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Federal Court of Australia |
Australian Securities Commission Law ss 19, 25, 90, 125, 127
Little River Goldfields NL v Moulds (1991) 32 FCR 456 cited
Thompson v Randwick Corporation [1950] HCA 33; (1950) 81 CLR 87 applied
Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 applied
Whelan v ASC (No. 2) (1994) 58 FCR 352 applied
Johns v Australian Securities Commission (1993) 178 CLR 408 applied
Westpac Banking Corporation v Australian Securities Commission (1997) 15 ACLC 445
National Companies and Securities Commission v News Corporation Ltd [1984] HCA 29; (1984) 156 CLR 296 discussed
MacDonald v Australian Securities Commission [1993] FCA 357; (1993) 43 FCR 466 applied
NCSC v News Corporation and Annetts v McCann [1990] HCA 57; (1990) 170 CLR 596 cited
Karounos v Corporate Affairs Commission (SA) (1989) 15 ACLR 363 followed
Clements v Bower (1990) 2 ACSR 573 followed
ALAN HAROLD BOYS & ORS v AUSTRALIAN SECURITIES COMMISSION
NO. WAG 71 OF 1997
JUDGES: FRENCH, HEEREY & MERKEL JJ
DATE: 8 jANUARY 1998
PLACE: PERTH
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 71 of 1997 |
|
BETWEEN: | ALAN HAROLD BOYS, RONALD GEORGE HOWARD, DESMOND FRANK CRAWLEY, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ
Appellants (Applicants) |
|
AND: | AUSTRALIAN SECURITIES COMMISSION
ERNST & YOUNG (A FIRM) Second Respondent
PHILLIPS FOX (A FIRM) Third Respondent
PETER REYMOND QUIGLEY Fourth Respondent
KEVIN LEE CHRISTENSEN Fifth Respondent |
|
JUDGES: | FRENCH, HEEREY & MERKEL JJ |
| DATE OF ORDER: | 8 january 1998 |
| WHERE MADE: | PERTH |
THE COURT ORDERS THAT:
The appeal is dismissed with costs, including reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 71 of 1997 |
|
BETWEEN: | ALAN HAROLD BOYS, RONALD GEORGE HOWARD, DESMOND FRANK CRAWLEY, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ
AppELLANTS |
|
AND: | AUSTRALIAN SECURITIES COMMISSION
FIRST Respondent
ERNEST & YOUNG (A FIRM) SECOND RESPONDENT
PHILLIPS FOX THIRD RESPONDENT
PETER REYMOND QUIGLEY FOURTH RESPONDENT
KEVIN LEE CHRISTENSEN FIFTH RESPONDENT |
JUDGES:
FRENCH, HEEREY AND MERKEL JJ DATE: 8 JANUARY 1998 PLACE: PERTH
I agree that the appeal should be dismissed for the reasons given by Heerey J.
|
I certify that this page is a true copy of the Reasons for Judgment herein of the Honourable Justice French |
Associate:
Dated: 8 January 1998
|
Counsel for the Appellant: | Mr N Young QC with Mr A N Siopis |
| Solicitor for the Appellant: | Hunt & Humphry |
| Counsel for the First Respondent: | Mr J. Gilmour QC with Mr M D Howard |
| Solicitor for the First Respondent: | Regional Counsel, Western Australia |
|
Counsel for the Second to Fifth Respondents:
Solicitor for the Second to Fifth Respondents: |
Mr P G Hely QC with Mr J Ley
Tottle Christensen |
| Date of Hearing: | 13 October 1997 |
| Date of Judgment: | 8 January 1998 |
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 71 of 1997 |
|
BETWEEN: | ALAN HAROLD BOYS, RONALD GEORGE HOWARD, DESMOND FRANK CRAWLEY, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ
Appellants (Applicants) |
|
AND: | AUSTRALIAN SECURITIES COMMISSION
First Respondent
ERNST & YOUNG (A FIRM) Second Respondent
PHILLIPS FOX (A FIRM) Third Respondent
PETER REYMOND QUIGLEY Fourth Respondent
KEVIN LEE CHRISTENSEN Fifth Respondent |
JUDGES:
FRENCH, HEEREY & MERKEL JJ DATE: 8 january 1998 PLACE: PERTH REASONS FOR JUDGMENT
On 26 July 1990 Perpetual Trustees WA Limited (Perpetual), acting as trustee for certain debenture holders, appointed the fourth respondent Mr Peter Quigley as Receiver and Manager of Geneva Finance Limited (Geneva). Some 2,600 debenture holders were owed a total of $34.7 million. Nine months after appointment Mr Quigley reported to debenture holders that assets of Geneva would yield about ten cents in the dollar. In other words there was a total shortfall in excess of $30 million. At the time of the Receiver's appointment, Geneva's ten largest debtors (owing some $31.4 million) were companies associated with its directors.
The appellants were partners in the accounting firm Horwath & Horwath. That firm was the auditor of Geneva and also provided investigating accountant's reports for six prospectuses under which debentures were issued to the public. The last of those reports was dated 15 June 1990. Geneva was still receiving subscriptions for debentures under that prospectus when the Receiver was appointed.
Not surprisingly, the first respondent Australian Securities Commission (ASC) has been concerned to investigate the collapse of Geneva and, amongst other things, the conduct of the auditors. The present litigation is principally concerned with the role played in that investigation by Mr Quigley and his solicitor, the fifth respondent Mr Kevin Christensen. Mr Quigley is a partner in the accounting firm Ernst & Young (the second respondent). Mr Christensen is a partner in the legal firm Phillips Fox (the third respondent). In particular, the ASC entered into a formal agreement (the Consultancy Agreement) with Messrs Quigley and Christensen under which the latter were to be appointed as consultants to the ASC for the purposes of the Geneva investigation. They were to provide their services free of charge and in return the ASC would make such information available to them as it lawfully could for the purpose of pursuing a civil claim against the auditors.
Before the learned trial Judge (Carr J) the appellants attacked the Consultancy Agreement and various actions taken or proposed to be taken in performance of it.
From time to time Mr Quigley furnished reports to the debenture holders about his investigations of Geneva's affairs and the progress of the receivership. There were at least seven such reports.
To go back a little in time, on 16 January 1991 Mr Quigley submitted a preliminary report to the Commissioner for Corporate Affairs under s 324C of the Companies (Western Australia) Code (the Code). In that report Mr Quigley expressed the opinion that some of the directors of Geneva had contravened Code ss 229 (directors' honesty, care and diligence) and 564 (providing false or misleading information) and advised that he was also investigating possible contraventions of ss 129 (company assisting in acquisition of its own shares) and 556 (incurring debts without reasonable expectation of capacity to pay).
On 11 April Mr Quigley applied to the ASC for authorisation to make an application to the Court for a public examination under s 597 of the Corporations Law. He stated that he proposed to examine officers of the company, ex-employees, the auditors and other persons. He referred to the apparent contravention of s 129 of the Code and also to his prima facie view that a cause of action existed against Geneva's auditors in relation to audit and investigating accountant's reports. Mr Quigley suggested the ASC should be represented at the proposed examination and question the examinees. He asked that the ASC meet the cost of the proposed examination which he estimated to be in the order of $100,000 to $130,000.
