McLachlan v Australian Stock Exchange Ltd No. Scgrg-98-1507 Judgment No. S6995

MCLACHLAN V AUSTRALIAN STOCK EXCHANGE LTD

[1998] SASC 6995

Civil

LANDER J: Because there was no dispute as to the facts, this trial was heard upon affidavits.
On 6 November 1998, the plaintiff brought this action for an injunction restraining the defendant from “maintaining or otherwise prosecuting a Notice of Charges dated 12 January 1998 issued against the plaintiff”. By application issued the same day the plaintiff sought and eventually obtained an expedited hearing of the matter pursuant to r50, Supreme Court Rules.
In support of his claim the plaintiff, on 6 November 1982, swore an affidavit to which a number of documents were exhibited. The defendant relied upon the affidavit of John Desmond Warde, a solicitor in the firm of solicitors acting for the defendant, and an affidavit of Martin Michael Kinsky, the National Manager Investigations and Enforcements of the defendant and the exhibits to that affidavit. It was upon that evidence that I was asked to determine whether the plaintiff was entitled to the injunction sought.
These are the second proceedings brought by the plaintiff against the defendant arising out of the Notice of Charges of 12 January 1998. The first proceedings for judicial review were heard by the Chief Justice who dismissed the plaintiff’s application. The plaintiff appealed from that decision to the Full Court but his appeal was dismissed.
The plaintiff was a member of the defendant, the Australian Stock Exchange (ASX), until 13 October 1998.
Prior to 13 October 1998, the defendant was a company limited by guarantee. The Articles of Association provided for the internal regulation of the defendant including the regulation of the directors and the management of the defendant, the membership of the defendant and the rights and obligations attaching to membership. The Articles recognise the business entity under which a member carried on business. The Articles refer to those entities as member organisations. Moreover, the Articles regulate how members of the defendant might carry on their business and the conduct of that business. The Articles provide for the investigation of any member or member organisation.
The Articles also empower the Board of Directors of the defendant to make Rules not inconsistent with the Articles for the order and good government of the members or member organisations of the Exchange and its affairs, including Rules with respect to conduct of business by member organisations or with respect to the activities of partners, officers, employees or consultants of members or member organisations. The authority in the Articles to make Rules also includes the authority to amend, alter or appeal such Rules (Article 70).
The Articles provide that if the Board considers that a member or member organisation should be charged with a breach of any of the Articles or Rules it should give the member or member organisation concerned written notice of the particulars of the charge and of the date when such charge is to be heard (Article 51).
Article 52 provides for other proceedings against members:
“(1).. If the Board considers a Member or Member Organisation should be charged with Prohibited Conduct it shall give the Member or Member Organisation concerned written notice of the particulars of the charge and of the date (being not less than 7 days after the date when such notice is served) when such charge is to be heard. The Member or Member Organisation concerned shall, if the Member or Member Organisation so wishes, be heard in answer to the charge.”
Prohibited conduct is defined in the Articles to include:
“(a).. conduct which amounts to impropriety affecting professional character and which is indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to clients or the public;
(b)unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence;
(c).... conduct which is or could reasonably be considered as likely to be prejudicial to the interests of the Exchange or its Members,
and need not involve a breach of any of the Articles or the Rules or a contravention of any law.”
Article 52 (5) requires the Board to conduct any hearing in accordance with the Articles and in accordance with that Article itself, without bias and to give the member or member organisation a fair hearing and to observe the rules of natural justice.
However, Article 55A provides for the establishment and operation of “the National Adjudicatory Tribunal” which is established for the purpose of hearing and adjudicating upon and determining penalties of any charge made against a member or member organisations pursuant to Articles 51 or 52. The constitution of that Tribunal Panel is provided for in Article 55B.
A breach of Article 52 allows for any of the following penalties:
“(2).. If any Member or Member Organisation is determined by the Board to have engaged, whether by act or omission, in Prohibited Conduct, the Board may:
(a)censure the Member or Member Organisation; or
(b)impose a fine not exceeding $100,000 upon the Member or Member Organisation; and/or
(c)suspend the Member or Member Organisation from all or any of the privileges of membership of the Exchange; and/or
(d)prohibit the Member or Member Organisation from transacting any business with or through any Member Organisation for a period not exceeding 3 months upon such terms and conditions as the Board thinks fit; and/or
(e)require that the Member or Member Organisation institute in a form directed by the Board or upgrade to the satisfaction of the Board, an education and compliance programme designed to prevent future Prohibited Conduct by the Member or Member Organisation and the partners, officers, employees and representatives of the Member or the Member Organisation; and/or
(f)require the Member or the Member Organisation to pay the total commission or gross profit or part thereof arising from the transaction concerned to the Exchange and the Board may deal with such amount in such manner as it thinks fit; and/or
(g)expel the Member, or a Member who is a partner in the Member Organisation, or a Member who is an officer, employee or securities representative of the Member Organisation, from membership of the Exchange.”
