Re Australian Securities Commission v Geoffrey Frederick Lord [1991] FCA 589; 742 Corporations 10 ACLC 50/6 ACSR 350; (1991) 105 ALR 347 (1991) 33 FCR 144 (2 December 1991)

FEDERAL COURT OF AUSTRALIA

Re: AUSTRALIAN SECURITIES COMMISSION
And: GEOFFREY FREDERICK LORD
No. WA G3008 of 1991
FED No. 742
Corporations
10 ACLC 50/6 ACSR 350
(1991) 105 ALR 347
(1991) 33 FCR 144

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
Davies J.(1)

CATCHWORDS

Corporations - investigation by Australian Securities Commission - notices requiring production of books - whether notices valid - meaning of "concerns the management or affairs of a body corporate or involves fraud or dishonesty and relates to a body corporate" in s.28 of the ASC Law - whether evidence given as a director or in a personal capacity - whether fraud or dishonesty suspected.

ASC Law - ss.28, 30.

HEARING

PERTH
2:12:1991

Counsel for the applicant: Mr C. Zelestis QC and Mrs K. Choules

Solicitors for the applicant: Mr L.J. Shervington

Counsel for the respondent: Mr R. Richter QC and Mr L. Glick

Solicitors for the respondent: Robinson Cox

ORDER

The parties within 7 days bring in short minutes setting out the terms of the orders proposed in accordance with these reasons.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This proceeding is an inquiry pursuant to s.70 of the ASC Law of Western Australia ("the ASC Law") which provides:-
"(1) This section applies where the Commission is satisfied that a

person has, without reasonable excuse, failed to comply with a
requirement made under this Part (other than Division 8).
(2) The Commission may by writing certify the failure to the Court.
(3) If the Commission does so, the Court may
inquire into the case and may order the person
to comply with the requirement as specified in the order."

The "Court" is defined by s.9(1) of the Corporations Law as meaning "the Federal Court, or the Supreme Court of this or any other jurisdiction, when exercising the jurisdiction of this jurisdiction". The relevant jurisdiction is that of Western Australia. The Corporations (Western Australia) Act 1990 (W.A.), which by s.58(1) applies the Australian Securities Commission Act 1989 (Cth) as a law of Western Australia (excluding certain provisions) provides, by s.60(2) that, save where otherwise provided, an expression in the ASC Law has the same meaning in that Law as in the Corporations Law.

2. On 10 November 1989, the respondent, Geoffrey Frederick Lord, gave evidence to Mr M.J. McCusker QC, an Inspector conducting an investigation under the Companies (Western Australia) Code ("the Code"). Mr McCusker had been appointed to investigate the affairs during the period 1 January 1985 to 31 December 1988 of Rothwells Limited and of a number of specified companies which were associated with its downfall, including Paragon Resources N.L. and Oakhill Pty Ltd. It appears that Mr Lord, who was the managing director of Elders Resources Ltd, a company which was not itself the subject of Mr McCusker's investigation, had in that capacity had discussions with Mr L. Connell, who acted on behalf of Oakhill Pty Ltd, as a result of which certain shares in Paragon Resources N.L. were acquired. As Mr McCusker considered that the acquisition of these shares was relevant to his investigation, he gave the following notice to Mr Lord:-

"TO: MR GEOFF LORD
C/- ELDERS RESOURCES LTD
29-33 PALMERSTON CRESCENT
SOUTH MELBOURNE VIC 3205
In relation to an investigation of -
(a) all matters concerning the affairs of ROTHWELLS LTD during the
period commencing 1 January 1985 and ending 31 December 1988
("the said period") with particular reference to those matters
associated with or contributing to the failure of ROTHWELLS
LTD; and
(b) all matters concerning the affairs of the corporations listed
in the Schedule hereto which relate to or are connected with
the affairs of ROTHWELLS LTD and, without limiting the
generality of the foregoing, relate to dealings with money or
other property real or personal emanating from ROTHWELLS LTD or
the corporations listed in the Schedule hereto whether by way
of loan, purchase or otherwise and whether directly or
indirectly during the same period.
TAKE NOTICE that under sub-section 295(1) you are required:
(a) to appear on FRIDAY, 10 NOVEMBER 1989, at 2.00 p.m.
before me, Malcolm James McCusker, QC, Inspector, at Room 1,
Level 13, Piccadilly Court, 222 Pitt Street, Sydney in the
State of New South Wales.
for examination on oath or affirmation and to answer questions
put to you in relation to the investigation being conducted by me;
(b) to give to me, MALCOLM JAMES McCUSKER, QC, all reasonable
assistance in connection with the investigation."

