Maldonfield Pty Ltd v Office of Fair Trading and Business Affairs
[1999] VSC 522
•14 December 1999
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Do not Send for Reporting Not Restricted
No. 5369 of 1999
| MALDONFIELD PTY LTD | Plaintiff |
| v | |
| ASSISTANT DIRECTOR, OFFICE OF FAIR TRADING AND BUSINESS AFFAIRS | First Defendant |
| and | |
| JOHN BAKER-SMITH, GRAHAM GREENBERGER AND PETER CARRIGAN | Second Defendants |
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JUDGE: | Nathan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 November 1999 | |
DATE OF JUDGMENT: | 14 December 1999 | |
CASE MAY BE CITED AS: | Maldonfield Pty Ltd v Office of Fair Trading and Business Affairs & Ors | |
MEDIA NEUTRAL CITATION: | [1999] VSC 522 | First Revision 8/2/2000 |
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Motor Car Traders Act 1986 – ss.30, 31 – Natural Justice – Administrative law – Tribunal’s power to disqualify unfit company director – no specific notification of prospect of disqualification
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr I.R. Jones | Darrell Nelson & Co |
| For the First Defendant | Mr D.M. McDonald | Office of Fair Trading and Business Affairs |
| For the Second Defendants | No appearance |
TABLE OF CONTENTS
THE PARTIES.............................................................................................................................................................................. 1
SOME HISTORY......................................................................................................................................................................... 2
PARTICULARS OF THE GROUNDS FOR HOLDING THE ENQUIRY................................................................. 3
THE TRIBUNAL'S FINDINGS............................................................................................................................................... 4
THE GROUNDS OF APPEAL................................................................................................................................................. 6
PROCEDURAL FAIRNESS..................................................................................................................................................... 6
ALLEGED AFFRONT TO NATURAL JUSTICE............................................................................................................. 8
COMPLIANCE WITH THOSE RULES.............................................................................................................................. 8
SECTION 32(2)(F)..................................................................................................................................................................... 10
THE INTENTION TO EXCLUDE THE RULES OF NATURAL JUSTICE REQUIRING PERSONAL NOTIFICATION......................................................................................................................................................................................................... 10
RESOLUTION OF THE DILEMMA.................................................................................................................................. 13
HIS HONOUR:
Where does justice lie when the protection of a private right conflicts with the public interest? This ancient and often confronted dilemma is the central issue of this appeal. It stems from the decision of the Victorian Civil and Administrative Tribunal ("the Tribunal") which licenses used car dealers. It disqualified Mrs Schumann a company director of a used car merchant from holding a licence without charges being specifically laid against her.
The parties
Maldonfield Pty Ltd, the first plaintiff, was at the material times a licensed motor car trader under the terms of the Motor Car Traders Act 1986 ("the Act"). It was authorised to trade from yards in Richmond, Fawkner, Coburg and finally, back at Richmond. It traded under the business name of MM Car Sales and from 1998 as Richmond Car Traders. Over the years there were a number of directors of the company, some of whom are of no concern in this appeal but two are. The first is Michael Italiano who was a director from February 1996 until his resignation from that position in 1998 after the Assistant Director and first named defendant instituted an application for the holding of an inquiry (as to its fitness to trade), pursuant to the Act s.30. The second is Italiano's wife, Marianne Schumann. She is now the sole director of Maldonfield but has been a director of the company since April 1993. I granted leave for her to appear on the appeal before me. I was of the view that all critical and interested parties should be heard at the one time and place, particularly in respect of matters which affect economic livelihood. As will appear, it is the private interests of Marianne Schumann which furnish one horn of the dilemma to which I have referred.
The first named defendant is the assistant director of a statutory body charged with insuring the maintenance of proper ethical and proprietary standards amongst retailers and for the protection of the public interest, that is, of the Office of Fair Trading and Business . He was the prosecutor in the inquiry before the second named defendants who are the Tribunal members.
