Perpetual Trust Ltd v Financial Markets Authority no.3
[2012] NZHC 2307
•7 September 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-2851 [2012] NZHC 2307
BETWEEN PERPETUAL TRUST LTD Plaintiff
ANDFINANCIAL MARKETS AUTHORITY Defendant
Hearing: 27 August 2012
Counsel: J R Billington QC and S E Fitzgerald for Perpetual Trust Ltd
H B Rennie QC, A M Callinan and G K Holm-Hansen for Financial
Markets Authority
Judgment: 7 September 2012
JUDGMENT (NO. 3) OF HEATH J
This judgment was delivered by me on 7 September 2012 at 2.30pm pursuant to Rule
11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Russell McVeagh, PO Box 8, AucklandSimpson Grierson, Private Bag 92518, Auckland Financial Markets Authority, PO Box 1179, Wellington Counsel:
J R Billington QC, PO Box4338, Shortland Street, Auckland
H Rennie QC, PO Box 10242, Wellington
PERPETUAL TRUST LTD V FINANCIAL MARKETS AUTHORITY HC AK CIV 2012-404-2851 [7
September 2012]
Introduction
[1] On 25 April 2012, the Financial Markets Authority (the Authority) issued a notice under s 25 of the Financial Markets Authority Act 20111 (the Act) in which it required a number of individual and corporate entities associated with Perpetual Trust Ltd (Perpetual) to produce and supply documents to it, in both paper-based and imaged form.2 Authorised representatives of the Authority attended at the offices of Perpetual in Auckland and Christchurch on 26 April 2012, to serve the notices.
[2] At that time, the Authority was concerned that Perpetual had entered into transactions, as trustee for the Perpetual Cash Management Fund (the Cash Fund) and the Perpetual Mortgage Fund (the Mortgage Fund), that might have been in breach of the relevant Trust Deed, Deed of Participation and disclosure requirements for the relevant prospectus and investment statements. In particular, the Authority
harboured concern about an advance made to Torchlight Fund No 1 LP (Torchlight).3
[3] Mr George Kerr, directly or indirectly, is the beneficial owner of 76.5% of the
shares in Perpetual’s parent company, Pyne Gould Corporation Ltd (PGC), and
100% of Torchlight. Because of Mr Kerr’s involvement, another representative of the Authority travelled to Sydney to provide copies to Mr Kerr and Mr Naylor, an investment advisor to Torchlight.
[4] Perpetual seeks judicial review of the Authority’s decision to issue the s 25 notice. It does so on the grounds that the notice did not comply with the statutory requirements set out in s 25. Perpetual contends that it was not “necessary or desirable” to issue the notice and no time “within which” compliance was to be
effected was given. In consequence, it submits that s 58(2) of the Act4 applied to
require the Authority to destroy or return information or documents it had obtained. While Perpetual advanced other arguments based on the proposition that the
extraction of documents amounted to an unlawful and unreasonable search and
1 Financial Markets Authority Act 2011, s 25 is set out at para [21] below.
2 The notice, in material respects, is set out at para [17] below.
3 The circumstances in which this loan came to be made are discussed in Perpetual Trust Ltd v
Financial Markets Authority [2012] NZHC 1469.
4 Financial Markets Authority Act 2011, s 58 is set out at para [41] below.
seizure of property, for which relief could be given under the New Zealand Bill of Rights Act 1990,5 on the view I have formed it is not necessary to address those arguments.
[5] The Authority opposes the application, contending that the notice complied with s 25. If I were to hold that the notice had been issued unlawfully, the Authority counterclaims for relief under s 58(3) and (4) of the Act,6 to allow retention of the documents for use in continuing investigations and, if necessary, any civil and/or criminal proceedings that may follow.
The facts
[6] Around mid-April 2012, the Authority became concerned about the need to protect the interests of existing and new investors in the Cash Fund and the Mortgage Fund. Ms Brown, the Head of Primary Regulatory Operations at the Authority, deposed that certain transactions into which Perpetual had entered were inconsistent with documents that governed the operation of the Funds7 and/or offer
documents that were in the market to solicit funds from members of the public.8 At
this time, the Authority’s focus was on an alleged advance made by Perpetual, out of the Cash Fund, to Torchlight, initially for a sum of $18 million. On 20 April 2012, the Chief Executive Officer of the Authority signed a confidentiality order9 prohibiting the publication or communication of information relating to the inquiry, except with the consent of the Authority.
[7] At the time the notices were issued and served, the Authority was aware, from its inquiries, that the Cash Fund and the Mortgage Fund accepted call deposits, issued units to investors who became unitholders and redeemed the units at values calculated daily by Perpetual, as trustee of each Fund. Ms Brown deposes that there
was “a daily concern as to the position of each Fund (value of units, availability of
5 In particular, New Zealand Bill of Rights Act 1990, s 21.
6 Financial Markets Authority Act 2011, s 58 is set out at para [41] below.
7 For example, the Trust Deed dated 14 October 1991 and the Deed of Participation dated 27 June
2002.
