Vines v Australian Securities and Investment Commission

[2007] HCATrans 797

[2007] HCATrans 797

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S359 of 2007

B e t w e e n -

GEOFFREY WILLIAM VINES

Applicant

and

AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 DECEMBER 2007, AT 10.11 AM

Copyright in the High Court of Australia

MR B.C. OSLINGTON, QC:   May it please the Court, I appear with my learned friend, MR A.S. BELL, SC for the applicant.  (instructed by Sparke Helmore)

MR S.D. ROBB, QC:   May it please the Court, I appear with my learned friend, MS E.A. COLLINS, for the respondent.  (instructed by Australian Securities and Investments Commission - Sydney)

GLEESON CJ:   Yes, Mr Oslington.

MR OSLINGTON:   This case arises at a time in which there are numerous large corporations with multiple arms of business, each arm headed by its own executive officer who is generally qualified, skilled and experienced in the business carried on by the arm which he or she heads.  Most corporations of that kind also have a CFO and CEO to whom those skilled executives report and the CFO and CEO to whom all skilled executives report frequently do not have the qualification, skills and experience of those reporting to them.

The first question of importance arising in this case is whether, and if so, the circumstances in which a CFO or CEO who has no reason to doubt the competence, honesty and integrity of the senior experienced reporting officer and, in the present case that was Mr Fox, and has no reason to doubt that the officer is not diligently discharging his responsibilities commits a civil penalty offence through relying on the reporting officer’s report without first usurping the reporting officer’s role and investigating the accuracy of the report himself or herself, or, put another way, whether in such circumstances a failure to usurp the reporting officer’s functions and second‑guess the reporting officer’s work becomes a civil penalty offence.

The answer to this question is important to both corporations, their senior officers, such as CFOs and CEOs, and to those who advise those corporations and offices.  As Justice Santow pointed out in the penalty judgment in paragraphs 202 and 203 at AB 1243, the risk of commission of an offence in such circumstances is likely to lead to excessive caution on the part of senior executives.  His Honour said:

self‑protective defensive postures whether in management sign‑offs or otherwise -

for example, heavily qualified reporting.  Alternatively, it could lead to gross inefficiency of the work performed by reporting officers in their specialised fields due to the repetition of that work by CEOs or CFOs who do not have ‑ ‑ ‑

GUMMOW J:   This is in terrorem, and I can understand the terror, but what is the textual point of construction?

MR OSLINGTON:   It is not in terrorem, with respect, your Honour, it is seeking to demonstrate why the point we seek to raise is an important point requiring determination.

GUMMOW J:   We need to know what the point is, that is all I am asking, by reference to some text.

MR OSLINGTON:   No, not reference to some text.

GUMMOW J:   What statutory provision are they construing?

MR OSLINGTON:   The statutory provision ‑ ‑ ‑

GUMMOW J:   The text of some statutory provision, Mr Oslington, where is it?

MR OSLINGTON:   It is in volume 1.

GUMMOW J:   It is 232(4), is it?

MR OSLINGTON:   Yes.  I am sorry, page 870, your Honour, which is in volume 3 which is the section under which the charges were brought.

GUMMOW J:   Thank you.

MR OSLINGTON:   We, and I will develop this argument – the judgments below give little clear guidance on the circumstances in which a CFO in the position which I have described should realise that he must go behind the report he receives and give very clear guidance - and do not give clear guidance on what a person in that position must do.

GLEESON CJ:   What would be the guidance that you would give or that you would want us to give?

MR OSLINGTON:   The guidance we would give would be that unless the CFO has reason to suspect that the reporting officer lacks the relevant confidence or skills or is not properly and diligently performing his duties, the CFO is entitled to act on the report of the reporting officer within the realm of that reporting officer’s particular expertise.  It may be that the CFO is not entitled to simply sit back, in all the circumstances, with an expectation that anything untoward will be reported, but that is not the present case.

What was potentially untoward in the present case was the existence of Hurricane Georges having an impact on GIO Re’s insurance book and a Part B statement had to be issued on 8 December.  What Mr Vines did was expressly call in Mr Fox in the presence of the company’s auditors and receive a report from Mr Fox on the eve of the issue of the Part B statement on what the current status of Hurricane Georges was so far as it affected GIO Re.

Following that, Mr Fox and Mr Robertson, who was Mr Fox’s predecessor in the position, each gave what is commonly known as a written sign‑off confirming the views which had been expressed by Mr Fox in the presence of the auditors some half‑hour or hour earlier.  What the trial judge said and what the majority of the Court of Appeal said, having held that the failure to do something more amounted to a civil penalty contravention, gave very little guidance on what it was which needed to be done.

In paragraph 447 in application book 1011 in volume 3 his Honour Chief Justice Spigelman held that Mr Vines’ duty was to be proactive but without explanation of what activity would have satisfied the duty.  In paragraph 451 at application book 1012 his Honour, in adopting what was said by the trial judge, held that Mr Vines should have made “appropriate inquiry” and at paragraph 452 his Honour suggested that Mr Vines should have taken “the initiative” and in paragraph 447 his Honour said that Mr Vines:

could not simply accept Mr Fox’s estimate of $60-65 million without further inquiry.

