Re Australian Securities Commission v Dalleagles Pty Ltd; Lawrence Robert Connell and Elizabeth Joan Connell [1992] FCA 33; (1992) 6 Ascr 674 (10 February 1992)

FEDERAL COURT OF AUSTRALIA

Re: AUSTRALIAN SECURITIES COMMISSION
And: DALLEAGLES PTY. LTD.; LAWRENCE ROBERT CONNELL and ELIZABETH JOAN CONNELL
No. WA G3017 of 1991
FED No. 29
Corporations - Practice and Procedure
[1992] FCA 33; (1992) 6 ASCR 674

COURT

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

CATCHWORDS

Corporations - notice requiring production of documents - certificate of failure to comply - proceedings for compliance order - claims of legal professional privilege and abuse of process raised by respondents - leave to cross-claim out of time for judicial review of decisions to issue notices and certify non-compliance - leave granted.

Practice and Procedure - cross-claim - leave to cross-claim against non- party - non-party officer of statutory authority party to proceedings whose decision is in issue.

Australian Securities Commission Act 1989 s.13, s.33, s.70

Administrative Decisions (Judicial Review) Act 1977

Judiciary Act s.39B

Federal Court Rules O.5 rr.8, 9

HEARING

PERTH
10:2:1992

Counsel for the Applicant: Ms K. Choules

Solicitors for the Applicant: L.J. Shervington

Counsel for the Respondents: Mr W. Martin

Solicitors for the Respondents: Jackson McDonald

ORDER

The time for service of the notice of motion be abridged pursuant to O.1 r.8.

The respondents have leave to cross-claim against the applicant and Paul Raymond Frankel pursuant to O.5 r.8 in terms of the minute of proposed cross-claim filed on 31 January 1992.

The time for making application for review of the decisions of the cross-respondents, the subject of the cross-claim pursuant to the provisions of the Administrative Decisions (Judicial Review) Act 1977 be extended to the date of this order.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

On 11 November 1991, Mr Paul Frankel, an investigator with the Australian Securities Commission ("ASC"), issued three notices under s.33 of the Australian Securities Commission Act 1989 ("ASC Law") to Dalleagles Pty Ltd, Lawrence Robert Connell and Elizabeth Joan Connell. The notices were each expressed to be in relation to an investigation of:
1. The affairs of Rothwells Ltd between 1 January 1983 and

31 January 1989; and
2. The affairs of Katanning Holdings Ltd and Dalleagles Pty
Ltd in so far as they relate to or are connected with the
affairs of Rothwells Ltd between 1 January 1983 and 31
December 1988.

Each notice required the production of books relating to the purchase by Katanning Holdings Ltd of shares in Rothwells Ltd from Bond Brewing Investments Pty Ltd in October 1988. The notices were issued following determinations made on 22 February 1991 and 10 June 1991 by the Regional Commissioner for Western Australia for the ASC. They were made under s.13(3) of the ASC Law. The initial determination was to the effect that there was reason to suspect contraventions of various Companies Codes which may have been committed in relation to a number of matters including:

"The affairs of Rothwells Ltd, between 1 January 1983
and 31 December 1988"

and that the Commission should investigate that and the other matters in the exercise of its power under s.13(3). The determination was varied on 10 June 1991 by extending its scope to take in the affairs of Rothwells Ltd between 1 January 1989 and 31 July 1989.

2. The notices were delivered on 11 November to Mr Neil Gentilli, a partner in the firm of Jackson McDonald, solicitors and he subsequently confirmed by telephone that he had received instructions to accept service of them on behalf of the three respondents. On 13 November 1991, he wrote to the ASC in the following terms:

"We confirm our telephone advice that we have accepted
service of these notices on behalf of all three
parties to whom they are directed.
As foreshadowed, we have instructions to commence
proceedings to determine whether the notices are effective.
We anticipate being able to institute these
proceedings by Monday 18 November 1991, at the latest.
We will contact Mr Warnick regarding service as soon
as the writ is ready for service."