8 For example, a prospectus dated 23 September 2011, as amended on 10 February 2012, and an investment statement dated February 2012.
9 Under Financial Markets Authority Act 2011, s 44.
funds to meet redemption applications)”. As a result, she said that the Authority required immediate access to relevant documents to ascertain the true position. As an “on call” cash fund it was expected that the unit price of the Cash Fund and Mortgage Fund would generally be $1. Redemption was only possible if the relevant Fund’s value could be calculated on the day on which it was sought.
[8] Representatives of the Authority reviewed information provided and a decision was made to issue s 25 notices to PGC, Perpetual, and other associated entities and individuals to determine whether it was necessary for the Authority to exercise any of its statutory powers or functions.10 The entities to which notices were directed were companies and people whom the Authority believed would hold information relating to the subject of the Authority’s inquiries.
[9] The notices were all dated 25 April 2012 and were signed by Ms Brown, on behalf of the Authority. At about 10.30am on 26 April 2012, they were served at the offices of Perpetual and PGC in Auckland and Christchurch. Ms Brown says that a “co-ordinated approach” was taken to service of the notices because the operational structure of the PGC Group and the location of Perpetual’s and PGC’s offices in two locations meant that the Authority “had reason to believe that relevant documents and information were likely to be spread between the two” cities. There is no suggestion that there was a risk that relevant documents might be removed or destroyed.
[10] Representatives of the Authority, together with others from the Serious Fraud Office and the New Zealand Customs Service, attended the offices in both Auckland and Christchurch. In Auckland, three representatives from the Authority attended. In Christchurch, there were four representatives from the Authority, two from the New Zealand Customs Service and a lawyer from a firm of solicitors.
[11] Ms Moffat, another representative of the Authority, was in Sydney. She met with Mr Kerr and Mr Naylor separately on 26 April 2012, to advise that inquiries
were being made by the Authority. Mr Kerr and Mr Naylor were informed of the
10 The Authority’s functions are set out in s 9(1) of the Financial Markets Authority Act 2011; see para [20] below.
steps being taken in Auckland and Christchurch to obtain information. Although each was provided with a copy of the s 25 notice, the Authority’s position is that they were provided as a matter of “courtesy” rather than by way of service.
[12] Ms Brown deposed that representatives from the New Zealand Customs Service and the Serious Fraud Office were engaged to assist in providing “technical support”. She said:
23.The s 25 Notices also requested the production of documents that were held electronically. To facilitate the process of supplying the requested electronically held documents, FMA had arranged for staff to be on hand to assist with the collation and collection of documents and if required, the imaging of electronic information. These staff were not involved in the service of the s 25 Notices or discussion with the Perpetual Trust and PGC in Auckland.
24.Due to the technical requirements involved in imaging electronic documents, FMA had arranged for individuals with the necessary expertise from the Serious Fraud Office (SFO) and the New Zealand Customs Service (Customs) to attend in the event that their technical skill was required. The Customs and SFO staff were authorised by FMA to assist under s 52 of the FMA Act. I annex and mark “SB21” notices issued under section 52 of the FMA Act authorising Clive Hudson, Sharon Martin, Scott Gresty and Michelle Porter to assist the FMA with its inquiry. FMA had also arranged for independent barristers to be available to carry out a privilege check of any imaged documents held electronically and reproduced for FMA if required.
...
33.To facilitate Perpetual Trust and PGC in reproducing these documents electronically to FMA, FMA arranged for technical support to be available from the SFO and Customs employees. Taking an electronic copy of Perpetual Trust and PGC’s servers is the most efficient and effective way of reproducing such documents held electronically. However, this was only offered as a possible process by which these documents could be reproduced and provided under the s 25 Notice. SFO and Customs employees were engaged as they have substantial experience and the necessary technical qualifications to conduct the reproduction process. In Auckland, these individuals are located off-site and did not attend Perpetual Trust’s premises. In Christchurch they were invited in to wait inside Perpetual Trust’s boardroom by Perpetual Trust staff.
[13] Not long after the notices were served in Auckland and Christchurch, there were consultations between employees who had accepted service of the notices and
PGC’s General Counsel, Mr Tinkler. Subsequently, Mr Tinkler took advice from Mr
Heron, of Russell McVeagh, solicitors, Auckland.
[14] The discussions that followed between Mr Heron and representatives of the Authority culminated in a letter that Mr Heron sent by email to the Authority on the afternoon of 26 April 2012. The letter recorded an agreement for the provision of documents over a period of time. In addition, Mr Heron specifically stated:
3.As we have indicated to you, in our view the Notice is unreasonably broad in its scope and arguably unlawful in its requirement that such documents be produced “immediately”. The Companies and Individuals concerned reserve their position on this.
