ASIC v Farley & Anor

Supreme Court of NSW|2001-04-24|Before: Sperling J

Background 1 Mr Farley was charged on information, prosecuted by the Australian Securities and Investments Commission (ASIC), with market manipulation, contrary to s 998 of the Corporations Law. In particular, it was alleged that, on 23 March 1994, Mr Farley entered an offer to purchase 1000 shares in a listed company, intending to create a misleading appearance, namely, the appearance that there was buying support of the shares. 2 The proceedings were heard summarily by Ms L Horler, magistrate, sitting in the Local Court. On 23 June 2000, her Worship dismissed the information on the ground that the prosecution had failed to establish that Mr Farley's purpose in making the bid was to create a misleading appearance. 3 On 8 January 2001, her Worship made an order that ASIC pay Mr Farley's legal costs in the sum of $50,000. 4 It appears from her Worship's judgment in relation to costs that there was a review in the Administrative Appeals Tribunal (AAT) of an order banning Mr Farley from carrying on business as a stock broker for 4 years, and that the banning order was upheld in the AAT by Mr McMahon, Deputy President. The order was cumulative upon a de facto exclusion of Mr Farley from carrying on business as a stock broker for 3 years following the incident. 5 The order for costs was ostensibly made pursuant to s 81(4)(d) of the Justices Act. Section 81(4) provides as follows: 81(4) Costs are not to be awarded in favour of a defendant unless the Justice or Justices is or are satisfied as to any of the following: (a) that the investigation into the alleged offence was conducted in an unreasonable or improper manner, (b) that the proceedings were initiated without reasonable cause or in bad faith or were conducted by the prosecution in an improper manner, (c) that the prosecution unreasonably failed to investigate (or to investigate properly) any relevant matter of which it was aware or ought reasonably to have been aware and which suggested either that the defendant might not be guilty or that, for any other reason, the proceedings should not have been brought, (d) that, because of other exceptional circumstances relating to the conduct of the proceedings by the prosecution, it is just and reasonable to award costs. 6 By summons filed on 31 January 2001 ASIC, relevantly, claims an order in the nature of certiorari quashing the order for costs made by Ms Horler on 8 January 2001, and a further order that the matter be remitted to her to be determined according to law.