During the course of the next eight months Mr Quigley furnished further reports to the ASC in relation to the past and current financial affairs of Geneva. He also attended several meetings with representatives of the ASC.
On 25 November 1991 Mr D L Atkinson, an officer of the ASC, prepared a document headed "Determination to commence investigation pursuant to s 13 ASC Law". The memorandum concluded by stating Mr Atkinson had reason to suspect that Geneva may have contravened s 129 of the Code. On 11 December Mr Atkinson wrote to the ASC's Regional General Counsel expressing the view that the auditors' reports in respect of Geneva's financial statements at 31 December 1988, 30 June 1989 and 31 December 1989 contravened s 285 of the Code (duties of auditors) and that the investigating accountant's reports contained in three of Geneva's prospectuses contravened s 107 (untrue statements and non-disclosure in prospectus).
The events leading up to the Consultancy Agreement were as follows.
In October 1991 Mr Murray Allan, then Regional Commissioner of the ASC in Western Australia, prepared a memorandum entitled "Liquidators and their Lawyers as `Free' Investigation Consultants" which he circulated to the Chairman and Deputy Chairman of the ASC and Regional Commissioners for their views. In the document Mr Allan reviewed the pros and cons of engaging liquidators or receivers as consultants to assist ASC investigations and examinations. The document includes a discussion as to whether the ASC's investigatory powers would be used for an improper purpose. His Honour said:
"A careful reading of Mr Allan's memorandum discloses purposes and concerns entirely consistent with the proper and efficient performance of the Commission's functions and the exercise of its powers."
His Honour observed that the core issue in the case was whether the Commission's purposes were lawfully achieved.
His Honour made a finding that in late December 1991 or early January 1992 an understanding was reached between the ASC on the one hand and Messrs Quigley and Christensen on the other. A basic part of that understanding was that instead of Mr Quigley proceeding with his plan to conduct a public examination under the supervision of the Court, the ASC would conduct an investigation under Pt 3 of the ASC Law. His Honour found that the ASC would have conducted an investigation and examination into Geneva's affairs whether or not Mr Quigley had proceeded with his proposed application to the Court under s 597. His Honour accepted that the ASC was prepared to authorise Mr Quigley to apply to the Court if he had chosen to persist in that course. His Honour found that a part of the understanding was that the ASC would appoint Messrs Quigley and Christensen as consultants under s 121 of the ASC Law to assist the ASC in carrying out its investigation.
Some time between 20 December 1991 and 3 January 1992 Mr Atkinson signed a document entitled "Section 13 of the ASC Law Determination - Geneva Finance Limited". In that document, after reciting Mr Quigley's appointment, the making of complaints by debenture holders, and Mr Quigley's report under s 324C of the Code, Mr Atkinson stated that from those reports it appeared that Geneva's auditors may have been negligent and in breach of their duty in relation to audits, reports to Perpetual, investigating accountant's reports and reports furnished in accordance with trust deeds. Mr Atkinson also stated that as s 107 and 285 of the Code may have been contravened due to inadequate provision for bad and doubtful debts. The document concluded:
"After review of the reports and correspondence received from the receiver and manager of Geneva, Peter Quigley, I have reason to suspect that there has been committed contravention of the Companies (Western Australia) Code and that the matters raised in those reports in correspondence referred to above should be investigated."
His Honour, following the judgment of Davies J in Little River Goldfields NL v Moulds (1991) 32 FCR 456 at 462-464, observed that s 13 did not require any formal determination. His Honour accepted Mr Allen's evidence to the effect that there was at this time an understanding that if Mr Quigley applied for the information obtained in the course of the investigation and if the ASC were at that time of the view that he was legally entitled to have that information, then the ASC would release it to him.
On 9 January 1992 the ASC and Messrs Quigley and Christensen executed the Consultancy Agreement.
The recitals to the Consultancy Agreement referred to the fact that Mr Quigley was the Receiver of all the assets and undertakings of Geneva, that he had provided reports to the ASC either pursuant to s 324C of the Code or otherwise, that the ASC intended to conduct an investigation into matters raised in those reports, that the ASC had requested Mr Quigley to assist it with that investigation and that the ASC wished to retain Messrs Quigley and Christensen as consultants to assist it with the investigation. There then followed a recital to the effect that Mr Quigley considered that the investigation by the ASC, with the assistance of himself and Mr Christensen as consultants, would be the quickest and most efficient method of obtaining information necessary for the realisation of Geneva's assets. Recitals G and H were in the following terms:
"G. The ASC presently intends to make available copies of the written records of any examinations and any related books to the Receiver upon the Receiver making application to the ASC pursuant to the ASC law. The ASC may impose any conditions it sees fit upon the release of such information.
H. The Receiver's fees, costs and expenses and those of the Solicitor which are incurred by them as consultants assisting the ASC with the Investigation shall be met from assets of the Company."
By clause 2 the consultants bound themselves to perform what were described as the "Consultancy Services". That term was defined by a description in item 1 of the Schedule to the Agreement, which read as follows: "Item 1
The consultant will assist the ASC to carry out the Investigation by providing the following services:
(a) reviewing all documents obtained by the ASC and advising the ASC whether further searches and enquiries for documents should be pursued;
(b) preparing for and conducting an examination of relevant persons pursuant to Division 2 of Part 3 of the ASC Law; and
(c) preparing reports to the ASC regarding the conduct of the examination and making recommendations as to the further conduct of the Investigation."
Clause 3 contained a statement to the effect that the ASC intended to conduct the investigation diligently and as quickly as reasonably practicable and in accordance with its duties and obligations under the ASC Law. The clause also stated that the ASC was at all times to control and direct the investigation. Clause 4 provided that the ASC would not be responsible for payment of the consultants' costs and expenses. These were to be payable out of Geneva's assets. By cl 11 the consultants bound themselves not to disclose any material relating to the investigation, without the prior written approval of the ASC. The same clause also provided for the giving of written undertakings not to disclose confidential information. Clause 12 of the Consultancy Agreement dealt with the issue of conflict of interest. It provided:
"12.1 The Consultant warrants that, at the date of signing this contract, no conflict of interest exists or is likely to arise in the performance of its obligations under this Contract. If, during the term of this contract a conflict or risk of conflict of interest arises, the Consultant undertakes to notify the ASC immediately in writing of that conflict or risk."
In January and February 1992 the ASC issued notices under s 30 of the ASC Law requiring one of the appellants to deliver up certain specified documents relating to Geneva. Those notices were complied with. Later in February the ASC issued notices to certain of the appellants and also some employees of Horwath & Horwath requiring them to attend for the purpose of examination under s 19 of the ASC Law in relation to the affairs of Geneva. Those examinations took place in March. The examinees were represented by Mr K J Martin of Counsel. The examinations were presided over by Mr Anthony O'Connor, an officer of the ASC. His Honour considered that Mr O'Connor was the "inspector" referred to in s 20 and subsequent sections of Div 2 of Pt 3 of the ASC Law. Mr Christensen questioned the examinees. Mr Quigley and an employee of his firm were also present, as were officers of the ASC. Transcripts of the examinations were made.