[15] The agreement resulted in some documents being obtained on the late afternoon of 26 April 2012 and others being provided later. Ultimately, the Authority withdrew its requirement to supply an “imaged copy of the documents or information recorded or stored in any electronic form”.11 In an affidavit, Ms Brown identified the documents provided:
30.Perpetual Trust and PGC agreed to provide documents in response to the s 25 Notices over a period of 16 days. The documents were provided on the following days:
(a) On 26 April 2012 at approximately 5:30pm 13 key bundles of documents were provided;
(b) On 27 April 2012 at approximately 4 pm a further 19 bundles of documents were provided;
(c) On 30 April 2012 a further 23 bundles of documents were provided;
(d) On 1 May 2012 a further 26 bundles of documents were provided;
(e) On 2 May 2012 a further 46 bundles of documents were provided;
(f) On 3 May 2012 a further 2 bundles of documents were provided;
(g) On 7 May 2012 a further 14 bundles of documents were provided; and
11 See para 2 of the s 25 notice, set out at para [17] below.
(h) On 11 May 2012 a further 22 bundles of documents were provided.
The terms of the s 25 notices
[16] The information and documents required under the s 25 notices were extensive. They included, apart from publicly available information, such things as credit policy guidelines; board agendas, minutes and reports; papers distributed to board members in advance of meetings (or tabled at such meetings); risk management and operational policies; correspondence with the auditors of the Funds; “Loan files” (expressed in a non-exhaustive form); and internal and external communications regarding the Funds’ assets, including communications to or from PGC and an associated company, Perpetual Asset Management Ltd, the administration and investment manager for each Fund.
[17] Using the notice addressed to Perpetual as an example, the substantive portion of each notice provided:
INQUIRY INTO PYNE GOULD CORPORATION LIMITED AND RELATED ENTITIES
To: Perpetual Trust Limited (PTL) Of: 305 Lincoln Road
Addington
Christchurch 8024
Take notice that on receipt of this notice you are immediately required to produce the following documents for inspection, recording, or copying, and supply the following information, whether in your possession or under your control to any of Aaron Lyne, Jason Lunjevich, Louise Connell, Kirsty Campbell and Chantell Cowlrick of the Financial Markets Authority (FMA), and to Clive Russell Hudson of the serious Fraud Office and Sharon Luga Martin of New Zealand Customs Service, who are authorised by FMA to assist with this notice:
1. All documents or information relating to:
(a) any assets in the form (including but not limited to investments, property, receivables and cash) held by,
(b) any transfer of assets in any form (including investment, property, receivables and cash) from, and
(c) Any provision of credit, funding or loan facilities in any form by, any of the following funds from 1 September 2010 to date:
Perpetual Cash Management Fund; Perpetual Mortgage Fund;
Perpetual Portfolio monitoring services Range of
Funds; and
Perpetual Portfolio Superannuation Fund
(d) any transaction or series of transactions between Pyne Gould Corporation Limited and Torchlight Fund No 1 Limited Partnership (TLP) or any associated person of TLP,
Including but not limited to documents and information specified as follows in relation to each Fund or concerning any Fund or Funds: [the specified documents that were subsequently listed included those to which reference is made in para [16] above].
...
2.An imaged copy of the documents or information recorded or stored in any electronic form, which is all information electronically recorded or stored on any computers, servers, cellular telephones, electronic storage devices or other electronic devices under the control or possession of PTL at the premises at 305 Lincoln Road, Addington, Christchurch 8024 or Level 17, AMP Centre, 29
Customs Street, Auckland 1010, for the purpose of allowing FMA and persons authorised by FMA to inspect and make records of documents relevant to FMA’s inquiry into Pyne Gould Corporation Limited and related entities.
(Emphasis added)
[18] The issue of whether the notice was unlawful must be determined by reference to the terms of the notice itself and what could be discerned from it by a reasonable recipient.12 Whatever arrangements may have been made after service about the need for strict compliance with the notice is not something that is relevant to its lawfulness. Rather, those arrangements will be relevant to the question whether, should the notice be declared unlawful, the Court should exercise its discretion to allow the Authority to retain the documents obtained, whether for the
purposes of its own further investigations or otherwise.13
12 Generally, see AB Pty Ltd v Australian Crime Commission (2009) 175 FCR 296, (FCA) at 310, paras 45 and 46 (Flick J).
13 Financial Markets Authority Act 2011, s 58(3) and (4).
The statutory framework
[19] The Act was passed in 2011, in partial response to a series of collapses of finance companies that had caused significant loss to a large number of New Zealand investors. Section 8 of the Act provides:
8 FMA's main objective
The [Authority’s] main objective is to promote and facilitate the
development of fair, efficient, and transparent financial markets.
