Reynolds and Co v Australian Stock Exchange - [2003] NSWSC 33

No judgment structure available for this case.

Reported Decision:
(2003) 44 ACSR 612
(2003) 21 ACLC 920

Supreme Court

CITATION: Reynolds & Co v Australian Stock Exchange & Anor [2003] NSWSC 33

HEARING DATE(S): 12/12/02-16/12/02

JUDGMENT DATE:
24 February 2003

JURISDICTION:
Equity

JUDGMENT OF: Campbell J

DECISION: National Adjudicatory Tribunal has jurisdiction concerning charges arising from alleged conduct commencing 30 July 1990. Orders seeking to prevent charges being heard refused

CATCHWORDS: ADMINISTRATIVE LAW - particular tribunals or bodies - National Adjudicatory Tribunal of Australian Stock Exchange Limited - jurisdiction to hear charges relating to conduct occurring prior to 13 October 1998 - jurisdiction to hear charges relating to conduct occurring prior to 25 October 1993 - ASSOCIATIONS AND CLUBS - disciplinary tribunals - construction of transitional provisions in relation to jurisdiction of tribunal - whether duplicity is a ground for invalidity of a charge - requirements of fair procedure - PROFESSIONS AND TRADES - stockbrokers - disciplinary proceedings - when bringing of charges is an abuse of process - requirements of fair procedure - WORDS AND PHRASES - "things and circumstances created by or under the Articles of Association" - extends to alleged breach of Articles concerning which no disciplinary action was taken before repeal of Articles - extends to Rules made under authority of Articles of Association before those Articles were repealed

LEGISLATION CITED: Crimes (Sentencing Procedure) Act 1999
Companies Act 1958
Companies Act 1961
Corporations Act 2001 (Cth)
Corporations Law
Interpretation Act 1901 (Cth)
Interpretation Act 1987 (NSW)
Limitation Act 1969

CASES CITED: Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Attorney General (NSW) v Quin (1990) 170 CLR 1
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541
Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWSC 187
Burns v TAFE Commission of NSW (Spender AJ, Supreme Court of New South Wales, 15 November 1994, unreported)
Byrne v Garrisson [1965] VR 523
Chapmans Ltd v Australian Stock Exchange Limited (1995) 17 ACSR 524
Codelfa Construction Pty Limited v State Rail Authority of News South Wales (1982) 149 CLR 337
Cooke v Purcell (1988) 14 NSWLR 51
Cox v Caloundra Golf Club Inc (Thomas J, Supreme Court of Queensland, 27 September, 1995 unreported)
Duncan v Medical Practitioners Disciplinary Committee [1986] 1 NZLR 513
Electricity Meter Manufacturing Co Ltd v Manufacturers Producers Pty Ltd (1930) 30 SR (NSW) 422
Etherton v Public Service Board [1983] 3 NSWLR 297
Gee v General Medical Council [1987] 1 WLR 564
Herron v McGregor (1986) 6 NSWLR 246
Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church (1993) 31 NSWLR 91
Hudson Securities Proprietary Limited v Australian Stock Exchange Limited (2000) 35 ACSR 55; [2000] NSW SC 203
Hume v Higgins (1949) 78 CLR 116
Jacobsen v Nurses Tribunal (Dunford J, Supreme Court of NSW, 3 October 1997, unreported)
Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361
Maxwell v Murphy (1957) 96 CLR 261
McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470
McKinlay v Dodds (1984) 3 BPR 9259
McLachlan v Australian Stock Exchange Ltd (1998) 30 ACSR 139
McLachlan v Australian Stock Exchange Ltd (1999) 32 ACSR 524
Mitchell v Royal New South Wales Canine Council Limited (2001) 52 NSW 242
Minister for Immigration v Kurtovic (1990) 21 FCR 193
Overlook v Foxtel [2002] NSWSC 17
Peatfield v General Medical Council [1986] 1 WLR 243
Peters (WA) Limited v Petersville Limited (2001) 75 ALJR 1385
Polley, Ex parte; Re McLennan (1947) 47 SR (NSW) 391
Public Service Board of New South Wales v Etherton (1985) 1 NSWLR 430
R v Scarlett; ex parte McMillan (1972) 20 FLR 349
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Reza v General Medical Council [1991] 2 AC 182
Rose and Burgess v Commissioner of Stamps (SA) (1979) 21 SASR 84
S v The Queen (1989) 168 CLR 266
Walton v Gardiner (1993) 177 CLR 378

PARTIES :
Reynolds & Company Pty Limited (Plaintiff)
Australian Stock Exchange Limited (First Defendant)
The Chairperson of National Adjudicatory Tribunal of the Australian Stock Exchange Limited (Second Defendant)

FILE NUMBER(S): SC 5436/02

COUNSEL: R McKeand (Plaintiff)
J Griffiths SC (Defendants)

SOLICITORS: Holman Webb (Plaintiff)
Allens Arthur Robinson (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

24 FEBRUARY 2003

5436/02 REYNOLDS & CO PTY LIMITED v AUSTRALIAN STOCK EXCHANGE LIMITED AND ANOR

HIS HONOUR

Nature of the Dispute

1 The plaintiff (“Reynolds”) is a stockbroker. The defendant (“ASX”) has laid four charges against Reynolds. Broadly, those charges arise from some alleged misconduct of a former employee of Reynolds, which ASX asserts Reynolds is vicariously liable for, various allegedly inadequate enforcement and compliance systems which Reynolds had, and repeated alleged breaches of two different Business Rules of ASX. The first charge is a charge of “prohibited conduct”, which relates to a wide range of conduct, over a long period of time. The other three charges, which are alternative charges to the first, relate to certain specific aspects of the conduct covered by the “prohibited conduct” charge. Those charges are due to be heard by the National Adjudicatory Tribunal (“NAT”).

2 Reynolds asserts that NAT does not have jurisdiction to hear allegations which make up some parts of the charges, and seeks a declaration to that effect. Reynolds also seeks some declarations concerning its rights against ASX, and injunctions restraining ASX from prosecuting, and the Chairman of NAT from convening NAT to hear, the charges.

3 The first basis for such injunctions is that it is alleged that the bringing of the charges is a breach of an obligation which ASX owes to Reynolds to act fairly, reasonably and without injustice. The second is that, by reason of the lapse of time since some of the events which are particularised in the charges, loss of documents, unavailability of witness, and other matters, it is alleged that the bringing of the charges is an abuse of process, and so should be stayed. The third basis is that, in relation to some of the matters particularised, Reynolds alleges that ASX knew of certain alleged breaches of rules which it had engaged in, and represented that no action would be taken concerning those breaches, and in consequence ASX is estopped from now laying charges based on those breaches.

Background to the Charges

4 Reynolds is a member of ASX, and a Participating Organisation within the meaning of the ASX Business Rules. Since 1989 Mr Julian Reynolds and Mr Arthur John Reynolds (known as John Reynolds) have been directors of Reynolds. From 1989 to 1994 these two men were the only directors. Currently there are four directors.

5 Mr Peter Struk was a securities representative employed at Reynolds from 30 July 1990 to 11 July 2001. On 9 July 2001 Messrs Julian and John Reynolds were informed by another broker that there appeared to be a number of irregular practices in Mr Struk’s dealings with a particular client. That same day Mr Struk disappeared, and was missing for about a fortnight. Both ASX, and Reynolds, investigated Mr Struk’s dealings. ASX’s investigation culminated in a Final Inspection/Investigation Report dated 22 September 2002. The Report concluded that Mr Struk had engaged in misconduct in various ways, resulting in client losses which were estimated at $1,080,000. The types of misconduct which the Report concluded had occurred included trading without instructions from the client or contrary to client instructions, misappropriation of client funds, failure to dispatch contract notes and cash management account statements, incorrect order records, and changing the address on certain client accounts (so that documentation which would have disclosed the unauthorised activities of Mr Struk did not come to the attention of the client). The Report concluded that Reynolds ought to have been put on inquiry regarding the possibility that Mr Struk was engaging in misconduct, in these ways. It concluded that Reynolds’ supervision and compliance systems contained certain inadequacies which enabled Mr Struk to engage in that misconduct. The report concluded that Reynolds had breached some trust account rules, and rules concerning extension of credit to employees. The report also examined the type of control which Reynolds exercised over certain representatives who operated from sites away from the Reynolds’ main office. Concerning those matters, the report concluded that there may have been some breaches of ASX Business Rules, but that ASX should not pursue disciplinary action concerning them.

The Charges

6 The charges were notified to Reynolds on 24 September 2002. Omitting particulars, they are as follows:

Charge 1

Prohibited Conduct:

(1) pursuant to Article 52 of the ASX Articles of Association in that during the period from on or about 30 July 1990 to 26 October 1993 Reynolds engaged in conduct which was not efficient, honest or fair or was otherwise conduct prejudicial to the interests of ASX or its members; and

(2) pursuant to Article 52 of the ASX Articles of Association in the period from 26 October 1993 to on or about 12 October 1998 and pursuant to ASX Business Rule 13.5.1 and as defined in the Business Rules, in the period from 12 October 1998 to 3 August 2001, in that Reynolds engaged in conduct which amounted to unsatisfactory professional conduct, where the conduct was such that it involved a substantial or consistent failure to reach reasonable standards of competence and diligence and/or conduct which was or could reasonably be considered as likely to be prejudicial to the interests of the Exchange or its Members or, its Participating Organisations or Affiliates with respect to the following matters.

(i) misconduct on the part of Mr Peter Struk, a securities representative of Reynolds;

(ii) a failure to put in place and enforce adequate supervision and compliance systems with respect to the activities of Mr Struk;

(iii) a failure to adequately inquire into and investigate the conduct of Mr Struk in circumstances where there were factors that ought to have put Reynolds on inquiry regarding Mr Struk’s activities;

(iv) the withdrawal by Reynolds of client funds from Reynolds’ trust account in circumstances where the funds were not paid to the person entitled thereto or in accordance with the written directions of that person as required by ASX Business Rule 1.2.2.(4); and

(v) a failure by Reynolds to ensure it received the funds for the purchase of or subscription for securities on behalf of an employee of Reynolds and the immediate family or family company of an employee and/or director of Reynolds at a time on or before Reynolds was required to settle the transaction as required by ASX Business Rule 5.11.

Charge 2

A breach of ASX Business Rule 1.2.2(4) in the period from 3 September 1990 to 3 August 2001 in relation to withdrawals made by Reynolds from its trust account to make deposits in cash management accounts operated on behalf of its clients in circumstances where those withdrawals were not authorised in writing by the client.

Charge 3

A breach of ASX Business Rule 1.2.2(4) in the period from 29 April 1996 to on or about 4 July 2001 with respect to withdrawals from Reynolds’ trust account of 5 payments that had been deposited in the trust account for the credit of the wrong client.

Charge 4

A breach of ASX Business Rule 5.12A with respect 4 trades and 4 subscriptions for securities in the period from 3 October 1995 to 10 June 1998 and of Rule 5.11 with respect to 4 trades and 1 subscription for securities in the period from 23 February 1999 to 4 July 2001 in that Reynolds did not ensure that it received the funds for the purchase of or subscription for any securities on behalf of an employee of Reynolds or the immediate family or family company of an employee and/or director of Reynolds at a time on or before Reynolds was required to settle the transactions.

