McLachlan, Hamish Boyd v Australian Securities Comm

[1998] FCA 951

FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - CORPORATIONS LAW - Australian Securities Commission - banning order against unlicensed person - reason to believe that person has not performed honestly, efficiently and fairly the duties of a representative of a dealer - whether natural justice obliges the Australian Securities Commission to provide an applicant with all relevant material which it holds - whether the Australian Securities Commission can rely on material adverse to the applicant while excluding other relevant material - whether information acquired by decision maker in one capacity must be disclosed when acting in another capacity.

Australian Securities Commission Act 1989 (Cth), s 57, s 59, s 60, s 102

Corporations Law, s 784, s 829(f), s 829, s 830, s 837

Administrative Decisions (Judicial Review) Act, 1977 (Cth) ss 5, 6, s 6(1)(a)

Kioa v West (1985) 159 CLR 550 (Considered)

Laycock v Forbes (1997) 25 ACSR 659 (Applied)
Winter v Australian Securities Commission (1995) 16 ACSR 61 (Followed)
Rose v Bridges (1997) 149 ALR 710 (Applied)
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 (Applied)
Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 (Applied)

HAMISH BOYD MCLACHLAN (Applicant) v AUSTRALIAN SECURITIES COMMISSION (First Respondent) VALDEMAR MALINARIC (Second Respondent)

SG 58 of 1998

FINN J
31 JULY 1998
SYDNEY (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG58 of   1998

BETWEEN: 

HAMISH BOYD MCLACHLAN
APPLICANT

AND: 

AUSTRALIAN SECURITIES COMMISSION
FIRST RESPONDENT

VALDEMAR MALINARIC
SECOND RESPONDENT

JUDGE:

FINN J

DATE OF ORDER:

31 JULY 1998

WHERE MADE:

SYDNEY (HEARD IN ADELAIDE)

THE COURT ORDERS THAT:

The application be dismissed.

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	SG58 of 1998

BETWEEN: 

HAMISH BOYD MCLACHLAN
APPLICANT

AND: 

AUSTRALIAN SECURITIES COMMISSION
FIRST RESPONDENT

VALDEMAR MALINARIC
SECOND RESPONDENT

JUDGE:	FINN J
DATE:	31 JULY 1998
PLACE:	SYDNEY (HEARD IN ADELAIDE)

REASONS FOR JUDGMENT

Hamish Boyd McLachlan is a representative of Thompson Brindal Ltd (“TB Ltd”), a securities dealer licensed under s 784 of the Corporations Law. In that capacity he apparently conducted trading in shares and options on the accounts of certain of RetireInvest Pty Ltd’s clients. The Australian Securities Commission (“the ASC”) has inquired into Mr McLachlan’s conduct in this. It has now appointed Mr Malinaric as its delegate under s 102 of the Australian Securities Commission Act 1989 (Cth) (“the ASC Act”) for the purposes of determining whether a banning order should be made against Mr McLachlan on the ground that the ASC has reason to believe that he has not performed efficiently, honestly and fairly the duties of a representative of a dealer: Corporations Law, s 829(f).

A statutorily prescribed prerequisite to the making of such an order is that Mr McLachlan be given an opportunity to appear at a private hearing conducted by Mr Malinaric and that he be allowed to make submissions and give evidence in relation to the matter: Corporations Law ss 829, 837. A Notice of Hearing containing both Mr Malinaric’s “decision” to consider the making of a banning order and the conduct complained of were served on Mr McLachlan. He sought but was refused what, inappropriately, has been described as “discovery” of all documents in the power or possession of the Commission that were relevant to the issues raised in the Notice of Hearing. He now seeks to review that refusal as a “decision” or “conduct” under s 5 or s 6 of the Administrative Decisions (Judicial Review) Act, 1977 (Cth) (“the ADJR Act”). For present purposes the ASC (which along with Mr Malinaric is a respondent to the application) concedes that the refusal to give discovery was “conduct” for s 6 purposes. The basis of the application is that the refusal occasioned a breach of the rules of natural justice: ADJR Act, s 6(1)(a).

