Quinlivan v Australian Securities and Investments Commission

[2011] HCATrans 208

[2011] HCATrans 208

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B3 of 2011

B e t w e e n -

DUDLEY QUINLIVAN

Applicant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Application for special leave to appeal

HAYNE J
BELL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 12 AUGUST 2011, AT 12.06 PM

Copyright in the High Court of Australia

MR P.J. DUNNING, SC:   May it please the Court, I appear with my learned friend, MR G.J. RADCLIFF, for the applicant.  (instructed by Robinson & Robinson)

MR R.M. DERRINGTON, SC:   May it please the Court, I appear with my learned friend, MR D.E.F. CHESTERMAN, for the respondent.  (instructed by Australian Securities and Investments Commission)

HAYNE J:   Yes, Mr Dunning.

MR DUNNING:   Your Honours, can we start, please, with the conception of a corporation related to another that is the mandatory requirement of section 206F(2)(a) and before turning to the manner in which the error was made in the court and tribunal below and its broader implications, can we rehearse, but very briefly, a couple of factual matters relevant to that.  Can I ask your Honours please to go to page 5 of the application book in the decision of the delegate.  Your Honours will see in paragraph 17 at about line 30 a schedule that is recorded by the delegate and, in particular, the last entry your Honours will see as “Scottsdale”.

HAYNE J:   Yes.

MR DUNNING:   Your Honours will see the finding there was that Scottsdale had unsecured credits of $205,000 but that was the extent of the concern.  That matter is touched on very briefly in the Tribunal’s decision which your Honours will see at page 27 of the application book in paragraph 23 and, your Honours, it is the last dot point at about line 40.  Finally, your Honours, if we may take you, please, to the decision in the Full Court of the Federal Court at page 66 of the application book in paragraph 11 which your Honours will see at about line 40.  There is the reference to “Scottsdale Homes (No 10)”. 

Your Honours, we take you to those matters of fact for this reason.  Can we ask your Honours, please, to go to our outline, which your Honours will find at page 97 of the record, and what your Honours will see there is the last page of a three‑page table that is appended to the written submissions.  What that table does, your Honours, is to break down the individual companies and the extent of their indebtedness and summarise at the foot of that table in the second of the notes:

Total of creditors excluding Scotsdale on 18.09.05     $50,501,770.20

Total creditors including Scotsdale on 10.05.07.....$50,707,250.20

Your Honours, our learned friends would cavil with that, and your Honours will see that at page 114 of the application record, inasmuch as our learned friends record a debt to the Australian Taxation Office of $652,000 as well, minor in the scheme of the overall debt but, nonetheless, an alleged debt to the revenue of that sum would be a significant factor, but that, in our submission, is not borne out in the findings, that the findings justify only a conclusion that it was $205,000. 

Now, the significance of all of this, your Honours, is all of the companies that were the consideration of the disqualification order, other than Scottsdale No 10, were those companies that went into liquidation in around 2005.  Scottsdale No 10 is the only other company which appears later and, relevant to the debts of the first tranche of companies, Scottsdale No 10’s debt is de minimus.  That, your Honours, then takes us to the mandatory language of subsection (2)(a) of the relevant provision and that provision provides that:

In determining whether disqualification is justified, ASIC:

(a)must have regard to whether any of the corporations mentioned in subsection (1) were related to one another –

It does not seem to pick up the language of a related corporation as a defined expression in the Act, but rather seems to adopt this different form of words “must have regard to whether any of the corporations mentioned were related to one another”.  The reason for that is neatly summarised, in our respectful submission, in the decision of the Tribunal, and your Honours will see that at page 43 of the record at about line 50 where Dr McPherson and Mr McCabe record:

While evidence of contraventions will obviously be relevant to a decision to disqualify, the section has a different focus.  The operation of the section is triggered by evidence of a pattern of failure.

Then it goes on to give some authority for that.  In our respectful submission, that neatly summarises the operation of section 206F in contradistinction to 206C or 206E, for example, that are focused on particular contraventions or the like.  Section 206F is not focused on particular contraventions.  Indeed, it does not require contraventions.  What it is focused upon is a pattern of failure within a nominated period of time.  Thus, determination of whether those 2005 windings-up, if I can use that compendious expression, were in relation to the corporations which came within the provision of (2)(a), that is, corporations related to one another, was critical, because if that finding was made, then there were only two relevant events of corporate failure. 