The matters, which are the subject of the above charges, are also set out in Final Inspection/Investigation Report 2001083 & 2002023.”

7 The Notice of Charge contains in excess of 10 pages of particulars of Charge 1. The particulars of Charges 2, 3 and 4 each refer to certain individual paragraphs of the particulars already given of Charge 1.

The Court’s Jurisdiction

8 Reynolds submits that the jurisdiction of the Court to grant the relief it seeks has two bases. One is the jurisdiction of the Court to intervene in the affairs of statutory and voluntary tribunals in certain circumstances (eg Mitchell v Royal New South Wales Canine Council Limited (2001) 52 NSW 242). The other is that section 793B of the Corporations Act 2001 (Cth) provides that the Business Rules of the ASX have effect as a contract under seal between the ASX and the members, that in bringing the charges against Reynolds, ASX is acting in breach of that contract, and that an injunction should be granted to restrain that breach.

9 ASX does not contest that the Court has jurisdiction to make the orders and declarations sought, only the appropriateness of the making of those orders and declarations. The second defendant, the National Adjudicatory Tribunal, does not seek to put any submissions to the Court. In those circumstances there is no occasion to give further consideration to the basis of the court’s jurisdiction.

The Argument that NAT Lacks Jurisdiction

10 The relief which Reynolds seeks, on the ground that NAT lacks jurisdiction, is as follows:

“Declaration that the National Adjudicatory Tribunal of the First Defendant (“National Adjudicatory Tribunal”) has no jurisdiction or authority under the Constitution or the Business Rules of the First Defendant to hear and determine the charges contained in the First Defendant’s Notice of Charges dated 24 September 2002 served on the Plaintiff:

(a) Insofar as they allege conduct by act or omission of the Plaintiff or Mr Peter Struk that occurred prior to 13 October 1998;

(b) Insofar as they allege conduct by act or omission of the Plaintiff or Mr Peter Struk that was contrary to any Articles or Business Rules of the First Defendant that were not in operation immediately prior to 13 October 1998;

(c) Insofar as they charge the Plaintiff with either prohibited conduct contrary to article 52 of the articles of association of the First Defendant, committed prior to the deletion of article 52(3), or breaches of the articles or Business Rules contrary to article 51, committed prior to the deletion of article 51(5) (25 October 1993 in each case).

The Position in 1990

11 Because Charge 1 deals with a period of time commencing on or about 30 July 1990, the jurisdiction argument of Reynolds requires certain aspects of ASX’s Constitution and disciplinary powers and procedures to be looked at from that date. In 1990 ASX was a company limited by guarantee. Reynolds was a Member Organisation of ASX. The Articles of Association of ASX contained the following provisions. The headings to Articles set out below are not part of the Articles, but insertions I have made.

[Board’s powers of delegation]

(a) any Member, director or employee of the Exchange or one of its subsidiaries, or

(b) a committee … consisting of such Members, partners of Members, directors of the Exchange or a State Subsidiary or of a Member Corporation or employees of the Exchange or a subsidiary of the Exchange,

as it thinks fit, and may authorise the delegate to subdelegate all or any of the powers so delegated. Without limiting the generality of the foregoing, the Board may delegate to a committee of directors of a State Subsidiary its powers under Articles … 51, 52 …

Where a committee of directors of a State Subsidiary exercises the powers of the Board -

(i) in respect of articles 51, 52 … a majority of the directors of the Committee or such greater number as the Board may stipulate who are present, shall concur in a decision, and

(ii) in any other case, a majority of the directors of the Committee who are present shall be required to concur for a decision to be made.

(6) Notwithstanding any provision to the contrary in these Articles, questions arising at a meeting of a Committee shall be determined in accordance with any directions given under subarticle (2), and if no directions are given, by a majority of votes of the Committee members present and voting.

[Disciplinary procedure for breaches of Articles or Rules]

(2) If any … employee … of a … Member Organisation does any act or refrains from doing any act which if done or not done (as the case may be) by a … Member Organisation would constitute a breach of the Articles or Rules, such act or omission shall be deemed, for the purposes of this article to be the act or omission of the … Member Organisation concerned and punishable hereunder accordingly.

(3) If any … Member Organisation is found guilty by the Board of a breach of any of the Articles or Rules, the Board may -

(a) censure the … Member Organisation; or

(b) impose a fine not exceeding $25,000 … upon … the Member Organisation; and/or

(c) suspend the … Member Organisation from all or any of privileges of membership of the Exchange and/or prohibit the … 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.

(5) No … Member Organisation shall be found guilty unless at least 9 directors concur in such decision.

(7) Without derogating from the provisions of Article 51(1) to (6) above, the Board may proceed against Members or Member Organisations for breaches of the Articles and Rules in accordance with Rule 1.4.2(5A).

(8) The Board shall conduct any hearing in accordance with this Article without bias, and shall give the … Member Organisation a fair hearing and otherwise shall observe the Rules of natural justice.

[Disciplinary procedure for Prohibited Conduct]

(2) If any Member or Member Organisation is found guilty by the Board of prohibited conduct, the Board may:-

(a) censure the … Member Organisation; or

(b) impose a fine not exceeding $25,000 upon … such Member Organisation; and/or

(c) suspend the … Member Organisation from all or any of privileges of membership of the Exchange … or …

(d) expel … a Member who is a partner in the Member Organisation, or a Member who is an officer, employee or consultant of the Member Organisation, from membership of the Exchange.

(3) No … Member Organisation shall be found guilty by the Board of prohibited conduct unless at least 9 directors concur in such decision.

(5) The Board shall conduct any hearing in accordance with this Article without bias, and shall give the … Member Organisation a fair hearing and otherwise observe the Rules of natural justice.

[Right of Appeal]

(a) where the decision was made by a delegate of the Board – to the Board;

(b) where the decision was made by the Board – to an Appeal Committee”

12 So the reader can understand the scope of that right of appeal, Article 38(4) empowers the Board to give notice to a Member that he she or it ceases to be a Member, if satisfied that there has been a wilful omission or misstatement upon a material point prior to the admission of that Member. Article 38(5) empowers the Board to give notice to a Member Corporation that it no longer complies with the requirement for membership, if so satisfied. Article 45 provides:

“The Board may request any Member who it has reason to think is no longer devoting the substantial part of the working week to the business of a Member Organisation as a partner, officer, employee or consultant, or does not hold any necessary licence pursuant to the Securities Industry Act 1980 or any corresponding legislation of a State or Territory or Australia, to show cause by appearing before the Board or otherwise why he should not cease to be a Member. If, after considering the representations of the Member, the Board resolves (not less than 9 directors concurring) that the Member is in the opinion of the Board no longer devoting the substantial part of the working week to the business of a Member Organisation as a partner, officer, employee or consultant, or does not hold any necessary licence under the Securities Industry Act 1980 or any corresponding legislation of a State or Territory of Australia, and should therefore cease to be a Member, such Member shall, subject to Article 54, cease to be a Member from the time specified in the resolution.”

Amendments 30 July 1991

13 Effective from 30 July 1991 the Articles of Association of ASX were amended. Relevantly for present purposes, a new definition was inserted in Article 1:

“’Committee’ includes any committee (other than an Appeal Committee) or Board of Advice the members of which comprise such:

(a) Members (other than Member Corporations);

(b) partners, directors and employees of Member Organisations, Member Corporations or subsidiaries of Member Corporations; and

(c) directors or employees of the Exchange or its subsidiaries,

as the Board may appoint from time to time. …”

14 The previous Article 6(1) was omitted, and replaced with an Article as follows:

“6(1) The Board may delegate any of its powers to:

(a) any number of Members, directors or employees of the Exchange or its subsidiaries; or

(b) a Committee or Committees,

as it thinks fit, and may authorise such delegates to sub-delegate all or any of the powers so delegated. Without limiting the generality of the foregoing, the Board may delegate to a Committee some or all of its powers under Articles … 51, 52, … and (as the Board may determine from time to time) some or all of its powers in relation to any other Article.

If the Board has delegated some of its powers to a State Subsidiary and the State Subsidiary so requests, the Board shall revoke the delegation and delegate those powers to a Board of Advice.

Where a Committee exercises the powers delegated to it by the Board:

(i) in respect of Articles 51, 52, … (notwithstanding the provisions of those Articles) a majority of members of the Committee, or such greater number as the Board may stipulate who are present, shall concur in any decision made or opinion formed, and

(ii) in any other case, a majority of the members of the Committee who are present shall concur in any decision made or opinion formed.”

15 Article 6(6) was amended so that each reference to “committee” became a reference to “Committee”. Articles 51 and 52 were not amended.

Amendments 25 October 1993

16 On 25 October 1993 further amendments were made to the Articles of Association of ASX. A new Article 6 was included, as follows:

“6(1) The Board may from time to time and upon any terms and conditions and subject to any restrictions that it considers appropriate:

(a) confer on the Managing Director any of the powers of the Board (which powers may be conferred so as to be concurrent with, or to the exclusion of the powers of the Board); and

(b) withdraw or alter any of the powers conferred on the Managing Director under Article 6(1)(a).

(2) A power of the Board unless it has been conferred exclusively under Article 6(1) or delegated exclusively under Article 6(3), is exercisable only:

(a) by resolution at a meeting of the Board at which a quorum is present; or

(b) by a resolution of the directors under Article 17.

(3) The Board may delegate any of its powers to:

(a) any number of Members, directors or employees of the Exchange or its subsidiaries;

(b) a Committee,

and may authorise such delegates to sub-delegate all or any of the powers so delegated. Without limitation, the Board may delegate to a Committee some or all of its powers under Article … 51, 52 …

(4) Where a Committee exercises the powers delegated to it by the Board any decision made or opinion formed by the Committee shall require the concurrence of a simple majority of members of the Committee or such greater number as the Board may stipulate. The Chairman of the Committee shall have a casting vote in addition to his deliberative vote.

(5) A delegate to which any powers have been delegated under Article 6(3) shall exercise the powers so delegated to it in accordance with any directions of the Board and a power so delegated when exercised by the delegate in accordance with this Article 6(5) shall be deemed to have been exercised by the Board.”

17 A new definition was included in Article 1:

“”Prohibited Conduct” includes:

(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.”

18 Article 51 was amended in some respects only. There was a new Article 51(3) whereby

“If any … Member Organisation is determined by the Board to have, by act or omission, contravened any of the Articles or Rules, the Board may:

(a) censure the … Member Organisation; or

(b) impose a fine not exceeding $100,000 upon the … Member Organisation; and/or

(c) suspend the … Member Organisation from all or any of the privileges of membership of the Exchange; and/or

(d) prohibit the … 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 Organisation institute in a form directed by the Board or upgrade to the satisfaction of the Board, an eduction and compliance programme designed to prevent future contraventions of the Articles or Rules by the … Member Organisation and the partners, officers, employees and representatives of the … Member Organisation; and/or

(f) require 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.”

