) provide for the expulsion, suspension or disciplining of a participating organisation for conduct inconsistent with just and equitable principles in the transaction of business or for a contravention of the Company’s business rules, of a provision of Chapter 7 of the Corporations Law or of the conditions of a licence granted under the Corporations Law;

(d) provide for the monitoring of compliance with, and the enforcement of the Company’s business rules;

(e) contain provisions calculated to ensure that dealings in securities by participating organisations are engaged in on a basis that is efficient and honest;

(f) contain provisions calculated to ensure that the activities of participating organisations as such are consistent with the interest of the public;

(g) otherwise define the rights, privileges, duties and obligations of participating organisations;

…

(j) provide for the expulsion, suspension or disciplining of an affiliate for breach of obligations or conduct likely to bring into disrepute the profession of stockbroking; and

(k) to the extent that they contain provisions conferring powers of the kind referred to in Article 13.7, require that those powers be exercised in the manner stated in that article.”

17    Article 13.7 provides -

13.7 Powers conferred upon the Company by the business rules in respect of participating organisations and affiliates (and, in particular, admission, exclusion, expulsion, suspension and disciplining) must be exercised:
(a) fairly and impartially;
(b) in the interests of the public; and
(c) with due regard for principles of natural justice.”

18    The business rules of ASX include “Section 13 - Supervision”, dealing with inspections, investigations, action concerning defaulters, disciplinary action in a number of different circumstances, and cancellation of recognition of participating organisations, together with provisions relating to appeals and consequential matters.

19    Business rule 13.1(1) provides -

“13.1 Inspections by Exchange
(1) The Exchange may call upon any Participating Organisation to produce, without delay, for inspection by the Exchange or its duly appointed representatives, all books or copies thereof relating to the business of the Participating Organisation, and may also require Affiliates, Participating Organisations and their partners, officers, employees or securities representatives to appear before the Exchange or its delegates at any time, and to give such information as may be required relating to such business or to enable the Exchange to consider whether or not the Affiliate or Participating Organisation continues to comply with recognition requirements for the purposes of Rule 5A.1.2 or 5A.2.2.”

20    “Exchange” means ASX. Article 13.5 of the constitution of ASX provides that corporations and partnerships which satisfied criteria specified in the business rules might be admitted as participating organisations of ASX, and in the business rules “Participating Organisation” means a company, partnership or natural person recognised and remaining recognised as such under the rules. By business rule 5A.6, Participating Organisations are entitled to describe themselves as members of the ASX, and through the definitions of “member” and “member organisation” in the Law they may be members of ASX within the meaning of, inter alia, s 772A of the Law.

21    As can be seen, inspection pursuant to business rule 13.1(1) extends to interviewing persons answering the descriptions in the rule, and the interviews may be for purposes beyond compliance with recognition requirements. Succeeding provisions of business rule 13 detail the circumstances in which action concerning defaulters and disciplinary action can be taken, and what action, going beyond provisions concerning cancellation of recognition. These provisions include, in business rule 13.5.1, disciplinary action against a Participating Organisation for breach of the business rules or for “Prohibited Conduct”. The latter extends to any conduct which is or could reasonably be considered as likely to be prejudicial to the interests of ASX. By business rule 13.5.1(2), an act or omission by (amongst others) an officer of a Participating Organisation which, if done or not done by the Participating Organisation, would be a breach of the business rules or Prohibited Conduct, is deemed for the purposes of business rule 13.5.1 “to be the act or omission of the Participating Organisation concerned and dealt with hereunder accordingly”.

22    By business rule 13.3.3(2) cancellation of recognition must only be after observance of the rules of natural justice. The business rules do not seem expressly to require that wider powers of the kind referred to in article 13.7 of the constitution of ASX be exercised in the manner stated in that article.

