Insurance and Superannuation Commissioner v Glaser, Bernold, Director and Secretary of Super Benefit Pty Ltd

[1997] FCA 1350

FEDERAL COURT OF AUSTRALIA

SUPERANNUATION - superannuation industry supervision - notice to produce “books” under s 269 of Superannuation Industry (Supervision) Act 1993 - failure of respondent to comply with notice - Commissioner seeks Court order to enforce compliance with notice under s 289 - whether Court should exercise discretion to “inquire” under s 289 - “books” held to be within respondent’s “custody or control” - whether “books” requested relate to affairs of superannuation fund - determined by nature and purpose of investigation - should not be narrowly confined - ordered that respondent must comply with notice.

Superannuation Industry (Supervision) Act 1993, ss 10, 269, 289

Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272 considered
Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 11 ACLC 525 considered
Australian Securities Commission v Lucas (1992) 36 FCR 165 considered and applied
Australian Securities Commission v Zarro (1991) 32 FCR 546 considered
Insurance and Superannuation Commissioner v Robertson (1995) 95 ATC 4225 considered and applied
Melbourne House of Ford Pty Ltd v Trade Practices Commission and Bannerman (No. 3) (1980) 31 ALR 519 considered and applied

INSURANCE AND SUPERANNUATION COMMISSIONER v BERNOLD GLASER, DIRECTOR AND SECRETARY OF SUPER BENEFIT PTY LTD
ACN 056 360 395

SG 72 of 1997

MANSFIELD J
ADELAIDE
4 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 72  of   1997

BETWEEN:	INSURANCE AND SUPERANNUATION COMMISSIONER APPLICANT
AND:	BERNOLD GLASER, DIRECTOR AND SECRETARY OF SUPER BENEFIT PTY LTD ACN 056 360 395 RESPONDENT
JUDGE:	MANSFIELD J
DATE OF ORDER:	4 DECEMBER 1997
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

Pursuant to s 289(3) of the Act that, within three days of the date of this order, the respondent comply with the notice dated 21 July 1997 given by the applicant to him, to the extent that books identified or described within that notice existed as at 21 July 1997, namely that he produce to the applicant at Insurance and Superannuation Office, 5th Floor, 100 Pirie Street Adelaide any books of the following description:

1. bank statements, cheque butts and deposit books of all the bank accounts of each Trust, or of the trustee or trustees of each Trust, showing:

(a)transactions of each Trust, trustee or trustees, and

(b)accruals in those accounts

relating to the years of income for 1994-1995, 1995-1996 and 1996-1997;

1. documents that set out or record either or both of the following:

(a)       who are the unit holders of each Trust, and
           (b)       how many units they hold in each Trust;

1. any agreements between Super Benefit Pty Ltd and:

(a)       the trustee or trustees of any of the Funds,
           (b)       any employer-sponsor in relation to any of the Funds, and
           (c)       any member or members of any of the Funds;

1. documents that set out or record either or both of the following:

(a)       what assets are held on behalf of each Trust, and
           (b)       who has title to those assets;

1. depreciation schedules relating to any assets of each Trust;

1. minutes of meetings of the trustee or trustees of each Trust relating to the years of income for 1994-1995, 1995-1996 and 1996-1997; and

1. the Trust deeds (including any amending deeds) of each Trust

as are within his custody or control.

Note:  Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 72 of 1997

BETWEEN:	INSURANCE AND SUPERANNUATION COMMISSIONER APPLICANT
AND:	BERNOLD GLASER, DIRECTOR AND SECRETARY OF SUPER BENEFIT PTY LTD ACN 056 360 395 RESPONDENT
JUDGE:	MANSFIELD J
DATE:	4 DECEMBER 1997
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

Bernold Glaser (“Mr Glaser”) is a Director and Secretary of Super Benefit Pty Ltd (“Super Benefit”).  Super Benefit is the trustee of Bino Private Property Unit Trust and thirty one other unit trusts identified in the application (“the unit trusts”).

On 21 July 1997 the Insurance and Superannuation Commissioner (“the Commissioner”) served on Mr Glaser a notice under s 269 of the Superannuation Industry (Supervision) Act 1993 (“the Act”) in the following terms:

“SINCE:

A.Gregory Walter Plummer is an inspector appointed by the Insurance and Superannuation Commissioner under subsection 265(1) of the Superannuation Industry (Supervision) Act 1993 (the “Act”) for the purposes of the conduct of investigations under Division 4 of Part 25 of the Act in relation to the affairs of superannuation entities; and

B.an investigation is being carried out in relation to the whole of the affairs of the superannuation funds listed in Schedule B (the “Funds”); and

C.Gregory Walter Plummer has, under section 266 of the Act, delegated his powers under section 269 of the Act to me; and

D.you are a person whom I believe on reasonable grounds has the custody and control of books relating to the affairs of the Funds;

