MacDonald v Australian Securities Commission

[1993] FCA 594

NEIL ALLAN MACDONALD and CHERYLL DIANA MATTHEWS v. AUSTRALIAN SECURITIES
COMMISSION
No. G3041 of 1993
FED No. 594
Number of pages - 6
Corporations Law
(1993) 11 ACLC 804
(1993) 11 ACSR 128, (1993) 116 ALR 514
(1993) 30 ALD 71
(1993) 43 FCR 466

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
DAVIES J

CATCHWORDS

Corporations Law - validity of notice to produce specified books of a company under s.30 of the Australian Securities Commission Act 1989 (Cth) - whether sufficient identification of nature of matter under investigation and of entitlement to require production.

Australian Securities Commission Act 1989 (Cth) ("the ASC Law")

Federal Commissioner of Taxation v. The Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499

Johns v. Connor (1992) 35 FCR 1

Johns v. Australian Securities Commission (1992) 35 FCR 146

Australian Securities Commission v. Lucas (1992) 7 ACSR 676,

HEARING

SYDNEY, 8 July 1993

#DATE 30:7:1993

Counsel for the applicant: T. Tobin QC and T. Golding

Solicitors for the applicant: M. Freidman

Counsel for the respondent: G.T. Johnson

Solicitors for the respondent: Mr B. Sidhu of the

Australian Securities Commission

ORDER

THE COURT ORDERS THAT:

1. The two notices served upon the Applicants under s.30 of the Australian Securities Commission Act 1989 be set aside ab initio.

2. The respondent pay the costs of the application.

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

JUDGE1

DAVIES J The applicants, Neil Allan MacDonald and Cheryll Diana Matthews, seek orders of review with respect to notices served on them under s.30 of the Australian Securities Commission Act 1989 (Cth) ("the ASC Law").

1. Relevant provisions of the ASC Law provide:-
   

"13(1) The Commission may make such investigation as it thinks expedient for the due administration of a national scheme law of this jurisdiction where it has reason to suspect that there may have been committed:

(a) a contravention of a national scheme law; or

(b) a contravention of a law of the Commonwealth or of a State or Territory, being a contravention that:

(i) concerns the management of affairs of a body corporate; or

(ii) involves fraud or dishonesty and relates to a body corporate, securities or futures contracts." "14(1) Where, in the Minister's opinion, it is in the public interest in respect of this jurisdiction for a particular matter to which subsection (2) applies to be investigated, he or she may by writing direct the Commissioner to investigate that matter. 14(2) This subsection applies to a matter relating to any of the following, whether occurring, or alleged to have occurred, within this jurisdiction or elsewhere: ...

(c) the affairs, or particular affairs, of a corporation;

..."

"28 A power conferred by this Division (other than sections 29, 35 and 36) may only be exercised: ...

(d) for the purposes of an investigation under Division 1."

"30 The Commission may give to:

(a) a body corporate that is not an exempt public authority; or

(b) an eligible person in relation to such a body corporate;

a written notice requiring the production to a specified member or staff member, at a specified place and time, of specified books relating to affairs of the body."

1. Regulation 5 of the Australian Securities Commission Regulations ("the ASC Regulations") provides that a notice under s.30 must be in accordance with Form 2. Form 2 in Schedule 1 to the ASC Regulations provides:-
   

"AUSTRALIAN SECURITIES COMMISSION REGULATIONS Australian Securities Commission NOTICE REQUIRING THE PRODUCTION OF BOOKS To:

In relation to an investigation of 2 you are hereby notified that, under section 30/subsection 31(1) subsection 32(1) section 33 of the Australian Securities Commission Act 1989, you are required to produce to at on the following books: 8

Dated

Signature of person requiring

the production of books:

"1 insert full name and address of the person to whom the notice is to be given 2 insert the nature of the matter to which the investigation relates 3 strike out or delete if inapplicable 4 insert the full name of the person to whom the books are to be produced