Article 53 provides for the joint and several liability of partners of member organisations in relation to the payment of any penalty imposed. Article 53(3) provides for the recording of any penalty imposed. It provides:
“(3).. Where a Member or Member Organisation is determined pursuant to Article 51 or 52 to have contravened the Articles or the Rules or to have engaged in Prohibited Conduct the Board shall, notwithstanding any penalty imposed, record details of the determination in a register. Where a Member or Member Organisation has been suspended or expelled pursuant to Article 59 the Board shall record details of the determination in a register. The register shall be made available for inspection by any person during normal business hours. Without limiting the generality of the foregoing, the register shall include:
(a)the name of the Member or Member Organisation;
......... (b) summary details of:
(i)in the case of a determination pursuant to Article 51 or 52, the charge or charges established against the Member or Member Organisation;
(ii)the determination of the Board;
(iii)details of any penalty imposed; and
(iv)the reasons for that determination and (if applicable) penalty.
A copy of the register shall be maintained in each State. No record shall be made in the register in respect of a determination that the Articles or the Rules have been contravened or Prohibited Conduct has been engaged in or that a Member of (sic) Member Organisation has been expelled pursuant to Article 59 until expiry of the time allowed for an appeal, or where a notice of appeal is lodged in accordance with the Articles, until the appeal is determined. After an appeal, the details recorded in the register shall only relate to determinations of the Appeal Tribunal that the Member or Member Organisation has contravened the Articles or the Rules or has engaged in Prohibited Conduct or has been expelled.”
It can be seen that the consequences of a breach of the Articles under Article 51 or a finding of prohibited conduct under Article 52 can give rise to serious penalties.
On 12 January 1998, the plaintiff was charged with prohibited conduct pursuant to Article 52 in relation to conduct between August 1991 and 26 October 1993. Broadly speaking the prohibited conduct complained of is that the plaintiff failed to be efficient, honest or fair and engaged in conduct otherwise prejudicial to the interest of the defendant or its members. Further, he was charged with prohibited conduct in the period 26 October 1993 to April 1997 being conduct which amounted to “(a) impropriety affecting professional character and which was indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to clients or the public and, or in the alternative, (b) unsatisfactory professional conduct where such conduct involved a substantial or consistent failure to reach reasonable standards of competence and diligence and, or in the alternative, (c) conduct which is or could reasonably be considered as likely to be prejudicial to the interests of ASX or its Members.”
The charge provides more than twenty pages of particulars.
Pursuant to Article 55A, the Notice of Charges provided for a hearing of those charges by the National Adjudicatory Tribunal.
Clearly enough the plaintiff was a member of the defendant at the time that the Notice of Charges were laid against him. He remained a member of the defendant until 13 October 1998.
For reasons largely connected with the earlier proceedings, the charges were not heard before 13 October 1998.
On 18 October 1996, the defendant had resolved to change its status from a company limited by guarantee to a public company limited by shares. On 13 October 1998 such a change occurred pursuant to the provisions of s766A, 766B and 766C of the Corporations Law being amendments which were made to the Corporations Law by the Corporations LawAmendment (ASX) Act 1997.
Section 766A of the Corporations Law allows the defendant to change its type to a public company limited by shares. The method of applying for the change of type is provided for in s766B. The date of the change of type, pursuant to the provisions of s766C, was on 13 October 1998.
766D provides that the change of type does not create a new legal entity or affect the defendant’s existing property, rights or obligations or render defective any legal proceedings.
The change of type does mean a number of things happen. They are provided for in s766D(2) which provides:
“766D(2) On the change of type, the following things happen:
(a).... the liability of each member and past member as a guarantor on the winding up of the Exchange is extinguished;
(b) the members cease to be members of the Exchange;
(c)... shares are taken to be issued equally among all persons who satisfy the criteria set out in Articles 83 and 84 of the Exchange that were added by the 18 October 1996 special resolutions dealing with the change of type, and each of those persons becomes a member of the Exchange and is taken to have consented to be a member of the Exchange.”
It can be seen from s766D(2) (b) of the Corporations Law that on 13 October 1998 the members of ASX ceased to be members of the defendant.
Persons who satisfied the criteria in Articles 83 and 84 of the Articles before 13 October 1998 were entitled to an equal issue of shares and are taken to have consented to be a member of the defendant. The plaintiff was one of those persons and therefore became a member of the defendant after 13 October 1998.
A member is defined in s9 of the Corporations Law and I shall refer to that definition shortly.
Importantly, s766D(2) (d) brought into effect the proposed amendments of the constitution, business rules and listing rules of the defendant.
After 13 October 1998 the defendant has not been regulated by Articles of Association but has been regulated by its constitution, which provides the authority and indeed the obligation for the making and promulgating of business rules. Clause 13.1 of the constitution provides:
“The Company must make and promulgate business rules concerning:
(a).... the maintenance and operation of markets and facilities operated by the Company.
(b)the admission, recognition, rights and obligations of corporations and partnerships as participating organisations of the Company;
(c).... participating organisations’ access to and use of markets and facilities operated by the Company;
(d)the recognition, rights and obligations of other persons as affiliates of the Company;
(e).... consequences of breach of any such rules by a participating organisation or affiliate, including suspension and exclusion from the status of participating organisation or affiliate; and
(f)such ancillary and incidental matters as the Directors think fit.”
Business rules are not defined in the constitution itself.