The judgment 7 In her judgment in relation to costs, her Worship recorded that the application for costs was made under s 81(4)(c) and (d). Paragraph (c) was held not to apply. The following is an extract from her Worship's judgment holding that Mr Farley was entitled to costs under para (d). "Let me say at the outset that I appreciate and agree with the remarks of the Attorney in the 2nd Reading speech quoted to me by the Respondent that 'the award of costs (under NSW law, my brackets) is regarded as a means of penalising or discouraging any improper or unreasonable behaviour on the part of the informant or the prosecution' (Hansard 10 April 1991 p1827). I also agree with the comment that the NSW law, before Latoudis , permitted 'local courts to depart from (the traditional rule that the Crown neither sought costs in criminal cases nor had them awarded against it)' by making costs orders where 'special circumstances so warranted without attempting the difficult task of defining what those special circumstances might be'. I also note that the learned Attorney General (now Justice Dowd) said 'Obviously, the fourth category is intended to read ejusdem generis with the first three categories and not to create an entirely different category for the awarding of costs'. . . . . . . However, I am equally unable to agree with the proposition, advanced on behalf of ASIC at #33 of Mr Hammerschlag's submissions, that the decision of Justice Woods in Fosse in quoting the language of s 81(4)(d) gave weight to the proposition that the subsection requires only matters relevant to the conduct of the criminal proceedings in question to be taken into account. . . . . . It is plain from the passages of the Deputy President's comments quoted to me, that the Bendigo bid was one crucial allegation which he found proved and grossly reprehensible. Apparently, so serious that, more than a year after the ASC's delegate's finding, when the Applicant has already endured a 3 year de facto barring from exercising his profession, it justified the affirmation of the ASIC delegate's 4 year banning order, not yet officially in place, resulting, as the Deputy President conceded, in an effective 7 year plus ostracism of Mr Farley from his profession and thitherto livelihood. These links in the various proceedings by the ASIC against Mr Farley, it seems to me, cannot be ignored, and the proceedings before me treated in isolation. The very fact of there having been both disciplinary and criminal proceedings brought by the one regulatory authority under 2 interrelated provisions, one criminal and one not, of the one piece of legislation, must in my view constitute exceptional circumstances, within the meaning of those words in s 81(4)(d). There is no comparison in this regard with the quite ordinary circumstances of the goods in custody prosecution which founded the appeal referred to in Fosse . Of course s 81(4)(d) does require an ejusdem generis construction with the other paragraphs of s 81(4). But to my mind this simply means that there must be some fault in the prosecution of some kind: unreasonableness, or impropriety or bad faith of some kind ...... in the conduct of the proceedings. There was, of course no impropriety or bad faith. But, very early on in the trial, I think in the opening, the learned Prosecutor, explaining how the Crown case depended on the construction of the relevant part of s 995 of the Corporations Law by the High Court in North , responded to my query as to whether there was any less illustrious guidance in the form of another result in an ASIC criminal prosecution told me that as he was instructed there had not been one though another was pending in the District Court. So, clearly, the Farley criminal prosecution was a test case. Given · the significant time delay in this prosecution under s 998, · the fact that it was conceded that the prosecution was asserting neither any financial gain to Farley, nor any actual effect on the market, · the severe penalty that Farley had already suffered and was still suffering as a result of an administrative decision and review based at least partly (and seemingly significantly: at least a de facto period of 3 years of exclusion from the industry) on the same set of facts, · the fact that that financial penalty was likely to have already cost the Applicant far more than the maximum financial penalty the Local Court could have imposed for a worst case scenario. It seems to me that the Respondent and/or ASIC could have been given due consideration to the likely practical consequences, both in costs and in penalty to the Applicant of the prosecution's maintaining these proceedings, even if successful at first instance, and unappealed, should they be defended. If it was thought to be significant in the public interest for the ASIC to obtain an authoritative Superior court decision on the applicability of North specifically in a criminal prosecution, some arrangement might have been considered as to costs. Conclusion It therefore seems to me that the criteria of s 81(4)(d) are met. There are relevant and exceptional circumstances, indicating not impropriety, nor bad faith, but in all the circumstances between the parties, a certain lack of appreciation by the prosecuting authorities of the significance to the Defendant of its seeming persecution of him, although already severely punished, for public interest reasons."

Is jurisdictional error necessary or will any error of law suffice? 8 Section 69 of the Supreme Court Act 1970 provides that this Court has power to grant relief in the nature of certiorari by judgment or order. Subsections (3) and (4), as introduced in 1996, provide as follows: "(3) It is declared that the jurisdiction of the Court to grant any relief or remedy in the nature of a writ of certiorari includes jurisdiction to quash the ultimate determination of a court or tribunal in any proceedings if that determination has been made on the basis of an error of law that appears on the face of the record of proceedings. (4) For the purposes of subsection (3), the face of the record includes the reasons expressed by the court or tribunal for its ultimate determination." 9 The phrase "error of law" is not limited to jurisdictional error. Accordingly, since 1996 but subject to other legislation, this Court has had power to grant relief in the nature of certiorari for any error of law that appears on the face of the record of the proceedings (which includes the reasons for determination of the court or tribunal concerned). That includes non-jurisdictional error. (See Hargrave v Slater [2000] NSWSC 387 per Davies AJ at [15] for what may be a contrary view.) 10 Section 69 was limited, in relation to determinations made before 1 March 1999, by a privative provision, s 146 of the Justices Act 1902 (now relevantly repealed). That section provided that no order of a justice could be removed by any order into the Supreme Court. (Section 146 also protected the appellate jurisdiction of the District Court in the same way.) The section was given a restrictive interpretation by the courts. It was held to be limited in its operation to determinations made within jurisdiction: Re Hateley [1965] NSWR 1061, A-G (NSW) v Dawes [1976] 1 NSWLR 242, Anderson v Judges of the District Court (1992) 27 NSWLR 701, Yisrael v District Court of NSW (1996) 87 A Crim R 63. 11 The result was that an order in the nature of certiorari could be made by this Court for jurisdictional error - and only for jurisdictional error - in relation to determinations of the Local Court made before 1 March 1999. 12 Section 146 was amended in 1999 by deleting reference to the determination of a justice, with effect in relation to determinations made from and including 1 March 1999. (The section continued to apply in relation to the District Court in its appellate jurisdiction). That left unfettered the jurisdiction of this Court to make an order in the nature of certiorari for any error of law, including non-jurisdictional error. That was then the position in relation to determinations of the Local Court made on or after that date. 13 Care has therefore to be taken in relation to decided cases. For example, Fosse v DPP & Anor [1999] NSWSC 367 relates to a determination of the Local Court made before 1 March 1999. Section 146 operated in that case to limit the ambit of certiorari. Section 146 does not apply in the present case, because the determination below was made after that date. 14 In the present case, there is jurisdiction in this Court to make an order in the nature of certiorari for any error of law, including non-jurisdictional error.