3. On 14 November 1991, Mr Leigh Warnick, acting for the ASC, wrote to Jackson McDonald saying, inter alia:

"As stated in my telephone conversation with Mr
Gentilli on 13 November, the ASC proposes to use the
procedure prescribed in section 70 of the ASC Law to
request the Federal Court to inquire into your
clients' failure to comply with the notices, and to
request an order from the Court that the notices be
complied with within a period to be fixed by the
Court. I understand from my telephone conversation
with Mr Gentilli that you will accept service of the
originating process in these proceedings."

4. On 15 November 1991, Frankel signed certificates under s.70(2) of the ASC Law to the effect that each of the respondents had without reasonable excuse, failed to comply with a requirement made under Part 3 of the ASC Law in that they had without reasonable excuse failed to produce the books pursuant to and described in the notices of 11 November 1991 requiring the production of the books. On the same day the present proceedings were instituted whereby the ASC requests under s.70(3) that the Court inquire into the case and claims orders that:

1. Each of the first, second and third respondents comply
with the Applicant's notices requiring the production of
books dated 11 November 1991 within 7 days of the date
of the order of this Honourable Court.
2. The respondents pay the Applicant's costs of the Application.

5. A notice of appearance was filed on 26 November 1991 and on 2 December 1991 orders were made with a view to eliciting a statement of agreed facts. On 13 December further orders were made for the filing of affidavits and the directions hearing was adjourned to 17 January 1992. The respondents had foreshadowed that they might wish to move for leave to cross-claim and a direction was made that any such motion could be considered on 17 January.

6. A motion for leave to cross-claim was filed on 16 January and made returnable on 17 January. Affidavits were filed by Mr Gentilli, Ms Choules for the ASC and Mr Warnick for the ASC. A statement of agreed facts was filed on 6 January. On 17 January the motion was dismissed with costs and directions made that the parties file statements of facts, matters and contentions relied upon by them. The motion at that time was dismissed as the cross-claim then proposed did not adequately disclose the grounds for the relief sought nor appear to have any function that could not be achieved by joinder of issues in the principal proceedings. The issues were to be further defined by the filing of statements of facts, matters and contentions on each side and the application was listed for directions on 5 February 1992. The respondents were told that they could bring a fresh motion for leave to cross-claim if they thought it appropriate in light of the statements of facts, matters and contentions.

7. A further motion was filed by the respondents on 31 January 1992 seeking leave to cross-claim against Frankel pursuant to O.5 r.8 in terms of a minute of proposed cross-claim which was filed with the motion. The cross-claim seeks relief under the Administrative Decisions (Judicial Review) Act 1977 and under s.39B of the Judiciary Act. So far as the claims under the Administrative Decisions (Judicial Review) Act are concerned, the respondents seek an order that the time limited for making their application be extended in order to enable them to bring their cross-claim under that Act.

8. The proposed cross-claim names the ASC as first cross-respondent and Frankel as second cross-respondent. The respondents seek review of the decisions taken by Frankel to issue the notices to them on 11 November 1991 and the decision to certify non-compliance with the notices on 15 November 1991. The grounds are set out in the form of a statement of claim. It recites the fact of the investigation by the ASC and that the ASC considers certain documents to be relevant to that investigation. The documents are said to be set out in a schedule to the cross-claim but no such schedule was attached to the minute filed in Court although the documents appear to be listed in a statement of agreed facts filed earlier. The cross-claim goes on to allege that at various times during 1988 the respondents instructed a legal firm, L. Musca and Co., to carry out legal work on their behalf as a result of which various documents were obtained or produced by that firm for or on behalf of the respondents.

9. In or about March 1989 L. Musca and Co. delivered the documents to Jackson McDonald, which firm has since that date acted on behalf of the respondents and remains in possession of the documents. It is said to have been a term of the agreement under which Musca and Co. handed over the documents that Jackson McDonald would maintain custody and control of them. On 22 May, Frankel, on behalf of the ASC, issued a notice under s.30 of the ASC Law to Gentilli requiring him to produce various documents including those said to be set out in the schedule. Various documents were produced in answer to the notice on 30 May, but others were retained including the scheduled documents on the grounds of legal professional privilege.

10. On 10 June, Frankel, on behalf of the ASC, issued and served a further notice upon Jackson McDonald requiring them to produce various documents including those scheduled. On 12 June 1991, the respondents and Jackson McDonald instituted an action, 1950 of 1991 in the Supreme Court of Western Australia to determine whether the documents were privileged and whether they were required to produce them to the second cross-respondent in response to the second notice.

