Rich & Anor v Australian Securities and Investments Commission

[2004] HCATrans 33

[2004] HCATrans 033

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S612 of 2003

B e t w e e n -

JOHN DAVID RICH AND MARK ALAN SILBERMANN

Applicants

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Summons

McHUGH J

(In Chambers)

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 24 FEBRUARY 2004, AT 9.57 AM

Copyright in the High Court of Australia

MR D.L. WILLIAMS, SC:   May it please the Court, I appear with my learned friend, MR S.A. GOODMAN, for the applicants.  (instructed by Ms J. Kelly)

MR R.B.S. MACFARLAN, QC:   If your Honour pleases, I appear with my learned friend, MR J.P.A. DURACK, for the respondent.  (instructed by Australian Securities and Investment Commission)

HIS HONOUR:   The position is that you consent to this application, Mr Macfarlan.

MR MACFARLAN:   Yes we do, your Honour.

HIS HONOUR:   Well, as you are aware, the fact that consent is given by a respondent is not decisive in a grant of expedition, it is a matter for the Court.  But can I just ask a couple of questions.  Mr Macfarlan, what is your client’s attitude to staying the orders if the special leave application just took its ordinary course?

MR MACFARLAN:   I cannot say what it is, your Honour, at the moment. We would need to review our position.

HIS HONOUR:   Yes.  Can counsel tell me about moving the date in the event that the application was refused?

MR WILLIAMS:   That is the date for hearing?

MR MACFARLAN:   If the special leave application were refused, your Honour?

HIS HONOUR:   No, if this expedition application was refused.

MR MACFARLAN:   Your Honour, I do not have any instructions to consent to the hearing date being abandoned.

HIS HONOUR:   No, I understand.  My final question is directed to you, Mr Williams.  Have you sought a stay of these orders from the judge?

MR WILLIAMS:   No, we have not.  The orders were made before the Court of Appeal judgment came down.  Following that we were faced with the dilemma of which was the appropriate route to go first.  We felt that if we applied for a stay with things being unknown as to when the High Court might be able to consider the matter, then the judge would not be in a position to deal with the matter as he would ‑ ‑ ‑

HIS HONOUR:   But you have had an opportunity to make an application since the Court of Appeal judgment, have you not?

MR WILLIAMS:   Of course we have.  The decision was taken that this was the appropriate first step because, absent some indication from the parties as to when the matter might be able to be listed, then the judge below would be faced with a very difficult situation when he had a three month hearing listed and some possibility, it would seem, of the High Court application being got on in sufficient time to have it disposed of and the hearing date unaffected.  So it was perceived that it was not merely a case of applying for the stay.  It was inevitably bound up with the question of whether the hearing date would be able to be maintained.

HIS HONOUR:   Yes.  Very well, I understand.  I propose to give my reasons in this matter.

The applicants to this summons are John David Rich and Mark Alan Silbermann.  They seek an order for the expedition of the hearing of their application for special leave to appeal from a decision of the New South Wales Court of Appeal.  The respondent, the Australian Securities and Investments Commission (“ASIC”), supports the application for the expedition of the hearing of the special leave application, although it contends that the special leave application should be refused.

The applicants seek an order that the application for special leave should be listed for hearing before the Court on 2 April 2004 or on any earlier date.  As has often been said, the consent of a respondent to an application for expedition is not decisive.  It is a matter for this Court whether it will expedite a hearing.  Whether it will do so will depend on the state of its lists and the issues involved in the principal matter.  The consent of a respondent to an application for expedition does no more than indicate that the respondent is ready to proceed with the matter whenever it is listed.

The application for special leave arises out of proceedings brought by ASIC against the applicants in the Supreme Court of New South Wales before Mr Justice Austin in connection with the applicant’s management of a company, One.Tel Limited.  Those proceedings are at an interlocutory stage.  His Honour ordered the applicants to provide discovery and affidavit evidence.  However, the applicants claim that the material that they would be required to disclose is protected by the privilege against self‑exposure to penalties.  The applicants appealed against Justice Austin’s orders to the Court of Appeal, which dismissed the appeal.  That case is reported as Rich v Australian Securities and Investments Commission (2003) 203 ALR 671 and the other reference is [2003] NSWCA 342. The appeal was dismissed by Chief Justice Spigelman, with whose judgment Justice Ipp agreed, Justice McColl dissented.

The applicants’ principal contention in support of the application for expedition is that they would be prejudiced in the proceedings, that is, the main proceedings before Justice Austin, if required to comply with the interlocutory orders prior to the hearing of the special leave application.

