McDonald, N.A. v Australian Securities Commission

[1993] FCA 763

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JUDGMENT No. ......, ,, ,,,,,,,, ,, ,,,,,...

IN THE FEDERAL COURT OF AUSTRALIA	)
)
NEW SOUTH WALES DISTRICT REGISTRY )	NG 3279 of 1993

)

GENERAL DIVISION )

NEIL ALLAN MCDONALD and MORTGAGE

CORPORATION LIMITED

Applicants

AUSTRALIAN SECURITIES COMMISSION

Respondent

Coram:  Whitlam J

Place: Sydney

Date : 8 October 1993 RECEIVED

01 NOV 1993
FEDERAL COURT OF

AUSTRALIA PRINCIPAL

REASONS FOR JUDGMENT REGISTRY

(Ex Tempore)

In this matter I heard argument from the parties on Wednesday and would have delivered judgment then except for the press of matters in the court list. I mean no disrespect to counsel for their very able arguments, in not having had the opportunity in the meantime to record some written reasons for judgment. Nonetheless, I am firm in my view of the law and I will proceed to give judgment forthwith.

are annexed to the affidavit of Mr Scott Maurice Freidman, the

The application was made by two applicants, one a natural
person and one a corporation. The challenge is made to the

notice issued under the Australian Securities Commission Act1989

("the ASC Law") to each of the applicants. The forms of notice

solicitor for the applicants. The challenge necessarily takes as its foundation a decision that Davies J delivered on 13 July 1993 when, in a different case, the first applicant in these proceedings was successful in invalidating a notice given to him purportedly in reliance upon s.30 of ASC Law.

That notice related to what was described in the notice as an investigation of the affairs of Project Equity Finance Limited, and the notices that are the subject of the present challenge also relate to that company. Neither counsel submitted that the case needed to be approached on any different basis to that on which Davies J decided the challenge earlier this year. (Evidently, before Davies J, there hadabeen some consideration of a decision of Drummond J which may have suggested a different approach to the provlsions of the ASC Law.)

The judgment of Davies J focussed on a number of important
features of the scheme of the ASC Law which led to his Honour

holding the notices in that case invalid. Particularly, his

Honour had regard to the provisions of r 5 of the Australian

Securities Commission Regulations, the prescribed formunder that

regulation and the requirement in that form that, within the notice, there be specified "the nature of the matter to which an investigation relates." Importantly too, his Honour drew attention to a statement of Gibbs ACJ in Federal Commissioner of Taxation v. The Australia and New Zealand Bankina Group Ltd (1979) 143 CLR 449 at 525, where his Honour was dealing with notices under the provlsions of the Income Tax Assessment Act

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1936 . What Davies J had pointed out (p.5) was: "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 notlce is entitled to require the production of the information or documents demanded therein." Essentially the argument about whether there is a serious question to be tried as to the invalidity of these notices, turns upon those considerations.

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The submissions on behalf of the applicant were put very attractively by Mr Tobin of Queen's Counsel and no doubt in seeking to summarise them I will do some injustice to the way in which he formulated them. It is necessary, however, in view of the time available, that I compress the essence of those submissions in dealing with them. As I said, the notices are