There were those that led to the 2005 windings-up, and then the following one regarding Scottsdale (No 10).  The first tranche involved considerable sums, $50 million.  As we have recorded in the outline, most of that was in fact inter-company debts.  The external creditors was merely a fraction of that but, we would have to acknowledge, a considerable sum.  But Scottsdale (No 10) was de minimis.  It is not to say that to those creditors the amounts did not matter, but they were small sums. 

So had any of the decision-makers below or the Full Federal Court, in our respectful submission, correctly addressed themselves to the statutory charge, they would have first and foremost determined whether or not those companies were related and once they had determined that the first tranche of companies were related, they would have then realised that what they were dealing with was one of intercorporate failure of a quite significant magnitude and another of intercorporate failure within the seven year period of very limited magnitude, but because of the manner in which the section was misconstrued, they never made the proper analysis.

HAYNE J:   What you describe as the one event of corporate failure being the failure of the numerous related entities is, at one level, described as a single event, but it is a single event having wide ramifications, is it not?

MR DUNNING:   It is, your Honour.

HAYNE J:   Because each of the related companies was a single purpose company, was it not?

MR DUNNING:   That is correct, your Honour, yes.

HAYNE J:   For particular ventures and all of them failed.

MR DUNNING:   Your Honour, I would qualify that.  I do not think in ways as material to your Honour’s question.  I do not know that they all failed, certainly the majority did, and it is not quite right to say they were single purpose ventures because some of them were set up, for example, to provide administration to all of the other companies, but they all had a single purpose.  I am not meaning to cavil with your Honour.  The thrust of your Honour’s question is one that I would agree with.

BELL J:   Mr Dunning, it seemed to me that the Full Court, at application book 75, paragraph 39, approached the matter upon a view that the Tribunal had made an assumption favourable to your client which was that the first tranche of failures were respecting companies that were related.  So it is not clear to me how far you get in your complaint concerning the failure to address that question.  There may be an issue about what is a related company for the purposes of the provision, but it was determined favourably to your client.

MR DUNNING:   In our respectful submission, your Honour, no, because when one looks to how the Full Court dealt with – and it is similar to how it was dealt with below – just above line 20:

In our view the Tribunal simply assumed that most, if not all, of the companies in question were related.

Now, that is different in two material respects and in ways that matter, in our respectful submission.  The first is, it is most not all.  If it is most if not all, you are at least admitting the possibility that within those first tranche of failures are two, in effect, separate episodes that would enliven the jurisdiction and the second is – and as the expression simply connotes, in our respectful submission – it is to treat the matter of whether they are related or not as of only passing significance and, in our respectful submission, that lies at the heart of the error in the court below and the decisions below it because it was not a by the way matter.  It was a critical consideration in relation to the operation of 206F. 

As we submitted earlier, in contradistinction to, say, 206C or 206E where, for example, dealing with an issue like that might well be an appropriate way to deal with it.  So we will assume in their favour they were related but, in any event, what he or she did was so serious it merits this sort of conduct.  There are sections that are intended to deal with that.  In our respectful submission, this is not one of them.  Therein, in our respectful submission, lies the point that warrants a grant of leave of the Court.  If the decision of the Full Federal Court is allowed to stand, in our submission, it will stand for authority for the proposition that inquiry into whether one company is related to another is a matter of only passing consequence and you really make your primary focus on the individual conduct that is referred to. 

In our respectful submission, that is to gloss the operation of 206F with earlier provisions that are better equipped to deal with that and to take away attention from the proper application of 206F, and that is not necessarily to be concerned – though no doubt there would be occasions that might arise – with the seriousness of the particular conduct, but rather to focus attention on the pattern of conduct, that is, have there been a series of separate events, separate commercial failures that mean whether they are the product of anything ranging from terrible dishonesty to just being not very good at running companies, is not to the point.  The point is, has there been a pattern of them that would mean that public interest demands intervention by way of disqualification and the decision of the Full Court below, in our respectful submission, blurs, indeed, camouflages in a material and an important way that distinction in a way that will see, in our respectful submission, the real probability that the section will be either misapplied and/or misunderstood because it will be seen to have an operation inconsistent with its text.