The applicants are former directors of One.Tel Limited. ASIC commenced proceedings against them under the civil penalty regime in Part 9.4B of the Corporations Act 2001 (Cth) in the Supreme Court of New South Wales. ASIC alleged a number of contraventions by the applicants of section 180(1) of the Corporations Act, which deals with directors’ duties in their discharge of their office. ASIC also sought orders disqualifying the applicants from managing companies under sections 206C and 206E of the legislation and that the applicants pay $92 million in compensation to One.Tel, an order sought under section 1317H.

In the proceedings, ASIC also sought the interlocutory orders to which I earlier referred, namely that discovery be provided and that the applicants file and serve affidavit evidence, including statements of the applicants’ anticipated testimony in the proceedings.  The applicants opposed the making of these orders.  As I have indicated, they claimed that it would expose them to a penalty, namely the disqualification orders sought by ASIC.  They contended that the privilege against self‑exposure applied.  However, Justice Austin found that the proceedings were not proceedings to which the privilege against self‑exposure to a penalty applied.  He made the orders sought by ASIC.

On appeal, the New South Wales Court of Appeal, with Justice McColl dissenting, held that the disqualification orders sought by ASIC involved no imposition of a penalty as the disqualification orders were being sought for a protective purpose.  Accordingly, the majority judges held that the applicants could not invoke the privilege against self‑exposure to a penalty to resist the interlocutory orders to provide discovery and to file and serve witness statements.

In October last year, before the Court of Appeal delivered its judgment, Justice Austin directed the applicants to provide discovery by 8 December 2003 and to file and serve their affidavit evidence, together with a list of documents that they proposed to tender, by 15 March 2004.  His Honour also directed that the proceedings be fixed for hearing in July 2004.  The duration of the hearing is apparently estimated at about three months.  After his Honour made his order the Court of Appeal delivered its judgments which dismissed the appeal. 

Early last December, the applicants filed an application for special leave to appeal against the decision of this Court. The applicants’ special leave application formulates two broad special leave questions. First, whether the proceedings brought by ASIC under the civil penalty regime in Part 9.4B attract the privilege against self‑exposure. Secondly, whether the defendants to such proceedings are entitled to resist orders for discovery and for the filing of witness statements on the basis of the penalty privilege.

Then later in December, the applicants filed the present application for the expedition of the special leave application. 

As it turns out, there is a space in the special leave list set down for 2 April 2004.  As I have indicated, ASIC supports the application for expedition and the allocation of the special leave matter in the list for 2 April.  I should note that ASIC has also consented to an extension of time for the applicants to comply with the interlocutory orders.  That extension extends to 5 April 2004.  ASIC also consents to join in an application to Justice Austin for the making of such an order.

The applicants submitted that, if the hearing for the application for special leave to appeal fixed for 2 April is heard and refused, they will be able to and will comply with the interlocutory orders by 5 April 2004, and that, if the special leave application is granted, they will have the matter listed before the corporations judge in the Supreme Court for further directions concerning the main proceedings in the light of the grant of special leave.

The power to order expedition of the hearing of an application for special leave to appeal is discretionary:  see my judgment in SDN Children’s Services Incorporated v Hughes unreported 14 May 2000.  Very strong grounds, particularly in civil cases, are needed before an application for expedition can succeed.  The discretion may be properly exercised if the application has some “urgent aspect” or demonstrates “exceptional circumstances”, as Chief Justice Gleeson pointed out in Re Nulyrimma (1998) 72 ALJR 1227 at 1228, or that there is a need different in kind from that of other pending special leave applications, as I pointed out in the SDN Children’s Services’ Case.  Also relevant, as I indicated in SDN, is whether the applicant has an arguable case.  In addition, it should be noted that the Court is generally reluctant to grant special leave to appeal against interlocutory orders.

The four limb test enunciated by Justice Brennan in Jennings Construction v Burgundy Royale Investments Pty Limited is also arguably relevant in determining an application such as the present one.  Under that test the Court is required to consider (1) whether there is a substantial prospect that special leave to appeal will succeed, (2) whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending, (3) whether the grant of stay will cause loss to the respondent, and (4) where the balance of convenience lies.

So far as urgency is concerned, ASIC has consented to an extension of time for the applicants to comply with the interlocutory orders provided the application is heard by 2 April.  So far as the question of a stay is concerned, Mr Williams, who appears for the applicants, concedes that no application for a stay has been made to the primary judge or, for that matter, to the Court of Appeal.  That is a factor that tends to tell against the grant of expediting the hearing of the special leave application.  But it is only one factor. 