For the purposes of the investigation of the affairs of the Funds, I, Rosslyn Melva Sumner, REQUIRE you, under section 269 of the Act, to produce to me at the Insurance and Superannuation Commission Office, 5th floor, 100 Pirie Street, Adelaide, by close of business on 4 August 1997, the following books relating to the affairs of the Funds:

1.The audited financial accounts of each Trust for the 1994-95 and 1995-96 years of income;

2.      The trial balances for each Trust as at 30 June 1997;

3.Bank statements, cheque butts and deposit books of all the bank accounts of each Trust, or of the trustee or trustees of each Trust, showing:

(a)       transactions of each Trust, trustee or trustees; and
(b)       accruals in those accounts;

relating to the years of income mentioned in paragraph 1 and 2;

4.        Documents that set out or record either or both of the following:

(a)       who are the unit holders of each Trust; and
  (b)       how many units they hold in each Trust;

5.        Any agreements between Super Benefit Pty Ltd and:

(a)       the trustee or trustees of any of the Funds; and
  (b)       any employer-sponsor in relation to any of the Funds; and
  (c)       any member or members of any of the Funds.

6.        Documents that set out or record either or both of the following:

(a)       what Assets are held on behalf of each Trust;
  (b)       who has title to those assets;

7.        Depreciation schedules relating to any assets of each Trust;

8.Minutes of meetings of the trustee or trustees of each Trust relating to the years of income mentioned in paragraph 1 and 2;

9.The Trust deeds (including any amending deeds) of each Trust.”

There was attached to that notice a list of the unit trusts as Schedule A and separately a list comprising All Sweat & Co Superannuation Benefits Fund and thirty two other superannuation benefits funds (“the superannuation funds”) as schedule B.  I shall hereafter refer to that notice as “the notice”.

Mr Glaser did not comply with the notice.

The Commissioner now seeks an order under s 289 of the Act that Mr Glaser comply with the notice.

The notice was given as part of an investigation into the affairs of the superannuation funds and a number of other superannuation funds, totalling fifty seven in all. Pursuant to s 263 of the Act, the Commissioner on 30 May 1997 gave notice of his intention to the trustee of each of the superannuation funds of his intention to conduct an investigation of the whole of the affairs each of the superannuation funds. In each case there is no issue that each of the superannuation funds is a superannuation entity within the meaning of the Act. In each case, the notice recited that it appeared to the Commissioner that a contravention of the Act or the regulations under the Act may have occurred or be occurring in relation to the particular fund and that the Commissioner proposed to conduct an investigation into the whole of the affairs of each such fund. The material before me indicates that the contravention suspected related to how the contributions to the superannuation funds were being applied. It is as follows.

Each of the superannuation funds is a one or two member fund with each member as trustee.  Each trustee then applied the contributions either totally or substantially towards the subscription for units in one of the unit trusts.  Super Benefit, as the trustee of each of the unit trusts, then arranged or facilitated the funds procured by the subscription for units as described to be invested in effect back to the employer or for its benefit, either by loan or by the purchase of plant and equipment or some similar arrangement.  The superannuation contributions made by the employer in each case were claimed to be “eligible payments” attracting the reduced taxation rate, but could properly so qualify only if applied in accordance with the Act and the regulations. In particular, Pt 8 Div 2 of the Act requires that the historical cost ratio of a regulated superannuation fund’s in house assets (as determined in accordance with s 74 of the Act) must not exceed 10 percent. The flow back of funds to the employer of its contributions was suspected of breaching that “in house assets” rule.

An inspector appointed under s 265(1) of the Act to conduct investigations under Div 4 of Pt 25 of the Act delegated to Rosslyn Melva Sumner (“Ms Sumner”) his powers under s 266(1) of the Act in relation to the affairs of the superannuation funds. It was Ms Sumner who signed the notice.

It is convenient at this point to note that I am satisfied on the evidence that the delegation of the Commissioner and the appointments to which I refer in these reasons are all properly made under the Act. No submission to the contrary was ultimately advanced.

Mr Glaser’s response to the notice was, I find, disingenuous.  By letter dated 29 July 1997 he wrote:

“Clearly, Super Benefit Pty. Ltd. is not in this instance “a relevant person” as it refers to in sub section 10 of the Act. Neither does Super Benefit Pty. Ltd. have any control of any of the books relating to the affairs of the stipulated superannuation funds as per your schedule B.

On reflecting on your request and documentation, maybe there has been a misunderstanding in relation to the structure of these trusts, or the understandings of the duties and obligations of Super Benefit Pty. Ltd. as it relates to them.  Certainly, Super Benefit Pty. Ltd. is neither trustee for the super funds nor is it an investment manager of the super funds, nor auditor or actuary.”