3. This notice was given to him under s.295 of the Code which empowered the investigator to give such a notice to an officer of a corporation whose affairs were being investi-gated. Section 289(1) of the Code defined "officer" to include "a person who ... is capable of giving information concerning affairs of the corporation". Mr Lord, being a person who had information about the affairs of Rothwells Limited, Paragon Resources N.L. and Oakhill Pty Limited, was deemed to be such an officer of those corporations.

4. Mr Lord appeared for examination on 10 November 1989 and was sworn. A transcript of his evidence is before the Court. In the course of this evidence, Mr Lord seemed to have a distinct lack of recollection. As to his discussions with Mr Connell, Mr Lord gave these answers inter alia:-

McCUSKER: "Q: Do you recall having a discussion with Mr Connell
about the proposal or a proposal for Elders to purchase shares in
Paragon Resources? LORD: A: I recall - ..., I recall having some
discussions with him and Mr Lewis about the prospect of taking an
option position in Paragon Resources, yes.
Q: Well when was that discussion? A: I don't know, I couldn't
recall specifically.
...
Q: ... You had a discussion however with Mr
Connell and Mr Lewis, is that right? A: I
would - .... I would suspect so, yes.
...
Q: In 1987 Mr Lord, did you meet Mr Connell in Perth?
A: I don't specifically recall whether it
happened in 1987. .... I don't specifically
recall whether it happened in 1987 but I would
suspect so, yes.
Q: Did you in 1987 keep a diary? A: No.
Q: Did you keep any record of where you went
and whom you met?
A: .... No.
Q: You kept no record? A: No. Basically, no.
Q: If for example it was intended that you should visit Perth to see
Mr Connell would you not keep a record or a note in your diary of that?
A: .... No. What would happen in my diary, I'm sure is that I
would have an entry relating to Perth --
Q: Yes. A: -- and when I'm in Perth I would call on a number of
people. Again it's not my - -
Q: Just on the offchance that -- A: Again it's not my normal
pattern to specifically ring ahead and make appointments with certain
people. And they would be general visits."

5. Subsequently, officers of the Australian Securities Commission ("the Commission") thought it likely that Mr Lord had kept a relevant diary for 1987. They obtained information from Mr Lord's former secretary as follows:-

"During this period (1987), my secretarial tasks included typing,
filing, taking telephone messages and arranging appointments for Mr
Lord. During this period I updated photocopies of Mr Lord's pocket
diary from time to time and on which I recorded appointments for Mr
Lord and at the same time I would note these appointments in Mr
Lord's pocket diary. I observed that on occasions Mr Lord made
entries in his pocket diary."

6. An officer of the Australian Securities Commission served on to Mr Lord the following notice dated 25 July 1991:-

"To: Mr Geoffrey Frederick Lord
1 Salisbury Street
BALWYN VICTORIA
In relation to a suspected contravention of
section 296(4) of the Companies (Western
Australia) Code, particulars of which are set
out in the Schedule, you are hereby notified
that under section 30 of the Australian
Securities Commission Act 1989, you are required
to produce to Ronald Claude Trevethan at 20th
Floor CU Tower, 485 La Trobe Street, Melbourne,
Victoria on Wednesday 7 August 1991 at 10 a.m.
the following books:
(1) all diaries for the year 1987 maintained
by you and containing records of
appointments attended or to be attended by
you or activities carried out or to be
carried out by you during that year in
your capacity as managing director of
Elders Resources Limited;
(2) all other records of where you went and
whom you met in your capacity as managing
director of Elders Resources Limited
during 1987; and
(3) all copies of any such diary or record
that are in your possession, custody or control.
.....
SCHEDULE
The suspected contravention of section 296(4) of
the Companies (Western Australia) Code ("the
Code") consists of the making by you, when
appearing as an officer (as defined in section
289(1) of the Code) of Rothwells Limited and
Oakhill Pty Ltd before Malcolm James McCusker QC
(being an inspector within the meaning of that
term as used in section 296(4) of the Code) for
examination pursuant to paragraph 295(1)(c) of
the Code, of statements which were false or
misleading in a material particular, namely
statements that:
(1) you did not keep a diary in 1987; and
(2) you did not keep any record of where you went and whom you met."