The Statutory Setting

Part 3, Division 6 of the ASC Act deals with ASC hearings. Insofar as presently relevant, s 57 of that Act provides:

“57(1) [Application of section]        This section applies where a national scheme law of this jurisdiction requires the Commission to give a person an opportunity to appear at a hearing and to make submissions and give evidence to it.

57(2)  [Place and time for hearing] The Commission shall appoint a place and time for the hearing and cause written notice of that place and time to be given to the person.”

The manner of conduct of a hearing is prescribed in s 59. It provides (inter alia) that:

“59(1) [Hearing may be informal]    A hearing shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of national scheme laws of this jurisdiction and a proper consideration of the matters before the Commission permit.

59(2)  [Commission not bound by rules of evidence]         At a hearing, the Commission:

(a)       is not bound by the rules of evidence;

(b)may, on such conditions as it thinks fit, permit a person to intervene;  and

(c)       shall observe the rules of natural justice.”

I merely note in passing that the Notice of Hearing sent to Mr McLachlan was based (i) on s 57(2), to the extent that it appointed the place and time for the hearing; and (ii) on s 59(2)(c), insofar as it identified the conduct (and particulars thereof) upon which the ASC was relying to form its belief concerning Mr McLachlan.

Finally, s 60 provides:

“60     The Commission shall take into account:

(a)       evidence given, or a submission made, to it at a hearing;

…

in making a decision on a matter to which the evidence or submission relates.”

Part 7.3, Division 5 of the Corporations Law deals with excluding persons from the securities industry. Section 829 insofar as presently relevant provides:

“829    Subject to section 837, the Commission may make a banning order against a natural person (other than a licensee) if:

…

(f)the Commission has reason to believe that he or she has not performed efficiently, honestly and fairly the duties of:

(i)        a representative of a dealer.”

A banning order is made by way of a written order prohibiting a person permanently or for a specified period from doing an act as a representative (inter alia) of a dealer: Corporations Law, s 830.

Finally s 837, to which s 829 is subject, provides that:

“837(1)          [Commission not to make certain orders without hearing] The Commission shall not:

…

(a)make, otherwise than by virtue of paragraph 828(a) or (d) or 829(a), (b) or (c), an order under section 830 against a person;

…

unless the Commission complies with subsection (2) of this section.

837(2) [Right to appear and be heard]        The Commission shall give the applicant, licensee or person, as the case may be, an opportunity:

(a)to appear at a hearing before the Commission that takes place in private;  and

(b)to make submissions and give evidence to the Commission in relation to the matter.”

Background Setting

The course followed by the ASC and then by Mr Malinaric as its delegate leading to the s 837 hearing and the refusal of discovery were as follows.

(i)ASC officers having previously conducted investigations into the conduct of Mr McLachlan, on 27 November 1997 an ASC official supplied Mr Malinaric with a memorandum containing a submission relating to potential banning action against Mr McLachlan, together with four lever arch files containing copies of the documents referred to in the memorandum.

(ii)       It is Mr Malinaric’s uncontested evidence that:

“I read the memorandum and accompanying documents and on 16 January 1998 issued a Notice of Hearing (“the Notice”) to the Applicant based on subsection 829(f) of the Law.  In reaching my decision to issue the Notice I took into account the submissions contained in the memorandum.  The only evidence I took into account was that contained in the four lever arch files of accompanying documents.”

(iii)As earlier noted, the Notice identified the conduct which the ASC alleged was not efficient, honest and fair.  Four species of conduct relating to actions affecting RetireInvest clients were specified and then individually particularised.

(iv)The ASC by letter of 29 January 1998 provided Mr McLachlan’s solicitors with a copy of all the documents upon which the allegations made against him were based.  In response to a later request, the ASC provided the same solicitor with a copy of the memorandum of 27 November 1997.

(v)       By letter of 25 February Mr McLachlan’s solicitors sought as well:

“copies of all other documents and materials in the custody or possession of the ASC which are or may be relevant to the matters before Mr Malinaric in the proposed banning order hearing.”