Neither Mr Quigley nor Mr Christensen charged the ASC for their services. Their costs and expenses were paid out of the proceeds of some of the realised assets of Geneva.
On 3 and 9 April 1992 Mr Quigley wrote to the ASC requesting it to exercise its powers under s 25(1) and (3) of the ASC Law to release to him copies of * the transcripts;
* the appellants' working papers in respect of six specified audits between 31 December 1987 and 31 December 1989;
* the auditor's permanent file;
* the investigating accountant's work papers in relation to his reports contained in Geneva prospectuses 3 to 8, and
* certain other documents brought into existence as part of the performance of the consultant's duties under the Consultancy Agreement.
(All the foregoing were referred to by his Honour as "the Released Information".)
Later in April 1992 the ASC, without informing the appellants or any of the examinees of its intention to do so, released copies of the Released Information to Mr Christensen (under s 25(1)) of the ASC Law) and to Mr Quigley (under s 25(3)). Mr Quigley's stated purpose in asking for the release of the documents was to obtain legal advice on the question of suing Horwath & Horwath. He in fact used the Released Information for that purpose in obtaining advice from Mr Christensen, who in turn used the documents for giving that advice.
On 23 July 1993 Phillips Fox, on instructions from Mr Quigley, caused a writ to be issued out of the Supreme Court of Western Australia. The plaintiff was Geneva Finance Ltd (Receiver and Manager appointed). The present appellants together with another gentleman were the defendants. The writ has not yet been served but has been renewed from time to time. The endorsement on the writ is of a claim for damages against the defendants for * breach of duty of care owed in tort;
* breach of statutory duty under ss 158, 285-287 and other provisions of the Code by virtue of their appointment as auditors of the plaintiff;
* breach of contract; and
* misleading or deceptive conduct contrary to s 10 of the Fair Trading Act 1987 (WA)
All of the above were stated in the writ to be in relation to or arising from audits of Geneva's accounts and records by the defendants, advice given by the defendants to Geneva and advice given under the trust deed. Shortly thereafter the appellants became aware that the writ had been issued.
On 1 December 1993 the appellants' solicitors wrote to the ASC repeating an earlier request for copies of some of the transcripts and expressing concern that Mr Quigley's solicitors might have access to the transcripts. The letter concluded with a request for advice as to what steps had been taken to ensure that Mr Quigley's solicitors were not using the transcripts. The ASC replied by letter dated 24 December advising that the transcripts had been provided to the Receiver's solicitors in April 1992 pursuant to s 25 of the ASC Law and that the release was made "for the purpose of contemplated proceedings by the Receiver/Manager of Geneva Finance Ltd against your client". Further correspondence ensued. In about March 1994, at the ASC's request, Messrs Quigley and Christensen returned the Released Information to the ASC. On 12 May Messrs Quigley and Phillips Fox made a further application to the ASC for the re-release to them of the Released Information. On 13 July the ASC gave notice to the appellants and other examinees of this request and invited submissions as to whether the ASC should comply with it. A decision whether or not to re-release the Relevant Information has
not yet been made. On 31 October 1994 the appellants commenced the present proceeding.
III LEGISLATION
Section 1(2) of the ASC Law mandates certain objectives for the ASC. Relevantly it provides:
"(2) In performing its functions and exercising its powers, the Commission must strive:
(a) to maintain, facilitate, and improve, the performance of companies, and of the securities markets and futures markets, in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy;
(b) to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors;
(c) ...
(d) to administer national scheme laws effectively but with a minimum of procedural requirements;
(e) ...
(f) ....
(g) to take whatever action it can take, and is necessary, in order to enforce and give effect to national scheme laws."
Part 3 is headed "Investigations and Information-gathering". Division 1 of Pt 3 is headed "Investigations". Section 13 provides for certain types of investigations including:
"(3) Where the Commission has reason to suspect that a contravention of a relevant previous law of this jurisdiction may have been committed, the Commission may make such investigation as it thinks appropriate."
The Code is such a "relevant previous law".
The other types of investigation provided for in s 13(1) and (2) are predicated on the ASC having "reason to suppose" certain other contraventions (sub-s (1)) or unacceptable circumstances within the meaning of Pt 6.9 of the Corporations Law (sub-s (2)).
Section 14 gives the Minister power to direct investigations in certain circumstances. Section 16 provides that where in the course of investigation under the Div 1 of Pt 3 the ASC forms the opinion that a serious contravention has been committed or that to prepare an interim report about the investigation "would enable or assist the protection, preservation or prompt recovery of property", it shall prepare an interim report. Section 17 provides for final reports.
By s 18, reports under Div 1 of Pt 3 are to be provided to the Minister and, where they relate to a serious contravention of the law, the ASC may give a copy of the report to the Australian Federal Police, the National Crime Authority or the Director of Public Prosecutions. The Minister may cause the whole or part of a report to be published: s 18(4).
Division 2 of Pt 3 is headed "Examination of Persons". Section 19 provides for a notice requiring appearance for examination. By s 19(1) the section is to apply
"... where the Commission, on reasonable grounds, suspects or believes that a person can give information relevant to a matter that it is investigating, or is to investigate, under Division 1."
By s 19(3)(a) the notice is to "state the general nature of the matter referred to in sub-s (1)".
Sections 20 and 21 provide for procedures at examination, such as the taking of an oath or affirmation. The examination is to take place in private: s 22. The examinee's lawyer may attend (s 23) and a record is to be made of statements made at the examination. Section 25(1) provides:
"(1) The Commission may give a copy of the written record of the examination, or such a copy together with a copy of any related book, to a person's lawyer if the lawyer satisfies the Commission that the person is carrying on, or is contemplating in good faith, a proceeding in respect of a matter to which the examination related."
Section 25(3) provides:
"(3) The Commission may, subject to such condition (if any) as it imposes, give to a person a copy of a written record of the examination, or such a copy together with a copy of any related book."
Division 3 of Pt 3 contains provisions as to the inspection of books. "Books" is defined in s 5(1) to included:
"(a) a register;
(b) accounts, or accounting records, however compiled, recorded or stored;
(c) a document;
(d) banker's books; and
(e) any other record of information."
Section 50 falls within Div 5, "Proceedings after an Investigation". Section 49 provides that the Commission may cause a prosecution to be begun. Section 50 is as follows:
"50. Where, as a result of an investigation or from a record of an examination (being an investigation or examination conducted under this Part or a corresponding law), it appears to the Commission to be in the public interest for a person to begin and carry on a proceeding for:
(a) the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or
(b) recovery of property of the person;
the Commission:
(c ) if the person is a company - may cause; or
(d) otherwise - may, with the person's written consent, cause;
such a proceeding to be begun and carried on in the person's name."
Section 68(1) provides that for the purposes of Pt 3 the privilege against self-incrimination does not provide a reasonable excuse for failure to give information. But where a person claims the privilege, and the privilege would ordinarily exist, a statement made by a person is not evidence against that person in a criminal proceeding or proceeding for a penalty, except a proceeding in respect of the falsity of the statement. Thus incriminatory statements made by an examinee would be admissible in civil proceedings.