[20] To achieve that objective, s 9 of the Act confers certain functions on the
Authority. Relevantly, for present purposes, s 9 provides:
9 FMA's functions
(1) The [Authority’s] functions are as follows:
...
(c) to monitor compliance with, investigate conduct that constitutes or may constitute a contravention of, and enforce—
(i) the Acts referred to in Part 1 of Schedule 1 (and the enactments made under those Acts); and
(ii) the Acts referred to in Part 2 of Schedule 1 (and the enactments made under those Acts) to the extent that those Acts or other enactments apply, or otherwise relate, to financial markets participants:
(d) to monitor, and conduct inquiries and investigations into any matter relating to, financial markets or the activities of financial markets participants or of other persons engaged in conduct relating to those markets:
....
[21] Section 25 of the Act provides:
25 [The Authority] may require person to supply information, produce documents, or give evidence
(1) If the [Authority] considers it necessary or desirable for the purposes of performing or exercising its functions, powers, or duties under this Act or any provision of the financial markets legislation, the [Authority] may, by written notice served on any person, require the person—
(a) to supply to the [Authority], within the time and in the manner specified in the notice, any information or class of information specified in the notice; or
(b) to produce to the [Authority], or to a person specified in the notice acting on its behalf in accordance with the notice, any document or class of documents specified in the notice (within the time and in the manner specified in the notice); or
(c) if necessary, to reproduce, or assist in reproducing, in usable form, information recorded or stored in any document or class of documents specified in the notice (within the time and in the manner specified in the notice); or
(d) to appear before the [Authority], or a specified person, at a time and place specified in the notice to give evidence, either orally or in writing, and produce any document or class of documents specified in the notice.
(2) The [Authority] may also exercise its powers under subsection (1) for the purposes of complying with the request of an overseas regulator under section 31 or otherwise co-operating with an overseas regulator.
(3) Information supplied in response to a notice under subsection (1)(a)
must be—
(a) given in writing; and
(b) signed in the manner specified in the notice.
(4) If a document is produced in response to a notice under subsection (1), the [Authority], or the person to whom the document is produced, may—
(a) inspect and make records of that document; and
(b) take copies of the document or extracts from the document. (5) In this section and sections 26 and 27, specified person means—
(a) a member or an employee of the [Authority]; or
(b) another person to whom the board of the [Authority] has delegated the power to receive the relevant evidence (being a person that the [Authority] is satisfied is suitably qualified or trained, or is a member of a class of persons who are suitably qualified or trained, to exercise the power).
(6) Subpart 5 contains miscellaneous provisions relating to the powers in this subpart.
(Emphasis added)
[22] Part 3 of the Act contains what are called “general information-gathering and enforcement powers”. Subpart 1, in which s 25 appears, is one of three sections that authorises the Authority to obtain information and documents from a third party and, if necessary, to require a person to give evidence before it or a specified person.14
[23] As an independent power, the Authority may seek a search warrant from a Judge of the High Court or a District Court to permit a specified person authorised by the Authority to undertake a search for evidence that a person has or is engaging in conduct that may constitute contravention of any provision of the financial markets legislation.15 The remaining subparts of Part 3 deal with the ability of the Authority to share information and documents and its right to exercise any person’s rights of action.
[24] Section 29 is the provision that authorises the Authority to seek a search warrant. It provides:
29 Power to enter and search place, vehicle, or other thing
(1) The [Authority] may authorise a specified person to enter and search a place, vehicle, or other thing for the purpose of ascertaining whether a person has engaged in or is engaging in conduct that constitutes or may constitute a contravention of any provision of the financial markets legislation if the [Authority] is satisfied that there are reasonable grounds—
(a) to suspect that person has engaged in or is engaging in conduct that constitutes or may constitute such a contravention; and
(b) to believe that the search will find evidential material in or on or part of the place, vehicle, or thing.
(2) A specified person authorised under subsection (1) may enter and search the place, vehicle, or other thing if—
(a) the occupier of the place consents or the person in charge of the vehicle or thing consents (as the case may be); or
(b) the specified person obtains a warrant under subsection (3). (3) A Judge of the High Court or a District Court Judge may issue a
search warrant in relation to a place, vehicle, or other thing, on application
14 See also Financial Markets Authority Act 2011, ss 26–28.
15 Financial Markets Authority Act 2011, s 29(1) and (3); the term “financial markets legislation” is defined as those statutes listed in Schedule 1 to the Act, and any enactments made pursuant to those statutes: s 4 of the Act.
by a specified person authorised under subsection (1), if the Judge is satisfied that there are reasonable grounds to—
(a) suspect that a person has engaged in or is engaging in conduct that constitutes or may constitute a contravention of any provision of the financial markets legislation; and
(b) believe that the search will find evidential material in or on or part of the place, vehicle, or thing specified in the application.