19 A new Article 52 was included, as follows:

“(1) If the Board considers a … Member Organisation should be charged with Prohibited Conduct it shall give the … 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. …

(2) If any … 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 Organisation; or

(b) impose a find not exceeding $100,000 upon the … Member Organisation; and/or

(c) suspend the … Member Organisation from all or any of the privileges of membership of the Exchange; and/or

(d) prohibit the … 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 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 Organisation and the partners, officers, employees and representatives of the … Member Organisation; and/or

(f) require 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 … 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.”

20 Article 52(3), which previously had required nine directors to concur in a decision to find a Member Organisation guilty of Prohibited Conduct, was deleted.

21 A new Article 55A was included.

“(1) The following provisions shall govern the establishment and operation of the National Adjudicatory Tribunal:

(a) The Board shall establish a National Adjudicatory Tribunal for the purposes of hearing and adjudicating upon and determining penalties in relation to a notice to show cause pursuant to Article 45 or any charge made against Members or Member Organisations pursuant to Article 51 or 52.

(b) The Board shall appoint to the National Adjudicatory Tribunal a natural person Member as chairperson and a natural person Member as deputy chairperson and shall determine the period for which they are to hold those offices.

(c) The National Adjudicatory Tribunal shall, when it is meeting, comprise either:

(i) the chairperson or, in that person’s absence, the deputy chairperson appointed pursuant to Article 55A(1)(b) who shall act as chairperson of the proceedings and 2 persons selected by the chairperson from the Tribunal Panel; or

(ii) where neither the chairperson nor deputy chairperson appointed pursuant to Article 55A(1)(b) are willing or able to act in connection with a particular proceedings, 3 persons selected by the chairperson from the Tribunal Panel, one of whom has been nominated by the chairperson to act as the chairperson for the purposes of the particular proceeding.

(2) The chairperson of the proceeding shall appoint a date, time and place for the hearing and cause reasonable notice to be given to each of the Exchange and the Member or Member Organisation of the same. The National Adjudicatory Tribunal may vacate a hearing date for which notice has previously been given and appoint a substitute hearing date provided reasonable notice of the latter date is given to the parties and may adjourn and re-convene its proceedings as it thinks fit.

(3) Proceedings of the National Adjudicatory Tribunal shall take place in private except that the National Adjudicatory Tribunal shall permit 2 representatives of each of the Exchange and the Member or Member Organisation concerned, and may permit more than 2 representatives of the Exchange or such Member or Member Organisation, to be present and make submissions. A representative may, in relation to a natural person Member, be that Member and in all cases may be an officer or employee of the party represented or any other person approved by the National Adjudicatory Tribunal or a barrister or solicitor of a State or Territory of Australia or of the High Court of Australia.

(4) If a Member or Member Organisation or the Exchange does not wish to appear in person or be represented at proceedings before the National Adjudicatory Tribunal that Member of Member Organisation or the Exchange may, not less than 5 days before the hearing date determined pursuant to Article 55A(2), lodge with the National Adjudicatory Tribunal a written submission for consideration by the National Adjudicatory Tribunal in relation to the hearing.

(5) National Adjudicatory Tribunal proceedings shall be conducted with as little formality and technicality, and with as much expedition, as a proper consideration of the matters before it permit. Subject to this Article 55A, the National Adjudicatory Tribunal may conduct its proceedings as it thinks fit and may make a transcript of proceedings at a hearing, a copy of which shall be available to the Exchange, the relevant Member or Member Organisation the subject of the proceedings and where a natural person Member is the subject of the proceedings, to the Member Organisation with whom that Member was connected at the time of the action which gave rise to the notice to show cause or the charge.

(6) The National Adjudicatory Tribunal shall determine the matter without bias and shall give both the Exchange and the Member of Member Organisation a fair hearing and shall otherwise observe the rules of natural justice. The National Adjudicatory Tribunal may obtain such legal advice as it thinks appropriate in the circumstances and may have its legal advisors present at a hearing.

(7) Each member of the National Adjudicatory Tribunal shall have and shall exercise a deliberative vote including the chairperson. The chairperson shall not have a casting vote.

(8) The National Adjudicatory Tribunal shall, within 30 days of making its decision give to the Exchange and the Member or Member Organisation affected thereby, the reasons in writing for its decision.”

Amendments 13 October 1998

22 Act number 199 of 1997 (Cth) introduced into the Corporations Law sections 766A to 766D. Those sections empowered ASX to change the type of corporation it was, from being a company limited by guarantee to being a public company limited by shares. The objective was to enable ASX to undergo a demutualisation process, so that members could be issued with shares, and also, eventually, for ASX to become listed on the Stock Exchange. Section 766D provided:

“(1) The change of type does not:

(2) On the change of type, the following things happen:

Note: The Exchange must maintain a register of members that complies with subsection 169(3).

(d) the proposed amendments of the constitution, business rules and listing rules of the Exchange take effect.”

23 Pursuant to section 766C Corporations Law, notice was given in the Gazette, on 5 October 1998, that on 13 October 1998 ASX would change type from a company limited by a guarantee to a company limited by shares. That change of type accordingly took effect on 13 October 1998. On 13 October 1998, as contemplated by section 766D(2)(d) Corporations Law, amendments to ASX’s Articles of Association took effect. Those amendments consisted of the complete replacement of the Memorandum and Articles of ASX by a new constitution. The new constitution had no definition of “Prohibited Conduct”. It had a definition whereby; ““Transition Time” means the beginning of the day of 13 October 1998.”

24 There were provisions that:

Corporations Law

”

25 The new constitution had no provision analogous to Article 51 or 52 of the previous Articles of Association, whereby a stockbroker or stockbroking entity could be disciplined. Nor did it contain any provision analogous to the previous Article 55A, establishing the NAT and laying down its procedures. The constitution contained, however, provision for ASX to make two different types of rules, Listing Rules and Operating Rules. The Constitution said:

“Operating Rules means rules concerning the operation of Financial Markets operated by the Company and includes any procedures relating to those rules required by the Corporations Law.”

26 Both before and after 13 October 1998 ASX had rules of this type, which it called Business Rules. Extensive amendments were made to those Business Rules effective on 13 October 1998 to take account of its new Constitution and status. As part of those amendments, the topic of disciplining stockbrokers and stockbroking entities came to be dealt with by ASX’s Business Rules.

27 Clause 13.1 of the Constitution, as originally adopted, provided:

“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.”

28 The Constitution contained a transitional provision, as follows:

“25.1 This constitution must be read and construed in such a 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.”

29 The ASX Business Rules presently include the following:

(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 Participating Organisations or Affiliates,

and need not involve a breach of any of the Rules or a contravention of any law.

“Rules” means these ASX Business Rules.

“Transition Time” means the beginning of the day notified in accordance with subsection 766C(1) of the Corporations Act.

INTERPRETATION

7. Unless expressly stated otherwise, where a Rule is:

(a) amended;

(b) deleted; or

(c) lapses or otherwise ceases to have effect,

that circumstances does not:

(d) revive anything not in force or existing at the time at which that circumstance takes effect;

(e) affect the previous operations of that Rule or anything done under that Rule;

(f) affect any right, privilege, obligation or liability acquired, accrued or incurred under that Rule;

(g) effect any penalty, forfeiture, suspension, expulsion or disciplinary action taken or incurred in respect of any breach of that Rule;

(h) effect any investigation, disciplinary proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, suspension, expulsion or disciplinary action,

and any such investigation, disciplinary proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture, suspension, expulsion or disciplinary action may be imposed as if the circumstance had not taken effect.

8. In Rule 7(e), “anything 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.

9. Unless expressly stated otherwise, in determining whether the act or omission of a party constituted a contravention of the Rules or constituted Prohibited conduct, the matter shall be determined with regard to the Rules in force at the time of the relevant act or omission.

14. In the interpretation of a Rule in the ASX Business Rules, a construction that will promote the purpose or object underlying the ASX Business Rules is to be preferred to a construction that would not promote the purpose or object.

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.”

30 The ASX Business Rules contain no definition of “Business Rules”. In the terminology of the Business Rules, after 13 October 1998 Reynolds is a Participating Organisation.

31 The amendments to the Business Rules which started on 13 October 1998 introduced the following new provisions:

“13.5.1(1) If the Exchange considers that [a] … Participating Organisation … should be charged with a breach of any of the Rules or Prohibited Conduct, it shall give the Participating Organisation … concerned 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 …

(2) If any Employee … of a Participating Organisation does any act or refrains from doing an act which if done or not done (as the case may be) by the Participating Organisation would constitute a breach of the Rules or Prohibited Conduct, such act or omission shall be deemed for the purposes of this Rule 13.5.1 to be the act or omission of the Participating Organisation concerned and dealt with hereunder accordingly.

(3) If any … Participating Organisation … is determined by the National Adjudicatory Tribunal to have, by act or omission, contravened any of the Rules or engaged in Prohibited Conduct, the National Adjudicatory Tribunal may

(a) censure the … Participating Organisation …;

(b) impose a fine not exceeding $250,000 (payable to the Exchange) upon the … Participating Organisation …;

(c) suspend the … Participating Organisation from all or any of the privileges of the status of … Participating Organisation (as the case may be) of the Exchange;

(d) prohibit the … Participating Organisation … from transacting any business with or through any Organisation for a period not exceeding 3 months upon such terms and conditions as the National Adjudicatory Tribunal thinks fit;

(e) require that the … Participating Organisation … institute or undertake in a form directed by the Exchange or upgrade to the satisfaction of the Exchange, an education and compliance programme designed to prevent future contravention of the Rules by the … Participating Organisation … and the Employees of the Participating Organisation;

(f) require the … Participating Organisation … to pay the total commission or gross profit or part thereof arising from the transaction concerned to the Exchange and the Exchange may deal with such amount in such manner as it thinks fit. …

(g) in the case of Prohibited Conduct only, cancel the recognition of the … Participating Organisation …

14.2.1. National Adjudicatory Tribunal

(1)(a) There shall be a National Adjudicatory Tribunal for the purposes of:

(i) carrying out any function given to the National Adjudicatory Tribunal under the Rules; and

(ii) performing such other functions delegated to it by the Exchange.

(b) The chairperson and deputy chairperson of the National Adjudicatory Tribunal shall be an Affiliate or Responsible Executive or any other person of good reputation and high business integrity, appointed for the period determined by the Exchange

(c) The National Adjudicatory Tribunal shall, for the purposes of a hearing, comprise either:

(i) the chairperson or, in that person’s absence, the deputy chairperson appointed pursuant to rule 14.2.1(1)(b) who shall act as chairperson of the proceedings and 2 persons selected by the chairperson from the Tribunal Panel; or

(ii) where neither the chairperson nor deputy chairperson appointed pursuant to rule 14.2.1(b) are willing or able to act in connection with a particular proceeding, 3 persons selected by the chairperson from the Tribunal Panel, 1 of whom has been nominated by the chairperson to act as the chairperson for the purposes of the particular proceeding.