7. The notice for production was given under s.30 of the ASC Law which provides:-

"The Commission may give to:
(a) a body corporate that is not an exempt public authority; or
(b) an eligible person in relation to such a body corporate;
a written notice requiring the production to a specified member or
staff member, at a specified place and time, of specified books
relating to affairs of the body."

If the managing director of a corporation such as Elders Resources Ltd keeps a diary of the appointments and meetings which he undertakes as managing director of that corporation, that diary relates to the affairs of the body corporate. The Commission had power to give the notice under s.30, notwithstanding that Elders Resources Ltd, to which the documents relate, was not a body corporate which was the subject of investigation under s.13 of the ASC Law. Section 34 empowers an authorised officer to exercise the Commission's power.

8. I should deal first with the contention put by senior counsel for Mr Lord that no officer of the Commission had reason to suspect that any offence had been committed by Mr Lord in his answers to Mr McCusker. Counsel submitted that the secretary's information was not inconsistent with what Mr Lord had to say in his evidence to Mr McCusker.

9. However, having regard to Mr Lord's evidence that he could not recall specifically any conversation with Mr O'Connell and Mr Lewis, his further evidence that he suspected that he did have a discussion with Mr Connell and Mr Lewis, his answer that, in 1987, he did not keep a diary, and his further answer that the only relevant entry in his diary would have been an entry relating to Perth, it was open to an officer of the Commission reasonably to suspect that Mr Lord did not comply with his obligation to tell the whole truth and nothing but the truth. It would be surprising if the managing director of Elders Resources Limited kept no diary or like record of his appointments and meetings in 1987. In the light of the other evidence, it seems to me that it was open to an officer of the Commission to suspect that the evidence given respecting the diary may not have been truthful. Of course, the Schedule to the notice overstated any possible offence, for in his evidence Mr Lord referred to a diary. But it is not necessary that, at this stage, officers of the Commission should formulate with precision what any offence might be. Whether Mr Lord committed an offence can only be judged if and when Mr Lord produces a diary or other record, if there be one, and the contents thereof have been considered.

10. Section 28 of the ASC Law provides:-

"A power conferred by this Division (other than sections 29, 35 and
36) may only be exercised:
...
(c) in relation to:
(i) ...
(ii) an alleged or suspected contravention of a law of this
jurisdiction, being a contravention that concerns the
management or affairs of a body corporate, or involves
fraud or dishonesty and relates to a body corporate,
securities or futures contracts; or
... ."

As the notice to Mr Lord specified "a suspected contravention of s.296(4) of the Companies (Western Australia) Code", it appears that the notice was given under s.28(c)(ii).
Section 296(4) of the Code provided:-

"An officer of the corporation shall not, when appearing before an
inspector for examination pursuant to paragraph 295(1)(c), make a
statement that is false or misleading in a material particular.
Penalty: $1,000 or imprisonment for 3 months, or both."

That was a law of Western Australia which, for present purposes, was "a law of this jurisdiction".

11. The question therefore arises whether the suspected contravention by Mr Lord "concerns the management or affairs of a body corporate, or involves fraud or dishonesty and relates to a body corporate".

12. Senior counsel for the Commission submitted that the term "affairs" is a wide term and covers every aspect of the affairs affecting a corporation. Counsel referred to s.53 of the Corporations Law, which expresses a wide definition of the term "the affairs of a body corporate". Counsel submitted that this definition applied because of the definition in s.60 of the Corporations (Western Australia) Act. However, there are two reasons for thinking that the term "affairs" does not, in s.28 of the ASC Law, have such a wide meaning. The first is that the term appears in the expression "management or affairs". Thus, if the word "affairs" has the meaning given to it by s.53 of the Corporations Law including "(a) the ... business, trading, transactions and dealings ... of the body" and "(c) the internal management and proceedings of the body", the word "management" in s.28(c)(ii) would be unnecessary. The second is that, if a contravention merely "relates to a body corporate", s.28(c)(ii) requires that it "involves fraud or dishonesty".