(4) In this section and Schedule 2,—
evidential material means evidence or any other item, tangible or intangible, of relevance to the purpose referred to in subsection (1)
specified person means—
(a) an employee of the [Authority]; or
(b) any other person that the [Authority] is satisfied is suitably qualified or trained, or is a member of a class of persons who are suitably qualified or trained, to act under this section
thing includes an intangible thing (for example, an email address or access information to an Internet data storage facility)
vehicle means any conveyance that is capable of being moved under a person’s control, whether or not the conveyance is used for the carriage of persons or goods, and includes a motor vehicle, aircraft, train, ship, or bicycle.
(5) Schedule 2 applies for the purposes of this section.
Was the s 25 notice unlawful?
[25] Mr Billington QC, for Perpetual, submitted that the s 25 notice was unlawful because it was not “necessary or desirable” for it to be issued for the purposes of the Authority exercising functions, powers or duties under the Act. In addition, he submitted that it did not specify “the time and ... the manner” in which the
information or documents were to be supplied or produced.16
[26] The focus, in respect of each of those contentions, is on the requirement to
supply or produce documents “immediately”,17 a term that Mr Billington submits is relevant both to the urgency with which the Authority asserted it was necessary or
16 Financial Markets Authority Act 2011, s 25(1)(a), (b) and (c).
17 See the notice, set out at para [17] above.
desirable to act and the recipient’s inability to respond appropriately to the notice because of the lack of clarity in respect of time for compliance, having regard to the breadth of information and documents sought. He pointed out that if someone were to fail to supply information required under a s 25 notice, that person may be at risk of committing an offence, for which a fine not exceeding $300,000 could be imposed
on summary conviction.18
[27] Mr Rennie QC, for the Authority, submitted that the term “immediately” should be interpreted as meaning “as soon as possible”, having regard to the circumstances and the nature and number of the documents requested. He relies, to support that proposition, on R v Justices of Berkshire19 and Sayer v Commissioner of Inland Revenue.20 In Justices of Berkshire, Cockburn CJ said:
The words “forthwith” and “immediately” have the same meaning. They are stronger than the expression “without a reasonable time,” and imply prompt, vigorous action, without any delay, and whether there has been such action is a question of fact, having regard to the circumstances of the particular case”.
[28] While both Mr Rennie and Mr Billington referred me to other cases dealing with the interpretation of the word “immediate” in different contexts, those authorities are not sufficiently grounded in facts of the type involved in this case to be of real assistance. I prefer to approach the issue more generically, on the basis of what Cockburn CJ described as the need for “prompt and vigorous action”, in
Justices of Berkshire.21
[29] The scheme of the Act envisages the Authority gathering information from various sources to determine whether it is or is not appropriate to exercise functions, powers or duties conferred on it. The purpose of s 25 is to allow the Authority to compel supply or production of documents (paper-based or electronic) from a third party, through the use of an administrative notice that is generated without judicial
sanction.
18 Financial Markets Authority Act 2011, s 61(1)(a) and (3). The onus of proving a “reasonable excuse” is likely, in the context of a summary prosecution, to lie on the defendant: see Summary Proceedings Act 1957, s 67(8) and Juken Nissho Ltd v Northland Regional Council [2000] 2
NZLR 556 (CA) at paras [23]–[25].
19 R v Justices of Berkshire (1878) 4 QBD 469 (QBD) at 471.
20 Sayer v Commissioner of Inland Revenue (1998) 12 PRNZ 471 (HC) at 475.
21 See also Sayer v Commissioner of Inland Revenue (1998) 12 PRNZ 471 (HC) at 475 and State
Insurance General Manager v Scott [1982] 1 NZLR 717 (CA) at 719.
[30] Section 25(1) does not envisage the Authority participating in the sifting of information and documents. Rather, it contemplates the recipient of the notice taking responsibility for ensuring that all relevant documents and information required are supplied or produced, within the time specified. It is the recipient’s responsibility for faithful compliance that provides the justification for the creation
of a criminal offence for failing to do so without a reasonable excuse.22
[31] While the s 25 power is most suited to a case where the Authority is in the process of making general inquiries and ascertaining whether it should proceed further, it is one that can be exercised against both those who are under inquiry and third parties. There may be circumstances in which the Authority has concerns about the potential for a recipient of a s 25 notice to destroy or conceal documents, if given time to do so. The answer, in such circumstances, lies in the Authority’s ability to seek a search warrant entitling persons specified by it to enter a place, vehicle or other thing to ascertain whether there is evidence to support a suspicion that the person has or is engaging in conduct that constitutes or may constitute a
contravention of the financial markets legislation.23
[32] The threshold for obtaining a warrant is not high. The Authority need only have reasonable grounds to suspect that a person has engaged or is engaging in such conduct and reasonable grounds to believe the search will find relevant evidential material.24 The difference between reasonable grounds to suspect and reasonable grounds to believe was explained by the Court of Appeal, in R v Williams.25 William Young P and Glazebrook J (with whom Hammond J appears to have agreed on this
point) said:
[213] Having “reasonable grounds to believe”, the test under s 198 of the Summary Proceedings Act, is a higher standard to meet than “reasonable ground to suspect”, the test under s 60(1) of the Arms Act . . . Belief means that there has to be an objective and credible basis for thinking that a search will turn up the item(s) named in the warrant . . ., while suspicion means thinking that it is likely that a situation exists. The issuing officer must hold the view that the state of affairs the applicant officer is suggesting actually exists . . . (Emphasis added)