23    Hudson is a Participating Organisation under the business rules. Business rule 5A.2.1 contains the requirements for recognition as a Participating Organisation in the case of a company. So far as immediately relevant, it is necessary that the constitution of the company has provisions requiring continued compliance with the requirements of the rules and -

“ … provisions authorising [the company], on its own initiative or at the request of [the ASX], to obtain from its members any information which could be obtained if Part 6 of the Corporations Law, applied to [the company]”.
The investigation

24    By a letter dated 4 May 1999 Mr Somes of ASX wrote to Hudson advising -

“ … that Peter Monaci and I have been directed under the ASX Business Rules to conduct an inspection/investigation in relation to the conduct of Hudson Securities Pty Limited with respect to its trading in the shares of Hudson Investment Group Limited during the period 23 February 1998 to 2 December 1998.
The inspection/investigation concerns whether Hudson Securities Pty Limited has conducted itself in the manner which could give rise to disciplinary or other action by ASX with respect to either trading in the shares of Hudson Investment Group Limited during the period 23 February 1998 to 2 December 1998, or matters arising from the Exchange’s investigation of this activity.”

25    Some information was provided by Hudson and some persons were interviewed. In a letter dated 1 September 1999 Mr Somes said that he would “like to interview the following persons pursuant to ASX Business Rules 13.1”. He named Mr Dunstan, Mr Wong and Ms Huang, and suggested a period within which the interviews should take place. The letter included -

“I anticipate that further interviews shall be required after the interviews of the above persons are completed. I would be grateful if you could confirm with the persons interviewed that they are not to discuss the matters raised during the interview with any other persons at HSPL until all the interviews to be conducted are completed. This will assist in maintaining the integrity of the investigation. I would also be grateful if you could identify any persons from HSPL who may wish to sit in on the interviews of HSPL employees.
As stated above, the interview will be conducted pursuant to ASX Business Rule 13.1 and those persons interviewed may be required to answer questions asked of them during the interview. Any failure by those persons to answer questions asked during the course of the interview may result in the ASX taking disciplinary action against HSPL, including action pursuant to ASX Business Rule 13.5. Could you please ensure that the persons to be interviewed are aware of the conditions under which the interviews shall be conducted.
The interviews will be tape recorded and a copy of the recordings shall be provided to HSPL at an appropriate time.”

26    Mr Dunstan is the managing director of Hudson. Mr Wong and Ms Huang fall within the description of its officers, although their precise positions were not clear. Mr Dunstan is also an Affiliate of ASX, but it was not suggested that ASX sought to interview him as such. The requirement to which I will come was addressed to Hudson.

27    There followed much correspondence, at first between ASX and Hudson and later involving their respective solicitors, as to the attendance of Mr Dunstan, Mr Wong and Ms Huang for interview. Hudson raised issues to do with attendance also of legal representatives (its own and those of the interviewees) and of other representatives of Hudson, in particular a Mr McLeod, and to do with provision of tape recordings and transcripts. Mr McLeod is a director of Hudson Investment Group Ltd: there was dispute in the proceedings over whether he is an officer of Hudson. ASX said that it might wish to interview him as part of its investigation, and that he should not also attend the interviews. ASX contended that there should be a confidentiality regime so as to maintain, as the letter of 1 September 1999 put it, the integrity of the investigation.

28    It was accepted in the appeal that the operative requirement for the purposes of business rule 13.1(1), at the end of the correspondence, was in a letter dated 1 November 1999 from the solicitors for ASX to the solicitors for Hudson -

“Having regard to the above and to the contents of your letter dated 27 October 1999, can you now please advise by no later than close of business on Wednesday 3 November 1999, whether Hudson will require Mr Dunstan, Mr Wong and Ms Huang to appear before ASX’s Exchange Inspector as soon as practicable and provide information pursuant to Business Rule 13.1, on the basis that:

(a) Hudson’s legal representatives and any legal representatives of the interviewees may be present upon first giving ASX an undertaking in the terms referred to in the paragraph numbered 1 on page 4 of our letter dated 22 October 1999;

(b) Hudson’s legal representatives and any legal representatives of the interviewees will not be invited to be present and ASX will not permit them to be present if undertakings are not first provided in the form referred to at (a) above or such other reasonable form as may be approved by ASX;

(c) An officer of Hudson (excluding McLeod), approved by the Exchange Inspector at his discretion in accordance with the paragraph numbered 3 on page 4 of our leter dated 22 October 1999, will also be permitted to be present upon first providing an undertaking in the terms referred to in the said paragraph. Hudson’s legal representatives will be free to obtain instructions from that officer.