(3) The National Adjudicatory Tribunal shall, within 30 days of making its decision give to the Exchange and the … Participating Organisation … affected thereby, the reasons in writing for its decision.

14.2.3 Proceedings of Tribunal

(1) Proceedings of a Tribunal shall take place in private except that the Tribunal shall permit 2 representatives of each of the Exchange and the … Participating Organisations … or any other person of good reputation and high business integrity concerned and may permit more than 2 representatives to be present and make submissions. A representative may be a member or employee of the party represented or any other person approved by the Tribunal or a barrister or solicitor of the Supreme Court of a State or Territory of Australia or of the High Court of Australia.

(2) If [a] Participating Organisation, … or the Exchange does not wish to appear in person or be represented before the Tribunal, that … Participating Organisation … or the Exchange may, not less than 5 days before the date of the hearing, lodge with the Tribunal a written submission for consideration by the Tribunal in relation to the hearing.

(3) Proceedings shall be conducted with as little formality and technicality, and with as much expedition, as a proper consideration of the matters before the Tribunal permit. Subject to this Rule 14.2, a Tribunal may conduct its proceedings as it thinks fit and may make a transcript of proceedings at a hearing, a copy of which shall be made available to the Exchange, to the … Participating Organisation … the subject of the hearing … .

(4) A tribunal shall determine a matter without bias and shall give both the Exchange and the … Participating Organisation … fair consideration and otherwise shall observe the rules of natural justice.

(5) The decision of a Tribunal shall be determined according to a simple majority of votes of the Tribunal members. Each member shall have and shall exercise a deliberative vote. The chairperson shall have a deliberative but not a casting vote.”

14.4 Tribunal Panel

There shall be a Tribunal Panel comprised of no fewer than 10 persons nominated by the Exchange from time to time.”

32 The Business Rules as amended on 13 October 1998 contained, at the commencement of the Definitions,

“In these Rules, unless the contrary intention appears:

(a) where a provision of these Rules refers to or has effect for the purposes of a particular provision of the Corporations Law – the word or expression has in that provision of these Rules the same meaning as it has in that provision of the Law; and

(b) in any other case – the word or expression has the same meaning in these Rules as it has in the Corporations Law.”

33 Those Business Rules contained an interpretation provision:

Corporations Law

34 At that time, section 761 of the Corporations Law contained a definition:

““Business Rules” in relation to a body corporate means:

(a) in the case of a body corporate that conducts … 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 which are listing rules of the body corporate …”

35 This definition was introduced into the Corporations Law by Act number 199 of 1997, the same Act which had included in the Corporations Law sections 766A-766D, enabling ASX to change its type.

The First Jurisdiction Argument

36 Reynolds submits that:

“Insofar as the charges allege that offences were committed by any conduct (act or omission) of either Reynolds or Mr Peter Struk prior to 13 October 1998 there is no jurisdiction in the NAT to hear such charges. The reason is that in spite of the transitional provisions in force at 13 October 1998, when the pre-existing articles (including Article 52) and Business Rules were repealed any offences committed contrary to Article 52 or the old Business Rules did not subsist beyond the Transition Time. Neither Article 25 of the Constitution nor the Transitional Provisions in the Business Rules, effective from 13 October 1998, apply to conduct in contravention of the old Business Rules (defined so as to include the previous articles).”

37 It is incorrect to say that the pre-existing Business Rules were repealed as at 13 October 1998 – rather, there were extensive amendments to the Business Rules. To say this is, however, to correct a detail of Reynolds’ submission, not to deal with its substance.

38 A similar, but not identical, argument was considered in the Supreme Court of South Australia in McLachlan v Australian Stock Exchange Ltd (1998) 30 ACSR 139. There, a broker had been charged, in January 1998, with prohibited conduct under Article 52 of the then Articles of ASX. Those charges had not been determined prior to 13 October 1998. The plaintiff argued (as recorded by Lander J at 151):

“… 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.”

McLachlan

“The Board may make Rules not inconsistent with these Articles for the order and good government of the Members or Member Organisations of the Exchange and its affairs including, without limiting the generality of the foregoing, Rules with respect to the conduct of business by Member Organisations or with respect to the activities of partners, officers, employees or consultants of Members or Member Organisations and may amend, alter or repeal such Rules.”

39 Lander J rejected that argument. His Honour held that Clause 25.1(b) of the Constitution (set out in paragraph 28 above) had the effect that the National Adjudicatory Tribunal which had been established under Article 55A prior to 13 October 1998, continued to exist after that day. Further, Clause 25.1(f) of the Constitution (also set out in paragraph 28 above) had the effect of continuing in existence the Notice of Charges which had been laid under the Articles of Association of the company prior to 13 October 1998. There remained a problem, of whether Article 52 continued to have effect, notwithstanding its repeal, to provide a norm of conduct which had continuing application for the purpose of those charges. His Honour held that the transitional provisions in the Business Rules should be construed using the definition of “Business Rules” contained in 761 of the Corporations Law (set out in paragraph 34 above). So construed, the “Old Business Rules” included not only rules which met the description in section 761 and were contained in the document called “Business Rules” by ASX, but also provisions of the Articles of ASX which met the description of “Business Rules” in section 761. Article 52 was such an Article.

40 The decision of Lander J was affirmed on appeal: McLachlan v Australian Stock Exchange Ltd (1999) 32 ACSR 524. Olsson J (with whom Mullighan and Nyland JJ agreed) regarded it as sufficient to uphold the appeal that Article 25(1)(b) and 25(1)(f) between them preserved both the National Adjudicatory Tribunal, and any matters which were before it and undisposed of, at least to the extent necessary to complete such matters. His Honour also said, at [94]:

“Moreover, I am by no means sure that the ingenious argument based on the definition of “Business Rules” reflects the true intention and legal effect of the [New Business Rules].”

obiter dictum

41 Mr McKeand, counsel for Reynolds, submits that the ratio of the McLachlan cases is that pending charges before the NAT as at 13 October 1998 were preserved; that the ratio of the McLachlan cases does not show that there is any right for ASX to lay charges after 13 October 1998 concerning events that happened before 13 October 1998; and that, consistently with the doubts expressed by Olsson J, the “ingenious argument based on the definition of “Business Rules”” should not be adopted.

42 In my view, Clause 25.1(f) of the Constitution of ASX suffices to preserve the liability of Reynolds to be proceeded against for a breach of the Articles of Association, even if no charge alleging that there had been such a breach had been laid prior to 13 October 1998. The liability to answer for a breach of the Articles is a “thing [or] circumstance … created by or under the Articles of Association of the Company in force before the Transition Time”, within the meaning of Clause 25.1(f).

43 In Byrne v Garrisson [1965] VR 523 Gowans J considered a situation where a director was charged with an offence under the Companies Act 1958. He was charged at a time after the 1958 Act had been repealed by the Companies Act 1961. Section 4(2) of the Companies Act 1961 provided that, unless the contrary intention appeared in the Act:

“All … things and circumstances … created by or under any of the repealed … Acts … or existing … under any of such Acts … immediately before the commencement of this Act shall under and subject to this Act continue to have the same … effect as they respectively would have had if such Acts … had not been repealed.”

44 Gowans J said, at 526:

“It is said for the defendant that a conviction for an offence may be a “thing” or a “circumstance”, but a breach constituting an offence before conviction is not. Further, it is said that the word “liability” refers to a civil liability only. But “thing” is an apt expression to describe an event, a fact or that which can be thought of, and an act or deed or omission, which is a breach of a statutory provision by reason of the terms of the provision, falls within the expression “things and circumstances existing under” the statute. If unaffected by anything taking place before the commencement of the repealing Act, it falls within the expression “things and circumstances existing under [the repealed Act] immediately before the commencement of [the repealing Act]”. A breach of the provisions of an Act is not inherently incapable of having an effect, and by the terms of paragraph (a) it is to continue and to have the same effect as it would have had it if the repealed Act had not been repealed.”

45 Those words of Gowans J are not part of the ratio of the case, because his Honour went on to hold that the words, “under and subject to this Act” in the transitional provision cut down the scope they would otherwise have. Even so, those words seem to me to be right, and applicable to the construction of Clause 25.1(f) of the Constitution of ASX.

46 There are two other considerations which I bear in mind in reaching this conclusion. The first is that, one effect of provisions of interpretation statutes which say that repeal of an Act does not affect any obligation or liability accrued or incurred under the repealed Act (eg section 8 Act Interpretation Act 1901 (Cth) section 30 Interpretation Act 1987 (NSW)) is to keep alive any criminal responsibility that has already been incurred under the Act, even if it has not been charged or prosecuted for at the time of repeal of the Act: Hume v Higgins (1949) 78 CLR 116 at 129; Byrne v Garrisson [1965] VR 523 at 529; R v Scarlett; ex parte McMillan (1973) 20 FLR 349. Something which can properly be described as an obligation or liability accrued or incurred can also be described as a “thing” or “circumstance”. There is sufficient analogy between an uncharged criminal offence, and an uncharged breach of ASX’s Articles of the type alleged against Reynolds to make this line of authority highly persuasive concerning the construction of Article 25.1(f).

47 The second matter I take into account is the intimate interrelationship which exists between the ASX Constitution and some provisions of the Corporations Law. Not only did the new Constitution come into existence pursuant to section 766D of the Corporations Law, but as well ASX, at the time of adoption of the Constitution, was conducting a stock exchange pursuant to approval granted under section 769 of the Corporations Law. Section 769(2) empowered the Minister to approve a body as a stock exchange only if he or she was satisfied that:

“(b) the body’s business rules make satisfactory provision:

…

(ii) for the exclusion from membership of:

(A) any person who is not of good character and high business integrity;

(B) any body corporate where a director of the body corporate, a person concerned in the management of the body corporate or a person who has control, or substantial control, of the body corporate is not of good character and high integrity;

(iii) for the expulsion, suspension or disciplining of a member for conduct inconsistent with just and equitable principles in the transaction of business or for a contravention of the body’s business rules, of this Chapter or of the conditions of a licence held by the member;

(iv) for the monitoring of the compliance with, and for enforcement of, the body’s business rules …

(viii) generally for the carrying on of the business of the proposed stock exchange with due regard to the interests of the public … “

Corporations Law.

48 The Constitution of the ASX should be interpreted consistently with the legislative policy expressed in section 769. It would, it seems to me, be seriously detrimental to Parliament’s evident desire that ASX only have as members, or as people involved in the management of members, people of good character and high integrity, and that there be an effective scheme for expulsion, suspension or disciplining of members, if the effect of introduction of the Constitution were to be that there was a general amnesty for all contraventions of the Articles, upon the company changing its type on 13 October 1998. In saying this, I should make clear that it is not alleged by ASX that anyone other than Mr Struk has been involved in any personal dishonesty – however, if the argument concerning jurisdiction which Reynolds presents is right, it would mean that shockingly dishonest conduct committed by an ASX member before 13 October 1998 could not be made the subject of a charge by ASX. Likewise, if the argument concerning jurisdiction which Reynolds presents is right, it would mean that infractions of the Articles committed before 13 October 1998, no matter how significant they were for the proper operation of the Stock Exchange, could not be made the subject of a charge by ASX.