However, cl1.3 of the constitution provides:
“Unless a contrary intention appears, expressions used in this constitution which are defined in the Corporations Law have the same meanings as in the Corporations Law.”
The term business rules is defined in the Corporations Law.
Chapter 7 of the Corporations Law deals with securities. Part 7.1 deals with the interpretation of the provisions contained within Chapter 7. Part 7.1A is that part relating to the Australian Stock Exchange Limited and contains the sections to which I have already referred together with s766E to s766I.
Section 761 which is contained within part 7.1 defines ‘business rules’ in the following terms:
“business rules”, in relation to a body corporate, means:
(a).... in the case of a body corporate that conducts, or proposes to conduct, a stock market - any rules, regulations or by-laws that are made by the body corporate, or that are contained in its constitution, and that govern:
(i)the activities or conduct of that stock market; or
(ii)the activities or conduct of persons in relation to that stock market;
......... other than rules, regulations or by-laws that are listing rules of the body corporate; and
(b)otherwise - the provisions of the constitution of the body corporate and any other rules, regulations or by-laws made by the body corporate;”
Nothing could be clearer, in my opinion, than the definition of business rules in s761 is incorporated within the constitution of the defendant and can be understood to define the business rules of the defendant.
Clause 1.9 of the Constitution provides:
“The provisions in Articles 1 to 25 make up the Company’s “constitution” as defined by the Corporations Law and apply in substitution for and to the exclusion of the memorandum and articles of the Company which together made up its constitution after commencement of section 3 of the Company Law Reform Act 1998.”
The plaintiff argues that on 13 October 1998, when the defendant changed its type and adopted the constitution which, by virtue of cl1.9, applies in substitution for and to the exclusion of the Memorandum and Articles of the company which regulated the company before 13 October 1998, the Articles were repealed and so also were the Rules made under those Articles. At that time, the plaintiff argues, the plaintiff ceased to be a member of the defendant in accordance with the provisions of the Articles and his status with the defendant was thereafter regulated by the constitution and the business rules.
The business rules have further statutory recognition in s772A of the Corporations Law. That section provides:
“The business rules of a securities exchange have effect, by force of this section, as a contract under seal:
(a) between the exchange and each member; and
(b) between a member and each other member;
under which each of those persons agrees to observe and perform the provisions of the business rules as in force for the time being, so far as those provisions are applicable to that person.”
Section 772A provides that the business rules have the effect of a contract under seal between the defendant and a member so that the members agree to observe and perform the provisions of the business rules so far as those rules are applicable to that person.
Member is defined in s9 of the Corporations Law in the following terms:
“member”
(aa).. in relation to a managed investment scheme means a person who holds an interest in the scheme; or
(a)when used in Chapter 6 or Chapter 7 (except Part 7.1A and the provisions mentioned in paragraph (aa) of this definition) in relation to a securities exchange or stock exchange, means:
......... (i) a person who is a member organisation of that exchange; or
(ii)a person who is a partner in a partnership that is a member organisation of that exchange; or
(aa).. when used in section 769, 769A or 772A, subsection 776(2), section 779, subsection 786(8) or 910(3) or section 913 or 1115, in relation to a securities exchange or stock exchange, means:
(i)a person who is a member organisation of that exchange; or
(ii)a person who is a partner in a partnership that is a member organisation of that exchange; or
(iii)a person who is recognised under the business rules of the exchange as a suitably qualified affiliate of the exchange and who is involved in the carrying on of a business of dealing in securities (whether as an employee, director or in any other capacity); or
(b).... in relation to a body corporate that is, or proposes to become, a futures organisation - has a meaning affected by section 56; or
(c)in relation to a company registered under the Corporations Law of any jurisdiction - a person who is a member under section 246A.”
For the purpose of s772A it is the second sub paragraph (aa) which applies. In particular, in relation to the plaintiff it is the second sub paragraph (aa) (iii) which is relevant.
Section 772A applies to the plaintiff. That is because the business rules apply to him.
Those rules apply to him by reason of cl5A.1(6). That sub rule provides:
“(6).. A person who is a natural person and is a member of the Exchange immediately prior to the Transition Time is deemed to be recognised as an Affiliate by the Exchange at the Transition Time.”
The transition time is the day notified in accordance with sub section 766C (1) of the Corporations Law, that is 13 October 1998. Therefore, as the plaintiff was a member of the defendant immediately prior to 13 October 1998 he is recognised as an affiliate by the defendant on 13 October 1998.
It follows, therefore, that the provisions of s772A apply to him and therefore the business rules as between himself and the defendant operate as a contract under seal by which he agrees to observe and perform the provisions of those rules so far as they are applicable to him.
From the history of those events and the legislation to which I have referred, the position can be summarised to this point. On 13 October 1998, the defendant changed its type. Immediately before its change of type the plaintiff was a member of the defendant and bound contractually by its Articles and the Rules made under the Articles of Association. After the defendant changed its type the plaintiff remained a member of the defendant and is bound by the constitution of the defendant. The defendant became an affiliate of the defendant and as such those rules had the effect of a contract under seal between the defendant and the plaintiff.
I think none of the above is really disputed by the plaintiff. I think he accepts, by reason of the statutory provisions, the constitution and rules that on 13 October 1998, he became an affiliate of the defendant.