The inquiry resulted in the disqualification of Maldonfield to trade and also of Schumann to act as a director of a licensed trader for a period of one year (per the Act s.31(2)). Her disqualification is the nub issue in the case.
Some history
In November 1992 Italiano pleaded guilty in the Magistrates' Court at Prahran to one count of being an unlicensed motor car trader and nine of making false representations. He was ordered to make restitution and fined a total of $30,000. On appeal the fines were reduced. About ten years earlier Italiano had previously been convicted of obtaining property by deception in breach of the Crimes Act s.81.
On 19 December 1996 Maldonfield pleaded guilty at the Magistrates' Court at Melbourne to four counts of breaches of the Act. Two of a bookkeeping nature, the third of failing to enter the proper details of a security interest in breach of s.35(2) and the fourth of failing to cancel a security interest in breach of s.48. On all counts the licensee was fined without a conviction being recorded.
Between June 1995 and April 1998, Maldonfield presented hundreds of cheques which were initially dishonoured by its bankers. Subsequently, all these cheques were met.
In December 1996 Maldonfield pleaded guilty in the Magistrates' Court at Melbourne to carrying on business under the name MM Car Sales whilst the name was not registered. It was fined without a conviction being recorded. On the same day it pleaded to three further charges under s.20(1)(a), s.35(2) and s.48 of the Act.
I now turn to the facts relating to Schumann. In August 1997 the Business Licensing Authority ("the authority") received an application for the renewal of Maldonfield's trader's licence. It was signed by Schumann. The application asked if anybody had been convicted of an offence under the Act since the last annual return. She replied, no. This was not correct (see paragraphs 6 and 8). She was also asked whether there had been any change in the directors. Whereas, the fact was that one Pecora had ceased to be a director of Maldonfield and Italiano had been appointed in his stead. In the preceding year Schumann had also signed the application for renewal of licence. It appears that this application was also incorrect and at no time was the resignation of Pecora referred to the authority.
Back in 1993 the authority had received an application from Italiano to be employed by Maldonfield. This application was rejected and after various perambulations before the authority and the then Administrative Appeals Tribunal, Italiano accepted the decision of the former authority that he was not to be employed by Maldonfield.
In February 1996 Italiano became a director of Maldonfield without seeking the approval of the authority. The authority says he has also been employed by it since 1993. In October 1998 Italiano resigned as a director, leaving his wife, Schumann, as its sole director.
In August 1998 the Assistant Director issued an "Application for the Holding of an Enquiry" ("the application") pursuant to the Act s.30. It was directed to Maldonfield, trading as Richmond Car Traders. It set out four grounds for conducting the enquiry and taking action under the Act s.31 ie to disqualify the licence holder or its directors from holding a licence to trade. Those grounds were:
" … the licensee does not have sufficient financial resources to enable it to carry on the business to which the licence relates, a director of the licensee is not a fit and proper person to be a director of a licensee and that the licensee has ceased to be a fit and proper person to be a licensee being the allegations referred to in grounds 1 to 4 (inclusive) herof."
Particulars of the grounds for holding the enquiry
The first ground asserted Maldonfield had failed to comply with the Act. The ground relates to the fines imposed at the Magistrates' Court in Melbourne in December of 1996. Ultimately, the Tribunal found this ground had been made out.
The second ground was that Maldonfield did not have sufficient financial resources to enable it to continue trading. The Tribunal found that historically that had been the case in the past, but it accepted evidence of a marked financial turn around and concluded Maldonfield was now in a more stable financial position. Accordingly this ground was not made out.
The third ground was that a director of Maldonfield was not a fit and proper person to be a director of a licensee. The Tribunal concluded that this ground was initially directed at Italiano, but went on to accept the fact of his resignation, and proceeded to disqualify Schumann. The nub issue of the appeal is thus exposed:- Schumann is alleged to have been denied natural justice.
Particulars of the third ground all related to Italiano personally and consisted of the breaches of the Act to which I have already referred.