Ms Sumner responded by letter dated 8 August 1997 pointing out that Super Benefit is the trustee of the unit trusts and that she was aware that the unit trusts were the major non cash investment vehicle for the superannuation funds, each of which holds all or a large proportion of units in each of the unit trusts.  She added:

“I consider, therefore, that in order to be able to investigate properly, and gain a full understanding of, the affairs of the funds, I need to gain a full understanding of the unit trusts.”

Thus she believed the books relating to the affairs of the unit trusts were relevant to the affairs of the superannuation funds under investigation, and that Mr Glaser as director of Super Benefit as trustee of the unit trusts had custody and control of those books.  She extended to 18 August 1997 the time for compliance with the notice.

At the deadline, by letter dated 18 August 1997, solicitors for Super Benefit and Mr Glaser indicated that they were seeking counsel’s advice on the notice and sought a further extension of time for complying with it.  A further extension was granted to 25 August 1997.  On that date solicitors for Super Benefit wrote indicating that Super Benefit would soon provide limited documentation, being those documents which Super Benefit or Mr Glaser had “determined relate to the relevant Superannuation entity”.  That subjective and personal assessment was proposed as the basis upon which documents would be provided.  Those documents so identified were, with respect to each of the superannuation funds, its application for units in one of the unit trusts and its unit certificate and the register showing its entitlement to those units, advice given to the superannuation fund detailing any distribution of income or capital, and a copy of the standard unit trust deed and of the execution pages for each of the unit trusts.  That information would show, with respect to each of the superannuation funds,  how many units it had in the relevant unit trust, but not its holding of units relative to the other units issued in the unit trust.  It would show the distribution from the unit trust to the superannuation fund only by reason of such holding.  It would not show what assets were held by the trustee of the unit trust from time to time, and in particular it would not show how the funds used to acquire the units were in fact applied by the trustee of the unit trust on behalf of the unit holders.  The letter then asserted on behalf of Super Benefit and Mr Glaser that the balance of the documents sought “... relate to the affairs of the Unit Trusts and do not relate to the affairs” of the superannuation funds and would not be produced.  By letter of the following day, Super Benefit through its solicitors, indicated that Super Benefit anticipated providing that limited documentary material by the end of September 1997.

Not surprisingly, the Commissioner through Ms Sumner was not content with that attitude. On 10 September 1997, the Commissioner by his delegate executed a certificate in accordance with s 289(2) of the Act that he was satisfied that Mr Glaser, as director and secretary of Super Benefit, had without reasonable excuse failed to comply with the notice. That certificate was expressed on the basis of the matters contained in the minute paper signed by Ms Sumner. The minute paper made available information to the Commissioner which indicated that each of the superannuation funds may not be complying with the Act in the manner described above.

It is apparent that without access to certain of the books of the unit trusts, the suspected breaches of the Act in relation to affairs of each of the superannuation funds can not be investigated effectively.

The Commissioner by his delegate certified in accordance with s 289(2) of the Act on 10 September 1997.

This application was thereupon instituted pursuant to s 289 of the Act, which provides:

“(1)This section applies if the Commissioner is satisfied that a person has, without reasonable excuse, failed to comply with a requirement made under this Act.

(2)   The Commissioner may by writing certify the failure to the Court.

(3)If the Commissioner does so, the Court may inquire into the case and may order the person to comply with the requirement as specified in the order.”

Before considering the grounds which Mr Glaser raised as reasons why the Court should not make the order sought under s 289(3) of the Act, I briefly refer to some preliminary matters which require consideration.

Section 289(3) appears to enable, rather than oblige, the Court to inquire into the case following the Commissioner’s certification. It is an expression which appears elsewhere in Commonwealth legislation, including ss 70 and 201 of the Australian Securities Commission Act 1989 (“the ASC Act”), s 536 of the Corporations Law 1991 (“the Law”), s 25 of the Futures Industry Act 1986, and s 19 of the Securities Industry Act 1980.

Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272 involved an application under s 536 of the Law. The concern was as to the rate of fees charged by the liquidator of a company. That section entitles the Court to inquire into the conduct of a liquidator if it appears that a liquidator is not faithfully performing the duties required. The context is, therefore, somewhat different from that of s 289 of the Act. Young J observed in that case (at 273) that it is not in the public interest that any person with a real or perceived grievance against a liquidator should be able to set in train an inquiry simply by the application. His Honour therefore concluded (at 273) that:

“. . . the court must be given some material to suggest that it would be in the public interest to conduct an inquiry.  That means that the complaint of the plaintiffs must put forward material which prima facie satisfies the court of that matter.  Just what will satisfy the court will obviously depend on the circumstances.”

The inquiry was at that point refused, but in the light of further material was granted:  Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 11 ACLC 525 when Young J (at 531) was satisfied that:

“there are sufficient matters prima facie calling for further investigation ...”.

The inquiry sought was the only avenue for those paying the liquidator’s fees to challenge their quantum.