So far as exceptional circumstances are concerned, the applicants contend that compliance with the interlocutory orders will require the applicants to provide material protected by the penalty privilege.  They contend that, if they comply with the orders, the privilege will be effectively lost.  It is perhaps significant that in another context in Malubel Pty Limited v Elder (1998) 73 ALJR 135 the Court granted injunctive relief pending the hearing of a special leave application in circumstances where the applicant satisfied the court that its prospects of success on the special leave application were not insubstantial, that the respondents would suffer little additional loss if injunctive relief were granted and that, if the relief were not granted, the substantial point of the litigation to date would be lost and the applicants might be irretrievably damaged if the respondents examined documents seized from the applicant.

So far as the question whether the applicants have an arguable case is concerned, they contend that the majority of the Court of Appeal erred in finding that the proceedings did not attract the penalty privilege. They assert it erred in finding that they were not entitled to resist orders for discovery and for the filing of witness statements on the basis of the penalty privilege. They contend importantly that the court erred in categorising disqualification orders under section 206C and 206E of the Corporations Act as non‑penal in nature for the purpose of the penalty privilege and in finding that the protective characteristics of a disqualification order under those sections precluded the operation of the penalty privilege.  They also rely on the fact of a dissenting judgment in the Court of Appeal.

The applicants also contend that an appeal would give rise to issues of general importance, such as the rationale of the penalty privilege, its nature and extent, the purpose and nature of the civil penalty regime in the Corporations Act and the extent to which the privilege protects directors who are alleged to have contravened provisions of a public law.  In response, ASIC contends that the application does not raise any important questions of public law.  It is unnecessary to refer in any detail or at all to the reasons for those contentions.  It is enough to note ASIC’s contention.

As I have indicated, the special leave application raises two issues, namely, the characterisation of civil penalties such as disqualification orders and the application of the penalty privilege. In the Court of Appeal, Chief Justice Spigelman and Justice Ipp considered that the issue before the court was in a narrow compass. At its narrowest, the issue in the special leave application is the characterisation of section 206C of the Act and whether the section constitutes a penalty for the purposes of the penalty privilege. That is simply a matter of statutory construction, not a matter of general legal principle, although it may have broader implications with respect to other sections of the Corporations Act. The Act does contain a number of civil penalty provisions whose contravention can form the basis for an application by ASIC under section 206C for a disqualification order.

So far as I am aware there is no case law directly on the characterisation of section 206C of the Corporations Act apart from the instant decision. But there is a long line of authority identifying a disqualification order under the corporations legislation as having an exclusively protective purpose. The cases are referred to in the judgment of the learned Chief Justice. Nevertheless, the Chief Justice and Justice Ipp acknowledge that there are textual indications in section 206C that are consistent with a punitive purpose. The case law that considers the characterisation of disqualification provisions relies to some extent on the location of the provisions within the corporations law’s scheme. Those provisions have been relocated several times, possibly without the drafter considering the potential effect of the provisions on the penalty privilege. This does raise doubts about the characterisation of the provisions as exclusively protective.

There is also little appellate court authority as to the characterisation of provisions that appear to be, or that are, arguably, part protective and part punitive, and a decision by this Court on such a question is a matter that would obviously be of general importance in the administration of the Act.

On balance, and notwithstanding the failure of the applicants to seek a stay, I think the case is one for expedition.  The applicants will undoubtedly suffer prejudice if the application is not granted and special leave is granted and the appeal succeeds.  The public interest in the main proceedings also requires that they be dealt with as soon as possible.

I think the issues involved in the special leave applications do raise some significant issues. It is true that perhaps the special leave questions are stated too broadly and that the real issues for determination are narrower in scope. Arguably, they concern a matter of statutory construction rather than issues of general legal importance. On the other hand, as I earlier indicated, the characterisation of section 206C may have more general implications concerning the civil penalty regime, both in the Corporations Act and perhaps in other legislation.  There is, as I have said, little judicial authority on the characterisation of schemes that appear to be perhaps partly protective and partly punitive.

In all the circumstances, I think the case is a proper one for a grant of expedition.  I do not think that balance of convenience factors are relevant in this particular application.  But in any event ASIC supports the application for expedition and does not contend that it will suffer any loss or prejudice if the application for expedition is granted.  On the other hand, as I indicated, the applicants may suffer irreparable loss if the application for expedition is refused and they have to comply with the interlocutory orders and disclose material that may ultimately be found to be protected by the penalty privilege.

In those circumstances, I will grant the order for expedition.  I direct that the matter be listed for hearing before the Court on 2 April 2004.  The costs of this summons should be costs in the application.

Is there anything that I have overlooked?

MR WILLIAMS:   No, your Honour.

MR MACFARLAN:   No, your Honour.

AT 10.28 AM THE MATTER WAS CONCLUDED