The fourth ground was that the licensee has ceased to be a fit and proper person to be a licensee. This ground must also be taken as being directed, at least initially, at Italiano but some of the particulars refer specifically to Schumann, namely, that she had made the applications for renewals of licences which were false.
The Tribunal's findings
As to ground 1, the Tribunal concluded that the breach of the Act s.48 was "most serious". Ground 2 was not made out and ground 3 was directed towards Italiano and therefore not made out.
As to ground 4, based upon the Act s.30(2)(f) – which as edited reads -
"30. Disciplinary action
(1)…
(2)There are grounds for taking action under section 31 against a licensee if –
(a) …
(f)the licensee or a partner or director of the licensee or a person concerned in the management of the licensee is not, or has ceased to be, a fit and proper person to be a licensee or a partner or director of a licensee; or
31(2). As an alternative to (ss.1 suspension or imposing conditions) the Tribunal may … disqualify the licensee (and any partner or director of the licensee) from holding a licence. … "
The Tribunal had this to say (inter alia), as to Maldonfield's unfitness "In this context (that is of Italiano's fitness) we note that Italiano's wife is the sole director of Maldonfield, that Mr Italiano's resignation as a director occurred not long after these proceedings were issued and the overwhelming evidence before us is, as submitted by counsel for Maldonfield, that Italiano 'essentially is the company'."
It also said it is of considerable importance that the information provided by licensees to the authority be accurate and the authority ought to be able to rely on that information. "We were not impressed by the explanations or the errors offered by Italiano or Schumann." The failure of Maldonfield to comply with the orders of the authority in 1993 and 1994 is of particular concern in relation to the question of whether it has ceased to be a fit and proper person to be a licensee. (It is to be noted that these findings run against Schumann just as much as they do against Italiano.)
"As to a submission made to the Tribunal that the convictions 1983 recorded against Italiano were not convictions the Tribunal found "We have some difficulty with the evidence given by Mrs Schumann and Italiano on this issue. It is clear from the evidence that both Schumann and Italiano were aware of the authority's orders at or around the time those orders were made. It is equally clear that notwithstanding those orders Italiano continued to be employed by Maldonfield in breach of those orders and has continued to be employed by Maldonfield. Some outline of the explanations offered for what we determine to be a wilful disregard by Maldonfield, Schumann and Italiano of the authority's orders is reproduced earlier in these reasons. We consider this conduct to be of very serious concern and to go directly to the question of whether Maldonfield has ceased to be a fit and propery person to be a licensee."
The Tribunal went on to find that protection of the public requires that Maldonfield's motor car trader's licence be cancelled for a period of 12 months and then said "We are also of the opinion that the director of Maldonfield, Schumann, should be disqualified from holding a licence for a period of 12 months. Reliance was placed upon s.31(2) of the Act.
The grounds of appeal
Several of the grounds of appeal relate to Maldonfield. They question whether or not there was sufficient evidence to find it was not fit and proper to hold the licence. I can deal with these grounds summarily because they were not seriously advanced at the hearing. There was a plenitude of evidence for the Tribunal so to have found. It is empowered to direct its findings as corporations as well as individuals. The entire structure of the Act ss.30-31, is predicated upon the premise that the authority can proceed against both, and specific reference is made to both natural persons and corporations. To contend otherwise is wholly untenable.
The significant grounds of appeal relate to Schumann. They are whether the protection of the public required her to be disqualified. Perhaps more significantly, whether the Tribunal was entitled to make any orders directed against her when there was no specific application pursuant to s.30(1) of the Act directed to her. In fact none of the grounds of the application for holding an inquiry specifically related to her. This ground was further particularised by contending (a) that no proper notice had been given to her, that orders pursuant to the Act might be made against her and (b) that she had not received adequate or proper notice that orders might be made against her or (c) given a proper opportunity to be heard. Simply put, it was contended that Schumann had been denied both procedural fairness and natural justice. The natural justice ground reduced itself to the contention that its rules commanded that Schumann should have been personally notified she faced the prospect of disqualification and be given the reasons therefore.