49 It is only Charge 1 which alleges that there has been a breach of the Articles of Association in the period prior to 13 October 1998. Charges 2, 3 and 4 allege breaches of the Business Rules, over periods which are in part prior to 13 October 1998. However, the Business Rules prior to 13 October 1998 were made under authority of the Articles. Therefore, those Business Rules themselves count as "things … created by or under the Articles of Association of the company in force before the Transition Time", within the meaning of clause 25.1(f) of the ASX Constitution. For the same reason as the liability of Reynolds to be proceeded against for a breach of the Articles committed prior to 13 October 1998 is preserved, so also, by a separate operation of Clause 25.1(f), the liability of Reynolds to be proceeded against for a breach of the Business Rules committed prior to 13 October 1998 is preserved.

50 What I have written so far is sufficient to reject Reynolds’ first jurisdictional argument. As well, however, it seems to me that the argument which Lander J accepted, based on construction of the expression “business rules” is right. That argument provides a separate route by which the operation of Article 52 is preserved, for the purpose of the present case.

51 Charges 2, 3 and 4 allege contraventions of Business Rules 1.2.2(4) and 5.1.2A at various times. ASX submits that rule 7 of the Interpretation provisions in the present ASX Business Rules (set out in paragraph 29 above) provides a further means whereby, even though those provisions of the Business Rules have been amended from time to time, ASX’s ability to charge the plaintiff with a breach of those Rules is preserved.

52 Mr McKeand submits that the ambit of Clause 7 of the Interpretation Provisions is limited, because of the definition of “Rules” as “these ASX Business Rules” (emphasis added). The suggestion inherent in that submission is that it is only the Business Rules as adopted from 13 October 1998 which are “these ASX Business Rules”. I do not accept that submission. There have been Business Rules, referred to by that name, both before and after 13 October 1998. As I have already held, the Business Rules as they existed prior to 13 October 1998 were continued by Clause 25.1(f) of the ASX Constitution. The continuity of those Rules was recognised by the fact that, to give effect to the demutualisation of ASX, only some of the previous rules were amended; the rest continued unchanged.

53 In my view, clause 7 of the Interpretation rule should be construed so that it relates to the ASX Business Rules in whatever form they might have been from time to time. So construed, interpretation rule 7 preserves the old form which a Business Rule had from time to time, for the purpose of bringing a charge concerning breach of it, even after that Business Rule has been amended or repealed. Such a construction is also supported by Clause 14 of the interpretation provisions of the ASX Business Rules (set out in paragraph 29 above).

54 I should mention that this argument of ASX concerning interpretation rule 7 is not enough, by itself, to enable ASX to prosecute charges 2, 3 and 4. That is because the business rules involved are ones which set a norm of conduct, but do not state any consequence for breach of that norm. One needs to go to Article 51, in the period before 13 October 1998, to find the provision which states the consequence of breach of the norm. However, it is a consequence of my earlier finding about the scope of constitution Article 25.1(f) that Article 51 is preserved to perform that function.

55 Reynolds presents an alternative version of its first submission, that:

“Even if the position stated above was incorrect an alternative position would apply to leave the NAT with jurisdiction only in respect of any offences committed contrary to the articles and rules as they existed immediately prior to the Transition Time. Offences contrary only to earlier versions of the articles and Business Rules did not subsist beyond 13 October 1998. The reason is that article 25.1(f) applies to offences (assuming that it applies to any offences) in relation to the “articles … in force before the Transition Time (which articles) shall continue …” Hence, any offences that arose under articles no longer in force immediately prior to that Transition Time do not continue and the NAT has no jurisdiction to hear them. The position is the same for any offences that arose under the Business Rules that were no longer in force prior to the Transition Time.”

56 This submission requires the words “in force before” to mean “immediately before” rather than “at any time before”.

57 I reject that submission. I simply do not see any reason why the provision should be so construed. The construction of “in force before” as meaning “at any time before” is well open on the ordinary meaning of the words of Clause 25.1(f). The evidence shows that the Business Rules were amended with considerable frequency, over many years prior to 13 October 1998. There is no sensible reason why the form which the Business Rules took immediately prior to 13 October 1998 should be preserved, but the form which they took a few months prior to 13 October 1998 should not be preserved. The factors which I have earlier referred to in favour of a construction of the Constitution consistent with the Corporations Law, are against the construction for which Reynolds contend. Clause 14 of the Interpretation provisions of the ASX Business Rules is also against it. Further, even if that construction for which Reynolds contend was right, it would not be enough to demonstrate that NAT lacks jurisdiction in any particular way in the present case. Rather, it would move the focus of enquiry back, to changes there had been to the Articles before they came to be in the form they were in immediately before 13 October 1998. It would then be necessary to look at the particular changes, decide whether those changes were in substance matters of repeal of in substance matters of mere amendment, and, if they were in substance matters of repeal, whether the resolutions which effected that repeal themselves contained transitional provisions which had the effect of preserving, for certain purposes, the Articles in a prior form. That exercise has simply not been attempted. Reynolds’ first jurisdictional point fails.

Second Jurisdiction Point

58 Reynolds submits that:

Cox v Caloundra Golf Club Inc

59 In deciding whether, prior to 25 October 1993, a member had a substantive right to be found guilty only upon a decision made by nine directors, it is not sufficient to look only at Articles 51(5) and 52(3) – rather, one must construe the Articles of Association as a whole.

60 Under the Articles in 1990, the Board had power to delegate its powers, under section 6 of the Articles as they then stood (set out in paragraph 11 above). It was expressly contemplated by section 6, that powers under Article 51 and 52 could be delegated. The notion of delegating powers under Article 51 and 52 makes sense only if the delegate was able to actually make a decision, concerning the matters referred to in Articles 51 and 52. While Article 6(1) expressly contemplates the possibility of there being a delegation to a committee of directors of a State Subsidiary of the powers of the Board under Articles 51 and 52, that delegation to the State Subsidiary is said to be “without limiting the generality of the foregoing”. If that expression is to be given meaning, then the general power of delegation to a committee, contained in section 6(1)(b) must extend to the powers under Articles 51 and 52. Further, if such a delegation is made, it is the effect of Article 6(6) that a decision can be given by a majority of votes of the committee members present and voting. That Article 6(6) is said to be one which applies “notwithstanding any provision to the contrary in these Articles” makes clear that, if there were to be a delegation under Article 6 to a committee, then, notwithstanding Article 51(5) and Article 52(3), a decision of guilt could be arrived at by a majority of that committee. For these reasons, the particular Articles under consideration here differ from the Articles which were being considered in Cox v Caloundra Golf Club Inc.

61 A similar conclusion can be reached under the amendments to the Articles which became effective on 30 July 1991. The version of Article 6 (1) which was then adopted (set out in paragraph 14 above) made quite clear that there was a power for the Board to delegate its powers under Article 52 to a committee, and that a majority of such committee could make the requisite decision under Article 52, unless the Board imposed some requirement for there to be a greater number before a decision could be made, when delegating its powers under Article 52 to that committee.

62 The reader will have observed that the identity of the people to whom a delegation can be made under either form of Article 6 is limited. Neither under Article 55A introduced in October 1993, nor under the present regime under section 14 of the Rules, is there any requirement for a member of the NAT to have any of the particular types of connection with the Exchange which Article 6 (either as at 1990, or following the amendments of 30 July 1991) required to enable a delegation to occur. Thus, even though the Board had power to make a delegation of power to hear a charge against Reynolds for a contravention of Article 51 or 52 to a committee, pursuant to Article 6, that is not what has actually happened in the present case. The NAT is not such a committee.

63 In the field of statutory interpretation, there is a well recognised distinction between procedural and other statutes – some statutes create or modify or abolish substantive rights or liabilities, while other deal with the pursuit of remedies (Maxwell v Murphy (1957) 96 CLR 261 at 286 per Fullagar J). Pearce and Geddes, Statutory Interpretation in Australia, 5th edition, paragraph [10.20] say:

“… if a statute is concerned only with the way in which certain rights are to be enforced or is quite literally concerned with court procedure, it will operate retrospectively. This means that it is applicable to all actions commenced after the procedural statute to enforce rights, whether those rights arose before or after the enactment of that statute.”

64 In my view, a similar approach to construction should be taken of provisions of Articles of Association which set up institutions or procedures, in the way that Article 55A does.

65 When the NAT was first established, by Article 55A in October 1993, it provided a new procedure by which charges pursuant to Articles 51 and 52 could be determined. There was still power, under Articles 51 and 52, for the Board to determine such charges itself, if it so desired. There was power for the Board to delegate some of its powers to a committee, under Article 6(1). The NAT provided a third procedural route by which such charges could be heard and determined.

66 When the NAT was first established, there is no reason to believe it was intended that it would have jurisdiction to hear charges for contraventions of Articles 51 or 52 where the subject matter of those charges arose only after Article 55A was introduced. If that were so, the Tribunal might take a long time to build up to a full workload.

67 Prior to the adoption of Article 55A, there was, in my view, no substantive right in a Member or Member Organisation to have charges under Article 51 or Article 52 heard by the Board, and a finding of guilty made only if nine or more were in favour of such a finding. The possibility of there being a finding by a committee, which acted by majority, shows that there was not such a substantive right. Because there was no such substantive right, and there has been no submission that there was any other substantive right which would be encroached upon by the NAT hearing charges relating to events which happened before that Tribunal existed, that Tribunal could, upon being created, hear charges relating to events which happened before it was created. Counsel for Reynolds accepts that the NAT as it existed prior to 13 October 1998 is the same body as the NAT which existed after that date. It follows that the NAT has jurisdiction to hear charges relating to conduct which occurred prior to 29 October 1993. Reynolds’ second jurisdictional argument fails.

Alleged Unfairness and Injustice of the Charges

68 Other relief which Reynolds seeks is:

(A) Declaration that it is an implied term of the Business Rules of the First Defendant that the First Defendant would act in good faith in performing its obligations and exercising rights under those Business Rules.

(B) Declaration that the First Defendant has not acted in good faith in charging the Plaintiff with the charges preferred in the First Defendant’s Notice of Charges dated 24 September 2002 served on the Plaintiff.

(C) Declaration that by reason of the acts and inaction of the First Defendant since 30 July 1990 and the reliance thereon by the Plaintiff the First Defendant is estopped from prosecuting the charges preferred in the First Defendant’s Notice of Charges dated 24 September 2002 served on the Plaintiff.

(D) Declaration that in charging the Plaintiff and in seeking to prosecute those charges in accordance with the procedures specified for preparation of the proceedings and the hearing of the charges the First Defendant has acted oppressively, unfairly, unreasonably, contrary to natural justice and contrary to fundamental principles of common justice, in relation to the Plaintiff.

69

Section 793B of the Corporations Act 2001 (Cth) provides:

“The operating rules (other than listing rules) of a licensed market have effect as a contract under seal:

(a) between the licensee and each participant in the market; and

(b) between a participant and each other participant;

under which each of those persons agrees to observe the operating rules to the extent that they apply to the person and to engage in conduct that that person is required by the operating rules to engage in.”