Was there error of law? 15 The considerations specified by the learned magistrate were such as to lead her to the conclusion that instituting and maintaining the prosecution against Mr Farley was unduly harsh to the point of apparent persecution, and that what had occurred constituted exceptional circumstances. 16 In relation to para (d), her Worship referred, in the course of her reasons, to the discussion in Fosse (supra). I set out here the passage from that decision which is relevant to the construction of s 81(4)(d) (at [34]): "[T]he defence had to establish something about the conduct of the proceedings being an 'exceptional circumstance' other than some matter mentioned in subsections (a)(b) or (c) of s 81(4), to make it just and reasonable for the plaintiff to have his costs. In that regard the mere fact that the proceedings were resolved in his favour was not enough. There had to be something in relation to the manner in which the proceedings were conducted that had led to it being just and reasonable for a costs order to be made." [My emphasis]

I agree with this construction of the legislation. 17 I have no problem with the her Worship's observation that the passage from Fosse does not confine attention to the criminal proceedings themselves. Earlier events may provide a context. If the complaint is one of conduct injurious to the defendant, the conduct may be a blow upon a bruise. The circumstances may therefore include prior events upon which the conduct of the criminal proceedings is cumulative. But for para (d) of s 81(4) to be attracted, the circumstances relied upon as making it just and reasonable to award costs must relate to the manner in which the criminal proceedings were conducted. 18 Significantly, the learned magistrate's reasons include a finding that the matters specified in her judgment constituted special circumstances but the judgment does not include a finding that those circumstances related to the conduct of the criminal proceedings. 19 The matters specified in the judgment as constituting exceptional circumstances did not relate to the manner in which the criminal proceedings were conducted. It was not open to the to learned magistrate to find that they did. Either her Worship failed to find a necessary condition for the operation of para (d) or - if the finding is implicit - it was not open to be so found. Either way, there was error of law.

Was there jurisdictional error? 20 I answer this question in case I am wrong in my view that s 69 operates in relation to non-jurisdictional error in this case. 21 The ambit of certiorari in its pristine form, absent statutory amplification or restriction, was discussed in the following terms in the High Court decision of Craig v South Australia (1995) 184 CLR 163, 177-8: "An inferior court falls into jurisdictional error if it mistakenly asserts or denies the existence of jurisdiction or if it misapprehends or disregards the nature or limits of its functions or powers in a case where it correctly recognises that jurisdiction does exist. Since certiorari goes only to quash a decision or order, an inferior court will fall into jurisdictional error for the purposes of the writ where it makes an order or decision (including an order or decision to the effect that it lacks, or refuses to exercise, jurisdiction) which is based upon a mistaken assumption or denial of jurisdiction or a misconception or disregard of the nature or limits or jurisdiction. Jurisdictional error is at its most obvious where the inferior court purports to act wholly or partly outside the general area of its jurisdiction in the sense of entertaining a matter or making a decision or order of a kind which wholly or partly lies outside the theoretical limits of its functions and powers. . . . . . . [A]n inferior court can, while acting wholly within the general area of its jurisdiction, fall into jurisdictional error by doing something which it lacks authority to do. . . . . . . Similarly, jurisdictional error will occur where an inferior court disregards or takes account of some matter in circumstances where the statute or other instrument establishing it and conferring its jurisdiction requires that that particular matter be taken into account or ignored as a pre-condition of the existence of any authority to make an order or decision in the circumstances of the particular case. Again, an inferior court will exceed its authority and fall into jurisdictional error if it misconstrued that statute or other instrument and thereby misconceives the nature of the function which it is performing or the extent of its powers in the circumstances of the particular case. In the last-mentioned category of case, the line between jurisdictional error and mere error in the exercise of jurisdiction may be particularly difficult to discern." [Emphasis added] 22 This statement of principle applies as much to a statute which only confers a jurisdiction (as in the present case) as it does to a statute which also establishes the court or tribunal (referred to in Craig). There is no material difference. 23 By finding that the matters specified in the judgment grounded an entitlement under s 81(4)(d) when it was not open to be found that they did, her Worship misconstrued the statute and thereby misconceived the extent of her powers in the circumstances of the case. That was a jurisdictional error.