13. I incline to the view that the words "concerns the management or affairs of a body corporate" in s.28 of the ASC Law refer to those matters which arise out of the corporation's business, property and capital and also to those matters which arise out of the internal management of the corporation. If the suspected contravention merely relates to a corporation, that is to say, arises outside the corporation's business, property, capital or management, then the suspected contravention must be of such a nature that it involves fraud or dishonesty. The word "involves" does not denote that fraud or dishonesty must be an element of the offence as charged, merely that the contravention suspected must have involved fraud or dishonesty.

14. The words "relates to" may have a very wide meaning and, in my view, they do in this case have a wide ambit, wider indeed than the term "concerns" which previously appears. See Hatfield v Health Insurance Commission (1987) 77 ALR 103.

15. As Mr Lord gave evidence in his capacity as a person having knowledge of matters which related to the affairs of Rothwells Limited, Paragon Resources N.L. and Oakhill Pty Ltd, the answers which he gave were personal to him. Although the matters about which he was questioned were matters which he had undertaken as managing director of Elders Resources Ltd, Mr Lord did not give evidence on behalf of Elders Resources Ltd or in his capacity as managing director. He gave his evidence solely in the capacity of a person having information relevant to the inquiry being conducted by Mr McCusker. In these circumstances, the suspected contravention arose outside the management and affairs of Elders Resources Ltd, of Rothwells Limited, of Paragon Resources N.L. and of Oakhill Pty Ltd. It is therefore necessary that the suspected contravention involve fraud or dishonesty.

16. Fraud was not suspected. Dishonesty was. It was suspected that Mr Lord did not tell the truth to the investigator and deliberately did not do so. I am satisfied that the officer of the Commission who gave the notice, Mr M.J. Allen, was entitled to act on the footing as he did that he suspected that Mr Lord had contravened s.296(4) of the Code and had done so deliberately and dishonestly. It was not necessary that the dishonesty be an essential element of the offence suspected. As to Mr Allen's belief, he deposed that:-

"I suspected that Mr Lord may have deliberately and knowingly made a
false and misleading statement when appearing before Mr McCusker as
to whether he kept a diary or any record of where he went and whom he
met."

That was a sufficient basis for giving the notice.

17. Senior counsel for Mr Lord also submitted that, in the discretion of the Court, the notice should not be enforced, having regard to "(a) the tenuousness of any suspicion that might be formed with respect to the falsity of the respondent's answers". But whether the suspicion is or is not correct cannot be judged until the diary or other record, if there be one, is produced. Counsel submitted that the serving of the notice imposed serious obligation upon Mr Lord and that it ought not to be enforced in the absence of a significant prospect that a contravention of s.296(4) of the Code had occurred and that a conviction could be obtained. However, if the notice is valid, as I think it is, I would not refuse to enforce it on a discretionary ground. Mr Lord was asked by Mr McCusker whether he had a diary in 1987. He replied "No", although he later amended that evidence in what appears to be an incomplete sentence. It does not seem to me to be oppressive or unreasonable or unjustified that Mr Lord should be asked to produce for examination any diary or like record which he kept for the 1987 year.

18. For these reasons, I propose to make an order giving effect to the notice of 25 July 1991. The terms of the order will need to be considered as Mr Lord is subject to existing prosecutions. It would not be proper for the Commission to obtain Mr Lord's 1987 diary, if he has one, and to use that diary for the purposes of those prosecutions. The sole purpose for which the diary should be used by the Commission is for the purpose of investigating whether or not Mr Lord contravened s.296(4) of the Code as is suspected. However, counsel anticipate that they will be able to agree upon the terms and conditions of an order so that adequate safeguards protecting Mr Lord's position in this respect can be inserted in the order.

19. I shall simply direct that the parties within 7 days bring in short minutes setting out the terms of the orders proposed in accordance with these reasons. The short minutes should deal with the question of costs.