(d) Mr Paul Tatum, who we note is a consultant to Hudson, will also be permitted to be present upon first providing an undertaking in the same terms as the undertaking to be provided by the officer of Hudson referred to at (c) above;

(e) Upon request, a copy tape recording and transcript of each interview will be provided to Hudson’s legal representatives and any legal representatives of the interviewee as soon as possible after the conclusion of the relevant interview, upon the legal representative first giving ASX an undertaking in writing that he or she will refrain from disclosing the tape recording or the transcript or any part of their contents, except with ASX’s written consent or as required by law, to any person who was not present during the interview, until such time as ASX advises Hudson that the inteview process is complete or the Exchange Inspector’s Draft Inspection Report is provided to Hudson by ASX for its comment, whichever is the earlier;”

29    Hudson’s solicitors declined on its behalf to comply with the requirement. By a letter to ASX’s solicitors dated 3 November 1999 they said that their position was set out in full in their letter of 27 October 1999.

30    From the course of correspondence, including from that letter -

(i) ASX had gone some way towards meeting Hudson’s expressed concerns in relation to attendance of legal representatives, attendance of other persons on behalf of Hudson, and provision of records of the interviews; but
(ii) Hudson insisted that neither its legal representatives, nor any legal representatives of the interviewees, nor the persons attending on behalf of Hudson, would provide the undertakings specified by ASX; and
(iii) Hudson wanted Mr McLeod to be present, or at least to be available so that it could “seek instructions” from him during the interviews or for the purposes of re-examination: this meant that there could be disclosure to Mr McLeod.

31    Although there had been other differences between ASX and Hudson in the course of the correspondence, in the end what divided them was the undertakings, the actual or notional presence of Mr McLeod, and unfettered provision of records of the interviews. In essence, and with particular application to attendance of Mr McLeod, ASX wished to have a confidentiality regime, but Hudson said that ASX had no power to limit those attending or require that confidentiality undertakings be given.

The proceedings below

32    By its summons filed on 16 November 1999 ASX claimed against Hudson -

“1. A declaration that the defendant has failed to comply with Business rule Number 13.1 of the Business Rules of Australian Stock Exchange Limited by failing to require Messrs Dunstan and Wong and Ms Huang to appear before Australian Stock Exchange Limited for interview as directed by Australian Stock Exchange Limited.
2. Further or in the alternative, an order under sections 777 and/or 1114 of the Corporations Law directing the defendant, pursuant to Business Rule Number 13.1 of the Business Rules of the Australian Stock Exchange Limited, to require Messrs Dunstan and Wong and Ms Huang to appear separately before Australian Stock Exchange Limited, as soon as practicable, for interview on the basis that:

(a) the defendant’s legal representatives and any legal representatives of the interviewees may attend any of those interviews upon first giving to Australian Stock Exchange Limited an undertaking as to confidentiality in the form, or substantially in the form, of Annexure A hereto;

(b) an officer of the defendant (excluding Mr Bruce McLeod), as approved by Mr Michael Somes, an Exchange Inspector of Australian Stock Exchange Limited, may also be present at those interviews upon first providing an undertaking as referred to in prayer 2(a) above and on the understanding that any such legal representative of the defendant will be free to obtain instructions from any such officer;

(c) upon request, a copy tape recording and transcript of each interview is to be provided to the defendant’s legal representatives and any legal representatives of the interviewee as soon as possible after the conclusion of the relevant interview, upon the legal representative first giving to Australian Stock Exchange Limited an undertaking as to confidentiality in the form, or substantially in the form, of Annexure B hereto.”