5 insert time of day

6 insert date

7 insert full particulars of the address of the place at which the books are to be produced 8 insert description(s) of the books that are to be produced"

1. The notice served upon each of the applicants read, inter alia:-
   

"In relation to an investigation of the affairs of Project Equity Finance Limited ('Project') during the period from 2 August 1989 to 12 February 1993 you are hereby notified that, under Section 30 of the ASC Law you are required to produce to John Gerard Quirk at 2:00 p.m. on Friday, 26 February 1993, at Level 10, 135 King Street, Sydney, in the State of New South Wales, the books specified in Annexure A relating to the affairs of Project."

...

Annexure A

...

1. The following books that relate to the affairs of Project
   

during the period from 2 August 1989 to 12 February 1993:-

1. All books which were contained in a box sent by courier from United Accounting Group to Project Equity Finance Limited at a North Sydney address on or about 7 April 1992, including but not limited to:

(a) Statutory records

(b) Cash books

(c) Bank statements

(d) Cheque butts

(e) Cheque books

(f) Folders of receipts

2. All books of Project required to be maintained by the Code and/or the Law including but not limited to:

(i) Register of directors, principal executive officers and secretaries

(ii) Register of directors shareholdings

(iii) Register of charges

(iv) Register of members

(v) Minute books

(vi) Accounting records, including but not limited to:

(a) Cash payments books and cash receipts books

(b) General ledgers

(c) Debtors ledgers

(d) Creditors ledgers

(e) General journals

(f) Sales Journals

(g) Purchases journals

(h) Stock inventories

(i) Wages books

(j) Balance sheets

(k) Profit and loss accounts

(l) Cheque books, cheque butts

(m) Bank deposit books

(n) Bank statements

(o) Invoices

3. All books being diaries maintained by you in your capacity as an officer and/or employee of Project.

4. All books being correspondence between Project and any other party concerning the financial affairs of Project.

5. All books being correspondence between Project and the shareholders of Project relating to the holding of any meeting of the members of Project.

6. Copies of any Annual Returns of Project or any drafts of such reports."

1. It is not in dispute that the Australian Securities Commission ("ASC") was undertaking an investigation by reason of a suspicion that there may have been, in relation to the affairs of Project Equity Finance Limited ("Project"), a contravention as specified in s.13(1) of the ASC Law. The first issue, however, is whether the description of the inquiry by the words "In relation to an investigation of the affairs of Project Equity Finance Limited" was a sufficient description of "the nature of the matter to which the investigation relates", as required by Note 2 to Form 2 of the Regulations, a requirement which would in any event be implied by law into the exercise of a power such as that conferred by s.30.

2. Provisions such as s.30 are interpreted as requiring the giver of the notice to identify in the notice, expressly or by necessary inference, the information or documents which are sought and the matter or matters within the concern of the giver of the notice to which the information and the documents sought relate. Such identification should enable the recipient of the notice to perceive that the giver of the notice is entitled to require the production of the information or documents demanded therein. As Gibbs ACJ said in Federal Commissioner of Taxation v. The Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 525:-
   

"To be valid a notice to produce documents under s.264(1)(b) must of necessity identify with sufficient clarity the documents which are required to be produced. However the notice must in my opinion go further: it must show the person to whom it is addressed that any document which he is required to produce is one whose production the Commissioner is entitled to require."

The general principle is now so well settled that it is sufficient that I refer to some of the cases, such as Melbourne Home of Ford Pty Ltd v. Trade Practices Commission (No. 2) (1979) 40 FLR 428; Davenport v. Trade Practices Commission (1983) 47 ALR 505; Bannerman v. Mildura Fruit Juices Pty Limited (1984) 55 ALR 367; SA Brewing Holdings Ltd v. Baxt (1989) 89 ALR 105; Deveson v. Australian Broadcasting Tribunal (1991) 104 ALR 331; Johns v. Connor (1992) 35 FCR 1; Johns v. Australian Securities Commission (1992) 35 FCR 146.