70 Reynolds submits that there is an obligation on ASX, when preferring a charge, to act in a way which involves no injustice, is not unfair, and is not unreasonable. Reynolds says that ASX’s power to prefer a charge is a contractual power, and is therefore subject to an implied term requiring that power to be exercised in good faith (Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church (1993) 31 NSWLR 91; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWSC 187); Overlook v Foxtel [2002] NSWSC 17. Reynolds submits that the form of the charges is inherently unfair, and involves ASX in breaching obligations which it owes to Reynolds. Thus, Reynolds argues, it was appropriate for it to come to court at this stage, seeking relief, rather than asking NAT for relief now, and rather than coming to court when NAT had conducted its hearing and had come to a conclusion.

71 Relevant to the argument that there is unfairness in the form of the charge are some Guidance Notes which ASX has issued. Note number 3/01, issued 30 March 2001 states is purpose as being to outline “the practices and procedures followed by ASX when it takes disciplinary action under the Business Rules in relation to a Participating Organisation.” Under the heading “Contested Hearings”, it gives a précis of certain of the Business Rules on that topic and an account of the procedure followed. Part of that account includes:

“The Tribunal will also invite the parties to address it on the question of any sanction which it would be appropriate to impose, in the event that it finds that the Rules have been contravened. It may call for addresses to be made on the question of sanctions as part of the submissions in support of or in opposition to the charge, or it may ask that those submissions be made if and when it makes a finding that a contravention of the Rules has occurred.”

72 In other words, it is a matter for NAT to decide whether, in any particular case, questions of liability and penalty should be heard in the one hearing, or whether NAT should conduct a hearing on questions of liability, and after making a finding on liability (which would necessarily, because of NAT’s obligation to give reasons, include the reasons for that finding) hold a separate hearing on the question of penalty.

- where the proceedings in question are disciplinary proceedings, "consideration will necessarily be given to the protective character of such proceedings and to the importance of protecting the public from incompetence and professional misconduct on the part of... practitioners":Walton v Gardiner (1993) 177 CLR 378 at 396.

137 I do not find Reynolds’ submission that the limitation statutes it identifies should be applied by analogy a particularly persuasive one. There is another provision in the Limitations Act 1969 which seem to bear almost as close an analogy to the present situation as do the two limitation provisions which Reynolds relies upon, but which would lead to a different result. Under section 793B of the Corporations Act 2001 (Cth) the Business Rules of the ASX have effect as a contract under seal between the ASX and participants. During nearly all of the time when the Prohibited Conduct provisions were found in the Articles of Association of ASX, section 180 Corporations Law provided that the Constitution of a company had effect as a contract under seal between the company and each member. Section 16 of the Limitation Act 1969 provides a 12 year limitation period for a cause of action founded on a deed. While not all contracts under seal are deeds (Electricity Meter Manufacturing Co Ltd v Manufacturer’s Producers Pty Ltd (1930) 30 SR (NSW) 422; Rose and Burgess v Commissioner of Stamps (SA) (1979) 22 SASR 84; McKinlay v Dodds (1984) 3 BPR 9259; Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 at 369) the distinction between a contract under seal which is a deed, and a contract under seal which is not a deed, is a distinction in black letter law which does not seem to be closely connected to the substantial justice of allowing a particular charge or charges to proceed. It is the substantial justice of allowing a particular charge or charges to proceed which needs to be considered, in deciding whether it would be an abuse of process for that charge to proceed. Even the five-year period contained in S 1316 Corporations Law and Corporations Act 2001 (Cth) is not a fixed one, as the Minister has power to extend it indefinitely.

138 More important, however, is the fact that limitation statutes are enacted to provide justice with a very broad brush indeed -- there is a recognition by Parliament that, in the most general way, the passing of time can affect the justice of bringing an action, and an extremely arbitrary approach is taken to the drawing of a cut-off point, applicable by reference to categories of litigation which are quite broad. The focus of the court in deciding whether an action should be stayed for abuse of process is different -- the focus is on the justice of the particular case before it being allowed to proceed. This difference in focus between that with which limitation statutes are enacted, and that which the court must adopt in deciding whether an action should be stayed for abuse of process, must necessarily mean that limitation statutes are of little, if any, help. Indeed, the only occasion for a court to consider whether an action should be stayed for abuse of process arising from lapse of time is when Parliament has failed to pass a limitation statute which would prevent the bringing of that action (or, in the case of a voluntary association or corporation, no provision has been included in the constituent rules of the association or corporation which sets a time limit for bringing charges). The applicant for a stay is saying to the court that, even though there is no limitation statute, (or, in the case of a voluntary association or corporation, no provision in the constituent rules of the association or corporation which provides a time limitation on the bringing of charges) there are particular features of the case which make it an abuse of process for the case to be allowed to proceed.

139 I recognise that in Burns v TAFE Commission of NSW (Spender AJ, Supreme Court New South Wales 15 November 1994, unreported) Spender AJ at [53] took the following approach to an allegation of excessive delay in the bringing of a disciplinary charge and against a TAFE teacher:

"I find that the limitation period of six years applicable to torts and contracts provides some kind of rough, if arbitrary, guide. As a secondary consideration I intend to take into account the particular circumstance so that, even if more than six years has elapsed since the charges were brought against Mr Burns, if the event complained of is one that may be characterised as singular, precise, or vivid, it should be allowed to go forward. The third consideration is the seriousness of the allegations: serious matters should usually go forward."

140 In that case, the possibility of different limitation periods providing the appropriate analogy does not appear to have arisen, nor the different focuses involved in Parliament enacting a limitation statute, and a court staying an action, been considered. Hence I intend, respectfully, to take a different approach to the application of limitation statutes in deciding whether there is abuse of process.

141 ASX submits that the course of events from Mr Struk’s disappearance to the laying of charges provides an indicator of whether there is abuse of process in pressing on with the charges. By letter dated 18 July 2001 ASX directed Reynolds to supply it with an accountant’s report in relation to the activities of Mr Struk and the adequacy of Reynolds’ procedures and controls. One topic which ASX required that report to address was “a reconciliation of the orders, client accounts and client statements for all clients of Mr Peter Struk from 1 January 1996 to 13 July 2001”. Reynolds appointed Williams Hatchman and Keen (“WHK”) to prepare the report. WHK delivered four reports to ASX and Reynolds, the last of them on 31 October 2001. Reynolds engaged their own accountants, Davis and Benson, to circularise clients of Mr Struk, and ask for notification of any irregularities there had been in dealings. Reynolds’ own staff also investigated the activities of Mr Struk, and co-operated in the investigation WHK was carrying out. Mr Julian Reynolds accepted that the inquiries conducted by Reynolds and its employees were very extensive, thorough and systematic.

142 Following receipt of the four accountants reports from WHK, ASX commenced, in November 2001, a formal investigation in relation to whether Reynolds had engaged in conduct which might give rise to disciplinary or other action. It requested additional information from Reynolds. The investigation resulted in a draft Investigation Report, which was provided to Reynolds in March 2002 for comment. Reynolds provided a detailed response in May 2002.

143 Nowhere in its response to the draft report does Reynolds make any complaint of not being able to fairly deal with the allegations made against it, either through loss of relevant documents, or unavailability of relevant recollections. Indeed, Reynolds’ response to the draft report includes the following passages:

B10 A proper analysis of the various methods adopted by Mr Struk to engage in the misconduct complained of will indicate that over time as compliance systems changed and were improved Mr Struk’s activities and his misconduct changed because of the increases in supervision and compliance.

B11 There was not an inadequate system for identifying and dealing with client complaints…… The fact is that Reynolds did have a separation of function between its front and its back office. Reynolds also had in place systems to ensure that mail was received by the persons to whom it was addressed. Reynolds had a back office which dealt with accounts and transaction settlement and execution and a front office which dealt with client instructions. …. Reynolds did have a system to ensure that payments were correctly allocated to client accounts.

2.3 Reynolds did have procedure manuals or the equivalent for front and back office functions at all relevant times

2.14 –2.15 Reynolds has a system for opening mail and delivering it to addressees that has rarely failed in 30 years.

144 The making of these submissions is likely to have drawn the attention of Reynolds and its legal advisers to the information which was available to them concerning the various systems which were in place over the years relevant to the charges. The submissions were made with no hint of qualification or uncertainty.

145 As well, a theme of Reynolds’ response to the draft report was that the modus operandi of Mr Struk was such that no reasonable compliance system was likely to have caught him. This is an allegation which can be put by way of defence regardless of evidence about the actual compliance systems which were in place in Reynolds office.

146 It is well recognised in the authorities that the Court can take into account the reasons for the time which has elapsed between the events which are the subject of the charge, and bringing of the charge. The scope of consideration of reasons for the time elapsing would include whether all or part of the reason is that the person complained about has, either deliberately or through his own neglect, incompetence or inadvertence kept the facts on which the charge is based hidden. In the present case, the ASX has acted promptly from the time when it first came to ASX's attention that there might be irregularities concerning the conduct of Mr Struk. In relation to those matters not involved in particular 1.5, the material upon which ASX bases its charge is material which concerns the operations of Reynolds, and was unknown to ASX until, at earliest, the second half of 2001.

147 While prejudice arising from loss of evidence is a relevant factor, any such prejudice needs to be assessed as to whether it is slight, extreme, or somewhere in between. As well, such prejudice needs to be taken into account along with other relevant factors. It is clear that all documents from 1995 onwards are still in existence. At the time this matter was heard in court, Reynolds had not worked out the extent to which there had actually been loss of relevant documents from the period prior to 1995. Hence the task of assessing the extent of prejudice arising from loss of documents cannot be carried out on a sound factual basis. That Reynolds has kept some of its documents in a way which is not well organised is not a matter which is entitled to any great weight in assessing whether it is a unjust for the charge against Reynolds to proceed, in any particular respect.

148 If further focusing on the allegations made by ASX, and further inspection of the documents still held, makes it clear to Reynolds representatives that some specific class of documents, whose relevance to a particular charge can be identified, has been destroyed, this is a proper matter to put to NAT. In relation to all allegations in the charges, ASX bears the onus of proof. The NAT would ordinarily be entitled to infer, if documents were not tendered by Reynolds to rebut any allegations made by ASX, that no such documents existed. If, however documents of a type which are relevant to a particular allegation once existed, but no longer exist, that matter can be put to the NAT as a reason why it ought not draw the inference. As well, it can be put to the NAT that, in the absence of a particular class of documents which were once in the possession of Reynolds but have now been destroyed in the ordinary course of destruction of old records, it ought not be satisfied that particular allegations are made out. In an extreme case of documents having been destroyed in the ordinary course of disposing of old records, Reynolds could submit to the NAT that a fair hearing of certain aspects of the charges was impossible, and that the NAT’s obligations under Clause 14.2.3(4) of the Business Rules required it not to continue to hear certain aspects of the charges.

149 The result is that it is not clear to me to what extent relevant documentation will, ultimately, not be available to Reynolds. It is Reynolds’ task to persuade the court that continuance with the charges would cause unacceptable injustice, or amount to an abuse of process. The NAT itself has powers and obligations which will enable it to deal with the consequences of documents having been lost, once the extent of the loss of documents is more clearly known.