33    The undertakings set out in the Annexures were to the effect that information imparted during the interviews conducted by ASX as part of its investigation into Hudson’s trading in shares of Hudson Investment Group Ltd would not be disclosed, until such time as ASX advised Hudson that all interviews had been completed or its draft inspection report was provided to Hudson for comment, whichever was the earlier. For present purposes the detail does not matter.

34    In a judgment delivered on 15 December 1999 Santow J upheld the position taken by ASX.

35    It was common ground that, as a Participating Organisation, Hudson was bound by contract with ASX to observe the business rules. Why this was so was not explored: provisions in the constitution of Hudson as required by business rule 5A.2.1 would not of themselves have that effect, but presumably s 772A of the Law did so. In the circumstances, the common ground may be adopted.

36    It was also common ground that business rule 13.1(1) obliges Hudson as a Participating Organisation to cause its officers to attend for interview and provide information if ASX so requires. That is not the immediate wording of business rule 13.1(1), which purports to impose a direct obligation on the officers. But Hudson as a corporation can only appear by natural persons, and the persons identified are not themselves parties to the contract of which rule 13.1(1) is part; no doubt that explains the common ground in this respect as to the operation of the business rule, common ground also on appeal.

37    Nor was it in dispute that, in the conduct of the interviews, ASX or its delegates were required to afford procedural fairness. Apart from art. 37 of the constitution of ASX, the potential consequences of the investigation to Hudson were apt to give rise to the common law duty to act fairly, in the sense of according procedural fairness, see for example Kioa v West (1985) 159 CLR 550. But procedural fairness was not taken up by Hudson as a basis for its position.

38    Santow J said -

“The particular matter of interpretation which is at the heart of the present case is this. Does the Defendant depend upon an implied term conferring minimal procedural fairness (aided by Cl 13.7 of the Constitution) to be added to Rule 13.1(1) in order to have legal representation at the interviews and to have present or available for instructions other persons than those being interviewed? If so, is that implied term itself qualified by the requirement that the content of that minimum procedural fairness must be such as does not prejudice the integrity of the investigation? Or instead does ASX require an implied term to be empowered to preserve the integrity of the investigation by insisting on the relevant undertakings and the right to approve who else is present at the interviews?
The Defendant’s contention is that rule 13.1(1) is silent as to any preclusion of other persons being present at the interview. It is silent likewise as to preclusion of a legal adviser being present. Because the obligation is imposed on the Participating Organisation it is contended that Rule 13.1(1) could have not efficacy unless the Participating Organisation were able to be present via whomsoever it nominates as its agent in order to ensure that its employees or officers do respond to the questions asked.
The Defendant has been at pains to avoid relying upon an implied term of procedural fairness in contending for an unqualified right to have a legal adviser present or other persons present. However, it has not rejected that implied term as an alternative source of this right, contending rather that it does not need it.

The ASX, for its part, contends that Rule 13.1(1) simply requires that the Participating Organisation procures the relevant officers or employees, etc. to give such information as may be required and attend interviews for that purpose. But Rule 13.1(1) does not thereby require the Participating Organisation to be present through its nominated agent, whether for the purpose of procuring officer or employee answers or otherwise. In my view, rule 13.1(1) does not, as a matter of its proper interpretation, require such presence. Rather it permits such presence. But this is only to the extent procedural fairness requires it and then only to the extent the integrity of the investigation is not thereby prejudiced. I expand on the basis for that conclusion below.”

39    After a detailed discussion of what his Honour described as the contractual, constitutional and statutory context of rule 13.1(1), he said -