Before I deal with the transitional provisions upon which the plaintiff’s argument relied, which was that the Notice of Charges lapsed by reason of the change of type of the defendant, I should deal with an alternative argument put by the plaintiff in relation to his status as an affiliate.
On 2 November 1998, the plaintiff’s solicitors wrote to the defendant’s solicitors, referring the defendant’s solicitors to various statutory provisions, the constitution and the rules of the defendant to which I have referred. In that letter the plaintiff’s solicitors recognised that the plaintiff became an affiliate on 13 October 1998 and asked the defendant’s solicitors to have their client acknowledge that the defendant could not further prosecute the charges contained in the Notice of Charges and acknowledge that the National Adjudicatory Tribunal could not hear and determine those charges. They sought that acknowledgment by Tuesday 3 November 1998. The defendant’s solicitors replied within the time demanded but refused to give the acknowledgment on behalf of their client.
On 2 November 1998, the plaintiff also wrote to the chairman of the defendant in the following terms:
“I have decided to permanently retire from the stockbroking industry and hereby surrender my status as an Affiliate, which I hope, will be accepted forthwith.”
In support of this application for an injunction the plaintiff claimed, at the time of swearing that affidavit, that he was no longer either a shareholder, a member or an affiliate of the defendant and in those circumstances there was no longer any contractual relationship between the defendant and himself.
At the time the plaintiff brought these proceedings he had not received any reply to his letter of 2 November 1998 purporting to permanently retire from the stockbroking industry and purporting to surrender his status as an affiliate of the defendant.
However, the ASX replied to the plaintiff’s letter on 20 November 1998 in the following terms:
“I refer to your letter dated 2 November 1998 to the Chairman of Australian Stock Exchange Limited (“ASX”) concerning your surrender of recognition as an Affiliate of ASX.
ASX has considered your letter of surrender and resolved, pursuant to ASX Business Rule 5A.1.6, not to accept the surrender of your recognition as an Affiliate of ASX at this time and to defer further consideration of the issue until outstanding disciplinary proceedings before the National Adjudicatory Tribunal have been finally determined or otherwise disposed of, including any appeal rights.”
During the trial, plaintiff’s counsel alluded to his client’s resignation as an affiliate and suggested that that was a further reason, apart from a construction of the statute, constitution and rules as to why the defendant could not proceed to hear the charges and why, in particular, the National Adjudicatory Tribunal could not hear those charges.
It was submitted, during the trial, that the defendant had unreasonably refused to accept the surrender by the plaintiff of his status as an affiliate. It was further submitted that the plaintiff was entitled to a declaration that he was no longer an affiliate of the defendant and was entitled to the injunction in the terms sought because, being no longer an affiliate of the defendant, he could not be subject to disciplinary proceedings by the defendant.
The plaintiff, in an affidavit sworn after the completion of the hearing on 30 November 1998, said that on 6 November 1998 he ceased to hold a proper authority from Todd Partners Stockbroking Pty Ltd, by whom he had been employed prior to his letter of 2 November 1998. He exhibited a copy of his former employer’s advice to the Australian Securities and Investments Commission relating to his ceasing to hold a proper authority. He also said, in that affidavit, that he had retired from the stockbroking industry and no longer devoted any part of his week to the business of Todd Partners Stockbroking Pty Ltd, Thompson Brindal Pty Ltd or any other stockbroking firm either as a partner, officer, employee, securities representative, or at all. He, however, remains a director of Thompson Brindal Pty Ltd but whilst he still is a director of that company his director’s duties do not occupy any time because the company no longer trades.
The defendant did not object to my receiving the plaintiff’s further affidavit sworn on 30 November 1998, nor the further submissions which were made on behalf of the plaintiff in respect of that matter. With respect, that was a sensible attitude because it is necessary that all of the matters between the parties be resolved so that the both parties can know whether the charges may be determined by the National Adjudicatory Tribunal. The defendant did not seek to adduce any further evidence on this matter but it did make submissions in opposition to the plaintiff’s argument.
I accept that the plaintiff has retired from his employment with Todd Partners Stockbroking Pty Ltd and has retired from the stockbroking industry generally. I do not think that his directorship of Thompson Brindal Pty Ltd means that he is still active within the industry. That company has not traded for a considerable period of time. I also accept that he gave notice to the ASX on 2 November 1998 and that the ASX replied on 20 November in the terms to which I have referred in their respective letters.
The first question is whether the ASX is entitled to refuse to accept the surrender of the defendant’s status as an affiliate and, moreover, whether it is entitled to refuse to accept the surrender of that status for the reason it gave, namely because there were outstanding disciplinary proceedings before the National Adjudicatory Tribunal which have not been finally determined.
I do not think there can be any doubt that the plaintiff sought to surrender his status as an affiliate of the defendant to avoid the National Adjudicatory Tribunal determining the charges contained in the Notice of Charges of 12 January 1998. By the same token, there can be no doubt that the defendant has refused to accept the surrender of that status so that it may allow the National Adjudicatory Tribunal to hear and determine those charges.
The short question is whether the respective parties are entitled to take their respective stands.