Procedural fairness
In my view Schumann, as a director and then later being the sole director of Maldenfield, must have known she faced the prospect of being personally disqualified from holding a licence under the Act. The application under s.30 directed to Maldonfield is quite clear, it reads, in part … "I allege that … a director of the licensee is not a fit and proper person to be a director of a licensee. … "
In my view, and as I go on to amplify, this is unambiguous notice to any director that personal charges of unfitness are being laid, and if made out, that personal consequences might follow.
The particulars attached to the application were full and detailed. She was apprised of the matters to which her company had pleaded guilty in the Magistrates' Court. She had full knowledge of the alleged lapses of her husband, and also that he continued to be employed by the company of which she was the director, in breach of the authority's ruling. She knew the reasons alleged to provide grounds for disqualifying Maldonfield were also the reasons which could be used to disqualify its directors. In my view her purported ignorance of the charges or matters alleged against her is feigned.
She must have known, that if findings adverse to Maldonfield were made, then, the Act empowered the Tribunal to personally disqualify its directors.
The Tribunal did not bifurcate its proceedings, one arm directed at Maldonfield and the other at Schumann, despite the fact it had before it, as particularised in ground 3, allegations against Italiano. When he chose to resign and cease being director, then the proceedings against him personally fell away. That step did not immunise the remaining director from the consequences of adverse findings being made against the company. In my view there was no need, as a matter of procedural fairness to stop the proceedings or start them afresh simply because one of the directors fortuitously resigned. The Tribunal properly found the ground alleged against him was redundant. But, in my view that did nothing to impugn the grounds alleged against Maldonfield. They remained intact, thereby exposing its remaining director, Schumann, to the prospect of disqualification.
Alleged affront to natural justice
The rules relating to natural justice defined in Australia in the last three decades do not require reiteration. It is sufficient to refer to Kioa and Ors v West[1] but particularly to the following passage of Deane J (as His Excellency then was) at 632:
"In the absence of a clear contrary legislative intent a person who is entrusted with statutory power to make an administrative decision which directly affects the rights, interests, status or legitimate expectations of another in his individual capacity (as distinct from as a member of the general public or of a class of the general public) is bound to observe the requirements of natural justice or procedural fairness."
[1] 1985 (159) CLR 550
In Annetts and Anor v McCann[2] in a joint judgment of Mason CJ and Deane and McHugh JJ rehearsed the principle in the following terms:
"It can now be taken as settled that when a statute confers power upon a public official to destroy defeat or prejudice a person's rights interests or legitimate expectations the rules of natural justice regulate the exercise of that power unless they are excluded by plain words of necessary intendment."
(Those judges referred to Dixon CJ and Webb J in Tanos.[3]
"An intention on the part of the legislature to exclude the rules of natural justice is not to be assumed nor spelled out from 'indirect references uncertain inferences or equivocal considerations', nor is such an intention to be inferred from the presence in the statute of rights which are commensurate with some of the rules of natural justice."
[2] 1990 (170) CLR 596
[3] 1958 (98) CLR 383 at 396
A thorough review of the authorities was conducted by Gillard J of this court in Metropolitan Fire Services v Churchill, unreported 28 August 1998.
Compliance with those rules
In my view, as I shall go on to observe, the requirements of the rules of natural justice were observed by the Tribunal. As to the rule that commands a person must be informed of the nature of the charges with which they are confronted, I have already observed that Schumann was well informed what it was, which the Assistant Director thought warranted an enquiry. Despite the fact that the particulars were not specifically directed to her by name, she was told that "a director of the company is not a fit and proper person to be a director of a licensee" and that the "licensee has ceased to be a fit and proper person". As she was the only director to whom the words could relate, it is simply not open to her to assert she did not know she was the person or "director" concerned. Likewise, the particulars adequately apprised her of the facts which made her personally, and allegedly unfit and improper. Namely, being a director of a convicted company and because Italiano was personally unfit due to his convictions. She must have known those things as a director as well as by being his wife. She too must have known, as the tribunal found as fact, that "Italiano was essentially the company".