Section 89 provides that a person who, pursuant to a requirement under s 19, appears for examination is entitled to the prescribed allowances and the person's expenses, if any. Section 90 provides that subject to s 91, the Commission shall pay the expenses of an investigation. Section 91 deals with the recovery of costs from a person where that person is convicted of an offence or suffers a judgment begun as a result of an investigation under Div 1.
In Pt 6, "The Commission's Staff", s 121 provides:
"(1) The Commission may, on the Commonwealth's behalf, engage, under written agreements, as consultants to, or to perform services for, the Commission in connection with the performance or exercise of any of its functions or powers, persons having suitable qualifications and experience.
(2). The terms and conditions of engagement of persons engaged under subsection (1) are such as the Commission determines from time to time."
In Pt 7, "Preventing Conflicts of Interest and Misuse of Information", Div 1, "Disclosure of Interests " includes s 125 and 126:
"125(1) This section has effect where a person, in the course of:
(a) performing functions or services as a staff member (otherwise than as a person appointed or employed under the Public Service Act 1922 );
(b) performing a function, or exercising a power, as a Commission delegate; or
(c) performing functions or services by way of assisting a Commission delegate;
is required to consider a matter in which the person has a direct or indirect pecuniary or other interest that could involve a conflict with the proper performance or exercise by the person of those functions, services or powers.
(2) The person shall forthwith give to the Commission a written notice:
(a) stating that he or she is required to consider the matter and has an interest in it; and
(b) setting out particulars of the interest.
(3) The person shall do whatever is necessary to avoid the conflict referred to in subsection (1).
Penalty: 50 penalty units or imprisonment for 12 months, or both.
126. It is a defence to a prosecution of a person for a contravention of section 125 if it is established that when the person was required to consider the matter he or she was not aware of a fact or thing whose existence obliged him or her to comply with that section in relation to the matter."
Division 2 of Pt 7 is headed "Confidentiality". Section 127(1) provides the ASC shall take all reasonable measures to protect from unauthorised use or disclosure information given to it in confidence or in connection with the performance of its functions or the exercise of its powers under a national scheme or of this jurisdiction.
Section 127(2) provides that for the purpose of sub-s (1) the disclosure of information as required or permitted by a law of the Commonwealth or a prescribed law should be taken to be authorised use and disclosure of the information.
Turning to the Code, s 107 provides for liability for civil compensation for untrue statements or non-disclosure in a prospectus. In certain circumstances professional advisors such as auditors may be liable. Section 108 provides for corresponding criminal liability unless the person in question proves he believed on reasonable grounds that the statement was true or the non-disclosure immaterial. Section 285 imposes a duty on auditors to report on the company's accounts to the members. Under s 285(3) the report is to include an opinion as to whether the company's accounts are properly drawn up so as to give a true and fair view of the matters required by s 269 and are in accordance with provisions of the Code and applicable approved accounting standards.
Counsel for the ASC had argued that the relevant provisions of the Code were ss 107, 108 and 285. His Honour considered that s 107 in itself could not give rise to a contravention in the relevant sense but a reference to liability under s 107 would include contravention of s 108. As to s 285, his Honour noted that it had not been argued that, on the material before it, the ASC was precluded from having reason to suspect there had been a contravention of that provision.
The appellants' argument was that a substantial purpose in deciding to undertake the Geneva investigation was to assist Mr Quigley in his proposed negligence proceeding, in the sense that the Geneva investigation would not have been undertaken if the understanding with Mr Quigley had not been reached (see Thompson v Randwick Corporation [1950] HCA 33; (1950) 81 CLR 87 at 106). In rejecting this argument his Honour said:
"I am not satisfied on the evidence in this matter that in the absence of the alleged understanding with Mr Quigley, there would not have been a Geneva Investigation and more particularly that the applicants would not have been required to produce the documents under s 30 and attend the Geneva Examinations. In fact I am satisfied that even if the understanding had not been reached the Commission would have made the Geneva investigation and that on, the balance of probabilities, the applicants would have been required to produce those documents and attend the Geneva Examinations."
In reviewing the evidence in support of that finding his Honour referred to, amongst other things, the collapse of Geneva with a very large deficiency of assets, which received extensive coverage in the Western Australian financial press, and the formation of the debenture holders' group. His Honour accepted Mr Allen's evidence that the ASC would have conducted an investigation into the affairs of Geneva even if there had been no civil recovery prospects, and even if Mr Quigley had no real interest in participating in any further investigation. Mr Allen had not been cross-examined upon that evidence.
His Honour however went on to consider another purpose which, although not the sole purpose in the "but for" sense applied in Thompson v Randwick Corporation, could be a substantial purpose in that it played a material part in the making of the relevant decision. His Honour said:
"In that sense, I think it was one of the Commission's substantial purposes, not in deciding to make the Geneva Investigation, but when it decided to conduct the Geneva Investigation and the Geneva Examinations in the manner in which it did so - i.e. by appointing Messrs Quigley and Christensen as consultants, to accommodate their desire to examine the applicants in relation to Geneva's affairs. In my assessment, that purpose extended to the release of the Released Information to Mr Quigley and Mr Christensen if that could be done lawfully." (Emphasis in original)
His Honour held that the appellants had not established lack of a bona fide belief of the type required by s 13(3). There was no significant challenge to the proposition that the ASC, at the relevant time, had reason to suspect that a contravention of the Code may have been committed. The ASC in his Honour's view was fully justified in deciding to make an investigation into the affairs of Geneva which would include the matters of how the audit was carried out and how the accounting investigation was carried on for the purpose of preparing the investigation reports for the relevant prospectuses.
His Honour held that in accommodating Mr Quigley's desire to examine the appellants with a view to Supreme Court proceedings against them, the ASC did not exceed its power or take into account an irrelevant consideration. His Honour said:
"On the contrary, the Commission was advancing its statutory purposes to which I have referred above. The key factor in the collapse of Geneva was the irrecoverability of the loans, supposedly secured, which were made to entities associated with its directors. Ten such associated companies accounted for $31.4 million of those loans. In any investigation of Geneva's affairs the most obvious line of inquiry would be what steps, if any, the auditors took to check the ten largest loans in Geneva's loan portfolio, whether they had been made to related entities and, most importantly, what security had been taken. Mr Quigley had possession of Geneva's financial records and for nearly eighteen moths had been investigating its affairs. In deciding to take advantage of Mr Quigley's knowledge and experience and at the same time co-operate with him in the conduct of the Geneva Investigation and the Geneva Examinations, for a purpose which included as a substantial purpose assisting him in carrying on the proposed Supreme Court action, the Commission did not, in my view, either act beyond power or take into account an irrelevant consideration. My assessment of the facts is that the object of the Commission on the one hand (to make such investigation as it thought appropriate, having reason to suspect contraventions of a previous law) and Mr Quigley's object on the other hand (to obtain evidence in relation to the possible recovery by Geneva, and thus by the debenture holders, of its losses) were coincident objects."
(ii) Was the appointment of Quigley and Christensen invalid by reason of conflict of interest?
The appellants' case was that the engagement of Messrs Quigley and Christensen was inconsistent with ss 90, 125 and 127 of the ASC Law by reason of direct or indirect or actual or potential conflict of interest on their part. The conflict was said to arise out of Messrs Quigley and Christensen's duty to act in the interests of Perpetual and Geneva, the fact that payment for work they did was subject to authorisation by Perpetual, and that they would earn fees in connection with the proposed Supreme Court proceeding.
