ASIC v Edwards [2005] NSWSC 1278 | Case summary

1 On 24 August 2005 I delivered a judgment in which I made findings that the defendant had contravened s.588G(2) of the Corporations Act 2001 (Cth) in that he did not prevent the incurring by Murray River Ltd of each of several debts referred to at paragraph 16 of that judgment. I said in the judgment that the court was therefore required by s.1317E(1) to make a declaration of contravention in respect of each of the debts. In the events that afterwards happened, there was some little delay in the formulation and making of the declarations. The declarations were ultimately made on 28 October 2005. Soon after delivery of judgment on 24 August, a hearing on penalty was appointed for today, 8 December, and tomorrow, 9 December. Both days were set aside for the purpose. 2 A few days ago, the defendant notified both ASIC and my associate of an intention to seek a stay of the hearing on penalty. That application has been made orally this morning and I have I have heard submissions from Mr Loiterton, on behalf of the defendant, and Mr McInerney, on behalf of ASIC. 3 The defendant puts forward two basic propositions in support of the proposition that the hearing on penalty should not take place pending determination of an appeal against the making of the declarations of contravention. A notice of appeal has been filed and it is submitted, and I accept, that I should, for the purposes of the present application, assume that there are reasonably arguable grounds of appeal: Park v Brothers [2003] NSWSC 1054; Illawong Village Pty Ltd v State Bank of New South Wales[2005] NSWSC 524. I approach the matter from that perspective. 4 The first of the two matters put forward by the defendant is that he will suffer prejudice and embarrassment in having to make submissions on penalty unless and until perceived errors in my findings have been rectified on appeal. The submission is, in essence, that the defendant, in addressing the question of penalty, should only be required to deal with the results of the appeal, assuming that the appeal is successful to some extent, but not to the full extent of causing the declarations of contravention to be set aside. The defendant says that he should not be forced to deal with the findings as they currently exist. 5 The second matter to which the defendant refers is prejudice that will accrue to him if a an order disqualifying him from being involved in the management of corporations is made, that being one of the orders ASIC has indicated it will seek. He puts that, I think, at two levels: first, as to the effect of any disqualification order itself upon the permitted scope of his future activities; and, second, as to publicity that a disqualification order would likely attract with the possibility of unfavourable consequences for him. 6 The application for a stay of the hearing on penalty is opposed by ASIC. It describes the application as both too late and too early and submits that the balance of convenience is, in any event, against the grant of a stay. ASIC agrees that I should approach the question on the assumption that there are reasonably arguable grounds of appeal. 7 ASIC's submission that the application is too early has regard to the operation of the relevant provisions of the Corporations Act. To this point, declarations under s.1317E(1) have been made. But such declarations do not, of themselves, have any consequence under the Act. They are really a foundation for final orders of one kind or another that the court is empowered to make on the basis of a declaration of contravention. In that sense, ASIC says the present proceeding is incomplete and should be allowed to proceed to completion so that the appeal will be an appeal that can take into account not only the interim step of the making of declarations of contravention but also the final result of the proceedings. 8 In that connection, Mr McInerney, counsel for ASIC, has referred to analogies available in the criminal sphere. He has referred to the decision of the Victorian Court of Criminal Appeal in R v De Marchi [1983] 1 VR 619 where it was observed that, although it is possible for an appeal to be made against conviction before sentence is passed, such an appeal would only be entertained by the court in exceptional cases. The usual and preferable course, as described in that case, is for the court to entertain an appeal against conviction only after sentence has been passed. 9 In the non-criminal context of industrial relations law, a similar approach was taken by the Full Federal Court in Construction, Forestry, Mining and Energy Union v Hamberger [2001] FCA 1442. I quote paragraphs 17 to 19 of the joint judgment of Lee, Finn and Merkel JJ, where a statement of McInerney J in R v De Marchi is quoted with approval: " [17] It is well accepted practice in the case of appeals in criminal matters that, exceptional cases apart, all considerations of convenience point to the Court entertaining an application for leave to appeal against conviction only after sentence has been passed. As was indicated by McInerney J in R v De Marchi [1983] 1 VR 619 at 622: 'It is obviously more convenient to hear an application for leave to appeal against conviction in conjunction with an application for leave to appeal against sentence, if an appeal against sentence is instituted. In such a case, in the course of hearing the application for leave to appeal against conviction, the Court is ordinarily apprised of all or most of the facts which bear on the question of sentence. It can seldom be convenient to have the time of the Court wasted by having to go through the evidentiary material twice over, or to have an application for leave to appeal against sentence dealt with by a court other than that which dealt with the application for leave to appeal against conviction.' [18] Though the present is not a criminal matter, it is in our view sufficiently analogous in the circumstances in relation to the issue of leave to appeal as to warrant the adoption of a like approach for like reasons of convenience to those given by McInerney J. There was, in addition, no significant advantage to be secured, or detriment to be averted, in seeking to appeal prior to (rather than after) the making of an order on penalties. The course taken disrupted the intended finalisation of the matter. The foreshadowed appeal itself raised no issues of general importance. As we have noted, the challenge is to findings of fact and this in a setting where adverse credibility findings affected some of those findings. Even were we to assume that the trial judge's decision was wrong, no substantial injustice to the unions and officials concerned would result. They will remain able to appeal at the usual and proper time, ie when final orders are made on the determination of penalties. [19] The course that has been taken by the applicants is not one to be encouraged. We would refuse leave to appeal." 