Should relief be granted in the exercise of the Court's discretion? 24 It is submitted, on behalf of Mr Farley, that an order in the nature of certiorari should be refused on discretionary grounds, by reason of there having been a right of appeal available to ASIC. It appears that there was such an available right of appeal, pursuant to the Justices Act 1902, s 104(2) and s120, which would now be time barred. This Court may decline to exercise its jurisdiction to grant prerogative relief where an appeal was available: Meagher v Stephenson (1993) 30 NSWLR 736 at 738 - 739; Hill v King (1993) 31 NSWLR 654 at 656, 658 - 659. But that is not mandatory. I do not refuse relief on that ground in the circumstances of this case. An appeal pursuant to s 104 would have been preferable, but I think that the day has passed when rights were lost because of the form of proceedings. 25 If Mr Farley can demonstrate that costs have or will be unnecessarily incurred as a result of ASIC's choice of process, it may be that that should be reflected in an order in relation to costs. If no such argument is advanced and subject to anything else that may be said, Mr Farley should pay ASIC's costs of the present proceedings.

Conclusion and orders 26 Orders should be made pursuant to paras 1 and 3 of the summons. 27 The parties should bring in short minutes of order reflecting that determination and for any other orders said to flow from this judgment including as to costs. There will be an opportunity to speak to the minutes at a time to be appointed. - oOo -

Last Modified: 07/02/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : ASIC v Farley & Anor [2001] NSWSC 326 revised - 29/06/2001 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 10267/01 HEARING DATE(S) : 23 & 24 April 2001 JUDGMENT DATE : 1 May 2001

COUNSEL : Mr David Hammerschlag SC with Mr McGuire for the Plaintiff Mr Alexander Street SC for the Defendant SOLICITORS : Commonwealth Director of Public Prosecutions for the Plaintiff Garland Hawthorne Brahe Solicitors & Attorneys for the First Defendant CATCHWORDS : Certiorari - costs in criminal proceedings - whether certiorari available for any error of law or only jurisdictional error in relation to a decision of the Local Court in criminal proceedings - whether jurisdictional error - whether error of law - discretion to grant certiorari where available appeal Corporations Law s998 LEGISLATION CITED : Justices Act s81, s104, s120, s146 Supreme Court Act s69 A-G (NSW) v Dawes [1976] 1 NSWLR 242 Anderson v Judges of the District Court (1992) 27 NSWLR 701 Craig v South Australia (1995) 184 CLR 163 Fosse v DPP & Anor [1999] NSWSC 367 CASES CITED : Hargrave v Slater [2000] NSWSC 387 Hill v King (1993) 31 NSWLR 654 Meagher v Stephenson (1993) 30 NSWLR 736 Re Hateley [1965] NSWR 1061 Yisrael v District Court of NSW (1996) 87 A Crim R 63 DECISION : 1. An order in the nature of certiorari quashing the order of the Second Defendant of 8 January 2001; 2. The matter is remitted to the Second Defendant to be determined in accordance with the law.

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