His Honour noted the terms of cl 12 of the Consultancy Agreement (see above). His Honour rejected the argument that a conflict arose because Messrs Quigley and Christensen had an interest in protecting Perpetual from adverse findings or consequences. He pointed out that Messrs Quigley and Christensen were obliged to investigate any breach of trust on the part of Perpetual, because to do so would be in the interests of the debenture holders. A receiver's primary duty is owed to the debenture holders through the trustee by whom he or she has been appointed: Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 at 86-87; Whelan v ASC (No. 2) (1994) 58 FCR 352 at 362-363. His Honour considered that insofar as the trust deed contained provisions requiring Mr Quigley to conform to Perpetual's directions, those directions would be construed as being lawful directions. A direction which in any manner fettered Mr Quigley (whether as Receiver and Manager or as Consultant to the ASC) from investigating or pursuing Perpetual would squarely conflict with Mr Quigley's equitable duties to the debenture holders and thus be unlawful in the sense of being inconsistent with a basic purpose of the trust deeds. His Honour thought that the fact that Messrs Quigley and Christensen might earn fees if the proposed Supreme Court proceedings were issued did not raise a relevant conflict of interest. If anything, those fees would provide a spur to Messrs Quigley and Christensen to bring to light the relevant information which might form the evidence to support the recovery proceedings. All of that coincided with the ASC's interests in investigating Geneva and conducting the examinations.
His Honour was satisfied on the evidence that the ASC made its own assessment of Perpetual's responsibility (if any) for Geneva's collapse. His Honour said:
"It was not a matter of Mr Quigley or Mr Christensen being in a position to shield (Perpetual)."
His Honour concluded that in the circumstances it was not necessary in order to avoid any alleged conflict that Mr Quigley and Mr Christensen decline an appointment as consultants or cease to act as Receiver and solicitor respectively. By ensuring that the ASC was fully aware of the circumstances, Mr Quigley and Mr Christensen had done what was necessary to avoid any conflict (even if there was, contrary to his Honour's basic finding, any interest that could involve a conflict).
(iii) Was the appointment of Quigley and Christensen inconsistent with s 127 of the SC Law?
His Honour accepted that information given to the ASC in the course of the Geneva investigation or the examinations would as a matter of law have been given to it in confidence: Johns v Australian Securities Commission (1993) 178 CLR 408 at 424, 435, 458-459, 467.
His Honour held that the provision of the Released Information to Messrs Quigley and Christensen was authorised by the Law itself and therefore there was no "unauthorised use or disclosure" within the meaning of s 127(1). His Honour considered that the expression "any related book" in s 25(1) would include all documents produced by the appellants to the ASC in relation to the Geneva investigation as well as notes made by Messrs Quigley and Christensen for the purpose of the Geneva investigation or the examinations.
(iv) Did the appointment of Quigley and Christensen contravene s 90 of the ASC Law?
His Honour followed the decision of Cooper J in Westpac Banking Corporation v Australian Securities Commission (1997) 15 ACLC 445 in holding that the term "expenses" in ss 90 and 91 is confined to moneys expended by a person or an obligation incurred by the person. It did not include sums which a person claims a right to charge against others for his own services. His Honour held that in the present case there were no relevant expenses because Messrs Quigley and Christensen agreed to provide their services free of charge. In any event, his Honour thought that s 90 is effectively an appropriation provision making payments of expenses lawful.
As to Messrs Quigley and Christensen, his Honour thought it reasonable to have an apprehension that they would bring a degree of bias into the framing of questions because a substantial part of their interest in examining the appellants was to ascertain whether a factual basis existed for the Supreme Court action. However, they were not in charge of the investigation or the examinations, nor did they make any relevant decisions which were required to be free from bias or any appearance of bias. Counsel appearing for the appellants at the examination did not object to any of the questions. There was no suggestion that the questions asked were relevant only to civil liability and not the suspected contraventions. His Honour accepted the evidence that the investigation was at all times under the control and direction of the ASC. The requirements of procedural fairness in the context of an inquisitorial hearing as identified by the High Court in National Companies and Securities Commission v News Corporation Ltd [1984] HCA 29; (1984) 156 CLR 296 had been satisfied.
(vii) Could Messrs Quigley and Christensen continue to act in relation to the Supreme Court Action?
His Honour rejected the contention that Messrs Quigley and Christensen's implied statutory obligation of confidence precluded them from using either the Released Information or any information which they retained in their memories. There was moreover no evidence that they would be unable to conduct the Supreme Court action without using any confidential information obtained from the ASC.
It was not suggested, nor could it be, that the circumstances of the Geneva collapse could not give reasonable grounds for suspicion of a contravention of the Code by the auditors. Indeed, the circumstances cried out for an investigation. The fact that at some earlier stage the ASC might have given some consideration to contravention of some other provision (eg s 129) by other persons (the directors) is not to the point. Nor is there any question whether an investigation commenced under s 13(3) on grounds of suspicion of a contravention of a particular provision may then expand at some later stage into an investigation of contravention of another provision. Nor are we concerned with a question whether an investigation under s 13(3), once commenced, can extend to other matters which are not necessarily connected with any contravention.
Once this particular investigation was launched in late 1991 it thereafter continued, as far as the evidence before his Honour disclosed, for the purpose for which it has been commenced, namely the investigation of possible breaches of ss 107 and 285 of the Code. (I record my agreement with his Honour that if s 107 itself does not involve "contravention", s 108 is necessarily included.) That being so, the appellants' case seems to reduce itself to a contention that the true purpose of the ASC was not to investigate contraventions of the Code but to assist Messrs Quigley and Christensen in relation to the proposed civil action. Such a conclusion would be totally contrary to the evidence.
Issues as to the validity of the Consultancy Agreement and questions of conflict of interest need to be considered on their merits. But there could be no question of improper purpose. The ASC in fact had reason to suspect a contravention of a relevant law by the auditors. Therefore its purpose in commencing the investigation was a proper one, indeed the very one contemplated by the statute, and one which it would have carried out in any event whether or not it entered into the Consultancy Agreement.
VI CONFLICT OF INTEREST
The existence of conflict does not go to the validity of appointment of consultants under s 121, still less to the validity of the establishment of an investigation under s 13(3). Section 125 necessarily assumes that a person is already validly appointed, is in the course of performing functions as a staff member, and is then "required to consider a matter" in which there is an interest that could involve a conflict. The obligation is then to give notice of that interest to the ASC under sub-s (2) and do what is necessary to avoid the conflict (sub-s (3)). The whole scheme of Div 1 of Part 7, as its heading indicates, is concerned with disclosure of interests. Under s 123 the Chairperson is to disclose interests to the Minister, under s 124 members of the ASC are to disclose interests to the Chairperson, under s 125 staff members (including consultants) and delegates are to disclose interests to the ASC.
What happens when such disclosure is made must depend on the circumstances. It is up to the recipient of the disclosure, the Minister, the Chairperson or the ASC as the case may be, to take such steps as are appropriate. For example, a person employed as a staff member or delegate might disclose that he or she owns some shares in a company that is connected with an investigation. The ASC might take the view that, having regard to the function being carried out by the person in question and the value of the shares, no real or actual conflict exists and that there is no reason why the person concerned should not continue to carry out his or her duties.