In relation to this request the ASC responded by letter of 10 March 1998 that:

“The ASC takes the view that the substantive matter before Mr Malinaric is whether the conduct alleged in the Notice of Hearing dated 16 January 1998 (“the Notice”) amounted to a failure by Mr Hamish McLachlan to perform efficiently, honestly and fairly the duties of a representative of a dealer, and if so, whether a banning order should be made against him.  I confirm that at the hearing of this matter, the ASC will be relying only on the conduct particularised in the Notice.

In addition to the material contained in the four arch lever files accompanying the submission to Mr Malinaric and previously provided to you, the ASC has other material in its possession which supports the conduct alleged in the Notice.

For example, the ASC has order forms, contract notes, options day book print outs and the like in relation to the option positions referred to in paragraph 2 of the Schedule attached to the Notice.  As Mr McLachlan admitted transferring the option positions, it seemed unnecessary to include every such document in the materials put to the delegate.  These documents are available for inspection by you if you wish.

In relation to the conduct alleged in paragraph 4 of the Schedule to the Notice, the ASC has statements from RetireInvest clients in addition to those contained in the materials before Mr Malinaric.  However, at the hearing, the ASC is relying only on those client statements contained in the material already provided to you.

So far as I am aware, there is no material in the custody or possession of the ASC which negatives the conduct alleged in the Notice of Hearing.”

The order forms, contract notes etc referred to were, apparently, inspected subsequently.

(vi)As well as being appointed the ASC’s delegate in relation to the potential banning of Mr Hamish McLachlan, Mr Malinaric was likewise appointed such a delegate in relation to Mr Malcolm McLachlan (also a representative of TB Ltd) and a Mr Laming (a representative of RetireInvest). Mr McLachlan’s solicitors have sought from Mr Malinaric “discovery of documents in respect of the investigation into [TB Ltd] and RetireInvest”. This was refused. A request was made as well for a copy of a transcript of Mr Laming’s evidence in his banning order proceedings. Though partial access was given for other purposes, this also was refused for the purposes of Mr McLachlan’s s 837 hearing.

(vii)A number of preliminary hearings were held in February and March 1998.  General discovery of documents in the ASC’s possession relevant to the issues raised in the Notice was again sought.  And on 8 April 1998 this was again refused by Mr Malinaric with reasons which concluded that “discovery [was] not necessary in order to afford natural justice to Mr McLachlan”.

It was this decision that gave rise to the present application.

The Parties’ Contentions

As I understand them, the applicant’s submissions as they have been developed allege a breach of the rules of natural justice on either of two bases.  The first (which I will describe as the “ambit claim”) is put as follows.  In order that the hearing comply with the requirements of proper consideration and natural justice, Mr McLachlan should be entitled to make his own assessment of relevant material held by the ASC, rather than simply have to accept whatever assessments by which the ASC have excluded material.  In particular:

(a)the ASC cannot rely on material which it has selected as being adverse to Mr McLachlan, while excluding other material bearing on the issues from him;

(b)the ASC cannot set up an artificial quarantine of information by its internal process of briefing a delegate;  and

(c)Mr McLachlan must be allowed to make his own assessment of the material, and frame his submissions, with the benefit of all the relevant material held by the ASC.

The second (“the narrow claim”) is that, in acting as delegate as well in the Malcolm McLachlan and Laming proceedings – each of which as well relates to RetireInvest matters – Mr Malinaric will have acquired information adverse to Mr McLachlan and he cannot artificially exclude that from the information upon which he intends to rely, neither can he refuse to disclose it:  Kioa v West (1985) 159 CLR 550 at 628-629. I should add that this second submission only emerged in oral argument and may well have been advanced as no more than an illustration of the first.