It was put by the plaintiff that, having regard to his retirement from Todd Partners Stockbroking Pty Ltd, and his retirement generally from the industry, the plaintiff now is at risk that his status, as an Affiliate, will be cancelled pursuant to Rule 13.6.1 of the Business Rules. That Rule provides that the defendant can request an affiliate who is, in the opinion of the defendant, no longer devoting the substantial part of the working week to the business of a Participating Organisation as a partner, officer, employee or securities representative or does not hold any necessary license pursuant to the Corporations Law or proper authority from the licensee to show cause, by appearing before the National Adjudicatory Tribunal, why he or she should not cease to be an affiliate.
The plaintiff’s case is that, having regard to his present circumstances, he is at risk of being called before the Tribunal and having his status as an affiliate cancelled.
It was said that to refuse to accept the surrender by the plaintiff of his status as an affiliate gives rise to the untenable situation that the defendant will not accept his surrender in circumstances where it might itself put in motion, steps to cancel his status as an affiliate.
It was put that it was impermissible of the defendant to refuse to accept the surrender of the affiliate’s status solely to enable disciplinary proceedings to be pursued by the defendant and not for any reason that goes to a question of the basis of the surrender by the plaintiff.
In particular, it was submitted, that by refusing to accept Mr McLachlan’s surrender of his status, the defendant is purporting to require the plaintiff to continue in a contractual relationship in which the plaintiff has no desire to continue even though he has a contractual right to elect to remove himself by the surrender of his affiliate status.
It was submitted that the surrender of his status as an affiliate, whilst the Notice of Charges remains pending, does not deprive the ASX of any part of its supervisory role with respect to the Securities Exchange in that the plaintiff’s surrender of his affiliate status will give rise to the same practical result as if his status were cancelled by the National Adjudicatory Tribunal. The only difference, it was submitted, would be that there would be no finding by the National Adjudicatory Tribunal on the record.
Further, it was submitted, the absence of any finding in relation to the claim by the defendant that the plaintiff has been guilty of prohibitive conduct is not a matter of consequence because if the plaintiff wished to subsequently resume the status of an affiliate then the plaintiff would have to satisfy the procedure in business rule 5A.1.1(2). This would require him to convince the ASX that the ASX should have no reason to believe that he is not of good fame and character and high business integrity, and that the ASX should have no reason to believe that he would not carry out his obligations as an affiliate, efficiently, honestly and fairly.
The defendant, in its letter of 20 November 1998 and in its submissions in response to this claim, made it clear that it was refusing to accept the plaintiff’s surrender of its recognition as an affiliate because of the charges which were pending against the plaintiff. Those charges, the defendant asserted, relate to substantial losses incurred by the clients of Retireinvest and are of a serious nature. If the charges are established before the National Adjudicatory Tribunal, the plaintiff will become liable to the imposition of substantial penalties. I have already referred to the penalties which apply under Article 52. The plaintiff may become liable to a fine not exceeding $100000. He may be required to pay the total commission or gross profit or any part thereof arising from the transactions, the subject of the inquiry, to the ASX or to the Board. He may be expelled from the defendant and his name may be published in a public register.
The defendant submitted that it had an obligation to enforce compliance with its rules and to discipline affiliates in respect of conduct prescribed by the defendant and, in those circumstances, it was reasonable for the defendant to retain the discipline of members or affiliates.
In my opinion, the defendant does have an obligation to enforce compliance with its rules and to discipline affiliates in respect of conduct which is prohibited either by its former Articles and rules made under the Articles or by its constitution and business rules made under that constitution.
The defendant occupies an important place in the commercial fabric of Australian society and its affiliates play an important part in transactions in which many sectors of the public and many members of the public take part. It is not only in the interests of the defendant that it uphold its own constitution and rules, but it is in the public interest, in my opinion, that it do so. The public interest is served by the defendant requiring the highest standards of behaviour and conduct on the part of its affiliates and ensuring compliance with the standards which it has set. It has a continuing obligation to ensure that the purposes, for which it exists, are served. Those purposes will only be served by ensuring the highest standards of behaviour of its affiliates.
In my opinion, the defendant has not acted unreasonably in refusing to accept the surrender by the plaintiff of his status as an affiliate. It is not unreasonable to refuse to accept that surrender because such a refusal means, assuming that the secondary argument put forward by the plaintiff is not accepted, that the defendant will retain jurisdiction to deal with one of its affiliates.
In my opinion an affiliate submits himself or herself to the jurisdiction of the defendant, in relation to the conduct prescribed by the defendant, of its affiliates. The affiliate may not, in my opinion, oust the jurisdiction of the defendant to consider charges in relation to prohibited conduct by simply surrendering his status as an affiliate of the defendant. If it was otherwise it would mean that an affiliate could breach any aspect of the conduct prescribed by the defendant and escape any of the penalties prescribed for a breach of that conduct by simply surrendering his or her status as an affiliate. It would mean that the penalties provided for in the constitution and rules would be to no avail. If the affiliate was entitled, at any time, to surrender his or her status, even though the affiliate was subject to charges of prohibited conduct, it would mean that the affiliate could sit through a hearing of the National Adjudicatory Tribunal and, if it appeared as though the National Adjudicatory Tribunal might reach a decision adverse to the affiliate, the affiliate could simply surrender his or her status so as to avoid a finding of prohibited conduct and avoid the very serious pecuniary penalties which might follow.