In the present case, I respectfully agree with his Honour's analysis of the standing of Messrs Quigley and Christensen vis-à-vis Perpetual and the debenture holders. In any case, this was a matter perfectly well disclosed to the ASC. The position of Messrs Quigley and Christensen as Receiver and Receiver's solicitor respectively was the only reason why they came into contact with the ASC in the first place.
Moreover the "matter" in s 125(1) which the staff member is "required to consider" before s 125 operates, is not necessarily coterminous with the extent of the investigation under s 13(3): cf MacDonald v Australian Securities Commission [1993] FCA 357; (1993) 43 FCR 466 at 471-472. An investigation may extend over many "matters", only one of which trigggers the operation of s 125.
VIII UNAUTHORISED DISCLOSURE
Again, even if it be theoretically possible that a breach of the ASC Law might occur in relation to future disclosure of information, the validity of the appointment of Messrs Quigley and Christensen is not affected. But in any event, I agree that no ground was made out before his Honour to establish that such a breach would occur. There is no justification in reading "lawyer" in s 25(1) as meaning any lawyer in all the world, except one who happens to be a past or present staff member of the ASC. The whole point of s 25(1) is to enable the fruits of the ASC's compulsory examination to be made available for use in civil litigation in connection with the subject matter of such examination.
In my opinion "related book" in s 25(1) means a book which is related to the examination, rather than related to the written record. It would include documents produced as exhibits in the course of examination and indices and other notes relating to the examination. Practically speaking, the release of the Released Information is only anticipating the provision of what would be obtained on discovery in the Supreme Court proceeding.
VIII FREE SERVICES
Section 90 cannot be read so as to inhibit the ASC, in a proper case, obtaining the benefit of free services. The true purpose of s 90 is related to s 89 which deals with the entitlement of persons to examine under s 58 to have their expenses paid. Once the ASC Law prescribes a right to payment there is a corresponding need to provide who shall pay. Moreover, I agree with his Honour's view as to the meaning of the term "expenses".
IX APPREHENSION OF BIAS
Counsel for the appellants on the appeal argued that there was a reasonable apprehension of bias by reason of a pecuniary interest of the ASC. This pecuniary interest was said to arise because the ASC wanted Messrs Quigley and Christensen to conduct, without cost to the ASC, examinations of persons other than the appellants in relation to potential criminal charges in which Quigley and Christensen had no private interest and in respect of which the ASC was particularly interested. Thus it was in the interests of the ASC to ensure that Quigley and Christensen achieved their objects in relation to the examination of the civil liability of the appellants as auditors, in order that they might examine other persons at no cost to the ASC. In essence the complaint seems to be that the ASC was offering a kind of package deal: "We will appoint you as consultants, clothed with statutory powers, so that you can investigate the people that interest you and the people that interest us."
This argument fails at the outset because it implicitly assumes, contrary to the fact, that the ASC had no interest in the examination of the appellants and other Horwath & Horwath personnel.
Further, it was said that the fact that the ASC was prepared unlawfully to engage as "staff members" persons who were affected by a conflict of interest and would ask "biased questions" of the auditors was itself sufficient to give rise to reasonable apprehension of bias on the part of the ASC. This contention of course must fail once it is accepted, as I do, that there was in truth no conflict on the part of Messrs Quigley and Christensen, for the reasons already discussed.
In any case, the complaint of bias fails at a more fundamental level. The principle that decisions affecting rights or legitimate expectations should not be made by a decision-maker who is biased finds its source in one of the two great rules of natural justice: Nemo debet esse iudex in propria causa (A judge should not hear his own cause). It is the other great rule: Audi alteram partem (Both sides must be heard) that gives rise to the sort of issue dealt with in NCSC v News Corporation and Annetts v McCann [1990] HCA 57; (1990) 170 CLR 596.
But questions of bias can have little room for application in the context of a statutory investigative procedure whose raison d' être is the formation of a suspicion by the investigating body. In Karounos v Corporate Affairs Commission (SA) (1989) 15 ACLR 363 King CJ was concerned with an investigation by the NCSC under s 16A of the Companies (SA) Code and a consequent hearing under s 7 of the NCSC (State Provisions) Act (1981 (SA). Those provisions are for present purposes directly analogous to a s 13(3) investigation and a hearing under Div 2 of Pt 3 of the ASC Law. King CJ said (at 367):
"Mr McNamara also argued that observance of the rules of natural justice required that the hearing be conducted by a person or persons other than those who were engaged in the ground work of the investigation. The investigation is founded on a reasonable suspicion of the commission of an offence, which must have been the suspicion of Moen and Tank. They have pursued the investigation to the point at which they have decided upon a hearing. It was submitted that for Moen and Tank to preside over the hearing placed them in the position of both prosecutor and judge. I think that this argument misconceives the nature of a s 16A investigation and s 7 hearing. As explained in the passages cited above, the hearing cannot result in any determination of rights or of legal liability or any resolution of issues. It is purely investigatory in character. There is no judicial or quasi-judicial role to be performed at such a hearing and no question of the investigators being judges in their own cause."
In Clements v Bower (1990) 2 ACSR 573 at 582 Neasey J (with whom Cox J agreed) cited that passage with approval. In my opinion, it is equally applicable in the present case.
It might be added that the appellants' argument presents a paradox. The worse the conduct that comes to the attention of the ASC, the stronger would be its suspicion of contravention, yet at the same time the greater would be the apprehension of bias and the more likely a conclusion that no investigation could be lawfully carried out.
Moreover, I must say I have some difficulty with the concept of "biased questions". A question asked by a cross-examiner will very often suggest that the cross-examiner's instructions are that a particular answer can be the only truthful answer. In that sense it might be said that the questioner has a pre-conceived notion as to what the answer should be and thus is "biased". But where the questioner is simply a lawyer fulfilling the professional function of cross-examining a witness, as distinct from a maker of a decision on an issue affecting the rights of a person, there can be no suggestion of bias in any sense which might vitiate the proceedings.
To the extent that questions are improper, oppressive or unfair, such as for example questions containing unproved assumptions of fact, the examinee's lawyer can object. There is no suggestion that problems of this kind arose in the present case.
X A PERSON'S LAWYER - S 25(1)
On the appellants' argument the expression "person's lawyer" in s 25(1) means any lawyer in the world except one who happens to have been appointed as a consultant for the ASC in relation to matters with which the proposed proceeding is connected.
Like his Honour, I see no reason for reading down the language of the statute. Such a construction is quite inconsistent with the explicit recognition in the ASC Law of civil recovery proceedings: see especially s 1(2)(b) and s 50 and s 25(1) itself.
XI QUIGLEY AND CHRISTENSEN AND THE SUPREME COURT ACTION
The claim of the appellants is that Messrs Quigley and Christensen should be enjoined from continuing to act in the civil proceeding brought on behalf of Geneva because in performing their public functions as "staff members" they have acquired confidential information regarding the affairs of the appellants and are not permitted to use that confidential information on behalf of any person other than the ASC. It was said that under s 127 the ASC was obliged to prevent the unauthorised use of confidential information which is obtained in the performance of functions.