One can well understand in such circumstances that the decision to embark upon the inquiry should require some obstacle to be overcome on the part of the applicant. It is less obvious that any such obstacle is necessary where the applicant is a statutory officer who is required to certify in terms such as those which s 289(2) of the Act requires, unless perhaps where there is some challenge to the bona fides of that officer. That certification requirement also exists in the legislative provisions referred to above. There may be circumstances where such a challenge is made, and supported by some material, such as to warrant the Court determining that issue before undertaking the inquiry contemplated or rather than determining it as part of the inquiry. Whether, in such an investigation, there would be an onus upon the respondent to establish the lack of bona fides is not necessary to decide; cp. W A Pines Pty Ltd v Bannerman (1980) 30 ALR 559 per Brennan J (Bowen CJ agreeing) at 567; Australian Securities Commission v Lucas (1992) 36 FCR 165 per Drummond J at 178. That is because Mr Glaser has not made any such assertion. Indeed, there has been no submission that the Court should not conduct an inquiry under s 289(3) of the Act.

In my view, at least in the absence of any attack upon the bona fides of the certifying officer, the certification itself will generally provide a sufficient reason for the Court to conduct the inquiry contemplated. Given the structure of s 289, if no matter is raised by a respondent in opposition to the inquiry itself, I consider it appropriate to so proceed. In the present circumstances, the nature of the investigation, the fact that it is not contested that the proposed investigation and the giving of the notice were each in good faith, and the contention that the proposed investigation may be impeded or difficult without the documents sought being produced, together provide in any event reasons to conduct the inquiry.

In Lucas (above) the ASC required by notice a member of the auditors of Qintex Australia Ltd and its subsidiaries to produce certain internal audit working papers. The auditor objected in part to produce the documents specified, as those papers could not (it was contended) be said to be required for any purpose contemplated by s 28 of the ASC Act. It was said that the documents sought related to the internal conduct of the audit rather than to the conduct of the affairs of the Qintex group of companies. An application made under s 70 of the ASC Act was successful. Section 70 of the ASC Act is the mirror of s 289 of the Act. Drummond J was confronted with a number of issues, including whether the documents in issue related to the affairs of the Qintex group of companies and whether the notice itself was invalid because it did not explain on its face why the documents were sought, or because the ASC did not prove the facts relevant to the giving of the notice. Drummond J at 176-179 reviewed arguments and authorities on similar legislative provisions on the question of the material necessary to support the validity of a notice. He concluded at 179:

“In my view if the Commission issues a notice that is sufficient in form, it is not under any obligation to prove that the notice was given for a purpose permitted by s 28:  irrespective of the form of proceedings in which that question is put in issue by the recipient of the notice, the notice will stand as a valid exercise of power unless the recipient discharges the onus of proving that the power was not exercised for a purpose expressly authorised by the statute just as he bears the onus of proving that the power was exercised in bad faith.”

I agree with his Honour’s reasons and conclusion. In my view those observations apply with equal force to a notice given under s 269 of the Act. There is no submission to the contrary. I conclude therefore that the notice was a valid exercise of power in respect of an investigation into the affairs of the superannuation funds.

It remains therefore to address the specific grounds upon which it has been contended that the Court should make the order sought, and on the part of Mr Glaser that it should not do so.  It is convenient to address those matters by reference to the issues raised by Mr Glaser.

When this application was first listed for hearing, Mr Glaser attended through counsel to indicate that the application would be resisted and that further time was required to prepare the material in opposition to it. I accordingly adjourned the matter for hearing at a later date upon conditions that, prior to that hearing date, Mr Glaser produce to the custody of his solicitors the documents required by the notice to be produced by him to the Commissioner as were in his custody or control, and authorise in writing his solicitors to produce to the applicant all or any such documents as the Court may, pursuant to s 289 of the Act, direct to be produced to the Commissioner, and for those solicitors to inform the Commissioner’s solicitors as to Mr Glaser’s compliance with those conditions. If those conditions were not complied with, I gave liberty to the Commissioner to call the matter on for further hearing at short notice at a considerably earlier date. There was at the time some perception that Mr Glaser was about to travel overseas and would not have the time available to him to comply with any order before his departure and that any order made after his departure might not lead to the production of documents because of his absence overseas. It seemed to me that the apparently leisurely approach to the production even of the documents which he had proposed to produce was unsatisfactory. In the event, that direction was complied with within the time specified. That matter has not influenced me in deciding the merits of the present application. At that time, I also gave directions for the exchange of affidavits, other evidentiary material, and an outline of submissions, prior to the hearing.

At the hearing Mr Glaser’s two affidavits were read.  They contain a series of assertions or contentions as to why the notice should not be complied with beyond the limited compliance he has offered.  I will deal with them in turn.

It is asserted that Super Benefit at no material time had been the trustee, investment manager, auditor or actuary of any of the superannuation funds. The significance of that factual matter was not developed in the course of submissions. Having regard to the terms of s 269(a) of the Act, I do not think that matter inhibits the making of an order under s 289 of the Act if it is otherwise appropriate.