In my opinion, that cannot be so.
It is implicit in the relationship between affiliates and the ASX that once the ASX, pursuant to its constitution and rules, lays charges for the consideration of the National Adjudicatory Tribunal, then the ASX may refuse to allow an affiliate to surrender his or her status pending the hearing and determination of those charges.
In R v General Medical Council (1930) 1KB 562 the Court of Appeal was called upon to consider a claim by a medical practitioner that he was entitled to have his name removed from the medical register notwithstanding that allegations had been made to the General Council of Medical Education and Registration of the United Kingdom that the practitioner had been guilty of conduct which, if made out, constituted infamous conduct in a professional respect. Whilst the decision depended, in some respects, upon construction of the Medical Act 1858, Scrutton LJ said at 569:
“And it is idle to suppose that a registered medical practitioner who has been charged with infamous conduct in a professional respect may avoid all inquiry into his conduct by the simple means of a request to have his name taken off the register. To allow this escape would defeat the object of s29, which is to enable the General Medical Council to strike a man’s name off the register, not at his request but at their discretion, either because he has been convicted of felony or misdemeanour or because he has been guilty of infamous conduct in a professional respect.”
That dicta of Scrutton LJ did not depend upon any particular construction of the Act. The object to which his Lordship was referring is the same object, at least in part, as the object of disciplinary proceedings provided for by the defendant.
In R v Wilson, Ex Parte Robinson (1982) Qd.R 642 an architect was brought before a disciplinary committee constituted under the Queensland Chapter of the Royal Institute of Architects. The Articles of Association of the Institute provided for a disciplinary committee which was itself empowered to inquire into and determine allegations of professional misconduct. A complaint of professional misconduct was made against a member of the Institute and referred to the disciplinary committee. Whilst the matter was before the committee the member of the Institute resigned from the membership of the Chapter. He then sought an order in the nature of prohibition directed to the Disciplinary Committee of the Royal Australian Institute of Architects seeking to prevent that body from continuing with the disciplinary inquiry.
The Article which gave rise to the power of the disciplinary committee was in the following terms:
“The Disciplinary Committee will hear the matters complained of and after doing so if it finds misconduct proving award any one of the following punishments either singly or in combination:
(a)     reprimand
(b)     suspension for a stated period not exceeding two years
(c)     expulsion.
The Disciplinary Committee may also order that the costs of the Institute in respect of the matter be paid by the member or members provided that costs payable by the member must not exceed the sum of $500.”
For reasons which are unimportant in the present case, the Full Court determined that a prerogative writ did not lie to the Disciplinary Committee of the Royal Australian Institute of Architects
However, the Court expressed obiter dicta, its views upon the member’s prospects of success even if a remedy was available to the member. Connolly J (with whom Lucas SPJ and Kelly J agreed) said at 646/647:
“I am, however, not persuaded that there is any substance in the submission that the authority of the Disciplinary Committee, as a matter of contract came to an end with the prosecutor’s resignation from the Institute. The short statement which I have given above of the procedure provided by article 54 shows that it is initiated by the submission to the Institute of a report alleging misconduct by a member. The subsequent steps provided by article 54 are imperative requirements of the contract between the prosecutor and his fellow members and the Institute. It is natural that the draftsman when referring to the person the subject of the report should refer to him as the member. It is therefore natural that as a matter of drafting the right to representation is conferred upon “the member” and that a discretionary power in the Disciplinary Committee to order the payment of costs should refer to their payment by the member. So far as publication of the determination of the Disciplinary Committee is concerned, the article provides that “the member” shall be deemed to have consented. However in my judgment it is to read too much into the reiteration from time to time of the word member to say that on the proper construction of article 54 the provisions made for the successive steps of this consensual arbitration ceased to operate because he has resigned. If this was so, as was pointed out in argument he might sit through the hearing as a member and avoid the ultimate determination by resigning at the last moment or could even hear a determination of misconduct and avoid an order for costs by then resigning. It may be, as Mr Dowsett contended, that the operation of article 54 is conditional only upon the person the subject of a complaint of misconduct having been a member at the time of the alleged misconduct. It is not necessary for the purpose of this decision to go so far. It is clear in my judgment that a person who is a member when the report which initiates the disciplinary machinery is received by the Institute has contracted that he will submit to the progressive steps provided for by the article and that his subsequent resignation can have no effect upon that contractual submission.”
In my opinion, the plaintiff did agree with the defendant that he would submit to the jurisdiction of the defendant as provided for by the Articles and Rules of the defendant, and thereafter by the constitution and business rules of the defendant, in relation to any charge brought by the defendant for breaches of its Articles or Rules or constitution or business rules. In my opinion the plaintiff agreed both before and after 13 October 1998 that he would, subject to any right of appeal, abide by any finding of the National Adjudicatory Tribunal in an inquiry into his conduct. He further agreed that he would, if prohibited conduct was established, submit to any penalty lawfully imposed. Further, he agreed that he would not, prior to 13 October 1998, resign as a member and after 13 October 1998 surrender his status as an affiliate whilst there were charges which had not been heard and determined by the National Adjudicatory Tribunal. Implicit in that agreement is the further agreement that if he did purport to surrender his status as an affiliate of the defendant, the defendant was entitled to refuse to accept that surrender whilst charges relating to prohibited conduct remained unresolved.