10 The submission that Mr McInerney has made to the effect that the stay application is too late is based on the fact that, as I have said, the hearing on penalty was appointed soon after the judgment of 24 August 2004 was delivered. The dates 8 and 9 December were fixed with the knowledge of the defendant and without opposition by him. A period of the order of three months, perhaps a little less, elapsed between the appointment of the hearing on penalty and the intimation that there would be an application for the hearing to be stayed. That brings into focus observations of Handley JA in Adler v Australian Securities and Investments Commission, an unreported judgment of 29 April 2002, at paragraphs 6 to 8: "6. In the events that have happened, 6 June has been fixed for the hearing of the leave application but no attempt was made to have the leave application heard as a matter of urgency before 6 May, or to have the present application heard before today. There has, in other words, been significant delay in launching and prosecuting this application. 7. Mr Walker points out that Mr Macfarlan QC in his submissions relied upon the fact that this application was both too late and premature and said that both cannot be right and he submits that the balance of convenience is in favour of granting this application. 8. A matter of concern to the Court is that if this application were to be granted and the hearing date for 6 May were to be vacated the result could be that the original hearing before Santow J would be followed by an appeal, followed perhaps by a further hearing presumably before Santow J, followed by a further appeal. This is always undesirable but in a proper case the Court can grant leave to appeal from an interlocutory decision if the balance of convenience favours that course. I do not suggest that the appeal lacks merit and I am in no position to form any judgment on that question as I have not read the lengthy judgment of Santow J." 11 In relation to the submission made by Mr Loiterton, on behalf of the defendant, that the defendant will suffer prejudice and embarrassment in having to deal with the question of penalty on the findings as they stand, rather than findings as they may be varied by the Court of Appeal, Mr McInerney says that what is, at this point, essentially an uncompleted proceeding should be completed on the basis of the existing findings and that, in reality, no embarrassment or prejudice arises from the necessity to complete that which is, at this point, incomplete. 12 In relation to the submission made by Mr Loiterton, on behalf of the defendant, that a disqualification order would be a matter of prejudice, both through its direct effect and through likely publicity, Mr McInerney says that much of that prejudice has already befallen the defendant. Mr McInerney referred to the judgment of Giles JA in Whitlam v Australian Securities and Investments Commission (2002) 43 ACSR 73 at paragraph 45, where it was said that the first instance findings in a case of a kind generally similar to the present had already adversely affected the relevant person. That comment was made by Giles JA in relation to both the findings by the trial judge as to contravention (that is to say, the point this matter has reached) and the disqualification order that, in that case, had already been made by the trial judge. Giles JA said that the harm to the reputation that was put forward as a ground for seeking a stay of the first instance decision pending appeal had already occurred. That is to the position here also. 13 In relation to the balance of convenience, Mr McInerney makes the point that there is no evidence that the defendant's livelihood is dependent upon his possessing the capacity to act as a company director or officer or to manage corporations and no evidence of adverse effects that would come from disqualification, other than the opprobrium that one might accept, even without evidence, as a consequence, albeit an opprobrium which, for the reasons I have just stated, has already attached. 14 Mr McInerney further says that, if a disqualification order were made, prejudice relating to particular activities or to a particular activity within the disqualification order could become the subject of an application under s.206G for an order permitting the exercise of the relevant functions in those particular circumstances, notwithstanding what would otherwise be the effect of a disqualification order. That is a possibility to which Giles JA referred in Whitlam v Australian Securities and Investments Commission (above). 15 Finally, there is the point that, should there be a disqualification order as a result of the hearing on penalty, there is nothing to prevent an application for a stay of that order pending appeal so that, at that point, any prejudice arising from the actual operation of the order could be appropriately reviewed by either the judge making the order or the Court of Appeal. 16 The submissions that have been made on behalf of ASIC satisfy me that no injustice will be done if the hearing on penalty proceeds as planned. The defendant will not be subjected to any relevant additional prejudice through that course which, in any event, involves the logical step of completing what is now an incomplete proceeding. 17 I do not accept that prejudice accrues to the defendant by reason of having to deal, on the question of penalty, with the findings of the court as they currently stand, rather than as they might be varied on appeal. The analogies with the criminal sphere and with the industrial relations matter to which I have referred are valid analogies. I would add that it is not unknown in civil cases, where a judge at first instance decides that a case for the award of damages has not been made out, for the unsuccessful plaintiff to persuade that judge that findings on quantum of damages should nevertheless be made so that a foreshadowed appeal on the question of liability can be a complete appeal dealing also, if necessary, with any quantum issue. 18 Considerations making it desirable that a complete proceeding be the subject of appeal prevail in this instance. I am not satisfied that completion of the proceeding by hearing of submissions on penalty and a decision on that matter in the normal way will entail relevant prejudice to the defendant. 19 The application for a stay of the hearing on penalty is therefore dismissed.

ASIC v Edwards

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Judgment (13 paragraphs)

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