It is then said that a significant number of the documents required to be produced were “either not in my possession nor had they been prepared”.  Mr Glaser said that he did not have all of the documents required in his “possession” and that:

“Whilst I may have been able to obtain some of the documents not in my possession I would not have been able to do this within the time set out in the Notice.  I had to consider the cost of collating all the documents required.  This would need to be passed on to each unit trust.”

That matter had not been raised in correspondence up to that time.  No practical difficulties as to the time for compliance had been raised.  No issues now arise on that score as the documents are held by Mr Glaser’s solicitors as recorded above.

Mr Glaser further deposed:

“I have been unable to obtain the bank statements, cheque butts and deposit books of each Trust and the Trustee.  (Super Benefit is the trustee.)  These documents are not and have not been in my possession and I have contacted each of the Managers of the Trusts and have requested them to send them to me.  As soon as I have received them I will make them available to my solicitors or to the Applicant if ordered by the Court.

These documents are in the possession and control of the Manager of the Unit Trust which operated in various locations throughout South Australia.  The Mangers operate independently of, and are not related to, the Trustee of the Unit Trusts.”

Under s 269 of the Act, the obligation is to produce such books as are in the “custody or control” of the recipient of the notice relating to the affairs of a superannuation entity, rather than as are in the “possession” of that person.  “Books” are widely defined in s 10 of the Act. Clearly the notice refers to books, as that term is defined. The affidavit does not explicitly claim that the documents sought in the notice were not in the custody or control of Mr Glaser and Super Benefit as trustee of the unit trusts. Indeed, it would be remarkable if the trustee of the unit trusts did not have access to the financial accounts and other financial records of the unit trusts, or records relating to the unit holders of the trust, or records relating to the arrangements between the trustee and the unit trust, or records as to the assets and investments of the unit trusts including who had title to or interests in those assets, depreciation schedules relating to those assets, or to minutes of the meetings of the trustee of the trusts, or the trust deeds. Whilst particular individuals managing particular assets might have had immediate possession of those documents, it is almost beyond belief that the trustee itself would not have custody and control of those records. Any manager must be appointed by the trustee and would be subject to the trustee’s directions. Super Benefit is the trustee of the unit trusts. There is no issue that Mr Glaser controls the Super Benefit. It is a nonsense to say that the trustee does not have custody and control of the bank statements, cheque butts and deposit books of the trusts, nor of its other records. The managers cannot be “independent” of the trustee.  Their status as managers can only exist by appointment made by the trustee and they are subject to the direction of the trustee.  Needless to say, when the matter was ultimately argued before me, those points also were not taken on behalf of Mr Glaser.

Mr Glaser asserted next that in considering whether or not to produce the documents, he had to consider his duty as a director of the trustee of each of the unit trusts to consider whether or not the trustee would be breaching its fiduciary duties to unit holders in producing the documents.  The significance of that particular matter was not developed in submissions before the Court.  The decision in Australian Securities Commission v Zarro (1991) 32 FCR 546 referred to in a little detail below indicates that such an objection should fail in any event. In that case, one issue was whether a bank could withhold documents required to be produced by a notice under s 33 of the ASC Act because of its contractual obligation of confidence to its customer. Spender J concluded at 556-557:

“It is clear from my reasons that I do not regard any contractual obligation of confidentiality as providing any reasonable excuse for non-compliance if a statutory requirement for production of documents exists, nor, in my opinion, does the arguability of the legal position of Westpac provide a reasonable excuse.  If in fact the documents should have been produced pursuant to the statute, the fact Westpac’s position was one of some difficulty and the point of some importance and novelty does not in my opinion constitute a reasonable excuse for non-compliance.”

His Honour followed Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 (“Smorgan’s case”) per Gibbs ACJ at 521 and per Mason J at 536-537. It was not contended on behalf of Mr Glaser that those decisions were erroneous, or that they did not apply to the parallel processes under the Act.

Mr Glaser also deposed to considering whether or not he was legally obliged to produce the documents in any event.  He sought legal advice.  He added that he did not believe it was appropriate to commence collating the documents without having obtained this advice from his solicitors.  Whilst it was of course entirely appropriate for him to consider his legal obligations, and to seek legal advice with respect to them, that is no reason why he should not have commenced to collate the documents before receiving that advice.  The applicant allowed him some time to do so.  Presumably his advice was not to produce the documents, as reflected by the correspondence referred to above, except to a limited extent.  In fact, he deposes to having commenced collating the documentation which his solicitors had indicated he would produce by their letter of 25 August 1997 following the receipt of their advice.  Up to that point, the main reason identified in correspondence for him not producing documents was that, in his judgment, they were not relevant to the superannuation funds.  There is now no room for legitimate complaint that he has not had the opportunity to seek advice, or that the time to assemble the documents allowed to him up to the time of these proceedings was inadequate.