11. On 4 July 1991, another employee of the ASC, Mr Byrne, issued and served further notices under s.33 to each of the respondents to produce to him various documents including those scheduled. Another action was commenced in the Supreme Court, being number 2111 of 1991, on 8 July 1991 to determine whether the scheduled documents were privileged and whether in any event Byrne's notices did not require production of documents because they were not in the possession of the respondents. On 10 July, it is said, the ASC wrote to each of the respondents advising it would take no action to enforce Byrne's notices.

12. The first Supreme Court action, number 1950 of 1991, was heard on 20 August 1991 and a decision delivered on 4 September 1991 to the effect that the scheduled documents were protected by legal professional privilege and that the second set of notices did not require their production to Frankel. In the course of that hearing it is said that the ASC conceded that if the documents were the subject of a proper claim for legal professional privilege, s.69 of the ASC Law entitled the respondents to refuse to produce them.

13. The proposed cross-claim then pleads the issue on 11 November 1991 of the further notices which are the subject of the present proceedings. The documents the subject of these notices are said to be those documents which the Supreme Court of Western Australia declared need not be produced in answer to the notices issued on 10 June 1991. It is alleged that the ASC served the November notices with knowledge of the previous proceedings and knowing that the respondents would almost certainly refuse to produce the documents. It is further alleged that the ASC has commenced the present proceedings "for the substantial purpose of using them as a test case to determine the scope and extent of its powers relating to documents the subject of a valid claim for legal professional privilege". Also pleaded is the certification made by Frankel on 15 November 1991 that each of the respondents had failed to produce the documents the subject of the November notices without reasonable excuse.

14. The first substantive ground of review raised is one of ultra vires, that because the documents the subject of the November notices are the subject of legal professional privilege and because of the conduct of the Supreme Court proceedings by the ASC and Frankel and the decision of that court, the decision of Frankel, as delegate of the ASC, to issue the November notices was not authorised by s.33 of the ASC Law and his decision to issue the certificates of non-compliance was not authorised by s.70(2) of that law. It is alleged that Frankel, as delegate of the ASC, erred in law in making the decision to issue the notices and the certificates in that he erroneously construed the powers conferred by s.33 as extending to documents the subject of a valid claim of legal privilege professional and the subject of determination by the Supreme Court in the previously mentioned proceedings.

15. It is also alleged that he failed to take relevant considerations into account in making his decision, those being that the notices were the subject of a valid claim for legal professional privilege and the ASC's conduct in the Supreme Court proceedings. An irrelevant consideration is said to have been taken into account, namely the advantages to the ASC of utilising these proceedings for the purpose of obtaining a ruling on an issue of law of general importance to the ASC. Linked to that is an allegation of improper purpose that he made his decisions for the purpose of putting in train legal proceedings which would result in the determination of an issue of law of general importance to the ASC. A general ground of unreasonableness is also raised but not particularised.

16. The respondents seek declarations under the Administrative Decisions (Judicial Review) Act that the notices of 11 November 1991 and the certificates of 15 November 1991 are invalid and alternatively orders quashing or setting aside the decisions to issue them. Pursuant to the jurisdiction conferred on the Court by s.39B of the Judiciary Act an injunction is sought restraining the ASC and Frankel from attempting to enforce or compel the production of books pursuant to the notices, a declaration that the notices are invalid and of no force or effect, an injunction restraining the ASC and Frankel from acting upon the certificates and a declaration that the certificates are invalid and of no force and effect. Also claimed is an injunction restraining the ASC and Frankel from taking any other step or action to compel or attempting to compel production of the books held by the Supreme Court of Western Australia to be the subject of a valid claim for legal professional privilege.

17. The first 17 paragraphs of the grounds for cross-claim as summarised above replicate the statement of agreed facts which was filed on 6 January. That statement included a schedule setting out the documents in question and other attachments relating to the notices issued in May and June 1991 and the proceedings in the Supreme Court, including the reasons for judgment delivered by Anderson J. on 4 September 1991.