In those circumstances it is not unreasonable for the defendant to refuse to allow the plaintiff to surrender his status as an affiliate pending the hearing and determination of those charges.
In my opinion, the plaintiff’s claim for an injunction, in so far as it is based on that ground, must be dismissed.
That, however, still leaves for determination whether the charges which were laid on 12 January 1998 can still be heard and determined by the National Adjudicatory Tribunal having regard to the defendant’s change of type on 13 October 1998.
I had reached the point, before I digressed to deal with the plaintiff’s secondary argument, of identifying the changes in the internal regulation of the defendant and the effect upon the plaintiff’s membership.
The plaintiff argues that the repeal of the Articles and the Rules made under the Articles means that the National Adjudicatory Tribunal has no jurisdiction to continue to hear the charges laid under the repealed Articles and Rules. Further, he argues, the transitional provisions under the constitution and the business rules do not save the procedures in place for disciplinary proceedings prior to 13 October 1998.
I do not, with respect, agree with that argument.
The transitional provisions in the constitution are contained in Article 25 which relevantly reads:
“25.1......... This constitution must be read and construed in such manner that:
...
(b).... every committee and tribunal constituted under the articles of association of the Company in force before the Transition Time continues to exist and to function subject to and shall be regarded as appointed under this Constitution;
...
(f).... unless a contrary intention appears, all persons things and circumstances appointed or created by or under the articles of association of the Company in force before the Transition Time shall continue to have the same status, operation and effect after the Transition Time.”
Article 25.1.(b) means, in my opinion, that the National Adjudicatory Tribunal, which was established pursuant to Article 55A of the Articles prior to 13 October 1998, continues to exist after the appointed day and after that date must be understood to be regarded as appointed under the constitution.
Article 25.1(f) of the Constitution is a little more difficult to understand. I think, however, in its terms it would include the Notice of Charges which were laid under the Articles of Association of the company in force before the Transition Time and therefore those charges must continue to have the same effect after the transition time. The charges are things created under the Articles of Association.
The business rules also include transitional provisions which are in the following form:
“Transitional Provisions
“1..... Any act or thing done under or for the purposes of a provision of the Business Rules as in force prior to the Transition Time (“Old Business Rules”) has effect from that date as if it had been done under or for the purposes of the corresponding provision of the Business Rules that come into force at the Transition Time (“New Business Rules”).
2.Subject to Rule 1, the rescission of the Old Business Rules and the approval of the New Business Rules do not disturb the continuity of status, operation or effect of any act or thing done under or for the purposes of the Old Business Rules.
3...... In Rules 1 and 2, “act or thing done” includes, but is not limited to:
(a)the making of a determination or passing of a resolution;
(b)the granting or exercise of a power, including a delegated power;
(c)the execution of a document; or
(d)the appointment of any person to, or removal of any person from, an office or position.”
The transitional provisions in the business rules only refer to the old business rules made under the Articles. The transitional provisions do not refer to the Articles themselves.
The plaintiff argued that Article 52 of the Articles of Association has been repealed. It is said, therefore, there is no conduct which may be described as prohibited conduct. The re-enactment of an equivalent provision in r13.5.1 of the business rules does not save Article 52. It was argued that the repeal of Article 52 prevents the Board and the National Adjudicatory Tribunal proceeding further with a charge under Article 52.
The plaintiff also argued that the transitional provisions to which I have referred do not save the charges themselves. The Notice of Charges laid on 12 January 1998 are not, so the plaintiff submitted, within Article 25.1(f) of the constitution. The Constitution does not attempt to save any offence or notice of charge laid under the Articles.
The new business rules provide that any act or thing done under or for the purpose of the old business rules has effect from the 13 October, as if it had been done under or for the purpose of the corresponding provisions of the business rules that have come into force on 13 October 1998. It was argued, however, that those provisions do not save the charges because neither the offence alleged nor the Notice of Charges are acts or things which were done under or for the purposes of the Rules made under the Articles or as they are called in the business rules “the old business rules”.
Therefore, it was argued that because the charges were not dealt with before 13 October 1998, they have not survived the change of type by the plaintiff and cannot now be dealt with.
The plaintiff’s argument in relation to the transitional provisions in the business rules overlooks, in my opinion, the definition of ‘business rules’ in s761 to which I have already referred. That provision applies to the business rules made under the constitution. It means, in the case of the defendant, any rules that are made by the body corporate, or that are contained in its constitution, and that govern the activities or conduct in relation to a stock market, or the activities or conduct of persons in relation to that stock market.
The definition of ‘business rule’, for the reasons I have already given, applies to the constitution. So also, in my opinion, does it apply to the ‘business rules’ made under the constitution. Where the business rules use the expression ‘business rules’ it is used in the same terms as the expression is used in the constitution, i.e. in the terms of s761 of the Corporations Law. The term ‘business rules’ could not have a different meaning to that in the Constitution otherwise the business rules would conflict with the constitution. Both the constitution and the business rules use the expression ‘business rules’ as defined in s761.