22 See para [26] above.
23 Financial Markets Authority Act 2011, s 29(1) and (3).
24 Ibid, s 29(3).
25 R v Williams [2007] 3 NZLR 207 (CA).
[33] That is the statutory context in which it is necessary to consider what Parliament meant when it authorised the Authority to issue a written notice requiring a person to produce documents or supply information “within the time and in the manner specified in the notice”.26
[34] Given that s 25 is a provision that does not (unless the examination power is exercised)27 require any involvement from Authority representatives in obtaining the documents or information, I hold that Parliament’s intention was to ensure that a recipient was provided with enough information to make clear: (a) what information or documents were to be produced or supplied; (b) how the information was to be supplied or produced; and (c) by what time. Implicitly, the section anticipates that
the time for compliance is fixed by reference to the nature and quantity of information or documents required by the Authority.28
[35] In using the word “immediately”, the Authority emphasised the need for the recipient to comply promptly. The ability to respond in such a way is dependent on the time it will take to search out, sift for relevance or privilege and to arrange for imaged copies of all relevant documents to be made and provided.
[36] In my view, the nature and extent of the information and documents required by the Authority in its s 25 notice was such that no reasonable recipient could have supplied it “immediately”. An interpretation of s 25 that gives effect to its requirement to specify a time “within which documents or information must be supplied or produced” is preferable to one that gives rise to possible arguments about the elasticity (or otherwise) of a temporal requirement to supply or produce “immediately”; particularly when there is the potential for criminal proceedings to be
brought for non-compliance.29 Having said that, in a case where a small number of
readily accessible documents are sought, a request for immediate delivery is not likely to be unreasonable.
26 Financial Markets Authority Act 2011, s 25(1)(a), (b) and (c).
27 Ibid, s 25(1)(d).
28 See also AB Pty Ltd v Australian Crime Commission (2009) 175 FCR 296 (FCA) at 316, para 65 (Flick J), in the context of two notices for which just over one week and some two weeks were allowed for a response.
29 See para [26] above.
[37] As I have said, whatever happened after the notices were served does not affect the validity of the notices themselves. An unlawful notice does not become a lawful notice by acquiescence or agreement. Waiver is not possible.30 The negotiation that followed services of the notices demonstrates that further time was required to produce the relevant documents. The fact that, without demur, the Authority did not insist on earlier production (or on provision of imaged copies, at all) reinforces my view, based on the wording of the notices, that “immediate” production or supply of everything listed in the notice was both unnecessary and
impracticable.
[38] Mr Rennie sought to argue that many of the documents were publicly available and ought to have been readily locatable at Perpetual’s offices. But, with respect, that submission misses the point. It was, in fact, unnecessary for the Authority to require production of documents that were already publicly available. It could have obtained such documents without issuing a notice. Indeed, having regard to what was available to the Authority when it decided to issue the notices, I infer
that publicly available information was already held.31
[39] In my view, the notices were issued unlawfully because they failed to specify the time within which the information or documents should be produced or supplied. I am prepared to make a declaration to that effect.
Section 58 of the Act: interpretation
[40] The next question involves the consequences of a declaration that the notices that were issued unlawfully. It requires a detailed analysis of s 58 of the Act.
[41] Section 58 of the Act deals with the effect of a final decision that the
Authority has exercised powers under s 25 in an unlawful manner. Section 58 provides:
30 Cropp v Judicial Committee [2008] 3 NZLR 774 (SC) at paras [20] and [21].
31 See paras [6] and [7] above.
58 Effect of final decision that exercise of powers under section 25 unlawful
(1) This section applies in any case where it is declared, in a final decision given in any proceedings in respect of the exercise of any powers conferred by section 25, that the exercise of any powers conferred by that section is unlawful.
(2) If this section applies, to the extent to which the exercise of those powers is declared unlawful, the [Authority] must ensure that, immediately after the decision of the court is given,—
(a) any information obtained as a consequence of the exercise of powers declared to be unlawful and any record of that information are destroyed; and
(b) any documents, or extracts from documents, obtained as a consequence of the exercise of powers declared to be unlawful are returned to the person previously having possession of them, or previously having them under his or her control, and any copies of those documents or extracts are destroyed; and
(c) any information derived from or based on such information, documents, or extracts is destroyed.