For the reasons already mentioned the disclosure of information was, by virtue of s 25(1), not unauthorised.
XII THE CONSULTANCY AGREEMENT
The foregoing deals with the specific issues raised on the appeal. In essence, however, the appellants' case was that the various legal defects complained of all flowed from the Consultancy Agreement which was said to be "an unusual pact" and one which the ASC Law did not contemplate.
It is neither necessary nor desirable to express any general view as to whether, as a matter of administrative propriety, regulatory agencies can or should accept free services as an aid in the exercise of statutory investigative or other powers in a way which might benefit the provider of the services.
However, the Consultancy Agreement in the present case, in the specific context of the ASC Law, seems to me quite consistent with the purpose of the Law and the objectives of the ASC as prescribed by s 1(2). Where money has been lost in corporate collapses, recovery proceedings against directors and auditors can be very lengthy and expensive. It is plain that the ASC Law sees recovery as an important objective; nb particularly ss 25 and s 50. As Div 5 of Pt 3 makes clear, proceedings after investigation may be either criminal (s 49) or civil (s 50) and in the latter case the Commission has as it were a statutory right of subrogation to commence an action, where the plaintiff is a company, in its name and without its consent.
It seems to me entirely consistent with that statutory structure that in the present case the ASC and the Receiver should mutually assist each other. The Receiver had already acquired detailed knowledge of Geneva's affairs. The ASC had statutory powers. It would be absurdly wasteful if the Receiver were to pursue independently his own investigations, including examinations under statutory power. The ASC Law has specific provisions to deal with confidentiality and conflict of interest.
XIII ORDERS
The appeal should be dismissed with costs, including reserved costs.
|
I certify that this and the preceding twenty-six (26) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice Heerey |
Associate:
Dated: 8 January 1998
|
Counsel for the Applicant: | Mr N Young QC with Mr A N Siopis |
| Solicitor for the Applicant: | Hunt & Humphry |
| Counsel for the first Respondent: | Regional Counsel Western Australia |
| Solicitor for the second to
fifth respondent: | Mr P G Hely QC with Mr J Ley |
|
Solicitor for the second to fifth respondent: |
Tottle Christensen |
| Date of Hearing: | 13 October 1997 |
| Date of Judgment: | 8 January 1998 |
IN THE FEDERAL COURT OF AUSTRALIA
PERTH DISTRICT REGISTRY WAG 71 of 1997
ON APPEAL FROM A DECISION MADE BY JUSTICE CARR OF THE FEDERAL COURT OF AUSTRALIA
|
BETWEEN: | ALAN HAROLD BOYS, RONALD GEORGE HOWARD, DESMOND FRANK CRAWLEY, ANTHONY HAYES DOUGLAS-BROWN, ANTHONY HOWARD LEIBOWITZ
APPELLANTS |
|
AND: | AUSTRALIAN SECURITIES COMMISSION
First Respondent
ERNST & YOUNG (A FIRM) Second Respondent
PHILLIPS FOX Third Respondent
PETER REYMOND QUIGLEY Fourth Respondent
KEVIN LEE CHRISTENSEN Fifth Respondent |
JUDGES:
FRENCH, HEEREY & MERKEL JJ DATE: 8 january 1998 PLACE: PERTH
I have had the benefit of reading the draft reasons for judgment of Heerey J and agree that the appeal should be dismissed with costs, including reserved costs, for the reasons given by his Honour.
There are, however, two specific matters with which I wish to deal. The first relates to the view expressed by the learned trial judge as to the nature and extent of an investigation made pursuant to s 13(3) of the Australian Securities Commission Act 1989 (Cth) ("the ASC Act"). The trial judge agreed with the following views of Drummond J in Australian Securities Commission v Lucas [1992] FCA 234; (1992) 36 FCR 165 at 180-181:
"Under s 13(3), provided the Commission has reason to suspect that a contravention of the relevant previous law may have been committed, there is no express limit on the investigation the Commission may make, other than it must be "such investigation as it thinks appropriate". The subsection does not, in terms, confine the permitted investigation to an investigation into the suspected contraventions.
......
There is no justification for reading s 13(3) down to limit the scope of the investigation to an investigation into the particular contraventions of a relevant previous law which the Commission has reason to suspect may have been committed."
The trial judge then observed that as the investigatory powers of the ASC were extremely wide, once the precondition relating to suspicion is satisfied, the ASC was quite properly advancing a number of its statutory purposes in determining to conduct the Geneva Investigation. His Honour concluded, inter alia, that:
"My assessment of the facts is that the object of the Commission on the one hand (to make such investigation as it thought appropriate, having reason to suspect contraventions of a previous law) and Mr Quigley's object on the other hand (to obtain evidence in relation to the possible recovery by Geneva, and thus by the debenture holders, of its losses) were coincident objects."
Section 13(3) provides:
"Where the Commission has reason to suspect that a contravention of a relevant previous law of this jurisdiction may have been committed, the Commission may make such investigation as it thinks appropriate."
In my view it should now be taken to be established that s 13(3) limits the scope of an investigation made under the subsection to the matter the subject of the investigation which is whether a contravention of the kind to which the section is directed may have been committed: see Australian Securities Commission v Graco (1991) 29 FCR 491 at 497-8 per Jenkinson J; Johns v Connor [1992] FCA 193; (1992) 35 FCR 1 at 11-13 per Lockhart J; Johns v Australian Securities Commission (1992) 35 FCR 146 at 166-168 per Black CJ and von Doussa J, and MacDonald v Australian Securities Commission [1993] FCA 357; (1993) 43 FCR 466 at 469-472 per Davies J. It would appear that the trial judge was not referred to these cases in relation to s 13(3).
In Johns v Australian Securities Commission Black CJ and von Doussa J said in respect of a s 13(3) investigation:
"However [the] investigations must relate to the question whether there may have been a contravention of the previous law of the kind suspected : see Johns v Connor [1992] FCA 193; (1992) 35 FCR 1 at 11. If in the course of those investigations the ASC comes to suspect that contraventions of other provisions of the previous law may have been committed the ASC may make such investigation as it thinks appropriate into those matters also, but there is no suggestion that this occurred in the present case. Investigations of the possible contraventions identified by Ms Megay in her memorandum of 13 December 1990 would not empower her to embark on so wide an investigation as that described in the notices requiring appearance at examinations served on Mr Johns and others, that is, to quote from the notices, `an investigation of the activities of the Tricontinental group of companies for the years 1985 to 1990 inclusive'." (at 167)
and:
"A matter into which investigation is made under s 13 will be the possible contravention of a specific law and a proper description of that matter in a notice given under s 19 will usually include a reference to that law." (at 168)
The apparent conflict between Lucas and the two Johns decisions was considered by Davies J in MacDonald v Australian Securities Commission at 469-472. Davies J was of the opinion that he must apply the obiter remarks set out above of Black CJ and von Doussa J approving the judgment of Lockhart J in Johns v Connor and of Jenkinson J in Graco. In these circumstances Davies J, (at 470 and 472), regarded Lucas as a decision on its own facts and on the submissions put to the Court in that case.
