Moore and Australian Securities and Investments Commission

[2008] AATA 1164

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 1164

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/3783

GENERAL ADMINISTRATIVE DIVISION        )

ReBRENDAN BIRCH MALLORY MOORE

Applicant

AndAUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

TribunalJustice Downes, President

The Hon R J Groom, Deputy President

Ms A F Cunningham, Senior Member

Date              23 December 2008

PlaceHobart

Decision1.The decision under review is affirmed.

2.     The confidentiality order made on 4 September 2008 is varied by:

1.    Substituting “30 January 2009” for “further order”.

2.Substituting “as the Financial Adviser” for “by the letters PYVM” in paragraph 1.

3.Adding as paragraph 5:

“5.Nothing in these orders precludes the Tribunal from publishing its reasons for decision.”

..................[sgd]................................

Garry Downes
  President

CATCHWORDS

CORPORATIONS – banning order – power to make banning order – meaning of “convicted of fraud” – definition of “serious fraud” affects meaning – conviction under s 64(1)(b) of the Australian Securities and Investments Commission Act 2001 (Cth) amounts to “conviction of fraud” under s 920A of the Corporations Act 2001 (Cth).

Acts Interpretation Act 1901 (Cth) s 15AA

Administrative Appeals Tribunal Act 1975 (Cth) s 35

Australian Securities and Investments Commission Act 2001 (Cth) s 64(1), (3)

Corporations Act 2001 (Cth) ss 9, 920A(1), (3)

Howarth v Australian Securities and Investments Commission (2008) 101 ALD 602

Scott v Metropolitan Police Commissioner(Reg. v Scott) [1975] AC 819

Welham v Director of Public Prosecutions [1961] AC 103

REASONS FOR DECISION

23 December 2008 Justice Downes, President
The Hon R J Groom, Deputy President
Ms A F Cunningham, Senior Member

Conclusion

1.      The Australian Securities and Investments Commission made a banning order prohibiting Brendan Birch Mallory Moore from providing financial advice for eighteen months.  The power depended on Mr Moore having been “convicted of fraud” (Corporations Act 2001 (Cth) s 920A(1)(c)). Mr Moore had been convicted of making a false or misleading statement in the course of an examination pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth)(ASIC Act s 64(1)(b)). The sole question is whether such a conviction is, in accordance with the legislation, a conviction of fraud. We have decided that it is.

Facts

2.      The circumstances giving rise to the charge were that Mr Moore falsely stated in the course of his examination that a signature on a form of Authority to Proceed was his client’s signature.  The magistrate hearing the case found that “the only reasonable hypothesis … is that the Defendant failed to comply with his obligations to supply Mr Moore with… documents, manufactured file notes to give the impression that he had, and that his evidence concerning the signature on the document Authority to Proceed is false.” 

Issues

3. The question we must determine is what is the meaning of “convicted of fraud” in s 920A(1)(c). This involves consideration of whether that meaning is influenced by the exclusive definition (s 9 of the Corporations Act) of “serious fraud” as meaning “an offence involving fraud or dishonesty” provided two conditions are satisfied.

Applicant’s Case

4. On behalf of the applicant it is argued that the conviction under s 64 of the ASIC Act was not a conviction of fraud. This is because, so the argument goes, the use of the phrase “convicted of fraud” draws attention to the elements of the offence not the underlying conduct. The necessary offence being one of fraud, there must have been both knowledge that the statement was false and an intent to advantage the maker or disadvantage the hearer. It is argued that the offence under s 64 neither includes any element of knowledge nor any element of intent to advantage or disadvantage. It follows that whether or not the applicant knew that the statement was false or misleading and whether or not the statement was made to advantage him or disadvantage the Australian Securities and Investment Commission, he was not convicted of any offence incorporating these elements. A burglar charged with theft is convicted only of an offence comprising the elements of theft even though he might have been guilty of burglary.

5. The applicant accepts that the reference to “fraud” in s 920A(1)(c) is, at least, a reference to fraud as it is known to the criminal law branch of the common law. So what are the elements of fraud in the common law?

Common Law Fraud Involves Two Elements

6. It is first appropriate to say that the elements of an offence involving fraud will almost always depend on the context in which the element of fraud arises. The element of fraud in an offence of fraudulent misappropriation may be different to the element of fraud in an offence of fraudulent conversion and both may be different to the element of fraud in an offence of fraudulent omission to account. We are not, however, dealing with the characterisation of an offence which uses the word “fraud”. The word does not appear in s 64. We are dealing with the question whether conviction of an offence which does not use the word nevertheless amounts to a conviction of fraud.