(3) However, the court may, in the court’s discretion, order that any information, record, or copy of any document or extract from a document may, instead of being destroyed, be retained by the [Authority] subject to any terms and conditions that the court imposes.
(4) No information, and no documents or extracts from documents, obtained as a consequence of the exercise of any powers declared to be unlawful, and no record of any such information or document,—
(a) are admissible as evidence in any civil proceedings unless the court hearing the proceedings in which the evidence is sought to be adduced is satisfied that there was no unfairness in obtaining the evidence:
(b) are admissible as evidence in any criminal proceedings if the evidence is excluded under section 30 of the Evidence Act
2006:
(c) may otherwise be used in connection with the exercise of any power conferred by this Act or any provision of the financial markets legislation unless the court that declared the exercise of the powers to be unlawful is satisfied that there was no unfairness in obtaining the evidence.
(Emphasis added)
[42] The scheme of s 58 can be summarised as follows:
(a) Section 58(1) confirms the application of the section to all cases in which a Court makes a declaration that the exercise of a s 25 power was unlawful.
(b)Section 58(2) sets out automatic consequences of a declaration that the relevant power was exercised unlawfully.32 Information obtained as a consequence of the exercise of those powers and any record of that information must be destroyed. Documents or extracts from documents obtained in consequence of the exercise of the relevant power are to be returned to the person previously having possession or control of them. Copies of those documents or extracts are to be destroyed. Any information derived from or based on the
information, documents or extracts must also be destroyed. (c) Section 58(4) provides that:
(i)documents or extracts obtained in consequence of the exercise of any s 25 power declared to be unlawful are inadmissible in evidence in a civil or criminal proceeding unless (in the case of a civil proceeding) the Court hearing the civil proceeding is satisfied that there was no unfairness in obtaining the evidence or (in a criminal proceeding) the Court trying the case rules the evidence admissible under s 30 of the Evidence Act 2006; and
(ii)the Authority may not otherwise use the relevant information or documents in connection with the exercise of any power conferred by the Act (or any provision of other financial markets legislation) unless the Court declaring the exercise of the powers to be unlawful is satisfied that there was no
unfairness in obtaining the evidence.
32 By way of analogy, see A Firm of Solicitors v District Court at Auckland [2006] 1 NZLR 586 (CA) at para [124].
(d)Section 58(3) reposes a discretion in the Court to order that information or documents that would otherwise be destroyed be retained by the Authority, subject to any terms and conditions imposed.
[43] The terms of s 58 are not dissimilar to those of s 22(1) and (2) of the Serious
Fraud Office Act 1990. They provide:
22 Effect of final decision that exercise of powers unlawful
(1) In any case where it is declared, in a final decision given in any proceedings in respect of the exercise of any powers conferred by this Act, that the exercise of any powers conferred by this Act is unlawful, to the extent to which the exercise of those powers is declared unlawful the Director shall ensure that forthwith after the decision of the Court is given—
(a) Any information obtained pursuant to the exercise of powers declared to be unlawful, and any record of such information, is destroyed:
(b) Any documents, or extracts from documents, or other things removed pursuant to the exercise of powers declared to be unlawful are returned to the person previously having possession of them, or previously having them under his or her control, and any copies of such documents or extracts are destroyed:
(c) Any information derived from or based upon such information, documents, extracts, or things is destroyed.
(2) Notwithstanding subsection (1) of this section, the Court may, in the Court's discretion, order that any information, record, or copy of any document or extract may, instead of being destroyed,—
(a) Be returned to the person from whom it was obtained; or
(b) Be retained by the Serious Fraud Office subject to such terms and conditions as the Court may impose.
....
[44] I considered s 22 in A Firm of Solicitors v District Court at Auckland.33 In that case, I said:
33 A Firm of Solicitors v District Court at Auckland [2006] 2 NZLR 704 (HC) at paras [27] and [39]–[42]. See also R v Smith (Malcolm) [1983] NZLR 656 (CA) and R v Beattie HC Auckland CRI 2003-004-25599, 31 May 2005.
[27] In summary, s22(1) provides:
a)Any information obtained and any record of such information must be destroyed (s22(1)(a)).
b)Any documents, or extracts from documents, or things removed must be returned to the person previously having possession of them (s22(1)(b)).
c) Any copies of documents or extracts must be destroyed
(s22(1)(b)).
d)Any information derived from or based upon such information, documents, extracts or things must be destroyed (s22(1)(c)).
[45] A similar approach is justified under s 58 of the Act. The same policy imperatives apply. The object is to remove an ability to use information derived from an unlawful s 25 notice unless the Court considers that the information and documents were not obtained unfairly.