Mr Glaser’s second affidavit also indicates that there are no audited financial accounts, nor any agreements in writing apparently between Super Benefit and the unit trusts.  The earlier affidavit had deposed also that there were no trial balances of the nature sought in the notice.  Of course, if documents do not exist then it is an entirely proper response not to produce them.  That those categories of documents did not exist had not earlier been expressed in correspondence with the Commissioner.

The grounds upon which the orders sought under s 289 of the Act ultimately were resisted as identified in the outline provided by Mr Glaser, in accordance with my directions, were as follows:

“1.The Notice of the Applicant of 21st July 1997 was not properly authorised under the provisions of Section 269 of the Superannuation Industry (Supervision) Act 1993, by virtue of the failure to comply with Section 263 of that Act.

2.The books required to be produced, other than those agreed to be produced as set out in our letter of 25th August 1997, do not relate to the affairs of the funds referred to in the Schedule of the Notice.

3.In all the circumstances, it is not reasonable that the Court should make the Orders sought.”

At the hearing, ground 1 was abandoned.

The power to issue the notice is contained within, and also limited by, the provisions of s 269 of the Act. It provides:

“For the purposes of an investigation of the whole or a part of the affairs of a superannuation entity, an inspector may, by written notice given to a person who:

(a)   is a relevant person in relation to the entity; or

(b)the inspector believes on reasonable grounds has the custody or control of any books relating to those affairs;

require the person to produce all or any of those books to the inspector.”

The fundamental question is whether the documents relate to the affairs of the superannuation funds.  In my view that is a matter which the Court must determine objectively:  Zarro (above, at 554). If that were not so, the function of the Court in its inquiry would be quite insubstantial in the absence of any challenge to the bona fides of the Commissioner. I turn to consider that question.

There is only one case of which I am aware which considers s 289 of the Act. In Insurance and Superannuation Commissioner v Robertson (1995) 95 ATC 4225 Kiefel J made an ex parte order under s 289(3) of the Act, after determining that the notice under s 269 did relate to the affairs of the superannuation entity. The notice specifically referred to books concerning the financial affairs of the superannuation fund then under investigation. The order made was similarly so confined. It does not appear therefore to have been an issue whether the notice referred to books relating to the affairs of the superannuation fund in question. It demonstrably did so in its terms. Thus, that decision did not need to address the present issue.

The scope of s 269 must be determined having regard to its function in the Act. Both ss 269 and 289 appear in Pt 25 of the Act. The objects of Pt 25 include authorising the Commissioner to conduct an investigation of the affairs of a superannuation entity: s 253(c). The general powers given for that purpose are then enumerated. Sections 264 and 268-275 provide various means to obtain books relating to the affairs of a superannuation entity including by entry on premises, by obtaining warrants to search premises, and by conducting examinations of relevant persons (as defined). That those powers are extensive is self evident. Clearly, the Act contemplates that there will be occasions when an investigation will require procuring documents or information beyond the particular superannuation fund or those directly associated with it.

That is also indicated by s 269 itself. There are two categories of persons to whom a notice under s 269 of the Act may be directed. The first category is a “relevant person” as defined in s 10. Such persons include a trustee or an investment manager of a superannuation fund or its auditor or actuary. As a class, they are clearly persons who would necessarily be directly involved in the affairs of the superannuation fund. A notice under s 269 of the Act may be given to any such persons as of right. The second category, namely persons who the inspector believes on reasonable grounds has the custody or control of any books relating to the affairs of the superannuation fund, is obviously intended to permit the casting of a wider net. It can only be cast if the inspector has a certain belief, being a belief on reasonable grounds, on those matters. It is clearly a provision to enable the inspector to pursue the getting of books relating to the affairs of a superannuation fund beyond those who are, in some way or another, directly involved in its affairs. It recognises that, to properly conduct an examination, it may be necessary to seek materials beyond those who would hold the primary records of the superannuation fund.

Furthermore, having regard to the potential range of matters which may be the subject of an investigation, it is self evident that an investigation may need to extend beyond the primary records of the superannuation fund.  For example, if the suspicion of the Commissioner in this instance is correct, it would be pointless if the inspector to explore that suspicion could not go beyond those primary records.  That is, in effect, what the submission is on behalf of Mr Glaser.  It would cut off the investigation at the point where the fund has invested in units in a unit trust without being able to explore how, if at all, the trustee of the unit trust has applied those funds invested in units in it.  The money trail or the paper trail could not be followed.