7.      The first basis upon which the applicant seeks to refute this possibility is to argue that the elements of the offence do not answer the description “fraud”.  To test this it is necessary to ask what are the elements of fraud when they are not identifiable in a context. 

8.      The most frequently cited statement of what amounts to “fraud” appears in the speech of Lord Radcliffe in Welham v Director of Public Prosecutions [1961] AC 103. In dealing with “intent to defraud” his Lordship said (at 123):

Now, I think that there are one or two things that can be said with confidence about the meaning of this word “defraud”.  It requires a person as its object: that is, defrauding involves doing something to someone.  Although in the nature of things it is almost invariably associated with the obtaining of an advantage for the person who commits the fraud, it is the effect upon the person who is the object of the fraud that ultimately determines its meaning.  This is none the less true because since the middle of the last century the law has not required an indictment to specify the person intended to be defrauded or to prove intent to defraud a particular person. 

He also said this (at 124):

But in that special line of cases where the person deceived is a public authority or a person holding a public office, deceit may secure an advantage for the deceiver without causing anything that can fairly be called either a pecuniary or an economic injury to the person deceived. 

In Scott v Metropolitan Police Commissioner (Reg. v Scott) [1975] AC 819, which related to conspiracy to defraud, Viscount Dilhorne equated “fraudulently” with “dishonestly” and continued “…the words ‘fraudulently’ and ‘defraud’ must ordinarily have a very similar meaning” (at 839). He then said this (at 839):

In Welham v Director of Public Prosecutions [1961] AC 103, 124 Lord Radcliffe referred to a special line of cases where the person deceived is a person holding public office or a public authority and where the person deceived was not caused any pecuniary or economic loss…

9.      Lord Diplock, who agreed with Viscount Dilhorne, also separately dealt with public offices (at 841):

Where the intended victim of a ‘conspiracy to defraud’ is a person performing public duties as distinct from a private individual it is sufficient if the purpose is to cause him to act contrary to his public duty, and the intended means of achieving this purpose are dishonest. The purpose need not involve causing economic loss to anyone.

10.     It may be taken that intent to advantage the actor or disadvantage the object is an element of fraud but that the intent need not relate to financial advantage or disadvantage. 

11.     The classic formulation of the knowledge element of fraud in the tort of deceit is the making of untrue representations “fraudulently…[knowing] they were false or [being] reckless, not caring whether they were true or false.” (Bullen & Leake & Jacob’s Precedents of Pleadings (16^th ed.) (2008) at 850).  Actual knowledge of falsity is not necessary. 

12.     The concept of fraud, accordingly, involves, at least, a fraudulent act, such as making a statement known to be untrue, and intent to advantage or disadvantage, although, in the case of a public official, the intent may be merely to affect the conduct of the official.

Applicant Not Convicted of Common Law Fraud

13. The offence of which Mr Moore was convicted was not an offence in which fraud, described as such, was an element. The words of the offence are “[making] a statement, that is false or misleading in a material particular” (ASIC Act s 64(1)). False or misleading statements may be made innocently. An issue will generally arise, however, as to whether the speaker took sufficient care to verify the truth of the statement. The offence under s 64 must contain such an element, reflecting the absence of some verification of the truth of the statement, because sub-section (3) contains a defence that the defendant “believed on reasonable grounds that [the statement] was true and not misleading.” One element in the offence is accordingly the absence of such a reasonable belief. It does not matter that the onus of raising the defence rests with the defendant. Whether or not a state of mind is an element in the offence does not depend upon who bears the onus of establishing or negating it. It depends upon whether the element is established, either by evidence or by operation of the legislation creating the offence.

14. Conviction under s 64 accordingly involves a determination that the false statement was made without reasonable belief in its truth. To that extent the statement in the present case satisfied that particular requirement for fraud. However, the offence appears to be capable of being established without any evidence of intent to advantage or disadvantage. There is no element associated with the purpose or intent of making the statement. The absence of any such element of intent means that the conviction does not carry with it that necessary element of fraud. Although we find that the purpose of the applicant was to affect the conduct of the examiner, in our view the conviction itself is not a conviction of common law fraud.

15. It follows that the applicant is correct in maintaining that a conviction under s 64 is not a conviction of fraud at common law.

Extended Statutory Definition of Fraud

16. It becomes important to examine the effect of the definition of “serious fraud” in s 9 of the Corporations Act. Whereas s 920A(1)(c) requires that a person be “convicted of fraud” the definition of “serious fraud” in s 9 requires only “an offence involving fraud or dishonesty” (emphasis added). 

17. Conviction of the offence under s 64 is a conviction of an offence which involves dishonesty. To make a false statement, without a reasonable belief in its truth, when there is a statutory obligation to be truthful, must amount to acting dishonestly even if it can be argued that the statement was not made to advantage or disadvantage.