“Whether rule 13.1(1) in its silence denies a right for non-interviewees to be present, (save where mandated by procedural fairness requirements accommodating preservation of the integrity of the investigation), or would otherwise permit such presence, I would in either case imply a term to the effect contended by the Plaintiff. That is to say, to give business efficacy to Rule 13.1 with its procedural fairness overlay and to ensure that it satisfies the statutory purpose of the Business rules, I would preclude any presence on behalf of a Participating Organisation as would undermine or threaten the integrity of the investigation in terms of it satisfying the statutory requirement of ‘adequate arrangements for monitoring and enforcing compliance with [its] Business rules and Listing Rules’. I would likewise require appropriate undertakings of confidentiality of the kind ASX seek.
Quite clearly such a term is reasonable and equitable insofar as its leaves proper scope for minimal procedural fairness, gives business efficacy to the contract for the contract would not be effective otherwise in terms of satisfying the statutory requirements, is sufficiently obvious that it goes without saying, is capable of clear expression and does not contradict any express term of the contract. It thus satisfies the requirements for implying a term in BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 16 ALR 363 at 365.
While it may be accepted that the test for implication of terms into statutory contracts are more stringent (see, for example, Stanham v The National Trust of Australia (NSW) (1989) 15 ACL 87 at 90-91 per Young J) here we have passed from a conventional statutory contract for corporations generally to one which performs a statutory public purpose.”

40    His Honour said, under the heading “Summing up” -

“Business rule 13.1(1), taking into account its contractual, constitutional and statutory context, neither requires nor permits a Participating Organisation to have anyone other than the interviewee present at the interview, save as required by requirements of procedural fairness accommodating the requirement of not prejudicing the integrity of the investigation.

Such requirements of procedural fairness would ordinarily permit a legal adviser to be present and the legal adviser in turn to have access to those it needs in the Participating Organisation, in order to obtain instructions or to advise. Likewise others from the Participating Organisation may be present or have access to the transcripts if this is required to provide procedural fairness insofar as the investigation and any ultimate disciplinary proceedings are concerned.

The Corporations Law (Pt 7.2) and the ASX constitution require the Business Rules to provide "adequate arrangements for monitoring and enforcing compliance" directed to ensuring that "each stock market is an orderly and fair market". The Corporations Law underpins the Business Rules rendering them subject to such a public purpose. The ASX Business Rules, like the Listing Rules , represent self-regulation enlisted by statute for a public purpose; for stock exchanges have long ceased to be private clubs in performing their important public role.

Consistent with that public purpose, ASX is entitled to impose such requirements including undertakings of confidentiality to the extent necessary to preserve the integrity of the investigation. By preserving the integrity of the investigation is meant its efficacy in providing adequate arrangements for monitoring and enforcing compliance with the Business Rules and Listing Rules for the public purpose, mandated by the Corporations Law , of ensuring that "each stock market of the exchange is an orderly and fair market.”

Rule 13.1(1) thus imports an obligation on the ASX to observe minimum procedural requirements of fairness. They are the basis, and arguably the only basis, for permitting a legal adviser to be present at interviews and able to obtain instructions from others in the Participating Organisation. But such procedural requirements of fairness must accommodate the overriding requirement that the integrity of the investigation is not to be prejudiced in furtherance of its public purpose. And such overriding requirement is also an implied term imported into rule 13.1(1), necessary to give it business efficacy in fulfilling that public purpose.”


The orders below

41 His Honour directed the submission of orders to give effect to his judgment. The orders made differed in some respects from those sought in the summons. The declaration in para 1 was as sought. The order in para 2 was expressed as a direction pursuant to s 777 of the Corporations Law, omitting reference to s 1114. There were some changes in expression in the order in para 2. A new para (c) was included in the order in para 2, dealing with disclosure to a director of Hudson other than Mr McLeod on his first giving an undertaking as to confidentiality and with limited disclosure to Mr McLeod in stated circumstances, and the former para (c) became para (d). A new para (e) was added to the order -

“(e) the defendant is directed to require Messrs Dunstan, Wong and Ms Huang to each provide to Australian Stock Exchange Limited, as soon as practicable, an undertaking as to confidentiality in the form of Annexure C hereto.”

42    We were informed that the declaration and, save as to para (e), the order were as originally prepared by the parties pursuant to his Honour’s direction. Nothing in the appeal turned on the changes in expression or the new para (c) in the order in para 2. We were informed that para (e) was added when short minutes were provided to his Honour and he pointed out that undertakings by the legal representatives of Hudson and by its officer present at the interview and any legal representatives of the interviewees would be undermined if the interviewees were not under a similar obligation of confidentiality. The requirement in the letter of 1 November 1999 had not sought to restrict disclosure by the interviewees. The inclusion of para (e) was debated in the appeal.