As to the rule which demands that a person be given an opportunity to be heard. She was in fact heard and gave evidence on oath. Her evidence was treated by the tribunal with reservation, particularly with regard to those matters which founded the tribunal's decision to disqualify both her and Maldonfield.
As to Maldonfield's disqualification, Schumann must or should have appreciated that the licence held by the company was imperilled. Ground 3 which asserted that a director of the licensee was not fit and proper inured initially to Italiano, but it also inured to any director. But she must have known, his resignation from the company left her as the sole director. It strains credulity to believe that she could have thought this manoeuvre by her husband would have saved Maldonfield itself from the prospect of disqualification. Therefore being left as the sole director and knowing that the company itself was alleged to be unfit she must be taken to have had knowledge of the nature of the charges which exposed her personally.
The fourth ground which related to the licensee as "ceasing to be a fit and proper person" particularised the role of her husband Italiano but specifically referred to her and her culpability. She could not have been ignorant of the nature of the charges levelled against her.
Section 32(2)(f)
The legislation creates in the clearest terms, the power to personally disqualify a director of a company unfit to trade. The disqualification is limited to licence holding under the Act. It does not disqualify a person from being a director of any company registered under the Corporations Law. The structure of the Act is aimed at the protection of the public[4]. In Frugtniet the Appeal Division of this court when discussing the concept of "fit and proper person" and the "public interest" within the meaning of the Travel Agents Act said:[5]
"To a greater or lesser extent the concepts of honest knowledge and ability are connoted by the expression and in licensing cases those concepts must be construed in a manner which will protect the public interest or at least the interest of those persons whom the licensing scheme is designed to serve."
[4] The Director of Consumer Affairs v Jay Jacq Pty Ltd (unreported Supreme Court, 4/5/88) per Nathan J
[5] Secretary of the Department of Justice v Frugtniet (unreported Supreme Court, 15/12/94) and see The Director of Consumer Affairs v Jay Jacq Pty Ltd per Nathan J
The power of the Act to protect the public from unfit used car merchants is not to be flummoxed by the manoeuvre of a director resigning, thereby avoiding the tribunal's attention and leaving a patsy, in this case his wife, in his stead. Nor for her then to assert, she can avoid disqualification because she has been left standing alone. The proper meaning of the words in parenthesis of s.31(2) makes this clear and can have no other application. As both Schumann and Italiano knew what confronted Maldonfield, both knew they also confronted personal disqualification if the case against it was successful. No rule of natural justice was offended.
The Intention to Exclude the Rules of Natural Justice Requiring Personal Notification
Even if the rule of natural justice to which I have referred had been disobeyed I would have found it had no application in this case. The authorities I have cited state that if the legislation expresses the clearest intention that the rule does not prevail, then obviously, they do not.[6]
[6] See Laycock v Forbes per Goldberg J 25 November 1997 wherein it was held that there was no requirement of natural justice obliging the Securities Commission to provide particulars of matters to be heard by the Commission under the Corporations Law s.600(3).
This is one of the rare cases where, in my view, the legislature has made that manifest. Insofar as a "director" or "partner" of a licensee holding company is unfit, they may be disqualified therefrom without the tribunal being obliged to notify personally each of them that they face sanctions. Of course the enquiry itself must be conducted in compliance with the rules.
I have already referred to the authorities which lay down the principles that natural justice must be observed unless there is a clear contrary intention. The requirement is most clearly stated by Brennan J as he then was in Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 89:
"The rule of necessity gives expression to the principle that the rules of natural justice cannot be invoked to frustrate the intended operation of a statute which sets up a tribunal and requires it to perform the tat functions entrusted o it. Or, to put the matter another way, the statutory requirement that the tribunal perform the functions assigned to it must prevail over and displace the application of the rules of natural justice. Those rules may be excluded by statute."