1. In the present case, the notice described the nature of the inquiry as an investigation of the affairs of Project Equity Finance Limited. However, the word "affairs" is an extremely wide term, as shown by the matters specifically mentioned in s.53 of the Corporations Law. Ordinarily, if a possible contravention of a law is brought to the attention of the ASC and if the ASC thinks it expedient to make an investigation, it will not be an investigation into the affairs generally of the corporation. The ASC has limited functions which do not include the general supervision of the affairs of corporations.

2. Under s.13, an investigation may be initiated where there is reason to suspect a contravention of a relevant law and in such investigations, the ASC may inquire into such matters as it thinks expedient "for the due administration of a national scheme law." This is a limited function, notwithstanding that under s.50 of the ASC Law the ASC may institute a civil proceeding in a person's name if, as a result of an investigation it has undertaken, it appears to the ASC to be in the public interest for that person to begin and to carry on civil proceedings. Similarly, under s.260 of the Corporations Law, the ASC may institute a proceeding where it has conducted an investigation under ss.13 or 14 of the ASC Law, seeking a remedy in the case of oppression or injustice. There are other like powers.

3. Section 14 of the ASC Law confers upon the Minister a power to direct an investigation into "(c) the affairs, or particular affairs, of a corporation". If the Minister directs an investigation into the affairs of a corporation, then that will establish the ambit of the investigation undertaken by the ASC. But that is not usually the ambit of an investigation undertaken under s.13.

4. There have been cases before this Court in which no issue was raised as to the invalidity of a notice on the ground that it described the investigation as one into the affairs of a named corporation. See, for example, Australian Securities Commission v. Lord (1991) 6 ACSR 350 and Australian Securities Commission v. Zarro (1991) 6 ACSR 385. In Australian Securities Commission v. Lucas (1992) 7 ACSR 676, Drummond J held that such a notice sufficiently complied with s.30.

5. In my opinion, Australian Securities Commission v. Lucas should be regarded as a decision on its own facts and on the submissions put to the learned Judge. The reasoning of Drummond J drew a distinction between s.30, which states no requirement for the written notice other than that it require the production to a specified member of staff member at a specified time and place of specified books relating to the affairs of the body, and a section such as s.19 which, by s.19(3), specifically requires that the notice should "(a) state the general nature of the matter referred to in sub-section 1(1)", a reference back to the matter which the ASC is investigating or is to investigate. However, regulation 5 and the prescribed form require that the matter be stated in a notice given under s.30. Moreover, s.30 contains no relevant difference in this respect from s.264 of the Income Tax Assessment Act 1936 (Cth) which was the subject of the consideration of the High Court of Australia in Federal Commissioner of Taxation v. Australia and New Zealand Banking Group Ltd. What was said in that case governs the interpretation of all provisions such as s.30, absent provisions in the statute which express a contrary intention or from which a contrary intention should necessarily be inferred. No such a contrary intention can be inferred from the mere absence in s.30 of the requirement which is expressly stated in s.19. It is a principle of the law that such a notice should make it clear to the person on whom it is served that the giver of the notice is undertaking an inquiry which the giver is empowered to undertake and that the documents required to be produced are relevant to that inquiry.

6. In Johns v. Connor, which considered a notice issued under s.19(3) of the ASC Law, Lockhart J held that a description of the inquiry in the terms "In relation to a investigation into the affairs of Hotel and Immobilen Development A.G.", was too wide. As his Honour said at 12:-
   

"'Affairs' is a word of very wide import. In its ordinary meaning 'affairs' in relation to a corporation includes the activities, business or concerns of the corporation."

At 14, his Honour said:-

"In my opinion, the notice does not state the 'general nature of the matter referred to in subsection (1)' as required by s.19(3). It says nothing about any possible contravention that some company or person may have committed or the particular 'affairs' that are the subject of investigation."