The appeal

43    Santow J’s decision was on the basis of an implied term, a term which amplified the power given to ASX by the express words of business rule 13.1(1) and qualified the obligation to afford procedural fairness in exercising that power. The term may not have been stated with precision in his Honour’s reasons, and in the appeal ASX put forward an implied term that -

“In exercising its powers under Business Rule 13.1, the Exchange may impose such requirements as are reasonably necessary to preserve the integrity of its investigation, including without limitation thereto, precluding the presence of any particular representative of a Participating Organisation at any interview conducted under that provision and requiring that any persons who are present at such an interview provide appropriate undertakings as to confidentiality.”

44    Hudson’s argument on appeal was to the effect that it was not permissible to have regard to the constitutional and statutory context of the business rules as part of the surrounding circumstances in which an implied term may be found, alternatively that the implied term was not necessary to give business efficacy to the contract constituted by the business rules. In the absence of the implied term, Hudson said, ASX had no power to impose a confidentiality regime on it, and it could comply with its obligations under business rule 13.1(1) in such manner as it chose.

45    While ASX sought to uphold the implied term, argument in the appeal focussed on the express words of business rule 13.1(1) and whether Hudson was correct in contending that it could comply with its obligations in such manner as it chose. With the utmost respect to Santow J, in my opinion the difference between ASX and Hudson can and should be resolved on the basis of the express words of the rule without any need to resort to the implied term, which in any event will not be available if the express words cover the situation.

46    By the express words of business rule 13.1(1), ASX can require Hudson and its officers to attend for interview and provide information - on the common ground earlier stated, can require Hudson to cause its officers to attend for interview and provide information. The words say nothing about others accompanying the interviewees, whether legal representatives of Hudson, legal representatives of the interviewees, or other representatives of Hudson. Nor do they say anything about provision of records of the interviews. If ASX requires that Hudson cause (say) Mr Dunstan to attend for interview and provide information, and requires no more, Hudson’s obligation is to do that, and the words of business rule 13.1(1) give Hudson no entitlement to have someone else present. If ASX chooses to offer to permit Hudson to have someone else present, but on terms as to confidentiality, it may do so. The requirement remains, and Hudson may, but need not, have someone else present: but if it does have someone else present, it may do so only on the terms as to confidentiality.

47    This is, of course, subject to affording procedural fairness to Hudson. In the manner the proceedings were conducted before Santow J, and again on appeal, Hudson did not contend that there would be a denial of procedural fairness if the interviews of Mr Dunstan, Mr Wong and Ms Huang were conducted on the basis proposed by ASX in the letter of 1 November 1999 (cf National Companies and Securities Commission v News Corporation Ltd (1984) 156 CLR 296 at 325-6; McLachlan v Australian Stock Exchange (1998) 30 ACSR 26 at 36). The requirement by the letter of 1 November 1999 was within power. By declining to cause its officers to attend for interview and provide information, therefore, Hudson failed to comply with business rule 13.1(1).

48    This conclusion sustains the declaration made by Santow J, and in the end Hudson did not dispute that the direction in order 2, save as to para (e), would follow. So I come to the debate over the inclusion of para (e). It was not included in the requirement pursuant to business rule 13.1(1). The direction by the Court in para (e) was addressed to Hudson, and was that it cause the interviewees to give the undertaking as to confidentiality. Whether this could be directed by the Court depends on whether ASX has power, in carrying out the investigation, to impose confidentiality on the interviewees in that manner.

49    The interviewees are not parties to the contract constituted by the business rules, even given a statutory basis for the contract by virtue of s 772A of the Law. It was not suggested that Mr Dunstan’s position as an Affiliate as well as an officer of Hudson was material.