There is no doubt, in my opinion, that the expression ‘business rules’ used in the transitional provisions has the meaning prescribed by s761 of the Act. It was argued by the plaintiff that because in the transitional provisions business rules are described as “Business Rules”, the rules refer only to the business rules which were formerly called the Rules prior to 13 October 1998. That cannot be right. If it was only intended to refer to the Rules made under the Articles of Association, rather than rules contained within the Articles of Association and the Rules made under the Articles of Association, then one would have thought the draftsman of cl1 of the transitional provisions of the business rules made under the constitution would have simply referred to the Rules. The Rules made under the Articles of Association were never described as business rules but were only described as rules.
In my opinion, the transitional provisions in cl1 of the business rules refer to and save, within the terms of cl1 itself, those rules whether in the Articles or the Rules made under the Articles which governed the activities or conduct of persons in relation to the stock market.
In my opinion, the definition of business rules is such that it picks up any business rules before 13 October 1998 whether: (i) in the Articles or the Rules made under the Articles; or (ii) since 13 October any rules made under the constitution or the business rules which govern the activities or conduct of persons in relation to the stock market.
In those circumstances the acts done under the Articles and Rules have effect, from 13 October, as if those acts had been done under or for the purpose of corresponding provisions of the business rules made under the constitution and having effect after 13 October 1998.
Clause 2 of the transitional provisions provides that the rescission of the Old Business Rules (which include all of those rules contained in the Articles) and the Rules which govern the activities or conduct of persons in relation to a stock market and the approval of the business rules made under the constitution post 13 October 1998 does not disturb the continuity of status operation or effect of any act or thing done under or for the purposes of the old business rules.
Clause 2 of the transitional provisions of the new Rules provide that the rescission of the old business rules does not disturb the continuity of status, operation or effect of any act or thing done under or for the purposes of the old business rules. The clause there must be referring to business rules as it is understood in the transitional provisions itself and the old business rules referred to must be as defined under s761 of the Corporations Law.
That means that cl2 has the effect of providing that the rescission of any rules made by the body corporate, or that are contained in its constitution, and that govern the activities of conduct of persons in relation to that stock market, are not disturbed by the approval of the new rules. In particular those business rules which are made by the body corporate or contained in the Articles and that govern the activities of conduct of persons in relation to the stock market continue to have the same status that they would have had and had the same operation and effect as they would have had notwithstanding the rescission of the old business rules and the approval of the old business rules. In particular, the transitional provisions of the new rules allow that any steps taken in disciplinary proceedings pursuant to the old Articles or the old Rules will have effect as if they had been taken under the corresponding provisions of the new Rules. The adoption of the constitution and the new Rules, therefore, does not affect the continuity of the status, operation or effect of the procedures taken in the disciplinary proceedings initiated against the plaintiff during the period from 12 January to 13 October 1998.
In my opinion, the transitional provisions are quite clear. They provide for the continuity of any rules made within the constitution, i.e. the Articles or any Rules made under that constitution which govern the activities or conduct of persons in relation to a stock market. Therefore, they preserve the provisions of Article 52 in so far as any act or thing that has been done under that Article prior to the 13 October 1998 and they do not disturb the continuity of the effect of anything done under that Article. Moreover, the provisions of Article 55A are also preserved for reasons already given.
It follows that the transitional provisions of the business rules made under the constitution after 13 October 1998 have the effect of providing that any disciplinary steps taken under Articles 51 or 52 have effect as if they have been taken under the corresponding provisions of the business rules made under the Constitution. The adoption of the constitution and the business rules on 13 October 1998 does not affect the continuity or status, operation or effect of those disciplinary steps taken against the plaintiff prior to 13 October 1998.
In my opinion the culmination of the transitional provisions in the constitution and the transitional provisions in the business rules save the charges, and the steps taken pursuant to those charges after the company changed its type on 13 October 1998, and the National Adjudicatory Tribunal is empowered to consider the Notice of Charges brought against the plaintiff on 12 January 1998.
The defendant argued that it was also entitled to rely upon s766B(1)(c) which provides that the change of type of the defendant does not render defective any legal proceedings. It argued that legal proceedings are any proceedings brought before a court, tribunal or other body which has power to make an enforceable adjudication; Guilfoyle v Home Office (1981) 1 ALR 943. It further argued that disciplinary action commenced by the defendant against the plaintiff is a legal proceeding within the meaning of s766D(1)(c) and is preserved free from defect by virtue of that subsection, notwithstanding the repeal of the Articles upon the change of type taking effect.
Having regard to my reasons I do not have to decide that matter. However, I am inclined to think that the expression “legal proceedings” in s766D(1)(c) would not include disciplinary proceedings commenced by the defendant for hearing by a tribunal established by it against one of its members. I think “legal proceedings” in s766D(1)(c) means proceedings brought by or against the defendant in a court or tribunal other than a tribunal erected by the defendant pursuant to its own articles or constitution.
In any event, I do not need to decide that matter.
For the reasons I have already given, in my opinion, the plaintiff’s claim must fail.

[1998] SASC 6995

18 December 1998