In my view, as the decisions in Graco, MacDonald and the two Johns cases demonstrate, it is clear from the scheme of the ASC Act that an investigation under s 13 (3) is to be in respect of the "matter" the subject of the investigation: see ss 13(5), 19(1), 21(3).
Section 13(3) empowers the Commission to "make such investigation as it thinks appropriate". That power gives the Commission a broad discretion as to the manner in which it will investigate the matter the subject of the investigation. But, in doing so the Commission cannot enlarge the scope of the investigation beyond the matter ie, whether "a contravention of the kind to which the section is directed may have been committed": see Johns v Connor at 12 and Johns v Australian Securities Commission at 167-168. The definition of the "matter" being investigated under s 13(3) is also not to be enlarged by, and is to be distinguished from, the purpose to which the fruits of the investigation may be applied. It is in the latter area that the issue of, inter alia, a prosecution for a contravention, disciplinary proceedings or of assisting others in the conduct of proceedings (eg under ss 25(1) and 50) arises.
There are additional reasons for confining the Commission's conduct of the investigation to the "matter" the subject of the investigation. I will attempt to briefly state them:
1. The Commission is able to use substantial intrusive and coercive power under the ASC Act in conducting the investigation. If Parliament intended that once triggered, the investigatory power under s 13(3) was to be co-extensive with the statutory purposes of the Commission under the Act or with some other purpose which was not associated with investigating the suspected contravention or contraventions, it could be expected that it would have said so in clear and unambiguous language: see Bropho v State of Western Australia [1990] HCA 24; (1990) 171 CLR 1 at 17-18 and Coco v R [1994] HCA 15; (1993) 179 CLR 427 at 438.
2. A contextual limitation is provided by s 13(3) itself. As the power to conduct the investigation is enlivened by the suspicion of a contravention, in my view it is implicit that the ensuing investigation will be for the purpose of ascertaining whether the suspected contravention may have occurred. Accordingly, there must always be an appropriate nexus between the suspected contravention and the investigation conducted pursuant to the sub-section. As was said recently by von Doussa and Sundberg JJ in National Crime Authority v A1 (1997) 145 ALR 126 at 145, in respect of an investigation pursuant to a reference under the National Crime Authority Act 1984 (Cth):
"The NCA should not be regarded as outside its charter so long as it bona fide seeks to establish a relevant connection between certain facts and the subject matter of the reference, and that connection is one that is reasonably capable of being related to the purpose for which the power is conferred."
Similarly, under s 13(3) the Commissioner has broad powers to conduct the investigation as it thinks appropriate so long as it seeks, bona fide, to establish a relevant connection between the facts it is investigating and "the matter" the subject of the investigation.
3. The Commission can enlarge the "matter" being investigated under ss 13(3) by forming a suspicion in respect of other contraventions. Further, the other investigatory powers conferred in broader terms under ss 13(1) and 14 afford no reason to take a broad view of the more restricted investigatory powers in respect of the previous relevant laws under s 13(3).
4. In Lucas at 180-181 Drummond J proferred several reasons for his view of s 13(3) including indications in the ASC Act that the investigatory power may be performed for any of the general regulatory functions of the Commission under the Act: see ss 1(2) and 17. In my view the factors referred to in Graco, the two Johns cases, MacDonald and in my reasons above, either answer the reasons put forward by his Honour or provide compelling countervailing reasons for a more restrictive approach to the scope of the investigatory power conferred under s 13(3).
Notwithstanding my differing view on the scope of the investigatory power under s 13(3) that difference did not result in any of the conclusions ultimately arrived at by the trial judge being erroneous. The reason for that is three fold. First, as was said by Heerey J:
"Once this particular investigation was launched in late 1991 it thereafter continued, as far as the evidence before his Honour disclosed, for the purpose for which it has been commenced, namely the investigation of possible breaches of ss 107 and 285 of the Code. (I record my agreement with his Honour that if s 107 itself does not involve "contravention", s 108 is necessarily included). That being so, the appellants' case seems to reduce itself to a contention that the true purpose of the ASC was not to investigate contraventions of the Code but to assist Messrs Quigley and Christensen in relation to the proposed civil action. Such a conclusion would be totally contrary to the evidence."
Secondly, the Geneva Investigation was to be confined to the matter arising under s 13(3). However, the broad powers conferred on the Commission under the Act as to the manner in which it was to conduct the investigation and later to exercise its statutory powers in respect of any proceedings that might arise out of the investigation, amply justify the conclusions at which the trial judge arrived in relation to the coincidence of the objectives of the Commission and Messrs Quigley and Christensen in relation to the Geneva Investigation and the Geneva Examinations.
Thirdly, the "matter" capable of being investigated under s 13(3) was restricted to the contraventions actually suspected by the Commission which in respect of the auditors were, relevantly, contraventions of ss 107, 108 and 205. That limitation in my view reinforces, rather than detracts from, the trial judge's conclusions as to the coincidence of the objectives of the Commission and Messrs Quigley and Christensen. For example, the limited nature of the s 13(3) investigation meant that it was to relate to the issues of real concern to the Commission and Messrs Quigley and Christensen in relation to the role of the auditors in respect of particular audits and reports. Further, the issue of whether Perpetual Trustees W.A. Ltd might be investigated was hypothetical as no relevant suspicion had been formed under s 13(3) in relation to it.
Accordingly, no appealable ground of error arises as a result of the trial judge's view of s 13(3).
The second matter with which I wish to deal relates to the problem inherent in the Commission using services provided by private interests free of charge for the purposes of the exercise of its statutory powers under the ASC Act. For the reasons given by Heerey J, I agree that the employment of Messrs Quigley and Christensen under the Consultancy Agreement was not unlawful. However the facts of the present case are special. It was consistent with the statutory functions of the Commission and was clearly in the public interest that the Commission and Messrs Quigley and Christensen co-operate in the lawful exercise of their respective powers. That co-operation would include taking appropriate steps in respect of conduct which may have led to 2,600 debenture holders being owed $34.7 million after the collapse of Geneva Finance Limited.
I also agree with the observation of Heerey J that:
"It is neither necessary nor desirable to express any general view as to whether, as a matter of administrative propriety, regulatory agencies can or should accept free services as an aid in the exercise of statutory investigative or other powers in a way which might benefit the provider of the services."
However, I would observe that the acceptance by a regulatory agency of free services in the circumstances referred to by Heerey J can be fraught with difficulty and should only occur after careful consideration has been given to taking appropriate steps to ensure that there is no conflict of interest or duty or appearance of partiality involved.
|
I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice
Merkel |
Associate:
Dated:
|
Counsel for the Applicants: | Mr N Young QC with |
| Mr A N Siopis | |
| Solicitor for the Applicants: | Hunt & Humphry |
| Counsel for the First Respondent: | Mr J Gilmour QC
with Mr M D Howard |
| Solicitor for the First Respondent: | Regional Counsel Western Australia |
| Counsel for the Second to Fifth Respondents: | Mr P G Hely QC with
Mr J Ley |
| Solicitor for the Second to Fifth Respondents: | Tottle Christensen |
| Date of Hearing: | 13 October 1997 |
| Date of Judgment: | 8 January 1998 |
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