50    ASX submitted that power to impose confidentiality on the interviewees was to be found in the nature of the investigation and the need to preserve its integrity. It referred to the statement by Lord Selborne LC in Attorney-General v Great Eastern Railway Co (1880) 5 App Cas 473 at 478 that “whatever may fairly be regarded as incidental to, or consequential upon, those things which the legislation has authorised, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires”, as extended to rules of a private body in Makin v Gallagher (1974) 2 NSWLR 569 at 576. It referred also to the power of a tribunal to regulate and control its own proceedings, considered in National Crime Authority v A, B and D (1988) 18 FCR 439 and Australian Securities Commission v Bell (1991) 6 ACSR 281 to extend to denying to an examinee representation by a particular legal representative. And it relied in particular on the judgment of Lockhart J in National Companies and Securities Commission v Bankers Trust Australia Ltd (1989) 24 FCR 217.

51 In the lastmentioned case there was a private hearing pursuant to s 36 of the National Companies and Securities Commission Act 1979 (C’th). The chairman directed a witness not to discuss the evidence given with any person other than his legal representative. It was contended that this was beyond power. Lockhart J referred to the provisions of s 36, which enabled directions that the hearing be private and as to the persons who might be present, and said (at 220-221) -

“In this case the hearing in question was a private hearing and what is in dispute is the nature and extent of the Commission's powers to control the disclosure of evidence given at such a hearing. Counsel for the Commission's primary submission relied on what were said to be the inherent powers to be derived from the very nature of a "private" hearing. It was said that a hearing cannot be "private" if the evidence given can be subsequently published; the very essence of a private hearing is that the public can be excluded and the evidence given kept out of the public domain. It was argued that as the control over the disclosure of evidence was a defining feature of a private hearing it was unnecessary for the legislature to separately and specifically grant powers to the Commission to restrict the disclosure of evidence. Section 36(6) was said to confirm the validity of this approach. That subsection permits the making of a non-publication order, but its terms only apply in the case of a hearing in public.

It may appear odd that a like power was not vested in terms in the Commission when hearings commence as private hearings. In my opinion the answer is not that there is a lacuna in the legislation, but that the power of the Commission to conduct a hearing in private pursuant to s 36 and the express power conferred by s 36(5) to determine who should be present carries with it as an integral element of such a hearing the power to give directions preventing or restricting the publication of evidence given before it or of matters contained in documents lodged with it; otherwise the power to hold hearings in private would be of little value. The essence of a private hearing before the Commission is that what takes place is in private and, therefore, by definition and of necessity not open or accessible to the public.

The power of the Commission to maintain the privacy of the evidence is a necessary element in the private hearing itself. Alternatively, it may be regarded as a power which is incidental to or consequential upon the express power of the Commission to hold a hearing in private: see Attorney-General v Great Eastern Railway Co (1880) 5 App Cas 473, per Lord Selborne LC (at 478); Ex parte Evatt; Re New South Wales Bar Association [1967] 1 NSWR 695; Makin v Gallagher [1974] 2 NSWLR 559 at 575-576. The power which must be implied is a power to take all reasonable steps to ensure that the hearing takes place privately.”

52 His Honour upheld the validity of the direction. He was in dissent in the result. In a joint judgment Beaumont and Einfeld JJ held that the direction was beyond power because it was of indefinite duration and “travelled beyond the period in respect of which the Commission’s implied power to prohibit disclosure could reasonably operate” (at 233). But their Honours accepted that there was power to impose confidentiality as a matter of construction of s 36 -

“In the present case, the Commission was given, expressly, the power to direct that the hearing take place privately. In aid of that power, the Commission was also given, in our opinion, by necessary implication, the power to take all reasonable steps, which when viewed objectively, were necessary in order to ensure that the hearing was conducted privately. The Commission is entitled to regulate its proceedings to avoid a situation arising where the confidentiality of information obtained by it may be exposed to the risk of premature disclosure cf National Crime Authority v A, B and D (1988) 18 FCR 439 at 447-448. This is not to say that the information should always be regarded as confidential. But, in order to conduct a hearing properly, it is necessary that the Commission have the power to prohibit, at least during the hearing itself, the disclosure of information obtained at the hearing. Publication of that material before the conclusion of the hearing could prejudice the effective conduct of the hearing. It follows, in our opinion, that it is proper to imply in the Act a power in the Commission to prevent or restrict the premature publication of evidence given at the hearing; or to put the matter positively rather than negatively, the Commission had the power, by necessary implication, to take all reasonable steps which were necessary to secure a "private", rather than a "public", hearing. The question then arises whether, in the present circumstances, the non-disclosure order was a reasonable step, viewed objectively, taken with a view to secure the privacy or secrecy of the hearing .”