150 I accept the likelihood that memories will have faded, particularly concerning events and practices at the beginning of the period to which the charges relate. The death of Ms Gale makes one potentially important witness unavailable. However it is not clear to me how significant this fading of memory, or unavailability of Ms Gale, will be. Particularly in relation to systems and procedures, one can often infer what a system or procedure was from looking at the documents which were produced in the course of carrying through that system or procedure. The evidence leaves me in a state of uncertainty about to what extent Reynolds will ultimately be unable to demonstrate to the NAT what its systems and procedures were, because that will depend, at least in part, on what documents remain in Reynolds’ possession which can demonstrate those systems and procedures. Further, it is not clear to me to what extent generalised evidence of the systems adopted can be called from people other than Ms Gale, or is available from procedure manuals.

151 The fact that the procedures are ones for the protection of the public is a factor which favours the charges not being stayed.

152 In all these circumstances I am not presently persuaded that allowing the charges to proceed will result in an abuse of process.

Para 1.5 of the particulars

153 Business Rule 1.2.2(4) of the ASX presently says:

“All monies received by a Participating Organisation for or on account of any client and are required by Rule 1.2.2.(2) to be paid into a trust account shall be retained in the trust account until:

(i) withdrawn for the purpose of reimbursing brokerage and other proper charges attributable to the purchase of Securities for or on account of such person;

(ii) withdrawn for the purpose of reimbursing money expended in the purchase of Securities for or on account of such person;

(iii) paid to the person entitled thereto or in accordance with the written directions of that person;

(iv) paid to the Exchange in accordance with the provisions of the Corporations Act;

(v) paid as otherwise authorised by law”

154 It has, it seems, been in a form not materially different to its present form since 1990.

155 Nearly every year during the 1990s Reynolds was subject to a compliance inspection by ASX. Each of these visits was typically of some days duration, during which time a number of aspects of the operation of Reynolds were examined and reported on by the ASX personnel. While the aspects of the business being examined changed somewhat from year to year, it almost invariably included an examination of Reynolds’ trust account and Reynolds’ practices relating to it. ASX’s usual practice following such an inspection was to prepare a written draft inspection report, which included details of any deficiencies uncovered, and recommendations concerning what should be done about those deficiencies. That draft report was sent to Reynolds, and Reynolds was given the opportunity to correct any factual errors, and make any comments or submissions it wished concerning the draft report. ASX then produced a final version of the inspection report.

156 Reynolds at all times had a procedure whereby, rather than having a client’s money lie idle in Reynolds’ trust account, Reynolds would transfer it to a cash management account where the money would earn interest. The allegation made by paragraph 1.5 of the Particulars to Charge 1 is that, by not having written authority from clients to effect those transfers to a cash management account, Reynolds was in breach of Rule 1.2.2(4). Reynolds contends that ASX has at all times been aware of the procedures it adopted for the transfer of money from a trust account to a cash management account, and approved of those procedures, in consequence of which it would be oppressive for ASX to now charge a breach of the Rules concerning those transfers.

157 An ASX Draft Inspection Report dated 30 December 1991 contained the following, under the heading “Call Deposits”:

“Reynolds do not have a formal agreement with client. A signed letter should be sought from clients with explicit instructions to Reynolds regarding the deposit, the withdrawal and other instructions required ie interest.

John Reynolds advised Reynolds deal mainly with the National Mutual Trustee Limited Cash Management Common Fund and Permanent Trustee Co Limited Common Trust Fund No 7 and that interest is always allocated direct to the specific clients account by the Depositee. Usually the accounts are titled as follows:

National Mutual Trustees Limited Cash Management Common Fund – Client Name c/- Reynolds & Co Pty Limited

Permanent Trustee Co Limited Common Trust Fund No 7 – Reynolds & Co Pty Limited A/c Client Name”

“Recommendation”

158 By a letter dated 21 January 1992 from Reynolds to ASX, Reynolds responded to that recommendation by saying:

“At the time of the visit, the relevant folder containing written authorities from clients to Reynolds to transfer money market funds was not brought to the attention of your inspectors. However, this has been in place for some time. If you wish to sight this documentation, we would be only too happy to provide it.”

159 On 29 January 1992 ASX received from Reynolds a draft form, of a kind suitable for it to send to its clients. It was sent under cover of a “with compliments” slip, not of a covering letter which said anything about the form. The evidence does not disclose any communication by Reynolds to ASX of the circumstances in which such a form was then used, or was proposed to be used. It is apparent from the evidence of Mr Griffiths (paragraph 127 above) that to some indeterminate extent Reynolds was authorised, by means other than these forms, by clients to effect transfers of money to a cash management account. That form was one addressed to Reynolds, which said:

Dated: ………………………………………

160 On 4 February 1992 ASX issued a final inspection report. It included the text I have set out earlier concerning “Call Deposits”, from the Draft Report, and added:

“Reynolds have since advised that they do have a letter of authority signed by clients. This authority merely authorises the Member Organisation to act according to the client’s oral instructions and does not detail the instructions from the client. This could lead to a misunderstanding between the client and the officer of Reynolds receiving the instruction.”

161 The conclusion of that report was that, “the Member Organisation does not appear to be in breach of any ASX Rules or provisions of the Corporations Law.” That conclusion is one which could be argued to be correct so far as transfers effected pursuant to a form like that sent to ASX on 29 January 1992 are concerned. That argument would depend upon whether a payment made on an oral instruction, when the client had authorised Reynolds in writing to make payments in accordance with oral instructions, was a payment “in accordance with the written directions of that person”, within the meaning of Business Rule 1.2.2(4)(iii).

162 When an ASX inspection team visited a broker, they took a pre-prepared booklet which identified the particular areas of the broker’s business which were to be the subject of the inspection. In relation to each of those areas, the booklet included some commentary, which set out the objective that year’s inspection was intended to achieve so far as that area was concerned, the requirements that brokers were expected to adhere to concerning that area, and some explanatory background. There then followed a questionnaire, relating to that particular area, which members of the inspection team filled out on the basis of answers given to them by appropriate officers or staff of the broker.

163 The 1993 ASX inspection of Reynolds was carried out by Ms Manfred and Mr Johnson. One of the areas to be inspected on that occasion related to custodial operations for cash. The inspection booklet stated the objective of that inspection to be “to assist Member Organisations to identify whether they may have a problem with respect to prescribed interests under Corporations Law. Our objective is also to ensure that Brokers are performing their fiduciary obligations in a manner acceptable to the Exchange.” The focus of the “background” statement in that booklet, concerning custodial operations for cash, was the risk that brokers who offered cash deposit facilities to their clients might find themselves in breach of the fundraising provisions of the Corporations Law, if those deposits facilities were offered in a way which amounted to the issue of prescribed interests or debentures without a prospectus or trust deed.

164 The questionnaire which was filled out in 1993 relating to custodial operations for cash disclosed that Reynolds placed money on deposit for approximately 250 clients, totalling approximately $2.5m at any one time. These funds were deposited in a “nominee account client”, accessed by the broker only. A somewhat delphic note made in that section of the questionnaire reads:

“Test 1

No application form or prospectus is supplied to client. The accounts are in the name of Reynolds & Co Pty Ltd not nominee.

Withdrawals are made by Reynolds without authority from the client and also deposits except for a contract note.

Test 4

Not in name nominee for National Mutual but in name Reynolds & Co Pty Ltd

Client advisor can withdraw funds without reference to client or contract note.

Not in name nominee but broker name.”

165 The booklet records in handwriting a conclusion drawn by Ms Manfred concerning custodial operations – cash. “No prospectus to client or authority to operate account; funds in name firm not nominee client name”. That same page records that “nil” disciplinary matters are applicable.

166 Ms Manfred gives evidence, which I accept, that during that investigation of cash custodial issues in 1993 she did not turn her mind to whether breaches of rules other than Business Rule 1.2.2(5) had occurred. That Rule is one which imposes obligations on a Participating Organisation when money is lent to the Participating Organisation in connection with the securities business it carries on. Her evidence in this respect is corroborated by the objective with which the investigation concerning cash custodial issues took place that year.

167 Another section of the questionnaire, concerning internal control evaluation for the trust account, included the following questions and answers:

19 Are payments made to clients or third parties with a trust account cheque? -- yes. Written authority required. Clients generally paid with a general cheque.

20 Does the broker obtain written instructions from their clients when amounts are paid from trust account to third parties? (CL S 869(1))? -- yes.”

168 Section 869 of the Corporations Law has at all relevant times provided:

169 The answer to question 20 needs to be appreciated taking into account the text of section 869(1) of the Corporations Law.

170 In another portion of the questionnaire relating to trust account, some questions were asked designed to test the knowledge of the broker’s staff of the law and other requirements concerning those operations. One question and answer in that part of the questionnaire was:

“5. What is required when trust monies are paid to a person other than the person beneficially entitled thereto? -- written letter by client with details of c/note if relevant. Company – under seal.”

171 On 21 July 1993 ASX issued a Draft Inspection Report relating to its 1993 inspection. It included, under the heading “Breaches”:

“iv) Custodial Operations (Cash) - in that the Member Organisation does not obtain written authority from its Cash Management Trust clients to withdraw funds from trust account and deposit them with the Cash Management Trust. These funds could be considered loans to the broker and as no Appendix 6.1 form authority is obtained from the client, this may be in breach of Rule 1.2.2(5). This is the subject of a separate Inspection Report.”

172 Under the heading “Procedural Weaknesses” that Report said:

“vi) Custodial Operations (Cash) – in that the Member organisation does not provide a prospectus to its clients or obtain their authority to deposit or withdraw funds. It is also recommended that the funds be lodged in the name of Reynolds’ nominee company account client rather than Reynolds & Co Pty Limited.”

173 It is to be observed that it is Business Rule 1.2.2(5) which is said to be breached.

174 On 14 October 1993 Reynolds wrote to ASX, responding to the breaches and procedural weaknesses identified in the Draft Inspection Report of 21 July 1993. There was no specific response to breach (iv). Concerning procedural weakness (vi), Reynolds said:

“We do have a set procedure for money market accounts which includes a signed authority. Problems arose when National Nominees of its own volition changed the name on everyone of our two hundred-odd accounts without:-

(a) bringing it to our attention; and

(b) our authority.

They have now changed it by our direction to Reynolds (Nominees) Pty Ltd Account Client.”

175 On 26 October 1993 ASX issued Reynolds with its Final Inspection Report for that year. That Report identified a breach relating to Custodial Operations (Cash), in the same terms as the Draft Report on that topic (that is, suggesting that there was a breach of Rule 1.2.2(5), but not suggesting that there was a breach of Rule 1.2.2(4).) Under the “Procedural Weaknesses” heading was the item,

“vi) Custodial Operations (Cash) – in that the Member Organisation does not provide a prospectus to its clients or obtain their authority to deposit or withdraw funds. It is also recommended that the funds be lodged in the name of Reynolds’ nominee company account client rather than Reynolds & Co Pty Limited.