18. The affidavit of Gentilli filed pursuant to directions in the present proceedings refers to conversations in which it is alleged that Warnick and Ms. Choules, representing the ASC, spoke at different times of the need for a test case on the question of legal professional privilege. Answering affidavits have been filed by both those lawyers.

19. By its statement of facts, matters and contentions the applicant asserts, inter alia, that the notices were issued for the purpose of the investigation undertaken by the ASC pursuant to s.13(1) of the ASC Law. It also contends that they were validly issued and served and that the mere notification by the respondents of an intention to commence proceedings to determine whether the notices were effective did not constitute a reasonable excuse for failing to comply with them. On that basis it is said the certificates issued on 15 November were valid and that the applicant is entitled to an order requiring compliance with them.

20. The statement of facts, matters and contentions relied upon by the respondents sets out in the first nineteen paragraphs the same factual matters as appear in the cross-claim. In their statement the respondents contend that the notices were not a valid exercise of power conferred by s.33 of the ASC Law because:

(a) the documents, the subject of the fourth notices, are
protected by legal professional privilege; or
(b) the facts and matters set out in the statement and
without limiting reliance upon each and all of those
facts in particular the Supreme Court proceedings
preclude the applicant from further attempting to enforce
production of the documents the subject of the fourth notices.

21. It is also asserted that the applicant's purported certification of the respondents' failure without reasonable excuse to comply with the notices was invalid and of no force or effect because of the invalidity of the notices and the facts and matters set out previously. The proceedings are said to constitute an abuse of process.

22. The application for relief under the Administrative Decisions (Judicial Review) Act is out of time but in view of the early notice of intention to seek leave to cross-claim under that Act which was foreshadowed on 12 December and the absence of any prejudice to the prospective cross-respondent, I would not refuse an extension if leave to cross-claim is otherwise appropriate.

23. The ASC application is brought under O.71 r.106 which requires that the application for an inquiry and for orders be on affidavit unless the Court otherwise orders. This attracts the operation of O.5 r.8 which provides that a respondent may cross-claim against an applicant or any other party without the leave of the Court but may not cross-claim against any other person not being a party without such leave. Order 5 r.9 provides that a respondent desiring to cross-claim after the directions hearing shall obtain all necessary directions at the directions hearing in relation to the cross-claim including the time within which the cross-claim is to be filed. A respondent who does not obtain directions under that sub-rule shall not cross-claim after the directions hearing without leave of the Court.

24. The fact that a proposed cross-claim under the Administrative Decisions (Judicial Review) Act names a person not a party would ordinarily be of little consequence in a case such as the present where that person is the officer of the applicant who made the decision in issue. And the directions hearing having continued with adjournments from time to time, it cannot be said that the cross-claim requires leave under O.5 r.9(2).

25. It is apparent that the factual issues raised by the proposed cross-claim are already before the Court in the principal proceedings and indeed as the statement of agreed facts shows, are not substantially in dispute. The alleged failure to take relevant considerations into account is, in essence, another way of putting the point about the claim for legal professional privilege and the contention that that issue has been the subject of determination in the Supreme Court. The grounds of improper purpose and taking into account irrelevant considerations reduce to the related contentions that a purpose or dominant purpose of the issue of the notices was to obtain a ruling on an issue of law of general importance to the ASC. The unreasonableness ground relied upon does not disclose any basis for review beyond the factual contentions set out in the cross-claim to which reference has already been made.

26. Counsel for the respondents submitted that the cross-claim draws out a difficulty that might arise if any point were taken with respect to a distinction between void and voidable decisions. If the grounds upon which the respondents relied in the proposed cross-claim led to the conclusion that the decisions under review were voidable but not void until set aside, then it would be necessary for some judicial action to be taken to render the notices void. Counsel did not expose any basis in argument, upon which that distinction might arise in this case. I accept, however, that the cross-claim may provide a vehicle by which the respondents can, if successful on the issues they have already raised in this inquiry, obtain relief the availability of which might otherwise be doubtful. It is not at all clear that Frankel's nomination as a proposed second co-respondent is necessary for that purpose. However, in all the circumstances and in order that the entire controversy between the parties may be disposed of, I propose to grant the leave which is sought. I do not expect, having regard to the background of the matter, that this will delay the progress of the application to hearing. I will hear from the parties with a view to making further directions in order that the matter may come on expeditiously.