The proper scope of the books which relate to the affairs of the superannuation fund, in my view, is to be determined by reference to the nature of the investigation. Provided the investigation is a legitimate one under the Act, the nature of that investigation will effectively define what books are properly sought as relating to its affairs. The present case involves a series of complying superannuation funds, by which status they each are eligible for concessional taxation treatment. There are a number of prescriptions or standards to be met before such a fund so qualifies. One of those prescriptions or standards is compliance with the in-house asset rules referred to above. The question whether the funds do meet those prescriptions on standards in fact is clearly one relating to its affairs. It is of the essence of the nature of the fund. Consequently, it follows that whether there is ongoing compliance with those prescriptions or standards equally is a matter relating to its affairs.

In Australian Securities Commission v Dalleagles Pty Ltd (1992) 36 FCR 350, whilst acknowledging that investigative powers must be limited by their legitimate statutory functions: S A Brewing Holdings Ltd v Baxt (1989) 89 ALR 105, French J at 358-359 added:

“It is, however, a minimum requirement of the statutory policy that the investigative power be effective.”

Both Lucas (above) and Zarro (above) concerned provisions in the ASC Act similar to s 269 of the Act. In Lucas, Drummond J at 184 described the concept of the affairs of a corporation as “a very wide one indeed” and plainly measured the legitimate scope of the pursuit of documents by reference to “live issues in the investigation” (at 185).  In Zarro, Spender J was satisfied that objectively the documents sought did relate to the affairs of at least one of the corporations under investigation because they were likely to afford some evidence on the question of whether a director, about whose dealings with the bank its records were sought, stood to benefit personally from the corporate movement of funds in a number of entities. It is clear that each of those decisions was influenced by the statutory definition of the affairs of a body corporate in s 53(a) and (g) of the Law. No similar definition avails the Commissioner under the Act. Nevertheless, the purposive measure for determining whether the documents sought related to the affairs of the corporations is a significant part of the reasoning.

As Kiefel J did in Robertson’s case (above), I consider that to some degree cases relating to s 264 of the Income Tax Assessment Act 1936 (Cth) (“the ITAA”) and to s 155 of the Trade Practices Act 1974 are also helpful on this question.

Section 264(1) ITAA relevantly provides that the Commissioner of Taxation may:

“. . .  by notice in writing require any person, whether a taxpayer or not, . . .

. . .

(b)to attend and give evidence . . . concerning his or any person’s income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.”

In Smorgon’s case (above), Mason J at 536 said of the scope of that power:

“There is simply no basis for the implication of such a limitation.  The strong reasons which inhibit the use of curial processes for the purposes of a “fishing expedition” have no application to the administrative process of assessing a taxpayer to income tax.  It is the function of the Commissioner to ascertain the taxpayer’s taxable income.  To ascertain this he may need to make wide-ranging inquiries, and to make them long before any issue of fact arises between him and the taxpayer.  Such an issue will in general, if not always, only arise after the process of assessment has been completed.  It is to the process of investigation before assessment that s. 264 is principally, if not exclusively, directed.”

It is also unnecessary to set out in full s 155 of the Trade Practices Act 1974.  It relevantly provides that if the Commission:

“. . . has reason to believe that a person is capable of . . . producing documents . . . relating to a matter that constitutes, or may constitute a contravention of . . .”

that Act, then a notice may be given requiring a person to produce such documents.

In Melbourne House of Ford Pty Ltd v Trade Practices Commission and Bannerman (No. 3) (1980) 31 ALR 519, one question was whether the documents required to be produced under s 155 of that Act related to the suspected contravention. The Court (Brennan, Keely and Fisher JJ), after pointing out that the Chairman of the Trade Practices Commission was, in giving a notice under s 155, engaged in a function of investigation rather than of proving an allegation, said at 529-530:

“The power conferred by s. 155(1) is in aid of that function and is a power which authorizes inquiries both wide in scope and indefinite in subject matter. It is an investigative power which is under consideration here and it is not possible to define a priori the limits of an investigation which might properly be made.  The power should not be narrowly confined.”

It is against the yardstick as identified above that I propose to consider whether, judged objectively, the documents specified in the notice relate to the affairs of the superannuation funds. It is plain that if the documents specified do not exist, the Court will not order their production; the power under s 269 does not extend to obliging a person to bring into existence a document: Perron Investments Pty Ltd v Deputy Federal Commissioner of Taxation (1989) ATC 5038, a decision under s 264 ITAA accepted by the applicant in this matter as applying with equal force to s 289 of the Act. On the evidence, there are no audited financial accounts of the unit trusts for the 1994-1995 or 1995-1996 financial years, nor trial balances for the unit trusts for the 1996-1997 financial year.