53    For two reasons, I do not think that ASX is assisted by these cases.

54    First, the cases are concerned with statutory power, or in Makin v Gallagher with power under a contract to which the object of the exercise of the power is a party. In the present case the power is contractual and, putting aside Mr Dunstan’s position as an Affiliate, the interviewees are not parties to the contract. Neither by force of a statute nor by their contractual assent can it be said that they are subject to ASX’s express powers, let alone an inherent, necessary, incidental, implied or other such power founded on the express powers.

55    Assuming, without deciding, that ASX’s investigation is relevantly a private investigation, the interviewees are in a similar position to a witness in an arbitration. Even where an arbitration is to be heard in private the parties to the arbitration agreement are not under a general obligation of confidentiality (Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10), and a witness in the arbitration not a party to the arbitration agreement is “at liberty to disclose what he knows of the proceedings” (ibid at 28 per Mason CJ). The interviewees are not parties to the relevant contract, and I do not think that ASX can bind them to confidentiality by requiring undertakings of them.

56    Secondly, in any event in the present case the question is not whether ASX can require undertakings as to confidentiality of the interviewees, but whether ASX can direct Hudson to cause the interviewees to give the undertakings as to confidentiality. ASX submitted that it can, by including confidentiality on the part of the interviewees in its requirement pursuant to business rule 13.1(1) and requiring Hudson to cause the giving of undertakings. It said that the fact that the interviewees are not in a direct contractual relationship with ASX is immaterial when business rule 13.5.1(2) makes Hudson “vicariously responsible” for their acts or omissions. I do not agree.

57    As applied to the present case, business rule 13.1(1) empowers ASX to require Hudson to cause (say) Mr Dunstan to attend for interview and provide information. ASX may choose to offer to permit Hudson’s representative to attend on terms as to confidentiality, or otherwise to frame its requirement so as to extend a benefit to Hudson if Hudson wishes to accept it. But it can not require of Hudson something not within business rule 13.1(1), that Hudson cause Mr Dunstan not only to attend for interview and provide information but also to give an undertaking as to confidentiality. That is not a benefit which Hudson can accept if it wishes, but an obligation. Hudson has taken on the contractual obligation, owed to ASX, of causing Mr Dunstan to attend and provide information, and to that extent has exposed itself to a kind of vicarious responsibility for the acts or omissions of someone over whom it has no ultimate control. It has not also obliged itself to obtain from him an undertaking as to confidentiality, and business rule 13.5.1(2) supports a strict view of business rule 13.1(1) in this respect rather than an expansive view.

The result

58 Hudson failed to comply with business rule 13.1(1), and the declaration should stand. So should order 2, save for para (e) which, without full consideration at the time, was erroneously seen as accompanying the other paragraphs. Hudson initially challenged order 2 on the ground that s 777 of the Law, its stated basis, did not support it, but withdrew the challenge and accepted that s 1114 enabled the giving of the directions in order 2 absent para (e). It is not necessary to go into the reach of the two provisions.

59    Hudson has had some success in the appeal. But it took up a separate challenge to para (e) only during the hearing of the appeal, and otherwise failed to dislodge the declaration and order litigated below. On the other hand, ASX sought unsuccessfully to support para (e). In my opinion Hudson should pay three-quarters of ASX’s costs of the appeal and should bear its own costs.

60    I propose the following orders -

(1) Appeal allowed in part.
(2) Set aside para (e) of order 2 made on 16 December 1999.
(3) Order the appellant to pay three quarters of the respondent’s costs of the appeal;
otherwise no order as to costs of the appeal.

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