The respondents’ submissions are premised upon there being no allegation of bad faith made against the ASC in respect of the information disclosed – senior counsel for Mr McLachlan expressly disclaimed this.  And it is not for the ASC to establish its good faith:  cf Little River Goldfields NL v Moulds (1991) 32 FCR 456. The respondents contend, first, that Mr Malinaric’s statutory obligation is to observe the rules of natural justice, not to provide discovery as such: Boucher v Australian Securities Commission (1997) 15 ACLC 100 at 105. In specifying the conduct on which it intends to rely and the material available to it in respect of that conduct, it has satisfied its obligation: Laycock v Forbes (1997) 25 ACSR 659 at 670; save that if at the s 837 hearing additional material becomes relevant, Mr McLachlan would need to be appraised of it and, if necessary, be given time to respond to it: Laycock v Forbes, above, 670. Further the ASC is not obliged to have regard to all the information it possesses concerning Mr McLachlan but only that in its possession which it considers to be relevant to the actual matters the subject of the s 837 hearing and the s 829(f) determination: Winter v Australian Securities Commission (1995) 16 ACSR 61 at 67.

Secondly, even if Mr Malinaric acquired information as delegate in either the Malcolm McLachlan or Laming matters (which is not conceded), the question whether, if at all, he was obliged to disclose that information (rather than simply attempt to exclude it from the matters to be considered) presupposed that it was information that was “credible, relevant and significant to the decision to be made”:  Kioa v West, above, at 629. There is nothing in the evidence before this court to suggest that such information was possessed by Mr Malinaric.

Conclusion

While I am in broad agreement with the respondents’ submissions, there is a number of matters I would wish to emphasise.

It hardly needs be said that the consequences of a banning order will ordinarily be such for the person affected that the discharge of the obligation to afford natural justice to that person should, correspondingly, be approached with scrupulous fairness.  But the need to be scrupulous does not provide reason for the court to presume to impose what it considers to be the best and fairest procedures that could have been adopted by the ASC.  Rather the proper concern is with whether the procedures adopted were unfair in the circumstances:  Rose v Bridges (1997) 149 ALR 710 at 717.

Again such is the effect of a banning order that there should be corresponding substance and seriousness in the matters relied upon by the ASC to furnish the “reason to believe” required by s 829(f). Importantly, though, s 829(f) (unlike s 60 of the ASC Act) does not prescribe the considerations or the information to which the ASC is “to have regard” (or “take into account”) in arriving at that reason for belief: on the nature of the obligation imposed by the “have regard to” etc formulae, see Re R J D Hunt;  Ex p Sean Investments (1979) 53 ALJR 552 at 554; Tobacco Institute v NH&MRC (1996) 142 ALR 1 at 12-13. Rather, it leaves it to the ASC to identify (i) the particular respects in which it will consider whether, for s 829(f) purposes, a person has not performed his or her duties efficiently, honestly and fairly; and (ii) the evidence of non-performance which it considers relevant thereto and on which it intends to rely: see Winter v Australian Securities Commission, above, at 67;though, given the terms of s 60 of the ASC Act, Mr Malinaric must take into account any evidence to be given or submission made by Mr McLachlan at the s 837 hearing.

In other words s 829(f) so circumstances the ASC that (a) it can disregard respects other than those inquired into, which might also furnish reason for a s 829(f) belief; and (b) it can generate and delineate the body of information that both is relevant to the actual matters to be considered and is sufficient to provide reason for the required belief. This is subject, of course, to the well-known judicial review constraints particularly of good faith, Wednesbury unreasonableness and relevant/irrelevant considerations:  see eg Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39ff.

Absent a statutory “have regard to” obligation, and subject to the constraints noted, what the ASC does not have to do is to ascertain the existence of, and to take into account, all information it in fact possesses which may be shown to be relevant in some way to the matters to be considered – and it cannot be faulted merely for failing to inquire as to the existence of such information:  on the “duty to inquire” see eg Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155; and see generally, Aronson & Dyer, Judicial Review of Administrative Action, 302ff.