HAYNE J:   Do you accept that the Tribunal treated the companies as a group?  There are frequent references throughout the reasons to the companies as a group.

MR DUNNING:   Yes, there are, your Honour, but, in our respectful submission, the best summary and the fairest assessment of how the Tribunal treated it is that passage in the Full Court’s decision Justice Bell took me to a little earlier and that is that most, if not all, of the companies in question were related.

HAYNE J:   What I had in mind was application book page 23, paragraph 17 in the first sentence:

Over time, a vertically integrated business emerged involving a range of companies in the group.

Is that a fair description of the way in which the Tribunal approached the problem?

MR DUNNING:   It is a fair summary of how the Tribunal approached the problem, but that is not to address the statutory formulation in subsection (2)(a), in our respectful submission, in the sense that you might have companies that would loosely be described as being in a group but you would not necessarily say they were related to each other.

HAYNE J:   It is an unusual turn of phrase, I think.

MR DUNNING:   Your Honour, it is certainly the less common use of it, but that submission is one that is ultimately correct, in our respectful submission, and is borne out by the way the Full Court treats it and in a way that we do not understand our learned friends to challenge the correctness of the Full Court in that regard. 

Your Honours, may I then, please, move to the topic of delay and make these very brief submissions.  The Tribunal – and it cannot be ignored that the Deputy President was Dr McPherson, a former member of the Queensland Court of Appeal and a person whose expertise in matters of company law would, in our respectful submission, be notorious – treated the delay issue this way.  Can I ask your Honours, please, to go to page 49 of the record and paragraph 89 of the reasons.  Your Honours will see, just after line 20, the members of the AAT record:

We acknowledge ASIC must act within a reasonable time if it wishes to exercise the power to disqualify under s 206F.

Now, that is in terms inconsistent with the decision ultimately made in the Full Court.  Can I then briefly take your Honours, please, to the decision in Culley, which is said to be against us, and we accept it is in the Full Court.  Culley is an unusual case, as we recite in the outline.  Mr Culley’s disqualification was, in fact, over at the time he brought it.  The issue of delay does get raised, but in circumstances where ASIC concede that if there has been unreasonable delay, the power is lost, but it must be said that is dealt with by concession, and your Honours would see that at paragraph [41] at first instance.

In the Full Court of the Federal Court in Culley their Honours having first said that, “Look, but for the notice of contention put in by the commission we would not otherwise have to deal with this matter”, deal with the issue at paragraphs [4] and [5] and, in effect, recite that background I have just mentioned and then deal with the matter again at paragraphs [22] and [23].  At paragraph [23] their Honours extract the reasoning in Kardas – granted a single judge decision of the Federal Court but one of longstanding – but the point that, in our respectful submission, would justify a grant of leave on this matter is the decision in Kardas that was followed there and ultimately adopted by the AAT, so the decision of Justice Heerey adopted in Kardas and the one adopted in the AAT, is one that relies upon a number of decisions of the High Court as justifying that approach. 

When the Full Court in Culley came to deal with it, they did not confront directly, in our respectful submission, as they needed to why it was in error to have relied upon those decisions of the High Court before overruling it.  The Full Federal Court below simply adopted Culley without more, and your Honours will see that at page 74 of the record in paragraph 36.  In our respectful submission, where the law allowed it to remain as it presently stands, it is prone to leave dispute on this area of the law because it would be open to a person, particularly outside the Federal Court, to invite it not to be followed on the basis that there are decisions of the High Court relied upon in some of those first instance decisions that are contrary to it.  That is the matter given the importance of it that, in our respectful submission, would warrant attention by this Court.  Unless we can help your Honours any further, they are our submissions.

HAYNE J:   Yes, thank you.

MR DUNNING:   Thank you, your Honours.

HAYNE J:   Yes.  We will not trouble you, Mr Derrington. 

An appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave to appeal.  Special leave is accordingly refused with costs. 

The Court will adjourn to reconstitute and establish the video link to Melbourne.

AT 12.26 PM THE MATTER WAS CONCLUDED