It has been said that the criteria to be taken into account in determining what exercises of statutory powers require the observance of the rules of natural justice are (1) the terms of the statute conferring the power, (2) the nature of the office held or status of the person affected by the decision, (3) the circumstances which entitles the authority to intervene and (4) the sanctions which the authority is able to impose. However each of the criteria must be considered as a whole and not in a fragmented way.[7] The basic requirement when examining the applicability of the rules to particular procedures is fairness having regard to all the relevant circumstances.[8]
[7] See Dunlop v Woollahra Municipal Council [1975] 2 NSWLR 446 per Wootten J and 3 Mon LR 191
[8] Boucher v Australian Securities Commission (1996) 22 ACSR 503 which followed and applied Stephen J in Salemi v MacKellar (1977) 137 CLR 396 and Mahon v Air New Zealand Ltd [1985] AC 808
In my view, and adopting these criteria, I consider the terms of s.31(2) pellucid. Simply, a director, any director, may be disqualified after an enquiry properly conducted has found that company unfit to hold a licence. If this power were not present, unfit directors could simply form new companies and shelter behind incorporation. As to the circumstances of exercising the power to disqualify, the public is entitled to be protected from unfit directors; just as it is under the Corporations Law. Having made an adverse finding against Schumann, the tribunal was obliged to act expeditiously. It could have imposed conditions (s.32(1)) but it chose not to do so, and it is not for this court to substitute its discretion for that of the tribunal.
As to the severity of the sanction to be imposed, it must be noted that the tribunal had a menu from which to select. (See s.30(1) (a) to (g)). Disqualification although the most punitive, should be assessed in this context. The range extended, the discretion of the tribunal making it less characteristic of a curial process, and therefore less likely to be bound by the rules.
It would be strange if not perverse to find, as the appellants' contentions would lead, that a company could avoid personal disqualification of its directors simply by changing them. The community and public interest is protected from the activities of individuals unfit to hold a licence under the Act. Otherwise unfit directors would merely go out of business in one company and re‑emerge as the directors of another. A purpose of the legislation is to disqualify those individuals whose activities whether perpetrated individually or in the name of a company are disqualified. As the Act empowers the Tribunal to prevent individuals being employed in the used car industry per se, then a fortiori it must be empowered to disbar directors of companies whom are themselves unfit to trade. There is a logical consistency within the structure of the Act to conclude that this is one of the unusual cases where the legislature's intent to overbear the application of the rule of natural justice requiring an individual director to be notified of the details of a charge, which if proved, could lead to a personal sanction, has been made manifest.
Resolution of the dilemma
Schumann's private interests would have to give way to the public ones in this case, if that were required. However, it is not. As a director she was responsible for the management and conduct of Maldonfield, she either knew or should have known of the activities of her husband who was in the words of the Tribunal "essentially the company". She was, as a director, under the terms of the Act personally amenable to disqualification to hold a licence. The Tribunal found as matters of fact and on evidence which I consider to be overwhelming, that Italiano was likely to have been unfit to be a director – he was certainly unfit to be an employee – and that a director who had permitted the conduct alleged to occur and continue must therefore become susceptible to personal disqualification. I find the Tribunal acted properly throughout, there were no breaches of the rules of natural justice or the requirement to deliver procedural fairness. Furthermore, if there had been the Act specifically empowered the Tribunal to act in defiance of them and to disqualify Schumann personally.
This appeal must fail. I dismiss it and order that Schumann and Maldonfield pay the defendant's costs.
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CERTIFICATE
I certify that this and the 12 preceding pages are a true copy of the reasons for judgment of Nathan J of the Supreme Court of Victoria delivered on 14 December 1999.
DATED: this fourteenth day of December 1999.
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