There is obvious reason for the latitude so given the ASC. Delinquent conduct can come in a multiplicity of guises from the most subtle to the most blatant. And it may, variously, be an occasional, recurrent, or pervasive feature of a representative’s actions. More importantly to reach the belief required by s 829(f) in some instances, the ASC may need to engage in a fine and exhaustive survey of all information available to it. In others, given the subject inquired into, a particular piece or pieces of evidence may be so cogent, overwhelming and damning as to make further inquiry superfluous.

In the present matter the applicant is seeking to impose on the ASC, both in the manner of its consideration of his case and in his access to its information, an obligation inconsistent with that presupposed by s 829(f). And he seeks to do this impermissibly under colour of the ASC’s duty to observe the rules of natural justice.

I would note additionally that (i) the applicant disclaims any allegation of bad faith in the ASC in its marshalling and use of material against him:  (ii) Mr Malinaric’s uncontested evidence is that, at least insofar as he is aware, the ASC does not possess material that negatives the conduct alleged in the Notice of Hearing;  (iii) while Mr McLachlan asserts that the ASC ought to have had regard to all relevant information possessed by it, he has not asserted – let alone been able to point to – any relevant consideration of which the ASC was bound to take account but failed (or would fail) so to do:  cf Minister for Aboriginal Affairs v Peko-Wallsend Ltd, above, at 39; (iv) there is no plausible basis for any assertion that the ASC’s conduct is leading it to a decision that will be tainted by Wednesbury unreasonableness;  and (v) there is not the slightest justification in the evidence for any assertion that the ASC positively precluded Mr Malinaric from obtaining access to additional information should he have had an actual need to do so.

The submission that the ASC cannot as a matter of natural justice rely on material adverse to Mr McLachlan while withholding other material (presumably favourable to him) is doubly misconceived. As an evidentiary matter, Mr Malinaric has given the uncontradicted evidence that, at least to his knowledge, the ASC does not possess material that “negatives the conduct alleged in the Notice of Hearing”. Additionally, I reiterate, Mr McLachlan disclaims any allegation of bad faith in the ASC in its selection and use of the material upon which it intends to rely. More importantly, the natural justice obligation of the ASC did not extend to the disclosure of information not relied upon and not adverse to Mr McLachlan in respect to conduct being considered for s 829(f) purposes. Such non-disclosure did not compromise Mr McLachlan’s right to a fair hearing: see generally Aronson and Dyer, above, at 531ff; Wade and Forsyth, Administrative Law, 531ff, (7^th ed).  It was not productive of unfairness in the circumstances.

Standing alone Mr McLachlan’s ambit claim as such must be rejected.  As I have held, it seeks more than natural justice obliges. 

What remains to be considered, though, is Mr McLachlan’s narrow claim that adverse information acquired by Mr Malinaric as delegate in the Malcolm McLachlan and the Laming matters should have been, but was not, disclosed.  Reliance in this was placed on the following observations of Brennan J in Kioa v West, above, at 628-629:

“A person whose interests are likely to be affected by an exercise of power must be given an opportunity to deal with relevant matters adverse to his interests which the repository of the power proposes to take into account in deciding upon its exercise:  …  .  The person whose interests are likely to be affected does not have to be given an opportunity to comment on every adverse piece of information, irrespective of its credibility, relevance or significance.  Administrative decision-making is not to be clogged by inquiries into allegations to which the repository of the power would not give credence, or which are not relevant to his decision or which are of little significance to the decision which is to be made.  Administrative decisions are not necessarily to be held invalid because the procedures of adversary litigation are not fully observed.  As Lord Diplock observed in Bushell v Environment Secretary ([1981] AC at 97):

‘To ‘over-judicialise’ the inquiry by insisting on observance of the procedures of a court of justice which professional lawyers alone are competent to operate effectively in the interests of their clients would not be fair.’

Nevertheless in the ordinary case where no problem of confidentiality arises an opportunity should be given to deal with adverse information that is credible, relevant and significant to the decision to be made.  It is not sufficient for the repository of the power to endeavour to shut information of that kind out of his mind and to reach a decision without reference to it.  Information of that kind creates a real risk of prejudice, albeit subconscious, and it is unfair to deny a person whose interests are likely to be affected by the decision an opportunity to deal with the information.  He will be neither consoled nor assured to be told that the prejudicial information was left out of account.”