In a letter dated 14 October 1993 the Member Organisation advised that they now have a set procedure for money market accounts which includes a signed authority from the client. Funds are also now lodged in the name of Reynolds (Nominees) Pty Ltd – Account client.”

176 The recommendation of the Report was, “that the identified possible breaches be progressed in a separate report to the National Adjudicatory Tribunal”.

177 In fact nothing was done about charging Reynolds with any of those breaches. It is apparent, however, that the Exchange was not contemplating charging a breach of Rule 1.2.2(4) concerning the custodial operations (cash). It is also apparent that the Draft Report had recorded as a fact that Reynolds did not obtain written authority for transfers from trust account to cash management account (paragraph 171 above), and that that recording of fact was removed from the Final Report, on the basis of Reynolds’ letter of 14 October 1993.

178 The topic of by what authority Reynolds transferred money from its trust account to a cash management account on behalf of a client did not emerge in any later inspections.

179 Reynolds submits that the January 1992 Report, after ASX had received the draft letter of authority, conveyed to the reasonable reader that ASX did not regard the practice of acting in accordance with that draft as satisfactory, but that it gave rise to no breach of Rule 1.2.2(4). I accept that submission.

180 It would be relevant to an evaluation of whether it would be abuse of process to now prosecute charges on the basis of Particular 1.5 if ASX’s delay in making those charges arose from it having been misled by Reynolds. Reynolds submits that there was no assurance given to ASX inspectors in the 1993 interview that, “written authority was obtained by Reynolds before any trust monies were paid to anyone other than the relevant client” (which is the inference which Ms Manfred now draws from reading the text of the questionnaire). I accept that no inference to that effect can properly be drawn from question 5 in the “test of knowledge” portion of the questionnaire. However it seems to me that the answers given to questions 19 and 20 are to the effect that a written authority was required before payments were made to third parties with a trust account cheque. To the extent that authority forms like the draft set out in paragraph 159 above were relied upon (a matter which has not been gone into before me), that answer was, in one sense, true – transfers were made under cover of a written authority which authorised Reynolds to act on verbal instructions. Whether that is the relevant sense for compliance with Business Rule 1.2.2(4) is another matter. The evidence leaves me unpersuaded about whether the relevant ASX officers understood the answers to questions 19 and 20 in the particular sense which was true, or whether they assumed that the answer meant that specific written authority was given for each transfer, or indeed whether they did not advert to the distinction at all. Given that the answers to questions 19 and 20 are inconsistent with the express statement that funds were transferred from trust account to cash management account without written authority, in the draft report about the breach concerning cash custodial matters (paragraph 171 above), it seems unlikely that, at the time of the inspection, ASX’s inspectors were of the view that written authority was obtained for transfers from the trust account to a cash management account.

181 It is quite possible, that when Reynolds made the statement which I have set out above in paragraph 174 above, in its letter of 14 October 1993, it was referring to the blank form of authority which had been produced in 1992. It is also quite possible, on the evidence before me, that ASX’s understanding of that letter, referred to in their Final Report set out in paragraph 175 above, involved a misunderstanding of what Reynolds was seeking to convey by its letter of 14 October 1993. I would not be prepared to hold, on the strength of the evidence before me, that anyone connected with Reynolds had deliberately misled ASX concerning the procedures used for transferring money from the trust account to a cash management account.

182 However, I am not persuaded that there was, in 1993, a clear and distinct representation by ASX that it regarded the procedures which Reynolds actually used for transfer of funds from trust account to cash management accounts as satisfactory. I am not satisfied that, insofar as ASX and Reynolds mentioned those procedures in October 1993, they were not talking past each other.

183 That leaves a question concerning what ongoing effect there was of the January 1992 report. In my view, when the question of the procedures which Reynolds used for transfer of funds from trust account to cash management accounts arose in the course of the 1993 inspection, a reasonable reader would not be left, after the 1993 Final Report, with the impression I have set out in paragraph 179 above, concerning those transfers (whatever their extent might have been) made pursuant to a written authority to accept verbal instructions. Rather, a reasonable reader would be left confident that ASX had accepted the assurance in Reynolds’ letter of 14 October 1993 that it had a set procedure for money market accounts which included a signed authority, but wondering just what that signed authority might be. Hence, I would not be prepared to hold that the reasonable reader of both the 1992 and 1993 correspondence between ASX and Reynolds would be of the view that ASX knew that when Reynolds transferred money from trust to cash management account it was sometimes acting in accordance with written authority forms which authorised Reynolds to act on verbal instructions, and approved of Reynolds so acting.

184 When that is the case, there is no clear and distinct representation made by ASX, and hence there is no basis for ASX being estopped.

185 In those circumstances, it is not necessary for me to consider any question of whether an estoppel of the type alleged can, as a matter of law, exist against ASX concerning disciplinary functions such as the present, when ASX has its disciplinary functions with statutory approval, and exercises them for a public purpose (cf Attorney General (NSW) v Quin (1990) 170 CLR 1 at 23, Minister for Immigration v Kurtovic (1990) 21 FCR 193 at 219-222 per Gummow J).

186 Reynolds bears the onus of persuading the Court that it would be an abuse of process for the charges to continue, insofar as they relied on paragraph 1.5 of the particulars. The circumstances I have found have not negatived the possibility that in October 1993 ASX misunderstood an ambiguous assurance by Reynolds that it had a set procedure for money market accounts which included a signed authority, and that Reynolds has mistakenly assumed that ASX was approving of money being transferred from trust account to cash management account pursuant to a written authority to accept a verbal instructions. While it would be a very relevant factor to a question of whether it would be an abuse of process, now, to charge Reynolds with the matter set out in paragraph 1.5 of the particulars if ASX had clearly led Reynolds into non-compliance with the Rules, I am not persuaded that ASX has done so. An important element in the way the topic of transfers from trust account to cash management account was ultimately dealt with in 1993 is the ambiguity of the relevant assurance in Reynolds letter of 14 October 1993. It is, ultimately, Reynolds’ responsibility to obey the Business Rules; while ASX conduct inspections, that does not relieve brokers from the responsibility of complying with the Rules. In all these circumstances, I am not persuaded that it would be an abuse of process for the charges to continue to rely on the particulars in paragraph 1.5. If ASX were to make out of the facts alleged in particulars paragraph 1.5, the circumstances I have been considering in this section of the judgment would be a relevant, and significant, matter for the NAT to take into account on penalty.

Orders

187 I make the following orders:

**********

Last Modified: 02/27/2003

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Citations

Reynolds and Co v Australian Stock Exchange [2003] NSWSC 33

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Cited Sections

CITATION:	Reynolds & Co v Australian Stock Exchange & Anor [2003] NSWSC 33
HEARING DATE(S):	12/12/02-16/12/02
JUDGMENT DATE:	24 February 2003
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	National Adjudicatory Tribunal has jurisdiction concerning charges arising from alleged conduct commencing 30 July 1990. Orders seeking to prevent charges being heard refused
CATCHWORDS:	ADMINISTRATIVE LAW - particular tribunals or bodies - National Adjudicatory Tribunal of Australian Stock Exchange Limited - jurisdiction to hear charges relating to conduct occurring prior to 13 October 1998 - jurisdiction to hear charges relating to conduct occurring prior to 25 October 1993 - ASSOCIATIONS AND CLUBS - disciplinary tribunals - construction of transitional provisions in relation to jurisdiction of tribunal - whether duplicity is a ground for invalidity of a charge - requirements of fair procedure - PROFESSIONS AND TRADES - stockbrokers - disciplinary proceedings - when bringing of charges is an abuse of process - requirements of fair procedure - WORDS AND PHRASES - "things and circumstances created by or under the Articles of Association" - extends to alleged breach of Articles concerning which no disciplinary action was taken before repeal of Articles - extends to Rules made under authority of Articles of Association before those Articles were repealed
LEGISLATION CITED:	Crimes (Sentencing Procedure) Act 1999 Companies Act 1958 Companies Act 1961 Corporations Act 2001 (Cth) Corporations Law Interpretation Act 1901 (Cth) Interpretation Act 1987 (NSW) Limitation Act 1969
CASES CITED:	Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Attorney General (NSW) v Quin (1990) 170 CLR 1 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWSC 187 Burns v TAFE Commission of NSW (Spender AJ, Supreme Court of New South Wales, 15 November 1994, unreported) Byrne v Garrisson [1965] VR 523 Chapmans Ltd v Australian Stock Exchange Limited (1995) 17 ACSR 524 Codelfa Construction Pty Limited v State Rail Authority of News South Wales (1982) 149 CLR 337 Cooke v Purcell (1988) 14 NSWLR 51 Cox v Caloundra Golf Club Inc (Thomas J, Supreme Court of Queensland, 27 September, 1995 unreported) Duncan v Medical Practitioners Disciplinary Committee [1986] 1 NZLR 513 Electricity Meter Manufacturing Co Ltd v Manufacturers Producers Pty Ltd (1930) 30 SR (NSW) 422 Etherton v Public Service Board [1983] 3 NSWLR 297 Gee v General Medical Council [1987] 1 WLR 564 Herron v McGregor (1986) 6 NSWLR 246 Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church (1993) 31 NSWLR 91 Hudson Securities Proprietary Limited v Australian Stock Exchange Limited (2000) 35 ACSR 55; [2000] NSW SC 203 Hume v Higgins (1949) 78 CLR 116 Jacobsen v Nurses Tribunal (Dunford J, Supreme Court of NSW, 3 October 1997, unreported) Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 Maxwell v Murphy (1957) 96 CLR 261 McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470 McKinlay v Dodds (1984) 3 BPR 9259 McLachlan v Australian Stock Exchange Ltd (1998) 30 ACSR 139 McLachlan v Australian Stock Exchange Ltd (1999) 32 ACSR 524 Mitchell v Royal New South Wales Canine Council Limited (2001) 52 NSW 242 Minister for Immigration v Kurtovic (1990) 21 FCR 193 Overlook v Foxtel [2002] NSWSC 17 Peatfield v General Medical Council [1986] 1 WLR 243 Peters (WA) Limited v Petersville Limited (2001) 75 ALJR 1385 Polley, Ex parte; Re McLennan (1947) 47 SR (NSW) 391 Public Service Board of New South Wales v Etherton (1985) 1 NSWLR 430 R v Scarlett; ex parte McMillan (1972) 20 FLR 349 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Reza v General Medical Council [1991] 2 AC 182 Rose and Burgess v Commissioner of Stamps (SA) (1979) 21 SASR 84 S v The Queen (1989) 168 CLR 266 Walton v Gardiner (1993) 177 CLR 378
PARTIES :	Reynolds & Company Pty Limited (Plaintiff) Australian Stock Exchange Limited (First Defendant) The Chairperson of National Adjudicatory Tribunal of the Australian Stock Exchange Limited (Second Defendant)
FILE NUMBER(S):	SC 5436/02
COUNSEL:	R McKeand (Plaintiff) J Griffiths SC (Defendants)
SOLICITORS:	Holman Webb (Plaintiff) Allens Arthur Robinson (Defendant)