18. It follows that although a person convicted under s 64 is not literally convicted of fraud the person is convicted of an offence involving dishonesty.

19.     Fraud and dishonesty have often been equated.  The speech of Viscount Dilhorne, quoted above, is an example.  Nevertheless, although all fraud must be dishonest, it may not be that all dishonesty is fraud.  When the two are equated they may generally be describing the first element of fraud.  To make a false statement to an investigating officer which amounts to a criminal offence will be dishonest without always being fraud. 

20.     The words of the definition require more than conduct amounting to fraud or dishonesty.  They require an offence involving fraud or dishonesty.  We are satisfied that the offence under consideration involves dishonesty.  We have explained why.  It may be that the offence also involves fraud.  It is not necessary, however, to decide this to determine whether the definition of “serious fraud” is satisfied.  This is because an offence involving either dishonesty or fraud satisfies the definition.  We accordingly find that the present offence is an offence involving dishonesty and may be an offence involving fraud. 

21. The legislature has declared by the definition that any offence involving fraud or dishonesty is an offence of serious fraud when two conditions are satisfied. The conditions are that the offence is an offence “against an Australian law or any other law” and that the offence is “punishable by imprisonment for life or for a period, or maximum period, of at least 3 months.” These requirements are satisfied here. The legislature has deemed dishonesty, as well as fraud, to be serious fraud. The legislature can hardly be taken to have determined that any such conduct is serious fraud but not simple fraud. Any interpretation of the definition which characterised all fraud or dishonesty as serious fraud, but not as simple fraud, would be contrary to modern canons of construction and the provisions of s 15AA of the Acts Interpretation Act 1901 (Cth).

Applicant Convicted of Fraud as Defined

22. We accordingly conclude that by being convicted of making a “statement, that [was] false or misleading in a material particular” under s 64(1) of the ASIC Act Mr Moore was convicted of “an offence involving fraud or dishonesty” within the definition of “serious fraud” in s 9 of the Corporations Act. By being convicted of “serious fraud” Mr Moore was “convicted of fraud” within s 920A(1)(c) of the Corporations Act and was accordingly liable to be subject to a banning order under that section.

23.     Our conclusion is strengthened by the fact that where, as here, the conviction is deemed to amount to “serious fraud” s 920A(3)(b) authorises the making of a banning order without the person being given an opportunity to be heard.  It is unlikely that the legislature would deny a right to be heard with respect to a conviction which did not attract the power in the first place. 

Howarth v ASIC

24.     In Howarth v Australian Securities and Investments Commission (2008) 101 ALD 602 Deputy President Forgie and Dr Hughes, Member, offered some views as to the use of the words “fraud”, “dishonesty” and “serious fraud” in the Corporations Act (at [121] to [122]). However, these observations were made in a different context to that before us. For the purposes we are considering we prefer the simple analysis which has led us to our conclusion. To the extent to which DP Forgie and Dr Hughes expressed the view, however, that dishonesty alone will not suffice and both elements of fraud must be present in an offence before the definition of “serious fraud” can operate to deem a conviction of an offence to be a “conviction of fraud” for the purposes of s 920A, we do not agree (see Howarth at [111] to [129]). We note that in Howarth (at [123]) the Tribunal appears to refer to s 912A(1)(c) in error for s 920A(1)(c).

Decision

25.     Because the only issue raised in this application for review is whether Mr Moore was convicted of fraud, and we have concluded that he was, the decision under review must be affirmed.

26. At the time these reasons for decision are published there is in place a confidentiality order under s 35 of the Administrative Appeals Tribunal Act 1975 (Cth). We propose to vary that order so that the applicant is described by the title “Financial Adviser” and to permit these reasons to be published. The order will remain in existence until 30 January 2009 when it will lapse. If an appeal is lodged, application can be made to the Federal Court for some further confidentiality order. We see no need for further confidentiality even if an appeal is instituted, but the Federal Court may take a different view. Unless the Tribunal is notified that some such order has been made these reasons will be published in full, referring to the applicant by name, after 30 January 2009.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Justice Downes, President, The Hon R J Groom, Deputy President, and Ms A F Cunningham, Senior Member.

Signed:   .................[sgd].......................................................
               Gregory Cooper, Associate

Date of Hearing:  25 November 2008
Date of Decision:  23 December 2008
Solicitor for the Applicant:                  Page Seager
Counsel for the Applicant:                 Mr D Barclay
Solicitor for the Respondent:             Australian Securities and Investments Commission
Counsel for the Respondent:           Mr A Abbott