Exactly what it is that Mr Vines should have done beyond obtaining the oral report from Mr Fox which he obtained and obtaining the written confirmation on the eve of the issue of the Part B statement in order to avoid a contravention is not made clear.  The trial judge said, as recorded in paragraph 36 of our outline, that the making of further inquiries was not necessary.  In other words, the trial judge’s guidance is very unclear.

Justice Santow in his dissenting judgment at paragraph 737 at application book 1115 and in paragraphs 745 to 748 at application book 1118 to 1119 highlights the lack of guidance in the majority judgments as to what Mr Vines was required to do in order to avoid a civil penalty for commission of the civil penalty offence in the circumstances of Mr Vines, with a heavy workload, otherwise diligently performing his duties with time constraints on the corporation in issuing the Part B statement and in circumstances of the GIO Group having in place reporting lines, there being no criticism of the adequacy of the reporting lines or systems, there also being no criticism of the qualifications and experience of Mr Fox.

The failure which was learnt on the part of Mr Fox, which was learnt with the benefit of hindsight, was that on of GIO Re’s operational tools in order to assess its exposure to events included a register of claims arising from cyclones.  His Honour held that Mr Fox had seen the register but had failed to take it into account, unbeknown to Mr Vines, at the time he provided his estimate.

Mr Vines had no executive or operational role in GIO Re.  In the usual course of events Mr Fox reported directly to the CEO who did have insurance experience.  Mr Vines was given responsibility for a due diligence committee in order to consider the Part B statement and that is how it came about that Mr Vines, who described himself as the arms and legs of the due diligence committee, organised for Mr Fox to give the presentation to the auditors on the eve of the issue of the Part B statement and obtained the written sign‑off from Mr Fox.

We would submit that a corporation which takes care in the selection of competent experienced people to head up its various divisions and takes care in putting in place adequate reporting lines and systems will be left in considerable doubt by the judgments below as to what it should and must do by way of direction to CFOs or CEOs about how they should deal with reports coming up, in the normal course, through reporting lines in circumstances where those CEOs and CFOs have no reason to doubt the competence and reliability of those reporting to them and in circumstances in which the CEOs and CFOs will generally have no operational responsibility in the various divisions, no executive role in the various divisions and often not the level of skill and experience of those reporting to them.

Your Honour, that leads into the second important point which is addressed in paragraphs 33 and 34 of our outline.  The majority held that Mr Vines was at fault for failing to inform the members of the due diligence committee of something they already knew and clearly already knew, in other words, failing to make a formal report to them of something which it was obvious that they already knew, and before going to questions provide content and background against which the third question arises, namely, whether the degree of negligence required to establish the civil penalty contravention must be higher than the degree of negligence required to establish the civil negligence.

Part of the Court of Appeal’s reasoning in rejecting the applicant’s submission turned on section 1317EA(5), which is reproduced in the application books at page 912.  That subsection requires the court to be

“satisfied that the contravention” it has already found “is a serious” contravention before a pecuniary penalty can be imposed.  The Court of Appeal reasoned that the seriousness of a civil penalty contravention compared to civil negligence is recognised at the point of remedy rather than at the point of liability, but we challenge that reasoning because it ignores the power’s obligation to make a declaration of contravention, if a contravention is found, and it ignores the court’s power to make a disqualification order in the absence of any finding of seriousness.

The fourth point is the interpretation of seriousness itself addressed in paragraph 41 of our outline.  Our point, essentially, is that the majority approached a decision on that question with reference primarily to consequences rather than the degree of culpability or ignorance of proper standards of the contravener and in that respect we adopt the reasoning of Justice Santow at AB 1222 to 1241 at paragraphs 152 to 196.

So far as lack of guidance is concerned, Justice Santow’s decision highlights that and in conclusion we would submit that the first two points we raise properly raise special leave points because it is important for corporations and their officers to know exactly what they can and cannot do in order to avoid civil penalty contraventions.  Those points, even if in themselves do not attract a grant of special leave, provide background and content for decision on the important question of the degree of negligence and the interpretation of seriousness.

Finally, we would submit when one looks at the facts of this case, the interests of justice, in the circumstances of this case, having regard to the devastating consequences of the finding of contravention on Mr Vines should attract a grant of special leave.

GLEESON CJ:   Thank you, Mr Oslington.  We do not need to hear you, Mr Robb.

The point of departure between the members of the Court of Appeal turned upon their appreciation of the facts and the application to those facts of legal principles about which the members of the Court of Appeal were not in substantial disagreement. 

We think that the case does not raise an issue suitable to a grant of special leave to appeal and we are not persuaded that the interests of justice require it.  The application is dismissed with costs.

MR OSLINGTON:   May it please the Court.

MR ROBB:   May it please the Court.

AT 10.32 AM THE MATTER WAS CONCLUDED