recite the terms of those notices except where necessary.	annexed to the affidavit of Mr Freidman; I will not delay to
Commencing with the notice under S. 30, delivered to the first applicant, the subject matter is expressed to be "an investigation under Division 1 of Part 3 of the ASC Law of suspected contraventions of sections 263 and 267 of the Companies (New South Wales) Code and sections 229, 289 and 335 of the Corporations Law during the period 2 August 1989 to 1 2
February 1993 by persons associated with PROJECT EQUITY FINANCE LIMITED. " Those words are replicated in the notice delivered to the corporate applicant under S. 33. It is necessary to pause and have regard to the terms of the statutory provisions called in aid there. They can be summarised in the following way.
5.229 of the Corporations Law is concerned with the prohibition of certain persons managing companies. S. 289 is concerned with the duty to keep accounts. 5.335 is concerned with the obligation to lodge annual returns. The equivalent provisions in the Companies Code which are cited, ss 263 and 267, relate to the obligation to lodge annual returns and the duty to keep accounts. There is, therefore, a degree of precision in relation to the ambit of the investigation.
However, Mr Tobin takes as his first ground the expression, "persons associated with", in terms of the notices and, whilst eschewing a test that requires the nomination of individuals, submits that that description is unacceptably vague and, for that reason, offends the requirements of the test formulatedby Davies
J. Counsel took me to the provisions of the Corporations Law defining "associate"; see ss 9, 10 and 11 of the Corporations Law. Mr Gleeson, who appeared for the respondent, submittedthat it was necessary only to identify the central core of the matter to which the investigation relates. Here it was sufficient specification that the investigation related to the directors and the secretary. In my opinion, what Mr Gleeson says is right. The nature of the matter under investigation has been notified
and no greater specification in the circumstances can be expected.
The next submission made by Mr Tobin was of some ingenuity and turned upon the reliance wlthin the notice of a suspected contravention of s.335 of the Corporations Law relating to the requirement to lodge annual returns. Mr Tobin drew attention to the source of the investigation under S 13 of the ASC Law necessarily resting upon a reason to "suspect" that there may have been a contravention of law. The essence of the submission was that there could be no question of suspicion where the Australian Securities Commission would be well seized of the fact whether someone had filed an annual return. Mr Tobin submitted that reliance upon s.335, having regard to the requirements of s.13 of the ASC Law, was mere tokenism, particularly so where in any event a secretary would be deemed to be concerned in such contraventions by virtue of S 83(2) of the Corporations Law.
Mr Gleeson, however, drew my attention to the provisions of ss 1317DB and 79 of the Corporations Law. I think that once it
is appreciated that a wider group of persons may be involved in such an offence then there may be a suspicion and not actual knowledge. In the circumstances, it seems to me that this submission of Mr Tobin's also could not be seriously argued.
The next ground that Mr Tobin advances relates to the alleged ambiguity of the notices. It must be said at once that the terms of the Schedule in the notice are not expressed very
felicitously. There are certainly words within the Schedule that are otiose. Nonetheless, I do not think that a challenge can be made that, in so far as the notice is directed to the first
applicant, the terms of the Schedule are ambiguous or in any way
unclear or embarrassing. The specification of material in paragraph 1 is reasonably precise. It may well be of course that the expression "All books" is not apt to pick up simply the specified material, but I think the object of the notice is fairly clear. So too, in relation to items 2, 3, and 4 in the Schedule, the prefatory words "All books", whilst on their face unusual, do not upon examination of the whole context, render the Schedule in any way misleading, ambiguous or embarrassing.
The notice directed to the company, the second applicant, is singled out for separate objection. The first challenge to its validity turns upon the omission from the address portion of the notice of the words "by its proper officer". Mr Tobin has directed my attention to the well known authorities on the necessity for some such speclflcation in notices and processes
under various statutes, both in England and in Australia, where it is sought to secure the attendance of persons to produce
documents by compulsion. All of those authorities in my opinion need to be considered very carefully in their own peculiar statutory context. Indeed, practitioners seeking the issue of subpoenas in the everyday working of the court are necessarily confused by divided expressions of judicial opinion about where the phrase "by its proper officer" ought appear, whether above or below the name of the company. Notwithstanding that, I am quite clear in my own view that the very terms of the ASC Law contemplate a notice doing no more than being directed simply to the body corporate where that is the "person" required to produce: see Acts Interpretation Act 1901, s.22(l)(a). The failure to include such an expression as "by its proper officer" in proximity to the name of the company will not, in my view, invalidate the notice.
Secondly, and perhaps somewhat faintly, the objection is pressed to the notice to the company that it singles out for production in the Schedule "All books" of a different company, Project Equity Finance Limited. I do not see any basis on which that can be an objection to the notice. It simply may be that many of those books are not within the possession of the company to which it is directed. On the other hand, as Mr Glesson informed me, in the earlier proceedings there had been at least the suggestion that some of the materials relating to Project Equity Finance Limited were in the possession of the second applicant. Mr Tobin, very properly, did not dlsagree with that.
Mr Gleeson developed submissions about the effect of s.70 of the ASC Law and the availability or opportunity under that provision of a collateral attack on the notices. Whilst these submissions may in some way touch on the threshold issue of a serious question to be tried, I think that they were directed more at the question of the utility or convenience of the relief sought. I do not need, in light of the view I have taken of the question whether there is a serious question to be tried, to deal with that argument, save to say that it did not seem to me that if there was a serious question to be tried in relation to the validity of the notices, that interlocutory relief ought to be denied on that basis.
Accordingly, I am of the vlew that the interim injunction granted ex parte by Beazley J., and continued by me on Wednesday afternoon, ought now to be dissolved.

I certify that t h ~ s and the

preceding seven pages are a true copy of the ex tempore Reasons for Judgment herein of the Honourable Mr Justice A.P. Whitlam.

A

Associate:

Date:

Counsel for the appl~cant:  T.K. Tobin Q.C.

instructed by Maurlce Freidman & Company

Counsel for the respondent:  J.T. Gleeson

instructed by Beat Sidhu

Dates of hearing:  6 & 8 October 1993