1. Subsequently, the judgment of Lockhart J was approved by Black CJ and von Doussa J in Johns v. Australian Securities Commission (1992) 35 FCR 146. That case concerned the validity of notices issued under various sections of the Act including ss.30 and 33 of the ASC Law, as to which see p 200. Black CJ and von Doussa J held that the description "In relation to an investigation of the Tri-Continental Group of Companies" was adequate, but only because there had been a direction from the Minister under s.14 requiring the ASC to investigate the affairs of the Tri-Continental Group of Companies. Their Honours held that such a notice would have been invalid had the investigation undertaken by the ASC been an investigation under s.13. At 168, their Honours said:-
   

"The notices given by Ms Megay do not identify possible breaches of the previous law by one or more of the directors of Tricontinental as the subject matter of the investigation. The notices given to Mr Johns and others do not comply with the requirements of Pt 3 of the ASC Law if the investigation in connection with which they were given is an investigation conducted under s 13 into possible breaches of the previous law: see Johns v Connor (supra). A matter into which investigation is made under s 13 will be the possible contravention of a specific law and a proper description of that matter in a notice given under s 19 will usually include a reference to that law. However a matter into which investigation is made under s 14 may not be so limited. For example a matter to be investigated under s 14(1) may, by s 14(2)(c), be 'a matter relating to ... the affairs, or particular affairs, of a corporation': see Australian Securities Commission v Graco ..." (the emphasis is mine)

Their Honours therefore approved the judgment of Lockhart J in Johns v. Connor and of Jenkinson J in Australian Securities Commission v. Graco (1991) 29 FCR 491, in which latter case the investigation was under s.14. In my own reasons in Johns v. Australian Securities Commission, I held that the description of the inquiry under s.14 was too wide, as in my view the ASC was not, in accordance with the Ministerial direction, conducting an inquiry into the affairs of the Tri-Continental Group of Companies.

1. Although the remarks of Black CJ and von Doussa J were obiter, they provide clear guidance which, in my opinion, I must apply rather than Australian Securities Commission v. Lucas. I would add that two cases cited by Drummond J do not support his Honour's conclusion on this point. In Phillips v. Corporate Affairs Commission (SA) (1986) 11 ACLR 182, the notice contained the statement "Take notice that the requirement contained herein for the purpose of ensuring compliance with s.267(1)(a) and/or s.267(1) of the Companies (SA) Code." In Salter v. National Companies and Securities Commission (1989) 13 ACLR 253, the notice contained the information "having reason to suspect that Peter Lindley Salter has contravened s.227(1) of the Companies (WA) Code in relation to Baysington Pty Ltd and Mt Kersey Mining Ltd". Therefore, both notices limited the ambit of the inquiry and thus accorded with the observations of Black CJ and von Doussa J in Johns v. Australian Securities Commission. It is apparent that the argument put to Drummond J addressed a different point, and I would so read his Honour's judgment.

2. As the notices did not in this case state the nature of the matter to which the ASC's investigation related, they were invalid and should be set aside.

3. The next issue arises from the terms of par.I of Annexure A of the notices. Annexure A commenced by referring to "The following books that relate to the affairs of Project" and Par.I specified "All books which were contained in a box sent by courier from the United Accounting Group to Project Equity Finance Limited at a North Sydney address on or about 7 April 1992." This raises an issue similar to that considered by Stephen J at first instance, and by Gibbs CJ, Mason and Jacobs JJ on appeal, in Federal Commissioner of Taxation v. The Australia and New Zealand Banking Group Ltd. It was pointed out by their Honours that the Commissioner of Taxation was not legally entitled to require the production of all the contents of a specified box or the documents therein, but only such of them as related to a person's income or assessment. See, for example, Mason J at 536-7. Their Honours accordingly held that several of the notices were invalid, but their Honours upheld two of the notices given to the Bank. Those notices limited the documents sought to those relating to the income or assessments of named persons and then went on to assert that the class consisted of all the documents in the box. Their Honours considered that this was sufficient in form. In my opinion, the present notices are similar for they identified the class by reference to the affairs of Project and the investigation into the affairs of Project and they impliedly asserted that the documents described in par.1 were within that class.