While it seems that Mr Malinaric in all his three roles as delegate was considering/would consider RetireInvest matters, no specific matters or allegations were raised in evidence suggesting that material prejudicial to Mr McLachlan in respect of the conduct actually being considered for s 829(f) purposes, was possessed by Mr Malinaric. The best that counsel for Mr McLachlan could point to is the reference in Mr Malinaric’s letter of 10 March 1998 (set out above) that the ASC has other material in its possession beyond that to be relied upon.

It is important to appreciate the actual issue Mr Malinaric has isolated for s 829(f), and hence s 837, purposes. It is not one involving a general survey of Mr McLachlan’s conduct as a representative for the purpose of arriving at a conclusion whether the ASC has the s 829(f) reason to believe. If such was Mr Malinaric’s task it may well be that adverse material possessed by him which was relevant, credible and significant in that general inquiry, should have been disclosed. But the actual subject of decision for Mr Malinaric was a far more circumscribed and particularised one. It related to the conduct identified and particularised in the Notice of Hearing. In my view, even if Mr Malinaric possessed relevant, credible and significant adverse information, if it was unrelated to the conduct specified and particularised in the Notice, it need not be disclosed. Accepting that Mr Malinaric does possess other information by virtue of the multiple roles he discharged, I simply do not know (i) whether it relates in any way to the conduct specified in the Notice of Hearing; or (ii) whether that information is both adverse and is relevant, credible and significant to the s 829(f) decision to be made.

The case, then, is not one where such information is known to be in the decision-maker’s possession but he or she seeks to ignore it/not take it into account:  cf Kioa v West, above;  Minister for Immigration Local Government and Ethnic Affairs v Taveli (1990) 94 ALR 177 at 198-200; and see Minister for Aboriginal Affairs v State of Western Australia (1996) 66 FCR 40 at 56-58. Rather it is one in which I am being asked to speculate that such information may be known to Mr Malinaric for the purpose of allowing access to the information he has derived in the Malcolm McLachlan and Laming matters. This is mere fishing. Mr McLachlan has been appraised of the material by reference to which his conduct is to be judged.

The fact that Mr Malinaric is acting as delegate in a number of apparently related matters may, potentially at least, put him in a position where a duty to disclose such as Brennan J referred to in Kioa v West, above, may arise.  But whether it does is a matter of fact in the particular circumstances given the information acquired in one capacity and the actual decision to be taken in another.  It does not arise simply from what I call for convenience, the dual or multiple roles discharged.

Again I would indicate that there is not bad faith alleged against Mr Malinaric.  And I would add no bias claim is advanced against him.  I emphasise these two matters for this reason.  The undertone in both of Mr McLachlan’s submissions is that the ASC is, vis-à-vis him, the information monopolist and he correspondingly is disadvantaged in responding to the ASC.  In effect I am being invited in consequence to adopt a posture of mistrust of the ASC.  Absent a credible basis for an allegation of bad faith or bias, it would be quite improper for me to proceed on the basis that the ASC might have been acting otherwise than in that fair and exemplary fashion rightly to be expected of an agency of government:  Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 at 41.

In the event then I reject this alternative submission and I would dismiss the application.

By way of final comment I would observe that this proceeding is, in my view, premature. In light of the actual s 829(f) decision to be taken by Mr Malinaric after the s 837 hearing, it may be that the case was one both susceptible to challenge under the ADJR Act and for which discovery was appropriate. But given the stage so far reached in the decision making process, the best that can be said of this application is that it is speculative and premature.

I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate:

Dated:             30 July 1998

Counsel for the Applicant:  Mr Clayton QC

Solicitor for the Applicant:  Mr Wilkinson

Solicitor for the Respondent:                Ms C Francas

Date of Hearing:  24, 25 July 1998

Date of Judgment:  31 July 1998