The nature and purpose of the investigation involves the need to follow the money trail of the contributions into the superannuation funds through the unit trusts to identify their ultimate investment destination and the relationship, if any, between the employer and that destination. I have concluded that that investigation is a proper one under the Act. In my view it follows that documents which would disclose that picture relate to the affairs of the funds in the relevant sense. If they do not, then that investigation may prove to be frustrated. In the absence of audited financial accounts, or trial balances, one means of ascertaining the assets of the unit trusts, is by reference to bank statements, cheque butts and deposit books of the bank accounts of the unit trusts which show its transactions and accruals in those accounts for the three financial years mentioned. As it is suspected that the subscription for units in the unit trusts by the superannuation funds represents largely the assets of the unit trusts, and that those assets were then largely applied to the benefit of the employer, such records will show the inflow of funds and their application. Similarly, asset registers of the superannuation fund which would disclose its assets and documents revealing in whose name those assets are registered also would enlighten that picture. As the in house asset rule is defined by a percentage, depreciation schedules of the assets of the unit trusts relating to those assets in my view also relate to the affairs of the superannuation funds. It is also necessary to know not simply the unit holding of the superannuation funds in the unit trusts, but the wider unit holders simply to determine the extent to which a particular superannuation fund had an interest in, and the capacity to determine upon, the affairs of the particular unit trust. The remaining documents sought, namely any agreements between Super Benefit and any of the superannuation funds or its members or trustees, trustees minutes for the unit trusts, and the trust deeds of the unit trusts (which have already been offered to be produced), all are documents which relate, in the relevant sense, to the affairs of the superannuation funds. The investigation is in the context of the unit trusts being, in a sense, ‘purpose built’ to implement the purpose identified.  They are not believed to be unit trusts of which the units issued to the superannuation funds were but a small percentage of the units issued.  Those documents in my view are clearly relevant to the nature and extent of any such plan.

Accordingly, in my view, in the present circumstances the notice does require the production of books by Mr Glaser in circumstances where Ms Sumner believes on reasonable grounds that Mr Glaser has custody or control of those books which relate to how the monies contributed to the funds have in fact been applied, and believes on reasonable grounds that their application or investment through the unit trusts and in the particular circumstances means that the prescriptions or standards for the eligibility of the funds as complying superannuation funds are not met.  As noted above, there is no dispute that Ms Sumner’s belief to which she deposes is other than a bona fide one, nor that it is a belief based on reasonable grounds.

There remains the contention that, having reached that point, the making of an order is discretionary and I should not order Mr Glaser to comply with the notice.  As I understood the submission, the factors said to militate against making such an order were the onerous nature of the requirement in the notice, the fact that some documents were offered to be produced and the reasonableness of that response.  I have considered those matters.  In the particular circumstances, I do not think that they provide a reason not to make the orders sought either taken individually or together.  Whilst a notice in similar terms to a different unit trust may well be very onerous in its terms, so that the Court might decline an order or might endeavour to refine an order to make it easier of compliance, I do not think such action is called for here.  There is no evidence to indicate with any specificity that the material sought will in fact be voluminous, or that it is far reaching beyond what is reasonably capable of disclosing the money trail under investigation.  That may be because the unit trusts are each of the refined and limited nature which the applicant suspects.  The apparent breadth of par 3 of the notice does not lead me in the circumstances to the conclusion that I should not make the order sought, or make a more limited order.  The other documents sought in the notice are not, on their face, potentially so extensive.  I see no reason to decline an order because of the terms of the notice relating to them.  I do not regard Mr Glaser’s responses to the notice as providing a reason not to make an order.  It was not ultimately argued, despite his early response by letter, that he was entitled to arrogate to himself the determination of which documents the subject of the notice related to the affairs of the superannuation funds.  In my reasons above I have referred to, and commented upon, his responses to the notice from time to time.  It is enough for present purposes that I observe that the matters put on his behalf on this point do not lead me to the conclusion that I should not make an order.

Finally, at one point, the submission on Mr Glaser’s behalf asserted that the time allowed for compliance with the notice was inadequate.  In Perron Investments (above) that matter was ventilated.  I do not regard the time allowed to Mr Glaser to comply with the notice, as extended from time to time at his request, to have been unreasonable.  That is sufficient to dispose of that point.  I note, in addition, that the direction when the application was first adjourned has led to the documents required to be produced being provided to Mr Glaser’s solicitors, at least so far as they exist.  That circumstance would generally mean that any complaint about adequacy of time to comply with a notice, at an earlier point of time, would not lead to a refusal to make an order where it was otherwise appropriate.  I regard that as an additional reason why that consideration does not lead me to decline the order sought.

I order pursuant to s 289(3) of the Act that, within three days of the date of this order, Mr Glaser comply with the notice to the extent that documents identified or described within it existed as at 21 July 1997, namely that he produce to the applicant as directed in the notice any documents as specified in pars 3-9 of the notice as are within his custody or control. I have not made an order in respect of the documents specified in pars 1-2 of the notice as the evidence is that no such documents exist.

I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate:

Dated:             4 December 1997

Counsel for the Applicant:	Ms S Maharaj with her Mr R Chrzaszcz
Solicitors for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr T Murphy with him Mr G Arthur
Solicitors for the Respondent:	Mellor Olsson
Date of Hearing:	22 September 1997
Date of Judgment:	4 December 1997