4. Accordingly, I would not uphold the specific challenge to par.1.

5. The next issue arises from par.2 of the notice, which opened with the words "All books of Project required to be maintained by the Code and/or the Law including but not limited to". Various documents were then listed.

6. In my opinion, this description was not a description "of specified books", as required by s.30. The words "required to be maintained by the Code and/or the Law including but not limited to" should have been omitted and the word "being" should have been substituted therefor. What s.30 requires is that the documents be specified so that they can be identified and produced, whereas to specify a duty to maintain books is not to specify books. There is, in fact, no provision of the Code or of the Law which specifies precisely what books have to be kept. For example, s.289 of the Corporations Law requires that a corporation keep "such accounting records as correctly record and explain its transactions (including any transactions as a trustee) and financial position". A recipient of a notice will not necessarily be aware of what s.289 provides or requires. As non-compliance with a notice is an offence, a recipient should be given a clear direction as to precisely what books are required to be produced. This is clearly intended by s.30 which provides that the notice shall nominate "specified books".

7. In my opinion, par.2 was uncertain and embarrassing and should be struck out. The notices should have specified the books to be produced. Once the specified books had been produced, the ASC may have undertaken the task of determining whether the documents produced were all those required to be maintained by Project and whether the books complied with the Code and the Law. But it cannot have been the task of the recipient of the notice to deal with that issue.

1. Paragraph 4 was challenged on the ground that the documents demanded therein were not sufficiently specified. However, the description appears to me to be adequate to satisfy that requirement, although I would agree that the description "concerning the financial affairs of Project" is undesirably wide.

2. Challenge was made to paragraphs 3, 4 and 5 of the notices on the basis that they were so wide that the documents sought could not possibly have been the subject of an investigation by the ASC. Such evidence as there is before the Court suggests that the investigation commenced because of the failure of Project to file annual returns. In this context, the paragraphs seem to go to extraordinary lengths.

3. As the objection reflects the challenge made to the description of the nature of the investigation, my comments in relation to that are sufficient to deal with this further challenge. However, I should add that the s.30 power is not unlimited and that the manner of its exercise should not be excessive; as to which, see Mason, Murphy, Brennan and Deane JJ in O'Reilly v. Commissioners of State Bank of Victoria (1983) 153 CLR 1 at 48. In Riley McKay Pty Ltd v. Bannerman (1977) ATPR 17,403, Bowen CJ at 17,408 warned that the Commission should "administer the Act in such a way as not to impose upon a person or company a burden completely disproportionate to the value to the Commission of the information sought." Further, in Federal Commissioner of Taxation v. Australia and New Zealand Banking Group Ltd, at 508, Stephen J observed that, to call for documents when the giver of the notice was uncertain as to whether they were within the ambit of his power, "is necessarily to hazard or, indeed render probable, an excessive exercise by the Commissioner of his power." In the absence of an inquiry into the whole of the financial and other affairs of Project, including the holding of meetings of the members of Project, I would incline to think that the paragraphs were excessive. Of course, the ASC would be entitled to investigate matters justifying pars. 3, 4 and 5 if, by reason of suspecting a relevant offence, the ASC considered it expedient to do so.

4. Counsel for the ASC submitted that regulation 5 was invalid as being inconsistent with s.30. However, the regulation was authorised by s.251 of the ASC Law and it was not inconsistent with s.30. It merely made express a requirement which the law implied into s.30. Counsel also submitted that the failure to state the nature of the matter to which the investigation related was a mere insubstantial defect of form. However, the requirement is an important one and failure to comply with it is a defect of substance.

5. For the reasons I have given, I am of the view that the two notices given under s.30 of the ASC Law were invalid and should be set aside ab initio. The respondent should pay the costs of the application.