[46] Section 58(4) refers generically to “information, and ... documents or extracts from documents, obtained as a consequence of the exercise of any powers declared to be unlawful”. Those categories include both those that must be destroyed and those to be returned. While the Authority is obliged to return (original) “documents, or extracts from documents, obtained as a consequence of the exercise of [unlawful] powers”, the Court has a discretion to permit copies or extracts of those documents
to be retained.34 If that discretion were exercised in favour of the Authority and the
returned information or documents were destroyed or concealed, it would be open for it to seek admission of the copies, as the best evidence available.
How should the s 58(3) discretion be exercised?
[47] In A Firm of Solicitors35 I indicated that, assuming jurisdiction had existed, I would not have made the order sought by the Director of the Serious Fraud Office because:
[58] ...
34 Ibid, s 58(2)(b) and (3).
35 A Firm of Solicitors v District Court at Auckland [2006] 2 NZLR 704 (HC) at para [58].
a)The material was gathered pursuant to a warrant found to have been obtained as a result of material non-disclosure and a failure to provide a mechanism to deal adequately with questions of legal professional privilege. The law in relation to the former is well settled. The need to provide a mechanism to deal with legally privileged material on the execution of a search warrant has been apparent since, at the latest, Rosenberg v Jaine [1983] NZLR 1. See also s198A of the Summary Proceedings Act 1957, enacted in relation to warrants obtained under s198 of that Act after Rosenberg v Jaine.
b)In the circumstances of this case, there was no justification for removing the computer hard drive because the search was focussed on a limited class of documents and information truly relevant to the narrow scope of the investigation: cf the Court of Appeal judgment at paras [104] and [118].
[48] This case is different. In my view, the Court should exercise its discretion under s 58(3) to allow retention of the documents that would otherwise be destroyed, for all three purposes set out in s 58(4). The following factors lead me to that conclusion:
(a) There was no unfairness in the way in which the information and documents were, in fact, obtained. Although notices were unlawfully issued (because of a failure to specify a time by which the information and documents were to be supplied or produced), the actual way in which the documents were produced is relevant to the exercise of the discretion. The Authority entered into discussions with the solicitors for Perpetual and reached an accord whereby, ultimately, some documents were supplied and the requirement to produce imaged copies was withdrawn. No unfairness resulted from provision of the information and documents under that agreed process, notwithstanding Perpetual’s reservation of position on the issue of
unlawfulness.36
(b)While the issue of urgency might be capable of debate, it is clear that, by 26 April 2012, the Authority had grounds to suspect a potential
breach of Perpetual’s duties as a trustee and a possible breach of s 58
36 See para [14] above.
of the Securities Act 1978.37 In my view, those circumstances made it necessary and desirable (whether assessed subjectively or objectively) for the Authority to embark upon collection of relevant evidence. The s 25 process was available for that purpose.
(c) While criticism might be made of the Authority for seeking, among the documents listed in the s 25 notice, some that were publicly available, had the Authority required supply or production of the various classes of documents (including those to be imaged) within a time that was reasonable in the circumstances, there could have been
no complaint about the lawfulness of the notices.38
(d)Despite Mr Billington’s submission to the contrary, the fact that the same information might be obtained now through the issue of new s 25 notices tells in favour of exercise of the discretion to retain, rather than against.
(e) There is no need for a sanction to be imposed on the Authority for its breach. Bad faith is not alleged. This is the first time a question of this type has arisen under s 25. The ruling I have given on the timing issue should be sufficient to ensure that the Authority does not commit
a similar breach of s 25 in the future.
Result
[49] For those reasons:
(a) On Perpetual’s claim, I make a declaration that the s 25 notices were issued unlawfully;
(b) On the Authority’s counterclaim, I order that
37 Section 58 of the Securities Act makes it an offence for a director of an issuer to make a materially false statement in a prospectus or investment statement if the director does not honestly believe on reasonable grounds that the statement was true.
38 See also, AB Pty Ltd v Australian Crime Commission [2009] 175 FCR 296 (FCA) at 315, para
61. See also para [36] above.
(i)the Authority may retain those documents that are required to be destroyed by s 58(2)(a)–(c)
(ii)the original documents or extracts from documents obtained from persons under a s 25 notice shall be returned to the person previously having possession of or control over them, as contemplated by s 58(2)(b)
(iii)under s 58(4)(c), the Authority may use all retained documents in connection with the exercise of any power conferred by the Act or any provision of the financial markets legislation.
[50] Costs are reserved. Any party seeking costs shall file and serve a memorandum in support of its claim on or before 21 September 2012. A memorandum in response shall be filed and served by the opposing party on or before 5 October 2012. The Registrar shall convene a telephone conference before me at 9am on the first available date after 8 October 2012 so that any further directions in relation to determination of costs can be made. The memoranda to which I have referred shall deal with all aspects of the proceeding in which, to date, costs have been reserved.
[51] I thank counsel for their assistance.
P R Heath J
Delivered at 2.30pm on 7 September 2012
0
1
1